##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended: September 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to.
 American HomePatient, Inc.
 (exact name of registrant as specified in its charter)
 Delaware
    
    0-19532
    
    62-1474680(State or other jurisdiction of
    
    (Commission
    
    (IRS Employer Identification No.)incorporation or organization)
    
    File Number)
 5200 Maryland Way, Suite 400, Brentwood, Tennessee
    
    37027(Address of principal executive offices)
    
    (Zip Code)
 (615) 221-8884
 (Registrants telephone number, including area code)
 None
 (Former name, former address and former fiscal year, if changed since last report)
 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 þ No o
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one):
 Large accelerated filer o      Accelerated filer o Non accelerated filer þ
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
 17,573,389
 (Outstanding shares of the issuers common stock as of October 29, 2007)




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##### 



AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES
 INDEX
 Page No.PART I Financial InformationItem 1. Financial Statements (Unaudited)Interim Condensed Consolidated Balance Sheets
    
    
    3Interim Condensed Consolidated Statements of Operations  Three
and Nine months ended September 30, 2007 and 2006
    
    
    5Interim Condensed Consolidated Statements of Cash Flows  Nine
months ended September 30, 2007 and 2006
    
    
    6Notes to Interim Condensed Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    17Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    35Item 4. Controls and Procedures
    
    
    35Report of Independent Registered Public Accounting Firm
    
    
    36PART II Other Information and SignaturesItem 1. Legal Proceedings
    
    
    37Item 1A. Risk Factors
    
    
    37Item 6. Exhibits
    
    
    43Signatures
    
    
    44EX-15.1 AWARENESS LETTER OF KPMG LLP.EX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 302 CERTIFICATION OF THE CEOEX-32.2 SECTION 302 CERTIFICATION OF THE CFO
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
  AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES
 
 INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
 (unaudited)
 September 30,
    
    
    December 31,2007
    
    
    2006ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    22,155,000
    
    
    $
    6,786,000Restricted cash
    
    
    250,000
    
    
    
    650,000Accounts receivable, less allowance for doubtful accounts of
$13,853,000 and $17,076,000, respectively
    
    
    44,295,000
    
    
    
    54,314,000Inventories, net of inventory valuation allowances of $654,000
and $792,000, respectively
    
    
    10,836,000
    
    
    
    12,288,000Prepaid expenses and other current assets
    
    
    11,247,000
    
    
    
    4,430,000Total current assets
    
    
    88,783,000
    
    
    
    78,468,000Property and equipment
    
    
    155,969,000
    
    
    
    163,666,000Less accumulated depreciation and amortization
    
    
    (114,380,000
    )
    
    
    (112,255,000
    )Property and equipment, net
    
    
    41,589,000
    
    
    
    51,411,000Goodwill
    
    
    121,834,000
    
    
    
    121,834,000Investment in joint ventures
    
    
    6,800,000
    
    
    
    8,691,000Other assets
    
    
    15,980,000
    
    
    
    16,267,000Total other assets
    
    
    144,614,000
    
    
    
    146,792,000TOTAL ASSETS
    
    $
    274,986,000
    
    
    $
    276,671,000
  3




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##### Table of Contents



AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES
 INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
 (unaudited)
  September 30,
    
    
    December 31,2007
    
    
    2006LIABILITIES AND SHAREHOLDERS DEFICITCURRENT LIABILITIES:Current portion of long-term debt and capital leases
    
    $
    10,819,000
    
    
    $
    1,063,000Accounts payable
    
    
    17,560,000
    
    
    
    19,345,000Other payables
    
    
    1,356,000
    
    
    
    1,304,000Short-term note payable
    
    
    764,000
    
    
    
    248,000Deferred revenue
    
    
    6,448,000
    
    
    
    7,097,000Accrued expenses:Payroll and related benefits
    
    
    5,977,000
    
    
    
    8,706,000Insurance, including self-insurance accruals
    
    
    6,089,000
    
    
    
    6,246,000Other
    
    
    10,635,000
    
    
    
    3,119,000Total current liabilities
    
    
    59,648,000
    
    
    
    47,128,000NONCURRENT LIABILITIES:Long-term debt and capital leases, less current portion
    
    
    238,234,000
    
    
    
    250,194,000Deferred tax liability
    
    
    2,365,000
    
    
    
    Other noncurrent liabilities
    
    
    51,000
    
    
    
    47,000Total noncurrent liabilities
    
    
    240,650,000
    
    
    
    250,241,000Total liabilities
    
    
    300,298,000
    
    
    
    297,369,000MINORITY INTEREST
    
    
    509,000
    
    
    
    618,000SHAREHOLDERS DEFICITPreferred stock, $.01 par value; authorized 5,000,000 shares;
none issued and outstanding
    
    
    
    
    
    
    Common stock, $.01 par value; authorized 35,000,000 shares;
issued and outstanding, 17,573,000 shares
    
    
    176,000
    
    
    
    176,000Additional paid-in capital
    
    
    175,755,000
    
    
    
    175,083,000Accumulated deficit
    
    
    (201,752,000
    )
    
    
    (196,575,000
    )Total shareholders deficit
    
    
    (25,821,000
    )
    
    
    (21,316,000
    )TOTAL LIABILITIES AND SHAREHOLDERS DEFICIT
    
    $
    274,986,000
    
    
    $
    276,671,000
  4




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##### Table of Contents



AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES
 
 INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (unaudited)
 Three Months Ended Sept. 30,
    
    
    Nine Months Ended Sept. 30,2007
    
    
    2006
    
    
    2007
    
    
    2006REVENUES:
    
    
    
    
    
    (Restated)
    
    
    
    
    
    (Restated)Sales and related service revenues, net
    
    $
    29,607,000
    
    
    $
    33,334,000
    
    
    $
    92,020,000
    
    
    $
    98,862,000Rental revenues, net
    
    
    41,684,000
    
    
    
    47,085,000
    
    
    
    129,538,000
    
    
    
    139,811,000Total revenues, net
    
    
    71,291,000
    
    
    
    80,419,000
    
    
    
    221,558,000
    
    
    
    238,673,000EXPENSES:Cost of sales and related services
    
    
    15,834,000
    
    
    
    20,777,000
    
    
    
    55,072,000
    
    
    
    61,397,000Cost of rentals and other revenues, including rental equipment
depreciation of $7,965,000, $8,789,000, $23,337,000 and
$22,629,000, respectively
    
    
    10,301,000
    
    
    
    12,777,000
    
    
    
    31,372,000
    
    
    
    34,312,000Operating expenses
    
    
    34,896,000
    
    
    
    37,423,000
    
    
    
    104,347,000
    
    
    
    113,975,000Bad debt expense
    
    
    2,341,000
    
    
    
    2,533,000
    
    
    
    6,914,000
    
    
    
    8,065,000General and administrative
    
    
    4,586,000
    
    
    
    4,396,000
    
    
    
    13,976,000
    
    
    
    13,040,000Depreciation, excluding rental equipment, and amortization
    
    
    842,000
    
    
    
    915,000
    
    
    
    2,375,000
    
    
    
    2,769,000Interest expense, net
    
    
    4,014,000
    
    
    
    4,297,000
    
    
    
    12,073,000
    
    
    
    12,988,000Other income, net
    
    
    (476,000
    )
    
    
    (349,000
    )
    
    
    (1,528,000
    )
    
    
    (477,000
    )Change of control (income) expense ( See Note 8)
    
    
    (1,012,000
    )
    
    
    
    
    
    
    5,577,000
    
    
    
    Total expenses
    
    
    71,326,000
    
    
    
    82,769,000
    
    
    
    230,178,000
    
    
    
    246,069,000Earnings from unconsolidated joint ventures
    
    
    1,368,000
    
    
    
    1,203,000
    
    
    
    4,214,000
    
    
    
    3,811,000INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
REORGANIZATION ITEMS AND INCOME TAXES
    
    
    1,333,000
    
    
    
    (1,147,000
    )
    
    
    (4,406,000
    )
    
    
    (3,585,000
    )Reorganization expense
    
    
    
    
    
    
    33,000
    
    
    
    
    
    
    
    284,000INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES
    
    
    1,333,000
    
    
    
    (1,180,000
    )
    
    
    (4,406,000
    )
    
    
    (3,869,000
    )Provision for income taxes
    
    
    1,229,000
    
    
    
    87,000
    
    
    
    2,901,000
    
    
    
    261,000NET INCOME (LOSS) FROM CONTINUING OPERATIONS
    
    $
    104,000
    
    
    $
    (1,267,000
    )
    
    $
    (7,307,000
    )
    
    $
    (4,130,000
    )DISCONTINUED OPERATIONS:Income from discontinued operations, including
gain on disposal of assets of $3,001,000, net of tax
    
    
    24,000
    
    
    
    228,000
    
    
    
    2,130,000
    
    
    
    161,000NET INCOME (LOSS)
    
    $
    128,000
    
    
    $
    (1,039,000
    )
    
    $
    (5,177,000
    )
    
    $
    (3,969,000
    )NET INCOME (LOSS) PER COMMON SHARE  BASICIncome (loss) from continuing operations
    
    $
    0.01
    
    
    $
    (0.07
    )
    
    $
    (0.41
    )
    
    $
    (0.24
    )Income from discontinued operations
    
    
    
    
    
    
    0.01
    
    
    $
    0.12
    
    
    
    0.01NET INCOME (LOSS) PER COMMON SHARE  BASIC
    
    $
    0.01
    
    
    $
    (0.06
    )
    
    $
    (0.29
    )
    
    $
    (0.23
    )NET INCOME (LOSS) PER COMMON SHARE  DILUTEDIncome (loss) from continuing operations
    
    $
    0.01
    
    
    $
    (0.07
    )
    
    $
    (0.41
    )
    
    $
    (0.24
    )Income from discontinued operations
    
    
    
    
    
    
    0.01
    
    
    
    0.12
    
    
    
    0.01NET INCOME (LOSS) PER COMMON SHARE  DILUTED
    
    $
    0.01
    
    
    $
    (0.06
    )
    
    $
    (0.29
    )
    
    $
    (0.23
    )WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: Basic
    
    
    17,573,000
    
    
    
    17,573,000
    
    
    
    17,573,000
    
    
    
    17,533,000 Diluted
    
    
    17,891,000
    
    
    
    17,573,000
    
    
    
    17,573,000
    
    
    
    17,533,000
  5




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AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES
 
 INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (unaudited)
 Nine Months Ended Sept. 30,2007
    
    
    2006(Restated)CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (5,177,000
    )
    
    $
    (3,969,000
    )Adjustments to reconcile net loss to net cash provided by
operating activities:Change of control expense
    
    
    5,577,000
    
    
    
    Gain on sale of nursing facility
    
    
    (3,001,000
    )
    
    
    Deferred tax expense
    
    
    2,365,000
    
    
    
    Depreciation and amortization
    
    
    25,731,000
    
    
    
    25,426,000Bad debt expense
    
    
    7,676,000
    
    
    
    8,104,000Stock compensation expense
    
    
    522,000
    
    
    
    426,000Equity in earnings from unconsolidated joint ventures
    
    
    (2,786,000
    )
    
    
    (2,401,000
    )Minority interest
    
    
    278,000
    
    
    
    318,000Change in assets and liabilities:Restricted cash
    
    
    400,000
    
    
    
    Accounts receivable
    
    
    2,498,000
    
    
    
    (7,670,000
    )Inventories
    
    
    1,436,000
    
    
    
    1,417,000Prepaid expenses and other current assets
    
    
    (6,850,000
    )
    
    
    5,066,000Deferred revenue
    
    
    (649,000
    )
    
    
    308,000Accounts payable, other payables and accrued expenses
    
    
    (2,829,000
    )
    
    
    (4,763,000
    )Other assets and liabilities
    
    
    139,000
    
    
    
    (666,000
    )Due to unconsolidated joint ventures, net
    
    
    4,677,000
    
    
    
    4,878,000Net cash provided by operating activities
    
    
    30,007,000
    
    
    
    26,474,000CASH FLOWS FROM INVESTING ACTIVITIES:Additions to property and equipment, net
    
    
    (10,722,000
    )
    
    
    (19,536,000
    )Proceeds from sale of nursing facility
    
    
    2,790,000
    
    
    
    Net cash used in investing activities
    
    $
    (7,932,000
    )
    
    $
    (19,536,000
    )
  6




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##### Table of Contents



AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES
 INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
  Nine Months Ended Sept. 30,2007
    
    
    2006(Restated)CASH FLOWS FROM FINANCING ACTIVITIES:Distributions to minority interest owners
    
    $
    (387,000
    )
    
    $
    (335,000
    )Proceeds from exercise of employee stock options
    
    
    
    
    
    
    457,000Principal payments on long-term debt and capital leases
    
    
    (6,835,000
    )
    
    
    (158,000
    )Proceeds (principal payments) on short-term note payable
    
    
    516,000
    
    
    
    (2,949,000
    )Net cash used in financing activities
    
    
    (6,706,000
    )
    
    
    (2,985,000
    )INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    15,369,000
    
    
    
    3,953,000CASH AND CASH EQUIVALENTS, beginning of period
    
    
    6,786,000
    
    
    
    4,444,000CASH AND CASH EQUIVALENTS, end of period
    
    $
    22,155,000
    
    
    $
    8,397,000SUPPLEMENTAL INFORMATION:Cash payments of interest
    
    $
    11,277,000
    
    
    $
    12,881,000Cash payments of income taxes
    
    $
    491,000
    
    
    $
    426,000NON-CASH ACTIVITY:Capital leases entered into for property and equipment
and change in accounts payable related to purchases
of property and equipment
    
    $
    4,930,000
    
    
    $
    927,000Write-off of related notes receivable and notes payable
    
    $
    
    
    
    $
    570,000CHANGE OF CONTROL EXPENSE:Other liabilities
    
    $
    5,427,000
    
    
    $
    Additional paid-in capital
    
    $
    (273,000
    )
    
    $
    NURSING AGENCY ASSETS SOLD:Inventories
    
    $
    16,000
    
    
    $
    Property and equipment, net
    
    $
    50,000
    
    
    $
    PROMISSORY NOTE RECEIVED FROM SALE OF
NURSING AGENCY
    
    $
    310,000
    
    
    $
    
  7




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##### Table of Contents



AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES
 
 NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 1. BASIS OF PRESENTATION
     2. STOCK BASED COMPENSATION
   8




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##### Table of Contents



WeightedAverageOptions
    
    
    Exercise PriceOutstanding at December 31, 2006
    
    
    2,221,250
    
    
    $
    3.45Granted
    
    
    450,000
    
    
    
    1.60Exercised
    
    
    
    
    
    
    Canceled
    
    
    (162,750
    )
    
    
    9.43Outstanding at March 31, 2007
    
    
    2,508,500
    
    
    $
    2.73Granted
    
    
    35,000
    
    
    
    2.40Exercised
    
    
    
    
    
    
    Canceled
    
    
    (500
    )
    
    
    18.13Outstanding at June 30, 2007
    
    
    2,543,000
    
    
    $
    2.73Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Canceled
    
    
    (40,000
    )
    
    
    7.01Outstanding at September 30, 2007
    
    
    2,503,000
    
    
    $
    2.66
 9




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##### Table of Contents



WeightedAverageGrant-dateNonvested Options
    
    Options
    
    
    Fair ValueBalance at December 31, 2006
    
    
    730,000
    
    
    $
    2.52Granted
    
    
    450,000
    
    
    
    1.22Vested
    
    
    (212,500
    )
    
    
    2.56Forfeited
    
    
    (72,500
    )
    
    
    3.05Balance at March 31, 2007
    
    
    895,000
    
    
    $
    1.81Granted
    
    
    35,000
    
    
    
    1.86Vested
    
    
    (416,250
    )
    
    
    1.74Forfeited
    
    
    
    
    
    
    Balance at June 30, 2007
    
    
    513,750
    
    
    $
    1.87Granted
    
    
    
    
    
    
    Vested
    
    
    (2,500
    )
    
    
    0.47Forfeited
    
    
    (20,000
    )
    
    
    2.52Balance at September 30, 2007
    
    
    491,250
    
    
    
    1.85
 10




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##### Table of Contents



WeightedWeighted
    
    
    AverageAverage
    
    
    RemainingExercise
    
    
    Contractual
    
    
    AggregateWeighted
    
    
    
    
    
    
    
    
    
    
    Price of
    
    
    Life in
    
    
    IntrinsicAverage
    
    
    
    
    
    
    Options
    
    
    Options
    
    
    Years of
    
    
    ValueWeighted
    
    
    Remaining
    
    
    
    
    
    
    Exercisable
    
    
    Exercisable
    
    
    Options
    
    
    of OptionsAverage
    
    
    Contractual
    
    
    Aggregate
    
    
    at
    
    
    at
    
    
    Exercisable
    
    
    ExercisableYear of
    
    
    Options
    
    
    Exercise
    
    
    Exercise
    
    
    Life in
    
    
    Intrinsic
    
    
    Sept. 30,
    
    
    Sept. 30,
    
    
    at Sept. 30,
    
    
    at Sept. 30,Grant
    
    
    Outstanding
    
    
    Prices
    
    
    Price
    
    
    Years
    
    
    Value
    
    
    2007
    
    
    2007
    
    
    2007
    
    
    20071998
    
    
    
    473,000
    
    
    $
    2.13 to $18.13
    
    
    $
    5.95
    
    
    
    1.02
    
    
    
    
    
    
    
    473,000
    
    
    $
    5.95
    
    
    
    1.02
    
    
    
    1999
    
    
    
    200,000
    
    
    $
     0.56
    
    
    $
    0.56
    
    
    
    2.12
    
    
    
    112,000
    
    
    
    200,000
    
    
    $
    0.56
    
    
    
    2.12
    
    
    
    112,0002000
    
    
    
    220,000
    
    
    $
    0.17 to $0.30
    
    
    $
    0.18
    
    
    
    3.10
    
    
    
    207,700
    
    
    
    220,000
    
    
    $
    0.18
    
    
    
    3.10
    
    
    
    207,7002004
    
    
    
    450,000
    
    
    $
    1.31 to $1.80
    
    
    $
    1.64
    
    
    
    6.64
    
    
    
    
    
    
    
    412,500
    
    
    $
    1.67
    
    
    
    6.60
    
    
    
    2005
    
    
    
    170,000
    
    
    $
    2.21 to $3.83
    
    
    $
    2.97
    
    
    
    7.35
    
    
    
    
    
    
    
    125,000
    
    
    $
    2.96
    
    
    
    7.34
    
    
    
    2006
    
    
    
    505,000
    
    
    $
    3.30
    
    
    $
    3.25
    
    
    
    8.40
    
    
    
    
    
    
    
    327,500
    
    
    $
    3.28
    
    
    
    8.39
    
    
    
    2007
    
    
    
    485,000
    
    
    $
    1.60 to $2.40
    
    
    $
    1.66
    
    
    
    9.44
    
    
    
    
    
    
    
    253,750
    
    
    $
    1.63
    
    
    
    9.43
    
    
    
    2,503,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    319,700
    
    
    
    2,011,750
    
    
    
    
    
    
    
    
    
    
    $
    319,700
  WeightedWeighted
    
    
    AverageAverage
    
    
    RemainingExercise
    
    
    Contractual
    
    
    AggregateWeighted
    
    
    
    
    
    
    
    
    
    
    Price of
    
    
    Life in
    
    
    IntrinsicAverage
    
    
    
    
    
    
    Options
    
    
    Options
    
    
    Years of
    
    
    ValueWeighted
    
    
    Remaining
    
    
    
    
    
    
    Exercisable
    
    
    Exercisable
    
    
    Options
    
    
    of OptionsAverage
    
    
    Contractual
    
    
    Aggregate
    
    
    at
    
    
    at
    
    
    Exercisable
    
    
    ExercisableYear of
    
    
    Options
    
    
    Exercise
    
    
    Exercise
    
    
    Life in
    
    
    Intrinsic
    
    
    Dec. 31,
    
    
    Dec. 31,
    
    
    at Dec. 31,
    
    
    at Dec. 31,Grant
    
    
    Outstanding
    
    
    Prices
    
    
    Price
    
    
    Years
    
    
    Value
    
    
    2006
    
    
    2006
    
    
    2006
    
    
    20061997
    
    
    
    52,000
    
    
    $
    21.50
    
    
    $
    21.50
    
    
    
    0.15
    
    
    $
    
    
    
    
    52,000
    
    
    $
    21.50
    
    
    
    0.15
    
    
    $
    1998
    
    
    
    484,250
    
    
    $
    2.13 to $18.13
    
    
    $
    6.23
    
    
    
    1.76
    
    
    
    
    
    
    
    484,250
    
    
    $
    6.23
    
    
    
    1.76
    
    
    
    1999
    
    
    
    200,000
    
    
    $
    0.56
    
    
    $
    0.56
    
    
    
    2.86
    
    
    
    168,000
    
    
    
    200,000
    
    
    $
    0.56
    
    
    
    2.86
    
    
    
    168,0002000
    
    
    
    220,000
    
    
    $
    0.17 to $0.30
    
    
    $
    0.18
    
    
    
    3.85
    
    
    
    269,300
    
    
    
    220,000
    
    
    $
    0.18
    
    
    
    3.85
    
    
    
    269,3002004
    
    
    
    450,000
    
    
    $
    1.31 to $1.80
    
    
    $
    1.64
    
    
    
    7.39
    
    
    
    
    
    
    
    412,500
    
    
    $
    1.67
    
    
    
    7.35
    
    
    
    2005
    
    
    
    245,000
    
    
    $
    2.21 to $3.83
    
    
    $
    3.23
    
    
    
    8.13
    
    
    
    
    
    
    
    122,500
    
    
    $
    3.23
    
    
    
    8.13
    
    
    
    2006
    
    
    
    570,000
    
    
    $
    0.61 to $3.30
    
    
    $
    3.25
    
    
    
    9.15
    
    
    
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    2,221,250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    437,300
    
    
    
    1,491,250
    
    
    
    
    
    
    
    
    
    
    $
    437,300
  11




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##### Table of Contents



WeightedAverageOptions

    
    
    Exercise PriceOutstanding at December 31, 2006 and September 30, 2007
    
    
    468,000
    
    
    $
    1.62
  Weighted
    
    
    WeightedAverage
    
    
    Average
    
    
    
    
    
    
    Weighted
    
    
    Aggregate
    
    
    AggregateRemaining
    
    
    Remaining
    
    
    
    
    
    
    Average
    
    
    Intrinsic
    
    
    IntrinsicWeighted
    
    
    Contractual
    
    
    Contractual
    
    
    
    
    
    
    Exercise
    
    
    Value
    
    
    ValueAverage
    
    
    Life in
    
    
    Life in
    
    
    
    
    
    
    Price of
    
    
    of Options
    
    
    of OptionsYear of
    
    
    Options
    
    
    Exercise
    
    
    Exercise
    
    
    Years
    
    
    Years
    
    
    Options
    
    
    Options
    
    
    Exercisable
    
    
    ExercisableGrant
    
    
    Outstanding
    
    
    Prices
    
    
    Price
    
    
    12/31/2006
    
    
    9/30/2007
    
    
    Exercisable
    
    
    Exercisable
    
    
    12/31/2006
    
    
    9/30/20071997
    
    
    
    6,000
    
    
    $
    21.06
    
    
    $
    21.06
    
    
    
    1.00
    
    
    
    0.25
    
    
    
    6,000
    
    
    $
    21.06
    
    
    $
    
    
    
    $
    1998
    
    
    
    6,000
    
    
    $
    1.69
    
    
    $
    1.69
    
    
    
    2.00
    
    
    
    1.25
    
    
    
    6,000
    
    
    $
    1.69
    
    
    
    
    
    
    
    1999
    
    
    
    6,000
    
    
    $
    0.53
    
    
    $
    0.53
    
    
    
    3.00
    
    
    
    2.25
    
    
    
    6,000
    
    
    $
    0.53
    
    
    
    5,220
    
    
    
    3,5402000
    
    
    
    140,000
    
    
    $
    0.20 to $0.30
    
    
    $
    0.26
    
    
    
    3.61
    
    
    
    2.87
    
    
    
    140,000
    
    
    $
    0.26
    
    
    
    159,800
    
    
    
    120,6002001
    
    
    
    15,000
    
    
    $
    0.75
    
    
    $
    0.75
    
    
    
    5.00
    
    
    
    4.25
    
    
    
    15,000
    
    
    $
    0.75
    
    
    
    9,750
    
    
    
    5,5502002
    
    
    
    15,000
    
    
    $
    0.15
    
    
    $
    0.15
    
    
    
    6.00
    
    
    
    5.26
    
    
    
    15,000
    
    
    $
    0.15
    
    
    
    18,750
    
    
    
    14,5502003
    
    
    
    80,000
    
    
    $
    1.29
    
    
    $
    1.29
    
    
    
    7.00
    
    
    
    6.26
    
    
    
    80,000
    
    
    $
    1.29
    
    
    
    8,800
    
    
    
    2004
    
    
    
    100,000
    
    
    $
    1.18 to $3.46
    
    $
    2.32
    
    
    
    7.72
    
    
    
    6.97
    
    
    
    100,000
    
    
    $
    2.32
    
    
    
    
    
    
    
    2005
    
    
    
    50,000
    
    
    $
    3.27
    
    
    $
    3.27
    
    
    
    9.00
    
    
    
    8.26
    
    
    
    50,000
    
    
    $
    3.27
    
    
    
    
    
    
    
    2006
    
    
    
    50,000
    
    
    $
    1.40
    
    
    $
    1.40
    
    
    
    10.00
    
    
    
    9.26
    
    
    
    50,000
    
    
    $
    1.40
    
    
    
    
    
    
    
    468,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    468,000
    
    
    
    
    
    
    $
    202,320
    
    
    $
    144,240
  3. NET INCOME (LOSS) PER COMMON SHARE
  12




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##### Table of Contents



Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income (loss)
    
    $
    128,000
    
    
    $
    (1,039,000
    )
    
    $
    (5,177,000
    )
    
    $
    (3,969,000
    )Weighted average common shares outstanding
    
    
    17,573,000
    
    
    
    17,573,000
    
    
    
    17,573,000
    
    
    
    17,533,000Effect of dilutive options
    
    
    318,000
    
    
    
    
    
    
    
    
    
    
    
    Adjusted diluted common shares outstanding
    
    
    17,891,000
    
    
    
    17,573,000
    
    
    
    17,573,000
    
    
    
    17,533,000Net income (loss) per common share  basicIncome (loss) from continuing operations
    
    $
    0.01
    
    
    $
    (0.07
    )
    
    $
    (0.41
    )
    
    $
    (0.24
    )Income from discontinued operations
    
    
    
    
    
    
    0.01
    
    
    
    0.12
    
    
    
    0.01Net income (loss) per common share  basic
    
    $
    0.01
    
    
    $
    (0.06
    )
    
    $
    (0.29
    )
    
    $
    (0.23
    )Net income (loss) per common share  dilutedIncome (loss) from continuing operations
    
    $
    0.01
    
    
    $
    (0.07
    )
    
    $
    (0.41
    )
    
    $
    (0.24
    )Income from discontinued operations
    
    
    
    
    
    
    0.01
    
    
    
    0.12
    
    
    
    0.01Net income (loss) per common share  diluted
    
    $
    0.01
    
    
    $
    (0.06
    )
    
    $
    (0.29
    )
    
    $
    (0.23
    )
 4. PROCEEDINGS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
    13




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##### Table of Contents



5. INCOME TAXES
   6. RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENT
  14




---



##### Table of Contents



7. DISCONTINUED OPERATIONS
   8. CHANGE OF CONTROL
   15




---



##### Table of Contents



9. GOODWILL IMPAIRMENT ANALYSIS
    16




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##### Table of Contents



ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 including, without limitation, statements
containing the words believes, anticipates, intends, expects, estimates, projects,
may, plan, will, likely, could and words of similar import. Such statements include
statements concerning the Companys Approved Plan (as defined in Note 4 to the interim condensed
consolidated financial statements), other effects and consequences of the Bankruptcy Filing (as
defined in Note 4 to the interim condensed consolidated financial statements), forecasts upon which
the Approved Plan is based, business strategy, the ability to satisfy interest expense and
principal repayment obligations, operations, cost savings initiatives, industry, economic
performance, financial condition, liquidity and capital resources, adoption of, or changes in,
accounting policies and practices, existing government regulations and changes in, or the failure
to comply with, governmental regulations, legislative proposals for healthcare reform, the ability
to enter into strategic alliances and arrangements with managed care providers on an acceptable
basis, and current and future reimbursement rates, as well as reimbursement reductions and the
Companys ability to mitigate the impact of the reductions. Such statements are not guarantees of
future performance and are subject to various risks and uncertainties. The Companys actual
results may differ materially from the results discussed in such forward-looking statements because
of a number of factors, including those identified in the Risk Factors section and elsewhere in
this Quarterly Report on Form 10-Q. The forward-looking statements are made as of the date of this
Quarterly Report on Form 10-Q and the Company does not undertake to update the forward-looking
statements or to update the reasons that actual results could differ from those projected in the
forward-looking statements.
 Overview
  17




---



##### Table of Contents



Nine Months Ended Sept. 30,2007
    
    2006Oxygen systems
    
    
    38
    %
    
    
    37
    %Inhalation drugs
    
    
    11
    
    
    
    10Nebulizers
    
    
    1
    
    
    
    2Respiratory assist devices
    
    
    24
    
    
    
    23Other respiratory
    
    
    3
    
    
    
    3Total home respiratory therapy services
    
    
    77
    %
    
    
    75
    %Enteral nutrition services
    
    
    6
    
    
    
    6Other infusion services
    
    
    6
    
    
    
    6Total home infusion therapy services
    
    
    12
    %
    
    
    12
    %Total home medical equipment and supplies
    
    
    11
    %
    
    
    13
    %100
    %
    
    
    100
    %
  Revenue Growth
 18




---



##### Table of Contents



Bad Debt Expense
 Cash Flow.
 Days Sales Outstanding
 Unbilled Revenue.
 19




---



##### Table of Contents



Productivity and Profitability
  Trends, Events, and Uncertainties
  20




---



##### Table of Contents



Reimbursement Changes and the Companys Response
    
    
    Charlotte-Gastonia-Concord, NC-SC
    
    Cincinnati-Middletown, OH-KY-IN
    
    Cleveland-Elyria-Mentor, OH
    
    Dallas-Fort Worth-Arlington, TX
    
    Kansas City, MO-KS
    
    Miami-Fort Lauderdale-Miami Beach, FL
    
    Orlando, FL
    
    Pittsburgh, PA
    
    Riverside-San Bernardino-Ontario, CA
    
    San Juan-Caguas-Guaynabo, PR
   
    
    Oxygen supplies and equipment
    
    Standard power wheelchairs, scooters, and related accessories
    
    Complex rehabilitative power wheelchairs and related accessories
    
    Mail-order diabetic supplies
    
    Enteral nutrients, equipment, and supplies
 21




---



##### Table of Contents




    
    Continuous Positive Airway Pressure (CPAP) devices, Respiratory Assist Devices
(RADs), and related supplies and accessories
    
    Hospital beds and related accessories
    
    Negative Pressure Wound Therapy (NPWT) pumps and related supplies and accessories
    
    Walkers and related accessories
    
    Support surfaces (group 2 and 3 mattresses and overlays)  Miami and San Juan only
     
    
    The DRA contains a provision that eliminated the Medicare capped rental methodology
for certain items of durable medical equipment, including wheelchairs, beds, and
respiratory assist devices. The DRA changes the rental period to thirteen months, at
which time the rental payments stop and title to the equipment is transferred to the
beneficiary. The effective date of the provision to eliminate the
capped rental methodology applies to items for which the first rental month occurs on or
after January 1, 2006 and, as a result, there was no impact to the Companys revenue in
2006. The impact of this change will be realized over a period of several years
beginning in 2007.
 22




---



##### Table of Contents



When fully phased in, the Company estimates that the annual impact
of the elimination of the capped rental payment methodology will be a reduction in
rental revenue of approximately $3.0 million, but this could be offset to some degree by
additional maintenance and service revenue paid by Medicare to the Company, which the
Company is not able to quantify at this time.
    
    The DRA also contains a provision that limits the duration of monthly Medicare
rental payments on oxygen equipment to 36 months. Prior to the DRA, Medicare provided
indefinite monthly reimbursement for the rental of oxygen equipment as long as the
patient needed the equipment and met medical qualifications. The effective date for
the implementation of the 36 month rental cap for oxygen equipment was January 1, 2006.
In the case of individuals who received oxygen equipment on or prior to December 31,
2005, the 36 month period began on January 1, 2006. Therefore, the transfer of title
of oxygen equipment from the Company to the beneficiary will begin in 2009. The
financial impact beginning in 2009 of the 36 month cap for oxygen equipment cannot be
accurately estimated as the Company is not able to quantify additional revenue
associated with maintenance and supplies that would partially offset the loss of rental
revenue after the 36 month cap; however, such impact will be material.
    
    On August 3, 2006, CMS published a Proposed Rule to implement the changes required
by the DRA relating to the payment for oxygen, oxygen equipment, and capped rental DME
items. The rule, which became final November 9, 2006 (DRA Implementation Rule),
establishes revised payment classes and reimbursement rates for oxygen and oxygen
equipment effective January 1, 2007, including revised rates for concentrators, liquid
and gas stationary systems, and portable liquid and gas equipment. The DRA
Implementation Rule also establishes a reimbursement rate for portable oxygen
generating equipment and changes regulations related to maintenance reimbursement and
equipment replacement reimbursement. Under the DRA Implementation Rule, during the
initial 36 months of rental, the reimbursement rate for concentrators and stationary
liquid and gas systems is $198.40 per month for calendar years 2007 and 2008, $193.21
per month for 2009, and $189.39 per month for 2010. For liquid or gas portable
equipment, the reimbursement rate is a $31.79 add-on per month from 2007 through 2010,
and for oxygen generating portable equipment, the reimbursement rate is an add-on of
$51.63 per month for 2007 through 2010. During 2006, the Companys average
reimbursement rate for concentrators and stationary equipment was $199.84 per month,
with a portable add-on of $31.79 per month. Under the competitive bidding process, the
single payment rate for oxygen in the 10 CBAs cannot exceed those established by the
DRA.
  23




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##### Table of Contents



24




---



##### Table of Contents



Product Mix
 Critical Accounting Policies and Estimates
  25




---



##### Table of Contents



Results of Operations
  26




---



##### Table of Contents



Percentage of RevenuesThree Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales and related services
    
    
    22.2
    
    
    
    25.8
    
    
    
    24.9
    
    
    
    25.7Cost of rentals, including rental equipment
depreciation
    
    
    14.4
    
    
    
    15.9
    
    
    
    14.2
    
    
    
    14.4Operating expenses
    
    
    48.9
    
    
    
    46.5
    
    
    
    47.1
    
    
    
    47.8Bad debt expense
    
    
    3.3
    
    
    
    3.1
    
    
    
    3.1
    
    
    
    3.4General and administrative
    
    
    6.4
    
    
    
    5.5
    
    
    
    6.3
    
    
    
    5.5Depreciation, excluding rental equipment,
and amortization
    
    
    1.2
    
    
    
    1.1
    
    
    
    1.1
    
    
    
    1.2Interest expense, net
    
    
    5.6
    
    
    
    5.3
    
    
    
    5.4
    
    
    
    5.4Other income, net
    
    
    (0.7
    )
    
    
    (0.4
    )
    
    
    (0.7
    )
    
    
    (0.2
    )Change of control (income) expense
    
    
    (1.4
    )
    
    
    
    
    
    
    2.5
    
    
    
    Total expenses
    
    
    99.9
    
    
    
    102.8
    
    
    
    103.9
    
    
    
    103.2Earnings from unconsolidated joint ventures
    
    
    1.9
    
    
    
    1.5
    
    
    
    1.9
    
    
    
    1.6Income (loss) from continuing operations
before reorganization items and income
taxes
    
    
    2.0
    
    
    
    (1.3
    )
    
    
    (2.0
    )
    
    
    (1.6
    )Reorganization items
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1Provision for income taxes
    
    
    1.7
    
    
    
    0.1
    
    
    
    1.3
    
    
    
    0.1Net income (loss) from continuing
operations
    
    
    0.3
    
    
    
    (1.4
    )
    
    
    (3.3
    )
    
    
    (1.8
    )Operating income from discontinued
operations, including gain on disposal,
net of tax
    
    
    
    
    
    
    0.3
    
    
    
    1.0
    
    
    
    0.1Net income (loss)
    
    
    0.3
    %
    
    
    (1.1
    )%
    
    
    (2.3
    )%
    
    
    (1.7
    )%
 27




---



##### Table of Contents



Three Months Ended September 30, 2007 Compared to Three Months Ended September 30, 2006
 Revenues.
 Sales and Related Services Revenues.
 Rental Revenues
 Cost of Sales and Related Services
 Cost of Rental Revenues
 28




---



##### Table of Contents



Operating Expenses
 Bad Debt Expense.
 General and Administrative Expenses
 Depreciation and Amortization
 Interest Expense, Net
 Other Income, Net
 Change of Control Expense
 29




---



##### Table of Contents



Earnings from Unconsolidated Joint Ventures
 Provision for Income Taxes
 Nine Months Ended September 30, 2007 Compared to Nine Months Ended September 30, 2006
 Revenues.
 Sales and Related Services Revenues.
 Rental Revenues
 30




---



##### Table of Contents



Cost of Sales and Related Services
 Cost of Rental Revenues
 Operating Expenses
 Bad Debt Expense.
 General and Administrative Expenses
 Depreciation and Amortization
 Interest Expense, Net
 31




---



##### Table of Contents



Other Income, Net
 Change
of Control Expense
 Earnings from Unconsolidated Joint Ventures
 Provision for Income Taxes
 Liquidity and Capital Resources
    32




---



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33




---



##### Table of Contents



Contractual Obligations and Commercial Commitments
  Twelve Months Ending September 30,
    
    
    After Sept., 30Total
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2011Long-term debt and
capital leases
    
    $
    249,053,000
    
    
    $
    10,819,000
    
    
    $
    238,170,000
    
    
    $
    52,000
    
    
    $
    12,000
    
    
    $
    Interest on long-term debt
and capital leases
    
    
    29,090,000
    
    
    
    16,596,000
    
    
    
    12,493,000
    
    
    
    1,000
    
    
    
    
    
    
    
    Operating lease
obligations
    
    
    18,001,000
    
    
    
    8,626,000
    
    
    
    6,525,000
    
    
    
    2,524,000
    
    
    
    326,000
    
    
    
    Total contractual cash
obligations
    
    $
    296,144,000
    
    
    $
    36,041,000
    
    
    $
    257,188,000
    
    
    $
    2,577,000
    
    
    $
    338,000
    
    
    $
    
   34




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##### Table of Contents



Off-Balance Sheet Arrangements
  
 ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
 ITEM 4  CONTROLS AND PROCEDURES
  35




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
      
 36




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1  LEGAL PROCEEDINGS
  
 ITEM 1A  RISK FACTORS
  Continued reductions in Medicare and Medicaid reimbursement rates could have a material adverse
effect on the Companys results of operations and financial condition.
  37




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##### Table of Contents



Reductions in reimbursement rates from third-party payors could have a material adverse effect on
the Companys revenues, net income, cash flows and capital resources.
  The Companys substantial leverage could adversely affect its ability to grow or to withstand
adverse business conditions.
  Highland Capital Management, L.P. controls approximately 48% of the Companys common stock and
holds a majority of the Companys $247.2 million secured debt, which may allow Highland to exert
significant influence on certain aspects of our business.
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The Company is subject to extensive government regulation, and the Companys inability to comply
with existing or future laws, regulations or standards could have a material adverse effect on the
Companys operations, financial condition, business, or prospects.
  Because of reimbursement reductions, the Company must continue to find ways to grow revenues and
reduce expenses in order to generate earnings and cash flow.
  The Company has substantial accounts receivable, and increased bad debt expense or delays in
collecting accounts receivable could have a material adverse effect on the Companys cash flows and
results of operations.
  New healthcare legislation or other changes in the administration or interpretation of government
health care programs or initiatives may have a material adverse effect on the Company.
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The Company depends on retaining and obtaining profitable managed care contracts, and the Companys
business may be materially adversely affected if it is unable to retain or obtain such managed care
contracts.
  The Companys common stock trades on the over-the-counter bulletin board, which reduces the
liquidity of an investment in the Company.
  Compliance with privacy regulations under HIPAA could result in significant costs to the Company
and delays in its collection of accounts receivable.
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The Company is highly dependent upon its senior management and, as a result of an investors
acquisition of 48% of our common stock, our chief executive officer has the right to receive a
significant payment in the event he or the Company terminates his employment within one year after
the change of control.
  The market in which the Company operates is highly competitive, and if the Company is unable to
compete successfully, its business will be materially adversely affected.
  The provision of healthcare services entails an inherent risk of liability, and the Companys
insurance may not be sufficient to effectively protect the Company from claims in excess of its
insurance coverage.
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ITEM 6  EXHIBITS
 EXHIBITNUMBER
    
    DESCRIPTION OF EXHIBITS3.1
    
    Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the
Companys Registration Statement No. 33-42777 on Form S-1).3.2
    
    Certificate of Amendment to the Certificate of Incorporation of the Company dated October 31,
1991 (incorporated by reference to Exhibit 3.2 to Amendment No. 2 to the Companys
Registration Statement No. 33-42777 on Form S-1).3.3
    
    Certificate of Amendment to the Certificate of Incorporation of the Company Dated May 14,
1992 (incorporated by reference to the Companys Registration Statement on Form S-8 dated
February 16, 1993).3.4
    
    Certificate of Ownership and Merger merging American HomePatient, Inc. into Diversicare Inc.
dated May 11, 1994 (incorporated by reference to Exhibit 4.4 to the Companys Registration
Statement No.33-89568 on Form S-2).3.5
    
    Certificate of Amendment to the Certificate of Incorporation of the Company dated June 8,
1996 (incorporated by reference to Exhibit 3.5 to the Companys Quarterly Report on Form 10-Q
for the quarter ended September 30, 2004).3.6
    
    Bylaws of the Company, as amended (incorporated by reference to Exhibit 3.3 to the Companys
Registration Statement No. 33-42777 on Form S-1).10.1
    
    Amendment to Confidentiality, Non-Competition and Severance Pay Agreement between the Company
and John D. Gouy (incorporated by reference to Exhibit 10.1 to the Companys Current Report on
Form 8-K dated July 3, 2007).15.1
    
    Awareness Letter of KPMG LLP.31.1
    
    Certification pursuant to Rule 13a-14(a)/15d-14(a)  Chief Executive Officer.31.2
    
    Certification pursuant to Rule 13a-14(a)/15d-14(a)  Chief Financial Officer.32.1
    
    Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002  Chief Executive Officer.32.2
    
    Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002  Chief Financial Officer.
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SIGNATURES
  AMERICAN HOMEPATIENT, INC.November 14, 2007
    By:
    /s/ Stephen L. ClantonStephen L. ClantonChief Financial Officer and An Officer Duly
Authorized to Sign on Behalf of the registrant 44