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SECURITIESAND EXCHANGE COMMISSION

Washington, D.C.20549

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FORM10-K

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|   | ANNUAL REPORT PURSUANTTO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934 |

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| For  | the fiscal year endedSeptember 30, 2005 |

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|   | TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934 |

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| For  | the transition period from     to                 |

CommissionFile No.: 1-11570

ALLIED HEALTHCAREINTERNATIONAL INC.

(Exact Name ofRegistrant as Specified in ItsCharter)

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|-----------------------------------------------|--|-----------|--|----------------------------------------------------------|--|--|--|--|--|--|
| NewYork                                       |  |      |  | 13-3098275                                               |
| (Stateor Other Jurisdiction of Incorporation) |  |      |  | (I.R.S.Employer IdentificationNumber)                    |
| 555Madison AvenueNew York, New York           |  | 10022     |  | (212)750-0064                                            |
| (Address ofprincipal executive offices)       |  | (ZipCode) |  | (Registrant’s telephone number,including areacode) |
|                                               |

Securities registered pursuant toSection 12(b) of theAct:

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| Titleof Each Class |  | Name of Each Exchange on WhichRegistered |
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Securitiesregistered pursuant to Section 12(g) of the Act:

CommonStock, $.01 parvalue

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(Title ofClass)

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(Titleof Class)

Indicate by check mark whether theregistrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such reportingrequirements for the past 90 days. Yes  X    No    

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, tothe best or registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of thisForm 10-K or any amendment to this Form10-K.  ______

Indicate by check markwhether the registrant is an accelerated filer (as defined in ExchangeAct Rule 12b-2). Yes     X     No    

Indicate by checkmark whether the registrant is a shell company (as defined in ExchangeAct Rule 12bb-2). Yes       No   X   

Theaggregate market value of the voting and non-voting common equity heldby non-affiliates of the registrant as of March 31, 2005, the lastbusiness day of its most-recently completed second fiscal quarter, wasapproximately **$**148,668,975 based on the closing sales price of$6.25 per share of common stock of the registrant on such date, asreported by the Nasdaq National Market. The calculation of the numberof shares held by non-affiliates is based on the assumption that theaffiliates of the registrant include only (i) directors, (ii) executiveofficers and  (iii) shareholders who have filed a Schedule 13D or13G which reflects ownership of at least 10% of the outstandingcommon stock.

The number of shares of common stock ofthe registrant outstanding on November 22, 2005 was 44,855,772.

DOCUMENTS INCORPORATED BYREFERENCE

None

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ALLIED HEALTHCAREINTERNATIONAL INC.ANNUAL REPORT ON FORM 10-KFor the FiscalYear Ended September 30, 2005

TABLE OFCONTENTS

|             |  |                                                                                                                 |  |        |    |        |  |  |  |  |
|-------------|--|-----------------------------------------------------------------------------------------------------------------|--|--------|----|--------|--|--|--|--|
| **PARTI**   |
| Item1.      |  | Business                                                                                                        |  |   | 2  |   |
| Item2.      |  | Properties                                                                                                      |  |   | 20 |   |
| Item3.      |  | Legal Proceedings                                                                                               |  |   | 20 |   |
| Item4.      |  | Submission of Matters to a Vote of SecurityHolders                                                              |  |   | 20 |   |
| **PARTII**  |
| Item 5.     |  | Marketfor Registrant’s Common Equity, Related Stockholder Matters andIssuer Purchases of EquitySecurities |  |   | 21 |   |
| Item6.      |  | Selected Financial Data                                                                                         |  |   | 22 |   |
| Item7.      |  | Management’s Discussion and Analysis of FinancialCondition and Results of Operations                      |  |   | 23 |   |
| Item7A.     |  | Quantitative and Qualitative Disclosures About MarketRisk                                                       |  |   | 33 |   |
| Item 8.     |  | Financial Statementsand Supplementary Data                                                                      |  |   | 34 |   |
| Item9.      |  | Changes in and Disagreements with Accountants on Accountingand Financial Disclosure                             |  |   | 34 |   |
| Item9A.     |  | Controls and Procedures                                                                                         |  |   | 34 |   |
| Item9B.     |  | OtherInformation                                                                                                |  |   | 36 |   |
| **PARTIII** |
| Item10.     |  | Directors and Executive Officers ofthe Registrant                                                               |  |   | 37 |   |
| Item 11.    |  | ExecutiveCompensation                                                                                           |  |   | 40 |   |
| Item 12.    |  | SecurityOwnership of Certain Beneficial Owners and Management and RelatedStockholder Matters                    |  |   | 46 |   |
| Item13.     |  | Certain Relationships and RelatedTransactions                                                                   |  |   | 48 |   |
| Item 14.    |  | PrincipalAccountant Fees andServices                                                                            |  |   | 49 |   |
| **PARTIV**  |
| Item 15.    |  | Exhibits and FinancialStatementSchedules                                                                        |  |   | 51 |   |
|             |

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FORWARD-LOOKINGSTATEMENTS

This Annual Report on Form 10-K includesforward-looking statements.

Forward-looking statements areidentified by words such as ‘‘believe,’’‘‘anticipate,’’‘‘expect,’’‘‘intend,’’‘‘plan,’’‘‘will,’’‘‘may,’’‘‘should,’’‘‘could,’’‘‘think,’’‘‘estimate’’ and‘‘predict,’’ and other similar expressions.In addition, any statements that refer to expectations, projections orother characterizations of future events or circumstances areforward-looking statements.

We based these forward-lookingstatements on our current expectations and projections about futureevents. Our actual results could differ materially from those discussedin, or implied by, these forward-looking statements. Factors that couldcause actual results to differ from those implied by theforward-looking statementsinclude:

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|  | •  | our ability tocontinue to recruit and retain qualified flexible healthcarestaff; |

|  |              |                                                                                                                                                                 |
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|  | •  | our ability toenter into contracts with hospitals, other healthcare facility clientsand local governmental social service departments on terms attractiveto us; |

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|  | •  | the general levelof patient occupancy at our clients’ hospitals and healthcarefacilities; |

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|  | •  | our ability tosuccessfully implement our acquisition and integrationstrategies; |

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|  | •  | our dependenceon the proper functioning of our informationsystems; |

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|  | •  | the effect ofexisting or future government regulation of the healthcare industry,and our ability to comply with these regulations; |

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|  | •  | the impact of medicalmalpractice and other claims asserted againstus; |

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|  | •  | the effect ofregulatory change that may apply to us and that may increase our costsand reduce our revenue and profitability; |

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|  | •  | our ability to use our netoperating loss carryforward to offset netincome; |

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|  | •  | the effect thatfluctuations in foreign currency exchange rates may have on ourdollar-denominated results of operations; and |

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|  | •  | the impairment of ourgoodwill, of which we have a substantial amount on our balance sheet,may have the effect of decreasing our earnings or increasing ourlosses. |

Other factors that could cause actual results to differfrom those implied by the forward-looking statements in this AnnualReport on Form 10-K are more fully described elsewhere in thisdocument, as well as changes in any of the following: the demand forour products and services, general economic conditions, governmentalregulation, the level of competition we face, customer strategies andpricing and reimbursement policies.

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PreliminaryNotes

As used in this Annual Report on Form 10-K,‘‘our company,’’‘‘we,’’ ‘‘us’’and similar terms mean Allied Healthcare International Inc. and itssubsidiaries.

Historical financial and other data originallydenominated in pounds sterling have been converted to dollars at thethen applicable exchange rate. Financial and other data (excludinghistorical financial and other data) originally denominated in poundssterling have been converted to dollars using the exchange ratio atSeptember 30, 2005 of £1.00 = $1.7628.

PARTI

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| Item 1.  | Business |

ALLIED HEALTHCAREINTERNATIONAL INC.

Our Company

We are a leading providerof flexible, or temporary, healthcare staffing to the U.K. healthcareindustry as measured by revenues, market share and number of staff. Asof September 30, 2005, we operated an integrated network ofapproximately 115 branches throughout most of the United Kingdom. Ourhealthcare staff consists principally of nurses, nurses aides and homehealth aides (known as carers in the United Kingdom). We focus onplacing our staff on a per diem basis in hospitals, nursing homes, carehomes (which, unlike nursing homes, do not generally provide medicalservices to their residents) and homes. We maintain a pool of over22,000 nurses, nurses aides and home health aides, a majority of whomwe placed during the fiscal year ended September 30, 2005. Ourhealthcare staffing business accounted for 97.4% of our revenuesduring the fiscal year ended September 30, 2005. We also supplymedical-grade oxygen for use in respiratory therapy to the U.K.pharmacy market and Northern Ireland and oxygen concentrators tocustomers in Northern Ireland. Our medical-grade oxygen businessaccounted for approximately 2.6% of our revenues during thefiscal year ended September 30, 2005. We disposed of the last of ouractive U.S. operations during fiscal year 2003.

We focus ouroperations primarily on the per diem staffing market rather than thelong-term staffing market because we believe that per diem staffing hasa more favorable pricing structure. Per diem arrangements generallycommand higher prices than long-term contracts and generally havehigher margins. In the per diem market, healthcare facilities and localgovernmental social service departments retain flexible staffers on ajob-to-job basis when needed, without any long-term contractualcommitment by the purchaser or provider. In contrast, long-termcontracts are negotiated for a number of months or years and guaranteea supply of staff to the purchaser, but generally do not guarantee thatstaffing services will be purchased.

Our principal executiveoffices are located at 555 Madison Avenue, New York, New York 10022,and our telephone number at that location is (212) 750-0064.

Recent Developments

In July 2005, we reorganized ouroperations in response to changes in the method by which our biggestcustomer, the National Health Service (the‘‘NHS’’), required staffing services beprovided to it. Instead of operating through a number of differentsubsidiaries (Staffing Enterprise, Medic-One Group, Balfor Medical,Nurses Direct, Nightingale Nursing Bureau and Allied Healthcare (UK))to supply healthcare staff, our healthcare staffing business wasreorganized into two main operations. One part of our flexiblehealthcare staffing business is operated by our Allied StaffingProfessionals Limited subsidiary, which provides staff to the NHS underour NHS Framework Agreements currently in operation in three of theeight areas into which the NHS has divided the United Kingdom (London,Southeast England and East England) and also provides staff to ourformer Balfor Medical operations in northern England. The remainder ofour healthcare staffing business is operated by our Allied HealthcareGroup Limited subsidiary, and includes the rest of our NHS business andall our homecare work.

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In July 2005, we also rebranded our U.K.operations and launched a new corporate logo.

In fiscal 2005 weimplemented a new computerized accounting and payroll system and infiscal 2006 we plan to implement further improvements. Nextyear’s improvements will predominately target our branchnetwork.

The U.K. Flexible Healthcare StaffingIndustry

The U.K. flexible healthcare staffing market, accordingto Laing & Buisson’s report, Flexible Staffing Services inU.K. Health & Care Markets (2004), was estimated to be £4.5billion ($8.1 billion) in 2003. The same Laing & Buisson reportindicates that the U.K. healthcare staffing market is highly fragmentedwith no one company possessing a dominant market share, providingopportunities for growth and consolidation.

The major purchasersof flexible healthcare staff in the United Kingdomare:

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|  | **•**  | Thegovernment-funded NHS. Through its Primary Care Trusts, the NHSoversees general practitioners, who refer patients to specialists formore complex treatment. The NHS operates its hospitals through NHSTrusts, each of which operates one or more hospitals. (There areapproximately 275 NHS Trusts in England, 28 in Scotland and 14 inWales.) The NHS spent £2.1 billion ($3.7 billion) in 2003 ontemporary healthcare staff, of which £1.8 billion ($3.2 billion)was spent by NHSTrusts. |

|  |                  |                                                                                                                                                                      |
|--|------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | **•**  | Localgovernmental social service departments, which purchased £1.3billion ($2.3 billion) in 2003 for the provision of homecare servicesfrom the privatesector. |

|  |                  |                                                                                                                                                                                                                     |
|--|------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | **•**  | Privateindividuals, who spent £570 million ($1.0 billion) on homecareservices in 2003. An additional £90 million ($161 million) ofhomecare services was purchased from other sources, including theNHS. |

|  |                  |                                                                                                                                    |
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|  | **•**  | Independenthospitals and care homes in the United Kingdom, which purchased£183 million ($328 million) in healthcarestaffing. |

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|  | **•**  | Othersources, who purchased an estimated £260 million ($466million). |

Our Business Strategy

We seek to become theprovider of choice to purchasers of healthcare staffing services andthe employer of choice to flexible healthcare workers. In addition, weseek to expand our range of healthcare staffing services over thelong-term. The key elements in achieving these strategic objectivesare:

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|  | **•**  | **Increaserevenues on a per branch basis.** We believe the increasingdemand for quality healthcare staffing with national coverage anddiversity of services will support organic growth in our branches andthe development of new services. We intend to foster continuedsame-store revenue growth by leveraging our nationally recognized brandnames, competitive benefits package and leadership in providingtemporary healthcarestaffing. |

|  |                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
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|  | **•**  | **Recruitand retain healthcare staff.** We intend to continue torecruit and retain high-quality staff to take advantage of the severeshortages of nurses and home health aides in the United Kingdom, whichwe expect to continue in the foreseeable future. We intend to continueour recruitment efforts and to encourage loyalty from our healthcarestaff by matching their flexible working preferences (both with regardsto scheduling preferences and types of assignments desired) with ourcustomers' needs, maintaining regular contact and promotingopportunities for training and development, such as ourCareMilesTM program, which is discussedbelow. |

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|  | **•**  | **Furtherexpand our strong presence in the U.K. healthcare staffing industrythrough the strategic acquisition of other companies.** Weintend to grow our presence in the U.K. healthcare staffing industrythrough the acquisition of other companies. |

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Utilizing our successes in the UnitedKingdom, we intend to evaluate opportunities to acquire healthcarestaffing businesses in the United States. While we have not in recentyears had a presence in the U.S. flexible staffing market, we believethat our competitive strengths and the increasing demand for temporaryhealthcare staff in the United States, together with the fragmentedmarket for flexible healthcare staffing in the United States, mayprovide an attractive opportunity to us.

OurOperations

We are a leading provider of flexible, or temporary,staffing to the U.K. healthcare industry. We provide flexible staffing,principally nurses, nurses aides and home health aides, to customersthroughout most of the United Kingdom. Our branches are located inEngland, Wales and Scotland. We do not have any branches or healthcarestaffing customers in Northern Ireland. We also provide respiratorytherapy products to pharmacies in the United Kingdom and NorthernIreland and oxygen concentrators to customers in NorthernIreland.

During fiscal 2005, our revenues were derived from thefollowing lines ofbusiness:

|  |                  |                                          |
|--|------------------|------------------------------------------|
|  | **•**  | 97.4%from flexible staffing services;and |

|  |                  |                               |
|--|------------------|-------------------------------|
|  | **•**  | 2.6%from respiratory therapy. |

During fiscal 2003, we exited the U.S.market. Our discontinued operations are reflected separately in ourconsolidated financial statements.

FlexibleStaffing

We provide a diverse range of flexible staff,principally consisting of nurses, nurses aides and home health aides,to our customers. We also provide specialist nurses and specializednurses aides, primarily through our Allied Staffing Professionalssubsidiary. Home health aides provide personal or basic care in thehome (known as social care in the United Kingdom). Nurses aides performmany of the functions of home health aides, but in the hospitalsetting. As of September 2005, our mix of flexible staff wasapproximately 18% nurses, 33% nurses aides and 49%home health aides.

Since our reorganization in July 2005, most ofour branches (approximately 112) are operated by Allied HealthcareGroup Limited. The remainder of our branches are operated by AlliedStaffing Professionals Limited.

Our integrated branch network isspread throughout most of the United Kingdom. A typical branch isoverseen by a branch manger, who is responsible for all the activitiesin the branch, including the achievement of its financial targets,developing local customer relations and recruiting staff. Our branchesserve as our direct contact with our customers and our healthcarestaff.

Our branches are organized into geographical teams ofapproximately 10 branches. There are five support groups covering twoteams each and these groups include a support manager, financialanalyst, sales manager, training manager and compliance manager, whosefunction is to support the branch manager in achieving thebranch’s yearly financial targets.

There are monthlymanagement meetings for each team attended by the branch managers andrelated support group and representatives of senior management wherethe financial performance of each branch is assessed and actions forimprovement are agreed upon.

We generally maintain centralizedmanagement control in the areas of payroll, accounts receivable,contracts, pricing, regulatory matters, quality control and informationtechnology.

Recruitment of FlexibleStaff

Many healthcare workers are attracted to flexiblestaffing positions because of their desire to tailor work schedules topersonal and family needs, obtain varied and challenging workexperiences and acquire new skills. We believe that our ability tooffer quality flexible staffing assignments well-matched toindividuals’ preferences assists in our attracting a largenumber of flexible healthcare workers.

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Our branch managers are primarilyresponsible for recruiting staff. Branch managers recruit on a localbasis, with referrals from existing staff providing an important sourceof new staff. From time to time, we may run internal financialpromotions to encourage referrals from our staff. We also formallyrecruit through local and national print advertising and organizerecruitment events, including national recruitment days, at the branchlevel. Our website also advertises national branch vacancies.

Weimpose a standardized recruitment process on our branches. Before theycan place a nurse, nurses aide or home health aide, our branches mustobtain, among other things, two professional references and evidence ofproper immunizations, as well as a police background check. Ourbranches must also confirm that each nurse has been licensed by theappropriate governmental body and that each nurses aide and home healthaide has received the training mandated by law for theiroccupation.

Training and Retention of FlexibleStaff

Our retention philosophy is based upon each branchmaintaining personal contact with the flexible staff on its register,including a structured campaign whereby current and former staff arecontacted periodically by each branch to assess their needs and toattempt to meet their individual working preferences. We also conduct aformal annual review of all charge and pay rates within the businessand compare them to prevailing market rates to ensure that our marginsare competitive.

In April 2002, we introduced a program called‘‘CareMilesTM’’ that enables ourflexible staff to earn credits based on the number of hours that theywork for us. Our staff can use the credits to pay for healthcaretraining and personal development courses that the individual wouldotherwise pay for out of his or her pocket. As a healthcare workerbecomes more skilled, he or she has greater flexibility in choosingassignments and also may earn a greater hourly wage. We believe thatthe CareMilesTM program promotes staff loyalty whileproviding us with the opportunity to earn higher commissions as morehighly-trained staff are generally billed out at higher rates. Thehealthcare training and personnel development courses offered throughthe CareMilesTM program are in addition to standard trainingprograms that we offer to our staff to ensure compliance withregulatory requirements.

Quality Assurance

We invest heavily in quality assurance systems to ensure that ourflexible healthcare staff meet our internal quality assurancestandards, as well as those mandated under the Care Standards Act2000.

It is the branch manager’s responsibility to ensurethat all flexible workers are compliant with our internal qualityassurance standards when they are booked on shifts. We are currentlyimplementing a new computerized system to record compliance status foreach worker which, when implemented, will make the worker unavailablefor work if their compliance is not up-to-date.

We have a qualityassurance audit team whose primary job responsibility is to visit eachof our branches on a periodic basis to assure that the branches adhereto the procedures and policies set by our main office. The qualityassurance audit team is independent of our operations management. Amember of our quality assurance audit team visits each branch at leastonce per year. During its visits to our branches, the quality assuranceaudit team reviews employee files to confirm that staff have properlevels of training for the jobs in which they are being placed by thebranch and that the documents required by our standardized recruitmentprocess are in order. The quality assurance audit team also confirmsthat nurses have been licensed with the appropriate U.K. body. Inaddition, to minimize injury to our staff, the quality assurance auditteam checks customer files to confirm that all health and safety checksfor customers’ facilities have been made. Reviews of staff andcustomer files are done on a random samplebasis.

Customers

We provide healthcarestaff to four types ofcustomers:

|  |              |                                                                                                                                                                                        |
|--|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | **TheNHS.** During our fiscal year ended September 30, 2005, weprovided nurses and nurses aides to the NHS. We provided staff mainlyto NHS hospitals and NHS Primary Care Trusts. |

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|  |              |                                                                                                                                                                                                      |
|--|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | **Localgovernmental social service departments.** Local governmentalsocial service departments retain us to provide healthcare staff,generally home health aides, to individuals in theirhomes. |

|  |              |                                                                                                                                                                                                                                                                                                                                                                                                                               |
|--|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | **Nursing homes,care homes and independent hospitals.** We provide nurses andhome health aides to nursing homes and home health aides to care homes.Care homes, like nursing homes, generally provide shelter and food fortheir residents, but, unlike nursing homes, generally do not providemedical services to their residents. We also provide nurses and nursesaides to independent hospitals in the privatesector. |

|  |              |                                                                                                                                                                                                                                         |
|--|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | **Privatepatients.** We provide both nurses and home health aides toprivate patient customers. These patients may include incapacitatedindividuals who require daily attention or patients with long-termillnesses living at home. |

Types of CustomerContracts

We provide staff to our customers under a varietyof arrangements, including the following categories of contracts commonto the healthcare staffingindustry:

|  |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | **Per diempurchases.** Business provided on a per diem basis arises whena customer requires flexible staff, and there is no formal ongoingcontractual commitment with the customer. The services provided on aper diem basis may be limited to one shift lasting a short period oftime or may be an engagement for an indefinite period. We provide mostof our nurses, nurses aides and home health aides to customers on a perdiem basis. |

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|--|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | **NHSFramework Agreements and Service Level Agreements.** The NHShas divided England into eight regions. The NHS has required anyhealthcare staffing company that provides temporary staff to the NHShospitals in a region to enter into a Framework Agreement settingforth, among other things, applicable quality standards and maximumpayment rates. Only those staffing companies that have met the qualitystandards set by the NHS and executed a Framework Agreement applicableto a particular region of the country can provide temporary staff toNHS hospitals in that region. We have entered into one or moreFramework Agreements in each region of England. Each FrameworkAgreement specifies the type of staff that the agency that is a partythereto can supply in the area covered by the Framework Agreement.Pursuant to our various Framework Agreements, we can supply all typesof staff throughout the U.K., except in London, where our FrameworkAgreement authorizes us to supply all categories of staff other thanmental health staff and midwives, and except in the South East area,where our Framework Agreement authorizes us to supply all categories ofstaff other than mental health nurses. |

Individual NHShospitals in England may select from the list of staffing companiesqualified under the Framework Agreements and enter into Service LevelAgreements. Although the Framework Agreements set the maximum rates tobe charged for flexible staff, NHS hospitals may obtain lower rates inthe Service Level Agreement by committing to higher volumes of businesswith a staffingcompany.

|  |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | **Preferredsupplier contracts.** These contracts involve the designationof a flexible staffing business by a local governmental social servicesdepartment as a ‘‘preferred supplier’’ ofstaff. A preferred supplier contract agreement specifies rates to bepaid for staff but it is not an exclusive arrangement and does notguarantee that a flexible staffing business will be used by the localgovernmental social services department. A small proportion of ourservices are provided under preferred suppliercontracts. |

|  |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|--|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | "**Cost-volume’’contracts**.    A ‘‘cost-volume’’contract specifies the rates for staff and commits the customer topurchase an agreed-upon volume of staffing services over a specifiedperiod. A ‘‘cost-volume’’ contract mayenable customers to negotiate lower prices in return for agreeing tominimum volumes of business. Local governmental social servicedepartments are the principal users of these contracts. A very smallpercentage of our business is conducted on a‘‘cost-volume’’ basis. |

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|  |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | **Long-termcontracts.** Under a long-term contract a purchaser ofstaffing services enters into a long-term arrangement (typically threeyears) with a supplier of staff under which rates for staff, usuallydiscounted, are agreed to. Long-term contracts may be exclusivearrangements, with penalties if the staffing business is not able tosatisfy the customer’s demand for staff during the term of thecontract. Other than preferred supplier contracts and cost-volumecontracts, none of our staff are provided to customers under long-termcontracts. |

We typically provide in our written contracts that wewill indemnify our customers against liability that they may incur inthe event that the members of our staff cause death, personal injury orproperty damage in the performance of their services. We maintainliability insurance designed to reimburse us in the event that claimsof this type are made. See ‘‘Insurance’’below. In addition, in some of our written contracts, we agree toindemnify our customers for the costs they incur if we are not able toprovide them with the number of staff or man-hours required during theterm of the contract and the customer has to outsource its staffingrequirements to another entity.

MarketingActivities

We market our flexible healthcare staffingbusiness to key decision makers in the NHS, local governmental socialservice departments, nursing homes, care homes and independenthospitals. These decision makers can be procurement officers, contractofficers or social workers. Fundamental to our ability to obtain andretain staffing assignments is establishing and maintaining areputation for quality service and responsiveness to the needs of ourcustomers and their patients.

Acquisition andIntegration Process

Since October 1, 2001, we have acquired67 businesses. The average revenue of these businesses in the yearprior to their acquisition by us was £1.8 million.

Wecontinue to identify suitable acquisition targets and typically seek todevelop a pre-acquisition relationship with the vendors and keymanagement in order to assess business‘‘fit.’’ We structure our acquisitions soas to encourage continuity of management and seek to align ourinterests with the vendors’/management’s intereststhrough performance based earn-out provisions.

Our integrationprocess includes the adoption of our policies and procedures and theintegration of the acquired business into our IT system. For smalleracquisitions, the process of integrating newly acquired businesses,including integrating them into our IT system, begins prior to theclosing of the acquisition and is usually completed within threemonths. In larger acquisitions, the acquired business generally retainsits own IT system, including payroll and invoicing, for a longer periodof time. However, as is the case with smaller acquisitions, commencingshortly after their date of acquisition, we require larger acquiredbusinesses to adhere to weekly and monthly financial reportingrequirements. In addition, we generally maintain centralized control ofcontracts and pricing for all acquisitions, commencing shortly afterthe date of acquisition.

Competition

TheU.K. flexible healthcare staffing business is highly fragmented withover 2,100 small operators providing staff locally. The market at thelocal level is characterized by relatively low barriers to entry. Thebarriers to entry at a U.K.-wide level are more significant, as theestablishment and growth of a flexible healthcare staffing business islargely dependent on access to capital.

The privately-ownedcompetitors of our flexible staffing business are mainly small,locally-based agencies serving a limited area or group of customers.These businesses compete with our relevant branch covering the samelocal area, but do not otherwise compete for U.K.-wide market share. Inaddition, a limited number of larger U.K.-based companies compete withus. Such companies include Nestor Healthcare Group plc, Match Group andReed Health Group plc.

The nature of the U.K. marketplace is suchthat nurses and home health aides often accept placements with morethan one flexible staffing business.

Since 2000, the NHS has hadits own internal agency, called NHS Professionals, which has attemptedto provide NHS hospitals with high volume/low margin contracts forflexible healthcare 

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workers and to reduce the NHS’sdependence on external agencies. We work with NHS Professionals tofulfill the per diem demand that it is unable tocover.

Respiratory Therapy

Our respiratory therapybusiness serves two segments of the oxygen therapy market: (a) oxygencylinders and (b) oxygen concentrators.

Home oxygen therapydelivered from a cylinder via face-mask is prescribed for a wide arrayof respiratory diseases ranging from asthma and emphysema to severebronchitis. We supply filled oxygen cylinders and related equipmentsolely to pharmacies, both small independent stores and large retailpharmacy chains. Our equipment is intended for patients at home whorequire less than eight hours of oxygen per day or who may havetemporary respiratory conditions. We provide approximately 1,400cylinders per day to pharmacies in the United Kingdom.

Patientsthat require more than eight hours of oxygen per day are generallysupplied by an on-site oxygen concentrator. We provide oxygenconcentrators, which separate room air into its constituent gases toprovide 95% oxygen gas, to a total of approximately 2,000patients at home in Northern Ireland. We charge the NHS on a monthlybasis for the period during which the patients have the equipment athome.

In 2005, the U.K. Department of Health sought to unify thesupply of oxygen to NHS patients in England and Wales. The currentsystem uses pharmacies to supply cylindered gases, while oxygenconcentrators are supplied via regional contracts with homecareproviders. Under the revised system, homecare providers will bepermitted to supply cylindered gas and liquid oxygen as well as oxygenconcentrators. We submitted a re-tender offer for such businesses. InAugust 2005, we received two written contracts for Southeast Englandthat will commence in February 2006. As the existing cylinder businessis organized on a national distribution structure, the award of theareas in Southeast England only will require a reorganization of someof our facilities from the center of the U.K. to Southeast England infiscal 2006. Our supply of cylindered gases in Northern Ireland andScotland is unaffected, as is our contract to supply oxygenconcentrator services in Northern Ireland. These changes will result inincurring additional charges in fiscal 2006 as we migrate from ourexisting contracts to the new contracts.

Payment for StaffingServices and Respiratory Products

In most cases, we contractdirectly with the governmental entity or private entity or individualto whom we provide flexible staff or respiratory therapy products. Theparty with whom we contract for the supply of staff or to whom weprovide respiratory therapy products is responsible for paying usdirectly. In general, reimbursement is received regularly and reliablyfrom all governmental and private customers. We generally collectpayments from our customers within two months after services arerendered or products are supplied but we pay accounts payable andemployees currently.

For the year ended September 30, 2005, ouroperations received approximately 65.6% of revenues fromcustomers that were U.K. governmental entities (primarily NHS hospitalsand local governmental social service departments) compared toapproximately 64.7% for the year ended September 30, 2004. Theremaining 34.4% and 35.3% of revenues received for 2005and 2004, respectively, were derived from services and productsprovided to privately-owned nursing homes, privately-owned care homes,pharmacies, independent hospitals and private patients.

TradeNames

We operate our healthcare staffing business in theUnited Kingdom principally under the following tradenames:

|  |              |                         |
|--|--------------|-------------------------|
|  | •  | Allied HealthcareGroup; |

|  |              |                                  |
|--|--------------|----------------------------------|
|  | •  | Allied StaffingProfessionals;and |

|  |              |                            |
|--|--------------|----------------------------|
|  | •  | Nightingale NursingBureau. |

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We operate our respiratory therapy businessin the United Kingdom under the following tradenames:

|  |              |                        |
|--|--------------|------------------------|
|  | •  | Allied Respiratory;and |

|  |              |          |
|--|--------------|----------|
|  | •  | Medigas. |

Employees

Asof November 2005, we employed approximately 980 individuals in ourbranch network, our U.K. head office and our other offices. None of ouremployees are represented by a labor union.

In addition, wemaintain registers of over 22,000 nurses, nurses aides and home healthaides available to staff our customer base on a temporary basis. Wegenerally place about 9,000 individuals each week with our customers.We consider our relationship with the staff to begood.

Government Regulation

General

Weare subject to regulation by the government of the United Kingdom viaActs of Parliament related to healthcare provision and by the generalhealth regulations of the Department of Health.

HealthcareLaws and Regulations

Our operations are subject to licensingand approval regulations from both governmental and non-governmentalbodies according to terms of service and operating procedures decidedby the U.K. government.

We are currently registered in Englandand Wales under the Care Standards Act 2000 and the Nurses AgenciesRegulations 2002 (which came into force in April 2003) in relation toEngland and the Nurses Agencies (Wales) Regulations 2003 (which cameinto force in October 2003) in relation to Wales to carry on a businessfor the supply of nurses. This legislation requires that a person whocarries on a business for the supply of nurses at any location withinthe jurisdiction of the registration authority must be the holder of acertificate from that authority certifying that the business isregistered to supply to that location. We are similarly registered inScotland under the Regulation of Care (Scotland) Act 2001. Any of ourbranches that supply home health aides working in individuals’homes are authorized under the Care Standards Act 2000 and theDomiciliary Care Agencies Regulations 2002 (in England), theDomiciliary Care Agencies (Wales) Regulations 2004 and the Regulationof Care (Scotland) Act 2001.

The Care Standards Act 2000introduced, among other things, a new registration and regulatorystructure for all non-NHS healthcare services in England and Wales. TheHealth and Social Care (Community Health and Standards) Act 2003established two new independent registration and regulatory bodies forindependent healthcare services and social care in England, includingsuppliers of nurses, called the Commission for Social Care andInspection and the Commission for Healthcare Audit and Inspection, theformer of which enforces registration of care agencies andestablishments. The Care Standards Act 2000 also appointed a similarregistration authority for Wales, the National Assembly for Wales. TheCare Standards Act 2000 also made provision for a new General SocialCare Council in England and a new Care Council for Wales to beestablished as non-departmental statutory bodies responsible to theDepartment of Health and National Assembly of Wales, respectively, withthe aim of increasing the protection of service users, their homehealth aides and the general public. The Regulation of Care (Scotland)Act 2001 also introduced legislation relating to this area in Scotlandand appointed the registration authority for Scotland, the ScottishCommission for the Regulation of Care.

The Care Standards Act2000 is essentially an enabling act that provides for regulations to bemade by secondary legislation. Regulations relating to registration arealready in force (the National 

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Care Standards Commission (Registration)Regulations 2001). The Care Standards Act 2000 also provided thatregulations can be made imposing any requirements which the appropriateMinister thinks fit for the purposes of the Care Standards Act 2000relating to establishments and agencies. Specific regulations set outin the Care Standards Act 2000 that may be introduced includeprovisions relating to the services to be provided by suppliers ofhealthcare staff, the keeping of accounts, the keeping of records anddocuments and arrangements to be made for dealing with complaints madeby those seeking or receiving any of the services provided by thesuppliers of healthcare staff. A number of regulations (including theNurses Agencies Regulations 2002 and the Domiciliary Care AgenciesRegulations 2002) include provisions in these areas.

Contractsbetween suppliers of healthcare staff and NHS hospitals for theprovision of services, as well as the performance by the parties oftheir obligations thereunder, is reviewed by the Commission forHealthcare Audit and Inspection. We are accredited by various U.K.social services agencies for the supply of home health aides withintheir jurisdiction. The U.K. Medicines and Healthcare ProductsRegulatory Agency has granted licenses to us for the production anddistribution of medical-grade oxygen to pharmacies throughout theUnited Kingdom.

We believe that we are in substantial compliancein all material respects with U.K. healthcare laws and regulationsapplicable to our operations.

Healthcare Reform

Our business is subject to extensive and complex laws andregulations in the United Kingdom. These include, but are not limitedto, laws and regulations related to licensing, conduct of operations,payment for services and referrals, benefits payable to temporarystaffers and taxation. Moreover, many political, economic andregulatory organizations are supporting fundamental change in the U.K.healthcare industry. A summary of the material existing and proposedregulations follows.

U.K. rules affecting temporaryworkers.    The benefits and protections with which temporaryworkers in the United Kingdom must be provided have recently increased,and new and or more stringent laws are likely to be introduced in thefuture. In particular, the Conduct of Employment Agencies andEmployment Business Regulations 2003 (the ‘‘2003Regulations’’) described below and case law impact us.For example, a ruling by the European Court of Justice stated that theprovisions of the European Working Time Directive, which entitletemporary workers to be paid annual leave only when they have beencontinuously employed for 13 weeks, is unlawful. The U.K. Working TimeRegulations have therefore been amended to remove the 13-week qualifyperiod, and workers in the United Kingdom are now entitled to paidleave from the first day of employment.

Health and SocialCare (Community Health and Standards) Act 2003.    Under theHealth and Social Care (Community Health and Standards) Act 2003 andapplicable regulations, providers of flexible healthcare staff have toregister with the Commission for Social Care Inspection and must complywith the rules relating to management and staffing, fitness of premisesand the conduct of specified services.

Changes in U.K.value-added tax ("VAT") rules.    Wecurrently act as an agent for VAT purposes in supplying healthcarestaff, which, under a concession to existing U.K. law, requires us tocharge VAT only on the amount of commission charged to the purchaser offlexible staff.

The 2003 Regulations, insofar as they relate toVAT, came into effect in the United Kingdom on April 6, 2004 but thechanges envisaged were suspended until such time as a consultation onthis matter has been concluded. This consultation is due to commence inJanuary 2006.

In the event that the proposed changes areimplemented, the concession under which we operate at present arelikely to be withdrawn and this would place an increased VAT burden onour company.

The 2003 Regulations require employment agencies,including those supplying flexible healthcare staff, to enter intocontractual relationships with the workers that they supply.Consequently, for VAT purposes, the tax authorities'interpretation is that the flexible staff provider acts as principal,rather than agent.

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For non-medical staff, VAT would be dueon the total amount of the charges made by the flexible staff provider,including salary costs, rather than merely on its commission. Thischange may adversely affect our cash flow if we have to pay theincreased VAT liability to the government before our customers havepaid their fees to us.

The law however states that the provisionof medical staff such as nurses should be treated as exempt from VAT.Pursuant to such exemption, we will be limited in the amount of VAT wewould be entitled to set off against the VAT we owe thegovernment.

NHS Initiatives

Flexible staffingproviders, such as our company, are subject to the risk that the NHSwill seek to regulate the price it pays for temporary staff, reduce itsuse of temporary staff or replace its use of temporary staff wherepossible with permanent employees.

In recent years, the NHS hasdivided England into eight regions. The NHS has required any healthcarestaffing company that provides temporary staff to the NHS hospitals ina region to enter into a Framework Agreement setting forth, among otherthings, types of staff to be supplied, quality standards and maximumpayment rates. Only those staffing companies that have met the qualitystandards set by the NHS and executed a Framework Agreement applicableto a particular region of the country can provide temporary staff toNHS hospitals in that region. We have entered into one or moreFramework Agreements in each region of England. Each FrameworkAgreement specifies the type of staff that the agency that is a partythereto can supply in the area covered by the Framework Agreement.Pursuant to our various Framework Agreements, we can supply all typesof staff throughout the U.K., except in London, where our FrameworkAgreement authorizes us to supply all categories of staff other thanmental health staff and midwives, and except in the South East area,where our Framework Agreement authorizes us to supply all categories ofstaff other than mental health nurses. It is likely that a long-termeffect of the Framework Agreements will be to reduce the cost ofcommissions paid to healthcare staffing companies and/or to reduce thenumber of healthcare staffing companies supplying staff to theNHS.

Another initiative undertaken by the NHS is its creation ofNHS Professionals. NHS Professionals is an internal agency of the NHSthat seeks to provide an efficient temporary staffing service for NHShospitals and to reduce the dependence of the NHS on external agencies.NHS Professionals seeks to coordinate nurse banks operated by NHShospitals with the intention of maintaining quality standards andcontrolling cost across all NHS nurse banks.

If the NHS were tosignificantly reduce its use of our services (by, for example, thegreater utilization of NHS Professionals), negotiate lower prices orchange its policy on private-sector involvement, it could have amaterial adverse effect on our business, financial condition andresults of operations.

Insurance

We maintain generalliability insurance, professional liability insurance and excessliability coverage that provide coverage in the event that a claim isbrought against us alleging negligence, product liability or similarlegal theories. Each of these policies provides coverage on an‘‘occurrence’’ basis and has certainexclusions from coverage. Our insurance policies must be renewedannually.

Available Information

We maintain a website atwww.alliedhealthcare.com. The contents of our website are not part of,nor are they incorporated by reference into, this Annual Report on Form10-K.

We make available through our website our annual reportson Form 10-K and amendments thereto, but we do not make available on orthrough our website our quarterly reports on Form 10-Q or our currentreports on Form 8-K, or amendments thereto, because those reports arereadily available to the public on the Securities and ExchangeCommission's website at www.sec.gov. We do provide paper copiesof our 10-Ks, 10-Qs and 8-Ks free of charge uponrequest.

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RISK FACTORS

Ourbusiness is subject to many risks that may negatively affect ourbusiness, financial condition and/or results ofoperations.

Risks Relating to Our Business andStrategy

If we are unable to attract and retain healthcarestaff at reasonable costs, it could increase our operating costs andnegatively impact our business.

We rely significantly on ourability to attract and retain nurses, nurses aides and home healthaides who possess the skills, experience and, if required, licensesnecessary to meet the requirements of our customers. We compete forflexible healthcare staffing personnel with other flexible healthcarestaffing companies and with hospitals and healthcare facilities. Staffchoose to work for a temporary healthcare staffing company based on thequantity, diversity and quality of assignments offered and oncompensation packages and other benefits. We must continually evaluateand upgrade our flexible staffing network to keep pace with ourcustomers’ needs and to remain competitive in our business.Currently, there is a shortage of nurses, nurses aides and home healthaides in most areas of the United Kingdom. Competition for suchpersonnel is increasing and salaries and benefits have risen. We may beunable to continue to increase the number of nurses and otherhealthcare staff that we recruit, decreasing the potential for growthof our business. Our ability to attract and retain nurses and otherhealthcare staff depends on several factors, including our ability toprovide them with assignments that they view as attractive and toprovide them with competitive benefits and wages. We cannot assure youthat we will be successful in any of these areas. The cost ofattracting nurses and other healthcare staff and providing them withattractive benefit packages may be higher than we anticipate and, as aresult, if we are unable to pass these costs on to our hospital,healthcare facility and other customers, our profitability coulddecline. Moreover, if we are unable to attract and retain nurses andother healthcare staff, our ability to provide adequate services to ourcustomers may decline and, as a result, we could losecustomers.

We operate in a highly competitive market and oursuccess depends on our ability to obtain and retaincustomers.

The flexible healthcare staffing business ishighly competitive. We compete in national, regional and local marketsin the United Kingdom with full-service staffing companies, specializedflexible staffing agencies, NHS Professionals, hospitals, nursing homesand other home healthcare businesses. There are relatively few barriersto entry in the markets we serve and, historically, our industry hasbeen highly fragmented. While we expect to continue to face competitionfrom a broad range of companies, the recent consolidation trend in ourindustry is likely to result in an increase in the number of largercompanies that are able to service regional or national markets. Someof our competitors have greater name recognition, access to capital andmarketing, financial and other resources than we do. We believe thatthe primary competitive factors in obtaining and retaining customersare identifying qualified healthcare staff for specific jobrequirements, providing qualified staff in a timely manner, pricingservices competitively and effectively monitoring job performance.Competition for customers may increase in the future and, as a resultwe may not be able to remain competitive. To the extent competitorsseek to gain or retain market share by reducing prices or increasingmarketing expenditures, we could lose revenues or hospital, healthcarefacility and other customers and our margins could decline, which couldharm our operating results. In addition, the development of alternativerecruitment channels could lead our hospital, healthcare facility andother customers to bypass our services, which would also cause ourrevenues and margins to decline.

Our focus on the per diemmarket may be a competitive disadvantage.

Unlike many otherhealthcare staffing businesses in the United Kingdom, we have activelypursued business in the per diem market rather than through long-termcontracts. Although we believe that current and forecasted healthcarestaff shortages will continue to fuel demand for staff in 

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the per diem market, a change in the supplyand demand dynamics for healthcare workers could result in businessderived from long-term contracts becoming more attractive. Inparticular, the award of long-term contracts to our competitors(thereby granting ‘‘lead’’ supplier statusto such competitors) could prevent us from securing the business ofpotential purchasers of temporary healthcarestaffing.

A change in treatment of flexible staff forU.K. tax, employment and benefits purposes could result in increasedcosts.

Like all employment businesses, we are exposed topotential employment related claims from independent contractors whoassert that they are employees. We currently treat our nurses andnurses aides as independent contractors, but this position could changeif challenged in an employment tribunal or court. A recent tribunalcase relating to agency workers indicated that agency workers arehighly likely to be the employee of either the agency that places themor the customer at which they are placed, depending on thecircumstances. If our nurses and nurses aides are treated as employees,they would become eligible to bring employment-related litigation,including actions for unfair dismissal, wrongful dismissal and breachof contract and claims for severance payments. These claims couldadversely affect our business and financialcondition.

Competition for acquisition opportunities mayrestrict our future growth by limiting our ability to make acquisitionsat reasonable valuations.

Our business strategy includesincreasing our market share and presence in the flexible healthcarestaffing industry through strategic acquisitions of companies thatcomplement or enhance our business. We have historically facedcompetition for acquisitions. In the future, this competition couldlimit our ability to grow by acquisitions or could raise the prices ofacquisitions and make them less attractive to us.

Restrictivecovenants in our debt facilities may limit our ability to makeacquisitions.

Restrictive covenants in our senior creditfacility, including a requirement that we obtain bank and lenderconsent for acquisitions exceeding £10 million in the aggregatein any fiscal year or any individual acquisition exceeding £2million in any fiscal year, may limit our ability to complete desirableacquisitions. If we are unable to secure necessary financing under oursenior credit facility because of these restrictive covenants or fromother sources, we may be unable to complete desirableacquisitions.

We may face difficulties integrating ouracquisitions into our operations and our acquisitions may beunsuccessful, involve significant cash expenditures, expose us tounforeseen liabilities or result in dilution of ourshareholders’ interest in our company.

We expect tocontinue pursuing acquisitions of flexible healthcare staffingcompanies that complement or enhance our business.

Theseacquisitions involve numerous risks,including:

|  |              |                                                                                    |
|--|--------------|------------------------------------------------------------------------------------|
|  | •  | difficultiesintegrating acquired personnel and distinct cultures into ourbusiness; |

|  |              |                                                                                                                  |
|--|--------------|------------------------------------------------------------------------------------------------------------------|
|  | •  | difficultiesintegrating acquired companies into our operating, financial planningand financial reportingsystems; |

|  |              |                                                                   |
|--|--------------|-------------------------------------------------------------------|
|  | •  | potential loss ofkey employees or customers of acquiredcompanies; |

|  |              |                                                               |
|--|--------------|---------------------------------------------------------------|
|  | •  | diversion ofmanagement attention from existing operations;and |

|  |              |                                                                                                                                                                     |
|--|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | assumption ofliabilities and exposure to unforeseen liabilities of acquiredcompanies, including liabilities for their failure to comply withhealthcare regulations. |

These acquisitions may also involvesignificant cash expenditures, debt incurrence and integration expensesthat could have a material adverse effect on our financial conditionand results of operations. In addition, if we issue additionalsecurities in connection with an acquisition, the ownership interestsof our existing securityholders will be diluted. Any acquisition mayultimately have a negative impact on our business and financialcondition.

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Our ability to acquirebusinesses outside the United Kingdom, including in the United States,is limited by our senior credit facility.

In the future, wemay acquire one or more healthcare staffing businesses in the UnitedStates, if the opportunity arises and if we believe that the terms ofsuch acquisition would be favorable to us. Our senior credit facilitypermits us, subject to compliance with the provisions thereof, toborrow money to finance acquisitions in the United Kingdom. However, wedo not have any credit arrangements in place which permit us to financeacquisitions in the United States and there can be no assurance that wewill be able to obtain such credit on favorable terms or at all.Moreover, because our senior credit facility does not permit our U.K.subsidiaries to pay dividends or otherwise advance funds to us, we donot expect to have sufficient cash on hand to finance acquisitions inthe United States. In the event that we are unable to financeacquisitions in the United States with either cash or stock, ourability to acquire businesses in the United States will be severelyrestricted.

Our decentralized structure could result inunforeseen costs and could adversely impact our business.

Weoperate with a decentralized structure under which our branches operateon a relatively autonomous basis in terms of the recruitment andplacement of staff and the marketing of customers. However, wegenerally maintain centralized management control in the areas ofpayroll, accounts receivable, contracts, pricing, regulatory matters,quality control and information technology. If we fail to exert propercentralized management control, our local branches could engage inunauthorized activities, our management initiatives may not besuccessfully implemented and our business, financial condition andresults of operations may be adversely affected.

We may failto adequately manage our anticipated future growth.

We haveachieved growth in our flexible healthcare staffing business over thelast few years through both organic growth and strategic acquisitionsof companies. We intend to continue to expand in the future. As wegrow, there will be increased demands on our management and on ouroperational and administrative systems, controls and other resources.There can be no assurance that our existing personnel, systems,procedures or controls will be adequate to support our operations inthe future or that we will be able to successfully implementappropriate measures consistent with our growth strategy. We also maybe required to add staff and information and other systems. We cannotguarantee that we will be able to do so or, if we are able to do so,that we will be able to effectively integrate them into our existingstaff and systems.

The loss of key senior managementpersonnel could adversely affect our ability to remaincompetitive.

We rely heavily on our senior management team,led by Timothy M. Aitken, our chairman of the board and chief executiveofficer, and Charles F. Murphy, our chief financial officer. We haveentered into an employment agreement with Mr. Aitken that expires inSeptember 2006, subject to automatic renewal for successive periods ofone year each unless terminated by either party on 90 days’notice, and an employment agreement with Mr. Murphy that isterminable by either party on six months’ notice. The loss orunavailability for an extended period of time of these officers couldhave a material adverse effect on our operations andprospects.

We are dependent on the proper functioning of ourinformation systems.

We are dependent on the properfunctioning of our information systems in operating our business. Ouroperations have an IT disaster recovery plan. However, they are stillvulnerable to fire, storm, flood, power loss, telecommunicationsfailures, physical or software break-ins and similar events. Ifcritical information systems fail or are otherwise unavailable, thesefunctions would have to be accomplished manually, which couldtemporarily impact our ability to identify business opportunitiesquickly, to maintain billing and clinical records reliably, to bill forservices efficiently and to maintain our accounting and financialreporting effectively.

In fiscal 2005 we implemented a newcomputerized accounting and payroll system and in fiscal 2006 we planto implement further improvements. Next year’s improvements willpredominately target 

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our branch network. There can be noassurance that we will be able to successfully implement our plans orthat any such improvements will deliver the expectedbenefits.

Our business is subject to certain risks inherentto international operations.

We operate in the UnitedKingdom. As a result, we are subject to a variety of risks,including:

|  |              |                                        |
|--|--------------|----------------------------------------|
|  | •  | fluctuations incurrency exchangerates; |

|  |              |                                                                                    |
|--|--------------|------------------------------------------------------------------------------------|
|  | •  | varying lawsrelating to, among other things, employment and employmenttermination; |

|  |              |                                                |
|--|--------------|------------------------------------------------|
|  | •  | the impact ofa recession in the UnitedKingdom; |

|  |              |                                       |
|--|--------------|---------------------------------------|
|  | •  | changes inregulatory requirements;and |

|  |              |                                      |
|--|--------------|--------------------------------------|
|  | •  | potentially adversetax consequences. |

These risks may materially and adversely affectour business results of operations or financial condition.

RisksRelating to the Flexible Healthcare StaffingMarket

Demand for flexible staffing may fail to rise,remain at current levels or may decline for a variety of reasons,including general economic conditions.

Although we anticipatethat the market for flexible staffing in the healthcare sector willcontinue to expand, there can be no assurance that growth will occur atall or continue at historic rates or at the rate currently expected.Our growth could be adversely affected by a variety of factors,including emphasis on permanent staff and minimization of the use oftemporary staff by healthcare providers and automation orcomputerization of services traditionally performed by temporary staffproviders. In the last few years, a U.K. case on agency workersindicated that agency workers are highly likely to be consideredemployees of either the agency that places them or the customerend-user (and in many cases the customer is likely to be considered theemployer). Consequently, some of the advantages to hospitals and otherpurchasers to using temporary workers may be lost because of the riskthat they will be deemed to be the employer of such workers, andtherefore they may decide to hire permanent staff rather than temporarystaff. In addition, demand for flexible healthcare staffing servicesmay be significantly affected by the general level of economic activityand economic conditions in the regions in which we operate.

Ifdemand for temporary staffing in the healthcare sector generallydeclines or does not increase at the rate we anticipate, our business,financial condition and results of operations may be materially andadversely affected.

Fluctuations in patient occupancy at thehospitals, nursing homes and care homes of our customers may adverselyaffect the demand for our services and therefore our financialperformance.

Demand for our flexible healthcare staff issignificantly affected by the general level of patient occupancy at thehospitals, nursing homes and care homes of our customers. Whenoccupancy increases, temporary employees are often added beforefull-time employees are hired. As occupancy decreases, healthcarefacility customers typically will reduce their use of temporaryemployees before undertaking layoffs of their regular employees. Inaddition, we may experience more competitive pricing pressure duringperiods of occupancy downturn. Occupancy at our healthcarecustomers’ facilities also fluctuates due to the seasonality ofsome elective procedures. We are unable to predict the level of patientoccupancy at any particular time and its effect on our revenues andearnings.

We operate in a regulated industry andviolations of laws or regulations may result in increased costs orsanctions that could impact our financial performance. Moreover, recentand proposed changes in U.K. regulations affecting flexible staffingcompanies may result in increased costs that reduce our revenue andprofitability.

Our business is subject to extensive andcomplex laws and regulations in the United Kingdom. These include, butare not limited to, laws and regulations related to licensing, conductof operations, 

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payment for services and referrals, benefitspayable to temporary staffers and taxation. If we fail to comply withthe laws and regulations that are applicable to our business, we couldsuffer civil and/or criminal penalties or we could be required to stopoperating in one or more jurisdictions.

Moreover, many political,economic and regulatory organizations are supporting fundamental changein the U.K. healthcare industry. The recent introduction of newregulatory provisions in the United Kingdom affecting flexible staffingcompanies could substantially raise the costs associated with operatingour business. Some proposed changes in these regulations could have asimilar effect. We may not be able to pass along to our customers thecosts of implementing any changes that result from these new andchanged laws and regulations. See ‘‘Item 1 —Business — Governmental Regulation’’ for a summaryof the material existing and proposed regulations affecting ourbusiness.

NHS reforms may have a substantial negative impactupon us.

For our fiscal year ended September 30, 2005, themore than 200 NHS hospitals to which we supplied staff accounted for37.6% of our flexible staffing business revenue. Flexiblestaffing providers, such as our company, are subject to the risk thatthe NHS will seek to regulate the price it pays for temporary staff,reduce its use of temporary staff or replace its use of temporary staffwhere possible with permanent employees.

One initiativeundertaken by the NHS is the requirement that agencies wishing tosupply it with temporary staff enter into Framework Agreements. It islikely that a long-term effect of the Framework Agreements will be toreduce the cost of commissions paid to healthcare staffing companiesand/or to reduce the number of healthcare staffing companies supplyingstaff to the NHS.

Another initiative undertaken by the NHS is itscreation of NHS Professionals. NHS Professionals is an internal agencyof the NHS that seeks to provide an efficient temporary staffingservice for NHS hospitals. NHS Professionals seeks to coordinate nursebanks operated by NHS hospitals with the intention of maintainingquality standards and controlling cost across all NHS nurse banks. Thecontinued expansion of the NHS Professionals could adversely affect ourrevenues in the future.

If the NHS were to significantly reduceits use of our services, negotiate lower prices or change its policy onprivate-sector involvement, it could have a material adverse effect onour business, financial condition and results ofoperations.

Our ability to compete in the homecare servicesmarket depends on our ability to obtain assignments from localgovernmental social service departments.

The largestproviders of homecare services in the United Kingdom are localgovernmental social services departments and NHS Primary Care Trusts.Outsourcing of homecare by these bodies is the principal source ofrevenue and growth in the homecare staffing market. Though figures varywidely among local governments, homecare provided directly by the localgovernments typically is significantly more expensive per hour of carethan homecare outsourced to independent homecare providers. While webelieve there is potential for further outsourcing of homecare by localgovernments, this potential may be partially offset by tighter localgovernmental budgets. Moreover, there can be no assurance that we willbe chosen by local governmental social service departments to provideoutsourced homecare services in the future, or that we will be able torecruit and retain homecare staff at hourly rates that localgovernments are willing to pay.

Significant legal actionscould subject us to substantial uninsured liabilities.

Inrecent years, healthcare providers have become subject to an increasingnumber of legal actions alleging medical malpractice, negligent hiring,product liability or other legal theories. Many of these actionsinvolve large claims and significant defense costs. In addition, we maybe subject to civil or criminal claims arising from actions taken byour employees or temporary staffing personnel, such as misuse ofproprietary information or theft of property. In some instances, we arerequired to indemnify customers against some or all of these risks. Afailure of any of our employees or personnel 

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to observe our policies and guidelinesintended to reduce these risks, relevant customer policies andguidelines or applicable laws, rules and regulations could result innegative publicity, payment of fines or other damages. In addition,breaches of the Care Standards Act 2000 and associated regulationscould result in the revocation of registration or the imposition ofconditions on that registration that could adversely effect thecontinuation of our business in the United Kingdom. Litigation iscostly and, even if we do prevail, the cost of such litigation couldadversely affect our consolidated financial statements.

Inaddition, in the course of our operations we may face possible claimsby employees or employee candidates of discrimination or harassment(including for actions our customers or their employees may havetaken), violations of health and safety regulations, workerscompensation claims, retroactive entitlement to benefits and othersimilar claims.

Our insurance may not be adequate to protectus from claims for which we may become liable.

To protectourselves from the cost of claims alleging medical malpractice or othercauses of action, we maintain malpractice liability insurance andgeneral liability insurance coverage in amounts and with deductiblesthat we believe are appropriate for our operations. While we have beenable to obtain liability insurance in the past, this insurance variesin cost, is difficult to obtain and may not be available in the futureon terms acceptable to us, if it is available at all. The failure tomaintain insurance coverage or a successful claim not covered by or inexcess of our insurance coverage could have a material adverse effecton our business, financial position, cash flows or results ofoperations. In addition, claims, regardless of their merit or eventualoutcome, may have a material adverse effect on ourreputation.

Risks Relating to Our FinancialCondition

We have generated substantial amounts ofgoodwill from our acquisitions, some or all of which we may be requiredto write off, which could adversely affect our financial condition orresults of operations.

Goodwill represents the purchase priceof an acquisition less the fair value of the net tangible andintangible assets acquired. We have generated substantial amounts ofgoodwill from our acquisitions. Part of our strategy involves makingadditional acquisitions. Because businesses of the type we target oftendo not have substantial tangible assets, we expect that our acquisitionof these businesses will continue to generate significant amounts ofgoodwill.

At September 30, 2005 we had goodwill of approximately$217.0 million, which equaled approximately 71.5% of our totalassets at that date.

In accordance with Statement of FinancialAccounting Standards No. 142, ‘‘Goodwill and OtherIntangible Assets,’’ (‘‘FAS No.142’’) issued by the Financial Accounting StandardsBoard**,**all goodwill and intangible assets deemed to haveindefinite lives are no longer subject to amortization, but will besubject to an annual impairment test. We evaluate, on a regular basis,whether events or circumstances have occurred that indicate all, or aportion, of the carrying amount of goodwill may no longer berecoverable, in which case an impairment charge to our earnings wouldbecome necessary. As of September 30, 2005, the carrying value of ourgoodwill was not impaired, based on an assessment performed inaccordance with FAS No. 142. However, any future determinationrequiring the write-off of a significant portion of the carrying valueof our goodwill could have a material adverse effect on our financialcondition or results of operations. It could also cause us to fail tocomply with the financial covenants in our senior credit facility,resulting in an event of default thereunder.

We haveincurred significant debt, which could impact our financial conditionand results of operations. In the event of a payment default under oursenior credit facility, our lenders have the right, among others, toseize our assets.

At September 30, 2005, we had approximately$64.3 million of debt under our senior credit facility. The level ofour indebtedness will have several important effects on our futureoperations, including, without limitation:

17

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|  |              |                                                                                                                           |
|--|--------------|---------------------------------------------------------------------------------------------------------------------------|
|  | •  | wewill use a portion of cash flow from operations for the payment ofprincipal or interest due on outstandingindebtedness; |

|  |              |                                                                                                                                                                    |
|--|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | outstandingindebtedness and leverage will increase the impact of negative changesin general economic and industry conditions, as well as competitivepressures; and |

|  |              |                                                                                                                                                                                    |
|--|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | the levelof outstanding debt may affect our ability to obtain additionalfinancing for working capital, capital expenditures, additionalacquisitions or general corporate purposes. |

General economicconditions, industry cycle and financial, business and other factorsaffecting operations, many of which are beyond our control, may affectfuture performance. As a result, these and other factors may affect ourability to make principal and interest payments on indebtedness. Ourbusiness might not continue to generate cash flow at or above currentlevels. If we cannot generate sufficient cash flow from operations inthe future to service our debt, we may, among otherthings:

|  |              |                                                        |
|--|--------------|--------------------------------------------------------|
|  | •  | seek additionalfinancing in the debt or equitymarkets; |

|  |              |                                                              |
|--|--------------|--------------------------------------------------------------|
|  | •  | refinance orrestructure all or a portion of ourindebtedness; |

|  |              |                         |
|--|--------------|-------------------------|
|  | •  | sellselected assets; or |

|  |              |                                                              |
|--|--------------|--------------------------------------------------------------|
|  | •  | reduceor delay planned capital expenditures or acquisitions. |

Thesemeasures might not be sufficient to enable us to service our debt. Inaddition, any financing, refinancing or sale of assets might not beavailable on economically favorable terms or at all.

If we areunable to repay our indebtedness when it becomes due, our lenders willhave a number of remedies. Our senior credit facility is secured bysubstantially all of the assets of, and the shares in, our U.K.subsidiaries. If we fail to pay our debt under our senior creditfacility, which amounted to $64.3 million at September 30, 2005, thelenders thereunder could become the owner of, or force the sale of, ourbusinesses or subsidiaries.

Our compliance with restrictionsand covenants in our senior credit facility may limit our ability totake corporate actions and harm our business.

Our seniorcredit facility contains a number of covenants that significantlyrestrict our operations, our ability to issue additional debt and ourability to pay dividends. Under these agreements we are also requiredto comply with specific financial ratios and tests, including a fixedcharge coverage ratio, a test regarding debtor days (i.e., the numberof days sales are outstanding) and an interest coverage ratio. We maynot be able to comply in the future with these covenants orrestrictions as a result of events beyond our control, such asprevailing economic, financial and industry conditions. If we defaultin the performance of the covenants in our senior credit facility, ourlenders could, in addition to seizing the collateral securing ourobligations, declare all of the principal and interest outstanding dueand payable and terminate their commitments to extend credit to us inthe future. We may refinance these agreements or seek alternativecredit agreements. We cannot guarantee that we will be able to securenew credit agreements on favorable terms or at all. If we are unable tosecure credit on commercially reasonable terms in the future, ourbusiness could be harmed.

Our lenders have limited theright of our U.K. subsidiaries to pay dividends to ourcompany.

At September 30, 2005, we had approximately $64.3million of debt under our senior credit facility. Our subsidiaries payus a management fee, with which we pay the expenses of our corporateheadquarters and our executive officers. However, under the terms ofour senior credit facility, our U.K. subsidiaries generally may not paydividends. Therefore, we will not be able to use the cash flow orprofits, if any, of our U.K. subsidiaries to finance acquisitions,capital expenditures or other initiatives.

Our ability to useour net operating loss carryforward in the future islimited.

As of September 30, 2005, we had a U.S. federal netoperating loss carryforward of approximately $76.6 million, expiringbetween 2019 and 2023. Our current operations are in the 

18

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United Kingdom. Under U.S. federal tax law,we can only offset our federal net operating loss carryforward againstU.S. taxable income, including income earned from operations in theUnited States and certain other income, including dividends from ourU.K. subsidiaries. As of September 30, 2005, we had recorded a fullvaluation allowance against the deferred tax asset created by the U.S.federal net operating loss carryforward as we did not believe it wasmore likely than not that such losses would be utilized prior to theirexpiration. Our public offering in July 2004 of shares of our commonstock caused an ownership change under Section 382 of the InternalRevenue Code of 1986, as amended. Accordingly, Section 382limits our ability to use our net operating loss carryforward in thefuture. An inability to use a significant portion of our federal netoperating loss carryforward could have a material adverse effect on ourfinancial condition or results of operations.

We havesignificant contingent earn-out liabilities that may adversely affectour financial condition and results of operations.

Many ofour acquisitions contain contingent earn-out provisions that mayrequire us to make additional payments in the future. Under ourexisting earn-out arrangements, our maximum aggregate potentialcontingent obligation at September 30, 2005 was approximately $12.5million. Our existing earn-out obligations expire in fiscal 2007. Wemay enter into acquisition agreements in the future, the terms of whichmay include earn-out provisions.

These contingent obligationscould adversely affect our results of operations andliquidity.

We face greater costs in complying with theincreasing regulation of corporate governance and disclosurestandards.

We are spending an increased amount of managementtime and external resources to comply with changing laws, regulationsand standards relating to corporate governance and public disclosure,including the Sarbanes-Oxley Act of 2002, new SEC regulations andNasdaq Stock Market rules. In particular, Section 404 of theSarbanes-Oxley Act of 2002 requires management’s annual reviewand evaluation of our internal control systems, and attestations of theeffectiveness of these systems by both management and our independentauditors. This process for fiscal 2005 resulted in additionalaccounting and legal expenses. There can be no assurance that theseadditional expenses will not continue to impact our results ofoperations.

Risks Relating to Our Common Stock

Futuresales of our common stock by existing shareholders may lower the priceof our common stock.

As of November 22, 2005, we had44,855,772 shares of common stock outstanding.

In addition, as ofNovember 22, 2005, our officers, directors, employees and consultantsown options to acquire an aggregate of 2,610,334 shares of common stockunder our 1992 Stock Option Plan and our 2002 Stock Option Plan.Although we will not issue any more options under our 1992 Stock OptionPlan, we may issue additional options under our 2002 Stock Option Plan.The shares of common stock to be issued upon exercise of the optionsgranted under our 1992 Stock Option Plan and our 2002 Stock Option Planhave been registered and may be freely sold when issued. We have alsoissued warrants to purchase an aggregate of 350,000 shares of ourcommon stock to a third party. We have granted the holder of thesewarrants certain ‘‘piggyback’’ registrationrights with respect to the shares of our common stock issuable uponexercise of the warrants.

Pursuant to a registration statementthat was declared effective by the Securities and Exchange Commissionin August 2002, we have registered the resale of an aggregate of23,479,157 shares of our common stock.

Sales of substantialamounts of common stock into the public market could lower the marketprice of our common stock.

Because a small group ofshareholders may control our common stock, other investors may havelittle or no control over our company or our management.

Asof November 22, 2005, the four Hyperion funds that are shareholders inour company collectively own approximately 26.7% of ouroutstanding shares of common stock and Washington & 

19

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Congress Capital Partners, L.P. ownsapproximately 17.2% of our outstanding shares of common stock.As a result, these shareholders acting together may be able to exercisecontrol over all matters requiring shareholder approval, including theelection of directors and approval of significant corporatetransactions.

If provisions in our corporate documents andNew York law delay or prevent a change in control of our company, wemay be unable to consummate a transaction that our shareholdersconsider favorable.

Our certificate of incorporation andbylaws may discourage, delay or prevent a merger or acquisitioninvolving us that our shareholders may consider favorable. For example,our certificate of incorporation authorizes our board of directors toissue up to ten million shares of ‘‘blankcheck’’ preferred stock. Without shareholder approval,the board of directors has the authority to attach special rights,including voting and dividend rights, to these shares of preferredstock. With these rights, preferred shareholders could make it moredifficult for a third party to acquire us. New York law may alsodiscourage, delay or prevent someone from acquiring or merging withus.

Under the employment agreements we have entered into withTimothy M. Aitken, our chief executive officer, we are required to payMr. Aitken an amount equal to 2.9 times his salary if his employmentwith us is terminated for any reason within six months of a change incontrol of our company. Such change of control payment may have theeffect of preventing or delaying a change of control of our company,even if the change of control was favored by ourshareholders.

Our stock price may be volatile.

Inrecent years, the stock market has experienced significant price andvolume fluctuations that are often unrelated to the operatingperformance of specific companies. Our market price may fluctuate basedon a number of factors,including:

|  |              |                                                                         |
|--|--------------|-------------------------------------------------------------------------|
|  | •  | our operatingperformance and the performance of other similarcompanies; |

|  |              |                                                                   |
|--|--------------|-------------------------------------------------------------------|
|  | •  | newsannouncements relating to us, our industry or ourcompetitors; |

|  |              |                                                                      |
|--|--------------|----------------------------------------------------------------------|
|  | •  | changes inearnings estimates or recommendations by researchanalysts; |

|  |              |                                       |
|--|--------------|---------------------------------------|
|  | •  | changes ingeneral economicconditions; |

|  |              |                                              |
|--|--------------|----------------------------------------------|
|  | •  | the number ofshares that are publiclytraded; |

|  |              |                                        |
|--|--------------|----------------------------------------|
|  | •  | actions of ourcurrent shareholders;and |

|  |              |                                                                  |
|--|--------------|------------------------------------------------------------------|
|  | •  | other developmentsaffecting us, our industry or our competitors. |

|              |            |
|--------------|------------|
| Item2.  | Properties |

We lease 118 facilities in theUnited Kingdom, of which 35 are for a period of three months or less.We lease our corporate headquarters in the United States. We believethat our existing leases will be renegotiated as they expire or thatalternative properties can be leased on acceptable terms. We alsobelieve that our present facilities are well maintained and aresuitable for continuing our existing operations. (See‘‘Operating Leases’’ in Note 12 of Notes toConsolidated Financial Statements for our fiscal year ended September30, 2005.)

|               |                  |
|---------------|------------------|
| Item 3.  | LegalProceedings |

We are involved in various other legal proceedingsand claims incidental to our normal business activities. We arevigorously defending our position in all such proceedings. We believethat these matters should not have a material adverse impact on ourconsolidated financial position, cash flows, or results ofoperations.

|               |                                                     |
|---------------|-----------------------------------------------------|
| Item 4.  | Submission of Matters toa Vote of Security Holders. |

No matters were submitted to a voteof our security holders during the fourth quarter of our fiscal yearended September 30, 2005.

20

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PARTII

|               |                                                                                                                   |
|---------------|-------------------------------------------------------------------------------------------------------------------|
| Item 5.  | Market for Registrant’sCommon Equity, Related Stockholder Matters and Issuer Purchases ofEquity Securities. |

Since February 23, 2004, our common stock hastraded on the Nasdaq National Market under the symbol‘‘AHCI.’’ From April 30, 1999 untilFebruary 20, 2004, our common stock traded on the American StockExchange. The following table sets forth, for the periods indicated,the high and low sales price of our common stock, as reported by theNasdaq National Market or the American Stock Exchange, asappropriate:

|                                          |  |        |        |        |  |        |        |        |  |  |
|------------------------------------------|--|--------|--------|--------|--|--------|--------|--------|--|--|
| PERIOD                                   |  | HIGH   |        | LOW    |
| YearEnded September 30, 2004:            |  |   |   |   |  |   |   |   |
| FirstQuarter                             |  | $      | 6.46   |   |  | $      | 3.88   |   |
| SecondQuarter                            |  |   | 10.70  |   |  |   | 6.15   |   |
| ThirdQuarter                             |  |   | 9.88   |   |  |   | 4.41   |   |
| FourthQuarter                            |  |   | 5.90   |   |  |   | 4.19   |   |
| YearEnded September 30, 2005:            |  |   |   |   |  |   |   |   |
| FirstQuarter                             |  | $      | 5.97   |   |  | $      | 4.85   |   |
| SecondQuarter                            |  |   | 6.87   |   |  |   | 5.17   |   |
| ThirdQuarter                             |  |   | 7.27   |   |  |   | 5.64   |   |
| FourthQuarter                            |  |   | 7.50   |   |  |   | 4.90   |   |
| YearEnded September 30, 2006:            |  |   |   |   |  |   |   |   |
| First Quarter (throughNovember 22, 2005) |  | $      | 6.60   |   |  | $      | 5.60   |   |
|                                          |

Wehave neither declared nor paid any dividends on our common stock and donot anticipate paying dividends on our common stock in the foreseeablefuture. Any future payment of dividends will be at the discretion ofour board of directors and will depend upon, among other things, ourearnings, financial position, cash flows, capital requirements andother relevant considerations, including the extent of our indebtednessand any contractual restrictions with respect to the payment ofdividends.

Under the terms of our senior credit facility, ourU.K. subsidiaries generally are prohibited from paying dividends ormaking other cash distributions to us. See ‘‘Item7—Management’s Discussion and Analysis of FinancialCondition and Results of Operations—Liquidity and CapitalResources—Borrowings—General.’’

As ofNovember 22, 2005, there were approximately 180 shareholders of recordof our common stock. This number does not include shareholders who holdtheir shares through one or more intermediaries, such as banks, brokersor depositaries.

Equity Compensation Plan Information

Forcertain information concerning securities authorized for issuance underour equity compensation plans, see ‘‘Item12—Security Ownership of Certain Beneficial Owners andManagement and Related Stockholder Matters—Equity CompensationPlan Information.’’

Recent Repurchases of EquitySecurities

During the fourth quarter of fiscal 2005, we did notrepurchase any of our equity securities.

|              |                         |
|--------------|-------------------------|
| Item6.  | Selected Financial Data |

The followingtable sets forth our selected consolidated financial information. Thefinancial information for the years ended September 30, 2005, 2004 and2003 and as of September 30, 2005 and 2004 is derived from auditedfinancial statements that appear elsewhere in this Form 10-K. Thefinancial information for the years ended September 30, 2002 and 2001and as of September 30, 2003, 2002 and 2001 is derived from auditedfinancial statements that do not appear in this Form10-K.

21

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You should read the following informationin conjunction with our financial statements and notes thereto and theinformation set forth under ‘‘Item7—Management’s Discussion and Analysis of FinancialCondition and Results of Operations.’’

All data inthe following table is in thousands, except for per sharedata.

|                                                                   |  |                        |         |           |  |        |         |           |  |        |         |        |  |        |         |           |  |        |         |         |  |  |
|-------------------------------------------------------------------|--|------------------------|---------|-----------|--|--------|---------|-----------|--|--------|---------|--------|--|--------|---------|-----------|--|--------|---------|---------|--|--|
|                                                              |  | YearEnded September30, |
|                                                              |  | 2005                   |         | 2004      |  | 2003   |         | 2002      |  | 2001   |
| **FinancialData:**                                                |  |                   |    |      |  |   |    |      |  |   |    |   |  |   |    |      |  |   |    |    |
| Totalrevenues                                                     |  | $                      | 351,189 |      |  | $      | 325,298 |      |  | $      | 294,379 |   |  | $      | 242,828 |      |  | $      | 138,041 |    |
| Grossprofit                                                       |  |                   | 103,671 |      |  |   | 93,171  |      |  |   | 81,323  |   |  |   | 66,079  |      |  |   | 42,491  |    |
| Selling,general and administrativeexpenses                        |  |                   | 73,948  | (3)  |  |   | 63,544  |      |  |   | 53,648  |   |  |   | 48,847  | (5)  |  |   | 32,514  |    |
| Generaland administrative expense related to mail-orderoperations |  |                   | — |      |  |   | — |      |  |   | — |   |  |   | — |      |  |   | 3,883   |    |
| Lossesdue to sale ofsubsidiary                                    |  |                   | — |      |  |   | — |      |  |   | — |   |  |   | — |      |  |   | 354     |    |
| Operatingincome(loss)                                             |  |                   | 29,723  |      |  |   | 29,627  |      |  |   | 27,675  |   |  |   | 17,232  |      |  |   | 5,740   |    |
| Interestand other expense,net                                     |  |                   | 4,164   |      |  |   | 13,727  | (4)  |  |   | 11,279  |   |  |   | 13,472  | (6)  |  |   | 8,433   |    |
| Gainon settlement of PIKinterest                                  |  |                   | — |      |  |   | — |      |  |   | — |   |  |   | (5,143) | (7)  |  |   | — |    |
| Foreignexchangeloss                                               |  |                   | 98      |      |  |   | 184     |      |  |   | 18      |   |  |   | 19      |      |  |   | 400     |    |
| Provisionfor incometaxes(1)                                       |  |                   | 6,725   |      |  |   | 5,847   |      |  |   | 4,910   |   |  |   | 4,971   |      |  |   | 24,117  |    |
| Minorityinterest                                                  |  |                   | — |      |  |   | — |      |  |   | — |   |  |   | 120     |      |  |   | 22      |    |
| Income(loss) from continuingoperations                            |  |                   | 18,736  |      |  |   | 9,869   |      |  |   | 11,468  |   |  |   | 3,793   |      |  |   | (27,232 | )  |
| Incomefrom discontinuedoperations                                 |  |                   | — |      |  |   | — |      |  |   | 503     |   |  |   | 1,001   |      |  |   | 620     |    |
| Netincome(loss)                                                   |  |                   | 18,736  |      |  |   | 9,869   |      |  |   | 11,971  |   |  |   | 4,794   |      |  |   | (26,612 | )  |
| Redeemablepreferred dividend, conversion fees andaccretion(2)     |  |                   | — |      |  |   | 7,020   |      |  |   | 4,005   |   |  |   | 1,016   |      |  |   | — |    |
| Netincome (loss) available to common stockholders            |  | $                      | 18,736  |      |  | $      | 2,849   |      |  | $      | 7,966   |   |  | $      | 3,778   |      |  | $      | (26,612 | )  |
| Basicincome (loss) per share of common stockfrom:                 |  |                   |    |      |  |   |    |      |  |   |    |   |  |   |    |      |  |   |    |    |
| Continuingoperations                                              |  | $                      | 0.42    |      |  | $      | 0.10    |      |  | $      | 0.34    |   |  | $      | 0.15    |      |  | $      | (1.57   | )  |
| Discontinuedoperations                                            |  |                   | — |      |  |   | — |      |  |   | 0.02    |   |  |   | 0.05    |      |  |   | 0.04    |    |
|                                                              |  | $                      | 0.42    |      |  | $      | 0.10    |      |  | $      | 0.36    |   |  | $      | 0.20    |      |  | $      | (1.53   | )  |
| Dilutedincome (loss) per share of common stockfrom:               |  |                   |    |      |  |   |    |      |  |   |    |   |  |   |    |      |  |   |    |    |
| Continuingoperations                                              |  | $                      | 0.41    |      |  | $      | 0.10    |      |  | $      | 0.34    |   |  | $      | 0.15    |      |  | $      | (1.57   | )  |
| Discontinuedoperations                                            |  |                   | — |      |  |   | — |      |  |   | 0.02    |   |  |   | 0.05    |      |  |   | 0.04    |    |
|                                                              |  | $                      | 0.41    |      |  | $      | 0.10    |      |  | $      | 0.36    |   |  | $      | 0.20    |      |  | $      | (1.53   | )  |
| Weightedaverage number of common sharesoutstanding:               |  |                   |    |      |  |   |    |      |  |   |    |   |  |   |    |      |  |   |    |    |
| Basic                                                             |  |                   | 44,684  |      |  |   | 27,419  |      |  |   | 21,962  |   |  |   | 18,565  |      |  |   | 17,408  |    |
| Diluted                                                           |  |                   | 45,169  |      |  |   | 28,104  |      |  |   | 22,304  |   |  |   | 18,932  |      |  |   | 17,408  |    |
|                                                                   |

|                                |  |              |         |        |  |        |         |        |  |        |         |        |  |        |         |        |  |        |         |        |  |  |
|--------------------------------|--|--------------|---------|--------|--|--------|---------|--------|--|--------|---------|--------|--|--------|---------|--------|--|--------|---------|--------|--|--|
|                           |  | September30, |
|                           |  | 2005         |         | 2004   |  | 2003   |         | 2002   |  | 2001   |
| **BalanceSheet Data:**         |  |         |    |   |  |   |    |   |  |   |    |   |  |   |    |   |  |   |    |   |
| Workingcapital            |  | $            | 11,369  |   |  | $      | 13,468  |   |  | $      | 24,781  |   |  | $      | 25,918  |   |  | $      | 25,178  |   |
| Accountsreceivable,net         |  |         | 33,443  |   |  |   | 31,263  |   |  |   | 35,745  |   |  |   | 32,113  |   |  |   | 27,888  |   |
| Goodwill                       |  |         | 216,984 |   |  |   | 206,110 |   |  |   | 183,703 |   |  |   | 123,514 |   |  |   | 105,542 |   |
| Totalassets                    |  |         | 303,439 |   |  |   | 282,394 |   |  |   | 311,668 |   |  |   | 268,113 |   |  |   | 248,073 |   |
| Totaldebt                      |  |         | 64,342  |   |  |   | 64,778  |   |  |   | 165,378 |   |  |   | 148,530 |   |  |   | 180,781 |   |
| Totalshareholders’equity |  |         | 201,859 |   |  |   | 186,977 |   |  |   | 75,163  |   |  |   | 53,943  |   |  |   | 36,354  |   |
|                                |

22

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|  |
|--|
|  |  |
|  |

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | Priorto 2001, we had been committed to implementing tax strategies thatprovided for the sale of appreciated assets, including a portion of ourownership interest in our U.K. subsidiaries, to generate sufficienttaxable income to realize our U.S tax net operating losses prior totheir expiration. While we believed that we would realize the value ofour tax losses, developments in 2001, including the continued expansionof our U.K. operations, had increased the uncertainty as to both theexecution of the original strategy and the appropriateness of a taxstrategy that may not align with our current business strategy. Theseuncertainties impaired our ability to determine whether it was morelikely than not that our deferred tax assets would be realized.Accordingly, in fiscal 2001, a full valuation allowance for allremaining U.S. deferred tax assets wasprovided. |

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Reflects the accrualof dividends on our Series A preferred stock and accretion costsrelated to the issuance of our Series A preferred stock in our fiscal2002 corporate reorganization. In addition, fiscal 2004 includesconversion fees of $2.0 million paid to the holders of our Series Apreferred stock in connection with the firm commitment follow-on publicoffering of 14,500,000 shares of our common stock and write-off of $1.7million of the remaining issuancecosts. |

|     |                                                                                                                                                                            |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (3) | Includes a $1.1 millioncharge related to the reorganization of our U.K. subsidiaries, as wellas $1.0 million of costs associated with the launch of our newcorporate logo. |

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (4) | For the yearended September 30, 2004, we recorded a charge of $4.2 million relatedto the write-off of deferred financing fees and unamortized debtdiscount associated with a recapitalization plan, undertaken inconnection with fiscal 2004 public offering of 14,500,000 shares of ourcommon stock, pursuant to which we (i) refinanced our seniorcollateralized term and revolving credit facility (the‘‘Former Senior Credit Facility’’) andmezzanine indebtedness (the ‘‘MezzanineLoan’’), both of which had been entered into in December1999, and (ii) converted all of our then outstanding shares of Series Apreferred stock into shares of our commonstock. |

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (5) | For the year endedSeptember 30, 2002, we recorded a non-cash charge of $4.2 million forthe issuance of shares of common stock to senior management and $1.6million related to the exchange of employees’ redeemable sharesin our U.K subsidiary for shares of our common stock, using the netexercise method, in our fiscal 2002 corporate reorganization. We alsorecorded a net charge of $0.7 million for the year ended September 30,2002, which mainly related to the write-off of non-capitalized costsincurred in connection with evaluating options to maximize the value ofour ownership interest in our U.K.operations. |

|     |                                                                                                                                                                                                                                                                                                                            |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (6) | Effective October 1,2001, we adopted Statement of Financial Accounting Standards No. 145,which addressed gain or loss on the extinguishment of debt andsale-leaseback accounting for certain lease modifications andaccordingly recorded a charge of $0.9 million in interest expense forthe year ended September 30,2002. |

|     |                                                                                                                                                                                                                                                                                                                    |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (7) | In the fiscal 2002corporate reorganization, accrued and unpaid interest owed to theholders of notes issued by one of our U.K. subsidiaries was satisfiedby the issuance of shares of our common stock. We recorded a gain of$5.1 million for the year ended September 30, 2002 in connection withthis transaction. |

|              |                                                                                            |
|--------------|--------------------------------------------------------------------------------------------|
| Item7.  | Management’s Discussion and Analysis ofFinancial Condition and Results ofOperations. |

General

The following discussion andanalysis should be read in conjunction with the consolidated financialstatements included in this Annual Report on Form 10-K and inconjunction with the description of our business included in thisAnnual Report on Form 10-K. It is intended to assist the reader inunderstanding and evaluating our financial position. This discussioncontains, in addition to historical information, forward-lookingstatements that involve risks and uncertainty. Our actual 

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results could differ materially from theresults discussed in the forward-looking statements. Factors that couldcause or contribute to such differences include those discussed in thisAnnual Report on Form 10-K under ‘‘Forward-LookingStatements.’’

We are a leading provider offlexible, or temporary, healthcare staffing to the U.K. healthcareindustry as measured by revenues, market share and number of staff. Asof September 30, 2005 we operated an integrated network ofapproximately 115 branches throughout most of the United Kingdom. Ourhealthcare staff consists principally of nurses, nurses aides and homehealth aides. We focus on placing our staff on a per diem basis inhospitals, nursing homes, care homes and private homes. We maintain apool of over 22,000 nurses, nurses aides and home health aides. We alsosupply medical-grade oxygen for use in respiratory therapy to the U.K.pharmacy market and Northern Ireland and oxygen concentrators tocustomers in Northern Ireland.

We have engaged in an ongoingseries of activities to strengthen our organizational structure andreposition us for future growth. These actions have included areorganization in branch structure, adopting and implementing a newcorporate identity and investing in a new IT system. We continuallyreview our operations in order to improve operating efficiencies and tobe responsive to changing market conditions.

The introduction andfurther extension of the NHS Framework Agreements has continued toimpact our financial results by reducing our margins from that sourceof business. In addition, we have experienced reduced revenues from theNHS as a result of the NHS Framework Agreements, as well as the effortsof the NHS to source more of its work from its own employee base andits in-house agency (NHS Professionals).

Critical AccountingPolicies

The preparation of our financial statements inaccordance with accounting principles generally accepted in the UnitesStates of America requires us to make estimates and judgments thataffect the reported amounts of assets, liabilities, revenues, expensesand related disclosures in a given reporting period. We believe thefollowing accounting policies are critical areas affecting ourfinancial condition and results of operations where estimates arerequired.

Accounts Receivable

We are required toestimate the collectibility of our accounts receivables, which requiresa considerable amount of judgment in assessing the ultimate realizationof these receivables, including the current credit-worthiness of eachcustomer. Significant changes in required reserves may occur in thefuture as we continue to expand our business and as conditions in themarketplace change.

Intangible Assets

We havesignificant amounts of goodwill and other intangible assets. Thedetermination of whether or not goodwill has become impaired involves asignificant amount of judgment. Changes in strategy and/or marketconditions could significantly impact these judgments and requireadjustments to recorded amounts of goodwill. We have recorded goodwilland separately identifiable intangible assets resulting from ouracquisitions through September 30, 2005. Goodwill is tested forimpairment annually in the fourth quarter of each fiscal year. A morefrequent evaluation will be performed if indicators of impairment arepresent. We completed the annual impairment test of goodwill during thefourth quarter of fiscal 2005 and determined that there was noimpairment to our goodwill balance. The calculation of fair value usedfor an impairment test includes a number of estimates and assumptions,including future income and cash flow projections, the identificationof appropriate market multiples and the choice of an appropriatediscount rate. If we are required to record an impairment charge in thefuture, it could have an adverse impact on our consolidated financialposition or results of operations.

Deferred IncomeTaxes

We account for deferred income taxes based upondifferences between the financial reporting and income tax bases of ourassets and liabilities. Valuation allowances are established, whennecessary, to 

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reduce deferred tax assets to the amountsexpected to be realized. The determination of whether or not valuationallowances are required to be recorded involves significant estimatesregarding the future profitability of our company, as well as potentialtax strategies for the utilization of net loss and operating losscarryforwards.

Contingencies

Related to ouracquisitions of certain flexible staffing agencies, we have enteredinto agreements to pay additional amounts, in cash, in the form ofcontingent consideration dependent upon future earnings of suchacquired entities.

Also, we are involved in various legalproceedings and claims incidental to our normal business activities. Weare required to assess the likelihood of any adverse judgments oroutcomes to these matters as well as potential ranges of probablelosses. A determination of the amount of reserves required, if any, forthese contingencies are made after careful analysis of each individualissue. The required reserves may change in the future due to newdevelopments in each matter or changes in approach such as a change insettlement strategy in dealing with these matters.

RevenueRecognition

Patient services and respiratory therapyrevenues are recognized when services are performed and substantiatedby proper documentation. For patient services, which are billed atfixed rates and account for approximately 97% of ourcompany’s business, revenue is recognized upon completion oftimesheets that also require the signature of the recipient ofservices. Revenues from the rental of home medical equipment arerecognized over the rental period (typically on a month-to-monthbasis). Revenues from the sale of oxygen and supplies for use inrespiratory therapy are recognized when products are shipped, acontractual arrangement exists, the sales price is either fixed ordeterminable and collection is reasonably assured.

We receive amajority of our revenue from the NHS and other U.K. governmentalpayors. Certain revenues are subject to review by third-party payorsand adjustments, if any, are recorded whendetermined.

Purchase Accounting

We account for ouracquisitions as purchase business combinations. At acquisition,preliminary values and useful lives are allocated based upon fairvalues that have been determined for assets acquired and liabilitiesassumed and management’s best estimates for values that have notyet been finalized. We obtain a third-party valuation in order tocomplete our purchase price allocations. Accordingly, final asset andliability fair values as well as useful lives may differ frommanagement’s original estimates and could have an adverse impacton our consolidated financial position or results ofoperations.

Results of Operations

Year EndedSeptember 30, 2005 vs. Year Ended September 30,2004

Revenues

Total revenues for theyear ended September 30, 2005 were $351.2 million compared to $325.3million for the year ended September 30, 2004, an increase of $25.9million or 8.0%. This increase was mainly due to acquisitions inthe social services sector ($22.7 million) and the favorable effects ofchanges in foreign exchange ($10.9) million. This increase was offsetby less demand and price pressures arising from the extension of theNHS Framework Agreements.

GrossProfit

Total gross profit increased by $10.5 million to$103.7 million for the year ended September 30, 2005 from $93.2 millionfor the year ended September 30, 2004, an increase of 11.3%. Thefavorable 

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effects of changes in foreign exchangeaccounted for $3.2 million of the increase. As a percentage of totalrevenue, gross profit for the year ended September 30, 2005 increasedto 29.5% from 28.6% for the comparable prior period.Gross margins for patient services increased (28.9% for the yearended September 30, 2005 versus 28.2% for the comparable priorperiod), mainly due to management’s focus on supplyinghealthcare staff to our higher margin customers and acquisitions beingfocused on higher margin businesses, which offset the impact of lowermargins of our NHS business. Gross margins in respiratory, medicalequipment and supplies sales increased (54.0% for the year endedSeptember 30, 2005 versus 45.5% for the comparable priorperiod), mainly due to an increased focus on sales of portable oxygentherapy equipment and a steady increase in the number of patients inNorthern Ireland, while keeping costs static.

Selling,General and Administrative Expenses

Total selling, generaland administrative expenses increased by $10.4 million to $73.9 millionfor the year ended September 30, 2005 from $63.5 million for the yearended September 30, 2004, an increase of 16.4%. Changes inforeign exchange accounted for $2.2 million of this increase andacquisitions a further $2.9 million. The remaining increase was mainlya result of exceptional reorganization costs, including the launch ofour new corporate logo ($2.1 million), increased Sarbanes-Oxleyexpenses of $1.6 million (a significant proportion of which arefirst-year set-up costs), increased IT depreciation and maintenancecosts arising from the implementation of new systems ($1.2 million) and$0.4 million of costs relating to closure of branches during the year.During fiscal 2004 we had exceptional compensation charges of $1.9million.

Interest Income

Total interestincome for the year ended September 30, 2005 was $0.2 million comparedto $0.9 million for the year ended September 30, 2004, which representsa decrease of $0.7 million. The decrease was attributable to a lowerlevel of funds invested.

Interest Expense

Total interest expense for the year ended September 30, 2005 was$4.2 million compared to $14.6 million for the year ended September 30,2004, which represents a decrease of $10.4 million. This decrease wasprincipally attributable to reduced bank debt in fiscal 2005 and to thewrite-off of $4.2 million of deferred financing fees and unamortizeddebt discount associated with the refinancing of the Former SeniorCredit Facility in fiscal 2004. This decrease was partially offset bythe recording of a $0.5 million benefit related to the change in thefair value of our company’s interest rate cap and floor collaragreement in fiscal 2004 and changes in foreign exchange of$0.2.

Other Expense

Total other expense forthe year ended September 30, 2005 was $0.2 million, which representsthe expense related to the change in the fair value of our interestswap agreements and related ineffective portion of the interest swapcash flow hedges.

Provision for IncomeTaxes

We recorded a provision for income taxes amounting to$6.7 million or 26.4% of income before income taxes for the yearended September 30, 2005, compared to a provision of $5.8 million or37.2% of income before income taxes for the year ended September30, 2004. The difference in the effective tax rate between the yearended September 30, 2005 and the year ended September 30, 2004 ismainly due to the U.S. pre-tax losses recorded in fiscal 2004 for whichno benefit was provided and permanent differences in the U.K. Ourcompany does not provide a tax benefit for U.S. pre-tax losses as it ismore likely than not that we will not utilize our net operating lossesin the U.S.

Net Income

As a result of theforegoing, we recorded net income of $18.7 million for the year endedSeptember 30, 2005 compared to net income of $9.9 million for the yearended September 30, 2004.

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Series A PreferredStock

For the year ended September 30, 2004, we accrued $2.9million of dividends for the Series A preferred stock issued inconnection with our fiscal 2002 corporate reorganization and accreted $0.4 million of costs related to the issuance of our Series A preferredstock. In July 2004, all of the Series A preferred stock was convertedinto a like number of shares of common stock. In connection with theconversion, we paid conversion fees of $2.0 million to the holders ofthe Series A preferred stock and wrote off $1.7 million of theremaining issuance costs.

Year Ended September 30, 2004vs. Year Ended September 30,2003

Revenues

Total revenues for theyear ended September 30, 2004 were $325.3 million compared to $294.4million for the year ended September 30, 2003, an increase of $30.9million or 10.5%. This increase was mainly due to the favorableeffects of changes in foreign exchange ($34.7 million), acquisitions inthe social services sector ($6.3 million) and internal growth in thesocial service sector and in our respiratory, medical equipment andsupplies operations. This increase was offset by a decrease in revenuesdue to changes to NHS quality standards, causing fewer of our workersto be available for placement with the NHS while the necessary trainingcertificates, immunizations and criminal record checks required bythese standards were obtained, and the expansion of the NHSProfessionals to encompass more healthcare workers. There can be noassurance that the continued expansion of the NHS Professionals may notadversely affect our revenues in future periods.

GrossProfit

Total gross profit increased by $11.9 million to$93.2 million for the year ended September 30, 2004 from $81.3 millionfor the year ended September 30, 2003, an increase of 14.6%. Thefavorable effects of changes in foreign exchange accounted for $9.9million of the increase. As a percentage of total revenue, gross profitfor the year ended September 30, 2004 increased to 28.6% from27.6% for the comparable prior period. Gross margins for patientservices increased (28.2% for the year ended September 30, 2004versus 27.3% for the comparable prior period) mainly due tomanagement’s focus on supplying healthcare staff to our highermargin customers. Gross margins in respiratory, medical equipment andsupplies sales increased (45.5% for the year ended September 30,2004 versus 43.4% for the comparable prior period) mainly due toan increased focus on sales of portable oxygen therapy equipment and asteady increase in the number of patients in Northern Ireland, whilekeeping costs static.

Selling, General andAdministrative Expenses

Total selling, general andadministrative expenses increased by $9.9 million to $63.5 million forthe year ended September 30, 2004 from $53.6 million for the year endedSeptember 30, 2003, an increase of 18.4%. Changes in foreignexchange accounted for $6.2 million of this increase. The remainingincrease was mainly a result of higher levels of overhead costs dueprincipally to increased expenditures on quality assurance auditprograms to ensure compliance with changes to legislation ($1.1million), acquisitions ($0.6 million), compensation charges for keyexecutives to complete the reimbursement of tax liabilities and toresolve other consequences incurred by them in connection with ourfiscal 2002 corporate reorganization as well as a special compensationcharge ($1.9 million) and fees associated with migrating the trading ofour shares of common stock from the American Stock Exchange to theNasdaq National Market ($0.1 million). We do not anticipate incurringfurther compensation expense related to our fiscal 2002 corporatereorganization.

Interest Income

Totalinterest income for the year ended September 30, 2004 was $0.9 millioncompared to $2.0 million for the year ended September 30, 2003, whichrepresents a decrease of $1.1 million. The decrease was attributable toa lower level of funds invested and was partially offset by favorableeffects of changes in foreign exchange ($0.1million).

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InterestExpense

Total interest expense for the year ended September30, 2004 was $14.6 million compared to $13.3 million for the year endedSeptember 30, 2003, which represents an increase of $1.3 million. Thisincrease was principally attributable to the write-off of $4.2 millionof deferred financing fees and unamortized debt discount associatedwith the refinancing of the Former Senior Credit Facility and $1.6million related to changes in foreign exchange. This increase waspartially offset by reduced bank debt in the fiscal year endedSeptember 30, 2004, the recording of a $0.5 million benefit related tothe change in the fair value of our company’s interest rate capand floor collar agreement in the fiscal year ended September 30, 2004as compared to a $0.2 million benefit recorded in the fiscal year endedwSeptember 30, 2003, and the write-off of debt discount of $0.6 millionassociated with the repayment of loan notes in the year ended September30, 2003.

Provision for Income Taxes

Werecorded a provision for income taxes amounting to $5.8 million or37.2% of income before income taxes for the year ended September30, 2004, compared to a provision of $4.9 million or 30.0% ofincome before income taxes and discontinued operations for the yearended September 30, 2003. Included in the tax provision for the yearended September 30, 2003 is a benefit related to the reversal of anestimated income tax liability ($1.9 million) for a business that waspreviously discontinued and no longer has any tax liabilities.Excluding this benefit, the provision for income taxes would have been$6.8 million or 41.4% of income before income taxes anddiscontinued operations for the year ended September 30, 2003. Thedifference in the effective tax rate from the year ended September 30,2003 to the year ended September 30, 2004 is mainly due to the ratio ofU.S. pre-tax losses to consolidated pre-tax income as our company doesnot provide a tax benefit for U.S. pre-tax losses as it is more likelythan not that we will not utilize our net operating losses in the U.S.and permanent differences in the U.K.

DiscontinuedOperations and Gain on Sale of Subsidiaries

Discontinuedoperations resulted in income of $0.5 million for the year endedSeptember 30, 2003. In April 2003, we sold all of the issued andoutstanding capital stock of two of our subsidiaries for approximately$8.5 million in cash. Home Healthcare, which comprised our U.S.operations, was concentrated in New York and New Jersey, and suppliedinfusion therapy, respiratory therapy and home medical equipment. Inaccordance with the provisions of Statement of Financial AccountingStandards No. 144, ‘‘Accounting for the Impairment orDisposal of Long-Lived Assets,’’ our company hasaccounted for Home Healthcare as a discontinued operation.

Thefollowing table presents the financial results of the discontinuedoperations during our fiscal year ended September 30, 2003 (dollars inthousands, other than per sharedata):

|                                                     |  |        |        |         |  |  |
|-----------------------------------------------------|--|--------|--------|---------|--|--|
| Revenues:                                           |  |   |   |    |
| Netinfusion services                                |  | $      | 6,685  |    |
| Net respiratory,medical equipment and supplies      |  |   | 2,479  |    |
| Totalrevenues                                       |  |   | 9,164  |    |
| Costof revenues:                                    |  |   |   |    |
| Infusion services                                   |  |   | 5,159  |    |
| Respiratory, medical equipment andsupplies          |  |   | 1,438  |    |
| Totalcost ofrevenues                                |  |   | 6,597  |    |
| Selling,general and administrativeexpenses          |  |   | 2,583  |    |
| Gain on sale ofsubsidiaries                         |  |   | (1,294 | )  |
| Tax on gain on sale ofsubsidiaries                  |  |   | 775    |    |
| Incomefrom discontinuedoperations                   |  | $      | 503    |    |
| Dilutedincome per share from discontinuedoperations |  | $      | 0.02   |    |
|                                                     |

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Net Income

As aresult of the foregoing, we recorded net income of $9.9 million for theyear ended September 30, 2004 compared to net income of $12.0 millionfor the year ended September 30, 2003.

Series APreferred Stock

For the year ended September 30, 2004, weaccrued $2.9 million of dividends for the Series A preferred stockissued in connection with our fiscal 2002 corporate reorganization andaccreted $0.4 million of costs related to the issuance of our Series Apreferred stock. As further discussed below ‘‘Liquidityand Capital Resources—Borrowings—Series A PreferredStock’’ below, in July 2004, all of the Series Apreferred stock was converted into a like number of shares of commonstock. In connection with the conversion, we paid conversion fees of$2.0 million to the holders of the Series A preferred stock and wroteoff $1.7 million of the remaining issuance costs. For the year endedSeptember 30, 2003, we accrued $3.5 million of dividends for the SeriesA preferred stock issued in connection with our fiscal 2002 corporatereorganization and accreted $0.5 million of costs related to theissuance of our Series A preferred stock.

Liquidity and CapitalResources

General

For our fiscal year endedSeptember 30, 2005, we generated $21.5 million from operatingactivities. Cash requirements for our fiscal year ended September 30,2005 for capital expenditures ($9.7 million), payments for acquisitionsand acquisitions payable ($19.3 million**)**, principal payments onthe long-term debt portion of our Senior Credit Facility ($11.1million)and payments on notes payable ($1.9 million) were met through operatingcash flows, restricted cash, net borrowings under the revolving loanportion of the Senior Credit Facility ($13.9 million) and cash onhand.

We believe our existing capital resources and thosegenerated from operating activities and available under existingborrowing arrangements will be adequate to conduct our operations forthe next twelve months.

Accounts Receivable

Wemaintain a cash management program that focuses on the reimbursementfunction, as growth in accounts receivable has been the main operatinguse of cash historically. At September 30, 2005 and September 30, 2004,$33.4 million (11.0%) and $31.3 million (11.1%),respectively, of our total assets consisted of accounts receivable. Theincrease in accounts receivable from 2004 to 2005 is mainly due to thetiming of cash collections.

Our goal is to maintain accountsreceivable levels equal to or less than industry average, which wouldtend to mitigate the risk of negative cash flows from operations byreducing the required investment in accounts receivable and therebyincreasing cash flows from operations. We maintain credit controls toensure cash collection on a timely basis. Days sales outstanding(‘‘DSOs’’) is a measure of the averagenumber of days we take to collect our accounts receivable, calculatedfrom the date services are rendered. At September 30, 2005 andSeptember 30, 2004, our average DSOs were 36 and 33, respectively.

Borrowings

General

In July2004, our U.K. subsidiary, Allied Healthcare Holdings Limited(‘‘Allied Holdings’’), obtained financingdenominated in pounds sterling consisting of a £50 millionmulticurrency senior credit facility (the ‘‘Senior CreditFacility’’). Additionally, subject to the terms of theSenior Credit Facility, ancillary facilities, in the form of anadditional facility or financial accommodation (including interest rateswap, cap, or other arrangement for the hedging or fixing of interest)are available up to a maximum of £15 million.

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The Senior Credit Facility (together withapproximately $65.7 million of the net proceeds of the firm commitmentfollow-on public offering of 14,500,000 shares of our common stock thatwas consummated in July 2004) refinanced our Former Senior CreditFacility and the Mezzanine Loan, both of which had been entered into inDecember 1999. The Senior Credit Facility is secured by a firstpriority lien on the assets of another of our subsidiaries, AlliedHealthcare Group Holdings Limited (formerly known as Allied HealthcareGroup Limited), and certain of its subsidiaries, as well as ourguarantee of the debt and other obligations of certain wholly-ownedU.K. subsidiaries under the Senior Credit Facility.

The SeniorCredit Facility consists of thefollowing:

|  |                  |                                                                      |
|--|------------------|----------------------------------------------------------------------|
|  | **•**  | a£30 ($52.9) million term loan A that matures in July 2009;and |

|  |                  |                                                                       |
|--|------------------|-----------------------------------------------------------------------|
|  | **•**  | a £20($35.2) million revolving loan B that matures in July2009. |

Repayment of the term loan A commenced in January 2005 andcontinues semi-annually until final maturity. Repayment of revolvingloan B shall be on the last day of its interest period. Both the A andB loans bear interest at rates equal to LIBOR (if sterling) or EURIBOR(if euros) plus any bank mandatory costs (if applicable) plus0.70% to 0.90% per annum (depending on consolidated debtto consolidated profit ratios). As of September 30, 2005, we haveoutstanding borrowings of $42.3 million and $22.0 million relating toterm loan A and revolving loan B, respectively, under the Senior CreditFacility, that bore interest at rates ranging from 5.37% to5.36% per annum.

The Senior Credit Facility agreement isbased on the U.K.’s Loan Markets Association Multicurrency Termand Revolving Facilities agreement, which is a standard form designedto be commercially acceptable to the corporate lendingmarket.

Subject to certain exceptions, the Senior Credit Facilityprohibits or restricts the following, among otherthings:

|  |                  |                                                                                                |
|--|------------------|------------------------------------------------------------------------------------------------|
|  | **•**  | incurringliens and granting security interests in the assets of certain of ourU.Ksubsidiaries; |

|  |                  |                                  |
|--|------------------|----------------------------------|
|  | **•**  | incurringadditionalindebtedness; |

|  |                  |                                             |
|--|------------------|---------------------------------------------|
|  | **•**  | makingcertain fundamental corporatechanges; |

|  |                  |                                                                                         |
|--|------------------|-----------------------------------------------------------------------------------------|
|  | **•**  | payingdividends (including the payment of dividends to our company by oursubsidiaries); |

|  |                  |                                                            |
|--|------------------|------------------------------------------------------------|
|  | **•**  | makingspecified investments, acquisitions or disposals;and |

|  |                  |                                                    |
|--|------------------|----------------------------------------------------|
|  | **•**  | entering intocertain transactions with affiliates. |

The Senior Credit Facilitycontains affirmative and negative financial covenants customarily foundin agreements of this kind, including the maintenance of certainfinancial ratios, such as debt to earnings (including amounts providedfor depreciation and amortization), earnings (before interest andtaxes) to interest expense, minimum net worth, maximum ancillaryfacilities indebtedness and the prohibition of off balance sheetfunding. We are also obligated to ensure that the guarantors of theSenior Credit Facility must not at any time represent less than90% of the consolidated gross assets, turnover or earningsbefore interest and taxes of the U.K. subsidiaries. As of September 30,2005, we were in compliance with such covenants.

NotesDue in Connection with Acquisitions

We repaid, throughAllied Holdings, notes payable of $1.9 million, $38.7 million and $19.4million issued in connection with the acquisition of certain U.K.flexible staffing agencies in our 2005, 2004 and 2003 fiscal years,respectively. The notes payable were secured by the lender under ourFormer Senior Credit Facility, who required us to keep an amount ondeposit for the sole purpose of repaying the notes payable. As such,the cash related to the payment of the remaining notes payable of $1.8million at September 30, 2004, which bore interest at a rate of5.25%, was classified as current in the accompanyingConsolidated Balance Sheets.

Guarantees

TheSenior Credit Facility is secured by a first priority lien on theassets of Allied Healthcare Group Holdings Limited and certain of itssubsidiaries. Together with Allied Healthcare Group 

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Holdings Limited and certain of itssubsidiaries, our company is guaranteeing the debt and otherobligations of certain wholly-owned U.K. subsidiaries under the SeniorCredit Facility. At September 30, 2005 and September 30 2004, theamounts guaranteed, which approximate the amounts outstanding, totaled$64.3 million and $63.0 million,respectively.

Financial Instrument

See‘‘Item 7A—Quantitative and Qualitative DisclosuresAbout Market Risk—Interest RateRisk.’’

Commitments

AcquisitionAgreements

Related to our acquisitions of certain flexiblestaffing agencies, we have entered into agreements to pay additionalamounts, payable in cash, of up to $12.5 million as of September 30,2005, in contingent consideration dependent upon future earnings ofsuch acquired entities.

EmploymentAgreements

See ‘‘Item 11—ExecutiveCompensation—Employment Agreements; Termination of Employmentand Change-in-ControlArrangements.’’

OperatingLeases

We have entered into various operating leaseagreements for office space and equipment. Certain of these leasesprovide for renewal options.

Contractual CashObligations

As described under‘‘Borrowings,’’‘‘Commitments—AcquisitionAgreements,’’ and‘‘Commitments—Operating Leases’’above, the following table summarizes our contractual cash obligationsas of September 30, 2005 (dollars inthousands):

|            |
|------------|
|            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Fiscal     |  | TotalDebtObligations(1) |  | TotalLeaseObligations |  | TotalOtherObligations |  | TotalObligations |
| 2006       |  | $ | 10,577 |   |  | $ | 2,326 |   |  | $ | 13,812 |   |  | $ | 26,715 |   |
| 2007       |  |   | 10,577 |   |  |   | 1,755 |   |  |   | 2,451 |   |  |   | 14,783 |   |
| 2008       |  |   | 10,577 |   |  |   | 1,244 |   |  |   | — |   |  |   | 11,821 |   |
| 2009       |  |   | 32,611 |   |  |   | 1,047 |   |  |   | — |   |  |   | 33,658 |   |
| 2010       |  |   | — |   |  |   | 823 |   |  |   | — |   |  |   | 823 |   |
| Thereafter |  |   | — |   |  |   | 1,340 |   |  |   | — |   |  |   | 1,340 |   |
|       |  | $ | 64,342 |   |  | $ | 8,535 |   |  | $ | 16,263 |   |  | $ | 89,140 |   |
|            |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                                          |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | Theseamounts do not include interest payments. Based on current levels ofdebt, we expect to incur annual interest payments of approximately $3.7million. |

Lease obligations reflect future minimum rentalcommitments required under operating leases that have non-cancelablelease terms as of September 30, 2005. Other obligations reflectcontingent consideration related to our acquisitions of certainflexible staffing agencies and third-party fees for the implementationof financialsoftware.

Miscellaneous

TreasuryShares

In January 2001, we initiated a stock repurchaseprogram, whereby we may purchase up to approximately $1.0 million ofour outstanding shares of common stock in open-market transactions orin privately-negotiated transactions. In May 2003, we initiated asecond stock repurchase program, 

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pursuant to which we may purchase up to anadditional $3.0 million of our outstanding shares of common stock inopen-market transactions or in privately-negotiated transactions. As ofSeptember 30, 2005, we had acquired 407,700 shares of our common stockfor an aggregate purchase price of $1.3 million pursuant to our stockrepurchase programs, which are reflected as treasury stock in ourconsolidated balance sheet at September 30, 2005.

On December2003, two of our executive officers repaid in full the principal andaccrued interest on the promissory notes issued by them to our companyin connection with our corporate reorganization fiscal 2002. The loanswere repaid by delivery to our company of an aggregate of 177,055shares of our company’s common stock. The shares delivered byMr. Aitken and Ms. Eames are held by our company and are reflected astreasury stock in our consolidated balance sheet at September 30,2005.

Acquisitions

In fiscal 2005, weacquired a total of 9 flexible staffing agencies for approximately$17.1 million in cash and $0.1 million in an acquisition payable. As ofSeptember 30, 2005, these transactions included provisions to payadditional amounts, payable in cash, of up to $9.7 million incontingent consideration dependent upon future earnings of the acquiredentities.

In fiscal 2004, we acquired a total of 8 flexiblestaffing agencies for approximately $8.6 million in cash. At September30, 2004, these transactions included provisions to pay additionalamounts, payable in cash, of up to $10.5 million in contingentconsideration dependent upon future earnings of the acquired entities.In fiscal 2005 a total of $6.1 million was earned, of which $1.6million remains payable as of September 30, 2005. In addition, as ofSeptember 30, 2005, these transactions continued to include provisionsto pay additional amounts, payable in cash, of up to $2.8 million incontingent consideration dependent upon future earnings of the acquiredentities. The remaining balance of contingent consideration wasunearned and will not be required to be paid.

In fiscal 2003, weacquired a total of 7 flexible staffing agencies for approximately $8.8million in cash and the issuance of 670,000 shares of our common stock.The transactions included provisions to pay additional amounts, payableby combination of cash and shares of our common stock, of up to $21.0million in contingent consideration dependent upon future earnings ofthe acquired entities. Of the $21.0 million in contingentconsideration, $6.1 million was unearned and will not be required and$1.3 million was earned and paid in fiscal 2003. As such, at September30, 2003, an aggregate of $13.6 million was payable dependent uponfurther earnings of the acquired entities. Of the $13.6 million incontingent consideration, $12.0 million was unearned and will not berequired and the remaining balance was earned and paid in fiscal2004.

In fiscal 2005, we completed the purchase price allocationfor our fiscal 2004 acquisitions. Accordingly, tangible assets,separately identifiable intangible assets and liabilities were assignedvalues of approximately $1.3 million, $3.5 million and $0.7 million,respectively, with the remaining portion of $4.9 million attributableto goodwill.

In fiscal 2004, we completed the purchase priceallocation for our remaining fiscal 2003 acquisitions. Accordingly,tangible assets, separately identifiable intangible assets andliabilities were assigned values of approximately $0.4 million, $1.2million and $0.4 million, respectively, with the remaining portion of$5.1 million attributable to goodwill.

In fiscal 2003, wecompleted the purchase price allocation for one of our fiscal 2003acquisitions. Accordingly, tangible assets, separately identifiableintangible assets and liabilities were assigned values of approximately$2.9 million, $1.4 million and $2.2 million, respectively, with theremaining portion of $6.6 million attributable to goodwill.

Thepreliminary purchase price allocations for the fiscal 2005 acquisitionsare subject to adjustments and will be finalized once additionalinformation concerning asset and liability valuations are obtained.Accordingly, final asset and liability fair values may differ fromthose set forth on the Consolidated Balance Sheet at September 30,2005; however, the changes are not expected to have a material effecton our Consolidated Financial Statements.

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The pro forma results of operations andrelated per share information for these acquisitions have not beenpresented as the amounts are consideredimmaterial.

Disposition

In April 2003, wedisposed of the last of our U.S. operations when we sold all of theissued and outstanding capital stock of The PromptCare Companies, Inc.and Steri-Pharm, Inc., for approximately $8.5 million in cash. Thesetwo subsidiaries constituted our U.S. home healthcare operationssegment. Our home healthcare operations were concentrated in New Yorkand New Jersey and supplied infusion therapy, respiratory therapy andhome medical equipment. In accordance with the provisions of Statementof Financial Accounting Standards No. 144,‘‘Accounting for the Impairment or Disposal ofLong-Lived Assets,’’ we have accounted for our homehealthcare operations as a discontinued operation. Our consolidatedfinancial statements reflect the assets and liabilities of thediscontinued operations as separate line items and the operations ofour home healthcare operations for the current and prior periods arereported in discontinued operations on our income statement. For adiscussion of the revenues and costs of operations of our discontinuedoperations, see Note 3 of Notes to Consolidated Financial Statementsfor our fiscal year ended September 30,2005.

Litigation

See ‘‘Item3—LegalProceedings.’’

Contingencies

Someof our subsidiaries were Medicare Part B suppliers who submitted claimsto the designated carrier who is the government’s claimsprocessing administrator. From time to time, the carrier may haverequested an audit of Medicare Part B claims on a prepayment orpostpayment basis. If the outcome of any audit results in a denial or afinding of an overpayment, then the affected subsidiary has appealrights. Under postpayment audit procedures, the supplier generally paysthe alleged overpayment and can pursue appeal rights for a refund ofany paid overpayment incorrectly assessed against thesupplier.

We believe that we are in compliance, in all materialrespects, with the applicable provisions of federal laws andregulations and applicable state laws, together with all applicablelaws and regulations of other countries in which we operate. Due to thebroad and sometimes vague nature of these laws and regulations, therecan be no assurance that an enforcement action will not be broughtagainst us, or that we will not be found to be in violation of one ormore of these laws or regulations. At present, we cannot anticipatewhat impact, if any, subsequent administrative or judicialinterpretations of applicable federal and state laws and the laws ofother countries in which we operate may have on our financial position,cash flows and results of operations.

We are involved in variouslegal proceedings and claims incidental to our normal businessactivities. We are vigorously defending our position in all suchproceedings. We believe that these matters should not have a materialadverse impact on our financial position, cash flows or results ofoperations.

Impact of Recent AccountingStandards

See ‘‘Recent AccountingPronouncements’’ in Note 2 of Notes to ConsolidatedFinancial Statements for our fiscal year ended September 30,2005.

|                |                                                            |
|----------------|------------------------------------------------------------|
| Item 7A.  | Quantitative and QualitativeDisclosures About Market Risk. |

Foreign CurrencyExchange

We face exposure to adverse movements in foreigncurrency exchange rates. These exposures may change over time asbusiness practices evolve and could have a material adverse impact onour consolidated financial results. Currently, we do not hedge foreigncurrency exchange rate exposures.

Interest Rate Risk

Ourexposure to market risk for changes in interest rates relate primarilyto our cash equivalents and the Senior Credit Facility. Our cashequivalents include highly liquid short-term investments 

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purchased with initial maturities of 90 daysor less. To manage our exposure to interest rate changes related to ourSenior Credit Facility, we use interest rate swap agreements.

InMarch 2003, upon the expiration of our prior Rate Cap and Floor CollarAgreement, we entered into a Rate Cap and Floor Collar Agreement thatcapped our interest rate and our interest floor, subject to specialprovisions, on approximately $88.1 million of our floating rate debtunder a contract that would have expired in March 2008. In accordancewith Statement of Financial Accounting Standards No. 133,‘‘Accounting for Certain Derivative Instruments andCertain Hedging Activities,’’ as amended by Statementof Financial Accounting Standards No. 138 and related implementationguidance, we calculated the fair value of the interest cap and floorderivative to be an asset of $0.3 million at September 30, 2004. InFebruary 2005, we sold this derivative instrument for approximately$0.1 million.

In February 2005, we entered into two interest rateswap agreements, which expire in July 2009, the objective of which isto protect us against the potential increase in interest rates on ourfloating rate debt. The two interest rate swap agreements coverapproximately $52.9 million of the our floating rate debt until January2008 and then decrease by $5.3 million each six-month period, in orderto reflect the amortizing effect of our floating rate debt, until theend of the interest rate swap agreements. The interest rate under theswap agreements is fixed at 4.935% and is payable semi-annually.In the third quarter of fiscal 2005, we designated the two interestrate swap agreements as cash flow hedges. In accordance with Statementof Financial Accounting Standards No. 133, we calculated the fair valueof the interest rate swap agreements to be a liability of $0.8 millionat September 30, 2005. Prior to the cash flow hedge designation,changes in the value from period to period of the interest rate swapagreements was recorded as other expense or income, as appropriate. AtSeptember 30, 2005, the effective portion of the loss on the interestrate swap agreements designated as cash flow hedges was $0.4 million,net of tax, and is included in other comprehensive income. We willcontinue to assess the effectiveness of these cash flow hedges on aquarterly basis.

The interest rate on our remaining bank debt of$11.4 million is reset at least every month to reflect current marketrates. Consequently, the carrying value of our variable rate bank debtapproximates its fair value at September 30, 2005.

|              |                                             |
|--------------|---------------------------------------------|
| Item8.  | Financial Statements and SupplementaryData. |

The consolidated financial statements and requiredfinancial statement schedules of our company begin on page F-i of thisAnnual Report on Form 10-K and are incorporated herein byreference.

|               |                                                                                     |
|---------------|-------------------------------------------------------------------------------------|
| Item 9.  | Changes in andDisagreements with Accountants on Accounting and FinancialDisclosure. |

None.

|                |                         |
|----------------|-------------------------|
| Item 9A.  | Controlsand Procedures. |

Evaluation of Disclosure Controls andProcedures.

Our company’s management, with theparticipation of our chief executive officer and our chief financialofficer, has evaluated the effectiveness of our disclosure controls andprocedures as of September 30, 2005.

Under the rules of theSecurities and Exchange Commission, ‘‘disclosure controlsand procedures’’ are defined as controls and otherprocedures that are designed to ensure that information required to bedisclosed in the reports that we file or submit under the SecuritiesExchange Act of 1934, such as this Annual Report on Form 10-K, isrecorded, processed, summarized and reported within the time periodsspecified in the rules of the Securities and Exchange Commission.Disclosure controls and procedures include, without limitation,controls and procedures designed to ensure that information required tobe disclosed by us in our reports that we file or submit under theSecurities Exchange Act of 1934 is accumulated and communicated to ourmanagement, including our chief executive officer and chief financialofficer, as appropriate to allow timely decisions regarding requireddisclosure.

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Based on such evaluation, our chiefexecutive officer and chief financial officer have concluded that, asof September 30, 2005, our disclosure controls and procedures wereeffective to ensure that the information we are required to disclose inreports that we file or submit to the Securities and ExchangeCommission is recorded, processed, summarized and reported within thetime periods specified under the rules and forms of the Securities andExchange Commission.

Report of Management on Internal Controlover Financial Reporting.

Our management is responsible forestablishing and maintaining adequate internal control over financialreporting for the company. Under the rules of the Securities andExchange Commission, ‘‘internal control over financialreporting procedures’’ is defined as a process designedto provide reasonable assurance regarding the reliability of ourfinancial reporting and the preparation of financial statements forexternal purposes in accordance with accounting principles generallyaccepted in the United States of America. Internal control overfinancial reporting includes maintaining records that in reasonabledetail accurately and fairly reflect our transactions and ourdispositions of assets; providing reasonable assurance thattransactions are recorded as necessary for preparation of our financialstatements in accordance with accounting principles generally acceptedin the United States of America; providing reasonable assurance thatreceipts and expenditures of company assets are made only in accordancewith management authorization; and providing reasonable assuranceregarding the prevention or the timely detection of the unauthorizedacquisition, use or disposition of company assets that could have amaterial effect on our financial statements. Because of its inherentlimitations, internal control over financial reporting is not intendedto provide absolute assurance that a misstatement of our financialstatements would be prevented or detected.

Management conductedan evaluation of the effectiveness of our internal control overfinancial reporting using the criteria set forth by the Committee ofSponsoring Organizations of the Treadway Commission in InternalControl — Integrated Framework. Based on this evaluation,management concluded that the company’s internal control overfinancial reporting was effective as of September 30, 2005.

Ourauditors, Deloitte & Touche LLP, have issued a report on thisassessment of our internal control over financial reporting. Theirreport is included in this Item 9A.

Report of IndependentRegistered Public Accounting Firm

To the Board ofDirectors and Shareholders ofAllied Healthcare InternationalInc.New York, New York

We have audited management'sassessment, included in the accompanying Report of Management onInternal Control Over Financial Reporting that Allied HealthcareInternational Inc. and subsidiaries (the"Company") maintained effective internalcontrol over financial reporting as of September 30, 2005, based oncriteria established in Internal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the TreadwayCommission. The Company's management is responsible formaintaining effective internal control over financial reporting and forits assessment of the effectiveness of internal control over financialreporting. Our responsibility is to express an opinion onmanagement's assessment and an opinion on the effectiveness ofthe Company's internal control over financial reporting based onour audit.

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (UnitedStates). Those standards require that we plan and perform the audit toobtain reasonable assurance about whether effective internal controlover financial reporting was maintained in all material respects. Ouraudit included obtaining an understanding of internal control overfinancial reporting, evaluating management's assessment, testingand evaluating the design and operating effectiveness of internalcontrol, and performing such other procedures as we considerednecessary in the circumstances. We believe that our audit provides areasonable basis for our opinions.

A company's internalcontrol over financial reporting is a process designed by, or under thesupervision of, the company's principal executive and principalfinancial officers, or persons 

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performing similar functions, and effectedby the company's board of directors, management, and otherpersonnel to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accountingprinciples. A company's internal control over financial reportingincludes those policies and procedures that (1) pertain to themaintenance of records that, in reasonable detail, accurately andfairly reflect the transactions and dispositions of the assets of thecompany; (2) provide reasonable assurance that transactions arerecorded as necessary to permit preparation of financial statements inaccordance with generally accepted accounting principles, and thatreceipts and expenditures of the company are being made only inaccordance with authorizations of management and directors of thecompany; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition ofthe company's assets that could have a material effect on thefinancial statements.

Because of the inherent limitations ofinternal control over financial reporting, including the possibility ofcollusion or improper management override of controls, materialmisstatements due to error or fraud may not be prevented or detected ona timely basis. Also, projections of any evaluation of theeffectiveness of the internal control over financial reporting tofuture periods are subject to the risk that the controls may becomeinadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

Inour opinion, management's assessment that the Company maintainedeffective internal control over financial reporting as of September 30,2005, is fairly stated, in all material respects, based on the criteriaestablished in Internal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the TreadwayCommission. Also in our opinion, the Company maintained, in allmaterial respects, effective internal control over financial reportingas of September 30, 2005, based on the criteria established inInternal Control—Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the PublicCompany Accounting Oversight Board (United States), the consolidatedfinancial statements and financial statement schedules as of and forthe year ended September 30, 2005 of the Company and our report datedNovember 28, 2005 expressed an unqualified opinion on thoseconsolidated financial statements and financial statementschedules.

/s/ Deloitte & ToucheLLP

New York, New YorkNovember 28, 2005

Changes in Internal Control Over Financial Reporting.

Therehave not been any changes in our internal control over financialreporting during the quarter ended September 30, 2005 that havematerially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting.

|               |                    |
|---------------|--------------------|
| Item9B.  | Other Information. |

There was noinformation that we were required to disclose in a Current Report onForm 8-K during the fourth quarter of fiscal 2005 that was not sodisclosed.

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PARTIII

Item 10.    Directors and Executive Officers of theRegistrant.

Our Directors and Officers

The followingtable sets forth certain information concerning the directors andofficers of ourcompany:

|                   |  |        |    |                           |  |                                                  |  |  |  |  |
|-------------------|--|--------|----|---------------------------|--|--------------------------------------------------|--|--|--|--|
| Name              |  | Age    |    | Positionswith our Company |
| Timothy M.Aitken  |  |   | 61 |                      |  | Chairmanof the Board and Chief Executive Officer |
| Sarah L.Eames     |  |   | 47 |                      |  | Executive Vice President andDirector             |
| Charles F. Murphy |  |   | 52 |                      |  | ChiefFinancial Officer                           |
| Leslie J.Levinson |  |   | 50 |                      |  | Secretary                                        |
| G. RichardGreen   |  |   | 66 |                      |  | Director                                         |
| MarkHanley        |  |   | 44 |                      |  | Director                                         |
| WaynePalladino    |  |   | 47 |                      |  | Director                                         |
| Jeffrey S.Peris   |  |   | 59 |                      |  | Director                                         |
| Scott A.Shay      |  |   | 48 |                      |  | Director                                         |
| MarkTompkins      |  |   | 65 |                      |  | Director                                         |
|                   |

Certainbiographical information regarding each director and officer is setforth below:

Timothy M. Aitken has served as chairman ofthe board of our company since January 1997 and as chief executiveofficer of our company since November 2004. He also served as chiefexecutive officer of our company from January 1997 to January 2004.Prior to joining our company, Mr. Aitken served as an independentconsultant to the healthcare industry from 1995 to 1997. From June 1995to November 1995, Mr. Aitken served as the vice chairman and presidentof Apria Healthcare Group, Inc., a California-based home healthcarecompany. He also served as chairman of the board of Omnicare plc fromSeptember 1993 until its acquisition by our company. From 1990 to 1995,Mr. Aitken served as chairman of the board, president and chiefexecutive officer of Abbey Healthcare Group Inc., a predecessor ofApria Healthcare Group, Inc.

Sarah L. Eames has served asa director of our company since June 2002 and as executive vicepresident of our company since November 2004. She served as chiefexecutive officer of our company from January 2004 to November 2004, aschief operating officer of our company from June 2001 to November 2004,and as president of our company from May 1998 to November 2004. She wasexecutive vice president of business development and marketing of ourcompany from June 1997 to May 1998. Prior to joining our company, Ms.Eames was employed by Johnson & Johnson Professional, Inc. as abusiness development consultant from 1996 to 1997. From June 1995 toNovember 1995, Ms. Eames served as vice president of marketing forApria Healthcare Group, Inc., a California-based home healthcarecompany. From 1980 to 1995, Ms. Eames held various marketing andbusiness development positions at Abbey Healthcare Group Inc., apredecessor of Apria Healthcare Group, Inc.

Charles F.Murphy served as acting chief financial officer of our company fromMay 2003 to March 2004, at which time he assumed the title of chieffinancial officer. From October 1999 to May 2003, Mr. Murphy served aschief financial officer of our company’s U.K. operations. From1997 to 1999, Mr. Murphy was a principal of Visual Networks Limited, atechnology company. From 1994 to 1997, he was finance director ofExceler Healthcare Group, a nursing home company. From 1987 to 1994,Mr. Murphy was a partner at Pricewaterhouse LLP, an accountingfirm.

Leslie J. Levinson has served as secretary of ourcompany since September 1999 and had previously served in such capacityfrom October 1990 to July 1997. Since January 2002, he has been apartner in the law firm of Brown Raysman Millstein Felder & SteinerLLP, which firm serves as counsel to our company. From 1991 to 2002, hewas a partner in the law firm of Baer Marks & Upham LLP, which firmserved as counsel to our company.

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G. Richard Green has been adirector of our company since August 1998. Mr. Green has been thechairman since 1987 and a director since 1964 of J.H. & F.W. GreenLtd., a conglomerate based in the United Kingdom. Since 1964, Mr. Greenhas held various positions at J.H. & F.W. Green Ltd. and several ofits subsidiaries.

Mark Hanley has been a director of ourcompany since November 2005. From 2000 to August 2005, Mr. Hanley waspresident and chief executive of New Valley Health Group Inc., nowO2 Science Acquisition Corporation, a provider ofrespiratory services. From 1998 to 1999, he was a senior vicepresident, sales and marketing, of Coram Healthcare Corporation, whichprovides specialized home infusion therapies and services in the UnitedStates and Canada. From 1995 to 1997, Mr. Hanley was an executivedirector/director of business development of Transworld Healthcare (UK)Limited, a subsidiary of the Company now known as Allied HealthcareHoldings Limited. From 1987 to 1995, he held various positions withApria Healthcare Group, Inc., a California-based home healthcarecompany.

Wayne Palladino has been a director of ourcompany since September 2003. Mr. Palladino has worked at PzenaInvestment Management LLC, an asset management firm, since June 2002,where he currently serves as principal and a director of client andportfolio services. From August 2000 to June 2002, he was a senior vicepresident and chief financial officer of Lillian Vernon Corporation, acatalog retailer. Mr. Palladino was a vice president of our companyfrom February 1991 to September 1996, senior vice president of ourcompany from September 1996 to August 2000 and chief financial officerof our company from February 1991 to August 2000.

Jeffrey S.Peris has been a director of our company since May 1998. Presently,Dr. Peris serves as an executive/organization advisor to leadingestablished global and new business entities. Dr. Peris served as thevice president of human resources and chief learning officer of Wyeth(formerly American Home Products Corporation), a pharmaceuticalcompany, from 2001 to 2005. Dr. Peris was the vice president ofbusiness operations of Knoll Pharmaceutical (Abbott Laboratories),where he was responsible for human resources and corporatecommunications, from 1998 to 2001. Dr. Peris was a managementconsultant to various Fortune 100 companies from 1997 to 1998. From1972 to 1997, Dr. Peris was employed by Merck Co., Inc., apharmaceutical company, where he served as the executive director ofhuman resources from 1985 to 1997, the executive director of marketingfrom 1976 to 1985, and the director of clinical biostatistics andresearch data systems from 1972 to 1976.

Scott A. Shay hasbeen a director of our company since January 1996 and served as actingchairman of the board of our company from September 1996 to January1997. Mr. Shay has been a managing director of Ranieri & Co., Inc.,a private investment advisor and management company, since itsformation in 1988. Mr. Shay currently serves as the chairman of theboard of Signature Bank, a subsidiary of Bank Hapoalim, and iscurrently a director of Signature Securities Group Inc., as well as anofficer or director of other direct and indirect subsidiaries ofHyperion Partners II L.P. Prior to joining Ranieri & Co., Inc., Mr.Shay was a director of Salomon Brothers Inc., where he was employedfrom 1980 to 1988.

Mark Tompkins has been a director ofour company since September 2005. From 1987 to the present, Mr.Tompkins has been a self-employed investor, with a focus on privateequity and capital development in publicly traded entities, notably inthe healthcare, biopharmaceutical, wholesale and distribution, tourismand leisure, and manufacturing industries. From 1975 to 1987 he wasactive in residential and commercial property investment in the MiddleEast, Germany, Spain, France and the United States. From 1972 to 1975,Mr. Tompkins worked for the Slater Walker Securities group and from1965 to 1971 he was a management consultant with Booz Allen &Hamilton. Mr. Tompkins is a director of Sodexho Alliance S.A., acompany engaged in the provision of food and management services thatis registered with the Securities and Exchange Commission.

Alldirectors of our company are elected by the shareholders for a one-yearterm and hold office until their successors are elected and qualifiedor until their earlier death, resignation or removal. Officers arechosen by and serve at the discretion of the board of directors,subject to any applicable employment contracts. There are no familyrelationships among our directors and officers.

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All directors who are not employees of ourcompany are entitled to receive a fee of $10,000 per annum, plusreimbursement of expenses incurred as a result of acting as a directoror as a member of any committee of our board of directors. In addition,Mr. Palladino is entitled to receive, for serving as chairman of theAudit Committee, an additional $15,000 per annum; Mr. Peris is entitledto receive an additional $10,000 per annum for serving as chairman ofour Compensation Committee and on the Audit Committees; and Mr.Tompkins is entitled to receive an additional $5,000 per annum forserving on our Audit Committee. In March 2005 and September 2005, wegranted options to purchase shares of our common stock to certain ofour directors and executive officers. See ‘‘Item13—Certain Relationships and RelatedTransactions.’’

Our board of directors hasdetermined that G. Richard Green, Mark Hanley, Wayne Palladino, JeffreyA. Peris and Mark Tompkins are ‘‘independentdirectors,’’ as such term is defined in the rules of theNasdaq Stock Market.

Meetings of the Board ofDirectors

The business of our company is managed under thedirection of our board of directors. Members of the board of directorsare informed about our company’s affairs through various reportsand documents distributed to them, through operating and financialreports routinely presented at meetings of the board of directors andcommittee meetings by the chairman and other officers, and throughother means. In addition, directors of our company discharge theirduties throughout the year not only by attending board ofdirectors’ meetings, but also through personal meetings andother communications, including telephone contact with the chairman ofthe board and others regarding matters of interest and concern to ourcompany.

During our fiscal year endedSeptember 30, 2005, our company’s board ofdirectors held seven formal meetings and acted by unanimous writtenconsent in lieu of a meeting on three separate occasions. Other thanMr. Palladino, who attended four of the seven board meetings and allfour of the Audit Committee meetings during our fiscal year endedSeptember 30, 2005, during such fiscal year no director attended fewerthan 75% of the aggregate of the total number of meetings of theboard of directors and any committees on which he or sheserved.

Board Committees

The board of directors has anAudit Committee and a Compensation Committee but it does not have anominating committee. The members of each committee are appointed bythe board of directors.

Audit Committee. The AuditCommittee assists our board of directors in monitoring (1) theintegrity of our financial statements, (2) the independence andqualifications of our independent auditors, and (3) the performance ofour independent auditors and our internal audit functions. The currentwritten charter for the Audit Committee was adopted by our board ofdirectors on February 12, 2004 and is attached as an exhibit to theproxy statement relating to our 2004 annual meeting ofshareholders.

The Audit Committee consists of Messrs. Palladino,Peris and Tompkins. Mr. Palladino serves as chairman of the AuditCommittee. All of the members of the Audit Committee are‘‘independent directors,’’ as such term isdefined in the rules of the Nasdaq Stock Market. The board of directorshas determined that Wayne Palladino is an ‘‘auditcommittee financial expert,’’ as such term is defined inItem 401(h) of Regulation S-K promulgated by the Securities andExchange Commission.

The Audit Committee was in session duringeach of the seven formal meetings of our company’s board ofdirectors during our fiscal year endedSeptember 30, 2005. The Audit Committee also held fourformal meetings and acted by unanimous written consent on one occasionduring that period.

Compensation Committee. TheCompensation Committee reviews and approves overall policy with respectto compensation matters, including such matters as compensation plansfor employees and employment agreements and compensation for executiveofficers.

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The Compensation Committee consists ofMessrs. Green and Peris. Dr. Peris serves as chairman of theCompensation Committee. All of the members of the CompensationCommittee are ‘‘independent directors,’’ assuch term is defined in the rules of the Nasdaq Stock Market.

TheCompensation Committee was in session during each of the seven formalmeetings of our company’s board of directors during our fiscalyear ended September 30, 2005. The Compensation Committeeacted by unanimous written consent on two occasions during that period,but did not hold any formal meetings during that period.

Section16(a) Beneficial Ownership Reporting Compliance

Section 16(a) ofthe Securities Exchange Act of 1934 and the rules thereunderpromulgated by the Securities and Exchange Commission require thereporting of transactions in our equity securities by our directors andcertain of our officers and by shareholders who beneficially own morethan 10% of our common stock (collectively, the‘‘Reporting Persons’’). Section 16(a) andthe rules thereunder require the Reporting Persons to report initialstatements of ownership of our equity securities on Form 3 and changesin ownership of our equity securities on Form 4 or Form 5. Based on areview of these reports filed by the Reporting Persons and writtenrepresentations from our directors and officers that no Forms 5 wererequired to be filed by them in respect of our fiscal year endedSeptember 30, 2005, we believe that no Reporting Person failed to filea Section 16 report on a timely basis during our fiscal year endedSeptember 30, 2005. Timothy M. Aitken inadvertently did not file a Form4 in a timely manner with respect to a sale of our common stock inDecember 2003. The Form 4 was, however, subsequently filed.

Codeof Conduct

In September 2003, our board of directors adopted aCode of Conduct that applies to all of our directors, officers andemployees, including our chief executive officer and our chieffinancial officer. As required by the regulations of the Securities andExchange Commission, the Code of Conduct is designed to deterwrongdoing and to promote:

(1)    honest and ethical conduct,including the ethical handling of actual or apparent conflicts ofinterest between personal and professional relationships;

(2)    full, fair, accurate, timely, and understandable disclosurein reports and documents that we file with, or submit to, theSecurities and Exchange Commission and in other public communicationsmade by us;

(3)    compliance with applicable governmentallaws, rules and regulations;

(4)    the prompt internalreporting of violations of the Code of Conduct to the Audit Committee;and

(5)    accountability for adherence to the Code ofConduct.

A copy of our Code of Conduct is filed as an exhibit tothis Annual Report on Form 10-K.

|               |                         |
|---------------|-------------------------|
| Item11.  | Executive Compensation. |

The followingtable summarizes all compensation earned by or paid to our chiefexecutive officer and each of the other most highly compensatedexecutive officers of our company whose total annual salary and bonuscompensation exceeded $100,000 in fiscal 2005 (the‘‘Named Executive Officers’’) for servicesrendered in all capacities to our company in respect of our fiscalyears ended September 30, 2005, 2004 and 2003. The titles givenbelow the individuals’ names in the chart below were the titlesheld by such individuals at the end of our 2005 fiscalyear.

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Summary CompensationTable

|                                                         |  |            |      |                    |  |                          |  |                                 |         |                      |         |        |         |        |         |        |         |        |                                                 |                 |                                                 |                 |  |  |  |  |
|---------------------------------------------------------|--|------------|------|--------------------|--|--------------------------|--|---------------------------------|---------|----------------------|---------|--------|---------|--------|---------|--------|---------|--------|-------------------------------------------------|-----------------|-------------------------------------------------|-----------------|--|--|--|--|
|                                                    |  |       |      |               |  |                     |  | Long-TermCompensationAwards     |         |                 |
| NameandPrincipalPosition                                |  | FiscalYear |      | AnnualCompensation |  | RestrictedStockAwards($) |  | SecuritiesUnderlyingOptions (#) |         | AllOtherCompensation |
| Salary                                                  |  | Bonus      |      |
| TimothyM.Aitken(1)                                      |  |       | 2005 |               |  | $446,618                 |  | $                               | 450,000 | (7)             |         |   | — |   |         |   | 90,000  |   |                                                 | $               |        9,000 |  (9)  |
| Chairmanofthe                                           |  |       | 2004 |               |  | 253,369                  |  |                            | 450,000 | (4)             |         |   | — |   |         |   | 350,000 |   |                                                 |            |   91,645                              | (10)       |
|     Boardand Chief ExecutiveOfficer |  |       | 2003 |               |  | 420,000                  |  |                            | 230,000 | (5)             |         |   | — |   |         |   | 384,000 |   |                                                 |            |   170,063                             | (11)       |
| SarahL.Eames(2)                                         |  |       | 2005 |               |  | $234,391                 |  | —                         |         |                 | — |   |         |   | — |   |         | $      |        7,800 |  (9)  |
| ExecutiveVice                                           |  |       | 2004 |               |  | 445,189                  |  | $                               | 300,000 | (6)             |         |   | — |   |         |   | 300,000 |   |                                                 |            | 1,058,570                                       | (12)       |
| President                                               |  |       | 2003 |               |  | 405,000                  |  |                            | 270,000 | (5)             |         |   | — |   |         |   | 334,000 |   |                                                 |            |   101,431                             | (13)       |
| CharlesF.Murphy(3)                                      |  |       | 2005 |               |  | $326,098                 |  | $                               | 138,765 | (7)             |         |   | — |   |         |   | 57,000  |   |                                                 | $               |      18,872            |  (9)  |
| ChiefFinancial                                          |  |       | 2004 |               |  | 289,073                  |  |                            | 53,781  | (8)             |         |   | — |   |         |   | — |   |                                                 |            |   18,286                              |  (9)  |
| Officer                                                 |  |       | 2003 |               |  | 90,096                   |  |                            | 80,085  | (5)             |         |   | — |   |         |   | 99,000  |   |                                                 |            |   6,127                               |  (9)  |
|                                                         |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                                                                                                                                |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | Mr.Aitken has served as chairman of the board of our company since January1997 and as chief executive officer of our company since November 2004.He also served as chief executive officer of our company from January1997 until January 2004. |

|     |                                                                                                                                                                                                                                                                                                  |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Ms.Eames became chief executive officer of our company in January 2004,chief operating officer of our company in June 2001 and president ofour company in May 1998. She stepped down from all such positions, andassumed the office of executive vice president of our company, inNovember 2004. |

|     |                                                                                                                                                           |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------|
| (3) | Mr. Murphy becameacting chief financial officer of our company in May 2003 and, in March2004, assumed the title of chief financial officer of ourcompany. |

|     |                                                                                                                                                |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------|
| (4) | Consists of (a) $400,000cash paid in fiscal 2004 as a bonus for fiscal 2004 and (b) $50,000cash paid in fiscal 2005 as a bonus for fiscal2004. |

|     |                                                |
|-----|------------------------------------------------|
| (5) | Paid in fiscal 2004 as abonus for fiscal 2003. |

|     |                                               |
|-----|-----------------------------------------------|
| (6) | Paid infiscal 2004 as a bonus for fiscal2004. |

|     |                                                |
|-----|------------------------------------------------|
| (7) | Paid in fiscal 2006 as abonus for fiscal 2005. |

|     |                                               |
|-----|-----------------------------------------------|
| (8) | Paid infiscal 2005 as a bonus for fiscal2004. |

|     |                                     |
|-----|-------------------------------------|
| (9) | Reflects paymentfor a carallowance. |

|      |                                                                                                                                                                                                                                                                                                             |
|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (10) | Reflects (a)payment of a car allowance of $8,250 and (b) the reimbursement of$83,395 in taxes incurred by Mr. Aitken in fiscal 2004 in connectionwith his repayment of a the principal amount of a company loan andaccrued interest thereon by the delivery of shares of our common stockowned by him tous. |

|      |                                                                                                                                                                                                              |
|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (11) | Reflects payment ofa car allowance of $9,750 and the reimbursement by our company infiscal 2004 of taxes of $160,313 incurred by Mr. Aitken in connectionwith his exercise of 150,000 options in fiscal2003. |

|      |                                                                                                                                                                                                                                                                                                                                                                                                     |
|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (12) | Of such amount,(a) $1,000,000 consists of special compensation paid to Ms. Eames forpast services, (b) payment of a car allowance of $7,149 and (c) thereimbursement of $51,421 in taxes incurred by Ms. Eames in fiscal 2004in connection with her repayment of the principal amount of a companyloan and accrued interest thereon by the delivery of shares of ourcommon stock owned by her tous. |

|      |                                                                                                                                                                                                             |
|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (13) | Reflects paymentfor a car allowance of $8,450 and the reimbursement by our company infiscal 2004 of taxes of $92,981 incurred by Ms. Eames in connectionwith her exercise of 100,000 options in fiscal2003. |

41

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The following table sets forth certaininformation regarding options granted during fiscal 2005 to our NamedExecutive Officers pursuant to our 2002 Stock Option Plan. Duringfiscal 2005 we did not grant stock appreciation rights to any of ourNamed Executive Officers or any other employee. In accordance with therules of the Securities and Exchange Commission, the table sets forththe hypothetical gains or ‘‘optionspreads’’ that would exist for the options at the end oftheir respective terms. These gains are based on assumed rates ofannual compound stock price appreciation of 5% and 10%from the date the option was granted to the end of the option’sterm.

Option Grants in Fiscal2005

|                 |  |                                             |         |                                                              |  |                            |  |                |         |                                                                                                |  |         |  |        |         |        |  |        |         |        |  |  |  |  |  |  |
|-----------------|--|---------------------------------------------|---------|--------------------------------------------------------------|--|----------------------------|--|----------------|---------|------------------------------------------------------------------------------------------------|--|---------|--|--------|---------|--------|--|--------|---------|--------|--|--|--|--|--|--|
| Name            |  | Numberof SecuritiesUnderlyingOptionsGranted |         | Percentage ofTotal OptionsGranted to Employees inFiscal Year |  | ExercisePrice Per Share(1) |  | ExpirationDate |         | Potential Realizable Value at Assumed AnnualRates of Stock Price Appreciation forOptionTerm(2) |
|            |  |                                        |         |                                                         |  |                       |  |           |         | 5%                                                                                             |  | 10%     |
| TimothyM.Aitken |  |                                        | 90,000  |                                                         |  | 13.8%                      |  | $              | 5.65    |                                                                                           |  | 9/30/15 |  | $      | 319,793 |   |  | $      | 810,418 |   |
| SarahL.Eames    |  |                                        | — |                                                         |  | —                    |  |           | — |                                                                                           |  | — |  |   | — |   |  |   | — |   |
| CharlesF.Murphy |  |                                        | 27,000  |                                                         |  | 4.1%                       |  | $              | 6.20    |                                                                                           |  | 3/23/15 |  | $      | 105,277 |   |  | $      | 266,792 |   |
|            |  |                                        | 30,000  |                                                         |  | 4.6%                       |  | $              | 5.65    |                                                                                           |  | 9/30/15 |  | $      | 106,598 |   |  | $      | 270,139 |   |
|            |  |                                        | 57,000  |                                                         |  | 8.7%                       |  |           |    |                                                                                           |  |    |  | $      | 211,875 |   |  | $      | 536,931 |   |
|                 |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                            |
|-----|----------------------------------------------------------------------------------------------------------------------------|
| (1) | Optionswere granted at an exercise price equal to the fair market value of ashare of our common stock on the date ofgrant. |

|     |                                                                                                                                                                                                                            |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | The 5% and 10% assumedannual compound rates of stock price appreciation are mandated by theSecurities and Exchange Commission and do not represent ourcompany’s estimate or projection of future common stockprices. |

The following table sets forth certain informationwith respect to our Named Executive Officers concerning the exercise ofoptions by them during our fiscal year ended September 30, 2005 andunexercised options held by them as of September 30, 2005. We havenever granted stock appreciation rights to any of our Named ExecutiveOfficers or any other employee.

Aggregate Option Exercises inFiscal 2005and 2005 Fiscal Year-End OptionValues

|                  |  |                           |         |               |  |                                                                                           |         |                                                                                       |  |        |                  |        |  |   |                 |        |  |  |
|------------------|--|---------------------------|---------|---------------|--|-------------------------------------------------------------------------------------------|---------|---------------------------------------------------------------------------------------|--|--------|------------------|--------|--|---|-----------------|--------|--|--|
| Name             |  | SharesAcquiredon Exercise |         | ValueRealized |  | Number of SharesUnderlying Unexercised Options at Fiscal YearEndExercisable/Unexercisable |         | Value ofUnexercisedIn-the-Money Options at Fiscal YearEnd(1)Exercisable/Unexercisable |
| Timothy M.Aitken |  |                      | 195,000 |          |  | $                                                                                         | 907,378 |                                                                                  |  |   | 1,296,000/28,000 |   |  | $ | 559,400/$32,200 |   |
| SarahL.Eames     |  |                      | 150,000 |          |  | $                                                                                         | 701,955 |                                                                                  |  |   | 606,000/28,000   |   |  | $ | 476,900/$32,200 |   |
| CharlesF.Murphy  |  |                      | — |          |  |                                                                                      | — |                                                                                  |  |   | 96,000/60,000    |   |  | $ | 73,900/$36,950  |   |
|                  |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                                                                   |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | Calculatedon the basis of $5.65 per share, the closing sale price of our commonstock, as reported on the Nasdaq Stock Market on September 30,2005, minus the exercise price. |

Compensation ofDirectors

See ‘‘Item 10—Directors andExecutive Officers of the Registrant—Our Directors andOfficers’’ with respect to compensation of non-employeedirectors.

Employment Agreements; Termination of Employment andChange-in-Control Arrangements

In September 2001, we enteredinto an employment agreement with Mr. Aitken. The employment agreementhas a three-year term (subject to automatic renewal for successiveadditional one-year periods unless either party provides the other withnotice of intent to terminate the agreement at least 

42

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90 days before the then applicabletermination date). The employment agreement provides that our companywill negotiate in good faith, commencing not less than 90 days prior toeach anniversary date of the employment agreement, the amount, if any,of future salary increases. Mr. Aitken’s salary is currently$0.5 million. Mr. Aitken’s employment agreement provides that ifhis employment is terminated during the term of the agreement otherthan for cause, death or disability, or if, within six months of a‘‘change in control’’ (as defined in theagreement) of our company, Mr. Aitken or our company terminates hisemployment, then (1) all stock options in our company held by Mr.Aitken shall immediately vest and (2) Mr. Aitken will be entitled toreceive a cash payment of 2.9 times his average annual base salaryduring the twelve months preceding the change of control or thetermination of employment.

In September 2001 we entered into anemployment agreement with Ms. Eames, which was modified in November2004 and September 2005. Pursuant to her employment agreement, asmodified, Ms. Eames has agreed to serve as executive vice president ofour company until December 31, 2006 at an annual salary of $0.1million. Ms. Eames’ employment agreement, as modified, providesthat if her employment is terminated during the term of the agreementother than for cause, death or disability, then all stock options inour company held by Ms. Eames shall immediately vest and Ms. Eamesshall be entitled to receive her salary through December 31,2006.

In Deeds of Restrictive Covenants entered into in 1999 withone of our U.K. subsidiaries, Mr. Aitken and Ms. Eames have each agreednot to compete with us or our subsidiaries for twelve months followingtermination of employment without our prior written consent.

Wehave also entered into an employment agreement with Mr. Murphy. Ouremployment agreement with Mr. Murphy is terminable by either party onsix month’s notice and provides that Mr. Murphy will not competeagainst us for a period of twelve months following his termination ofemployment. Pursuant to his employment agreement, Mr. Murphy’ssalary is currently $0.3 million.

Compensation CommitteeInterlocks and Insider Participation

The Compensation Committeeconsists of Messrs. Green and Peris**.** Dr. Peris serves aschairman of the Compensation Committee. During the first part of fiscal2005, our Compensation Committee consisted of G. Richard Green, DavidMacfarlane and Jeffrey S. Peris. In May 2005, Mr. Macfarlane resignedfrom our board of directors. None of Messrs. Green, Peris or Macfarlanehas ever served as an officer or employee of our company or any of oursubsidiaries, nor has any such individual had a business relationshipwith our company or any of our subsidiaries during fiscal 2005 thatrequires disclosure under the rules of the Securities and ExchangeCommission.

Stock Option Plans

1992 and 2002 StockOption Plans

In July 1992, our board of directors andshareholders approved our 1992 Stock Option Plan. The 1992 Stock OptionPlan, which is substantially similar to our 2002 Stock Option Plandiscussed below, provided for the grant of options to key employees,officers, directors and non-employee independent contractors of ourcompany. Effective with the adoption by our shareholders of our 2002Stock Option Plan in June 2002, no further options may be granted underthe 1992 Stock Option Plan. Outstanding options granted under the 1992Stock Option Plan may be exercised in accordance with the terms of the1992 Stock Option Plan.

In March 2002, our board of directorsadopted, and in June 2002 our shareholders approved, our 2002 StockOption Plan. Options granted under the 2002 Stock Option Plan may beeither incentive stock options (‘‘IncentiveOptions’’), which are intended to meet the requirementsof section 422 of the Internal Revenue Code of 1986, as amended, oroptions that do not qualify as Incentive Options (which we refer to as‘‘Non-Qualified Options’’). Under the 2002Stock Option Plan, the Compensation Committee may grant (1) IncentiveOptions at an exercise price per share which is not less than the fairmarket value of a share of our common stock on the date on which suchIncentive 

43

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Options are granted (and not less than110% of the fair market value in the case of any optionee whobeneficially owns more than 10% of the total combined votingpower of our company) and (2) Non-Qualified Options at an exerciseprice per share which is determined by the Compensation Committee (andwhich may be less than the fair market value of a share of our commonstock on the date on which such Non-Qualified Options are granted). The2002 Stock Option Plan further provides that the maximum period inwhich options may be exercised will be determined by the CompensationCommittee, except that Incentive Options may not be exercised after theexpiration of ten years from the date the Incentive Option wasinitially granted (and five years in the case of any optionee whobeneficially owns more than 10% of the total combined votingpower of our company). Under the 2002 Stock Option Plan, if anoptionee’s employment is terminated, the unexercised IncentiveOptions generally must be exercised within three months aftertermination. However, if the termination is due to theoptionee’s death or permanent disability, the option must beexercised within one year of the termination of employment. If weterminate the optionee’s employment for cause, or if theoptionee voluntarily terminates his employment, his options generallywill expire as of the termination date. Any option granted under the2002 Option Stock Plan will be nontransferable, except by will or bythe laws of descent and distribution, and generally may be exercisedupon payment of the option price in cash or by delivery of shares ofour common stock with a fair market value equal to the optionprice.

Shares delivered under the 2002 Stock Option Plan will beavailable from authorized but unissued shares of common stock or fromshares of common stock reacquired by our company. Shares of commonstock that are subject to options under the 2002 Stock Option Planwhich have terminated or expired unexercised will return to the pool ofshares available for issuance under the 2002 Stock OptionPlan.

As of September 30, 2005, an aggregate of 2,100,334 sharesof our common stock were issuable upon the exercise of outstandingoptions that had been granted under our 2002 Stock Option Plan andoptions to purchase an aggregate of 1,626,487 shares of our commonstock were available for grant under such Plan. As of September 30,2005, an aggregate of 510,000 shares of our common stock were issuableupon the exercise of outstanding options that had been granted underour 1992 Stock Option Plan. No further options may be granted under our1992 Stock Option Plan.

1997 Non-Employee DirectorPlan

In May 1997, our board of directors adopted the 1997Option Plan for Non-Employee Directors (the ‘‘DirectorPlan’’), pursuant to which 100,000 shares of our commonstock were reserved for issuance upon the exercise of options grantedto non-employee directors. The purpose of the Director Plan is toencourage ownership of common stock by non-employee directors of ourcompany whose continued services are considered essential to ourcompany’s future progress and to provide them with a furtherincentive to remain as directors of our company. The Director Plan isadministered by the board of directors. Directors of our company whoare not employees of our company or any subsidiary or affiliate of ourcompany are eligible to participate in the Director Plan. The DirectorPlan will terminate in May 2007; however, options outstanding on theexpiration of the term shall continue to have full force and effect inaccordance with the provisions of the instruments evidencing suchoptions. The board of directors may suspend, terminate, revise or amendthe Director Plan, subject to certain limitations.

Under theDirector Plan, the board of directors may from time to time at itsdiscretion determine which of the eligible directors should receiveoptions, the number of shares subject to such options and the dates onwhich such options are to be granted. Each such option is immediatelyexercisable for a period of ten years from the date of grant generally,but may not be exercised more than 90 days after the date an optioneeceases to serve as a director of our company. Options granted under theDirector Plan are not transferable by the optionee other than by will,laws of descent and distribution, or as required by law.

Sharesof common stock may be purchased from our company upon the exercise ofan option by payment in cash or cash equivalent, through the deliveryof shares of common stock having a fair 

44

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market value equal to the cash exercise priceof the option or any combination of the above, subject to thediscretion of the board of directors.

As of September 30, 2005,no options were outstanding under the Director Plan.

RecentDevelopments

The American Jobs Creation Act of 2004 (the‘‘Act’’) became law in October 2004 andadded Section 409A to the Internal Revenue Code of 1986, as amended.Section 409A relates to nonqualified deferred compensation plans. Thedefinition of a ‘‘nonqualified deferred compensationplan’’ is broad enough to include stock options,including stock options granted under our stock option plans. Section409A gives the Treasury Department the authority to issue regulationsto define terms, provide exceptions, and create a window of time duringwhich existing plans may be altered or amended in order to comply withthe Act. The Act provides that all compensation deferred after December31, 2004 under a ‘‘non-qualified deferred compensationplan’’ will, under certain circumstances, be includiblein gross income for the tax year. Section 409A is not intended tochange the tax treatment of incentive stock options or options grantedunder employee stock purchase plans. Furthermore, Section 409A is notintended to apply to non-qualified stock options under certaincircumstances.

In December 2004, the Internal Revenue Serviceissued Notice 2005-1, in which it provides the first part of a seriesof guidelines with respect to the application of Section 409A. Notice2005-1 states that the grant of an incentive stock option does notconstitute a deferral of compensation. Additionally, Notice 2005-1provides that a nonqualified stock option will not provide for adeferral of compensation if: (1) the amount required to purchase stockunder the option (the exercise price) may never be less than the fairmarket value of the underlying stock on the date the option is granted,(2) the receipt, transfer or exercise of the option is subject totaxation under Section 83 of the Internal Revenue Code of 1986, asamended, and (3) the option does not include any feature for thedeferral of recognition of income until the later of exercise ordisposition of the option. We believe that any non-qualified optionsthat we have previously issued would satisfy the aboverequirements.

The Treasury Department has recently issuedproposed regulations regarding the application of Section 409A tononqualified deferred compensation plans. These proposed regulationsincorporate the guidance provided in Notice 2005-1 and providesubstantial additional guidance. As in Notice 2005-1, the proposedregulations provide that a stock option will not provide for deferralof compensation if the same criteria set forth in Notice 2005-1 whichare discussed above are satisfied. Until the proposed regulationsbecome effective, Notice 2005-1 generally remains in effect. Theproposed regulations are proposed to be generally applicable fortaxable years beginning on or after January 1, 2007. However, taxpayersmay generally rely on the proposed regulations until the effective dateof the final regulations.

Except for matters requiringstockholder approval under applicable law or Nasdaq rules, our board ofdirectors will have the right, without further shareholder approval, toamend our stock option plans, if necessary, so that they comply withSection 409A Act, including the guidance issued pursuantthereto.

Indemnification

As permitted under the BusinessCorporation Law of the State of New York, our certificate ofincorporation provides that a director of our company will not bepersonally liable to our company or our shareholders for monetarydamages for breach of a fiduciary duty owed to our company or ourshareholders. By its terms and in accordance with the law of the Stateof New York, however, this provision does not eliminate or otherwiselimit the liability of a director of our company for any breach of dutybased upon (1) an act or omission (a) resulting from actscommitted in bad faith or involving intentional misconduct or involvinga knowing violation of law or (b) from which the directorpersonally derived a financial benefit to which he was not legallyentitled, or (2) an improper declaration of dividends, purchase of oursecurities or other violation of section 719 of the BusinessCorporation Law of the State of New York.

45

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Our certificate of incorporation andbylaws provide that our company shall indemnify our directors andofficers to the fullest extent permitted by New York law. In addition,we have entered into indemnification agreements with each of ourdirectors and executive officers and we maintain directors’ andofficers’ liability insurance.

|               |                                                                                                |
|---------------|------------------------------------------------------------------------------------------------|
| Item12.  | Security Ownership of Certain Beneficial Ownersand Management and Related Stockholder Matters. |

The followingtable sets forth the number of shares of common stock, and thepercentage of shares of common stock, beneficially owned as of November22, 2005 by (1) each director of our company, (2) each NamedExecutive Officer, (3) all persons known by us to be the beneficialowner of more than 5% of our outstanding shares of common stock,and (4) all current directors and named executive officers ofour company as a group (8 persons). The information as to the number ofshares of our common stock beneficially owned by the individuals andentities listed below was derived from reports filed with theSecurities and Exchange Commission by such persons and companyrecords.

|                                                                    |  |                                               |            |                                               |  |         |  |  |  |  |
|--------------------------------------------------------------------|--|-----------------------------------------------|------------|-----------------------------------------------|--|---------|--|--|--|--|
| Name                                                               |  | NumberofShares ofCommonStockBeneficiallyOwned |            | Percentage of CommonStockBeneficiallyOwned(1) |
| TimothyM.Aitken                                                    |  |                                          | 2,086,573  | (2)                                      |  | 4.5%    |
| SarahL.Eames                                                       |  |                                          | 1,103,218  | (3)                                      |  | 2.4%    |
| CharlesF.Murphy                                                    |  |                                          | 206,539    | (4)                                      |  | *       |
| G.RichardGreen                                                     |  |                                          | 87,854     | (5)                                      |  | *       |
| MarkHanley                                                         |  |                                          | —    | (6)                                      |  | — |
| WaynePalladino                                                     |  |                                          | 12,164     | (7)                                      |  | *       |
| JeffreyS.Peris                                                     |  |                                          | 14,000     | (8)                                      |  | *       |
| LewisS.Ranieri                                                     |  |                                          | 12,020,810 | (9)                                      |  | 26.8%   |
| ScottA.Shay                                                        |  |                                          | 11,960,610 | (10)                                     |  | 26.7%   |
| MarkTompkins                                                       |  |                                          | —    | (6)                                      |  | — |
| HyperionPartners IIL.P.                                            |  |                                          | 11,960,610 | (11)                                     |  | 26.7%   |
| HyperionTW FundL.P.                                                |  |                                          | 11,960,610 | (12)                                     |  | 26.7%   |
| HyperionTWH FundLLC                                           |  |                                          | 11,960,610 | (13)                                     |  | 26.7%   |
| HyperionTWH Fund IILLC                                             |  |                                          | 11,960,610 | (14)                                     |  | 26.7%   |
| Washington& Congress Capital Partners,L.P.                     |  |                                          | 7,697,578  | (15)                                     |  | 17.2%   |
| Allcurrent executive officers and directors as a group (8persons). |  |                                          | 15,470,958 | (16)                                     |  | 33.0%   |
|                                                                    |

|  |
|--|
|  |  |
|  |

|         |              |
|---------|--------------|
| *  | Lessthan 1%. |

|           |                                                                                                                                                                                                                                                                                                                                               |
|-----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)  | As of November 22,2005, there were 44,855,772 shares of our common stock outstanding. Thepercentage given for each shareholder assumes that such shareholder hasexercised the options held by such shareholder that are exercisablewithin 60 days of November 22, 2005, but that no other shareholdershave exercised the options held bythem. |

|           |                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|-----------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)  | Consists of 672,007 shares ofcommon stock held by Mr. Aitken, 98,566 shares of common stock held byAitken (English) Company Limited, an affiliate of Mr. Aitken, and1,316,000 shares subject to options held by Mr. Aitken that areexercisable within 60 days of November 22, 2005. Does not include anadditional 8,000 shares subject to options held by Mr. Aitken that arenot exercisable within 60 days of November 22,2005. |

|           |                                                                                                                                                                                                                                                                                                                                                                                                 |
|-----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (3)  | Consists of 473,218 shares ofcommon stock held by Ms. Eames, 4,000 shares of common stock heldjointly by Ms. Eames and her husband and 626,000 shares subject tooptions held by Ms. Eames that are exercisable within 60 days ofNovember 22, 2005. Does not include an additional 8,000 shares subjectto options held by Ms. Eames that are not exercisable within 60 days ofNovember 22, 2005. |

46

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|           |                                                                                                                                                                                                                                                                                                                            |
|-----------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (4)  | Consists of85,539 shares of common stock held by Mr. Murphy and 121,000 sharessubject to options held by Mr. Murphy that are exercisable within 60days of November 22, 2005. Does not include an additional 35,000 sharessubject to options held by Mr. Murphy that are not exercisable within60 days of November 22,2005. |

|           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|-----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (5)  | Consists of 3,000 shares ofcommon stock held by Mr. Green, 57,995 shares of common stock heldjointly by Mr. Green and his wife, 19,259 shares of common stock heldby Orion Nominees Limited, an affiliate of Mr. Green, 5,000 sharessubject to options held by Mr. Green that are exercisable within 60days of November 22, 2005 and 2,600 shares owned of record by Mr.Green’s wife, as to which Mr. Green disclaims beneficialownership. Mr. Green shares voting and dispositive power over theshares of our common stock held by Orion Nominees Limited with hiswife. Does not include an additional 12,000 shares subject to optionsheld by Mr. Green that are not exercisable within 60 days of November22, 2005. |

|           |                                                                                                                                      |
|-----------|--------------------------------------------------------------------------------------------------------------------------------------|
| (6)  | Does not include 15,000shares subject to options held by such individual that are notexercisable within 60 days of November 22,2005. |

|           |                                                                                                                                                                                                                                                                                                             |
|-----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (7)  | Consists of 6,164 shares ofcommon stock held by Mr. Palladino and 6,000 shares subject to optionsthat are exercisable within 60 days of November 22, 2005. Does notinclude an additional 15,000 shares subject to options held by Mr.Palladino that are not exercisable within 60 days of November 22,2005. |

|           |                                                                                                                                                                                                                                                                                                                        |
|-----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (8)  | Consists of 2,000 shares ofcommon stock held by Mr. Peris and 12,000 shares subject to optionsheld by Mr. Peris that are exercisable within 60 days of November 22,2005. Does not include an additional 12,000 shares subject to optionsheld by Mr. Peris that are not exercisable within 60 days of November22, 2005. |

|           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|-----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (9)  | Consists of 60,200 sharesof common stock owned by Mr. Ranieri, 6,854,454 shares of common stockowned by Hyperion Partners II L.P., 4,148,456 shares of common stockowned by Hyperion TW Fund L.P., 482,700 shares of common stock owned byHyperion TWH Fund LLC and 475,000 shares of common stock owned byHyperion TWH Fund II LLC. Each of such entities is an affiliate of Mr.Ranieri. Mr. Ranieri disclaims beneficial ownership of the shares ofcommon stock owned by such entities except to the extent of hispecuniary interest therein. Mr. Ranieri shares voting and dispositivepower over the shares of common stock held by such entities with Mr.Shay. |

|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (10)  | Consists of 6,854,454 sharesof common stock owned by Hyperion Partners II L.P., 4,148,456 shares ofcommon stock owned by Hyperion TW Fund L.P., 482,700 shares of commonstock owned by Hyperion TWH Fund LLC and 475,000 shares of common stockowned by Hyperion TWH Fund II LLC. Each of such entities is anaffiliate of Mr. Shay. Mr. Shay disclaims beneficial ownership of theshares of common stock owned by such entities except to the extent ofhis pecuniary interest therein. Mr. Shay shares voting and dispositivepower over the shares of common stock held by such entities with Mr.Ranieri. |

|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (11)  | Consists of (a) 6,854,454shares of common stock held by Hyperion Partners II L.P. and (b)4,148,456 shares of common stock owned by Hyperion TW Fund L.P.,482,700 shares of common stock owned by Hyperion TWH Fund LLC and475,000 shares of common stock owned by Hyperion TWH Fund II LLC, eachof which are affiliates of Hyperion Partners II L.P. and as to whichHyperion Partners II L.P. disclaims beneficial ownership except to theextent of its pecuniary interest therein. Scott A. Shay, a director ofour company, may be deemed to be the beneficial owner of all of suchshares of common stock. Mr. Shay disclaims beneficial ownership in suchshares except to the extent of his pecuniary interesttherein. |

|            |                                                                                                                                                                                                                                                                |
|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (12)  | Consists of (a) 4,148,456shares of common stock held by Hyperion TW Fund L.P. and (b) 6,854,454shares of common stock owned by Hyperion Partners II L.P., 482,700shares of common stock owned by Hyperion TWH Fund LLC and 475,000shares of common stock owned |

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|        |                                                                                                                                                                                                                                                                                                                                                                                             |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | by Hyperion TWH Fund II LLC, each of whichare affiliates of Hyperion TW Fund L.P. and as to which Hyperion TWFund L.P. disclaims beneficial ownership. Scott A. Shay, a director ofour company, may be deemed to be the beneficial owner of all of suchshares of common stock. Mr. Shay disclaims beneficial ownership in suchshares except to the extent of his pecuniary interesttherein. |

|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (13)  | Consists of (a) 482,700shares of common stock held by Hyperion TWH Fund LLC and (b) 6,854,454shares of common stock owned by Hyperion Partners II L.P., 4,148,456shares of common stock owned by Hyperion TW Fund L.P. and 475,000shares of common stock owned by Hyperion TWH Fund II LLC, each of whichare affiliates of Hyperion TWH Fund LLC and as to which Hyperion TWHFund LLC disclaims beneficial ownership. Scott A. Shay, a director ofour company, may be deemed to be the beneficial owner of all of suchshares of common stock. Mr. Shay disclaims beneficial ownership in suchshares except to the extent of his pecuniary interesttherein. |

|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (14)  | Consists of (a) 475,000shares of common stock held by Hyperion TWH Fund II LLC and (b)6,854,454 shares of common stock owned by Hyperion Partners II L.P.,4,148,456 shares of common stock owned by Hyperion TW Fund L.P. and482,700 shares of common stock owned by Hyperion TWH Fund LLC, each ofwhich are affiliates of Hyperion TWH Fund II LLC and as to whichHyperion TWH Fund II LLC disclaims beneficial ownership. Scott A. Shay,a director of our company, may be deemed to be the beneficial owner ofall of such shares of common stock. Mr. Shay disclaims beneficialownership in such shares except to the extent of his pecuniary interesttherein. |

|            |                                                                                                                                                                                                           |
|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (15)  | Excludes 93,492 shares ofcommon stock held by Triumph III Investors, L.P. Washington &Congress Capital Partners, L.P. may be deemed to be a member of a groupthat includes Triumph III Investors,L.P. |

|            |                                                                                                                                                                                                                                                                                  |
|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (16)  | Includes an aggregate of2,086,000 shares subject to options held by our executive officers anddirectors that are exercisable within 60 days of November 22, 2005 and2,600 shares owned of record by Mr. Green’s wife, as to whichMr. Green disclaims beneficial ownership. |

Equity CompensationPlan Information

The following table sets forth certaininformation as of September 30, 2005 regarding compensation plans underwhich equity securities of our company are authorized forissuance:

Equity Compensation PlanInformation

|                                                       |  |                                                                                           |           |                                                                           |  |                                                                                                                                       |      |        |  |        |           |        |  |  |
|-------------------------------------------------------|--|-------------------------------------------------------------------------------------------|-----------|---------------------------------------------------------------------------|--|---------------------------------------------------------------------------------------------------------------------------------------|------|--------|--|--------|-----------|--------|--|--|
| PlanCategory                                          |  | Number of Securities tobe Issued UponExerciseof Outstanding Options,Warrants andRights(a) |           | Weighted-AverageExercise PriceofOutstanding Options,Warrants andRights(b) |  | Number of SecuritiesRemaining AvailableforFuture Issuance UnderEquity CompensationPlans(ExcludingSecurities Reflected inColumn(a))(c) |
| Equity compensation plans approved byshareholders     |  |                                                                                      | 2,610,334 |                                                                      |  | $                                                                                                                                     | 5.49 |   |  |   | 1,626,487 |   |
| Equitycompensation plans not approved by shareholders |  |                                                                                      | 350,000   |                                                                      |  |                                                                                                                                  | 5.39 |   |  |   | —   |   |
| Total                                                 |  |                                                                                      | 2,960,334 |                                                                      |  | $                                                                                                                                     | 5.48 |   |  |   | 1,626,487 |   |
|                                                       |

|               |                                                |
|---------------|------------------------------------------------|
| Item13.  | Certain Relationships and RelatedTransactions. |

In November 2004, Ms. Eames stepped down as chiefexecutive officer, president and chief operating officer of our companyand assumed the office of executive vice president. In connectiontherewith, Ms. Eames and our company modified her employment agreement,to provide for an annual salary of $200,000 through May 2006. InSeptember 2005, Ms. Eames’ employment agreement 

48

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was further modified to provide that sheshall serve as executive vice president of our company until December31, 2006 at an annual salary of $120,000. See ‘‘Item11—Executive Compensation— Employment Agreements;Termination of Employment and Change-in-ControlArrangements.’’ In connection with the November 2004modification of her employment agreement, our board of directors, uponthe recommendation of the compensation committee, granted Ms. Eamesspecial compensation of $1 million for past services rendered to ourcompany.

In November 2004, Mr. Aitken assumed the office of chiefexecutive officer of our company. At such time, our board of directors,upon the recommendation of the compensation committee, awarded Mr.Aitken a bonus of $50,000 for past services to our company.

InMarch 2005 we granted to each of G. Richard Green, David Macfarlane,Wayne Palladino and Jeffrey S. Peris, who at that time constituted allof the independent directors on our board of directors, options topurchase 12,000 shares of our common stock at a price of $6.20 pershare. The options vest in three equal annual installments beginning onthe first anniversary of the date of grant and have a ten-year life.Mr. Macfarlane resigned from the board of directors in May 2005 withoutsuch options having vested.

In March 2005, we granted CharlesMurphy, our chief financial officer, options to purchase 27,000 sharesof our common stock at a price of $6.20 per share. The options vest inthree equal annual installments beginning on the first anniversary ofthe date of grant and have a ten-year life.

In September 2005, wegranted Mr. Aitken and Mr. Murphy options to purchase 90,000 and 30,000shares, respectively, of our common stock at a price of $5.65 pershare. The options vested in full on the date of grant and have aten-year life. In November 2005, our board of directors, upon therecommendation of our compensation committee, awarded Mr. Aitken andMr. Murphy a bonus of $450,000 and $138,765, respectively, for servicesrendered to our company in fiscal 2005.

In September 2005, uponhis joining the board, we granted Mark Tompkins options to purchase15,000 shares of our common stock at a price of $5.65 per share. Theoptions vest in three equal annual installments beginning on the firstanniversary of the date of grant and have a ten-year life.

InNovember 2005, upon his joining the board, we granted Mark Hanleyoptions to purchase 15,000 shares of our common stock at a price of$6.00 per share. The options vest in three equal annual installmentsbeginning on the first anniversary of the date of grant and have aten-year life.

|                |                                        |
|----------------|----------------------------------------|
| Item 14.  | Principal AccountantFees and Services. |

Audit and Other Fees During Fiscal 2004 andFiscal 2005

The following table sets forth the fees we werebilled in respect of our fiscal years ended September 30, 2004 andSeptember 30, 2005 for various audit and other services provided to usby our auditors, Deloitte & ToucheLLP.

|                   |  |            |           |             |  |        |           |        |  |  |
|-------------------|--|------------|-----------|-------------|--|--------|-----------|--------|--|--|
|              |  | Fiscal2004 |           | Fiscal 2005 |
| Auditfees         |  | $          | 1,170,519 |        |  | $      | 2,018,155 |   |
| Audit-relatedfees |  |       | 111,137   |        |  |   | 97,683    |   |
| Taxfees           |  |       | 442,966   |        |  |   | 342,472   |   |
| All otherfees     |  |       | —   |        |  |   | —   |   |
|                   |

Auditservices included the audit of our annual financial statements and thereview of financial statements included in our quarterly reports onForm 10-Q, as well as the audit of internal controls overfinancial reporting required by Section 404 of the Sarbanes-Oxley Actof 2002. Audit services also included services that were provided inconnection with regulatory filings, including the issuance of comfortletters and consents related to SEC filings and securitiesofferings.

Audit-related services are assurance and relatedservices that are related to the performance of the audit or review ofour financial statements. These services principally consisted of workperformed in connection with audits of our 401(k) plan and feesassociated with compliance matters related toacquisitions.

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Tax services consisted of the preparationand/or review of, and consultations with respect to, federal, state,local and international tax returns.

Pre-ApprovalPolicy

The charter of the Audit Committee was revised andrestated by the board of directors on February 12, 2004. At such time,the charter of the Audit Committee was revised to implement apre-approval policy for the provision of audit and non-audit services.Pursuant to the provisions of its charter, the Audit Committeepre-approves all auditing services and permitted audit-related services(including the fees and terms thereof) to be performed for us by ourindependent auditor, subject to the de minimus exception (the‘‘de minimus exception’’) for non-auditservices that are permitted by the Securities Exchange Act of 1934 andthat are approved by the Audit Committee prior to the completion of theaudit. The Audit Committee may form and delegate authority tosubcommittees consisting of one or more members when appropriate,including the authority to grant pre-approvals of audit and permittednon-audit services, provided that a decision of such a subcommittee togrant pre-approvals shall be presented to the full Audit Committee atits next scheduled meeting.

None of the audit-related services,tax services or other services described above under‘‘Audit and Other Fees During Fiscal 2004 and Fiscal2005’’ were approved by the Audit Committee after thefact in reliance upon the de minimusexception.

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PARTIV

Item 15.    Exhibits and Financial StatementSchedules.

(a) The following documents are filed as partof this Annual Report on Form10-K:

|        |  |                                                                                                                                                                                                    |  |        |  |  |  |  |  |  |
|--------|--|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--------|--|--|--|--|--|--|
| (1)    |  | ConsolidatedFinancialStatements:                                                                                                                                                                   |  | Page   |
|   |  | Reportof Independent Registered Public AccountingFirm                                                                                                                                              |  | F-1    |
|   |  | Consolidated BalanceSheets – September 30, 2005 and2004                                                                                                                                 |  | F-2    |
|   |  | Consolidated Statements ofOperations – For the Years Ended September 30, 2005, 2004and 2003                                                                                             |  | F-3    |
|   |  | ConsolidatedStatements of Changes in Shareholders’ Equity – For theYears Ended September 30, 2005, 2004 and2003                                                                        |  | F-4    |
|   |  | Consolidated Statements ofCash Flows – For the Years Ended September 20, 2005, 2004 and2003                                                                                                  |  | F-5    |
|   |  | Notes to ConsolidatedFinancialStatements                                                                                                                                                           |  | F-7    |
| (2)    |  | ConsolidatedFinancial StatementSchedules:                                                                                                                                                          |  |   |
|   |  | Schedule I –Condensed FinancialInformation                                                                                                                                                   |  | S-1    |
|   |  | Schedule II –Valuation and QualifyingAccounts                                                                                                                                                |  | S-5    |
|   |  | Schedules other thanthose listed above are omitted because they are not required or are notapplicable or the information is shown in the audited consolidatedfinancial statements or relatednotes. |  |   |
|        |

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(3)    Exhibits:

|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                |  |  |  |  |
|---------------|--|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|--|--|
| ExhibitNumber |  | Title                                                                                                                                                                                                                                                                                                                                                                                                          |
| 3.1           |  | RestatedCertificate of Incorporation of United States Home Health Care Corp.(now known as Allied Healthcare International Inc.) filed with theDepartment of State of the State of New York on December 12, 1990, asamended on August 7, 1992 (incorporated herein by reference to Exhibit3.1 of our Quarterly Report on Form 10-Q for the quarter ended April30, 1997).                                        |
| 3.2           |  | Certificate of Amendment tothe Restated Certificate of Incorporation of Transworld HomeHealthcare, Inc. (now known as Allied Healthcare International Inc.)filed with the Department of State of the State of New York on June 28,1995 (incorporated herein by reference to Exhibit 3.2 of our QuarterlyReport on Form 10-Q for the quarter ended April  30,1997).                                             |
| 3.3           |  | Certificate of Amendment to theRestated Certificate of Incorporation of Transworld Home Healthcare,Inc. (now known as Allied Healthcare International Inc.) filed with theDepartment of State of the State of New York on October 9, 1996(incorporated herein by reference to Exhibit 3.3 of our QuarterlyReport on Form 10-Q for the quarter ended April  30,1997).                                           |
| 3.4           |  | Certificate of Amendment to theRestated Certificate of Incorporation of Transworld Home Healthcare,Inc. (now known as Allied Healthcare International Inc.) filed with theDepartment of State of the State of New York on May 6, 1997(incorporated herein by reference to Exhibit 3.4 of our QuarterlyReport on Form 10-Q for the quarter ended April  30,1997).                                               |
| 3.5           |  | Certificate of Amendment of theCertificate of Incorporation of Transworld HealthCare, Inc. (now knownas Allied Healthcare International Inc.) filed with the Department ofState of the State of New York on April 16, 1998 (incorporated hereinby reference to Exhibit 3.5 of our Registration Statement on Form S-4(Reg. St. No. 333-87304) filed with the Securities and ExchangeCommission on May 1, 2002). |
| 3.6           |  | Certificateof Amendment to the Certificate of Incorporation of TransworldHealthcare, Inc. (now known as Allied Healthcare International Inc.)filed with the Department of State of the State of New York on June 7,2002 (incorporated herein by reference to Exhibit 3.1 of our CurrentReport on Form 8-K filed with the Securities and Exchange Commission onJune 10, 2002).                                  |
| 3.7           |  | Certificate of Amendmentto the Certificate of Incorporation of Allied Healthcare InternationalInc. which defines the rights of the Series A Convertible PreferredStock, filed with the Department of State of the State of New York onJune 26, 2002 (incorporated herein by reference to Exhibit 4.1 of ourCurrent Report on Form 8-K filed with the Securities and ExchangeCommission on August 9,2002).      |
| 3.8           |  | Certificate of Amendment to theprovisions of the Certificate of Incorporation of Allied HealthcareInternational Inc. that defines the rights of the Series A ConvertiblePreferred Stock, filed with the Department of State of the State of NewYork on February 12, 2003 (incorporated herein by reference to Exhibit3.8 of our Quarterly Report on Form 10-Q for the quarter ended March31, 2003).            |
| 3.9           |  | Certificate of Amendment ofthe Certificate of Incorporation of Allied Healthcare International,Inc. that eliminates all references to the Series A ConvertiblePreferred Stock, filed with the New York Secretary of State on July 20,2004 (incorporated herein by reference to Exhibit 9 of our Form 8-A/Afiled with the Securities and Exchange Commission on July 21,2004).                                  |
|               |

52

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|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |  |  |  |
|---------------|--|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|--|--|
| ExhibitNumber |  | Title                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 3.10          |  | Certificate ofAmendment of the Certificate of Incorporation of Allied HealthcareInternational, Inc. filed with the Department of State of the State ofNew York on September 10, 2004 (incorporated herein by reference toExhibit 3.1 of our Current Report on Form 8-K filed with the Securitiesand Exchange Commission on September 15,2004).                                                                                                                                                                                                                                           |
| 3.11          |  | Restated Bylaws of TransworldHome Healthcare, Inc. (now known as Allied Healthcare InternationalInc.) (incorporated herein by reference to Exhibit 3.4 of our AnnualReport on Form 10-K for the fiscal year ended October 31,1996).                                                                                                                                                                                                                                                                                                                                                      |
| 3.12          |  | Amendment to the Bylaws ofAllied Healthcare International Inc. effective June 7, 2002(incorporated herein by reference to Exhibit 3.2 of our Current Reporton Form 8-K filed with the Securities and Exchange Commission on June10, 2002).                                                                                                                                                                                                                                                                                                                                               |
| 4.1           |  | Specimen Certificate ofCommon Stock (incorporated herein by reference to Exhibit 4.1 of ourCurrent Report on Form 8-K filed with the Securities and ExchangeCommission on June 10,2002).                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.1          |  | Transworld Home HealthCare, Inc.1992 Stock Option Plan, as amended (incorporated herein by reference toExhibit 10.3 of our Quarterly Report on Form 10-Q for the quarter endedJune 30, 1998).                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.2          |  | Form of IndemnificationAgreement for officers and directors (incorporated herein by referenceto Exhibit 10.31 of our Annual Report on Form 10-K for the fiscal yearended October 31, 1994).                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.3          |  | TransworldHome HealthCare, Inc. 1997 Option Plan for Non-Employee Directors(incorporated herein by reference to Exhibit A of our Proxy Statementfor our annual meeting of shareholders held on May 28,1997).                                                                                                                                                                                                                                                                                                                                                                             |
| 10.4A         |  | VotingTrust Agreement dated December 17, 1999 by and among TransworldHoldings (UK) Limited (whose name was subsequently changed to AlliedHealthcare Group Limited and then Allied Healthcare Group HoldingsLimited), Transworld Healthcare (UK) Limited (now known as AlliedHealthcare Holdings Limited), Transworld Healthcare, Inc. (now known asAllied Healthcare International Inc.), Triumph Partners III, L.P. andRichard Green, as trustee (incorporated herein by reference to Exhibit10.65 of our Annual Report on Form 10-K for the fiscal year endedSeptember  30,1999). |
| 10.4B         |  | AmendmentNo. 1, dated as of July 25, 2002, among Allied Healthcare Group Limited(now know as Allied Healthcare Group Holdings Limited), TransworldHealthcare (UK) Limited (now known as Allied Healthcare HoldingsLimited), Transworld Healthcare, Inc. (now known as Allied HealthcareInternational Inc.), Triumph Partners III, L.P. and Richard Green tothe Voting Trust Agreement dated December 17, 1999 (incorporated hereinby reference to Exhibit 10.6 of our Current Report on Form 8-K filedwith the Securities and Exchange Commission on August 9,2002).                     |
| 10.4C         |  | Deedof Termination, dated June 30, 2004, among Allied Healthcare GroupLimited (now known as Allied Healthcare Group Holdings Limited), AlliedHealthcare Holdings Limited, Allied Healthcare International Inc.,Washington & Congress Capital Partners, L.P. and Richard Green(incorporated herein by reference to Exhibit 10.3 of our QuarterlyReport on Form 10-Q for the quarter ended June 30,2004).                                                                                                                                                                              |
|               |

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|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |  |  |  |
|---------------|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|--|--|
| ExhibitNumber |  | Title                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.5A         |  | SeniorCredit Agreement, dated as of December 17, 1999, among TransworldHoldings (UK) Limited (whose name was subsequently changed to AlliedHealthcare Group Limited and then Allied Healthcare Group HoldingsLimited), Transworld Healthcare (UK) Limited (now known as AlliedHealthcare Holdings Limited), Paribas as Arranger, Paribas and BarclaysBank plc as Underwriters, Barclays Bank plc as Agent and Security Agentand others (incorporated herein by reference to Exhibit 10.67 of ourAnnual Report on Form 10-K for the fiscal year endedSeptember 30,1999).    |
| 10.5B         |  | SecondAmendment Agreement, dated September 27, 2001, relating to the SeniorCredit Agreement dated December 17, 1999 among Allied Healthcare GroupLimited (now known as Allied Healthcare Group Holdings Limited),Transworld Healthcare (UK) Limited (now known as Allied HealthcareHoldings Limited), BNP Paribas as Arranger, Underwriter and Agent,Barclays Bank plc as Agent and Security Agent and others (incorporatedherein by reference to Exhibit 10.4 of our Current Report onForm 8-K filed with the Securities and Exchange Commission onOctober 12,2001). |
| 10.5C         |  | Letter,dated October 1, 2003, from Barclays Bank plc to Allied HealthcareGroup Limited (now known as Allied Healthcare Group Holdings Limited)amending the Senior Credit Agreement dated December 17, 1999(incorporated herein by reference to Exhibit 10.30 to our RegistrationStatement on Form S-1 (Reg. No. 333-115559) filed with the Securitiesand Exchange Commission on May 17,2004).                                                                                                                                                                                   |
| 10.5D         |  | Letter,dated February 4, 2004, from Barclays Bank plc to Allied HealthcareGroup Limited (now known as Allied Healthcare Group Holdings Limited)amending the Senior Credit Agreement dated December 17, 1999(incorporated herein by reference to Exhibit 10.32 to our RegistrationStatement on Form S-1 (Reg. No. 333-115559) filed with the Securitiesand Exchange Commission on May 17,2004).                                                                                                                                                                                  |
| 10.5E         |  | Letter,dated March 8, 2004, from Barclays Bank plc to Allied Healthcare GroupLimited (now known as Allied Healthcare Group Holdings Limited)amending the Senior Credit Agreement dated December 17, 1999(incorporated herein by reference to Exhibit 10.34 to our RegistrationStatement on Form S-1 (Reg. No. 333-115559) filed with the Securitiesand Exchange Commission on May 17,2004).                                                                                                                                                                                     |
| 10.6A         |  | MezzanineCredit Agreement, dated as of December 17, 1999, among TransworldHoldings (UK) Limited (whose name was subsequently changed to AlliedHealthcare Group Limited and then Allied Healthcare Group HoldingsLimited), Transworld Healthcare (UK) Limited (now known as AlliedHealthcare Holdings Limited), Paribas as Arranger, Underwriter andAgent, Barclays Bank plc as Security Agent and others (incorporatedherein by reference to Exhibit 10.68 of our Annual Report on Form 10-Kfor the fiscal year ended September 30,1999).                                       |
| 10.6B         |  | SecondAmendment Agreement, dated September 27, 2001, relating to theMezzanine Credit Agreement dated December 17, 1999 among AlliedHealthcare Group Limited (now known as Allied Healthcare Group HoldingsLimited), Transworld Healthcare (UK) Limited (now known as AlliedHealthcare Holdings Limited), BNP Paribas as Arranger, Underwriter andAgent, Barclays Bank plc as Agent and Security Agent and others(incorporated herein by reference to Exhibit 10.3 of our Current Reporton Form 8-K filed with the Securities and Exchange Commission onOctober 12, 2001).       |
|               |

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|               |  |                                                                                                                                                                                                                                                                                                                                                                                             |  |  |  |  |
|---------------|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|--|--|
| ExhibitNumber |  | Title                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.6C         |  | Letter,dated October 1, 2003, from BNP Paribas to Allied Healthcare GroupLimited (now known as Allied Healthcare Group Holdings Limited)amending the Mezzanine Credit Agreement dated December 17, 1999(incorporated herein by reference to Exhibit 10.31 to our RegistrationStatement on Form S-1 (Reg. No. 333-115559) filed with the Securitiesand Exchange Commission on May 17,2004).  |
| 10.6D         |  | Letter,dated February 4, 2004, from BNP Paribas to Allied Healthcare GroupLimited (now known as Allied Healthcare Group Holdings Limited)amending the Mezzanine Credit Agreement dated December 17, 1999(incorporated herein by reference to Exhibit 10.33 to our RegistrationStatement on Form S-1 (Reg. No. 333-115559) filed with the Securitiesand Exchange Commission on May 17,2004). |
| 10.6E         |  | Letter,dated March 8, 2004, from BNP Paribas to Allied Healthcare GroupLimited (now known as Allied Healthcare Group Holdings Limited)amending the Mezzanine Credit Agreement dated December 17, 1999(incorporated herein by reference to Exhibit 10.35 to our RegistrationStatement on Form S-1 (Reg. No. 333-115559) filed with the Securitiesand Exchange Commission on May 17,2004).    |
| 10.7A         |  | EmploymentAgreement, dated September 24, 2001, between Transworld Healthcare,Inc. (now known as Allied Healthcare International Inc.) and Timothy M.Aitken (incorporated herein by reference to Exhibit 10.16 of our AnnualReport on Form 10-K for the fiscal year ended September 30,2001).                                                                                                |
| 10.7B         |  | EmploymentAgreement, dated September 24, 2001, between Transworld Healthcare,Inc. (now known as Allied Healthcare International Inc.) and SarahEames (incorporated herein by reference to Exhibit 10.17 of our AnnualReport on Form 10-K for the fiscal year ended September 30,2001).                                                                                                      |
| 10.7C         |  | AmendmentNo. 1, dated November 17, 2004, to the Employment Agreement , datedSeptember 24, 2001, between Allied Healthcare International Inc. andSarah L. Eames (incorporated herein by reference to Exhibit 10.1 of ourCurrent Report on Form 8-K filed with the Securities and ExchangeCommission on November 17, 2004).                                                                   |
| 10.7D*        |  | AmendmentNo. 2, dated September 28, 2005, to the Employment Agreement, datedSeptember 24, 2001, as amended by Amendment No. 1, dated November 17,2004, between Allied Healthcare International Inc. and Sarah L.Eames.                                                                                                                                                                      |
| 10.8A         |  | IrrevocableUndertaking, dated April 22, 2002, of Timothy M. Aitken relating to theredeemable shares of Transworld Healthcare (UK) Limited (now known asAllied Healthcare Holdings Limited) (incorporated herein by referenceto Exhibit 10.26 of our Registration Statement on Form S-4 (Reg. St.No. 333-87304) filed with the Securities and Exchange Commission on May1,2002).             |
| 10.8B         |  | IrrevocableUndertaking, dated April 22, 2002, of Sarah L. Eames relating to theredeemable shares of Transworld Healthcare (UK) Limited (now known asAllied Healthcare Holdings Limited) (incorporated herein by referenceto Exhibit 10.27 of our Registration Statement on Form S-4 (Reg. St.No. 333-87304) filed with the Securities and Exchange Commission on May1, 2002).               |
| 10.9          |  | Registration RightsAgreement, dated April 30, 2002, among Transworld Healthcare, Inc. (nowknown as Allied Healthcare International Inc.), Triumph Partners III,L.P. and Triumph III Investors, L.P. (incorporated herein by referenceto Exhibit 10.29 of our Registration Statement on Form S-4 (Reg. St.No. 333-87304) filed with the Securities and Exchange Commission on May1, 2002).   |
|               |

55

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|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |  |  |  |
|---------------|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|--|--|
| ExhibitNumber |  | Title                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.10         |  | 2002 Stock Option Plan(incorporated herein by reference to Annex D to the proxystatement/prospectus forming a part of Amendment No. 1 to ourRegistration Statement on Form S-4 (Reg. St. No. 333-87304) filed withthe Securities and Exchange Commission on May 21,2002).                                                                                                                                                                                                                                                |
| 10.11A        |  | Letteragreement, dated December 2, 2003, between Timothy M. Aitken and AlliedHealthcare International Inc. relating to loan repayment (incorporatedherein by reference to Exhibit 10.36A to our Registration Statement onForm S-1 (Reg. No. 333-115559) filed with the Securities and ExchangeCommission on May 17,2004).                                                                                                                                                                                                |
| 10.11B        |  | Letteragreement, dated December 2, 2003, between Sarah L. Eames and AlliedHealthcare International Inc. relating to loan repayment (incorporatedherein by reference to Exhibit 10.36B to our Registration Statement onForm S-1 (Reg. No. 333-115559) filed with the Securities and ExchangeCommission on May 17,2004).                                                                                                                                                                                                   |
| 10.12         |  | Employment Agreement, datedMarch 29, 2000, between Allied Medicare Limited and Charles Murphy(incorporated herein by reference to Exhibit 10.37 to our RegistrationStatement on Form S-1 (Reg. No. 333-115559) filed with the Securitiesand Exchange Commission on May 17,2004).                                                                                                                                                                                                                                         |
| 10.13         |  | Form of Conversion Agreementbetween Allied Healthcare International Inc. and the holders of theshares of Series A Convertible Preferred Stock (incorporated herein byreference to Exhibit 10.38 to our Registration Statement on Form S-1(Reg. No. 333-115559) filed with the Securities and Exchange Commissionon May 17, 2004).                                                                                                                                                                                        |
| 10.14         |  | Agreement, datedFebruary 17, 2004, among Allied Healthcare (UK) Limited and Atos KPMGConsulting Limited (incorporated herein by reference to Exhibit 10.1 ofour Quarterly Report on Form 10-Q for the quarter ended March 31,2004).                                                                                                                                                                                                                                                                                      |
| 10.15         |  | Underwriting Agreement, datedJuly 1, 2004, between Allied Healthcare International Inc. and theunderwriters named therein (incorporated herein by referenced toExhibit 10.1 of our Quarterly Report on Form 10-Q for the quarter endedJune 30, 2004).                                                                                                                                                                                                                                                                    |
| 10.16         |  | Facility Agreement,dated July 19, 2004, among Allied Healthcare Group Limited (now knownas Allied Healthcare Group Holdings Limited), Allied HealthcareInternational, Inc., Allied Healthcare Holdings Limited, thesubsidiaries of Allied Healthcare International Inc. named therein asguarantors, Barclays Capital and Lloyds TSB Bank plc, as arrangers, andthe other banks named therein (incorporated herein by referenced toExhibit 10.4 of our Quarterly Report on Form 10-Q for the quarter endedJune 30, 2004). |
| 10.17         |  | Floating SecurityDocument, dated July 19, 2004, among Allied Healthcare Group Limited(now known as Allied Healthcare Group Holdings Limited), AlliedHealthcare Holdings Limited, the subsidiaries of Allied HealthcareInternational Inc. named therein, and Barclays Bank plc, as securityagent (incorporated herein by referenced to Exhibit 10.5 of ourQuarterly Report on Form 10-Q for the quarter ended June 30,2004).                                                                                              |
| 10.18         |  | Subordination Deed, dated July19, 2004, among Allied Healthcare International Inc., Barclays Bank plcand Allied Healthcare Group Limited (now known as Allied HealthcareGroup Holdings Limited) (incorporated herein by referenced to Exhibit10.6 of our Quarterly Report on Form 10-Q for the quarter ended June30, 2004).                                                                                                                                                                                              |
| 11            |  | Statement re: computation ofearnings per share (computation can be determined clearly from thematerial contained in this Annual Report on Form10-K).                                                                                                                                                                                                                                                                                                                                                                     |
| 14            |  | Allied Healthcare InternationalInc. Code of Conduct (incorporated herein by reference to Exhibit 14 toour Form 10-K for the fiscal year ended September 30,2003).                                                                                                                                                                                                                                                                                                                                                        |
|               |

56

----

|                 |  |                                                                                                                           |  |  |  |  |
|-----------------|--|---------------------------------------------------------------------------------------------------------------------------|--|--|--|--|
| ExhibitNumber   |  | Title                                                                                                                     |
|   21* |  | Subsidiariesof Allied Healthcare InternationalInc.                                                                        |
|   23* |  | Consent of Deloitte &Touche LLP, independent registered public accounting firm of AlliedHealthcare International Inc. |
| 31.1*           |  | Rule13a-14(a)/15d-14(a) Certification of Chief ExecutiveOfficer.                                                          |
| 31.2*           |  | Rule 13a-14(a)/15d-14(a)Certification of Chief FinancialOfficer.                                                          |
| 32.1*           |  | Section 1350 Certification ofChief Executive Officer.                                                                     |
| 32.2*           |  | Section 1350Certification of Chief FinancialOfficer.                                                                      |
|                 |

|  |
|--|
|  |  |
|  |

|   |                |
|---|----------------|
| * | Filedherewith. |

57

----

SIGNATURES

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed onits behalf by the undersigned, thereunto duly authorized.

|        |  |                                     |  |                                                                                                      |  |  |  |  |  |  |
|--------|--|-------------------------------------|--|------------------------------------------------------------------------------------------------------|--|--|--|--|--|--|
|   |  | ALLIEDHEALTHCARE INTERNATIONAL INC. |
|   |  | By:                                 |  | /s/ Timothy M.Aitken                                                                                 |
|   |  |                                |  | Name:  TimothyM. Aitken Title:  Chairman of the Board andChief Executive Officer |
|        |

Dated:November 28, 2005

POWER OF ATTORNEY

Each person whose signature appears below constitutes andappoints Timothy M. Aitken, Charles F. Murphy and Marvet Abbassi, andeach of them, his or her true and lawful attorneys-in-fact and agents,with full power of substitution and resubstitution, for him or her andin his or her name, place and stead, in any and all capacities, to signany and all amendments to this Annual Report on Form 10-K, and to filethe same, with all exhibits thereto, and other documents in connectiontherewith, with the Securities and Exchange Commission, granting untosaid attorneys-in-fact and agents, and each of them, full power andauthority to do and perform each and every act and thing requisite andnecessary to be done, as fully to all intents and purposes as he or shemight or could do in person, hereby ratifying and confirming all thatsaid attorneys-in-fact and agents or any of them, or their or his orher substitute or substitutes, may lawfully do or cause to be done byvirtue hereof.

Pursuant to the requirements of theSecurities Exchange Act of 1934, this report has been signed below bythe following persons on behalf of the registrant and in the capacitiesand on the dates indicated.

|                      |  |                                                                             |  |                   |
|----------------------|--|-----------------------------------------------------------------------------|--|-------------------|
|                      |  |                                                                             |  |                   |
|                      |
| /s/Timothy M. Aitken |  | Chairman of the BoardandChief Executive Officer(principal executiveofficer) |  | November 28,2005  |
|                      |
| Timothy M.Aitken     |
|                      |
| /s/ Sarah L. Eames   |  | Executive Vice PresidentandDirector                                         |  | November 28, 2005 |
|                      |
| Sarah L.Eames        |
|                      |
| /s/Charles F. Murphy |  | Chief Financial Officer(principal financialandaccounting officer)           |  | November 28,2005  |
|                      |
| Charles F.Murphy     |
|                      |
| /s/ G. Richard Green |  | Director                                                                    |  | November 22,2005  |
|                      |
| G.Richard Green      |
|                      |
| /s/ Mark Hanley      |  | Director                                                                    |  | November 28,2005  |
|                      |
| MarkHanley           |
|                      |
| /s/ Wayne Palladino  |  | Director                                                                    |  | November 28,2005  |
|                      |
| WaynePalladino       |
|                      |
| /s/ Jeffrey S.Peris  |  | Director                                                                    |  | November 28,2005  |
|                      |
| Jeffrey S.Peris      |
|                      |
| /s/ Scott A. Shay    |  | Director                                                                    |  | November 28,2005  |
|                      |
| Scott A.Shay         |
|                      |
| /s/ Mark Tompkins    |  | Director                                                                    |  | November 28,2005  |
|                      |
| MarkTompkins         |
|                      |

58

----

ALLIEDHEALTHCARE INTERNATIONAL INC.

|                                                                                                                              |  |        |        |        |  |  |
|------------------------------------------------------------------------------------------------------------------------------|--|--------|--------|--------|--|--|
| **Indexto Consolidated FinancialStatements**                                                                                 |  | Page   |
| Report ofIndependent Registered Public AccountingFirm                                                                        |  |   | F-1    |   |
| Consolidated Balance Sheets— September 30, 2005 and 2004                                                               |  |   | F-2    |   |
| Consolidated Statements of Operations— for the years ended September 30, 2005, 2004 and2003                            |  |   | F-3    |   |
| Consolidated Statements of Changesin Shareholders’ Equity — for the years ended September30, 2005, 2004 and 2003 |  |   | F-4    |   |
| ConsolidatedStatements of Cash Flows — for the years ended September 30,2005, 2004 and 2003                            |  |   | F-5    |   |
| Notes toConsolidated Financial Statements                                                                                    |  |   | F-7    |   |
| **Index to ConsolidatedFinancial Statement Schedules**                                                                       |  |   |   |   |
| Schedule I— Condensed FinancialInformation                                                                             |  |   | S-1    |   |
| Schedule II —Valuation and QualifyingAccounts                                                                          |  |   | S-5    |   |
|                                                                                                                              |

F-i

----

REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To theBoard of Directors and Shareholders ofAllied HealthcareInternational Inc.New York, NY

Wehave audited the accompanying consolidated balance sheets of AlliedHealthcare International Inc. and subsidiaries (the"Company") as of September 30, 2005 and 2004,and the related consolidated statements of income, shareholders'equity, and cash flows for each of the three years in the period endedSeptember 30, 2005. Our audits also included the financial statementschedules listed in the Index at Item 15. These financial statementsand financial statement schedules are the responsibility of theCompany's management. Our responsibility is to express an opinionon the financial statements and financial statement schedules based onour audits.

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (UnitedStates). Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements arefree of material misstatement. An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principlesused and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believethat our audits provide a reasonable basis for our opinion.

Inour opinion, such consolidated financial statements present fairly, inall material respects, the financial position of Allied HealthcareInternational Inc. and subsidiaries as of September 30, 2005 and 2004,and the results of their operations and their cash flows for each ofthe three years in the period ended September 30, 2005, in conformitywith accounting principles generally accepted in the United States ofAmerica. Also, in our opinion, such financial statement schedules, whenconsidered in relation to the basic consolidated financial statementstaken as a whole, present fairly, in all material respects, theinformation set forth therein.

We have also audited, inaccordance with the standards of the Public Company AccountingOversight Board (United States), the effectiveness of theCompany's internal control over financial reporting as ofSeptember 30, 2005, based on the criteria established in InternalControl—Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission and our reportdated November 28, 2005 expressed an unqualified opinion onmanagement's assessment of the effectiveness of theCompany's internal control over financial reporting and anunqualified opinion on the effectiveness of the Company'sinternal control over financial reporting.

/s/DELOITTE & TOUCHE LLPNew York, New YorkNovember 28, 2005

F-1

----

ALLIEDHEALTHCARE INTERNATIONAL INC.CONSOLIDATED BALANCESHEETS(In thousands, except per sharedata)

|                                                                                                     |  |                  |         |                   |  |        |         |         |  |  |
|-----------------------------------------------------------------------------------------------------|--|------------------|---------|-------------------|--|--------|---------|---------|--|--|
| ASSETS                                                                                              |  | September30,2005 |         | September 30,2004 |
| Currentassets:                                                                                      |  |             |    |              |  |   |    |    |
| Cash andcash equivalents                                                                            |  | $                | 5,873   |              |  | $      | 9,299   |    |
| Restricted cash                                                                                     |  |             | — |              |  |   | 1,799   |    |
| Accounts receivable, less allowance for doubtful accounts of$1,734 and $1,269, respectively         |  |             | 33,443  |              |  |   | 31,263  |    |
| Unbilled accountsreceivable                                                                         |  |             | 11,197  |              |  |   | 9,325   |    |
| Inventories                                                                                         |  |             | 359     |              |  |   | 403     |    |
| Prepaid expenses and otherassets                                                                    |  |             | 3,028   |              |  |   | 2,080   |    |
| Total current assets                                                                                |  |             | 53,900  |              |  |   | 54,169  |    |
| Property and equipment,net                                                                          |  |             | 22,538  |              |  |   | 16,584  |    |
| Goodwill                                                                                            |  |             | 216,984 |              |  |   | 206,110 |    |
| Other intangible assets, net                                                                        |  |             | 9,290   |              |  |   | 4,306   |    |
| Derivative asset                                                                                    |  |             | — |              |  |   | 312     |    |
| Deferred financing costs and otherassets                                                            |  |             | 727     |              |  |   | 913     |    |
| Total assets                                                                                        |  | $                | 303,439 |              |  | $      | 282,394 |    |
| **LIABILITIES ANDSHAREHOLDERS'EQUITY**                                                              |  |             |    |              |  |   |    |    |
| Currentliabilities:                                                                                 |  |             |    |              |  |   |    |    |
| Notespayable                                                                                        |  | $                | — |              |  | $      | 1,799   |    |
| Currentportion of long-term debt                                                                    |  |             | 10,577  |              |  |   | 10,796  |    |
| Liabilities of discontinued operations                                                              |  |             | 690     |              |  |   | 690     |    |
| Accounts payable                                                                                    |  |             | 2,649   |              |  |   | 1,700   |    |
| Accrued expenses, inclusive of payrolland related expenses                                          |  |             | 26,463  |              |  |   | 24,950  |    |
| Taxes payable                                                                                       |  |             | 2,152   |              |  |   | 766     |    |
| Total currentliabilities                                                                            |  |             | 42,531  |              |  |   | 40,701  |    |
| Long-term debt                                                                                      |  |             | 53,765  |              |  |   | 52,183  |    |
| Derivative liability                                                                                |  |             | 750     |              |  |   | — |    |
| Deferred income taxes and otherlong-term liabilities                                                |  |             | 4,534   |              |  |   | 2,533   |    |
| Totalliabilities                                                                                    |  |             | 101,580 |              |  |   | 95,417  |    |
| Commitments andcontingencies                                                                        |  |             |    |              |  |   |    |    |
| Shareholders'equity:                                                                                |  |             |    |              |  |   |    |    |
| Preferred stock, $.01 parvalue; authorized 10,000 shares, issued and outstanding –none        |  |             | — |              |  |   | — |    |
| Common stock,$.01 par value; authorized 80,000 shares, issued 45,441 and 45,050shares, respectively |  |             | 454     |              |  |   | 450     |    |
| Additional paid-in capital                                                                          |  |             | 237,796 |              |  |   | 236,988 |    |
| Accumulated other comprehensiveincome                                                               |  |             | 6,112   |              |  |   | 10,778  |    |
| Accumulateddeficit                                                                                  |  |             | (40,209 | )            |  |   | (58,945 | )  |
|                                                                                                |  |             | 204,153 |              |  |   | 189,271 |    |
| Lesscost of treasury stock (585shares)                                                              |  |             | (2,294  | )            |  |   | (2,294  | )  |
| Total shareholders'equity                                                                           |  |             | 201,859 |              |  |   | 186,977 |    |
| Total liabilities and shareholders'equity                                                           |  | $                | 303,439 |              |  | $      | 282,394 |    |
|                                                                                                     |

See notes to consolidatedfinancial statements.

F-2

----

ALLIED HEALTHCARE INTERNATIONALINC.CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands,except per sharedata)

|                                                              |  |                            |         |                            |  |                            |         |         |  |        |         |         |  |  |
|--------------------------------------------------------------|--|----------------------------|---------|----------------------------|--|----------------------------|---------|---------|--|--------|---------|---------|--|--|
|                                                         |  | YearEndedSeptember 30,2005 |         | Year EndedSeptember30,2004 |  | Year EndedSeptember30,2003 |
| Revenues:                                                    |  |                       |    |                       |  |                       |    |    |  |   |    |    |
| Netpatient services                                          |  | $                          | 342,031 |                       |  | $                          | 317,393 |    |  | $      | 287,964 |    |
| Net respiratory, medical equipment andsupplies               |  |                       | 9,158   |                       |  |                       | 7,905   |    |  |   | 6,415   |    |
| Totalrevenues                                                |  |                       | 351,189 |                       |  |                       | 325,298 |    |  |   | 294,379 |    |
| Cost ofrevenues:                                             |  |                       |    |                       |  |                       |    |    |  |   |    |    |
| Patientservices                                              |  |                       | 243,304 |                       |  |                       | 227,816 |    |  |   | 209,422 |    |
| Respiratory, medical equipment and supplies                  |  |                       | 4,214   |                       |  |                       | 4,311   |    |  |   | 3,634   |    |
| Total cost ofrevenues                                        |  |                       | 247,518 |                       |  |                       | 232,127 |    |  |   | 213,056 |    |
| Grossprofit                                                  |  |                       | 103,671 |                       |  |                       | 93,171  |    |  |   | 81,323  |    |
| Selling, general andadministrative expenses                  |  |                       | 73,948  |                       |  |                       | 63,544  |    |  |   | 53,648  |    |
| Operatingincome                                              |  |                       | 29,723  |                       |  |                       | 29,627  |    |  |   | 27,675  |    |
| Interestincome                                               |  |                       | 212     |                       |  |                       | 852     |    |  |   | 2,032   |    |
| Interest expense                                             |  |                       | (4,201  | )                     |  |                       | (14,579 | )  |  |   | (13,311 | )  |
| Foreign exchangeloss                                         |  |                       | (98     | )                     |  |                       | (184    | )  |  |   | (18     | )  |
| Otherexpense                                                 |  |                       | (175    | )                     |  |                       | — |    |  |   | — |    |
| Income before income taxes anddiscontinued operations        |  |                       | 25,461  |                       |  |                       | 15,716  |    |  |   | 16,378  |    |
| Provision for incometaxes                                    |  |                       | 6,725   |                       |  |                       | 5,847   |    |  |   | 4,910   |    |
| Income from continuingoperations                             |  |                       | 18,736  |                       |  |                       | 9,869   |    |  |   | 11,468  |    |
| Discontinuedoperations:                                      |  |                       |    |                       |  |                       |    |    |  |   |    |    |
| Loss fromdiscontinued operations                             |  |                       | — |                       |  |                       | — |    |  |   | (16     | )  |
| Gain on disposal of subsidiaries, net of taxes of$775        |  |                       | — |                       |  |                       | — |    |  |   | 519     |    |
|                                                         |  |                       | — |                       |  |                       | — |    |  |   | 503     |    |
| Net income                                                   |  |                       | 18,736  |                       |  |                       | 9,869   |    |  |   | 11,971  |    |
| Redeemable preferred dividends, conversion fees andaccretion |  |                       | — |                       |  |                       | 7,020   |    |  |   | 4,005   |    |
| Net income available to commonshareholders                   |  | $                          | 18,736  |                       |  | $                          | 2,849   |    |  | $      | 7,966   |    |
| Basic income per share ofcommon stockfrom:                   |  |                       |    |                       |  |                       |    |    |  |   |    |    |
| Income fromcontinuing operations                             |  | $                          | 0.42    |                       |  | $                          | 0.10    |    |  | $      | 0.34    |    |
| Income from discontinuedoperations                           |  |                       | — |                       |  |                       | — |    |  |   | 0.02    |    |
| Net income available to commonshareholders                   |  | $                          | 0.42    |                       |  | $                          | 0.10    |    |  | $      | 0.36    |    |
| Diluted income per share ofcommon stockfrom:                 |  |                       |    |                       |  |                       |    |    |  |   |    |    |
| Income fromcontinuing operations                             |  | $                          | 0.41    |                       |  | $                          | 0.10    |    |  | $      | 0.34    |    |
| Income from discontinuedoperations                           |  |                       | — |                       |  |                       | — |    |  |   | 0.02    |    |
| Net income available to commonshareholders                   |  | $                          | 0.41    |                       |  | $                          | 0.10    |    |  |   | 0.36    |    |
| Weighted average number ofcommon sharesoutstanding:          |  |                       |    |                       |  |                       |    |    |  |   |    |    |
| Basic                                                        |  |                       | 44,684  |                       |  |                       | 27,419  |    |  |   | 21,962  |    |
| Diluted                                                      |  |                       | 45,169  |                       |  |                       | 28,104  |    |  |   | 22,304  |    |
|                                                              |

See notes toconsolidated financial statements.

F-3

----

ALLIED HEALTHCARE INTERNATIONALINC.CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'EQUITY(Inthousands)

|                                                                                                       |  |             |        |                           |  |                                              |        |                            |  |                |         |                |  |        |        |         |  |        |         |         |  |        |         |         |  |        |        |         |  |        |          |         |  |  |
|-------------------------------------------------------------------------------------------------------|--|-------------|--------|---------------------------|--|----------------------------------------------|--------|----------------------------|--|----------------|---------|----------------|--|--------|--------|---------|--|--------|---------|---------|--|--------|---------|---------|--|--------|--------|---------|--|--------|----------|---------|--|--|
|                                                                                                  |  | CommonStock |        | Additional Paid-inCapital |  | Accumulated Other Comprehensive(Loss) Income |        | Retained (Deficit)Earnings |  | Officers'Loans |         | TreasuryShares |  | Total  |
|                                                                                                  |  | Shares      |        | Amount                    |  |
| Balance,October 1, 2002                                                                               |  |        | 20,945 |                      |  | $                                            | 209    |                       |  | $              | 139,309 |           |  | $      | (3,112 | )  |  | $      | (80,785 | )  |  | $      | (958    | )  |  | $      | (720   | )  |  | $      | 53,943   |    |
| Comprehensiveincome:                                                                                  |  |        |   |                      |  |                                         |   |                       |  |           |    |           |  |   |   |    |  |   |    |    |  |   |    |    |  |   |   |    |  |   |     |    |
| Netincome                                                                                             |  |        |   |                      |  |                                         |   |                       |  |           |    |           |  |   |   |    |  |   | 11,971  |    |  |   |    |    |  |   |   |    |  |   | 11,971   |    |
| Foreign currency translationadjustment                                                                |  |        |   |                      |  |                                         |   |                       |  |           |    |           |  |   | 6,252  |    |  |   |    |    |  |   |    |    |  |   |   |    |  |   | 6,252    |    |
| Comprehensiveincome                                                                                   |  |        |   |                      |  |                                         |   |                       |  |           |    |           |  |   |   |    |  |   |    |    |  |   |    |    |  |   |   |    |  |   | 18,223   |    |
| Issuance of common stockfor:                                                                          |  |        |   |                      |  |                                         |   |                       |  |           |    |           |  |   |   |    |  |   |    |    |  |   |    |    |  |   |   |    |  |   |     |    |
| Reorganization                                                                                        |  |        | 890    |                      |  |                                         | 9      |                       |  |           | 3,471   |           |  |   |   |    |  |   |    |    |  |   |    |    |  |   |   |    |  |   | 3,480    |    |
| Acquisition of Medic-One Group Limited                                                                |  |        | 670    |                      |  |                                         | 7      |                       |  |           | 2,873   |           |  |   |   |    |  |   |    |    |  |   |    |    |  |   |   |    |  |   | 2,880    |    |
| Exercise of stock options                                                                             |  |        | 184    |                      |  |                                         | 2      |                       |  |           | 666     |           |  |   |   |    |  |   |    |    |  |   |    |    |  |   |   |    |  |   | 668      |    |
| Common stock issuancecosts                                                                            |  |        |   |                      |  |                                         |   |                       |  |           | (20     | )         |  |   |   |    |  |   |    |    |  |   |    |    |  |   |   |    |  |   | (20      | )  |
| Accretion of Series A preferred stock issuancecosts                                                   |  |        |   |                      |  |                                         |   |                       |  |           | (482    | )         |  |   |   |    |  |   |    |    |  |   |    |    |  |   |   |    |  |   | (482     | )  |
| Dividends on Series A preferredstock                                                                  |  |        |   |                      |  |                                         |   |                       |  |           | (3,523  | )         |  |   |   |    |  |   |    |    |  |   |    |    |  |   |   |    |  |   | (3,523   | )  |
| Issuance of warrants for professionalservices                                                         |  |        |   |                      |  |                                         |   |                       |  |           | 603     |           |  |   |   |    |  |   |    |    |  |   |    |    |  |   |   |    |  |   | 603      |    |
| Cost oftreasuryshares                                                                                 |  |        |   |                      |  |                                         |   |                       |  |           |    |           |  |   |   |    |  |   |    |    |  |   |    |    |  |   | (565   | )  |  |   | (565     | )  |
| Interest on notes toofficers                                                                          |  |        |   |                      |  |                                         |   |                       |  |           |    |           |  |   |   |    |  |   |    |    |  |   | (44     | )  |  |   |   |    |  |   | (44      | )  |
| Balance, September 30, 2003                                                                           |  |        | 22,689 |                      |  |                                         | 227    |                       |  |           | 142,897 |           |  |   | 3,140  |    |  |   | (68,814 | )  |  |   | (1,002  | )  |  |   | (1,285 | )  |  |   | 75,163   |    |
| Comprehensive income:                                                                                 |  |        |   |                      |  |                                         |   |                       |  |           |    |           |  |   |   |    |  |   |    |    |  |   |    |    |  |   |   |    |  |   |     |    |
| Netincome                                                                                             |  |        |   |                      |  |                                         |   |                       |  |           |    |           |  |   |   |    |  |   | 9,869   |    |  |   |    |    |  |   |   |    |  |   | 9,869    |    |
| Foreign currencytranslation adjustment                                                                |  |        |   |                      |  |                                         |   |                       |  |           |    |           |  |   | 7,638  |    |  |   |    |    |  |   |    |    |  |   |   |    |  |   | 7,638    |    |
| Comprehensiveincome                                                                                   |  |        |   |                      |  |                                         |   |                       |  |           |    |           |  |   |   |    |  |   |    |    |  |   |    |    |  |   |   |    |  |   | 17,507   |    |
| Issuance of common stockfor:                                                                          |  |        |   |                      |  |                                         |   |                       |  |           |    |           |  |   |   |    |  |   |    |    |  |   |    |    |  |   |   |    |  |   |     |    |
| Offering                                                                                              |  |        | 14,500 |                      |  |                                         | 145    |                       |  |           | 70,905  |           |  |   |   |    |  |   |    |    |  |   |    |    |  |   |   |    |  |   | 71,050   |    |
| Conversion of Series A preferredstock                                                                 |  |        | 7,774  |                      |  |                                         | 77     |                       |  |           | 35,136  |           |  |   |   |    |  |   |    |    |  |   |    |    |  |   |   |    |  |   | 35,213   |    |
| Exercise of stock options                                                                             |  |        | 87     |                      |  |                                         | 1      |                       |  |           | 400     |           |  |   |   |    |  |   |    |    |  |   |    |    |  |   |   |    |  |   | 401      |    |
| Common stock issuancecosts                                                                            |  |        |   |                      |  |                                         |   |                       |  |           | (5,335  | )         |  |   |   |    |  |   |    |    |  |   |    |    |  |   |   |    |  |   | (5,335   | )  |
| Conversion fees paid to Series A preferred shareholders, netof conversion agreements claw backfeature |  |        |   |                      |  |                                         |   |                       |  |           | (2,029  | )         |  |   |   |    |  |   |    |    |  |   |    |    |  |   |   |    |  |   | (2,029   | )  |
| Write-off of remaining Series A preferred stock issuancecosts                                         |  |        |   |                      |  |                                         |   |                       |  |           | (1,696  | )         |  |   |   |    |  |   |    |    |  |   |    |    |  |   |   |    |  |   | (1,696   | )  |
| Accretion of Series A preferred stock issuancecosts                                                   |  |        |   |                      |  |                                         |   |                       |  |           | (366    | )         |  |   |   |    |  |   |    |    |  |   |    |    |  |   |   |    |  |   | (366     | )  |
| Dividends on Series A preferredstock                                                                  |  |        |   |                      |  |                                         |   |                       |  |           | (2,924  | )         |  |   |   |    |  |   |    |    |  |   |    |    |  |   |   |    |  |   | (2,924   | )  |
| Interest on notes toofficers                                                                          |  |        |   |                      |  |                                         |   |                       |  |           |    |           |  |   |   |    |  |   |    |    |  |   | (7      | )  |  |   |   |    |  |   | (7       | )  |
| Repayment of notes issued toofficers                                                                  |  |        |   |                      |  |                                         |   |                       |  |           |    |           |  |   |   |    |  |   |    |    |  |   | 1,009   |    |  |   | (1,009 | )  |  |   | (— | )  |
| Balance, September30, 2004                                                                            |  |        | 45,050 |                      |  |                                         | 450    |                       |  |           | 236,988 |           |  |   | 10,778 |    |  |   | (58,945 | )  |  |   | — |    |  |   | (2,294 | )  |  |   | 186,977  |    |
| Comprehensiveincome:                                                                                  |  |        |   |                      |  |                                         |   |                       |  |           |    |           |  |   |   |    |  |   |    |    |  |   |    |    |  |   |   |    |  |   |     |    |
| Netincome                                                                                             |  |        |   |                      |  |                                         |   |                       |  |           |    |           |  |   |   |    |  |   | 18,736  |    |  |   |    |    |  |   |   |    |  |   | 18,736   |    |
| Foreign currency translationadjustment                                                                |  |        |   |                      |  |                                         |   |                       |  |           |    |           |  |   | (4,258 | )  |  |   |    |    |  |   |    |    |  |   |   |    |  |   | (4,258   | )  |
| Unrealized losses from cash flow hedgingactivities                                                    |  |        |   |                      |  |                                         |   |                       |  |           |    |           |  |   | (408   | )  |  |   |    |    |  |   |    |    |  |   |   |    |  |   | (408     | )  |
| Comprehensiveincome                                                                                   |  |        |   |                      |  |                                         |   |                       |  |           |    |           |  |   |   |    |  |   |    |    |  |   |    |    |  |   |   |    |  |   | 14,070   |    |
| Issuance of common stockfor:                                                                          |  |        |   |                      |  |                                         |   |                       |  |           |    |           |  |   |   |    |  |   |    |    |  |   |    |    |  |   |   |    |  |   |     |    |
| Exercise of stockoptions                                                                              |  |        | 391    |                      |  |                                         | 4      |                       |  |           | 808     |           |  |   |   |    |  |   |    |    |  |   |    |    |  |   |   |    |  |   | 812      |    |
| Balance, September 30,2005                                                                            |  |        | 45,441 |                      |  | $                                            | 454    |                       |  | $              | 237,796 |           |  | $      | 6,112  |    |  | $      | (40,209 | )  |  | $      | — |    |  | $      | (2,294 | )  |  | $      | 201,859  |    |
|                                                                                                       |

See notes toconsolidated financial statements.

F-4

----

ALLIED HEALTHCARE INTERNATIONALINC.CONSOLIDATED STATEMENTS OF CASH FLOWS(Inthousands)

|                                                                                                  |  |                            |         |                            |  |                            |         |         |  |        |        |         |  |  |
|--------------------------------------------------------------------------------------------------|--|----------------------------|---------|----------------------------|--|----------------------------|---------|---------|--|--------|--------|---------|--|--|
|                                                                                             |  | YearEndedSeptember 30,2005 |         | Year EndedSeptember30,2004 |  | Year EndedSeptember30,2003 |
| Cash flows from operatingactivities:                                                             |  |                       |    |                       |  |                       |    |    |  |   |   |    |
| Netincome                                                                                        |  | $                          | 18,736  |                       |  | $                          | 9,869   |    |  | $      | 11,971 |    |
| Adjustments to reconcile net income to netcash provided by operatingactivities:                  |  |                       |    |                       |  |                       |    |    |  |   |   |    |
| Incomefrom discontinued operations                                                               |  |                       | — |                       |  |                       | — |    |  |   | (503   | )  |
| Depreciation andamortization                                                                     |  |                       | 3,293   |                       |  |                       | 2,419   |    |  |   | 1,778  |    |
| Amortization of intangible assets                                                                |  |                       | 1,574   |                       |  |                       | 644     |    |  |   | 207    |    |
| Amortization of debt issuancecosts and warrants                                                  |  |                       | 446     |                       |  |                       | 1,645   |    |  |   | 1,858  |    |
| Provision for (reversal of) allowance for doubtfulaccounts                                       |  |                       | 758     |                       |  |                       | (1,653  | )  |  |   | 1,205  |    |
| Loss (gain) on sale of fixed assets                                                              |  |                       | 7       |                       |  |                       | 3       |    |  |   | (48    | )  |
| Interest in kind                                                                                 |  |                       | — |                       |  |                       | 540     |    |  |   | 645    |    |
| Stock based compensation– employees                                                        |  |                       | 21      |                       |  |                       | — |    |  |   | 587    |    |
| Interest accrued on loans to officers                                                            |  |                       |    |                       |  |                       | (7      | )  |  |   | (44    | )  |
| Write-off of deferred financingfees and debt discount                                            |  |                       |    |                       |  |                       | 4,152   |    |  |   | 613    |    |
| Deferred income taxes                                                                            |  |                       | 152     |                       |  |                       | 1,030   |    |  |   | (906   | )  |
| Changes in operating assets andliabilities, excluding the effect of businesses acquired andsold: |  |                       |    |                       |  |                       |    |    |  |   |   |    |
| (Increase) decreasein accounts receivable                                                        |  |                       | (2,201  | )                     |  |                       | 9,479   |    |  |   | (30    | )  |
| Decrease (increase) ininventories                                                                |  |                       | 37      |                       |  |                       | 61      |    |  |   | (45    | )  |
| (Increase) decrease in prepaid expenses and otherassets                                          |  |                       | (2,545  | )                     |  |                       | 2,861   |    |  |   | (3,313 | )  |
| Increase (decrease) in accounts payable and otherliabilities                                     |  |                       | 1,213   |                       |  |                       | (7,489  | )  |  |   | 674    |    |
| Net cash provided by continuingoperations                                                        |  |                       | 21,491  |                       |  |                       | 23,554  |    |  |   | 14,649 |    |
| Net cash provided by discontinuedoperations                                                      |  |                       | — |                       |  |                       | — |    |  |   | 461    |    |
| Net cash provided by operatingactivities                                                         |  |                       | 21,491  |                       |  |                       | 23,554  |    |  |   | 15,110 |    |
| Cash flows frominvesting activities:                                                             |  |                       |    |                       |  |                       |    |    |  |   |   |    |
| Capitalexpenditures                                                                              |  |                       | (9,709  | )                     |  |                       | (7,829  | )  |  |   | (4,026 | )  |
| Proceeds from sale of property andequipment                                                      |  |                       | 8       |                       |  |                       | 29      |    |  |   | 175    |    |
| Proceeds from sale of discontinuedoperations                                                     |  |                       | — |                       |  |                       | — |    |  |   | 8,195  |    |
| Payments for acquisitions – net of cashacquired                                            |  |                       | (14,504 | )                     |  |                       | (8,976  | )  |  |   | (9,531 | )  |
| Proceeds limited to future acquisitions                                                          |  |                       | 1,850   |                       |  |                       | 41,974  |    |  |   | 26,053 |    |
| Payments on acquisitionspayable                                                                  |  |                       | (4,793  | )                     |  |                       | (1,681  | )  |  |   | (7,031 | )  |
| Net cash (used in)provided by investing activities                                               |  |                       | (27,148 | )                     |  |                       | 23,517  |    |  |   | 13,835 |    |
|                                                                                                  |

(Continued)

Seenotes to consolidated financial statements.

F-5

----

ALLIED HEALTHCARE INTERNATIONALINC.CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)(Inthousands)

|                                                              |  |                            |         |                            |  |                             |          |         |  |        |         |         |  |  |
|--------------------------------------------------------------|--|----------------------------|---------|----------------------------|--|-----------------------------|----------|---------|--|--------|---------|---------|--|--|
|                                                         |  | YearEndedSeptember 30,2005 |         | Year EndedSeptember30,2004 |  | Year EndedSeptember 30,2003 |
| Cash flows from financingactivities:                         |  |                       |    |                       |  |                        |     |    |  |   |    |    |
| Paymentsfor financing fees and stock issuance costs          |  |                       | (8      | )                     |  |                        | (6,223   | )  |  |   | (20     | )  |
| Payments on preferred dividends andconversion fees           |  |                       | — |                       |  |                        | (9,422   | )  |  |   | — |    |
| Proceeds from issuance ofstock                               |  |                       | — |                       |  |                        | 71,050   |    |  |   | — |    |
| Payments on notes payable                                    |  |                       | (1,850  | )                     |  |                        | (38,740  | )  |  |   | (19,363 | )  |
| Proceeds from long-termdebt                                  |  |                       | — |                       |  |                        | 53,781   |    |  |   | — |    |
| Borrowings under revolving loan, net                         |  |                       | 13,876  |                       |  |                        | 8,964    |    |  |   | — |    |
| Payments on long-termdebt                                    |  |                       | — |                       |  |                        | (129,305 | )  |  |   | — |    |
| Principal payments on long-term debt                         |  |                       | (11,101 | )                     |  |                        | (10,039  | )  |  |   | (6,727  | )  |
| Proceeds fromsale of interest rate cap and floor agreement   |  |                       | 98      |                       |  |                        | —  |    |  |   | — |    |
| Payments for treasuryshares acquired                         |  |                       | — |                       |  |                        | —  |    |  |   | (565    | )  |
| Stock optionsexercised                                       |  |                       | 791     |                       |  |                        | 401      |    |  |   | 80      |    |
| Net cash provided by (used in)financing activities           |  |                       | 1,806   |                       |  |                        | (59,533  | )  |  |   | (26,595 | )  |
| Effect of exchange rate oncash                               |  |                       | 425     |                       |  |                        | 70       |    |  |   | 1,063   |    |
| (Decrease) increase incash                                   |  |                       | (3,426  | )                     |  |                        | (12,392  | )  |  |   | 3,413   |    |
| Cash and cash equivalents, beginning ofyear                  |  |                       | 9,299   |                       |  |                        | 21,691   |    |  |   | 18,278  |    |
| Cash and cash equivalents, end ofyear                        |  | $                          | 5,873   |                       |  | $                           | 9,299    |    |  | $      | 21,691  |    |
| Supplemental cash flowinformation:                           |  |                       |    |                       |  |                        |     |    |  |   |    |    |
| Cash paid forinterest                                        |  | $                          | 7,589   |                       |  | $                           | 10,444   |    |  | $      | 10,679  |    |
| Cash paid for income taxes,net                               |  | $                          | 5,398   |                       |  | $                           | 8,528    |    |  | $      | 6,691   |    |
| Supplemental disclosure ofinvesting and financingactivities: |  |                       |    |                       |  |                        |     |    |  |   |    |    |
| Details of businessacquired in purchase transactions:        |  |                       |    |                       |  |                        |     |    |  |   |    |    |
| Fair valueof assets acquired                                 |  | $                          | 19,959  |                       |  | $                           | 9,975    |    |  | $      | 12,254  |    |
| Liabilities assumed orincurred                               |  |                       | 2,316   |                       |  |                        | 628      |    |  |   | 2,408   |    |
| Cash paid for acquisitions(including related expenses)       |  |                       | 17,643  |                       |  |                        | 9,347    |    |  |   | 9,846   |    |
| Cash acquired                                                |  |                       | 3,139   |                       |  |                        | 371      |    |  |   | 315     |    |
| Net cash paid foracquisitions                                |  | $                          | 14,504  |                       |  | $                           | 8,976    |    |  | $      | 9,531   |    |
| Issuance of notespayable                                     |  |                       |    |                       |  |                        |     |    |  | $      | 36,026  |    |
| Issuance of commonstock                                      |  |                       |    |                       |  |                        |     |    |  | $      | 6,360   |    |
|                                                              |

Seenotes to consolidated financialstatements.

F-6

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ALLIEDHEALTHCARE INTERNATIONAL INC.Notes to Consolidated FinancialStatements(In thousands, except per sharedata)

1.    Business and Operations:

Allied Healthcare International Inc. and its subsidiaries(the ‘‘Company’’) is a leading provider offlexible, or temporary, healthcare staffing to the United Kingdom(‘‘U.K.’’) healthcare industry as measuredby revenues, market share and number of staff. At September 30, 2005,the Company operated an integrated network of approximately 115branches throughout most of the U.K. The Company’s healthcarestaff consists principally of nurses, nurses aides and home healthaides (known as carers in the U.K.). The Company focuses on placing itsstaff on a per diem basis in hospitals, nursing homes, care homes(which provide assisted living without medical services) and homes. TheCompany maintains a pool of over 22,000 nurses, nurses aides and homehealth aides. The Company also supplies medical-grade oxygen for use inrespiratory therapy to the U.K. pharmacy market and Northern Irelandand oxygen concentrators to customers in Northern Ireland.

In July 2005, the Company reorganized its operations inresponse to changes in the method by which its biggest customer, theNational Health Services (the ‘‘NHS’’),required staffing services to be provided to it. See Note4.

2.    Summary of Significant AccountingPolicies:

Basis of Accounting and Principles ofConsolidation:

The accompanying consolidatedfinancial statements of the Company are prepared on the accrual basisof accounting in accordance with accounting principles generallyaccepted in the United States of America(‘‘U.S.’’). All intercompany accounts andtransactions are eliminated in consolidation.

Cash and CashEquivalents:

Cash and cash equivalents include highlyliquid short-term investments purchased with initial maturities of 90days or less.

Stock-Based Compensation:

Inaccordance with Statement of Financial Accounting Standards(‘‘FAS’’) No. 123,‘‘Accounting for Stock-BasedCompensation’’, the Company continues to apply APBOpinion No. 25, ‘‘Accounting for Stock Issuedto Employees,’’ and related interpretations, inaccounting for its stock-based compensation plans. Accordingly, nocompensation cost has been recognized for its stock option plans. Thefair value of each option granted is estimated on the date of grantusing the Black-Scholes option-pricing model.

Hadcompensation costs for the Company’s stock options beendetermined consistent with the fair value method prescribed by FAS No.123, the Company’s net income and related per share amountswould have been adjusted to the pro forma amounts indicated below forthe three years ended September30:

|                                                                                                                               |  |        |        |         |  |        |         |         |  |        |        |         |  |  |
|-------------------------------------------------------------------------------------------------------------------------------|--|--------|--------|---------|--|--------|---------|---------|--|--------|--------|---------|--|--|
|                                                                                                                          |  | 2005   |        | 2004    |  | 2003   |
| Netincome available to common shareholders, asreported                                                                        |  | $      | 18,736 |    |  | $      | 2,849   |    |  | $      | 7,966  |    |
| Add:Stock-based compensation included in reported net income, net ofrelated taxeffect                                         |  |   | 21     |    |  |   | — |    |  |   | 587    |    |
| Less:Total stock-based compensation expense determined under fair valuebased method for all awards, net of related taxeffects |  |   | (2,143 | )  |  |   | (3,876  | )  |  |   | (736   | )  |
| Proforma net income (loss) attributable to commonshareholders                                                                 |  | $      | 16,614 |    |  | $      | (1,027  | )  |  | $      | 7,817  |    |
| Netincome (loss) per share:                                                                                                   |  |   |   |    |  |   |    |    |  |   |   |    |
| Basic — asreported                                                                                                      |  | $      | 0.42   |    |  | $      | 0.10    |    |  | $      | 0.36   |    |
| Basic— pro forma                                                                                                        |  | $      | 0.37   |    |  | $      | (0.04   | )  |  | $      | 0.36   |    |
| Netincome (loss) per share:                                                                                                   |  |   |   |    |  |   |    |    |  |   |   |    |
| Diluted — asreported                                                                                                    |  | $      | 0.41   |    |  | $      | 0.10    |    |  | $      | 0.36   |    |
| Diluted— pro forma                                                                                                      |  | $      | 0.37   |    |  | $      | (0.04   | )  |  | $      | 0.35   |    |
|                                                                                                                               |

F-7

----

ALLIEDHEALTHCARE INTERNATIONAL INC.Notes to Consolidated FinancialStatements  (Continued)(In thousands, except per sharedata)

The fair value of each option granted isestimated on the date of grant using the Black-Scholes option-pricingmodel with the following weighted average assumptions:

|                       |  |        |      |         |  |        |      |         |  |        |      |         |  |  |
|-----------------------|--|--------|------|---------|--|--------|------|---------|--|--------|------|---------|--|--|
|                  |  | 2005   |      | 2004    |  | 2003   |
| Expectedlife (years)  |  |   | 9    |    |  |   | 9    |    |  |   | 9    |    |
| Risk-freeinterestrate |  |   | 4.1  | %  |  |   | 2.6  | %  |  |   | 4.1  | %  |
| Volatility            |  |   | 63.9 | %  |  |   | 66.0 | %  |  |   | 66.1 | %  |
| Expecteddividendyield |  |   | 0    | %  |  |   | 0    | %  |  |   | 0    | %  |
|                       |

Thecompensation cost as generated by the Black-Scholes option-pricingmodel may not be indicative of the future benefit, if any, that may bereceived by the option holder.

Restricted Cash:

AtSeptember 30, 2004, restricted cash represented proceeds limited tofuture acquisitions. The proceeds referred to amounts advanced to theCompany under its previous senior collateralized term and revolvingcredit facility (the ‘‘Former Senior CreditFacility’’) that could have only been used by the Companyto fund acquisitions permitted thereunder, including paying additionalcontingent consideration.

On July 19, 2004, the Company’sU.K. subsidiary, Allied Healthcare Holdings Limited(‘‘Allied Holdings’’), obtained financingdenominated in pounds sterling consisting of a £50,000multicurrency new senior credit facility (the ‘‘SeniorCredit Facility’’). Under the Senior Credit Facility,there are no loan proceeds limited to future acquisitions. The proceedsfrom the Senior Credit Facility were used, in part, to repay the FormerSenior Credit Facility. See Note 7.

Inventories:

Inventories, which consist primarily offinished goods, include oxygen for use in respiratory therapy,ancillary medical supplies and certain medical equipment, are valued atthe lower of cost (determined using a first-in, first-out method) ormarket.

Property and Equipment:

Property and equipment,including revenue-producing equipment, is carried at cost, net ofaccumulated depreciation and amortization. Revenue-producing equipmentconsists of oxygen cylinders, oxygen concentrators and oxygen valves.Depreciation for revenue-producing equipment is provided on thestraight-line method over their estimated useful lives ranging fromseven to twenty years. Leasehold improvements are amortized over therelated lease terms or estimated useful lives, whichever isshorter.

Purchase Accounting:

For completedacquisitions, preliminary values and useful lives are allocated basedupon fair values that have been determined for assets acquired andliabilities assumed and management’s best estimates for valuesthat have not yet been finalized. The Company obtains a third-partyvaluation in order to complete its purchase price allocations.Accordingly, final asset and liability fair values as well as usefullives may differ from management’s original estimates and couldhave an adverse impact on the Company’s consolidated financialposition or results of operations.

Goodwill and Other IntangibleAssets:

Goodwill and other intangible assets are carried atcost, net of accumulated amortization.

F-8

----

ALLIEDHEALTHCARE INTERNATIONAL INC.Notes to Consolidated FinancialStatements  (Continued)(In thousands, except per sharedata)

In accordance with FAS No.142,‘‘Goodwill and Other IntangibleAssets’’, all goodwill and intangible assets deemedto have indefinite lives are no longer subject to amortization but aresubject to annual impairment tests. The Company completed its annualimpairment test required under FAS No. 142 during the fourth quarter offiscal 2005 and determined there was no impairment to its recordedgoodwill balance.

The following table presents the changes inthe carrying amount of goodwill for the year ended September 30,2005:

|                                    |  |        |         |         |  |  |
|------------------------------------|--|--------|---------|---------|--|--|
| Balanceat October 1, 2003          |  | $      | 183,703 |    |
| Goodwillacquired during the period |  |   | 8,073   |    |
| Foreignexchangeeffect              |  |   | 14,334  |    |
| Balanceat September 30, 2004       |  |   | 206,110 |    |
| Goodwillacquired during the period |  |   | 15,623  |    |
| Foreignexchangeeffect              |  |   | (4,749  | )  |
| Balanceat September 30,2005        |  | $      | 216,984 |    |
|                                    |

Thegoodwill associated with the acquisitions during the prior twelvemonths is subject to revision based on the finalization of thedetermination of the fair values of assets acquired and liabilitiesassumed. Included in the goodwill acquired during the years endedSeptember 30, 2005 and 2004 are the re-allocations of net excesspurchase price to assets acquired and liabilities assumed in connectionwith prior year acquisitions of $753 and $215, respectively.

Intangible assets subject to amortization are being amortized on thestraight-line method and consist of the following:

|                              |  |              |  |                     |        |                         |  |                   |       |        |  |        |       |        |  |  |  |  |
|------------------------------|--|--------------|--|---------------------|--------|-------------------------|--|-------------------|-------|--------|--|--------|-------|--------|--|--|--|--|
|                         |  |         |  | September30,2005    |
|                         |  | RangeOfLives |  | GrossCarryingAmount |        | AccumulatedAmortization |  | NetCarryingAmount |
| Customerrelationships        |  | 5-12         |  | $                   | 11,355 |                    |  | $                 | 2,087 |   |  | $      | 9,268 |   |
| Tradenames                   |  | 3            |  |                | 181    |                    |  |              | 171   |   |  |   | 10    |   |
| Non-competeagreements        |  | 2 -3         |  |                | 94     |                    |  |              | 88    |   |  |   | 6     |   |
| Favorableleasehold interests |  | 2 -5         |  |                | 21     |                    |  |              | 15    |   |  |   | 6     |   |
| Total                        |  |         |  | $                   | 11,651 |                    |  | $                 | 2,361 |   |  | $      | 9,290 |   |
|                              |

|                              |  |              |  |                     |       |                         |  |                   |     |        |  |        |       |        |  |  |  |  |
|------------------------------|--|--------------|--|---------------------|-------|-------------------------|--|-------------------|-----|--------|--|--------|-------|--------|--|--|--|--|
|                         |  |         |  | September30, 2004   |
|                         |  | RangeOfLives |  | GrossCarryingAmount |       | AccumulatedAmortization |  | NetCarryingAmount |
| Customerrelationships        |  | 5-12         |  | $                   | 4,844 |                    |  | $                 | 689 |   |  | $      | 4,155 |   |
| Tradenames                   |  | 3            |  |                | 185   |                    |  |              | 113 |   |  |   | 72    |   |
| Non-competeagreements        |  | 2 -5         |  |                | 135   |                    |  |              | 65  |   |  |   | 70    |   |
| Favorableleasehold interests |  | 2 -5         |  |                | 21    |                    |  |              | 12  |   |  |   | 9     |   |
| Total                        |  |         |  | $                   | 5,185 |                    |  | $                 | 879 |   |  | $      | 4,306 |   |
|                              |

Amortizationexpense for other intangible assets still subject to amortization was$1,574, $644 and $207 for the years ended September 30, 2005, 2004 and2003, respectively. At September 30, 2005, estimated futureamortization expense of other intangible assets still subject toamortization is as follows: approximately $1,773, $1,757, $1,680,$1,642 and $1,461 for the fiscal years ending September 30, 2006, 2007,2008, 2009 and 2010, respectively.

F-9

----

ALLIEDHEALTHCARE INTERNATIONAL INC.Notes to Consolidated FinancialStatements  (Continued)(In thousands, except per sharedata)

Deferred Financing Costs:

Costsincurred in obtaining long-term financing are amortized over the termsof the long-term financing agreements using the straight-line method.At September 30, 2005 and 2004, other assets included $660 and $846 ofdeferred financing costs, net of accumulated amortization of $220 and$45, respectively. During the fourth quarter of fiscal 2004, theCompany wrote-off $2,937 of deferred refinancing costs related to therefinancing of its Former Senior Credit Facility. Amortization ofdeferred financing costs is included in interest expense in theaccompanying Consolidated Statements of Operations.

IncomeTaxes:

The Company accounts for income taxes using the liabilitymethod in accordance with FAS No. 109, ‘‘Accountingfor Income Taxes.’’ Under this method,deferred income tax assets and liabilities reflect tax carryforwardsand the net effects of temporary differences between the carryingamounts of assets and liabilities for financial reporting and incometax purposes, as determined under currently enacted tax rates. Deferredtax assets are recorded if future realization is more likely thannot.

Deferred taxes are recorded primarily for bad debts, federaland state net operating loss carryforwards, depreciation andamortization of intangibles, which are reported in different periodsfor federal income tax purposes than for financial reporting purposes.Valuation allowances are established, when necessary, to reducedeferred tax assets to the amounts expected to berealized.

Revenue Recognition:

Patient services andrespiratory therapy revenues are recognized when services are performedand substantiated by proper documentation. For patient services, whichaccount for over 95% of the Company’s business, revenueis recognized upon completion of timesheets that also require thesignature of the recipient of services. Unbilled accounts receivablerepresents amounts due for services performed, but not billed as of thebalance sheet date. Revenues from the rental of home medical equipmentare recognized over the rental period (typically on a month-to-monthbasis) and approximated $524, $482 and $457 in fiscal 2005, 2004 and2003, respectively. Revenues from the sale of oxygen and supplies foruse in respiratory therapy are recognized when products are shipped, acontractual arrangement exists, the sales price is either fixed ordeterminable and collection is reasonably assured.

The Companyreceives a majority of its revenue from the NHS and other U.K.governmental payors. Certain revenues are subject to review bythird-party payors, and adjustments, if any, are recorded whendetermined. For the years ended September 30, 2005, 2004 and 2003**,**66.2%, 65.0% and 64.8%, respectively, of theCompany’s net revenues were attributable to the NHS and otherU.K. governmental payor programs.

Earnings PerShare:

Basic earnings per share(‘‘EPS’’) is computed using the weightedaverage number of common shares outstanding. Diluted EPS adjusts basicEPS for the effects of stock options and warrants only when such effectis dilutive. At September 30, 2005, 2004 and 2003, the Company hadoutstanding stock options and warrants to purchase 677, 1,493 and 2,244shares, respectively, of common stock ranging in price from $6.20 to$7.25, $5.41 to $7.25 and $4.00 to $7.25 per share, respectively, thatwere not included in the computation of diluted EPS because theexercise price was greater than the average market price of the commonshares.

The weighted average number of shares used in the basicand diluted earnings per share computations for the years endedSeptember 30, 2005, 2004 and 2003 are as follows:

F-10

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ALLIEDHEALTHCARE INTERNATIONAL INC.Notes to Consolidated FinancialStatements  (Continued)(In thousands, except per sharedata)

|                                                                                                       |  |        |        |        |  |        |        |        |  |        |        |        |  |  |
|-------------------------------------------------------------------------------------------------------|--|--------|--------|--------|--|--------|--------|--------|--|--------|--------|--------|--|--|
|                                                                                                  |  | 2005   |        | 2004   |  | 2003   |
| Weightedaverage number of common shares outstanding as used in computation ofbasic EPS of commonstock |  |   | 44,684 |   |  |   | 27,419 |   |  |   | 21,962 |   |
| Effectof dilutive securities – stock options andwarrants                                        |  |   | 485    |   |  |   | 685    |   |  |   | 342    |   |
| Sharesused in computation of diluted EPS of commonstock                                               |  |   | 45,169 |   |  |   | 28,104 |   |  |   | 22,304 |   |
|                                                                                                       |

ComprehensiveIncome:

Components of comprehensive income include net incomeand all other non-owner changes in equity, such as the change in thecumulative translation adjustment and unrealized losses from cash flowhedging activities, which are the only items of other comprehensiveincome impacting the Company.

Impairment of Long-LivedAssets:

Long-lived assets are reviewed for impairment wheneverevents or changes in circumstances indicate that the carrying amountmay not be recoverable. If the sum of the undiscounted future cashflows is less than the carrying amount of the asset, a loss isrecognized for the difference between the fair value (discounted futurecash flows) and carrying value of the asset. Impairment loss on assetsto be sold, if any, is based on the estimated proceeds to be received,less estimated costs to sell. There were no impairment losses incurredduring the year.

Foreign Currency Translation:

Assets andliabilities of foreign subsidiaries whose functional currency is otherthan the U.S. dollar are translated to U.S. dollars using the exchangerates in effect at the balance sheet date. Results of operations aretranslated using weighted average exchange rates during the period.Adjustments resulting from the translation process are included as aseparate component of shareholders’ equity.

SegmentInformation:

FAS No. 131, ‘‘Disclosures aboutSegments of an Enterprise and Related Information,’’establishes annual and interim reporting standards for anenterprise’s operating segments and related disclosures aboutits products, services, geographic areas and major customers. Anoperating segment is defined as a component of an enterprise thatengages in business activities from which it may earn revenues andincur expenses, whose operating results are regularly reviewed by thechief operating decision maker and for which discrete financialinformation is available.

The Company’s U.K. operationsderive its revenues from flexible healthcare services, consistingprincipally of nurses, nurses aides and home health aides, and supplyof medical-grade oxygen for use in respiratory therapy products to theU.K. pharmacy market and in Northern Ireland as well as provide oxygenconcentrators to customers in Northern Ireland.

Fair Value ofFinancial Instruments:

Cash, accounts receivable, unbilledaccounts receivable, accounts payable, accrued expenses and taxespayable approximate fair value due to the short-term maturity of thoseinstruments. The derivative asset (liability) is recorded at itsestimated fair value. The estimated fair value of the Company’soutstanding borrowings approximates its carrying value at September 30,2005 and 2004.

Concentrations of Credit Risk:

Financialinstruments which potentially subject the Company to concentrations ofcredit risk are cash equivalents and accounts receivable. The Companyplaces its cash equivalents with high credit 

F-11

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ALLIEDHEALTHCARE INTERNATIONAL INC.Notes to Consolidated FinancialStatements  (Continued)(In thousands, except per sharedata)

quality financial institutions. The Companybelieves no significant concentration of credit risk exists withrespect to these cash equivalents.

The Company grants creditwithout collateral to its patients, who are primarily insured underthird-party agreements. The Company maintains an allowance for doubtfulaccounts based on the expected collectibility of accounts receivable.At September 30, 2005 and 2004, 66.2% and 65.0% ofaccounts receivable was due from the NHS and other U.K. governmentalpayors, respectively, with the balance due from various otherthird-party payors and self-pay patients (none of which comprisegreater than 10% of the balance).

Use ofManagement’s Estimates:

The preparation of financialstatements in conformity with generally accepted accounting principlesrequires management to make estimates and assumptions that affect thereported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements, and thereported amounts of revenues and expenses during the reporting period.Actual results could differ from those estimates. Estimates are usedfor, but not limited to, the accounting for allowance for doubtfulaccounts, contractual allowances, valuation of inventories, accruedexpenses, depreciation andamortization.

Reclassifications:

Certain prior yearbalances have been reclassified to conform to the current yearpresentation.

Recent Accounting Pronouncements:

InDecember 2004, the Financial Accounting Standards Board(‘‘FASB’’) issued FAS No. 123R,Share-Based Payment (‘‘FAS No.123R’’), which requires companies to measure andrecognize compensation expense for all stock-based payments at fairvalue. FAS No. 123R is effective for the Company beginning October 1,2005. The Company anticipates that the adoption of FAS No. 123R willhave an effect on its consolidated financial statements. For optionsvesting in fiscal 2006, the Company has estimated that it will incuradditional compensation costs of approximately $1,100. Currently, theactual effect of adoption on the Company’s financial resultscannot be estimated as it is dependent on the level of futureshare-based awards.

In December 2004, the FASB issued FAS No.153, Exchanges of Nonmonetary Assets, an amendment of APB OpinionNo. 29 (‘‘FAS No. 153’’). FAS No. 153replaces the exception from fair value measurement in APB Opinion No.29 for nonmonetary exchanges of similar productive assets with ageneral exception from fair value measurement for exchanges ofnonmonetary assets that do not have commercial substance. A nonmonetaryexchange has commercial substance if the future cash flows of theentity are expected to change significantly as a result of theexchange. FAS No. 153 is to be applied prospectively, and is effectivefor nonmonetary asset exchanges occurring in fiscal periods beginningafter the date of issuance of FAS No. 153. The Company does not expectthe adoption of FAS No. 153 to have a material impact on itsconsolidated financial position or results of operations.

InMarch 2005, the Securities and Exchange Commission (the‘‘SEC’’) issued Staff Accounting BulletinNo. 107 (‘‘SAB No. 107’’) regarding thestaff’s interpretation of FAS No. 123R. This interpretationexpresses the views of the staff regarding the interaction between FASNo. 123R and certain SEC rules and regulations and provides thestaff’s views regarding the valuation of share-based paymentarrangements for public companies. In connection with theCompany’s adoption of FAS No. 123R, it will adopt SAB No. 107and is currently evaluating the impact of SAB No. 107 on itsconsolidated financial position and results of operations.

InMay 2005, the FASB issued FAS No. 154, Accounting Changes and ErrorCorrections (‘‘FAS No. 154’’). FAS No.154 applies to all voluntary changes in accounting principle andrequires 

F-12

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ALLIEDHEALTHCARE INTERNATIONAL INC.Notes to Consolidated FinancialStatements  (Continued)(In thousands, except per sharedata)

retrospective application to priorperiods’ financial statements of changes in accountingprinciple, unless it is impracticable to determine the effect of achange. FAS No. 154 also makes a distinction between‘‘retrospective application’’ of anaccounting principle and the‘‘restatement’’ of financial statements toreflect the correction of an error. FAS No. 154 is effective foraccounting changes and corrections of errors made in fiscal yearsbeginning after December 15, 2005. The Company does not believe theadoption of FAS No. 154 will have a material impact on its consolidatedfinancial position and results of operations.

3.    BusinessCombinations and Disposals:

Combinations:

In fiscal2005, the Company acquired a total of 9 Social Service agencies forapproximately $17,059 in cash and $69 in acquisition payable. As ofSeptember 30, 2005, these transactions included provisions to payadditional amounts, payable in cash, of up to $9,735 in contingentconsideration dependent upon future earnings of the acquiredentities.

In fiscal 2004, the Company acquired a total of 8flexible staffing agencies for approximately $8,610 in cash. AtSeptember 30, 2004, these transactions included provisions to payadditional amounts, payable in cash, of up to $10,501 in contingentconsideration dependent upon future earnings of the acquired entities.In fiscal 2005 a total of $6,120 was earned, of which $1,563 remainspayable as of September 30, 2005. In addition, as of September 30,2005, these transactions continued to include provisions to payadditional amounts, payable in cash, of up to $2,743 in contingentconsideration dependent upon future earnings of the acquired entities.The remaining balance of contingent consideration was unearned and willnot be required.

In fiscal 2003, the Company acquired a total of7 flexible staffing agencies for approximately $8,837 in cash and theissuance of 670 shares of the Company’s common stock. Thesetransactions included provisions to pay additional amounts, payable bycombination of cash and shares of the Company’s stock, of up to$20,952 in contingent consideration dependent upon future earnings ofthe acquired entities. Of the $20,952 in contingent consideration,$6,101 was unearned and will not be required and $1,272 was earned andpaid in fiscal 2003. As such, at September 30, 2003, an aggregate of$13,579 was payable dependent upon further earnings of the acquiredentities. Of the $13,579 in contingent consideration, $12,015 wasunearned and will not be required and the remaining balance was earnedand paid in fiscal 2004.

In fiscal 2005, the Company completedits purchase price allocation for its fiscal 2004 acquisitions.Accordingly, tangible assets, separately identifiable intangible assetsand liabilities were assigned values of approximately $1,311, $3,493and $709, respectively, with the remaining portion of $4,913attributable to goodwill.

In fiscal 2004, the Company completedits purchase price allocation for its remaining fiscal 2003acquisitions. Accordingly, tangible assets, separately identifiableintangible assets and liabilities were assigned values of approximately$377, $1,209 and $368, respectively, with the remaining portion of$5,109 attributable to goodwill.

In fiscal 2003, the Companycompleted its purchase price allocation for one of its fiscal 2003acquisitions. Accordingly, tangible assets, separately identifiableintangible assets and liabilities were assigned values of approximately$2,861, $1,410 and $2,157, respectively, with the remaining portion of$6,576 attributable to goodwill.

The preliminary purchase priceallocations for the fiscal 2005 acquisitions are subject to adjustmentsand will be finalized once additional information concerning asset andliability valuations are obtained. Accordingly, final asset andliability fair values may differ from those set forth on the

F-13

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ALLIEDHEALTHCARE INTERNATIONAL INC.Notes to Consolidated FinancialStatements  (Continued)(In thousands, except per sharedata)

accompanying consolidated balance sheet atSeptember 30, 2005; however, the changes are not expected to have amaterial effect on the consolidated financial position, results ofoperations or cash flows of the Company.

The pro forma results ofoperations and related per share information for these acquisitionshave not been presented as the amounts are consideredimmaterial.

Dispositions:

U.S. Home Healthcare

Inthe third quarter of fiscal 2003, the Company sold all of the issuedand outstanding capital stock of two of its subsidiaries, ThePromptCare Companies, Inc. and Steri-Pharm, Inc., collectively referredto as ‘‘Home Healthcare,’’ forapproximately $8,500 in cash. Home Healthcare, which comprised theCompany’s U.S. operations, was concentrated in New York and NewJersey, and supplied infusion therapy, respiratory therapy and homemedical equipment. In accordance with the provisions of FAS No. 144,‘‘Accounting for the Impairment or Disposal ofLong-Lived Assets’’ (‘‘FAS No.144’’), the Company has accounted for Home Healthcare asa discontinued operation. The consolidated financial statements reflectthe liabilities of the discontinued operations, and the operations forthe prior periods are reported in discontinued operations.

Thefollowing table presents the financial results of the discontinuedoperations for the year ended September 30:

|                                                     |  |        |        |         |  |  |
|-----------------------------------------------------|--|--------|--------|---------|--|--|
|                                                |  | 2003   |
| Revenues:                                           |  |   |   |    |
| Netinfusion services                                |  | $      | 6,685  |    |
| Net respiratory,medical equipment andsupplies       |  |   | 2,479  |    |
| Totalrevenues                                       |  |   | 9,164  |    |
| Costof revenues:                                    |  |   |   |    |
| Infusion services                                   |  |   | 5,159  |    |
| Respiratory, medical equipment andsupplies          |  |   | 1,438  |    |
| Totalcost ofrevenues                                |  |   | 6,597  |    |
| Selling,general and administrativeexpenses          |  |   | 2,583  |    |
| Gain on sale ofsubsidiaries                         |  |   | (1,294 | )  |
| Tax on gain on sale ofsubsidiaries                  |  |   | 775    |    |
| Incomefrom discontinuedoperations                   |  | $      | 503    |    |
| Dilutedincome per share from discontinuedoperations |  | $      | 0.02   |    |
|                                                     |

AtSeptember 30, 2005, liabilities of discontinued operations of $690relate to certain tax contingencies.

4.    Reorganization:

In July 2005, in response to thechanging structure of the method of supply to the NHS, the Companyreorganized its operations. The NHS has divided England into eightregions and requires any healthcare staffing company that providestemporary staff to the NHS hospitals in a region to enter into aFramework Agreement setting forth, among other things, applicablequality standards and maximum payment rates. Thus, instead of operatingthrough a number of different subsidiaries (Staffing Enterprise,Medic-One Group, Balfor Medical, Nurses Direct, Nightingale NursingBureau 

F-14

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ALLIEDHEALTHCARE INTERNATIONAL INC.Notes to Consolidated FinancialStatements  (Continued)(In thousands, except per sharedata)

and Allied Healthcare (UK)) to supplyhealthcare staff, the Company’s healthcare staffing business wasreorganized into two main operations. One part of the Company’sflexible healthcare staffing business is operated by its AlliedStaffing Professionals Limited subsidiary, which provides staff to theNHS under the NHS Framework Agreements currently in operation in three(London, South East and East England) of the eight areas into which theNHS has divided the U.K. and also provides staff to its former BalforMedical operations in the northern England. The remainder of theCompany’s healthcare staffing business is operated by its AlliedHealthcare Group Limited subsidiary, and includes the rest of its NHSbusiness and all its homecare work. As a result of this reorganization,and in accordance with FAS No. 146, ‘‘Accounting forCosts Associated with Exit or Disposal Activities,’’the Company recognized pre-tax charges of $631 to satisfy existinglease obligations on the closure of several of its U.K. offices and$442 for severance and employee related costs in its fourth quarter offiscal 2005. At September 30, 2005, $601 to satisfy existing leaseobligations on the closure of several of its U.K. offices and $50 forseverance and employee related costs have not been paid.

In July2005, the Company also rebranded the U.K. group operations and launcheda new corporate logo. The Company recognized a charge of $1,017 in itsfourth quarter of fiscal 2005 related to the new corporatelogo.

Revenue related to the Company supplying medical-gradecylindered oxygen for use in respiratory therapy to the U.K. pharmacymarket is derived wholly for contracts with pharmaceutical supplierswho hold relevant government service agency contracts, and comprisedless than 3% of the Company’s revenues. In 2005, the U.K.Department of Health sought to unify the supply of oxygen to NHSpatients in England and Wales. The current system uses pharmacies tosupply cylindered gases, while oxygen concentrators are supplied viaregional contracts with homecare providers. Under the revised systemhomecare providers will be permitted to supply cylindered gas andliquid oxygen as well as oxygen concentrators. The Company submitted are-tender offer for such businesses. In August 2005, the Companyreceived two written contracts for the Southeast of England which willcommence in February 2006. As the existing cylinder business isorganized on a National distribution structure, the award of the areasin the Southeast of England only will require a reorganization of someof the Company’s facilities from the center of the U.K. to thesoutheast of England in fiscal 2006. The Company’s supply ofcylindered gases in Northern Ireland and Scotland is unaffected, as isits contract to supply oxygen concentrator services in NorthernIreland. These changes will result in the Company incurring additionalcharges in fiscal 2006 as it migrates from the existing contracts tothe new contracts awarded.

5.    Property andEquipment:

Major classes of property and equipment, net, consistof the following at September 30:

|                                               |  |        |        |        |  |        |        |        |  |  |
|-----------------------------------------------|--|--------|--------|--------|--|--------|--------|--------|--|--|
|                                          |  | 2005   |        | 2004   |
| Revenueproducingequipment                     |  | $      | 15,401 |   |  | $      | 14,108 |   |
| Furniture,fixtures andequipment               |  |   | 24,393 |   |  |   | 16,971 |   |
| Land,buildings and leaseholdimprovements      |  |   | 895    |   |  |   | 879    |   |
|                                          |  |   | 40,689 |   |  |   | 31,958 |   |
| Less,accumulated depreciation andamortization |  |   | 18,151 |   |  |   | 15,374 |   |
|                                          |  | $      | 22,538 |   |  | $      | 16,584 |   |
|                                               |

Depreciationand amortization of property and equipment for the years endedSeptember 30, 2005, 2004 and 2003 were $3,293, $2,419 and $1,778,respectively. The net book value of revenue producing equipment was$8,417 and $7,690 at September 30, 2005 and September 30, 2004,respectively.

F-15

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ALLIEDHEALTHCARE INTERNATIONAL INC.Notes to Consolidated FinancialStatements  (Continued)(In thousands, except per sharedata)

6.  AccruedExpenses:

Accrued expenses consist of the following at September30:

|                            |  |        |        |        |  |        |         |        |  |  |
|----------------------------|--|--------|--------|--------|--|--------|---------|--------|--|--|
|                       |  | 2005   |        | 2004   |
| Payrolland relatedexpenses |  | $      | 18,015 |   |  | $      | 20,500  |   |
| Acquisitionspayable        |  |   | 1,632  |   |  |   | — |   |
| Professionalfees           |  |   | 1,586  |   |  |   | 628     |   |
| Other                      |  |   | 5,230  |   |  |   | 3,822   |   |
|                       |  | $      | 26,463 |   |  | $      | 24,950  |   |
|                            |

7.    Debt:

OnJuly 19, 2004, the Company’s U.K. subsidiary obtained a SeniorCredit Facility. Additionally, subject to the terms of the SeniorCredit Facility, ancillary facilities, in the form of an additionalfacility or financial accommodation (including an interest rate swap,cap, or other arrangement for the hedging or fixing of interest) areavailable up to a maximum of £15 million.

The SeniorCredit Facility (together with approximately $65,715 of the netproceeds of the Company’s fiscal 2004 completed public offering)refinanced the Company’s Former Senior Credit Facility andmezzanine indebtedness (the ‘‘MezzanineLoan’’), both of which had been entered into on December17, 1999. The Senior Credit Facility is secured by a first prioritylien on the assets of Allied Healthcare Group Holdings Limited,formerly know as Allied Healthcare Group Limited, and certain of itssubsidiaries. Together with Allied Healthcare Group Holdings Limitedand certain of its subsidiaries, the Company is guaranteeing the debtand other obligations of certain wholly-owned U.K. subsidiaries underthe New Senior Credit Facility.

The New Senior Credit Facilityconsists of thefollowing:

|              |                                                                |
|--------------|----------------------------------------------------------------|
| •  | £30,000 ($52,884) termloan A, maturing July 19, 2009;and |

|              |                                                                                                            |
|--------------|------------------------------------------------------------------------------------------------------------|
| •  | £20,000 ($35,256) revolvingloan B maturing July 19, 2009 which may be drawn upon until June 19,2009. |

Repayment of the term loan A commenced on January 19, 2005and continues semi-annually until final maturity. Repayment ofrevolving loan B shall be on the last day of its interest period. Boththe A and B loans bear interest at rates equal to LIBOR (if sterling)or EURIBOR (if euros) plus any bank mandatory costs (if applicable)plus 0.70% to 0.90% per annum (depending on consolidateddebt to consolidated profit ratios). As of September 30, 2005, theCompany had outstanding borrowings of $42,307 and $22,035 relating toterm loan A and revolving loan B, respectively, under the Senior CreditFacility, that bore interest at a rates ranging from 5.37% to5.36%. As of September 30, 2004, the Company had outstandingborrowings of $53,982 and $8,997 relating to term loan A and revolvingloan B, respectively, under the Senior Credit Facility, that boreinterest at a rate of 5.66%.

The Senior Credit Facilityagreement is based on the U.K.'s Loan Markets AssociationMulticurrency Term and Revolving Facilities agreement which is astandard form designed to be commercially acceptable to the corporatelending market.

F-16

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ALLIEDHEALTHCARE INTERNATIONAL INC.Notes to Consolidated FinancialStatements  (Continued)(In thousands, except per sharedata)

Subject to certain exceptions, the SeniorCredit Facility prohibits or restricts the following, among otherthings:

|              |                                                                                                                  |
|--------------|------------------------------------------------------------------------------------------------------------------|
| •  | incurring liens and grantingsecurity interests in the assets of certain of the Company’sU.K. subsidiaries; |

|              |                                   |
|--------------|-----------------------------------|
| •  | incurring additionalindebtedness; |

|              |                                              |
|--------------|----------------------------------------------|
| •  | making certain fundamentalcorporate changes; |

|              |                                                                                         |
|--------------|-----------------------------------------------------------------------------------------|
| •  | paying dividends(including the payment of dividends to the Company by itssubsidiaries); |

|              |                                                            |
|--------------|------------------------------------------------------------|
| •  | making specifiedinvestments, acquisitions or disposals;and |

|              |                                                    |
|--------------|----------------------------------------------------|
| •  | entering into certain transactionswith affiliates. |

The Senior Credit Facility contains affirmativeand negative financial covenants customarily found in agreements ofthis kind, including the maintenance of certain financial ratios, suchas debt to earnings (including amounts provided for depreciation andamortization), earnings (before interest and taxes) to interestexpense, minimum net worth, maximum ancillary facilities indebtednessand the prohibition of off balance sheet funding. The Company is alsoobligated to ensure that the guarantors of the Senior Credit Facilitymust not at any time represent less than 90% of the consolidatedgross assets, turnover or earnings before interest and taxes of theU.K. subsidiaries. As of September 30, 2005 and 2004, the Company wasin compliance with such covenants.

Notes Due in Connectionwith Acquisitions. The Company repaid, through AlliedHoldings, notes payable of $1,850, $38,740 and $19,363 issued inconnection with the acquisition of certain U.K. flexible staffingagencies, in fiscals 2005, 2004 and 2003 respectively. In addition, infiscal 2003, the Company wrote-off $613 of debt discount related to thenote payment. The notes payable were secured by the Company’sformer senior credit lender which required the Company to keep anamount on deposit for the sole purpose of repaying the notespayable.

Guarantees. The Senior Credit Facility issecured by a first priority lien on the assets of the Allied HealthcareGroup Holdings Limited and certain of its subsidiaries. Together withAllied Healthcare Group Holdings Limited and certain of itssubsidiaries, the Company is guaranteeing the debt and otherobligations of certain wholly-owned U.K. subsidiaries under the SeniorCredit Facility. At September 30, 2005 and 2004, the amountsguaranteed, which approximate the amounts outstanding, totalled $64,342and $62,979, respectively.

FinancialInstruments. On March 20, 2003, upon the expiration of theCompany’s prior Rate Cap and Floor Agreement, the Companyentered into a Rate Cap and Floor Collar Agreement that capped itsinterest rate at LIBOR of 5.50% and its interest floor at LIBORof 4.47%, subject to special provisions, on approximately$88,140 of the Company’s floating rate debt under a contractwhich would have expired on March 20, 2008. In accordance with FAS No.133, ’’Accounting for Certain Derivative Instrumentsand Certain Hedging Activities,’’ as amended by FASNo. 138 and related implementation guidance, the Company calculated thefair value of the interest cap and floor derivative to be an asset of$312 at September 30, 2004. In February 2005, the Company sold thisderivative instrument for approximately $100.

On February 8,2005, the Company entered into two interest rate swap agreements, whichexpire on July 20, 2009, the objective of which is to protect theCompany against the potential rising of interest rates on its floatingrate debt. The two interest rate swap agreements cover approximately$52,884 of the Company’s floating rate debt until January 21,2008 and then decreases by $5,288 each six month period, in order toreflect the amortizing effect of the Company’s floating ratedebt, until the end of the interest rate swap agreements. The interestrate under the swap agreements is fixed at 4.935% and is payablesemi-annually. In the third quarter of fiscal 2005, the Companydesignated the 

F-17

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ALLIEDHEALTHCARE INTERNATIONAL INC.Notes to Consolidated FinancialStatements  (Continued)(In thousands, except per sharedata)

two interest rate swap agreements as cashflow hedges. In accordance with FAS No. 133, the Company calculated thefair value of the interest rate swap agreements to be a liability of$750 at September 30, 2005. Prior to the cash flow hedge designation,changes in the value from period to period of the interest rate swapagreements was recorded as other expense or income, as appropriate. AtSeptember 30, 2005, the effective portion of the loss on the interestrate swap agreements designated as cash flow hedges was $408, net ofincome tax, and is included in other comprehensive income. The Companywill continue to assess the effectiveness of these cash flow hedges ona quarterly basis.

Annual maturities of long-term debt for eachof the next five years are:

|                         |  |        |         |        |  |  |
|-------------------------|--|--------|---------|--------|--|--|
| Yearending September30, |  |   |
| 2006                    |  | $      | 10,577  |   |
| 2007                    |  |   | 10,577  |   |
| 2008                    |  |   | 10,577  |   |
| 2009                    |  |   | 32,611  |   |
| 2010                    |  |   | — |   |
| Thereafter              |  |   | — |   |
|                    |  | $      | 64,342  |   |
|                         |

8.    SeriesA Preferred Stock:

In fiscal 2002, the Company exchanged equityinvestments and subordinated debt investments in its U.K. subsidiariesfor shares of its common stock (the‘‘Reorganization’’). In the Reorganization,the Company issued 7,774 shares of its Series A preferred stock with anaggregate liquidation preference of £22,287 ($35,213 at thefixed exchange rate of $1.58 set forth in an amendment to ourcertificate of incorporation defining the rights of the Series Apreferred stock). The shares of Series A preferred stock were issued tocertain equity investors in Allied Holdings in exchange for 22,287ordinary shares of Allied Holdings.

During March through May of2004, the Company entered into conversion agreements (the‘‘Conversion Agreements’’) with all of theholders of our Series A preferred stock. Pursuant to the ConversionAgreements, such holders converted their shares into a like number ofshares of common stock upon the consummation of the Company’sJuly 7, 2004 issuance of 14,500 shares of its commons stock pursuant tothe registration statement on Form S-1 that was declared effective bythe Securities and Exchange Commission on July 1, 2004 (the‘‘Offering’’). The Company paid to theholders of the Series A preferred stock an aggregate of $7,388 inaccrued and unpaid dividends and $2,034 conversion fee from theproceeds of the offering.

The following table presents thechanges in the carrying amount of the Series A preferred stock for theyear ended September 30, 2004:

|                                                           |  |        |         |         |  |  |
|-----------------------------------------------------------|--|--------|---------|---------|--|--|
|                                                      |  | 2004   |
| Balanceat October 1, 2003 , net of issuancecosts          |  | $      | 33,151  |    |
| Accretion of issuance costs,based on interest rate method |  |   | 366     |    |
| Write-offof remaining issuance costs                      |  |   | 1,696   |    |
| Conversioninto commonshares                               |  |   | (35,213 | )  |
| Balanceat September 30, 2004                              |  |   | — |    |
|                                                           |

9.    Shareholders’Equity:

On December 2, 2003, Mr. Aitken, the Company’sChairman of the Board, and Ms. Eames, who was then serving as theCompany’s Chief Executive Officer, repaid in full the principaland accrued 

F-18

----

ALLIEDHEALTHCARE INTERNATIONAL INC.Notes to Consolidated FinancialStatements  (Continued)(In thousands, except per sharedata)

interest on the promissory notes issued bythem to the Company in connection with the Reorganization in fiscal2002. The principal and accrued interest repaid aggregated $591 and$419, respectively. The loans were repaid by delivery to the Company of104 and 73 shares of the Company’s common stock held by Mr.Aitken and Ms. Eames, respectively, valued at $5.70 per share, theclosing price on the day prior to the repayment date. The sharesdelivered by Mr. Aitken and Ms. Eames are held by the Company astreasury shares and are reflected as treasury stock in the consolidatedbalance sheet at September 30, 2005. The Company also agreed toreimburse Mr. Aitken and Ms. Eames for the taxes incurred by them onthe disposition of the shares to the Company, which were $83 and $51,respectively.

In January 2001, the Company initiated a stockrepurchase program, whereby the Company may purchase up toapproximately $1,000 of its outstanding common stock in open market orprivately negotiated transactions. In May 2003, the Company initiatedanother stock repurchase program, whereby the Company may purchase upto an additional $3,000 of its outstanding common stock in open markettransactions or in privately negotiated transactions. As of September30, 2005, the Company had acquired 408 shares for an aggregate purchaseprice of $1,285 pursuant to its stock repurchase programs, which arereflected as treasury stock in the consolidated balance sheet atSeptember 30, 2005.

10.    Income Taxes:

The provisionfor income taxes from continuing operations for the years endedSeptember 30, 2005, 2004 and 2003 is summarized as follows:

|                          |  |        |        |        |  |        |        |         |  |        |        |         |  |  |
|--------------------------|--|--------|--------|--------|--|--------|--------|---------|--|--------|--------|---------|--|--|
|                     |  | 2005   |        | 2004   |  | 2003   |
| Current:                 |  |   |   |   |  |   |   |    |  |   |   |    |
| Federal                  |  | $      | 2      |   |  | $      | (68    | )  |  | $      | (1,806 | )  |
| Foreign                  |  |   | 6,388  |   |  |   | 4,885  |    |  |   | 7,622  |    |
| Deferred:                |  |   |   |   |  |   |   |    |  |   |   |    |
| Foreign                  |  |   | 335    |   |  |   | 1,030  |    |  |   | (906   | )  |
| Provisionfor incometaxes |  | $      | 6,725  |   |  | $      | 5,847  |    |  | $      | 4,910  |    |
|                          |

F-19

----

ALLIEDHEALTHCARE INTERNATIONAL INC.Notes to Consolidated FinancialStatements  (Continued)(In thousands, except per sharedata)

Deferred income taxes reflect the net taxeffects of temporary differences between the carrying amounts of assetsand liabilities recorded for financial reporting purposes and theamounts used for income tax purposes. Significant components of theCompany’s deferred tax assets and liabilities as of September30, 2005 and 2004 are as follows:

|                                       |  |        |         |         |  |        |         |         |  |  |
|---------------------------------------|--|--------|---------|---------|--|--------|---------|---------|--|--|
|                                  |  | 2005   |         | 2004    |
| Deferredtax assets:                   |  |   |    |    |  |   |    |    |
| Accruedexpenses                       |  | $      | 671     |    |  | $      | 260     |    |
| Federalnet operating losscarryforward |  |   | 26,047  |    |  |   | 26,402  |    |
| Statenet operating losscarryforward   |  |   | 9,064   |    |  |   | 9,046   |    |
| Depreciation                          |  |   | 8       |    |  |   | 6       |    |
| Intangibleassets                      |  |   | 85      |    |  |   | 104     |    |
| Other,net                             |  |   | 237     |    |  |   | 14      |    |
| Grossdeferred taxassets               |  |   | 36,112  |    |  |   | 35,832  |    |
| Valuationallowance                    |  |   | (35,887 | )  |  |   | (35,832 | )  |
| Netdeferred taxassets                 |  |   | 225     |    |  |   | — |    |
| Deferredtax liabilities:              |  |   |    |    |  |   |    |    |
| Depreciation                          |  |   | (1,947  | )  |  |   | (1,054  | )  |
| Intangibleassets                      |  |   | (2,787  | )  |  |   | (1,292  | )  |
| Other,net                             |  |   | — |    |  |   | (94     | )  |
| Deferredtaxliabilities                |  |   | (4,734  | )  |  |   | (2,440  | )  |
| Netdeferred taxliability              |  | $      | (4,509  | )  |  | $      | (2,440  | )  |
|                                       |

TheCompany has recorded a full valuation allowance against its U.S.deferred tax assets as management believes it is not more likely thannot that these deferred tax assets will be utilized prior to theirexpiration. Subsequent recognition of these deferred tax assets wouldresult in an income tax benefit in the year of such recognition.

As of September 30, 2005, the Company has a federal net operatingloss carryforward of approximately $76,610 which if unused, will expirein the years 2018 through 2023. Current or future ownership changes maylimit the future realization of these net operating losses inaccordance with Internal Revenue Code section 382.

Reconciliations of the differences between income taxes computed atfederal statutory tax rates and consolidated provisions for incometaxes on income before income taxes and discontinued operations for theyears ended September 30, 2005, 2004 and 2003 are as follows:

|                                           |  |        |         |         |  |        |         |         |  |        |         |         |  |  |
|-------------------------------------------|--|--------|---------|---------|--|--------|---------|---------|--|--------|---------|---------|--|--|
|                                      |  | 2005   |         | 2004    |  | 2003   |
| Incometaxes at34%                         |  | $      | 8,657   |    |  | $      | 5,343   |    |  | $      | 5,569   |    |
| Taxcontingency                            |  |   | — |    |  |   | — |    |  |   | (1,874  | )  |
| Nondeductiblecompensation                 |  |   | — |    |  |   | 304     |    |  |   | 94      |    |
| Valuationallowance                        |  |   | 55      |    |  |   | 1,071   |    |  |   | 1,304   |    |
| Disqualifyingdispositions of stockoptions |  |   | (424    | )  |  |   | — |    |  |   | — |    |
| Foreigntax,net                            |  |   | (1,486  | )  |  |   | (876    | )  |  |   | (189    | )  |
| Other,net                                 |  |   | (77     | )  |  |   | 5       |    |  |   | 6       |    |
| Provisionfor incometaxes                  |  | $      | 6,725   |    |  | $      | 5,847   |    |  | $      | 4,910   |    |
|                                           |

Provisionhas not been made for U.S. or additional foreign taxes on approximately$60,097 of undistributed earnings of the U.K. foreign subsidiaries.Those earnings have been and will continue to be reinvested.Determination of the amount of unrecognized deferred tax liability withrespect to such 

F-20

----

ALLIEDHEALTHCARE INTERNATIONAL INC.Notes to Consolidated FinancialStatements  (Continued)(In thousands, except per sharedata)

earnings is not practical. We believe thatthe amount of additional taxes that might be payable on the earnings offoreign subsidiaries, if remitted, would be partially offset by theU.S. foreign tax credits.

Income before income taxes generatedfrom the U.K. operations for the years ended September 30, 2005, 2004and 2003 was $24,144, $19,970 and $20,307,respectively.

11.    Stock Option Plan andWarrants:

Stock Options:

Under the Company’s 2002Option Plan (‘‘Option Plan’’), options maybe granted by the Compensation Committee of the Board of Directorswhich determines the exercise price, vesting provisions and term ofsuch grants. In accordance with the terms of the Option Plan, thenumber of shares available for issuance increases by one percent of thenumber of shares of Common Stock outstanding as of the first day ofeach fiscal year.

Following is a summary of transactions underthe Option Plan during the year ended September 30, 2005, 2004 and2003:

|                              |  |                      |        |                                 |  |                      |        |                                 |  |                      |        |                                 |  |        |        |        |  |        |        |         |  |        |        |        |  |  |
|------------------------------|--|----------------------|--------|---------------------------------|--|----------------------|--------|---------------------------------|--|----------------------|--------|---------------------------------|--|--------|--------|--------|--|--------|--------|---------|--|--------|--------|--------|--|--|
|                         |  | 2005                 |        | 2004                            |  | 2003                 |
|                         |  | NumberOfStockOptions |        | WeightedAverageExercisePrice($) |  | NumberofStockOptions |        | WeightedAverageExercisePrice($) |  | NumberofStockOptions |        | WeightedAverageExercisePrice($) |
| Outstanding beginning ofyear |  |                 | 2,646  |                            |  |                 | 4.87   |                            |  |                 | 2,254  |                            |  |   | 4.58   |   |  |   | 1,530  |    |  |   | 4.24   |   |
| Granted                      |  |                 | 652    |                            |  |                 | 5.93   |                            |  |                 | 713    |                            |  |   | 5.70   |   |  |   | 1,415  |    |  |   | 4.30   |   |
| Exercised                    |  |                 | (410   | )                          |  |                 | 2.18   |                            |  |                 | (87    | )                          |  |   | 4.63   |   |  |   | (403   | )  |  |   | 2.40   |   |
| Forfeited                    |  |                 | (278   | )                          |  |                 | 5.54   |                            |  |                 | (234   | )                          |  |   | 4.68   |   |  |   | (288   | )  |  |   | 4.42   |   |
| Outstandingend ofyear        |  |                 | 2,610  |                            |  |                 | 5.49   |                            |  |                 | 2,646  |                            |  |   | 4.87   |   |  |   | 2,254  |    |  |   | 4.58   |   |
| Weighted-averagefair         |  |                 |   |                            |  |                 |   |                            |  |                 |   |                            |  |   |   |   |  |   |   |    |  |   |   |   |
| valueof optionsgranted       |  |                 |   |                            |  |                 |   |                            |  |                 |   |                            |  |   |   |   |  |   |   |    |  |   |   |   |
| duringtheyear                |  |                 |   |                            |  |                 | 4.44   |                            |  |                 |   |                            |  |   | 4.22   |   |  |   |   |    |  |   | 3.29   |   |
| Availablefor futuregrants    |  |                 | 1,626  |                            |  |                 |   |                            |  |                 |   |                            |  |   |   |   |  |   |   |    |  |   |   |   |
|                              |

OnMay 28, 1997, the Company adopted a stock option plan for non-employeedirectors (the ‘‘Directors Plan’’) whichgives non-employee directors options to purchase up to 100 shares ofcommon stock. As of September 30, 2005, no options have been grantedunder the Directors Plan. Options under the Directors Plan may begranted by the Board of Directors which determines the exercise price,vesting provisions and term of such grants.

A summary of the2,610 options outstanding as of September 30, 2005 is as follows:

|                         |  |                   |       |                                                       |  |                                                  |      |                   |  |                                                       |     |        |  |        |       |        |  |        |      |        |  |  |
|-------------------------|--|-------------------|-------|-------------------------------------------------------|--|--------------------------------------------------|------|-------------------|--|-------------------------------------------------------|-----|--------|--|--------|-------|--------|--|--------|------|--------|--|--|
| RangeOfExercisePrice($) |  | NumberOutstanding |       | WeightedAverageExercise Priceof OptionsOutstanding($) |  | Weighted AverageRemainingContractual LifeInYears |      | NumberExercisable |  | WeightedAverageExercise Priceof OptionsExercisable($) |
| 3.83 –5.70        |  |              | 1,933 |                                                  |  |                                             | 4.97 |              |  |                                                  | 8.2 |   |  |   | 1,711 |   |  |   | 4.97 |   |
| 6.20–7.25         |  |              | 677   |                                                  |  |                                             | 6.98 |              |  |                                                  | 3.4 |   |  |   | 500   |   |  |   | 7.25 |   |
|                    |  |              | 2,610 |                                                  |  |                                             | 5.49 |              |  |                                                  | 7.0 |   |  |   | 2,211 |   |  |   | 5.49 |   |
|                         |

Warrants:

Inthe fourth quarter of fiscal 2003, in connection with the execution ofan agreement with an unaffiliated third party pursuant to which suchthird party agreed to provide us with consulting 

F-21

----

ALLIEDHEALTHCARE INTERNATIONAL INC.Notes to Consolidated FinancialStatements  (Continued)(In thousands, except per sharedata)

services related to corporate finance andinvestment banking matters, the Company issued to such third partywarrants to purchase up to an aggregate of 350 shares of its commonstock. Of the 350 warrants issued, 100 of the warrants are exercisableat $4.75 per share, 175 of the warrants are exercisable at $5.50 pershare and 75 of the warrants are exercisable at a price of $6.00 pershare. The warrants expire on August 13, 2007. At issuance, the fairvalue of the warrants of $603 was recorded as a deferred cost and isbeing amortized over the two year life of the agreement. For the yearsended September 30, 2005, 2004 and 2003, the Company recorded $260,$302 and $41, respectively, in amortization related to suchwarrants.

12.    Commitments andContingencies:

Acquisition Agreements:

Related to theCompany’s acquisitions of certain flexible staffing agencies,the Company has entered into agreements to pay additional amounts, incash, of up to $12,478 at September 30, 2005, in contingentconsideration dependent upon future earnings of such acquiredentities.

Guarantees:

The Senior Credit Facility issecured by a first priority lien on the assets of the Allied HealthcareGroup Holdings Limited and certain of its subsidiaries. Together withAllied Healthcare Group Holdings Limited and certain of itssubsidiaries, the Company is guaranteeing the debt and otherobligations of certain wholly-owned U.K. subsidiaries under the SeniorCredit Facility. At September 30, 2005 and 2004, the amountsguaranteed, which approximate the amounts outstanding, totaled $64,342and $62,979, respectively.

Employment Agreements:

TheCompany has three employment agreements that provided for minimumaggregate annual compensation of $1,007 in fiscal 2005.

InSeptember 2001, the Company entered into an employment agreement withMr. Aitken. The employment agreement has a three-year term (subject toautomatic renewal for successive additional one-year periods unlesseither party provides the other with notice of intent to terminate theagreement at least 90 days before the then applicable terminationdate). The employment agreement provides that the Company willnegotiate in good faith, commencing not less than 90 days prior to theanniversary date of the employment agreement, the amount, if any, offuture salary increases. The salary of Mr. Aitken is currently $516.Mr. Aitken’s employment agreement provides that if hisemployment is terminated during the term of the agreement other thanfor cause, death or disability, or if, within six months of a‘‘change in control’’ (as defined in theagreement) of the Company, Mr. Aitken or the Company terminates hisemployment, then (1) all stock options in the Company held by Mr.Aitken shall immediately vest and (2) Mr. Aitken will be entitled toreceive a cash payment of 2.9 times his average annual base salaryduring the twelve months preceding the change of control or thetermination of employment.

In September 2001, the Company enteredinto an employment agreement with Ms. Eames, which was modified inNovember 2004 and September 2005. Pursuant to her employment agreement,as modified, Ms. Eames will serve as Executive Vice President of theCompany until December 31, 2006 at an annual salary of $120. Ms.Eames’ employment agreement, as modified, provides that if heremployment is terminated during the term of the agreement other thanfor cause, death or disability, then all stock options in the Companyheld by Ms. Eames shall immediately vest and Ms. Eames shall beentitled to receive her salary through December 31,2006.

F-22

----

ALLIEDHEALTHCARE INTERNATIONAL INC.Notes to Consolidated FinancialStatements  (Continued)(In thousands, except per sharedata)

In Deeds of Restrictive Covenants enteredinto in 1999 with one of our U.K. subsidiaries, Mr. Aitken and Ms.Eames have each agreed not to compete with the Company or itssubsidiaries for twelve months following termination of employmentwithout the Company’s prior written consent.

The Companyhas also entered into an employment agreement with Mr. Murphy, itsChief Financial Officer. The employment agreement with Mr. Murphy isterminable by either party on six months’ notice and providesthat Mr. Murphy will not compete against us for a period of twelvemonths following his termination of employment. Pursuant to hisemployment agreement, Mr. Murphy’s salary is currently$333.

Operating Leases:

The Company has entered intovarious operating lease agreements for office space and equipment.Certain of these leases provide for renewal options.

TheCompany’s future minimum rental commitments as of September 30,2005 are as follows:

|            |  |        |       |        |  |  |
|------------|--|--------|-------|--------|--|--|
| 2006       |  | $      | 2,326 |   |
| 2007       |  |   | 1,755 |   |
| 2008       |  |   | 1,244 |   |
| 2009       |  |   | 1,047 |   |
| 2010       |  |   | 823   |   |
| Thereafter |  |   | 1,340 |   |
|       |  | $      | 8,535 |   |
|            |

Rentexpense under non-capitalized lease agreements for the years endedSeptember 30, 2005, 2004 and 2003 amounted to $3,912, $3,493 and$2,749, respectively.

Contingencies:

Some of theCompany’s subsidiaries were Medicare Part B suppliers whosubmitted claims to the designated carrier who is thegovernment’s claims processing administrator. From time to time,the carrier may have requested an audit of Medicare Part B claims on aprepayment or postpayment basis. If the outcome of any audit results ina denial or a finding of an overpayment, then the affected subsidiaryhas appeal rights. Under postpayment audit procedures, the suppliergenerally pays the alleged overpayment and can pursue appeal rights fora refund of any paid overpayment incorrectly assessed against thesupplier.

The Company believes that it is in compliance, in allmaterial respects, with the applicable provisions of the federalstatutes, regulations and laws and applicable state laws together withall applicable laws and regulations of other countries in which theCompany operates. Due to the broad and sometimes vague nature of theselaws and regulations, there can be no assurance that an enforcementaction will not be brought against the Company, or that the Companywill not be found to be in violation of one or more of theseprovisions. At present, the Company cannot anticipate what impact, ifany, subsequent administrative or judicial interpretation of theapplicable federal and state laws and those of other countries may haveon the Company’s consolidated financial position, cash flows orresults of operations.

The Company is involved in various otherlegal proceedings and claims incidental to its normal businessactivities. The Company is vigorously defending its position in allsuch proceedings. Management believes these matters should not have amaterial adverse impact on the consolidated financial position, cashflows or results of operations of the Company.

F-23

----

ALLIEDHEALTHCARE INTERNATIONAL INC.Notes to Consolidated FinancialStatements  (Continued)(In thousands, except per sharedata)

13.    Operations by Business Segmentsand Geographic Areas:

As disclosed in Note 3, the Company sold all of the issued andoutstanding capital stock of its Home Healthcare operations in thethird quarter of fiscal 2003 and as such, has classified the HomeHealthcare results of operations as discontinued operations. As aresult of this transaction, the Company no longer operates in the U.S.Home Healthcare segment. Accordingly, the Company’s continuingoperations were in the U.K. The U.K. operations derive its revenuesfrom flexible healthcare services(‘‘Staffing’’), consisting principally ofnurses, nurses aides and home health aides, and supply of medical-gradeoxygen (‘‘Oxygen’’)for use in respiratorytherapy products to the U.K. pharmacy market and in Northern Irelandand also provides oxygen concentrators to customers in NorthernIreland.

The Company evaluates performance and allocatesresources based on profit and loss from operations before corporateexpenses, interest and income taxes. The accounting policies of thebusiness segment are the same as those described in the summary ofsignificant accounting policies.

The following tables presentcertain financial information by reportable business segment for theyears ended September 30, 2005, 2004 and 2003.

|                                        |  |                             |         |        |  |        |        |        |  |        |         |         |  |  |
|----------------------------------------|--|-----------------------------|---------|--------|--|--------|--------|--------|--|--------|---------|---------|--|--|
|                                   |  | YearEnded September 30,2005 |
|                                   |  | Staffing                    |         | Oxygen |  | Total  |
| Totalrevenues to unaffiliatedcustomers |  | $                           | 342,031 |   |  | $      | 9,158  |   |  | $      | 351,189 |    |
| Segmentoperatingprofit                 |  | $                           | 28,714  |   |  | $      | 3,662  |   |  | $      | 32,376  |    |
| Unallocatedcorporateexpenses           |  |                        |    |   |  |   |   |   |  |   | (2,653  | )  |
| Interestand other expense,net          |  |                        |    |   |  |   |   |   |  |   | (4,164  | )  |
| Foreignexchange loss                   |  |                        |    |   |  |   |   |   |  |   | (98     | )  |
| Incomebefore income taxes              |  |                        |    |   |  |   |   |   |  | $      | 25,461  |    |
| Depreciationandamortization            |  | $                           | 4,081   |   |  | $      | 779    |   |  | $      | 4,860   |    |
| Corporatedepreciation andamortization  |  |                        |    |   |  |   |   |   |  |   | 7       |    |
| Totaldepreciation andamortization      |  |                        |    |   |  |   |   |   |  | $      | 4,867   |    |
| Identifiableassets, September 30,2005  |  | $                           | 288,363 |   |  | $      | 12,306 |   |  | $      | 300,669 |    |
| Corporateassets                        |  |                        |    |   |  |   |   |   |  |   | 2,770   |    |
| Totalassets, September 30,2005         |  |                        |    |   |  |   |   |   |  | $      | 303,439 |    |
| TotalCapitalexpenditures               |  | $                           | 8,016   |   |  | $      | 1,693  |   |  | $      | 9,709   |    |
|                                        |

|                                        |  |                             |         |        |  |        |        |        |  |        |         |         |  |  |
|----------------------------------------|--|-----------------------------|---------|--------|--|--------|--------|--------|--|--------|---------|---------|--|--|
|                                   |  | Year EndedSeptember 30,2004 |
|                                   |  | Staffing                    |         | Oxygen |  | Total  |
| Totalrevenues to unaffiliatedcustomers |  | $                           | 317,393 |   |  | $      | 7,905  |   |  | $      | 325,298 |    |
| Segmentoperatingprofit                 |  | $                           | 31,935  |   |  | $      | 2,618  |   |  | $      | 34,553  |    |
| Unallocatedcorporateexpenses           |  |                        |    |   |  |   |   |   |  |   | (4,926  | )  |
| Interestexpense, net                   |  |                        |    |   |  |   |   |   |  |   | (13,727 | )  |
| Foreign exchangeloss                   |  |                        |    |   |  |   |   |   |  |   | (184    | )  |
| Incomebefore income taxes              |  |                        |    |   |  |   |   |   |  | $      | 15,716  |    |
| Depreciationandamortization            |  | $                           | 2,174   |   |  | $      | 882    |   |  | $      | 3,056   |    |
| Corporatedepreciation andamortization  |  |                        |    |   |  |   |   |   |  |   | 7       |    |
| Totaldepreciation andamortization      |  |                        |    |   |  |   |   |   |  | $      | 3,063   |    |
| Identifiableassets, September 30,2004  |  | $                           | 267,080 |   |  | $      | 10,595 |   |  | $      | 277,675 |    |
| Corporateassets                        |  |                        |    |   |  |   |   |   |  |   | 4,719   |    |
| Totalassets, September 30,2004         |  |                        |    |   |  |   |   |   |  | $      | 282,394 |    |
| TotalCapitalexpenditures               |  | $                           | 6,296   |   |  | $      | 1,533  |   |  | $      | 7,829   |    |
|                                        |

F-24

----

ALLIEDHEALTHCARE INTERNATIONAL INC.Notes to Consolidated FinancialStatements  (Continued)(In thousands, except per sharedata)

|                                                      |  |                             |         |        |  |        |        |        |  |        |         |         |  |  |
|------------------------------------------------------|--|-----------------------------|---------|--------|--|--------|--------|--------|--|--------|---------|---------|--|--|
|                                                 |  | YearEnded September 30,2003 |
|                                                 |  | Staffing                    |         | Oxygen |  | Total  |
| Totalrevenues to unaffiliatedcustomers               |  | $                           | 287,964 |   |  | $      | 6,415  |   |  | $      | 294,379 |    |
| Segmentoperatingprofit                               |  | $                           | 30,204  |   |  | $      | 1,293  |   |  | $      | 31,497  |    |
| Unallocatedcorporateexpenses                         |  |                        |    |   |  |   |   |   |  |   | (3,822  | )  |
| Interestexpense, net                                 |  |                        |    |   |  |   |   |   |  |   | (11,279 | )  |
| Foreign exchangeloss                                 |  |                        |    |   |  |   |   |   |  |   | (18     | )  |
|                                                 |  |                        |    |   |  |   |   |   |  |   |    |    |
| Incomebefore income taxes and discontinuedoperations |  |                        |    |   |  |   |   |   |  | $      | 16,378  |    |
| Depreciationandamortization                          |  | $                           | 1,291   |   |  | $      | 685    |   |  | $      | 1,976   |    |
| Corporatedepreciation andamortization                |  |                        |    |   |  |   |   |   |  |   | 9       |    |
| Totaldepreciation andamortization                    |  |                        |    |   |  |   |   |   |  | $      | 1,985   |    |
| Identifiableassets, September 30,2003                |  | $                           | 291,724 |   |  | $      | 10,585 |   |  | $      | 302,309 |    |
| Corporateassets                                      |  |                        |    |   |  |   |   |   |  |   | 9,359   |    |
| Totalassets, September 30,2003                       |  |                        |    |   |  |   |   |   |  | $      | 311,668 |    |
| Capitalexpenditures                                  |  | $                           | 1,832   |   |  | $      | 2,183  |   |  | $      | 4,015   |    |
| Corporatecapitalexpenditures                         |  |                        |    |   |  |   |   |   |  |   | 11      |    |
| Totalcapitalexpenditures                             |  |                        |    |   |  |   |   |   |  | $      | 4,026   |    |
|                                                      |

14.    ProfitSharing Plan:

The Company has a profit sharing plan pursuant toSection 401(k) of the Internal Revenue Code, concerning all U.S.employees who meet certain requirements. These requirements include,among other things, at least one year of service and attainment of theage of 21.

The plan operates as a salary reduction plan wherebyparticipants contribute anywhere from 1% to 15% of theircompensation, not to exceed the maximum available under theCode.

The Company may make additional matching cash contributionsat its discretion. The Company’s contributions to the plan wereapproximately $3 and $35 for the years ended September 30, 2004 and2003, respectively.

In addition to the U.S. plan described above,certain of the Company’s U.K. subsidiaries also sponsor personalpension plans. The plans operate as salary reduction plans, which alsoallows for lump sum contributions, whereby participants contributeanywhere from 1% to 40% of their compensation, not toexceed the maximum available under the U.K. tax laws. The Company maymake an additional contribution (which varies according to employeecontracts and contribution elections) which is in the form of cash. TheCompany’s contributions to the U.K. plans were $84, $89 and $131for the years ended September 30, 2005, 2004 and 2003,respectively.

F-25

----

ALLIEDHEALTHCARE INTERNATIONAL INC.Notes to Consolidated FinancialStatements  (Continued)(In thousands, except per sharedata)

15.    Selected Quarterly FinancialData (Unaudited):

The following table presents the comparativeunaudited quarterly results for the years ended September 30, 2005 and2004:

|                                                       |  |              |        |          |  |          |        |               |  |   |        |        |  |   |        |           |  |  |
|-------------------------------------------------------|--|--------------|--------|----------|--|----------|--------|---------------|--|---|--------|--------|--|---|--------|-----------|--|--|
| 2005Quarter Ended                                     |  | December 31, |        | March31, |  | June 30, |        | September 30, |
| Totalrevenues                                         |  | $            | 86,563 |     |  | $        | 90,815 |          |  | $ | 89,483 |   |  | $ | 84,328 |      |
| Grossprofit                                           |  | $            | 25,214 |     |  | $        | 26,196 |          |  | $ | 26,215 |   |  | $ | 26,046 |      |
| Netincome available to commonshareholders             |  | $            | 4,827  |     |  | $        | 5,055  |          |  | $ | 4,654  |   |  | $ | 4,200  | (a)  |
| Basicand diluted net income per share of common stock |  | $            | 0.11   |     |  | $        | 0.11   |          |  | $ | 0.10   |   |  | $ | 0.09   |      |
|                                                       |

|     |                                                                                                                     |
|-----|---------------------------------------------------------------------------------------------------------------------|
| (a) | Includescharges of $1,463, net of tax, related to reorganization costs,rebranding and launch of new corporate logo. |

|                                                              |  |             |        |           |  |          |        |              |  |   |        |        |  |   |        |            |  |  |
|--------------------------------------------------------------|--|-------------|--------|-----------|--|----------|--------|--------------|--|---|--------|--------|--|---|--------|------------|--|--|
| 2004 Quarter Ended                                           |  | December31, |        | March 31, |  | June 30, |        | September30, |
| Totalrevenues                                                |  | $           | 78,543 |      |  | $        | 80,167 |         |  | $ | 81,914 |   |  | $ | 84,674 |       |
| Grossprofit                                                  |  | $           | 22,310 |      |  | $        | 22,533 |         |  | $ | 23,586 |   |  | $ | 24,742 |       |
| Netincome                                                    |  | $           | 1,762  |      |  | $        | 2,643  |         |  | $ | 3,299  |   |  | $ | 2,165  | (a)   |
| Netincome (loss) available to commonshareholders             |  | $           | 706    |      |  | $        | 1,574  |         |  | $ | 2,208  |   |  | $ | (1,639 | )(b)  |
| Basicand diluted net income (loss) per share of common stock |  | $           | 0.03   |      |  | $        | 0.07   |         |  | $ | 0.10   |   |  | $ | (0.04  | )     |
|                                                              |

|     |                                                                                                                        |
|-----|------------------------------------------------------------------------------------------------------------------------|
| (a) | Includescharges of $2,906, net of tax, related to write-offs associated withrefinancing the Old Senior CreditFacility. |

|     |                                                                                     |
|-----|-------------------------------------------------------------------------------------|
| (b) | Includes charges of $3,730 relatedto the conversion of the Series A preferredstock. |

F-26

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ALLIEDHEALTHCARE INTERNATIONAL INC.(PARENT COMPANY ONLY)SCHEDULEI—CONDENSED FINANCIAL INFORMATION BALANCE SHEETS(Inthousands, except per sharedata)

|                                                                                                     |  |                  |         |                   |  |        |         |         |  |  |
|-----------------------------------------------------------------------------------------------------|--|------------------|---------|-------------------|--|--------|---------|---------|--|--|
|                                                                                                |  | September30,2005 |         | September 30,2004 |
| **ASSETS**                                                                                          |  |             |    |              |  |   |    |    |
| **Currentassets:**                                                                                  |  |             |    |              |  |   |    |    |
| Cash and cashequivalents                                                                            |  | $                | 344     |              |  | $      | 1,906   |    |
| Receivables from subsidiaries                                                                       |  |             | 105,662 |              |  |   | 103,013 |    |
| Prepaid expenses and otherassets                                                                    |  |             | 50      |              |  |   | 431     |    |
| Total current assets                                                                                |  |             | 106,056 |              |  |   | 105,350 |    |
| Property andequipment, net                                                                          |  |             | 9       |              |  |   | 15      |    |
| Investment insubsidiaries                                                                           |  |             | 95,487  |              |  |   | 82,317  |    |
| Goodwill                                                                                            |  |             | 2,300   |              |  |   | 2,300   |    |
| Other assets                                                                                        |  |             | 66      |              |  |   | 66      |    |
| Totalassets                                                                                         |  | $                | 203,918 |              |  | $      | 190,048 |    |
| **LIABILITIES ANDSHAREHOLDERS'EQUITY**                                                              |  |             |    |              |  |   |    |    |
| **Currentliabilities:**                                                                             |  |             |    |              |  |   |    |    |
| Accountspayable                                                                                     |  | $                | 166     |              |  | $      | 246     |    |
| Accruedexpenses                                                                                     |  |             | 1,178   |              |  |   | 2,042   |    |
| Liabilities of discontinued operations                                                              |  |             | 690     |              |  |   | 690     |    |
| Taxespayable                                                                                        |  |             | 2       |              |  |   | — |    |
| Total current liabilities                                                                           |  |             | 2,036   |              |  |   | 2,978   |    |
| Long-termliabilities                                                                                |  |             | 23      |              |  |   | 93      |    |
| Total liabilities                                                                                   |  |             | 2,059   |              |  |   | 3,071   |    |
| Commitments andcontingencies                                                                        |  |             |    |              |  |   |    |    |
| Shareholders'equity:                                                                                |  |             |    |              |  |   |    |    |
| Preferred stock, $.01 par value;authorized 10,000 shares, issued and outstanding –none        |  |             | — |              |  |   | — |    |
| Commonstock, $.01 par value; authorized 80,000 shares, issued 45,441 and45,050 shares, respectively |  |             | 454     |              |  |   | 450     |    |
| Additional paid-in capital                                                                          |  |             | 237,796 |              |  |   | 236,988 |    |
| Accumulated other comprehensiveincome                                                               |  |             | 6,112   |              |  |   | 10,778  |    |
| Accumulateddeficit                                                                                  |  |             | (40,209 | )            |  |   | (58,945 | )  |
|                                                                                                |  |             | 204,153 |              |  |   | 189,271 |    |
| Less cost of treasury stock (585shares)                                                             |  |             | (2,294  | )            |  |   | (2,294  | )  |
| Total shareholders'equity                                                                           |  |             | 201,859 |              |  |   | 186,977 |    |
| Total liabilities and shareholders'equity                                                           |  | $                | 203,918 |              |  | $      | 190,048 |    |
|                                                                                                     |

See note to condensedfinancial information.

S-1

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SCHEDULE I

ALLIEDHEALTHCARE INTERNATIONAL INC.(PARENT COMPANY ONLY)SCHEDULEI—CONDENSED FINANCIAL INFORMATIONSTATEMENTS OFOPERATIONS(Inthousands)

|                                                                                      |  |                             |         |                             |  |                              |         |         |  |        |         |         |  |  |
|--------------------------------------------------------------------------------------|--|-----------------------------|---------|-----------------------------|--|------------------------------|---------|---------|--|--------|---------|---------|--|--|
|                                                                                 |  | YearEndedSeptember 30, 2005 |         | Year EndedSeptember30, 2004 |  | Year Ended September 30,2003 |
| Revenue                                                                              |  | $                           | — |                        |  | $                            | — |    |  | $      | — |    |
| Expenses:                                                                            |  |                        |    |                        |  |                         |    |    |  |   |    |    |
| Selling,general and administrative expenses                                          |  |                        | 3,090   |                        |  |                         | 4,884   |    |  |   | 4,178   |    |
| Forgiveness of intercompanydebt                                                      |  |                        | — |                        |  |                         | — |    |  |   | 12,106  |    |
| Total expenses                                                                       |  |                        | 3,090   |                        |  |                         | 4,884   |    |  |   | 16,284  |    |
| Equity in income ofsubsidiaries                                                      |  |                        | 17,859  |                        |  |                         | 14,013  |    |  |   | 26,043  |    |
| Interest income                                                                      |  |                        | 3,810   |                        |  |                         | 856     |    |  |   | 68      |    |
| Other income(expense)                                                                |  |                        | 159     |                        |  |                         | (184    | )  |  |   | (181    | )  |
| Income before income taxes and discontinuedoperations                                |  |                        | 18,738  |                        |  |                         | 9,801   |    |  |   | 9,646   |    |
| Provision for (benefit from) incometaxes                                             |  |                        | 2       |                        |  |                         | (68     | )  |  |   | (1,806  | )  |
| Income before discontinuedoperations                                                 |  |                        | 18,736  |                        |  |                         | 9,869   |    |  |   | 11,452  |    |
| Discontinued operations – Gain on disposal ofsubsidiaries, net of taxes of$775 |  |                        | — |                        |  |                         | — |    |  |   | 519     |    |
|                                                                                 |  |                        | — |                        |  |                         | — |    |  |   | 519     |    |
| Net income                                                                           |  | $                           | 18,736  |                        |  | $                            | 9,869   |    |  | $      | 11,971  |    |
|                                                                                      |

See note to condensed financialinformation.

S-2

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SCHEDULE IALLIED HEALTHCAREINTERNATIONAL INC.(PARENT COMPANY ONLY)SCHEDULEI—CONDENSED FINANCIAL INFORMATIONSTATEMENTS OF CASHFLOWS(Inthousands)

|                                                                                                  |  |                             |         |                             |  |                              |         |         |  |        |         |         |  |  |
|--------------------------------------------------------------------------------------------------|--|-----------------------------|---------|-----------------------------|--|------------------------------|---------|---------|--|--------|---------|---------|--|--|
|                                                                                             |  | YearEndedSeptember 30, 2005 |         | Year EndedSeptember30, 2004 |  | Year Ended September 30,2003 |
| Cash flows from operatingactivities:                                                             |  |                        |    |                        |  |                         |    |    |  |   |    |    |
| Net income                                                                                       |  | $                           | 18,736  |                        |  | $                            | 9,869   |    |  | $      | 11,971  |    |
| Adjustments to reconcile net income to net cash usedin operating activities:                     |  |                        |    |                        |  |                         |    |    |  |   |    |    |
| Equity interest innet income ofsubsidiaries                                                      |  |                        | (17,859 | )                      |  |                         | (14,013 | )  |  |   | (26,043 | )  |
| Gain on sale of subsidiaries                                                                     |  |                        | — |                        |  |                         | — |    |  |   | (519    | )  |
| Depreciation andamortization                                                                     |  |                        | 6       |                        |  |                         | 7       |    |  |   | 9       |    |
| Amortization of debt issuance costs andwarrants                                                  |  |                        | 261     |                        |  |                         | 302     |    |  |   | 203     |    |
| Forgiveness of intercompany debt                                                                 |  |                        | — |                        |  |                         | — |    |  |   | 12,106  |    |
| Loss on sale offixed assets                                                                      |  |                        | — |                        |  |                         | — |    |  |   | 3       |    |
| Stock based compensation –employees                                                        |  |                        | 21      |                        |  |                         | — |    |  |   | 587     |    |
| Interest accrued on loans toofficers                                                             |  |                        | — |                        |  |                         | (7      | )  |  |   | (44     | )  |
| Changes in operating assets and liabilities,excluding the effect of businesses acquired andsold: |  |                        |    |                        |  |                         |    |    |  |   |    |    |
| (Increase) decrease in receivables fromsubsidiaries                                              |  |                        | (2,649  | )                      |  |                         | (56,771 | )  |  |   | 1,164   |    |
| Decrease (increase) in prepaid expenses and otherassets                                          |  |                        | 119     |                        |  |                         | 431     |    |  |   | (394    | )  |
| Decrease in accounts payable and otherliabilities                                                |  |                        | (1,011  | )                      |  |                         | (451    | )  |  |   | (1,641  | )  |
| Net cash used in continuingoperations                                                            |  |                        | (2,376  | )                      |  |                         | (60,633 | )  |  |   | (2,598  | )  |
| Net cash provided by discontinuedoperations                                                      |  |                        | — |                        |  |                         | — |    |  |   | 463     |    |
| Net cash used in operatingactivities                                                             |  |                        | (2,376  | )                      |  |                         | (60,633 | )  |  |   | (2,135  | )  |
| Cash flows from investingactivities:                                                             |  |                        |    |                        |  |                         |    |    |  |   |    |    |
| Capitalexpenditures                                                                              |  |                        | — |                        |  |                         | — |    |  |   | (11     | )  |
| Proceeds from sale of discontinuedoperations                                                     |  |                        | — |                        |  |                         | — |    |  |   | 8,195   |    |
| Net cash provided byinvesting activities                                                         |  |                        | — |                        |  |                         | — |    |  |   | 8,184   |    |
| Cash flows from financingactivities:                                                             |  |                        |    |                        |  |                         |    |    |  |   |    |    |
| Payments for stock issuancecosts                                                                 |  |                        | — |                        |  |                         | (5,335  | )  |  |   | (20     | )  |
| Payments for preferred dividends                                                                 |  |                        | — |                        |  |                         | (9,422  | )  |  |   | — |    |
| Proceeds from issuanceof stock                                                                   |  |                        | — |                        |  |                         | 71,050  |    |  |   | — |    |
| Payments for treasury shares acquired                                                            |  |                        | — |                        |  |                         | — |    |  |   | (565    | )  |
| Stock optionsexercised                                                                           |  |                        | 791     |                        |  |                         | 401     |    |  |   | 80      |    |
| Net cash provided by (usedin) financing activities                                               |  |                        | 791     |                        |  |                         | 56,694  |    |  |   | (505    | )  |
| Effect of exchange rate oncash                                                                   |  |                        | 23      |                        |  |                         | 32      |    |  |   | (114    | )  |
| (Decrease) increase incash                                                                       |  |                        | (1,562  | )                      |  |                         | (3,907  | )  |  |   | 5,430   |    |
| Cash and cash equivalents, beginning ofperiod                                                    |  |                        | 1,906   |                        |  |                         | 5,813   |    |  |   | 383     |    |
| Cash and cash equivalents, end ofperiod                                                          |  | $                           | 344     |                        |  | $                            | 1,906   |    |  | $      | 5,813   |    |
|                                                                                                  |

See note to condensedfinancial information.

S-3

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ALLIED HEALTHCARE INTERNATIONALINC.(PARENT COMPANY ONLY)SCHEDULE I—CONDENSED FINANCIALINFORMATIONNOTE TO CONDENSED FINANCIAL INFORMATION

Basisof Presentation:

Certain information and footnotedisclosures normally included in financial statements prepared inconformity with generally accepted accounting principles have beencondensed or omitted. Accordingly, these financial statements should beread in conjunction with the consolidated financial statements ofAllied Healthcare International Inc. (the‘‘Company’’) in its 2005 Annual Report onForm 10-K.

The investments in the Company’ssubsidiaries are carried on the equity basis, which represents amountinvested less dividends received plus or minus the Company’sequity in the subsidiaries’ income or loss to date. Significantintercompany balances and activities have not been eliminated in theunconsolidated financialinformation.

S-4

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ALLIED HEALTHCARE INTERNATIONALINC.(In thousands)

SCHEDULE II —VALUATION AND QUALIFYINGACCOUNTS

|                                 |  |                               |        |                    |  |                |        |            |  |                         |  |            |  |        |        |        |  |  |  |  |  |  |
|---------------------------------|--|-------------------------------|--------|--------------------|--|----------------|--------|------------|--|-------------------------|--|------------|--|--------|--------|--------|--|--|--|--|--|--|
| ColumnA                         |  | Column B                      |        | ColumnC            |  | ColumnD        |        | ColumnE    |
|                            |  |                          |        | AdditionsChargedto |  |           |        |       |
| Description                     |  | Balanceat Beginning of Period |        | Cost andExpenses   |  | Other Accounts |        | Deductions |  | Balanceat End of Period |
| Allowance forDoubtful Accounts: |  |                          |   |               |  |           |   |       |  |                    |  |       |  |   |   |   |
| Year ended September 30,2005    |  | $                             | 1,269  |               |  | $              | 758    |       |  | $(61)(B)                |  | $232(A)    |  | $      | 1,734  |   |
| Yearended September 30,2004     |  | $                             | 3,346  |               |  | $              | (1,653 | )     |  | $259(B)                 |  | $683(A)    |  | $      | 1,269  |   |
| Yearended September 30,2003     |  | $                             | 22,849 |               |  | $              | 1,205  |       |  | $227(B)                 |  | $20,935(A) |  | $      | 3,346  |   |
|                                 |

|     |                                                           |
|-----|-----------------------------------------------------------|
| (A) | Doubtfulaccounts written off, net of recoveries and sold. |

|     |                                                                                                                 |
|-----|-----------------------------------------------------------------------------------------------------------------|
| (B) | Assumed in acquisitions and adjustments arising fromtranslation of foreign financial statements to U.S.dollars. |

S-5

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