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 fiscal year ended DECEMBER 31,2001
                                                  ----------------
                                     OR
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
   EXCHANGE ACT OF 1934

   Commission File Number:0-17821

                             ALLION HEALTHCARE, INC.
                             -----------------------
          (name of small business issuer as it appears 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)

Issuer's telephone number...(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)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities and Exchange Act during the past 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
                                 ---

Check of disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this Form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form exists or any amendment to
this form 10-KSB.

                                   [X]

The issuer's revenues for its most recent fiscal year (year ended December 31,
2001) were $ 16,235,657.

As of March 27, 2002, the aggregate market value of the common equity of the
registrant held by non-affiliates was approximately $3,262,500 based per a price
of $ 3.00 per share of common stock.



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As of March 27, 2002, 3,100,000 shares of Common Stock of the Issuer were issued
and outstanding.

                   ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
                           DURING THE PAST FIVE YEARS

Check whether the issuer has filed all documents and reports required to be
filed by section 12,13 or 15 (d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.

                               YES  X      NO
                                   ---        ---

                       DOCUMENTS INCORPORATED BY REFERENCE


The Registrant's Proxy Statement for its 2002 Annual Meeting of Stockholders is
incorporated herein by reference in response to the items in Part III of this
Annual Report on Form 10-KSB. The Proxy statement will be filed within 120 days
of the end of the Registrant's 2001 fiscal year.

Transitional small business disclosure format (check one):

                              YES         NO  X
                                  ---        --









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                                TABLE OF CONTENTS

 PART I.

 ITEM 1.   BUSINESS..........................................................4
 ITEM 2.   PROPERTIES........................................................12
 ITEM 3.   LITIGATION........................................................13
 ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............13

 PART II

 ITEM 5.   MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
           STOCKHOLDER MATTERS...............................................13
 ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED RESULTS
           OF OPERATIONS AND CONSOLIDATED FINANCIAL CONDITION................14
 ITEM 7.   FINANCIAL STATEMENTS..............................................21
 ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
           AND FINANCIAL DISCLOSURE..........................................34

 PART III

 ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS......34
 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.  EXHIBITS AND REPORTS ON FORM 8-K..................................35


FORWARD-LOOKING STATEMENTS

The statements in this Annual 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 Allion
Healthcare, Inc.'s (the "Company") 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 the Company 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 the
Company's current expectations and are subject to a number of risks,
uncertainties and assumptions relating to the Company's 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 in this
Annual Report. 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.


                                     PART I

           ITEM 1.   BUSINESS

           OVERVIEW

           Allion Healthcare, Inc., through its two wholly owned subsidiaries,
MOMSPharmacy of Texas and MOMSPharmacy of New York, fills specialty oral and
injectable prescription medications and biopharmaceuticals. These 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.

           The Company's objective is to enhance its market position as a
leading specialty pharmacy provider by focusing on its core strengths and
further penetrating 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 of additional
medication. The Company is also considering possible acquisitions to compliment
existing product offerings and additional geographic markets.

           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 administration, to home or self-administration has created a
significant opportunity for the Company across the country.

           COMPANY HISTORY. On September 15, 1998, the Company, formally known
as The Care Group, Inc., filed for protection under Chapter 11 of the Bankruptcy
Code. Prior to September 15, 1998, The Care Group's principal business was to
provide home health care, including therapy, to patients with HIV, AIDS, cancer,
and other diseases requiring high technology intermittent therapies. During the
period September 15, 1998 to February 1, 1999, the Care Group, Inc. focused on
filling specialty oral and injectable prescription medications and
biopharmaceuticals. 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 of the
reorganization.

           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.

           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.

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           During 2000 and 2001, the New York and Texas offices focused on
developing relationships with clinics to increase its customer base. The
increased customer base resulted in steady growth of sales from 1999 through
2001.
           On July 27th, 2001, the Company purchased certain assets of
Prescripticare, L.L.C. - Specialty Care Pharmacy Division ("SCPD"). The results
of SCPD's operations have been included in the consolidated financial statements
since that date. SCPD is a provider that fills individual patient specialty oral
and injectable prescription medications as well as biopharmaceuticals. As a
result of the acquisition, the Company intends to continue to expand the
combined exiting lines of business and develop new business by leveraging the
products of SCPD.

CURRENT BUSINESS OPERATIONS

           COMPANY 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.

           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, a director of national sales and two sales managers during
the third quarter of 2001, resulting in a significant increase in its sales
expenses. 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.

           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



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health care. 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, and 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 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.




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     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:

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

      o    specialty pharmacy divisions of national wholesale drug distributors;

      o    pharmacy benefit management companies;

      o    hospital based pharmacies;

      o    retail pharmacies;

      o    home infusion therapy companies;

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

      o    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.

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.

            REFERRAL RESTRICTIONS. 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,



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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.

            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.

           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.

     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:

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

      o    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. 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.


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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 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


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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.

            HEALTHCARE REFORM. 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



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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.

                 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 INSURANCES.
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.

SUPPLIERS. The Company purchases its inventory from various wholesalers, and not
directly from the drug manufacturer. The Company selects wholesalers based on a
number of factors, including price, credit terms and customer service. While the
number of wholesalers who carry the drugs dispensed by the Company may be
limited, the Company believes sufficient supply of drugs is available. There can
be no assurance that the Company will be able to purchase on credit terms
acceptable to it. If a wholesaler does not extend credit and no other wholesaler
is available, the Company's cash requirements may increase significantly.

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



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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.

PHARMACISTS. Our pharmacists must obtain state licenses to dispense drugs. Our
pharmacists are licensed in those states where their activity requires it.
Pharmacists 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 states 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:

      o     the labeling, packaging and repackaging, advertising and
            adulteration of prescription drugs: and

      o     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, 2001, the Company had 36 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.

ITEM 2.    PROPERTIES

     The Company occupies approximately 3,200 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 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 June 30, 2004.



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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 2001.

                                     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 1,179,618 shares of
Preferred Stock and 3,100,000 shares of Common Stock outstanding at December 31,
2001.

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's securities are not listed on any
exchange, nor are they traded in any market. The Company is unable to provide
any information as to if and when the Company's securities will be publically
traded.

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.

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



                                       13




<PAGE>

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.

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.

            BACKGROUND. 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 Company was in operation during 1999 from February 1st
through December 31st, 1999.

                     During 2000 and 2001, the New York and Texas offices
focused on developing relationships with clinics to increase
its customer base. The increased customer base resulted in steady growth of
sales from 1999 through 2001.
           During July 2001, the Company purchased certain assets of
Prescripticare, L.L.C. - Specialty Care Pharmacy Division ("SCPD"). As a result
of the acquisition, the Company intends to continue to expand the combined
exiting lines of business and develop new business by leveraging the products of
SCPD.


SIGNIFICANT ACCOUNTING POLICIES

            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


                                       14



<PAGE>

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.

RESULTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2001 AND 2000

NET SALES. Net sales of the Company's medications divisions were $16,235,657 and
$9,167,587 for the years ended December 31, 2001 and 2000, respectively. Annual
average net sales of specialty prescription medications increased by 77.10%
during 2001 as compared to 2000. The sales increase is due primarily to the
Company's acquisition of Prescripticare, L.L.C. - Specialty Care Pharmacy
Division ("SCPD") in July 2001.

GROSS PROFIT. Gross profit was 15.59% and 16.46% of sales for the years ended
December 31, 2001 and 2000, respectively. 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 $3,919,370 and $2,415,531 for the years ended
December 31, 2001 and 2000, respectively and represented 24.14% and 26.34% of
net sales, respectively. The increase in selling, general and administrative
expenses is attributable to an increase in clinical, administrative and sales
personnel; the write off of a $200,000 receivable for inventory sold to a
company that purchased certain assets from Allion and increased amortization
expense resulting from the amortization of intangible assets.

OTHER INCOME (EXPENSE). Other income (expense) for the years ended December 31,
2001 and 2000 were $288,070 and $(233,643), respectively. For the year ended
December 31, 2001, other income (expense) is comprised of interest expense of
($156,930) and consulting income of $445,000. There was a reduction of interest
expense of $149,661 from 2000 to 2001. During September 2001, the Company
entered into an agreement with the purchaser of certain assets under which the




                                       15




<PAGE>

Company will provide consulting services to facilitate the transfer of certain
contracts. These services were provided over a thirty-day period. For the year
ended December 31, 2000, other income (expense) is comprised of interest expense
of $(306,591) and the one-time net gain from the Company's settlement of a
lawsuit for $72,948.

INCOME TAXES. For the year ended December 31, 2000, the Company's tax benefit
approximating $ 130,000 resulted primarily from the income tax provision
recorded for the income on discontinued operations.

LIQUIDITY AND CAPITAL RESOURSES. At December 31, 2001, the Company had cash
balances of $1,559,460. 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, 2001 borrowings under this facility were $993,936. In
addition, The Company secured a loan from a bank for $1,500,000 that bears
interest at 4.75%, monthly, with the full principle payable in March of 2003. If
the Company is unable to pay this loan in 2003, it will enter discussions with
the bank that issued the loan to extend the loan for another year.

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.

                                  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:

o    patient shifts to treatment regimens other than those we offer;

o    new treatments or methods of delivery of existing drugs that do not require
     our specialty products and services; or a recall of a drug;

o    adverse reactions caused by a drug;

o    the expiration or challenge of a drug patent;

o    competing treatment from a new drug or a new use of an existing drug;

o    the loss of a managed care or other payor relationship covering a number of
     high revenue patients;

o    the cure of a disease we service; or

o    the death of a high revenue patient.

o    limited capital resources and the inability to acquire financing due to the
     Company's current financial condition and its bankruptcy filing in 1998.


<PAGE>

                 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:

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

            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.




                                       17




<PAGE>

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;

      o     difficulty in identifying suitable candidates and negotiating and
            consummating acquisitions on attractive terms;

      o     difficulty in assimilating the new operations; o increased
            transaction costs;

      o     diversion of our management's attention from existing operations;

      o     dilutive issuances of equity securities that may negatively impact
            the market price of our stock;

      o     increased debt; and

      o     increased amortization expense related to intangible assets that
            would decrease our earnings.

           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.

           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.

           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



                                       18


<PAGE>


            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 possible impairment 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 WILL NEED SUBSTANTIAL 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, especially in light of our bankruptcy in 1999.
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.

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.

                                       19


<PAGE>


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

      o     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.

      o     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.


      o     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 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.

      o     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.



                                       20



<PAGE>

      o     Pharmacies and pharmacists must obtain state licenses to operate

      o     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.

      o     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.

      o     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.

ITEM 7.FINANCIAL STATEMENTS                                        PAGE

        Independent Auditors' Report                                F-1

        Consolidated Balance Sheet as of December 31, 2001          F-2

        Consolidated Statements of Operations for the Years
        Ended December 31, 2001 and 2000                            F-3

        Consolidated Statements of Cash Flows for the Years
        Ended December 31, 2001 and 2000                            F-4

        Consolidated Statement of Stockholders' Equity for
        the Years Ended December 31, 2001 and 2000                  F-5

        Notes to Consolidated Financial Statements               F-6 - F-13



<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, 2001, and the
        related consolidated statements of operations, stockholders' equity
        and cash flows for the years ended December 31, 2001 and 2000. 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, 2001 and the results of their operations and their cash flows for
        the years ended December 31, 2001 and 2000 in conformity with
        accounting principles generally accepted in the United States of
        America.

                                                  HOLTZ RUBENSTEIN & CO., LLP
        Melville, New York
        February 6, 2002 (Except for Note 7
        which the date is March 22, 2002)


                                       F-1




<PAGE>


<TABLE>
<CAPTION>
                    ALLION HEALTHCARE, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 2001

                         ASSETS      (Note 6)
                         ------
 CURRENT:
<S>                                             <C>         <C>
 Cash and cash equivalents                                     $ 1,559,460
 Accounts receivable, net of allowance
 for doubtful accounts of $ 357,000                             1,861,635
 Inventories                                                       259,028
 Prepaid expenses and other current assets                          25,483
                                                                ----------
                        Total current assets                     3,705,606

PROPERTY AND EQUIPMENT, at cost,                   $   108,770
           less accumulated depreciation and
           amortization of                             (26,997)
                                                    ----------
TOTAL PROPERTY AND EQUIPMENT                                       81,773
INTANGIBLE ASSETS, net of accumulated
 amortization of $ 75,000 (Note 3)                                835,000
OTHER ASSETS                                                       86,350
                                                                ----------
                                                               $4,708,729
                                                               ==========

               LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
 Revolving credit line (Note 6)                               $   993,936
 Accounts payable                                               1,642,913
 Accrued expenses and other current liabilities                   156,708
                                                               ----------
                   Total current liabilities                    2,793,557

LONG TERM LIABILITIES:
 Note payable (Note 7)                                          1,500,000
 Other                                                            120,000
                                                               ----------
                 Total long term liabilities                    1,720,000

COMMITMENTS (Note 9)

STOCKHOLDERS' EQUITY: (Note 10)
 Convertible preferred stock, $.01 par value;
  shares authorized 5,000,000; issued
  and outstanding 1,179,168                                       11,791
 Common stock, $.01 par value; shares authorized
  15,000,000; issued and outstanding 3,100,000                    31,000
  Additional paid-in capital                                   4,133,213
  Accumulated deficit                                         (3,880,832)
                                                              ----------
TOTAL STOCKHOLDERS' EQUITY                                       295,172
                                                              ----------
                                                              $4,708,729
                                                              ==========
</TABLE>


                See notes to consolidated financial statements.

                                  F-2


<PAGE>




<TABLE>
<CAPTION>
                    ALLION HEALTHCARE, INC. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF OPERATIONS

                                                    YEARS ENDED
                                                     DECEMBER 31,
                                              -------------------------
                                                 2001            2000
                                              ----------       ---------
<S>                                       <C>              <C>
NET SALES                                    $16,235,657      $9,167,587
COST OF GOODS SOLD                            13,704,527       7,658,984
                                              ----------       ---------
       Gross profit                            2,531,130       1,508,603

OPERATING EXPENSES: (Note 9)
      Selling, general and
       administrative expenses                 3,919,370       2,415,531
                                               ---------       ---------

      Operating loss                          (1,388,240)      ( 906,928)
                                             ------------     -----------

OTHER INCOME (EXPENSE):
  Interest expense                             ( 156,930)     (  306,591)
  Other income, net (Note 4)                     445,000          72,948
                                               ----------     -----------
   Total other income (expense)                  288,070      (  233,643)
                                               ----------     -----------

LOSS BEFORE INCOME TAXES (BENEFIT)            (1,100,170)     (1,140,571)

PROVISION (BENEFIT) FOR INCOME TAXES (Note 8)     13,582      (  129,632)
                                              ------------   ------------

LOSS FROM CONTINUING OPERATIONS               (1,113,752)     (1,010,939)
                                              ----------      -----------
DISCONTINUED OPERATIONS: (Note 5)
   Income from discontinued operations, net
   of tax provision of $ - and $134,000,
   respectively                                    -             260,466
                                               ----------     ----------

INCOME FROM DISCONTINUED OPERATIONS                -             260,466
                                               ----------     -----------
NET LOSS                                     $(1,113,752)    $(  750,473)
                                              ==========      ===========

BASIC AND DILUTED LOSS PER COMMON SHARE:
      Continuing operations                      $     (.36)     $     (.33)
   Discontinued operations                            -              .09
                                                ---------         -------
           Net loss                           $     (.36)     $     (.24)
                                                =========        ========

BASIC AND DILUTED WEIGHTED AVERAGE
OF COMMON SHARES OUTSTANDING                    3,100,000       3,096,513
                                                =========       =========

</TABLE>


           See notes to consolidated financial statements



                                      F-3

<PAGE>


<TABLE>
<CAPTION>


                    ALLION HEALTHCARE, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                          YEARS ENDED
                                                          DECEMBER 31,
                                                   --------------------------
  OPERATING ACTIVITIES:                                 2001          2000
                                                    ------------   ----------

<S>                                            <C>            <C>
Net loss                                         $(1,113,752)   $  (750,473)
 Adjustments to reconcile net loss to net cash
 (used in) provided by operating activities:

  Non-cash compensation                               10,000         60,500
  Depreciation and amortization                      155,884          7,729
  Provision for doubtful accounts                    364,875        211,967
 Changes in operating assets and liabilities:
  Accounts receivable                             (1,286,292)      (214,716)
  Inventories                                        313,491         (1,801)
  Note receivable                                       --          326,393
  Prepaid expenses and other assets                 (170,931)       138,160
  Accounts payable and accrued expenses              761,211        354,819
                                                 -----------    -----------
   Net cash (used in) provided by
          operating activities                      (965,514)       132,578
                                                 -----------    -----------

INVESTING ACTIVITIES:
  Payments for businesses acquired                (1,166,000)          --
  Purchase from sale of certain assets                25,000           --
  Purchase of property and equipment                 (42,447)       (35,664)
                                                 -----------    -----------
  Net cash used in investing activities           (1,183,447)       (35,664)
                                                 -----------    -----------

FINANCING ACTIVITIES:
     Proceeds from sale of Preferred Stock         1,986,504      1,025,000
     Proceeds from exercise of stock options
      and warrants                                      --           17,000
     Proceeds from draws of line of credit         6,875,000      1,720,000
     Repayment of line of credit                  (5,881,064)    (2,447,804)
                                                 -----------    -----------
   Net cash provided by financing activities       2,980,440        314,196
                                                 -----------    -----------

NET INCREASE IN CASH AND CASH EQUIVALENTS            831,479        411,110
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR         727,981        316,871
                                                 -----------    -----------

CASH AND CASH EQUIVALENTS, END OF YEAR           $ 1,559,460    $   727,981
                                                 ===========    ===========

    SUPPLEMENTAL DISCLOSURE:
     Income taxes paid                           $    10,582    $     4,368
                                                 ===========    ===========
     Interest paid                               $   147,077    $   188,082
                                                 ===========    ===========

</TABLE>



                  See notes to consolidated financial statements.

                                             F-4



<PAGE>




<TABLE>
<CAPTION>
                    ALLION HEALTHCARE, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                    (Note 10)


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

Balance,
<S>                  <C>         <C>         <C>        <C>       <C>          <C>         <C>            <C>
January 1, 2000         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)


Issuance of stock            --        --       666,668     6,666    1,979,838       --             --        1,986,504

Amortization of
unearned compensation        --        --          --        --           --       10,000           --           10,000

Net loss                     --        --          --        --           --         --       (1,113,752)    (1,113,752)
                        ---------   -------   ---------   -------   ----------   --------    -----------    -----------

Balance,
December 31, 2001       3,100,000   $31,000   1,179,168   $11,791   $4,133,213   $   --      $(3,880,832)   $   295,172
                        =========   =======   =========   =======   ==========   ========    ===========    ===========
</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. (collectively, 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 United States.

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
three or five years for office furniture and equipment.

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.

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.

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


                                       F-6



<PAGE>


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 years ended December 31,
2001 and 2000 do 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.

INTANGIBLE ASSETS. In June 2001, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." The
Company is required to adopt SFAS No. 141 for all business combinations
completed after June 30, 2001. This standard requires that business combinations
initiated after June 30, 2001, be accounted for under the purchase method.
Goodwill and other intangible assets that resulted from business combinations
before July 1, 2001, must be reclassified to conform to the requirements of SFAS
No. 142, as of the statement adoption date.

The Company adopted SFAS No. 142 in the 3rd quarter of 2001 for all goodwill and
other intangible assets recognized in the Company's statement of financial
position. This standard changes the accounting for goodwill from an amortization
method to an impairment-only approach, and introduces a new model for
determining impairment charges. The new impairment model requires performance of
a two-step test for operations that have goodwill assigned to them. First, it
requires a comparison of the book value of net assets to the fair value of the
related operations. If fair value is determined to be less than book value, a
second

                                       F-7



<PAGE>


step is performed to compute the amount of impairment. In this process, the fair
value of goodwill is estimated, and is compared to its book value. Any shortfall
of the book value below fair value represents the amount of goodwill impairment.

NEW PRONOUNCEMENT. In October 2001, the Financial Accounting Standards Board
issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." This statement, which
establishes one accounting model for the recognition, measurement and reporting
of impairment of long-lived assets to be held and used, and measurement of
long-lived assets to be disposed of by sale, became effective January 2002 with
early application encouraged. The Company adopted this standard for fiscal 2001
and it did not have any impact on our consolidated financial statements.

NOTE 3. PURCHASE OF BUSINESS

     On July 27th, 2001, the Company purchased certain assets of Prescripticare,
L.L.C. - Specialty Care Pharmacy Division ("SCPD"). The results of SCPD's
operations have been included in the consolidated financial statements since
that date. SCPD is a provider that fills individual patient specialty oral and
injectable prescription medications as well as biopharmaceuticals. As a result
of the acquisition, the Company intends to continue to expand the combined
exiting lines of business and develop new business by leveraging the products of
SCPD. The aggregate purchase price was $1,411,000, which was allocated as
follows:

                     Customer lists             $  890,000
                     Inventory                     466,000
                     Property and equipment         10,000
                     Other                          45,000
                                                ----------
                                                $1,411,000
                                                ==========

The $890,000 of customer lists was assigned to intangible assets and have a
weighted average useful life of approximately five years. The $ 45,000 of other
was assigned to intangible assets and have a weighted average useful life of
approximately five years. Accumulated amortization and amortization expense of
intangible assets at December 31, 2001 and for the year then ended was $ 75,000.

The Company has not paid the final $ 10,000 due to Prescripticare due to a
dispute between the Company and Prescripticare involving accounts payable at the
time of the purchase of the assets.

On September 24th, 2001, the Company sold certain assets acquired from SCPD for
$225,000. Of this amount, the company collected $ 25,000 and wrote off the
balance of $ 200,000.

The following pro forma results were developed assuming the acquisition of SCPD
and sale of certain assets occurred January 1, 2000.


                                 Year Ended December 31,
                             2001                     2000
                             ----                      ----
Revenue                 $ 21,327,905              $ 16,406,395
Net loss                $   (763,865)             $ (1,342,193)
Loss per share          $       (.25)             $       (.54)



                                       F-8



<PAGE>


NOTE 4.   CONSULTING AGREEMENT

     On September 24th, 2001, the Company entered into an agreement with the
purchaser of certain assets under which the Company will provide consulting
services to facilitate the transfer of certain contracts. These services were
provided over a thirty-day period for which the Company received a net amount of
$445,000. This amount is included in other income.

NOTE 5.    DISCONTINUED OPERATIONS

           In connection with the sale of its Houston Operations in 1999, the
Company recorded discontinued operations. Net revenues from discontinued
operations are as follows:
                                                   2000
                                               ------------
Revenues, net                                  $      -
                                               ------------

Cost and expenses:
Bad debt recoveries                                394,466
Depreciation and amortization                        -
                                               ------------
                                                   394,466
                                               ------------
Operating income                                   394,466
Income tax provision                               134,000
                                               ------------
Net Income                                     $   260,466
                                               ============

NOTE 6.    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, 2002. 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, 2001 was 4.75%.

NOTE 7.    NOTE PAYABLE

           The Company has a promissory note in the amount of $1,500,000 that is
due and payable on March 31, 2003. The note bears interest at 4.75% annually and
the Company is required to make monthly interest payments. The note is
guaranteed by a member of the board of directors of the Company.

NOTE 8.    INCOME TAXES

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



                                       F-9

<PAGE>




                                                   YEARS ENDED DECEMBER 31,
                                                 ---------------------------
                                                 2001                2000
                                               ----------          ----------
Federal statutory rate:                           34%                 34%
                                                  ---                 ---
Tax benefit at Federal statutory rates       $ (378,676)          $ (340,319)
Loss in excess of available benefit             378,676              210,687
State income taxes                               13,582                -
                                              ----------          -----------
                                              $  13,582           $ (129,632)
                                              ==========          ===========


At December 31, 2001, the Company had net operating loss carryforwards for tax
purposes of approximately $2,839,000 expiring at various dates through 2021.

Deferred tax assets comprise the following:

<TABLE>
<CAPTION>
                                                       DECEMBER 31,
                                                       ------------
                                                 2001                 2000
                                                 ----                 ----
<S>                                      <C>                   <C>
Allowance for doubtful accounts            $    143,000          $   67,000
Other                                            20,000                -
Loss carryforwards                            1,136,000             887,000
                                            -------------         ---------
Gross deferred tax assets                     1,299,000             954,000
Valuation allowance                          (1,299,000)           (954,000)
                                            -------------         ----------
                                            $     -               $     -
                                            =============         ===========
</TABLE>



NOTE 9.    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 June 2004.
           At December 31, 2001, the Company's lease commitments provide for the
following minimum annual rentals.

                           2002   $ 139,000
                           2003     144,000
                           2004      33,000
                                  ---------
                                  $ 316,000
                                  =========

During the years ended December 31, 2001 and 2000, rental expense approximated
to $136,000 and $130,000, respectively.

NOTE 10.   STOCKHOLDERS' EQUITY

           a.   Common shares reserved

                  Common shares reserved at December 31, 2001, are as follows:

                  Stock Option Plan                    1,150,000
                  Warrants                               492,500
                  Convertible Preferred Stock          1,179,168

           b.   Stock Options

                     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.



<PAGE>


                     A summary of the status of the Company's stock option plan
           as of December 31, 2001 and 2000, and changes during the years then
           ended is presented below.


                                           F-10


<PAGE>



<TABLE>
<CAPTION>



                                         2001                    2000
                                 ----------------------- -----------------------
                                               WEIGHTED               WEIGHTED
                                               AVERAGE                AVERAGE
                                               EXERCISE               EXERCISE
    STOCK OPTIONS                  SHARES      PRICE      SHARES       PRICE
    -------------                ---------     --------   -------     ---------

<S>                            <C>           <C>        <C>          <C>
Outstanding, beginning of year   1,006,900     $ 0.71     735,100      $ 0.18
Granted                            146,500       3.00     375,500        1.59
Exercised                             -          0.00    (100,000)       0.18
Canceled                          (152,000)      1.22     ( 3,700)       0.51
                                  ---------              ----------
Outstanding, end of year          1,001,400    $ 0.97    1,006,900     $ 0.71
                                  =========              =========

Options exercisable at year end     742,369    $ 0.48      663,029     $ 0.28
                                  =========                =======

Weighted average fair value of options
under the plan granted during the year         $ 0.72                  $ 0.27
                                               ======                  ======

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


</TABLE>

The following table summarizes information about stock options
outstanding at December 31, 2001:


           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
--------- ------------- ------------------ ---------   ----------- ------------

$ .17-$ .66   579,900        7.11 years      $0.19      579,900      $ 0.19
$1.00-$2.00   275,000        8.51 years      $1.52      157,361      $ 1.44
    $3.00     146,500        9.80 years      $3.00        5,108      $ 3.00

           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 years ended December 31, 2001 and 2000 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.

                                          2001              2000
                                     -------------       ------------
Net loss, as reported                $(1,113,752)       $  (750,473)
Net loss, pro forma                   (1,165,554)          (770,873)
Basic loss per share, as reported           (.36)              (.24)
Basic loss per share, pro forma             (.38)              (.25)
Diluted loss per share, as reported         (.36)              (.24)
Diluted loss per share, pro forma           (.38)              (.25)


            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 years ended
December 31, 2001 and 2000.


                                      F-11


<PAGE>


                                   2001                   2000
                               --------------       --------------
Dividend yield                     0.00%                  0.00%
Volatility                         0.00%                  0.00%
Risk-free interest rate            5.50%                  5.50%
Expected life                   Five years             Ten years

            The weighted average grant date fair value of options granted during
2001 and 2000 was $.72 and $.27, 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 7).

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 April 2001, the Company sold 333,334 shares of Series B
convertible preferred stock (the "Series B Preferred Stock") to a group of
investors. The net proceeds to the Company were approximately $ 987,902. In
October 2001, the Company sold 333,334 shares of Series B convertible preferred
stock (the "Series B Preferred Stock") to a group of investors. The net proceeds
to the Company were approximately $ 998,602.

            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.

            The Series A and Series B Preferred Stock have 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 Common
Stock shareholders of the Company. The Series A Preferred Stock is on a pari
passu basis with the Series B Preferred Stock. As described in their respective
Private Placement Memorandums, each share of Series A and Series B Preferred
Stock is convertible, at the option of the holder at any time, into one share of
common stock.



                                  F-12



<PAGE>



NOTE 11.              FAIR VALUE OF FINANCIAL INSTRUMENTS

            The methods and assumptions used to estimate the fair value of the
following classes of financial instruments were:
            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, 2001 approximates its fair value.

NOTE 12.   RELATED PARTY TRANSACTIONS

           During 2001, one of the Company's directors provided consulting
services for fees approximating $ 39,000.


                                      F-13

<PAGE>

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

           Not applicable.

ITEM 9.     MANAGEMENT OF THE COMPANY

     The information required by this item will appear in the section entitled
"Management of the Company" included in the Company's definitive proxy statement
relating to the 2002 Annual Meeting of Stockholders.

      The information required by this item will appear in the section entitled
"Compliance with Section 16 (a) of the Exchange Act" included in the Company's
definitive Proxy Statement relating to the 2002 Annual Meeting of Stockholders.


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 2002 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 2002 Annual
Meeting of Stockholders.

ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The information required by this item will appear in the section entitled
"Certain Relationships and Related Transactions" included in the Company's
definitive Proxy Statement relating to the 2002 Annual Meeting of Stockholders.

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K
                     INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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

   The Company filed an amended Current Report on Form 8-K on October 10, 2001.
The amended report related to the acquisition by the Company of the assets of
Prescripticare, L.L.C., which acquisition was reported on a Current Report on
Form 8-K filed in the third quarter of 2001, and included certain pro forma
financial information.



                                   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:   March 27, 2002

                                  ALLION HEALTHCARE, INC., AND SUBSIDIARIES
                                  -----------------------------------------

                                               (Registrant)

                                        By:  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: MARCH 27, 2002

/s/ DERACE SCHAFFER, M.D.
    ---------------------
    Derace Schaffer, M.D., Director
    Date: MARCH 27, 2002