<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: JUNE 30, 2001
                                                  -------------
                                       OR
[ ]            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
            FOR THE TRANSITION PERIOD FROM            TO           .
                                           ----------    ----------

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


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


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


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


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


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


                                   16,327,389
     ----------------------------------------------------------------------

     (OUTSTANDING SHARES OF THE ISSUER'S COMMON STOCK AS OF AUGUST 9, 2001)

                          TOTAL NUMBER OF SEQUENTIALLY
                              NUMBERED PAGES IS 36


                                       1


<PAGE>   2

                          PART I. FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

                   AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES

                  INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (unaudited)

ASSETS

<TABLE>
<CAPTION>
                                                                       December 31,            June 30,
                                                                           2000                  2001
                                                                      --------------        --------------

<S>                                                                   <C>                   <C>
CURRENT ASSETS
    Cash and cash equivalents                                         $   12,081,000        $   10,617,000
    Restricted cash                                                          179,000                97,000
    Accounts receivable, less allowance for doubtful accounts
       of $40,862,000 and $36,717,000, respectively                       75,465,000            69,584,000
    Inventories                                                           15,522,000            13,079,000
    Prepaid expenses and other current assets                              1,489,000             1,806,000
                                                                      --------------        --------------
          Total current assets                                           104,736,000            95,183,000
                                                                      --------------        --------------

PROPERTY AND EQUIPMENT, at cost                                          184,661,000           185,287,000
    Less accumulated depreciation and amortization                      (131,663,000)         (135,333,000)
                                                                      --------------        --------------
          Property and equipment, net                                     52,998,000            49,954,000
                                                                      --------------        --------------

OTHER ASSETS
    Excess of cost over fair value of net assets acquired, net           197,491,000           194,652,000
    Investment in joint ventures                                           7,918,000             8,266,000
    Deferred financing costs, net                                          3,269,000             3,631,000
    Other assets, net                                                     12,102,000            10,803,000
                                                                      --------------        --------------
          Total other assets                                             220,780,000           217,352,000
                                                                      --------------        --------------
                                                                      $  378,514,000        $  362,489,000
                                                                      ==============        ==============
</TABLE>

                                   (Continued)


                                       2
<PAGE>   3

                   AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES

                  INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (unaudited)
                                   (Continued)

LIABILITIES AND SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                          December 31,            June 30,
                                                                              2000                  2001
                                                                         --------------        --------------

<S>                                                                      <C>                   <C>
CURRENT LIABILITIES
    Current portion of long-term debt and capital leases                 $    2,679,000        $   14,250,000
    Accounts payable                                                         16,449,000            16,631,000
    Other payables                                                            2,478,000             2,742,000
    Accrued expenses:
       Payroll and related benefits                                           8,204,000             6,743,000
       Interest                                                               1,748,000             1,569,000
       Insurance                                                              5,162,000             5,633,000
       Other                                                                 13,345,000             7,940,000
                                                                         --------------        --------------
          Total current liabilities                                          50,065,000            55,508,000
                                                                         --------------        --------------

NONCURRENT LIABILITIES
    Long-term debt and capital leases, less current portion                 296,473,000           284,573,000
    Other noncurrent liabilities                                              5,737,000             4,674,000
                                                                         --------------        --------------
          Total noncurrent liabilities                                      302,210,000           289,247,000
                                                                         --------------        --------------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' 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, 15,856,000 and
       16,327,000 shares, respectively                                          159,000               163,000
    Paid-in capital                                                         173,777,000           173,975,000
    Accumulated deficit                                                    (147,697,000)         (156,404,000)
                                                                         --------------        --------------
          Total shareholders' equity                                         26,239,000            17,734,000
                                                                         --------------        --------------
                                                                         $  378,514,000        $  362,489,000
                                                                         ==============        ==============
</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 June 30             Six Months Ended June 30
                                                       -------------------------------       ---------------------------------
                                                           2000               2001               2000                2001
                                                       ------------       ------------       -------------       -------------

<S>                                                    <C>                <C>                <C>                 <C>
REVENUES
    Sales and related service revenues                 $ 42,956,000       $ 42,453,000       $  85,458,000       $  86,321,000
    Rentals and other revenues                           47,048,000         46,182,000          91,284,000          92,376,000
    Earnings from joint ventures                          1,131,000          1,140,000           2,283,000           2,199,000
                                                       ------------       ------------       -------------       -------------
          Total revenues                                 91,135,000         89,775,000         179,025,000         180,896,000
                                                       ------------       ------------       -------------       -------------

EXPENSES
    Cost of sales and related services, excluding
       depreciation and amortization                     21,179,000         21,424,000          43,005,000          43,594,000
    Operating                                            54,491,000         51,978,000         107,955,000         104,944,000
    General and administrative                            3,681,000          3,952,000           7,031,000           7,890,000
    Depreciation and amortization                         9,310,000          8,101,000          19,084,000          15,977,000
    Amortization of deferred financing costs                572,000            659,000           1,010,000           1,298,000
    Interest                                              7,582,000          5,621,000          15,044,000          15,600,000
                                                       ------------       ------------       -------------       -------------
          Total expenses                                 96,815,000         91,735,000         193,129,000         189,303,000
                                                       ------------       ------------       -------------       -------------

LOSS FROM OPERATIONS BEFORE INCOME
    TAXES                                                (5,680,000)        (1,960,000)        (14,104,000)         (8,407,000)

PROVISION FOR INCOME TAXES                                  150,000            150,000             300,000             300,000
                                                       ------------       ------------       -------------       -------------

NET LOSS                                               $ (5,830,000)      $ (2,110,000)      $ (14,404,000)      $  (8,707,000)
                                                       ============       ============       =============       =============

NET LOSS PER COMMON SHARE
       - Basic                                         $      (0.37)      $      (0.13)      $       (0.93)      $       (0.53)
                                                       ============       ============       =============       =============
       - Diluted                                       $      (0.37)      $      (0.13)      $       (0.93)      $       (0.53)
                                                       ============       ============       =============       =============

WEIGHTED AVERAGE NUMBER OF COMMON
    SHARES OUTSTANDING
       - Basic                                           15,600,000         16,661,000          15,558,000          16,552,000
                                                       ============       ============       =============       =============
       - Diluted                                         15,600,000         16,661,000          15,558,000          16,552,000
                                                       ============       ============       =============       =============
</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>
                                                                                       Six Months Ended June 30
                                                                                   --------------------------------
                                                                                       2000                2001
                                                                                   ------------        ------------

<S>                                                                                <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss                                                                       $(14,404,000)       $ (8,707,000)
    Adjustments to reconcile net loss
      to net cash provided from (used in) operating activities:
       Depreciation and amortization                                                 19,084,000          15,977,000
       Amortization of deferred financing costs                                       1,010,000           1,298,000
       Equity in earnings of unconsolidated joint ventures                             (698,000)         (1,157,000)
       Minority interest                                                                 98,000             144,000

    Change in assets and liabilities, net of effects from joint venture
      dissolutions:
       Restricted cash                                                                       --              82,000
       Accounts receivable, net                                                       1,219,000           5,881,000
       Inventories                                                                    2,898,000           2,254,000
       Prepaid expenses and other current assets                                       (357,000)           (317,000)
       Income tax payable                                                               247,000          (1,714,000)
       Accounts payable, other payables and accrued expenses                         (7,198,000)         (4,414,000)
       Other non current liabilities                                                     54,000              32,000
       Other assets                                                                     173,000             136,000
                                                                                   ------------        ------------
          Net cash provided from operating activities                                 2,126,000           9,495,000
                                                                                   ------------        ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Proceeds from sale of infusion centers                                                   --             189,000
    Proceeds from joint venture dissolutions                                            916,000                  --
    Additions to property and equipment, net                                         (9,514,000)        (10,046,000)
    Distributions from unconsolidated joint
       ventures, net                                                                    230,000             809,000
    Distributions to minority interest owners                                           (95,000)           (124,000)
                                                                                   ------------        ------------
       Net cash used in investing activities                                         (8,463,000)         (9,172,000)
                                                                                   ------------        ------------
</TABLE>

                                   (Continued)


                                       5
<PAGE>   6

                   AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
                                                              Six Months Ended June 30
                                                          --------------------------------
                                                              2000                2001
                                                          ------------        ------------

<S>                                                       <C>                 <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
    Principal payments on debt and capital leases           (8,966,000)           (329,000)
    Proceeds from issuance of debt                             377,000                  --
    Proceeds from Employee Stock Purchase Plan                 168,000             202,000
    Deferred financing costs                                (1,137,000)         (1,660,000)
                                                          ------------        ------------
          Net cash used in financing activities             (9,558,000)         (1,787,000)
                                                          ------------        ------------

DECREASE IN CASH AND CASH  EQUIVALENTS                     (15,895,000)         (1,464,000)

CASH AND CASH EQUIVALENTS, beginning of period              28,123,000          12,081,000
                                                          ------------        ------------

CASH AND CASH EQUIVALENTS, end of period                  $ 12,228,000        $ 10,617,000
                                                          ============        ============

SUPPLEMENTAL INFORMATION:
    Cash payments of interest                             $ 13,678,000        $ 15,696,000
                                                          ============        ============

    Cash payments of income taxes                         $    298,000        $  2,122,000
                                                          ============        ============
</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

                             JUNE 30, 2001 AND 2000

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 and infusion therapies
and the rental and sale of home medical equipment and home health care supplies.
For the six months ended June 30, 2001, such services represented 58%, 18% and
24%, respectively of revenues. These services and products are paid for
primarily by Medicare, Medicaid and other third-party payors. As of June 30,
2001, the Company provided these services to patients primarily in the home
through 301 centers in 38 states: Alabama, Arizona, Arkansas, Colorado,
Connecticut, Delaware, Florida, Georgia, Illinois, Iowa, Kansas, Kentucky,
Louisiana, Maine, Maryland, Michigan, Minnesota, Mississippi, Missouri,
Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio,
Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota,
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 focusing more on internal growth, integrating its acquired operations and
achieving operating efficiencies.

2.       BANK CREDIT FACILITY

The Company is the borrower under a credit facility (the "Bank Credit Facility")
between the Company and Bankers Trust Company, as agent for a syndicate of
lenders (the "Lenders"). The Company's breach of several of the financial
covenants in its Credit Agreement and its failure to make a scheduled principal
payment due March 15, 2001 caused the Company to be not in compliance with
certain covenants of its Credit Agreement. The Company, on June 8, 2001, entered
into a Fifth Amended and Restated Credit Agreement (the "Amended Credit
Agreement") that provided a new loan to the Company from which the proceeds were
used to pay off all existing loans under the Credit Agreement. The Amended
Credit Agreement also includes modified financial covenants and a revised
amortization schedule. In addition, the Amended Credit Agreement no longer
contains a revolving loan component; all existing indebtedness is now in the
form of a term loan which matures on December 31, 2002. The Amended Credit
Agreement requires principal payments of $750,000 on September 30, 2001 and
December 31, 2001; a principal payment of $11.6 million on March 31, 2002;
principal payments of $1.0 million on June 30, 2002 and September 30, 2002; and
a balloon payment of $281.5 million on December 31, 2002. The Amended Credit
Agreement further provides for mandatory prepayments of principal from the
Company's excess cash flow and from the proceeds of the Company's sales of
securities, sales of assets, tax refunds or excess casualty loss payments.
Substantially all of the Company's assets have been pledged as security for
borrowings under the Bank Credit Facility. Indebtedness under the Bank Credit
Facility, as of August 9, 2001, totals $298.8 million (which reflects letters of
credit totaling $3.4 million, offset by mandatory prepayments and early payments
of principal).

As part of the Second Amendment to the Fourth Amended and Restated Credit
Agreement, the Company agreed to issue on March 31, 2001 warrants to the Lenders
representing 19.999% of the Common Stock of the Company issued and outstanding
as of March 31, 2001. To fulfill these obligations, warrants to purchase
3,265,315 shares of Common Stock were issued to the Lenders on June 8, 2001.
Fifty percent of these warrants are exercisable at any time after issuance and
the remaining fifty percent will be exercisable on and after September 30, 2001
(provided loans, letters of credit or commitments have not been terminated
subsequent to March 31, 2001 and prior


                                       7
<PAGE>   8

to September 30, 2001). The exercise price of the warrants is $0.01 per share.
As of August 9, 2001 these warrants have not been exercised.

Management's cash flow projections and related operating plans indicate the
Company can remain in compliance with the new financial covenants under the
Amended Credit Agreement and meet its expected obligations throughout 2001.
However, as with all projections, there is uncertainty as to whether
management's projections can be achieved. In any event of noncompliance or
default under the Amended Credit Agreement, the Lenders have the ability to
demand payment of all outstanding amounts and there is currently no commitment
as to how any such demand would be satisfied by the Company. Any demands for
repayment by Lenders or the inability to obtain waivers or refinance the related
debt would have a material adverse impact on the financial position, results of
operations and cash flows of the Company. There can be no assurance that future
cash flow from operations will be sufficient to cover debt obligations,
especially those obligations due at maturity of the Bank Credit Facility.

3.       GOVERNMENT INVESTIGATION

On June 11, 2001, a settlement agreement (the "Settlement") was entered among
the Company, the United States of America, acting through the United States
Department of Justice ("DOJ") and on behalf of the Office of Inspector General
of the Department of Health and Human Services ("OIG") and the TRICARE
Management Activity, and a former Company employee, as relator. This Settlement
was approved by the United States District Court for the Western District of
Kentucky, the court in which the relator's false claim action was filed. The
Settlement covers alleged improprieties by the Company during the period from
January 1, 1995 through December 31, 1998, including allegedly improper billing
activities and allegedly improper remuneration to and contracts with physicians,
hospitals and other healthcare providers. The Company has been dealing with the
issues covered by the Settlement since February 1998, when the OIG served a
subpoena on the Company at its Pineville, Kentucky center. Pursuant to the
Settlement, the Company made an initial payment of $3.0 million in the second
quarter of 2001 and has agreed to make additional payments in the principal
amount of $4.0 million, together with interest on this amount, in installments
due at various times over the next 57 months. The Company has also agreed to pay
the relator's attorneys fees and expenses, the amount of which will be
determined by binding arbitration. The Company recorded a $7.5 million reserve
in the fourth quarter of 2000 based upon the expectation of a settlement. The
Settlement does not resolve the relator's claims that the Company discriminated
against him as a result of his reporting alleged violations of the law to the
government. The Company denies and intends to vigorously defend these claims.

The Company also was named as a defendant in two other False Claims Act cases.
In each of those cases the DOJ declined to intervene and such cases were
subsequently dismissed in March 2001. The first of these cases, United States
ex. rel. Kirk S. Corsello v. Lincare, et al. (N.D. Ga.), was dismissed with
prejudice on the motion of the Company on March 9, 2001. Mr. Corsello's qui tam
complaint alleged that the Company and numerous other unrelated defendants,
including other large DME suppliers, engaged in a kickback scheme to provide
free or below market value equipment and medicine to physicians who would in
turn refer patients to the defendants in violation of the False Claims Act. The
plaintiff has appealed the dismissal of this action. The other case, United
States ex. rel. Alan D. Hutchison v. Respironics, et al. (S.D. NY and N.D. Ga.),
was dismissed without prejudice on Mr. Hutchison's own motion on March 22, 2001.
Mr. Hutchison's qui tam complaint alleged that the Company and numerous other
unrelated


                                       8
<PAGE>   9

defendants filed false claims with Medicare for ventilators that the defendants
allegedly knew were not medically necessary.

The Company was informed in May, 2001 that the United States government is
investigating its conduct during periods after December 31, 1998, and the
Company believes that this investigation was prompted by another qui tam
complaint against the Company under the False Claims Act. The Company has not
seen a complaint in this action, but believes that it contains allegations
similar to the ones investigated by the government in connection with the False
Claims Act case covered by the Settlement discussed above. The Company believes
that this case will be limited to allegedly improper activities occurring after
December 31, 1998.

There can be no assurances as to the final outcome of the pending False Claims
Act lawsuits or any pending or future investigation by the government. Possible
outcomes include, among other things, the repayment of reimbursements previously
received by the Company related to improperly billed claims, the imposition of
fines or penalties, and the suspension or exclusion of the Company from
participation in the Medicare, Medicaid and other government reimbursement
programs. The outcome of any of the pending lawsuits and investigations could
have a material adverse effect on the Company.

4.       MEDICARE REIMBURSEMENT ISSUES

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. 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 27% of the Company's revenues. In January 2001,
federal legislation was signed into law that provided for a one-time increase
beginning July 1, 2001 in Medicare reimbursement rates for home medical
equipment, excluding oxygen related services, based on the consumer price index
(CPI). The Company estimates that this CPI increase will increase revenue and
pre-tax income by approximately $1.0 million over the third and fourth quarters
of 2001 and $1.0 million on an annual basis thereafter.


                                       9
<PAGE>   10

5.       EARNINGS PER SHARE

Under the standards established by Statement of Financial Accounting Standards
No. 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. However, these incremental shares were excluded from the computation of
diluted earnings per share as the effect of their inclusion was anti-dilutive.
The following information is necessary to calculate earnings per share for the
periods presented:

<TABLE>
<CAPTION>
                                                                        (unaudited)
                                              -----------------------------------------------------------------
                                                Three Months Ended June 30,         Six Months Ended June 30,
                                              ------------------------------      -----------------------------
                                                  2000              2001              2000              2001
                                              ------------      ------------      ------------      -----------

<S>                                           <C>               <C>               <C>               <C>
Net loss                                      $ (5,830,000)     $ (2,110,000)     $(14,404,000)     $(8,707,000)
                                              ============      ============      ============      ===========
Weighted average common
  shares outstanding                            15,600,000        16,661,000        15,558,000       16,552,000

Effect of dilutive options and warrants                 --                --                --               --
                                              ------------      ------------      ------------      -----------

Adjusted diluted common shares
  outstanding                                   15,600,000        16,661,000        15,558,000       16,552,000
                                              ============      ============      ============      ===========

Net loss per common share
    - Basic                                   $      (0.37)     $      (0.13)     $      (0.93)     $     (0.53)
                                              ============      ============      ============      ===========
    - Diluted                                 $      (0.37)     $      (0.13)     $      (0.93)     $     (0.53)
                                              ============      ============      ============      ===========
</TABLE>

6.       BASIS OF FINANCIAL STATEMENTS

The interim condensed consolidated financial statements of the Company for the
six months ended June 30, 2001 and 2000 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 June 30, 2001 and the results of operations and the cash
flows for the six months ended June 30, 2001 and 2000.

The results of operations for the six months ended June 30, 2001 and 2000 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/A for the year ended December 31,
2000.


                                       10
<PAGE>   11

Certain reclassifications have been made to the 2000 consolidated financial
statements to conform to the 2001 presentation.

7.       COMPREHENSIVE LOSS

Comprehensive loss for the six months ended June 30, 2001 and 2000 was comprised
solely of net losses.

8.       IMPLEMENTATION OF FINANCIAL ACCOUNTING STANDARDS

Statement of Financial Accounting Standards No. 133, as amended, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS No. 133") has been issued
effective for fiscal years beginning after June 15, 2000. SFAS No. 133, as
amended, requires companies to record derivatives on the balance sheet as assets
or liabilities, measured at fair value. The Company adopted the provisions of
SFAS No. 133, as amended, effective January 1, 2001, as required; however, the
Company's adoption of SFAS No. 133, as amended, did not have a material effect
on the Company's financial position or results of operations.

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 ("SAB 101") regarding revenue recognition in financial
statements. SAB 101 was effective January 1, 2000 but implementation was delayed
until the fourth quarter of 2000. The Company's implementation of SAB 101 in the
fourth quarter of 2000 did not have a material impact on its financial position,
results of operations or cash flows on a quarterly or annual basis.

In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141, "Business Combinations" ("SFAS No. 141")
and Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS No. 142"). SFAS No. 141 requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001. SFAS No. 141 also specifies criteria which intangible assets acquired
in a purchase method business combination must meet to be recognized and
reported apart from goodwill. SFAS No. 142 addresses the initial recognition and
measurement of intangible assets acquired outside of a business combination and
the accounting for goodwill and other intangible assets subsequent to their
acquisition. SFAS No. 142 requires that intangible assets with finite useful
lives be amortized, and that goodwill and intangible assets with indefinite
lives no longer be amortized, but instead tested for impairment at least
annually. SFAS No. 142 also requires that intangible assets with definite useful
lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."

The Company is required to adopt the provisions of SFAS No. 141 immediately and
SFAS No. 142 effective January 1, 2002. Furthermore, any goodwill and any
intangible asset determined to have an indefinite useful life that are acquired
in a purchase business combination completed after June 30, 2001 will not be
amortized, but will continue to be evaluated for impairment in accordance with
the appropriate pre-SFAS No. 142 accounting literature. Goodwill and intangible
assets acquired in business combinations completed before July 1, 2001 will
continue to be amortized until the adoption of SFAS No. 142.

As of the date of adoption, the Company expects to have unamortized goodwill in
the amount of $189.7 million which will be subject to the transition provisions
of SFAS No. 141 and 142.


                                       11
<PAGE>   12

Amortization expense related to goodwill was $1.4 million and $2.8 million for
the quarter and the six months ended June 30, 2001, respectively. Because of the
extensive effort needed to comply with adopting SFAS No. 141 and 142, it is not
practicable to reasonably estimate the impact of adopting these Statements on
the Company's financial statements at the date of this report, including whether
any transitional impairment losses will be required to be recognized as the
cumulative effect of a change in accounting principle.

9.       SUBSEQUENT EVENT

In August, 2001 the Company entered into an agreement to sell substantially all
of the assets of its rehab division to United Seating and Mobility, L.L.C., a
Missouri limited liability company, for approximately $7.7 million. The
Company's rehab division provides custom-built seating and positioning systems
and custom-built wheelchairs to patients with impaired mobility, and currently
generates approximately $22.0 million in annualized revenues. Proceeds from the
sale will consist of approximately $7.1 million in cash and approximately $0.6
million in short term notes receivable. The transaction will be effective
September 1, 2001 and is scheduled to close on or before September 30, 2001. The
Company expects to record a pre-tax loss of $2.7 million related to this
transaction in the third quarter.


                                       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
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.

GENERAL

The Company provides home health care services and products to patients through
its 301 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 revenues
represented by each line of business for the periods presented:

<TABLE>
<CAPTION>
                                                 Six Months Ended June 30,
                                                 -------------------------
                                                     2000        2001
                                                     ----        ----

<S>                                                  <C>         <C>
Home respiratory therapy services                      55%         58%
Home infusion therapy services                         20          18
Home medical equipment and medical supplies            25          24
                                                     ----        ----
    Total                                             100%        100%
                                                     ====        ====
</TABLE>

Prior to 1998, the Company had significantly expanded its operations through a
combination of home health care acquisitions and joint ventures and strategic
alliances with integrated health care delivery systems, as well as internal
growth. In 1998, the Company purposefully slowed its growth by acquisitions
compared to prior years to focus more on existing operations. As amended, the
Company's Credit Agreement now requires bank consent for acquisitions or
investments in new joint ventures.

During 2000, the Company converted six of its previously 50% owned joint
ventures to wholly owned operations as a result of the withdrawal of the
hospital partners from the partnerships. As a result of these transactions, the
results of operations of these joint ventures have been consolidated into the
financial results of the Company. Previously, these joint ventures were
accounted for under the equity method. In the fourth quarter of 2000, the
Company and its hospital partner sold substantially all of the assets of the
Amarillo, Texas partnership to a third party and discontinued operations in
preparation for dissolving the Amarillo partnership in 2001. The Company did not
acquire any businesses or develop any new joint ventures during 2000 and 2001
other than the conversion of previously 50% owned joint ventures to wholly owned
operations.

GOVERNMENT REGULATION

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

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

The Federal False Claims Act imposes civil liability on individuals or entities
that submit false or fraudulent claims to the government for payment. False
Claims Act penalties for violations can include sanctions, including civil
monetary penalties. As a provider of services under the federal reimbursement
programs such as Medicare, Medicaid and TRICARE (formerly CHAMPUS), the Company
is subject to the anti-kickback statute, also known as the "fraud and abuse
law." This


                                       14
<PAGE>   15

law prohibits any bribe, kickback, rebate or remuneration of any kind in return
for, or as an inducement for, the referral of patients for government-reimbursed
health care services. The Company may also be affected by the federal physician
self-referral prohibition, known as the "Stark Law", which, with certain
exceptions, prohibits physicians from referring patients to entities with which
they have a financial relationship. Many states in which the Company operates
have adopted similar self-referral laws, as well as laws that prohibit certain
direct or indirect payments or fee-splitting arrangements between health care
providers, under the theory that such arrangements are designed to induce or to
encourage the referral of patients to a particular provider. In many states,
these laws apply to services reimbursed by all payor sources.

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

The Company must follow strict requirements with paperwork and billing. As
required by law, it is Company policy that certain service charges (as defined
by Medicare) falling under Medicare Part B are confirmed with a Certificate for
Medical Necessity ("CMN") signed by a physician. In January, 1999, the OIG
published a draft Model Compliance Plan for the Durable Medical Equipment,
Prosthetics, Orthotics and Supply Industry. The OIG has stressed the importance
for all health care providers to have an effective compliance plan. The Company
has created and implemented a compliance program, which it believes meets the
elements of the OIG's Model Plan for the industry. As part of its compliance
program, the Company performs internal audits of the adequacy of billing
documentation. The Company's policy is to voluntarily refund to the government
any reimbursements previously received for claims with insufficient
documentation that are identified in this process and that cannot be corrected.
The Company regularly reviews and updates its policies and procedures in an
effort to comply with applicable laws and regulations; however, certain
proceedings have been and may in the future be commenced against the Company
alleging violations of applicable laws governing the operation of the Company's
business and its billing practices. There can be no assurance that federal,
state or local governments will not change existing standards or impose
additional standards.

In addition, the Balanced Budget Act of 1997 introduced several government
initiatives which are either in the planning or implementation stages and which,
when fully implemented, could have a material adverse impact on reimbursement
for products and services provided by the Company. These initiatives include:
(i) Prospective Payment System ("PPS") and Consolidated Billing requirements for
skilled nursing facilities and PPS for home health agencies, which do not affect
the Company directly but could affect the Company's contractual relationships
with such entities (the consolidated billing requirement was subsequently
reversed by the Omnibus Budget bill, signed into law by President Clinton on
November 23, 1999); (ii) pilot projects in Polk County, Florida and San Antonio,
Texas which began on October 1, 1999 and February 1, 2001, respectively, to
determine the efficacy of competitive bidding for certain durable medical
equipment ("DME"), under which Medicare reimbursements for certain items are
reduced between 17% and 31% from the current fee schedules (the Company is
participating in both pilot projects); and (iii) deadlines (as yet undetermined)
for obtaining Medicare and Medicaid surety bonds for home health agencies and
DME suppliers.


                                       15
<PAGE>   16

The Company is also subject to state laws governing Medicaid, professional
training, licensure, financial relationships with physicians and the dispensing
and storage of pharmaceuticals. The facilities operated by the Company must
comply with all applicable laws, regulations and licensing standards and many of
the Company's employees must maintain licenses to provide some of the services
offered by the Company. Additionally, certain of the Company's employees are
subject to state laws and regulations governing the professional practice of
respiratory therapy, pharmacy and nursing. Information about individuals and
other health care providers who have been sanctioned or excluded from
participation in government reimbursement programs is readily available on the
Internet, and all health care providers, including the Company, are held
responsible for carefully screening entities and individuals they employ or do
business with, to avoid contracting with an excluded provider. The federal
government may impose sanctions, including financial penalties, on companies
that contract with excluded providers.

Health care law is an area of extensive and dynamic regulatory oversight.
Changes in laws or regulations or new interpretations of existing laws or
regulations can have a dramatic effect on permissible activities, the relative
costs associated with doing business, and the amount and availability of
reimbursement from government and other third-party payors. Compliance with
these extensive, complex and frequently changing laws and regulations is
difficult.

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

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

         Legal Proceedings. On June 11, 2001, a settlement agreement (the
"Settlement") was entered among the Company, the United States of America,
acting through the United States Department of Justice ("DOJ") and on behalf of
the Office of Inspector General of the Department of Health and Human Services
("OIG") and the TRICARE Management Activity, and a former Company employee, as
relator. This Settlement was approved by the United States District Court for
the Western District of Kentucky, the court in which the relator's false claim
action was filed. The Settlement covers alleged improprieties by the Company
during the period from January 1, 1995 through December 31, 1998, including
allegedly improper billing activities and allegedly improper remuneration to and
contracts with physicians, hospitals and other healthcare providers. The Company
has been dealing with the issues covered by the Settlement since February 1998,
when the OIG served a subpoena on the Company at its Pineville, Kentucky center.
Pursuant to the Settlement, the Company made an initial payment of $3.0 million
in the


                                       16
<PAGE>   17

second quarter of 2001 and has agreed to make additional payments in the
principal amount of $4.0 million, together with interest on this amount, in
installments due at various times over the next 57 months. The Company has also
agreed to pay the relator's attorneys fees and expenses, the amount of which
will be determined by binding arbitration. The Company recorded a $7.5 million
reserve in the fourth quarter of 2000 based upon the expectation of a
settlement. The Settlement does not resolve the relator's claims that the
Company discriminated against him as a result of his reporting alleged
violations of the law to the government. The Company denies and intends to
vigorously defend these claims.

The Company also was named as a defendant in two other False Claims Act cases.
In each of those cases the DOJ declined to intervene and such cases were
subsequently dismissed in March 2001. The first of these cases, United States
ex. rel. Kirk S. Corsello v. Lincare, et al. (N.D. Ga.), was dismissed with
prejudice on the motion of the Company on March 9, 2001. Mr. Corsello's qui tam
complaint alleged that the Company and numerous other unrelated defendants,
including other large DME suppliers, engaged in a kickback scheme to provide
free or below market value equipment and medicine to physicians who would in
turn refer patients to the defendants in violation of the False Claims Act. The
plaintiff has appealed the dismissal of this action. The other case, United
States ex. rel. Alan D. Hutchison v. Respironics, et al. (S.D. NY and N.D. Ga.),
was dismissed without prejudice on Mr. Hutchison's own motion on March 22, 2001.
Mr. Hutchison's qui tam complaint alleged that the Company and numerous other
unrelated defendants filed false claims with Medicare for ventilators that the
defendants allegedly knew were not medically necessary.

The Company was informed in May, 2001 that the United States is investigating
its conduct during periods after December 31, 1998, and the Company believes
that this investigation was prompted by another qui tam complaint against the
Company under the False Claims Act. The Company has not seen a complaint in this
action, but believes that it contains allegations similar to the ones
investigated by the government in connection with the False Claims Act case
covered by the Settlement discussed above. The Company believes that this second
case will be limited to allegedly improper activities occurring after December
31, 1998.

There can be no assurances as to the final outcome of any pending False Claims
Act lawsuits. Possible outcomes include, among other things, the repayment of
reimbursements previously received by the Company related to improperly billed
claims, the imposition of fines or penalties, and the suspension or exclusion of
the Company from participation in the Medicare, Medicaid and other government
reimbursement programs. The outcome of any pending lawsuits could have a
material adverse effect on the Company.

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. The reimbursement rate for certain drugs and
biologicals covered under Medicare was also reduced by 5% beginning January 1,
1998. The Company is one of the nation's largest providers of home oxygen
services to patients, many of whom are Medicare recipients, and is therefore
significantly affected by this legislation. Medicare oxygen reimbursements
account for approximately 27% of the Company's revenues. In January 2001,
federal legislation was signed into law that provided for a one-time increase
beginning July 1, 2001 in Medicare reimbursement rates for home medical
equipment, excluding oxygen related services, based on the consumer price index
(CPI). The


                                       17
<PAGE>   18

Company estimates that this CPI increase will increase revenue and pre-tax
income by approximately $1.0 million over the third and fourth quarters of 2001
and $1.0 million on an annual basis thereafter.

SUBSEQUENT EVENT

In August, 2001 the Company entered into an agreement to sell substantially all
of the assets of its rehab division to United Seating and Mobility, L.L.C., a
Missouri limited liability company, for approximately $7.7 million. The
Company's rehab division provides custom-built seating and positioning systems
and custom-built wheelchairs to patients with impaired mobility, and currently
generates approximately $22.0 million in annualized revenues. Proceeds from the
sale will consist of approximately $7.1 million in cash and approximately $0.6
million in short term notes receivable. The transaction will be effective
September 1, 2001 and is scheduled to close on or before September 30, 2001. The
Company expects to record a pre-tax loss of $2.7 million related to this
transaction in the third quarter.

RESULTS OF OPERATIONS

The Company reports its revenues as follows: (i) sales and related services;
(ii) rentals and other income; 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, field
management and other operating costs. General and administrative expenses
include corporate and senior management expenses.


                                       18
<PAGE>   19
The following table and discussion sets forth items from the statements of
operations as a percentage of revenues:

<TABLE>
<CAPTION>
                                                               PERCENTAGE OF REVENUES

                                                   Three Months Ended             Six Months Ended
                                                         June 30                       June 30
                                                   -------------------           -------------------
                                                   2000          2001            2000          2001
                                                   -----         -----           -----         -----
<S>                                                <C>           <C>             <C>           <C>
Net Revenues                                       100.0%        100.0%          100.0%        100.0%

Costs and expenses:
  Cost of sales and related services                23.3          23.9            24.0          24.1
  Operating expenses                                59.8          57.9            60.3          58.0
  General and administrative                         4.0           4.4             3.9           4.4
  Depreciation and amortization                     10.2           9.0            10.7           8.8
  Amortization of deferred
    financing costs                                  0.6           0.7             0.6           0.7
  Interest                                           8.3           6.3             8.4           8.6
                                                   -----         -----           -----         -----
      Total costs and expenses                     106.2         102.2           107.9         104.6
                                                   -----         -----           -----         -----

  Loss from operations
    before income taxes                             (6.2)%        (2.2)%          (7.9)%        (4.6)%
                                                   =====         =====           =====         =====
</TABLE>

The Company's operating results since 1998 have been negatively 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 revenue and pre-tax income have been reduced by
approximately $14.5 million and $14.7 million in the six months of 2000 and
2001, respectively, as a result of the 25% and the additional 5% reductions.
Second, beginning in the latter half of 1998, 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 (with
continued effect into 1999, 2000 and 2001). 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 in 1998 and 1999. Further, the
Company's implementation of process improvements in the billing and collection
functions was slower than anticipated.

In order to drive internal revenue growth during the latter half of 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. 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 as well as in profitability
beginning in the latter half of 1998.

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


                                       19

<PAGE>   20

management ceased the exiting of business lines and contracts by mid-December of
1998. Subsequently, a new strategy was developed and implemented to restore the
Company's revenues and decrease expenses. Key points of this strategy are:

1.       Stabilize and increase profitable revenues - respiratory therapies
         remain a primary focus of the Company. However, the Company has
         broadened its offering and sales focus to include other profitable
         business lines such as enteral nutrition, HME rental, and select
         infusion therapy services. The Company has also re-directed its efforts
         to increase revenues for certain managed care contracts - both new and
         existing. The Company is actively pursuing, and has entered into, new
         managed care contracts that it considers an opportunity for profitable
         revenue.

2.       Decrease and control operating expenses - the Company took aggressive
         steps beginning in 1999 to decrease operating and general and
         administrative expenses. The Company continues to monitor and closely
         manage its field and overhead expenses.

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

Concurrent with these activities, an enhanced program to ensure compliance with
all government reimbursement requirements has been rolled out and is being
followed throughout the Company. This program seeks to ensure that American
HomePatient acts at all times in a diligent and ethical fashion.

The Company's recovery of revenues is taking longer than originally anticipated.
During 2000, the Company determined that additional sales infrastructure would
be required to accelerate revenue growth and in May, 2000, the Company hired a
new Vice President of Sales and Marketing. Six directors of sales were
subsequently hired with the directive of working in conjunction with the Vice
President of Sales and Marketing and the vice presidents of the Company's
geographic operating areas to facilitate the implementation of revenue growth
strategies at the field level. The Company also analyzed market data and
referral/utilization trends to identify a subset of approximately forty centers
with the greatest potential for market share gain. The directors of sales are
accountable for sales activity specifically for these "target centers". These
target centers also serve as primary pilot sites for new sales and marketing
initiatives. In addition, a new Director of Managed Care joined the Company at
the end of 2000. With new expertise in place, the Company is now focusing its
efforts on maximizing revenues both with existing and new contracts through more
strategic price negotiations and improved operational strategies for
implementation.

Effective April 1, 2001 rather than reporting to the area vice presidents, the
Company's billing centers began reporting directly to the Corporate
Reimbursement Department under the leadership of the Vice President of
Reimbursement and six directors of compliance and reimbursement. This new
organizational structure allows field management more time to focus on revenue
growth as well as add specialized knowledge and focused management resources to
the billing function.

The Company does not anticipate renewing its acquisition activities nor its
joint venture development during 2001 as it continues focusing its efforts on
existing operations.


                                       20

<PAGE>   21

THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THREE MONTHS ENDED JUNE 30, 2000

The results of operations between 2001 and 2000 are impacted by the conversions
of several unconsolidated joint ventures to wholly owned businesses during 2000.

REVENUES. Revenues decreased from $91.1 million for the quarter ended June 30,
2000 to $89.8 million for the same period in 2001, a decrease of $1.3 million,
or 1%. This decrease is attributable to approximately $2.0 million in revenues
related to a January 1, 2001 services contract termination and $0.6 million in
revenues related to the sale of two unprofitable infusion centers in April,
2001. Beginning in the second quarter of 2000, the Company consolidated six
previously 50% owned joint ventures, partially offsetting the lost revenues and
adding approximately $0.6 million in revenue to the current quarter. Without
these occurrences, revenue for the quarter would have increased by $0.7 million
compared to last year, or 1%. Following is a discussion of the components of
revenues:

         Sales and Related Services Revenues. Sales and related services
         revenues decreased from $43.0 million for the quarter ended June 30,
         2000 to $42.5 million for the same period in 2001, a decrease of $0.5
         million, or 1%. This decrease is attributable to $2.0 million in lost
         sales revenues related to a January 1, 2001 services contract
         termination and $0.6 million in sales revenues related to the sale of
         two unprofitable infusion centers in April, 2001. These decreases were
         offset by additional sales revenues of approximately $0.2 million from
         the accounting consolidation of six of the Company's previously 50%
         owned joint ventures and increased sales as a result of the Company's
         sales and marketing initiatives.

         Rentals and Other Revenues. Rentals and other revenues decreased from
         $47.0 million for the quarter ended June 30, 2000 to $46.2 million for
         the same period in 2001, a decrease of $0.8 million, or 2%. This
         decrease is attributable to a decline of approximately $1.1 million in
         rental revenues as a result of the loss of patients from a dissolved
         joint venture to a new service provider, offset by additional rental
         revenues of approximately $0.4 million from the accounting
         consolidation of six of the Company's previously 50% owned joint
         ventures.

         Earnings from Hospital Joint Ventures. Earnings from hospital joint
         ventures remained constant at $1.1 million for the quarter ended June
         30, 2001 as compared to the same period in 2000.

COST OF SALES AND RELATED SERVICES. Cost of sales and related services increased
from $21.2 million for the quarter ended June 30, 2000 to $21.4 million for the
same period in 2001, an increase of $0.2 million, or 1%. As a percentage of
sales and related services revenues, cost of sales and related services
increased from 49% for the quarter ended June 30, 2000 to 50% for the same
period in 2001.

Recently in 2001, Dey Labs received FDA approval for "DuoNeb", a mixture of
albuterol sulfate and ipratropium bromide. The Company currently compounds the
drug for use in its aerosol medications business. When DuoNeb becomes
commercially available, providers may be required by law to purchase the
premixed drug, as the FDA prohibits compounding without a medical justification
when an FDA approved drug is already commercially available. The Company expects
that its costs for DuoNeb will be substantially higher than the Company's cost
to compound, which may have a material impact on cost of sales and the results
of operations. The Company is investigating various alternatives to minimize the
potential negative impact related to the sale and marketing of DuoNeb.


                                       21

<PAGE>   22

OPERATING EXPENSES. Operating expenses decreased from $54.5 million for the
quarter ended June 30, 2000 to $52.0 million for the same period in 2001, a
decrease of $2.5 million, or 5%. This decrease is attributable to lower bad debt
expense, offset somewhat by additional operating expenses of $0.4 million from
the accounting consolidation of six of the Company's previously 50% owned joint
ventures. Bad debt expense was 7.6% of revenue for the quarter ended June 30,
2000 compared to 3.7% of revenue for the same period in 2001. The improvement in
bad debt expense is attributable to improved cash collections resulting from the
process redesign, standardization and consolidation of billing center
activities. Also, in the second quarter of 2001, bad debt expense was favorably
impacted by the reversal of approximately $0.7 million in previously established
reserves as a result of the collection of past due balances associated with a
terminated services contract. Without this reserve reversal, bad debt expense as
a percentage of revenues would have been 4.5% for the second quarter of 2001.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased from $3.7 million for the quarter ended June 30, 2000 to $4.0 million
for the same period in 2001, an increase of $0.3 million, or 8%. As a percentage
of revenues, general and administrative expenses were 4.0% and 4.4% for the
quarters ended June 30, 2000 and 2001, respectively. This increase is
attributable to higher personnel expenses in the quarter ended June 30, 2001 as
a result of the billing initiatives, corporate compliance activities and
increased marketing efforts. In addition, the Company experienced higher
consulting fees, offset somewhat by lower legal fees.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses decreased
from $9.3 million for the quarter ended June 30, 2000 to $8.1 million for the
same period in 2001, a decrease of $1.2 million, or 13%. This decrease is
primarily attributable to lower levels of rental equipment depreciation and
expenses in the quarter ended June 30, 2001 compared to the same period in 2000
primarily due to certain property and equipment becoming fully depreciated.

AMORTIZATION OF DEFERRED FINANCING COSTS. Amortization of deferred financing
costs increased from $0.6 million for the quarter ended June 30, 2000 to $0.7
million for the same period in 2001, an increase of $0.1 million or 17%. This
increase is primarily attributable to additional deferred financing costs
associated with amendments to the Credit Agreement. In addition, in the fourth
quarter of 2000, the Company recorded the estimated fair value of warrants
($686,000) to be issued to the Lenders in connection with the Second Amendment
to the Credit Agreement and the related amortization of these costs using the
effective interest rate method.

INTEREST. Interest expense decreased from $7.6 million for the quarter ended
June 30, 2000, to $5.6 million for the same period in 2001, a decrease of $2.0
million, or 26%. The Company had recorded a provision of $1.6 million for
default rate interest in the quarter ended March 31, 2001, in addition to
interest due under the Bank Credit Facility prior to any events of default.
However, based upon the Amended Credit Agreement signed June 8, 2001, all
default rate interest was forgiven; thus, this provision for default rate
interest was reversed in the second quarter of 2001. This decrease is also
attributable to reduced interest expense as a result of lower principal amounts
outstanding.


                                       22

<PAGE>   23

SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000

The results of operations between 2001 and 2000 are impacted by the conversions
of several unconsolidated joint ventures to wholly owned businesses during 2000.

REVENUES. Revenues increased from $179.0 million for the six months ended June
30, 2000 to $180.9 million for the same period in 2001, an increase of $1.9
million, or 1%. Beginning in the second quarter of 2000 the Company consolidated
six previously 50% owned joint ventures, adding approximately $3.2 million in
revenue to the current six month period. This increase was offset by
approximately $3.9 million in revenue related to a January 1, 2001 services
contract termination and $0.6 million in revenue related to the sale of two
unprofitable infusion centers in April, 2001. Without these occurrences, revenue
for the quarter would have increased by $3.2 million, or 2%, compared to last
year. This increase is primarily attributable to revenue growth as a result of
the Company's sales and marketing initiatives. Following is a discussion of the
components of revenues:

         Sales and Related Services Revenues. Sales and related services
         revenues increased from $85.5 million for the six months ended June 30,
         2000 to $86.3 million for the same period in 2001, an increase of $0.8
         million, or 1%. This increase is attributable to additional sales
         revenues of approximately $0.9 million from the accounting
         consolidation of six of the Company's previously 50% owned joint
         ventures and increased sales as a result of the Company's sales and
         marketing initiatives, offset by $3.9 million in lost sales revenues
         related to a January 1, 2001 services contract termination and $1.6
         million in sales revenues related to the sale of two unprofitable
         infusion centers in April, 2001.

         Rentals and Other Revenues. Rentals and other revenues increased from
         $91.3 million for the six months ended June 30, 2000 to $92.4 million
         for the same period in 2001, an increase of $1.1 million, or 1%. This
         increase is primarily attributable to additional rental revenues of
         approximately $2.6 million from the accounting consolidation of six of
         the Company's previously 50% owned joint ventures, offset by an
         approximate $1.1 million decline in rental revenues in the second
         quarter of 2001 as a result of the loss of patients from a dissolved
         joint venture to a new service provider.

         Earnings from Hospital Joint Ventures. Earnings from hospital joint
         ventures decreased from $2.3 million for the six months ended June 30,
         2000 to $2.2 million for the same period in 2001, a decrease of $0.1
         million, or 4%, which is primarily attributable to the accounting
         consolidation of six of the Company's previously 50% owned joint
         ventures. These previously 50% owned joint ventures contributed $0.3
         million in earnings from hospital joint ventures to the six month
         period ended June 30, 2000.

COST OF SALES AND RELATED SERVICES. Cost of sales and related services increased
from $43.0 million for the six months ended June 30, 2000 to $43.6 million for
the same period in 2001, an increase of $0.6 million, or 1%. As a percentage of
sales and related services revenues, cost of sales and related services
increased from 50% for the six months ended June 30, 2000 to 51% for the same
period in 2001.

Recently in 2001, Dey Labs received FDA approval for "DuoNeb", a mixture of
albuterol sulfate and ipratropium bromide. The Company currently compounds the
drug for use in its aerosol medications business. When DuoNeb becomes
commercially available, providers may be


                                       23

<PAGE>   24
required by law to purchase the premixed drug, as the FDA prohibits compounding
without a medical justification when an FDA approved drug is already
commercially available. The Company expects that its costs for DuoNeb will be
substantially higher than the Company's cost to compound, which may have a
material impact on cost of sales and the results of operations. The Company is
investigating various alternatives to minimize the potential negative impact
related to the sale and marketing of DuoNeb.

OPERATING EXPENSES. Operating expenses decreased from $108.0 million for the six
months ended June 30, 2000 to $104.9 million for the same period in 2001, a
decrease of $3.1 million, or 3%. This decrease is attributable to lower bad debt
expense, offset somewhat by additional operating expenses of $2.6 million from
the accounting consolidation of six of the Company's previously 50% owned joint
ventures. Bad debt expense was 7.7% of revenue for the six months ended June 30,
2000 compared to 4.0% of revenue for the same period in 2001. The improvement in
bad debt expense is attributable to improved cash collections resulting from the
process redesign, standardization and consolidation of billing center
activities. Also, in the second quarter of 2001, bad debt expense was favorably
impacted by the reversal of approximately $0.7 million in previously established
reserves as a result of the collection of past due balances associated with a
terminated services contract. Without this reserve reversal, bad debt expense as
a percentage of revenues would have been 4.4% for the six months ended June 30,
2001.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased from $7.0 million for the six months ended June 30, 2000 to $7.9
million for the same period in 2001, an increase of $0.9 million, or 13%. As a
percentage of revenues, general and administrative expenses were 3.9% and 4.4%
for the six months ended June 30, 2000 and 2001, respectively. This increase is
attributable to higher personnel expenses in the six months ended June 30, 2001
as a result of the billing initiatives, corporate compliance activities and
increased marketing efforts. In addition, the Company experienced higher
consulting fees, offset somewhat by lower legal fees.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses decreased
from $19.1 million for the six months ended June 30, 2000 to $16.0 million for
the same period in 2001, a decrease of $3.1 million, or 16%. This decrease is
primarily attributable to lower levels of rental equipment depreciation and
expenses in the six months ended June 30, 2001 compared to the same period in
2000 primarily due to certain property and equipment becoming fully depreciated.

AMORTIZATION OF DEFERRED FINANCING COSTS. Amortization of deferred financing
costs increased from $1.0 million for the six months ended June 30, 2000 to $1.3
million for the same period in 2001, an increase of $0.3 million, or 30%. This
increase is primarily attributable to additional deferred financing costs
associated with amendments to the Credit Agreement. In addition, in the fourth
quarter of 2000, the Company recorded the estimated fair value of warrants
($686,000) to be issued to the Lenders in connection with the Second Amendment
to the Credit Agreement and the related amortization of these costs using the
effective interest rate method.

INTEREST. Interest expense increased from $15.0 million for the six months ended
June 30, 2000, to $15.6 million for the same period in 2001, an increase of $0.6
million, or 4%. This increase is attributable to higher interest rates on
borrowings under the Bank Credit Facility per the Credit Agreement. Effective
September, 2000 the Company is required to pay additional interest in the amount
of 4.50% per annum on that principal portion outstanding that is in excess of
four times Adjusted EBITDA, as defined by the Third Amendment to the Fourth
Amended and Restated Credit Agreement and the Amended Credit Agreement.


                                       24

<PAGE>   25

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2001 the Company's working capital was $39.7 million and the current
ratio was 1.71x as compared to working capital of $54.7 million and a current
ratio of 2.09x at December 31, 2000.

The Company is the borrower under a credit facility (the "Bank Credit Facility")
between the Company and Bankers Trust Company, as agent for a syndicate of
Lenders (the "Lenders"). The Company's breach of several of the financial
covenants in its Credit Agreement and its failure to make a scheduled principal
payment due March 15, 2001 caused the Company to be not in compliance with
certain covenants of its Credit Agreement. The Company, on June 8, 2001, entered
into a Fifth Amended and Restated Credit Agreement (the "Amended Credit
Agreement") that provided a new loan to the Company from which the proceeds were
used to pay off all existing loans under the Credit Agreement. The Amended
Credit Agreement also includes modified financial covenants and a revised
amortization schedule. In addition, the Amended Credit Agreement no longer
contains a revolving loan component; all existing indebtedness is now in the
form of a term loan which matures on December 31, 2002. The Amended Credit
Agreement requires principal payments of $750,000 on September 30, 2001 and
December 31, 2001; a principal payment of $11.6 million on March 31, 2002;
principal payments of $1.0 million on June 30, 2002 and September 30, 2002; and
a balloon payment of $281.5 million on December 31, 2002. The Amended Credit
Agreement further provides for mandatory prepayments of principal from the
Company's excess cash flow and from the proceeds of the Company's sales of
securities, sales of assets, tax refunds or excess casualty loss payments.
Substantially all of the Company's assets have been pledged as security for
borrowings under the Bank Credit Facility. Indebtedness under the Bank Credit
Facility, as of August 9, 2001, totals $298.8 million (which reflects letters of
credit totaling $3.4 million, offset by mandatory prepayments and early payments
of principal).

The Amended Credit Agreement further provides for the payment to the Lenders of
certain fees. These fees include a restructuring fee of $1.2 million (paid on
the effective date of the Amended Credit Agreement), $200,000 payable on each of
December 31, 2001, March 31, 2002 and June 30, 2002, as well as $459,000 payable
on September 30, 2002. In addition, the Company has an obligation to pay the
agent an annual administrative fee of $75,000 and an annual fee of .50% of the
average outstanding indebtedness on each anniversary of the Amended Credit
Agreement.

The Amended Credit Agreement contains various financial covenants, the most
restrictive of which relate to measurements of EBITDA, leverage, interest
coverage ratios, and collections of accounts receivable. The Amended Credit
Agreement also contains provisions for periodic reporting.

The Amended Credit Agreement also contains restrictions 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 not permitted to make acquisitions or investments in
joint ventures without the consent of Lenders holding a majority of the lending
commitments under the Bank Credit Facility. In addition, proceeds of all of the
Company's accounts receivable are transferred daily into a bank account at PNC
Bank, N.A. which, under the terms of a Concentration Bank Agreement, requires
that all amounts in excess of $3.0 million be transferred to an account at
Bankers Trust Company in the Company's name. Upon occurrence of an event of
default under the Amended Credit Agreement, the Lenders have the right to
instruct PNC Bank, N.A. and Bankers Trust Company to cease honoring any drafts
under the accounts and apply all amounts in the bank accounts against the
indebtedness owed to the Lenders.


                                       25

<PAGE>   26

Interest is payable on the unpaid principal amount under the Amended Credit
Agreement, at the election of the Company, at either a Base Lending Rate or an
Adjusted Eurodollar Rate (each as defined in the Amended Credit Agreement), plus
an applicable margin of 2.75% and 3.50%, respectively. As of June 30, 2001 the
weighted average borrowing rate was 10.1%. The Company is also required to pay
additional interest in the amount of 4.50% per annum on that principal portion
outstanding of the Amended Credit Agreement that is in excess of four times
Adjusted EBITDA as defined by the Amended Credit Agreement. Upon the occurrence
and continuation of an event of default under the Amended Credit Agreement,
interest is payable upon demand at a rate that is 2.00% per annum in excess of
the interest rate otherwise payable under the Amended Credit Agreement and the
Company no longer has the right to borrow at the Adjusted Eurodollar Rate plus
the applicable margin. Upon the occurrence and continuation of an event of
default under the Amended Credit Agreement, new borrowings would have to be made
at the Base Lending Rate plus the applicable margin, which is a substantially
higher rate of interest.

The Company was required to issue on March 31, 2001 warrants to the Lenders
representing 19.999% of the Common Stock of the Company issued and outstanding
as of March 31, 2001, pursuant to the terms of the Second Amendment to the
Fourth Amended and Restated Credit Agreement (which amendment was entered into
on April 14, 1999). To fulfill these obligations, warrants to purchase 3,265,315
shares of Common Stock were issued to the Lenders on June 8, 2001. Fifty percent
of these warrants are exercisable at any time after issuance and the remaining
fifty percent will be exercisable on and after September 30, 2001 (provided
loans, letters of credit or commitments have not been terminated subsequent to
March 31, 2001 and prior to September 30, 2001). The exercise price of the
warrants is $0.01 per share. As of August 9, 2001 these warrants have not been
exercised.

Interest was payable on borrowings under the Third Amendment to the Fourth
Amended and Restated Credit Agreement (the "Third Amendment"), at the election
of the Company, at either a Base Lending Rate or an Adjusted Eurodollar Rate
(each as defined in the Third Amendment, which was entered into on April 6,
2000) plus a margin of 2.75% and 3.50%, respectively. Also, additional interest
of 4.50% accrued on that portion of the Bank Credit Facility that was in excess
of four times Adjusted EBITDA as defined by the Third Amendment. Upon the
occurrence and continuation of an event of default under the Third Amendment,
interest was payable by the Company at 2.00% per annum in excess of the rates
charged under the Bank Credit Facility and the Company no longer had the right
to borrow at the Adjusted Eurodollar Rate plus the applicable margin. All new
borrowings would have to be made at the Base Lending Rate plus the applicable
margin, which was a substantially higher rate of interest.

Management's cash flow projections and related operating plans indicate the
Company can remain in compliance with the new financial covenants under the
Amended Credit Agreement and meet its expected obligations throughout 2001.
However, as with all projections, there is uncertainty as to whether
management's projections can be achieved. In any event of noncompliance or
default under the Amended Credit Agreement, the Lenders have the ability to
demand payment of all outstanding amounts and there is currently no commitment
as to how any such demand would be satisfied by the Company. Any demands for
repayment by Lenders or the inability to obtain waivers or refinance the related
debt would have a material adverse impact on the financial position, results of
operations and cash flows of the Company. There can be no assurance that future
cash flow from operations will be sufficient to cover debt obligations,
especially those obligations due upon maturity of the Bank Credit Facility.


                                       26

<PAGE>   27

The Company's future liquidity will continue to be dependent upon the relative
amounts of current assets (principally cash, accounts receivable and
inventories) and current liabilities (principally accounts payable and accrued
expenses). In that regard, accounts receivable can have a significant impact on
the Company's liquidity. The Company has various types of accounts receivable,
such as receivables from patients, contracts, and former owners of acquisitions.
The majority of the Company's accounts receivable are patient receivables.
Accounts receivable are generally outstanding for longer periods of time in the
health care industry than many other industries because of requirements to
provide third-party payors with additional information subsequent to billing and
the time required by such payors to process claims. Certain accounts receivable
frequently are outstanding for more than 90 days, particularly where the account
receivable relates to services for a patient receiving a new medical therapy or
covered by private insurance or Medicaid. Net patient accounts receivable were
$74.5 million and $68.9 million at December 31, 2000 and June 30, 2001,
respectively. Average days' sales in accounts receivable was approximately 76
and 72 days at December 31, 2000 and June 30, 2001, respectively. The Company's
level of DSO and net patient receivables reflect the extended time required to
obtain necessary billing documentation, the ongoing efforts to implement a
standardized model for reimbursement and the consolidation of billing
activities.

Net cash provided from operating activities was $2.1 million and $9.5 million
for the six months ended June 30, 2000 and 2001, respectively, which is
primarily due to the current year decrease in net accounts receivable, offset by
the current year payment of $3.0 million related to the government investigation
and income taxes paid of $1.8 million related to a federal income tax audit
assessment covering the period 1994 through 1998. Net cash used in investing
activities was $8.5 million and $9.2 million for the six months ended June 30,
2000 and 2001, respectively. Capital expenditures were $9.5 million for the six
months ended June 30, 2000 compared to $10.0 million for the same period in
2001, proceeds from joint venture dissolutions contributed $0.9 million in the
second quarter of 2000, and the sale of two unprofitable infusion centers
contributed $0.2 million in the second quarter of 2001. Net cash used in
financing activities was $9.6 million and $1.8 million for the six months ended
June 30, 2000 and 2001, respectively. The cash used in financing activities for
the six months ended June 30, 2000 and 2001 primarily relates to proceeds from
the Employee Stock Purchase Plan offset by principal payments and deferred
financing costs for the Bank Credit Facility.

The Company's principal capital requirements are for working capital, capital
expenditures and debt service. The Company has financed and intends to continue
to finance these requirements with existing cash balances, net cash provided by
operations and other available capital expenditure financing vehicles.
Management believes that these sources will support the Company's current level
of operations assuming the Company maintains compliance with its debt covenants
and the due dates of amounts outstanding under the Bank Credit Facility are not
accelerated. A principal payment of $11.6 million is due March 31, 2002 under
the Bank Credit Facility. The Company intends to fund this requirement with
existing cash balances and proceeds from the expected sale of its rehab
division. Management also believes these sources are adequate to fund the
Settlement in the government investigation based upon the payment terms, as more
fully described in "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Government Regulation."


                                       27

<PAGE>   28

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
debt pursuant to the Bank Credit Facility. If an event of default occurs under
the Amended Credit Agreement or the indebtedness is not paid at maturity, the
Lenders have the right to exercise remedies detailed in the Bank Credit Facility
section of this document. In addition, proceeds of all of the Company's accounts
receivable are transferred daily into a bank account at PNC Bank, N.A. which,
under the terms of a Concentration Bank Agreement, requires that all amounts in
excess of $3.0 million be transferred to an account at Bankers Trust Company in
the Company's name. Upon the occurrence of an event of default under the Amended
Credit Agreement, the Lenders have the right to instruct PNC Bank, N.A. and
Bankers Trust Company to cease honoring any drafts under the accounts and apply
all amounts in the bank accounts against the indebtedness owed to the Lenders.

Interest is payable on borrowings under the Amended Credit Agreement, at the
election of the Company, at either a Base Lending Rate or an Adjusted Eurodollar
Rate (each as defined in the Amended Credit Agreement) plus a margin of 2.75%
and 3.50%, respectively. Also, additional interest of 4.50% accrues on that
portion of the outstanding indebtedness of the Bank Credit Facility that is in
excess of four times Adjusted EBITDA as defined by the Amended Credit Agreement.
Upon the occurrence of an event of default under the Amended Credit Agreement,
interest is payable by the Company at 2.00% per annum in excess of the rate
provided by the Amended Credit Agreement and the Company no longer has the right
to utilize the Adjusted Eurodollar Rate plus the applicable margin. Upon the
occurrence of or event of default under the Amended Credit Agreement, all new
loans would bear interest at the Base Lending Rate plus the applicable margin,
which is currently a substantially higher rate of interest.

The Amended Credit Agreement further provides for the payment to the Lenders of
certain fees. These fees include a restructuring fee of $1.2 million (paid on
the effective date of the Amended Credit Agreement), $200,000 payable on each of
December 31, 2001, March 31, 2002 and June 30, 2002, as well as $459,000 payable
on September 30, 2002. In addition, the Company has an obligation to pay the
agent an annual administrative fee of $75,000 and an annual fee of .50% of the
average outstanding indebtedness on each anniversary of the Amended Credit
Agreement.

The occurrence of a default by the Company under the Amended Credit Agreement
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 may impair the Company's ability to 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 scheduled 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."


                                       28

<PAGE>   29

         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. There can be no assurance that the Company is in
compliance with all applicable existing laws and regulations or that the Company
will be able to comply with legislative enactments of new laws or regulations.
Changes in applicable laws or any failure to comply with existing or future
laws, regulations or standards could have a material adverse effect on the
Company's results of operations, financial condition, business or prospects. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Government Regulation -- Legal Proceedings."

         Government Investigations and Federal False Claims Act Cases. In
addition to the regulatory initiatives mentioned above, the OIG has received
funding to expand and intensify its auditing of the health care industry in an
effort better to detect and remedy errors in Medicare and Medicaid billing. The
Company has reason to believe a qui tam complaint has been filed against the
Company under the False Claims Act alleging violations of law occurring after
December 31, 1998. The Company has not seen a complaint in this action, but
believes that it contains allegations similar to the ones alleged in the
Settlement recently entered in connection with the False Claims Act case
originating with the Pineville, Kentucky center described above. The Company
believes that this case will be limited to allegedly improper activities
occurring after December 31, 1998.

There can be no assurances as to the final outcome of the pending False Claims
Act lawsuits or of any lawsuits that may be filed in the future. Possible
outcomes include, among other things, the repayment of reimbursements previously
received by the Company related to improperly billed claims, the imposition of
fines or penalties, and the suspension or exclusion of the Company from
participation in the Medicare, Medicaid and other government reimbursement
programs. The outcome of any of the pending lawsuits could have a material
adverse effect on the Company. See "Business -- Government Regulation and Legal
Proceedings."

         Collectibility of Accounts Receivable. The Company has substantial
accounts receivable, as well as days sales outstanding of 72 days as of June 30,
2001. The Company has implemented four key initiatives to improve accounts
receivable performance: (i) proper staffing and training; (ii) process redesign
and standardization; (iii) consolidation of billing center activities; and (iv)
billing center specific goals geared toward improved cash collections and
reduced accounts receivable. No assurances can be given, however, that future
bad debt expense will not increase above current operating levels as a result of
continuing difficulties associated with the Company's billing activities and
meeting payor documentation requirements and claim submission deadlines.

         Liquidity. Effective at the close of business on September 1, 1999,
Nasdaq de-listed the Company's common stock and it is no longer listed for
trading on the Nasdaq National Market. As a result, trading of the Company's
common stock is conducted on the over-the-counter market ("OTC") or, on
application by broker-dealers, in the NASD's Electronic Bulletin Board using the
Company's current trading symbol, AHOM. As a result of the de-listing, the
liquidity of the Company's common stock and its price have been adversely
affected which may have limited the Company's ability to raise additional
capital.


                                       29

<PAGE>   30

         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, and 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. Oxygen
therapy reimbursement from Medicare accounts for approximately 27% 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
1997 levels beginning January 1, 1998 and to 70% of 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.
Effective October 1, 1999, Medicare established new guidelines for respiratory
assist devices ("RAD"), which include continuous positive airway pressure
devices, bi-level respiratory devices (without backup) and bi-level respiratory
devices with back up. The changes require additional documentation in order to
continue coverage on existing patients as well as new coverage and qualifying
criteria for new patients. In addition, the bi-level respiratory device (without
backup) was transferred from a frequently serviced item to "capped rental."
Currently, respiratory assist devices account for approximately $30 million in
annualized revenues. Medicare is also considering the transfer of non-invasive
positive pressure ventilators from a frequently serviced item to "capped
rental." The effective date of this change is unknown but could be as early as
October 1, 2001. 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. Following
promulgation of a final rule, the Centers for Medicare and Medicaid Services
("CMS"), formerly known as the Healthcare Financing Administration ("HCFA"),
will also have "inherent reasonableness" authority to modify payment rates for
all Medicare Part B items and services by as much as 15% without industry
consultation, publication or public comment if the rates are "grossly excessive"
or "grossly deficient." Possible future changes in the basis for calculating
Medicare's reimbursement rates for Albuterol and other respiratory medications
could result in a reimbursement reduction for these products, the timing and
extent of which are not known at this time. 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
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 six months
ended June 30, 2001, the percentage of the Company's revenues derived from
Medicare, Medicaid and private pay was 49%, 10% and 41%, respectively. The
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 revenues and net income. Changes in the mix of
the Company's patients among


                                       30

<PAGE>   31

Medicare, Medicaid and private pay categories and among different types of
private pay sources may also affect the Company's revenues and profitability.
There can be no assurance that the Company will continue to maintain its current
payor or revenue mix.

         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 to experience 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.

         Health Care Initiatives. The health care industry continues to undergo
dramatic changes. With the change in administration, new federal health care
initiatives, particularly concerning Medicare, may be launched. For example, in
June of this year, Department of Health and Human Services Secretary Tommy
Thompson unveiled a new name for the agency formerly known as the Health Care
Financing Administration. The name change to CMS, Centers for Medicare and
Medicaid Services, signals a restructuring of the agency, as well as reforms
designed to make the Medicare and Medicaid programs more effective and
responsive to providers and beneficiaries. There can be no assurance that other
equally sweeping federal legislative and regulatory initiatives will not be
adopted in the future. 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, potentially
limiting their access to products and services provided by the Company. Some
states are adopting health care programs and initiatives as a replacement for
Medicaid. There can be no assurance that the adoption of such legislation or
other changes in the administration or interpretation of governmental health
care programs or initiatives will not have a material adverse effect on the
Company.

         HIPAA Compliance. HIPAA has mandated an extensive set of regulations
to protect the privacy of identifiable health information, which are currently
scheduled to become effective in early 2002. The Company has created a HIPAA
Compliance working group that is in the process of identifying information
inflow and outflow throughout the organization, which will then be analyzed to
determine the appropriate privacy protections the Company will need to put in
place to be HIPAA-compliant. The Company is unable to project the cost of HIPAA
compliance until the assessment process is complete. Substantial changes to the
Company's information management systems required for HIPAA compliance could
have a material adverse effect on the Company.

         No Assurance of Growth. The Company reported a net loss of $8.7 million
for the six months ended June 30, 2001. 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.
There can be no assurance that the Company can achieve growth in revenues. 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.

         Ability to Attract and Retain Management. The Company is highly
dependent upon its senior management, and competition for qualified management
personnel is intense. The Company's current financial results and the ongoing
OIG investigation, among other factors, 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 operators or hospital-based facilities,
whose primary competitive advantage is market


                                       31

<PAGE>   32
familiarity. In the larger markets, regional and national providers account for
a significant portion of competition. Some of the Company's present and
potential competitors are significantly larger than the Company and have, or may
obtain, greater financial and marketing resources than the Company. In addition,
there are relatively few barriers to entry in the local markets served by the
Company, and it encounters substantial competition from new market entrants.

         Liability and Adequacy of Insurance. The provision of health care
services entails an inherent risk of liability. Certain participants in the home
health care industry may be subject to lawsuits 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. In addition, the Company is self-insured for its workers compensation
and health insurance and is at risk for claims up to individual stop loss and
aggregate stop loss amounts.

IMPLEMENTATION OF FINANCIAL ACCOUNTING STANDARDS

Statement of Financial Accounting Standards No. 133, as amended, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS No. 133") has been issued
effective for fiscal years beginning after June 15, 2000. SFAS No. 133, as
amended, requires companies to record derivatives on the balance sheet as assets
or liabilities, measured at fair value. The Company adopted the provisions of
SFAS No. 133, as amended, effective January 1, 2001, as required; however, the
Company's adoption of SFAS No. 133, as amended, did not have a material effect
on the Company's financial position or results of operations.

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 ("SAB 101") regarding revenue recognition in financial
statements. SAB 101 was effective January 1, 2000 but implementation was delayed
until the fourth quarter of 2000. The Company's implementation of SAB 101 in the
fourth quarter of 2000 did not have a material impact on its financial position,
results of operations or cash flows on a quarterly or annual basis.

In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141, "Business Combinations" ("SFAS No. 141")
and Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS No. 142"). SFAS No. 141 requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001. SFAS No. 141 also specifies criteria which intangible assets acquired
in a purchase method business combination must meet to be recognized and
reported apart from goodwill. SFAS No. 142 addresses the initial recognition and
measurement of intangible assets acquired outside of a business combination and
the accounting for goodwill and other intangible assets subsequent to their
acquisition. SFAS No. 142 requires that intangible assets with finite useful
lives be amortized, and that goodwill and intangible assets with indefinite
lives no longer be amortized, but instead tested for impairment at least
annually. SFAS No. 142 also requires that intangible assets with definite useful
lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."


                                       32

<PAGE>   33
The Company is required to adopt the provisions of SFAS No. 141 immediately and
SFAS No. 142 effective January 1, 2002. Furthermore, any goodwill and any
intangible asset determined to have an indefinite useful life that are acquired
in a purchase business combination completed after June 30, 2001 will not be
amortized, but will continue to be evaluated for impairment in accordance with
the appropriate pre-SFAS No. 142 accounting literature. Goodwill and intangible
assets acquired in business combinations completed before July 1, 2001 will
continue to be amortized until the adoption of SFAS No. 142.

As of the date of adoption, the Company expects to have unamortized goodwill in
the amount of $189.7 million which will be subject to the transition provisions
of SFAS No. 141 and 142.

Amortization expense related to goodwill was $1.4 million and $2.8 million for
the quarter and the six months ended June 30, 2001, respectively. Because of the
extensive effort needed to comply with adopting SFAS No. 141 and 142, it is not
practicable to reasonably estimate the impact of adopting these Statements on
the Company's financial statements at the date of this report, including whether
any transitional impairment losses will be required to be recognized as the
cumulative effect of a change in accounting principle.

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
provides for a floating interest rate. As of June 30, 2001, the Company had
outstanding borrowings of approximately $296.4 million, which excludes letters
of credit totaling $3.4 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 $1.2 million. Interest expense associated with other
debts would not materially impact the Company as most interest rates are fixed.



                                       33
<PAGE>   34

                           PART II. OTHER INFORMATION

           ITEM 4 - SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS

The 2001 annual meeting of shareholders was held on May 31, 2001. At the
meeting, the reelection of each individual nominated as a Class 1 director of
the Company's Board of Directors was approved. The directors so elected are
Henry T. Blackstock and Mark Manner. Continuing directors consist of: Class 2
directors, Joseph F. Furlong, III and Donald R. Millard, whose terms expire in
2003. At the meeting, the shareholders also voted in favor of approving Arthur
Andersen LLP as the Company's Independent Public Accountants for the 2001 fiscal
year. No other matters were voted upon at the annual meeting.

The following table sets forth the voting tabulation for each matter voted upon
at the meeting:

<TABLE>
<CAPTION>
                                 Votes          Votes          Votes                       Broker
                                  For          Against       Withheld    Abstentions     Non-Votes
                              ----------       -------       --------    -----------     ---------
<S>                           <C>              <C>           <C>         <C>             <C>
Reelection of
Class 1 directors             12,404,168           N/A       286,460         N/A            N/A

Approval of Arthur
Andersen LLP as the
Company's
Independent Public
Accountants                   12,400,500       226,676        63,452         N/A            N/A
</TABLE>

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

(A)      Exhibits. The exhibits filed as part of this Report are listed on the
         Index to Exhibits immediately following the signature page.

(B)      Reports on Form 8-K. No reports on Form 8-K have been filed during the
         quarter for which this report is filed.


                                       34

<PAGE>   35

                                   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.



August 14, 2001                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


                                       35

<PAGE>   36

                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER         DESCRIPTION OF EXHIBITS
-------        -----------------------
<S>            <C>
  3.1          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 Registration Statement on Form S-8 dated February 16,
               1993).

  3.4          Certificate of Ownership and Merger merging American  HomePatient, Inc. into Diversicare
               Inc. dated May 11, 1994 (incorporated by reference to Exhibit 4.4 to the Company's
               Registration Statement No. 33-89568 on Form S-2).

  3.5          Certificate of Amendment to the Certificate of Incorporation
               of the Company dated July 8, 1996 (incorporated by reference
               to Exhibit 3.5 to the Company's Report of Form 10-Q for the
               quarter ended June 30, 1996).

  3.6          Bylaws of the Company, as amended (incorporated by reference to Exhibit 3.3 to the
               Company's Registration Statement No. 33-42777 on Form S-1).
</TABLE>


                                       36