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

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

|X|   Quarterly report pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934
      For the quarterly period ended June 30, 2000.

|_|   Transition report pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934
      For the transition period from _______ to _______ .

                         Commission File Number: 0-19815
                                                 -------

                             CAREMATRIX CORPORATION
                             ----------------------
             (Exact name of Registrant as specified in its charter)

          Delaware                                       04-3069586
          --------                                       ----------
(State of other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

                       197 First Avenue, Needham, MA 02494
                       -----------------------------------
               (Address of principal executive offices) (Zip Code)

                                 (781) 433-1000
                                 --------------
              (Registrant's telephone number, including area code)

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|

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

               Class                             Outstanding at August 14, 2000
               -----                             ------------------------------
   Common Stock, $.05 par value                          18,563,491 shares

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<PAGE>

                             CAREMATRIX CORPORATION

                                Table of Contents

                         PART I - FINANCIAL INFORMATION

FINANCIAL STATEMENTS                                                        Page
                                                                            ----

Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999         3

Consolidated Statements of Operations for the three and six months
      ended June 30, 2000 and June 30, 1999                                   4

Consolidated Statements of Cash Flows for the six months ended
      June 30, 2000 and June 30, 1999                                         5

Notes to Consolidated Financial Statements                                    6

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS                                          11

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   16

                           PART II - OTHER INFORMATION

ITEM 1:  LEGAL PROCEEDINGS                                                   17

ITEM 2:  CHANGES IN SECURITIES                                               19

ITEM 5:  OTHER INFORMATION                                                   19

ITEM 6:  EXHIBITS AND REPORTS ON FORM 8-K                                    19


                                       2
<PAGE>

CAREMATRIX CORPORATION
CONSOLIDATED BALANCE SHEETS
as of June 30, 2000 and December 31, 1999

<TABLE>
<CAPTION>
                                                              June 30, 2000            December 31, 1999
                                                             ---------------           -----------------
                                                               (unaudited)
<S>                                                          <C>                        <C>
ASSETS
Current assets:
   Cash and cash equivalents                                 $     1,696,762            $     4,276,918
   Restricted cash                                                 5,384,891                  3,807,484
   Receivables:
      Accounts receivable, net                                    20,663,076                 21,030,666
      Accounts receivable-related party, net                      18,035,215                 16,949,886
   Prepaid and refundable income taxes, net                       10,357,354                 17,206,913
   Prepaid expenses and other current assets                       2,086,587                  1,831,448
                                                             ---------------            ---------------
          Total current assets                                    58,223,885                 65,103,315
Lease acquisition costs and prepaid rent, net                     21,122,256                 22,023,025
Property and equipment, net                                      301,493,012                276,586,515
Other long-term assets, net                                       33,834,098                 40,517,460
Goodwill, net                                                     34,640,546                 35,390,922
                                                             ---------------            ---------------
          Total assets                                       $   449,313,797            $   439,621,237
                                                             ===============            ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Current portion of long-term debt                         $    25,085,921            $    25,848,277
   Accounts payable                                               15,394,903                 14,766,916
   Accrued compensation and benefits                               6,709,263                  4,265,313
   Accrued liabilities                                            23,642,819                 11,898,170
   Other current liabilities                                       2,092,777                  2,130,086
                                                             ---------------            ---------------
          Total current liabilities                               72,925,683                 58,908,762
Mortgages and notes payable                                       75,389,200                 76,527,746
Convertible subordinated notes                                   115,000,000                115,000,000
Other long-term liabilities                                      160,310,523                132,596,446

Commitments and contingencies

Stockholders' equity                                              25,688,391                 56,588,283
                                                             ---------------            ---------------
          Total liabilities and shareholders' equity         $   449,313,797            $   439,621,237
                                                             ===============            ===============
</TABLE>

    The accompanying notes are an integral part of the consolidated financial
                                  statements.


                                       3
<PAGE>

CAREMATRIX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
for the three and six months ended June 30, 2000 and June 30, 1999

<TABLE>
<CAPTION>
                                                            Three Months Ended                    Six Months Ended
                                                   ----------------------------------    ----------------------------------
                                                    June 30, 2000      June 30, 1999      June 30, 2000      June 30, 1999
                                                   ---------------    ---------------    ---------------    ---------------
<S>                                                <C>                <C>                <C>                <C>
Revenues:
   Resident operations                             $    39,204,009    $    41,103,175    $    80,657,916    $    80,374,043
   Resident operations - related party                     300,000          5,294,257            600,000         10,755,957
   Development fee income                                       --                 --                 --             72,442
   Development fee income - related party                       --          2,739,857                 --          4,178,509
                                                   ---------------    ---------------    ---------------    ---------------
          Total  revenue                                39,504,009         49,137,289         81,257,916         95,380,951
                                                   ---------------    ---------------    ---------------    ---------------

Expenses:
   Facility operating expenses                          32,990,857         31,259,479         68,283,134         59,672,728
   Facility lease expense                                  268,750            219,809            537,500          1,067,369
   Facility lease expense - related party                3,818,033          4,709,007          8,860,498          8,429,852
   General and administrative                            7,084,879          5,534,130         12,005,098         10,288,915
   Depreciation and amortization                         4,514,059          3,185,525          7,754,115          5,964,499
                                                   ---------------    ---------------    ---------------    ---------------
          Total expenses                                48,676,578         44,907,950         97,440,345         85,423,363
                                                   ---------------    ---------------    ---------------    ---------------

Earnings (loss) from operations                         (9,172,569)         4,229,339        (16,182,429)         9,957,588

Other  income (expense):
   Interest income - related party                              --            949,819                 --          1,649,640
   Interest and other income                                70,386          1,168,859            300,265          1,952,130
   Interest and other expense                           (7,571,855)        (4,725,544)       (14,056,152)        (9,200,269)
                                                   ---------------    ---------------    ---------------    ---------------
          Total other income (expense)                  (7,501,469)        (2,606,866)       (13,755,887)        (5,598,499)
                                                   ---------------    ---------------    ---------------    ---------------

Earnings (loss) before income taxes and
   preferred dividends                                 (16,674,038)         1,622,473        (29,938,316)         4,359,089
Income taxes                                               533,569            640,877            958,026          1,721,840
                                                   ---------------    ---------------    ---------------    ---------------
Earnings before preferred dividends                    (17,207,607)           981,596        (30,896,342)         2,637,249
Preferred dividends                                          1,775              1,775              3,550              3,600
                                                   ---------------    ---------------    ---------------    ---------------
Net earnings (loss)                                $   (17,209,382)   $       979,821    $   (30,899,892)   $     2,633,649
                                                   ===============    ===============    ===============    ===============

Basic shares outstanding                                18,563,491         17,938,288         18,520,140         17,975,224
                                                   ===============    ===============    ===============    ===============
Basic earnings (loss) per share                    $         (0.93)   $          0.05    $         (1.67)   $          0.15
                                                   ===============    ===============    ===============    ===============

Diluted shares outstanding                              18,563,491         17,982,387         18,520,140         18,168,330
                                                   ===============    ===============    ===============    ===============
Diluted earnings (loss) per share                  $         (0.93)   $          0.05    $         (1.67)   $          0.15
                                                   ===============    ===============    ===============    ===============
</TABLE>

    The accompanying notes are an integral part of the consolidated financial
                                   statements.


                                       4
<PAGE>

CAREMATRIX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
for the six months ended June 30, 2000 and June 30, 1999

<TABLE>
<CAPTION>
                                                                                       Six Months Ended
                                                                              ---------------    ---------------
                                                                                June 30, 2000     June 30, 1999
                                                                              ---------------    ---------------
<S>                                                                           <C>                <C>
Net earnings (loss)                                                           $   (30,899,892)   $     2,633,649
Noncash items included in net earnings (loss):
   Depreciation of fixed assets                                                     5,287,779          3,754,416
   Amortization of intangible assets                                                2,466,336          2,210,083
   Increase in accounts receivable                                                 (2,042,191)        (6,218,300)
   Changes in current assets                                                        7,492,373         (1,403,799)
   Changes in current liabilities                                                   6,763,098        (13,728,895)
   Loss on sale of interest in sublease                                             2,429,944                 --
   Accrued interest on capital lease obligations                                    1,529,695          1,624,183
   Start up losses from facilities consolidated for
       accounting purposes                                                          5,511,231            359,073
                                                                              ---------------    ---------------
       Net cash used by operating activities                                       (1,461,627)       (10,769,590)
                                                                              ---------------    ---------------
Cash flows from investing activities:
   Additions to property and equipment, net                                          (692,011)        (3,184,007)
   Purchase of SeniorCare Group, Ltd. facility                                             --         (5,780,000)
   Proceeds from sale of interest in sublease                                       2,370,056                 --
   Change in lease deposits and other long-term assets                               (230,588)       (15,677,701)
   Change in restricted cash                                                         (360,060)        16,989,547
   Lease acquisition costs                                                                 --         (4,040,611)
                                                                              ---------------    ---------------
       Net cash provided (used) by investing activities                             1,087,397        (11,692,772)
                                                                              ---------------    ---------------
Cash flows from financing activities:
   Exercise of stock options and warrants                                                  --            199,651
   Repurchase of common shares                                                             --         (2,884,045)
   Borrowings (payments) under the line of credit, net                               (762,356)         2,000,000
   Net proceeds from mortgage refinancing                                                  --         25,474,266
   Repayment of debt, net                                                          (1,138,546)        (1,849,090)
   Other, net                                                                        (305,024)                --
                                                                              ---------------    ---------------
       Net cash provided (used) by financing activities                            (2,205,926)        22,940,782
                                                                              ---------------    ---------------

Increase (decrease) in cash and cash equivalents                                   (2,580,156)           478,420
Cash and cash equivalents, beginning of period                                      4,276,918         28,258,098
                                                                              ---------------    ---------------
Cash and cash equivalents, end of period                                      $     1,696,762    $    28,736,518
                                                                              ===============    ===============
Other noncash items:
Change in capital lease obligations and lease acquisition costs               $     2,525,000    $     5,280,000
                                                                              ===============    ===============
Additions to capital lease assets and liabilities                             $    14,705,361    $    23,561,780
                                                                              ===============    ===============
Additions to property and equipment                                           $    14,796,904    $    27,777,757
                                                                              ===============    ===============
Additions to other long-term liabilities                                      $    15,021,901    $    28,655,092
                                                                              ===============    ===============
Additions to other long-term assets                                           $       392,534    $       235,518
                                                                              ===============    ===============
</TABLE>

          The accompanying notes are an integral part of the financial
                                  statements.


                                       5
<PAGE>

                             CAREMATRIX CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    BASIS OF PRESENTATION

      CareMatrix Corporation (the "Company") develops, manages and operates
assisted living facilities and various other health care facilities.

      The accompanying interim unaudited financial statements have been prepared
by the Company pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such regulations. The
financial statements reflect all adjustments and disclosures which are, in the
opinion of management, necessary for a fair presentation of the financial
position and results of operations for the periods presented. All such
adjustments are of a normal recurring nature. The interim financial statements
should be read in conjunction with the Company's Annual Report on Form 10-K for
the year ended December 31, 1999, for additional disclosures. The results of
operations for the interim periods presented are not necessarily indicative of
the results that may be achieved for the full year. Certain reclassifications
have been made on the prior year's financial statements to conform to the
current year's presentations. All references to the "1999 Form 10-K" contained
herein refer to the Company's Annual Report on Form 10-K for the year ended
December 31, 1999, unless otherwise specified.

PRINCIPLES OF CONSOLIDATION

      The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany balances and transactions
have been eliminated in consolidation. The financial statements also include the
accounts of certain special purpose entities that the Company is deemed to
control although it does not have an ownership interest in such entities.

2.    RELATED PARTY TRANSACTIONS

      As used herein, "Chancellor" or "Chancellor Entity" refers to Chancellor
Senior Housing Group, Inc., Abraham D. Gosman (Chief Executive Officer and
Chairman of the Board of the Company) or companies in which Mr. Gosman and
certain current and former members of the Company's senior management exercise
significant control.

      During the quarter ended March 31, 2000, the Company sold its interest in
a sublease with a Chancellor Entity to a third-party. Chancellor leased this
facility from a third-party. As consideration for the sale, the Company received
cash of $2.4 million and expense and other credits in March 2000 of $1.1 million
from certain Chancellor Entities related to facilities the Company currently
leases from Chancellor. The Company recorded a charge of $2.4 million to
write-off the unamortized portion of its lease investment. The net charge of
$1.4 million is included in Interest and Other Expense in the Consolidated
Statement of Operations.

3.    CAPITAL LEASE AGREEMENT

      As discussed in Note 7 of the 1999 Form 10-K, the Company has entered into
various agreements with a third party to develop, manage, and operate up to
seven assisted living facilities in Connecticut. Because the Company is required
to lease these facilities, the Company treats the development, management, and
lease agreements as a single agreement. Although no lease agreement is legally
in effect, the financial statements reflect each of these facilities as a
capital lease asset and liability as of the date each facility opened. One
facility was opened in the first quarter of 2000 related to these agreements.
Accordingly, the Company recorded a capital lease


                                       6
<PAGE>

                             CAREMATRIX CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


asset and capital lease liability of $11.2 million during the quarter ended
March 31, 2000. The balance of the capital lease liability was reduced by $2.5
million which represents the application of the lease deposits and commitment
fees paid in connection with entering into the agreements.

      During the quarter ended June 30, 2000, the agreements referred to above
were modified. The primary modifications were: (1) the lease terms for all of
the existing facilities began May 1, 2000, (2) the due dates for the outstanding
loans to the facilities were changed to the earlier of the date the mortgages
related to the facilities are refinanced or December 2005, (3) the rent payments
were decreased for a limited time period with the savings in rent required to be
used for specified purposes, and (4) the requirement for the Company to enter
into agreements for the remaining two facilities was eliminated. As a result of
the change in the agreements, the Company increased both its capital lease
assets and capital lease liabilities by $3.5 million which represents the change
in the present value of the payments due under the associated lease agreements.

4.    EARNINGS PER SHARE

      For the quarter and six months ended June 30, 2000, basic loss per share
was the same as diluted loss per share as the impact of the assumed exercise or
conversion of the options, warrants, preferred stock, and 6.25% Convertible
Notes would be antidilutive.

<TABLE>
<CAPTION>
                                                            Three months ended June 30, 1999
                                                     ---------------------------------------------
Basic earnings per share                               Earnings          Shares        Per share
------------------------                             -------------   -------------   -------------
<S>                                                  <C>                <C>          <C>
Earnings available to common shareholders            $     979,821      17,938,288   $        0.05
    Effect of dilutive securities:
         Stock options and warrants                                         52,982              --
                                                     -------------   -------------   -------------
Diluted earnings per share                           $     979,821      17,991,270   $        0.05
                                                     =============   =============   =============

<CAPTION>
                                                              Six months ended June 30, 1999
                                                     ---------------------------------------------
Basic earnings per share                               Earnings          Shares        Per share
------------------------                             -------------   -------------   -------------
<S>                                                  <C>                <C>          <C>
Earnings available to common shareholders            $   2,633,649      17,975,224   $        0.15
    Effect of dilutive securities:
         Stock options and warrants                                        217,931              --
                                                     -------------   -------------   -------------
Diluted earnings per share                           $   2,633,649      18,193,155   $        0.15
                                                     =============   =============   =============
</TABLE>

5.   STRATEGIC ALTERNATIVES

      The Company has incurred significant operating losses and is dependent
upon certain future transactions to generate sufficient cash flow. These factors
raise substantial doubt about the Company's ability to continue as a going
concern. The Company has planned several initiatives to mitigate this doubt
including the restructuring and reduction of its corporate overhead, sales of
certain assets, negotiation of a settlement agreement with Chancellor to
liquidate the remaining receivables, and negotiating agreements with its lending
institution to be fully paid after the consummation of certain sale
transactions. If these initiatives are successful, the Company believes its
remaining operations will allow it to return to profitability.

       The Company will require resources in the future to fund its working
capital requirements. The Company expects to fund these resource requirements
with its cash on hand, the sales of certain assets, the proceeds from its
expected federal tax refund of approximately $9.0 million, and the proceeds from
certain transactions being contemplated between the Company and Chancellor. If
certain of these transactions are either not completed or not completed in a
timely fashion or modified in such a way as to significantly reduce the expected
proceeds to the


                                       7
<PAGE>

                             CAREMATRIX CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Company, then the Company would expect to be unable to meet its then current
obligations. Additionally, on April 25, 2000, the Company was notified by Nasdaq
that its stock would begin trading under the symbol "CMDCe" due to the failure
of the Company to file its Annual Report on Form 10-K for the year ended
December 31, 1999. Although the Company filed its Annual Report on Form 10-K on
July 5, 2000, and was not delisted, the Company received notice from Nasdaq on
July 7, 2000, that its stock would be delisted if the price of the Company's
common stock did not meet the minimum bid requirement of $1.00 per share on or
before October 9, 2000, and immediately thereafter the stock must evidence a
closing bid price of at least $1.00 per share for at least ten consecutive
trading days. In the event the price of the Company's stock does not meet the
minimum bid requirements, the Company is prepared to effect a reverse stock
split to meet such requirement. On July 24, 2000, the Company's stock began
trading under the symbol "CMDC." As of the date of this Report, the Company's
common stock has not been delisted. If the Company's common stock were delisted
and was ineligible to be traded on either a national exchange or automated
trading market, such an event would constitute a Repurchase Event, as defined
under the Company's $115,000,000 6.25% Convertible Notes (see Note 9 of the 1999
Form 10-K). In a Repurchase Event, the holders of the Notes could exercise a put
option and require the Notes to be repaid. Such an event would likely result in
the Company filing for protection under Chapter 11 of the United States
Bankruptcy Code.

      The Company's common stock could also be delisted from Nasdaq both as the
result of failing to comply with the minimum requirements regarding the market
value of public float and if its tangible net worth were to fall below $4.0
million. Additionally, Nasdaq has also notified the Company that it must timely
file all periodic reports required by the Securities and Exchange Commission and
Nasdaq for all reporting periods ending on or before June 30, 2001.

      In the event the Company is unable to continue as a going concern, assets
may not be recovered at their current carrying value and certain liabilities may
not be settled at their current carrying amount.

6.    LITIGATION

      CareMatrix Corporation and five of its officers and directors have been
named as defendants in fourteen class action lawsuits filing in the United
States District Court for the District of Massachusetts, one filed by Jonathan
Polansky on November 3, 1999, another filed by John P. Delmonico on November 5,
1999, another filed by James Cosentino on November 5, 1999, another filed by
Miriam Nathan on November 5, 1999, another filed by Patti Lisa on November 5,
1999, another filed by Leroy E. Schober on November 12, 1999, another filed by
Bradley Dunham on November 15, 1999, and another filed by Donald Camp, Marie
Camp and Arthur Boxer on December 23, 1999, another filed by Irving Ravens on
December 14, 1999, another filed by Gary A. Fryan and Michael B. London on
December 3, 1999, another filed by Brock Haynes on November 22, 1999, another
filed by Edward J. Oest on November 30, 1999. The complaints all make
substantially the same claims. Each complaint alleges that the defendants
violated the federal securities laws by making material misstatements and
omissions in certain of CareMatrix's public filings and statements during 1998
and 1999. Specifically, the complaints allege that such statements and omissions
had the effect of artificially inflating the market price for CareMatrix's
common stock until the disclosure by CareMatrix on October 7, 1999 of its
expectation that results for the third quarter and for the full year were not
likely to meet analysts' consensus anticipated levels. Damages are unspecified.

      CareMatrix and each of its directors have been named as defendants in a
class action lawsuit filed in the Court of Chancery of the State of Delaware for
New Castle County. This class action was filed by the Howard Gunty Profit
Sharing Plan on August 18, 1999. The complaint alleges that the defendants are
engaged in a course of action that constitutes a breach of their fiduciary and
other common law duties to the public shareholders of CareMatrix. Specifically,
the complaint alleges that the defendants are preparing to execute a
management-led buy-out or other strategic alternatives that would be unfair to
the public shareholders of CareMatrix. Plaintiffs seek an


                                       8
<PAGE>

                             CAREMATRIX CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

injunction preventing any such buy-out or, in the event that such a buy-out is
consummated, an order from the court setting it aside. Plaintiffs also seek
damages and costs of an unspecified amount.

      A subsidiary of the Company (the "Subsidiary") has been named as a
defendant in a lawsuit filed in the Supreme Court of the State of New York,
County of Nassau. This lawsuit was filed on October 26, 1999 in the name of
Great Neck Holding, LLC and The Mayfair at Glen Cove, LLC, the owners of two
senior housing facilities located in Long Island, New York. The amended
complaint alleges that the Subsidiary has breached its duties under certain
management agreements covering the two facilities. The plaintiffs seek an
accounting by the Subsidiary as to all funds received and expended by it with
respect to the facilities covered by the management agreements, as well as
damages of at least $1,000,000 and costs. In addition, the plaintiffs are
seeking injunctive relief, preventing the Subsidiary from entering the subject
properties or otherwise interfering with the plaintiffs' operation of the
subject properties. The Subsidiary has filed a lawsuit in the same court against
plaintiffs and another entity and two individuals who acted to allegedly
terminate the Subsidiary as Manager without notice or cause as required under
the management agreements. The complaint in the Subsidiary's action seeks to
enjoin those parties from taking any further action to terminate the management
agreements, as well as damages and costs. On March 30, 2000, the Subsidiary's
motion for preliminary injunctive relief was granted (which included giving the
manager the right to manage the facilities on the condition that the Subsidiary
post an undertaking in the amount of $1,000,000) and the Plaintiff's motions for
preliminary injunctive relief were denied.

      The Subsidiary has also sued the company allegedly hired to replace the
Subsidiary as Manager of the two facilities, for tortiously interfering with the
Subsidiary's rights and performance of its obligations under the management
agreements. That action was filed in the United States District Court for the
Eastern District of New York. The complaint in this lawsuit seeks damages,
costs, and injunctive relief. The defendant has answered the complaint, denying
certain of the material allegations and asserting affirmative defenses. The
defendant filed motions seeking (i) a stay of the action against it pending the
outcome of the two state-court lawsuits between the Subsidiary and the owners,
discussed above, and (ii) dismissal of one of the two claims for relief asserted
in the complaint. On May 5, 2000, the United States District Court granted the
Subsidiary permission to amend the complaint to address an alleged pleading
defect and otherwise denied the defendant's motion to dismiss that claim.
Accordingly, on May 8, 2000, the Subsidiary filed an amended complaint. On May
11, 2000, the District Court denied the defendant's motion for a stay of the
proceedings until the litigation with the Owners is resolved.

      CareMatrix has been named as a nominal defendant and each of its directors
has been named as defendant in two shareholder derivative class action lawsuits
filed in the Court of Chancery of the State of Delaware for New Castle County.
These class action lawsuits were filed by Patty Lisa and Magda Sejas on December
13, 1999. The complaint alleges that the defendant directors have breached their
fiduciary duties to CareMatrix and damaged the goodwill and reputation of
CareMatrix. Specifically, the complaint alleges that the defendant directors
engaged in wrongful self-dealing transactions, encouraged and allowed the
improper self-dealing complained of, failed to take action to stop such conduct
resulting in, among other adverse consequences, federal securities lawsuits
against CareMatrix, exposed CareMatrix to losses and took no steps to remove or
institute legal action against those officers, directors and employees
responsible for permitting the alleged misconduct. The plaintiffs seek an
injunction requiring an accounting by the defendant directors to CareMatrix of
the damages suffered by CareMatrix and the establishment and maintenance of
effective compliance programs to ensure that CareMatrix's affiliates and
employees do not engage in wrongful and self-dealing practices. The plaintiffs
also seek unspecified costs and disbursements in connection with the action.

      CareMatrix has been named as a defendant in a civil suit filed by Mariner
Health Resources, Inc. and Prism Rehab Systems, Inc. in the Superior Court for
Suffolk County, Massachusetts. The suit arises from the termination in 1998 of
various management, consulting and services agreements between certain
subsidiaries of CareMatrix and


                                       9
<PAGE>

                             CAREMATRIX CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

the plaintiffs in connection with certain skilled nursing facilities in
Maryland, Massachusetts, New Jersey and Florida. The plaintiffs allege that
CareMatrix failed to pay approximately $3.3 million owed to the plaintiffs, plus
interest and costs, under the terms of the termination agreements between
CareMatrix, certain of CareMatrix's subsidiaries and the plaintiffs. CareMatrix
and its subsidiaries have denied these allegations and have counterclaimed
against the plaintiffs and their corporate parent, Mariner Post-Acute Network,
Inc. ("MPAN"), seeking a declaration that no monies are presently due under the
termination agreements at issue. CareMatrix and its subsidiaries also seek
damages for certain misconduct by the plaintiffs and MPAN relating to the
management of the facilities, including, among other items, the fraudulent
misrepresentation of amounts due from Medicaid at the Maryland skilled nursing
facility. On January 12, 2000, plaintiffs and MPAN filed voluntary petitions
under Chapter 11 of the United States Bankruptcy Code, staying the foregoing
litigation.

      CareMatrix Corporation and another entity have been named as defendants in
a class action lawsuit filed in the Supreme Court of the State of New York,
County of Nassau. The action was filed by Rosalind Romuno on June 15, 2000. The
Complaint alleges that the defendants breached their contractual obligations to
pay for certain medical services covered under the Company's health plan. The
plaintiff seeks injunctive relief requiring the defendants to pay for past,
present and future medical services covered under the Company's health plan, to
take all actions necessary to ensure that no entity will seek enforcement
against the plaintiff and other members of the class for medical services
covered under the Company's health plan, and to ensure that the credit rating of
the plaintiff and other members of the class is not affected by the defendant's
actions, and also seeks unspecified damages and costs.

      CareMatrix has been named as a nominal defendant and each of its directors
and a former director have been named as defendants in a shareholder derivative
class action lawsuit filed in the court of Chancery of the State of Delaware for
New Castle County. This class action was filed by Patty Lisa and Magda Sejas on
August 1, 2000. The complaint alleges that the defendant directors have breached
their fiduciary duties to CareMatrix by approving of the termination of various
management contracts with Chancellor in connection with the sale by Chancellor
of various assets without fairly compensating CareMatrix for the loss of its
management rights and without paying CareMatrix the receivables owed by
Chancellor to CareMatrix. The plaintiffs seek an injunction preventing the
defendants from taking any steps in furtherance of the sale of the Chancellor
Entities' assets, recission of the termination of the management agreements with
the Chancellor Entities and requiring an accounting by the defendants to
CareMatrix for the damages suffered by CareMatrix. The plaintiffs also seek
unspecified costs and disbursements in connection with the action.

      The Company believes it has meritorious defenses to each of the actions
described above and intends to vigorously defend each such action. The Company
does not currently expect the outcome of any of the litigation, referenced
above, to have a material adverse impact on its financial position, results of
operations and cash flows.

      The Company is also subject to litigation with various vendors as a result
of either contracts entered into or services provided related to facilities the
Company has developed and/or managed. The current aggregate amount of such
claims outstanding is approximately $3.9 million. Although the Company intends
to settle or otherwise resolve these claims, there can be no assurance any or
all such settlements or resolutions will be successful. Although an unfavorable
outcome of any individual claim would be unlikely to have a material adverse
impact on the Company, an unsuccessful resolution of a number of such claims
could, in the aggregate, have a material adverse impact on the Company's
financial position, results of operations, and cash flows. The Company has not
currently recorded a reserve to cover such potential claims as the range of
unsuccessful outcomes of such litigation cannot be reasonably estimated at this
time.

7.    SUBSEQUENT EVENTS.

      On August 14, 2000, the Company announced that it had elected to utilize
the 30 day grace period for the $3.6 million semi-annual interest payment due on
August 15, 2000, for its 6.25% Convertible Notes.


                                       10
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

      The Company is a provider of assisted living services to the elderly. At
June 30, 2000, the Company operated 51 facilities in 13 states with a capacity
of approximately 5,591 units. Of the facilities, 13 are owned, 19 are leased or
operated under long-term management agreements, 13 are managed or operated under
capital leases, and 6 new facilities are consolidated for accounting purposes.
The Company provides assistance with the activities of daily living and other
personalized support services in a residential setting for elderly residents who
cannot live independently but who do not need the level of medical care provided
in a skilled nursing facility. The Company also provides additional specialized
care and services to residents with certain low acuity medical needs and
residents with Alzheimer's disease or other forms of dementia. By offering this
full range of services, the Company is able to accommodate the changing needs of
residents as they age within a facility and develop further physical or
cognitive frailties.

      The Company currently derives its revenues primarily from resident fees
for the delivery of independent and assisted living and other long-term care
services. Resident fees typically are paid monthly by residents, their families
or other responsible parties. Resident fees and management fees are recognized
as revenues when services are provided.

      The Company has made forward-looking statements in this Report (and in
documents that are incorporated by reference) that are subject to risks and
uncertainties. Forward-looking statements include information concerning
possible or future results of operations of CareMatrix. Also, when the Company
uses words such as "believes," "expects," "anticipates," or similar expressions,
it is often, but not always, making forward-looking statements. Stockholders
should note that many factors could affect our future financial results and
could cause such results to differ materially from those expressed in our
forward-looking statements. Those factors include, but are not limited to, the
following:

      o     risks related to the Company's operating history and available
            financing;

      o     risks related to the potential delisting of the Common Stock from
            the Nasdaq Stock Market;

      o     risks related to the Company's evaluation and implementation of
            strategic alternatives;

      o     risks inherent in the construction and development industry;

      o     uncertainty about the changing regulatory environment;

      o     risks related to competition;

      o     risks related to the litigation pending against the Company;

      o     risks related to the Company's ability to attract and retain key
            personnel; and

      o     risks related to the ability of the Chancellor Entities' (the
            entities that own a majority of the facilities the Company develops
            and operates) to obtain adequate financing to fund the facilities
            during start-up and any equity needed, including cash for operating
            losses, to meet bank covenants, and to fund any amounts owed to the
            Company. Any inability to do so, or any default by Chancellor under
            its debt obligations, could have a material adverse effect on the
            Company's financial position, results of operations, and cash flows
            (see Note 5 and Note 17 of the 1999 Form 10K). As used herein
            "Chancellor" or "Chancellor Entities" refer to Chancellor Senior
            Housing Group, Inc., Abraham D. Gosman (Chief Executive Officer and
            Chairman of the Board of the


                                       11
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

          OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

            Company) or companies in which Mr. Gosman and certain current and
            former members of the Company's senior management exercise
            significant control.

      All references to "Notes" contained herein refer to Notes to Consolidated
Financial Statements in this Form 10-Q, and all references to "1999 Form 10-K"
contained herein refer to the Company's Annual Report on Form 10-K for the year
ended December 31, 1999, unless otherwise specified.

   The quarter ended June 30, 2000 compared to the quarter ended June 30, 1999

      REVENUES. Resident operations revenue decreased by $6.9 million for the
second quarter of 2000 compared to the same period in 1999. The change is
comprised of increases in revenue from comparable facilities of $0.8 million,
$0.1 million from new facilities, and $1.0 million from new facilities that the
Company is required to consolidate for accounting purposes (see Note 1), offset
by a decrease of $3.2 million in revenue from facilities that were sold, and
$5.6 million decline in revenue in fees related to management contracts and
other services both as a result of the decrease in the total number of
facilities under construction and in operation and the Company's decision to not
recognize revenue in situations where the Company is still providing services
but where it is more likely than not that such revenue will not ultimately be
realized. Included in resident operations revenue in the second quarter of 1999
was $2.5 million earned from marketing and management services provided to
facilities under construction per the terms of existing development agreements.

      The Company did not record any development fee income in the second
quarter of 2000 as a result of the termination of the remaining projects in the
Company's development pipeline during 1999 (see Note 17 of the 1999 Form 10-K).
The Company does not currently intend to develop additional projects.

      FACILITY EXPENSES. Facility operating expenses were $33.0 million in the
second quarter of 2000 compared to $31.3 million in the same period of 1999, an
increase of $1.7 million. The increase is comprised of $1.7 million from
comparable facilities, $0.2 million from new facilities, and $1.8 million of
start up and other operating costs from facilities the Company consolidates for
accounting purposes, offset by a $2.0 million decrease in operating expenses
from facilities that were sold. Included in facility operating expenses in the
second quarter of 1999 was a credit of $1.6 million representing an adjustment
of lost revenue due to the implementation of Medicare's Prospective Payment
System. Although the Company's leases with Chancellor provide indemnification
for such change in governmental regulations, the Company did not record a
benefit for this indemnification agreement in the second quarter of 2000 since
it is more likely than not that such benefit will not ultimately be realized.

      Facility lease expense was $4.1 million in the second quarter of 2000
compared to $4.9 million in the same period in 1999. The decrease is primarily
due to the sale of one facility in the first quarter of 2000.

      GENERAL AND ADMINISTRATIVE. General and administrative expenses were $7.1
million in the second quarter of 2000 compared to $5.5 million in the comparable
period in 1999. Decreases in corporate overhead due to the restructuring of the
Company were offset by severance, professional, legal, and insurance costs as a
result of the Company's review of strategic alternatives (see Note 5 and Note 17
of the 1999 Form 10-K) and various litigation in which the Company is currently
involved (see Note 6). Included in general and administrative costs in the
second quarter of 2000 is a charge of $1.9 million related to the write-off of
the remaining balance of certain development fee receivables from a third-party
as a result of the termination of the associated development and management
contracts.


                                       12
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

          OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

      DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the
second quarter of 2000 increased $1.3 million compared to the same period in
1999. The increase is due primarily to $0.2 million of incremental amortization
of capital lease assets and $1.3 million of depreciation and amortization from
new facilities which the Company is required to consolidate for accounting
purposes, partially offset by a decline of $0.2 million in the amortization of
certain intangible assets as a result of the asset impairment charges recorded
in 1999 (see Note 17 of the 1999 Form 10-K).

      INTEREST AND OTHER INCOME AND INTEREST AND OTHER EXPENSE. Interest and
other income for the second quarter of 2000 was $0.1 million compared to $2.1
million for the same period in 1999. The decrease in interest income is due to
lower average cash balances during 2000 compared to 1999 and a decrease in
related party interest income of $0.9 million as a result of the Company's
decision to not recognize income in situations where it is more likely than not
that such income will not be realized. Interest and other expense for the second
quarter of 2000 increased to $7.6 million from $4.7 million for the same period
in 1999. The increase in interest expense is primarily due to $0.3 million of
incremental interest related to facilities which were refinanced during 1999
(see Note 10 of the 1999 Form 10-K), $2.4 million of interest expense related to
facilities which the Company is required to consolidate for accounting purposes,
and an increase in the cost of borrowing under the Company's line of credit.

      INCOME TAXES. The Company's effective tax rate during the second quarter
of 2000 was 3.2 % compared to 39.5% in 1999. The change in the effective tax
rate is due both to the Company's inability to recognize deferred tax benefits
because it is more likely than not that some portion of the deferred tax assets
would not be realized and the limitations on the utilization of loss carrybacks
at the state level.

       The six months ended June 30, 2000 compared to the six months ended
                                 June 30, 1999

      REVENUES. Resident operations revenue decreased by $9.9 million through
June 30, 2000, compared to the same period in 1999. The change is comprised of
increases in revenue from comparable facilities of $3.0 million, $2.3 million
from facilities that are contributing a full six months of revenue in 2000
compared to three months in 1999, $0.1 million from new facilities, and $1.2
million from new facilities that the Company is required to consolidate for
accounting purposes (see Note 1), offset by a decrease of $5.1 million in
revenue from facilities that were sold, and a $11.4 million decline in revenue
in fees related to management contracts and other services both as a result of
the decrease in the total number of facilities under construction and in
operation and the Company's decision to not recognize revenue in situations
where the Company is still providing services but where it is more likely than
not that such revenue will not ultimately be realized. Included in resident
operations revenue through June 30, 1999 was $7.0 million earned from marketing
and management services provided to facilities under construction per the terms
of existing development agreements.

      The Company did not record any development fee income during 2000 as a
result of the termination of the remaining projects in the Company's development
pipeline during 1999 (see Note 17 of the 1999 Form 10-K). The Company does not
currently intend to develop additional projects.

      FACILITY EXPENSES. Facility operating expenses were $68.3 million through
June 30, 2000, compared to $59.7 million in the same period of 1999, an increase
of $8.6 million. The increase is comprised of $5.7 million from comparable
facilities, $2.9 million from non-comparable facilities, $0.3 million from new
facilities, and $2.9 million of start up and other operating costs from
facilities the Company consolidates for accounting purposes, partially offset by
a decrease in expenses of $3.2 million from facilities that were sold. Included
in facility operating expenses in the six months ended June 30, 1999, was a
credit of $2.8 million representing an adjustment of lost revenue due to the
implementation of Medicare's Prospective Payment System. Although the Company's


                                       13
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

          OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

leases with Chancellor provide indemnification for such change in governmental
regulations, the Company did not record a benefit for this indemnification
agreement in 2000 since it is more likely than not that such benefit will not
ultimately be realized.

      Facility lease expense was $9.4 million through June 30, 2000, compared to
$9.5 million in the same period in 1999. Increases in lease expense due to
increased cash flow rent payments in 2000 compared to the same period in 1999
were offset by a decline in lease expense as a result of the sale in the first
quarter of 2000 of the Company's interest in a sublease. Such cash flow rent
payments are based on the profitability of the specific facility.

      GENERAL AND ADMINISTRATIVE. General and administrative expenses were $12.0
million through June 30, 2000, compared to $10.3 million in the comparable
period in 1999. Decreases in corporate overhead due to the restructuring of the
Company were offset by severance, professional, legal, and insurance costs as a
result of the Company's review of strategic alternatives (see Note 5 and Note 17
of the 1999 Form 10-K) and various litigation in which the Company is currently
involved (see Note 6). Included in general and administrative costs in the six
months ended June 30, 2000, is a charge of $1.9 million related to the write-off
of the remaining balance of certain development fee receivables from a
third-party as a result of the termination of the associated development and
management contracts.

      DEPRECIATION AND AMORTIZATION. Depreciation and amortization through June
30, 2000, increased $1.8 million compared to the same period in 1999. The
increase is due primarily to $0.5 million of incremental amortization of capital
lease assets, $1.4 million of depreciation and amortization from new facilities
which the Company is required to consolidate for accounting purposes, and $0.3
million from the amortization of other intangible assets, partially offset by a
decline of $0.4 million in the amortization of certain intangible assets as a
result of the asset impairment charges recorded in 1999 (see Note 17 of the 1999
Form 10-K).

      INTEREST AND OTHER INCOME AND INTEREST AND OTHER EXPENSE. Interest and
other income through June 30, 2000 was $0.3 million compared to $3.6 million for
the same period in 1999. The decrease in interest income is due to lower average
cash balances during 2000 compared to 1999 and a decrease in related party
interest income of $1.6 million as a result of the Company's decision to not
recognize income in situations where it is more likely than not that such income
will not be realized. Included in other income in 1999 is $1.0 million from the
Company's investments in two limited partnerships. Interest and other expense
through June 30, 2000, increased to $14.1 million from $9.2 million for the same
period in 1999. The increase in interest expense is primarily due to $0.7
million of incremental interest related to facilities which were refinanced
during 1999 (see Note 10 of the 1999 Form 10-K), $2.8 million of interest
expense related to facilities which the Company is required to consolidate for
accounting purposes, and an increase in the cost of borrowing under the
Company's line of credit. Also included in other expense in the first quarter of
2000 is a $1.4 million charge which represents the net write-off of the
remaining balance of a lease deposit related to an interest in a sublease that
was sold (see Note 2).

      INCOME TAXES. The Company's effective tax rate through June 30, 2000, was
3.2 % compared to 39.5% in 1999. The change in the effective tax rate is due
both to the Company's inability to recognize deferred tax benefits because it is
more likely than not that some portion of the deferred tax assets would not be
realized and the limitations on the utilization of loss carrybacks at the state
level.

LIQUIDITY AND CAPITAL RESOURCES


                                       14
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

          OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

      Cash and cash equivalents at June 30, 2000, were $1.7 million compared to
$4.3 million at December 31, 1999, a decrease of $2.6 million.

      Cash used by operations was $1.5 million through June 30, 2000, compared
to a use of $10.8 million for the same period in 1999. This use of cash is
comprised of $23.1 million of net loss before depreciation and amortization, a
$14.3 million increase in other working capital items, $5.5 million of noncash
expenses related to facilities the Company consolidates for accounting purposes,
$1.5 million for accrued interest on capital lease obligations, and the charge
of $2.4 million related to the write-off of the unamortized lease costs related
to a sublease interest that was sold (see Note 2), partially offset by an
increase in accounts receivable of $2.0 million.

      Cash provided by investing activities was $1.1 million through June 30,
2000, compared to a use of $11.7 million for the same period in 1999. The source
of cash was primarily due to a net of $2.4 million received from the sale of the
Company's interest in a sublease (see Note 2), $0.6 million received from the
sale of a parcel of investment property to a third party, partially offset by
$0.7 million in additions to property and equipment, $0.6 million used for a
purchase deposit on one facility, and an increase in restricted cash of $0.4
million.

      Cash flows used by financing activities were $2.2 million through June 30,
2000, compared to $22.9 million provided by fiancing activities for the same
period in 1999. The use of cash is primarily due to $1.9 million of debt
repayments.

      The Company has incurred significant operating losses and is dependent
upon certain future transactions to generate sufficient cash flow. These factors
raise substantial doubt about the Company's ability to continue as a going
concern. The Company has planned several initiatives to mitigate this doubt
including the restructuring and reduction of its corporate overhead, sales of
certain assets, negotiation of a settlement agreement with Chancellor to
liquidate the remaining receivables, and negotiating agreements with its lending
institution to be fully paid after the consummation of certain sale
transactions. If these initiatives are successful, the Company believes its
remaining operations will allow it to return to profitability.

      The Company will require resources in the future to fund its working
capital requirements. The Company expects to fund these resource requirements
with its cash on hand, the sales of certain assets, the proceeds from its
expected federal tax refund of approximately $9.0 million, and the proceeds from
certain transactions being contemplated between the Company and Chancellor. If
certain of these transactions are either not completed or not completed in a
timely fashion or modified in such a way as to significantly reduce the expected
proceeds to the Company, then the Company would expect to be unable to meet its
then current obligations. Additionally, on April 25, 2000, the Company was
notified by Nasdaq that its stock would begin trading under the symbol "CMDCe"
due to the failure of the Company to file its Annual Report on Form 10-K for the
year ended December 31, 1999. Although the Company filed its Annual Report on
Form 10-K on July 5, 2000, and was not delisted, the Company received notice
from Nasdaq on July 7, 2000, that its stock would be delisted if the price of
the Company's common stock did not meet the minimum bid requirement of $1.00 per
share on or before October 9, 2000, and immediately thereafter the stock must
evidence a closing bid price of at least $1.00 per share for at least ten
consecutive trading days. In the event the price of the Company's stock does not
meet the minimum bid requirements, the Company is prepared to effect a reverse
stock split to meet such requirement. On July 24, 2000, the Company's stock
began trading under the symbol "CMDC." As of the date of this Report, the
Company's common stock has not been delisted. If the Company's common stock were
delisted and was ineligible to be traded on either a national exchange or
automated trading market, such an event would constitute a Repurchase Event, as
defined under the Company's $115,000,000 6.25% Convertible Notes (see Note 9 of
the 1999 Form 10-K). In a Repurchase Event, the holders of the Notes could
exercise a put option and require the Notes to be repaid. Such an event would
likely result in the Company filing for protection under Chapter 11 of the
United States Bankruptcy Code.


                                       15
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

          OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

      The Company's common stock could also be delisted from Nasdaq both as the
result of failing to comply with the minimum requirements regarding the market
value of public float and if its tangible net worth were to fall below $4.0
million. Additionally, Nasdaq has also notified the Company that it must timely
file all periodic reports required by the Securities and Exchange Commission and
Nasdaq for all reporting periods ending on or before June 30, 2001.

      In the event the Company is unable to continue as a going concern, assets
may not be recovered at their current carrying value and certain liabilities may
not be settled at their current carrying amount.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      The Company is subject to market risk from exposure to changes in interest
rates based on its financing, investing and cash management activities. The
Company does not expect changes in interest rates to have a material effect on
income or cash flows for the year ended June 30, 2000, although there can be no
assurances that interest rates will not significantly change.


                                       16
<PAGE>

                           PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

      CareMatrix Corporation and five of its officers and directors have been
named as defendants in fourteen class action lawsuits filing in the United
States District Court for the District of Massachusetts, one filed by Jonathan
Polansky on November 3, 1999, another filed by John P. Delmonico on November 5,
1999, another filed by James Cosentino on November 5, 1999, another filed by
Miriam Nathan on November 5, 1999, another filed by Patti Lisa on November 5,
1999, another filed by Leroy E. Schober on November 12, 1999, another filed by
Bradley Dunham on November 15, 1999, and another filed by Donald Camp, Marie
Camp and Arthur Boxer on December 23, 1999, another filed by Irving Ravens on
December 14, 1999, another filed by Gary A. Fryan and Michael B. London on
December 3, 1999, another filed by Brock Haynes on November 22, 1999, another
filed by Edward J. Oest on November 30, 1999. The complaints all make
substantially the same claims. Each complaint alleges that the defendants
violated the federal securities laws by making material misstatements and
omissions in certain of CareMatrix's public filings and statements during 1998
and 1999. Specifically, the complaints allege that such statements and omissions
had the effect of artificially inflating the market price for CareMatrix's
common stock until the disclosure by CareMatrix on October 7, 1999 of its
expectation that results for the third quarter and for the full year were not
likely to meet analysts' consensus anticipated levels. Damages are unspecified.

      CareMatrix and each of its directors have been named as defendants in a
class action lawsuit filed in the Court of Chancery of the State of Delaware for
New Castle County. This class action was filed by the Howard Gunty Profit
Sharing Plan on August 18, 1999. The complaint alleges that the defendants are
engaged in a course of action that constitutes a breach of their fiduciary and
other common law duties to the public shareholders of CareMatrix. Specifically,
the complaint alleges that the defendants are preparing to execute a
management-led buy-out or other strategic alternatives that would be unfair to
the public shareholders of CareMatrix. Plaintiffs seek an injunction preventing
any such buy-out or, in the event that such a buy-out is consummated, an order
from the court setting it aside. Plaintiffs also seek damages and costs of an
unspecified amount.

      A subsidiary of the Company (the "Subsidiary") has been named as a
defendant in a lawsuit filed in the Supreme Court of the State of New York,
County of Nassau. This lawsuit was filed on October 26, 1999 in the name of
Great Neck Holding, LLC and The Mayfair at Glen Cove, LLC, the owners of two
senior housing facilities located in Long Island, New York. The amended
complaint alleges that the Subsidiary has breached its duties under certain
management agreements covering the two facilities. The plaintiffs seek an
accounting by the Subsidiary as to all funds received and expended by it with
respect to the facilities covered by the management agreements, as well as
damages of at least $1,000,000 and costs. In addition, the plaintiffs are
seeking injunctive relief, preventing the Subsidiary from entering the subject
properties or otherwise interfering with the plaintiffs' operation of the
subject properties. The Subsidiary has filed a lawsuit in the same court against
plaintiffs and another entity and two individuals who acted to allegedly
terminate the Subsidiary as Manager without notice or cause as required under
the management agreements. The complaint in the Subsidiary's action seeks to
enjoin those parties from taking any further action to terminate the management
agreements, as well as damages and costs. On March 30, 2000, the Subsidiary's
motion for preliminary injunctive relief was granted (which included giving the
manager the right to manage the facilities on the condition that the Subsidiary
post an undertaking in the amount of $1,000,000) and the Plaintiff's motions for
preliminary injunctive relief were denied.

      The Subsidiary has also sued the company allegedly hired to replace the
Subsidiary as Manager of the two facilities, for tortiously interfering with the
Subsidiary's rights and performance of its obligations under the management
agreements. That action was filed in the United States District Court for the
Eastern District of New York. The complaint in this lawsuit seeks damages,
costs, and injunctive relief. The defendant has answered the complaint, denying
certain of the material allegations and asserting affirmative defenses. The
defendant filed motions seeking (i) a stay of the action against it pending the
outcome of the two state-court lawsuits between the Subsidiary and the owners,
discussed above, and (ii) dismissal of one of the two claims for relief asserted
in the complaint. On May 5, 2000, the United States District Court granted the
Subsidiary permission to amend the complaint to address an alleged pleading
defect and otherwise denied the defendant's motion to dismiss that claim.


                                       17
<PAGE>

Accordingly, on May 8, 2000, the Subsidiary filed an amended complaint. On May
11, 2000, the District Court denied the defendant's motion for a stay of the
proceedings until the litigation with the Owners is resolved.

      CareMatrix has been named as a nominal defendant and each of its directors
has been named as defendant in two shareholder derivative class action lawsuits
filed in the Court of Chancery of the State of Delaware for New Castle County.
These class action lawsuits were filed by Patty Lisa and Magda Sejas on December
13, 1999. The complaint alleges that the defendant directors have breached their
fiduciary duties to CareMatrix and damaged the goodwill and reputation of
CareMatrix. Specifically, the complaint alleges that the defendant directors
engaged in wrongful self-dealing transactions, encouraged and allowed the
improper self-dealing complained of, failed to take action to stop such conduct
resulting in, among other adverse consequences, federal securities lawsuits
against CareMatrix, exposed CareMatrix to losses and took no steps to remove or
institute legal action against those officers, directors and employees
responsible for permitting the alleged misconduct. The plaintiffs seek an
injunction requiring an accounting by the defendant directors to CareMatrix of
the damages suffered by CareMatrix and the establishment and maintenance of
effective compliance programs to ensure that CareMatrix's affiliates and
employees do not engage in wrongful and self-dealing practices. The plaintiffs
also seek unspecified costs and disbursements in connection with the action.

      CareMatrix has been named as a defendant in a civil suit filed by Mariner
Health Resources, Inc. and Prism Rehab Systems, Inc. in the Superior Court for
Suffolk County, Massachusetts. The suit arises from the termination in 1998 of
various management, consulting and services agreements between certain
subsidiaries of CareMatrix and the plaintiffs in connection with certain skilled
nursing facilities in Maryland, Massachusetts, New Jersey and Florida. The
plaintiffs allege that CareMatrix failed to pay approximately $3.3 million owed
to the plaintiffs, plus interest and costs, under the terms of the termination
agreements between CareMatrix, certain of CareMatrix's subsidiaries and the
plaintiffs. CareMatrix and its subsidiaries have denied these allegations and
have counterclaimed against the plaintiffs and their corporate parent, Mariner
Post-Acute Network, Inc. ("MPAN"), seeking a declaration that no monies are
presently due under the termination agreements at issue. CareMatrix and its
subsidiaries also seek damages for certain misconduct by the plaintiffs and MPAN
relating to the management of the facilities, including, among other items, the
fraudulent misrepresentation of amounts due from Medicaid at the Maryland
skilled nursing facility. On January 12, 2000, plaintiffs and MPAN filed
voluntary petitions under Chapter 11 of the United States Bankruptcy Code,
staying the foregoing litigation.

      CareMatrix Corporation and another entity have been named as defendants in
a class action lawsuit filed in the Supreme Court of the State of New York,
County of Nassau. The action was filed by Rosalind Romuno on June 15, 2000. The
Complaint alleges that the defendants breached their contractual obligations to
pay for certain medical services covered under the Company's health plan. The
plaintiff seeks injunctive relief requiring the defendants to pay for past,
present and future medical services covered under the Company's health plan, to
take all actions necessary to ensure that no entity will seek enforcement
against the plaintiff and other members of the class for medical services
covered under the Company's health plan, and to ensure that the credit rating of
the plaintiff and other members of the class is not affected by the defendant's
actions, and also seeks unspecified damages and costs.

      CareMatrix has been named as a nominal defendant and each of its directors
and a former director have been named as defendants in a shareholder derivative
class action lawsuit filed in the court of Chancery of the State of Delaware for
New Castle County. This class action was filed by Patty Lisa and Magda Sejas on
August 1, 2000. The complaint alleges that the defendant directors have breached
their fiduciary duties to CareMatrix by approving of the termination of various
management contracts with Chancellor in connection with the sale by Chancellor
of various assets without fairly compensating CareMatrix for the loss of its
management rights and without paying CareMatrix the receivables owed by
Chancellor to CareMatrix. The plaintiffs seek an injunction preventing the
defendants from taking any steps in furtherance of the sale of the Chancellor
Entities' assets, recission of the termination of the management agreements with
the Chancellor Entities and requiring an accounting by the defendants to
CareMatrix for the damages suffered by CareMatrix. The plaintiffs also seek
unspecified costs and disbursements in connection with the action.


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<PAGE>

      The Company believes it has meritorious defenses to each of the actions
described above and intends to vigorously defend each such action. The Company
does not currently expect the outcome of any of the litigation, referenced
above, to have a material adverse impact on its financial position, results of
operations and cash flows.

      The Company is also subject to litigation with various vendors as a result
of either contracts entered into or services provided related to facilities the
Company has developed and/or managed. The current aggregate amount of such
claims outstanding is approximately $3.9 million. Although the Company intends
to settle or otherwise resolve these claims, there can be no assurance any or
all such settlements or resolutions will be successful. Although an unfavorable
outcome of any individual claim would be unlikely to have a material adverse
impact on the Company, an unsuccessful resolution of a number of such claims
could, in the aggregate, have a material adverse impact on the Company's
financial position, results of operations, and cash flows. The Company has not
currently recorded a reserve to cover such potential claims as the range of
unsuccessful outcomes of such litigation cannot be reasonably estimated at this
time.

      The Company is a party to litigation in the ordinary course of business.
The Company does not believe that any such litigation will have a material
adverse effect on its business, financial position or results of operations.

ITEM 2. CHANGES IN SECURITIES

      None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

      None.

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

      None.

ITEM 5. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

      (a).  The following exhibits are filed as part of this report:

      3.01  Corrected Third Restated Certificate of Incorporation of CareMatrix
            Corporation (2)

      3.02  By-laws of CareMatrix Corporation, as amended through December 9,
            1996 (1)

      27    Financial Data Schedule (*)

      (b).  Reports on Form 8-K

            None.

      ----------------------
      (*)   Filed herewith.
      (1)   Filed as an Exhibit to the Company's Annual Report on Form 10-K for
            the year ended December 31, 1996.
      (2)   Filed as an Exhibit to the Company's Annual Report on Form 10-K for
            the year ended December 31, 1997.


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<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of Section 13 or Section 15(d) of the
Securities and Exchange Act of 1934, as amended, the Registrant has duly caused
this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                   CAREMATRIX CORPORATION


                                   By: /s/ Michael J. Zaccaro
                                       --------------------------------------
                                   Michael J. Zaccaro
                                   Chief Operating Officer and Principal
                                   Accounting Officer


Dated: August 14, 2000


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