<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: SEPTEMBER 30, 1999
                                              --------------------

                                       OR

[ ]         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
             FOR THE TRANSACTION PERIOD FROM _________ TO _________.

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

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

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

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

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

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

                                   15,159,720
   ---------------------------------------------------------------------------
    (OUTSTANDING SHARES OF THE ISSUER'S COMMON STOCK AS OF NOVEMBER 12, 1999)

                          TOTAL NUMBER OF SEQUENTIALLY
                              NUMBERED PAGES IS 34




                                       1
<PAGE>   2




                          PART I. FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

                   AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES

                  INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (unaudited)

<TABLE>
<CAPTION>

ASSETS
                                                                     December 31,      September 30,
                                                                         1998               1999
                                                                    -------------       -------------
<S>                                                                 <C>                 <C>
CURRENT ASSETS
    Cash and cash equivalents                                       $   4,276,000       $  26,091,000
    Restricted cash                                                        51,000                  --
    Accounts receivable, less allowance for
         doubtful accounts of $41,147,000 and
         $44,745,000 respectively                                      99,574,000          92,482,000
    Inventories                                                        20,776,000          15,412,000
    Prepaid expenses and other assets                                   3,135,000           1,839,000
    Income tax receivable                                              13,090,000           3,047,000
    Deferred tax asset                                                  7,174,000          17,610,000
                                                                    -------------       -------------
          Total current assets                                        148,076,000         156,481,000
                                                                    -------------       -------------

PROPERTY AND EQUIPMENT, at cost                                       165,642,000         175,819,000
    Less accumulated depreciation and amortization                    (87,864,000)       (109,688,000)
                                                                    -------------       -------------
          Net property and equipment                                   77,778,000          66,131,000
                                                                    -------------       -------------

OTHER ASSETS
    Excess of cost over fair value of net assets acquired, net        249,173,000         244,503,000
    Investment in unconsolidated joint ventures                        23,325,000          19,253,000
    Deferred financing costs, net                                       4,119,000           4,079,000
    Deferred tax asset                                                  6,048,000           5,553,000
    Other assets, net                                                  23,373,000          17,163,000
                                                                    -------------       -------------
          Total other assets                                          306,038,000         290,551,000
                                                                    -------------       -------------
                                                                    $ 531,892,000       $ 513,163,000
                                                                    =============       =============
</TABLE>

                                   (Continued)



                                       2

<PAGE>   3




                   AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES

                  INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (Continued)
                                   (unaudited)

<TABLE>
<CAPTION>

LIABILITIES AND SHAREHOLDERS' EQUITY
                                                                       December 31,        September 30,
                                                                           1998                1999
                                                                       -------------       -------------
<S>                                                                    <C>                 <C>
CURRENT LIABILITIES
    Current portion of long-term debt and capital leases               $   7,024,000       $  11,038,000
    Trade accounts payable                                                10,629,000          16,283,000
    Other payables                                                         1,446,000           1,782,000
    Accrued expenses:
       Payroll and related benefits                                        9,074,000           7,596,000
       Interest                                                            3,327,000             840,000
       Insurance                                                           3,776,000           4,479,000
       Restructuring accruals                                              3,413,000           2,954,000
       Other                                                              10,272,000           7,690,000
                                                                       -------------       -------------
          Total current liabilities                                       48,961,000          52,662,000
                                                                       -------------       -------------

NONCURRENT LIABILITIES
    Long-term debt and capital leases, less current portion              316,918,000         314,077,000
    Other noncurrent liabilities                                           9,514,000           5,210,000
                                                                       -------------       -------------
          Total noncurrent liabilities                                   326,432,000         319,287,000
                                                                       -------------       -------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
    Preferred stock, $.01 par value; authorized 5,000,000 shares;
       none issued and outstanding                                                --                  --
    Common stock, $.01 par value; authorized 35,000,000
       shares; issued and outstanding, 14,986,000 and
       15,160,000 shares, respectively                                       150,000             152,000
    Paid-in capital                                                      172,520,000         172,868,000
    Accumulated deficit                                                  (16,171,000)        (31,806,000)
                                                                       -------------       -------------
          Total stockholders' equity                                     156,499,000         141,214,000
                                                                       -------------       -------------
                                                                       $ 531,892,000       $ 513,163,000
                                                                       =============       =============

</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 Sept. 30              Nine Months Ended Sept. 30
                                                       --------------------------------       ---------------------------------
                                                            1998              1999                1998                1999
                                                       -------------       ------------       ------------        -------------
<S>                                                    <C>                 <C>                <C>                 <C>
REVENUES
    Sales and related service revenues                 $  48,393,000       $ 42,694,000       $ 146,868,000       $ 128,273,000
    Rentals and other revenues                            51,755,000         45,814,000         156,727,000         140,415,000
    Earnings from joint ventures                           1,197,000            804,000           4,144,000           2,285,000
                                                       -------------       ------------       -------------       -------------
          Total revenues                                 101,345,000         89,312,000         307,739,000         270,973,000
                                                       -------------       ------------       -------------       -------------
EXPENSES
    Cost of sales and related services, excluding
       depreciation and amortization                      23,917,000         22,286,000          72,986,000          67,562,000
    Operating                                             72,251,000         51,326,000         180,583,000         156,077,000
    General and administrative                             9,219,000          3,319,000          16,269,000          10,742,000
    Depreciation and amortization                         10,084,000         10,224,000          29,532,000          30,208,000
    Interest                                               5,931,000          7,189,000          16,895,000          21,571,000
    Restructuring                                         (3,614,000)                --          (3,614,000)                 --
                                                       -------------       ------------       -------------       -------------
          Total expenses                                 117,788,000         94,344,000         312,651,000         286,160,000
                                                       -------------       ------------       -------------       -------------

LOSS FROM OPERATIONS BEFORE INCOME
    TAXES                                                (16,443,000)        (5,032,000)         (4,912,000)        (15,187,000)

PROVISION (BENEFIT) FOR INCOME TAXES                      (6,578,000)           150,000          (1,965,000)            448,000
                                                       -------------       ------------       -------------       -------------
NET LOSS                                               $  (9,865,000)      $ (5,182,000)      $  (2,947,000)      $ (15,635,000)
                                                       =============       ============       =============       =============

NET LOSS PER COMMON SHARE
       - Basic                                         $       (0.66)      $      (0.34)      $       (0.20)      $       (1.03)
                                                       =============       ============       =============       =============
       - Diluted                                       $       (0.66)      $      (0.34)      $       (0.20)      $       (1.03)
                                                       =============       ============       =============       =============

WEIGHTED AVERAGE NUMBER OF COMMON
    SHARES OUTSTANDING
       - Basic                                            14,981,000         15,246,000          15,002,000          15,221,000
                                                       =============       ============       =============       =============
       - Diluted                                          14,981,000         15,246,000          15,002,000          15,221,000
                                                       =============       ============       =============       =============

</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>


                                                                      Nine Months Ended September 30
                                                                      ------------------------------
                                                                          1998               1999
                                                                      -------------      ------------
<S>                                                                   <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss                                                          $ (2,947,000)      $(15,635,000)
    Adjustments to reconcile net loss from operations
      to net cash provided from (used in) operating activities:
       Depreciation and amortization                                    29,532,000         30,208,000
       Equity in (earnings) losses of unconsolidated joint
          ventures                                                        (618,000)           651,000
       Minority interest                                                   257,000            157,000
       Other non-cash charges                                           10,500,000                 --
    Change in assets and liabilities, net of effects from
      acquisitions:
       Accounts receivable, net                                         (3,139,000)         7,283,000
       Restricted cash                                                          --             51,000
       Inventories                                                       1,095,000          5,475,000
       Prepaid expenses and other assets                                  (556,000)         1,304,000
       Income tax receivable                                            (1,570,000)           102,000
       Trade accounts payable, accrued expenses
          and other current liabilities                                  4,608,000            301,000
       Restructuring accruals                                           (7,728,000)          (458,000)
       Other non current liabilities                                        56,000             47,000
       Other assets                                                     (1,983,000)         1,005,000
                                                                      ------------       ------------
          Net cash provided from operating activities                   27,507,000         30,491,000
                                                                      ------------       ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Acquisitions, net of cash acquired                                 (58,420,000)          (500,000)
    Additions to property and equipment, net                           (24,151,000)       (10,527,000)
    Distributions from (advances to) unconsolidated joint
       ventures, net                                                    (7,155,000)         2,644,000
    Distributions to minority interest owners                              (10,000)           (49,000)
                                                                      ------------       ------------
       Net cash used in investing activities                           (89,736,000)        (8,432,000)
                                                                      ------------       ------------

</TABLE>



                                   (Continued)



                                       5

<PAGE>   6



                   AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES

             INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   (unaudited)
                                   (Continued)

<TABLE>
<CAPTION>

                                                                     Nine Months Ended September 30
                                                                     ------------------------------
                                                                         1998               1999
                                                                     ------------       ------------
<S>                                                                  <C>                <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
    Principal payments on debt and capital leases                     (13,679,000)        (3,349,000)
    Proceeds from issuance of debt                                     71,277,000          4,500,000
    Proceeds from exercise of stock options                               571,000             11,000
    Deferred financing costs                                             (129,000)        (1,406,000)
                                                                     ------------       ------------
          Net cash provided from (used in) financing activities        58,040,000           (244,000)
                                                                     ------------       ------------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                       (4,189,000)        21,815,000

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

CASH AND CASH EQUIVALENTS, end of period                             $  7,861,000       $ 26,091,000
                                                                     ============       ============

SUPPLEMENTAL INFORMATION:
    Cash payments of interest                                        $ 14,472,000       $ 23,932,000
                                                                     ============       ============

    Cash payments of income taxes                                    $  2,034,000       $    416,000
                                                                     ============       ============

</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

                           SEPTEMBER 30, 1999 AND 1998

        1.  ORGANIZATION AND BACKGROUND

        American HomePatient, Inc. (the "Company") was incorporated in Delaware
        in September 1991. The Company's principal executive offices are located
        at 5200 Maryland Way, Suite 400, Brentwood, Tennessee 37027-5018, and
        its telephone number at that address is (615) 221-8884. The Company
        provides home health care services and products consisting primarily of
        respiratory therapies, infusion therapies, and the rental and sale of
        home medical equipment and home medical supplies. For the nine months
        ended September 30, 1999, such services represented 53%, 21% and 26%,
        respectively of net revenues. These services and products are paid for
        primarily by Medicare, Medicaid and other third-party payors. As of
        September 30, 1999, the Company provided these services to patients
        primarily in the home through 310 centers in 38 states: Alabama,
        Arizona, Arkansas, Colorado, Connecticut, Delaware, Florida, Georgia,
        Illinois, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland,
        Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska,
        Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio,
        Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee,
        Texas, Virginia, Washington, West Virginia and Wisconsin. From its
        inception through 1997 the Company experienced substantial growth
        primarily as a result of its strategy of acquiring and operating home
        health care businesses. Beginning in 1998, the Company's strategy
        shifted from acquiring new businesses to focusing more on internal
        growth, integrating its acquired operations and achieving operating
        efficiencies.

        2.  MEDICARE OXYGEN REIMBURSEMENT REDUCTIONS AND RELATED RESTRUCTURING

        The Medicare reimbursement rate for oxygen related services was reduced
        by 25% beginning January 1, 1998 as a result of the Balanced Budget Act
        of 1997 (the "Medicare Oxygen Reimbursement Reduction") and an
        additional reduction of 5% beginning January 1, 1999. The reimbursement
        rate for certain drugs and biologicals covered under Medicare was also
        reduced by 5% beginning January 1, 1998. In addition, Consumer Price
        Index increases in Medicare reimbursement rates for home medical
        equipment, including oxygen, will not resume until the year 2003. The
        Company is one of the nation's largest providers of home oxygen services
        to patients, many of whom are Medicare recipients, and is therefore
        significantly affected by this legislation. For the first nine months of
        1999, Medicare oxygen reimbursements accounted for approximately 27% of
        the Company's revenues. The Company estimates the Medicare oxygen
        reimbursement reductions decreased net revenue and pre-tax income by
        approximately $18.5 million and $21.9 million for the nine months ended
        September 30, 1998 and 1999, respectively.

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



                                       7
<PAGE>   8

        locations, and the related termination of 406 employees in the affected
        locations. These activities were substantially completed as of June
        30, 1998.

        In the quarter ended September 30, 1998, the Company adjusted its
        original estimates of restructuring costs resulting in the reversal of
        $1.6 million of excess restructuring accruals related to items requiring
        a cash payment, and $2.4 million of other valuation reserves established
        in connection with the restructuring. The restructuring accruals at
        September 30, 1999 represent remaining facility exit costs ($0.7
        million) and termination costs of certain management contracts ($2.2
        million). As costs were incurred and payments were made, $7.7 million
        and $0.5 million were charged against the restructuring accruals in the
        first nine months of 1998 and 1999, respectively.

        3.  ACQUISITIONS

        In 1998, the Company acquired four home health care businesses. The
        Company did not acquire any home health care businesses in the first
        nine months of 1999 and does not expect to acquire any home health care
        businesses during the remainder of 1999. The Company made payments of
        $0.5 million in the third quarter of 1999 under the terms of an earnout
        agreement related to a 1998 acquisition.

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

        4.  BANK CREDIT FACILITY

        On October 29, 1998, the Fourth Amended and Restated Credit Agreement
        (the "Credit Agreement") between the Company and Bankers Trust Company,
        as agent for a syndicate of banks (the "Banks"), was amended (the "First
        Amendment") to modify certain financial covenants with which the Company
        was not in compliance. The Company incurred increased interest expense
        of $1,657,000 and $3,047,000 in 1998 and the first nine months of 1999,
        respectively, as a result of the increased interest rate established by
        the First Amendment. As part of the First Amendment, the Company's
        credit availability was reduced from $400 million to $360 million
        (credit availability was temporarily reduced to $340 million until April
        1, 1999). The Credit Agreement contained various financial covenants and
        other restrictions regarding specified activities. At December 31, 1998
        the Company was in violation of certain of these covenants.
        Noncompliance with these covenants gave the lenders the right to
        exercise several remedies, including acceleration of the due date of all
        outstanding amounts under the Facility and denying the Company access to
        funding under the Facility. On April 14, 1999 the Company entered into a
        Second Amendment to the Fourth Amended and Restated Credit Agreement
        (the "Second Amendment"). (The Second Amendment together with the Credit
        Agreement and the First Amendment will be referred to as the "Bank
        Credit Facility"). The Second Amendment waived then existing events of
        default, modified financial covenants and made a number of other changes
        to the Credit Agreement. The Company is required to employ a manager,
        acceptable to the Banks, with expertise in managing companies that are
        in workout situations with their lenders. The Company's credit
        availability has been reduced from $360 million (credit availability was
        temporarily reduced to $340 million pursuant to the First Amendment) to
        $328.6 million, including a $75 million term loan and a $253.6 million
        revolving line of credit. As of November 8, 1999, approximately $246.4
        million was outstanding under the revolving




                                       8
<PAGE>   9
        line of credit and approximately $66.3 million was outstanding under the
        term loan. Substantially all of the Company's operating assets have been
        pledged as security for borrowings under the Bank Credit Facility.

        Interest is payable on borrowings under the Bank Credit Facility at the
        election of the Company at either a Base Lending Rate or an Adjusted
        Eurodollar Rate (each as defined in the Bank Credit Facility) plus an
        applicable margin. The margin associated with the Adjusted Eurodollar
        Rate is fixed at 3.25%. The margin associated with the Base Lending Rate
        is fixed at 2.50%. The applicable margins increase on September 30, 2000
        to 3.50% as to the Adjusted Eurodollar Rate and to 2.75% as to the Base
        Lending Rate. In addition, from and after September 30, 2000, additional
        interest of 4.50% will accrue on that portion of the Bank Credit
        Facility that is in excess of four times Adjusted EBITDA.

        The Company has agreed to issue on March 31, 2001 (provided loans,
        letters of credit or commitments are still outstanding) warrants to the
        Banks representing 19.99% of the fully diluted common stock of the
        Company issued and outstanding as of March 31, 2001. Fifty percent of
        these warrants would be exercisable at any time after issuance and the
        remaining fifty percent would be exercisable from and after September
        30, 2001 (provided loans, letters of credit or commitments have not been
        terminated subsequent to March 31, 2001 and prior to September 30,
        2001). If exercised, the price of the warrants will be $0.01 per share.

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

        Management has prepared operating projections, cash flow projections and
        related operating plans which indicate the Company can remain in
        compliance with its financial covenants and meet its expected
        obligations throughout 1999. However, as with all projections, there is
        uncertainty as to whether management's projections can be achieved. For
        periods subsequent to 1999, the Company is committed to achieving
        financial covenants that contemplate increased levels of profitability,
        due in large part to revenue growth. If this revenue growth does not
        occur, the Company will likely not remain in compliance with its
        financial covenants throughout 2000 and will be required to reach a
        resolution with its Banks in this matter. In an event of default under
        the Bank Credit Facility, the Banks will have the ability to demand
        payment of all outstanding amounts, and there is currently no commitment
        as to how any such demand payment would be satisfied.

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




                                       9
<PAGE>   10


        5.  EARNINGS PER SHARE

        Under the standards established by 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. The following information is necessary to
        calculate earnings per share for the periods presented:

<TABLE>
<CAPTION>

                                                                                      (unaudited)
                                                 ----------------------------------------------------------------------------------
                                                     Three Months Ended September 30,            Nine Months Ended September 30,
                                                 ----------------------------------------      ------------------------------------
                                                        1998                  1999                   1998                1999
                                                 ----------------        ---------------       ----------------       ------------
        <S>                                      <C>                    <C>                    <C>                    <C>
        Net loss                                 $     (9,865,000)      $     (5,182,000)      $     (2,947,000)      $(15,635,000)
                                                 ================       ================       ================       ============
        Weighted average common
            shares outstanding                         14,981,000             15,246,000             15,002,000         15,221,000

        Effect of dilutive options and warrants                --                     --                     --                 --
                                                 ----------------       ----------------       ----------------       ------------
        Adjusted diluted common shares
            outstanding                                14,981,000             15,246,000             15,002,000         15,221,000
                                                 ================       ================       ================       ============

        Net loss per common share
            - Basic                              $          (0.66)      $          (0.34)      $          (0.20)      $      (1.03)
                                                 ================       ================       ================       ============
            - Diluted                            $          (0.66)      $          (0.34)      $          (0.20)      $      (1.03)
                                                 ================       ================       ================       ============

</TABLE>

        6.  BASIS OF FINANCIAL STATEMENTS

        The interim condensed consolidated financial statements of the Company
        for the three months and nine months ended September 30, 1999 and 1998
        herein have been prepared by the Company, without audit, pursuant to the
        rules and regulations of the Securities and Exchange Commission. Certain
        information and footnote disclosures normally included in financial
        statements prepared in accordance with generally accepted accounting
        principles have been condensed or omitted pursuant to such rules and
        regulations. In the opinion of management of the Company, the
        accompanying unaudited interim consolidated financial statements reflect
        all adjustments (consisting of only normally recurring accruals)
        necessary to present fairly the financial position at September 30, 1999
        and the results of operations and the cash flows for the three months
        and nine months ended September 30, 1999 and 1998.

        The results of operations for the three months and nine months ended
        September 30, 1999 and 1998 are not necessarily indicative of the
        operating results for the entire respective years. These unaudited
        interim consolidated financial statements should be read in conjunction
        with the audited financial statements and notes thereto included in the
        Company's Annual Report on Form 10-K for the year ended December 31,
        1998.



                                       10
<PAGE>   11



        7.  IMPLEMENTATION OF FINANCIAL ACCOUNTING STANDARDS

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

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

        8.  GOVERNMENT REGULATION

        In recent years, various state and federal regulatory agencies have
        stepped up investigative and enforcement activities with respect to the
        health care industry, and many health care providers, including durable
        medical equipment suppliers, have received subpoenas and other requests
        for information in connection with such activities. On February 12,
        1998, a subpoena from the Office of the Inspector General of the
        Department of Health and Human Services ("OIG") was served on the
        Company at its Pineville, Kentucky center in connection with an
        investigation relating to possible improper claims for payment from
        Medicare. Since that time the U.S. Department of Justice has begun
        examining issues involving Certificates of Medical Necessity and loaning
        of equipment by the Company nationwide. The Company has retained
        experienced health care counsel to represent it in this matter and is
        cooperating with the investigation. The Company's counsel has conducted
        meetings with governmental officials, and governmental officials have
        interviewed certain company officers and employees. The Company has
        responded to government requests for information and documents, and is
        cooperating with the government investigators to move forward with the
        investigation. The Company has been engaged in discussions with the
        government concerning the investigation and settlement of these matters.
        To date there has been no resolution of these issues. An unfavorable
        outcome of the investigation would likely have a material adverse impact
        on the Company's future operating results and financial condition and
        also likely result in a breach under the Bank Credit Facility. Although
        this has not been confirmed, management believes that the investigation
        was initiated as a result of a qui tam complaint filed by a former
        employee of the Company under the False Claims Act.

        From time to time the Company also receives notices and subpoenas from
        various government agencies concerning plans to audit the Company, or
        requesting information regarding certain aspects of the Company's
        business. The Company cooperates with the various agencies in responding
        to such requests. The government has broad authority and discretion in
        enforcing applicable laws and regulations, and therefore the scope and
        outcome of these investigations and inquiries cannot be predicted with
        certainty. The Company expects to incur additional costs in the future,
        such as legal expenses in connection with all investigations.



                                       11
<PAGE>   12


        Health care law is an area of extensive and dynamic regulatory
        oversight. Changes in laws or regulations or new interpretations of
        existing laws or regulations can have a dramatic effect on permissible
        activities, the relative costs associated with doing business, and the
        amount and availability of reimbursement from government and other
        third-party payors. There can be no assurance that federal, state or
        local governments will not impose additional regulations upon the
        Company's activities. Such regulatory changes could adversely affect the
        Company's business, making the Company unable to comply with all
        regulations in the geographic areas in which it presently conducts, or
        wishes to commence business. See "Management's Discussion and Analysis
        of Financial Condition and Results of Operations - Risk Factors -
        Government Regulation."




                                       12


<PAGE>   13



        ITEM 2 -  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
        AND RESULTS OF OPERATIONS

        THIS QUARTERLY REPORT ON FORM 10-Q INCLUDES FORWARD-LOOKING STATEMENTS
        WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
        1995 INCLUDING, WITHOUT LIMITATION, STATEMENTS CONTAINING THE WORDS
        "BELIEVES," "ANTICIPATES," "INTENDS," "EXPECTS," "ESTIMATES,"
        "PROJECTS", "MAY," "WILL", "LIKELY" AND WORDS OF SIMILAR IMPORT. SUCH
        STATEMENTS INCLUDE STATEMENTS CONCERNING THE COMPANY'S YEAR 2000
        EFFORTS, BUSINESS STRATEGY, OPERATIONS, COST SAVINGS INITIATIVES, FUTURE
        COMPLIANCE WITH ACCOUNTING STANDARDS, INDUSTRY, ECONOMIC PERFORMANCE,
        FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES, EXISTING
        GOVERNMENT REGULATIONS AND CHANGES IN, OR THE FAILURE TO COMPLY WITH,
        GOVERNMENTAL REGULATIONS, PROJECTIONS, FUTURE COMPLIANCE WITH BANK
        CREDIT FACILITY COVENANTS, LEGISLATIVE PROPOSALS FOR HEALTHCARE REFORM,
        THE ABILITY TO ENTER INTO JOINT VENTURES, STRATEGIC ALLIANCES AND
        ARRANGEMENTS WITH MANAGED CARE PROVIDERS ON AN ACCEPTABLE BASIS, AND
        CHANGES IN REIMBURSEMENT POLICIES. SUCH STATEMENTS ARE SUBJECT TO
        VARIOUS RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER
        MATERIALLY FROM THE RESULTS DISCUSSED IN SUCH FORWARD-LOOKING STATEMENTS
        BECAUSE OF A NUMBER OF FACTORS, INCLUDING THOSE IDENTIFIED IN THE "RISK
        FACTORS" SECTION AND ELSEWHERE IN THIS QUARTERLY REPORT ON FORM 10-Q.
        THE FORWARD-LOOKING STATEMENTS ARE MADE AS OF THE DATE OF THIS QUARTERLY
        REPORT ON FORM 10-Q AND THE COMPANY DOES NOT UNDERTAKE TO UPDATE THE
        FORWARD-LOOKING STATEMENTS OR TO UPDATE THE REASONS THAT ACTUAL RESULTS
        COULD DIFFER FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS.

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

        GENERAL

        The Company provides home healthcare services and products to patients
        through its 310 centers in 38 states. These services and products are
        primarily paid for by Medicare, Medicaid and other third-party payors.

        The Company has three principal services or product lines: home
        respiratory services, home infusion services and home medical equipment
        and supplies. Home respiratory services include oxygen systems,
        nebulizers, aerosol medications and home ventilators and are provided
        primarily to patients with severe and chronic pulmonary diseases. Home
        infusion services are used to administer nutrients, antibiotics and
        other medications to patients with medical conditions such as
        neurological impairments, infectious diseases or cancer. The Company
        also sells and rents a variety of home medical equipment and supplies,
        including wheelchairs, hospital beds and ambulatory aids.




                                       13
<PAGE>   14


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

<TABLE>
<CAPTION>

                                                       Nine Months Ended Sept. 30,
                                                       ---------------------------
                                                         1998             1999
                                                       --------         --------
        <S>                                            <C>               <C>
        Home respiratory therapy services                 48%               53%
        Home infusion therapy services                    22                21
        Home medical equipment and medical supplies       30                26
                                                     -------           -------
           Total                                         100%              100%
                                                     =======           =======
</TABLE>

        The Company reports its net revenues as follows: (i) sales and related
        services; (ii) rentals and other; and (iii) earnings from hospital joint
        ventures. Sales and related services revenues are derived from the
        provision of infusion therapies, the sale of home medical equipment and
        supplies, the sale of aerosol and respiratory therapy equipment and
        supplies and services related to the delivery of these products. Rentals
        and other revenues are derived from the rental of home health care
        equipment, enteral pumps and equipment related to the provision of
        respiratory therapies. The majority of the Company's hospital joint
        ventures are not consolidated for financial statement reporting
        purposes. Earnings from hospital joint ventures represent the Company's
        equity in earnings from unconsolidated hospital joint ventures and
        management and administrative fees from unconsolidated hospital joint
        ventures. Cost of sales and related services includes the cost of
        equipment, drugs and related supplies sold to patients. Operating
        expenses include center labor costs, delivery expenses, selling costs,
        occupancy costs, costs related to rentals other than depreciation,
        billing center costs, provision for doubtful accounts, area management
        and other operating costs. General and administrative expenses include
        corporate and senior management expenses.

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

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

        The Company also continues to implement a variety of initiatives
        designed to lower its costs. Activities completed or underway for 1999
        include: (i) elimination of 41 positions at the Company's corporate
        Support Center and approximately 300 positions in the field during the
        first nine months of 1999; (ii) reduction of expenses related to these
        positions; (iii) reduction of other general and administrative expenses
        and field expenses such as travel and entertainment, marketing and
        advertising and consulting; (iv) greater control of capital expenditures
        at all levels; and (v) reduction of the Company's bad debt expense.



                                       14

<PAGE>   15


        GOVERNMENT REGULATION

        In recent years, various state and federal regulatory agencies have
        stepped up investigative and enforcement activities with respect to the
        health care industry, and many health care providers, including durable
        medical equipment suppliers, have received subpoenas and other requests
        for information in connection with such activities. On February 12,
        1998, a subpoena from the Office of the Inspector General of the
        Department of Health and Human Services ("OIG") was served on the
        Company at its Pineville, Kentucky center in connection with an
        investigation relating to possible improper claims for payment from
        Medicare. Since that time the U.S. Department of Justice has begun
        examining issues involving Certificates of Medical Necessity and loaning
        of equipment by the Company nationwide. The Company has retained
        experienced health care counsel to represent it in this matter and is
        cooperating with the investigation. The Company's counsel has conducted
        meetings with governmental officials, and governmental officials have
        interviewed certain company officers and employees. The Company has
        responded to government requests for information and documents, and is
        cooperating with the government investigators to move forward with the
        investigation. The Company has been engaged in discussions with the
        government concerning the investigation and settlement of these matters.
        To date there has been no resolution of these issues. An unfavorable
        outcome of the investigation would likely have a material adverse impact
        on the Company's future operating results and financial condition and
        also likely result in a breach under the Bank Credit Facility. Although
        this has not been confirmed, management believes that the investigation
        was initiated as a result of a qui tam complaint filed by a former
        employee of the Company under the False Claims Act.

        From time to time the Company also receives notices and subpoenas from
        various government agencies concerning plans to audit the Company, or
        requesting information regarding certain aspects of the Company's
        business. The Company cooperates with the various agencies in responding
        to such requests. The government has broad authority and discretion in
        enforcing applicable laws and regulations, and therefore the scope and
        outcome of these investigations and inquiries cannot be predicted with
        certainty. The Company expects to incur additional costs in the future,
        such as legal expenses in connection with all investigations.

        Health care law is an area of extensive and dynamic regulatory
        oversight. Changes in laws or regulations or new interpretations of
        existing laws or regulations can have a dramatic effect on permissible
        activities, the relative costs associated with doing business, and the
        amount and availability of reimbursement from government and other
        third-party payors. There can be no assurance that federal, state or
        local governments will not impose additional regulations upon the
        Company's activities. Such regulatory changes could adversely affect the
        Company's business, making the Company unable to comply with all
        regulations in the geographic areas in which it presently conducts, or
        wishes to commence business. See "Management's Discussion and Analysis
        of Financial Condition and Results of Operations - Risk Factors -
        Government Regulation."

        MEDICARE REIMBURSEMENT FOR OXYGEN THERAPY SERVICES

        The Medicare reimbursement rate for oxygen related services was reduced
        by 25% beginning January 1, 1998 as a result of the Balanced Budget Act
        of 1997 (the "Medicare Oxygen Reimbursement Reduction") and an
        additional reduction of 5% beginning January 1, 1999. The reimbursement
        rate for certain drugs and biologicals covered under Medicare was also
        reduced by 5% beginning January 1, 1998. In addition, Consumer Price
        Index increases in Medicare



                                       15
<PAGE>   16

        reimbursement rates for home medical equipment, including oxygen, will
        not resume until the year 2003. The Company is one of the nation's
        largest providers of home oxygen services to patients, many of whom
        are Medicare recipients, and is therefore significantly affected by
        this legislation. For the first nine months of 1999, Medicare oxygen
        reimbursements accounted for approximately 27 percent of the Company's
        revenues. The Company estimates the Medicare oxygen reimbursement
        reductions decreased net revenue and pre-tax income by approximately
        $18.5 million and $21.9 million for the nine months ended September
        30, 1998 and 1999, respectively.

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

        RESULTS OF OPERATIONS

        In the quarter ended September 30, 1998, the Company recorded a net
        pre-tax accounting charge of $15.2 million related to (a) certain
        non-recurring events in the third quarter ($3.2 million), (b) the
        recording of additional reserves related to accounts receivable ($16.0
        million), and (c) the reversal of excess restructuring accruals and
        related reserves ($4.0 million credit). A description of these charges
        follows:

        The non-recurring charge of $3.2 million relates to certain one-time
        expenses associated with the retirement package of the former CEO, CEO
        transition expenses, deal costs of abandoned mergers and acquisitions,
        and a provision for adverse settlements related to accounting disputes
        with certain sellers of acquired businesses.

        The accounts receivable charge of $16.0 million relates primarily to
        disruptions in collections as a result of the consolidation of billing
        centers and changes in certain billing procedures continuing from the
        1997 restructuring. Billing center efficiencies have been affected
        because of personnel turnover and other adverse impacts of previous cost
        reduction plans. The termination of unprofitable contracts with certain
        healthcare institutions has also adversely affected collections on
        existing receivables. Included in the total accounts receivable charge
        is $1.5 million related to certain accounts receivable consulting and
        management services provided to the Company.

        The Company adjusted its original estimates of restructuring costs
        related to the 1997 restructuring activities. This resulted in a $4.0
        million reversal of certain restructuring accruals and other reserves
        recorded in connection with the restructuring.


                                       16

<PAGE>   17



        The impact of these non-recurring charges on various classifications
        within the interim condensed statements of operations for the third
        quarter and nine months for 1998 is as follows:

<TABLE>
<CAPTION>

             <S>                                           <C>
             Cost of Sales                                 $   (386,000)
             Operating Expenses                              14,500,000
             General & Administrative Expenses                4,741,000
             Restructuring                                   (3,614,000)
                                                           ------------

                                                           $ 15,241,000
                                                           ============

</TABLE>

        The following table and discussion sets forth items from the statements
        of operations, excluding the above discussed non-recurring charges, as a
        percentage of net revenues:

                           PERCENTAGE OF NET REVENUES
                        (EXCLUDING NON-RECURRING CHARGES)
<TABLE>
<CAPTION>

                                                   Three Months Ended              Nine Months Ended
                                                      September 30                   September 30
                                                 ----------------------           --------------------
                                                   1998           1999             1998          1999
                                                 -------         ------           ------        ------

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

        Costs and expenses:
           Cost of sales and related services      24.0           25.0             23.8           24.9
           Operating expenses                      56.9           57.5             54.0           57.6
           General and administrative               4.4            3.7              3.7            4.0
           Depreciation and amortization           10.0           11.4              9.6           11.1
           Interest                                 5.9            8.0              5.5            8.0
                                                -------        -------           ------        -------
                Total costs and expenses          101.2%         105.6%            96.6%         105.6%
                                                -------        -------           ------        -------

           Income (loss) from operations
              before income taxes                  (1.2)%         (5.6)%            3.4%          (5.6)%
                                                =======        =======           ======        =======

</TABLE>



                                       17

<PAGE>   18


        The Company's operating results for the nine months ended September 30,
        1999 are significantly lower than historical trends and have been
        significantly impacted by the following factors: First, the Company has
        been greatly impacted by the 30% reduction in Medicare oxygen
        reimbursement rates (25% reduction effective January 1, 1998 with an
        additional 5% reduction effective January 1, 1999). The Company
        estimates that net revenue and pre-tax income has been reduced by
        approximately $21.9 million in the nine months of 1999 as a result of
        the 25% and the additional 5% reductions. Second, the Company
        experienced a decline in revenues attributable to the exit and
        de-emphasis of certain lower margin business lines and by the
        termination of several managed care contracts which began in the latter
        half of 1998 (with continued effect into 1999). Third, the Company has
        halted the acquisition of home health care businesses and its joint
        venture development program. Fourth, accounts receivable have been
        adversely affected by a tougher payor environment and by process
        problems at the operating and billing center levels (caused by the
        consolidation of billing centers and employee turnover) which has
        resulted in higher bad debt expense. Further, the Company's
        implementation of process improvements in the billing and collection
        functions has been slower than anticipated.

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

        In order to drive internal revenue growth during 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.
        To accelerate the development of the Company's respiratory selling
        efforts, it increased its sales force by 67 account executives, on a net
        basis, by year-end. It also exited certain contracts and businesses
        perceived to be lower margin during the third and fourth quarters of
        1998. The result was a substantial decrease in revenues during the
        latter half of 1998 and into 1999.

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

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

        2.  Decrease and control operating expenses - the Company has already
            taken aggressive steps to decrease operating and general and
            administrative expenses. Through the first nine months of 1999, the
            Company has eliminated 41 positions from its corporate Support
            Center in Brentwood, Tennessee and approximately 300 positions in
            the field.



                                       18

<PAGE>   19

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

        As a result of this new strategy, operating expenses in the third
        quarter of 1999 were reduced by $3.4 million compared to the fourth
        quarter of 1998. Also, general and administrative expenses in the third
        quarter of 1999 were reduced by $1.4 million compared to the fourth
        quarter of 1998 (excluding the non-recurring $1.3 million of executive
        severance expense in the fourth quarter of 1998).

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

        THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
        SEPTEMBER 30, 1998 (EXCLUDING NON-RECURRING CHARGES)

        NET REVENUES. Net revenues decreased from $101.3 million for the quarter
        ended September 30, 1998 to $89.3 million for the same period in 1999, a
        decrease of $12.0 million, or 12%. This decrease is primarily
        attributable to lower sales of non-core low margin products, the exiting
        of lower margin contracts, and the additional 5% Medicare oxygen
        reimbursement reduction. Following is a discussion of the components of
        net revenues:

             Sales and Related Services Revenues. Sales and related services
             revenues decreased from $48.4 million for the quarter ended
             September 30, 1998 to $42.7 million for the same period in 1999, a
             decrease of $5.7 million, or 12%. This decrease is primarily
             attributable to lower sales of non-core low margin products and the
             exiting of lower margin contracts.

             Rentals and Other Revenues. Rentals and other revenues decreased
             from $51.8 million for the quarter ended September 30, 1998 to
             $45.8 million for the same period in 1999, a decrease of $6.0
             million, or 12%. This decrease is primarily attributable to the
             exiting of lower margin contracts, the additional 5% Medicare
             oxygen reimbursement reduction and less than expected sales force
             effectiveness.

             Earnings from Hospital Joint Ventures. Earnings from hospital joint
             ventures decreased from $1.2 million for the quarter ended
             September 30, 1998 to $0.8 million for the same period in 1999, a
             decrease of $0.4 million, or 33%, which was due primarily to the
             additional 5% Medicare oxygen reimbursement reduction and higher
             bad debt expense at certain joint venture locations.

        COST OF SALES AND RELATED SERVICES. Cost of sales and related services
        decreased from $24.3 million for the quarter ended September 30, 1998 to
        $22.3 million for the same period in 1999, a decrease of $2.0 million,
        or 8%. As a percentage of sales and related services revenues, cost of
        sales and related services increased from 50% to 52%. This increase is
        primarily attributable to



                                       19
<PAGE>   20

        lower vendor rebates in the quarter ended September 30, 1999, a higher
        level of favorable book-to-physical inventory adjustments recorded in
        the quarter ended September 30, 1998 compared to the same period in
        1999 and the Company booking a 1999 provision for inventory related to
        exiting certain contracts and the de-emphasis of soft goods.

        OPERATING EXPENSES. Operating expenses decreased from $57.8 million for
        the quarter ended September 30, 1998 to $51.3 million for the same
        period in 1999, a decrease of $6.5 million, or 11%. This decrease is
        primarily attributable to lower salary expense in the quarter ended
        September 30, 1999 as a result of the Company's aggressive steps to
        control expenses which included the elimination of 300 positions in the
        field. The lower salary expense was partially offset by higher bad debt
        expense. Bad debt expense was 5.6% of net revenue for the quarter ended
        September 30, 1999 compared to 4.3% of net revenue for the same period
        in 1998. The Company analyzes its accounts receivable portfolio for
        collectibility on an ongoing basis. Negative trends in cash collections
        were experienced in the fourth quarter of 1998 and in the first quarter
        of 1999. However, cash collections improved in the second and third
        quarters of 1999. Management is in the process of reviewing its accounts
        receivable portfolio to determine whether additional bad debt reserves
        will be required as of December 31, 1999.

        GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
        decreased from $4.5 million for the quarter ended September 30, 1998 to
        $3.3 million for the same period in 1999, a decrease of $1.2 million, or
        27%. This decrease is attributable to lower salary expense as a result
        of the positions eliminated at the Corporate Support Center and reduced
        consulting expenses.

        DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
        increased from $10.1 million for the quarter ended September 30, 1998 to
        $10.2 million for the same period in 1999, an increase of $.1 million.
        Management is in the process of evaluating its goodwill and other
        intangibles for possible impairment in light of the Company's current
        operating results. If management determines that the current results are
        indicative of future performance, the carrying amount of some of the
        Company's goodwill and other intangibles may not be recoverable. If this
        conclusion is reached, some portion of these assets will be written off
        in the fourth quarter of 1999.

        INTEREST. Interest expense increased from $5.9 million for the quarter
        ended September 30, 1998, to $7.2 million for the same period in 1999,
        an increase of $1.3 million, or 22%. The increase is attributable to
        higher interest rates on borrowings, and to additional interest expense
        on increased borrowings under the Bank Credit Facility.

        NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
        SEPTEMBER 30, 1998 (EXCLUDING  NON-RECURRING CHARGES)

        NET REVENUES. Net revenues decreased from $307.7 million for the nine
        months ended September 30, 1998 to $271.0 million for the same period in
        1999, a decrease of $36.7 million, or 12%. This decrease is primarily
        attributable to lower sales of non-core low margin products, the exiting
        of lower margin contracts, and the additional 5% Medicare oxygen
        reimbursement reduction, offset somewhat by additional revenue from the
        1998 acquisitions. Following is a discussion of the components of net
        revenues:



                                       20

<PAGE>   21



             Sales and Related Services Revenues. Sales and related services
             revenues decreased from $146.9 million for the nine months ended
             September 30, 1998 to $128.3 million for the same period in 1999, a
             decrease of $18.6 million, or 13%. This decrease is primarily
             attributable to lower sales of non-core low margin products and the
             exiting of lower margin contracts, offset somewhat by additional
             sales revenue from the 1998 acquisitions.

             Rentals and Other Revenues. Rentals and other revenues decreased
             from $156.7 million for the nine months ended September 30, 1998 to
             $140.4 million for the same period in 1999, a decrease of $16.3
             million, or 10%. This decrease is primarily attributable to the
             exiting of lower margin contracts, the additional 5% Medicare
             oxygen reimbursement reduction and less than expected sales force
             effectiveness, offset somewhat by the additional rental revenue of
             the 1998 acquisitions.

             Earnings from Hospital Joint Ventures. Earnings from hospital joint
             ventures decreased from $4.1 million for the nine months ended
             September 30, 1998 to $2.3 million for the same period in 1999, a
             decrease of $1.8 million, or 44%, which was due primarily to the
             additional 5% Medicare oxygen reimbursement reduction and higher
             bad debt expense at certain joint venture locations.

        COST OF SALES AND RELATED SERVICES. Cost of sales and related services
        decreased from $73.4 million for the nine months ended September 30,
        1998 to $67.6 million for the same period in 1999, a decrease of $5.8
        million, or 8%. As a percentage of sales and related services revenues,
        cost of sales and related services increased from 50% to 53%. This
        increase is primarily attributable to lower vendor rebates in the nine
        months ended September 30, 1999, a higher level of favorable
        book-to-physical inventory adjustments recorded in the nine months ended
        September 30, 1998 compared to the same period in 1999 and the Company
        booking a 1999 provision for inventory related to exiting certain
        contracts and the de-emphasis of soft goods.

        OPERATING EXPENSES. Operating expenses decreased from $166.1 million for
        the nine months ended September 30, 1998 to $156.1 million for the same
        period in 1999, a decrease of $10.0 million, or 6%. This decrease is
        primarily attributable to lower salary expense in the nine months ended
        September 30, 1999 as a result of the Company's aggressive steps to
        control expenses which included the elimination of 300 positions in the
        field. The lower salary expense was partially offset by higher bad debt
        expense. Bad debt expense was 5.1% of net revenue for the nine months
        ended September 30, 1999 compared to 3.7% of net revenue for the same
        period in 1998. The Company analyzes its accounts receivable portfolio
        for collectibility on an ongoing basis. Negative trends in cash
        collections were experienced in the fourth quarter of 1998 and in the
        first quarter of 1999. However, cash collections improved in the second
        and third quarters of 1999. Management is in the process of reviewing
        its accounts receivable portfolio to determine whether additional bad
        debt reserves will be required as of December 31, 1999. Even though the
        dollar level of operating expenses decreased, operating expenses as a
        percentage of net revenue increased from 54% for the nine months ended
        September 30, 1998 to 58% for the same period in 1999 as a result of
        decreased revenue.

        GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
        decreased from $11.5 million for the nine months ended September 30,
        1998 to $10.7 million for the same period in 1999, a decrease of $0.8
        million or 7%. This decrease is attributable to lower salary expense as
        a result of the positions eliminated at the Corporate Support Center and
        reduced consulting expenses.




                                       21
<PAGE>   22

        DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
        increased from $29.5 million for the nine months ended September 30,
        1998 to $30.2 million for the same period in 1999, an increase of $0.7
        million, or 2%. Management is in the process of evaluating its goodwill
        and other intangibles for possible impairment in light of the Company's
        current operating results. If management determines that the current
        results are indicative of future performance, the carrying amount of
        some of the Company's goodwill and other intangibles may not be
        recoverable. If this conclusion is reached, some portion of these assets
        will be written off in the fourth quarter of 1999.

        INTEREST. Interest expense increased from $16.9 million for the nine
        months ended September 30, 1998, to $21.6 million for the same period in
        1999, an increase of $4.7 million, or 28%. The increase was attributable
        to higher interest rates on borrowings, and to additional interest
        expense on increased borrowings under the Bank Credit Facility.

        LIQUIDITY AND CAPITAL RESOURCES

        At September 30, 1999, the Company's working capital was $103.8 million
        and the current ratio was 3.0x as compared to working capital of $99.1
        million and a current ratio of 3.0x at December 31, 1998.

        On October 29, 1998, the Fourth Amended and Restated Credit Agreement
        (the "Credit Agreement") between the Company and Bankers Trust Company,
        as agent for a syndicate of banks (the "Banks"), was amended (the "First
        Amendment") to modify certain financial covenants with which the Company
        was not in compliance. The Company incurred increased interest expense
        of $1,657,000 and $3,047,000 in 1998 and the first nine months of 1999,
        respectively, as a result of the increased interest rate established by
        the First Amendment. As part of the First Amendment, the Company's
        credit availability was reduced from $400 million to $360 million
        (credit availability was temporarily reduced to $340 million until April
        1, 1999). The Credit Agreement contained various financial covenants and
        other restrictions regarding specified activities. At December 31, 1998
        the Company was in violation of certain of these covenants.
        Noncompliance with these covenants gave the lenders the right to
        exercise several remedies, including acceleration of the due date of all
        outstanding amounts under the Facility and denying the Company access to
        funding under the Facility. On April 14, 1999 the Company entered into a
        Second Amendment to the Fourth Amended and Restated Credit Agreement
        (the "Second Amendment"). (The Second Amendment together with the Credit
        Agreement and the First Amendment will be referred to as the "Bank
        Credit Facility"). The Second Amendment waived then existing events of
        default, modified financial covenants and made a number of other changes
        to the Credit Agreement. The Company is required to employ a manager,
        acceptable to the Banks, with expertise in managing companies that are
        in workout situations with their lenders. The Company's credit
        availability has been reduced from $360 million (credit availability was
        temporarily reduced to $340 million pursuant to the First Amendment) to
        $328.6 million, including a $75 million term loan and a $253.6 million
        revolving line of credit. As of November 8, 1999, approximately $246.4
        million was outstanding under the revolving line of credit and
        approximately $66.3 million was outstanding under the term loan.
        Substantially all of the Company's operating assets have been pledged as
        security for borrowings under the Bank Credit Facility.

        Interest is payable on borrowings under the Bank Credit Facility at the
        election of the Company at either a Base Lending Rate or an Adjusted
        Eurodollar Rate (each as defined in the Bank Credit Facility) plus an
        applicable margin. The margin associated with the Adjusted Eurodollar
        Rate is fixed at 3.25%. The margin associated with the Base Lending Rate
        is fixed at 2.50%.



                                       22

<PAGE>   23

        The applicable margins increase on September 30, 2000 to 3.50% as to
        the Adjusted Eurodollar Rate and to 2.75% as to the Base Lending Rate.
        In addition, from and after September 30, 2000, additional interest of
        4.50% will accrue on that portion of the Bank Credit Facility that is
        in excess of four times adjusted EBITDA. As of September 30, 1999, the
        weighted average borrowing rate was 8.2416%.

        The Company has agreed to issue on March 31, 2001 (provided loans,
        letters of credit or commitments are still outstanding) warrants to the
        Banks representing 19.99% of the fully diluted common stock of the
        Company issued and outstanding as of March 31, 2001. Fifty percent of
        these warrants would be exercisable at any time after issuance and the
        remaining fifty percent would be exercisable from and after September
        30, 2001 (provided loans, letters of credit or commitments have not been
        terminated subsequent to March 31, 2001 and prior to September 30,
        2001). If exercised, the price of the warrants will be $0.01 per share.

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

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

        The Bank Credit Facility also contains covenants which, among other
        things, impose certain limitations or prohibitions on the Company with
        respect to the incurrence of indebtedness, the creation of liens, the
        payment of dividends, the redemption or repurchase of securities,
        investments, acquisitions, capital expenditures, sales of assets and
        transactions with affiliates.

        Management has prepared operating projections, cash flow projections and
        related operating plans which indicate the Company can remain in
        compliance with its financial covenants and meet its expected
        obligations throughout 1999. However, as with all projections, there is
        uncertainty as to whether management's projections can be achieved. For
        periods subsequent to 1999, the Company is committed to achieving
        financial covenants that contemplate increased levels of profitability,
        due in large part to revenue growth. If this revenue growth does not
        occur, the Company will likely not remain in compliance with its
        financial covenants throughout 2000 and will be required to reach a
        resolution with its Banks in this matter. In an event of default under
        the Bank Credit Facility, the Banks will have the ability to demand
        payment of all outstanding amounts, and there is currently no commitment
        as to how any such demand payment would be satisfied.

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

        In addition to maintaining compliance with its debt covenants, the
        Company's future liquidity will continue to be dependent upon the
        relative amounts of current assets (principally cash, accounts
        receivable and inventories) and current liabilities (principally
        accounts payable and accrued



                                       23

<PAGE>   24

        expenses). In that regard, accounts receivable can have a significant
        impact on the Company's liquidity. The Company has various types of
        accounts receivable, such as receivables from patients, contracts, and
        former owners of acquired companies. The majority of the Company's
        accounts receivable are patient receivables. Accounts receivable are
        generally outstanding for longer periods of time in the health care
        industry than many other industries because of requirements to provide
        third-party payors with additional information subsequent to billing
        and the time required by such payors to process claims. Certain
        accounts receivable frequently are outstanding for more than 90 days,
        particularly where the account receivable relates to services for a
        patient receiving a new medical therapy or covered by private
        insurance or Medicaid. Net patient accounts receivable were $94.2
        million and $90.0 million at December 31, 1998 and September 30, 1999,
        respectively. These receivables represented an average of
        approximately 92 and 96 days sales in accounts receivable at December
        31, 1998 and September 30, 1999. This increase is primarily the result
        of disruptions in collections associated with the consolidation of
        billing centers and changes in certain billing procedures continuing
        from the Company's restructuring, described above under "Medicare
        Reimbursement for Oxygen Therapy Services." The Company analyzes its
        accounts receivable portfolio for collectibility on an ongoing basis.
        Negative trends in cash collections were experienced in the fourth
        quarter of 1998 and in the first quarter of 1999. However, cash
        collections improved in the second and third quarters of 1999.
        Management is in the process of reviewing its accounts receivable
        portfolio to determine whether additional bad debt reserves will be
        required as of December 31, 1999.

        Net cash provided from operating activities was $27.5 million and $30.5
        million for the nine months ended September 30, 1998 and 1999,
        respectively. These amounts primarily represent net income plus
        depreciation and amortization and changes in the various components of
        working capital. Net cash used in investing activities was $89.7 million
        and $8.4 million for the nine months ended September 30, 1998 and 1999,
        respectively. Acquisition expenditures decreased from $58.4 million for
        the nine months ended September 30, 1998 to $0.5 million for the same
        period in 1999. Capital expenditures decreased from $24.2 million for
        the nine months ended September 30, 1998 to $10.5 million for the same
        period in 1999, a decrease of $13.7 million. Net cash provided from
        (used in) financing activities was $58.0 million and ($0.2 million) for
        the nine months ended September 30, 1998 and 1999, respectively. The
        cash provided from financing activities for the nine months ended
        September 30, 1998 primarily related to proceeds from the Bank Credit
        Facility, net of principal payments.

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

        OVER-THE-COUNTER MARKET TRADING

        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, beginning September
        2, 1999, 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. See "Management's Discussion and Analysis of Financial
        Condition and Results of Operations - Risk Factors - Liquidity."




                                       24
<PAGE>   25



        YEAR 2000 COMPLIANCE

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

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

        Year 2000 remediation work is being performed by both internal and
        external personnel. Most of the Company's software is supplied by
        external vendors. In all cases, the Company has worked with the vendor
        to ensure that a Year 2000 compliant version has been developed and
        certified, and that the version has been installed when available. The
        majority of testing and certification must be performed by these
        vendors, and the Company has been informed that such vendors have
        undertaken such testing and certification. The Company has no means to
        assure that third party vendors' programs will be Year 2000 compliant on
        a timely basis. The effect of any such non-compliance is indeterminable.

        The Company has incurred approximately $1,000,000 in costs associated
        with its Year 2000 compliance efforts, primarily as capital
        expenditures. Remaining costs to achieve Year 2000 compliance are
        expected to be less than $200,000, also as capital expenditures. These
        costs are being funded from operating cash flow.

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

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

        -   The Company uses multiple computer systems for customer service,
            billing, and clinical operations. Approximately 95% of these are
            fully Year 2000 compliant as of September 30, 1999 with a target of
            100% compliance by November 30, 1999.

        -   The financial systems were made Year 2000 compliant in January 1998.
            Payroll and Human Resources systems were also converted to Year 2000
            compliant versions in October 1998.

        -   Product manufacturers and suppliers of equipment/supplies used in
            conjunction with patient care have been contacted to determine the
            status of compliance for all patient equipment. In the few instances
            where equipment has been identified with Year 2000 compliance
            issues, the non-compliant equipment was either upgraded or replaced
            as of July 31, 1999.



                                       25
<PAGE>   26


        -   The Company has multiple telephone systems in place throughout its
            310 centers. These systems have been evaluated and a few voice mail
            systems have been identified which may have Year 2000 implications.
            These phone/voice mail systems were upgraded or replaced as of
            September 30, 1999.

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

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

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

        -   Contingency plans have been established for all critical systems, as
            well as for branch operations. The three main areas of concern which
            have been identified are internal systems, equipment vendor support,
            and payor problems. Each of these areas requires a specific set of
            guidelines and action plans to successfully handle situations which
            may arise due to computer problems (internal and external),
            supply/distribution chain disruption, power or communications
            interruption, or other, as yet unforeseen events.

        The Company is highly dependent upon certain government and private
        third-party payors for reimbursement of claims for services and
        equipment provided by the Company. The Company has initiated
        correspondence with its most significant payors regarding their Year
        2000 compliance efforts and intends to address in a timely manner any
        issues or problems that arise as a result of these responses. The
        Company, however, cannot be assured of the accuracy of the responses nor
        the timely remediation of third party claims processing and payment
        systems.

        Failure by third party payors to correct Year 2000 problems could have a
        material impact on the Company's cash flow from operations should delays
        in processing and appropriate payments occur. Medicare has indicated
        that it will delay processing of claims having Year 2000 dates of
        service until January 17, 2000. Such action could have a short term
        impact on the Company's cash flow in the first quarter of 2000.

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



                                       26
<PAGE>   27

        non-compliance. The amount of potential liability and losses in any
        such event cannot be reasonably estimated at this time.

        See "Risk Factors - Year 2000."

        RISK FACTORS

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

                Substantial Leverage. The Company maintains a significant amount
        of long-term debt. As of September 30, 1999, the Company's consolidated
        indebtedness was $325,115,000. On April 14, 1999 the Company entered
        into the Second Amendment to the Bank Credit Facility. The Second
        Amendment waived events of default, modified existing financial
        covenants, and made a number of other changes to the Credit Agreement.
        The Second Amendment reduces the Company's credit availability from $360
        million (credit availability was temporarily reduced to $340 million
        pursuant to the First Amendment) to $328.6 million. The margins
        associated with the Eurodollar interest rate and the Base Lending Rate
        remain in place for 18 months and then increase. Additional interest
        rate increases are provided for that portion of the indebtedness in
        excess of four times adjusted EBITDA. These increases could have a
        material adverse effect on the Company's liquidity, business, financial
        condition and results of operations. The degree to which the Company is
        leveraged and the terms contained in the Bank Credit Facility 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 debt obligations.
        Additional sources of funds may be required and there can be no
        assurance the Company will be able to obtain additional funds on
        acceptable terms, if at all. See "Management's Discussion and Analysis
        of Financial Condition and Results of Operations -Liquidity and Capital
        Resources."

                Government Regulation. The Company is subject to extensive and
        frequently changing federal, state and local regulation. In addition,
        new laws and regulations are adopted periodically to regulate new and
        existing products and services in the health care industry. Changes in
        laws or regulations or new interpretations of existing laws or
        regulations can have a dramatic effect on operating methods, costs and
        reimbursement amounts provided by government and other third-party
        payors. Federal laws governing the Company's activities include
        regulation of the repackaging and dispensing of drugs, Medicare
        reimbursement and certification and certain financial relationships with
        physicians and other health care providers. Although the Company intends
        to comply with all applicable fraud and abuse laws, there can be no
        assurance that administrative or judicial interpretation of existing
        laws or regulations or enactments of new laws or regulations will not
        have a material adverse effect on the Company's business. In addition,
        the OIG has expanded its auditing of the health care industry in an
        effort better to detect and remedy fraud and abuse and irregularities in
        Medicare and Medicaid billing. The Company, its competitors, and many
        other health care providers have received subpoenas and other requests
        for information concerning its billing practices and its relationships
        with potential referral sources. See "Management's Discussion and
        Analysis of Financial Condition and Results of Operations - Government
        Regulation." There can be no assurance such activities will not have a
        material adverse effect on the Company's results of operations,
        financial condition or prospects. The Company is subject to state laws
        governing




                                       27
<PAGE>   28

        Medicaid, professional training, certificates of need, licensure,
        financial relationships with physicians and the dispensing and storage
        of pharmaceuticals. The facilities operated by the Company must comply
        with all applicable laws, regulations and licensing standards and many
        of the Company's employees must maintain licenses to provide some of
        the services offered by the Company. In addition, the Balanced Budget
        Act of 1997 introduced several government initiatives which are either
        in the planning or early implementation stages and which, when fully
        implemented, could have a material adverse impact on reimbursement for
        products and services provided by the Company. These initiatives
        include: (i) Prospective Payment System ("PPS") and Consolidated
        Billing requirements for skilled nursing facilities and home health
        agencies, which do not affect the Company directly but could affect
        the Company's contractual relationships with such entities; (ii) a
        pilot project in Polk County, Florida which began on October 1, 1999 in
        which the Company is participating, to determine the efficacy of
        competitive bidding for certain durable medical equipment ("DME"),
        under which pilot project Medicare reimbursement for certain items
        will be reduced between 18% and 31% from the current fee schedule; and
        (iii) deadlines for meeting Medicare and Medicaid surety bond
        requirements for home health agencies and DME suppliers. There can be
        no assurance that federal, state or local governments will not change
        existing standards or impose additional standards. Any failure to
        comply with existing or future standards could have a material adverse
        effect on the Company's results of operations, financial condition or
        prospects.

                Collectibility of Accounts Receivable. The Company has
        substantial accounts receivable, as well as days sales outstanding in
        excess of 90 days. The Company has implemented three key initiatives to
        improve accounts receivable performance: (i) proper staffing and
        training, (ii) process redesign and standardization, and (iii) billing
        center specific goals geared toward improved cash collections and
        reduced accounts receivable. No assurances can be given, however, that
        additional charges for uncollectible accounts receivable will not be
        required as a result of continuing difficulties associated with the
        Company's billing activities and meeting payor documentation
        requirements and claim submission deadlines.

                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, beginning
        September 2, 1999, 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 limit the Company's ability to raise
        additional capital.

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

                Medicare Reimbursement for Oxygen Therapy and Other Services. In
        1998 oxygen therapy services reimbursement from Medicare accounted for
        approximately 23.5% of the Company's revenues. The Balanced Budget Act
        of 1997, as amended, reduced Medicare reimbursement rates for oxygen and
        certain oxygen equipment to 75% of their 1997 levels



                                       28

<PAGE>   29

        beginning January 1, 1998 and to 70% of their 1997 levels beginning
        January 1, 1999. Reimbursement for drugs and biologicals was reduced
        by 5% beginning January 1, 1998. Effective January 1, 1998, payments
        for parenteral and enteral nutrition ("PEN") were frozen at 1995
        levels, through the year 2002. Effective October 1, 1999, Medicare
        established new guidelines for respiratory assist devices ("RAD"),
        which includes 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 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
        $8 million in annualized revenues. The above changes will likely slow
        cash collections as well as negatively impact revenues. At this time,
        the Company is unable to estimate the impact on cash collections and
        revenues.  Medicare also has the option of developing fee schedules for
        PEN and home dialysis supplies and equipment, although currently there
        is no timetable for the development or implementation of such fee
        schedules. In addition, Consumer Price Index ("CPI") increases in
        Medicare reimbursement rates for home medical equipment (including
        oxygen, home respiratory therapy and home infusion therapy) will not
        resume until the year 2003, and CPI updates for prosthetics and
        orthotics are limited to 1% per year. In March, 1998, HCFA was granted
        "inherent reasonableness" authority to reduce payments for all Medicare
        Part B items and services by as much as 15% without industry
        consultation, publication or public comment. The Company cannot be
        certain that additional reimbursement reductions for oxygen therapy
        services or other services and products provided by the Company will not
        occur. Reimbursement reductions already implemented have materially
        adversely affected the Company's net revenues and net income, and any
        such future reductions could have a similar material adverse effect.

                Dependence on Reimbursement by Third-Party Payors. For the nine
        months ended September 30, 1999, the percentage of the Company's net
        revenues derived from Medicare, Medicaid and private pay was 46%, 10%
        and 44%, respectively. The net revenues and profitability of the Company
        are affected by the continuing efforts of all payors to contain or
        reduce the costs of health care by lowering reimbursement rates,
        narrowing the scope of covered services, increasing case management
        review of services and negotiating reduced contract pricing. Any changes
        in reimbursement levels under Medicare, Medicaid or private pay programs
        and any changes in applicable government regulations could have a
        material adverse effect on the Company's net revenues and net income.
        Changes in the mix of the Company's patients among Medicare, Medicaid
        and private pay categories and among different types of private pay
        sources may also affect the Company's net revenues and profitability.
        There can be no assurance that the Company will continue to maintain its
        current payor or revenue mix. Also, many payors, including Medicare and
        Medicaid, are dependent upon their computer systems for determining and
        paying reimbursements to the Company. If such payor's computer systems
        are adversely affected by Year 2000 problems, this could have a material
        adverse impact on the Company's revenue and results of operations. See
        "Management's Discussion and Analysis of Financial Condition and Results
        of Operations - Year 2000 Compliance."

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


                                       29

<PAGE>   30



                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.

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

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

                No Assurance of Growth. The Company reported a net loss of $15.6
        million for the nine months ended September 30, 1999. No assurance can
        be given that the Company will achieve profitable operations in the near
        term. The Company intends to expand its business primarily through
        internal growth of existing operations. There can be no assurance that
        the Company can increase growth in net 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.

                Influence of Executive Officers, Directors and Principal
        Stockholder. On September 30, 1999, the Company's executive officers,
        directors and principal stockholder, Counsel Corporation ("Counsel"), in
        the aggregate, beneficially owned approximately 33% of the outstanding
        shares of the common stock of the Company. As a result of such equity
        ownership and their positions in the Company, if the executive officers,
        directors and principal stockholder were to vote all or substantially
        all of their shares in the same manner, they could significantly
        influence the management and policies of the Company, including the
        election of the Company's directors and the outcome of matters submitted
        to stockholders of the Company for approval. The Company is highly
        dependent upon its senior management, and competition



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<PAGE>   31
        for qualified management personnel is intense. Recent organizational
        restructurings 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
        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.

        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
        September 30, 1999, the Company had outstanding borrowings of
        approximately $319.9 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 $1.7 million. Interest expense
        associated with other debts would not materially impact the Company as
        most interest rates are fixed.



                                       31

<PAGE>   32



                           PART II. OTHER INFORMATION

        ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

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

        (B) Reports on Form 8-K. On September 3, 1999 the Company filed a
            current report on Form 8-K reporting that the Nasdaq National Market
            has de-listed the Company's common stock from the Nasdaq National
            Market System effective at the close of business on September 1,
            1999.




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<PAGE>   33



                                   SIGNATURES

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


                                     AMERICAN HOMEPATIENT, INC.


        November 15, 1999            By: /s/Marilyn A. O'Hara
                                         ---------------------------------
                                         Marilyn A. O'Hara
                                         Chief Financial Officer and An Officer
                                         Duly Authorized to Sign on Behalf of
                                         the registrant




                                       33

<PAGE>   34



                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>


EXHIBIT
NUMBER                DESCRIPTION OF EXHIBITS
------                -----------------------

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

</TABLE>









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