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SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended September 30, 2008
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File No.: 1-11570
 ALLIED HEALTHCARE INTERNATIONAL INC.
  New York
    
    
    
    13-3098275(State or Other Jurisdiction of Incorporation 
or Organization)
    
    
    
    (I.R.S. Employer Identification Number)245 Park Avenue 
New York, New York
    
    10167
    
    (212) 750-0064(Address of principal executive offices)
    
    (Zip Code)
    
    (Registrants telephone number,
including area code)
  Title of Each Class
    
    Name of Each Exchange on Which RegisteredCommon Stock, $.01 par value
    
    The NASDAQ Stock Market LLC
  
  
  o þ
 o  þ
 þ o
 þ
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company þ
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE:




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##### 



ALLIED HEALTHCARE INTERNATIONAL INC.
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended September 30, 2008
 TABLE OF CONTENTS
  
 PART IItem 1. Business
    
    
    2Item 1A. Risk Factors
    
    
    13Item 1B. Unresolved Staff Comments
    
    
    22Item 2. Properties
    
    
    22Item 3. Legal Proceedings
    
    
    22Item 4. Submission of Matters to a Vote of Security Holders
    
    
    23PART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    23Item 6. Selected Financial Data
    
    
    26Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    28Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    45Item 8. Financial Statements and Supplementary Data
    
    
    46Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    46Item 9A. Controls and Procedures
    
    
    46Item 9B. Other Information
    
    
    47PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    48Item 11. Executive Compensation
    
    
    53Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    72Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    75Item 14. Principal Accountant Fees and Services
    
    
    76PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    77EX-10.2: FORM OF INDEMNITY AGREEMENTEX-10.7B: LEAVING AGREEMENTEX-21: SUBSIDIARIESEX-23: CONSENT OF EISNER LLPEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION




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FORWARD-LOOKING STATEMENTS
    
    
    general economic and market conditions;
    
    our ability to continue to recruit and retain flexible healthcare staff;
    
    our ability to enter into contracts with local governmental social service
departments, National Health Service Trusts, hospitals and other healthcare facility
clients on terms attractive to us;
    
    the general level of patient occupancy at our clients hospitals and healthcare
facilities;
    
    our dependence on the proper functioning of our information systems;
    
    the effect of existing or future government regulation of the healthcare industry,
and our ability to comply with these regulations;
    
    the impact of medical malpractice and other claims asserted against us;
    
    the effect of regulatory change that may apply to us and that may increase our costs
and reduce our revenue and profitability;
    
    our ability to use our net operating loss carryforward to offset net income;
    
    the effect that fluctuations in foreign currency exchange rates may have on our
dollar-denominated results of operations; and
    
    the impairment of our goodwill, of which we have a substantial amount on our balance
sheet, may have the effect of decreasing our earnings or increasing our losses.




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Preliminary Notes
   
 PART I
 
 Item 1. Business
 Our Company
   The U.K. Flexible Healthcare Staffing Industry
   
    
    Local governmental social service departments.
    
    The government-funded National Health Service (the NHS). Through its Primary Care
Trusts, the NHS oversees healthcare in the local community. The NHS operates its
hospitals mainly through NHS Hospital and Foundation Trusts (NHS Trusts).
    
    Private individuals.
    
    Independent hospitals and nursing and care homes in the United Kingdom.
 Our Business Strategy
  - 2 -




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
    
    Increase revenues on a per branch basis.We believe the increasing demand for
quality healthcare staffing with national coverage and diversity of services will
support organic growth in our branches and the development of new services. We intend
to foster continued same-branch revenue growth by leveraging our nationally recognized
brand name, competitive benefits package and leadership in providing temporary
healthcare staffing.
    
    Recruit and retain healthcare staff.We intend to continue to recruit and retain
high-quality staff to take advantage of the severe shortages of homecare aides, nurses
and nurses aides in the United Kingdom, which we expect to continue in the foreseeable
future. We intend to continue our recruitment efforts and to encourage loyalty from
our healthcare staff by matching their flexible working preferences (both with regards
to scheduling preferences and types of assignments desired) with our customers needs,
maintaining regular contact and promoting opportunities for training and development.
    
    Expand our homecare service line.We intend to focus our marketing efforts on
securing new contracts with local governmental social service departments to provide
homecare services to the elderly, individuals with learning disabilities and
individuals requiring continuing care, as well as securing additional new business with
the NHS Primary Care Trusts and private payors.
  - 3 -




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Our Operations
 Flexible Staffing
    Recruitment of Flexible Staff
    - 4 -




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Training and Retention of Flexible Staff
  Quality Assurance
   Customers
  
    
    Local governmental social service departments.Local governmental social service
departments retain us to provide healthcare staff, generally homecare aides, to
individuals in their homes.
    
    Nursing homes, care homes and independent hospitals.We provide nurses and homecare
aides to nursing homes and homecare aides to care homes. Care homes, like nursing
homes, generally provide shelter and food for their residents, but, unlike nursing
homes, generally do not provide medical services to their residents. We also provide
nurses and nurses aides to independent hospitals in the private sector.
    
    The NHS.We provide nurses, nurses aides and homecare aides to the NHS. We provide
staff mainly to NHS hospitals and NHS Primary Care Trusts.
 - 5 -




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
    
    Private patients.We provide both nurses and homecare aides to private patient
customers. These patients may include incapacitated individuals who require daily
attention or patients with long-term illnesses living at home.
 Types of Customer Contracts
  
    
    Spot contacts.These contracts are price-per-contract arrangements for the
provision of flexible staff, usually with local governmental social services
departments, NHS Primary Care Trusts and nursing and care homes. Spot contracts have
the price and other terms agreed on a contract-by-contract basis.
    
    Block contracts.These contracts are usually with local governmental social
services departments and involve the purchase of a quantity (or block) of flexible
staffing care services over a period of time. A block contract usually commits the
customer to purchase an agreed-upon volume of staffing services over a specified
period. These contracts may enable customers to negotiate lower prices in return for
agreeing to minimum volumes of business.
    
    NHS Framework Agreement and Service Level Agreements. The NHS requires any
healthcare staffing company that provides temporary staff to certain NHS bodies to
enter into their Framework Agreement. The Framework Agreement sets out one national
pay structure for the supply of nurses of all specifications. Only those staffing
companies that successfully tendered for inclusion on the Framework Agreement
(including meeting all of the specified quality standards) are eligible to provide
temporary staff to NHS bodies in the region covered by the Framework Agreement.
Pursuant to the Framework Agreement, we can supply all types of staff throughout the
United Kingdom, except in London, where the Framework Agreement authorizes us to supply
all categories of staff other than mental health staff and midwives.Individual NHS hospitals in England may select from the list of approved staffing
companies qualified under the Framework Agreement and enter into Service Level
Agreements.In some instances, a number of NHS hospitals and NHS Trusts have elected to opt
out of the Framework Agreement and seek suppliers off framework for their
temporary staffing needs. In these instances, we have the opportunity to contract
directly with the purchaser, without the constraints of the pricing structure of the
Framework Agreement.
  - 6 -




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Marketing Activities
  Competition
     Payment for Staffing Services
   - 7 -




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Trade Names
  Employees
   Government Regulation
 General
  Healthcare Laws and Regulations
    - 8 -




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Healthcare Reform
  - 9 -




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U.K. rules affecting temporary workers
   Health and Social Care (Community Health and Standards) Act 2003
  Health and Social Care Act 2008
 - 10 -




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Changes in U.K. value-added tax (VAT) rules
        - 11 -




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NHS Initiatives
      Insurance
  - 12 -




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Available Information
   
 Item 1A. Risk Factors
  Risks Relating To Our Business And Strategy
 If we are unable to attract and retain healthcare staff at reasonable costs, it could increase our
operating costs and negatively impact our business.
  - 13 -




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We operate in a highly competitive market and our success depends on our ability to obtain and
retain customers.
   A change in treatment of flexible staff for U.K. tax, employment and benefits purposes could result
in increased costs.
  - 14 -




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Our branch structure could result in unforeseen costs and could adversely impact our business.
  The loss of key senior management personnel could adversely affect our ability to remain
competitive.
  We are dependent on the proper functioning of our information systems.
  - 15 -




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Our business is subject to certain risks inherent to international operations.
  
    
    fluctuations in currency exchange rates;
    
    varying laws relating to, among other things, employment and employment termination;
    
    the impact of a recession in the United Kingdom, the risk of which has increased
markedly over the past few months;
    
    changes in regulatory requirements; and
    
    potentially adverse tax consequences.
  Our business may be affected by recent economic developments in the United Kingdom.
  - 16 -




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Risks Relating To The Flexible Healthcare Staffing Market
 Our ability to compete in the homecare services market depends on our ability to obtain assignments
from local governmental social service departments.
  Local governmental social service departments continue to outsource the majority of their homecare
service requirements.
  Demand for flexible staffing may fail to rise, remain at current levels or may decline for a
variety of reasons, including general economic conditions.
   - 17 -




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Fluctuations in patient occupancy at the hospitals, nursing homes and care homes of our customers
may adversely affect the demand for our services and therefore our financial performance.
  We operate in a regulated industry and violations of laws or regulations may result in increased
costs or sanctions that could impact our financial performance. Moreover, recent and proposed
changes in U.K. regulations affecting flexible staffing companies may result in increased costs
that reduce our revenue and profitability.
   - 18 -




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NHS reforms may have a substantial negative impact upon us.
   Recently-enacted changes in VAT could affect our revenues or profit margins.
  Significant legal actions could subject us to substantial uninsured liabilities.
   - 19 -




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Our insurance may not be adequate to protect us from claims for which we may become liable.
  Risks Relating To Our Financial Condition
 We have generated substantial amounts of goodwill from our acquisitions, some or all of which we
may be required to write off, which could adversely affect our financial condition or results of
operations.
   Goodwill and Other
Intangible Assets ,
 Our ability to use our net operating loss carryforward in the future is limited.
  - 20 -




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Risks Relating To Our Common Stock
 Future sales of our common stock by existing shareholders may lower the price of our common stock.
     If provisions in our corporate documents and New York law delay or prevent a change in control of
our company, we may be unable to consummate a transaction that our shareholders consider favorable.
   - 21 -




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Our stock price may be volatile.
  
    
    our operating performance and the performance of other similar companies;
    
    news announcements relating to us, our industry or our competitors;
    
    changes in earnings estimates or recommendations by research analysts;
    
    changes in general economic conditions;
    
    the number of shares that are publicly traded;
    
    actions of our current shareholders; and
    
    other developments affecting us, our industry or our competitors.
 
 Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
  
 Item 3. Legal Proceedings
  - 22 -




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Item 4. Submission of Matters to a Vote of Security Holders.
  
 PART II
 
 Item 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
  PERIOD
    
    HIGH
    
    LOWYear Ended September 30, 2007:First Quarter
    
    $
    3.09
    
    
    $
    1.80Second Quarter
    
    
    3.30
    
    
    
    2.65Third Quarter
    
    
    3.75
    
    
    
    2.47Fourth Quarter
    
    
    2.92
    
    
    
    1.95Year Ended September 30, 2008:First Quarter
    
    $
    3.20
    
    
    $
    1.86Second Quarter
    
    
    2.49
    
    
    
    1.36Third Quarter
    
    
    2.20
    
    
    
    1.36Fourth Quarter
    
    
    2.90
    
    
    
    1.68Year Ended September 30, 2009:First Quarter (through
November 21, 2008)
    
    $
    2.15
    
    
    $
    1.05
   - 23 -




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Equity Compensation Plan Information
  Recent Repurchases of Equity Securities
  Our Comparative Performance
     - 24 -




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CRSP Total Returns Index for:
    
    09/2003
    
    09/2004
    
    09/2005
    
    09/2006
    
    09/2007
    
    09/2008Allied Healthcare International Inc.
    
    
    100.00
    
    
    
    141.10
    
    
    
    144.10
    
    
    
    50.80
    
    
    
    61.00
    
    
    
    48.50Nasdaq Stock Market (US Companies)
    
    
    100.00
    
    
    
    106.20
    
    
    
    121.30
    
    
    
    127.90
    
    
    
    151.30
    
    
    
    119.40Nasdaq Health Services Stocks
(SIC 8000-8099 US & Foreign)
    
    
    100.00
    
    
    
    116.90
    
    
    
    177.00
    
    
    
    185.60
    
    
    
    235.70
    
    
    
    226.40
 - 25 -




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CRSP Total Returns Index for:
    
    09/2003
    
    09/2004
    
    09/2005
    
    09/2006
    
    09/2007
    
    09/2008Allied Healthcare International Inc.
    
    
    100.00
    
    
    
    141.10
    
    
    
    144.10
    
    
    
    50.80
    
    
    
    61.00
    
    
    
    48.50AMEX Stock Market (US Companies)
    
    
    100.00
    
    
    
    115.90
    
    
    
    137.00
    
    
    
    148.60
    
    
    
    174.40
    
    
    
    135.70AMEX Health Products and Services
(SIC 8000-8099 US Companies)
    
    
    100.00
    
    
    
    99.60
    
    
    
    95.40
    
    
    
    112.70
    
    
    
    125.70
    
    
    
    82.70
 
 Notes to both graphs:A.
    
    The lines represent monthly index levels derived from compounded daily returns that include all dividends.B.
    
    The indexes are reweighted daily, using the market capitalization on the previous trading day.C.
    
    If the monthly interval, based on the fiscal year-end, is not a trading day, the preceding trading day is used.D.
    
    The index level for all series was set to $100.00 on September 30, 2003. 
 Item 6. Selected Financial Data
  - 26 -




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Year Ended September 30,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004Financial Data:Total revenues
    
    $
    298,577
    
    
    $
    277,795
    
    
    $
    280,205
    
    
    $
    342,031
    
    
    $
    317,393Gross profit
    
    
    90,385
    
    
    
    83,956
    
    
    
    85,730
    
    
    
    98,727
    
    
    
    89,577Selling, general and administrative expenses
    
    
    77,655
    
    
    
    75,284
    (3)
    
    
    71,103
    
    
    
    73,050
    (7)
    
    
    62,734Impairment of goodwill
    
    
    
    
    
    
    
    
    
    
    110,004
    (5)
    
    
    
    
    
    
    Impairment of long-lived assets
    
    
    
    
    
    
    
    
    
    
    10,038
    (6)
    
    
    
    
    
    
    Operating income (loss)
    
    
    12,730
    
    
    
    8,672
    
    
    
    (105,415
    )
    
    
    25,677
    
    
    
    26,843Interest and other (income) expense, net
    
    
    (393
    )
    
    
    3,273
    (4)
    
    
    2,698
    
    
    
    4,164
    
    
    
    13,803
    (8)Foreign exchange loss (income)
    
    
    586
    
    
    
    (285
    )
    
    
    (73
    )
    
    
    98
    
    
    
    184Provision for (benefit from) income taxes
    
    
    3,751
    
    
    
    2,068
    
    
    
    (1,887
    )
    
    
    6,446
    
    
    
    5,159Income (loss) from continuing operations
    
    
    8,786
    
    
    
    3,616
    
    
    
    (106,153
    )
    
    
    14,969
    
    
    
    7,697Income (loss) from discontinued operations, net of
taxes(1)
    
    
    
    
    
    
    6,266
    
    
    
    (17,618
    )
    
    
    3,767
    
    
    
    2,172Gain on disposal of subsidiaries, net of taxes
    
    
    
    
    
    
    56,471
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    
    8,786
    
    
    
    66,353
    
    
    
    (123,771
    )
    
    
    18,736
    
    
    
    9,869Redeemable
preferred dividend, conversion fees and accretion(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,020Net income
(loss) available to common stockholders
    
    $
    8,786
    
    
    $
    66,353
    
    
    $
    (123,771
    )
    
    $
    18,736
    
    
    $
    2,849Basic income (loss) per share of common stock
from:Continuing operations
    
    $
    0.20
    
    
    $
    0.08
    
    
    $
    (2.36
    )
    
    $
    0.34
    
    
    $
    0.02Discontinued operations
    
    
    
    
    
    
    1.40
    
    
    
    (0.39
    )
    
    
    0.08
    
    
    
    0.08$
    0.20
    
    
    $
    1.48
    
    
    $
    (2.75
    )
    
    $
    0.42
    
    
    $
    0.10Diluted income (loss) per share of common stock
from:Continuing operations
    
    $
    0.19
    
    
    $
    0.08
    
    
    $
    (2.36
    )
    
    $
    0.33
    
    
    $
    0.02Discontinued operations
    
    
    
    
    
    
    1.39
    
    
    
    (0.39
    )
    
    
    0.08
    
    
    
    0.08$
    0.19
    
    
    $
    1.47
    
    
    $
    (2.75
    )
    
    $
    0.41
    
    
    $
    0.10Weighted average number of common
shares outstanding:Basic
    
    
    44,986
    
    
    
    44,962
    
    
    
    44,930
    
    
    
    44,684
    
    
    
    27,419Diluted
    
    
    45,078
    
    
    
    45,147
    
    
    
    44,930
    
    
    
    45,169
    
    
    
    28,104September 30,2008
    
    2007
    
    2006
    
    2005
    
    2004Balance Sheet Data:Working capital
    
    $
    31,550
    
    
    $
    20,380
    
    
    $
    (1,165
    )
    
    $
    11,369
    
    
    $
    13,468Accounts receivable, net
    
    
    17,774
    
    
    
    21,490
    
    
    
    26,813
    
    
    
    31,382
    
    
    
    30,106Goodwill
    
    
    109,292
    
    
    
    122,843
    
    
    
    112,538
    
    
    
    205,177
    
    
    
    194,058Total assets
    
    
    183,262
    
    
    
    252,779
    
    
    
    195,683
    
    
    
    303,439
    
    
    
    282,394Total debt
    
    
    
    
    
    
    54,795
    
    
    
    71,159
    
    
    
    64,342
    
    
    
    64,778Total shareholders equity
    
    
    152,670
    
    
    
    158,759
    
    
    
    86,383
    
    
    
    201,859
    
    
    
    186,977
 
 (1)
    
    See Note 3 of Notes to Consolidated Financial Statements for our fiscal year ended September
30, 2008 for a discussion and details of discontinued operations. - 27 -




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(2)
    
    Reflects the accrual of dividends on our Series A preferred stock and accretion costs related
to the issuance of our Series A preferred stock in our fiscal 2002 corporate reorganization
and conversion fees of $2.0 million paid to the holders of our Series A preferred stock in
connection with the firm commitment follow-on public offering of 14,500,000 shares of our
common stock and write-off of $1.7 million of the remaining issuance costs.(3)
    
    Includes $1.2 million of severance costs and related professional fees incurred upon the
resignation of our chairman and chief executive officer and $0.4 million related to the
issuance of new warrants and the extension of the expiration date on previously-issued
warrants.(4)
    
    Includes a $1.0 million charge related to the write-off and costs incurred on financing fees
and other income of $0.8 million related to interest rate swaps no longer being effective.(5)
    
    During our annual review of goodwill for impairment in the fourth quarter of fiscal 2006, we
determined there was an impairment of $110.0 million to our recorded goodwill balance by using
a combination of the market multiple, comparable transaction and discounted cash flow methods.
Based on a combination of factors, contributing to the impairment loss were the decrease in
profits due to the decline of revenues from the NHS, our companys market capitalization at
the time of testing as well as current and projected operating results.(6)
    
    Includes a charge of $9.0 million of software costs related to our computerized accounting
and payroll system based on the Oracle platform that is too slow for the nature of our
business and therefore is not achieving full functionality. Also includes a charge of $1.0
million relate to the write-off of other intangible assets. We reviewed the carrying amount
of our other intangibles and deemed certain assets to be impaired as of September 30, 2006 as
a result of the decline in revenues from the NHS.(7)
    
    Includes a $1.1 million charge related to the reorganization of our U.K. subsidiaries, as
well as $1.0 million of costs associated with the launch of our new corporate logo.(8)
    
    For the year ended September 30, 2004, we recorded a charge of $4.2 million related to the
write-off of deferred financing fees and unamortized debt discount associated with a
recapitalization plan, undertaken in connection with fiscal 2004 public offering of 14,500,000
shares of our common stock, pursuant to which we (i) refinanced our senior collateralized term
and revolving credit facility and mezzanine indebtedness, both of which had been entered into
in December 1999, and (ii) converted all of our then outstanding shares of Series A preferred
stock into shares of our common stock. 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 General
  - 28 -




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Disclosure about Segments of an Enterprise and Related Information
   Critical Accounting Policies
  - 29 -




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Accounts Receivable
   
    
    to maintain average days sales outstanding (including unbilled accounts receivable)
to below 45 days;
    
    to limit our overdues (greater than 90 days) within agreed targets; and
    
    to limit bad debt write off in the year within agreed targets.
   Goodwill and Other Intangible Assets
  - 30 -




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Income Taxes
 Accounting for Income Taxes Accounting for Uncertainty in Income TaxesAn Interpretation of FASB 109
   Contingencies
  Revenue Recognition
   - 31 -




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Purchase Accounting
  Results of Operations
 Year Ended September 30, 2008 vs. Year Ended September 30, 2007
 Year Ended September 30, 2008
    
    
    Year Ended September 30, 2007Gross
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    GrossGross
    
    
    
    
    
    
    Margin
    
    
    
    
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    Margin(Dollars in thousands)
    
    Revenue
    
    
    %
    
    
    Margin
    
    
    %
    
    
    %
    
    
    Revenue
    
    
    %
    
    
    Margin
    
    
    %
    
    
    %Homecare
    
    $
    225,014
    
    
    
    75.5
    %
    
    $
    70,317
    
    
    
    78.0
    %
    
    
    31.2
    %
    
    $
    199,622
    
    
    
    71.9
    %
    
    $
    64,008
    
    
    
    76.3
    %
    
    
    32.1
    %Nursing Homes
    
    
    41,771
    
    
    
    14.0
    %
    
    
    12,577
    
    
    
    13.9
    %
    
    
    30.1
    %
    
    
    40,347
    
    
    
    14.5
    %
    
    
    11,784
    
    
    
    14.0
    %
    
    
    29.2
    %Hospital Staffing
    
    
    31,202
    
    
    
    10.5
    %
    
    
    7,312
    
    
    
    8.1
    %
    
    
    23.4
    %
    
    
    37,826
    
    
    
    13.6
    %
    
    
    8,164
    
    
    
    9.7
    %
    
    
    21.6
    %$
    297,987
    
    
    
    
    
    
    $
    90,206
    
    
    
    
    
    
    
    30.3
    %
    
    $
    277,795
    
    
    
    
    
    
    $
    83,956
    
    
    
    
    
    
    
    30.2
    %Effect of foreign
exchange
    
    
    590
    
    
    
    
    
    
    
    179
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    298,577
    
    
    
    
    
    
    $
    90,385
    
    
    
    
    
    
    
    
    
    
    $
    277,795
    
    
    
    
    
    
    $
    83,956
  Revenues
  - 32 -




---



##### Table of Contents



Gross Profit
  Selling, General and Administrative Expenses
  Interest Income
  Interest Expense
  - 33 -




---



##### Table of Contents



Provision for Income Taxes
  Discontinued Operations
  Accounting for the Impairment or Disposal of Long-Lived Assets
  Year EndedSeptember 30,2007Revenues:Net respiratory, medical equipment and supplies
    
    $
    28,699Cost of revenues:Respiratory, medical equipment and supplies
    
    
    13,024Gross profit
    
    
    15,675Selling, general and administrative expenses
    
    
    6,091
 - 34 -




---



##### Table of Contents



Year EndedSeptember 30,2007Operating income from discontinued operations
    
    
    9,584Interest income
    
    
    2Interest expense
    
    
    (1,570
    )(a)Income from discontinued operations before income tax
    
    
    8,016Gain on disposal of subsidiaries, net of tax
    
    
    56,471
    (b)Provision for income taxes
    
    
    1,750
    (c)Income from discontinued operations
    
    $
    62,737
 
 
 Foreign
Currency Translation
 
 Net Income
  Year Ended September 30, 2007 vs. Year Ended September 30, 2006
 Revenues
  - 35 -




---



##### Table of Contents



Gross Profit
  Selling, General and Administrative Expenses
  Interest Income
  Interest Expense
  Other Income
  - 36 -




---



##### Table of Contents



Provision for Income Taxes
  Discontinued Operations
    Year Ended September 30,2007
    
    
    2006Revenues:Net respiratory, medical equipment and supplies
    
    $
    28,699
    
    
    $
    14,402Cost of revenues:Respiratory, medical equipment and supplies
    
    
    13,024
    
    
    
    10,521Impairment of respiratory, medical equipment and supplies
    
    
    
    
    
    
    5,932
    (d)Total cost of revenues
    
    
    13,024
    
    
    
    16,453Gross profit (loss)
    
    
    15,675
    
    
    
    (2,051
    )Selling, general and administrative expenses
    
    
    6,091
    
    
    
    4,449Impairment of goodwill
    
    
    
    
    
    
    11,897
    (e)Impairment of long-lived assets
    
    
    
    
    
    
    257
    (d)Operating income (loss) from discontinued operations
    
    
    9,584
    
    
    
    (18,654
    )Interest income
    
    
    2
    
    
    
    2Interest expense
    
    
    (1,570
    )(a)
    
    
    (1,410
    )(a)
 - 37 -




---



##### Table of Contents



Year Ended September 30,2007
    
    
    2006Income (loss) from discontinued operations before income tax
    
    
    8,016
    
    
    
    (20,062
    )Gain on disposal of subsidiaries, net of tax
    
    
    56,471
    (b)
    
    
    Provision for (benefit from) income taxes
    
    
    1,750
    (c)
    
    
    (2,444
    )Income (loss) from discontinued operations
    
    $
    62,737
    
    
    $
    (17,618
    )
 
 (a)
    
    In fiscal 2007 and 2006, interest expense has been allocated to discontinued operations
based on debt that we have specifically identified as being attributable to discontinued
operations, as an allocation based on net assets would not provide a meaningful result. We based
our allocation on the amount of capital expenditures directly related to our discontinued
operations and then considered cash borrowings necessary to maintain the operations of our then
respiratory therapy division. Prior to fiscal 2006, the respiratory therapy division was
self-sufficient and borrowings were predominately used to fund acquisitions in our flexible
healthcare staffing division.(b)
    
    Under the provisions of FAS No. 52, translation adjustments that result when a foreign
entitys financial statements are translated into a parent companys or an investors reporting
currency are separately reported in the parent companys other comprehensive income. Foreign
currency translation adjustments that are accumulated in other comprehensive income are
reclassified to income only when they are realized, if the investment in the foreign entity is sold
or is substantially or completed liquidated. Accordingly, the foreign currency translation
adjustments of the balance sheet related to the respiratory therapy segment in the amount of
approximately $1.6 million were reclassified into the gain on disposal of subsidiaries.(c)
    
    Included in the provision for income taxes for the year end September 30, 2007 is the
reversal of $0.7 million of certain tax contingencies related to our fiscal 2003 discontinued
operations on the sale of two of our U.S. subsidiaries as the statute of limitations has expired.(d)
    
    In the fourth quarter of fiscal 2006, we recognized pre-tax charges of $5.4 million, $0.5
million and $0.3 million for the write-off of revenue producing equipment (oxygen cylinders),
oxygen filling station and software costs, respectively. Due to the award of the new oxygen
contracts (see below), we had made significant capital expenditures, amounting to $14.7 million, in
order to fulfill our obligation under the new contracts. We had substituted a number of cylinders
with oxygen concentrators. As such, we believed that these oxygen cylinders had become obsolete
and had no further use to us. We also invested in an oxygen filling station whereby our cylinders
would be re-filled. Due to the location of the plant and strict noise pollution governmental
rules, we did not believe we would be able to utilize such plant. We also wrote-off various
software costs related to transitioning to our new oxygen contracts that we believed had no future
benefit.(e)
    
    During the fourth quarter of fiscal 2006, we completed our annual impairment test required
under FAS No. 142 and determined there was an impairment to our recorded goodwill balance by using
a combination of market multiple, comparable transaction and discounted cash flow methods. Based
on a combination of factors, contributing to the impairment loss were the decrease in profits in
our respiratory therapy division due to the transitioning from the old pharmacy - 38 -




---



##### Table of Contents



based contracts to the new supply of oxygen direct to patients contracts that have lower
margins (see below), our market capitalization at time of review as well as the current and
projected operating results. As such, we recognized a pre-tax impairment charge of $11.9 million.  Net Income
  Liquidity and Capital Resources
 General
   Accounts Receivable
 ,
 - 39 -




---



##### Table of Contents



0-30
    
    
    31-60
    
    
    61-90
    
    
    91-120
    
    
    121 Days
    
    
    AR AtAt September 30, 2008
    
    Days
    
    
    Days
    
    
    Days
    
    
    Days
    
    
    And Over
    
    
    9/30/2008NHS
    
    $
    4,732
    
    
    $
    774
    
    
    $
    505
    
    
    $
    186
    
    
    $
    387
    
    
    $
    6,584SSD
    
    
    6,504
    
    
    
    1,135
    
    
    
    399
    
    
    
    209
    
    
    
    392
    
    
    
    8,639Commercial Payors
    
    
    3,046
    
    
    
    613
    
    
    
    157
    
    
    
    51
    
    
    
    104
    
    
    
    3,971Private Payors
    
    
    1,396
    
    
    
    261
    
    
    
    158
    
    
    
    67
    
    
    
    466
    
    
    
    2,348Gross AR at 9/30/08
    
    $
    15,678
    
    
    $
    2,783
    
    
    $
    1,219
    
    
    $
    513
    
    
    $
    1,349
    
    
    $
    21,542Less: Unapplied Cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,392
    )Less: Surcharges(A)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (553
    )Less: Allowance For Doubtful
Accounts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (823
    )Accounts Receivable, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    17,774
 0-30
    
    
    31-60
    
    
    61-90
    
    
    91-120
    
    
    121 Days
    
    
    AR AtAt September 30, 2007
    
    Days
    
    
    Days
    
    
    Days
    
    
    Days
    
    
    And Over
    
    
    9/30/2007NHS
    
    $
    4,990
    
    
    $
    1,225
    
    
    $
    362
    
    
    $
    169
    
    
    $
    801
    
    
    $
    7,547SSD
    
    
    7,880
    
    
    
    1,409
    
    
    
    416
    
    
    
    312
    
    
    
    943
    
    
    
    10,960Commercial Payors
    
    
    3,395
    
    
    
    1,076
    
    
    
    151
    
    
    
    79
    
    
    
    186
    
    
    
    4,887Private Payors
    
    
    1,577
    
    
    
    506
    
    
    
    171
    
    
    
    141
    
    
    
    876
    
    
    
    3,271Gross AR at 9/30/07
    
    $
    17,842
    
    
    $
    4,216
    
    
    $
    1,100
    
    
    $
    701
    
    
    $
    2,806
    
    
    $
    26,665Less: Unapplied Cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,053
    )Less: Surcharges(A)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (552
    )Less: Allowance For Doubtful
Accounts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,570
    )Accounts Receivable, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    21,490
 
 (A)
    
    Surcharges represent interest charges to customers on overdue accounts. The
surcharges are recognized in income only upon receipt of payment. - 40 -




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##### Table of Contents



Borrowings
 General
   
    
    an £18 ($36.9) million term loan A that would have matured in July 2009;
    
    a £12.5 ($25.6) million revolving loan B1 that would have matured in July 2009 and
that could have been drawn upon until June 2009;
    
    a £7.5 ($15.3) million invoice discounting facility B2 that matures in July 2009 and
that can be drawn upon until June 2009, and
    
    an £8.0 ($16.4) million revolving loan C that would have matured in July 2009 and
that could have been upon until June 2009.
  - 41 -




---



##### Table of Contents




    
    we can borrow on 85% of our approved flexible staffing accounts receivable, which
excludes accounts receivable greater than 120 days, credit balances and reserves;
    
    no one debtor can exceed 10% of the outstanding approved accounts receivable; and
    
    accounts receivable relating to private individuals are not fundable.
   
    
    incurring liens and granting security interests in our assets or the assets of
certain of our U.K. subsidiaries;
    
    incurring additional indebtedness;
    
    making certain fundamental corporate changes;
    
    paying dividends (including the payment of dividends to our company by our
subsidiaries);
    
    making specified investments, acquisitions or disposals;
    
    repurchasing shares; and
    
    entering into certain transactions with affiliates.
 Guarantees
  - 42 -




---



##### Table of Contents



Financial Instrument
  Commitments
 Employment Agreements
  Operating Leases
  Contractual Cash Obligations
  Total Lease
    
    Total Other
    
    TotalFiscal
    
    Obligations
    
    Obligations
    
    Obligations2009
    
    $
    2,609
    
    
    $
    1,252
    
    
    $
    3,8612010
    
    
    1,909
    
    
    
    749
    
    
    
    2,6582011
    
    
    1,125
    
    
    
    931
    
    
    
    2,0562012
    
    
    666
    
    
    
    820
    
    
    
    1,4862013
    
    
    266
    
    
    
    236
    
    
    
    502Thereafter
    
    
    31
    
    
    
    
    
    
    
    31$
    6,606
    
    
    $
    3,988
    
    
    $
    10,594
  - 43 -




---



##### Table of Contents



Miscellaneous
 Treasury Shares
  Acquisitions
   Disposition
   - 44 -




---



##### Table of Contents



Litigation
  Contingencies
    Impact of Recent Accounting Standards
  
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
 Foreign Currency Exchange
   - 45 -




---



##### Table of Contents



Interest Rate Risk
   
 Item 8. Financial Statements and Supplementary Data.
  
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.
  
 Item 9A. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures.
    - 46 -




---



##### Table of Contents



Report of Management on Internal Control over Financial Reporting.
   Internal ControlIntegrated Framework
  Changes in Internal Control Over Financial Reporting.
  
 Item 9B. Other Information.
  - 47 -




---



##### Table of Contents



PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance.
 Our Directors and Officers
  Name
    
    Age
    
    Positions with our CompanyAlexander (Sandy) Young
    
    
    54
    
    
    Chief Executive Officer and DirectorPaul Weston
    
    
    44
    
    
    Chief Financial OfficerLeslie J. Levinson
    
    
    53
    
    
    SecretarySophia Corona
    
    
    44
    
    
    DirectorG. Richard Green
    
    
    69
    
    
    DirectorWayne Palladino
    
    
    49
    
    
    DirectorJeffrey S. Peris
    
    
    62
    
    
    DirectorAnn Thornburg
    
    
    59
    
    
    DirectorMark Tompkins
    
    
    68
    
    
    Non-Executive Chairman of the Board
  Alexander (Sandy) Young
 Paul Weston
 Leslie J. Levinson
 - 48 -




---



##### Table of Contents



Sophia Corona
 G. Richard Green
 Wayne Palladino
 Jeffrey S. Peris
 Ann Thornburg
 - 49 -




---



##### Table of Contents



Mark Tompkins
  Section 16(a) Beneficial Ownership Reporting Compliance
  Code of Conduct
   - 50 -




---



##### Table of Contents



Nominating Committee; Director Nominations
    - 51 -




---



##### Table of Contents



Audit Committee
   Communications with the Board
  - 52 -




---



##### Table of Contents



Item 11. Executive Compensation.
 Compensation Discussion and Analysis
 General
  Name
    
    TitleAlexander (Sandy) Young
    
    Chief Executive Officer(1)Sarah L. Eames
    
    Deputy Chairman, Interim Chief Executive Officer
and Executive Vice President(2)David Moffatt
    
    Chief Financial Officer(3)Paul Weston
    
    Chief Financial Officer Designate(4)
 
 (1)
    
    Mr. Young became our chief executive office in January 2008.(2)
    
    Ms. Eames assumed the positions of deputy chairman and interim chief executive
officer of our company in July 2007 and served in such capacities until January 2008.
From January 2008 until April 2008, Ms. Eames served as executive vice president of our
company, which was the position she held prior to becoming deputy chairman and interim
chief executive officer.(3)
    
    Mr. Moffatt resigned as chief financial officer of our company effective September 30,
2008.(4)
    
    Mr. Weston was appointed chief financial officer designate of our company in
May 2008. Prior to that date, he had been employed as our companys financial director
in the United Kingdom. On October 1, 2008, Mr. Weston became the chief financial
officer of our company. The Compensation Committee
  - 53 -




---



##### Table of Contents



Policy
   Base Salary
 - 54 -




---



##### Table of Contents



Bonus
 Long-Term Incentives
   - 55 -




---



##### Table of Contents



- 56 -




---



##### Table of Contents



Process
 .
     - 57 -




---



##### Table of Contents



Compensation of our Named Executive Officers
  Base Salary
 Bonus
  Long-Term
Incentives  Stock Option Grants
 - 58 -




---



##### Table of Contents




 
 
 
 Long-Term IncentivesLong-Term Incentive Award
 Personal Benefits and Perquisites
 - 59 -




---



##### Table of Contents



Employment Agreements and Payments upon Termination or Change of Control
   - 60 -




---



##### Table of Contents



Tax and Accounting Implications of Executive Compensation
   Share-Based Payment
  - 61 -




---



##### Table of Contents



Stock Ownership Guidelines
  Compensation Committee Report
   
 Executive Compensation
 Summary Compensation Table
  Name and
    
    
    
    
    
    
    
    
    
    
    
    
    
    Option
    
    All OtherPrincipal
    
    Fiscal
    
    Salary
    
    Bonus
    
    Awards
    
    Compensation
    
    TotalPosition(s)
    
    Year
    
    ($)
    
    ($)
    
    ($)(6)
    
    ($)
    
    ($)Alexander
(Sandy) Young, 
Chief Executive
Officer(1)
    
    
    2008
    
    
    $
    298,545
    
    
    $
    128,252
    
    
    
    (7)
    
    
    $
    61,842
    (8)(9)
    
    $
    488,639Sarah L. Eames,
Deputy Chairman, Interim Chief
Executive Officer and
    
    
    2008
    
    
    $
    152,308
    
    
    
    
    
    
    $
    12,188
    
    
    $
    4,247
    (10)
    
    $
    168,743Executive Vice
President(2)
    
    
    2007
    
    
    $
    300,577
    
    
    $
    250,000
    
    
    $
    147,045
    
    
    $
    7,800
    (10)
    
    $
    705,422
 - 62 -




---



##### Table of Contents



Name and
    
    
    
    
    
    
    
    
    
    
    
    
    
    Option
    
    All OtherPrincipal
    
    Fiscal
    
    Salary
    
    Bonus
    
    Awards
    
    Compensation
    
    TotalPosition(s)
    
    Year
    
    ($)
    
    ($)
    
    ($)(6)
    
    ($)
    
    ($)David Moffatt,
    
    
    2008
    
    
    $
    374,889
    (5)
    
    $
    112,467
    
    
    $
    72,013
    
    
    $
    75,801
    (11)
    
    $
    635,170Chief Financial Officer(3)
    
    
    2007
    
    
    $
    374,148
    
    
    $
    344,610
    
    
    $
    137,185
    
    
    $
    73,845
    (11)
    
    $
    929,788Paul Weston,
ChiefFinancial Officer
Designate(4)
    
    
    2008
    
    
    $
    127,429
    
    
    $
    86,816
    
    
    $
    93,185
    
    
    $
    26,514
    (9)(12)
    
    $
    333,944
 
 (1)
    
    Mr. Young became our chief executive office in January 2008.(2)
    
    Ms. Eames assumed the positions of deputy chairman and interim chief executive officer of our
company in July 2007 and served in such capacities until January 2008. From January 2008
until April 2008, Ms. Eames served as executive vice president of our company.(3)
    
    Mr. Moffatt resigned as chief financial officer of our company effective September 30, 2008.(4)
    
    Mr. Weston was appointed chief financial officer designate of our company in May 2008. On
October 1, 2008, Mr. Weston became the chief financial officer of our company.(5)
    
    Mr. Moffatt received the same salary in fiscal 2008, denominated in pounds sterling, as he
did in fiscal 2007. The difference between the amount reported as salary in fiscal 2008
versus fiscal 2007 for Mr. Moffatt is due to the fluctuating exchange rate between pounds
sterling and the U.S. dollar.(6)
    
    The amounts in this column show the amount of compensation cost recognized for financial
statement reporting purposes (disregarding any estimate of forfeitures related to
service-based vesting conditions). They do not reflect compensation actually received by the
named executive officers. The amounts shown in this column have been calculated in accordance
with FAS 123R. See Note 9 of Notes to Consolidated Financial Statements for our fiscal year
ended September 30, 2008 for a discussion of the assumptions made in determining the
grant-date fair value. The actual value, if any, that an executive officer will realize upon
the exercise of the stock options issued to him or her will be equal to the excess of the
trading price of shares of our common stock on the date that the shares underlying the options
are sold over the exercise price of the options, less any transaction costs. The grant date
fair market value of the stock options granted in fiscal 2008 is shown in the Grant of
Plan-Based Awards table below.(7)
    
    We have not recognized a compensation cost associated with the 200,000 options awarded during
fiscal 2008 to Mr. Young pursuant to his employment agreement, as the criteria for a grant
date under FAS 123R has not been established.(8)
    
    Represents payment for a car allowance of $17,060 and payments of $44,782 towards Mr. Youngs
U.K.- based private pension fund. - 63 -




---



##### Table of Contents



(9)
    
    Our company pays for a group life insurance policy that covers certain of our employees,
including the named executive officer, and is payable to the beneficiaries of the covered
employees in the event of their death. The amount listed in the All Other Compensation
column does not include premiums in a de minimus amount that are attributable to the coverage
of the named executive officer under such group life insurance policy.(10)
    
    Represents payment for a car allowance.(11)
    
    For 2008, represents payment for a car allowance of $17,758, payments of $56,233 towards Mr.
Moffatts U.K.-based private pension fund and the transfer to Mr. Moffatt of a company printer
and laptop computer valued at $1,810. For fiscal 2007, represents payment for a car allowance
of $17,723 and payments of $56,122 towards Mr. Moffatts U.K.-based private pension fund.(12)
    
    Represents payment for a car allowance of $7,399 and payments of $19,115 towards Mr. Westons
U.K.- based private pension fund. Grants of Plan-Based Awards
  All OtherOption
    
    
    
    
    
    GrantAwards:
    
    Exercise
    
    Date FairEstimated Future Payouts
    
    Number of
    
    or Base
    
    Value ofunder Equity
    
    Securities
    
    Price of
    
    StockIncentive Plan Awards
    
    Underlying
    
    Option
    
    andGrant
    
    Threshold
    
    Target
    
    Maximum
    
    Options
    
    Awards
    
    OptionName
    
    Date
    
    (#)
    
    (#)
    
    (#)
    
    (#)
    
    ($/Sh)
    
    Awards(5)Alexander (Sandy)
Young
    
    
    (1)
    
    
    
    0
    
    
    
    (1)
    
    
    
    200,000
    (1)
    
    
    (3)
    
    
    $
    2.11
    
    
    
    (3)Sarah L. Eames
    
    
    2/6/08
    
    
    NA
    
    NA
    
    NA
    
    
    50,000
    (4)
    
    $
    2.11
    
    
    $
    48,750Paul Weston
    
    
    5/14/08
    
    
    
    0
    
    
    
    (2)
    
    
    
    80,000
    (2)
    
    
    0
    
    
    $
    2.01
    
    
    $
    82,616
 
 (1)
    
    On February 6, 2008, Mr. Young was awarded options to purchase up to 200,000 shares of our
common stock. The exact terms of these options have not yet been finalized. However, it is
expected that the vesting of these options will be subject to the satisfaction by our company of
specified performance criteria.(2)
    
    The terms of Mr. Westons options provide that 25% will vest on the date that our company files
its annual report on Form 10-K for its fiscal year ending September 30, 2009 with the Securities
and Exchange Commission,
25% will vest on May 14, 2010 and 50% will vest on May 14, 2011. In addition to, and not in lieu
of these time-based vesting requirements, the options are subject to the following
performance-based vesting requirements: 
    
    if our earnings before interest, taxes, depreciation and amortization (EBITDA) for
fiscal 2009 exceeds our EBITDA for fiscal 2008 by 20% or more, then all of the options
will vest;
 - 64 -




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##### Table of Contents




    
    if our EBITDA for fiscal 2009 exceeds our EBITDA for fiscal 2008 by 15% or more but
less than 20%, then 50% of the options will vest;
    
    if our EBITDA for fiscal 2009 exceeds our EBITDA for fiscal 2008 by 10% or more but
less than 15%, then 25% of the options will vest;
    
    and if our EBITDA for fiscal 2009 exceeds our EBITDA for fiscal 2008 by less than
10%, then none of the options will vest.
 (3)
    
    In our employment agreement with Mr. Young, we have agreed to grant Mr. Young an individual
long term incentive award, the potential maximum value of which (when aggregated with the actual
or, if still unexercised, expected value of the 200,000 stock options) will be £3.0 million
(approximately $5.5 million at current exchange rates) by January 2012. The exact terms of the
long-term incentive award, including the number of options, stock appreciation rights or other
securities to be awarded thereunder, have not been finalized. Since the criteria for a grant date
under FAS 123R have not been established, the grant date fair value of the option award cannot be
determined.(4)
    
    The option granted to Ms. Eames provided that 12,500 of the shares subject to the option vested
on each of the date of grant, November 1, 2008, February 1, 2009 and May 1, 2009. The option also
provided that, if Ms. Eames ceased to serve as a director of our company, the option would expire
three months after cessation of her directorship. Ms. Eames was not nominated for election at the
annual meeting of our shareholders that was held on May 14, 2008 and, consequently, the option
expired in August 2008 with only 12,500 shares subject to the option having vested.(5)
    
    The amounts shown in this column represent the full grant date value of each equity award
computed in accordance with FAS 123R. See Note 9 of Notes to Consolidated Financial Statements for
our fiscal year ended September 30, 2008 for a discussion of the assumptions made in determining
the grant-date fair value. The actual value, if any, that an executive officer will realize upon
the exercise of the stock options issued to him or her will be equal to the excess of the trading
price of shares of our common stock on the date that the shares underlying the options are sold
over the exercise price of the options, less any transaction costs.
 Outstanding Equity Awards at Fiscal Year End
  Option AwardsEquityIncentivePlanAwards:Number of
    
    Number of
    
    Number ofSecurities
    
    Securities
    
    SecuritiesUnderlying
    
    Underlying
    
    UnderlyingUnexercised
    
    Unexercised
    
    Unexercised
    
    OptionOptions
    
    Options
    
    Unearned
    
    Exercise(#)
    
    (#)
    
    Options
    
    Price
    
    Option ExpirationName
    
    Exercisable
    
    Unexercisable
    
    (#)
    
    ($)
    
    DateAlexander (Sandy)
Young(1)
    
    
    
    
    
    
    
    
    
    
    200,000
    (2)
    
    $
    2.11
    
    
    
    2/6/2015
 - 65 -




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##### Table of Contents



Option AwardsEquityIncentivePlanAwards:Number of
    
    Number of
    
    Number ofSecurities
    
    Securities
    
    SecuritiesUnderlying
    
    Underlying
    
    UnderlyingUnexercised
    
    Unexercised
    
    Unexercised
    
    OptionOptions
    
    Options
    
    Unearned
    
    Exercise(#)
    
    (#)
    
    Options
    
    Price
    
    Option ExpirationName
    
    Exercisable
    
    Unexercisable
    
    (#)
    
    ($)
    
    DateSarah L. Eames
    
    
    150,000
    
    
    
    
    
    
    
    
    
    
    $
    1.92
    
    
    
    4/16/2010
    (6)David Moffatt
    
    
    50,000
    
    
    
    
    
    
    
    50,000
    (3)
    
    $
    1.92
    
    
    
    12/31/2008
    (7)100,000
    
    
    
    50,000
    
    
    
    
    
    
    
    2.71
    
    
    
    12/31/2008
    (7)Paul Weston
    
    
    12,000
    
    
    
    
    
    
    
    
    
    
    $
    6.20
    
    
    
    3/23/201510,000
    
    
    
    
    
    
    
    
    
    
    
    5.65
    
    
    
    9/30/201530,000
    
    
    
    
    
    
    
    30,000
    (4)
    
    
    1.92
    
    
    
    10/16/2016
    
    
    
    
    
    
    
    80,000
    (5)
    
    
    2.01
    
    
    
    5/14/2018
 
 (1)
    
    In addition to the options described in this table, we have agreed to grant Mr. Young an
individual long term incentive award, the potential maximum value of which (when aggregated with
the actual or, if still unexercised, expected value of the 200,000 stock options) will be £3.0
million (approximately $5.5 million at current exchange rates) by January 2012. The exact terms of
the long-term incentive award, including the number of stock appreciation rights or other
securities to be awarded thereunder, have not been finalized.(2)
    
    The exact terms of these options have not yet been finalized. However, it is expected that the
vesting of these options will be subject to the satisfaction by our company of specified
performance criteria.(3)
    
    The terms of these options provide that one-half will vest if our companys EBIT for fiscal
2007 exceeds EBIT for fiscal 2006 by 3.5% and one-half will vest if our companys EBIT for fiscal
2008 exceeds EBIT for fiscal 2007 by 6.5%. The options subject to vesting if our EBIT for 2007
exceeds EBIT for fiscal 2006 by 3.5% vested on December 13, 2007. The options subject to vesting
if our companys EBIT for fiscal 2008 exceeds EBIT for fiscal 2007 by 6.5% would have vested upon
the filing of this Form 10-K with the Securities and Exchange Commission; however, since Mr.
Moffatt resigned as of September 30, 2008, these options were forfeited.(4)
    
    The terms of these options provide that one-half will vest if our companys EBIT for fiscal
2007 exceeds EBIT for fiscal 2006 by 3.5% and one-half will vest if our companys EBIT for fiscal
2008 exceeds EBIT for fiscal 2007 by 6.5%. The options subject to vesting if our EBIT for 2007
exceeds EBIT for fiscal 2006 by 3.5% vested on December 13, 2007. The options subject to vesting
if our companys EBIT for fiscal 2008 exceeds EBIT for fiscal 2007 by 6.5% will vest upon the
filing of this Form 10-K with the Securities and Exchange Commission.(5)
    
    The terms of these options are described in the footnotes to the Grant of Plan Based Awards
table above.(6)
    
    By their terms, these options expire two years after termination of employment.(7)
    
    These options expire three months after Mr. Moffatts resignation from our company on September
30, 2008. - 66 -




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##### Table of Contents



Employment Agreements; Potential Payments
Upon Termination or Change-in-Control
  
    
    we issued Mr. Young 200,000 stock options in February 2008;
    
    we will grant Mr. Young an individual long term incentive award, the potential
maximum value of which (when aggregated with the actual or, if still unexercised,
expected value of the 200,000 stock options) will be £3.0 million (approximately $5.5
million at current exchange rates) by January 2012. The long-term incentive award may
be settled in shares of our common stock or in cash, or a combination of the two, at
the discretion of our board of directors;
    
    we provide Mr. Young with a car allowance; and
    
    we have agreed to make a payment equal to 15% of Mr. Youngs annual salary towards
his U.K.-based private pension fund.
  Severance payment in lieu of salary
    
    $
    414,351Severance payment in lieu of health insurance
    
    $
    3,624Severance payment in lieu of car allowance
    
    $
    23,677Severance
payment in lieu of payment towards U.K.-based private pension fund
    
    $
    62,153Total:
    
    $
    503,805
    (1)
 
 (1)
    
    Represents a single payment. - 67 -




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- 68 -




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##### Table of Contents



Director Compensation
  Director Compensation Table for Fiscal 2008
 Fees Earnedor Paid in
    
    OptionCash
    
    Awards
    
    TotalName (1)(2)
    
    ($)
    
    ($)(4)(5)
    
    ($)Sophia Corona
    
    $
    40,000
    
    
    $
    48,801
    
    
    $
    88,801Sarah L. Eames(3)
    
    $
    2,500
    
    
    
    
    
    
    $
    2,500G. Richard Green
    
    $
    35,000
    
    
    $
    57,667
    
    
    $
    92,677Wayne Palladino
    
    $
    35,000
    
    
    $
    57,667
    
    
    $
    92,677Jeffrey S. Peris
    
    $
    40,000
    
    
    $
    74,710
    
    
    $
    114,710
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##### Table of Contents



Fees Earnedor Paid in
    
    OptionCash
    
    Awards
    
    TotalName (1)(2)
    
    ($)
    
    ($)(4)(5)
    
    ($)Ann Thornburg
    
    $
    50,000
    
    
    $
    65,833
    
    
    $
    115,833Mark Tompkins
    
    $
    100,000
    
    
    $
    104,003
    
    
    $
    204,003
 
 (1)
    
    Alexander (Sandy) Young, who has served as a director of our company since January 2008,
is not included in this table because he is an employee of our company who received no additional
compensation for services as a director. The compensation received by Mr. Young as an employee of
our company during fiscal 2008 is reflected in the Summary Compensation Table.(2)
    
    Except as otherwise indicated, each individual named below served as a director our
company for all of fiscal 2008.(3)
    
    Sarah L. Eames served as an executive officer of our company until April 2008 and as a
director of our company until May 2008. The amounts shown opposite her name are the amounts she
received in her role as a non-executive director of the company in the period from April 2008 to
May 2008.(4)
    
    The amounts in this column show the amount of compensation cost recognized for financial
statement reporting purposes (disregarding any estimate of forfeitures based related to
service-based vesting conditions). The amounts shown represent the grant date fair value of the
option, computed in accordance with FAS 123R. The amounts shown do not reflect compensation
actually received by the named directors. The amounts shown in this column have been calculated in
accordance with FAS 123R. See Note 9 of Notes to Consolidated Financial Statements for our fiscal
year ended September 30, 2008 for a discussion of the assumptions made in determining the
grant-date fair value. The actual value, if any, that a director will realize upon the exercise of
the stock options issued to him or her will be equal to the excess of the trading price of shares
of our common stock on the date that the shares underlying the options are sold over the exercise
price of the options, less any transaction costs.(5)
    
    As of September 30, 2008, each director listed in the table above had the following option
awards outstanding set forth opposite his or her name below: 
    
    Sophia Corona: 150,000
    
    G. Richard Green: 167,000
    
    Wayne Palladino: 171,000
    
    Jeffrey S. Peris: 224,000
    
    Ann Thornburg: 200,000
    
    Mark Tompkins: 265,000
 Director Compensation  General
  - 70 -




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##### Table of Contents



Cash Compensation
  
    
    each non-employee director is entitled to an annual retainer of $30,000 per
year;
    
    each member of our Audit Committee and each member of our Compensation Committee
(other than the chairpersons) is entitled to an additional $5,000 per year for
service on those committees;
    
    the chairperson of the Audit Committee is entitled to receive $50,000 per year
(which amount includes the $30,000 annual retainer for directors);
    
    the chairperson of the Compensation Committee is entitled to receive $40,000 per
year (which amount includes the $30,000 annual retainer for directors); and
    
    the non-executive chairman of the board is entitled to receive $100,000 per year
(which amount includes the $30,000 annual retainer for directors).
   Equity-Based Compensation
   - 71 -




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##### Table of Contents



Compensation Committee Interlocks and Insider Participation
 .
 
 Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
  Number ofShares of
    
    Percentage ofCommon Stock
    
    Common StockBeneficially
    
    BeneficiallyName
    
    Owned
    
    Owned(1)Alexander (Sandy) Young
    
    
    
    (2)
    
    
    
    %Paul Weston
    
    
    82,000
    (3)
    
    
    *Sophia Corona
    
    
    50,000
    (4)
    
    
    *G. Richard Green
    
    
    149,854
    (5)
    
    
    *Wayne Palladino
    
    
    77,164
    (6)
    
    
    *Jeffrey S. Peris
    
    
    88,500
    (7)
    
    
    *Ann Thornburg
    
    
    62,500
    (8)
    
    
    *Mark Tompkins
    
    
    90,000
    (9)
    
    
    *Washington & Congress
Capital Partners, L.P.
    
    
    7,697,578
    (10)
    
    
    17.1
    %Rutabaga Capital Management
LLC
    
    
    4,847,744
    (11)
    
    
    10.8
    %
 - 72 -




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##### Table of Contents



Number ofShares of
    
    Percentage ofCommon Stock
    
    Common StockBeneficially
    
    BeneficiallyName
    
    Owned
    
    Owned(1)Dimensional Fund Advisors LP
    
    
    3,408,037
    (12)
    
    
    7.6
    %Keane
Capital Management, Inc.
    
    
    2,358,055
    (13)
    
    
    5.2
    %All current executive
officers and directors as a
group (8 persons)
    
    
    600,018
    (14)
    
    
    1.3
    %
 
 *
    
    Less than 1%.(1)
    
    As of the Determination Date, there were 44,986,229 shares of our
common stock outstanding. The percentage given for each shareholder
assumes that such shareholder has exercised the options held by such
shareholder that are exercisable within 60 days of the Determination
Date, but that no other shareholders have exercised the options held
by them.(2)
    
    Does not include 200,000 shares subject to options held by Mr. Young
that are exercisable within 60 days of the Determination Date.(3)
    
    Consists of 82,000 shares subject to options held by Mr. Weston that
are exercisable within 60 days of the Determination Date. Does not
include 80,000 shares subject to options held by Mr. Weston that are
not exercisable within 60 days of November the Determination Date.(4)
    
    Consists of 50,000 shares subject to options held by Ms. Corona that
are exercisable within 60 days of the Determination Date. Does not
include 100,000 shares subject to options held by Ms. Corona that are
not exercisable within 60 days of the Determination Date.(5)
    
    Consists of 3,000 shares of common stock held by Mr. Green, 57,995
shares of common stock held jointly by Mr. Green and his wife, 19,259
shares of common stock held by Orion Nominees Limited, an affiliate
of Mr. Green, 67,000 shares subject to options held by Mr. Green that
are exercisable within 60 days of the Determination Date and 2,600
shares owned of record by Mr. Greens wife, as to which Mr. Green
disclaims beneficial ownership. Mr. Green shares voting and
dispositive power over the shares of our common stock held by Orion
Nominees Limited with his wife. Does not include an additional
100,000 shares subject to options held by Mr. Green that are not
exercisable within 60 days of the Determination Date.(6)
    
    Consists of 6,164 shares of common stock held by Mr. Palladino and
71,000 shares subject to options that are exercisable within 60 days
of the Determination Date. Does not include an additional 100,000
shares subject to options held by Mr. Palladino that are not
exercisable within 60 days of the Determination Date.(7)
    
    Consists of 2,000 shares of common stock held by Dr. Peris and 86,500
shares subject to options held by Dr. Peris that are exercisable
within 60 days of the Determination Date. Does not include an
additional 137,500 shares subject to options held by Dr. Peris that
are not exercisable within 60 days of the Determination Date.(8)
    
    Consists of 62,500 shares subject to options held by Ms. Thornburg
that are exercisable within 60 days of the Determination Date. Does
not include 137,500 shares subject to options held by Ms. Thornburg
that are not exercisable within 60 days of the Determination Date.(9)
    
    Consists of 90,000 shares subject to options held by Mr. Tompkins
that are exercisable within 60 days of the Determination Date. Does
not include 175,000 shares subject to options held by Mr. Tompkins
that are not exercisable within 60 days of the Determination Date. - 73 -




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##### Table of Contents



(10)
    
    Excludes 93,492 shares of common stock held by Triumph III Investors,
L.P. Washington & Congress Capital Partners, L.P. may be deemed to
be a member of a group that includes Triumph III Investors, L.P. The
address of Washington & Congress Capital Partners, L.P. is 265
Franklin Street, 20th Floor, Boston, Massachusetts 02110.(11)
    
    The number of shares is given as of September 30, 2008, the end of
the period covered by the Schedule 13F filed by Rutabaga Capital
Management LLC with the Securities and Exchange Commission on
November 11, 2008. The address of Rutabaga Capital Management LLC is
64 Broad Street, Boston, Massachusetts 02109.(12)
    
    The number of shares is given as of September 30, 2008, the end of
the period covered by the Schedule 13F filed by Dimensional Fund
Advisors LP with the Securities and Exchange Commission on October
30, 2008. The address of Dimensional Fund Advisors LP is 1299 Ocean
Avenue, Santa Monica, California 90401.(13)
    
    The number of shares is given as of September 30, 2008, the end of
the period covered by the Schedule 13F filed by Keane Capital
Management, Inc. with the Securities and Exchange Commission on
November 13, 2008. The address of Keane Capital Management, Inc. is
3440 Torringdon Way, Suite 308, Charlotte, North Carolina 28277.(14)
    
    Includes an aggregate of 509,000 shares subject to options held by
our executive officers and directors that are exercisable within 60
days of the Determination Date and 2,600 shares owned of record by
Mr. Greens wife, as to which Mr. Green disclaims beneficial
ownership. Equity Compensation Plan Information
  Equity Compensation Plan Information
 Number of SecuritiesRemaining Available forFuture Issuance UnderNumber of Securities to
    
    Weighted-Average
    
    Equity Compensationbe Issued Upon Exercise
    
    Exercise Price of
    
    Plans (Excludingof Outstanding Options,
    
    Outstanding Options,
    
    Securities Reflected inWarrants and Rights
    
    Warrants and Rights
    
    Column (a))Plan Category
    
    (a)
    
    (b)
    
    (c)Equity compensation
plans approved by
shareholders
    
    
    2,776,334
    
    
    $
    2.23
    
    
    
    2,206,762Equity compensation
plans not approved
by shareholders
    
    
    135,000
    
    
    $
    3.37
    
    
    
    Total
    
    
    2,911,334
    
    
    $
    2.28
    
    
    
    2,206,762
 - 74 -




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##### Table of Contents



Item 13. Certain Relationships and Related Transactions, and Director
Independence.
 Related Party Transactions
   Review of Related Party Transactions
    - 75 -




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##### Table of Contents



Director Independence
    
 Item 14. Principal Accountant Fees and Services.
 Audit and Other Fees During Fiscal 2006 and Fiscal 2007
  Fiscal 2008
    
    Fiscal 2007Audit fees
    
    $
    764,000
    
    
    $
    1,388,932Audit-related fees
    
    
    
    
    
    
    Tax fees
    
    
    
    
    
    
    All other fees
    
    
    
    
    
    
    
  - 76 -




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##### Table of Contents



Pre-Approval Policy
   
 PART IV
 
 Item 15. Exhibits and Financial Statement Schedules.
  Page(1)
    
    Consolidated Financial Statements:Reports of Independent Registered Public Accounting Firm
    
    F-1Consolidated Balance Sheets  September 30, 2008 and 2007
    
    F-3Consolidated Statements of Operations  for the years
ended September 30, 2008, 2007 and 2006
    
    F-4Consolidated Statements of Changes in Shareholders
Equity  for the years ended September 30, 2008, 2007
and 2006
    
    F-5Consolidated Statements of Cash Flows  for the years
ended September 20, 2008, 2007 and 2006
    
    F-6Notes to Consolidated Financial Statements
    
    F-8(2)
    
    Consolidated Financial Statement Schedules:Schedule I  Condensed Financial Information
    
    S-1Schedule II  Valuation and Qualifying Accounts
    
    S-5Schedules other than those listed above are omitted
because they are not required or are not applicable or
the information is shown in the audited consolidated
financial statements or related notes.
 - 77 -




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##### Table of Contents



ExhibitNumber
    
    Title2.1
    
    Agreement, dated September 30, 2007, among Air Liquide Limited, Omnicare Limited, Allied Healthcare Group Holdings Limited
and Air Liquide UK Limited (incorporated herein by reference to Exhibit 2.1 of our Annual Report on Form 10-K for the fiscal
year ended September 30, 2007; File No. 001-11570).3.1
    
    Restated Certificate of Incorporation of United States Home Health Care Corp. (now known as Allied Healthcare International
Inc.) filed with the Department of State of the State of New York on December 12, 1990, as amended on August 7, 1992
(incorporated herein by reference to Exhibit 3.1 of our Quarterly Report on Form 10-Q for the quarter ended April 30, 1997;
File No. 000-20918).3.2
    
    Certificate of Amendment of the Certificate of Incorporation of Transworld Home Healthcare, 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 Quarterly Report on Form 10-Q for the quarter ended April 30, 1997; File No.
000-20918).3.3
    
    Certificate of Amendment of the Certificate of Incorporation of Transworld Home Healthcare, Inc. (now known as Allied
Healthcare International Inc.) filed with the Department of State of the State of New York on October 9, 1996 (incorporated
herein by reference to Exhibit 3.3 of our Quarterly Report on Form 10-Q for the quarter ended April 30, 1997; File No.
000-20918).3.4
    
    Certificate of Amendment of the Certificate of Incorporation of Transworld Home Healthcare, Inc. (now known as Allied
Healthcare International Inc.) filed with the Department of State of the State of New York on May 6, 1997 (incorporated
herein by reference to Exhibit 3.4 of our Quarterly Report on Form 10-Q for the quarter ended April 30, 1997; File No.
000-20918).3.5
    
    Certificate of Amendment of the Certificate of Incorporation of Transworld Healthcare, Inc. (now known as Allied Healthcare
International Inc.) filed with the Department of State of the State of New York on April 16, 1998 (incorporated herein by
reference to Exhibit 3.5 of our Registration Statement on Form S-4 (Reg. St. No. 333-87304) filed with the Securities and
Exchange Commission on May 1, 2002; File No. 333-87304).3.6
    
    Certificate of Amendment to Certificate of Incorporation of Transworld Healthcare, 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 Current Report on Form 8-K filed with the Securities and Exchange Commission on June 10,
2002; File No. 001-11570).
 - 78 -




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##### Table of Contents



ExhibitNumber
    
    Title3.7
    
    Certificate of Amendment of the Certificate of Incorporation of Allied Healthcare International Inc. that defines the rights
of the Series A Convertible Preferred Stock, filed with the Department of State of the State of New York on June 26, 2002
(incorporated herein by reference to Exhibit 4.1 of our Current Report on Form 8-K filed with the Securities and Exchange
Commission on August 9, 2002; File No. 001-11570).3.8
    
    Certificate of Amendment of the provisions of the Certificate of Incorporation of Allied Healthcare International Inc. that
defines the rights of the Series A Convertible Preferred Stock, filed with the Department of State of the State of New York
on February 12, 2003 (incorporated herein by reference to Exhibit 3.8 of our Quarterly Report on Form 10-Q for the quarter
ended December 31, 2002; File No. 001-11570).3.9
    
    Certificate of Amendment of the Certificate of Incorporation of Allied Healthcare International Inc. that eliminates all
references to the Series A Convertible Preferred Stock, filed with the Department of State of the State of New York on July
20, 2004 (incorporated herein by reference to Exhibit 9 of our Form 8-A/A filed with the Securities and Exchange Commission
on July 21, 2004; File No. 001-11570).3.10
    
    Certificate of Amendment of the Certificate of Incorporation of Allied Healthcare International Inc. filed with the
Department of State of the State of New York on September 10, 2004 (incorporated herein by reference to Exhibit 3.1 of our
Current Report on Form 8-K filed with the Securities and Exchange Commission on September 15, 2004; File No. 001-11570).3.11
    
    Certificate of Change of Allied Healthcare International Inc. filed with the Department of State of the State of New York on
April 26, 2007 (incorporated herein by reference to Exhibit 3.11 of our Annual Report on Form 10-K for the fiscal year ended
September 30, 2007; File No. 001-11570).3.12
    
    Restated Bylaws of Transworld Home Healthcare, Inc. (now known as Allied Healthcare International Inc.) (incorporated herein
by reference to Exhibit 3.4 of our Annual Report on Form 10-K for the fiscal year ended October 31, 1996; File No.
000-20918).3.13
    
    Amendment to the Bylaws of Allied Healthcare International Inc. effective June 7, 2002 (incorporated herein by reference to
Exhibit 3.2 of our Current Report on Form 8-K filed with the Securities and Exchange Commission on June 10, 2002; File No.
001-11570).4.1
    
    Specimen Certificate of Common Stock (incorporated herein by reference to Exhibit 4.1 of our Current Report on Form 8-K filed
with the Securities and Exchange Commission on June 10, 2002; File No. 001-11570).10.1
    
    Transworld Home HealthCare, Inc. 1992 Stock Option Plan, as amended (incorporated herein by reference to Exhibit 10.3 of our
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998; File No. 001-11570).
 - 79 -




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##### Table of Contents



ExhibitNumber
    
    Title10.2(1)
    
    Form of Indemnity Agreement for officers and directors.10.3
    
    Amended and Restated Employment Agreement, dated October 16, 2006, between Allied Healthcare International Inc. and Sarah
Eames (incorporated herein by reference to Exhibit 10.4E of our Annual Report on Form 10-K for the fiscal year ended
September 30, 2006; File No. 001-11570).10.4
    
    Transitional Services Agreement, dated January 14, 2008, between Allied Healthcare International Inc. and Sarah L. Eames
(incorporated herein by reference to Exhibit 10.2 of our Current Report on Form 8-K filed with the Securities and Exchange
Commission on January 14, 2008; File No. 001-11570).10.5
    
    Registration Rights Agreement, dated April 30, 2002, among Transworld Healthcare, Inc. (now known as Allied Healthcare
International Inc.), Triumph Partners III, L.P. and Triumph III Investors, L.P. (incorporated herein by reference to Exhibit
10.29 of our Registration Statement on Form S-4 (Reg. St. No. 333-87304) filed with the Securities and Exchange Commission on
May 1, 2002; File No. 333-87304).10.6
    
    2002 Stock Option Plan (incorporated herein by reference to Annex D to the proxy statement/prospectus forming a part of
Amendment No. 1 to our Registration Statement on Form S-4 (Reg. St. No. 333-87304) filed with the Securities and Exchange
Commission on May 21, 2002; File No. 333-87304).10.7A
    
    Employment Agreement, dated July 31, 2006, between Allied Healthcare Group Limited and David Moffatt (incorporated herein by
reference to Exhibit 10.15 of our Annual Report on Form 10-K for the fiscal year ended September 30, 2006; File No.
001-11570).10.7B(1)
    
    Leaving Agreement, executed by Allied Healthcare Group Limited on October 1, 2008, between Allied Healthcare Group Limited
and David Moffatt.10.8A
    
    Facility Agreement, dated July 19, 2004, as amended and restated on December 12, 2006, among Allied Healthcare Group Holdings
Limited, Allied Healthcare International Inc., the subsidiaries of Allied Healthcare International Inc. named therein,
Barclays Capital and Lloyds TSB Bank plc, as arrangers, and the other banks named therein (incorporated herein by reference
to Exhibit 10.16 of our Annual Report on Form 10-K for the fiscal year ended September 30, 2006; File No. 001-11570).10.8B
    
    Amendment Letter, dated January 30, 2007, among Allied Healthcare Group Holdings Limited, Allied Healthcare International
Inc., the subsidiaries of Allied Healthcare International Inc. identified therein, Barclays Bank PLC and Lloyds TSB Bank plc
(incorporated herein by reference to Exhibit 10.1 of our Current Report on Form 8-K filed with the Securities and Exchange
Commission on February 1, 2007; File No. 001-11570).
 - 80 -




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##### Table of Contents



ExhibitNumber
    
    Title10.8C
    
    Amendment Letter, dated August 6, 2007, among Allied Healthcare Group Holdings Limited, Allied Healthcare International Inc.,
the subsidiaries of Allied Healthcare International Inc. identified therein, Barclays Bank PLC and Lloyds TSB Bank PLC
(incorporated herein by reference to Exhibit 10.2 of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2007;
File No. 001-11570).10.9
    
    Pledge and Security Agreement, dated December 12, 2006, between Allied Healthcare International Inc. and Barclays Bank PLC,
as security agent (incorporated herein by reference to Exhibit 10.17 of our Annual Report on Form 10-K for the fiscal year
ended September 30, 2006; File No. 001-11570).10.10
    
    Intellectual Property Security Agreement, dated December 12, 2006, between Allied Healthcare International Inc. and Barclays
Bank PLC, as security agent (incorporated herein by reference to Exhibit 10.18 of our Annual Report on Form 10-K for the
fiscal year ended September 30, 2006; File No. 001-11570).10.11A
    
    Sales Ledger Financing Agreement, dated December 12, 2006, between Allied Healthcare Group Limited and Barclays Bank PLC
(incorporated herein by reference to Exhibit 10.2 of our Quarterly Report on Form 10-Q for the quarter ended December 31,
2006; File No. 001-11570).10.11B
    
    Sales Ledger Financing Agreement, dated December 12, 2006, between Allied Staffing Professionals Limited and Barclays Bank
PLC (incorporated herein by reference to Exhibit 10.3 of our Quarterly Report on Form 10-Q for the quarter ended December 31,
2006; File No. 001-11570).10.11C
    
    Sales Ledger Financing Terms and Conditions Agreement between Allied Healthcare Group Limited and Barclays Bank PLC
(incorporated herein by reference to Exhibit 10.4 of our Quarterly Report on Form 10-Q for the quarter ended December 31,
2006; File No. 001-11570).10.11D
    
    Sales Ledger Financing Terms and Conditions Agreement between Allied Staffing Professionals Limited and Barclays Bank PLC
(incorporated herein by reference to Exhibit 10.5 of our Quarterly Report on Form 10-Q for the quarter ended December 31,
2006; File No. 001-11570).10.12
    
    Settlement Agreement, dated June 26, 2007, between Allied Healthcare International Inc. and Timothy M. Aitken (but executed
by Mr. Aitken on July 2, 2007), including the U.K. Compromise Agreement, dated June 26, 2007, between Allied Healthcare
International Inc. and Timothy M. Aitken attached thereto (incorporated herein by reference to Exhibit 10.1 of our Current
Report on Form 8-K filed with the Securities and Exchange Commission on July 6, 2007; File No. 001-11570).10.13
    
    Executive Service Agreement, dated December 22, 2007, between Allied Healthcare International Inc. and Alexander Young, but
executed by Allied Healthcare International Inc. on January 8,
2008 (incorporated herein by reference to Exhibit 10.1 of our
Current Report on Form 8-K filed with the Securities and Exchange Commission on January 14, 2008; File No. 001-11570).
 - 81 -




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##### Table of Contents



ExhibitNumber
    
    Title10.14
    
    Employment Agreement, dated May 1, 2008, between Allied Healthcare Group Limited and Paul Weston (incorporated herein by
reference to Exhibit 10.1 of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2008; File No. 001-11570).11
    
    Statement re: computation of earnings per share (computation can be determined clearly from the material contained in this
Annual Report on Form 10-K).14
    
    Allied Healthcare International Inc. Code of Conduct (incorporated herein by reference to Exhibit 14 to our Form 10-K for the
fiscal year ended September 30, 2003; File No. 001-11570).21(1)
    
    Subsidiaries of Allied Healthcare International Inc.23(1)
    
    Consent of Eisner LLP, independent registered public accounting firm of Allied Healthcare International Inc.31.1(1)
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.31.2(1)
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.32.1(1)
    
    Section 1350 Certification of Chief Executive Officer.32.2(1)
    
    Section 1350 Certification of Chief Financial Officer.99.1
    
    AIM Schedule 1Pre-Admission Announcement filed by Allied Healthcare International Inc. with the Alternative Investment
Market of the London Stock Exchange (incorporated herein by reference to Exhibit 99.2 of our Current Report on Form 8-K filed
with the Securities and Exchange Commission on November 30, 2005; File No. 001-11570).
 
 (1)
    
    Filed herewith. - 82 -




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##### Table of Contents



ALLIED HEALTHCARE INTERNATIONAL INC.By:
    /s/ Sandy YoungName:
    Sandy YoungTitle:
    Chief Executive Officer     /s/ Sandy Young

Sandy Young
    
    Chief Executive Officer
(principal executive officer)
    
    November 25, 2008/s/ Paul Weston

Paul Weston
    
    Chief Financial Officer

(principal financial and
accounting officer)
    
    November 25, 2008/s/ Sophia Corona

Sophia Corona
    
    Director
    
    November 25, 2008/s/ G. Richard Green

G. Richard Green
    
    Director
    
    November 25, 2008
 - 83 -




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##### Table of Contents



/s/ Wayne Palladino

Wayne Palladino
    
    Director
    
    November 25, 2008/s/ Jeffrey S. Peris

Jeffrey S. Peris
    
    Director
    
    November 19, 2008/s/ Ann Thornburg

Ann Thornburg
    
    Director
    
    November 20, 2008/s/ Mark Tompkins

Mark Tompkins
    
    Director
    
    November 24, 2008
 - 84 -




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##### Table of Contents



ALLIED HEALTHCARE INTERNATIONAL INC.
 PageIndex to Consolidated Financial StatementsReports of Independent Registered Public Accounting Firm
    
    
    F-1Consolidated Balance Sheets  September 30, 2008
and 2007
    
    
    F-3Consolidated Statements of Operations  for the
years ended September 30, 2008, 2007 and 2006
    
    
    F-4Consolidated Statements of Changes in
Shareholders Equity  for the years ended
September 30, 2008, 2007 and 2006
    
    
    F-5Consolidated Statements of Cash Flows  for the
years ended September 30, 2008, 2007 and 2006
    
    
    F-6Notes to Consolidated Financial Statements
    
    
    F-8Index to Consolidated Financial Statement SchedulesSchedule I  Condensed Financial Information
    
    
    S-1Schedule II  Valuation and Qualifying Accounts
    
    
    S-5
 F-i




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
       
 F-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
        
 F-2




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##### Table of Contents



ALLIED HEALTHCARE INTERNATIONAL INC.
 
 CONSOLIDATED BALANCE SHEETS  (In thousands, except per share data)
 September 30,
    
    
    September 30,2008
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    26,199
    
    
    $
    20,241Restricted Cash
    
    
    136
    
    
    
    55,819Accounts receivable, less allowance for doubtful
accounts of $823 and $1,570, respectively
    
    
    17,774
    
    
    
    21,490Unbilled accounts receivable
    
    
    15,892
    
    
    
    14,375Deferred income taxes
    
    
    474
    
    
    
    182Derivative asset
    
    
    
    
    
    
    640Prepaid expenses and other assets
    
    
    1,375
    
    
    
    1,448Assets of discontinued operations
    
    
    182
    
    
    
    205Total current assets
    
    
    62,032
    
    
    
    114,400Property and equipment, net
    
    
    8,574
    
    
    
    9,767Goodwill
    
    
    109,292
    
    
    
    122,843Other intangible assets, net
    
    
    3,345
    
    
    
    5,465Deferred income taxes
    
    
    
    
    
    
    304Taxes receivable
    
    
    19
    
    
    
    Total assets
    
    $
    183,262
    
    
    $
    252,779LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    
    
    
    $
    54,795Accounts payable
    
    
    1,614
    
    
    
    3,950Accrued expenses, inclusive of payroll and related expenses
    
    
    28,244
    
    
    
    30,614Taxes payable
    
    
    
    
    
    
    3,375Liabilities of discontinued operations
    
    
    624
    
    
    
    1,286Total current liabilities
    
    
    30,482
    
    
    
    94,020Deferred income taxes
    
    
    110
    
    
    
    Total liabilities
    
    
    30,592
    
    
    
    94,020Commitments and contingencies (Notes 3, 5 and 10)Shareholders equity:Preferred stock, $.01 par value; authorized 10,000 shares,
issued and outstanding   none
    
    
    
    
    
    
    Common stock, $.01 par value; authorized 80,000 shares,
issued 45,571 and 45,571 shares, respectively
    
    
    456
    
    
    
    456Additional paid-in capital
    
    
    241,018
    
    
    
    240,206Accumulated other comprehensive income
    
    
    1,819
    
    
    
    18,018Accumulated deficit
    
    
    (88,329
    )
    
    
    (97,627
    )154,964
    
    
    
    161,053Less cost of treasury stock (585 shares)
    
    
    (2,294
    )
    
    
    (2,294
    )Total shareholders equity
    
    
    152,670
    
    
    
    158,759Total liabilities and shareholders equity
    
    $
    183,262
    
    
    $
    252,779
  F-3




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##### Table of Contents



ALLIED HEALTHCARE INTERNATIONAL INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS  (In thousands, except per share data)
 Year Ended
    
    
    Year Ended
    
    
    Year EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2006Revenues:Net patient services
    
    $
    298,577
    
    
    $
    277,795
    
    
    $
    280,205Cost of revenues:Patient services
    
    
    208,192
    
    
    
    193,839
    
    
    
    194,475Gross profit
    
    
    90,385
    
    
    
    83,956
    
    
    
    85,730Selling, general and administrative expenses
    
    
    77,655
    
    
    
    75,284
    
    
    
    71,103Impairment of goodwill
    
    
    
    
    
    
    
    
    
    
    110,004Impairment of long-lived assets (fixed assets and other intangibles)
    
    
    
    
    
    
    
    
    
    
    10,038Operating income (loss)
    
    
    12,730
    
    
    
    8,672
    
    
    
    (105,415
    )Interest income
    
    
    935
    
    
    
    124
    
    
    
    125Interest expense
    
    
    (542
    )
    
    
    (4,156
    )
    
    
    (2,862
    )Foreign exchange (loss) income
    
    
    (586
    )
    
    
    285
    
    
    
    73Other income
    
    
    
    
    
    
    759
    
    
    
    39Income (loss) before income taxes and discontinued operations
    
    
    12,537
    
    
    
    5,684
    
    
    
    (108,040
    )Provision for (benefit from) income taxes
    
    
    3,751
    
    
    
    2,068
    
    
    
    (1,887
    )Income (loss) from continuing operations
    
    
    8,786
    
    
    
    3,616
    
    
    
    (106,153
    )Discontinued operations:Income (loss) from discontinued operations, net of taxes
    
    
    
    
    
    
    6,266
    
    
    
    (17,618
    )Gain on disposal of subsidiaries, net of taxes
    
    
    
    
    
    
    56,471
    
    
    
    Income (loss) from discontinued operations
    
    
    
    
    
    
    62,737
    
    
    
    (17,618
    )Net income (loss)
    
    $
    8,786
    
    
    $
    66,353
    
    
    $
    (123,771
    )Basic net income (loss) per share of common stockIncome (loss) from continuing operations
    
    $
    0.20
    
    
    $
    0.08
    
    
    $
    (2.36
    )Income (loss) from discontinued operations
    
    
    
    
    
    
    1.40
    
    
    
    (0.39
    )Net income (loss) per share of common stock
    
    $
    0.20
    
    
    $
    1.48
    
    
    $
    (2.75
    )Diluted net income (loss) per share of common stockIncome (loss) from continuing operations
    
    $
    0.19
    
    
    $
    0.08
    
    
    $
    (2.36
    )Income (loss) from discontinued operations
    
    
    
    
    
    
    1.39
    
    
    
    (0.39
    )Net income (loss) per share of common stock
    
    $
    0.19
    
    
    $
    1.47
    
    
    $
    (2.75
    )Weighted average number of common shares outstanding:Basic
    
    
    44,986
    
    
    
    44,962
    
    
    
    44,930Diluted
    
    
    45,078
    
    
    
    45,147
    
    
    
    44,930
  F-4




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##### Table of Contents



ALLIED HEALTHCARE INTERNATIONAL INC.
 
 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY  (In thousands )
 AccumulatedAdditional
    
    
    Other
    
    
    RetainedCommon Stock
    
    
    Paid-in
    
    
    Comprehensive
    
    
    (Deficit)
    
    
    TreasuryShares
    
    
    Amount
    
    
    Capital
    
    
    (Loss) Income
    
    
    Earnings
    
    
    Shares
    
    
    TotalBalance, September 30, 2005
    
    
    45,441
    
    
    $
    454
    
    
    $
    237,796
    
    
    $
    6,112
    
    
    $
    (40,209
    )
    
    $
    (2,294
    )
    
    $
    201,859Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (123,771
    )
    
    
    
    
    
    
    (123,771
    )Foreign currency translation adjustment, net of taxes of $1,037
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,466
    
    
    
    
    
    
    
    
    
    
    
    6,466Unrealized gains from cash flow hedging activities, net of taxes of $291
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    680
    
    
    
    
    
    
    
    
    
    
    
    680Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (116,625
    )Stock based compensation
    
    
    
    
    
    
    
    
    
    
    736
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    736Issuance of common stock for:Exercise of stock options
    
    
    101
    
    
    
    1
    
    
    
    410
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    411Excess tax benefits on stock options exercised
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Balance, September 30, 2006
    
    
    45,542
    
    
    $
    455
    
    
    $
    238,944
    
    
    $
    13,258
    
    
    $
    (163,980
    )
    
    $
    (2,294
    )
    
    $
    86,383Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    66,353
    
    
    
    
    
    
    
    66,353Foreign currency translation adjustment, net of taxes of $1,441
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,032
    
    
    
    
    
    
    
    
    
    
    
    5,032Unrealized gains from cash flow hedging activities, net of taxes of $(117)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (272
    )
    
    
    
    
    
    
    
    
    
    
    (272
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71,113Stock based compensation
    
    
    
    
    
    
    
    
    
    
    764
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    764Issuance of common stock for consulting services
    
    
    29
    
    
    
    1
    
    
    
    63
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64Issuance and modification of warrants for professional services
    
    
    
    
    
    
    
    
    
    
    435
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    435Balance, September 30, 2007
    
    
    45,571
    
    
    $
    456
    
    
    $
    240,206
    
    
    $
    18,018
    
    
    $
    (97,627
    )
    
    $
    (2,294
    )
    
    $
    158,759Comprehensive loss:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,786
    
    
    
    
    
    
    
    8,786Foreign currency translation adjustment, net of taxes of $(1,747)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,199
    )
    
    
    
    
    
    
    
    
    
    
    (16,199
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,413
    )Cumulative effect of adopting FIN 48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    512
    
    
    
    
    
    
    
    512Stock based compensation
    
    
    
    
    
    
    
    
    
    
    812
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    812Balance, September 30, 2008
    
    
    45,571
    
    
    $
    456
    
    
    $
    241,018
    
    
    $
    1,819
    
    
    $
    (88,329
    )
    
    $
    (2,294
    )
    
    $
    152,670
  F-5




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##### Table of Contents



ALLIED HEALTHCARE INTERNATIONAL INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 Year Ended
    
    
    Year Ended
    
    
    Year EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2006Cash flows from operating activities:Net income (loss)
    
    $
    8,786
    
    
    $
    66,353
    
    
    $
    (      123,771
    )Adjustments to reconcile net income (loss) to net
cash provided by operating activities:(Income) loss from discontinued operations
    
    
    
    
    
    
    (         6,266
    )
    
    
    17,618Gain on disposal of subsidiaries
    
    
    
    
    
    
    (         56,471
    )
    
    
    Depreciation and amortization
    
    
    3,231
    
    
    
    3,377
    
    
    
    3,729Amortization of intangible assets
    
    
    1,634
    
    
    
    1,743
    
    
    
    1,826Amortization of debt issuance costs
    
    
    
    
    
    
    368
    
    
    
    180Warrants issued for professional services
    
    
    
    
    
    
    499
    
    
    
    Impairment of goodwill
    
    
    
    
    
    
    
    
    
    
    110,004Impairment of long-lived assets
    
    
    
    
    
    
    
    
    
    
    10,038(Decrease) increase in provision for allowance for doubtful
accounts
    
    
    (          167
    )
    
    
    222
    
    
    
    428Loss (gain) on sale of fixed assets
    
    
    166
    
    
    
    
    
    
    
    (          3
    )Stock based compensation
    
    
    812
    
    
    
    764
    
    
    
    736Excess tax benefits on stock options exercised
    
    
    
    
    
    
    
    
    
    
    (          2
    )Write-off of deferred financing fees
    
    
    
    
    
    
    705
    
    
    
    Deferred income taxes
    
    
    88
    
    
    
    557
    
    
    
    (          4,575
    )Changes in operating assets and liabilities, excluding
the effect of businesses acquired and sold:Decrease in accounts receivable
    
    
    1,579
    
    
    
    7,307
    
    
    
    5,846Decrease in inventories
    
    
    
    
    
    
    
    
    
    
    181(Increase) decrease in prepaid expenses and other assets
    
    
    (          3,488
    )
    
    
    (         2,017
    )
    
    
    1,959(Decrease) increase in accounts payable and other liabilities
    
    
    (          3,779
    )
    
    
    5,044
    
    
    
    (          1,245
    )Net cash provided by continuing operations
    
    
    8,862
    
    
    
    22,185
    
    
    
    22,949Net cash (used in) provided by discontinued operations
    
    
    (          561
    )
    
    
    5,870
    
    
    
    2,783Net cash provided by operating activities
    
    
    8,301
    
    
    
    28,055
    
    
    
    25,732Cash flows from investing activities:Capital expenditures
    
    
    (          3,344
    )
    
    
    (         1,275
    )
    
    
    (          9,053
    )Proceeds from sale of business
    
    
    
    
    
    
    70,994
    
    
    
    Proceeds from sale of business held in escrow and designated for debt
repayment
    
    
    53,638
    
    
    
    (         53,679
    )
    
    
    Proceeds from sale of property and equipment
    
    
    50
    
    
    
    
    
    
    
    21Payments for acquisitions  net of cash acquired
    
    
    
    
    
    
    
    
    
    
    (          844
    )Payments on acquisitions payable
    
    
    
    
    
    
    (         2,584
    )
    
    
    (          5,259
    )Net cash provided by (used in) continuing operations
investing activities
    
    
    50,344
    
    
    
    13,456
    
    
    
    (          15,135
    )Net cash used in discontinued operations investing activities
    
    
    
    
    
    
    (         1,786
    )
    
    
    (          14,738
    )Net cash provided by (used in) investing activities
    
    
    50,344
    
    
    
    11,670
    
    
    
    (          29,873
    )
 F-6




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ALLIED HEALTHCARE INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)  (In thousands)
 Year Ended
    
    
    Year Ended
    
    
    Year EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2006Cash flows from financing activities:Payments for financing fees
    
    
    
    
    
    
    (         533
    )
    
    
    (Payments) borrowings under revolving loan, net
    
    
    (          24,664
    )
    
    
    (         14,769
    )
    
    
    13,508(Payments) borrowings under invoice discounting facility, net
    
    
    (          4,458
    )
    
    
    4,449
    
    
    
    Principal payments on long-term debt
    
    
    (          23,678
    )
    
    
    (         11,815
    )
    
    
    (          10,806
    )Proceeds from sale of interest rate swap agreements
    
    
    617
    
    
    
    
    
    
    
    Stock options exercised
    
    
    
    
    
    
    
    
    
    
    411Excess tax benefits on stock options exercised
    
    
    
    
    
    
    
    
    
    
    2Net cash (used in) provided by financing activities
    
    
    (          52,183
    )
    
    
    (         22,668
    )
    
    
    3,115Effect of exchange rate on cash
    
    
    (          504
    )
    
    
    (         754
    )
    
    
    (          882
    )Increase (decrease) in cash
    
    
    5,958
    
    
    
    16,303
    
    
    
    (          1,908
    )Cash and cash equivalents, beginning of year
    
    
    20,241
    
    
    
    3,938
    
    
    
    5,846Cash and cash equivalents, end of year
    
    $
    26,199
    
    
    $
    20,241
    
    
    $
    3,938Supplemental cash flow information:Cash paid for interest
    
    $
    1,143
    
    
    $
    4,679
    
    
    $
    4,063Cash paid for income taxes, net
    
    $
    4,872
    
    
    $
    2,570
    
    
    $
    3,206Supplemental disclosure of investing and financing activities:Details of business acquired in purchase transactions:Fair value of assets acquired
    
    
    
    
    
    
    
    
    
    $
    949Liabilities assumed or incurred
    
    
    
    
    
    
    
    
    
    
    (          105
    )Cash paid for acquisitions (including related
expenses)
    
    
    
    
    
    
    
    
    
    
    844Cash acquired
    
    
    
    
    
    
    
    
    
    
    Net cash paid for acquisitions
    
    
    
    
    
    
    
    
    
    $
    844
  F-7




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ALLIED HEALTHCARE INTERNATIONAL INC.
 
 Notes to Consolidated Financial Statements
 (In thousands, except per share data)
 1. Business and Operations:
  Disclosure about
Segments of an Enterprise and Related Information,
 Accounting
for the Impairment or Disposal of Long-Lived Assets
 2. Summary of Significant Accounting Policies:
 Basis of Accounting and Principles of Consolidation:
  F-8




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##### Table of Contents



ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)  (In thousands, except per share data)
 Cash and Cash Equivalents:
  Restricted Cash:
   Stock-Based Compensation:
 Accounting for Stock Issued to
Employees, Accounting for Stock-Based
Compensation
 Share-Based Payment
 F-9




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##### Table of Contents



ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)  (In thousands, except per share data)
  Accounts Receivable:
   Property and Equipment:
  Purchase Accounting:
  F-10




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##### Table of Contents



ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)  (In thousands, except per share data)
 Goodwill and Other Intangible Assets:
 Goodwill and Other Intangible Assets
  Balance at October 1, 2006
    
    $
    112,538Foreign exchange effect
    
    
    10,305Balance at September 30, 2007
    
    
    122,843Foreign exchange effect
    
    
    (13,551
    )Balance at September 30, 2008
    
    $
    109,292
   September 30, 2008Range
    
    Gross
    
    
    
    
    
    
    NetOf Lives
    
    Carrying
    
    
    Accumulated
    
    
    Carrying(Years)
    
    Amount
    
    
    Amortization
    
    
    AmountCustomer relationships
    
    5  12
    
    $
    9,705
    
    
    $
    6,360
    
    
    $
    3,345Trade names
    
    3
    
    
    187
    
    
    
    187
    
    
    
    Non-compete agreements
    
    2  3
    
    
    219
    
    
    
    219
    
    
    
    Favorable leasehold interests
    
    2  5
    
    
    9
    
    
    
    9
    
    
    
    Total
    
    
    
    $
    10,120
    
    
    $
    6,775
    
    
    $
    3,345
 F-11




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##### Table of Contents



ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)  (In thousands, except per share data)
 September 30, 2007Range
    
    Gross
    
    
    
    
    
    
    NetOf Lives
    
    Carrying
    
    
    Accumulated
    
    
    Carrying(Years)
    
    Amount
    
    
    Amortization
    
    
    AmountCustomer relationships
    
    5  12
    
    $
    10,935
    
    
    $
    5,470
    
    
    $
    5,465Trade names
    
    3
    
    
    211
    
    
    
    211
    
    
    
    Non-compete agreements
    
    2  3
    
    
    247
    
    
    
    247
    
    
    
    Favorable leasehold interests
    
    2  5
    
    
    9
    
    
    
    9
    
    
    
    Total
    
    
    
    $
    11,402
    
    
    $
    5,937
    
    
    $
    5,465
   Deferred Financing Costs:
  Income Taxes:
 Accounting for Income Taxes Accounting for
Uncertainty in Income Taxes  an Interpretation of FASB 109.
  F-12




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##### Table of Contents



ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)  (In thousands, except per share data)
   Revenue Recognition:
  ,
 Advertising Costs:
  Earnings Per Share:
  F-13




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##### Table of Contents



ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)  (In thousands, except per share data)
   2008
    
    2007
    
    2006Weighted average number of common shares outstanding
as used in computation of basic EPS of common stock
    
    
    44,986
    
    
    
    44,962
    
    
    
    44,930Effect of dilutive securities  stock options and warrants
    
    
    92
    
    
    
    185
    
    
    
    Shares used in computation of diluted EPS of common stock
    
    
    45,078
    
    
    
    45,147
    
    
    
    44,930
 Comprehensive (Loss) Income:
  Impairment of Long-Lived Assets:
  Foreign Currency Translation:
  F-14




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##### Table of Contents



ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)  (In thousands, except per share data)
  Fair Value of Financial Instruments:
  Concentrations of Credit Risk:
   Use of Managements Estimates:
  Reclassifications:
  F-15




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##### Table of Contents



ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)  (In thousands, except per share data)
 Recent Accounting Pronouncements:
 Fair Value Measurements
 The Fair Value for Financial Assets and
Financial Liabilities
 Noncontrolling Interests in Consolidated
Financial Statementsan amendment of ARB No. 51
 Business Combinations
 F-16




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##### Table of Contents



ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)  (In thousands, except per share data)
  Share-Based Payment
 Disclosures about Derivative Instruments and
Hedging Activities  an amendment of FASB Statement No. 133 , Accounting for Derivative
Instruments and Hedging Activities,
 Determining the
Fair Value of a Financial Asset in a Market That Is Not Active.
 3. Business Combinations and Dispositions:
 Combinations:
  F-17




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##### Table of Contents



ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)  (In thousands, except per share data)
   Dispositions:
  F-18




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##### Table of Contents



ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)  (In thousands, except per share data)
  Year Ended September 30,2007
    
    
    2006Revenues:Net respiratory, medical equipment and supplies
    
    $
    28,699
    
    
    $
    14,402Cost of revenues:Respiratory, medical equipment and supplies
    
    
    13,024
    
    
    
    10,521Impairment of respiratory, medical equipment and
supplies
    
    
    
    
    
    
    5,932
    (c)Total cost of revenues
    
    
    13,024
    
    
    
    16,453Gross Profit
    
    
    15,675
    
    
    
    (2,051
    )Selling, general and administrative expenses
    
    
    6,091
    
    
    
    4,449Impairment of goodwill
    
    
    
    
    
    
    11,897
    (d)Impairment of long-lived assets
    
    
    
    
    
    
    257
    (c)Operating income (loss) from discontinued operations
    
    
    9,584
    
    
    
    (18,654
    )Interest income
    
    
    2
    
    
    
    2Interest expense
    
    
    (1,570
    )
    
    
    (1,410
    )Income (loss) from discontinued operations before
income tax
    
    
    8,016
    
    
    
    (20,062
    )Gain on disposal of subsidiaries, net of tax
    
    
    56,471
    (a)
    
    
    Provision for (benefit from) income taxes
    
    
    1,750
    (b)
    
    
    (2,444
    )Income (loss) from discontinued operations
    
    $
    62,737
    
    
    $
    (17,618
    )
 
 (a)
    
    Under the provisions of FAS No. 52, Foreign Currency Translation, translation adjustments
that result when a foreign entitys financial statements are translated into a parent companys or
an investors reporting currency are separately reported in the parent companys other
comprehensive income. Foreign currency translation adjustments that are accumulated in other
comprehensive income are reclassified to income only when they are realized, if the investment in
the foreign entity is sold or is substantially or completed liquidated. Accordingly, the foreign
currency translation adjustments of the balance sheet related to the respiratory therapy segment in
the amount of approximately $1,564 were reclassified into the gain on disposal of subsidiaries.(b)
    
    Included in the provision for income taxes for the year end September 30, 2007, is the
reversal of $690 of certain tax contingencies, related to the Companys fiscal 2003 discontinued
operations on the sale of two of its U.S. subsidiaries as the statute of limitation has expired. F-19




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##### Table of Contents



ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)  (In thousands, except per share data)
 (c)
    
    In the fourth quarter of fiscal 2006, the Company recognized pre-tax charges of $5,381,
$551 and $257 for the write-off of revenue producing equipment (oxygen cylinders),
oxygen filling station and software costs, respectively. Due to the award of the new oxygen
contracts (see below), the Company had made significant capital expenditures, amounting to $14,738,
in order to fulfill its obligation under the new contracts. The Company had substituted a number
of cylinders with oxygen concentrators. As such, the Company believed that these oxygen cylinders
had become obsolete and had no further use to the Company. The Company also invested in an oxygen
filling station whereby its cylinders would be re-filled. Due to the location of the plant and
strict noise pollution governmental rules, the Company did not believe it would be able to utilize
such plant. The Company also wrote-off various software costs related to transitioning to its new
oxygen contracts that it believed had no future benefit.(d)
    
    During the fourth quarter of fiscal 2006, the Company completed its annual impairment
test required under FAS No. 142 and determined there was an impairment to its recorded goodwill
balance by using a combination of market multiple, comparable transaction and discounted cash flow
methods. Based on a combination of factors, contributing to the impairment loss were the decrease
in profits in the Companys respiratory therapy segment due to the transitioning from the old
pharmacy based contracts to the new supply of oxygen direct to patients contracts that have lower
margins (see below), the Companys market capitalization at time of review as well as the current
and projected operating results. As such, the Company recognized a pre-tax impairment charge of
$11,897.  F-20




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##### Table of Contents



ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)  (In thousands, except per share data)
   F-21




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##### Table of Contents



ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)  (In thousands, except per share data)
  Year Ended September 30, 2007Pro Forma
    
    
    ConsolidatedConsolidated
    
    
    Adjustments
    
    
    Pro FormaNet revenues
    
    $
    277,795
    
    
    $
    
    
    
    $
    277,795Cost of revenues
    
    
    193,839
    
    
    
    
    
    
    
    193,839Gross profit
    
    
    83,956
    
    
    
    
    
    
    
    83,956Selling, general and administrative expenses
    
    
    75,284
    
    
    
    
    
    
    
    75,284Operating income
    
    
    8,672
    
    
    
    
    
    
    
    8,672Interest (expense) income, net
    
    
    (3,273
    )
    
    
    (3,188
    ) (a)
    
    
    (85
    )Foreign exchange gain
    
    
    285
    
    
    
    
    
    
    
    285Income before income taxes and discontinued operations
    
    
    5,684
    
    
    
    (3,188
    )
    
    
    8,872Provision for income taxes
    
    
    2,068
    
    
    
    (956
    ) (b)
    
    
    3,024Income from continuing operations
    
    
    3,616
    
    
    
    (2,232
    )
    
    
    5,848Income from discontinued operations, net of taxes
    
    
    6,266
    
    
    
    (1,099
    ) (a)
    
    
    7,365Gain on disposal of subsidiaries, net of taxes
    
    
    56,471
    
    
    
    
    
    
    
    56,47162,737
    
    
    
    (1,099
    )
    
    
    63,836Net income
    
    $
    66,353
    
    
    $
    (3,331
    )
    
    $
    69,684Basic income per share of common stock from:Income from continuing operations
    
    $
    0.08
    
    
    
    
    
    
    $
    0.13Income from discontinued operations
    
    
    1.40
    
    
    
    
    
    
    
    1.42Net income
    
    $
    1.48
    
    
    
    
    
    
    $
    1.55Diluted income per share of common stock from:Income from continuing operations
    
    $
    0.08
    
    
    
    
    
    
    $
    0.13Income from discontinued operations
    
    
    1.39
    
    
    
    
    
    
    
    1.41Net income
    
    $
    1.47
    
    
    
    
    
    
    $
    1.54Weighted average number of common shares outstanding:Basic
    
    
    44,962
    
    
    
    
    
    
    
    44,962Diluted
    
    
    45,147
    
    
    
    
    
    
    
    45,147
 
 (a)
    
    To record interest savings on pay down of senior credit facility from the proceeds from
the sale of the respiratory therapy segment.(b)
    
    To record tax expense attributable to pro forma adjustments at the UK statutory rate of
30%. F-22




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##### Table of Contents



ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)  (In thousands, except per share data)
 September 30, 2007Pro Forma
    
    
    ConsolidatedConsolidated
    
    
    Adjustments
    
    
    Pro FormaASSETSCurrent assets:Cash and cash equivalents
    
    $
    20,241
    
    
    $
    (462
    ) (a&c)
    
    $
    19,779Accounts receivable, less allowance for doubtful accounts
    
    
    21,490
    
    
    
    
    
    
    
    21,490Unbilled accounts receivable
    
    
    14,375
    
    
    
    
    
    
    
    14,375Restricted cash
    
    
    55,819
    
    
    
    (54,795
    ) (a)
    
    
    1,024Deferred income taxes
    
    
    182
    
    
    
    192
    (b)
    
    
    374Assets of discontinued operations
    
    
    205
    
    
    
    
    
    
    
    205Derivative asset
    
    
    640
    
    
    
    (640
    ) (b)
    
    
    Prepaid expenses and other assets
    
    
    1,448
    
    
    
    
    
    
    
    1,448Total current assets
    
    
    114,400
    
    
    
    (55,705
    )
    
    
    58,695Property and equipment, net
    
    
    9,767
    
    
    
    
    
    
    
    9,767Goodwill
    
    
    122,843
    
    
    
    
    
    
    
    122,843Other intangible assets, net
    
    
    5,465
    
    
    
    
    
    
    
    5,465Deferred income taxes
    
    
    304
    
    
    
    
    
    
    
    304Total assets
    
    $
    252,779
    
    
    $
    (55,705
    )
    
    $
    197,074LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    54,795
    
    
    $
    (54,795
    ) (a)
    
    $
    Accounts payable
    
    
    3,950
    
    
    
    
    
    
    
    3,950Accrued expenses
    
    
    30,614
    
    
    
    (1,102
    ) (c)
    
    
    29,512Liabilities of discontinued operations
    
    
    1,286
    
    
    
    
    
    
    
    1,286Taxes payable
    
    
    3,375
    
    
    
    192
    (b)
    
    
    3,567Total liabilities
    
    
    94,020
    
    
    
    (55,705
    )
    
    
    38,315Stockholders equity:Preferred stock, $.01 par value; authorized
10,000 shares, issued and outstanding  noneCommon stock, $.01 par value; authorized
80,000 shares, issued 45,571
    
    
    456
    
    
    
    
    
    
    
    456Additional paid-in capital
    
    
    240,206
    
    
    
    
    
    
    
    240,206Accumulated other comprehensive income
    
    
    18,018
    
    
    
    
    
    
    
    18,018Retained deficit
    
    
    (97,627
    )
    
    
    
    
    
    
    (97,627
    )161,053
    
    
    
    
    
    
    
    161,053Less cost of treasury stock (585 shares)
    
    
    (2,294
    )
    
    
    
    
    
    
    (2,294
    )Total stockholders equity
    
    
    158,759
    
    
    
    
    
    
    
    158,759Total liabilities and stockholders equity
    
    $
    252,779
    
    
    $
    (55,705
    )
    
    $
    197,074
 F-23




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##### Table of Contents



ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)  (In thousands, except per share data)
 
 (a)
    
    To record use of cash proceeds from the sale of the respiratory segment to pay down the
senior credit facility.(b)
    
    To record sale of interest rate swaps and tax impact as related debt was paid down.(c)
    
    To record payment of accrued interest costs and costs associated with prepayment of
the senior credit facility. 4. Property and Equipment:
  2008
    
    
    2007Furniture, fixtures and equipment (including software)
    
    $
    26,639
    
    
    $
    27,656Leasehold improvements
    
    
    1,332
    
    
    
    1,28427,971
    
    
    
    28,940Less, accumulated depreciation and amortization
    
    
    19,397
    
    
    
    19,173$
    8,574
    
    
    $
    9,767
   F-24




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##### Table of Contents



ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)  (In thousands, except per share data)
 5. Accrued Expenses:
  2008
    
    
    2007Payroll and related expenses
    
    $
    19,370
    
    
    $
    20,153Acquisitions payable (on
earned contingent
consideration)
    
    
    1,702
    (A)
    
    
    1,917
    (A)Professional fees
    
    
    1,327
    
    
    
    2,655Interest payable
    
    
    390
    
    
    
    1,102Refunds payable
    
    
    1,648
    
    
    
    853Other
    
    
    3,807
    
    
    
    3,934$
    28,244
    
    
    $
    30,614
 
 (A)
    
    At September 30, 2008 and 2007 amounts include $842 and $1,179, respectively,
which are currently under negotiation with the owners of the previously acquired entity.  6. Debt:
    
    
    an £18,000 ($36,859) term loan A that would have matured in July 2009;
    
    a £12,500 ($25,596) revolving loan B1 that would have matured in July 2009 and
could have been drawn upon until June 2009;
    
    a £7,500 ($15,358) invoice discounting facility B2 that may be drawn upon until
June 2009 and that matures in July 2009; and
    
    an £8,000 ($16,381) revolving loan C that would have matured in July 2009 and
could have been drawn upon until June 2009.
 F-25




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##### Table of Contents



ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)  (In thousands, except per share data)
    
    
    the Company can borrow on 85% of its approved flexible staffing accounts
receivable, which excludes accounts receivable greater than 120 days, credit
balances and reserves;
    
    no one debtor can exceed 10% of the outstanding approved accounts receivable;
and
    
    accounts receivable relating to private individuals are not fundable.
   
    
    incurring liens and granting security interests in the assets of certain of the
Companys U.K. subsidiaries;
    
    incurring additional indebtedness;
 F-26




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##### Table of Contents



ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)  (In thousands, except per share data)
 
    
    making certain fundamental corporate changes;
    
    paying dividends (including the payment of dividends to the Company by its
subsidiaries);
    
    making specified investments, acquisitions or disposals;
    
    repurchasing shares; and
    
    entering into certain transactions with affiliates.
 Guarantees.
 Financial Instruments. Accounting for Certain Derivative Instruments and Certain
Hedging Activities,
 7. Shareholders Equity:
  F-27




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##### Table of Contents



ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)  (In thousands, except per share data)
 8. Income Taxes:
  2008
    
    
    2007
    
    
    2006Current:Federal
    
    $
    8
    
    
    $
    10
    
    
    $
    (2
    )Foreign
    
    
    3,655
    
    
    
    1,273
    
    
    
    2,697Deferred:Foreign
    
    
    88
    
    
    
    785
    
    
    
    (4,582
    )Provision for (benefit from) income taxes
    
    $
    3,751
    
    
    $
    2,068
    
    
    $
    (1,887
    )
  2008
    
    
    2007Deferred tax assets:Accrued expenses
    
    $
    690
    
    
    $
    978Federal net operating loss carryforward
    
    
    25,380
    
    
    
    25,630State net operating loss carryforward
    
    
    8,838
    
    
    
    8,922Provision for doubtful accounts
    
    
    150
    
    
    
    316Depreciation
    
    
    854
    
    
    
    1,182Intangible assets
    
    
    
    
    
    
    48Stock Options
    
    
    563
    
    
    
    478Other, net
    
    
    29
    
    
    
    10Gross deferred tax assets
    
    
    36,504
    
    
    
    37,564Valuation allowance
    
    
    (34,826
    )
    
    
    (35,609
    )Net deferred tax assets
    
    
    1,678
    
    
    
    1,955Deferred tax liabilities:Intangible assets
    
    
    (1,132
    )
    
    
    (1,072
    )Other, net
    
    
    
    
    
    
    (192
    )Deferred tax liabilities
    
    
    (1,132
    )
    
    
    (1,264
    )Net deferred tax asset
    
    $
    546
    
    
    $
    691Classification of Deferred Taxes:Current Deferred Tax Asset
    
    $
    474
    
    
    $
    182Current Deferred Tax Asset (included in Assets
of discontinued operations)
    
    
    182
    
    
    
    205Non Current Deferred Tax Asset
    
    
    
    
    
    
    304Long-Term Deferred Tax Liabilities
    
    
    (110
    )
    
    
    Net deferred tax asset
    
    $
    546
    
    
    $
    691
 F-28




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##### Table of Contents



ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)  (In thousands, except per share data)
   :
 2008
    
    
    2007
    
    
    2006Income taxes at 34%
    
    $
    4,263
    
    
    $
    1,933
    
    
    $
    (36,734
    )Nondeductible goodwill impairment
    
    
    
    
    
    
    
    
    
    
    31,163Valuation allowance
    
    
    (783
    )
    
    
    46
    
    
    
    (324
    )Foreign tax, net
    
    
    (592
    )
    
    
    (245
    )
    
    
    4,344Enacted U.K. rate change
    
    
    (78
    )
    
    
    148
    
    
    
    Expiration of warrants unexercised
    
    
    391
    
    
    
    
    
    
    
    Other, net
    
    
    550
    
    
    
    186
    
    
    
    (336
    )Provision (benefit) for income taxes
    
    $
    3,751
    
    
    $
    2,068
    
    
    $
    (1,887
    )
    F-29




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##### Table of Contents



ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)  (In thousands, except per share data)
      9. Stock Options and Warrants:
 Stock Options:
  F-30




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##### Table of Contents



ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)  (In thousands, except per share data)
   2008
    
    2007
    
    2006Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    WeightedNumber
    
    Average
    
    Number
    
    Average
    
    Number
    
    AverageOf Stock
    
    Exercise
    
    of Stock
    
    Exercise
    
    of Stock
    
    ExerciseOptions
    
    Price ($)
    
    Options
    
    Price ($)
    
    Options
    
    Price ($)Outstanding beginning of year
    
    
    2,977
    
    
    
    3.64
    
    
    
    2,633
    
    
    
    4.99
    
    
    
    2,610
    
    
    
    5.49Granted
    
    
    1,280
    
    
    
    2.01
    
    
    
    1,440
    
    
    
    2.03
    
    
    
    465
    
    
    
    2.18Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (101
    )
    
    
    4.04Forfeited or expired
    
    
    (1,681
    )
    
    
    4.55
    
    
    
    (1,096
    )
    
    
    4.75
    
    
    
    (341
    )
    
    
    5.28Outstanding end of year
    
    
    2,576
    
    
    
    2.24
    
    
    
    2,977
    
    
    
    3.64
    
    
    
    2,633
    
    
    
    4.99
  Weighted-
    
    Weighted-Range
    
    
    
    
    
    Average
    
    AverageOf
    
    
    
    
    
    Exercise Price
    
    Remaining
    
    AggregateExercise
    
    Number
    
    of Options
    
    Contractual
    
    IntrinsicPrice ($)
    
    Outstanding
    
    Outstanding ($)
    
    Life in Years
    
    Value ($)1.72  2.71
    
    
    2,410
    
    
    
    2.02
    
    
    
    7.0
    
    
    
    543.83  4.70
    
    
    51
    
    
    
    4.35
    
    
    
    3.6
    
    
    
    5.41  6.20
    
    
    115
    
    
    
    5.98
    
    
    
    6.4
    
    
    
    Options outstanding
    
    
    2,576
    
    
    
    2.24
    
    
    
    6.9
    
    
    
    54Options vested and expect to vest
    
    
    2,469
    
    
    
    2.25
    
    
    
    6.8
    
    
    
    54
 F-31




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##### Table of Contents



ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)  (In thousands, except per share data)
 Weighted-
    
    Weighted-Range
    
    
    
    
    
    Average
    
    AverageOf
    
    
    
    
    
    Exercise Price
    
    Remaining
    
    AggregateExercise
    
    Number
    
    of Options
    
    Contractual
    
    IntrinsicPrice ($)
    
    Exercisable
    
    Exercisable ($)
    
    Life in Years
    
    Value ($)1.72  2.71
    
    
    1,115
    
    
    
    2.00
    
    
    
    4.2
    
    
    
    543.83  4.70
    
    
    51
    
    
    
    4.35
    
    
    
    3.6
    
    
    
    5.41  6.20
    
    
    115
    
    
    
    5.98
    
    
    
    6.4
    
    
    
    Options exercisable
    
    
    1,281
    
    
    
    2.45
    
    
    
    4.4
    
    
    
    54
   2008
    
    2007
    
    2006Expected life (years)
    
    
    5.8
    
    
    
    6
    
    
    
    6Risk-free interest rate
    
    
    3.1
    %
    
    
    4.7
    %
    
    
    4.7
    %Volatility
    
    
    49.3
    %
    
    
    54.1
    %
    
    
    66.0
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
  F-32




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##### Table of Contents



ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)  (In thousands, except per share data)
  Weighted-AverageStock
    
    Grant-DateNonvested Stock Options
    
    Options
    
    Fair Value ($)Nonvested at October 1, 2007
    
    
    877
    
    
    
    1.34Granted
    
    
    1,280
    
    
    
    1.00Vested
    
    
    (634
    )
    
    
    1.26Forfeited
    
    
    (228
    )
    
    
    1.31Nonvested at September 30, 2008
    
    
    1,295
    
    
    
    1.04
  Weighted-AverageRemainingContractual
    
    AggregateTime and Performance Based
    
    Stock
    
    Weighted-Average
    
    Life
    
    IntrinsicStock Options
    
    Options
    
    Exercise Price ($)
    
    In Years
    
    Value ($)Outstanding at October 1, 2007
    
    
    510
    
    
    
    2.03Granted
    
    
    430
    
    
    
    2.01Forfeited
    
    
    (180
    )
    
    
    2.20Outstanding at September 30, 2008
    
    
    760
    
    
    
    1.98
    
    
    
    7.9
    
    
    
    Vested and expected to vest at
September 30, 2008
    
    
    653
    
    
    
    1.97
    
    
    
    7.6
    
    
    
    Exercisable at September 30, 2008
    
    
    215
    
    
    
    1.95
    
    
    
    4.4
    
    
    
    
 F-33




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##### Table of Contents



ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)  (In thousands, except per share data)
  Weighted  AverageStock
    
    Grant-DateTime and Performance Based Stock Options
    
    Options
    
    Fair Value ($)Nonvested at October 1, 2007
    
    
    510
    
    
    
    1.16Granted
    
    
    430
    
    
    
    1.02Vested
    
    
    (255
    )
    
    
    1.07Forfeited
    
    
    (140
    )
    
    
    1.25Nonvested at September 30, 2008
    
    
    545
    
    
    
    1.07
   Warrants:
  F-34




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##### Table of Contents



ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)  (In thousands, except per share data)
    10. Commitments and Contingencies:
 Guarantees:
  Employment Agreements:
   F-35




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##### Table of Contents



ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)  (In thousands, except per share data)
 th
 
    
    the Company issued Mr. Young 200 stock options in February 2008;
    
    the Company will grant Mr. Young an individual long term incentive award (the LTI
Award), the potential maximum value of which (when aggregated with the actual or, if
still unexercised, expected value of the 200 stock options) will be £3.0 million
(approximately $5.5 million) by January 14, 2012. The LTI Award may be settled in
shares of the Companys common stock or in cash, or a combination of the two, at the
discretion of our Board of Directors;
    
    the Company will provide Mr. Young with a car allowance; and
    
    the Company has agreed to make a payment equal to 15% of Mr. Youngs annual salary
towards his U.K.-based private pension fund.
    F-36




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##### Table of Contents



ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)  (In thousands, except per share data)
    F-37




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##### Table of Contents



ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)  (In thousands, except per share data)
 Operating Leases:
   2009
    
    $
    2,6092010
    
    
    1,9092011
    
    
    1,1252012
    
    
    6662013
    
    
    266Thereafter
    
    
    31$
    6,606
  Contingencies:
    F-38




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##### Table of Contents



ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)  (In thousands, except per share data)
 11. Profit Sharing Plan:
   12. Selected Quarterly Financial Data (Unaudited):
  2008 Quarter Ended
    
    December 31,
    
    
    March 31,
    
    
    June 30,
    
    
    September 30,Total revenues
    
    $
    74,770
    
    
    $
    73,815
    
    
    $
    75,024
    
    
    $
    74,968Gross profit
    
    $
    22,423
    
    
    $
    21,931
    
    
    $
    23,120
    
    
    $
    22,911Net income
    
    $
    1,678
    
    
    $
    1,764
    
    
    $
    2,453
    
    
    $
    2,891Basic and diluted
income per share of
common stock from
continuing
operations
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    0.05
    
    
    $
    0.06
 F-39




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##### Table of Contents



ALLIED HEALTHCARE INTERNATIONAL INC.
Notes to Consolidated Financial Statements (Continued)  (In thousands, except per share data)
 2007 Quarter Ended
    
    December 31,
    
    
    March 31,
    
    
    June 30,
    
    
    September 30,Total revenues
    
    $
    66,854
    
    
    $
    67,210
    
    
    $
    70,503
    
    
    $
    73,228Gross profit
    
    $
    20,099
    
    
    $
    19,921
    
    
    $
    21,240
    
    
    $
    22,696Net income
(loss) from continuing operations
    
    $
    1,382
    
    
    $
    1,087
    
    
    $
    (303
    ) (a)
    
    $
    1,450Discontinued Operations
    
    $
    529
    
    
    $
    920
    
    
    $
    1,418
    
    
    $
    3,399Gain on disposal of subsidiaries
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    56,471Net income
    
    $
    1,911
    
    
    $
    2,007
    
    
    $
    1,115
    
    
    $
    61,320Basic and diluted income (loss)
per share of common stock from:Continuing operations
    
    $
    0.03
    
    
    $
    0.02
    
    
    $
    (0.01
    )
    
    $
    0.03Discontinued operations
    
    
    0.01
    
    
    
    0.02
    
    
    
    0.03
    
    
    
    1.33Net income
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    0.02
    
    
    $
    1.36
 
 (a)
    
    Includes $922 severance costs and related professional fees incurred upon the
resignation of the Chairman and Chief Executive Officer and $435 charge related to the
issuance of new warrants and the extension of the expiation date on previously-issued
warrants. F-40




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##### Table of Contents



ALLIED HEALTHCARE INTERNATIONAL INC.
(PARENT COMPANY ONLY)
SCHEDULE I  CONDENSED FINANCIAL INFORMATION
BALANCE SHEETS  (In thousands, except per share data)
 September 30,
    
    
    September 30,2008
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    36
    
    
    $
    8Prepaid expenses and other assets
    
    
    69
    
    
    
    108Total current assets
    
    
    105
    
    
    
    116Property and equipment, net
    
    
    
    
    
    
    1Investment in and advances to subsidiaries
    
    
    150,757
    
    
    
    158,072Goodwill
    
    
    2,300
    
    
    
    2,300Total assets
    
    $
    153,162
    
    
    $
    160,489LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    71
    
    
    $
    405Accrued expenses
    
    
    421
    
    
    
    1,315Taxes payable
    
    
    
    
    
    
    10Total liabilities
    
    
    492
    
    
    
    1,730Commitments and contingenciesShareholders equity:Preferred stock, $.01 par value; authorized
10,000 shares,
issued and outstanding   none
    
    
    
    
    
    
    Common stock, $.01 par value; authorized 80,000
shares,
issued 45,571 and 45,571 shares, respectively
    
    
    456
    
    
    
    456Additional paid-in capital
    
    
    241,018
    
    
    
    240,206Accumulated other comprehensive income
    
    
    1,819
    
    
    
    18,018Accumulated deficit
    
    
    (88,329
    )
    
    
    (97,627
    )154,964
    
    
    
    161,053Less cost of treasury stock (585 shares)
    
    
    (2,294
    )
    
    
    (2,294
    )Total shareholders equity
    
    
    152,670
    
    
    
    158,759Total liabilities and shareholders equity
    
    $
    153,162
    
    
    $
    160,489
  S-1




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##### Table of Contents



ALLIED HEALTHCARE INTERNATIONAL INC.
(PARENT COMPANY ONLY)
SCHEDULE I  CONDENSED FINANCIAL INFORMATION
STATEMENTS OF OPERATIONS  (In thousands)
 Year Ended
    
    
    Year Ended
    
    
    Year EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2006Revenue
    
    $
    
    
    
    $
    
    
    
    $
    Expenses:Selling, general and administrative expenses
    
    
    2,399
    
    
    
    4,257
    
    
    
    3,230Total expenses
    
    
    2,399
    
    
    
    4,257
    
    
    
    3,230Equity in income (loss) of subsidiaries
    
    
    7,478
    
    
    
    4,053
    
    
    
    (106,715
    )Interest income
    
    
    3,762
    
    
    
    3,765
    
    
    
    3,795Other (expense) income
    
    
    (47
    )
    
    
    65
    
    
    
    (5
    )Income (loss) before income taxes and discontinued
operations
    
    
    8,794
    
    
    
    3,626
    
    
    
    (106,155
    )Provision for (benefit from) income taxes
    
    
    8
    
    
    
    10
    
    
    
    (2
    )Income (loss) before discontinued operations
    
    
    8,786
    
    
    
    3,616
    
    
    
    (106,153
    )Discontinued operations:Income (loss) from discontinued operations, net of taxes
    
    
    
    
    
    
    6,266
    
    
    
    (17,618
    )Gain on disposal of subsidiaries, net of taxes
    
    
    
    
    
    
    56,471
    
    
    
    
    
    
    
    62,737
    
    
    
    (17,618
    )Net income (loss)
    
    $
    8,786
    
    
    $
    66,353
    
    
    $
    (123,771
    )
  S-2




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##### Table of Contents



SCHEDULE I
 ALLIED HEALTHCARE INTERNATIONAL INC.
(PARENT COMPANY ONLY)
SCHEDULE I  CONDENSED FINANCIAL INFORMATION
STATEMENTS OF CASH FLOWS  (In thousands)
 Year Ended
    
    
    Year Ended
    
    
    Year EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2006Cash flows from operating activities:Net income (loss)
    
    $
    8,786
    
    
    $
    66,353
    
    
    $
    (123,771
    )Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:(Income) loss from discontinued operations
    
    
    
    
    
    
    (6,266
    )
    
    
    17,618Gain on disposal of subsidiaries
    
    
    
    
    
    
    (56,471
    )
    
    
    Equity interest in net (income) loss of subsidiaries
    
    
    (7,478
    )
    
    
    (4,053
    )
    
    
    106,715Depreciation and amortization
    
    
    1
    
    
    
    3
    
    
    
    5Issuance and amortization of warrants
    
    
    
    
    
    
    499
    
    
    
    Stock based compensation
    
    
    812
    
    
    
    764
    
    
    
    736Forgiveness of intercompany debt
    
    
    
    
    
    
    (125
    )
    
    
    Changes in operating assets and liabilities, excluding
the effect of businesses acquired and sold:Increase in receivables from subsidiaries
    
    
    (895
    )
    
    
    (1,852
    )
    
    
    (1,269
    )Decrease (increase) in prepaid expenses and other
assets
    
    
    39
    
    
    
    120
    
    
    
    (111
    )(Decrease) increase in accounts payable and other
liabilities
    
    
    (1,237
    )
    
    
    1,018
    
    
    
    (660
    )Net cash provided by (used in) operating activities
    
    
    28
    
    
    
    (10
    )
    
    
    (737
    )Cash flows from financing activities:Stock options exercised
    
    
    
    
    
    
    
    
    
    
    411Net cash provided by financing activities
    
    
    
    
    
    
    
    
    
    
    411Effect of exchange rate on cash
    
    
    
    
    
    
    
    
    
    
    Increase (decrease) in cash
    
    
    28
    
    
    
    (10
    )
    
    
    (326
    )Cash and cash equivalents, beginning of period
    
    
    8
    
    
    
    18
    
    
    
    344Cash and cash equivalents, end of period
    
    $
    36
    
    
    $
    8
    
    
    $
    18
  S-3




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##### Table of Contents



ALLIED HEALTHCARE INTERNATIONAL INC.
(PARENT COMPANY ONLY)
SCHEDULE I  CONDENSED FINANCIAL INFORMATION
NOTE TO CONDENSED FINANCIAL INFORMATION
 Basis of Presentation:
   S-4




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##### Table of Contents



ALLIED HEALTHCARE INTERNATIONAL INC.  (In thousands)
 SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS
 Column B
    
    Column C
    
    
    
    
    
    Column EBalance at
    
    Additions Charged to
    
    
    
    
    
    Balance atColumn A
    
    Beginning
    
    Cost and
    
    Other
    
    Column D
    
    End ofDescription
    
    of Period
    
    Expenses
    
    Accounts
    
    Deductions
    
    PeriodAllowance for Doubtful
Accounts:Year ended
September 30, 2008
    
    $
    1,570
    
    
    $
    (167
    )
    
    $
    (163
    )(B)
    
    $
    417
    (A)
    
    $
    823Year ended
September 30, 2007
    
    $
    1,703
    
    
    $
    222
    
    
    $
    168
    (B)
    
    $
    523
    (A)
    
    $
    1,570Year ended
September 30, 2006
    
    $
    1,726
    
    
    $
    428
    
    
    $
    125
    (B)
    
    $
    576
    (A)
    
    $
    1,703
 
 (A)
    
    Doubtful accounts written off, net of recoveries.(B)
    
    Adjustments arising from translation of foreign financial statements to U.S. dollars. S-5