UNITED STATESTable of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

~~ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15~~(d)Mark ~~OF THE SECURITIES EXCHANGE ACT OF 1934~~One)

For the quarterly period ended June 30, 2005


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

For the quarterly period ended March 31, 2007
or

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

For the transition period from ________________ to ________________

Commission file number 0-19878

OROPTION CARE, INC.

¨(Exact ~~TRANSITION~~name ~~REPORT~~of ~~PURSUANT~~registrant TOas ~~SECTION~~specified 13in ORits ~~15(d~~charter) ~~OF THE SECURITIES EXCHANGE ACT OF 1934~~

For the transition period from to


Delaware (State or other jurisdiction of incorporation or organization)		36-3791193 (IRS Employer Identification No.)

485 Half Day Road, Suite 300 Buffalo Grove, Illinois (Address of principal executive offices)		60089 (Zip Code)

~~Commission~~(847) 465-2100 ~~file~~(Registrant’s telephone number, ~~0-19878~~including area code)

OPTION CARE, INC.
(Exact name of registrant as specified in its charter)
Delaware		36-3791193
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)
485 Half Day Road, Suite 300 Buffalo Grove, Illinois		60089
(Address of principal executive office)		(zip code)
(847) 465-2100
(Registrant’s telephone number, including area code)

Not applicable
(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or ~~(as~~a ~~defined~~non-accelerated infiler. ~~Exchange~~See ~~Act~~definition of “accelerated filer and large accelerated filer” in Rule 12b-2) of the Exchange Act. ~~Yes ý No~~ (Check one): Large accelerated filer o Accelerated filer þ Non-accelerated filer o

Indicate ~~the~~by ~~number~~check ofmark ~~shares~~whether ~~outstanding~~the ~~of each~~registrant ofis ~~the~~a ~~issuer’s~~shell ~~classes~~company of(as ~~common~~defined ~~stock,~~in asRule 12b-2 of the Exchange ~~latest~~Act). ~~practicable~~Yes o No þ ~~date.~~

Class		Issued and Outstanding as of August 1, 2005
Common Stock - $0.01 par value		32,480,036

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

INDEX


		Issued and Outstanding
Class		as of May 1, 2007
Common Stock — $0.01 par value		34,507,500

OPTION CARE, INC. AND SUBSIDIARIES

DESCRIPTION
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed consolidated balance sheets—June 30, 2005 and December 31, 2004
	Condensed consolidated statements of income—Three and six months ended June 30, 2005 and 2004
	Condensed consolidated statements of cash flows—Six months ended June 30, 2005 and 2004
	Notes to condensed consolidated financial statements—June 30, 2005
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures about Market Risk
Item 4.	Controls and Procedures
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.	Defaults Upon Senior Securities
Item 4.	Submission of Matters to a Vote of Security Holders
Item 5.	Other Information
Item 6.	Exhibits
SIGNATURES

INDEX


DESCRIPTION
PART I		FINANCIAL INFORMATION
Item 1.		Financial Statements (Unaudited)
		Condensed consolidated balance sheets—March 31, 2007 and December 31, 2006
		Condensed consolidated statements of income—Three months ended March 31, 2007 and 2006
		Condensed consolidated statements of cash flows—Three months ended March 31, 2007 and 2006
		Notes to condensed consolidated financial statements—March 31, 2007
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.		Quantitative and Qualitative Disclosures about Market Risk
Item 4.		Controls and Procedures
PART II		OTHER INFORMATION
Item 1.		Legal Proceedings
Item 1A.		Risk Factors
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.		Defaults Upon Senior Securities
Item 4.		Submission of Matters to a Vote of Security Holders
Item 5.		Other Information
Item 6.		Exhibits
SIGNATURES
2001 Employee Stock Purchase Plan
302 Certification of Chief Executive Officer
302 Certification of Sr. VP and Chief Financial Officer
Section 1350 Certifications

~~PART I. FINANCIAL~~2 ~~INFORMATION~~

ItemTable 1.of Financial StatementsContents

~~Option Care, Inc~~PART I. ~~and~~FINANCIAL ~~Subsidiaries~~INFORMATION

~~Condensed~~Item 1. ~~Consolidated~~Financial ~~Balance Sheets~~Statements

Option Care, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (in thousands, except per share amounts)

	June 30, 2005		December 31, 2004
	March 31, 2007			December 31, 2006
	(Unaudited)		~~(Note 1)~~
Assets
Current assets:
Cash and cash equivalents	$	8,860	$	19,816
Cash and cash equivalents, unrestricted	$	7,542		$	3,171
Short-term investments	71,598		75,370
Cash, restricted		—			7,554
Accounts receivable, net	72,575		69,930
Short-term investments		9,500			5,700
Inventory	12,615		13,191
Trade accounts receivable, net		130,611			122,503
Deferred income tax benefit	2,938		3,098
Inventory		19,880			23,096
Other current assets	8,259		5,459
Deferred income tax benefit		5,621			3,883
Total current assets	176,845		186,864
Other current assets		10,161			10,421
Equipment and other fixed assets, net	16,267		13,709
Total current assets		183,315			176,328
Goodwill, net	85,289		65,356
Equipment and other fixed assets, net		25,722			24,398
Other assets	4,973		3,918
Goodwill, net		195,963			165,323
Total assets	$	283,374	$	269,847
Other assets, net		10,315			10,336
Liabilities and stockholders’ equity
Total assets	$	415,315		$	376,385
Current liabilities:
Liabilities and stockholders’ equity
Trade accounts payable	$	16,786	$	21,819
Current liabilities:
Current portion of long-term debt	47		19
Trade accounts payable	$	42,999		$	43,601
Other current liabilities	7,427		6,573
Accrued wages and related employee benefits		6,892			6,899
Total current liabilities	24,260		28,411
Deferred purchase price liability		30,988			2,892
Long-term debt, less current portion	86,335		86,306
Current portion of long-term debt		13			23
Deferred income tax liability	8,066		7,468
Other current liabilities		7,065			5,818
Other liabilities	582		551
Total current liabilities		87,957			59,233
Minority interest	597		548
Long-term debt, less current portion		86,351			86,372
Total liabilities	119,840		123,284
Deferred income tax liability		10,211			9,377
Stockholders’ equity:
Other liabilities		1,302			1,214
Common stock, $.01 par value per share, 60,000 shares authorized, 32,464 and 32,183 shares issued and outstanding at June 30, 2005 and December 31, 2004, respectively	325		322
Minority interest		851			826
Common stock to be issued, 189 and 114 shares at June 30, 2005 and December 31, 2004, respectively	2,140		1,085
Total liabilities		186,672			157,022
Additional paid-in capital	109,840		108,062
Stockholders’ equity:
Retained earnings	51,229		41,612
Common stock, $.01 par value per share, 60,000 shares authorized, 34,495 and 34,466 shares issued and outstanding at March 31, 2007 and December 31, 2006, respectively		345			345
Less treasury stock, at cost, 474 shares at December 31, 2004	—		(4,518		)
Common stock to be issued, 176 and 139 shares at March 31, 2007 and December 31, 2006, respectively		2,014			1,550
Total stockholders’ equity	163,534		146,563
Additional paid-in capital		149,127			148,108
Total liabilities and stockholders’ equity	$	283,374	$	269,847
Retained earnings		77,157			69,360
Total stockholders’ equity		228,643			219,363
Total liabilities and stockholders’ equity	$	415,315		$	376,385

See notes to condensed consolidated financial statements

Option Care, Inc.Table andof SubsidiariesContents

Option Care, Inc. and Subsidiaries Condensed Consolidated Statements of Income (Unaudited) (in thousands, except per share amounts)

(Unaudited)


	Three months ended March 31,
	2007			2006
Revenue:				(Revised-Note 8)
Home infusion and related healthcare services	$	64,439		$	57,116
Specialty infusion pharmacy services		83,085			53,211
Specialty distribution pharmacy services		63,581			42,588
Other		1,836			2,076

Total revenue		212,941			154,991
Cost of revenue:
Cost of goods sold		144,403			98,167
Cost of services provided		18,987			16,028

Total cost of revenue		163,390			114,195

Gross profit		49,551			40,796
Selling, general and administrative expenses		32,287			28,417
Provision for doubtful accounts		4,389			3,462
Depreciation and amortization		1,266			1,144

Total operating expenses		37,942			33,023
Operating income		11,609			7,773
Interest income (expense), net		(234	)		8
Other expense, net		(146	)		(62	)

Income before income taxes		11,229			7,719
Income tax provision		4,484			2,542

Net income from continuing operations	$	6,745		$	5,177
Discontinued operations:
Income (loss) on discontinued operations, net of income taxes		21			(387	)

Net income	$	6,766		$	4,790

Net income per basic share:
Continuing operations	$	0.20		$	0.16
Discontinued operations		—			(0.01	)

Total	$	0.20		$	0.15
Net income per diluted share:
Continuing operations	$	0.19		$	0.15
Discontinued operations		—			(0.01	)

Total	$	0.19		$	0.14
Shares used in computing net income per share:
Basic		34,640			33,163
Diluted		36,155			35,091
Cash dividends per share	$	0.02		$	0.02

~~(in~~See ~~thousands,~~notes ~~except~~to ~~per~~condensed ~~share~~consolidated financial statements ~~amounts)~~

	Three months ended June 30,					Six months ended June 30,
	2005		2004			2005		2004
Revenue:
Specialty pharmacy services	$	67,600	$	58,407		$	142,497	$	123,339
Infusion and related healthcare services	47,690		37,450			90,538		72,396
Other	4,201		2,794			7,211		6,065
Total revenue	119,491		98,651			240,246		201,800
Cost of revenue:
Cost of goods sold	71,750		58,997			147,442		122,805
Cost of services provided	12,781		10,616			24,581		21,260
Total cost of revenue	84,531		69,613			172,023		144,065
Gross profit	34,960		29,038			68,223		57,735
Selling, general and administrative expenses	23,509		19,200			45,050		38,449
Provision for doubtful accounts	2,153		1,462			4,479		3,021
Depreciation and amortization	849		569			1,753		1,250
Total operating expenses	26,511		21,231			51,282		42,720
Operating income	8,449		7,807			16,941		15,015
Interest income	194		34			150		35
Other income (expense), net	100		(12		)	53		(79		)
Income before income taxes	8,743		7,829			17,144		14,971
Income tax provision	3,334		3,128			6,450		5,985
Net income	$	5,409	$	4,701		$	10,694	$	8,986
Net income per common share:
Basic	$	0.17	$	0.15		$	0.33	$	0.28
Diluted	$	0.16	$	0.14		$	0.32	$	0.28
Shares used in computing net income per share:
Basic	32,559		31,923			32,332		31,782
Diluted	34,519		32,613			33,930		32,466
Cash dividends per share	$	0.0200	$	0.0133		$	0.0333	$	0.0133

SeeTable notesof to condensed consolidated financial statementsContents

4Option Care, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) (in thousands)

Option Care, Inc. and Subsidiaries


	Three Months Ended
	March 31,
	2007			2006
Cash flows from operating activities:
Net income	$	6,766		$	4,790
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		2,166			1,879
Provision for doubtful accounts		4,428			3,542
Income (loss) from equity investees		119			(33	)
Non-cash stock compensation expense		578			89
Deferred income taxes		(904	)		(154	)
Changes in assets and liabilities:
Accounts and notes receivable		(12,350	)		(11,453	)
Inventory		3,144			(1,358	)
Accounts payable		(588	)		(8	)
Income taxes payable		4,328			2,012
Change in other assets and liabilities		(1,718	)		2,543

Net cash provided by operating activities		5,969			1,849
Cash flows from investing activities:
Purchases of short-term investments		(4,000	)		(4,000	)
Sales of short-term investments		200			30,792
Purchases of equipment and other, net		(3,236	)		(3,416	)
Payments for acquisitions, net of cash acquired		(2,299	)		(21,246	)

Net cash provided by (used in) investing activities		(9,335	)		2,130
Cash flows from financing activities:
Income tax benefit from exercise of stock options		52			282
Decrease in restricted cash		7,554			1,000
Payments on capital leases and other debt		(29	)		(12	)
Proceeds from issuance of stock		853			1,207
Payments of dividends to common stockholders		(693	)		(661	)

Net cash provided by financing activities		7,737			1,816

Net increase in cash and cash equivalents		4,371			5,795
Cash and cash equivalents, beginning of period		3,171			6,816

Cash and cash equivalents, end of period	$	7,542		$	12,611

~~Condensed~~See ~~Consolidated~~notes ~~Statements~~to ofcondensed ~~Cash~~consolidated ~~Flows~~financial statements

~~(Unaudited)~~5

(inTable thousands)of Contents

	Six Months Ended June 30,
	2005			2004
Cash flows from operating activities:
Net income	$	10,694		$	8,986
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	3,022			2,494
Provision for doubtful accounts	4,479			3,021
Deferred income taxes	663			1,473
Income tax benefit from exercise of stock options	1,388			1,148
Changes in assets and liabilities:
Accounts and notes receivable	(3,066		)	(1,205		)
Inventory	1,546			2,495
Accounts payable	(5,693		)	(3,685		)
Income taxes receivable/payable	1,639			715
Change in other assets and liabilities	(2,715		)	(3,582		)
Net cash provided by operating activities	11,957			11,860
Cash flows from investing activities:
Purchases of short-term investments	(135,288		)	—
Sales of short-term investments	139,060			—
Purchases of equipment and other, net	(4,158		)	(2,588		)
Payments for acquisitions, net of cash acquired	(25,742		)	(1,090		)
Net cash used in investing activities	(26,128		)	(3,678		)
Cash flows from financing activities:
Increase in financing costs	(161		)	—
Payments on capital leases and other debt	(13		)	(387		)
Proceeds from issuance of stock	4,466			2,403
Payments of cash dividends to common shareholders	(1,077		)	(428		)
Payments for purchase of treasury stock	—			(944		)
Net cash provided by financing activities	3,215			644
Net increase (decrease) in cash and cash equivalents	(10,956		)	8,826
Cash and cash equivalents, beginning of period	19,816			3,961
Cash and cash equivalents, end of period	$	8,860		$	12,787

Option Care, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 2007
(Unaudited)

~~See~~1. ~~notes~~Basis toof ~~condensed consolidated financial~~Presentation ~~statements~~

5The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007.

~~Option Care,~~The balance sheet at December ~~Inc~~31, 2006 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. For further information, refer to the consolidated financial statements and ~~Subsidiaries~~footnotes thereto included in Option Care’s Annual Report on Form 10-K for the year ended December 31, 2006.

~~Notes~~2. toLong-Term ~~Condensed Consolidated Financial Statements~~Debt

~~June~~Our long-term debt consists principally of $86.3 30million of 2.25% convertible senior notes, due 2024. On November 2, 2004, we completed the offering of $75 million of these notes through a private placement to qualified institutional buyers. The initial purchasers were granted the option to purchase up to an additional $11.25 million principal amount of notes and exercised this option in full on November 9, 2004. We filed a Registration Statement on Form S-3 on January 24, 2005, as subsequently amended, to register the notes under the Securities Act of 1933.

The notes are convertible into cash and, if applicable, shares of our common stock based on an initial conversion rate, subject to adjustment, of 55.5278 shares per $1,000 principal amount of notes (~~Unaudited~~which represents an initial conversion price of $18.01 per share), in certain circumstances. Pursuant to the terms of the notes, the conversion rate and conversion price were subsequently adjusted to 83.6351 and $11.96 per share, respectively, as a result of our 3-for-2 common stock split on March 31, 2005 and $0.02 per share dividends paid in each of the last three quarters of 2005 and each quarter thereafter. Holders may convert their notes into cash and, if applicable, shares of our common stock prior to the stated maturity only under the following circumstances: (1) during any calendar quarter after the calendar quarter ended December 31, 2004, if the closing sale price of our common stock for each of 20 or more consecutive trading days in a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter exceeds 120% of the conversion price in effect on the last trading day of the immediately preceding calendar quarter; (2) during the five business day period after any five consecutive trading day period (the “note measurement period”) in which the average trading price per $1,000 principal amount of notes was equal to or less than 97% of the average conversion value of the notes during the note measurement period; (3) upon the occurrence of specified corporate transactions; or (4) if we have called the notes for redemption. In general, upon conversion, the holder of each note will receive the conversion value of the note payable in cash, up to the principal amount of the note, and common stock for the note’s conversion value in excess of such principal amount (plus an additional cash payout in lieu of fractional shares). If the notes are surrendered for conversion in connection with certain fundamental changes that occur before November 1, 2009, holders will in certain circumstances also receive a make-whole premium in addition to the cash and shares to which holders are otherwise entitled to receive upon conversion. The convertible senior notes will mature on November 1, 2024 and will not be redeemable by us prior to November 1, 2009. Holders of the convertible notes may require us to repurchase all or a portion of the convertible notes for cash on November 1, 2009, November 1, 2014 and November 1, 2019. Interest will be paid at 2.25% per annum, payable semi-annually in arrears on May 1 and November 1 of each year to the holders of record at the close of business on the preceding April 15 and October 15, respectively. The notes are senior unsecured obligations and rank equally with all of our existing and future senior unsecured indebtedness. None of the required conditions for potential conversion of the notes by the holders occurred during the first quarter of 2007. The holders of the notes possess no stockholder rights, such as dividend or voting rights, unless and until they convert their notes into cash and shares of our common stock.

In May 2006, we signed a five-year, $35 million revolving Credit Agreement with LaSalle Bank National Association (the “Agreement”). The initial revolving loan commitment under the Agreement is $35 million. Provided there is no event of default, we have the option to increase the revolving loan commitment to a maximum of $100 million during the first two years of the Agreement. We will pay interest on borrowings at rates ranging from prime plus zero or LIBOR plus 1. 00% to a ~~Basis~~maximum of ~~Presentation~~prime plus 0.25% or LIBOR plus 1.75% based on our total debt to EBITDA ratio for the applicable period. We will also pay a non-use fee ranging from 0.15% to 0.225% of the unused portion of the revolving loan commitment. The interest rates and non-use fee rates payable are based on our total debt to EBITDA Ratio, as defined in the Agreement, for the applicable period. We must maintain compliance with various financial and other covenants throughout the life of the Agreement. Borrowings under the Agreement are

~~The accompanying unaudited condensed consolidated financial statements~~6 have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.

TheTable balance sheet at December 31, 2004 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.Contents

Wecollateralized ~~completed~~by substantially aall ~~3-for-2~~our ~~split~~assets. ofWe ~~our~~may ~~common~~use ~~stock~~up onto ~~March~~$2.5 ~~31,~~million ~~2005 for~~of ~~shareholders~~our ofavailable ~~record~~credit asto secure letters of ~~March 17~~credit, ~~2005~~as needed. ~~All~~ ~~share~~We ~~and~~incurred ~~per~~fees ~~share~~of ~~amounts~~approximately in$167,000 ~~this Quarterly~~related ~~Report~~to onnegotiating this ~~Form 10-Q~~Agreement. We have ~~been~~not ~~adjusted~~borrowed tounder ~~reflect~~ the ~~pro~~Agreement ~~forma~~from inception through March 31, 2007 and ~~effects~~we ofare ~~this~~in ~~stock~~full ~~split~~compliance with all covenants.

~~For~~3. ~~further~~Earnings ~~information,~~Per ~~refer~~Share ~~to the consolidated financial statements~~Data ~~and footnotes thereto included in Option Care’s Annual Report on Form 10-K for the year ended December 31, 2004.~~

~~2. Long-Term~~The ~~Debt~~following table sets forth the computation of basic and diluted earnings per share for the periods indicated (in thousands, except per share amounts):

On November 2, 2004, we completed a $75 million offering of 2.25% convertible senior notes due 2024 in a private placement to qualified institutional buyers. The initial purchasers were granted the option to purchase up to an additional $11.3 million principal amount of notes and exercised this option in full on November 9, 2004. We filed a Registration Statement on Form S-3 with the Securities and Exchange Commission on January 24, 2005 registering the notes and the common stock issuable upon conversion of the notes for resale to the public.


	Three months ended March 31,
	2007		2006
			(Restated)
Basic:
Net income from continuing operations	$	6,745	$	5,177
Net income (loss) from discontinued operations		21		(387	)

Net income	$	6,766	$	4,790

Average shares outstanding		34,640		33,163
Basic earnings from continuing operations per share	$	0.20	$	0.16
Basic income (loss) from discontinued operations per share		—		(0.01	)

Basic earnings per share	$	0.20	$	0.15

Diluted:
Net income from continuing operations	$	6,745	$	5,177
Net income (loss) from discontinued operations		21		(387	)

Net income	$	6,766	$	4,790

Average shares outstanding		34,640		33,163
Net effect of dilutive stock options — based on the treasury stock method		784		1,034
Net effect of dilutive contingently convertible debt (1)		731		894

Total diluted shares		36,155		35,091

Diluted earnings from continuing operations per share	$	0.19	$	0.15
Diluted loss from discontinued operations per share		—		(0.01	)

Diluted earnings per share	$	0.19	$	0.14

The convertible notes are senior unsecured obligations of Option Care and will be convertible into cash and, if applicable, shares of our common stock based on an initial conversion rate of 55.5278 shares per $1,000 principal amount of notes, which represents an initial conversion price of $18.01 per share, subject to adjustment in certain circumstances. The conversion rate and conversion price were subsequently adjusted to 83.3338 and $12.00 per share, respectively, pursuant to the terms of the notes as a result of our 3-for-2 common stock split on March 31, 2005 and $0.02 per share dividend paid on June 10, 2005. Note holders may convert their notes into cash and, if applicable, shares of our common stock prior to the stated maturity only under the following circumstances: (1) ~~during~~ ~~any~~Weighted calendar quarter beginning after December 31, 2004, if the closing sale price of our common stock for each of 20 or more consecutive trading days in a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter exceeds 120% of the conversion price in effect on the last trading day of the immediately preceding calendar quarter; (2) during the five business day period after any five consecutive trading day period in which the average trading price per $1,000 principal amount of notes was equal to or less than 97% of the average conversion value of the notes during the note measurement period; (3) upon the occurrence of specified corporate transactions; or (4) if we have called the notes for redemption. In general, upon conversion, the holder of each note will receive the conversion value of the note payable in cash, up to the principal amount of the note, and common stock for the notes’ conversion value in excess of such principal amount (plus an additional cash payout in lieu of fractional shares~~). If~~ ~~the~~issuable notes are surrendered for conversion in connection with certain fundamental changes that occur before November 1, 2009, holders will in certain circumstances also receive a make-whole premium in addition to the cash and shares that holders are otherwise entitled to receive upon conversion~~. The~~ ~~convertible senior notes will mature on November 1, 2024 and will not be redeemable by us prior to November 1, 2009. Holders~~ of ~~the convertible notes may require us to repurchase~~ all or$86.3 amillion ~~portion~~ of ~~the~~our ~~convertible notes for cash on November 1, 2009, 2014 and 2019. Interest will be paid at~~ 2.25% ~~per~~convertible ~~annum,~~senior ~~payable semi-annually in arrears on May 1 and November 1 of each year to the holders of record at the close of business on the preceding April 15 and October 15, respectively. The~~ notes ~~are~~due ~~senior unsecured obligations and will rank equally with all of our existing and future senior unsecured indebtedness~~2024.

64. Operating Segments

3. We report our results of operations from one identifiable segment, with four service lines: home ~~Earnings~~infusion ~~Per~~and ~~Share~~related ~~Data~~healthcare services, specialty infusion pharmacy services, specialty distribution pharmacy services, and other.

~~The~~Home ~~following~~infusion ~~table~~and ~~sets~~related ~~forth~~healthcare services primarily involve the ~~computation~~intravenous administration of medications ~~basic~~treating a wide range of acute and ~~diluted~~chronic health conditions such as infections, ~~earnings~~nutritional ~~per~~deficiencies ~~share~~and ~~for~~cancer. ~~the~~These ~~periods~~services ~~indicated~~offer health plans a proven, reliable and cost effective alternative to intravenous administration of medications within a hospital setting or physician office. These services are primarily provided in the patient’s home, but may also be ~~All~~provided ~~share~~at one of the Company’s ambulatory treatment centers and ~~per~~involve ~~share~~intensive ~~amounts~~clinical coordination ~~reflect~~between our pharmacy and nursing staff, the ~~3-for-2~~patient, ~~stock~~the ~~split effective~~prescribing ~~March 31~~physician, ~~2005~~and payor ~~for~~case ~~shareholders~~managers. All of ~~record~~our oncompany-owned ~~March 17,~~home infusion pharmacies provide infusion pharmacy ~~2005~~services. ~~(in~~Several ~~thousands~~of our company-owned pharmacies also provide home health nursing services, respiratory ~~except~~therapy ~~per~~services ~~share~~and ~~amounts):~~home medical equipment sales and rentals. We also have one location that provides home hospice services.

	Three months ended June 30,				Six months ended June 30,
	2005		2004		2005		2004
Basic:
Net income	$	5,409	$	4,701	$	10,694	$	8,986
Average shares outstanding	32,559		31,923		32,332		31,782
Basic earnings per share	$	0.17	$	0.15	$	0.33	$	0.28
Diluted:
Net income	$	5,409	$	4,701	$	10,694	$	8,986
Average shares outstanding	32,559		31,923		32,332		31,782
Net effect of dilutive stock options – Based on the treasury stock method	1,025		690		1,023		684
Net effect of dilutive contingently convertible debt (1)	935		¾		575		¾
Total diluted shares	34,519		32,613		33,930		32,466
Diluted earnings per share	$	0.16	$	0.14	$	0.32	$	0.28

Specialty pharmacy services, which include specialty infusion pharmacy services and specialty distribution pharmacy services, involve the distribution of high cost pharmaceuticals, as well as related support services, to treat a wide range of chronic

~~(1) Weighted~~7 ~~average shares issuable upon conversion of all $86.3 million of our 2.25% convertible senior notes due 2024.~~

4. OperatingTable Segmentsof Contents

Wehealth conditions. ~~have~~These ~~one~~services ~~identifiable~~provide ~~business~~patients ~~segment~~with a comprehensive program to effectively manage their illness, provide payors with ~~three~~a ~~service~~cost ~~lines:~~effective solution to manage fast growing and very expensive therapies, and provide drug manufacturers with improved drug utilization and patient compliance. We are the leading integrated provider of nationwide delivery of specialty distribution pharmacy services; and locally delivered specialty infusion pharmacy services. Our operations provide the necessary national and ~~related~~local ~~healthcare~~capabilities ~~services;~~to manage the entire spectrum of “low-touch” to “high touch” specialty pharmacy medications including orals, injectables, and infused products. ~~other~~We purchase specialty pharmaceuticals from manufacturers and wholesale distributors, fill prescriptions provided by physicians, and label, package and deliver the pharmaceuticals to patients’ homes or physicians’ offices, either ourselves or through contract couriers. These pharmaceuticals may require refrigeration during shipping as well as special handling to prevent potency degradation.

• Specialty infusion pharmacy services ~~involve~~are ~~the distribution~~those ofspecialty ~~injectible and infused~~ pharmaceuticals tothat ~~treat~~are adelivered ~~wide range of~~through ~~chronic~~our ~~health~~local ~~conditions~~pharmacies. ~~The~~ ~~pharmaceuticals~~These ~~can~~therapies bemay ~~directly distributed~~require administration to the patient’s ~~home~~at orthe ~~to their physician~~patient’s ~~office for in-office~~ ~~administration. These~~home ~~pharmaceuticals~~or ~~may~~at ~~require~~one ~~refrigeration~~of ~~during shipping~~our asambulatory ~~well~~infusion ~~as special handling to prevent potency degradation~~centers. Patients receiving treatment ~~usually~~are ~~require~~often provided special counseling and education regarding their condition and treatment program as well as on-going compliance support.

~~• Infusion~~Specialty ~~and~~distribution ~~related~~pharmacy ~~healthcare~~ services ~~primarily~~ ~~involve~~are ~~the~~designed ~~intravenous~~to ~~administration~~provide ofcost ~~medications~~effective atpharmaceutical distribution and support services for the ~~patient’s home~~management orof ~~other~~high ~~non-hospital~~cost ~~sites~~injectible ~~such~~and asoral ~~one~~therapies treating ofmany ~~our~~chronic ~~infusion~~health ~~suites~~conditions. ~~Infusion~~ ~~pharmacy~~The ~~services~~Company’s ~~treat~~specialty adistribution ~~wide~~pharmacy ~~range~~facilities provide ofa ~~acute~~centralized ~~and~~source ~~chronic~~for ~~health conditions~~patient intake, ~~including~~customer ~~infections~~service, ~~dehydration,~~pharmaceutical ~~cancer~~management and distribution, ~~pain~~and compliance and ~~nutritional deficiencies~~reimbursement support. ~~All~~ ofThe ~~our~~operations ~~company-owned~~are ~~pharmacies~~designed ~~provide~~to ~~infusion~~maximize ~~pharmacy~~throughput ~~services. Some~~through ofthe ~~these~~effective ~~pharmacies~~utilization ~~also~~of ~~provide~~automation, ~~related healthcare~~call ~~services~~center technology, ~~such~~and asa ~~home~~dedicated information ~~health~~technology ~~nursing,~~platform ~~home~~customized ~~hospice~~for ~~services, respiratory~~the ~~therapy~~operating ~~services~~requirements ~~and~~of ~~durable~~the ~~medical equipment~~specialty marketplace.

• Other revenue primarily consists of royalties and other fees generated from our franchised pharmacy ~~network and the software~~ ~~licensing and support revenue generated by our subsidiary, Management by Information, Inc~~network. ~~(“MBI”).~~

5. Significant Customers and Concentration of Credit Risk

We generate the majority of our revenue from managed care contracts and other agreements with commercial third party payors by ~~providing~~our provision of health care services to their members. ~~Our~~ ~~principal~~We have multiple managed care ~~contract~~contracts is with Blue Cross and Blue Shield of Florida and Blue Cross and Blue Shield of Michigan, to whose members we provide infusion pharmacy services and specialty pharmacy services. The most significant Blue Cross and Blue Shield of Florida contract ~~may~~is befor ~~terminated~~specialty distribution pharmacy services and is terminable by either party on 90 days’ notice. ~~and~~Unless terminated, ~~unless~~this ~~terminated,~~contract automatically renews ~~annually~~ each September for an additional one-year term. We signed and fully implemented a specialty distribution pharmacy services contract with Blue Cross and Blue Shield of Michigan (“BCBSM”) and Blue Care Network (“BCN”), during 2006, to be the exclusive supplier of specialty pharmacy drugs and services to their members. The Agreement shall remain in force for an initial term ending September 30, 2009, with an automatic one year renewal unless written notice of termination is given by BCBSM or BCN. We also generate revenue from government healthcare programs such as Medicare and Medicaid.

7The following table sets forth information regarding revenue and accounts receivable related to our most significant payors as of the dates and for the periods presented:

The following table sets forth information regarding revenue and accounts receivable related to our most significant payors as of the dates and for the periods presented:


	Revenue						Accounts Receivable
	Three months ended March 31,						March 31,			December 31,
	2007			2006			2007			2006
Blue Cross and Blue Shield of Florida		11	%		13	%		10	%		9	%
Blue Cross and Blue Shield of Michigan		10	%		—			3	%		4	%
Medicaid		17	%		12	%		10	%		10	%
Medicare		8	%		8	%		9	%		9	%
All other payors (1)		54	%		67	%		68	%		68	%

Total		100	%		100	%		100	%		100	%

	Revenue
	Three months ended June 30,				Six months ended June 30,				Accounts Receivable
									June 30,		December 31,
	2005		2004		2005		2004		2005		2004
Blue Cross and Blue Shield of Florida	14	%	16	%	14	%	15	%	9	%	7	%
Medicare & Medicaid	17	%	20	%	17	%	20	%	20	%	18	%
All other payors (1)	69	%	64	%	69	%	65	%	71	%	75	%
Total	100	%	100	%	100	%	100	%	100	%	100	%

(1)

No other payor represents 10% or more of revenue or accounts receivable as of the dates and for the periods presented.

~~(1) No~~_________ ~~other payor represents 10% or more of revenue or accounts receivable as of the dates and for the periods presented.~~

~~6. Seasonal~~8 ~~Revenue Trends~~

Synagis®,Table one of the specialty pharmaceuticals that we provide to patients, is seasonal. Synagis® is a drug used for the prevention of respiratory synctial virus (RSV) in high-risk pediatric patients. RSV infection is a seasonal condition, with the season generally lasting from October through April.Contents

~~Option~~6. ~~Care’s~~Seasonal ~~quarterly~~Revenue ~~Synagis® revenue for the year 2004 and the~~Trends ~~first two quarters of 2005 was as follows (amounts in thousands):~~

	Synagis® revenue		% of Total Revenue
Quarter ended March 31, 2004	$	14,251	13.8	%
Quarter ended June 30, 2004	3,955		4.0	%
Quarter ended September 30, 2004	571		0.6	%
Quarter ended December 31, 2004	9,455		8.4	%
Fiscal year 2004	$	28,232	6.8	%
Quarter ended March 31, 2005	$	15,536	12.9	%
Quarter ended June 30, 2005	$	4,492	3.8	%

Synagis^®, one of the specialty pharmaceuticals that we provide to patients, is seasonal. Synagis^® is a drug used for the prevention of respiratory syncytial virus (RSV) in high-risk pediatric patients. RSV infection is a seasonal condition, with the season generally lasting from October through April.

~~7. Acquisitions~~Option Care’s quarterly Synagis® revenue for the year 2006 and the first quarter of 2007 was as follows (in thousands):

During the quarter ended June 30, 2005, we completed three acquisitions of home infusion pharmacy businesses. Two of the acquired businesses were current or former Option Care franchises, while the third was an independent, non-affiliated home infusion provider. On April 8, 2005, we acquired the assets of our franchisee serving Indianapolis, Indiana and surrounding areas. Effective May 1, 2005, we acquired the outstanding stock of an independent home infusion pharmacy business operating in Montana. As of June 1, 2005, we acquired the outstanding stock of our former franchisee in Bakersfield, California. These acquisitions continued our objective of expanding our overall national presence of company-owned home infusion pharmacies. We have consolidated the results of operations of these businesses as of the effective dates of the acquisitions. We used $18.7 million in cash upon closing these transactions and will also issue 48,315 shares of our common stock, valued at a market price of $13.31 per share, in an unregistered offering. Each acquisition contains a provision for payment of additional consideration in future periods if various performance measures are achieved. We anticipate that any such additional consideration would be recorded as goodwill. From the initial purchase payments, we recorded $12.9 million in goodwill from these transactions and expect the entire amount to be deductible for income tax purposes.


	Synagis^®		% of Total
	revenue		Revenue (1)
Quarter ended March 31, 2006	$	27,102		17.5	%
Quarter ended June 30, 2006		8,327		5.3	%
Quarter ended September 30, 2006		1,780		1.2	%
Quarter ended December 31, 2006		25,676		13.2	%

Fiscal year 2006	$	62,885		9.5	%

Quarter ended March 31, 2007	$	40,180		18.9	%

~~The~~(1) ~~following~~Percent ~~table sets forth the allocation~~ of ~~purchase~~total ~~price,~~revenue ~~in aggregate, for the three acquisitions we completed in the quarter ended June 30, 2005. For certain of our acquisitions, the allocation of purchase price~~ is ~~tentative~~calculated ~~and subject to adjustment~~ based on ~~final~~total ~~valuation~~revenue offrom ~~the~~continuing ~~acquired assets (amounts in thousands):~~operations.

8_________

Purchase Price:
Paid in cash at closing	$	18,643
Payable in shares of Option Care common stock	643
Liabilities assumed	310
Total purchase price	$	19,596
Allocation of Purchase Price:
Accounts receivable	$	5,114
Inventory	736
Other tangible assets	625
Goodwill	12,901
Other intangible assets	220
Total purchase price	$	19,596

7. Acquisitions

InDuring ~~addition to our new acquisitions, during~~ the three ~~six~~ months ended ~~June~~March 3031, ~~2005,~~ we2007 ~~recorded $500,000 in goodwill equal to the additional cash consideration~~ we ~~expect~~made tono ~~pay~~new ~~related to our 2004~~ acquisitions~~. The additional consideration is based upon~~ ~~the~~and ~~achievement~~paid $2.3 million of ~~performance~~deferred ~~targets contained in the~~ purchase ~~agreements~~price ~~for the acquired businesses~~obligations. ~~This additional~~ ~~goodwill is expected to be fully deductible for income tax purposes.~~

8. ~~Franchise-related~~ Discontinued Operations ~~Revenue~~

WeOn ~~maintain~~February 28, 2007, we completed the sale of a ~~national~~non-strategic ~~franchise~~Durable ~~network~~Medical ~~through~~Equipment ~~which~~(DME) business wein ~~generate~~Burlington, New Jersey for its approximate book value resulting in a gain on the sale ~~portion~~of approximately $21,000. On August 1, 2006, we completed the sale of our ~~revenue. Our~~home health agency in ~~franchise~~Portland, Oregon for $500,000. We recorded a pre-~~related~~tax ~~revenues~~gain ~~include:~~of ~~(1) royalties;~~$242,000 ~~(2) vendor~~on ~~rebates~~this sale. In addition, ~~and~~during ~~administration~~the ~~fees;~~quarter ~~and~~ended ~~(3)~~September ~~franchise~~30, ~~settlement~~2006 ~~and~~we ~~related fees. Each~~ceased operations of ~~these~~our ~~types~~home health agency in Phoenix, Arizona and recorded a pre-tax loss of ~~revenue~~$291,000 ~~can~~on this disposal. The results of ~~fluctuate~~operations ~~over~~of ~~time~~these businesses, ~~with~~including ~~the~~any ~~largest~~gains ~~potential~~or ~~fluctuations~~losses ~~relating~~on tosale or disposal, are reported as ~~franchise~~discontinued ~~terminations~~operations, net of tax, in our condensed consolidated statements of income.

~~During~~The ~~the~~following ~~six~~table ~~months~~sets ~~ended~~forth ~~June 30,~~operating ~~2005,~~results wefrom ~~recorded~~all ~~franchise settlement~~discontinued ~~revenue~~operations ~~related~~for ~~to two of our former franchisees. During~~ the ~~quarter ended June 30, 2005,~~three wemonths recorded $2.0 million related to the termination of one of our franchisees, of which $1.7 million was related to release of future obligations under the franchise agreement and $300,000 represented settlement of under-reported royalties from prior periods discovered during our audit of their books and records. During the quarter ended March 31, ~~2005,~~2007 weand ~~acquired~~2006 ~~our franchise~~ (in ~~St. Cloud,~~thousands): Minnesota. As part of the transaction, we terminated the franchise agreement early and recorded a settlement gain of $800,000, which was equal to the present value of the excess of the estimated future royalty payments receivable under the franchise agreement over current market rates.

During the quarter and six months ended June 30, 2004, we recorded revenue of $400,000 and $900,000, respectively, related to the termination of one of our franchisees. This revenue was primarily related to the amortization of a non-competition agreement we signed with the buyers of the franchisee's business. We also recorded $100,000 in revenue during the quarter ended March 31, 2004 related to a settlement reached with a former franchise that had been terminated in 2003.


	Three months ended		Three months ended
	March 31, 2007		March 31, 2006
Total revenue	$	403	$	2,104

Gain (loss) from discontinued operations before income taxes		35		(577	)
Income tax provision		14		(190	)

Net gain (loss) from discontinued operations	$	21	$	(387	)

~~Our franchise-related revenue is included in our “Other” service line~~9. ~~The~~ ~~following table sets forth our franchise~~Franchise-related ~~revenue for the periods indicated (in thousands):~~Revenue

	Three months ended June 30,				Six months ended June 30,
	2005		2004		2005		2004
Franchise-related revenue:
Royalties	$	2,105	$	1,983	$	3,915	$	4,077
Vendor rebates and administration fees		95		125		189		287
Franchise settlements and related fees		1,700		392		2,491		1,036
Total franchise-related revenue	$	3,900	$	2,500	$	6,595	$	5,400

We maintain a national franchise network through which we generate a portion of our revenue. Our franchise-related revenues include: (1) royalties; (2) vendor rebates and administration fees; and (3) franchise settlement and related fees. Each of these types of revenue can fluctuate over time, with the largest potential fluctuations relating to franchise settlements. Franchise-related revenue is included within our “Other revenue” service line.

9~~. Stock-based~~ ~~Compensation~~

StatementTable of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, as amended by Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure, encouraged, but did not require, companies to record compensation cost for stock-based compensation plans at fair value. We have chosen to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Accordingly, compensation expense for stock options is measured as the excess, if any, of the quoted market price of Option Care common stock at the date of grant over the amount an employee must pay to acquire the stock. We grant options at fair market value and therefore recognize no compensation expense when options are granted. Likewise, our EmployeeContents

9The following table sets forth our franchise-related revenue for the periods indicated (in thousands):

Stock Purchase Plan was structured to qualify under Section 423 of the Internal Revenue Code. Therefore, no compensation expense is recognized from employees’ purchase of shares under this plan.


	Three months ended
	March 31,
	2007		2006
Franchise-related revenue:
Royalties	$	1,250	$	1,450
Vendor rebates and administration fees		131		249
Franchise termination and settlement fees		300		—

Total franchise-related revenue	$	1,681	$	1,699

~~The~~10. ~~following table sets forth our net income and net income per common share for the three and six months ended June 30, 2005 and 2004, had compensation cost for our stock~~Stock-based ~~compensation plan been determined based~~Compensation on FASB Statement No. 123. All share and per share amounts in the following table have been adjusted to reflect the pro forma effects of the 3-for-2 split of our common stock that became effective March 31, 2005 for shareholders of record on March 17, 2005 (in thousands, except per share amounts):

	Three months ended June 30,						Six months ended June 30,
	2005			2004			2005			2004
Net income:
As reported	$	5,409		$	4,701		$	10,694		$	8,986
Deduct: Total stock-based employee compensation expense determined under the fair value based method for the following awards, net of related tax effects:
Stock option grants	(239		)	(367		)	(462		)	(699		)
Employee stock purchase plan withholdings	(63		)	(33		)	(127		)	(68		)
Pro forma	$	5,107		$	4,301		$	10,105		$	8,219
Net income per common share—basic:
As reported	$	0.17		$	0.15		$	0.33		$	0.28
Pro forma	$	0.16		$	0.13		$	0.31		$	0.26
Net income per common share—diluted:
As reported	$	0.16		$	0.14		$	0.32		$	0.28
Pro forma	$	0.15		$	0.13		$	0.30		$	0.25

We adopted SFAS No. 123(R), Share-Based Payment, utilizing the modified retrospective method, as of January 1, 2006. SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options and shares purchased under our employee stock purchase plan, to be recognized in the income statement based on their fair values.

~~The~~11. ~~fair~~Income ~~value of options granted under our stock option plan during~~Taxes the three and six months ended June 30, 2005 and 2004 was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions (as pro forma adjusted for our 3-for2 stock split on March 31, 2005):

	Three months ended June 30,						Six months ended June 30,
	2005			2004			2005			2004
Annual dividend yield per share	$	0.08		$	0.05		$	0.08		$	0.05
Expected volatility	30		%	40		%	33		%	40		%
Weighted average risk-free interest rate	3.72		%	3.10		%	3.66		%	2.86		%
Expected grant life (years)	4.0			4.0			4.0			4.0
Weighted average per share fair value of options granted	$	3.92		$	2.93		$	3.99		$	2.85

In June 2006, the Financial Accounting Standards Board published Interpretation 48, Accounting for Uncertainty in Income Taxes (“FIN 48”), which is an interpretation of Statement 109, Accounting for Income Taxes. FIN 48 provides guidance on how entities should evaluate and report on uncertain tax positions. This interpretation requires that realization of an uncertain income tax position must be “more likely than not” (i.e. greater than 50% likelihood of receiving a benefit) before it can be recognized in the financial statements. Further, this interpretation prescribes the benefit to be recorded in the financial statements at the amount most likely to be realized assuming a review by tax authorities having all relevant information and applying current conventions. This interpretation also clarifies the financial statement classification of tax-related penalties and interest and sets forth new disclosures regarding unrecognized tax benefits. This interpretation is effective for fiscal years beginning after December 15, 2006.

10We adopted the guidance contained in FIN 48 effective January 1, 2007. ~~Recently~~ Upon adoption, we recognized ~~Issued~~a ~~Accounting~~decrease ~~Pronouncement~~of approximately $1.8 million in the liability for previously recorded uncertain tax positions no longer required under the technical guidance of FIN 48 and a corresponding $1.8 million increase to beginning retained earnings. This reversal included approximately $60,000 of accrued interest expense related to the uncertain tax position. Our policy is to reflect penalties and interest related to taxes within “Selling, general and administrative expenses” and “Interest income (expense), net”, respectively, in our consolidated statements of income.

OnAs ~~December~~of March 1631, ~~2004~~2007, ~~the~~our ~~Financial~~total ~~Accounting~~amount ~~Standards Board issued Statement~~ of ~~Financial~~unrecognized ~~Accounting~~tax ~~Standards~~benefits ~~(SFAS)~~was ~~No. 123(R)~~$600, ~~Share-Based Payment~~000, of which approximately ~~will~~$540,000 ~~change~~would ~~the~~affect ~~way~~our weeffective ~~account for~~tax ~~employee~~rate, ~~stock~~if ~~options in future periods~~recognized. ~~SFAS~~ ~~No. 123(R),~~We ~~which~~do isnot anticipate a significant ~~revision~~decrease toor ~~SFAS~~increase ~~No. 123,~~in ~~Accounting~~our ~~for~~unrecognized ~~Stock-Based~~tax ~~Compensation,~~benefits ~~supersedes~~within ~~APB Opinion~~the ~~No. 25,~~next ~~Accounting~~twelve ~~for Stock~~months. ~~Issued~~During tothe ~~Employees,~~quarter ~~and~~ended ~~amends SFAS No.~~March 9531, ~~Statement~~2007, ofwe ~~Cash~~recorded ~~Flows. Generally~~$9,000 ~~the approach~~ in ~~SFAS~~interest ~~No. 123(R)~~expense isand ~~similar~~no ~~to the~~penalties ~~approach~~related ~~described~~to inuncertain ~~SFAS~~tax Nopositions. ~~123,~~ ~~but~~Our ~~with~~condensed ~~certain~~consolidated ~~enhancements~~balance ~~to improve~~sheet ~~the~~as ~~accuracy~~ of ~~fair value estimates.~~March ~~However~~31, ~~SFAS~~2007 contains ~~123(R)~~a ~~requires~~total ~~all~~of ~~share-based payments to employees~~$33, ~~including~~000 ~~grants~~in ofaccrued ~~employee~~interest ~~stock~~related ~~options,~~ to beuncertain ~~recognized~~tax inpositions ~~the~~within ~~income~~“Other ~~statement~~current ~~based on their fair values~~liabilities. ” ~~Pro forma disclosure is no longer an alternative.~~

~~SFAS~~Our ~~No. 123(R)~~consolidated ~~permits~~income ~~public~~tax ~~companies~~returns remain subject to ~~adopt~~examination ~~its~~by ~~requirements~~the Internal Revenue Service ~~using~~for ~~one~~the years 2003 through current. This is also the case for the majority of ~~two~~states ~~methods:~~in which we file income tax returns.

~~• A~~12. ~~“modified prospective”~~Quarterly ~~method in which compensation cost is recognized beginning with the~~Dividends ~~effective date (a) based on the requirements of Statement 123(R) for all share-based payments granted after the effective date and (b) based on the~~

10In May 2004, our Board of Directors authorized the adoption of a quarterly dividend policy. Each quarter, our Board of Directors will determine the dividend amount per share, if any. During each of the fiscal quarters beginning with the quarter ended June 30, 2004 through the quarter ended March 31, 2005, our board declared a dividend of $0.0133 per share. During each of the fiscal quarters beginning with the quarter ended June 30, 2005 our Board declared a $0.02 per share dividend. The $0.02 per share dividend in the quarter ended March 31, 2007 was paid March 19, 2007 to stockholders of record as of March 5, 2007.

~~requirements of SFAS No~~13. ~~123~~ ~~for~~Comprehensive ~~all~~Income ~~awards granted to employees prior to the effective date of Statement 123(R) that remain unvested on the effective date.~~

~~• A~~Net ~~“modified retrospective”~~income ~~method~~was ~~which~~our ~~includes~~only ~~the~~component ~~requirements~~ of ~~the~~comprehensive ~~modified prospective~~income ~~method~~for ~~described above, but also permits entities to restate based on~~ the ~~amounts~~quarters ~~previously~~ended ~~recognized under SFAS No.~~March ~~123~~31, ~~for purposes of~~2007 ~~pro~~and ~~forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption~~2006.

~~Initially, the SEC announced that SFAS No. 123(R) must be adopted~~10 in the first interim or annual period beginning after June 15, 2005. Subsequently, on April 14, 2005, the SEC announced that calendar year-end companies will be allowed to delay implementation of the new standard until their first interim period beginning after December 15, 2005.

WeTable will adopt SFAS No. 123(R) in our fiscal quarter ending March 31, 2006 and intend to apply the “modified retrospective” method. Adoption of SFAS No. 123(R) may materially affect our results of operations for periods following adoption, but will have no effect on our financial condition.Contents

11Item 2. ~~Quarterly~~ Management’s Discussion and Analysis of Financial Condition and Results of Operations ~~Dividends~~

~~Our~~FORWARD ~~Board~~LOOKING ~~of Directors initiated a quarterly dividend policy on May 11,~~STATEMENTS 2004 and we paid our first quarterly dividend in the quarter ended June 30, 2004. During the quarter ended June 30, 2005, our Board of Directors declared a $0.02 per share dividend paid on June 10, 2005 to shareholders of record as of May 27, 2005. In each of the preceding four quarters, we paid dividends of $0.0133 per share.

12The following discussion should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2006. ~~Comprehensive~~ The Private Securities Litigation Reform Act of 1995 provides a “safe ~~Income~~harbor” for forward-looking statements. Certain information included in this Quarterly Report on Form 10-Q and other materials filed or to be filed by us with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by us) contain statements that are or will be forward-looking, such as statements relating to acquisitions and other business development activities, future capital expenditures and the anticipated or potential effects of future regulation and competition. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by us, or on our behalf. These risks and uncertainties include, but are not limited to, uncertainties affecting our businesses and our franchisees relating to acquisitions and divestitures (including integration issues and continuing obligations with respect to completed transactions), sales and renewals of franchises, government and regulatory policies (including federal, state and local efforts to reform the delivery of and payment for healthcare services), general economic conditions (including economic conditions affecting the healthcare industry in particular), the pricing and availability of equipment and services, technological developments and changes in the competitive environment in which we operate. For a more comprehensive description of risks applicable to our business, see Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2006. We do not undertake any obligation to release publicly any revisions to such forward-looking statements to reflect events or circumstances occurring after the date of the Annual Report or to reflect the occurrence of unanticipated events.

~~Net income was~~OVERVIEW ~~our only component of comprehensive income for the three and six months ended June 30, 2005 and 2004.~~

11We provide infusion therapy, specialty pharmacy services and other ancillary healthcare services through a national network of company-owned and franchised locations. We contract home infusion pharmacy and related services with managed care organizations, third party payors, hospitals, physicians and other referral sources to provide pharmaceuticals and complex compounded solutions to patients for intravenous delivery in the patients’ homes or other non-hospital settings. Many of our locations also provide other ancillary healthcare services such as nursing, respiratory therapy and durable medical equipment. We contract specialty infusion and specialty distribution pharmacy services with managed care organizations and physicians to become their specialty pharmacy, dispensing and delivering specialty pharmaceuticals, assisting with clinical compliance information and providing pharmacy consulting services. Our services are provided through our national network of 58 company-owned and managed locations, our 48 franchise-owned pharmacies and our two company-owned, high-volume specialty pharmacy distribution facilities.

~~Item~~We 2have four service lines: home infusion and related healthcare services, specialty infusion pharmacy services, specialty distribution pharmacy services, and other. ~~Management~~Home infusion and related healthcare services primarily involve the intravenous administration of medications treating a wide range of acute and chronic health conditions such as infections, nutritional deficiencies and cancer. These services are primarily provided in the patient’s ~~Discussion~~home, but may also be provided at one of our ambulatory treatment centers and ~~Analysis~~involve intensive clinical coordination between our pharmacy and nursing staff, the patient, the prescribing physician, and payor case managers. Specialty infusion pharmacy services primarily involve the local distribution and administration of high ~~Financial~~cost ~~Condition~~specialty pharmaceuticals that are typically infused. Home infusion and ~~Results~~specialty infusion pharmaceuticals treat a wide range of ~~Operations~~acute and chronic health conditions through our national network of 58 company owned pharmacies. Specialty distribution pharmacy services involve the national distribution of high cost specialty pharmaceuticals, typically injectibles, through our 2 high volume pharmacies. Both specialty services treat a wide range of chronic health conditions and the associated pharmaceuticals may require special handling including refrigeration during shipping to prevent potency degradation. Other revenue primarily consists of royalties and other fees generated from our franchised pharmacy network.

~~FORWARD LOOKING STATEMENTS~~11

TheTable following discussion should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2004. The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Certain information included in this Quarterly Report on Form 10-Q and other materials filed or to be filed by us with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by us) contain statements that are or will be forward-looking, such as statements relating to acquisitions and other business development activities, future capital expenditures and the effects of future regulation and competition. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by us, or on our behalf. These risks and uncertainties include, but are not limited to, uncertainties affecting our businesses and our franchisees relating to acquisitions and divestitures (including continuing obligations with respect to completed transactions), sales and renewals of franchises, government and regulatory policies (including federal, state and local efforts to reform the delivery of and payment for healthcare services), general economic conditions (including economic conditions affecting the healthcare industry in particular), the pricing and availability of equipment and services, technological developments and changes in the competitive environment in which we operate. For a more comprehensive description of risks applicable to our business, see Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2004.Contents

~~OVERVIEW~~SUMMARIZED INFORMATION ABOUT REVENUE AND GROSS PROFIT

WeSummarized ~~provide~~information ~~specialty~~about ~~pharmacy~~revenues ~~services~~ and ~~infusion~~gross ~~pharmacy~~profit ~~and~~from ~~other related~~continuing ~~healthcare~~operations ~~services to patients at home or at other alternate sites such as infusion suites and physician’s offices. We contract with managed care organizations and other third party payors who reimburse us~~ for ~~the~~each ~~services~~of ~~we provide to~~our ~~their~~service ~~subscriber~~lines ~~members. Our~~is ~~services are~~ provided ~~through~~in ~~our~~the ~~national~~following ~~network~~table of(amounts ~~company-owned~~in ~~and franchise-owned~~thousands): ~~pharmacies and our two central, high-volume drug distribution facilities.~~

We have three service lines: specialty pharmacy services, infusion and related healthcare services, and other. Specialty pharmacy services involve the distribution of injectible and infused pharmaceuticals to treat a wide range of chronic health conditions. The pharmaceuticals can be directly distributed to the patient’s home or to their physician’s office for in-office administration. Depending on therapy type, we may also administer specialty pharmaceuticals to patients at our ambulatory infusion centers. These pharmaceuticals may require refrigeration during shipping as well as special handling to prevent potency degradation. Patients receiving treatment usually require special counseling and education regarding their condition and treatment program. Infusion and related services primarily involves the intravenous administration of medications at the patient’s home or other non-hospital site such as one of our infusion suites. Infusion pharmacy services treat a wide range of acute and chronic health conditions, including infections, dehydration, cancer, pain and nutritional deficiencies. All of our company-owned pharmacies provide infusion therapies. Some of these pharmacies also provide related healthcare services, such as home health nursing, home hospice services, respiratory therapy services and durable medical equipment. Other revenue consists of royalties and other fees generated from our franchised pharmacy network and the software licensing and support revenue generated by our subsidiary, MBI.


											Three months ended March 31, 2006
	Three months ended March 31, 2007										(Revised)
			% of			Gross		Gross					% of			Gross		Gross
	Revenue		Total			Profit		Profit %			Revenue		Total			Profit		Profit %
Home infusion and related healthcare services	$	64,439		30.3	%	$	28,385		44.0	%	$	57,116		36.9	%	$	25,539		44.7	%
Specialty infusion pharmacy services		83,085		39.0	%		15,005		18.1	%		53,211		34.3	%		9,682		18.2	%
Specialty distribution pharmacy services		63,581		29.9	%		4,326		6.8	%		42,588		27.5	%		3,498		8.2	%
Other		1,836		0.8	%		1,835		100.0	%		2,076		1.3	%		2,077		100.0	%

Total	$	212,941		100.0	%	$	49,551		23.3	%	$	154,991		100.0	%	$	40,796		26.3	%

~~Summarized~~We ~~information~~derive ~~about~~most ~~revenues~~of our revenue from contracts with third party payors, such as managed care organizations, insurance companies, self-insured employers and ~~gross~~Medicare ~~profit~~and Medicaid programs. We have significant managed care contracts with Blue Cross Blue Shield of Florida (“BCBSF”) and Blue Cross Blue Shield of Michigan (“BCBSM”) for ~~each~~the provision of ~~our~~specialty pharmacy services and ~~service~~infusion ~~lines~~pharmacy isservices ~~provided~~to intheir members. For the ~~following~~three ~~table~~months ~~(amounts~~ended inMarch 31, ~~thousands):~~2007 approximately 11% and 10% of our revenue was generated from our BCBSF and BCBSM contracts, respectively. In the prior year quarter, we generated approximately 13% and 0% of our revenue, respectively, from the BCBSF and BCBSM contracts.

~~REVENUE~~As of March 31, 2007, approximately 10% and 3% of our accounts receivable was due from BCBSF and BCBSM, respectively. As of December 31, 2006, approximately 8% and 4% of our accounts receivable was due from BCBSF and BCBSM, respectively. No other single managed care payor represents more than 10% of our revenue.

	Three months ended June 30,								Six months ended June 30,
	2005				2004				2005				2004
	Revenue		% of total		Revenue		% of total		Revenue		% of total		Revenue		% of total
Specialty pharmacy services	$	67,600	56.6	%	$	58,407	59.2	%	$	142,497	59.3	%	$	123,339	61.1	%
Infusion and related healthcare services	47,690		39.9	%	37,450		38.0	%	90,538		37.7	%	72,396		35.9	%
Other	4,201		3.5	%	2,794		2.8	%	7,211		3.0	%	6,065		3.0	%
Total revenue	$	119,491	100.0	%	$	98,651	100.0	%	$	240,246	100.0	%	$	201,800	100.0	%

We also provide services that are reimbursable through government healthcare programs such as Medicare and state Medicaid programs. For the three months ended March 31, 2007 and 2006, respectively, approximately 24% and 19% of our revenue was generated from government healthcare programs. As of March 31, 2007 and December 31, 2006, respectively, 19% and 19% of our total accounts receivable was due from these government healthcare programs.

GROSSTable PROFITof Contents

	Three months ended June 30,								Six months ended June 30,
	2005				2004				2005				2004
	Gross Profit		Gross profit margin		Gross Profit		Gross profit margin		Gross Profit		Gross profit margin		Gross Profit		Gross profit margin
Specialty pharmacy services	$	10,307	15.2	%	$	10,059	17.2	%	$	21,860	15.3	%	$	20,585	16.7	%
Infusion and related healthcare services	20,555		43.1	%	16,334		43.6	%	39,353		43.5	%	31,363		43.3	%
Other	4,098		97.6	%	2,645		94.7	%	7,010		97.2	%	5,787		95.4	%
Total gross profit	$	34,960	29.3	%	$	29,038	29.4	%	$	68,223	28.4	%	$	57,735	28.6	%

RESULTS OF OPERATIONS

The ~~majority~~following oftable ~~our~~shows ~~revenue~~the isresults ~~generated from managed care contracts and other agreements with commercial third party payors. Our principal managed care contract is with Blue Cross Blue Shield~~ of ~~Florida.~~our ~~For~~operations for the three ~~and six~~ months ended ~~June~~March 3031, ~~2005,~~ ~~approximately 14% of our revenue was generated from this contract~~2007 ~~compared to 16%~~ and ~~15%~~2006, ~~respectively,~~expressed ~~for the corresponding periods~~ in ~~the prior~~amounts ~~year. As of June 30, 2005~~ and ~~December 31,~~ ~~2004,~~percentages ~~respectively, 9% and 7%~~ of ~~our~~revenue ~~accounts~~(in ~~receivable was~~thousands): ~~due from Blue Cross Blue Shield of Florida. The contract may be terminated by either party on 90 days’ notice and, unless terminated, renews annually each September for an additional one-year term.~~

We also generate revenue from government healthcare programs such as Medicare and Medicaid. For the three and six months ended June 30, 2005, approximately 17% of our revenue was generated from government healthcare programs compared to 20% for the corresponding three and six month periods in the prior year. As of June 30, 2005 and December 31, 2004, respectively, 20% and 18% of our total accounts receivable was due from government healthcare programs.


							Three months Ended
	Three Months Ended						March 31, 2006
	March 31, 2007						(Restated)
				% of
	Amount			Revenue			Amount			% of Revenue
Revenue:
Home infusion and related healthcare services	$	64,439			30.3	%	$	57,116			36.9	%
Specialty infusion pharmacy services		83,085			39.0	%		53,211			34.3	%
Specialty distribution pharmacy services		63,581			29.9	%		42,588			27.5	%
Other		1,836			0.8	%		2,076			1.3	%

Total revenue		212,941			100.0	%		154,991			100.0	%
Cost of revenue:
Cost of goods sold		144,403			67.8	%		98,167			63.3	%
Cost of services provided		18,987			8.9	%		16,028			10.4	%

Total cost of revenue		163,390			76.7	%		114,195			73.7	%

Gross profit		49,551			23.3	%		40,796			26.3	%
Selling, general and administrative expenses		32,287			15.2	%		28,417			18.3	%
Provision for doubtful accounts		4,389			2.1	%		3,462			2.2	%
Depreciation and amortization		1,266			0.6	%		1,144			0.8	%

Total operating expenses		37,942			17.9	%		33,023			21.3	%
Operating income		11,609			5.5	%		7,773			5.0	%
Interest income (expense), net		(234	)		(0.1	)%		8			—
Other expense, net		(146	)		(0.1	)%		(62	)		—

Income from continuing operations before income taxes		11,229			5.3	%		7,719			5.0	%
Income tax provision		4,484			2.1	%		2,542			1.7	%

Net income from continuing operations	$	6,745			3.2	%	$	5,177			3.3	%

Discontinued operations:
Gain (loss) on discontinued operations, net of income taxes		21			0.0	%		(387	)		(0.2	)%

Net income	$	6,766			3.2	%	$	4,790			3.1	%

13Three Months Ended March 31, 2007 and 2006

~~RESULTS~~In OFthe ~~OPERATIONS~~quarter ended March 31, 2007, our revenue from continuing operations was $212.9 million, representing an increase of $58.0 million, or 37.4%, over the corresponding quarter in 2006. Revenues increased due to a combination of internal growth, significant new contracts, and acquisitions. In dollars, our gross profit increased by 21.5% to $49.6 million in the current year quarter. Our overall gross profit margin declined due to a shift in mix of business between our service lines and a decline in other revenue. As a result of our increased revenues, net income from continuing operations per diluted share increased to $0.19 for the quarter ended March 31, 2007 compared to $0.15 in the prior year quarter.

~~The~~We ~~following~~continued ~~table~~to ~~shows~~generate ~~the~~positive ~~results~~cash offlows ~~our~~from operations, ~~for~~producing ~~the~~$6.0 million ~~three~~in operating ~~and~~cash ~~six~~flows ~~months~~during the quarter ended ~~June~~March 3031, ~~2005~~2007. We ended the quarter with cash and ~~2004~~short-term investments totaling $17.0 million compared to $8.9 million as of December 31, ~~expressed~~2006. inOur ~~amounts~~positive operating cash flows, cash that was relieved of restrictions, and ~~percentages~~ cash generated from the issuance of ~~revenue~~common ~~(amounts~~stock infrom ~~thousands):~~stock option exercises and employee stock purchase plan withholdings more than offset the cash

	Three months ended June 30,									Six months ended June 30,
	2005				2004					2005				2004
	Amount		% of Revenue		Amount			% of Revenue		Amount		% of Revenue		Amount			% of Revenue
Revenue:
Specialty pharmacy services	$	67,600	56.6	%	$	58,407		59.2	%	$	142,497	59.3	%	$	123,339		61.1	%
Infusion and related healthcare services	47,690		39.9	%	37,450			38.0	%	90,538		37.7	%	72,396			35.9	%
Other	4,201		3.5	%	2,794			2.8	%	7,211		3.0	%	6,065			3.0	%
Total revenue	119,491		100.0	%	98,651			100.0	%	240,246		100.0	%	201,800			100.0	%
Cost of revenue:
Cost of goods sold	71,750		60.0	%	58,997			59.8	%	147,442		61.4	%	122,805			60.9	%
Cost of services provided	12,781		10.7	%	10,616			10.8	%	24,581		10.2	%	21,260			10.5	%
Total cost of revenue	84,531		70.7	%	69,613			70.6	%	172,023		71.6	%	144,065			71.4	%
Gross profit	34,960		29.3	%	29,038			29.4	%	68,223		28.4	%	57,735			28.6	%
Selling, general and administrative expenses	23,509		19.7	%	19,200			19.5	%	45,050		18.7	%	38,449			19.1	%
Provision for doubtful accounts	2,153		1.8	%	1,462			1.5	%	4,479		1.9	%	3,021			1.5	%
Depreciation and amortization	849		0.7	%	569			0.5	%	1,753		0.7	%	1,250			0.6	%
Total operating expenses	26,511		22.2	%	21,231			21.5	%	51,282		21.3	%	42,720			21.2	%
Operating income	8,449		7.1	%	7,807			7.9	%	16,941		7.1	%	15,015			7.4	%
Interest income (expense), net	194		0.1	%	34			—	%	150		—	%	35			—	%
Other expense, net	100		0.1	%	(12		)	—	%	53		—	%	(79		)	—	%
Income before income taxes	8,743		7.3	%	7,829			7.9	%	17,144		7.1	%	14,971			7.4	%
Income tax provision	3,334		2.8	%	3,128			3.1	%	6,450		2.6	%	5,985			2.9	%
Net income	$	5,409	4.5	%	$	4,701		4.8	%	$	10,694	4.5	%	$	8,986		4.5	%

ThreeTable andof Six Months Ended June 30, 2005 and 2004Contents

~~For the quarter ended June 30, 2005,~~ we ~~generated~~used revenue of $119.5 million, an increase of 21.1% over the corresponding prior year quarter. For the six months ended June 30, 2005, our revenue was $240.2 million, and increase of 19.1% over the prior year. This revenue growth was the result of acquisitions, start-ups and an increase in same store sales. Gross profit margins remained steady across most therapies, with the exception of IVIG (immune globulin). Supply shortages of IVIG throughout 2005 have significantly increased its cost, reducing our margin on this therapy. Our overall specialty pharmacy gross profit margin declined to 15.2% in the quarter ended June 30, 2005 compared to 17.2% in the corresponding prior year quarter, primarily due to the increased cost of IVIG. Despite this margin pressure, our net income increased by 15.1% to $5.4 million for the ~~quarter ended~~purchase ~~June 30, 2005 compared to $4.7 million in the prior year quarter as a result~~ of ~~revenue growth through increased same store sales, acquisitions and start~~short-~~ups,~~term ~~and~~investments an increase in franchise-related revenue. For the six months ended June 30, 2005, net income was $10.7 million, an increase of 19.0% over the $9.0 million net income in the prior year period. Net income per diluted share was $0.16 for the quarter and $0.32 for the six months ended June 30, 2005, compared to $0.14 and $0.28 for the respective quarter and six months in the prior year. We paid a cash dividend of $0.02 per share during the quarter ~~ended June 30, 2005 compared to $0~~.~~0133 in the prior year quarter.~~

~~Our~~Revenue: We report our operating ~~cash~~results ~~flow~~in ~~has~~one ~~continued~~segment, toconsisting beof ~~positive. We~~four ~~generated~~service ~~$12~~lines: home infusion and related healthcare services; specialty infusion pharmacy services; specialty distribution pharmacy services; and other.0 ~~million~~Our inhome ~~cash~~infusion ~~from~~and ~~operations~~related healthcare services and specialty infusion ~~during~~pharmacy ~~the~~services ~~six~~are ~~months~~delivered ~~ended~~locally ~~June 30,~~through ~~2005~~our ~~with~~58 ~~$4.8~~company-owned ~~million~~and ofmanaged ~~this~~pharmacies. ~~total~~Our ~~generated~~specialty distribution pharmacy service line distributes through our two high-volume facilities in Michigan and Florida. For the quarter ended ~~June~~March 3031, ~~2005. We~~2007, ~~used~~our revenue from continuing operations was $25212.79 million, which represents an increase of $58.0 million, inor ~~cash~~37.4%, toover ~~complete~~the corresponding ~~five~~prior ~~business~~year ~~acquisitions~~quarter. ~~thus~~This ~~far~~increase is due to the growth in ~~2005~~sales for multiple products and therapies, ~~with~~including ~~three~~Synagis®, ofthe ~~these~~effects of acquisitions ~~taking~~ ~~place~~completed in 2006 and the ~~quarter~~implementation of ~~ended~~significant ~~June 30,~~new managed care relationships.

Home infusion and related healthcare services revenue: For the quarter ended March 31, 2007, home infusion and related healthcare services revenue from continuing operations was $64.4 million, an increase of $7.3 million, or 12.8%, over the corresponding prior year quarter. Home Infusion pharmacy services from continuing operations increased $7.0 million, or 14.5%, while other related healthcare services, such as respiratory therapy services, durable medical equipment sales and home health nursing services, increased by $0.3 million, or 3.4%. Infusion pharmacy services revenue increased in most of our company-owned pharmacies and across a wide variety of therapies. Continuing sales efforts contributed to the increases, as well as the effect of acquisitions completed in 2006.

~~2005. We~~Specialty ~~plan~~infusion topharmacy ~~continue~~services revenue: ~~evaluating~~During ~~potential~~the ~~acquisitions~~quarter ~~that~~ended weMarch 31, ~~believe~~2007, ~~will~~specialty ~~add~~infusion topharmacy ~~shareholders~~services revenue from ~~value,~~continuing asoperations ~~well~~was as$83.1 million, ~~pursuing~~an ~~start-ups~~increase ~~and~~of ~~strategic~~$29.9 million, ~~joint~~or ~~ventures~~56.1%, Weover ~~will~~the ~~also~~prior ~~continue~~year toquarter. ~~pursue~~Our ~~opportunities~~specialty toinfusion ~~expand~~pharmacy ~~our~~revenue ~~business~~grew, ~~through~~due ~~increased market~~to ~~penetration~~organic growth and byacquisitions completed ~~partnering~~in ~~with~~2006, ~~biotech~~throughout ~~manufacturers~~our onnetwork ~~the~~of ~~release~~ company-owned pharmacies across a wide variety of therapies ~~new~~including our largest revenue-producing specialty ~~drugs~~drug was Synagis®. As ofSynagis® ~~June 30,~~is a ~~2005,~~seasonal wedrug ~~had~~for ~~$8.9~~the ~~million~~prevention of ~~cash~~respiratory ~~and~~syncytial ~~cash~~virus ~~equivalents~~(RSV) in premature and ~~$71~~other high-risk infants.6 ~~million~~RSV ~~in short-term~~season ~~investments~~runs through the cold months, ~~while~~generally from October through April. Accordingly, our ~~debt~~Synagis® ~~primarily~~revenue ~~consisted~~will ofdecline ~~$86.3~~in ~~million~~our ~~of 2.25%~~quarter ~~convertible~~ending ~~senior~~June 30, ~~notes~~2007 ~~due~~as ~~2024~~the current Synagis® season reaches its conclusion.

~~Revenue~~Specialty distribution pharmacy services revenue: During the quarter ended March 31, 2007, specialty distribution pharmacy services revenue from continuing operations was $63.6 million, an increase of $21.0 million, or 49.3%, over the prior year quarter. Our specialty distribution pharmacy services revenue grew due to organic growth in our Miramar distribution center and through the implementation of a significant contract with Blue Cross and Blue Shield of Michigan (“BCBSM”) and Blue Care Network (“BCN”) contract which is serviced by our Ann Arbor distribution center.

WeOther ~~report~~revenue: Other ~~our~~revenue ~~operating~~consists ~~results~~of inroyalties ~~one~~and ~~segment,~~other ~~consisting~~fees ofgenerated ~~three service~~from ~~lines:~~our ~~specialty~~franchised pharmacy ~~services; infusion and related healthcare~~network. ~~services;~~Other ~~and~~revenue ~~other. For~~from ~~the~~continuing ~~three~~operations ~~and six~~decreased ~~months ended June 30~~$240,000 ~~2005,~~to ~~our revenue was~~ $~~119~~1.5 8 million ~~and~~in ~~$240.2~~the quarter ended ~~million~~March 31, ~~respectively,~~2007 ~~representing~~compared ~~increases~~to ~~of 21~~$2.1%0 million ~~and~~in ~~19.1% over~~ the corresponding prior year ~~periods~~quarter. ~~Our increases~~ inThis ~~revenue~~decrease ~~were~~ was primarily due to ~~same~~a ~~store~~decline ~~sales~~in ~~growth~~our ~~and~~royalty ~~from~~revenue ~~the effects~~as a result of ~~acquisitions~~franchise ~~and~~terminations ~~start-ups~~and acquisitions.

~~Specialty~~Cost of revenue: Cost of revenue consists of the cost of goods sold and the cost of service provided. For the quarter ended March 31, 2007, our cost of revenue from continuing operations was $163.4 million, which represents an increase of $49.2 million, or 43.1%, over the prior year quarter. Cost of goods sold from continuing operations for the quarter ended March 31, 2007 was $144.4 million, or 67.8% of revenue, while in the prior year quarter, cost of goods sold was $98.2 million, or 63.3% of revenue. The primary cause of these increases was our 37.4% increase in revenue over the same period and a higher mix of specialty infusion pharmacy services and specialty distribution pharmacy services revenue: which have lower margins.

~~Our~~Cost ~~specialty~~of ~~pharmacy~~service ~~services~~consists ~~revenue for the quarter ended June 30, 2005 was $67.6 million, an increase~~ of ~~$9.2~~salaries ~~million,~~and orrelated ~~15.7%,~~costs ~~over~~for ~~the corresponding~~employees ~~prior~~directly ~~year~~involved ~~quarter. For~~in ~~the~~patient ~~six~~care, ~~months~~including ~~ended June 30~~pharmacists, ~~2005~~nurses, ~~specialty~~therapists ~~revenue~~and ~~was~~delivery ~~$142~~drivers.5 ~~million,~~Cost ~~an increase~~ of ~~$19.2~~service ~~million,~~also includes ~~or 15.5%, over~~ the ~~corresponding~~cost ~~period~~of inshipping ~~the~~or ~~prior year. Three~~delivering ~~main~~products ~~factors~~and ~~contributed~~services to ~~this~~ ~~growth: acquisitions~~the ~~and~~patient. ~~startups; increased~~Our ~~sales~~cost of service ~~Xolair;~~from ~~and~~continuing ~~increased~~operations ~~market penetration~~ for ~~various other specialty drugs and therapies. We completed three acquisitions during~~ the quarter ended ~~June~~March 3031, ~~2005~~2007 ~~and five~~was ~~acquisitions~~$19.0 million, ~~overall~~or ~~so far this year~~8. 9% ~~All~~ of ~~the acquired businesses are infusion therapy providers that also distribute specialty drugs for various therapies~~revenue, ~~adding~~compared to ~~our~~$16.0 million, ~~revenue~~or ~~base for~~10.4% ~~both~~ of ~~these service lines. Our Xolair~~ revenue ~~steadily increased throughout 2004 after the drug became available late~~ in ~~2003 for~~ the ~~treatment~~prior ~~of moderate to severe allergic asthma~~year. We ~~continue~~This todecrease ~~see sequential quarterly~~in ~~increases~~cost ~~in sales~~ of ~~Xolair,~~service ~~but~~as at a ~~more~~percentage ~~modest~~of ~~rate than during 2004. In addition,~~ revenue ~~from~~was ~~various~~due ~~other specialty~~to ~~products, such as growth hormone and blood clotting factor, increased on~~ a ~~same~~higher ~~store~~mix ~~basis during the current year periods as a result~~ of ~~focused marketing~~specialty ~~efforts. On~~infusion ~~a sequential~~pharmacy ~~quarterly~~services ~~basis,~~and ~~our~~ specialty distribution pharmacy services revenue ~~decreased~~over ~~due to~~ the ~~seasonal~~ ~~effect~~prior ofyear ~~Synagis,~~quarter awhich ~~drug used during the colder months to prevent~~has ~~respiratory~~a ~~synctial~~lower ~~virus~~cost ~~infection in premature and other high-risk infants. With the wind-down~~ of ~~the current Synagis season, our Synagis revenue declined to $4~~service.~~5 million in the quarter~~ ~~ended June 30, 2005 compared to $15.5 million in the quarter ended March 31, 2005.~~

~~Infusion~~Gross ~~and~~profit ~~related~~margin: Our ~~healthcare~~gross ~~services~~profit margin from continuing operations for the quarter ended March 31, 2007 was 23.3% ~~revenue:~~compared to 26.3% for the

Our infusion and related healthcare services revenue for the quarter ended June 30, 2005 was $47.7 million, an increase of $10.2 million, or 27.3%, over the prior year quarter. For the six months ended June 30, 2005, infusion and related healthcare services revenue was $90.5 million, an increase of $18.1million, or 25.1%, over the corresponding prior year quarter. Our increases in revenue have been due to same store sales growth, acquisitions, and start-ups. Same store sales have grown at a rate of 12.2% in the quarter ended June 30, 2005 compared to the prior year quarter, and 14~~.0% in the six months ended June 30,~~ ~~2005 compared to the corresponding prior year period. Increases have occurred across a wide variety of therapies.~~

OtherTable revenue:of Contents

~~Other~~quarter ~~revenue~~ended ~~consists~~March 31, of2006. ~~two~~Our ~~primary~~home ~~elements:~~infusion ~~(1) revenue~~and related healthcare ~~generated~~services gross profit margin from ~~our~~continuing ~~franchise~~operations ~~network,~~decreased ~~consisting~~slightly offrom ~~royalties,~~44.7% ~~franchise~~in ~~fees~~the ~~and~~quarter ~~vendor~~ended ~~rebates~~March 31, ~~earned~~2006 ~~through~~to ~~our~~44.0% ~~franchises’~~in ~~purchases~~the ~~under~~quarter ~~our contracts~~ended March 31, ~~and;~~2007. ~~(2) software~~This ~~licensing~~decrease is ~~and~~primarily ~~support~~due to a shift in therapy mix. Our specialty infusion pharmacy services ~~provided~~gross byprofit ~~our~~margin ~~wholly-owned~~from ~~subsidiary,~~continuing ~~MBI.~~operations ~~Other~~declined ~~revenue~~slightly ~~was~~from $418.2% ~~million~~ for the quarter ended ~~June~~March 3031, ~~2005 compared~~ 2006 to $218.81% ~~million~~for in the ~~corresponding prior year~~ quarter~~. For~~ ~~the six months~~ ended ~~June~~March 3031, ~~2005,~~2007. ~~other~~Our ~~revenue~~specialty ~~was~~distribution ~~$7.2~~pharmacy ~~million~~services ~~compared~~gross profit tomargin ~~$6.1 million~~from incontinuing ~~the~~operations ~~prior~~declined ~~year~~from ~~period~~8. ~~These increases~~2% infor ~~other~~the ~~revenue~~quarter inended ~~the~~March 31, ~~current~~2006 ~~year~~to 6.8% ~~periods~~for ~~were~~the ~~due~~quarter toended ~~franchise terminations~~March 31, ~~audits and settlements~~2007. ~~Franchise-related~~ ~~revenue~~This ~~may~~decrease ~~continue~~is due to ~~fluctuate~~an ~~significantly~~unfavorable ~~in future~~plan ~~periods~~mix ~~due to~~ within our ~~potential~~Blue ~~acquisition,~~Cross ~~audit~~and orBlue ~~termination~~Shield of ~~various~~ ~~franchises. Our~~Florida ~~software~~contract ~~revenue in~~and the ~~current~~launch ~~periods~~of ~~was~~the ~~immaterial~~Blue inCross ~~amount~~ and ~~consistent~~Blue ~~with~~Shield of ~~the~~Michigan ~~prior year~~/ ~~periods~~Blue Cross Network relationship.

~~Cost~~Selling, general and administrative expenses: For the quarter ended March 31, 2007, selling, general and administrative expenses from continuing operations were $32.3 million, an increase of $3.9 million, or 13.6% over the prior year period. The largest increases were in wages and related costs, which increased by $3.2 million, and bad debt provision, which increased by $927,000. The increase in wages and related costs was due to our increase in staff from business acquisitions completed in 2006 as well as an increase in staff to manage our continued growth. The increase in bad debt provision was due primarily to our increase in total revenues. Selling, general and administrative expenses as a percentage of revenue: were 15.2% and 18.3% for the three months ended March 31, 2007 and 2006 respectively. This decrease as a percentage of revenue is primarily related to the shift in mix toward our high volume specialty distribution pharmacy services and improved operating efficiencies across all service lines.

~~Cost~~Provision offor ~~revenue~~doubtful ~~consists~~accounts: Our ofprovision ~~the~~for ~~cost~~doubtful ofaccounts ~~goods~~from ~~sold~~continuing ~~and~~operations for the ~~cost~~quarter ofended March 31, 2007 ~~service~~was ~~provided~~$4.4 million, ~~Cost~~or 2.1% of ~~goods~~revenue, ~~primarily~~compared ~~consists~~to $3.5 million, or 2.2% of revenue, in the ~~cost~~prior year ofperiod. ~~drugs~~In ~~and~~general, we record a higher provision for doubtful accounts for revenue generated ~~medical~~from ~~supplies~~our ~~used~~locally delivered services than from our central distribution facilities. This difference in provision rates reflects the ~~provision~~difference in collection risk involved in these services as many of our services tofrom our ~~patients,~~central asdistribution ~~well~~facilities asare billed under pharmacy benefits whereas ~~depreciation~~the ~~expense~~services ~~for~~from ~~medical~~our ~~equipment~~local ~~rented~~pharmacies toare ~~patients. Cost~~typically ofbilled ~~service~~under ~~consists~~major ofmedical ~~salaries~~benefits and ~~related~~typically ~~costs~~require ~~for~~higher ~~employees~~patient ~~directly~~co-payments ~~involved~~and deductibles. The decrease in ~~patient~~our ~~care,~~provision ~~including~~for ~~pharmacists,~~doubtful ~~nurses,~~accounts ~~therapists~~as ~~and~~a ~~delivery~~percentage ~~drivers. Cost~~ of ~~service~~revenue ~~also~~was ~~includes~~primarily ~~the~~due ~~cost~~to ~~of shipping~~a orhigher ~~delivering~~mix ~~products~~of ~~and~~specialty distribution pharmacy services torevenue over the ~~patient,~~prior ~~including depreciation~~year ~~of delivery vehicles~~quarter.

15Depreciation and amortization: For the quarter ended March 31, 2007, depreciation and amortization expense from continuing operations was $1.3 million, an increase of $122,000, or 10.7%, over the corresponding prior year period. This increase is primarily related to depreciation of tangible assets and amortization of intangible assets purchased in 2006. The depreciation expense contained within this line item relates to non-revenue producing assets only, such as furniture and fixtures and leasehold improvements. Depreciation for revenue-producing equipment such as rental medical equipment and delivery vehicles is included in cost of revenue.

~~The~~Operating ~~following~~income: Our ~~table~~operating ~~presents~~income ~~our~~from ~~cost~~continuing ofoperations ~~revenue~~was ~~for~~$11.6 million in the quarter ~~and~~ended March 31, ~~six~~2007 ~~months~~representing ~~ended~~an ~~June~~increase of $3.8 30million, ~~2005~~or ~~and~~49.3%, ~~2004~~over (the prior year quarter. This increase resulted primarily from an increase in ~~thousands):~~total revenues. Our operating income from continuing operations was 5.5% and 5.0% of revenue for the quarters ended March 31, 2007 and 2006, respectively.

	Three months ended June 30,								Six months ended June 30,
	2005		2004		Dollar Change		Percent Change		2005		2004		Dollar Change		Percent Change
Cost of revenue:
Cost of goods sold	$	71,750	$	58,997	$	12,753	21.6	%	$	147,442	$	122,805	$	24,637	20.1	%
Cost of services provided	12,781		10,616		2,165		20.4	%	24,581		21,260		3,321		15.6	%
Total cost of revenue	$	84,531	$	69,613	$	14,918	21.4	%	$	172,023	$	144,065	$	27,958	19.4	%

Interest income/(expense):
For the quarter ended March 31, 2007, our interest expense from continuing operations, net of interest income, was $234,000. In the prior year, interest income, net of interest expense, was $8,000. Our long-term debt consists principally of $86.3 million of 2.25% convertible senior notes, due 2024. Our interest expense on these notes for the quarters ended March 31, 2007 and 2006 was approximately $485,000. Excess short term cash balances are invested in commercial paper, variable-rate bonds and preferred stocks and other related instruments. During the quarter ended March 31, 2007, the interest earned on these investments offset the interest expense on our convertible senior notes due to an overall increase in market interest rates on investments as compared to the prior year quarter.

~~The~~Income ~~increases~~taxes: Our inincome ~~cost~~tax ofprovision ~~revenue~~from ofcontinuing ~~21.4%~~operations ~~and 19.4%~~ for the quarter ~~and six months~~ ended ~~June~~March 3031, ~~2005~~2007 ~~over~~was ~~the~~$4.5 million ~~respective~~compared to $2.5 million in the prior year ~~periods~~period. ~~were primarily~~As ~~due~~a topercentage of pre-tax income, our provision ~~21.1%~~for ~~and~~income 19taxes from continuing operations was 39.19% ~~increases~~compared into ~~revenue~~32.9% ~~over~~for the ~~same~~prior ~~periods~~year quarter ended March 31, 2006. ~~Cost~~ The lower provision rate of ~~goods~~32.9% ~~sold~~in ~~increased~~the atprior year quarter was aprimarily ~~higher~~due ~~rate~~to ~~than~~adjustments ~~revenue~~recorded ~~primarily~~to ~~because~~reduce ofan ~~supply~~excess ~~shortages~~provision ~~for~~from ~~IVIG~~the ~~which~~end of 2005. ~~resulted~~Additionally, inwe aexperienced ~~higher~~an ~~cost~~increase ofin ~~goods~~income ~~and~~taxes ~~lower~~as ~~gross~~a ~~profit~~percentage ~~margin~~of ~~for~~pre-tax ~~that~~income ~~drug,~~in the ~~and~~quarter ended March 31, 2007 due to ~~increased~~a ~~sales~~shift ofin ~~Xolair~~income intoward ~~the~~states ~~current~~with ~~year~~higher ~~periods~~tax rates.

~~Gross~~Net ~~profit~~income ~~margin. The~~from ~~following~~continuing ~~table~~operations: Our ~~sets~~net ~~forth~~income ~~the~~from ~~gross profit~~continuing ~~margin~~operations ~~for~~was ~~each~~$6.7 million offor ~~our~~the ~~three~~quarter ~~service~~ended ~~lines:~~March 31, ~~specialty pharmacy services;~~2007 ~~infusion~~compared ~~and~~to ~~related~~$5.2 million ~~healthcare~~in ~~services; and other:~~the

	Three months ended June 30,				Six months ended June 30,
	2005		2004		2005		2004
Gross profit margin:
Specialty pharmacy services	15.2	%	17.2	%	15.3	%	16.7	%
Infusion and related healthcare services	43.1	%	43.6	%	43.5	%	43.3	%
Other	97.6	%	94.7	%	97.2	%	95.4	%
Overall gross profit margin	29.3	%	29.4	%	28.4	%	28.6	%

OurTable overall gross profit margins in the current year have remained consistent with the prior year. Within our services lines, the gross profit margin on our specialty pharmacy services has decreased, the margin on infusion and related healthcare services has remained steady and the margin on our other revenue has increased. Our specialty pharmacy services gross profit margin declined by 200 basis points in the quarter ended June 30, 2005 compared to the prior year quarter and 140 basis points in the six months ended June 30, 2005 compared to the corresponding prior year period. This decline was primarily due to supply shortages of IVIG which drove up the cost of that drug and reduced our gross profit margins. Our margin on other revenue improved in 2005 due to an increase in franchise-related revenue related to our acquisition of one franchisee and termination of another. Other revenue, which consists of franchise-related revenues and software sales and support, has minimal direct costs and therefore produces a high gross profit margin. Our infusion and related healthcare services gross profit margins have remained fairly consistent. The 50 basis point decline in margin for infusion and related healthcare services in the quarter ended June 30, 2005 was due to a one-time adjustment to depreciation expense for certain respiratory equipment as a result of a change in our estimate of useful life.Contents

~~Selling~~prior year quarter. This 30.3% increase was primarily due to the growth in revenue from organic growth, ~~general~~significant new contracts, and ~~administrative~~acquisitions ~~expenses:~~in 2006 over the period. As a percentage of revenue, our net income from continuing operations declined to 3.2% of revenue from 3.3% of revenue in the prior year period. This decrease was due to a higher mix of specialty infusion pharmacy services and specialty distribution pharmacy services revenue over the prior year quarter.

Diluted shares & earnings per share: For the quarter ended ~~June~~March 3031, ~~2005~~2007, ~~selling,~~the ~~general~~total ~~and administrative~~number ~~expenses~~of ~~were~~diluted ~~$23.5~~shares ~~million,~~was ~~an increase of $4~~36.3 2 million, orcompared 22to 35.4%1 million ~~over~~during the corresponding prior year quarter. ~~For~~ The primary cause for this increase ~~the~~was ~~six~~our ~~months~~issuance ~~ended~~of ~~June 30,~~approximately ~~2005~~950,000 ~~selling,~~shares ~~general~~of ~~and~~common ~~administrative~~stock as partial consideration for ~~expenses~~acquisitions ~~were~~completed ~~$45~~in 2006.1 ~~million,~~These anissuances resulted in a weighted average increase of approximately ~~$6.6 million~~840,000 ~~or 17~~shares.~~2%,~~ ~~over~~The ~~the prior~~remainder ~~year~~of ~~period. Wages~~the ~~and~~increase ~~related costs~~was ~~increased~~attributable byto ~~$3.2~~shares ~~million~~issued and issuable ~~$5.0~~under ~~million~~the inemployee ~~the~~stock ~~quarter~~purchase plan and ~~six~~stock ~~months ended~~option ~~June 30~~plan, ~~2005~~partially asoffset by a decline ~~result~~in the dilutive effect of ~~business~~our ~~acquisitions,~~$86.3 million ~~increases~~of in2.25% convertible senior notes due 2024. ~~corporate~~These ~~and~~notes ~~field~~are ~~staff~~dilutive ~~and~~to ~~merit~~the ~~wage~~extent ~~adjustments. Travel-related~~that ~~expenses,~~the ~~professional~~weighted average market price of our common stock ~~services~~exceeds ~~and~~the ~~building~~conversion ~~rent~~price ~~also~~of ~~increased~~the notes, incurrently ~~part~~$11.96 ~~due~~per toshare. ~~acquisitions~~Our ~~and acquisition-related~~earnings ~~activities.~~ from ~~Professional~~continuing ~~services~~operations ~~also~~per ~~increased~~diluted inshare ~~part~~were ~~due~~$0.19 tofor ~~incremental~~the ~~costs~~quarter ~~of complying~~ended ~~with Section~~March ~~404~~31, of2007 versus $0.15 for the ~~Sarbanes-Oxley~~quarter ~~Act~~ended ofMarch 31, ~~2002~~2006.

~~Provision~~LIQUIDITY ~~for~~AND ~~doubtful~~CAPITAL ~~accounts:~~RESOURCES

~~Our~~During ~~provision for doubtful accounts for~~ the quarter ended ~~June~~March 3031, ~~2005~~ ~~was $2.2 million~~2007, orwe ~~1.8%~~financed ofour ~~revenue,~~operations ~~compared~~and toacquisition ~~$1.5~~activities through ~~million,~~operating orcash 1flows.5% ~~of revenue,~~Our incash ~~the~~and ~~prior~~cash ~~year~~equivalents ~~period~~increased by $4. ~~For the~~4 million ~~six~~during ~~months~~the quarter ended ~~June~~March 3031, ~~2005~~2007, as the cash proceeds from our ~~provision~~positive ~~for~~operating ~~doubtful~~cash ~~accounts was~~flows ~~$4.5~~and ~~million,~~cash generated orfrom ~~1.9%~~the issuance of ~~revenue,~~common ~~compared~~stock toslightly ~~$3.0~~exceeded ~~million,~~our orexpenditures ~~1.5%~~for ofshort-term ~~revenue,~~investments inand ~~the~~other ~~corresponding~~capital ~~prior year period~~investments. ~~The slight~~

16Operating Cash Flows: We generated $6.0 million in positive cash flows from operations in the quarter ended March 31, 2007 compared to $1.8 million of positive operating cash flow in the corresponding prior year period. The increase in cash flows was primarily due to a $2.0 million increase in net income over the prior year quarter as well as better working capital management that included a reduction in DSO from 56 days for the quarter ended December 31, 2006 to 55 for the quarter ended March 31, 2007.

~~increase~~Investing inCash ~~our~~Flows: Investing ~~provision~~activities ~~for~~used ~~doubtful~~$9.3 million ~~accounts~~in cash in ~~both~~the ~~dollar~~quarter ~~amount and~~ended ~~percentage~~March 31, of2007 ~~revenue~~compared ~~was~~to ~~primarily~~$2.1 million ~~due~~provided toby investing activities in the ~~effects~~corresponding ofprior ~~our~~year ~~acquisitions~~period. In the current ~~and~~year ~~growth~~we inused ~~same~~$3.8 million ~~store~~for ~~sales~~the atpurchase ~~our~~of ~~company~~short-~~owned~~term ~~local~~investments, ~~pharmacies~~$3. We2 million ~~provide~~ for ~~doubtful~~the ~~accounts~~purchase of atequipment aand ~~higher rate~~other atdepreciable ~~our~~assets, ~~local~~and ~~pharmacies~~$2.3 ~~than~~for atadditional ~~our~~payments ~~two~~for ~~high-volume~~acquisitions ~~distribution~~made ~~pharmacies~~in 2006. ~~Therefore,~~ asIn wethe ~~acquired additional~~comparable ~~local~~prior ~~pharmacies~~year ~~and~~period, ~~generated~~net ~~higher~~sales ~~revenue~~of atshort-term ~~our~~investments ~~existing~~provided ~~local~~$26.8 ~~pharmacies,~~million ~~our~~in ~~blended~~cash ~~bad~~offset ~~debt~~by ~~provision~~$21.3 million ~~rate~~in ~~increased~~cash ~~slightly~~used infor ~~the current~~two ~~year~~acquisitions ~~periods~~and as$3.4 million aused ~~percentage~~for the purchase of ~~revenue~~equipment and other depreciable assets.

~~Depreciation~~Financing ~~and~~Cash ~~amortization~~Flows: Financing activities provided $7.7 million in positive cash flows in the quarter ended March 31, 2007, compared to $1.8 million provided by financing activities in the comparable prior year period. In the current year, $7.6 million in cash was released from restricted cash, $872,000 in cash was generated from the issuance of common stock, principally from our employee stock purchase plan and employee stock option exercises, and $693,000 in cash was used in the payment of dividends. In the comparable prior year period, $1.5 million was generated from the issuance of common stock, principally from employee stock option exercises and the associated tax benefit and $1.0 million was generated due to the release of restricted cash. Additionally, $700,000 in cash was used to pay dividends to our stockholders.

~~For~~Convertible ~~the~~Senior ~~quarter ended June 30, 2005, depreciation and amortization~~Notes: ~~expense~~Our ~~was~~long-term ~~$800,000,~~debt anconsists ~~increase~~principally of $~~300,000,~~86.3 million orof ~~49.~~2.25%, ~~over~~convertible ~~the~~senior ~~corresponding prior~~notes, ~~year quarter~~due 2024. ~~For~~ ~~the~~On ~~six months ended June~~November 302, ~~2005~~2004, ~~our~~we ~~depreciation~~completed ~~and~~the ~~amortization~~offering ~~expense~~of ~~was~~ $~~1.8~~ 75 million, ~~an increase~~ of ~~$500,000,~~these ornotes ~~40.2%,~~through ~~over the corresponding prior year~~a ~~period. The~~private ~~primary~~placement ~~causes~~to ofqualified ~~these increases~~institutional ~~are~~buyers. ~~the~~The ~~depreciation~~initial ofpurchasers ~~internally-developed~~were ~~software~~granted ~~products and~~ the option ~~amortization~~to ofpurchase ~~deferred~~up ~~financing~~to ~~costs~~an ~~generated~~additional ~~by our~~ $8611.3 25 million ~~offering~~ ofprincipal ~~2.25%~~amount ~~convertible~~of ~~senior~~ notes, ~~completed~~and exercised this option in full on November 9, 2004. ~~The~~ ~~depreciation~~We ~~expense~~incurred ~~contained~~deferred ~~within this~~financing ~~line~~costs ~~item~~of ~~relates~~$3.2 million related to this ~~non-revenue~~offering, ~~producing~~consisting ~~assets~~of ~~only~~underwriting, ~~such~~legal ~~as furniture~~ and ~~fixtures~~other ~~and~~related ~~leasehold improvements~~costs. These costs are being ~~Depreciation~~amortized ~~for~~over ~~revenue~~a five-~~producing~~year ~~equipment~~period. ~~such~~See as“Note ~~rental~~2, ~~medical~~Long-Term ~~equipment and~~Debt” ~~delivery~~in ~~vehicles~~our inNotes ~~included~~to inCondensed Consolidated ~~cost~~Financial ofStatements ~~revenue~~for additional information.

~~Operating~~Credit ~~income~~Agreement with LaSalle Bank N.A.: In the current year quarter, we recorded non-use fees of $15,000 related to this Agreement. See “Note 2, Long-Term Debt” in our Notes to Condensed Consolidated Financial Statements for additional information.

Our operating income was $8.4 million in the quarter ended June 30, 2005, an increase of $600,000, or 8.2%, over the corresponding prior year quarter. For the six months ended June 30, 2005, our operating income was $16~~.9 million, which represents an increase of~~ $1.9 million, or 12.8%, over the prior year period. These increases in operating income were primarily the result of same store sales growth, acquisition activities and an increase in franchise-related revenue. As a percentage of revenue, our operating income was 7.1% for the quarter and six months ended June 30, 2005 compared to 7.9% for the quarter ended June 30, 2004 and 7.4% for the six months ended June 30, 2004. These declines were primarily due to supply shortages of IVIG, which reduced our gross profit margin on this product and reduced our operating income in the current year periods.

InterestTable Income/(Expense):of Contents

~~Our~~Accounts ~~interest income, net of interest expense, was $194,000 and $150,000~~Receivable: ~~for~~The ~~the~~following ~~quarter~~table ~~and~~sets ~~six~~forth ~~months~~information ~~ended~~regarding ~~June 30, 2005, respectively. In the prior year periods,~~ our ~~interest income~~accounts ~~was~~receivable ~~$34,000~~as ~~and $35,000 for the respective quarter and six months ended June 30, 2004. We completed an $86.3 million offering~~ of ~~2.25% convertible senior notes in November 2004. In~~ the ~~current year periods, our interest~~dates ~~expense~~indicated ~~was~~(dollar ~~primarily~~amounts from these convertible notes and our interest income was earned from investing the proceeds from this debt offering. The interest earned on our investments exceeded the interest expense on the convertible notes, resulting in ~~net~~thousands): ~~interest income during the current year periods. In the prior year periods, we had virtually no debt and our net interest income was earned from investing our cash reserves.~~

Income taxes:


	March 31,			December 31,
	2007			2006
Accounts receivable	$	142,845		$	133,239
Less allowance for doubtful accounts		(12,234	)		(10,736	)

Accounts receivable, net of allowance for doubtful accounts	$	130,611		$	122,503

Days sales outstanding (DSO)(1)	55 days			56 days

~~Our~~(1) ~~income~~DSO ~~tax~~is ~~provision~~calculated ~~was~~using ~~$3.3 million for~~ the ~~quarter~~exhaustion ~~and~~method, ~~$6.5 million~~whereby ~~for~~ the ~~six~~net ~~months~~accounts ~~ended~~receivable ~~June 30,~~balance ~~2005. In~~is ~~the~~exhausted ~~prior~~against ~~year,~~each ~~our~~preceding ~~income~~month’s ~~tax~~or ~~provision was~~partial ~~$3.1~~month’s ~~million~~net ~~for the quarter and $6~~revenue.0 ~~million~~The ~~for~~DSO ~~the~~calculation ~~six~~excludes ~~months~~revenue ~~ended~~not ~~June 30, 2004. As~~related ato ~~percentage~~patient ~~of pre-tax income~~care, ~~our~~ ~~provision~~such ~~for~~as ~~income~~franchise ~~taxes~~royalties ~~was~~and ~~38.1%~~other ~~for~~fees ~~the quarter~~ and ~~37.6%~~software ~~for~~license ~~the~~and ~~six months~~support ~~ended June 30~~revenue, ~~2005~~and ~~compared~~trade toaccounts ~~40.0%~~receivable ~~for~~purchased ~~the corresponding prior year periods. The decline~~ in ~~income~~business tax provision as a percentage of pre-tax income is primarily due to two factors: re-evaluation of our effective state income tax rate based on our reduced state tax exposure reserve; and an increase in tax-exempt interest income earned from our short-term investmentsacquisitions.

~~Net income:~~___________

Our ~~net~~accounts ~~income~~receivable, ~~was~~net ~~$5.4~~of ~~million~~bad ~~for~~debt ~~the~~reserves, ~~quarter~~was ~~and~~ $10130.7 6 million ~~for the~~as ~~six~~of ~~months ended June~~March 3031, ~~2005~~2007 compared to $4122.7 5 million ~~for~~as ~~the quarter~~of ~~and~~December 31, $92006.0 ~~million~~This ~~for~~increase ~~the~~in ~~six~~accounts ~~months~~receivable ~~ended~~was ~~June 30,~~related ~~2004. Our~~to ~~growth~~our increase in sequential quarterly revenue from ~~same~~continuing ~~store sales increases~~operations, ~~acquisitions~~which ~~and~~grew ~~start-ups~~from ~~and an increase~~ $194.2 million in ~~franchise termination revenue were~~ the ~~primary~~quarter ~~causes~~ended ofDecember 31, ~~our~~2006 ~~increase~~to $212.9 million in ~~net income over~~ the ~~period. As~~ aquarter ~~percentage~~ended ~~of revenue~~March 31, ~~our~~2007. Our ~~net~~days ~~income~~sales ~~was~~outstanding ~~equal~~(DSO) declined slightly to ~~4.5%~~55 days for ~~both~~ the quarter ~~and six months~~ ended ~~June~~March 3031, ~~2005~~ ~~compared~~2007 tofrom 56 days ~~4.8%~~ for ~~the~~ quarter ~~and 4.5% for the six months~~ ended ~~June~~December 3031, ~~2004~~ 2006.

~~Diluted~~The ~~shares &~~following ~~earnings~~table ~~per~~sets ~~share~~forth the percentage breakdown of our trade accounts receivable by aging category and by major payor as of the dates indicated:

We completed a 3-for-2 stock split on March 31, 2005. All share and per share amounts in this quarterly report reflect the pro forma effects of this split. Our earnings per diluted share were $0.16 for the quarter and $0.32 for the six months ended June 30, 2005, representing increases of 14.3% over our earnings per diluted share of $0.14 for the quarter and $0.28 for the six months ended June 30, 2004. Total diluted shares were 34.5 million for the quarter and 33.9 million for the six months ended June 30, 2005 compared to diluted shares of 32.6 million for the quarter and 32.5 million for the six months ended June 30, 2004. These increases in diluted shares were due to a number of factors, including (1) an increase in the dilutive effect of our contingently convertible debt, (2) the dilutive effect of employee stock options and shares issued and issuable under our employee stock purchase plan and stock incentive plan, and (3) new shares issued and to be issued as partial payment for acquisitions. These increases were partially offset by our purchase and subsequent retirement of 474,000 shares of treasury stock in the quarter ended December 31, 2004. Our contingently


	March 31,			December 31,
	2007			2006
By Aging Category (1):
Aged 0-90 days		71	%		71	%
Aged 91-180 days		14	%		14	%
Aged 181-365 days		10	%		11	%
Aged over 365 days		5	%		4	%

Total		100	%		100	%


By Payor Type:
Managed care and other payors		81	%		81	%
Medicare and Medicaid		19	%		19	%

Total		100	%		100	%

17(1) Accounts receivable by aging category considers only accounts of our home infusion and related healthcare services, specialty infusion pharmacy services, and our specialty distribution pharmacy services lines.

~~convertible~~Capital ~~debt~~Resources: As ~~accounted~~of ~~for~~March 31, ~~900~~2007,~~000~~ ~~shares~~we ofhad ~~the~~cash ~~total~~and 1cash equivalents of $7.5 million and short-term investments of $9.5 million compared to cash and cash equivalents of $3.2 million ~~share~~ ~~increase~~and inshort-term ~~diluted~~investments ~~shares~~of $5.7 million ~~for~~at December 31, 2006. For the quarter ended ~~June~~March 3031, ~~2005~~2007, ~~over~~we generated positive cash flow from operations of $6.0 million, which, along with the ~~corresponding~~cash ~~prior~~provided ~~year~~by ~~quarter~~the release of restricted cash offset by cash used in investing, allowed us to increase our cash and cash equivalents by $4.4 million.

~~LIQUIDITY~~We ~~AND~~expect ~~CAPITAL~~that ~~RESOURCES~~cash flow from operations, plus our current cash and short-term investments and available credit under our

~~During the six months ended June 30, 2005, we financed our~~17 operations and business acquisitions through operating cash flows and the use of cash reserves and proceeds generated from our $86.3 million offering of 2.25% convertible senior notes, completed in November 2004. During the six months ended June 30, 2005, we generated $12.0 million in cash flow from operations. We also used $25.7 million in cash during this period for business acquisitions. We continue to evaluate opportunities for potential business acquisitions, start-ups and joint ventures that we believe will be accretive to future earnings. Accordingly, we may need to seek additional sources of capital in the future to fund these activities. As of June 30, 2005, we had cash and short-term investments totaling $80.5 million and total long-term debt of $86.3 million.

OperatingTable Cashof Flows:Contents

~~We generated~~ $~~12.0~~35 million inrevolving ~~positive~~Credit ~~cash~~Agreement ~~flow~~with ~~from~~LaSalle ~~operations~~Bank ~~in the~~National ~~six~~Association ~~months~~will ~~ended~~be ~~June 30,~~sufficient ~~2005. This~~to ~~positive~~meet ~~cash flow was primarily the result of~~ our ~~net~~operating ~~income~~cash ~~of $10.7~~needs ~~million~~for in the ~~current~~immediate ~~year period~~future, ~~as well as our consistent collection~~including ofany ~~accounts~~interest ~~receivable. Also,~~due ofon ~~the current~~our ~~period~~ $1286.0 3 million of ~~positive~~2.25% ~~operating~~convertible ~~cash~~senior ~~flow~~notes, $1due 2024.6 ~~million~~In ~~was~~the ~~due~~event tothat ~~the~~additional ~~timing~~capital ofis ~~our~~required, ~~income~~there ~~tax~~can ~~payments~~be ~~and~~no ~~$1.4~~assurance ~~million~~that ~~was~~such ~~the~~capital ~~result~~can ofbe ~~tax~~obtained ~~credits~~ from ~~employee~~other ~~stock~~sources ~~option~~on ~~exercises~~terms acceptable to us, if at all.

~~For~~Our business strategy includes the ~~six-month~~selective ~~period~~acquisition ~~ended~~of ~~June 30,~~additional ~~2004~~local pharmacy facilities and specialty pharmacy operations. Accordingly, we ~~generated~~may ~~$11.9 million~~require ofadditional ~~positive~~capital ~~operating~~in ~~cash~~order ~~flow.~~ to ~~The~~complete ~~positive~~these ~~cash~~acquisitions. ~~flow~~It ~~was~~is ~~primarily~~impossible ~~due~~ to ~~our~~predict ~~net~~the ~~income~~amount ~~during~~of ~~the~~capital that may be ~~period~~required for acquisitions, and ~~our~~there ~~accounts~~is ~~receivable~~no ~~collection~~assurance ~~performance. Additionally,~~that ~~our~~sufficient ~~operating~~financing ~~cash~~for ~~flow~~these activities ~~benefited~~will ~~during~~be ~~this~~available ~~period~~on ~~from~~terms aacceptable ~~federal~~to ~~income~~us, ~~tax~~if ~~overpayment~~at ~~carried~~all. ~~over~~We anticipate utilizing our revolving ~~from~~credit ~~2003~~facility with LaSalle Bank National Association to finance future growth initiatives.

~~Investing~~Goodwill ~~Cash~~and ~~Flows:~~Other Intangible Assets

WeThe ~~used~~following ~~$26.1~~table ~~million~~sets inforth ~~cash in investing activities during~~ the ~~six months~~net ~~ended~~value ~~June 30, 2005. Of this total, $25.7 million was used to complete five business acquisitions during the period, with the majority~~ of ~~this~~our ~~expenditure~~goodwill ~~occurring in the quarter ended June 30, 2005. We also used $4.2 million to acquire equipment~~ and other ~~fixed~~intangible assets, ~~of which $1.2 million was used to purchase a new software system for our specialty drug distribution business, $1.5 million was used for infrastructure items such~~ as ~~furniture, fixtures and~~of ~~computer hardware~~March 31, ~~$1.1~~2007 ~~million was used to acquire revenue-generating medical equipment such as infusion pumps~~ and ~~other durable medical equipment, and $400,000 was used for internally-developed software projects. During the six months ended June~~December 3031, ~~2005,~~ we2006 ~~generated a net $3.8 million~~ (in ~~cash from the liquidation of~~thousands): ~~short-term investments to help fund our acquisition payments.~~

In the prior year period ending June 30, 2004, we used $3.7 million in investing activities. Of this total, we used $1.1 million to acquire two small businesses and used $2.6 million for the purchase of equipment and other fixed assets. Of this total, $1.5 million was used to acquire infusion pumps and other revenue-generating medical equipment, $600,000 was used for infrastructure improvement and $500,000 was used on internally and externally developed software products.


	March 31, 2007		December 31, 2006
Goodwill, net of accumulated amortization	$	195,963	$	165,323
Other intangible assets, net of accumulated amortization	$	1,087	$	1,173
Total intangible assets, net of accumulated amortization	$	197,050	$	166,496

~~Financing~~Other ~~Cash~~intangible ~~Flows:~~assets consist of non-compete agreements, contracts and patient records acquired through business acquisitions. For the quarter ended March 31, 2007, goodwill increased $30.6 million as a result of additional consideration paid and payable related to prior year acquisitions. For the quarter ended March 31, 2007, other intangible assets decreased by $86,000 as a result of amortization during the period.

~~Financing~~As ~~activities~~required ~~generated~~by aStatements ~~net~~of ~~$3.2~~Financial ~~million~~Accounting inStandards ~~positive~~No. 142, ~~cash~~Goodwill ~~flow during~~and ~~the~~Other ~~six~~Intangible Assets ~~months~~(SFAS ~~ended June~~No. 30142), ~~2005. We~~we ~~generated~~do ~~$4.5~~not ~~million~~amortize ingoodwill, ~~cash~~but ~~from~~test ~~issuance~~our ofgoodwill ~~shares~~for ofimpairment ~~common~~annually ~~stock~~each toOctober 1, ~~employees~~or ~~who~~whenever ~~exercised~~we ~~stock~~identify ~~options~~events or ~~participated~~conditions inthat ~~our~~could ~~employee stock~~potentially ~~purchase~~result ~~plan,~~in impairment ~~and~~of weour ~~used $1~~goodwill.1 ~~million~~During tothe ~~pay~~quarter ~~cash~~ended ~~dividends~~March 31, ~~to our shareholders. We also used $200~~2007,~~000~~ ~~to pay~~no ~~trailing~~impairment ~~debt~~of ~~issuance~~goodwill ~~costs related to our convertible debt offering from November 2004~~was identified.

InRegulatory ~~the prior year period ending June 30, 2004, financing activities generated $600,000 in cash flow. We generated $2.4 million from employee stock option exercises~~ and ~~employee~~ stock purchase plan contributions. This was offset by $900,000 used to purchase treasury stock, $400,000 used to pay a cash dividend to our common shareholders and $400,000 used for scheduled debt repayments on capital leases and other ~~fixed-rate debts.~~developments:

~~Convertible~~Average ~~Senior~~Wholesale ~~Notes:~~Price litigation update. The case New England Carpenters Health Benefits Fund, et al. v. First DataBank, et al., (U.S. District Court, D. Mass), a civil class action case brought against First DataBank, one of several companies that report data on prescription drug prices, alleges that the company colluded with a prescription drug wholesaler to artificially raise the average wholesale prices (“AWP”) of various prescription drugs to increase pharmacy profits. As part of a proposed settlement in the case, First DataBank has agreed to reduce the reported AWP of over 8,000 specific pharmaceutical products by five percent. The presiding court has not approved the proposed settlement. We cannot predict the outcome or timing of any such settlement.

InHealth ~~November 1,~~Insurance ~~2004,~~Portability weand ~~completed~~Accountability anAct ~~$86.3~~of ~~million~~1996 ~~offering of 2~~(HIPAA).~~25%~~ ~~convertible~~To ~~senior~~improve ~~notes,~~the ~~due~~efficiency ~~2024.~~ and ~~The~~effectiveness ~~purpose~~ of the ~~offering~~health ~~was~~care ~~to finance our future growth initiatives. The funds may be used for acquisitions~~system, ~~stock~~the ~~repurchases,~~Health ~~operating~~Insurance ~~cash~~Portability ~~needs~~ and ~~other~~Accountability ~~general~~Act ~~corporate purposes. The initial offering was completed on November~~(HIPAA) 2of 1996, ~~2004~~Public ~~for~~Law ~~$75.0 million~~104-191, ~~with~~included an“Administrative ~~option~~Simplification” ~~for~~provisions anthat ~~additional~~required ~~$11.3~~the ~~million. This~~Department ~~option was~~of ~~exercised~~Health inand ~~full~~Human onServices ~~November~~(HHS) 9,to ~~2004. We~~adopt ~~will~~national ~~pay~~standards ~~2.25%~~for electronic ~~interest~~health ~~per~~care ~~annum~~transactions. onAt the ~~principal~~same ~~amount~~time, ofCongress ~~the notes,~~recognized ~~payable~~that ~~semi-annually~~advances in electronic ~~arrears~~technology oncould ~~May 1~~erode ~~and~~the ~~November 1~~privacy of ~~each~~ ~~year,~~health ~~with~~information. ~~the~~Consequently, ~~first~~Congress incorporated ~~payment~~provisions ~~due~~into ~~and~~HIPAA ~~paid~~that onmandated ~~May 1,~~the ~~2005. The~~adoption ~~holders~~of ~~may~~Federal ~~convert~~privacy ~~the~~protections ~~notes into cash~~for ~~and,~~individually ifidentifiable ~~applicable,~~health ~~shares of our common stock if certain~~information.

18In response to the HIPAA mandate, in December 2000, HHS published a final regulation in the form of the Privacy Rule, which became effective on April 14, 2001. This Privacy Rule set national standards for the protection of health information, as applied to the three types of covered entities: health plans, health care clearinghouses, and health care providers who conduct certain health care transactions electronically. Pursuant to the Privacy Rule, covered entities are required to have standards in place to protect and guard against the misuse of individually identifiable health information.

~~conversion~~The ~~criteria~~Privacy ~~are~~Rule ~~met,~~established ~~such as our stock reaching~~ a ~~threshold market~~foundation ~~price or various other criteria. The notes cannot be redeemed by us prior to November 1, 2009. On each~~ of ~~November 1,~~Federal ~~2009,~~protections ~~November 1, 2014~~for ~~and November 1, 2019,~~ the ~~holders~~privacy ~~can require us to purchase all or a portion~~ of ~~the outstanding notes for their principal amount plus accrued~~protected ~~interest~~health information. At ~~any~~The ~~time~~Privacy onRule ordoes ~~after~~not ~~November 1~~replace federal, ~~2009,~~ ~~we may redeem the notes~~state, ~~in whole~~ or inother ~~part,~~laws atthat ~~a redemption price equal~~grant toindividuals ~~100%~~even ofgreater ~~the~~privacy ~~principal amount~~protections, ~~plus any accrued~~ and ~~unpaid~~covered ~~interest. We~~entities ~~have~~are ~~incurred~~free ~~deferred financing costs of $3.2 million related~~ to ~~this offering, consisting of underwriting, legal and~~ ~~other related costs. These costs are being amortized straight-line over a five-year period.~~

~~Accounts Receivable:~~18

TheTable following table sets forth information regarding our accounts receivable as of the dates indicated (dollar amounts in thousands):Contents

	June 30, 2005			March 31, 2005			December 31, 2004
Accounts receivable	$	78,614		$	80,029		$	76,809
Less allowance for doubtful accounts	(6,039		)	(5,948		)	(6,879		)
Accounts receivable, net of allowance for doubtful accounts	$	72,575		$	74,081		$	69,930
Days sales outstanding (DSO)(1)	57 days			54 days			55 days

retain or adopt more protective policies or practices. We have implemented the standards set forth in the Privacy Rule, and believe that we and all of our franchisees are in compliance with the Privacy Rule or any more stringent federal or state laws relating to privacy.

~~(1) DSO is~~Additionally, ~~based~~the onAdministrative ~~trade~~Simplification ~~accounts~~provisions ~~receivable,~~address ~~net~~electronic health care transactions and the security of ~~allowance~~electronic ~~for~~health ~~doubtful~~information ~~accounts~~systems. Providers are required to comply with the standards by specific compliance dates established by HHS. For standards relating to electronic health care transactions, all providers were required to ~~and~~comply isby ~~calculated~~October 16, ~~using~~2003. ~~the~~The ~~exhaustion~~security ~~method~~standards ~~whereby~~applicable ~~the~~to ~~net~~individually ~~accounts~~identifiable health ~~receivable~~information ~~balance~~maintained iselectronically ~~exhausted~~were ~~against~~required ~~each~~to ~~preceding~~be ~~month’s~~implemented orby ~~partial~~April 21, ~~month’s~~2005. We were ~~net~~materially ~~revenue~~compliant with these standards by the applicable compliance date. The ~~DSO~~standards ~~calculated~~for ~~above~~a ~~includes~~unique ~~only~~national ~~our~~health ~~specialty~~identifier ~~pharmacy~~for ~~service~~providers ~~line~~used ~~and~~in ~~infusion~~connection ~~and~~with ~~related~~the electronic healthcare ~~service~~transactions ~~line~~must be implemented by May 23, 2007, by when we expect to be materially compliant with this requirement.

~~Our~~Penalties ~~accounts~~for ~~receivable,~~non-compliance ~~net~~with ofthe ~~bad~~Privacy ~~debt~~Rule ~~reserves,~~and ~~was~~other ~~$72.6~~HIPAA ~~million~~Administrative asSimplification provisions range from a civil penalty of ~~June 30,~~$100 ~~2005~~for ~~compared~~each violation (which can total up to $~~74.1~~25,000 ~~million~~per person atper ~~March 31~~year), ~~2005~~to ~~and~~ criminal penalties, including up to $~~69.9~~50,000 ~~million~~and/or asone ofyear ~~December 31~~imprisonment, ~~2004.~~ up ~~The~~to ~~quarterly~~$100,000 ~~decline~~and/or infive ~~accounts~~years ~~receivable~~imprisonment ~~was~~if ~~primarily~~the ~~due~~offense tois acommitted under false pretenses and up ~~seasonal~~to ~~decline~~$250,000 inand/or ~~Synagis~~ten ~~revenue~~years ~~which~~imprisonment ~~more~~for ~~than~~violating ~~offset~~a standard with the ~~increase~~intent ~~related~~ to ~~same~~sell, transfer ~~store~~or ~~sales~~use ~~growth~~individually ~~and~~identifiable ~~business~~health ~~acquisitions~~information wefor ~~completed~~commercial ~~during~~advantage, ~~the~~personal ~~quarter~~gain or malicious harm.

~~The~~In ~~following~~addition ~~table~~to ~~sets~~regulating ~~forth~~privacy ~~the~~of ~~percentage~~individual ~~breakdown~~health ofinformation ~~our~~and ~~trade~~other provisions relating to ~~accounts~~Administrative ~~receivable~~Simplification, byHIPAA ~~aging~~includes ~~category~~several anti-fraud and byabuse ~~major~~laws, ~~payor~~extends ascriminal penalties to private health care benefit programs and, in addition to Medicare and Medicaid, to other federal health care programs, and expands the Office of Inspector General’s authority to exclude persons and entities from participating in the ~~dates~~Medicare and Medicaid programs. ~~indicated:~~

	June 30, 2005		March 31, 2005		December 31, 2004
By Aging Category (1):
Aged 0-90 days	72	%	74	%	72	%
Aged 91-180 days	15	%	13	%	13	%
Aged 181-365 days	8	%	8	%	9	%
Aged over 365 days	5	%	5	%	6	%
Total	100	%	100	%	100	%
By Major Payor:
Managed care and other payors	80	%	83	%	82	%
Medicare and Medicaid	20	%	17	%	18	%
Total	100	%	100	%	100	%

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

~~(1) Accounts~~We are subject to market risk primarily in relation to our cash and short-term investments. As of ~~receivable~~March 31, by2007, ~~aging~~we ~~category~~had ~~considers~~no ~~only~~variable-rate ~~accounts~~debt. We had fixed-rate debt as of that date primarily comprised of $86.3 million offering of 2.25% convertible senior notes, due 2024. The interest rate we may earn on the cash we invest in short-term investments is subject to market fluctuations. We utilize a mix of investment maturities based on our ~~specialty~~anticipated ~~pharmacy~~cash needs and evaluation of ~~service~~existing ~~line~~interest rates and ~~infusion~~market conditions. The following table sets forth our cash and ~~related~~cash equivalents ~~healthcare~~and ~~service~~short-term ~~line.~~investments as of March 31, 2007 and December 31, 2006 (in thousands):

Our days sales outstanding (DSO) increased to 57 days as of June 30, 2005 from 54 days as of March 31, 2005. This increase was due in part to normal fluctuations in the timing of payments received under our principal managed care contract with Blue Cross and Blue Shield of Florida.


	March 31,		December 31,
	2007		2006
Cash and cash equivalents, unrestricted	$	7,542	$	3,171
Cash, restricted (1)		—		7,554

Total cash and cash equivalents	$	7,542	$	10,725

Short-term investments (2)	$	9,500	$	5,700

Total cash and cash equivalents and short-term investments	$	17,042	$	16,425

As of June 30, 2005 we had cash and cash equivalents of $8.9 million and short-term investments of $71.6 million for a combined

	(1)		The restricted cash was related to our issuance of 559,700 shares of stock to the sellers of Trinity Homecare, LLC, which is a business we acquired during 2006. The restriction was subsequently lifted upon our registration of the issued shares on January 31, 2007.

	(2)		Short-term investments consist of commercial paper and other investments having a maturity of greater than three months at time of purchase. Short-term investments also consists of municipal variable rate demand notes, preferred stock and similar instruments with maturities greater than ten years, but which contain provisions for the periodic adjustment of interest rate to market, generally each 28 or 35 days.

19While we attempt to minimize market risk and maximize return, changes in market conditions may significantly affect the income we earn on our cash and cash equivalents and short-term investments. Based on our actual cash and cash equivalents and short-term investment balances at March 31, 2007, a 1% percent decline in interest rates would reduce our interest income by $170,000 on an annualized basis.

~~total of $80.5 million available for operations, acquisitions and other cash requirements. As of December 31, 2004, we had cash and cash equivalents of $~~19~~.8 million and short-term investments~~ of $75.4 million for a combined total of $95.2 million. The $14.7 million decline in cash, cash equivalents and short-term investments was primarily due to acquisition activities, which used $25.7 million in cash during the period. We generated positive cash flow from operations of $12.0 million during the six months ended June 30, 2005, which partially offset our use of cash for acquisitions. We believe that cash flow from operations and our current reserves of cash and short-term investments will be sufficient to meet our operating cash needs for the immediate future, including any interest due on our $86.3 million of 2.25% convertible senior notes. In the event that additional capital is required, there can be no assurance that such capital can be obtained from other sources on terms acceptable to us, if at all.

OurTable business strategy includes the selective acquisition of additional local pharmacy facilities and specialty pharmacy operations. Accordingly, we may require additional capital in order to complete these acquisitions. It is impossible to predict the amount of capital that may be required for acquisitions, and there is no assurance that sufficient financing for these activities will be available on terms acceptable to us, if at all.Contents

~~Goodwill~~ITEM ~~and~~4. ~~Other~~Controls ~~Intangible~~and ~~Assets~~Procedures

AsWe ofcarried ~~June 30,~~out ~~2005~~an evaluation, weunder ~~had~~the ~~net~~supervision ~~goodwill~~ and ~~other~~with ~~intangible assets~~the participation of ~~$86.0~~our ~~million~~management, including ~~consisting~~our chief executive officer and chief financial officer, of ~~$85.3~~the ~~million~~effectiveness of ~~goodwill~~the design and ~~$700,000~~ operation of ~~other~~our ~~intangible~~disclosure ~~assets~~controls ~~such~~and procedures, (as ~~non~~defined in Rules 13a-~~competition~~15(e) under ~~agreements~~the ~~and~~Securities ~~managed~~Exchange ~~care contracts. As~~Act of ~~December~~1934 (the “Exchange Act”)) as of March 31, ~~2004~~2007. Based upon that evaluation, the chief executive officer and chief financial officer concluded that our ~~net~~disclosure ~~goodwill~~controls and ~~other~~procedures ~~intangible~~are ~~assets~~effective ~~equaled~~as ~~$65.9~~of ~~million~~March 31, ~~consisting~~2007 ofto ensure that information ~~$65.4~~required ~~million~~to ofbe ~~goodwill~~disclosed ~~and~~in ~~$500,000~~our ofreports ~~other~~filed ~~intangible~~or ~~assets. During~~submitted under the ~~six~~Exchange ~~months~~Act ~~ended~~(i) is ~~June 30~~recorded, ~~2005~~ processed, ~~goodwill~~summarized ~~increased~~and ~~$19.9~~reported ~~million~~within asthe atime ~~result~~periods ofspecified in the ~~five business~~Securities ~~acquisitions~~and weExchange ~~completed~~Commission’s ~~during~~rules ~~the~~and ~~period.~~forms, and (ii) ~~Other~~is ~~intangible~~accumulated ~~assets~~and ~~increased~~communicated byto ~~$400~~management,~~000~~ including asour achief ~~result~~executive ofofficer ~~these acquisitions,~~and ~~offset~~chief byfinancial ~~amortization~~officer, ofto ~~$200,000~~allow ~~during~~timely ~~the~~decisions regarding ~~period~~required disclosure.

AsIn ~~required~~addition, byno ~~Statements~~change ofin ~~Financial~~our ~~Accounting~~internal ~~Standards~~control ~~No. 142, Goodwill~~over ~~and~~financial ~~Other~~reporting ~~Intangible~~(as ~~Assets~~defined ~~(SFAS~~in ~~No. 142),~~Rule we13a-15(f) dounder ~~not~~the ~~amortize~~Exchange ~~goodwill,~~Act) ~~but~~occurred ~~test~~during our ~~goodwill~~fiscal ~~for~~quarter ~~impairment~~ended ~~annually each October~~March 131, or2007 ~~whenever~~that wehas materially ~~identify~~affected, ~~events~~ or ~~conditions~~is ~~that~~reasonably ~~could potentially~~likely ~~result~~to inmaterially ~~impairment~~affect, of our ~~goodwill. During~~internal ~~the~~control ~~quarter ended June 30, 2005,~~over nofinancial ~~impairment of goodwill was identified~~reporting.

~~Regulatory and Other Developments~~20

HealthTable Insurance Portability and Accountability Act of 1996 (HIPAA). To improve the efficiency and effectiveness of the health care system, the Health Insurance Portability and Accountability Act (HIPAA) of 1996, Public Law 104-191, included “Administrative Simplification” provisions that required the Department of Health and Human Services (HHS) to adopt national standards for electronic health care transactions. The Administrative Simplification provisions address electronic health care transactions and the security of electronic health information systems. Providers are required to comply with the standards by specific compliance dates established by HHS. For standards relating to electronic health care transactions, the compliance date was originally set for October 16, 2002. If the covered entity filed for an extension, the compliance date was postponed until October 16, 2003. The security standards applicable to individually identifiable health information maintained electronically were required to be implemented by April 21, 2005. We were materially compliant with these standards by the applicable compliance dates. The standards for a unique national health identifier for providers used in connection with electronic healthcare transactions must be implemented by May 23, 2007. We expect to be able to materially comply with this regulation by its applicable compliance date.Contents

~~Penalties~~PART ~~for~~II. ~~non-compliance~~OTHER ~~with the HIPAA Administrative~~INFORMATION Simplification provisions range from a civil penalty of $100 for each violation (which can total up to $25,000 per person per year), to criminal penalties, including up to $50,000 and/or one year imprisonment, up to $100,000 and/or five years imprisonment if the offense is committed under false pretenses and up to $250,000 and/or ten years imprisonment for violating a standard with the intent to sell, transfer or use individually identifiable health information for commercial advantage, personal gain or malicious harm.

InITEM ~~addition~~1. toLegal ~~regulating privacy of individual health information and~~Proceedings other provisions relating to Administrative Simplification, HIPAA includes several anti-fraud and abuse laws, extends criminal penalties to private health care benefit programs and, in addition to Medicare and Medicaid, to other federal health care programs, and expands the Office of Inspector General’s authority to exclude persons and entities from participating in the Medicare and Medicaid programs.

~~Medicare~~We ~~Prescription~~are ~~Drug,~~subject ~~Improvement~~to ~~and Modernization~~claims ~~Act of 2003. The Medicare Prescription Drug, Improvement~~ and ~~Modernization~~legal ~~Act~~actions ofthat ~~2003~~may ~~changed the~~arise ~~way~~ in ~~which covered outpatient drugs are reimbursed by~~ the ~~Medicare program. In~~ordinary ~~January~~course ~~2004, payment for most drugs covered by Medicare decreased to 85%~~ of ~~the AWP for those drugs, determined as of April 1, 2003~~business. ~~Beginning in 2005~~However, ~~reimbursement~~we ~~for~~maintain ~~most~~insurance ~~Medicare~~to ~~Part~~protect Bagainst ~~drugs~~such ~~not~~claims ~~paid on a cost~~ or ~~prospective~~legal ~~payment~~actions. ~~basis~~We ~~was~~are tonot beaware ~~set at either 106%~~ of ~~the~~ ~~average~~any ~~sales~~litigation, ~~price~~either ~~(ASP)~~pending or ~~through~~filed, athat ~~competitive~~we ~~acquisition~~believe ~~program~~is tolikely be phased in beginning in 2006. The competitive acquisition program will be established by the Centers for Medicare and Medicaid Services (CMS) and will enable physicians in designated competitive acquisition areas to ~~purchase drugs through contractors that~~ have ~~successfully~~ ~~bid~~a ~~for~~material ~~that right. Each~~adverse ~~physician~~effect ~~will~~on ~~elect~~our ~~annually~~results ~~whether to obtain drugs through the competitive acquisition program. CMS will re-bid the contracts at least every three years. A significant portion~~ of ~~the~~operation ~~infusion~~or ~~drugs~~financial ~~provided by us are administered in connection with covered durable medical equipment (DME)~~condition. ~~The payment rate for drugs administered in this manner generally will continue to be 95% of the AWP in effect as of October 1, 2003.~~

~~While~~We ~~the~~currently ~~majority~~maintain ofinsurance ~~our~~for ~~revenue~~general isand ~~reimbursed~~professional byliability ~~managed~~claims ~~care~~in the amount of $1 ~~organizations~~million per claim and ~~other~~$3 million ~~non-government~~in ~~payors~~aggregate per policy year, ~~these~~plus ~~changes~~$5 million toin umbrella coverage. Accordingly, the ~~way Medicare~~maximum ~~pays~~coverage for ~~outpatient~~a ~~drugs~~first ~~and~~claim ~~biologicals~~in ~~may~~any ~~reduce~~policy ~~our~~year ~~revenue~~is $6 million, and ~~gross~~the ~~margins~~maximum onaggregate ~~services~~coverage ~~provided~~for toall ~~Medicare~~claims ~~patients. Further,~~in ~~adoption~~a ofpolicy ~~ASP~~year asis ~~the~~$8 million. ~~standard~~We also require each ~~measure~~franchisee ~~for~~to ~~determining~~maintain ~~reimbursement~~general byliability ~~state~~and ~~Medicaid~~professional ~~programs~~liability ~~for~~insurance ~~the~~covering ~~drugs~~both the franchisee and us, at coverage levels that we believe to be sufficient. These policies provide coverage ~~may~~on ~~reduce~~a ~~our~~claims-made ~~revenue~~or occurrence basis and ~~gross~~have ~~margins~~certain exclusions from coverage. These insurance policies generally must be renewed annually. There can be no assurance that our insurance coverage will be adequate to cover liability claims that may be asserted against us.

ITEM 31A. ~~Quantitative and Qualitative Disclosures About Market~~ Risk Factors

WeOur ~~are~~Annual ~~subject~~Report toon ~~market~~Form 10-K for the year ended December 31, 2006 includes a detailed discussion of certain risk ~~primarily~~factors in ~~relation~~Part I, toItem 1A. The risk factors in our ~~cash~~Annual ~~and cash~~Report ~~equivalents~~on ~~and~~Form ~~short~~10-~~term~~K ~~investments.~~ for Asthe ofyear ~~June~~ended December 3031, ~~2005,~~2006 weare ~~had~~not nothe ~~variable-rate~~only ~~debt. In~~risks ~~November 2004,~~and uncertainties that we ~~completed~~face anor ~~$86.3~~that ~~million~~could ~~offering~~develop. ofOther ~~2.25%~~risks ~~convertible~~and ~~senior~~uncertainties ~~notes~~that ~~due~~we ~~2024. The~~have ~~interest~~not ~~rate~~predicted onor ~~this~~evaluated ~~debt~~could isalso adversely ~~fixed~~affect our company. ~~However,~~ ~~the~~If ~~interest~~any ~~rate~~of wethese ~~may~~risks ~~earn~~and onuncertainties ~~the cash~~actually ~~generated~~occurs, ~~from~~our business, ~~this~~financial ~~offering~~condition, asoperating ~~well~~results asor liquidity could be materially and adversely affected.

20ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

~~cash generated from our operations, is subject to market fluctuations~~None. ~~We utilize a mix of~~ ~~investment maturities based on our anticipated cash needs and evaluation of existing interest rates and market conditions.~~

~~The~~ITEM ~~following~~3. ~~table~~Defaults ~~sets~~Upon ~~forth~~Senior ~~our cash and cash equivalents and~~Securities ~~short-term investments as of the dates indicated (in thousands):~~

	June 30, 2005		March 31, 2005		December 31, 2004
Cash and cash equivalents (1)	$	8,860	$	11,604	$	19,816
Short-term investments (2)	71,598		85,814		75,370
Total	$	80,458	$	97,418	95,186

None.

~~(1) Cash equivalents~~ITEM ~~includes~~4. ~~highly-liquid~~Submission ~~investments having a maturity~~ of ~~three months~~Matters orto ~~less~~a atVote ~~time~~ of ~~purchase,~~Securities Holders

(2) Short-term investments consist of commercial paper with maturities of three months or more at time of acquisition, as well as variable-rate municipal demand notes, preferred stocks and similar instruments that are either perpetual in nature or have final maturities greater than three monthsNone.

~~While~~ITEM ~~we attempt to minimize market risk and maximize return, changes in market conditions may significantly affect the income we earn on our cash and cash equivalents and short-term investments~~5. ~~Based~~ onOther ~~our actual cash and cash equivalents~~Information ~~and short-term investment balances at June 30, 2005, a 100 basis point decline in interest rates would reduce our interest income by $805,000 on an annualized basis.~~

~~ITEM 4~~None. ~~Controls and Procedures~~

WeITEM carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934 (the Exchange Act)) as of June 30, 20056. ~~Based upon that evaluation, the chief executive officer and chief~~Exhibits financial officer concluded that our disclosure controls and procedures are effective as of June 30, 2005. Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

InSee ~~addition, no change in our internal control over financial reporting (as defined in Rule~~Exhibit 13a-15(f) under the Exchange Act) occurred during our fiscal quarter ended June 30, 2005 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reportingIndex.

~~PART II. OTHER INFORMATION~~21

ITEMTable 1.of Legal ProceedingsContents

~~We are subject to claims and legal actions that may arise in the~~SIGNATURE ordinary course of business. However, we maintain insurance to protect against such claims or legal actions. We are not aware of any litigation, either pending or filed, that we believe is likely to have a material adverse effect on our results of operation or financial condition.

~~ITEM~~ Pursuant 2.to ~~Unregistered~~the ~~Sales~~requirements of ~~Equity~~the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Effective May 1, 2005, we acquired the outstanding stock of At Home Solutions, Inc., an independent infusion pharmacy provider operating in the major population centers of Montana. A portion of the purchase price will be paid in shares of our common stock. A total of 48,315 shares will be issued, valued at $13.31 per share, pursuant to the exemption from registration provided Rule 506 of Regulation D and/or Section 4(2) of the Securities Act of 1933.


	OPTION CARE, INC.
Date: May 10, 2007	By:	/s/ Paul Mastrapa
		Senior Vice President and Chief Financial Officer
		(Principal Accounting Officer and Principal Financial Officer)

~~ITEM 3. Defaults Upon Senior Securities~~22

None.Table of Contents

21EXHIBIT INDEX

ITEM 4. Submission of Matters to a Vote of Securities Holders


Exhibit
Number

10.20		2001 Employee Stock Purchase Plan, as amended by vote of our stockholders on May 16, 2006. Filed as exhibit 10.20 to this Quarterly Report on Form 10-Q.

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Senior Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32		Certification of Chief Executive Officer and Senior Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, and Rule 13a-14(b) of the Exchange Act.

We held our annual meeting of stockholders on May 9, 2005. At that meeting, our stockholders were asked to consider and vote upon the following matters.

1. Election of one member to the Board of Directors to hold office for a three-year term or until his successor is duly elected and qualified. The nominee, who was listed in our proxy statement, was elected for a three-year term, with the results of voting as follows:

		VOTES FOR		VOTES AGAINST		ABSTAIN
Leo Henikoff, M.D.		22,886,626		0		1,102,685

2. Ratification of the appointment of Ernst & Young, LLP as our independent auditors for the fiscal year 2005. The proxy voting results were as follows:

VOTES FOR		VOTES AGAINST		ABSTAIN
23,941,025		46,850		1,436

ITEM 5. Other Information

None.

ITEM 6. Exhibits

See Exhibit Index.

SIGNATURE

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

	OPTION CARE, INC.
Date: August 9, 2005	By:	/s/ Paul Mastrapa
		Chief Financial Officer
		(Principal Accounting Officer and Principal Financial Officer)

EXHIBIT INDEX

Exhibit Number
3.1		Certificate of Incorporation of the Registrant, together with Certificate of Amendment thereto filed February 18, 1992. Filed as Exhibit 3(a) to Option Care’s Registration Statement (No. 33-45836) dated April 15, 1992 and incorporated by reference herein.
3.2		Certificate of Amendment to Certificate of Incorporation of the Registrant filed March 25, 1992. Filed as Exhibit 3(c) to Option Care’s Registration Statement (No. 33-45836) dated April 15, 1992 and incorporated by reference herein.
3.3		Certificate of Amendment to Certificate of Incorporation of the Registrant filed with the Delaware Secretary of State on June 18, 2002. Filed as Exhibit 3.3 to Option Care’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 and incorporated by reference herein.
3.4		Restated By-laws of the Registrant dated June 1, 1994. Filed as Exhibit 10.5 to Option Care’s Annual Report on Form 10-K for the year ending December 31, 1994 and incorporated by reference herein.
4.1		Indenture Agreement by and among Option Care, Inc. and LaSalle Bank National Association, including the Form of our 2.25% Convertible Senior Notes due 2024. Filed as Exhibit 4.1 to our Current Report on Form 8-K filed on November 11, 2004 and incorporated by reference herein.
4.2		Registration Rights Agreement dated as of November 2, 2004 by and among Option Care, UBS Securities LLC and Piper Jaffray & Co. Filed as Exhibit 4.2 to our Current Report on Form 8-K filed on November 11, 2004 and incorporated by reference herein.
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Senior Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32		Certification of Chief Executive Officer and Senior Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, and Rule 13a-14(b) of the Exchange Act.

Filing Compare · OPTION CARE INC/DE