UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the Quarterly Period Ended: June 30, 2004

OR

For the transition period from __________ to __________.

American HomePatient, Inc.

(615) 221-8884

None

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [  ] No [X]

16,461,689

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AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES

INDEX

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PART I. FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION FROM JULY 31, 2002 TO JULY 1, 2003)

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

(Continued)

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AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION FROM JULY 31, 2002 TO JULY 1, 2003)

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)

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

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AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION FROM JULY 31, 2002 TO JULY 1, 2003)

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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

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AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION FROM JULY 31, 2002 TO JULY 1, 2003)

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Continued)

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AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION FROM JULY 31, 2002 TO JULY 1, 2003)

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

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

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AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION FROM JULY 31, 2002 TO JULY 1, 2003)

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

American HomePatient, Inc. was incorporated in Delaware in September 1991. American HomePatient Inc.’s principal executive offices are located at 5200 Maryland Way, Suite 400, Brentwood, Tennessee 37027-5018, and its telephone number at that address is (615) 221-8884. American HomePatient, Inc. and subsidiaries (the “Company”) provides home health care services and products consisting primarily of respiratory therapies, infusion therapies and the rental and sale of home medical equipment and home health care supplies. For the six months ended June 30, 2004, these services represented 71%, 12% and 17% of revenues, respectively. These services and products are paid for primarily by Medicare, Medicaid and other third-party payors. As of June 30, 2004, the Company provided these services to patients primarily in the home through 283 centers in 35 states: Alabama, Arizona, Arkansas, Colorado, Connecticut, Delaware, Florida, Georgia, Illinois, Iowa, Kansas, Kentucky, Maine, Maryland, Michigan, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Virginia, Washington, West Virginia and Wisconsin.

The interim condensed consolidated financial statements of the Company for the three and six months ended June 30, 2004 and 2003 herein are unaudited and have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management of the Company, the accompanying unaudited interim condensed consolidated financial statements reflect all adjustments (consisting of only normally recurring accruals) necessary to present fairly the financial position at June 30, 2004 and the results of operations and the cash flows for the three and six months ended June 30, 2004 and 2003.

The results of operations for the three and six months ended June 30, 2004 and 2003 are not necessarily indicative of the operating results for the entire respective years. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s 2003 Annual Report on Form 10-K.

Certain reclassifications have been made to the 2003 interim condensed consolidated financial statements to conform to the 2004 presentation.

2. PROCEEDINGS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE

On July 1, 2003, American HomePatient, Inc. emerged from bankruptcy pursuant to a “100% pay plan” whereby the Company’s shareholders retained their equity interest and all of the Company’s creditors and vendors will be paid 100% of all amounts they are owed, either

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immediately or over time with interest. American HomePatient, Inc. and 24 of its subsidiaries (collectively, the “Debtors”) originally filed voluntary petitions for relief on July 31, 2002 to reorganize under Chapter 11 of the U.S. Bankruptcy Code (the “Bankruptcy Filing”) in the United States Bankruptcy Court for the Middle District of Tennessee (the “Bankruptcy Court”).

These cases (the “Chapter 11 Cases”) were consolidated for the purpose of joint administration under Case Number 02-08915-GP3-11. On January 2, 2003, the Debtors filed their Second Amended Joint Plan of Reorganization (the “Proposed Plan”), proposed by the Debtors and the Official Committee of Unsecured Creditors appointed by the Office of the United States Trustee in the Chapter 11 Cases. The holders of the Company’s senior debt (the “Lenders”) objected to the Proposed Plan. On May 15, 2003, the Bankruptcy Court entered a memorandum opinion overruling the Lenders’ objections to the Proposed Plan. On May 27, 2003, the Bankruptcy Court entered an Order confirming the Proposed Plan (“Confirmation Order”) (hereafter referred to as the “Approved Plan”). On June 30, 2003, the United States District Court for the Middle District of Tennessee (the “District Court”) rejected the Lenders’ request to stay the effective date of the Approved Plan.

On July 1, 2003, the Company’s Approved Plan became effective and the Company successfully emerged from bankruptcy protection. The Lenders filed an appeal to the District Court of the order confirming the Approved Plan. On September 12, 2003, the District Court issued an opinion affirming in all respects the Confirmation Order. The Lenders have filed an appeal to the order confirming the Approved Plan with the United States Court of Appeals for the Sixth Circuit under Case Number 03-6500, which appeal is still pending. The Company intends to vigorously defend the Confirmation Order entered by the Bankruptcy Court and upheld by the District Court, but no assurances can be given as to the outcome of that appeal.

The Approved Plan allows the Company to continue its business operations uninterrupted, led by its current management team, and accomplishes the Company’s primary goal of restructuring its long-term debt obligations to its Lenders. In addition, the Approved Plan provides that the Company’s shareholders retain their equity interest in the Company and that all of the Company’s creditors and vendors will be paid 100% of all amounts they are owed, either immediately or over time with interest.

The Approved Plan provides for the treatment of all of the claims subject to compromise in the Bankruptcy Filing. The Approved Plan provides for the extension of the maturity on the debt to the Lenders, a reduction of the related interest cost on such debt, and the payment of all of the Company’s reported liabilities. The Lenders retained their liens on substantially all of the assets of the Company.

Pursuant to the Approved Plan, the Company’s secured debt to the Lenders is quantified at $250.0 million and is evidenced by a promissory note in that amount and is secured by various security agreements. To the Company’s knowledge, the Lenders have not executed the agreements as of the date of this filing. The Company is no longer a party to a credit agreement. The remainder of the amounts due to the Lenders at July 1, 2003 over and above the $250.0 million is treated as unsecured.

The Approved Plan provides that principal is payable annually on the $250.0 million secured debt on March 31 of each year, beginning March 31, 2005, in the amount of one-third of the

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Company’s Excess Cash Flow (defined in the Approved Plan as cash in excess of $7.0 million at the end of each fiscal year) for the previous fiscal year with an estimated prepayment due on September 30, 2004 in an amount equal to one-half of the anticipated payment due on March 31, 2005. After the unsecured debt of the Lenders and the general unsecured debt is paid in full, 100% of the Company’s Excess Cash Flow is paid as a principal payment on the $250.0 million secured debt on March 31 of each year. An estimated prepayment is due on each previous September 30 in an amount equal to one-half of the anticipated March payment. Other than the Excess Cash Flow payments, there are no scheduled principal payments on the $250.0 million secured debt until it matures on July 1, 2009. The Approved Plan provides that interest is payable monthly on the $250.0 million secured debt at a rate of 6.785% per annum.

The Approved Plan treats the general unsecured debt and the Lenders’ unsecured debt in the same manner. Principal and accrued interest is payable semi-annually (on June 30 and December 31 of each year) in six equal installments beginning December 31, 2003. Interest accrues on this unsecured debt at an annual rate of 8.3675%. The holders of the unsecured debt also received an estimated prepayment of the Pro Rata Payment (as defined in the Approved Plan) on September 30, 2003. Because the Company did not have Excess Cash Flow for fiscal year 2003 (as defined by the Approved Plan), there was no Pro Rata Payment due on March 31, 2004. The Pro Rata Payment due on March 31, 2005 is in the amount of two-thirds of the Company’s Excess Cash Flow, if any, for the 2004 fiscal year. Additionally, an estimated prepayment is due on September 30, 2004 in an amount equal to one-half of the anticipated March 2005 Pro Rata Payment.

The Approved Plan allows the Company to make prepayments to holders of unsecured debt, either in whole or in part, at any time without penalty, which prepayments reduce and are a credit against any subsequent mandatory payments.

Prior to emergence from bankruptcy protection, the Company made adequate protection payments to the Lenders totaling approximately $15.8 million. Pursuant to the Approved Plan all of the adequate protection payments have been applied to the Lenders’ unsecured debt during 2003 as part of the 2003 scheduled payments and certain prepayments also have been made.

The Company has made all payments due as of June 30, 2004 under the Approved Plan, and has also prepaid some of its obligations thereunder. As of June 30, 2004, the Lenders were owed approximately $256.0 million, comprised of $250.0 million of secured debt and $6.0 million of unsecured debt. The remaining general unsecured claims (excluding the Government Settlement) as of June 30, 2004 were approximately $3.6 million. The Company plans to pay an additional $291,000 to the holders of general unsecured claims subsequent to June 30, 2004 to correct an error in the allocation of a prior payment.

On July 1, 2003, the Company paid, in full, unsecured claims that individually totaled $10,000 or less, according to the provisions of the Approved Plan. The total of these payments was $3.3 million.

The Bankruptcy Court issued an opinion ruling in favor of the Company’s request to reject the warrants originally issued to the Lenders to purchase 3,265,315 shares of the Company’s common stock for $.01 per share. As a result of the ruling, the warrants, which represented approximately 20% of the Company’s outstanding common stock, were rejected by the

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Company. The Bankruptcy Court determined the damages stemming from rejection of the warrants were $846,000, which is payable by the Company to the warrant holders as an unsecured claim. The warrant holders have appealed the damages calculation determined in this ruling. If the Lenders are unsuccessful in their appeal, they will be entitled to receive payment from the Company for damages in the amount of $846,000, which will be treated as a general unsecured claim. If the Lenders’ appeal is successful, the amount owed to the warrant holders could substantially increase, which could materially adversely affect the Company’s cash flow and results from operations. The Company intends to vigorously defend the damages calculation determined by the Bankruptcy Court, but no assurances can be given as to the outcome of the Lenders’ appeal.

3. STOCK BASED COMPENSATION

The Company applies the intrinsic-value-based method of accounting prescribed by Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”) and related interpretations including FIN 44, “Accounting for Certain Transactions Involving Stock Compensation, an interpretation of APB Opinion No. 25”, to account for its fixed-plan stock options. Under this method, compensation expense is recorded only if the current market price of the underlying stock exceeds the exercise price on the date of grant. SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”), and SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure, an amendment to FASB Statement No. 123” (“SFAS No. 148”), established accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation plans. As permitted by existing accounting standards, the Company has elected to continue to apply the intrinsic-value-based method of accounting described above, and has adopted only the disclosure requirements of SFAS No. 123, as amended. The following table illustrates the effect on net income if the fair-value-based method had been applied to all outstanding and unvested awards in each period.

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4. REORGANIZATION ITEMS

Reorganization items represent expenses that are incurred by the Company as a result of reorganization under Chapter 11 of the Federal Bankruptcy Code. Reorganization items for the three and six months ended June 30, 2004 and June 30, 2003 were $71,000, $2,004,000, $71,000, and $2,856,000, respectively, and are comprised primarily of professional fees.

5. LIQUIDITY

As discussed in Note 2, on July 1, 2003, the Company’s Approved Plan became effective and the Company emerged from bankruptcy protection. In connection with the Approved Plan, the Amended Credit Agreement was terminated. Pursuant to the Approved Plan, as of the effective date of the Approved Plan the Company had secured debt to the Lenders of $250,000,000 and unsecured debt of $30,100,000. The secured debt is evidenced by a promissory note in that amount and is secured by various security agreements.

The accompanying interim condensed consolidated financial statements were prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

During the year ended December 31, 2003, the Company emerged from bankruptcy, achieved net income of $14,025,000, and improved operating results compared to the prior years. The 2003 results were favorably impacted by the exclusion of $12,510,000 in post-petition interest expense while the Company was in bankruptcy in 2003. The Company is focused on generating positive cash flow from operating activities, primarily through improvements in its operating results. For the year ended December 31, 2003, net cash provided by operating activities was $17,238,000. Notwithstanding this net cash provided by operating activities, the Company did not have Excess Cash Flow (as defined in the Approved Plan), primarily because the Company made prepayments authorized under the Approved Plan. For the six months ended June 30, 2004, the Company achieved net income of $1,995,000 and had $18,768,000 of cash provided by operating activities.

Total long-term debt and capital leases have decreased by $5,952,000 from $262,914,000 at December 31, 2003 to $256,962,000 at June 30, 2004. All of the Company’s debt has fixed interest rates, which on a weighted average was 6.83% at June 30, 2004.

The Company has scheduled current debt principal payments of $6,950,000, pre-petition accounts payable payments of $3,629,000, and minimum rental obligations of $9,886,000 under long-term operating leases due during the twelve months ending June 30, 2005. The Company is also obligated to pay any Excess Cash Flow for application on the Lenders’ secured and unsecured debt as well as to holders of other unsecured debt. During 2003, the Company made payments, including some pre-payments, on the Lenders’ unsecured debt, as well as on other unsecured debt totaling $29.5 million. The Company has the option to apply the pre-payments against future required payments, including the required 2004 payments; however, the Company intends to continue making payments to the Lenders and general unsecured creditors (as defined in the Approved Plan) if it has sufficient cash.

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As of June 30, 2004, the Company had approximately $3,590,000 in unrestricted cash and cash equivalents and $21,214,000 of working capital. The Company’s consolidated cash flows from operations for the year ended December 31, 2003 and through June 30, 2004 were sufficient to meet 2003 and year to date 2004 debt and lease obligations. Management believes that the Company can operate on its existing cash and cash flow and make all payments provided for in the Approved Plan through June 30, 2005. The Medicare reimbursement reductions that became effective January 2004 impacted the Company’s profitability and ability to improve its liquidity and capital resources as compared to 2003. The adverse impact that the scheduled 2005 reimbursement reductions will have on the Company’s future operating results and financial condition will be material in 2005 and beyond. The magnitude of this impact will depend upon the success of the Company’s efforts to grow revenues, improve productivity, and reduce costs. It also will depend upon final resolution of lobbying efforts to modify the pricing changes. See “Trends, Events, and Uncertainties - Reimbursement Changes and the Company’s Response” and “Risk Factors – Medicare Reimbursement Reductions.”

In order to meet its future payment obligations, the Company must continue to improve its cash flow from operations. There can be no assurance that the Company’s operations will improve as rapidly as anticipated. The failure to make its periodic debt, lease and other financial obligations, or the failure to extend, refinance or repay any of its debt obligations as they become due would have a material adverse effect upon the Company.

The Company’s future liquidity will continue to be dependent upon the relative amounts of current assets (principally cash, accounts receivable and inventories) and current liabilities (principally accounts payable and accrued expenses). In that regard, the level and quality of accounts receivable can have a significant impact on the Company’s liquidity. The Company has various types of accounts receivable, the majority of which are patient receivables. Accounts receivable are generally outstanding for longer periods of time in the health care industry than many other industries because of requirements to provide third-party payors with additional information subsequent to billing and the time required by such payors to process claims. Certain accounts receivable frequently are outstanding for more than 90 days, particularly where the account receivable relates to services for a patient receiving a new medical therapy or covered by private insurance or Medicaid. Net patient accounts receivable were $55,610,000 and $56,940,000 at June 30, 2004 and December 31, 2003, respectively. Average days’ sales in accounts receivable (“DSO”) was approximately 63 and 60 days at June 30, 2004 and December 31, 2003, respectively. The Company calculates DSO by dividing the previous 90 days of revenue (excluding dispositions and acquisitions), net of bad debt expense into net patient accounts receivable and multiplying the ratio by 90 days. The Company’s level of DSO and net patient receivables is affected by the extended time required to obtain necessary billing documentation. The Company’s DSO for the quarter ended June 30, 2004 was impacted negatively by delays in billing and collection caused by HIPAA implementation in the last quarter of 2003 and by a slow down in Medicaid payments by some states.

The Company’s future liquidity and capital resources will also be materially adversely impacted by the Medicare reimbursement reductions contained in the Medicare Prescription Drug, Improvement and Modernization Act of 2003. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Trends, Events, and Uncertainties – Reimbursement Changes and the Company’s Response.”

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In accordance with the Approved Plan, none of the Company’s current debt and lease agreements contain financial and other restrictive covenants. However, any non-payment, or other default with respect to the Company’s debt obligations could cause the Company’s Lenders to attempt to declare defaults, accelerate payment obligations or foreclose upon the assets securing such indebtedness or exercise their remedies with respect to such assets. Any of such events, if appropriately taken by the Lenders, would have a material adverse impact on the Company.

6. GOVERNMENT INVESTIGATION AND LITIGATION

On June 11, 2001, a settlement agreement (the “Government Settlement”) was entered among the Company, the United States of America, acting through the United States Department of Justice (“DOJ”) and on behalf of the Office of Inspector General of the Department of Health and Human Services (“OIG”) and the TRICARE Management Activity, and a former Company employee, as relator. The Government Settlement was approved by the United States District Court for the Western District of Kentucky, the court in which the relator’s false claim action was filed. The Government Settlement covers alleged improprieties by the Company during the period from January 1, 1995 through December 31, 1998, including allegedly improper billing activities and allegedly improper remuneration to and contracts with physicians, hospitals and other healthcare providers. Pursuant to the Government Settlement, the Company made an initial payment of $3,000,000 in the second quarter of 2001 and agreed to make additional payments in the principal amount of $4,000,000, together with interest on this amount, in installments due at various times until March 2006. The Company also paid the relator’s attorneys’ fees and expenses. Pursuant to the Approved Plan, amounts owed pursuant to the Government Settlement will be paid in full in accordance with the Government Settlement, and the Company has made all payments due to date under the Government Settlement. During the six month period ended June 30, 2004, the Company paid $880,000, including interest of $380,000, pursuant to the Government Settlement. At June 30, 2004, the Company had an accrual of $3,511,000 for its remaining obligations pursuant to the Government Settlement. Of the total accrual related to the Government Settlement, $511,000 is included in other accrued expenses and $3,000,000 is included in other noncurrent liabilities on the accompanying interim condensed consolidated balance sheets at June 30, 2004.

7. INCOME PER COMMON SHARE

Income per share is measured at two levels: basic income per share and diluted income per share. Basic income per share is computed by dividing net income by the weighted average number of common shares outstanding during the year. Diluted income per share is computed by dividing net income by the weighted average number of common shares after considering the additional dilution related to stock options and warrants. In computing diluted income per share, the outstanding stock warrants and stock options are considered dilutive using the treasury stock method.

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

8. RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

In December 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 46, revised December 2003, (“FIN 46R”), “Consolidation of Variable Interest Entities”, which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. FIN 46R replaced FASB Interpretation No. 46, “Consolidations of Variable Interest Entities”, which was issued in January 2003. Beginning in 2004, the Company was required to apply FIN 46R to variable interests in variable interest entities (“VIEs”).

The adoption of FIN 46R did not have an impact on the Company’s consolidated balance sheet as none of the existing VIEs need to be consolidated by the Company.

FASB Statement No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”, was issued in May 2003. This Statement established standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. The Statement also includes required disclosures for financial instruments within its scope. For the Company, the Statement was effective for instruments entered into or modified after May 31, 2003 and otherwise was effective as of January 1, 2004, except for mandatorily redeemable financial instruments. For certain manditorily redeemable financial instruments, the Statement will be effective for the Company on January 1, 2005. The effective date has been deferred indefinitely for certain other types of manditorily redeemable financial instruments. Adoption of FASB Statement No. 150 did not have an impact on the Company’s consolidated financial statements as the Company currently does not have any financial instruments that are within the scope of this Statement.

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