##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended:June 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to.
 American HomePatient, Inc.
 (exact name of registrant as specified in its charter)
 Delaware
    
    0-19532
    
    62-1474680(State or other jurisdiction of 
incorporation or organization)
    
    (Commission
File Number)
    
    (IRS Employer Identification No.)
 5200 Maryland Way, Suite 400, Brentwood, Tennessee
    
    37027(Address of principal executive offices)
    
    (Zip Code)
 (615) 221-8884  (Registrants telephone number, including area code)
 None  (Former name, former address and former fiscal year, if changes since last report)
 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act. (Check one):
 Large accelerated filer o Accelerated filer o Non accelerated filer þ
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
 17,573,389(Outstanding
shares of the issuers common stock as of August 2, 2007)




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##### 



AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES
 INDEX
 Page No.PART I
    
    Financial InformationItem 1.
    
    Financial Statements (Unaudited)Interim Condensed Consolidated Balance Sheets
    
    
    3Interim Condensed Consolidated Statements of Operations  Three and Six months ended June 30, 2007 and 2006
    
    
    5Interim Condensed Consolidated Statements of Cash Flows  Three and Six months ended June 30, 2007 and 2006
    
    
    6Notes to Interim Condensed Consolidated Financial Statements
    
    
    8Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    33Item 4.
    
    Controls and Procedures
    
    
    33Report of Independent Registered Public Accounting Firm
    
    
    34PART II
    
    Other Information and SignaturesItem 1.
    
    Legal Proceedings
    
    
    35Item 1A.
    
    Risk Factors
    
    
    35Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    40Item 6.
    
    Exhibits
    
    
    41Signatures
    
    
    
    
    42Exhibit 15.1Exhibit 31.1Exhibit 31.2Exhibut 32.1Exhibit 32.2
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
  AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES
 
 INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
 June 30,
    
    
    December 31,ASSETS
    
    2007
    
    
    2006CURRENT ASSETS:Cash and cash equivalents
    
    $
    16,372,000
    
    
    $
    6,786,000Restricted cash
    
    
    250,000
    
    
    
    650,000Accounts receivable, less allowance for doubtful accounts of
$14,656,000 and $17,076,000, respectively
    
    
    46,934,000
    
    
    
    54,314,000Inventories, net of inventory valuation allowances of $805,000
and $792,000, respectively
    
    
    11,330,000
    
    
    
    12,288,000Prepaid expenses and other current assets
    
    
    11,688,000
    
    
    
    4,430,000Total current assets
    
    
    86,574,000
    
    
    
    78,468,000Property and equipment
    
    
    158,410,000
    
    
    
    163,666,000Less accumulated depreciation and amortization
    
    
    (114,082,000
    )
    
    
    (112,255,000
    )Property and equipment, net
    
    
    44,328,000
    
    
    
    51,411,000Goodwill
    
    
    121,834,000
    
    
    
    121,834,000Investment in joint ventures
    
    
    5,250,000
    
    
    
    8,691,000Other assets
    
    
    16,821,000
    
    
    
    16,267,000Total other assets
    
    
    143,905,000
    
    
    
    146,792,000TOTAL ASSETS
    
    $
    274,807,000
    
    
    $
    276,671,000
  3




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##### Table of Contents



AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES
 INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
  June 30,
    
    
    December 31,LIABILITIES AND SHAREHOLDERS DEFICIT
    
    2007
    
    
    2006CURRENT LIABILITIES:Current portion of long-term debt and capital leases
    
    $
    2,004,000
    
    
    $
    1,063,000Accounts payable
    
    
    17,131,000
    
    
    
    19,345,000Other payables
    
    
    1,477,000
    
    
    
    1,304,000Short-term note payable
    
    
    1,307,000
    
    
    
    248,000Deferred revenue
    
    
    6,660,000
    
    
    
    7,097,000Accrued expenses:Payroll and related benefits
    
    
    6,901,000
    
    
    
    8,706,000Insurance, including self-insurance accruals
    
    
    5,929,000
    
    
    
    6,246,000Other
    
    
    10,641,000
    
    
    
    3,119,000Total current liabilities
    
    
    52,050,000
    
    
    
    47,128,000NONCURRENT LIABILITIES:Long-term debt and capital leases, less current portion
    
    
    247,415,000
    
    
    
    250,194,000Deferred tax liability
    
    
    1,223,000
    
    
    
    Other noncurrent liabilities
    
    
    48,000
    
    
    
    47,000Total noncurrent liabilities
    
    
    248,686,000
    
    
    
    250,241,000Total liabilities
    
    
    300,736,000
    
    
    
    297,369,000MINORITY INTEREST
    
    
    556,000
    
    
    
    618,000SHAREHOLDERS DEFICITPreferred stock, $.01 par value; authorized 5,000,000 shares;
none issued and outstanding
    
    
    
    
    
    
    Common stock, $.01 par value; authorized 35,000,000 shares;
issued and outstanding, 17,573,000 shares
    
    
    176,000
    
    
    
    176,000Additional paid-in capital
    
    
    175,219,000
    
    
    
    175,083,000Accumulated deficit
    
    
    (201,880,000
    )
    
    
    (196,575,000
    )Total shareholders deficit
    
    
    (26,485,000
    )
    
    
    (21,316,000
    )TOTAL LIABILITIES AND SHAREHOLDERS DEFICIT
    
    $
    274,807,000
    
    
    $
    276,671,000
  4




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##### Table of Contents



AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES
 
 INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Restated)
    
    
    
    
    
    
    (Restated)REVENUES:Sales and related service revenues, net
    
    $
    30,503,000
    
    
    $
    32,878,000
    
    
    $
    62,413,000
    
    
    $
    65,527,000Rental revenues, net
    
    
    42,831,000
    
    
    
    46,339,000
    
    
    
    87,854,000
    
    
    
    92,725,000Total revenues, net
    
    
    73,334,000
    
    
    
    79,217,000
    
    
    
    150,267,000
    
    
    
    158,252,000EXPENSES:Cost of sales and related services
    
    
    19,187,000
    
    
    
    19,873,000
    
    
    
    39,238,000
    
    
    
    40,619,000Cost of rentals and other revenues, including rental equipment
depreciation of $7,852,000, $7,623,000, $15,372,000 and
$13,840,000, respectively
    
    
    10,659,000
    
    
    
    11,517,000
    
    
    
    21,071,000
    
    
    
    21,535,000Operating expenses
    
    
    34,428,000
    
    
    
    38,386,000
    
    
    
    69,451,000
    
    
    
    76,551,000Bad debt expense
    
    
    2,064,000
    
    
    
    2,772,000
    
    
    
    4,573,000
    
    
    
    5,533,000General and administrative
    
    
    4,841,000
    
    
    
    4,543,000
    
    
    
    9,390,000
    
    
    
    8,644,000Depreciation, excluding rental equipment, and amortization
    
    
    820,000
    
    
    
    941,000
    
    
    
    1,533,000
    
    
    
    1,853,000Interest expense, net
    
    
    3,967,000
    
    
    
    4,489,000
    
    
    
    8,059,000
    
    
    
    8,691,000Other (income) expense, net
    
    
    (892,000
    )
    
    
    12,000
    
    
    
    (1,052,000
    )
    
    
    (128,000
    )Change of control expense ( See Note 8)
    
    
    6,589,000
    
    
    
    
    
    
    
    6,589,000
    
    
    
    Total expenses
    
    
    81,663,000
    
    
    
    82,533,000
    
    
    
    158,852,000
    
    
    
    163,298,000Earnings from unconsolidated joint ventures
    
    
    1,354,000
    
    
    
    1,382,000
    
    
    
    2,846,000
    
    
    
    2,608,000LOSS FROM CONTINUING OPERATIONS BEFORE
REORGANIZATION ITEMS AND INCOME TAXES
    
    
    (6,975,000
    )
    
    
    (1,934,000
    )
    
    
    (5,739,000
    )
    
    
    (2,438,000
    )Reorganization expense
    
    
    
    
    
    
    135,000
    
    
    
    
    
    
    
    251,000LOSS FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES
    
    
    (6,975,000
    )
    
    
    (2,069,000
    )
    
    
    (5,739,000
    )
    
    
    (2,689,000
    )Provision for income taxes
    
    
    1,585,000
    
    
    
    87,000
    
    
    
    1,672,000
    
    
    
    174,000NET LOSS FROM CONTINUING OPERATIONS
    
    $
    (8,560,000
    )
    
    $
    (2,156,000
    )
    
    $
    (7,411,000
    )
    
    $
    (2,863,000
    )DISCONTINUED OPERATIONS:Operating income (loss) from discontinued operations, including
gain on disposal of assets of $3,001,000, net of tax
    
    
    2,182,000
    
    
    
    (37,000
    )
    
    
    2,106,000
    
    
    
    (68,000
    )NET LOSS
    
    $
    (6,378,000
    )
    
    $
    (2,193,000
    )
    
    $
    (5,305,000
    )
    
    $
    (2,931,000
    )NET INCOME (LOSS) PER COMMON SHARE  BASICLoss from continuing operations
    
    $
    (0.49
    )
    
    $
    (0.12
    )
    
    $
    (0.42
    )
    
    $
    (0.16
    )Income from discontinued operations
    
    
    0.13
    
    
    
    
    
    
    $
    0.12
    
    
    $
    (0.01
    )NET LOSS PER COMMON SHARE  BASIC
    
    $
    (0.36
    )
    
    $
    (0.12
    )
    
    $
    (0.30
    )
    
    $
    (0.17
    )NET INCOME (LOSS) PER COMMON SHARE  DILUTEDLoss from continuing operations
    
    $
    (0.49
    )
    
    $
    (0.12
    )
    
    $
    (0.42
    )
    
    $
    (0.16
    )Income from discontinued operations
    
    
    0.13
    
    
    
    
    
    
    
    0.12
    
    
    
    (0.01
    )NET LOSS PER COMMON SHARE  DILUTED
    
    $
    (0.36
    )
    
    $
    (0.12
    )
    
    $
    (0.30
    )
    
    $
    (0.17
    )WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:- Basic
    
    
    17,573,000
    
    
    
    17,573,000
    
    
    
    17,573,000
    
    
    
    17,512,000- Diluted
    
    
    17,573,000
    
    
    
    17,573,000
    
    
    
    17,573,000
    
    
    
    17,512,000
  5




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##### Table of Contents



AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES
 
 INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 Six Months Ended June 30,2007
    
    
    2006(Restated)CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (5,305,000
    )
    
    $
    (2,931,000
    )Adjustments to reconcile net loss to net cash provided by
operating activities:Change of control expense
    
    
    6,589,000
    
    
    
    Gain on sale of nursing facility
    
    
    (3,001,000
    )
    
    
    Deferred tax expense
    
    
    1,223,000
    
    
    
    Depreciation and amortization
    
    
    16,919,000
    
    
    
    15,712,000Bad debt expense
    
    
    5,335,000
    
    
    
    5,563,000Stock compensation expense
    
    
    409,000
    
    
    
    320,000Equity in earnings from unconsolidated joint ventures
    
    
    (1,886,000
    )
    
    
    (1,649,000
    )Minority interest
    
    
    187,000
    
    
    
    224,000Change in assets and liabilities:Restricted cash
    
    
    400,000
    
    
    
    Accounts receivable
    
    
    2,200,000
    
    
    
    (4,387,000
    )Inventories
    
    
    942,000
    
    
    
    1,357,000Prepaid expenses and other current assets
    
    
    (7,291,000
    )
    
    
    4,373,000Deferred revenue
    
    
    (437,000
    )
    
    
    343,000Accounts payable, other payables and accrued expenses
    
    
    (3,503,000
    )
    
    
    (3,295,000
    )Other assets and liabilities
    
    
    (602,000
    )
    
    
    (1,509,000
    )Due to unconsolidated joint ventures, net
    
    
    5,327,000
    
    
    
    4,126,000Net cash provided by operating activities
    
    
    17,506,000
    
    
    
    18,247,000CASH FLOWS FROM INVESTING ACTIVITIES:Additions to property and equipment, net
    
    
    (6,630,000
    )
    
    
    (13,182,000
    )Proceeds from sale of nursing facility
    
    
    2,790,000
    
    
    
    Net cash used in investing activities
    
    $
    (3,840,000
    )
    
    $
    (13,182,000
    )
  6




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##### Table of Contents



AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES
 INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
  Six Months Ended June 30,2007
    
    
    2006(Restated)CASH FLOWS FROM FINANCING ACTIVITIES:Distributions to minority interest owners
    
    $
    (249,000
    )
    
    $
    (206,000
    )Proceeds from exercise of employee stock options
    
    
    
    
    
    
    457,000Principal payments on long-term debt and capital leases
    
    
    (4,890,000
    )
    
    
    (102,000
    )Proceeds (principal payments) on short-term note payable
    
    
    1,059,000
    
    
    
    (2,359,000
    )Net cash used in financing activities
    
    
    (4,080,000
    )
    
    
    (2,210,000
    )INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    9,586,000
    
    
    
    2,855,000CASH AND CASH EQUIVALENTS, beginning of period
    
    
    6,786,000
    
    
    
    4,444,000CASH AND CASH EQUIVALENTS, end of period
    
    $
    16,372,000
    
    
    $
    7,299,000SUPPLEMENTAL INFORMATION:Cash payments of interest
    
    $
    8,388,000
    
    
    $
    8,545,000Cash payments of income taxes
    
    $
    276,000
    
    
    $
    261,000NON-CASH ACTIVITY:Capital leases entered into for property and equipment
    
    $
    3,052,000
    
    
    $
    472,000Write-off of related notes receivable and notes payable
    
    $
    
    
    
    $
    570,000CHANGE OF CONTROL EXPENSE:Other liabilities
    
    $
    6,862,000
    
    
    $
    Additional paid-in capital
    
    $
    (273,000
    )
    
    $
    NURSING AGENCY ASSETS SOLD:Inventories
    
    $
    16,000
    
    
    $
    Property and equipment, net
    
    $
    50,000
    
    
    $
    PROMISSORY NOTE RECEIVED FROM SALE OF
NURSING AGENCY
    
    $
    310,000
    
    
    $
    
  7




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##### Table of Contents



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




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##### Table of Contents



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




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##### Table of Contents



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




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##### Table of Contents



WeightedWeighted
    
    
    AveraqeAverage
    
    
    RemainingExercise
    
    
    Contractual
    
    
    AggregateWeighted
    
    
    
    
    
    
    
    
    
    
    Price of
    
    
    Life in
    
    
    IntrinsicAverage
    
    
    
    
    
    
    Options
    
    
    Options
    
    
    Years of
    
    
    ValueWeighted
    
    
    Remaining
    
    
    
    
    
    
    Exercisable
    
    
    Exercisable
    
    
    Options
    
    
    of OptionsAverage
    
    
    Contractual
    
    
    Aggregate
    
    
    at
    
    
    at
    
    
    Exercisable
    
    
    ExercisableYear of
    
    Options
    
    
    Exercise
    
    
    Exercise
    
    
    Life in
    
    
    Intrinsic
    
    
    June 30,
    
    
    June 30,
    
    
    at June 30,
    
    
    at June 30,Grant
    
    Outstanding
    
    
    Prices
    
    
    Price
    
    
    Years
    
    
    Value
    
    
    2007
    
    
    2007
    
    
    2007
    
    
    20071998
    
    
    
    483,000
    
    
    $
    2.13 to $18.13
    
    
    $
    6.20
    
    

    1.26
    
    
    
    
    
    
    
    483,000
    
    
    $
    6.20
    
    

    1.26
    
    
    
    1999
    
    
    
    200,000
    
    
    $
    0.56
    
    
    $
    0.56
    
    
    
    2.37
    
    
    
    352,000
    
    
    
    200,000
    
    
    $
    0.56
    
    
    
    2.37
    
    
    
    352,0002000
    
    
    
    220,000
    
    

    $
    0.17 to  $  0.30
    

    
    $
    0.18
    
    
    
    3.35
    
    
    
    471,700
    
    
    
    220,000
    
    
    $
    0.18
    
    
    
    3.35
    
    
    
    471,7002004
    
    
    
    450,000
    
    

    $
    1.31 to   $  1.80

    

    
    $
    1.64
    
    
    
    6.89
    
    
    
    307,500
    
    
    
    412,500
    
    
    $
    1.67
    
    
    
    6.85
    
    
    
    269,6252005
    
    
    
    170,000
    
    

    $
    2.21 to   $  3.83
    

    
    $
    2.97
    
    
    
    7.60
    
    
    
    
    
    
    
    125,000
    
    
    $
    2.96
    
    
    
    7.59
    
    
    
    2006
    
    
    
    535,000
    
    
    $
    3.30
    
    
    $
    3.25
    
    
    
    8.65
    
    
    
    
    
    
    
    335,000
    
    
    $
    3.30
    
    
    
    8.64
    
    
    
    2007
    
    
    
    485,000
    

    

    $
    1.60 to   $  2.40
    


    
    $
    1.66
    
    
    
    9.69
    
    
    
    321,200
    
    
    
    253,750
    
    
    $
    1.63
    
    
    
    9.68
    
    
    
    175,7002,543,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,452,400
    
    
    
    2,029,250
    
    
    
    
    
    
    
    
    
    
    $
    1,269,025
  WeightedWeighted
    
    
    AverageAverage
    
    
    RemainingExercise
    
    
    Contractual
    
    
    AggregateWeighted
    
    
    
    
    
    
    
    
    
    
    Price of
    
    
    Life in
    
    
    IntrinsicAverage
    
    
    
    
    
    
    Options
    
    
    Options
    
    
    Years of
    
    
    ValueWeighted
    
    
    Remaining
    
    
    
    
    
    
    Exercisable
    
    
    Exercisable
    
    
    Options
    
    
    of OptionsAverage
    
    
    Contractual
    
    
    Aggregate
    
    
    at
    
    
    at
    
    
    Exercisable
    
    
    ExercisableYear of
    
    Options
    
    
    Exercise
    
    
    Exercise
    
    
    Life in
    
    
    Intrinsic
    
    
    Dec. 31,
    
    
    Dec. 31,
    
    
    at Dec. 31,
    
    
    at Dec. 31,Grant
    
    Outstanding
    
    
    Prices
    
    
    Price
    
    
    Years
    
    
    Value
    
    
    2006
    
    
    2006
    
    
    2006
    
    
    20061997
    
    
    
    52,000
    
    
    $
    21.50
    
    
    $
    21.50
    
    
    
    0.15
    
    
    $
    
    
    
    
    52,000
    
    
    $
    21.50
    
    
    
    0.15
    
    
    $
    1998
    
    
    
    484,250
    
    
    $
    2.13 to $18.13
    
    
    $
    6.23
    
    
    
    1.76
    
    
    
    
    
    
    
    484,250
    
    
    $
    6.23
    
    
    
    1.76
    
    
    
    1999
    
    
    
    200,000
    
    
    $
    0.56
    
    
    $
    0.56
    
    
    
    2.86
    
    
    
    168,000
    
    
    
    200,000
    
    
    $
    0.56
    
    
    
    2.86
    
    
    
    168,0002000
    
    
    
    220,000
    
    
    $

    0.17 to   $  0.30
    

    
    $
    0.18
    
    
    
    3.85
    
    
    
    269,300
    
    
    
    220,000
    
    
    $
    0.18
    
    
    
    3.85
    
    
    
    269,3002004
    
    
    
    450,000
    
    
    $

    1.31 to   $  1.80
    

    
    $
    1.64
    
    
    
    7.39
    
    
    
    
    
    
    
    412,500
    
    
    $
    1.67
    
    
    
    7.35
    
    
    
    2005
    
    
    
    245,000
    
    
    $

    2.21 to   $  3.83
    

    
    $
    3.23
    
    
    
    8.13
    
    
    
    
    
    
    
    122,500
    
    
    $
    3.23
    
    
    
    8.13
    
    
    
    2006
    
    
    
    570,000
    
    
    $

    0.61 to   $  3.30
    

    
    $
    3.25
    
    
    
    9.15
    
    
    
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    2,221,250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    437,300
    
    
    
    1,491,250
    
    
    
    
    
    
    
    
    
    
    $
    437,300
  11




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##### Table of Contents



Weighted AverageOptions
    
    
    Exercise PriceOutstanding at December 31, 2006 and June 30, 2007
    
    
    468,000
    
    
    $
    1.62
  Weighted
    
    
    WeightedAverage
    
    
    Average
    
    
    
    
    
    
    Weighted
    
    
    Aggregate
    
    
    AggregateRemaining
    
    
    Remaining
    
    
    
    
    
    
    Average
    
    
    Intrinsic
    
    
    IntrinsicWeighted
    
    
    Contractual
    
    
    Contractual
    
    
    
    
    
    
    Exercise
    
    
    Value
    
    
    ValueAverage
    
    
    Life in
    
    
    Life in
    
    
    
    
    
    
    Price of
    
    
    of Options
    
    
    of OptionsYear of
    
    
    Options
    
    
    Exercise
    
    
    Exercise
    
    
    Years
    
    
    Years
    
    
    Options
    
    
    Options
    
    
    Exercisable
    
    
    ExercisableGrant
    
    
    Outstanding
    
    
    Prices
    
    
    Price
    
    
    12/31/2006
    
    
    6/30/2007
    
    
    Exercisable
    
    
    Exercisable
    
    
    12/31/2006
    
    
    6/30/20071997
    
    
    
    6,000
    
    
    $
    21.06
    
    
    $
    21.06
    
    
    
    1.00
    
    
    
    0.50
    
    
    
    6,000
    
    
    $
    21.06
    
    
    $
    
    
    
    $
    1998
    
    
    
    6,000
    
    
    $
    1.69
    
    
    $
    1.69
    
    
    
    2.00
    
    
    
    1.51
    
    
    
    6,000
    
    
    $
    1.69
    
    
    
    
    
    
    
    3,7801999
    
    
    
    6,000
    
    
    $
    0.53
    
    
    $
    0.53
    
    
    
    3.00
    
    
    
    2.51
    
    
    
    6,000
    
    
    $
    0.53
    
    
    
    5,220
    
    
    
    10,7402000
    
    
    
    140,000
    
    
    $
    0.20 to $0.30
    
    
    $
    0.26
    
    
    
    3.61
    
    
    
    3.12
    
    
    
    140,000
    
    
    $
    0.26
    
    
    
    159,800
    
    
    
    288,6002001
    
    
    
    15,000
    
    
    $
    0.75
    
    
    $
    0.75
    
    
    
    5.00
    
    
    
    4.51
    
    
    
    15,000
    
    
    $
    0.75
    
    
    
    9,750
    
    
    
    23,5502002
    
    
    
    15,000
    
    
    $
    0.15
    
    
    $
    0.15
    
    
    
    6.00
    
    
    
    5.51
    
    
    
    15,000
    
    
    $
    0.15
    
    
    
    18,750
    
    
    
    32,5502003
    
    
    
    80,000
    
    
    $
    1.29
    
    
    $
    1.29
    
    
    
    7.00
    
    
    
    6.51
    
    
    
    80,000
    
    
    $
    1.29
    
    
    
    8,800
    
    
    
    82,4002004
    
    
    
    100,000
    
    
    $
    1.18 to $3.46
    
    
    $
    2.32
    
    
    
    7.72
    
    
    
    7.22
    
    
    
    100,000
    
    
    $
    2.32
    
    
    
    
    
    
    
    2005
    
    
    
    50,000
    
    
    $
    3.27
    
    
    $
    3.27
    
    
    
    9.00
    
    
    
    8.51
    
    
    
    50,000
    
    
    $
    3.27
    
    
    
    
    
    
    
    2006
    
    
    
    50,000
    
    
    $
    1.40
    
    
    $
    1.40
    
    
    
    10.00
    
    
    
    9.51
    
    
    
    50,000
    
    
    $
    1.40
    
    
    
    
    
    
    
    46,000468,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    468,000
    
    
    
    
    
    
    $
    202,320
    
    
    $
    487,620
  3. NET INCOME (LOSS) PER COMMON SHARE
  12




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##### Table of Contents



Three Months Ended June 30,
    
    
    Six Months Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net loss
    
    $
    (6,378,000
    )
    
    $
    (2,193,000
    )
    
    $
    (5,305,000
    )
    
    $
    (2,931,000
    )Weighted average common shares outstanding
    
    
    17,573,000
    
    
    
    17,573,000
    
    
    
    17,573,000
    
    
    
    17,512,000Effect of dilutive options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Adjusted diluted common shares outstanding
    
    
    17,573,000
    
    
    
    17,573,000
    
    
    
    17,573,000
    
    
    
    17,512,000Net income (loss) per common share  basicLoss from continuing operations
    
    $
    (0.49
    )
    
    $
    (0.12
    )
    
    $
    (0.42
    )
    
    $
    (0.16
    )Income (loss) from discontinued operations
    
    
    0.13
    
    
    
    
    
    
    
    0.12
    
    
    
    (0.01
    )Net loss per common share  basic
    
    $
    (0.36
    )
    
    $
    (0.12
    )
    
    $
    (0.30
    )
    
    $
    (0.17
    )Net income (loss) per common share  dilutedLoss from continuing operations
    
    $
    (0.49
    )
    
    $
    (0.12
    )
    
    $
    (0.42
    )
    
    $
    (0.16
    )Income (loss) from discontinued operations
    
    
    0.13
    
    
    
    
    
    
    
    0.12
    
    
    
    (0.01
    )Net loss per common share  diluted
    
    $
    (0.36
    )
    
    $
    (0.12
    )
    
    $
    (0.30
    )
    
    $
    (0.17
    )
 4. PROCEEDINGS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
    13




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5. INCOME TAXES
   6. RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENT
   14




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##### Table of Contents



7. DISCONTINUED OPERATIONS
   8. CHANGE OF CONTROL
   15




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ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 including, without limitation, statements
containing the words believes, anticipates, intends, expects, estimates, projects,
may, plan, will, likely, could and words of similar import. Such statements include
statements concerning the Companys Approved Plan (as defined in Note 4 to the interim condensed
consolidated financial statements), other effects and consequences of the Bankruptcy Filing (as
defined in Note 4 to the interim condensed consolidated financial statements), forecasts upon which
the Approved Plan is based, business strategy, the ability to satisfy interest expense and
principal repayment obligations, operations, cost savings initiatives, industry, economic
performance, financial condition, liquidity and capital resources, adoption of, or changes in,
accounting policies and practices, existing government regulations and changes in, or the failure
to comply with, governmental regulations, legislative proposals for healthcare reform, the ability
to enter into strategic alliances and arrangements with managed care providers on an acceptable
basis, and current and future reimbursement rates, as well as reimbursement reductions and the
Companys ability to mitigate the impact of the reductions. Such statements are not guarantees of
future performance and are subject to various risks and uncertainties. The Companys actual
results may differ materially from the results discussed in such forward-looking statements because
of a number of factors, including those identified in the Risk Factors section and elsewhere in
this Quarterly Report on Form 10-Q. The forward-looking statements are made as of the date of this
Quarterly Report on Form 10-Q and the Company does not undertake to update the forward-looking
statements or to update the reasons that actual results could differ from those projected in the
forward-looking statements.
 Overview
  16




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##### Table of Contents



Six Months Ended June 30,2007
    
    2006Oxygen systems
    
    
    38
    %
    
    
    38
    %Inhalation drugs
    
    
    12
    
    
    
    10Nebulizers
    
    
    2
    
    
    
    2Respiratory assist devices
    
    
    24
    
    
    
    23Other respiratory
    
    
    2
    
    
    
    2Total home respiratory therapy services
    
    
    78
    %
    
    
    75
    %Enteral nutrition services
    
    
    5
    
    
    
    6Other infusion services
    
    
    6
    
    
    
    6Total home infusion therapy services
    
    
    11
    %
    
    
    12
    %Total home medical equipment and supplies
    
    
    11
    %
    
    
    13
    %100
    %
    
    
    100
    %
  Revenue Growth
 17




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##### Table of Contents



Bad Debt Expense
 Cash Flow.
 Days Sales Outstanding
 Unbilled Revenue.
 18




---



##### Table of Contents



Productivity and Profitability
  Trends, Events, and Uncertainties
  19




---



##### Table of Contents



Reimbursement Changes and the Companys Response
    
    
    Charlotte-Gastonia-Concord, NC-SC
    
    Cincinnati-Middletown, OH-KY-IN
    
    Cleveland-Elyria-Mentor, OH
    
    Dallas-Fort Worth-Arlington, TX
    
    Kansas City, MO-KS
    
    Miami-Fort Lauderdale-Miami Beach, FL
    
    Orlando, FL
    
    Pittsburgh, PA
    
    Riverside-San Bernardino-Ontario, CA
    
    San Juan-Caguas-Guaynabo, PR
   
    
    Oxygen supplies and equipment
    
    Standard power wheelchairs, scooters, and related accessories
    
    Complex rehabilitative power wheelchairs and related accessories
    
    Mail-order diabetic supplies
 20




---



##### Table of Contents




    
    Enteral nutrients, equipment, and supplies
    
    Continuous Positive Airway Pressure (CPAP) devices, Respiratory Assist Devices
(RADs), and related supplies and accessories
    
    Hospital beds and related accessories
    
    Negative Pressure Wound Therapy (NPWT) pumps and related supplies and accessories
    
    Walkers and related accessories
    
    Support surfaces (group 2 and 3 mattresses and overlays)  Miami and San Juan only
     
    
    The DRA contains a provision that eliminated the Medicare capped rental methodology
for certain items of durable medical equipment, including wheelchairs, beds, and
respiratory assist devices. The DRA changes the rental period to thirteen months, at
which time the rental payments stop and title to the equipment is transferred to the
beneficiary. The effective date of the provision to eliminate the capped rental
methodology applies to items for which the first rental month occurs on or after
January 1, 2006 and, as a result, there was no impact to the Companys revenue in 2006.
The impact of this change will be realized over a period of several years beginning in
2007.
 21




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##### Table of Contents



When fully phased in, the Company estimates that the annual impact of the elimination of
the capped rental payment methodology will be a reduction in rental revenue of
approximately $5.8 million, but this could be offset to some degree by additional
maintenance and service revenue paid by Medicare to the Company, which the Company is
not able to quantify at this time.
    
    The DRA also contains a provision that limits the monthly Medicare rental payments
on oxygen equipment to 36 months. Prior to the DRA, Medicare provided indefinite
monthly reimbursement for the rental of oxygen equipment as long as the patient needed
the equipment and met medical qualifications. The effective date for the
implementation of the 36 month rental cap for oxygen equipment was January 1, 2006. In
the case of individuals who received oxygen equipment on or prior to December 31, 2005,
the 36 month period began on January 1, 2006. Therefore, the transfer of title of
oxygen equipment from the Company to the beneficiary will begin in 2009. The financial
impact beginning in 2009 of the 36 month cap for oxygen equipment cannot be accurately
estimated as the Company is not able to quantify additional revenue associated with
maintenance and supplies that would partially offset the loss of rental revenue after
the 36 month cap. However, such impact will be material.
    
    On August 3, 2006, CMS published a Proposed Rule to implement the changes required
by the DRA relating to the payment for oxygen, oxygen equipment, and capped rental DME
items. The rule, which became final November 9, 2006 (DRA Implementation Rule),
establishes revised payment classes and reimbursement rates for oxygen and oxygen
equipment effective January 1, 2007, including revised rates for concentrators, liquid
and gas stationary systems, and portable liquid and gas equipment. The DRA
Implementation Rule also establishes a reimbursement rate for oxygen generating
equipment for portability and changes regulations related to maintenance and equipment
replacement reimbursement. Under the DRA Implementation Rule, during the initial 36
months of rental, the reimbursement rate for concentrators and stationary liquid and
gas systems is $198.40 per month for calendar years 2007 and 2008, $193.21 per month
for 2009, and $189.39 per month for 2010. For liquid or gas portable equipment, the
reimbursement rate is a $31.79 add-on per month from 2007 through 2010, and for oxygen
generating portable equipment, the reimbursement rate is an add-on of $51.63 per month
for 2007 through 2010. During 2006, the Companys average reimbursement rate for
concentrators and stationary equipment was $199.84 per month, with a portable add-on of
$31.79 per month. Under the competitive bidding process, the single payment rate for
oxygen in the 10 CBAs cannot exceed those established by the DRA.
  22




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23




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##### Table of Contents



Product Mix
 Critical Accounting Policies and Estimates
  Results of Operations
  24




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##### Table of Contents



Percentage of RevenuesThree Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales and related services
    
    
    26.2
    
    
    
    25.1
    
    
    
    26.1
    
    
    
    25.7Cost of rentals, including rental equipment
depreciation
    
    
    14.5
    
    
    
    14.5
    
    
    
    14.0
    
    
    
    13.6Operating expenses
    
    
    46.9
    
    
    
    48.5
    
    
    
    46.2
    
    
    
    48.4Bad debt expense
    
    
    2.8
    
    
    
    3.5
    
    
    
    3.0
    
    
    
    3.5General and administrative
    
    
    6.6
    
    
    
    5.7
    
    
    
    6.2
    
    
    
    5.5Depreciation, excluding rental equipment,
and amortization
    
    
    1.1
    
    
    
    1.2
    
    
    
    1.0
    
    
    
    1.2Interest expense, net
    
    
    5.4
    
    
    
    5.7
    
    
    
    5.4
    
    
    
    5.5Other (income) expense, net
    
    
    (1.2
    )
    
    
    
    
    
    
    (0.7
    )
    
    
    (0.1
    )Change of control expense
    
    
    9.0
    
    
    
    
    
    
    
    4.4
    
    
    
    Total expenses
    
    
    111.3
    
    
    
    104.2
    
    
    
    105.6
    
    
    
    103.3Earnings from unconsolidated joint ventures
    
    
    1.8
    
    
    
    1.7
    
    
    
    1.9
    
    
    
    1.6Loss from continuing operations before
reorganization items and income taxes
    
    
    (9.5
    )
    
    
    (2.5
    )
    
    
    (3.7
    )
    
    
    (1.7
    )Reorganization items
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    0.2Provision for income taxes
    
    
    2.2
    
    
    
    0.1
    
    
    
    1.1
    
    
    
    0.1Net loss from continuing
operations
    
    
    (11.7
    )
    
    
    (2.8
    )
    
    
    (4.8
    )
    
    
    (2.0
    )Operating income from discontinued
operations, including gain on disposal,
net of tax
    
    
    3.0
    
    
    
    
    
    
    
    1.4
    
    
    
    Net loss
    
    
    (8.7
    )
    
    
    (2.8
    )
    
    
    (3.4
    )
    
    
    (2.0
    )
 25




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##### Table of Contents



Three Months Ended June 30, 2007 Compared to Three Months Ended June 30, 2006
 Revenues.
 Sales and Related Services Revenues.Sales and related services revenues decreased from
$32.9 million for the quarter ended June 30, 2006 to $30.5 million for the same period of
2007, a decrease of $2.4 million, or 7.3%. This decrease is primarily the result of a
decrease in revenue associated with non-focus product lines and temporary disruptions in
sales and marketing processes as described above.Rental Revenues. Rental revenues decreased from $46.3 million for the quarter ended June
30, 2006 to $42.8 million for the same period in 2007, a decrease of $3.5 million, or 7.6%.
This decrease is primarily the result of a decrease in revenue associated with non-focus
product lines, a decrease in unprofitable revenue, temporary disruptions in sales and
marketing processes, and the impact of 2007 Medicare reimbursement reductions, all of which
are described above.
 Cost of Sales and Related Services
 Cost of Rental Revenues
 26




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##### Table of Contents



Operating Expenses
 Bad Debt Expense.
 General and Administrative Expenses
 Depreciation and Amortization
 Interest Expense, Net
 Other Expense (Income), Net
 Change of Control Expense
 Earnings from Unconsolidated Joint Ventures
 27




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##### Table of Contents



Provision for Income Taxes
 Six Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2006
 Revenues.
 Sales and Related Services Revenues.Sales and related services revenues decreased from
$65.5 million for the six months ended June 30, 2006 to $62.4 million for the same period of
2007, a decrease of $3.1 million, or 4.7%. This decrease is primarily the result of a
decrease in revenue associated with non-focus product lines and temporary disruptions in
sales and marketing processes as described above.Rental Revenues. Rental revenues decreased from $92.7 million for the six months ended June
30, 2006 to $87.9 million for the same period in 2007, a decrease of $4.8 million, or 5.2%.
This decrease is primarily the result of a decrease in revenue associated with non-focus
product lines, a decrease in unprofitable revenue, temporary disruptions in sales and
marketing processes, and the impact of 2007 Medicare reimbursement reductions, all of which
are described above.
 Cost of Sales and Related Services
 Cost of Rental Revenues
 28




---



##### Table of Contents



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




---



##### Table of Contents



Earnings from Unconsolidated Joint Ventures
 Provision for Income Taxes
 Liquidity and Capital Resources
       30




---



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31




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Contractual Obligations and Commercial Commitments
  Twelve Months Ending June 30,After June 30,Total
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2011Long-term debt and
capital leases
    
    $
    249,419,000
    
    
    $
    2,004,000
    
    
    $
    94,000
    
    
    $
    247,296,000
    
    
    $
    25,000
    
    
    $
    Interest on long-term debt
and capital leases
    
    
    34,077,000
    
    
    
    17,064,000
    
    
    
    17,012,000
    
    
    
    1,000
    
    
    
    
    
    
    
    Operating lease
obligations
    
    
    20,879,000
    
    
    
    9,692,000
    
    
    
    7,214,000
    
    
    
    3,430,000
    
    
    
    493,000
    
    
    
    50,000Total contractual cash
obligations
    
    $
    304,375,000
    
    
    $
    28,760,000
    
    
    $
    24,320,000
    
    
    $
    250,727,000
    
    
    $
    518,000
    
    
    $
    50,000
     32




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ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
 ITEM 4  CONTROLS AND PROCEDURES
  33




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
      Nashville, TNAugust 3, 2007 34




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PART II. OTHER INFORMATION
 
 ITEM 1  LEGAL PROCEEDINGS
  
 ITEM 1A  RISK FACTORS
  Continued reductions in Medicare and Medicaid reimbursement rates could have a material adverse
effect on the Companys results of operations and financial condition.
  Reductions in reimbursement rates from third-party payors could have a material adverse effect on
the Companys revenues, net income, cash flows and capital resources.
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The Companys substantial leverage could adversely affect its ability to grow or to withstand
adverse business conditions.
  Highland Capital Management, L.P. controls approximately 48% of the Companys common stock and
holds a majority of the Companys $247.2 million secured debt, which may allow Highland to exert
significant influence on certain aspects of our business.
  The Company is subject to extensive government regulation, and the Companys inability to comply
with existing or future laws, regulations or standards could have a material adverse effect on the
Companys operations, financial condition, business, or prospects.
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Because of reimbursement reductions, the Company must continue to find ways to grow revenues and
reduce expenses in order to generate earnings and cash flow.
  The Company has substantial accounts receivable, and increased bad debt expense or delays in
collecting accounts receivable could have a material adverse effect on the Companys cash flows and
results of operations.
  New healthcare legislation or other changes in the administration or interpretation of government
health care programs or initiatives may have a material adverse effect on the Company.
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The Company depends on retaining and obtaining profitable managed care contracts, and the Companys
business may be materially adversely affected if it is unable to retain or obtain such managed care
contracts.
  The Companys common stock trades on the over-the-counter bulletin board, which reduces the
liquidity of an investment in the Company.
  Compliance with privacy regulations under the Federal Health Insurance Portability and
Accountability Act of 1996, or HIPAA, could result in significant costs to the Company and delays
in its collection of accounts receivable.
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The Company is highly dependent upon its senior management and, as a result of an investors
acquisition of 48% of our common stock, our chief executive officer has the right to receive a
significant payment in the event he or the Company terminates his employment within one year after
the change of control.
  The market in which the Company operates is highly competitive, and if the Company is unable to
compete successfully, its business will be materially adversely affected.
  The provision of healthcare services entails an inherent risk of liability, and the Companys
insurance may not be sufficient to effectively protect the Company from claims in excess of its
insurance coverage.
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ITEM 4  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   Votes
    
    Votes
    
    Votes
    
    
    
    
    
    BrokerFor
    
    Against
    
    Withheld
    
    Abstentions
    
    Non-VotesReelection of Class 1
director Henry T.
Blackstock
    
    
    15,211,072
    
    
    
    N/A
    
    
    
    29,282
    
    
    
    N/A
    
    
    
    N/AReelection of Class 1
director W. Wayne
Woody
    
    
    15,211,073
    
    
    
    N/A
    
    
    
    29,281
    
    
    
    N/A
    
    
    
    N/A
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ITEM 6  EXHIBITS
 EXHIBITNUMBER
    
    DESCRIPTION OF EXHIBITS3.1
    
    Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the
Companys Registration Statement No. 33-42777 on Form S-1).3.2
    
    Certificate of Amendment to the Certificate of Incorporation of the Company dated October 31,
1991 (incorporated by reference to Exhibit 3.2 to Amendment No. 2 to the Companys
Registration Statement No. 33-42777 on Form S-1).3.3
    
    Certificate of Amendment to the Certificate of Incorporation of the Company Dated May 14,
1992 (incorporated by reference to the Companys Registration Statement on Form S-8 dated
February 16, 1993).3.4
    
    Certificate of Ownership and Merger merging American HomePatient, Inc. into Diversicare Inc.
dated May 11, 1994 (incorporated by reference to Exhibit 4.4 to the Companys Registration
Statement No.33-89568 on Form S-2).3.5
    
    Certificate of Amendment to the Certificate of Incorporation of the Company dated June 8,
1996 (incorporated by reference to Exhibit 3.5 to the Companys Quarterly Report on Form 10-Q
for the quarter ended September 30, 2004).3.6
    
    Bylaws of the Company, as amended (incorporated by reference to Exhibit 3.3 to the Companys
Registration Statement No. 33-42777 on Form S-1).10.1
    
    Confidentiality, Non-Competition and Severance Pay Agreement between the Company and James P.
Reichmann (incorporated by reference to Exhibit 10.2 to the Companys Current Report on Form
8-K dated June 21, 2007).15.1
    
    Awareness Letter of KPMG LLP.31.1
    
    Certification pursuant to Rule 13a-14(a)/15d-14(a)  Chief Executive Officer.31.2
    
    Certification pursuant to Rule 13a-14(a)/15d-14(a)  Chief Financial Officer.32.1
    
    Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002  Chief Executive Officer.32.2
    
    Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002  Chief Financial Officer.
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SIGNATURES
  AMERICAN HOMEPATIENT, INC.August 3, 2007
    
    By:
    
    /s/ Stephen L. ClantonStephen L. ClantonChief Financial Officer and An Officer DulyAuthorized to Sign on Behalf of the registrant
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