regulatory bodies for independent healthcare services and social care in England, including suppliers of nurses, called the Commission for Social Care and Inspection and the Commission for Healthcare Audit and Inspection, the former of which enforces registration of care agencies and establishments. The Care Standards Act 2000 also appointed a similar registration authority for Wales, the National Assembly for Wales. The Care Standards Act 2000 also made provision for a new General Social Care Council in England and a new Care Council for Wales to be established as non-departmental statutory bodies responsible to the Department of Health and National Assembly of Wales, respectively, with the aim of increasing the protection of service users, their home health aides and the general public. The Regulation of Care (Scotland) Act 2001 also introduced legislation relating to this area in Scotland and appointed the registration authority for Scotland, the Scottish Commission for the Regulation of Care.

The Care Standards Act 2000 is essentially an enabling act that provides for regulations to be made by secondary legislation. Regulations relating to registration are already in force (the National Care Standards Commission (Registration) Regulations 2001). The Care Standards Act 2000 also provided that regulations can be made imposing any requirements which the appropriate Minister thinks fit for the purposes of the Care Standards Act 2000 relating to establishments and agencies. Specific regulations set out in the Care Standards Act 2000 that may be introduced include provisions relating to the services to be provided by suppliers of healthcare staff, the keeping of accounts, the keeping of records and documents and arrangements to be made for dealing with complaints made by those seeking or receiving any of the services provided by the suppliers of healthcare staff. The recent regulations (including the Nurses Agency Regulations 2002 and the Domiciliary Care Agencies Regulations 2002) include provisions in these areas.

Contracts between suppliers of healthcare staff and NHS hospitals for the provision of services, as well as the performance by the parties of their obligations thereunder, will be reviewed by a new commission, called the Commission for Healthcare Audit and Inspection. We are accredited by various U.K. social services agencies for the supply of home health aides within their jurisdiction. The U.K. Medicines and Healthcare Products Regulatory Agency has granted licenses to us for the production and distribution of medical-grade oxygen to pharmacies throughout the United Kingdom.

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

Healthcare Reform

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

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

Care Standards Act and the Health and Social Care (Community Health and Standards) Act 2003.   Under the Health and Social Care (Community Health and Standards) Act 2003 and applicable regulations, providers of flexible healthcare staff have to register with the Commission for Social Care Inspection and must comply with the rules relating to management and staffing, fitness of premises and the conduct of specified services.

Changes in U.K. VAT rules.   We currently act as an agent in supplying healthcare staff, which, under U.K. law, requires us to charge VAT only on the amount of commission charged to the

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purchaser of flexible staff. The 2003 Regulations, insofar as they relate to VAT, came into effect in the United Kingdom on April 6, 2004 and could place an increased VAT burden on our company. The 2003 Regulations require employment agencies, including those supplying flexible healthcare staff, to enter into contractual relationships with the workers that they supply. Consequently, for VAT purposes, the flexible staff provider acts as principal, rather than agent. For non-medical staff, VAT is due on the total amount of the charges made by the flexible staff provider, including salary costs, rather than merely on its commission. This change may adversely affect our cash flow if we have to pay the increased VAT liability to the government before our customers have paid their fees to us. The law results in the provision of medical staff such as nurses being exempt from VAT. Pursuant to such exemption, we will be limited in the amount of VAT paid by us when we purchase goods and services that we can use to offset the VAT that we owe the government. There is a transition period of at least 18 months, which runs from April 6, 2004, during which businesses will be permitted to continue to act as "agent" in a VAT sense and therefore account for VAT under the existing rules.

NHS Initiatives

Flexible staffing providers, such as our company, are subject to the risk that the NHS will seek to regulate the price it pays for temporary staff, reduce its use of temporary staff or replace its use of temporary staff where possible with permanent employees.

In recent years, the NHS has divided England into eight regions. The NHS has required any healthcare staffing company that provides temporary staff to the NHS hospitals in a region to enter into a Framework Agreement setting forth, among other things, applicable quality standards and maximum payment rates. Only those staffing companies that have met the quality standards set by the NHS and executed a Framework Agreement applicable to a particular region of the country can provide temporary staff to NHS hospitals in that region. We have entered into one or more Framework Agreements in each region of England. While the full impact of the Framework Agreements remains to be seen, it is possible that a long-term effect will be to reduce the cost of commissions paid to healthcare staffing companies and/or to reduce the number of healthcare staffing companies supplying staff to the NHS.

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

If the NHS were to significantly reduce its use of our services (by, for example, the greater utilization of NHS Professionals), negotiate lower prices or change its policy on private-sector involvement, it could have a material adverse effect on our business, financial condition and results of operations. However, there is currently a shortage of nurses within the United Kingdom, leading not only to the high use of flexible nurses but also to NHS hospitals seeking to employ nurses from overseas on a permanent and temporary basis.

Insurance

We maintain general liability insurance, professional liability insurance and excess liability coverage that provide coverage in the event that a claim is brought against us alleging negligence, product liability or similar legal theories. Each of these policies provides coverage on an "occurrence" basis and has certain exclusions from coverage. Our insurance policies must be renewed annually.

Item 2.    Properties

We lease 97 facilities in the United Kingdom, of which 29 are for a period of three months or less. We lease our corporate headquarters in the United States. We believe that our existing leases will be renegotiated as they expire or that alternative properties can be leased on acceptable terms. We also believe that our present facilities are well maintained and are suitable for continuing our existing operations. (See "Operating Leases" in Note 13 of Notes to Consolidated Financial Statements for our fiscal year ended September 30, 2004.)

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Item 3.    Legal Proceedings

On April 13, 1998, one of our shareholders, purporting to sue derivatively on our behalf, commenced a derivative suit in the Supreme Court of the State of New York, County of New York, entitled Kevin Mak, derivatively and on behalf of Transworld Healthcare, Inc., Plaintiff, vs. Timothy Aitken, Scott A. Shay, Lewis S. Ranieri, Wayne Palladino and Hyperion Partners II L.P., Defendants, and Transworld Healthcare, Inc., Nominal Defendant, Index No. 98-106401. The suit alleges that certain of our officers and directors, and Hyperion Partners II L.P., breached fiduciary duties owed to us and our shareholders, in connection with a transaction, approved by a vote of our shareholders on March 17, 1998, in which we were to issue certain shares of stock to Hyperion Partners II L.P. in exchange for certain receivables due from Health Management, Inc. The action seeks injunctive relief against this transaction, and damages, costs and attorneys' fees in unspecified amounts. The transaction subsequently closed and the plaintiff has, on numerous occasions, stipulated to extend the defendants' time to respond to this suit.

We are involved in various other legal proceedings and claims incidental to our normal business activities. We are vigorously defending our position in all such proceedings. We believe that these matters, including the derivative suit, should not have a material adverse impact on our consolidated financial position, cash flows, or results of operations.

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

We held our annual meeting of shareholders on September 9, 2004. At the annual meeting, our holders of common stock voted upon the following matters:

(1)    the election of seven directors;

(2)    the approval of an amendment to our certificate of incorporation that increased the numbers of shares of common stock that we are authorized to issue from 62 million shares to 80 million shares; and

(3)    the ratification of Deloitte & Touche LLP as our independent auditors for the fiscal year ended September 30, 2004.

At the annual meeting of shareholders, all seven directors named in our proxy statement were elected and the other proposals were approved by the shareholders.

The voting results with respect to each proposal are set forth below:

Proposal				For				Against				Authority Withheld				Abstentions and Broker Non-Votes
No. 1 (election of directors)
Timothy M. Aitken					34,859,413				—				5,153,135				—
Sarah L. Eames					34,883,140				—				5,139,408				—
G. Richard Green					39,687,509				—				335,039				—
David J. Macfarlane					34,874,040				—				5,148,508				—
Wayne Palladino					34,841,113				—				5,181,435				—
Jeffrey S. Peris					39,687,509				—				335,039				—
Scott A. Shay					34,890,140				—				5,132,468				—
No. 2 (amendment to certificate of incorporation)					39,791,960				190,453				—				40,135
No. 3. (ratification of Deloitte & Touche LLP)					39,941,268				41,900				—				39,380

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PART II

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

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

PERIOD				HIGH				LOW
Year Ended September 30, 2003:
First Quarter				$	5.35			$	4.00
Second Quarter					4.54				3.47
Third Quarter					4.15				3.15
Fourth Quarter					4.45				3.40
Year Ended September 30, 2004:
First Quarter				$	6.46			$	3.88
Second Quarter					10.70				6.15
Third Quarter					9.88				4.41
Fourth Quarter					5.90				4.19
Year Ended September 30, 2005:
First Quarter (through December 10, 2004)				$	5.97			$	4.85

We have neither declared nor paid any dividends on our common stock and do not anticipate paying dividends on our common stock in the foreseeable future. Any future payment of dividends will be at the discretion of our board of directors and will depend upon, among other things, our earnings, financial position, cash flows, capital requirements and other relevant considerations, including the extent of our indebtedness and any contractual restrictions with respect to the payment of dividends.

Under the terms of our new senior credit facility, our U.K. subsidiaries generally are prohibited from paying dividends or making other cash distributions to us. See "Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments."

As of December 10, 2004, there were approximately 195 shareholders of record of our common stock. This number does not include shareholders who hold their shares through one or more intermediaries, such as banks, brokers or depositaries.

Equity Compensation Plan Information

For certain information concerning securities authorized for issuance under our equity compensation plans, see "Item 12—Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters—Equity Compensation Plan Information."

Recent Repurchases of Equity Securities

During the fourth quarter of fiscal 2004, we did not repurchase any of our equity securities.

Item 6.	Selected Financial Data

The following table sets forth our selected consolidated financial information. The financial information for the years ended September 30, 2004, 2003 and 2002 and as of September 30, 2004 and 2003 is derived from audited financial statements that appear elsewhere in this Form 10-K. The financial information for the years ended September 30, 2001 and 2000 and as of September 30, 2002, 2001 and 2000 is derived from audited financial statements that do not appear in this Form 10-K.

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You should read the following information in conjunction with our financial statements and notes thereto and the information set forth under "Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations."

All data in the following table is in thousands, except for per share data.

				Year Ended September 30,
				2004				2003				2002				2001				2000
Financial Data:
Total revenues				$	325,298			$	294,379			$	242,828			$	138,041			$	119,925
Gross profit					93,171				81,323				66,079				42,491				40,654
Selling, general and administrative expenses					63,544				53,648				48,847	(5)			32,514				44,563
Impairment of long-lived assets					—				—				—				—				15,073	(8)
Restructuring charge					—				—				—				—				1,288	(9)
Legal settlements, net					—				—				—				—				5,082	(10)
General and administrative expense related to mail-order operations					—				—				—				3,883				—
Losses due to sale of subsidiary					—				—				—				354				—
Operating income (loss)					29,627				27,675				17,232				5,740				(25,352	)
Interest expense, net					13,727	(4)			11,279				13,472	(6)			8,433				9,014	(6)
Gain on settlement of PIK interest					—				—				(5,143	) (7)			—				—
Foreign exchange loss					184				18				19				400				—
Provision for (benefit from) income taxes(1)					5,847				4,910				4,971				24,117				(7,756	)
Equity in income of and interest income earned from U.K. subsidiaries(2)					—				—				—				—				1,101
Minority interest					—				—				120				22				(70	)
Income (loss) from continuing operations					9,869				11,468				3,793				(27,232	)			(25,439	)
Income from discontinued operations					—				503				1,001				620				495
Net income (loss)					9,869				11,971				4,794				(26,612	)			(24,944	)
Redeemable preferred dividend, conversion fees and accretion(3)					7,020				4,005				1,016				—				—
Net income (loss) available to common stockholders				$	2,849			$	7,966			$	3,778			$	(26,612	)		$	(24,944	)
Basic and diluted income (loss) per share of common stock from:
Income (loss) from continuing operations				$	0.10			$	0.34			$	0.15			$	(1.57	)		$	(1.45	)
Income from discontinued operations					—				0.02				0.05				0.04				0.03
				$	0.10			$	0.36			$	0.20			$	(1.53	)		$	(1.42	)
Weighted average number of common shares outstanding:
Basic					27,419				21,962				18,565				17,408				17,551
Diluted					28,104				22,304				18,932				17,408				17,551

				September 30,
				2004				2003				2002				2001				2000
Balance Sheet Data:
Working capital				$	13,468			$	24,781			$	25,918			$	25,178			$	31,141
Accounts receivable, net					31,263				35,745				32,113				27,888				19,821
Goodwill					206,110				183,703				123,514				105,542				86,470
Total assets					282,394				311,668				268,113				248,073				183,746
Total debt					64,778				165,378				148,530				180,781				93,483
Total shareholders' equity					186,977				75,163				53,943				36,354				63,031

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(1)

Prior to 2001, we had been committed to implementing tax strategies that provided for the sale of appreciated assets, including a portion of our ownership interest in our U.K. subsidiaries, to generate sufficient taxable income to realize our U.S tax net operating losses prior to their expiration. While we believed that we would realize the value of our tax losses, developments in 2001, including the continued expansion of our U.K. operations, had increased the uncertainty as to both the execution of the original strategy and the appropriateness of a tax strategy that may not align with our current business strategy. These uncertainties impaired our ability to determine whether it was more likely than not that our deferred tax assets would be realized. Accordingly, in fiscal 2001, a full valuation allowance for all remaining U.S. deferred tax assets was provided.

(2)

Simultaneously with the execution of our Senior Credit Facility and Mezzanine Loan in December 1999, our subsidiary, Allied Healthcare Group Limited (f/k/a Transworld Holdings (UK) Limited) ("Allied Healthcare (UK)"), issued promissory notes to certain investors. We granted the holders of these promissory notes significant veto and approval rights with respect to the operations of our U.K. subsidiaries and we entered into a voting trust agreement in which we agreed that we would be allowed to nominate only two of the five directors of another subsidiary, Allied Healthcare Holdings Limited (f/k/a Transworld Healthcare (UK) Limited) ("Allied Holdings"), with one director being a designee of the holders of the promissory notes of Allied Healthcare (UK) and two directors being independent. Since holders of the promissory notes issued by Allied Holdings had significant veto and approval rights and since we no longer controlled a majority of the board of directors of Allied Holdings, we were no longer able to consolidate our U.K. subsidiaries into our financial statements even though we owned, directly or indirectly, 100% of the outstanding shares of their stock. Accordingly, we began accounting for the investment in our U.K. subsidiaries under the equity method, retroactive to October 1, 1999. During the second quarter of fiscal 2000, Allied Holdings amended its articles of association to provide that our designee to the board of directors had the right to resolve any tie votes of the board of directors and certain agreements relating to the promissory notes of Allied Healthcare (UK) were amended to limit the veto and approval rights of the holders thereof. These amendments enabled us to consolidate our U.K. subsidiaries as of January 1, 2000.

(3)

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 reorganization (the "Reorganization"). In addition, fiscal 2004 includes conversion fees of $2.0 million paid to the holders of our Series A preferred stock in connection with the Public Offering and write-off of $1.7 million of the remaining issuance costs.

(4)	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 the Recapitalization Plan.

(5)

For the year ended September 30, 2002, we recorded a non-cash charge of $4.2 million for the issuance of shares of common stock to senior management (see "Item 11—Executive Compensation—The Bonus Share Issuance and Related Transactions") and $1.6 million related to the exchange of employees' redeemable shares in our U.K subsidiary for shares of our common stock, using the net exercise method, in the Reorganization. We also recorded a net charge of $0.7 million for the year ended September 30, 2002, which mainly related to the write-off of non-capitalized costs incurred in connection with evaluating options to maximize the value of our ownership interest in our U.K. operations.

(6)	Effective October 1, 2001, we adopted Statement of Financial Accounting Standards No. 145, which addressed gain or loss on the extinguishment of debt and sale-leaseback accounting for certain lease modifications and accordingly recorded a charge of $0.9 million in interest expense for the year ended September 30, 2002. We also reclassified $1.2 million to interest expense that

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	had been recorded as an extraordinary item in fiscal 2000. Both charges relate to the write-off of deferred financing costs associated with the early extinguishment of debt.

(7)	In the Reorganization, accrued and unpaid interest owed to the holders of notes issued by one of our U.K. subsidiaries was satisfied by the issuance of shares of our common stock. We recorded a gain of $5.1 million for the year ended September 30, 2002 in connection with this transaction.

(8)

We recorded a charge for impairment of long-lived assets of $15.1 million in the year ended September 30, 2000. The charge related to the write-down of assets, mainly goodwill, to their fair value of $12.4 million for our U.S. mail-order operations and $2.7 million for Amcare Limited, a distributor of specialty pharmaceutical and medical supplies. We have since divested both our U.S. mail-order operations and Amcare Limited.

(9)	We recorded a $1.3 million restructuring charge related to exiting our U.S. mail-order operations in the year ended September 30, 2000.

(10)	We recorded a net charge of $5.1 million related to legal settlements in the year ended September 30, 2000.

Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations.

General

The following discussion and analysis should be read in conjunction with the consolidated financial statements included in this Annual Report on Form 10-K and in conjunction with the description of our business included in this Annual Report on Form 10-K. It is intended to assist the reader in understanding and evaluating our financial position. This discussion contains, in addition to historical information, forward-looking statements that involve risks and uncertainty. Our actual results could differ materially from the results discussed in the forward-looking statements. Factors that could cause or contribute to such differences include those discussed in this Annual Report on Form 10-K under "Forward-Looking Statements."

We are a leading provider of flexible, or temporary, healthcare staffing to the U.K. healthcare industry as measured by revenues, market share and number of staff. As of September 30, 2004, we operated an integrated network of 125 branches throughout most of the United Kingdom. Our healthcare staff consists principally of nurses, nurses aides and home health aides. We focus on placing our staff on a per diem basis in hospitals, nursing homes, care homes and private homes. We maintain a pool of over 25,000 nurses, nurses aides and home health aides. We also supply medical-grade oxygen for use in respiratory therapy to the U.K. pharmacy market and to private patients in Northern Ireland.

Recent Developments

On July 7, 2004, we consummated the Public Offering and issued 14,500,000 shares of our common stock. Each share was sold to the public at a price of $4.90 per share. We realized approximately $65.7 million in net proceeds from the Public Offering. This amount, together with the initial borrowings available under the new senior credit facility described below, were used (i) to repay amounts advanced to us under the then outstanding Senior Credit Facility and the Mezzanine Loan; (ii) to pay accrued but unpaid dividends on our then outstanding shares of Series A preferred stock; and (iii) to pay a conversion fee to the holders of the Series A preferred stock. Any remaining amounts from the initial borrowings will be used for general corporate purposes and acquisitions.

Prior to the consummation of the Public Offering, we entered into conversion agreements (the "Conversion Agreements") with all of the holders of our Series A preferred stock. Such holders (who collectively owned 7,773,660 of Series A preferred stock) agreed to convert their shares into a like number of shares of common stock upon the consummation of the Public Offering in return for the payment of accrued but unpaid dividends and conversion fees in the aggregate amount of $9.4 million. Pursuant to the Conversion Agreements, on July 7, 2004, all 7,773,660 then outstanding shares of Series A preferred stock were converted into a like number of shares of common stock and we paid an aggregate of $9.4 million for accrued but unpaid dividends and conversion fees.

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On July 19, 2004, our U.K. subsidiary, Allied Healthcare Holdings Limited ("Allied Holdings"), obtained financing denominated in pounds sterling consisting of a £50 million multicurrency new senior credit facility (the "New Senior Credit Facility"). Additionally, subject to the terms of the New Senior Credit Facility, ancillary facilities, in the form of an additional facility or financial accommodation (including interest rate swap, cap, or other arrangement for the hedging or fixing of interest) are available up to a maximum of £15 million.

The New Senior Credit Facility (together with approximately $65.7 million of the net proceeds of the Public Offering) refinanced our existing Senior Credit Facility and the Mezzanine Loan, both of which had been entered into on December 17, 1999. The New Senior Credit Facility is secured by a first priority lien on the assets of another of our subsidiaries, Allied Healthcare Group Limited, and certain of its subsidiaries, as well as our guarantee of the debt and other obligations of certain wholly-owned U.K. subsidiaries under the New Senior Credit Facility.

The New Senior Credit Facility consists of the following:

•	a £30 million term loan A that matures on July 19, 2009; and

•	a £20 million revolving loan B that matures on July 19, 2009.

Repayment of the term loan A commences on January 19, 2005 and continues semi-annually until final maturity. Repayment of revolving loan B shall be on the last day of its interest period. Both the A and B loans bear interest at rates equal to LIBOR (if sterling) or EURIBOR (if euros) plus any bank mandatory costs (if applicable) plus 0.70% to 0.90% per annum (depending on consolidated debt to consolidated profit ratios). As of September 30, 2004, we have outstanding borrowings of $54.0 million and $9.0 million relating to term loan A and revolving loan B, respectively, under the New Senior Credit Facility, that bore interest at a rate of 5.66%.

The New Senior Credit Facility agreement is based on the U.K.'s Loan Markets Association Multicurrency Term and Revolving Facilities agreement, which is a standard form designed to be commercially acceptable to the corporate lending market.

Subject to certain exceptions, the New Senior Credit Facility prohibits or restricts the following, among other things:

•	incurring liens and granting security interests in 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; and

•	entering into certain transactions with affiliates.

The New Senior Credit Facility contains affirmative and negative financial covenants customarily found in agreements of this kind, including the maintenance of certain financial ratios, such as debt to earnings (including amounts provided for depreciation and amortization), earnings (before interest and taxes) to interest expense, minimum net worth, maximum ancillary facilities indebtedness and the prohibition of off balance sheet funding. We are also obligated to ensure that the guarantors of the New Senior Credit Facility must not at any time represent less than 90% of the consolidated gross assets, turnover or earnings before interest and taxes of the U.K. subsidiaries. As of September 30, 2004, we were in compliance with such covenants.

Critical Accounting Policies

Accounts Receivable

We are required to estimate the collectibility of our accounts receivables, which requires a considerable amount of judgment in assessing the ultimate realization of these receivables, including

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the current credit-worthiness of each customer. Significant changes in required reserves may occur in the future as we continue to expand our business and as conditions in the marketplace change.

Intangible Assets

We have significant amounts of goodwill. The determination of whether or not goodwill has become impaired involves a significant amount of judgment. Changes in strategy and/or market conditions could significantly impact these judgments and require adjustments to recorded amounts of goodwill. We have recorded goodwill and separately identifiable intangible assets resulting from our acquisitions through September 30, 2004. Goodwill is tested for impairment annually in the fourth quarter of each fiscal year. A more frequent evaluation will be performed if indicators of impairment are present. We completed the annual impairment test of goodwill during the fourth quarter of fiscal 2004 and determined that there was no impairment to our goodwill balance. The calculation of fair value used for an impairment test includes a number of estimates and assumptions, including future income and cash flow projections, the identification of appropriate market multiples and the choice of an appropriate discount rate. If we are required to record an impairment charge in the future, it could have an adverse impact on our consolidated financial position or results of operations.

Deferred Income Taxes

We account for deferred income taxes based upon differences between the financial reporting and income tax bases of our assets and liabilities. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized. The determination of whether or not valuation allowances are required to be recorded involves significant estimates regarding the future profitability of our company, as well as potential tax strategies for the utilization of net loss and operating loss carry forwards.

Contingencies

Related to our acquisitions of certain flexible staffing agencies, we have entered into agreements to pay additional amounts, in cash, in the form of contingent consideration dependent upon future earnings of such acquired entities. See Notes 3 and 13 of the Notes to Consolidated Financial Statements for the year ended September 30, 2004.

Also, we are involved in various legal proceedings and claims incidental to our normal business activities. We are required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies are made after careful analysis of each individual issue. The required reserves may change in the future due to new developments in each matter or changes in approach such as a change in settlement strategy in dealing with these matters.

Revenue Recognition

Patient services and respiratory therapy revenues are recognized when services are performed and substantiated by proper documentation. For patient services, which are billed at fixed rates and account for over 97.6% of our company's business, revenue is recognized upon completion of timesheets that also require the signature of the recipient of services. Revenues from the rental of home medical equipment (including respiratory equipment) are recognized over the rental period (typically on a month-to-month basis). Revenues from the sale of oxygen and supplies for use in respiratory therapy are recognized when products are shipped, a contractual arrangement exists, the sales price is either fixed or determinable and collection is reasonably assured.

We receive a majority of our revenue from the NHS and other U.K. governmental payors. Certain revenues are subject to review by third-party payors and adjustments, if any, are recorded when determined.

Purchase Accounting

We account for our acquisitions as purchase business combinations. At acquisition, preliminary values and useful lives are allocated based upon fair values that have been determined for assets

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acquired and liabilities assumed and management's best estimates for values that have not yet been finalized. We obtain a third-party valuation in order to complete our purchase price allocations. Accordingly, final asset and liability fair values as well as useful lives may differ from management's original estimates and could have an adverse impact on our consolidated financial position or results of operations.

Results of Operations

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

Revenues

Total revenues for the year ended September 30, 2004 were $325.3 million compared to $294.4 million for the year ended September 30, 2003, an increase of $30.9 million or 10.5%. This increase was mainly due to the favorable effects of changes in foreign exchange ($34.7 million), acquisitions in the social service sector ($6.3 million) and internal growth in the social service sector and in our respiratory, medical equipment and supplies operations. This increase was offset by a decrease in revenues due to changes to NHS quality standards, causing fewer of our workers to be available for placement with the NHS while the necessary training certificates, immunizations and criminal record checks required by these standards were obtained, and the expansion of the NHS Professionals to encompass more healthcare workers. There can be no assurance that the continued expansion of the NHS Professionals may not adversely affect our revenues in future periods.

Gross Profit

Total gross profit increased by $11.9 million to $93.2 million for the year ended September 30, 2004 from $81.3 million for the year ended September 30, 2003, an increase of 14.6%. The favorable effects of changes in foreign exchange accounted for $9.9 million of the increase. As a percentage of total revenue, gross profit for the year ended September 30, 2004 increased to 28.6% from 27.6% for the comparable prior period. Gross margins for patient services increased (28.2% for the year ended September 30, 2004 versus 27.3% for the comparable prior period) mainly due to management's focus on supplying healthcare staff to our higher margin customers. Gross margins in respiratory, medical equipment and supplies sales increased (45.5% for the year ended September 30, 2004 versus 43.4% for the comparable prior period) mainly due to an increased focus on sales of portable oxygen therapy equipment and a steady increase in the number of patients in Northern Ireland, while keeping costs static.

Selling, General and Administrative Expenses

Total selling, general and administrative expenses increased by $9.9 million to $63.5 million for the year ended September 30, 2004 from $53.6 million for the year ended September 30, 2003, an increase of 18.4%. Changes in foreign exchange accounted for $6.2 million of this increase. The remaining increase was mainly a result of higher levels of overhead costs due principally to increased expenditures on quality assurance audit programs to ensure compliance with changes to legislation ($1.1 million), acquisitions ($0.6 million), compensation charges for key executives to complete the reimbursement of tax liabilities and to resolve other consequences incurred by them in connection with the fiscal 2002 Reorganization as well as a special compensation charge ($1.9 million) and fees associated with migrating the trading of our shares of common stock from the American Stock Exchange to the Nasdaq National Market ($0.1 million). We do not anticipate incurring further compensation expense related to the Reorganization.

Interest Income

Total interest income for the year ended September 30, 2004 was $0.9 million compared to $2.0 million for the year ended September 30, 2003, which represents a decrease of $1.1 million. The decrease was attributable to a lower level of funds invested and was partially offset by favorable effects of changes in foreign exchange ($0.1 million).

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Interest Expense

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

Provision for Income Taxes

We recorded a provision for income taxes amounting to $5.8 million or 37.2% of income before income taxes for the year ended September 30, 2004, compared to a provision of $4.9 million or 30.0% of income before income taxes and discontinued operations for the year ended September 30, 2003. Included in the tax provision for the year ended September 30, 2003 is a benefit related to the reversal of an estimated income tax liability ($1.9 million) for a business that was previously discontinued and no longer has any tax liabilities. Excluding this benefit, the provision for income taxes would have been $6.8 million or 41.4% of income before income taxes and discontinued operations for the year ended September 30, 2003. The difference in the effective tax rate from the year ended September 30, 2003 to the year ended September 30, 2004 is mainly due to the ratio of U.S. pre-tax losses to consolidated pre-tax income as our company does not provide a tax benefit for U.S. pre-tax losses as it is more likely than not that we will not utilize our net operating losses in the U.S. and permanent differences in the U.K.

Discontinued Operations and Gain on Sale of Subsidiaries

Discontinued operations resulted in income of $0.5 million for the year ended September 30, 2003. On April 16, 2003, we sold all of the issued and outstanding capital stock of two of our subsidiaries for approximately $8.5 million in cash. Home Healthcare, which comprised our U.S. operations, was concentrated in New York and New Jersey, and supplied infusion therapy, respiratory therapy and home medical equipment. In accordance with the provisions of FAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," our company has accounted for Home Healthcare as a discontinued operation.

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The following table presents the financial results of the discontinued operations during our fiscal year ended September 30, 2003 (dollars in thousands, other than per share data):

Revenues:
Net infusion services				$	6,685
Net respiratory, medical equipment and supplies					2,479
Total revenues					9,164
Cost of revenues:
Infusion services					5,159
Respiratory, medical equipment and supplies					1,438
Total cost of revenues					6,597
Selling, general and administrative expenses					2,583
Gain on sale of subsidiaries					(1,294	)
Tax on gain on sale of subsidiaries					775
Income from discontinued operations				$	503
Diluted income per share from discontinued operations				$	0.02

Net Income

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

Series A Preferred Stock

For the year ended September 30, 2004, we accrued $2.9 million of dividends for the Series A preferred stock issued in connection with the Reorganization and accreted $ 0.4 million of costs related to the issuance of our Series A preferred stock. As further discussed under "Recent Developments" above, on July 7, 2004, all of the Series A preferred stock was converted into a like number of shares of common stock. In connection with the conversion, we paid conversion fees of $2.0 million to the holders of the Series A preferred stock and wrote off $1.7 million of the remaining issuance costs. For the year ended September 30, 2003, we accrued $3.5 million of dividends for the Series A preferred stock issued in connection with the Reorganization and accreted $0.5 million of costs related to the issuance of our Series A preferred stock.

Year Ended September 30, 2003 vs. Year Ended September 30, 2002

Revenues

Total revenues for the year ended September 30, 2003 were $294.4 million compared to $242.8 million for the year ended September 30, 2002, an increase of $51.6 million or 21.2%. This increase relates primarily to the growth of our flexible staffing operations as a result of internal growth ($11.0 million) and acquisitions ($15.6 million) as well as internal growth in our U.K. respiratory, medical equipment and supplies operations ($1.0 million). Favorable effects of changes in foreign exchange accounted for $24.0 million of the increase.

Gross Profit

Total gross profit increased by $15.2 million to $81.3 million for the year ended September 30, 2003 from $66.1 million for the year ended September 30, 2002, an increase of 23.1%. The favorable effects of changes in foreign exchange accounted for $6.6 million of the increase. As a percentage of

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total revenue, gross profit for the year ended September 30, 2003 increased to 27.6% from 27.2% for the comparable prior period. Gross margins for patient services increased (27.3% for the year ended September 30, 2003 versus 26.9% for the comparable prior period). Gross margins in respiratory, medical equipment and supplies sales increased (43.4% for the year ended September 30, 2003 versus 41.7% for the comparable prior period) mainly due to an increased focus on sales of portable oxygen therapy equipment and a steady increase in the number of patients in Northern Ireland, while keeping costs static.

Selling, General and Administrative Expenses

Total selling, general and administrative expenses increased by $4.8 million to $53.6 million for the year ended September 30, 2003 from $48.8 million for the year ended September 30, 2002, an increase of 9.8%. The increase was mainly a result of higher level of overhead costs in our operations due principally to acquisitions and internal growth ($8.3 million), higher level of overhead costs in the U.S. corporate office as well as charges associated with the exercise of employee stock options ($1.3 million), and changes in foreign exchange ($4.0 million). This increase was partially offset by the effects of recording, for the year ended September 30, 2002, a non-cash charge of $5.8 million representing $4.2 million for the issuance of shares of our common stock to senior management and $1.6 million related to the exchange of employees' redeemable shares (options) in Allied Holdings for shares of our common stock, using the net exercise method in the Reorganization, a $2.3 million charge representing certain tax equalization bonuses paid to senior management for the reimbursement of income taxes incurred as a result of share issuances and a net charge of $0.7 million principally reflecting the write-off of non-capitalized costs incurred in connection with evaluating options to maximize the value of our ownership interest in our operations.

Interest Income

Total interest income for the year ended September 30, 2003 was $2.0 million compared to $3.0 million for the year ended September 30, 2002, which represents a decrease of $1.0 million. The decrease was attributable to a lower level of funds invested as well as decreases in interest rates and was partially offset by favorable effects of changes in foreign exchange ($0.2 million).

Interest Expense

Total interest expense for the year ended September 30, 2003 was $13.3 million compared to $16.5 million for the year ended September 30, 2002, which represents a decrease of $3.2 million. Excluding the $1.1 million increase due to the effect of foreign exchange, the actual decrease in interest expense was $4.3 million. The decrease was principally attributable to the exchange of accrued and unpaid interest on the Notes of Allied Healthcare Group Limited for shares of our company's common stock as part of the Reorganization ($2.6 million). The decrease was also attributable to reduced bank debt as well as a reduction in interest rates. The decrease was partially offset by the recording of a $0.2 million charge related to a change in the fair value of our interest rate cap and floor collar agreement.

Gain on Settlement of Paid in Kind Interest

We recognized a gain of $5.1 million for the year ended September 30, 2002 on the settlement of accrued and unpaid interest owed to the holders of the Notes of Allied Healthcare Group Limited in exchange for new shares of our common stock.

Provision for Income Taxes

We recorded a provision for income taxes amounting to $4.9 million or 30.0% of income before income taxes and discontinued operations for the year ended September 30, 2003 versus a provision of $5.0 million, or 56.0% of income before income taxes, minority interest and discontinued operations for the year ended September 30, 2002. Included in the tax provision for the year ended September

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30, 2003 is a benefit related to the reversal of an estimated income tax liability ($1.9 million) for a business that was previously discontinued and no longer has any tax liabilities. Excluding this benefit, the provision for income taxes would have been $6.8 million or 41.4% of income before income taxes and discontinued operations for the year ended September 30, 2003. The difference between the 41.4% effective tax rate for the year ended September 30, 2003 and the statutory tax rate is primarily due to our recording of an additional valuation allowance for the tax benefit associated with the current year's U.S. operating loss.

Minority Interest

We reported a charge for minority interest of $0.1 million in the year ended September 30, 2002. The minority interest represented the 1,050,000 shares of class A1 common stock of Allied Holdings issued as part of the consideration in our acquisition of Nightingale Nursing Bureau Limited. In the Reorganization, we acquired these shares and the U.K. operations became wholly owned by our company.

Discontinued Operations and Gain on sale of Subsidiaries

Discontinued operations resulted in income of $0.5 million for the year ended September 30, 2003 compared to income of $1.0 million for the year ended September 30, 2002. On April 16, 2003, we sold all of the issued and outstanding capital stock of two of our subsidiaries for approximately $8.5 million in cash. Our home healthcare operations, which comprised our U.S. operations, was concentrated in New York and New Jersey, and supplied infusion therapy, respiratory therapy and home medical equipment. In accordance with the provisions of Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," we have accounted for our U.S. home healthcare operations as a discontinued operation. The following table presents the financial results of the discontinued operations (dollars in thousands):

				Year Ended September 30,
				2003				2002
Revenues:
Net infusion services				$	6,685			$	12,373
Net respiratory, medical equipment and supplies					2,479				4,697
Total revenues					9,164				17,070
Cost of revenues:
Infusion services					5,159				9,068
Respiratory, medical equipment and supplies					1,438				2,292
Total cost of revenues					6,597				11,360
Selling, general and administrative expenses					2,583				4,709
Gain on sale of subsidiaries, net of tax					(1,294	)			—
Tax on gain on sale of subsidiaries					775				—
Income from discontinued operations				$	503			$	1,001
Diluted income per share from discontinued operations				$	0.02			$	0.05

Net Income

As a result of the foregoing, we recorded net income of $12.0 million for the year ended September 30, 2003 compared to net income of $4.8 million for the year ended September 30, 2002.

Series A Preferred Stock

For the year ended September 30, 2003, we accrued $3.5 million of dividends for the Series A preferred stock issued in connection with the Reorganization and accreted $0.5 million of costs related

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to the issuance of our Series A preferred stock. For the year ended September 30, 2002, we accrued $1.0 million of dividends for the Series A preferred stock issued in connection with the Reorganization and accreted $0.1 million of costs related to the issuance of our Series A preferred stock.

Liquidity and Capital Resources

General

For our fiscal year ended September 30, 2004, we generated $23.6 million from operating activities. Cash requirements for our fiscal year ended September 30, 2004 for capital expenditures ($7.8 million), payments for acquisitions and acquisitions payable ($10.7 million), payments for costs associated with the issuance of common stock and financing fees ($6.2 million), payments for accrued dividends and conversion fees ($9.4 million), payments on long-term debt ($148.3 million) and payments on notes payable ($38.7 million) were met through operating cash flows, restricted cash, proceeds from the Public Offering, proceeds from the New Senior Credit Facility and cash on hand.

In January 2001, we initiated a stock repurchase program, whereby we may purchase up to approximately $1.0 million of our outstanding shares of common stock in open-market transactions or in privately-negotiated transactions. In May 2003, we initiated a second stock repurchase program, pursuant to which we may purchase up to an additional $3.0 million of our outstanding shares of common stock in open-market transactions or in privately-negotiated transactions. As of September 30, 2004, we had acquired 407,700 shares of our common stock for an aggregate purchase price of $1.3 million pursuant to our stock repurchase programs, which are reflected as treasury stock in the consolidated balance sheet at September 30, 2003.

On December 2, 2003, Mr. Aitken, our chairman of the board, and Ms. Eames, who was then serving as our chief executive officer, repaid in full the principal and accrued interest on the promissory notes issued by them to our company in connection with the Reorganization in fiscal 2002. The principal and accrued interest repaid aggregated $0.6 million and $0.4 million, respectively. The loans were repaid by delivery to our company of 103,596 and 73,459 shares of our company's common stock held by Mr. Aitken and Ms. Eames, respectively, valued at $5.70 per share, the closing price on the day prior to the repayment date. The shares delivered by Mr. Aitken and Ms. Eames are held by our company as treasury shares. Our company also agreed to reimburse Mr. Aitken and Ms. Eames for the taxes incurred by them on the disposition of the shares to our company, which were less than $0.2 million in the aggregate.

We believe our existing capital resources and those generated from operating activities and available under existing borrowing arrangements will be adequate to conduct our operations for the next twelve months.

Accounts Receivable

We maintain a cash management program that focuses on the reimbursement function, as growth in accounts receivable has been the main operating use of cash historically. At September 30, 2004 and September 30, 2003, $31.3 million (11.1%) and $35.7 million (11.5%), respectively, of our total assets consisted of accounts receivable. The decrease in the accounts receivable from 2003 to 2004 is mainly due to improvements in credit controls to ensure cash collections on a timely basis.

Our goal is to maintain accounts receivable levels equal to or less than industry average, which would tend to mitigate the risk of negative cash flows from operations by reducing the required investment in accounts receivable and thereby increasing cash flows from operations. Days sales outstanding ("DSOs") is a measure of the average number of days we take to collect our accounts receivable, calculated from the date services are rendered. At September 30, 2004 and September 30, 2003, our average DSOs were 33 and 41, respectively.

Borrowings

General

As further described above under "Recent Developments," on July 19, 2004, our company's U.K. subsidiary, Allied Holdings, obtained financing denominated in pounds sterling consisting of a £50

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million ($90.0 million) multicurrency New Senior Credit Facility. As of September 30, 2004, we had £35.0 million ($63.0 million) of borrowings under the New Senior Credit Facility.

Notes Due in Connection with Acquisitions

In fiscal 2004, we repaid, through Allied Holdings, notes payable of $38.7 million issued in connection with the acquisition of certain U.K. flexible staffing agencies. In fiscal 2003, we repaid, through Allied Holdings, notes payable of $19.4 million issued in connection with the acquisition of certain U.K. flexible staffing agencies and wrote off $0.6 million of related debt discount. The notes payable were secured by the lender under our Senior Credit Facility, who required us to keep an amount on deposit for the sole purpose of repaying the notes payable.

At September 30, 2004, we had one outstanding note payable of $1.8 million that bore interest at a rate of 5.25%. At September 30, 2003, we had outstanding notes payable of $37.7 million that bore interest at rates ranging from 2.65% to 5.25%. The related cash restricted to the payment of such notes has been classified as current in the accompanying Consolidated Balance Sheets.

Guarantees

The New Senior Credit Facility is secured by a first priority lien on the assets of the Allied Healthcare Group Limited and certain of its subsidiaries. Together with Allied Healthcare Group Limited and certain of its subsidiaries, our company is guaranteeing the debt and other obligations of certain wholly-owned U.K. subsidiaries under the New Senior Credit Facility. At September 30, 2004, the amounts guaranteed, which approximates the amounts outstanding, totalled $63.0 million.

Our U.K. subsidiaries guaranteed the debt and other obligations of certain wholly-owned U.K. subsidiaries under our previous Senior Credit Facility, the Mezzanine Loan and various notes issued in connection with the acquisition of certain U.K. flexible staffing agencies. At September 30, 2003, the amounts guaranteed, which approximated the amounts outstanding, totalled $166.8 million.

Derivative Instrument

On March 20, 2003, upon the expiration of our prior Rate Cap and Floor Collar Agreement, we entered into a new Rate Cap and Floor Collar Agreement that caps our interest rate at LIBOR of 5.50% and our interest floor at LIBOR of 4.47%, subject to special provisions, on approximately $90.4 million of our floating rate debt under a contract that expires March 20, 2008. In accordance with Statement of Financial Accounting Standards No. 133, "Accounting for Certain Derivative Instruments and Certain Hedging Activities," as amended by Statement of Financial Accounting Standards No. 138 and related implementation guidance, we have calculated the fair value of the interest cap and floor derivative to be an asset of $0.3 million at September 30, 2004 and a liability of $0.2 million at September 30, 2003. In addition, changes in the value from period to period of the interest cap and floor derivative are recorded as an adjustment to interest expense.

Series A Preferred Stock

In the Reorganization, we issued 7,773,660 shares of our Series A preferred stock with an aggregate liquidation preference of £22.3 million ($35.2 million at the fixed exchange rate of $1.58 set forth in an amendment to our certificate of incorporation defining the rights of the Series A preferred stock). The shares of Series A preferred stock were issued to certain equity investors in Allied Holdings in exchange for 22,287,000 ordinary shares of Allied Holdings.

Pursuant to the Conversion Agreements, the holders of all 7,773,660 outstanding shares of Series A preferred stock converted their shares of Series A preferred stock into a like number of shares of our common stock upon the consummation of the Public Offering. We paid to the holders of the Series A preferred stock an aggregate of $7.4 million in accrued and unpaid dividends and $2.0 million in conversion fees in connection with the conversion. The Conversion Agreements provide that if, at any time during the six-month period beginning on the effective date of the registration statement relating to the Public Offering, the shares of our common stock trade at $11.32 for ten days during any period of thirty consecutive trading days (such tenth day being the "Threshold Date"), then the

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holders shall repay a portion of their conversion fee to us. The portion of the conversion fee to be repaid to us shall be equal to the product of the conversion fee and a fraction, the numerator of which shall be the number of days remaining in the six-month period after the Threshold Date and the denominator of which shall be 180.

Commitments

Acquisition Agreements

Related to our acquisitions of certain flexible staffing agencies, we have entered into agreements to pay additional amounts, payable in cash, of up to $10.5 million as of September 30, 2004, in contingent consideration dependent upon future earnings of such acquired entities.

Employment Agreements

See "Item 11—Executive Compensation—Employment Agreements; Termination of Employment and Change-in-Control Arrangements."

Operating Leases

We have entered into various operating lease agreements for office space and equipment. Certain of these leases provide for renewal options.

Contractual Cash Obligations

As described under "Borrowings," "Commitments—Acquisition Agreements," and "Commitments—Operating Leases" above, the following table summarizes our contractual cash obligations as of September 30, 2004 (dollars in thousands):

Fiscal				Total Debt Obligations(1)				Total Lease Obligations				Total Other Obligations				Total Obligations
2005				$	12,595			$	2,203			$	9,522			$	24,320
2006					10,796				1,812				2,338				14,946
2007					10,796				1,489				—				12,285
2008					10,796				1,008				—				11,804
2009					19,795				925				—				20,720
Thereafter					—				2,050				—				2,050
				$	64,778			$	9,487			$	11,860			$	86,125

(1)	These amounts do not include interest payments.

Lease obligations reflect future minimum rental commitments required under operating leases that have non-cancelable lease terms as of September 30, 2004. Other obligations reflect contingent consideration related to our acquisitions of certain flexible staffing agencies and third-party fees for the implementation of financial software.

Miscellaneous

Acquisitions

In fiscal 2004, we acquired a total of 8 flexible staffing agencies for approximately $8.6 million in cash. As of September 30, 2004, these transactions included provisions to pay additional amounts, payable in cash, of up to $10.5 million in contingent consideration dependent upon future earnings of the acquired entities.

The preliminary purchase price allocations for the fiscal 2004 acquisitions are subject to adjustments and will be finalized once additional information concerning asset and liability valuations are obtained. Accordingly, final asset and liability fair values may differ from those set forth on the Consolidated Balance Sheet at September 30, 2004; however, the changes are not expected to have a material effect on our Consolidated Financial Statements.

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In fiscal 2003, we acquired a total of 7 flexible staffing agencies for approximately $8.8 million in cash and the issuance of 670,000 shares of our common stock. The transactions included provisions to pay additional amounts, payable by combination of cash and shares of our common stock, of up to $21.0 million in contingent consideration dependent upon future earnings of the acquired entities. Of the $21.0 million in contingent consideration, $6.1 million was unearned and will not be required and $1.3 million was earned and paid in fiscal 2003. As such, at September 30, 2003, an aggregate of $13.6 million was payable dependent upon further earnings of the acquired entities. Of the $13.6 million in contingent consideration, $12.0 million was unearned and will not be required and the remaining balance was earned and paid in fiscal 2004.

Further, in fiscal 2003, we completed the purchase price allocation for one of our fiscal 2003 acquisitions. Accordingly, tangible assets, separately identifiable intangible assets and liabilities were assigned values of approximately $2.9 million, $1.4 million and $2.2 million, respectively, with the remaining portion of $6.6 million attributable to goodwill. In fiscal 2004, we completed the purchase price allocation for our remaining fiscal 2003 acquisitions. Accordingly, tangible assets, separately identifiable intangible assets and liabilities were assigned values of approximately $0.4 million, $1.2 million and $0.4 million, respectively, with the remaining portion of $5.1 million attributable to goodwill.

In fiscal 2002, we acquired a total of 6 flexible staffing agencies for approximately $2.2 million in cash. The transactions included provisions to pay additional amounts, payable in cash, of up to $5.6 million in contingent consideration dependent upon future earnings of the acquired entities. Of the $5.6 million in contingent consideration, $4.4 million was earned and paid in fiscal 2003. The remaining amount of contingent consideration of $1.2 million was unearned and will not be required.

The pro forma results of operations and related per share information for these acquisitions have not been presented as the amounts are considered immaterial.

Disposition

On April 16, 2003, we disposed of the last of our U.S. operations when we sold all of the issued and outstanding capital stock of The PromptCare Companies, Inc. and Steri-Pharm, Inc., for approximately $8.5 million in cash. These two subsidiaries constituted our U.S. home healthcare operations segment. Our home healthcare operations were concentrated in New York and New Jersey and supplied infusion therapy, respiratory therapy and home medical equipment. In accordance with the provisions of Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," we have accounted for our home healthcare operations as a discontinued operation. Our consolidated financial statements reflect the assets and liabilities of the discontinued operations as separate line items and the operations of our home healthcare operations for the current and prior periods are reported in discontinued operations on our income statement. For a discussion of the revenues and costs of operations of our discontinued operations, see Note 3 of Notes to Consolidated Financial Statements for our fiscal year ended September 30, 2004.

Litigation

See "Item 3—Legal Proceedings."

Contingencies

Some of our subsidiaries were Medicare Part B suppliers who submitted claims to the designated carrier who is the government's claims processing administrator. From time to time, the carrier may have requested an audit of Medicare Part B claims on a prepayment or postpayment basis. If the outcome of any audit results in a denial or a finding of an overpayment, then the affected subsidiary has appeal rights. Under postpayment audit procedures, the supplier generally pays the alleged overpayment and can pursue appeal rights for a refund of any paid overpayment incorrectly assessed against the supplier. Some of these subsidiaries are currently responding to these audits and pursuing appeal rights in certain circumstances.

We believe that we are in compliance, in all material respects, with all applicable federal, state and foreign laws and regulations. Due to the broad and sometimes vague nature of these laws and

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regulations, there can be no assurance that an enforcement action will not be brought against us, or that we will not be found to be in violation of one or more of these laws or regulations. At present, we cannot anticipate what impact, if any, subsequent administrative or judicial interpretations of applicable federal, state and foreign laws and regulations may have on our financial position, cash flows and results of operations.

We are involved in various legal proceedings and claims incidental to our normal business activities. We are vigorously defending our position in all such proceedings and, at September 30, 2004, have recorded an accrual of $0.7 million to cover our estimated exposure related to these matters. We believe that these matters, including the derivative suit described in "Item 3—Legal Proceedings," should not have a material adverse impact on our financial position, cash flows or results of operations.

Impact of Recent Accounting Standards

See "Recent Accounting Pronouncements" in Note 2 of the Notes to Consolidated Financial Statements for our fiscal year ended September 30, 2004.

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

Foreign Currency Exchange

We face exposure to adverse movements in foreign currency exchange rates. These exposures may change over time as business practices evolve and could have a material adverse impact on our consolidated financial results. Our primary exposure relates to non-U.S. dollar denominated sales in the U.K., where the principal currency is pounds sterling, and to pounds sterling debt-denominated obligations. See "Interest Rate Risk" below for debt obligations, principal cash flows and related weighted average interest rates by expected maturity dates. Currently, we do not hedge foreign currency exchange rate exposures.

Interest Rate Risk

Our exposure to market risk for changes in interest rates relate primarily to our cash equivalents and our U.K. subsidiaries' July 19, 2004 financing, which includes the New Senior Credit Facility. Our cash equivalents include highly liquid short-term investments purchased with initial maturities of 90 days or less. We are subject to fluctuating interest rates that may impact our consolidated results of operations or cash flows for our variable rate New Senior Credit Facility and cash equivalents.

On March 20, 2003, we entered into a Rate Cap and Floor Collar Agreement that caps our interest rate at LIBOR of 5.50% and our interest floor at LIBOR of 4.47%, subject to special provisions, on approximately $90.0 million of our floating rate debt in a contract, which expires March 20, 2008. In accordance with Statement of Financial Accounting Standards No. 133, "Accounting for Certain Derivative Instruments and Certain Hedging Activities," as amended by Statement of Financial Accounting Standards No. 138 and related implementation guidance, we have calculated the fair value of the interest cap and floor derivative to be an asset of $0.3 million at September 30, 2004 and a liability of $0.2 million at September 30, 2003. In addition, changes in the value from period to period of the interest cap and floor derivative are recorded as interest expense or income, as appropriate.

As of September 30, 2004, we had one note payable in the aggregate principal amount of $1.8 million outstanding. This note was issued in connection with the acquisition of a U.K. flexible staffing agency. The note payable is redeemable, at the holder's option, and bears interest at a rate of 5.25 % per annum at September 30, 2004. The table below represents the expected maturity of our variable rate debt (dollars in thousands). Such debt had a weighted average interest rate at September 30, 2004 of LIBOR plus 0.8%.

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Fiscal				Expected Maturity
2005				$	10,796
2006					10,796
2007					10,796
2008					10,796
2009					19,795
Thereafter					—
				$	62,979

The interest rate on our company's bank debt is reset at least every month to reflect current market rates. Consequently, the carrying value of our variable rate bank debt approximates its fair value at September 30, 2004.

Item 8.	Financial Statements and Supplementary Data.

The consolidated financial statements and required financial statement schedules of our company begin on page F-1 of this Annual Report on Form 10-K.

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

None.

Item 9A.	Controls and Procedures.

Evaluation of Disclosure Controls and Procedures.    Our company's management, with the participation of our chief executive officer and our chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2004.

Under the rules of the Securities and Exchange Commission, "disclosure controls and procedures" are defined as controls and other procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, such as this Annual Report on Form 10-K, is recorded, processed, summarized and reported within the time periods specified in the rules of the Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Based on such evaluation, our chief executive officer and chief financial officer have concluded that, as of September 30, 2004, our disclosure controls and procedures were effective to ensure that the information we are required to disclose in reports that we file or submit to the Securities and Exchange Commission is recorded, processed, summarized and reported within the time periods specified under the rules and forms of the Securities and Exchange Commission.

Changes in Internal Control Over Financial Reporting.    Under the rules of the Securities and Exchange Commission, "internal control over financial reporting" is defined as a process designed by, or under the supervision of, an issuer's principal executive and principal financial officers, and effected by the issuer's board of directors, management and other personnel, to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

There have not been any changes in our "internal control over financial reporting" during the quarter ended September 30, 2004 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.	Other Information.

There was no information that we were required to disclose in a Current Report on Form 8-K during the fourth quarter of fiscal 2004 that was not so disclosed.

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PART III

Item 10.    Directors and Executive Officers of the Registrant.

Our Directors and Officers

The following table sets forth certain information concerning the directors and officers of our company:

Name				Age				Positions with our Company
Timothy M. Aitken					60			Chairman of the Board and Chief Executive Officer
Sarah L. Eames					46			Executive Vice President and Director
Charles F. Murphy					51			Chief Financial Officer
Leslie J. Levinson					49			Secretary
G. Richard Green					65			Director
David J. Macfarlane					58			Director
Wayne Palladino					46			Director
Jeffrey S. Peris					58			Director
Scott A. Shay					47			Director

Certain biographical information regarding each director and officer is set forth below:

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

Sarah L. Eames has served as a director of our company since June 2002 and as executive vice president of our company since November 2004. She served as chief executive officer of our company from January 2004 until November 2004, as chief operating officer of our company from June 2001 until November 2004, and as president of our company from May 1998 until November 2004. She was executive vice president of business development and marketing of our company from June 1997 to May 1998. Prior to joining our company, Ms. Eames was employed by Johnson & Johnson Professional, Inc. as a business development consultant from 1996 to 1997. From June 1995 until November 1995, Ms. Eames served as vice president of marketing for Apria Healthcare Group, Inc., a California-based home healthcare company. From 1980 until June 1995, Ms. Eames held various marketing and business development positions at Abbey Healthcare Group Inc., a predecessor of Apria Healthcare Group, Inc.

Charles F. Murphy served as acting chief financial officer of our company from May 2003 until March 2004, at which time he assumed the title of chief financial officer. From October 1999 to May 2003, Mr. Murphy served as chief financial officer of our company's U.K. operations. From 1997 to 1999, Mr. Murphy was a principal of Visual Networks Limited, a technology company. From 1994 to 1997, he was finance director of Exceler Healthcare Group, a nursing home company. From 1987 to 1994, Mr. Murphy was a partner at Pricewaterhouse LLP, an accounting firm.

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

G. Richard Green has been a director of our company since August 1998. Mr. Green has been the chairman since 1987 and a director since 1960 of J.H. & F.W. Green Ltd., a conglomerate based in the

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United Kingdom. Since 1960, Mr. Green has held various positions at J.H. & F.W. Green Ltd. and several of its subsidiaries. Mr. Green was also a director of Abbey Healthcare Group, Inc. from 1991 to 1995.

David John Macfarlane has been a director of our company since June 2002. Mr. Macfarlane is of counsel to Ashurst, a law firm in London, where he has worked since 1986. Ashurst has provided legal services to our company, including during the fiscal year ended September 30, 2004. Mr. Macfarlane is also a director of Platinum Investment Trust plc, a U.K.-based investment trust that is listed on the London Stock Exchange.

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

Jeffrey S. Peris has been a director of our company since May 1998. Dr. Peris has been the vice president of human resources and chief learning officer of Wyeth (formerly American Home Products Corporation), a pharmaceutical company, since May 2001. Dr. Peris was the vice president of business operation of Knoll Pharmaceutical (Abbott Laboratories), where he was responsible for human resources and corporate communications, from April 1998 until May 2001. Dr. Peris was a management consultant to various Fortune 100 companies from May 1997 until April 1998. From 1972 until May 1997, Dr. Peris was employed by Merck Co., Inc., a pharmaceutical company, where he served as the executive director of human resources from 1985 until May 1997, the executive director of marketing from 1976 until 1985, and the director of clinical biostatistics and research data systems from 1972 until 1976.

Scott A. Shay has been a director of our company since January 1996 and served as acting chairman of the board of our company from September 1996 until January 1997. Mr. Shay has been a managing director of Ranieri & Co., Inc., a private investment advisor and management company, since its formation in 1988. Mr. Shay currently serves as the chairman of the board of Signature Bank, a subsidiary of Bank Hapoalim, and is currently a director of Bank Hapoalim B.M., in Tel Aviv, Israel, and Super Derivatives, Inc., as well as an officer or director of other direct and indirect subsidiaries of Hyperion Partners II L.P. Prior to joining Ranieri & Co., Inc., Mr. Shay was a director of Salomon Brothers Inc., where he was employed from 1980 to 1988.

All directors of our company are elected by the shareholders for a one-year term and hold office until their successors are elected and qualified or until their earlier death, resignation or removal. Officers are chosen by and serve at the discretion of the board of directors, subject to any applicable employment contracts. There are no family relationships among our directors and officers.

All directors who are not employees of our company are entitled to receive a fee of $10,000 per annum, plus reimbursement of expenses incurred as a result of acting as a director or as a member of any committee of our board of directors. In addition, Mr. Palladino is entitled to receive, for serving as chairman of the Audit Committee, an additional $6,000 per annum and $1,000 per Audit Committee meeting attended in person or by telephone conference call and Mr. Macfarlane is entitled to an additional director's fee of $10,000 per year for advising on U.K. governance and related matters.

Our board of directors has determined that G. Richard Green, David J. Macfarlane, Wayne Palladino and Jeffrey A. Peris are "independent directors," as such term is defined in the rules of the Nasdaq Stock Market.

Other than Timothy M. Aitken, Sarah L. Eames and Charles F. Murphy, none of our company's executive officers have employment agreements. For more information, see "Item 11—Executive Compensation—Employment Agreements; Termination of Employment and Change-in-Control Arrangements."

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Meetings of the Board of Directors

The business of our company is managed under the direction of our board of directors. Members of the board of directors are informed about our company's affairs through various reports and documents distributed to them, through operating and financial reports routinely presented at meetings of the board of directors and committee meetings by the chairman and other officers, and through other means. In addition, directors of our company discharge their duties throughout the year not only by attending board of directors' meetings, but also through personal meetings and other communications, including telephone contact with the chairman of the board and others regarding matters of interest and concern to our company.

During our fiscal year ended September 30, 2004, our company's board of directors held six formal meetings and acted by unanimous written consent in lieu of a meeting on five separate occasions. During our fiscal year ended September 30, 2004, no director attended fewer than 75% of the aggregate of the total number of meetings of the board and any committees on which he served.

Board Committees

The board of directors has an Audit Committee and a Compensation Committee but it does not have a nominating committee. The members of each committee are appointed by the board of directors.

Audit Committee.    The Audit Committee assists our board of directors in monitoring (1) the integrity of our financial statements, (2) the independence and qualifications of our independent auditors, and (3) the performance of our independent auditors and our internal audit functions. The current written charter for the Audit Committee was adopted by our board of directors on February 12, 2004 and is attached as an exhibit to the proxy statement relating to our 2004 annual meeting of shareholders.

The Audit Committee consists of Messrs. Macfarlane, Palladino and Peris. Mr. Palladino serves as chairman of the Audit Committee. All of the members of the Audit Committee are "independent directors," as such term is defined in the rules of the Nasdaq Stock Market. The board of directors has determined that Wayne Palladino is an "audit committee financial expert," as such term is defined in Item 401(h) of Regulation S-K promulgated by the Securities and Exchange Commission.

The Audit Committee was in session during each of the six formal meetings of our company's board of directors during our fiscal year ended September 30, 2004. The Audit Committee also held four formal meetings and acted by unanimous written consent on one occasion during that period.

Compensation Committee.    The Compensation Committee reviews and approves overall policy with respect to compensation matters, including such matters as compensation plans for employees and employment agreements and compensation for executive officers. The Compensation Committee consists of Messrs. Green, Macfarlane and Peris. All of the members of the Compensation Committee are "independent directors," as such term is defined in the rules of the Nasdaq Stock Market.

The Compensation Committee was in session during each of the six formal meetings of our company's board of directors during our fiscal year ended September 30, 2004. The Compensation Committee also held one formal meeting during that period.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 and the rules thereunder promulgated by the Securities and Exchange Commission require the reporting of transactions in our equity securities by our directors and certain of our officers and by shareholders who beneficially own more than 10% of our common stock (collectively, the "Reporting Persons"). Section 16(a) and the rules thereunder require the Reporting Persons to report initial statements of ownership of our equity securities on Form 3 and changes in ownership of our equity securities on Form 4 or Form 5. Based solely on a review of these reports received by us from the Reporting Persons and written representations from our directors and officers that no Forms 5 were required to be filed by them in respect of our fiscal

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year ended September 30, 2004, we believe that no Reporting Person failed to file a Section 16 report on a timely basis during our fiscal year ended September 30, 2004.

Code of Conduct

In September 2003, our board of directors adopted a Code of Conduct that applies to all of our directors, officers and employees, including our chief executive officer and our chief financial officer. As required by the regulations of the Securities and Exchange Commission, the Code of Conduct is designed to deter wrongdoing and to promote:

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

(2)    full, fair, accurate, timely, and understandable disclosure in reports and documents that we file with, or submit to, the Securities and Exchange Commission and in other public communications made by us;

(3)    compliance with applicable governmental laws, rules and regulations;

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

	(5)    accountability for adherence to the Code of Conduct.

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

Item 11.    Executive Compensation.

The following table summarizes all compensation earned by or paid to our chief executive officer and each of the other most highly compensated executive officers of our company whose total annual salary and bonus compensation exceeded $100,000 in fiscal 2004 (the "Named Executive Officers") for services rendered in all capacities to our company in respect of our fiscal years ended September 30, 2004, 2003 and 2002. The titles given below the individuals' names in the chart below were the titles held by such individuals at the end of our 2004 fiscal year.

Summary Compensation Table

								Annual Compensation								Long-Term Compensation Awards
																Restricted Stock Awards($)				Securities Underlying Options (#)
Name and Principal Position				Fiscal Year				Salary				Bonus													All Other Compensation
Sarah L. Eames(1)					2004			$	445,189			$	300,000	(4)		—					300,000			$	1,058,570	(10)
Chief Executive Officer,					2003				405,000				270,000	(5)		—					334,000				101,431	(11)
President and Chief Operating Officer					2002				365,000				3,049,793	(6)		—					—				7,800	(12)
Timothy M. Aitken(2)					2004			$	253,369			$	450,000	(7)		—					350,000			$	91,645	(13)
Chairman of the Board					2003				420,000				230,000	(5)		—					384,000				170,063	(14)
					2002				380,000				4,214,592	(8)		—					—				9,000	(12)
Charles F. Murphy(3)					2004			$	289,073			$	53,781	(9)		—					—			$	18,286	(12)
Chief Financial Officer					2003				90,096				80,085	(5)		—					99,000				6,127	(12)

(1)	Ms. Eames became chief executive officer of our company in January 2004, chief operating officer of our company in June 2001 and president of our company in May 1998. She stepped down from all such positions, and assumed the office of executive vice president of our company, in November 2004.

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(2)	Mr. Aitken has served as chairman of the board of our company since January 1997 and as chief executive officer of our company since November 2004. He also served as chief executive officer of our company from January 1997 until January 2004.

(3)	Mr. Murphy became acting chief financial officer of our company in May 2003 and, in March 2004, assumed the title of chief financial officer of our company.

(4)	Paid in fiscal 2004 as a bonus for fiscal 2004. See "Item 13—Certain Relationships and Related Transactions—Other Transactions with Directors and Executive Officers."

(5)	Paid in fiscal 2004 as a bonus for fiscal 2003.

(6)	Consists of (a) $200,000 cash paid in fiscal 2002 as a bonus for fiscal 2001, (b) $250,000 cash paid in fiscal 2003 as a bonus for fiscal 2002, and (c) the value of shares of our common stock issued in the bonus share issuance described below and the related cash payment made to Ms. Eames to enable her to pay the income taxes arising from such issuance.

(7)	Consists of (a) $400,000 cash paid in fiscal 2004 as a bonus for fiscal 2004 and (b) $50,000 cash paid in fiscal 2005 as a bonus for fiscal 2004. See "Item 13—Certain Relationships and Related Transactions—Other Transactions with Directors and Executive Officers."

(8)	Consists of (a) $150,000 cash paid in fiscal 2002 as a bonus for fiscal 2001, (b) $200,000 cash paid in fiscal 2003 as a bonus for fiscal 2002, and (c) the value of shares of our common stock issued in the bonus share issuance described below and the related cash payment made to Mr. Aitken to enable him to pay the income taxes arising from such issuance.

(9)	Paid in fiscal 2005 as a bonus for fiscal 2004.

(10)

Of such amount, (a) $1,000,000 consists of special compensation paid to Ms. Eames for past services (see "Item 13—Certain Relationships and Related Transactions—Other Transactions with Directors and Executive Officers") and (b) the remainder consists of payment for a car allowance and the reimbursement of taxes incurred by Ms. Eames in December 2003 (see "The Bonus Share Issuance and Related Transactions" below).

(11)	Reflects payment for a car allowance of $8,450 and the reimbursement by the Company in fiscal 2004 of taxes of $92,981 incurred by Ms. Eames in connection with her exercise of 100,000 options in fiscal 2003.

(12)	Reflects payment for a car allowance.

(13)	Reflects payment for a car allowance and the reimbursement of taxes incurred by Mr. Aitken in December 2003 (see "The Bonus Share Issuance and Related Transactions" below).

(14)	Reflects payment of a car allowance of $9,750 and the reimbursement by the Company in fiscal 2004 of taxes of $160,313 incurred by Mr. Aitken in connection with his exercise of 150,000 options in fiscal 2003.

The Bonus Share Issuance and Related Transactions

Prior to our corporate reorganization (the "Reorganization") in July 2002, Mr. Aitken, Ms. Eames and others held redeemable shares in one of our U.K. subsidiaries. The holders of the redeemable shares other than Mr. Aitken and Ms. Eames exchanged their redeemable shares for shares of our common stock in the Reorganization on a tax-free basis. Had Mr. Aitken and Ms. Eames exchanged their redeemable shares for shares of our common stock in the Reorganization, they would have received 684,258 and 487,099 shares of our common stock, respectively, based on the number of redeemable shares held by them. However, just prior to the execution of the reorganization agreement, we learned that these officers would in fact, unlike the other holders of the redeemable shares, be liable for U.S. taxes if they exchanged their redeemable shares for shares of common stock in the reorganization.

In order to address this matter, Mr. Aitken and Ms. Eames surrendered their redeemable shares for nominal value and we issued to Mr. Aitken and Ms. Eames 684,258 shares of common stock

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(valued at $2,463,329) and 487,099 shares of common stock (value at $1,753,556), respectively, as bonus shares, together with cash bonuses and loans in an amount roughly equal to the income taxes payable by them in respect of such share issuances (grossed-up to reflect the related cash bonuses). Accordingly, in fiscal 2002 we made cash bonus payments to Mr. Aitken and Ms. Eames in the amount of $1,401,263 and $846,237, respectively, and loaned Mr. Aitken and Ms. Eames the amount of $550,000 and $390,000, respectively. The cash bonus payments and loans from us to Mr. Aitken and Ms. Eames were used by them to pay their income taxes arising from the bonus share issuance. The payment of their respective promissory notes was secured by a pledge by each of Mr. Aitken and Ms. Eames of certain of their securities in our company.

On December 2, 2003, Mr. Aitken and Ms. Eames repaid in full the principal amount of and accrued interest on the promissory notes issued by them to our company in fiscal 2002. The principal and accrued interest repaid aggregated $590,500 and $418,718, respectively. The loans were repaid by delivery to us of 103,596 and 73,459 shares of our common stock held by Mr. Aitken and Ms. Eames, respectively, valued at $5.70 per share, the closing price on the day prior to the repayment date. We agreed to reimburse Mr. Aitken and Ms. Eames for the taxes incurred by them on the disposition of the shares to our company, which were $83,395 and $51,421, respectively.

The following table sets forth certain information regarding options granted during fiscal 2004 to our Named Executive Officers pursuant to our 2002 Stock Option Plan. During fiscal 2004 we did not grant stock appreciation rights to any of our Named Executive Officers or any other employee. In accordance with the rules of the Securities and Exchange Commission, the table sets forth the hypothetical gains or "option spreads" that would exist for the options at the end of their respective terms. These gains are based on assumed rates of annual compound stock price appreciation of 5% and 10% from the date the option was granted to the end of the option's term.

Option Grants in Fiscal 2004

Name				Number of Securities Underlying Options Granted				Percentage of Total Options Granted to Employees in Fiscal Year				Exercise Price Per Share(1)				Expiration Date				Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term(2)
																				5%				10%
Sarah L. Eames					300,000				42.1	%		$	5.70				12/2/13			$	1,075,410			$	2,725,300
Timothy M. Aitken					350,000				49.1	%		$	5.70				12/2/13			$	1,254,645			$	3,179,516
Charles F. Murphy					—				—				—				—				—				—

(1)	Options were granted at an exercise price equal to the closing price of a share of our common stock on the Nasdaq National Market on the date of grant.

(2)	The 5% and 10% assumed annual compound rates of stock price appreciation are mandated by the Securities and Exchange Commission and do not represent our company's estimate or projection of future common stock prices.

The following table sets forth certain information with respect to our Named Executive Officers concerning the exercise of options by them during our fiscal year ended September 30, 2004 and unexercised options held by them as of September 30, 2004. We have never granted stock appreciation rights to any of our Named Executive Officers or any other employee.

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Aggregate Option Exercises in Fiscal 2004
and 2004 Fiscal Year-End Option Values

Name

Shares Acquired on Exercise

Value Realized

Number of Shares Underlying Unexercised Options at Fiscal Year End Exercisable/Unexercisable

Value of Unexercised In-the-Money Options at Fiscal Year End(1) Exercisable/Unexercisable

Sarah L. Eames

—

—

644,666/139,334

$

850,839/$185,181

Timothy M. Aitken

—

—

1,273,000/156,000

$

1,071,940/$210,680

Charles F. Murphy

—

—

33,000/66,000

$

32,990/$65,980

(1)	Calculated on the basis of $5.53 per share, the closing sale price of our common stock, as reported on the Nasdaq Stock Market on September 30, 2004, minus the exercise price.

Compensation of Directors

See "Item 10—Directors and Executive Officers of the Registrant—Our Directors and Executive Officers" with respect to compensation of non-employee directors.

Employment Agreements; Termination of Employment and Change-in-Control Arrangements

In September 2001, we entered into an employment agreement with Mr. Aitken. The employment agreement has a three-year term (subject to automatic renewal for successive additional one-year periods unless either party provides the other with notice of intent to terminate the agreement at least 90 days before the then applicable termination date). The employment agreement provides that our company will negotiate in good faith, commencing not less than 90 days prior to each anniversary date of the employment agreement, the amount, if any, of future salary increases. The salary of Mr. Aitken for fiscal 2005 is £250,000. Mr. Aitken's employment agreement provides that if his employment is terminated during the term of the agreement other than for cause, death or disability, or if, within six months of a "change in control" (as defined in the agreement) of our company, Mr. Aitken or our company terminates his employment, then (1) all stock options in our company held by Mr. Aitken shall immediately vest and (2) Mr. Aitken will be entitled to receive a cash payment of 2.9 times his average annual base salary during the twelve months preceding the change of control or the termination of employment.

In September 2001 we entered into an employment agreement with Ms. Eames, which was modified in November 2004. Pursuant to her employment agreement, as modified, Ms. Eames has agreed to serve as executive vice president of the Company until May 2006 at an annual salary of $200,000. Ms. Eames' employment agreement, as modified, provides that if her employment is terminated during the term of the agreement other than for cause, death or disability, then all stock options in our company held by Mr. Eames shall immediately vest and Ms. Eames shall be entitled to receive her salary through May 2006.

In Deeds of Restrictive Covenants entered into in 1999 with one of our U.K. subsidiaries, Mr. Aitken and Ms. Eames have each agreed not to compete with us or our subsidiaries for twelve months following termination of employment without our prior written consent.

We have also entered into an employment agreement with Mr. Murphy. Our employment agreement with Mr. Murphy is terminable by either party on six month's notice and provides that Mr. Murphy will not compete against us for a period of twelve months following his termination of employment. Pursuant to his employment agreement, Mr. Murphy's salary is currently £165,000 (approximately $297,000).

Compensation Committee Interlocks and Insider Participation

The Compensation Committee consists of Messrs. Green, Macfarlane and Peris. None of such individuals has ever served as an officer or employee of our company or any of our subsidiaries nor has any such individual had a business relationship with our company or any of our subsidiaries during fiscal 2004 that requires disclosure under the rules of the Securities and Exchange Commission.

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During the first part of fiscal 2004, our Compensation Committee consisted of Mr. Green, Frederick S. Moseley IV (who resigned from our board of directors on December 24, 2003) and Mr. Shay (who ceased to be a member of the Compensation Committee effective March 31, 2004). Mr. Shay, among others, is a control person of Hyperion Partners II, L.P., Hyperion TW Fund L.P., Hyperion TWH Fund LLC and Hyperion TWH Fund II LLC, each of which are principal shareholders of our company. Prior to January 1, 2004, Mr. Moseley held certain positions with and/or interests in Triumph Capital Group, Inc. and certain of its affiliates, including Triumph Partners III, L.P. (which has changed its name to Washington & Congress Capital Partners, L.P.) and Triumph III Investors, L.P. See "Item 13—Certain Relationships and Related Transactions" for a description of certain transactions between our company and Triumph Partners III, L.P. (which has changed its name to Washington & Congress Capital Partners, L.P.).

Stock Option Plans

1992 and 2002 Stock Option Plans

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

In March 2002, our board of directors adopted, and in June 2002 our shareholders approved, our 2002 Stock Option Plan. Options granted under the 2002 Stock Option Plan may be either incentive stock options ("Incentive Options"), which are intended to meet the requirements of section 422 of the Internal Revenue Code of 1986, or options that do not qualify as Incentive Options (which we refer to as "Non-Qualified Options"). Under the 2002 Stock Option Plan, the Compensation Committee may grant (1) Incentive Options at an exercise price per share which is not less than the fair market value of a share of our common stock on the date on which such Incentive Options are granted (and not less than 110% of the fair market value in the case of any optionee who beneficially owns more than 10% of the total combined voting power of our company) and (2) Non-Qualified Options at an exercise price per share which is determined by the Compensation Committee (and which may be less than the fair market value of a share of our common stock on the date on which such Non-Qualified Options are granted). The 2002 Stock Option Plan further provides that the maximum period in which options may be exercised will be determined by the Compensation Committee, except that Incentive Options may not be exercised after the expiration of ten years from the date the Incentive Option was initially granted (and five years in the case of any optionee who beneficially owns more than 10% of the total combined voting power of our company). Under the 2002 Stock Option Plan, if an optionee's employment is terminated, the unexercised Incentive Options generally must be exercised within three months after termination. However, if the termination is due to the optionee's death or permanent disability, the option must be exercised within one year of the termination of employment. If we terminate the optionee's employment for cause, or if the optionee voluntarily terminates his employment, his options generally will expire as of the termination date. Any option granted under the 2002 Option Stock Plan will be nontransferable, except by will or by the laws of descent and distribution, and generally may be exercised upon payment of the option price in cash or by delivery of shares of our common stock with a fair market value equal to the option price.

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

As of September 30, 2004, an aggregate of 1,791,334 shares of our common stock were issuable upon the exercise of outstanding options that had been granted under our 2002 Stock Option Plan

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and options to purchase an aggregate of 1,555,837 shares of our common stock were available for grant under such Plan. As of September 30, 2004, an aggregate of 855,000 shares of our common stock were issuable upon the exercise of outstanding options that had been granted under our 1992 Stock Option Plan. No further options may be granted under our 1992 Stock Option Plan.

1997 Non-Employee Director Plan

In May 1997, our board of directors adopted the 1997 Option Plan for Non-Employee Directors (the "Director Plan"), pursuant to which 100,000 shares of our common stock were reserved for issuance upon the exercise of options granted to non-employee directors. The purpose of the Director Plan is to encourage ownership of common stock by non-employee directors of our company whose continued services are considered essential to our company's future progress and to provide them with a further incentive to remain as directors of our company. The Director Plan is administered by the board of directors. Directors of our company who are not employees of our company or any subsidiary or affiliate of our company are eligible to participate in the Director Plan. The Director Plan will terminate in May 2007; however, options outstanding on the expiration of the term shall continue to have full force and effect in accordance with the provisions of the instruments evidencing such options. The board of directors may suspend, terminate, revise or amend the Director Plan, subject to certain limitations.

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

Shares of common stock may be purchased from our company upon the exercise of an option by payment in cash or cash equivalent, through the delivery of shares of common stock having a fair market value equal to the cash exercise price of the option or any combination of the above, subject to the discretion of the board of directors.

Recent Developments

The American Jobs Creation Act of 2004 (the "Act") became law on October 22, 2004 and contains provisions relating to nonqualified deferred compensation plans. The definition of a "nonqualified deferred compensation plan" is broad enough to include stock options, including stock options granted under our stock option plans. The Act gives the Treasury Department the authority to issue Treasury Regulations to define terms, provide exceptions, and create a window of time during which existing plans may be altered or amended in order to comply with the Act. The Act provides that all compensation deferred after December 31, 2004 under a "non-qualified deferred compensation plan" will, under certain circumstances, be includible in gross income for the tax year. The Act is not intended to change the tax treatment of incentive stock options or options granted under employee stock purchase plans. Furthermore, the Act is not intended to apply to non-qualified stock options under certain circumstances.

On December 20, 2004, the Internal Revenue Service issued Notice 2005-1 (the "Notice"), in which it provides the first part of what is expected to be a series of guidelines with respect to the application of the Act. The Notice states that the grant of an incentive stock option does not constitute a deferral of compensation. Additionally, the Notice provides that a nonqualified stock option will not provide for a deferral of compensation if: (1) the amount required to purchase stock under the option (the exercise price) may never be less than the fair market value of the underlying stock on the date the option is granted, (2) the receipt, transfer or exercise of the option is subject to taxation under Section 83 of the Internal Revenue Code of 1986, and (3) the option does not include any feature for the deferral of recognition of income until the later of exercise or disposition of the option. The Company believes that any non-qualified options that it has previously issued would satisfy the above requirements.

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Except for matters requiring stockholder approval under applicable law or Nasdaq rules, our board of directors will have the right, without further shareholder approval, to amend our stock option plans, if necessary, so that they comply with the Act, including the guidance issued pursuant thereto.

Indemnification

As permitted under the Business Corporation Law of the State of New York, our certificate of incorporation provides that a director of our company will not be personally liable to our company or our shareholders for monetary damages for breach of a fiduciary duty owed to our company or our shareholders. By its terms and in accordance with the law of the State of New York, however, this provision does not eliminate or otherwise limit the liability of a director of our company for any breach of duty based upon (1) an act or omission (a) resulting from acts committed in bad faith or involving intentional misconduct or involving a knowing violation of law or (b) from which the director personally derived a financial benefit to which he was not legally entitled, or (2) an improper declaration of dividends, purchase of our securities or other violation of section 719 of the Business Corporation Law of the State of New York.

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

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

The following table sets forth the number of shares of common stock, and the percentage of shares of common stock, beneficially owned as of December 10, 2004 by (1) each director of our company, (2) each Named Executive Officer, (3) all persons known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock, and (4) all current directors and named executive officers of our company as a group (8 persons). The information as to the number of shares of our common stock beneficially owned by the individuals and entities listed below was derived from reports filed with the Securities and Exchange Commission by such persons and company records.

Name				Number of Shares of Common Stock Beneficially Owned				Percentage of Common Stock Beneficially Owned(1)
Timothy M. Aitken					2,083,573	(2)			4.6	%
Sarah L. Eames					1,141,884	(3)			2.5	%
Charles F. Murphy					143,539	(4)				*
G. Richard Green					87,854	(5)				*
David J. Macfarlane					12,000	(6)				*
Wayne Palladino					8,914	(7)				*
Jeffrey S. Peris					11,666	(8)				*
Lewis S. Ranieri					11,920,810	(9)			26.8	%
Scott A. Shay					11,860,610	(10)			26.7	%
Hyperion Partners II L.P. ..					11,860,610	(11)			26.7	%
Hyperion TW Fund L.P. ..					11,860,610	(12)			26.7	%
Hyperion TWH Fund LLC.					11,860,610	(13)			26.7	%
Hyperion TWH Fund II LLC					11,860,610	(14)			26.7	%
Washington & Congress Capital Partners, L.P.					7,697,578	(15)			17.3	%
All current executive officers and directors as a group (8 persons).					15,350,040	(16)			33.0	%

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*	Less than 1%.

(1)	As of December 10, 2004, there were 44,468,772 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 December 10, 2004, but that no other shareholders have exercised the options held by them.

(2)

Consists of 672,007 shares of common stock held by Mr. Aitken, 98,566 shares of common stock held by Aitken (English) Company Limited, an affiliate of Mr. Aitken, 20,000 shares held by the Aitken Living Trust, a trust of which Mr. Aitken is the sole beneficiary and the sole trustee, and 1,293,000 shares subject to options held by Mr. Aitken that are exercisable within 60 days of December 10, 2004. Does not include an additional 136,000 shares subject to options held by Mr. Aitken that are not exercisable within 60 days of December 10, 2004.

(3)	Consists of 473,218 shares of common stock held by Ms. Eames, 4,000 shares of common stock held jointly by Ms. Eames and her husband and 664,666 shares subject to options held by Ms. Eames that are exercisable within 60 days of December 10, 2004. Does not include an additional 119,334 shares subject to options held by Ms. Eames that are not exercisable within 60 days of December 10, 2004.

(4)	Consists of 85,539 shares of common stock held by Mr. Murphy and 58,000 shares subject to options held by Mr. Murphy that are exercisable within 60 days of December 10, 2004. Does not include an additional 41,000 shares subject to options held by Mr. Murphy that are not exercisable within 60 days of December 10, 2004.

(5)

Consists of 60,995 shares of common stock held by Mr. Green, 19,259 shares of common stock held by Orion Nominees Limited, an affiliate of Mr. Green, 5,000 shares subject to options held by Mr. Green that are exercisable within 60 days of December 10, 2004 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.

(6)	Consists of 12,000 shares subject to options held by Mr. Macfarlane that are exercisable within 60 days of December 10, 2004. Does not include an additional 6,000 shares subject to options held by Mr. Macfarlane that are not exercisable within 60 days of December 10, 2004.

(7)	Consists of 5,914 shares of common stock held by Mr. Palladino and 3,000 shares subject to options that are exercisable within 60 days of December 10, 2004. Does not include an additional 6,000 shares subject to options held by Mr. Palladino that are not exercisable within 60 days of December 10, 2004.

(8)	Consists of 2,000 shares of common stock held by Mr. Peris and 9,666 shares subject to options held by Mr. Peris that are exercisable within 60 days of December 10, 2004. Does not include an additional 2,334 shares subject to options held by Mr. Peris that are not exercisable within 60 days of December 10, 2004.

(9)

Consists of 60,200 shares of common stock owned by Mr. Ranieri, 6,854,454 shares of common stock owned by Hyperion Partners II L.P., 4,148,456 shares of common stock owned by Hyperion TW Fund L.P., 482,700 shares of common stock owned by Hyperion TWH Fund LLC and 375,000 shares of common stock owned by Hyperion TWH Fund II LLC. Each of such entities is an affiliate of Mr. Ranieri. Mr. Ranieri disclaims beneficial ownership of the shares of common stock owned by such entities except to the extent of his pecuniary interest therein. Mr. Ranieri shares voting and dispositive power over the shares of common stock held by such entities.

(10)	Consists of 6,854,454 shares of common stock owned by Hyperion Partners II L.P., 4,148,456 shares of common stock owned by Hyperion TW Fund L.P., 482,700 shares of common stock owned by Hyperion TWH Fund LLC and 375,000 shares of common stock owned by Hyperion TWH Fund II LLC. Each of such entities is an affiliate of Mr. Shay. Mr. Shay disclaims beneficial

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	ownership of the shares of common stock owned by such entities except to the extent of his pecuniary interest therein. Mr. Shay shares voting and dispositive power over the shares of common stock held by such entities.

(11)

Consists of (a) 6,854,454 shares of common stock held by Hyperion Partners II L.P. and (b) 4,148,456 shares of common stock owned by Hyperion TW Fund L.P., 482,700 shares of common stock owned by Hyperion TWH Fund LLC and 375,000 shares of common stock owned by Hyperion TWH Fund II LLC, each of which are affiliates of Hyperion Partners II L.P. and as to which Hyperion Partners II L.P. disclaims beneficial ownership except to the extent of its pecuniary interest therein. Scott A. Shay, a director of our company, may be deemed to be the beneficial owner of all of such shares of common stock. Mr. Shay disclaims beneficial ownership in such shares except to the extent of his pecuniary interest therein.

(12)

Consists of (a) 4,148,456 shares of common stock held by Hyperion TW Fund L.P. and (b) 6,854,454 shares of common stock owned by Hyperion Partners II L.P., 482,700 shares of common stock owned by Hyperion TWH Fund LLC and 375,000 shares of common stock owned by Hyperion TWH Fund II LLC, each of which are affiliates of Hyperion TW Fund L.P. and as to which Hyperion TW Fund L.P. disclaims beneficial ownership. Scott A. Shay, a director of our company, may be deemed to be the beneficial owner of all of such shares of common stock. Mr. Shay disclaims beneficial ownership in such shares except to the extent of his pecuniary interest therein.

(13)

Consists of (a) 482,700 shares of common stock held by Hyperion TWH Fund LLC and (b) 6,854,454 shares of common stock owned by Hyperion Partners II L.P., 4,148,456 shares of common stock owned by Hyperion TW Fund L.P. and 375,000 shares of common stock owned by Hyperion TWH Fund II LLC, each of which are affiliates of Hyperion TWH Fund LLC and as to which Hyperion TWH Fund LLC disclaims beneficial ownership. Scott A. Shay, a director of our company, may be deemed to be the beneficial owner of all of such shares of common stock. Mr. Shay disclaims beneficial ownership in such shares except to the extent of his pecuniary interest therein.

(14)

Consists of (a) 375,000 shares of common stock held by Hyperion TWH Fund II LLC and (b) 6,854,454 shares of common stock owned by Hyperion Partners II L.P., 4,148,456 shares of common stock owned by Hyperion TW Fund L.P. and 482,700 shares of common stock owned by Hyperion TWH Fund LLC, each of which are affiliates of Hyperion TWH Fund II LLC and as to which Hyperion TWH Fund II LLC disclaims beneficial ownership. Scott A. Shay, a director of our company, may be deemed to be the beneficial owner of all of such shares of common stock. Mr. Shay disclaims beneficial ownership in such shares except to the extent of his pecuniary interest therein.

(15)	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.

(16)	Includes an aggregate of 2,045,332 shares subject to options held by our executive officers and directors that are exercisable within 60 days of December 10, 2004 and 2,600 shares owned of record by Mr. Green's wife, as to which Mr. Green disclaims beneficial ownership.

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Equity Compensation Plan Information

The following table sets forth certain information as of September 30, 2004 regarding compensation plans under which equity securities of our company are authorized for issuance:

Equity Compensation Plan Information

Plan Category				Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a)				Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (b)				Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (c)
Equity compensation plans approved by shareholders					2,996,334			$	4.93				1,555,837
Equity compensation plans not approved by shareholders					—				—				—
Total					2,996,334			$	4.93				1,555,837

Item 13.    Certain Relationships and Related Transactions.

Conversion of Series A Preferred Stock

In July 2004, upon the consummation of our public offering of shares of our common stock, all of the holders of our Series A preferred stock converted their shares into shares of our common stock, on a one-for-one basis. We paid to such holders, in addition to the accrued and unpaid dividends on their shares of Series A preferred stock, a conversion fee of $0.26165 per share. The holders of Series A preferred stock who are affiliates of our company and who converted their shares of Series A preferred stock into shares of our common stock, together with their holdings of Series A preferred stock, the amount of the accrued and unpaid dividends that we paid them and the amount of the conversion fee that we paid them, are set forth below.

Name				Number of Shares of Series A Preferred Stock Held				Accrued and Unpaid Dividends				Conversion Fee
Aitken (English) Company Limited(1)					87,200			$	82,874			$	22,816
Timothy M. Aitken					87,200			$	82,874			$	22,816
Sarah L. Eames					21,580			$	20,509			$	5,647
Charles F. Murphy					17,440			$	16,575			$	4,563
Orion Nominees Limited(2)					17,440			$	16,575			$	4,563
Wayne Palladino					5,232			$	4,972			$	1,369
Washington & Congress Capital Partners, L.P.(3)					6,547,674			$	6,222,821			$	1,713,217

(1)	Aitken (English) Company Limited is an affiliate of Timothy M. Aitken.

(2)	Orion Nominees Limited is an affiliate of G. Richard Green.

(3)	Does not include 79,526 shares of Series A preferred stock held by Triumph III Investors, L.P. or the conversion fee paid to Triumph III Investors, L.P.

Other Transactions with Directors and Executive Officers

On December 2, 2003, Mr. Aitken and Ms. Eames repaid in full the principal amount of and accrued interest on the promissory notes issued by them to our company in connection with the Reorganization in 2002. The principal and accrued interest repaid aggregated $590,500 and $418,718,

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respectively. The loans were repaid by delivery to us of 103,596 and 73,459 shares of common stock held by Mr. Aitken and Ms. Eames, respectively, valued at $5.70 per share, the closing price on the day prior to the repayment date. We agreed to reimburse Mr. Aitken and Ms. Eames for the taxes incurred by them on the disposition of the shares to our company, which were $83,395 and $51,421, respectively. See "Item 11—Executive Compensation—The Bonus Share Issuance and Related Transactions."

Our board of directors, upon the recommendation of our Compensation Committee, awarded Mr. Aitken, effective December 2, 2003, 350,000 options to acquire common stock, vesting immediately and exercisable at a price of $5.70 per share, and, on November 25, 2003, a cash bonus of $400,000. Our board of directors, also upon the recommendation of our Compensation Committee, awarded Ms. Eames, effective December 2, 2003, 300,000 options to acquire common stock, vesting immediately and exercisable at a price of $5.70 per share, and, on November 25, 2003, a cash bonus of $300,000. See "Item 11—Executive Compensation."

In November 2004, Ms. Eames stepped down as chief executive officer, president and chief operating officer of our company and assumed the office of executive vice president. In connection therewith, Ms. Eames and our company modified her employment agreement, as described elsewhere herein (see "Item 11—Executive Compensation— Employment Agreements; Termination of Employment and Change-in-Control Arrangements"), and our board of directors, upon the recommendation of the compensation committee, granted her special compensation of $1 million for past services rendered to our company.

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

Item 14.    Principal Accountant Fees and Services.

Audit and Other Fees During Fiscal 2003 and Fiscal 2004

The following table sets forth the fees we were billed in respect of our fiscal years ended September 30, 2003 and September 30, 2004 for various audit and other services provided to us by our auditors, Deloitte & Touche LLP.

				Fiscal 2003				Fiscal 2004
Audit fees				$	650,497			$	1,170,519
Audit-related fees					60,022				111,137
Tax fees					439,294				442,966
All other fees					—				—

Audit services included the audit of our annual financial statements and the review of financial statements included in our quarterly reports on Form 10-Q. Audit services also included services that were provided in connection with regulatory filings, including the issuance of comfort letters and consents related to SEC filings and securities offerings.

Audit-related services are assurance and related services that are related to the performance of the audit or review of our financial statements. These services principally consisted of work performed in connection with audits of our 401(k) plan and fees associated with compliance matters related to acquisitions.

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

Pre-Approval Policy

The charter of the Audit Committee was revised and restated by the board of directors on February 12, 2004. At such time, the charter of the Audit Committee was revised to implement a pre-approval policy for the provision of audit and non-audit services. Pursuant to the provisions of its

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charter, the Audit Committee pre-approves all auditing services and permitted audit-related services (including the fees and terms thereof) to be performed for us by our independent auditor, subject to the de minimus exception (the "de minimus exception") for non-audit services that are permitted by the Securities Exchange Act of 1934 and that are approved by the Audit Committee prior to the completion of the audit. The Audit Committee may form and delegate authority to subcommittees consisting of one or more members when appropriate, including the authority to grant pre-approvals of audit and permitted non-audit services, provided that a decision of such a subcommittee to grant pre-approvals shall be presented to the full Audit Committee at its next scheduled meeting.

None of the audit-related services, tax services or other services described above under "Audit and Other Fees During Fiscal 2003 and Fiscal 2004" were approved by the Audit Committee after the fact in reliance upon the de minimus exception.

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PART IV

Item 15.    Exhibits and Financial Statement Schedules.

(a)    The following documents are filed as part of this Annual Report on Form 10-K:

(1)				Consolidated Financial Statements:				Page
				Report of Independent Registered Public Accounting Firm				F-1
				Report of Independent Registered Public Accounting Firm				F-2
				Consolidated Balance Sheets – September 30, 2004 and 2003				F-3
				Consolidated Statements of Operations – For the Years Ended September 30, 2004, 2003 and 2002				F-4
				Consolidated Statements of Changes in Stockholders' Equity – For the Years Ended September 30, 2004, 2003 and 2002				F-5
				Consolidated Statements of Cash Flows – For the Years Ended September 20, 2004, 2003 and 2002				F-6
				Notes to Consolidated Financial Statements				F-8
(2)				Consolidated Financial Statement Schedules:
				Schedule I – Condensed Financial Information				S-1
				Schedule II – Valuation and Qualifying Accounts				S-5
				Schedules 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.

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(3)

Exhibits:

Exhibit Number				Title
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).
3.2				Certificate of Amendment to the Restated 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).
3.3				Certificate of Amendment to the Restated 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).
3.4				Certificate of Amendment to the Restated 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).
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).
3.6				Certificate of Amendment to 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 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).
3.7				Certificate of Amendment to the Certificate of Incorporation of Allied Healthcare International Inc. which 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).
3.8				Certificate of Amendment to 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 March 31, 2003).

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Exhibit Number				Title
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 New York Secretary of State 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).
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).
3.11				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).
3.12				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).
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).
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).
10.2				Form of Indemnification Agreement for officers and directors (incorporated herein by reference to Exhibit 10.31 of our Annual Report on Form 10-K for the fiscal year ended October 31, 1994).
10.3				Transworld Home HealthCare, Inc. 1997 Option Plan for Non-Employee Directors (incorporated herein by reference to Exhibit A of our Proxy Statement for our annual meeting of shareholders held on May 28, 1997).
10.4A				Voting Trust Agreement dated December 17, 1999 by and among Transworld Holdings (UK) Limited (now known as Allied Healthcare Group Limited), Transworld Healthcare (UK) Limited (now known as Allied Healthcare Holdings Limited), Transworld Healthcare, Inc. (now known as Allied Healthcare International Inc.), Triumph Partners III, L.P. and Richard Green, as trustee (incorporated herein by reference to Exhibit 10.65 of our Annual Report on Form 10-K for the fiscal year ended September 30, 1999).
10.4B				Amendment No. 1, dated as of July 25, 2002, among Allied Healthcare Group Limited, Transworld Healthcare (UK) Limited (now known as Allied Healthcare Holdings Limited), Transworld Healthcare, Inc. (now known as Allied Healthcare International Inc.), Triumph Partners III, L.P. and Richard Green to the Voting Trust Agreement dated December 17, 1999 (incorporated herein by reference to Exhibit 10.6 of our Current Report on Form 8-K filed with the Securities and Exchange Commission on August 9, 2002).

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Exhibit Number				Title
10.4C				Deed of Termination, dated June 30, 2004, among Allied Healthcare Group Limited, Allied Healthcare Holdings Limited, Allied Healthcare International Inc., Washington & Congress Capital Partners, L.P. and Richard Green (incorporated herein by reference to Exhibit 10.3 of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2004).
10.5A				Securities Purchase Agreement, dated December 17, 1999, among Transworld Holdings (UK) Limited (now known as Allied Healthcare Group Limited), Transworld Healthcare (UK) Limited (now known as Allied Healthcare Holdings Limited) and the Purchasers identified therein (incorporated herein by reference to Exhibit 10.66 of our Annual Report on Form 10-K for the fiscal year ended September 30, 1999).
10.5B				Amendment No. 1, dated as of July 25, 2002, among Allied Healthcare Group Limited, Transworld Healthcare (UK) Limited (now known as Allied Healthcare Holdings Limited) and the Purchasers identified therein to the Securities Purchase Agreement dated December 17, 1999 (incorporated herein by reference to Exhibit 10.4 of our Current Report on Form 8-K filed with the Securities and Exchange Commission on August 9, 2002).
10.6A				Senior Credit Agreement, dated as of December 17, 1999, among Transworld Holdings (UK) Limited (now known as Allied Healthcare Group Limited), Transworld Healthcare (UK) Limited (now known as Allied Healthcare Holdings Limited), Paribas as Arranger, Paribas and Barclays Bank plc as Underwriters, Barclays Bank plc as Agent and Security Agent and others (incorporated herein by reference to Exhibit 10.67 of our Annual Report on Form 10-K for the fiscal year ended September 30, 1999).
10.6B				Second Amendment Agreement, dated September 27, 2001, relating to the Senior Credit Agreement dated December 17, 1999 among Allied Healthcare Group Limited, Transworld Healthcare (UK) Limited (now known as Allied Healthcare Holdings Limited), BNP Paribas as Arranger, Underwriter and Agent, Barclays Bank plc as Agent and Security Agent and others (incorporated herein by reference to Exhibit 10.4 of our Current Report on Form 8-K filed with the Securities and Exchange Commission on October 12, 2001).
10.6C				Letter, dated October 1, 2003, from Barclays Bank plc to Allied Healthcare Group Limited amending the Senior Credit Agreement dated December 17, 1999 (incorporated herein by reference to Exhibit 10.30 to our Registration Statement on Form S-1 (Reg. No. 333-115559) filed with the Securities and Exchange Commission on May 17, 2004).
10.6D				Letter, dated February 4, 2004, from Barclays Bank plc to Allied Healthcare Group Limited amending the Senior Credit Agreement dated December 17, 1999 (incorporated herein by reference to Exhibit 10.32 to our Registration Statement on Form S-1 (Reg. No. 333-115559) filed with the Securities and Exchange Commission on May 17, 2004).
10.6E				Letter, dated March 8, 2004, from Barclays Bank plc to Allied Healthcare Group Limited amending the Senior Credit Agreement dated December 17, 1999 (incorporated herein by reference to Exhibit 10.34 to our Registration Statement on Form S-1 (Reg. No. 333-115559) filed with the Securities and Exchange Commission on May 17, 2004).
10.7A				Mezzanine Credit Agreement, dated as of December 17, 1999, among Transworld Holdings (UK) Limited (now known as Allied Healthcare Group Limited), Transworld Healthcare (UK) Limited (now known as Allied Healthcare Holdings Limited), Paribas as Arranger, Underwriter and Agent, Barclays Bank plc as Security Agent and others (incorporated herein by reference to Exhibit 10.68 of our Annual Report on Form 10-K for the fiscal year ended September 30, 1999).

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Exhibit Number				Title
10.7B				Second Amendment Agreement, dated September 27, 2001, relating to the Mezzanine Credit Agreement dated December 17, 1999 among Allied Healthcare Group Limited, Transworld Healthcare (UK) Limited (now known as Allied Healthcare Holdings Limited), BNP Paribas as Arranger, Underwriter and Agent, Barclays Bank plc as Agent and Security Agent and others (incorporated herein by reference to Exhibit 10.3 of our Current Report on Form 8-K filed with the Securities and Exchange Commission on October 12, 2001).
10.7C				Letter, dated October 1, 2003, from BNP Paribas to Allied Healthcare Group Limited amending the Mezzanine Credit Agreement dated December 17, 1999 (incorporated herein by reference to Exhibit 10.31 to our Registration Statement on Form S-1 (Reg. No. 333-115559) filed with the Securities and Exchange Commission on May 17, 2004).
10.7D				Letter, dated February 4, 2004, from BNP Paribas to Allied Healthcare Group Limited amending the Mezzanine Credit Agreement dated December 17, 1999 (incorporated herein by reference to Exhibit 10.33 to our Registration Statement on Form S-1 (Reg. No. 333-115559) filed with the Securities and Exchange Commission on May 17, 2004).
10.7E				Letter, dated March 8, 2004, from BNP Paribas to Allied Healthcare Group Limited amending the Mezzanine Credit Agreement dated December 17, 1999 (incorporated herein by reference to Exhibit 10.35 to our Registration Statement on Form S-1 (Reg. No. 333-115559) filed with the Securities and Exchange Commission on May 17, 2004).
10.8				Warrant Instrument to subscribe for shares in Transworld Healthcare (UK) Limited (now known as Allied Healthcare Holdings Limited) in favor of the mezzanine lenders, dated as of December 17, 1999 (incorporated herein by reference to Exhibit 10.69 of our Annual Report on Form 10-K for the fiscal year ended September 30, 1999).
10.9A				Employment Agreement, dated September 24, 2001, between Transworld Healthcare, Inc. (now known as Allied Healthcare International Inc.) and Timothy M. Aitken (incorporated herein by reference to Exhibit 10.16 of our Annual Report on Form 10-K for the fiscal year ended September 30, 2001).
10.9B				Employment Agreement, dated September 24, 2001, between Transworld Healthcare, Inc. (now known as Allied Healthcare International Inc.) and Sarah Eames (incorporated herein by reference to Exhibit 10.17 of our Annual Report on Form 10-K for the fiscal year ended September 30, 2001).
10.9C				Amendment No. 1, dated November 17, 2004, to the Employment Agreement , dated September 24, 2001, between Allied Healthcare International Inc. and Sarah L. Eames (incorporated herein by reference to Exhibit 10.1 of our Current Report on Form 8-K filed with the Securities and Exchange Commission on November 17, 2004).
10.10A				Master Reorganization Agreement, dated as of April 24, 2002, among Transworld Healthcare, Inc. (now known as Allied Healthcare International Inc.), Allied Healthcare Group Limited, Transworld Healthcare (UK) Limited (now known as Allied Healthcare Holdings Limited) and the Investors named therein (incorporated herein by reference to Annex A-1 to the proxy statement/prospectus forming a part of our Registration Statement on Form S-4 (Reg. St. No. 333-87304) filed with the Securities and Exchange Commission on May 1, 2002).

49

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Exhibit Number				Title
10.10B				First Amendment to Master Reorganization Agreement, dated as of May 16, 2002, by and among Transworld Healthcare, Inc. (now known as Allied Healthcare International Inc.), Allied Healthcare Group Limited, Transworld Healthcare (UK) Limited (now known as Allied Healthcare Holdings Limited) and the Investors named therein (incorporated herein by reference to Exhibit 10.17A 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).
10.10C				Second Amendment to Master Reorganization Agreement, dated as of June 26, 2002, by and among Transworld Healthcare, Inc. (now known as Allied Healthcare International Inc.), Allied Healthcare Group Limited, Transworld Healthcare (UK) Limited (now known as Allied Healthcare Holdings Limited) and the Investors named therein (incorporated herein by reference to Exhibit 10.3 of our Current Report on Form 8-K filed with the Securities and Exchange Commission on August 9, 2002).
10.11				Registration Rights Agreement, dated as of July 25, 2002, among Transworld Healthcare, Inc. (now known as Allied Healthcare International Inc.) and the persons named therein (incorporated herein by reference to Exhibit 10.5 of our Current Report on Form 8-K filed with the Securities and Exchange Commission on August 9, 2002).
10.12A				Tax Bonus, Tax Loan and Tax Indemnification Agreement, dated as of April 22, 2002, by and among Transworld Healthcare (UK) Limited (now known as Allied Healthcare Holdings Limited), Transworld Healthcare, Inc. (now known as Allied Healthcare International Inc.) and Timothy M. Aitken (incorporated herein by reference to Exhibit 10.21 of our Registration Statement on Form S-4 (Reg. St. No. 333-87304) filed with the Securities and Exchange Commission on May 1, 2002).
10.12B				Tax Bonus, Tax Loan and Tax Indemnification Agreement, dated as of April 22, 2002, by and among Transworld Healthcare (UK) Limited (now known as Allied Healthcare Holdings Limited), Transworld Healthcare, Inc. (now known as Allied Healthcare International Inc.) and Sarah L. Eames (incorporated herein by reference to Exhibit 10.22 of our Registration Statement on Form S-4 (Reg. St. No. 333-87304) filed with the Securities and Exchange Commission on May 1, 2002).
10.13A				Promissory Note, dated April 30, 2002, executed by Timothy M. Aitken in favor of Transworld Healthcare, Inc. (now known as Allied Healthcare International Inc.) (incorporated herein by reference to Exhibit 10.7A of our Quarterly Report on Form 10-Q for the quarterly period ended June 10, 2002).
10.13B				Promissory Note, dated April 30, 2002, executed by Sarah L. Eames in favor of Transworld Healthcare, Inc. (now known as Allied Healthcare International Inc.) (incorporated herein by reference to Exhibit 10.7B of our Quarterly Report on Form 10-Q for the quarterly period ended June 10, 2002).
10.14A				Pledge and Security Agreement, dated as of April 30, 2002, between Timothy M. Aitken and Transworld Healthcare, Inc. (now known as Allied Healthcare International Inc.) (incorporated herein by reference to Exhibit 10.8A of our Quarterly Report on Form 10-Q for the quarterly period ended June 10, 2002).
10.14B				Pledge and Security Agreement, dated as of April 30, 2002, between Sarah L. Eames and Transworld Healthcare, Inc. (now known as Allied Healthcare International Inc.) (incorporated herein by reference to Exhibit 10.8B of our Quarterly Report on Form 10-Q for the quarterly period ended June 10, 2002).

50

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Exhibit Number				Title
10.15				Registration Rights Agreement, dated April 30, 2002, among Transworld Healthcare, Inc. (now known as Allied Healthcare International Inc.), Timothy M. Aitken and Sarah L. Eames (incorporated herein by reference to Exhibit 10.25 of our Registration Statement on Form S-4 (Reg. St. No. 333-87304) filed with the Securities and Exchange Commission on May 1, 2002).
10.16A				Irrevocable Undertaking, dated April 22, 2002, of Timothy M. Aitken relating to the redeemable shares of Transworld Healthcare (UK) Limited (now known as Allied Healthcare Holdings Limited) (incorporated herein by reference to Exhibit 10.26 of our Registration Statement on Form S-4 (Reg. St. No. 333-87304) filed with the Securities and Exchange Commission on May 1, 2002).
10.16B				Irrevocable Undertaking, dated April 22, 2002, of Sarah L. Eames relating to the redeemable shares of Transworld Healthcare (UK) Limited (now known as Allied Healthcare Holdings Limited) (incorporated herein by reference to Exhibit 10.27 of our Registration Statement on Form S-4 (Reg. St. No. 333-87304) filed with the Securities and Exchange Commission on May 1, 2002).
10.17				Stock Purchase Agreement, dated as of April 22, 2002, among Transworld Healthcare, Inc. (now known as Allied Healthcare International Inc.), Hyperion TWH Fund II LLC, Triumph Partners III, L.P. and Triumph III Investors, L.P. (incorporated herein by reference to Exhibit 10.28 of our Registration Statement on Form S-4 (Reg. St. No. 333-87304) filed with the Securities and Exchange Commission on May 1, 2002).
10.18				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).
10.19				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).
10.20				Stock Purchase Agreement, dated as of April 6, 2002, by and between Promptcare Acquisition Corporation and Allied Healthcare International Inc. (incorporated herein by reference to Exhibit 10.1 of our Current Report on Form 8-K filed with the Securities and Exchange Commission on April 17, 2003).
10.21A				Letter agreement, dated December 2, 2003, between Timothy M. Aitken and Allied Healthcare International Inc. relating to loan repayment (incorporated herein by reference to Exhibit 10.36A to our Registration Statement on Form S-1 (Reg. No. 333-115559) filed with the Securities and Exchange Commission on May 17, 2004).
10.21B				Letter agreement, dated December 2, 2003, between Sarah L. Eames and Allied Healthcare International Inc. relating to loan repayment (incorporated herein by reference to Exhibit 10.36B to our Registration Statement on Form S-1 (Reg. No. 333-115559) filed with the Securities and Exchange Commission on May 17, 2004).
10.22				Employment Agreement, dated March 29, 2000, between Allied Medicare Limited and Charles Murphy (incorporated herein by reference to Exhibit 10.37 to our Registration Statement on Form S-1 (Reg. No. 333-115559) filed with the Securities and Exchange Commission on May 17, 2004).

51

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Exhibit Number				Title
10.23				Form of Conversion Agreement between Allied Healthcare International Inc. and the holders of the shares of Series A Convertible Preferred Stock (incorporated herein by reference to Exhibit 10.38 to our Registration Statement on Form S-1 (Reg. No. 333-115559) filed with the Securities and Exchange Commission on May 17, 2004).
10.24				Agreement, dated February 17, 2004, among Allied Healthcare (UK) Limited and Atos KPMG Consulting Limited (incorporated herein by reference to Exhibit 10.1 of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2004).
10.25				Underwriting Agreement, dated July 1, 2004, between the Company and the underwriters named therein (incorporated herein by referenced to Exhibit 10.1 of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2004).
10.26				Facility Agreement, dated July 19, 2004, among Allied Healthcare Group Limited, Allied Healthcare International, Inc., Allied Healthcare Holdings Limited, the subsidiaries of Allied Healthcare International Inc. named therein as guarantors, Barclays Capital and Lloyds TSB Bank plc, as arrangers, and the other banks named therein (incorporated herein by referenced to Exhibit 10.4 of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2004).
10.27				Floating Security Document, dated July 19, 2004, among Allied Healthcare Group Limited, Allied Healthcare Holdings Limited, the subsidiaries of Allied Healthcare International Inc. named therein, and Barclays Bank plc, as security agent (incorporated herein by referenced to Exhibit 10.5 of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2004).
10.28				Subordination Deed, dated July 19, 2004, among Allied Healthcare International Inc., Barclays Bank plc and Allied Healthcare Group Limited (incorporated herein by referenced to Exhibit 10.6 of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2004).
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).
21*				Subsidiaries of Allied Healthcare International Inc.
23.1*				Consent of Deloitte & Touche LLP, independent registered public accounting firm of Allied Healthcare International Inc.
23.2*				Consent of Ernst & Young LLP, independent registered public accounting firm of Allied Healthcare International Inc.
31.1*				Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
31.2*				Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
32.1*				Section 1350 Certification of Chief Executive Officer.
32.2*				Section 1350 Certification of Chief Financial Officer.

*	Filed herewith.

52

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

				ALLIED HEALTHCARE INTERNATIONAL INC.
				By:				/s/ Timothy M. Aitken
								Name:  Timothy M. Aitken Title:  Chairman of the Board and Chief Executive Officer

Dated:    December 22, 2004

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints Sarah L. Eames, Charles F. Murphy and Marvet Abbassi, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

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

/s/ Timothy M. Aitken		Chairman of the Board and Chief Executive Officer (principal executive officer)		December 22, 2004
Timothy M. Aitken
/s/ Sarah L. Eames		Executive Vice President and Director		December 22, 2004
Sarah L. Eames
/s/ Charles F. Murphy		Chief Financial Officer (principal financial and accounting officer)		December 22, 2004
Charles F. Murphy
/s/ G. Richard Green		Director		December 22, 2004
G. Richard Green
/s/ David J. Macfarlane		Director		December 22, 2004
David J. Macfarlane
/s/ Wayne Palladino		Director		December 22, 2004
Wayne Palladino
/s/ Jeffrey S. Peris		Director		December 20, 2004
Jeffrey S. Peris
/s/ Scott A. Shay		Director		December 22, 2004
Scott A. Shay

53

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ALLIED HEALTHCARE INTERNATIONAL INC.

Index to Consolidated Financial Statements				Page
Report of Independent Registered Public Accounting Firm					F-1
Report of Independent Registered Public Accounting Firm					F-2
Consolidated Balance Sheets — September 30, 2004 and 2003					F-3
Consolidated Statements of Operations — for the years ended September 30, 2004, 2003 and 2002					F-4
Consolidated Statements of Changes in Shareholders' Equity — for the years ended September 30, 2004, 2003 and 2002					F-5
Consolidated Statements of Cash Flows — for the years ended September 30, 2004, 2003 and 2002					F-6
Notes to Consolidated Financial Statements					F-8
Index to Consolidated Financial Statement Schedules
Schedule I — Condensed Financial Information					S-1
Schedule II — Valuation and Qualifying Accounts					S-5

F-i

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Allied Healthcare International Inc.
New York, NY

We have audited the accompanying consolidated balance sheets of Allied Healthcare International Inc. and subsidiaries (the "Company") as of September 30, 2004 and 2003, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the two years in the period ended September 30, 2004. Our audits also included the financial statement schedules listed in the Index at Item 15. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2004 and 2003, and the results of its operations and its cash flows for each of the two years in the period ended September 30, 2004, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules for each of the two years in the period ended September 30, 2004, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.

/s/ DELOITTE & TOUCHE LLP

    
Jericho, New York
December 21, 2004

F-1

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Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors
Allied Healthcare International Inc.

    
We have audited the accompanying consolidated statement of operations, shareholders' equity, and cash flow of Allied Healthcare International Inc. (the "Company") for the year ended September 30, 2002. Our audit also included the financial statement schedules listed in the Index at Item 15 for the year ended September 30, 2002. These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated result of operations and cash flow of Allied Healthcare International Inc. for the year ended September 30, 2002, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules for the year ended September 30, 2002, when considered in relation to the basic financial statement taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 2, the Company changed its method of accounting for goodwill and other intangibles effective October 1, 2001.

Ernst & Young LLP

New York, New York
November 8, 2002

F-2

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ALLIED HEALTHCARE INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)

ASSETS				September 30, 2004				September 30, 2003
Current assets:
Cash and cash equivalents				$	9,299			$	21,691
Restricted cash					1,799				37,693
Accounts receivable, less allowance for doubtful accounts of $1,269 and $3,346, respectively					31,263				35,745
Unbilled accounts receivable					9,325				11,278
Inventories					403				431
Prepaid expenses and other assets					2,080				1,772
Total current assets					54,169				108,610
Property and equipment, net					16,584				10,326
Restricted cash					—				3,008
Intangible assets, net					210,416				185,722
Derivative asset					312				—
Deferred financing costs and other assets					913				4,002
Total assets				$	282,394			$	311,668
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable				$	1,799			$	37,693
Current portion of long-term debt					10,796				9,005
Dividends payable					—				4,464
Liabilities of discontinued operations					690				690
Accounts payable					1,700				2,676
Accrued expenses					24,950				24,969
Taxes payable					766				4,332
Total current liabilities					40,701				83,829
Long-term debt					52,183				118,680
Derivative liability					—				211
Deferred income taxes and other long-term liabilities					2,533				634
Total liabilities					95,417				203,354
Commitments and contingencies
Redeemable convertible Series A preferred stock, $.01 par value; authorized 8,000 shares, 7,774 shares issued and outstanding at September 30, 2003 (liquidation value $35,213)					—				33,151
Shareholders' equity:
Preferred stock, $.01 par value; authorized 10,000 shares, no shares issued and outstanding at September 30, 2004					—				—
Common stock, $.01 par value; authorized 80,000 shares, issued 45,050 and 22,689 shares, respectively					450				227
Additional paid-in capital					236,988				142,897
Accumulated other comprehensive income					10,778				3,140
Accumulated deficit					(58,945	)			(68,814	)
					189,271				77,450
Less notes receivable from officers					—				(1,002	)
Less cost of treasury stock (585 and 408 shares, respectively)					(2,294	)			(1,285	)
Total shareholders' equity					186,977				75,163
Total liabilities and shareholders' equity				$	282,394			$	311,668

See notes to consolidated financial statements.

F-3

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ALLIED HEALTHCARE INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

				Year Ended September 30, 2004				Year Ended September 30, 2003				Year Ended September 30, 2002
Revenues:
Net patient services				$	317,393			$	287,964			$	237,890
Net respiratory, medical equipment and supplies					7,905				6,415				4,938
Total revenues					325,298				294,379				242,828
Cost of revenues:
Patient services					227,816				209,422				173,869
Respiratory, medical equipment and supplies					4,311				3,634				2,880
Total cost of revenues					232,127				213,056				176,749
Gross profit					93,171				81,323				66,079
Selling, general and administrative expenses					63,544				53,648				48,847
Operating income					29,627				27,675				17,232
Interest income					(852	)			(2,032	)			(3,024	)
Interest expense					14,579				13,311				16,496
Gain on settlement of PIK interest					—				—				(5,143	)
Foreign exchange loss					184				18				19
Income before income taxes, minority interest and discontinued operations					15,716				16,378				8,884
Provision for income taxes					5,847				4,910				4,971
Income before minority interest and discontinued operations					9,869				11,468				3,913
Minority interest					—				—				120
Income from continuing operations					9,869				11,468				3,793
Discontinued operations:
(Loss) income from discontinued operations					—				(16	)			1,001
Gain on disposal of subsidiaries, net of taxes of $775					—				519				—
					—				503				1,001
Net income					9,869				11,971				4,794
Redeemable preferred dividends, conversion fees and accretion					7,020				4,005				1,016
Net income available to common shareholders				$	2,849			$	7,966			$	3,778
Basic and diluted income per share of common stock from:
Income from continuing operations				$	0.10			$	0.34			$	0.15
Income from discontinued operations					—				0.02				0.05
Net income available to common shareholders				$	0.10			$	0.36			$	0.20
Weighted average number of common shares outstanding:
Basic					27,419				21,962				18,565
Diluted					28,104				22,304				18,932

See notes to consolidated financial statements.

F-4

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ALLIED HEALTHCARE INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)

				Common Stock								Additional Paid-in Capital				Accumulated Other Comprehensive (Loss) Income				Retained (Deficit) Earnings				Officers' Loans				Treasury Shares				Total
				Shares				Amount
Balance, October 1, 2001					17,555			$	176			$	128,077			$	(5,600	)		$	(85,579	)		$	—			$	(720	)		$	36,354
Comprehensive income:
Net income																					4,794												4,794
Foreign currency translation adjustment																	2,488																2,488
Comprehensive income																																	7,282
Issuance of common stock for:
Hyperion shares					375				4				1,590																				1,594
Triumph shares					375				4				1,590																				1,594
Non-cash based compensation					1,171				11				4,205																				4,216
Reorganization					1,469				14				5,727																				5,741
Common stock issuance costs													(864	)																			(864	)
Accretion of Series A preferred stock issuance costs													(75	)																			(75	)
Dividends on Series A preferred stock													(941	)																			(941	)
Notes issued to officers																									(940	)							(940	)
Interest on notes to officers																									(18	)							(18	)
Balance, September 30, 2002					20,945				209				139,309				(3,112	)			(80,785	)			(958	)			(720	)			53,943
Comprehensive income:
Net income																					11,971												11,971
Foreign currency translation adjustment																	6,252																6,252
Comprehensive income																																	18,223
Issuance of common stock for:
Reorganization					890				9				3,471																				3,480
Acquisition of Medic-One Group Limited					670				7				2,873																				2,880
Exercise of stock options					184				2				666																				668
Common stock issuance costs													(20	)																			(20	)
Accretion of Series A preferred stock issuance costs													(482	)																			(482	)
Dividends on Series A preferred stock													(3,523	)																			(3,523	)
Issuance of warrants for professional services													603																				603
Cost of treasury shares																													(565	)			(565	)
Interest on notes to officers																									(44	)							(44	)
Balance, September 30, 2003					22,689				227				142,897				3,140				(68,814	)			(1,002	)			(1,285	)			75,163
Comprehensive income:
Net income																					9,869												9,869
Foreign currency translation adjustment																	7,638																7,638
Comprehensive income																																	17,507
Issuance of common stock for:
Offering					14,500				145				70,905																				71,050
Conversion of Series A preferred stock					7,774				77				35,136																				35,213
Exercise of stock options					87				1				400																				401
Common stock issuance costs													(5,335	)																			(5,335	)
Conversion fees paid to Series A preferred shareholders, net of conversion agreements claw back feature													(2,029	)																			(2,029	)
Write-off of remaining Series A preferred stock issuance costs													(1,696	)																			(1,696	)
Accretion of Series A preferred stock issuance costs													(366	)																			(366	)
Dividends on Series A preferred stock													(2,924	)																			(2,924	)
Interest on notes to officers																									(7	)							(7	)
Repayment of notes issued to officers																									1,009				(1,009	)			(—	)
Balance, September 30, 2004					45,050			$	450			$	236,988			$	10,778			$	(58,945	)		$	—			$	(2,294	)		$	186,977

See notes to consolidated financial statements.

F-5

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ALLIED HEALTHCARE INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

				Year Ended September 30, 2004				Year Ended September 30, 2003				Year Ended September 30, 2002
Cash flows from operating activities:
Net income				$	9,869			$	11,971			$	4,794
Adjustments to reconcile net income to net cash provided by operating activities:
Income from discontinued operations					—				(503	)			(1,001	)
Depreciation and amortization					2,419				1,778				1,337
Amortization of other intangible assets					644				207				—
Amortization of debt issuance costs and warrants					1,645				1,858				2,218
(Reversal of) provision for allowance for doubtful accounts					(1,653	)			1,205				985
Loss (gain) on sale of fixed assets					3				(48	)			(13	)
Interest in kind					540				645				3,063
Minority interest					—				—				120
Stock based compensation - employees					—				587				5,835
Interest accrued on loans to officers					(7	)			(44	)			(18	)
Write-off of deferred financing fees and debt discount					4,152				613				925
Gain on settlement of PIK interest					—				—				(5,143	)
Gain on acquisition of minority interest					—				—				(179	)
Deferred income taxes					1,030				(906	)			159
Changes in assets and liabilities, excluding the effect of businesses acquired and sold:
Decrease (increase) in accounts receivable					9,479				(30	)			(3,251	)
Decrease (increase) in inventories					61				(45	)			1
Decrease (increase) in prepaid expenses and other assets					2,861				(3,313	)			(1,434	)
(Decrease) increase in accounts payable and other liabilities					(7,489	)			674				(1,268	)
Net cash provided by continuing operations					23,554				14,649				7,130
Net cash provided by discontinued operations					—				461				2,936
Net cash provided by operating activities					23,554				15,110				10,066
Cash flows from investing activities:
Capital expenditures					(7,829	)			(4,026	)			(3,091	)
Proceeds from sale of property and equipment					29				175				105
Notes issued to officers					—				—				(940	)
Proceeds from sale of discontinued operations					—				8,195				—
Payments for acquisitions - net of cash acquired					(8,976	)			(9,531	)			(2,047	)
Proceeds limited to future acquisitions					41,974				26,053				11,018
Payments on acquisitions payable					(1,681	)			(7,031	)			(1,038	)
Net cash provided by investing activities					23,517				13,835				4,007

(Continued)

See notes to consolidated financial statements.

F-6

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ALLIED HEALTHCARE INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)

				Year Ended September 30, 2004				Year Ended September 30, 2003				Year Ended September 30, 2002
Cash flows from financing activities:
Payments for financing fees and stock issuance costs					(6,223	)			(20	)			(4,053	)
Payments on preferred dividends and conversion fees					(9,422	)			—				—
Proceeds from issuance of stock					71,050				—				3,188
Payments on notes payable					(38,740	)			(19,363	)			(4,575	)
Proceeds from long-term debt					71,708				—				—
Payments on long-term debt					(148,307	)			(6,727	)			(5,150	)
Payments for treasury shares acquired					—				(565	)			—
Stock options and warrants exercised					401				80				—
Net cash used in financing activities					(59,533	)			(26,595	)			(10,590	)
Effect of exchange rate on cash					70				1,063				1,461
(Decrease) increase in cash					(12,392	)			3,413				4,944
Cash and cash equivalents, beginning of period					21,691				18,278				13,334
Cash and cash equivalents, end of period				$	9,299			$	21,691			$	18,278
Supplemental cash flow information:
Cash paid for interest				$	10,444			$	10,679			$	10,728
Cash paid for income taxes, net				$	8,528			$	6,691			$	5,914
Supplemental disclosure of investing and financing activities:
Details of business acquired in purchase transactions:
Fair value of assets acquired				$	9,975			$	12,254			$	2,525
Liabilities assumed or incurred				$	628			$	2,408			$	341
Cash paid for acquisitions (including related expenses)				$	9,347			$	9,846			$	2,184
Cash acquired					371				315				137
Net cash paid for acquisitions				$	8,976			$	9,531			$	2,047
Issuance of notes payable								$	36,026			$	3,747
Issuance of common stock								$	6,360			$	9,960
Issuance of Series A preferred stock												$	35,051

See notes to consolidated financial statements.

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:

Allied Healthcare International Inc. and its subsidiaries (the "Company") is a leading provider of flexible, or temporary, healthcare staffing to the United Kingdom ("U.K.") healthcare industry as measured by revenues, market share and number of staff. At September 30, 2004, the Company operated an integrated network of 125 branches throughout most of the U.K. The Company's healthcare staff consists principally of nurses, nurses aides and home health aides (known as carers in the U.K.). The Company focuses on placing its staff on a per diem basis in hospitals, nursing homes, care homes (which provide assisted living without medical services) and private homes. The Company maintains a pool of over 25,000 nurses, nurses aides and home health aides. The Company also supplies medical-grade oxygen for use in respiratory therapy to the U.K. pharmacy market and to private patients in Northern Ireland.

2.    Summary of Significant Accounting Policies:

Basis of Accounting and Principles of Consolidation:

The accompanying consolidated financial statements of the Company are prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America ("U.S."). All intercompany accounts and transactions are eliminated in consolidation.

Cash and Cash Equivalents:

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

Stock-Based Compensation:

In accordance with Statement of Financial Accounting Standards ("FAS") No. 123, "Accounting for Stock-Based Compensation", the Company continues to apply APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations, in accounting for its stock-based compensation plans. Accordingly, no compensation cost has been recognized for its stock option plans. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model.

Had compensation costs for the Company's stock options been determined consistent with the fair value method prescribed by FAS No. 123, the Company's net income and related per share amounts would have been adjusted to the pro forma amounts indicated below for the three years ended September 30:

				2004				2003				2002
Net income available to common shareholders, as reported				$	2,849			$	7,966			$	3,778
Add: Stock-based compensation included in reported net income, net of related tax effect					—				587				—
Less: Total stock-based compensation expense determined under fair value based method for all awards, net of related tax effects					(3,876	)			(736	)			(173	)
Pro forma net (loss) income attributable to common shareholders				$	(1,027	)		$	7,817			$	3,605
Net income (loss) per share:
Basic – as reported				$	0.10			$	0.36			$	0.20
Basic – pro forma				$	(0.04	)		$	0.36			$	0.19
Net income (loss) per share:
Diluted – as reported				$	0.10			$	0.36			$	0.20
Diluted – pro forma				$	(0.04	)		$	0.35			$	0.19

F-8

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

The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:

				2004				2003				2002
Expected life (years)					9				9				9
Risk-free interest rate					2.6	%			4.1	%			5.1	%
Volatility					66.0	%			66.1	%			69.1	%
Expected dividend yield					0	%			0	%			0	%

The compensation cost as generated by the Black-Scholes option-pricing model may not be indicative of the future benefit, if any, that may be received by the option holder.

Restricted Cash:

Restricted cash represented proceeds limited to future acquisitions. The proceeds referred to amounts advanced to the Company under its previous senior collateralized term and revolving credit facility (the "Old Senior Credit Facility") that could have only been used by the Company to fund acquisitions permitted thereunder, including paying additional contingent consideration. The current portion of restricted cash represents the amount on deposit, as was required by the previous senior credit lender, for the sole purpose of repaying the note payable issued in connection with the acquisition of a certain U.K. flexible staffing agency.

On July 19, 2004, the Company's U.K. subsidiary, Allied Healthcare Holdings Limited ("Allied Holdings"), formerly known as Transworld Healthcare (UK) Limited, obtained financing denominated in pounds sterling consisting of a £50,000 multicurrency new senior credit facility (the "New Senior Credit Facility"). Under the New Senior Credit Facility, there are no loan proceeds limited to future acquisitions. The proceeds from the New Senior Credit Facility were used to repay the Old Senior Credit Facility. See Note 6.

Inventories:

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

Property and Equipment:

Property and equipment, including revenue-producing equipment, is carried at cost, net of accumulated depreciation and amortization. Revenue-producing equipment consists of oxygen cylinders, oxygen concentrators and oxygen values. Depreciation for revenue-producing equipment is provided on the straight-line method over their estimated useful lives ranging from seven to twenty years. Buildings are being depreciated over their useful lives of twenty-five to fifty years and leasehold improvements are amortized over the related lease terms or estimated useful lives, whichever is shorter.

Purchase Accounting:

At the time the Company completes an acquisition, preliminary values and useful lives are allocated based upon fair values that have been determined for assets acquired and liabilities assumed and management's best estimates for values that have not yet been finalized. The Company obtains a third-party valuation in order to complete its purchase price allocations. Accordingly, final asset and liability fair values as well as useful lives may differ from management's original estimates and could have an adverse impact on the Company's consolidated financial position or results of operations.

F-9

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

Intangible Assets:

Intangible assets, consisting principally of goodwill, are carried at cost, net of accumulated amortization.

In accordance with FAS No. 142, "Goodwill and Other Intangible Assets", all goodwill and intangible assets deemed to have indefinite lives are no longer subject to amortization but are subject to annual impairment tests. The Company completed its annual impairment test required under FAS No. 142 during the fourth quarter of fiscal 2004 and determined there was no impairment to its recorded goodwill balance.

The following table presents the changes in the carrying amount of goodwill for the year ended September 30, 2004:

Balance at September 30, 2002				$	123,514
Goodwill acquired during the period					51,983
Foreign exchange effect					8,206
Balance at September 30, 2003					183,703
Goodwill acquired during the period					8,073
Foreign exchange effect					14,334
Balance at September 30, 2004				$	206,110

The goodwill associated with the acquisitions during the prior twelve months is subject to revision based on the finalization of the determination of the fair values of assets acquired and liabilities assumed. Included in the goodwill acquired during the year ended September 30, 2004 of $8,073 are the re-allocations of net excess purchase price to assets acquired and liabilities assumed in connection with prior year acquisitions of $215. In addition, goodwill is not deductible for tax purposes.

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

								September 30, 2004
				Range Of Lives				Gross Carrying Amount				Accumulated Amortication				Net Carrying Amount
Customer relationships				5 – 12				$	4,844			$	689			$	4,155
Trade names				3					185				113				72
Non-compete agreements				2 – 5					135				65				70
Favorable leasehold interests				2 – 5					21				12				9
Total								$	5,185			$	879			$	4,306

								September 30, 2003
				Range Of Lives				Gross Carrying Amount				Accumulated Amortication				Net Carrying Amount
Customer relationships				10				$	1,996			$	150			$	1,846
Trade names				3					175				49				126
Non-compete agreements				2 – 3					43				11				32
Favorable leasehold interests				2 – 5					20				5				15
Total								$	2,234			$	215			$	2,019

F-10

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

Amortization expense for other intangible assets still subject to amortization was $644 and $207 for the years ended September 30, 2004 and 2003, respectively. At September 30, 2004, estimated future amortization expense of other intangible assets still subject to amortization is as follows: approximately $799, $725, $708, $629 and $535 for the fiscal years ending September 30, 2005, 2006, 2007, 2008 and 2009, respectively.

Deferred Financing Costs:

Costs incurred in obtaining long-term financing are amortized over the terms of the long-term financing agreements using the straight-line method. At September 30, 2004 and 2003, other assets included $846 and $3,675 of deferred financing costs, net of accumulated amortization of $45 and $4,250, respectively. During the fourth quarter of fiscal 2004, the Company wrote-off $2,937 of deferred refinancing costs related to the refinancing of its Old Senior Credit Facility. See Note 6. Amortization of deferred financing costs is included in interest expense in the accompanying Consolidated Statements of Operations.

Income Taxes:

The Company accounts for income taxes using the liability method in accordance with FAS No. 109, "Accounting for Income Taxes." Under this method, deferred income tax assets and liabilities reflect tax carryforwards and the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes, as determined under currently enacted tax rates. Deferred tax assets are recorded if future realization is more likely than not.

Deferred taxes are recorded primarily for bad debts, Federal and state net operating loss carryforwards, depreciation and amortization of intangibles, which are reported in different periods for Federal income tax purposes than for financial reporting purposes. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized.

Revenue Recognition:

Patient services and respiratory therapy revenues are recognized when services are performed and substantiated by proper documentation. For patient services, which account for over 95% of the Company's business, revenue is recognized upon completion of timesheets that also require the signature of the recipient of services. Unbilled accounts receivable represents amounts due for services performed, but not billed as of the balance sheet date. Revenues from the rental of home medical equipment (including respiratory equipment) are recognized over the rental period (typically on a month-to-month basis) and approximated $482, $457 and $328 in fiscal 2004, 2003 and 2002, respectively. Revenues from the sale of oxygen and supplies for use in respiratory therapy are recognized when products are shipped, a contractual arrangement exists, the sales price is either fixed or determinable and collection is reasonably assured.

The Company receives a majority of its revenue from the National Health Services (the "NHS") and other U.K. governmental payors. Certain revenues are subject to review by third-party payors, and adjustments, if any, are recorded when determined. For the years ended September 30, 2004, 2003 and 2002, 65%, 65% and 68%, respectively, of the Company's net revenues were attributable to the NHS and other U.K. governmental payor programs.

Earnings Per Share:

Basic earnings per share ("EPS") is computed using the weighted average number of common shares outstanding. Diluted EPS adjusts basic EPS for the effects of stock options and warrants only when such effect is dilutive. At September 30, 2004, 2003 and 2002, the Company had outstanding

F-11

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

stock options and warrants to purchase 1,493, 2,244 and 705 shares, respectively, of common stock ranging in price from $5.41 to $7.25, $4.00 to $7.25 and $5.41 to $7.25 per share, respectively, that were not included in the computation of diluted EPS because the exercise price was greater than the average market price of the common shares.

The weighted average number of shares used in the basic and diluted earnings per share computations for the years ended September 30, 2004, 2003 and 2002 are as follows:

				2004				2003				2002
Weighted average number of common shares outstanding					27,419				21,962				18,399
Weighted average number of common shares contingently issuable					—				—				166
Weighted average number of common shares outstanding as used in computation of basic earnings per share of common stock					27,419				21,962				18,565
Effect of dilutive securities - stock options					685				342				367
Shares used in computation of diluted earnings per share of common stock					28,104				22,304				18,932

Comprehensive Income:

Components of comprehensive income include net income and all other non-owner changes in equity, such as the change in the cumulative translation adjustment, which is the only item of other comprehensive income impacting the Company.

Impairment of Long-Lived Assets:

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the undiscounted future cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value (discounted future cash flows) and carrying value of the asset. Impairment loss on assets to be sold, if any, is based on the estimated proceeds to be received, less estimated costs to sell.

Foreign Currency Translation:

Assets and liabilities of foreign subsidiaries whose functional currency is other than the U.S. dollar are translated to U.S. dollars using the exchange rates in effect at the balance sheet date. Results of operations are translated using weighted average exchange rates during the period. Adjustments resulting from the translation process are included as a separate component of shareholders' equity.

Fair Value of Financial Instruments:

Cash, restricted cash, accounts receivable, unbilled accounts receivable, dividends payable, accounts payable, accrued expenses and taxes payable approximate fair value due to the short-term maturity of those instruments. The derivative asset (liability) is recorded at its estimated fair value. The estimated fair value of the Company's outstanding borrowings was $64,778 and $166,772 at September 30, 2004 and 2003, respectively, compared to $64,778 and $165,378 total debt outstanding.

Concentrations of Credit Risk:

Financial instruments which potentially subject the Company to concentrations of credit risk are cash equivalents and accounts receivable. The Company places its cash equivalents with high credit

F-12

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

quality financial institutions. The Company believes no significant concentration of credit risk exists with respect to these cash equivalents.

The Company grants credit without collateral to its patients, who are primarily insured under third-party agreements. The Company maintains an allowance for doubtful accounts based on the expected collectibility of accounts receivable. At September 30, 2004 and 2003, 65.0% and 78.2% of accounts receivable was due from the NHS and other U.K. governmental payors, respectively, with the balance due from various other third-party payors and self-pay patients (none of which comprise greater than 10% of the balance).

Use of Management's Estimates:

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates are used for, but not limited to, the accounting for allowance for doubtful accounts, contractual allowances, valuation of inventories, accrued expenses, depreciation and amortization.

Reclassifications:

Certain prior year balances have been reclassified to conform to the current year presentation.

Recent Accounting Pronouncements:

The Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities ("FIN 46") in January 2003 and a revised interpretation of FIN 46 ("FIN 46R") in December 2003. FIN 46 clarifies the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements, to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. For all arrangements entered into after January 31, 2003, the Company was required to continue to apply FIN 46 through the end of the first quarter of fiscal 2004. The Company was required to adopt the provisions of FIN 46R, for those arrangements entered into prior to February 1, 2003, in the second quarter of fiscal 2004. As the Company does not have any variable interest entities, the adoptions of FIN 46 and FIN 46R did not have a material impact on the Company's consolidated financial position or results of operations.

In December 2003, the FASB revised FAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" ("FAS No. 132"), to require additional disclosures to those in the original FAS No. 132 about assets, obligations, cash flows and net periodic benefit costs of defined benefit pension plans and other defined benefit postretirement plans. The Company maintains a defined contribution plan, pursuant to Section 401(k) of the Internal Revenue Code, covering all U.S. employees who meet certain requirements. In addition to the U.S. plan, the Company's U.K. subsidiaries also sponsor personal pension plans that operate as salary reduction plans. The Company's contribution to such plans was $92 and $166 in fiscal 2004 and 2003, respectively. See Note 15. The adoption of FAS No. 132 did not have a material impact on the Company's consolidated financial position or results of operations.

F-13

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

3.    Business Combinations and Disposals:

Combinations:

In fiscal 2004, the Company acquired a total of 8 flexible staffing agencies for approximately $8,610 in cash. As of September 30, 2004, these transactions included provisions to pay additional amounts, payable in cash, of up to $10,501 in contingent consideration dependent upon future earnings of the acquired entities.

The preliminary purchase price allocations for the fiscal 2004 acquisitions are subject to adjustments and will be finalized once additional information concerning asset and liability valuations are obtained. Accordingly, final asset and liability fair values may differ from those set forth on the accompanying consolidated balance sheet at September 30, 2004; however, the changes are not expected to have a material effect on the consolidated financial position, results of operations or cash flows of the Company.

In fiscal 2003, the Company acquired a total of 7 flexible staffing agencies for approximately $8,837 in cash and the issuance of 670 shares of the Company's common stock. The transactions included provisions to pay additional amounts, payable by combination of cash and shares of the Company's stock, of up to $20,952 in contingent consideration dependent upon future earnings of the acquired entities. Of the $20,952 in contingent consideration, $6,101 was unearned and will not be required and $1,272 was earned and paid in fiscal 2003. As such, at September 30, 2003, an aggregate of $13,579 was payable dependent upon further earnings of the acquired entities. Of the $13,579 in contingent consideration, $12,015 was unearned and will not be required and the remaining balance was earned and paid in fiscal 2004.

Further, in fiscal 2003, the Company completed its purchase price allocation for one of its fiscal 2003 acquisitions. Accordingly, tangible assets, separately identifiable intangible assets and liabilities were assigned values of approximately $2,861, $1,410 and $2,157, respectively, with the remaining portion of $6,576 attributable to goodwill. In fiscal 2004, the Company completed its purchase price allocation for its remaining fiscal 2003 acquisitions. Accordingly, tangible assets, separately identifiable intangible assets and liabilities were assigned values of approximately $377, $1,209 and $368, respectively, with the remaining portion of $5,109 attributable to goodwill.

In fiscal 2002, the Company acquired a total of 6 flexible staffing agencies for approximately $2,184 in cash. The transactions included provisions to pay additional amounts, payable in cash, of up to $5,606 in contingent consideration dependent upon future earnings of the acquired entities. Of the $5,606 in contingent consideration, $4,450 was earned and paid in fiscal 2003. The remaining amount of contingent consideration of $1,156 was unearned and will not be required.

The pro forma results of operations and related per share information for these acquisitions have not been presented as the amounts are considered immaterial.

Dispositions:

U.S. Home Healthcare

In the third quarter of fiscal 2003, the Company sold all of the issued and outstanding capital stock of two of its subsidiaries, The PromptCare Companies, Inc. and Steri-Pharm, Inc., collectively referred to as "Home Healthcare," for approximately $8,500 in cash. Home Healthcare, which comprised the Company's U.S. operations, was concentrated in New York and New Jersey, and supplied infusion therapy, respiratory therapy and home medical equipment. In accordance with the provisions of FAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS No. 144"), the Company has accounted for Home Healthcare as a discontinued operation. The

F-14

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

consolidated financial statements reflect the liabilities of the discontinued operations, and the operations for the prior periods are reported in discontinued operations.

The following table presents the financial results of the discontinued operations:

				Year Ended September 30,
				2003				2002
Revenues:
Net infusion services				$	6,685			$	12,373
Net respiratory, medical equipment and supplies					2,479				4,697
Total revenues					9,164				17,070
Cost of revenues:
Infusion services					5,159				9,068
Respiratory, medical equipment and supplies					1,438				2,292
Total cost of revenues					6,597				11,360
Selling, general and administrative expenses					2,583				4,709
Gain on sale of subsidiaries					(1,294	)			—
Tax on gain on sale of subsidiaries					775				—
Income from discontinued operations				$	503			$	1,001
Diluted income per share from discontinued operations				$	0.02			$	0.05

At September 30, 2004, liabilities of discontinued operations of $690 relate to certain tax contingencies.

4.    Property and Equipment:

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

				2004				2003
Revenue producing equipment				$	14,108			$	11,776
Furniture, fixtures and equipment					16,971				9,901
Land, buildings and leasehold improvements					879				776
					31,958				22,453
Less, accumulated depreciation and amortization					15,374				12,127
				$	16,584			$	10,326

Depreciation and amortization of property and equipment for the years ended September 30, 2004, 2003 and 2002 were $2,419, $1,778 and $1,337, respectively. The net book value of revenue producing equipment was $7,690 and $6,623 at September 30, 2004 and September 30, 2003, respectively.

F-15

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

5.    Accrued Expenses:

Accrued expenses consist of the following at September 30:

				2004				2003
Payroll and related expenses				$	20,500			$	17,927
Other					4,450				7,042
				$	24,950			$	24,969

6.    Debt:

On July 19, 2004, the Company's U.K. subsidiary obtained a New Senior Credit Facility. Additionally, subject to the terms of the New Senior Credit Facility, ancillary facilities, in the form of an additional facility or financial accommodation (including an interest rate swap, cap, or other arrangement for the hedging or fixing of interest) are available up to a maximum of £15 million.

The New Senior Credit Facility (together with approximately $65,715 of the net proceeds of the Company's recently completed public offering – See Note 9) refinanced the Company's Old Senior Credit Facility and mezzanine indebtedness (the "Mezzanine Loan"), both of which had been entered into on December 17, 1999. The New Senior Credit Facility is secured by a first priority lien on the assets of Allied Healthcare Group Limited and certain of its subsidiaries. Together with Allied Healthcare Group Limited and certain of its subsidiaries, the Company is guaranteeing the debt and other obligations of certain wholly-owned U.K. subsidiaries under the New Senior Credit Facility.

The New Senior Credit Facility consists of the following:

•	£30,000 term loan A, maturing July 19, 2009; and

•	£20,000 revolving loan B maturing July 19, 2009 which may be drawn upon until August 18, 2004.

Repayment of the term loan A commences on January 19, 2005 and continues semi-annually until final maturity. Repayment of loan B shall be on the last day of its interest period. Both A and B loans bear interest at rates equal to LIBOR (if sterling) or EURIBOR (if euros) plus any bank mandatory costs (if applicable) plus 0.70% to 0.90% per annum (depending on consolidated debt to consolidated profit ratios). As of September 30, 2004, the Company had outstanding borrowings of $53,982 and $8,997 relating to term loan A and revolving loan B, respectively, under the New Senior Credit Facility, that bore interest at a rate of 5.66%.

The New Senior Credit Facility agreement is based on the U.K.'s Loan Markets Association Multicurrency Term and Revolving Facilities agreement which is a standard form designed to be commercially acceptable to the corporate lending market.

Subject to certain exceptions, the New Senior Credit Facility prohibits or restricts the following, among other things:

•	incurring liens and granting security interests;

•	incurring additional indebtedness;

•	making certain fundamental corporate changes;

•	paying dividends (including the payment of dividends to the Company by its subsidiaries);

•	making specified investments, acquisitions or disposals; and

•	entering into certain transactions with affiliates.

F-16

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

The New Senior Credit Facility contains affirmative and negative financial covenants customarily found in agreements of this kind, including the maintenance of certain financial ratios, such as debt to earnings (including amounts provided for depreciation and amortization), earnings (before interest and taxes) to interest expense, minimum net worth, maximum ancillary facilities indebtedness and the prohibition of off balance sheet funding. The Company is also obligated to ensure that the guarantors of the New Senior Credit Facility must not at any time represent less than 90% of the consolidated gross assets, turnover or earnings before interest and taxes of the U.K. subsidiaries. As of September 30, 2004, the Company was in compliance with such covenants.

At September 30, 2003, outstanding borrowings under the Old Senior Credit Facility and Mezzanine Loan consisted of the following:

Facility

2003

Interest Rate

Final Maturity

Senior credit facilities:

Term loan A

$

26,840

LIBOR + 2.00%

Dec. 17, 2005

Term loan C

83,355

LIBOR + 3.50%

Jun. 30, 2007

Total senior credit facilities

110,195

Mezzanine term loan(1)

17,490

LIBOR + 7.00%

Dec. 17, 2007

Notes payable

37,693

2.65% to 5.25%

Sept. 27, 2004

Total debt

165,378

Less current maturities

46,698

Net long-term debt

$

118,680

(1)	Net of unamortized discount of $1,394 as of September 30, 2003.

As of September 30, 2003, the Company had outstanding borrowings of $110,195 under the Old Senior Credit Facility that bore interest at a rate of 5.63% to 7.13%.

Subject to certain exceptions, the Old Senior Credit Facility prohibited or restricted the incurrence of liens, the incurrence of additional indebtedness, certain fundamental corporate changes, dividends (including distributions to the Company), the making of specified investments and certain transactions with affiliates. In addition, the Senior Credit Facility contained affirmative and negative financial covenants customarily found in agreements of this kind, including the maintenance of certain financial ratios, such as senior interest coverage, debt to earnings before interest, taxes, depreciation and amortization, fixed charge coverage and minimum net worth. At September 30, 2003, the Company was in compliance with such covenants.

The loans under the Old Senior Credit Facility were collateralized by, among other things, a lien on substantially all of Allied Holding's and its subsidiaries' assets, a pledge of Allied Holding's ownership interest in its subsidiaries and guaranties by Allied Holding's subsidiaries.

The Mezzanine Loan contained other terms and conditions substantially similar to those contained in the Old Senior Credit Facility. As of September 30, 2003, borrowings under the Mezzanine Loan bore interest at a rate of 10.63%.

Notes Due in Connection with Acquisitions.    In fiscal 2004, the Company repaid, through Allied Holding, notes payable of $38,740 issued in connection with the acquisition of certain U.K. flexible staffing agencies. In fiscal 2003, the Company repaid, through Allied Holding, notes payable of $19,363 issued in connection with the acquisition of certain U.K. flexible staffing agencies and wrote-off $613 of related debt discount. The notes payable were secured by the Company's previous senior credit lender which required the Company to keep an amount on deposit for the sole purpose of repaying

F-17

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

the notes payable. At September 30, 2004, the Company had one outstanding note payable of $1,799 that bore interest at a rate of 5.25%. At September 30, 2003, the Company had outstanding notes payable of $37,693 that bore interest at rates ranging from 2.65% to 5.25%. The related cash restricted to the payment of such notes has been classified as current in the accompanying Consolidated Balance Sheets.

Guarantees.    The New Senior Credit Facility is secured by a first priority lien on the assets of the Allied Healthcare Group Limited and certain of its subsidiaries. Together with Allied Healthcare Group Limited and certain of its subsidiaries, the Company is guaranteeing the debt and other obligations of certain wholly-owned U.K. subsidiaries under the New Senior Credit Facility. At September 30, 2004, the amounts guaranteed, which approximate the amounts outstanding, totalled $62,979. The Company's U.K. subsidiaries guaranteed the debt and other obligations of certain wholly-owned U.K. subsidiaries under the Company's previous agreements with the senior collateralized term and revolving credit facility, mezzanine indebtedness and various notes issued in connection with the acquisition of certain U.K. flexible staffing agencies. At September 30, 2003, the amounts guaranteed, which approximated the amounts outstanding, totalled $166,772.

Derivative Instrument.    On March 20, 2003, upon the expiration of the Company's prior Rate Cap and Floor Agreement, the Company entered into a Rate Cap and Floor Collar Agreement that caps its interest rate at LIBOR of 5.50% and its interest floor at LIBOR of 4.47%, subject to special provisions, on approximately $89,970 of the Company's floating rate debt under a contract which expires March 20, 2008. In accordance with FAS No. 133, "Accounting for Certain Derivative Instruments and Certain Hedging Activities," as amended by FAS No. 138 and related implementation guidance, the Company has calculated the fair value of the interest cap and floor derivative to be an asset of $312 at September 30, 2004 and a liability of $211 at September 30, 2003. In addition, changes in the value from period to period of the interest cap and floor derivative are recorded as an adjustment to interest expense.

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

Year ending September 30,
2005				$	12,595
2006					10,796
2007					10,796
2008					10,796
2009					19,795
Thereafter					—
				$	64,778

7.    Corporate Reorganization:

On July 25, 2002, the Company consummated a reorganization (the "Reorganization"). Pursuant to the Reorganization, equity investments in one subsidiary, Allied Holdings and subordinated debt investments in a second subsidiary, Allied Healthcare Group Limited ("Allied Healthcare (UK)"), were exchanged for shares of the Company's common stock and shares of the Company's new Series A preferred stock. The net effect of the Reorganization was that Allied Holdings became an indirect wholly-owned subsidiary of the Company and the senior subordinated debt investments in Allied Healthcare (UK) were exchanged for shares of the Company's Series A preferred stock. The primary purpose of the Reorganization was the Company's desire to increase shareholder value by having the Company and its subsidiaries be viewed as "one company" by the marketplace. Other objectives of the Reorganization were to streamline the Company's corporate structure, improve the potential for equity financings in order to take advantage of attractive opportunities in the U.S. healthcare staffing

F-18

---

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

services market and, effectively convert the equity and subordinated debt investments in the Company's U.K. subsidiaries into direct investments in the Company. The Company's management believes that the Reorganization resulted in the Company having a more straight-forward and integrated management and corporate structure.

In the Reorganization, accrued and unpaid interest owed to the holders of the senior subordinated promissory notes (the "Notes") issued by Allied Healthcare (UK) in the refinancing of the Company's U.K. operation in 1999, was satisfied by either the exchange for shares of the Company's common stock or the right to receive a funding note (the "Loan Notes"); the Loan Note holders were required to exchange the loan notes for shares of the Company's common stock. The satisfaction of accrued and unpaid interest for shares of the Company's common stock was exchanged at the rate of 0.3488 shares for every £2.00 of Loan Notes. In fiscal 2002, the Company issued 117 shares of common stock in settlement of accrued and unpaid interest and the remaining 890 shares of common stock were issued in the first quarter of fiscal 2003.

In the Reorganization, the Company issued an aggregate of 2,359 shares of its common stock and 7,774 shares of its Series A preferred stock with a liquidation preference of £22,287 ($35,213) in exchange for all of the equity investments in Allied Holdings not already held by the Company and all of the senior subordinated debt investments in Allied Healthcare (UK). The holders of the Series A preferred stock and the Company agreed to a fixed exchange rate of $1.58 set forth in an amendment to the Company's certificate of incorporation defining the rights of the Series A preferred stock. The common shares were valued at $3.91 per share which represented the closing price on AMEX of the Company's stock at April 24, 2002, the date of the Reorganization Agreement. The redeemable convertible preferred stock issued in connection with the Reorganization was valued based on the exchange ratio determined pursuant to the Reorganization Agreement. At issuance, as the value of the common stock into which the preferred shares would convert was less than the fair value of the redeemable preferred stock, there was no beneficial conversion feature.

The Company has registered, at its expense, the resale of all of the shares of common stock issued in the Reorganization and the shares of common stock issueable upon conversion of the Series A preferred stock.

The following table displays the unaudited pro forma results of operations and related per share information as if the Reorganization was completed as of October 1, 2001. The unaudited pro forma results principally reflect the reversal of interest expense, net of tax, related to the Notes of Allied Healthcare (UK) to reflect the exercise of equity warrants and the related exchange of Allied Holdings shares for the Company's new Series A preferred stock.

				Year Ended September 30, 2002
Net revenues				$	242,828
Gross profit					66,079
Operating income					19,536
Net income					4,984
Net income available for common shareholders					869
Income per share of common stock -Basic and Diluted				$	0.04

The above pro forma results, exclude the following one time and non-recurring adjustments related to the Reorganization:

•	The Company recognized compensation expense of $1,619 on the exchange of 2,523 management's and employees' redeemable shares of Allied Holding for 414 shares of the Company's common stock calculated using a net exercise method.

F-19

---

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

•	The Company recognized a gain of $5,143 on the settlement of accrued and unpaid interest owed to the holders of the Notes of Allied Healthcare (UK).

•	The Company recognized a charge of $925 to reflect the write off of deferred costs associated with the Notes of Allied Healthcare (UK) issued in 1999, which were exchanged in the Reorganization.

•	The Company recognized a charge of $686 to reflect the costs associated in completing the Reorganization transaction.

8.    Series A Preferred Stock:

In the Reorganization, the Company issued 7,774 shares of its Series A preferred stock with an aggregate liquidation preference of £22,287 ($35,213 at the fixed exchange rate of $1.58 set forth in an amendment to our certificate of incorporation defining the rights of the Series A preferred stock). The shares of Series A preferred stock were issued to certain equity investors in Allied Holdings in exchange for 22,287 ordinary shares of Allied Holdings.

During March through May of 2004, the Company entered into conversion agreements (the "Conversion Agreements") with all of the holders of our Series A preferred stock. Pursuant to the Conversion Agreements, such holders agreed to convert their shares into a like number of shares of common stock upon the consummation of the Company's public offering in return for the payment of accrued but unpaid dividends and a conversion fee in the aggregate amount of $2,034. The Conversion Agreements provide that if, at any time during the six-month period beginning on the effective date of the registration statement, the shares of the Company's common stock trade at $11.32 for ten days during any period of thirty consecutive trading days (such tenth day being the "Threshold Date"), then the holders shall repay a portion of their conversion fee to the Company. The portion of the conversion fee to be repaid to the Company shall be equal to the product of the conversion fee and a fraction, the numerator of which shall be the number of days remaining in the six-month period after the Threshold Date and the denominator of which shall be 180. Pursuant to the Conversion Agreements, on July 7, 2004, all 7,774 outstanding shares of Series A preferred stock were converted into a like number of shares of common stock. The Company paid to the holders of the Series A preferred stock an aggregate of $7,388 in accrued and unpaid dividends and $2,034 in conversion fees in connection with the conversion.

On July 20, 2004, the Company filed a certificate of amendment to its certificate of incorporation that eliminated all references in its certificate of incorporation to the Series A preferred stock, of which there were 8,000 authorized shares. Pursuant to such certificate of amendment, the Series A preferred stock was returned to the status of authorized but unissued shares of "blank check" preferred stock.

The following table presents the changes in the carrying amount of the Series A preferred stock for the years ended September 30, 2004 and 2003:

				2004				2003
Balance at October 1, 2003 and 2002, respectively, net of issuance costs				$	33,151			$	32,254
Accretion of issuance costs, based on interest rate method					366				482
Foreign exchange effect					—				415
Write-off of remaining issuance costs					1,696				—
Conversion into common shares					(35,213	)			—
Balance at September 30, 2004 and 2003, respectively					—				33,151

F-20

---

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

9.    Common Stock Offering:

On July 1, 2004, the Securities and Exchange Commission declared a registration statement on Form S-1 filed by the Company effective and, on July 7, 2004, the Company issued 14,500 shares of its common stock pursuant to the registration statement (the "Offering"). Each share was sold to the public at a price of $4.90 per share. The Company realized approximately $65,715 in net proceeds from the sale of its shares of common stock. This amount, together with the initial borrowings available under the New Senior Credit Facility were used (1) to repay the Old Senior Credit Facility and Mezzanine Loan; (2) to pay accrued but unpaid dividends on the Series A preferred stock; and (3) to pay a conversion fee to the holders of the Series A preferred stock. Any remaining amounts from the initial borrowings will be used for general corporate purposes and acquisitions.

10. Shareholders' Equity:

On April 22, 2002, the Company issued 684 shares of common stock to Mr. Aitken and 487 shares of common stock to Ms. Eames. Simultaneously with this issuance, the Company entered into agreements with Mr. Aitken and Ms. Eames in which the Company agreed to provide them (through cash bonuses and loans) with substantially all of the cash necessary for them to pay the income taxes that they are expected to incur as a result of the issuances. Pursuant to these agreements, the Company made a cash bonus payment to Mr. Aitken of $1,401 and loaned him $550 and made a cash bonus payment to Ms. Eames of $846 and loaned her $390. The loans, which had been issued on a recourse basis, provide for interest at the rate of 4.65% compounded annually. All outstanding principal and accrued interest will be due on the earlier of April 30, 2007 or the date on which the employee disposes of the common shares received in accordance with the agreements. As collateral for the loans the employees have pledged an aggregate of 1,155 fully vested non-qualified stock options held by the employees and any proceeds received from the sale of the underlying securities. In addition, pursuant to these agreements, Allied Holdings agreed to indemnify Mr. Aitken and Ms. Eames for certain income tax liabilities that they may incur as a result of these share issuances, subject to a maximum aggregate amount of $1,000. These executive bonuses and loans have been approved by the Company's Board of Directors. The Company had recognized an aggregate expense of $6,558 related to these transactions in the year ended September 30, 2002.

The Company registered, at its expense, the resale of the shares issued to Mr. Aitken and Ms. Eames.

On December 2, 2003, Mr. Aitken, the Company's Chairman of the Board, and Ms. Eames, who was then serving as the Company's Chief Executive Officer, repaid in full the principal and accrued interest on the promissory notes issued by them to the Company in connection with the Reorganization in fiscal 2002. The principal and accrued interest repaid aggregated $591 and $419, respectively. The loans were repaid by delivery to the Company of 104 and 73 shares of the Company's common stock held by Mr. Aitken and Ms. Eames, respectively, valued at $5.70 per share, the closing price on the day prior to the repayment date. The shares delivered by Mr. Aitken and Ms. Eames are held by the Company as treasury shares. The Company also agreed to reimburse Mr. Aitken and Ms. Eames for the taxes incurred by them on the disposition of the shares to the Company, which were $83 and $51, respectively.

On April 22, 2002, the Company entered into a Stock Purchase Agreement with Hyperion TWH Fund II LLC, Triumph Partners III, L.P. and Triumph III Investors, L.P pursuant to which the Company issued, on April 30, 2002, an aggregate of 750 shares of the Company's common stock at a per share purchase price of $4.25 per share. In addition, the Company registered, at its expense, the resale of such shares.

In January 2001, the Company initiated a stock repurchase program, whereby the Company may purchase up to approximately $1,000 of its outstanding common stock in open market or privately

F-21

---

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

negotiated transactions. In May 2003, the Company initiated another stock repurchase program, whereby the Company may purchase up to an additional $3,000 of its outstanding common stock in open market transactions or in privately negotiated transactions. As of September 30, 2004, the Company had acquired 408 shares for an aggregate purchase price of $1,285 pursuant to its stock repurchase programs, which are reflected as treasury stock in the consolidated balance sheet at September 30, 2004.

11.    Income Taxes:

The provision for income taxes from continuing operations for the years ended September 30, 2004, 2003 and 2002 is summarized as follows:

				2004				2003				2002
Current:
Federal				$	(68	)		$	(1,806	)		$	—
Foreign					4,885				7,622				4,770
Deferred:
Federal					—				—				—
Foreign					1,030				(906	)			201
Provision for income taxes				$	5,847			$	4,910			$	4,971

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities recorded for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities as of September 30, 2004 and 2003 are as follows:

				2004				2003
Deferred tax assets:
Provision for doubtful accounts				$	—			$	958
Accrued expenses					260				233
Federal net operating loss carryforward					26,402				24,450
State net operating loss carryforward					9,046				1,998
Depreciation					6				7
Intangible assets					104				96
Capital loss carryforward					—				768
Charitable contribution					—				8
AMT credit					—				68
Other, net					14				83
Gross deferred tax assets					35,832				28,669
Valuation allowance					(35,832	)			(27,645	)
Net deferred tax assets					—				1,024
Deferred tax liabilities:
Depreciation					(1,054	)			(945	)
Intangible assets					(1,292	)			(606	)
Other, net					(94	)			—
Deferred tax liabilities					(2,440	)			(1,551	)
Net deferred tax liability				$	(2,440	)		$	(527	)

F-22

---

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

The Company has recorded a full valuation allowance against it U.S. deferred tax assets as management believes it is not more likely than not that these deferred tax assets will be utilized prior to their expiration. Subsequent recognition of these deferred tax assets would result in an income tax benefit in the year of such recognition.

As of September 30, 2004, the Company has a Federal net operating loss carryforward of approximately $77,652 which if unused, will expire in the years 2018 through 2023.

Reconciliations of the differences between income taxes computed at Federal statutory tax rates and consolidated provisions for income taxes on income before income taxes and discontinued operations for the years ended September 30, 2004, 2003 and 2002 are as follows:

				2004				2003				2002
Income taxes at 34%				$	5,343			$	5,569			$	3,021
Tax contingency					—				(1,874	)			—
Nondeductible expenses, primarily amortization and write down of intangible assets					5				6				943
Nondeductible compensation					304				94				—
Valuation allowance					1,071				1,304				1,896
Foreign tax, net					(876	)			(189	)			—
Other, net					—				—				(889	)
Provision for income taxes				$	5,847			$	4,910			$	4,971

Provision has not been made for U.S. or additional foreign taxes on approximately $47,365 of undistributed earnings of the U.K. foreign subsidiaries. Those earnings have been and will continue to be reinvested. Determination of the amount of unrecognized deferred tax liability with respect to such earnings is not practical. We believe that the amount of additional taxes that might be payable on the earnings of foreign subsidiaries, if remitted, would be partially offset by the U.S. foreign tax credits.

Income before income taxes generated from the U.K. operations for the years ended September 30, 2004, 2003 and 2002 was $19,970, $20,307 and $14,271, respectively.

12.    Stock Option Plan and Warrants:

Stock Options:

Under the Company's 2002 Option Plan ("Option Plan"), options may be granted by the Compensation Committee of the Board of Directors which determines the exercise price, vesting provisions and term of such grants. In accordance with the terms of the Option Plan, the number of shares available for issuance increases by one percent of the number of shares of Common Stock outstanding as of the first day of each fiscal year.

F-23

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

Following is a summary of transactions under the Option Plan during the year ended September 30, 2004, 2003 and 2002:

				2004								2003								2002
				Number Of Stock Options				Weighted Average Exercise Price ($)				Number of Stock Options				Weighted Average Exercise Price ($)				Number of Stock Options				Weighted Average Exericse Price ($)
Outstanding beginning of year					2,254				4.58				1,530				4.24				1,394				4.22
Granted					713				5.70				1,415				4.30				205				5.41
Exercised					(87	)			4.63				(403	)			2.40				—
Forfeited					(234	)			4.68				(288	)			4.42				(69	)			7.25
Outstanding end of year					2,646				4.87				2,254				4.58				1,530				4.24
Weighted-average fair value of options granted during the year									5.70								3.29								2.93
Available for future grants					1,556

On May 28, 1997, the Company adopted a stock option plan for non-employee directors (the "Directors Plan") which gives non-employee directors options to purchase up to 100 shares of common stock. As of September 30, 2004, no options have been granted under the Directors Plan. Options under the Directors Plan may be granted by the Board of Directors which determines the exercise price, vesting provisions and term of such grants.

A summary of the 2,646 options outstanding as of September 30, 2004 is as follows:

Range Of Exericse Price ($)				Number Outstanding				Weighted Average Exercise Price of Options Outstanding ($)				Weighted Average Remaining Contractual Life In Years				Number Exercisable				Weighted Average Exercise Price of Options Exercisable ($)
1.75					345				1.75				1.2				345				1.75
3.83 – 5.70					1,801				4.81				8.8				1,211				5.00
7.25					500				7.25				3.3				500				7.25
					2,646				4.87				6.7				2,056				5.00

Warrants:

In the fourth quarter of fiscal 2003, in connection with the execution of an agreement with an unaffiliated third party pursuant to which such third party agreed to provide us with consulting services related to corporate finance and investment banking matters, the Company issued to such third party warrants to purchase up to an aggregate of 350 shares of its common stock. Of the 350 warrants issued, 100 of the warrants are exercisable at $4.75 per share, 175 of the warrants are exercisable at $5.50 per share and 75 of the warrants are exercisable at a price of $6.00 per share. The warrants expire on August 13, 2007. At issuance, the fair value of the warrants of $603 was recorded as a deferred cost and is being amortized over the two year life of the agreement. For the years ended September 30, 2004 and 2003, the Company recorded $302 and $41, respectively, in amortization related to such warrants.

13.    Commitments and Contingencies:

Acquisition Agreements:

Related to the Company's acquisitions of certain flexible staffing agencies, the Company has entered into agreements to pay additional amounts, in cash, of up to $10,501 at September 30, 2004, in contingent consideration dependent upon future earnings of such acquired entities.

F-24

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

Employment Agreements:

The Company has three employment agreements that provided for minimum aggregate annual compensation of $988 in fiscal 2004.

In September 2001, the Company entered into an employment agreement with Mr. Aitken. The employment agreement has a three-year term (subject to automatic renewal for successive additional one-year periods unless either party provides the other with notice of intent to terminate the agreement at least 90 days before the then applicable termination date). The employment agreement provides that the Company will negotiate in good faith, commencing not less than 90 days prior to the anniversary date of the employment agreement, the amount, if any, of future salary increases. The salary of Mr. Aitken for fiscal 2005 is £250,000. Mr. Aitken's employment agreement provides that if his employment is terminated during the term of the agreement other than for cause, death or disability, or if, within six months of a "change in control" (as defined in the agreement) of the Company, Mr. Aitken or the Company terminates his employment, then (1) all stock options in the Company held by Mr. Aitken shall immediately vest and (2) Mr. Aitken will be entitled to receive a cash payment of 2.9 times his average annual base salary during the twelve months preceding the change of control or the termination of employment.

In September 2001, the Company entered into an employment agreement with Ms. Eames, which was modified in November 2004. Pursuant to her employment agreement, as modified, Ms. Eames will serve as Executive Vice President of the Company until May 2006 at an annual salary of $200,000. Ms. Eames' employment agreement, as amended, provides that if her employment is terminated during the term of the agreement other than for cause, death or disability, then all stock options in the Company held by Mr. Eames shall immediately vest and Ms. Eames shall be entitled to receive her salary through May 2006.

In Deeds of Restrictive Covenants entered into in 1999 with one of our U.K. subsidiaries, Mr. Aitken and Ms. Eames have each agreed not to compete with the Company or its subsidiaries for twelve months following termination of employment without the Company's prior written consent.

The Company has also entered into an employment agreement with Mr. Murphy, its Chief Financial Officer. The employment agreement with Mr. Murphy is terminable by either party on six months' notice and provides that Mr. Murphy will not compete against us for a period of twelve months following his termination of employment. Pursuant to his employment agreement, Mr. Murphy's salary is currently £165,000.

Operating Leases:

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

Future minimum rental commitments required under operating leases that have non-cancelable lease terms in excess of one year as of September 30, 2004 are as follows:

2005					2,203
2006					1,812
2007					1,489
2008					1,008
2009					925
Thereafter					2,050
				$	9,487

Rent expense under non-capitalized, non-cancelable lease agreements for the years ended September 30, 2004, 2003 and 2002 amounted to $3,493, $2,749 and $2,002, respectively.

F-25

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

Litigation:

On April 13, 1998, one of the Company's shareholders, purporting to sue derivatively on its behalf, commenced a derivative suit in the Supreme Court of the State of New York, County of New York, entitled Kevin Mak, derivatively and on behalf of Transworld Healthcare, Inc., Plaintiff, vs. Timothy Aitken, Scott A. Shay, Lewis S. Ranieri, Wayne Palladino and Hyperion Partners II L.P., Defendants, and Transworld Healthcare, Inc., Nominal Defendant, Index No. 98-106401. The suit alleges that certain of the Company's officers and directors, and Hyperion Partners II L.P., breached fiduciary duties owed to the Company and its shareholders, in connection with a transaction, approved by a vote of the Company's shareholders on March 17, 1998, in which the Company was to issue certain shares of stock to Hyperion Partners II L.P. in exchange for certain receivables due from Health Management, Inc. ("HMI"). The action seeks injunctive relief against this transaction, and damages, costs and attorneys' fees in unspecified amounts. The transaction subsequently closed and the plaintiff has, on numerous occasions, stipulated to extend the defendants' time to respond to this suit.

Contingencies:

Some of the Company's subsidiaries were Medicare Part B suppliers who submitted claims to the designated carrier who is the government's claims processing administrator. From time to time, the carrier may have requested an audit of Medicare Part B claims on a prepayment or postpayment basis. If the outcome of any audit results in a denial or a finding of an overpayment, then the affected subsidiary has appeal rights. Under postpayment audit procedures, the supplier generally pays the alleged overpayment and can pursue appeal rights for a refund of any paid overpayment incorrectly assessed against the supplier. Some of the subsidiaries currently are responding to these audits and pursuing appeal rights in certain circumstances.

The Company believes that it is in compliance, in all material respects, with the applicable provisions of the Federal statutes, regulations and laws and applicable state laws together with all applicable laws and regulations of other countries in which the Company operates. Due to the broad and sometimes vague nature of these laws and regulations, there can be no assurance that an enforcement action will not be brought against the Company, or that the Company will not be found to be in violation of one or more of these provisions. At present, the Company cannot anticipate what impact, if any, subsequent administrative or judicial interpretation of the applicable Federal and state laws and those of other countries may have on the Company's consolidated financial position, cash flows or results of operations.

The Company is involved in various other legal proceedings and claims incidental to its normal business activities. The Company is vigorously defending its position in all such proceedings and, at September 30, 2004, has recorded an accrual of approximately $694 to cover its estimate for exposure related to these matters. Management believes these matters, including the derivative suit, should not have a material adverse impact on the consolidated financial position, cash flows or results of operations of the Company.

14.    Operations by Business Segments and Geographic Areas:

As disclosed in Note 3, the Company sold all of the issued and outstanding capital stock of its Home Healthcare operations on April 16, 2003 and the Home Healthcare results of operations have been classified as discontinued operations. As a result of this transaction, the Company no longer operates in the U.S. Home Healthcare segment. Accordingly, during the years ended September 30, 2004, 2003 and 2002, the Company's continuing operations were in the U.K. The U.K. operations derive its revenues from flexible healthcare services, principally nursing and ancillary services, and provision of respiratory therapy products to patients throughout most of the U.K.

F-26

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

The Company evaluates performance and allocates resources based on profit and loss from operations before corporate expenses, interest and income taxes. The accounting policies of the business segment are the same as those described in the summary of significant accounting policies.

The following tables present certain financial information by reportable business segment and geographic area of operations for the years ended September 30, 2004, 2003 and 2002.

				Year Ended September 30, 2004
				U.K. Operations				Total
Net patient services				$	317,393			$	317,393
Net respiratory, medical equipment and supplies					7,905				7,905
Total revenues to unaffiliated customers				$	325,298			$	325,298
Segment operating profit				$	34,553			$	34,553
Corporate expenses									(4,926	)
Interest expense, net									(13,727	)
Foreign exchange loss									(184	)
Income before income taxes								$	15,716
Depreciation and amortization				$	2,412			$	2,412
Corporate depreciation and amortization									7
Total depreciation and amortization								$	2,419
Identifiable assets, September 30, 2004				$	277,675			$	277,675
Corporate assets									4,719
Total assets, September 30, 2004								$	282,394
Capital expenditures				$	7,829			$	7,829
Corporate capital expenditures									—
Total capital expenditures								$	7,829

				Year Ended September 30, 2003
				U.K. Operations				Total
Net patient services				$	287,964			$	287,964
Net respiratory, medical equipment and supplies					6,415				6,415
Total revenues to unaffiliated customers				$	294,379			$	294,379
Segment operating profit				$	31,497			$	31,497
Corporate expenses									(3,822	)
Interest expense, net									(11,279	)
Foreign exchange loss									(18	)
Income before income taxes and discontinued operations								$	16,378
Depreciation and amortization				$	1,976			$	1,976
Corporate depreciation and amortization									9
Total depreciation and amortization								$	1,985
Identifiable assets, September 30, 2003				$	302,309			$	302,309
Corporate assets									9,359
Total assets, September 30, 2003								$	311,668
Capital expenditures				$	4,015			$	4,015
Corporate capital expenditures									11
Total capital expenditures								$	4,026

F-27

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

				Year Ended September 30, 2002
				U.K. Operations				Total
Net patient services				$	237,890			$	237,890
Net respiratory, medical equipment and supplies					4,938				4,938
Total revenues to unaffiliated customers				$	242,828			$	242,828
Segment operating profit				$	27,786			$	27,786
Corporate expenses									(10,554	)
Interest expense, net									(13,472	)
Gain on settlement of PIK interest									5,143
Foreign exchange loss									(19	)
Income before income taxes, minority interest and discontinued operations								$	8,884
Depreciation and amortization				$	1,321			$	1,321
Corporate depreciation and amortization									16
Total depreciation and amortization								$	1,337
Identifiable assets, September 30, 2002				$	256,407			$	256,407
Assets of discontinued operations									8,733
Corporate assets									2,973
Total assets, September 30, 2002								$	268,113
Capital expenditures				$	3,082			$	3,082
Corporate capital expenditures									9
Total capital expenditures								$	3,091

The net assets for the U.K. Operations were $131,216 and $109,556 as of September 30, 2004 and 2003, respectively.

15.    Profit Sharing Plan:

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

The plan operates as a salary reduction plan whereby participants contribute anywhere from 1% to 15% of their compensation, not to exceed the maximum available under the Code.

The Company may make additional matching cash contributions at its discretion. The Company's contributions to the plan were approximately $3, $35 and $30 for the years ended September 30, 2004, 2003 and 2002, respectively.

In addition to the U.S. plan described above, certain of the Company's U.K. subsidiaries also sponsor personal pension plans. The plans operate as salary reduction plans, which also allows for lump sum contributions, whereby participants contribute anywhere from 1% to 40% of their compensation, not to exceed the maximum available under the U.K. tax laws. The Company may make an additional contribution (which varies according to employee contracts and contribution elections) which is in the form of cash. The Company's contributions to the U.K. plans were $89, $131 and $252 for the years ended September 30, 2004, 2003 and 2002, respectively.

F-28

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

16. Selected Quarterly Financial Data (Unaudited):

The following table presents the comparative unaudited quarterly results for the years ended September 30, 2004 and 2003:

2004 Quarter Ended				December 31,				March 31,				June 30,				September 30,
Total revenues				$	78,543			$	80,167			$	81,914			$	84,674
Gross profit				$	22,310			$	22,533			$	23,586			$	24,742
Net income				$	1,762			$	2,643			$	3,299			$	2,165	(a)
Net income (loss) available to common shareholders				$	706			$	1,574			$	2,208			$	(1,639)	(b)
Basic and diluted net income (loss) per share of common stock				$	0.03			$	0.07			$	0.10			$	(0.04	)

(a)	Includes charges of $2,906, net of tax, related to write-offs associated with refinancing the Old Senior Credit Facility.

(b)	Includes charges of $3,730 related to the conversion of the Series A preferred stock.

2003 Quarter Ended				December 31,				March 31,				June 30,				September 30,
Total revenues				$	67,998			$	71,686			$	75,274			$	79,421
Gross profit				$	18,898			$	19,625			$	20,595			$	22,205
Discontinued operations				$	184			$	(62	)		$	381			$	—
Net income				$	2,303			$	3,526	(c)		$	2,120			$	4,022
Net income available to common shareholders				$	1,309			$	2,552			$	1,117			$	2,988
Basic and diluted net income per share of common stock				$	0.06			$	0.11			$	0.05			$	0.13

(c)	Includes benefit of $1,874 related to the reversal of an estimated income tax liability for a business that was previously discontinued and no longer has any tax liabilities.

17.    Subsequent Events:

In November 2004, the Company acquired two flexible staffing agencies for approximately $3,289 in cash and additional contingent cash consideration of up to $3,142 dependent upon future earnings of the acquired entities.

F-29

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ALLIED HEALTHCARE INTERNATIONAL INC.
(PARENT COMPANY ONLY)
SCHEDULE I—CONDENSED FINANCIAL INFORMATION
BALANCE SHEETS
(In thousands, except per share data)

				September 30, 2004				September 30, 2003
ASSETS
Current assets:
Cash and cash equivalents				$	1,906			$	5,813
Receivables from subsidiaries					103,013				46,242
Prepaid expenses and other assets					431				897
Total current assets					105,350				52,952
Property and equipment, net					15				21
Investment in subsidiaries					82,317				60,699
Goodwill					2,300				2,300
Other assets					66				327
Total assets				$	190,048			$	116,299
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Dividends payable				$	—			$	4,464
Liabilities of discontinued operations					690				690
Accounts payable					246				676
Accrued expenses					2,042				1,983
Taxes payable					—				68
Total current liabilities					2,978				7,881
Long-term liabilities					93				104
Total liabilities					3,071				7,985
Commitments and contingencies
Redeemable convertible Series A preferred stock, $.01 par value; authorized 8,000 shares, 7,774 shares issued and outstanding at September 30, 2003 (liquidation value $35,213)					—				33,151
Shareholders' equity:
Preferred stock, $.01 par value; authorized 10,000 shares, no shares issued and outstanding at September 30, 2004					—				—
Common stock, $.01 par value; authorized 80,000 shares, issued 45,050 and 22,689 shares, respectively					450				227
Additional paid-in capital					236,988				142,897
Accumulated other comprehensive income					10,778				3,140
Accumulated deficit					(58,945	)			(68,814	)
					189,271				77,450
Less notes receivable from officers					—				(1,002	)
Less cost of treasury stock (585 and 408 shares, respectively)					(2,294	)			(1,285	)
Total shareholders' equity					186,977				75,163
Total liabilities and shareholders' equity				$	190,048			$	116,299

See note to condensed financial information.

S-1

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ALLIED HEALTHCARE INTERNATIONAL INC.
(PARENT COMPANY ONLY)
SCHEDULE I—CONDENSED FINANCIAL INFORMATION
STATEMENTS OF OPERATIONS
(In thousands)

				Year Ended September 30, 2004				Year Ended September 30, 2003				Year Ended September 30, 2002
Revenue				$	—			$	—			$	—
Expenses:
Selling, general and administrative expenses					4,884				4,178				10,848
Forgiveness of intercompany debt					—				12,106				—
Total expenses					4,884				16,284				10,848
Gain on settlement of PIK interest					—				—				(5,143	)
Equity in income of subsidiaries					14,013				26,043				10,615
Interest income					(856	)			(68	)			(24	)
Other expense					184				181				140
Income before income taxes and discontinued operations					9,801				9,646				4,794
Benefit from income taxes					(68	)			(1,806	)			—
Income before discontinued operations					9,869				11,452				4,794
Discontinued operations—Gain on disposal of subsidiaries, net of taxes of $775					—				519				—
					—				519				—
Net income				$	9,869			$	11,971			$	4,794

See note to condensed financial information.

S-2

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SCHEDULE I

ALLIED HEALTHCARE INTERNATIONAL INC.
(PARENT COMPANY ONLY)
SCHEDULE I—CONDENSED FINANCIAL INFORMATION
STATEMENTS OF CASH FLOWS
(In thousands)

				Year Ended September 30, 2004				Year Ended September 30, 2003				Year Ended September 30, 2002
Cash flows from operating activities:
Net income				$	9,869			$	11,971			$	4,794
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Equity interest in net income of subsidiaries					(14,013	)			(26,043	)			(10,615	)
Gain on sale of subsidiaries					—				(519	)			—
Depreciation and amortization					7				9				16
Amortization of debt issuance costs and warrants					302				203				—
Forgiveness of intercompany debt					—				12,106				—
Loss on sale of fixed assets					—				3				—
Minority interest					—				—				120
Stock based compensation - employees					—				587				5,835
Interest accrued on loans to officers					(7	)			(44	)			(18	)
Gain on settlement of PIK interest					—				—				(5,143	)
Gain on acquisition of minority interest					—				—				(179	)
Changes in operating assets and liabilities, excluding the effect of businesses acquired and sold:
(Increase) decrease in receivables from subsidiaries					(56,771	)			1,164				4,287
Decrease (increase) in prepaid expenses and other assets					431				(394	)			(82	)
(Decrease) increase in accounts payable and other liabilities					(451	)			(1,641	)			305
Net cash used in continuing operations					(60,633	)			(2,598	)			(680	)
Net cash provided by discontinued operations					—				463				1,640
Net cash (used in) provided by operating activities					(60,633	)			(2,135	)			960
Cash flows from investing activities:
Capital expenditures					—				(11	)			(9	)
Loans to officers					—				—				(940	)
Proceeds from sale of discontinued operations					—				8,195				—
Net cash provided by (used in) investing activities					—				8,184				(949	)
Cash flows from financing activities:
Payments for stock issuance costs					(5,335	)			(20	)			(4,054	)
Payments for preferred dividends					(9,422	)			—				—
Proceeds from issuance of stock					71,050				—				3,188
Payments for treasury shares acquired					—				(565	)			—
Stock options and warrants exercised, net, including tax benefit					401				80				—
Net cash provided by (used in) financing activities					56,694				(505	)			(866	)
Effect of exchange rate on cash					32				(114	)			252
(Decrease) increase in cash					(3,907	)			5,430				(603	)
Cash and cash equivalents, beginning of period					5,813				383				986
Cash and cash equivalents, end of period				$	1,906			$	5,813			$	383

See note to condensed financial information.

S-3

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ALLIED HEALTHCARE INTERNATIONAL INC.
(PARENT COMPANY ONLY)
SCHEDULE I—CONDENSED FINANCIAL INFORMATION
NOTE TO CONDENSED FINANCIAL INFORMATION

Basis of Presentation:

Certain information and footnote disclosures normally included in financial statements prepared in conformity with generally accepted accounting principles have been condensed or omitted. Accordingly, these financial statements should be read in conjunction with the consolidated financial statements of Allied Healthcare International Inc. (the "Company") in its 2004 Annual Report on Form 10-K.

The investments in the Company's subsidiaries are carried on the equity basis, which represents amount invested less dividends received plus or minus the Company's equity in the subsidiaries' income or loss to date. Significant intercompany balances and activities have not been eliminated in the unconsolidated financial information.

S-4

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ALLIED HEALTHCARE INTERNATIONAL INC.
(In thousands)

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

Column A				Column B				Column C								Column D				Column E
								Additions Charged to
Description				Balance at Beginning of Period				Cost and Expenses				Other Accounts				Deductions				Balance at End of Period
Allowance for Doubtful Accounts:
Year ended September 30, 2004				$	3,346			$	(1,653	)		$	259	(B)		$	683	(A)		$	1,269
Year ended September 30, 2003				$	22,849			$	1,205			$	227	(B)		$	20,935	(A)		$	3,346
Year ended September 30, 2002				$	22,737			$	985			$	158	(B)		$	1,031	(A)		$	22,849

	(A) Doubtful accounts written off, net of recoveries and sold.

(B)	Assumed in acquisitions and adjustments arising from translation of foreign financial statements to U.S. dollars.

S-5

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