10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2003

OR

o TRANSITION REPORT PURSUANT TO SECTION13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________________ to ____________________.

Commission file number - 333-56135

RIVER HOLDING CORP.

(Exact name of registrant as specified in its charter)

Delaware
(State or otherjurisdiction of
incorporationororganization)
95-4674065
(I.R.S. Employer
IdentificationNo.)

599 Lexington Drive, 18^th Floor
New York, New York
(AddressofPrincipalExecutiveOffices)

10022
(ZipCode)

(212) 758-2555
(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes o Not Applicable x

Indicate by check mark whether the Registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act).

Yes o No x

The number of shares of Common Stock, $0.01 par value, outstanding (the only class of common stock of the Company outstanding) was 9,144,293 on August 8, 2003.

RIVER HOLDING CORP. AND SUBSIDIARIES

QUARTER ENDED JUNE 30, 2003

TABLE OF CONTENTS

			Page
PARTI	FINANCIALINFORMATION
	Item 1.	River Holding Corp. Unaudited Condensed Consolidated Financial Statements:
		Unaudited Condensed Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002	1
		Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2003 and June 30, 2002	3
		Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2003 and June 30, 2002	4
		Notes to Unaudited Condensed Consolidated Financial Statements	6
		Hudson Respiratory Care Inc. Unaudited Condensed Consolidated Financial Statements:
		Unaudited Condensed Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002	14
		Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2003 and June 30, 2002	16
		Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2003 and June 30, 2002	17
		Notes to Unaudited Condensed Consolidated Financial Statements	19
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
	Item 3.	Quantitative and Qualitative Disclosures About Market Risks	32
	Item 4.	Controls and Procedures	32
PARTII	OTHERINFORMATION
	Item 1.	Legal Proceedings	33
	Item 2.	Changes in Securities	33
	Item 3.	Defaults Upon Senior Securities	33
	Item 4.	Submission of Matters to a Vote of Security Holders	33
	Item 5.	Other Information	33

i

Item 6. Exhibits and Reports on Form 8-K 33

SIGNATURE

ii

RIVER HOLDING CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

(amounts in thousands)

	June30, 2003		December31, 2002
CURRENT ASSETS:
Cash	$	2,604	$	6,425
Accounts receivable, less allowance for doubtful accounts of $1,324 and $1,331 at June 30, 2003 and December 31, 2002, respectively		23,410		24,214
Inventories, net		24,142		22,624
Other current assets		1,744		1,459
Total current assets		51,900		54,722
PROPERTY, PLANT AND EQUIPMENT, net		43,425		45,769
OTHER ASSETS:
Goodwill		37,643		34,137
Deferred financing and other costs, net		6,957		7,888
Other assets		1,018		987
Total other assets		45,618		43,012
Total assets	$	140,943	$	143,503

See notes to unaudited condensed financial statements

1

RIVER HOLDING CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

LIABILITIES, MANDATORILY-REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS’ DEFICIT

(amounts in thousands, except per share amounts)

	June 30, 2003			December31, 2002
CURRENT LIABILITIES:
Notes payable to bank	$	54,998		$	13,783
Accounts payable		9,602			10,379
Accrued liabilities		23,805			22,302
Total current liabilities		88,405			46,464
NOTES PAYABLE TO BANK, net of current portion		8,666			55,792
SENIOR SUBORDINATED NOTES PAYABLE		115,000			115,000
NOTES PAYABLE TO AFFILIATES		39,317			39,317
OTHER NON-CURRENT LIABILITIES		2,137			1,961
Total liabilities		253,525			258,534
COMMITMENTS AND CONTINGENCIES (Note 4)
MANDATORILY-REDEEMABLE PREFERRED STOCK, $0.01 par value; 2,990 shares authorized; 526 and 497 shares issued and outstanding at June 30, 2003 and December 31, 2002; liquidation preference — $52,594 and $49,735 respectively		52,085			49,189
Accrued preferred stock dividend, payable in kind		1,260			1,192
		53,345			50,381
STOCKHOLDERS’ EQUITY (DEFICIT):
Junior preferred stock, $0.01 par value; 10 shares authorized; 3 shares outstanding at June 30, 2003 and December 31, 2002		3,736			3,524
Common stock, $0.01 par value; 37,000 shares authorized; 9,144 issued and outstanding at June 30, 2003 and December 31, 2002		97,848			97,848
Additional paid in capital		881			881
Cumulative translation adjustment		4,696			2,740
Accumulated deficit		(273,088	)		(270,405	)
Total stockholders’ deficit		(165,927	)		(165,412	)
Total liabilities, mandatorily-redeemable preferred stock and stockholders’ deficit	$	140,943		$	143,503

See notes to unaudited condensed financial statements

2

RIVER HOLDING CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(amounts in thousands)

	Three Months Ended					Six Months Ended
	June 30, 2003		June 30, 2002			June 30, 2003		June 30, 2002
NET SALES	$	45,268	$	41,728		$	91,147	$	85,020
COST OF SALES		25,779		24,300			52,365		50,097
Gross Profit		19,489		17,428			38,782		34,923
OPERATING EXPENSES:
Selling, distribution, general & administrative		12,289		11,641			25,046		23,463
Research and development		720		815			1,360		1,412
		13,009		12,456			26,406		24,875
Income from operations		6,480		4,972			12,376		10,048
INTEREST EXPENSE AND OTHER, net		5,292		5,183			10,553		10,046
Net income (loss) before provision for income taxes		1,188		(211	)		1,823		2
PROVISION FOR INCOME TAXES		647		982			1,328		1,406
Net Income (loss)	$	541	$	(1,193	)	$	495	$	(1,404	)
OTHER COMPREHENSIVE INCOME:
Foreign currency translation gain		1,235		1,778			1,956		2,191
Comprehensive income	$	1,776	$	585		$	2,451	$	787

See notes to unaudited condensed financial statements

3

RIVER HOLDING CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

	Six Months Ended
	June 30, 2003			June 30, 2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	495		$	(1,404	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities-
Depreciation and amortization		6,014			5,776
Amortization of deferred financing costs		931			888
Provision for bad debts		239			54
Loss on disposal of equipment		2			46
Change in operating assets and liabilities:
Accounts receivable		1,295			(568	)
Inventories		(1,051	)		2,094
Other current assets		(226	)		375
Other assets		(29	)		83
Accounts payable		(947	)		(6,140	)
Accrued liabilities		1,186			63
Other non-current liabilities		29			96
Net cash provided by operating activities		7,938			1,363
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(3,533	)		(3,904	)
Proceeds from sales of property, plant and equipment		18			11
Net cash used in investing activities		(3,515)			(3,893	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable to bank		(14,771	)		(20,258	)
Proceeds from bank borrowings		7,486			—
Proceeds from notes payable to affiliates		—			20,000
Additions of deferred financing costs		—			(447	)
Payment of capital lease obligations		(26	)		—
Net cash used in financing activities		(7,311	)		(705	)
Effect of exchange rate changes on cash		(933	)		(472	)
NET DECREASE IN CASH		(3,821	)		(3,707	)
CASH, beginning of period		6,425			7,085
CASH, end of period	$	2,604		$	3,378

See notes to unaudited condensed financial statements

4

	Six Months Ended
	June 30, 2003		June 30, 2002
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	7,387	$	8,747
Income taxes (primarily foreign)	$	1,354	$	1,856
NON-CASH FINANCING ACTIVITIES:
Preferred dividends accrued or paid-in-kind	$	3,141	$	2,734
Issuance of warrants	$	—	$	750

See notes to unaudited condensed financial statements.

5

RIVER HOLDING CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.Financial Statements. River Holding Corp. (“Holding”) is a holding company with no other operations than those of its majority owned subsidiary, Hudson Respiratory Care Inc. (“Hudson” or the “Company”). The condensed consolidated financial statements included herein have been prepared by Holding and Hudson, without audit, and include all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position at June 30, 2003, the results of operations for the three and six month periods ended June 30, 2003 and June 30, 2002 and statements of cash flows for the six month period ended June 30, 2003 and June 30, 2002 pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). All such adjustments are of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. Although Holding believes that the disclosures in such financial statements are adequate to make the information presented not misleading, the accompanying unaudited condensed consolidated financial statements should be read in conjunction with Holding’s 2002 audited financial statements and the notes thereto included in its Form 10-K filed with the SEC. The results of operations for the three and six month periods ended June 30, 2003 are not necessarily indicative of the results to be achieved for a full year.

Financial Condition and Results of Operations

As of June 30, 2003, the entire outstanding principal amount of the Company’s Credit Facility is included in current liabilities in Holding’s financial statements given the Credit Facility’s contractual maturity of June 30, 2004. The inclusion of such debt in current liabilities resulted in a working capital deficit of $(36.3) million as of June 30, 2003. Management is in discussions with various lenders concerning the refinancing of Holding’s Credit Facility. Management believes that such a refinancing will occur prior to the existing maturity of the Credit Facility which will among other objectives, extend the maturity of the Company’s bank financing.

If the Company fails to complete a refinancing of its Credit Facility, Holding would have to initiate measures to raise cash through additional debt or equity issuances, asset sales and/or curtail operations. Holding currently has no commitments for additional debt or equity financing and no assurance can be given as to whether or, on what terms, additional debt or equity investments could be obtained, if required. Failure to obtain an extension or refinancing of the Credit Facility or to obtain additional debt or equity investment would have a material adverse effect on Holding.

Significant Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The significant estimates made in the preparation of the Company’s consolidated financial statements relate to allowance for bad debts, rebate reserve, and inventory reserve.

Reclassifications

Certain amounts from prior periods have been reclassified to conform to the current period presentation.

Recent Accounting Pronouncements

In May 2003, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity” (“SFAS 150”). SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS 150 requires classification of a financial instrument that is within its scope as a liability, or an asset in some circumstances. SFAS 150 is effective for financial instruments

6

entered into or modified after May 31, 2003, and shall otherwise be effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatorily redeemable financial intruments of a nonpublic entity. For instruments created before the issuance of SFAS 150 and still existing at the beginning of the interim period of adoption, this standard shall be implemented by reporting the cumulative effect of a change in an accounting principle. This statement does not become effective for Holding until September 30, 2003. Management is currently evaluating the impact it will have on Holding.

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (“SFAS 149”). SFAS 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts. More specifically, SFAS 149, among other things, clarifies under what circumstances a contract with an initial net investment meets the characteristics of a derivative, clarifies when a derivative contains a financing component, and amends the definition of an “underlying” to conform to recently issued standards. SFAS 149 is effective for contracts entered into or modified after June 30, 2003, except for certain aspects of the standard that relate to previously issued guidance, which should continue to be applied in accordance with the previously set effective dates. Also, this standard is effective for existing and new contracts entered into after June 30, 2003 as they relate to forward purchases or sales of when-issued securities or other securities that do not yet exist. Holding does not expect the adoption of this standard will have a material impact on its financial statements.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation Transition and Disclosure” (“SFAS 148”), an amendment of SFAS No. 123 “Accounting for Stock-Based Compensation” (“SFAS 123”). SFAS 148 amends SFAS 123 to provide alternative methods for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, the statement amends the disclosure requirements of SFAS 123 to require prominent disclosures for both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the methods used on reported results. The interim transition was effective December 31, 2002 and annual disclosure requirements of SFAS 148 are effective for Holding’s fiscal year 2003. Holding does not expect SFAS 148 to have a material impact on its consolidated results of operations or financial position.

2.Inventories. Inventories consisted of the following (amounts in thousands):

	June 30, 2003			December31, 2002
Raw materials	$	5,902		$	5,266
Work-in-process		5,295			4,983
Finished goods		14,935			13,926
		26,132			24,175
Provision for obsolescence		(1,990	)		(1,551	)
	$	24,142		$	22,624

3.Segment Data and Subsidiaries Guaranteeing Debt. Holding presents segment information externally based on how management uses financial data internally to make operating decisions and assess performance. Holding has two operating segments: United States, or guarantor, and international or non-guarantor. The non-guarantor subsidiaries consist principally of Hudson RCI AB and subsidiaries (whose operations are principally international). Under SFAS 131, “Disclosures about Segments of an Enterprise and Related Information,” Holding’s operating segments are the same as its reporting segments.

The Company is the 100% owner of certain subsidiaries that do not guarantee the Company’s senior subordinated notes and certain bank debt. The following tables disclose required consolidating financial information for guarantor, including the Company, and non-guarantor subsidiaries (amounts in thousands):

7

RIVER HOLDING CORP. AND SUBSIDIARIES
GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET

ASSETS

	As of June 30, 2003
	River			Guarantor		Non- Guarantor		Eliminations			Total
CURRENT ASSETS:
Cash	$	—		$	787	$	1,817	$	—		$	2,604
Accounts receivable		—			15,417		7,993		—			23,410
Intercompany receivables, net		—			348		—		(348	)		—
Inventories		—			19,734		5,781		(1,373	)		24,142
Other current assets		(258	)		1,307		695		—			1,744
Total current assets		(258	)		37,593		16,286		(1,721	)		51,900
PROPERTY, PLANT AND EQUIPMENT, net		4,789			36,616		2,020		—			43,425
INTANGIBLE ASSETS, net		—			—		37,643		—			37,643
DEFERRED FINANCING COSTS, net		—			6,957		—		—			6,957
INVESTMENT IN NON-GUARANTOR SUBSIDIARIES, at cost		—			28,636		4,000		(32,636	)		—
OTHER ASSETS		(77	)		1,075		20		—			1,018
Total other assets		(77	)		36,668		41,663		(32,636	)		45,618
	$	4,454		$	110,877	$	59,969	$	(34,357	)	$	140,943

LIABILITIES, MANDATORILY-REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS’ EQUITY (DEFICIT)

CURRENT LIABILITIES:
Notes payable to bank	$	—		$	50,000		$	4,998	$	—		$	54,998
Accounts payable		—			8,088			1,514		—			9,602
Intercompany payables, net		—			—			348		(348	)		—
Accrued liabilities		(49	)		18,244			5,610		—			23,805
Total current liabilities		(49	)		76,332			12,470		(348	)		88,405
NOTES PAYABLE TO BANKS, net of current portion		—			—			8,666		—			8,666
SENIOR SUBORDINATED NOTES PAYABLE		—			115,000			—		—			115,000
NOTES PAYABLE TO AFFILIATE		—			26,951			12,366		—			39,317
OTHER NON-CURRENT LIABILITIES		—			255			1,882		—			2,137
Total liabilities		(49	)		218,538			35,384		(348)			253,525
Mandatorily-redeemable preferred stock		—			53,345			—		—			53,345
STOCKHOLDERS’ DEFICIT		4,503			(161,006	)		24,585		(34,009	)		(165,927	)
	$	4,454		$	110,877		$	59,969	$	(34,357	)	$	140,943

8

RIVER HOLDING CORP. AND SUBSIDIARIES
GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET

ASSETS

	As of December 31, 2002
	River			Guarantor		Non- Guarantor		Eliminations			Total
CURRENT ASSETS:
Cash	$	—		$	3,568	$	2,857	$	—		$	6,425
Accounts receivable		—			17,207		7,007		—			24,214
Intercompany receivables, net		—			—		1,227		(1,227	)		—
Inventories		—			19,303		4,204		(883	)		22,624
Other current assets		(258	)		1,162		555		—			1,459
Total current assets		(258	)		41,240		15,850		(2,110	)		54,722
PROPERTY, PLANT AND EQUIPMENT, net		5,901			38,548		1,320		—			45,769
INTANGIBLE ASSETS, net		—			—		34,137		—			34,137
DEFERRED FINANCING COSTS, net		—			7,888		—		—			7,888
INVESTMENT IN NON-GUARANTOR SUBSIDIARIES, at cost		—			28,636		4,000		(32,636	)		—
OTHER ASSETS		(77	)		1,064		—		—			987
Total other assets		(77	)		37,588		38,137		(32,636	)		43,012
	$	5,566		$	117,376	$	55,307	$	(34,746	)	$	143,503

LIABILITIES, MANDATORILY-REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS’ EQUITY (DEFICIT)

CURRENT LIABILITIES:
Notes payable to banks – current portion		—			9,250			4,533		—			13,783
Accounts payable	$	—		$	8,540		$	1,839	$	—		$	10,379
Intercompany payables, net		—			1,227			—		(1,227	)		—
Accrued liabilities		(90	)		18,026			4,366		—			22,302
Total current liabilities		(90	)		37,043			10,738		(1,227	)		46,464
NOTES PAYABLE TO BANKS, net of current portion		—			46,300			9,492		—			55,792
SENIOR SUBORDINATED NOTES PAYABLE		—			115,000			—		—			115,000
NOTES PAYABLE TO AFFILIATE		—			26,951			12,366		—			39,317
OTHER NON-CURRENT LIABILITIES		—			281			1,680		—			1,961
Total liabilities		(90	)		225,575			34,276		(1,227	)		258,534
Mandatorily-redeemable preferred stock		—			50,381			—		—			50,381
STOCKHOLDERS’ DEFICIT		5,656			(158,580	)		21,031		(33,519	)		(165,412	)
	$	5,566		$	117,376		$	55,307	$	(34,746	)	$	143,503

9

RIVER HOLDING CORP. AND SUBSIDIARIES
GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

	Three Months Ended June 30, 2003
	River			Guarantor		Non- Guarantor		Eliminations			Total
NET SALES	$	—		$	39,751	$	11,411	$	(5,894	)	$	45,268
COST OF SALES		556			25,191		5,484		(5,452	)		25,779
Gross profit		(556	)		14,560		5,927		(442	)		19,489
OPERATING EXPENSES:
Selling, distribution, general and administrative		41			8,743		3,505		—			12,289
Research and development		—			389		331		—			720
		41			9,132		3,836		—			13,009
Income (loss) from operations		(597	)		5,428		2,091		(442	)		6,480
INTEREST EXPENSE AND OTHER, net		—			4,685		607		—			5,292
Income (loss) before provision for income taxes		(597	)		743		1,484		(442	)		1,188
PROVISION FOR INCOME TAXES		—			62		585		—			647
Net (loss) income	$	(597	)	$	681	$	899	$	(442	)	$	541

	Three Months Ended June 30, 2002
	River			Guarantor			Non- Guarantor		Eliminations			Total
NET SALES	$	—		$	36,336		$	9,034	$	(3,642	)	$	41,728
COST OF SALES		565			23,632			4,231		(4,128	)		24,300
Gross profit		(565	)		12,704			4,803		486			17,428
OPERATING EXPENSES:
Selling, distribution, general and administrative		40			9,063			2,538		—			11,641
Research and development		—			530			285		—			815
		40			9,593			2,823		—			12,456
(Loss) income from operations		(605	)		3,111			1,980		486			4,972
INTEREST EXPENSE AND OTHER, net		—			4,820			380		(17	)		5,183
Income (loss) before provision for income taxes		(605	)		(1,709	)		1,600		503			(211	)
PROVISION FOR INCOME TAXES		—			80			902		—			982
Net (loss) income	$	(605	)	$	(1,789	)	$	698	$	503		$	(1,193	)

10

RIVER HOLDING CORP. AND SUBSIDIARIES
GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

	Six Months Ended June 30, 2003
	River			Guarantor		Non- Guarantor		Eliminations			Total
NET SALES	$	—		$	80,071	$	21,420	$	(10,344	)	$	91,147
COST OF SALES		1,112			50,731		10,376		(9,854	)		52,365
Gross profit		(1,112	)		29,340		11,044		(490	)		38,782
OPERATING EXPENSES:
Selling, distribution, general and administrative		41			18,487		6,518		—			25,046
Research and development		—			747		613		—			1,360
		41			19,234		7,131		—			26,406
Income (loss) from operations		(1,153	)		10,106		3,913		(490	)		12,376
INTEREST EXPENSE AND OTHER, net		—			9,290		1,263		—			10,553
Income (loss) before provision for income taxes		(1,153	)		816		2,650		(490	)		1,823
PROVISION FOR INCOME TAXES		—			227		1,101		—			1,328
Net (loss) income	$	(1,153	)	$	589	$	1,549	$	(490	)	$	495

	Six Months Ended June 30, 2002
	River			Guarantor			Non- Guarantor		Eliminations			Total
NET SALES	$	—		$	74,506		$	17,588	$	(7,074	)	$	85,020
COST OF SALES		1,130			47,650			8,953		(7,636	)		50,097
Gross profit		(1,130	)		26,856			8,635		562			34,923
OPERATING EXPENSES:
Selling, distribution, general and administrative		40			18,565			4,858		—			23,463
Research and development		—			865			547		—			1,412
		40			19,430			5,405		—			24,875
(Loss) income from operations		(1,170	)		7,426			3,230		562			10,048
INTEREST EXPENSE AND OTHER, net		—			9,354			692		—			10,046
Income (loss) before provision for income taxes		(1,170	)		(1,928	)		2,538		562			2
PROVISION FOR INCOME TAXES		—			80			1,326		—			1,406
Net (loss) income	$	(1,170	)	$	(2,008	)	$	1,212	$	562		$	(1,404	)

11

RIVER HOLDING CORP. AND SUBSIDIARIES
GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

	For the Six Months Ended June 30,2003
	River		Guarantor			Non- Guarantor			Total
Net cash provided by operating activities	$	—	$	5,448		$	2,490		$	7,938
Net cash used in provided by investing activities		—		(2,602	)		(913	)		(3,515	)
Net cash used in financing activities		—		(5,576	)		(1,735	)		(7,311	)
Effect of exchange rate changes on cash		—		(51	)		(882	)		(933	)
NET DECREASE IN CASH		—		(2,781	)		(1,040	)		(3,821	)
CASH, beginning of year		—		3,568			2,857			6,425
CASH, end of year	$	—	$	787		$	1,817		$	2,604

	For the Six Months Ended June 30, 2002
	River		Guarantor			Non- Guarantor			Total
Net cash provided by (used in) operating activities	$	—	$	5,559		$	(4,196	)	$	1,363
Net cash used in investing activities		—		(3,620	)		(273	)		(3,893	)
Net cash (used in) provided by financing activities		—		(5,697	)		4,992			(705	)
Effect of exchange rate changes on cash		—		65			(537	)		(472	)
NET DECREASE IN CASH		—		(3,693	)		(14	)		(3,707	)
CASH, beginning of year		—		4,713			2,372			7,085
CASH, end of year	$	—	$	1,020		$	2,358		$	3,378

Holding’s percentage of sales by geographic region for the three and six month period ended June 30, 2003 and June 30, 2002 is as follows:

	Three MonthsEnded
	June30, 2003		June30, 2002
United States	71.3	%	74.5	%
Europe	17.7		15.2
Pacific Rim (Japan, Southeast Asia, Australia/New Zealand)	6.8		6.0
Canada	1.6		1.6
Other international	2.5		2.7
	100.0	%	100.0	%

	Six MonthsEnded
	June30, 2003		June30, 2002
United States	72.3	%	75.4	%
Europe	16.5		15.0
Pacific Rim (Japan, Southeast Asia, Australia/New Zealand)	7.1		5.7
Canada	1.4		1.6
Other international	2.7		2.3
	100.0	%	100.0	%

12

4.Commitments and Contingencies. Holding is not a party to any material lawsuits or other proceedings. While the result of Holding’s other existing lawsuits and proceedings cannot be predicted with certainty, management does not expect that the ultimate resolution of these matters will have a material adverse effect on the financial position or results of operations of Holding.

Self Insurance. Holding self-insures the majority of its medical benefit programs. Reserves for medical claim losses (including retiree benefits) totaling approximately $1,234,000 and $1,160,000 at June 30, 2003 and December 31, 2002, respectively, were established based upon estimated obligations and are included in accrued liabilities in the accompanying unaudited condensed consolidated balance sheets. Holding maintains excess coverage on an aggregate claim basis. Additionally, Holding is self-insured for workers’ compensation. Reserves for workers’ compensation claim losses totaling approximately $754,000 and $353,000 at June 30, 2003 and December 31, 2002, respectively, were established based upon estimated obligations and are included in accrued liabilities in the accompanying unaudited condensed consolidated balance sheets.

Accrued Severance Costs. In 2001, the decision was made to close the Argyle manufacturing facility and relocate that facility’s operations to Tecate, Mexico by April 2003. As of December 31, 2002, 147 employees had been notified that their positions would be eliminated with an estimated severance cost of $2,160,360. The following summarizes the activity of accrued severance costs (amounts in thousands, except for employees):

	Employees Affected		Accrued Severance
As of December 31, 2000	—		$	—
Position eliminations announced	83			694
Positions eliminated and severance paid	—			—
Balance remaining at December 31, 2001	83			694
Position eliminations announced	64			1,466
Positions eliminated and severance paid	(46	)		(331	)
Balance remaining at December 31, 2002	101			1,829
Position eliminations announced	—			—
Positions eliminated and severance paid	(96	)		(1,208	)
Balance remaining at June 30, 2003	5		$	621

Guarantees. During its normal course of business, Holding has made certain indemnities, commitments and guarantees under which it may be required to make payments in relation to certain transactions. These include, (i) intellectual property indemnities to Holding’s customers and licensees in connection with the use, sales and/or license of Holding products, (ii) indemnities to various lessors in connection with facility leases for certain claims arising from such facilities or leases, (iii) indemnities to vendors and service providors pertaining to claims based on the negligence or willful misconduct of Holding, (iv) indemnities involving the accuracy of representations and warranties in certain contracts and (v) indemnities to directors and officers of Holding to the maximum extent permitted under the laws of the State of California. In addition, Holding has made contractual commitments to several employees providing for payments upon the occurrence of certain prescribed events. The majority of these indemnities, commitments and guarantees do not provide for any limitation of the maximum potential for future payments Holding could be obligated to make. Holding has not recorded any liability for these indemnities, commitments and other guarantees in the accompanying unaudited condensed consolidated balance sheets.

13

5.Credit Facility. Total borrowings as of June 30, 2003 were $8.0 million and $40.0 million under the Revolving Loan Facility and Acquisition Facility, respectively, and $2.0 million under the Term Loan Facility. As of June 30, 2003 $5.7 million was available for borrowing under the Revolving Loan Facility and none is available for borrowing under the Acquisition Facility. No additional borrowing is available under the Term Loan Facility. As of June 30, 2003 the fair value of the Term Loan facility and Revolving Loan Facility approximated the face value. See Note 1.

At June 30, 2003, Holding was in compliance with all provisions of its debt securities.

6.Subsidiary Financials. Because Holding is a holding company with no operations other than those of the Company, the unaudited condensed financial statements of the Company have been included.

HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
(A majority-owned subsidiary of River Holding Corp.)

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

(amounts in thousands)

	June 30, 2003		December31, 2002
CURRENT ASSETS:
Cash	$	2,604	$	6,425
Accounts receivable, less allowance for doubtful accounts of $1,324 and $1,331 at June 30, 2003 and December 31, 2002, respectively		23,410		24,214
Inventories, net		24,142		22,624
Other current assets		2,002		1,717
Total current assets		52,158		54,980
PROPERTY, PLANT AND EQUIPMENT, net		38,636		39,868
OTHER ASSETS:
Goodwill		37,643		34,137
Deferred financing and other costs, net		6,957		7,888
Other assets		1,095		1,064
Total other assets		45,695		43,089
Total assets	$	136,489	$	137,937

See notes to condensed consolidated statements

14

HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
(A majority-owned subsidiary of River Holding Corp.)

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

LIABILITIES, MANDATORILY-REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS’ DEFICIT

(amounts in thousands, except per share amounts)

	June 30, 2003			December31, 2002
CURRENT LIABILITIES:
Notes payable to bank	$	54,998		$	13,783
Accounts payable		9,602			10,379
Accrued liabilities		23,854			22,392
Total current liabilities		88,454			46,554
NOTES PAYABLE TO BANK, net of current portion		8,666			55,792
SENIOR SUBORDINATED NOTES PAYABLE		115,000			115,000
NOTES PAYABLE TO AFFILIATES		39,317			39,317
OTHER NON-CURRENT LIABILITIES		2,137			1,961
Total liabilities		253,574			258,624
COMMITMENTS AND CONTINGENCIES (Note 4)
MANDATORILY-REDEEMABLE PREFERRED STOCK, $0.01 par value; 2,990 shares authorized; 526 and 497 shares issued and outstanding at June 30, 2003 and December 31, 2002; liquidation preference - $52,594 and $49,735 respectively		52,085			49,189
Accrued preferred stock dividend, payable in kind		1,260			1,192
		53,345			50,381
STOCKHOLDERS’ EQUITY (DEFICIT):
Junior preferred stock, $0.01 par value; 10 shares authorized; 3 shares outstanding at June 30, 2003 and December 31, 2002		3,736			3,524
Common stock, $0.01 par value; 37,000 shares authorized; 10,654 issued and outstanding at June 30, 2003 and December 31, 2002		98,258			98,258
Additional paid in capital		881			881
Cumulative translation adjustment		4,232			2,276
Accumulated deficit		(277,537	)		(276,007	)
Total stockholders’ deficit		(170,430	)		(171,068	)
Total liabilities, mandatorily-redeemable preferred stock and stockholders’ deficit	$	136,489		$	137,937

See notes to condensed consolidated statements

15

HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
(A majority-owned subsidiary of River Holding Corp.)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(amounts in thousands)

	ThreeMonthsEnded					SixMonthsEnded
	June30, 2003		June30, 2002			June30, 2003		June30, 2002
NET SALES	$	45,268	$	41,728		$	91,147	$	85,020
COST OF SALES		25,223		23,735			51,253		48,967
Gross Profit		20,045		17,993			39,894		36,053
OPERATING EXPENSES:
Selling, distribution, general & administrative		12,248		11,601			25,005		23,423
Research and development		720		815			1,360		1,412
		12,968		12,416			26,365		24,835
Income from operations		7,077		5,577			13,529		11,218
INTEREST EXPENSE AND OTHER, net		5,292		5,183			10,553		10,046
Net income before provision for income taxes		1,785		394			2,976		1,172
PROVISION FOR INCOME TAXES		647		982			1,328		1,406
Net Income (loss)	$	1,138	$	(588	)	$	1,648	$	(234	)
OTHER COMPREHENSIVE INCOME:
Foreign currency translation gain		1,235		1,778			1,956		2,191
Comprehensive income	$	2,373	$	1,190		$	3,604	$	1,957

See notes to condensed consolidated statements

16

HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
(A majority-owned subsidiary of River Holding Corp.)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

	SixMonthsEnded
	June30, 2003			June30, 2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	1,648		$	(234	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation and amortization		4,902			4,646
Amortization of deferred financing costs		931			888
Provision for bad debts		239			54
Loss on disposal of equipment		2			46
Change in operating assets and liabilities:
Accounts receivable		1,295			(568	)
Inventories		(1,051	)		2,094
Other current assets		(226	)		375
Other assets		(29	)		83
Accounts payable		(947	)		(6,140	)
Accrued liabilities		1,145			23
Other non-current liabilities		29			96
Net cash provided by operating activities		7,938			1,363
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(3,533	)		(3,904	)
Proceeds from sales of property, plant and equipment		18			11
Net cash used in investing activities		(3,515	)		(3,893	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable to bank		(14,771	)		(20,258	)
Proceeds from bank borrowings		7,486			—
Proceeds from notes payable to affiliates		—			20,000
Additions of deferred financing costs		—			(447	)
Payment of capital lease obligations		(26	)		—
Net cash used in financing activities		(7,311	)		(705	)
Effect of exchange rate changes on cash		(933	)		(472	)
NET DECREASE IN CASH		(3,821	)		(3,707	)
CASH, beginning of period		6,425			7,085
CASH, end of period	$	2,604		$	3,378

See notes to condensed consolidated statements

17

	SixMonthsEnded
	June30, 2003		June30, 2002
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	7,387	$	8,747
Income taxes (primarily foreign)	$	1,354	$	1,856
NON-CASH FINANCING ACTIVITIES:
Preferred dividends accrued or paid-in-kind	$	3,141	$	2,734
Issuance of warrants	$	—	$	750

See notes to condensed consolidated statement

18

HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
(A majority-owned subsidiary of River Holding Corp.)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.Financial Statements. The condensed consolidated financial statements included herein have been prepared by the Company, without audit, and include all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position at June 30, 2003, the results of operations for the three and six month periods ended June 30, 2003 and June 30, 2002 and statements of cash flows for the six month periods ended June 30, 2003 and June 30, 2002 pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). All such adjustments are of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. Although the Company believes that the disclosures in such financial statements are adequate to make the information presented not misleading, the accompanying unaudited condensed, consolidated financial statements should be read in conjunction with the Company’s 2002 audited financial statements and the notes thereto included in its Form 10-K filed with the SEC. The results of operations for the three and six month periods ended June 30, 2003 are not necessarily indicative of the results to be achieved for a full year.

Financial Condition and Results of Operations

As of June 30, 2003, the entire amount of the Company’s Credit Facility is included in current liabilities given the Credit Facility’s contractual maturity of June 30, 2004. The inclusion of such debt in current liabilities resulted in a working capital deficit of $(36.3) million as of June 30, 2003. Management is in discussions with various lenders concerning the refinancing of the Company’s Credit Facility. Management believes that such a refinancing will occur prior to the existing maturity of the Credit Facility which will among other objectives, extend the maturity of the Company’s bank financing.

If the Company fails to complete a refinancing of its Credit Facility, the Company would have to initiate measures to raise cash through additional debt or equity issuances, asset sales and/or curtail operations. The Company currently has no commitments for additional debt or equity financing and no assurance can be given as to whether or, on what terms, additional debt or equity investments could be obtained, if required. Failure to obtain an extension or refinancing of the credit facility or to obtain additional debt or equity investment would have a material adverse effect on the Company.

Significant Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The significant estimates made in the preparation of the Company’s consolidated financial statements relate to allowance for bad debts, rebate reserve, and inventory reserve.

Reclassifications

Certain amounts from prior periods have been reclassified to conform to the current period presentation.

Recent Accounting Pronouncements

19

In May 2003, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity” (“SFAS 150”). SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS 150 requires classification of a financial instrument that is within its scope as a liability, or an asset in some circumstances. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and shall otherwise be effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatorily redeemable financial intruments of a nonpublic entity. For instruments created before the issuance of SFAS 150 and still existing at the beginning of the interim period of adoption, this standard shall be implemented by reporting the cumulative effect of a change in an accounting principle. This statement does not become effective for the Company until September 30, 2003. Management is currently evaluating the impact it will have on the Company.

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (“SFAS 149”). SFAS 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts. More specifically, SFAS 149, among other things, clarifies under what circumstances a contract with an initial net investment meets the characteristics of a derivative, clarifies when a derivative contains a financing component, and amends the definition of an “underlying” to conform to recently issued standards. SFAS 149 is effective for contracts entered into or modified after June 30, 2003, except for certain aspects of the standard that relate to previously issued guidance, which should continue to be applied in accordance with the previously set effective dates. Also, this standard is effective for existing and new contracts entered into after June 30, 2003 as they relate to forward purchases or sales of when-issued securities or other securities that do not yet exist. The Company does not expect the adoption of this standard will have a material impact on its financial statements.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation Transition and Disclosure” (“SFAS 148”), an amendment of SFAS No. 123 “Accounting for Stock-Based Compensation” (“SFAS 123”). SFAS 148 amends SFAS 123 to provide alternative methods for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, the statement amends the disclosure requirements of SFAS 123 to require prominent disclosures for both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the methods used on reported results. The interim transition was effective December 31, 2002 and annual disclosure requirements of SFAS 148 are effective for the Company’s fiscal year 2003. The Company does not expect SFAS 148 to have a material impact on its consolidated results of operations or financial position.

2.Inventories. Inventories consisted of the following (amounts in thousands):

	June30, 2003			December31, 2002
Raw materials	$	5,902		$	5,266
Work-in-process		5,295			4,983
Finished goods		14,935			13,926
		26,132			24,175
Provision for obsolescence		(1,990	)		(1,551	)
	$	24,142		$	22,624

3.Segment Data and Subsidiaries Guaranteeing Debt. The Company presents segment information externally based on how management uses financial data internally to make operating decisions and assess performance. The Company has two operating segments: United States, or guarantor, and international or non-guarantor. The non-guarantor subsidiaries consist principally of Hudson RCI AB and subsidiaries (whose operations are principally international). Under SFAS 131, “Disclosures about Segments of an Enterprise and Related Information,” the Company’s operating segments are the same as its reporting segments.

20

The Company is the 100% owner of certain subsidiaries that do not guarantee the Company’s senior subordinated notes and certain bank debt. The following tables disclose required consolidating financial information for guarantor, including the Company, and non-guarantor subsidiaries (amounts in thousands):

HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET

ASSETS

	June 30, 2003
	Guarantor		Non- Guarantor		Eliminations			Total
CURRENT ASSETS:
Cash	$	787	$	1,817	$	—		$	2,604
Accounts receivable		15,417		7,993		—			23,410
Intercompany receivables, net		348		—		(348	)		—
Inventories		19,734		5,781		(1,373	)		24,142
Other current assets		1,307		695		—			2,002
Total current assets		37,593		16,286		(1,721	)		52,158
PROPERTY, PLANTAND EQUIPMENT, NET		36,616		2,020		—			38,636
INTANGIBLE ASSETS, net		—		37,643		—			37,643
DEFERRED FINANCING COSTS, net		6,957		—		—			6,957
INVESTMENT IN NON-GUARANTOR SUBSIDIARIES, at cost		28,636		4,000		(32,636	)		—
OTHER ASSETS		1,075		20		—			1,095
Total other assets		36,668		41,663		(32,636	)		45,695
	$	110,877	$	59,969	$	(34,357	)	$	136,489

LIABILITIES, MANDATORILY-REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS’ EQUITY (DEFICIT)

CURRENT LIABILITIES:
Notes payable to bank	$	50,000		$	4,998	$	—		$	54,998
Accounts payable		8,088			1,514		—			9,602
Intercompany payables, net		—			348		(348	)		—
Accrued liabilities		18,244			5,610		—			23,854
Total current liabilities		76,332			12,470		(348	)		88,454
NOTES PAYABLE TO BANK, net of current portion		—			8,666		—			8,666
SENIOR SUBORDINATED NOTES PAYABLE		115,000			—		—			115,000
NOTES PAYABLE TO AFFILIATES		26,951			12,366		—			39,317
OTHER NON-CURRENT LIABLITIES		255			1,882		—			2,137
Total liabilities		218,538			35,384		(348)			253,574
Mandatorily-redeemable preferred stock		53,345			—		—			53,345
STOCKHOLDERS’ EQUITY (DEFICIT)		(161,006	)		24,585		(34,009	)		(170,430	)
	$	110,877		$	59,969	$	(34,357	)	$	136,489

21

HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET

ASSETS

	December 31, 2002
	Guarantor		Non- Guarantor		Eliminations			Total
CURRENT ASSETS:
Cash	$	3,568	$	2,857	$	—		$	6,425
Accounts receivable		17,207		7,007		—			24,214
Intercompany receivables, net		—		1,227		(1,227	)		—
Inventories		19,303		4,204		(883	)		22,624
Other current assets		1,162		555		—			1,717
Total current assets		41,240		15,850		(2,110	)		54,980
PROPERTY, PLANT AND EQUIPMENT, NET		38,548		1,320		—			39,868
INTANGIBLE ASSETS, net		—		34,137		—			34,137
DEFERRED FINANCING COSTS, net		7,888		—		—			7,888
INVESTMENT IN NON-GUARANTOR SUBSIDIARIES, at cost		28,636		4,000		(32,636	)		—
OTHER ASSETS		1,064		—		—			1,064
Total other assets		37,588		38,137		(32,636	)		43,089
	$	117,376	$	55,307	$	(34,746	)	$	137,937

LIABILITIES, MANDATORILY-REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS’ EQUITY (DEFICIT)

CURRENT LIABILITIES:
Notes payable to bank	$	9,250		$	4,533	$	—		$	13,783
Accounts payable		8,540			1,839		—			10,379
Intercompany payables, net		1,227			—		(1,227	)		—
Accrued liabilities		18,026			4,366		—			22,392
Total current liabilities		37,043			10,738		(1,227	)		46,554
NOTES PAYABLE TO BANK, net of current portion		46,300			9,492		—			55,792
SENIOR SUBORDINATED NOTES PAYABLE		115,000			—		—			115,000
NOTES PAYABLE TO AFFILIATES		26,951			12,366		—			39,317
OTHER NON-CURRENT LIABLITIES		281			1,680		—			1,961
Total liabilities		225,575			34,276		(1,227	)		258,624
Mandatorily-redeemable preferred stock		50,381			—		—			50,381
STOCKHOLDERS’ EQUITY (DEFICIT)		(158,580	)		21,031		(33,519	)		(171,068	)
	$	117,376		$	55,307	$	(34,746	)	$	137,937

22

HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

	Three Months Ended June 30, 2003
	Guarantor		Non- Guarantor		Eliminations			Total
NET SALES	$	39,751	$	11,411	$	(5,894	)	$	45,268
COST OF SALES		25,191		5,484		(5,452	)		25,223
Gross Profit		14,560		5,927		(442	)		20,045
OPERATING EXPENSES:
Selling, distribution, general and administrative		8,743		3,505		—			12,248
Research and development		389		331		—			720
		9,132		3,836		—			12,968
Income from operations		5,428		2,091		(442	)		7,077
INTEREST EXPENSE AND OTHER, net:		4,685		607		—			5,292
Income (loss) before provision for income taxes		743		1,484		(442	)		1,785
PROVISION FOR INCOME TAXES		62		585		—			647
Net income (loss)	$	681	$	899	$	(442	)	$	1,138

	Three Months Ended June 30, 2002
	Guarantor			Non- Guarantor		Eliminations			Total
NET SALES	$	36,336		$	9,034	$	(3,642	)	$	41,728
COST OF SALES		23,632			4,231		(4,128	)		23,735
Gross Profit		12,704			4,803		486			17,993
OPERATING EXPENSES:
Selling, distribution, general and administrative		9,063			2,538		—			11,601
Research and development		530			285		—			815
		9,593			2,823		—			12,416
Income from operations		3,111			1,980		486			5,577
INTEREST EXPENSE AND OTHER, net:		4,820			380		(17	)		5,183
(Loss) income before provision for income taxes		(1,709	)		1,600		503			394
PROVISION FOR INCOME TAXES		80			902		—			982
Net (loss) income	$	(1,789	)	$	698	$	503		$	(588	)

23

HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

	Six Months Ended June 30, 2003
	Guarantor		Non- Guarantor		Eliminations			Total
NET SALES	$	80,071	$	21,420	$	(10,344	)	$	91,147
COST OF SALES		50,731		10,376		(9,854	)		51,253
Gross Profit		29,340		11,044		(490	)		39,894
OPERATING EXPENSES:
Selling, distribution, general and administrative		18,487		6,518		—			25,005
Research and development		747		613		—			1,360
		19,234		7,131		—			26,365
Income from operations		10,106		3,913		(490	)		13,529
INTEREST EXPENSE AND OTHER, net:		9,290		1,263		—			10,553
Income (loss) before provision for income taxes		816		2,650		(490	)		2,976
PROVISION FOR INCOME TAXES		227		1,101		—			1,328
Net income (loss)	$	589	$	1,549	$	(490	)	$	1,648

	Six Months Ended June 30, 2002
	Guarantor			Non- Guarantor		Eliminations			Total
NET SALES	$	74,506		$	17,588	$	(7,074	)	$	85,020
COST OF SALES		47,650			8,953		(7,636	)		48,967
Gross Profit		26,856			8,635		562			36,053
OPERATING EXPENSES:
Selling, distribution, general and administrative		18,565			4,858		—			23,423
Research and development		865			547		—			1,412
		19,430			5,405		—			24,835
Income from operations		7,426			3,230		562			11,218
INTEREST EXPENSE AND OTHER, net:		9,354			692		—			10,046
(Loss) income before provision for income taxes		(1,928	)		2,538		562			1,172
PROVISION FOR INCOME TAXES		80			1,326		—			1,406
Net (loss) income	$	(2,008	)	$	1,212	$	562		$	(234	)

24

HUDSON RESPIRATORY CARE INC. AND SUBSIDIARIES
GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

	Six Months Ended June 30, 2003
	Guarantor			Non- Guarantor			Total
Net cash provided by operating activities	$	5,448		$	2,490		$	7,938
Net cash used in investing activities		(2,602	)		(913	)		(3,515	)
Net cash used in financing activities		(5,576	)		(1,735	)		(7,311	)
Effect of exchange rate changes on cash		(51	)		(882	)		(933	)
NET DECREASE IN CASH		(2,781	)		(1,040	)		(3,821	)
CASH, beginning of period		3,568			2,857			6,425
CASH, end of period	$	787		$	1,817		$	2,604

	Six Months Ended June 30, 2002
	Guarantor			Non- Guarantor			Total
Net cash provided by (used in) operating activities	$	5,559		$	(4,196	)	$	1,363
Net cash used in investing activities		(3,620	)		(273	)		(3,893	)
Net cash (used in) provided by financing activities		(5,697	)		4,992			(705	)
Effect of exchange rate changes on cash		65			(537	)		(472	)
NET DECREASE IN CASH		(3,693	)		(14	)		(3,707	)
CASH, beginning of period		4,713			2,372			7,085
CASH, end of period	$	1,020		$	2,358		$	3,378

The Company’s percentage of sales by geographic region for the three and six month period ended June 30, 2003 and June 30, 2002 is as follows:

	ThreeMonthsEnded
	June30, 2003		June30, 2002
United States	71.3	%	74.5	%
Europe	17.7		15.2
Pacific Rim (Japan, Southeast Asia, Australia/New Zealand)	6.8		6.0
Canada	1.6		1.6
Other international	2.5		2.7
	100.0	%	100.0	%

	SixMonthsEnded
	June30, 2003		June30, 2002
United States	72.3	%	75.4	%
Europe	16.5		15.0
Pacific Rim (Japan, Southeast Asia, Australia/New Zealand)	7.1		5.7
Canada	1.4		1.6
Other international	2.7		2.3
	100.0	%	100.0	%

4.Commitments and Contingencies. The Company is not a party to any material lawsuits or other proceedings. While the result of the Company’s other existing lawsuits and proceedings cannot be predicted with certainty, management does not expect that the ultimate resolution of these matters will have a material adverse effect on the financial position or results of operations of the Company.

25

Self Insurance. The Company self-insures the majority of its medical benefit programs. Reserves for medical claim losses (including retiree benefits) totaling approximately $1,234,000 and $1,160,000 at June 30, 2003 and December 31, 2002, respectively, were established based upon estimated obligations and are included in accrued liabilities in the accompanying unaudited condensed consolidated balance sheets. The Company maintains excess coverage on an aggregate claim basis. Additionally, the Company is self-insured for workers’ compensation. Reserves for workers’ compensation claim losses totaling approximately $754,000 and $353,000 at June 30, 2003 and December 31, 2002, respectively, were established based upon estimated obligations and are included in accrued liabilities in the accompanying unaudited condensed consolidated balance sheets.

Accrued Severance Costs. In 2001, the decision was made to close the Argyle manufacturing facility and relocate that facility’s operations to Tecate, Mexico by April 2003. As of December 31, 2002, 147 employees had been notified that their positions would be eliminated with an estimated severance cost of $2,160,360. The following summarizes the activity of accrued severance costs (amounts in thousands, except for employees):

	Employees Affected		Accrued Severance
As of December 31, 2000	—		$	—
Position eliminations announced	83			694
Positions eliminated and severance paid	—			—
Balance remaining at December 31, 2001	83			694
Position eliminations announced	64			1,466
Positions eliminated and severance paid	(46	)		(331	)
Balance remaining at December 31, 2002	101			1,829
Position eliminations announced	—			—
Positions eliminated and severance paid	(96	)		(1,208	)
Balance remaining at June 30, 2003	5		$	621

Guarantees. During its normal course of business, the Company has made certain indemnities, commitments and guarantees under which it may be required to make payments in relation to certain transactions. These include, (i) intellectual property indemnities to the Company’s customers and licensees in connection with the use, sales and/or license of Company products, (ii) indemnities to various lessors in connection with facility leases for certain claims arising from such facilities or leases, (iii) indemnities to vendors and service providors pertaining to claims based on the negligence or willful misconduct of the Company, (iv) indemnities involving the accuracy of representations and warranties in certain contracts and (v) indemnities to directors and officers of the Company to the maximum extent permitted under the laws of the State of California. In addition, the Company has made contractual commitments to several employees providing for payments upon the occurrence of certain prescribed events. The majority of these indemnities, commitments and guarantees do not provide for any limitation of the maximum potential for future payments the Company could be obligated to make. The Company has not recorded any liability for these indemnities, commitments and other guarantees in the accompanying unaudited condensed consolidated balance sheets.

5.Credit Facility. Total borrowings as of June 30, 2003 were $8.0 million and $40.0 million under the Revolving Loan Facility and Acquisition Facility, respectively, and $2.0 million under the Term Loan Facility. As of June 30, 2003 $5.7 million was available for borrowing under the Revolving Loan Facility and none is available for borrowing under the Acquisition Facility. No additional borrowing is available under the Term Loan Facility. As of June 30, 2003 the fair value of the Term Loan facility and Revolving Loan Facility approximated the face value. See Note 1.

At June 30, 2003, the Company was in compliance with all provisions of its debt securities

26

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

Because River Holding Corp. (“Holding”) is a holding company with no operations other than those of Hudson Respiratory Care Inc. (the “Company” or “Hudson”), the following discussion throughout this section relates primarily to the Company. The following discussion of Holding and the Company’s consolidated historical results of operations and financial condition should be read in conjunction with the consolidated financial statements of Holding and the Company and the notes thereto included elsewhere in this Form 10-Q.

Holding’s acquisition of a majority of the Company’s stock was accounted for as a purchase. As a result of Holding’s acquisition of the Company, Holding recorded property, plant and equipment at fair value. Additional depreciation expense related to the allocation of purchase price at fair value to depreciable assets of $1.1M was recorded in the first six months of 2003 and 2002 respectively. The remaining value of the step-up in basis to fair value was approximately $4.8 million at June 30, 2003.

There are no other material differences between Holding consolidated and the Company.

Forward-Looking Statements

This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains certain “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Such statements relating to future events and financial performance are forward-looking statements involving risks and uncertainties that are detailed from time to time in the Company’s Securities and Exchange Commission filings.

General

The Company manufactures and markets products for use in respiratory care and anesthesia. The products for each market are similar and often overlap, as do the distribution channels. The Company groups its products into four clinical categories: (i) oxygen therapy; (ii) aerosol therapy; (iii) humidification; and (iv) airway management. The following table provides examples of the products sold in each category:

Category	Examples of Products
Oxygen Therapy	Oxygen masks, cannula, oxygen catheters, oxygen tubing, prefilled and refillable humidifiers, oxygen regulators, cylinder carts and bases, oxygen analyzers/monitors, oxygen sensors, and adaptors and connectors
Aerosol Therapy	Aerosol masks, prefilled and refillable large volume nebulizers, aerosol tubing, unit dose solutions, small volume nebulizers, peak flow meters and spacers/changes
Humidification	ConchaTherm heated humidifiers and accessories, Humid-Heat and accessories, AquaTherm and ThermaGard nebulizer heaters, Concha water, Concha Pak, Aqua+ and Humid-Vent HME’s and filters for critical care, anesthesia and pulmonary function
Airway Management	Oral airways, SHERIDAN® endotracheal tubes, incentive breathing exercisers, disposable and reuseable resuscitation bags, hyperinflation bags, breathing bags, air cushion masks, anesthesia circuits, heated-wire and conventional ventilator circuits, gas sampling lines and filters, catheter mounts and infant Continuous Positive Airway Pressure (“CPAP”) sets

27

Although the Company’s sales efforts differ depending on the clinical use of its products, management focuses on geographical segments for strategic decision making.

The Company’s results of operations may fluctuate significantly from quarter to quarter as a result of a number of factors, including, among others, the buying patterns of the Company’s distributors, group purchasing organizations (“GPOs”) and other purchasers of the Company’s products, forecasts regarding the severity of the annual cold and flu season, announcements of new product introductions by the Company or its competitors, changes in the Company’s pricing of its products and the prices offered by the Company’s competitors, rate of overhead absorption due to variability in production levels and variability in the number of shipping days in a given quarter.

Results of Operations

The following tables set forth, for the periods indicated, certain income and expense items expressed in dollars and as a percentage of the Company’s net sales.

	ThreeMonthsEndedJune30,					SixMonthsEndedJune30,
	2003		2002			2003		2002
	(amountsinthousands)					(amountsinthousands)
Net sales	$	45,268	$	41,728		$	91,147	$	85,020
Cost of sales		25,223		23,735			51,253		48,967
Gross profit		20,045		17,993			39,894		36,053
Selling expenses		5,237		5,377			10,403		10,398
Distribution expenses		2,649		2,095			5,005		4,408
General and administrative expenses		4,362		4,129			9,597		8,617
Research and development expenses		720		815			1,360		1,412
Total operating expenses		12,968		12,416			26,365		24,835
Income from operations		7,077		5,577			13,529		11,218
Interest expense and other, net		5,292		5,183			10,553		10,046
Net income before provision for income taxes		1,785		394			2,976		1,172
Provision for income taxes		647		982			1,328		1,406
Net income (loss)	$	1,138	$	(588	)	$	1,648	$	(234	)

	ThreeMonthsEndedJune30,				SixMonthsEndedJune30,
	2003		2002		2003		2002
Net sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of sales	55.7		56.9		56.2		57.6
Gross profit	44.3		43.1		43.8		42.4
Selling expenses	11.6		12.9		11.4		12.2
Distribution expenses	5.9		5.0		5.5		5.2
General and administrative expenses	9.6		9.9		10.5		10.1
Research and development expenses	1.6		2.0		1.5		1.7
Total operating expenses	28.6		29.8		28.9		29.2
Income from operations	15.6		13.4		14.8		13.2
Interest expense and other, net	11.8		12.7		11.6		11.8
Net income before provision for income taxes	3.9		0.9		3.3		1.4
Provision for income taxes	1.4		2.4		1.5		1.7
Net income (loss)	2.5	%	(1.4	)%	1.8	%	(0.3	)%

28

Three Months Ended June 30, 2003 Compared to Three Months Ended June 30, 2002

Net sales, on a consolidated basis, were $45.3 million in the second quarter of 2003 as compared to $41.7 million in the second quarter of 2002, representing an increase of $3.6 million or 8.6%. Sales into Europe increased by $2.0 million representing the impact of favorable changes in exchange rates resulting from a weakened U.S. dollar as compared to other countries’ currencies in which the Company distributes its products (an increase to reported sales of $1.4 million) and an increase in units shipped (an increase of $0.6 million). Sales into the domestic hospital market increased by $1.5 million or 6.6%, primarily attributable to sales volume increases in Oxygen Therapy and Airway Management product groups. Sales into the Pacific Rim increased by $0.4 million or 16.5%, primarily attributable to an increase in sales volume of Humidification products. Sales to the Company’s OEM customers increased by $0.2 million or 9.0%, primarily attributable to increased pricing. These gains were partially offset by a decline in sales into Latin America of $0.6 million or 54.7%, primarily attributable to declines in Airway Management sales volumes. Sales into other markets were relatively unchanged representing an increase of $0.1 million from the second quarter of 2002.

The Company’s gross profit for the second quarter of 2003 was $20.1 million, an increase of $2.1 million or 11.7% from the second quarter of 2002. As a percentage of sales, the gross profit was 44.3% and 43.1% for the second quarter of 2003 and 2002, respectively. The following contributed to the improvement in 2003 margin; (i) greater volume (0.5 margin points) of higher margin products (0.6 margin points) in the domestic hospital market and (ii) the favorable impact of the weakening value of the U.S. Dollar as compared to other countries’ currencies in which the Company distributes its products (0.8 margin points); and (iv) other factors (0.3 margin points). These increases in margin were partially offset by incremental costs associated with the move of the Argyle, New York facility to Tecate, Mexico in 2003 (0.3 margin points) and other factors (0.7 margin points).

Selling expenses were $5.2 million for the second quarter of 2003 as compared to $5.4 million in the second quarter of 2002. The decrease was primarily attributable to spending declines of $0.4 million due to lower fees associated with Group Purchasing Organizaitions in the domestic hospital market, offset by unfavorable changes in exchange rates of $0.2 million. As a percentage of net sales, selling expenses were 11.6% in the second quarter of 2003 as compared to 12.9% in the second quarter of 2002.

Distribution expenses were $2.7 million for the second quarter of 2003 as compared to $2.1 million in the second quarter of 2002. The increase was primarily attributable to intracompany freight charges of $0.5 million, transportation supplies of $0.2 million and unfavorable changes in exchange rates of $0.1 million, offset by decreased labor and overtime of $0.2 million. As a percentage of sales, distribution expense was 5.9% in the second quarter of 2003 and 5.0% in the second quarter of 2002.

General and administrative expenses were $4.4 million in the second quarter of 2003 as compared to $4.1 million in the second quarter of 2002, representing an increase of $0.3 million or 7.3%. This increase was primarily the result unfavorable changes in exchange rates of $0.3 million and increases in compensation and fringe benefit expenses, offset in part by the elimination of consulting and third party expenses associated with the debt restructuring in May 2002. As a percentage of net sales, general and administrative expenses were 9.6% in the second quarter of 2003 as compared to 9.9% in the second quarter of 2002.

Income tax provision was $0.7 million for the second quarter of 2003 as compared to $1.0 million in the second quarter of 2002 and relate primarily to foreign income taxes.

29

Six Months Ended June 30, 2003 Compared to Six Months Ended June 30, 2002

Net sales, on a consolidated basis, were $91.2 million in the first six months of 2003 as compared to $85.0 million in the first six months of 2002, representing a increase of $6.2 million or 7.3%. Sales into Europe increased by $2.7 million representing the impact of favorable changes in exchange rates resulting from a weakened U.S. dollar as compared to other countries’ currencies in which the Company distributes its products (an increase to reported sales of $2.8 million) offset in part by a decrease in units shipped (a decrease of $0.1 million). Sales into the domestic hospital market increased by $2.3 million or 5.0%, equally attributable to sales volume increases in Oxygen Therapy, Humidification and Airway Management product groups. Sales into the Pacific Rim increased by $1.4 million or 27.8%, primarily attributable to increased sales volume in Oxygen Therapy and Humidification products. Sales to the Company’s OEM customers increased by $0.4 million or 8.8%, primarily attributable to an increase in sales volume of Airway Management products. These gains were partially offset by a decline in sales into Latin America of $0.7 million or 34.0%, primarily attributable to a decline in Humidification sales volumes. Sales into other markets were relatively unchanged representing an increase of $0.1 million from the prior year.

The Company’s gross profit for the first six months of 2003 was $39.9 million, an increase of $3.8 million or 10.5% from the first six months of 2002. As a percentage of sales, the gross profit was 43.8% and 42.4% for the first six months of 2003 and 2002, respectively. The following contributed to the improvement in 2003 margin; (i) greater volume (0.6 margin points) of higher margin products (0.3 margin points) primarily in the domestic hospital market; (ii) greater volume (0.3 margin points) of higher margin products (0.1 margin point) primarily in the Humidification product group in the Pacific Rim market; (iii) favorable pricing of products sold to the Company’s OEM customers (0.2 margin points); (iv) cost reduction programs implemented during 2002 and recognized during 2003 (0.2 margin points); and (v) the favorable impact of the weakening value of the U.S. Dollar as compared to other countries’ currencies in which the Company distributes its products (0.7 margin points). These increases in margin were partially offset by: (i) incremental costs associated with the move of the Argyle, New York facility to Tecate, Mexico in 2003 (0.6 margin points); (ii) higher manufacturing costs in 2003 as a result of lower production levels than in the first six months of 2002 due to decreased inventories (0.3 margin points); and (iii) decreased sales volumes in Europe during the first six months of 2003 (0.1 margin point).

Selling expenses were $10.4 million for the first six months of 2003 and 2002. Although selling expenses in total are a relatively unchanged, spending has declined by $0.6 million primarily due to lower fees associated with Group Purchasing Organizaitions in the domestic hospital market, offset by unfavorable changes in exchange rates of $0.6 million. As a percentage of net sales, selling expenses were 11.4% in the first six months of 2003 as compared to 12.2% in the first six months of 2002.

Distribution expenses were $5.0 million for the first six months of 2003 as compared to $4.4 million in the first six months of 2002. The increase was primarily attributable to unfavorable changes in exchange rates of $0.3 million and increased intracompany freight charges of $0.7 million, offset by decreased labor and overtime of $0.4 million. As a percentage of sales, distribution expense was 5.5% in the first six months of 2003 and 5.2% in the first six months of 2002.

General and administrative expenses were $9.6 million in the first six months of 2003 as compared to $8.6 million in the first six months of 2002, representing an increase of $1.0 million or 11.6%. This increase was primarily the result of increases in compensation and fringe benefit expenses, offset in part by the elimination of consulting and third party expenses associated with the debt restructuring in May 2002. General and administrative expense also increased due to unfavorable changes in exchange rates of $0.4 million. As a percentage of net sales, general and administrative expenses were 10.5% in the first six months of 2003 as compared to 10.1% in the first six months of 2002.

Interest expense and other was $10.6 million for the first six months of 2003 as compared to $10.1 million in the first six months of 2002. The increase was primarily due to higher levels of debt payable to affiliates, and amortization of warrants issued in connection with the debt restructuring in May 2002.

Liquidity and Capital Resources

30

The Company’s primary sources of liquidity are cash flow from operations and borrowings under its working capital bank facility. Cash provided by operations totaled $7.9 million and $1.4 million for the first six months of 2003 and 2002, respectively. The increase for the first six months of 2003 as compared to the first six months of 2002 is primarily attributable to increased operating income, a decrease in accounts receivable and an increase in accrued liabilities. The Company had an operating working capital deficit of $(36.3) million and working capital of $8.4 million as of the end of June 30, 2003 and December 31, 2002, respectively. The working capital deficit is due to the inclusion of the entire Credit Facility as a current liability due to its current maturity of June 30, 2004. The Company is in discussions with various lenders to accomplish among other objectives, an extension of current maturities. The Company believes it will have the refinancing completed before the Credit Facilty matures. Inventories were $24.1 million and $22.6 million as of the end of June 30, 2003 and December 31, 2002, respectively. Over time, the Company expects its level of inventories to increase, as the Company’s sales increase. Accounts receivable, net of allowances, were $23.4 million and $24.2 million at June 30, 2003 and December 31, 2002, respectively.

During the six months ended June 30, 2003 and 2002, net cash used in investing activities was $3.5 million and $3.9 million, respectively. Cash was used primarily for the purchase of manufacturing equipment and new heater production.

During the six months ended June 30, 2003 and June 30, 2002, net cash used by financing was $7.3 million and $0.7 million, respectively, reflecting repayment on the Company’s borrowings in the first six months of 2003 and 2002.

As of June 30, 2003, the Company had outstanding $218.0 million of indebtedness, consisting of $115.0 million of Senior Subordinated Notes, borrowings of $50.0 million under the Company’s Credit Facility, $39.3 million in notes payable to affiliates and $13.7 million in outstanding borrowings under the bank facility of Hudson RCI AB, the Company’s European subsidiary.

The Credit Facility currently consists of a $40.0 million Term Loan Facility (of which $2.0 million is currently outstanding) and a $55.0 million Revolving Loan Facility of which up to $40.0 million (all of which has been borrowed and is outstanding) may be used for permitted acquisitions (“Acquisition Facility”) and up to $15.0 million (the “Working Capital Portion”) may be used for general corporate purposes (other than acquisitions). The Working Capital Portion has a letter of credit sub-limit of $7.5 million. The Term Loan Facility and Acquisition Facility mature on September 30, 2003 and June 30, 2004, respectively and will require quarterly principal installments totaling $5.0 million in 2003 and $37.0 million in 2004. The Revolving Loan Facility matures on June 30, 2004. As of August 1, 2003, total usage of the Working Capital Portion was $9.3 million (including letters of credit) and $5.7 million was available for borrowings.

The Company has issued to Holding 525,938 shares (including shares issued as payment in kind dividends) of its 11 ½% Senior PIK Preferred Stock due 2010 with an aggregate liquidation preference of $52.6 million, which has terms and provisions materially similar to those of the 11 ½% Senior Exchangeable PIK Preferred Stock due 2010 issued by Holding. At the election of the Company, dividends may be paid in kind until April 15, 2004 and thereafter must be paid in cash. The Credit Facility currently prohibits the Company from paying cash dividends on this Preferred Stock.

The Company has issued 3,000 shares of 12% Junior Convertible Cumulative Preferred Stock (the “Junior Preferred Stock”) to Holding, for total cash consideration to the Company of $3.0 million. Each share of the Junior Preferred Stock may be redeemed, from time to time, in whole or in part, at the option of the Company at a redemption price of 100% of the Liquidation Preference of the Junior Preferred Stock or $1,000 per share plus accumulated and unpaid dividends that would be payable on such shares of Junior Preferred Stock.

At June 30, 2003, the Company was in compliance with all provisions of its debt securities and preferred stock.

The following is a summary of the Company’s consolidated contractual obligations as of June 30, 2003:

(amounts in thousands) Payments Due by Period

31

	Total		LessThan 1Year		1-3 Years		4-5 Years		After5 Years
Long-term debt	$	217,981	$	54,998	$	44,315	$	—	$	118,668
Mandatorily redeemable preferred securities		53,345		—		—		—		53,345
Leases and other commitments		11,309		2,945		4,854		2,213		1,297
Total contractual obligations	$	282,635	$	57,943	$	49,169	$	2,213	$	173,310

The Company believes that cash generated from anticipated improved operating performance, together with the refinancing of its Credit Facility will provide sufficient liquidity to fund its operations and meet its obligations for the next twelve months. If the Company does not generate sufficient cash flow from operations in line with its current forecasts or if the Company fails to complete a refinancing of the Credit Facility, the Company would have to initiate measures to raise cash through additional debt or equity issuances, additional asset sales and/or curtail operations. Although the Company is currently in discussions with various lenders regarding a refinancing of the Credit Facility, it has no commitments for additional debt or equity and no assurance can be given as to whether or, on what terms, additional debt or equity investments could be obtained, if required. Failure to achieve expected cash flows or to obtain an extension of or refinance the current Credit Facility or, if necessary, to obtain additional debt or equity investment would have a material adverse effect on the Company.

For additional information regarding the Company’s debt securities and preferred stock, reference is made to Item 7 of the Company’s Annual Report on Form 10-K, for the year ended December 31, 2002.

As Holding is a holding company, its primary source of liquidity is dividends or other distributions from the Company. Holding’s only asset is its investment in Hudson Respiratory Care, Inc. The ability of the Company to pay cash dividends or make distributions to Holding when required, is restricted or prohibited under the terms of the debt instruments, including the Credit Facility. Since the Credit Agreement currently prohibits the Company from paying cash dividends to Holding, Holding may not be able to pay cash dividends to the holders of Holding Preferred Stock commencing in April 2004. In the event Holding is unable to pay cash dividends to the holders of Holding Preferred Stock for two consecutive periods, the sole remedy of the holders is the ability to elect two members to Holding’s Board of Directors.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

There have been no material changes in Holding’s market risk exposure from that reported in Holding’s 10-K for the fiscal year ended December 31, 2002.

ITEM 4. CONTROLS AND PROCEDURES

Holding’s Chief Executive Officer and Chief Financial Officer have concluded, based on an evaluation of the Company’s disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(c)), that such disclosure controls and procedures were effective as of the end of the period covered by this report. No change in the Company’s internal control over financial reporting occurred during the period covered by this report that have materially affected, or is reasonably likely to material affect, the Company’s internal control over financial reporting.

32

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 2. CHANGES IN SECURITIES

On April 9, 2003, the Certificate of Designation for the Registrant’s 11 ½% Senior Exchangeable PIK Preferred Stock due 2010 (the “Holding Preferred Stock”) was amended to extend the time period in which the Registrant may pay dividends in kind on the Senior Preferred Stock by one year. The amendment allows the Registrant to pay dividends in kind on the Senior Preferred Stock to and including April 15, 2004.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On March 31, 2003, the holders of a majority of the outstanding Senior Preferred Stock, Junior Preferred Stock and Common Stock, each class voting separately, by written consent of the shareholders approved an amendment to the Certificate of Designation for the Holding Preferred Stock to extend the time period in which the Registrant may pay dividends in kind on the Holding Preferred Stock by one year.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

3.3	Certificate of Amendment of Amended and Restated Certificate of Designation of Holding
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K

On April 10, 2003, the Registrant filed a current report on Form 8-K in connection with the amendment of the certificate of Designation to the Holding Preferred Stock.

______________

33

SIGNATURE

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

	RIVER HOLDING CORP., a Delaware corporation
August 8, 2003	by:	/s/ PATRICK G. YOUNT
		PatrickG.Yount ChiefFinancialOfficer (DulyAuthorizedOfficerandPrincipalFinancialOfficer)

EX-3.3

CERTIFICATE OF AMENDMENT

OF

CERTIFICATE OF DESIGNATION

OF

RIVER HOLDING CORP

Pursuant to Section 242 of the General Corporation
Law of the State of Delaware

The undersigned, pursuant to the provisions of the General Corporation Law of the State of Delaware, does hereby certify and set forth as follows:

FIRST:The name of the corporation is River Holding Corp. (the “Company”).

SECOND:The amendment to the Certificate of Designation to be effected hereby is as follows:

The second sentence of section (a) of the Certificate of Designation of the Company is hereby deleted and replaced in its entirety with the following:

“The number of shares constituting the Initial Holding Preferred Stock shall be 800,000, and the number of shares constituting the Series B Stock shall be 800,000 (when issued).”

The last two sentences of section c(i)of the Certificate of Designation of the Company are hereby deleted and replaced in their entirety with the following:

“Any dividend on the Holding Preferred Stock payable pursuant to this paragraph (c)(i) on or prior to April 15, 2004 shall be, at the option of Holding, payable (1) in cash or (2) through the issuance of a number of additional shares (including fractional shares) of Holding Preferred Stock (the “Additional Shares”) equal to the dividend amount divided by the Liquidation Preference of such Additional Shares. With respect to dividends payable after April 15, 2004, all dividends shall be payable solely in cash.”

Section (f)(ii)(A)(1) of the Certificate of Designation of the Company is hereby deleted and replaced in its entirety with the following:

“dividends on the Holding Preferred Stock are in arrears and unpaid and, in the case of the dividends payable after April 15, 2004, are not paid in cash for six or more Dividend Periods (whether or not consecutive)(a “Dividend Default”);”

Section (m)(ii)(1) of the Certificate of Designation of the Company is hereby deleted and replaced in its entirety with the following:

“up to 800,000 shares of Initial Holding Preferred Stock for original issue and”;

THIRD:The amendment effected herein was authorized by the affirmative vote of the holders of a majority of each class of the outstanding shares entitled to vote thereon pursuant to Section 242 of the General Corporation Law of the State of Delaware by written consent of the stockholders obtained in accordance with Section 228 of the General Corporation Law of the State of Delaware.

FOURTH:The capital of the corporation will not be reduced under or by reason of this amendment.

IN WITNESS WHEREOF, the undersigned has executed this Certificate of Amendment this 7th day of April, 2003.

By:	/s/ CHARLES A. FRENCH
	Name: Charles A. French Title:   President

EX-31.1

Exhibit 31

CERTIFICATIONS

I, Charles French, certify that:

1.I have reviewed this quarterly report on Form 10-Q of River Holding Corp.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a.designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with general accounting principles;

c.evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

d.presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a.all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b.any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:   August 8, 2003	/s/ CHARLES FRENCH
	Charles French Chief Executive Officer and President

EX-31.2

Exhibit 31

CERTIFICATIONS

I, Patrick Yount, certify that:

1.I have reviewed this quarterly report on Form 10-Q of River Holding Corp.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a.designed such disclosure controls and to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with general accounting principles;

c.evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

d.presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a.all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b.any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:   August 8, 2003	/s/ PATRICK YOUNT
	Patrick Yount Chief Financial Officer and Secretary

EX-32.1

Exhibit 32

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

In connection with the Quarterly Report of River Holding Corp. (the “Company”) on Form 10-Q for the quarter ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Periodic Report”), I, Charles A. French, President and Chief Executive Officer of the Company, certify, to my knowledge, that:

1. The Periodic Report fully complies with the requirements of Section 13(a) of the Securities and Exchange Act of 1934; and

2. The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ CHARLES FRENCH

Charles A. French
Chief Executive Officer and President
August 8, 2003

EX-32.2

Exhibit 32

CERTIFICATION OF CHIEF FINANCIAL OFFICER

In connection with the Quarterly Report of River Holding Corp. (the “Company”) on Form 10-Q for the quarter ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Periodic Report”), I, Patrick G. Yount, Chief Financial Officer of the Company, certify, to my knowledge, that:

1. The Periodic Report fully complies with the requirements of Section 13(a) of the Securities and Exchange Act of 1934; and

2. The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ PATRICK G. YOUNT

Patrick G. Yount
Chief Financial Officer and Secretary
August 8, 2003