UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended: March 31, 2010


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

American HomePatient, Inc.

(exact name of registrant as specified in its charter)


Delaware	0-19532	62-1474680

(State or other jurisdiction of	(Commission	(IRS Employer Identification No.)
incorporation or organization)	File Number)


5200 Maryland Way, Suite 400, Brentwood, Tennessee		37027

(Address of principal executive offices)		(Zip Code)

(615) 221-8884

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changes since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one).

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o
(do not check if a smaller reporting company)

Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

17,573,389

(Outstanding shares of the issuer’s common stock as of May 3, 2010)

AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES

INDEX


		Page No.
PART I	Financial Information

Item 1.	Financial Statements (Unaudited)

	Interim Condensed Consolidated Balance Sheets	3

	Interim Condensed Consolidated Statements of Operations — Three months ended March 31, 2010 and 2009	5

	Interim Condensed Consolidated Statements of Cash Flows — Three months ended March 31, 2010 and 2009	6

	Notes to Interim Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	37

Item 4T.	Controls and Procedures	37

Report of Independent Registered Public Accounting Firm		38

PART II	Other Information and Signatures

Item 1A.	Risk Factors	39

Item 6.	Exhibits	45

Signatures		47
EX-10.1
EX-10.2
EX-10.3
EX-15.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I. FINANCIAL INFORMATION

ITEM 1 — FINANCIAL STATEMENTS

AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)


	March 31,			December 31,
ASSETS	2010			2009

CURRENT ASSETS:
Cash and cash equivalents	$	19,832,000		$	23,613,000
Restricted cash		—			250,000
Accounts receivable, less allowance for doubtful accounts of $4,568,000 and $4,199,000, respectively		32,402,000			29,968,000
Inventories, net of inventory valuation allowances of $191,000 and $212,000, respectively		11,039,000			12,240,000
Prepaid expenses and other current assets		5,805,000			6,690,000

Total current assets		69,078,000			72,761,000


Property and equipment		139,756,000			142,166,000
Less accumulated depreciation and amortization		(106,273,000	)		(108,376,000	)

Property and equipment, net		33,483,000			33,790,000


Goodwill		123,621,000			123,621,000
Other assets		16,531,000			16,977,000

Total other assets		140,152,000			140,598,000

TOTAL ASSETS	$	242,713,000		$	247,149,000

(Continued)

AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)

(Continued)


	March 31,			December 31,
LIABILITIES AND SHAREHOLDERS’ DEFICIT	2010			2009

CURRENT LIABILITIES:
Current portion of long-term debt and capital leases	$	227,327,000		$	229,120,000
Accounts payable		15,148,000			14,153,000
Other payables		775,000			788,000
Deferred revenue		6,039,000			5,292,000
Accrued expenses:
Payroll and related benefits		6,081,000			6,961,000
Insurance, including self-insurance accruals		5,286,000			5,258,000
Other		3,628,000			3,466,000

Total current liabilities		264,284,000			265,038,000


NONCURRENT LIABILITIES:
Capital leases, less current portion		—			3,000
Deferred tax liability		13,026,000			12,031,000
Other noncurrent liabilities		101,000			82,000

Total noncurrent liabilities		13,127,000			12,116,000


Total liabilities		277,411,000			277,154,000


SHAREHOLDERS’ DEFICIT
American HomePatient, Inc. shareholders’ deficit:
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, 17,573,000 shares		176,000			176,000
Additional paid-in capital		177,127,000			177,094,000
Accumulated deficit		(219,211,000	)		(214,681,000	)

Total American HomePatient, Inc. shareholders’ deficit		(41,908,000	)		(37,411,000	)

Noncontrolling interests		7,210,000			7,406,000

Total shareholders’ deficit		(34,698,000	)		(30,005,000	)

TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT	$	242,713,000		$	247,149,000

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

AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)


	Three Months Ended March 31,
	2010			2009
REVENUES:
Sales and related service revenues, net	$	29,099,000		$	27,374,000
Rental revenues, net		37,906,000			38,786,000

Total revenues, net		67,005,000			66,160,000


EXPENSES:
Cost of sales and related services		14,569,000			14,378,000
Cost of rentals and other revenues, including rental equipment depreciation of $5,769,000 and $6,410,000, respectively		8,065,000			8,568,000
Operating expenses		34,457,000			35,065,000
Bad debt expense		1,796,000			1,296,000
General and administrative		5,116,000			5,126,000
Depreciation, excluding rental equipment, and amortization		932,000			1,024,000
Interest expense, net		3,798,000			3,866,000
Other (income) expense		(87,000	)		14,000
Change of control income		(3,000	)		(3,000	)

Total expenses		68,643,000			69,334,000


LOSS FROM OPERATIONS BEFORE INCOME TAXES		(1,638,000	)		(3,174,000	)

Provision for income taxes		1,135,000			1,164,000


NET LOSS	$	(2,773,000	)	$	(4,338,000	)


Less: Net income attributable to the noncontrolling interests	$	(996,000	)	$	(830,000	)


NET LOSS ATTRIBUTABLE TO AMERICAN HOMEPATIENT, INC.		(3,769,000	)		(5,168,000	)


NET LOSS PER COMMON SHARE ATTRIBUTABLE TO AMERICAN HOMEPATIENT, INC. COMMON SHAREHOLDERS
- Basic	$	(0.21	)	$	(0.29	)

- Diluted	$	(0.21	)	$	(0.29	)


WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
- Basic		17,573,000			17,573,000

- Diluted		17,573,000			17,573,000

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

AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)


	Three Months Ended March 31,
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss attributable to American HomePatient, Inc.	$	(3,769,000	)	$	(5,168,000	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Change of control income		(3,000	)		(3,000	)
Gain on sale of infusion branch		—			(184,000	)
Deferred tax expense		995,000			1,069,000
Depreciation and amortization		6,701,000			7,434,000
Bad debt expense		1,796,000			1,296,000
Stock compensation expense		57,000			90,000
Net income attributable to noncontrolling interests		996,000			830,000

Change in assets and liabilities:
Restricted cash		250,000			—
Accounts receivable		(4,230,000	)		5,943,000
Inventories		1,201,000			2,156,000
Prepaid expenses and other current assets		885,000			2,900,000
Deferred revenue		(14,000	)		(1,165,000	)
Accounts payable, other payables and accrued expenses		(837,000	)		(3,908,000	)
Other assets and liabilities		433,000			1,751,000

Net cash provided by operating activities		4,461,000			13,041,000


CASH FLOWS FROM INVESTING ACTIVITIES:
Cash payments for additions to property and equipment, net		(5,254,000	)		(5,606,000	)
Proceeds from sale of infusion branch		—			271,000

Net cash used in investing activities	$	(5,254,000	)	$	(5,335,000	)

(Continued)

AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

(Continued)


	Three Months Ended March 31,
	2010			2009
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to noncontrolling interests	$	(1,202,000	)	$	(1,299,000	)
Contributions from noncontrolling interests		10,000			—
Principal payments on long-term debt and capital leases		(1,796,000	)		(7,670,000	)

Net cash used in financing activities		(2,988,000	)		(8,969,000	)


DECREASE IN CASH AND CASH EQUIVALENTS		(3,781,000	)		(1,263,000	)

CASH AND CASH EQUIVALENTS, beginning of period		23,613,000			18,831,000

CASH AND CASH EQUIVALENTS, end of period	$	19,832,000		$	17,568,000


SUPPLEMENTAL INFORMATION:
Cash payments of interest	$	3,840,000		$	3,954,000

Cash payments of income taxes	$	130,000		$	76,000


Non-Cash Activity:
Capital leases entered into for property and equipment	$	—		$	1,153,000
Changes in accounts payable related to purchases of property and equipment	$	1,108,000		$	(634,000	)
Change of control:
Other liabilities	$	21,000		$	6,000
Additional paid-in capital	$	(24,000	)	$	(9,000	)
Cumulative adjustment for deferred revenue	$	761,000		$	—

Supplemental Disclosure of Investing Activities:
Disposition of infusion branch:
Inventories sold	$	—		$	87,000

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

AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1. BASIS OF PRESENTATION

The interim condensed consolidated financial statements of American HomePatient, Inc. and its subsidiaries (the “Company”) for the three months ended March 31, 2010 and 2009 herein are unaudited and have been prepared by the Company 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 U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements reflect all adjustments (consisting of only normally recurring accruals) necessary to present fairly the Company’s financial position at March 31, 2010, its results of operations for the three months ended March 31, 2010 and 2009 and its cash flows for the three months ended March 31, 2010 and 2009.

The results of operations for the three months ended March 31, 2010 and 2009 are not necessarily indicative of the operating results for the entire respective years. Subsequent events have been evaluated as disclosed in Note 4. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s 2009 Annual Report on Form 10-K.

Certain reclassifications of prior year amounts related to consolidation of the Company’s 50% owned joint ventures have been made to conform to the current year presentation. The reclassification did not affect net income attributable to the Company for any prior period. (See Note 2 below.)

2. CONSOLIDATION OF 50%-OWNED JOINT VENTURES

Prior to January 1, 2010, the Company accounted for its 50%-owned joint ventures as equity investments. Effective January 1, 2010, the Company began consolidating its 50%-owned joint ventures as a result of the Company’s adoption of the provisions of Accounting Standards Update (“ASU”) 2009-17, Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities (FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R)). ASU 2009-17 was issued by the FASB in December 2009 and was effective for periods beginning after December 15, 2009. ASU 2009-17, which amends the Variable Interest Entity (“VIE”) Subsections of ASC Subtopic 810-10, Consolidation — Overall, revises the test for determining the primary beneficiary of a VIE from a primarily quantitative risks and rewards calculation based on the VIE’s expected losses and expected residual returns to a primarily qualitative analysis based on identifying the party or related-party group (if any) with (a) the power to direct the activities that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE. Management concluded the Company is the primary beneficiary of the 50%-owned joint ventures in accordance with the provisions outlined in ASU 2009-17 and therefore began consolidating the 50%-owned joint ventures effective January 1, 2010.

ASU 2009-17 states that the difference between the amount added to the balance sheet of the consolidating entity and the amount of any previously recognized interest in the newly consolidated VIEs shall be recognized as a cumulative effect adjustment to retained earnings. The 50%-owned joint ventures had not previously recognized deferred revenues associated with rental arrangements. Upon consolidation on January 1, 2010, deferred revenue for the 50%-owned joint ventures in the amount of $761,000 was recognized by the Company. As a result, the Company recorded a cumulative adjustment on January 1, 2010 which increased deferred revenue and increased accumulated deficit by $761,000.

Summarized financial information of the nine 50%-owned joint ventures at March 31, 2010 and December 31, 2009 is as follows:


	March 31,		December 31,
	2010		2009

Cash	$	1,367,000	$	1,669,000
Accounts receivable, net		3,874,000		3,597,000
Property and equipment, net		3,547,000		3,534,000
Other assets		2,949,000		2,989,000

Total assets	$	11,737,000	$	11,789,000


Accounts payable and accrued expenses	$	449,000	$	878,000
Deferred revenue		761,000		—

Total liabilities	$	1,210,000	$	878,000

3. GOING CONCERN AND LIQUIDITY

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company has long-term debt of $226.4 million (the “Secured Debt”) at March 31, 2010, which was due to be repaid in full on August 1, 2009, as evidenced by a promissory note to the agent for the Company’s lenders (the “Lenders”) under a previous senior debt facility that is secured by substantially all of the Company’s assets. Highland Capital Management, L.P. controls a majority of the Secured Debt. The entire amount of the Secured Debt is included in current portion of long-term debt and capital leases at March 31, 2010. A Restructuring Support Agreement (see Note 4, “Subsequent Events” for a more detailed discussion) has been entered into by and among the Company, NexBank, SSB (the “Agent”), and a majority of the senior debt holders, which provides for restructuring the Company and the Company’s senior debt. The Company’s cash flow from operations and existing cash were not sufficient to repay the Secured Debt by the maturity date, and the Company was unable to refinance the Secured Debt by the maturity date. If the Company is unable to restructure the Secured Debt pursuant to the Restructuring Support Agreement, the Company must refinance the debt, extend the maturity, restructure or make other arrangements, some of which could have a material adverse effect on the value of the Company’s common stock. Given the unfavorable conditions in the current debt market, the Company believes that third-party refinancing of the debt will not be possible at this time, which raises substantial doubt about the Company’s ability to continue as a going concern. There can be no assurance that the transactions contemplated by the Restructuring Support Agreement will be consummated, and if the Secured Debt is not restructured under the Restructuring Support Agreement then it is unlikely that any of the Company’s other efforts to address the debt maturity issue can be completed on favorable terms or at all. Other factors, such as uncertainty regarding the Company’s future profitability could also limit the Company’s ability to resolve the debt maturity issue. Subject to the limitations provided by the Restructuring Support

Agreement, the Company’s Lenders have the right to foreclose on substantially all assets of the Company, and this would have a material adverse effect on the Company’s liquidity, financial condition, and the value of the Company’s common stock.

4. SUBSEQUENT EVENTS

On April 27, 2010, the Company entered into an agreement with its Lenders and its largest shareholder, Highland Capital Management, L.P. (“Highland”), with respect to restructuring the Company and the Company’s senior debt (the “Restructuring Support Agreement”). The Company has entered into the Restructuring Support Agreement in order to address its Secured Debt maturity issue. Pursuant to the Restructuring Support Agreement, the Company has agreed to propose to its stockholders for their approval a change in Company’s state of incorporation from Delaware to Nevada (the “Reincorporation”) as the first step in a series of transactions that is expected to result in each stockholder other than Highland and its affiliates receiving $0.67 per share for each share owned of the Company’s common stock. As a result of these transactions, including the follow-on merger described below, the Company would cease to be a publicly traded company.

The Restructuring Support Agreement requires the Company, subject to a series of conditions (including the approval by its stockholders of the Reincorporation), to undertake a series of transactions, including the Reincorporation, a self-tender offer by the Company to repurchase outstanding shares of its common stock, a long-term restructuring of the Company’s secured debt, and a follow-on merger that would make the Company a private company.

Pursuant to the Restructuring Support Agreement, and subject to the terms and conditions contained therein:

•

The Company agreed to retire at a 15% discount a portion of its outstanding secured debt obligations held by a single entity that is equal to approximately 4.5% of the total outstanding secured debt.

•

Highland and its affiliates, who collectively beneficially own approximately 48% of the outstanding common stock of the Company as of the date of the Restructuring Support Agreement, each agreed to vote their stock in favor of the Reincorporation.

•

Conditioned upon approval of the Reincorporation by the Company’s stockholders, the Company agreed to carry out the Reincorporation. In the Reincorporation, stockholders in the Company will become stockholders in a new parent company of the Registrant incorporated in Nevada (the “New Company”).

•

If the Reincorporation is approved and carried out as described above, the New Company agreed that it would then commence a self-tender offer to its stockholders (other than Highland and its affiliates) at $0.67 per share. This tender offer will not occur if the Reincorporation is not approved.

•

In the event this self-tender offer is accepted by a number of the New Company’s stockholders holding shares which together with the shares owned by Highland and its affiliates, represent at least 90% of the number of its outstanding shares, and subject to other customary closing conditions, the New Company agreed that it would repurchase all of the tendered shares.

•

If the self-tender offer is accepted, the Lenders have agreed to restructure its debt into two four-year secured term loans. This restructuring will not occur if the tender offer does not close. The first lien term loan would be in a principal amount of approximately $100.0 million, and the second lien term loan would have a principal amount of approximately $126.4 million. The second lien term loan would bear a higher rate of interest than the first lien term loan (however, the substantial majority of interest under the second lien term loan could be paid in kind at the election of the Company), but would rank junior in priority pursuant to the terms of a customary intercreditor agreement. Both term loans would have a variable interest rate component, but in all instances would bear interest at a rate higher than the current 6.785% fixed interest rate on the Company’s Secured Debt.

•

If the self-tender offer is completed, but less than 100% of the shares of the New Company not owned by Highland or its affiliates are tendered, Highland has agreed to take all actions to cause the Company to initiate a follow-on merger at the conclusion of the self-tender offer pursuant to which the remaining shares of common stock in the New Company not held by Highland and its affiliates would be cancelled in exchange for sixty-seven cents ($0.67) per share. Highland then would cause the Company to de-register its stock pursuant to federal securities laws.

The Restructuring Support Agreement may be terminated under certain circumstances, including by either party if the Reincorporation has not occurred on or prior to August 10, 2010 or the self-tender offer has not been completed on or prior to September 30, 2010.

The above summary of the Restructuring Support Agreement does not set forth all details of the Reincorporation and related transactions and is subject to, and qualified in its entirety by, the full text of the Restructuring Support Agreement attached as Exhibit 10.4 to this quarterly report, which is incorporated to this description by reference.

This description may be deemed to be solicitation material in respect of the proposed Reincorporation and related transactions. In connection with the proposed Reincorporation, the Company intends to file relevant materials with the SEC, including a proxy statement on Schedule 14A. COMPANY STOCKHOLDERS ARE URGED TO READ THE COMPANY’S PROXY STATEMENT BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED REINCORPORATION. Investors and security holders will be able to obtain the proxy statement and other relevant documents free of charge at the SEC’s web site, http://www.sec.gov, and the Company’s stockholders will receive information at an appropriate time on how to obtain transaction-related documents for free from the Company. Such documents are not currently available.

The Company, its directors and its executive officers may be deemed to be participants in the solicitation of proxies from the Company’s stockholders in respect of the proposed Reincorporation. Information about the Company’s directors and executive officers is set forth in the proxy statement for the Company’s 2009 Annual Meeting of Stockholders, which was filed with the SEC on April 22, 2009. Investors may obtain additional information regarding the interest of such participants by reading the proxy statement regarding the Reincorporation when it becomes available.

5. STOCK BASED COMPENSATION

The Company records compensation costs for fixed plan stock options based on the estimated fair value of the respective options and the proportion vesting in the period. Deductions for stock-based employee compensation expense are calculated using the Black-Scholes option-pricing model. Allocation of compensation expense is made using historical option terms for option grants made to the Company’s employees and historical Company stock price volatility since the Company’s emergence from bankruptcy.

There were no options granted during the first quarter ended March 31, 2010. There were 415,000 options granted during the first quarter ended March 31, 2009. The estimated fair value of these options was $0.17 per share using the Black-Scholes option-pricing model with the following assumptions: dividend yield of 0%; expected volatility of 101%; expected life of 5 years; and risk-free interest rate of 2.06%.

The Company recognized $57,000 and $90,000 of stock-based compensation expense in the three months ended March 31, 2010 and 2009, respectively.

Under the 1991 Nonqualified Stock Option Plan (the “1991 Plan”), as amended, 5,500,000 shares of the Company’s common stock have been reserved for issuance upon exercise of options granted thereunder. The maximum term of any option granted pursuant to the 1991 Plan is ten years. Shares subject to options granted under the 1991 Plan which expire, terminate or are canceled without having been exercised in full become available again for future grants.

An analysis of stock options outstanding under the 1991 Plan is as follows:


			Weighted
			Average
	Options		Exercise Price

Outstanding at December 31, 2009		2,736,000	$	1.55
Granted		—		—
Exercised		—		—
Canceled		—		—


Outstanding at March 31, 2010		2,736,000	$	1.55

There were no stock options exercised during the three months ended March 31, 2010 or 2009. At March 31, 2010, there was $0.2 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the 1991 Plan. That cost is expected to be recognized over a weighted-average period of 1.1 years.


				Weighted
				Average
				Grant-date
Nonvested Options	Options			Fair Value

Balance at December 31, 2009		834,917		$	0.52
Granted		—			—
Vested		(355,334	)		0.61
Forfeited		—			—


Balance at March 31, 2010		479,583		$	0.44

Options granted under the 1991 Plan as of March 31, 2010 have the following characteristics:


															Weighted
													Weighted		Average
													Average		Remaining
													Exercise		Contractual		Aggregate
							Weighted						Price of		Life in		Intrinsic
							Average				Options		Options		Years of		Value
					Weighted		Remaining				Exercisable		Exercisable		Options		of Options
					Average		Contractual		Aggregate		at		at		Exercisable		Exercisable
Year of	Options		Exercise		Exercise		Life in		Intrinsic		March 31,		March 31,		at March 31,		at March 31,
Grant	Outstanding		Prices		Price		Years		Value		2010		2010		2010		2010

2000		220,000	$	0.17 to $0.30	$	0.18		0.60		5,300		220,000	$	0.18		0.60		5,300
2004		450,000	$	1.31 to $1.80	$	1.64		4.14		—		450,000	$	1.64		4.14		—
2005		170,000	$	2.21 to $3.55	$	2.97		4.85		—		170,000	$	2.97		4.85		—
2006		470,000	$	0.61 to $3.30	$	3.24		5.90		—		467,500	$	3.26		5.90		—
2007		496,000	$	1.25 to $2.40	$	1.63		7.00		—		477,250	$	1.62		6.98		—
2008		525,000	$	0.85 to $1.03	$	1.02		7.94		—		336,667	$	1.02		7.93		—
2009		405,000	$	0.22	$	0.22		8.92		—		135,000	$	0.22		8.92		—

		2,736,000							$	5,300		2,256,417					$	5,300

Options granted under the 1991 Plan as of December 31, 2009 have the following characteristics:


															Weighted
													Weighted		Average
													Average		Remaining
													Exercise		Contractual		Aggregate
							Weighted						Price of		Life in		Intrinsic
							Average				Options		Options		Years of		Value
					Weighted		Remaining				Exercisable		Exercisable		Options		of Options
					Average		Contractual		Aggregate		at		at		Exercisable		Exercisable
Year of	Options		Exercise		Exercise		Life in		Intrinsic		Dec. 31,		Dec. 31,		at Dec. 31,		at Dec. 31,
Grant	Outstanding		Prices		Price		Years		Value		2009		2009		2009		2008

2000		220,000	$	0.17 to $0.30	$	0.18		0.85		—		220,000	$	0.18		0.85		—
2004		450,000	$	1.31 to $1.80	$	1.64		4.39		—		450,000	$	1.64		4.39		—
2005		170,000	$	2.21 to $3.55	$	2.97		5.10		—		170,000	$	2.97		5.10		—
2006		470,000	$	0.61 to $3.30	$	3.24		6.14		—		467,500	$	3.26		6.14		—
2007		496,000	$	1.25 to $2.40	$	1.63		7.24		—		418,583	$	1.63		7.23		—
2008		525,000	$	0.85 to $1.03	$	1.02		8.18		—		175,000	$	1.02		8.18		—
2009		405,000	$	0.22	$	0.22		9.16		—		—	$	—		9.16		—

		2,736,000							$	—		1,901,083					$	—

Options granted during 2000 and 2001 have a three year vesting period and expire in ten years. No options were granted during 2002 or 2003. Options granted during 2004 have a two or three year vesting period and expire in ten years. Options granted during 2005 have a three year vesting period and expire in ten years. Options granted during 2006 have a four year vesting period and expire in ten years. Options granted in 2007, 2008, and 2009 have a three year vesting period and expire in ten years. As of March 31, 2010 and December 31, 2009, shares available for future grants of options under the 1991 Plan total 310,109.

Under the 1995 Nonqualified Stock Option Plan for Directors (the “1995 Plan”), as amended, 600,000 shares of the Company’s common stock have been reserved for issuance upon exercise of options granted thereunder. The maximum term of any option granted pursuant to the 1995 Plan is ten years. Shares subject to options granted under the 1995 Plan which expire, terminate or are canceled without having been exercised in full become available for future grants.

An analysis of stock options outstanding under the 1995 Plan is as follows:


			Weighted
			Average
	Options		Exercise Price

Outstanding at December 31, 2009 and March 31, 2010		570,000	$	1.18

Options granted under the 1995 Plan as of December 31, 2009 and March 31, 2010 have the following characteristics:


							Weighted		Weighted
							Average		Average				Weighted		Aggregate		Aggregate
							Remaining		Remaining				Average		Intrinsic		Intrinsic
					Weighted		Contractual		Contractual				Exercise		Value		Value
					Average		Life in		Life in				Price of		of Options		of Options
Year of	Options		Exercise		Exercise		Years		Years		Options		Options		Exercisable		Exercisable
Grant	Outstanding		Prices		Price		12/31/2009		3/31/2010		Exercisable		Exercisable		12/31/2009		3/31/2010

2000		140,000	$	0.20 to $0.30	$	0.26		0.61		0.37		140,000	$	0.26		—		—
2001		15,000	$	0.75	$	0.75		2.00		1.75		15,000	$	0.75		—		—
2002		15,000	$	0.15	$	0.15		3.00		2.76		15,000	$	0.15		—		750
2003		80,000	$	1.29	$	1.29		4.00		3.76		80,000	$	1.29		—		—
2004		100,000	$	1.18 to $3.46	$	2.32		4.71		4.47		100,000	$	2.32		—		—
2005		50,000	$	3.27	$	3.27		6.00		5.76		50,000	$	3.27		—		—
2006		50,000	$	1.40	$	1.40		7.01		6.76		50,000	$	1.40		—		—
2007		40,000	$	1.12	$	1.12		8.01		7.76		40,000	$	1.12		—		—
2008		40,000	$	0.12	$	0.12		9.01		8.76		40,000	$	0.12		400		3,200
2009		40,000	$	0.14	$	0.14		10.00		9.76		40,000	$	0.14		—		2,400

		570,000										570,000			$	400	$	6,350

The Directors’ options are fully vested upon issuance and expire ten years from date of issuance.

6. NET (LOSS) INCOME PER COMMON SHARE

Net (loss) income per share is measured at two levels: basic net (loss) income per share and diluted net (loss) income per share. Basic net (loss) income per share is computed by dividing net (loss) income by the weighted average number of common shares outstanding during the year. Diluted net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding, excluding stock options as they would be antidilutive. Diluted net income per share is computed by dividing net income by the weighted average number of common shares after considering the additional dilution related to stock options. In computing diluted net income per share, the stock options are considered dilutive using the treasury stock method.

The following information is necessary to calculate net loss per share for the periods presented:


	Three Months Ended March 31,
	2010			2009

Net loss attributable to American
HomePatient, Inc.	$	(3,769,000	)	$	(5,168,000	)


Weighted average common shares outstanding		17,573,000			17,573,000
Effect of dilutive options		—			—

Adjusted diluted common shares outstanding		17,573,000			17,573,000


Net loss per common share attributable to
American HomePatient, Inc. common
shareholders
- Basic	$	(0.21	)	$	(0.29	)

- Diluted	$	(0.21	)	$	(0.29	)

7. INCOME TAXES

On April 10, 2007, the acquisition of 5,368,982 shares of the Company’s common stock by Highland Capital Management, L.P. resulted in an “ownership change” for purposes of Section 382 of the Internal Revenue Code. As a result, the future utilization of certain net operating loss carryforwards which existed at the time of the “ownership change” will be limited on an annual basis. The Company’s annual Section 382 federal limitation will be approximately $2.0 million, without consideration of the impact of the future potential recognition of built-in gains or losses as provided by Section 382. For state tax purposes, 28 of the Company’s 35 filing states apply rules similar to IRC Section 382, resulting in an NOL carryforward limitation in these jurisdictions.

Amortization of the Company’s indefinite-life intangible assets, consisting of goodwill, ceased for financial statement purposes for the year ended December 31, 2002. The Company had a deferred tax liability of $12.0 million as of December 31, 2009 and $13.0 million at March 31, 2010 relating to indefinite-life intangibles. The Company cannot determine when the reversal of

this deferred tax liability will occur, or whether such reversal would occur within the Company’s net operating loss carry-forward period. For the three months ended March 31, 2010 and 2009, the Company recognized a non-cash charge totaling $1.0 million and $1.1 million, respectively, to income tax expense to increase the valuation allowance against the Company’s deferred tax assets, primarily consisting of net operating loss carry-forwards.

8. CHANGE OF CONTROL

On April 13, 2007, Highland Capital Management, L.P. filed a Schedule 13D/A with the Securities and Exchange Commission reporting beneficial ownership of 8,437,164 shares of Company common stock, which represented approximately 48% of the outstanding shares of the Company as of that date. Under the terms of the employment agreement between the Company and Joseph F. Furlong, III, the Company’s chief executive officer, the acquisition by any person of more than 35% of the Company’s shares constitutes a change of control. Under Mr. Furlong’s employment agreement, this event gave Mr. Furlong the right to receive a lump sum payment in the event he or the Company terminated his employment within one year after the change of control. The Company accrued a liability for this potential payment in the second quarter of 2007 since the ultimate requirement to make this payment was outside of the Company’s control. As such, the Company recorded an expense of $6.6 million in the second quarter of 2007, which was shown as “change of control expense” in the consolidated statements of operations, and a liability in the amount of $6.9 million, which was reflected in other accrued expenses on the consolidated balance sheets. These items were comprised of 300% of Mr. Furlong’s current year salary and maximum bonus, immediate vesting of all unvested options, the buyout of outstanding options, reimbursement of certain personal tax obligations associated with the lump sum payment, as well as payment of certain insurance for up to 3 years after termination and office administrative expenses for up to one year after termination.

The Company also established an irrevocable trust in the second quarter of 2007 to pay the various components of the change of control obligation. During the remainder of 2007, the Company reduced the change of control expense and related liability by $1.0 million due to revaluation of the fair value of Mr. Furlong’s outstanding stock options as of December 31, 2007. This decrease in expense was the result of a decline in the market value of the Company’s common stock at December 31, 2007.

On December 21, 2007, Mr. Furlong’s employment agreement was amended. Per the terms of the amendment, Mr. Furlong received a $3.3 million lump sum payment on January 4, 2008 to induce him to continue his employment with the Company. This payment was made from the irrevocable trust and reduced the Company’s change of control liability. The payment was in lieu of certain amounts Mr. Furlong would otherwise be entitled to under the amended employment agreement if his employment with the Company had terminated. On May 1, 2008, as required for federal and state payroll tax purposes, the Company withheld for remittance to tax authorities approximately $1.5 million. This was the amount due to be reimbursed by the Company to Mr. Furlong for the tax liabilities he incurred in connection with the compensation he received following the change of control as stipulated in his amended employment agreement. The tax liabilities were related to federal excise taxes due on the lump sum payment pursuant to IRS Section 280G. This payment was primarily made from the irrevocable trust. The amended employment agreement also stipulated that all of Mr. Furlong’s stock options were deemed vested and exercisable as of January 2, 2008, and capped the potential buyout of outstanding options at $1.4 million. The $1.4 million is maintained in the irrevocable trust until these options

expire or until 90 days after Mr. Furlong’s termination, whichever occurs first. In addition, the amendment stipulated the Company will pay for office administrative expenses for up to 6 months after termination instead of up to one year as originally agreed. The amendment also stipulated that certain insurance will be continued after termination only until January 1, 2011.

On November 26, 2008, the Company executed a new employment agreement with Mr. Furlong (the “New Employment Agreement”), which replaced the prior employment agreement between Mr. Furlong and the Company. The provisions of the New Employment Agreement are retroactive to November 1, 2008. The New Employment Agreement memorializes the terms of the prior employment agreement (as amended) without change with the addition of the termination provision described below and certain clarifying changes to the related definitions.

Under the New Employment Agreement, if Mr. Furlong’s employment terminates due to a “without cause” termination or constructive discharge (as defined in the New Employment Agreement), then Mr. Furlong will receive: (i) an amount equal to the sum of 100% of his base salary plus 100% of his target annual incentive award for the year of termination; and (ii) his pro rata target annual incentive award for the year of termination.

During each of the three month periods ended March 31, 2010 and 2009, the Company reduced its change of control expense by $3,000 as a result of the reduction of the liability associated with the Company’s obligation to pay certain insurance for Mr. Furlong until January 1, 2011. At March 31, 2010 and December 31, 2009 the irrevocable trust had a balance of $1.4 million and was reflected in prepaid expenses and other current assets on the consolidated balance sheets.

9. FAIR VALUE MEASUREMENTS

The Company adopted ASC Topic 820 (Statement 157) on January 1, 2008 for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements on a recurring basis. On January 1, 2009, the Company adopted the provisions of ASC Topic 820 (Statement 157) for fair value measurements of nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. ASC Topic 820 (Statement 157) establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

•

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

•

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

•

Level 3 inputs are unobservable inputs for the asset or liability.

The level in the fair value hierarchy within which a fair measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety.

The following is a description of the valuation methodology used for financial assets measured at fair value, including the general classification of such assets pursuant to the valuation hierarchy.

Money Market Accounts — The Company currently has cash, overnight purchase agreements, and an irrevocable trust that are primarily invested in money market funds. These items are classified as Level 1 because fair value is determined by quoted market prices in an active market.

At March 31, 2010 and December 31, 2009, it was not practicable to estimate the fair value of the Company’s Secured Debt because of the August 1, 2009 maturity date and no market existed for comparable debt instruments and because of the Company’s inability to estimate the fair value without incurring excessive costs.

10. SECURED DEBT

The Company has Secured Debt of $226.4 million, as evidenced by a promissory note to the agent for the Company’s lenders (“Lenders”). This indebtedness is secured by substantially all of the assets of the Company and matured on August 1, 2009. As described more fully in Note 3, “Going Concern and Liquidity,” the Company was not able to repay this debt at or prior to maturity from cash flow from operations and existing cash, or refinance this debt prior to the maturity date. As described more fully in Note 4, “Subsequent Events,” the Company has entered into a Restructuring Support Agreement with the Lenders in order to restructure the Secured Debt.

Under the terms of the Secured Debt, interest was payable monthly on the Secured Debt at a rate of 6.785% per annum. Payments of principal were paid annually on March 31 of each year in the amount of the Company’s Excess Cash Flow (defined as cash in excess of $7.0 million at the end of the Company’s fiscal year) for the previous fiscal year end. An estimated prepayment of the Excess Cash Flow was due on each September 30 in an amount equal to one-half of the anticipated Excess Cash Flow. The Company made a principal payment of $6.5 million on March 31, 2009 which represented the remaining Excess Cash Flow payment due on that date based on actual Excess Cash Flow as of December 31, 2008. Since the maturity date, the Company continues to pay interest on a monthly basis consistent with the original terms of the Secured Debt.

11. RECENTLY ADOPTED ACCOUNTING STANDARDS

The FASB issued ASU 2009-17, Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities (FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R)) in December 2009. ASU 2009-17, which amends the Variable Interest Entity (“VIE”) Subsections of ASC Subtopic 810-10, Consolidation — Overall, revises the test for determining the primary beneficiary of a VIE from a primarily quantitative risks and rewards calculation based on the VIE’s expected losses and expected residual returns to a primarily qualitative analysis based on identifying the party or related-party group (if any) with (a) the power to direct the activities that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE. The ASU requires kick-out rights and participating rights to be ignored in evaluating whether a variable interest holder meets the power criterion unless those rights are unilaterally exercisable by a single party or related party group. The ASU also revises the criteria for determining whether fees paid by an entity to a decision maker or another service provider are a variable interest in the entity and revises the Topic 810 scope characteristic that identifies an entity as a VIE if the equity-at-risk investors as a group do not have the right to control

the entity through their equity interests to address the impact of kick-out rights and participating rights on the analysis. Finally, the ASU adds a new requirement to reconsider whether an entity is a VIE if the holders of the equity investment at risk as a group lose the power, through the rights of those interests, to direct the activities that most significantly impact the VIE’s economic performance, and requires a company to reassess on an ongoing basis whether it is deemed to be the primary beneficiary of a VIE. ASU 2009-17 is effective for periods beginning after December 15, 2009 and may not be early adopted. Adoption of ASU 2009-17 resulted in the Company consolidating its 50%-owned joint ventures beginning January 1, 2010.

12. GOODWILL IMPAIRMENT ANALYSIS

Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Goodwill is reviewed for impairment at least annually in accordance with the provisions of FASB ASC Topic 350, Intangibles — Goodwill and Other (Statement No. 142, Goodwill and Other Intangible Assets). The Company has selected September 30 as its annual testing date. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. This determination is made at the reporting unit level and consists of two steps. First, the Company determines the fair value of the reporting unit and compares it to its carrying amount. Second, if the carrying amount of the reporting unit exceeds its fair value, an impairment loss is recognized for any excess of the carrying amount of the unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill.

The liabilities of the Company continue to exceed its assets resulting in a negative carrying value of approximately $34.7 million at March 31, 2010. The equity based fair value of the Company and its one reporting unit is approximately $3.5 million at March 31, 2010. Accordingly, the Company’s fair value exceeds its carrying value as of March 31, 2010 and, by definition, no goodwill impairment is indicated. As long as the Company has a negative carrying value and has a positive fair value (market capitalization), goodwill impairment will not be indicated pursuant to ASC 350, which states “if the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired.”

The Company is currently working toward a resolution of its debt maturity issue (see Note 4). If the resolution of this issue includes additional equity resulting in a positive carrying value of the Company and the positive carrying value exceeds the fair value of the reporting unit, goodwill of the Company in the amount of $123.6 million at March 31, 2010 may be partially or completely impaired at that time.

ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, without limitation, statements containing the words “believes,” “anticipates,” “intends,” “expects,” “estimates,” “projects,” “may,” “plan,” “will,” “likely,” “could” and words of similar import. Such statements include statements concerning the proposed Reincorporation and the related transactions, the Company’s business strategy, the ability to satisfy interest expense and principal repayment obligations or to otherwise address those obligations, operations, cost savings initiatives, industry, economic performance, financial condition, liquidity and capital resources, adoption of, or changes in, accounting policies and practices, existing government regulations and changes in, or the failure to comply with, governmental regulations, legislative proposals for healthcare reform, the ability to enter into strategic alliances and arrangements with managed care providers on an acceptable basis, and current and future reimbursement rates, as well as reimbursement reductions and the Company’s ability to mitigate the impact of the reductions. Such statements are not guarantees of future performance and are subject to various risks and uncertainties. The Company’s actual results may differ materially from the results discussed in such forward-looking statements because of a number of factors, including those identified in the “Risk Factors” section and elsewhere in this Quarterly Report on Form 10-Q. The forward-looking statements are made as of the date of this Quarterly Report on Form 10-Q and the Company does not undertake to update the forward-looking statements or to update the reasons that actual results could differ from those projected in the forward-looking statements.

Overview

American HomePatient, with operations in 33 states, provides home health care services and products consisting primarily of respiratory and infusion therapies, the rental and sale of home medical equipment, and the sale of home health care supplies.

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


	Three months ended March 31,
	2010			2009
Oxygen systems		38	%		37	%
Sleep therapy		36			34
Inhalation drugs		6			5
Nebulizers		2			2
Other respiratory		2			4

Total home respiratory therapy services		84	%		82	%

Enteral nutrition services		5			5
Other infusion services		4			4

Total home infusion therapy services		9	%		9	%

Total home medical equipment and supplies		7	%		9	%


		100	%		100	%

The Company’s products and services are primarily paid for by Medicare, Medicaid, and other third-party payors. Since amounts paid under these programs are generally based upon fixed rates, the Company generally is not able to set the prices that it receives for products and services provided to patients. Thus, the Company improves operating results primarily by increasing revenues through increased volume of sales and rentals, shifting product mix toward higher margin product lines, and controlling expenses. The Company can also improve cash flow by limiting the amount of time that it takes to collect payment after providing products and services. Key indicators of performance are:

Revenue Growth. The Company operates in an industry with pre-set prices subject to reimbursement reductions. Therefore, in order to increase revenue, the Company must increase the volume of sales and rentals. Reductions in reimbursement levels can more than offset an increase in volume. Management closely tracks overall increases and decreases in sales and rentals as well as increases and decreases by product line and by branch location and geographic area in order to identify product line or geographic weaknesses and take corrective actions. The Company’s sales and marketing focus includes: (i) emphasizing profitable revenue growth by focusing on oxygen and sleep-related products and services and by increasing the Company’s mix of Medicare and profitable managed care business; (ii) strengthening its sales and marketing efforts through a variety of programs and initiatives; (iii) heightened emphasis on sleep therapy and implementation of initiatives to expand sales of CPAP supplies; and (iv) expanding managed care revenue through greater management attention and prioritization of payors to secure managed care contracts at acceptable levels of profitability. Improvement in the Company’s ability to grow higher margin revenues will be critical to the Company’s success. Management will continue to review and monitor progress with its sales and marketing efforts. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Trends, Events, and Uncertainties — Reimbursement Changes and the Company’s Response.”

Bad Debt Expense. Billing and collecting in the healthcare industry is extremely complex. Rigorous substantive and procedural standards are set by each third party payor, and failure to adhere to these standards can lead to non-payment, which can have a significant impact on the Company’s net income and cash flow. The Company measures bad debt as a percent of net sales and rentals, and management considers this percentage a key indicator in monitoring its billing and collection function. Bad debt expense increased from $1.3 million for the three months ended March 31, 2009 to $1.8 million for the three months ended March 31, 2010. As a percentage of net revenue, bad debt expense increased from 2.0% for the three months ended March 31, 2009 to 2.7% for the three months ended March 31, 2010. The increase in bad debt expense in the first quarter of 2010 is primarily attributable to a temporary decrease in cash collections resulting from temporary delays in bill submissions associated with procedural changes implemented in early 2010.

Cash Flow. The Company’s funding of day-to-day operations and all payments required to the Company’s secured creditors comes from cash flow and cash on hand. The Company currently does not have access to a revolving line of credit. The Company’s Secured Debt matured on August 1, 2009. Under the terms of the Restructuring Support Agreement, the Lenders have agreed to forbear from exercising rights and remedies until the consummations of the transactions contemplated by the Restructuring Support Agreement or the termination of the Restructuring Support Agreement. The nature of the Company’s business requires substantial capital expenditures in order to buy the equipment used to generate revenues. As a result, management views cash flow as particularly critical to the Company’s operations. 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, accrued expenses and the Secured Debt). Management attempts to monitor and improve cash flow in a number of ways, including inventory utilization analysis, cash flow forecasting, and accounts receivable collection. In that regard, the length of time that it takes to collect receivables can have a significant impact on the Company’s liquidity as described below in “Days Sales Outstanding.” See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

Days Sales Outstanding. Days sales outstanding (“DSO”) is a tool used by management to assess collections and the consequential impact on cash flow. The Company calculates DSO by dividing net patient accounts receivable by the average daily revenue for the previous 90 days (excluding dispositions and acquisitions), net of bad debt expense. The Company attempts to minimize DSO by screening new patient cases for adequate sources of reimbursement and by providing complete and accurate claims data to relevant payor sources. The Company also monitors DSO trends for each of its branches and billing centers and for the Company in total as part of the management of the billing and collections process. An increase in DSO usually results from certain revenue management processes at the billing centers and/or branches not functioning at optimal levels or a slow-down in the timeliness of payment processing by payors. A decline in DSO usually results from process improvements or more timely payment processing by payors. Management uses DSO trends to monitor, evaluate and improve the performance of the billing centers. DSO was 44 and 38 days at March 31, 2010 and December 31, 2009, respectively. This increase in DSO is primarily the result of temporary delays in bill submissions in the first quarter of 2010 associated with procedural changes implemented in early 2010.

Unbilled Revenues. Another key indicator of the Company’s receivable collection efforts is the amount of unbilled revenue, which is the amount of sales and rental revenues not yet billed to payors due to incomplete documentation or the receipt of the Certificate of Medical Necessity (“CMN”). The amount of unbilled revenue was $4.7 million and $4.0 million for March 31, 2010 and December 31, 2009, respectively, net of valuation allowances. The increase in unbilled revenue is primarily attributable to temporary delays in bill submissions in the first quarter of 2010 associated with procedural changes implemented in early 2010.

Productivity and Profitability. In light of the reimbursement reductions affecting the Company over the past several years and the possibility of continued reimbursement reductions in the future, management has placed significant emphasis on improving productivity and reducing costs over the past several years and will continue to do so. Management considers many of the Company’s expenses to be either fixed costs or cost of goods sold, which are difficult to reduce or eliminate. As a result, management’s primary areas of focus for expense reduction and containment are through productivity improvements related to the Company’s branches and billing centers. These improvements have focused on centralization of certain activities previously performed at branches, consolidation of certain billing center functions, and reduction in costs associated with delivery of products and services to patients. Examples of recent centralization initiatives include the centralization of revenue qualification processes through the Company’s regional billing centers, the centralization of order intake and order processing through the Company’s patient service centers, the centralization of CPAP supply order processing and fulfillment through the Company’s centralized CPAP support center, and the centralization of inhalation drug order processing and fulfillment through the Company’s centralized pharmacy. The Company has also established a centralized oxygen support center to coordinate scheduling and routing of portable oxygen deliveries for the Company’s branches. Initiatives are also in place to improve asset utilization through an asset management system, reduce capital expenditures through improved purchasing processes, reduce bad debt expense and revenue deductions through improved revenue qualification and collection processes, reduce costs of delivery of products to patients through improved routing, and reduce facility costs through more effective utilization of leased space. Management utilizes a variety of monitoring tools and analyses to help identify and standardize best practices and to identify and correct deficiencies. Similarly, the Company monitors its business on a branch and product basis to identify opportunities to target growth or contraction. These analyses have historically led to the closure or consolidation of branches and to the emphasis on certain products and new sales initiatives. See “Trends, Events, and Uncertainties — Reimbursement Changes and the Company’s Response” for additional discussion.

Trends, Events, and Uncertainties

From time to time changes occur in the Company’s industry or its business that make it reasonably likely that aspects of its future operating results will be materially different than its historical operating results. Sometimes these changes have not occurred, but their possibility is sufficient to raise doubt regarding the likelihood that historical operating results are an accurate gauge of future performance. The Company attempts to identify and describe these trends, events, and uncertainties to assist investors in assessing the likely future performance of the Company. Investors should understand that these matters typically are new, sometimes unforeseen, and often are fluid in nature. Moreover, the matters described below are not the only issues that can result in variances between past and future performance nor are they necessarily the only material trends, events, and uncertainties that will affect the Company. As a result, investors are encouraged to use

this and other information to ascertain for themselves the likelihood that past performance is indicative of future performance.

The trends, events, and uncertainties set out in the remainder of this section have been identified by the Company as reasonably likely to materially affect the comparison of historical operating results reported herein to either other past period results or to future operating results.

The Company’s Secured Debt Matured on August 1, 2009. For a discussion of the Company’s secured debt maturity, see “Risk Factors,” “Note 4 — Subsequent Events,” and “Liquidity and Capital Resources.”

Reimbursement Changes and the Company’s Response. The Company regularly is faced with reimbursement reductions and the prospect of additional reimbursement cuts. The following reimbursement changes already enacted will further impact the Company in 2010 and beyond:

DRA Reimbursement Impact: The Deficit Reduction Act of 2005 (the “DRA”), which was signed into law on February 8, 2006, affects the Company’s reimbursement in a number of ways including:

	•		The DRA contains a provision that eliminated the Medicare capped rental methodology for certain items of durable medical equipment, including wheelchairs, beds, and respiratory assist devices. The DRA changes the rental period to thirteen months, at which time the rental payments stop and title to the equipment is transferred to the beneficiary. The effective date of the provision to eliminate the capped rental methodology applies to items for which the first rental month occurs on or after January 1, 2006. As a result, the impact of this change was realized over a period of several years which began in 2007.

	•		The DRA also contains a provision that limits the duration of monthly Medicare rental payments on oxygen equipment to 36 months. Prior to the DRA, Medicare provided indefinite monthly reimbursement for the rental of oxygen equipment as long as the patient needed the equipment and met medical qualifications. The effective date for the implementation of the 36 month rental cap for oxygen equipment was January 1, 2006. In the case of individuals who received oxygen equipment on or prior to December 31, 2005, the 36 month period began on January 1, 2006. Therefore, the financial impact of the reduction in revenue associated with the 36 month cap began in 2009. The DRA provided for the transfer of title of the oxygen equipment from the supplier to the patient at the end of the 36 month period. With the enactment of the Medicare Improvement for Patients and Providers Act of 2008 (“MIPPA”) in July of 2008, the provision related to the transfer of title of oxygen equipment was repealed effective January 1, 2009; however MIPPA did not repeal the cap on rental payments subsequent to the 36^th month. MIPPA also established new payment rules and supplier responsibilities following the 36 month rental period, the most significant of which are described below.

•

A supplier’s responsibility to service an oxygen patient ends at the time the oxygen equipment has been in continuous use by the patient for the equipment’s reasonable useful lifetime (currently defined by the Centers for Medicare and Medicaid Services (“CMS”) as five years for oxygen equipment). However, the supplier may replace this equipment and a new 36 month rental period and new reasonable useful

lifetime period is started on the date the replacement item is delivered. Oxygen equipment that is lost, stolen, or irreparably damaged may also be replaced and a new 36 month rental period and new reasonable useful lifetime period is started (with CMS approval). A new certificate of medical necessity is required when oxygen equipment is replaced in each of the situations described above.

	•		A change in oxygen equipment modalities (e.g. from a concentrator to a stationary liquid system) prior to the end of the reasonable useful lifetime does not result in the start of a new 36 month rental period or new reasonable useful lifetime period, unless the change is medically justified and supported by written documentation from the patient’s physician. In addition, replacing oxygen equipment that is not functioning properly prior to the end of the reasonable useful lifetime period does not result in the start of a new 36 month rental period or new reasonable useful lifetime period. Finally, the transfer by a beneficiary to a new supplier prior to the end of the reasonable useful lifetime period does not result in the start of a new 36 month rental period or new reasonable useful lifetime period.

	•		Suppliers furnishing liquid or gaseous oxygen equipment during the initial 36 month rental period will be required to continue furnishing oxygen contents for any period of medical need following the 36 month rental cap for the remainder of the reasonable useful lifetime of the equipment. The reimbursement rate for portable oxygen contents increases from approximately $29 per month during the 36 month rental period to approximately $77 per month after the 36 month rental period. At the start of a new 36 month rental period, the reimbursement rate for portable oxygen contents will revert back to approximately $29 per month.

	•		Suppliers are responsible for performing any repairs or maintenance and servicing of the oxygen equipment that is necessary to ensure that the equipment is in good working order for the reasonable useful lifetime of the oxygen equipment. No payment will be made for supplies, repairs, or maintenance and servicing during the initial 36 month rental period. Effective July 2010, beginning six months after the 36 month cap, a maintenance and servicing payment of $66 will be paid every six months. The maintenance and servicing fee covers all maintenance and servicing needed during the six month period. The supplier is responsible for performing all necessary maintenance, servicing and repair of the equipment at the time it is needed and must also visit the beneficiary’s home during the first month of each six month period to inspect the equipment and perform any necessary maintenance and servicing needed at the time of each visit.

	•		The Company’s financial results were materially and adversely impacted beginning in 2009 as a result of changes in oxygen reimbursement as described above. Including the 50% owned joint ventures, net revenue and net income were reduced in the twelve months of 2009 by approximately $20.0 million and $18.8 million, respectively, as a result of the reimbursement changes related to the 36 month oxygen cap.

•

On August 3, 2006, CMS published a Proposed Rule to implement the changes required by the DRA relating to the payment for oxygen, oxygen equipment, and capped rental

DME items. The rule, which became final November 9, 2006 (“DRA Implementation Rule”), establishes revised payment classes and reimbursement rates for oxygen and oxygen equipment effective January 1, 2007, including revised rates for concentrators, liquid and gas stationary systems, and portable liquid and gas equipment. The DRA Implementation Rule also establishes a reimbursement rate for portable oxygen generating equipment and changes regulations related to maintenance reimbursement and equipment replacement reimbursement. Under the DRA Implementation Rule, during the initial 36 months of rental, the reimbursement rate for concentrators and stationary liquid and gas systems was approximately $199 per month for calendar years 2007 and 2008, approximately $193 per month for 2009, and approximately $189 per month for 2010. Under the DRA Implementation Rule, the reimbursement rate for liquid or gas portable equipment during the initial 36 months of rental is approximately $32 per month from 2007 through 2010. As a result of the enactment of MIPPA in July of 2008, the above reimbursement rates were decreased by 9.5% beginning on January 1, 2009. Including the 50% owned joint ventures, the Company estimates the reduction in the rate for concentrators and stationary systems for 2010 will reduce net revenue and net income by approximately $0.8 million in 2010.

Competitive Bidding: The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“MMA”) froze reimbursement rates for certain durable medical equipment (“DME”) at those rates in effect on October 1, 2003. These reimbursement rates will remain in effect until the competitive bidding process establishes a single payment amount for those items, which amount must be less than the current fee schedule. According to the MMA, competitive bidding will be implemented in phases with ten of the largest metropolitan statistical areas (“MSAs”) included in the program in the first round of bidding and seventy additional MSAs to be added in the second round of bidding, with additional areas to be subsequently added. The MMA specified that the first round of competitive bidding would be implemented in 2008 and the second round in 2009.

The bidding process for the first round of competitive bidding occurred in the latter half of 2007. The products included in the first round of bidding were: oxygen supplies and equipment; standard power wheelchairs, scooters, and related accessories; complex rehabilitative power wheelchairs and related accessories; mail-order diabetic supplies; enteral nutrients, equipment, and supplies; CPAP devices, Respiratory Assist Devices (“RADs”), and related supplies and accessories; hospital beds and related accessories; Negative Pressure Wound Therapy (“NPWT”) pumps and related supplies and accessories; walkers and related accessories; and support surfaces. The Company participated in the bidding process in eight of the ten markets included in the first round of bidding (Charlotte, Cincinnati, Cleveland, Dallas, Kansas City, Miami, Orlando, and Pittsburgh). In early 2008, the Company was notified that it was a winning supplier in each of the eight markets and the Company chose to accept all contracts awarded. The contract period for the first round of bidding was scheduled to begin July 1, 2008 for a three year period. The Company’s average reduction in reimbursement associated with the first round of competitive bidding was approximately 29%.

On July 15, 2008, the Medicare Improvements for Patients and Providers Act of 2008 (“MIPPA”) was enacted. Among other things, this legislation delayed the competitive bidding program to allow time for CMS to make changes to the bidding process. As a result of this legislation, contracts awarded in the first round were terminated and the bidding process for the first round was restarted in 2009 and, except for a few exceptions, included the same products and geographic locations included in the original first round of bidding. On January 16, 2009, CMS

published an Interim Final Rule implementing provisions of MIPPA related to the first round re-bidding process and subsequent rounds of bidding. The effective date of the Interim Final Rule was originally to be February 17, 2009, but was subsequently extended to April 18, 2009. The delay was used by CMS to further review the issues of law and policy raised by the Interim Final Rule. On August 3, 2009, CMS published a tentative timeline and bidding requirements for the first round re-bidding process which was subsequently finalized. Bidder registration began August 17, 2009 and bidding began October 21, 2009 and closed December 21, 2009. The Company participated in the bidding process in nine of the ten markets included in the re-bid first round of bidding. Reimbursement rates from the bidding process will be announced in June 2010 and contract suppliers will be announced in September 2010. The reimbursement rates resulting from the bidding process will go into effect January 1, 2011. The second round bidding process is currently scheduled to begin in 2011.

To offset the savings not realized as a result of the first round competitive bidding delay, MIPPA called for a nationwide 9.5% reduction in Medicare rates which began on January 1, 2009 for products included in the first round of competitive bidding. Including the 50% owned joint ventures, this 9.5% reduction reduced the Company’s net revenue and net income by approximately $9.5 million and $8.9 million, respectively, in the twelve months of 2009. MIPPA also requires CMS to make certain changes to the bidding process and repeals the transfer of title of oxygen equipment to Medicare beneficiaries at the end of 36 months of continuous rental, as specified in the Deficit Reduction Act of 2005. At this time, the exact timing and financial impact of competitive bidding is not known, but management believes the impact could be material.

Over the past several years in anticipation of continued reductions in reimbursement, the Company has implemented various initiatives to improve productivity and reduce costs. These initiatives have focused on the centralization of certain activities previously performed at branches and billing centers, consolidation of certain billing center functions, and reductions of costs associated with delivery of products and services to patients. The Company has also implemented strategies designed to improve revenue growth, especially in the areas of oxygen and sleep therapy. A portion of the reimbursement reductions described above have been offset by productivity improvements, cost reductions, and growth in respiratory revenue, especially sleep therapy revenues. Management cannot provide any assurance that future initiatives to improve productivity and/or increase revenues will be successful and there can be no guarantee that actual cash flow in 2010 will be consistent with management’s projections.

Accreditation: The Secretary of the Department of Health and Human Services is required to establish and implement quality standards for suppliers of durable medical equipment, prosthetics, orthotics, and supplies (“DMEPOS”). CMS published the standards on its website on August 14, 2006. In order to continue to bill under Medicare Part B, DMEPOS suppliers were required to meet these standards through an accreditation process outlined in the CMS final rule on accreditation issued August 18, 2006. In order to participate in the original first round of competitive bidding, all suppliers were required to obtain accreditation by October 31, 2007. All of the Company’s branch locations were accredited by the Joint Commission prior to this date. As of January 1, 2008, all of the Company’s branch locations transitioned from accreditation with the Joint Commission to accreditation with Accreditation Commission for Health Care (“ACHC”).

In December of 2007, CMS announced that all existing suppliers must be accredited no later than September 30, 2009. New suppliers who submit applications to the National Supplier Clearinghouse (NSC) for a National Provider Identifier (NPI) prior to March 1, 2008 must be

accredited before January 1, 2009. Suppliers who submit applications to the NSC for an NPI on or after March 1, 2008, must submit evidence of accreditation prior to the submission of the application. Failure to meet these deadlines could result in the revocation of the supplier’s Medicare billing privileges. As all of the Company’s operations are accredited through ACHC, these deadlines did not impact the Company’s operations.

Positive Airway Pressure (PAP) Devices: CMS released a revised National Coverage Determination (“NCD”) on March 13, 2008 for PAP equipment. The major change resulting from the revised NCD was that specified home sleep tests could now be used in qualifying individuals for CPAP devices. In July 2008, the four Medicare Jurisdictions released Local Coverage Determinations (“LCDs”) which provided further coverage guidelines for PAP devices. The coverage provisions contained in these LCDs, which went beyond the guidelines provided for in the NCD, were to become effective on September 1, 2008. However, on August 18, 2008, all four Jurisdictions rescinded the LCDs.

The four Jurisdictions published new revised LCDs on September 19, 2008 in order to provide guidance for PAP equipment beyond the guidelines contained in the NCD. The LCDs require, effective November 1, 2008, a face-to-face physician visit prior to the physician ordering sleep testing which should generally contain a sleep history with symptoms associated with obstructive sleep apnea (OSA) and sleep inventory, as well as pertinent physical examination. The LCD also requires an initial three-month trial period during which (no sooner than the 31st day but no later than the 91st day after beginning treatment) there must be an additional face-to-face physician visit. The treating physician must conduct a clinical reevaluation and document that the beneficiary is benefiting from PAP therapy. This policy also requires compliance data be provided to show patient’s use of the CPAP machine for four hours per night 70% of nights within a 30 day timeframe during the initial 90 days of treatment in order to document medical necessity. The Company has adapted its operations as a result of the policy changes outlined in the LCDs. The Company’s revenue and profitability have been and will continue to be negatively impacted by these policy changes. During 2009, the Company’s net revenue and net income were reduced by approximately $2.5 million as a result of the implementation of the Medicare PAP policy. The Company cannot accurately predict the future magnitude of the impact at this time as the Company is still working through the newly-implemented processes to aid patients in improving compliance.

Surety Bond: In July 2007, CMS issued a proposed rule implementing section 4312 of the Balanced Budget Act of 1997 (the “BBA”), which would require all suppliers of DMEPOS, except those that are government operated, to obtain and retain a surety bond. On January 2, 2009 CMS published a final rule requiring DME suppliers to post a $50,000 bond for each National Provider Identification Number (“NPI number”). The effective date of the final rule was March 2, 2009, however existing suppliers were not required to furnish the bond until October 2, 2009. This rule requires the Company to obtain a surety bond for each of its 241 branch locations billing Medicare using a unique NPI number. The Company obtained the required surety bonds for each of its branch locations effective October 2, 2009 for a term of one year. The costs to obtain the surety bonds for the initial one-year period did not materially impact the Company’s financial results or financial position. However, there can be no assurance that the Company will be able to obtain renewals or that the costs of future renewals will remain at the current level.

Provider Enrollment, Chain and Ownership System: Section 1833(q) of the Social Security Act requires that all physicians and non-physician practitioners that meet certain definitions be uniquely identified for all claims and services that are ordered or referred. To meet

this requirement, in April 2009, CMS expanded their current policy to require all health care practitioners be listed in the government health plan’s national on-line Provider Enrollment, Chain and Ownership System (“PECOS”). PECOS tracks physician and non-physician practitioners to ensure they are of the type/specialty eligible to order or refer services for Medicare beneficiaries. Under this new policy, Medicare claims submitted by the Company beginning January 3, 2011 that are the result of an order or a referral from a practitioner not registered in PECOS will not be paid. The original implementation date for denying payment was January 5, 2010, but was postponed to April 5, 2010, and more recently postponed to January 3, 2011. Medicare claims submitted by the Company prior to January 3, 2011 that are the result of an order or a referral from a practitioner not registered in PECOS will be paid, but the Company will receive a warning indicating the practitioner is not registered. The Company is working with its referring physicians towards PECOS compliance but there can be no assurance that practitioners will be properly enrolled in PECOS, and as such the Company’s revenues and cash collections could be impacted beginning in 2011.

The following proposed changes, if enacted in their proposed or a modified form, could have a significant impact on the Company:

Proposals to Further Reduce the Reimbursement for Oxygen Equipment: In September 2006, the Office of Inspector General of the Department of Health and Human Services issued a report entitled “Medicare Home Oxygen Equipment: Cost and Servicing.” This report recommended, among other things, that CMS work with Congress to reduce the current 36 month rental period for oxygen equipment and specifically noted the anticipated savings to the Medicare program if the rental period was capped at 13 months. Subsequently, CMS issued a response indicating agreement with this recommendation. Additionally, the proposed budget of the United States Government for fiscal year 2009 included a proposal to limit Medicare reimbursement of rental payments for most oxygen equipment to 13 months from the current 36 months as specified in the DRA. There was no formal action taken on this budget proposal. However, as described above, MIPPA required a nationwide 9.5% reduction in Medicare reimbursement rates beginning January 1, 2009 for products included in the first round of competitive bidding (which includes oxygen equipment) and repealed the requirement to transfer title to the oxygen equipment to the beneficiary at the end of the initial 36 months of rental.

The Company cannot predict future Medicare reimbursement for oxygen equipment, but it believes that any significant decrease in the current 36 month rental period or reimbursement rate will have a substantial and material negative financial impact to the Company. Such a decrease may require the Company to alter significantly its business model and cost structure as well as limit or eliminate certain products or services currently provided to patients in order to avoid substantial losses. There can be no assurance that the Company could successfully manage these changes. Additionally, management believes that any further reductions in reimbursement for oxygen equipment could limit access to oxygen therapy for numerous Medicare beneficiaries.

Proposed Supplier Standards: In February of 2008, CMS published proposed supplier standards to address concerns about the easy entry into the Medicare program by unqualified and fraudulent providers. The proposed standards include, among other things, prohibition of contracting licensed services to other entities, requirements to maintain a minimum square footage for a business location, maintaining an operating business telephone number, a prohibition on the forwarding of telephone calls from the primary business location to another location, and a requirement for the business location to be open to the public a minimum of 30 hours per week.

The proposed standards also include a requirement to maintain a minimum level of comprehensive liability insurance, a prohibition on directly soliciting patients, and a requirement to obtain oxygen only from state licensed oxygen suppliers. The comment period for the proposed supplier standards expired March 25, 2008. The Company provided comments by the stated deadline. Certain of the proposed supplier standards, if enacted in the current form, could significantly increase the Company’s costs of providing services to patients. CMS has not yet published a final rule regarding these proposed standards and the Company cannot predict the ultimate outcome.

Management is working to counter the adverse impact of the reimbursement reductions currently in effect as well as any future reimbursement reductions through a variety of initiatives designed to grow revenues. See “Overview — Revenue Growth” for a discussion of the Company’s initiatives to grow revenues. In addition, management will continue to be focused on evolving the Company’s business model to improve productivity and reduce costs. These efforts will particularly emphasize centralization and consolidation of functions and improving logistics. See “Overview — Productivity and Profitability” for a discussion of the Company’s initiatives to improve productivity and reduce costs. The magnitude of the adverse impact that reimbursement reductions will have on the Company’s future operating results and financial condition will depend upon the success of the Company’s revenue growth and cost reduction initiatives. Nevertheless, the adverse effect of reimbursement reductions will be material in 2010 and beyond. See “Risk Factors.”

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon the Company’s consolidated financial statements. The Company’s management considers the following accounting policies to be the most critical in relation to the Company’s consolidated financial statements: revenue recognition and allowance for doubtful accounts, inventory valuation and cost of sales recognition, rental equipment valuation, valuation of long-lived assets, valuation of goodwill and other intangible assets, and self insurance accruals. These policies are presented in detail within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

Results of Operations

The Company reports its revenues as follows: (i) sales and related services revenues; and (ii) rentals and other revenues. Sales and related services revenues are derived from the sale of aerosol medications and respiratory therapy equipment, the provision of infusion therapies, the sale of home health care equipment and medical supplies, and the sale of supplies and services related to the delivery of these products. Rentals and other revenues are derived from the rental of equipment related to the provision of respiratory therapies, home health care equipment, and enteral pumps. Cost of sales and related services includes the cost of equipment and drugs and related supplies sold to patients. Cost of rentals and other revenues includes the costs of oxygen and rental supplies, demurrage for leased oxygen cylinders, rent expense for leased equipment, and rental equipment depreciation expense and excludes delivery expenses and salaries associated with the rental set-up. Operating expenses include operating center labor costs, delivery expenses, area management expenses, selling costs, occupancy costs, billing center costs and other operating costs. General and administrative expenses include corporate and senior management expenses.

The following table and discussion sets forth items from the Company’s interim condensed consolidated statements of income as a percentage of revenues for the periods indicated:


	Percentage of Revenues
	Three Months Ended March 31,
	2010			2009
Revenues		100.0	%		100.0	%

Cost of sales and related services		21.7			21.7
Cost of rental, including rental equipment depreciation		12.0			13.0
Operating expenses		51.4			53.0
Bad debt expense		2.7			2.0
General and administrative		7.6			7.7
Depreciation, excluding rental equipment, and amortization		1.4			1.5
Interest expense, net		5.7			5.8
Other income, net		(0.1	)		—
Change of control income		—			—

Total expenses		102.4	%		104.7	%

Loss from operations before income taxes		(2.4	)		(4.7	)
Provision for income taxes		1.7			1.8

Net loss		(4.1	)%		(6.5	)%

Less: Net income attributable to the noncontrolling interests		(1.5	)		(1.3	)

Net loss attributable to American HomePatient, Inc.		(5.6	)%		(7.8	)%

Three Months Ended March 31, 2010 Compared to Three Months Ended March 31, 2009

Revenues. Revenues increased from $66.2 million for the quarter ended March 31, 2009 to $67.0 million for the same period in 2010, an increase of $0.8 million, or 1.2%. The increase in revenue is primarily attributable to growth in the Company’s core respiratory product lines of oxygen and sleep therapy, partially offset by reductions in revenue associated with non-respiratory home medical equipment (“HME”) and infusion therapy as a result of the Company’s continued reduction in emphasis of these less profitable product lines. The following is a discussion of the components of revenues:

Sales and Related Services Revenues. Sales and related services revenues increased from $27.4 million for the quarter ended March 31, 2009 to $29.1 million for the same period of 2010, an increase of $1.7 million, or 6.2%. This increase is primarily the result of increased sleep therapy revenue and inhalation drug revenue, partially offset by a decrease in revenue associated with non-focus product lines, including non-respiratory HME and infusion therapy.

Rental Revenues. Rental revenues decreased from $38.8 million for the quarter ended March 31, 2009 to $37.9 million for the same period in 2010, a decrease of $0.9 million, or 2.3%. This decrease is primarily the result of a decrease in revenue associated with non-focus product lines, partially offset by an increase in oxygen revenue.

Cost of Sales and Related Services. Cost of sales and related services increased from $14.4 million for the quarter ended March 31, 2009 to $14.6 million for the same period in 2010, an increase of $0.2 million, or 1.4%. As a percentage of sales and related services revenues, cost of sales and related services decreased from 52.5% for the quarter ended March 31, 2009 to 50.1% for the same period in 2010. This decrease is primarily attributable to improved vendor pricing for certain products, reductions in sales of less profitable product lines, and a change in product mix associated with inhalation drug revenue.

Cost of Rental Revenues. Cost of rental revenues decreased from $8.6 million for the quarter ended March 31, 2009 to $8.1 million for the same period in 2010, a decrease of $0.5 million, or 5.8%. As a percentage of rental revenues, cost of rental revenue decreased from 22.1% for the quarter ended March 31, 2009 to 21.3% for the quarter ended March 31, 2010. This decrease is primarily attributable to a decrease in rental equipment depreciation due to reductions in rental equipment purchases over the past several years largely the result of the Company’s reduced emphasis on non-respiratory HME product lines.

Operating Expenses. Operating expenses decreased from $35.1 million for the quarter ended March 31, 2009 to $34.5 million for the same period in 2010, a decrease of $0.6 million or 1.7%. As a percentage of revenues, operating expenses decreased from 53.0% for the quarter ended March 31, 2009 to 51.4% for the quarter ended March 31, 2010. This decrease is primarily the result of improved operating efficiencies.

Bad Debt Expense. Bad debt expense increased from $1.3 million for the quarter ended March 31, 2009 to $1.8 million for the same period in 2010, an increase of $0.5 million, or 38.5%. As a percentage of revenues, bad debt expense increased from 2.0% for the quarter ended March 31,

2009 to 2.7% for the quarter ended March 31, 2010. The increase in bad debt expense in the first quarter of 2010 is primarily attributable to a temporary decrease in cash collections resulting from temporary delays in bill submissions associated with procedural changes implemented in early 2010. The Company’s net patient accounts receivable decreased from $36.5 million at March 31, 2009 to $32.1 million at March 31, 2010. Additionally, days sales outstanding (“DSO”) decreased from 51 days at March 31, 2009 to 44 days at March 31, 2010. The reduction in net patient accounts receivable and DSO demonstrates the Company’s continued improvements made in its revenue qualification and collection processes.

General and Administrative Expenses. General and administrative expenses were $5.1 million for each of the quarters ended March 31, 2009 and March 31, 2010. As a percentage of revenues, general and administrative expenses decreased from 7.7% for the quarter ended March 31, 2009 to 7.6% for the quarter ended March 31, 2010.

Depreciation and Amortization. Depreciation (excluding rental equipment) and amortization expenses were $1.0 million for the quarter ended March 31, 2009 and $0.9 million for the quarter ended March 31, 2010.

Interest Expense, Net. Interest expense, net, was $3.9 million for the quarter ended March 31, 2009 and $3.8 million for the quarter ended March 31, 2010.

Other Income, Net. Other income, net, was $0.1 million for the quarter ended March 31, 2010. The majority of other income, net, for the quarter ended March 31, 2010 is due to income related to various life insurance policies.

Provision for Income Taxes. The provision for income taxes was $1.2 million for the quarter ended March 31, 2009 and $1.1 million for the same period in 2010. This expense primarily relates to non-cash deferred federal and state income taxes associated with indefinite lived intangible assets and state income tax expense.

Liquidity and Capital Resources

The Company has long-term debt of $226.4 million, as evidenced by a promissory note to the agent for the Lenders. This indebtedness is secured by substantially all of the assets of the Company and matured on August 1, 2009. The Company was not able to repay this debt at or prior to maturity from cash flow from operations and existing cash, or refinance this debt prior to the maturity date. A series of forbearance agreements were entered into by and among the Company, the agent, and certain forbearance holders. The parties to the forbearance agreements agreed to not exercise, prior to the expiration of the term of the agreement, any of the rights or remedies available to them as a result of the Company’s failure to repay the secured debt on the maturity date. On April 27, 2010, the Company entered into the Restructuring Support Agreement, which provides for restructuring the Company and the Company’s senior debt in order to address its Secured Debt maturity issue. Pursuant to the Restructuring Support Agreement, the Company has agreed to propose to its stockholders for their approval a change in the Company’s state of incorporation from Delaware to Nevada as the first step in a series of transactions that is expected to result in each stockholder other than Highland and its affiliates receiving $0.67 per share for each share owned of the Company’s common stock. As a result of these transactions, including the follow-on merger, the Company would cease to be a publicly traded company. See Note 4 “Subsequent Events.” Given the unfavorable conditions in the

current debt market, the Company believes that third-party refinancing of the debt would not be possible at this time if the transactions contemplated under the Restructuring Support Agreement are not consummated. Other factors, such as uncertainty regarding the Company’s future profitability would also limit the Company’s ability to resolve the debt maturity issue. However, there can be no assurance that the transaction contemplated under the Restructuring Support Agreement will be consummated, and in such case it is unlikely that a resolution on the debt maturity will be reached with favorable terms to the Company and its stockholders or at all. Subject to the limitations provided by the Restructuring Support Agreement, the Company’s Lenders have the right to foreclose on substantially all assets of the Company, and this would have a material adverse effect on the Company’s liquidity, financial condition, and the value of the Company’s common stock.

At March 31, 2010 the Company had current assets of $69.1 million and current liabilities of $264.3 million, resulting in a working capital deficit of $(195.2) million and a current ratio of 0.3x as compared to a working capital deficit of $(187.5) million and a current ratio of 0.3x at March 31, 2009. The current ratio for both periods has been significantly affected by the Company’s secured debt balance being classified as a current liability due to the August 1, 2009 maturity date.

Under the terms of the secured debt that matured on August 1, 2009, interest was payable monthly on the secured debt at a rate of 6.785% per annum. Payments of principal were payable annually on March 31 of each year in the amount of the Company’s excess cash flow (defined as cash in excess of $7.0 million at the end of the Company’s fiscal year) for the previous fiscal year end. Since the maturity date, the Company has continued to pay interest on a monthly basis in an amount consistent with the original terms of the secured debt.

The Company does not have access to a revolving line of credit. As of March 31, 2010, the Company had unrestricted cash and cash equivalents of approximately $19.8 million.

The Company’s principal cash requirements (other than the repayment of its matured secured debt) are for working capital, capital expenditures, leases, and interest payments on its debt. The Company must meet these on-going cash requirements with existing cash balances and net cash provided by operations.

While management’s cash flow projections and related operating plans indicate that the Company can adequately fund its operating activities and continue existing interest payments through existing cash and cash flow, cash flows from operations and available cash were not sufficient to repay the Company’s secured debt that matured on August 1, 2009. In light of the current general credit market conditions, if the proposed Reincorporation and the related transactions are not consummated, there can be no assurances that the Company will be able to deal successfully with the debt maturity issue on a timely basis or at all. As a result, the Company’s independent registered public accounting firm added an explanatory paragraph to their report on the Company’s consolidated financial statements for the quarter ended March 31, 2010 that noted these conditions indicated that the Company may be unable to continue as a going concern. Further Medicare reimbursement reductions could have a material adverse impact on the Company’s ability to meet its debt service requirements, required capital expenditures, or working capital requirements. If existing cash and cash flow are not sufficient, there can be no assurance the Company will be able to obtain additional funds from other sources on terms acceptable to the Company or at all.

The Company’s future cash flow will continue to be dependent upon the respective amounts of current assets (principally cash, accounts receivable and inventories) and current liabilities (principally accounts payable and accrued expenses). In that regard, accounts receivable can have a significant impact on the Company’s liquidity. The Company has various types of accounts receivable, such as receivables from patients, contracts, and former owners of acquired businesses. 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 in 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 $32.1 million and $29.4 million at March 31, 2010 and December 31, 2009, respectively. Average DSO was approximately 44 and 38 days at March 31, 2010 and December 31, 2009, respectively. The Company calculates DSO by dividing net patient accounts receivable by the average daily revenue for the previous 90 days (excluding dispositions and acquisitions), net of bad debt expense. The Company’s level of DSO and net patient receivables is affected by the extended time required to obtain necessary billing documentation.

The table below provides an aging of the Company’s gross patient accounts receivable as of March 31, 2010 and December 31, 2009.


										Greater than
(In thousands)	Total			0-90			91-180			180 days

March 31, 2010	$	36,634		$	33,148		$	3,259		$	227
Percent of total		100	%		90	%		9	%		1	%

December 31, 2009	$	33,646		$	30,242		$	2,967		$	437
Percent of total		100	%		90	%		9	%		1	%

The Company’s liquidity and capital resources have been, and likely will continue to be, materially adversely impacted by Medicare reimbursement reductions. See “Trends, Events, and Uncertainties — Reimbursement Changes and the Company’s Response.”

Net cash provided by operating activities was $4.5 million and $13.0 million for the three months ended March 31, 2010 and 2009. Payments made for additions to property and equipment, net were $5.3 million for the three months ended March 31, 2010 compared to $5.6 million for the same period in 2009. Additionally, the Company entered into $1.2 million of capital leases for equipment in the first quarter of 2009. Net cash used in financing activities was $3.0 million and $9.0 million for the three months ended March 31, 2010 and 2009, respectively. The cash used in financing activities for the quarter ended March 31, 2010 includes $1.8 million of principal payments on long-term debt and capital leases. The cash used in financing for the quarter ended March 31, 2009 includes $7.7 million of principal payments on long-term debt and capital leases.

Contractual Obligations and Commercial Commitments

The following is a tabular disclosure of all contractual obligations and commitments, including all off-balance sheet arrangements of the Company as of March 31, 2010:


	Twelve Months Ending March 31,										After March 31,
	Total		2011		2012		2013		2014		2014
Secured debt and capital leases	$	227,327,000	$	227,327,000	$	—	$	—	$	—	$	—
Interest on secured debt and capital leases*		5,631,000		5,631,000		—		—		—		—
Operating lease obligations		13,017,000		6,695,000		4,289,000		1,846,000		187,000		—

Total contractual cash obligations	$	245,975,000	$	239,653,000	$	4,289,000	$	1,846,000	$	187,000	$	—

The Secured Debt is comprised entirely of amounts owed to the Lenders that matured on August 1, 2009. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

Capital leases consist primarily of leases of office and computer equipment. Operating leases are noncancelable leases on certain vehicles and buildings.

At March 31, 2010 the Company had no off-balance sheet commitments or guarantees outstanding.


*		Interest on the Secured Debt in the table above includes interest obligations through August 10, 2010, which is the date the Restructuring Support Agreement may be terminated if the Reincorporation has not occurred.

ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company has not been subject to material interest rate sensitivity since the Company paid a fixed interest rate for its $226.4 million of Secured Debt that matured on August 1, 2009. Interest expense associated with other debt would not materially impact the Company as most interest rates are fixed. The Company does not own and is not a party to any material market risk sensitive instruments.

The Company has not experienced large increases in either the cost of supplies or operating expenses as a result of inflation. With reductions in reimbursement by government and private medical insurance programs and pressure to contain the costs of such programs, the Company bears the risk that reimbursement rates set by such programs will not keep pace with inflation.

ITEM 4T — CONTROLS AND PROCEDURES

The Company’s chief executive officer and chief financial officer have evaluated the effectiveness of the Company’s disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e), as of March 31, 2010. Based on such evaluation, such officers have concluded that, as of March 31, 2010, these disclosure controls and procedures were effective. There has been no change in the Company’s internal control over financial reporting during the quarter ended March 31, 2010 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
American HomePatient, Inc.:

We have reviewed the interim condensed consolidated balance sheet of American HomePatient, Inc. and subsidiaries (the Company) as of March 31, 2010, the related condensed consolidated statements of operations for the three-month periods ended March 31, 2010 and 2009, and the related condensed consolidated statements of cash flows for the three-month periods ended March 31, 2010 and 2009. These condensed consolidated financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the interim condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of American HomePatient, Inc. and subsidiaries as of December 31, 2009, and the related consolidated statements of operations, shareholders’ deficit and comprehensive loss, and cash flows for the year then ended (not presented herein); and in our report dated March 4, 2010, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2009, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Note 2 of the Company’s audited financial statements as of December 31, 2009, and for the year then ended disclosed that the Company had a net capital deficiency and had a net working capital deficiency resulting from $226.4 million of debt that matured on August 1, 2009. Our auditors’ report on those financial statements included an explanatory paragraph referring to the matters in note 2 of those financial statements and indicating that these matters raised substantial doubt about the Company’s ability to continue as a going concern. As indicated in note 3 of the Company’s unaudited interim condensed consolidated financial information as of March 31, 2010, and for the three months then ended, the Company has a net capital deficiency and a net working capital deficiency resulting from $226.4 million of debt that matured on August 1, 2009. As a result of the Restructuring Support Agreement entered into, the Company’s lenders agreed to forbear from exercising the rights and remedies available to them as a result of the Company’s failure to repay the outstanding principal balance until the consummation of the transactions contemplated under the Restructuring Support Agreement or the termination of the Restructuring Support Agreement. The accompanying interim financial information does not include any adjustments that might result from the outcome of this uncertainty.

/s/ KPMG LLP

Nashville, Tennessee
May 5, 2010

PART II. OTHER INFORMATION

ITEM 1A — RISK FACTORS

This section summarizes certain risks, among others, that should be considered by stockholders and prospective investors in the Company. Many of these risks are also discussed in other sections of this report.

The Company’s secured debt became due on August 1, 2009 and was not repaid.

The Company maintains a significant amount of debt. The Company has long-term debt of $226.4 million, as evidenced by a promissory note to the agent for the Company’s lenders (“Lenders”). This indebtedness is secured by substantially all of the assets of the Company and matured on August 1, 2009. The Company was not able to repay or refinance this debt at or prior to maturity. As a result, the Company must refinance the debt, extend the maturity, restructure or make other arrangements, some of which could have a material adverse effect on the value of the Company’s common stock. Furthermore, the Company’s independent registered public accounting firm added an explanatory paragraph to their report on the Company’s consolidated financial statements for the three months ended March 31, 2010 that noted these conditions indicated that the Company may be unable to continue as a going concern. Given the unfavorable conditions in the current debt market, the Company believes that third-party refinancing of the debt will not be possible at this time. If the proposed Reincorporation is not successful, there can be no assurance that any of the Company’s other efforts to address the debt maturity issue can be completed on favorable terms or at all. Other factors, such as uncertainty regarding the Company’s future profitability could also limit the Company’s ability to resolve the debt maturity issue. Subject to the limitations provided by the Restructuring Support Agreement (see “Note 4 — Subsequent Events”), the Company’s Lenders have the right to foreclose on substantially all assets of the Company, and this would have a material adverse effect on the Company’s liquidity, financial condition, and the value of the Company’s common stock. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Trends, Events and Uncertainties” and “Liquidity and Capital Resources.”

The Company’s failure to complete the proposed Reincorporation and related transactions could negatively affect the Company and its stockholders.

On April 27, 2010, the Company entered into a Restructuring Support Agreement with its Lenders and its largest shareholder, Highland Capital Management, L.P., with respect to restructuring the Company and the Company’s senior debt. See “Note 4 — Subsequent Events.” There is no assurance that the Reincorporation and the related transactions will be approved by the Company’s stockholders, and there is no assurance that the other conditions to the completion of the Reincorporation and the related transactions will be satisfied. In connection with the Reincorporation and the related transactions, the Company will be subject to several risks, including the following:

	•		the market price of the Company’s common stock may reflect a market assumption that the Reincorporation will occur, and a failure to complete the Reincorporation could result in a decline in the market price of the Company’s common stock;

	•		certain costs relating to the Reincorporation, such as legal, accounting and financial advisory fees, are payable by the Company whether or not the Reincorporation is completed;

	•		under certain circumstances, if the Reincorporation is not completed, the Company may be required to pay the Lenders a termination fee of up to $2.26 million;

	•		there may be substantial disruption to the Company’s business and a distraction of management and employees from day-to-day operations, because matters related to the Reincorporation may require substantial commitments of their time and resources;

	•		uncertainty about the effect of the Reincorporation may adversely affect the Company’s relationships with its employees, suppliers and other persons with whom the Company has business relationships; and

	•		there may be lawsuits filed against the Company relating to the Reincorporation.

Highland Capital Management, L.P. controls approximately 48% of the Company’s common stock and controls a majority of the Company’s $226.4 million secured debt, which may allow Highland to exert significant influence on the Company.

Highland Capital Management has beneficial ownership of 8,437,164 shares of Company common stock, which represents approximately 48% of the outstanding shares of the Company. Highland also controls a majority of the Company’s secured promissory notes that represent $226.4 million of secured debt. Highland could exert significant influence on all matters requiring stockholder approval, including the approval of the Reincorporation and the related transactions. Because of its control of the Company’s debt, Highland’s interests may be different than those of holders of common stock who are not also holders of debt.

Reductions in Medicare and Medicaid reimbursement rates, as well as reductions from other third party payors, are having a material adverse effect on the Company’s results of operations and financial condition, and future reductions could have further adverse effects.

On February 8, 2006, the Deficit Reduction Act of 2005 (“DRA”) was signed into law. The DRA has reduced the reimbursement of certain products provided by the Company and significantly reduced reimbursement related to oxygen beginning in 2009. On July 15, 2008, the Medicare Improvement for Patients and Providers Act of 2008 (the “MIPPA”) was enacted and has further reduced reimbursement for certain products. These reductions have had and will continue to have a material adverse effect on the Company’s revenues, net income, cash flows and capital resources. Enacted reimbursement cuts, as well as, pending and proposed reimbursement cuts may negatively affect the Company’s business and prospects. See

“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Trends, Events and Uncertainties — Reimbursement Changes and the Company’s Response.”

For the three months ended March 31, 2010, the percentage of the Company’s revenues derived from Medicare, Medicaid and all other payors was 52%, 8%, and 40%, respectively. The revenues and profitability of the Company may be impacted by the efforts of payors to contain or reduce the costs of health care by delaying payments, lowering reimbursement rates, narrowing the scope of covered services, increasing case management review of services, and negotiating reduced contract pricing. Reductions in reimbursement levels under Medicare, Medicaid or private pay programs and any changes in applicable government regulations could have a material adverse effect on the Company’s revenues and net income. Additional Medicare reimbursement reductions have been proposed that would have a substantial and material adverse effect on the Company’s revenues, net income, cash flows and capital resources. 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 revenues and profitability. There can be no assurance that the Company will continue to maintain its current payor mix, revenue mix, or reimbursement levels, a change in any of which could have a material adverse effect on the Company’s revenues, net income, cash flows and capital resources. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

The Company maintains substantial leverage.

As a result of the amount of debt, a substantial portion of the Company’s cash flow from operations has been dedicated to servicing debt. The substantial leverage could adversely affect the Company’s ability to grow its business or to withstand adverse economic conditions and reimbursement changes. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

The Company is subject to extensive government regulation, and the Company’s inability to comply with existing or future laws, regulations or standards could have a material adverse effect on the Company’s operations, financial condition, business, or prospects.

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 products and services in the health care industry. Changes in laws or regulations or new interpretations of existing laws or regulations can have a dramatic effect on operating methods, costs and reimbursement amounts provided by government and other third-party payors. There can be no assurance that the Company is in compliance with all applicable existing laws and regulations or that the Company will be able to comply with any new laws or regulations that may be enacted in the future. Changes in applicable laws, any failure by the Company to comply with existing or future laws, regulations or standards, or discovery of past regulatory noncompliance by the Company could have a material adverse effect on the Company’s operations, financial condition, business, or prospects.

Because of reimbursement reductions, the Company must continue to find ways to grow revenues and reduce expenses in order to generate earnings and cash flow.

The Company has implemented, and is currently implementing, a number of expense reduction initiatives in response to reimbursement reductions. Any future significant reimbursement cuts would require the Company to alter significantly its business model and cost structure, as well as the services it provides to patients, in order to avoid substantial losses. Measures undertaken to reduce expenses by improving efficiency can have an unintended negative impact on revenues, referrals, billing, collections and other aspects of the Company’s business, any of which can have a material adverse effect on the Company’s operations, financial condition, business, or prospects. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

The Company has substantial accounts receivable, and increased bad debt expense or delays in collecting accounts receivable could have a material adverse effect on the Company’s cash flows and results of operations.

The Company has substantial accounts receivable as evidenced by DSO of 44 days as of March 31, 2010. No assurances can be given that future bad debt expense will not increase above current operating levels as a result of difficulties associated with the Company’s billing activities and meeting payor documentation requirements and claim submission deadlines. Increased bad debt expense or delays in collecting accounts receivable could have a material adverse effect on cash flows and results of operations.

New healthcare legislation or other changes in the administration or interpretation of government health care programs or initiatives may have a material adverse effect on the Company.

The health care industry continues to undergo dramatic changes influenced in large part by federal legislative initiatives. It is likely new federal health care initiatives will continue to arise. The Medicare Prescription Drug and Improvement Act of 2003 and the Deficit Reduction Act of 2005 have had, and will continue to have, a material negative impact on the level of reimbursement. The Medicare Improvements for Patients and Providers Act of 2008 has had a material negative impact beginning in 2009. Potential reimbursement reductions associated with competitive bidding could adversely affect the Company’s future profitability. Additionally, from time to time other modifications to Medicare reimbursement have been discussed. There can be no assurance that these or other federal legislative and regulatory initiatives will not be adopted in the future. One or more of these initiatives could materially limit patient access to, or the Company’s reimbursement for, products and services provided by the Company. Also, many states have proposed decreases in Medicaid reimbursement. There can be no assurance that the adoption of such legislation or other changes in the administration or interpretation of government health care programs or initiatives will not have a material adverse effect on the Company. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Trends, Events, and Uncertainties — Reimbursement Changes and the Company’s Response.”

The Company depends on retaining and obtaining profitable managed care contracts, and the Company’s business may be materially adversely affected if it is unable to retain or obtain such managed care contracts.

As managed care plays a 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, by increasing retrospective payment audits, and by negotiating reduced contract pricing. Therefore, even if the Company is successful in retaining and obtaining managed care contracts, it could experience declining profitability if the Company does not also decrease its cost for providing services and/or increase higher margin services.

The Company’s common stock trades on the over-the-counter bulletin board, which reduces the liquidity of an investment in the Company.

Trading of the Company’s common stock under its current trading symbol, AHOM or AHOM.OB, is conducted on the over-the-counter bulletin board which may limit the Company’s ability to raise additional capital and the ability of shareholders to sell their shares.

Compliance with privacy regulations under HIPAA could result in significant costs to the Company and delays in its collection of accounts receivable.

HIPAA Administrative Simplification requires all entities engaged in certain electronic transactions to meet specific standards to ensure the confidentiality and security of individually identifiable health information. In addition, HIPAA mandates the standardization of various types of electronic transactions and the codes and identifiers used for these transactions. The Company has implemented these standards. However, there is always the potential that some state Medicaid programs that are not fully compliant with the electronic transaction standards could result in delays in collections of accounts receivables.

On February 17, 2009, the American Recovery and Reinvestment Act of 2009 was signed into law. This new legislation contains significant expansions of the HIPAA Privacy and Security Rules and numerous other changes that will affect the Company due to the major impact on health care information and technology.

The new provisions include: (1) heightened enforcement and increased penalties for covered entities; (2) extension of security provisions to business associates, vendors, and others; (3) new stringent security breach notification requirements; and, (4) patients’ rights to restrict access to protected health information.

Most of the provisions of the law took effect on February 17, 2010, one year after enactment, although increased penalty provisions went into effect immediately. Other provisions require implementing regulations and will take two years or longer to take effect. Any failure to comply with this new legislation could have a material adverse effect on the Company’s financial results and financial condition.

The Company is highly dependent upon its senior management.

The Company’s historical financial results, debt maturity issue, and reimbursement environment, among other factors, may limit the Company’s ability to attract and retain qualified personnel, which in turn could adversely affect profitability.

The market in which the Company operates is highly competitive, and if the Company is unable to compete successfully, its business will be materially adversely affected.

The home health care market is highly fragmented and competition varies significantly from market to market. Currently, there are relatively few barriers to entry, and the Company could encounter competition from new market entrants. In small and mid-size markets, the majority of the Company’s competition comes from local independent operators or hospital-based facilities. In 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.

The provision of healthcare services entails an inherent risk of liability, and the Company’s insurance may not be sufficient to effectively protect the Company from all claims.

The provision of healthcare services entails an inherent risk of liability. Certain participants in the home healthcare industry may be subject to lawsuits that 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 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 operations, financial condition or prospects of the Company. Claims against the Company, regardless of their merit or eventual outcome, may also have a material adverse effect upon the Company’s ability to attract patients or to expand its business. In addition, the Company maintains a large deductible for its workers’ compensation, auto liability, commercial general and professional liability insurance. The Company is self-insured for its employee health insurance and is at risk for claims up to individual stop loss and aggregate stop loss amounts.

ITEM 6 — EXHIBITS


EXHIBIT
NUMBER		DESCRIPTION OF EXHIBITS

3.1		Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement No. 33-42777 on Form S-1).

3.2		Certificate of Amendment to the Certificate of Incorporation of the Company dated October 31, 1991 (incorporated by reference to Exhibit 3.2 to Amendment No. 2 to the Company’s Registration Statement No. 33-42777 on Form S-1).

3.3		Certificate of Amendment to the Certificate of Incorporation of the Company Dated May 14, 1992 (incorporated by reference to the Company’s Registration Statement on Form S-8 dated February 16, 1993).

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

3.5		Certificate of Amendment to the Certificate of Incorporation of the Company dated June 8, 1996 (incorporated by reference to Exhibit 3.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004).

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

3.7		Amendment to the Bylaws of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated November 5, 2007).

10.1		Seventh Forbearance Agreement dated January 14, 2010, by American HomePatient, Inc., certain of its direct and indirect subsidiaries, and NexBank, SSB, as agent, and the forebearing holders as identified therein (attached).

10.2		Eighth Forbearance Agreement dated February 12, 2010, by American HomePatient, Inc., certain of its direct and indirect subsidiaries, and NexBank, SSB, as agent, and the forebearing holders as identified therein (attached).

10.3		Ninth Forbearance Agreement dated March 12, 2010, by American HomePatient, Inc., certain of its direct and indirect subsidiaries, and NexBank, SSB, as agent, and the forebearing holders as identified therein (attached).

10.4		Restructuring Support Agreement entered into by the Company, Highland Capital Management, L.P. and senior lenders dated April 27, 2010 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated April 28, 2010.

15.1		Awareness Letter of KPMG LLP.

31.1		Certification pursuant to Rule 13a-14(a)/15d-14(a) — Chief Executive Officer.


EXHIBIT
NUMBER		DESCRIPTION OF EXHIBITS

31.2		Certification pursuant to Rule 13a-14(a)/15d-14(a) — Chief Financial Officer.

32.1		Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 — Chief Executive Officer.

32.2		Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 — Chief Financial Officer.

SIGNATURES

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


	AMERICAN HOMEPATIENT, INC.
May 5, 2010	By:	/s/ Stephen L. Clanton
		Stephen L. Clanton
		Chief Financial Officer and An Officer Duly Authorized to Sign on Behalf of the registrant

AMERICAN HOMEPATIENT INC 10-Q