<PAGE>   1

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

CHECK ONE                          FORM 10-Q

[X]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 1998
                                                  -------------
                                       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              62-14746800
 ------------------------------          ------------         ------------------
(STATE OR OTHER JURISDICTION OF          (COMMISSION           (IRS EMPLOYER 
 INCORPORATION OR ORGANIZATION)          FILE NUMBER)        IDENTIFICATION NO.)


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

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

                                      NONE
--------------------------------------------------------------------------------
                        (FORMER NAME, FORMER ADDRESS AND
               FORMER FISCAL YEAR, IF 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

                                   14,985,960
--------------------------------------------------------------------------------
     (OUTSTANDING SHARES OF THE ISSUER'S COMMON STOCK AS OF AUGUST 10, 1998)

                          TOTAL NUMBER OF SEQUENTIALLY
                              NUMBERED PAGES IS 26
<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,         June 30,
                                                                         1997               1998
                                                                    -------------      -------------
<S>                                                                 <C>                <C>          
CURRENT ASSETS
   Cash and cash equivalents                                        $  12,050,000      $  13,538,000
   Restricted cash                                                         50,000             50,000
   Accounts receivable, less allowance for doubtful accounts of
       $43,862,000 and $36,938,000 respectively                       114,386,000        116,505,000
   Inventories                                                         25,824,000         23,454,000
   Prepaid expenses and other assets                                    1,423,000          2,555,000
   Income tax receivable                                                8,099,000          3,169,000
   Deferred tax asset                                                   8,998,000          8,998,000
                                                                    -------------      -------------
            Total current assets                                      170,830,000        168,269,000
                                                                    -------------      -------------

PROPERTY AND EQUIPMENT, at cost                                       146,803,000        157,478,000
   Less accumulated depreciation and amortization                     (66,729,000)       (77,692,000)
                                                                    -------------      -------------
            Net property and equipment                                 80,074,000         79,786,000
                                                                    -------------      -------------

OTHER ASSETS
   Excess of cost over fair value of net assets acquired, net         262,294,000        276,592,000
   Investment in unconsolidated joint ventures                         14,974,000         19,550,000
   Deferred costs, net                                                  3,967,000          3,701,000
   Other assets                                                        26,227,000         25,961,000
                                                                    -------------      -------------
            Total other assets                                        307,462,000        325,804,000
                                                                    -------------      -------------

                                                                    $ 558,366,000      $ 573,859,000
                                                                    =============      =============
</TABLE>



                                   (Continued)




                                       2
<PAGE>   3

                   AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES

                  INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (Continued)
                                   (unaudited)

LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ASSETS
                                                                     December 31,         June 30,
                                                                         1997               1998
                                                                    -------------      -------------
<S>                                                                 <C>                <C>          
CURRENT LIABILITIES
   Current portion of long-term debt and capital leases             $   9,361,000      $   8,591,000
   Trade accounts payable                                              13,484,000         15,155,000
   Income taxes payable                                                        --                 --
   Other payables                                                       1,343,000          1,025,000
   Accrued expenses:
      Payroll and related benefits                                      9,553,000          6,970,000
      Restructuring accruals                                           13,604,000          7,249,000
      Other                                                            10,764,000         15,317,000
                                                                    -------------      -------------
            Total current liabilities                                  58,109,000         54,307,000
                                                                    -------------      -------------

NONCURRENT LIABILITIES
   Long-term debt and capital leases, less current portion            291,963,000        303,704,000
   Deferred income taxes                                                2,046,000          1,798,000
   Other noncurrent liabilities                                        12,159,000         11,796,000
                                                                    -------------      -------------
            Total noncurrent liabilities                              306,168,000        317,298,000
                                                                    -------------      -------------

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, 14,901,000 and 14,967,000
      shares, respectively                                                149,000            150,000
   Paid-in capital                                                    171,133,000        172,379,000
   Retained earnings                                                   22,807,000         29,725,000
                                                                    -------------      -------------
            Total stockholders' equity                                194,089,000        202,254,000
                                                                    -------------      -------------

                                                                    $ 558,366,000      $ 573,859,000
                                                                    =============      =============
</TABLE>


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






                                       3
<PAGE>   4

                   AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES

             INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (unaudited)


<TABLE>
<CAPTION>
                                                      Three Months Ended June 30          Six Months Ended June 30
                                                     -----------------------------     -----------------------------
                                                         1997             1998             1997             1998
                                                     ------------     ------------     ------------     ------------
<S>                                                  <C>              <C>              <C>              <C>         
REVENUES
   Sales and related service revenues                $ 43,628,000     $ 50,286,000     $ 82,652,000     $ 98,455,000
   Rentals and other revenues                          49,433,000       51,790,000       93,249,000      104,990,000
   Earnings from joint ventures                         1,727,000        1,524,000        3,474,000        2,948,000
                                                     ------------     ------------     ------------     ------------
            Total revenues                             94,788,000      103,600,000      179,375,000      206,393,000
                                                     ------------     ------------     ------------     ------------

EXPENSES
   Cost of sales and related services, excluding
       depreciation and amortization                   22,353,000       24,545,000       41,357,000       49,070,000
   Operating                                           48,217,000       53,983,000       92,182,000      108,331,000
   General and administrative                           3,778,000        3,547,000        7,631,000        7,050,000
   Depreciation and amortization                        8,284,000        9,410,000       15,513,000       19,448,000
   Interest                                             3,989,000        5,566,000        6,897,000       10,964,000
                                                     ------------     ------------     ------------     ------------
            Total expenses                             86,621,000       97,051,000      163,580,000      194,863,000
                                                     ------------     ------------     ------------     ------------
INCOME FROM OPERATIONS BEFORE INCOME TAXES              8,167,000        6,549,000       15,795,000       11,530,000
PROVISION FOR INCOME TAXES                              3,265,000        2,620,000        6,255,000        4,612,000
                                                     ------------     ------------     ------------     ------------
NET INCOME                                           $  4,902,000     $  3,929,000     $  9,540,000     $  6,918,000
                                                     ============     ============     ============     ============
NET INCOME PER COMMON SHARE
   - Basic                                           $       0.33     $       0.26     $       0.65     $       0.46
                                                     ============     ============     ============     ============
   - Diluted                                         $       0.33     $       0.26     $       0.64     $       0.46
                                                     ============     ============     ============     ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
   OUTSTANDING
   - Basic                                             14,805,000       14,974,000       14,771,000       14,965,000
                                                     ============     ============     ============     ============
   - Diluted                                           14,965,000       15,059,000       15,023,000       15,123,000
                                                     ============     ============     ============     ============
</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>
                                                                    For the Six Months Ended June 30
                                                                    --------------------------------
                                                                         1997              1998
                                                                    -------------      -------------
<S>                                                                 <C>                <C>          
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                       $   9,540,000      $   6,918,000
   Adjustments to reconcile net income from operations
      to net cash provided from (used in) operating activities:
         Depreciation and amortization                                 15,513,000         19,448,000
         Equity in earnings of unconsolidated joint ventures           (1,830,000)          (682,000)
         Minority interest                                                 49,000            184,000

   Change in assets and liabilities, net of effects from acquisitions:
         Receivables, net                                             (15,163,000)        (1,680,000)
         Restricted cash                                                  375,000                 --
         Inventories                                                   (3,044,000)         2,579,000
         Prepaid expenses and other                                    (1,113,000)        (1,119,000)
         Income taxes receivable                                        3,724,000          5,060,000
         Trade accounts payable, accrued expenses
            and other current liabilities                              (1,415,000)           560,000
         Restructuring accruals                                                --         (6,355,000)
         Other long term liabilities                                           --             19,000
         Other assets                                                  (1,560,000)        (1,439,000)
                                                                    -------------      -------------
            Net cash provided from operating activities                 5,076,000         23,493,000
                                                                    -------------      -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Acquisitions, net of cash acquired                                 (56,054,000)       (45,649,000)
   Additions to property and equipment, net                           (16,004,000)       (16,178,000)
   Distributions from (advances to) unconsolidated joint
      ventures, net                                                      (289,000)        (3,684,000)
   Distributions to minority interest owners                              (18,000)                --
                                                                    -------------      -------------
            Net cash used in investing activities                     (72,365,000)       (65,511,000)
                                                                    -------------      -------------
</TABLE>

                                   (Continued)






                                       5
<PAGE>   6



                   AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES

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


<TABLE>
<CAPTION>
                                                                    For the Six Months Ended June 30
                                                                    --------------------------------
                                                                         1997              1998
                                                                    -------------      -------------
<S>                                                                 <C>                <C>          
CASH FLOWS FROM FINANCING ACTIVITIES:
   Principal payments on debt and capital leases                       (4,757,000)        (3,278,000)
   Proceeds from issuance of debt                                      71,000,000         46,477,000
   Proceeds from exercise of stock options                              1,617,000            430,000
   Deferred financing costs                                              (135,000)          (123,000)
                                                                    -------------      -------------
            Net cash provided from financing activities                67,725,000         43,506,000
                                                                    -------------      -------------
INCREASE IN CASH AND CASH
   EQUIVALENTS                                                            436,000          1,488,000

CASH AND CASH EQUIVALENTS, beginning of period                          7,299,000         12,050,000
                                                                    -------------      -------------
CASH AND CASH EQUIVALENTS, end of period                            $   7,735,000      $  13,538,000
                                                                    =============      =============
SUPPLEMENTAL INFORMATION:
   Cash payments of interest                                        $   6,640,000      $   8,802,000
                                                                    =============      =============
   Cash payments of income taxes                                    $   2,703,000      $   1,834,000
                                                                    =============      =============
</TABLE>


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





                                       6
<PAGE>   7


                   AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES

          NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                             JUNE 30, 1998 AND 1997

        1.    ORGANIZATION AND BACKGROUND

        The registrant is a health care services company engaged in the
        provision of home health care services. The Company's home health care
        services consist primarily of the provision of home respiratory
        therapies, the provision of home infusion therapies, and the rental and
        sale of home medical equipment and home health care supplies. For the
        six months ended June 30, 1998, such services represented 47%, 21% and
        32%, respectively, of net revenues. As of June 30, 1998, the Company
        provided these services to patients primarily in the home through 332
        centers in 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 and Wisconsin.

        2.    MEDICARE OXYGEN REIMBURSEMENT REDUCTIONS AND RELATED RESTRUCTURING

        In August 1997, Congress enacted and President Clinton signed the
        Balanced Budget Act of 1997 which reduced the Medicare reimbursement
        rate for oxygen related services by 25 percent and drugs and biologicals
        by five percent on January 1, 1998, and will reduce the Medicare
        reimbursement rate for oxygen related services by another five percent
        in 1999. In addition, Consumer Price Index increases in oxygen
        reimbursement rates will not resume until the year 2003. American
        HomePatient is one of the nation's largest providers of home oxygen
        services to patients, many of whom are Medicare recipients, and is
        therefore significantly and adversely affected by this legislation.
        Medicare oxygen reimbursements accounted for approximately 23.5 percent
        of the Company's revenues.

        On September 25, 1997, the Company announced initiatives to aggressively
        respond to planned Medicare oxygen reimbursement reductions by
        fundamentally reshaping the Company for long-term growth. More than 100
        of the Company's total operating and billing locations were affected by
        the planned 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 approximately 20 percent
        of the Company's operating centers, the closure or scaling back of nine
        billing centers, the reduction of operating regions, the scaling back or
        elimination of marginal products and services at numerous locations, and
        the related termination of approximately 400 employees in the affected
        locations. These activities were substantially completed as of June 30,
        1998.




                                       7
<PAGE>   8


        The following actions have occurred related to the restructuring:

<TABLE>
<CAPTION>
                                                                For the Quarters Ended
                                                   ----------------------------------------------
                                                   June 30,          March 31,       December 31,        Total
                                                     1998              1998              1997            -----
                                                     ----              ----              ----

<S>                                                <C>               <C>              <C>               <C>
Employees terminated                                  36                47               323               406
Operating centers closed                               1                 4                47                52
Billing locations closed                               0                 4                 5                 9
Operating centers consolidated, scaled
    back or had marginal products and
    services eliminated                                8                 3                44                55
</TABLE>


        The expected cash payments related to the restructuring charge accrued
        on September 25, 1997 were approximately $17.7 million. As costs were
        incurred and payments were made, $4.1 million and $6.4 million were
        charged against the related restructuring accruals during the fourth
        quarter of 1997 and first six months of 1998, respectively. In addition,
        $9.3 million in the fourth quarter of 1997 and $9.9 million in the first
        six months of 1998 were charged against other reserves established in
        connection with the Company's restructuring which included the write
        down of accounts receivable, inventory, and rental equipment to their
        estimated realizable values. The remaining restructuring accruals at
        June 30, 1998 primarily represent estimated employee severance and
        related exit costs ($0.9 million), estimated facility exit costs ($3.2
        million), termination of management contracts ($3.0 million) and other
        exit costs ($0.1 million).

        For the six months ended June 30, 1998, the Company estimates the
        Medicare oxygen reimbursement reductions decreased net revenue and
        pre-tax income by approximately $12.3 million.

        3.    ACQUISITIONS

        During 1998 and effective through June 30, 1998, the Company acquired 3
        home health care businesses with combined annualized revenue of
        approximately $19 million for total consideration of approximately $18.4
        million, including cash, satisfaction of certain liabilities, and notes
        payable issued to sellers.

        Since January 1, 1997 and effective through June 30, 1998, American
        HomePatient has acquired 31 home health care companies.

        The terms of the 1997 and 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).




                                       8
<PAGE>   9

        4.    BANK CREDIT FACILITY

        On December 19, 1997, the Company entered into a Fourth Amended and
        Restated Credit Agreement ("Bank Credit Facility") to increase
        commitments thereunder to $400.0 million. This Bank Credit Facility
        includes a $75.0 million five-year term loan and a $325.0 million
        five-year revolving line of credit. The various financial and operating
        covenants are substantially similar to those under the first amended and
        restated Bank Credit Facility. Borrowings under the Bank Credit Facility
        may be used for acquisitions and other general corporate purposes,
        subject to the terms and conditions of the respective credit and
        security agreements. Substantially all of the Company's operating assets
        have been pledged as security for borrowings under the Bank Credit
        Facility. The Bank Credit Facility contains various financial covenants,
        the most restrictive of which relate to measurements of shareholders'
        equity, leverage ratios, debt to equity ratios and interest coverage
        ratios.

        5.    EARNINGS PER SHARE

        In the fourth quarter of 1997, the Company adopted the provisions of
        Statement of Financial Accounting Standards No. 128, "Earnings per
        Share" ("SFAS 128"). SFAS 128 establishes standards for computing and
        presenting earnings per share. Under the standards established by SFAS
        128, earnings per share is measured at two levels: basic earnings per
        share and diluted earnings per share. Basic earnings per share is
        computed by dividing net income by the weighted average number of common
        shares outstanding during the year. Diluted earnings per share is
        computed by dividing net income by the weighted average number of common
        shares after considering the additional dilution related to convertible
        preferred stock, convertible debt, options and warrants. Net income per
        common share for prior periods have been restated to comply with SFAS
        128. In computing diluted earnings per share, the outstanding stock
        warrants and stock options are considered dilutive using the treasury
        stock method. The following table information is necessary to calculate
        earnings per share for the periods presented:

<TABLE>
<CAPTION>
                                                                           (unaudited)
                                                    -----------------------------------------------------------
                                                    Three Months ended June 30,      Six Months ended June 30,
                                                    ---------------------------     ---------------------------
                                                        1997            1998            1997            1998
                                                    -----------     -----------     -----------     -----------
        <S>                                         <C>             <C>             <C>             <C>        
        Net income                                  $ 4,902,000     $ 3,929,000     $ 9,540,000     $ 6,918,000
                                                    ===========     ===========     ===========     ===========
        
        Weighted average common shares
           outstanding                               14,805,000      14,974,000      14,771,000      14,965,000
        
        Effect of dilutive options and warrants         160,000          85,000         252,000         158,000
                                                    -----------     -----------     -----------     -----------
        Adjusted diluted common shares
           outstanding                               14,965,000      15,059,000      15,023,000      15,123,000
                                                    ===========     ===========     ===========     ===========
        Net income per common share
           - Basic                                  $      0.33     $      0.26            0.65     $      0.46
                                                    ===========     ===========     ===========     ===========
           - Diluted                                $      0.33     $      0.26     $      0.64     $      0.46
                                                    ===========     ===========     ===========     ===========
</TABLE>






                                       9
<PAGE>   10


        6.    BASIS OF FINANCIAL STATEMENTS

        The interim condensed consolidated financial statements of the Company
        for the three and six months ended June 30, 1998 and 1997 included
        herein have been prepared by the Company, without audit, pursuant to the
        rules and regulations of the Securities and Exchange Commission. Certain
        information and footnote disclosures normally included in financial
        statements prepared in accordance with generally accepted accounting
        principles have been condensed or omitted pursuant to such rules and
        regulations. In the opinion of management of the Company, the
        accompanying unaudited interim consolidated financial statements reflect
        all adjustments (consisting of only normally recurring accruals)
        necessary to present fairly the financial position at June 30, 1998 and
        the results of operations and the cash flows for the three and six
        months ended June 30, 1998 and 1997.

        The results of operations for the three and six months ended June 30,
        1998 and 1997 are not necessarily indicative of the operating results
        for the entire respective years. These 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, 1997.

        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 130 establishes standards
        for reporting and display of comprehensive income and its components in
        a full set of general purpose financial statements. In the first quarter
        of 1998 the Company adopted the provisions of SFAS 130 which resulted in
        no material effect on the Company's financial position or results of
        operations.

        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 that 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 is required to adopt the provisions of SFAS
        131 in the fourth quarter of 1998 and does not expect adoption thereof
        to have a material effect on the Company's financial position or results
        of operations.

        8.    GOVERNMENT REGULATION  

        The Office of the Inspector General of the Department of Health and
        Human Services ("OIG") has expanded its auditing of the healthcare
        industry in an effort to better detect and remedy fraud and abuse and
        irregularities in Medicare and Medicaid billing. On February 12, 1998, a
        subpoena from the OIG was served on the Company at its Pineville,
        Kentucky center in connection with an investigation of the Company
        relating to possible improper claims for Medicare payment. The Company
        has retained experienced health care counsel to represent it in this
        matter and intends to cooperate in the investigation. Although the
        Company's counsel has conducted initial meetings with governmental
        officials and governmental officials have interviewed certain Company
        officers and employees, this matter is still in its preliminary stages.
        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. In 
        addition, the Company from time to time receives notices and subpoenas 
        from various governmental 





                                       10
<PAGE>   11
        agencies concerning their plans to audit the Company or requesting
        information regarding certain aspects of the Company's business, and 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 these investigations.




                                       11
<PAGE>   12


        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," "MAY,"
        "WILL" AND WORDS OF SIMILAR IMPORT. SUCH STATEMENTS INCLUDE STATEMENTS
        CONCERNING THE COMPANY'S BUSINESS STRATEGY, ACQUISITION STRATEGY,
        OPERATIONS, COST SAVINGS INITIATIVES, INDUSTRY, ECONOMIC PERFORMANCE,
        FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES, EXISTING
        GOVERNMENT REGULATIONS AND CHANGES IN, OR THE FAILURE TO COMPLY WITH,
        GOVERNMENTAL REGULATIONS, LEGISLATIVE PROPOSALS FOR HEALTHCARE REFORM,
        THE ABILITY TO ENTER INTO JOINT VENTURES, STRATEGIC ALLIANCES AND
        ARRANGEMENTS WITH MANAGED CARE PROVIDERS ON AN ACCEPTABLE BASIS AND
        CHANGES IN REIMBURSEMENT POLICIES. SUCH STATEMENTS ARE SUBJECT TO
        VARIOUS RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER
        MATERIALLY FROM THE RESULTS DISCUSSED IN SUCH FORWARD-LOOKING STATEMENTS
        BECAUSE OF A NUMBER OF FACTORS, INCLUDING THOSE IDENTIFIED IN THE "RISK
        FACTORS" SECTION AND ELSEWHERE IN THIS QUARTERLY REPORT ON FORM 10-Q.
        THE FORWARD-LOOKING STATEMENTS ARE MADE AS OF THE DATE OF THIS QUARTERLY
        REPORT ON FORM 10-Q AND THE COMPANY DOES NOT UNDERTAKE TO UPDATE THE
        FORWARD-LOOKING STATEMENTS OR TO UPDATE THE REASONS THAT ACTUAL RESULTS
        COULD DIFFER FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS.

        GENERAL

        The Company 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 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. 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>
                                                                 Six Months Ended June 30,
                                                                 -------------------------
                                                                 1997               1998
                                                                 ----               ----

<S>                                                              <C>                <C>
        Home respiratory therapy services                          47%                47%
        Home infusion therapy services                             18                 21
        Home medical equipment and medical supplies                35                 32
                                                                  ---                ---
             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 





                                       12
<PAGE>   13

        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 for unconsolidated
        hospital joint ventures. Cost of sales and related services includes the
        cost of equipment, drugs and related supplies sold to patients.
        Operating expenses include center labor costs, delivery expenses,
        selling costs, occupancy costs, costs related to rentals other than
        depreciation, billing center costs, provision for doubtful accounts,
        area management and other operating costs. General and administrative
        expenses include corporate and senior management expenses and costs.

        Since its inception, the Company has experienced substantial growth.
        This growth is primarily attributable to the Company's pursuit of an
        acquisition strategy targeting successful, operating home health care
        businesses and forming joint venture partnerships with hospitals and
        hospital systems. Since the Company's initial public offering in
        November 1991, the Company has expanded operations from 24 home health
        care centers in four states to 332 home health care centers in 37 states
        as of June 30, 1998. The Company acquired 28 home health care companies
        during 1997 and 3 companies during the six months ended June 30, 1998.
        During 1998, the Company has become more selective in its approach
        toward acquisitions by defining clearer standards and new criteria for
        the selection of acquisition candidates. As a result, the Company
        expects to acquire fewer companies in 1998 than in recent years.

        The Company continues its integration of recently acquired home health
        care centers. The Company's experience and management expertise is
        applied wherever possible to improve the operating efficiency of the new
        centers. Quality methods and ideas from the acquired centers may be
        integrated into the systems and procedures of the Company as a whole. As
        the Company grows, it strives to achieve economies of scale in
        purchasing goods and services used in its business and, to some extent,
        its management of overhead expenses.

        The Office of the Inspector General of the Department of Health and
        Human Services ("OIG") has expanded its auditing of the healthcare
        industry in an effort to better detect and remedy fraud and abuse and
        irregularities in Medicare and Medicaid billing. On February 12, 1998, a
        subpoena from the OIG was served on the Company at its Pineville,
        Kentucky center in connection with an investigation of the Company
        relating to possible improper claims for Medicare payment. The Company
        has retained experienced health care counsel to represent it in this
        matter and intends to cooperate in the investigation. Although the
        Company's counsel has conducted initial meetings with governmental
        officials and governmental officials have interviewed certain Company
        officers and employees, this matter is still in its preliminary stages.
        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. In 
        addition, the Company from time to time receives notices and subpoenas 
        from various governmental agencies concerning their plans to audit the
        Company or requesting information regarding certain aspects of the
        Company's business, and 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 these
        investigations.






                                       13
<PAGE>   14

        MEDICARE REIMBURSEMENT FOR OXYGEN THERAPY SERVICES

        The Balanced Budget Act of 1997 reduced Medicare oxygen reimbursement
        rates by 25 percent and drugs and biologicals by five percent beginning
        January 1, 1998, and will reduce Medicare oxygen reimbursement rates by
        another five percent beginning January 1, 1999. In addition, Consumer
        Price Index increases in Medicare oxygen reimbursement rates will not
        resume until the year 2003. The Company is one of the nation's largest
        providers of home oxygen services to patients, many of whom are Medicare
        recipients, and is therefore significantly affected by this legislation.
        Medicare oxygen reimbursements accounted for approximately 23.5 percent
        of the Company's revenues.

        For the quarter ended June 30, 1998, the Company estimates the Medicare
        oxygen reimbursement reductions decreased net revenue and pre-tax income
        by approximately $6.2 million.

        On September 25, 1997, the Company announced initiatives to respond to
        the Medicare oxygen reimbursement reductions by fundamentally reshaping
        the Company for long-term growth. The restructuring affected more than
        100 of the Company's operating and billing centers. Specific actions
        resulted in pre-tax accounting charges of $65.0 million in the third
        quarter of 1997 due to the closure, consolidation, or scaling down of
        approximately 20 percent of the Company's operating centers, the closure
        or scaling back of nine billing centers, the reduction of operating
        regions, the scaling back or elimination of marginal products and
        services at numerous locations, and the related termination of
        approximately 400 employees.




                                       14
<PAGE>   15


        RESULTS OF OPERATIONS

        The following table and discussion set forth, for the periods indicated,
        the percentage of net revenues represented by the respective financial
        items:

                           PERCENTAGE OF NET REVENUES

<TABLE>
<CAPTION>
                                                                        Three Months                     Six Months
                                                                       Ended June 30                    Ended June 30
                                                                 -----------------------           -----------------------
                                                                  1997             1998             1997             1998
                                                                 ------           ------           ------           ------
<S>                                                              <C>              <C>              <C>              <C>   
        Net Revenues                                              100.0%           100.0%           100.0%           100.0%

        Costs and expenses:
           Cost of sales and related services                      23.6             23.7             23.1             23.8
           Operating expenses                                      50.9             52.1             51.4             52.5
           General and administrative                               4.0              3.4              4.3              3.4
           Depreciation and amortization                            8.7              9.1              8.6              9.4
           Interest                                                 4.2              5.4              3.8              5.3
                                                                 ------           ------           ------           ------
              Total costs and expenses                             91.4%            93.7%            91.2%            94.4%
                                                                 ------           ------           ------           ------
           Income from operations before income taxes               8.6%             6.3%             8.8%             5.6%
                                                                 ======           ======           ======           ======
</TABLE>


        Historically, the Company reported same-store growth. Due to the
        restructuring activity that occurred during the fourth quarter of 1997,
        the Company determined that internal growth is a more meaningful
        representation of revenue growth than same-store growth. The Company has
        moved to an internal growth calculation which still reflects the
        strength of operations excluding acquired revenues. The internal growth
        calculation includes the net revenues of hospital joint ventures managed
        by the Company and accounted for under the equity method.

        THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30,
        1997

        The operations of acquired centers are included in the operations of the
        Company from the effective date of each acquisition. Because of the
        substantial acquisition activity, the comparison of the results of
        operations between 1998 and 1997 is materially impacted by the
        operations of these acquired businesses. Also, the comparison of the
        results of operations between 1998 and 1997 is materially impacted by
        the Medicare oxygen reimbursement reductions.

        NET REVENUES. Net revenues increased from $94.8 million for the quarter
        ended June 30, 1997 to $103.6 million for the same period in 1998, an
        increase of $8.8 million, or 9%. For the quarter ended June 30, 1998,
        the Company estimates the Medicare oxygen reimbursement reductions
        decreased net revenue by approximately $6.2 million. Excluding the
        Medicare oxygen reimbursement reductions, net revenues increased from
        $94.8 million to $109.8 million for the quarters ended June 30, 1997 and
        1998, respectively, an increase of $15.0 million, or 16%. The Company
        estimates that $8.2 million of this increase is attributable to the
        acquired businesses net of dissolutions. The remainder of the increase
        is primarily attributable to internal revenue growth generated through
        the Company's sales and marketing efforts. Internal revenue growth,
        excluding the Medicare oxygen reimbursement reductions, 





                                       15
<PAGE>   16

        was 8% for the quarter ended June 30, 1998. Following is a discussion of
        the components of net revenues:

             Sales and Related Services Revenues. Sales and related services
             revenues increased from $43.6 million for the quarter ended June
             30, 1997 to $50.3 million for the same period in 1998, an increase
             of $6.7 million, or 15%. This increase is primarily attributable to
             the acquisition of home health care businesses and internal revenue
             growth.

             Rentals and Other Revenue. Rentals and other revenues increased
             from $49.4 million for the quarter ended June 30, 1997 to $51.8
             million for the same period in 1998, an increase of $2.4 million,
             or 5%. This increase is primarily attributable to the acquisition
             of home health care businesses and internal revenue growth net of
             the impact of the Medicare oxygen reimbursement reductions.

             Earnings from Hospital Joint Ventures. Earnings from hospital joint
             ventures decreased from $1.7 million for the quarter ended June 30,
             1997 to $1.5 million for the same period in 1998, a decrease of
             $200,000, or 12%, which was largely due to the impact of the
             Medicare oxygen reimbursement reductions. Internal revenue growth
             of joint ventures, excluding the Medicare oxygen reimbursement
             reductions, was 7% for the quarter ended June 30, 1998 compared to
             the same period in 1997.

        COST OF SALES AND RELATED SERVICES. Cost of sales and related services
        increased from $22.4 million for the quarter ended June 30, 1997 to
        $24.5 million for the same period in 1998, an increase of $2.1 million,
        or 9%. As a percentage of sales and related services revenues, cost of
        sales and related services decreased from 51% to 49%. This decrease is
        attributable to the changes in the mix of sales and related service
        revenues resulting from the Company's focus on eliminating or scaling
        back marginal products and favorable results of physical inventories at
        several operating centers. During the three months ended June 30, 1998,
        the Company utilized certain inventory reserves (established in
        connection with the restructuring) to write down inventory affected by
        the restructuring to its estimated realizable value. Management believes
        the remaining balance in these special inventory reserves is adequate.
        To the extent the balance in these reserves is not adequate, future
        operating results could be negatively affected.

        OPERATING EXPENSES. Operating expenses increased from $48.2 million for
        the quarter ended June 30, 1997 to $54.0 million for the same period in
        1998, an increase of $5.8 million, or 12%. This increase was primarily
        attributable to increased costs associated with the Company's increased
        revenues. As a percentage of net revenues, operating expenses increased
        from 51% to 52%. Excluding the estimated $6.2 million impact of the
        Medicare oxygen reimbursement reductions, operating expenses as a
        percentage of net revenues decreased from 51% to 49%. This decrease is
        primarily attributable to an overall reduction in operating expense
        levels due to cost saving initiatives which include, among other things,
        tighter controls over salaries and wages and changes in vacation
        policies and other employee benefits. During the three months ended June
        30, 1998, the Company utilized certain accounts receivable reserves
        (established in connection with the restructuring) to write down
        accounts receivable affected by the restructuring to its estimated
        realizable value. Management believes the remaining balance in these
        special accounts receivable reserves is adequate. To the extent the
        balance in these reserves is not adequate, future operating results
        could be negatively affected.

        GENERAL AND ADMINISTRATIVE. General and administrative expenses
        decreased from $3.8 million for the quarter ended June 30, 1997 to $3.5
        million for the same period in 1998, a decrease of $300,000 or 8%. As a
        percentage of net revenues, general and administrative expenses have
        decreased from 4.0% to 3.4%. Excluding the estimated $6.2 million impact
        of the Medicare oxygen reimbursement reductions, general and
        administrative expenses as a percentage of net revenue decreased from
        4.0% to 3.2%. This decrease is primarily attributable to lower personnel
        expenses resulting from the Company's restructuring activities and other
        cost savings initiatives.






                                       16
<PAGE>   17

        DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
        increased from $8.3 million for the quarter ended June 30, 1997 to $9.4
        million for the same period in 1998, an increase of $1.1 million, or
        13%. This increase is primarily attributable to depreciation expense and
        the amortization of goodwill recorded in connection with acquisitions.

        INTEREST. Interest expense increased from $4.0 million for the quarter
        ended June 30, 1997 to $5.6 million for the same period in 1998, an
        increase of $1.6 million, or 40%. The increase was attributable to
        additional interest expense on increased borrowings under the Bank
        Credit Facility to fund acquisitions of home healthcare businesses.

        SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30,
        1997

        NET REVENUES. Net revenues increased from $179.4 million for the six
        months ended June 30, 1997 to $206.4 million for the same period in
        1998, an increase of $27.0 million, or 15%. For the six months ended
        June 30, 1998, the Company estimates the Medicare oxygen reimbursement
        reductions decreased net revenue by approximately $12.3 million.
        Excluding the Medicare oxygen reimbursement reductions, net revenues
        increased from $179.4 million to $218.7 million for the six months ended
        June 30, 1997 and 1998, respectively, an increase of $39.3 million, or
        22%. The Company estimates that $25.8 million of this increase is
        attributable to the acquired businesses net of dissolutions. The
        remainder of the increase is primarily attributable to internal revenue
        growth generated through the Company's sales and marketing efforts.
        Internal revenue growth, excluding the Medicare oxygen reimbursement
        reductions, was 9% for the six months ended June 30, 1998. Following is
        a discussion of the components of net revenues:

             Sales and Related Services Revenues. Sales and related services
             revenues increased from $82.7 million for the six months ended June
             30, 1997 to $98.5 million for the same period in 1998, an increase
             of $15.8 million, or 19%. This increase is primarily attributable
             to the acquisition of home health care businesses and internal
             revenue growth.

             Rentals and Other Revenue. Rentals and other revenues increased
             from $93.2 million for the six months ended June 30, 1997 to $105.0
             million for the same period in 1998, an increase of $11.8 million,
             or 13%. This increase is primarily attributable to the acquisition
             of home health care businesses and internal revenue growth net of
             the impact of the Medicare oxygen reimbursement reductions.

             Earnings from Hospital Joint Ventures. Earnings from hospital joint
             ventures decreased from $3.5 million for the six months ended June
             30, 1997 to $2.9 million for the same period in 1998, a decrease of
             $600,000, or 17%, which was largely due to the impact of the
             Medicare oxygen reimbursement reductions. Internal revenue growth
             of joint ventures, excluding the Medicare oxygen reimbursement
             reductions, was 14% for the six months ended June 30, 1998 compared
             to the same period in 1997, increasing the Company's total internal
             revenue growth by 1%.

        COST OF SALES AND RELATED SERVICES. Cost of sales and related services
        increased from $41.4 million for the six months ended June 30, 1997 to
        $49.1 million for the same period in 1998, an increase of $7.7 million,
        or 19%. As a percentage of sales and related services revenues, cost of
        sales and related services remained constant at 50% for both periods.
        During the six months ended June 30, 1998, the Company utilized certain
        inventory reserves (established in connection with the restructuring) to
        write down inventory affected by the restructuring to its estimated
        realizable value. Management believes the remaining balance in these
        special inventory reserves is adequate. To the extent the balance in
        these reserves is not adequate, future operating results could be
        negatively affected.







                                       17
<PAGE>   18
        OPERATING EXPENSES. Operating expenses increased from $92.2 million for
        the six months ended June 30, 1997 to $108.3 million for the same period
        in 1998, an increase of $16.1 million, or 17%. This increase was
        primarily attributable to increased costs associated with the Company's
        increased revenues. As a percentage of net revenues, operating expenses
        increased from 51% to 52%. Excluding the estimated $12.3 million impact
        of the Medicare oxygen reimbursement reductions, operating expenses as a
        percentage of net revenues decreased from 51% to 50%. This decrease is
        primarily attributable to an overall reduction in operating expense
        levels due to cost saving initiatives which included, among other
        things, tighter controls over salaries and wages and changes in vacation
        policies and other employee benefits. During the six months ended June
        30, 1998, the Company utilized certain accounts receivable reserves
        (established in connection with the restructuring) to write down
        accounts receivable affected by the restructuring to its estimated
        realizable value. Management believes the remaining balance in these
        special accounts receivable reserves is adequate. To the extent the
        balance in these reserves is not adequate, future operating results
        could be negatively affected.

        GENERAL AND ADMINISTRATIVE. General and administrative expenses
        decreased from $7.6 million for the six months ended June 30, 1997 to
        $7.1 million for the same period in 1998, a decrease of $500,000, or 7%.
        As a percentage of net revenues, general and administrative expenses
        have decreased from 4.3% to 3.4%. Excluding the estimated $12.3 million
        impact of the Medicare oxygen reimbursement reductions, general and
        administrative expenses as a percentage of net revenue decreased from
        4.3% to 3.2%. This decrease is primarily attributable to lower personnel
        expenses resulting from the Company's restructuring activities and other
        cost savings initiatives.

        DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
        increased from $15.5 million for the six months ended June 30, 1997 to
        $19.4 million for the same period in 1998, an increase of $3.9 million,
        or 25%. This increase is primarily attributable to depreciation expense
        and the amortization of goodwill recorded in connection with
        acquisitions.

        INTEREST. Interest expense increased from $6.9 million for the six
        months ended June 30, 1997 to $11.0 million for the same period in 1998,
        an increase of $4.1 million, or 59%. The increase was attributable to
        additional interest expense on increased borrowings under the Bank
        Credit Facility to fund acquisitions of home healthcare businesses.

        LIQUIDITY AND CAPITAL RESOURCES

        At June 30, 1998, the Company's working capital was $114.2 million and
        the current ratio was 3.1x as compared to working capital of $112.7
        million and a current ratio of 2.9x at December 31, 1997. The Company
        had current maturities of long-term debt and capital leases of
        approximately $8.6 million at June 30, 1998.

        The Company's future liquidity will continue to be dependent upon the
        relative amounts of current assets (principally cash, accounts
        receivable and inventories) and current liabilities (principally
        accounts payable, and accrued expenses). In that regard, accounts
        receivable can have a significant impact on the Company's liquidity.
        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 (i) receiving a new medical therapy or (ii)
        covered by Medicare or Medicaid. Net patient accounts receivable were
        $102.4 million and $106.2 





                                       18
<PAGE>   19

        million at December 31, 1997 and June 30, 1998, respectively. This
        increase was primarily attributable to the acquisition of home health
        care businesses in the first six months of 1998 and internal revenue
        growth. These receivables represented an average of approximately 88 and
        96 days' sales in accounts receivable at December 31, 1997 and June 30,
        1998, respectively.

        Net cash provided from operating activities was $5.1 million and $23.5
        million for the six months ended June 30, 1997 and 1998, respectively.
        These amounts primarily represent net income plus depreciation and
        amortization and provisions for doubtful accounts and changes in the
        various components of working capital. Net cash used in investing
        activities was $72.4 million and $65.5 million for the six months ended
        June 30, 1997 and 1998, respectively. Acquisition expenditures decreased
        from $56.1 million for the six months ended June 30, 1997 to $45.6
        million for the same period in 1998, a decrease of $10.5 million.
        Capital expenditures increased from $16.0 million for the six months
        ended June 30, 1997 to $16.2 million for the same period in 1998, an
        increase of $200,000. Net cash provided from financing activities was
        $67.7 million and $43.5 million for the six months ended June 30, 1997
        and 1998, respectively. The cash provided from financing activities for
        the six months ended June 30, 1997 and 1998 primarily related to
        proceeds from the Bank Credit Facility.

        The Company's principal capital requirements are for acquisitions of
        additional home health care companies and expansion of the services
        provided through its existing home health care centers. The Company has
        financed and intends to continue to finance these requirements, its net
        revenue growth, and working capital needs with net cash provided by
        operations and with borrowings under the Bank Credit Facility. On
        December 19, 1997 the Company amended and restated the Bank Credit
        Facility to increase commitments thereunder to $400.0 million. The Bank
        Credit Facility includes a $75.0 million five-year term loan and a
        $325.0 million five-year revolving line of credit. Borrowings under the
        Bank Credit Facility may be used to finance acquisitions and for other
        general corporate purposes, subject to the terms and conditions of the
        credit and security agreements. 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 a margin from 0% to 0.625% and from 0.375%
        to 1.375%, respectively. The Company's ability to borrow under the Bank
        Credit Facility terminates on December 16, 2002, subject to exceptions
        set forth therein. As of June 30, 1998 the weighted average borrowing
        rate was 7.01%. A commitment fee of up to .375% per annum (.375% as of
        June 30, 1998) is payable by the Company on the undrawn balance. The
        interest rate and commitment fee vary depending on the Company's ratio
        of total debt to adjusted pro forma earnings before interest, taxes,
        depreciation and amortization, as such ratio is defined in the Bank
        Credit Facility.

        The Bank Credit Facility contains various financial covenants, the most
        restrictive of which relate to measurements of stockholders' equity,
        leverage ratios, debt to equity ratios and interest coverage ratios. The
        Bank Credit Facility also contains certain covenants which, among other
        things, impose certain limitations or prohibitions on the Company with
        respect to the incurrence of certain indebtedness, the creation of
        security interest on the assets of the Company, the payment of dividends
        on and the redemption or repurchase of securities of the Company,
        investments, acquisitions, investments in joint ventures, capital
        expenditures and




                                       19
<PAGE>   20
        sales of Company assets. The Company must generally obtain bank consent
        for any single acquisition with an aggregate purchase price of $30.0
        million or more, and any acquisition which, when combined with all
        acquisitions completed in the prior 12 months, exceeds $100.0 million
        and certain other transactions. The Company was in compliance with these
        covenants at June 30, 1998.

        The Company has completed an assessment of its internal computer
        software systems with respect to potential Year 2000 problems. The
        Company's financial data software is Year 2000 compliant, and the
        Company has developed corrective plans for a majority of its remaining
        software, including its operational software which addresses order
        entry, billing, reimbursement and many other functions. Implementation
        of some of the corrective plans has begun. The timetable for completion
        of all plans is planned for June 30, 1999. If additional corrective
        actions are needed, those actions and their completion schedule are
        unknown at this time. Costs incurred to date have not been material, and
        management does not believe that costs associated with implementation of
        corrective plans will be material.

        The Company has initiated correspondence with its most significant
        vendors and joint venture partners regarding the status of such third
        parties' Year 2000 compliance efforts. To date, third party responses
        have not indicated any potential material Year 2000 problems; however,
        not all vendors and partners have responded to the Company regarding
        this issue. It is also currently unknown whether the Company's third
        party payors have potential Year 2000 problems which could adversely
        affect future collection efforts and financial results of the Company.

        RISK FACTORS

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

                Medicare Reimbursement for Oxygen Therapy Services. In 1997
        oxygen therapy services reimbursement from Medicare accounted for
        approximately 23.5% of the Company's revenues. The Balanced Budget Act
        of 1997, as amended, reduced Medicare reimbursement rates for oxygen and
        certain oxygen equipment to 75% of their 1997 levels beginning January
        1, 1998 and to 70% of their 1997 levels beginning January 1, 1999.
        Reimbursement for drugs and biologicals was reduced by 5% beginning
        January 1, 1998. In addition, Consumer Price Index increases in Medicare
        oxygen reimbursement rates will not resume until the year 2003. 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. Any such reductions could have a material
        adverse effect on the Company's net revenues and net income. See
        "Medicare Oxygen Reimbursement Reductions and Related Restructuring" and
        "Management's Discussion and Analysis of Financial Condition and Results
        of Operations - Medicare Reimbursement for Oxygen Therapy Services."

        Dependence on Reimbursement by Third-Party Payors. For the quarter
        ending June 30, 1998, the percentage of the Company's net revenues
        derived from Medicare, Medicaid and private pay was 43%, 9% and 48%,
        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. 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 are dependent upon their computer systems for
        determining and paying reimbursements to the Company. If such payors'
        computer systems are adversely affected by Year 2000 problems, this
        could have a material adverse impact on the Company's revenues.

                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 




                                       20
<PAGE>   21

        retaining and obtaining profitable managed care contracts. There can be
        no assurance that the Company will retain or continue to obtain such
        managed care contracts. In addition, reimbursement rates under managed
        care contracts are likely to continue experiencing downward pressure as
        a result of payors' efforts to contain or reduce the costs of health
        care by increasing case management review of services and negotiating
        reduced contract pricing. Therefore, even if the Company is successful
        in retaining and obtaining managed care contracts, unless the Company
        also decreases its costs for providing services and increases higher
        margin services, it will experience declining profit margins.

        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 healthcare industry in an
        effort to better detect and remedy fraud and abuse and irregularities in
        Medicare and Medicaid billing. The Company and many other healthcare
        providers have received subpoenas and other requests for information in
        connection with such activities, and the Company is currently the
        subject of an investigation concerning its marketing and billing
        practices and its relationships with potential referral sources. See
        "Management's Discussion and Analysis of Financial Condition and Results
        of Operations -- General." There can be no assurance such activities
        will not have a material adverse effect on the Company's results of
        operations, financial condition or prospects. The Company is subject to
        state laws governing Medicaid, professional training, certificates of
        need, licensure, financial relationships with physicians and the
        dispensing and storage of pharmaceuticals. The facilities operated by
        the Company must comply with all applicable laws, regulations and
        licensing standards. In addition, many of the Company's employees must
        maintain licenses to provide some of the services offered by the
        Company. 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.

                No Assurance of Successful Integration of Acquisitions or
        Continued Growth. The Company intends to expand its business through
        internal growth, formation of additional hospital joint ventures and
        selective acquisitions of home health care companies. Although the
        Company intends to expand its business through hospital joint ventures,
        there can be no assurance that the Company will be able to maintain such
        relationships. In addition, there can be no assurance that the Company
        can increase or maintain growth in net revenues, enter into additional
        hospital joint ventures or increase net revenues at existing hospital
        joint ventures. There can also be no assurance that suitable
        acquisitions will be identified, that consent from the Company's
        lenders, where required, will be obtained or that acquisitions will be
        consummated on acceptable terms. In addition, there can be no assurance
        that these companies, once acquired, will be integrated successfully
        into the Company's operations or that any acquisition will not have a
        material adverse effect upon the Company's results of operations,
        financial condition or prospects, especially in the fiscal quarters
        immediately following such transactions. The price of the Company's
        common stock may fluctuate 





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<PAGE>   22

        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. See "Management's Discussion and Analysis of
        Financial Condition and Results of Operations - Liquidity and Capital
        Resources."

                Management of Growth. As the Company's business develops and
        expands, the Company 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.

                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 may
        encounter substantial competition from new market entrants. As the
        industry consolidates, the Company also faces competition for
        acquisitions from current and new market participants that could
        increase acquisition prices or inhibit the Company's acquisition
        strategy.

                Impact of Health Care Reform. The health care industry continues
        to undergo dramatic changes, with an emphasis on cost cutting. There can
        be no assurance that additional federal health care legislation to
        impose greater control on health care spending 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.

                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 





                                       22
<PAGE>   23

        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.

                Influence of Executive Officers, Directors and Principal
        Stockholder. On August 10, 1998, the Company's executive officers,
        directors and principal stockholder, Counsel Corporation ("Counsel"), in
        the aggregate, beneficially owned approximately 36% of the outstanding
        shares of the common stock of the Company. As a result of such equity
        ownership and their positions in the Company, if the executive officers,
        directors and principal stockholder were to vote all or substantially
        all of their shares in the same manner, they could significantly
        influence the management and policies of the Company, including the
        election of the Company's directors and the outcome of matters submitted
        to stockholders of the Company for approval. The Company is highly
        dependent upon its senior management, and competition for qualified
        management personnel is intense. The inability to attract and retain
        qualified personnel could adversely affect the Company's business.




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<PAGE>   24


                           PART II. OTHER INFORMATION

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

        The 1998 annual meeting of shareholders was held on May 28, 1998. At the
        meeting, the reelection of each individual nominated as a Class 1
        director of the Company's Board of Directors was approved. The directors
        so elected are Henry T. Blackstock, Thomas A. Dattilo and Mark Manner.
        No director-nominee received less than 13,000,000 votes which
        constituted more than the required number of votes to elect each
        director. Continuing directors are as follows: Class 2 directors whose
        terms expire in 1999 are Morris A. Perlis and Joseph F. Furlong, III;
        and Class 3 directors whose terms expire in 2000 are Allan C. Silber,
        Edward Sonshine and Edward K. Wissing. No other matters were voted upon
        at the annual meeting.

        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. A report on Form 8-K/A was filed on April 15,
             1998 with respect to the acquisition of National Medical Systems,
             Inc. and contained financial statements related to such
             transaction. The report related to a report on Form 8-K filed on
             February 17, 1998.




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                                   SIGNATURES


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



                                   AMERICAN HOMEPATIENT, INC.

        August 13, 1998            By: /s/Mary Ellen Rodgers
                                       -----------------------------------------
                                        Mary Ellen Rodgers
                                        Chief Financial Officer and An Officer 
                                        Duly Authorized to Sign on Behalf of 
                                        the registrant













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<PAGE>   26










                                INDEX TO EXHIBITS

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

<S>          <C>                                 
10.1         Separation Agreement dated July 6, 1998 between American
             HomePatient, Inc. and Edward K. Wissing.

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