Edgar Filing: CORAM HEALTHCARE CORP

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

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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 MARCH 31, 2002

[ ] 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

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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.)

1675 Broadway
Suite 900
Denver, CO 80202
(Address of principal executive offices) (Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (303) 292-4973

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

The number of shares outstanding of the Registrant's Common Stock, $.001 par
value, as of May 17, 2002 was 49,638,452.

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PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

MARCH 31, DECEMBER 31,
2002 2001
----------- ------------
(UNAUDITED)

ASSETS
Current assets:
Cash and cash equivalents .......................................... $ 16,709 $ 21,339
Cash limited as to use ............................................. 351 269
Accounts receivable, net of allowances of $19,532 and $19,457 ..... 96,296 88,567
Inventories ........................................................ 12,093 13,557
Deferred income taxes, net ......................................... 221 178
Other current assets ............................................... 4,037 4,823
--------- ---------
Total current assets ......................................... 129,707 128,733
Property and equipment, net .......................................... 14,090 15,030
Deferred income taxes, net ........................................... 868 719
Other deferred costs and intangible assets, net (See Note 1) ......... 5,653 6,270
Goodwill, net (See Note 1) ........................................... 180,871 180,871
Other assets ......................................................... 4,986 4,843
--------- ---------
Total assets ................................................. $ 336,175 $ 336,466
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities not subject to compromise:
Accounts payable ................................................... $ 24,959 $ 24,142
Accrued compensation and related liabilities ....................... 22,748 26,349
Current maturities of long-term debt ............................... 60 60
Income taxes payable ............................................... 358 316
Deferred income taxes .............................................. 654 462
Accrued merger and restructuring costs ............................. 448 583
Accrued reorganization costs ....................................... 8,181 7,742
Other accrued liabilities, including interest payable .............. 6,278 6,236
--------- ---------
Total current liabilities not subject to compromise .................. 63,686 65,890
Total current liabilities subject to compromise (See Note 2) ......... 139,044 139,044
--------- ---------
Total current liabilities ............................................ 202,730 204,934
Long-term liabilities not subject to compromise:
Long-term debt, less current maturities ............................ 131 150
Minority interests in consolidated joint ventures and
preferred stock issued by a subsidiary .......................... 6,414 6,290
Income taxes payable ............................................... 18,142 17,784
Other liabilities .................................................. 1,901 1,901
Deferred income taxes .............................................. 435 435
Net liabilities of discontinued operations ......................... 26,783 26,783
--------- ---------
Total liabilities ............................................ 256,536 258,277

Commitments and contingencies

Stockholders' equity:
Preferred stock, par value $.001, authorized
10,000 shares, none issued ...................................... -- --
Common stock, par value $.001, 150,000 shares
authorized, 49,638 shares issued and outstanding ................ 50 50
Additional paid-in capital ......................................... 427,353 427,353
Accumulated deficit ................................................ (347,764) (349,214)
--------- ---------
Total stockholders' equity ................................... 79,639 78,189
--------- ---------
Total liabilities and stockholders' equity ................... $ 336,175 $ 336,466
========= =========

See accompanying notes to unaudited condensed consolidated financial statements.

CORAM HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

THREE MONTHS ENDED
MARCH 31,
---------------------
2002 2001
--------- --------

Net revenue ............................................................... $ 101,982 $ 94,746
Cost of service ........................................................... 74,301 69,498
--------- --------
Gross profit .............................................................. 27,681 25,248
Operating expenses:
Selling, general and administrative expenses ............................ 21,020 20,676
Provision for estimated uncollectible accounts .......................... 3,118 2,904
Amortization of goodwill ................................................ -- 2,424
Restructuring cost recovery ............................................. (13) (562)
--------- --------
Total operating expenses .......................................... 24,125 25,442
--------- --------

Operating income (loss) from continuing operations ........................ 3,556 (194)
Other income (expense):
Interest income ......................................................... 85 458
Interest expense (excluding post-petition contractual interest of
$3.5 million for the three months ended March 31, 2002) ............... (365) (585)
Gain on sale of business ................................................ 46 --
Equity in net income of unconsolidated joint ventures ................... 387 174
Other income, net ....................................................... 12 1
--------- --------
Income (loss) from continuing operations before reorganization
expenses, income taxes and minority interests ........................... 3,721 (146)
Reorganization expenses, net .............................................. 2,010 2,820
--------- --------
Income (loss) from continuing operations before income taxes
and minority interests .................................................. 1,711 (2,966)
Income tax expense ........................................................ 38 50
Minority interests in net income of consolidated joint ventures ........... 223 199
--------- --------
Income (loss) from continuing operations .................................. 1,450 (3,215)
Income (loss) from disposal of discontinued operations .................... -- --
--------- --------
Net income (loss) ......................................................... $ 1,450 $ (3,215)
========= ========
Income (Loss) Per Share:
Basic and Diluted:
Income (loss) from continuing operations ............................... $ 0.03 $ (0.06)
Discontinued operations ................................................ -- --
--------- --------
Net income (loss) per share ............................................ $ 0.03 $ (0.06)
========= ========
Weighted average common shares used in computation of basic income
(loss) per share ....................................................... 49,638 49,638
========= ========
Weighted average common shares used in computation of diluted income
(loss) per share ....................................................... 49,674 49,638
========= ========

See accompanying notes to unaudited condensed consolidated financial statements.

CORAM HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)

THREE MONTHS ENDED
MARCH 31,
------------------
2002 2001
------- -------

Net cash provided by (used in) continuing operations before
reorganization items .................................................... $(1,208) $ 2,685
Net cash used by reorganization items ..................................... (2,380) (1,815)
------- -------
Net cash provided by (used in) continuing operations (net of
reorganization items) ................................................... (3,588) 870
------- -------
Cash flows from investing activities:
Purchases of property and equipment ..................................... (1,125) (798)
Proceeds from dispositions of property and equipment .................... -- 23
------- -------
Net cash used in investing activities ..................................... (1,125) (775)
------- -------
Cash flows from financing activities:
Principal payments of debt obligations .................................. (19) (62)
Refund of deposits (payments to) collateralize letters of credit, net ... 200 (2,095)
Cash distributions to minority interests ................................ (98) (96)
------- -------
Net cash provided by (used in) financing activities ....................... 83 (2,253)
------- -------
Net decrease in cash from continuing operations ........................... $(4,630) $(2,158)
======= =======
Net cash used in discontinued operations .................................. $ -- $ --
======= =======

See accompanying notes to unaudited condensed consolidated financial statements.

CORAM HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 2002

1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING
POLICIES

DESCRIPTION OF BUSINESS

Business Activity. As of March 31, 2002, Coram Healthcare Corporation
("CHC") and its subsidiaries ("Coram" or the "company") were engaged primarily
in the business of furnishing alternate site (outside the hospital) infusion
therapy, including non-intravenous home health products such as durable medical
equipment and respiratory services. Other services offered by Coram include
centralized management, administration and clinical support for clinical
research trials. Coram delivers its alternate site infusion therapy services
through 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. On such date, the
Debtors commenced operations as debtors-in-possession subject to the
jurisdiction of the United States Bankruptcy Court for the District of Delaware
(the "Bankruptcy Court"); however, a Chapter 11 trustee was appointed by the
Bankruptcy Court on March 7, 2002. With the appointment of a Chapter 11 trustee,
while still under the jurisdiction of the Bankruptcy Court, the Debtors are no
longer debtors-in-possession under the Bankruptcy Code. None of the company's
other subsidiaries is a debtor in the proceeding. See Note 2 for further
details.

Coram's focus is on its core alternate site infusion therapy business and
the clinical research business operated by its subsidiary, CTI Network, Inc.
Accordingly, management's primary business strategy is to focus Coram's efforts
on the delivery of its core infusion therapies, such as nutrition,
anti-infective therapies, intravenous immunoglobulin ("IVIG"), therapy for
persons receiving transplants, pain management and coagulant and blood clotting
therapies for persons with hemophilia. Coram has also implemented programs
focused on the reduction and control of operating expenses and other costs of
providing services, 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. Additionally, a reimbursement site consolidation plan was initiated
and completed during 2001. See Note 5 for further details.

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

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. (collectively the "Resource Network
Subsidiaries" or "R-Net"), which managed networks of home healthcare 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. The agreements that R-Net had for the provision of
ancillary network management services, including the Aetna Master Agreement,
have been terminated and R-Net is no longer providing any ancillary network
management services. The Resource Network Subsidiaries filed voluntary
bankruptcy petitions on November 12, 1999 with the Bankruptcy Court under the
Bankruptcy Code, and the Resource Network Subsidiaries are being liquidated
pursuant to such proceedings. See Notes 3 and 9 for further details.

Concentrations of Revenue and Credit Risk. Most of the company's net revenue
is derived from third-party payers such as private indemnity insurers, managed
care organizations and governmental payers. Net revenue from the Medicare and
Medicaid programs accounted for approximately 25% of the company's consolidated
net revenue for both the three months ended March 31, 2002 and 2001. Laws and
regulations governing the Medicare and Medicaid programs are complex and subject
to interpretation and revision. Management believes that the company is in
compliance with all applicable laws and regulations. Compliance with such laws
and regulations can be subject to future government review and interpretation as
well as significant regulatory action, including fines, penalties and exclusion
from the Medicare and Medicaid programs. Accounts receivable under the Medicare
program represented approximately 33% and 32% of the company's consolidated
accounts receivable as of March 31, 2002 and December 31, 2001, respectively. No
other individual payer exceeded 5% of consolidated accounts receivable at those
dates.

In certain cases, the company accepts fixed fee or capitated fee
arrangements. As of March 31, 2002, Coram was a party to only three capitated
arrangements. Capitated agreements represented approximately 8.4% and 8.2% of
the company's consolidated net

CORAM HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - (CONTINUED)

revenue for the three months ended March 31, 2002 and 2001, respectively.
Approximately 7.1% and 6.5% of the company's consolidated net revenue for the
three months ended March 31, 2002 and 2001, respectively, relate to a capitated
agreement that provides services to members in the California marketplace.

From time to time, the company negotiates settlements with its third party
payers in order to resolve outstanding disputes, terminate business
relationships or facilitate the establishment of new enhanced payer contracts.
In connection therewith, the company has not recorded any material bad debt
expense or bad debt recovery for the three months ended March 31, 2002 or 2001.
Furthermore, management is aware of certain claims, disputes or unresolved
matters with third-party payers in the normal course of business. Although there
can be no assurances, management believes that the resolution of such matters
should not have a material adverse effect on the company's financial position,
results of operations or cash flows.

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 (the "Commission") and reflect all
adjustments and disclosures (consisting of normal recurring accruals and,
effective August 8, 2000, all adjustments pursuant to the adoption of Statement
of Position 90-7, Financial Reporting by Entities in Reorganization under the
Bankruptcy Code ("SOP 90-7")) that are, in the opinion of management, necessary
for a fair presentation of the financial position, results of operations and
cash flows as of and for the interim periods presented herein. 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 the applicable Commission regulations. The
results of operations for the interim period ended March 31, 2002 are not
necessarily indicative of the results for the full fiscal year. The accompanying
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements included in the company's Annual Report on
Form 10-K for the year ended December 31, 2001.

The accompanying condensed consolidated financial statements have been
prepared on a going concern basis, which contemplates continuity of operations,
realization of assets and liquidation of liabilities in the ordinary course of
business. However, as a result of the Debtors' bankruptcy filings and
circumstances relating thereto, including the company's leveraged financial
structure and cumulative losses from operations, such realization of assets and
liquidation of liabilities is subject to significant uncertainty. During the
pendency of the Debtors' Chapter 11 bankruptcy proceedings, the company may sell
or otherwise dispose of assets and liquidate or settle liabilities for amounts
other than those reflected in the condensed consolidated financial statements.
Furthermore, a plan of reorganization filed in the Chapter 11 bankruptcy
proceedings could materially change the amounts reported in the condensed
consolidated financial statements, which do not give effect to any adjustments
of the carrying value of assets or liabilities that might be necessary as a
consequence of a plan of reorganization (see Note 2 for further details). The
company's ability to continue as a going concern is dependent upon, among other
things, confirmation of a plan of reorganization, future profitable operations,
the ability to comply with the terms of the company's financing agreements, the
ability to obtain necessary financing to fund a pending settlement with the
Internal Revenue Service, the ability to remain in compliance with the physician
ownership and referral provisions of the Omnibus Budget Reconciliation Act of
1993 (commonly known as "Stark II") and the ability to generate sufficient cash
from operations and/or financing arrangements to meet its obligations.

Reclassifications. Certain amounts in the 2001 condensed consolidated
financial statements have been reclassified to conform to the 2002 presentation.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenue and expenses during the reported
period. Actual results could differ from those estimates.

SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation. The condensed consolidated financial statements
include the accounts of CHC, its subsidiaries and joint ventures which are
considered to be under the control of CHC, including those of CHC's direct
subsidiary CI. As discussed above, CI is a party to the bankruptcy proceedings
that are being jointly administered with those of CHC in the Bankruptcy Court.
All material intercompany account balances and transactions have been eliminated
in consolidation. The company uses the equity method of accounting to account
for investments in entities in which it exhibits significant influence, but not
control, and has an ownership interest of 50% or less.

CORAM HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - (CONTINUED)

Business Combinations. In June 2001, the Financial Accounting Standards
Board (the "FASB") issued Statement of Financial Accounting Standards No. 141,
Business Combinations ("Statement 141"), which requires the use of the purchase
method of accounting for all business combinations initiated after June 30,
2001, establishes specific criteria for the recognition of intangible assets
separately from goodwill and requires unallocated negative goodwill to be
written off immediately as an extraordinary gain. The adoption of this
accounting pronouncement on January 1, 2002 had no effect on the company's
financial position or results of operations.

Goodwill and Other Long-Lived Assets. In June 2001, the FASB issued
Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets ("Statement 142"), which prohibits the amortization of
goodwill and intangible assets with indefinite useful lives. Statement 142 also
requires that these assets be reviewed for impairment at least annually. Under
Statement 142, intangible assets with finite lives continue to be to be
amortized over their estimated useful lives. The company adopted Statement 142
on January 1, 2002.

Through December 31, 2001, the company had recorded accumulated goodwill
amortization of $97.6 million. Application of the non-amortization provisions of
Statement 142 is expected to result in a reduction of operating expenses of
approximately $9.7 million ($0.20 per share) for the year ending December 31,
2002. Net income (loss) and net income (loss) per share, adjusted to exclude
amortization of goodwill, are as follows (in thousands, except per share
amounts):

THREE MONTHS ENDED
MARCH 31,
---------------------
2002 2001
--------- ---------

Reported net income (loss) ............................ $ 1,450 $ (3,215)
Add back: amortization of goodwill .................... -- 2,424
--------- ---------
Adjusted net income (loss) ............................ $ 1,450 $ (791)
========= =========

Basic and diluted income (loss) per share ............. $ 0.03 $ (0.06)
Add back: amortization of goodwill .................... -- 0.04
--------- ---------
Adjusted basic and diluted income (loss) per share .... $ 0.03 $ (0.02)
========= =========

Management plans to test goodwill for impairment using the two-step process
described in Statement 142. The first step is a screen for potential impairment
and the second step measures the amount of impairment, if any. Management
expects to perform the first of the required goodwill impairment tests as of
January 1, 2002 in the second quarter of 2002. Management has not yet determined
what the effect of these tests will be on the results of operations and
financial position of the company. Any impairment charge resulting from these
transitional impairment tests would be reflected as a cumulative effect of a
change in an accounting principle in a restated first quarter 2002. Accordingly,
the results of operations and financial position of the company for the first
quarter of 2002 reported in the condensed consolidated financial statements
included herein could be restated.

The principal components of intangible assets other than goodwill were as
follows (in thousands):

MARCH 31, 2002 DECEMBER 31, 2001
-------------------------------- ---------------------------------
GROSS CARRYING ACCUMULATED GROSS CARRYING ACCUMULATED
AMOUNT AMORTIZATION AMOUNT AMORTIZATION
-------------- ------------ -------------- ------------

Commercial payor contracts ................. $ 13,683 $ (13,683) $ 13,683 $ (13,193)
Patient outcomes database .................. 8,386 (2,984) 8,386 (2,880)
Employee noncompete agreements ............. 3,343 (3,340) 3,343 (3,340)
--------- --------- --------- ---------
Total intangible assets .................... 25,412 (20,007) 25,412 (19,413)
Other deferred costs ....................... 302 (54) 302 (31)
--------- --------- --------- ---------
Total other deferred costs and other
intangible assets ........................ $ 25,714 $ (20,061) $ 25,714 $ (19,444)
========= ========= ========= =========

Amortization expense related to intangible assets, included in selling,
general and administrative expenses, was $0.6 million in both the three-month
periods ended March 31, 2002 and 2001.

CORAM HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - (CONTINUED)

Estimated future amortization expense for each of the five years beginning
on or after January 1, 2002 is as follows (in thousands):

ESTIMATED FUTURE
YEARS ENDING DECEMBER 31, AMORTIZATION EXPENSE
------------------------------- --------------------

2002......................... $ 907
2003......................... 417
2004......................... 416
2005......................... 416
2006......................... 416

In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets
("Statement 144"), which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets and supersedes Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and the
accounting and reporting provisions of Accounting Principles Board Opinion No.
30, Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions, as far as they relate to the disposal of a segment of a
business. The company adopted Statement 144 on January 1, 2002. The adoption of
Statement 144 did not have a material effect on the company's results of
operations or financial position.

Provision for Estimated Uncollectible Accounts. Management regularly reviews
the collectibility of accounts receivable utilizing reports that track
collection and write-off activity. Estimated write-off percentages are then
applied to each aging category by payer classification to determine the
allowance for estimated uncollectible accounts. Additionally, the company
establishes appropriate supplemental specific reserves for accounts that are
deemed uncollectible due to occurrences such as payer financial distress and
payer bankruptcy filings. The allowance for estimated uncollectible accounts is
adjusted as needed to reflect current collection, write-off and other trends,
including changes in assessment of realizable value. While management believes
the resulting net carrying amounts for accounts receivable are fairly stated and
that the company has adequate provisions for uncollectible accounts based on all
information available, no assurances 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. The company's ability to successfully collect its
accounts receivable depends, in part, on its ability to adequately supervise and
train personnel in billing and collections, and maximize integration
efficiencies related to reimbursement site consolidations and system changes.

In December 2000, Coram announced that as part of its continuing efforts to
improve efficiency and overall performance, several Patient Financial Service
Centers (reimbursement sites) were being consolidated and the related
reimbursement positions were being eliminated. By consolidating to fewer sites,
management expects to implement improved training, more easily standardize "best
demonstrated practices," enhance specialization related to payers such as
Medicare and achieve more consistent and timely cash collections. Management
does not expect this change to affect Coram's patients or payers, but believes,
instead, that in the long-term they will receive better, more consistent
service. The transition was accomplished in stages commencing April 1, 2001 and
ending July 2001. Management had taken certain actions to mitigate the potential
shortfall in cash collections during and after the transition period, including,
but not limited to, offering incentives for personnel to stay with the company
until the completion of their corresponding regional consolidation.
Notwithstanding management's efforts, the company experienced deterioration in
its days sales outstanding ("DSO") since the commencement of the reimbursement
consolidation plan and a substantial growth in accounts receivable. No
assurances can be given that the consolidation of the company's Patient
Financial Service Centers will be successful in enhancing timely reimbursement,
that the company will not continue to experience a significant shortfall in cash
collections after the transition period or that the aforementioned deterioration
in DSO and accounts receivable will not continue.

Capitalized Software Development Costs. Costs related to software developed
and obtained for internal use are stated at cost in accordance with Statement of
Position 98-1, Accounting for Computer Software Developed for or Obtained for
Internal-Use. Amortization is computed using the straight-line method over
estimated useful lives generally ranging from one to five years.

Income (Loss) per Share. Basic income (loss) per share excludes any dilutive
effects of options, warrants and convertible securities. The company experienced
a loss from continuing operations for the three months ended March 31, 2001 and,
in accordance with the provisions of Statement of Financial Accounting Standards
No. 128, Earnings Per Share, the denominator utilized to calculate income (loss)
per share does not increase when losses from continuing operations are in
evidence because to do so would be anti-dilutive. However, the company
experienced income from continuing operations for the three months ended March
31, 2002.

CORAM HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - (CONTINUED)

The following table sets forth the computations of basic and diluted income
(loss) per share for the three months ended March 31, 2002 and 2001 (in
thousands, except per share amounts):

THREE MONTHS ENDED
MARCH 31,
-------------------
2002 2001
-------- --------

Numerator for basic and diluted income (loss) per share:
Income (loss) from continuing operations ....................... $ 1,450 $ (3,215)
======== ========

Weighted average shares - denominator for basic
income (loss) per share ..................................... 49,638 49,638
Effect of dilutive securities:
Stock options .................................................. 36 --
-------- --------
Denominator for diluted income (loss) per share - adjusted
weighted average shares ..................................... 49,674 49,638
======== ========

Basic income (loss) per share ................................. $0.03 $ (0.06)
======== ========

Diluted income (loss) per share ............................... $0.03 $ (0.06)
======== ========

2. REORGANIZATION UNDER CHAPTER 11 OF THE UNITED STATES BANKRUPTCY CODE

Background and Certain Important Bankruptcy Court Activity

On August 8, 2000, CHC and CI filed voluntary petitions under Chapter 11 of
the Bankruptcy Code. Following the filing of the voluntary Chapter 11 petitions,
the Debtors commenced operating as debtors-in-possession subject to the
jurisdiction of the Bankruptcy Court; however, as discussed below, a Chapter 11
trustee was appointed by the Bankruptcy Court on March 7, 2002. With the
appointment of a Chapter 11 trustee, while still under the jurisdiction of the
Bankruptcy Court, the Debtors are no longer debtors-in-possession under the
Bankruptcy Code. None of the company's other subsidiaries is a debtor in the
proceeding. The Debtors' need to seek the relief afforded by the Bankruptcy Code
was due, in part, to its requirement to remain in compliance with the physician
ownership and referral provisions of Stark II after December 31, 2000 (see
discussion of Stark II in Note 9) and the scheduled May 27, 2001 maturity of the
Series A Senior Subordinated Unsecured Notes. The Debtors sought advice and
counsel from a variety of sources and, in connection therewith, the Independent
Committee of the Board of Directors of CHC unanimously concluded that the
bankruptcy and restructuring were the only viable alternatives.

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 financing arrangement (see Note
6 for details of the executed agreement); and (iv) use of all company bank
accounts for normal business operations. In September 2000, the Bankruptcy Court
approved the Debtors' motion to reject four unexpired, non-residential real
property leases and any associated subleases. The rejected leases included
underutilized locations in: (i) Allentown, Pennsylvania; (ii) Denver, Colorado;
(iii) Philadelphia, Pennsylvania; and (iv) Whippany, New Jersey. The successful
rejection of the Whippany, New Jersey lease caused the company to reverse
certain reserves during the year ended December 31, 2000 that had previously
been established for the closure of its discontinued operations. Additionally,
in January 2002, the Bankruptcy Court approved a motion to extend the period of
time in which the Debtors can reject unexpired leases of non-residential real
property up to and including May 2, 2002. On May 1, 2002, the Chapter 11 trustee
filed a motion with the Bankruptcy Court to extend the period through August 27,
2002 (such real property motion is currently pending before the Bankruptcy
Court).

CORAM HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - (CONTINUED)

another retention plan to provide financial incentives not to exceed $1.25
million to certain key employees during the year ending December 31, 2002.
Principally due to the then pending appointment of a Chapter 11 trustee, on
February 12, 2002 the Bankruptcy Court declined to rule on the Debtors' motions.
However, on March 15, 2002, after the appointment of a Chapter 11 trustee, the
Bankruptcy Court partially approved the Debtors' motions insofar as all the
remaining retention bonuses were authorized to be paid, exclusive of amounts
pertaining to the company's Chief Executive Officer because such payments are
disputed by the Official Committee of the Equity Security Holders. The
incremental retention bonuses, aggregating approximately $0.8 million, were paid
on March 25, 2002. The Bankruptcy Court has postponed its rulings on the
Debtors' motions pertaining to the 2002 retention plan and payment of the Chief
Executive Officer's retention amounts. The company had fully accrued the
remaining amounts under the first and second installments of the retention plans
as of March 31, 2002.

On September 7, 2001, the Bankruptcy Court approved payments of up to $2.7
million for management incentive plan compensation bonuses (the "MIP") related
to the year ended December 31, 2000 for all individuals participating in the
MIP, except for the company's Chief Executive Officer. In connection therewith,
payments were made to those individuals in September 2001.

On or about May 9, 2001, the Bankruptcy Court approved the Debtors' motion
requesting authorization to enter into an insurance premium financing agreement
with AICCO, Inc. (the "2001 Financing Agreement") to finance the payment of
premiums under certain of the Debtors' insurance policies. Under the terms of
the 2001 Financing Agreement, the Debtors made a down payment of approximately
$1.1 million. The amount financed was approximately $2.1 million and was paid in
eight monthly installments of approximately $0.3 million each through December
2001, including interest at a per annum rate of 7.85%.

On October 29, 2001, the Debtors filed a motion with the Bankruptcy Court
requesting approval of an agreement providing a non-debtor subsidiary of the
company with the authority to sell a durable medical equipment business located
in New Orleans, Louisiana to a third party. On November 13, 2001, the Bankruptcy
Court authorized the Debtors to enter into this agreement. The sale of such
business equipment was finalized in January 2002.

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 their subsidiaries to pay their own debts in the
ordinary course of business. 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.

On September 11, 2000, the Resource Network Subsidiaries filed a motion in
the Debtors' Chapter 11 proceedings seeking, among other things, to have the two
separate bankruptcy proceedings substantively consolidated into one proceeding.
The Resource Network Subsidiaries and the Debtors engaged in discovery related
to this substantive consolidation motion and, in connection therewith, the
parties reached a settlement agreement in November 2000, which was approved by
an order of the Bankruptcy Court. Additionally, the Official Committee of
Unsecured Creditors in the Resource Network Subsidiaries' bankruptcy proceedings
filed motions to lift the automatic bankruptcy stay to pursue claims against the
Debtors and certain of their operating subsidiaries. Through May 17, 2002, the
Bankruptcy Court has not granted any relief of the automatic stay provisions of
the Bankruptcy Code in favor of the R-Net estates. See Note 9 for further
details.

The Debtors' First Joint Plan of Reorganization and Related Activities

On the same day that 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. The Joint Plan was subsequently amended and
restated (the "Restated Joint Plan") and, on or about October 10, 2000, the
Restated Joint Plan and the First Amended Disclosure Statement with respect to
the Restated Joint Plan were authorized for distribution by the Bankruptcy
Court. Among other things, the Restated Joint Plan provided for: (i) a
conversion of all of the CI obligations represented by the company's Series A
Senior Subordinated Unsecured Notes (the "Series A Notes") and the Series B
Senior Subordinated Unsecured Convertible Notes (the "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 Notes and the
Series B Notes; and (v) the complete elimination of the equity interests of CHC.
Furthermore, pursuant to the Restated Joint Plan, CHC would be dissolved as soon
as practicable after the effective date of the Restated Joint Plan and the stock
of CHC would no longer be publicly traded. Therefore, under the Restated Joint
Plan, as filed, the existing stockholders of CHC would have received no value
for their shares and all of the outstanding equity of CI as the surviving

CORAM HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - (CONTINUED)

entity would be owned by the holders of the Series A Notes and the Series B
Notes. Representatives of the company negotiated the principal aspects of the
Restated Joint Plan with representatives of the holders of the Series A Notes
and the Series B Notes and the parties to the Senior Credit Facility prior to
the filing of such Restated Joint Plan.

On or about October 20, 2000, the Restated Joint Plan and First Amended
Disclosure Statement were distributed for a vote among persons holding impaired
claims that were entitled to a distribution under the Restated Joint Plan. The
Debtors did not send ballots to the holders of unimpaired classes, who were
deemed to accept the Restated Joint Plan, and classes that were not receiving
any distribution, which were deemed to reject the Restated Joint Plan. Eligible
voters responded in favor of the Restated Joint Plan. At a confirmation hearing
on December 21, 2000, the Restated Joint Plan was not approved by the Bankruptcy
Court.

In order for the company to remain compliant with the requirements of Stark
II, on December 29, 2000, pursuant to an order of the Bankruptcy Court, CI
exchanged approximately $97.7 million of the Series A Notes and approximately
$11.6 million of contractual unpaid interest on the Series A Notes and the
Series B Notes for 905 shares of Coram, Inc. Series A Cumulative Preferred
Stock, $0.001 par value per share (see Notes 6 and 8 for further details).
Hereafter, the Coram, Inc. Series A Cumulative Preferred Stock is referred to as
the "CI Preferred Stock." The exchange transaction generated an extraordinary
gain on troubled debt restructuring of approximately $107.8 million, net of tax,
in 2000. At December 31, 2000, the company's stockholders' equity exceeded the
minimum Stark II requirement necessary to comply with the public company
exemption for the year ended December 31, 2001. See Note 9 for further
discussion regarding Stark II.

The Second Joint Plan of Reorganization and Related Activities

On or about February 6, 2001, the Official Committee of the Equity Security
Holders (the "Equity Committee") filed a motion with the Bankruptcy Court
seeking permission to bring a derivative lawsuit directly against the company's
Chief Executive Officer, a former member of the Board of Directors of CHC and
Cerberus Partners, L.P. (a party to the company's debtor-in-possession financing
agreement, Senior Credit Facility and Securities Exchange Agreement). On
February 26, 2001, the Bankruptcy Court ruled that the Equity Committee's motion
would not be productive at that time and, accordingly, the motion was denied
without prejudice. On the same day, the Bankruptcy Court approved the Debtors'
motion to appoint Goldin Associates, L.L.C. ("Goldin") as independent
restructuring advisors to the Independent Committee of the Board of Directors of
CHC (the "Independent Committee"). Among other things, the scope of Goldin's
services included (i) assessing the appropriateness of the Restated Joint Plan
and reporting its findings to the Independent Committee and advising the
Independent Committee respecting an appropriate course of action calculated to
bring the Debtors' bankruptcy proceedings to a fair and satisfactory conclusion,
(ii) preparing a written report as may be required by the Independent Committee
and/or the Bankruptcy Court and (iii) appearing before the Bankruptcy Court to
provide testimony, as needed. Goldin was also appointed as a mediator among the
Debtors, the Equity Committee and other parties in interest.

Based upon Goldin's findings and recommendations, as set forth in the Report
of Independent Restructuring Advisor, Goldin Associates, L.L.C (the "Goldin
Report"), on July 31, 2001, the Debtors filed with the Bankruptcy Court a Second
Joint Disclosure Statement, as amended (the "Second Disclosure Statement"), with
respect to their Second Joint Plan of Reorganization, as amended (the "Second
Joint Plan"). The Second Joint Plan, which was also filed on July 31, 2001,
provided for terms of reorganization similar to those described in the Restated
Joint Plan; however, utilizing Goldin's recommendations, as set forth in the
Goldin Report, the following substantive modifications were included in the
Second Joint Plan:

o the payment of up to $3.0 million to the holders of allowed
general unsecured claims of CHC;

o the payment of up to $10.0 million to the holders of CHC equity
interests (contingent upon such holders voting in favor of the
Second Joint Plan);

o cancellation of the issued and outstanding CI Preferred Stock;
and

o a $7.5 million reduction in certain performance bonuses payable
to the company's Chief Executive Officer.

Under certain circumstances, as more fully disclosed in the Second
Disclosure Statement, the general unsecured claim holders could have been
entitled to receive a portion of the $10.0 million cash consideration allocated
to the holders of CHC equity interests.

In order to become effective, the Second Joint Plan was subject to a vote by
certain impaired creditors and equity holders and final approval of the
Bankruptcy Court. On September 6, 2001 and September 10, 2001, hearings before
the Bankruptcy Court considered the adequacy of the Second Disclosure Statement.
In connection therewith, the Equity Committee, as well as, the Official
Committee of Unsecured Creditors in the Resource Network Subsidiaries'
bankruptcy proceedings filed motions protesting and objecting to the Second
Joint Plan. Notwithstanding the aforementioned protests and objections, the
Second Disclosure Statement was approved by the

CORAM HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - (CONTINUED)

Bankruptcy Court for distribution to holders of certain claims in interests
entitled to vote on the Second Joint Plan. On or about September 21, 2001, the
Debtors mailed ballots to those parties entitled to vote on the Second Joint
Plan.

On April 25, 2001 and July 11, 2001, the Bankruptcy Court extended the
period during which the Debtors had the exclusive right to file a plan of
reorganization before the Bankruptcy Court to July 11, 2001 and August 1, 2001,
respectively. On August 1, 2001, the Bankruptcy Court denied the Equity
Committee's motion to terminate the Debtors' exclusivity periods and file its
own plan of reorganization. Moreover, on August 2, 2001, the Bankruptcy Court
extended the Debtors' exclusive period to solicit acceptances of any filed plan
or plans to November 9, 2001 (the date to solicit acceptances of the plan for
CHC's equity holders was subsequently extended to November 12, 2001).

The CHC equity holders voted against confirmation of the Second Joint Plan
and all other classes of claimholders voted in favor of the Second Joint Plan.
The Bankruptcy Court can 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. However, on December
21, 2001, after several weeks of confirmation hearings, the Bankruptcy Court
issued an order denying confirmation of the Second Joint Plan.

In order for the company to remain compliant with the requirements of Stark
II, on December 31, 2001, pursuant to an order of the Bankruptcy Court, CI
exchanged $21.0 million of the Series A Notes and approximately $1.9 million of
contractual unpaid interest on the Series A Notes for approximately 189.6 shares
of the CI Preferred Stock (see Notes 6 and 8 for further details). This
transaction generated an extraordinary gain on troubled debt restructuring of
approximately $20.7 million in 2001. At December 31, 2001, the company's
stockholders' equity exceeded the minimum Stark II requirement necessary to
comply with the public company exemption. As a result, the company is covered by
the public company exemption through the year ending December 31, 2002. See Note
9 for further discussion regarding Stark II.

Appointment of Chapter 11 Trustee and Bankruptcy Related Activities Subsequent
to December 31, 2001

On December 28, 2001, the Debtors filed a Notice of Appeal in the United
States District Court for the District of Delaware (the "District Court")
appealing the December 21, 2001 Bankruptcy Court decision denying confirmation
of the Second Joint Plan and, on February 6, 2002, the Debtors perfected their
appeal. On February 25, 2002, the Equity Committee filed a Motion to Strike
Appeal with the District Court wherein it was requested that the District Court
dismiss the Debtors' appeal on the grounds that certain of the Debtors' required
briefs were filed after the statutory deadline. On March 7, 2002, the Debtors
filed an Opposition to Motion to Strike Appeal whereby the Debtors asserted,
among other things, that the required briefs were filed on a timely basis. A
stipulation agreement extending certain procedural dates was entered into
between the Equity Committee and the Chapter 11 trustee on March 22, 2002
whereby the Debtors were to have filed their opening briefs on or before April
25, 2002. The Debtors have not yet filed such briefs, but management continues
to evaluate the merits of pursuing this appeal. Management of the company cannot
predict what impact the Equity Committee or other interested parties will have
on the Debtors' pending appeal in the District Court.

On February 12, 2002, among other things, the Bankruptcy Court granted
motions made by the Office of the United States Trustee and two of the Debtors'
noteholders requesting the appointment of a Chapter 11 trustee to oversee the
Debtors during their reorganization process. Additionally, on such date the
Bankruptcy Court denied without prejudice a renewed motion made by the Equity
Committee for leave to bring a derivative lawsuit against the company's Chief
Executive Officer, the Board of Directors of CHC, Cerberus Partners, L.P.
("Cerberus"), a Cerberus principal and the company's other noteholders.
Moreover, on February 12, 2002 the Bankruptcy Court denied motions filed by the
Equity Committee (i) to require the company to call a stockholders' meeting and
(ii) to modify certain aspects of CI's corporate governance structure.

On or about November 7, 2001, the Debtors filed a motion seeking to extend
the periods to file a plan or plans of reorganization and solicit acceptances
thereof to December 31, 2001 and March 4, 2002, respectively. The Bankruptcy
Court granted the motion to the extent that it extended exclusivity to January
2, 2002. Thereafter, the Debtors' exclusivity period terminated.

On March 7, 2002, the Bankruptcy Court approved the appointment of Arlin M.
Adams, Esquire, as the Debtors' Chapter 11 trustee. The Bankruptcy Code and
applicable rules require a Chapter 11 trustee to perform specific duties
relating to the administration of a bankruptcy case. Generally, a Chapter 11
trustee is obligated to investigate the debtor's operations, financial condition
and any other matter relevant to the formulation of a plan of reorganization.
The Bankruptcy Code also provides that a Chapter 11 trustee must either file a
plan of reorganization as soon as practicable or an explanation as to why he/she
is unable to file a plan of reorganization. With the appointment of a Chapter 11
trustee, while still under the jurisdiction of the Bankruptcy Court, the Debtors
are no longer debtors-in-possession under the Bankruptcy Code.

CORAM HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - (CONTINUED)

Furthermore, the Bankruptcy Code makes a Chapter 11 trustee responsible for
the debtor's business. As with a debtor-in-possession, a Chapter 11 trustee may
enter into transactions in the ordinary course of business without notice or a
hearing in the presiding bankruptcy court; however, non-ordinary course actions
still require the authorization of the presiding bankruptcy court. A Chapter 11
trustee also assumes responsibility for management functions, including
decisions relative to the hiring and firing of personnel. As is the case with
the Debtors, when existing management is necessary to run the day-to-day
operations, the Chapter 11 trustee may retain and oversee this management.

After a Chapter 11 trustee is appointed, a debtor's board of directors does
not retain any management powers. While Mr. Adams has assumed board of directors
management rights and responsibilities, he is doing so without any other changes
to the company's management or organizational structure through May 17, 2002.

Since the appointment of the Chapter 11 trustee on March 7, 2002, no amounts
have been paid to professionals in connection with the bankruptcy proceedings.

On May 9, 2002, pursuant to a motion previously approved by the Bankruptcy
Court, CHC entered into a second insurance premium financing agreement with
Imperial Premium Finance, Inc., an affiliate of AICCO, Inc., (the "2002
Financing Agreement") to finance the payment of premiums under certain insurance
policies. Under the terms of the 2002 Financing Agreement, CHC made down
payments of approximately $1.5 million. The amount financed is approximately
$2.7 million and is secured by the unearned premiums and any loss payments under
the insurance policies covered by the 2002 Financing Agreement. The amount
financed is being paid in seven monthly installments of approximately $0.4
million each, including interest at a per annum rate of 4.9%, commencing on May
15, 2002. In addition, Imperial Premium Finance, Inc. has the right to terminate
the insurance policies and collect the unearned premiums (as administrative
expenses) if CHC does as not make the monthly payments called for by the 2002
Financing Agreement.

Other Bankruptcy-Related Disclosures

Under the Bankruptcy Code, certain claims against the Debtors in existence
prior to the filing date are stayed while the Debtors continue their operations
under the purview of a Chapter 11 trustee or as debtors-in-possession. These
claims are reflected in the condensed consolidated balance sheets as liabilities
subject to compromise. Additional Chapter 11 claims have arisen and may continue
to arise subsequent to the filing date from the rejection of executory
contracts, including certain leases, and from the determination by the
Bankruptcy Court of allowed claims for contingencies and other disputed amounts.
Parties affected by the rejections may file claims with the Bankruptcy Court in
accordance with the provisions of the Bankruptcy Code and applicable rules.
Claims secured by the Debtors' assets also are stayed, although the holders of
such claims have the right to petition the Bankruptcy Court for relief from the
automatic stay to permit such creditors to foreclose on the property securing
their claims. Additionally, certain claimants have sought relief from the
Bankruptcy Court to remove the automatic stay and continue pursuit of their
claims against the Debtors or the Debtors' insurance carriers.

The principal categories and balances of Chapter 11 bankruptcy claims
accrued in the condensed consolidated balance sheets and included in liabilities
subject to compromise at both March 31, 2002 and December 31, 2001 are
summarized as follows (in thousands):

Series A and Series B Notes and other long-term debt obligations ....... $132,422
Liabilities of discontinued operations subject to compromise ........... 2,936
Earn-out obligation .................................................... 1,268
Accounts payable ....................................................... 1,088
Accrued merger and restructuring costs (primarily severance liabilities) 468
Legal and professional liabilities ..................................... 98
Other .................................................................. 764
--------
Total liabilities subject to compromise .............................. $139,044
========

In addition to the amounts disclosed in the table above, the holders of the
CI Preferred Stock continue to maintain a claim position within the Debtors'
bankruptcy proceedings in the aggregate amount of their cumulative liquidation
preference. Notwithstanding the debt to equity exchanges, the aforementioned
holders' priority in the Debtors' bankruptcy proceedings will be no less than it
was immediately prior to said exchanges.

CORAM HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - (CONTINUED)

Schedules were filed with the Bankruptcy Court setting forth the assets and
liabilities of the Debtors as of the filing date as shown by the Debtors'
accounting records. Differences between amounts shown by the Debtors and claims
filed by creditors are being investigated and resolved. The ultimate amount and
the settlement terms for such liabilities will be subject to a plan of
reorganization and review by the Chapter 11 trustee. Therefore, it is not
possible to fully or completely estimate the fair value of the liabilities
subject to compromise at March 31, 2002 and December 31, 2001 due to the
Debtors' Chapter 11 cases and the uncertainty surrounding the ultimate amount
and settlement terms for such liabilities.

Reorganization expenses are items of expense or income that are incurred or
realized by the company as a result of the reorganization. These items include,
but are not limited to, professional fees, expenses related to key employee
retention plans, Office of the United States Trustee fees and other expenditures
incurred relating to the Chapter 11 proceedings, offset by interest earned on
cash accumulated as a result of the Debtors not paying their pre-petition
liabilities during the pendency of the Chapter 11 proceedings.

The principal components of reorganization expenses for the three months
ended March 31, 2002 and 2001 are as follows (in thousands):

THREE MONTHS ENDED MARCH 31,
2002 2001
------------ ------------

Legal, accounting and consulting fees ...................................... $ 2,092 $ 2,157
Success bonus and retention plan expenses .................................. -- 717
Office of the United States Trustee fees ................................... 10 10
Interest income ............................................................ (92) (64)
------------ ------------
Total reorganization expenses, net ....................................... $ 2,010 $ 2,820
============ ============

3. DISCONTINUED OPERATIONS

Following the November 1999 filing of voluntary bankruptcy petitions by the
Resource Network Subsidiaries and the plan to liquidate the R-Net division,
Coram accounted for such division as a discontinued operation and disclosed the
excess of R-Net's liabilities over its assets as net liabilities of discontinued
operations in the condensed consolidated financial statements. Coram also
separately reflected R-Net's operating results in the condensed consolidated
statements of income as discontinued operations; however, R-Net had no operating
activity for the three months ended March 31, 2002 and 2001. The components of
the net liabilities of discontinued operations included in the condensed
consolidated balance sheets are summarized as follows (in thousands):

MARCH 31, DECEMBER 31,
2002 2001
-------- ------------

Cash ...................................................................... $ 2,996 $ 1,146
Accounts payable .......................................................... (29,699) (29,566)
Accrued expenses .......................................................... (3,016) (1,299)
-------- --------
(29,719) (29,719)
Net liabilities subject to compromise under Debtors' Chapter 11 case ...... 2,936 2,936
-------- --------
Net liabilities of Discontinued Operations ................................ $(26,783) $(26,783)
======== ========

As of March 31, 2002, approximately $27.2 million of the liabilities related
to the discontinued operations was subject to compromise under the R-Net Chapter
11 bankruptcy proceedings.

All of the R-Net locations have been closed in connection with the pending
liquidation of R-Net. Additionally, Coram employees who were members of the
Resource Network Subsidiaries' Board of Directors resigned and only the Chief
Restructuring Officer appointed by the Bankruptcy Court remains on the Board of
Directors to manage and operate the liquidation of the R-Net business.

4. RELATED PARTY TRANSACTIONS

The company's Chairman, Chief Executive Officer and President, Daniel D.
Crowley, owns Dynamic Healthcare Solutions, LLC ("DHS"), a management consulting
firm from which the company purchased services. Effective with the Debtors'
Chapter 11 filings in the Bankruptcy Court, DHS employees who were then serving
as consultants to Coram terminated their employment with DHS and became full
time Coram employees. Since January 1, 2001, DHS has continued to bill the
company the actual costs it attributes to the DHS Sacramento, California
location where Mr. Crowley and other persons are located and perform services
for or on behalf of the company. For each of the three months ended March 31,
2002 and 2001, the company paid approximately $0.1 million to DHS for such
costs. Subsequent to March 31, 2002 and through May 17, 2002, less than $0.1
million was paid to DHS for such costs.

CORAM HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - (CONTINUED)

Effective August 2, 2000, the Board of Directors of CHC approved a
contingent bonus to Mr. Crowley. Under the agreement, subject to certain
material terms and conditions, Mr. Crowley is to be paid $1.8 million following
the successful refinancing of the company's debt. In connection therewith and
the debt to preferred stock exchange discussed in Notes 2 and 6, the company
recorded a $1.8 million reorganization expense for the success bonus in 2000.
The success bonus will not be payable until such time as the Debtors' Chapter 11
trustee or another interested party's plan of reorganization is fully approved
by the Bankruptcy Court. Mr. Crowley is also entitled to a performance bonus
based on overall company performance and he participates in the company's key
employee retention plan. In connection with the Second Joint Plan, Mr. Crowley
voluntarily offered to accept a $7.5 million reduction in certain performance
bonuses, contingent on the confirmation and consummation of the Second Joint
Plan. As discussed in Note 2, confirmation of the Second Joint Plan was denied
by the Bankruptcy Court on December 21, 2001. The company cannot predict what,
if any, reduction in Mr. Crowley's incentive, retention or success bonuses,
which are accrued in the condensed consolidated financial statements, will be
proposed in a new plan of reorganization submitted by the Chapter 11 trustee or
any other interested party.

Effective August 1, 1999, Mr. Crowley and Cerberus Capital Management, L.P.
(an affiliate of Cerberus Partners, L.P. ("Cerberus"), a party to the company's
debtor-in-possession financing agreement, Senior Credit Facility and Securities
Exchange Agreement), executed an employment agreement whereby Mr. Crowley is
paid approximately $1 million per annum plus potential performance-related
bonuses, equity options and fringe benefits. The services rendered by Mr.
Crowley to Cerberus include, but are not limited to, providing business and
strategic healthcare investment advice to executive management at Cerberus and
its affiliates. Mr. Crowley and Cerberus agreed to suspend their contract and
all related obligations immediately after the Bankruptcy Court's denial of the
Second Joint Plan of reorganization on December 21, 2001, and the contract
remains suspended through May 17, 2002.

As further discussed in Note 9, in November 2001 the Official Committee of
Unsecured Creditors of Coram Resource Network, Inc. and Coram Independent
Practice Association, Inc. brought an adversary proceeding in the Bankruptcy
Court against, among other defendants, the Debtors and certain of their
operating subsidiaries, as well as, several related parties, including Foothill
Capital Corporation, Foothill Income Trust, L.P., Goldman Sachs Credit Partners
L.P., Cerberus, one of Cerberus' principals, current management, former
management and current and former members of the Board of Directors of CHC.

5. MERGER AND RESTRUCTURING RESERVES

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 approximately $25.8 million to operations as a
restructuring cost.

During December 1999, the company initiated an organizational restructure
and strategic repositioning plan (the "Coram Restructure Plan") and charged
approximately $4.8 million to operations as a restructuring cost. The Coram
Restructure Plan resulted in the closing of additional facilities and reduction
of personnel. In connection therewith, the company reserved for (i) personnel
reduction costs relating to severance payments, fringe benefits and taxes for
employees that have been or may be terminated and (ii) facility closing costs
that consist of rent, common area maintenance and utility costs for fulfilling
lease commitments of approximately fifteen branch and corporate facilities that
have been or may be closed or downsized. Reserves for facility closing costs are
offset by amounts arising from sublease arrangements, but not until such
arrangements are in the form of signed and executed contracts. As part of the
Coram Restructure Plan, the company informed certain reimbursement sites of
their estimated closure dates. Such operations were closed during the first half
of 2001, including the severance of approximately 80 related employees.

CORAM HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - (CONTINUED)

Under the Caremark Business Consolidation Plan and the Coram Restructure
Plan, the total charges through March 31, 2002, the estimate of total future
cash expenditures and the estimated total charges are as follows (in thousands):

CHARGES THROUGH MARCH 31, 2002.. BALANCES AT MARCH 31, 2002
--------------------------------- --------------------------
CASH NON-CASH ESTIMATED TOTAL
EXPENDITURES CHARGES TOTAL FUTURE CASH CHARGES
----------- -------- -------- ------------- --------

Caremark Business Consolidation Plan:
Personnel reduction costs ................ $ 11,300 $ -- $ 11,300 $ -- $ 11,300
Facility reduction costs ................. 10,391 3,900 14,291 306 14,597
-------- -------- -------- -------- --------
Subtotal .............................. 21,691 3,900 25,591 306 25,897

Coram Restructure Plan:
Personnel reduction costs ................ 2,361 -- 2,361 104 2,465
Facility reduction costs ................. 1,111 -- 1,111 506 1,617
-------- -------- -------- -------- --------
Subtotal .............................. 3,472 -- 3,472 610 4,082
-------- -------- -------- -------- --------
Totals ..................................... $ 25,163 $ 3,900 $ 29,063 916 $ 29,979
======== ======== ======== ========
Restructuring costs subject to compromise ..................................... (468)
--------
Accrued merger and restructuring costs per the condensed
consolidated balance sheet.................................................. $ 448
========

During the three months ended March 31, 2002, significant items impacting
the restructuring reserves that were not subject to compromise are summarized as
follows (in thousands):

Balance at December 31, 2001 .................................... $ 583
Activity during the three months ended March 31, 2002:
Payments under the plans ...................................... (122)
Early termination of a leased facility ........................ (13)
-----
Balance at March 31, 2002........................................ $ 448
=====

The company estimates that the future cash expenditures related to the
restructuring plans stated above will be made in the following periods: 60%
through March 31, 2003, 23% through March 31, 2004, 11% through March 31, 2005
and 6% thereafter.

6. DEBT OBLIGATIONS

Debt obligations are as follows (in thousands):

MARCH 31, DECEMBER 31,
2002 2001
--------- ------------

Series A Senior Subordinated Unsecured Notes .................................................. $ 40,208 $ 40,208
Series B Senior Subordinated Unsecured Convertible Notes ...................................... 92,084 92,084
Accreditation note payable .................................................................... 169 185
Other obligations, including capital leases, at interest rates ranging from 7.5% to 13.1% ..... 152 155
--------- ---------
132,613 132,632
Less: Debt obligations subject to compromise ................................................. (132,422) (132,422)
Less: Current scheduled maturities ........................................................... (60) (60)
--------- ---------
$ 131 $ 150
========= =========

As a result of the Debtors' Chapter 11 Bankruptcy Court filings,
substantially all short and long-term debt obligations at the August 8, 2000
filing date have been classified as liabilities subject to compromise in the
accompanying condensed consolidated balance sheets in accordance with SOP 90-7.
Under the United States Bankruptcy Code, actions against the Debtors to collect
pre-petition indebtedness are subject to an automatic stay provision. As of
August 8, 2000, the company's principal credit and debt agreements included (i)
a Securities Exchange Agreement, dated May 6, 1998 (the "Securities Exchange
Agreement"), with Cerberus Partners, L.P., Goldman Sachs Credit Partners L.P.
and Foothill Capital Corporation (collectively 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")
and (ii) a Senior Credit Facility with Foothill Income Trust L.P., Cerberus
Partners, L.P. and Goldman Sachs Credit Partners L.P. (collectively the
"Lenders") and Foothill Capital Corporation as agent thereunder. Subsequent to
the petition date, the Debtors entered into a secured debtor-in-possession
financing agreement with Madeleine LLC, an affiliate of Cerberus Partners, L.P.
(the "DIP Agreement"). No borrowings were made under the DIP Agreement prior to
its expiration on August 31, 2001. Pursuant to the terms and conditions of the
aforementioned credit and debt agreements, the company is precluded from paying
cash dividends or making other capital distributions. Moreover, the Debtors'
voluntary Chapter 11 filings caused events of default to occur under the
Securities Exchange Agreement and the Senior Credit Facility, thereby
terminating the Debtors' ability to

CORAM HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - (CONTINUED)

make additional borrowings under the Senior Credit Facility through its
expiration on February 6, 2001.

The recognition of interest expense pursuant to SOP 90-7 is appropriate
during the Chapter 11 proceedings if it is probable that such interest will be
an allowed priority, secured or unsecured claim. The Second Joint Plan (see Note
2), which was denied by the Bankruptcy Court on December 21, 2001, would have
effectively eliminated all post-petition interest on pre-petition borrowings.
The final confirmed plan of reorganization put forth by the Debtors' Chapter 11
trustee or any other interested party may have a similar effect on post-petition
interest; however, appropriate approvals thereof in accordance with the
Bankruptcy Code would be required.

Accreditation Note Payable. In August 2001, CI entered into an agreement
(the "ACHC Agreement") with the Accreditation Commission for Health Care, Inc.
("ACHC") whereby ACHC is to, among other things, provide national accreditation
for Coram as deemed appropriate by ACHC. Under the terms of the ACHC Agreement,
which commenced on the date that it was executed and expires in November 2004,
Coram made an upfront payment and is obligated to make twelve equal non-interest
bearing quarterly payments of approximately $17,000. The total payments to be
made under the ACHC Agreement will aggregate approximately $0.3 million. In the
event of breach or default by either of the parties, CI and/or ACHC may
immediately terminate the ACHC Agreement if the breach or default is not cured
within fifteen days of receipt of written notice from the non-breaching party.

Debtor-In-Possession Financing Agreement. Effective August 30, 2000, and
approved by the Bankruptcy Court on September 12, 2000, the Debtors entered into
the DIP Agreement. The DIP Agreement provided that the Debtors could access, as
necessary, a line of credit of up to $40 million for use in connection with the
operation of their businesses and the businesses of their subsidiaries. Maximum
borrowings were generally equal to the product of: (i) 65% of Net Eligible
Accounts Receivable, as defined, and (ii) 95%. The DIP Agreement was secured by
the capital stock of the Debtors' subsidiaries, as well as the accounts
receivable and certain other assets held by the Debtors and their subsidiaries.
No borrowings were ever made under DIP Agreement, which expired under its terms
on August 31, 2001. To secure the DIP Agreement, the Debtors paid an origination
fee of 1% of the total committed line of credit in 2000, plus commitment fees on
the unused facility at the rate of 0.5% per annum, payable monthly in arrears,
totaling $0.1 million for the three months ended March 31, 2001.

Senior Credit Facility. On August 20, 1998, the company entered into the
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. The terms of the agreement also provided for the issuance of letters
of credit of up to $25.0 million provided that available credit would not fall
below zero. Effective February 6, 2001, the Lenders and the company terminated
the Senior Credit Facility. In connection with the termination of the Senior
Credit Facility and pursuant to orders of the Bankruptcy Court, the company
established irrevocable letters of credit through Wells Fargo Bank Minnesota, NA
("Wells Fargo"). Such letters of credit have a balance of approximately $0.9
million at March 31, 2002 and are fully secured by interest-bearing cash
deposits of the company held by Wells Fargo. The letters of credit have maturity
dates of February 2003.

The Senior Credit Facility provided for interest on outstanding indebtedness
at the rate of prime plus 1.5%, payable in arrears. Additionally, the terms of
the agreement provided for a fee of 1.0% per annum on the outstanding letter of
credit obligations, also payable in arrears. The Senior Credit Facility further
provided 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. The Senior Credit Facility was 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. The Senior Credit
Facility contained other customary covenants and events of default.

Securities Exchange Agreement. In April 1998, the Securities Exchange
Agreement cancelled a previously outstanding subordinated rollover note, related
deferred interest and fees and related warrants to purchase up to 20% of the
outstanding common stock of the company on a fully diluted basis in an exchange
for the payment of $4.3 million in cash and the issuance by the company to the
Holders of (i) $150.0 million in principal amount of the Series A Notes and (ii)
$87.9 million in principal amount of the Series B Notes. Additionally, the
Holders of the Series A Notes and the Series B Notes were given the right to
approve certain new debt and the right to name one member of the Board of
Directors of CHC. Such director was elected in June 1998 and reelected in August
1999; however, the designated board member resigned in July 2000 and has not
been replaced.

On April 9, 1999, the company entered into Amendment No. 2 (the "Note
Amendment") to the Securities Exchange Agreement with the Holders. Pursuant to
the Note Amendment, the outstanding principal amount of the Series B Notes is
convertible into shares of the company's common stock at a conversion price of
$2.00 per share (subject to customary anti-dilution adjustments). Prior to
entering into the Note Amendment, the Series B Notes were convertible into
common stock at a conversion price of $3.00 per share, which was subject to
downward (but not upward) adjustment based on prevailing market prices for the
company's common stock on

CORAM HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - (CONTINUED)

April 13, 1999 and October 13, 1999. Based on reported market closing prices for
the company's common stock prior to April 13, 1999, this conversion price would
have been adjusted to below $2.00 on such date had the company not entered into
the Note Amendment. Pursuant to the Note Amendment, the parties also increased
the interest rate applicable to the Series A Notes from 9.875% to 11.5% per
annum.

On December 28, 2000, the Bankruptcy Court approved the Debtors' request to
exchange a sufficient amount of debt and related accrued interest for CI
Preferred Stock in order to maintain compliance with the physician ownership and
referral provisions of Stark II. On December 29, 2000, the Securities Exchange
Agreement was amended ("Amendment No. 4") and an Exchange Agreement was
simultaneously executed among the Debtors and the Holders. Pursuant to such
arrangements, the Holders agreed to exchange approximately $97.7 million
aggregate principal amount of the Series A Notes and $11.6 million of aggregate
contractual unpaid interest on the Series A Notes and the Series B Notes as of
December 29, 2000 for 905 shares of the CI Preferred Stock (see Note 8 for
further details regarding the preferred stock). Following the exchange, the
Holders retained approximately $61.2 million aggregate principal amount of the
Series A Notes and $92.1 million aggregate principal amount of the Series B
Notes. Pursuant to Amendment No. 4, the per annum interest rate on both the
Series A Notes and the Series B Notes was adjusted to 9.0%. Moreover, the Series
A Notes' and Series B Notes' original scheduled maturity dates of May 2001 and
April 2008, respectively, were both modified to June 30, 2001. Due to the
Holders' receipt of consideration with a fair value less than the face value of
the exchanged principal and accrued interest, the exchange transactions
qualified as a troubled debt restructuring pursuant to Statement of Financial
Accounting Standards No. 15, Accounting by Debtors and Creditors for Troubled
Debt Restructurings ("Statement 15"). In connection therewith, the company
recognized an extraordinary gain during the fourth quarter of the year ended
December 31, 2000 of approximately $107.8 million, net of tax.

On December 27, 2001, the Bankruptcy Court approved the Debtors' request to
exchange an additional amount of debt and related contractual unpaid interest
for CI Preferred Stock in an amount sufficient to maintain compliance with the
Stark II. In connection therewith, on December 31, 2001 the Securities Exchange
Agreement was amended ("Amendment No. 5") and an Exchange Agreement was
simultaneously executed among the Debtors and the Holders. Pursuant to such
arrangements, the Holders agreed to exchange $21.0 million aggregate principal
amount of the Series A Notes and approximately $1.9 million of aggregate
contractual unpaid interest on the Series A Notes as of December 31, 2001 for
approximately 189.6 shares of the CI Preferred Stock. Following this second
exchange, the Holders retain approximately $40.2 million aggregate principal
amount of the Series A Notes. Pursuant to Amendment No. 5, the Series A Notes'
and Series B Notes' scheduled maturity date of June 30, 2001 have both been
modified to June 30, 2002. Due to the Holders' receipt of consideration with a
fair value less than the face value of the exchanged principal and accrued
interest, the exchange transactions qualified as a troubled debt restructuring
pursuant to Statement 15. In connection therewith, the company recognized an
extraordinary gain during the fourth quarter of the year ended December 31, 2001
of approximately $20.7 million.

Although the principal amounts under the Series A Notes and Series B Notes
were not paid on their scheduled maturity date of June 30, 2001 and the company
was in technical default of the Securities Exchange Agreement from that date
until the execution of Amendment No. 5, the Holders were stayed from any
remedies pursuant to the provisions of the United States Bankruptcy Code.
Moreover, the default was effectively cured by Amendment No. 5.

The Securities Exchange Agreement, pursuant to which the Series A Notes and
the Series B Notes were issued, contains customary covenants and events of
default. Upon the Debtors' Chapter 11 bankruptcy filings, the company was in
violation of certain covenants and conditions thereunder; however, such
bankruptcy proceedings have stayed any remedial actions by either the Debtors or
the Holders. Additionally, the company was not in compliance with other
covenants relating to certain contractual relationships its wholly-owned
Resource Network Subsidiaries had with certain parties that were contracted to
provide services pursuant to the Aetna Master Agreement, effective May 1, 1998,
and to other covenants relating to the capitalization of subsidiaries. The
company received waivers from its lenders regarding such events of
noncompliance. The voluntary filing of Chapter 11 bankruptcy petitions by the
Resource Network Subsidiaries caused further defaults under the Securities
Exchange Agreement; however, such defaults were waived by the Holders. In
connection with these waivers and the waivers provided for certain matters of
noncompliance under the Senior Credit Facility, the company and the Holders
entered into a Securities Credit Agreement amendment on November 15, 1999
pursuant to which the Holders agreed that no interest on the Series A Notes and
the 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 Notes and the Series B Notes resumed
on such date. However, due to the Debtors' Chapter 11 bankruptcy filings, no
interest has been paid subsequent to August 8, 2000.

CORAM HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - (CONTINUED)

Notwithstanding the aforementioned default for non-payment of principal on
the Series A Notes and the Series B Notes on June 30, 2001, subsequently cured
by Amendment No. 5, management believes that at March 31, 2002 the company was
in compliance with all covenants of the Securities Exchange Agreement. However,
there can be no assurances as to whether further covenant violations or defaults
will occur in future periods and whether any necessary waivers would be granted.

The Series A Notes and the Series B Notes are scheduled to pay interest
quarterly in arrears in cash or, at the election of the company, through the
issuance of pari passu debt securities, except that the Holders can require the
company to pay interest in cash if the company exceeds a predetermined interest
coverage ratio. Notwithstanding the contractual terms of the Securities Exchange
Agreement, no interest is being paid subsequent to August 8, 2000 due to the
Debtors' ongoing bankruptcy proceedings. Pursuant to the troubled debt
restructuring rules promulgated under Statement 15 and other accounting rules
under SOP 90-7, no interest expense has been recognized in the company's
condensed consolidated financial statements relative to the Series A Notes and
the Series B Notes since December 29, 2000.

The Series A Notes and the Series B Notes are redeemable, in whole or in
part, at the option of the Holders 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 notes are redeemable at 103% of the then
outstanding principal amount, plus accrued interest. Upon maturity of the Series
A Notes, the Series B Notes are also redeemable, at the option of the Holders,
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.

7. INCOME TAXES

During the three months ended March 31, 2002 and 2001, the company recorded
income tax expense of approximately $40,000 and $50,000, respectively. The
effective income tax rate for the three months ended March 31, 2002 is lower
than the statutory rate because the company is able to utilize net operating
loss carryforwards ("NOLs") which are fully reserved in the valuation allowance.
The effective income tax rate for the three months ended March 31, 2001 is
higher than the statutory rate because the company is not recognizing the
potential deferred income tax benefits generated by the current period loss. As
of March 31, 2002, deferred tax assets were net of a $148.8 million valuation
allowance. Realization of deferred tax assets is dependent upon the company's
ability to generate taxable income in the future. Deferred tax assets have been
limited to amounts expected to be recovered, net of deferred tax liabilities
that would otherwise become payable in the carryforward period. As management
believes that realization of the deferred tax assets is sufficiently uncertain
at this time, the balances were fully offset by valuation allowances at both
March 31, 2002 and December 31, 2001.

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 NOLs that may be deductible against future taxable income. As of
March 31, 2002, the company had NOLs for federal income taxes of approximately
$176.8 million, which are available to offset future federal taxable income and
expire in varying amounts in the years 2002 through 2021. This NOL balance
includes approximately $35.7 million generated prior to the creation of Coram
through the merger by and among T2 Medical, Inc., Curaflex Health Services,
Inc., HealthInfusion, Inc. and Medisys, Inc. Such pre-merger NOL amounts are
subject to an annual usage limitation of approximately $4.5 million. In
addition, the ability to utilize the full amount of the $176.8 million of NOLs
is uncertain due to income tax rules related to the exchange of debt and related
accrued interest for CI Preferred Stock in December 2000 (see Note 8).

As a result of the issuance of CI Preferred Stock in December 2000, the
company effectuated a deconsolidation of its group for federal income tax
purposes. Accordingly, subsequent to December 29, 2000, income tax returns will
be filed with Coram, Inc. as the parent company of the new consolidated group
and Coram Healthcare Corporation will file its own separate income tax returns.
The issuance of the preferred stock also caused an ownership change at Coram,
Inc. for federal income tax purposes. However, Coram, Inc. currently operates
under the jurisdiction of the Bankruptcy Court and meets certain other
bankruptcy related conditions of the Internal Revenue Code ("IRC"). The
bankruptcy provisions of IRC Section 382 impose limitations on the utilization
of NOLs and other tax attributes. The extraordinary gains on troubled debt
restructurings that resulted from the issuance of CI Preferred Stock in December
2000 and December 2001 are generally not subject to tax pursuant to the
cancellation of debt provisions included in IRC Section 108.

CORAM HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - (CONTINUED)

In January 1999, the Internal Revenue Service ("IRS") completed an
examination of the company's federal income tax return for the year ended
September 30, 1995 and proposed substantial adjustments to the prior tax
liabilities. The company previously agreed to adjustments of $24.4 million that
only affect available NOLs. The issues involve the deductibility of warrants,
write-off of goodwill and the ability of the company to categorize certain NOLs
as specified liability losses and offset income in prior years. The alleged
deficiency totaled approximately $12.7 million (obtained from federal tax
refunds), plus interest and penalties to be determined. In May 1999, the company
received a statutory notice of deficiency with respect to the proposed
adjustments seeking to recover the amount of taxes previously refunded. In
August 1999, the company filed a petition with the United States Tax Court ("Tax
Court") contesting the notice of deficiency. The IRS responded to the petition
and requested the petition be denied. The Tax Court proceeding is currently
stayed by reason of the Debtors' bankruptcy proceedings.

Pursuant to standard IRS procedures, the resolution of the issues contained
in the Tax Court petition were assigned to the administrative appeals function
of the IRS. The company has tentatively reached a settlement agreement with the
IRS Appeals office on the aforementioned issues. The settlement, if approved by
the Joint Committee of Taxation and, if necessary, the Debtors' Chapter 11
trustee and the Bankruptcy Court, would result in a federal tax liability of
approximately $9.9 million, plus interest. In connection therewith, the
accompanying condensed consolidated financial statements include long-term
liability reserves for the proposed settlement, including approximately $0.4
million and $0.3 million of incremental interest expense recorded during the
three months ended March 31, 2002 and 2001, respectively. The federal income tax
adjustments would also give rise to additional state tax liabilities. If the
company is not able to negotiate an installment plan with the IRS with respect
to the proposed settlement amount or if the Joint Committee of Taxation, the
Chapter 11 trustee or the Bankruptcy Court do not approve the proposed
settlement amount, the financial position and liquidity of the company could be
materially adversely affected.

8. MINORITY INTERESTS

The following summarizes the minority interests in consolidated joint
ventures and preferred stock issued by a subsidiary (in thousands):

MARCH 31, DECEMBER 31,
2002 2001
-------- ------------

Series A Cumulative Preferred Stock of Coram, Inc.
(hereafter referred to as the "CI Preferred Stock") .... $5,618 $5,618

Majority-owned companies ................................... 796 672
------ ------
Total minority interests ................................... $6,414 $6,290
====== ======

On December 29, 2000, CI, a wholly-owned subsidiary of Coram Healthcare
Corporation, executed an Exchange Agreement with the parties to CI's Securities
Exchange Agreement (collectively the "Holders") (see Note 6 for further details)
to exchange approximately $97.7 million of the Series A Notes and approximately
$11.6 million of contractual but unpaid interest on the Series A Notes and the
Series B Notes in exchange for 905 shares of CI Preferred Stock, $0.001 par
value per share, having an aggregate liquidation preference of approximately
$109.3 million. The shares of the CI Preferred Stock were issued to the Holders
on a pro rata basis. Through an independent valuation, it was determined that
the 905 shares of CI Preferred Stock had a fair value of approximately $6.1
million and such amount, offset by certain legal and other closing costs, net to
approximately $5.5 million.

On December 31, 2001, CI executed a second Exchange Agreement with the
Holders (see Note 6 for further details) to exchange $21.0 million of the Series
A Notes and approximately $1.9 million of contractual but unpaid interest on the
Series A Notes for approximately 189.6 shares of the CI Preferred Stock, having
a liquidation preference of approximately $22.9 million. Such shares of the CI
Preferred Stock were issued to the Holders on a pro rata basis. Utilizing an
updated independent valuation, it was determined that the aggregate issued and
outstanding CI Preferred Stock, consisting of approximately 1,241.1 shares at
December 31, 2001, had a fair value of approximately $1.9 million. Approximately
$0.3 million of fair value was allocated to the shares issued in conjunction
with the second Exchange Agreement. Net of certain legal and other closing
costs, the cumulative minority interest attributable to the CI Preferred Stock
at March 31, 2002 and December 31, 2001 is approximately $5.6 million.

The authorized CI Preferred Stock consists of 10,000 shares, and the only
shares issued and outstanding at March 31, 2002 are those issued to the Holders
pursuant to the two aforementioned Exchange Agreements and any corresponding
in-kind dividends. So long as any shares of the CI Preferred Stock are
outstanding, the Holders are entitled to receive preferential dividends at a
rate of 15% per annum on the liquidation preference amount. Dividends are
payable on a quarterly basis on the last business day of each calendar quarter.
Prior to the effective date of the Debtors' plan of reorganization, dividends
are to be paid in the form of additional shares of

CORAM HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - (CONTINUED)

CI Preferred Stock having a liquidation preference amount equal to such dividend
amount. Subsequent to the effective date of a plan of reorganization, dividends
will be payable, at CI's election, in cash or shares of common stock of CI
having a fair value equal to such cash dividend payment, as determined by a
consensus of investment banking firms acceptable to the Holders. In the event of
default, the dividend rate shall increase to 16% per annum until such time that
the event of default is cured. All dividends are to include tax indemnities and
gross-up provisions (computed subsequent to the company's tax fiscal year end in
connection with the preparation of the company's income tax returns) as are
appropriate for transactions of this nature. In-kind dividends earned during the
three-month periods ended March 31, 2002 and 2001, exclusive of any tax
indemnities and gross-up provisions, aggregated approximately 45.5 shares and
34.3 shares and had a liquidation preferences of approximately $5.5 million and
$4.1 million, respectively.

The organizational documents and other agreements underlying the CI
Preferred Stock include usual and customary affirmative and negative covenants
for a security of this nature, including, but not limited to (i) providing
timely access to certain financial and business information; (ii) authorization
to communicate with the company's independent certified public accountants with
respect to the financial condition and other affairs of the company; (iii)
maintaining tax compliance; (iv) maintaining adequate insurance coverage; (v)
adherence to limitations on transactions with affiliates; (vi) adherence to
limitations on acquisitions or investments; (vii) adherence to limitations on
the liquidation of assets or businesses; and (viii) adherence to limitations on
entering into additional indebtedness.

The organizational documents and other agreements underlying the CI
Preferred Stock also include special provisions regarding the CI Preferred
Stock's voting rights. These provisions include terms and conditions pertaining
to certain triggering events whereby the CI Preferred Stock voting rights would
become effective. Generally, such triggering events include notice of a meeting,
distribution of a written consent in lieu of a meeting, or entry of an order of
court compelling a meeting, of the stockholders or the Board of Directors of CI
or CHC: (i) to approve appointment, removal or termination of any member of the
Board of Directors of CI or CHC; or (ii) to approve any change in the rights of
any person to do so. Triggering events related to a notice of a meeting or the
distribution of a written consent of the stockholders or Board of Directors of
CI cannot occur without a majority of the independent directors of CHC
previously approving such meeting or written consent. Substantial consummation
of a plan of reorganization will also constitute a triggering event.

Subsequent to the occurrence of a triggering event, each share of CI
Preferred Stock will be entitled to one vote and shall entitle the holder
thereof to vote on all matters voted on by the holders of CI common stock,
voting together as a single class with other shares entitled to vote, at all
meetings of the stockholders of CI. As of March 31, 2002, the Holders had
contingent voting rights aggregating approximately 56.3% of CI's total voting
power. As of such date, upon the occurrence of a triggering event, the Holders
would have also had the right to appoint four of the seven directors to the
Board of Directors of CI (a quorum in meetings of the Board of Directors would
have been constituted by the presence of a majority of the directors, at least
two of whom must have been directors appointed by the Holders). Prior to the
occurrence of a triggering event, the Holders have the right to appoint two
directors to the Board of Directors of CI.

However, on April 12, 2002, the Holders executed a waiver, whereby they
agreed to permanently and irrevocably waive their rights to collectively
exercise, upon the occurrence of a triggering event, in excess of 49% of the
voting rights of the aggregate of all classes of common and preferred shares and
any other voting securities of CI (the "Waiver"), regardless of the number of
shares issued and outstanding. Additionally, pursuant to this permanent and
irrevocable waiver of rights, the Holders waived their rights to collectively
elect or appoint a number of directors that constitutes half or more of the
total number of directors of CI. Alternatively, if the holders of the CI
Preferred Stock elect no Board of Directors' representation, then each of the
three Holders shall have the right to appoint an observer to the Board of
Directors of CI. The Waiver can only be modified or amended with the written
consent of the Debtors.

The CI Preferred Stock is redeemable at the option of CI, in whole or in
part, at any time, on not less than thirty days prior written notice, at the
liquidation preference amount plus any contractual but unpaid dividends.
Redemption may be made in the form of cash payments only. As of May 17, 2002,
the aggregate CI Preferred Stock liquidation preference was approximately $155.4
million.

9. LITIGATION AND CONTINGENCIES

Bankruptcy Proceedings. On August 8, 2000, the Debtors filed voluntary
petitions for relief under Chapter 11 of the United States Bankruptcy Code with
the United States Bankruptcy Court for the District of Delaware In Re Coram
Healthcare Corporation and Coram, Inc., Case No. 00-3299 (MFW) and 00-3300 (MFW)
(collectively the "Chapter 11 Cases"). The proceedings have been

CORAM HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - (CONTINUED)

consolidated for administrative purposes only by the Bankruptcy Court and are
being administered under the docket of In Re Coram Healthcare Corporation, Case
No. 00-3299 (MFW). None of the Debtors' other subsidiaries are debtors in the
proceedings. See Note 2 for further details.

Except as may otherwise be determined by the Bankruptcy Court overseeing the
Chapter 11 Cases, the protection afforded by Chapter 11 generally provides for
an automatic stay relative to 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.

Official Committee of the Equity Security Holders' Matters. A committee of
persons claiming to own shares of the company's publicly traded common stock
(the "Equity Committee") objected to the Restated Joint Plan and the Second
Joint Plan, contending, among other things, that the company valuations upon
which the Restated Joint Plan and the Second Joint Plan were premised and the
underlying projections and assumptions were flawed. At various times during
2001, the Debtors and the Equity Committee reviewed certain company information
regarding, among other things, the Equity Committee's contentions. In connection
therewith, on July 30, 2001, the Equity Committee filed a motion to terminate
the Debtors' exclusivity period and file its own plan of reorganization. The
Equity Committee's exclusivity motion was denied by the Bankruptcy Court.

Additionally, in February 2001, the Equity Committee filed a motion with the
Bankruptcy Court seeking permission to bring a derivative lawsuit directly
against the company's Chief Executive Officer, a former member of the Board of
Directors of CHC and Cerberus (a party to the company's debtor-in-possession
financing agreement, Senior Credit Facility and Securities Exchange Agreement).
The Equity Committee's proposed lawsuit alleged a collusive plan whereby the
named parties conspired to devalue the company for the benefit of the company's
creditors under the Securities Exchange Agreement. On February 26, 2001, the
Bankruptcy Court ruled that the Equity Committee's motion would not be
productive at that time and, accordingly, the motion was denied without
prejudice. In January 2002, the Equity Committee filed a substantially similar
motion with the Bankruptcy Court, which additionally named Cerberus' principal
and the company's other noteholders. On February 12, 2002, in connection with
the authorization of the Chapter 11 trustee, the Bankruptcy Court again denied
the renewed motion without prejudice.

Management cannot predict whether any future objections of the Equity
Committee will be forthcoming or if they might impact confirmation of any plan
of reorganization proposed by the Chapter 11 trustee or any other interested
party. Management also cannot predict if any other actions taken by the Equity
Committee will have consequences adverse to the company.

Resource Network Subsidiaries' Bankruptcy. On August 19, 1999, a small group
of parties with claims against the Resource Network Subsidiaries filed an
involuntary bankruptcy petition under Chapter 11 of the Bankruptcy Code against
Coram Resource Network, Inc. in the Bankruptcy Court. On November 12, 1999, the
Resource Network Subsidiaries filed voluntary petitions under Chapter 11 of the
Bankruptcy Code Bankruptcy Court, Case No. 99-2889 (MFW). The two proceedings
were consolidated by stipulation of the parties and the case is pending under
the docket of In Re Coram Resource Network, Inc. and Coram Independent Practice
Association, Inc., Case No. 99-2889 (MFW). The Resource Network Subsidiaries are
now being liquidated pursuant to these proceedings.

On September 11, 2000, the Resource Network Subsidiaries filed a motion in
the Debtors' Chapter 11 proceedings seeking, among other things, to have both
the Debtors' and the Resource Network Subsidiaries' bankruptcy proceedings
substantively consolidated into one proceeding. If this motion had been granted,
the Chapter 11 proceedings involving the Resource Network Subsidiaries and the
Chapter 11 estate and proceedings involving the Debtors would have been combined
such that the assets and liabilities of the Resource Network Subsidiaries would
have been joined with the assets and liabilities of the Debtors, the liabilities
of the combined entity would have been satisfied from combined funds and all
intercompany claims would have been eliminated. Furthermore, the creditors of
both proceedings would have voted on any reorganization plan for the combined
entities. The Resource Network Subsidiaries and the Debtors engaged in discovery
related to this substantive consolidation motion and then reached a settlement
agreement in November 2000. The settlement agreement was approved by the
Bankruptcy Court in December 2000 and, in connection therewith, the Debtors made
a payment of $0.5 million to the Resource Network Subsidiaries in January 2001.

CORAM HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - (CONTINUED)

Notwithstanding the withdrawal of the substantive consolidation motion, the
Resource Network Subsidiaries still maintain proofs-of-claim in excess of $41
million against each of the Debtors' estates and the company maintains a claim
of approximately the same amount against the Resource Network Subsidiaries'
estate. Additionally, the Official Committee of Unsecured Creditors of the
Resource Network Subsidiaries filed objections to confirmation of the Second
Joint Plan, as well as, a motion to lift the automatic stay in the Debtors'
bankruptcy proceedings to pursue their claims against the Debtors. Through May
17, 2002, the Bankruptcy Court has not granted any relief from the automatic
stay provisions of the Bankruptcy Code in favor of the Resource Network
Subsidiaries' estates.

In November 2001, the Official Committee of Unsecured Creditors of the
Resource Network Subsidiaries filed an adversary complaint in the Bankruptcy
Court, both on its own behalf and as assignee for causes of action that may
belong to the Resource Network Subsidiaries, which named as defendants the
Debtors, several non-debtor subsidiaries, several current and former directors,
current executive officers of CHC and several other current and former employees
of the company. This complaint also named as defendants Cerberus, Goldman Sachs
Credit Partners, L.P., Foothill Capital Corporation and Foothill Income Trust,
L.P., the Debtors' principal lenders. The complaint alleges that the defendants
violated various state and federal laws in connection with alleged wrongdoings
related to the operation and corporate structure of the Resource Network
Subsidiaries, including, among other allegations, breach of fiduciary duty,
conversion of assets and preferential payments at the detriment of the Resource
Network Subsidiaries' estates, misrepresentation and fraud, conspiracy,
fraudulent concealment and a pattern of racketeering activity. The complaint
seeks damages in the amount of approximately $56 million and additional monetary
and non-monetary damages, including the disallowance of the Debtors'
proofs-of-claim against the Resource Network Subsidiaries, punitive damages and
attorneys' fees. The Debtors objected to the complaint in the Bankruptcy Court
because management believes that the complaint constitutes an attempt to
circumvent the automatic stay protecting the estates of the Debtors; however,
the non-debtor subsidiaries have no such protection and, accordingly, they plan
to vigorously contest the allegations. The company notified its insurance
carrier of the complaint and intends to avail itself of any appropriate
insurance coverage for its directors and officers, who are also vigorously
contesting the allegations. Principally due to the early stages of this matter
and the issues pending before the Bankruptcy Court, the company cannot predict
the outcome of this case nor can it predict the scope and nature of any
indemnification that the directors and officers may have with the company's
insurance carrier.

The ultimate outcome of the aforementioned claims related to the Resource
Network Subsidiaries' bankruptcy cannot be predicted with any degree of
certainty.

TBOB Enterprises, Inc. 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 the company breached its obligations under an agreement entered into
by the parties in 1996 relating to a prior earn-out obligation of the company
that originated from the acquisition of the claimant's prescription services
business in 1993 by a wholly-owned subsidiary of the company. The company
operated the business under the name Coram Prescription Services ("CPS") and the
assets of the CPS business were sold on July 31, 2000. TBOB alleges, among other
things, that the company 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 $0.9 million. TBOB contends that this
amount must be paid in addition to the final scheduled earn-out payment of
approximately $1.3 million that was due in March 2001. Furthermore, pursuant to
the underlying agreement with TBOB, additional liabilities may result from
post-petition interest on the final scheduled earn-out payment. In accordance
with SOP 90-7, such interest, estimated to aggregate approximately $0.2 million
as of December 31, 2001, using the contractual rate of 18%, has not been
recorded in the company's condensed consolidated financial statements because
TBOB's claim for interest may ultimately not be sustainable. TBOB reiterated its
monetary demand through a proof of claim filed against CHC's estate for the
aggregate amount of approximately $2.2 million (the scheduled earn-out payment
plus the alleged damages). Any action relating to the final $1.3 million
earn-out payment scheduled for March 2001, the alleged damages of $0.9 million
and any interest accrued thereon have been stayed by operation of the Bankruptcy
Code. On July 5, 2001, the company received a letter from TBOB's legal counsel
requesting that the aforementioned arbitration remain in abeyance pending
resolution of the bankruptcy proceedings. Management does not believe that final
resolution of this matter will have a material adverse impact on the company's
financial position or results of operations.

Internal Revenue Service Negotiations. CHC and the Internal Revenue Service
have been negotiating over a notice of deficiency issued by the Internal Revenue
Service. See Note 7 for further details.

CORAM HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - (CONTINUED)

Alan Furst et. al. v. Stephen Feinberg, et. al. A complaint was filed in
the United States District Court for the District of New Jersey on November 8,
2000 and an Amended Class Action Complaint was filed on November 15, 2000,
alleging that certain current and former officers and directors of the company
and the company's principal lenders, Cerberus Partners, L.P., Foothill Capital
Corporation and Goldman, Sachs & Co., implemented a scheme to perpetrate a fraud
upon the stock market regarding the common stock of CHC. A second Amended Class
Action Complaint (the "Second Amended Complaint") was filed on March 21, 2001,
which removed all of the officers and directors of the company as defendants,
except the company's Chief Executive Officer and a former member of the Board of
Directors of CHC, and continued to name Cerberus Partners, L.P., Foothill
Capital Corporation and Goldman, Sachs & Co. as defendants. The plaintiffs
allege that the defendants artificially depressed the trading price of the
company's publicly traded shares and created the false impression that
stockholders' equity was decreasing in value and was ultimately worthless. The
plaintiffs further allege that members of the class sustained total investment
losses of $50 million or more. On June 14, 2001, a third Amended Class Action
Complaint (the "Third Amended Complaint") was filed naming the same defendants
as the Second Amended Complaint. The plaintiffs' allegations in the Third
Amended Complaint were substantially similar to the allegations in the Second
Amended Complaint; however, the Third Amended Complaint eliminated references to
the corporate assets of Coram. The defendants filed motions to dismiss the Third
Amended Complaint, as they believe the claims are inadequately pleaded and
meritless and, in connection therewith, on May 6, 2002 the judge dismissed the
plaintiffs' claims in this case with prejudice. On May 13, 2002 the plaintiffs
filed a Notice of Appeal in this matter with the United States Court of Appeals
for the Third Circuit. The company has notified its insurance carrier of the
lawsuit and intends to avail itself of any appropriate insurance coverage for
its directors and officers, who are vigorously contesting the allegations. The
company cannot predict the outcome of this case nor can it predict the scope and
nature of any indemnification that the directors and officers may have with the
company's insurance carrier.

General. Management of the company and its subsidiaries intends to
vigorously defend the company in the matters described above. Nevertheless, due
to the uncertainties inherent in litigation, including possible indemnification
of other parties, the ultimate disposition of such matters cannot presently be
determined. Adverse outcomes in some or all of the proceedings could have a
material adverse effect on the financial position, results of operations and
liquidity of the company.

The company and its subsidiaries are also parties to various other legal
actions arising out of the normal course of their businesses, including employee
claims, reviews of cost reports submitted to Medicare and examinations by
regulators such as Medicare and Medicaid fiscal intermediaries and the Centers
for Medicare and Medicaid Services ("CMS") (formerly the Health Care Financing
Administration). 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.

PricewaterhouseCoopers LLP. On July 7, 1997, the company filed suit against
Price Waterhouse LLP (now known as PricewaterhouseCoopers LLP) in the Superior
Court of San Francisco, California, seeking damages in excess of $165.0 million.
As part of the settlement that resolved a case filed by the company against
Caremark International, Inc. and Caremark, Inc. (collectively "Caremark"),
Caremark assigned and transferred to the company all of Caremark's claims and
causes of action against Caremark's independent auditors, PricewaterhouseCoopers
LLP, related to the lawsuit filed by the company against Caremark. This
assignment of claims includes claims for damages sustained by Caremark in
defending and settling its lawsuit with the company. The case was dismissed from
the California court because of inconvenience to witnesses with a right to
re-file in Illinois. The company re-filed the lawsuit in state court in Illinois
and PricewaterhouseCoopers LLP filed a motion to dismiss the company's lawsuit
on several grounds, but its motion was denied on March 15, 1999.
PricewaterhouseCoopers LLP filed an additional motion to dismiss the lawsuit in
May 1999, and that motion was dismissed on January 28, 2000. On April 19, 2001,
PricewaterhouseCoopers LLP filed a motion for partial summary judgement with
regard to a portion of Caremark's claims; however, this motion was subsequently
denied. The lawsuit is currently in the discovery stage and a trial is scheduled
to commence in December 2002. There can be no assurance of any recovery from
PricewaterhouseCoopers LLP or its insurance carriers.

Government Regulation. Under the physician ownership and referral provisions
of the Omnibus Budget Reconciliation Act of 1993 (commonly referred to as "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 and/or the physician's family, as defined under
Stark II, 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. The company 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, based upon advice of legal counsel, using an arrangement management
believes to be consistent with the applicable exceptions set forth in Stark II.

In addition, the company is aware of certain referring physicians (or their
immediate family members) 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

CORAM HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - (CONTINUED)

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. Due
principally to the extraordinary gains on troubled debt restructurings (see Note
6), at December 31, 2001 the company's stockholders' equity was above the
required level. As a result, the company is compliant with the Stark II public
company exemption through the year ending December 31, 2002. However, in light
of the company's recurring operational losses during each of the years in the
three year period ended December 31, 2001, management's ability to maintain an
appropriate level of stockholders' equity at December 31, 2002, for compliance
as of January 1, 2003, cannot be reasonably assured. The penalties for failure
to comply with Stark II include, among other things, non-payment of claims and
civil penalties that could be imposed upon the company and, in some instances
upon the referring physician. Some of such penalties can be imposed regardless
of whether the company intended to violate the law.

Management has been advised by legal counsel 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 the
company's common stock remains publicly traded and its stockholders' equity
falls below the required levels, the company would be forced to cease accepting
referrals of patients covered by Medicare or Medicaid programs or run a
significant risk of noncompliance with Stark II. Because referrals of the
company's patients with such government-sponsored benefit programs comprise
approximately 25% of the company's consolidated net revenue for the three months
ended March 31, 2002, discontinuing the acceptance of patients with
government-sponsored benefit programs would have a material adverse effect on
the financial condition, results of operations and cash flows 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. The company previously requested a Stark II waiver from the Health
Care Financing Administration, but such waiver request was denied.

CORAM HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - (CONTINUED)

10. DEBTOR/NON-DEBTOR CONDENSED FINANCIAL STATEMENTS

The following Condensed Consolidating Financial Statements are presented in
accordance with SOP 90-7 (in thousands):

CONDENSED CONSOLIDATING BALANCE SHEET
AS OF MARCH 31, 2002
(UNAUDITED)

DEBTORS NON-DEBTORS ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------

ASSETS
Current assets:
Cash and cash equivalents ........................................... $ 16,002 $ 707 $ -- $ 16,709
Cash limited as to use .............................................. 182 169 -- 351
Accounts receivable, net ............................................ -- 96,296 -- 96,296
Inventories ......................................................... -- 12,093 -- 12,093
Deferred income taxes, net .......................................... -- 221 -- 221
Other current assets ................................................ 2,861 1,176 -- 4,037
--------- ------------ ------------- ------------
Total current assets ................................................ 19,045 110,662 -- 129,707
Property and equipment, net ........................................... 4,146 9,944 -- 14,090
Deferred income taxes, net ............................................ -- 868 -- 868
Other deferred costs and intangible assets, net ....................... 248 5,405 -- 5,653
Goodwill, net ......................................................... -- 180,871 -- 180,871
Investments in and advances to wholly-owned subsidiaries, net ......... 236,087 -- (236,087) --
Other assets .......................................................... 3,359 1,627 -- 4,986
--------- ------------ ------------- ------------
Total assets ........................................................ $ 262,885 $ 309,377 $ (236,087) $ 336,175
========= ============ ============= ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities not subject to compromise:
Accounts payable .................................................... $ 10,589 $ 14,370 $ -- $ 24,959
Accrued compensation and related liabilities ........................ 16,782 5,966 -- 22,748
Current maturities of long-term debt ................................ 51 9 -- 60
Income taxes payable ................................................ 39 319 -- 358
Deferred income taxes ............................................... -- 654 -- 654
Accrued merger and restructuring costs .............................. 376 72 -- 448
Accrued reorganization costs ........................................ 8,181 -- -- 8,181
Other accrued liabilities, including interest payable ............... 2,448 4,080 (250) 6,278
--------- ------------ ------------- ------------
Total current liabilities not subject to compromise ................... 38,466 25,470 (250) 63,686
Total current liabilities subject to compromise ....................... 139,044 -- -- 139,044
--------- ------------ ------------- ------------
Total current liabilities ............................................. 177,510 25,470 (250) 202,730
Long-term liabilities not subject to compromise:
Long-term debt, less current maturities ............................ 118 13 -- 131
Minority interests in consolidated joint ventures and preferred
stock issued by a subsidiary .................................... 5,618 796 -- 6,414
Income taxes payable ............................................... -- 18,142 -- 18,142
Other liabilities .................................................. -- 1,901 -- 1,901
Deferred income taxes .............................................. -- 435 -- 435
Net liabilities of discontinued operations ......................... -- 26,533 250 26,783
--------- ------------ ------------- ------------
Total liabilities ................................................ 183,246 73,290 -- 256,536
Net assets, including amounts due to Debtors ....................... -- 236,087 (236,087) --
Total stockholders' equity ......................................... 79,639 -- -- 79,639
--------- ------------ ------------- ------------
Total liabilities and stockholders' equity ....................... $ 262,885 $ 309,377 $ (236,087) $ 336,175
========= ============ ============= ============

CORAM HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - (CONTINUED)

CONDENSED CONSOLIDATING BALANCE SHEET AS OF DECEMBER 31, 2001

DEBTORS NON-DEBTORS ELIMINATIONS CONSOLIDATED
--------- ----------- ------------ ------------

ASSETS
Current assets:
Cash and cash equivalents ........................................ $ 20,796 $ 543 $ -- $ 21,339
Cash limited as to use ........................................... 185 84 -- 269
Accounts receivable, net ......................................... -- 88,567 -- 88,567
Inventories ...................................................... -- 13,557 -- 13,557
Deferred income taxes, net ....................................... -- 178 -- 178
Other current assets ............................................. 2,990 1,833 -- 4,823
--------- --------- --------- ---------
Total current assets ........................................... 23,971 104,762 -- 128,733
Property and equipment, net ........................................ 3,639 11,391 -- 15,030
Deferred income taxes, net ......................................... -- 719 -- 719
Other deferred costs and intangible assets, net .................... 271 5,999 -- 6,270
Goodwill, net ...................................................... -- 180,871 -- 180,871
Investments in and advances to wholly-owned subsidiaries, net ...... 231,642 -- (231,642) --
Other assets ....................................................... 3,559 1,284 -- 4,843
--------- --------- --------- ---------
Total assets ................................................... $ 263,082 $ 305,026 $(231,642) $ 336,466
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities not subject to compromise:
Accounts payable ................................................. $ 11,642 $ 12,500 $ -- $ 24,142
Accrued compensation and related liabilities ..................... 17,926 8,423 -- 26,349
Current maturities of long-term debt ............................. 51 9 -- 60
Income taxes payable ............................................. 1 315 -- 316
Deferred income taxes ............................................ -- 462 -- 462
Accrued merger and restructuring costs ........................... 435 148 -- 583
Accrued reorganization costs ..................................... 7,742 -- -- 7,742
Other accrued liabilities, including interest payable ............ 2,299 4,187 (250) 6,236
--------- --------- --------- ---------
Total current liabilities not subject to compromise .............. 40,096 26,044 (250) 65,890
Total current liabilities subject to compromise .................... 139,044 -- -- 139,044
--------- --------- --------- ---------
Total current liabilities .......................................... 179,140 26,044 (250) 204,934
Long-term liabilities not subject to compromise:
Long-term debt, less current maturities .......................... 135 15 -- 150
Minority interests in consolidated joint ventures and preferred
stock issued by a subsidiary ................................. 5,618 672 -- 6,290
Income taxes payable ............................................. -- 17,784 -- 17,784
Other liabilities ................................................ -- 1,901 -- 1,901
Deferred income taxes ............................................ -- 435 -- 435
Net liabilities of discontinued operations ....................... -- 26,533 250 26,783
--------- --------- --------- ---------
Total liabilities ............................................... 184,893 73,384 -- 258,277
Net assets, including amounts due to Debtors ....................... -- 231,642 (231,642) --
Total stockholders' equity ......................................... 78,189 -- -- 78,189
--------- --------- --------- ---------
Total liabilities and stockholders' equity ...................... $ 263,082 $ 305,026 $(231,642) $ 336,466
========= ========= ========= =========

CORAM HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS-(CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2002
(UNAUDITED)

DEBTORS NON-DEBTORS ELIMINATIONS CONSOLIDATED
--------- ----------- ------------ ------------

Net revenue ........................................................ $ -- $ 101,982 $ -- $ 101,982
Cost of service .................................................... -- 74,301 -- 74,301
--------- --------- --------- ---------
Gross profit ....................................................... -- 27,681 -- 27,681
Operating expenses:
Selling, general and administrative expenses ...................... 4,238 16,782 -- 21,020
Provision for estimated uncollectible accounts .................... -- 3,118 -- 3,118
Restructuring cost recovery ....................................... -- (13) -- (13)
--------- --------- --------- ---------
Total operating expenses ......................................... 4,238 19,887 -- 24,125
--------- --------- --------- ---------

Operating income (loss) from continuing operations ................. (4,238) 7,794 -- 3,556
Other income (expense):
Interest income ................................................... 62 23 -- 85
Interest expense .................................................. (8) (357) -- (365)
Gain on sale of business .......................................... -- 46 -- 46
Equity in net income of wholly-owned subsidiaries ................. 7,644 -- (7,644) --
Equity in net income of unconsolidated joint ventures ............. -- 387 -- 387
Other income, net ................................................. -- 12 -- 12
--------- --------- --------- ---------
Income from continuing operations before reorganization
expenses, income taxes and minority interests .................. 3,460 7,905 (7,644) 3,721
Reorganization expenses, net ....................................... 2,010 -- -- 2,010
--------- --------- --------- ---------
Income from continuing operations before income taxes and
minority interests ............................................. 1,450 7,905 (7,644) 1,711
Income tax expense ................................................. -- 38 -- 38
Minority interests in net income of consolidated joint ventures .... -- 223 -- 223
--------- --------- --------- ---------
Net income ......................................................... $ 1,450 $ 7,644 $ (7,644) $ 1,450
========= ========= ========= =========

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2001
(UNAUDITED)

DEBTORS NON-DEBTORS ELIMINATIONS CONSOLIDATED
--------- ----------- ------------ ------------

Net revenue ........................................................ $ -- $ 94,746 $ -- $ 94,746
Cost of service .................................................... -- 69,498 -- 69,498
--------- --------- --------- ---------
Gross profit ....................................................... -- 25,248 -- 25,248
Operating expenses:
Selling, general and administrative expenses ...................... 4,199 16,477 -- 20,676
Provision for estimated uncollectible accounts .................... -- 2,904 -- 2,904
Amortization of goodwill .......................................... -- 2,424 -- 2,424
Restructuring cost recovery ....................................... -- (562) -- (562)
--------- --------- --------- ---------
Total operating expenses ......................................... 4,199 21,243 -- 25,442
--------- --------- --------- ---------

Operating income (loss) from continuing operations ................. (4,199) 4,005 -- (194)
Other income (expense):
Interest income ................................................... 446 12 -- 458
Interest expense .................................................. (247) (338) -- (585)
Equity in net income of wholly-owned subsidiaries ................. 3,604 -- (3,604) --
Equity in net income of unconsolidated joint ventures ............. -- 174 -- 174
Other income, net ................................................. 1 -- -- 1
--------- --------- --------- ---------
Income (loss) from continuing operations before reorganization
expenses, income taxes and minority interests ................... (395) 3,853 (3,604) (146)
Reorganization expenses, net ....................................... 2,820 -- -- 2,820
--------- --------- --------- ---------
Income (loss) from continuing operations before income taxes and
minority interests .............................................. (3,215) 3,853 (3,604) (2,966)
Income tax expense ................................................. -- 50 -- 50
Minority interests in net income of consolidated joint ventures .... -- 199 -- 199
--------- --------- --------- ---------
Net income (loss) .................................................. $ (3,215) $ 3,604 $ (3,604) $ (3,215)
========= ========= ========= =========

CORAM HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2002
(UNAUDITED)

DEBTORS NON-DEBTORS CONSOLIDATED
--------- ----------- ------------

Net cash provided by (used in) continuing operations before
reorganization items ........................................ $ (5,047) $ 3,839 $ (1,208)
Net cash used by reorganization items ........................... (2,380) -- (2,380)
--------- --------- ---------
Net cash provided by (used in) continuing operations (net
of reorganization items) .................................... (7,427) 3,839 (3,588)
--------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment ............................ (749) (376) (1,125)
Cash advances from wholly-owned subsidiaries ................... 3,199 (3,199) --
--------- --------- ---------
Net cash provided by (used in) investing activities ............. 2,450 (3,575) (1,125)
--------- --------- ---------
Cash flows from financing activities:
Principal payments of debt obligations ......................... (17) (2) (19)
Refund of deposits to collateralize letters of credit .......... 200 -- 200
Cash distributions to minority interests ....................... -- (98) (98)
--------- --------- ---------
Net cash provided by (used in) financing activities ............. 183 (100) 83
--------- --------- ---------
Net increase (decrease) in cash from continuing operations ...... $ (4,794) $ 164 $ (4,630)
========= ========= =========

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2001
(UNAUDITED)

DEBTORS NON-DEBTORS CONSOLIDATED
--------- ----------- ------------

Net cash provided by (used in) continuing operations before
reorganization items ........................................ $ (2,017) $ 4,702 $ 2,685
Net cash used by reorganization items ........................... (1,815) -- (1,815)
--------- --------- ---------
Net cash provided by (used in) continuing operations (net
of reorganization items) .................................... (3,832) 4,702 870
--------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment ............................ -- (798) (798)
Cash advances from wholly-owned subsidiaries ................... 3,654 (3,654) --
Proceeds from dispositions of property and equipment ........... 6 17 23
--------- --------- ---------
Net cash provided by (used in) investing activities ............. 3,660 (4,435) (775)
--------- --------- ---------
Cash flows from financing activities:
Principal payments of debt obligations ......................... -- (62) (62)
Payments to collateralize letters of credit, net ............... (2,095) -- (2,095)
Cash distributions paid to minority interests .................. -- (96) (96)
--------- --------- ---------
Net cash used in financing activities ........................... (2,095) (158) (2,253)
--------- --------- ---------
Net increase (decrease) in cash from continuing operations ...... $ (2,267) $ 109 $ (2,158)
========= ========= =========

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 Healthcare Corporation ("CHC")
and its subsidiaries (collectively "Coram" or the "company") that are based on
the beliefs of, 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 proceedings of CHC and its first tier wholly-owned
subsidiary, Coram, Inc. ("CI") (CHC and CI are henceforth collectively referred
to as the "Debtors") and certain other factors, which are described in greater
detail in Coram's Annual Report on Form 10-K for the year ended December 31,
2001 under Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations" 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 management with respect
to future events based on currently available information and are subject to
risks and uncertainties that could cause actual results to differ materially
from those contemplated in such forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. Management does not undertake any obligation
to publicly release any revisions to these forward-looking statements to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.

The accompanying condensed consolidated financial statements have been
prepared on a going concern basis, which contemplates continuity of operations,
realization of assets and liquidation of liabilities in the ordinary course of
business. However, as a result of the Debtors' bankruptcy filings and
circumstances relating thereto, including the company's leveraged financial
structure and cumulative losses from operations, such realization of assets and
liquidation of liabilities is subject to significant uncertainty. During the
pendency of the Debtors' Chapter 11 bankruptcy proceedings, the company may sell
or otherwise dispose of assets and liquidate or settle liabilities for amounts
other than those reflected in the condensed consolidated financial statements.
Furthermore, a plan of reorganization filed in the Chapter 11 bankruptcy
proceedings could materially change the amounts reported in the condensed
consolidated financial statements, which do not give effect to any adjustments
of the carrying value of assets or liabilities that might be necessary as a
consequence of a plan of reorganization (see Note 2 to the company's condensed
consolidated financial statements for further details). The company's ability to
continue as a going concern is dependent upon, among other things, confirmation
of a plan of reorganization, future profitable operations, the ability to comply
with the terms of the company's financing agreements, the ability to obtain
necessary financing to fund a pending settlement with the Internal Revenue
Service, the ability to remain in compliance with the physician ownership and
referral provisions of the Omnibus Budget Reconciliation Act of 1993 (commonly
known as "Stark II") and the ability to generate sufficient cash from operations
and/or financing arrangements to meet its obligations.

BACKGROUND

During 2001 and 2002, Coram was engaged primarily in the business of
furnishing alternate site (outside the hospital) infusion therapy, including
non-intravenous home health products such as durable medical equipment and
respiratory therapy services. Other services offered by Coram include
centralized management, administration and clinical support for clinical
research trials.

Coram's wholly-owned subsidiaries, Coram Resource Network, Inc. and Coram
Independent Practice Association, Inc. (collectively the "Resource Network
Subsidiaries" or "R-Net") are being liquidated through proceedings that are
currently pending in the United States Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court"). These proceedings originated in August 1999
following the filing of an involuntary bankruptcy petition against Coram
Resource Network, Inc. in such court. All of the R-Net locations have been
closed in connection with the pending liquidation of R-Net. Additionally, Coram
employees who were members of the Resource Network Subsidiaries' Board of
Directors resigned and only the Chief Restructuring Officer appointed by the
Bankruptcy Court remains on the Board of Directors to manage and operate the
liquidation of the R-Net business. See Note 3 to the company's condensed
consolidated financial statements.

REORGANIZATION UNDER CHAPTER 11 OF THE UNITED STATES BANKRUPTCY CODE

(I) BACKGROUND AND CERTAIN IMPORTANT BANKRUPTCY COURT ACTIVITY

On August 8, 2000, the Debtors filed voluntary petitions under Chapter 11 of
the United States Bankruptcy Code (the "Bankruptcy Code"). Following the filing
of the voluntary Chapter 11 petitions, the Debtors commenced operating as
debtors-in-possession subject to the jurisdiction of the Bankruptcy Court;
however, as discussed below, a Chapter 11 trustee was appointed by the
Bankruptcy Court on March 7, 2002. With the appointment of a Chapter 11 trustee,
while still under the jurisdiction of the Bankruptcy Court, the Debtors are no
longer debtors-in-possession under the Bankruptcy Code. None of the company's
other subsidiaries is a debtor in the proceeding. The Debtors' need to seek the
relief afforded by the Bankruptcy Code was due, in part, to its requirement to
remain in compliance with the physician ownership and referral provisions of
Stark II after December 31, 2000 and the scheduled May 27, 2001 maturity of the
Series A Senior Subordinated Unsecured Notes. The Debtors sought advice and
counsel from a variety of sources and, in connection therewith, the Independent
Committee of the Board of Directors of CHC unanimously concluded that the
bankruptcy and restructuring were the only viable alternatives.

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 financing arrangement (see Note
6 to the company's condensed consolidated financial statements for details of
the executed agreement); and (iv) use of all company bank accounts for normal
business operations. In September 2000, the Bankruptcy Court approved the
Debtors' motion to reject four unexpired, non-residential real property leases
and any associated subleases. The rejected leases included underutilized
locations in: (i) Allentown, Pennsylvania; (ii) Denver, Colorado; (iii)
Philadelphia, Pennsylvania; and (iv) Whippany, New Jersey. The successful
rejection of the Whippany, New Jersey lease caused the company to reverse
certain reserves during the year ended December 31, 2000 that had previously
been established for the closure of its discontinued operations. Additionally,
in January 2002, the Bankruptcy Court approved a motion to extend the period of
time in which the Debtors can reject unexpired leases of non-residential real
property up to and including May 2, 2002. On May 1, 2002, the Chapter 11 trustee
filed a motion with the Bankruptcy Court to extend the period through August 27,
2002 (such real property motion is currently pending before the Bankruptcy
Court).

In September 2000 and October 2000, the Bankruptcy Court approved payments
of up to approximately $2.6 million for retention bonuses payable to certain key
employees. The bonuses were scheduled to be paid in two equal installments on
the later of the date of emergence from bankruptcy or: (i) December 31, 2000 and
(ii) December 31, 2001. Due to events that have delayed emergence from
bankruptcy, the Bankruptcy Court approved early payment of the first installment
to most individuals within the retention program and such payments, aggregating
approximately $0.7 million, were made on March 15, 2001. In January 2002, when
events again delayed the Debtors' anticipated emergence from bankruptcy, the
Debtors requested permission from the Bankruptcy Court to pay: (i) the remaining
portion of the first installment of approximately $0.5 million to the company's
Chief Executive Officer and Executive Vice President and (ii) the full amount of
the second installment. The Debtors also requested authorization to initiate
another retention plan to provide financial incentives not to exceed $1.25
million to certain key employees during the year ending December 31, 2002.
Principally due to the then pending appointment of a Chapter 11 trustee, on
February 12, 2002 the Bankruptcy Court declined to rule on the Debtors' motions.
However, on March 15, 2002, after the appointment of a Chapter 11 trustee, the
Bankruptcy Court partially approved the Debtors' motions insofar as all
remaining retention bonuses were authorized to be paid, exclusive of amounts
pertaining to the company's Chief Executive Officer because such payments are
disputed by the Official Committee of the Equity Security Holders (the "Equity
Committee"). The incremental retention bonuses, aggregating approximately $0.8
million, were paid on March 25, 2002. The Bankruptcy Court has postponed its
rulings on the Debtors' motions pertaining to the 2002 retention plan and
payment of the Chief Executive Officer's retention amounts. The company has
fully accrued the remaining amounts under the first and second installments of
the retention plans as of March 31, 2002.

On October 29, 2001, the Debtors filed a motion with the Bankruptcy Court
requesting approval of an agreement to provide the authority for a non-debtor
subsidiary of the company to sell a durable medical equipment business located
in New Orleans, Louisiana to a third party. On November 13, 2001, the Bankruptcy
Court authorized the Debtors to enter into this agreement. The sale of such
business equipment was finalized in January 2002.

On September 11, 2000, the Resource Network Subsidiaries filed a motion in
the Debtors' Chapter 11 proceedings seeking, among other things, to have the two
separate bankruptcy proceedings substantively consolidated into one proceeding.
The Resource Network Subsidiaries and the Debtors engaged in discovery related
to this substantive consolidation motion and, in connection therewith, the
parties reached a settlement agreement in November 2000, which was approved by
an order of the Bankruptcy Court. See Note 9 to the company's condensed
consolidated financial statements for further details. Additionally, the
Official Committee of Unsecured Creditors in the Resource Network Subsidiaries'
bankruptcy proceedings filed motions to lift the automatic bankruptcy stay to
pursue claims against the Debtors and certain of their operating subsidiaries.
Through May 17, 2002, the Bankruptcy Court has not granted any relief of the
automatic stay provisions of the Bankruptcy Code in favor of the R-Net estates.
See Note 9 to the company's condensed consolidated financial statements for
further details.

(II) THE DEBTORS' FIRST JOINT PLAN OF REORGANIZATION AND RELATED ACTIVITIES

On the same day that 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. The Joint Plan was subsequently amended and
restated (the "Restated Joint Plan") and, on or about October 10, 2000, the
Restated Joint Plan and the First Amended Disclosure Statement with respect to
the Restated Joint Plan were authorized for distribution by the Bankruptcy
Court. Among other things, the Restated Joint Plan provided for: (i) a
conversion of all of the CI obligations represented by the company's Series A
Senior Subordinated Unsecured Notes (the "Series A Notes") and the Series B
Senior Subordinated Unsecured Convertible Notes (the "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 Notes and the
Series B Notes; and (v) the complete elimination of the equity interests of CHC.
Furthermore, pursuant to the Restated Joint Plan, CHC would have been dissolved
as soon as practicable after the effective date of the Restated Joint Plan and
the stock of CHC would no longer be publicly traded. Therefore, under the
Restated Joint Plan, as filed, the existing stockholders of CHC would have
received 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 Series A Notes and the
Series B Notes. Representatives of the company negotiated the principal aspects
of the Restated Joint Plan with representatives of the holders of the Series A
Notes and the Series B Notes and the parties to the Senior Credit Facility prior
to the filing of such Restated Joint Plan.

On or about October 20, 2000, the Restated Joint Plan and First Amended
Disclosure Statement were distributed for a vote among persons holding impaired
claims that were entitled to a distribution under the Restated Joint Plan. The
Debtors did not send ballots to the holders of unimpaired classes, who were
deemed to accept the Restated Joint Plan, and classes that are not receiving any
distribution, which were deemed to reject the Restated Joint Plan. Eligible
voters responded in favor of the Restated Joint Plan. At a confirmation hearing
on December 21, 2000, the Restated Joint Plan was not approved by the Bankruptcy
Court.

In order for the company to remain compliant with the requirements of Stark
II, on December 29, 2000, pursuant to an order of the Bankruptcy Court, CI
exchanged approximately $97.7 million of the Series A Notes and approximately
$11.6 million of contractual unpaid interest on the Series A Notes and the
Series B Notes for 905 shares of CI Series A Cumulative Preferred Stock, $0.001
par value per share (see Notes 6 and 8 to the company's condensed consolidated
financial statements for further details). Hereafter, the Coram, Inc. Series A
Cumulative Preferred Stock is referred to as the "CI Preferred Stock." The
exchange transaction generated an extraordinary gain on troubled debt
restructuring of approximately $107.8 million, net of tax, in 2000. At December
31, 2000, the company's stockholders' equity exceeded the minimum Stark II
requirement necessary to comply with the public company exemption for the year
ended December 31, 2001. See Note 9 to the company's condensed consolidated
financial statements for further discussion regarding Stark II.

(III) THE SECOND JOINT PLAN OF REORGANIZATION AND RELATED ACTIVITIES

On or about February 6, 2001, the Equity Committee filed a motion with the
Bankruptcy Court seeking permission to bring a derivative lawsuit directly
against the company's Chief Executive Officer, a former member of the Board of
Directors of CHC and Cerberus Partners, L.P. (a party to the company's
debtor-in-possession financing agreement, Senior Credit Facility and Securities
Exchange Agreement). On February 26, 2001, the Bankruptcy Court ruled that the
Equity Committee's motion would not be productive at that time and, accordingly,
the motion was denied without prejudice. On the same day, the Bankruptcy Court
approved the Debtors' motion to appoint Goldin Associates, L.L.C. ("Goldin") as
independent restructuring advisor to the Independent Committee of the Board of
Directors of CHC (the "Independent Committee"). Among other things, the scope of
Goldin's services included (i) assessing the appropriateness of the Restated
Joint Plan and reporting its findings to the Independent Committee and advising
the Independent Committee respecting an appropriate course of action calculated
to bring the Debtors' bankruptcy proceedings to a fair and satisfactory
conclusion, (ii) preparing a written report as may be required by the
Independent Committee and/or the Bankruptcy Court and (iii) appearing before the
Bankruptcy Court to provide testimony, as needed. Goldin was also appointed as a
mediator among the Debtors, the Equity Committee and other parties in interest.

o the payment of up to $3.0 million to the holders of allowed
general unsecured claims of CHC;

o the payment of up to $10.0 million to the holders of CHC equity
interests (contingent upon such holders voting in favor of the
Second Joint Plan);

o cancellation of the issued and outstanding CI Preferred Stock; and

o a $7.5 million reduction in certain performance bonuses payable to
the company's Chief Executive Officer.

approximately $20.7 million in 2001. At December 31, 2001, the company's
stockholders' equity exceeded the minimum Stark II requirement necessary to
comply with the public company exemption. As a result, the company is covered by
the public company exemption through the year ending December 31, 2002. See Note
9 to the company's condensed consolidated financial statements for further
discussion regarding Stark II.

(IV) APPOINTMENT OF CHAPTER 11 TRUSTEE AND BANKRUPTCY-RELATED ACTIVITIES
SUBSEQUENT TO DECEMBER 31, 2001

On February 12, 2002, among other things, the Bankruptcy Court granted
motions made by the Office of the United States Trustee and two of the Debtors'
noteholders requesting the appointment of a Chapter 11 trustee to oversee the
Debtors during their reorganization process. Additionally, on such date the
Bankruptcy Court denied without prejudice a renewed motion made by the Equity
Committee for leave to bring a derivative lawsuit against the company's chief
executive officer, the Board of Directors of CHC, Cerberus Partners, L.P.
("Cerberus"), a Cerberus principal and the company's other noteholders.
Moreover, on February 12, 2002 the Bankruptcy Court denied motions filed by the
Equity Committee (i) to require the company to call a stockholders' meeting and
(ii) to modify certain aspects of CI's corporate governance structure.

On March 7, 2002, the Bankruptcy Court approved the appointment of Arlin M.
Adams, Esquire, as the Debtors' Chapter 11 trustee. The Bankruptcy Code and
applicable rules require a Chapter 11 trustee to perform specific duties
relating to the administration of a bankruptcy case. Generally, a Chapter 11
trustee is obligated to investigate the debtors' operations, financial condition
and any other matters relevant to the formulation of a plan of reorganization.
The Bankruptcy Code also provides that a Chapter 11 trustee must either file a
plan of reorganization as soon as practicable or an explanation as to why he/she
is unable to file a plan of reorganization. With the appointment of a Chapter 11
trustee, while still under the jurisdiction of the Bankruptcy Court, the Debtors
are no longer debtors-in-possession under the Bankruptcy Code.

Furthermore, the Bankruptcy Code makes a Chapter 11 trustee responsible for
the debtor's business. As with a debtor-in-possession, a Chapter 11 trustee may
enter into transactions in the ordinary course of business without notice or a
hearing in the presiding bankruptcy court; however, non-ordinary course actions
still require the authorization of the presiding bankruptcy court. A Chapter 11
trustee also assumes responsibility for management functions, including
decisions relative to the hiring and firing of personnel. As is the case in the
instance of the Debtors, when existing management is necessary to run the
day-to-day operations, the Chapter 11 trustee retains and oversees this
management.

Since the appointment of the Chapter 11 trustee on March 7, 2002, no
amounts have been paid to professionals in connection with the bankruptcy
proceedings.

On May 9, 2002, pursuant to a motion previously approved by the Bankruptcy
Court, CHC entered into a second insurance premium financing agreement with
Imperial Premium Finance, Inc., an affiliate of AICCO, Inc., (the "2002
Financing Agreement") to finance the payment of premiums under certain insurance
policies. Under the terms of the 2002 Financing Agreement, CHC made down
payments of approximately $1.5 million. The amount financed is approximately
$2.7 million and is secured by the unearned premiums and any loss payments under
the insurance policies covered by the 2002 Financing Agreement. The amount
financed is being paid in seven monthly installments of approximately $0.4
million each, including interest at a per annum rate of 4.9%, commencing on May
15, 2002. In addition, Imperial Premium Finance, Inc. has the right to terminate
the insurance policies and collect the unearned premiums (as administrative
expenses) if CHC does not make the monthly payments called for by the 2002
Financing Agreement.

(V) OTHER BANKRUPTCY-RELATED MATTERS

The holders of the CI Preferred Stock continue to maintain a claim position
within the Debtors' bankruptcy proceedings in the aggregate amount of their
cumulative liquidation preference. Notwithstanding the debt to equity exchanges,
the aforementioned holders' priority in the Debtors' bankruptcy proceedings will
be no less than it was immediately prior to said exchanges.

CRITICAL ACCOUNTING POLICIES

The company's condensed consolidated financial statements include the
accounts of CHC, its subsidiaries and its joint ventures which are considered to
be under the control of CHC, including those of CHC's direct subsidiary CI. CI
is a party to the bankruptcy proceedings that are being jointly administered
with those of CHC in the Bankruptcy Court. All material intercompany account
balances and transactions have been eliminated in consolidation. The company
uses the equity method of accounting for investments in entities in which it
exhibits significant influence, but not control, and has an ownership interest
of 50% or less.

The company's management considers the accounting policies that govern
revenue recognition and the determination of the net realizable value of
accounts receivable to be the most critical policies in relation to the
company's condensed consolidated financial statements, as well as, those that
most require management's judgment. Refer to "Critical Accounting Policies"
under Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in Coram's Annual Report on Form 10-K for the year ended
December 31, 2001 for a description of these critical accounting policies. Other
accounting policies requiring significant judgment are those related to the
measurement and recognition of impairment of goodwill and other long-lived
assets. Accounting policies that govern the capitalization of software
development costs are also considered critical while the company is in the
process of improving its enterprise-wide information systems.

Goodwill and Other Long-Lived Assets. In June 2001, the Financial Accounting
Standards Board (the "FASB") issued Statement of Financial Accounting Standards
No. 142, Goodwill and Other Intangible Assets ("Statement 142"), which prohibits
the amortization of goodwill and intangible assets with indefinite useful lives.
Statement 142 also requires that these assets be reviewed for impairment at
least annually. Under Statement 142, intangible assets with finite lives
continue to be to be amortized over their estimated useful lives. The company
adopted Statement 142 on January 1, 2002.

Through December 31, 2001, the company had recorded accumulated goodwill
amortization of $97.6 million. Application of the non-amortization provisions of
Statement 142 is expected to result in a reduction of operating expenses of
approximately $9.7 million for the year ending December 31, 2002. For the three
months ended March 31, 2001, the company recognized goodwill amortization
expense of approximately $2.4 million, with no comparable expense for the three
months ended March 31, 2002.

Coram's management plans to test goodwill for impairment using the two-step
process described in Statement 142. The first step is a screen for potential
impairment and the second step measures the amount of impairment, if any.
Management expects to perform the first of the required goodwill impairment
tests as of January 1, 2002 in the second quarter of 2002. Management has not
yet

determined what the effect of these tests will be on the results of operations
and financial position of the company. Any impairment charge resulting from
these transitional impairment tests would be reflected as a cumulative effect of
a change in an accounting principle in a restated first quarter 2002.
Accordingly, the results of operations and financial position of the company for
the first quarter of 2002 reported in the condensed consolidated financial
statements could be restated.

The impairment tests described above require that the company obtain a fair
value estimate of the applicable reporting unit, and possibly fair value
estimates of such reporting unit's assets and liabilities in order to measure
any potential impairment. Management plans to rely primarily on outside
valuation services in order to obtain fair value estimates of significant
reporting segments, assets and liabilities. Certain less significant assets and
liabilities may be valued based on management's estimates of fair value, using
market comparables, quoted values and discounted cash flows models or other
appropriate methods applied on a consistent basis from period to period.
Estimating fair value, always a subjective process, is complicated by the
uncertainty surrounding the ultimate amount and settlement terms of the Debtors'
liabilities subject to compromise in connection with the Debtors' Chapter 11
bankruptcy proceedings. Refer to "Bankruptcy Proceedings" under "Liquidity and
Capital Resources" below for further details.

In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets
("Statement 144"), which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets and supersedes Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and the
accounting and reporting provisions of Accounting Principles Board Opinion No.
30, Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions as far as they relate to the disposal of a segment of a
business. The company adopted Statement 144 on January 1, 2002. The adoption of
Statement 144 did not have a material effect on the company's results of
operations or financial position.

Capitalized Software Development Costs. Costs related to software developed
and obtained for internal use are stated at cost in accordance with Statement of
Position 98-1, Accounting for Computer Software Developed for or Obtained for
Internal-Use ("SOP 98-1"). Amortization is computed using the straight-line
method over estimated useful lives generally ranging from one to five years. For
the three months ended March 31, 2002, software development costs totaling $0.4
million have been capitalized in accordance with SOP 98-1.

RESULTS OF OPERATIONS

As discussed in Note 3 to the company's condensed consolidated financial
statements, the company considers R-Net's operating results as part of
discontinued operations; however, for the three months ended March 31, 2002 and
2001, the Resource Network Subsidiaries had no operations.

Three Months Ended March 31, 2002 Compared to Three Months Ended March 31, 2001

Net Revenue. Net revenue increased $7.3 million or 7.7% to $102.0 million in
the three months ended March 31, 2002 from $94.7 million in the three months
ended March 31, 2001. The increase is primarily due to revenue increases in the
company's core infusion therapies, including a combined $7.4 million increase in
net revenue from coagulant and blood clotting, intravenous immunoglobulin and
anti-infective therapies. Such revenue increases were offset by adverse changes
in the average wholesale prices ("AWP") for certain anti-infective drugs, as
discussed further below.

Effective July 1, 2001, the AWPs for a certain brand of the antibiotic drug
Vancomycin and four other anti-infective drugs were permanently reduced. Net
revenue related to these drugs decreased $1.9 million or 52.8% to $1.7 million
in the three months ended March 31, 2002 from $3.6 million in the three months
ended March 31, 2001. The net revenue reduction included an unfavorable pricing
variance of $3.1 million related to the adverse AWP changes, which was offset by
an increase in volume.

Gross Profit. Gross profit increased $2.5 million to $27.7 million or a
gross margin of 27.2% in the three months ended March 31, 2002 from $25.2
million or a gross margin of 26.6% in the three months ended March 31, 2001. The
gross margin percentage increase is primarily due to a more favorable
product/therapy mix, as well as, a $0.3 million decrease in clinical expenses.
However, during the three months ended March 31, 2002, there was an offsetting
decrease in gross margin percentage due to reductions in the AWP reimbursement
rates for Vancomycin and certain other drugs used in the company's operations.
Also, the gross margin percentage in the three months ended March 31, 2002, when
compared to the three months ended March 31, 2001, was adversely affected by the
larger proportion of coagulant and blood clotting therapies in the company's
therapy mix. Coagulant and blood clotting therapies generally have a higher
product cost, as a percentage of net revenue, than the company's other core
therapies.

Selling, General and Administrative ("SG&A") Expenses. SG&A expenses
increased $0.3 million or 1.4% to $21.0 million in the three months ended March
31, 2002 from $20.7 million in the three months ended March 31, 2001. This
increase reflects compensation and consulting expenses incurred in the course of
improving the company's company-wide information systems. Such expenses totaled
$0.7 million in the three months ended March 31, 2002 and $0.2 million during
the three months ended March 31, 2001. The company also incurred an incremental
$0.8 million to enhance its sales force in the three months ended March 31, 2002
compared to the corresponding 2001 period. The aforementioned expense increases
were partially offset by a $1.0 million decrease in expenses related to
management incentive compensation.

Restructuring Cost Recovery. During the three months ended March 31, 2001,
the company recognized restructuring cost recoveries of $0.6 million related to
the assumption of one of the company's real property leases by a third party and
certain changes in estimates attributable to severance liabilities. Such items
were previously reserved for as part of accrued merger and restructuring costs.

Provision for Estimated Uncollectible Accounts. The provision for estimated
uncollectible accounts was $3.1 million or 3.1% of net revenue in the three
months ended March 31, 2002, compared to $2.9 million or 3.1% of net revenue in
the three months ended March 31, 2001. For the year ended December 31, 2001, the
provision for estimated uncollectible accounts was $17.5 million or 4.4% of net
revenue. The higher full-year 2001 provision for estimated uncollectible
accounts as a percentage of net revenue reflected a deterioration in cash
collections and accounts receivable related to the consolidation of several of
the company's infusion business Patient Financial Service Centers (reimbursement
sites), as well as, poor cash collections in the company's durable medical
equipment operations and corresponding higher write-offs. Refer to "Results of
Operations - Year Ended December 31, 2001 Compared to Year Ended December 31,
2000" under Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in Coram's Annual Report on Form 10-K for the year
ended December 31, 2001. Beginning in the second half of 2001 and continuing
into 2002, Coram's management put in place action plans aimed at enhancing
timely reimbursements by emphasizing improved billing and cash collection
methods, continued assessment of systems support for reimbursement personnel and
concentration of the company's expertise and managerial resources into the most
affected reimbursement locations. The lower provision for estimated
uncollectible accounts as a percentage of net revenue for the three months ended
March 31, 2002 as compared to the percentage for the year ended December 31,
2001 reflects management's best estimate of bad debt expense for the year ending
December 31, 2002. However, there can be no assurances that the factors which
adversely affected the company's bad debt expense during 2001 will not continue
to adversely impact the company in the future.

Interest Income. Interest income decreased $0.4 million to $0.1 million in
the three months ended March 31, 2002 from $0.5 million in the three months
ended March 31, 2001, principally reflecting lower average cash balances and
lower available returns on overnight cash investments.

Interest Expense. Interest expense decreased $0.2 million to $0.4 million in
the three months ended March 31, 2002 from $0.6 million in the three months
ended March 31, 2001. Both periods primarily reflect the recognition of interest
expense on the proposed settlement of a dispute with the Internal Revenue
Service, which is more fully described in Note 7 to the company's condensed
consolidated financial statements. Both periods also reflect the non-recognition
of interest expense related to the Series A Notes and the Series B Notes
subsequent to the execution of exchange agreements on December 29, 2000 and
December 31, 2001, which qualified as troubled debt restructurings (see Notes 6
and 8 to the company's condensed consolidated financial statements).

Other Income, Net. In the three months ended March 31, 2002, the company
recognized $0.4 million in other income, net, compared to $0.2 million in the
three months ended March 31, 2001. This increase primarily reflects higher
equity in net income of unconsolidated joint ventures in the 2002 period.
Additionally, in January 2002, the company finalized the sale of a durable
medical equipment business located in New Orleans, Louisiana to a third party,
which resulted in a nominal gain (see Note 2 to the company's condensed
consolidated financial statements).

Reorganization Expenses, Net. In the three months ended March 31, 2002, the
company recognized $2.0 million in net reorganization expenses related to the
Debtors' Chapter 11 bankruptcy proceedings, compared to $2.8 million during the
three months ended March 31, 2001. These expenses include, but are not limited
to, professional fees, expenses related to employee retention plans, Office of
the United States Trustee fees and other expenditures during the Chapter 11
proceedings, offset by interest earned on accumulated cash due to the Debtors
not paying their liabilities subject to compromise. The higher expenses in the
2001 period

included $0.7 million accrued by the Debtors under employee retention plans,
whereas no comparable expense was incurred in the three months ended March 31,
2002. See Note 2 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.

LIQUIDITY AND CAPITAL RESOURCES

Bankruptcy Proceedings. The Debtors filed voluntary petitions for relief
under Chapter 11 of the United States Bankruptcy Code on August 8, 2000.
Following the filing of the voluntary Chapter 11 petitions, the Debtors
commenced operating as debtors-in-possession subject to the jurisdiction of the
Bankruptcy Court; however, a Chapter 11 trustee was appointed by the Bankruptcy
Court on March 7, 2002. With the appointment of a Chapter 11 trustee, while
still under the jurisdiction of the Bankruptcy Court, the Debtors are no longer
debtors-in-possession under the Bankruptcy Code. None of the company's other
subsidiaries is a debtor in the proceeding. Although the filing of the Chapter
11 cases constitutes defaults under the company's principal debt instruments,
Section 362 of the Bankruptcy Code imposes an automatic stay that will generally
preclude creditors and other interested parties under such arrangements from
taking remedial action in response to any such default without prior Bankruptcy
Court approval. In addition, the Debtors may reject executory contracts and
unexpired leases. Parties affected by such rejections may file claims with the
Bankruptcy Court in accordance with the provisions of the Bankruptcy Code and
applicable rules. See Note 2 to the company's condensed consolidated financial
statements for further details.

Credit Facilities and Letters of Credit. On August 20, 1998, the company
entered into the 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. Effective February 6, 2001, the lenders thereto and
the company terminated the Senior Credit Facility. See Note 6 to the company's
condensed consolidated financial statements for further details.

The Debtors entered into a secured debtor-in-possession financing agreement
with Madeleine L.L.C., an affiliate of Cerberus Partners, L.P. (a party to the
Senior Credit Facility and the Securities Exchange Agreement), as of August 30,
2000 (the "DIP Agreement"). The DIP Agreement provided that the Debtors could
access, as necessary, up to $40 million depending upon borrowing base
availability, for use in connection with the operations of their businesses and
the businesses of their subsidiaries. On September 12, 2000, the Bankruptcy
Court approved the DIP Agreement. The DIP Agreement expired by its terms on
August 31, 2001 with the company making no draw-downs thereunder through the
term of the financing. See Note 6 to the company's condensed consolidated
financial statements for further details.

In connection with the termination of the Senior Credit Facility and
pursuant to an order of the Bankruptcy Court, in February 2001, the company
established irrevocable letters of credit aggregating $2.1 million through Wells
Fargo Bank Minnesota, NA ("Wells Fargo"). Such letters of credit have been
reduced to approximately $0.9 million at March 31, 2002 and are fully secured by
interest-bearing cash deposits of the company held by Wells Fargo. These letters
of credit have maturity dates of February 2003. Due to certain hemophilia and
intravenous immunoglobulin product shortages and the pendency of the Debtors'
bankruptcy proceedings, the company may be required to enhance existing letters
of credit or establish new letters of credit in order to ensure the availability
of products for its patients' medical needs.

General. The company's condensed consolidated financial statements have been
prepared on a going concern basis, which contemplates continuity of operations,
realization of assets and liquidation of liabilities in the ordinary course of
business. However, as a result of the Debtors' bankruptcy filings and
circumstances relating thereto, including the company's leveraged financial
structure and cumulative losses from operations, such realization of assets and
liquidation of liabilities is subject to significant uncertainty. During the
pendency of the Debtors' Chapter 11 bankruptcy proceedings, the company may sell
or otherwise dispose of assets and liquidate or settle liabilities for amounts
other than those reflected in the condensed consolidated financial statements.
Furthermore, a plan of reorganization filed in the Chapter 11 bankruptcy
proceedings could materially change the amounts reported in the condensed
consolidated financial statements, which do not give effect to any adjustments
of the carrying value of assets or liabilities that might

be necessary as a consequence of a plan of reorganization (see Note 2 of the
company's condensed consolidated financial statements for further details). The
company's ability to continue as a going concern is dependent upon, among other
things, confirmation of a plan of reorganization, future profitable operations,
the ability to comply with the terms of the company's financing agreements, the
ability to obtain necessary financing to fund a pending settlement with the
Internal Revenue Service, the ability to remain in compliance with the physician
ownership and referral provisions of the Omnibus Budget Reconciliation Act of
1993 (commonly known as "Stark II") and the ability to generate sufficient cash
from operations and/or financing arrangements to meet its obligations.

Coram used cash on hand to fund its reorganization activities, working
capital requirements and operations for the three months ended March 31, 2002.
Working capital at March 31, 2002 was a deficit of $73.0 million compared to a
working capital deficit of $76.2 million at December 31, 2001, a reduction in
the working capital deficit of $3.2 million. This change in working capital is
primarily due to: (i) an increase in net accounts receivable of $7.7 million,
(ii) a $4.6 million decrease in cash and cash equivalents, (iii) a $1.5 million
decrease in inventories, (iv) a $3.6 million decrease in accrued compensation
and related liabilities and (v) a $1.3 million increase in accounts payable and
accrued reorganization costs.

Cash used in investing activities for the three months ended March 31, 2002
was $1.1 million. Of that amount, $0.6 million related to capital expenditures
to upgrade Coram's company-wide information systems, with the balance reflecting
purchases of property and equipment in the normal course of business.

Management believes that the net costs for the Debtors' reorganization and
bankruptcy proceedings will result in significant use of cash for the remainder
of the year ending December 31, 2002. These costs principally consist of
professional fees and expenses and employee retention payments. Subsequent to
the appointment of the Chapter 11 trustee on March 7, 2002, no amounts have been
paid to professionals in connection with the bankruptcy proceedings. However,
management believes that such costs, when authorized for payment, will primarily
be funded through available cash balances and cash provided by operations.

Management cannot predict whether any future objections of the Official
Committee of the Equity Security Holders or other interested parties in the
Debtors' bankruptcy proceedings will be forthcoming. Outcomes unfavorable to the
company or unknown additional actions could require the company and the Debtors
to access significant additional funds. See Notes 2 and 9 to the company's
condensed consolidated financial statements.

The company sponsors a Management Incentive Plan ("MIP"), which provides for
annual bonuses payable to certain key employees. The bonuses are predicated on
overall corporate performance (principally sales in the company's core infusion
therapies, cash collections and earnings before interest expense, taxes,
reorganization expenses, restructuring costs, depreciation and amortization), as
well as, individual performance targets and objectives. On March 20, 2001, the
Compensation Committee of the Board of Directors of CHC approved an overall
award of approximately $13.6 million for the year ended December 31, 2000 for
those individuals participating in the MIP. On September 10, 2001, the
Bankruptcy Court approved payment of up to approximately $2.7 million for the
2000 MIP to all individuals participating in the MIP, except for the amounts due
to Daniel D. Crowley, the company's Chief Executive Officer. In connection
therewith, such payments to those individuals were made in September 2001.
Related to the Second Joint Plan, Mr. Crowley voluntarily offered to accept a
$7.5 million reduction in certain performance bonuses, contingent on the
confirmation and consummation of the Second Joint Plan. As discussed in Note 2
to the company's condensed consolidated financial statements, confirmation of
the Second Joint Plan was denied by the Bankruptcy Court on December 21, 2001.
The company cannot predict what, if any, reduction in Mr. Crowley's incentive,
retention or success bonuses, which were accrued at March 31, 2002 in the
company's condensed consolidated financial statements, will be proposed in a new
plan of reorganization submitted by the Chapter 11 trustee or any other
interested party. For the three months ended March 31, 2001 and the year ended
December 31, 2001 the company recorded MIP expense of $0.9 million and $2.9
million, respectively. For the three months ended March 31, 2002, the company
did not record any MIP expense. Payment of the remaining 2000 MIP amount, the
entire 2001 MIP amount and any additional MIP amount that may accrue to
individuals participating in the MIP in 2002 is subject to approval by the
Debtors' Chapter 11 trustee and, if necessary, the Bankruptcy Court. If
approved, the company intends to fund such payments with available cash balances
and cash provided by operations.

In recent years, the company experienced significant increases in insurance
premiums for its Directors and Officers ("D&O"), General and Professional
Liability ("GLPL") and certain other risk management insurance policies. In
connection therewith, in 2001 the Bankruptcy Court approved a motion made by the
Debtors to enter into insurance premium financing agreements to finance certain
GLPL premiums. Effective May 9, 2002, management negotiated the company's second
insurance premium financing agreement related to certain 2002 GLPL premiums;
however, no assurances can be given that the Debtors will be able to negotiate
such new financing arrangements in the future. Additionally, no assurances can
be given that the Debtors will be able to obtain and/or maintain adequate D&O
and GLPL insurance coverage beyond the expiration of the current policies, which
generally terminate in early 2003. In the event that the Debtors

are unable to obtain and/or maintain such insurance at a price that will be
economically viable, there could be a material adverse effect on the company's
operations.

The final liquidation of the Resource Network Subsidiaries through their
bankruptcy proceedings may result in certain additional cash expenditures by the
company beyond the cash accounts already deemed to be a part of R-Net's
bankruptcy estate. While management does not expect that such amounts, if any,
will be material to the financial condition or cash flows of the company, no
assurances can be given as to an estimate of the company's aggregate future
expenditures related to the Resource Network Subsidiaries' bankruptcy. See Notes
2, 3 and 9 to the company's condensed consolidated financial statements for
further details.

In November 2001, the Official Committee of Unsecured Creditors of the
Resource Network Subsidiaries filed an adversary complaint in the Bankruptcy
Court against the Debtors, several non-debtor subsidiaries and certain current
and former directors and officers of the company seeking damages in the amount
of approximately $56 million and additional monetary and non-monetary damages,
including the disallowance of the Debtors' proofs-of-claim against the Resource
Network Subsidiaries, punitive damages and attorneys' fees. The Debtors objected
to the complaint in the Bankruptcy Court because management believes that the
complaint constitutes an attempt to circumvent the automatic stay protecting the
estates of the Debtors; however, the non-debtor subsidiaries have no such
protection and, accordingly, they plan to vigorously contest the allegations.
The company notified its insurance carrier of the complaint and intends to avail
itself of any appropriate insurance coverage for its directors and officers.
Principally due to the early stages of this matter and the issues pending before
the Bankruptcy Court, the company cannot predict the outcome of this case nor
can it predict the scope and nature of any indemnification that the directors
and officers may have with the company's insurance carrier. An unfavorable
outcome would have a material adverse impact on the company's financial position
and liquidity. See Note 9 to the company's condensed consolidated financial
statements for further details.

The Board of Directors of CHC approved management's request to upgrade
Coram's company-wide information systems. In connection therewith, the company
entered into an agreement whereby a new financial, materials management,
procurement, human resource and payroll (collectively the "Back Office")
software package and related licenses are being procured. The total estimated
purchase price for the Back Office software, which is scheduled to become
operational during the quarter ended June 30, 2002, is approximately $1.3
million. Additionally, management is negotiating with a third party vendor to
upgrade and/or replace its billing, accounts receivable, clinical and pharmacy
systems (collectively the "Front Office"). Management expects to implement the
Front Office systems during 2002 and 2003. In addition to the aforementioned
Back Office software package, substantial internal and external costs have been
and will continue to be incurred to implement the Back Office and Front Office
software solutions. Management estimates that internal personnel time and
expenses and external vendor consultation costs of approximately $3.0 million
have been expended from January 1, 2001 through March 31, 2002 on these
projects. Through March 31, 2002, the company also purchased certain hardware
necessary to run the new information systems aggregating approximately $2.8
million; however, supplemental hardware and peripheral equipment will be
required in order to make the new software suites fully functional. The company
intends to fund its current and future information system capital requirements
with its available cash balances and cash provided by operations.

Coram reached a tentative settlement agreement with the Internal Revenue
Service to resolve a dispute regarding certain tax refunds previously received
by the company. The settlement, if approved by the Joint Committee of Taxation,
the Debtors' Chapter 11 trustee and, if necessary, the Bankruptcy Court, would
result in a federal tax liability of approximately $9.9 million, plus interest
of approximately $7.9 million at May 17, 2002. The federal income tax
adjustments would also give rise to additional state tax liabilities. If the
company is not able to negotiate an installment payment plan with the Internal
Revenue Service with respect to the proposed settlement amount or if the Joint
Committee of Taxation, the Bankruptcy Court or the Chapter 11 trustee do not
approve the proposed settlement amount, the financial position and liquidity of
the company could be materially adversely affected. See Note 7 to the company's
condensed consolidated financial statements for further details.

The Balanced Budget Act of 1997 (the "BBA") required Part A certified home
health agencies, as a condition of their participation in Part A of the Medicare
program, to post surety bonds. The bonds are to be used to secure performance
and compliance with Medicare program rules and requirements. The Medicare,
Medicaid and SCHIP Balanced Budget Refinement Act of 1999 (the "BBRA") modified
the annual surety bond amounts for home health agencies to require the lesser of
10% of the amount Medicare paid to the provider in the prior year or $50,000.
The deadline for securing such bonds has been extended indefinitely while the
Centers for Medicare and Medicaid Services ("CMS") (formerly the Health Care
Financing Administration) reviews the bonding requirements. CMS has indicated
that the new compliance date will be sixty days after the publication of the
final rule. Management believes, based upon currently available information
derived from its discussions with surety bond brokers and organizations that
issue surety bonds, that the necessary bonds will not be generally available to
home health providers until CMS revises its bonding requirements in a way that
clarifies and/or limits the types of liabilities that will be covered by the
bonds. As of May 17, 2002, the company had only one Medicare certified home
health provider location, which has not obtained a surety bond. Additionally, as

required by the BBA, CMS also intends to issue separate surety bond regulations
applicable to Part B suppliers. Virtually all of Coram's branch offices
participate as suppliers in the Part B Medicare program. Similar bonding
requirements are being reviewed by state Medicaid programs, and at least one
state requires Medicaid suppliers to maintain a surety bond. However, there are
currently no federal surety bond requirements. If such a requirements become
effective and if Coram is not able to obtain all of the necessary surety bonds,
it may have to cease its participation in the Medicare and Medicaid programs for
some or all of its branch locations. Such bond amounts may be funded in whole or
in part through cash generated from operations. In addition, depending upon the
final regulations, the company may be able to establish letters of credit for
the bonding requirement in whole or in part, however, such letters of credit may
require the use of cash in order to be fully collateralized. Management also
believes that another potential source for meeting a bonding requirement may be
to obtain bonds through a qualified insurance carrier. No assurances can be
given that cash generated by operations, letter of credit availability or bond
availability from an insurance carrier at a reasonable cost will satisfy these
surety bond requirements, when finalized.

The principal supplier of Coram's infusion pumps, Sabratek Corporation
("Sabratek"), filed for protection under Chapter 11 of the United States
Bankruptcy Code on December 17, 1999. In January 2000, Baxter Healthcare
Corporation ("Baxter") purchased certain Sabratek assets, including Sabratek's
pump manufacturing division, and continued to produce the related tubing and
infusion sets needed to operate the Sabratek infusion pumps used by Coram.
Beginning in January 2000, Coram's fleet of approximately 5,000 Sabratek 6060
Homerun pumps began to experience malfunctions and failures of various sorts due
to inherent flaws in the design of the pump. Pumps needing repair were sent back
to Sabratek for repair at no cost due to a five-year warranty on pump repairs
that was part of the underlying contract. Repairs have been made to these pumps
and management believes the pump lives have been extended. Management expects
that Baxter will extend the period during which it will produce the related
tubing and infusion sets necessary for operation of the 6060 Homerun pumps;
however, no assurances can be made that Baxter will make such an extension. In a
separate matter, Baxter announced that effective March 2003 it will cease
production of Sabratek 3030 pumps and related tubing and infusion sets necessary
for repairs and operation of these pumps. Management is currently evaluating the
company's options regarding the fleet of approximately 3,000 Sabratek 3030
pumps, including the purchase or leasing of new technology. Although management
believes that the company will be able to replace the Sabratek 3030 pumps, no
assurances can be given that the sufficient cash generated by operations or
other sources of funding will be available.

Coram maintains systems and processes to collect its accounts receivable as
quickly as possible after the underlying service is rendered. Nevertheless,
there is generally a time lapse between when the company pays for the salaries,
supplies and overhead expenses related to the generation of revenue and the time
that the company collects payments for the services rendered and products
delivered. Consequently, as the company grows its revenue related to its core
therapies, the need for working capital increases due to the timing difference
between cash received from growth in sales and the cash disbursements required
to pay the expenses associated with such sales. As a result, the amount of cash
generated from the company's accounts receivable may not be sufficient to cover
the expenses associated with its business growth.

Management throughout the company is continuing to concentrate on enhancing
timely 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. In December 2000, Coram announced that as part of its
continuing efforts to improve efficiency and overall performance, several
Patient Financial Services Centers (reimbursement sites) were being consolidated
and the related reimbursement positions were to be eliminated. By consolidating
to fewer sites, management expects to implement improved training, more easily
standardize "best demonstrated practices," enhance specialization related to
payers such as Medicare and achieve more consistent and timely cash collections.
Management does not expect this change to affect Coram's patients or payers, but
believes, instead, that in the long-term they will receive better more
consistent service. The transition was accomplished in stages, commencing April
1, 2001 and ending July 2001. Management had taken certain actions to mitigate
the potential shortfall in cash collections during and after the transition
period, including, but not limited to, offering incentives for personnel to stay
with the company until the completion of their corresponding regional
consolidation. Notwithstanding management's efforts, the company experienced
deterioration in its days sales outstanding ("DSO") since the commencement of
the reimbursement consolidation plan and a substantial growth in account
receivable. No assurances can be given that the consolidation of the company's
Patient Financial Service Centers will be successful in enhancing timely
reimbursement, that the company will not continue to experience a significant
shortfall in cash collections after the transition period or that the
aforementioned deterioration in DSO and accounts receivable will not continue.
If Coram continues to experience a significant increase in its accounts
receivable, the company's liquidity could be materially adversely affected.

RISK FACTORS

Refer to the caption "Risk Factors" under Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the company's
Annual Report on Form 10-K for the year ended December 31, 2001 for a discussion
of certain risk factors.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE 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 March 31, 2002, the company had outstanding long-term debt of $132.6
million, including $132.3 million which is scheduled to mature on June 30, 2002
and bears interest at 9.0% per annum. Because substantially all of the interest
on the company's debt is fixed, a hypothetical 10.0% change in interest rates
would not have a material impact on the company. Increases in interest rates
could, however, increase interest expense associated with future borrowings by
the company, if any. The company does not hedge against interest rate changes.
See Note 6 to the company's condensed consolidated financial statements for
further details regarding long-term debt.

The debt to equity exchange transactions described in Note 6 to the
company's condensed consolidated financial statements qualified as a troubled
debt restructurings pursuant to Statement of Financial Accounting Standards No.
15, Accounting by Debtors and Creditors for Troubled Debt Restructurings. In
accordance therewith and the provisions of SOP 90-7, Financial Reporting by
Entities in Reorganization under the Bankruptcy Code, the Debtors did not
recognize any interest expense on the Series A Notes and the Series B Notes
during three months ended March 31, 2002 and the company will not recognize any
interest thereon until a plan of reorganization is accepted by the Bankruptcy
Court.

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 9 to the company's condensed consolidated financial
statements, and are incorporated herein by reference.

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.

ITEM 5. OTHER INFORMATION

On April 12, 2002, the holders of Coram, Inc. Series A Cumulative Preferred
Stock, $0.001 par value per share (the "CI Preferred Stock"), Cerberus Partners,
L.P., Goldman, Sachs & Co. and Foothill Capital Corporation (collectively the
"Holders") executed a waiver, whereby they agreed to permanently and irrevocably
waive their rights to collectively exercise, upon the occurrence of a triggering
event, in excess of 49% of the voting rights of the aggregate of all classes of
common and preferred shares and any other voting securities of CI (the
"Waiver"), regardless of the number of shares issued and outstanding.
Additionally, pursuant to this permanent and irrevocable waiver of rights, the
Holders waived their rights to collectively elect or appoint a number of
directors that constitutes half or more of the total number of directors of
Coram, Inc. Alternatively, if the Holders elect no Board of Directors'
representation, then each of the three Holders shall have the right to appoint
an observer to the Board of Directors of Coram, Inc. The Waiver can only be
modified or amended with the written consent of Coram Healthcare Corporation and
Coram, Inc.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(A) Exhibits

4.5 -- Irrevocable Waiver, dated as of April 12, 2002, by
Cerberus Partners, L.P., Foothill Capital Corporation and
Goldman, Sachs & Co. in favor of Coram, Inc.

(B) Reports on Form 8-K.

NONE

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, Chief Financial Officer
and Treasurer

May 20, 2002

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION
------- -----------

4.5 -- Irrevocable Waiver, dated as of April 12, 2002, by
Cerberus Partners, L.P., Foothill Capital Corporation and
Goldman, Sachs & Co. in favor of Coram, Inc.