As filed with the Securities and Exchange Commission on December 3, 2007

Registration No. 333-146618

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

AMENDMENT NO. 1

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

Critical Homecare Solutions Holdings, Inc.

(Exact name of Registrant as specified in its charter)

Delaware

8082

20-5346912

(State or other jurisdiction of

incorporation or organization)

(Primary Standard Industrial

Classification Code Number)

(IRS Employer

Identification No.)

Critical Homecare Solutions Holdings, Inc.

Two Tower Bridge

One Fayette Street, Suite 150

Conshohocken, Pennsylvania 19428

(610) 825-2061

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

Robert A. Cucuel

President and Chief Executive Officer

Critical Homecare Solutions Holdings, Inc.

Two Tower Bridge

One Fayette Street, Suite 150

Conshohocken, Pennsylvania 19428

(610) 825-2061

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

John C. Kennedy, Esq.

Paul, Weiss, Rifkind, Wharton & Garrison LLP

1285 Avenue of the Americas

New York, New York 10019-6064

(212) 373-3000

Glenn R. Pollner, Esq.

Gibson, Dunn & Crutcher LLP

200 Park Avenue

New York, New York 10166

(212) 351-4000

Approximate date of commencement of proposed sale to public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ¨

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: ¨

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: ¨

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: ¨

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. ¨

CALCULATION OF REGISTRATION FEE

Title of each class

of securities to be registered

Proposed maximum
aggregate offering price(1)

Amount of

registration fee

Common Stock, par value $0.001 per share

125,000,000

3,838

(2)

(1)

Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) of the Securities Act of 1933.

(2)

Previously paid.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. The preliminary prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.


PRELIMINARY PROSPECTUS		SUBJECT TO COMPLETION		DECEMBER 3, 2007

Shares

Critical Homecare Solutions Holdings, Inc.

Common Stock

Critical Homecare Solutions Holdings, Inc. is offering shares of common stock and the selling stockholders identified in this prospectus are offering shares of common stock. We will not receive any proceeds from the sale of shares by the selling stockholders. This is our initial public offering and no public market currently exists for our shares. We currently estimate that the initial public offering price per share will be between $ and $ per share.

We have applied to have our common stock listed on the Nasdaq Global Market under the symbol “CHCS.”

Investing in our common stock involves a high degree of risk. See “ Risk factors” beginning on page 12 to read about factors you should consider before buying shares of our common stock.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.


	Per share	Total
Public offering price	$	$
Underwriting discounts and commissions	$	$
Proceeds, before expenses, to us	$	$
Proceeds, before expenses, to selling stockholders	$	$

The underwriters may also purchase up to an additional shares of common stock from us and an additional shares of common stock from the selling stockholders at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus to cover over-allotments, if any.

The underwriters expect to deliver the shares to purchasers against payment in New York, New York on , 2007.

UBS Investment Bank


Jefferies & Company		Piper Jaffray

You should rely only on the information contained in this prospectus and any free writing prospectus prepared by us. Neither we nor the underwriters have authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. Neither we nor the underwriters are making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. Unless we have amended or supplemented this prospectus, you should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus or such other date stated in this prospectus.

Through and including (the 25^th day after the date of this prospectus), federal securities laws may require all dealers that effect transactions in our common stock, whether or not participating in this offering, to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

TABLE OF CONTENTS


Industry and market data		i
Prospectus summary		1
Risk factors		12
Forward-looking statements		29
Our history		30
Use of proceeds		33
Dividend policy		33
Capitalization		34
Dilution		35
Selected historical financial data		37
Unaudited pro forma consolidated financial information		41
Management’s discussion and analysis of financial condition and results of operations		51
Business		80


Management		103
Executive compensation		107
Principal and selling stockholders		129
Certain relationships and related transactions		132
Description of capital stock		135
Shares available for future sale		139
Material U.S. federal income tax consequences		142
Underwriting		147
Notice to investors		151
Legal matters		153
Experts		154
Where you can find more information		155
Index to financial statements		F-1

Industry and market data

Industry and market data used throughout this prospectus were obtained through company research, surveys and studies conducted by third parties and industry and general publications. The information contained in “Prospectus summary—Our Opportunity” and “Business—Our Opportunity” and attributed to Frost & Sullivan Limited, or Frost & Sullivan, is based on studies, analyses and surveys prepared by Frost & Sullivan.

All trademarks or service marks appearing in this prospectus are the property of their respective holders.

Prospectus summary

This summary highlights selected information about us and this offering, but does not contain all of the information that you should consider before investing in our common stock. You should read this entire prospectus carefully, including the “Risk factors” and the historical and pro forma financial statements and related notes contained in this prospectus, before investing. This prospectus includes forward-looking statements that involve risks and uncertainties. See “Forward-looking statements.” Except as the context otherwise requires, references in this prospectus to the “Company,” “we,” “our” or “us” are to Critical Homecare Solutions Holdings, Inc. and its subsidiaries.

References to information labeled as “pro forma” or “on a pro forma basis” means such information is presented after giving effect to (i) the combination of our two predecessors, Specialty Pharma, Inc. and New England Home Therapies, Inc., and the acquisitions of Deaconess Enterprises, Inc., Infusion Solutions, Inc. and Applied Health Care, Ltd. (in the case of the fiscal year ended December 31, 2006 only); (ii) the acquisitions of Infusion Solutions, Inc. and Applied Health Care, Ltd. (in the case of the nine months ended September 30, 2007 only); and (iii) this offering and the application of our estimated net proceeds from this offering.

OVERVIEW

We are a leading provider of comprehensive home infusion therapy services to patients suffering from acute or chronic conditions. We operate in two business segments, home infusion therapy and home nursing. Through our home infusion therapy segment, we deliver over 400,000 infusion pharmaceuticals, biopharmaceuticals, nutrients and related services and equipment each year to patients in the home through our 33 infusion locations in 14 states, primarily in the eastern United States. Through our home nursing segment, we provide over 350,000 nursing and therapy visits and 575,000 private duty nursing hours each year to patients in the home through our 32 home nursing locations in three states. We currently provide customized local clinical care to approximately 16,000 patients through our branch network and have relationships with approximately 450 payors, including insurers, managed care organizations and government payors. In the year ended 2006 and the nine months ended September 30, 2007, we generated pro forma net revenue of $176.1 million and $143.6 million, respectively.

We believe our differentiated business model allows our branches, supported by regional and corporate resources, to respond to local needs and provide customized and cost-efficient services to our patients. Our local branches are staffed by integrated teams of highly trained clinicians that ensure the delivery of high quality care to our patients. Our national home health care platform and centralized infrastructure provide the complementary structure and support necessary to operate in a complex regulatory environment and gives us the purchasing power needed to obtain better rates for pharmaceuticals and ancillary supplies. All of our home infusion centers are accredited.

We offer substantial benefits to patients, payors and physicians. We improve our patients’ quality of life by allowing them to remain at home while receiving the necessary medications, supplies and services, including caregiver counseling and education, for their treatment. We also offer payors a comprehensive approach to meeting their home health care service needs and help them reduce their costs, as providing infusion pharmacy services in the patient’s home can be more cost-effective than providing these therapies in an acute or sub-acute setting. In addition, we assist physicians with the administration of time-intensive and costly care management support through patient monitoring and educational programs that can help improve patient compliance with therapy protocols.

We are led by an experienced five-person senior management team that has an average of 23 years of experience in the health care industry. Our Chief Executive Officer and President, Robert A. Cucuel, our Chief Financial Officer, Mary Jane Graves, our Senior Vice President of Professional Services, Colleen Lederer, our Senior Vice President of Operations, Nitin Patel and our Senior Vice President of Reimbursement and Compliance, Joey Ryan, have worked closely together during the last 12 years. Our management team has extensive experience in acquiring and integrating home health care businesses, including eight acquisitions for us since our inception in 2006 whose core business segment was home infusion. In addition, we believe the strength of our management team has helped us to establish a reputation for clinical and operational excellence.

OUR OPPORTUNITY

The home health care sector is estimated by Frost & Sullivan to have accounted for between approximately $47 billion and $58 billion of overall health care spending in the United States in 2005 and is projected to grow at a compound annual growth rate of approximately 8% from 2005 to 2010. Home health care services can provide a less expensive alternative to the provision of similar treatments in hospitals, nursing facilities or on an outpatient basis. As a result, home health care has become an increasingly significant factor in the overall health care market. Expenditures for home health care services are outpacing expenditures for the health care market as a whole.

According to a December 2006 report by Frost & Sullivan, home infusion expenditures in the United States totaled between $4 billion and $6 billion in 2005 and are expected to grow at a compound annual growth rate of approximately 7% from 2005 to 2010. This growth is expected to be driven by:

patient preference for home care;

payor cost containment pressures;

an aging population;

the introduction of new pharmaceuticals and therapies; and

the potential for expanding coverage of home infusion therapy for the Medicare beneficiary population.

The home infusion industry is highly fragmented, with the majority of service providers operating primarily in local and regional markets. We believe that few competitors possess the scale and resources to consolidate the home infusion industry and that our senior management’s strong track record of successfully acquiring and efficiently integrating businesses in the home health industry positions us well to take advantage of the numerous acquisition opportunities that may be available to us. Furthermore, we believe that there are many factors that benefit larger providers in the home infusion industry, including:

an enhanced appeal to referral sources by offering regional geographic coverage;

revenue synergies through consolidating acquired businesses into existing managed care contracts;

the ability to offer a complete product line to patients, which appeals to the patient, the provider of care and the payor; and

improvements in the quality of billing and collection of receivables.

expenditures. Moreover, the home nursing market is expected to grow at a compound annual growth rate of approximately 8% per year between 2005 and 2010. The growth in the home nursing sector continues to be driven by factors similar to those influencing the home infusion sector and the overall home health care market.

OUR STRENGTHS

We believe that we have a number of competitive strengths, including:

A leading presence in the market for home infusion therapy products and services. We believe we are one of the leading providers by revenue of home infusion therapy products and services. We expect that our increasing scale will enhance our ability to achieve operating efficiency, increase our purchasing power and improve our competitive positioning.

Our business model combines the advantages of a national platform with the benefits of a local clinical services model. Our business model balances the benefits of promoting local responsibility and accountability for quality of care and operating results with the efficiencies gained from centralizing key administrative functions.

Our talented and experienced management team. Our five-person senior management team has an average of 23 years of experience in the health care industry and has worked closely together during the last 12 years.

OUR STRATEGY

Our goal is to be the leading provider of home infusion services in the United States. Our business strategy to achieve this goal and capitalize on our many opportunities includes:

Continuing to focus on our core high value therapies;

Continuing to operate a local clinical model that emphasizes customized patient care;

Continuing to pursue a sales and marketing approach that targets both local and regional referral sources and payor contracts;

Expanding our relationships with national managed care organizations;

Continuing to realize additional synergies and operational efficiencies from our recent acquisitions; and

Pursuing acquisitions of leading independent home infusion therapy providers in contiguous and other strategic markets.

RISKS ASSOCIATED WITH OUR BUSINESS

Our business is subject to numerous risks, which are highlighted in the section entitled “Risk factors.” These risks represent challenges to the successful implementation of our strategy and the growth of our business. Some of these risks are:

We are highly dependent on payments from third-party health care payors, including private payors and Medicare, Medicaid and other government sponsored programs. Our inability to obtain third-party reimbursement for our products and services, or reductions in reimbursement rates, would reduce our revenue and profitability and negatively impact our liquidity.

If we lose relationships with managed care organizations and other third party payors, we could lose access to a significant number of patients and our revenue and profitability could decline.

Changes in reimbursement rates from federal and state programs, such as Medicare and Medicaid, for the services we provide may cause our revenue and profitability to decline or our working capital requirements to increase.

An expansion of recently enacted rules establishing competitive bidding requirements for reimbursement from Medicare to include reimbursement rates for our RT/HME products in the areas we operate may negatively affect our revenue, profitability or liquidity.

The laws and regulations governing our industry are extensive and extremely complex, and our interpretation of a given law or regulation may differ from those of the government agencies that regulate us. Furthermore, changes in state and federal laws and regulation could restrict our ability to conduct our business.

Our limited independent operating history and subsequent acquisition activity make our future business prospects difficult to evaluate based on our past results.

If we are unable to identify additional suitable acquisition candidates and acquire them on terms favorable to us, our growth may be slowed and our revenue and profitability may decline.

If we are unable to successfully integrate acquisitions, our management’s attention could be diverted and our efforts to integrate acquisitions may consume significant resources, which could have a material adverse effect on our business operations and liquidity.

In connection with acquisitions, we may acquire unknown or contingent liabilities in amounts that exceed our potential recovery with regard to these liabilities.

For further discussion of these and other risks you should consider before making an investment in our common stock, see the section entitled “Risk factors” beginning on page 12.

CORPORATE HISTORY AND INFORMATION

New England Home Therapies, both of which we acquired in September 2006 for a total consideration of approximately $55.3 million, consisting of $49.4 million in cash and $5.9 million in assumed liabilities, have operated in the home health care business since 2002 and 2000, respectively. Specialty Pharma is a comprehensive home infusion and specialty pharmacy provider based in Connecticut and New England Home Therapies is a Massachusetts-based provider of home infusion products and services. See “Our history” for additional information regarding these predecessors. We are a holding company that conducts substantially all of our operations through our direct and indirect subsidiaries.

Effective January 1, 2007, we acquired Deaconess Enterprises, Inc., or Deaconess, one of the largest providers of comprehensive infusion and nursing services in the United States, for a total consideration of approximately $170.6 million, consisting of $156.0 million in cash and $14.6 million in assumed liabilities, including related fees and expenses. Effective March 1, 2007, we acquired Infusion Solutions, Inc., or Infusion Solutions, a New Hampshire-based infusion services provider, for a total consideration of approximately $8.7 million, consisting of $8.0 million in cash and $0.7 million in assumed liabilities. Effective June 1, 2007, we acquired Applied Health Care, Ltd., or Applied, a Texas provider of infusion, specialty pharmacy, nursing and other services, for a total consideration of approximately $8.1 million, consisting of $7.5 million in cash and $0.6 million in assumed liabilities. In July and August 2007, we acquired Infusion Partners of Brunswick, Inc., or Infusion Partners of Brunswick, a provider of home infusion and specialty pharmacy services in Georgia, for a total consideration of approximately $7.1 million, consisting of $7.0 million in cash and $0.1 million in assumed liabilities, Infusion Partners of Melbourne, Inc., or Infusion Partners of Melbourne, a provider of home infusion, respiratory and nutritional services in Florida, for a total consideration of approximately $3.9 million, consisting of $3.8 million in cash and $0.1 million in assumed liabilities, and East Goshen Pharmacy, Inc., or East Goshen Pharmacy, a provider of home infusion services in Delaware and Pennsylvania, for a total consideration of approximately $6.3 million, consisting of $5.9 million in cash and $0.4 million in assumed liabilities. For more information on these acquisitions, see “Our history.”

Our corporate headquarters are located at Two Tower Bridge, One Fayette Street, Suite 150, Conshohocken, Pennsylvania 19428, and our telephone number is (610) 825-2061. Our website is www.criticalhs.com. Information contained on our website does not constitute a part of this prospectus.

OUR PRINCIPAL STOCKHOLDERS

Our principal stockholders are investment funds managed by Kohlberg & Co., L.L.C., or Kohlberg. Kohlberg is a leading U.S. private equity firm specializing in middle market investing. Since its inception in 1987, Kohlberg has organized six investment funds, through which it has raised $3.7 billion of committed capital. Including us, the firm has completed more than 90 platform and add-on acquisitions with an aggregate value of more than $6 billion. Kohlberg has offices in Mt. Kisco, New York and Palo Alto, California. We refer to our Kohlberg investment fund stockholders collectively as the Kohlberg Stockholders.

Our principal stockholders will continue to control more than 50% of the voting power of our common stock upon completion of this offering. As a result, we will be considered a “controlled company” for the purposes of the Nasdaq Stock Exchange, or Nasdaq, listing requirements. As a “controlled company,” we will be permitted to, and we intend to, opt out of the Nasdaq listing requirements that would otherwise require a majority of the members of our board of directors to be independent and require that we either establish a compensation committee and a nominating and governance committee, each comprised entirely of independent directors, or otherwise ensure that the compensation of our executive officers and nominees for directors are determined or recommended to our board by the independent members of our board. See “Management—Corporate Governance—Controlled company.”

REVERSE STOCK SPLIT

Prior to the consummation of this offering, we intend to increase our total authorized number of shares of capital stock, make certain changes to our charter documents and effect a to one reverse stock split. In this prospectus, we refer to the increase in our total authorized capital stock, the reverse stock split and the changes to our charter documents discussed above collectively as the Reverse Stock Split.

The offering

Common stock outstanding before this offering

Common stock offered by us

Common stock offered by the selling stockholders

Common stock to be outstanding immediately after this offering

Use of proceeds

We expect to use the net proceeds from this offering to repay a portion of the outstanding indebtedness under our credit facilities.

We will not receive any proceeds from the sale of our common stock by the selling stockholders.

See “Use of proceeds.”

Proposed Nasdaq Global Market symbol

CHCS

Risk factors

You should read the “Risk factors” section of this prospectus for a discussion of factors that you should consider carefully before deciding to invest in shares of our common stock.

The number of shares of our common stock outstanding after this offering excludes options to purchase shares of common stock that are currently outstanding under the KCHS Holdings, Inc. 2006 Equity Incentive Plan, which we refer to as the 2006 Plan, or that are to be granted upon consummation of this offering under the Critical Homecare Solutions Holdings, Inc. 2007 Equity Award Plan, which we refer to as the 2007 Plan. As of the date hereof, we have shares of common stock available for future issuance under the 2006 Plan and the 2007 Plan, including pursuant to options outstanding on the date of this prospectus. Unless we indicate otherwise, all information in this prospectus assumes that the underwriters do not exercise their option to purchase up to shares of our common stock from us and up to shares of our common stock from the selling stockholders to cover over-allotments.

Unless we indicate otherwise, all information in this prospectus assumes an initial public offering price of $ per share, the midpoint of the estimated public offering price range set forth on the cover page of this prospectus.

Summary historical and pro forma consolidated financial and other data

The information set forth below should be read in conjunction with “Capitalization,” “Selected historical financial data,” “Unaudited pro forma consolidated financial information,” “Management’s discussion and analysis of financial condition and results of operations,” and the historical financial statements and related notes included elsewhere in this prospectus.

We had no operations prior to the acquisitions of our predecessors, Specialty Pharma and New England Home Therapies, each of whom we refer to as our Predecessor, effective September 1, 2006. See “Selected historical financial data” for selected financial information of our Predecessors. Our summary statement of operations data for the four months ended December 31, 2006 and the balance sheet data as of December 31, 2006 have been derived from our audited consolidated financial statements and related notes thereto, which are included elsewhere in this prospectus. Our summary statement of operations data for the nine months ended September 30, 2007 and the balance sheet data as of September 30, 2007 have been derived from our unaudited condensed consolidated financial statements and the related notes thereto, which are included elsewhere in this prospectus. The unaudited condensed consolidated financial statements have been prepared using the same accounting principles and on the same basis as the audited year-end consolidated financial statements and include all adjustments, consisting of normal recurring adjustments that management considers necessary for a fair representation of interim results. These interim results are not necessarily an indication of the results for the full year.

Our summary statement of operations data includes the results of operations of Deaconess, Infusion Solutions, Applied, Infusion Partners of Brunswick, Infusion Partners of Melbourne and East Goshen Pharmacy from the effective dates of acquisition of these entities on January 1, 2007, March 1, 2007, June 1, 2007, July 1, 2007, July 1, 2007 and August 1, 2007, respectively, and the assets and liabilities of these entities are reflected in our September 30, 2007 summary balance sheet data.

The summary unaudited pro forma consolidated statement of operations data for the fiscal year ended December 31, 2006 gives effect to the combination of our Predecessors, the acquisitions of Deaconess, Infusion Solutions, and Applied, this offering and the application of our estimated net proceeds from this offering as if they had occurred on January 1, 2006 and have been derived from our unaudited pro forma consolidated financial statements and the related notes thereto included elsewhere in this prospectus. The summary unaudited pro forma consolidated statement of operations data for the nine months ended September 30, 2007 give effect to the acquisitions of Infusion Solutions and Applied, this offering and the application of our estimated net proceeds from this offering as if they had occurred on January 1, 2006 and have been derived from our unaudited pro forma consolidated financial statements and the related notes thereto included elsewhere in this prospectus. The summary unaudited pro forma consolidated balance sheet data as of September 30, 2007 gives effect to this offering and the application of our estimated net proceeds from this offering as if this offering had occurred on September 30, 2007 and have been derived from our unaudited pro forma consolidated financial statements and the related notes thereto included elsewhere in this prospectus. As permitted by SEC regulations, no pro forma effect is given to our recent acquisitions of Infusion Partners of Brunswick, Infusion Partners of Melbourne and East Goshen Pharmacy. See “Unaudited pro forma consolidated financial information” and “Our history” for a more detailed discussion of our acquisitions.


	Actual						Pro Forma
	Period from September 1, 2006 to December 31, 2006			Nine Months Ended September 30, 2007			Year Ended December 31, 2006			Nine Months Ended September 30, 2007
	(in thousands, except share and per share data)
Consolidated Statements of Operations Data:
Net revenue:
Home infusion	$	93,992		$	93,992		$	125,420		$	97,757
Home nursing		—			45,858			50,673			45,858

Total net revenue		16,897			139,850			176,093			143,615
Cost and Expenses:
Cost of goods (excluding depreciation and amortization)		7,472			37,713			51,784			39,085
Cost of services		1,679			31,405			38,999			31,817
Selling, distribution and administrative		6,109			53,294			59,164			53,284
Depreciation and amortization		416			2,649			4,161			2,699

Total costs and operating expenses		15,676			125,061			154,108			126,885

Operating income		1,221			14,789			21,985			16,730
Interest expense		756			11,423			13,177			11,380
Other expense (income)		1			(765	)		(931	)		(315	)

Income before income taxes		464			4,131			9,739			5,665
Provision for income taxes		178			1,887			4,448			2,587

Net income	$	286		$	2,244		$	5,291		$	3,078

Basic and diluted earnings per share	$	0.01		$	0.03		$	0.06		$	0.03
Weighted average number of shares outstanding, basic		25,350,000			84,416,357			90,898,079			90,898,079
Weighted average number of shares outstanding, fully diluted		25,350,000			85,338,261			90,898,079			90,898,079

Other Unaudited Financial Data:
Net cash provided by operating activities		486			(597	)		8,679			(705	)
Net cash used in investing activities		(49,304	)		(190,079	)
Net cash provided by financing activities		49,665			192,307
Adjusted EBITDA(1)(2)(3)(4)		2,331			23,796			32,969			24,335


	September 30, 2007		Pro Forma September 30, 2007
	(in thousands)
Balance Sheet Data:
Cash and cash equivalents	$	2,478	$
Total assets		287,026
Long–term debt, including capital leases and current portion		153,732
Total stockholders’ equity		96,602

(1)

Adjusted EBITDA, which we define using the definition of Consolidated EBITDA in our credit facilities, is a metric used by management to measure our liquidity. Adjusted EBITDA is net income (loss) before interest expense, interest income, income tax expense, depreciation and amortization further adjusted to eliminate non-cash compensation expense and to add back restructuring and other costs incurred in connection with acquisitions we complete. We believe adjusted EBITDA provides investors useful information related to our ability to provide cash flows to meet future debt service, capital expenditure and working capital requirements and to fund future growth and acquisitions.

We present adjusted EBITDA as a supplemental liquidity measure because we believe it provides our management, board of directors and investors with additional information to measure our liquidity by excluding potential differences caused by restructuring charges incurred in connection with acquisitions, variations in our capital structure (affecting interest expense) and to estimate our value.

Adjusted EBITDA is also presented because covenants in our credit facilities contain ratios based on this measure. Our first lien facility is one of our primary sources of liquidity. If our adjusted EBITDA were to decline below certain levels, covenants in our credit facilities that are based on this measure may be violated and could cause, among other things, an inability to incur further indebtedness under our first lien facility and in certain circumstances a default or mandatory prepayment under our credit facilities. See “Management’s discussion and analysis of financial condition and results of operations—Credit Facilities” for additional information on the covenants in our credit facilities.

Adjusted EBITDA is not a measurement of our liquidity under U.S. GAAP and should not be considered as an alternative to cash flow from operating activities as a measure of our liquidity.

We understand that although adjusted EBITDA is frequently used by securities analysts, lenders and others in their evaluation of companies, adjusted EBITDA has limitations as an analytical tool and you should not consider it in isolation or as a substitute for analysis of our liquidity or results as reported under U.S. GAAP. Some of these limitations are:

Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

Adjusted EBITDA does not reflect the interest expense, or the cash requirements, necessary to service interest or principal payments on our debt;

Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future, and adjusted EBITDA does not reflect any cash requirements for such replacements; and

Other companies in our industry may calculate adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

To compensate for these limitations, management evaluates our liquidity by considering the economic effect of the excluded expense items independently as well as in connection with its analysis of cash flows from operations and through the use of other financial measures, such as capital expenditure budget variances, investment spending levels and return on capital analysis.

(2)

The following table reconciles adjusted EBITDA to net cash provided by operating activities for the periods presented:


	Actual						Pro Forma
Reconciliation of Net Cash Provided by Operating Activities to Adjusted EBITDA:	Period from September 1, 2006 to December 31, 2006			Nine Months Ended September 30, 2007			Year Ended December 31, 2006			Nine Months Ended September 30, 2007
	(in thousands)
Net cash provided by (used in) operating activities	$	486		$	(597	)	$	8,679		$	(705	)

Adjustments:
Interest expense		697			10,148			13,174			11,380
Income tax expense		—			2,147			4,688			2,669
Allowance for doubtful accounts		(601	)		(3,448	)		(6,498	)		(3,626	)
Loss on disposal of fixed assets		—			—			(121	)		—
Changes in working capital		1,055			10,712			7,589			10,788
Adjustments allowed per bank covenants(a)		694			4,460			5,458			3,455
Non-cash items per bank covenants		—			374			—			374

Adjusted EBITDA	$	2,331		$	23,796		$	32,969		$	24,335

(a)

Adjustments allowed per bank covenants includes pro forma adjustments, restructuring charges, severance costs and recapitalization costs permitted under the definition of adjusted EBITDA in our credit facilities. The pro forma adjustments are defined in the credit facilities to include those adjustments used to calculate adjusted EBITDA in earnings reports prepared by our outside consultants in connection with our acquisitions. Restructuring charges refers to those costs incurred to integrate an acquired business into us. Severance costs refers to any severance payable to former employees of acquired businesses. Recapitalization costs refers to the costs incurred in connection with this offering.

(3)

Pro forma adjusted EBITDA does not reflect the impact of our acquisitions of Infusion Partners of Brunswick, Infusion Partners of Melbourne and East Goshen Pharmacy for the periods preceding the effective dates of each acquisition, as the acquisitions were not significant in accordance with SEC regulations. During our due diligence in connection with these acquisitions, we estimated adjusted EBITDA of approximately $1.8 million for the twelve months ended March 31, 2007 for Infusion Partners of Brunswick and Infusion Partners of Melbourne on a combined basis. For East Goshen Pharmacy, we estimated adjusted EBITDA to be approximately $1.0 million for the twelve months ended April 30, 2007.

(4)

Adjusted EBITDA reflects corporate expenses of $0.4 million and $3.9 million for the year ended December 31, 2006 and the nine months ended September 30, 2007, respectively. Corporate expenses includes primarily salaries and wages and travel and expenses for personnel located at our headquarters, fees and expenses paid to Kohlberg and certain professional fees.

Risk factors

Investing in our common stock involves substantial risks. In addition to the other information in this prospectus, you should carefully consider the following factors before investing in our common stock. Any of the risk factors we describe below could adversely affect our business, results of operations, financial condition and liquidity. The market price of our common stock could decline if one or more of these risks and uncertainties develop into actual events, causing you to lose all or part of the money you paid to buy our common stock. Certain statements in “Risk factors” are forward-looking statements. See “Forward-looking statements.”

RISKS RELATED TO OUR INDUSTRY

Most of our revenues are derived from third-party private and governmental payors including managed care organizations, Medicare, Medicaid and other government sponsored programs. These third-party payors exercise significant control over patient access and increasingly use their enhanced bargaining power to secure discounted rates and impose other requirements that may reduce our revenues and/or increase our costs. If third-party payors do not approve our products and services for reimbursement or fail to reimburse for them adequately, our business will suffer as some physicians or their patients will opt for competing products or services that are covered by reimbursement or have a lower co-payment. Even if third-party payors will reimburse our products and services, this reimbursement may not be adequate or these payors’ reimbursement policies may adversely affect our profitability. Our revenue and profitability will depend in large part upon the extent to which coverage and reimbursement will be available from payors such as private health insurers and managed care organizations, Medicare, state Medicaid authorities and other third-party payors. Private and governmental payors continually review their reimbursement and coverage policies in an effort to contain costs, which may result in a reduction of coverage of, and reimbursement for, our products and services. Because many private payors model their coverage and reimbursement policies on Medicare and Medicaid policies, private third-party payors’ coverage of, and reimbursement for, our products and services could be negatively impacted by legislative, regulatory or other measures that reduce Medicare or Medicaid coverage and reimbursement generally. Our inability to obtain third-party reimbursement for our products and services, or reductions in reimbursement rates, would reduce our revenue and profitability and negatively impact our liquidity.

If we lose relationships with managed care organizations and other third party payors, we could lose access to a significant number of patients and our revenue and profitability could decline.

We are highly dependent on reimbursement from managed care organizations and other non-governmental third party payors. For the nine months ended September 30, 2007, 48% of our revenue came from managed care organizations and other non-governmental payors. Many payors require health care service providers like us to competitively bid for contract awards. As a result, we may not be successful in being awarded new contracts or in successfully retaining existing contracts and even if we are retained for new contracts or are able to successfully renew contracts, the prices at which we are able to obtain and retain the business may be at reduced reimbursement rates and may result in reduced revenue and profitability to us. In addition, the loss of one or more payor relationships could

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significantly reduce the number of patients we serve and have a material adverse effect on our revenue and net income, and a reduction in pricing could reduce our gross margins and our net income.

Changes to the way Medicare and Medicaid pay for our services may reduce our revenue and profitability on services provided to Medicare and Medicaid patients and increase our working capital requirements. For the nine months ended September 30, 2007, 28% of our net revenue in our home infusion therapy segment arose from direct reimbursement by federal and state programs such as Medicare and Medicaid, with 17% from Medicare and 11% from Medicaid. During the same period, 87% of our net revenue in our home nursing segment arose from reimbursement by federal and state programs such as Medicare and Medicaid, with 51% from Medicare and 36% from Medicaid. In addition, Medicare and some state Medicaid programs contract with non-governmental third party payors for reimbursement of our services. For example, our home infusion therapy segment derives part of its revenue from private payors under Medicare Advantage Plans and Medicare Part D. Reimbursement from Medicare, Medicaid and other government programs for both segments of our business is subject to statutory and regulatory requirements, administrative rulings, interpretations of policy, implementation of reimbursement procedures, retroactive payment adjustments, governmental funding restrictions and changes to or new legislation, and is often the focus or target of political debates, all of which may materially affect the amount and timing of reimbursement payments to us.

Generally, Medicare reimbursement changes occur in the context of budget reconciliation. Congress has reduced Medicare reimbursement for various providers over the past several years, including pursuant to the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the Medicare Modernization Act, and the Deficit Reduction Act of 2005, or the Deficit Reduction Act. Some of these Medicare cuts affected reimbursement rates for infusion drugs or home nursing care. See “Business—Government Regulation—Medicare and Medicaid reimbursement” for a discussion of past Medicare reimbursement changes affecting our operations.

Legislative changes to Medicare provider reimbursement may also occur outside the context of the annual budget process. Throughout the remainder of 2007 and into 2008, Congress may consider changes to Medicare provider reimbursement. We cannot predict, with certainty, the nature or amount, either positive or negative, of any such changes at this time. See “Business—Government Regulation—Medicare and Medicaid reimbursement” for a more detailed discussion of current and potential future legislative changes at the federal and state levels.

It is anticipated that legislative and other efforts to reduce the overall costs of health care in the United States will continue, and that there will continue to be pressure on reimbursement rates. Although we monitor reimbursement developments closely, we cannot at this time predict with any degree of certainty what those efforts will entail or what effect, if any, they will have on our financial condition or results of operations.

As it pertains to respiratory therapy/home medical equipment, or RT/HME, products in our home infusion segment, the Medicare Modernization Act, and subsequent rules adopted by the Department of

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Health and Human Services, or HHS. The Medicare Modernization Act and HHS rules instituted a competitive bidding program to determine Medicare reimbursement rates for enteral nutrients, supplies and equipment, RT/HME products and certain other products and services in ten geographic areas around the country (generally, larger metropolitan areas). Under the new competitive bidding program, beginning in July 2008 providers must be successful bidders to furnish competitively-bid services and products to Medicare beneficiaries in these geographic areas. We currently have operations in four of these geographic areas—Cleveland, Cincinnati, Dallas and Pittsburgh. We have submitted our bids for the areas in which we provide items and services, but at this time we cannot predict whether our bids will be accepted by HHS. If our bids are not selected by HHS, we would be unable to provide the items or services that were competitively bid to Medicare patients in the affected areas. The competitive bidding program is scheduled to be expanded in 2009 into 70 additional geographic areas after the initial round of bidding and our failure to have our bids accepted in these areas could negatively affect our results of operations. Under the Medicare Modernization Act, reimbursement for items and services subject to the competitive bidding program must be lower than the prices currently reimbursed by Medicare. The Secretary of HHS has the authority to apply competitively bid prices nationwide in the third year of the program. This authority, if used, could effectively create a nationwide competitive bidding program in the third year of the program, and all covered products and services nationwide would be reimbursed at competitively bid prices. In the final rule implementing the competitive bidding program, HHS noted its intention to use this authority. Applying competitively bid prices nationwide could have an adverse impact on our operations. Several recent delays in the bidding process have caused HHS to delay the initial implementation of the program from April 2008 to July 2008. Although we would not expect it to be material to our financial condition, it is unclear what impact, if any, these delays may have on the expansion of the program in 2009 or on our operations in the affected areas. If the competitive bidding program were expanded so that infusion drugs became subject to competitive bidding, we cannot at this time estimate the impact on our revenue, profitability or liquidity.

Delays in reimbursement may cause liquidity problems.

Our business is characterized by delays in reimbursement from the time we provide services to the time we receive reimbursement or payment for these services. If we have difficulty in obtaining documentation, such as physician orders, or experience information system problems or issues with Medicare or other payors, we may encounter additional delays in our payment cycle. Timing delays may cause working capital shortages. Working capital management, including prompt and diligent billing and collection practices at each of our locations, is an important factor in achieving our financial results and maintaining liquidity. It is possible that documentation support, system problems, Medicare, Medicaid or other provider issues or industry trends may extend our collection period, adversely impacting our working capital, and that our working capital management procedures may not successfully negate this risk. We may also experience reimbursement delays as a result of integrating acquisitions and transitioning acquired businesses onto our systems.

In addition, we have experienced timing delays when attempting to collect funds from state Medicaid programs in certain instances, including recent delays in collection from TennCare, Tennessee’s Medicaid managed care program. Delays in receiving reimbursement or payments from government or other payors may adversely impact our working capital.

If we are unable to effectively adapt to changes in the health care industry, our revenue, profitability or liquidity could be adversely affected.

The health care industry continues to experience significant change driven by efforts to reduce costs and improve standards of care. In addition to reduction in Medicare, Medicaid and third-party reimbursement, these efforts include potential national health care reform, increased and restrictive pharmacy benefit management and horizontal and vertical consolidation within the health care industry.

Risk factors

The results of these efforts may put additional downward pressure on pricing for our products and services, which may adversely affect our revenue, profitability or liquidity. Our inability to react effectively to these and other changes in the health care industry could adversely affect our business.

Our revenue and gross profit could decrease if there are changes in the calculation of the average wholesale price or average sales price for the prescription drugs we sell, or if managed care organizations and other private payors replace the average wholesale price or average sales price with a different reimbursement method.

Our gross margins in our infusion therapy segment are significantly affected by our ability to purchase prescription drugs at discounted prices and to negotiate profitable managed care contracts. Contracts for the services we provide generally reference certain published benchmarks to establish pricing for prescription drugs. These benchmarks include average wholesale price, or AWP, wholesale acquisition cost, maximum allowable cost and the average sales price, or ASP. Most of our contracts utilize the AWP standard as published by First DataBank and a number of other private companies. Recent events have raised the possibility that AWPs published by First DataBank will decline, resulting in a reduction of our gross profit margins.

Specifically, in the proposed settlement in the case New England Carpenters Health Benefits Fund v. First DataBank, et al., (U.S. District Court, D. Mass.), First DataBank has agreed to reduce the markup to calculate AWP on over 8,000 specific pharmaceutical products by 5%. The proposed settlement has not yet received final court approval. We cannot predict the outcome of this case, or, if the settlement is approved, the precise timing of any of the proposed AWP changes. The proposed reduction in First DataBank’s published AWP could reduce our revenue and narrow our gross profit margins.

Some managed care organizations are adopting ASP as the standard measure for determining reimbursement rates in new or renegotiated contracts. To the extent that we are not able to negotiate new ASP-based contracts with managed care organizations that produce gross profit margins comparable to our existing AWP-based contracts, our revenue and gross profit may be reduced.

Medicare spending on prescription drugs covered under Medicare Part B has been under intense scrutiny for several years. Many drugs previously reimbursed based on the AWP methodology are now reimbursed based on the ASP methodology or are subject to competitive acquisition. Certain drugs, including some infusion drugs, continue to be reimbursed at 95% of AWP. However, Congress and the Centers for Medicare and Medicaid Services, or CMS are reviewing Medicare drug reimbursement and could transition additional drugs to the ASP methodology or effect other changes that reduce reimbursement for prescription drugs. Any such changes could negatively impact our revenue and gross profit.

The provision of health care services is extensively regulated by local, state and federal governments. Federal laws that could restrict our ability to conduct our business include anti-kickback laws, the Stark Law prohibitions on certain financial relationships, the Medicare Modernization Act, the federal False Claims Act and the Deficit Reduction Act. In addition, state anti-kickback laws also could restrict our ability to conduct our business. See “Business—Government Regulation” for a discussion of these and other state and federal laws and regulations applicable to our industry. If we fail to comply with the laws

Risk factors

and regulations that are directly applicable to our business, we could suffer civil and/or criminal penalties and we could be excluded from participating in Medicare, Medicaid and other federal and state health programs, which would have an adverse impact on our business.

We believe we are operating our business in compliance with applicable laws and regulations; however, laws and regulations in the health care industry are extremely complex and, in many instances, the industry does not have the benefit of significant regulatory or judicial interpretation. Accordingly, our interpretation of a given law or regulation, including interpretations of what are appropriate charges under government programs, may not prevail or one or more government agencies may interpret them differently. Furthermore, changes in the law or new interpretations of existing law can have a dramatic effect on what we can do, our cost of doing business and the amount of reimbursement we receive from governmental third party payors, such as Medicare and Medicaid, and non-governmental third party payors.

State efforts to regulate the establishment or expansion of health care providers could impair our ability to maintain or expand our operations.

Some states require health care providers (including home health agencies) to obtain prior approval, known as a certificate of need, or as it is referred to in some states, a permit of approval, for certain expansion, establishment and acquisition activities and for capital expenditures that exceed prescribed amounts.

To the extent that we require a certificate of need, permit of approval or other similar approvals to expand our operations, either by acquiring other companies or expanding or providing new services or other changes, our expansion could be adversely affected by the failure or inability to obtain the necessary approvals, changes in the standards applicable to those approvals and possible delays and expenses associated with obtaining those approvals. We cannot assure you that we will be able to obtain a certificate of need or permit of approval for all future projects requiring that approval.

Additionally, our ability to maintain or expand operations in a state will depend on our ability to obtain a state license to operate. For example, certain state laws require that each of our pharmacy locations be licensed as an in-state pharmacy to dispense pharmaceuticals in that state. Certain states also require that our pharmacy locations be licensed as an out-of-state pharmacy if we deliver prescription pharmaceuticals into those states from locations outside of the state. A number of states in which we operate also require home infusion companies to be licensed as home health agencies. If we are unable to maintain our licenses or if states place burdensome restrictions or limitations on non-resident pharmacies, our ability to operate in some states would be limited, which could have an adverse impact on our business. States may also have a limit on the number of licenses they issue. Our failure to maintain or obtain any license, certificate of need or permit of approval could impair our ability to operate or expand our business.

We are subject to periodic audits by governmental and private payors.

We are subject to periodic audits and requests for information by Medicare, Medicaid and private payors. Because of the complexity of the laws and regulations that govern Medicare and Medicaid and third-party billing requirements, determining the appropriate charges under these programs can be difficult. As a result of these audits, the payor may disagree with our interpretation of appropriate charges and determine that we have overcharged the payor or failed to comply with payor requirements. We could be required to repay any overcharges or amounts billed in violation of payor requirements or make deductions from future amounts otherwise due to us from these payors. In the case of audits by Medicare or Medicaid, we could also be subject to fines, criminal penalties or program exclusions. In the case of audits by private payors, we could also be subject to additional monetary penalties under our agreements with such payors.

Risk factors

We are subject to risk from federal and state investigations.

Both federal and state government agencies have heightened and coordinated civil and criminal enforcement efforts as part of numerous ongoing investigations of health care companies, as well as their executives and managers. These investigations relate to a wide variety of topics, including referral and billing practices. Further, amendments to the False Claims Act have made it easier for private parties to bring whistleblower lawsuits against companies. Some states have adopted similar state whistleblower and false claims provisions. The HHS Office of Inspector General, or OIG, and the Department of Justice have, from time to time, established national enforcement initiatives that focus on specific billing practices or other suspected areas of abuse that could become the subject of governmental investigations or inquiries. For example, we have significant Medicare and Medicaid billings. In addition, our executives, some of whom have worked at other health care companies that are or may become the subject of federal and state investigations and private litigation, could be included in governmental investigations or named as defendants in private litigation, resulting in adverse publicity against us. Investigations of us could result in significant liabilities or penalties to us, as well as adverse publicity, and could seriously undermine our ability to compete for business, negotiate acquisitions, hire new personnel and otherwise conduct our business.

HHS has recently announced three new Medicare fraud initiatives aimed at reducing fraud in the durable medical equipment, home health, and infusion therapy sectors. While these fraud initiatives are expected to focus on one or two geographic locations for each of the three sectors, the effect of the heightened scrutiny may be felt nationwide. Enrollment in the Medicare program may be delayed, not just in the affected areas, but nationwide, due to increased awareness of potential fraud.

A shortage of qualified registered nursing staff and other caregivers could adversely affect our ability to attract, train and retain qualified personnel and could increase operating costs.

Our home nursing business relies significantly on our ability to attract and retain caregivers who possess the skills, experience and licenses necessary to meet the requirements of our patients. We compete for personnel with other providers of home health services. Our ability to attract and retain caregivers depends on several factors, including our ability to provide these caregivers with attractive assignments and competitive benefits and salaries. We cannot assure you that we will succeed in any of these areas. In addition, there are occasional shortages of qualified health care personnel in some of the markets in which we operate. As a result, we may face higher costs to attract caregivers and we may have to provide them with more attractive benefit packages than we originally anticipated, either of which could cause our profitability to decline. Finally, if we expand our operations into geographic areas where health care providers historically have unionized, we cannot assure you that negotiating collective bargaining agreements will not have a negative effect on our ability to timely and successfully recruit qualified personnel. Generally, if we are unable to attract and retain caregivers, the quality of our services may decline and we could lose patients and referral sources.

RISKS RELATED TO OUR BUSINESS

Our limited independent operating history and subsequent acquisition activity make our future business prospects difficult to evaluate based on our past results.

We have a limited operating history in our present form. We were formed in connection with the acquisitions of Specialty Pharma and New England Home Therapies, which were completed in September 2006. Since that time, we have completed six acquisitions, including the acquisitions of

Risk factors

Deaconess in January 2007, which added our home nursing segment to our business. Other acquisitions included Infusion Solutions in March 2007, Applied in June 2007, Infusion Partners of Brunswick and Infusion Partners of Melbourne in July 2007, and East Goshen Pharmacy in August 2007, all of which added to our home infusion segment. See “Our history” for a more detailed discussion of our acquisitions. Because of the limited time that has passed since our formation and our subsequent acquisition activity, it may be difficult to evaluate our future business prospects based on the prior operating results of us and the companies we have acquired.

If we are unable to identify additional suitable acquisition candidates and acquire them on terms favorable to us, our growth may be slowed and our revenue and profitability may decline.

An important component of our strategy is to pursue acquisitions. Our further growth may depend in part on our ability to identify additional suitable acquisition candidates and acquire them on terms that are beneficial to us. We may not be able to identify suitable acquisition candidates or acquire them on favorable terms or at all. If we are unable to identify suitable acquisition candidates and complete the acquisition of these businesses, the growth of our business may be slower that our rate of growth to date. If we are unable to grow our business as we intend, our revenue and profitability may not meet our expectations or those of the financial community at large, and our business could otherwise be adversely affected.

Failure to manage and successfully integrate acquired businesses could harm our business. Even if we are successful in making an acquisition, we may encounter numerous risks, including the following:

expenses, delays and difficulties in integrating the operations, technologies and products of acquired companies;

potential disruption of our ongoing operations;

diversion of management’s attention from normal daily operations of the business;

inability to maintain key business relationships and the reputations of acquired businesses;

dependence on unfamiliar employees, affiliates and partners;

insufficient revenue to offset increased expenses associated with the acquisition;

inability to maintain our internal standards, controls, procedures and policies;

potential loss of key employees of the acquired companies;

failure to realize the synergies and economies of scale expected of the acquired business;

difficulties integrating the personnel and cultures of the acquired companies into our operations; and

responsibility for the potential liabilities of the acquired businesses.

If any of these risks materialize, our management’s attention could be diverted from the operation of our business. In addition, successfully integrating the acquired business could consume a significant amount of our resources. The occurrence of any of these events could have a material adverse effect on our business operations and liquidity.

Risk factors

In connection with acquisitions, we may acquire unknown or contingent liabilities in amounts that exceed our potential recovery with regard to these liabilities.

In connection with acquisitions, we may acquire significant unknown or contingent liabilities, including liabilities for failure to comply with health care or reimbursement laws and regulations. Although we generally seek indemnification protection from the sellers of businesses we acquire with regard to these liabilities, any indemnification rights we may acquire are often limited in scope, claim period and claim amount. In addition, our ability to obtain reimbursement on any indemnification claims will depend on many factors, including, among other things, the availability of assets of the indemnifying parties, whom in many cases may be individuals or groups of individuals. If we are exposed to significant liabilities in connection with any completed or future acquisitions and are unable to recover sufficient amounts under our indemnification rights, if any, these liabilities could have a material adverse effect on our results of operations, financial condition and liquidity.

We have a substantial amount of indebtedness which could affect our financial condition.

As of September 30, 2007, we had $153.1 million of indebtedness outstanding under the credit facilities of Critical Homecare Solutions, Inc., which we refer to collectively as our credit facilities and which include a first lien credit facility, which we refer to as our First Lien Facility, and a second lien term loan facility, which we refer to as our Second Lien Term Loan. As of September 30, 2007, we had the ability to borrow an additional $14.2 million under our First Lien Facility. As of September 30, 2007, after giving effect to this offering and the estimated use of proceeds from this offering to repay outstanding indebtedness under our First Lien Facility and our Second Lien Term Loan, we would have had $ of indebtedness outstanding under our First Lien Facility and the ability to borrow an additional $ under our First Lien Facility.

Our indebtedness is secured by substantially all of our assets, including our equity interests in our subsidiaries. As described under “Use of Proceeds,” our substantial amount of indebtedness could limit our ability to:

obtain necessary additional financing for working capital, capital expenditures or other purposes in the future;

plan for, or react to, changes in our business and the industries in which we operate;

make future acquisitions or pursue other business opportunities; and

react in an extended economic downturn.

Our indebtedness has substantial debt service requirements.

Assuming an interest rate of 9.98% (the effective interest rate in effect on September 30, 2007) after giving effect to the application of the net proceeds of this offering, our annual debt service cost under the term loan portion of our First Lien Facility would be approximately $ millions, $ million, $ million and $ million in 2008, 2009, 2010 and 2011, respectively, and our annual debt service cost will be $ million in 2012 when our First Lien Facility matures. In addition, after giving effect to the use of proceeds of this offering, $ million will be available for borrowing under the revolving credit facility portion of the First Lien Facility. Because our borrowings bear interest at a variable rate, our interest expense could increase, exacerbating these risks. For instance, assuming borrowings of $153.3 million outstanding under our credit facilities, which was the amount outstanding as of September 30, 2007, a 1% increase in our blended interest rate would have increased our interest expense by $1.5 million on an annual basis.

Risk factors

We did not generate cash flow from operating activities in the first nine months of 2007. Our net cash used in operating activities was $0.6 million for the nine months ended September 30, 2007, primarily as a result of an increase in accounts receivable related to growth in our business, billing and collection delays resulting from converting accounts receivable and billing systems at New England Home Therapies’ and certain payor issues experienced by our private duty nursing division. Although we anticipate improvements for cash collections in future periods and resulting improvements in our cash from operating activities, we cannot guarantee the extent to which such improvements in our cash collections will occur.

If we cannot generate sufficient cash flow from operations to fund our operations and service our indebtedness, we may need to refinance our debt, dispose of assets, issue equity or incur additional debt to obtain necessary funds. We do not know whether we will be able to do any of this on a timely basis or on terms satisfactory to us or at all.

Additionally, as a holding company, we are dependent on our subsidiaries for our cash flow. If our subsidiaries are unable to distribute cash to us for any reason, including due to restrictions in our indebtedness, we would not be able to satisfy our obligations under such indebtedness.

The terms of our credit facilities may limit our current and future operations, which would adversely affect our ability to respond to changes in our business and to manage our operations.

Our credit facilities contain, and any future indebtedness of ours would likely contain, a number of restrictive covenants that impose significant operating and financial limitations on Critical Homecare Solutions, Inc. and its subsidiaries, including limitations on its ability to, among other things:

incur additional debt;

pay dividends and make other restricted payments;

create liens;

make investments and acquisitions;

engage in sales of assets and subsidiary stock;

enter into sale-leaseback transactions;

enter into transactions with affiliates;

transfer all or substantially all of our assets or enter into merger or consolidation transactions (including any transfer after which the Kohlberg Stockholders or controlled affiliates of the Kohlberg Stockholders cease to hold at least 35% of our common stock);

hedge currency and interest rate risk; and

make capital expenditures.

The terms of our credit facilities also require Critical Homecare Solutions, Inc. to satisfy certain financial ratios. Our failure to comply with the covenants or financial ratios contained in our credit facilities could result in an event of default under our credit facilities, which could adversely affect our ability to respond to changes in our business and manage our operations. In the event of any default under our credit facilities, our lenders will not be required to lend any additional amounts to us and could elect to declare

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all amounts outstanding to be due and payable and require Critical Homecare Solutions, Inc. to apply all of its available cash to repay these amounts. If our indebtedness were to be accelerated, the collateral securing our indebtedness may not be sufficient to repay it in full.

Our allowance for contractual adjustments and doubtful accounts may not be sufficient to cover uncollectible amounts.

On an ongoing basis, we estimate the amount of Medicare, Medicaid and private insurance receivables that we will not be able to collect. This allows us to calculate the expected loss on our receivables for the period we are reporting. Our estimates and calculations may underestimate actual unpaid receivables for various reasons, including:

adverse changes in our estimates as a result of changes in payor mix and related collection rates;

inability to collect funds due to missed filing deadlines or inability to prove that timely filings were made;

adverse changes in the economy generally exceeding our expectations; or

other anticipated developments.

For example, in the second quarter of 2007, we have experienced certain delayed billings for New England Home Therapies due to its conversion to our accounts receivable and billing system effective April 1, 2007. This resulted in a $3.3 million increase in New England Home Therapies’ accounts receivable from January 1, 2007 to September 30, 2007. We have also recently experienced delays in collections from TennCare relative to our private duty nursing business. These delays, along with an increase in patient volume and related net revenues, have also contributed to an increase in the accounts receivable for our private duty nursing business, from $4.1 million at January 1, 2007 to $8.3 million at September 30, 2007.

If our allowance for contractual adjustments and doubtful accounts is insufficient to cover losses on our receivables, our ability to fund our operations and to make payments on our existing or future debt or other contractual obligations could be adversely affected.

If we are unable to maintain relationships with existing patient referral sources or to establish new referral sources, our growth and profitability could be adversely affected.

Our success depends significantly on referrals from physicians, hospitals and other patient referral sources (such as, in the case of our home nursing segment, the case managers of the TennCare and other programs) in the communities that we serve, as well as on our ability to maintain good relationships with these referral sources. Our referral sources are not contractually obligated to refer patients to us and may refer their patients to other providers. Our growth and profitability depend on our ability to establish and maintain close working relationships with these patient referral sources and to increase awareness and acceptance of the benefits of home health care by our referral sources and their patients. We may not be able to maintain our existing referral source relationships or develop and maintain new relationships in existing or new markets. In addition, the loss of key employees in the markets in which we operate could have an adverse effect on our referral relationships. Our loss of, or failure to maintain, existing relationships or our failure to develop new referral relationships could adversely affect our ability to expand our operations and operate profitably.

If we do not adequately respond to competitive pressures, demand for our products and services could decrease.

The markets we serve are highly competitive and subject to relatively few barriers to entry. Local, regional and national companies are currently competing in many of the health care markets we serve

Risk factors

and others may do so in the future. Some of our competitors have greater financial, operational, marketing and managerial resources than we have. Consolidation among our competitors, such as regional and national infusion pharmacy providers, could result in increased price competition and other competitive factors that could cause a decline in our revenue and profitability.

We expect to continue to encounter competition in the future that could limit our ability to grow revenue and/or maintain acceptable pricing levels.

Our growth may strain our resources.

Our rapid growth has demanded and will continue to demand substantial resources and attention from our management, including improving our operational and financial systems and expanding, training, retaining and managing our employee base. Many of the companies acquired by us, and that we expect to acquire in the future, are small independently owned businesses, with limited financial, accounting and other staff and systems and whose internal controls may have been significantly less than those one would expect to find in a publicly traded company. We have needed to add additional financial, accounting and tax personnel in anticipation of our becoming a public company, and we will need to continue to improve our financial, accounting, information and other systems, and effectively integrate additional acquired businesses, in order to effectively manage our growth going forward. If we do not effectively manage our growth and expand, train, retain and manage our employee base, our customer service and responsiveness could suffer and our costs could increase, which could harm our reputation, increase our expenses and reduce our profitability.

We may need additional capital to finance our growth and capital requirements, which could prevent us from fully pursuing our growth strategy.

In order to implement our present growth strategy, we may need substantial capital resources and may incur, from time to time, short- and long-term indebtedness, the terms of which will depend on market and other conditions. Due to uncertainties inherent in the capital markets (e.g., availability of capital, fluctuation of interest rates, etc.), we cannot be certain that existing or additional financing will be available to us on acceptable terms, if at all. Recently, the financial markets generally, and the credit markets in particular, are and have been experiencing substantial turbulence and volatility, both in the United States and in other markets worldwide. The current market situation has resulted generally in substantial reductions in available loans to a broad spectrum of businesses, increased scrutiny by lenders of the credit-worthiness of borrowers, more restrictive covenants imposed by lenders upon borrowers under credit and similar agreements and, in some cases, increased interest rates under commercial and other loans. Even if we are able to obtain additional debt financing, we may incur additional interest expense, which may decrease our earnings, or we may become subject to covenants and other contractual provisions that restrict our operations. As a result, we could be unable to fully pursue our growth strategy. Further, additional financing may involve the issuance of equity securities that would dilute the interests of our existing shareholders and potentially decrease the market price of our common stock.

An impairment of goodwill in our financial statements could adversely affect our financial position and results of operations.

As of September 30, 2007, we had goodwill of $196.7 million, which represented 68.0% of our total assets as of such date. Our acquisitions have resulted in the recording of a significant amount of goodwill in our financial statements. Goodwill was recorded because the purchase price was in excess of the fair

Risk factors

value of the net identifiable tangible and intangible assets acquired. We may not realize the full value of this goodwill. As such, we evaluate on at least an annual basis whether events and circumstances indicate that all or some of the carrying value of goodwill is no longer recoverable, in which case we would write off the unrecoverable goodwill as a charge against our earnings.

Since our growth strategy will likely involve the acquisition of other companies, we may record additional goodwill in the future. The possible write-off of this goodwill could negatively impact our future earnings. We will also be required to allocate a portion of the purchase price of any acquisition to the value of any intangible assets other than goodwill that meet the criteria specified in the Statement of Financial Accounting Standards No. 141, “Business Combinations,” or SFAS No. 141, such as trademarks, certificates of needs, non-competition agreements or licenses. The amount allocated to these intangible assets could be amortized over a fairly short period, which may negatively affect our earnings.

If our costs increase, we may not be able to pass these cost increases on to our customers.

In many of our markets, due to competitive pressures or the fact that reimbursement rates are set by law or contract, we have very little control over our prices. If our costs increase, we may not be able to increase our prices and our profitability would be negatively affected.

Litigation may harm our business or otherwise distract our management.

The services we offer have an inherent risk of professional liability, negligence, wrongful death, product liability and similar claims being made against us, and we could become subject to substantial damage awards. Substantial, complex or extended litigation could cause us to incur large expenditures and distract our management. For example, lawsuits by patients, employees, suppliers or payors could be very costly and substantially disrupt our business. Disputes from time to time with such companies or individuals are not uncommon, and we cannot assure you that we will always be able to resolve such disputes on terms favorable to us. Claims against us, regardless of their merit or eventual outcome, could be a serious distraction to management and could harm our reputation.

We have risks related to obligations under our insurance programs.

We are obligated for certain costs under various insurance programs, including employee health and welfare, workers’ compensation and professional liability. We may be subject to workers’ compensation claims and lawsuits alleging negligence or other similar legal claims. We maintain various insurance programs to cover these risks with insurance policies subject to substantial deductibles and retention amounts. We also may be subject to exposure relating to employment law and other related matters for which we do not maintain insurance coverage. Should we experience a significant increase in losses resulting from workers’ compensation, professional liability or employee health and welfare claims, the resulting increase in provisions and/or required reserves could have a material adverse effect on our results of operations. Further, our insurance policy is subject to periodic renewal and it may not be possible to obtain liability insurance in the future on acceptable terms, with adequate coverage against potential liabilities, or at all. Also, claims against us, regardless of their merit or eventual outcome, could be a serious distraction to management and could harm our reputation.

If we do not enhance and maintain effective and efficient information systems, our operations may be disrupted and our anticipated operating efficiency may not be realized.

Our operations are dependent on the enhancement and uninterrupted performance of our information systems. Failure to enhance and maintain reliable information systems or disruptions in our information

Risk factors

systems could cause disruptions in our business operations, including billing and collections, loss of existing patients and difficulty in attracting new patients, patient and payor disputes, regulatory problems, increases in administrative expenses or other adverse consequences, any or all of which could disrupt our operations and prevent us from achieving operating efficiency. In connection with acquisitions made by us, we need to transition acquired businesses, which are often small independently owned businesses with a small staff and relatively unsophisticated systems, onto our information systems. Our inability to successfully transition acquired businesses to our systems in a timely manner could adversely affect us. In connection with the transition of New England Home Therapies, one of our Predecessors, onto our accounts receivable and billing system effective April 1, 2007, we have experienced certain delays in the billings of that division. While we expect that the effect on us of these billing delays, including an increase in our accounts receivable, is only temporary, it is possible that we will incur additional bad expense or other negative consequences associated with the delayed billings.

We are a holding company whose only material asset is the capital stock of Critical Homecare Solutions, Inc., our only material source of cash. We may not have sufficient cash to meet our obligations if the subsidiaries of Critical Homecare Solutions, Inc. are not able to generate sufficient earnings or cash flow for Critical Homecare Solutions, Inc. to pay dividends to us or if it is prohibited by its debt agreements from paying dividends to us.

We are a holding company with no material business operations. Our most significant asset is the capital stock of Critical Homecare Solutions, Inc. We conduct virtually all of our business operations through the direct and indirect subsidiaries of Critical Homecare Solutions, Inc. Accordingly, our only material sources of cash are dividends or other distributions or payments that are derived from earnings and cash flow generated by these subsidiaries. These subsidiaries might not generate sufficient earnings and cash flow for Critical Homecare Solutions, Inc. to pay dividends or distributions or make payments in the future. In addition, our credit facilities restrict the ability of Critical Homecare Solutions, Inc. to make dividends or other distributions to us. As a result, we may not have sufficient cash to meet our obligations, which could harm our business.

We will incur increased costs as a result of being a public company.

As a public company, we will incur significant levels of legal, accounting and other reporting expenses that we did not incur as a privately-owned corporation. The Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley, and related rules of the SEC and the Nasdaq Stock Market, regulate corporate governance practices of public companies and impose significant requirements relating to disclosure controls and procedures and internal control over financial reporting. We expect that compliance with these public company requirements will increase our costs, require additional resources and make some activities more time consuming than they were when we were privately-owned. We will be required to expend considerable time and resources complying with public company regulations.

Failure to establish and maintain effective internal control over financial reporting or disclosure controls and procedures could have a material adverse effect on our operating results and stock price.

Maintaining effective internal control over financial reporting and disclosure controls and procedures is necessary for us to produce reliable financial reports and is important in helping to prevent financial fraud. If we are unable to maintain adequate internal control over financial reporting, our business and operating results could be harmed. We are just beginning to evaluate how to document and test our internal control procedures for purposes of satisfying the requirements of Section 404 of Sarbanes-Oxley and the related rules of the SEC, which will require, among other things, our management to assess

Risk factors

annually the effectiveness of our internal control over financial reporting and our independent registered public accounting firm to issue a report on that assessment beginning with our second Annual Report on Form 10-K.

Our rapid growth places significant demands on our management and operational resources. In order to manage our growth effectively, we must implement and improve operational systems, procedures and internal controls on a timely basis, particularly with respect to companies that we acquire. If we are unable to maintain effective disclosure controls and procedures or do not implement the requirements of Section 404 of Sarbanes-Oxley in a timely manner or with adequate compliance, we may not be able to accurately report our financial results in a timely manner or prevent fraud and might be subject to sanctions or investigation by regulatory authorities, including the SEC. During the course of this documentation and testing, we may identify deficiencies that we may be unable to remedy before the requisite deadline for those reports. For example, in connection with our acquisition of Deaconess in January 2007, Deaconess identified two material weaknesses in its internal control over financial reporting. Additionally, we restated the financial statements of Specialty Pharma and New England Home Therapies for the years ended December 31, 2005 and 2004. Although we believe that our internal control structure has mitigated these weaknesses, no assurance can be given that we will not encounter similar situations in connection with future acquisitions. Many of the companies acquired by us, and that we expect to acquire in the future, are small independently owned businesses, with limited financial, accounting and other staff and systems and whose internal controls may have been significantly less than those one would expect to find in a publicly traded company. Our auditors have not conducted an audit of our internal control over financial reporting. Any failure to remediate deficiencies noted by our independent registered public accounting firm or to implement required new or improved controls or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. If our management were to conclude that our internal control over financial reporting was not effective, investors could lose confidence in our reported financial information, and the trading price of our stock could drop significantly. In addition, if we fail to implement these systems, procedures and controls on a timely basis, we may not be able to adequately service our payors’ or patients’ needs, hire and retain new employees, pursue new business, complete future acquisitions or operate our business effectively.

Labor strikes or similar work stoppages within the companies that provide our local and national distribution services could have a negative impact on our results of operations.

We utilize several national delivery companies as an important part of the local and national distribution of our products and services, particularly in the delivery of certain pharmaceutical products. A portion of the work force utilized by these delivery companies are members of labor unions. A labor strike or similar work stoppage within any of the delivery companies that we utilize for distribution could have a negative impact on our results of operations.

RISKS RELATED TO THIS OFFERING AND OUR COMMON STOCK

Because the initial public offering price per common share is substantially higher than our book value per common share, purchasers in this offering will immediately experience a substantial dilution in net tangible book value.

Purchasers of our common stock will experience immediate and substantial dilution in net tangible book value per share from the initial public offering price per share. After the sale of the shares of common stock we have offered hereby and after deducting underwriting discounts and commissions and estimated

Risk factors

offering expenses payable by us, and the application of the net proceeds therefrom, our as adjusted net tangible book value as of September 30, 2007 would have been $ million, or $ per share of common stock. This represents an immediate dilution in net tangible book value of $ per share to new investors purchasing shares of our common stock in this offering. A calculation of the dilution purchasers will incur is provided under “Dilution.” In addition, following the offering, there will be outstanding options with an average exercise price of $ .

Substantial future sales of shares of our common stock in the public market could cause our stock price to fall.

If our stockholders sell a substantial number of shares of our common stock or the public market perceives that stockholders might sell shares of common stock, the market price of our common stock could decline significantly. Upon consummation of this offering, we will have shares of common stock outstanding ( shares if the underwriters exercise their over-allotment option in full). Of these shares, the shares of common stock offered hereby will be freely tradable without restriction in the public market, unless purchased by our affiliates. Upon completion of this offering, our existing stockholders will beneficially own shares of our common stock ( shares if the underwriters exercise their over-allotment option in full), which will represent approximately % of our outstanding common stock ( % if the underwriters exercise their over-allotment option in full). Immediately following the consummation of this offering, the holders of approximately shares of common stock ( shares if the underwriters exercise their over-allotment option in full) will be entitled to dispose of their shares pursuant to the holding period, volume and other restrictions of Rule 144 under the Securities Act, and the expiration of an initial 180-day underwriter “lock-up” period. The underwriters are entitled to waive the underwriter lock-up provisions at their discretion prior to the expiration dates of such lock-up agreements. In addition, we have granted holders of these shares certain registration rights and recent changes under Rule 144 are expected to make it significantly easier for holders of restricted securities to freely re-sell those securities into public markets.

Following this offering, we intend to file a registration statement under the Securities Act registering shares of our common stock reserved for issuance under the 2006 Plan and the 2007 Plan.

See the information under the heading “Shares available for future sale” for a more detailed description of the shares that will be available for future sale upon completion of this offering.

We do not intend to pay dividends in the foreseeable future, and, because we are a holding company, we may be unable to pay dividends.

For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on our common stock. Any future determination to pay dividends will be at the discretion of our board of directors and will be dependent on then-existing conditions, including our financial condition and results of operations, capital requirements, contractual restrictions, including restrictions under our credit facilities, business prospects and other factors that our board of directors considers relevant. Furthermore, because we are a holding company, any dividend payments would depend on the cash flow of our subsidiaries. Accordingly, we may not be able to pay dividends even if our board of directors would otherwise deem it appropriate. See “Management’s discussion and analysis of financial condition and results of operations—Liquidity and Capital Resources” and “Description of capital stock—Common Stock.” For the foregoing reasons, you will not be able to rely on dividends to receive a return on your investment.

Risk factors

Provisions in our charter documents and Delaware law may delay or prevent our acquisition by a third party.

Our amended and restated certificate of incorporation and by-laws, which we intend to adopt prior to the completion of this offering, will contain several provisions that may make it more difficult or expensive for a third party to acquire control of us without the approval of our board of directors. These provisions also may delay, prevent or deter a merger, acquisition, tender offer, proxy contest or other transaction that might otherwise result in our stockholders receiving a premium over the market price for their common stock. The provisions include, among others:

provisions relating to creating a board of directors that is divided into three classes with staggered terms;

provisions relating to the number and election of directors, the appointment of directors upon an increase in the number of directors or vacancy and provisions permitting the removal of directors only for cause and with a 66²/3% stockholder vote;

provisions requiring a 66²/3% stockholder vote for the amendment of certain provisions of our certificate of incorporation and for the adoption, amendment and repeal of our by-laws;

provisions barring stockholders from calling a special meeting of stockholders or requiring one to be called;

elimination of the right of our stockholders to act by written consent; and

provisions that set forth advance notice procedures for stockholders’ nominations of directors and proposals for consideration at meetings of stockholders.

These provisions of our amended and restated certificate of incorporation, by-laws and Delaware law could discourage potential takeover attempts and reduce the price that investors might be willing to pay for shares of our common stock in the future, which could reduce the market price of our stock.

We are controlled by the Kohlberg Stockholders, whose interests will continue to exercise significant influence over us and whose interests in our business may be different than yours.

Approximately 97% of the issued and outstanding shares of our common stock is currently beneficially owned by the Kohlberg Stockholders. Assuming that the underwriters do not exercise their option to purchase additional shares, immediately following the consummation of this offering, these stockholders will continue to own % of the outstanding shares of our common stock, or % if the underwriters’ over-allotment option is exercised in full. Accordingly, these stockholders will be able to exercise significant influence over our business policies and affairs and all matters requiring a stockholders’ vote, including the composition of our board of directors, the adoption of amendments to our certificate of incorporation and the approval of mergers or sales of substantially all of our assets. This concentration of ownership also may delay, defer or even prevent a change in control of our company and may make some transactions more difficult or impossible without the support of these stockholders. The interests of these stockholders may conflict with your interests.

We have opted out of section 203 of the General Corporation Law of the State of Delaware, which we refer to as the “Delaware General Corporation Law,” which, subject to certain exceptions, prohibits a publicly held Delaware corporation from engaging in a business combination transaction with an interested stockholder for a period of three years after the interested stockholder became such. Therefore, the Kohlberg Stockholders are able to transfer control of us to a third party by transferring our common stock, which would not require the approval of our board of directors or our other stockholders.

Risk factors

Additionally, such a change of control may not involve a merger or other transaction that would require payment of consideration to our other stockholders. The possibility that such a change of control could occur may limit the price that investors are willing to pay in the future for shares of our common stock.

For additional information regarding the share ownership of, and our relationship with, the Kohlberg Stockholders, you should read the information under the headings “Principal and selling stockholders” and “Certain relationships and related transactions.”

We will be exempt from certain corporate governance requirements because we will be a “controlled company” within the meaning of the Nasdaq rules and, as a result, our stockholders will not have the protections afforded by these corporate governance requirements.

The Kohlberg Stockholders will continue to control more than 50% of the voting power of our common stock upon completion of this offering. As a result, we will be considered a “controlled company” for the purposes of the Nasdaq listing requirements. As a “controlled company,” we will be permitted to, and we intend to, opt out of the Nasdaq listing requirements that would otherwise require a majority of the members of our board of directors to be independent and require that we either establish a compensation committee and a nominating and governance committee, each comprised entirely of independent directors, or otherwise ensure that the compensation of our executive officers and nominees for directors are determined or recommended to our board by the independent members of our board. Accordingly, our stockholders will not have the same protection afforded to stockholders of companies that are subject to all of the Nasdaq requirements and the ability of our independent directors to influence our business policies and affairs may be reduced. See “Management—Corporate Governance—Controlled company.”

Our stock price may be volatile, and you may be unable to resell your shares at or above the offering price or at all.

Prior to this offering, there has been no public market for our common stock, and an active trading market may not develop or be sustained upon the completion of this offering. The initial public offering price of the common stock offered hereby was determined through negotiations with the underwriters and may not be indicative of the market price of the common stock after this offering. The market price of our common stock after this offering will be affected by a number of factors, including, among others:

our operating and financial performance;

actual or anticipated variations in our operating results from quarter to quarter;

changes or proposed changes in government regulations or enforcement of these regulations;

changes in Medicare, Medicaid and private insurance reimbursement rates for home health care services;

developments relating to litigation or governmental investigations;

sales of common stock or other securities by us or our stockholders in the future;

changes in estimates by securities analysts who follow our stock;

departures of key executives;

announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments; and

general economic and stock market conditions.

Forward-looking statements

This prospectus contains forward-looking statements. You should not place undue reliance on those statements because they are subject to numerous uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Forward-looking statements include information concerning our possible or assumed future results of operations, including descriptions of our business strategy. These statements often include words such as “may,” “will,” “should,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate” or similar expressions. These statements are based on assumptions that we have made in light of our experience in the industry as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. As you read and consider this prospectus, you should understand that these statements are not guarantees of performance or results. They involve known and unknown risks, uncertainties and assumptions. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements. These factors include but are not limited to:

our ability to obtain reimbursement from third party payors, including private and governmental payors;

changes in our relationships with managed care organizations or other third party payors;

changes in reimbursement from federal or state programs, such as Medicare or Medicaid;

changes in our relationships with patient referral sources;

changes in our costs of providing products and services;

competitive pressures from existing and future competitors;

our ability to manage our growth by acquisitions or to successfully identify or integrate future acquisitions;

our ability to finance our growth and capital requirements;

changes in our senior management team;

changes in the calculation or pricing of pharmaceuticals; and

changes in the laws and regulations, or prevailing interpretations thereof, governing the health care industry.

These and other factors are more fully discussed in the “Risk factors” and “Management’s discussion and analysis of financial condition and results of operations” sections and elsewhere in this prospectus. These risks could cause actual results to differ materially from those implied by forward-looking statements in this prospectus.

All information contained in this prospectus is materially accurate and complete as of the date of this prospectus. You should keep in mind, however, that any forward-looking statement made by us in this prospectus, or elsewhere, speaks only as of the date on which we make it. New risks and uncertainties come up from time to time, and it is impossible for us to predict these events or how they may affect us. We have no obligation to update any forward-looking statements in this prospectus after the date of this prospectus, except as required by federal securities laws. In light of these risks and uncertainties, you should keep in mind that any event described in a forward-looking statement made in this prospectus or elsewhere might not occur.

Our history

We were incorporated in Delaware on August 8, 2006 under the name KCHS Holdings, Inc. and changed our name to Critical Homecare Solutions Holdings, Inc. in connection with this offering. Under the leadership of our management team, our business operations began with the acquisitions of all of the capital stock of our predecessors, Specialty Pharma and New England Home Therapies, in September 2006 and we have subsequently completed six additional acquisitions, as a result of which we presently own or lease 33 infusion locations and 32 home nursing locations in 14 states.

OUR PREDECESSORS

Specialty Pharma. We acquired all of the outstanding shares of Specialty Pharma, a comprehensive home infusion and specialty pharmacy provider, effective September 1, 2006. We paid a total consideration of approximately $34.4 million, consisting of $30.9 million in cash and $3.5 million in assumed liabilities. Specialty Pharma had net revenue of approximately $29.3 million in 2005.

New England Home Therapies. We acquired all of the outstanding shares of New England Home Therapies, a Massachusetts-based provider of home infusion products and services, effective September 1, 2006. We paid a total consideration of approximately $20.9 million, consisting of $18.5 million in cash and $2.4 million in assumed liabilities. In addition, under an earn out provision in the acquisition agreement, we are required to pay the former owners of New England Home Therapies additional consideration. We have calculated the amount of this additional consideration to be $454,000, which is reflected in the September 30, 2007 financial statements as an addition to goodwill. New England Home Therapies had net revenue of approximately $17.3 million in 2005.

We financed a portion of the acquisitions of Specialty Pharma and New England Home Therapies by borrowings under our First Lien Facility and financed the remainder with the proceeds of the issuance of shares of our common stock to the Kohlberg Stockholders.

DEACONESS

We acquired all of the outstanding shares of Deaconess, one of the largest providers of comprehensive infusion and nursing services in the United States, effective January 1, 2007 for a total consideration of approximately $170.6 million, consisting of $156.0 million in cash and $14.6 million in assumed liabilities, including related fees and expenses. We financed the acquisition of Deaconess by borrowings under our credit facilities and from the proceeds of the sale of 57,500,000 shares of our common stock to the Kohlberg Stockholders and certain other third party investors, which shares were sold for an aggregate of $57.5 million. Deaconess had net revenue of approximately $113.7 million in 2006.

INFUSION SOLUTIONS

We acquired all of the outstanding shares of Infusion Solutions, a New Hampshire-based infusion services provider, effective March 1, 2007 for a total consideration of approximately $8.7 million, consisting of $8.0 million in cash and $0.7 million in assumed liabilities. We financed the acquisition of Infusion Solutions by borrowings under our First Lien Facility. Infusion Solutions had net revenue of approximately $6.8 million in 2006.

Our history

APPLIED

Effective June 1, 2007, we acquired all of the outstanding partnership interests in Applied, a Texas provider of infusion, specialty pharmacy, nursing and other services, for a total consideration at closing of approximately $8.1 million, consisting of $7.5 million in cash and $0.6 million in assumed liabilities. In addition, if Applied meets certain specified gross profit targets, we may be required to pay up to an additional $1.4 million to the former owners under an earn out provision in the acquisition agreement. The provision includes terms for certain quarterly prepayments on the earn out, not to exceed $100,000 per quarter. We made an advanced payment of $100,000 in November 2007 related to the quarter ending September 30, 2007. We financed the acquisition of Applied from a portion of the proceeds of the sale of 8,048,079 shares of our common stock to the Kohlberg Stockholders and certain other third party investors and members of our management, which shares were sold for an aggregate of approximately $10.5 million. Applied had net revenue of approximately $5.8 million in 2006.

OTHER ACQUISITIONS

Infusion Partners of Brunswick. Effective July 1, 2007, we acquired Option Care of Brunswick, a provider of home infusion and specialty pharmacy services in Georgia, for a total consideration of approximately $7.1 million, consisting of $7.0 million in cash and $0.1 million in assumed liabilities, and subsequently renamed it “Infusion Partners of Brunswick.” We financed the acquisition of Infusion Partners of Brunswick by borrowings under our First Lien Facility. Based solely on unaudited financial information provided to us by the seller, we believe Infusion Partners of Brunswick generated net revenue of approximately $3.3 million in 2006.

Infusion Partners of Melbourne. Effective July 1, 2007, we acquired Option Care of Melbourne, a provider of home infusion, respiratory and nutritional services in Florida, for a total consideration of approximately $3.9 million, consisting of $3.8 million in cash and $0.1 million in assumed liabilities, and subsequently renamed it “Infusion Partners of Melbourne.” We financed the acquisition of Infusion Partners of Melbourne by borrowings under our First Lien Facility. Based solely on unaudited financial information provided to us by the seller, we believe Infusion Partners of Melbourne generated net revenue of approximately $2.0 million in 2006.

East Goshen Pharmacy. Effective August 1, 2007, we acquired East Goshen Pharmacy, a provider of home infusion services in Delaware and Pennsylvania, for a total consideration of approximately $6.3 million, consisting of $5.9 million in cash and $0.4 million in assumed liabilities. In addition, if East Goshen Pharmacy meets certain specified EBITDA (as defined in the acquisition agreement) targets, we may be required to pay up to an additional $0.9 million to the former owners under an earn out provision in the acquisition agreement. We financed the acquisition of East Goshen Pharmacy by borrowings under our First Lien Facility. Based solely on unaudited financial information provided to us by the seller, we believe East Goshen Pharmacy generated net revenue of approximately $5.3 million in 2006.

OTHER INFORMATION

On November 15, 2002, New England Home Therapies, one of our predecessor entities, filed a voluntary petition for relief under Chapter 11 of the United States Code, or the Bankruptcy Code, after its accounts receivable financier, National Century Financial Enterprises, Inc., or National Century, defaulted on its contracted accounts receivable financing arrangement with New England Home Therapies. From that time until reorganization, New England Home Therapies and National Century

Our history

continued in possession of their respective properties and operated and managed their respective businesses as debtors-in-possession pursuant to Sections 1107 and 1108 of the Bankruptcy Code. New England Home Therapies sought and obtained various orders from the bankruptcy court intended to stabilize its business and minimize the disruption caused by its bankruptcy proceedings.

New England Home Therapies’ plan of reorganization was filed on February 18, 2004 and was approved by the bankruptcy court on April 15, 2004 with the consent of all of New England Home Therapies’ creditors. In connection with this plan of reorganization, an agreement was reached with certain creditors that, in the event of the sale or liquidation of New England Home Therapies within four years of the plan of reorganization, a portion of the debt forgiven as part of the plan of reorganization would become due and payable to its creditors. In connection with our acquisition of New England Home Therapies, the shareholders from whom we purchased New England Home Therapies settled this claim.

New England Home Therapies did not apply fresh-start accounting as its shareholders remained intact both before and after the reorganization.

Use of proceeds

We estimate that our net proceeds from this offering will be approximately $ million, at the initial public offering price of $ per share, after deducting underwriting discounts and commissions and estimated offering expenses of approximately $ million. We will not receive any proceeds from the sale of our common stock by the selling stockholders, including any proceeds resulting from the underwriters’ exercise of their option to purchase additional shares from the selling stockholders.

We intend to use all of our proceeds from this offering to repay outstanding indebtedness. We will use $ million to repay all of our outstanding indebtedness under our Second Lien Term Loan, $ million to repay all of our outstanding indebtedness under the revolving credit facility portion of our First Lien Facility and $ million to repay a portion of our outstanding indebtedness under the term loan portion of our First Lien Facility. Prior to application, we may hold any net proceeds in cash or invest them in liquid short and medium term securities.

Borrowings under our First Lien Facility bear interest, at our option, at either a reference rate plus 2.00% or an adjusted LIBOR rate plus 3.25%. Borrowings under our Second Lien Term Loan bear interest, at our option, at either a reference rate plus 5.25% or an adjusted LIBOR rate plus 6.50%. Our First Lien Facility and Second Lien Term Loan mature on January 8, 2012 and January 8, 2013, respectively. See “Management’s discussion and analysis of financial condition and results of operations—Credit Facilities.” We used borrowings under our credit facilities to finance a portion of our acquisition of Deaconess, repay $25 million of our existing senior indebtedness, pay related transaction fees and expenses and support the general corporate and working capital requirements of our business. We also used borrowings under our First Lien Facility to finance the acquisitions of Infusion Solutions, Infusion Partners of Brunswick, Infusion Partners of Melbourne and East Goshen Pharmacy.

A $1.00 increase (decrease) in the assumed initial public offering price of $ per share would increase (decrease) the amount of proceeds to us from this offering available to repay a portion of our outstanding indebtedness under the term loan of our First Lien Facility by $ million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

Dividend policy

We have never declared or paid any dividends on our common stock. For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on our common stock. Any future determination to pay dividends will be at the discretion of our board of directors and will be dependent upon then-existing conditions, including our financial condition and results of operations, capital requirements, contractual restrictions, including restrictions contained in our credit facilities, business prospects and other factors that our board of directors considers relevant.

Capitalization

The following table sets forth our capitalization as of September 30, 2007:

on an actual basis;

on a pro forma basis, giving effect to:

the sale by us of shares of our common stock in this offering at an assumed public offering price of $ , after deducting the underwriters’ discount and the estimated offering expenses;

the Reverse Stock Split; and

this offering and the application of our estimated net proceeds from this offering as described under “Use of proceeds.”


	As of September 30, 2007
	Actual		Pro Forma
	(in thousands)
Indebtedness:
First Lien Facility(1)	$	119,125	$
Second Lien Term Loan(2)		34,000		—
Capital lease obligations		482
Other obligations		125

Total Indebtedness	$	153,732	$

Stockholders’ equity:
Common stock, $0.001 par value per share (actual and as adjusted, 95,000,000 shares authorized, actual, 90,898,079 shares issued and outstanding, pro forma, shares issued and outstanding)		91
Additional paid-in capital		93,981
Retained earnings		2,530

Total stockholders’ equity		96,602

Total capitalization	$	250,334	$

(1)

The $136.0 million First Lien Facility provides for a $20.0 million revolving credit facility and a $116.0 million senior secured term loan facility, which had a balance of $119.1 million at September 30, 2007. The First Lien Facility will mature on January 8, 2012. For the senior secured term loan facility, we are required to make scheduled repayments of principal of $0.7 million in the fourth quarter of 2007, $2.9 million in 2008, $5.8 million in 2009, $8.7 million in 2010, $11.6 million in 2011 and the balance on January 8, 2012. As of September 30, 2007, we had the ability to borrow an additional $14.2 million under the revolving credit facility portion of our First Lien Facility. After giving effect to the application of net proceeds of this offering, $ million will be available for borrowing under the revolving credit facility portion of the First Lien Facility.

(2)

The $34.0 million Second Lien Term Loan will mature on January 8, 2013, with the full amount of the principal to be paid on that date.

Dilution

If you invest in our common stock, you will be diluted to the extent the initial public offering price per share of our common stock exceeds the net tangible book value per share of our common stock immediately after this offering.

Our net tangible book value as of September 30, 2007 was approximately $ , or $ per share of common stock (after giving effect to the Reverse Stock Split). The net tangible book value per share represents the amount of our tangible net worth, or total tangible assets less total liabilities, divided by shares of our common stock outstanding as of that date (after giving effect to the Reverse Stock Split).

After giving effect to the Reverse Stock Split, issuance and sale of shares of our common stock sold by us in this offering and our receipt of approximately $ in net proceeds from such sale, based on an assumed public offering price of $ per share (the midpoint of the range set forth on the cover page of this prospectus), and after deducting the underwriting discount and commission and the estimated expenses of the offering, our as adjusted net tangible book value per share as of September 30, 2007 would have been approximately $ , or $ per share. This amount represents an immediate increase in net tangible book value of $ to existing stockholders and an immediate dilution in net tangible book value of $ per share to new investors purchasing shares of our common stock in this offering. Dilution per share is determined by subtracting the net tangible book value per share as adjusted for this offering from the amount of cash paid by a new investor for a share of our common stock. Net tangible book value is not affected by the sale of shares of our common stock offered by the selling stockholders. The following table illustrates the per share dilution:


Assumed initial public offering price per share		$
Net tangible book value per share as of September 30, 2007 (adjusted for the Reverse Stock Split but excluding this offering)		$
Increase in net tangible book value per share attributable to new investors		$

Adjusted net tangible book value per share after this offering		$

Dilution per share to new investors		$

A $1.00 increase (decrease) in the assumed initial public offering price of $ per share would increase (decrease) our net tangible book value by $ , the net tangible book value per share after this offering by $ and the dilution per share to new investors by $ (each, after giving effect to the Reverse Stock Split), assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The following table summarizes as of September 30, 2007 after giving effect to the Reverse Stock Split and this offering as described above:

the total number of shares of common stock purchased from us;

the total consideration paid to us before deducting underwriting discounts and commissions of $ and estimated offering expenses of approximately $ ; and

the average price per share paid by existing stockholders and by new investors who purchase shares of common stock in this offering at the assumed initial public offering price of $ per share.

Dilution


	Shares Purchased			Total Consideration			Average Price Per Share
	Number	Percent		Amount	Percent		Average Price Per Share
Existing stockholders			%	$		%	$
New investors
Total		100.0	%	$	100.0	%

The foregoing table does not reflect proceeds to be realized by existing stockholders in connection with the sales by them in this offering.

The foregoing tables do not include options to purchase an aggregate of shares of common stock that are currently outstanding under the 2006 Plan or that are to be granted upon consummation of this offering under the 2007 Plan. See “Executive compensation—Incentive Plans.” Following the offering, there will be outstanding options with an average exercise price of $ .

Selected historical financial data

The information set forth below should be read in conjunction with “Capitalization,” “Management’s discussion and analysis of financial condition and results of operations,” “Unaudited pro forma consolidated financial information,” the historical financial statements and related notes included elsewhere in this prospectus.

We had no operations prior to the acquisitions of our Predecessors in September 2006. For all periods prior to September 2006, the information set forth below has been derived from the following sources:

The consolidated statement of operations data for the years ended December 31, 2002 and 2003 and the consolidated balance sheet data as of December 31, 2002 and 2003 of New England Home Therapies have been derived from New England Home Therapies’ unaudited consolidated financial statements and the related notes thereto, which are not included in this prospectus.

The consolidated statement of operations data for the period from September 22, 2003 to December 31, 2003 and the consolidated balance sheet data as of December 31, 2003 for Specialty Pharma have been derived from the audited financial statements, and the related notes thereto, of Specialty Pharma, which were audited by Mahoney Sabol & Company, LLP, an independent registered public accounting firm, and which are not included in this prospectus.

The consolidated statement of operations data for the year ended December 31, 2002 and the period from January 1, 2003 to September 21, 2003 and the consolidated balance sheet data as of December 31, 2002 of Professional Home Care Services, Inc., or PHCS, the predecessor of Specialty Pharma, have been derived from the unaudited consolidated financial statements, and the related notes thereto, of PHCS, which are not included in this prospectus.

The consolidated statement of operations data for the years ended December 31, 2004 and 2005 and the consolidated balance sheet data as of December 31, 2004 and 2005 have been derived from each of our Predecessors’ audited consolidated financial statements and the related notes thereto, which were audited by Mahoney Sabol & Company, LLP, an independent registered public accounting firm, and which are included elsewhere in this prospectus.

The consolidated statement of operations data for the eight months ended August 31, 2006 and the consolidated balance sheet data as of August 31, 2006 have been derived from each of our Predecessors’ audited consolidated financial statements and the related notes thereto, which were audited by Deloitte & Touche LLP, an independent registered public accounting firm, and which are included elsewhere in this prospectus.

The consolidated statements of operations data for the one month ended September 30, 2006 has been derived from our unaudited condensed consolidated financial statements and the related notes thereto, which are included elsewhere in this prospectus.

Our consolidated statement of operations data for the four months ended December 31, 2006 and the consolidated balance sheet data as of December 31, 2006 have been derived from our audited consolidated financial statements and related notes thereto, which were audited by Deloitte & Touche LLP, an independent registered public accounting firm, and which are included elsewhere in this prospectus. Our consolidated statement of operations data for the nine months ended September 30, 2007 and the consolidated balance sheet data as of September 30, 2007 have been derived from our unaudited condensed consolidated financial statements and the related notes thereto, which are included elsewhere in this prospectus and have been prepared on the same basis as our audited financial

Selected historical financial data

statements. In the opinion of management, our unaudited consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information. Our results of operations for the nine months ended September 30, 2007 are not necessarily indicative of the results that can be expected for the full year or for any future period. The financial data give effect to various acquisitions from the date of acquisition.

Selected historical financial data


	Pre-Predecessor (PHCS)(1)					Predecessor (Specialty Pharma)(1)
	Year Ended December 31, 2002			For the Period from January 1, 2003 to September 21, 2003		For the Period from September 22, 2003 to December 31, 2003			Year Ended December 31, 2004			Year Ended December 31, 2005			For the Period from January 1, 2006 to August 31, 2006
	(in thousands, except per share data)
Consolidated Statements of Operations Data:
Net revenue:
Home infusion	$	20,824		$	15,967	$	7,174		$	26,575		$	29,287		$	19,741
Home nursing		—			—		—			—			—			—

Total net revenue		20,824			15,967		7,174			26,575			29,287			19,741
Costs and Expenses:
Cost of goods (excluding depreciation and amortization)		10,330			7,586		3,895			13,267			15,170			10,793
Cost of services		1,948			1,545		515			2,145			2,183			1,626
Selling, distribution and administrative		7,562			6,007		2,215			8,809			10,243			6,705
Depreciation and amortization		548			441		359			1,264			1,108			1,573
Impairment of intangible assets		—			—		—			—			—			—

Total operating expenses		20,388			15,579		6,984			25,485			28,704			20,697

Operating income (loss)		436			388		190			1,090			583			(956	)
Interest expense		211			139		83			332			391			261
Other (income) expense		(92	)		—		—			(13	)		(9	)		(4	)

Income before income taxes and minority interests		317			249		107			771			201			(1,213	)
Provision (benefit) for income taxes		30			—		38			315			44			(432	)

Income before minority interests		287			249		69			456			157			(781	)
Minority interests		147			101		26			223			—			—

Net income (loss)	$	140		$	148	$	43		$	233		$	157		$	(781	)

Undistributed cumulative preferred stock dividends		—			—		(117	)		(453	)		(492	)		(351	)
Net income (loss) attributable to common shares		140			148		(74	)		(220	)		(335	)		(1,132	)
Basic and diluted earnings (loss) per share	$	280.90		$	295.28	$	(1.07	)	$	(3.23	)	$	(4.91	)	$	(16.59	)
Weighted average number of shares outstanding, basic		500			500		68,236			68,236			68,236			68,236
Weighted average number of shares outstanding, diluted		500			500		68,236			68,236			68,236			68,236

Balance Sheet Data
Total assets	$	9,704		$	8,146	$	14,200		$	15,133		$	13,922		$	11,731
Long-term debt, including capital leases and current portion	$	3,170		$	2,722	$	4,768		$	2,801		$	2,149		$	3,271
Total shareholders’ equity (deficit)	$	1,224		$	2,812	$	231		$	12		$	(324	)	$	(1,456	)

Selected historical financial data


	Predecessor (New England Home Therapies)(1)														Successor(1)
	Year Ended December 31, 2002			Year Ended December 31, 2003			Year Ended December 31, 2004			Year Ended December 31, 2005		For the Period from January 1, 2006 to August 31, 2006			For the Period from September 1, 2006 to December 31, 2006		Nine Months Ended September 30, 2007
							(in thousands, except per share data)
Consolidated Statements of Operations Data:
Net revenue:
Home infusion	$	12,708		$	12,960		$	15,374		$	17,266	$	13,217		$	16,897	$	93,992
Home nursing		—			—			—			—		—			—		45,858

Total net revenue		12,708			12,960			15,374			17,266		13,217			16,897		139,850
Costs and Expenses:
Cost of goods (excluding depreciation and amortization)		4,101			4,353			5,142			5,349		3,935			7,472		37,713
Cost of services		1,639			1,601			1,938			2,114		1,774			1,679		31,405
Selling, distribution and administrative		8,636			5,974			7,070			7,732		6,186			6,109		53,294
Depreciation and amortization		878			900			684			807		692			416		2,649
Impairment of intangible assets		3,238			—			—			—		—			—		—

Total operating expenses		18,492			12,828			14,834			16,002		12,587			15,676		125,061

Operating income (loss)		(5,784	)		132			540			1,264		630			1,221		14,789
(Gain) loss related to reorganization		450			416			(9,144	)		56		—			—		—
Interest expense		513			51			120			190		160			756		11,423
Other (income) expense		—			(8	)		—			—		(172	)		1		(765	)

Income before income taxes and minority interests		(6,747	)		(327	)		9,564			1,018		642			464		4,131
Provision (benefit) for income taxes		1			11			—			12		(5	)		178		1,887

Income before minority interests		(6,748	)		(338	)		9,564			1,006		647			286		2,244
Minority interests		—			—			—			—		—			—		—

Net income (loss)	$	(6,748	)	$	(338	)	$	9,564		$	1,006	$	647		$	286	$	2,244

Undistributed cumulative preferred stock dividends		—			—			—			—		—			—		—
Net income (loss) attributable to common shares		(6,748	)		(338	)		9,564			1,006		647			286		2,518
Basic and diluted earnings (loss) per share	$	(3,374.16	)	$	(168.87	)	$	4,781.78		$	503.02	$	323.68		$	0.01	$	0.03
Weighted average number of shares outstanding, basic		2,000			2,000			2,000			2,000		2,000			25,350,000		84,416,000
Weighted average number of shares outstanding, diluted		2,000			2,000			2,000			2,000		2,000			25,350,000		85,338,261

Balance Sheet Data
Total assets	$	4,225		$	3,690		$	5,504		$	6,474	$	7,230		$	61,512	$	287,026
Long-term debt, including capital leases and current portion	$	9,364		$	9,216		$	3,754		$	3,118	$	3,145		$	26,022	$	153,733
Total shareholders’ equity (deficit)	$	(9,088	)	$	(9,426	)	$	138		$	1,144	$	1,652		$	25,461	$	96,602

(1)

No dividends were declared by PHCS, our Predecessors or us for any of the periods presented.

Unaudited pro forma consolidated financial information

The following unaudited pro forma consolidated financial information should be read in conjunction with the related notes thereto and the historical financial statements and related notes thereto included elsewhere in this prospectus. The following unaudited pro forma consolidated financial information has been prepared by our management and is based on our historical financial statements, the historical financial statements of our Predecessors, Deaconess, Infusion Solutions and Applied and the assumptions and adjustments described below. See “Capitalization,” “Use of proceeds,” “Risk factors,” “Management’s discussion and analysis of financial condition and results of operations,” “Selected historical financial data” and the audited historical financial statements, and the related notes thereto, for us and each of our Predecessors, Deaconess, Infusion Solutions and Applied included elsewhere in this prospectus.

The unaudited pro forma consolidated statement of operations data for the fiscal year ended December 31, 2006 give effect to:

the combination of our Predecessors;

the acquisitions of Deaconess, Infusion Solutions and Applied;

the Reverse Stock Split; and

this offering and the application of our estimated net proceeds from this offering, as if they had occurred on January 1, 2006.

The unaudited pro forma consolidated statement of operations data for the nine months ended September 30, 2007 give effect to:

the acquisitions of Infusion Solutions and Applied;

the Reverse Stock Split; and

this offering and the application of our estimated net proceeds from this offering, as if they had occurred on January 1, 2006.

The unaudited pro forma consolidated balance sheet as of September 30, 2007 gives effect to this offering and the application of our net proceeds from this offering, as if it had occurred on September 30, 2007.

The information shown under the column labeled “Predecessors” for the eight months ended August 31, 2006 is derived from the audited consolidated financial statements of Specialty Pharma and the audited financial statements of New England Home Therapies included elsewhere in this prospectus. The information shown in the column labeled “Successor” for the four months ended December 31, 2006 is derived from our audited consolidated financial statements included elsewhere in this prospectus. The information shown in the column labeled “Successor” for the nine months ended September 30, 2007 is derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus.

The information shown in the column labeled “Acquisitions—Deaconess” for the twelve months ended December 31, 2006 is derived from the audited financial statements of Deaconess included elsewhere in this prospectus. The information shown in the columns labeled “Acquisitions—Infusion Solutions” for the twelve months ended December 31, 2006 and the two months ended February 28, 2007 is derived from the audited financial statements of Infusion Solutions included elsewhere in this prospectus. The information shown in the columns labeled “Acquisitions—Applied” for the twelve months ended December 31, 2006 and the five months ended May 31, 2007 are derived from the audited financial statements of Applied included elsewhere in this prospectus.

Unaudited pro forma consolidated financial information

The acquisitions of New England Home Therapies, Specialty Pharma, Deaconess, Infusion Solutions and Applied have been accounted for under the purchase method of accounting in accordance with SFAS No. 141, Business Combinations. Under the purchase method of accounting, the total estimated purchase price is allocated to the net tangible and intangible assets acquired based on their estimated fair values. For the Deaconess, Infusion Solutions and Applied acquisitions, management has made a preliminary allocation of the purchase price based on various estimates of fair value, which is reflected in the unaudited pro forma financial information. We are still in the process of finalizing our determination of the fair value of certain intangible assets that could affect the allocation of the purchase price through an adjustment to the amount allocated to goodwill. Any adjustments made in connection with the final determination could be material.

The pro forma financial information has been prepared based upon available information and assumptions that we believe are reasonable. However, the pro forma financial information does not purport to represent what our results of operations or financial condition would have been if the pro forma transactions had occurred on the assumed dates nor are they necessarily indicative of our future performance.

Critical Homecare Solutions Holdings, Inc.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS INFORMATION

Year Ended December 31, 2006


	Predecessors					Successor		Acquisitions									Subtotal
	New England Home Therapies		Specialty Pharma			Critical Homecare Solutions Holdings, Inc.		Deaconess			Infusion Solutions			Applied
	Eight Months Ended August 31, 2006		Eight Months Ended August 31, 2006			Four Months Ended December 31, 2006		Twelve Months Ended December 31, 2006			Twelve Months Ended December 31, 2006			Twelve Months Ended December 31, 2006			Twelve Months Ended December 31, 2006			Pro Forma Adjustments			Offering Adjustments			Pro Forma Consolidated
	(in thousands, except per share data)
Net revenue:
Home infusion	$	13,217	$	19,741		$	16,897	$	63,024		$	6,755		$	5,786		$	125,420		$	—		$			$	125,420
Home nursing		—		—			—		50,673			—			—			50,673			—						50,673

Total net revenue		13,217		19,741			16,897		113,697			6,755			5,786			176,093			—						176,093

Costs and Expenses:
Cost of goods (excluding depreciation and amortization)		3,935		10,793			7,472		24,757			2,703			2,124			51,784			—						51,784
Cost of services		1,774		1,626			1,679		32,357			1,085			478			38,999			—						38,999
Selling, distribution and administrative		6,186		6,705			6,109		40,665			3,358			2,920			65,943			(6,708	)(a)		(71	)(f)		59,164
Depreciation and amortization		692		1,573			416		1,416			94			58			4,249			(88	)(b)					4,161

Total costs and operating expenses		12,587		20,697			15,676		99,195			7,240			5,580			160,975			(6,796	)		(71	)		154,108

Operating income (loss)		630		(956	)		1,221		14,502			(485	)		206			15,118			6,796			71			21,985
Interest and other financing costs		160		261			756		1,051			(2	)		(19	)		2,207			10,970	(c)					13,177
Other expense (income)		(172)		(4	)		1		(756	)		—			—			(931	)		—						(931	)

Income (loss) before income taxes		642		(1,213	)		464		14,207			(483	)		225			13,842			(4,174	)		71			9,739
Provision for income taxes		(5)		(432	)		178		5,957			—			—			5,698			(1,282	)(e)		32	(e)		4,448

Net income (loss) from continuing operations	$	647	$	(781	)	$	286	$	8,250		$	(483	)	$	225		$	8,144		$	(2,892	)	$	39		$	5,291

Basic and diluted earnings per share						$	0.01																			$	0.06
Weighted average number of shares outstanding							25,350																				90,898	(g)

See accompanying notes to the unaudited pro forma consolidated financial information

Critical Homecare Solutions Holdings, Inc.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS INFORMATION

Nine Months Ended September 30, 2007


	Successor			Acquisitions						Subtotal
	Critical Homecare Solutions Holdings, Inc.			Infusion Solutions			Applied
	Nine Months Ended September 30, 2007			Two Months Ended February 28, 2007			Five Months Ended May 31, 2007			Nine Months Ended September 30, 2007			Pro Forma Adjustments			Offering Adjustments			Pro Forma Consolidated
	(in thousands, except per share data)
Net revenue:
Home infusion	$	93,992		$	1,041		$	2,724		$	97,757		$	—		$			$	97,757
Home nursing		45,858			—			—			45,858			—						45,858

Total net revenue		139,850			1,041			2,724			143,615			—						143,615

Costs and Expenses:
Costs of goods (excluding depreciation and amortization)		37,713			415			957			39,085			—						39,085
Cost of services		31,405			165			247			31,817			—						31,817
Selling, distribution and administrative		53,294			481			1,177			54,952			(1,277	)(a)		(391	)(f)		53,284
Depreciation and amortization		2,649			13			20			2,682			17	(b)					2,699

Total costs and operating expenses		125,061			1,074			2,401			128,536			(1,260	)		(391	)		126,885

Operating income (loss)		14,789			(33	)		323			15,079			1,260			391			16,730
Interest and other financing costs		11,423			1			(21	)		11,403			(23	)(c)					11,380
Other expense (income)		(765	)		—			—			(765	)		450	(d)					(315	)

Income (loss) before income taxes		4,131			(34	)		344			4,441			833			391			5,665
Provision for income taxes		1,887			—			—			1,887			522	(e)		178	(e)		2,587

Net income (loss)	$	2,244		$	(34	)	$	344		$	2,554		$	311		$	213		$	3,078


Basic and diluted earnings per share	$	0.03																	$	0.03
Weighted average number of shares outstanding
Basic		84,416																		90,898	(g)
Diluted		85,338																		90,898	(g)

See accompanying notes to the unaudited pro forma consolidated financial information

Critical Homecare Solutions Holdings, Inc.

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET INFORMATION

As of September 30, 2007


	Actual		Offering Adjustments		Pro Forma
	(in thousands)
ASSETS:
Current assets
Cash and cash equivalents	$	2,478			2,478
Accounts receivable		41,999			41,999
Inventories		3,753			3,753
Deferred tax assets		6,760			6,760
Other current assets		1,079			1,079

Total current assets		56,069			56,069
Property and equipment—net		6,620			6,620
Amortizable intangible assets—net		16,632			16,632
Other non-current assets		207,705			207,705

Total assets	$	287,026			287,026

LIABILITIES AND STOCKHOLDERS EQUITY:
Current liabilities
Accounts payable	$	1,149			1,149
Accrued expenses		25,715			25,715
Current portion of capital lease obligations		3,125			3,125
Current portion of long-term debt		249			249

Total current liabilities		30,238			30,238
Long-term capital lease obligations, net of current portion		234			234
Long-term debt, net of current portion		150,125			150,125
Deferred tax liabilities		9,827			9,827

Total liabilities		190,424	—		190,424

Common stock		91			91
Additional paid-in capital		93,981	4,067	(h)	98,048
Retained earnings		2,530	(4,067	)(h)	(1,537	)

Total Stockholder’s equity		96,602	—		96,602

Total liabilities and stockholders’ equity	$	287,026			287,026

See accompanying notes to the unaudited pro forma consolidated financial information

Critical Homecare Solutions Holdings, Inc.

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

Basis of presentation

Effective September 1, 2006, January 1, 2007, March 1, 2007 and June 1, 2007, we acquired all of the outstanding common stock of each of our Predecessors, and of Deaconess, Infusion Solutions and Applied, respectively. We acquired our Predecessors for a total consideration of approximately $55.3 million, consisting of $49.4 million in cash and $5.9 million in assumed liabilities. We acquired Deaconess for a total consideration of approximately $170.6 million, consisting of $156.0 million in cash and $14.6 million in assumed liabilities. We acquired Infusion Solutions for a total consideration of approximately $8.7 million, consisting of $8.0 million in cash and $0.7 million in assumed liabilities. We acquired Applied for a total consideration of approximately $8.1 million, consisting of $7.5 million in cash and $0.6 million in assumed liabilities. See “Our history” for a more detailed discussion of each of these acquisitions.

Each of these acquisitions was recorded under the purchase method of accounting and, accordingly, the results of each acquired business are included in our financial statements as of the effective date of the acquisition. The initial purchase price of each acquisition has been allocated to assets acquired and liabilities assumed based on estimated fair values. The purchase price allocation is preliminary and is subject to adjustment, which may be material, pending final determination of the related earn out provisions and a final valuation of the assets acquired and liabilities assumed. The final determination of the described earn out provision for Applied will occur in the third quarter of 2008. We expect to finalize the valuation of the assets acquired and liabilities assumed at the end of the allocation period related to each acquisition, after receiving finalized information regarding acquired intangible assets, deferred tax assets and deferred tax liabilities and after completing management’s analysis of all available information. Pursuant to the described earn out provision for New England Home Therapies, we have an obligation to pay additional consideration in the amount of approximately $0.5 million to the former owners of New England Home Therapies, which has been reflected in the total consideration.

Final determination of the earn out provisions is not expected to have an impact on future earnings as any additional consideration is expected to be allocated to goodwill in the allocation of the final purchase price. See “Management’s discussion and analysis of financial condition and results of operations—Liquidity and Capital Resources—Contingent purchase price” for a more detailed discussion of these provisions. The initial allocated fair values of assets acquired and liabilities assumed for each acquisition is summarized as follows:


	Predecessors			Deaconess			Infusion Solutions			Applied
	(in thousands)
Cash and cash equivalents	$	811		$	10,104		$	111		$	860
Accounts receivable		8,686			22,118			1,043			748
Inventories		1,397			1,746			274			166
Property and equipment		3,095			2,427			130			140
Deferred tax asset		1,849			3,828			251			271
Other assets		449			782			7			12
Intangible assets, definite-lived		264			1,215			171			46
Intangibles, indefinite-lived		5,800			13,500			0			739
Goodwill		35,788			132,316			6,848			5,951
Total liabilities		(8,785	)		(32,040	)		(786	)		(1,449	)

Aggregate purchase price	$	49,354		$	155,996		$	8,049		$	7,484

Critical Homecare Solutions Holdings, Inc.

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION — (Continued)

(a)

Reflects the impact of selling, distribution and administrative expenses on the unaudited pro forma statements of operations based on the following:


	Nine Months Ended September 30, 2007			Year Ended December 31, 2006
	(in thousands)
Elimination of salaries and benefits (1)	$	(1,067	)	$	(4,053	)
Adjustment to new management contracts (2)		(70	)		516
Elimination of seller acquisition costs (3)		(42	)		(609	)
Elimination of Deaconess HomeCare, Inc. duplicative costs (4)		—			(978	)
Elimination of Deaconess Associations, Inc. (“DAI”) management fees (5)		—			(1,146	)
Elimination of operating expenses incurred on behalf DAI operations not acquired (6)		(98	)		(438	)

	$	(1,277	)	$	(6,708	)

(1)

These adjustments provide for the elimination of salaries and benefits for employees of the acquired businesses that were either not retained following the acquisition date, were terminated after a transitional period of up to six months from the acquisition date or, in three instances, were retained through a longer transition period to complete a computer conversion. These positions were identified for elimination by us in connection with the transactions, and the eliminated positions have not been subsequently replaced. These costs include costs related to executive management of the Predecessors and the acquired companies who were administrative in nature and were terminated commensurate with the applicable acquisitions (see footnote (2) below for the adjustment in management compensation expense for us).

(2)

The adjustment for the period ending December 31, 2006 is to reflect a full year’s compensation expense for our management team. The increase in salaries and wages for our management team is offset by reductions in similar positions of executive management of the Predecessors and the acquired companies, as outlined in footnote (1) above and footnote (4) below. The adjustment for the nine-month period ending September 30, 2007 is to eliminate $70,000 in one-time bonuses that were the result of the Deaconess acquisition.

(3)

These adjustments are to eliminate costs incurred by the predecessor and the acquired companies in preparation and execution of the transactions. Specific costs incurred by the sellers in order to execute the transaction include legal and accounting fees for professional advisors and tail insurance fees for coverage required per the terms of the transaction. These costs were paid directly to the third party vendors from the sellers’ proceeds, as delineated on each transactions’ closing statement.

(4)

These adjustments are to eliminate duplicative costs of Deaconess’ corporate office, Deaconess HomeCare, Inc., that were not incurred subsequent to the acquisition date. These costs include primarily corporate level personnel costs and related expenses associated with the treasury and financial reporting functions, which were not retained.

(5)

The adjustments are to eliminate management fees charged to Deaconess and its subsidiaries by their parent company, DAI, that will not be incurred subsequent to the acquisition date. The management fee charged to Deaconess and its subsidiaries was related to functions that were not incurred subsequent to the acquisition date, the elimination of which did not result in incremental costs to us.

Critical Homecare Solutions Holdings, Inc.

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION — (Continued)

(6)

These adjustments are to eliminate compensation expense related to certain employees who were identified for elimination by us prior to closing. These employees were terminated by us in the second quarter of 2007 upon termination of the related transition service agreement under which we received a transition fee from DAI. See note (d) below for the pro forma adjustment to eliminate the corresponding transition fee income.

(b)

Reflects the impact of depreciation and amortization on the unaudited pro forma statements of operations based on the following:


	Nine Months Ended September 30, 2007		Year Ended December 31, 2006
	(in thousands)
Depreciation expense (1)		—	$	80
Amortization expense (2)		17		(168	)

	$	17	$	(88	)

(1)

In applying purchase accounting to the effective date balance sheet of the acquisitions, we made certain adjustments to property and equipment in order to reflect the fair value of property and equipment as we determined using straight-line depreciation and our estimated useful lives. These changes resulted in a reduction in Deaconess property and equipment from a net book value of approximately $3.54 million prior to the acquisition to approximately $2.43 million following the acquisition. We have accordingly reflected a pro forma adjustment in the amount of $0.08 million for the twelve months ending December 31, 2006 to consider the effect of the differences.

(2)

For the year ended December 31, 2006, pro forma adjustments have been made to eliminate the amortization recorded on the books of the Predecessors and acquired companies and replace it with pro forma amortization expense based on the purchase price allocations made by us for each acquisition. The elimination entries of recorded amortization expense totaled $0.58 million and related primarily to Deaconess and Specialty Pharma for the periods prior to the respective acquisition dates and are derived from audited financial statements presented elsewhere in this prospectus. The entries to add the pro forma amortization expense related to amortizable trademarks and non-compete agreements as determined in our purchase accounting totaled $0.02 million and $0.2 million for the nine months ended September 30, 2007 and the year ended December 31, 2006, respectively, and related principally to Deaconess. Amortizable trademarks and non-compete agreements are amortized over five years and two to four years, respectively.

Critical Homecare Solutions Holdings, Inc.

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION — (Continued)

(c)

Reflects adjustments to remove the historical interest and deferred financing costs reflected on the financial statements of the Predecessors and acquired companies, to remove our interest costs that relate to the period prior to the debt restructuring that financed the Deaconess and Infusion Solutions acquisitions and to add the pro forma interest and deferred financing costs related to financing used by us to finance the acquisitions of Deaconess and Infusion Solutions, as well as refinance the acquisition of Specialty Pharma and New England Home Therapies, as follows:


	Nine Months Ended September 30, 2007			Year Ended December 31, 2006
	(in thousands)
Add-back of interest and other financing costs on First Lien Facility and Second Lien Term Loan (1)	$	—		$	13,162
Elimination of interest and other financing costs on our debt (2)		—			(756	)
Elimination of interest and other financing costs on seller debt (3)		(23	)		(1,436	)

	$	(23	)	$	10,970

(1)

An adjustment has been made to add-back interest incurred by us of $12.60 million for the year ended December 31, 2006, and add-back of amortization on deferred financing costs of $0.56 million for the year ended December 31, 2006. We refinanced our credit facility in January 2007 in order to finance the acquisitions of Deaconess and Infusion Solutions. This debt structure continued through the period ending September 30, 2007, as the Applied acquisition was funded by an equity infusion. Pro forma interest prior to the January 2007 refinancing was determined based on $134 million of debt assumed under our First Lien Facility and Second Lien Term Loan as if these borrowings had occurred on January 1, 2006. The interest amounts were calculated at assumed interest rates ranging from 7.80% to 8.73% on the First Lien Facility, and 11.55% to 12.48% on the Second Lien Term Loan. The interest rates represent our assumed cost of borrowing based on our current margins and historical LIBOR rates. For purposes of the pro forma adjustment, deferred financing costs are being amortized over 60 months, which represents the term of the First Lien Facility and the Second Lien Term Loan.

(2)

An adjustment has been made to eliminate historical costs related to our debt for the periods prior to the refinancing of our credit facilities to fund the acquisition of Deaconess and Infusion Solutions. The adjustment for the year ended December 31, 2006 includes elimination of interest expense of $0.7 million and amortization of deferred financing costs of $0.06 million on our debt for the periods prior to the debt restructuring.

(3)

Elimination of interest and amortization of deferred financing costs on the sellers’ debt for the period from January 1, 2006 through the respective acquisition dates. The sellers’ debt was repaid by the sellers as part of each acquisition. The pro forma costs related to the financing used by us for the acquired businesses are considered in footnote (1) above.

Each 0.125% change in the assumed interest rates would result in a $0.2 million change in annual interest expense on total floating rate indebtedness.

(d)

Reflects the elimination of $450,000 in fee income recognized from the servicing of the Deaconess operations not acquired by us during the transition period immediately following the Deaconess acquisition. Reference is made to footnote (a)(6) above for the elimination of the compensation costs of the employees used to transition the operations.

Critical Homecare Solutions Holdings, Inc.

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION — (Continued)

(e)

Reflects the impact of income taxes on the unaudited pro forma statements of operations based on the following:


	Nine Months Ended September 30, 2007	Year Ended December 31, 2006
	(in thousands)
Tax effect on pro forma adjustments (1)	$379	$	(1,906	)
Conversion of S Corporation to C Corporation (2)	143		624

	$522	$	(1,282	)

Tax effect on offering adjustments (3)	$178	$	32

(1)

The income tax effect of the pro forma adjustments amounting to approximately $0.83 million during the nine months ended September 30, 2007 and $(4.18) million during the year ended December 31, 2006 at an assumed effective tax rate of 45.7%. This rate reflects statutory rates for both the federal and state income tax provisions.

(2)

The impact of taxes on the periods prior to the respective acquisition dates for the conversion of the acquired businesses from S Corporations to our current structure of C Corporations and to reflect the impact of our statutory tax rate. Changes from S Corporations to C Corporations for New England Home Therapies, Infusion Solutions and Applied occurred commensurate with each of the acquisitions by us. We utilized a tax rate that reflects statutory rates for both the federal and state income tax provisions.

(3)

Tax effect adjustments on offering adjustments amounting to approximately $0.39 million during the nine months ended September 30, 2007 and $0.07 million during the year ended December 31, 2006 at an assumed tax rate of 45.7% have been reflected. This rate reflects statutory rates for both the federal and state income tax provisions.

(f)

Reflects the elimination of the Kohlberg management fee that will not be charged to us following the initial public offering. The elimination of the Kohlberg management agreement is not anticipated to result in incremental costs to us.

(g)

Reflects the cumulative issuance of 90,898,079 shares to finance the acquisitions of the Predecessors and the acquired companies as if the issuances had occurred on January 1, 2006.

(h)

This adjustment reflects the projected compensation charge that will result from the acceleration of vesting of all outstanding stock options upon consummation of this offering. The projected compensation charge is reflected as adjustments to retained earnings and stockholders’ equity.

Management’s discussion and analysis of financial condition and results of operations

The following discussion should be read in conjunction with the historical financial statements and the related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that are subject to known and unknown risks and uncertainties. Actual results and the timing of events may differ significantly from those expressed or implied in such forward-looking statements due to a number of factors, including those set forth in the section entitled “Risk factors” and elsewhere in this prospectus.

Our historical financial data discussed below reflects the historical results of operations and financial position of Critical Homecare Solutions Holdings, Inc. and its consolidated subsidiaries and our Predecessors. The following discussion and analysis of our results of operations includes periods prior to the acquisitions of Deaconess, Infusion Solutions, Applied, Infusion Partners of Brunswick, Infusion Partners of Melbourne and East Goshen Pharmacy. Also, the historical financial data does not give effect to the completion of this offering. Because of the limited time that has passed since our formation and our subsequent acquisition activity, it may be difficult to evaluate our future business prospects based on our prior operating results and those of the companies we have acquired and our historical results of operations should not be considered indicative of what our future results of operations will be. See “Unaudited pro forma consolidated financial information” included elsewhere in this prospectus.

OVERVIEW

We are a leading provider of comprehensive home infusion therapy services to patients suffering from acute or chronic conditions. We operate in two business segments, home infusion therapy and home nursing. Through our home infusion therapy segment, we deliver and provide complex intravenous pharmaceutical products and corresponding clinical support services to patients with chronic conditions requiring long-term infusion care services and acute conditions requiring short-term infusion care services. Through our home nursing segment, we provide skilled nursing and other therapy services, including physical therapy, occupational and speech therapy, medical social work and home health aide services, to recovering, disabled, chronically ill or terminally ill adult and pediatric patients in need of medical, nursing or therapeutic treatment, and assistance with essential activities of daily living.

We estimate that a substantial portion of the home infusion market consists of independent home infusion providers, and we believe that industry dynamics in the currently fragmented home infusion market favor consolidated providers and the operational efficiencies that come with scale. As part of our business strategy, we intend to continue to pursue acquisitions of leading independent home infusion providers in contiguous and other strategic markets, and a significant portion of our future growth in revenues and profitability is dependent on our ability to successfully identify potential acquisition targets. In addition, we estimate that it takes approximately 12 to 18 months to fully realize all of the synergies of an acquisition, including increased purchasing power with suppliers and cost synergies arising from the consolidation of support services, employee benefits programs and insurance programs. All of our acquisitions have occurred during the last 14 months, as such we believe that, although the key back office and other systems of our acquired businesses during that time have been fully integrated, we have not fully realized all the synergies and operating income improvements anticipated by us from these acquisitions. A significant portion of our future profitability is dependent on our ability realize these synergies and operating income improvements in future periods.

Our business, and our industry in general, is subject to known material uncertainties, in both the short and long term, that could impact our results of operations, such as uncertainties relating to federal and

Management’s discussion and analysis of financial condition and results of operations

state regulation of our industry and uncertainties related to our ability to receive reimbursement from our governmental and non-governmental payors. Our management seeks in the ordinary course of our business to avoid or mitigate the effects of these uncertainties, if any, on our business. All of our internal policies and procedures are designed to cause our operations to be in compliance with the federal and state regulations to which our business and industry are subject. In addition, management maintains regular contact with industry consultants and outside counsel to evaluate any developments in federal or state regulations that could affect us and to identify ways we can mitigate their effect on our results of operations.

After giving effect to this offering and the application of net proceeds therefrom, as described under “Use of Proceeds,” our indebtedness will be significantly reduced. We expect that this reduction in the amount of our outstanding indebtedness will improve our liquidity and cash flow.

OUR COMPANY

We were incorporated in Delaware on August 8, 2006, but our Predecessors, Specialty Pharma and New England Home Therapies, have been in the home health care business since 2002 and 2000, respectively. The pre-predecessor of Specialty Pharma, has been in operation since 1993. Effective September 1, 2006, we acquired all of the outstanding shares of each our Predecessors for cash. We paid a total consideration of approximately $34.4 million, consisting of $30.9 million in cash and $3.5 million in assumed liabilities, for Specialty Pharma and approximately $20.9 million, consisting of $18.5 million in cash and $2.4 million in assumed liabilities, for New England Home Therapies. We financed a portion of the purchase prices of the acquisitions of our Predecessors with borrowings under our First Lien Facility. We financed the remainder of the purchase prices of our acquisitions of our Predecessors with the proceeds of the issuance of 25,350,000 shares of our common stock to the Kohlberg Stockholders and certain members of our management, which shares were sold for an aggregate of $25.2 million. We recorded the acquisition of each of our Predecessors under the purchase method of accounting in accordance with SFAS No. 141. The results of the acquired operations are included in our financial statements beginning September 1, 2006. The initial purchase price of each Predecessor has been allocated to assets acquired and liabilities assumed based on estimated fair values.

Since the acquisitions of our Predecessors, we have acquired and begun or completed integration of the following entities:


Date of Acquisition	Entity Acquired	Business Segment(s)	Service Areas
January 2007	Deaconess Enterprises, Inc.	Home Infusion, Home Nursing	Alabama, Georgia, Louisiana, Michigan, Mississippi, Ohio, Pennsylvania, Tennessee, Texas

March 2007	Infusion Solutions, Inc.	Home Infusion	New Hampshire, Massachusetts

June 2007	Applied Health Care, Inc.	Home Infusion	Texas

July 2007	Infusion Partners of Brunswick, Inc.	Home Infusion	Georgia

July 2007	Infusion Partners of Melbourne, Inc.	Home Infusion	Florida

August 2007	East Goshen Pharmacy, Inc.	Home Infusion	Pennsylvania

Management’s discussion and analysis of financial condition and results of operations

We completed the acquisition of Deaconess effective January 1, 2007 for a total consideration of approximately $170.6 million, consisting of $156.0 million in cash and $14.6 million in assumed liabilities. We financed the acquisition of Deaconess with borrowings under our First Lien Facility and Second Lien Term Loan and from the proceeds of the sale of 57,500,000 shares of our common stock to the Kohlberg Stockholders and certain other third party investors, which shares were sold for an aggregate of $57.5 million. See “—Liquidity and Capital Resources” for a more complete discussion of the terms of our First Lien Facility and Second Lien Term Loan. We accounted for the acquisition of Deaconess in accordance with SFAS No. 141.

We financed the acquisitions of Infusion Solutions, Infusion Partners of Brunswick, Infusion Partners of Melbourne and East Goshen Pharmacy with borrowings under our First Lien Facility. We financed the acquisition of Applied from a portion of the proceeds of the sale of 8,048,079 shares of our common stock to the Kohlberg Stockholders, certain other third party investors and members of our management, which shares were sold for an aggregate of approximately $10.5 million. We accounted for each of these acquisitions in accordance with SFAS No. 141.

See “Our history” for a more detailed discussion of our formation and acquisition history.

OUR REVENUES AND EXPENSES

Net Revenue. We generate almost all of our revenue from reimbursement by government and third-party payors for goods and services provided to patients. We receive payment for goods and services from a number of sources, including managed care organizations, government sources, such as Medicare and Medicaid programs, and commercial insurance. For the nine months ended September 30, 2007, we had a payor mix of 48% from managed care organizations and non-governmental third party payors, 31% from Medicare and 21% from Medicaid. See “—Critical Accounting Policies and Estimates” for a discussion of our revenue recognition policies.

Cost of Revenues. Cost of revenues consists of two components: cost of goods and cost of services. Cost of goods consists of the actual cost of pharmaceuticals and other medical supplies dispensed to patients, but does not reflect depreciation. Cost of services consists of all other costs directly related to the production of revenues, including the salary and benefit costs for the pharmacists, nurses and contracted workers directly involved in providing service to the patient.

Selling, Distribution, and Administrative Expenses. Selling expenses relate primarily to salaries, benefits, and payroll taxes related to our sales and marketing representatives. Distribution costs are included in selling, distribution, and administrative expenses and represent the cost incurred to deliver product or services to the end users. Included are salary and benefit costs related to drivers and dispatch personnel and amounts paid to courier and other outside shipping vendors. Administrative expense represents our overhead costs and consists of salaries and related taxes and benefits, payroll taxes, rent and insurance.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Use of Estimates. The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America require management to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Actual results could vary from estimates. The items in our financial statements that we believe are the most dependent on the application of significant estimates and judgments are as follows:

Management’s discussion and analysis of financial condition and results of operations

Revenue Recognition. Patient revenue is recorded in the period during which goods are shipped or delivered or the services are provided. When both goods and services are provided, revenue is recognized upon confirmation that both the services were provided and the goods were delivered to the patient. When only goods are provided to the patient and the patient has the means to use the goods without requiring nursing or other related services, the revenue is recognized upon confirmation of the delivery of the goods. When only services are provided, revenue is recognized upon confirmation that the services have been provided. Our agreements with payors may include a provision for the use of a “per diem” payment for certain infusion services provided to patients. The per diem arrangement may include a variety of both goods and services, including, but not limited to, rental of medical equipment, care coordination services and medical supplies. Because we receive a single price for both goods and services in one combined billing, we cannot split revenue on our statements of income between product revenue and service revenue.

EITF 00-21 addresses situations in which multiple products and/or services are delivered at different times under one arrangement with a customer and provides guidance in determining whether multiple deliverables should be used as separate units of accounting. We provide a variety of therapies to patients, the majority of which have multiple deliverables, such as the delivery of drugs and supplies and the provision of related nursing services to train and monitor patient administration of the drugs. After applying the criteria from the final model in EITF 00-21, we concluded that separate units of accounting do exist in our revenue arrangements with multiple deliverables.

Our revenue recognition policy is designed to recognize revenue when each deliverable is provided to the patient. For example, revenue from drug sales is recognized upon confirmation of the delivery of the products, and revenue from nursing services is recognized upon receipt of nursing notes confirming the service has been provided. In instances in which the amount allocable to the delivered item is contingent upon delivery of additional items, we recognize revenue after all the deliverables in the arrangement have been provided. In instances that a per diem is provided for daily usage of supplies and equipment, revenue is recognized on a per diem basis.

The amounts billed to third-party payors and patients are directly offset by appropriate allowances to give recognition to third-party payor arrangements. Net revenue recognition and allowances for uncollectible billings require us to use estimates. Once known, any changes to these estimates are reflected in our statement of operations.

Both of our segments utilize billing and accounts receivable systems that are highly automated. While certain inputs into the system may be manual, the significant portion of the billing and accounts receivable process is automated. In our infusion segment, the majority of our acquisitions were utilizing our platform application prior to acquisition. Integration efforts for these systems have only required a migration from the division’s separate applications to the company-wide instance. The migration is not considered to be high risk, as very little user education is required since the applications are identical. Each of New England Home Therapies, Specialty Pharma and East Goshen Pharmacy did not utilize our platform application prior to acquisition. New England Home Therapies was converted to our platform application on April 1, 2007, and Specialty Pharma converted on October 1, 2007. We intend to convert East Goshen Pharmacy in the first quarter of 2008. With that conversion, all of our infusion operations will be on a single platform.

We have selected the automated billing and accounts receivable system used by our Adult Nursing division as our platform application for nursing segment. Our private duty nursing division converted to this system on October 1, 2007. With this conversion, all of our nursing operations are now on a single platform.

Management’s discussion and analysis of financial condition and results of operations

Self pay revenue represented 1% of net revenue for the nine months ending September 30, 2007, while self pay represented 3% of accounts receivable as of September 30, 2007. The collections of co-insurance due from the patient and other self-pay amounts are pursued directly by the local operations. The amount of self pay is not material for the infusion segment and only applies for a small number of payors for nursing. Additionally, self pay billings are minimized as our policy requires insurance verification before service is rendered, unless the patient is admitted and requires service at night, on a weekend or on a holiday. The frequency of these exceptions is not material and has not resulted in a significant amount of self pay net revenue. Our policy is to make effort to collect the known and identified self-pay components of the billing arrangement at the time of delivery of care. When the payment cannot be obtained at the point of delivery, we perform follow-up billings and contacts with the patients. When these efforts are not successful and the account has been written off as a bad debt, we may engage outside collection agencies to assist in the pursuit of collection. We do not determine our bad debt provision separately for self pay as self pay is not material and is not considered to be a key metrix of our business.

Home infusion

In our home infusion segment, infusion therapy and related health care service revenue are reported at the estimated net realizable amounts from patients and third-party payors. Pricing is typically negotiated in advance on the basis of AWP minus some percentage of contractual discount or ASP plus some percentage of contractual discount, which is the typical means of negotiating pricing in the industry. AWP and ASP information is published by First Databank and a number of other private companies. Recent events have raised uncertainties as to whether the average wholesale prices published by First Databank will decline, resulting in a reduction in our gross profit margins. See “Risk factors—Risks Related to Our Industry—Our revenue and gross profit could decrease if there are changes in the calculation of the average wholesale price or average sales price for the prescription drugs we sell, or if managed care organizations and other private payors replace the average wholesale price or average sales price with a different reimbursement method.”

Due to the nature of the industry and the reimbursement environment in which we operate, certain estimates are required to record net revenues and accounts receivable at their net realizable values. Inherent in these estimates is the possibility that they will have to be revised or updated as additional information becomes available. Specifically, the complexity of many third-party billing arrangements and the uncertainty of reimbursement amounts for certain services from certain payors may result in adjustments to amounts originally recorded.

Billings to payors for whom we are an “out-of-network” provider represented approximately 20% of net revenues for the nine months ended September 30, 2007 and are generally submitted at our usual customary charges. These payors typically pay at amounts that are less than our usual customary charges. We estimate the net realizable revenue on out-of-network billings based on our historical experience as well as estimated realizable amounts provided by the respective payor upon patient intake and insurance verification. We provide contractual reserves at the time of revenue recognition for the estimated differences between our initial billings for out-of-network patients. The actual difference between the initial estimate and the amount paid by the payor is recorded at the point of cash application, claim denial or account review.

Net revenue from payors for whom we are contracted as an “in network” provider is generally recognized at the contracted fee schedule amount. Revenue is recorded at the billing amount, which represents the amount of revenue that is expected to be realized per the contractual terms. Revenue from in-network commercial and other non-governmental payors represented 52% of net revenue for the nine months ended September 30, 2007. Revenue from Medicare represented approximately 17% of net

Management’s discussion and analysis of financial condition and results of operations

revenue for the nine months ended September 30, 2007 and is recognized at the published fee schedules. Revenue from various state Medicaid programs represented approximately 11% of net revenue for the same period and is also recognized at the published fee schedule amount. Estimated differences between the amounts initially recognized as net revenue and actual are reserved for at the time of revenue recognition based on historical experience and typically relate to non-covered or denied services.

Home nursing

In our home nursing segment, revenue is recognized as the treatment plan is administered to the patient and is recorded at amounts estimated to be received under reimbursement or payment arrangements with payors. Net revenues to be reimbursed by contracts with third-party payors are recorded at an amount to be realized under these contractual arrangements.

Approximately 51% of nursing net revenue for the nine months ended September 30, 2007 was related to Medicare billings. Under the prospective payment system for Medicare reimbursement, net revenues are recorded based on a reimbursement rate which varies on the severity of the patient’s condition, service needs and certain other factors. Revenue is recognized ratably over a 60-day episode period and is subject to adjustment during this period if there are significant changes in the patient’s condition during the treatment period or if the patient is discharged but readmitted to another agency within the same 60-day episode period. Medicare billings under the prospective payment system are initially recognized as deferred revenue and are subsequently recognized as revenue over the 60-day episode period. The process for recognizing revenue under the Medicare program is based on certain assumptions and judgments, the appropriateness of the clinical assessment of each patient at the time of certification, and the level of adjustments to the fixed reimbursement rate relating to patients who receive a limited number of visits, have significant changes in condition or are subject to certain other factors during the episode.

For non-Medicare payors, we have established contractual reserves for the amounts initially billed to the payors relative to the amounts expected to be realized. These estimates are based on our historical experience or specific contractual requirements identified for certain payors. Differences between the estimates and the actual contractual adjustments are typically recorded at the time of cash posting, claim denial or account review.

Accounts Receivable and Allowances for Doubtful Accounts. Our accounts receivable consist of amounts owed by various governmental agencies, insurance companies and private patients. Management performs periodic analyses to evaluate accounts receivable balances to ensure that recorded amounts reflect net realizable values. Although we have a significant concentration of receivables from Medicare and Medicaid, we do not believe there are any significant credit risks associated with the receivables from Medicare and Medicaid and other state administered programs.

Our accounts receivable are reported net of contractual adjustments. Generally, we bill third-party payors based on the contractual charges or usual customary charges for goods and services provided and then contractually adjust the revenue down to the anticipated collectible amount based on our interpretation of the terms of the applicable managed care contract, fee schedule or other arrangement with the payor.

We have established an allowance for doubtful accounts to report accounts receivable at the estimated net realizable amounts to be received from third-party payors. Increases to this reserve are reflected as a provision for bad debt in our statement of operations. We generate accounts receivable aging reports from our billing systems and utilize these reports to help us monitor the condition of our outstanding receivables and evaluate the performance of our billing and reimbursement staff. We also utilize these

Management’s discussion and analysis of financial condition and results of operations

aging reports, combined with historic write-off statistics generated from our billing systems, to determine our allowance for doubtful accounts. We regularly perform an analysis of the collectability of accounts receivable and consider such factors as prior collection experience and the age of the receivables.

We do not require our patients or other payors to carry collateral for any amounts owed to us for services provided. Other than as discussed above, our concentration of credit risk relating to accounts receivable is limited due to our diversity of patients and payors. Further, we generally do not provide charity care.

The following table details our accounts receivable balances by aging category, excluding unbilled accounts receivable and contractual allowances, at September 30, 2007 and December 31, 2006 (in thousands):


Aging Category	September 30, 2007			December 31, 2006
< 31 days	$	15,580		$	4,322
31-60 days		7,284			1,523
61-90 days		4,894			659
> 90 days		15,705			2,006

Total accounts receivable, gross		43,463			8,510
Allowance for uncollectible accounts		(3,944	)		(601	)
Allowance for contractual adjustments		(1,485	)		0
Unbilled and other		3,965			1,783

Total accounts receivable, net	$	41,999		$	9,692

The aging by payor as of September 30, 2007 is as follows:


Aging Category	Medicare	Medicaid	Commercial and Other	Self Pay
< 31 days	4,219	3,334	7,605	$	422
31-60 days	1,957	2,103	2,996		228
61-90 days	1,527	1,130	2,036		201
> 90 days	2,668	4,405	8,187		445

Total accounts receivable, gross	10,371	10,972	20,824		1,296

Days sales outstanding, net of reserves, were 76 at September 30, 2007 compared to 69 at December 31, 2006. The increase in days sales outstanding relates primarily to the slowdown in collections at New England Home Therapies, as described in the next paragraph and our private duty nursing division. See “—Liquidity and Capital Resources.”

The accounts receivable aging summary does not include unbilled accounts receivable, which include billings on hold until the delivery of all contingent components has been completed (in the case of certain per diems), billings on hold pending receipt of documentation required by the third-party payor and billings pending prior approval from the third-party payor. Unbilled accounts receivable increased from $1.4 million at December 31, 2006 to $6.2 million at September 30, 2007. The increase of $4.9 million includes $2.3 million related to unbilled accounts receivable relating to current year acquisitions and a $2.6 million increase in the unbilled accounts receivable of New England Home Therapies. The increase for New England Home Therapies stems from its April 1, 2007 accounts receivable conversion. See “—Liquidity and Capital Resources.”

As noted above, the majority of our accounts receivable is due from third-party payors, including Medicare, Medicaid, commercial and governmental payors. The majority of these payors are billed

Management’s discussion and analysis of financial condition and results of operations

electronically. Additionally, we receive payment electronically from a large number of our payors. Hard copy bills are generated from our automated collection system and distributed to third-party payors that are not billed electronically and to self-pay patients. Our collection activities occur at the branch level, with the billing and collection activities of certain small branches performed by larger branches located in the same geographic area. Each branch maintains certain discretion regarding collection activities. These activities include research of the reasons certain claims are denied by third-party payors, resubmission of claims to third-party payors, rebillings and distribution of statements for self-pay and follow-up phone calls to third-party payors and self-pay patients. When our staff have followed these procedures and have determined that certain amounts are uncollectible, the amounts may be written-off, subject to certain required internal approvals. We generally do not use a threshold or dollar amount in determining whether to pursue collection or to write off accounts. Write-offs are generally specifically identified, with each write-off posted to the accounts receivable system. Write-offs that meet the requirements of collection agencies’ policies are turned over to collection agencies for the further pursuit of payment.

For the nine months ended September 30, 2007 and for the period from September 1, 2006 to December 31, 2006, a hypothetical change of 1% in the bad debt provision as a percentage of net revenues would have impacted net income before income taxes by approximately $1.4 million and $0.2 million, respectively.

Goodwill and Intangible Assets. Goodwill represents the excess of the cost of acquisitions over the fair value of net assets acquired. In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” or SFAS No. 142, goodwill is not amortized and is reviewed annually for impairment utilizing a two-step process. The first step of the impairment test requires the identification of the reporting units, and comparison of the fair value of each of these reporting units to the respective carrying value. The fair value of the reporting units is determined based on valuation techniques using the best information that is available, such as a multiple of earnings before interest, taxes, depreciation and amortization or discounted cash flow projections. If the carrying value is less than the fair value, no impairment exists and the second step is not performed. If the carrying value is higher than the fair value, there is an indication that impairment may exist and the second step must be performed to compute the amount of the impairment. In the second step, the impairment is computed by comparing the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. SFAS No. 142 requires goodwill to be tested for impairment annually, and when an event occurs or circumstances change such that it is reasonably possible that an impairment may exist. We intend to perform our annual testing in the fourth quarter of each year. There were no impairment losses recognized for the four months ended December 31, 2006 or the nine months ended September 30, 2007.

Intangible assets consist primarily of non-compete agreements, trademarks related to brand names arising from acquisitions, licenses and certificates of need. We record intangible assets at their estimated fair value at the date of acquisition and amortize the related cost of the asset over the period of expected benefit. The fair value of intangible assets assigned to our acquisitions during the first year subsequent to the acquisition is based on a preliminary determination and is subject to adjustment pending a final determination of purchase price and a final valuation of the assets acquired and liabilities assumed. In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” definite life purchased intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable from estimated future cash flows. In accordance with SFAS No. 142, intangible assets with indefinite lives are reviewed for impairment annually or when an event occurs or circumstances change such that it is reasonably possible that an impairment may exist. There were no impairment losses recognized for the four months ended December 31, 2006 or the nine months ended September 30, 2007.

Management’s discussion and analysis of financial condition and results of operations

Non-compete agreements are amortized on a straight-line basis over the estimated life of each agreement, which ranges from one to five years. The trademarks associated with Deaconess HomeCare have limited lives of five years, as determined by our contractual rights to use the brand names, and these trademarks are being amortized over the estimated useful life. Trademarks with indefinite lives are not amortized but are periodically reviewed for impairment. Licenses are being amortized over a period of one to two years. Certificates of need have indefinite lives and are not amortized but are periodically reviewed for impairment.

Self-insurance. We are self-insured up to certain limits for workers’ compensation costs and employee medical benefits. We have purchased stop-loss coverage to limit our exposure to significant individual workers’ compensation or employee medical claims. Self-insured losses are accrued for known and anticipated claims based upon certain assumptions and historical claim payment patterns as well as estimates of claims incurred but not yet reported based on historical industry trends. These assumptions take into consideration the historical average claim volume, the average cost for settled claims, current trends in claim costs, changes in our business and workforce, and general economic factors. Our self-insurance accruals are reviewed on a quarterly basis, or more frequently if factors dictate a more frequent review is warranted. Our valuation is performed on an annual basis.

Projections of future loss are inherently uncertain because of the random nature of insurance claim occurrences and could be significantly affected if future occurrences and claims differ from historical trends.

Income taxes

We account for income taxes under the liability method in accordance with SFAS No. 109, “Accounting for Income Taxes.” We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. We estimate the degree to which tax assets and loss carryforwards will result in a benefit based on expected profitability by tax jurisdiction.

We determine if a valuation allowance is required or not on the basis of an assessment of whether it is more likely than not that a deferred tax asset will be realized. This assessment takes into consideration tax planning strategies, including levels of historical taxable income and assumptions regarding the availability and character of future taxable income over the periods in which the deferred tax assets are deductible. The effect of a change in judgment concerning the realizability of deferred tax assets would be included in income from operations. We concluded that no valuation allowance was required as of September 30, 2007.

Stock-based compensation

We have granted stock options to certain of our employees and executives under our 2006 Plan, which are accounted for under SFAS No. 123 (Revised 2004), Share-Based Payment, or SFAS No. 123(R). Compensation expense is recorded for stock options awarded to employees in return for employee service. The expense is measured at the fair value of the award on the date of grant and recognized as compensation expense on a straight-line basis over the employee service period, which is the vesting period. We recorded expense based upon estimated forfeitures and the number of awards expected to vest.

Management’s discussion and analysis of financial condition and results of operations

The fair value of options granted during the periods ended September 30, 2007 and December 31, 2006 was estimated on the grant date using the Black-Scholes option-pricing model with the weighted average assumptions in the table below. Because our stock was not publicly traded during these periods, the average historical volatility rate based on our peer group within the health care sector was used. The peer group included two public companies that provide home infusion services and two public companies that provide home nursing services. The calculation of volatility was based on a 6.25 years, which is consistent with the expected term of the awards. The grant life was based on the “simplified method” for “plain vanilla” options as outlined in Topic 14 of SAB 107, Share Based Payment. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.


	For the Year Ended December 31, 2006		For the Nine Months Ended September 30, 2007
Weighted-average volatility	47.52	%	44.65	%
Dividend yield	0	%	0	%
Expected years until exercise	6.25		6.25
Risk-free interest rate	4.53	%	4.70	%

On June 30, 2007, our 2006 Plan was amended to provide that all options granted under it would immediately and fully vest upon the completion of our initial public offering. The acceleration of stock options and recording of the associated compensation expense will be reflected in our statement of operations for the fiscal quarter in which the offering becomes effective. The acceleration of such options, and remeasurement of our compensation expense, will be reflected in our statement of operations for the fiscal quarter in which this offering becomes effective.

Under our 2006 Plan, common stock options were granted at the following dates and fair values:


Date of Grant	Number of Shares	Exercise Price Per Share		Fair value Per Share(1)
December 6, 2006	2,792,500	$	1.00	$	1.00
January 8, 2007	3,765,000	$	1.00	$	1.00
March 13, 2007	25,000	$	1.00	$	1.00
March 19, 2007	40,000	$	1.00	$	1.00
March 22, 2007	50,000	$	1.00	$	1.00
March 30, 2007	25,000	$	1.00	$	1.00
April 1, 2007	200,000	$	1.00	$	1.00
April 10, 2007	25,000	$	1.00	$	1.00
May 21, 2007	470,000	$	1.00	$	1.00
June 30, 2007	1,563,500	$	1.30	$	1.30

There were no awards granted prior to December 6, 2006.

We believe that our management possessed the valuation experience necessary to estimate the fair value of our common stock at the grant date of our option awards and that we performed a reasonable estimate of the fair value of each grant contemporaneous with its grant. We considered certain arm’s length transactional information with unrelated parties to determine the fair value of the majority of the grants at or near the grant date, including the per share price paid by these parties. For additional information about the significant factors, assumptions, and methodologies used in determining fair value of our capital stock, see “—Valuation of capital stock.” We believe that the exercise price of each option grant was equal to its fair value at the date of grant.

Management’s discussion and analysis of financial condition and results of operations

Valuation of capital stock

Significant Factors, Assumptions and Methodologies Used in Determining the Fair Value of our Capital Stock

Members of our management possessing the requisite valuation experience estimated the fair value of our capital stock contemporaneously with each stock option grant. We did not obtain valuations prepared by an unrelated valuation specialist at the time of each stock option grant because we believed our management possessed the requisite valuation expertise to prepare a reasonable estimate of the fair value of the stock option grants at the time of each grant since our inception. When determining the fair value of our common stock, we follow the guidance prescribed by the American Institute of Certified Public Accountants in its practice aid, “Valuation of Privately-Held-Company Equity Securities Issued as Compensation,” which we refer to as the Practice Aid.

According to paragraph 11 of the Practice Aid, quoted market prices in active markets are the best evidence of fair value of a security and should be used as the basis for the measurement of fair value, if available. Since quoted market prices for our securities are not available, the estimate of fair value was based on the best information available at the time of the valuation. For the majority of the options, prices for stock sold to outside third parties at or near the grant dates were used as the basis of the fair market valuation. We used a market approach to determine the fair market value of the stock sold to outside third parties based on a fair market multiple of EBITDA using quoted market values and EBITDA of six competitors whose shares are publicly traded. We assumed a 10% discount in relation to the size and liquidity, which was supported by information obtained from market sources. This valuation was used as support in the negotiations with the third party investors. The Practice Aid provides that, when privately held enterprises or shareholders engage in arm’s length cash transactions with unrelated third parties for the issuance or sale of their equity securities, the cash exchanged in such a transaction may, under certain conditions, serve the same purpose as a quoted market price. Those conditions are (a) the equity securities in the transaction are the same securities as those with which the fair value determination is being made and (b) the transaction is a current transaction between willing parties. To the extent that arm’s length cash transactions occurred, we utilized those transactions to determine the fair value of our common stock. Sales of common stock to outside third parties occurred on the following dates:


Date		Price Per Share
January 8, 2007		$1.00
June 30, 2007		$1.30

RESULTS OF OPERATIONS

SUCCESSOR

Nine months ended September 30, 2007

Net revenue


	Nine months ended September 30, 2007
	Amount		% of Total
	(in thousands)
Net revenue:
Home infusion	$	93,992	67.2	%
Home nursing		45,858	32.8	%

Total	$	139,850	100.0	%

Management’s discussion and analysis of financial condition and results of operations

Our net revenue was $139.9 million for the nine months ended September 30, 2007. Our home infusion net revenue totaled $94.0 million, or 67.2% of our net revenue for the period. Net revenue in our home infusion segment for the nine months ended September 30, 2007 benefited from our acquisitions of Deaconess in January 2007, Infusion Solutions in March 2007, Applied in June 2007, Infusion Partners of Brunswick and Infusion Partners of Melbourne in July 2007 and East Goshen Pharmacy in August 2007. During this period, we increased the number of home infusion payors we service from 48 to 447 and increased the number of active infusion patients from 9,259 to 12,090. During this period, our operations grew from 10 locations in four states to 33 locations in 14 states.

Our home nursing net revenue totaled $45.9 million, or 32.8% of our net revenue for the period. Net revenue in our home nursing segment during this period is solely attributable to our acquisition of Deaconess in January 2007. During the nine months ended September 30, 2007, our home nursing segment provided over 345,566 nursing and therapy visits and 416,081 private duty nursing hours to patients in the home. As of September 30, 2007, we had 3,067 active nursing patients in three states.

We expect our net revenue to continue to grow through organic growth of our existing operations and through additional acquisitions.

Cost of goods and cost of services

Cost of goods for our home infusion segment was $37.7 million for the nine months ended September 30, 2007, or 40.1% of our home infusion segment net revenue. Cost of goods relates solely to our home infusion segment and consisted primarily of the cost of pharmaceuticals, supplies and equipment. As noted above, our net revenue benefited during the period from the acquisitions of Deaconess, Infusion Solutions, Applied, Infusion Partners of Brunswick, Infusion Partners of Melbourne and East Goshen Pharmacy. This resulted in a corresponding increase in the cost of goods and services provided during the period. As of September 30, 2007, we employed 732 employees and operated 33 home infusion locations in our home infusion segment.

Cost of services for our home infusion segment consisted primarily of direct patient care salaries, payroll taxes, employee benefits and contract labor, which totaled $10.2 million and accounted for 10.9% of net revenue in this segment during this period. This growth was the result of organic growth as well as our acquisition of Deaconess, Infusion Solutions, Applied, Infusion Partners of Brunswick, Infusion Partners of Melbourne and East Goshen Pharmacy during this period.

Cost of services for our home nursing segment consisted primarily of direct patient care salaries, payroll taxes, employee benefits and contract labor, which totaled $21.3 million and accounted for 46.4% of net revenue in this segment during this period. As of September 30, 2007, we operated 32 home nursing locations in our home nursing segment. As noted above, we acquired all of the business in our home nursing segment through the Deaconess acquisition.

We expect cost of services in each of our segments to increase in absolute dollar amounts as we grow our business organically. We will also continue to assess additional acquisitions, which will result in incremental revenues and cost of goods and cost of services. We anticipate certain reductions in cost of goods and services rendered through the leveraging of our existing and future contracts and employee base. However, such leverage opportunities are limited due to the limited sensitivity in the primary components of the cost of our goods and services, pharmaceutical products, pharmacy labor and nursing labor. One of our goals is to continue to pursue leverage opportunities where possible.

Management’s discussion and analysis of financial condition and results of operations

Selling, distribution and administrative expense

Selling, distribution and administrative expense for the nine months ended September 30, 2007 was $53.5 million, or 38.1% of net revenue. Selling, distribution and administrative expense consists primarily of $32.1 million of salaries, payroll taxes and benefits, $3.4 million of provision for bad debt and $3.3 million of employee travel, which accounted for 22.8%, 2.5% and 2.3%, respectively, of net revenue during this period.

Our selling, distribution and administrative costs increased as a result of the acquisitions of Deaconess, Infusion Solutions, Applied, Infusion Partners of Brunswick, Infusion Partners of Melbourne and East Goshen Pharmacy. We anticipate that selling, distribution and administrative costs in terms of absolute dollars will increase in future periods as the result of additional acquisitions, as well as from costs associated with being a public company. However, we anticipate our selling, distribution and administrative expense will decrease as a percentage of net revenues in future periods as we are able to achieve greater leverage from our existing platform.

Depreciation and amortization

Depreciation and amortization expense for the nine months ended September 30, 2007 was $2.6 million, or 1.9% of net revenue. Depreciation expense for this period related to property and equipment totaled $2.4 million, and amortization of capital lease assets totaled $0.2 million.

Interest expense

Interest expense for the nine months ended September 30, 2007 was $11.4 million, or 8.2% of net revenue. Interest expense reflects primarily the cost of our borrowings under our First Lien Facility and our Second Lien Term Loan during the period. The effective rate of these borrowings for the nine months ended September 30, 2007 was 9.98%. Our indebtedness increased due to our borrowings for the acquisitions of Deaconess, Infusion Solutions, Infusion Partners of Brunswick and Melbourne and East Goshen Pharmacy. We financed approximately 72% of the cash purchase price payable at closing for the Deaconess, Infusion Solutions acquisitions, Infusion Partners of Brunswick and Melbourne and East Goshen Pharmacy, while we financed approximately 54% of the cash purchase price payable at closing for the New England Home Therapies and Specialty Pharma acquisitions.

Other income

Other income for the nine months ended September 30, 2007 was $0.8 million, or less than 1% of net revenue.

Provision for income taxes

Provision for income taxes for the nine months ended September 30, 2007 was $1.9 million, or 1.3% of net revenue. This represents an effective tax rate of 45.8% and includes federal and state income tax provisions. Our effective tax rate is based on expected income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate.

Four months ended December 31, 2006

Net revenue

Our net revenue was $16.9 million for the four months ended December 31, 2006. The net revenue related to one business segment, home infusion, as we did not have any home nursing revenue during the period.

Management’s discussion and analysis of financial condition and results of operations

Cost of goods and cost of services

Cost of goods was $7.5 million for the four months ended December 31, 2006, or 44.2% of net revenue. Cost of services was $1.7 million for the four months ended December 31, 2006, or 9.9% of net revenue. Cost of services consisted primarily of direct patient care salaries, payroll taxes and benefits.

Selling, distribution and administrative expenses

Selling, distribution and administrative expenses for the four months ended December 31, 2006 was $6.1 million, or 36.2% of net revenue. Selling, distribution and administrative expenses included $3.8 million of salaries, payroll taxes and benefits, $0.6 million of bad debt expense and $1.7 million of other selling, distribution and administrative expenses.

Depreciation and amortization

Depreciation and amortization expense for the four months ended December 31, 2006 was $0.4 million, or 2.5% of net revenue. Depreciation and amortization expense included $0.1 million of amortization expense related to capital lease assets.

Interest expense

Interest expense for the four months ended December 31, 2006 was $0.8 million, or 4.5% of net revenue. At December 31, 2006, we had $24.9 million outstanding on a term loan facility, $0.5 million of draws on a revolving credit facility and $0.7 million of capital lease obligations. Our effective interest rate on our First Lien Facility, after considering the amortization of debt issuance costs, was approximately 9.76% for the four months ended December 31, 2006.

Provision for income taxes

Provision for income taxes for the four months ended December 31, 2006 was $0.2 million, or 1.1% of net revenue. The provision for income taxes was based on the pre-tax affect of the items noted above and represents an effective tax rate of 38.4% and includes federal and state income tax provisions.

NEW ENGLAND HOME THERAPIES

Eight months ended August 31, 2006

Net revenue

Net revenue for New England Home Therapies was $13.2 million for the eight months ended August 31, 2006.

Cost of goods and cost of services

Cost of goods was $3.9 million for the eight months ended August 31, 2006, or 29.8% of net revenue, as compared to 31.0% of net revenue for the year ended December 31, 2005. The decrease in cost of goods between the periods relates to a slight change in the product mix towards products with higher gross margins.

Cost of services was $1.8 million for the eight months ended August 31, 2006, or 13.4% of net revenue, as compared to 12.2% of net revenue for the year ended December 31, 2005. The increase as a percentage of net revenues is the result of the increase in labor costs as well as increases in employee benefits.

Management’s discussion and analysis of financial condition and results of operations

Selling, distribution and administrative expenses

Selling, distribution and administrative expenses for the eight months ended August 31, 2006 was $6.2 million, or 46.8% of net revenue. Selling, distribution and administrative expenses include $3.8 million of salaries, payroll taxes and benefits, $0.6 million of bad debt expense, $0.5 million of legal, insurance and severance costs related to the change of ownership of New England Home Therapies and $1.3 million of other expenditures. Selling, distribution and administrative expenses for the year ended December 31, 2005 totaled 44.8% of net revenue. The increase in selling, general and administrative expenses during the period resulted from certain transactional costs related to our acquisition of New England Home Therapies.

Depreciation and amortization

Depreciation and amortization expense for the eight months ended August 31, 2006 was $0.7 million, or 5.2% of net revenue, as compared to 4.7% of net revenue for the year ended December 31, 2005. Depreciation and amortization includes $0.1 million of amortization of capital lease assets. The increase resulted from a change in estimated useful lives of certain rental equipment fixed assets and additions of medical equipment and vehicles.

Interest expense

Interest expense for the eight months ended August 31, 2006 was $0.2 million, or 1.2% of total net revenue, as compared to interest expense representing 1.1% of net revenue for the year ended December 31, 2005. As of August 31, 2006, New England Home Therapies had notes payable and term loans totaling $1.4 million, borrowings under a revolving credit facility of $1.2 million and capital lease obligations of $0.6 million.

Year ended December 31, 2005 compared to the year ended December 31, 2004

Net revenue


	Year Ended December 31,				Increase/ (Decrease)		% Change
	2004		2005		Increase/ (Decrease)		% Change
	(in thousands, except percentages)
Net revenue	$	15,374	$	17,266	$	1,892	12.3	%

Net revenue was $17.3 million for the year ended December 31, 2005 compared to $15.4 million for the same period in 2004, an increase of $1.9 million, or 12.3%. This increase was primarily the result of an $0.8 million increase in enteral therapy, a $0.4 million increase in antibiotics therapy and a $1.0 million increase in respiratory therapy equipment sales and rentals.

Cost of goods


	Year Ended December 31,						Increase/ (Decrease)		% Change
	2004			2005			Increase/ (Decrease)		% Change
	(in thousands, except percentages)
Cost of goods	$	5,142		$	5,349		$	207	4.0	%
Percentage of net revenue		33.4	%		31.0	%

Management’s discussion and analysis of financial condition and results of operations

Cost of goods was $5.3 million, or 31.0% of net revenue, for the year ended December 31, 2005 compared to $5.1 million, or 33.4% of net revenue, for the same period in 2004, an increase of $0.2 million, or 4.0%. Cost of goods as a percentage of net revenue decreased due to a shift in the product mix to higher margin products.

Cost of services


	Year Ended December 31,						Increase/ (Decrease)		% Change
	2004			2005			Increase/ (Decrease)		% Change
	(in thousands, except percentages)
Cost of services	$	1,938		$	2,114		$	176	9.1	%
Percentage of net revenue		12.6	%		12.2	%

Cost of services was $2.1 million, or 12.2% of net revenue, for the year ended December 31, 2005 compared to $1.9 million, or 12.6% of net revenue, for the same period in 2004, an increase of $0.2 million, or 9.1%. Cost of services consisted of direct patient care salaries, payroll taxes and benefits. The overall increase in cost of services was attributable to the corresponding 12.3% increase in net revenues for the period.

Selling, distribution and administrative expense


	Year Ended December 31,						Increase/ (Decrease)		% Change
	2004			2005			Increase/ (Decrease)		% Change
	(in thousands, except percentages)
Selling, distribution and administrative expenses	$	7,070		$	7,732		$	662	9.4	%
Percentage of net revenue		46.0	%		44.8	%

Selling, distribution and administrative expense was $7.7 million, or 44.8% of net revenue, for the year ended December 31, 2005 compared to $7.1 million, or 46.0% of net revenue, for the same period in 2004, an increase of $0.7 million, or 9.4%. This increase in absolute dollars can be attributed primarily to a $0.5 million increase in personnel costs that resulted from increased staffing levels. Selling, distribution and administrative expenses as a percentage of net revenue decreased from 46.0% to 44.8% due to increased leverage of fixed selling, distribution and administrative expenses. Selling, distribution and administrative expenses at December 31, 2005 included $5.0 million of personnel costs, $0.3 million of delivery expenses, $0.2 million of outside services, $0.7 million of occupancy costs, $0.8 million of provision for bad debt expense and $0.7 million of general and administrative expenses.

Depreciation and amortization


	Year Ended December 31,						Increase/ (Decrease)		% Change
	2004			2005			Increase/ (Decrease)		% Change
	(in thousands, except percentages)
Depreciation and amortization	$	684		$	807		$	123	17.9	%
Percentage of net revenue		4.5	%		4.7	%

Depreciation and amortization expense was $0.8 million, or 4.7% of net revenue, for the year ended December 31, 2005 compared to $0.7 million, or 4.5% of net revenue, for the same period in 2004, an increase of $0.1 million, or 17.9%. This increase can be attributed capital spending primarily related to medical equipment. Medical equipment fixed assets increased by $0.9 million from December 31, 2004 to December 31, 2005.

Management’s discussion and analysis of financial condition and results of operations

(Gain) loss related to reorganization


	Year Ended December 31,						Increase/ (Decrease)			% Change
	2004			2005			Increase/ (Decrease)			% Change
	(in thousands, except percentages)
(Gain) loss related to reorganization	$	(9,144	)	$	56		$	(9,088	)	99.4	%
Percentage of net revenue		59.5	%		0.3	%

Loss related to reorganization, was $0.1 million, or 0.3% of net revenue, for the year ended December 31, 2005 compared to a gain of $9.1 million, or 59.5% of net revenue, for the same period in 2004, a decrease of $9.1 million. This change relates primarily to a non-recurring $9.1 million reorganization gain related to the restructuring of New England Home Therapies’ debt through its bankruptcy reorganization that was recognized in fiscal 2004.

Interest expense


	Year Ended December 31,						Increase/ (Decrease)		% Change
	2004			2005			Increase/ (Decrease)		% Change
	(in thousands, except percentages)
Interest expense	$	120		$	190		$	70	58.4	%
Percentage of net revenue		0.8	%		1.1	%

Interest expense was $0.2 million, or 1.1% of net revenue, for the year ended December 31, 2005 compared to $0.1 million, or 0.8% of net revenue, for the same period in 2004, an increase of $0.1 million, or 58.4%. This increase is attributable to the fact that interest on New England Home Therapies’ debt for the first four months of 2004 was forgiven, as New England Home Therapies was in bankruptcy reorganization during that period.

SPECIALTY PHARMA

Eight months ended August 31, 2006

Net revenue

Net revenue for Specialty Pharma was $19.7 million for the eight months ended August 31, 2006.

Cost of goods and cost of services

Cost of goods was $10.8 million for the eight months ended August 31, 2006, or 54.7% of net revenue, as compared to 51.8% for the year ended December 31, 2005. The increase in cost of goods as a percentage of net revenue relates to an increase in specialty products, which have a lower gross margin. Cost of services was $1.6 million for the eight months ended August 31, 2006, or 8.2% of net revenue, as compared to 7.5% for the year ended December 31, 2005. The increase relates to a small increase in the cost of labor and the cost of employee benefits.

Selling, distribution and administrative expense

Selling, distribution and administrative expenses for the eight months ended August 31, 2006 was $6.7 million, or 34.0% of net revenue, as compared to 35.0% for the year ended December 31, 2005. Selling, distribution and administrative expenses included $3.6 million of salaries, payroll taxes and benefits, $0.7 million of bad debt, $0.3 million of legal and accounting, $0.3 million of commercial, property and directors and officers liability insurance and $1.8 million in other selling, distribution and administrative expenditures.

Management’s discussion and analysis of financial condition and results of operations

Depreciation and amortization

Depreciation and amortization expense for the eight months ended August 31, 2006 was $1.6 million, or 8.0% of net revenue, as compared to 3.8% of net revenue for the year ended December 31, 2005. The increase relates to the change in estimated useful lives of certain rental equipment fixed assets. Depreciation and amortization includes $0.2 million of amortization of capital lease assets.

Interest expense

Interest expense for the eight months ended August 31, 2006 was $0.3 million, or 1.3% of net revenue, as compared to 1.3% of net revenue for the year ended December 31, 2005. Interest expense for the period was relatively flat and relates to term loans and other notes payable, which totaled $1.4 million at August 31, 2006, borrowings under a revolving credit facility, which totaled $1.3 million at August 31, 2006, and $0.5 million in capital lease obligations at August 31, 2006.

Benefit from income taxes

Benefit from income taxes for the eight months ended August 31, 2006 was $0.4 million, or 2.0% of net revenue. The benefit stems from the tax effect of the items noted above and represents an effective tax rate of 35.6%.

Year ended December 31, 2005 compared to the year ended December 31, 2004

Net revenue


	Year Ended December 31,				Increase/ (Decrease)		% Change
	2004		2005		Increase/ (Decrease)		% Change
	(in thousands, except percentages)
Net revenue	$	26,575	$	29,287	$	2,712	10.2	%

Net revenue was $29.3 million for the year ended December 31, 2005 compared to $26.6 million for the same period in 2004, an increase of $2.7 million, or 10.2%. This increase resulted primarily from a $0.6 million increase in the sales of traditional infusion products, a $1.1 million increase in the sales of enteral products and a $1.0 million increase in the sales of Hepatitis C products.

Cost of goods


	Year Ended December 31,						Increase/ (Decrease)		% Change
	2004			2005			Increase/ (Decrease)		% Change
	(in thousands, except percentages)
Cost of goods	$	13,267		$	15,170		$	1,903	14.3	%
Percentage of net revenue		49.9	%		51.8	%

Cost of goods was $15.2 million, or 51.8% of net revenue, for the year ended December 31, 2005 compared to $13.3 million, or 49.9% of net revenue, for the same period in 2004, an increase of $1.9 million, or 14.3%. This increase can be attributed to the increase in product sales as noted above. Cost of goods as a percentage of net revenue increased due to a change in product mix to products with lower gross margins.

Cost of services


	Year Ended December 31,						Increase/ (Decrease)		% Change
	2004			2005			Increase/ (Decrease)		% Change
	(in thousands, except percentages)
Cost of services	$	2,145		$	2,183		$	38	1.8	%
Percentage of net revenue		8.1	%		7.5	%

Management’s discussion and analysis of financial condition and results of operations

Cost of services was $2.2 million, or 7.5% of net revenue, for the year ended December 31, 2005 compared to $2.1 million, or 8.1% of net revenue, for the same period in 2004, an increase of less than $0.1 million, or 1.8%. The decrease in cost of services as a percentage of net revenue resulted from a shift in the product mix to specialty drugs, which have a lower labor component, and increased leverage of certain fixed labor costs.

Selling, distribution and administrative expense


	Year Ended December 31,						Increase/ (Decrease)		% Change
	2004			2005			Increase/ (Decrease)		% Change
	(in thousands, except percentages)
Selling, distribution and administrative expense	$	8,809		$	10,243		$	1,434	16.3	%
Percentage of net revenue		33.1	%		35.0	%

Selling, distribution and administrative expense was $10.2 million, or 35.0% of net revenue, for the year ended December 31, 2005 compared to $8.8 million, or 33.1% of net revenue, for the same period in 2004, an increase of $1.4 million, or 16.3%. This increase in absolute dollars is primarily the result of a $1.0 million increase in bad debt provision that related to Specialty Pharma’s conversion to a new billing and accounts receivable system. The increase in bad debt provision also contributed to the increase in selling, distribution and administrative expenses as a percentage of net revenue. Selling, distribution and administrative expense in 2005 included $5.6 million of salaries, payroll taxes and benefits, $2.1 million in bad debt and $2.5 million in other cost of goods expenditures.

Depreciation and amortization


	Year Ended December 31,						Increase/ (Decrease)			% Change
	2004			2005			Increase/ (Decrease)			% Change
	(in thousands, except percentages)
Depreciation and amortization	$	1,264		$	1,108		$	(156	)	(12.3	)%
Percentage of net revenue		4.8	%		3.8	%

Depreciation and amortization expense was $1.1 million, or 3.8% of net revenue, for the year ended December 31, 2005 compared to $1.3 million, or 4.8% of net revenue, for the same period in 2004, a decrease of $0.2 million, or 12.3%. Depreciation and amortization expense was relatively flat in absolute dollars for the year ended December 31, 2005 as compared to the year ended December 31, 2004.

Interest expense


	Year Ended December 31,						Increase/ (Decrease)		% Change
	2004			2005			Increase/ (Decrease)		% Change
	(in thousands, except percentages)
Interest expense	$	332		$	391		$	59	17.8	%
Percentage of net revenue		1.2	%		1.3	%

Interest expense was $0.4 million, or 1.2% of net revenue, for the year ended December 31, 2005 compared to $0.3 million, or 1.3% of net revenue, for the same period in 2004, an increase of $0.1 million, or 17.8%. This increase relates to an increase in the average borrowings of Specialty Pharma from 2004 to 2005.

Management’s discussion and analysis of financial condition and results of operations

Provision for income taxes


	Year Ended December 31,						Increase/ (Decrease)			% Change
	2004			2005			Increase/ (Decrease)			% Change
	(in thousands, except percentages)
Provision for income taxes	$	315		$	44		$	(271	)	(86.0	)%
Percentage of net revenue		1.2	%		0.2	%

Provision for income taxes was less than $0.1 million, or 0.2% of net revenue, for the year ended December 31, 2005 compared to $0.3 million, or 1.2% of net revenue, for the same period in 2004, a decrease of $0.3 million, or 86.0%. This decrease can be attributed to the decrease in operating income as noted above. Provision for income taxes as a percentage of net revenue decreased due to the decrease in Specialty Pharma’s operating income during the period.

SEASONALITY

Although our results of operations are not affected to a material extent by seasonal variations in demand for our products or services, a small number of our products, however, are subject to fluctuations in demand due to seasonality. For example, Respiratory Synctial Virus, or “RSV,” treatments are of a seasonal nature because RSV season lasts from approximately October through April each year. As a result, our net revenues from Synagis are higher during the first and fourth quarters of each year than during the second and third quarters of each year. Net revenue from Synagis accounted for approximately 3.2% of our pro forma net revenue for the year ended December 31, 2006.

INFLATION

We are impacted by rising costs for certain inflation-sensitive operating expenses such as vehicle fuel, labor and employee benefits. We believe that inflation will not have a material effect on our business but may have an impact on our future financial results.

LIQUIDITY AND CAPITAL RESOURCES

General

We have financed our operations primarily through cash provided by operating activities, private sales of shares of our common stock and borrowings under our credit facilities. These sources of financing have been our principal sources of liquidity to date. We intend to use our proceeds from this offering to repay our existing indebtedness under our Second Lien Term Loan and to repay a portion of our existing indebtedness under our First Lien Facility. We will use $ million to repay all of our outstanding indebtedness under our Second Lien Term Loan, $ million to repay all of our outstanding indebtedness under the revolving portion of our First Lien Facility and $ million to repay a portion of our outstanding indebtedness under the term loan portion of our First Lien Facility.

We believe that our existing cash on hand, cash generated from operating activities and available borrowings under our First Lien Facility will be sufficient to satisfy our currently anticipated cash requirements at least through the next 12 months and thereafter. If we make any significant acquisitions in the future, we may be required to obtain additional debt or equity financing and/or refinance our First Lien Facility. See “Risk factors—Risks Related to Our Business—We may need additional capital to finance our growth and capital requirements, which could prevent us from fully pursuing our growth strategy.”

Management’s discussion and analysis of financial condition and results of operations

We did not generate cash flow from operating activities in the first nine months of 2007, primarily as result of an increase in accounts receivable related to growth in our business, billing and collection delays resulting from converting New England Home Therapies to our platform accounts receivable and billing system and certain payor issues experienced by our private duty nursing division. During this period, we have funded deficiencies in our cash from operating activities to meet our long-term debt and capital lease obligations with borrowings under our revolving credit facility. Management anticipates that our cash collections will return to a normalized basis in the fourth quarter of 2007. In addition, we intend to use our proceeds from this offering to repay a portion of our outstanding indebtedness, which will reduce our interest requirements. We believe these reductions in our debt obligations and anticipated cash collections will improve our ability to meet our contractual obligations (including our debt service obligations) through cash from operating activities. In addition, our revolving credit facility, which will have availability of $ million after giving effect to the application of the net proceeds of this offering, is available to fund temporary short falls in net cash from operating activities to fund our debt obligations. If, however, we continue to experience negative cash flow from operating activities, we may need to take further action to meet our debt service requirements, see “Risk Factors — Risks Related to Our Business — our indebtedness has substantial debt service requirements.”

Critical Homecare Solutions Holdings, Inc. is a holding company with no material business operations. Our most significant asset is the capital stock of our subsidiary Critical Homecare Solutions, Inc., which is itself a holding company. We conduct virtually all of our business operations through the direct and indirect subsidiaries of Critical Homecare Solutions, Inc. Accordingly, our only material sources of cash are dividends or other distributions or payments that are derived from earnings and cash flow generated by these subsidiaries. These subsidiaries might not generate sufficient earnings and cash flow for Critical Homecare Solutions, Inc. to pay dividends or distributions to us or otherwise make payments to us in the future. In addition, our credit facilities restrict the ability of Critical Homecare Solutions, Inc. to make dividends or other distributions to us. Critical Homecare Solutions, Inc. is dependent on its subsidiaries to generate sufficient funds to service its substantial indebtedness, which is secured by substantially all of our assets, including the common stock of Critical Homecare Solutions, Inc.’s subsidiaries. See “Risk factors—Risks Related to Our Business—We are a holding company whose material asset is the capital stock of Critical Homecare Solutions, Inc., our only material source of cash. We may not have sufficient cash to meet our obligations if the subsidiaries of Critical Homecare Solutions, Inc. are not able to generate sufficient earnings or cash flow for Critical Homecare Solutions, Inc. to pay dividends to us or if it is prohibited by its debt agreements from paying dividends to us.”

On November 15, 2002, New England Home Therapies filed a petition for bankruptcy as a result of the default of its accounts receivable financier on New England Home Therapies’ accounts receivable financing agreement. We believe the bankruptcy was directly attributable to the default of the financier and do not believe it to be indicative of structural profitability issues of the business. New England Home Therapies exited from bankruptcy on February 18, 2004 upon approval of a plan of reorganization. In connection with its emergence from bankruptcy, New England Home Therapies recognized a gain on reorganization, net of reorganization expense, of $9.1 million during the year ended December 31, 2004.

Management’s discussion and analysis of financial condition and results of operations

Cash flows

The table below presents our cash flow information for the four months ended December 31, 2006 and the nine months ended September 30, 2007.


	Nine months ended September 30, 2007			Period from September 1, 2006 to December 31, 2006
	(in thousands)
Cash provided by (used in) operating activities	$	(597	)	$	486
Cash used in investing activities		(190,079	)		(49,304	)
Cash provided by financing activities		192,307			49,665

Cash flows for the nine months ended September 30, 2007

Net cash used by operating activities was $0.6 million for the nine months ended September 30, 2007. Net cash used by operating activities primarily reflects our net income, adjusted for the provision for doubtful accounts depreciation, amortization, the write-off and amortization of deferred financing fees, the provision for deferred taxes and compensation related to stock options, which provided cash of $10.1 million, offset by an increase in accounts receivable used cash of $10.8 million and increases in other assets that used cash of $3.0 million. The increase in other assets includes a $1.3 million prepayment made to our drug wholesaler in order to receive more favorable pricing. The prepayment terms are based on a 15-day pre-pay, which is recomputed each quarter.

The increase in accounts receivable related to the overall growth of our net revenues as well as certain delayed billings for New England Home Therapies in the second quarter of 2007. New England Home Therapies converted to our platform accounts receivable and billing system effective April 1, 2007. The conversion resulted in certain delays in the billings of the division, which resulted in a $3.3 million increase in accounts receivable for the division in the nine months ended September 30, 2007. Management anticipates collections for the division will return to a normalized level by the end of the fourth quarter of 2007, with further increased collections in the first quarter of 2008. In addition, on October 1, 2007, Specialty Pharma converted to our platform accounts receivable and billing system. We anticipate that Special Pharma will experience a slowdown in billing and collections in the fourth quarter of 2007, which we believe should resume to normalized levels in the first quarter of 2008. While billing system conversions increase the risk of bad debt due to timely filing limitations, management believes that adequate allowance for bad debt has been provided and that the accelerated billing and collection plan for the remainder of fiscal 2007 will return collections to a normalized basis.

We also experienced an increase in the accounts receivable of our private duty nursing business from $4.1 million at January 1, 2007 to $8.3 million at September 30, 2007. The increase relates to an increase in patient volume and related net revenues, with net revenues increasing from $1.5 million in January 2007 to $3.2 million in September 2007. Days sales outstanding for private duty nursing has increased from 93 days to 105 days from January 2007 to September 2007 as the result in delays in collections from TennCare. We have met with officials representing TennCare’s third party administrators and are pursuing collection of the older TennCare receivables. Management believes that adequate allowances for doubtful accounts for private duty nursing have been provided as of September 30, 2007.

Cash used in investing activities primarily consists of $176.3 million in payments for business acquired, net of cash, $11.4 million due to sellers, $2.4 million of capital expenditures. Cash used in investing activities was $190.1 million for the nine months ended September 30, 2007.

Management’s discussion and analysis of financial condition and results of operations

Cash provided by financing activities primarily consists of proceeds from $163.5 million of long-term debt, $35.9 million in principal payments on debt and capital lease obligations and credit arrangements, $3.4 million of cash paid for deferred financing fees and $68.0 million of proceeds from the issuance of common shares. Cash provided by financing activities was $192.3 million for the nine months ended September 30, 2007.

Cash flows for the four months ended December 31, 2006

Net cash provided by operating activities primarily reflects our net income during the period, which provided cash of $1.5 million, while an increase in accounts receivable used cash of $1.6 million, increases in inventories used cash of $0.3 million, increases in accounts payable and accrued expenses provided cash of $0.8 million and decreases in other current assets provided cash of $0.1 million. The increase in accounts receivable and inventory relate primarily to increased net revenues attributable to organic growth and the start of the Synagis season as noted above in “—Seasonality.” The growth in accounts receivable and inventory was financed through operating cash flows as well as an increase in vendor payables. Net cash provided by operating activities was $0.5 million for the four months ended December 31, 2006.

Cash used in investing activities primarily consists of $48.1 million in payments for business acquired, net of cash, $0.2 million of cash paid for pre-acquisition costs for pending acquisitions and $1.0 million of capital expenditures. Cash used in investing activities was $49.3 million for the four months ended December 31, 2006.

Cash provided by financing activities primarily consists of proceeds from $25.7 million of long-term debt and credit arrangements and $25.2 million from the issuance of common shares. Cash used by financing activities includes $0.9 million of deferred financing fees and $0.3 million in principal payments on debt and capital lease obligations. Cash provided by financing activities was $49.7 million for the four months ended December 31, 2006.

Capital expenditures

We made capital expenditures of $2.4 million in the nine months ended September 30, 2007 and $1.0 million in the four months ended December 31, 2006. Specialty Pharma and New England Home Therapies made capital expenditures of $0.6 million and $0.6 million, respectively, in the eight months ended August 31, 2006. In the year ended December 31, 2005, Specialty Pharma and New England Home Therapies made capital expenditures of $0.3 million and $0.9 million, respectively. Capital expenditures in 2006 and 2005 related primarily to purchases of medical equipment and vehicles.

In the absence of future significant acquisitions, we expect to incur approximately $3.6 million of capital expenditures in 2007, of which we had incurred approximately $2.4 million as of September 30, 2007. We expect to incur approximately $4.0 million of non-acquisition related capital expenditures in 2008. We expect capital expenditures in 2007 and 2008 will be primarily to purchase medical equipment, computer equipment and software and vehicles.

Contingent purchase price

Under an earn out provision of the New England Home Therapies acquisition, we are required to pay additional consideration to its former owners which is approximately $0.5 million. Our payment obligation is based on certain specific revenue targets contained in the acquisition agreement. The additional consideration is reflected in the September 30, 2007 financial statements.

Management’s discussion and analysis of financial condition and results of operations

We may be required to pay up to $1.4 million of additional consideration to the former owners of Applied under an earn out provision of the Applied acquisition agreement. Our payment obligation, if any, is based on certain specified gross profit targets with regard to two existing patients of Applied. The amount of potential obligation under this earn out provision has not been determined. The provision includes terms for certain quarterly prepayments on the earn out, not to exceed $100,000 per quarter. We made an advance payment of $100,000 in November 2007 related to the quarter ending September 30, 2007.

We may be required to pay up to $0.9 million of additional consideration to the former owners of East Goshen Pharmacy under an earn out provision of the East Goshen Pharmacy acquisition agreement. Our payment obligation, if any, is based on certain specified EBITDA targets contained in the acquisition agreement. The amount of potential obligation under this earn out provision has not been determined.

CREDIT FACILITIES

In September 2006, our subsidiary, Critical Homecare Solutions, Inc. entered into the First Lien Facility, which provided $32.5 million of total available financing to fund acquisitions and our general working capital requirements. This facility included a secured $25.0 million term loan facility and a secured $7.5 million revolving credit facility. The revolving credit facility included standby letters of credit, in an aggregate face amount at any time not in excess of $1.0 million. We guaranteed all of Critical Homecare Solutions, Inc.’s obligations under the First Lien Facility. In connection with the acquisition of Deaconess in January 2007, we amended the terms of the First Lien Facility and entered into the Second Lien Term Loan. In July 2007, we amended the First Lien Facility to increase the First Lien Facility term loan from $100.0 million to $116.0 million to finance the acquisitions of Infusion Partners of Brunswick, Infusion Partners of Melbourne and East Goshen Pharmacy.

The First Lien Facility currently provides for a $20.0 million revolving credit facility and a $116.0 million term loan facility. The revolving credit facility of the First Lien Facility includes a facility for up to $4.0 million of standby letters of credit. The revolving credit facility and the term loans under this facility mature on January 8, 2012. We had $5.0 million of outstanding borrowings under the First Lien revolving line of credit as of September 30, 2007. Outstanding letters of credit totaled $0.8 million as of September 30, 2007, with $14.2 million of availability through the facility. After giving effect to the application of proceeds of this offering as described under “Use of Proceeds,” $ million will be available for borrowing under the revolving credit facility portion of the First Lien Facility.

During the nine months ended September 30, 2007, the applicable margin percentages for borrowings under the First Lien Facility bore interest at a rate equal to a LIBOR rate plus 3.25% or the lender’s Alternative Base Rate, as defined in the First Lien Facility, plus 2.00%. Thereafter, borrowings under the First Lien Facility bear interest at a rate equal to a LIBOR rate plus an applicable margin or the lender’s Alternative Base Rate plus an applicable margin. The applicable margin percentages for borrowings are determined based on a ratio of our Consolidated Indebtedness, as defined in the First Lien Facility, to our Consolidated EBITDA, as defined in the First Lien Facility. We define adjusted EBITDA using this definition of Consolidated EBITDA.

We are required to make quarterly principal payments of $0.7 million on the term loan through 2007 and 2008, after which the quarterly payments will increase to $1.5 million during 2009, $2.2 million during 2010 and $2.9 million during 2011. We are also required to quarterly pay a commitment fee of 0.5% per annum of the undrawn portion of the revolving credit facility. We are permitted to prepay the revolving facility or the term loans under our First Lien Facility at any time.

The Second Lien Term Loan is a term loan facility with an aggregate principal amount of $34.0 million. The term loan matures on January 8, 2013. Borrowings under the Second Lien Term Loan bear interest,

Management’s discussion and analysis of financial condition and results of operations

at our option, at either a LIBOR rate plus 6.50% or the lender’s Alternative Base Rate, as defined in the Second Lien Term Loan, plus 5.25%. We are permitted to prepay the term loans under our Second Lien Term Loan at any time. We intend to repay the Second Lien Term Loan in full with proceeds to us from this offering, after which this facility will terminate.

During the nine months ended September 30, 2007, the effective interest rate of our borrowings under our credit facilities was 9.98%.

The obligations of Critical Homecare Solutions, Inc. under our credit facilities are unconditionally guaranteed by us and all of our subsidiaries (other than Critical Homecare Solutions, Inc.) and are secured by liens on substantially all of our assets, including the stock of our subsidiaries (other than Critical Homecare Solutions, Inc.).

Our credit facilities contain covenants that may restrict the operation of our of business, including our ability to incur additional debt (other than certain permitted indebtedness, including in respect of purchase money obligations and capital lease obligations (not exceeding $4.0 million) and subordinated indebtedness (not exceeding $8.0 million)), pay dividends or make other restricted payments (other than permitted tax distributions and certain limited redemptions or repurchases of our common stock (subject to certain limitations)), create liens (other than certain permitted liens, including liens securing our indebtedness under the First Lien Facility and Second Lien Term Loan, and liens incurred in the ordinary course of business), make investments (other than certain permitted investments, including pursuant to acquisitions, mergers or dividends to the extent otherwise permitted by our credit facilities and investments in the ordinary course of business) or capital expenditures, enter into transactions with our affiliates and complete acquisitions (other than acquisitions which meet certain size limitations and other specified criteria). In addition, our credit facilities contain certain financial covenants, including the following:

minimum adjusted EBITDA, which requires that our adjusted EBITDA for the most recently completed four fiscal quarters exceed certain thresholds. Our minimum adjusted EBITDA is tested on a quarterly basis. As of September 30, 2007, our First Lien Facility required that we maintain adjusted EBITDA of $25.75 million and our Second Lien Term Loan required that we maintain adjusted EBITDA of $19.9 million. For the four fiscal quarters ended September 30, 2007, our adjusted EBITDA was $31.1 million.

a maximum total leverage ratio, which requires that our ratio of consolidated indebtedness to our adjusted EBITDA for the most recently completed four fiscal quarters not exceed certain thresholds. The maximum total leverage ratio is tested on a quarterly basis. As of September 30, 2007, our First Lien Facility required that this ratio not exceed 5.50:1.00 and our Second Lien Term Loan required that this ratio not exceed 6.00:1.00. For the four fiscal quarters ended September 30, 2007, our total leverage ratio was 4.94:1.00.

a fixed charge coverage ratio, which requires that our ratio of (i) adjusted EBITDA for the most recently completed four fiscal quarters less capital expenditures, income tax expense and dividends paid to us by Critical Homecare Solutions, Inc. to (ii) the sum of cash interest expense and all scheduled debt repayments exceed certain thresholds. The fixed charge coverage ratio is tested on a quarterly basis. As of September 30, 2007, our First Lien Facility required that this ratio exceed 1.10:1.00 and our Second Lien Term Loan required that this ratio exceed 1.00:1.00. For the four fiscal quarters ended September 30, 2007, our fixed charge coverage ratio was 1.70:1.00.

In addition, it is a condition of any borrowing under our revolving credit facility under the First Lien Facility that we be in material compliance with the provisions of, and not be in default under, the First

Management’s discussion and analysis of financial condition and results of operations

Lien Facility. As of September 30, 2007, we were in compliance with all of the financial and other covenants under our credit facilities. For further information, see “—Adjusted EBITDA.”

The covenants under our First Lien Facility may limit our ability to complete a significant acquisition, make capital expenditures or take other action beneficial to us. We may need to amend or refinance our First Lien Facility, and we cannot guarantee that we will be able to do so at all or on terms acceptable to us. See “Risk Factors—Risks Related to Our Business—The terms of our credit facilities may limit our current and future operations, which would adversely affect our ability to respond to changes in our business and to manage our operations.”

Events of default under the First Lien Facility and the Second Lien Term Loan include non-payment of principal, interest, fees or other amounts when due; violation of certain covenants; failure of any representation or warranty to be true in all material respects when made or deemed made; cross-default and cross-acceleration to certain indebtedness; certain ERISA events; change of control, including if the Kohlberg Stockholders or controlled affiliates of the Kohlberg Stockholders cease holding at least 35% of our common stock; dissolution, insolvency and bankruptcy events; and actual or asserted invalidity of the guarantees or security documents. Some of these events of default allow for grace periods and materiality qualifiers.

ADJUSTED EBITDA

Adjusted EBITDA, which is referred to as Consolidated EBITDA in our credit facilities, is a metric used by management to measure our liquidity. Adjusted EBITDA is net income (loss) before interest expense, interest income, income tax expense, depreciation and amortization further adjusted to eliminate non-cash compensation expense and to add back restructuring and other costs incurred in connection with acquisitions we complete. We believe adjusted EBITDA provides investors useful information related to our ability to provide cash flows to meet future debt service, capital expenditure and working capital requirements and to fund future growth and acquisitions.

Adjusted EBITDA is also presented because the covenants in our credit facilities described above contain ratios based on this measure. Our first lien facility is one of our primary sources of liquidity. If our adjusted EBITDA were to decline below certain levels, the covenants described above may be violated and could cause, among other things, an inability to incur further indebtedness under our first lien facility and in certain circumstances a default or mandatory prepayment under our credit facilities.

Adjusted EBITDA is not a measurement of our liquidity under U.S. GAAP and should not be considered as an alternative to cash flow from operating activities as a measure of our liquidity.

Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

Management’s discussion and analysis of financial condition and results of operations

Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

Adjusted EBITDA does not reflect the interest expense, or the cash requirements, necessary to service interest or principal payments on our debt;

Other companies in our industry may calculate adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

COMMITMENTS AND CONTINGENCIES

The following table sets forth our contractual obligations as of September 30, 2007.


	Payments due by period
	Total		2007		2008		2009		2010		Thereafter
	(in thousands)
Long Term Debt Obligations	$	153,250	$	875	$	2,975	$	5,800	$	8,700	$	134,900
Interest-Long Term Debt Obligations*		62,702		3,676		14,464	$	14,071		13,469		17,021
Capital Lease Obligations		482		64		238		135		34		11
Operating Lease Obligations		6,030		533		1,702		1,314		952		1,530
Interest-Capital Lease Obligations		55		11		30		10		3		1

Total	$	222,519	$	5,159	$	19,409	$	21,330	$	23,158	$	153,463

Computed using interest rates in effect as of September 30, 2007.

The following table sets forth our contractual obligations as of December 31, 2006.


	Payments due by period
	Total		2007		2008		2009		2010		Thereafter
	(in thousands)
Long Term Debt Obligations	$	25,344	$	782	$	1,563	$	2,812	$	3,906	$	16,281
Interest-Long Term Debt Obligations**		8,892		2,209		2,126		1,942		1,654		961
Capital Lease Obligations		678		259		233		142		33		11
Operating Lease Obligations		1,282		495		237		181		150		219
Interest-Capital Lease Obligations		100		54		31		11		3		1

Total	$	36,296	$	3,799	$	4,190	$	5,088	$	5,746	$	17,473

Computed using interest rates in effect as December 31, 2006.

We intend to use the proceeds of this offering to repay all of the outstanding indebtedness under our Second Lien Term Facility, to repay all of our outstanding indebtedness under the revolving credit facility portion of our First Lien Facility and to repay a portion of the outstanding indebtedness under the term loan portion of our First Lien Facility. As a result, our Long-Term Debt Obligations are expected to be reduced to $ $ , $ and $ for 2008, 2009, 2010 and thereafter.

Management’s discussion and analysis of financial condition and results of operations

On January 8, 2007, Critical Homecare Solutions, Inc. issued a $0.7 million letter of credit against our First Lien Facility to secure its performance on its workers’ compensation policy. This letter of credit has a term of one year. On September 26, 2007, we issued a letter of credit against the First Lien Facilities in the amount of $75,000 securing our performance under a vehicle lease agreement that was executed in the fourth quarter of 2007. The letter of credit expires on August 7, 2008.

OFF-BALANCE SHEET ARRANGEMENTS

As of December 31, 2006 and September 30, 2007, we had no off-balance sheet arrangements or obligations.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest rate risk

Interest on our borrowings under our First Lien Facility and our Second Lien Term Loan is based in part on our market interest rates, which are subject to market conditions generally and on our financial condition. In order to mitigate the risk associated with our exposure to fluctuating market interest rates, on April 10, 2007, our subsidiary, Critical Homecare Solutions, Inc., entered into a $67.0 million notional interest rate cap on our First Lien Facility borrowings. In August 2007, the notional interest rate cap on our First Lien Facility was increased by $8.0 million. This interest rate cap effectively places a ceiling on our interest rate under our First Lien Facility borrowings at a rate of 6.00% for a period of two years from the date of the cap.

Based on the variable-rate debt in our debt portfolio at September 30, 2007, a one percent increase or decrease in interest rates would increase or decrease, respectively, our interest expense by $1.5 million on an annual basis.

RECENT ACCOUNTING PRONOUNCEMENTS

In February 2007, the Financial Accounting Standards Board, or the FASB, issued FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115, or SFAS No. 159. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of the statement is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reporting earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Management is currently evaluating SFAS No. 159 to determine what impact, if any, it will have on our consolidated financial statements upon adoption on January 1, 2008.

In September 2006, FASB issued FASB Statement No. 157, Fair Value Measurements, or SFAS No. 157, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal periods beginning after November 15, 2007, and interim periods within those fiscal years. Management is currently evaluating SFAS No. 157 to determine what impact, if any, it will have on our consolidated financial statements upon adoption on January 1, 2008.

Management’s discussion and analysis of financial condition and results of operations

In September of 2006, the Staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in the Current Year Financial Statements,” or SAB No. 108. SAB No. 108 requires the use of two alternative approaches in quantitatively evaluating materiality of misstatements. If the misstatement as quantified under either approach is material to the current year financial statements, the misstatement must be corrected. If the effect of correcting the prior year misstatements, if any, in the current year income statement is material, the prior year financial statements should be corrected. In the year of adoption (fiscal years ending after November 15, 2006), the misstatements may be corrected as an accounting change by adjusting opening retained earnings rather than being included in the current year income statement. The adoption of SAB No. 108 did not have an impact on our consolidated financial statements.

In June 2006, FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109, or FIN 48. FIN No. 48 creates a comprehensive model to address accounting for uncertainty in tax positions. FIN No. 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized for financial statements. FIN No. 48 also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The adoption of FIN 48 is effective for fiscal periods beginning after December 15, 2006. Management has evaluated FIN No. 48 and determined the impact was not material to our consolidated financial statements.

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OVERVIEW

We are a leading provider of comprehensive home infusion therapy services to patients suffering from acute or chronic conditions. We deliver over 400,000 infusion pharmaceuticals, biopharmaceuticals, nutrients and related services and equipment each year to patients in the home through our 33 infusion locations in 14 states, primarily in the eastern United States. We also provide over 350,000 nursing and therapy visits and 575,000 private duty nursing hours each year to patients in the home through our 32 home nursing locations in three states. We currently provide customized local clinical care to approximately 16,000 patients through our branch network and have relationships with approximately 450 payors, including insurers, managed care organizations and government payors. In the year ended 2006 and the nine months ended September 30, 2007, we generated pro forma net revenue of $176.1 million and $143.6 million, respectively.

We operate in two business segments, home infusion therapy and home nursing:

Through our home infusion therapy segment, we deliver complex intravenous pharmaceutical products and corresponding clinical support services to patients. We deliver and provide infusion services to patients with chronic conditions requiring long-term infusion care services, such as pain management, parenteral nutrition and diabetic therapy, and acute conditions requiring short-term infusion care services, such as antibiotic therapy, post-operative pain management, chemotherapy and obstetrical therapy. In the nine months ended September 30, 2007, our home infusion therapy segment represented approximately 67% of our net revenue.

Through our home nursing segment, we provide skilled nursing and other therapy services to adult and pediatric patients. These services include skilled nursing, physical therapy, occupational and speech therapy, medical social work and home health aide services. Home nursing services are delivered to recovering, disabled, chronically ill or terminally ill patients in need of medical, nursing or therapeutic treatment, and assistance with essential activities of daily living. In the nine months ended September 30, 2007, our home nursing segment represented approximately 33% of our net revenue.

We offer substantial benefits to patients, payors and physicians:

Patients—We improve our patients’ quality of life by allowing them to remain at home while receiving the necessary medications, supplies and services for their treatment. We also help patients manage their conditions through ongoing caregiver counseling and education regarding their treatment and provide ongoing monitoring to encourage patients to comply with their prescribed therapy.

Payors—We offer payors a comprehensive approach to meeting their home health care service needs and help them reduce their costs. Providing infusion pharmacy services in the patient’s home is

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generally more cost-effective than providing these therapies in an acute or sub-acute setting. Furthermore, we are responsive to payors’ service needs and provide them with customer satisfaction survey results, which assists them in meeting National Committee for Quality Assurance standards.

Physicians—We assist physicians with the administration of time-intensive and costly care management support. Our patient monitoring and educational programs can help improve patient compliance with therapy protocols. We also provide physicians with important ongoing feedback related to their patients’ medical conditions, enabling them to better understand their patients’ conditions.

See “Our history” for more information regarding our formation and our acquisitions to date.

OUR OPPORTUNITY

The home health care sector is estimated by Frost & Sullivan to have accounted for between approximately $47 billion and $58 billion of overall health care spending in the United States in 2005 and is projected to grow at a compound annual growth rate of approximately 8% from 2005 to 2010. Home health care services can provide a less expensive alternative to the provision of similar treatments in hospitals, nursing facilities or on an outpatient basis. As a result home health care has become an increasingly significant factor in the overall health care market. Expenditures for home health care services are outpacing expenditures for the health care market as a whole.

According to a December 2006 report by Frost & Sullivan, home infusion expenditures in the United States totaled between $4 billion and $6 billion in 2005 and is expected to grow at a compound annual growth rate of approximately 7% from 2005 to 2010. This growth is expected to be driven by:

Patient preference for home care. Patients and the medical community in general have become more accepting of home therapy. In many cases, patients would prefer to be treated in their own home rather than on an inpatient basis, given their desire to resume a normal lifestyle.

Payor cost containment pressures. Managed care and government efforts continue to drive medical treatment into more cost-effective alternate site settings. According to the National Home Infusion Association, the cost of infusion therapy administered in the home setting is frequently substantially less than treatment in other settings such as the hospital, an outpatient facility or a physician’s office.

An aging population. The U.S. Census Bureau projects the elderly population to grow disproportionately faster than the rest of the population due to near-term aging of baby boomers and the overall trend toward increasing life expectancy.

The introduction of new pharmaceuticals and therapies. According to the 2005 Drug Trend Report, there were 526 specialty drugs in development, over 67% of which are either infusible or injectible drugs. As medical technologies improve and more therapies can be effectively administered in a home setting, home infusion services may outpace overall infusion therapy market growth.

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The potential for expanding coverage of home infusion therapy for the Medicare beneficiary population. Currently, CMS estimates that over 39 million patients are eligible for reimbursement under Medicare Part B and over 7 million patients are eligible for reimbursement of infusion services under Medicare Advantage plans. Accordingly, we estimate that only 14% of the total Medicare population currently is enrolled in Medicare Advantage plans and that there is significant potential for this coverage to expand in the future. Furthermore, reimbursement under the Medicare Part D Prescription Drug Benefit Act was expanded in January 2006 to include drug costs and a minimal professional pharmacy services fee related to drug dispensing in the home setting as part of Medicare coverage. Although Medicare Part D in its current form covers pharmacy costs, it does not cover equipment, supplies or nursing visits for patients with stand-alone prescription drug plans. Recent proposals in Congress, if enacted, could make home infusion a more viable option for Medicare patients and could lead to a significant influx of new patients for the homecare industry. For example, in June 2007, a bill was introduced to provide coverage for per diem costs, supplies and professional service fees that, if passed into law and combined with current Medicare Part D coverage, would have the potential to extend full Medicare coverage to home infusion patients.

The home infusion industry is highly fragmented, with the majority of service providers operating primarily in local and regional markets. The National Home Infusion Association estimates that there are over 1,200 home infusion providers in the United States, ranging from small, individually-owned or closely held local operations to hospital-based providers and national providers. We believe that few competitors possess the scale and resources to consolidate the home infusion industry and that our senior management’s strong track record of successfully acquiring and efficiently integrating businesses in the home health industry positions us well to take advantage of the numerous acquisition opportunities that may be available to us.

Furthermore, we believe that there are many factors that benefit larger providers in the home infusion industry, including:

an enhanced appeal to referral sources by offering regional geographic coverage;

revenue synergies through consolidating acquired businesses into existing managed care contracts;

the ability to offer a complete product line to patients, which appeals to the patient, the provider of care and the payor; and

improvements in the quality of billing and collection of receivables.

According to a December 2006 report by Frost & Sullivan, the home nursing market was estimated to be between $35 billion and $40 billion in 2005, representing an estimated 70% of total home health care expenditures. Moreover, the home nursing market is expected to grow at a compound annual growth rate of approximately 8% per year between 2005 and 2010. The growth in the home nursing sector continues to be driven by factors similar to those influencing the home infusion sector and the overall home health care market.

OUR STRENGTHS

We believe that we have a number of competitive strengths, including:

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regulatory compliance and operating systems, increase our purchasing power with suppliers and pharmaceutical wholesalers and manufacturers and improve our competitive positioning for national payor contracts.

A focus and reputation for high quality clinical care. We believe we have a reputation for high quality care and responsiveness to patient needs. All of our home infusion centers are accredited. Each of our branches has an integrated team of nurses, pharmacists and therapists that have extensive clinical expertise and a commitment to serving the needs of our patients. Additionally, we have deployed clinical programs and believe this initiative has improved quality of care and risk management through the implementation of best practices, which helps us actively manage clinical compliance across all of our branch locations.

An attractive therapeutic focus within the home infusion market. We focus on providing high value infusion therapies and specialty drugs that require complex clinical management. Many of our product offerings and services are designed to treat chronic conditions that require frequent drug administration, such as total parenteral nutritional, cancer and hemophilia. In addition to the recurring therapy requirement, these conditions require ongoing caregiver counseling and education regarding patient treatment and ongoing monitoring to encourage patients to comply with the prescribed therapy, including programs for enteral and total parenteral nutrition and pediatric infusion patients.

Our business model combines the advantages of a national platform with the benefits of a local clinical services model. Our business model balances the benefits of promoting local responsibility and accountability for quality of care and operating results with the efficiencies gained from centralizing key administrative functions. Our home infusion pharmacies and nursing locations carry locally recognized branding and tailor their respective marketing efforts to address the specific needs of the communities, referral sources, patients and payors they serve.

Our talented and experienced management team. Our five-person senior management team has an average of 23 years of experience in the health care industry. Led by health care industry veteran Robert A. Cucuel, the team has worked closely together during the last 12 years, including their experience in consolidating infusion and RT/HME businesses at American Homecare Supply, which was a portfolio company of an affiliate of Kohlberg. We believe the strength of our management team has helped us establish a reputation for clinical and operational excellence.

Demonstrated ability to identify and integrate acquired businesses. Our senior management team has a demonstrated track record of identifying, evaluating, acquiring and integrating companies in the home health market. We attribute part of our success in integrating these companies to our management’s ability to identify leading home infusion companies, operational knowledge and a disciplined approach to due diligence. We utilize a comprehensive post-acquisition strategic plan developed by our management to facilitate the integration of acquired businesses that includes maintaining local brand names, selectively altering product mix, centralizing accounting, purchasing and contracting functions, and transitioning acquired targets onto our information technology platform.

OUR STRATEGY

Our goal is to be the leading provider of home infusion services in the United States. Our business strategy to achieve this goal and capitalize on our many opportunities includes:

Continuing to focus on our core high value therapies. We intend to continue to focus on delivering our core high value therapies, such as anti-infective, total parenteral and enteral nutrition therapies. We have significant clinical experience with these therapies, which we believe are best managed and

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delivered on a local basis to patients in their homes due to the complexity and frequency of pharmaceutical administration and need for continued professional monitoring. These therapies collectively represented approximately 51% of our infusion revenues in the nine months ended September 30, 2007. We also intend to continue to expand our portfolio of high value therapies as additional infusible pharmaceuticals come to market.

Continuing to operate a local clinical model that emphasizes customized patient care. Each of our branches utilizes a coordinated team comprised of nurses, therapists and pharmacists designed to locally administer and monitor the medical care of our patient population that frequently suffer from chronic diseases. These local teams are given the flexibility to customize patient care, which we believe assures the responsiveness, quality and personal touch that our patients expect.

Continuing to pursue a sales and marketing approach that targets both local and regional referral sources and payor contracts. Growing our business will require us to maintain strong relations with local and regional referral sources, patients and managed care payors. Our sales and marketing strategy focuses on establishing and expanding these relationships. We currently have over 80 sales representatives and 450 payor contracts.

Expanding our relationships with national managed care organizations. We intend to leverage our current relationships, geographic coverage, clinical expertise and reputation, as well as corporate infrastructure, regulatory expertise and contacts, in order to expand our relationships with national managed care organizations and pursue national contracts with these organizations. We also offer clinical disease management for our home care therapies, which we believe enhances our relationships with and make us attractive to managed care organizations.

Continuing to realize additional synergies and operational efficiencies from our recent acquisitions. Although the key back office and other systems of our acquired businesses in 2006 and the first six months of 2007 are fully integrated, we estimate that it takes approximately 12 to 18 months to fully realize all of the synergies of an acquisition. These synergies include increased purchasing power with suppliers and cost synergies arising from the consolidation of support services, employee benefit programs and insurance programs. All of our acquisitions have occurred during the last 14 months, and as such we believe we have not yet fully realized all of the synergies and operating income improvements from these acquisitions. As we complete our integration process, we expect to continue realizing additional synergies from these acquisitions and realize additional operating income improvements and efficiencies. We also believe that the increased scale achieved through these acquisitions will provide us with greater purchasing power in negotiations with suppliers, allowing us to obtain more competitive terms.

Pursuing acquisitions of leading independent home infusion therapy providers in contiguous and other strategic markets. We estimate that a substantial portion of the home infusion market consists of independent home infusion providers, and we believe that industry dynamics in the currently fragmented home infusion market favor consolidated providers and the operational efficiencies that come with scale. We plan to pursue strategic acquisitions of leading independent home infusion providers with established track records in markets contiguous to our existing operations. We believe acquisitions in contiguous markets can be efficiently integrated into our existing operations and added to our existing managed care contracts and payor and patient platforms. We also intend to selectively pursue strategic acquisitions where they can increase our presence in an existing market or where entering a new geographic area presents a compelling opportunity for us.

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OUR PRODUCTS AND SERVICES

Home infusion therapy

We are a leading provider of home infusion therapy services in the United States and our focus is to grow this segment of our business. Our home infusion therapy 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. Our services are most typically provided in the patient’s home, but may also be provided at clinics, the physician’s office or at one of our ambulatory infusion centers. For the nine months ended September 30, 2007, our payor revenue mix for our home infusion therapy segment was 72% from managed care organizations and other non-governmental third party payors, 17% from Medicare and 11% from Medicaid. Revenues from managed care organizations and other non-governmental third party payors include a limited amount of revenue pursuant to health plans operated by private payors on behalf of governmental payors, such as Medicare Advantage Plans and Medicare Part D.

We provide a wide selection of home infusion therapy products to meet the diverse needs of our payors and patients. We organize our products into three tiers, however, with our first tier products comprising the core of our home infusion therapy business.

FIRST TIER PRODUCTS


Therapy Type		Description
Antibiotic and Anti-infective Therapy		Providing intravenous medication for infections related to diseases such as HIV/AIDS, wounds, cancer, osteomyelitis and the kidney and urinary tract

Enteral Nutrition		Delivering nutritional formulas by a tube directly into the stomach or colon

Total Parenteral Nutrition		Providing life-sustaining nutrients intravenously to patients with digestive or gastro-intestinal problems, most of whom have chronic conditions requiring treatment for life

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SECOND TIER PRODUCTS
Therapy Type		Description
Chemotherapy		Administering pharmaceuticals intravenously or orally to destroy cancer cells; we also provide BEAM Therapy, a four day pre-chemotherapy treatment given in advance of stem cell transplantation

Intravenous Immune Globulins (IVIG) Therapy		Administrating blood derivative products to patients with immune deficiency or altered immune status, who usually must receive therapy for life

Pain Management		Providing analgesic pharmaceuticals by intravenous or continuous injection therapy, delivered by a pump, to reduce pain and to manage symptoms resulting from either malignant or nonmalignant diseases

THIRD TIER PRODUCTS
Therapy Type		Description
Respiratory Syncytial Virus (RSV) Prevention		RSV is a major cause of respiratory disease in young children and infants. Treatment commonly consists of monthly injections of Synagis^® , a specialty pharmaceutical distributed throughout the “RSV season,” which lasts from approximately October through April

Respiratory Therapy/Home Medical Equipment		Providing oxygen systems, continuous or bi-level positive airway pressure devices, nebulizers, home ventilators, respiratory devices, respiratory medications and other medical equipment

Patients generally are referred to us by physicians, hospital discharge planners, managed care organizations and other referral sources. Our medications are mixed and dispensed under the supervision of a registered pharmacist and the therapy is typically delivered in the home of the patient by a registered nurse or trained caregiver. Depending on the preferences of the patient or the payor, these services may also be provided at an ambulatory infusion center, physician’s office or another alternate site.

Home nursing

We conduct our home nursing and therapy services operations through licensed and Medicare-certified agencies. Our health care professionals provide medically necessary health care services to adult and pediatric patients in their homes, including those suffering from chronic and acute illnesses, those in recovery from surgical procedures and those who require monitoring or care for other reasons. Our key services and program offerings are skilled nursing, specialty nursing, which includes wound care, oncology nursing and infusion nursing, rehabilitation services, which includes physical therapy, occupational therapy and speech language pathology, medical social services and home health aid services. Our services are provided by trained nurses, physical, occupational and speech therapists,

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infusion specialists, wound care specialists and social workers. Our home nursing offerings include private duty nursing care, in which our nurses provide services on an hourly or shift basis, and intermittent nursing care, in which our nurses provide services on an irregular basis or for a limited period of time. Our nurses provide medical care to these patients through pain and symptom management, wound treatment and management, medication management, infusion therapy services, skilled assessment and observations of patients through home visits and telemonitoring and education to patients and family caregivers.

Our typical home nursing location employs registered nurses, licensed practical nurses, physical, occupational and speech therapists, infusion specialists and wound care specialists. For the nine months ended September 30, 2007, our payor revenue mix for our home nursing segment was 13% from managed care organizations and non-governmental third party payors, 51% from Medicare and 36% from Medicaid.

FINANCIAL INFORMATION

For financial information for our two segments, home infusion therapy and home nursing, see “Management’s discussion and analysis of financial condition and results of operations” and our financial statements provided elsewhere in this prospectus.

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GEOGRAPHIC AND BRANCH OVERVIEW

We are headquartered in Conshohocken, Pennsylvania, and have 33 infusion locations and 32 home nursing locations. Our home infusion locations are primarily located in the eastern United States, and our home nursing locations are primarily located in the southeastern United States. The map below details our current locations:

LOGO

Our current service locations reflect those of our Predecessors and the companies we have acquired. As we continue to grow and acquire additional companies, we expect the geographic coverage of our service locations to expand. Our acquisition strategy contemplates acquisitions in contiguous markets and acquisitions that increase our presence in existing markets. However, we may selectively consider from time to time acquisitions in non-contiguous markets where we believe the acquisition provides us with an attractive opportunity to enter a strategically desirable market.

SALES AND MARKETING

We currently have over 80 sales representatives. Our sales and marketing efforts are geared primarily toward development of strong relationships with key referral sources, such as physicians, hospital discharge planners, case managers, long-term care facilities and other health care professionals, primarily through regular contact with the referral sources. These sources typically refer patients to a panel of providers when they are discharged from the hospital or leave the physician’s office. Our relationship-building process typically includes certain in-service programs, patient education programs and other programs designed to meet the specific needs of the referral sources and their patients. We do not make substantial use of television, radio or print advertising.

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With respect to our home nursing services, adult nursing has a dedicated sales staff focused on promoting its disease management programs, clinical outcomes and highly trained and proficient staff. Private duty nursing does not utilize sales representatives and does not invest in direct sales and marketing, but instead receives the majority of its referrals through the case managers of TennCare. Accordingly, its primary marketing effort lies in maintaining a strong relationship with TennCare program directors and case managers.

OUR SUPPLIERS

We obtain the pharmaceuticals and medical supplies and equipment that we provide to our patients through pharmaceutical wholesalers, manufacturers and distributors. Most of the pharmaceuticals that we purchase are available from multiple sources and we believe are available in sufficient quantities to meet our needs and the needs of our patients. These products are generally available from the vendors within one-to-two business days. Accordingly, we are not required to maintain high levels of inventory, in terms of days of inventory on hand. RSV treatment therapy, a non-first tier therapy for us, utilizes pharmaceuticals that are only available through the manufacturer and may be subject to limits on distribution. Accordingly, it is important for us to establish and maintain good working relations with the manufacturer in order to assure sufficient supply to meet our patients’ needs. IVIG prevention therapy, another non-first tier therapy, utilizes pharmaceuticals that are available from more than one vendor. However, there have been periodic shortages of the product in recent years. Accordingly, we purchase additional days of inventory when the product is available. These inventory purchases are evaluated relative to our projected requirements in order to minimize the risk of product expiration.

COMPETITION

In each of our service lines, we compete with a variety of national, regional and local providers. However, the majority of infusion services are offered by local, independent providers and the home nursing market tends to be dominated by the local providers. We believe that competition in each of our service lines is based on quality of care, cost of service and reputation.

In home infusion therapy, our national competitors include Option Care, Inc. (which was recently acquired by Walgreen Co.), Coram, Inc., Apria Healthcare Group Inc. (which recently announced that it has entered into a definitive agreement to acquire Coram, Inc.), Critical Care Systems, Inc., Omnicare, Inc. and Air Products Healthcare. Within each market, however, our main competitors continue to be local independent providers, as the industry remains very fragmented. There are only a small number of regional competitors, none of whom we believe are currently a competitive threat within our geographic service areas.

With respect to our home nursing services, we compete primarily with Gentiva Health Services, Inc. on a national level and Amedisys, Inc. and LHC Group, Inc. on a regional level. The home nursing segment is highly fragmented with many competing local providers in our areas of service.

In each market, some of our current competitors have, and our potential future competitors may have, greater financial, operational, marketing and managerial resources than we have. We believe we are able to successfully compete based on our reputation, the strength of our growing presence in the eastern

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United States and our ability to effectively market our services at the national, regional and local levels and that these factors place us in a strong position against existing and potential competitors.

PAYOR ARRANGEMENTS

We receive payment for our services and medications from a number of sources, including managed care organizations, government sources, such as Medicare and Medicaid programs, and commercial insurance. For the nine months ended September 30, 2007, our payor revenue mix in our home infusion therapy segment was 72% from managed care organizations and other non-governmental third party payors, 17% from Medicare and 11% from Medicaid. For the nine months ended September 30, 2007, our payor revenue mix in our home nursing segment was 13% from managed care organizations and other non-governmental third party payors, 51% from Medicare and 36% from Medicaid. Revenues from managed care organizations and other non-governmental third party payors include a limited amount of revenue pursuant to health plans operated by private payors on behalf of Medicare and Medicaid, such as home infusion therapy revenues under Medicare Advantage plans and Medicare Part D. We believe that neither of our segments is dependent on any one governmental managed care organization or non-governmental third party payor.

We currently have approximately 450 contracts with managed care organizations and other non-governmental third party payors to provide infusion therapy services. These contracts are primarily at the local or regional level. A key element of our business strategy is to leverage our relationships, geographic coverage, clinical expertise and reputation in order to gain national contracts with payors. Our infusion services contracts typically provide for us to receive a fee for preparing and delivering medications to patients in their homes. Pricing is typically negotiated in advance on the basis of AWP minus some percentage of contractual discount or ASP plus some percentage of contractual discount, which is the typical means of negotiating pricing in the industry. In addition, we typically receive a per diem payment for the service component of care provided to patients in connection with infusion services. AWP and ASP information is published by First Databank and a number of other private companies. Recent events have raised uncertainties as to whether the average whole prices published by First Databank will decline, resulting in a reduction in our gross profit margins. See “Risk factors—Risks Related to Our Industry—Our revenue and gross profit could decrease if there are changes in the calculation of the average wholesale price or average sales price for the prescription drugs we sell, or if managed care organizations and other private payors replace the average wholesale price or average sales price with a different reimbursement method.”

Most of our home nursing services are provided to beneficiaries of government sponsored programs. The majority of our skilled home nursing services are reimbursed by Medicare, based on the “prospective payment system” rates per episode, which vary by the complexity of patient condition. Typically, we receive predetermined payment based on a 60-day episode of skilled nursing care, assuming the nurses have made a minimum of five visits to the patient during that period. Our pediatric and adult private duty nursing services are generally billed on an hourly basis and are reimbursed primarily through one of a number of managed care organizations contracted by the TennCare program to administer these services on behalf of state residents who qualify for such benefits. The services are reimbursed on a per diem basis based on pre-established guidelines and payment schedules.

We bill payors and track all of our accounts receivable through computerized billing systems. These systems allow our billing staff the flexibility to review and edit claims in the system before they are submitted to payors. Claims are submitted to payors either electronically or through the mail. We utilize electronic claim submission whenever possible to expedite claim review and payment, and to minimize errors and omissions.

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GOVERNMENT REGULATION

The health care industry is subject to extensive regulation by a number of governmental entities at the federal, state and local level. The industry is also subject to frequent regulatory change. Laws and regulations in the health care industry are extremely complex and, in many instances, the industry does not have the benefit of significant regulatory or judicial interpretation. Moreover, our business is impacted not only by those laws and regulations that are directly applicable to us but also by certain laws and regulations that are applicable to our managed care and other clients. We are also subject to periodic audits and requests for information by Medicare and Medicaid, and the oversight agencies for these programs have various rights and remedies they can assert against us if they determine we have overcharged the programs or failed to comply with program requirements. If we fail to comply with the laws and regulations that are directly applicable to our business, we could suffer civil and/or criminal penalties, and we could be excluded from participating in Medicare, Medicaid and other federal and state health care programs, which would have an adverse impact on our business. See “Risk factors—Risks Related to Our Industry—The laws and regulations governing our industry are extensive and extremely complex, and our interpretation of a given law or regulation may differ from those of the government agencies that regulate us. Furthermore, changes in state and federal laws and regulation could restrict our ability to conduct our business.”

Medicare and Medicaid reimbursement

Many of the products or services that we provide are reimbursed by Medicare and Medicaid and are therefore subject to extensive government regulation. Medicare is a federally funded program that provides health insurance coverage for qualified persons age 65 or older and for some disabled persons. The Medicare Program currently consists of four parts: Medicare Part A, which covers, among other things, inpatient hospital, skilled nursing facility, home nursing and certain other types of health care services; Medicare Part B, which covers physicians’ services, outpatient services, items and services provided by medical suppliers, and a limited number of prescription drugs; Medicare Part C, which generally allows beneficiaries to enroll in private health care plans (known as Medicare Advantage plans); and Medicare Part D, established by the Medicare Modernization Act, which provides for a voluntary prescription drug benefit.

The Medicaid Program provides medical benefits to groups of low-income people, some who may have no medical insurance or inadequate medical insurance. Although the federal government establishes general guidelines for the program, Medicaid is a state administered program and each state sets its own guidelines regarding eligibility and services.

Congress often enacts legislation that affects, positively or negatively, the reimbursement rates of Medicare providers. Generally, Medicare provider payment modifications occur in the context of budget reconciliation. In the last five years, Congress has reduced Medicare reimbursement for various providers, Medicare Part A certified home health agencies, and Medicare Part B suppliers. Recent legislation that has affected our Medicare reimbursement rates for both home health and home infusion therapy includes primarily the Medicare Modernization Act and the Deficit Reduction Act.

Home infusion therapy segment

Our home infusion therapy segment involves the delivery of complex intravenous pharmaceutical products and corresponding clinical support services to patients with chronic conditions requiring long-term infusion care services, such as pain management, parenteral nutrition and diabetic therapy, and

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acute conditions requiring short-term infusion care services, such as antibiotic therapy, post-operative pain management, chemotherapy and obstetrical therapy. As part of our home infusion therapy segment, we also provide certain rental equipment, such as infusion pumps, that is necessary in connection with the provision of these infusion products.

Current Reimbursement Rules: Enteral nutrients are covered as a Medicare Part B benefit. Medicare pays for no more than a one-month supply of enteral nutrients for any one prospective billing period. Medicare’s payment for enteral nutrition is equal to 80% of the lower of either the actual charge for the item or the fee schedule amount calculated for the item, less any unmet deductible. The beneficiary is responsible for 20% of the lower of either the actual charge for the item or the fee schedule amount calculated for the item, plus any unmet deductible. A physician must certify that enteral nutrition therapy is medically necessary for a Medicare beneficiary. Enteral nutrition may be administered by oral syringe, gravity or pump.

Medicare, which represents approximately 17% of our home infusion therapy net revenue for the nine months ended September 30, 2007, covers certain home infusion therapy primarily through its Part B benefit. Infusion pumps are covered as equipment capable of withstanding repeated use when “medically necessary to ameliorate illness or injury or to improve functioning of a malformed body part.” Medical supplies and accessories necessary for the proper functioning of the equipment also are covered. Drugs and biologicals that must be put directly into the equipment to assure proper functioning are also covered. Although Medicare covers drugs and biologicals when used with an infusion pump, coverage decisions are often made at the local carrier level. Medicare rules instruct carriers to cover the cost of external infusion pumps in specific medical circumstances.

Inhalation drugs are used for the assessment, diagnostic evaluation, treatment, management, and monitoring of patients with deficiencies and abnormalities of cardiopulmonary function. Medicare reimbursement for inhalation drugs has been set at ASP plus 6% since 2006.

Respiratory therapy that is furnished to a beneficiary for use in the home is covered under the Medicare Part B program, whether furnished on a rental basis or purchased. Payment for RT/HME, prosthetics, orthotics, and supplies is made under a fee schedule. Payment is limited to the lower of the actual charge for the equipment or the fee schedule amount. After the supplier transfers title to the beneficiary for an item of RT/HME, maintenance and servicing payments may be made by the Medicare program for parts and labor not covered by the supplier’s or manufacturer’s warranty. These payments will be made if the Secretary of HHS determines that they are reasonable and necessary.

Oxygen provided in the home is covered by Medicare under the RT/HME benefit. Payment is made on a monthly basis, however, since January 1, 2006, a 36-month cap on the monthly payments for stationary and portable oxygen equipment applies. Payments for maintenance and servicing (for parts and labor not covered by the supplier’s or manufacturer’s warranty) will be made if the Secretary of HHS determines them to be reasonable and necessary.

Recent Legislative Changes to Medicare Reimbursement: The Medicare Modernization Act and the Deficit Reduction Act have changed some of the medical reimbursement rules applicable to our home infusion segment. The Medicare Modernization Act set reimbursement for inhalation drugs at 85% of AWP in 2004, and set forth the ASP plus 6% methodology that has been in use since 2006 and also set reimbursement for infusion drugs at 95% of AWP.

The Deficit Reduction Act capped monthly payments for oxygen equipment at 36 months. In addition, the Medicare Modernization Act authorized a competitive bidding program for determining Medicare

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reimbursement rates for certain items of durable medical equipment, including enteral nutrients, supplies and equipment, and RT/HME products. CMS has the discretion to determine which products will be subject to competitive bidding. The statute requires that the first round of competitive bidding occur in ten metropolitan areas around the country. The second round of competitive bidding will be conducted in 80 metropolitan areas. CMS released the final rule implementing this program on April 10, 2007, and the program is set to go into effect on July 1, 2008.

We currently have operations in four of the metropolitan areas subject to the first round of competitive bidding—Cleveland, Cincinnati, Dallas and Pittsburgh. We have submitted our bids for the areas in which we provide items and services, but at this time we cannot predict whether our bids will be accepted by HHS. If our bids are not selected by HHS, we would be unable to provide the items or services that were competitively bid to Medicare patients in the affected areas. The competitive bidding program is scheduled to be expanded in 2009 into 70 additional geographic areas after the initial round of bidding and our failure to have our bids accepted in these areas could negatively affect our revenues and our results of operations. Under the Medicare Modernization Act, reimbursement for items and services subject to the competitive bidding program must be lower than the prices currently reimbursed by Medicare. The Secretary of HHS has the authority to apply competitively bid prices nationwide in the third year of the program. This authority, if used, could effectively create a nationwide competitive bidding program in the third year of the program, and all covered products and services nationwide would be reimbursed at competitively bid prices. In the final rule implementing the competitive bidding program, HHS noted its intention to use this authority. Applying competitively bid prices nationwide could have an adverse impact on our operations. Several recent delays in the bidding process have caused HHS to delay the initial implementation of the program from April 2008 to July 2008. Although we would not expect it to be material to our financial condition, it is unclear what impact, if any, these delays may have on the expansion of the program in 2009 or on our operations in the affected areas. If the competitive bidding program were expanded so that infusion drugs became subject to competitive bidding, we cannot, at this time, estimate the impact, either positive or negative, on our financial condition or results of operations.

In the future, Congress could enact changes to Medicare reimbursement affecting durable medical equipment, including enacting annual payment updates below statutory levels, modifying the competitive bidding program and reducing reimbursement rates for oxygen equipment.

Quality Standards/Accreditation: As mandated by the Medicare Modernization Act, in August 2006, CMS issued quality standards for suppliers, which are being applied by independent accredited organizations approved by CMS. All Medicare suppliers that participate in competitive bidding must be accredited. We are accredited by several accreditation bodies, including the Joint Commission on Accreditation of Healthcare Organizations.

Medicare Parts B and D: Our infusion therapy segment is impacted by the Medicare Part D program. In connection with the enactment of the Medicare Modernization Act, CMS promulgated a substantial volume of new regulations implementing the federal government’s Voluntary Prescription Drug Benefit Program, known as Medicare Part D. CMS has attempted to clarify issues regarding coverage of infused drugs under Medicare Part D and the relationship with existing coverage under Medicare Part B. In certain cases, both Medicare Parts B and D will cover identical infused drugs. CMS has stated that coverage is generally determined by the diagnosis and the method of drug delivery. For example, parenteral nutrition is covered under Medicare Part B for patients with a non-functioning digestive tract. In all other situations, Medicare Part D covers parenteral nutrition. Confusion regarding the appropriate coverage of infusion therapy could adversely affect our business.

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The OIG, has also proposed new safe harbors and other regulations pursuant to the Medicare Modernization Act. Both the OIG and CMS continue to issue guidance with regard to the Medicare Part D program and compliance with related federal laws and regulations by Part D sponsors and their subcontractors. The receipt of federal funds made available through this program by us, our affiliates, or clients may be subject to compliance with these new regulations as well as the established laws and regulations governing the federal government’s payment for health care goods and services. There are many uncertainties about the financial and regulatory risks of participating in the Medicare Part D program and these risks could negatively impact our business in future periods.

Home Infusion and the First Session of the 110th Congress: The Children’s Health and Medicare Protection Act of 2007, or the CHAMP Act, does not contain provisions affecting Medicare reimbursement for home infusion therapy. Legislation has been introduced in the House and Senate that would provide for Medicare coverage of home infusion therapy and home infusion drugs under Medicare Part B and Part D. As noted above, Medicare currently covers home infusion therapy for selected therapies primarily through the durable medical equipment benefit. It is anticipated that these bills will expand Medicare beneficiary access to the majority of home infusion therapies but there can be no guarantees as to what will be contained in any final legislation.

Regulatory Changes for Home Infusion: Under the Medicare Part D final regulations, the ingredient costs and dispensing fees associated with the provision of home infusion therapies will now be covered under Medicare. Prior to the passage of the Medicare Modernization Act, no reimbursement of these costs was available through Medicare. For eligible Medicare beneficiaries, the cost of equipment, supplies and professional services associated with infused covered Medicare Part D drugs will continue to be reimbursed on a limited basis under Medicare Part A or Part B, as applicable. For beneficiaries who are dually eligible for benefits under Medicare and a state Medicaid program, covered infused drugs will be reimbursed under individual state coverage guidelines if coverage is denied by Medicare.

CMS has issued a proposed rule codifying prior clarifications of CMS’ policies associated with the prescription drug benefit and providing certain other clarifications of these policies. CMS proposes to codify CMS expectations of Medicare Part D sponsors regarding providing adequate access to home infusion pharmacies for infused covered drugs and proposing standards with respect to timeliness of delivery of drugs. The proposals are to be implemented in 2009. In addition, in 2005, CMS published a final rule implementing its “inherent reasonableness” authority, which allows CMS or a Medicare contractor to increase or decrease payment amounts by up to 15% per year for certain products and services covered by Medicare when the existing payment amount is determined by CMS to be grossly excessive or grossly deficient. CMS could invoke its inherent reasonableness authority to reduce or increase reimbursement levels for certain of our products, which could have a positive or adverse effect on our results of operations. A reduction in payments received from, or a loss of coverage under, Medicare could result in similar actions being taken by private payors, which could have a material adverse effect on our results of operations. CMS has rarely exercised this authority in the last 10 years.

Home Infusion and Medicaid: Budgetary concerns in many states have resulted in and may continue to result in, reductions to Medicaid reimbursement as well as delays in payment of outstanding claims. Any reductions to or delays in collecting amounts reimbursable by state Medicaid programs for our products or services, or changes in regulations governing such reimbursements, could cause our revenue and profitability to decline and increase our working capital requirements.

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Home nursing segment

Current Medicare Reimbursement for Home Health Agencies: Home health agencies, including ours, are reimbursed under the Medicare program on a prospective payment system. Home health services include:

skilled nursing care;

physical, occupational, and speech therapy;

medical social work; and

home health aide services.

Medicare’s home health prospective payment system is comprised of a set payment for each 60-day episode of care, a case-mix adjustment based on a patient’s medical condition and service needs, an outlier payment for high cost patients and a low-utilization adjustment for patients who require only a few visits. Patients are assigned to 1 of 80 home health resource groups based on clinical and functional status and service use.

Medicare beneficiaries must be homebound to be eligible to receive covered home health services. In general, a beneficiary is considered homebound under Medicare rules if he/she has a condition due to an injury or illness that restricts his/her ability to leave the residence except with the aid of supportive devices (such as a wheelchair or crutches) or if leaving home is not medically advised.

Currently, home health 60-day episodes that involve ten or more therapy visits meet a “10-visit therapy threshold” that enables the home health agency to receive a payment increase of about $2,500 more per 60-day episode of care than what the agency would receive for a similar claim with nine or fewer therapy visits. To be covered by the Medicare program, therapy services must be provided in accordance with a physician’s orders and they must be reasonable and necessary for the treatment of the beneficiary’s illness or injury or for the restoration or maintenance of the function affected by the illness or injury. The amount, frequency and duration of the services must also be reasonable and consistent with the patient’s particular medical needs. Medicare beneficiaries do not pay any co-payments for home health services.

Payments under the home health prospective payment system are updated annually by the increase in the home health market basket. Under current law, for 2007 and beyond, the update will equal the home health market basket increase for those home health agencies that report quality data to CMS. For those agencies that do not report quality data to CMS, their update will equal the market basket increase minus 2%.

Recent Legislative Changes to Medicare Reimbursement for Home Health Agencies: The Medicare Modernization Act and the Deficit Reduction Act each contained changes to reimbursement for home health services. The Medicare Modernization Act reduced the home health agency update by 0.8%, gave home health agencies located in rural areas a 5% add-on payment through 2006 and changed the annual home health prospective payment system update from fiscal year end to calendar year end. The Deficit Reduction Act froze home health prospective payment rates for 2006 at 2005 levels and set the home health prospective payment system updates for 2007 and beyond at the full market basket increase for home health agencies that report CMS-required quality data but 2% below market basket for those that do not report such data. The Tax Relief and Health Care Act of 2006, which addressed the Medicare physician fee schedule and contained other Medicare items, did not affect Medicare reimbursement for home health agencies.

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Potential Areas of Future Congressional Scrutiny: In the future, Congress could enact changes to Medicare reimbursement affecting home health services, including reducing the annual payment updates to below the current statutory levels, making other modifications for home health agencies in rural areas, adding beneficiary co-payments, requiring additional quality reporting or performance requirements and making broad-based changes to reimbursement for post-acute care settings (which includes nursing homes, inpatient rehabilitation facilities and long term care.)

Home Health and the First Session of the 110th Congress: On August 1, 2007, the House of Representatives passed the CHAMP Act, which primarily reauthorizes the State Children’s Health Insurance Program, or SCHIP, increases Medicare payments to physicians, and includes other Medicare payment changes. However, Congress has only moved forward with the SCHIP provisions of the bill. On October 3, 2007, President Bush vetoed the first SCHIP bill passed by Congress. Congress failed to override this veto. On October 25, 2007 and November 1, 2007, the House of Representatives and Senate, respectively, passed a second SCHIP bill. While this second SCHIP bill has not yet been presented to President Bush for his signature, he has promised to veto it as well. Based on publicly available information, it currently does not appear that Congress has the votes to override a veto of this second SCHIP bill. It is possible, however, that Congress may later consider changes to the Medicare program. The Medicare provisions contained in the CHAMP Act may be among the provisions considered in connection with any such change. Although the CHAMP Act Medicare provisions did not include changes to Medicare reimbursement for infusion drugs, they did contain changes affecting Medicare reimbursement to home health agencies. Specifically, the CHAMP Act would set the fiscal year 2008 (effective January 1, 2008) update for the home health prospective payment system for home health agencies at 0% and would extend temporary Medicare payment increases to home health services provided in rural areas (only two of our agencies would be eligible to receive these bonus payments) for two years. As discussed below, the proposed final home health rule issued by CMS includes an update to the home health prospective payment system but, if enacted, the CHAMP Act or other Medicare legislation would supersede that rule. The CHAMP Act also contains a reduction to the rental period for oxygen equipment from 36 months to 18 months. At this point we cannot predict the outcome of any legislation that may be initiated affecting Medicare providers.

Home Health Regulatory Changes: On August 22, 2007, CMS issued a proposed final rule to update and refine the home health prospective payment system for calendar year 2008. Among its significant changes, the proposed final rule reduced the national standardized 60-day episode rate for calendar year 2008 and also implemented similar reductions to the 60-day episode payment rate for 2009 through 2011. This rule also established an increase or update of 3% for the home health prospective payment system for 2008 but also implements a reduction in the national standardized 60-day episode payment rate of 2.75% in 2008 to account for changes in case mix not attributable to a patient’s actual condition. While we expect this rule, as drafted, to have an immaterial impact on our business and our results of operations, if the final rule differs from the proposed final rule, it is possible that the impact on us will be greater than we currently anticipate.

Home Nursing and Medicaid: In addition, we are sensitive to possible changes in state Medicaid programs as we do business with several state Medicaid programs. TennCare, our largest Medicaid

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customer, has experienced substantial financial challenges since its inception in 1994. In 2002, the State of Tennessee proposed, but later withdrew, limitations on home health services. Since mid-2005, the State of Tennessee has restructured TennCare significantly and has disenrolled approximately 323,000 persons not required to be covered by federal Medicaid law. By contracting in scope and becoming a program closer to the structure of a typical state Medicaid program, we believe TennCare’s finances have become fairly stable for the next one to two years. However, for the long term, as in most states, the continuing inflation of medical costs will continue to exert significant financial pressures on Tennessee’s state budget. Revenues from TennCare represented approximately 7.6% of our 2006 pro forma revenue. Budgetary concerns in many states have resulted in and may continue to result in, reductions to Medicaid reimbursement as well as delays in payment of outstanding claims. Any reductions to or delays in collecting amounts reimbursable by state Medicaid programs for our products or services, or changes in regulations governing such reimbursements, could cause our revenue and profitability to decline and increase our working capital requirements.

Government investigations

The OIG is the organization charged with protecting the integrity of HHS programs, including Medicare, as well as the health and welfare of the beneficiaries of those programs. In 2005 and 2006, the OIG released several audit reports of individual home health agencies. There may be more OIG activity in this area.

Professional licensure

Nurses, pharmacists and certain other health care professionals employed by us are required to be individually licensed or certified under applicable state law. We perform criminal and other background checks on employees and take steps to ensure that our employees possess all necessary licenses and certifications, and we believe that our employees comply in all material respects with applicable licensure laws.

Pharmacy licensing and registration

State laws require that each of our pharmacy locations be licensed as an in-state pharmacy to dispense pharmaceuticals in that state. Certain states also require that our pharmacy locations be licensed as an out-of-state pharmacy if we deliver prescription pharmaceuticals into those states from locations outside of the state. We believe that we substantially comply with all state licensing laws applicable to our business. If we are unable to maintain our licenses or if states place burdensome restrictions or limitations on non-resident pharmacies, our ability to operate in some states would be limited, which could have an adverse impact on our business. See “Risk factors—Risks Related to Our Industry—State efforts to regulate the establishment or expansion of health care providers could impair our ability to maintain or expand our operations.”

Laws enforced by the Drug Enforcement Administration, as well as some similar state agencies, require our pharmacy locations to individually register in order to handle controlled substances, including prescription pharmaceuticals. A separate registration is required at each principal place of business where we dispense controlled substances. Federal and state laws also require that we follow specific labeling, reporting and record-keeping requirements for controlled substances. We maintain federal and state controlled substance registrations for each of our facilities that require such registration and follow procedures intended to comply with all applicable federal and state requirements regarding controlled substances.

Many states in which we operate also require home infusion companies to be licensed as home health agencies. We believe we are in compliance with these laws, as applicable.

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Food, Drug and Cosmetic Act

Certain provisions of the federal Food, Drug and Cosmetic Act govern the handling and distribution of pharmaceutical products. This law exempts many pharmaceuticals and medical devices from federal labeling and packaging requirements as long as they are not adulterated or misbranded and are dispensed in accordance with and pursuant to a valid prescription. We believe that we comply with all applicable requirements.

Fraud and abuse laws—Anti-Kickback Statute

The federal Anti-Kickback Statute prohibits individuals and entities from knowingly and willfully paying, offering, receiving, or soliciting money or anything else of value in order to induce the referral of patients or to induce a person to purchase, lease, order, arrange for, or recommend services or goods covered by Medicare, Medicaid, or other government health care programs. The federal courts have held that an arrangement violates the Anti-Kickback Statute if any one purpose of the remuneration is to induce the referral of patients covered by the Medicare or Medicaid programs, even if another purpose of the payment is to compensate an individual for rendered services. The Anti-Kickback Statute is broad and potentially covers many standard business arrangements. Violations can lead to significant penalties, including criminal fines of up to $25,000 per violation and/or five years imprisonment, civil monetary penalties of up to $50,000 per violation plus treble damages, and/or exclusion from participation in Medicare, Medicaid, and other federal government health care programs. In an effort to clarify the conduct prohibited by the Anti-Kickback Statute, the OIG has published regulations that identify a limited number of safe harbors. Business arrangements that satisfy all of the elements of a safe harbor are immune from criminal enforcement or civil administrative actions. The Anti-Kickback Statute is an intent-based statute and the failure of a business relationship to satisfy all of the elements of a safe harbor does not in and of itself mean that the business relationship violates the Anti-Kickback Statute. The OIG, in its commentary to the safe harbor regulations, has recognized that many business arrangements that do not satisfy a safe harbor nonetheless operate without the type of abuses the Anti-Kickback Statute is designed to prevent. We attempt to structure our business relationships to satisfy an applicable safe harbor. However, in those situations where a business relationship does not fully satisfy the elements of a safe harbor, or where no safe harbor exists, we attempt to satisfy as many elements of an applicable safe harbor as possible. The OIG is authorized to issue advisory opinions regarding the interpretation and applicability of the Anti-Kickback Statute, including whether an activity constitutes grounds for the imposition of civil or criminal sanctions. We have not, however, sought any opinions regarding our business relationships.

A number of states have statutes and regulations that prohibit the same general types of conduct as those prohibited by the Anti-Kickback Statute described above. Some state anti-fraud and anti-kickback laws apply only to goods and services covered by Medicaid. Other state anti-fraud and anti-kickback laws apply to all health care goods and services, regardless of whether the source of payment is governmental or private. Where applicable, we attempt to structure our business relationships to comply with these statutes.

Fraud and abuse laws—False Claims Act

We are subject to state and federal laws that govern the submission of claims for reimbursement. These laws generally prohibit an individual or entity from knowingly and willfully presenting a claim or causing a claim to be presented for payment from a federal health care program that is false or fraudulent. The standard for “knowing and willful” may include conduct that amounts to a reckless disregard for the accuracy of information presented to payors. Not only are government agencies active in investigating and enforcing actions with respect to applicable health laws, but also health care

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providers are often subject to actions brought by individuals on behalf of the government. As such suits are generally filed under seal with a court to allow the government adequate time to investigate and determine whether it will intervene in the action, implicated health care providers are often unaware of the suit until the government has made its determination and the seal is lifted. Penalties under these statutes include substantial civil and criminal fines, exclusion from the Medicare or Medicaid programs and imprisonment. One of the most prominent of these laws is the federal False Claims Act, which may be enforced by the federal government directly or by a private plaintiff by filing a qui tam lawsuit on the government’s behalf. Under the False Claims Act, the government and private plaintiffs, if any, may recover monetary penalties in the amount of $5,500 to $11,000 per false claim, as well as an amount equal to three times the amount of damages sustained by the government as a result of the false claim. A number of states, including states in which we operate, have adopted their own false claims statutes as well as statutes that allow individuals to bring qui tam actions. We believe that we have procedures in place to ensure the accuracy of our claims.

The Deficit Reduction Act offers incentives to states for enacting or modifying state false claims laws to mirror the False Claims Act and requires states to amend existing Medicaid provider requirements. Specifically, Section 6032 of the Deficit Reduction Act requires states to amend their Medicaid plans to mandate, as a condition of payment, that providers that receive at least $5 million in Medicaid reimbursement establish written policies for all their employees (including management), contractors and agents. These written policies must contain “detailed information” about:

The False Claims Act;

The federal Program Fraud Civil Remedies Act;

State laws pertaining to civil or criminal penalties for false claims and statements;

Whistleblower protections under any of the above laws; and

Detailed provisions regarding the entity’s policies and procedures for preventing and detecting fraud, waste, and abuse in federal health care programs.

In addition to establishing written policies, Section 6032 of the Deficit Reduction Act also requires that, to the extent an employee handbook exists, it include a specific discussion of the laws prohibiting false claims, the rights of employees to be protected as whistleblowers and the entity’s policies and procedures for detecting and preventing fraud, waste and abuse. States have begun amending their state plans to address the Deficit Reduction Act’s requirements. Additionally, states have begun enacting or modifying existing state laws to reflect the requirements and language contained in the False Claims Act. It is anticipated that states will begin auditing providers for compliance with the Deficit Reduction Act requirements and compliance with state false claims laws. Failure to comply could result in fines and possibly exclusion from the state Medicaid program. Although we intend to attempt to comply with the requirements of the Deficit Reduction Act and the corresponding state laws, neither states nor the federal government have offered significant guidance regarding compliance with the requirements. As such, future investigations could result in significant costs, liabilities, and penalties and could impact our ability to participate in the Medicaid program in certain states.

Ethics in patient referrals law (Stark Law)

The Stark Law generally prohibits a physician from making referrals for certain “designated health services” reimbursable by Medicare or Medicaid to entities with which the physician or an immediate family member has a financial relationship, unless an exception applies. A financial relationship is generally defined as an ownership, investment or compensation relationship. Designated health services

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include, but are not limited to, outpatient pharmaceuticals, parenteral and enteral nutrition products, home health services, durable medical equipment, physical and occupational therapy services, and inpatient and outpatient hospital services. Among other sanctions, a civil monetary penalty of up to $15,000 may be imposed for each bill or claim for a service a person knows or should know is for a service for which payment may not be made due to the Stark Law. Such persons or entities are also subject to exclusion from the Medicare and Medicaid programs. Any person or entity participating in a circumvention scheme to avoid the referral prohibitions is liable for a civil monetary penalty of up to $100,000. A $10,000 fine may be imposed for failure to comply with reporting requirements regarding an entity’s ownership, investment and compensation arrangements for each day for which reporting is required to have been made under the Stark Law.

The Stark Law exempts certain business relationships that meet its exception requirements. However, unlike the Anti-Kickback Statute under which an activity may fall outside a safe harbor and still be lawful, a referral for designated health services that does not fall within an exception is strictly prohibited by the Stark Law. We attempt to structure all of our relationships with physicians who make referrals to us in compliance with an applicable exception to the Stark Law.

In addition to the Stark Law, many of the states in which we operate have comparable restrictions on the ability of physicians to refer patients for certain services to entities with which they have a financial relationship. Certain of these state statutes mirror the Stark Law while others may be more restrictive. We attempt to structure all of our business relationships with physicians to comply with any applicable state self-referral laws.

Health Insurance Portability and Accountability Act of 1996

To improve the efficiency and effectiveness of the health care system, the Health Insurance Portability and Accountability Act of 1996, or HIPAA, included “Administrative Simplification” provisions that required HHS to adopt national standards for electronic health care transactions. At the same time, Congress recognized that advances in electronic technology could erode the privacy of health information. Consequently, Congress incorporated provisions into HIPAA that mandated the adoption of federal privacy protections for individually identifiable health information.

In response to the HIPAA mandate, in December 2000, HHS published a final regulation in the form of the Privacy Rule and in August 2002 published a final regulation modifying the Privacy Rule. The compliance date was April 14, 2003 for most entities required to comply with the Privacy Rule. The 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.

The Privacy Rule establishes a foundation of federal protections for the privacy of protected health information. The Privacy Rule does not replace federal, state, or other laws that grant individuals even greater privacy protections, and covered entities are free to retain or adopt more protective policies or practices. We have implemented the standards set forth in the Privacy Rule, and believe that we are in compliance with the Privacy Rule or any more stringent federal or state laws relating to privacy.

Additionally, the Administrative Simplification provisions address electronic health care transactions and the security of electronic health information systems. Covered entities are required to comply with the standards by specific compliance dates established by HHS. For standards relating to electronic health care transactions, all covered entities were required to comply by October 16, 2002 unless the covered

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entity timely submitted a compliance plan to HHS in which case the covered entity had until October 16, 2003 to comply. The security standards applicable to individually identifiable health information maintained electronically were required to be implemented by April 20, 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 the electronic health care transactions were required to be implemented by May 23, 2007. We were materially compliant with this requirement by the applicable compliance date.

Penalties for non-compliance with the Privacy Rule and other HIPAA Administrative Simplification provisions range from a civil penalty of $100 for each violation (which can total up to $25,000 per person per year per identical requirement or prohibition), to criminal penalties, including up to $50,000 and/or one year imprisonment, up to $100,000 and/or five years imprisonment if the person knowingly uses or discloses individually identifiable health information in violation of the law, 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.

In addition to regulating privacy of individually identifiable health information and 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.

Enforcement efforts and investigations

LEGAL PROCEEDINGS

Due to the nature of our business, we are involved in lawsuits that arise in the ordinary course of business. We do not believe that any lawsuit to which we currently are a party will have a material adverse effect on our business, financial condition, results of operations or liquidity.

FACILITIES

Our operations are conducted through 33 infusion locations and 32 home nursing locations in 14 states, as well as our corporate headquarters in Conshohocken, Pennsylvania. We currently lease our corporate headquarters under a lease with a term that expires in May 2012 but that has an option to renew for an additional term of three years. We lease nearly all of our properties, and most of our lease terms are for a term of one to three years, while some of the properties are leased on a month-to-month basis. We believe that our facilities are generally adequate for current and anticipated future use, although we may from time to time lease additional facilities as operations require.

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INTELLECTUAL PROPERTY

We own and use a variety of trademarks and service marks, including Infinity Infusion Care, Infusion Solutions, Infusion Care Systems, NE-HT, New England Home Therapies, NEHT, Deaconess HomeCare, Specialty Supply Partners, Deaconess Home Health Care and Elk Valley Home Health Care which have either been registered at the state level or are being used pursuant to common law rights. We use the tradename “Deaconess HomeCare” pursuant to a license with a term of five years expiring in January 2012. In addition we own federal service mark registrations for Infusion Solutions, Inc. (design) and Infusion Partners.

INSURANCE

Our business of providing home infusion therapy and nursing services exposes us to litigation and potential liability for damages. We currently maintain insurance for general and professional liability claims in the amount of $1.0 million per claim and $3.0 million in aggregate per policy year, plus $10.0 million in umbrella coverage. Accordingly, the maximum coverage for a first claim in any policy year is $11.0 million, and the maximum aggregate coverage for all claims in a policy year is $13.0 million. These policies provide coverage on a claims-made or occurrence basis and have 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.

Our health insurance policy has a $175,000 reinsurance and our workers compensation insurance policy has a $350,000 deductible per claim with an aggregate stop loss of approximately $1.5 million per year. In addition, we have limited coverage for our property insurance due to the location of many of our infusion and nursing locations in the Gulf Coast region. For the properties that are covered, the deductible on our property insurance policies is $25,000 per claim, with higher deductibles and recovery limits applicable to certain other losses, such as wind and flood damage, for properties in certain high-hazard counties. These policies, which generally must be renewed annually, also include coverage for business interruption. See “Risk factors—Risks Related to Our Business—We have risks related to obligations under our insurance programs.”

EMPLOYEES

As of September 30, 2007, we employed 1,931 persons, with 1,511 of those employees representing full-time equivalents. Our home infusion segment employed 732 persons and our home nursing segment employed 1,177 persons. Our employees are not unionized and we believe our relations with our employees are good.

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EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth information regarding our directors, director-nominees and executive officers.


Name	Age	Position
Robert A. Cucuel	48	Chief Executive Officer, President and Director
Mary Jane Graves	45	Chief Financial Officer, Vice President and Secretary
Colleen Lederer	51	Senior Vice President of Professional Services
Nitin Patel	49	Senior Vice President of Operations
Joey Ryan	55	Senior Vice President of Reimbursement and Compliance
William F. Dordelman	66	Director
Samuel P. Frieder	43	Director
Christopher Lacovara	43	Director
Gordon H. Woodward	38	Director

Albert G. Pastino	65	Director-Nominee
E. Anthony Woods	67	Director-Nominee

Robert A. Cucuel has been our Chief Executive Officer, President and a director since October 2006. Prior to joining us, since May 1999, Mr. Cucuel served as Founder, President and Chief Executive Officer of American Homecare Supply, LLC, which was a portfolio company of an affiliate of Kohlberg and provider of respiratory therapy, home medical equipment and infusion therapy. Mr. Cucuel continued to grow American Homecare Supply after it was sold in 2002 (and was renamed Air Products Healthcare) and remained with the company until October 2005. From October 2005 to October 2006, Mr. Cucuel was retired. Mr. Cucuel has over 23 years of experience in the health care industry, including senior level positions at American HomePatient, Home Health Corporation of America, Home Nutritional Services, Inc., Hill-Rom, Inc. and American Hospital Supply. Mr. Cucuel holds a B.S. in accounting and finance from Boston College.

Mary Jane Graves has been our Chief Financial Officer, Vice President and Secretary since September 2006. Prior to joining us, she acted as an independent consultant to American Homecare Supply and Air Products Healthcare in financial and operational capacities from December 2001 to September 2006. From April 2001 to January 2002, Ms. Graves served as the Acting Chief Executive Officer of Superior Renal Care, Inc., a regional multi-facility outpatient dialysis provider, and as its Chief Financial Officer from September 2000 to January 2002. From 1998 to 1999, Ms. Graves was President and Chief Operating Officer of StadtSolutions, LLP, a specialty pharmacy company. From 1996 to 1998, Ms. Graves served first as Chief Financial Officer and then as Executive Vice President of Operations of Stadtlander Drug Distribution. Ms. Graves holds a B.S. degree in Business Administration—Accounting from Tennessee Technological University and is also a C.P.A.

Colleen Lederer has been our Senior Vice President of Professional Services since February 2007. Prior to joining us, she served in many senior roles at Home Health Corporation of America from 1996 until December 2006, including Corporate Vice President of Professional Services (and was responsible for all clinical operations and management) and Chief Compliance Officer. From 1989 to 1995, she was a

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founding partner and owner of a home health staffing and consulting agency in the Philadelphia region. Ms. Lederer holds a diploma nursing degree from the Thomas Jefferson University School of Nursing.

Nitin Patel has been our Senior Vice President of Operations since September 2006. Prior to joining us, Mr. Patel was Chief Procurement and Client Services Officer at Air Products Healthcare from December 1999 to March 2006. Mr. Patel also served as Vice President of Operations for Drugstore.com from September 1999 to December 1999, Area Vice President of Operations for American HomePatient from October 1995 to September 1999 and Vice President of Operations for Home Health Corporation of America from January 1994 to September 1994. Mr. Patel also served as a director for Hastings Consulting from November 1994 to March 1995. Mr. Patel holds a Bachelor of Pharmacy from the University of London and a B.S. in Pharmacy from Ohio Northern University.

Joey Ryan has been our Senior Vice President of Reimbursement and Compliance since May 2007. Prior to joining us, Ms. Ryan held several positions at American Homecare Supply/Air Products Healthcare, including serving as its Vice President of Compliance and Government Relations from December 2005 until November 2006 and as its Senior Vice President of Reimbursement and Compliance from 1999 to December 2005. Prior to this, from 1993 to 1999, Ms. Ryan owned her own consulting company that provided revenue cycle management and process improvement services to the health care industry, and has also held various management positions overseeing billing and reimbursement functions for several other large health care companies in the Philadelphia area. She holds a B.S. in Biology from the University of Missouri and an M.B.A. in Finance from Drexel University. She is also a C.P.A. in Pennsylvania.

William F. Dordelman has served as one our directors since August 2006. Mr. Dordelman is an Operating Principal of Kohlberg and has been affiliated with Kohlberg since 1991. Mr. Dordelman served as Chairman and Chief Executive Officer of Colorado Prime Corporation, a Kohlberg portfolio company, from 1992 to 1998. Prior to that, Mr. Dordelman was Co-Chief Executive Officer of the B. Manischewitz Company, another Kohlberg portfolio company. Prior to joining Kohlberg, Mr. Dordelman was with General Foods for 22 years where he served in various management capacities, including President of the Food Products Division and Group Vice President responsible for the company’s six Packaged Convenience Foods Divisions. He is a member of the board of directors of Nielsen & Bainbridge, Inc. Mr. Dordelman holds a B.A. from the University of Virginia and an M.B.A. from Harvard University.

Samuel P. Frieder has served as one of our directors since August 2006. Mr. Frieder is Co-Managing Partner of Kohlberg and is a member of Kohlberg Management V, L.L.C., the sole general partner of each of the Kohlberg Stockholders. Mr. Frieder joined Kohlberg in 1989 and became a Principal in 1995 and Co-Managing Partner in 2006. From 1988 to 1989 he was a senior associate in the Capital Funding Group at Security Pacific Business Credit. Prior to that, he was a senior real estate analyst at Manufacturers Hanover Trust Company. Mr. Frieder serves on the board of directors of a number of private companies, including Stanadyne Corporation, as well as Kohlberg Capital Corporation and Katy Industries, Inc. Mr. Frieder received an A.B. from Harvard College.

Christopher Lacovara has served as one of our directors since August 2006. Mr. Lacovara is a Co-Managing Partner of Kohlberg and is a member of Kohlberg Management V, L.L.C., the sole general partner of each of the Kohlberg Stockholders. Mr. Lacovara joined Kohlberg in 1988 and was named Principal in 1995 and Co-Managing Partner in 2006. During his tenure at Kohlberg, Mr. Lacovara has been responsible for investing more than $500 million in more than 25 leveraged buyouts and add-on acquisitions. From 1987 to 1988, he was an Associate in the Mergers and Acquisitions Department at Lazard Frères & Company. Prior to that time he was a Financial Analyst in the Corporate Finance

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Department of Goldman, Sachs & Co. Mr. Lacovara serves on the board of directors of a number of private companies, including Stanadyne Corporation, as well as Kohlberg Capital Corporation, where he serves as chairman of the board, and Katy Industries, Inc. Mr. Lacovara received a A.B. in History from Harvard College, a B.E. in Engineering Sciences from Hofstra University and a M.S. in Civil Engineering from Columbia University.

Gordon H. Woodward has served as one our directors since August 2006. Mr. Woodward is a Principal of Kohlberg. He joined Kohlberg in 1996 and became a Principal in 2001. Prior to joining the Firm, Mr. Woodward was a financial analyst at James D. Wolfensohn Incorporated. He is a member of the board of directors of several private companies, including Stanadyne Corporation. Mr. Woodward received an A.B. from Harvard College.

Albert G. Pastino will become a director of our company upon consummation of this offering. He has been Managing Director of Amper Investment Bank since April 2004. Prior to joining Amper, Mr. Pastino served as CFO and Treasurer of DestiNY USA, Inc., the developer of a proposed retail and entertainment complex in Syracuse, New York, from December 2002 until June 2003 and as a private consultant for DestiNY USA, Inc. from June 2003 until April 2004. From May 2002 through November 2002, Mr. Pastino served as CFO and Treasurer at Datatec Systems, Inc., a provider of technology deployment services and software tools. Mr. Pastino is a director of Kohlberg Capital Corporation.

E. Anthony Woods will become a director of our company upon consummation of this offering. He has been Chairman and CEO of Support Source, a health care consulting firm and Chairman of Deaconess Associations, Inc., a healthcare holding company, since February 2003 and was prior President and Chief Executive Officer of Deaconess Associations, Inc., the former parent of Deaconess Enterprises, Inc., from January 1987 through February 2003. Mr. Woods is a director of Cincinnati Financial Corporation and LCA Vision Inc.

We intend to appoint an additional independent director within one year of the consummation of this offering.

CORPORATE GOVERNANCE

Controlled company

We intend to list the shares offered in this offering on the Nasdaq Global Market. For purposes of the Nasdaq rules, we expect to be a “controlled company.” “Controlled companies” under those rules are companies of which more than 50 percent of the voting power is held by an individual, a group or another company. The Kohlberg Stockholders will continue to control more than 50% of the voting power of our common stock upon completion of this offering and are able to elect our entire board of directors. As a result, we will be considered a “controlled company” for the purposes of the Nasdaq listing requirements. As a “controlled company,” we will be permitted to, and we intend to, opt out of the Nasdaq listing requirements that would otherwise require a majority of the members of our board of directors to be independent and require that we either establish a compensation committee and a nominating and governance committee, each comprised entirely of independent directors, or otherwise ensure that the compensation of our executive officers and nominees for directors are determined or recommended to our board by the independent members of our board.

BOARD STRUCTURE AND COMPENSATION

Composition of our board of directors

Upon the consummation of this offering, our board of directors will consist of seven directors. Our amended and restated by-laws will provide that our board of directors will consist of no less than or more than persons. The exact number of members on our board of directors will be

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determined from time to time by resolution of a majority of our full board of directors. Upon consummation of this offering, our board will be divided into classes as described below, with each director serving a -year term and one class being elected at each year’s annual meeting of stockholders. Messrs. , and will serve initially as Class I directors (with a term expiring in ). Messrs. , and will serve initially as Class II directors (with a term expiring in ). Messrs. , and will serve initially as Class III directors (with a term expiring in ).

Committees of the board

Upon consummation of this offering, our board of directors will have an Audit Committee, Compensation Committee and Nominating and Governance Committee. We will be required to have one independent director on our audit committee during the 90-day period beginning on the date of effectiveness of the registration statement filed with the SEC in connection with this offering and of which this prospectus is a part. After such 90-day period and until one year from the date of effectiveness of the registration statement, we are required to have a majority of independent directors on our audit committee. Thereafter, our audit committee is required to be comprised entirely of independent directors. As a controlled company, we are not required to have independent nominating and governance and compensation committees or to have independent members of our board of directors performing the functions of such committees. The following is a brief description of our committees.

Audit Committee. Our Audit Committee assists the board in monitoring the audit of our financial statements, our independent auditors’ qualifications and independence, the performance of our audit function and independent auditors, and our compliance with legal and regulatory requirements. The Audit Committee has direct responsibility for the appointment, compensation, retention (including termination) and oversight of our independent auditors, and our independent auditors report directly to the Audit Committee. The Audit Committee will also review and approve certain related-party transactions.

Messrs. and are expected to be the members of our Audit Committee upon consummation of this offering. Messrs. and qualify as audit committee financial experts under the rules of the SEC implementing Section 407 of the Sarbanes-Oxley Act of 2002. Messrs. and are expected to meet the independence and the experience requirements of the Nasdaq Stock Exchange and the federal securities laws.

Compensation Committee. Our Compensation Committee reviews and recommends policies relating to compensation and benefits of our directors and employees and is responsible for approving the compensation of our Chief Executive Officer and other executive officers. Our Compensation Committee also administers the issuance of awards under our equity incentive plans. Messrs. and are expected to be the members of our Compensation Committee upon consummation of this offering.

Nominating and Governance Committee. Our Nominating and Governance Committee selects or recommends that the board select candidates for election to our board of directors and develops and recommends to the board of directors corporate governance guidelines that are applicable to us and oversees board of directors and management evaluations. Messrs. and are expected to be the members of our Nominating and Governance Committee upon consummation of this offering.

DIRECTOR INDEPENDENCE

We have determined that Messrs. , and are independent as such term is defined by the applicable rules and regulations of the Nasdaq Stock Exchange.

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COMPENSATION DISCUSSION AND ANALYSIS

Compensation program philosophy and objectives

Our primary objective with respect to executive compensation is to provide competitive compensation and benefits to attract, retain, motivate and reward the highest quality executive officers, while supporting our core values and strategic initiatives. A further key objective is to create a pay-for-performance culture such that a substantial portion of each executive officer’s compensation is contingent on, and variable with, achievement of objective corporate financial goals and other objective measures of success.

In addition, we aim to establish compensation plans that align the performance of our executive officers with our business plan and strategic objectives and promote the interests of long-term stockholders by focusing management on achieving strong short-term (annual) performance in a manner that supports and ensures our long-term success and profitability.

Finally, it is a key objective to ensure that compensation provided to executive officers remains reasonable and responsible yet competitive relative to the compensation paid to similarly situated executives at comparable companies. It is essential that our overall compensation levels be sufficiently competitive to attract talented leaders and motivate those leaders to achieve superior results. At the same time, our executive compensation programs are intended to be consistent with our focus on controlling costs.

In addition to rewarding corporate and individual performance, our compensation program is designed to reward the level of responsibility of, and the position undertaken by, an executive officer. Total compensation and accountability should generally increase with position and responsibility. As a result, total compensation is higher for individuals with greater responsibility and greater ability to influence our achievement of targeted results and strategic initiatives. Additionally, as position and responsibility increases, a greater portion of the executive officer’s total compensation is performance-based pay contingent on the achievement of performance objectives. In the same way, equity-based compensation is higher for persons with higher levels of responsibility, making a significant portion of their total compensation dependent on long-term stock appreciation.

The process of setting executive compensation

Our board of directors currently meets after the completion of each fiscal year to evaluate the performance of our named executive officers, to determine each executive’s bonus for the prior fiscal year, to establish the individual and corporate performance objectives for each executive for the current fiscal year, to review each executive’s base salary, to determine the portion of total compensation that will be contingent, performance-based pay, and to consider and approve any grants of equity incentive compensation. Our board of directors also reviews the appropriateness of the performance targets used in incentive plans and the degree of difficulty in achieving specific performance targets. Our board of directors engages in an active dialogue with our Chief Executive Officer and President concerning strategic objectives and performance targets and has not utilized a compensation consultant to date. In connection with this offering, our board of directors formed a Compensation Committee, which will be responsible going forward for many of these tasks.

Together with the performance objectives, our board of directors establishes targeted total compensation levels (i.e. maximum achievable compensation) for each of the named executive officers by determining each named executive officer’s base salary and amount of bonus compensation upon achievement of

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performance targets. In preparing the target amounts, the size of one individual element of compensation does, in some respects, affect the board of directors’ determination of what the targeted amount of other components of compensation should be. For example, each executive’s base pay is used as a basis for calculating a target and maximum bonus opportunities. As a general proposition, the board of directors attempts to determine the overall best mix of fixed and incentive compensation. In making this determination, the board of directors is guided by the compensation philosophy described above. The board of directors considers the compensation at other companies generally, including other portfolio companies owned by Kohlberg, but does not look at the specific compensation programs at such companies, rather they use this information to generally ensure that our compensation programs are competitive. The board of directors does not formally or informally use a group of companies to benchmark the compensation of our executive officers.

We believe that internal pay equity is an important factor to be considered in establishing compensation for our officers. The board of directors has not established a policy regarding the ratio of total compensation of Mr. Cucuel, our Chief Executive Officer and President, to that of the other officers, but it does review compensation levels to ensure that appropriate pay equity exists, which is determined in the board of directors’ discretion based on our board of directors members’ experience with, and knowledge of, other Kohlberg companies’ practices. The board of directors intends to continue to review internal compensation equity.

It is our policy that the board of directors will, to the extent permitted by governing law, have the sole and absolute authority to make retroactive adjustments to any cash or equity based incentive compensation paid to executive officers and certain other officers where the payment was predicated upon the achievement of certain financial results that were subsequently the subject of a restatement. Where applicable, we will seek to recover any amount determined to have been inappropriately received by the individual executive.

Benchmarking

The board of directors does not believe that it is appropriate to establish compensation levels primarily based on benchmarking. While we recognize that our compensation practices must be competitive in the marketplace, first-hand experience with establishing compensation levels in various companies across a range of industries allows us to assess the reasonableness of compensation without formal benchmarking. Annually, we review each named executive officer’s base salary to determine his or her annual raise, and the adequacy of his or her performance based compensation to ensure that our executives are appropriately incentivized.

Management’s role in the compensation-setting process

Our Chief Executive Officer and President, Mr. Cucuel, plays a significant role in the compensation-setting process. Mr. Cucuel evaluates the performance of the other named executive officers, establishes business performance targets and objectives for the other named executive officers and recommends salary and bonus levels and option awards for other executive officers. All recommendations of Mr. Cucuel are subject to approval by the board of directors. The board of directors discusses the recommendations with Mr. Cucuel, as appropriate, and then makes its decisions in its sole discretion. Similarly, Mr. Cucuel’s compensation, performance targets and objectives are discussed among the board of directors; however, Mr. Cucuel does not participate in such decisions, and does not make any recommendations with respect to his compensation levels and/or structure. The board of directors approved Mr. Cucuel’s recommendations for salary and bonus for our executive officers (other than himself) for 2006 and 2007.

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Mr. Cucuel helps the board of directors set its agenda for meetings and will participate in committee meetings at such committee’s request. He provides background information regarding our strategic objectives, evaluates the performance of the senior executive officers, and as mentioned above makes compensation recommendations for senior executive officers (other than himself). Other executives also prepare information for each board of directors meeting.

Elements of executive compensation

Base salary

Base pay provides executives with a base level of regular income. In determining base salaries, we consider the executive’s qualifications, experience and industry knowledge, the quality and effectiveness of their leadership at our company, the scope of their responsibilities and future potential, the goals and objectives established for the executive, the executive’s past performance, the base salary paid to officers in comparable positions at other Kohlberg portfolio companies, internal pay equity and the tax deductibility of base salary. In addition, we consider the other components of executive compensation and the mix of performance pay to total compensation. The board of directors does not apply any specific weighting to these factors. After the completion of each fiscal year, each executive’s past salary and performance are considered and the board of directors decides whether or not to increase salaries.

To compensate each of the executive officers for services performed in connection with this offering, on August 14, 2007, the board of directors approved base salary increases for each of the named executive officers effective as of July 29, 2007: Mr. Cucuel from $360,000 to $425,000; Ms. Graves from $250,000 to $285,000; and Mr. Patel from $180,000 to $200,000.

Bonus plan

We award annual cash bonuses under a bonus plan (which is contained in each named executive officer’s employment agreement) for achievement of specified performance objectives with a time horizon of one year or less. Bonuses are directly tied to the achievement of EBITDA targets established for the year.

The EBITDA targets for the three months ending December 31, 2006 were based on adjusted EBITDA as defined by the bonus plan, as earnings before interest, taxes, depreciation, amortization, management fees and non-cash items. The EBITDA targets for 2007 are based on adjusted EBITDA as defined in our credit facilities. The adjusted EBITDA target includes various adjustments, such as the exclusion of non-cash compensation expense and the inclusion of restructuring and other costs incurred in connection with acquisitions we complete. See “Management’s discussion and analysis of financial condition and results of operations—Adjusted EBITDA.”

Our board of directors determined that for fiscal year 2006 (which included for bonus target purposes only the period from October through December 2006), EBITDA should be determined without reference to adjusted EBITDA as defined in our credit facilities, which definition allows for addbacks for severance, restructuring costs, pro forma adjustments and non-cash items, to provide an incentive to our management to accelerate the integration of our predecessors. However, with the pace and size of acquisitions we completed in 2007, our board of directors determined that the definition of adjusted EBITDA used in our credit facilities would be more appropriate, as the integration of the businesses acquired in fiscal year 2007 would be substantial. Our board of directors recognized that the integration of Deaconess in particular would require the first six months of 2007 and a committed amount of resources to complete. Additionally, the amendment to our credit facilities in July 2007 allowed an add back to adjusted EBITDA for costs related to this offering. Because these recapitalization costs were not budgeted, our board of directors felt the addback was appropriate.

The EBITDA target for the three months ending December 31, 2006 was $1,381,000 and actual EBITDA achieved for fiscal year 2006 was $1,337,000, which was 96.8% of the EBITDA target for 2006. The

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EBITDA target for fiscal year 2007 was set at a level that was designed to be challenging, yet achievable with significant focus on satisfactory industry and regulatory conditions. The board of directors determines the EBITDA targets for each year by taking into account our financial performance. EBITDA targets are equitably adjusted during the year by the board of directors to account for income acquired through our completed acquisitions. The board of directors determines the size of an award that we make to a particular executive by considering his individual position, responsibilities, and leadership role in our company. Each executive is eligible to receive a bonus that is within a percentage range of his or her base salary based on our performance relative to the pre-established targets. We believe the target based bonus system that is directly linked to our achievement of EBITDA targets for a year helps to align the interests of our executive’s with those of the stockholders, focus the management team on specific goals and targets for a year, and ensures that all executives work together as one in the interest of our performance. Our EBITDA targets are established for compensation purposes and do not represent our projected results, but rather are targets for compensation purposes. Our EBITDA targets do not represent an estimate or projection of our future results. Our actual results will be subject to a number of factors, including the successful execution of our business plan, including our ability to identify and consummate successful acquisitions, and the other factors discussed in the “Risk Factors” section of this prospectus.

The bonus opportunity for the named executive officers and other senior executives designated by the board of directors is determined in the following way:

no bonus is payable if we achieve less than 95% of the EBITDA targets;

if we achieve 95% to 99% of the EBITDA targets, the bonus payable is reduced by 1.5% of base salary for each 1.0% that our EBITDA is below our EBITDA target;

target bonus is paid if we achieve 100% the EBITDA targets, with an additional 1.5% of base salary increase in the size of the bonus for each percentage of EBITDA achieved in excess of 100%, up to 109%; and

maximum bonuses are paid if we achieve 110% of the EBITDA targets or greater.

The bonus opportunities for each of our named executive officers are as follows: as established in 2006, the target bonus percentage was 50% of base salary and maximum bonus percentage of 65% of base salary for Mr. Cucuel as Chief Executive Officer and President, the target bonus percentage was 40% of base salary and maximum bonus percentage of 55% of base salary for Ms. Graves as Chief Financial Officer, Vice President and Secretary, and the target bonus percentage was 35% of base salary and maximum bonus percentage of 50% of base salary for Mr. Patel as Senior Vice President of Operations.

Based upon the achievement of EBITDA targets for fiscal year 2006, Mr. Cucuel, Ms. Graves and Mr. Patel received bonuses for fiscal year 2006 equal to $42,500, $22,000 and $14,875, respectively which were paid on June 22, 2007.

Pursuant to his employment agreement, Mr. Cucuel received a signing bonus equal to $150,000, $75,000 which was paid to Mr. Cucuel in 2006 and $75,000 was paid during 2007. Ms. Graves and Mr. Patel, pursuant to each of their employment agreements, received a one-time bonus on February 15, 2007 equal to $50,000 and $20,000, respectively, related to our achievement of revenue targets that were met in fiscal year 2007 (when our consolidated gross revenues exceeded $150.0 million in the aggregate for a trailing pro-forma 12 month period).

Initial public offering bonuses

In December, 2006 we extended loans to Mr. Cucuel, Ms. Graves, and Mr. Patel for amounts equal to $100,000, $50,000 and $25,000, respectively, in connection with their purchases of shares of our

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common stock, see “Certain relationships and related transactions—Loans to Executive Officers.” On August 31, 2007, each of the executives repaid the full amount of such loans including interest. On August 14, 2007, the board of directors approved special one-time bonuses for Mr. Cucuel, Ms. Graves, and Mr. Patel in amounts equal to $400,000, $250,000, and $43,000, respectively that were paid to the executives on August 31, 2007. The bonuses paid to each of the executives were intended to compensate the executives for the repayment of the loans and, with respect to Mr. Cucuel and Ms. Graves, to compensate them for their services performed in connection with this offering.

2006 plan and 2007 plan

We believe that equity compensation is the most effective means of creating a long-term link between the compensation provided to executives and gains realized by our stockholders, as the value of stock-based compensation is dependent upon long-term appreciation in stock price. Accordingly, we believe stock options should be a significant part of the total mix of executive compensation. Under our 2006 Plan and 2007 Plan, all stock options incorporate the following features:

the term of the grant does not exceed 10 years;

the grant price is not less than the fair market value of our common stock on the date of grant; and

options typically vest over four years, with 25% typically vesting on each anniversary of the vesting commencement date. All outstanding options granted under the 2006 Plan will vest upon the consummation of the offering. It is standard practice within Kohlberg’s portfolio companies that options or other equity awards vest upon an initial public offering or other exit event.

In 2006, the board of directors granted options to each of our executive officers under the 2006 Plan. In determining the number of options to be granted to our executives, the board of directors takes into account the individual’s position, scope of responsibility, ability to affect profits and stockholder value, the individual’s performance, the number of options currently held by the individual, and the value of stock options in relation to other elements of total compensation.

We continue to use stock options as a long-term incentive vehicle because:

Stock options align the interests of executives with those of the stockholders, support a pay-for-performance culture, foster employee stock ownership, and focus the management team on increasing value for the stockholders.

Stock options are performance based: all the value received by the recipient from a stock option is based on the growth of the stock price above the option price.

Stock options help to provide a balance to the overall compensation program: while salary and cash bonuses focus on the achievement of annual performance targets, the four year vesting for stock options creates incentive for increases in stockholder value over a longer term.

The vesting period encourages executive retention and the preservation of stockholder value.

Additional benefits

Executive officers participate in other employee benefit plans generally available to all employees on the same terms, such as a 401(k) defined contribution plan.

Severance arrangements

Each named executive officer is entitled to receive severance benefits under to the terms of his or her employment agreement upon termination by us without cause and in the case of Mr. Cucuel also upon a

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resignation with good reason. The severance benefits were negotiated at the time of hire by us and was based on what the board of directors believed was reasonable, but not overly generous severance benefits for each named executive officer. We believe that such severance benefits are an important element of our compensation program and assist us in recruiting and retaining talented individuals. These severance benefits did not influence our determination of other compensation elements, as the severance benefits are designed to reward past service and ensure that we continue to retain our named executive officers, while the other elements of our compensation program are designed to reward the executives for their present and future performance. For details on such severance benefits, see “—Potential Post-Employment Payments Upon Termination or Change in Control.” We do not award additional severance payments in the event of a termination related to a change of control.

Reasonableness of compensation

After considering all components of the compensation paid to the named executive officers in 2006, we considered the total compensation reasonable because:

We considered a variety of factors including, the executive’s level of responsibility, position undertaken and ability to influence our achievement of targeted results and strategic initiatives.

The total compensation levels for the named executive officers are comparable with those of similarly situated executives in comparable companies.

Tax and accounting considerations

We generally seek to maximize the deductibility for tax purposes of all elements of compensation. For example, we have consistently issued nonqualified stock options that will result in a tax deduction to us upon exercise. Section 162(m) of the Code generally disallows a tax deduction to public corporations for non-qualifying compensation in excess of $1.0 million paid in any fiscal year to its chief executive officer and the three other officers (other than the principal financial officer) whose compensation is disclosed in the proxy statement. The board of directors reviews compensation plans in light of applicable tax provisions, including Section 162(m), and may revise compensation plans from time to time to maximize deductibility. However, the board of directors may approve compensation that does not qualify for deductibility when we deem it to be in our best interests.

SUMMARY COMPENSATION TABLE FOR FISCAL YEAR 2006

The following table sets forth the cash and non-cash compensation paid by us or incurred on our behalf to our named executive officers during 2006, our last completed fiscal year.


Name and Principal Position(1)	Year	Salary ($)(2)	One Time Bonus ($)(3)	Non-Equity Incentive Plan Compensation ($)(4)	Option Awards ($)(5)	All Other Compensation ($)(6)	Total ($)
Robert A. Cucuel(7) Chief Executive Officer and President	2006	58,846	150,000	42,500	16,778	5,446	273,570
Mary Jane Graves Chief Financial Officer, Vice President and Secretary	2006	54,153	—	22,000	5,383	11,901	93,437
Nitin Patel Senior Vice President of Operations	2006	41,846	—	14,875	2,703	6,806	66,230

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(1)

Compensation information for Colleen Lederer, Senior Vice President of Professional Services, and Joey Ryan, Senior Vice President of Compliance and Reimbursement, is omitted from this table because these named executive officers were only employed by us during fiscal year 2007.

(2)

This reflects total base salary paid to each of the executives from October 19, 2006 through December 31, 2006 and is not an annual base salary.

(3)

Represents a signing bonus for Mr. Cucuel, payable pursuant to his employment agreement. $75,000 was paid in 2006 upon his commencement of employment and $75,000 was paid on February 15, 2007.

(4)

Represents awards made pursuant to Bonus Plans and earned during 2006.

(5)

Represents the compensation cost of stock options recognized for financial statement reporting purposes with respect to the last fiscal year in accordance with SFAS No. 123(R). These amounts do not correspond to the actual value that will be recognized by our named executive officers for these awards. See Note 13 in our audited financial statements included elsewhere in this prospectus for the assumptions made in determining these values.

(6)

Represents medical reimbursements and car allowances for each of the executives and, for Ms. Graves, it also represents $8,185 for relocation expenses.

(7)

Mr. Cucuel is also a member of our board of directors but does not receive any additional compensation for his services in this capacity.

GRANTS OF PLAN BASED AWARDS TABLE FOR FISCAL YEAR 2006

Estimated Future Payouts
Under Non-Equity
Incentive Plan Awards (1)

All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)(f)

Exercise
or Base
Price of
Option
Awards
($/Sh)(g)

Grant Date
Fair Value
of Stock
and Option
Awards (h)

Name (a)

Grant Date
(b)

Threshold
($)(c)

Target
($)(d)

Maximum
($)(e)

Robert A. Cucuel

10/16/2006

170,000

221,000

Robert A. Cucuel

12/6/2006

1,800,000

1.00

Mary Jane Graves

9/19/2006

88,000

121,000

Mary Jane Graves

12/6/2006

577,500

1.00

Nitin Patel

9/19/2006

59,500

85,000

Nitin Patel

12/6/2006

290,000

1.00

(1)

For a description of the material terms of these awards, see “—Compensation Discussion and Analysis—Elements of executive compensation—Bonus plan.” These bonus payments are based on 2006 salaries. Such salaries have since increased.

EMPLOYMENT AGREEMENTS

We have entered into an employment agreement with each of our named executive officers. Each agreement contains confidentiality provisions, and non-competition and non-solicitation covenants applicable during the term of employment and post-termination of employment. Each agreement provides us with the option to extend the term of the non-competition restrictions in exchange for providing the executive with additional severance benefits.

Robert A. Cucuel

Mr. Cucuel’s employment agreement with us provides that Mr. Cucuel will continue to serve as our Chief Executive Officer and as a member of the board of directors until his employment is terminated by

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us or by Mr. Cucuel, which may be at any time, with or without cause, or upon the expiration of his employment term on October 6, 2012, if earlier. The agreement contains a covenant not to engage in any business that competes with us in certain geographic locations, during the term of his employment and during any 12 month period that Mr. Cucuel is receiving severance benefits or for a period 12 months in the event of his voluntary termination, and a covenant not to solicit our officers during the term of his employment and for a period of 12 months thereafter.

Mr. Cucuel is entitled to receive an annual base salary of $425,000. In accordance with the terms of his employment agreement and the bonus program described therein, Mr. Cucuel is eligible for an annual target bonus equal to 50% of his base salary with a maximum bonus opportunity of 65% of his base salary, subject to the achievement of performance targets, for the relevant year. For fiscal year 2006, Mr. Cucuel received an annual bonus of $42,500 which was paid on June 22, 2007. Pursuant to his employment agreement, Mr. Cucuel received a signing bonus of $150,000, $75,000 which was paid upon his commencement of employment and $75,000 was paid on February 15, 2007. Mr. Cucuel was granted 4,480,000 options to purchase shares of our common stock pursuant to our 2006 Plan (1,800,000 options were granted during fiscal year 2006 and the remainder were granted during fiscal year 2007). Additionally, Mr. Cucuel is eligible to receive options to purchase our shares equal to 50% of any increase in the option pool following his commencement of employment prior to an initial public offering. Mr. Cucuel was eligible to receive a loan from us for $500,000 to purchase shares of our common stock on October 16, 2006. We extended him a loan for $100,000, which loan has been repaid. See “Certain relationships and related transactions—Loans to Executive Officers.” Mr. Cucuel participates generally in all of our employee benefit plans including a 401(k) plan (adopted in 2007) and is entitled to a monthly car allowance of $1,250. Mr. Cucuel is entitled to four weeks of paid vacation per year.

Mary Jane Graves

Ms. Graves’s employment agreement with us provides that Ms. Graves will continue to serve as our Vice President and Chief Financial Officer until her employment is terminated by us or by Ms. Graves, which may be at any time, with or without cause, or earlier if her employment is not renewed pursuant to a notice of non-renewal at least 30 days prior to September 19, 2008, or each successive one-year period. The agreement contains a covenant not to engage in any business that competes with us in certain geographic locations, during the term of her employment and for any 12 month period that Ms. Graves is receiving severance benefits, or a 12 month period in the event of her voluntary termination, and a covenant not to solicit our officers during the term of her employment and for a period of 12 months thereafter.

Ms. Graves is entitled to receive an annual base salary of $285,000 and she received a one time bonus of $50,000 on February 15, 2007 because our consolidated gross revenues exceeded $150.0 million in the aggregate for a pro forma trailing twelve month period. In accordance with the terms of her employment agreement and the bonus program described therein, Ms. Graves is eligible for an annual target bonus equal to 40% of her base salary with a maximum bonus opportunity of 55% of her base salary, subject to the achievement of performance targets for the relevant year. For fiscal year 2006, Ms. Graves received a bonus of $22,000 which was paid on June 22, 2007. Ms. Graves was granted 1,677,500 options to purchase shares of our common stock pursuant to our 2006 Plan (577,500 options were granted in fiscal year 2006 and the remainder were granted during 2007). Ms. Graves was eligible to purchase up to 150,000 shares for a 90 day period following her commencement of employment and entitled to borrow up to $75,000 from us to pay for such shares. We extended her a loan for $50,000, which loan has been repaid. See “Certain relationships and related transactions—Loans to Executive Officers.” Ms. Graves participates generally in all of our employee benefit plans including a 401(k) plan

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(adopted in 2007) and is entitled to a monthly car allowance of $1,000. Ms. Graves is entitled to four weeks of paid vacation per year. Ms. Graves is eligible for reimbursement by us for up to $30,000 for relocation expenses associated with her move to the Philadelphia area.

Nitin Patel

Mr. Patel’s employment agreement with us provides that Mr. Patel will continue to serve as our Senior Vice President of Operations, until his employment is terminated by us or by Mr. Patel, which may be at any time, with or without cause, or earlier if his employment is not renewed pursuant to a notice of non-renewal at least 30 days prior to September 19, 2008, or each successive two year period. The agreement contains a covenant not to engage in any business that competes with us in certain geographic locations, during the term of his employment and for any nine month period Mr. Patel is receiving severance benefits, or a 12 month period in the event of his voluntary termination, and a covenant not to solicit our officers during the term of his employment and for a period of 12 months thereafter.

Mr. Patel is entitled to receive an annual base salary of $200,000 and he received a one time bonus of $20,000 on February 15, 2007 because our consolidated gross revenues exceeded $150.0 million in the aggregate for a pro forma trailing twelve month period. In accordance with the terms of his employment agreement and the bonus program described therein, Mr. Patel is eligible for an annual target bonus equal to 35% of his base salary with a maximum annual bonus opportunity of 50% of his base salary, subject to the achievement of performance targets for the relevant year. For fiscal year 2006, Mr. Patel received an annual bonus of $14,875 which was paid on June 22, 2007. Mr. Patel was granted 625,000 options to purchase shares of our common stock pursuant to our 2006 Plan (290,000 options were granted in fiscal year 2006 and the remainder were granted during fiscal year 2007). Additionally, Mr. Patel was eligible to purchase up to 100,000 shares of our common stock for a 90 day period following his commencement of employment and was eligible to borrow up to $50,000 from us to pay for such shares. We extended him a loan for $25,000, which loan has been repaid. See “Certain relationships and related transactions—Loans to Executive Officers.” Mr. Patel participates generally in all employee benefit plans including a 401(k) plan (adopted in 2007) and is entitled to a monthly car allowance of $1,000. Mr. Patel is entitled to four weeks of paid vacation per year.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE


	Option Awards(3)
	Number of Securities Underlying Unexercised Options(1)		Option Exercise Price ($)(2)	Grant Date	Option Expiration Date
Name	Exercisable (#)	Unexercisable (#)	Option Exercise Price ($)(2)	Grant Date	Option Expiration Date
Robert A. Cucuel	0	1,800,000	1.00	12/06/06	12/06/16
Mary Jane Graves	0	577,500	1.00	12/06/06	12/06/16
Nitin Patel	0	290,000	1.00	12/06/06	12/06/16

(1)

These options were awarded pursuant to the Nonqualified Stock Option Agreements entered into by each of our named executive officers on December 6, 2006 under our 2006 Plan. Under these agreements, 25% of the total options granted are exercisable on each of the first, second, third & fourth anniversaries of the vesting commencement date, December 6, 2006. Upon the occurrence of a company transaction (which includes the consummation of this offering), all outstanding unvested options will immediately become fully vested and exercisable. If the named executive officer’s employment is terminated for any reason, the unvested portion of his or her stock option will expire on the date he or she is terminated. The vested portion of his or her stock options will remain

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exercisable until the expiration of the option period, 12 months after termination due to death or disability or 180 days after any other termination other than by us for cause; provided however that, if the fair market value of the vested options is less than exercise price on the date of termination, such vested stock options will immediately terminate. If the named executive officer is terminated for cause, all outstanding vested and unvested options will immediately terminate.

(2)

The Stock Option exercise price was based on the fair market value on the date of grant as determined by the board of directors using the Black-Scholes option-pricing model.

(3)

No options were exercised during fiscal year 2006.

POTENTIAL POST-EMPLOYMENT PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

The employment of each named executive officer may be terminated by us or by the executive at any time, with or without cause, subject to the provisions of his or her employment agreement. Each named executive officer is entitled to receive severance benefits pursuant to the terms of his or her employment agreement upon termination by us without cause, or in the case of Mr. Cucuel, also upon his resignation for good reason. A named executive officer is not eligible for benefits if his or her termination is due to death or permanent disability.

A termination for “good reason” means a material breach by us of Mr. Cucuel’s employment agreement.

A termination for “cause” includes any of the following actions by the executive: a material breach of the executive’s employment agreement; willful failure to comply with the directives of the board of directors, which failure continues after notice and a 30 day opportunity to cure; gross negligence or willful misconduct in the performance of his or her duties; theft or embezzlement of our property, or any other act including but not limited to a felony or crime involving moral turpitude, that is injurious in any significant respect to our property, operations, business or reputation;

The executives’ employment agreements do not provide any right to receive a “gross up”, in the event that any severance payments would be subject to the excise tax imposed by Section 4999 of the Code, or any other federal, state and local income.

Upon a termination of any of the executive officers by us without cause, or in the case of Mr. Cucuel by him for good reason, each of the executive officers will be entitled to continued payment of his or her base salary for period of either 12 or nine months.

Upon any termination, Mr. Cucuel, will be entitled to continued health insurance benefits and car allowance benefits for the 12 month period that Mr. Cucuel is receiving severance benefits following termination.

If there is a company transaction, the vesting of any unvested stock options granted to each executive officer shall accelerate and become immediately exercisable. A company transaction is defined as the consummation of (i) a merger or consolidation that results in a transfer or change of ownership of more than 50% of the voting power, (ii) a sale of all of the voting power, (iii) sale, lease or exchange of all or substantially all of our assets, or (iv) an initial public offering. Because a company transaction includes an initial public offering, all outstanding unvested stock options held by each of the named executive officers shall accelerate and vest upon the consummation of this offering. However, upon the occurrence of a company transaction, we may provide for an automatic cancellation of the options in exchange for the payment to the executive of the excess, if any, of the consideration received per share in the company transaction over the exercise price of the option.

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According to the terms of each named executive officers’ Nonqualified Stock Option Agreement, if their employment is terminated for any reason, the unvested portion of their stock option will expire on the date they are terminated. The vested portion of the stock option will remain exercisable for 180 days following the executive’s termination, one year in the case of termination due to death or disability, or the expiration of the option period. However, if the exercise price of the option is above the fair market value of the option on the date of the executive’s termination then the option shall immediately expire, whether vested or unvested. In the event that an executive is terminated by us for cause, we have the right to repurchase common stock and options from the executive.

Robert A. Cucuel

If Mr. Cucuel’s employment is terminated, either by us without cause or by him for good reason, he will be entitled to the continuation of his then current annual salary for the lesser of 12 months or the number of months until October 16, 2016, and the continuation of his health insurance and car allowance benefits for the same period.

In accordance with the terms of the Nonqualified Stock Option Agreements entered into by Mr. Cucuel, the stock options granted to him will immediately become fully vested and exercisable upon a company transaction, which includes the consummation of this offering. The stock options granted to Mr. Cucuel on December 6, 2006, shall also immediately become fully vested and exercisable if there is a merger or acquisition that does not result in a company transaction but results in the executive’s termination for good reason, or upon the event of our dissolution or liquidation.

Mary Jane Graves

If Ms. Graves’s employment is terminated without cause, she will be entitled to the continuation of her then current annual salary 12 months and the continuation of her health insurance benefits for the same period.

In accordance with the terms of the Nonqualified Stock Option Agreements entered into by Ms. Graves, the stock options granted to her will immediately become fully vested and exercisable upon a company transaction, which includes the consummation of this offering.

Nitin Patel

If Mr. Patel’s employment is terminated, without cause, he will be entitled to the continuation of his then current annual salary for nine months. In accordance with his employment agreement, Mr. Patel is not eligible for post-employment health insurance benefits.

In accordance with the terms of the Nonqualified Stock Option Agreements entered into by Mr. Patel, the stock options granted to him will immediately become fully vested and exercisable upon a company transaction, which includes the consummation of this offering.

Termination payments

The following table sets forth the payments each of our named executive officers would have received if their employment had been terminated by us without cause on December 31, 2006 and there was no company transaction.

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Name	Benefit	Amount Payable for Termination Without Cause
Robert A. Cucuel	Cash Severance	$	340,000
	Medical Benefits		13,594
	Car Allowance		15,000
	Option Acceleration Value		—
Mary Jane Graves	Cash Severance	$	220,000
	Medical Benefits		2,691
	Option Acceleration Value		—
Nitin Patel	Cash Severance	$	127,500
	Medical Benefits		—
	Option Acceleration Value		—

DIRECTOR COMPENSATION TABLE FOR FISCAL YEAR 2006


Name	Fees Earned or Paid in Cash ($)(1)		Option Awards ($)(2)	Total ($)
William F. Dordelman	$	4,166.67	—	$	4,166.67
Samuel P. Frieder		—	—		—
Christopher Lacovara		—	—		—
Gordon H. Woodward		—	—		—
Robert A. Cucuel		—	—		—

(1)

Represents fees earned during fiscal year 2006 for serving on our board of directors.

(2)

No options were awarded to any of the directors during fiscal year 2006.

OTHER EMPLOYMENT AGREEMENTS

Colleen Lederer

Ms. Lederer’s employment agreement with us provides that Ms. Lederer will continue to serve as our Senior Vice President of Professional Services, until her employment is terminated by us or by Ms. Lederer, which may be at any time, with or without cause, or earlier if her employment is not renewed pursuant to a notice of non-renewal at least 30 days prior to February 1, 2009, or each successive one year period. The agreement contains a covenant not to engage in any business that competes with us in certain geographic locations, during the term of her employment and for any period Ms. Lederer is receiving severance benefits, or a 12 month period in the case of a voluntary termination by Ms. Lederer, and a covenant not to solicit our officers during the term of her employment and for a period of 12 months thereafter.

Ms. Lederer is entitled to receive an annual base salary of $210,000. In accordance with the terms of her employment agreement and the bonus programs described therein, Ms. Lederer is eligible for a quarterly bonus of $10,000 based upon the achievement of certain targets and metrics established by the board of directors and an annual target bonus equal to 35% of her base salary with a maximum annual bonus opportunity of 50% of her base salary, subject to the achievement of performance targets, for the relevant year. Ms. Lederer was granted 290,000 options to purchase shares of our common stock pursuant to our 2006 Plan. Ms. Lederer participates in all employee benefit plans including a 401(k) plan (adopted in 2007) and is entitled to a monthly car allowance of $1,000. Ms. Lederer is entitled to four weeks of paid vacation per year.

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If Ms. Lederer’s employment is terminated without cause, she will be entitled to the continuation of her then current annual salary 12 months and the continuation of her health insurance benefits for the same period.

In accordance with the terms of the Nonqualified Stock Option Agreement entered into by Ms. Lederer, the stock options granted to her will immediately become fully vested and exercisable upon a company transaction, which includes the consummation of this offering.

Joey Ryan

Ms. Ryan’s employment agreement with us provides that Ms. Ryan will continue to serve as our Senior Vice President of Compliance and Reimbursement, until her employment is terminated by us or by Ms. Ryan, which may be at any time, with or without cause, or earlier if her employment is not renewed pursuant to a notice of non-renewal at least 30 days prior to May 21, 2009, or each successive one year period. The agreement contains a covenant not to engage in any business that competes with us in specific geographic locations, during the term of her employment and for any period Ms. Ryan is receiving severance benefits, or a 12 month period in the case of a voluntary termination by Ms. Ryan, and a covenant not to solicit our officers during the term of her employment and for a period of 12 months thereafter.

Ms. Ryan is entitled to receive an annual base salary of $200,000. In accordance with the terms of her employment agreement and the bonus program described therein, Ms. Ryan is eligible for an annual target bonus equal to 35% of her base salary with a maximum bonus opportunity of 50% of her base salary, subject to the achievement of EBITDA performance targets. Ms. Ryan was granted 470,000 options to purchase shares of our common stock pursuant to our 2006 Plan. Ms. Ryan participates in all employee benefit plans including a 401(k) plan (adopted in 2007) and is entitled to a monthly car allowance of $1,000. Ms. Ryan is entitled to four weeks of paid vacation per year. Ms. Ryan is also eligible for reimbursement for the monthly costs of her cell phone, the cost of maintaining her CPA license and annual fees for her USAirways club membership used in connection with business travel.

If Ms. Ryan’s employment is terminated without cause, she will be entitled to the continuation of her then current annual salary 12 months. In accordance with her employment agreement, Ms. Ryan is not eligible for post-employment health insurance benefits.

In accordance with the terms of the Nonqualified Stock Option Agreement entered into by Ms. Ryan, the stock options granted to her will immediately become fully vested and exercisable upon a company transaction, which includes the consummation of this offering.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

None of our executive officers serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers who serve on our board of directors or compensation committee.

INCENTIVE PLANS

The 2006 plan

We adopted our 2006 Plan effective September 19, 2006. The purpose of the 2006 Plan is to attract, retain, and motivating persons of outstanding ability by providing them with a proprietary interest in us and to link their interests with the long terms interests of our stockholders. As of June 30, 2007, there

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are nonqualified options outstanding under the 2006 Plan to acquire an aggregate of 8,931,000 shares of our common stock that were granted at an exercise price per share equal to the fair market value of a share on the date of grant.

Administration. The 2006 Plan is administered by our board or such other committee as may be appointed by our board with responsibility for the administration of the 2006 Plan. We expect that the compensation committee will administer the 2006 Plan following the completion of the offering. The 2006 Plan administrator will have the sole and complete authority to determine who will be granted an award under the 2006 Plan and the terms and conditions of any agreements evidencing any awards granted under our 2006 Plan. The 2006 Plan administrator will have full discretion to administer and interpret the 2006 Plan and to adopt such rules, regulations and procedures as it deems necessary or advisable and to determine, among other things, the time or times at which the awards may be exercised, whether and under what circumstances an award may be exercised, and to correct any defect or supply any omission or reconcile any inconsistency in the 2006 Plan.

Eligibility. Any of our employees, non-employee directors, officers, consultants, agents, advisors or independent contractors of bona fide services rendered, or of our subsidiaries or their respective affiliates will be eligible for awards under our 2006 Plan.

Number of Shares Authorized. The 2006 Plan provides for an aggregate of 10,000,000 shares of our common stock to be available for awards, subject to certain anti-dilution protection that shall be of no further force or effect following the completion of this offering. If any award is forfeited or if any option terminates, expires or lapses without being exercised, shares of our common stock subject to such award will again be made available for future grant. If there is any change in our corporate capitalization, the 2006 Plan administrator in its sole discretion may make substitutions or adjustments to the number of shares reserved for issuance under the 2006 Plan, the number of shares covered by awards then outstanding under our 2006 Plan, the limitations on awards under the 2006 Plan, and such other equitable substitution or adjustments as it may determine appropriate.

Term of the Plan. The 2006 Plan has no definitive expiration date. No further awards may be granted after the 2006 Plan is terminated in accordance with the terms of the 2006 Plan.

Awards Available for Grant. The 2006 Plan administrator may grant awards of nonqualified stock options, incentive (qualified) stock options, or any combination of the foregoing.

Term of Options. Unless otherwise determined by the 2006 Plan administrator and set forth in a grant letter, options granted under the 2006 Plan shall terminate on the 10th anniversary of the date of grant, subject to earlier termination in the event of termination of employment.

Vesting of Options. Unless otherwise determined by the 2006 Plan administrator, options shall vest over four years, with 25% vesting on each of the first, second, third and fourth anniversaries of the date of grant. Vested options granted under the 2006 Plan may be exercised in accordance with their terms.

Options. The 2006 Plan administrator will be authorized to grant options to purchase shares of common stock that are either “qualified,” meaning they are intended to satisfy the requirements of Section 422 of Code for incentive stock options, or “non-qualified,” meaning they are not intended to satisfy the requirements of Section 422 of the Code. Under the terms of our 2006 Plan, the exercise price of the options will not be less than the fair market value of our common stock at the time of grant. Options granted under the 2006 Plan will be subject to such terms, including the exercise price and the conditions and timing of exercise, as may be determined by the 2006 Plan administrator and specified in

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the applicable award agreement. The maximum term of an option granted under the 2006 Plan will be ten years from the date of grant (or five years in the case of a qualified option granted to a 10% stockholder). Payment in respect of the exercise of an option may be made in cash or by check, by surrender of shares of common stock, or to the extent permitted by law, allow such payment to be made through a broker-assisted cashless exercise mechanism or by such other method as the 2006 Plan administrator may determine to be appropriate.

Transferability. Each award may be exercised during the participant’s lifetime only by the participant or, if permissible under applicable law, by the participant’s guardian or legal representative and may not be otherwise transferred or encumbered by a participant other than by will or by the laws of descent and distribution.

Amendment. Our board of directors in its sole discretion may amend, suspend or terminate the 2006 Plan at any time; however, stockholder approval to amend our 2006 Plan may be necessary if the law so requires. No amendment, suspension or termination will impair the rights of any participant or recipient of any previously granted award without the consent of the participant or recipient.

Company Transaction. In the event of a company transaction (as defined in the 2006 Plan), which includes the consummation of this offering, all outstanding options issued under the 2006 Plan shall become fully vested and exercisable, and all restrictions limitations and forfeiture provisions shall lapse. The 2006 Plan administrator may, in its sole discretion, cancel outstanding options and pay the value to the participants of the excess, if any, of the per share consideration received in connection with the company transaction over the exercise price of the option. The 2006 Plan administrator may, in its discretion with the consent of the successor company (as defined in the 2006 Plan), substitute outstanding options with common stock of the successor company substantially equal to the fair market value of the per share consideration received in the company transaction, which includes the consummation of this offering. The 2006 Plan administrator shall have the discretion to take such further action necessary or advisable with respect to options at any time before a sale, merger, consolidation, reorganization, liquidation, dissolution or change in control as defined by the 2006 Plan administrator.

The 2007 plan

The purpose of our 2007 Plan is to give us a competitive edge in attracting, retaining and motivating employees, directors and consultants and to provide us with a stock plan providing incentives directly related to increases in our stockholder value.

Administration. Our compensation committee will administer our 2007 Plan. The committee will have the authority to determine the terms and conditions of any agreements evidencing any awards granted under our 2007 Plan and to adopt, alter and repeal rules, guidelines and practices relating to our 2007 Plan. Our compensation committee will have full discretion to administer and interpret the 2007 Plan and to adopt such rules, regulations and procedures as it deems necessary or advisable and to determine, among other things, the time or times at which the awards may be exercised and whether and under what circumstances an award may be exercised.

Eligibility. Any of our employees, directors, officers or consultants or of our subsidiaries or their respective affiliates will be eligible for awards under our 2007 Plan. Our compensation committee has the sole and complete authority to determine who will be granted an award under the 2007 Plan.

Number of Shares Authorized. The 2007 Plan provides for an aggregate of shares of our common stock to be available for awards. No more than shares of our common stock may be

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issued to any participant during any single year with respect to incentive stock options under our 2007 Plan. No participant may be granted awards of options and stock appreciation rights with respect to more than shares of our common stock in any one year. No more than shares of our common stock may be granted under our 2007 Plan to any participant during any single year with respect to performance compensation awards in any one performance period. The maximum amount payable pursuant to a cash bonus for an individual employee or officer under our 2007 Plan for any single year during a performance period is $1.0 million. If any award is forfeited or if any option terminates, expires or lapses without being exercised, shares of our common stock subject to such award will again be made available for future grant. If there is any change in our corporate capitalization, the compensation committee in its sole discretion may make substitutions or adjustments to the number of shares reserved for issuance under our 2007 Plan, the number of shares covered by awards then outstanding under our 2007 Plan, the limitations on awards under our 2007 Plan, the exercise price of outstanding options and such other equitable substitution or adjustments as it may determine appropriate.

The 2007 Plan will have a term of ten years and no further awards may be granted after that date.

Awards Available for Grant. The compensation committee may grant awards of non-qualified stock options, incentive (qualified) stock options, stock appreciation rights, restricted stock awards, restricted stock units, stock bonus awards, performance compensation awards (including cash bonus awards) or any combination of the foregoing.

Options. The compensation committee will be authorized to grant options to purchase shares of common stock that are either “qualified,” meaning they are intended to satisfy the requirements of Section 422 of the Code for incentive stock options, or “non-qualified,” meaning they are not intended to satisfy the requirements of Section 422 of the Code. Options granted under our 2007 Plan will be subject to the terms and conditions established by the compensation committee. Under the terms of our 2007 Plan, unless the compensation committee determines otherwise, the exercise price of the options will not be less than the fair market value of our common stock at the time of grant. Options granted under the 2007 Plan will be subject to such terms, including the exercise price and the conditions and timing of exercise, as may be determined by our compensation committee and specified in the applicable award agreement. The maximum term of an option granted under the 2007 Plan will be ten years from the date of grant (or five years in the case of a qualified option granted to a 10% stockholder). Payment in respect of the exercise of an option may be made in cash or by check, by surrender of unrestricted shares (at their fair market value on the date of exercise) that have been held by the participant for at least six months or have been purchased on the open market, or the compensation committee may, in its discretion and to the extent permitted by law, allow such payment to be made through a broker-assisted cashless exercise mechanism or by such other method as our compensation committee may determine to be appropriate.

Stock Appreciation Rights. Our compensation committee will be authorized to award stock appreciation rights under the 2007 Plan. SARs will be subject to the terms and conditions established by the compensation committee. A SAR is a contractual right that allows a participant to receive, either in the form of cash, shares or any combination of cash and shares, the appreciation, if any, in the value of a share over a certain period of time. An option granted under the 2007 Plan may include SARs and SARs may also be awarded to a participant independent of the grant of an option. SARs granted in connection with an option shall be subject to terms similar to the option corresponding to such SARs. The terms of the SARs shall be subject to terms established by the compensation committee and reflected in the award agreement.

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Restricted Stock. Our compensation committee will be authorized to award restricted stock under the 2007 Plan. Awards of restricted stock will be subject to the terms and conditions established by the compensation committee. Restricted stock is common stock that generally is non-transferable and is subject to other restrictions determined by the compensation committee for a specified period. Unless the compensation committee determines otherwise or specifies otherwise in an award agreement, if the participant terminates employment or services during the restricted period, then any unvested restricted stock is forfeited.

Restricted Stock Unit Awards. Our compensation committee will be authorized to award restricted stock unit awards. Restricted stock unit awards will be subject to the terms and conditions established by the compensation committee. Unless the compensation committee determines otherwise, or specifies otherwise in an award agreement, if the participant terminates employment or services during the period of time over which all or a portion of the units are to be earned, then any unvested units will be forfeited. At the election of the compensation committee, the participant will receive a number of shares of common stock equal to the number of units earned or an amount in cash equal to the fair market value of that number of shares at the expiration of the period over which the units are to be earned or at a later date selected by the compensation committee.

Stock Bonus Awards. Our compensation committee will be authorized to grant awards of unrestricted shares of our common stock, either alone or in tandem with other awards, under such terms and conditions as the compensation committee may determine.

Performance Compensation Awards. The compensation committee may grant any award under the 2007 Plan in the form of a performance compensation award by conditioning the vesting of the award on the satisfaction of certain performance goals. The committee may establish these performance goals with reference to one or more of the following:

net earnings or net income (before or after taxes);

basic or diluted earnings per share (before or after taxes);

gross profit or gross profit growth;

net operating profit (before or after taxes);

return measures (including, but not limited to, return on assets, capital, invested capital, equity or sales);

cash flow (including, but not limited to, operating cash flow, free cash flow and cash flow return on capital);

earnings before or after taxes, interest, depreciation, and amortization;

gross or operating margins;

productivity ratios;

share price (including, but not limited to, growth measures and total stockholder return);

expense targets;

margins;

operating efficiency;

working capital targets;

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enterprise value;

sales;

stockholder return;

competitive market metrics;

earnings per share;

objective measures of personal targets, goals or completion of projects; or

any combination of the foregoing.

Amendment. Our 2007 Plan will have a term of ten years. Our board of directors may amend, suspend or terminate our 2007 Plan at any time; however, stockholder approval to amend our 2007 Plan may be necessary if the law so requires. No amendment, suspension or termination will impair the rights of any participant or recipient of any award without the consent of the participant or recipient.

Change in Control. In the event of a change in control (as defined in the 2007 Plan), all outstanding options and equity awards (other than performance compensation awards) issued under the 2007 Plan will become fully vested and performance compensation awards will vest, as determined by the compensation committee, based on the level of attainment of the specified performance goals. The compensation committee may, in its discretion, cancel outstanding awards and pay the value of such awards to the participants in connection with a change in control. The compensation committee can also provide otherwise in an award agreement under the plan.

Cash incentive plan

Prior to the consummation of this offering, we expect to adopt a Cash Incentive Plan for certain of our executives. The purpose of the Cash Incentive Plan is to promote our success by (i) compensating and rewarding participating executives with cash bonuses for the achievement of performance targets with respect to a specified performance period and (ii) motivating such executives by giving them opportunities to receive bonuses directly related to such performance. The Cash Incentive Plan is generally intended to provide bonuses that qualify as performance-based compensation within the meaning of Section 162(m) of the U.S. Internal Revenue Code of 1986, as amended, which we refer to as the Code. The following description is a summary of certain provisions thereof and is qualified in its entirety by the reference to the Cash Incentive Plan that was filed as an exhibit to the registration statement of which this prospectus is a part and which we incorporate by reference into this document.

Section 162(m) of the Code generally provides that we may not take a federal income tax deduction for compensation in excess of $1.0 million paid to certain executive officers in any one year. Certain performance-based compensation is exempt from this limit. Specifically, Section 162(m) of the Code does not preclude us from taking a federal income tax deduction for certain qualifying performance-based compensation paid to an executive officer in a year even if that compensation exceeds $1.0 million. The Cash Incentive Plan is structured to satisfy the requirements for performance-based compensation within the meaning of Section 162(m) of the Code and related IRS regulations. Section 162(m) requires that

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Executive compensation

certain material terms of the Cash Incentive Plan, including our performance criteria and maximum amounts payable, be approved by our stockholders.

Administration. The Cash Incentive Plan will be administered by our compensation committee, which will be selected by our board of directors and will be composed of two or more members of our board, each of whom will be required to be an “outside director” within the meaning of Section 162(m) of the Code. Our compensation committee will have all the authority that may be necessary or helpful to enable it to discharge its responsibilities with respect to the Cash Incentive Plan, including authority to determine eligibility for participation, establish the maximum award that may be earned by each participant, which may be expressed in terms of dollar amount, percentage of salary or any other measurement, establish goals for each participant, establish the applicable performance period, calculate and determine each participant’s level of attainment of these goals and calculate an award for each participant based upon such level of attainment. Except as otherwise specifically stated in the Cash Incentive Plan, our compensation committee will have full power and authority to construe, interpret and administer the Cash Incentive Plan.

Eligibility. The Cash Incentive Plan provides that our compensation committee will designate the officers and other key executives who will be eligible for awards for the performance period during which performance is measured. A performance period is any period of at least 12 months as determined by our compensation committee.

Bonus Awards and Performance Goals. For each performance period, our compensation committee will establish a maximum award (and, if our compensation committee so determines, a target and/or threshold award) and performance goals for each participant. Performance goals may relate to our performance, the performance of one or more of our subsidiaries, divisions or departments and/or performance specific to the participants’ function. Our compensation committee will communicate these performance goals to each participant prior to or during the applicable performance period. Participants will earn awards only upon the attainment of the applicable performance goals during the applicable performance period as and to the extent established by our compensation committee.

The performance goals for participants will be based on attainment of specific levels of our performance and/or the performance of our subsidiaries, divisions or departments and/or functional performance, as applicable, with reference to one or more of the following performance criteria:

net earnings or net income (before or after taxes);

basic or diluted earnings per share (before or after taxes);

gross profit or gross profit growth;

CRITICAL HOMECARE SOLUTIONS HOLDINGS, INC. S-1/A