<PAGE>   1

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

CHECK ONE                          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: MARCH 31, 1999
                                       OR
[ ]          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
            FOR THE TRANSACTION PERIOD FROM _________ TO _________.

                           AMERICAN HOMEPATIENT, INC.
                           --------------------------
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

            DELAWARE                0-19532               62-1474680 
-------------------------------  ------------  ---------------------------------
(STATE OR OTHER JURISDICTION OF  (COMMISSION   (IRS EMPLOYER IDENTIFICATION NO.)
 INCORPORATION OR ORGANIZATION)  FILE NUMBER)


            5200 MARYLAND WAY, SUITE 400, BRENTWOOD, TENNESSEE 37027
            --------------------------------------------------------
              (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

                                 (615) 221-8884
                                 --------------
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)


                                      NONE
--------------------------------------------------------------------------------
        (FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED
                              SINCE LAST REPORT.)

INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.  YES  X   NO
                                              -----   -----

                                   15,149,633
--------------------------------------------------------------------------------
      (OUTSTANDING SHARES OF THE ISSUER'S COMMON STOCK AS OF MAY 7, 1999)

                          TOTAL NUMBER OF SEQUENTIALLY
                              NUMBERED PAGES IS 31


                                       1
<PAGE>   2

                         PART I. FINANCIAL INFORMATION


ITEM 1 - FINANCIAL STATEMENTS

                  AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES

                 INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
                                  (unaudited)


<TABLE>
<CAPTION>
ASSETS
                                                                           December 31,            March 31,
                                                                               1998                  1999
                                                                          -------------         -------------


<S>                                                                       <C>                   <C>   
CURRENT ASSETS
  Cash and cash equivalents                                               $   4,276,000         $  13,153,000
  Restricted cash                                                                51,000                51,000
  Accounts receivable, less allowance for doubtful accounts
     of $41,147,000 and $41,494,000, respectively                            99,574,000            99,134,000
  Inventories                                                                20,776,000            18,007,000
  Prepaid expenses and other assets                                           3,135,000             2,146,000
  Income tax receivable                                                      13,090,000            13,222,000
  Deferred tax asset                                                          7,174,000             7,174,000
                                                                          -------------         -------------
        Total current assets                                                148,076,000           152,887,000
                                                                          -------------         -------------

PROPERTY AND EQUIPMENT, at cost                                             165,642,000           170,416,000
  Less accumulated depreciation and amortization                            (87,864,000)          (96,547,000)
                                                                          -------------         -------------
     Net property and equipment                                              77,778,000            73,869,000
                                                                          -------------         -------------

OTHER ASSETS
  Excess of cost over fair value of net assets acquired, net                249,173,000           247,605,000
  Investment in unconsolidated joint ventures                                23,325,000            21,800,000
  Deferred financing costs, net                                               4,119,000             3,944,000
  Deferred tax asset                                                          6,048,000             6,048,000
  Other assets, net                                                          23,373,000            20,700,000
                                                                          -------------         -------------
        Total other assets                                                  306,038,000           300,097,000
                                                                          -------------         -------------
                                                                          $ 531,892,000         $ 526,853,000
                                                                          =============         =============
</TABLE>



                                  (Continued)


                                       2
<PAGE>   3

                  AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES

                 INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
                                  (Continued)
                                  (unaudited)

<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
                                                                              December 31,            March 31,
                                                                                 1998                   1999
                                                                             -------------          -------------
<S>                                                                          <C>                    <C>


CURRENT LIABILITIES
  Current portion of long-term debt and capital leases                       $   7,024,000          $   8,477,000
  Trade accounts payable                                                        10,629,000             14,528,000
  Other payables                                                                 1,446,000              1,324,000
  Accrued expenses:
    Payroll and related benefits                                                 9,074,000              6,239,000
    Interest                                                                     3,327,000              3,824,000
    Insurance                                                                    3,776,000              3,393,000
    Restructuring accruals                                                       3,413,000              3,312,000
    Other                                                                       10,272,000              8,507,000
                                                                             -------------          -------------
      Total current liabilities                                                 48,961,000             49,604,000
                                                                             -------------          -------------
NONCURRENT LIABILITIES
  Long-term debt and capital leases, less current portion                      316,918,000            318,718,000
  Other noncurrent liabilities                                                   9,514,000              7,270,000
                                                                             -------------          -------------
      Total noncurrent liabilities                                             326,432,000            325,988,000
                                                                             -------------          -------------
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
  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, 14,986,000 and
    15,150,000 shares, respectively                                                150,000                151,000
  Paid-in capital                                                              172,520,000            172,857,000
  Accumulated deficit                                                          (16,171,000)           (21,747,000)
                                                                             -------------          -------------
      Total stockholders' equity                                               156,499,000            151,261,000
                                                                             -------------          -------------
                                                                             $ 531,892,000          $ 526,853,000
                                                                             =============          =============
</TABLE>

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


                                       3
<PAGE>   4

                  AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES

            INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                               Three Months Ended March 31  
                                                                             -------------------------------
                                                                                  1998              1999
                                                                             -------------     -------------

<S>                                                                          <C>               <C>
NET REVENUES
  Sales and related service revenues                                         $  48,180,000     $  42,860,000
  Rentals and other revenues                                                    53,190,000        47,780,000
  Earnings from joint ventures                                                   1,423,000           598,000
                                                                             -------------     -------------
        Total net revenues                                                     102,793,000        91,238,000
                                                                             -------------     -------------

EXPENSES
  Cost of sales and related services, excluding depreciation
     and amortization                                                           24,523,000        22,719,000
  Operating                                                                     54,348,000        53,028,000
  General and administrative                                                     3,504,000         3,888,000
  Depreciation and amortization                                                 10,038,000         9,818,000
  Interest                                                                       5,398,000         7,211,000
                                                                             -------------     -------------
        Total expenses                                                          97,811,000        96,664,000
                                                                             -------------     -------------

INCOME (LOSS) FROM OPERATIONS BEFORE
INCOME TAXES                                                                     4,982,000        (5,426,000)

PROVISION FOR INCOME TAXES                                                       1,993,000           150,000
                                                                             -------------     -------------

NET INCOME (LOSS)                                                            $   2,989,000     $  (5,576,000)
                                                                             =============     =============

NET INCOME (LOSS) PER COMMON SHARE
     - Basic                                                                 $        0.20     $       (0.37)
                                                                             =============     =============
     - Diluted                                                               $        0.20     $       (0.37)
                                                                             =============     =============

WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
     - Basic                                                                    14,953,000        15,205,000
                                                                             =============     =============
     - Diluted                                                                  15,181,000        15,205,000
                                                                             =============     =============
</TABLE>

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


                                       4
<PAGE>   5

                  AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES

            INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (unaudited)


<TABLE>
<CAPTION>
                                                                                Three Months Ended March 31
                                                                             --------------------------------
                                                                                  1998              1999
                                                                             -------------      -------------

<S>                                                                          <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                                                          $   2,989,000      $  (5,576,000)
  Adjustments to reconcile net income from operations
    to net cash provided from (used in) operating activities:
     Depreciation and amortization                                              10,038,000          9,818,000
     Equity in (earnings) losses of unconsolidated joint                          
        ventures                                                                  (326,000)           418,000
     Minority interest                                                              43,000             67,000

  Change in assets and liabilities, net of effects from
    acquisitions:
     Accounts Receivable, net                                                   (2,689,000)           631,000
     Inventories                                                                 2,146,000          2,739,000
     Prepaid expenses and other assets                                          (1,241,000)           988,000
     Income tax receivable                                                       3,050,000           (132,000)
     Trade accounts payable, accrued expenses
       and other current liabilities                                            (6,063,000)          (554,000)
     Restructuring accruals                                                     (3,619,000)          (100,000)
     Other non current liabilities                                                      --              2,000
     Other assets                                                                 (792,000)           206,000
                                                                             -------------      -------------
       Net cash provided from operating activities                               3,536,000          8,507,000
                                                                             -------------      -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Acquisitions, net of cash acquired                                           (43,729,000)           (50,000)
  Additions to property and equipment, net                                      (7,263,000)        (3,800,000)
  Distributions from (advances to) unconsolidated joint
     ventures, net                                                                (507,000)         1,106,000
  Distributions to minority interest owners                                             --            (49,000)
                                                                             -------------      -------------
     Net cash used in investing activities                                     (51,499,000)        (2,793,000)
                                                                             -------------      -------------
</TABLE>


                                  (Continued)


                                       5
<PAGE>   6

                  AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES

            INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (unaudited)
                                  (Continued)


<TABLE>
<CAPTION>
                                                                                 Three Months Ended March 31
                                                                             ------------------------------------
                                                                                 1998                   1999
                                                                             -------------          -------------

<S>                                                                          <C>                    <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
  Principal payments on debt and capital leases                                 (1,537,000)            (1,173,000)
  Proceeds from issuance of debt                                                43,500,000              4,500,000
  Proceeds from exercise of stock options                                          385,000                     --
  Deferred financing costs                                                         (24,000)              (164,000)
                                                                             -------------          -------------
      Net cash provided from financing activities                               42,324,000              3,163,000
                                                                             -------------          -------------

(DECREASE) INCREASE IN CASH AND CASH
  EQUIVALENTS                                                                   (5,639,000)             8,877,000

CASH AND CASH EQUIVALENTS, beginning of period                                  12,050,000              4,276,000
                                                                             -------------          -------------

CASH AND CASH EQUIVALENTS, end of period                                     $   6,411,000          $  13,153,000
                                                                             =============          =============

SUPPLEMENTAL INFORMATION:
  Cash payments of interest                                                  $   5,119,000          $   6,672,000
                                                                             =============          =============

  Cash payments of income taxes                                              $     619,000          $     335,000
                                                                             =============          =============
</TABLE>


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


                                       6
<PAGE>   7

                  AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES

          NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                            MARCH 31, 1999 AND 1998

         1.    ORGANIZATION AND BACKGROUND

         American HomePatient, Inc. (the "Company") was incorporated in
         Delaware in September 1991. The Company'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. 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 medical
         supplies. For the three months ended March 31, 1999, such services
         represented 53%, 20% and 27%, respectively of net revenues. These
         services and products are paid for primarily by Medicare, Medicaid and
         other third-party payors. As of March 31, 1999, the Company provided
         these services to patients primarily in the home through 313 centers
         in 38 states: Alabama, Arizona, Arkansas, Colorado, Connecticut,
         Delaware, Florida, Georgia, Illinois, Iowa, Kansas, Kentucky,
         Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota,
         Mississippi, Missouri, Nebraska, Nevada, New Jersey, New Mexico, New
         York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode
         Island, South Carolina, Tennessee, Texas, Virginia, Washington, West
         Virginia and Wisconsin. From its inception through 1997 the Company
         experienced substantial growth primarily as a result of its strategy
         of acquiring and operating home health care businesses. Beginning in
         1998, the Company's strategy shifted from acquiring new businesses to
         focus more on internal growth, the integration of its acquired
         operations and achieving operating efficiencies.

         2.    MEDICARE OXYGEN REIMBURSEMENT REDUCTIONS AND RELATED 
               RESTRUCTURING

         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 (the "Medicare Oxygen Reimbursement Reduction") and
         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. In
         addition, Consumer Price Index increases in Medicare reimbursement
         rates for home medical equipment, including oxygen, will not resume
         until the year 2003. 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 approximately
         23.5 percent of the Company's revenues.

         The Company estimates the Medicare oxygen reimbursement reductions
         decreased net revenue and pre-tax income by approximately $6.1 million
         for the three months ended March 31, 1998. The Company estimates that
         the additional 5% reduction which began January 1, 1999, further
         decreased net revenue and pre-tax income by an additional $1.3 million
         for the three months ended March 31, 1999 for a total reduction of
         approximately $7.4 million for the three months ended March 31, 1999.


                                       7
<PAGE>   8

         On September 25, 1997, the Company announced initiatives to
         aggressively respond to the Medicare oxygen reimbursement reductions.
         More than 100 of the Company's total operating and billing locations
         were affected by these activities. The specific actions resulted in
         pre-tax accounting charges in the third quarter of 1997 of $65.0
         million due to the closure, consolidation, or scaling back of nine
         billing centers, the closure of 52 operating centers, the
         consolidation of operating regions, the scaling back or elimination of
         marginal products and services at numerous locations, and the related
         termination of 406 employees in the affected locations. These
         activities were substantially completed as of June 30, 1998.

         In the quarter ended September 30, 1998, the Company adjusted its
         original estimates of restructuring costs resulting in the reversal of
         $1.6 million of excess restructuring accruals related to items
         requiring a cash payment, and $2.4 million of other valuation reserves
         established in connection with the restructuring. The restructuring
         accruals at March 31, 1999 represent remaining estimated severance
         costs to be paid to terminated employees ($0.1 million), remaining
         facility exit costs ($0.9 million), and termination costs of certain
         management contracts ($2.3 million). As costs were incurred and
         payments were made, $3.6 million and $100,000 were charged against the
         restructuring accruals in the first quarters of 1998 and 1999,
         respectively.

         3.    ACQUISITIONS

         Since January 1, 1998 and effective through December 31, 1998, the
         Company acquired four home health care businesses. The Company did not
         acquire any home health care businesses in the first quarter of 1999
         and does not expect to acquire any home health care businesses during
         the remainder of 1999.

         The terms of the 1998 acquisitions, including the consideration paid,
         were the result of arm's-length negotiations. The acquisitions were
         funded via a combination of cash from Company reserves,
         seller-financed notes, and draws on the Company's Bank Credit Facility
         (see below).

         4.    BANK CREDIT FACILITY

         On October 29, 1998, the Fourth Amended and Restated Credit Agreement
         (the "Credit Agreement") between the Company and Bankers Trust
         Company, as agent for a syndicate of banks (the "Banks"), was amended
         (the "First Amendment") to modify certain financial covenants with
         which the Company was not in compliance. The Company incurred
         increased interest expense of $1,656,803 in 1998 as a result of the
         increased interest rate established by the First Amendment. As part of
         the First Amendment, the Company's credit availability was reduced
         from $400 million to $360 million (credit availability was temporarily
         reduced to $340 million until April 1, 1999). The Credit Agreement
         contained various financial covenants and other restrictions regarding
         specified activities. At December 31, 1998 the Company was in
         violation of certain of these covenants. Noncompliance with these
         covenants gave the lenders the right to accelerate the due date of
         outstanding amounts under the Facility. In addition to the possibility
         of accelerated due dates, the Company was unable to access
         availability under the Facility. On April 14, 1999 the Company entered
         into a Second Amendment to the Fourth Amended and Restated Credit
         Agreement (the "Second Amendment"). (The Second Amendment together
         with the Credit Agreement and the First Amendment will be referred to
         as the "Bank Credit Facility"). The Second Amendment


                                       8
<PAGE>   9

         waived then existing events of default, modified financial covenants
         and made a number of other changes to the Credit Agreement. The
         Company is required to employ a manager, acceptable to the Banks, with
         expertise in managing companies that are in workout situations with
         their lenders. The Company's credit availability has been reduced from
         $360 million (credit availability was temporarily reduced to $340
         million pursuant to the First Amendment) to $328.6 million, including
         a $75 million term loan and a $253.6 million revolving line of credit.
         As of May 7, 1999, approximately $248.5 million was outstanding under
         the revolving line of credit. Availability is frozen until May 19, 1999
         (30 days after the retention of the manager referenced above). 
         Substantially all of the Company's operating assets have been pledged 
         as security for borrowings under the Bank Credit Facility.

         Interest is payable on borrowings under the Bank Credit Facility at
         the election of the Company at either a Base Lending Rate or an
         Adjusted Eurodollar Rate (each as defined in the Bank Credit Facility)
         plus an applicable margin. The margin associated with the Adjusted
         Eurodollar Rate is fixed at 3.25%. The margin associated with the Base
         Lending Rate is fixed at 2.50%. The applicable margins increase 18
         months after the date of the Second Amendment to 3.50% as to the
         Adjusted Eurodollar Rate and to 2.75% as to the Base Lending Rate. In
         addition, 18 months after the date of the Second Amendment, additional
         interest of 4.50% will accrue on that portion of the Bank Credit
         Facility that is in excess of four times adjusted EBITDA.

         The Company has agreed to issue on March 31, 2001 (provided loans,
         letters of credit or commitments are still outstanding) warrants to
         the Banks representing 19.99% of the fully diluted common stock of the
         Company issued and outstanding as of March 31, 2001. Fifty percent of
         these warrants would be exercisable at any time after issuance and the
         remaining fifty percent would be exercisable from and after September
         30, 2001 (provided loans, letters of credit or commitments are still
         outstanding). The exercise price of the warrants will be $0.01 per
         share.

         In addition to the foregoing modifications, pursuant to the Second
         Amendment (i) the maturity date of the Bank Credit Facility has been
         changed to April 15, 2002 from December 16, 2002, (ii) the Company is
         no longer permitted to make acquisitions or investments in joint
         ventures without the consent of Banks holding a majority of the
         lending commitments under the Bank Credit Facility, and (iii) an
         additional covenant has been added regarding collections of accounts
         receivable.

         Management has prepared operating projections, cash flow projections
         and related operating plans which indicate the Company can remain in
         compliance with the new financial covenants and meet its expected
         obligations throughout 1999. However, as with all projections, there
         is uncertainty as to whether management's projections can be achieved.
         In an event of default under the amended Credit Agreement, the Banks
         will have the ability to demand payment of all outstanding amounts,
         and there is currently no commitment as to how any such demand payment
         would be satisfied.

         See "Management's Discussion and Analysis of Financial Condition and
         Results of Operations - Risk Factors - Substantial Leverage."


                                       9
<PAGE>   10

         5.    EARNINGS PER SHARE

         Under the standards established by SFAS 128, 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
         by the weighted average number of common shares outstanding during the
         year. Diluted earnings per share is computed by dividing net income by
         the weighted average number of common shares after considering the
         additional dilution related to convertible preferred stock,
         convertible debt, options and warrants. In computing diluted earnings
         per share, the outstanding stock warrants and stock options are
         considered dilutive using the treasury stock method. The following
         table information is necessary to calculate earnings per share for the
         periods presented:

<TABLE>
<CAPTION>
                                                                         (unaudited)
                                                              --------------------------------
                                                                Three Months Ended March 31,
                                                              --------------------------------
                                                                   1998                1999
                                                              ------------        ------------

         <S>                                                  <C>                 <C>
         Net income (loss)                                    $  2,989,000        $ (5,576,000)
                                                              ============        ============
         Weighted average common shares outstanding             14,953,000          15,205,000
         Effect of dilutive options and warrants                   228,000                  --
                                                              ------------        ------------
         Adjusted diluted commons shares outstanding            15,181,000          15,205,000
                                                              ============        ============
         Net income (loss) per common share
             - Basic                                          $       0.20        $      (0.37)
                                                              ============        ============
             - Diluted                                        $       0.20        $      (0.37)
                                                              ============        ============
</TABLE>

         6.    BASIS OF FINANCIAL STATEMENTS

         The interim condensed consolidated financial statements of the Company
         for the three months ended March 31, 1999 and 1998 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 generally accepted accounting
         principles have been condensed or omitted pursuant to such rules and
         regulations. In the opinion of management of the Company, the
         accompanying unaudited interim consolidated financial statements
         reflect all adjustments (consisting of only normally recurring
         accruals) necessary to present fairly the financial position at March
         31, 1999 and the results of operations and the cash flows for the
         three months ended March 31, 1999 and 1998.

         The results of operations for the three months ended March 31, 1999
         and 1998 are not necessarily indicative of the operating results for
         the entire respective years. These unaudited interim 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 for the year ended December 31, 1998.


                                      10
<PAGE>   11

         7.    IMPLEMENTATION OF FINANCIAL ACCOUNTING STANDARDS

         Statement of Financial Accounting Standards No. 130, "Reporting
         Comprehensive Income" ("SFAS 130") has been issued effective for
         fiscal years beginning after December 15, 1997. SFAS No. 130
         establishes standards for reporting and display of comprehensive
         income and its components in a full set of general purpose financial
         statements. The Company adopted the provisions of SFAS No. 130 in
         1998, however, there was no material effect on the Company's financial
         position or results of operations, as comprehensive income was
         equivalent to the Company's net income (loss).

         Statement of Financial Accounting Standards No. 131, "Disclosures
         about Segments of an Enterprise and Related Information" ("SFAS 131")
         has been issued effective for fiscal years beginning after December
         15, 1997. SFAS 131 establishes standards for the way public business
         enterprises report information about operating segments in annual
         financial statements and require that these enterprises report
         selected information about operating segments in interim financial
         reports issued to shareholders. The Company adopted the provisions of
         SFAS 131 in 1998; however, the Company operates in one industry
         segment and, accordingly, the adoption of SFAS 131 had no significant
         effect on the Company.

         8.    GOVERNMENT REGULATION

         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
         durable medical equipment suppliers, have received subpoenas and other
         requests for information in connection with such activities. On
         February 12, 1998, a subpoena from the Office of the Inspector General
         of the Department of Health and Human Services ("OIG") was served on
         the Company at its Pineville, Kentucky center in connection with an
         investigation relating to possible improper claims for payment from
         Medicare. Since that time the U.S. Department of Justice has begun
         examining issues involving Certificates for Medical Necessity and
         loaning of equipment by the Company nationwide. The Company has
         retained experienced health care counsel to represent it in this
         matter and is cooperating with the investigation. The Company's
         counsel has conducted meetings with governmental officials, and
         governmental officials have interviewed certain company officers and
         employees. The Company has responded to government requests for
         information and documents, and is cooperating with the government
         investigators to move forward with the investigation. The ultimate
         outcome of these matters is currently uncertain. Although this has not
         been confirmed, management believes that the investigation was
         initiated as a result of a qui tam complaint filed by a former
         employee of the Company under the False Claims Act.

         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 requests. The government has broad authority and
         discretion in enforcing applicable laws and regulations, and therefore
         the scope and outcome of these investigations and inquiries cannot be
         predicted with certainty. The Company expects to incur additional
         costs in the future, such as legal expenses in connection with all
         investigations.


                                      11
<PAGE>   12

         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 regulations upon the
         Company's activities. Such regulatory changes could adversely affect
         the Company's business, making the Company unable to comply with all
         regulations in the geographic areas in which it presently conducts, or
         wishes to commence, business. See "Management's Discussion and
         Analysis of Financial Condition and Results of Operations - Risk
         Factors - Government Regulation."


                                      12
<PAGE>   13

         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," "WILL", "LIKELY" AND WORDS OF SIMILAR IMPORT. SUCH
         STATEMENTS INCLUDE STATEMENTS CONCERNING THE COMPANY'S YEAR 2000
         EFFORTS, BUSINESS STRATEGY, OPERATIONS, COST SAVINGS INITIATIVES,
         FUTURE COMPLIANCE WITH ACCOUNTING STANDARDS, INDUSTRY, ECONOMIC
         PERFORMANCE, FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES,
         EXISTING GOVERNMENT REGULATIONS AND CHANGES IN, OR THE FAILURE TO
         COMPLY WITH, GOVERNMENTAL REGULATIONS, PROJECTIONS, FUTURE COMPLIANCE
         WITH BANK CREDIT FACILITY COVENANTS, LEGISLATIVE PROPOSALS FOR
         HEALTHCARE REFORM, THE ABILITY TO ENTER INTO JOINT VENTURES, STRATEGIC
         ALLIANCES AND ARRANGEMENTS WITH MANAGED CARE PROVIDERS ON AN
         ACCEPTABLE BASIS, AND CHANGES IN REIMBURSEMENT POLICIES. SUCH
         STATEMENTS 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.

         STATEMENTS CONTAINED IN THIS QUARTERLY REPORT ON FORM 10-Q INVOLVING
         THE COMPANY'S YEAR 2000 EFFORTS CONSTITUTE "YEAR 2000 READINESS
         DISCLOSURE" UNDER THE YEAR 2000 INFORMATION AND READINESS DISCLOSURE
         ACT AND ARE SUBJECT TO THE PROTECTIONS OF SUCH ACT.

         GENERAL

         The Company provides home healthcare services and products to patients
         through its 313 centers in 38 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.


                                      13
<PAGE>   14

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

<TABLE>
<CAPTION>
                                                        Three Months Ended March 31,
                                                        ----------------------------
                                                          1998                 1999
                                                        --------              ------

         <S>                                            <C>                   <C>
         Home respiratory therapy services                   48%                53%
         Home infusion therapy services                      20                 20
         Home medical equipment and medical supplies         32                 27
                                                            ---                ---
             Total                                          100%               100%
                                                            ===                ===
</TABLE>

         The Company reports its net revenues as follows: (i) sales and related
         services; (ii) rentals and other; and (iii) earnings from hospital
         joint ventures. Sales and related services revenues are derived from
         the provision of infusion therapies, the sale of home medical
         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. 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. Cost of sales and related services includes
         the cost of equipment, drugs and related supplies sold to patients.
         Operating expenses include center labor costs, delivery expenses,
         selling costs, occupancy costs, costs related to rentals other than
         depreciation, billing center costs, provision for doubtful accounts,
         area management and other operating costs. General and administrative
         expenses include corporate and senior management expenses and costs.

         Prior to 1998, the Company had significantly expanded its operations
         through a combination of acquisitions of home health care companies,
         development of joint ventures and strategic alliances with health care
         delivery systems as well as internal growth. From 1996 through 1998,
         the Company acquired 72 home health care companies (40, 28 and 4
         companies in 1996, 1997, and 1998 respectively). In 1998, the Company
         purposefully slowed its acquisition activity compared to prior years
         to focus on existing operations. As amended, the Company's Credit
         Agreement now requires bank consent for acquisitions or investments in
         new joint ventures. The Company does not expect to acquire any home
         health care businesses or to develop any new joint ventures in 1999.

         The Company's strategy for 1999 is to maintain a diversified offering
         of home health care services reflective of its current business mix.
         Respiratory services will remain a primary focus with increased
         emphasis on home medical equipment rental, enteral nutrition products
         and services and select infusion therapies.

         The Company also continues to implement a variety of initiatives
         designed to lower its costs. Activities completed or underway for 1999
         include: (i) elimination of 41 positions at the Company's corporate
         Support Center and approximately 180 positions in the field during the
         first quarter of 1999; (ii) reduction of expenses related to these
         positions; (iii) reduction of other general and administrative
         expenses and field expenses such as travel and 


                                      14
<PAGE>   15

         entertainment, marketing and advertising and consulting; (iv) greater
         control of capital expenditures at all levels; and (v) reduction of
         the Company's bad debt expense.

         GOVERNMENT REGULATION

         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
         durable medical equipment suppliers, have received subpoenas and other
         requests for information in connection with such activities. On
         February 12, 1998, a subpoena from the Office of the Inspector General
         of the Department of Health and Human Services ("OIG") was served on
         the Company at its Pineville, Kentucky center in connection with an
         investigation relating to possible improper claims for payment from
         Medicare. Since that time the U.S. Department of Justice has begun
         examining issues involving Certificates for Medical Necessity and
         loaning of equipment by the Company nationwide. The Company has
         retained experienced health care counsel to represent it in this
         matter and is cooperating with the investigation. The Company's
         counsel has conducted meetings with governmental officials, and
         governmental officials have interviewed certain company officers and
         employees. The Company has responded to government requests for
         information and documents, and is cooperating with the government
         investigators to move forward with the investigation. The ultimate
         outcome of these matters is currently uncertain. Although this has not
         been confirmed, management believes that the investigation was
         initiated as a result of a qui tam complaint filed by a former
         employee of the Company under the False Claims Act.

         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 requests. The government has broad authority and
         discretion in enforcing applicable laws and regulations, and therefore
         the scope and outcome of these investigations and inquiries cannot be
         predicted with certainty. The Company expects to incur additional
         costs in the future, such as legal expenses in connection with all
         investigations.

         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 regulations upon the
         Company's activities. Such regulatory changes could adversely affect
         the Company's business, making the Company unable to comply with all
         regulations in the geographic areas in which it presently conducts, or
         wishes to commence, business. See "Management's Discussion and
         Analysis of Financial Condition and Results of Operations - Risk
         Factors - Government Regulation."

         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 (the "Medicare Oxygen Reimbursement Reduction") and
         an additional reduction of 5% beginning January 1, 1999. 


                                      15
<PAGE>   16

         The reimbursement rate for certain drugs and biologicals covered under
         Medicare was also reduced by 5% beginning January 1, 1998. In
         addition, Consumer Price Index increases in Medicare reimbursement
         rates for home medical equipment, including oxygen, will not resume
         until the year 2003. 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 approximately
         23.5 percent of the Company's revenues.

         The Company estimates the Medicare oxygen reimbursement reductions
         decreased net revenue and pre-tax income by approximately $6.1 million
         for the three months ended March 31, 1998. The Company estimates that
         the additional five percent reduction which began January 1, 1999,
         further decreased net revenue and pre-tax income by an additional $1.3
         million for the three months ended March 31, 1999 for a total
         reduction of approximately $7.4 million for the three months ended
         March 31, 1999.

         On September 25, 1997, the Company announced initiatives to
         aggressively respond to the Medicare oxygen reimbursement reductions.
         More than 100 of the Company's total operating and billing locations
         were affected by these activities. The specific actions resulted in
         pre-tax accounting charges in the third quarter of 1997 of $65.0
         million due to the closure, consolidation, or scaling back of nine
         billing center, the closure of 52 operating centers, the consolidation
         of operating regions, the scaling back or elimination of marginal
         products and services at numerous locations, and the related
         termination of 406 employees in the affected locations. These
         activities were substantially completed as of June 30, 1998.

         RESULTS OF OPERATIONS

         The following table and discussion set forth items from the statements
         of operations as a percentage of net revenues:


                           PERCENTAGE OF NET REVENUES

<TABLE>
<CAPTION>


                                                                  Three Months Ended March 31,
                                                                  ----------------------------
                                                                    1998                 1999
                                                                  ---------            -------

         <S>                                                      <C>                  <C>
         Net Revenues                                                 100.0%           100.0%

         Costs and expenses:
           Cost of sales and related services                          23.9             24.9
           Operating expenses                                          52.9             58.1
           General and administrative                                   3.4              4.3
           Depreciation and amortization                                9.8             10.8
           Interest                                                     5.2              7.9
                                                                      -----            -----
                Total costs and expenses                               95.2%           105.9%
                                                                      -----            -----

           Income (loss) from operations before income taxes            4.8%            (5.9%)
                                                                      =====            =====
</TABLE>



                                      16
<PAGE>   17

         The Company's operating results for the first quarter ended March 31,
         1999 are significantly lower than historical trends and have been
         significantly impacted by the following factors: First, the Company
         has been greatly impacted by the 30% reduction in Medicare oxygen
         reimbursement rates (25% reduction effective January 1, 1998 with an
         additional 5% reduction effective January 1, 1999). The Company
         estimates that net revenue and pre-tax income has been reduced by
         approximately $7.4 million in the first quarter of 1999 as a result of
         the 25% and the additional 5% reductions. Second, the Company
         experienced a decline in revenues attributable to the exit and
         de-emphasis of certain lower margin business lines and by the
         termination of several managed care contracts which began in the
         latter half of 1998 (with continued effect into the first quarter of
         1999). Third, the Company has halted the acquisition of home health
         care businesses and its joint venture development program. Fourth,
         accounts receivable have been adversely affected by a tougher payor
         environment and by process problems at the operating and billing
         center levels (caused by the consolidation of billing centers and
         employee turnover) which has resulted in higher bad debt expense.
         Further, the Company's implementation of process improvements in the
         billing and collection functions has been slower than anticipated.

         The Company's current financial situation stems from two pivotal
         events: significant reductions in Medicare oxygen reimbursement which
         began January 1, 1998 and the Company's ongoing restructuring which
         began in the latter part of 1997. In response to reimbursement
         reductions, the Company announced in September 1997 its intent to
         reshape its business model. The necessary changes to achieve this
         business model were not accomplished as rapidly as the Company had
         hoped. In addition, the Company believes the disruption caused by
         these changes has had more of an adverse impact on the organization as
         a whole than originally anticipated.

         In order to drive internal revenue growth during 1998, the Company
         embarked on a strategy to increase market share by focusing primarily
         on increasing respiratory revenues in existing centers. Concurrently,
         the Company determined that certain "non-core", lower margin products
         and services should be eliminated during the year. To accelerate the
         development of the Company's respiratory selling efforts, it increased
         its sales force by 67 account executives, on a net basis, by year-end.
         It also exited certain contracts and businesses perceived to be lower
         margin during the third and fourth quarters of 1998. The result was a
         substantial decrease in revenues during the latter half of 1998 and
         the first quarter of 1999.

         A new management team joined the Company in the fourth quarter of
         1998, consisting of a new president and chief executive officer, a new
         chief operating officer and a new chief financial officer. Recognizing
         the negative impacts of the Company's business strategy, the new
         management ceased the exiting of business lines and contracts by
         mid-December of 1998. A new strategy for 1999 was developed to restore
         the Company's revenues and decrease expenses. Key points of this
         strategy are:

         1.       Stabilize and increase profitable revenues - respiratory will
                  remain a primary focus of the Company. However, it will
                  broaden its offering and sales focus in 1999 to include other
                  profitable business units such as enteral nutrition, HME
                  rental, and select infusion therapy services. The Company
                  will also re-direct its efforts to increase revenues for
                  certain managed care contracts - both new and existing.


                                      17
<PAGE>   18

         2.       Decrease and control operating expenses - the Company has 
                  already taken aggressive steps to decrease operating and
                  general and administrative expenses. Through the first
                  quarter of 1999, the Company has eliminated 41 positions from
                  its corporate Support Center in Brentwood, Tennessee and
                  approximately 180 positions in the field.

         3.       Decrease DSO and bad debt - the Company has three key 
                  initiatives in place to improve accounts receivable
                  performance: (i) proper staffing and training; (ii) process
                  redesign and standardization; and (iii) billing center
                  specific goals geared toward improved cash collections and
                  reduced accounts receivable.

         As a result of this new strategy, operating expenses in the first
         quarter of 1999 were reduced by $1.7 million compared to the fourth
         quarter of 1998. Also, general and administrative expenses in the
         first quarter of 1999 were reduced by $800,000 compared to the fourth
         quarter of 1998 (excluding the non-recurring $1.3 million of executive
         severance expense in the fourth quarter of 1998).

         The operations of acquired centers are included in the operations of
         the Company from the effective date of each acquisition. The
         comparison of the results of operations between 1999 and 1998 is
         impacted by the operations of these acquired businesses. Also, the
         comparison of the results of operations between 1999 and 1998 is
         materially affected by the additional 5% Medicare oxygen reimbursement
         reduction and the unanticipated negative impact of the restructuring
         activities and related business strategies on the Company's ongoing
         operations.

         THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH
         31, 1998

         NET REVENUES. Net revenues decreased from $102.8 million for the
         quarter ended March 31, 1998 to $91.2 million for the same period in
         1999, a decrease of $11.6 million, or 11%. For the quarter ended March
         31, 1999, the Company estimates the additional 5% Medicare oxygen
         reimbursement reductions decreased net revenue by approximately $1.3
         million. Excluding the additional Medicare oxygen reimbursement
         reductions, net revenues would have decreased from $102.8 million to
         approximately $92.5 million for the quarters ended March 31, 1998 and
         1999, respectively, a decrease of approximately $10.3 million, or 10%.
         This decrease is primarily attributable to lower sales of non-core low
         margin products, the exiting of lower margin contracts, and less than
         expected sales force effectiveness, offset somewhat by additional
         revenue from the 1998 acquisitions. Following is a discussion of the
         components of net revenues:

                  Sales and Related Services Revenues. Sales and related
                  services revenues decreased from $48.2 million for the
                  quarter ended March 31, 1998 to $42.9 million for the same
                  period in 1999, a decrease of $5.3 million, or 11%. This
                  decrease is primarily attributable to lower sales of non-core
                  low margin products and the exiting of lower margin
                  contracts, offset somewhat by additional sales revenue from
                  the 1998 acquisitions.

                  Rentals and Other Revenue. Rentals and other revenues
                  decreased from $53.2 million for the quarter ended March 31,
                  1998 to $47.8 million for the same period in 1999, a decrease
                  of $5.4 million, or 10%. This decrease is primarily
                  attributable to the exiting of lower margin contracts, the
                  additional 5% Medicare oxygen reimbursement reduction 


                                      18
<PAGE>   19

                  and less than expected sales force effectiveness, offset
                  somewhat by the additional rental revenue of the 1998
                  acquisitions.

                  Earnings from Hospital Joint Ventures. Earnings from hospital
                  joint ventures decreased from $1.4 million for the quarter
                  ended March 31, 1998 to $0.6 million for the same period in
                  1999, a decrease of $0.8 million, or 57%, which was due
                  primarily to the additional 5% Medicare oxygen reimbursement
                  reduction and higher bad debt expense at certain joint
                  venture locations.

         COST OF SALES AND RELATED SERVICES. Cost of sales and related services
         decreased from $24.5 million for the quarter ended March 31, 1998 to
         $22.8 million for the same period in 1999, a decrease of $1.7 million,
         or 7%. As a percentage of sales and related services revenues, cost of
         sales and related services increased from 51% to 53%. This increase is
         primarily attributable to lower vendor rebates in the quarter ended
         March 31, 1999 and a higher level of favorable book-to-physical
         inventory adjustments in the quarter ended March 31, 1998 compared to
         the same period in 1999.

         OPERATING EXPENSES. Operating expenses decreased from $54.3 million
         for the quarter ended March 31, 1998 to $53.0 million for the same
         period in 1999, a decrease of $1.3 million, or 2%. This decrease is
         primarily attributable to lower salary expense in the quarter ended
         March 31, 1999 as a result of the Company's aggressive steps to
         control expenses which included the elimination of 180 positions in
         the field. The lower salary expense was partially offset by higher bad
         debt expense. Bad debt expense was 4.8% of net revenue for the quarter
         ended March 31, 1999 compared to 3.4% of net revenue for the same
         period in 1998. Bad debt expense will remain at this current level or
         higher in the foreseeable future, if current collection trends are not
         improved. Even though the dollar level of operating expenses
         decreased, operating expenses as a percentage of net revenue increased
         from 53% for the first quarter of 1998 to 58% for the first quarter of
         1999 as a result of decreased revenue.

         GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
         expenses increased from $3.5 million for the quarter ended March 31,
         1998 to $3.9 million for the same period in 1999, an increase of $0.4
         million or 11%. The increase is attributable to higher legal and other
         professional fees in the quarter ended March 31, 1999.

         DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
         decreased from $10.0 million for the quarter ended March 31, 1998 to
         $9.8 million for the same period in 1999, a decrease of $0.2 million,
         or 2%. This decrease is primarily attributable to the reduction in the
         amortization of goodwill as a result of the $37.8 million of impaired
         goodwill written off in the fourth quarter of 1998.

         INTEREST. Interest expense increased from $5.4 million for the quarter
         ended March 31, 1998, to $7.2 million for the same period in 1999, an
         increase of $1.8 million, or 33%. The increase was attributable to
         higher interest rates on borrowings, and to additional interest
         expense on increased borrowings under the Bank Credit Facility.


                                      19
<PAGE>   20

         LIQUIDITY AND CAPITAL RESOURCES

         At March 31, 1999, the Company's working capital was $103.3 million
         and the current ratio was 3.1x as compared to working capital of $99.1
         million and a current ratio of 3.0x at December 31, 1998.

         On October 29, 1998, the Fourth Amended and Restated Credit Agreement
         (the "Credit Agreement") between the Company and Bankers Trust
         Company, as agent for a syndicate of banks (the "Banks"), was amended
         (the "First Amendment") to modify certain financial covenants with
         which the Company was not in compliance. The Company incurred
         increased interest expense of $1,656,803 in 1998 as a result of the
         increased interest rate established by the First Amendment. As part of
         the First Amendment, the Company's credit availability was reduced
         from $400 million to $360 million (credit availability was temporarily
         reduced to $340 million until April 1, 1999). The Credit Agreement
         contained various financial covenants and other restrictions regarding
         specified activities. At December 31, 1998 the Company was in
         violation of certain of these covenants. Noncompliance with these
         covenants gave the lenders the right to accelerate the due date of
         outstanding amounts under the Facility. In addition to the possibility
         of accelerated due dates, the Company was unable to access
         availability under the Facility. On April 14, 1999 the Company entered
         into a Second Amendment to the Fourth Amended and Restated Credit
         Agreement (the "Second Amendment"). (The Second Amendment together
         with the Credit Agreement and the First Amendment will be referred to
         as the "Bank Credit Facility"). The Second Amendment waived then
         existing events of default, modified financial covenants and made a
         number of other changes to the Credit Agreement. The Company is
         required to employ a manager, acceptable to the Banks, with expertise
         in managing companies that are in workout situations with their
         lenders. The Company's credit availability has been reduced from $360
         million (credit availability was temporarily reduced to $340 million
         pursuant to the First Amendment) to $328.6 million, including a $75
         million term loan and a $253.6 million revolving line of credit. As of
         May 7, 1999, approximately $248.5 million was outstanding under the
         revolving line of credit. Availability is frozen for 30 days after the
         retention of the manager referenced above. Substantially all of the
         Company's operating assets have been pledged as security for
         borrowings under the Bank Credit Facility.

         Interest is payable on borrowings under the Bank Credit Facility at
         the election of the Company at either a Base Lending Rate or an
         Adjusted Eurodollar Rate (each as defined in the Bank Credit Facility)
         plus an applicable margin. The margin associated with the Adjusted
         Eurodollar Rate is fixed at 3.25%. The margin associated with the Base
         Lending Rate is fixed at 2.50%. The applicable margins increase 18
         months after the date of the Second Amendment to 3.50% as to the
         Adjusted Eurodollar Rate and to 2.75% as to the Base Lending Rate. In
         addition, 18 months after the date of the Second Amendment, additional
         interest of 4.50% will accrue on that portion of the Bank Credit
         Facility that is in excess of four times adjusted EBITDA. As of March
         31, 1999, the weighted average borrowing rate was 8.85%.

         The Company has agreed to issue on March 31, 2001 (provided loans,
         letters of credit or commitments are still outstanding) warrants to
         the Banks representing 19.99% of the fully diluted common stock of the
         Company issued and outstanding as of March 31, 2001. Fifty percent of
         these warrants would be exercisable at any time after issuance and the
         remaining fifty percent would be exercisable from and after September
         30, 2001 (provided loans, letters


                                      20
<PAGE>   21

         of credit or commitments are still outstanding). The exercise price of
         the warrants will be $0.01 per share.

         In addition to the foregoing modifications, pursuant to the Second
         Amendment (i) the maturity date of the Bank Credit Facility has been
         changed to April 15, 2002 from December 16, 2002, (ii) the Company is
         no longer permitted to make acquisitions or investments in joint
         ventures without the consent of Banks holding a majority of the
         lending commitments under the Bank Credit Facility, and (iii) an
         additional covenant has been added regarding collections of accounts
         receivable.

         The Credit Agreement, as amended, contains various financial
         covenants, the most restrictive of which relate to measurements of
         EBITDA, shareholder's equity, leverage, interest coverage ratios, and
         collections of accounts receivable. The Credit Agreement, as amended,
         also contains provisions for periodic reporting and the recapture of
         excess cash flow. Mandatory prepayments are due if excess cash flow
         targets are met or the Company issues debt securities.

         The Bank Credit Facility also contains covenants which, among other
         things, impose certain limitations or prohibitions on the Company with
         respect to the incurrence of indebtedness, the creation of liens, the
         payment of dividends, the redemption or repurchase of securities,
         investments, acquisitions, capital expenditures, sales of assets and
         transactions with affiliates. The Company is no longer permitted to
         make acquisitions or investments in joint ventures without the consent
         of Banks holding a majority of the lending commitments under the Bank
         Credit Facility.

         Management has prepared operating projections, cash flow projections
         and related operating plans which indicate the Company can remain in
         compliance with the new financial covenants and meet its expected
         obligations throughout 1999. However, as with all projections, there
         is uncertainty as to whether management's projections can be achieved.
         In an event of default under the amended Credit Agreement, the Banks
         will have the ability to demand payment of all outstanding amounts,
         and there is currently no commitment as to how any such demand payment
         would be satisfied.

         The Bank Credit Facility terminates and any unpaid obligations of the
         Company become due on April 15, 2002.

         In addition to maintaining compliance with its debt covenants, 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 acquired
         companies. 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 $94.2 million and


                                      21
<PAGE>   22

         $95.6 million at December 31, 1998 and March 31, 1999, respectively.
         These receivables represented an average of approximately 92 and 99
         days sales in accounts receivable at December 31, 1998 and March 31,
         1999. This increase is primarily the result of disruptions in
         collections associated with the consolidation of billing centers and
         changes in certain billing procedures continuing from the Company's
         restructuring, described above under "Medicare Reimbursement for
         Oxygen Therapy Services."

         Net cash provided from operating activities was $3.5 million and $8.5
         million for the three months ended March 31, 1998 and 1999,
         respectively. These amounts primarily represent net income plus
         depreciation and amortization and provisions for doubtful accounts and
         changes in the various components of working capital. Net cash used in
         investing activities was $51.5 million and $2.8 million for the three
         months ended March 31, 1998 and 1999, respectively. Acquisition
         expenditures decreased from $43.7 million for the three months ended
         March 31, 1998 to $50,000 for the same period in 1999. Capital
         expenditures decreased from $7.3 million for the three months ended
         March 31, 1998 to $3.8 million for the same period in 1999, a decrease
         of $3.5 million. Net cash provided from financing activities was $42.3
         million and $3.1 million for the three months ended March 31, 1998 and
         1999, respectively. The cash provided from financing activities for
         the three months ended March 31, 1998 and 1999 primarily related to
         proceeds from the Bank Credit Facility net of principal payments.

         The Company's principal capital requirements are for working capital.
         The Company has financed and intends to continue to finance these
         requirements with net cash provided by operations and, if available,
         with borrowings under the Bank Credit Facility.

         YEAR 2000 COMPLIANCE

         Many computer software programs were written using two digits instead
         of four to define the applicable year. As a result, computer programs
         may interpret a date including the digits "00" to refer to the year
         1900 instead of the year 2000. Such a Year 2000 problem could result
         in system failures which disrupt patient services, billing and
         collections, payroll and other standard business operations.

         Accordingly, the Company has formally established a Year 2000
         compliance committee under the sponsorship of senior management. The
         committee includes representation from information systems,
         purchasing, finance, and reimbursement. An inventory of all
         information technology and non-information technology systems was
         conducted during 1997 and a risk assessment was performed. Based on
         that assessment, plans were put in place to address the Year 2000
         readiness of each system, including remediation and testing. As part
         of that process, a Year 2000 compliance plan has been prepared, and
         approved by the Board of Directors.

         Year 2000 remediation work is being performed by both internal and
         external personnel. Most of the Company's software is supplied by
         external vendors. In all cases, the Company has worked with the vendor
         to ensure that a Year 2000 compliant version is being developed and
         certified, and that the version is being installed when available. The
         majority of testing and certification must be performed by these
         vendors, and the Company has been informed


                                      22
<PAGE>   23

         that such vendors are currently undertaking such testing and
         certification. The Company has no means to assure that third party
         vendors' programs will be Year 2000 compliant on a timely basis. The
         effect of any such non-compliance is indeterminable.

         The Company has incurred approximately $800,000 in costs associated
         with its Year 2000 compliance efforts, primarily as capital
         expenditures. Remaining costs to achieve Year 2000 compliance are
         expected to be less than $800,000, also as capital expenditures. These
         costs are being funded from operating cash flow.

         In addition to computer systems, the Company is performing inventories
         and assessments of other critical equipment. This includes patient
         care equipment, branch telephone systems, and other embedded systems.

         The status of specific systems being addressed through the Year 2000
         plan is shown below:

         -        The Company uses multiple computer systems for customer 
                  service, billing, and clinical operations. Approximately 75%
                  of these are fully Year 2000 compliant as of March 31, 1999.
                  All customer service, billing, and clinical systems have a
                  target date of June 30, 1999 to be on Year 2000 compliant
                  software.

         -        The financial systems were made Year 2000 compliant in January
                  1998. Payroll and Human Resources systems were also converted
                  to Year 2000 compliant versions in October 1998. All other
                  corporate support systems are targeted to be Year 2000
                  compliant by June 30, 1999.

         -        Product manufacturers and suppliers of equipment/supplies used
                  in conjunction with patient care have been contacted to
                  determine the state of compliance for all patient equipment.
                  Any non-compliant equipment will be identified and plans put
                  in place to upgrade or dispose of them by July 31, 1999. An
                  insubstantial amount of the patient equipment supplied by the
                  Company is expected to have a Year 2000 issue, and the
                  Company does not believe this risk is material.

         -        The Company has multiple telephone systems in place throughout
                  its 313 centers. These are targeted to be evaluated and
                  upgraded as necessary by September 30, 1999.

         -        The Company has contacted all business partners and payors 
                  where implicit or implied relationships are such that a
                  significant disruption would be detrimental to the well-being
                  of either entity. Responses are being received and reviewed
                  on an on-going basis. Although the Company cannot require all
                  such parties to respond, follow-up requests are being made to
                  those who have not responded to initial requests. The Company
                  intends to address in a timely manner any issues or problems
                  that come to light as a result of these responses. At this
                  point, the responses have indicated that major governmental
                  payors (e.g., Medicare) will be Year 2000 compliant.

         In addition, testing and contingency planning will occur during 1999:

         -        Although almost all software is vendor supplied, the Company 
                  has begun testing critical systems in order to ensure Year
                  2000 compliance and expects it to be completed before
                  December 31, 1999.


                                      23
<PAGE>   24

         -        Contingency plans are not yet established, but expected to be
                  developed during the second half of 1999 for all critical
                  systems, as well as for branch operations.

         The Company is highly dependent upon certain government and private
         third-party payors for reimbursement of claims for services and
         equipment provided by the Company. The Company has initiated
         correspondence with its most significant payors regarding their Year
         2000 compliance efforts and intends to address in a timely manner any
         issues or problems that arise as a result of these responses. The
         Company, however, cannot be assured of the accuracy of the responses
         nor the timely remediation of third party claims processing and
         payment systems. Failure by third party payors to correct Year 2000
         problems could have a material impact on the Company's cash flow from
         operations should delays in processing and appropriate payments occur.

         The Company believes its compliance efforts will resolve all material
         Year 2000 issues prior to December 31, 1999; however, as noted above,
         the Company has not completed all phases of its compliance efforts. If
         the Company does not complete its compliance program timely, the
         Company may be unable to properly service patients, generate bills, or
         undertake collection efforts. In addition, although the Company has
         received assurances from key vendors that their programs will be Year
         2000 compliant on a timely basis, failure of the computer programs of
         key or multiple vendors and/or payors could materially adversely
         affect the Company's ability to provide services and/or collect
         revenue. Moreover, disruptions in the economy or health care industry
         in general caused by Year 2000 non-compliance could materially
         adversely affect the Company. Such results would adversely affect the
         Company's financial results and could cause defaults under its credit
         agreement. The Company could be sued for Year 2000 non-compliance. The
         amount of potential liability and losses in any such event cannot be
         reasonably estimated at this time.

         See "Risk Factors - Year 2000."

         RISK FACTORS

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

                  Substantial Leverage. The Company maintains a significant
         amount of long-term debt. As of March 31, 1999, the Company's
         consolidated indebtedness was $327,195,000. On April 14, 1999 the
         Company entered into the Second Amendment to the Bank Credit Facility.
         The Second Amendment waived events of default, modified existing
         financial covenants, and made a number of other changes to the Credit
         Agreement. The Second Amendment reduces the Company's credit
         availability from $360 million (credit availability was temporarily
         reduced to $340 million pursuant to the First Amendment) to $328.6
         million and freezes the credit availability until May 19, 1999 (30 days
         after the hiring of a manager mandated by the Banks). The margins
         associated with the Eurodollar interest rate and the Base Lending Rate
         remain in place for 18 months and then increase. Additional interest
         rate increases are provided for that portion of the indebtedness in
         excess of four times adjusted EBITDA. These increases could have a
         material adverse effect on the Company's liquidity, business, financial
         condition and results of operations. The degree to which the Company is
         leveraged and the terms contained in the Bank Credit Facility will
         impair the Company's ability to 


                                      24
<PAGE>   25

         finance, through its own cash flow or from additional financing, its
         future operations or pursue its business strategy and could make the
         Company more vulnerable to economic downturns, competitive and payor
         pricing pressures and adverse changes in government regulation. There
         can be no assurance that future cash flow from operations will be
         sufficient to cover debt obligations. Additional sources of funds may
         be required and there can be no assurance the Company will be able to
         obtain additional funds on acceptable terms, if at all. See
         "Management's Discussion and Analysis of Financial Condition and
         Results of Operations -Liquidity and Capital Resources."

                  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 new and existing 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. Federal laws governing the Company's
         activities include regulation of the repackaging and dispensing of
         drugs, Medicare reimbursement and certification and certain financial
         relationships with physicians and other health care providers.
         Although the Company intends to comply with all applicable fraud and
         abuse laws, there can be no assurance that administrative or judicial
         interpretation of existing laws or regulations or enactments of new
         laws or regulations will not have a material adverse effect on the
         Company's business. In addition, the OIG has expanded its auditing of
         the health care industry in an effort better to detect and remedy
         fraud and abuse and irregularities in Medicare and Medicaid billing.
         The Company and many other health care providers have received
         subpoenas and other requests for information concerning its billing
         practices and its relationships with potential referral sources. See
         "Management's Discussion and Analysis of Financial Condition and
         Results of Operations - Government Regulation." There can be no
         assurance such activities will not have a material adverse effect on
         the Company's results of operations, financial condition or prospects.
         The Company is subject to state laws governing Medicaid, professional
         training, certificates of need, 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. In addition, the Balanced Budget Act of 1997
         introduced several government initiatives which are either in the
         planning or early 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 Prospective Payment and Consolidated Billing requirements for
         skilled nursing facilities and home health agencies, which do not
         affect the Company directly but could affect the Company's contractual
         relationships with such entities; a pilot project set to begin soon to
         determine the efficacy of competitive billing for certain durable
         medical equipment (DME); and Medicare and Medicaid surety bond
         requirements for home health agencies and DME suppliers. There can be
         no assurance that federal, state or local governments will not change
         existing standards or impose additional standards. Any failure to
         comply with existing or future standards could have a material adverse
         effect on the Company's results of operations, financial condition or
         prospects.

                  Collectibility of Accounts Receivable. The Company has
         substantial accounts receivable, as well as days sales outstanding in
         excess of 90 days. The Company has implemented three key initiatives
         to improve accounts receivable performance: (i) proper 


                                      25
<PAGE>   26

         staffing and training, (ii) process redesign and standardization, and
         (iii) billing center specific goals geared toward improved cash
         collections and reduced accounts receivable. No assurances can be
         given, however, that additional charges for uncollectible accounts
         receivable will not be required as a result of continuing difficulties
         associated with the Company's billing activities and meeting payor
         documentation requirements and claim submission deadlines.

                  Possible NASDAQ De-listing. On November 11, 1998, NASDAQ sent
         the Company a letter noting that the Common Stock had failed to
         maintain a closing bid price greater than or equal to $5.00 for the
         last thirty (30) consecutive trading dates. The letter further noted
         that the Company's securities would be subject to de-listing from the
         NASDAQ National Market System if the Company was unable to demonstrate
         compliance with the minimum bid price requirement or any other listing
         criteria by February 8, 1999. In response to such letter, the Company
         requested a hearing before the NASDAQ Listing Qualifications Hearing
         Panel (the "Panel"). The Panel stayed de-listing and granted the
         Company a hearing, which took place on April 9, 1999. At such hearing,
         the Company requested a temporary waiver of the bid price requirement
         and the public float market value requirement in order to facilitate
         either continued listing on the NASDAQ National Market System or
         proposed initial listing on the American Stock Exchange. There can be
         no assurance, however, that NASDAQ will not de-list the Company from
         the NASDAQ National Market System or that the Company will be accepted
         for listing on AMEX. Under such circumstances the Company could not be
         admitted for listing on the NASDAQ Small Cap Market without a waiver
         of certain listing requirements. If the Company is not listed on any
         such market, it would instead be traded on the NASDAQ over-the-counter
         market. If the Company is de-listed from the NASDAQ National Market,
         is not permitted to be listed on AMEX and/or is not permitted to be
         listed on the NASDAQ Small Cap Market, the liquidity of the Company's
         Common Stock will likely be adversely affected and the Company's
         ability to raise any necessary capital may be limited.

                  Infrastructure. As the Company continues to refine its
         business model, it may need to implement enhanced operational and
         financial systems and may require additional employees and management,
         operational and financial resources. There can be no assurance that
         the Company will successfully (i) implement and maintain any such
         operational and financial systems, or (ii) apply the human,
         operational and financial resources needed to manage a developing and
         expanding business. Failure to implement such systems successfully and
         use such resources effectively could have a material adverse effect on
         the Company's results of operations, financial condition or prospects.

                  Medicare Reimbursement for Oxygen Therapy and Other Services.
         In 1998 oxygen therapy services reimbursement from Medicare accounted
         for approximately 23.5% of the Company's revenues. The Balanced Budget
         Act of 1997, as amended, reduced Medicare reimbursement rates for
         oxygen and certain oxygen equipment to 75% of their 1997 levels
         beginning January 1, 1998 and to 70% of their 1997 levels beginning
         January 1, 1999. Reimbursement for drugs and biologicals was reduced
         by 5% beginning January 1, 1998. Effective January 1, 1998, payments
         for parenteral and enteral nutrition ("PEN") were frozen at 1995
         levels, through the year 2002. Medicare also has the option of
         developing fee schedules for PEN and home dialysis supplies and
         equipment, although currently there is no timetable for the
         development or implementation of such fee schedules. In addition,
         Consumer Price Index ("CPI") increases in Medicare reimbursement rates
         for home medical


                                      26
<PAGE>   27

         equipment, including oxygen, will not resume until the year 2003, and
         CPI updates for prosthetics and orthotics are limited to 1%. In March,
         1998, HCFA was granted "inherent reasonableness" authority to reduce
         payments for all Medicare Part B items and services by as much as 15%
         without industry consultation, publication or public comment.
         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. Reimbursement reductions
         already implemented have materially adversely affected the Company's
         net revenues and net income, and any such future reductions could have
         a similar material adverse effect.

                  Dependence on Reimbursement by Third-Party Payors. For the
         three months ended March 31, 1999, the percentage of the Company's net
         revenues derived from Medicare, Medicaid and private pay was 45%, 10%
         and 45%, respectively. The net revenues and profitability of the
         Company are affected by the continuing efforts of all payors to
         contain or reduce the costs of health care by lowering reimbursement
         rates, narrowing the scope of covered services, increasing case
         management review of services and negotiating reduced contract
         pricing. Any changes 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 net
         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
         net revenues and profitability. There can be no assurance that the
         Company will continue to maintain its current payor or revenue mix.
         Also, many payors, including Medicare and Medicaid, are dependent upon
         their computer systems for determining and paying reimbursements to
         the Company. If such payor's computer systems are adversely affected
         by Year 2000 problems, this could have a material adverse impact on
         the Company's revenue and results of operations.

                  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
         Company will retain or obtain such managed care contracts. In
         addition, reimbursement rates under managed care contracts are likely
         to continue experiencing downward pressure as a result of payors'
         efforts to contain or reduce the costs of health care by increasing
         case management review of services 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 profit margins.

                  Impact of Health Care Reform. The health care industry
         continues to undergo dramatic changes. There can be no assurance that
         federal health care legislation will not be adopted in the future.
         Some states are adopting health care programs and initiatives as a
         replacement for Medicaid. It is also possible that proposed federal
         legislation will include language which provides incentives to further
         encourage Medicare recipients to shift to Medicare at-risk managed
         care programs. There can be no assurance that the adoption of such
         legislation or other changes in the administration or interpretation
         of governmental health care programs or initiatives will not have a
         material adverse effect on the Company.


                                      27
<PAGE>   28

                  Acquisitions. In the past, the Company's strategic focus was
         on the acquisition of small to medium sized home health care suppliers
         in targeted markets. Although the Company attempted in its
         acquisitions to determine the nature and extent of any pre-existing
         liabilities, and generally has the right to seek indemnification from
         the previous owners for acts or omissions arising prior to the date of
         the acquisition, resolving issues of liability between the parties
         could involve a significant amount of time, manpower and expense on
         the part of the Company. If the Company or its subsidiary were to be
         unsuccessful in a claim for indemnity from a seller, the liability
         imposed on the Company or its subsidiary could have a material adverse
         effect on the Company's financial results and operations.

                  No Assurance of Growth or Successful Integration of Past
         Acquisitions. The Company reported a net loss of $5.6 million for the
         three months ended March 31, 1999. No assurance can be given that the
         Company will achieve profitable operations in the near term. The
         Company intends to expand its business primarily through internal
         growth of existing operations including existing hospital joint
         ventures. There can be no assurance that the Company can increase
         growth in net revenues. There can also be no assurance that previously
         acquired companies will be integrated successfully into the Company's
         operations or that any past acquisition will not have a material
         adverse effect upon the Company's results of operations, financial
         condition or prospects. The price of the Company's common stock may
         fluctuate substantially in response to quarterly variations in the
         Company's operating and financial results, announcements by the
         Company or other developments affecting the Company, as well as
         general economic and other external factors.

                  "Year 2000". The Company has taken a comprehensive approach
         to its Year 2000 remediation work. The Company can give no assurance
         that it will not encounter unanticipated Year 2000 problems or that
         third parties it does business with (including payors and vendors)
         will adequately address their Year 2000 problems. The failure of third
         parties to adequately address their Year 2000 issues could have a
         material adverse effect on the Company's business, results of
         operations or financial condition. See "Management's Discussion and
         Analysis of Financial Condition and Results of Operations - Year 2000
         Compliance."

                  Influence of Executive Officers, Directors and Principal
         Stockholder. On March 31, 1999, the Company's executive officers,
         directors and principal stockholder, Counsel Corporation ("Counsel"),
         in the aggregate, beneficially owned approximately 33% of the
         outstanding shares of the common stock of the Company. As a result of
         such equity ownership and their positions in the Company, if the
         executive officers, directors and principal stockholder were to vote
         all or substantially all of their shares in the same manner, they
         could significantly influence the management and policies of the
         Company, including the election of the Company's directors and the
         outcome of matters submitted to stockholders of the Company for
         approval. The Company is highly dependent upon its senior management,
         and competition for qualified management personnel is intense. Recent
         changes in senior management may limit the Company's ability to
         attract and retain qualified personnel, which in turn 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 


                                      28
<PAGE>   29

         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 may encounter 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 which 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 or claims not covered by
         the Company's insurance coverage will not arise. A successful claim
         against the Company in excess of the 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.


         ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The chief market risk factor affecting the financial condition and
         operating results of the Company is interest rate risk. The Company's
         Bank Credit Facility uses a floating interest rate. As of March 31,
         1999, the Company had outstanding borrowings of approximately $321.4
         million. In the event that interest rates associated with this
         facility were to increase by 10%, the impact on future cash flows
         would be approximately $1.6 million. Interest expense associated with
         other debts would not materially impact the Company as most interest
         rates are fixed.
  

                           PART II. OTHER INFORMATION


         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.


                                      29
<PAGE>   30

                                   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.

         May 14, 1999        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


                                      30
<PAGE>   31

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                     DESCRIPTION OF EXHIBITS
-------                    -----------------------

<S>                        <C>
27                         Financial Data Schedule (for SEC use only)
</TABLE>



                                      31