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**UNITED      STATES **

**SECURITIES      AND EXCHANGE COMMISSION **

**WASHINGTON,      D.C. 20549 **

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**FORM      10-K **
** **

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| **x  ** | **ANNUAL                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE                ACT OF                1934** |
|-------------------|---------------------------------------------------------------------------------------------------------------------------------------|

**For      the fiscal year ended December 31, 2006**

**OR      **

**¨**
**TRANSITION      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF      1934**

**Commission      file number: 0-17821 **

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**ALLION      HEALTHCARE, INC. **

**(Name      of registrant as specified in its charter) **

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

**1660      Walt Whitman Road, Suite 105, Melville, New York 11747 **

**(Address      of principal executive offices) **

**Registrant’s      telephone number: (631) 547-6520 **

**Securities      Registered Pursuant to Section 12(b) of the Act: **

| **Title                of each class****Common                Stock, $0.001 par value** | **Name                of each exchange on which registered****The                NASDAQ Global Market** |
|-----------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------|

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

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**DOCUMENTS      INCORPORATED BY REFERENCE: None **

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**TABLEOF      CONTENTS **

| **PART                I**           |                                                                                                                                                            |
|-------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   Item 1.            | Business                                                                                                                                                        | 3 |
|   Item 1A.           | Risk                Factors                                                                                                                                     | 16 |
|   Item 1B.           | Unresolved                Staff Comments                                                                                                                        | 24 |
|   Item                2.  | Properties                                                                                                                                                      | 24 |
|   Item                3.  | Legal                Proceedings                                                                                                                                | 24 |
|   Item                4.  | Submission                of Matters to a Vote of Security                Holders                                                                               | 25 |
|                                |                                                                                                                                                            |
| **PART II**                    |                                                                                                                                                            |
|   Item                5.  | Market                For Registrant’s Common Equity, Related                Stockholder Matters and Issuer Purchases of Equity                Securities | 25 |
|   Item                6.  | Selected                Financial Data                                                                                                                          | 27 |
|   Item                7.  | Management’s                Discussion and Analysis of Financial                Condition and Results of Operation                                        | 28 |
|   Item                7A. | Quantitative                and Qualitative Disclosures About Market                Risk                                                                        | 36 |
|   Item                8.  | Financial                Statements and Supplementary                Data                                                                                       | 36 |
|   Item                9.  | Changes                in and Disagreements With Accountants on                Accounting and Financial Disclosure                                              | 58 |
|   Item                9A. | Controls                and Procedures                                                                                                                          | 58 |
|   Item                9B. | Other                Information                                                                                                                                | 60 |
|                                |                                                                                                                                                            |
| **PART III**                   |                                                                                                                                                            |
|   Item 10.           | Directors,                Executive Officers and Corporate                Governance                                                                            | 60 |
|   Item                11. | Executive                Compensation                                                                                                                           | 62 |
|   Item                12. | Security                Ownership of Certain Beneficial Owners and                Management and Related Stockholder Matters                                    | 73 |
|   Item 13.           | Certain                Relationships and Related Transactions, and                Director Independence                                                         | 76 |
|   Item 14.           | Principal                Accounting Fees and                Services                                                                                            | 77 |
|                                |                                                                                                                                                            |
| **PART IV**                    |                                                                                                                                                            |
|   Item 15.           | Exhibits                and Financial Statement                Schedules                                                                                        | 78 |
|                                | Signatures                                                                                                                                                      | 79 |
|                                | Schedule                II—Valuation and Qualifying                Accounts                                                                               | 84 |
|                                |                                                                                                                                                            |   |
|                                | Ex-21.1                List of Subsidiaries of the Registrant                                                                                                   |   |
|                                | Ex-23.1              Consent of Independent Registered Public Accounting Firm                                                                                   |   |
|                                | Ex-31.1                Section 302 Certification of the CEO                                                                                                     |   |
|                                | Ex-31.2                Section 302 Certification of the CFO                                                                                                     |   |
|                                | Ex-32.1                Section 906 Certification of the CEO & CFO                                                                                           |   |

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**INFORMATION      RELATED TO FORWARD-LOOKING STATEMENTS**

**PART      I **

**Item 1.      Business. **

**Overview      **

-  Specialized          MOMSPak prescription packaging that helps reduce patient error associated          with          complex combination therapies;  
-  Reimbursement          experience that assists patients and healthcare providers with complex          reimbursement processes and that optimizes collection of payment; 
-  Arrangement          for the timely delivery of medications as directed by our patients or their          physicians in a discreet and convenient manner;  
-  Specialized          pharmacists who consult with patients, physicians, nurses and ASOs to provide          education, counseling, treatment coordination, clinical information and          compliance monitoring; and  
-  Information          systems and prescription automation solutions that make the provision of          clinical data and the transmission of prescriptions more efficient and          accurate.  

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**HIV/AIDS      **

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Table          of Contents

**Our      Products and Services **

***Adherence***

*Packaging*

*Delivery*

***Reimbursement      Management***

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Table          of Contents

***Disease      Management***

-  Programs          to monitor utilization compliance and outcomes;  
-  Clinical          information and consultation regarding the patient’s illness, medications          being used and treatment regimens;  
-  Educational          information on the patient’s illness, including advancements in research,          technology and combination therapies;  
-  Assistance          in setting realistic expectations for a patient’s therapy, including          challenges with adherence, and with anticipated outcomes and side effects;           
-  Systems          for inventory management and record keeping;  
-  Assistance          in coordinating treatment outside of the home / hospital setting; and           
-  Assistance          in the formation of patient support groups, advocating legislation to advance          the interests of the HIV/AIDS community, and participation in national          and          regional advocacy groups.  

***Information      Systems and Prescription Automation Solutions***

*LabTracker—HIV      ™*
*LabTracker*
*LabTracker’s*
*LabTracker*
*LabTracker*
*LabTracker*
*LabTracker*
*LabTracker*

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***Relationships      with Pharmaceutical Companies***

*FUZEON*

**Marketing      **

*www.momspharmacy.com,*

**Suppliers      **

**Competition      **

-  Specialty          pharmacy distributors such as Accredo Health, Inc. (acquired by Medco Health          Solutions, Inc.), BioScrip, Inc., and Priority Healthcare Corp. (acquired          by          Express Scripts, Inc.);  
-  Pharmacy          benefit management companies such as Medco Health Solutions, Inc., Express          Scripts, Inc. and Caremark Rx, Inc.;  
-  Specialty          pharmacy divisions of national wholesale drug distributors;  
-  Hospital-based          pharmacies;  
-  Retail          pharmacies;  
-  Manufacturers          that sell their products both to distributors and directly to clinics and          physician offices; and  
-  Hospital-based          care centers and other alternate site healthcare providers. 

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**Third      Party Reimbursement, Cost Containment and Legislation **

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**Government      Regulation **

-  Inducements          for patient referrals;  
-  Manufacturer-calculated          and -reported AWP and ASP amounts;  
-  Joint          ventures and management agreements;  
-  Referrals          from physicians with whom we have a financial relationship;  
-  Professional          licensure;  
-  Repackaging,          storing, and distributing prescription pharmaceuticals;  
-  Incentives          to patients; and  
-  Product          discounts.  

***Medicare      Legislation (Medicare Prescription Drug, Improvement and Modernization Act,      or      MMA).***

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***Reform***
**.      **

***Prescription      Drug Marketing Act***
**.      **

***Federal      Food, Drug, and Cosmetic Act***
**.      **

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***    Federal      Controlled Substances Act.***

***Federal      Mail Order Provisions***
**.      **

***Pharmacy      Drug Use Review Law***
**.      **

***Anti-Kickback      Laws***
**.      **

***Health      Insurance Portability and Accountability Act of 1996 and its implementing      regulations, or HIPAA***
**.      **

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-  Knowingly          and willfully attempting to defraud any healthcare benefit program (including          government and private commercial plans); and  
-  Knowingly          and willfully falsifying, concealing, or covering up a material fact or          making          any materially false or fraudulent statements in connection with claims          and          payment for healthcare services by a healthcare benefit plan (including          government and private commercial plans).  

***OIG      Fraud Alerts and Advisory Opinions***
**.      **

***State      Unfair and Deceptive Trade Practices and Consumer Protection      Laws***
**.      **

***The      Stark Law***
**.      **

***Beneficiary      Inducement Prohibition***
**.      **

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***    False      Claims;      Insurance Fraud Provisions***
**.      **

***Government      Investigations***
**.      **

*qui        tam*

***Privacy      and Confidentiality; Electronic Transactions and      Security***
**.      **

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***Developments      in Health Information Technology.***

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***Regulation      of the Practice of Pharmacy.***

***Liability      Insurance.***

**Recent      Events **

**The      Company **

*www.allionhealthcare.com,      www.momspharmacy.com, *
*www.orismed.com*

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Table          of Contents

*www.sec.gov*

**Employees      **

**Item 1A.      Risk Factors. **

*The      occurrence of any of the following risks could materially harm our business,      financial condition and results of operations. *

**Risks      Related to Our Company **

**Changes      in reimbursement by third-party payors could harm our business.**

**If      demand for our products and services is reduced, our business and ability to      grow would be harmed. **

-  A          cure          or vaccine for HIV/AIDS;  
-  The          emergence of a new strain of HIV that is resistant to available HIV/AIDS          medications;  
-  Shifts          to treatment regimens other than those we offer;  
-  New          methods of delivery of existing HIV/AIDS medications that do not require          our          specialty pharmacy and disease management services;  
-  Recalls          of HIV/AIDS medications we sell;  
-  Adverse          reactions caused by the HIV/AIDS medications we sell;  
-  The          expiration of or challenge to the drug patents on the HIV/AIDS medications          we          sell; or  
-  Competing          treatment from a new HIV/AIDS medication or a new use of an existing HIV/AIDS          medication.  

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**Our      revenues could be adversely affected if new HIV/AIDS drugs or combination      therapies are developed and prescribed to our patients and the reimbursement      rate is less than that of the current drug therapies our patients      receive.**

**We      have an ongoing informal inquiry by the Security and Exchange Commission’s      Enforcement Division, and depending on the length, scope and results of the      informal inquiry, our business, financial condition and results of operations      could experience a material adverse impact.**

**Our      revenues could be adversely affected if our patients who are “dual-eligible”under the Medicare Modernization Act cease to use our services or if      prescription drug plans, or PDPs, reduce reimbursement rates.**

-  The            reimbursement rates we currently receive from the PDPs for our services            could            be reduced; 
-  Regulations              that strictly limit our ability to market to our current and new patients              may              limit our ability to maintain and grow our current patient              base; 
-  Part                D                may not continue to cover all the medications needed for persons                with                HIV/AIDS, including our patients; and 
-  Our                  contracts with PDPs could terminate if we fail to comply with the                  terms and                  conditions of such contracts. 

**We      have a history of losses and may not be able to sustain profitability.**

**If      we do not continue to qualify for preferred      reimbursement programs in California and New York, our net sales could decline.      **

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**If      we are not able to market our services effectively to HIV/AIDS clinics, their      affiliated healthcare providers and PDPs, we may not be able to grow our patient      base as rapidly as we have anticipated. **

**If      we fail to manage our growth or implement changes to our reporting systems      effectively, our business could be harmed. **

**If      our credit terms with AmerisourceBergen become unfavorable or our relationship      with AmerisourceBergen is terminated, our business could be adversely affected.      **

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**If      we do not meet our minimum purchase requirements under our prime vendor      agreement with AmerisourceBergen, we will be required to make an additional      payment based on the unpurchased volume. **

**Our      success in identifying and integrating acquisitions may impact our business      and      our ability to have effective disclosure controls. **

**We      may not be able to integrate successfully the **
***LabTracker***
**      software into our business or **
***LabTracker***
**      subscribers may choose not to use our services. **

*LabTracker*
*LabTracker*
*LabTracker*
*LabTracker*
*LabTracker*
*LabTracker*

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*LabTracker*
*LabTracker*

**We      rely on third-party delivery services to deliver our products to the patients      we      serve. Price increases or service interruptions in our delivery services could      adversely affect our results of operations and our ability to make deliveries      on      a timely basis. **

**We      rely on a few key employees whose absence or loss could adversely affect our      business. **

**A      prolonged malfunction of our MOMSPak automated packaging system could hurt      our      relationships with the patients we serve and our ability to grow.**

**Our      financial results may suffer if we have to write off intangible assets or      goodwill. **

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**We      do not have patent or trademark protection for our MOMSPak, our automated      prescription packaging system or for our trade name, MOMS Pharmacy.**

**A      disruption in our telephone system or our computer system could harm our      business. **

**Risks      Related to the Specialty Pharmacy Industry **

**There      is substantial competition in our industry, and we may not be able to compete      successfully. **

-  Other            specialty pharmacy distributors;  
-  Specialty              pharmacy divisions of wholesale drug distributors;  
-  Pharmacy                benefit-management companies;  
-  Hospital-based                  pharmacies;  
-  Other                    retail pharmacies;  
-  Manufacturers                      that sell their products both to distributors and directly                      to clinics and                      physicians’ offices; and  
-  Hospital-based                        care centers and other alternate-site healthcare providers.                         

**If      we are found to be in violation of Medicaid and Medicare reimbursement      regulations, we could become subject to retroactive adjustments and recoupments.      **

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**Our      industry is subject to extensive government regulation, and noncompliance by      us      or our suppliers could harm our business. **

*LabTracker      and the LabTracker*
*LabTracker*

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**Changes      in industry pricing benchmarks, including changes in reimbursement by Medicaid      and other governmental payors, could adversely affect the reimbursement we      receive for drugs we dispense and as a result, negatively impact our financial      condition and results of operations.**

*New      England Carpenters Health Benefits Fund, et al. v. First DataBank, et      al.,*

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**Our      business could be affected by reforms in the healthcare industry.**

**We      may not be able to obtain insurance that is sufficient to protect our business      from liability. **

**Item 1B.      Unresolved Staff Comments. **

**Item 2.      Properties. **

| **Location**                     | **Principal Use**                                                                                                                                                                                                                                                                                                                                           | **Property                Interest**                   |
|----------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------|
| Melville,                NY      | Pharmacy and Executive Offices                                                     | Leased—expiring                August 31, 2009   |
| Brooklyn,                NY      | Pharmacy                                                                                                                                                                                                                                                                                                                                                              | Leased—expiring                June 30, 2008     |
| Gardena,                CA       | Pharmacy                                                                                                                                                                                                                                                                                                                                                              | Leased—expiring                March 31, 2011    |
| Van Nuys, CA           | Pharmacy                                                                                                                                                                                                                                                                                                                                                              | Leased—expiring                December 31, 2007 |
| Los                Angeles, CA   | Pharmacy                                                                                                                                                                                                                                                                                                                                                              | Leased—expiring                December 31, 2007 |
| La                Jolla, CA      | Billing                Center                                                                                                                                                                                                                                                                                                                                         | Leased—expiring                July 1, 2008      |
| San Francisco, CA      | Pharmacy                                                                                                                                                                                                                                                                                                                                                              | Leased—expiring                March 31, 2008    |
| San                Francisco, CA | Pharmacy                                                                                                                                                                                                                                                                                                                                                              | Leased—expired                February 28, 2007* |
| San                Diego, CA     | Administration                (Oris)                                                                                                                                                                                                                                                                                                                                  | Leased—expiring                June 30, 2008     |
| San                Diego, CA     | Pharmacy                                                                                                                                                                                                                                                                                                                                                              | Leased—expiring                January 31, 2009  |
| Miami,                FL         | Pharmacy                                                                                                                                                                                                                                                                                                                                                              | Leased—expiring                November 30, 2008 |
| Seattle,                WA       | Pharmacy                                                                                                                                                                                                                                                                                                                                                              | Leased—expiring                May 31, 2007      |

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**Item 3.      Legal Proceedings. **

*    Oris        Medical        Systems, Inc. v. Allion Healthcare, Inc., et al.,*

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**Item 4.      Submission of Matters to a Vote of Security      Holders.**

| **Director**                         | **FOR**    | **Withheld** |
|--------------------------------------|------------|--------------|
| Gary                P. Carpenter     | 12,222,274 | 35,452       |
| Russell                J. Fichera    | 12,222,274 | 35,452       |
| Michael                P. Moran      | 12,213,274 | 44,452       |
| John                Pappajohn        | 12,215,994 | 41,732       |
| Derace                Schaffer, M.D. | 12,009,871 | 247,855      |
| Harvey                Z. Werblowsky  | 12,222,174 | 35,552       |

**PART      II**

**Item 5.      Market for Registrant’s Common Equity, Related Stockholder      Matters and Issuer Purchases of Equity Securities. **

**Market      Information and Holders**

|                                                                       |   | **High**  |   | **Low**  |   |
|----------------------------------------------------------------------------|--------|----------------|--------|---------------|--------|
| **2005:**                                                                  |   |           |   |          |   |
|                    Second quarter (beginning June 22, 2005) |   | $              | 17.89  |          | $      | 16.19 |   |
|                    Third quarter                            |   | $              | 19.74  |          | $      | 15.95 |   |
|                    Fourth quarter                           |   | $              | 18.21  |          | $      | 11.17 |   |
| **2006:**                                                                  |   |           |        |          |   |  |   |
|                    First quarter                            |   | $              | 16.95  |          | $      | 11.20 |   |
|                    Second quarter                           |   | $              | 13.51  |          | $      | 7.24 |   |
|                    Third quarter                            |   | $              | 8.93   |          | $      | 3.29 |   |
|                    Fourth quarter                           |   | $              | 7.31   |          | $      | 4.21 |   |

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**Dividends**

**Recent      Sales of Unregistered Securities**

**Use      of Proceeds from Registered Securities **

**Performance      Graph **

*The      following performance graph and related information shall not be deemed“soliciting material” or to be “filed” with the Securities and Exchange      Commission, nor shall such information be incorporated by reference into any      future filing under the Securities Act of 1933 or Securities Exchange Act of      1934, each as amended, except to the extent that the Company specifically      incorporates it by reference into such filing.*

|                                                | 06/22/05 | 06/30/05 | 09/30/05 | 12/31/05 | 03/31/06 | 06/30/06 | 09/30/06 | 12/31/06 |
|-----------------------------------------------------|----------|----------|----------|----------|----------|----------|----------|----------|
| Allion                Healthcare, Inc               | 100.0    | 126.2    | 138.5    | 89.6     | 104.3    | 66.8     | 32.2     | 55.1     |
| NASDAQ                Stock Market (U.S. Companies) | 100.0    | 98.4     | 104.0    | 105.8    | 112.2    | 104.6    | 108.7    | 116.2    |
| NASDAQ                - HC Services                 | 100.0    | 99.4     | 105.8    | 114.8    | 120.3    | 114.1    | 110.4    | 114.6    |

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**Item 6.      Selected Financial Data.**

|                                                                           |   | **Years                Ended December 31,**  |    |
|--------------------------------------------------------------------------------|--------|--------------------------------------------------------|---------|
| * (in                thousands, except per share)*                        |   | **2002**                                          |    | **2003**  |   | **2004**  |   | **2005**  |   | **2006**  |   |
| **Statement                of Operations Data:**                               |   |                                                   |    |   |   |   |   |  |   |   |   |
| Net                sales                                                       |   | $                                                      | 21,441  |   | $ | 42,502 |   | $ | 60,080 |   | $ | 123,108 |   | $ | 209,503 |   |
| Cost                of sales                                                   |   |                                                   | 18,062  |   |   | 37,036 |   |   | 53,162 |   |   | 103,246 |   |   | 178,862 |   |
| Gross                profit                                                    |   |                                                   | 3,379   |   |   | 5,466 |   |   | 6,918 |   |   | 19,862 |   |   | 30,641 |   |
| Operating                expenses                                              |   |                                                   |         |   |   |  |   |   |  |   |   |  |   |   |  |   |
|                    Selling, general and administrative expenses |   |                                                   | 3,718   |   |   | 7,699 |   |   | 9,163 |   |   | 18,350 |   |   | 27,698 |   |
|                    Legal settlement (income) expense            |   |                                                   | (150    | ) |   | 200 |   |   | — |   |   | — |   |   | — |   |
|                    Operating income (loss)                      |   |                                                   | (189    | ) |   | (2,433 | ) |   | (2,245 | ) |   | 1,512 |   |   | 2,943 |   |
| Other                income                                                    |   |                                                   |         |   |   |  |   |   |  |   |   |  |   |   |  |   |
|                    Interest income (expense)                    |   |                                                   | (69     | ) |   | (244 | ) |   | (233 | ) |   | (1,059 | ) |   | 1,254 |   |
|                    Costs of withdrawn public offering and other |   |                                                   | (479    | ) |   | — |   |   | — |   |   | — |   |   | — |   |
|                    Other income (expense)                       |   |                                                   | — |   |   | — |   |   | 4 |   |   | (1,133 | ) |   | — |   |
| Income                (loss) before income taxes and discontinued operations   |   |                                                   | (737    | ) |   | (2,677 | ) |   | (2,474 | ) |   | (680 | ) |   | 4,197 |   |
| Provision                for taxes                                             |   |                                                   | 35      |   |   | 20 |   |   | 76 |   |   | 329 |   |   | 1,007 |   |
| Income                (loss) from continuing operations                        |   |                                                   | (772    | ) |   | (2,697 | ) |   | (2,550 | ) |   | (1,009 | ) |   | 3,190 |   |
| Discontinued                operations                                         |   |                                                   | (267    | ) |   | (258 | ) |   | (130 | ) |   | (36 | ) |   | — |   |
| Net                income (loss)                                               |   |                                                   | (1,039  | ) |   | (2,955 | ) |   | (2,680 | ) |   | (1,045 | ) |   | 3,190 |   |
| Deemed                dividend on preferred stock                              |   |                                                   | — |   |   | — |   |   | — |   |   | (1,338 | ) |   | — |   |
| Net                income (loss) available to common stockholders              |   |                $                                  | (1,039  | ) |                $ | (2,955 | ) |                $ | (2,680 | ) | $ | (2,383 | ) | $ | 3,190 |   |
|                                                                           |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                income (loss) per common share                            |   |                                                   |         |   |   |  |   |   |  |   |   |  |   |   |  |   |
|                    Income(loss) before discontinued operations  |   | $                                                      | (0.25   | ) | $ | (0.87 | ) | $ | (0.82 | ) | $ | (0.29 | ) | $ | 0.20 |   |
|                    Loss from discontinued operations            |   |                                                   | (0.09   | ) |   | (0.08 | ) |   | (0.04 | ) |   | 0.00 |   |   | 0.00 |   |
|                    Net income (loss) per share                  |   | $                                                      | (0.34   | ) | $ | (0.95 | ) | $ | (0.86 | ) | $ | (0.29 | ) | $ | 0.20 |   |
|                                                                           |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Diluted                income (loss) per common share                          |   |                                                   |         |   |   |  |   |   |  |   |   |  |   |   |  |   |
|                    Income(loss) before discontinued operations  |   | $                                                      | (0.25   | ) | $ | (0.87 | ) | $ | (0.82 | ) | $ | (0.29 | ) | $ | 0.19 |   |
|                    Loss from discontinued operations            |   |                                                   | (0.09   | ) |   | (0.08 | ) |   | (0.04 | ) |   | 0.00 |   |   | 0.00 |   |
|                    Net income (loss) per share                  |   | $                                                      | (0.34   | ) | $ | (0.95 | ) | $ | (0.86 | ) | $ | (0.29 | ) | $ | 0.19 |   |
|                                                                           |   |                                                   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                weighted average of common shares outstanding             |   |                                                   | 3,100   |   |   | 3,100 |   |   | 3,100 |   |   | 8,202 |   |   | 15,951 |   |
| Diluted                weighted average of common shares outstanding           |   |                                                   | 3,100   |   |   | 3,100 |   |   | 3,100 |   |   | 8,202 |   |   | 16,967 |   |

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|                                                      |   | **Years                Ended December 31,**  |    |
|-----------------------------------------------------------|--------|--------------------------------------------------------|---------|
| * (in                thousands, except per share)*   |   | **2002**                                               |    | **2003**  |   | **2004**  |   | **2005**  |   | **2006**  |   |
| **Balance                Sheet Data:**                    |   |                                                   |    |   |   |   |   |   |   |   |   |
| Cash                and cash equivalents                  |   | $                                                      | 213     |   | $ | 641 |   | $ | 6,980 |   | $ | 3,845 |   | $ | 17,062 |   |
| Investments                in short-term securities       |   | $                                                      | — |   | $ | — |   | $ | — |   | $ | 23,001 |   | $ | 6,450 |   |
| Total                assets                               |   | $                                                      | 4,622   |   | $ | 12,415 |   | $ | 19,996 |   | $ | 86,289 |   | $ | 121,603 |   |
| Notes                payable-subordinated                 |   | $                                                      | — |   | $ | 1,150 |   | $ | 1,250 |   | $ | 1,358 |   | $ | 700 |   |
| Total                liabilities                          |   | $                                                      | 5,365   |   | $ | 10,022 |   | $ | 8,481 |   | $ | 18,946 |   | $ | 19,796 |   |
| Total                stockholders’ equity (deficit) |   | $                                                      | (744    | ) | $ | 2,393 |   | $ | 11,514 |   | $ | 67,343 |   | $ | 101,807 |   |
| Working                Capital                            |   | $                                                      | (261    | ) | $ | (1,884 | ) | $ | 4,848 |   | $ | 27,488 |   | $ | 29,535 |   |

**Item 7.      Management’s Discussion and Analysis of Financial      Condition and Results of Operation. **

*The      following discussion and analysis of our financial condition and results of      operations should be read in conjunction with our Consolidated Financial      Statements and Notes thereto, which appear in Item 8 of this Annual Report.      Some of the information contained in this discussion and analysis or set forth      elsewhere in this Annual Report, including information with respect to our      plans      and strategy for our business, includes forward-looking statements that involve      risks and uncertainties. You should review "Item 1A. Risk Factors" of this      Annual Report for a discussion of important factors that could cause our actual      results to differ materially from the results described in or implied by the      forward-looking statements contained in the following discussion and      analysis.*

**Overview      **

-  Specialized          MOMSPak prescription packaging that helps reduce patient error associated          with          complex combination therapies;  
-  Reimbursement          experience that assists patients and healthcare providers with the complex          reimbursement processes and that optimizes collection of payment; 
-  Arrangement          for the timely delivery of medications as directed by our patients or their          physicians in a discreet and convenient manner;  
-  Specialized          pharmacists who consult with patients, physicians, nurses and ASOs to provide          education, counseling, treatment coordination, clinical information and          compliance monitoring; and  
-  Information          systems and prescription automation solutions that make the provision of          clinical data and the transmission of prescriptions more efficient and          accurate. 

***    Geographic      Footprint.***

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Table          of Contents

***Net      Sales***

***Gross      Profit***

***Operating      Expenses***

**Critical      Accounting Policies **

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Table          of Contents

***Revenue      Recognition***

***Allowance      for Doubtful Accounts.***

***Long-Lived      Asset Impairment.***

***Goodwill      and Other Intangible Assets.***

-  Significant          underperformance relative to expected historical or projected future operating          results;  
-  Significant          changes in the manner of our use of the acquired assets or the strategy          for          our overall business; and  
-  Significant          negative industry or economic trends.  

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Table          of Contents

**Recently      Issued Accounting Pronouncements **

**Results      of Operations **

***Fiscal      Years Ended December 31, 2006 and 2005***

|                                |   | **Year                Ended December 31,**  |        |
|-------------------------------------|--------|-------------------------------------------------------|-------------|
|                                |   | **2006**                                         |        | **2005** |   |
| **Distribution Region**        |   | **Net                Sales**                     |        | **Prescriptions**  |   | **Patient****Months**  |   | **Net                Sales**  |   | **Prescriptions**  |   | **Patient****Months**  |   |
| California                (1)(2)(3) |   | $                                                     | 138,290,544 |   |   | 595,208 |   |   | 124,891 |   | $ | 75,396,306 |   |   | 354,072 |   |   | 75,603 |   |
| New                York (4)(5)      |   |                                                  | 65,250,427  |   |   | 249,427 |   |   | 37,858 |   |   | 42,904,453 |   |   | 162,108 |   |   | 22,995 |   |
| Seattle                (6)          |   |                                                  | 3,864,003   |   |   | 20,440 |   |   | 3,642 |   |   | 2,778,208 |   |   | 16,617 |   |   | 2,867 |   |
| Florida                             |   |                                                  | 2,098,330   |   |   | 10,861 |   |   | 1,527 |   |   | 2,028,705 |   |   | 12,488 |   |   | 1,486 |   |
| Total                               |   | $                                                     | 209,503,304 |   |   | 875,936 |   |   | 167,918 |   | $ | 123,107,672 |   |   | 545,285 |   |   | 102,951 |   |

----

***Net      Sales.***

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Table          of Contents

***Gross      Profit***
**.      **

***Selling,      General and Administrative Expenses***
**.      **

| **Components                of Selling, General and Administrative Expense** |   | **Change ($)**  |      |
|------------------------------------------------------------------------------|--------|---------------------------|-----------|
| Labor                expenses                                                |   | $                         | 3,961,078 |   |
| Depreciation                and amortization                                 |   |                      | 1,607,337 |   |
| Bad                debt                                                      |   |                      | 948,686   |   |
| Shipping                and postage                                          |   |                      | 598,235   |   |
| Rent                and facilities                                           |   |                      | 383,140   |   |
| Legal                expenses                                                |   |                      | 370,202   |   |
| Stock                compensation expense                                    |   |                      | 310,023   |   |
| Pharmacy                supplies                                             |   |                      | 198,298   |   |

***Operating      Income***
**.      **

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Table          of Contents

***Interest      Income (Expense).***

***Other      Income (Expense)***
**.      **

***Provision      for Taxes***
**.      **

***Fiscal      Years Ended December 31, 2005 and 2004***

|                             |   | **Year                Ended December 31,**  |        |
|----------------------------------|--------|-------------------------------------------------------|-------------|
|                             |   | **2005                (5)**                      |        | **2004                (5)**  |   |
| **Distribution Region**     |   | **Net                Sales**                     |        | **Prescriptions**  |   | **Patient****Months**  |   | **Net                Sales**  |   | **Prescriptions**  |   | **Patient****Months**  |   |
| California                (1)(2) |   | $                                                     | 75,396,306  |   |   | 354,072 |   |   | 75,603 |   | $ | 21,803,119 |   |   | 93,566 |   |   | 13,634 |   |
| New                York (3)      |   |                                                  | 42,904,453  |   |   | 162,108 |   |   | 22,995 |   |   | 36,507,850 |   |   | 146,055 |   |   | 21,536 |   |
| Seattle                (4)       |   |                                                  | 2,778,208   |   |   | 16,617 |   |   | 2,867 |   |   | — |   |   | — |   |   | — |   |
| Florida                          |   |                                                  | 2,028,705   |   |   | 12,488 |   |   | 1,486 |   |   | 1,769,034 |   |   | 10,931 |   |   | 1,247 |   |
| Total                            |   | $                                                     | 123,107,672 |   |   | 545,285 |   |   | 102,951 |   | $ | 60,080,003 |   |   | 250,552 |   |   | 36,417 |   |

----

***Net      Sales.***

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Table          of Contents

***    Gross      Profit***
**.**

***Selling,      General and Administrative Expenses***
**.**

| **Components                of Selling, General and Administrative Expense**                               |   | **Change ($)**  |      |
|------------------------------------------------------------------------------------------------------------|--------|---------------------------|-----------|
| Labor                costs                                                                                 |   | $                         | 5,278,340 |   |
| Shipping                and postage                                                                        |   |                      | 981,347   |   |
| Consulting                and accounting services relating to Sarbanes-Oxley 404                compliance |   |                      | 528,586   |   |
| Franchise                and Property Taxes                                                                |   |                      | 153,167   |   |
| Supplies                (pharmacy and office)                                                              |   |                      | 151,283   |   |

***Operating      Income (Loss)***
**.**

***Interest      Expense.***

***Other      Income (Expense)***
**.**

***Provision      for Taxes***
**.**

**Liquidity      and Capital Resources **

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Table          of Contents

*LabTracker*
*LabTracker*

***Operating      Requirements.***

*** ***
***Capital      Resources.***

----

Table          of Contents

***Long-Term      Requirements.***

***Contractual      Obligations.***

|                                         |   | **Payments                due by Period**  |        |
|----------------------------------------------|--------|-------------------------------------------------|-------------|
|                                         |   | **Total**                                  |        | **Less                than 1****year**  |   | **1-3                years**  |   | **4-5                years**  |   | **More than****5                years**  |   |
| Long-Term                Debt Obligation (1) |   | $                                               | 700,000     |   | $ | 700,000 |   | $ | — |   | $ | — |   | $ | — |   |
| Capital                Lease Obligations (1) |   |                                            | 92,817      |   |   | 45,681 |   |   | 47,136 |   |   | — |   |   | — |   |
| Operating                Leases              |   |                                            | 1,708,996   |   |   | 707,066 |   |   | 797,362 |   |   | 204,568 |   |   | — |   |
| Purchase                Commitments (2)      |   |                                            | 101,289,671 |   |   | 30,414,671 |   |   | 70,875,000 |   |   | — |   |   | — |   |
| Total                                        |   | $                                               | 103,791,484 |   | $ | 31,867,418 |   | $ | 71,719,498 |   | $ | 204,568 |   | $ | — |   |

----

***Off-Balance      Sheet Arrangements.***

**Item 7A.      Quantitative and Qualitative Disclosures About      Market      Risk.**

**Interest      Rate Sensitivity**

**Other      Market Risk**

**Item 8.      Financial Statements and Supplementary Data.**

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Table          of Contents

**Report      of Independent Registered Public Accounting Firm**

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Table          of Contents

**ALLION      HEALTHCARE, INC. AND SUBSIDIARIES**

**CONSOLIDATED      BALANCE SHEETS **

**AS      OF DECEMBER 31, 2006 AND 2005 **

|                                                                                                                                                                 |   | **2006**  |            | **2005**  |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|-----------------|----------------|--------|
| **Assets**                                                                                                                                                           |   |           |            |           |   |
| **Current                Assets:**                                                                                                                                   |   |           |            |           |   |
| Cash                and cash equivalents                                                                                                                             |   | $              | 17,061,731      |           | $      | 3,845,037 |   |
| Short                term investments                                                                                                                                |   |           | 6,450,160       |           |   | 23,000,553 |   |
| Accounts                receivable, (net of allowance for doubtful accounts of $424,735 in                2006 and $282,824 in 2005)                            |   |           | 18,297,084      |           |   | 14,640,304 |   |
| Inventories                                                                                                                                                          |   |           | 5,036,900       |           |   | 3,228,225 |   |
| Prepaid                expenses and other current assets                                                                                                             |   |           | 634,421         |           |   | 762,466 |   |
| Deferred                tax asset                                                                                                                                    |   |           | 401,754         |           |   | — |   |
| Total                Current Assets                                                                                                                                  |   |           | 47,882,050      |           |   | 45,476,585 |   |
|                                                                                                                                                                 |   |           |            |           |   |   |   |
| Property                and equipment, net                                                                                                                           |   |           | 890,478         |           |   | 671,396 |   |
| Goodwill                                                                                                                                                             |   |           | 42,066,932      |           |   | 19,739,035 |   |
| Intangible                assets, net                                                                                                                                |   |           | 30,682,630      |           |   | 20,314,866 |   |
| Other                assets                                                                                                                                          |   |           | 80,888          |           |   | 87,123 |   |
| **Total                Assets**                                                                                                                                      |   | **$**          | **121,602,978** |           | **$**  | **86,289,005** |   |
|                                                                                                                                                                 |   |           |                 |           |   |  |   |
| **Liabilities                And Stockholders’ Equity**                                                                                                        |   |           |                 |           |   |  |   |
| **Current                Liabilities:**                                                                                                                              |   |           |                 |           |   |  |   |
| Accounts                payable                                                                                                                                      |   | $              | 16,339,289      |           | $      | 13,915,036 |   |
| Accrued                expenses                                                                                                                                      |   |           | 1,262,408       |           |   | 3,290,941 |   |
| Notes                payable-subordinated                                                                                                                            |   |           | 700,000         |           |   | 675,000 |   |
| Current                portion of capital lease obligations                                                                                                          |   |           | 45,681          |           |   | 107,379 |   |
| Total                Current Liabilities                                                                                                                             |   |           | 18,347,378      |           |   | 17,988,356 |   |
|                                                                                                                                                                 |   |           |            |           |   |   |   |
| **Long                Term Liabilities:**                                                                                                                            |   |           |                 |           |   |  |   |
| Notes                payable—subordinated                                                                                                                      |   |           | —         |           |   | 682,710 |   |
| Capital                lease obligations                                                                                                                             |   |           | 47,136          |           |   | 92,818 |   |
| Deferred                tax liability                                                                                                                                |   |           | 1,342,674       |           |   | 153,000 |   |
| Other                                                                                                                                                                |   |           | 58,788          |           |   | 28,892 |   |
| Total                Liabilities                                                                                                                                     |   |           | 19,795,976      |           |   | 18,945,776 |   |
|                                                                                                                                                                 |   |           |                 |           |   |  |   |
| **Commitments                And Contingencies**                                                                                                                     |   |           |                 |           |   |  |   |
| **Stockholders’                Equity**                                                                                                                        |   |           |                 |           |   |  |   |
| Convertible                preferred stock, $.001 par value; shares authorized 20,000,000; issued                and                outstanding -0- in 2006 and 2005 |   |           | —         |           |   | — |   |
| Common                stock, $.001 par value; shares authorized 80,000,000; issued and                outstanding 16,203,666 in 2006 and 12,956,382 in 2005          |   |           | 16,204          |           |   | 12,956 |   |
| Additional                paid-in capital                                                                                                                            |   |           | 111,548,738     |           |   | 80,228,664 |   |
| Accumulated                deficit                                                                                                                                   |   |           | (9,746,704      | )              |   | (12,936,944 | ) |
| Accumulated                other comprehensive income                                                                                                                |   |           | (11,236         | )              |   | 38,553 |   |
| Total                stockholders’ equity                                                                                                                      |   |           | 101,807,002     |           |   | 67,343,229 |   |
| **Total                Liabilities And Stockholders’ Equity**                                                                                                  |   | **$**          | **121,602,978** |           | **$**  | **86,289,005** |   |

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Table          of Contents

**ALLION      HEALTHCARE, INC. AND SUBSIDIARIES **

**CONSOLIDATED      STATEMENTS OF OPERATIONS **

**YEARS      ENDED DECEMBER 31, 2006, 2005 AND 2004 **

|                                                                         |   | **2006**  |        | **2005**  |   | **2004**  |   |
|------------------------------------------------------------------------------|--------|----------------|-------------|----------------|--------|----------------|--------|
| **Statement                of Operations Data:**                             |   |           |        |           |   |           |   |
| Net                sales                                                     |   | $              | 209,503,304 |           | $      | 123,107,672    |   | $ | 60,080,003 |   |
| Cost                of goods sold                                            |   |           | 178,861,560 |           |   | 103,245,890    |   |   | 53,162,201 |   |
| Gross                profit                                                  |   |           | 30,641,744  |           |   | 19,861,782     |   |   | 6,917,802 |   |
| Operating                expenses:                                           |   |           |             |           |   |                |   |   |  |   |
|  Selling,                general and administrative expenses            |   |           | 27,698,427  |           |   | 18,349,296     |   |   | 9,162,734 |   |
| Operating                income (loss)                                       |   |           | 2,943,317   |           |   | 1,512,486      |   |   | (2,244,932 | ) |
| Other                expense:                                                |   |           |             |           |   |                |   |   |  |   |
| Interest                income (expense)                                     |   |           | 1,254,073   |           |   | (1,059,135     | )      |   | (233,460 | ) |
| Other                income (expense)                                        |   |           | 102         |           |   | (1,133,215     | )      |   | 4,466 |   |
| Income                (loss) before income taxes and discontinued operations |   |           | 4,197,492   |           |   | (679,864       | )      |   | (2,473,926 | ) |
| Provision                for taxes                                           |   |           | 1,007,252   |           |   | 329,000        |   |   | 76,202 |   |
| Income                (loss) from continuing operations                      |   |           | 3,190,240   |           |   | (1,008,864     | )      |   | (2,550,128 | ) |
| Loss                from discontinued operations                             |   |           | —     |           |   | (36,125        | )      |   | (130,020 | ) |
| Net                income (loss)                                             |   |           | 3,190,240   |           |   | (1,044,989     | )      |   | (2,680,148 | ) |
| Deemed                dividend on preferred stock                            |   |           | —     |           |   | 1,338,047      |   |   | — |   |
| Net                income (loss) available to common stockholders            |   | $              | 3,190,240   |           | $      | (2,383,036     | )      | $ | (2,680,148 | ) |
|                                                                         |   |           |             |           |   |                |   |   |  |   |
| Basic                income (loss) per common share:                         |   |           |             |           |   |                |   |   |  |   |
| Income                (loss) before discontinued operations                  |   | $              | 0.20        |           | $      | (0.29          | )      | $ | (0.82 | ) |
| Loss                from discontinued operations                             |   |           | 0.00        |           |   | 0.00           |   |   | (0.04 | ) |
| Net                income (loss) per share                                   |   | $              | 0.20        |           | $      | (0.29          | )      | $ | (0.86 | ) |
|                                                                         |   |           |        |           |   |           |   |   |   |   |
| Diluted                income (loss) per common share                        |   |           |             |           |   |                |   |   |  |   |
| Income                (loss) before discontinued operations                  |   | $              | 0.19        |           | $      | (0.29          | )      | $ | (0.82 | ) |
| Loss                from discontinued operations                             |   |           | 0.00        |           |   | 0.00           |   |   | (0.04 | ) |
| Net                income (loss) per share                                   |   | $              | 0.19        |           | $      | (0.29          | )      | $ | (0.86 | ) |
|                                                                         |   |           |        |           |   |           |   |   |   |   |
| Basic                weighted average of common shares outstanding           |   |           | 15,950,896  |           |   | 8,201,565      |   |   | 3,100,000 |   |
| Diluted                weighted average of common shares outstanding         |   |           | 16,966,706  |           |   | 8,201,565      |   |   | 3,100,000 |   |

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Table          of Contents

**ALLION      HEALTHCARE, INC. AND SUBSIDIARIES **

**CONSOLIDATED      STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) **

**YEARS      ENDED DECEMBER 31, 2006, 2005 AND 2004 **

|                                                                       |   | **Preferred                Stk.****$.001                par value** |       | **Common                Stk.****$.001                par value** |    | **Additional****Paid-In****Capital** |   | **Accumulated****Deficit** |       | **Accumulated****Other****Comprehensive****Income** |   | **Total** |   |
|----------------------------------------------------------------------------|--------|---------------------------------------------------------------------|------------|------------------------------------------------------------------|---------|--------------------------------------|--------|----------------------------|------------|-----------------------------------------------------|--------|-----------|--------|
|                                                                       |   | **Shares**                                                          |       | **Par****Value**                                                 |    | **Shares**                           |   | **Par****Value**           |       |
| Balance,                December 31, 2003                             |   |                                                                | 2,414,168  |                                                             | $       | 2,414                                |   |                       | 3,100,000  |                                                | $      | 3,100     |   | $ | 10,261,526 |   | $ | (7,873,760 | ) | $ | — |   | $ | 2,393,280 |   |
| Net                Loss                                                    |   |                                                                | —    |                                                             |    | —                              |   |                       | —    |                                                |   | —   |   |   | — |   |   | (2,680,148 | ) |   | — |   |   | (2,680,148 | ) |
| Issuance                of Preferred Stock                                 |   |                                                                | 2,155,841  |                                                             |    | 2,156                                |   |                       | —    |                                                |   | —   |   |   | 11,799,207 |   |   | — |   |   | — |   |   | 11,801,363 |   |
| Balance,                December 31, 2004                             |   |                                                                | 4,570,009  |                                                             |    | 4,570                                |   |                       | 3,100,000  |                                                |   | 3,100     |   |   | 22,060,733 |   |   | (10,553,908 | ) |   | — |   |   | 11,514,495 |   |
|                                                                       |   |                                                                |       |                                                             |    |                                 |   |                       |       |                                                |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive                income:                                       |   |                                                                |            |                                                             |    |                                 |   |                       |            |                                                |   |           |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Unrealized                gain on investments                              |   |                                                                | —    |                                                             |    | —                              |   |                       | —    |                                                |   | —   |   |   | — |   |   | — |   |   | 38,553 |   |   | 38,553 |   |
| Net                loss                                                    |   |                                                                | —    |                                                             |    | —                              |   |                       | —    |                                                |   | —   |   |   | — |   |   | (1,044,989 | ) |   | — |   |   | (1,044,989 | ) |
| Total                comprehensive loss                                    |   |                                                                |       |                                                             |    |                                 |   |                       |       |                                                |   |      |   |   |   |   |   |   |   |   |   |   |   | (1,006,436 | ) |
|                                                                       |   |                                                                |       |                                                             |    |                                 |   |                       |       |                                                |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance                of warrants for:                                   |   |                                                                |            |                                                             |    |                                 |   |                       |            |                                                |   |           |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Acquisition                                                                |   |                                                                | —    |                                                             |    | —                              |   |                       | —    |                                                |   | —   |   |   | 558,504 |   |   | — |   |   | — |   |   | 558,504 |   |
| Services                                                                   |   |                                                                | —    |                                                             |    | —                              |   |                       | —    |                                                |   | —   |   |   | 966,000 |   |   | — |   |   | — |   |   | 966,000 |   |
|                                                                       |   |                                                                |       |                                                             |    |                                 |   |                       |       |                                                |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance                of Common Stock:                                   |   |                                                                |       |                                                             |    |                                 |   |                       |       |                                                |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Public                Offering                                             |   |                                                                | —    |                                                             |    | —                              |   |                       | 4,600,000  |                                                |   | 4,600     |   |   | 53,549,001 |   |   | — |   |   | — |   |   | 53,553,601 |   |
| Conversion                of Preferred to Common Stock                     |   |                                                                | (4,570,009 | )                                                                |    | (4,570                               | )      |                       | 4,794,897  |                                                |   | 4,795     |   |   | 1,337,822 |   |   | — |   |   | — |   |   | 1,338,047 |   |
| Exercise                of options                                         |   |                                                                | —    |                                                             |    | —                              |   |                       | 213,000    |                                                |   | 213       |   |   | 448,387 |   |   | — |   |   | — |   |   | 448,600 |   |
| Exercise                of warrants                                        |   |                                                                | —    |                                                             |    | —                              |   |                       | 248,485    |                                                |   | 248       |   |   | 694 |   |   | — |   |   | — |   |   | 942 |   |
|                                                                       |   |                                                                |       |                                                             |    |                                 |   |                       |       |                                                |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Additional                cost for prior year issuance of preferred shares |   |                                                                | —    |                                                             |    | —                              |   |                       | —    |                                                |   | —   |   |   | (1,692 | ) |   | — |   |   | — |   |   | (1,692 | ) |
| Mandatory                redeemable warrants                               |   |                                                                | —    |                                                             |    | —                              |   |                       | —    |                                                |   | —   |   |   | 1,133,215 |   |   | — |   |   | — |   |   | 1,133,215 |   |
| Deemed                Dividend                                             |   |                                                                | —    |                                                             |    | —                              |   |                       | —    |                                                |   | —   |   |   | — |   |   | (1,338,047 | ) |   | — |   |   | (1,338,047 | ) |
| Tax                benefit from exercise of employee stock options         |   |                                                                | —    |                                                             |    | —                              |   |                       | —    |                                                |   | —   |   |   | 176,000 |   |   | — |   |   | — |   |   | 176,000 |   |
| Balance, December 31,                2005                        |   |                                                                | —    |                                                             |    | —                              |   |                       | 12,956,382 |                                                |   | 12,956    |   |   | 80,228,664 |   |   | (12,936,944 | ) |   | 38,553 |   |   | 67,343,229 |   |
|                                                                       |   |                                                                |       |                                                             |    |                                 |   |                       |       |                                                |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive                income:                                       |   |                                                                |            |                                                             |    |                                 |   |                       |            |                                                |   |           |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Unrealized loss                on investments                         |   |                                                                | —    |                                                             |    | —                              |   |                       | —    |                                                |   | —   |   |   | — |   |   | — |   |   | (49,789 | ) |   | (49,789 | ) |
| Net                income                                                  |   |                                                                | —    |                                                             |    | —                              |   |                       | —    |                                                |   | —   |   |   | — |   |   | 3,190,240 |   |   | — |   |   | 3,190,240 |   |
| Total                comprehensive income                                  |   |                                                                |       |                                                             |    |                                 |   |                       |       |                                                |   |      |   |   |   |   |   |   |   |   |   |   |   | 3,140,451 |   |
|                                                                       |   |                                                                |       |                                                             |    |                                 |   |                       |       |                                                |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance                of Common Stock:                                   |   |                                                                | —    |                                                             |    | —                              |   |                       | —    |                                                |   | —   |   |   | — |   |   | — |   |   | — |   |   | — |   |
| Public                offering                                             |   |                                                                | —    |                                                             |    | —                              |   |                       | 2,465,468  |                                                |   | 2,467     |   |   | 28,849,475 |   |   | — |   |   | — |   |   | 28,851,942 |   |
| Exercise                of options                                         |   |                                                                | —    |                                                             |    | —                              |   |                       | 420,417    |                                                |   | 420       |   |   | 1,249,390 |   |   | — |   |   | — |   |   | 1,249,810 |   |
| Exercise                of warrants                                        |   |                                                                | —    |                                                             |    | —                              |   |                       | 361,399    |                                                |   | 361       |   |   | 903,224 |   |   | — |   |   | — |   |   | 903,585 |   |
|                                                                       |   |                                                                |       |                                                             |    |                                 |   |                       |       |                                                |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost                of secondary offering                                  |   |                                                                | —    |                                                             |    | —                              |   |                       |       |                                                |   |      |   |   | (203,879 | ) |   | — |   |   | — |   |   | (203,879 | ) |
| Stock                based compensation                                    |   |                                                                |       |                                                             |    |                                 |   |                       |       |                                                |   |      |   |   | 310,023 |   |   |   |   |   |   |   |   | 310,023 |   |
| Tax                benefit from exercise of employee stock options         |   |                                                                | —    |                                                             |    | —                              |   |                       | —    |                                                |   | —   |   |   | 211,841 |   |   | — |   |   | — |   |   | 211,841 |   |
| Balance, December 31,                2006                        |   |                                                                | —    |                                                             |  $ | —                              |   |                       | 16,203,666 |                                                | $      | 16,204    |   | $ | 111,548,738 |   | $ | (9,746,704 | ) | $ | (11,236 | ) | $ | 101,807,002 |   |

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Table          of Contents

**ALLION      HEALTHCARE, INC. AND SUBSIDIARIES **

**CONSOLIDATED      STATEMENTS OF CASH FLOWS **

|                                                                                                                                            |   | **2006** |        | **2005**  |   | **2004**  |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|-------------|----------------|--------|----------------|--------|
| CASH                FLOWS FROM OPERATING ACTIVITIES                                                                                             |   |     |        |           |   |           |   |
| Net                income (loss)                                                                                                                |   | $        | 3,190,240   |           | $      | (1,044,989     | )      | $ | (2,680,148 | ) |
| Adjustments                to reconcile net income (loss) to net cash provided by (used in)                operating                activities: |   |     |             |           |   |                |   |   |  |   |
| Depreciation                and amortization                                                                                                    |   |     | 3,539,564   |           |   | 1,935,442      |   |   | 716,981 |   |
| Deferred                rent                                                                                                                    |   |     | 29,896      |           |   | 7,483          |   |   | 21,409 |   |
| Mandatory                redeemable warrants                                                                                                    |   |     | —     |           |   | 1,133,215      |   |   | — |   |
| Non-cash                interest expense                                                                                                        |   |     | —     |           |   | 966,000        |   |   | — |   |
| Amortization                of debt discount on acquisition notes                                                                               |   |     | 17,290      |           |   | 33,963         |   |   | — |   |
| Provision                for doubtful accounts                                                                                                  |   |     | 1,076,686   |           |   | 128,000        |   |   | (140,711 | ) |
| Loss                on sale of asset                                                                                                            |   |     | 411         |           |   | —        |   |   | — |   |
| Tax                benefit realized from the exercise of employee stock                options                                                  |   |     | —     |           |   | 176,000        |   |   |  |   |
| Non-cash                stock compensation expense                                                                                              |   |     | 310,023     |           |   | —        |   |   | — |   |
| Deferred                taxes                                                                                                                   |   |     | 795,411     |           |   | 153,000        |   |   | — |   |
| Changes                in operating assets and liabilities exclusive of                acquisitions:                                            |   |     |        |           |   |                |   |   |  |   |
| Accounts                receivable                                                                                                              |   |     | (4,733,466  | )              |   | (6,161,188     | )      |   | (1,463,397 | ) |
| Inventories                                                                                                                                     |   |     | (699,182    | )              |   | (810,018       | )      |   | 563,075 |   |
| Prepaid                expenses and other assets                                                                                                |   |     | (76,529     | )              |   | (458,243       | )      |   | (491,413 | ) |
| Accounts                payable and accrued expenses                                                                                            |   |     | 1,680,947   |           |   | 3,444,753      |   |   | 1,078,083 |   |
| Net                cash provided by (used in) operating activities:                                                                             |   |     | 5,131,291   |           |   | (496,582       | )      |   | (2,396,121 | ) |
| CASH                FLOWS USED IN INVESTING ACTIVITIES:                                                                                         |   |     |             |           |   |                |   |   |  |   |
| Purchase                of property and equipment                                                                                               |   |     | (534,130    | )              |   | (329,457       | )      |   | (138,208 | ) |
| Sale                of property and equipment                                                                                                   |   |     | 100         |           |   | —        |   |   | 27,500 |   |
| Investment                in short term securities                                                                                              |   |     | (90,857,578 | )              |   | (22,962,000    | )      |   | — |   |
| Sale                of short term securities                                                                                                    |   |     | 107,358,182 |           |   | —        |   |   | — |   |
| Payments                for acquisition of North American                                                                                       |   |     | (16,614     | )              |   | (5,409,360     | )      |   | — |   |
| Payments                for acquisition of Specialty Pharmacy                                                                                   |   |     | (8,815      | )              |   | (5,060,661     | )      |   | — |   |
| Payments                for investment in Oris Medical’s Assets                                                                           |   |     | (371,639    | )              |   | (1,396,316     | )      |   | — |   |
| Payments                for acquisition of PMW                                                                                                  |   |     | —     |           |   | (9,997,144     | )      |   | — |   |
| Payments                for acquisition of Priority                                                                                             |   |     | (1,399,158  | )              |   | (6,918,313     | )      |   | — |   |
| Payments                for acquisition of Maiman                                                                                               |   |     | (5,812,729  | )              |   | —        |   |   | — |   |
| Payments                for acquisition of H&H                                                                                              |   |     | (4,743,803  | )              |   | —        |   |   | — |   |
| Payments                for acquisition of Whittier                                                                                             |   |     | (15,891,093 | )              |   | —        |   |   | — |   |
| Payments                for acquisition of St. Jude                                                                                             |   |     | (10,072,118 | )              |   | —        |   |   | — |   |
| Net                cash used in investing activities                                                                                            |   |     | (22,349,395 | )              |   | (52,073,251    | )      |   | (110,708 | ) |
| CASH                FLOWS FROM FINANCING ACTIVITIES:                                                                                            |   |     |             |           |   |                |   |   |  |   |
| Net                proceeds from sale of Preferred Stock -Net of fees                                                                           |   |     | —     |           |   | 103,554        |   |   | 11,607,449 |   |
| Net                proceeds from line of credit                                                                                                 |   |     | —     |           |   | 43,252,082     |   |   | 33,590,405 |   |
| Repayment                of line of credit                                                                                                      |   |     | —     |           |   | (43,253,236    | )      |   | (33,589,251 | ) |
| Net                Proceeds from IPO/ Secondary Offering                                                                                        |   |     | 28,851,942  |           |   | 53,553,601     |   |   | — |   |
| Net                Proceeds—Exercise of Employee Stock Options and Warrants                                                               |   |     | 2,153,395   |           |   | 449,542        |   |   | — |   |
| Tax                benefit realized from the exercise of employee stock                options                                                  |   |     | 211,841     |           |   | —        |   |   | — |   |
| Notes                Payable and Warrants from Acquisitions                                                                                     |   |     | —     |           |   | (2,982,840     | )      |   | — |   |
| Repayment                of Notes & Capital Leases                                                                                     |   |     | (782,380    | )              |   | (4,983,584     | )      |   | (2,762,934 | ) |
| Proceeds                from Notes Payable                                                                                                      |   |     | —     |           |   | 3,500,000      |   |   | — |   |
| Follow-on                offering costs                                                                                                         |   |     | —     |           |   | (203,879       | )      |   | — |   |
| Net                cash provided by financing activities                                                                                        |   |     | 30,434,798  |           |   | 49,435,240     |   |   | 8,845,669 |   |
| NET                INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                                                             |   |     | 13,216,694  |           |   | (3,134,593     | )      |   | 6,338,840 |   |
| CASH                AND CASH EQUIVALENTS, BEGINNING OF YEAR                                                                                     |   |     | 3,845,037   |           |   | 6,979,630      |   |   | 640,790 |   |
| CASH                AND CASH EQUIVALENTS, END OF YEAR                                                                                           |   | $        | 17,061,731  |           | $      | 3,845,037      |   | $ | 6,979,630 |   |
| SUPPLEMENTAL                DISCLOSURE                                                                                                          |   |     |             |           |   |                |   |   |  |   |
| Income                Taxes Paid                                                                                                                |   | $        | 103,400     |           | $      | —        |   | $ | 75,407 |   |
| Interest                Paid                                                                                                                    |   | $        | 51,568      |           | $      | 537,398        |   | $ | 225,830 |   |
| Assets                acquired by capital lease                                                                                                 |   | $        | —     |           | $      | —        |   | $ | 165,623 |   |

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Table            of Contents

**ALLION      HEALTHCARE, INC. AND SUBSIDIARIES **

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS **

**Note      1. The Company **

**Note      2. Summary of Significant Accounting Policies **

***Basis      of Presentation***
*.      *

***Inventories***
*.      *

***Use      of Estimates by Management***
*.      *

***Property      and Equipment***
*.      *

***Revenue      Recognition***
*.      *

***Income      Taxes***
*.      *

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Table          of Contents

***Cash      Equivalents***
*.      *

***Short      Term Investments.***

***Credit      Risk***
*.      *

***Net      Earnings (Loss) Per Share Information***
*.      *

***Stock-Based      Compensation Plans.***

|                                                               |   | **Year                ended December 31,** |       |
|--------------------------------------------------------------------|--------|--------------------------------------------|------------|
|                                                               |   | **2005**                              |       | **2004**  |   |
| Net                loss available to common shareholders           |   | $                                          | (2,383,036 | ) | $ | (2,680,148 | ) |
| Stock-based                compensation cost                       |   |                                       | (361,270   | ) |   | (441,485 | ) |
| Pro-forma                net loss available to common shareholders |   | $                                          | (2,744,306 | ) | $ | (3,121,633 | ) |
| Reported                basic and diluted EPS                      |   | $                                          | (0.29      | ) | $ | (0.86 | ) |
| Pro-forma                basic and diluted EPS                     |   | $                                          | (0.33      | ) | $ | (1.01 | ) |

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Table          of Contents

|                                          | **2006**                 | **2005**               | **2004**               |
|-----------------------------------------------|--------------------------|------------------------|------------------------|
| Risk-free                interest rate        | 5.23%                    | 3.96%                  | 4.40%                  |
| Dividend                yield                 | 0.00%                    | 0.00%                  | 0.00%                  |
| Volatility                factor              | 44.81%                   | 20.00%                 | 1.00%                  |
| Weighted                average expected life | 6.5                years | 8                years | 8                years |

***Allowance      for Doubtful Accounts.***

***Shipping      and Handling Costs.***

***Long-Lived      Assets***
*.      *

***Goodwill      and Other Indefinite-Lived Intangible Assets.***

-  Significant          underperformance relative to expected historical or projected future operating          results;  
-  Significant          changes in the manner of the Company’s use of the acquired assets or the          strategy for its overall business; and  
-  Significant          negative industry or economic trends.  

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***Advertising      Costs.***

***Reclassifications.***

**Note      3. Recent Accounting Pronouncements **

**Note      4. Discontinued Operations **

| **            ** |   | **      Year                Ended December 31,**   |      |
|------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------|-----------|
|                                                                         |   |                                                                                            | **2005**  |   |   | **2004** |   |
| Revenue                                                                      |   | $                                                                                               | 1,512,125 |   | $ | 4,525,719 |   |
| Net                loss                                                      |   | $                                                                                               | (36,125   | ) | $ | (130,020 | ) |

**Note      5. Acquisitions **

-  $5,381,158            of cash paid, including $131,158 of direct acquisition costs paid;            and 
-  $431,571              cash paid for inventories.  

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-  $4,673,125            of cash paid, including $73,125 of direct acquisition costs paid (total            direct            acquisition costs have been estimated at $165,000; $91,875 remains accrued            at            December 31, 2006); and 
-  $70,678              cash paid for inventories. 

-  $15,290,544            of cash paid (of which $6,695 was paid in 2005 and included as a component            of            prepaid expenses and other current assets, and $339,465 remained in escrow            at            December 31, 2006 pending completion of certain conditions), including            $290,544 of direct acquisition costs paid (no acquisition costs remained            accrued at December 31, 2006); and 
-  $607,244              cash paid for inventories.  

-  $10,072,118            of cash paid, including $72,118 of direct acquisition costs paid (total            direct            acquisition costs have been estimated at $155,000; $82,882 remains accrued            at            December 31, 2006). 

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Table          of Contents

| **Purchase                Price Paid**                                       |   | **Maiman** |      | **H&H** |   | **Whittier** |   | **St.                Jude** |       |
|------------------------------------------------------------------------------|--------|------------|-----------|-------------|--------|--------------|--------|-----------------------------|------------|
| Cash                paid                                                     |   | $          | 5,250,000 |        | $      | 4,600,000    |   | $                           | 15,000,000 |   | $ | 10,000,000 |   |
| Inventories                                                                  |   |       | 431,571   |        |   | 70,678       |   |                        | 607,244    |   |   | — |   |
| Direct                acquisition costs                                      |   |       | 131,158   |        |   | 165,000      |   |                        | 290,544    |   |   | 155,000 |   |
| Total                Purchase Price                                          |   |       | 5,812,729 |        |   | 4,835,678    |   |                        | 15,897,788 |   |   | 10,155,000 |   |
| less:                inventories                                             |   |       | (431,571  | )           |   | (70,678      | )      |                        | (607,244   | ) |   | — |   |
|                         fixed assets |   |       | —   |        |   | —      |   |                        | (93,662    | ) |   | — |   |
|                                                                         |   | $          | 5,381,158 |        | $      | 4,765,000    |   | $                           | 15,196,882 |   | $ | 10,155,000 |   |
| **Allocation                of Purchase Price**                              |   |       |      |        |   |         |   |                        |       |   |   |   |   |
| Referral                Lists (15 year life)                                 |   | $          | 1,992,946 |        | $      | 1,687,981    |   | $                           | 4,068,229  |   | $ | 4,116,739 |   |
| Covenant                Not to Compete (5 year life)                         |   |       | 25,000    |        |   | 281,728      |   |                        | 654,015    |   |   | 425,940 |   |
| Workforce                (part of goodwill)                                  |   |       | 120,158   |        |   | 35,060       |   |                        | 167,905    |   |   | — |   |
| Goodwill                                                                     |   |       | 3,243,054 |        |   | 2,760,231    |   |                        | 10,306,733 |   |   | 5,612,321 |   |
|                                                                         |   | $          | 5,381,158 |        | $      | 4,765,000    |   | $                           | 15,196,882 |   | $ | 10,155,000 |   |

| **Purchase                Price Paid**                                            |   | **NAHH** |      | **Specialty** |   | **PMW**   |   | **Priority** |      |
|-----------------------------------------------------------------------------------|--------|----------|-----------|---------------|--------|-----------|--------|--------------|-----------|
| Cash                paid                                                          |   | $        | 5,141,996 |          | $      | 5,000,000 |   | $            | 9,700,000 |   | $ | 7,695,001 |   |
| Notes                Payable                                                      |   |     | 1,375,000 |          |   | 1,401,369 |   |         | —   |   |   | — |   |
| Fair                value of warrants issued                                      |   |     | 241,760   |          |   | 1,898,215 |   |         | —   |   |   | — |   |
| Inventories                                                                       |   |     | —   |          |   | —   |   |         | 151,765   |   |   | 379,192 |   |
| Direct                acquisition costs                                           |   |     | 473,999   |          |   | 655,017   |   |         | 145,379   |   |   | 251,528 |   |
| Total                Purchase Price                                               |   |     | 7,232,755 |          |   | 8,954,601 |   |         | 9,997,144 |   |   | 8,325,721 |   |
| less:                net (assets) liabilities                                     |   |     | (243,630  | )             |   | 415,493   |   |         | —   |   |   | — |   |
|                         inventories       |   |     | —   |          |   | —   |   |         | (151,765  | ) |   | (379,192 | ) |
|                         fixed assets      |   |     | —   |          |   | —   |   |         | —   |   |   | (10,035 | ) |
|                         debt discount     |   |     | (51,253   | )             |   | —   |   |         | —   |   |   | — |   |
|                         operating expense |   |     | —   |          |   | —   |   |         | —   |   |   | (8,250 | ) |
|                                                                              |   | $        | 6,937,872 |          | $      | 9,370,094 |   | $            | 9,845,379 |   | $ | 7,928,244 |   |
| **Allocation                of Purchase Price**                                   |   |     |      |          |   |      |   |         |      |   |   |   |   |
| Covenant                Not to Compete (5 year life)                              |   | $        | 50,000    |          | $      | 75,000    |   | $            | —   |   | $ | 443,561 |   |
| Covenant                Not to Compete (3 year life)                              |   |     | —   |          |   | 222,672   |   |         | 876,822   |   |   | — |   |
| Referral                Lists (15 year life)                                      |   |     | 4,514,331 |          |   | 4,153,386 |   |         | 5,819,174 |   |   | 2,577,240 |   |
| Workforce                (part of goodwill)                                       |   |     | —   |          |   | 400,190   |   |         | 110,350   |   |   | 118,661 |   |
| Goodwill                                                                          |   |     | 2,373,541 |          |   | 4,518,846 |   |         | 3,039,033 |   |   | 4,788,782 |   |
|                                                                              |   | $        | 6,937,872 |          | $      | 9,370,094 |   | $            | 9,845,379 |   | $ | 7,928,244 |   |

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|                                             |   | **Year                ended December 31,** |        |
|--------------------------------------------------|--------|--------------------------------------------|-------------|
|                                             |   | **2006**                              |        | **2005**  |   | **2004**  |   |
| Revenue                                          |   | $                                          | 233,833,653 |   | $ | 231,380,720 |   | $ | 145,415,621 |   |
| Net                income (loss)                 |   |                                       | 3,657,841   |   |   | (742,816 | ) |   | 316,450 |   |
| Earnings                (loss) per common share: |   |                                       |             |   |   |  |   |   |  |   |
|                    Basic          |   | $                                          | 0.23        |   | $ | (0.09 | ) | $ | 0.10 |   |
|                    Diluted        |   | $                                          | 0.22        |   | $ | (0.09 | ) | $ | 0.05 |   |

*LabTracker—HIV™*
*LabTracker—HIV™      *

| **Purchase                Price Paid**                                                                    |   | **OMS** |      |
|-----------------------------------------------------------------------------------------------------------|--------|---------|-----------|
| Cash                paid                                                                                  |   | $       | 1,000,000 |   |
| Earn                out obligation                                                                        |   |    | 342,000   |   |
| Operating                expenses paid to seller                                                          |   |    | 250,000   |   |
| Employee                severance payments                                                                |   |    | 72,520    |   |
| Direct                acquisition costs                                                                   |   |    | 103,435   |   |
| Total                Purchase Price                                                                       |   |    | 1,767,955 |   |
| less:                net tangible assets                                                                  |   |    | (29,000   | ) |
|                                                                                                      |   | $       | 1,738,955 |   |
| **Allocation                of Purchase Price**                                                           |   |    |           |   |
| License                agreement*—LabTracker*—exclusive                rights (40 month life) |   | $       | 1,194,534 |   |
| Clinic                List (15 year life—from date of purchase)                                     |   |    | 258,300   |   |
| Computer                software (3 year life)                                                            |   |    | 86,121    |   |
| Non                compete (40 month life)                                                                |   |    | 200,000   |   |
|                                                                                                      |   | $       | 1,738,955 |   |

|                                                     |   | **2006** |       | **2005** |   |
|----------------------------------------------------------|--------|----------|------------|----------|--------|
| Beginning                balance as of December 31, |   | $        | 19,739,035 |     | $      | 4,472,068 |   |
| Goodwill                acquired during the year         |   |     | 22,327,897 |     |   | 15,266,967 |   |
| Ending                balance as of December 31,    |   | $        | 42,066,932 |     | $      | 19,739,035 |   |

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**Note      6. Cash and Cash Equivalents**

| Cash                                   |   | $      | 6,792,631  |   |
|----------------------------------------|--------|--------|------------|--------|
| Short-term                  securities |   |   | 10,269,100 |   |
| Total                                  |   | $      | 17,061,731 |   |

**Note      7. Short-Term Investments**

**Note      8. Initial and Secondary Public Offerings **

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Table          of Contents

**Note      9. Intangible Assets **

|                                    | **Weighted****Average****Amortization****Period** | **December 31, **                                                              |
|-----------------------------------------|---------------------------------------------------|------------------------------------------------------------------------------------------|
|                                    | **2006 **                                    | **2005 **                                                                           |
| **Intangibles**                         | **Cost**                                     | **Accumulated****Amortization**                                                          | **Cost**  | **Accumulated****Amortization** |
| California                    license   | Perpetual                                         | $                              478,616 | $                                       —   | $              478,616 |  $                                        —   |
| Customer                    lists       | 15                    Months                      | 2,200,256                                                                                | (1,885,241) | 2,155,256 | (1,480,442) |
| Referral                    list        | 160 Months                                   | 29,152,699                                                                               | (2,444,020) | 17,286,803 | (762,354) |
| Non-compete                    covenant | 36                    Months                      | 3,179,074                                                                                | (954,982) | 1,792,390 | (308,650) |
| Software                                | 17                    Months                      | 136,121                                                                                  | (79,727) | 136,121 | (41,022) |
| Lab                    tracker license  | 22                    Months                      | 1,136,834                                                                                | (511,576) | 1,084,005 | (160,877) |
| Clinic                    List          | 162                    Months                     | 316,000                                                                                  | (41,425) | 132,550 | (2,780) |
| Other                                   |                                              | —                                                                             | —  | 45,000 | (39,750) |
| Total                                   | 108                    Months                     | $      36,599,600                                          | $        (5,916,970) |                      $         23,110,741 | $                           (2,795,875) |

|      |   |             |      |
|-----------|--------|------------------|-----------|
| **Years** |   | **Amount**  |      |
| 2007      |   | $                | 3,400,174 |   |
| 2008      |   | $                | 2,965,901 |   |
| 2009      |   | $                | 2,337,453 |   |
| 2010      |   | $                | 2,311,257 |   |
| 2011      |   | $                | 2,059,731 |   |

**Note      10. Property and Equipment **

|                                                                     | **Useful****Lives in****Years** | **December 31,**                                     |
|--------------------------------------------------------------------------|--------------------------------------|----------------------------------------------------------------|
|                                                                     | **2006**                        | **2005**                                                  |
| Machinery                  and equipment under capital lease obligations | 4                                    | $                        165,623      | $                       530,623 |
| Machinery                  and equipment                                 | 3-5                                  | 1,521,517                                                      | 685,679 |
| Leasehold                  Improvements                                  | 1-3                                  |  274,322                                                  | 162,316 |
| Furniture                  and fixtures                                  | 3-7                                  | 176,137                                                        | 122,754 |
|                                                                     |                                 |  2,137,599                                                | 1,501,372 |
| Less:                  accumulated depreciation and amortization    |                                 |  (1,247,121)                                              | (829,976) |
|                                                                     |                                 |  $                       890,478 | $                      671,396 |

**Note      11. Issuance of Subordinated Notes **

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Table          of Contents

**Note      12. Notes Payable **

**Note      13. Income Taxes **

|                                                            |   | **Year                Ended December 31,**  |      |
|-----------------------------------------------------------------|--------|-------------------------------------------------------|-----------|
|                                                            |   | **2006**                                         |      | **2005**  |   | **2004**  |   |
| Federal                statutory rate:                          |   |                                                  | 34%       |   |   | 34% |   |   | 34% |   |
| Tax                expense (benefit) at federal statutory rates |   | $                                                     | 1,427,147 |   | $ | (243,436 | ) | $ | (885,342 | ) |
| Change                in valuation allowance                    |   |                                                  | (913,140  | ) |   | (211,595 | ) |   | 938,894 |   |
| Permanent                differences                            |   |                                                  | 19,907    |   |   | 707,471 |   |   | 113,191 |   |
| State                income taxes                               |   |                                                  | 473,338   |   |   | 76,560 |   |   | (90,541 | ) |
|                                                            |   | $                                                     | 1,007,252 |   | $ | 329,000 |   | $ | 76,202 |   |

|                                              |   | **2006** |       | **2005** |   |
|---------------------------------------------------|--------|----------|------------|----------|--------|
| Current:                                          |   |     |       |     |   |
| Assets:                                           |   |     |       |     |   |   |   |
| Allowance                for doubtful accounts    |   | $        | 170,000    |     | $      | 99,000 |   |
| Inventory                                         |   |     | 92,000     |     |   | 140,000 |   |
| Non                deductible accruals            |   |     | 132,000    |     |   | 83,000 |   |
| Investments                                       |   |     | 8,000      |     |   | — |   |
|                                              |   |     | 402,000    |     |   | 322,000 |   |
| Less                valuation allowance           |   |     | —    |     |   | (307,000 | ) |
| Subtotal                current assets            |   |     | 402,000    |     |   | 15,000 |   |
| Liabilities:                                      |   |     |            |     |   |  |   |
| Investments                                       |   |     | —    |     |   | (15,000 | ) |
| Current                deferred tax asset         |   |     | 402,000    |     |   | — |   |
|  Non-Current:                                |   |     |       |     |   |   |   |
| Assets:                                           |   |     |       |     |   |   |   |
| Tax                carry forwards                 |   |     | 769,000    |     |   | 3,508,000 |   |
| Fixed                assets                       |   |     | 65,000     |     |   | — |   |
| Stock                based compensation           |   |     | 75,000     |     |   | — |   |
|                                              |   |     | 909,000    |     |   | 3,508,000 |   |
| Less                valuation allowance           |   |     | —    |     |   | (1,873,000 | ) |
| Subtotal                non-current assets        |   |     | 909,000    |     |   | 1,635,000 |   |
| Liabilities:                                      |   |     |       |     |   |   |   |
| Fixed                assets                       |   |     | —    |     |   | (20,000 | ) |
| Deductible                goodwill                |   |     | (976,000   | )        |   | (153,000 | ) |
| Intangible                assets                  |   |     | (1,276,000 | )        |   | (1,615,000 | ) |
| Non-current                deferred tax liability |   |     | (1,343,000 | )        |   | (153,000 | ) |
| Overall                deferred tax liability     |   | $        | (941,000   | )        | $      | (153,000 | ) |

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| Federal:                                   |   | **2006** |      | **2005** |   | **2004** |   |
|--------------------------------------------|--------|----------|-----------|----------|--------|----------|--------|
|                    Current  |   | $        | —   |     | $      | 60,000   |   | $ | — |   |
|                    Deferred |   |     | 693,435   |     |   | 130,000  |   |   | — |   |
| State:                                     |   |     |           |     |   |          |   |   |  |   |
|                    Current: |   |     | 211,841   |     |   | 116,000  |   |   | 76,202 |   |
|                    Deferred |   |     | 101,976   |     |   | 23,000   |   |   | — |   |
| Total                                      |   | $        | 1,007,252 |     | $      | 329,000  |   | $ | 76,202 |   |

**Note      14. Lease Commitments **

| **Location**                       | **Principal Use**                                                                                                                                                                                                                                                                                                                                           | **Property                  Interest**                   |
|------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------|
| Melville,                  NY      | Pharmacy and Executive Offices                                                     | Leased—expiring                  August 31, 2009   |
| Brooklyn,                  NY      | Pharmacy                                                                                                                                                                                                                                                                                                                                                              | Leased—expiring                  June 30, 2008     |
| Gardena,                  CA       | Pharmacy                                                                                                                                                                                                                                                                                                                                                              | Leased—expiring                  March 31, 2011    |
| Van Nuys, CA             | Pharmacy                                                                                                                                                                                                                                                                                                                                                              | Leased—expiring                  December 31, 2007 |
| Los                  Angeles, CA   | Pharmacy                                                                                                                                                                                                                                                                                                                                                              | Leased—expiring                  December 31, 2007 |
| La                  Jolla, CA      | Billing                  Center                                                                                                                                                                                                                                                                                                                                       | Leased—expiring                  July 1, 2008      |
| San Francisco, CA        | Pharmacy                                                                                                                                                                                                                                                                                                                                                              | Leased—expiring                  March 31, 2008    |
| San                  Francisco, CA | Pharmacy                                                                                                                                                                                                                                                                                                                                                              | Leased—expired                  February 28, 2007* |
| San                  Diego, CA     | Administration                  (Oris)                                                                                                                                                                                                                                                                                                                                | Leased—expiring                  June 30, 2008     |
| San                  Diego, CA     | Pharmacy                                                                                                                                                                                                                                                                                                                                                              | Leased—expiring                  January 31, 2009  |
| Miami,                  FL         | Pharmacy                                                                                                                                                                                                                                                                                                                                                              | Leased—expiring                  November 30, 2008 |
| Seattle,                  WA       | Pharmacy                                                                                                                                                                                                                                                                                                                                                              | Leased—expiring                  May 31, 2007      |

----

| **                    Year**         |   | **Minimum****Rent**  |      |
|----------------------------------------------------------|--------|---------------------------|-----------|
|                       2007 |   | $                         | 707,066   |   |
|                       2008 |   |                      | 525,487   |   |
|                       2009 |   |                      | 271,875   |   |
|                       2010 |   |                      | 163,509   |   |
|                       2011 |   |                      | 41,059    |   |
|      Total                      |   | $                         | 1,708,996 |   |

**Note      15. Contingencies—Legal Proceedings **

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Table          of Contents

*    Oris      Medical      Systems Inc. v. Allion Healthcare, Inc., et al.,*

**Note      16. Concentrations of Credit Risk and Major Customers **

**Note      17. Capital Lease Obligation **

|                                                                                                             |   |              |    |
|------------------------------------------------------------------------------------------------------------------|--------|-------------------|---------|
| **Leases**                                                                                                       |   | **Capital**  |    |
|                       2007                                                         |   | $                 | 52,524  |   |
|                       2008                                                         |   |              | 49,620  |   |
| Total                minimum lease payments                                                                      |   |              | 102,144 |   |
| Amounts                representing interest                                                                     |   |              | (9,327  | ) |
| Present                value of net minimum lease payments (including current portion of                $45,681) |   | $                 | 92,817  |   |

**Note      18. Stockholder’s Equity **

**A.      Common shares outstanding **

| Stock                option plans |   |   | 1,336,167 |   |
|-----------------------------------|--------|--------|-----------|--------|
| Warrants                          |   |   | 703,828   |   |

**B.      Stock Options **

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Table          of Contents

|                                                                                                        |   | **2006**    |      | **2005**                                      |   | **2004**    |   |
|-------------------------------------------------------------------------------------------------------------|--------|------------------|-----------|----------------------------------------------------|--------|------------------|--------|
| **Stock                Options**                                                                            |   | **Shares**  |      | **Weighted****Average****Exercise****Price**  |   | **Shares**  |   | **Weighted****Average****Exercise****Price**  |   | **Shares**  |   | **Weighted****Average****Exercise****Price**  |   |
| Outstanding,                beginning of year                                                               |   |             | 1,452,000 |                                               | $      | 3.21             |   |   | 1,682,750 |   | $ | 3.06 |   |   | 1,365,200 |   | $ | 1.80 |   |
| Granted                                                                                                     |   |             | 455,000   |                                               |   | 8.11             |   |   | 10,000 |   |   | 13.00 |   |   | 604,250 |   |   | 6.02 |   |
| Exercised                (1)                                                                                |   |             | (420,417  | )                                                  |   | 2.97             |   |   | (213,000 | ) |   | 2.11 |   |   | — |   |   | — |   |
| Forfeited                or expired                                                                         |   |             | (150,416  | )                                                  |   | 5.83             |   |   | (27,750 | ) |   | 5.91 |   |   | (286,700 | ) |   | 3.09 |   |
| Outstanding,                end of year                                                                     |   |             | 1,336,167 |                                               | $      | 4.66             |   |   | 1,452,000 |   | $ | 3.21 |   |   | 1,682,750 |   | $ | 3.06 |   |
| Options                exercisable at year end                                                              |   |             | 760,973   |                                               | $      | 2.42             |   |   | 1,110,195 |   | $ | 2.29 |   |   | 1,133,758 |   | $ | 1.75 |   |
| Weighted                average fair value of options under the plan granted during the                year |   |             |      |                                               | $      | 4.29             |   |   |  |   | $ | 4.43 |   |   |  |   | $ | 1.76 |   |

----

*(1)          The total intrinsic value of options exercised during the years ended        December 31, 2006 and 2005 was $4,128,614 and $2,109,437, respectively.        There was no public market for our common stock in 2004.*

**C.      Warrants **

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Table          of Contents

|                                                    |   | **2006**    |      | **2005**                                                  |   | **2004**    |   |
|---------------------------------------------------------|--------|------------------|-----------|----------------------------------------------------------------|--------|------------------|--------|
| **Warrants**                                            |   | **Shares**  |      | **Weighted****Average****Exercise                Price**  |   | **Shares**  |   | **Weighted****Average****Exercise                Price**  |   | **Shares**  |   | **Weighted****Average****Exercise                Price**  |   |
| Outstanding,                beginning of year           |   |             | 1,150,737 |                                                           | $      | 4.60             |   |   | 1,162,387 |   | $ | 4.38 |   |   | 994,773 |   | $ | 4.09 |   |
| Granted                                                 |   |             | —   |                                                           |   | —          |   |   | 641,438 |   |   | 7.73 |   |   | 167,614 |   |   | 6.08 |   |
| Exercised                (1)                            |   |             | (446,909  | )                                                              |   | 4.99             |   |   | (477,369 | ) |   | 7.66 |   |   | — |   |   | — |   |
| Repurchased                                             |   |             | —   |                                                           |   | —          |   |   | (175,719 | ) |   | 6.26 |   |   | — |   |   | — |   |
| Outstanding                and Exercisable, end of year |   |             | 703,828   |                                                           | $      | 4.34             |   |   | 1,150,737 |   | $ | 4.60 |   |   | 1,162,387 |   | $ | 4.38 |   |

----

*(1)        During the fiscal year ended December 31, 2006, we issued an aggregate of      361,399 shares of common stock, upon the net issue exercise of 446,909      warrants, with a weighted average exercise price of $4.99.*

**D.      Convertible Preferred Stock **

***Deemed      Dividend***
**:      **

| Series C | 31,667                shares of common stock at $5.00 per share;                                    |
|---------------|-----------------------------------------------------------------------------------------------------|
| Series D | 113,151 shares of common stock at $6.00 per share; and |
| Series E | 80,129                shares of common stock at $6.25 per                share.                     |

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Table          of Contents

**Note      19. Related Party Transaction **

**Note      20. Major Suppliers **

**Note      21. Supplemental Disclosure of Non-cash Financing Activities**

**,**

**Note      22. Fair value of financial instruments **

***Current      Assets and Current Liabilities:***
** **

***Long-Term      Debt:***
** **

**Note      23. Quarterly financial information (unaudited) **

|                                                         |   | **2006**              |   |
|--------------------------------------------------------------|--------|----------------------------|--------|
| ***(In                  thousands, except per share data)*** |   | **First****Quarter**  |   | **Second****Quarter**  |   | **Third****Quarter**  |   | **Fourth****Quarter** **(1)** |   | **Total**  |   |
| Net                sales                                     |   | $                          | 41,285 |   | $ | 51,972 |   | $ | 58,349 |   | $ | 57,897 |   | $ | 209,503 |   |
| Gross                profit                                  |   | $                          | 6,654  |   | $ | 7,307 |   | $ | 8,378 |   | $ | 8,303 |   | $ | 30,642 |   |
| Operating                income                              |   | $                          | 854    |   | $ | 553 |   | $ | 1,292 |   | $ | 244 |   | $ | 2,943 |   |
| Net                income                                    |   | $                          | 1,133  |   | $ | 662 |   | $ | 1,015 |   | $ | 380 |   | $ | 3,190 |   |
| Basic                income per common share                 |   | $                          | 0.07   |   | $ | 0.04 |   | $ | 0.06 |   | $ | 0.02 |   | $ | 0.20 |   |
| Diluted                income per common share               |   | $                          | 0.07   |   | $ | 0.04 |   | $ | 0.06 |   | $ | 0.02 |   | $ | 0.19 |   |
| Basic                weighted average shares                 |   |                       | 15,192 |   |   | 16,190 |   |   | 16,204 |   |   | 16,204 |   |   | 15,951 |   |
| Diluted                weighted average shares               |   |                       | 16,649 |   |   | 17,236 |   |   | 17,024 |   |   | 16,999 |   |   | 16,967 |   |

----

*(1)        During the fourth quarter the Company determined that based on its history      of      profitability and its projections of future profitability, that it is more      likely than not that it will be able to utilize its deferred tax assets.      Accordingly, the Company reversed the valuation allowance that had been recorded      against its deferred tax assets. The reversal of the valuation allowance reduced      the Company's income tax provision by approximately $900,000.*

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Table          of Contents

|                                                         |   | **2005**              |    |
|--------------------------------------------------------------|--------|----------------------------|---------|
| ***(In                  thousands, except per share data)*** |   | **First****Quarter**  |    | **Second****Quarter**  |   | **Third****Quarter**  |   | **Fourth****Quarter**  |   | **Total**  |   |
| Net                sales                                     |   | $                          | 22,696  |   | $ | 28,639 |   | $ | 33,927 |   | $ | 37,846 |   | $ | 123,108 |   |
| Gross                profit                                  |   | $                          | 3,574   |   | $ | 4,198 |   | $ | 5,818 |   | $ | 6,272 |   | $ | 19,862 |   |
| Operating                (loss) income                       |   | $                          | 125     |   | $ | 211 |   | $ | 657 |   | $ | 519 |   | $ | 1,512 |   |
| Discontinued                operations                       |   | $                          | (5      | ) | $ | (5 | ) | $ | (7 | ) | $ | (19 | ) | $ | (36 | ) |
| Deemed                dividend on preferred                  |   | $                          | — |   | $ | (1,338 | ) | $ | — |   | $ | — |   | $ | (1,338 | ) |
| Net                (loss) income                             |   | $                          | 13      |   | $ | (3,683 | ) | $ | 909 |   | $ | 378 |   | $ | (2,383 | ) |
| Basic                (loss) income per common share          |   | $                          | 0.01    |   | $ | (0.91 | ) | $ | 0.07 |   | $ | 0.03 |   | $ | (0.29 | ) |
| Diluted                (loss) income per common share        |   | $                          | 0.00    |   | $ | (0.91 | ) | $ | 0.06 |   | $ | 0.03 |   | $ | (0.29 | ) |
| Basic                weighted average shares                 |   |                       | 3,100   |   |   | 4,070 |   |   | 12,635 |   |   | 12,845 |   |   | 8,202 |   |
| Diluted                weighted average shares               |   |                       | 8,870   |   |   | 4,070 |   |   | 14,921 |   |   | 14,890 |   |   | 8,202 |   |

**Item 9.      Changes in and Disagreements With Accountants on Accounting      and Financial Disclosure. **

**Item 9A.      Controls and Procedures. **

**Evaluation      of Disclosure Controls and Procedures **

**Management’s      Annual Report on Internal Control over Financial Reporting**

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Table          of Contents

**Changes      in Internal Control over Financial Reporting **

**Report      of Independent Registered Public Accounting Firm**

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Table          of Contents

**Item 9B.      Other Information. **

**PART      III**

**Item      10. Directors, Executive Officers and Corporate      Governance.**

**Directors      and Executive Officers**

| **Name**                                         | **Age**  | **Position**                                                                  |
|--------------------------------------------------|---------------|-------------------------------------------------------------------------------|
| Michael                P. Moran                  | 46            | Chairman,                President and Chief Executive Officer                |
| John                Pappajohn                    | 78            | Director                                                                      |
| Derace                Schaffer, M.D (1)(2)(3)    | 59            | Director                                                                      |
| Harvey                Z. Werblowsky, Esq. (2)(3) | 59            | Director                                                                      |
| Russell                J. Fichera (1)            | 54            | Director                                                                      |
| Gary                P. Carpenter (1)(3)          | 50            | Director                                                                      |
| Robert                E. Fleckenstein, R.Ph.     | 53            | Vice                President, Pharmacy Operations                            |
| James                G. Spencer                  | 38            | Chief                Financial Officer, Secretary and Treasurer               |
| Anthony                D. Luna                   | 38            | Vice                President, HIV Sales and Oris Health,                Inc. |

----

*(1)*
*Member      of the Audit Committee *

*(2)*
*Member      of the Nominating and Corporate Governance Committee *

*(3)*
*Member      of Compensation Committee*
* *

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Table          of Contents

**Biographical      Information**

***Michael      P. Moran***

***Gary      P. Carpenter, CPA***

***Russell      J. Fichera***

***John      Pappajohn***

***Derace      Schaffer, M.D.***

***Harvey      Z. Werblowsky, Esq.***

***Robert      E. Fleckenstein, R.Ph.***

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Table          of Contents

***Anthony      D. Luna***

***James      G. Spencer***

**Audit      Committee**

**Section 16(a)      Beneficial Ownership Reporting Compliance **

**Code      of Ethics**

**Item 11.      Executive Compensation.**

**COMPENSATION      DISCUSSION AND ANALYSIS**

**Overview**

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Table          of Contents

***Philosophy.***

***Objectives      of our Compensation Program.***

***Role      of Executive Officers in Compensation Decisions.***

***Setting      Executive Compensation.***

*** ***

**Elements      of 2006 Executive Compensation Plan**

***Base      Salary.***

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Table          of Contents

***Bonus.***

***Stock      Options.***

**Retirement      and Other Benefits**

***401(k)      Savings Plan.***

**Perquisites      and Other Personal Benefits**

-  Monthly            automobile allowances ranging from $600-$800 per month.  
-  100%              of              health premiums for the base plans we offer, except that Mr. Spencer,              our              Chief Financial Officer, is self-insured and we reimburse his out of              pocket              premiums paid. The annual cost of his health coverage is generally              less than              the amount we pay for other employees under our health plan.               
-  We                reimburse Mr. Spencer for commuting expenses from his home in Maryland                to our                offices as part of his employment agreement. Additionally we pay                any gross up                of taxes due as a result of commuting expenses that are deemed to                be income by                the IRS for tax purposes.  

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Table          of Contents

**DIRECTOR      AND EXECUTIVE COMPENSATION**

**Executive      Officer Compensation - Summary Compensation and Grants of Plan-Based      Awards**

***Summary      Compensation Table***

| **Name                and****Principal                Position**                                                    | **Year** | **Salary****($)                (1)** | **Bonus****($)**                                              | **Option                Awards****($)                (2)**         | **All                Other Compensation****($)**                               | **Total                ($)**        |
|---------------------------------------------------------------------------------------------------------------------|----------|--------------------------------------|---------------------------------------------------------------|--------------------------------------------------------------------|--------------------------------------------------------------------------------|-------------------------------------|
| Michael                P. MoranChairman,                Chief Executive Officer and President                       | 2006     | $                273,077             | $                       — | $                 21,808                                      | $                   2,400                                            | $                297,285            |
| James                G. Spencer Chief                Financial Officer, Secretary and Treasurer                     | 2006     | $                220,769             | $                       — | $                 48,619                                      |                      $  69,462 (3)               | $                338,850            |
| Robert                E. Fleckenstein, R.Ph.Vice                President, Pharmacy Operations                      | 2006     | $                130,000             | $                 35,000                                 | $                 25,657                                      | $                        —  | $                190,657            |
| Anthony                D. Luna (4)                   Vice President, HIV Sales and Oris Health, Inc. | 2006     | $                162,308             | $                       —      | $                 21,053                                      | $    7,200                                                 | $                190,561            |
| MikeLynn                Salthouse (5)Former,                Vice President, Oris Sales                              | 2006     | $                  59,462  | $                       — | $                       — | $                   1,200                                            | $                  60,662 |

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Table              of Contents

***Grants      of Plan-Based Awards in Fiscal Year 2006***

| **Name**                                                           | **Grant****Date**             | **Estimated                Future Payouts Under Non-Equity Incentive Plan                Awards** | **Estimated                Future Payouts Under Equity Incentive Plan Awards** | **All                Other Stock Awards: Number of Shares of Stock or                Units(#)** | **All                Other Option Awards: Number of Securities Underlying Options(#)                (1)** | **Exercise                or Base Price of Option Awards ($/Share) (2)** | **Grant                Date Fair Value of Stock and Option Awards (3)** |
|--------------------------------------------------------------------|-------------------------------|---------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------|-------------------------------------------------------------------------|
| **Threshold                ($)**                                   | **Target                ($)** | **Maximum                ($)**                                                                    | **Threshold                (#)**                                               | **Target                (#)**                                                                   | **Maximum                (#)**                                                                            |
| Michael                P. Moran                               | 6/28/06                  | n/a                                                                                          | n/a                                                                       | n/a                                                                                        | n/a                                                                                                  | n/a                                                                 | n/a                                                                | n/a  | 50,000  | $8.11  | $214,500  |
| James                G. Spencer                               | 6/28/06                  | n/a                                                                                          | n/a                                                                       | n/a                                                                                        | n/a                                                                                                  | n/a                                                                 | n/a                                                                | n/a  | 50,000  | $8.11  | $214,500  |
| Robert                E. Flecken-stein,                R.PH.  | 6/28/06                  | n/a                                                                                          | n/a                                                                       | n/a                                                                                        | n/a                                                                                                  | n/a                                                                 | n/a                                                                | n/a  | 25,000  | $8.11  | $107,250  |
| Anthony                D. Luna                                     | 6/28/06                  | n/a                                                                                          | n/a                                                                       | n/a                                                                                        | n/a                                                                                                  | n/a                                                                 | n/a                                                                | n/a  | 25,000  | $8.11  | $107,250  |

***Employment      Agreements***

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Table              of Contents

***Outstanding      Equity Awards at 2006 Fiscal Year End***

|                                         | **Option                Awards**                                                          | **Stock                Awards**                                                            |
|----------------------------------------------|-------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------|
| **Name**                                     | **Number                of Securities Underlying Unexercised Options (#)****Exercisable** | **Number                of Securities Underlying Unexercised Options(#)****Unexercisable** | **Equity                Incentive Plan Awards: Number of Securities Underlying Unexercised                Unearned Options(#)** | **Option                Exercise Price($)** | **Option                Expiration Date** | **Number                of Shares or Units of Stock That Have Not                Vested(#)** | **Market                Value of Shares or Units of Stock That Have Not                Vested($)** | **Equity                Incentive Plan Awards: Number of Unearned Shares, Units or Other                Rights                That Have Not Vested(#)** | **Equity                Incentive Plan Awards: Market or Payout Value of Unearned Shares,                Units or                Other Rights That Have Not Vested ($)** |
| Michael                P. Moran              | 305,000100,00050,000—                                                               | ———50,000                                                                | n/a | $0.175$1.000$3.500$8.110 | 02/01/0901/11/1007/01/1206/28/16  | n/a | n/a | n/a | n/a |
| James                G. Spencer              | 56,250—                                                                             | 31,25050,000                                                                               | n/a | $6.00$8.11 | 5/18/146/28/16 | n/a | n/a | n/a | n/a |
| Robert                E. Fleckenstein, R.Ph. | 12,500—                                                                             | 25,00025,000                                                                               | n/a | $6.00$8.11 | 05/18/1406/28/16 | n/a | n/a | n/a | n/a |
| Anthony                D. Luna               | 6,250—                                                                              | 12,50025,000                                                                               | n/a | $6.25$8.11 | 11/03/1406/28/16 | n/a | n/a | n/a | n/a |

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Table          of Contents

***Option      Exercise and Stock Vested in Fiscal Year 2006***

|                                             | **Option                Awards (1)**                                           | **Stock                Awards**                   |
|--------------------------------------------------|--------------------------------------------------------------------------------|---------------------------------------------------|
| **Name**                                         | **Number                of Shares Acquired on****Exercise                (#)** | **Value                Realized on Exercise ($)** | **Number                of Shares Acquired on Vesting (#)** | **Value                Realized on Vesting ($)** |
| Michael                P. Moran (2)              | 195,000                                                                        | $2,330,123                                        | n/a | n/a |
| James                G. Spencer (3)              | 37,500                                                                         | $                  229,663              | n/a | n/a |
| Robert                E. Fleckenstein, R.Ph. (4) | 12,500                                                                         | $                   76,554         | n/a | n/a |
| Anthony                D. Luna (5)               | 6,250                                                                          | $                    36,715   | n/a | n/a |
| Mikelynn                Salthouse (6)            | 34,500                                                                         | $                  297,540              | n/a | n/a |

**TERMINATION      OR CHANGE OF CONTROL **

**Payments      Made Upon Termination **

    -  Accrued            but unpaid salary; 
    -  Cash            in            lieu of any accrued but unused vacation; and 
    -  A            90            day option to exercise any vested portion of shares granted under our            stock-based compensation program. 

**Payments      Made Upon Death or Disability **

**Additional      Payment Provisions under Employment Agreements**

*(a)      Termination by the Employer for Cause, by the Executive without Good Reason,      Death, or Notice of Non-renewal by the Executive.*

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-  Accrued          but unpaid salary through the termination date; 
-  Cash          in          lieu of any accrued but unused vacation through the termination date; and           
-  Any          benefits accrued or payable to the executive under our benefit plans (in          accordance with the terms of such benefit plans). 

*(b)      Termination by the Executive for Good Reason, by Us Without Cause, or Notice      of      Non-renewal by Us. *

    -  The            Accrued Benefits; 
    -  Continuation            of salary, at the rate in effect on the termination date, that would            have been            paid to the executive as if there had been no termination, through the            expiration of the then-current term, payable according to our normal            payroll            policies for senior executives; 
    -  An            amount equal to the initial annual salary at the time of the employment            agreement, payable in a lump sum within five business days after the            termination date; 
    -  Continuation            of group health plan benefits to the extent authorized by and consistent            with            29 U.S.C. § 1161 et seq., commonly known as COBRA, with the cost of the            regular premium for such benefits shared in the same relative proportion            by us            and the executive as in effect on the termination date, provided that            the            executive’s entitlements under COBRA shall terminate as of the date of            commencement of eligibility for health insurance pursuant to other employment            or self-employment; and 
    -  In            the            case of Mr. Spencer, if termination is for Good Reason (as defined in            his            employment agreement), accelerated vesting of all options to purchase            shares            of common stock of the Company. 

*(c)      Disability.*

**Payments      Made Upon a Change of Control **

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**Potential      Payments upon Termination or Change in Control**

*Michael      P. Moran*

| **Executive                Benefit and Payments upon Termination** | **Termination                by the Employer for Cause, by the Executive without Good Reason,                Death, or                notice of non-renewal by the Executive****on****December                31, 2006** | **Death****on****December                31, 2006** | **Termination                by the Executive for Good Reason (including a Change of Control),                by the                Employer Without Cause, or by notice of nonrenewal by the                Employer****on****December                31, 2006** | **Disability****on****December                31, 2006**          |
|--------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------|
| Accrued                Benefits (1)                                | $                     35,895                                                                                                                                                                    | $                    385,895    | $                       35,895                                                                                                                                                                                                 | $                       35,895 |
| Salary                to expiration of Term                        | n/a                                                                                                                                                                                                                      | n/a                                                 |                     291,667                                                                                                                                                                                                                   | 291,667                                                           |
| Lump                Sum Payment                                    | n/a                                                                                                                                                                                                                      | n/a                                                 | 350,000                                                                                                                                                                                                                                                           | n/a                                                               |
| Shared                COBRA premiums (2)                           | n/a                                                                                                                                                                                                                      | n/a                                                 | 7,953                                                                                                                                                                                                                                                             | n/a                                                               |
| Exercise                of vested options (3)                      |                  2,929,425                                                                                                                                                                                          |   2,929,425                               | 2,929,425                                                                                                                                                                                                                                                         | 2,929,425                                                         |
| **Total**                                                          | **$2,965,320**                                                                                                                                                                                                           | **$3,315,320**                                      | **$3,614,940**                                                                                                                                                                                                                                                    | **$3,256,987**                                                    |

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*James      G. Spencer*

| **Executive                Benefit and Payments upon Termination** | **Termination                by the Employer for Cause, by the Executive without Good Reason,                or notice                of non-renewal by the Executive****on****December                31, 2006** | **Death****on****December                31, 2006** | **Termination                by the Executive for Good Reason (****excluding****a Change of Control), by the Employer Without Cause, or by notice                of                nonrenewal by the Employer****on****December                31, 2006** | **Termination                by the Executive for Good Reason in the event of a Change of                Control****on****December                31, 2006** | **Disability****on****December                31, 2006** |
|--------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------|
| Accrued                Benefits (1)                                | $24,724                                                                                                                                                                                                           | $314,724                                            | $                  24,724                                                                                                                                                                                                                       | $                    24,724                                                                                                              | $                   24,724                     |
| Salary                to expiration of Term                        | n/a                                                                                                                                                                                                               | n/a                                                 |  241,667                                                                                                                                                                                                                                             | 241,667                                                                                                                                                      | 241,667                                                  |
| Lump                Sum Payment                                    | n/a                                                                                                                                                                                                               | n/a                                                 |  290,000                                                                                                                                                                                                                                             | 290,000                                                                                                                                                      | n/a                                                      |
| Shared                COBRA premiums (2)                           | n/a                                                                                                                                                                                                               | n/a                                                 |  7,953                                                                                                                                                                                                                                               |  7,953                                                                                                                                                  | n/a                                                      |
| Exercise                of vested options (3)                      | 65,250                                                                                                                                                                                                            | 65,250                                              |  65,250                (4)                                                                                                                                                                                                                           | 166,750                (4)                                                                                                                                   | 65,250                                                   |
| **Total**                                                          | **$89,974**                                                                                                                                                                                                       | **$379,974**                                        | **$629,594**(4)                                                                                                                                                                                                                                           | **$731,094                (4)**                                                                                                                              | **$331,641**                                             |

*Robert      E. Fleckenstein*

| **Executive                Benefit and Payments upon Termination** | **Voluntary                or Termination for Cause****on****December                31, 2006** | **Death****on****December                31, 2006** |
|--------------------------------------------------------------------|-------------------------------------------------------------------------------------------------|-----------------------------------------------------|
| Accrued                Benefits (1)                                | $18,501                                                                                         | $148,501                                            |
| Exercise                of vested options (2)                      | $14,500                                                                                         | $                14,500                             |
| **Total**                                                          | **$33,001**                                                                                     | **$163,001**                                        |

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*Anthony      D. Luna*

| **Executive                  Benefit and Payments upon Termination** | **Voluntary                  or Termination for Cause****on****December                  31, 2006** | **Death****on****December                  31, 2006** |
|----------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------|-------------------------------------------------------|
| Accrued                  Benefits (1)                                | $17,391                                                                                             | $192,391                                              |
| Exercise                  of vested options (2)                      | 5,688                                                                                               |  5,688                                           |
| **Total**                                                            | **$23,079**                                                                                         | **$198,079**                                          |

**Director      Compensation**

**Compensation      Committee Interlocks and Insider Participation**

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**Compensation      Committee Report**

| Harvey                Z. Werblowsky, Chairman |
|-----------------------------------------------|
| Derace                Schaffer, M.D.          |
| Gary                P. Carpenter              |

*The      foregoing Report of the Compensation Committee does not constitute “soliciting      material” and should not be deemed to be “filed” with the Securities and      Exchange Commission or incorporated by reference into any of our other filings      under the Securities Act of 1933, as amended, or the Securities Exchange Act      of      1934, as amended, except to the extent that we specifically incorporate this      Report of the Compensation Committee by reference in any of those      filings.*

**Item 12.      Security Ownership of Certain Beneficial Owners and      Management and Related Stockholder Matters. **

**Security      Ownership of Certain Beneficial Owners & Management **

-  each            of            our current directors and named executive officers individually;             
-  all            our directors and executive officers as a group;            and 
-  each              person (or group of affiliated persons) known by us to own beneficially              more              than 5% of our outstanding common stock.  

|                                                | **    Shares Beneficially Owned    **                         |
|-----------------------------------------------------|----------------------------------------------------------------------------------------------------------------------|
| **Name                  and Addresses (1)**         | **Number**                                                                                                      | **Percent**  |
| **Directors                  and Officers**         |                                                                                                                 |   |
| John                  Pappajohn (2)                 |                         867,500                                                             | 5.2% |
| Michael                  P. Moran (3)               |                         455,000                                                        | 2.7% |
| Derace                  Schaffer, M.D. (4)          |                         120,000                                                        | 0.7% |
| James                  G. Spencer (5)               |                           56,250                                                  | 0.4% |
| Harvey                  Z. Werblowsky (6)           |                           23,611                                                  | 0.2% |
| Robert                  E. Fleckenstein (7)         |                           12,500                                                  | 0.1% |
| Anthony                  D. Luna (8)                |                             6,250                                            | 0.0% |
| Russell                  J. Fichera                 |                                 —   | 0.0% |
| Gary                  P. Carpenter                  |                                 —   | 0.0% |
| **All                  directors and officers (9)** | **                   1,541,111**                                                                                | **8.9%** |

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| **5%                Stockholders**                              |   |   |      |   |   |
|-----------------------------------------------------------------|--------|--------|-----------|--------|--------|
| Bonanza                Capital, Ltd. et al. (10)                |   |   | 1,396,000 |   |   | 8.6 | % |
| HealthInvest                Partners AB et al. (11)             |   |   | 1,376,130 |   |   | 8.5 | % |
| Royce                & Associates, LLC (12)                 |   |   | 1,311,900 |   |   | 8.1 | % |
| Kennedy                Capital Management, Inc.(13)             |   |   | 1,207,671 |   |   | 7.0 | % |
| Gruber                & McBaine Capital Management LLC (14) |   |   | 1,058,225 |   |   | 6.5 | % |
| Cortina                Asset Management, LLC (15)               |   |   | 856,920   |   |   | 5.3 | % |
| WS                Capital, L.L.C. (16)                          |   |   | 818,200   |   |   | 5.0 | % |

| *(1)  * | *Except                as otherwise noted, the address of each beneficial owner listed in                the                table is c/o Allion Healthcare, Inc., 1660 Walt Whitman Road, Suite                105,                Melville, New York 11747.* |
|-------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| *(2)  * | *Includes                20,000 shares of common stock issuable upon the exercise of options                and                442,500 shares of common stock issuable upon the exercise of warrants                currently exercisable or exercisable within 60 days of March 2,                2007.* |
|-------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| *(3)  * | *Includes                455,000 shares of common stock issuable upon the exercise of options                currently exercisable or exercisable within 60 days of March 2,                2007.* |
|-------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| *(4)  * | *Includes                120,000 shares of common stock issuable upon the exercise of options                currently exercisable or exercisable within 60 days of March 2,                2007.* |
|-------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| *(5)  * | *Includes                56,250 shares of common stock issuable upon the exercise of options                currently exercisable or exercisable within 60 days of March 2, 2007.* |
|-------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| *(6)  * | *Includes                23,611 shares of common stock issuable upon the exercise of options                currently exercisable or exercisable within 60 days of March 2, 2007.* |
|-------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| *(7)  * | *Includes                12,500 shares of common stock issuable upon the exercise of options                currently exercisable or exercisable within 60 days of March 2, 2007.* |
|-------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| *(8)  * | *Includes                6,250 shares of common stock issuable upon the exercise of options                currently exercisable or exercisable within 60 days of March 2, 2007.* |
|-------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| *(9)  * | *Includes                693,611 shares of common stock issuable upon the exercise of options                and                442,500 shares of common stock issuable upon the exercise of warrants                currently exercisable or exercisable within 60 days of March 2,                2007.* |
|-------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| *(10)  * | *The                number of shares reported and the information included in this footnote                were derived from a Schedule 13G filed jointly on August 18, 2006                by                Bonanza Capital, Ltd. (“Bonanza Capital”) and Bonanza Master Fund, Ltd.                (“Bonanza Master Fund”). According to the Schedule 13G, each of Bonanza                Capital and Bonanza Master Fund beneficially owns 1,396,000 shares                of                Allion common stock, with shared voting power and shared dispositive                power                over all such shares. Each of Bonanza Capital and Bonanza Master                Fund                disclaim beneficial ownership in the reported shares except to the                extent                of their pecuniary interest therein. The address for Bonanza Capital                and                Bonanza Master Fund is 300 Crescent Court, Suite 250, Dallas, Texas                75201.* |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| *(11)  * | *The                number of shares reported and the information included in this footnote                were derived from an amended Schedule 13G filed jointly on February                12,                2007 by HealthInvest Global Long/Short Fund (“HealthInvest Global”) and                Healthinvest Partners AB (“Healthinvest Partners”). According to the                Schedule 13G, each of HealthInvest Global and Healthinvest Partners                beneficially owns 1,376,130 shares of Allion common stock. According                to                the Schedule 13G, Healthinvest Partners has sole voting power and                role                dispositive power over all such shares and HealthInvest Global has                shared                voting power and shared dispositive power over all such shares.                Healthinvest Partners is the investment advisor and control person                of                HealthInvest Global, a holder of Allion’s securities. The address for                HealthInvest Global and Healthinvest Partners is Arsenalsgatan 4,                SE-111                47 Stockholm, Sweden.* |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| *(12)  * | *The                number of shares reported and the information included in this footnote                were derived from a Schedule 13G filed on January 17, 2007 by Royce&                Associates, LLC (“Royce”). According to the Schedule 13G, Royce has sole                voting power and sole dispositive power over the 1,311,900 shares                of                Allion common stock. The address for Royce is 1414 Avenue of the                Americas,                New York, NY 10019.* |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| *(13)  * | *The                number of shares reported and the information included in this footnote                were derived from a Schedule 13G filed on February 13, 2007 by Kennedy                Capital Management, Inc. (“Kennedy”). According to the Schedule 13G,                Kennedy has sole voting power with respect to 1,188,221 shares and                sole                dispositive power over 1,207,671 shares of Allion common stock. The                address for Kennedy is 10829 Olive Blvd., St. Louis, MO                63141.* |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| *(14)  * | *The                number of shares reported and the information included in this footnote                were derived from a Schedule 13G filed jointly on January 25, 2007                by                Gruber & McBaine Capital Management, LLC (“GMCM”), Jon D. Gruber, J.                Patterson McBaine, and Eric Swergold. According to the Schedule 13G,                each                of GMCM and Mr. Swergold beneficially owns 943,250 shares of Allion                common                stock, with shared voting power and shared dispositive power over                all such                shares; Mr. Gruber beneficially owns 1,058,225 shares of Allion common                stock, with sole voting power and sole dispositive power over 114,975                shares and shared voting power and shared dispositive power over                943,250                shares; and Mr. McBaine beneficially owns 1,056,675 shares of Allion                common stock, with sole voting power and sole dispositive power over                113,425 shares and shared voting power and shared dispositive power                over                943,250 shares. According to the Schedule 13G, GMCM is an investment                advisor whose clients have the right to receive or the power to direct                the                receipt of dividends, or the proceeds from the sale of the Allion                common                stock. No individual client of GMCM holds more than 5% of Allion                common                stock. According to the Schedule 13G, Messrs. Gruber and McBaine                are the                managers, controlling persons and portfolio managers of GMCM, and                GMCM and                Messrs. McBaine and Swergold constitute a group under Rule 13d-5(b).                The                address for GMCM and Messrs. Gruber, McBaine and Swergold is 50 Osgood                Place, Penthouse, San Francisco, CA 94133.* |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| *(15)  * | *The                number of shares reported and the information included in this footnote                were derived from a Schedule 13G filed on February 15, 2007 by Cortina                Asset Management, LLC (“Cortina”). According to the Schedule 13G, Cortina                has sole voting power with respect to 417,676 shares and sole dispositive                power over 856,920 shares of Allion common stock. The address for                Cortina                is 330 E. Kilbourn Avenue, Suite 850, Milwaukee, WI                53202.* |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| *(16)  * | *The                number of shares reported and the information included in this footnote                were derived from a Schedule 13G filed jointly on January 11, 2007                by WS                Capital, L.L.C. (“WS Capital”), WS Capital Management, L.P. (“WSC                Management”), WSV Management, L.L.C. (“WSV”), WS Ventures Management, L.P.                (“WSVM”), Reid S. Walker, G. Stacy Smith and Patrick P. Walker. According                to the Schedule 13G, each of Reid Walker and Stacy Smith beneficially                owns                818,200 shares of Allion common stock, with sole voting power and                sole                dispositive power over all such shares; each of Patrick Walker, WSV                and                WSVM beneficially owns 718,200 shares of Allion common stock, with                sole                voting power and sole dispositive power over all such shares; and                each of                WS Capital and WSC Management beneficially owns 100,000 shares of                Allion                common stock, with sole voting power and sole dispositive power over                all                such shares. According to the Schedule 13G, WS Capital is the general                partner of WSC Management, which is an**investment                  advisor with beneficial ownership over the securities held by its                  clients.                  According to the Schedule 13G, Reid Walker and Stacy Smith are                  the sole                  principals of WS Capital and therefore exercise investment discretion                  and                  control over the securities held by WSC Management’s clients. According to                  the Schedule 13G, WSV is an investment advisor and the general                  partner of                  WSVM and has beneficial ownership over the securities held by its                  clients,                  and Reid Walker, Stacy Smith and Patrick Walker are the sole principals                  of                  WSV and therefore exercise investment discretion and control over                  the                  securities held by WSV’s clients. WS Capital, WSC Management, WSV, WSVM,                  Reid Walker, Stacy Smith and Patrick Walker disclaim membership                  in a group                  under Section 13(d) of the Securities Exchange Act of 1934. The                  address                  for WS Capital, WSC Management, WSV, WSVM, Reid Walker, Stacy Smith                  and                  Patrick Walker is 300 Crescent Court, Suite 1111, Dallas, TX                  75201.* |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Securities      Authorized for Issuance under Equity Compensation Plans **

**Equity      Compensation Plan Information**

|      **Plan                Category**                |  **Number                of Securities to be Issued upon Exercise of Outstanding Options,                Warrants,                and Rights****(a)** |  **Weighted-Average                Exercise Price of Outstanding Options, Warrants, and                Rights****(b)** | **Number                of Securities Remaining Available for Future Issuance Under Equity                Compensation Plans (Excluding Securities Reflected in Column                (a))****(c)** |
|-------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Equity                Compensation Plans Approved by Security Holders (1)     |  1,336,167                                                                                                                                            |  $4.66                                                                                                                 |  680,416                                                                                                                                                                                       |
| Equity                Compensation Plans not Approved by Security Holders (2) |  703,828                                                                                                                                              |  $4.34                                                                                                                 |  —                                                                                                                                                                                  |
|  Total                                                                   |  2,039,995                                                                                                                                            |  $4.55                                                                                                                 |  680,416                                                                                                                                                                                       |

*(1)       Includes options granted pursuant to our 1998 Stock Option Plan and 2002 Stock      Option Plan.*

*(2)        *
*Includes warrants granted to individuals and corporations as      consideration for services provided within the meaning of Statement of Financial      Accounting Standards No. 123 and for purchase consideration for acquisitions.      The warrants were granted by us upon authorization of our Board of Directors      and      were not issued pursuant to a single equity compensation plan that exists to      grant warrants in exchange for goods and services. The terms of the warrants      vary from grant to grant and are disclosed in Note 18 to the Consolidated      Financial Statements. *

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**Item      13.**
**      Certain R**
**elationship**
**s and      Related Transactions, and Director Independence.**

**Director      Independence**

**Certain      Transactions**

***Transactions      with Related Persons.***

***Review      and Approval of Transactions with Related Persons.***

-  Any            person who is, or at any time since the beginning of our last fiscal            year was,            our executive officer or director or a nominee to become one of our            directors; 
-  Any              shareholder beneficially owning in excess of 5% of our outstanding              common              stock; 
-  Any                immediate family member of any of the foregoing persons;                or 
-  Any                  firm, corporation or other entity in which any of the foregoing                  persons is                  employed or is a partner or principal or in a similar position                  or in which                  such person has a 5% or greater beneficial ownership interest.                   

-  The            benefits to us from the transaction; 
-  The              impact on a director’s independence, if applicable; 
-  The                availability of other sources for comparable products or                services; 
-  The                  terms of the transaction; and 
-  The                    terms available to unrelated third parties or employees                    generally. 

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**Item      14.**
**      Principal Accountant Fees and      Services.**

**Accountant      Fees **

|                                |   | **2006**  |    | **2005**  |   |
|-------------------------------------|--------|----------------|---------|----------------|--------|
| Audit                  Fees         |   | $              | 648,499 |           | $      | 592,462 |   |
| Audit                  related fees |   |           | 214,802 |           |   | 47,719 |   |
| Tax                  Fees           |   |           | 6,728   |           |   | 20,000 |   |
| Total                  Fees         |   | $              | 870,029 |           | $      | 660,181 |   |

***Audit      Fees***
**.      **

-  Audit          of the Company’s annual financial statements.  
-  Reviews          of the Company’s quarterly financial statements.  
-  Review          of the Company’s S-1 registration statements associated with our IPO and          secondary offering. 
-  Audit          of our internal control over financial reporting for compliance with          Section 404 of the Sarbanes-Oxley Act of 2002. 

***Audit-Related      Services***
**.      **

***Tax      Fees***
**.      **

***All      Other Fees***
**.      **

**Audit      Committee Pre-Approval Policy **

Table          of Contents

**PART      IV**

**Item 15.      Exhibits and Financial Statement Schedules.      **

|                                             |   |                                              |   |
|--------------------------------------------------|--------|---------------------------------------------------|--------|
| **Schedules:**                                   |   | **Page****Numbering****Form                10-K** |   |
| Valuation                and Qualifying Accounts |   |                                              | 84     |   |

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**SIGNATURES**

|                                     |                                   |                                                                                                              |
|------------------------------------------|----------------------------------------|-------------------------------------------------------------------------------------------------------------------|
|                                     | ALLION                HEALTHCARE, INC. |
|                                     |                                   |                                                                                                              |
| Date: March                16, 2007 | By:                                    | /s/    James                G. Spencer                                              |
|                                     |                                   | **James                G. Spencer****Secretary,                Treasurer and Chief Financial Officer**  |

| **Name**                                                                                                                | **Title**                                                                                    | **Date**                 |
|-------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------|-------------------------------|
| /s/                Michael                P. Moran                   Michael P. Moran                    | Chief                Executive Officer and Director(principal                executive officer)   | March                16, 2007 |
|  /s/                James                G. Spencer                   James G. Spencer              | Chief                Financial Officer(principal                financial and accounting officer) | March                16, 2007 |
|  /s/                Gary                P. Carpenter                   Gary P. Carpenter            | Director                                                                                          | March                16, 2007 |
|  /s/                Russell                J. Fichera                   Russell J. Fichera          | Director                                                                                          | March                16, 2007 |
|  /s/                John                Pappajohn    John                Pappajohn             | Director                                                                                          | March                16, 2007 |
|  /s/                Derace                Schaffer, M.D.   Derace                Schaffer, M.D.     | Director                                                                                          | March                16, 2007 |
|  /s/                Harvey                Z. Werblowsky, Esq.  Harvey                Z. Werblowsky, Esq. | Director                                                                                          | March                16, 2007 |

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**Supplemental      Information to be Furnished With Reports Filed **

**Pursuant      to Section 15(d) of the Act by Registrants Which Have Not Registered**

**Securities      Pursuant to Section 12 of the Act **

**EXHIBIT      INDEX**

| 2.1    | Stock                Purchase Agreement, dated as of May 1, 2003, among MOMS Pharmacy,                Inc. as                buyer, Allion Healthcare, Inc. as parent, and Darin A. Peterson and                Allan                H. Peterson collectively as sellers. (Incorporated by reference to                Exhibit                2.1 to the Registrant’s Current Report on Form 8-K filed on May 16,                2003.)                                                            |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 2.2    | Stock                Purchase Agreement by and among MOMS Pharmacy, Inc. as buyer and                Michael                Stone and Jonathan Spanier collectively as sellers dated as of January                4,                2005. (Incorporated by reference to Exhibit 10.1 to the Registrant’s                Current Report on Form 8-K filed on January 10, 2005.)                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 2.3    | Stock                Purchase Agreement by and among MOMS Pharmacy, Inc. as buyer and                Pat                Iantorno, Eric Iantorno, Jordan Iantorno, Jordan Iantorno A/C/F Max                Iantorno, Michael Winters and George Moncada collectively as sellers                dated                as of February 28, 2005. (Incorporated by reference to Exhibit 10.1                to the Registrant’s Current Report on Form 8-K filed on March 4,                2005.) |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 2.4    | Asset                Purchase Agreement by and between MOMS Pharmacy, Inc. and Oris Medical                Systems, Inc. dated as of May 19, 2005. (Incorporated by reference                to                Exhibit 2.6 to the Registrant’s Registration Statement on Form S-1/A filed                on May 24, 2005.)                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 2.5    | Asset                Purchase Agreement by and among Medicine Made Easy and Priority Pharmacy,                Inc., the David C. Zeiger Trust UTD 4/30/93, David C. Zeiger and                Peter                Ellman dated as of December 9, 2005. (Incorporated by reference to                Exhibit                10.1 to the Registrant’s Current Report on Form 8-K filed on December                12, 2005.)                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 3.1    | Amended                and Restated Certificate of Incorporation of the Registrant. (Incorporated                by reference to Exhibit C to the Registrant’s proxy statement filed                on June 4, 2003.)                                                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 3.2    | Certificate                of Designation of Rights and Preferences of Series D Preferred Stock                of                Allion Healthcare, Inc. (Incorporated by reference to Exhibit 3.6                to the                Registrant’s Annual Report on Form 10-K filed on March 31,                2005.)                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 3.3    | Certificate                of Designation of Rights and Preferences of Series E Preferred Stock                of                Allion Healthcare, Inc. (Incorporated by reference to Exhibit 3.1                to the                Registrant’s Current Report on Form 8-K filed on December 20,                2004.)                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 3.4    | Certificate                of Correction of Allion Healthcare, Inc., relating to the Certificate                of                Designation of Rights and Preferences of Series D Preferred Stock.                (Incorporated by reference to Exhibit 3.9 to the Registrant’s Registration                Statement on Form S-1/A filed on May 24, 2005.)                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 3.5    | Certificate                of Correction of Allion Healthcare, Inc., relating to the Certificate                of                Designation of Rights and Preferences of Series E Preferred Stock.                (Incorporated by reference to Exhibit 3.10 to the Registrant’s                Registration Statement on Form S-1/A filed on May 24,                2005.)                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 3.6    | Certificate                of Correction of Allion Healthcare, Inc., relating to the Amended                and                Restated Certificate of Incorporation. (Incorporated by reference                to                Exhibit 3.12 to the Registrant’s Registration Statement on Form S-1/A                filed on May 24, 2005.)                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 3.7    | Third                Amended and Restated Bylaws of the Registrant. (Incorporated by reference                to Exhibit 3.8 to the Registrant’s Registration Statement on Form S-1/A                filed on May 24, 2005.)                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.1    | Form                of Warrant to Purchase Common Stock of Allion Healthcare, Inc. issued                to                the former owners of North American Home Health Supply, Inc., as                of                January 4, 2005. (Incorporated by reference to Exhibit 3.1 to the                Registrant’s Current Report of Form 8-K filed on January 10,                2005.)                                                                                                        |

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|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.2    | Form                of Warrant to Purchase Common Stock of Allion Healthcare, Inc. issued                to                the former owners of Specialty Pharmacies Inc., as of February 28,                2005.                (Incorporated by reference to Exhibit 3.1 to the Registrant’s Current                Report of Form 8-K filed on March 4, 2005.)                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.3    | Form                of Subordinated Secured Promissory Notes of MOMS Pharmacy, Inc.,                dated as                of January 4, 2005, in the aggregate amount of $1,375,000, issued                to the                former owners of North American Home Health Supply, Inc. (Incorporated                by                reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K                filed on January 10, 2005.) |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.4    | Guaranty                given by Allion Healthcare, Inc. to and for the benefit of Michael                Stone                and Jonathan Spanier dated as of January 4, 2005. (Incorporated by                reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K                filed on January 10, 2005.)                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.5    | Warrant                to Purchase Common Stock of Allion Healthcare, Inc. issued to John                Pappajohn on January 11, 2000. (Incorporated by reference to Exhibit                4.12 to the Registrant’s Registration Statement on Form S-1/A filed on May                24, 2005.)                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.6    | Warrant                to Purchase Common Stock of Allion Healthcare, Inc. issued to John                Pappajohn on April 15, 2005. (Incorporated by reference to Exhibit                99.1 to the Registrant’s Current Report on Form 8-K filed on April 21,                2005.)                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.7    | Warrant                to Purchase Common Stock of Allion Healthcare, Inc. issued to Crestview                Capital Master, LLC on May 13, 2005. (Incorporated by reference to                Exhibit                4.1 to the Registrant’s Quarterly Report on Form 10-Q filed on May 18,                2005.)                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.8    | Form                of Stock Certificate. (Incorporated by reference to Exhibit 4.16                to the                Registrant’s Registration Statement on Form S-1/A filed on May 24,                2005).                                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.1   | Registration                Rights Agreement, dated as of October 30, 2001, by and between Allion                Healthcare, Inc. and Gainesborough, L.L.C. (Incorporated by reference                to                Exhibit 3.(I)D) to the Registrant’s Annual Report on 10-KSB/A filed April                29, 2004.)                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.2   | Registration                Rights Agreement issued to the holders of Series E convertible preferred                stock, dated as of December 17, 2004. (Incorporated by reference to                Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on                December 20, 2004.)*** ***                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.3   | 1998                Stock Option Plan. (Incorporated by reference to Exhibit 10.3 to                the                Registrant’s Annual Report on Form 10-K filed on March 31,                2005.)                                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.4   | Amendment                No. 1 to the 1998 Stock Option Plan. (Incorporated by reference to                Exhibit 10.1 to the Registrant’s quarterly report on Form 10-Q                filed on November 14, 2005).                                                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.5   | Amended                and Restated 2002 Stock Incentive Plan. (Incorporated by reference                to                Exhibit 10.2 to the Registrant’s quarterly report on Form 10-Q filed                on November 14, 2005).                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.6   | Agreement                of Lease Between Reckson Operating Partnership, L.P and Allion Healthcare,                Inc. (Incorporated by reference to Exhibit 10.11 to the Registrant’s                Annual Report on Form 10-KSB filed on April 14, 2004.)                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.7   | AmerisourceBergen                Prime Vendor Agreement dated September 15, 2003. (Incorporated by                reference to Exhibit 10.14 to the Registrant’s Annual Report on Form 10-K                filed on March 31, 2005.)**                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.8   | Registration                Rights Agreement, dated as of January 4, 2005, by and between Allion                Healthcare, Inc. and Michael Stone and Jonathan Spanier. (Incorporated                by                reference to Exhibit 10.16 to the Registrant’s Annual Report on Form 10-K                filed on March 31, 2005.)                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.9   | Amendment                to Registration Rights Agreement dated as of May 19, 2005, between                Allion                Healthcare, Inc. and Michael Stone and Jonathan Spanier. (Incorporated                by                reference to Exhibit 10.15A to the Registrant’s Registration Statement on                Form S-1/A filed on May 24, 2005.)                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.10  | Registration                Rights Agreement, dated as of April 4, 2003 issued to the holders                of                Series C convertible preferred stock. (Incorporated by reference to                Exhibit 10.17 to the Registrant’s Registration Statement on Form S-1/A                filed on May 24, 2005.)                                                                                                                           |

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|   |                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.11  | Form                of Registration Rights Agreement, dated as of April 16, 2004 issued                to the holders of Series D convertible preferred stock. (Incorporated                by reference to Exhibit 10.18 to the Registrant’s Registration Statement                on Form S-1/A filed on May 24, 2005.)                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.12  | Form                of Registration Rights Agreement, dated as of March 30, 2001 issued                to the                holders of Series A convertible preferred stock. (Incorporated by                reference to Exhibit 10.19 to the Registrant’s Registration Statement on                Form S-1/A filed on May 24, 2005.)                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.13  | Registration                Rights Agreement dated as of May 13, 2005 by and between Allion                Healthcare, Inc. and Crestview Capital Master, LLC. (Incorporated                by                reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form                10-Q filed on May 18, 2005.)                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.14  | Non-competition                and non-solicitation agreement by and between Allion Healthcare,                Inc. and                MikeLynn Salthouse dated as of August 27, 2002. (Incorporated by                reference                to Exhibit 10.24 to the Registrant’s Registration Statement on Form S-1/A                filed on May 24, 2005.)                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.15  | Asset                Purchase Agreement by and among Medicine Made Easy and Frontier Pharmacy                & Nutrition, Inc. dated as of August 4, 2005. (Incorporated by                reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form                10-Q filed on August 15, 2005.)                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.16  | Agreement                with the California Department of Health Services dated as of August                2005.                (Incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly                Report on Form 10-Q filed on November 14, 2005.)                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.17  | Agreement                of Sublease for 191 Golden Gate Avenue, San Francisco, CA 94102,                dated as                of February 25, 2005, by and between Tenderloin AIDS Resource Center                and Specialty Pharmacies, Inc. (Incorporated by reference to Exhibit                10.6                to the Registrant’s Quarterly Report on Form 10-Q filed on November 14,                2005.)              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.18  | Agreement                of Lease for 19300 S. Hamilton Ave, Gardena, CA 90248, dated as of                August                23, 2005, by and between Kroeze Koncepts, Inc, and Medicine Made                Easy.                (Incorporated by reference to Exhibit 10.29 to the Registrant’s Annual                Report on Form 10-K filed on March 16, 2006.).                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.19  | Agreement                of Lease for 3940-58 Fourth Avenue, San Diego, CA 92103, dated as                of                January 9, 2006, by and between Acadia Corporation and Medicine Made                Easy                DBA Priority Pharmacy. (Incorporated by reference to Exhibit 10.30                to the                Registrant’s Annual Report on Form 10-K filed on March 16,                2006.).                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.20  | Asset                Purchase Agreement among Medicine Made Easy and Priority Pharmacy,                Inc.,                the David C. Zeiger Trust UTD 4/30/93, David C. Zeiger and Peter                Ellman                dated as of December 9, 2005. (Incorporated by reference to Exhibit                10.31 to the Registrant’s Annual Report on Form 10-K filed on March 16,                2006.).                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.21  | Asset                Purchase Agreement Among MOMS Pharmacy of Brooklyn, Inc., H.S. Maiman                Rx,                Inc. and Scott Maiman and Nancy Maiman, dated as of March 10, 2006.                (Incorporated by reference to Exhibit 10.32 to the Registrant’s Annual                Report on Form 10-K filed on March 16, 2006.).                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.22  | Warrant                to Purchase Common Stock of Allion Healthcare, Inc. issued to John                Pappajohn Revocable Trust on April 1, 2003. (Incorporated by reference                to                Exhibit 10.33 to the Registrant’s Annual Report on Form 10-K/A filed on                November 17, 2006.)                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.23  | Asset                Purchase Agreement by and among Medicine Made Easy and H&H Drug                Stores, Inc., The Youredjian Family Trust, H&H Drug Stores, Inc.                Employee Stock Ownership Trust and Hagop Youredjian, dated as of                April 6,                2006. (Incorporated by reference to Exhibit 10.1 to the Registrant’s                Current Report on Form 8-K filed on April 11, 2006.) |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.24  | Asset                Purchase Agreement by and among Medicine Made Easy and Whittier Goodrich                Pharmacy, Inc., Eddie Gozini and Chen Jing, dated as of April 28,                2006.                (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current                Report on Form 8-K filed on May 3, 2006.)                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.25  | Form                of Nonqualified Stock Option Agreement to the Amended and Restated                2002                Stock Incentive Plan. (Incorporated by reference to Exhibit 10.1                to the                Registrant’s Current Report on Form 8-K filed on June 30,                2006.)                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.26  | Asset                Purchase Agreement by and among MOMS Pharmacy of Brooklyn, Inc.,                Allion                Healthcare, Inc., St. Jude Pharmacy & Surgical Supply Corp., Millie                Chervin and Mitchell Chervin, dated as of July 14, 2006. (Incorporated                by                reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K                filed on July 14, 2006.)   |

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|   |                                                                                                                                                                                                                                                                                                                                 |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.27  | Employment                Agreement by and between Allion Healthcare, Inc. and Michael P. Moran.                (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current                Report on Form 8-K filed on October 5, 2006.)                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                 |
| 10.28  | Employment                Agreement by and between Allion Healthcare, Inc. and James G. Spencer.                (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current                Report on Form 8-K filed on October 5, 2006.)                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                 |
| 21.1   | Subsidiaries                of the Registrant. *                                                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                 |
| 23.1   | Consent                of BDO Seidman, LLP. *                                                                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                 |
| 31.1   | Certification                of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)                of the                Securities Exchange Act of 1934, as amended. *                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                 |
| 31.2   | Certification                of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)                of the                Securities Exchange Act of 1934, as amended. *                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                 |
| 32.1   | Certification                by the Chief Executive Officer and Chief Financial Officer pursuant                to                Rule 13a-14b/13d-14(b) of the Securities Exchange Act of 1934, as                amended,                and 18 U.S.C. § 1350 Section 906 of the Sarbanes-Oxley Act of 2002.                * |

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**SCHEDULE      II—VALUATION AND QUALIFYING      ACCOUNTS**

|                                                                                                                 |   |                                                                   |      | **Additions**                                       |   |                                               |   |           |       |
|----------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------|-----------|----------------------------------------------------------|--------|----------------------------------------------------|--------|----------------|------------|
|                                                                                                                 |   | **Balance                at****beginning****of                period** |      | **Charge to****Cost                and****Expense** |   | **Charged****to                Other****Accounts** |   | **Deductions** |       | **Balance                at****End                of****period** |   |
| Deducted                from asset accounts                                                                          |   |                                                                   |      |                                                     |   |                                               |   |           |       |   |   |
|                     Year ended December 31, 2006:                                           |   |                                                                   |      |                                                     |   |                                               |   |           |       |   |   |
|                          Allowance for doubtful accounts                |   | $                                                                      | 282,824   |                                                     | $      | 1,076,686                                          |   | $              | —    |   | $ | 934,775                (1 | ) | $ | 424,735 |   |
|                          Valuation allowance on net deferred tax assets |   |                                                                   | 2,180,000 |                                                     |   | (913,000                                           | )      |           | (1,267,000 | ) |   | — |   |   | — |   |
|                                                                                                                 |   |                                                                   | 2,462,824 |                                                     |   | 163,686                                            |   |           | (1,267,000 | ) |   | 934,775 |   |   | 424,735 |   |
| Deducted                from asset accounts                                                                          |   |                                                                   |           |                                                     |   |                                                    |   |           |            |   |   |  |   |   |  |   |
|     Year                ended December 31, 2005:                                            |   |                                                                   |           |                                                     |   |                                                    |   |           |            |   |   |  |   |   |  |   |
|                          Allowance for doubtful accounts                |   |                                                                   | 296,320   |                                                     |   | 128,000                                            |   |           | —    |   |   | 141,496                (1 | ) |   | 282,824 |   |
|                          Valuation allowance on net deferred tax assets |   |                                                                   | 3,802,000 |                                                     |   | 201,000                                            |   |           | 668,000    |   |   | 2,491,000 |   |   | 2,180,000 |   |
|                                                                                                                 |   |                                                                   | 4,098,320 |                                                     |   | 329,000                                            |   |           | 668,000    |   |   | 2,632,496 |   |   | 2,462,824 |   |
| Deducted                from asset accounts                                                                          |   |                                                                   |           |                                                     |   |                                                    |   |           |            |   |   |  |   |   |  |   |
|                     Year ended December 31, 2004:                                           |   |                                                                   |           |                                                     |   |                                                    |   |           |            |   |   |  |   |   |  |   |
|          Allowance                for doubtful accounts                 |   |                                                                   | 437,032   |                                                     |   | 80,200                                             |   |           | —    |   |   | 220,912                (1 | ) |   | 296,320 |   |
|                         Valuation allowance on net deferred tax assets       |   |                                                                   | 2,864,000 |                                                     |   | —                                            |   |           | 938,000    |   |   | — |   |   | 3,802,000 |   |
|                                                                                                                 |   | $                                                                      | 3,301,032 |                                                     | $      | 80,200                                             |   | $              | 938,000    |   | $ | 220,912 |   | $ | 4,098,320 |   |

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