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

                                                    Nine months Ended Sept. 30,
                                                      2009                2008
    Oxygen systems                                        38 %                 41 %
    Sleep therapy                                         36                   29
    Inhalation drugs                                       6                    6
    Nebulizers                                             2                    2
    Other respiratory                                      2                    2

    Total home respiratory therapy services               84 %                 80 %

    Enteral nutrition services                             5                    5
    Other infusion services                                4                    5

    Total home infusion therapy services                   9 %                 10 %

    Total home medical equipment and supplies              7 %                 10 %

100 % 100 %

The Company's products and services are primarily paid for by Medicare, Medicaid, and other third-party payors. Since amounts paid under these programs are generally based upon fixed rates, the Company generally is not able to set the prices that it receives for products and services provided to patients. Thus, the Company improves operating results primarily by increasing revenues through increased volume of sales and rentals, shifting product mix toward higher margin product lines, and controlling expenses. The Company can also improve cash flow by limiting the amount of time that it takes to collect payment after providing products and services. Key indicators of performance are:
Revenue Growth. The Company operates in an industry with pre-set prices subject to reimbursement reductions. Therefore, in order to increase revenue, the Company must increase the volume of sales and rentals. Reductions in reimbursement levels can more than offset an increase in volume. Management closely tracks overall increases and decreases in sales and rentals as well as increases and decreases by product-line and by branch location and geographic area in order to identify product line or geographic weaknesses and take corrective actions. The Company's sales and marketing focus for 2009 and beyond includes: (i) emphasizing profitable revenue growth by focusing on oxygen and sleep-related products and services and by increasing the Company's mix of Medicare and profitable managed care business; (ii) strengthening its sales and marketing efforts through a variety of programs and initiatives;
(iii) heightened emphasis on sleep therapy and implementation of initiatives to expand sales of CPAP supplies; and (iv) expanding managed care revenue through greater management attention and prioritization of payors to secure managed care contracts at acceptable levels of profitability. Improvement in the Company's ability to grow higher margin revenues will be critical to the Company's success. Management will continue to review and monitor progress with its sales and marketing efforts. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Trends, Events, and Uncertainties - Reimbursement Changes and the Company's Response."

Bad Debt Expense. Billing and collecting in the healthcare industry is extremely complex. Rigorous substantive and procedural standards are set by each third party payor, and failure to adhere to these standards can lead to non-payment, which can have a significant impact on the Company's net income and cash flow. The Company measures bad debt as a percent of net sales and rentals, and management considers this percentage a key indicator in monitoring its billing and collection function. Bad debt expense decreased from $4.0 million for the nine months ended September 30, 2008 to $2.6 million for the nine months ended September 30, 2009. As a percentage of net revenue, bad debt expense decreased from 2.0% for the nine months ended September 30, 2008 to 1.5% for the nine months ended September 30, 2009. This decrease is primarily the result of improved revenue qualification and collection processes. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Trends, Events, and Uncertainties - Reimbursement Changes and the Company's Response."
Cash Flow. The Company's funding of day-to-day operations and all payments required to the Company's secured creditors comes from cash flow and cash on hand. The Company currently does not have access to a revolving line of credit. The Company's Secured Debt matured on August 1, 2009. The Company has entered into a series of forbearance agreements with the Agent and certain Forbearance Holders in which the Agent and Forbearance Holders agreed to forbear from exercising rights and remedies prior to December 1, 2009, the expiration date of the current forbearance agreement. The nature of the Company's business requires substantial capital expenditures in order to buy the equipment used to generate revenues. As a result, management views cash flow as particularly critical to the Company's operations. The Company's future liquidity will continue to be dependent upon the relative amounts of current assets (principally cash, accounts receivable, and inventories) and current liabilities (principally accounts payable, accrued expenses and the Secured Debt). Management attempts to monitor and improve cash flow in a number of ways, including inventory utilization analysis, cash flow forecasting, and accounts receivable collection. In that regard, the length of time that it takes to collect receivables can have a significant impact on the Company's liquidity as described below in "Days Sales Outstanding." See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." Days Sales Outstanding. Days sales outstanding ("DSO") is a tool used by management to assess collections and the consequential impact on cash flow. The Company calculates DSO by dividing net patient accounts receivable by the average daily revenue for the previous 90 days (excluding dispositions and acquisitions), net of bad debt expense. The Company attempts to minimize DSO by screening new patient cases for adequate sources of reimbursement and by providing complete and accurate claims data to relevant payor sources. The Company also monitors DSO trends for each of its branches and billing centers and for the Company in total as part of the management of the billing and collections process. An increase in DSO usually results from certain revenue management processes at the billing centers and/or branches not functioning at optimal levels or a slow-down in the timeliness of payment processing by payors. A decline in DSO usually results from process improvements or more timely payment processing by payors. Management uses DSO trends to monitor, evaluate and improve the performance of the billing centers. DSO was 41 and 51 days at September 30, 2009 and December 31, 2008, respectively. This decrease is primarily the result of improved revenue qualification and collection processes.
Unbilled Revenues. Another key indicator of the Company's receivable collection efforts is the amount of unbilled revenue, which is the amount of sales and rental revenues not yet billed to payors due to incomplete documentation or the receipt of the Certificate of Medical Necessity

("CMN"). The amount of unbilled revenue was $4.0 million and $5.2 million for September 30, 2009 and December 31, 2008, respectively, net of valuation allowances. This decrease primarily is the result of improvements made in the timing of collecting documents necessary for billing.
Productivity and Profitability. In light of the reimbursement reductions affecting the Company over the past several years and the possibility of continued reimbursement reductions in the future, management has placed significant emphasis on improving productivity and reducing costs over the past several years and will continue to do so. Management considers many of the Company's expenses to be either fixed costs or cost of goods sold, which are difficult to reduce or eliminate. As a result, management's primary areas of focus for expense reduction and containment are through productivity improvements related to the Company's branches and billing centers. These improvements have focused on centralization of certain activities previously performed at branches, consolidation of certain billing center functions, and reduction in costs associated with delivery of products and services to patients. Examples of recent centralization initiatives include the centralization of revenue qualification processes through the Company's regional billing centers, the centralization of order intake and order processing through the Company's patient service centers, the centralization of CPAP supply order processing and fulfillment through the Company's centralized CPAP support center, and the centralization of inhalation drug order processing and fulfillment through the Company's centralized pharmacy. The Company has also established a centralized oxygen support center to coordinate scheduling and routing of portable oxygen deliveries for the Company's branches. Initiatives are also in place to improve asset utilization through a newly implemented asset management system, reduce capital expenditures through improved purchasing processes, reduce bad debt expense and revenue deductions through improved revenue qualification and collection processes, reduce costs of delivery of products to patients through improved routing, and reduce facility costs through more effective utilization of leased space. Management utilizes a variety of monitoring tools and analyses to help identify and standardize best practices and to identify and correct deficiencies. Similarly, the Company monitors its business on a branch and product basis to identify opportunities to target growth or contraction. These analyses have historically led to the closure or consolidation of branches and to the emphasis on certain products and new sales initiatives. See "Trends, Events, and Uncertainties - Reimbursement Changes and the Company's Response" for additional discussion. Trends, Events, and Uncertainties
From time to time changes occur in the Company's industry or its business that make it reasonably likely that aspects of its future operating results will be materially different than its historical operating results. Sometimes these changes have not occurred, but their possibility is sufficient to raise doubt regarding the likelihood that historical operating results are an accurate gauge of future performance. The Company attempts to identify and describe these trends, events, and uncertainties to assist investors in assessing the likely future performance of the Company. Investors should understand that these matters typically are new, sometimes unforeseen, and often are fluid in nature. Moreover, the matters described below are not the only issues that can result in variances between past and future performance nor are they necessarily the only material trends, events, and uncertainties that will affect the Company. As a result, investors are encouraged to use this and other information to ascertain for themselves the likelihood that past performance is indicative of future performance.

The trends, events, and uncertainties set out in the remainder of this section have been identified by the Company as reasonably likely to materially affect the comparison of historical operating results reported herein to either other past period results or to future operating results.
The Company's Secured Debt Matured on August 1, 2009. For a discussion of the Company's secured debt maturity, see "Risk Factors" and "Management's Discussion and Analyses of Financial Condition and Results of Operations - Liquidity and Capital Resources."
Reimbursement Changes and the Company's Response. The Company regularly is faced with reimbursement reductions and the prospect of additional reimbursement cuts. The following reimbursement changes already enacted will further impact the Company in 2009 and beyond:
DRA Reimbursement Impact: The Deficit Reduction Act of 2005 (the "DRA"), which was signed into law on February 8, 2006, affects the Company's reimbursement in a number of ways including:
• The DRA contains a provision that eliminated the Medicare capped rental methodology for certain items of durable medical equipment, including wheelchairs, beds, and respiratory assist devices. The DRA changes the rental period to thirteen months, at which time the rental payments stop and title to the equipment is transferred to the beneficiary. The effective date of the provision to eliminate the capped rental methodology applies to items for which the first rental month occurs on or after January 1, 2006. As a result, the impact of this change will be realized over a period of several years which began in 2007.

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

• A supplier's responsibility to service an oxygen patient ends at the time the oxygen equipment has been in continuous use by the patient for the equipment's reasonable useful lifetime (currently defined by the Centers for Medicare and Medicaid Services ("CMS") as five years for oxygen equipment). However, the supplier may replace this equipment and a new 36 month rental period and new reasonable useful lifetime period is started on the date the replacement item is delivered. Oxygen equipment that is lost, stolen, or irreparably damaged may also be replaced and a new 36 month rental period and new reasonable useful lifetime period is started

(with CMS approval). A new certificate of medical necessity is required when oxygen equipment is replaced in each of the situations described above.

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

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

• Suppliers are responsible for performing any repairs or maintenance and servicing of the oxygen equipment that is necessary to ensure that the equipment is in good working order for the reasonable useful lifetime of the oxygen equipment. No payment will be made for supplies, repairs, or maintenance and servicing either before or after the initial 36 month rental period, with the exception of one in-home visit by a supplier to inspect oxygen concentrators and transfilling equipment and provide general maintenance nine months after the initial 36 month cap. Suppliers may not be reimbursed for more than 30 minutes of labor for this one in-home visit. Currently, reimbursement for the one in-home visit has only been approved by CMS for 2009.

• The Company's financial results were materially and adversely impacted beginning in 2009 as a result of changes in oxygen reimbursement as described above. Net revenue and net income will be reduced in the twelve months of 2009 by approximately $17.0 million as a result of the reimbursement changes related to the 36 month oxygen cap. (See "Recap of 2009 Impact of Medicare Reimbursement Changes" below for additional discussion.)

• On August 3, 2006, CMS published a Proposed Rule to implement the changes required by the DRA relating to the payment for oxygen, oxygen equipment, and capped rental DME items. The rule, which became final November 9, 2006 ("DRA Implementation Rule"), establishes revised payment classes and reimbursement rates for oxygen and oxygen equipment effective January 1, 2007, including revised rates for concentrators, liquid and gas stationary systems, and portable liquid and gas equipment. The DRA Implementation Rule also establishes a reimbursement rate for portable oxygen

generating equipment and changes regulations related to maintenance reimbursement and equipment replacement reimbursement. Under the DRA Implementation Rule, during the initial 36 months of rental, the reimbursement rate for concentrators and stationary liquid and gas systems was approximately $199 per month for calendar years 2007 and 2008, approximately $193 per month for 2009, and approximately $189 per month for 2010. Under the DRA Implementation Rule, the reimbursement rate for liquid or gas portable equipment during the initial 36 months of rental is approximately $32 per month from 2007 through 2010. As a result of the enactment of MIPPA in July of 2008, the above reimbursement rates were decreased by 9.5% beginning on January 1, 2009. The reduced oxygen rates as specified in the DRA Implementation Rule that went into effect January 1, 2009 will reduce the Company's net revenue and net income in the twelve months of 2009 by approximately $1.5 million.

Competitive Bidding: The Medicare Prescription Drug, Improvement and Modernization Act of 2003 ("MMA") froze reimbursement rates for certain durable medical equipment ("DME") at those rates in effect on October 1, 2003. These reimbursement rates will remain in effect until the competitive bidding process establishes a single payment amount for those items, which amount must be less than the current fee schedule. According to the MMA, competitive bidding will be implemented in phases with ten of the largest metropolitan statistical areas ("MSAs") included in the program in the first round of bidding and seventy additional MSAs to be added in the second round of bidding, with additional areas to be subsequently added. The MMA specified that the first round of competitive bidding would be implemented in 2008 and the second round in 2009.
The bidding process for the first round of competitive bidding occurred in the latter half of 2007. The products included in the first round of bidding were: oxygen supplies and equipment; standard power wheelchairs, scooters, and related accessories; complex rehabilitative power wheelchairs and related accessories; mail-order diabetic supplies; enteral nutrients, equipment, and supplies; CPAP devices, Respiratory Assist Devices ("RADs"), and related supplies and accessories; hospital beds and related accessories; Negative Pressure Wound Therapy ("NPWT") pumps and related supplies and accessories; walkers and related accessories; and support surfaces. The Company participated in the bidding process in eight of the ten markets included in the first round of bidding (Charlotte, Cincinnati, Cleveland, Dallas, Kansas City, Miami, Orlando, and Pittsburgh). In early 2008, the Company was notified that it was a winning supplier in each of the eight markets and the Company chose to accept all contracts awarded. The contract period for the first round of bidding was scheduled to begin July 1, 2008 for a three year period. The Company's average reduction in reimbursement associated with the first round of competitive bidding was approximately 29%.
On July 15, 2008, the Medicare Improvements for Patients and Providers Act of 2008 ("MIPPA") was enacted. Among other things, this legislation delayed the competitive bidding program to allow time for CMS to make changes to the bidding process. As a result of this legislation, contracts awarded in the first round were terminated and the bidding process for the first round is currently scheduled to be restarted in 2009 and, except for a few exceptions, will include the same products and geographic locations included in the original first round of bidding. On January 16, 2009, CMS published an Interim Final Rule implementing provisions of MIPPA related to the first round re-bidding process and subsequent rounds of bidding. The effective date of the Interim Final Rule was originally to be February 17, 2009, but was subsequently extended to April 18, 2009. The delay was used by CMS to further review the issues of law and policy raised by the Interim Final Rule. On August 3, 2009, CMS published a tentative timeline and bidding

requirements for the first round re-bidding process which was subsequently finalized. Bidder registration began August 17, 2009 and bidding began October 21, 2009 and closes December 21, 2009. Reimbursement rates from the bidding process will be announced in June 2010 and contract suppliers will be announced in September 2010. The reimbursement rates resulting from the bidding process will go into effect January 1, 2011. The second round bidding process is currently scheduled to begin in 2011.
To offset the savings not realized as a result of the competitive bidding delay, MIPPA calls for a nationwide 9.5% reduction in Medicare rates beginning on January 1, 2009 for products included in the first round of competitive bidding. This 9.5% reduction will reduce the Company's net revenue and net income by approximately $8.5 million in the twelve months of 2009. MIPPA also requires CMS to make certain changes to the bidding process and repeals the transfer of title of oxygen equipment to Medicare beneficiaries at the end of 36 months of continuous rental, as specified in the Deficit Reduction Act of 2005. See "DRA Reimbursement Impact" below for additional discussion. At this time, the exact timing and financial impact of competitive bidding is not known, but management believes the impact could be material.
Recap of 2009 Impact of Medicare Reimbursement Changes: As a result of the various Medicare reimbursement changes that became effective January 1, 2009, the Company's net revenue and net income will be reduced by approximately $27.0 million in the twelve months of 2009. This includes approximately $17.0 million associated with the 36 month rental cap for oxygen equipment, approximately $1.5 million associated with reductions in oxygen fee schedule payment amounts, and approximately $8.5 million related to the 9.5% reduction associated with the delay of competitive bidding, all of which are described above.
For the nine months ended September 30, 2009, the Medicare reimbursement reductions described above decreased the Company's revenue and net income by approximately $20.8 million. Additionally, a change in inhalation drug product mix resulting from Medicare reimbursement reductions which began April 1, 2008, decreased the Company's revenue and net income by an additional $3.0 million for the current nine month period compared to the same nine month period last year.
Over the past several years in anticipation of continued reductions in reimbursement, the Company has implemented various initiatives to improve productivity and reduce costs. These initiatives have focused on the . . .