10

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

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

                  For the twelve months ended DECEMBER 31, 2000
                                              -----------------
                                       OR
          ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                         Commission File Number:0-17821

                             ALLION HEALTHCARE, INC.
                             -----------------------
             (Exact name of registrant as specified in its charter)

                    DELAWARE                           11-2962027
                    --------                           ----------
        (State or other jurisdiction of            (I.R.S.Employer
         incorporation or organization)           Identification No.)

         33 WALT WHITMAN ROAD, SUITE 200A  HUNTINGTON STATION, NY 11746
         --------------------------------------------------------------
     (Address of principal executive offices)                 (Zip Code)

         Registrant's telephone number, including area code...(631) 547-6520
                                                              --------------

           Securities Registered Pursuant to Section 12(b) of the Act:
                                      None

           Securities Registered Pursuant to Section 12(g) of the Act:
                     Common Stock, $.01 Par Value per Share
                                (Title of Class)

         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 and
         Exchange Act of 1934 during the preceding 12 months (or for such
         shorter period that the registrant was required to file such reports),
         and (2) has been subject to such filing requirements for the past 90
         days.

                                                              YES  X      NO
                                                                  ---

     Transitional small business disclosure format (check one):

                                                              YES         NO  X
                                                                  ---        --



                                       1
<PAGE>











                                TABLE OF CONTENTS

PART I.

ITEM 1.     BUSINESS.......................................................... 3
ITEM 2.     PROPERTIES........................................................18
ITEM 3.     LITIGATION........................................................18
ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............19

PART II

ITEM 5.     MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
            STOCKHOLDER MATTERS...............................................19
ITEM 6.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED RESULTS
            OF OPERATIONS AND CONSOLIDATED FINANCIAL CONDITION................19
ITEM 7.     FINANCIAL STATEMENTS..............................................22
ITEM 8.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
            AND FINANCIAL DISCLOSURE..........................................33

PART III

ITEM 9.     DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS......33
ITEM 10.    EXECUTIVE COMPENSATION............................................34
ITEM 11.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....34
ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................34
ITEM 13.    COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT................34
ITEM 14.    EXHIBITS AND REPORTS ON FORM 8-K..................................34


       FORWARD-LOOKING STATEMENTS
       --------------------------
       The Statements in this Report on Form 10-KSB that are not based on
       historical information are considered forward-looking statements within
       the meaning of Section 27A of the Securities Act of 1933 and Section 21E
       of the Securities Exchange Act of 1934, including statements regarding
       the Company's hopes, intentions, beliefs or strategies regarding the
       future. Such forward-looking statements involve known and unknown risks,
       uncertainties and other factors that may cause the actual results,
       performance or achievements of Allion Healthcare, Inc. to be materially
       different from any future results, performance or achievements expressed
       or implied by such forward-looking statements. These forward-looking
       statements are based on our current expectations and are subject to a
       number of risks, uncertainties and assumptions relating to our
       operations, financial condition and results of operations, including,
       among others, rapid technological and other changes in the market we
       serve, our numerous competitors and the few barriers to entry for
       potential competitors, the short-term nature of many of our contracts,
       the seasonality and quarterly variations we experience in our revenue,
       our uncertain revenue growth, our ability to attract and retain qualified
       personnel, our ability to expand our infrastructure and manage our
       growth, and our ability to identify, finance and integrate acquisitions,
       among others. If any of these risks or uncertainties materializes, or if
       any of the underlying assumptions prove incorrect, actual results may
       differ significantly from results expressed or implied in any
       forward-looking statements made by us. These and other risks are detailed
       in this Annual Report on Form 10-KSB and in other documents filed by us
       with the Securities and Exchange Commission. Allion Healthcare, Inc.
       undertakes no obligation to update publicly any forward-looking
       statements for any reason, even if new information becomes available or
       other events occur in the future.



                                       2


<PAGE>


       Before you invest in our common stock, you should be aware that the
       occurrence of any of the events described in the risk factors, elsewhere
       in this report and other events that we have not predicted or assessed
       could have a material adverse effect on our earnings, financial condition
       and business. In such case, the trading price of our common stock could
       decline and you may lose all or part of your investment.


                                     PART I

         ITEM 1.  BUSINESS

         OVERVIEW

                  Allion Healthcare, Inc., controls two wholly owned subsidiary
         companies, MOMSPharmacy of Texas and MOMSPharmacy of New York. The
         Company fills individual patient specific specialty oral and injectable
         prescription medications and biopharmaceuticals. These patient-specific
         prescriptions are filled at licensed pharmacies located in Long Island,
         New York and Austin, Texas. The Company is licensed to dispense
         prescription medication in all 50 United States. The Company focuses
         its clinical expertise on specialized select niche markets such as HIV,
         Liver and Solid Organ Transplant, Hemophilia and Hepatitis. The
         Company's objective is to grow rapidly and enhance its market position
         as a leading specialty pharmacy provider by focusing on its business
         strengths and further penetrating its position within its targeted
         niche disease markets. In addition, the Company may enter select new
         markets, which might include clinical trials of patient-specific
         biopharmaceuticals and product distribution. The Company is also
         considering possible acquisitions to compliment existing product
         offerings and further penetration into additional geographic markets.

         Industry and Market Overview

         The specialty pharmacy market is fragmented with many public and
         private companies focusing on different product or customer niches.
         Historically, HIV oral and injectable medications, as well as organ
         transplant and diabetes medications were administered within a hospital
         or physician office setting. During the 1990's, the frequency with
         which these treatments have been administered outside these settings
         has increased dramatically in response to cost containment efforts and
         the introduction of new and more effective medications. The Company
         believes that the shift from hospital based or office based to home or
         self-administration has created a significant opportunity across the
         country. The Company is working specifically within certain niche
         markets, but is developing and evaluating business potential within
         other growing markets.

              OUR PHARMACIES. The Company owns and operates pharmacies in New
         York and Texas. The Company will only accept prescriptions that it can
         verify as being written by licensed healthcare providers. The Company
         does not prescribe medications or give medical advice. The focus of the
         Company pharmacies will be on dispensing medications and providing
         information to its customers.


                                       3



<PAGE>

              ACCEPTING PRESCRIPTIONS. Any customer can initiate the
         prescription process. The customer can direct their physicians to call
         or fax their prescriptions or a Pharmacist can contact the physician
         directly to obtain prescription information. The Company pharmacists
         are required to validate and verify the completeness of each
         prescription utilizing the same methodology as a traditional drugstore.
         This may include contacting the physician or another retail pharmacist.
         Once the prescription is verified, the order is usually filled and
         shipped the same day.

              PAYMENT. Customers may pay for their prescriptions either by
         credit card or check or by private insurance information that shows
         they are covered by a managed care organization, insurance plan or
         pharmacy benefit manager with whom the Company has a contract.

              MARKETING AND PROMOTION. The Company's sales personnel are
         responsible for promoting the capabilities and services of the Company
         to potential customers and potential referral sources. The Company made
         a significant investment in sales expense as it hired a vice president
         of new business development and two sales managers during the fourth
         quarter of 2000. They are all based in New York and will help to
         develop business in both the New York and Texas markets, as well as
         explore opportunities in additional markets.

              GOVERNMENT REGULATION. The Company's business is subject to
         extensive federal, state and local regulations, many of which are
         specific to pharmacies and the sale of over the counter drugs. For
         example, under the Omnibus Budget Reconciliation Act of 1990 and
         related state and local regulations, pharmacists are required to offer
         counseling to customers about medication, dosage, delivery systems,
         common side effects, adverse effects or interactions and therapeutic
         contraindications, proper storage, prescription refill and other
         information deemed significant by the pharmacists. The Company is also
         subject to federal, state and local licensing and registration
         regulations with respect to, among other things, pharmacy operations
         and the pharmacists employed.

                  The federal kickback law prohibits the knowing and willful
         solicitation, offer, payment or receipt of "any remuneration (including
         any kickback, bribe or rebate) directly or indirectly, overtly or
         covertly, in cash or in kind" in return for referring an individual for
         healthcare services or supplies for which payment may be made in whole
         or in part under any federally funded healthcare program. The statute
         extends to both physicians and non-physicians alike. At the state
         level, laws and regulations that prohibit the offer, payment,
         solicitation, or receipt of kickbacks in exchange for patient referral
         may use terms such as "bribes", "rebates", "commissions" or
         "fee-splitting" to describe the same prohibited conduct. Similarly,
         federal and state self-referral laws exist, which are aimed at
         curtailing over-utilization of health care services and supplies by
         generally prohibiting a physician who (or whose family) has a financial
         relationship with a facility or entity for health care services or
         supplies from referring patients to such a facility or entity for
         healthcare services or supplies.


                                       4



<PAGE>

                  Until recently, Health Care Financing Administration
         guidelines prohibited transmission of Medicare eligibility information
         over the Internet. The Company is also subject to extensive regulation
         relating to the confidentiality and release of patient records.
         Additional legislation governing the distribution of medical records
         exists or has been proposed at both the state and federal level. As
         Congress and State reimbursement entities assess alternative health
         care delivery systems and payment methodologies, the Company cannot
         predict which additional reforms may be adopted or what impact they may
         have on the Company.

              REFERRAL RESTRICTIONS. The Company is subject to federal and state
         laws, which govern financial and other arrangements between healthcare
         providers. These laws include the federal anti-kickback statute, which
         prohibits, among other things, knowingly and willfully soliciting,
         receiving, offering or paying any renumeration directly or indirectly
         in return for or to induce the referral of an individual to a person
         for the furnishing of any item or service for which payment may be made
         in whole or part under Medicare or Medicaid. Many states have enacted
         similar statutes, which are not necessarily limited to items and
         services for which payment is made by Medicare or Medicaid. Violations
         of these laws may result in fines, imprisonment and exclusion from the
         Medicare and Medicaid programs or other state funded programs. Federal
         and state court decisions interpreting these statutes are limited, but
         have generally construed the statutes to apply if "one purpose"
         remuneration is to induce referrals or other conduct within the
         statute. We review our business practices to comply with the
         Anti-Kickback law, the Health Insurance Portability and Accountability
         Act and similar state laws. However, if we are found to violate any of
         these laws, we could suffer penalties, fines, or possible exclusion,
         which could reduce our revenues and profits.

              HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT. HIPPA created
         new health care crimes, and granted authority to the Secretary of DHHS
         to impose certain civil penalties. Particularly, the Secretary may now
         exclude from Medicare any individual with a direct or indirect
         ownership interest in an entity convicted of health care fraud or
         excluded from the program. HIPPA encourages the reporting of health
         care fraud by allowing reporting individuals to share in any recovery
         made by the government. HIPPA also requires new programs to control
         fraud and abuse, and new investigations, audits and inspections.
         New crimes under HIPPA include:

            -   knowingly and willfully committing a federal health care offense
                related to a health care benefit program: and

            -   knowingly and willfully falsifying, concealing, or covering up a
                material fact or making any materially false or fraudulent
                statements in connection with claims and payment for health care
                services by a health care benefit plan.

         These provisions of HIPPA criminalized situations that previously were
         handled civilly through repayments of overpayments, offsets and fines.

                                       5



<PAGE>

         We believe that our business arrangements and practices comply with
         HIPPA. However, a violation could subject us to penalties, fines, or
         possible exclusion from Medicare or Medicaid. Such sanctions could
         reduce our revenues or profits.

              OIG FRAUD ALERTS AND ADVISORY OPINIONS. The Office of Inspector
         General of DHHS periodically issues Fraud Alerts and Advisory Opinions
         identifying practices it believes may violate federal fraud and abuse
         laws. We try to structure our business arrangements to comply with
         federal fraud and abuse laws. However, if we are found to have violated
         any of these laws, we could suffer penalties, fines or possible
         exclusion from the Medicare, Medicaid or other governmental programs,
         which could adversely affect our results of operations.

              STATE CONSUMER PROTECTION LAWS. A number of states are involved in
         enforcement actions involving pharmaceutical marketing programs,
         including programs offering incentives for pharmacists to dispense one
         product rather than another. State consumer protection laws generally
         prohibit false advertising, deceptive trade practices and the like. A
         number of the states have requested that the FDA exercise greater
         regulatory oversight in the area of pharmaceutical promotion activities
         by pharmacists. It is not possible to determine whether the FDA will
         act in this regard or what effect, if any, FDA involvement would have
         on our operations.

              THE STARK LAW. Federal law prohibits physicians from making a
         referral for certain health items or services if they, or their family
         members, have a financial relationship with the entity receiving the
         referral. No bill may be submitted in connection with a prohibited
         referral. Violations are punishable by civil monetary penalties upon
         both the person making the referral and the provider rendering the
         service. Such persons or entities are also subject to exclusion from
         Medicare and Medicaid. The Stark Law applies to our products and
         services, and we try to structure our relationships to comply with the
         law. However, if our practices are found to violate the Stark Law, we
         may be subject to sanctions or be required to alter or discontinue some
         of our practices. This could reduce our revenues or profits.

              BENEFICIARY INDUCEMENT. HIPPA penalizes the offering of
         remuneration or other inducements to beneficiaries of federal health
         care programs to influence the beneficiaries' decision to seek specific
         governmentally reimbursable items or services, or to choose a
         particular provider. HIPPA excludes items provided to promote the
         delivery of preventive care. The statutory exception would apply where
         "such care is provided or directly supervised by the medical provider
         that has provided the incentive."

         The OIG issued final regulations concerning inducements to
         beneficiaries. Under the new regulations, permissible incentives are
         those given in connection with preventive care, including pre and post
         natal care, and services described in the U.S. Preventive Service Task
         Force's Guide to Preventive Care. OIG also believes that items of
         nominal value given to beneficiaries are permissible even if not
         related to preventive care. However, permissible incentives would not


                                       6



<PAGE>

         include cash or cash equivalents. We from time to time provide some
         items at no charge to our patients in connection with their drug
         therapies, not all of which are included on the list of items
         specifically stated not to violate the new regulations. We nevertheless
         believe that those items are allowed by the underlying statute. A
         determination that we violated the regulations or the statute, however,
         could result in sanctions that reduce our revenue or profits.

              THE FALSE CLAIMS ACT. We are also subject to federal and state
         laws prohibiting individuals or entities from knowingly and willfully
         making claims for payment to Medicare, Medicaid, or other third party
         payors that contain false or fraudulent information. These laws provide
         for both criminal and civil penalties. Health care providers who submit
         claims which they knew or should have known were false, fraudulent, or
         for items or services that were not provided as claimed, may be
         excluded from Medicare and Medicaid participation, required to repay
         previously collected amounts, and subject to substantial civil monetary
         penalties.

              GOVERNMENT INVESTIGATIONS. The government increasingly examines
         arrangements between health care providers and potential referral
         sources to ensure that they are not designed to exchange remuneration
         for patient care referrals. Investigators are increasingly willing to
         look behind formalities of business transactions to determine the
         underlying purpose of payments. Enforcement actions have increased and
         are highly publicized. To our knowledge, we are not currently the
         subject of any investigation. Any future investigation may cause
         publicity that would cause potential customers to avoid us, reducing
         potential revenues and profits.

              In addition to investigations and enforcement actions initiated by
         governmental agencies, we could be the subject of an action brought
         under the False Claims Act by a private individual on behalf of the
         government. Actions under the False Claims Act, commonly know as
         "whistleblower" lawsuits are generally filed under seal to allow the
         government adequate time to investigate and determine whether it will
         intervene in the action, and defendant health care providers are often
         without knowledge of such actions until the government has completed
         its investigation and the seal is lifted.

              CONFIDENTIALITY. Federal and state laws protect confidentiality of
         medical records and information. We maintain medical records for each
         patient to whom we dispense drugs. We are thus subject to some of these
         medical record and patient confidentiality laws. In addition, we expect
         to become subject to DHHS rules recently proposed to ensure integrity
         and confidentiality of patient data. These rules, if adopted, would
         require mandatory security standards for entities which maintain or
         transmit health information electronically. Compliance with new
         standards to safeguard electronic medical records could be expensive,
         harming our results of operations. The HIPPA statute imposes criminal
         penalties on wrongful disclosure of private medical information. While
         we attempt to comply with all confidentiality requirements, a violation
         of any confidentiality law could subject us to sanctions that could
         reduce revenues or profits.

                                       7



<PAGE>

              BALANCED BUDGET ACT. Each state operates a Medicaid program funded
         in part by the Federal government. The states may customize their
         programs within federal limitations. Each state program has its own
         payment formula and recipient eligibility criteria. In recent years,
         changes in Medicare and Medicaid programs have resulted in limitations
         on, and reduced levels of, payment and reimbursement for a substantial
         portion of health care goods and services. For example, the federal
         Balanced Budget Act of 1997 (even after the restoration of some funding
         in 1999) will continue to cause significant reductions in spending
         levels for the Medicare and Medicaid programs. A more recent example is
         the action of a number of state Medicaid agencies to reduce their
         reimbursement rates in response to the new AWP prices published by
         First DataBank. Medicare has announced that it plans to also adopt new
         AWP pricing.

              Laws governing Medicare, Medicaid, CHAMPUS and other governmental
         programs may change, and various administrative rulings,
         interpretations and determinations make compliance difficult. Any
         changes may materially increase or decrease program payments or the
         cost of providing services. Final determinations of government program
         reimbursement often require years, because of audits, providers' right
         of appeal and numerous technical requirements. We believe we make
         adequate provision for adjustments. However, future reductions in
         reimbursement could reduce our revenues and profits.

              REFORM. The U.S. health care industry continues to undergo
         significant change. We anticipate that Congress and state legislatures
         will continue to review and access alternative health care delivery
         systems and payment methods and that public debate of these issues will
         likely continue in the future. We cannot predict which, if any, reform
         proposals will be adopted. Future changes in the nature of the health
         system could reduce revenues and profits.

              LIABILITY INSURANCE. Providing health care services and products
         entails an inherent risk of liability. In recent years, participants in
         the health care industry have become subject to an increasing number of
         lawsuits, many of which involve large claims and significant defense
         costs. We may from time to time be subject to such suits as a result of
         the nature of our business. We maintain general liability insurance,
         including professional and product liability, in an amount deemed
         adequate by our management. There can be no assurance, however, that
         claims in excess of, or beyond the scope of, our insurance coverage
         will not arise. In addition, our insurance policies must be renewed
         annually. Although we have not experienced difficulty in obtaining
         insurance coverage in the past, there can be no assurance that we will
         be able to do so in the future on acceptable terms or at all.

              CUSTOMERS. The Company provides medications to thousands of
         individual patients, who choose the Company as their pharmacy provider,
         and no single customer is significant enough to adversely impact
         revenue or income if lost.

              THIRD PARTY REIMBURSEMENT AND MANAGED CARE. The Primary trend in
         the United States health care industry is toward cost containment. The
         increasing prevalence of managed care, centralized purchasing
         decisions, consolidation among and integration of health care
         providers, and competition for patients has affected, and continues to
         affect, pricing purchasing, and usage patterns in health care.

                                       8



<PAGE>


         Decisions regarding the use of a particular drug treatment are
         increasingly influenced by large private payors, including managed care
         organizations, pharmacy benefit managers, group purchasing
         organizations, regional integrated delivery systems, and similar
         organizations, and are based increasingly on economic considerations
         including product cost and whether a product reduces the cost of
         treatment. Efforts by payors to eliminate, contain or reduce costs
         through coverage exclusions, lower reimbursement rates, greater claims
         scrutiny, closed provider panels, restrictions on required formularies,
         claim delays or denials and other similar measures could have a
         material adverse effect on our business, financial condition and
         results of operations.

         Some payors set lifetime limits on the amount reimbursable to patients
         for medical costs. Some of our patients may reach these limits because
         of the high cost of their medical treatment and associated
         pharmaceutical regimens. Some payors may attempt to further control
         costs by selecting some firms to be their exclusive providers of
         pharmaceutical or other medical product benefits. If any of such
         arrangements were with our competitors, we would be unable to be
         reimbursed for purchases made by such patients.

          The Company derives a significant portion of its revenue from
          governmental programs such as Medicare and Medicaid. Such programs are
          highly regulated and subject to frequent and substantial changes and
          cost containment measures. In recent years, changes in these programs
          have limited and reduced reimbursement to providers. The Balanced
          Budget Act of 1997 includes significant additional reductions in
          spending levels for these programs. This legislation also replaced and
          relaxed the federal Medicaid payment standard, thereby increasing
          state discretion over administration of Medicaid programs.

          Federal and state proposals are pending that would impose further
          limitations on governmental payments and that could increase patient
          co-payments and deductibles. Federal and state agencies are examining
          perceived discrepancies between reported average wholesale prices of
          drugs and the actual manufacturers selling price. Talks are currently
          underway with at least one large drug manufacturer aimed at revising
          price reporting methods. Recently, First DataBank, Inc., which reports
          average wholesale drug prices to Medicaid programs, announced that it
          will report based on market prices rather than prices submitted by
          manufacturers. As a result, a number of state Medicaid agencies have
          recently lowered the amount of reimbursement they pay for certain
          drugs. The Company believes these developments will reduce prices and
          margins on some of the drugs it sells.

          Recently, several proposals have been made in Congress to enlarge
          prescription drug coverage. The U.S. Congress has been studying the
          accuracy of average wholesale drug prices as an appropriate benchmark
          for setting rates of reimbursement. Additionally, a number of states
          are considering legislation designed to reduce their Medicaid
          expenditures and provide universal coverage and additional care for
          some populations, including proposals to impose additional taxes on


                                       9



<PAGE>

          providers to help finance or expand such programs. Some state may
          require us to maintain a licensed pharmacy in their states in order to
          qualify for reimbursement under state-administered reimbursement
          plans. Any of these changes could result in significant reductions in
          payment levels for drugs handled and services provided by us, which
          would have a material adverse effect on our business, financial
          conditions and results of operations.

              COMPETITION. The Specialty pharmacy industry is highly competitive
         and is undergoing consolidation. The industry is fragmented, with many
         public and private companies focusing on different product or customer
         niches. Some of our current and potential competitors include:

       -    specialty pharmacy distributors such as Caremark Therapuetic
            Services, Priority Healthcare Corporation, Accredo Health, Inc. and
            Gentiva Health Services, Inc.;

       -    specialty pharmacy divisions of national wholesale drug
            distributors;

       -    pharmacy benefit management companies;

       -    hospital based pharmacies;

       -    retail pharmacies;

       -    home infusion therapy companies;

       -    manufacturers that sell their products both to distributors and
            directly to users, including clinics and physician offices; and

       -    hospital based care centers and other alternate site health care
            providers.

         Some of our competitors have greater financial, technical, marketing
         and managerial resources than we have.

         While competition is often based primarily on price and quality of
         service, it can also be affected by the ability to develop and maintain
         relationships with patients and referral sources, depth of product
         line, technical support systems, specific patient requirements and
         reputation. There can be no assurance that competitive pressures will
         not have a material adverse affect on our business, financial condition
         and results of operations.

         LICENSING AND REGISTRATION. State laws require that we be required to
         be licensed as an in-state pharmacy in New York and Texas. We currently
         ship prescription drugs to many other states that require us to be
         licensed as an out of state pharmacy. We believe that we substantially
         comply with all state licensing laws applicable to our business.

         Laws enforced by the federal Drug Enforcement Agency, as well as some
         similar state agencies; require our pharmacy locations to individually
         register in order to handle controlled substances, including
         prescription drugs. A separate registration is required at each
         principle place of business where the applicant manufactures,
         distributes, or dispenses controlled substances. Federal and state laws
         require that we follow specific labeling and record-keeping
         requirements for controlled substances. We maintain federal and state
         controlled substance registrations for each of our facilities that
         require it, and follow procedures intended to comply with all such
         record-keeping requirements.


                                       10


<PAGE>

         PHARMACISTS. Our Pharmacists must obtain state licenses to dispense
         drugs. Our Pharmacists are licensed in those states where their
         activity requires it. Pharmacist must also comply with professional
         practice rules. We monitor our Pharmacists' practices for compliance
         with such state laws and rules. We do not believe that the activities
         undertaken by our Pharmacists violate rules governing the practice of
         pharmacy or medicine.

         PHARMACY COUNSELING. Federal law requires that states offering Medicaid
         prescription drug benefits implement a drug use review program. The
         program requires "before and after" drug use reviews, the use of
         predetermined standards, and patient education. Its purpose is to
         improve the quality of care by ensuring drug prescriptions are
         medically necessary, and not likely to cause adverse effects.
         Participating state must develop standards for pharmacy counseling.
         These standards apply as well to non-resident pharmacies like us. We
         believe our pharmacists monitor these requirements, and provide
         necessary counseling.

         FEDERAL MAIL ORDER.  Federal law imposes standards for:

         - the labeling, packaging and repackaging, advertising and adulteration
           of prescription drugs: and
         - the dispensing of controlled substances and prescription drugs.

         The Federal Trade Commission and the United States Postal Service
         regulate mail order drug sellers. The law requires truth in
         advertising, a reasonable supply of drugs to fill orders, and a right
         to a refund if an order cannot be filled within thirty days. We believe
         that we substantially comply with all of these requirements.

         PRESCRIPTION DRUG MARKETING ACT. This federal law exempts many drug and
         medical devices from federal labeling and packaging requirements, as
         long as they are not adulterated or misbranded and were prescribed by a
         physician. The law also prohibits the sale, purchase or trade of drug
         samples that are not intended for sale or intended to promote the sale
         of the drug. Records must be kept of drug sample distribution, and
         proper storage and maintenance methods used. To the extent that this
         law applies to us, we believe that we comply with the documentation,
         record keeping and storage requirements.

         EMPLOYEES. As of December 31, 2000, the Company had 27 full-time
         employees. None of our employees is represented by a labor union. The
         Company has not experienced any work stoppages and considers our
         employee relations to be good.

         FORWARD-LOOKING STATEMENTS. In addition to historical information, this
         Annual Report contains forward-looking statements. These
         forward-looking statements are subject to certain risks and
         uncertainties that could cause actual results to differ materially from
         those reflected in these forward-looking statements. Factors that might
         cause such a difference include, but are not limited to; those
         discussed in the section entitled "Management's Discussion and Analysis
         of Consolidated Results of Operations and Consolidated Financial
         Condition." Readers are cautioned not to place undue reliance on these

                                       11

<PAGE>


         forward-looking statements, which reflect management's opinions only as
         of the date hereof. The Company undertakes no obligation to revise or
         publicly release the results of any revision to these forward-looking
         statements. Readers should carefully review the risk factors described
         in other documents the Company files from time to time with the
         Securities and Exchange Commission, including the Quarterly Reports on
         Form 10-QSB to be filed by the Company in fiscal year 2001.


                                  RISK FACTORS
           YOU SHOULD CAREFULLY CONSIDER THE RISKS AND UNCERTANTIES WE
         DESCRIBE BELOW BEFORE INVESTING IN ALLION. THE RISKS AND UNCERTANTIES
         DESCRIBED BELOW ARE NOT THE ONLY RISKS AND UNCERTANTIES THAT COULD
         DEVELOP. OTHER RISKS AND UNCERTANTIES THAT WE HAVE NOT PREDICTED OR
         EVALUATED COULD ALSO AFFECT OUR COMPANY.

         IF ANY OF THE FOLLOWING RISKS OCCUR, OUR EARNINGS, FINANCIAL CONDITION
         OR BUSINESS COULD BE MATERIALLY HARMED, AND THE TRADING PRICE OF OUR
         COMMON STOCK COULD DECLINE, RESULTING IN THE LOSS OF ALL OR PART OF
         YOUR INVESTMENT.

         OUR BUSINESS WOULD BE HARMED IF DEMAND FOR OUR PRODUCTS AND SERVICES IS
         REDUCED.

              Reduced demand for our products and services could be caused by a
number of circumstances, including:


-    patient shifts to treatment regimens other than those we offer;
-    new treatments or methods of delivery of existing drugs that do not require
     our specialty products and services; or a recall of a drug;
-    adverse reactions caused by a drug;
-    the expiration or challenge of a drug patent;
-    competing treatment from a new drug or a new use of an existing drug;
-    the loss of a managed care or other payor relationship covering a number of
     high revenue patients;
-    the cure of a disease we service; or
-    the death of a high revenue patient.

THERE IS SUBSTANTIAL COMPETITION IN OUR INDUSTRY, AND WE MAY NOT BE
ABLE TO COMPETE SUCCESSFULLY.

              The specialty pharmacy industry is highly competitive and
         continuing to become more competitive. All of the drugs, supplies and
         services that we provide are also available from our competitors. Our
         current and potential competitors include:

-    other specialty pharmacy distributors;
-    specialty pharmacy divisions of wholesale drug distributors;
-    pharmacy benefit management companies;
-    hospital-based pharmacies;
-    retail pharmacies;
-    home infusion therapy companies;
-    other alternate site health care providers.

                                       12


<PAGE>


              Many of our competitors have substantially greater resources and
         more established operations and infrastructure than we have. We are
         particularly at risk from any suppliers deciding to pursuits own
         distribution and services and not outsource these needs to companies
         like us. A significant factor in effective competition will be an
         ability to maintain and expand relationships with managed care
         companies, pharmacy benefit managers and other payors who can
         effectively determine the pharmacy source for their enrollees.

         RECENT INVESTIGATIONS INTO REPORTING OF AVERAGE WHOLESALE PRICES COULD
         REDUCE OUR PRICING AND MARGINS.

              Recent revisions to how the average wholesale price (or AWP) is
         determined will result in reduced prices and profit margins for some
         drugs that we handle. Many government payors, including Medicare and
         Medicaid pay us directly or indirectly at the drug's AWP or at a
         percentage of AWP. We have also contracted with a number of private
         payors to sell drugs at AWP or at a percentage of AWP. AWP for most
         drugs is compiled and published by a private company, First DataBank,
         Inc. Various federal and state governmental agencies have been
         investigating whether the reported AWP of many drugs, including some
         that we sell, is an appropriate or accurate measure of the market price
         of the drugs. As reported in the Wall Street Journal, there are several
         whistleblower lawsuits pending against various drug manufacturers.
         These government investigations and lawsuits involve allegations that
         various manufacturers reported artificially inflated AWP prices of
         various drugs to First DataBank. If the reduced average wholesale
         prices published by First DataBank for the drugs we sell are ultimately
         adopted as the standard by which we are paid by government payors or
         private payors, this could have a material adverse effect on our
         business, financial condition and results of operation, including
         reducing the pricing and margins on certain of our products.

         OUR ACQUISITION STRATEGY MAY NOT BE SUCCESSFUL, WHICH COULD CAUSE OUR
         BUSINESS AND FUTURE GROWTH PROSPECTS TO SUFFER.

         As part of our growth strategy, we continue to evaluate acquisition
         opportunities, but we cannot predict or provide assurance that we will
         complete any future acquisitions. Acquisition involves many risks,
         including;
            - difficulty in identifying suitable candidates and negotiating and
              consummating acquisitions on attractive terms;
            - difficulty in assimilating the new operations;
            - increased transaction costs;
            - diversion of our management's attention from existing operations;
            - dilutive issuances of equity securities that may negatively
              impact the market price of our stock;
            - increased debt; and
            - increased amortization expense related to goodwill and other
              intangible assets that would decrease our earnings.

                                       13


<PAGE>

         We could also be exposed to unknown or contingent liabilities resulting
         from the pre-acquisition operations of the entities we acquire, such as
         liability for failure to comply with health care or reimbursement laws.

FLUCTUATIONS IN OUR QUARTERLY FINANCIAL RESULTS MAY CAUSE OUR STOCK PRICE TO
DECLINE.

              Our results of operations may fluctuate on a quarterly basis,
         which could adversely affect the market price of our common stock. Our
         results may fluctuate as a result of:

-    lower prices paid by Medicare or Medicaid for the drugs that we sell,
     including lower prices resulting from recent revisions in the method of
     establishing AWP;
-    below expected sales;
-    product shortages;
-    the timing and integration of our acquisitions;
-    changes in governmental regulations;
-    the annual renewal of deductibles and co-payment requirements that affect
     patient ordering patterns;
-    physician prescribing patterns; and
-    general economic conditions.

         OUR BUSINESS COULD BE HARMED IF THE SUPPLY OF ANY OF THE PRODUCTS THAT
         WE SELL BECOMES SCARCE.

         The biopharmaceutical industry is susceptible to product shortages. If
         these products, or any of the other drugs we sell, are in short supply
         for long periods of time, our business could be harmed.

         OUR BUSINESS COULD BE HARMED BY CHANGES IN MEDICARE OR MEDICAID.

         Changes in the Medicare, Medicaid or similar government programs or the
         amounts paid by those programs for our services may adversely affect
         our earnings. For example, these programs could revise their pricing
         based on new methods of calculating AWP for drugs we handle. Any
         reductions in amounts reimbursable by government programs for our
         services or changes in regulations governing such reimbursements could
         materially and adversely affect our business, financial condition and
         results of operations.

         OUR BUSINESS WILL SUFFER IF WE LOSE RELATIONSHIPS WITH PAYORS.

         We are dependent on reimbursement from non-governmental payors. Many
         payors seek to limit the number of providers that supply drugs to their
         enrollees. From time to time, payors with whom we have relationships
         require that we and our competitors bid to keep their business, and
         there can be no assurance that we will be retained or that our margins
         will not be adversely affected when that happens. The loss of a payor
         relationship could result in the loss of a significant number of
         patients and have a material adverse effect on our business, financial
         condition and results of operations.


                                       14


<PAGE>

         OUR BUSINESS COULD BE HARMED IF PAYORS DECREASE OR DELAY THEIR PAYMENTS
         TO US.

         Our profitability depends on payment from governmental and
         non-governmental payors, and we could be materially and adversely
         affected by cost containment trends in the health care industry or by
         financial difficulties suffered by non-governmental payors. Cost
         containment measures affect pricing, purchasing and usage patterns in
         health care. Payors also influence decisions regarding the use of a
         particular drug treatment and focus on product cost in light of how the
         product may impact the overall cost of treatment. The timing of
         payments and our ability to collect from payors also affects our
         revenues and profitability. If we are unable to collect from payors or
         if payors fail to pay us in a timely manner, it could have a material
         adverse effect on our business and financial condition.

         OUR  BUSINESS COULD BE ADVERSELY AFFECTED BY THE GROWTH STRATEGY OF
         ACQUIRING OTHER COMPANIES.

         Since our growth strategy may involve the acquisition of other
         companies, we may record goodwill in the future. The amortization and
         possible write-off of this goodwill could negatively impact our future
         earnings. Also we may be required to allocate a portion of the purchase
         price to the value of non-competition agreements, patient base and
         contracts that are acquired. The value of any amounts allocated to
         these items could be amortized over a period years. As a result, our
         earnings and market price of our common stock could be negatively
         impacted.

         WE RELY ON A FEW KEY EMPLOYEES WHOSE ABSENCE OR LOSS COULD ADVERSELY
         AFFECT OUR BUSINESS.

         We depend on a few key executives, and the loss of their services could
         cause a material adverse effect to our company. We do not maintain "key
         person" life insurance policies on any of those executives. As a
         result, we are not insured against the loss resulting from the death of
         our key executives. Further, we must be able to attract and retain
         other qualified, essential employees for our technical operating and
         professional staff, such as pharmacists. If we are unable to attract
         and retain these essential employees, our business could be harmed.

         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 growth strategy, we will need substantial
         capital resources and will incur, from time to time, additional
         short-and long-term indebtedness, the terms of which depend on market
         and other conditions. We cannot be certain that existing or additional
         financing will be available to us on acceptable terms, if at all. 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 reduce the percentage ownership of our then
         current stockholders.


                                       15


<PAGE>

         OUR INDUSTRY IS SUBJECT TO EXTENSIVE GOVERNMENT REGULATION AND
         NONCOMPLIANCE BY US OR OUR SUPPLIERS COULD HARM OUR BUSINESS.

         The marketing, sale and purchase of drugs and medical supplies is
         extensively regulated by federal and state governments, and if we fail
         or are accused of failing to comply with laws and regulations, we could
         suffer a material adverse effect on our business, financial condition
         and results of operations. Our business could also be materially and
         adversely affected if the suppliers or clients we work with are accused
         of violating laws or regulations. The applicable regulatory framework
         is complex, and the laws are very broad in scope. Many of these laws
         remain open to interpretation, and have not been addressed by
         substantive court decisions.

         The health care laws and regulations that especially apply to our
         activities include:

         -    The federal "Anti-Kickback Law" prohibits the offer or
              solicitation of compensation in return for the referral of
              patients covered by almost all governmental programs, or the
              arrangement or recommendation of the purchase of any item,
              facility or service covered by those programs. The Health
              Insurance Portability and Accountability Act of 1996, or HIPPA,
              created new violations for fraudulent activity applicable to both
              public and private health care benefit programs and prohibits
              inducements to Medicare or Medicaid eligible patients. The
              potential sanctions for violations of these laws range from
              significant fines, to exclusion from participation in the Medicare
              and Medicaid programs, to criminal sanctions. Although some "safe
              harbor" regulations attempt to clarify when an arrangement will
              not violate the Anti-Kickback Law, our business arrangements and
              the services we provide may not fit within these safe harbors.
              Failure to satisfy a safe harbor requires analysis of whether the
              parties intend to violate the Anti-Kickback Law. The finding of a
              violation could have a material adverse effect on our business.

         -    The Department of Health and Human Services has proposed
              regulations implementing the Administrative Simplification
              provision of HIPPA concerning the maintenance and transmission and
              security of electronic health information, particularly
              individually identifiable information. The new regulations, when
              enacted, will require the development and implementation of
              security and transaction standards for all electronic health
              information and impose significant use and disclosure obligations
              on entities that send or receive individually identifiable
              electronic health information. Failure to comply with these
              regulations, or wrongful disclosure of confidential patient
              information could result in the imposition of administrative or
              criminal sanctions, including exclusion from the Medicare and
              state Medicaid programs. In addition, if we choose to distribute
              drugs through new distribution channels such as the Internet, we
              will have to comply with government regulations that apply to
              those distribution channels, which could have a material adverse
              effect on our business.

         -    The Ethics in Patient Referrals Act of 1989, as amended, commonly
              referred to as the "Stark Law," prohibits physician referrals to
              entities with which the physician or their immediate family



                                       16


<PAGE>

              members have a "financial relationship." A violation of the Stark
              Law is punishable by civil sanctions, including significant fines
              and exclusion from participation in Medicare and Medicaid.

         -    State laws prohibit the practice of medicine, pharmacy and nursing
              without a license. To the extent that we assist patients and
              providers with prescribed treatment programs, a state could
              consider our activities to constitute the practice of medicine. If
              we are found to have violated those laws, we could face civil and
              criminal penalties and be required to reduce, restructure, or even
              cease our business in that state.

         -    Pharmacies and pharmacist must obtain state licenses to operate
              and dispense drugs. Pharmacies must also obtain licenses in some
              states to operate and provide goods and services to residents of
              those states. If we are unable to maintain our licenses or if
              states place burdensome restrictions or limitations on
              non-resident pharmacies, this could limit or affect our ability to
              operate in some states which could adversely impact our business
              and results of operations.

         -    Federal and state investigations and enforcement actions continue
              to focus on the health care industry, scrutinizing a wide range of
              items such as referral and billing practices, product discount
              arrangements, dissemination of confidential patient information,
              clinical drug research trials and gifts for patients.

         -    The False Claims Act encourages private individuals to file suits
              on behalf of the government against health care providers such as
              us. Such suits could result in significant financial sanctions or
              exclusion from participation in the Medicare and Medicaid
              programs.

         THE MARKET PRICE OF OUR COMMON STOCK MAY EXPERIENCE SUBSTANTIAL
         FLUCTUATIONS.

         The Market price of our common stock could fluctuate substantially
         based on a variety of factors, including the following:

         -    future announcements concerning us, our competitors, the drug
              manufacturers with whom we have relationships or the health care
              market.
         -    Changes in government regulations;
         -    Overall volatility of the stock market;
         -    Changes in earnings estimates by analysts; and
         -    Changes in operating results from quarter to quarter.

         Furthermore, stock prices for many companies fluctuate widely for
         reasons that may be unrelated to their operating results. These
         fluctuations, coupled with changes in our results of operations and
         general economic, political and market conditions, may adversely affect
         the market price of our common stock.

         ITEM 2.  PROPERTIES

              The Company occupies approximately 2,700 square feet of space in
         Huntington Station, New York, which is leased to the Company through
         December 31, 2003. Both the executive offices and the New York Pharmacy

                                       17


<PAGE>

         are located at this site. The Company also leases approximately 3,600
         square feet of space in Austin, Texas for its licensed pharmacy. This
         lease expires May 30, 2003.

         ITEM 3.  LEGAL PROCEEDINGS

                  The Company is not a party to any material pending legal
         proceedings.

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

                  No matters were submitted to a vote of the security holders of
         the Company during the fourth quarter of 2000.

                                     PART II

         ITEM 5.  MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
                  STOCKHOLDERS

         DESCRIPTION OF SECURITIES

                  The authorized capital stock of the Company consists of
         5,000,000 shares of Preferred Stock, par value of $.01 per share and
         15,000,000 shares of Common Stock, par value of $.01 per share. There
         were 512,500 shares of Preferred Stock and 3,100,000 shares of Common
         Stock outstanding at December 31, 2000. The Company's Certificate of
         Incorporation is available for review upon request.

         PREFERRED STOCK. The holders of Preferred Stock are entitled to receive
         dividends prior and in preference to any declaration of any dividend on
         the Common Stock. In the event of a liquidation, dissolution, or
         winding-up of the Company, holders of Preferred Stock are entitled to
         be paid in full in an amount equal to a per share price for each share
         of Preferred Stock outstanding plus an amount equal to all declared but
         unpaid dividends on each such share accrued up to such date of
         distribution. Holders of Preferred Stock may convert their stock at any
         time into shares of Common Stock.

         COMMON STOCK. The holders of Common Stock are entitled to one vote for
         each share held of record on all matters submitted to a vote of
         stockholders. Holders of Common Stock are entitled to receive ratably
         such dividends as may be declared by the Board of Directors out of
         funds legally available therefore. In the event of a liquidation,
         dissolution, or winding-up of the Company, holders of Common Stock are
         entitled to share ratably in all assets remaining after payment of
         liabilities. Holders of Common Stock have no preemptive rights and have
         no rights to convert their Common Stock into any other securities. All
         of the outstanding shares of Common Stock are fully paid and
         non-assessable.

         MARKET FOR COMMON EQUITY. The Company is working with its Counsel and a
         market maker to obtain approval from the National Association of
         Securities Dealers to trade on the Over The Counter Bulletin Board.


                                       18



<PAGE>


         DIVIDENDS AND DIVIDEND POLICY. The Company has never paid cash
         dividends on its capital stock and has no intention of paying any cash
         dividends in the foreseeable future.

         ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED RESULTS
         OF OPERATIONS AND CONSOLIDATED FINANCIAL CONDITION

                 The following discussion and analysis provides information,
         which the Company's management believes is relevant to an assessment
         and understanding of the Company's results of operations and financial
         condition. This discussion should be read in conjunction with the
         consolidated financial statements and notes thereto appearing elsewhere
         herein.
              This discussion contains forward-looking statements that are
         subject to a number of known and unknown risks that, in addition to
         general economic, competitive and other business conditions, could
         cause actual results, performance and achievements to differ materially
         from those described or implied in the forward-looking statements (See
         Forward-Looking Statements).
              The Company is subject to significant external factors that could
         significantly impact its business, including changes in Medicare and
         Medicaid reimbursement, government fraud and abuse initiatives and
         other factors that are beyond the control of the Company. These
         factors, as well as future changes in reimbursement methodologies and
         new or changes in interpretations of regulations, including Pharmacy
         Laws and regulations, could cause future results to differ materially
         from historical trends.

         RESULTS OF OPERATIONS

         YEAR ENDED DECEMBER 31, 2000 AS COMPARED TO THE ELEVEN MONTHS
         ENDED DECEMBER 31, 1999

         NET SALES. Net sales of the Company's mail order medications divisions
         were $9,167,587 for the year ended December 31, 2000 and $6,937,625 for
         the eleven months ended December 31, 1999. Monthly average net sales of
         specialty prescription medications increased by 21.13% during 2000 as
         compared to 1999.

         GROSS PROFIT. Gross profit was 16.46% of sales for the year ended
         December 31, 2000 and 23.43% for the eleven months ended December 31,
         1999. The decrease was reflective of a change in prescription therapy
         and payor mix, as well as prescription reimbursement pricing pressure.

         SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
         administrative expenses were $2,415,531 for the year ended December 31,
         2000 and $2,638,367 for the eleven months ended December 31, 1999; and
         represented 26.34% and 38.03% of net sales, respectively. The decrease
         in selling, general and administrative expenses represents a 8.44%
         decrease in annual expenses when compared to 1999. The Company was able
         to reduce and leverage its expenses while increasing sales by 21.13%.


                                       19



<PAGE>
OTHER INCOME (EXPENSE). Other income (expense) for the year ended December 31,
2000 was ($233,643) and $(965,235) for the eleven months ended December 31,
1999. For the year ended December 31, 2000, other income (expense) is comprised
of interest expense and the net gain from the Company's settlement of a lawsuit.

INCOME TAXES. For the year ended December 31, 2000, the Company's tax benefit
approximating $ 130,000 primarily resulted from the income tax provision
recorded for the income on discontinued operations. For the eleven months ended
December 31, 1999, there was no provision due to the fact that the Company had
an operating loss.

REVENUE RECOGNITION. Revenue is recognized as medications or products are
delivered to customers. A substantial portion of the Company's revenue is billed
to third-party payers, including insurance companies, managed care plans and
governmental payers. Revenue is recorded net of contractual adjustments and
related discounts. Contractual adjustments represent estimated differences
between billed revenues and amounts expected to be realized from third-party
payers under contractual agreements.

PROVISION FOR ESTIMATED UNCOLLECTIBLE ACCOUNTS. Management regularly reviews the
collectability of accounts receivable by tracking collection and write-off
activity. Estimated write-off percentages are then applied to each aging
category by payer classification to determine the allowance for estimated
uncollectable accounts. The allowance for estimated uncollectable accounts is
adjusted as needed to reflect current collection, write-off and other trends,
including changes in assessment of realizable value. While management believes
the resulting net carrying amounts for accounts receivable are fairly stated at
each quarter-end and that the Company has made adequate provision for
uncollectable accounts based on all available information, no assurance can be
given as to the level of future provisions for uncollectable accounts, or how
they will compare to the levels experienced in the past. The Company's ability
to successfully collect its accounts receivable depends, in part, on its ability
to supervise and train personnel in billing and collection, and minimize losses
related to system changes.

LIQUIDITY AND CAPITAL RESOURSES. At December 31, 2000 and December 31, 1999, the
Company had cash balances of $727,981 and $316,871 respectively. Inventories at
December 31, 2000 and December 31, 1999 were $96,519 and $94,718, respectively.
Accounts receivable net of the allowance for doubtful accounts was $1,140,218 at
December 31, 2000 and $1,137,469 at December 31, 1999. In addition, the Company
has a revolving credit facility in the amount of $4.0 million available to the
Company for short-term borrowings. Borrowings under the facility bear interest
at Prime + two percent and are collateralized by a perfected and primary
security interest in all assets, accounts receivable, trademarks, licenses, and
values of any kind of the Company. At December 31, 2000 and December 31, 1999,
borrowings under this facility were $0 and $727,804 respectively. In addition,
The Company secured a loan from a bank for $1,500,000 that bears interest at
8.5%, monthly, with the full principle payable in March of 2002.


                                       20


<PAGE>

The Company believes that its existing capital resources will enable it to
maintain its current and planned operations for at least 12 months from the date
hereof.
         ITEM 7.FINANCIAL STATEMENTS                                Page

         Independent Auditors' Report                                F-1

         Consolidated Balance Sheet as of December 31, 2000          F-2

         Consolidated Statement of Operations for the Year Ended
         December 31, 2000 and the Period from February 1, 1999 to
         December 31, 1999                                           F-3

         Consolidated Statement of Cash Flows for the Year Ended
         December 31, 2000 and the Period from February 1, 1999
         to December 31, 1999                                        F-4

         Consolidated Statement of Stockholders' Equity for the
         Period February 1, 1999 to December 31, 2000                F-5

         Notes to Consolidated Financial Statements               F-6 - F-12




<PAGE>


                          INDEPENDENT AUDITORS' REPORT

         The Board of Directors
         Allion Healthcare, Inc. and Subsidiaries
         Huntington Station, New York

         We have audited the accompanying consolidated balance sheet of Allion
         Healthcare, Inc. and Subsidiaries, as of December 31, 2000, and the
         related consolidated statements of operations, stockholders' equity and
         cash flows for the year then ended and the period from February 1, 1999
         to December 31, 1999. These financial statements are the responsibility
         of the Company's management. Our responsibility is to express an
         opinion on these financial statements based on our audits.

         We conducted our audits in accordance with auditing standards generally
         accepted in the United States of America. Those standards require that
         we plan and perform the audit to obtain reasonable assurance about
         whether the financial statements are free of material misstatement. An
         audit includes examining, on a test basis, evidence supporting the
         amounts and disclosures in the financial statements. An audit also
         includes assessing the accounting principles used and significant
         estimates made by management, as well as evaluating the overall
         financial statement presentation. We believe that our audits provide a
         reasonable basis for our opinion.

         In our opinion, the consolidated financial statements referred to above
         present fairly, in all material respects, the financial position of
         Allion Healthcare, Inc. and Subsidiaries as of December 31, 2000 and
         the results of their operations and their cash flows for the year then
         ended and for the period from February 1, 1999 to December 31, 1999 in
         conformity with accounting principles generally accepted in the United
         States of America.

                                        HOLTZ RUBENSTEIN & CO., LLP
         Melville, New York
           January 30, 2001 (except for Note 5
            which the date is March 9, 2001)


                                       F-1



<PAGE>

<TABLE>
<CAPTION>

                    ALLION HEALTHCARE, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 2000

             ASSETS (Note 4) CURRENT:
<S>                                        <C>       <C>
 Cash and cash equivalents                              $   727,981
 Accounts receivable, net of allowance
 for doubtful accounts of  $ 165,000                      1,140,218
 Inventories                                                 96,519
 Prepaid expenses and other current assets                   38,850
                                                          ---------
                      Total current assets                2,003,568

PROPERTY AND EQUIPMENT, at cost,               $   56,323
         less accumulated depreciation and
         amortization of                       ($  9,863)
                                               ----------
TOTAL PROPERTY AND EQUIPMENT                                 46,460
OTHER ASSETS                                                 20,802
                                                         ----------
                                                        $ 2,070,830
                                                        ===========

             LIABILITIES AND STOCKHOLDERS' DEFICIT
             -------------------------------------
CURRENT LIABILITIES:
 Accounts payable                                         $ 878,236
 Accrued expenses and other current liabilities             280,174
                                                          ---------
 Total current liabilities                                1,158,410

LONG TERM LIABILITIES
 Note payable (Note 5)                                    1,500,000
                                                          ---------
 Total long term liabilities                              1,500,000

COMMITMENTS (Note 7)

STOCKHOLDERS' DEFICIT: (Note 8)
 Convertible preferred stock, $.01 par value;
  shares authorized 5,000,000; issued
  and outstanding 512,500                                     5,125
 Common stock, $.01 par value; shares authorized
  15,000,000; issued and outstanding 3,100,000               31,000
  Additional paid-in capital                              2,153,375
  Unearned compensation                                     (10,000)
  Accumulated deficit                                    (2,767,080)
                                                        ------------
 TOTAL STOCKHOLDERS' DEFICIT                               (587,580)
                                                        ------------
                                                        $ 2,070,830
                                                        ===========

</TABLE>
                See notes to consolidated financial statements.

                                  F-2


<PAGE>

<TABLE>
<CAPTION>


                    ALLION HEALTHCARE, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  FOR THE YEAR ENDED DECEMBER 31, 2000 AND THE
                      ELEVEN MONTHS ENDED DECEMBER 31, 1999


                                                 2000            1999
                                              ----------       ---------
<S>                                         <C>             <C>
NET SALES                                     $9,167,587      $6,937,625
COST OF GOODS SOLD                             7,658,984       5,312,546
                                               ---------       ---------
       Gross profit                            1,508,603       1,625,079

OPERATING EXPENSES: (Note 7)
      Selling, general and
       administrative expenses                 2,415,531       2,638,367
                                               ---------       ---------

      Operating loss                            (906,928)     (1,013,288)
                                               ----------     -----------

OTHER INCOME (EXPENSE):
  Interest expense                             ( 306,591)     (  965,235)
  Other income, net                               72,948            -
                                               ---------      -----------
   Total other income (expense)                 (233,643)     (  965,235)
                                               ----------     -----------
LOSS BEFORE INCOME TAX BENEFIT                (1,140,571)     (1,978,523)

INCOME TAX BENEFIT                            (  129,632)          -
                                              -----------     -----------

LOSS FROM CONTINUING OPERATIONS               (1,010,939)     (1,978,523)
                                              ----------      -----------
DISCONTINUED OPERATIONS: (Note 3)
   Income(Loss) from discontinued operations,
   net of tax provision(benefit) of $134,000
   and $(820,000) respectively                  260,466       (1,497,155)
   Gain on disposal, net of income taxes
    of $ 820,000                                   -           1,459,071
                                               ----------      ---------

INCOME(LOSS) FROM DISCONTINUED OPERATIONS       260,466        (  38,084)
                                               ----------     -----------
NET LOSS                                      $(750,473)     $(2,016,607)
                                               ========       ===========

BASIC AND DILUTED LOSS PER COMMON SHARE:
   Continuing operations                      $    (.33)    $      (.66)
   Discontinued operations                          .09            (.50)
   Gain on disposal                                  -              .49
                                              ---------        ---------
                Net loss                      $    (.24)    $      (.67)
                                              =========        =========

BASIC AND DILUTED WEIGHTED AVERAGE
OF COMMON SHARES OUTSTANDING                  3,096,513       3,000,000
                                              =========      ==========
</TABLE>




           See notes to consolidated financial statements

                                      F-3

<PAGE>
<TABLE>
<CAPTION>


                    ALLION HEALTHCARE, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                    FOR THE YEAR ENDED DECEMBER 31, 2000 AND
                      ELEVEN MONTHS ENDED DECEMBER 31, 1999


  OPERATING ACTIVITIES:                                 2000         1999
                                                    ------------  ----------
<S>                                              <C>           <C>
   Net loss                                        $  (750,473)  $(2,016,607)
   Adjustments to reconcile net loss to net cash
   provided by (used in) operating activities:
    Loss from discontinued operations                     -       (1,497,155)
    Gain on sale of discontinued operations               -        1,459,071
    Non-cash compensation                               60,500        28,000
    Depreciation and amortization                        7,729         2,134
    Provision for doubtful accounts                    211,967       554,798
  Changes in operating assets and liabilities:
    Accounts receivable                               (214,716)      552,537
    Inventory                                           (1,801)       97,454
    Note receivable                                    326,393      (326,393)
    Prepaid expenses and other assets                  138,160       176,224
    Accounts payable and accrued expenses              354,819        54,023
                                                     ----------     --------
     Net cash provided by (used in)
            operating activities                       132,578      (945,914)
                                                     ----------     ---------

  INVESTING ACTIVITIES:
    Proceeds from dispositions of businesses
     and sales of property and equipment                  -        3,188,524
    Purchase of property and equipment                 (35,664)      (18,630)
                                                      ----------    ----------
    Net cash (used in) provided by
          investing activities                         (35,664)    3,169,894
                                                     ----------    ---------

  FINANCING ACTIVITIES:
       Proceeds from sale of Preferred Stock          1,025,000          -
       Proceeds from exercise of stock options
        and warrants                                     17,000          -
       Proceeds from sale of Common Stock                 -         1,000,000
       Proceeds from draws of line of credit          1,720,000     9,265,000
       Proceeds from note payable                         -         1,500,000
       Repayment of line of credit                   (2,447,804)  (13,672,109)
                                                    -----------   ------------
       Net cash provided by (used in)
            financing activities                        314,196   ( 1,907,109)
                                                    -----------   ------------

  NET INCREASE IN CASH AND CASH EQUIVALENTS             411,110       316,871
  CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD        316,871         -
                                                    -----------   ------------
  CASH AND CASH EQUIVALENTS, END OF PERIOD          $   727,981   $    316,871
                                                    ===========   ============

      SUPPLEMENTAL DISCLOSURE:
       Income taxes paid                            $    4,368    $      -
                                                    ==========    ============
       Interest paid                                $  188,082    $  1,039,894
                                                    ==========    ============
</TABLE>


                 See notes to consolidated financial statements.

                                       F-4

<PAGE>



<TABLE>
<CAPTION>

                    ALLION HEALTHCARE, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                    (Note 8)


                   Common Stk.           Preferred Stk.
                   15,000,000 Shs.       5,000,000 Shs.


                        $ .01 PAR VALUE     $.01 PAR VALUE
                        ----------------    --------------   ADDITIONAL
                                    PAR              PAR      PAID-IN     UNEARNED
                        SHARES     VALUE   SHARES   VALUE     CAPITAL    COMPENSATION    DEFICIT        TOTAL
                     -----------  ------- --------- ------   ----------  ------------   ---------  ------------

<S>                <C>       <C>        <C>      <C>      <C>          <C>             <C>          <C>
February 1, 1999         -     $    -        -      $ -      $     -      $    -           $     -   $      -

Issuance of stock    2,500,000   25,000      -        -       975,000        -              -         1,000,000

Stock options issued
for services             -          -        -        -        61,000     (61,000)          -             -

Amortization of
unearned compensation    -          -        -        -           -        28,000           -            28,000

Warrants issued          -          -        -        -        44,000        -              -            44,000

Stock issued to
unsecured creditors    500,000    5,000      -        -           -          -              -             5,000

Net loss                 -          -        -        -           -          -        (2,016,607)   (2,016,607)
                     ---------  -------   -------   ------ -----------   --------     -----------    ---------

Balance,
December 31,1999     3,000,000   30,000      -        -      1,080,000    (33,000)    (2,016,607)   (  939,607)

Issuance of stock      100,000    1,000      -        -         16,000      -               -           17,000

Issuance of stock        -          -     512,500    5,125   1,019,875      -               -        1,025,000

Stock options issued
for services             -          -        -        -         37,500    (37,500)          -              -

Amortization of
unearned compensation    -          -        -        -            -       60,500           -           60,500

Net loss                 -          -        -        -            -        -           (750,473)     (750,473)
                     ---------  -------   -------   ------ -----------   --------     -----------    ---------
Balance,
December 31, 2000    3,100,000  $31,000   512,500   $5,125 $ 2,153,375   $(10,000)    $(2,767,080)   $(587,580)
                     =========  =======   =======   ====== = =========   ========     ===========    =========

</TABLE>


                 See notes to consolidated financial statements.

                                       F-5



<PAGE>

                    ALLION HEALTHCARE, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.  THE COMPANY

         Allion Healthcare, Inc. and Subsidiaries (the "Company") is the parent
corporation of two wholly owned subsidiaries; Mail Order Meds, Inc. and Mail
Order Meds of New York, Inc. The Company provides specialty prescription
medication services to all 50 U.S. States and provides a convenient, private and
informative shopping experience for health and personal care products through
the Internet.

         On September 15, 1998, the Company, formally known as The Care Group,
Inc., filed for protection under Chapter 11 of the Bankruptcy Code. On February
1, 1999, the United States Bankruptcy Court for the Western District of Texas
entered an order confirming the Company's First Amended Plan of Reorganization.


         In accordance with generally accepted accounting principles, the
Company was required to adopt "fresh start" reporting, which valued all assets
and liabilities at their fair values as of the effective date. The financial
statements are not comparable with those prepared prior to confirmation because
they are, in effect, those of a new company.

NOTE 2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION. The consolidated financial statements include the
accounts of the Company and its two wholly owned subsidiaries. All significant
inter-company accounts and transactions have been eliminated in consolidation.

INVENTORIES. Inventories consist entirely of pharmaceuticals. Inventories are
recorded at lower of cost or market, cost being determined on a first-in,
first-out ("FIFO") basis.

USE OF ESTIMATES BY MANAGEMENT. The preparation of the Company's financial
statements in conformity with generally accepted accounting principles require
the Company's management to make certain estimates and assumptions that affect
the amounts reported in these financial statements and accompanying notes. Such
estimates primarily relate to accounts receivable, inventory and deferred tax
valuation. Actual results could differ from those estimates.

PROPERTY AND EQUIPMENT. Property and equipment are stated at cost and are
depreciated using the straight-line method over their estimated useful lives of
five years for office furniture and equipment.

INCOME TAXES. Deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities,
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.

STATEMENT OF CASH FLOWS. For purposes of the consolidated statement of cash
flows, the Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.


                                       F-6


<PAGE>

CREDIT RISK. Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash equivalents and trade
receivables. The Company places its cash equivalents with high-quality financial
institutions. The Company's customer base consists of a large number of diverse
customers.

NET LOSS PER SHARE INFORMATION. Basic earnings per share is computed using the
weighted average number of common and dilutive common equivalent shares
outstanding during the period. Common equivalent shares, consist of the
incremental common shares issuable upon the exercise of stock options and
warrants; common equivalent shares are excluded from the calculation if their
effect is anti-dilutive. Diluted loss per share for the year ended December 31,
2000 and eleven months ended December 31, 1999, does not include the impact of
common stock options and warrants then outstanding, as the effect of their
inclusion would be anti-dilutive.

STOCK BASED COMPENSATION. The Company applies APB Opinion No. 25 and related
interpretations in accounting for stock-based compensation to employees. Stock
compensation to non-employees is accounted for at fair value in accordance with
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation."

PROVISION FOR ESTIMATED UNCOLLECTABLE ACCOUNTS. Management regularly reviews the
collectability of accounts receivable by tracking collection and write-off
activity. Estimated write-off percentages are then applied to each aging
category by payor classification to determine the allowance for estimated
uncollectable accounts. The allowance for estimated uncollectable accounts is
adjusted as needed to reflect current collection, write-off and other trends,
including changes in assessment of realizable value. While management believes
the resulting net carrying amounts for accounts receivable are fairly stated at
each quarter-end and that the Company has made adequate provisions for
uncollectable accounts based on all information available, no assurance can be
given as to the level of future provisions for uncollectable accounts, or how
they will compare to the levels experienced in the past. The Company's ability
to successfully collect its accounts receivable depends, in part, on its ability
to adequately supervise and train personnel in billing and collection, and
minimize losses related to system changes.

NOTE 3.  DISCONTINUED OPERATIONS

         On June 25, 1999, the Company sold certain assets of its Houston, Texas
operation including all licenses, inventory, customer lists and names. The
Company retained all accounts receivable for services rendered prior to June 25,
1999. As a result, the Company discontinued its operation in Houston, Texas as
of June 25, 1999. The proceeds of the sale were $2,820,805, including $2,420,805
in cash and a note for $400,000 payable on June 30, 2000. The Company has
recorded $2,683,000 in bad debt expense representing all accounts receivable
from Houston uncollected as of December 31, 1999.

         In addition, the Company sold all of its records, specified contracts
and licenses, operating certificates and permits of Commonwealth Certified Home
Care, Inc., a certified home health agency, for $302,000. The sale was
consummated in August 1999 in accordance with the confirmation order from the
Bankruptcy Court.


                                       F-7

<PAGE>

         Net revenues and loss from discontinued operations are as follows:

                                        2000              1999
                                      --------        ------------
Revenues, net                         $   -           $  4,024,771
                                      --------        ------------
Cost and expenses:
Cost of revenues                          -              2,445,112
Selling, general and administrative       -              3,829,201
Bad debt recoveries                    394,466               -
Depreciation and amortization             -                 67,613
                                      ---------        -----------
                                       394,466           6,341,926
                                      ---------        -----------
Operating income (loss)                394,466          (2,317,155)
Income tax provision (benefit)         134,000          (  820,000)
                                      --------         ------------
Net Income (Loss)                     $260,466         $(1,497,155)
                                      ========         ============



<PAGE>


NOTE 4.  REVOLVING CREDIT LINE

         The Company has a revolving credit facility in the amount of $4.0
million available for short-term borrowings. This credit facility expires on
April 21, 2001. Borrowings under the facility bear interest at Prime + two
percent and are collaterized by a perfected and primary security interest in all
assets, accounts receivable, trademarks, licenses and values of any kind of the
Company. The prime rate at December 31, 2000 was 9.5%.

NOTE 5.  NOTE PAYABLE

         The Company has a promissory note in the amount of $1,500,000 that is
due and payable on March 31, 2002. The note bears interest at 8.5% annually and
the Company is required to make monthly interest payments. The note is
guaranteed by a Director of the Company.

NOTE 6.  INCOME TAXES

         A reconciliation of the income tax (benefit) computed at the statutory
Federal income tax rate to the reported amount follows:

                                                PERIODS ENDED DECEMBER 31,
                                                --------------------------
                                                  2000             1999
                                               ----------       ----------

Federal Statutory Rate:                             34%               34%
                                                    ---
Tax benefit at Federal Statutory Rates        $ (340,319)       $ (672,693)
Loss in excess of available benefit              210,687           670,908
Other, net                                          -                1,785
                                              ----------       -----------
                                              $ (129,632)      $      -
                                              ===========      ============

At December 31, 2000, the Company had net operating loss carryforwards for tax
purposes of approximately $2,167,000 expiring at various dates through 2020.

Deferred tax assets comprise the following:

                                       F-8


<PAGE>



                                            DECEMBER 31,2000    DECEMBER 31,1999
                                            ----------------    ----------------

Allowance for doubtful accounts             $    67,000          $   95,173
Loss carryforwards                              887,000             725,979
                                            -------------         ---------
Gross deferred tax assets                       954,000             821,152
Valuation allowance                            (954,000)           (821,152)
                                            -------------         ----------
                                            $      -              $     -
                                            =============         ===========

NOTE 7.  LEASE COMMITTMENTS

         The Company leases office space in Huntington Station, New York and
Austin, Texas. The lease for the New York space expires in December 2003 and the
lease for the Texas space expires in May 2003.
         At December 31, 2000, the Company's lease commitments provide for the
following minimum annual rentals.

                         2001       $  122,000
                         2002          129,000
                         2003          100,000
                                    ----------
                                    $  351,000
                                    ==========

    During the year ended December 31, 2000, and the eleven months ended
December 31, 1999, rental expense approximated to $130,000 and $107,000
respectively.

NOTE 8.  STOCKHOLDERS' EQUITY

      a.   Common shares reserved

           Common shares reserved at December 31, 2000, are as follows:

           Stock Option Plan                    1,150,000
           Warrants                               492,500
           Convertible Preferred Stock            512,500

      b.   Stock Options

                  (i) Under the terms of the Company's Stock Option Plan, the
         Board of Directors may grant incentive and nonqualified stock options
         to employees, officers, directors, agents, consultants and independent
         contractors of the Company. In connection with the introduction of the
         Stock Option Plan, 1,250,000 shares of common stock were reserved for
         future issuance. Generally, the Company grants stock options with
         exercise prices equal to the fair market value of the common stock on
         the date of the grant, as determined by the Board of Directors. Options
         generally vest over a two to five year period and expire ten years from
         the date of the grant.

A summary of the status of the Company's stock option plan as of December 31,
2000 and 1999, and changes during the periods then ended is presented below.



                                       F-9



<PAGE>


                                         2000                     1999
                                 ----------------------- -----------------------
                                               WEIGHTED               WEIGHTED
                                               AVERAGE                AVERAGE
                                               EXERCISE               EXERCISE
    STOCK OPTIONS                  SHARES      PRICE      SHARES       PRICE
    -------------                ---------     --------   -------     ---------

Outstanding, beginning of year     735,100      $0.18        -         $   -
Granted                            375,500       1.59     735,100        0.18
Exercised                         (100,000)      0.18         -            -
Canceled                          (  3,700)      0.51         -            -
                                  ---------                -------

Outstanding, end of year          1,006,900    $ 0.71       735,100     $ 0.18
                                  =========                 =======

Options exercisable at year end     663,029    $ 0.28       334,822     $ 0.17
                                  =========                 =======

Weighted average fair value of options
under the plan granted during the year         $ 0.27                   $ 0.13
                                               ======                   ======

Weighted average fair value of warrants
granted during the year                        $ 0.10                   $ 0.44
                                               ======                   ======



The following table summarizes information about stock options outstanding at
December 31, 2000:


<TABLE>
<CAPTION>


                          OPTIONS OUTSTANDING               OPTIONS EXERCISABLE
-----------------------------------------------------  ------------------------
                            WEIGHTED        WEIGHTED                  WEIGHTED
RANGE OF                    AVERAGE         AVERAGE                   AVERAGE
EXERCISE    NUMBER         REMAINING        EXERCISE    NUMBER        EXERCISE
PRICE      OUTSTANDING    CONTRACTUAL LIFE   PRICE    OUTSTANDING      PRICE
--------- ------------- ------------------ --------- -------------  ---------

<S>         <C>           <C>              <C>        <C>            <C>
$ .17-$ .66   632,900       8.11 years       $0.19      600,696        $ 0.19
$1.00-$2.00   374,000       9.54 years       $1.59       62,333        $ 1.18
</TABLE>

         In accordance, with APB Opinion No. 25, no compensation expense has
been recognized for the stock option plans. Had the Company recorded
compensation expense for the stock options based on the fair value at the grant
date for awards in the year ended December 31, 2000 and the eleven months ended
December 31, 1999 consistent with the provisions of SFAS No. 123, the Company's
net loss and net loss per share would have changed to the following pro forma
amounts.

                                           2000            1999
                                     ----------------   ------------
Net loss, as reported                $  (750,473)       $(2,016,607)
Net loss, pro forma                     (770,873)        (2,025,823)
Basic loss per share, as reported           (.24)              (.67)
Basic loss per share, pro forma             (.25)              (.67)
Diluted loss per share, as reported         (.24)              (.67)
Diluted loss per share, pro forma           (.25)              (.67)



                                      F-10


<PAGE>

         The fair value of each option grant is estimated on the date of the
grant using the Black-Scholes option pricing model. The following range of
weighted-average assumptions were used for grants during the year ended December
31, 2000 and eleven months ended December 31, 1999.

                                   2000                   1999
                             ----------------       --------------
Dividend yield                     0.00%                  0.00%
Volatility                         0.00%                  0.00%
Risk-free interest rate            5.50%                  5.50%
Expected life                    Ten years             Five years

         The weighted average grant date fair value of options granted during
         2000 and 1999 was $.27 and $.13, respectively.

         The Black-Scholes option valuation model was developed for use in
         estimating the fair value of traded options which have no vesting
         restrictions and are fully transferable. In addition, option valuation
         models require the input of highly subjective assumptions including the
         expected stock price volatility. Because the Company's stock options
         have characteristics significantly different from those of traded
         options, and because changes in the subjective input assumptions can
         materially affect the fair value estimate, in management's opinion the
         existing models do not necessarily provide a reliable single measure of
         the fair value of its stock options.

c.   Warrants

         In March 2000, the Company issued 375,000 common stock warrants to a
director of the Company, which resulted in an additional charge to interest
expense approximating $37,500. The warrants were issued as consideration for
guarantying the Company's note payable. (See Note 5).

d.         Preferred stock

         The Company has authorized 5,000,000 shares of preferred stock, .01 par
value, which the Board of Directors has authority to issue from time to time in
series. The Board of Directors also has the authority to fix, before the
issuance of each series, the number of shares in each series and the
designation, preferences, rights and limitations of each series.
         In March 2000, the Company sold 512,500 shares of Series A convertible
preferred stock (the "Series A Preferred Stock") to a group of investors. The
net proceeds to the Company were approximately $1,025,000. As described in the
Private Placement Memorandum, each share of Series A Preferred Stock is
convertible, at the option of the holder at any time, into one share of common
stock.
         The Series A Preferred Stock has senior preference and priority as to
the dividend as well as distributions and payments upon the liquidation,
dissolution, or winding up of affairs before any payment to other shareholders
of the Company.

NOTE 9.  FAIR VALUE OF FINANCIAL INSTRUMENTS

         The methods and assumptions used to estimate the fair value of the
following classes of financial instruments were:


                                      F-11



<PAGE>

Current Assets and Current Liabilities: The carrying amount of cash, current
receivables and payables and certain other short-term financial instruments
approximate their fair value.
         Long-Term Debt: The fair value of the Company's long term debt,
including the current portions, was estimated using a discounted cash flow
analysis, based on the Company's assumed incremental borrowing rates for similar
types of borrowing arrangements. The carrying amount of variable and fixed rate
debt at December 31, 2000 approximates its fair value.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                  AND FINANCIAL DISCLOSURE

            Not applicable.

ITEM 9. MANAGEMENT OF THE COMPANY



                        EXECUTIVE OFFICERS AND DIRECTORS

         Our executive officers and Directors, their ages and the positions held
by them, as of December 31, 2000 are as follows:

NAME                           AGE    POSITION
----                           ---    --------
Michael P. Moran...............40     President and Chief Executive Officer,
                                      Chief Financial Officer and Secretary
John Pappajohn.................72     Director
Derace Schaffer, M.D. .........53     Director

         MICHAEL P. MORAN has served as President and CEO since September 1997.
Mr. Moran was hired to turn around the financial picture of the Company and
refocus its core business units. Mr. Moran managed the Company through a
successful Chapter 11 reorganization in 4 months, and has increased business in
the Specialty Pharmacy divisions during the past two years. From 1996 to
September of 1997 Mr. Moran was a Regional Vice President at Coram Healthcare,
Inc. From 1990 to 1996 Mr. Moran was a Regional Vice President for Chartwell
Home Therapies, Inc. From 1982 to 1990 Mr. Moran held various sales and
management positions at Critical Care America, Inc. Mr. Moran received a B.A. in
Management from Assumption College, and was a second team All-American Football
player.

         JOHN PAPPAJOHN has served as a Director since 1997. Since 1969, Mr.
Pappajohn has been the sole owner of Pappajohn Capital Resources, a Venture
Capital Firm and President of Equity Dynamics, Inc., a financial Consulting
firm, both based in Des Moines, Iowa. Mr. Pappajohn currently serves as a
Director of the following public companies: American Physician Partners, Inc.,
Patient InfoSystems, Inc., and Pace Health Management Systems. Mr. Pappajohn
received his B.S.C. from the University of Iowa.

         DERACE SCHAFFER, M.D. has served as a Director since 1997. Dr. Schaffer
is President of the Ide Imaging Group, P.C., as well as the LAN Group, a venture
capital firm specializing in healthcare and high technology investments. He
serves as a Director of the following public companies: Patient Information
Systems, Inc., American Physician Partners, Inc., and Oncor, Inc. He is also a
Director of several private companies including: Analytica, Inc., Card Systems,


                                      F-12

<PAGE>



Inc., and Logisticare, Inc. Dr. Schaffer is a board certified Radiologist. He
received his post-graduate radiology training at Harvard Medical School and The
Massachusetts General Hospital, where he served as Chief Resident. Dr. Schaffer
is a member of Alpha Omega Alpha, the national medical honor society and is a
Clinical Professor of Radiology at the University of Rochester School of
Medicine.

ITEM 10. EXECUTIVE COMPENSATION

         The information required by this item will appear in the section
entitled "Executive Compensation" included in the Company's definitive proxy
statement relating to the 2001 Annual Meeting of Stockholders.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information required by this item will appear in the section
entitled "Security Ownership of Directors, Officers and Principle Stockholders"
included in the Company's definitive Proxy Statement relating to the 2001 Annual
Meeting of Stockholders.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         One of the Company's Directors, John Pappajohn, personally guaranteed a
loan made by a bank to the Company. The loan was for $1,500,000 and is due on
March 31, 2002. (See Notes 5 and 8)

ITEM 13. COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT

         The Company knows of no existing failure to file a required form.

ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
         INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

   Item 7. Financial Statements, Pro Forma Financial Information, Exhibits

                                   SIGNATURES

             In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
                                  Date:   January 30, 2001

                                  ALLION HEALTHCARE, INC., AND SUBSIDIARIES

                                           (Registrant)

                                      By:  /s/MICHAEL P. MORAN
                                           -----------------
                                           Michael P. Moran, Director
                                           President, Chief Executive Officer,
                                           Chief Financial Officer, Secretary

     In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

/s/  JOHN PAPPAJOHN
     ---------------
    John Pappajohn, Director
    Date: JANUARY 30, 2001

/s/ DERACE SCHAFFER, M.D.
    --------------------
    Derace Schaffer, M.D., Director

    Date: JANUARY 30, 2001
          ----------------