##### Table of Contents



UNITED STATES
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: September 30, 2003

OR


|     |  |                                                  
|---- |  | -------------------------------------------------
|[  ] |  | 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 changes 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
[X]  No [  ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes  [  ]  No  [X]

16,367,389




(Outstanding shares of the issuers common stock as of November 6, 2003)

1



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TABLE OF CONTENTS



|                                             |                                                                                                 |                                                              |  |  |  |  |  | 
|-------------------------------------------- | ----------------------------------------------------------------------------------------------- | ------------------------------------------------------------ |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION               
|                                             | ITEM 1  FINANCIAL STATEMENTS                                                                  
|                                             |                                                                                                 | INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS               
|                                             |                                                                                                 | INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                                             |                                                                                                 | INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                                             |                                                                                                 | NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                                             | ITEM 2   MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                             | ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            
|                                             | ITEM 4  CONTROLS AND PROCEDURES                                                               
|PART II. OTHER INFORMATION                  
|                                             | ITEM 1  LEGAL PROCEEDINGS                                                                     
|                                             | ITEM 5  OTHER INFORMATION                                                                     
|                                             | ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K                                                      
|SIGNATURES                                  
|INDEX TO EXHIBITS                           
|EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
|EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
|EX-32.1 SECTION 906 CERTIFICATION OF THE CEO
|EX-32.2 SECTION 906 CERTIFICATION OF THE CFO



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##### Table of Contents



AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES

INDEX

|                                       |  |                                                                                       |  |                                                                                                                   |  |         
|-------------------------------------- |  | ------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------- |  | --------
|                                       |  |                                                                                       |  |                                                                                                                   |  | Page No.
|                                       |  |                                                                                       |  |                                                                                                                   |  |         
|PART I                                 |  | Financial Information                                                                 |  |                                                                                                                  
|Item 1.                                |  | Financial Statements                                                                  |  |                                                                                                                  
|                                       |  |                                                                                       |  | Interim Condensed Consolidated Balance Sheets                                                                     |  | 3       
|                                       |  |                                                                                       |  | Interim Condensed Consolidated Statements of Operations  Three
and nine months ended September 30, 2003 and 2002 |  | 5       
|                                       |  |                                                                                       |  | Interim Condensed Consolidated Statements of Cash Flows  Nine
months ended September 30, 2003 and 2002           |  | 6       
|                                       |  |                                                                                       |  | Notes to Interim Condensed Consolidated Financial Statements                                                      |  | 8       
|Item 2.                                |  | Managements Discussion and Analysis of Financial Condition and
Results of Operations |  | 20                                                                                                               
|Item 3.                                |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 46                                                                                                               
|Item 4.                                |  | Controls and Procedures                                                               |  | 46                                                                                                               
|Independent Accountants Review Report |  | 47                                                                                   
|PART II                                |  | Other Information and Signatures                                                      |  |                                                                                                                  
|Item 1.                                |  | Legal Proceedings                                                                     |  | 49                                                                                                               
|Item 5.                                |  | Other Information                                                                     |  | 49                                                                                                               
|Item 6.                                |  | Exhibits and Reports on Form 8-K                                                      |  | 49                                                                                                               
|Signatures                             |  | 50                                                                                   
|Index to Exhibits                      |  | 51                                                                                   

2



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##### Table of Contents






PART I. FINANCIAL INFORMATION




ITEM 1 - FINANCIAL STATEMENTS




AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)

|                                 |                                                                                                          |              |                             |              |               |             |              |              |             |             | 
|-------------------------------- | -------------------------------------------------------------------------------------------------------- | ------------ | --------------------------- | ------------ | ------------- | ----------- | ------------ | ------------ | ----------- | ----------- | 
|                                 |                                                                                                          |              |                             |              | September 30, |             | December 31,
|                                 |                                                                                                          |              |                             |              | 2003          |             | 2002        
|                                 |                                                                                                          |              |                             |              |               |             |             
|ASSETS                           |                                                                                                          |              |                             |              |               |             |              |             
|CURRENT ASSETS:                  |                                                                                                          |              |                             |              |               |             |              |             
|                                 | Cash and cash equivalents                                                                                |              | $                           | 14,856,000   |               |             | $            | 22,827,000   |            
|                                 | Restricted cash                                                                                          |              |                             | 467,000      |               |             |              | 67,000       |            
|                                 | Accounts receivable, less allowance for
doubtful accounts of $19,597,000 in 2003 and
$22,991,000 in 2002 |              |                             | 56,557,000   |               |             |              | 55,437,000   |            
|                                 | Inventories                                                                                              |              |                             | 15,174,000   |               |             |              | 16,565,000   |            
|                                 | Adequate protection payments                                                                             |              |                             | 2,196,000    |               |             |              |             |            
|                                 | Prepaid expenses and other current assets                                                                |              |                             | 2,554,000    |               |             |              | 2,276,000    |            
|                                 |                                                                                                          |              |                             |              |               |             |              |             
|                                 |                                                                                                          |              | Total current assets        |              |               | 91,804,000  |              |              |             | 97,172,000  | 
|                                 |                                                                                                          |              |                             |              |               |             |              |             
|PROPERTY AND EQUIPMENT, at cost: |                                                                                                          |              | 168,085,000                 |              |               |             | 171,021,000  |             
|                                 | Less accumulated depreciation and amortization                                                           |              |                             | (114,246,000 | )             |             |              | (120,594,000 | )          
|                                 |                                                                                                          |              |                             |              |               |             |              |             
|                                 |                                                                                                          |              | Property and equipment, net |              |               | 53,839,000  |              |              |             | 50,427,000  | 
|                                 |                                                                                                          |              |                             |              |               |             |              |             
|OTHER ASSETS:                    |                                                                                                          |              |                             |              |               |             |              |             
|                                 | Goodwill                                                                                                 |              |                             | 121,214,000  |               |             |              | 121,214,000  |            
|                                 | Investment in joint ventures                                                                             |              |                             | 9,069,000    |               |             |              | 9,815,000    |            
|                                 | Other assets                                                                                             |              |                             | 12,882,000   |               |             |              | 12,315,000   |            
|                                 |                                                                                                          |              |                             |              |               |             |              |             
|                                 |                                                                                                          |              | Total other assets          |              |               | 143,165,000 |              |              |             | 143,344,000 | 
|                                 |                                                                                                          |              |                             |              |               |             |              |             
|                                 |                                                                                                          | TOTAL ASSETS |                             | $            | 288,808,000   |             |              | $            | 290,943,000 |            
|                                 |                                                                                                          |              |                             |              |               |             |              |             

(Continued)

3



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##### Table of Contents



AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(Continued)

|                                       |                                                                                                       |  |                                             |                                              |   |               |             |              |   |             |             |  
|-------------------------------------- | ----------------------------------------------------------------------------------------------------- |  | ------------------------------------------- | -------------------------------------------- | - | ------------- | ----------- | ------------ | - | ----------- | ----------- | -
|                                       |                                                                                                       |  |                                             |                                              |   | September 30, |             | December 31,
|                                       |                                                                                                       |  |                                             |                                              |   | 2003          |             | 2002        
|                                       |                                                                                                       |  |                                             |                                              |   |               |             |             
|LIABILITIES AND SHAREHOLDERS DEFICIT  |                                                                                                       |  |                                             |                                              |   |               |             |             
|LIABILITIES NOT SUBJECT TO COMPROMISE: |                                                                                                       |  |                                             |                                              |   |               |             |             
|CURRENT LIABILITIES:                   |                                                                                                       |  |                                             |                                              |   |               |             |             
|                                       | Current portion of long-term debt and capital leases                                                  |  | $                                           | 5,862,000                                    |   |               | $           |             |  
|                                       | Accounts payable                                                                                      |  |                                             | 14,275,000                                   |   |               |             | 13,267,000   |  
|                                       | Other payables                                                                                        |  |                                             | 2,129,000                                    |   |               |             | 1,637,000    |  
|                                       | Current portion of pre-petition accounts payable                                                      |  |                                             | 2,716,000                                    |   |               |             |             |  
|                                       | Accrued expenses:                                                                                     |  |                                             |                                              |   |               |             |              |  
|                                       |                                                                                                       |  |                                             | Payroll and related benefits                 |   |               | 10,042,000  |              |   |             | 7,759,000   |  
|                                       |                                                                                                       |  |                                             | Insurance, including self-insurance accruals |   |               | 7,026,000   |              |   |             | 5,829,000   |  
|                                       |                                                                                                       |  |                                             | Other                                        |   |               | 13,706,000  |              |   |             | 1,625,000   |  
|                                       |                                                                                                       |  |                                             |                                              |   |               |             |             
|                                       |                                                                                                       |  |                                             | Total current liabilities                    |   |               | 55,756,000  |              |   |             | 30,117,000  |  
|                                       |                                                                                                       |  |                                             |                                              |   |               |             |             
|NONCURRENT LIABILITIES:                |                                                                                                       |  |                                             |                                              |   |               |             |             
|                                       | Long-term debt and capital leases, excluding current
portion                                          |  |                                             | 260,215,000                                  |   |               |             |             |  
|                                       | Pre-petition accounts payable, net of current portion                                                 |  |                                             | 5,899,000                                    |   |               |             |             |  
|                                       | Other noncurrent liabilities                                                                          |  |                                             | 4,788,000                                    |   |               |             | 121,000      |  
|                                       |                                                                                                       |  |                                             |                                              |   |               |             |             
|                                       |                                                                                                       |  |                                             | Total noncurrent liabilities                 |   |               | 270,902,000 |              |   |             | 121,000     |  
|                                       |                                                                                                       |  |                                             |                                              |   |               |             |             
|LIABILITIES SUBJECT TO COMPROMISE      |                                                                                                       |  |                                            |                                              |   |               | 307,829,000 |             
|                                       |                                                                                                       |  |                                             |                                              |   |               |             |             
|TOTAL LIABILITIES                      |                                                                                                       |  | 326,658,000                                 |                                              |   |               | 338,067,000 |             
|MINORITY INTEREST                      |                                                                                                       |  | 461,000                                     |                                              |   |               | 470,000     |             
|SHAREHOLDERS DEFICIT                  |                                                                                                       |  |                                             |                                              |   |               |             |             
|                                       | Preferred 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, 16,367,000 shares |  |                                             | 164,000                                      |   |               |             | 164,000      |  
|                                       | Paid-in capital                                                                                       |  |                                             | 173,985,000                                  |   |               |             | 173,985,000  |  
|                                       | Accumulated deficit                                                                                   |  |                                             | (212,460,000                                 | ) |               |             | (221,743,000 | )
|                                       |                                                                                                       |  |                                             |                                              |   |               |             |             
|                                       |                                                                                                       |  |                                             | Total shareholders deficit                  |   |               | (38,311,000 | )            |   |             | (47,594,000 | )
|                                       |                                                                                                       |  |                                             |                                              |   |               |             |             
|                                       |                                                                                                       |  | TOTAL LIABILITIES AND SHAREHOLDERS DEFICIT |                                              | $ | 288,808,000   |             |              | $ | 290,943,000 |            
|                                       |                                                                                                       |  |                                             |                                              |   |               |             |             

The accompanying notes to interim condensed consolidated financial statements
are an integral part of these consolidated financial statements.

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##### Table of Contents






AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

|                                                                                                                         |                                                                                                                                                  |   |                |            |                                  |            |                                 |            |      |            |            |             |   |             |             |             |   |             |  
|------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------ | - | -------------- | ---------- | -------------------------------- | ---------- | ------------------------------- | ---------- | ---- | ---------- | ---------- | ----------- | - | ----------- | ----------- | ----------- | - | ----------- | -
|                                                                                                                         |                                                                                                                                                  |   |                |            | Three Months Ended September 30, |            | Nine Months Ended September 30,
|                                                                                                                         |                                                                                                                                                  |   |                |            |                                  |            |                                
|                                                                                                                         |                                                                                                                                                  |   |                |            | 2003                             |            | 2002                            |            | 2003 |            | 2002      
|                                                                                                                         |                                                                                                                                                  |   |                |            |                                  |            |                                 |            |      |            |           
|REVENUES:                                                                                                                |                                                                                                                                                  |   |                |            |                                  |            |                                 |            |      |            |            |             |   |             |             |            
|                                                                                                                         | Sales and related service revenues                                                                                                               |   | $              | 36,638,000 |                                  |            | $                               | 33,423,000 |      |            | $          | 109,238,000 |   |             | $           | 102,003,000 |  
|                                                                                                                         | Rentals and other revenues                                                                                                                       |   |                | 47,255,000 |                                  |            |                                 | 45,605,000 |      |            |            | 140,026,000 |   |             |             | 135,916,000 |  
|                                                                                                                         |                                                                                                                                                  |   |                |            |                                  |            |                                 |            |      |            |            |             |   |             |             |            
|                                                                                                                         |                                                                                                                                                  |   | Total revenues |            |                                  | 83,893,000 |                                 |            |      | 79,028,000 |            |             |   | 249,264,000 |             |             |   | 237,919,000 |  
|                                                                                                                         |                                                                                                                                                  |   |                |            |                                  |            |                                 |            |      |            |            |             |   |             |             |            
|EXPENSES:                                                                                                                |                                                                                                                                                  |   |                |            |                                  |            |                                 |            |      |            |            |             |   |             |             |            
|                                                                                                                         | Cost of sales and related services                                                                                                               |   |                | 17,342,000 |                                  |            |                                 | 15,110,000 |      |            |            | 52,084,000  |   |             |             | 47,175,000  |  
|                                                                                                                         | Cost of rentals and other revenues, including rental equipment
depreciation of $5,513,000, $5,428,000, $15,342,000 and
$14,834,000, respectively |   |                | 9,562,000  |                                  |            |                                 | 9,295,000  |      |            |            | 26,958,000  |   |             |             | 26,061,000  |  
|                                                                                                                         | Operating, including bad debt expense of $2,955,000, $2,681,000,
$8,278,000 and $9,550,000, respectively                                         |   |                | 47,335,000 |                                  |            |                                 | 46,084,000 |      |            |            | 140,589,000 |   |             |             | 137,273,000 |  
|                                                                                                                         | General and administrative                                                                                                                       |   |                | 4,337,000  |                                  |            |                                 | 3,748,000  |      |            |            | 13,009,000  |   |             |             | 12,065,000  |  
|                                                                                                                         | Earnings from unconsolidated joint ventures                                                                                                      |   |                | (964,000   | )                                |            |                                 | (1,000,000 | )    |            |            | (3,385,000  | ) |             |             | (3,392,000  | )
|                                                                                                                         | Depreciation, excluding rental equipment, and amortization                                                                                       |   |                | 942,000    |                                  |            |                                 | 982,000    |      |            |            | 2,713,000   |   |             |             | 3,084,000   |  
|                                                                                                                         | Amortization of deferred financing costs                                                                                                         |   |                |           |                                  |            |                                 | 236,000    |      |            |            |            |   |             |             | 1,779,000   |  
|                                                                                                                         | Interest expense (income), net (excluding post-petition
contractual interest
of $0, $5,113,000, $12,510,000 and $5,113,000, respectively)        |   |                | 4,269,000  |                                  |            |                                 | 1,729,000  |      |            |            | 4,219,000   |   |             |             | 11,920,000  |  
|                                                                                                                         | Other (income) expense, net                                                                                                                      |   |                | (376,000   | )                                |            |                                 | 727,000    |      |            |            | (282,000    | ) |             |             | 558,000     |  
|                                                                                                                         | Gain
on sales of assets of centers                                                                                                               |   |                |           |                                  |            |                                 |           |      |            |            |            |   |             |             | (667,000    | )
|                                                                                                                         | Chapter 11 financial advisory expenses incurred prior to filing
bankruptcy                                                                       |   |                |           |                                  |            |                                 | 504,000    |      |            |            |            |   |             |             | 818,000     |  
|                                                                                                                         |                                                                                                                                                  |   |                |            |                                  |            |                                 |            |      |            |            |             |   |             |             |            
|                                                                                                                         |                                                                                                                                                  |   | Total expenses |            |                                  | 82,447,000 |                                 |            |      | 77,415,000 |            |             |   | 235,905,000 |             |             |   | 236,674,000 |  
|                                                                                                                         |                                                                                                                                                  |   |                |            |                                  |            |                                 |            |      |            |            |             |   |             |             |            
|INCOME FROM OPERATIONS BEFORE REORGANIZATION ITEMS, INCOME TAXES AND
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE |                                                                                                                                                  |   | 1,446,000      |            |                                  |            | 1,613,000                       |            |      |            | 13,359,000 |             |   |             | 1,245,000   |            
|REORGANIZATION ITEMS                                                                                                     |                                                                                                                                                  |   | 920,000        |            |                                  |            | 3,917,000                       |            |      |            | 3,776,000  |             |   |             | 3,917,000   |            
|                                                                                                                         |                                                                                                                                                  |   |                |            |                                  |            |                                 |            |      |            |            |             |   |             |             |            
|INCOME (LOSS) FROM OPERATIONS BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE                |                                                                                                                                                  |   | 526,000        |            |                                  |            | (2,304,000                      | )          |      |            | 9,583,000  |             |   |             | (2,672,000  | )          
|PROVISION FOR (BENEFIT FROM) INCOME TAXES                                                                                |                                                                                                                                                  |   | 100,000        |            |                                  |            | 100,000                         |            |      |            | 300,000    |             |   |             | (1,812,000  | )          
|                                                                                                                         |                                                                                                                                                  |   |                |            |                                  |            |                                 |            |      |            |            |             |   |             |             |            
|INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE                                                 |                                                                                                                                                  |   | 426,000        |            |                                  |            | (2,404,000                      | )          |      |            | 9,283,000  |             |   |             | (860,000    | )          
|CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE WITH NO RELATED
TAX EFFECT                                           |                                                                                                                                                  |   |               |            |                                  |            |                                |            |      |            |           |             |   |             | (68,485,000 | )          
|                                                                                                                         |                                                                                                                                                  |   |                |            |                                  |            |                                 |            |      |            |            |             |   |             |             |            
|NET INCOME (LOSS)                                                                                                        |                                                                                                                                                  | $ | 426,000        |            |                                  | $          | (2,404,000                      | )          |      | $          | 9,283,000  |             |   | $           | (69,345,000 | )          
|                                                                                                                         |                                                                                                                                                  |   |                |            |                                  |            |                                 |            |      |            |            |             |   |             |             |            
|INCOME (LOSS) PER COMMON SHARE BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE:                               |                                                                                                                                                  |   |                |            |                                  |            |                                 |            |      |            |            |             |   |             |             |            
|                                                                                                                         |                                                                                                                                                  |   | - Basic        |            | $                                | 0.03       |                                 |            | $    | (0.15      | )          |             | $ | 0.57        |             |             | $ | (0.05       | )
|                                                                                                                         |                                                                                                                                                  |   |                |            |                                  |            |                                 |            |      |            |            |             |   |             |             |            
|                                                                                                                         |                                                                                                                                                  |   | - Diluted      |            | $                                | 0.02       |                                 |            | $    | (0.15      | )          |             | $ | 0.49        |             |             | $ | (0.05       | )
|                                                                                                                         |                                                                                                                                                  |   |                |            |                                  |            |                                 |            |      |            |            |             |   |             |             |            
|CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE PER COMMON SHARE:                                                    |                                                                                                                                                  |   |                |            |                                  |            |                                 |            |      |            |            |             |   |             |             |            
|                                                                                                                         |                                                                                                                                                  |   | - Basic        |            | $                                |           |                                 |            | $    |           |            |             | $ |            |             |             | $ | (4.19       | )
|                                                                                                                         |                                                                                                                                                  |   |                |            |                                  |            |                                 |            |      |            |            |             |   |             |             |            
|                                                                                                                         |                                                                                                                                                  |   | - Diluted      |            | $                                |           |                                 |            | $    |           |            |             | $ |            |             |             | $ | (4.19       | )
|                                                                                                                         |                                                                                                                                                  |   |                |            |                                  |            |                                 |            |      |            |            |             |   |             |             |            
|NET INCOME (LOSS) PER COMMON SHARE:                                                                                      |                                                                                                                                                  |   |                |            |                                  |            |                                 |            |      |            |            |             |   |             |             |            
|                                                                                                                         |                                                                                                                                                  |   | - Basic        |            | $                                | 0.03       |                                 |            | $    | (0.15      | )          |             | $ | 0.57        |             |             | $ | (4.24       | )
|                                                                                                                         |                                                                                                                                                  |   |                |            |                                  |            |                                 |            |      |            |            |             |   |             |             |            
|                                                                                                                         |                                                                                                                                                  |   | - Diluted      |            | $                                | 0.02       |                                 |            | $    | (0.15      | )          |             | $ | 0.49        |             |             | $ | (4.24       | )
|                                                                                                                         |                                                                                                                                                  |   |                |            |                                  |            |                                 |            |      |            |            |             |   |             |             |            
|WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:                                                                              |                                                                                                                                                  |   |                |            |                                  |            |                                 |            |      |            |            |             |   |             |             |            
|                                                                                                                         |                                                                                                                                                  |   | - Basic        |            |                                  | 16,367,000 |                                 |            |      | 16,367,000 |            |             |   | 16,367,000  |             |             |   | 16,355,000  |  
|                                                                                                                         |                                                                                                                                                  |   |                |            |                                  |            |                                 |            |      |            |            |             |   |             |             |            
|                                                                                                                         |                                                                                                                                                  |   | - Diluted      |            |                                  | 19,111,000 |                                 |            |      | 16,367,000 |            |             |   | 18,942,000  |             |             |   | 16,355,000  |  
|                                                                                                                         |                                                                                                                                                  |   |                |            |                                  |            |                                 |            |      |            |            |             |   |             |             |            

The accompanying notes to interim condensed consolidated financial statements
are an integral part of these consolidated financial statements.

5



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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,
|                                      |                                                                                          |                                                          |                                           |             |                            
|                                      |                                                                                          |                                                          |                                           |             | 2003                        |             | 2002
|                                      |                                                                                          |                                                          |                                           |             |                             |             |     
|CASH FLOWS FROM OPERATING ACTIVITIES: |                                                                                          |                                                          |                                           |             |                             |             |      |            
|                                      | Net income (loss)                                                                        |                                                          | $                                         | 9,283,000   |                             |             | $    | (69,345,000 | )         
|                                      | Adjustments to reconcile net income (loss) to net cash
provided by operating activities: |                                                          |                                           |             |                             |             |      |             |           
|                                      |                                                                                          | Cumulative effect of change in accounting principle      |                                           |             |                            |             |      |             | 68,485,000 |            
|                                      |                                                                                          | Depreciation and amortization                            |                                           |             | 18,055,000                  |             |      |             | 17,918,000 |            
|                                      |                                                                                          | Amortization of deferred financing costs                 |                                           |             |                            |             |      |             | 1,779,000  |            
|                                      |                                                                                          | Non-cash interest income on adequate protection
payments |                                           |             | (787,000                    | )           |      |             |           |            
|                                      |                                                                                          | Equity in earnings of unconsolidated joint ventures      |                                           |             | (1,771,000                  | )           |      |             | (1,934,000 | )          
|                                      |                                                                                          | Minority interest                                        |                                           |             | 245,000                     |             |      |             | 214,000    |            
|                                      |                                                                                          | Gain on sale of assets of centers                        |                                           |             |                            |             |      |             | (667,000   | )          
|                                      |                                                                                          | Reorganization items                                     |                                           |             | 3,776,000                   |             |      |             | 3,917,000  |            
|                                      |                                                                                          | Reorganization items paid                                |                                           |             | (3,572,000                  | )           |      |             | (176,000   | )          
|                                      | Change in assets and liabilities, net of dispositions:                                   |                                                          |                                           |             |                             |             |      |             |           
|                                      |                                                                                          | Accounts receivable, net                                 |                                           |             | (1,120,000                  | )           |      |             | 7,002,000  |            
|                                      |                                                                                          | Inventories, net                                         |                                           |             | 1,391,000                   |             |      |             | (1,327,000 | )          
|                                      |                                                                                          | Prepaid expenses and other current assets                |                                           |             | (278,000                    | )           |      |             | 65,000     |            
|                                      |                                                                                          | Federal income tax receivable                            |                                           |             |                            |             |      |             | (2,112,000 | )          
|                                      |                                                                                          | Accounts payable, other payables and accrued
expenses    |                                           |             | (9,690,000                  | )           |      |             | 11,075,000 |            
|                                      |                                                                                          | Other noncurrent liabilities                             |                                           |             | (490,000                    | )           |      |             | (30,000    | )          
|                                      |                                                                                          | Other assets and liabilities                             |                                           |             | 4,667,000                   |             |      |             | 936,000    |            
|                                      |                                                                                          |                                                          |                                           |             |                             |             |      |            
|                                      |                                                                                          |                                                          | Net cash provided by operating activities |             |                             | 19,709,000  |      |             |            | 35,800,000  |  
|                                      |                                                                                          |                                                          |                                           |             |                             |             |      |            
|CASH FLOWS FROM INVESTING ACTIVITIES: |                                                                                          |                                                          |                                           |             |                             |             |      |            
|                                      | Proceeds from sales of assets of centers                                                 |                                                          |                                           |            |                             |             |      | 1,805,000   |           
|                                      | Additions to property and equipment, net                                                 |                                                          |                                           | (21,446,000 | )                           |             |      | (19,848,000 | )         
|                                      | Distributions and loan payments from unconsolidated
joint
ventures, net                  |                                                          |                                           | 2,517,000   |                             |             |      | 2,503,000   |           
|                                      |                                                                                          |                                                          |                                           |             |                             |             |      |            
|                                      |                                                                                          |                                                          | Net cash used in investing activities     |             |                             | (18,929,000 | )    |             |            | (15,540,000 | )
|                                      |                                                                                          |                                                          |                                           |             |                             |             |      |            

(Continued)

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AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Continued)

|                                                 |                                                         |                                       |            |                             |            |      |            |            |            |  
|------------------------------------------------ | ------------------------------------------------------- | ------------------------------------- | ---------- | --------------------------- | ---------- | ---- | ---------- | ---------- | ---------- | -
|                                                 |                                                         |                                       |            | Nine Months Ended Sept. 30,
|                                                 |                                                         |                                       |            |                            
|                                                 |                                                         |                                       |            | 2003                        |            | 2002
|                                                 |                                                         |                                       |            |                             |            |     
|CASH FLOWS FROM FINANCING ACTIVITIES:            |                                                         |                                       |            |                             |            |      |            |           
|                                                 | Principal payments on long-term debt and capital leases |                                       | $          | (303,000                    | )          |      | $          | (6,119,000 | )         
|                                                 | Adequate protection payments                            |                                       |            | (7,794,000                  | )          |      |            |           |           
|                                                 | Proceeds from exercise of stock options                 |                                       |            |                            |            |      |            | 11,000     |           
|                                                 | Deferred financing costs                                |                                       |            |                            |            |      |            | (11,000    | )         
|                                                 | Distributions to minority interest owners               |                                       |            | (254,000                    | )          |      |            | (206,000   | )         
|                                                 | Restricted cash                                         |                                       |            | (400,000                    | )          |      |            | 198,000    |           
|                                                 |                                                         |                                       |            |                             |            |      |            |           
|                                                 |                                                         | Net cash used in financing activities |            |                             | (8,751,000 | )    |            |            | (6,127,000 | )
|                                                 |                                                         |                                       |            |                             |            |      |            |           
|(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |                                                         |                                       | (7,971,000 | )                           |            |      | 14,133,000 |           
|CASH AND CASH EQUIVALENTS, beginning of period   |                                                         |                                       | 22,827,000 |                             |            |      | 9,129,000  |           
|                                                 |                                                         |                                       |            |                             |            |      |            |           
|CASH AND CASH EQUIVALENTS, end of period         |                                                         | $                                     | 14,856,000 |                             |            | $    | 23,262,000 |           
|                                                 |                                                         |                                       |            |                             |            |      |            |           
|SUPPLEMENTAL INFORMATION:                        |                                                         |                                       |            |                             |            |      |            |           
|                                                 | Cash payments of interest                               |                                       | $          | 2,970,000                   |            |      | $          | 12,559,000 |           
|                                                 |                                                         |                                       |            |                             |            |      |            |           
|                                                 | Cash payments of income taxes                           |                                       | $          | 338,000                     |            |      | $          | 488,000    |           
|                                                 |                                                         |                                       |            |                             |            |      |            |           

The accompanying notes to interim condensed consolidated financial statements
are an integral part of these consolidated financial statements.

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AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



|1. |  | BASIS OF PRESENTATION
|-- |  | ---------------------

American HomePatient, Inc. was incorporated in Delaware in September 1991.
American HomePatient Inc.s principal executive offices are located at 5200
Maryland Way, Suite 400, Brentwood, Tennessee 37027-5018, and its telephone
number at that address is (615) 221-8884. American HomePatient, Inc. and
subsidiaries (the Company) provides home health care services and products
consisting primarily of respiratory therapies, infusion therapies and the
rental and sale of home medical equipment and home health care supplies. For
the nine months ended September 30, 2003, these services represented 69%, 13%
and 18% of revenues, respectively. These services and products are paid for
primarily by Medicare, Medicaid and other third-party payors. As of September
30, 2003, the Company provided these services to patients primarily in the home
through 288 centers in 35 states: Alabama, Arizona, Arkansas, Colorado,
Connecticut, Delaware, Florida, Georgia, Illinois, Iowa, Kansas, Kentucky,
Maine, Maryland, Michigan, Minnesota, Mississippi, Missouri, Nebraska, Nevada,
New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Pennsylvania,
South Carolina, South Dakota, Tennessee, Texas, Virginia, Washington, West
Virginia and Wisconsin.

The interim condensed consolidated financial statements of the Company for the
nine months ended September 30, 2003 and 2002 herein have been prepared by the
Company, without audit, 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 accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and regulations. In the opinion of
management of the Company, the accompanying unaudited interim condensed
consolidated financial statements reflect all adjustments (consisting of only
normally recurring accruals) necessary to present fairly the financial position
at September 30, 2003 and the results of operations and the cash flows for the
nine months ended September 30, 2003 and 2002.

The results of operations for the nine months ended September 30, 2003 and 2002
are not necessarily indicative of the operating results for the entire
respective years. These unaudited interim condensed consolidated financial
statements should be read in conjunction with the audited financial statements
and notes thereto included in the Companys Annual Report on Form 10-K.

Certain reclassifications have been made to the 2002 interim condensed
consolidated financial statements to conform to the 2003 presentation.



|2. |  | HISTORY OF BANK CREDIT FACILITY
|-- |  | -------------------------------

Overview.The Company is indebted to a syndicate of lenders (the
Lenders), with Bank of Montreal serving as agent for the Lenders. The
indebtedness arose out of a credit agreement entitled the Fifth Amended and
Restated Credit Agreement (the Amended Credit Agreement), entered into as of
June 8, 2001. The indebtedness owed to the Lenders as of July 31, 2002, the
date of the Companys Bankruptcy Filing (as defined in Note 3), totaled
approximately $278.7 million. Terms, including payment terms, for the
indebtedness that arose out of the Amended Credit

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Agreement have been established by the Second Amended Joint Plan of
Reorganization approved by the United States Bankruptcy Court for the Middle
District of Tennessee (the Approved Plan) and are discussed in more detail in
Note 3. The terms of the Amended Credit Agreement have been superseded by the
terms of the Approved Plan.

Historical
Terms of the Bank Credit Facility. The Amended Credit
Agreement was the latest in a series of credit agreements in connection with a
credit facility (the Bank Credit Facility) that dated back to October 20,
1994. The Amended Credit Agreement was entered into after the Company breached
several of the financial covenants in the Fourth Amended and Restated Credit
Agreement.

The Amended Credit Agreement provided a new loan to the Company from which the
proceeds were used to pay off all existing loans under the Fourth Amended and
Restated Credit Agreement. The Amended Credit Agreement also included modified
financial covenants and a revised amortization schedule. In addition, the
Amended Credit Agreement no longer contained a revolving loan component; all
existing indebtedness was now in the form of a term loan which matured on
December 31, 2002.

Substantially all of the Companys assets were pledged as security for
borrowings under the Bank Credit Facility.

Interest was payable on the unpaid principal amount under the Amended Credit
Agreement, at the election of the Company, at either a Base Lending Rate or an
Adjusted Eurodollar Rate (each as defined in the Amended Credit Agreement),
plus an applicable margin of 2.75% and 3.50%, respectively. The Company was
also required to pay additional interest in the amount of 4.50% per annum on
that principal portion outstanding of the Amended Credit Agreement that is in
excess of four times adjusted EBITDA, as defined by the Amended Credit
Agreement. For the seven months ended July 31, 2002 (Bankruptcy Filing), the
weighted average borrowing rate was 7.3%. Upon the occurrence and continuation
of an event of default under the Amended Credit Agreement, interest would have
been payable upon demand at a rate that is 2.00% per annum in excess of the
interest rate otherwise payable under the Amended Credit Agreement and the
Company no longer would have had the right to designate the Adjusted Eurodollar
Rate plus the applicable margin as the applicable interest rate.

Warrants.The Company was required to issue warrants to the Lenders
representing 19.999% of the common stock of the Company issued and outstanding
as of March 31, 2001, pursuant to the terms of the Second Amendment to the
Fourth Amended and Restated Credit Agreement (which amendment was entered into
on April 14, 1999). To fulfill these obligations, warrants to purchase
3,265,315 shares of common stock were issued to the Lenders on June 8, 2001.
Fifty percent of these warrants are exercisable until May 31, 2011, and the
remaining fifty percent are exercisable until September 29, 2011. The exercise
price of the warrants is $0.01 per share. The Company accounted for the fair
value of these warrants during the fourth quarter of 2000 as the issuance of
these warrants was determined to be probable. Accordingly, the Company
increased deferred financing costs by $686,000 to recognize the estimated fair
value of the warrants as of December 31, 2000. On July 11, 2003, the Company
filed a motion with the Bankruptcy Court seeking approval to reject these
warrants as executory contracts. Several warrant holders objected to this
motion, and a hearing has been scheduled in the Bankruptcy

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Court on November 21, 2003 with respect to these issues. If the warrants
ultimately are rejected, then the holders of the rejected warrants may have an
unsecured claim against the Company.



|3. |  | PROCEEDINGS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
|-- |  | ---------------------------------------------------

The Amended Credit Agreement was due to mature on December 31, 2002. Because
of the impending maturity and the Companys inability to reach an agreement
with its Lenders to restructure the Bank Credit Facility, on July 31, 2002,
American HomePatient, Inc. and 24 of its subsidiaries (collectively, the
Debtors) filed voluntary petitions for relief to reorganize under Chapter 11
of the U.S. Bankruptcy Code (the Bankruptcy Filing) in the United States
Bankruptcy Court for the Middle District of Tennessee (the Bankruptcy Court).
The Bankruptcy Filing stayed all payments and enforcement actions under the
Amended Credit Agreement.

These cases (the Chapter 11 Cases) were consolidated for the purpose of joint
administration under Case Number 02-08915-GP3-11. On January 2, 2003, the
Debtors filed their Second Amended Joint Plan of Reorganization (the Proposed
Plan), proposed by the Debtors and the Official Committee of Unsecured
Creditors appointed by the Office of the United States Trustee in the Chapter
11 Cases. The hearing before the Bankruptcy Court on confirmation of the
Proposed Plan was held on April 2325 and 28-29, 2003. On May 15, 2003, the
Bankruptcy Court entered a memorandum opinion overruling the Lenders
objections to the Proposed Plan. On May 27, 2003, the Bankruptcy Court entered
an Order confirming the Proposed Plan (Confirmation Order) (hereafter
referred to as the Approved Plan). On June 30, 2003, the United States
District Court for the Middle District of Tennessee (the District Court)
rejected the secured Lenders request to stay the effective date of the
Approved Plan. On July 1, 2003, the Companys Approved Plan became effective
and the Company successfully emerged from bankruptcy protection. The Lenders
filed an appeal to the District Court of the order confirming the Approved
Plan. On September 12, 2003 the District Court issued an opinion affirming in
all respects the Confirmation Order. The Lenders have now filed an appeal to
the order confirming the Approved Plan with the United States Court of Appeals
for the Sixth Circuit. The Company intends to vigorously defend the
Confirmation Order entered by the Bankruptcy Court and upheld by the District
Court.

The Approved Plan allows the Company to continue its business operations
uninterrupted, led by its current management team, and accomplishes the
Companys primary goal of restructuring its long-term debt obligations to its
Lenders. In addition, the Approved Plan provides that the Companys
shareholders retain their equity interest in the Company and that all of the
Companys creditors and vendors will be paid 100% of all amounts they are owed,
either immediately or over time with interest.

The Approved Plan provides for the treatment of all of the claims subject to
compromise in the Bankruptcy Filing. The Approved Plan provides for the
extension of the maturity on the debt to the Lenders, a reduction of the
related interest cost on such debt, and the payment of all of the Companys
reported liabilities. The Lenders retained their liens on substantially all of
the assets of the Company.

Pursuant to the Approved Plan, the Companys secured debt to the Lenders is
$250 million and is evidenced by a promissory note in that amount and is
secured by various security agreements. To

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the Companys knowledge, the Lenders have not executed the agreements as of the
date of this filing. The Company is no longer a party to a credit agreement.
The remainder of the amounts due to the Lenders is treated as unsecured.

The Approved Plan provides that principal is payable annually on the $250
million secured debt on March 31 of each year, beginning March 31, 2005, in the
amount of one third of the Companys Excess Cash Flow (as defined in the
Approved Plan) for the previous fiscal year. After the unsecured debt of the
Lenders and the general unsecured debt is paid in full, 100% of the Companys
Excess Cash Flow is paid on the $250 million secured debt on March 31 of each
year. On September 30 of each year, beginning September 30, 2004, the Approved
Plan provides that the Company make an estimated payment of the amount due on
March 31, based upon the Companys current cash forecast. The maturity date of
the $250 million secured debt is July 1, 2009. The Approved Plan provides that
interest is payable monthly on the $250 million secured debt at a rate of
6.785% per annum.

The Approved Plan provides that the Lenders are paid on their unsecured debt
semi-annually in six equal installments (on June 30 and December 31 of each
year) beginning December 31, 2003. In addition to the scheduled payments
referenced above, the Lenders (together with the holders of the general
unsecured debt) also receive a payment on March 31, 2004 in the amount of 100%
of the Companys Excess Cash Flow for fiscal year 2003 and a payment on March
31, 2005 in the amount of two-thirds of the Companys Excess Cash Flow for the
previous fiscal year. These payments are defined as Pro Rata Payments in the
Approved Plan. Additionally, an estimated prepayment of the Pro Rata Payment
was due on September 30, 2003 and will be due on September 30, 2004 in an
amount equal to one-half of the anticipated Pro Rata Payment for each fiscal
year. Prior to emergence from bankruptcy protection, the Company made adequate
protection payments to the Lenders totaling approximately $15.8 million. These
payments will be applied to the Lenders unsecured debt and earn interest until
applied to the Companys debt. The Company made prepayments (including
prepayment of the Pro Rata Payment due September 30, 2003) of $14.4 million
during the nine months ended September 30, 2003 by the application of $14.4
million of the adequate protection payments previously made to the Lenders. The
Approved Plan allows the Company to make prepayments to the Lenders on the
Lender unsecured debt, either in whole or in part, at any time without penalty.
Any partial prepayments shall reduce and be a credit against any mandatory
payments coming due after the time of the prepayment. The maturity date of the
Lenders unsecured debt is June 30, 2006. The Approved Plan provides that
interest is payable on the Lenders unsecured debt at a rate of 8.3675% per
annum.

The Approved Plan provides that the holders of general unsecured debt are paid
semi-annually in six equal installments (on June 30 and December 31 of each
year) beginning December 31, 2003. In addition to the scheduled payments
referenced above, the holders of the general unsecured debt (together with the
Lenders as to the Lender unsecured debt) also receive a payment on March 31,
2004 in the amount of 100% of the Companys Excess Cash Flow for fiscal year
2003 and a payment on March 31, 2005 in the amount of two thirds of the
Companys Excess Cash Flow for the previous fiscal year. These payments are
defined as Pro Rata Payments in the Approved Plan. Additionally, an estimated
prepayment of the Pro Rata Payment is due on September 30, 2003 and September
30, 2004 in an amount equal to one-half of the anticipated Pro Rata Payment for
each fiscal year. The Company made prepayments of $7.7 million (including
prepayment of the Pro Rata Payment due September 30, 2003) during the nine
months

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ended September 30, 2003 to the holders of the general unsecured debt. The
Approved Plan allows the Company to make prepayments to the holders of the
general unsecured debt, either in whole or in part, at any time without
penalty. Any partial prepayments shall reduce and be a credit against any
mandatory payments coming due after the time of the prepayment. The maturity
date of the general unsecured debt is June 30, 2006. The Approved Plan
provides that interest is payable on the general unsecured debt at a rate of
8.3675% per annum.

The Approved Plan treated all unsecured claims totaling less than $10,000
separately from the general unsecured claims. On July 1, 2003, the Company
paid, in full, all such unsecured claims.

The Companys funding of day-to-day operations going forward and all payments
required under the Approved Plan will rely on cash flow and cash on hand as it
has since the Lenders terminated the Companys ability to access a revolving
line of credit in 2000. At September 30, 2003 the Company had cash and cash
equivalents of approximately $14.9 million after giving effect to the payments
described above.

As the reorganization value of the assets of the Company immediately before
confirmation date is greater than the total of all post petition liabilities
and allowed claims and the holders of the existing voting shares immediately
before the confirmation received more than 50% of the voting shares of the
Company, it did not apply the provisions of SOP 90-7 for fresh-start reporting.
Upon emergence from bankruptcy protection on July 1, 2003, and prior to the
application of payments made on July 1, 2003, approximately $30,552,000 and
$284,039,000 of the total liabilities subject to compromise (which was
$298,797,000 at June 30, 2003) were classified as current and non-current,
respectively, and were offset by a current asset of $9,568,000 and a
non-current asset of $6,226,000.



|4. |  | STOCK BASED COMPENSATION
|-- |  | ------------------------

In December 2002, the FASB issued Statement of Financial Accounting Standards
No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure-an
amendment of FASB Statement No. 123 (SFAS No. 148), which amends SFAS No.
123, Accounting for Stock-Based Compensation, to provide alternative methods
of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, this Statement
amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. The disclosure provisions of this Statement are
effective for financial statements for annual and interim periods beginning
after December 15, 2002.

Prior to the issuance of SFAS No. 148, SFAS No. 123 encouraged, but did not
require, companies to record compensation cost for stock-based employee
compensation plans at fair value. Historically, the Company has chosen to
account for stock option plans using the intrinsic value method as prescribed
in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB Opinion No. 25), and related Interpretations. Under APB
Opinion No. 25, no compensation cost related to stock options has been
recognized because all options are issued with exercise prices equal to the
stocks fair market value at the date of grant.

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To date, the Company has adopted the disclosure provisions of SFAS No. 123.
Accordingly, no compensation cost has been recognized for the option plans.
Had compensation cost for the Companys stock option plan been determined based
on the stocks fair value at the grant date of awards for the three and nine
months ended September 30, 2003 and 2002 consistent with the provisions of SFAS
No. 123, the Companys net income (loss) and net income (loss) per common share
would have been decreased or increased to the pro forma amounts indicated
below:

|                                                 |         |   |                              |      |                             |   |            |       |      |   |           |      |  |   |             |       |  
|------------------------------------------------ | ------- | - | ---------------------------- | ---- | --------------------------- | - | ---------- | ----- | ---- | - | --------- | ---- |  | - | ----------- | ----- | -
|                                                 |         |   | Three Months Ended Sept. 30, |      | Nine Months Ended Sept. 30,
|                                                 |         |   |                              |      |                            
|                                                 |         |   | 2003                         |      | 2002                        |   | 2003       |       | 2002
|                                                 |         |   |                              |      |                             |   |            |       |     
|Net income (loss)  as reported                  |         | $ | 426,000                      |      |                             | $ | (2,404,000 | )     |      | $ | 9,283,000 |      |  | $ | (69,345,000 | )    
|Additional compensation expense                  |         |   | (4,000                       | )    |                             |   | (69,000    | )     |      |   | (12,000   | )    |  |   | (207,000    | )    
|                                                 |         |   |                              |      |                             |   |            |       |      |   |           |      |  |   |             |      
|Net income (loss)  pro forma                    |         | $ | 422,000                      |      |                             | $ | (2,473,000 | )     |      | $ | 9,271,000 |      |  | $ | (69,552,000 | )    
|                                                 |         |   |                              |      |                             |   |            |       |      |   |           |      |  |   |             |      
|Net income (loss) per common share
- as reported |         |   |                              |      |                             |   |            |       |      |   |           |      |  |   |             |      
|                                                 | Basic   |   | $                            | 0.03 |                             |   | $          | (0.15 | )    |   | $         | 0.57 |  |   | $           | (4.24 | )
|                                                 | Diluted |   | $                            | 0.02 |                             |   | $          | (0.15 | )    |   | $         | 0.49 |  |   | $           | (4.24 | )
|Net income (loss) per common share
- pro forma   |         |   |                              |      |                             |   |            |       |      |   |           |      |  |   |             |      
|                                                 | Basic   |   | $                            | 0.03 |                             |   | $          | (0.15 | )    |   | $         | 0.57 |  |   | $           | (4.25 | )
|                                                 | Diluted |   | $                            | 0.02 |                             |   | $          | (0.15 | )    |   | $         | 0.49 |  |   | $           | (4.25 | )



|5. |  | REORGANIZATION ITEMS
|-- |  | --------------------

Reorganization items represent expenses that are incurred by the Company as a
result of reorganization under Chapter 11 of the Federal Bankruptcy Code.
Reorganization items for the three and nine months ended September 30, 2003
were $920,000 and $3,776,000, respectively, and are comprised primarily of
professional fees.

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|6. |  | LIQUIDITY
|-- |  | ---------

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company had net income of
$426,000 and $9,283,000 for the three and nine months ended September 30, 2003,
respectively, and incurred net losses of $2,404,000, $69,345,00 and $61,154,000
for the three and nine months ended September 30, 2002 and the year ended
December 31, 2002, respectively. The Company has a shareholders deficit of
$38,311,000 at September 30, 2003. The Company has substantial debt balances
related to the Approved Plan, of which $5,862,000 is due on or before
September 30, 2004. See Note 3 for further information related to
the Bankruptcy Filing.

The Companys Approved Plan provides for the extension of the maturity on the
debt to the Lenders, a reduction of the related interest cost on such debt, and
the payment of all of its reported liabilities. The Lenders retained their
liens on substantially all of the assets of the Company. Under the Approved
Plan, the Company will continue to be highly leveraged and subject to
substantial debt service requirements. The Company intends to improve financial
performance through consolidating operations, stabilizing and increasing
profitable revenues, decreasing and controlling operating expenses and
improving accounts receivable performance. The Company is unable to predict
whether it will be able to successfully execute the operational results
contemplated by the Approved Plan. If the Company is unable to continue to
improve its operations, its financial position, results of operations and cash
flows would be impacted adversely.

Managements cash flow projections and related operating plans indicate that
the Company can operate on its existing cash and cash flow and make all
payments provided for in its Approved Plan over the next twelve months. The
Company has operated in this manner since the Bankruptcy Filing. However, as
with all projections, there can be no guarantee that managements projections
will be achieved. Failure of the Company to achieve its projections and make
all payments provided for in its approved plan would have a material adverse
effect to the Company. The accompanying financial statements do not
include any adjustments of recorded asset carrying amounts or the
amounts and classification of liabilities that might result should
the Company be unable to continue as a going concern.



|7. |  | GOVERNMENT INVESTIGATION AND LITIGATION
|-- |  | ---------------------------------------

Government Settlement.On June 11, 2001, a settlement agreement (the
Government Settlement) was entered among the Company, the United States of
America, acting through the United States Department of Justice (DOJ) and on
behalf of the Office of Inspector General of the Department of Health and Human
Services (OIG) and the TRICARE Management Activity, and a former Company
employee, as relator. The Government Settlement was approved by the United
States District Court for the Western District of Kentucky, the court in which
the relators false claim action was filed. The Government Settlement covers
alleged improprieties by the Company during the period from January 1, 1995
through December 31, 1998, including allegedly improper billing activities and
allegedly improper remuneration to and contracts with physicians, hospitals and
other healthcare providers. Pursuant to the Government Settlement, the Company
made an initial payment of $3,000,000 in the second quarter of 2001 and agreed
to make additional payments in the principal amount of $4,000,000, together
with interest on this amount, in installments due at various times until March
2006. The Company also paid the relators attorneys fees and expenses.
Pursuant to the Approved Plan, amounts owed pursuant to the Government

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Settlement will be paid in full in accordance with the Government Settlement.
The Company has accrued $4,358,000 for its remaining obligations pursuant to
the Government Settlement.

Other Claims and Litigation.Other than the Government Settlement, all
other claims and litigation described below are disputed by the Company. To
the extent the Bankruptcy Court ultimately determines that any of the parties
has a valid claim pursuant to the Approved Plan it will be paid as a general
unsecured claim.

The relator in the false claim action giving rise to the Government Settlement
also asserted in his amended complaint that the Company discriminated against
him because of his reports of alleged wrong-doing to the government. The
relator filed a claim in the Companys bankruptcy proceeding for damages
allegedly sustained as a result of the alleged discrimination. The Company has
objected to that claim.

The Company also was named as a defendant in two other False Claims Act cases
filed prior to the Companys bankruptcy. In each of those cases, the DOJ
declined to intervene and both cases were subsequently dismissed in March 2001.
The first of these cases, United States ex rel. Kirk S. Corsello v. Lincare,
et al. (N.D. Ga.), was dismissed with prejudice on motion of the Company on
March 9, 2001. The appeal of that dismissal was argued in November 2001;
however, in December 2001 the Court of Appeals for the Eleventh Circuit
dismissed the appeal on jurisdictional grounds and returned the case to the
trial court. In January 2002, one of the other defendants filed a Motion for
Reconsideration with the Court of Appeals, and the Court of Appeals denied the
motion on July 10, 2002. On August 5, 2002 the Company filed a Notice of
Bankruptcy which stayed the proceedings as to the Company. Mr. Corsellos qui
tam complaint alleged that the Company and numerous other unrelated defendants,
including other large DME suppliers, engaged in a kickback scheme to provide
free or below market value equipment and medicine to physicians who would in
turn refer patients to the defendants in violation of the False Claims Act.
The other case, United States ex rel. Alan D. Hutchison v. Respironics, et al.
(S.D. NY and N.D. Ga.), was dismissed without prejudice on Mr. Hutchisons own
motion on March 22, 2001. To the best of the Companys knowledge, neither
Corsello or Hutchison filed a claim in the Companys bankruptcy.

The Company was informed in May 2001 that the United States was investigating
its conduct during periods after December 31, 1998, and the Company believes
that this investigation was prompted by another qui tam complaint against the
Company under the False Claims Act. The Company has not seen a complaint in
this action and, to the Companys knowledge, no claim was filed against the
Company in the Chapter 11 proceedings by the United States or any party
purporting to act on its behalf for any amounts other than those owed pursuant
to the Government Settlement.

There can be no assurances as to the final outcome of any pending False Claims
Act lawsuits. Possible outcomes include, among other things, the repayment of
reimbursements previously received by the Company related to improperly billed
claims, the imposition of fines or penalties, and the suspension or exclusion
of the Company from participation in the Medicare, Medicaid and other
government reimbursement programs. Other than the $4,358,000 accrued
liabilities for its remaining obligations pursuant to the Government
Settlement, the Company has not recorded any liabilities related to the
unsettled government investigations. In the unlikely event that the Company
were to lose the pending false claim lawsuits or be subject to remaining
settlements, such

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amounts could have a material adverse effect on the Companys financial
position or results of operations.

The Company is a party to other legal proceedings incidental to its business.
In the opinion of management, any ultimate liability with respect to these
other actions should not have a material adverse effect on its financial
position or results of operations.



|8. |  | RELATED PARTY TRANSACTIONS
|-- |  | --------------------------

A partner in the law firm of Harwell Howard Hyne Gabbert & Manner, P.C.
(H3GM), which the Company engaged during 2003 and 2002 to render legal advice
in a variety of activities, was a director of the Company until July 2002. The
Company paid H3GM $173,000, $512,000, $460,000 and $852,000 during the three
and nine months ended September 30, 2003 and the three and nine months ended
September 30, 2002, respectively.

The Company maintains an employee benefit trust for the purpose of paying
health insurance claims for its employees. The trust was established in June
2002 and was funded with an initial deposit of $0.5 million in July 2002.
Disbursements from the trust began in late July 2002. The Company deposits
funds into the trust on an as-needed basis to pay claims. The Company intends
to terminate the trust effective December 31, 2003.



|9. |  | SALE OF ASSETS OF CENTER
|-- |  | ------------------------

In the quarter ended March 31, 2002, the Company recorded a pre-tax gain of
approximately $0.7 million related to the sale of the assets of an infusion
business and nursing agency (collectively , the Center). Effective March 19,
2002 substantially all of the assets of the Center were sold for approximately
$1.3 million in cash. During the nine months ended September 30, 2002, the
Center generated approximately $1.9 million in total revenues. The proceeds of
this sale were used to pay down debt under the Companys Bank Credit Facility.



|10. |  | EARNINGS PER SHARE
|--- |  | ------------------

Under the standards established by Statement of Financial Accounting Standards
No. 128, Earnings Per Share, earnings per share is measured at two levels:
basic earnings per share and diluted earnings per share. Basic earnings per
share is computed by dividing net income (loss) by the weighted average number
of common shares outstanding during the period. Diluted earnings per share is
computed by dividing net income (loss) by the weighted average number of common
shares after considering the additional dilution related to options and
warrants. In computing diluted earnings per share, the outstanding stock
warrants and stock options are considered dilutive using the treasury stock
method. For the three months ended September 30, 2003 and 2002, and for the
nine months ended September 30, 2003 and 2002 approximately 713,000, 3,998,000,
1,344,000 and 4,099,000 shares, respectively, were attributable to the exercise
of outstanding options and were excluded from the calculation of diluted
earnings per share because the effect was antidilutive.

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The following information is necessary to calculate earnings per share for the
periods presented:

|                                                                                          |           |   |                              |      |                             |   |            |       |      |   |            |      |  |   |             |       |  
|----------------------------------------------------------------------------------------- | --------- | - | ---------------------------- | ---- | --------------------------- | - | ---------- | ----- | ---- | - | ---------- | ---- |  | - | ----------- | ----- | -
|                                                                                          |           |   | Three Months Ended Sept. 30, |      | Nine Months Ended Sept. 30,
|                                                                                          |           |   |                              |      |                            
|                                                                                          |           |   | 2003                         |      | 2002                        |   | 2003       |       | 2002
|                                                                                          |           |   |                              |      |                             |   |            |       |     
|Income (loss) before cumulative effect of
change in accounting principle                  |           | $ | 426,000                      |      |                             | $ | (2,404,000 | )     |      | $ | 9,283,000  |      |  | $ | (860,000    | )    
|Cumulative effect of change in accounting
principle                                       |           |   |                             |      |                             |   |           |       |      |   |           |      |  |   | (68,485,000 | )    
|                                                                                          |           |   |                              |      |                             |   |            |       |      |   |            |      |  |   |             |      
|Net income (loss)                                                                         |           | $ | 426,000                      |      |                             | $ | (2,404,000 | )     |      | $ | 9,283,000  |      |  | $ | (69,345,000 | )    
|                                                                                          |           |   |                              |      |                             |   |            |       |      |   |            |      |  |   |             |      
|Weighted average common shares outstanding                                                |           |   | 16,367,000                   |      |                             |   | 16,367,000 |       |      |   | 16,367,000 |      |  |   | 16,355,000  |      
|Effect of dilutive options and warrants                                                   |           |   | 2,744,000                    |      |                             |   |           |       |      |   | 2,575,000  |      |  |   |            |      
|                                                                                          |           |   |                              |      |                             |   |            |       |      |   |            |      |  |   |             |      
|Adjusted diluted common shares outstanding                                                |           |   | 19,111,000                   |      |                             |   | 16,367,000 |       |      |   | 18,942,000 |      |  |   | 16,355,000  |      
|                                                                                          |           |   |                              |      |                             |   |            |       |      |   |            |      |  |   |             |      
|Income (loss) per common share before
cumulative effect of change in
accounting
principle |           |   |                              |      |                             |   |            |       |      |   |            |      |  |   |             |      
|                                                                                          | - Basic   |   | $                            | 0.03 |                             |   | $          | (0.15 | )    |   | $          | 0.57 |  |   | $           | (0.05 | )
|                                                                                          |           |   |                              |      |                             |   |            |       |      |   |            |      |  |   |             |      
|                                                                                          | - Diluted |   | $                            | 0.02 |                             |   | $          | (0.15 | )    |   | $          | 0.49 |  |   | $           | (0.05 | )
|                                                                                          |           |   |                              |      |                             |   |            |       |      |   |            |      |  |   |             |      
|Cumulative effect of change in accounting
principle per common share                      |           |   |                              |      |                             |   |            |       |      |   |            |      |  |   |             |      
|                                                                                          | - Basic   |   | $                            |     |                             |   | $          |      |      |   | $          |     |  |   | $           | (4.19 | )
|                                                                                          |           |   |                              |      |                             |   |            |       |      |   |            |      |  |   |             |      
|                                                                                          | - Diluted |   | $                            |     |                             |   | $          |      |      |   | $          |     |  |   | $           | (4.19 | )
|                                                                                          |           |   |                              |      |                             |   |            |       |      |   |            |      |  |   |             |      
|Net income (loss) per common share                                                        |           |   |                              |      |                             |   |            |       |      |   |            |      |  |   |             |      
|                                                                                          | - Basic   |   | $                            | 0.03 |                             |   | $          | (0.15 | )    |   | $          | 0.57 |  |   | $           | (4.24 | )
|                                                                                          |           |   |                              |      |                             |   |            |       |      |   |            |      |  |   |             |      
|                                                                                          | - Diluted |   | $                            | 0.02 |                             |   | $          | (0.15 | )    |   | $          | 0.49 |  |   | $           | (4.24 | )
|                                                                                          |           |   |                              |      |                             |   |            |       |      |   |            |      |  |   |             |      



|11. |  | ADOPTION OF NEW ACCOUNTING PRONOUCEMENTS
|--- |  | ----------------------------------------

The Company adopted the provisions of Statement of Financial Accounting
Standards No. 142, Goodwill and other Intangible Assets (SFAS No. 142)
effective January 1, 2002. As of the adoption date, the Company had
unamortized goodwill in the amount of $189.7 million. In accordance with SFAS
No. 142, effective January 1, 2002 the Company discontinued amortization of
goodwill. Goodwill was tested for impairment by comparing the fair value of
goodwill to the carrying value of goodwill. Fair value was determined using
projected operating results and a combination of analyses which included
discounted cash flow calculations, market multiples and other market
information. Key assumptions used in these estimates include projected
operating results, discount rates and peer market multiples. The implied fair
value of goodwill did not support the carrying value of goodwill primarily due
to the Companys highly leveraged capital structure.

Based upon the results of the Companys initial impairment tests, the Company
recorded an impairment loss of $68.5 million in the quarter ended March 31,
2002, recognized as a cumulative effect of change in accounting principle.
There was no tax effect on the impairment loss due to the fact that the
majority of the related goodwill was non-tax deductible and because of the
Companys federal net operating loss position. The Company is required to
conduct annual impairment tests hereafter, unless specific events arise which
warrant more immediate testing. The Company completed its annual impairment
testing in September 2003 and based on this testing,

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no impairments were recorded. Any subsequent impairment loss will be
recognized as an operating expense in the Companys consolidated statements of
operations.

The change in the carrying amount of goodwill for the nine months ended
September 30, 2003 and 2002 is as follows:

|                                                               |  |                                 |             |      |  |   |             |  
|-------------------------------------------------------------- |  | ------------------------------- | ----------- | ---- |  | - | ----------- | -
|                                                               |  | Nine Months Ended September 30,
|                                                               |  |                                
|                                                               |  | 2003                            |             | 2002
|                                                               |  |                                 |             |     
|Goodwill, net of accumulated amortization, beginning of period |  | $                               | 121,214,000 |      |  | $ | 189,699,000 |  
|Transitional impairment loss                                   |  |                                 |            |      |  |   | (68,485,000 | )
|                                                               |  |                                 |             |      |  |   |             |  
|Goodwill, net of accumulated amortization, end of period       |  | $                               | 121,214,000 |      |  | $ | 121,214,000 |  
|                                                               |  |                                 |             |      |  |   |             |  

In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, an Interpretation of FASB Statements No.
5, 57, and 107 and Rescission of FASB Interpretation No. 34 (FIN No. 45).
This Interpretation requires guarantors to account at fair value for and
disclose certain types of guarantees. The Interpretations disclosure
requirements were effective for the Companys year ended December 31, 2002; the
Interpretations accounting requirements are effective for guarantees issued or
modified after December 31, 2002. The Companys adoption of this
Interpretations accounting requirements did not have a material impact on its
financial position or results of operations.



|12. |  | RECENT ACCOUNTING PRONOUNCEMENTS
|--- |  | --------------------------------

In January, 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities (FIN No. 46). This Interpretation requires
consolidation of variable interest entities (VIE) (formerly referred to as
special purpose entities) if certain conditions are met. The Interpretation
applies immediately to VIEs created after January 31, 2003, and to variable
interests obtained in VIEs after January 31, 2003. Effective with the quarter
beginning October 1, 2003, the Interpretation applies also to VIEs created or
variable interests obtained in VIEs before January 31, 2003. The Companys
adoption of the applicable provisions of this Interpretation did not
have an impact on its financial position or results of operations. The
Company does not expect the adoption of the remaining provisions of this
Interpretation to have an impact on its financial position or results
of operations based on current interpretations.

On May 15, 2003, the Financial Accounting Standards Board issued Statement No.
150, Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity (SFAS No. 150). The Statement requires issuers to
classify as liabilities (or assets in some circumstance) three classes of
freestanding financial instruments that embody obligations for the issuer.
Generally, the Statement is effective for financial instruments entered into or
modified after May 31, 2003 and is otherwise effective at the beginning of the
first interim period beginning after June 15, 2003. The Company adopted the
provisions of the Statement on July 1, 2003. The Company has not
entered into
any financial instruments within the scope of the Statement since May
31, 2003,
nor did it have existing arrangements that required changes in accounting
treatment.

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|13. |  | OTHER CURRENT LIABILITIES
|--- |  | -------------------------

Other current liabilities as of September 30, 2003 were comprised of amounts as
follows:

|                                         |                                 |   |           |            | 
|---------------------------------------- | ------------------------------- | - | --------- | ---------- | 
|Accrued interest                         |                                 | $ | 2,666,000 |           
|Accrued reorganization expenses          |                                 |   | 3,339,000 |           
|Accrued taxes and licenses               |                                 |   | 1,620,000 |           
|Accrued professional fees                |                                 |   | 1,816,000 |           
|Current portion of government settlement |                                 |   | 500,000   |           
|Deferred revenue                         |                                 |   | 453,000   |           
|Accrued indemnification fees             |                                 |   | 459,000   |           
|Other                                    |                                 |   | 2,853,000 |           
|                                         |                                 |   |           |           
|                                         | Total other current liabilities |   | $         | 13,706,000 | 
|                                         |                                 |   |           |           

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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 3 to the interim
condensed consolidated financial statements), other effects and consequences of
the Bankruptcy Filing (as defined in Note 3 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 changes in reimbursement policies. 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.

General

The Company provides home health care services and products to patients through
its 288 centers in 35 states. These services and products are primarily paid
for by Medicare, Medicaid and other third-party payors. The Company has three
principal services or product lines: home respiratory services, home infusion
services and home medical equipment and supplies. Home respiratory services
include oxygen systems, nebulizers, aerosol medications and home ventilators
and are provided primarily to patients with severe and chronic pulmonary
diseases. Home infusion services are used to administer nutrients, antibiotics
and other medications to patients with medical conditions such as neurological
impairments, infectious diseases or cancer. The Company also sells and rents a
variety of home medical equipment and supplies, including wheelchairs, hospital
beds and ambulatory aids.

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The following table sets forth the percentage of the Companys revenues
represented by each line of business for the periods presented:

|                                            |       |  |                            |     |      |  |    |     |  
|------------------------------------------- | ----- |  | -------------------------- | --- | ---- |  | -- | --- | -
|                                            |       |  | Nine Months Ended June 30,
|                                            |       |  |                           
|                                            |       |  | 2003                       |     | 2002
|                                            |       |  |                            |     |     
|Home respiratory therapy services           |       |  | 69                         | %   |      |  | 66 | %  
|Home infusion therapy services              |       |  | 13                         |     |      |  | 14 |    
|Home medical equipment and medical supplies |       |  | 18                         |     |      |  | 20 |    
|                                            |       |  |                            |     |      |  |    |    
|                                            | Total |  |                            | 100 | %    |  |    | 100 | %
|                                            |       |  |                            |     |      |  |    |    

Prior to 1998, the Company had significantly expanded its operations through a
combination of home health care acquisitions and joint ventures and strategic
alliances with integrated health care delivery systems. In 1998, the Company
purposefully slowed its acquisition activity compared to prior years to focus
on existing operations. Since 1998, the Company has not acquired any home
health care businesses or developed any new joint ventures other than
converting several of its previously owned 50% joint ventures to wholly-owned
operations during 1999 and 2000. In March 2002, the Company sold substantially
all of the assets of an infusion center for $1.3 million in cash and used the
proceeds to pay down the Bank Credit Facility.

On July 31, 2002, American HomePatient, Inc. and 24 of its subsidiaries
(collectively, the Debtors) filed voluntary petitions for relief to
reorganize under Chapter 11 of the U.S. Bankruptcy Code (the Bankruptcy
Filing) in the United States Bankruptcy Court for the Middle District of
Tennessee (the Bankruptcy Court). On July 1, 2003, the Companys plan of
reorganization, which had previously been approved by the Bankruptcy Court (the
Approved Plan), became effective and the Company successfully emerged from
bankruptcy protection. See Note 3 to the interim condensed consolidated
financial statements Proceedings Under Chapter 11 of the Bankruptcy Code and
Managements Discussion and Analysis of Financial Condition and Results of
Operations  Liquidity and Capital Resources.

The Companys strategy for 2003 is to maintain a diversified offering of home
health care services reflective of its current business mix. Respiratory
services will remain a primary focus along with home medical equipment rental
and enteral nutrition products and services.

Government Regulation

General.The Company, as a participant in the health care industry, is
subject to extensive federal, state and local regulation. In addition to the
False Claims Act and other federal and state anti-kickback and self-referral
laws applicable to all of the Companys operations (discussed more fully
below), the operations of the Companys home health care centers are subject to
federal laws covering the repackaging and dispensing of drugs (including
oxygen) and regulating interstate motor-carrier transportation. Such centers
also are subject to state laws (most notably licensing and controlled
substances registration) governing pharmacies, nursing services and certain
types of home health agency activities.

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The Companys operations are also subject to a series of laws and regulations
dating back to the Omnibus Budget Reconciliation Act of 1987 (OBRA 1987)
which apply to the Companys operation. Periodic changes have occurred from
time to time since the enactment of OBRA 1987, including reimbursement
reductions and changes to payment rules.

The Federal False Claims Act imposes civil liability on individuals or entities
that submit false or fraudulent claims to the government for payment. False
Claims Act penalties for violations can include sanctions, including civil
monetary penalties. As a provider of services under the federal reimbursement
programs such as Medicare, Medicaid and TRICARE (formerly CHAMPUS), the Company
is subject to the anti-kickback statute, also known as the fraud and abuse
law. This law prohibits any bribe, kickback, rebate or remuneration of any
kind in return for, or as an inducement for, the referral of patients for
government-reimbursed health care services. The Company may also be affected
by the federal physician self-referral prohibition, known as the Stark Law,
which, with certain exceptions, prohibits physicians from referring patients to
entities with which they have a financial relationship. Many states in which
the Company operates have adopted similar self-referral laws, as well as laws
that prohibit certain direct or indirect payments or fee-splitting arrangements
between health care providers, under the theory that such arrangements are
designed to induce or to encourage the referral of patients to a particular
provider. In many states, these laws apply to services reimbursed by all payor
sources.

In 1996, the Health Insurance Portability and Accountability Act (HIPAA)
introduced a new category of federal criminal health care fraud offenses. If a
violation of a federal criminal law relates to a health care benefit, then an
individual is guilty of committing a Federal Health Care Offense. The specific
offenses are: health care fraud; theft or embezzlement; false statements,
obstruction of an investigation; and money laundering. These crimes can apply
to claims submitted not only to government reimbursement programs such as
Medicare, Medicaid and TRICARE, but to any third-party payor, and carry
penalties including fines and imprisonment. See Managements Discussion and
Analysis of Financial Condition and Results of Operations  Risk Factors, HIPAA
Compliance for further discussion.

HIPAA mandates an extensive set of regulations to protect the privacy of
individually identifiable health information. The regulations consist of three
sets of standards, each with a different date for required compliance: (1)
Privacy Standards have a compliance date of April 14, 2003; (2) Transactions
and Code Sets Standards required compliance by October 16, 2002 except as
extended by one year to October 16, 2003 for providers that filed a compliance
extension form by October 15, 2002; and (3) recently published Security
Standards that have an implementation date of April 21, 2005. The Company has
filed its compliance extension form and is actively pursuing its strategies
toward compliance with the final Privacy Standards and Transaction and Code
Sets Standards.

Implementation of mandated HIPAA Transaction and Code Sets did result in a
disruption of cash as a result of a higher than anticipated rate of electronic
claim rejections from Medicare. These rejections caused a disruption in both
August and September cash collections. The Company believes most of the
problems have been corrected and processes have been put in place to identify
rejections and promptly resubmit claims to avoid further disruptions. CMS has
also granted an extension to the October 16, 2003 deadline and will allow
providers to continue to submit claims electronically in old formats as long
as they continue to make good faith efforts to comply with

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HIPAA requirements. This extension will allow us to continue to submit
non-standard formatted claims electronically to payors who will not be
compliant as of October 16, 2003.

The Company must follow strict requirements with paperwork and billing. As
required by law, it is Company policy that certain service charges (as defined
by Medicare) falling under Medicare Part B are confirmed with a Certificate for
Medical Necessity (CMN) signed by a physician. In January 1999, the Office
of Inspector General of the Department of Health and Human Services (OIG)
published a draft Model Compliance Plan for the Durable Medical Equipment,
Prosthetics, Orthotics and Supply Industry. The OIG has stressed the
importance for all health care providers to have an effective compliance plan.
The Company has created and implemented a compliance program, which it believes
meets the elements of the OIGs Model Plan for the industry. As part of its
compliance program, the Company performs internal audits of the adequacy of
billing documentation. The Companys policy is to voluntarily refund to the
government any reimbursements previously received for claims with insufficient
documentation that are identified in this process and that cannot be corrected.
The Company periodically reviews and updates its policies and procedures in an
effort to comply with applicable laws and regulations; however, certain
proceedings have been and may in the future be commenced against the Company
alleging violations of applicable laws governing the operation of the Companys
business and its billing practices.

The Balanced Budget Act of 1997 introduced several government initiatives which
are either in the planning or implementation stages and which, when fully
implemented, could have a material adverse impact on reimbursement for products
and services provided by the Company. These initiatives include: (i)
Prospective Payment System (PPS) requirements for skilled nursing facilities
and PPS for home health agencies, which do not affect the Company directly but
could affect the Companys contractual relationships with such entities; (ii)
deadlines (as yet undetermined) for obtaining Medicare and Medicaid surety
bonds for home health agencies and DME suppliers; and (iii) pilot projects in
Polk County, Florida and San Antonio, Texas which were effective between
October 1, 1999 and September 30, 2002, and February 1, 2001 and December 31,
2002, respectively, to determine the efficacy of competitive bidding for
certain durable medical equipment (DME), under which Medicare reimbursements
for certain items were reduced between 3.6% to 34% from the then current
Medicare fee schedules (the Company participated to some extent in both pilot
projects). At expiration, the DME items reverted to normal Medicare fees and
procedures, although the Bush administration has announced that it intends to
expand competitive bidding on a national basis, building on these two pilot
projects that yielded savings to Medicare. The United States House of
Representatives recently passed a bill that includes provisions for a national
competitive bidding program for durable medical equipment, including home
oxygen equipment. The United States Senate recently passed a bill that
includes provisions for a seven year freeze in the consumer price index (CPI)
update for durable medical equipment and off-the-shelf orthotics. The Company
cannot predict at this time the outcome of proposed legislation related to a
national competitive bidding program or the financial impact of such a program
on the Companys business, if it should become law.

In April 2003, the OIG issued a special advisory bulletin addressing certain
contractual arrangements that would not be included in a safe harbor as
defined under the federal anti-kickback statutes. This bulletin specifically
focuses on contractual arrangements where a health care provider in one line of
business expands into a related health care business by contracting with an
existing provider of a related item or service. The Company is a party to
several

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contracts that could potentially be impacted by this special advisory bulletin.
Management is in the process of assessing its compliance with the provisions
of this bulletin and has not determined the financial impact, if any, of
complying with these provisions.

The Company is also subject to state laws governing Medicaid, professional
training, licensure, financial relationships with physicians and the dispensing
and storage of pharmaceuticals. The facilities operated by the Company must
comply with all applicable laws, regulations and licensing standards and many
of the Companys employees must maintain licenses to provide some of the
services offered by the Company. Additionally, certain of the Companys
employees are subject to state laws and regulations governing the professional
practice of respiratory therapy, pharmacy and nursing.

Information about individuals and other health care providers who have been
sanctioned or excluded from participation in government reimbursement programs
is readily available on the Internet, and all health care providers, including
the Company, are held responsible for carefully screening entities and
individuals they employ or do business with, to avoid contracting with an
excluded provider. The entity cannot bill government programs for services or
supplies provided by an excluded provider, and the federal government may also
impose sanctions, including financial penalties, on companies that contract
with excluded providers.

Health care law is an area of extensive and dynamic regulatory oversight.
Changes in laws or regulations or new interpretations of existing laws or
regulations can have a dramatic effect on permissible activities, the relative
costs associated with doing business, and the amount and availability of
reimbursement from government and other third-party payors. There can be no
assurance that federal, state or local governments will not impose additional
standards or change existing standards or interpretations.

In August 2003, the Centers for Medicare & Medicaid Services (CMS) issued a
proposed rule change that would revise current payment methodology for Part B
covered drugs and biologicals. Nebulizer drugs are included in Part B covered
drugs. CMS proposes to select a payment methodology based on four different
payment approaches. The Company cannot predict at this time the payment
approach that will be selected by CMS and therefore cannot predict the outcome
of the proposed rule on the Companys business.

In September 2003, the Office of Inspector General (OIG) published a notice
of proposed rulemaking that would amend the OIG exclusion regulations
addressing excessive claims by including definitions for the terms
substantially in excess and usual charges. Under the proposed rule,
providers and suppliers that charge Medicare 120% more than they charge other
payors for certain services can be excluded from the Medicare program. Should
the proposed rule become effective, there most likely will be some financial
impact on the Companys business but the Company cannot predict the scope of
the impact at this time.

In September 2003, the OIG approved Operation Wheeler-Dealer, which will
subject power wheelchairs and power operated vehicles to more intense scrutiny
to assure the Medicare beneficiaries receiving these products do in fact have
medical necessity. The result of Operation Wheeler-Dealer is an expected
increase in the number of post-payment and pre-payment Medicare audits.

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Enforcement Activities.In recent years, various state and federal
regulatory agencies have stepped up investigative and enforcement activities
with respect to the health care industry, and many health care providers,
including the Company and other durable medical equipment suppliers, have
received subpoenas and other requests for information in connection with their
business operations and practices. From time to time, the Company also
receives notices and subpoenas from various government agencies concerning
plans to audit the Company, or requesting information regarding certain aspects
of the Companys business. The Company cooperates with the various agencies in
responding to such subpoenas and requests. The Company expects to incur
additional legal expenses in the future in connection with existing and future
investigations.

The government has broad authority and discretion in enforcing applicable laws
and regulations; therefore, the scope and outcome of any such investigations,
inquiries, or legal actions cannot be predicted. There can be no assurance
that federal, state or local governments will not impose additional regulations
upon the Companys current activities nor that the Companys past activities
will not be found to have violated some of the governing laws and regulations.
Any such regulatory changes or findings of violations of laws could adversely
affect the Companys business and financial position, and could even result in
the exclusion of the Company from participating in Medicare, Medicaid, and
other government reimbursement programs.

Legal Proceedings.On June 11, 2001, a settlement agreement (the
Government Settlement) was entered among the Company, the United States of
America, acting through the United States Department of Justice (DOJ) and on
behalf of the OIG and the TRICARE Management Activity, and a former Company
employee, as relator. The Government Settlement was approved by the United
States District Court for the Western District of Kentucky, the court in which
the relators false claim action was filed. The Government Settlement covers
alleged improprieties by the Company during the period from January 1, 1995
through December 31, 1998, including allegedly improper billing activities and
allegedly improper remuneration to and contracts with physicians, hospitals and
other healthcare providers. Pursuant to the Government Settlement, the Company
made an initial payment of $3,000,000 in the second quarter of 2001 and agreed
to make additional payments in the principal amount of $4,000,000, together
with interest on this amount, in installments due at various times until March
2006. The Company also paid the relators attorneys fees and expenses.
Pursuant to the Approved Plan, the amounts owed pursuant to the Government
Settlement will be paid in full in accordance with the Government Settlement.
The Company has accrued $4,358,000 for its remaining obligations pursuant to
the Government Settlement.

Other Claims and Litigation.Other than the Government Settlement, all
other claims and litigation described below are disputed by the Company. To
the extent the Bankruptcy Court ultimately determines that any of the parties
has a valid claim pursuant to the Approved Plan, such claim will be paid as a
general unsecured claim.

The relator in the false claim action giving rise to the Government Settlement
also asserted in his amended complaint that the Company discriminated against
him because of his reports of alleged wrong-doing to the government. The
relator filed a claim in the Companys bankruptcy proceeding. The Company has
objected to that claim.

The Company also was named as a defendant in two other False Claims Act cases
filed prior to the Companys bankruptcy. In each of those cases, the DOJ
declined to intervene and both cases were

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subsequently dismissed in March 2001.
The first of these cases, United States ex rel. Kirk S. Corsello v. Lincare, et
al. (N.D. Ga.), was dismissed with prejudice on motion of the Company on March
9, 2001. The appeal of that dismissal was argued in November 2001; however, in
December 2001 the Court of Appeals for the Eleventh Circuit dismissed the
appeal on jurisdictional grounds and returned the case to the trial court. In
January 2002, one of the other defendants filed a Motion for Reconsideration
with the Court of Appeals, and the Court of Appeals denied the motion on July
10, 2002. On August 5, 2002 the Company filed a Notice of Bankruptcy which
stayed the proceedings as to the Company. The other case, United States ex rel.
Alan D. Hutchison v. Respironics, et al. (S.D. NY and N.D. Ga.), was dismissed
without prejudice on Mr. Hutchisons own motion on March 22, 2001. To the best
of the Companys knowledge, neither Corsello or Hutchison filed a claim in the
Companys bankruptcy.

Prior to the Companys Bankruptcy Filing, the Company was informed that the
United States was investigating its conduct during periods after December 31,
1998, and the Company believes that this investigation was prompted by another
qui tam complaint against the Company under the False Claims Act. The Company
has not seen a complaint in this action and, to the Companys knowledge, no
claim was filed against the Company in the Chapter 11 proceedings by the United
States or any party purporting to act on its behalf for any amounts other than
those owed pursuant to the Government Settlement.

There can be no assurances as to the final outcome of any pending False Claims
Act lawsuits. Possible outcomes include, among other things, the repayment of
reimbursements previously received by the Company related to billed claims that
are found to be improper, the imposition of fines or penalties, and the
suspension or exclusion of the Company from participation in the Medicare,
Medicaid and other government reimbursement programs. Other than the
$4,358,000 accrued liability discussed above which relates to the Government
Settlement, the Company has not recorded any reserves related to the unsettled
government investigations. In the unlikely event that the Company were to lose
the pending false claim lawsuits or be subject to future settlements, such
amounts could have a material adverse effect on the Companys financial
position or results of operations.

Medicare Reimbursement for Oxygen Therapy Services

The Medicare reimbursement rate for oxygen related services was reduced by 25%
beginning January 1, 1998 as a result of the Balanced Budget Act of 1997 with
an additional reduction of 5% beginning January 1, 1999. The reimbursement
rate for certain drugs and biologicals covered under Medicare was also reduced
by 5% beginning January 1, 1998. The Company is one of the nations largest
providers of home oxygen services to patients, many of whom are Medicare
recipients, and is therefore significantly affected by this legislation.
Medicare oxygen reimbursements account for a significant part of the Companys
on-going revenues. In January 2001, federal legislation was signed into law
that provided for a one-time increase, beginning July 1, 2001, in Medicare
reimbursement rates for home medical equipment, excluding oxygen related
services, based on the consumer price index (CPI). There have been no
significant increases since this law was passed. Medicare also has the option
of developing fee schedules for parenteral and enteral nutrition and home
dialysis supplies and equipment, although currently there is no timetable for
the development or implementation of such fee schedules. Following
promulgation of a final rule, effective
February 11, 2003, CMS also has inherent reasonableness authority to modify
payment rates for all Medicare Part B items and services by as much as 15% per
year without industry consultation,

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publication or public comment, if the rates
are determined to be grossly excessive or grossly deficient. Therefore,
the Company cannot be certain that additional reimbursement reductions for
oxygen therapy services or other services and products provided by the Company
will not occur. See Managements Discussion and Analysis of Financial
Condition and Results of Operations  Critical Accounting Policies and
Managements Discussion and Analysis of Financial Condition and Results of
Operations  Government Regulation.

Critical Accounting Policies

Managements Discussion and Analysis of Financial Condition and Results of
Operations are based upon the Companys consolidated financial statements. The
preparation of these consolidated financial statements in accordance with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the dates of the financial statements, and the reported amounts
of revenues and expenses during the reporting periods. On an on-going basis,
management evaluates its critical accounting policies and estimates.

A critical accounting policy is one which is both important to the
understanding of the financial condition and results of operations of the
Company and requires managements most difficult, subjective or complex
judgments, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain. Management believes the following
accounting policies fit this definition:

Revenue Recognition and Allowance for Doubtful Accounts.The Company
provides credit for a substantial part of its non third-party reimbursed
revenues and continually monitors the credit-worthiness and collectibility of
amounts due from its patients. Approximately 61% of the Companys year to date
2003 revenues are derived from participation in Medicare and state Medicaid
programs. Amounts paid under these programs are generally based upon a fixed
rate. Revenues are recorded at the expected reimbursement rates when the
services are provided, merchandise delivered or equipment rented to patients.
Although amounts earned under the Medicare and Medicaid programs are subject to
review by such third-party payors, subsequent adjustments to reimbursements as
a result of such reviews are historically insignificant as these reimbursements
are based on fixed fee schedules. In the opinion of management, adequate
provision has been made for any adjustment that may result from such reviews.
Any differences between estimated settlements and final determinations are
reflected in operations in the year finalized.

Sales and related services revenues include all product sales to patients and
are derived from the provision of infusion therapies, the sale of home health
care equipment and supplies, the sale of aerosol medications and respiratory
therapy equipment and supplies, and services related to the delivery of these
products. Sales revenues are recognized at the time of delivery and are billed
using fixed fee schedules based upon the type of product and the payor.
Rentals and other patient revenues are derived from the rental of home health
care equipment, enteral pumps and equipment related to the provision of
respiratory therapy. All rentals of equipment are provided by the Company on a
month-to-month basis and are billed using fixed monthly fee schedules
based upon the type of rental and the payor. The fixed monthly fee encompasses
the rental of the product as well as the delivery and the set-up and
instruction by the product technician.

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The Company recognizes revenues at the time services are performed. As such, a
portion of patient receivables consists of unbilled receivables for which the
Company has not obtained all of the necessary medical documentation, but has
provided the service or equipment. The Company calculates its allowance for
doubtful accounts based upon the type of receivable (billed or unbilled) as
well as the age of the receivable. As a receivable balance ages, an
increasingly larger allowance is recorded for the receivable. All billed
receivables over one year old and all unbilled receivables over 180 days old
are fully reserved. Management believes that the recorded allowance for
doubtful accounts is adequate and that historical collections substantiate the
percentages used in the allowance valuation process. However, the Company is
subject to further loss to the extent uncollectible receivables exceed its
allowance for doubtful accounts. If the Company were to experience a
deterioration in the aging of its accounts receivable due to disruptions or a
slow down in cash collections, the Companys allowance for doubtful accounts
and bad debt expense would likely increase from current levels. Conversely, an
improvement in the Companys cash collection trends and in its receivable aging
would likely result in a decrease in both the allowance for doubtful accounts
and bad debt expense.

The Companys allowance for doubtful accounts totaled approximately $19.6
million and $23.0 million as of September 30, 2003 and December 31, 2002,
respectively.

Inventory Valuation and Cost of Sales Recognition. Inventories represent
goods and supplies and are priced at the lower of cost (on a first-in,
first-out basis) or market value. The Company recognizes cost of sales and
relieves inventory on an interim basis based upon the type of product sold and
payor mix, and performs physical counts of inventory at each center on an
annual basis. Any resulting adjustment from these physical counts is charged
to cost of sales.

Rental Equipment Valuation. Rental equipment is rented to patients for
use in their homes and is depreciated over the equipments estimated useful
life. On an annual basis, the Company performs physical counts of rental
equipment at each center and reconciles all recorded rental assets to internal
billing reports. Any resulting adjustment for unlocated or obsolete equipment
is charged to rental equipment depreciation expense. Since rental equipment is
maintained in the patients home, the Company is subject to loss resulting from
lost equipment as well as losses for outdated or obsolete equipment.
Management records a valuation allowance for its estimate lost, broken, or
obsolete rental equipment based upon historical adjustment amounts and believes
the recorded rental allowance is adequate. The Company is subject to loss for
unrecorded adjustments in excess of its recorded rental equipment valuation
allowance. The Companys rental equipment reserves totaled $0.9 million at September 30, 2003 and December 31, 2002.

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Valuation of Long-lived Assets. In accordance with Statement of Financial
Accounting Standards No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets (SFAS No. 144), management evaluates long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. Management utilizes
estimated undiscounted future cash flows to determine if an impairment exists.
When this analysis indicates an impairment exists, the amount of loss is
determined based upon a comparison of estimated fair value with the carrying
value of the asset. While management believes that the estimates of future
cash flows are reasonable, different assumptions regarding such cash flows
could materially affect the evaluations.

Valuation of Goodwill and Other Intangible Assets.Goodwill represents
the excess of cost over the fair value of net assets acquired. In June 2001,
the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS No.
142). The Company was required to adopt the provisions of this statement
effective January 1, 2002. SFAS No. 142 requires that intangible assets with
finite useful lives be amortized and that goodwill and intangible assets with
indefinite lives no longer be amortized. Instead, goodwill and intangible
assets with indefinite lives are required to be tested for impairment on an
annual basis and when an event occurs or circumstances change such that it is
reasonably possible that an impairment may exist. The Company selected
September 30 as its annual testing date. There was no additional impairment
recognized in 2002 or as a result of the Companys annual impairment testing in
September 2003.

Upon adoption of SFAS No. 142, goodwill was tested for impairment by comparing
the fair value of goodwill to the carrying value of goodwill. The fair value
was determined using a combination of analyses which included discounted cash
flow calculations, market multiples and other market information. Key
assumptions used in these estimates include projected operating results,
discount rates and peer market multiples. The implied fair value of goodwill
did not support the carrying value of goodwill primarily due to the Companys
highly leveraged capital structure, which resulted in impairment of $68.5
million. This impairment charge was recorded as a cumulative effect of change
in accounting principle in the first quarter of 2002. There was no tax effect
on the impairment loss due to the fact that the majority of the related
goodwill was non-tax deductible and because of the Companys federal net
operating loss position.

Self Insurance.Self-insurance accruals primarily represent managements
loss estimate for self-insurance or large deductible risks associated with
employee health insurance and workers compensation insurance. The Company is
insured for workers compensation, but retains the first $250,000 of each
claim. The Company is not maintaining annual aggregate stop loss coverage for
claims made in 2003 and did not maintain annual aggregate stop loss coverage
for claims made in 2002, as such coverage was not available. Judgments used in
determining the accruals related to workers compensation include loss
development factors, frequency of claims and severity of claims. The liability
for estimated workers compensation claims totaled approximately $3.8 million
and $3.3 million as of September 30, 2003 and December 31, 2002, respectively.
The Company utilizes analyses prepared by its third-party administrator based
on historical claims information to support the required reserve and related
expense associated with workers compensation. The Company records claims
expense by plan year based on the lesser of the aggregate stop loss (if
applicable) or the developed losses as calculated by its third-party
administrator.

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The Company is also self-insured for health insurance for substantially all
employees for the first $150,000 on a per person, per year basis and maintains
annual aggregate stop loss coverage. The health insurance policies are limited
to maximum lifetime reimbursements of $2.0 million per person for 2003 and
2002. The estimated liability for health insurance claims totaled
approximately $1.9 million and $1.8 million as of September 30, 2003 and
December 31, 2002, respectively. The Company reviews health insurance trends
and payment history and maintains a an accrual for incurred but not reported
claims based upon its assessment of lag time in reporting and paying claims.
Judgments include assessing historical paid claims, average lags between the
claims incurred dates, reported dates and paid dates, the frequency of claims
and the severity of claims.

The Company is required to maintain cash collateral accounts with the insurance
companies related to its self-insurance obligations. The Company currently
maintains cash collateral balances of $4.2 million related to its
self-insured obligations, included in other assets.

Management continually analyzes its accrued liabilities for incurred but not
reported claims, and for reported but not paid claims related to its
self-insurance programs and believes these accruals to be adequate. However,
significant judgment is involved in assessing these accruals, and the Company
is at risk for differences between actual settlement amounts and recorded
accruals, and any resulting adjustments are included in expense once a probable
amount is known.

Results of Operations

The Company reports its revenues as follows: (i) sales and related services
and (ii) rentals and other revenues. Sales and related services revenues are
derived from the provision of infusion therapies, the sale of home health care
equipment and supplies, the sale of aerosol and respiratory therapy equipment
and supplies and services related to the delivery of these products. Rentals
and other revenues are derived from the rental of home health care equipment,
enteral pumps and equipment related to the provision of respiratory therapies.
Cost of sales and related services includes the cost of equipment, drugs and
related supplies sold to patients. Cost of rentals and other revenues includes
the costs of oxygen and rental supplies, demurrage for leased oxygen tanks,
rent expense for leased equipment, and rental equipment depreciation expense,
and excludes delivery expenses and salaries associated with the rental set-up.
Operating expenses include operating center labor costs, delivery expenses,
division and area management expenses, selling costs, occupancy costs, billing
center costs, bad debt expense, and other operating costs. General and
administrative expenses include corporate and senior management expenses.

The majority of the Companys hospital joint ventures are not consolidated for
financial statement reporting purposes. Earnings from hospital joint ventures
represent the Companys equity in earnings from unconsolidated hospital joint
ventures and management and administrative fees from unconsolidated hospital
joint ventures.

Sale of Assets of Center.In the quarter ended March 31, 2002, the
Company recorded a pre-tax gain of $0.7 million related to the sale of the
assets of an infusion business and nursing agency (collectively, the Center).
Effective March 19, 2002, substantially all of the assets of the Center were
sold for approximately $1.3 million in cash. During the nine months ended
September 30, 2002 the Center generated approximately $1.9 million in total
revenues. The proceeds of the sale were used to pay down debt under the
Companys Bank Credit Facility.

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Cumulative Effect of Change in Accounting Principle.The Company adopted
the provisions of SFAS No. 142 effective January 1, 2002. As of the adoption
date, the Company had unamortized goodwill in the amount of $189.7 million. In
accordance with SFAS No. 142, effective January 1, 2002 the Company
discontinued amortization of goodwill. Goodwill was tested for impairment by
comparing the fair value of goodwill to the carrying value of goodwill. Fair
value was determined using a combination of analyses which included discounted
cash flow calculations, market multiples and other market information. The
implied fair value of goodwill did not support the carrying value of goodwill.

Based upon the results of the Companys initial impairment tests, the Company
recorded an impairment loss of $68.5 million, with no related tax effect, in
the quarter ended March 31, 2002, recognized as a cumulative effect of change
in accounting principle. There was no tax effect on the impairment loss due to
the fact that the majority of the related goodwill was non-tax deductible and
because of the Companys federal net operating loss position. The Company
conducts annual impairment tests on September 30 of each year unless specific
events arise which warrant more immediate testing. The Company completed its
annual impairment testing in September 2003. To date there have been no events
warranting impairment testing since the Company completed its 2002 annual
impairment test in September 2002, nor have any impairments been recorded since
the Company recorded its transition impairment upon the adoption of SFAS No.
142. Any subsequent impairment losses will be recognized as an operating
expense in the Companys consolidated statements of operations.

Reorganization Items.The Company has incurred reorganization expenses as
a result of reorganization under Chapter 11 of the Federal Bankruptcy Code. In
accordance with the American Institute of Certified Public Accountants
Statement of Position 90-7, Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code (SOP 90-7), all revenues, expenses, realized gains
and losses, and provisions for losses and expenses resulting from the
reorganization are reported separately as Reorganization Items. These items
include, but are not limited to, professional fees and other expenses incurred
related to the Chapter 11 proceedings, write-off of deferred financing costs,
and provision for damages from future lease rejections.

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The following table and discussion sets forth items from the Companys interim
condensed consolidated statements of operations as a percentage of revenues for
the periods indicated:

|                                                                                    |                                                                                                                          |  |                    |      |                   |  |                        |      |      |  |       |      |   |  |       |       |   
|----------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------ |  | ------------------ | ---- | ----------------- |  | ---------------------- | ---- | ---- |  | ----- | ---- | - |  | ----- | ----- | --
|                                                                                    |                                                                                                                          |  |                    |      |                   |  | Percentage of Revenues |      |      |  |      
|                                                                                    |                                                                                                                          |  | Three Months Ended |      | Nine Months Ended
|                                                                                    |                                                                                                                          |  | September 30,      |      | September 30,    
|                                                                                    |                                                                                                                          |  |                    |      |                  
|                                                                                    |                                                                                                                          |  | 2003               |      | 2002              |  | 2003                   |      | 2002
|                                                                                    |                                                                                                                          |  |                    |      |                   |  |                        |      |     
|Revenues                                                                            |                                                                                                                          |  | 100.0              | %    |                   |  | 100.0                  | %    |      |  | 100.0 | %    |   |  | 100.0 | %    
|Cost of sales and related services                                                  |                                                                                                                          |  | 20.7               |      |                   |  | 19.1                   |      |      |  | 20.9  |      |   |  | 19.9  |      
|Cost of rentals and other
revenues, including rental
equipment depreciation expense |                                                                                                                          |  | 11.4               |      |                   |  | 11.8                   |      |      |  | 10.8  |      |   |  | 11.0  |      
|Operating expenses, including bad
debt expense                                      |                                                                                                                          |  | 56.4               |      |                   |  | 58.3                   |      |      |  | 56.4  |      |   |  | 57.7  |      
|General and administrative                                                          |                                                                                                                          |  | 5.2                |      |                   |  | 4.7                    |      |      |  | 5.2   |      |   |  | 5.1   |      
|Earnings from unconsolidated
joint ventures                                         |                                                                                                                          |  | (1.2               | )    |                   |  | (1.3                   | )    |      |  | (1.4  | )    |   |  | (1.4  | )    
|Depreciation, excluding rental
equipment, and amortization
expense                  |                                                                                                                          |  | 1.1                |      |                   |  | 1.2                    |      |      |  | 1.1   |      |   |  | 1.3   |      
|Amortization of deferred
financing costs                                            |                                                                                                                          |  |                   |      |                   |  | 0.3                    |      |      |  |      |      |   |  | 0.7   |      
|Interest expense, net                                                               |                                                                                                                          |  | 5.1                |      |                   |  | 2.2                    |      |      |  | 1.7   |      |   |  | 5.0   |      
|Other (income) expense, net                                                         |                                                                                                                          |  | (0.4               | )    |                   |  | 0.9                    |      |      |  | (0.1  | )    |   |  | 0.2   |      
|Gain on sales of assets of centers                                                  |                                                                                                                          |  |                   |      |                   |  |                       |      |      |  |      |      |   |  | (0.3  | )    
|Chapter 11 financial advisory
expenses incurred prior to filing
bankruptcy          |                                                                                                                          |  |                   |      |                   |  | 0.6                    |      |      |  |      |      |   |  | 0.3   |      
|                                                                                    |                                                                                                                          |  |                    |      |                   |  |                        |      |      |  |       |      |   |  |       |      
|                                                                                    | Total expenses                                                                                                           |  |                    | 98.3 | %                 |  |                        | 97.8 | %    |  |       | 94.6 | % |  |       | 99.5  | % 
|                                                                                    |                                                                                                                          |  |                    |      |                   |  |                        |      |      |  |       |      |   |  |       |      
|                                                                                    | Income from operations
before reorganization
items,
income taxes and
cumulative effect of
change in accounting
principle |  |                    | 1.7  |                   |  |                        | 2.2  | %    |  |       | 5.4  |   |  |       | 0.5   | % 
|Reorganization items                                                                |                                                                                                                          |  | 1.1                |      |                   |  | 5.0                    |      |      |  | 1.5   |      |   |  | 1.6   |      
|Provision for (benefit from)
income taxes                                           |                                                                                                                          |  | 0.1                |      |                   |  | 0.1                    |      |      |  | 0.1   |      |   |  | (0.8  | )    
|Cumulative effect of change in
accounting principle                                 |                                                                                                                          |  |                   |      |                   |  |                       |      |      |  |      |      |   |  | (28.8 | )    
|                                                                                    |                                                                                                                          |  |                    |      |                   |  |                        |      |      |  |       |      |   |  |       |      
|                                                                                    | Net income (loss)                                                                                                        |  |                    | 0.5  | %                 |  |                        | (2.9 | )%   |  |       | 3.8  | % |  |       | (29.1 | )%
|                                                                                    |                                                                                                                          |  |                    |      |                   |  |                        |      |      |  |       |      |   |  |       |      

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Three Months Ended September 30, 2003 Compared to Three Months Ended September
30, 2002

Revenues.Revenues increased from $79.0 million for the quarter ended
September 30, 2002 to $83.9 million for the same period in 2003, an increase of
$4.9 million, or 6.2%. The increase in revenues is a result of the Companys
sales and marketing efforts. Following is a discussion of the components of
revenues:



| |  |  | Sales and Related Services Revenues.Sales and related services revenues
increased from $33.4 million for the quarter ended September 30, 2002 to
$36.6 million for the same period of 2003, an increase of $3.2 million,
or 9.6%.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Rentals and Other Revenues. Rentals and other revenues increased from
$45.6 million for the quarter ended September 30, 2002 to $47.3 million
for the same period in 2003, an increase of $1.7 million, or 3.7%.                 

Cost of Sales and Related Services. Cost of sales and related services
increased from $15.1 million for the quarter ended September 30, 2002 to $17.3
million for the same period in 2003, an increase of $2.2 million, or 14.6%. As
a percentage of sales and related services revenues, cost of sales and related
services increased from 45.2% for the quarter ended September 30, 2002 to 47.3%
for the same period in 2003. This increase is primarily attributable to
slightly lower gross margins on the Companys infusion sales in the current
quarter.

Cost of Rentals and Other Revenues. Cost of rentals and other revenues
increased from $9.3 million for the quarter ended September 30, 2002 to $9.6
million for the same period in 2003, an increase of $0.3 million, or 3.2%.
This increase is primarily attributable to a higher level of purchases of
oxygen and rental supplies associated with the Companys growth in rental
revenue. As a percentage of rentals and other revenue, cost of rentals and
other revenues decreased from 20.4% for the quarter ended September 30, 2002 to
20.3% for the same period in 2003.

Operating Expenses. Operating expenses increased from $46.1 million for the
quarter ended September 30, 2002 to $47.3 million for the same period in 2003,
an increase of $1.2 million, or 2.6%. This increase is primarily the result of
increased insurance expenses and higher personnel-related expenses. As a
percentage of revenues, operating expenses decreased from 58.3% to 56.4% for
the quarters ended September 30, 2002 and 2003, respectively.

General and Administrative Expenses. General and administrative expenses
increased from $3.7 million for the quarter ended September 30, 2002 to $4.3
million for the same period in 2003, an increase of $0.6 million, or 16.2%.
This increase is primarily the result of higher professional fees incurred in
the current quarter. As a percentage of revenues, general and administrative
expenses were 5.2% and 4.7% for the quarters ended September 30, 2003 and 2002,
respectively.

Earnings from Unconsolidated Joint Ventures. Earnings from unconsolidated
joint ventures remained unchanged at $1.0 million for the quarters ended
September 30, 2002 and September 30, 2003.

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Depreciation and Amortization. Depreciation (excluding rental equipment) and
amortization expenses decreased from $1.0 million for the quarter ended
September 30, 2002 to $0.9 million for the same period in 2003, a decrease of
$0.1 million, or 10.0%. This decrease primarily is attributable to certain
property and equipment becoming fully depreciated.

Amortization of Deferred Financing Costs. There was no amortization of
deferred financing costs in the quarter ended September 30, 2003 compared to
$0.2 million in the same quarter of 2002. This is attributable to the
cessation of finance cost amortization and the accelerated write-off of
deferred financing costs to reorganization items as of July 31, 2002 as a
result of the Bankruptcy Filing on July 31, 2002.

Interest Expense (Income), Net. Interest expense (income), net increased from
$1.7 million for the quarter ended September 30, 2002 to $4.3 million for the
same period in 2003. This change is attributable to the Company resuming its
obligation to record interest expense as a result of its emergence from
bankruptcy protection on July 1, 2003. Post-petition interest excluded from
the statements of operations for the three months ended September 30, 2002, of
$5.1 million, represents the default rate of interest pursuant to the terms
described in the Amended Credit Agreement. Interest income for the
three months ended September 30, 2003 and 2002 was $0.1 million.

Other (Income) Expense, Net. Other (income) expense, net primarily relates to
investment losses or gains associated with collateral interest in split dollar
life insurance policies. A loss of $0.7 million was recorded in the quarter
ended September 30, 2002 compared to income of $0.4 million for the same period
in 2003.

Chapter 11 Financial Advisory Expenses Incurred Prior to Filing Bankruptcy.In
the quarter ended September 30, 2002 the Company incurred $504,000 related to
financial advisory and legal services in preparation of a possible Chapter 11
filing due to the Companys December 2002 debt maturity. No such fees were
incurred in the same quarter of 2003.

Provision for Income Taxes. The provision for income taxes remained unchanged
at $100,000 for the quarters ended September 30, 2002 and September 30, 2003.
The provision is for income subject to state taxes.

Nine Months Ended September 30, 2003 Compared to Nine Months Ended September
30, 2002

The results of operations between 2002 and 2003 are impacted by the asset sale
of an infusion center in the first quarter of 2002.

Revenues.Revenues increased from $237.9 million for the nine months ended
September 30, 2002 to $249.2 million for the same period in 2003, an increase
of $11.3 million, or 4.8%. In March of 2002, the Company sold substantially
all of the assets of an infusion center, which contributed $1.9 million in
revenue during the first quarter of 2002. Excluding the revenues of the sold
center in the first quarter of 2002, same-location revenues for the nine months
of 2003 increased $13.2 million, or 5.6%. The increase in revenues is
attributable to the Companys sales and marketing efforts. Following is a
discussion of the components of revenues:

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| |  | Sales and Related Services Revenues. Sales and related services revenues
increased from $102.0 million for the nine months ended September 30,
2002 to $109.2 million for the same period in 2003, an increase of $7.2
million, or 7.1%. Excluding $1.9 million of sales and related services
revenues of the sold center in the first quarter of 2002, same-location
sales and related services revenues for the nine months of 2003 increased
$9.1 million, or 9.1%.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Rentals and Other Revenues. Rentals and other revenues increased from
$135.9 million for the nine months ended September 30, 2002 to $140.0
million for the same period in 2003, an increase of $4.1 million, or
3.0%.                                                                                                                                                                                                                                                

Cost of Sales and Related Services. Cost of sales and related services
increased from $47.2 million for the nine months ended September 30, 2002 to
$52.1 million for the same period in 2003, an increase of $4.9 million, or
10.4%. As a percentage of sales and related services revenues, cost of sales
and related services increased from 46.2% for the nine months ended September
30, 2002 to 47.7% for the same period in 2003. This increase is primarily
attributable to a greater level of rental equipment items converted to sales
transactions in the current year period. A rental that is converted to a sale
typically has a high cost of sales component on the sale portion of the
transaction due to the limited sales proceeds paid by the payor.

Cost of Rentals and Other Revenues.Cost of rentals and other revenues
increased from $26.1 million for the nine months ended September 30, 2002 to
$27.0 million for the same period in 2003, an increase of $0.9 million, or
3.5%. This increase is primarily the result of a higher level of rental
equipment depreciation and a higher level of purchases of oxygen and rental
supplies associated with the Companys growth in rental revenue. As a
percentage of rentals and other revenue, cost of rentals and other revenues
were 19.2% and 19.3% for the nine months ended September 30, 2002 and 2003,
respectively.

Operating Expenses. Operating expenses increased from $137.3 million for the
nine months ended September 30, 2002 to $140.6 million for the same period in
2003, an increase of $3.3 million, or 2.4%. This increase is primarily the
result of increased insurance expenses and higher personnel-related expenses.
Bad debt expense was 4.0% of revenue for the nine months ended September 30,
2002 compared to 3.3% of revenue for the same period in 2003. The decrease
primarily is the result of operational improvements and processing efficiencies
at the Companys billing centers.

General and Administrative Expenses. General and administrative expenses
increased from $12.1 million for the nine months ended September 30, 2002 to
$13.0 million for the same period in 2003, an increase of $0.9 million, or
7.4%. This increase is primarily the result of higher professional fees. As a
percentage of revenues, general and administrative expenses were 5.1% and 5.2%
for the nine months ended September 30, 2002 and 2003, respectively.

Earnings from Unconsolidated Joint Ventures.Earnings from unconsolidated
joint ventures remained unchanged at $3.4 million for the nine months ended
September 30, 2002 and 2003.

Depreciation and Amortization. Depreciation (excluding rental equipment) and
amortization expenses decreased from $3.1 million for the nine months ended
September 30, 2002 to $2.7

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million for the same period in 2003, a decrease of $0.4 million, or 12.9%.
This decrease is primarily attributable to certain property and equipment
becoming fully depreciated.

Amortization of Deferred Financing Costs.There was no amortization of
deferred financing costs for the nine months ended September 30, 2003 compared
to $1.8 million in the same period of 2002. This is attributable to the
cessation of finance cost amortization and the accelerated write-off of
deferred financing costs to reorganization items as of July 31, 2002 as a
result of the Bankruptcy Filing on July 31, 2002.

Interest Expense (Income), Net. Interest expense (income), net changed from
$11.9 million for the nine months ended September 30, 2002 to $4.2 million for
the same period in 2003. This change is attributable to the Company ceasing to
record interest expense as a result of the Bankruptcy Filing on July 31, 2002.
The Company resumed its obligation to record interest expense as a result of
its emergence from bankruptcy protection on July 1, 2003. Post-petition
interest excluded from the statements of operations for the nine months ended
September 30, 2003 and 2002, of $12.5 million and $5.1 million, respectively,
represents the default rate of interest pursuant to the terms described in the
Amended Credit Agreement. Interest income for the nine months ended
September 30, 2003 and 2002 was $0.3 million and $0.2 million, respectively.

Other (Income) Expense, Net.Other (income) expense, net primarily relates to
investment losses or gains associated with collateral interest in split dollar
life insurance policies. Other expense was $0.6 million for the nine month
period ended September 30, 2002 compared to $0.3 million of other income for
the same period in 2003.

Gain on Sales of Assets of Centers.In the first quarter of 2002, the Company
recorded a gain of $0.7 million on the sale of the assets of an infusion
business and nursing agency.

Chapter 11 Financial Advisory Expenses Incurred Prior to Filing Bankruptcy.In
the nine months ended September 30, 2002 the Company incurred $818,000 related
to financial advisory and legal services in preparation of a possible Chapter
11 filing due to the Companys December 2002 debt maturity.

Provision for (Benefit from) Income Taxes.The provision for (benefit from)
income taxes was $(1.8) million for the nine months ended September 30, 2002
compared to $0.3 million for the nine months ended September 30, 2003. The
benefit recorded in 2002 was the result of the enactment of the Job Creation
and Workers Assistance Act of 2002. The provision in 2003 is for income
subject to state taxes.

Liquidity and Capital Resources

At September 30, 2003, the Company had current assets of $91.8 million and
current liabilities of $55.8 million, resulting in working capital of $36.0
million and current ratio of 1.6x as compared to a working capital of $67.1
million and a current ratio of 3.2x at December 31, 2002.

On July 1, 2003, the Companys Approved Plan became effective and the Company
successfully emerged from bankruptcy protection. The Approved Plan provides
for periodic payments of principal and interest to the Lenders and the
unsecured creditors.

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The Approved Plan provides that interest is payable monthly on the $250 million
secured debt at a rate of 6.785% per annum.

The Approved Plan provides that principal is payable annually on the $250
million secured debt on March 31 of each year, beginning March 31, 2005, in the
amount of one third of the Companys Excess Cash Flow (as defined in the
Approved Plan) for the previous fiscal year. After the unsecured debt of the
Lenders and the general unsecured debt is paid in full, 100% of the Companys
Excess Cash Flow is paid on the $250 million secured debt on March 31 of each
year. On September 30 of each year, beginning September 30, 2004, the Approved
Plan provides that the Company make an estimated payment of the amount due on
March 31, based upon the Companys current cash forecast. The maturity date of
the $250 million secured debt is July 1, 2009. The Approved Plan provides that
interest is payable monthly on the $250 million secured debt at a rate of
6.785% per annum.

The Approved Plan provides that the Lenders are paid on their unsecured debt
semi-annually in six equal installments (on June 30 and December 31 of each
year) beginning December 31, 2003. In addition to the scheduled payments
referenced above, the Lenders (together with the holders of the general
unsecured debt) also receive a payment on March 31, 2004 in the amount of 100%
of the Companys Excess Cash Flow for fiscal year 2003 and a payment on March
31, 2005 in the amount of two-thirds of the Companys Excess Cash Flow for the
previous fiscal year. These payments are defined as Pro Rata Payments in the
Approved Plan. Additionally, an estimated prepayment of the Pro Rata Payment
was due on September 30, 2003 and will be due on September 30, 2004 in an
amount equal to one-half of the anticipated Pro Rata Payment for each fiscal
year. Prior to emergence from bankruptcy protection, the Company made adequate
protection payments to the Lenders totaling approximately $15.8 million. These
payments will be applied to the Lenders unsecured debt. The Company made
prepayments (including prepayment of the Pro Rata Payment due September 30,
2003) of $14.4 million during the nine months ended September 30, 2003 by the
application of $14.4 million of the adequate protection payments previously
made to the Lenders. The Approved Plan allows the Company to make prepayments
to the Lenders on the Lender unsecured debt, either in whole or in part, at any
time without penalty. Any partial prepayments shall reduce and be a credit
against any mandatory payments coming due after the time of the prepayment.
The maturity date of the Lenders unsecured debt is June 30, 2006. The
Approved Plan provides that interest is payable on the Lenders unsecured debt
at a rate of 8.3675% per annum.

The Approved Plan provides that the holders of general unsecured debt are paid
semi-annually in six equal installments (on June 30 and December 31 of each
year) beginning December 31, 2003. In addition to the scheduled payments
referenced above, the holders of the general unsecured debt (together with the
Lenders as to the Lender unsecured debt) and also receive a payment on March
31, 2004 in the amount of 100% of the Companys Excess Cash Flow for fiscal
year 2003 and a payment on March 31, 2005 in the amount of two thirds of the
Companys Excess Cash Flow for the previous fiscal year. These payments are
defined as Pro Rata Payments in the Approved Plan. Additionally, an estimated
prepayment of the Pro Rata Payment is due on September 30, 2003 and September
30, 2004 in an amount equal to one-half of the anticipated Pro Rata Payment for
each fiscal year. The Company made prepayments of $7.7 million (including
prepayment of the Pro Rata Payment due September 30, 2003) during the nine
months ended September 30, 2003 to the holders of the general unsecured debt.
The Approved Plan allows the Company to make prepayments to the holders of the
general unsecured debt, either in

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whole or in part, at any time without penalty. Any partial prepayments shall
reduce and be a credit against any mandatory payments coming due after the time
of the prepayment. The maturity date of the general unsecured debt is June 30,
2006. The Approved Plan provides that interest is payable on the general
unsecured debt at a rate of 8.3675% per annum.

The Approved Plan treated all unsecured claims totaling less than $10,000
separately from the general unsecured claims. On July 1, 2003, the Company
paid, in full, all such unsecured claims.

The Companys funding of day-to-day operations going forward and all payments
required under the Approved Plan will rely on cash flow and cash on hand as it
has since the Lenders terminated the Companys ability to access a revolving
line of credit in 2000. At September 30, 2003 the Company had cash and cash
equivalents of approximately $14.9 million after giving effect to the payments
described above.

As a reorganization value of the assets of the Company immediately before
confirmation date is greater than the total of all post petition liabilities
and allowed claims and the holders of the existing voting shares immediately
before the confirmation received more than 50% of the voting shares of the
Company, it did not apply the provisions of SOP 90-7 for fresh-start reporting.
Upon emergence from bankruptcy protection on July 1, 2003, and prior to the
application of payments made on July 1, 2003, approximately $30,552,000 and
$284,039,000 of the total liabilities subject to compromise (which was
$298,797,000 at June 30, 2003) were classified as current and non-current,
respectively, and were offset by a current asset of $9,568,000 and a
non-current asset of $6,226,000.

The Company has made all payments due under the Approved Plan as of September
30, 2003, and has pre-paid some of its future obligations.

The Company was required to issue warrants to the Lenders representing 19.999%
of the common stock of the Company issued and outstanding as of March 31, 2001,
pursuant to the terms of the Second Amendment to the Fourth Amended and
Restated Credit Agreement (which amendment was entered into on April 14, 1999).
To fulfill these obligations, warrants to purchase 3,265,315 shares of common
stock were issued to the Lenders on June 8, 2001. Fifty percent of these
warrants are exercisable until May 31, 2011, and the remaining fifty percent
are exercisable until September 29, 2011. The exercise price of the warrants
is $0.01 per share. The Company accounted for the fair value of these warrants
during the fourth quarter of 2000 as the issuance of these warrants was
determined to be probable. As such, the Company increased deferred financing
costs by $686,000 to recognize the estimated fair value of the warrants as of
December 31, 2000. On July 11, 2003, the Company filed a motion with the
Bankruptcy Court seeking approval to reject these warrants as executory
contracts. Several warrant holders objected to this motion, and a hearing has
been scheduled in the Bankruptcy Court for November 21, 2003 with respect to
these issues. If the warrants ultimately are rejected, then the holders of the
rejected warrants may have an unsecured claim against the Company.

The accompanying interim condensed consolidated financial statements have been
prepared on a going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business.
Accordingly, these interim condensed consolidated financial statements do not
reflect any adjustments that might result if the Company is unable to continue
as a going concern. The Company had net income of $426,000 and $9,283,000 for
the three and

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nine months ended September 30, 2003, respectively and incurred net losses of
$2,404,000, $69,345,000 and $61,154,000 for the three and nine months ended
September 30, 2002 and the year ended December 31, 2002, respectively. The
Company has a shareholders deficit of $38,311,000 at September 30, 2003.

Reorganization items represent expenses that are incurred by the Company as a
result of reorganization under Chapter 11 of the Federal Bankruptcy Code.
Reorganization items for the three and nine months ended September 30, 2003
were $920,000 and $3,776,000, respectively, and are comprised primarily of
professional fees.

The Companys principal cash requirements are for working capital, capital
expenditures and debt service. The Company has met and intends to continue to
meet these requirements with existing cash balances, net cash provided by
operations and other available capital expenditure financing vehicles.

Management intends to improve financial performance through stabilizing and
increasing profitable revenues, decreasing and controlling expenses and
improving accounts receivable performance. Managements cash flow projections
and related operating plans indicate that the Company can operate on its
existing cash and cash flow and make all payments provided for in its Plan.
The Company has operated in this manner since the Bankruptcy Filing. However,
as with all projections, there can be no guarantee that managements
projections will be achieved.

These matters among others raised substantial doubt as of December 31, 2002,
about the Companys ability to continue as a going concern. The accompanying
financial statements do not include any adjustments of recorded asset carrying
amounts or the amounts and classification of liabilities that might result
should the Company be unable to continue as a going concern.

The Companys future liquidity will continue to be dependent upon the relative
amounts of current assets (principally cash, accounts receivable and
inventories) and current liabilities (principally accounts payable and accrued
expenses). In that regard, accounts receivable can have a significant impact
on the Companys liquidity. The Company has various types of accounts
receivable, such as receivables from patients, contracts, and former owners of
acquisitions. The majority of the Companys accounts receivable are patient
receivables. Accounts receivable are generally outstanding for longer periods
of time in the health care industry than many other industries because of
requirements to provide third-party payors with additional information
subsequent to billing and the time required by such payors to process claims.
Certain accounts receivable frequently are outstanding for more than 90 days,
particularly where the account receivable relates to services for a patient
receiving a new medical therapy or covered by private insurance or Medicaid.
Net patient accounts receivable were $56.6 million and $55.4 million at
September 30, 2003 and December 31, 2002, respectively. Average days sales in
accounts receivable (DSO) was approximately 61 days at September 30, 2003 and
December 31, 2002. The Company calculates DSO by dividing the previous 90 days
of revenue (excluding dispositions and acquisitions), net of bad debt expense
into net patient accounts receivable and multiplying the ratio by 90 days. The
Companys level of DSO and net patient receivables is affected by the extended
time required to obtain necessary billing documentation.

Net cash provided by operating activities was $19.7 million and $35.8 million
for the nine months ended September 30, 2003 and 2002, respectively. This
decrease of $16.1 million is

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primarily due to the Companys payment of interest and pre-petition liabilities
in the third quarter of 2003. Income before cumulative effect of change in
accounting principle increased from $(0.9) million for the nine months ended
September 30, 2002 to $9.3 million for the nine months ended September 30,
2003. This increase of $10.2 million is primarily the result of increased
revenue and lower bad debt, amortization, and interest expenses. In addition,
this increase was partially offset by changes in accounts receivable;
inventories; prepaid expenses and other current assets; accounts payable, other
payables and accrued expenses; other assets and liabilities; and other
noncurrent liabilities increased cash provided by operating activities. These
items used cash of $5.5 million for the nine months ended September 30, 2003,
while these same items provided cash of $17.7 million for the same period in
2002. Net cash provided by reorganization items totaled $0.2 million for the
nine months ended September 30, 2003. Reorganization items consist primarily
of professional fees. Net cash used in investing activities was $18.9 million
and $15.5 million for the nine months ended September 30, 2003 and 2002,
respectively. Additions to property and equipment, net were $21.5 million for
the nine months ended September 30, 2003 compared to $19.8 million for the same
period in 2002, and proceeds from the sales of assets of centers contributed
$1.8 million for the nine months ended September 30, 2002. Net cash used in
financing activities was $8.8 million and $6.1 million for the nine months
ended September 30, 2003 and 2002, respectively. The cash used in financing
activities for the nine months ended September 30, 2003 primarily relates to
adequate protection payments to the Lenders of $7.8 million. For the nine
months ended September 30, 2002 cash used in financing activities primarily
relates to principal payments on debt of $6.1 million. At September 30, 2003
the Company had cash and cash equivalents of approximately $14.9 million.

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Future Cash Commitments

The Companys total contractual obligations and commitments as of and from
September 30, 2003 are summarized as follows:

|                                                  |  |       |             |        |  |        |            |        |  |        |            |                     |  |   |            |  |  |   |           |  |  |   |             | 
|------------------------------------------------- |  | ----- | ----------- | ------ |  | ------ | ---------- | ------ |  | ------ | ---------- | ------------------- |  | - | ---------- |  |  | - | --------- |  |  | - | ----------- | 
|                                                  |  | Total |             | Year 1 |  | Year 2 |            | Year 3 |  | Year 4 |            | Year 5 & thereafter
|                                                  |  |       |             |        |  |        |            |        |  |        |            |                    
|Long-term debt                                    |  | $     | 266,077,000 |        |  | $      | 5,862,000  |        |  | $      | 9,607,000  |                     |  | $ | 37,000     |  |  | $ | 37,000    |  |  | $ | 250,534,000 | 
|Adequate
protection payments                      |  |       | (2,196,000  | )      |  |        | (2,196,000 | )      |  |        |           |                     |  |   |           |  |  |   |          |  |  |   |            | 
|Accrued interest on
long-term debt                |  |       | 1,958,000   |        |  |        | 1,958,000  |        |  |        |           |                     |  |   |           |  |  |   |          |  |  |   |            | 
|Pre-petition
accounts payable                     |  |       | 8,615,000   |        |  |        | 2,716,000  |        |  |        | 5,432,000  |                     |  |   | 467,000    |  |  |   |          |  |  |   |            | 
|Accrued interest on
pre-petition
accounts payable |  |       | 291,000     |        |  |        | 291,000    |        |  |        |           |                     |  |   |           |  |  |   |          |  |  |   |            | 
|OIG settlement                                    |  |       | 4,000,000   |        |  |        | 500,000    |        |  |        | 1,500,000  |                     |  |   | 2,000,000  |  |  |   |          |  |  |   |            | 
|Accrued interest on
OIG settlement                |  |       | 358,000     |        |  |        | 358,000    |        |  |        |           |                     |  |   |           |  |  |   |          |  |  |   |            | 
|Operating
lease obligations                       |  |       | 35,433,000  |        |  |        | 12,477,000 |        |  |        | 9,227,000  |                     |  |   | 9,227,000  |  |  |   | 3,577,000 |  |  |   | 925,000     | 
|                                                  |  |       |             |        |  |        |            |        |  |        |            |                     |  |   |            |  |  |   |           |  |  |   |             | 
|Total contractual
cash obligations                |  | $     | 314,536,000 |        |  | $      | 21,966,000 |        |  | $      | 25,766,000 |                     |  | $ | 11,731,000 |  |  | $ | 3,614,000 |  |  | $ | 251,459,000 | 
|                                                  |  |       |             |        |  |        |            |        |  |        |            |                     |  |   |            |  |  |   |           |  |  |   |             | 

In addition to the scheduled cash payments above, the Company is obligated to
make excess cash payments on the Lenders secured and unsecured debt as well as
the pre-petition accounts payable as defined by the Approved Plan. As these
payments will be based on excess cash (as defined by the Approved
Plan)
at future dates, the Company is not able
to project the amounts of these payments. As such, the $250 million secured
debt, which is all classified in the year 5 and thereafter column per the table
above, will likely require principal payments in years 2, 3, and 4.
The operating lease obligations presented use information available
as of December 31, 2002.

Risk Factors

This section summarizes certain risks, among others, that should be considered
by stockholders and prospective investors in the Company.

Medicare Reimbursement for Oxygen Therapy and Other Services.The Company
has been affected by previous cuts in Medicare reimbursement rates for oxygen
therapy and other services. Additional reimbursement reductions for oxygen
therapy services or other services and products provided by the Company could
occur. Currently proposed changes in reimbursement for unit dose aerosol
medications, if enacted will adversely affect the Companys revenues and
profitability and could be material. A proposed OIG plan to address excessive
claims, if enacted, could have a material adverse effect on the Companys
results of operations. Reimbursement reductions already implemented have
materially adversely affected the Companys revenues and net income, and any
such future reductions could have a similar material adverse effect.

See Managements Discussion and Analysis of Financial Condition and Results of
Operations  Medicare Reimbursement for Oxygen Therapy Services.

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Dependence on Reimbursement by Third-Party Payors.For the nine months
ended September 30, 2003, the percentage of the Companys revenues derived from
Medicare, Medicaid and private pay was 52%, 9% and 39%, respectively. The
revenues and profitability of the Company may be impacted by the efforts of
payors to contain or reduce the costs of health care by lowering reimbursement
rates, narrowing the scope of covered services, capping payment for certain
items, decreasing frequency of payment for certain items, and negotiating
reduced contract pricing. Reductions in reimbursement levels under Medicare,
Medicaid or private pay programs and any changes in applicable government
regulations could have a material adverse effect on the Companys revenues and
net income. Changes in the mix of the Companys patients among Medicare,
Medicaid and private pay categories and among different types of private pay
sources may also affect the Companys revenues and profitability. There can be
no assurance that the Company will continue to maintain its current payor or
revenue mix. See Managements Discussion and Analysis of Financial Condition
and Results of Operations  Critical Accounting Policies  Revenue Recognition
and Allowance for Doubtful Accounts.

Collectibility of Accounts Receivable.The Company has substantial
accounts receivable, as well as DSO of 61 days as of September 30, 2003. No
assurances can be given that future bad debt expense will not increase above
current operating levels as a result of difficulties associated with the
Companys billing activities and meeting payor documentation requirements and
claim submission deadlines. Increased bad debt expense or delays in collecting
accounts receivable could have a material adverse effect on cash flows and
results of operations. See Managements Discussion and Analysis of Financial
Condition and Results of Operations  Critical Accounting Policies  Revenue
Recognition and Allowance for Doubtful Accounts.

Substantial Leverage.The Company maintains a significant amount of debt.
Indebtedness to the Lenders totals approximately $272.3 million as of September
30, 2003. Under the Approved Plan, a substantial portion of the Companys cash
flow from operations will be dedicated to repaying debt. The Companys funding
of day-to-day operations going forward and of all payments required under the
Approved Plan will rely on cash flow and cash on hand. If the Company is
unable to generate sufficient cash flow to meet these obligations, it likely
would have a material adverse effect on the Company and its ability to continue
as a going concern. The substantial leverage could adversely affect the
Companys ability to grow its business or to withstand adverse economic
conditions or competitive pressures. See Note 3 to the interim condensed
consolidated financial statements Proceedings Under Chapter 11 of the
Bankruptcy Code.

Bankruptcy Appeal. On July 1, 2003, the Approved Plan became effective
and the Company successfully emerged from bankruptcy protection. The Lenders
filed an appeal of the order confirming the Approved Plan to the United States
District Court. That court affirmed the order confirming the Approved Plan on
September 12, 2003. On October 14, 2003, the Lenders filed a notice of appeal
to the United States Court of Appeals for the Sixth Circuit. That appeal is
pending. If the appeal is successful, it could have a material adverse effect
on the Company and its ability to continue as a going concern. See Note 3 to
the interim condensed consolidated financial statements Proceedings Under
Chapter 11 of the Bankruptcy Code.

HIPAA Compliance.The Companys HIPAA compliance plan will require
modifications to existing information management systems and physical security
mechanisms, and may require

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additional personnel as well as extensive training of existing personnel, the
full cost of which has not yet been determined. The Company cannot predict the
impact that the HIPAA Transaction and Code Set Standards, when fully
implemented, will have on operations. The Companys implementation of mandated
HIPAA Transaction and Code Sets has resulted in disruptions to cash
collections, and additional disruptions may occur in the future. Further, the
Company cannot predict whether all payors and clearinghouses will be fully
HIPAA Transaction compliant and able to process electronic claims by the final
implementation deadline. Alternative methods of claims submission may be
required, possibly resulting in delay in payment, which could have a material
adverse effect on the Companys results of operations, cash flow, and financial
condition.

Government Regulation.The Company is subject to extensive and frequently
changing federal, state and local regulation. In addition, new laws and
regulations are adopted periodically to regulate products and services in the
health care industry. Changes in laws or regulations or new interpretations of
existing laws or regulations can have a dramatic effect on operating methods,
costs and reimbursement amounts provided by government and other third-party
payors. There can be no assurance that the Company is in compliance with all
applicable existing laws and regulations or that the Company will be able to
comply with any new laws or regulations that may be enacted in the future.
Changes in applicable laws, any failure by the Company to comply with existing
or future laws, regulations or standards, or discovery of past regulatory
noncompliance by the Company could have a material adverse effect on the
Companys results of operations, financial condition, business or prospects.
See Managements Discussion and Analysis of Financial Condition and Results of
Operations  Government Regulation.

Government Investigations and Federal False Claims Act Cases.In addition
to the regulatory initiatives mentioned above, the OIG has received funding to
expand and intensify its auditing of the health care industry in an effort to
better detect and remedy errors in Medicare and Medicaid billing. There can be
no assurances as to the final outcome of any pending False Claims Act lawsuits
against the Company or any lawsuits that may be filed in the future. Possible
outcomes include, among other things, the repayment of reimbursements
previously received by the Company related to billed claims found to be
improper, the imposition of fines or penalties, and the
suspension or exclusion of the Company from participation in the Medicare,
Medicaid and other government reimbursement programs. The outcome of any of
the pending lawsuits could have a material adverse effect on the Company. See
Managements Discussion and Analysis of Financial Condition and Results of
Operations  Government Regulation.

Shareholders Liquidity.Effective at the close of business on September
1, 1999, Nasdaq de-listed the Companys common stock and it is no longer listed
for trading on the Nasdaq National Market. The Companys common stock now
trades on the OTC or, on application by broker-dealers, in the NASDs
Electronic Bulletin Board using the Companys current trading symbol, AHOM.
The liquidity of the Companys common stock and its price have been adversely
affected by the trading status of its common stock, which may limit the
Companys ability to raise additional capital and the ability of shareholders
to sell their shares.

Role of Managed Care.As managed care assumes an increasingly significant
role in markets in which the Company operates, the Companys success will, in
part, depend on retaining and obtaining profitable managed care contracts.
There can be no assurance that the

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Company will retain or obtain such managed care contracts. In addition, reimbursement
rates under managed care contracts are likely to continue to experience
downward pressure as a result of payors efforts to contain or reduce the costs
of health care by narrowing the scope of covered services, capping payment for
certain items, decreasing frequency of payment for certain items, and
negotiating reduced contract pricing. Therefore, even if the Company is
successful in retaining and obtaining managed care contracts, unless the
Company also decreases its cost for providing services and increases higher
margin services, it will experience declining profitability.

Health Care Initiatives.The health care industry continues to undergo
dramatic changes influenced in larger part by federal legislative initiatives.
Under the Bush administration, new federal health care initiatives may be
launched. For example, adding a prescription drug benefit to Medicare, a
patients bill of rights, providing an array of protections for managed care
patients, changes to Medicare funding and reimbursement, strengthening
regulations on excessive payments, and increased scrutiny of billing practices
are a few of the initiatives currently under discussion, formally proposed, or
being implemented. There can be no assurance that these or other federal
legislative and regulatory initiatives will not be adopted in the future. It
is also possible that proposed federal legislation will include language that
provides incentives to further encourage Medicare recipients to shift to
Medicare at-risk managed care programs, potentially limiting patient access to,
and reimbursement for, products and services provided by the Company. Some
states are adopting health care programs and initiatives as a replacement for
Medicaid. There can be no assurance that the adoption of such legislation or
other changes in the administration or interpretation of government health care
programs or initiatives will not have a material adverse effect on the Company.

Ability to Attract and Retain Management.The Company is highly dependent
upon its senior management, and competition for qualified management personnel
is intense. Any limit on the Companys ability to attract and retain qualified
personnel could adversely affect profitability.

Competition.The home health care market is highly fragmented and
competition varies significantly from market to market. In the small and
mid-size markets in which the Company primarily operates, the majority of its
competition comes from local independent operators or hospital-based
facilities, whose primary competitive advantage is market familiarity. In the
larger markets, regional and national providers account for a significant
portion of competition. Some of the Companys present and potential competitors
are significantly larger than the Company and have, or may obtain, greater
financial and marketing resources than the Company. In addition, there are
relatively few barriers to entry in the local markets served by the Company,
and it encounters substantial competition from new market entrants.

Liability and Adequacy of Insurance.The provision of health care
services entails an inherent risk of liability. Certain participants in the
home health care industry may be subject to lawsuits that may involve large
claims and significant defense costs. It is expected that the Company
periodically will be subject to such suits as a result of the nature of its
business. The Company currently maintains product and professional liability
insurance intended to cover such claims in amounts which management believes
are in keeping with industry standards. There can be no assurance that the
Company will be able to obtain liability insurance coverage in the future on
acceptable terms, if at all. There can be no assurance that claims in excess
of the Companys insurance coverage will not arise. A successful claim against
the Company in excess of the

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Companys insurance coverage could have a material adverse effect upon the
results of operations, financial condition or prospects of the Company. Claims
against the Company, regardless of their merit or eventual outcome, may also
have a material adverse effect upon the Companys ability to attract patients
or to expand its business. In addition, the Company is self-insured for its
workers compensation insurance and employee health insurance and is at risk
for claims up to individual stop loss and aggregate stop loss amounts.

Recent Accounting Pronouncements

In January, 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities (FIN No. 46). This Interpretation requires
consolidation of variable interest entities (VIE) (formerly referred to as
special purpose entities) if certain conditions are met. The Interpretation
applies immediately to VIEs created after January 31, 2003, and to variable
interests obtained in VIEs after January 31, 2003. Effective with the quarter
beginning July 1, 2003, the Interpretation applies also to VIEs created or
variable interests obtained in VIEs before January 31, 2003. The Companys
adoption of the applicable provisions of this Interpretation did not have an impact on its financial position or results of operations. The
Company does not expect the adoption of the remaining provisions of this
Interpretation to have an impact on its financial position or results
of operations based on current interpretations.

On May 15, 2003, the Financial Accounting Standards Board issued Statement No.
150, Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity (SFAS No. 150). The Statement requires issuers to
classify as liabilities (or assets in some circumstance) three classes of
freestanding financial instruments that embody obligations for the issuer.
Generally, the Statement is effective for financial instruments entered into or
modified after May 31, 2003 and is otherwise effective at the beginning of the
first interim period beginning after June 15, 2003. The Company adopted the
provisions of the Statement on July 1, 2003. The Company did not enter into
any financial instruments within the scope of the Statement during June 2003,
nor did it have existing arrangements that required changes in accounting
treatment.

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ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Prior to the Bankruptcy Filing, the chief market risk factor affecting the
financial condition and operating results of the Company was interest rate
risk. The Companys Bank Credit Facility provided for a floating interest
rate. The Company was not required to pay interest during its bankruptcy
proceedings. The Approved Plan provides for a fixed interest rate for both the
$250 million secured debt and the Companys unsecured debt. Interest expense
associated with other debts would not materially impact the Company as most
interest rates are fixed.




ITEM 4  CONTROLS AND PROCEDURES

An evaluation was performed under the supervision and with the participation of
the Companys management, including the CEO and CFO, of the effectiveness of
the design and operation of the Companys disclosure controls and procedures as
of September 30, 2003. Based on that evaluation, the Companys management,
including the CEO and CFO, concluded that the Companys disclosure controls and
procedures were adequate. During the fiscal quarter ended September 30, 2003,
there has not occurred any change in the Companys internal control over
financial reporting that has materially affected, or is reasonably likely to
materially affect, the Companys internal control over financial reporting.

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Independent Accountants Review Report

The Board of Directors and Shareholders
American HomePatient, Inc.:

We have reviewed the interim condensed consolidated balance sheet of American
HomePatient, Inc. and subsidiaries (the Company) as of September 30, 2003, the
related interim condensed consolidated statements of operations for the
three-month and nine-month periods ended September 30, 2003, and the related
interim condensed consolidated statement of cash flows for the nine-month
period ended September 30, 2003. These interim condensed consolidated
financial statements are the responsibility of the Companys management.

We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should
be made to the interim condensed consolidated financial statements referred to
above for them to be in conformity with accounting principles generally
accepted in the United States of America.

The consolidated financial statements of the Company as of and for the year
ended December 31, 2002, were audited by other accountants whose report dated
March 20, 2003, expressed an unqualified opinion on those consolidated
financial statements and included explanatory paragraphs relating to the
Company restating its 2001 financial statements; the Company changing its
method of accounting for goodwill and other intangible assets by adopting
Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets, effective July 1, 2002; the Companys bankruptcy
reorganization; and the Companys ability to continue as a going concern. Such
consolidated financial statements were not audited by us and, accordingly, we
do not express an opinion or any form of assurance on the information set forth
in the accompanying condensed consolidated balance sheet as of December 31,
2002. Additionally, the interim condensed consolidated statements of
operations for the three-month and nine-month periods ended September 30, 2002,
and the related interim condensed consolidated statement of cash flows for the
nine-month period ended September 30, 2002, were not reviewed or audited by us,
and accordingly, we do not express an opinion or any form of assurance on them.

Note 2 and 3 of the Companys audited financial statements as of December 31,
2002 and for the years then ended disclose that the Company filed voluntary
petitions for relief to reorganize under Chapter 11 of the U.S. Bankruptcy
Code. The auditors report by the

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other accountants on these financial statements dated March 20, 2003 includes
an explanatory paragraph referring to the matters in Notes 2 and 3 of those
financial statements, and indicates that these matters raised substantial doubt
about the Companys ability to continue as a going concern. As indicated in
Notes 3 and 6 of the Companys unaudited interim condensed consolidated
financial statements as of September 30, 2003, and for the three and nine
months then ended, the Company emerged from bankruptcy protection on July 1,
2003 under a plan of reorganization approved by the bankruptcy court on May 27,
2003 (Approved Plan). The pre-petition lenders have filed an appeal to the
order confirming the Approved Plan with the United States Court of Appeals for
the Sixth Circuit. Under this Approved Plan, the Company will continue to be
highly leveraged and subject to substantial debt service requirements. The
Company is unable to predict whether it will be able to execute the operational
results contemplated by the Approved Plan to meet the debt service requirements
of the Approved Plan. The accompanying interim condensed consolidated
financial information does not include any adjustments that might result from
the outcome of these uncertainties.

|                                       |  |         
|-------------------------------------- |  | --------
|                                       |  | KPMG LLP
|                                       |  |         
|Nashville, Tennessee
November 14, 2003 |  |         

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PART II. OTHER INFORMATION




ITEM 1  LEGAL PROCEEDINGS

A description of the Chapter 11 Cases is set forth in Note 3 to the Companys
interim condensed consolidated financial statements contained in this Report
and is incorporated herein by reference. All of the civil legal proceedings
against the Company were stayed by the Bankruptcy Filing. A summary of the
Companys material legal proceedings that existed as of the Bankruptcy Filing
is set forth in Managements Discussion and Analysis of Financial Condition
and Results of Operations  Government Regulation  Legal Proceedings.




ITEM 5  OTHER INFORMATION

On October 14, 2003, the Company filed a current report on Form 8-K to
disclose, under Item 4, a change to the Companys independent accountants from
Deloitte & Touche, LLP to KPMG, LLP.




ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K



|(A) |  | Exhibits. The exhibits filed as part of this Report are listed on the
Index to Exhibits immediately following the signature page.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------
|   
|(B) |  | Reports on Form 8-K. The Company filed the following reports on Form 8-K
during the quarterly period ended September 30, 2003:   



| | 1) |  | A current report on Form 8-K was filed on July 2, 2003 to
disclose, under Item 5, the Companys press release announcing that
the Company had emerged from bankruptcy protection.                                                                                                                                                                                                                                                                                              
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2) |  | A current report on Form 8-K was filed on August 15, 2003 to
disclose, under Item 12, the Companys press release describing the
Companys results of operations for the second quarter and six
months ended June 30, 2003.                                                                                                                                                                                                                                                    
|
| | 3) |  | A current report on Form 8-K was filed on September 23, 2003
to disclose, under Item 5, the Companys press release announcing
that the United States District Court 6 for the Middle District of
Tennessee had rejected the appeal by the Companys secured lenders
of the previously announced order by the U.S. Bankruptcy Court for
the Middle District of Tennessee confirming the Companys plan of
reorganization under Chapter 11 of the United States Bankruptcy
Code.

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SIGNATURES

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

|                  |  |                            |  |                                               
|----------------- |  | -------------------------- |  | ----------------------------------------------
|                  |  | AMERICAN HOMEPATIENT, INC.
|                  |  |                            |  |                                               
|November 14, 2003 |  | By:                        |  | /s/ Marilyn A. OHara                         
|                  |  |                            |  |                                               
|                  |  |                            |  | Marilyn A. OHara                             
|                  |  |                            |  | Chief Financial Officer and An Officer Duly   
|                  |  |                            |  | Authorized to Sign on Behalf of the registrant

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INDEX TO EXHIBITS

|        |  |                                                                                                                                                                                                                                                          
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT |  |                                                                                                                                                                                                                                                          
|NUMBER  |  | DESCRIPTION OF EXHIBITS                                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                          
|2.1     |  | Second Amended Joint Plan Of Reorganization Proposed By The Debtors and
the Official Unsecured Creditors Committee dated January 2, 2003
(incorporated by reference to Exhibit 99.3 to the Companys Current Report
on Form 8-K filed on March 27, 2003).
|        |  |                                                                                                                                                                                                                                                          
|3.1     |  | 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).                       
|        |  |                                                                                                                                                                                                                                                          
|3.2     |  | 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 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 July 8, 1996 (incorporated by reference to Exhibit 3.5 to
the Companys Report of Form 10-Q for the quarter ended June 30, 1996).                                      
|        |  |                                                                                                                                                                                                                                                          
|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).                                                                                                           
|        |  |                                                                                                                                                                                                                                                          
|31.1    |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 Chief Executive Officer.                                                                                                                                                       
|        |  |                                                                                                                                                                                                                                                          
|31.2    |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 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.                                                                                                         

51