10-K

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

	For	the fiscal year ended September 30, 2007

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

For the transition period from                          to                        

Commission File No.: 1-11570

ALLIED HEALTHCARE INTERNATIONAL INC.

(Exact Name of Registrant as Specified in Its Charter)

New York			13-3098275
(State or Other Jurisdiction of Incorporation)			(I.R.S. Employer Identification Number)

245 Park Avenue New York, New York			10167			(212) 750-0064
(Address of principal executive offices)			(Zip Code)			(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class			Name of Each Exchange on Which Registered
Common Stock, $.01 par value			The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act:

(Title of Class)

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes     No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes     No

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best or registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated file. See definition of ‘‘accelerated filer and large accelerated filer’’ in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer                        Accelerated Filer                        Non-Accelerated Filer    

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes     No

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of March 30, 2007, the last business day of its most-recently completed second fiscal quarter, was approximately $72,865,400 based on the closing sales price of $3.05 per share of common stock of the registrant on such date, as reported by The NASDAQ Stock Market LLC. The calculation of the number of shares held by non-affiliates is based on the assumption that the affiliates of the registrant include only (i) directors, (ii) executive officers and (iii) shareholders who have filed a Schedule 13D or 13G which reflects ownership of at least 10% of the outstanding common stock.

The number of shares of common stock of the registrant outstanding on December 3, 2007 was 44,986,229.

DOCUMENTS INCORPORATED BY REFERENCE:

None

ALLIED HEALTHCARE INTERNATIONAL INC.
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended September 30, 2007

TABLE OF CONTENTS

PART I
Item 1.			Business					2
Item 1A.			Risk Factors					9
Item 1B.			Unresolved Staff Comments					15
Item 2.			Properties					15
Item 3.			Legal Proceedings					15
Item 4.			Submission of Matters to a Vote of Security Holders					15
PART II
Item 5.			Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities					16
Item 6.			Selected Financial Data					20
Item 7.			Management’s Discussion and Analysis of Financial Condition and Results of Operations					22
Item 7A.			Quantitative and Qualitative Disclosures About Market Risk					36
Item 8.			Financial Statements and Supplementary Data					37
Item 9.			Changes in and Disagreements with Accountants on Accounting and Financial Disclosure					37
Item 9A.			Controls and Procedures					37
Item 9B.			Other Information					40
PART III
Item 10.			Directors and Executive Officers of the Registrant					41
Item 11.			Executive Compensation					44
Item 12.			Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters					57
Item 13.			Certain Relationships and Related Transactions, and Director Independence					59
Item 14.			Principal Accountant Fees and Services					60
PART IV
Item 15.			Exhibits and Financial Statement Schedules					62

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FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K includes forward-looking statements.

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

We based these forward-looking statements on our current expectations and projections about future events. Our actual results could differ materially from those discussed in, or implied by, these forward-looking statements. Factors that could cause actual results to differ from those implied by the forward-looking statements include:

	•	our ability to continue to recruit and retain qualified flexible healthcare staff;

	•	our ability to enter into contracts with hospitals, other healthcare facility clients and local governmental social service departments on terms attractive to us;

	•	the general level of patient occupancy at our clients’ hospitals and healthcare facilities;

	•	our dependence on the proper functioning of our information systems;

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

	•	the impact of medical malpractice and other claims asserted against us;

	•	the effect of regulatory change that may apply to us and that may increase our costs and reduce our revenue and profitability;

	•	our ability to use our net operating loss carryforward to offset net income;

	•	the effect that fluctuations in foreign currency exchange rates may have on our dollar-denominated results of operations; and

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

Other factors that could cause actual results to differ from those implied by the forward-looking statements in this Annual Report on Form 10-K are more fully described elsewhere in this document, as well as changes in any of the following: the demand for our products and services, general economic conditions, governmental regulation, the level of competition we face, customer strategies and pricing and reimbursement policies.

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Preliminary Notes

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

Historical financial and other data originally denominate in pounds sterling have been converted to dollars at the then applicable exchange rate.

PART I

Item 1.    Business

ALLIED HEALTHCARE INTERNATIONAL INC.

Our Company

We are a leading provider of flexible, or temporary, healthcare staffing to the healthcare industry in the United Kingdom as measured by revenues, market share and number of staff. As of September 30, 2007, we operated an integrated network of approximately 100 branches throughout most of the United Kingdom. Our healthcare staff consists principally of homecare aides (known as carers in the United Kingdom), nurses and nurses aides. We maintain a listing of over 12,000 homecare aides, nurses and nurses aides, a majority of whom we placed during the fiscal year ended September 30, 2007.

In September 2007, we disposed of two of our U.K. subsidiaries when we sold all of the issued and outstanding ordinary shares of Allied Respiratory Limited and Medigas Limited for £36.5 million ($74.7 million) in cash, of which £500,000 ($1.0 million) is being held back until certain conditions are met. Four hundred and twenty five thousand pounds (£425,000) of the escrowed amount was released to us in December 2007 and we expect that the remaining £75,000 will be released to us in fiscal 2008. These two subsidiaries constituted our respiratory therapy division. Our respiratory therapy division supplied medical-grade oxygen for use in respiratory therapy to pharmacies in the U.K., oxygen concentrators to customers in Northern Ireland and oxygen services to customers in the South East of England. In accordance with the provisions of Statement of Financial Accounting Standards No. 144, ‘‘Accounting for the Impairment or Disposal of Long-Lived Assets’’ (‘‘FAS No. 144’’), we have accounted for our respiratory therapy division 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 respiratory therapy division for the current and prior periods are reported in discontinued operations on our statement of operations.

We were incorporated in New York in 1981. Our principal executive offices are located at 245 Park Avenue, New York, New York 10167, and our telephone number at that location is (212) 750-0064.

Recent Developments

On October 1, 2007 we prepaid the outstanding amounts under our term loan A and our term loan B1 of our senior credit facility from the proceeds of the sale of our respiratory therapy business. We also cancelled term loan A, term loan B1 and revolving loan C of our senior credit facility on October 1, 2007. The invoice discount facility of our senior credit facility continues to be available to us.

The U.K. Flexible Healthcare Staffing Industry

The U.K. healthcare staffing market is highly fragmented, with no one company possessing a dominant market share.

The major purchasers of flexible healthcare staff in the United Kingdom are:

	•	Local governmental social service departments.

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	•	The government-funded National Health Service (the ‘‘NHS’’). Through its Primary Care Trusts (‘‘PCTs’’), the NHS oversees healthcare in the local community. The NHS operates its hospitals mainly through NHS Trusts, each of which operates one or more hospitals.

	•	Private individuals.

	•	Independent hospitals and care homes in the United Kingdom.

Our Business Strategy

We are a leading provider of flexible, or temporary, staffing to the U.K. healthcare industry. We provide flexible staffing, principally homecare aides, nurses and nurses aides, to customers throughout most of the United Kingdom. Our branches are located in England, Wales and Scotland. We do not have any branches or healthcare staffing customers in Northern Ireland.

We traditionally focused on the provision of temporary nursing staff to the U.K. hospital sector. Following the NHS’s Trust decision to reduce NHS expenditure on temporary staffing provided by external staffing agencies, and to emphasize providing acute and non-acute care at home, we have transitioned our staffing business to meet the increasing demand in the homecare sector. The main purchaser of our services in the homecare sector is local governmental social services departments, which have not made a determination to reduce expenditures on temporary staff, and NHS PCTs. We continue to supply nursing staff to the NHS hospital sector, although this represents 10% of the hours we provided in fiscal 2007 and less than 10% of our gross margin during such period.

We provide a diverse range of flexible staff, principally consisting of homecare aides, nurses and nurses aides, to our customers. Homecare aides provide personal or basic care in the home (known as social care in the United Kingdom). Nurses aides perform many of the functions of homecare aides, mainly in the hospital setting. As of September 30, 2007, our mix of flexible staff was approximately 71% homecare aides, 9% nurses and 20% nurses aides.

We seek to become the provider of choice to purchasers of healthcare staffing services and the employer of choice to flexible healthcare workers. In addition, we seek to expand our range of healthcare staffing services over the long-term. The key elements in achieving these strategic objectives are:

	•	Increase revenues on a per branch basis.    We believe the increasing demand for quality healthcare staffing with national coverage and diversity of services will support organic growth in our branches and the development of new services. We intend to foster continued same-store revenue growth by leveraging our nationally recognized brand names, competitive benefits package and leadership in providing temporary healthcare staffing.

	•	Recruit and retain healthcare staff.    We intend to continue to recruit and retain high-quality staff to take advantage of the severe shortages of homecare aides, nurses and nurses aides in the United Kingdom, which we expect to continue in the foreseeable future. We intend to continue our recruitment efforts and to encourage loyalty from our healthcare staff by matching their flexible working preferences (both with regards to scheduling preferences and types of assignments desired) with our customers’ needs, maintaining regular contact and promoting opportunities for training and development.

Having expanded by a successful acquisition strategy, we have a strong and comprehensive regional branch structure covering approximately 90% of the U.K. population and we are now concentrating on organic growth.

Our Operations

Flexible Staffing

Our integrated branch network is spread throughout most of the United Kingdom. A typical branch is overseen by a branch manager, who is responsible for all the activities in the branch, including the achievement of its financial targets, developing local customer relations and recruiting

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staff. The branches are organized into regions that are overseen by our operations managers. Our branches serve as our direct contact with our customers and our healthcare staff. Additionally, we employ regional commissioning managers who focus on developing and acquiring new business opportunities by securing sales contracts with the local governmental social service departments.

There are regular management meetings that are attended by branch managers and related corporate office departments and representatives of senior management where the financial performance of the branches is assessed and actions for improvement are agreed upon.

We generally maintain centralized management control in the areas of payroll, accounts receivable, contracts, pricing, regulatory matters, quality control and information technology.

Recruitment of Flexible Staff

Many healthcare workers are attracted to flexible staffing positions because of their desire to tailor work schedules to personal and family needs, obtain varied and challenging work experiences and acquire new skills. We believe that our ability to offer quality flexible staffing assignments well-matched to individuals’ preferences assists in our attracting a large number of flexible healthcare workers.

Our branch managers are primarily responsible for recruiting staff. Branch managers recruit on a local basis, with referrals from existing staff providing an important source of new staff. From time to time, we may run internal financial promotions to encourage referrals from our staff. We also formally recruit through local and national print advertising and organize recruitment events, including national recruitment days, at the branch level. Our website also advertises national branch vacancies.

We impose a standardized recruitment process on our branches. Before they can place a homecare aide, nurse or nurses aide, our branches must obtain, among other things, two professional references and evidence of proper immunizations, as well as a police background check. Our branches must also confirm that each nurse has been licensed by the appropriate governmental body and that each nurses aide and homecare aide has received the training mandated by law for their occupation.

Training and Retention of Flexible Staff

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

Quality Assurance

We invest heavily in quality assurance systems to ensure that our flexible healthcare staff meet our internal quality assurance standards, as well as those mandated under the Care Standards Act 2000. It is the branch manager’s responsibility to ensure that all flexible workers are compliant with our internal quality assurance standards when they are booked on shifts.

We have a quality assurance audit team whose primary job responsibility is to visit each of our branches on a periodic basis to assure that the branches adhere to the procedures and policies set by our main office. The quality assurance audit team is independent of our operations management. A member of our quality assurance audit team visits each branch at least once per year. During its visits to our branches, the quality assurance audit team reviews employee files to confirm that staff have proper levels of training for the jobs in which they are being placed by the branch and that the documents required by our standardized recruitment process are in order. The quality assurance audit team also confirms that nurses have been licensed with the appropriate U.K. body. In addition, to minimize injury to our staff, the quality assurance audit team checks customer files to confirm that all health and safety checks for customers’ facilities have been made. Rev iews of staff and customer files are done on a random sample basis.

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Customers

We provide healthcare staff to four types of customers:

	•	Local governmental social service departments.    Local governmental social service departments retain us to provide healthcare staff, generally homecare aides, to individuals in their homes.

	•	Nursing homes, care homes and independent hospitals.    We provide nurses and homecare aides to nursing homes and homecare aides to care homes. Care homes, like nursing homes, generally provide shelter and food for their residents, but, unlike nursing homes, generally do not provide medical services to their residents. We also provide nurses and nurses aides to independent hospitals in the private sector.

	•	The NHS.    During our fiscal year ended September 30, 2007, we provided nurses and nurses aides to the NHS. We provided staff mainly to NHS hospitals and NHS Primary Care Trusts.

	•	Private patients.    We provide both nurses and homecare aides to private patient customers. These patients may include incapacitated individuals who require daily attention or patients with long-term illnesses living at home.

Types of Customer Contracts

We provide staff to our customers under a variety of arrangements, including the following categories of contracts common to the healthcare staffing industry:

	•	Spot contacts.    These contracts are price-per-contract arrangements for the provision of flexible staff, usually with local governmental social services departments and nursing homes. Spot contracts have the price and other terms agreed on a contract-by-contract basis.

	•	Block contracts.    These contracts are usually with local governmental social services departments and involve the purchase of a quantity (or ‘‘block’’) of flexible staffing care services over a period of time. A block contract specifies the rates for staff and commits the customer to purchase an agreed-upon volume of staffing services over a specified period. These contracts may enable customers to negotiate lower prices in return for agreeing to minimum volumes of business.

	•	NHS Framework Agreements and Service Level Agreements.    The NHS requires any healthcare staffing company that provides temporary staff to NHS to enter into Framework Agreements. A Framework Agreement sets out one national pay structure for the supply of nurses of all specifications. Only those staffing companies that have executed a Framework Agreement and met the quality standards can provide temporary staff to NHS bodies in the region covered by the Framework Agreement. Pursuant to our Framework Agreement, we can supply all types of staff throughout the U.K., except in London, where our Framework Agreement authorizes us to supply all categori es of staff other than mental health staff and midwives.

		Individual NHS hospitals in England may select from the list of staffing companies qualified under the Framework Agreements and enter into Service Level Agreements. Although the Framework Agreements set the maximum rates to be charged for flexible staff, NHS hospitals may obtain a discounted rate if they enter into a Service Level Agreement.

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

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Marketing Activities

We market our flexible healthcare staffing business to key decision makers in local governmental social service departments, the NHS, nursing homes, care homes and independent hospitals. These decision makers can be procurement officers, contract officers or social workers. Fundamental to our ability to obtain and retain staffing assignments is establishing and maintaining a reputation for quality service and responsiveness to the needs of our customers and their patients.

Competition

The U.K. flexible healthcare staffing business is highly fragmented with numerous small operators providing staff locally. The market at the local level is characterized by relatively low barriers to entry. The barriers to entry at a U.K.-wide level are more significant, as the establishment and growth of a flexible healthcare staffing business is largely dependent on access to capital.

The privately-owned competitors of our flexible staffing business are mainly small, locally-based agencies serving a limited area or group of customers. These businesses compete with our relevant branch covering the same local area, but do not otherwise compete for U.K.-wide market share. In addition, a limited number of larger U.K.-based companies compete with us. Such companies include Nestor Healthcare Group plc, Care UK plc, Match Group and Reed Health Group plc.

The nature of the U.K. marketplace is such that homecare aides and nurses often accept placements with more than one flexible staffing business.

Since 2000, the NHS has had its own internal agency, called NHS Professionals, which has attempted to provide NHS hospitals with high volume/low margin contracts for flexible healthcare workers and to reduce the NHS’s dependence on external agencies. We work with NHS Professionals to fulfill the demand that it is unable to cover.

Payment for Staffing Services

In most cases, we contract directly with the governmental entity or private entity or individual to whom we provide flexible staff. The party with whom we contract for the supply of staff is responsible for paying us directly. In general, reimbursement is received regularly and reliably from all governmental and private customers. We generally collect payments from our customers within two months after services are rendered or products are supplied but we pay accounts payable and employees currently.

For the year ended September 30, 2007, our operations received approximately 63.5% of revenues from customers that were U.K. governmental entities (primarily local governmental social service departments and NHS hospitals), compared to approximately 68.3% for the year ended September 30, 2006. The remaining 36.5% and 31.7% of revenues received for 2007 and 2006, respectively, were derived from services and products provided to privately-owned nursing homes, privately-owned care homes, independent hospitals and private patients.

Trade Names

We operate our healthcare staffing business in the United Kingdom principally under the Allied Healthcare Group trade name.

Employees

As of November 2007, we employed approximately 821 individuals in our branch network, our U.K. head office and our other offices. None of our employees are represented by a labor union.

In addition, we maintain registers of over 12,000 homecare aides, nurses and nurses aides available to staff our customer base on a temporary basis. We generally place about 7,000 individuals each week with our customers. We consider our relationship with our employees and staff to be good.

Government Regulation

General

We are subject to regulation by the government of the United Kingdom via Acts of Parliament related to healthcare provision and by the general health regulations of the Department of Health.

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Healthcare Laws and Regulations

Our operations are subject to licensing and approval regulations from both governmental and non-governmental bodies according to terms of service and operating procedures decided by the U.K. government.

We are currently registered in England and Wales under the Care Standards Act 2000 and the Nurses Agencies Regulations 2002 (which came into force in April 2003) in relation to England and the Nurses Agencies (Wales) Regulations 2003 (which came into force in October 2003) in relation to Wales to carry on a business for the supply of nurses. Both of these pieces of legislation require that a person who carries on a business for the supply of nurses at any location within the jurisdiction of the registration authority must be the holder of a certificate from that authority certifying that the business is registered to supply to that location. We are similarly registered in Scotland under the Regulation of Care (Scotland) Act 2001. Any of our branches that supply homecare aides working in individuals’ homes are authorized under the Care Standards Act 2000 and the Domiciliary Care Agencies Regulations 2002 (in England), the Domiciliary Care Agencies (Wales) Regulations 2004 and the Regulation of Care (Scotland) Act 2001.

The Care Standards Act 2000 introduced, among other things, a new registration and regulatory structure for all non-NHS healthcare services in England and Wales. The Health and Social Care (Community Health and Standards) Act 2003 established two new independent registration and 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 enforces registration of care agencies and establishments and the latter (typically referred to as the Healthcare Commission) exists to promote improvements in the quality of healthcare and public health. The Health Commission’s ambit includes responsibility for assessing and reporting on the performance of both NHS and independent healthcare organizations. The Care Standards Act 2000 provides for an arm of the National Assembly for Wales to be the regu latory body for such services in 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 homecare 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 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. A number of regulations (including the Nurses Agencies 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, are reviewed by the Healthcare Commission. We are accredited by various U.K. social services agencies for the supply of homecare aides within their jurisdiction.

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,

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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.    Temporary workers in the UK are entitled to numerous statutory protections and benefits. In particular, they are entitled to receive the national minimum wage, and are subject to the provisions of the Working Time Regulations 1998 (as amended), which governs hours of work, night work, breaks and holidays. There is uncertainty in the case law about the circumstances in which agency workers may acquire full employment rights. Accordingly, a worker who accrues sufficient qualifying employment could have unfair dismissal rights. Temporary workers are also protected from various forms of discrimination in the work place.

The Employment Agencies Act 1973 and Conduct of Employment Agencies and Employment Business Regulations 2003 (the ‘‘2003 Regulations’’) and case law impact us. The 2003 Regulations contain detailed provisions in relation to the charging for our services to a work-seeker and also impose minimum obligations to ensure that the work-seeker and the hirer are suitable. A breach of the 2003 Regulations (or the Employment Agencies Act 1973) resulting in damage is actionable in the civil courts as well as giving potential liability to prosecution and a fine.

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. value-added tax (‘‘VAT’’) rules.    We currently act as an agent for VAT purposes in supplying healthcare staff, which, under a concession to existing U.K. law, requires us to charge VAT only on the amount of commission charged to the purchaser of flexible staff.

The 2003 Regulations came into effect in the United Kingdom in July 2004 but the changes envisaged which impact on VAT were suspended until such time as a review on this matter has been concluded by Her Majesty’s Revenue and Customs (the ‘‘HMRC’’). This review commenced in June 2006. No new updates have been released since June 2006 and HMRC has not indicated the date by which the review will be complete.

In the event that the proposed changes are implemented, the concession under which we operate at present is likely to be withdrawn and this would 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, HMRC’s interpretation is that the flexible staff provider acts as principal, rather than agent.

For non-medical staff, under the 2003 Regulations VAT would be due on the total amount of the charges made by the flexible staff provider, including salary costs, any margin and the employer’s National Insurance Contributions, 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 however states that the provision of medical staff such as nurses should be treated as exempt from VAT. Consequently, as a result of such exemption, the amount of VAT we have incurred and which can be offset against VAT we owe the government will be reduced.

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.

The NHS requires any healthcare staffing company that provides temporary staff to the NHS hospitals to enter into a Framework Agreement setting forth, among other things, types of staff to be

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supplied, 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. Pursuant to our Framework Agreement, we can supply all types of staff throughout the U.K., except in London, where our Framework Agreement authorizes us to supply all categories of staff other than mental health staff and midwives. It is likely that a long-term effect of the Framework Agreements 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 hospitals.

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 costs across all NHS nurse banks.

The introduction and further extension of the NHS Framework Agreements has impacted our financial results by reducing our margins from that source of business. In addition, we have experienced reduced revenues from the NHS as a result of the NHS Framework Agreements, as well as from the efforts of the NHS to source more of its work by using NHS Professionals.

The provision of homecare services to NHS PCTs are normally subject to individually-negotiated rates.

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.

Available Information

We maintain a website at www.alliedhealthcare.com. The contents of our website are not part of, nor are they incorporated by reference into, this Annual Report on Form 10-K.

We make available free of charge through our website our annual reports on Form 10-K and our quarterly reports on Form 10-Q, as well as amendments to those reports, as soon as reasonably practicable after they are filed with the Securities Exchange. We also make available free of charge through our website most of our current reports on Form 8-K, as well as amendments thereto, as soon as reasonably practicable after they are filed with the SEC. We will provide paper copies of our 10-Ks, 10-Qs and 8-Ks to any shareholder free of charge upon request.

Item 1A.    Risk Factors

Our business is subject to many risks that may negatively affect our business, financial condition and/or results of operations.

Risks Relating To Our Business And Strategy

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

We rely significantly on our ability to attract and retain homecare aides, nurses and nurses aides who possess the skills, experience and, if required, licenses necessary to meet the requirements of our customers. We compete for flexible healthcare staffing personnel with other flexible healthcare staffing companies and with hospitals and healthcare facilities. Staff choose to work for a temporary healthcare staffing company based on the quantity, diversity and quality of assignments offered and on compensation packages and other benefits. We must continually evaluate and upgrade our flexible

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staffing network to keep pace with our customers’ needs and to remain competitive in our business. Currently, there is a shortage of homecare aides, nurses and nurses aides in most areas of the United Kingdom. Competition for such personnel is increasing and salaries and benefits have risen. We may be unable to continue to increase the number of healthcare staff that we recruit, decreasing the potential for growth of our business. Our ability to attract and retain healthcare staff depends on several factors, including our ability to provide them with assignments that they view as attractive and to provide them with competitive benefits and wages. We cannot assure you that we will be successful in any of these areas. The cost of attracting healthcare staff and providing them with attractive benefit packages may be higher than we anticipate and, as a result, if we are unable to pass these costs on to our customers, our profitability could decline. Moreover, if we are unable to attract and retain healthca re staff, our ability to provide adequate services to our customers may decline and, as a result, we could lose customers.

We operate in a highly competitive market and our success depends on our ability to obtain and retain customers.

The flexible healthcare staffing business is highly competitive. We compete in national, regional and local markets in the United Kingdom with full-service staffing companies, specialized flexible staffing agencies, NHS Professionals, hospitals, nursing homes and other home healthcare businesses. There are relatively few barriers to entry in the markets we serve and, historically, our industry has been highly fragmented. While we expect to continue to face competition from a broad range of companies, the recent consolidation trend in our industry is likely to result in an increase in the number of larger companies that are able to service regional or national markets. Some of our competitors have greater name recognition, access to capital and marketing, financial and other resources than we do. We believe that the primary competitive factors in obtaining and retaining customers are identifying qualified healthcare staff for specific job requirements, providing qualified staff in a timely manner, pricing services competitively and effectively monitoring job performance. Competition for customers may increase in the future and, as a result we may not be able to remain competitive. To the extent competitors seek to gain or retain market share by reducing prices or increasing marketing expenditures, we could lose revenues or hospital, healthcare facility and other customers and our margins could decline, which could harm our operating results. In addition, the development of alternative recruitment channels could lead our hospital, healthcare facility and other customers to bypass our services, which would also cause our revenues and margins to decline.

A change in treatment of flexible staff for U.K. tax, employment and benefits purposes could result in increased costs.

Like all employment businesses, we are exposed to potential employment related claims from independent contractors who assert that they are employees. We currently treat our nurses and nurses aides as independent contractors, but this position could change if challenged in an employment tribunal or court. Recent case law relating to agency workers has indicated that agency workers could be deemed to be the employee of either the agency that places them or the customer at which they are placed, depending on the circumstances. If our nurses and nurses aides are deemed to employees rather than independent contractors, they could become entitled to additional statutory rights (such as the right to a redundancy payment and the right not to be unfairly dismissed), which could result in an increase in litigation and/or severance payments. We could also become liable to pay employer’s national insurance contributions in respect of our nurses and nurses aides. As a consequence, our business and financial condition could be adversely affected.

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

We operate with a decentralized structure under which our branches operate on a relatively autonomous basis in terms of the recruitment and placement of staff and the marketing of customers. However, we generally maintain centralized management control in the areas of payroll, accounts receivable, contracts, pricing, regulatory matters, quality control and information technology. If we fail to exert proper centralized management control, our local branches could engage in unauthorized activities, our management initiatives may not be successfully implemented and our business, financial condition and results of operations may be adversely affected.

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The loss of key senior management personnel could adversely affect our ability to remain competitive.

We rely heavily on our senior management team, led by Sarah L. Eames, our deputy chairman and interim chief executive officer, and David Moffatt, our chief financial officer. We have entered into an employment agreement with Ms. Eames that expires in April 2008, subject to automatic renewal for successive periods of one year each unless terminated by either party on 90 days’ notice prior to the then applicable renewal date. We entered into an employment agreement with Mr. Moffatt that does not have a fixed term that provides that either party may terminate the agreement upon six months’ written notice. The loss or unavailability for an extended period of time of either of these officers could have a material adverse effect on our operations and prospects.

We are dependent on the proper functioning of our information systems.

We are dependent on the proper functioning of our information systems in operating our business. Our operations have an IT disaster recovery plan. However, they are still vulnerable to fire, storm, flood, power loss, telecommunications failures, physical or software break-ins and similar events. If critical information systems fail or are otherwise unavailable, these functions would have to be accomplished manually, which could temporarily impact our ability to identify business opportunities quickly, to maintain billing and clinical records reliably, to bill for services efficiently and to maintain our accounting and financial reporting effectively.

In fiscal 2005 we implemented a computerized accounting and payroll system and in fiscal 2006 we implemented further changes to the system with the goal of improving the operating performance of our branches. However, we discovered that the system was too slow for the nature of our business and therefore was not achieving full functionality. We decided to abandon certain of the software features of the Oracle platform and not continue with the planned expansion as we believed the cost to have a workable model would exceed alternative solutions. During fiscal 2006, we recognized a pre-tax charge of $9.0 million on the write-off of our investment in the Oracle platform. We are currently in the process of comparing various operating systems in order to determine which system best supports our branch network and allows us to interface with our customers and communicate with our staff.

Our business is subject to certain risks inherent to international operations.

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

	•	fluctuations in currency exchange rates;

	•	varying laws relating to, among other things, employment and employment termination;

	•	the impact of a recession in the United Kingdom;

	•	changes in regulatory requirements; and

	•	potentially adverse tax consequences.

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

Risks Relating To The Flexible Healthcare Staffing Market

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

Although we anticipate that the market for flexible staffing in the healthcare sector will continue to expand, there can be no assurance that growth will occur at all or continue at historic rates or at the rate currently expected. Our growth could be adversely affected by a variety of factors, including emphasis on permanent staff and minimization of the use of temporary staff by healthcare providers and automation or computerization of services traditionally performed by temporary staff providers. In the last few years, U.K. case law on agency workers has indicated that agency workers could be

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deemed to be employees of either the agency that places them or the customer end-user in certain circumstances (although the recent trend of Employment Appeal Tribunal decisions has held this to be unlikely where the agency relationship is not a sham). Consequently, some of the advantages to hospitals and other purchasers to using temporary workers may be lost because of the risk that they will be deemed to be the employer of such workers, and therefore they may decide to hire permanent staff rather than temporary staff. In addition, demand for flexible healthcare staffing services may be significantly affected by the general level of economic activity and economic conditions in the regions in which we operate.

If demand for temporary staffing in the healthcare sector generally declines or does not increase at the rate we anticipate, our business, financial condition and results of operations may be materially and adversely affected.

Fluctuations in patient occupancy at the hospitals, nursing homes and care homes of our customers may adversely affect the demand for our services and therefore our financial performance.

Demand for our flexible healthcare staff is significantly affected by the general level of patient occupancy at the hospitals, nursing homes and care homes of our customers. When occupancy increases, temporary employees are often added before full-time employees are hired. As occupancy decreases, healthcare facility customers typically will reduce their use of temporary employees before undertaking layoffs of their regular employees. In addition, we may experience more competitive pricing pressure during periods of occupancy downturn. Occupancy at our healthcare customers’ facilities also fluctuates due to the seasonality of some elective procedures. We are unable to predict the level of patient occupancy at any particular time and its effect on our revenues and earnings.

We operate in a regulated industry and violations of laws or regulations may result in increased costs or sanctions that could impact our financial performance. Moreover, recent and proposed changes in U.K. regulations affecting flexible staffing companies may result in increased costs that reduce our revenue and profitability.

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. If we fail to comply with the laws and regulations that are applicable to our business, we could suffer civil and/or criminal penalties or we could be required to stop operating in one or more jurisdictions.

Moreover, many political, economic and regulatory organizations are supporting fundamental change in the U.K. healthcare industry. The recent introduction of new regulatory provisions in the United Kingdom affecting flexible staffing companies could substantially raise the costs associated with operating our business. Some proposed changes in these regulations could have a similar effect. We may not be able to pass along to our customers the costs of implementing any changes that result from these new and changed laws and regulations. See ‘‘Item 1 — Business — Government Regulation’’ for a summary of the material existing and proposed regulations affecting our business.

NHS reforms may have a substantial negative impact upon us.

For our fiscal year ended September 30, 2007, 21.6% of our flexible healthcare gross margins was attributable to the NHS. Flexible staffing providers, such as our company, are subject to the risk that the NHS will continue 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.

One initiative undertaken by the NHS is the requirement that agencies wishing to supply the NHS with temporary staff enter into Framework Agreements. It is likely that a long-term effect of the Framework Agreements 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

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service for NHS hospitals. NHS Professionals seeks to coordinate nurse banks operated by NHS hospitals with the intention of maintaining quality standards and controlling costs across all NHS nurse banks. The continued expansion of the NHS Professionals could adversely affect our revenues in the future.

The introduction and further extension of the NHS Framework Agreements has impacted our financial results by reducing our margins from that source of business. In addition, we have experienced reduced revenues from the NHS as a result of the NHS Framework Agreements, as well as from the efforts of the NHS to source more of its work by using NHS Professionals.

Our ability to compete in the homecare services market depends on our ability to obtain assignments from local governmental social service departments.

The largest providers of homecare services in the United Kingdom are local governmental social services departments and NHS Primary Care Trusts. Outsourcing of homecare by these bodies is the principal source of revenue and growth in the homecare staffing market. Though figures vary widely among local governments, homecare provided directly by the local governments typically is significantly more expensive per hour of care than homecare outsourced to independent homecare providers. While we believe there is potential for further outsourcing of homecare by local governments, this potential may be offset by tighter local governmental budgets or by policy changes or legislation. Moreover, there can be no assurance that we will be chosen by local governmental social service departments, or other providers of homecare services, to provide outsourced homecare services in the future, or that we will be able to recruit and retain homecare staff at hourly rates that loca l governments are willing to pay.

Significant legal actions could subject us to substantial uninsured liabilities.

In recent years, healthcare providers have become subject to an increasing number of legal actions alleging medical malpractice, negligent hiring, product liability or other legal theories. Many of these actions involve large claims and significant defense costs. In addition, we may be subject to civil or criminal claims arising from actions taken by our employees or temporary staffing personnel, such as misuse of proprietary information or theft of property. In some instances, we are required to indemnify customers against some or all of these risks. A failure of any of our employees or personnel to observe our policies and guidelines intended to reduce these risks, relevant customer policies and guidelines or applicable laws, rules and regulations could result in negative publicity, payment of fines or other damages. In addition, breaches of the Care Standards Act 2000 and associated regulations could result in the revocation of registration or the imposition of conditions on that registration that could adversely effect the continuation of our business in the United Kingdom. Litigation is costly and, even if we do prevail, the cost of such litigation could adversely affect our consolidated financial statements.

In addition, in the course of our operations we may face possible claims by employees or employee candidates of discrimination or harassment (including for actions our customers or their employees may have taken), violations of health and safety regulations, workers compensation claims, retroactive entitlement to benefits and other similar claims.

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

To protect ourselves from the cost of claims alleging medical malpractice or other causes of action, we maintain malpractice liability insurance and general liability insurance coverage in amounts and with deductibles that we believe are appropriate for our operations. While we have been able to obtain liability insurance in the past, this insurance varies in cost, is difficult to obtain and may not be available in the future on terms acceptable to us, if it is available at all. The failure to maintain insurance coverage or a successful claim not covered by or in excess of our insurance coverage could have a material adverse effect on our business, financial position, cash flows or results of operations. In addition, claims, regardless of their merit or eventual outcome, may have a material adverse effect on our reputation.

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Risks Relating To Our Financial Condition

We have generated substantial amounts of goodwill from our acquisitions, some or all of which we may be required to write off, which could adversely affect our financial condition or results of operations.

Goodwill represents the purchase price of an acquisition less the fair value of the net tangible and intangible assets acquired. We have generated substantial amounts of goodwill from our acquisitions. Part of our strategy involves making additional acquisitions. Because businesses of the type we target often do not have substantial tangible assets, we expect that our acquisition of these businesses will continue to generate significant amounts of goodwill.

At September 30, 2007 we had goodwill of approximately $122.8 million, which equaled approximately 48.6% of our total assets at that date.

In accordance with Statement of Financial Accounting Standards No. 142, ‘‘Goodwill and Other Intangible Assets’’ (‘‘FAS No. 142’’) issued by the Financial Accounting Standards Board, all goodwill and intangible assets deemed to have indefinite lives are no longer subject to amortization, but will be subject to an annual impairment test. We evaluate, on a regular basis, whether events or circumstances have occurred that indicate all, or a portion, of the carrying amount of goodwill may no longer be recoverable, in which case an impairment charge to our earnings would become necessary. As of September 30, 2007, the carry ing value of our goodwill was not impaired, based on an assessment performed in accordance with FAS No. 142. However, any future determination requiring the write-off of a significant portion of the carrying value of our goodwill could have a material adverse effect on our financial condition or results of operations.

Our ability to use our net operating loss carryforward in the future is limited.

As of September 30, 2007, we had a U.S. federal net operating loss carryforward of approximately $75.4 million, expiring between 2018 and 2024. Our current operations are in the United Kingdom. Under U.S. federal tax law, we can only offset our federal net operating loss carryforward against U.S. taxable income, including income earned from operations in the United States and certain other income, including dividends from our U.K. subsidiaries. As of September 30, 2007, we had recorded a full valuation allowance against the deferred tax asset created by the U.S. federal net operating loss carryforward as we did not believe it was more likely than not that such losses would be utilized prior to their expiration. Our public offering in July 2004 of shares of our common stock caused an ownership change under Section 382 of the Internal Revenue Code of 1986, as amended. Accordingly, Section 382 limits our ability to use our ne t operating loss carryforward in the future. An inability to use a significant portion of our federal net operating loss carryforward could have a material adverse effect on our financial condition or results of operations.

Risks Relating To Our Common Stock

Future sales of our common stock by existing shareholders may lower the price of our common stock.

As of December 3, 2007, we had 44,986,229 shares of common stock outstanding.

In addition, as of December 3, 2007, our officers, directors, employees and consultants own options to acquire an aggregate of 2,976,614 shares of common stock under our 1992 Stock Option Plan and our 2002 Stock Option Plan. Although we will not issue any more options under our 1992 Stock Option Plan, we may issue additional options under our 2002 Stock Option Plan. The shares of common stock to be issued upon exercise of the options granted under our 1992 Stock Option Plan and our 2002 Stock Option Plan have been registered and may be freely sold when issued. We have also issued warrants to purchase an aggregate of 485,000 shares of our common stock to two third parties. We have granted the holder of these warrants certain ‘‘piggyback’’ registration rights with respect to the shares of our common stock issuable upon exercise of the warrants.

Pursuant to a registration statement that was declared effective by the Securities and Exchange Commission in August 2002, we have registered the resale of an aggregate of 23,479,157 shares of our common stock.

Sales of substantial amounts of common stock into the public market could lower the market price of our common stock.

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If provisions in our corporate documents and New York law delay or prevent a change in control of our company, we may be unable to consummate a transaction that our shareholders consider favorable.

Our certificate of incorporation and bylaws may discourage, delay or prevent a merger or acquisition involving us that our shareholders may consider favorable. For example, our certificate of incorporation authorizes our board of directors to issue up to ten million shares of ‘‘blank check’’ preferred stock. Without shareholder approval, the board of directors has the authority to attach special rights, including voting and dividend rights, to these shares of preferred stock. With these rights, preferred shareholders could make it more difficult for a third party to acquire us. New York law may also discourage, delay or prevent someone from acquiring or merging with us.

Under the employment agreement that we have entered into with Sarah L. Eames, our deputy chairman and interim chief executive officer, we are required to pay Ms. Eames an amount equal to 1.9 times her salary if her employment with us is terminated within six months of a change in control of our company. In addition, under our employment agreement with David Moffatt, our chief financial officer, we are required to pay him 12 months’ salary in the event he is terminated due to an acquisition. Such change of control payment may have the effect of preventing or delaying a change of control of our company, even if the change of control was favored by our shareholders.

Our stock price may be volatile.

In recent years, the stock market has experienced significant price and volume fluctuations that are often unrelated to the operating performance of specific companies. Our market price may fluctuate based on a number of factors, including:

	•	our operating performance and the performance of other similar companies;

	•	news announcements relating to us, our industry or our competitors;

	•	changes in earnings estimates or recommendations by research analysts;

	•	changes in general economic conditions;

	•	the number of shares that are publicly traded;

	•	actions of our current shareholders; and

	•	other developments affecting us, our industry or our competitors.

Item 1B.    Unresolved Staff Comments

We have not received, during the 180 days preceding the end of our 2007 fiscal year, any written comments from the staff of the Securities and Exchange Commission regarding our periodic or current reports under the Securities Exchange Act of 1934 that remain unresolved.

Item 2.    Properties

We lease 104 facilities in the United Kingdom, of which 24 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 11 of Notes to Consolidated Financial Statements for our fiscal year ended September 30, 2007.)

Item 3.    Legal Proceedings

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 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.

No matters were submitted to a vote of our security holders during the fourth quarter of our fiscal year ended September 30, 2007.

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PART II

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

Our common stock trades on the Nasdaq Global Market (formerly known as the Nasdaq National Market) under the symbol ‘‘AHCI.’’ The following table sets forth, for the periods indicated, the high and low sales price of our common stock on the Nasdaq Global Market:

PERIOD			HIGH						LOW
Year Ended September 30, 2006:
First Quarter				$	6.60					$	5.60
Second Quarter					6.80						4.44
Third Quarter					4.97						2.39
Fourth Quarter					3.45						1.45
Year Ended September 30, 2007:
First Quarter				$	3.09					$	1.80
Second Quarter					3.30						2.65
Third Quarter					3.75						2.47
Fourth Quarter					2.92						1.95
Year Ended September 30, 2008:
First Quarter (through December 3, 2007)				$	3.20					$	1.98

Since December 30, 2005, our shares of common stock have also traded on the Alternative Investment Market (AIM) of the London Stock Exchange under the symbol ‘‘AIM: AHI.’’ Our shares of common stock are represented on CREST, the U.K. electronic settlement system, by depository shares. Our shares of common stock are listed on AIM, while the depositary interests are transferred in CREST to settle trades on AIM.

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.

As of December 3, 2007, there were approximately 176 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 Issuances of Securities

In April 2007, in connection with the execution of an agreement with an unaffiliated third party pursuant to which such third party agreed to provide us with investment banking advice, investor awareness and business advisory services, we issued to such third party warrants to purchase up to an aggregate of 135,000 shares of our common stock. Forty five thousand (45,000) of the warrants are exercisable at a price of $3.00 per share, 45,000 of the warrants are exercisable at a price of $3.35 per share and 45,000 of the warrants are exercisable at a price of $3.75 per share. The warrants expire in October 2008. The warrants were issued in a transaction exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(2) of such Act because, among other things, the warrants were issued to one entity, there was no general solicitation, restrictive legends were placed on the warrants and the warrants provide that restrictive legen ds will be placed on the shares issuable upon the exercise thereof.

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In August 2007, we issued 28,737 shares of our common stock to an unaffiliated third party in partial payment of professional fees due to such third party by our company. The shares were issued in a transaction exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(2) of such Act because, among other things, we issued the shares to one entity, there was no general solicitation and restrictive legends were placed on the stock certificates representing the shares.

Recent Repurchases of Equity Securities

During the fourth quarter of fiscal 2007, we did not repurchase any of our equity securities.

Our Comparative Performance

From 1992 until April 29, 1999 our common stock traded, and from February 23, 2004 to the present our common stock has traded, on the Nasdaq Global Market (formerly known as the Nasdaq National Market). From April 30, 1999 until February 20, 2004, our common stock traded on the American Stock Exchange. In addition, since December 30, 2005, depository interests, each of which represents one share of our common stock, have been listed on the Alternative Investment Market of the London Stock Exchange.

The graphs that follow have been prepared for us by the Center for Research in Security Prices (‘‘CRSP’’).

The first graph compares the performance of our common stock for the period from September 30, 2002 to September 28, 2007 with (1) the CRSP Total Returns Index for the Nasdaq Stock Market (US Companies), and (2) the CRSP Total Returns Index for Nasdaq Health Services Stocks (US and Foreign Companies). The CRSP Total Returns Index for the Nasdaq Stock Market (US Companies) measures the performance of all US companies listed on the Nasdaq Global Market (formerly known as the Nasdaq National Market) and the Nasdaq Capital Market (formerly known as the Nasdaq SmallCap Market). The CRSP Total Returns Index for Nasdaq Health Services Stocks (US and Foreign Companies) measures the performance of all US and foreign companies listed on Nasdaq whose Standard Industry Classification (‘‘SIC’’) Codes are 8000-8099.

The second graph compares the performance of our common stock for the period from September 30, 2001 to September 28, 2007 with (1) the CRSP Total Returns Index for the AMEX Stock Market (US Companies) and (2) the CRSP Total Returns Index for AMEX Health Services Stocks (US Companies). The CRSP Total Returns Index for the AMEX Stock Market (US Companies) measures the performance of all US companies listed on AMEX. The CRSP Total Returns Index for AMEX Health Services Stocks (US Companies) measures the performance of all US companies listed on AMEX whose SIC Codes are 8000-8099.

The graphs assume that $100 was invested on September 30, 2002 in our common stock and each group of companies whose securities comprise the various indices against which we are being compared and that all dividends, if any, have been reinvested.

The information contained in this section of this Form 10-K shall not be deemed ‘‘filed’’ with the Securities and Exchange Commission nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that we specifically incorporate it by reference.

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Item 6.	Selected Financial Data

The following table sets forth our selected consolidated financial information. The financial information for the years ended September 30, 2007, 2006 and 2005 and as of September 30, 2007 and 2006 is derived from audited financial statements that appear elsewhere in this Form 10-K. The financial information for the years ended September 30, 2004 and 2003 and as of September 30, 2005, 2004 and 2003 is derived from audited financial statements that do not appear in this Form 10-K.

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,
			2007						2006						2005						2004						2003
Financial Data:
Total revenues				$	277,795					$	280,205					$	342,031					$	317,393					$	287,964
Gross profit					83,956						85,730						98,727						89,577						78,542
Selling, general and administrative expenses					75,284	(3)					71,103						73,050	(7)					62,734						52,293
Impairment of goodwill					—						110,004	(5)					—						—						—
Impairment of long-lived assets					—						10,038	(6)					—						—						—
Operating income (loss)					8,672						(105,415	)					25,677						26,843						26,249
Interest and other expense, net					3,273	(4)					2,698						4,164						13,803	(8)					11,307
Foreign exchange (income) loss					(285	)					(73	)					98						184						18
Provision for (benefit from) income taxes					2,068						(1,887	)					6,446						5,159						4,473
Income (loss) from continuing operations					3,616						(106,153	)					14,969						7,697						10,451
Income (loss) from discontinued operations, net of taxes(1)					6,266						(17,618	)					3,767						2,172						1,001
Gain on disposal of subsidiaries, net of taxes					56,471						—						—						—						519
Net income (loss)					66,353						(123,771	)					18,736						9,869						11,971
Redeemable preferred dividend, conversion fees and accretion(2)					—						—						—						7,020						4,005
Net income (loss) available to common stockholders				$	66,353					$	(123,771	)				$	18,736					$	2,849					$	7,966
Basic income (loss) per share of common stock from:
Continuing operations				$	0.08					$	(2.36	)				$	0.34					$	0.02					$	0.29
Discontinued operations				$	1.40						(0.39	)					0.08						0.08						0.07
				$	1.48					$	(2.75	)				$	0.42					$	0.10					$	0.36
Diluted income (loss) per share of common stock from:
Continuing operations				$	0.08					$	(2.36	)				$	0.33					$	0.02					$	0.29
Discontinued operations				$	1.39						(0.39	)					0.08						0.08						0.07
				$	1.47					$	(2.75	)				$	0.41					$	0.10					$	0.36
Weighted average number of common shares outstanding:
Basic					44,962						44,930						44,684						27,419						21,962
Diluted					45,147						44,930						45,169						28,104						22,304

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			September 30,
			2007						2006						2005						2004						2003
Balance Sheet Data:
Working capital				$	20,380					$	(1,165	)				$	11,369					$	13,468					$	24,781
Accounts receivable, net					21,490						26,813						31,382						30,106						34,025
Goodwill					122,843						112,538						205,177						194,058						172,538
Total assets					252,779						195,683						303,439						282,394						311,668
Total debt					54,795						71,159						64,342						64,778						165,378
Total shareholders’ equity					158,759						86,383						201,859						186,977						75,163

(1) See Note 3 of Notes to Consolidated Financial Statements for our fiscal year ended September 30, 2007 for a discussion and details of discontinued operations.

(2) Reflects the accrual of dividends on our Series A preferred stock and accretion costs related to the issuance of our Series A preferred stock in our fiscal 2002 corporate reorganization. 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 firm commitment follow-on public offering of 14,500,000 shares of our common stock and write-off of $1.7 million of the remaining issuance costs.

(3) Includes $1.2 million of severance costs and related professional fees incurred upon the resignation of our chairman and chief executive officer and $0.4 million related to the issuance of new warrants and the extension of the expiration date on previously-issued warrants.

(4) Includes a $1.0 million charge related to the write-off and costs incurred on financing fees and other income of $0.8 million related to interest rate swaps no longer being effective.

(5) During our annual review of goodwill for impairment in the fourth quarter of fiscal 2006, we determined there was an impairment of $110.0 million to our recorded goodwill balance by using a combination of the market multiple, comparable transaction and discounted cash flow methods. Based on a combination of factors, contributing to the impairment loss were the decrease in profits due to the decline of revenues from the NHS, our company’s market capitalization at the time of testing as well as current and projected operating results.

(6) Includes a charge of $9.0 million of software costs related to our computerized accounting and payroll system based on the Oracle platform that is too slow for the nature of our business and therefore is not achieving full functionality. Also includes a charge of $1.0 million relate to the write-off of other intangible assets. We reviewed the carrying amount of our other intangibles and deemed certain assets to be impaired as of September 30, 2006 as a result of the decline in revenues from the NHS.

(7) Includes a $1.1 million charge related to the reorganization of our U.K. subsidiaries, as well as $1.0 million of costs associated with the launch of our new corporate logo.

(8) For the year ended September 30, 2004, we recorded a charge of $4.2 million related to the write-off of deferred financing fees and unamortized debt discount associated with a recapitalization plan, undertaken in connection with fiscal 2004 public offering of 14,500,000 shares of our common stock, pursuant to which we (i) refinanced our senior collateralized term and revolving credit facility and mezzanine indebtedness, both of which had been entered into in December 1999, and (ii) converted all of our then outstanding shares of Series A preferred stock into shares of our common stock.

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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 healthcare industry in the United Kingdom, as measured by revenues, market share and number of staff. As of September 30, 2007 we operated an integrated network of approximately 100 branches throughout most of the United Kingdom. Our healthcare staff consists principally of homecare aides (known as carers in the U.K.), nurses and nurses aides. We maintain a listing of over 12,000 homecare aides, nurses and nurses aides, a majority of whom we placed during our fiscal year ended September 30, 2007.

In September 2007, we disposed of two of our U.K. subsidiaries when we sold all of the issued and outstanding ordinary shares of Allied Respiratory Limited and Medigas Limited for £36.5 million ($74.7 million) in cash, of which £500,000 ($1.0 million) is being held back until certain conditions are met. Four hundred and twenty five thousand pounds (£425,000) of the escrowed amount was released to us in December 2007 and we expect that the remaining £75,000 will be released to us in fiscal 2008. These two subsidiaries constituted our respiratory therapy division. Our respiratory therapy division supplied medical-grade oxygen for use in respiratory therapy to pharmacies in the U.K., oxygen concentrators to customers in Northern Ireland and oxygen services to customers in the South East of England. In accordance with the provisions of Statement of Financial Accounting Standards No. 144, ‘‘Accounting for the Impairment or Disposal of Long-Lived Assets’’ (‘‘FAS No. 144’’), we have accounted for our respiratory therapy division 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 respiratory therapy division for the current and prior periods are reported in discontinued operations on our statement of operations.

The NHS requires 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. The introduction and further extension of the NHS Framework Agreements has continued to impact our financial results by reducing our margins from that source of business. In addition, we have experienced reduced revenues from the NHS as a result of the NHS Framework Agreements, as well as from the efforts of the NHS to source more of its work from its own employee base and its in-house agency (NHS Professionals). The reduction in demand from the NHS for healthcare staffing services as a result of overspending by the NHS Trusts (the NHS operates its hospitals through NHS Trusts, each of which operates one or more hospitals) has also impacted our financial results.

Critical Accounting Policies

The preparation of our financial statements in accordance with accounting principles generally accepted in the United States of America requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures in a given reporting period. We believe the following accounting policies are critical areas affecting our financial condition and results of operations where estimates are required.

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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 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.

Our company maintains credit controls to ensure cash collection on a timely basis. The credit terms agreed with our customers range from 7 days to a maximum of 30 days from invoice date. We maintain a credit department which consists of approximately 20 personnel who are targeted to collect outstanding receivables. We have established the following guidelines for the credit department to use as well as for us to assess the credit department’s performance:

	•	to maintain average days sales outstanding to below 35 days;

	•	to limit our overdues (greater than 90 days) within agreed targets; and

	•	to limit bad debt write off in the year within agreed targets.

We also apply a policy of withdrawing supply from customers who are significantly overdue. Many private customers are contracted on a ‘‘direct debit’’ basis where we can collect payment direct from customers’ bank accounts.

We have devised a provisioning methodology based on the customer profile and historical credit risk across our U.K. business. Accounts receivable are written off when the credit control department determines the amount is no longer collectible. In addition, we do not have a threshold for account balance write-offs as our policy focuses on all balances, whatever the size.

Intangible Assets

We have significant amounts of goodwill and other intangible assets. 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, 2007. 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 2007 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 operating loss carryforwards.

Contingencies

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.

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Revenue Recognition

Patient services are recognized when services are performed and substantiated by proper documentation. For patient services, which are billed at fixed rates, revenue is recognized upon completion of timesheets that also require the signature of the recipient of services.

We receive a majority of our revenue from local governmental social services departments and the NHS.

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 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, 2007 vs. Year Ended September 30, 2006

Revenues

Total revenues for the year ended September 30, 2007 were $277.8 million compared to $280.2 million for the year ended September 30, 2006, a decrease of $2.4 million or 0.9%. This decrease was mainly due to a reduction in demand from the NHS as overspending by the NHS Trusts in other areas has forced significant reductions in agency spending as well as price pressures arising from the NHS Framework Agreements. Changes in foreign exchange had a favorable effect on revenue ($23.7 million).

Gross Profit

Total gross profit decreased by $1.7 million to $84.0 million for the year ended September 30, 2007 from $85.7 million for the year ended September 30, 2006, a decrease of 2.1%. As a percentage of total revenue, gross profit for the year ended September 30, 2007 slightly decreased to 30.2% from 30.6% for the comparable prior period mainly due to lower margins on the NHS Framework Agreements. Changes in foreign exchange had a favorable effect on gross profit ($7.2 million).

Selling, General and Administrative Expenses

Total selling, general and administrative expenses increased by $4.2 million to $75.3 million for the year ended September 30, 2007 from $71.1 million for the year ended September 30, 2006, an increase of 5.9%. This increase was mainly due to severance costs and related professional fees incurred upon the resignation of our chairman and chief executive officer ($1.2 million) and the issuance of new warrants and modification to extend the expiration date on warrants previously issued ($0.4 million). The increase was partially offset by lower overhead costs ($3.4 million). Changes in foreign exchange had an unfavorable effect on selling, general and administrative costs ($6.1 million).

Interest Income

Total interest income for the year ended September 30, 2007 was $0.1 million compared to $0.1 million for the year ended September 30, 2006.

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Interest Expense

Total interest expense for the year ended September 30, 2007 was $4.2 million compared to $2.9 million for the year ended September 30, 2006, which represents an increase of $1.3 million. This increase was principally attributable to the write-off of deferred financing fees ($0.7 million) and prepayment fees ($0.3 million) associated with the irrevocable written notice given to our lenders notifying them of our intent to prepay the outstanding amounts under our term loan A and term loan B1 from the proceeds from the sale of our respiratory therapy division, as well as changes in foreign exchange of $0.6 million. This increase was partially offset by lower borrowings in fiscal 2007 as compared to fiscal 2006.

Other Income

Total other income for the year ended September 30, 2007 was $0.8 million, which represents the change in value of our interest rate swaps that had been designated as cash flow hedges and which were deemed to be ineffective at September 30, 2007.

Provision for Income Taxes

We recorded a provision for income taxes amounting to $2.1 million or 36.4% of income before income taxes and discontinued operations for the year ended September 30, 2007, compared to a benefit of $1.9 million or 1.7% of income before income taxes and discontinued operations for the year ended September 30, 2006. The difference in the effective tax rate between the year ended September 30, 2007 and the year ended September 30, 2006 is mainly due to non-deductible goodwill impairment charges in fiscal 2006, permanent differences in the United Kingdom and change in the U.K. enacted rates.

Discontinued Operations

Discontinued operations resulted in income of $62.7 million for the year ended September 30, 2007 compared to a loss of $17.6 million for the year ended September 30, 2006. On September 30, 2007, we disposed of two of our U.K. subsidiaries when we sold the shares of Allied Respiratory Limited and Medigas Limited for £36.5 million ($74.7 million) in cash, of which £500,000 ($1.0 million) is being held back until certain conditions are met. Four hundred and twenty five thousand pounds (£425,000) of the escrowed amount was released to us in December 2007 and we expect that the remaining £75,000 will be relea sed to us in fiscal 2008. These two subsidiaries constituted our respiratory therapy division, which supplied medical- grade oxygen for use in respiratory therapy to pharmacies in the U.K., oxygen concentrators to customers in Northern Ireland and oxygen services to customers in the South East of England. Included in the $62.7 million income from discontinued operations in fiscal 2007 is the gain of $56.5 million, net of tax of $0 on the sale of our respiratory therapy division. Under U.K. tax legislation, enacted on April 1, 2002, disposals of shares by companies with substantial shareholdings does not result in a taxable gain transaction.

In accordance with the provisions of FAS No. 144, we have accounted for our respiratory therapy division 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 respiratory therapy division for the current and prior periods are reported in discontinued operations on our statement of operations.

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The following table presents the financial results for the discontinued operations (dollars in thousands).

			Year Ended September 30,
			2007						2006
Revenues:
Net respiratory, medical equipment and supplies				$	28,699					$	14,402
Cost of revenues:
Respiratory, medical equipment and supplies					13,024						10,521
Impairment of respiratory, medical equipment and supplies					—						5,932	(b)
Total cost of revenues					13,024						16,453
Gross profit (loss)					15,675						(2,051	)
Selling, general and administrative expenses					6,091						4,449
Impairment of goodwill					—						11,897	(c)
Impairment of long-lived assets					—						257	(b)
Operating income (loss) from discontinued operations					9,584						(18,654	)
Interest income					2						2
Interest expense					(1,570	)(d)					(1,410	)(d)
Income (loss) from discontinued operations before income tax					8,016						(20,062	)
Gain on disposal of subsidiaries, net of tax					56,471						—
Provision for (benefit from) income taxes					1,750	(a)					(2,444	)
Income (loss) from discontinued operations				$	62,737					$	(17,618	)

(a) Included in the provision for income taxes for the year end September 30, 2007 is the reversal of $0.7 million of certain tax contingencies related to our fiscal 2003 discontinued operations on the sale of two of our U.S. subsidiaries as the statute of limitations has expired.

(b) In the fourth of fiscal 2006, we recognized pre-tax charges of $5.4 million, $0.5 million and $0.3 million for the write-off of revenue producing equipment (oxygen cylinders), oxygen filling station and software costs, respectively. Due to the award of the new oxygen contracts (see below), we had made significant capital expenditures, amounting to $14.7 million, in order to fulfill our obligation under the new contracts. We had substituted a number of cylinders with oxygen concentrators. As such, we believed that these oxygen cylinders had become obsolete and had no further use to us. We also invested in an oxygen filling station whereby our cylinders would be re-filled. But, due to the location of the plant and strict noise pollution governmental rules, we did not believe we would be able to utilize suc h plant. We also wrote-off various software costs related to transitioning to our new oxygen contracts that we believed had no future benefit.

(c) During the fourth quarter of fiscal 2006, we completed our annual impairment test required under FAS No. 142 and determined there was an impairment to our recorded goodwill balance by using a combination of market multiple, comparable transaction and discounted cash flow methods. Based on a combination of factors, contributing to the impairment loss were the decrease in profits in our respiratory therapy division due to the transitioning from the old pharmacy based contracts to the new supply of oxygen direct to patients contracts that have lower margins (see below), our current market capitalization at time of review as well as the current and projected operating results. As such, we recognized a pre-tax impairment charge of $11.9 million.

(d) In fiscal 2007 and 2006, interest expense has been allocated to discontinued operations based on debt that we have specifically identified as being attributable to discontinued operations, as an allocation based on net assets would not provide a meaningful result. We based our allocation on the amount of capital expenditures directly related to our discontinued operations and then considered cash borrowings necessary to maintain the operations of our then respiratory therapy division. Prior to fiscal 2006, the respiratory therapy division was self-sufficient and borrowings were predominately used to fund acquisitions in our flexible healthcare staffing division.

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In 2005, the U.K. Department of Health sought to unify the supply of oxygen to National Health Service patients in England and Wales. The previous system used pharmacies to supply cylindered gases, while oxygen concentrators were supplied via regional contracts with homecare providers. Under the revised system, which came into effect on February 1, 2006, homecare providers supply cylindered gas and liquid oxygen as well as oxygen concentrators directly to patients. Following a bidding process, we were awarded two of the contracts with the U.K. Department of Health, both of which commenced in February 2006 and both of which covered the South East of England. The contracts required the set up of additional facilities in the South East of England, which we effected in the second quarter of fiscal 2006, and which resulted in our company incurring additional charges and capital expenditures in fiscal 2006 as we commenced supplying under the new contrac ts. Our supply of cylindered gases in Northern Ireland and Scotland was unaffected by the new contracts, as was our contract to supply oxygen concentrator services in Northern Ireland.

Net Income

As a result of the foregoing, we recorded net income of $66.4 million for the year ended September 30, 2007 compared to a net loss of $123.8 million for the year ended September 30, 2006.

Year Ended September 30, 2006 vs. Year Ended September 30, 2005

Revenues

Total revenues for the year ended September 30, 2006 were $280.2 million compared to $342.0 million for the year ended September 30, 2005, a decrease of $61.8 million or 18.1%. This decrease was mainly due to a reduction in demand from the NHS as overspending by the NHS Trusts in other areas has forced significant reductions in agency spending as well as price pressures arising from the NHS Framework Agreements and unfavorable effects of changes in foreign exchange ($7.7 million).

Gross Profit

Total gross profit decreased by $13.0 million to $85.7 million for the year ended September 30, 2006 from $98.7 million for the year ended September 30, 2005, a decrease of 13.2%. The unfavorable effects of changes in foreign exchange accounted for $2.3 million of the decrease. As a percentage of total revenue, gross profit for the year ended September 30, 2006 increased to 30.6% from 28.9% for the comparable prior period, mainly du to management’s focus on supplying healthcare staff to our higher margin customers.

Selling, General and Administrative Expenses

Total selling, general and administrative expenses decreased by $1.9 million to $71.1 million for the year ended September 30, 2006 from $73.0 million for the year ended September 30, 2005, a decrease of 2.7%. This decrease was mainly due to a reduction in headcount and associated costs ($3.6 million) and changes in foreign exchange. The decrease was offset by increased level of costs in IT depreciation and maintenance costs arising from the new computerized accounting and payroll systems ($2.7 million) and stock-based compensation ($0.7 million).

Impairment of Goodwill

In accordance with FAS No. 142, ‘‘Goodwill and Other Intangible Assets’’ (‘‘FAS No. 142’’), we completed our annual impairment test during the fourth quarter of fiscal 2006 and determined there was an impairment to our recorded goodwill balance by using a combination of the market multiple, comparable transaction and discounted cash flow methods. Based on a combination of factors, contributing to the impairment loss were the decrease in profits due to the decline of revenues from the NHS, our market capitalization at the time of testing as well as current and projected operating results. As such, we recognized an impairment charge of $110.0 million.

Impairment of Long-Lived Assets

In the fourth quarter of fiscal 2006, we recognized a charge of $9.0 million of software costs related to our computerized accounting and payroll system that is based on the Oracle platform. We

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have discovered that the system was too slow for the nature of our business and therefore was not achieving full functionality. As such, we decided to abandon certain of the software features of the Oracle platform and not continue with the planned expansion to our other branches as we believed the cost to have a workable model would exceed alternative solutions. We are currently in the process of comparing various operating systems in order to determine which system best supports our branch network and allows us to interface with our customers and communicate with our staff.

We also reviewed the carrying amount of our other intangibles and deemed certain assets to be impaired as of September 30, 2006 as a result of the decline in revenues from the NHS. Thus, in accordance with the provisions of FAS No. 144, we have recognized an impairment charge of $1.0 million.

Interest Income

Total interest income for the year ended September 30, 2006 was $0.1 million compared to $0.2 million for the year ended September 30, 2005, which represents a decrease of $0.1 million. The decrease was attributable to a lower level of funds invested.

Interest Expense

Total interest expense for the year ended September 30, 2006 was $2.9 million compared to $4.2 million for the year ended September 30, 2005, which represents a decrease of $1.3 million. This decrease was principally attributable to interest expense of $1.4 million that has been allocated to discontinued operations in fiscal 2006 based on debt that the company has specifically identified as being attributable to discontinued operations, as an allocation based on net assets would not provide a meaningful result. We based our allocation on the amount of capital expenditures directly related to our discontinued operations and then considered cash borrowings necessary to maintain the operations of our then respiratory therapy division. Prior to fiscal 2006, the respiratory therapy division was self-sufficient and borrowings were predominately used to fund acquisitions in our flexible healthcare staffing division. As such, no a llocation of interest was required for fiscal 2005.

Provision for Income Taxes

We recorded a benefit from income taxes amounting to $1.9 million or 1.7% of loss before income taxes and discontinued operations for the year ended September 30, 2006, compared to a provision of $6.4 million or 30.1% of income before income taxes and discontinued operations for the year ended September 30, 2005. The difference in the effective tax rate between the year ended September 30, 2006 and the year ended September 30, 2005 is mainly due to non-deductible goodwill impairment charges.

Discontinued Operations

Discontinued operations resulted in a loss of $17.6 million for the year ended September 30, 2006 compared to income of $3.8 million for the year ended September 30, 2005. The increase in revenues in fiscal 2006 as compared to fiscal 2005 was a result of the introduction of two new oxygen supply contracts that commenced on February 1, 2006, which also resulted in additional costs being incurred.

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The following table presents the financial results for the discontinued operations (dollars in thousands).

			Year Ended September 30,
			2006						2005
Revenues:
Net respiratory, medical equipment and supplies				$	14,402					$	9,158
Cost of revenues:
Respiratory, medical equipment and supplies					10,521						4,214
Impairment of respiratory, medical equipment and supplies					5,932	(a)					—
Total cost of revenues					16,453						4,214
Gross (loss) profit					(2,051	)					4,944
Selling, general and administrative expenses					4,449						897
Impairment of goodwill					11,897	(b)					—
Impairment of long-lived assets					257	(a)					—
Operating (loss) income from discontinued operations					(18,654	)					4,047
Interest income					2						—
Interest expense					(1,410	)(c)					—	(c)
(Loss) income from discontinued operations before income tax					(20,062	)					4,047
(Benefit from) provision for income taxes					(2,444	)					280
(Loss) income from discontinued operations				$	(17,618	)				$	3,767

(a) In the fourth of fiscal 2006, we recognized pre-tax charges of $5.4 million, $0.5 million and $0.3 million for the write-off of revenue producing equipment (oxygen cylinders), oxygen filling station and software costs, respectively. Due to the award of the new oxygen contracts, we had made significant capital expenditures, amounting to $14.7 million, in order to fulfill our obligation under the new contracts. We had substituted a number of cylinders with oxygen concentrators. As such, we believed that these oxygen cylinders had become obsolete and had no further use to us. We also invested in an oxygen filling station whereby our cylinders would be re-filled. But, due to the location of the plant and strict noise pollution governmental rules, we did not believe we would be able to utilize such plant. We also wrote-off various software costs related to transitioning to our new oxygen contracts that we believed had no future benefit.

(b) During the fourth quarter of fiscal 2006, we completed our annual impairment test required under FAS No. 142 and determined there was an impairment to our recorded goodwill. Based on a combination of factors, contributing to the impairment loss were the decrease in profits in our respiratory therapy division due to the transitioning from the old pharmacy based contracts to the new supply of oxygen direct to patients contracts that have lower margins (see below), our current market capitalization at time of review as well as the current and projected operating results. As such, we recognized a pre-tax impairment charge of $11.9 million.

(c) In fiscal 2006, interest expense has been allocated to discontinued operations based on debt that we have specifically identified as being attributable to discontinued operations, as an allocation based on net assets would not provide a meaningful result. We based our allocation on the amount of capital expenditures directly related to our discontinued operations and then considered cash borrowings necessary to maintain the operations of our then respiratory therapy division. Prior to fiscal 2006, the respiratory therapy division was self-sufficient and borrowings were predominately used to fund acquisitions in our flexible healthcare staffing division. As such, no allocation of interest was required for fiscal 2005.

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Net Loss

As a result of the foregoing, we recorded net loss of $123.8 million for the year ended September 30, 2006 compared to net income of $18.7 million for the year ended September 30, 2005.

Liquidity and Capital Resources

General

For our fiscal year ended September 30, 2007, we generated $22.2 million from continuing operating activities. Cash requirements for our fiscal year ended September 30, 2007 for capital expenditures ($1.3 million), payments for acquisition payables ($2.6 million), principal payments on the long-term debt portion of our Amended Senior Credit Facility (as such term is defined below) ($11.8 million), net payments on the revolving loan portion of our Amended Senior Credit Facility ($14.8 million) and payments for financing fees ($0.5 million) were met through operating cash flows, net borrowings under our Amended Senior Credit Facility and cash on hand.

We believe that the 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, 2007 and September 30, 2006, $21.5 million (8.5%) and $26.8 million (13.7%), respectively, of our total assets consisted of accounts receivable. The decrease in accounts receivable from 2006 to 2007 is mainly due to strict targets being set and achieved by management on the recovery of overdue debts and cash collection, which in turn has yielded sustained cash flow benefits.

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. We maintain credit controls to ensure cash collection on a timely basis. 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, 2007 and September 30, 2006, our average DSOs were 26 and 35, respectively.

At September 30, 2007 gross receivables were $23.6 million, of which $16.0 million or 67.6% were represented by amounts due from U.K. governmental bodies, either the NHS or local governmental social service departments (the ‘‘SSD’’). At September 30, 2006 gross receivables were $29.3 million, of which $19.7 million or 67.2% were represented by amounts due from U.K. governmental bodies. The remaining accounts receivable balance is due from commercial payors (nursing homes, private hospitals and pharmacies) and private payors.

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The following table summarizes the accounts receivable aging by payor mix at September 30, 2007 and September 30, 2006 (dollars in thousands):

At September 30, 2007			0-30 Days						31-60 Days						61-90 Days						91-120 Days						121 Days And Over						AR At 9/30/2007
NHS				$	4,394					$	1,210					$	337					$	151					$	211					$	6,303
SSD					7,907						1,125						370						246						21						9,669
Commercial Payors					3,326						1,028						116						25						73						4,568
Private Payors					1,734						472						140						88						638						3,072
Gross AR at 9/30/07				$	17,361					$	3,835					$	963					$	510					$	943					$	23,612
Less: Unapplied Cash
Less: Surcharges(A)																																			(552	)
Less: Allowance For Doubtful Accounts																																			(1,570	)
Accounts Receivable, net																																		$	21,490

At September 30, 2006			0-30 Days						31-60 Days						61-90 Days						91-120 Days						121 Days And Over						AR At 9/30/2006
NHS				$	4,469					$	2,408					$	567					$	502					$	1,073					$	9,019
SSD					6,991						2,409						533						347						360						10,640
Commercial Payors					3,803						1,440						420						184						451						6,298
Private Payors					1,718						555						241						157						626						3,297
Gross AR at 9/30/06				$	16,981					$	6,812					$	1,761					$	1,190					$	2,510					$	29,254
Less: Surcharges(A)																																			(738	)
Less: Allowance For Doubtful Accounts																																			(1,703	)
Accounts Receivable, net																																		$	26,813

(A) Surcharges represent interest charges to customers on overdue accounts. The surcharges are recognized in income only upon receipt of payment.

As discussed above under ‘‘Critical Accounting Policies — Accounts Receivable,’’ each fiscal year we undertake a review of our methodology and procedure for reserving for our doubtful accounts. This process also takes into account our actual experience of write offs in the period. The policy is then applied at each quarter end to arrive at a closing reserve for doubtful accounts. In the second quarter of fiscal 2006, we reviewed our current methodology and revised the basis of estimation for providing against certain classes of doubtful account receivable based on an analysis of historical experience. This review has given rise to a benefit of approximately $0.3 million on our fiscal 2006 statement of operations.

Given the high percentage of U.K. governmental debt, the large number of customer accounts with low-value debt within the remainder of the accounts receivable ledger and the methodology for making provisions for doubtful accounts, we believe our provisioning method is prudent and appropriate to our business.

We provide homecare aides and nurses on the basis of terms (payment due within 7 to 30 days of invoice) and prices (rate per hour) agreed to in advance with our customers. Time sheets are signed by clients for the work performed and then invoices are generated based on agreed billing rates. Consequently, there is no process for approval of invoices. Our credit control policies currently achieve an average collection of approximately 26 days from submission of invoices.

As our current operations are in the U.K. and the majority of accounts receivable is from U.K. governmental bodies for which payment terms and prices are agreed in advance, we have not recorded any contractual allowances. There have been recent agreements with the NHS to adjust rates (both increases and decreases) depending on the volume of hours utilized. Billing adjustments are

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reviewed quarterly based on actual volumes delivered and any entries are recognized during the appropriate period. No material adjustments have arisen based on volumes delivered.

Borrowings

General

In the fourth quarter of fiscal 2004, our first tier U.K. subsidiary, Allied Healthcare Group Holdings Limited (‘‘Allied Holdings’’), obtained financing denominated in pounds sterling consisting of a £50 million multicurrency senior credit facility (the ‘‘Senior Credit Facility’’). As described in more detail below, in December 2006, the Senior Credit Facility was amended and restated (the ‘‘Amended Senior Credit Facility’’).

On December 12, 2006, our U.K. subsidiary, Allied Holdings, and our banks entered into the Amended Senior Credit Facility. The Amended Senior Credit Facility provided for a £46 ($94.2) million multicurrency senior credit facility to replace the Senior Credit Facility. The effective date of the Amended Senior Credit Facility was December 13, 2006. The Amended Senior Credit Facility was secured by a first priority lien on the assets of Allied Holdings and certain of its subsidiaries, and payment was guaranteed by Allied Healthcare International Inc. and certain of the subsidiaries of Allied Holdings. Allied Healthcare International Inc. granted the banks a security interest in substantially all of its assets to secure the payment of its guarantee.

The Amended Senior Credit Facility consisted of the following:

	•	an £18 ($36.9) million term loan A, maturing in July 2009;

	•	a £12.5 ($25.6) million revolving loan B1 maturing in July 2009 and that could be drawn upon until June 2009;

	•	a £7.5 ($15.3) million invoice discounting facility B2 that matures in July 2009 and can be drawn upon until July 2009, and

	•	an £8.0 ($16.4) million revolving loan C maturing in July 2009 and that could be drawn upon until June 2009.

Repayment of the term loan A was made semi-annually until final maturity. Repayment of the revolving loan B1 was made on the last day of its interest period. Repayment of the invoice discounting loan B2 shall be on the maturity date (July 2009). Repayment of revolving loan C was on its maturity date (July 2009) or, if earlier, the date that the other facilities are repaid. The loans bore interest at rates equal to LIBOR plus any bank mandatory costs (if applicable) plus 0.70% to 3.50% per annum (depending on our consolidated debt to consolidated profit ratios). As of September 30, 2007, we had outstanding borrowings of $24.6 million, $25.6 million and $4.6 million relating to term loan A, revolving loan B1 and invoice discounting loan B2, respectively, under the Amended Senior Credit Facility that bore interest at rates ranging from 7.69% to 8.79%.

The invoice discount facility commenced in January 2007 and provides, among other things, the following:

	•	we can borrow on 85% of our approved flexible staffing accounts receivable, which excludes accounts receivable greater than 120 days, credit balances and reserves;

	•	no one debtor can exceed 10% of the outstanding approved accounts receivable; and

	•	accounts receivable relating to private individuals are not fundable.

Prior to the commencement of the invoice discount facility, we had a £7.5 million ($14.8 million) revolving loan B which was repaid upon commencement of the invoice discount facility.

On September 28, 2007 Allied Holdings gave irrevocable written notice to the agent for the banks under the Amended Senior Credit Facility that it wished to prepay the amounts outstanding under the term loan A of £12.0 million ($24.6 million) and term loan B1 of £12.5 million ($25.6 million) on October 1, 2007 from the proceeds of sale of our respiratory therapy division. Allied Holdings also

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gave irrevocable written notice that it wished to cancel term loan A, term loan B1 and revolving loan C on October 1, 2007. On October 1, 2007 Allied Holdings prepaid the amounts outstanding under the term loan A and the term loan B1 facilities from the proceeds of sale of our respiratory therapy division. Allied Holdings also cancelled term loan A, term loan B1 and revolving loan C on October 1, 2007. The invoice discount facility continues to be available.

The Amended Senior Credit Facility agreement was 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 Amended Senior Credit Facility prohibited or restricted the following, among other things:

	•	incurring liens and granting security interests in our assets or the assets of certain of our U.K. subsidiaries;

	•	incurring additional indebtedness;

	•	making certain fundamental corporate changes;

	•	paying dividends (including the payment of dividends to our company by our subsidiaries);

	•	making specified investments, acquisitions or disposals;

	•	repurchasing shares; and

	•	entering into certain transactions with affiliates.

The Amended 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 cash flow to debt service, earnings (before interest, taxes, depreciation and amortization) to interest expense, and net borrowings to earnings (before interest, taxes, depreciation and amortization). We were also obligated to ensure that the guarantors of the Amended 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, 2007, we were in compliance with such financial covenants.

The Amended Senior Credit Facility placed limits on our ability to incur capital expenditures, required us to separate the role of the chairman and the chief executive officer no later than August 1, 2007, and required us to engage a consultant to review our operations and make recommendations with respect thereto. In July 2007, the role of the chairman and chief executive officer was separated. We obtained an extension of time to February 1, 2008 to appoint a permanent chief executive officer.

In the fourth quarter of fiscal 2006, the Senior Credit Facility was amended to provide an overdraft facility (the ‘‘Overdraft Facility’’) in the amount of £3.0 ($5.6) million for general corporate purposes. We had utilized the Overdraft Facility in the first quarter of fiscal 2007 and had no amounts outstanding as of September 30, 2007. The Overdraft Facility was repayable upon the earlier of demand from the bank or January 11, 2007. Interest on the Overdraft Facility was charged at the same rate as loans under revolving loan B1. In December 2006, the Overdraft Facility was rolled over and incorporated into our loan under the Amended Senior Credit Facility.

Notes Due in Connection with Acquisitions

We repaid, through Allied Holdings, notes payable of $1.9 million issued in connection with the acquisition of certain U.K. flexible staffing agencies in our 2005 fiscal year.

Guarantees

The Amended Senior Credit Facility is secured by a first priority lien on the assets of Allied Holdings and certain of its subsidiaries. Together with Allied Holdings and certain of its subsidiaries, our company is guaranteeing the debt and other obligations of certain wholly-owned U.K. subsidiaries under the Amended Senior Credit Facility. In connection with the execution of the Amended Senior

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Credit Facility, we granted the lenders a security interest in substantially all of its assets to secure the payment of its guarantee. At September 30, 2007 and September 30 2006, the amounts guaranteed, which approximate the amounts outstanding, totaled $54.8 million and $71.2 million, respectively.

Financial Instrument

See ‘‘Item 7A — Quantitative and Qualitative Disclosures About Market Risk — Interest Rate Risk.’’

Commitments

Employment Agreements

See ‘‘Item 11 — Executive Compensation — Employment Agreements; Potential Payments Upon Termination or Change-in-Control.’’

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’’ and ‘‘Commitments — Operating Leases’’ above, the following table summarizes our contractual cash obligations as of September 30, 2007 (dollars in thousands):

Fiscal			Total Debt Obligations						Total Lease Obligations						Total Obligations
2008				$	54,795					$	2,587					$	57,382
2009					—						1,831						1,831
2010					—						1,218						1,218
2011					—						724						724
2012					—						579						579
Thereafter					—						156						156
				$	54,795					$	7,095					$	61,890

Lease obligations reflect future minimum rental commitments required under operating leases that have non-cancelable lease terms as of September 30, 2007. Certain of these leases provide for renewal options.

Miscellaneous

Treasury Shares

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, 2007, 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 our consolidated balance sheet at September 30, 2007. In addition, as of September 30, 2007, we had acquired 177,055 shares of our company’s common stock for an aggregate value of $1.0 million from certain of our executive officers. Suc h shares were acquired in fiscal 2004 and delivered to us as payment on promissory notes issued by us to them.

Acquisitions

In fiscal 2006, we acquired the entire issued share capital of a home care training agency for approximately $0.8 million in cash and additional contingent cash consideration of up to $0.9 million

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dependent upon (i) future earnings in fiscal 2006, (ii) providing a set minimum of training programs and (iii) the sellers continuing employment with our company until at least December 31, 2006. Of the $0.9 million contingent cash consideration, we have recognized compensation costs of $0.1 million, net of income tax, and $0.5 million, net of income tax, for fiscal years 2007 and 2006, respectively, as the acquisition contract required the sellers to remain in employment with us until at least December 31, 2006 (the earnout period). In fiscal 2007, the contingent consideration was earned and paid.

In fiscal 2005, we acquired a total of 9 flexible staffing agencies for approximately $17.1 million in cash and $0.1 million in acquisition payable, which was paid in fiscal 2006. As of September 30, 2005, these transactions included provisions to pay additional amounts, payable in cash, of up to $9.7 million in contingent consideration dependent upon future earnings of the acquired entities. In fiscal 2006 a total of $6.3 million was earned and paid in fiscal 2006 and fiscal 2007. The remaining balance of contingent consideration was unearned and will not be required to be paid.

In fiscal 2006, we completed our purchase price allocation for our fiscal 2005 acquisitions. Accordingly, final tangible assets, separately identifiable intangible assets and liabilities were assigned values of approximately $5.9 million, $5.6 million and $2.3 million, respectively, with the remaining portion of $9.2 million attributable to goodwill. As compared to the original valuations at acquisition, the final valuation resulted in a reclassification of $0.2 million from separately identifiable intangible assets to goodwill.

In fiscal 2005, we completed our purchase price allocation for our fiscal 2004 acquisitions. Accordingly, tangible assets, separately identifiable intangible assets and liabilities were assigned values of approximately $1.3 million, $3.5 million and $0.7 million, respectively, with the remaining portion of $4.9 million attributable to goodwill. As compared to the original valuations at acquisition, the final valuation resulted in a reclassification of $0.8 million from goodwill to separately identifiable intangible assets.

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 September 30, 2007, we sold all of the shares of Allied Respiratory Limited to Air Liquide Limited. Allied Respiratory Limited and its subsidiary, Medigas Limited, constituted the respiratory therapy division of our company. The consideration for the sale was denominated in sterling and consisted of £36.5 million ($74.7 million), of which £500,000 ($1.0 million) is being held back until certain conditions are met. Four hundred and twenty five thousand pounds (£425,000) of the escrowed amount was released to us in December 2007 and we expect that the remaining £75,000 will be released to us in fiscal 2008.

In accordance with the provisions of FAS No. 144, we have accounted for our respiratory therapy division 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 respiratory therapy division for the current and prior periods are reported in discontinued operations on our statement of operations.

See Note 3 of Notes to Consolidated Financial Statements for our fiscal year ended September 30, 2007 for a discussion and details of discontinued operations, including an analysis of the pro forma effects on our financial statements of the discontinued operations.

Litigation

See ‘‘Item 3 — Legal Proceedings.’’

Contingencies

Some of our inactive 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 request an audit of Medicare Part B claims on a prepayment or postpayment basis. If the

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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.

We believe that we have been in compliance, in all material respects, with the applicable provisions of federal laws and regulations and applicable state laws, together with all applicable laws and regulations of other countries in which we operate. 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 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, administrative or judicial interpretations of applicable federal and state laws and the laws of other countries in which we operate 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. We believe that these matters should not have a material adverse impact on our financial position, cash flows or results of operations.

Liabilities for loss contingencies, arising from claims, assessments, litigation and other sources are recorded when it is probable that a liability has been incurred and the amount of liability can be reasonably estimated. Based on management’s best estimate of probable liability, we have accrued $1.0 million and $0.7 million for such costs at September 30, 2007 and 2006, respectively.

Impact of Recent Accounting Standards

See ‘‘Recent Accounting Pronouncements’’ in Note 2 of Notes to Consolidated Financial Statements for our fiscal year ended September 30, 2007.

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. Currently, we do not hedge foreign currency exchange rate exposures.

The translation of the financial statement of our U.K. operations is impacted by fluctuations in foreign currency exchange rates. For the fiscal 2007 period as compared to the fiscal 2006 average rate, the translation of our U.K. financial statements into U.S. dollars resulted in increased revenues of $23.7 million, increased operating income of $1.1 million and increased income from continuing operations of $0.3 million. We estimate that a 10% change in the exchange rate between the British pound and the U.S. dollar would have a $27.8 million, $1.3 million and $0.4 million impact on reported revenues, operating income and income from continuing operations, respectively.

Interest Rate Risk

Our exposure to market risk for changes in interest rates relate primarily to our cash equivalents and our Amended Senior Credit Facility. Our cash equivalents include highly liquid short-term investments purchased with initial maturities of 90 days or less. To manage our exposure to interest rate changes related to our Amended Senior Credit Facility, we use interest rate swap agreements.

In March 2003, we entered into a Rate Cap and Floor Collar Agreement that capped our interest rate at LIBOR plus 5.50% and our interest floor at LIBOR plus 4.47%, subject to special provisions, on approximately $93.6 million of our floating rate debt under a contract that would have expired in March 2008. In February 2005, we sold this derivative instrument for approximately $0.1 million.

In February 2005, we entered into two interest rate swap agreements, which expire in July 2009, the objective of which is to protect us against the potential increase in interest rates on our floating

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rate debt. The two interest rate swap agreements cover approximately $61.4 million of the our floating rate debt until January 2008 and then decrease by $6.1 million each six-month period, in order to reflect the amortizing effect of our floating rate debt, until the end of the interest rate swap agreements. The interest rate under the swap agreements is fixed at 4.935% and is payable semi-annually. In the third quarter of fiscal 2005, we designated the two interest rate swap agreements as cash flow hedges. 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 calculated the fair value of the interest rate swap agreements to be an asset of $0.6 million at September 30, 2007 and an asset of $0.3 million at September 30, 2006. Prior to the cash flow hedge designation, changes in the value from period to period of the interest rate swap agreements was recorded as other expense or income, as appropriate. At September 30, 2007, the cash flow hedges were deemed to be ineffective as our company entered into an irrevocable agreement to prepay the amounts outstanding under our term loan A and term loan B1 and subsequently, on October 3, 2007, we sold the swaps. Thus, the cumulative amount in other comprehensive income and the change in value were recorded in other income and totaled $0.5 million, net of $0.2 million in income tax, in fiscal 2007. At September 30, 2006, the effective portion of the income on the interest rate swap agreements designated as cash flow hedges was $0.3 million, net of income tax, and was included in other comprehensive income. In fis cal 2006, we recognized other income of $27 thousand, net of $12 thousand of income tax, related to the cash flow hedge ineffectiveness.

Item 8.    Financial Statements and Supplementary Data.

The consolidated financial statements and required financial statement schedules of our company begin on page F-i of this Annual Report on Form 10-K and are incorporated herein by reference.

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

As we previously reported in reports we filed with the Securities and Exchange Commission, in fiscal 2006 we changed our auditors. During the periods in respect of which disclosure is required to be made by the rules and regulations of the Securities and Exchange Commission, (1) there were no disagreements with our former auditors on any matters of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of our former auditors, would have caused them to make reference thereto in their reports on our financial statements and financial statements schedules, and (2) there were no ‘‘reportable events’’ (as such term is defined in Item 304(a)(1)(v) of Regulation S-K promulgated by the Securities and Exchange Commission) involving our former auditors.

Item 9A.    Controls and Procedures.

Evaluation of Disclosure Controls and Procedures.

Our company’s management, with the participation of our interim chief executive officer and our chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2007.

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, including 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 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.

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Based on such evaluation, our interim chief executive officer and our chief financial officer have concluded that, as of September 30, 2007, 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.

Report of Management on Internal Control over Financial Reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the company. Under the rules of the Securities and Exchange Commission, ‘‘internal control over financial reporting procedures’’ is defined as a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

Internal control over financial reporting includes maintaining records, that in reasonable detail, accurately and fairly reflect our transactions and our dispositions of assets; provide reasonable assurance that transactions are recorded as necessary for preparation of our financial statements in accordance with accounting principles generally accepted in the United States of America; provide reasonable assurance that receipts and expenditures of company assets are made only in accordance with management authorization; and provide reasonable assurance regarding the prevention or the timely detection of the unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements. Because of its inherent limitations, internal control over financial reporting may not provide absolute assurance that a misstatement of our financial statements would be prevented or detected.

Management conducted an evaluation of the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework. Based on this evaluation, management concluded that the company’s internal control over financial reporting was effective as of September 30, 2007.

Our auditors, Eisner LLP, have issued a report on this assessment of our internal control over financial reporting. Their report is included in this Item 9A.

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of
Allied Healthcare International Inc.

We have audited management’s assessment, included in the accompanying Report of Management on Internal Control Over Financial Reporting, that Allied Healthcare International Inc. and subsidiaries (the ‘‘Company’’) maintained effective internal control over financial reporting as of September 30, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit 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 effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principle s, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of September 30, 2007, is fairly stated, in all material respects, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2007, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedules as of and for the years ended September 30, 2007 and September 30, 2006 and the retrospective adjustment to the 2005 consolidated financial statements for the operations discontinued in 2007 of the Company and our report dated December 11, 2007 expressed an unqualified opinion on those consolidated financial statements, financial statement schedules and that such retrospective adjustment is appropriate and has been properly applied.

/s/ Eisner LLP

New York, New York
December 11, 2007

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Changes in Internal Control Over Financial Reporting.

There have not been any changes in our internal control over financial reporting during the quarter ended September 30, 2007 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 2007 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
Sarah L. Eames			49			Deputy Chairman, Interim Chief Executive Officer and Director
David Moffatt			55			Chief Financial Officer
Leslie J. Levinson			52			Secretary
Sophia Corona			44			Director
G. Richard Green			68			Director
Wayne Palladino			49			Director
Jeffrey S. Peris			61			Director
Ann Thornburg			58			Director
Mark Tompkins			67			Non-Executive Chairman of the Board

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

Sarah L. Eames has served as a director of our company since June 2002 and as deputy chairman and interim chief executive officer of our company since July 2007. She served as executive vice president of our company from November 2004 until July 2007, 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, as president of our company from May 1998 until November 2004, and as executive vice president of business development and marketing of our company from June 1997 until May 1998. Prior to joining our company, Ms. Eames was employed by Johnson & Johnson Professional, Inc. as a business development consultant from 1996 until 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 1995, Ms. Eames held various marketing and business development positions at Abbey Healthcare Group Inc., a predecessor of Apria Healthcare Group, Inc. Ms. Eames serves on the board of directors of Global Med Technologies, Inc., an e-health, medical information technology company, that provides information management software products and services to the healthcare industry.

David Moffatt has served as chief financial officer of our company since July 2006. From December 2005 until May 2006, Mr. Moffatt was a consultant to staffing businesses. From 2000 until November 2005, he was deputy European chief financial officer for Monster Worldwide, Inc., a leading global online recruitment services provider. From May 1999 until April 2000, Mr. Moffatt served as interim U.K. finance director for Monster Worldwide, Inc. From January 1999 until May 1999, he was the interim operations director of Patientline Ltd., a hospital bedside telephone, television and video company.

Leslie J. Levinson has served as secretary of our company since September 1999 and had previously served in such capacity from October 1990 until July 1997. Since March 2007, he has been a partner in the law firm of Wolf Block Schorr & Solis-Cohen LLP, which firm serves as counsel to our company. From 2002 until March 2007 he was a partner in Brown Raysman Millstein Felder & Steiner LLP and its successor, Thelen Reid Brown Raysman & Steiner LLP, which firm served as counsel to our company, and from 1991 until 2002 he was a partner in the law firm of Baer Marks & Upham LLP, which firm served as counsel to our company.

Sophia Corona has been a director of our company since November 2006. Since February 2007, she has been employed by Creditex Group Inc., a credit derivatives platform company, where she currently serves as chief financial officer. From April 2006 until February 2007, Ms. Corona was a

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financial advisor to privately-owned companies. From October 2001 until March 2006, she was the chief financial officer of Bigfoot Interactive, Inc (now known as Epsilon Interactive, Inc.), a provider of e-mail communications and marketing services, which was acquired by Alliance Data Systems Corporation, a New York Stock Exchange-listed company that is a provider of transaction services, credit services and marketing services, in September 2005. From 2000 until 2001, Ms. Corona was the vice president of business development for Visual Radio, LLC, a technology incubation fund that she co-founded in 1996 and in which she was employed as the chief financial officer from 1996 until 1998. From 1998 until 2000, she was a senior vice president with Prism Communications Services, Inc., a telecommunications provider.

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 1964 of J.H. & F.W. Green Ltd., a conglomerate based in the United Kingdom. Since 1964, Mr. Green has held various positions at J.H. & F.W. Green Ltd. and several of its subsidiaries.

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, a director of client and portfolio services and chief financial officer. 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 until September 1996, senior vice president of our company from September 1996 until August 2000 and chief financial officer of our company from February 1991 until August 2000.

Jeffrey S. Peris has been a director of our company since May 1998. Since May 2006, Dr. Peris has served as an executive advisor to leading established global and new business entities. Dr. Peris served as the vice president of human resources and chief learning officer of Wyeth (formerly American Home Products Corporation), a pharmaceutical company, from 2001 until 2006. Dr. Peris was the vice president of business operations of Knoll Pharmaceutical (Abbott Laboratories), where he was responsible for human resources and corporate communications, from 1998 until 2001. Dr. Peris was a management consultant to various Fortune 100 companies from 1997 until 1998. From 1972 until 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 1997, the e xecutive director of marketing from 1976 until 1985, and the director of clinical biostatistics and research data systems from 1972 until 1976.

Ann Thornburg has been a director of our company since November 2006. From October 1982 until September 2006, Ms. Thornburg was a partner at PricewaterhouseCoopers LLP, an auditing firm. At PricewaterhouseCoopers LLP, she served in a variety of client service and management roles, including acting as audit partner for major health care clients. From 2001 until 2005, Ms. Thornburg was a member of the U.S. Board of Partners and Principals of PricewaterhouseCoopers LLP.

Mark Tompkins has been a director of our company since September 2005 and as non-executive chairman of the board since July 2007. From 1987 until the present, Mr. Tompkins has been a self-employed investor, with a focus on private equity and capital development in publicly traded entities, notably in the healthcare, biopharmaceutical, wholesale and distribution, tourism and leisure, and manufacturing industries. From 1975 until 1987 he was active in residential and commercial property investment in the Middle East, Germany, Spain, France and the United States. From 1972 until 1975, Mr. Tompkins worked for the Slater Walker Securities group and from 1965 until 1971 he was a management consultant with Booz Allen & Hamilton. Mr. Tompkins is a director of Sodexho Alliance S.A., a company engaged in the provision of food and management services.< /font>

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.

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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 on a review of these reports filed by 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 year ended September 30, 2007, we believe that no Reporting Person failed to file a Section 16 report on a timely basis during our fiscal year ended September 30 , 2007.

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 interim 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.

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 May 4, 2007 and is attached as an exhibit to the proxy statement relating to our 2007 annual meeting of shareholders.

The Audit Committee consists of Ms. Corona, Mr. Palladino and Ms. Thornburg. Ms. Thornburg 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 Ann Thornburg is an ‘‘audit committee financial expert,’’ as such term is defined in Item 407(d) of Regulation S-K promulgated by the Securities and Exchange Commission.

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Item 11.    Executive Compensation.

Compensation Discussion and Analysis

General

This Compensation Discussion and Analysis addresses the compensation of our ‘‘named executive officers.’’ Our ‘‘named executive officers’’ consist of all individuals who served as our principal executive officer and our principal financial officer during fiscal 2007, as well as each of the other most-highly compensated executive officers of our company whose total annual compensation exceeded $100,000 in fiscal 2007. These individuals are listed in the following table:

Name			Title
Timothy M. Aitken			Chairman of the Board and Chief Executive Officer(1)
Sarah L. Eames			Deputy Chairman and Interim Chief Executive Officer(2)
David Moffatt			Chief Financial Officer

(1) Mr. Aitken resigned from all positions with our company in July 2007.

(2) Ms. Eames assumed the positions of deputy chairman and interim chief executive officer of our company in July 2007. Prior to that date, during fiscal 2007 she had served as executive vice president of our company.

The Compensation Committee

Our Compensation Committee reviews and approves overall policy with respect to compensation matters for our executive officers, including compensation plans and employment agreements. The current written charter for our Compensation Committee was adopted by our board of directors on May 10, 2005. A copy of the charter of the Compensation Committee is available on our website at www.alliedhealthcare.com.

Our Compensation Committee consists of Sophia Corona, G. Richard Green and Jeffrey S. Peris. Mark Hanley was also a member of the Compensation Committee during fiscal 2007 until his resignation from the board of directors in April 2007.

The charter of the Compensation Committee requires that each member of the Compensation Committee satisfy the definition of ‘‘independent director,’’ as that term is defined in the rules of the Nasdaq Stock Market. Members of the Compensation Committee are appointed by the full board, which makes the determination that a director is an ‘‘independent director,’’ as defined in the Nasdaq rules.

Other than the requirement that they be independent, the charter of the Compensation Committee does not require that members of the Compensation Committee have any special qualifications. However, in appointing Dr. Peris to the Compensation Committee, and as its chairman, the board considered the fact that he has spent over 20 years overseeing human resources at leading global pharmaceutical companies, during which time he was involved in the retention, payment and termination of employees of all levels, including senior corporate and divisional executives. Likewise, in appointing Mr. Green to the Compensation Committee, the board considered the fact that he has been a director and officer for over 25 years at J.H. & F.W. Green Ltd., a conglomerate based in the U.K., and, in such capacities, has been involved in all aspects of executive compensation.

Policy

Our Compensation Committee believes that the compensation for the executive officers of our company should be designed with the objective of attracting, motivating and retaining talented individuals who contribute to the success of our company. The Compensation Committee has used the components of compensation discussed below in an effort to reward executive officers whose

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performance is essential to the Company’s success, both in the near-term and over the long-term, and to encourage their continued service with our company. Our Compensation Committee also reviews individual contributions to our company and the financial performance of our company in determining the compensation to recommend to the board.

Our compensation program is comprised of three elements: (a) base salary; (b) short-term incentive awards in the form of cash bonuses; and (c) a long-term incentive program, which consists principally of stock option awards in which participants receive an economic benefit only if the trading price of our common stock increases or, in certain cases, if certain specified financial goals set forth in the option awards are met by our company.

Base Salary.    The Compensation Committee strives to set a fair and competitive base salary for each of the executive officers of our company. The Compensation Committee reviews the base salaries of our executive officers from time to time, but generally makes few changes in base salaries except upon a change in position. In general, it is the Compensation Committee’s view that increases in the cash compensation of our executive officers should be achieved through the awarding of bonuses, rather than through an increase in base salary. However, when the Compensation Committee contemplates an adjustment to base salary, various factors are considered, including company performance, the executive’s individual performance, scope of responsibility and changes in that scope (including as a result of promotions), tenure, prior experience and market practice.

Bonus.    The Compensation Committee may award, or recommend that the full board award, cash bonuses to executive officers that are tied to individual contributions to our company and the financial performance of our company. We do not have a written bonus plan in place; rather, individual awards of bonus payments are determined, or recommended to the full board, by our Compensation Committee based upon its assessment of the contribution by the individual to our company and our financial performance, as well as such other factors as the Compensation Committee may deem relevant at the time of determining the bonus.

Stock Option Grants.    The Compensation Committee uses long-term incentives, such as stock option grants, to align the financial interests of our executive officers with those of our company’s shareholders, to provide that our executive officers have a continuing stake in our long-term success, and to provide executive officers with an incentive to manage our company from the perspective of an owner. We typically grant options with an exercise price equal to the closing price of a share of our company’s common stock on the Nasdaq Global Market (formerly known as the Nasdaq National Market) on the date of grant, so that the executives to whom they are granted will only realize value if the trading price of our shares increase.

Historically, we have granted stock options subject to time-based vesting. In fiscal 2007, we awarded some of our executive officers, as well as some of non-executive officers, performance-based option awards that vest only if our company’s financial performance meets certain specified criteria. Like option grants with a exercise price equal to the closing price of a share of our common stock on the date of grant, these options will only be of value to those awarded the options if our company meets the performance criteria specified in the option grants. As it is increasingly common for stock option plans to include performance-based option awards, we incorporated that component to trigger vesting of the option grants. The terms of the performance-based options are described below under ‘‘Compensation of Our Named Executive Officers — Stock Option Grants.’’

No constant criteria or formula is used in determining the amount of a bonus or the number of options to award to our executive officers or in determining the allocation of compensation among salary, bonus and stock options grants. The Compensation Committee uses its discretion to make a determination of the effectiveness of the executive and the extent of the executive’s contributions to the Company’s success and, based on that determination, recommends to the full board the amount of a bonus and/or the number of stock options to be awarded to executive officers. In determining the bonus amounts for fiscal 2007, the Compensation Committee reviewed the practices of other companies with similar businesses and of like size. In determining whether to make grants of options

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to our executive officers, the Compensation Committee will often review the history of prior grants made to these individuals, the status of the vesting of prior grants and the amounts, if any, that have been or may be realized by these individuals from the prior grants. The results of this review may also be considered in recommending option awards.

We generally pay bonuses shortly after our fiscal year has ended, in conjunction with a review of our company’s performance during that fiscal year. We do not have fixed dates on which we issue options. Often, but not always, we grant options before or shortly after our fiscal year has ended, in conjunction with a review of our company’s performance during that fiscal year and the determination of bonus awards. We also often issue options to executive officers when they are hired or when they assume a new position or take on greater responsibilities. We usually grant options outside of the blackout period established under our insider trading policy during which directors and executive officers are forbidden to purchase or sell their shares of our common stock. We do not have a program, plan or practice to coordinate option grants to our executives or any other recipients of options with the release of material non-public information.

The Compensation Committee has not historically benchmarked or tied any element of compensation to the performance by our company relative to a peer group or to a broader index, such as the S&P 500 Index, and it did not do so in fiscal 2007.

In addition to the three main elements of compensation, we have traditionally paid for some personal benefits and perquisites of our executive officers. The amounts of the personal benefits and perquisites have traditionally been modest. While the personal benefits and perquisites that we award confer a direct or indirect benefit, often of a personal nature, on our executive officers and are not generally available to all employees, our Compensation Committee and board have determined that there are sound business reasons for awarding them, such as the ability to attract and retain executive officers. For example, as discussed below under the ‘‘Summary Compensation Table,’’ in fiscal 2007 we provided a car allowance to each of our three named executive officers. Our Compensation Committee believes that a car allowance for members of senior management is a fairly standard reimbursement item for similarly-situated companies and is thus a ne cessary expense to attract and retain executive officers.

Our executive officers also participate in benefit programs available to employees generally, such as health insurance.

Process

Under Nasdaq rules, the compensation of our executive officers must be determined, or recommended to the board for determination, by the Compensation Committee. As a general matter, the Compensation Committee recommends, for full board consideration and approval, the compensation of our executive officers, to the extent not set forth in an executive officer’s employment agreement. The Compensation Committee seeks the input of our chairman and chief executive officer in determining the compensation of executive officers other than the chief executive officer to recommend to the full board. While the Compensation Committee also seeks input from the chief executive officer on what he or she believes is an appropriate salary for himself or herself, the Compensation Committee determines in its discretion, at a meeting of the committee at which no members of management are present, the amount of chief executive officer compensation to recommend to the full board.

The Compensation Committee was in session during each of the formal meetings of our company’s board of directors during the fiscal year ended September 30, 2007. The Compensation Committee also held one formal meeting during that period, but did not act by unanimous written consent during that period. At the meeting of the Compensation Committee held on October 10, 2006, the Compensation Committee considered and recommended for approval by the full board a proposed amended and restated employment agreement for Ms. Eames. Ms. Eames’ original employment agreement with our company, which was signed in September 2001, had been amended in October 2004 and November 2005 to take into account her changed responsibilities. In the fall of 2006, our company and Ms. Eames discussed the possibility of Ms. Eames returning to a

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more significant role in our business. The amended and restated employment agreement with Ms. Eames that was discussed at the October 10, 2006 meeting of the Compensation Committee increased Ms. Eames’ base salary from $120,000 per year to $250,000 per year and provided that she would receive $5,000 for each trip of five business days or more that she makes to the United Kingdom on company business (up to a maximum amount in any calendar year of $50,000). Ms. Eames’ amended and restated employment agreement provides that (a) if we terminate her employment during the term of the agreement, or (b) if, within six months of a ‘‘change in control’’ (as defined in the amended and restated employment agreement) of our company, Ms. Eames or our company terminates her employment, or (c) if Ms. Eames terminates her employment for ‘‘good reason’’ (as defined in the amended and restated employment agreement), then (1) all stock options in our company held by Ms. Eames will immediately vest, (2) Ms. Eames will be entitled to receive a cash payment equal to 1.9 times her annual base salary during the twelve months preceding the termination of employment or the change in control, and (3) we must provide Ms. Eames the benefits to which she was entitled immediately prior to the date of termination for a period of twelve (12) months following the date of termination, except that if Ms. Eames becomes entitled to some or all of such benefits during the twelve-month post-termination period, then the obligation to provide her with those benefits will cease. However, pursuant to the provisions of Ms. Eames’ amended and restated employment agreement, she is not entitled to the foregoing benefits if (a) we terminate her employment for cause, death or disability or (b) the termination of her employment is the result of the non-renewal of the employment agreement by either party. The amended and restated employment agreement was based on Ms.&n bsp;Eames’ initial employment agreement with our company that was executed in September 2001. At its October 10, 2006 meeting, the Compensation Committee also discussed a proposal to grant 150,000 options to Ms. Eames as a further inducement to remain with our company. The members of the Compensation Committee subsequently determined to recommend to the board that Ms. Eames be awarded options to purchase 150,000 shares of our common stock, vesting in 12 equal monthly installments. The amended and restated employment agreement with Ms. Eames, as well as the award of options to purchase 150,000 shares of our common stock, was subsequently approved by the full board.

During the meeting of the Compensation Committee’s that was held on October 10, 2006, no individuals other than the members of the Compensation Committee and legal counsel were present.

During fiscal 2007, and for at least the two fiscal years prior thereto, neither the Compensation Committee nor the board of directors retained a compensation consultant. To the knowledge of the members of the Compensation Committee, no member of management retained a compensation consultant on his or her behalf during that time.

Compensation of our Named Executive Officers

This section discusses the amount of each element of compensation paid to our named executive officers in fiscal 2007.

Base Salary.    The base salaries during for fiscal 2007 for Timothy M. Aitken, who served as chief executive officer of our company during fiscal 2007 until his resignation in July 2007 from all positions with our company, Sarah L. Eames, who served as executive vice president of our company during fiscal 2007 until July 2007, at which time she assumed the positions of deputy chairman and interim chief executive officer, and David Moffatt, who served as chief financial officer of our company during fiscal 2007, were approved by the full board, upon the recommendation of the Compensation Committee. In the case of Mr. Aitken and Mr. Moffatt, these individuals’ base salaries in fiscal 2007 were the same as in fiscal 2006. In the case of Ms. Eames, her base salary during fiscal 2007 was the amount set forth in her amended and resta ted employment agreement executed in October 2006. She did not receive an increase in salary in July 2007, when she assumed her new positions with our company.

Bonus.    The Compensation Committee recommended to the board of directors that Ms. Eames be paid a bonus of $250,000 in respect of our 2007 fiscal year and that Mr. Moffatt be paid a bonus of £175,000 ($344,610) in respect of our 2007 fiscal year. In addition, the Compensation

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Committee recommended to the board that Mr. Moffatt be awarded a bonus of £75,000 on January 1, 2009, provided that he is still employed by our company on that date. The full board of directors approved the recommendations of the Compensation Committee.

In determining the bonuses to recommend, the Compensation Committee, in addition to reviewing our financial performance during the year, took note of the fact that Ms. Eames and Mr. Moffatt had performed their duties well, despite a number of difficult circumstances, including the resignation of our former chief executive officer, the sale of our respiratory therapy division and the negotiation of the Amended Senior Credit Facility with our banks and various amendments thereto. The Compensation Committee also took note of the fact that Ms. Eames had not received an increase in salary in July 2007, when she assumed her new positions with our company.

The £75,000 bonus to be awarded to Mr. Moffatt on January 1, 2009, provided that he is still employed by our company on that date, was not awarded in respect of our 2007 fiscal year. Rather, it was meant to provide an incentive for Mr. Moffatt to remain with our company until that date. In recommending this bonus, the Compensation Committee took note of the fact that our employment agreement with Mr. Moffatt does not have a fixed term; rather, his employment agreement provides that either party may terminate the agreement upon six months’ written notice.

Stock Option Grants.    During fiscal 2007, we granted the following options to purchase shares of our common stock under our 2002 Stock Option Plan to our named executive officers as compensation in respect of our 2007 fiscal year, all of which have time-based vesting and, in the case of Mr. Moffatt, are also subject to performance-based vesting: (1) 150,000 to Ms. Eames, and (2) 100,000 to Mr. Moffatt. We did not grant any options to Mr. Aitken in respect of our 2007 fiscal year. The exercise price of Ms. Eames’ and Mr. Moffatt’s options is $1.92 per share (the closing price of a share of our common stock on the date of grant). Each of the options has a ten-year term. Ms. Eames’ options vested on a pro rata basis over a period of twelve months beginning on November 16, 2006.

Mr. Moffatt’s options vest in accordance with the following schedule: if our earnings before interest and taxes (‘‘EBIT’’) for fiscal 2007 exceeds EBIT for fiscal 2006 by 3.5%, then one-half of the options shall vest on the date that our Annual Report on Form 10-K with respect to our 2007 fiscal year is filed with the Securities and Exchange Commission, and if our EBIT for fiscal 2008 exceeds EBIT for fiscal 2007 by 6.5%, then the remaining one-half of the options will vest on the date that our Annual Report on Form 10-K with respect to our 2008 fiscal year is filed with the Securities and Exchange Commission. Because EBIT for fiscal 2007 exceeded EBIT for fiscal 2006 by 3.5%, 50,000 of the options granted to Mr. Moffat will vest upon the filing of this Form 10-K with the Securities and Exchange Commission. In calculating EBIT, we used the operating income (loss) amounts for the respective years from our consolidated state ment of operations.

Personal Benefits and Perquisites.    Our company has traditionally paid a relatively modest amount to our named executive officers by way of personal benefits and perquisites. For each of our three named executive officers, we paid a car allowance in fiscal 2007 ($6,750 in the case of Mr. Aitken, $7,800 in the case of Ms. Eames, and $17,723 in the case of Mr. Moffatt). We also contributed $56,122 to Mr. Moffatt’s U.K.-based private pension fund. The contribution to Mr. Moffatt’s private pension fund was made pursuant to the terms of his employment agreement.

Our executive officers also participate in benefit programs available to employees generally, such as health insurance.

In July 2007, Mr. Aitken resigned from all positions with our company. In connection with his resignation, Mr. Aitken and our company entered into a Settlement Agreement, dated June 26, 2007, but executed by Mr. Aitken on July 2, 2007 (the ‘‘Settlement Agreement’’), pursuant to which we agreed pay to Mr. Aitken, subject to the terms and conditions of the Settlement Agreement, the following severance payments:

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	(i)	$390,000 within two business days after our receipt of the Settlement Agreement executed by Mr. Aitken; and

	(ii)	$300,000 on the first business day after September 30, 2007; and

	(iii)	$200,000 on the first business day after December 31, 2007; and

	(iv)	$100,000 on the first business day after February 29, 2008.

Pursuant to the Settlement Agreement, Mr. Aitken released our company from all claims that he may have against us, including any claims for breach of his existing employment agreement, and we released Mr. Aitken from all claims against Mr. Aitken of which we had actual knowledge.

The terms of the Settlement Agreement were reached after lengthy negotiations with Mr. Aitken. The Settlement Agreement was negotiated by an ad hoc committee of non-executive directors appointed for that purpose and approved by the full board.

Employment Agreements and Payments upon Termination or Change of Control

As discussed more fully below under ‘‘Employment Agreements; Potential Payments Upon Termination or Change-in-Control,’’ we have entered into employment agreements with Sarah L. Eames and David Moffatt. Prior to his resignation from all positions with our company in July 2007, Timothy M. Aitken also had an employment agreement with our company. The decisions to enter into employment agreements and the terms of those agreements were based on our company’s need to attract and retain executives responsible for the long-term growth of our company.

Pursuant to our employment agreements with Ms. Eames, we have agreed to provide severance compensation in the event of a termination other than for cause, death or disability or a termination in the event of a change of control of our company. In addition, her stock options will generally vest upon a change in control. In the case of Mr. Moffatt, we are required to pay him 12 months’ salary in the event he is terminated due to an acquisition.

We have structured change in control severance compensation as ‘‘double trigger’’ benefits. In other words, the change of control does not itself trigger benefits; rather, benefits are paid only if the employment of the executive is terminated during a specified period after a change of control. We believe a ‘‘double trigger’’ benefit maximizes shareholder value because it prevents an unintended windfall to executives in the event of a friendly change of control, while still providing appropriate incentives to cooperate in negotiating any change of control. As to acceleration of option awards upon a change of control, we believe that vesting acceleration upon a change of control is consistent with current market practice. In all, the severance benefits were designed to provide our executive officers with a certain measure of job security and protection against termination without cause and termination or loss of em ployment through no fault of their own.

Information regarding our change of control arrangements with Ms. Eames and Mr. Moffatt is set forth below under ‘‘Employment Agreements; Potential Payments Upon Termination or Change-in-Control.’’

Tax and Accounting Implications of Executive Compensation

Tax and accounting issues are considered by the Compensation Committee in setting compensation policies.

Section 162(m) of the Internal Revenue Code denies a deduction to any publicly-held corporation for compensation paid to certain covered employees in a taxable year to the extent that compensation exceeds $1,000,000 for the covered employee. Under Section 162(m), certain performance-based compensation that has been approved by our shareholders is not subject to this limitation. As a result of this exclusion, stock options granted under our 2002 Stock Option Plan are not subject to the limitations of Section 162(m). However, since we retain discretion over cash bonuses, those bonuses do not qualify for the exemption for performance-based compensation. Since none of our executive officers had compensation in excess of $1,000,000 that was subject to Section 162(m) limitations in 2007, Section 162(m) was not applicable.

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We make decisions about the grant of stock options based partly on the accounting treatment they receive under Statement of Financial Accounting Standards No. 123(R), Shared-Based Payment (‘‘FAS 123R’’). FAS 123R requires companies to recognize in their income statement the grant-date fair value of stock options and other equity-based compensation issued to employees. The effect of FAS 123R is to reduce our reported profits by the cost of our stock option grants. See Note 10 of Notes to Consolidated Financial Statements for our fiscal year ended September 30, 2007 for a discussion of the assumptions made in determining the grant- date fair value and compensation expense of equity awards.

While the Compensation Committee attempts to recommend compensation for executives that produces favorable tax and accounting treatment for our company, its main objective is to develop fair and equitable compensation arrangements that attract, motivate and retain talented executives.

Stock Ownership Guidelines

While we have not adopted equity or other security ownership requirements or guidelines that specify any minimum amounts of ownership for our directors or our executive officers, we encourage our officers and directors to maintain at least some equity in our company and to align their interests with those of our stockholders. We have adopted policies that restrict the circumstances in which executives may ‘‘hedge’’ the economic risk of common stock ownership. Our insider trading policy prohibits both short sales (i.e., selling stock that is not owned and borrowing shares to make delivery) and the buying or selling of puts, call or other derivatives in respect of securities of our company, other than long-term hedging transactions that are designed to protect an individual’s investment in our company and that are pre-cleared in accordance with the procedures set forth in our insider trading policy. In order to meet the criteria that a long-term hedging transaction be designed to protect an individual’s investment in our company, our insider trading policy requires that any hedge must be for at least one year and relate to stock or options held by the individual.

Compensation Committee Report

The Compensation Committee of the board of directors has reviewed and discussed the Compensation Discussion and Analysis set forth above with management and, based on such review and discussions, the Compensation Committee recommended to the board of directors that the Compensation Discussion and Analysis be included in this Annual Report on Form 10-K.

The Compensation Committee

Sophia Corona
G. Richard Green
Jeffrey S. Peris

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Executive Compensation

Summary Compensation Table for Fiscal 2007

The following table summarizes all compensation earned by or paid to our named executive officers in fiscal 2007.

Name and Principal Position(s)			Fiscal Year						Salary ($)						Bonus ($)						Option Awards ($)(4)						All Other Compensation ($)						Total ($)
Timothy M. Aitken, Chairman of the Board and Chief Executive Officer(1)					2007					$	450,833						NA						NA						$1,036,885	(5)				$	1,487,718
Sarah L. Eames, Deputy Chairman and Interim Chief Executive Officer(2)					2007					$	300,577					$	250,000					$	147,045						$       7,800	(6)				$	705,422
David Moffatt, Chief Financial Officer					2007					$	374,148					$	344,610	(3)				$	50,770						$     73,845	(7)				$	843,373

(1) Mr. Aitken resigned from all positions with our company in July 2007.

(2) Ms. Eames assumed the positions of deputy chairman and interim chief executive officer of our company in July 2007. Prior to that date, during fiscal 2007 she had served as executive vice president of our company.

(3) Does not include a bonus of £75,000 to be awarded to Mr. Moffatt on January 1, 2009, provided that he is still employed by our company on that date.

(4) The amounts in this column show the amount of compensation cost recognized for financial statement reporting purposes. They do not reflect compensation actually received by the named executive officers. The amounts shown in this column have been calculated in accordance with FAS 123R under the modified prospective transition method. See Note 10 of Notes to Consolidated Financial Statements for our fiscal year ended September 30, 2007 for a discussion of the assumptions made in determining the grant-date fair value and compensation expense of equity awards. The actual value, if any, that an executive officer will realize upon the exercise of the stock options issued to him or her will be equal to the excess of the trading price of shares of our common stock on the date that the shares underlying the options are sold over the exercise price of the options, less any transaction costs.

(5) Represents (a) total severance payments of $990,000 due to Mr. Aitken pursuant to the Settlement Agreement (of which $390,000 was paid in fiscal 2007 and $600,000 will be paid in fiscal 2008), (b) an aggregate of $15,925 in company expenses incurred in fiscal 2007 and to be incurred in fiscal 2008 in payment of post-termination benefits payable for the benefit of Mr. Aitken (mainly health insurance premiums) pursuant to the Settlement Agreement, (c) legal fees of $14,638 paid on behalf of Mr. Aitken pursuant to the Settlement Agreement, (d) moving costs of $9,572 paid on behalf of Mr. Aitken, and (e) payment for a car allowance of $6,750.

(6) Represents payment for a car allowance.

(7) Represents payment for a car allowance of $17,723 and payments of $56,122 towards Mr. Moffatt’s U.K.-based private pension fund.

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Grants of Plan-Based Awards in Fiscal 2007

The following table summarizes the options that our company granted to our named executive officers during fiscal 2007. All options listed in the table were granted under our 2002 Stock Option Plan.

Name			Grant Date						Estimated Future Payouts under Equity Incentive Plan Awards																		All Other Option Awards: Number of Securities Underlying Options (#)						Exercise or Base Price of Option Awards ($/Sh)						Grant Date Fair Value of Stock and Option Awards(3)
									Threshold (#)						Target (#)						Maximum (#)
Sarah L. Eames					10/16/06						NA						150,000	(1)					NA						150,000					$	1.92					$	147,045
David Moffatt					10/16/06						0	(2)					100,000						100,000						100,000					$	1.92					$	112,230

(1) Ms. Eames’ options vested on a pro rata basis over a period of twelve months beginning on November 16, 2006.

(2) The terms of Mr. Moffatt’s options provided that one-half (50,000) will vest if our company’s EBIT for fiscal 2007 exceeds EBIT for fiscal 2006 by 3.5% and one-half (50,000) will vest if our company’s EBIT for fiscal 2008 exceeds EBIT for fiscal 2007 by 6.5%. The options subject to vesting if our EBIT for 2007 exceeds EBIT for fiscal 2006 by 3.5% and will vest upon the date of the filing of this Form 10-K with the Securities and Exchange Commission.

(3) The amounts shown in this column represent the full grant date value of each equity award computed in accordance with FAS 123R. See Note 10 of Notes to Consolidated Financial Statements for our fiscal year ended September 30, 2007 for a discussion of the assumptions made in determining the grant-date fair value and compensation expense of equity awards. The actual value, if any, that an executive officer will realize upon the exercise of the stock options issued to him or her will be equal to the excess of the trading price of shares of our common stock on the date that the shares underlying the options are sold over the exercise price of the options, less any transaction costs.

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Outstanding Equity Awards at Fiscal 2007 Year End

The following table summarizes the outstanding options held by our named executive officers at September 30, 2007.

			Option Awards
Name			Number of Securities Underlying Unexercised Options (#) Exercisable						Number of Securities Underlying Unexercised Options (#) Unexercisable						Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)						Option Exercise Price ($)						Option Expiration Date
Timothy M. Aitken					300,000						—						—					$	1.72						7/2/2009	(2)
					90,000																		5.65						10/2/2007	(3)
					350,000																		5.70						10/2/2007	(3)
					294,280																		4.00						10/2/2007	(3)
					24,000																		4.00						10/2/2007	(3)
					60,000																		4.70						10/2/2007	(3)
Sarah L. Eames					137,500						12,500						—					$	1.92						10/16/2016
					300,000																		5.70						12/2/2013
					160,000																		4.00						9/25/2013
					24,000																		4.00						6/3/2103
					60,000																		4.70						11/13/2012
David Moffatt																	100,000	(1)				$	1.92						10/16/2016
					50,000						100,000												2.71						7/31/2016

(1) The terms of these options provided that one-half will vest if our company’s EBIT for fiscal 2007 exceeds EBIT for fiscal 2006 by 3.5% and one-half will vest if our company’s EBIT for fiscal 2008 exceeds EBIT for fiscal 2007 by 6.5%. The options subject to vesting if our EBIT for 2007 exceeds EBIT for fiscal 2006 by 3.5% will vest upon the filing of this Form 10-K with the Securities and Exchange Commission.

(2) By their terms, these options expire two years after termination of employment.

(3) By their terms, these options expire three months after termination of employment.

Employment Agreements; Potential Payments Upon Termination or Change-in-Control

In September 2001 we entered into an employment agreement with Ms. Eames, which was modified in November 2004 and September 2005 and amended and restated in October 2006. Pursuant to her amended and restated employment agreement, Ms. Eames agreed to continue to serve as executive vice president of our company for a period of 18 months. The amended and restated employment agreement provides for automatic renewal for successive periods of one year each unless terminated by either party on 90 days’ notice. Pursuant to her amended and restated employment agreement, Ms. Eames’ base salary is $250,000 per annum. In addition, she is entitled to receive $5,000 for each trip of five business days or more that she makes to the United Kingdom on Company business, up to a maximum amount of $50,000 in any calendar year.

Ms. Eames’ amended and restated employment agreement provides that (a) if we terminate her employment during the term of the agreement, or (b) if, within six months of a ‘‘change in control’’ (as defined in the amended and restated employment agreement) of our company, Ms. Eames or our company terminates her employment, or (c) if Ms. Eames terminates her employment for ‘‘good reason’’ (as defined in the amended and restated employment agreement), then (1) all stock options in our company held by Ms. Eames will immediately vest, (2) Ms. Eames will be entitled to receive a cash payment equal to 1.9 times her annual base salary during the twelve months preceding the termination of employment or the change in control, and (3) we must provide Ms. Eames the benefits to which she was entitled immediately prior to the date of termination for a period of twelve (12)

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months following the date of termination, except that if Ms. Eames becomes entitled to some or all of such benefits during the twelve-month post-termination period, then the obligation to provide her with those benefits will cease. However, pursuant to the provisions of Ms. Eames’ amended and restated employment agreement, she is not entitled to the foregoing benefits if (a) we terminate her employment for cause, death or disability or (b) the termination of her employment is the result of the non-renewal of the employment agreement by either party.

Ms. Eames’ employment agreement was not further amended upon her becoming the interim chief executive officer of our company in July 2007.

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

The following table illustrates the benefits that Ms. Eames would have been entitled to receive pursuant to her amended and restated employment agreement, assuming that (i) our company terminated her employment on September 30, 2007 other than for cause, death or disability or as a result of the non-renewal of the employment agreement, or (ii) she had terminated her employment, other than for cause, death or disability or as a result of the non-renewal of the employment agreement, on September 30, 2007 and her termination was within six months of a change in control of our company:

Severance payment				$	457,096	(1)
Health benefits					24,043	(2)
Total:				$	481,139

(1) Represents a single payment due within 60 days of termination.

(2) Represents payments made over 12 months.

In July 2006 we entered into an employment agreement with Mr. Moffatt. Our employment agreement with Mr. Moffatt provides that, during the first six months thereof, either party may terminate the agreement upon one month’s written notice and, thereafter, either party may terminate the agreement upon six month’s written notice. Our employment with Mr. Moffatt further provides that Mr. Moffatt will not compete against us for a period of six months following the termination of his employment with us. Pursuant to his employment agreement, Mr. Moffatt currently receives a salary of £0.2 million (approximately $0.4 million). In addition, pursuant to his employment agreement with us, Mr. Moffatt receives a car allowance and we make a payment equal to 15% of his annual salary towards his U.K.-based private pension fund. In addition, under our employment agreement with Mr. Moffatt, we are required to pay him 12 months’ salary in the event he is terminated due to an acquisition. In the event that Mr. Moffatt’s employment had been terminated on September 20, 2007 due an acquisition, we would have been required to pay him $0.4 million over twelve months.

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Director Compensation

The following table summarizes the compensation paid to our directors during fiscal 2007.

Director Compensation Table for Fiscal 2007

Name(1)(2)			Fees Earned or Paid in Cash ($)						Option Awards ($)(6)(7)						Total ($)
Sophia Corona(3)				$	19,792					$	16,905					$	36,697
G. Richard Green				$	16,250					$	35,484					$	51,734
Mark Hanley(4)				$	8,125					$	2,435					$	10,560
Wayne Palladino				$	27,500					$	35,484					$	62,984
Jeffrey S. Peris				$	42,500					$	35,484					$	77,984
Scott A. Shay(5)				$	7,500						—					$	7,500
Ann Thornburg(3)				$	35,625					$	16,905					$	52,530
Mark Tompkins				$	33,750					$	38,043					$	71,793

(1) Timothy M. Aitken, who served as Chairman of the Board of our company until July 2007, and Sarah L. Eames, who served as a director of our company during all of fiscal 2007, are not included in this table because they are or were employees of our company who received no additional compensation for services as a director. The compensation received by Mr. Aitken and Ms. Eames as employees of our company is reflected in the Summary Compensation Table.

(2) Except as otherwise indicated, each individual named below served as a director our company for all of fiscal 2007.

(3) Each of Ms. Corona and Ms. Thornburg has been a director of our company since November 2006.

(4) Mr. Hanley resigned as a director of our company in April 2007.

(5) Mr. Shay resigned as a director of our company in August 2007. His fees for serving as a director of our company were paid to Hyperion Advisors II L.P., an affiliate of Mr. Shay.

(6) The amounts in this column show the amount of compensation cost recognized for financial statement reporting purposes. They do not reflect compensation actually received by the named directors. The amounts shown in this column have been calculated in accordance with FAS 123R under the modified prospective transition method. See Note 10 of Notes to Consolidated Financial Statements for our fiscal year ended September 30, 2007 for a discussion of the assumptions made in determining the grant-date fair value and compensation expense of equity awards. The actual value, if any, that a director will realize upon the exercise of the stock options issued to him or her will be equal to the excess of the trading price of shares of our common stock on the date that the shares underlying the options are sold over the exercise price of the options, less any transaction costs.

(7) As of September 30, 2007, each director listed in the table above had the following option awards outstanding set forth opposite his or her name below:

	•	Sophia Corona: 50,000

	•	G. Richard Green: 67,000

	•	Mark Hanley: 0

	•	Wayne Palladino: 71,000

	•	Jeffrey S. Peris: 74,000

	•	Scott Shay: 0

	•	Ann Thornburg: 50,000

	•	Mark Tompkins: 65,000

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Director Compensation — General

We use a combination of cash and stock option grants to attract and retain qualified candidates to serve on our board of directors. In setting director compensation, our board considers the amount of time that directors expend in fulfilling their duties, as well as the expertise that the board members bring to our company.

Cash Compensation

We do not pay directors who are employees of our company additional compensation for their services as a director. Effective July 2007, we implemented the following compensation program for our directors, other than for directors who are employees of our company:

	•	each non-employee director is entitled to an annual retainer of $30,000 per year;

	•	each member of our Audit Committee and each member of our Compensation Committee (other than the chairpersons) is entitled to an additional $5,000 per year for service on those committees;

	•	the chairperson of the Audit Committee is entitled to receive $50,000 per year (which amount includes the $30,000 annual retainer for directors);

	•	the chairperson of the Compensation Committee is entitled to receive $40,000 per year (which amount includes the $30,000 annual retainer for directors); and

	•	the non-executive Chairman of the Board is entitled to receive $100,000 per year (which amount includes the $30,000 annual retainer for directors).

Prior to the adoption of the compensation program for directors in July 2007, we paid our directors an annual retainer of $10,000 per year. In addition, the following directors were entitled to the payments indicated:

	•	Ms. Corona – an additional $5,000 per year for serving on our Audit Committee and $5,000 per year for serving on our Compensation Committee;

	•	Mr. Hanley – an additional $5,000 per year for serving on our Compensation Committee;

	•	Mr. Palladino – an additional $15,000 per year for serving on our Audit Committee;

	•	Dr. Peris – an additional $5,000 per year for serving on our Audit Committee and an additional $5,000 per year for serving on our Compensation Committee; and

	•	Ms. Thornburg – an additional $30,000 per year for serving as chairperson of our Audit Committee.

We make payments to our directors of the amounts to which they are entitled on a quarterly basis.

Equity-Based Compensation

Prior to the adoption of the compensation program for directors in July 2007, we had traditionally granted stock options to directors upon their becoming members of the board of directors and periodically thereafter, but on an irregular basis. As part of the compensation program for directors adopted in July 2007, and in order to ensure that directors have an ownership interest aligned with our shareholders, our board granted to each non-employee director options to purchase 50,000 shares of our common stock at a price of $2.24 per share. Mr. Shay declined to accept the options because he resigned from the board shortly after they were granted.

Our board anticipates that it will review board compensation annually in conjunction with the board’s review of executive officer salaries and benefits.

Compensation Committee Interlocks and Insider Participation

The Compensation Committee consists of Sophia Corona, G. Richard Green and Jeffrey S. Peris. Dr. Peris serves as chairman of the Compensation Committee. Messrs. Green and Peris served on our

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Compensation Committee throughout fiscal 2007. Ms. Corona was appointed to the Compensation Committee in June 2007. From December 2005 until his resignation as a director of our company in April 2007, Mark Hanley served on our Compensation Committee. Except for Mr. Hanley, who served from 1995 to 1997 as an executive director/director of business development of Transworld Healthcare (UK) Limited, a subsidiary of our company now known as Allied Healthcare Holdings Limited, none of Ms. Corona or Messrs. Green, Hanley or Peris 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 2007 that requires disclosure under the rules of the Securities and Exchange Commission.

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 3, 2007 (except as noted in the footnotes below) by (1) each director of our company, (2) each current 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. Except as set forth below, the address of each of the following holders of shares of our common stock is c/o Allied Healthcare International Inc., 245 Park Avenue, New York, New York 10167.

Name			Number of Shares of Common Stock Beneficially Owned						Percentage of Common Stock Beneficially Owned(1)
Sarah L. Eames					1,171,218	(2)					2.6	%
David Moffatt					100,000	(3)						*
Sophia Corona					12,500	(4)						*
G. Richard Green					108,354	(5)						*
Wayne Palladino					35,664	(6)						*
Jeffrey S. Peris					34,500	(7)						*
Mark Tompkins					22,500	(8)						*
Ann Thornburg					12,500	(4)						*
Washington & Congress Capital Partners, L.P.					7,697,578	(9)					17.1	%
Rutabaga Capital Management LLC					4,015,221	(10)					8.9	%
Dimensional Fund Advisors LP					3,321,425	(11)					7.4	%
All current executive officers and directors as a group (8 persons)					1,497,236	(12)					3.3	%

* Less than 1%.

(1) As of December 3, 2007, there were 44,986,229 shares of our common stock outstanding. The percentage given for each shareholder assumes that such shareholder has exercised the options held by such shareholder that are exercisable within 60 days of December 3, 2007, but that no other shareholders have exercised the options held by them.

(2) 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 694,000 shares subject to options held by Ms. Eames that are exercisable within 60 days of December 3, 2007.

(3) Consists of 100,000 shares subject to options held by Mr. Moffatt that are exercisable within 60 days of December 3, 2007. Does not include 150,000 shares subject to options held by Mr. Moffatt that are not exercisable within 60 days of December 3, 2007.

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(4) Consists of 12,500 shares subject to options held by such individual that are exercisable within 60 days of December 3, 2007. Does not include 37,500 shares subject to options held by such individual that are not exercisable within 60 days of December 3, 2007.

(5) Consists of 3,000 shares of common stock held by Mr. Green, 57,995 shares of common stock held jointly by Mr. Green and his wife, 19,259 shares of common stock held by Orion Nominees Limited, an affiliate of Mr. Green, 25,500 shares subject to options held by Mr. Green that are exercisable within 60 days of December 3, 2007 and 2,600 shares owned of record by Mr. Green’s wife, as to which Mr. Green disclaims beneficial ownership. Mr. Green shares voting and dispositive power over the shares of our common stock held by Orion Nominees Limited with his wife. Does not include an additional 41,500 shares subject to options held by Mr. Green that are not exercisable within 60 days of December 3, 2007.

(6) Consists of 6,164 shares of common stock held by Mr. Palladino and 29,500 shares subject to options that are exercisable within 60 days of December 3, 2007. Does not include an additional 41,500 shares subject to options held by Mr. Palladino that are not exercisable within 60 days of December 8, 2007.

(7) Consists of 2,000 shares of common stock held by Dr. Peris and 32,500 shares subject to options held by Dr. Peris that are exercisable within 60 days of December 3, 2007. Does not include an additional 41,500 shares subject to options held by Dr. Peris that are not exercisable within 60 days of December 3, 2007.

(8) Consists of 22,500 shares subject to options held by Mr. Tompkins that are exercisable within 60 days of December 3, 2007. Does not include 42,500 shares subject to options held by Mr. Tompkins that are not exercisable within 60 days of December 3, 2007.

(9) Excludes 93,492 shares of common stock held by Triumph III Investors, L.P. Washington & Congress Capital Partners, L.P. may be deemed to be a member of a group that includes Triumph III Investors, L.P. The address of Washington & Congress Capital Partners, L.P. is 265 Franklin Street, 20th Floor, Boston, Massachusetts 02110.

(10) The number of shares owned is given as of September 30, 2007 and is based on the Form 13F filed by Rutabaga Capital Management LLC (‘‘Rutabaga’’) with the Securities and Exchange Commission on November 8, 2007. According to the Form 13F, Rutabaga had sole voting power with respect to all of such shares. Rutabaga’s address is 64 Broad Street, Boston, Massachusetts 02109.

(11) The number of shares owned is given as of September 30, 2007 and is based on the Form 13F filed by Dimensional Fund Advisors LP (‘‘Dimensional’’) with the Securities and Exchange Commission on October 25, 2007. According to the Form 13F, Dimensional had sole voting power with respect to 3,256,310 of such shares and no voting power with respect to 65,115 of such shares. Dimensional’s address is 1299 Ocean Avenue, Santa Monica, California 90401.

(12) Includes an aggregate of 929,000 shares subject to options held by our executive officers and directors that are exercisable within 60 days of December 3, 2007 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, 2007 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					2,976,614					$	3.64						1,556,620
Equity compensation plans not approved by shareholders					485,000					$	4.83						—
Total					3,461,614					$	3.81						1,556,620

The securities covered by the equity compensation plan that has not been approved by our shareholders consist of warrants that were issued to two third parties. The warrants were issued as partial compensation for the agreement by such third parties to provide consulting services related to corporate finance and investment banking matters. One set of warrants, which were issued in August 2003, expire in August 2008 and are exercisable at prices ranging from $4.75 to $6.00 per share. The second set of warrants, which were issued in April 2007, expire in October 2008 and are exercisable at prices ranging from $3.00 to $3.75 per share.

Item 13.	Certain Relationships and Related Transactions, and Director Independence.

Related Party Transactions

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. Neither our certificate of incorporation, our bylaws nor our indemnification agreements place a cap on our maximum indemnification obligations; however, our directors’ and officers’ liability insurance may enable us to recover some or all of the amounts, if any, that we pay by way of indemnification to our directors and executive officers.

Other than as described in the previous paragraph and other than the compensation and severance arrangements with our named executive officers and the director compensation arrangements described in ‘‘Item 11 — Executive Compensation,’’ we are not a participant in any transaction involving more than $120,000 in which any shareholder holding more than 5% of our outstanding common stock, any of our executive officers or directors or their immediate family members, or any other ‘‘related person’’ (as such term is defined in the rules of the Securities and Exchange Commission) has or will have a direct or indirect material interest.

Review of Related Party Transactions

Our Code of Conduct (a copy of which is filed as an exhibit to this Annual Report on Form 10-K) prohibits, among other things, our directors, officers and employees from, directly or indirectly, engaging or participating in any transaction involving, or raising questions of, a possible conflict between the interests of our company and the personal interests of the employee or his or her family.

Under its charter, the Audit Committee has the responsibility of reviewing related party transactions (other than executive and director compensation) between our company and our offices,

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directors, key employees and any of their affiliates. Notwithstanding the foregoing, in some cases (such as the ratification of the severance arrangement with Timothy M. Aitken described in ‘‘Item 11 — Executive Compensation — Compensation of Our Named Executive Officers’’), the full board approves the related party transaction. In addition, as a general matter, the Compensation Committee recommends, for full board consideration and approval, the compensation of our executive officers, to the extent not set forth in an executive officer’s employment agreement.

The Audit Committee considers whether to ratify or approve a related party transaction on a case-by-case basis, rather than pursuant to a written policy. To date, there have been no instances in which the Audit Committee has been called upon to review a related party transaction. In reviewing any related party transaction, it is expected that the Audit Committee will examine the terms of the transaction to determine how close they are to terms that would be likely to be found in a similar arms’-length transaction and whether they are fair and reasonable to our company. If the related party transaction involves a non-employee director, the Audit Committee may also consider whether the transaction would compromise the director’s independence.

Director Independence

Our board of directors has determined that Sophia Corona, G. Richard Green, Wayne Palladino, Jeffery A. Peris, Ann Thornburg and Mark Tompkins are ‘‘independent directors,’’ as such term is defined in the rules of the Nasdaq Stock Market. In addition, our board of directors determined that Mark Hanley, who served on our board of directors, from November 2005 until April 2007, was an ‘‘independent director’’ under such rules. The only current member of our board of directors who is not independent is Sarah Eames, who serves an executive officer of our company. In addition, Timothy M. Aitken, who resigned from all positions with our company in July 2007, was not an independent director of our company because of his position as an executive officer of our company and Scott Shay, who resigned as a director of our company in August 2007, was not an independent director of our company because of his control of entities that collectively owned more than 10% of our outstanding shares of common stock.

All of the members of our Audit Committee and all of the members of our Compensation Committee are ‘‘independent directors,’’ as such term is defined in the rules of the Nasdaq Stock Market. The members of our Audit Committee also satisfy the requirements for independence imposed upon audit committee members by Rule 10A-3 promulgated under the Securities Exchange Act of 1934 by the Securities and Exchange Commission.

The Nasdaq rules for independent directors provide, among other things, that a director cannot be considered independent if he or she has been employed by the issuer in the past three years. In considering whether Mr. Palladino qualified as an ‘‘independent director’’ under the Nasdaq rules, our board of directors considered the fact that he served from February 1991 until August 2000 as an officer of our company in various positions (including chief financial officer).

Item 14.	Principal Accountant Fees and Services.

Audit and Other Fees During Fiscal 2006 and Fiscal 2007

The following table sets forth the fees we were billed in respect of our fiscal year ended September 30, 2006 and September 30, 2007 for various audit and other services. Our auditors in respect of those fiscal years was Eisner LLP.

			Fiscal 2006						Fiscal 2007
Audit fees				$	1,942,746					$	1,388,932
Audit-related fees					—						—
Tax fees					—						—
All other fees					—						—

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Audit fees include the fees for auditing our annual financial statements and reviewing the financial statements included in our quarterly reports on Form 10-Q, as well auditing the internal controls over financial reporting required by Section 404 of the Sarbanes-Oxley Act of 2002. Audit fees also include fees for services that were provided in connection with regulatory filings and consents related to filings with the Securities and Exchange Commission. During fiscal 2006, we were billed for audit fees from Eisner LLP, KPMG Audit Plc and Deloitte & Touche LLP.

Pre-Approval Policy

The charter of the Audit Committee was revised and restated by the board of directors on May 4, 2007. The revised charter of the Audit Committee, as did the previous charter, provides that the Audit Committee shall pre-approve all auditing and permitted non-audit 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 Section 10A(i)(1)(B) the Securities Exchange Act of 1934 and that are approved by the Audit Committee prior to the completion of the audit. Pursuant to its charter, 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.

We did not incur audit-related fees, tax fees or other fees during fiscal 2006 or fiscal 2007. Accordingly, no such fees were approved by the Audit Committee after the fact in reliance upon the de minimus exception.

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Item 15.    Exhibits and Financial Statement Schedules.

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

						Page
(1)			Consolidated Financial Statements:
			Report of Independent Registered Public Accounting Firm					F-1
			Report of Independent Registered Public Accounting Firm					F-2
			Consolidated Balance Sheets – September 30, 2007 and 2006					F-3
			Consolidated Statements of Operations – for the years ended September 30, 2007, 2006 and 2005					F-4
			Consolidated Statements of Changes in Shareholders’ Equity – for the years ended September 30, 2007, 2006 and 2005					F-5
			Consolidated Statements of Cash Flows – for the years ended September 20, 2007, 2006 and 2005					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.
(3)			Exhibits:

Exhibit Number			Title
2.1(1)(2)			Agreement, dated September 30, 2007, among Air Liquide Limited, Omnicare Limited, Allied Healthcare Group Holdings Limited and Air Liquide UK Limited.
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).

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Exhibit Number			Title
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).
3.9			Certificate of Amendment of the Certificate of Incorporation of Allied Healthcare International Inc. that eliminates all references to the Series A Convertible Preferred Stock, filed with the Department of State of the State of New York on July 20, 2004 (incorporated herein by reference to Exhibit 9 of our Form 8-A/A filed with the Securities and Exchange Commission on July 21, 2004).
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(1)			Certificate of Change of Allied Healthcare International Inc. filed with the Department of State of the State of New York on April 26, 2007.

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Exhibit Number			Title
3.12			Restated Bylaws of Transworld Home Healthcare, Inc. (now known as Allied Healthcare International Inc.) (incorporated herein by reference to Exhibit 3.4 of our Annual Report on Form 10-K for the fiscal year ended October 31, 1996).
3.13			Amendment to the Bylaws of Allied Healthcare International Inc. effective June 7, 2002 (incorporated herein by reference to Exhibit 3.2 of our Current Report on Form 8-K filed with the Securities and Exchange Commission on June 10, 2002).
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).
10.3A			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).
10.3B			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).
10.3C			Amendment No. 2, dated September 28, 2005, to the Employment Agreement, dated September 24, 2001, between Allied Healthcare International Inc. and Sarah L. Eames (incorporated herein by reference to Exhibit 10.7D of our Annual Report on Form 10-K for the fiscal year ended September 20, 2005).
10.3D			Amended and Restated Employment Agreement, dated October 16, 2006, between Allied Healthcare International Inc. and Sarah Eames (incorporated herein by reference to Exhibit 10.4E of our Annual Report on Form 10-K for the fiscal year ended September 30, 2006).
10.4			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).
10.5			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).

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Exhibit Number			Title
10.6			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).
10.7A			Facility Agreement, dated July 19, 2004, among Allied Healthcare Group Limited (now known as Allied Healthcare Group Holdings 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 reference to Exhibit 10.4 of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2004).
10.7B			Amendment Letter, dated July 28, 2006, between Allied Healthcare Holdings Limited, Allied Healthcare Group Holdings Limited, Allied Healthcare International Inc., the subsidiaries of Allied Healthcare International named therein as guarantors, Barclays Bank PLC and Lloyds TSB Bank plc (incorporated herein by reference to Exhibit 10.19 of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2006).
10.7C			Second Amendment Letter, dated September 11, 2006 (effective September 13, 2006), among Allied Healthcare Holdings Limited, Allied Healthcare Group Holdings Limited, Allied Healthcare International Inc., the subsidiaries of Allied Healthcare International Inc. identified therein, Barclays Bank PLC and Lloyds TSB Bank plc (incorporated herein by reference to Exhibit 10.20 of our Current Report on Form 8-K filed with the Securities and Exchange Commission on September 18, 2006).
10.7D			Third Amendment Letter, dated October 17, 2006, among Allied Healthcare Holdings Limited, Allied Healthcare Group Holdings Limited, Allied Healthcare International Inc., the subsidiaries of Allied Healthcare International Inc. identified therein, Barclays Bank PLC and Lloyds TSB Bank plc (incorporated herein by reference to Exhibit 10.21 of our Current Report on Form 8-K filed with the Securities and Exchange Commission on October 20, 2006).
10.7E			Fourth Amendment Letter, dated November 10, 2006, among Allied Healthcare Holdings Limited, Allied Healthcare Group Holdings Limited, Allied Healthcare International Inc., the subsidiaries of Allied Healthcare International Inc. identified therein, Barclays Bank PLC and Lloyds TSB Bank plc (incorporated herein by reference to Exhibit 10.22 of our Current Report on Form 8-K filed with the Securities and Exchange Commission on November 14, 2006).
10.8			Employment Agreement, dated July 31, 2006, between Allied Healthcare Group Limited and David Moffatt (incorporated herein by reference to Exhibit 10.15 of our Annual Report on Form 10-K for the fiscal year ended September 30, 2006).
10.9A			Facility Agreement, dated July 19, 2004, as amended and restated on December 12, 2006, among Allied Healthcare Group Holdings Limited, Allied Healthcare International Inc., the subsidiaries of Allied Healthcare International Inc. named therein, Barclays Capital and Lloyds TSB Bank plc, as arrangers, and the other banks named therein (incorporated herein by reference to Exhibit 10.16 of our Annual Report on Form 10-K for the fiscal year ended September 30, 2006).

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Exhibit Number			Title
10.9B			Amendment Letter, dated January 30, 2007, among Allied Healthcare Group Holdings Limited, Allied Healthcare International Inc., the subsidiaries of Allied Healthcare International Inc. identified therein, Barclays Bank PLC and Lloyds TSB Bank plc (incorporated herein by reference to Exhibit 10.1 of our Current Report on Form 8-K filed with the Securities and Exchange Commission on February 1, 2007).
10.9C			Amendment Letter, dated August 6, 2007, among Allied Healthcare Group Holdings Limited, Allied Healthcare International Inc., the subsidiaries of Allied Healthcare International Inc. identified therein, Barclays Bank PLC and Lloyds TSB Bank PLC (incorporated herein by reference to Exhibit 10.2 of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2007).
10.10			Pledge and Security Agreement, dated December 12, 2006, between Allied Healthcare International Inc. and Barclays Bank PLC, as security agent (incorporated herein by reference to Exhibit 10.17 of our Annual Report on Form 10-K for the fiscal year ended September 30, 2006).
10.11			Intellectual Property Security Agreement, dated December 12, 2006, between Allied Healthcare International Inc. and Barclays Bank PLC, as security agent (incorporated herein by reference to Exhibit 10.18 of our Annual Report on Form 10-K for the fiscal year ended September 30, 2006).
10.12A			Sales Ledger Financing Agreement, dated December 12, 2006, between Allied Healthcare Group Limited and Barclays Bank PLC (incorporated herein by reference to Exhibit 10.2 of our Quarterly Report on Form 10-Q for the quarter ended December 31, 2006).
10.12B			Sales Ledger Financing Agreement, dated December 12, 2006, between Allied Staffing Professionals Limited and Barclays Bank PLC (incorporated herein by reference to Exhibit 10.3 of our Quarterly Report on Form 10-Q for the quarter ended December 31, 2006).
10.12C			Sales Ledger Financing Terms and Conditions Agreement between Allied Healthcare Group Limited and Barclays Bank PLC (incorporated herein by reference to Exhibit 10.4 of our Quarterly Report on Form 10-Q for the quarter ended December 31, 2006).
10.12D			Sales Ledger Financing Terms and Conditions Agreement between Allied Staffing Professionals Limited and Barclays Bank PLC (incorporated herein by reference to Exhibit 10.5 of our Quarterly Report on Form 10-Q for the quarter ended December 31, 2006).
10.13			Settlement Agreement, dated June 26, 2007, between Allied Healthcare International Inc. and Timothy M. Aitken (but executed by Mr. Aitken on July 2, 2007), including the U.K. Compromise Agreement, dated June 26, 2007, between Allied Healthcare International Inc. and Timothy M. Aitken attached thereto (incorporated herein by reference to Exhibit 10.1 of our Current Report on Form 8-K filed with the Securities and Exchange Commission on July 6, 2007).
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).

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Exhibit Number			Title
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(1)			Subsidiaries of Allied Healthcare International Inc.
23.1(1)			Consent of Eisner LLP, independent registered public accounting firm of Allied Healthcare International Inc.
23.2(1)			Consent of Deloitte & Touche LLP, independent registered public accounting firm of Allied Healthcare International Inc.
31.1(1)			Rule 13a-14(a)/15d-14(a) Certification of Interim Chief Executive Officer.
31.2(1)			Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
32.1(1)			Section 1350 Certification of Interim Chief Executive Officer.
32.2(1)			Section 1350 Certification of Chief Financial Officer.
99.1			AIM Schedule 1—Pre-Admission Announcement filed by Allied Healthcare International Inc. with the Alternative Investment Market of the London Stock Exchange (incorporated herein by reference to Exhibit 99.2 of our Current Report on Form 8-K filed with the Securities and Exchange Commission on November 30, 2005).

(1) Filed herewith.

(2) Schedules and similar attachments to this agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The registrant will furnish supplementally a copy of any omitted schedule or similar attachment to the Securities and Exchange Commission upon its request.

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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/ Sarah L. Eames
						Name:   Sarah L. Eames
						Title:    Deputy Chairman and Interim                Chief Executive Officer

Dated: December 13, 2007

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints Sarah L. Eames, David Moffatt 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 to effectuate the intent and purpose of this paragraph, as fully 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 ca use 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/ Sarah L. Eames		Deputy Chairman and Interim Chief Executive Officer (principal executive officer)		December 13, 2007
Sarah L. Eames
/s/ David Moffatt		Chief Financial Officer (principal financial and accounting officer)		December 13, 2007
David Moffatt
/s/ Sophia Corona		Director		December 11, 2007
Sophia Corona
/s/ G. Richard Green		Director		December 8, 2007
G. Richard Green
/s/ Wayne Palladino		Director		December 13, 2007
Wayne Palladino
/s/ Jeffrey S. Peris		Director		December 7, 2007
Jeffrey S. Peris
/s/ Ann Thornburg		Director		December 10, 2007
Ann Thornburg
/s/ Mark Tompkins		Director		December 13, 2007
Mark Tompkins

ALLIED HEALTHCARE INTERNATIONAL INC.

			Page
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm			F-1
Report of Independent Registered Public Accounting Firm			F-2
Consolidated Balance Sheets – September 30, 2007 and 2006			F-3
Consolidated Statements of Operations – for the years ended September 30, 2007, 2006 and 2005			F-4
Consolidated Statements of Changes in Shareholders’ Equity – for the years ended September 30, 2007, 2006 and 2005			F-5
Consolidated Statements of Cash Flows – for the years ended September 30, 2007, 2006 and 2005			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

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Allied Healthcare International Inc.

We have audited the accompanying consolidated balance sheets of Allied Healthcare International Inc. and subsidiaries (the ‘‘Company’’) as of September 30, 2007 and 2006, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the years then ended. Our audits also included the financial statement schedules listed at Item 15. These financial statements and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. The consolidated financial statements of the Company for the year ended September 30, 2005, before the effect of the retrospective adjustment for the discontinued operations discussed in Note 3 to the consolidated financial statements, were audited by other auditors whose report, dated November 28, 2005, expressed an unqualified opinion on those statements.

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, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Allied Healthcare International Inc. and subsidiaries as of September 30, 2007 and 2006, and the consolidated results of their operations and their consolidated cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules 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.

As discussed in Note 2 to the financial statements, the Company changed its method of accounting for share-based compensation effective October 1, 2005.

We have also audited the retrospective adjustment to the 2005 consolidated financial statements for the operations discontinued in 2007, as discussed in Note 3 to the consolidated financial statements. Our procedures included determining the reason for the adjustment, the extent of the adjustment and whether auditing only the adjustment for the discontinued operation is appropriate. In our opinion, such retrospective adjustment is appropriate and has been properly applied. However, we were not engaged to audit, review, or apply any procedures to the 2005 consolidated financial statements of the Company other than with respect to the retrospective adjustment and, accordingly, we do not express an opinion or any other form of assurance on the 2005 consolidated financial statements taken as a whole.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Allied Healthcare International Inc.’s internal control over financial reporting as of September 30, 2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (‘‘COSO’’), and our report dated December 11, 2007 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

/s/ EISNER LLP        

New York, New York
December 11, 2007

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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, New York

We have audited, before the effects of the adjustments for the discontinued operations discussed in Note 3 to the consolidated financial statements, the accompanying consolidated statements of operations, changes in shareholders’ equity, and cash flows for the period ended September 30, 2005, of Allied Healthcare International Inc. and subsidiaries (the ‘‘Company’’) (the 2005 consolidated financial statements before the effects of the adjustments discussed in Note 3 to the consolidated financial statements are not presented herein). Our audit 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 audit.

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 also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, before the effects of the adjustments for the discontinued operations discussed in Note 3 to the consolidated financial statements, present fairly, in all material respects, the results of Allied Healthcare International Inc. and subsidiaries operations and their cash flows for the year ended September 30, 2005, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, 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.

We were not engaged to audit, review, or apply any procedures to the adjustments for the discontinued operations discussed in Note 3 to the consolidated financial statements and, accordingly, we do not express an opinion or any other form of assurance about whether such retrospective adjustments are appropriate and have been properly applied. Those retrospective adjustments were audited by other auditors.

/s/ DELOITTE & TOUCHE LLP

November 28, 2005

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

			September 30, 2007						September 30, 2006
ASSETS
Current assets:
Cash and cash equivalents				$	20,241					$	3,938
Restricted Cash					55,819						—
Accounts receivable, less allowance for doubtful accounts of $1,570 and $1,703, respectively					21,490						26,813
Unbilled accounts receivable					14,375						11,823
Assets of discontinued operations					205						3,567
Deferred income taxes					182						547
Derivative asset					640						—
Prepaid expenses and other assets					1,448						1,183
Total current assets					114,400						47,871
Property and equipment, net					9,767						10,931
Goodwill					122,843						112,538
Other intangible assets, net					5,465						6,655
Assets of discontinued operations					—						16,317
Derivative asset					—						252
Deferred income taxes					304						538
Deferred financing costs and other assets					—						581
Total assets				$	252,779					$	195,683
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt				$	54,795					$	11,236
Accounts payable					3,950						2,051
Accrued expenses, inclusive of payroll and related expenses					30,614						29,044
Liabilities of discontinued operations					1,286						5,339
Taxes payable					3,375						1,366
Total current liabilities					94,020						49,036
Long-term debt, less current portion					—						59,923
Liabilities of discontinued operations					—						341
Total liabilities					94,020						109,300
Commitments and contingencies
Shareholders’ equity:
Preferred stock, $.01 par value; authorized 10,000 shares, issued and outstanding – none					—						—
Common stock, $.01 par value; authorized 80,000 shares, issued 45,571 and 45,542 shares, respectively					456						455
Additional paid-in capital					240,206						238,944
Accumulated other comprehensive income					18,018						13,258
Accumulated deficit					(97,627	)					(163,980	)
					161,053						88,677
Less cost of treasury stock (585 shares)					(2,294	)					(2,294	)
Total shareholders’ equity					158,759						86,383
Total liabilities and shareholders’ equity				$	252,779					$	195,683

See notes to consolidated financial statements.

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

			Year Ended September 30, 2007						Year Ended September 30, 2006						Year Ended September 30, 2005
Revenues:
Net patient services				$	277,795					$	280,205					$	342,031
Cost of revenues:
Patient services					193,839						194,475						243,304
Gross profit					83,956						85,730						98,727
Selling, general and administrative expenses					75,284						71,103						73,050
Impairment of goodwill					—						110,004						—
Impairment of long-lived assets (fixed assets and other intangibles)					—						10,038						—
Operating income (loss)					8,672						(105,415	)					25,677
Interest income					124						125						212
Interest expense					(4,156	)					(2,862	)					(4,201	)
Foreign exchange income (loss)					285						73						(98	)
Other income (expense)					759						39						(175	)
Income (loss) before income taxes and discontinued operations					5,684						(108,040	)					21,415
Provision for (benefit from) income taxes					2,068						(1,887	)					6,446
Income (loss) from continuing operations					3,616						(106,153	)					14,969
Discontinued operations:
Income (loss) from discontinued operations, net of taxes					6,266						(17,618	)					3,767
Gain on disposal of subsidiaries, net of taxes					56,471						—						—
Income (loss) from discontinued operations					62,737						(17,618	)					3,767
Net income (loss)				$	66,353					$	(123,771	)				$	18,736
Basic income (loss) per share of common stock
Income (loss) from continuing operations				$	0.08					$	(2.36	)				$	0.34
Income (loss) from discontinued operations				$	1.40					$	(0.39	)				$	0.08
Net income (loss) per share of common stock				$	1.48					$	(2.75	)				$	0.42
Diluted income (loss) per share of common stock
Income (loss) from continuing operations				$	0.08					$	(2.36	)				$	0.33
Income (loss) from discontinued operations					1.39						(0.39	)					0.08
Net income (loss) per share of common stock				$	1.47					$	(2.75	)				$	0.41
Weighted average number of common shares outstanding:
Basic					44,962						44,930						44,684
Diluted					45,147						44,930						45,169

See notes to consolidated financial statements.

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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						Treasury Shares						Total
			Shares						Amount
Balance, September 30, 2004					45,050					$	450					$	236,988					$	10,778					$	(58,945	)				$	(2,294	)				$	186,977
Comprehensive income:
Net income																													18,736												18,736
Foreign currency translation adjustment																							(4,258	)																	(4,258	)
Unrealized losses from cash flow hedging activities																							(408	)																	(408	)
Comprehensive income																																									14,070
Issuance of common stock for:
Exercise of stock options					391						4						808																								812
Balance, September 30, 2005					45,441					$	454					$	237,796					$	6,112					$	(40,209	)				$	(2,294	)				$	201,859
Comprehensive loss:
Net loss																													(123,771	)											(123,771	)
Foreign currency translation adjustment																							6,466																		6,466
Unrealized gains from cash flow hedging activities																							680																		680
Comprehensive loss																																									(116,625	)
Stock based compensation																	736																								736
Issuance of common stock for:
Exercise of stock options					101						1						410																								411
Excess tax benefits on stock options exercised																	2																								2
Balance, September 30, 2006					45,542					$	455					$	238,944					$	13,258					$	(163,980	)				$	(2,294	)				$	86,383
Comprehensive income:
Net income																													66,353												66,353
Foreign currency translation adjustment																							5,032																		5,032
Unrealized gains from cash flow hedging activities																							(272	)																	(272	)
Comprehensive income																																									71,113
Stock based compensation																	764																								764
Issuance of common stock for consulting services					29						1						63																								64
Issuance and modification of warrants for professional services																	435																								435
Balance, September 30, 2007					45,571					$	456					$	240,206					$	18,018					$	(97,627	)				$	(2,294	)				$	158,759

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, 2007						Year Ended September 30, 2006						Year Ended September 30, 2005
Cash flows from operating activities:
Net income (loss)				$	66,353					$	(123,771	)				$	18,736
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
(Income) loss from discontinued operations					(6,266	)					17,618						(3,767	)
Gain on disposal of subsidiaries					(56,471	)					—						—
Depreciation and amortization					3,377						3,729						2,514
Amortization of intangible assets					1,743						1,826						1,574
Amortization of debt issuance costs					368						180						446
Warrants issued for professional services					499						—						—
Impairment of goodwill					—						110,004						—
Impairment of long-lived assets					—						10,038						—
Provision for allowance for doubtful accounts					222						428						788
(Gain) loss on sale of fixed assets					—						(3	)					7
Stock based compensation					764						736						21
Excess tax benefits on stock options exercised					—						(2	)					—
Write-off of deferred financing fees					705						—						—
Deferred income taxes					557						(4,575	)					(78	)
Changes in operating assets and liabilities, excluding the effect of businesses acquired and sold:
Decrease (increase) in accounts receivable					7,307						5,846						(1,350	)
Decrease in inventories					—						181						50
(Increase) decrease in prepaid expenses and other assets					(2,017	)					1,959						(2,539	)
Increase (decrease) in accounts payable and other liabilities					5,044						(1,245	)					1,306
Net cash provided by continuing operations					22,185						22,949						17,708
Net cash provided by discontinued operations					5,870						2,783						3,575
Net cash provided by operating activities					28,055						25,732						21,283
Cash flows from investing activities:
Capital expenditures					(1,275	)					(9,053	)					(8,016	)
Proceeds from sale of business					70,994						—						—
Proceeds from sale of business held in escrow and designated for debt repayment					(53,679	)					—						—
Proceeds from sale of property and equipment					—						21						8
Payments for acquisitions – net of cash acquired					—						(844	)					(14,504	)
Proceeds limited to future acquisitions					—						—						1,850
Payments on acquisitions payable					(2,584	)					(5,259	)					(4,793	)
Net cash provided by (used in) continuing operations investing activities					13,456						(15,135	)					(25,455	)
Net cash used in discontinued operations investing activities					(1,786	)					(14,738	)					(1,693	)
Net cash provided by (used in) investing activities					11,670						(29,873	)					(27,148	)

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

			Year Ended September 30, 2007						Year Ended September 30, 2006						Year Ended September 30, 2005
Cash flows from financing activities:
Payments for financing fees					(533	)					—						(8	)
Payments on notes payable					—						—						(1,850	)
(Payments) borrowings under revolving loan, net					(14,769	)					13,508						13,876
Borrowings under invoice discounting facility, net					4,449						—						—
Principal payments on long-term debt					(11,815	)					(10,806	)					(11,101	)
Proceeds from sale of interest rate cap and floor agreement					—						—						98
Stock options exercised					—						411						791
Excess tax benefits on stock options exercised					—						2						—
Net cash (used in) provided by financing activities					(22,668	)					3,115						1,806
Effect of exchange rate on cash					(754	)					(882	)					432
Increase (decrease) in cash					16,303						(1,908	)					(3,627	)
Cash and cash equivalents, beginning of year					3,938						5,846						9,473
Cash and cash equivalents, end of year				$	20,241					$	3,938					$	5,846
Supplemental cash flow information:
Cash paid for interest				$	4,679					$	4,063					$	7,589
Cash paid for income taxes, net				$	2,570					$	3,206					$	5,398
Supplemental disclosure of investing and financing activities:
Details of business acquired in purchase transactions:
Fair value of assets acquired										$	949					$	19,959
Liabilities assumed or incurred											(105	)					(2,316	)
Cash paid for acquisitions (including related expenses)											844						17,643
Cash acquired											—						3,139
Net cash paid for acquisitions										$	844					$	14,504

See notes to consolidated financial statements.

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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 provider of flexible, or temporary, healthcare staffing to the United Kingdom (‘‘U.K.’’) healthcare industry. The Company was incorporated in New York in 1981. At September 30, 2007, the Company operated an integrated network of approximately 100 branches throughout most of the U.K. The Company’s healthcare staff consists principally of homecare aides (known as carers in the U.K.), nurses and nurses aides. The Company maintains a listing of over 12,000 homecare aides, nurses and nurses aides.

In September 2007, the Company disposed of two of its U.K. subsidiaries when it sold all of the issued and outstanding ordinary shares of Allied Respiratory Limited and Medigas Limited for £36,500 ($74,741) in cash, of which £500 ($1,024) was held back until certain conditions relating to the settlement of claims with U.K. regulatory agencies are met. These two subsidiaries constituted the Company’s respiratory therapy segment. The respiratory therapy segment supplied medical-grade oxygen for use in respiratory therapy to pharmacies in the U.K., oxygen concentrators to customers in Northern Ireland and oxygen services to customers in the South East of England. In accordance with the provisions of Statement of Financial Accounting Standards No. 144, ‘‘Accounting for the Impairment or Disposal of Long-Lived Assets’’ (‘‘FAS No. 144’’), the Company has accounted for its respiratory therapy segment as a discontinued operation. The Company’s consolidated financial statements reflect the assets and liabilities of the discontinued operations as separate line items and the operations of its respiratory therapy segment for the current and prior periods are reported in discontinued operations on the statement of operations. As a result of the disposition, the Company operates in one reportable segment.

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. Included in cash and cash equivalents are amounts placed in escrow deposits for the potential payments on contingent consideration that is dependent upon future earnings of the Company’s acquisition of certain flexible staffing agencies. These escrow deposits totaled $512 and $468 at September 30, 2007 and 2006, respectively.

Restricted Cash:

Included in restricted cash are amounts relating to the $1,024 proceeds from the sale of the respiratory therapy segment that has been held back until certain conditions relating to the settlement of claims with U.K. regulatory agencies are met and for the payment under the irrevocable written notice given to the agent for the Company’s banks that it wished to prepay the amounts outstanding under the term loan A $24,572 and the term loan B1 $25,596 facilities from the proceeds of sale of its respiratory therapy segment. Also included in restricted cash is the amount of $4,627 which the Company segregated as unrestricted funds for the specific purpose of paying off the amount outstanding on its invoice discount facility. See Note 7 for details of bank debt.

Stock-Based Compensation:

Prior to October 1, 2005, the Company accounted for its stock-based compensation plans using the intrinsic value method prescribed by APB Opinion No. 25, Accounting for Stock Issued to

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

Employees, and related interpretations (‘‘APB No. 25’’) and provided the required pro forma disclosures of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation.

In December 2004, the Financial Accounting Standards Board (the ‘‘FASB’’) issued FAS No. 123R, Share-Based Payment (‘‘FAS No. 123R’’), which requires companies to measure, at the grant date, and recognize in the financial statements compensation expense for all share-based payments at fair value over the requisite service period. Effective the beginning of fiscal 2006, the Company adopted FAS No. 123R using the modified prospective application method. In accordance with the modified prospective application method of FAS No. 123R, financial results for the prior periods have not been restated. The Company generally recognizes compensation expense on a straight-line basis over the requisite service period for its employee and director share-based compensation plans.< /font>

Accounts Receivable:

The Company maintains 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, 2007 and September 30, 2006, $21,490 (8.5%) and $26,813 (13.7%), respectively, of the Company’s total assets consisted of accounts receivable.

The Company maintains credit controls to ensure cash collection on a timely basis. The credit terms agreed with the Company’s customers range from 7 days to a maximum of 30 days from invoice date. The Company has devised a provisioning methodology based on its customer profile and historical credit risk across its U.K. business. Accounts receivable are written off when the credit control department determines the amount is no longer collectible. Each fiscal year the Company undertakes a review of its methodology and procedure for reserving for its doubtful accounts. This process also takes into account the Company’s actual experience of write offs in the period. The policy is then applied at each quarter end to arrive at a closing reserve for doubtful accounts.

Property and Equipment:

Property and equipment is carried at cost, net of accumulated depreciation and amortization. Leasehold improvements are amortized over the related lease terms or estimated useful lives, whichever is shorter. Computer software is amortized on a straight-line method over the estimated useful lives ranging from three to seven years.

Purchase Accounting:

For completed acquisitions, 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.

Goodwill and Other Intangible Assets:

Goodwill and other intangible assets are carried at cost, net of accumulated amortization. In accordance with FAS No. 142, ‘‘Goodwill and Other Intangible Assets’’ (‘‘FAS No. 142’’), 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 2007 and determined there was no impairment to its recorded goodwill balance. During the fourth quarter of fiscal 2006 the Company determined

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

there was an impairment to its recorded goodwill balance by using a combination of market multiple, comparable transaction and discounted cash flow methods. Based on a combination of factors, contributing to the impairment loss were the decrease in profits due to the decline of revenues from the National Health Services (‘‘the NHS’’), the Company’s current market capitalization at time of review as well as the current and projected operating results. As such, the Company recognized a pre tax impairment charge of $110,004 in fiscal 2006.

The following table presents the changes in the carrying amount of goodwill for the year ended September 30, 2007:

Balance at October 1, 2005				$	205,177
Goodwill acquired during period					8,741
Goodwill impairment					(110,004	)
Foreign exchange effect					8,624
Balance at September 30, 2006					112,538
Foreign exchange effect					10,305
Balance at September 30, 2007				$	122,843

Of the $122,843 goodwill balance at September 30, 2007, approximately $5,690 is deductible for U.K. income tax purposes.

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

						September 30, 2007
			Range Of Lives			Gross Carrying Amount						Accumulated Amortization						Net Carrying Amount
Customer relationships			5 – 12				$	10,935					$	5,470					$	5,465
Trade names			3					211						211						—
Non-compete agreements			2 – 3					247						247						—
Favorable leasehold interests			2 – 5					9						9						—
Total							$	11,402					$	5,937					$	5,465

						September 30, 2006
			Range Of Lives			Gross Carrying Amount						Accumulated Amortization						Net Carrying Amount
Customer relationships			5 – 12				$	10,000					$	3,371					$	6,629
Trade names			3					193						193						—
Non-compete agreements			2 – 3					225						199						26
Favorable leasehold interests			2 – 5					9						9						—
Total							$	10,427					$	3,772					$	6,655

The Company reviewed the carrying amount of its other intangibles and deemed certain assets to be impaired as of September 30, 2006 as a result of the decline in revenues from the NHS. Thus, in accordance with the provisions of FAS No. 144, the Company has recognized pre tax impairment charges of $995 and $3 related to it customer relationships and favorable leasehold interests, respectively, in the fourth quarter of fiscal 2006 which are reflected in the gross carrying amounts above. The total impairment charge of $998 is included in the ‘‘Impairment of Long-Lived Assets’’ caption in the Company’s Consolidated Statements of Operations.

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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 subject to amortization was $ 1,743, $1,826 and $1,574 for the years ended September 30, 2007, 2006 and 2005, respectively. At September 30, 2007, estimated future amortization expense of other intangible assets subject to amortization is as follows: approximately $1,696, $1,652, $1,442, $479 and $81 for the fiscal years ending September 30, 2008, 2009, 2010, 2011 and 2012, respectively.

Deferred Financing Costs:

Costs incurred in obtaining long-term financing are amortized over the benefit period provided by the long-term financing agreements. At September 30, 2006 deferred financing costs and other assets included $514 of deferred financing costs, net of accumulated amortization of $421. During the fourth quarter of fiscal 2007, the Company wrote-off $705 of deferred financing costs as a result of the prepayment of the amounts outstanding under its term loan A and its term loan B1 facilities from the proceeds of sale of its respiratory therapy segment. 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 are recognized when services are performed and substantiated by proper documentation. For patient services 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. At September 30, 2007 and 2006, the Company had $14,375 and $11,823, respectively in unbilled accounts receivable.

The Company receives a majority of its revenue from the U.K. local social services departments and the NHS payors. For the years ended September 30, 2007, 2006 and 2005, 63.5%, 68.3% and 67.0%, respectively, of the Company’s net revenues were attributable to the U.K. local social services departments and the NHS payor programs.

Advertising Costs:

Advertising costs are expensed as incurred. Adverting expense for the fiscal years ended September 30, 2007, 2006 and 2005 was $720, $699 and $1,614, respectively.

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, 2007, 2006 and 2005, the Company had outstanding stock options and warrants to purchase 2,772, 2,983 and 677 shares, respectively, of common stock

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

ranging in exercise price from $1.92 to $6.20, $1.72 to $7.25, and $6.20 to $7.25 per share, respectively, that were not included in the computation of diluted EPS either because the exercise price was greater than the average market price of the common shares or such effect would have been anti-dilutive.

The weighted average number of shares used in the basic and diluted earnings per share computations for the years ended September 30, 2007, 2006 and 2005 are as follows:

			2007						2006						2005
Weighted average number of common shares outstanding
as used in computation of basic EPS of common stock					44,962						44,930						44,684
Effect of dilutive securities – stock options and warrants					185						—						485
Shares used in computation of diluted EPS of common stock					45,147						44,930						45,169

Comprehensive Income (Loss):

Components of comprehensive income (loss) include net income (loss) and all other non-owner changes in equity, such as the change in the cumulative translation adjustment and unrealized gains (losses) from cash flow hedging activities, which are the only items of other comprehensive income (loss) 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. The Company has recognized impairment charges in fiscal 2006. See Goodwill and Other Intangible Assets above for impairment charges related to goodwill and Note 5 for charges related to fixed assets.

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 accumulated other comprehensive income (loss) included in shareholders’ equity.

Fair Value of Financial Instruments:

Cash, accounts receivable, unbilled accounts receivable, accounts payable, accrued expenses and taxes payable approximate fair value due to the short-term maturity of those instruments. The derivative asset is recorded at its estimated fair value. The estimated fair value of the Company’s outstanding borrowings approximates their carrying value at September 30, 2007 and 2006.

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

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

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 collectability of accounts receivable. At September 30, 2007 and 2006, 67.0% and 66.9% of accounts receivable was due from the U.K. local social services departments and the NHS 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 U.S. generally accepted accounting principles (‘‘GAAP’’) 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, contingencies, accrued expenses, and determination of impairment, depreciation and amortization.

Reclassifications:

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

Recent Accounting Pronouncements:

In July 2006, the FASB issued Interpretation (‘‘FIN’’) No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. This Interpretation is effective for the Company beginning October 1, 2007. The Company is currently evaluating the impact of FIN 48 on its consoli dated financial position and results of operations.

In September 2006, the Securities and Exchange Commission (the ‘‘SEC’’) issued Staff Accounting Bulletin No. 108 (‘‘SAB No. 108’’). The interpretation in SAB No. 108 was issued to address diversity in practice in quantifying financial statement misstatements and the potential under current practice for the build up of improper amounts on the balance sheet. This interpretation establishes the staff’s approach that requires quantification of financial statement misstatements based on the effects of the misstatements on each of the Company’s financial statements and the related financial statement disclosures. SAB No. 108 permits existing public companies to initially apply its provisions either by (i) restating prior financial statements or (ii) recording the cumulative effect as adjustments to the carrying values of assets and liabilities with an offsetting adjustment recorded to the opening balance of retained earnings. SAB No. 108 was effective for the Company in fiscal 2007. The adoption of SAB 108, did not have a material impact on the Company’s consolidated financial position and results of operations.

In September 2006. the FASB issued FAS No. 157, Fair Value Measurements (‘‘FAS No. 157’’). FAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It also established a framework for measuring fair value in GAAP and expands disclosures about fair value measurement. FAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements. FAS No. 157 is effective for the Company in fiscal year beginning October 1, 2008 and interim periods within the fiscal year. The Company is currently evaluating the impact of FAS No. 157 on its consolidated financial position and results of operations.

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

In February 2007, the FASB issued FAS No. 159, The Fair Value for Financial Assets and Financial Liabilities (‘‘FAS No. 159’’). FAS No. 159 permits entities to choose to measure financial assets and liabilities, with certain exceptions, at fair value at specified election dates. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. A business entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. FAS No. 159 is effective for the Company in fiscal year beginning October 1,  ;2008. The Company is currently evaluating the impact of FAS No. 159 on its consolidated financial position and results of operations.

In December 2007, the FASB issued FAS No. 160, ‘‘Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51’’ (‘‘FAS No. 160’’). FAS No. 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. FAS No. 160 is effective for the Company in fiscal year beginning October 1, 2009. The Company is currently evaluating the impact of FAS No. 160 on its consolidated financial position and results of operations.

In December 2007, the FASB issued FAS No. 141 (R) ‘‘Business Combinations’’ (‘‘FAS No. 141R’’). FAS No. 141R establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. FAS No. 141R also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. FAS No. 141R is effective for the Company in fiscal year beginning October 1, 2009. While the Company has not yet evaluated this statement for the impact, if any, that FAS No. 141R will have on its consolidated financial position and results of operations, the Company will be required to expense costs related to any acquisitions after September 30, 2009.

3.    Business Combinations and Dispositions:

Combinations:

In fiscal 2006, the Company acquired the entire issued share capital of a home care training agency for approximately $778 in cash and additional contingent cash consideration of up to $936 dependent upon (i) future earnings in fiscal 2006, (ii) providing a set minimum of training programs and (iii) the sellers continuing employment with the Company until at least December 31, 2006. Of the $936 contingent cash consideration, the Company has recognized compensation costs of $118, net of income tax, and $524, net of income tax, for fiscal years 2007 and 2006, respectively, as the acquisition contract required the sellers to remain in employment with us until at least December 31, 2006 (the earnout period). In fiscal 2007, all but $19 of the contingent consideration was earned and paid.

In fiscal 2005, the Company acquired a total of 9 Social Service agencies for approximately $17,059 in cash and $69 in acquisition payable, which was paid in fiscal 2006. As of September 30, 2005, these transactions included provisions to pay additional amounts, payable in cash, of up to $9,735 in contingent consideration dependent upon future earnings of the acquired entities. In fiscal 2006 a total of $6,326 was earned and paid in fiscals 2006 and 2007. The remaining balance of contingent consideration was unearned and will not be required to be paid.

In fiscal 2006, Company completed its purchase price allocation for its fiscal 2005 acquisitions. Accordingly, final tangible assets, separately identifiable intangible assets and liabilities were assigned

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

values of approximately $5,853, $5,560 and $2,271, respectively, with the remaining portion of $9,176 attributable to goodwill. As compared to the original valuations at acquisition, the final valuation resulted in a reclassification of $194 from separately identifiable intangible assets to goodwill.

In fiscal 2005, the Company completed its purchase price allocation for its fiscal 2004 acquisitions. Accordingly, tangible assets, separately identifiable intangible assets and liabilities were assigned values of approximately $1,311, $3,493 and $709, respectively, with the remaining portion of $4,913 attributable to goodwill. As compared to the original valuations at acquisition, the final valuation resulted in a reclassification of $753 from goodwill to separately identifiable intangible assets.

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:

In September 2007, the Company sold its respiratory therapy segment for £36,500 ($74,741) in cash, of which £500 ($1,024) was held back until certain conditions relating to the settlement of claims with U.K. regulatory agencies are met. The respiratory therapy segment supplied medical-grade oxygen for use in respiratory therapy to pharmacies in the U.K., oxygen concentrators to customers in Northern Ireland and oxygen services to customers in the South East of England. In accordance with the provisions of FAS No. 144, the Company has accounted for its respiratory therapy segment as a discontinued operation. The Company’s consolidated financial statements reflect the assets and liabilities of the discontinued operations as separate line items and the operations of its respiratory therapy segment for the current and prior periods are reported in discontinued operations on the statement of operations. Within discontinued operations, the Compa ny recorded a gain of $56,471, net of tax of $0 on the sale of its respiratory therapy segment. Under U.K. tax legislation, enacted on April 1, 2002, disposals of shares by companies with substantial shareholdings does not result in a taxable gain transaction.

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

			Year Ended September 30,
			2007						2006						2005
Revenues:
Net respiratory, medical equipment and supplies				$	28,699					$	14,402					$	9,158
Cost of revenues:
Respiratory, medical equipment and supplies					13,024						10,521						4,214
Impairment of respiratory, medical equipment and supplies					—						5,932	(c)					—
Total cost of revenues					13,024						16,453						4,214
Gross Profit					15,675						(2,051	)					4,944
Selling, general and administrative expenses					6,091						4,449						897
Impairment of goodwill					—						11,897	(d)					—
Impairment of long-lived assets					—						257	(c)					—
Operating income (loss) from discontinued operations					9,584						(18,654	)					4,047
Interest income					2						2						—
Interest expense					(1,570	)					(1,410	)					—
Income (loss) from discontinued operations before income tax					8,016						(20,062	)					4,047
Gain on disposal of subsidiaries, net of tax					56,471	(a)					—						—
Provision for (benefit from) income taxes					1,750	(b)					(2,444	)					280
Income (loss) from discontinued operations				$	62,737					$	(17,618	)				$	3,767

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

(a) Under the provisions of FAS No. 52, Foreign Currency Translation, translation adjustments that result when a foreign entity’s financial statements are translated into a parent company’s or an investor’s reporting currency are separately reported in the parent company’s other comprehensive income. Foreign currency translation adjustments that are accumulated in other comprehensive income are reclassified to income only when they are realized, if the investment in the foreign entity is sold or is substantially or completed liquidated. Accordingly, the foreign currency translation adjustments of the balance sheet related to the respiratory therapy segment in the amount of approximately $1,564 were reclassified into the gain on disposal of subsidiaries.

(b) Included in the provision for income taxes for the year end September 30, 2007, is the reversal of $690 of certain tax contingencies, related to the Company’s fiscal 2003 discontinued operations on the sale of two of its U.S. subsidiaries as the statute of limitation has expired.

(c) In the fourth of fiscal 2006, the Company recognized pre-tax charges of $5,381, $551 and $257 for the write-off of revenue producing equipment (oxygen cylinders), oxygen filling station and software costs, respectively. Due to the award of the new oxygen contracts (see below), the Company had made significant capital expenditures, amounting to $14,738, in order to fulfill its obligation under the new contracts. The Company had substituted a number of cylinders with oxygen concentrators. As such, the Company believed that these oxygen cylinders had become obsolete and had no further use to the Company. The Company also invested in an oxygen filling station whereby its cylinders would be re-filled. But, due to the location of the plant and strict noise pollution governmental rules, the Company did not believe it would be able to utilize such plant. The Company also wrote-off various software costs related to transitioning to its new oxygen contracts that it believed had no future benefit.

(d) During the fourth quarter of fiscal 2006, the Company completed its annual impairment test required under FAS No. 142 and determined there was an impairment to its recorded goodwill balance by using a combination of market multiple, comparable transaction and discounted cash flow methods. Based on a combination of factors, contributing to the impairment loss were the decrease in profits in the Company’s respiratory therapy segment due to the transitioning from the old pharmacy based contracts to the new supply of oxygen direct to patients contracts that have lower margins (see below), the Company’s current market capitalization at time of review as well as the current and projected operating results. As such, the Company recognized a pre-tax impairment charge of $11,897.

In 2005, the U.K. Department of Health sought to unify the supply of oxygen to NHS patients in England and Wales. The previous system used pharmacies to supply cylindered gases, while oxygen concentrators are supplied via regional contracts with homecare providers. Under the revised system, which came into effect on February 1, 2006, homecare providers supply cylindered gas and liquid oxygen as well as oxygen concentrators directly to patients. Following a tender process, the Company was awarded two of the contracts submitted which commenced in February 2006. As the existing cylinder business was organized on a National distribution structure, the award of the areas in the South East of England required the setting up of additional facilities in the South East of England which was effected in the second quarter of fiscal 2006. These changes resulted in the Company incurring additional charges and capital expenditures in fiscal 2006 as it commenced activities under the new contracts. Due to transition problems transferring the oxygen cylinder business from community pharmacies the Company incurred in fiscal 2006 higher than anticipated implementation expenses to build the infrastructure and distribution network to absorb the increased volume of oxygen patients from the community based pharmacies.

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

In fiscal 2007 and 2006 interest expense has been allocated to discontinued operations based on debt that the Company has specifically identified as being attributable to discontinued operations, as an allocation based on net assets would not provide a meaningful result. The Company based its allocation on the amount of capital expenditures directly related to its discontinued operations and then considered cash borrowings necessary to maintain the operations of its then respiratory therapy segment. Prior to fiscal 2006, the respiratory therapy segment was self-sufficient and borrowings were predominately used to fund acquisitions in the Company’s flexible healthcare staffing segment. As such, no allocation of interest was required for fiscal 2005.

At September 30, 2007, assets of discontinued operations consisted of deferred income taxes and liabilities of discontinued operations consisted of accrued costs for refunds payable and patient electric usage reimbursement. At September 30, 2006, assets of discontinued operations consisted of property and equipment, accounts receivable, inventory, goodwill and other assets of $16,145, $2,829, $586, $172 and $152, respectively. At September 30, 2006 liabilities of discontinued operations consisted of accounts payable, accrued costs (mainly for payroll, refunds payable, patient electric usage reimbursement and tax contingencies) and deferred income taxes of $2,688, $2,651 and $341, respectively.

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

The following table displays the unaudited pro forma results of operations, related EPS and condensed balance sheet, at September 30, 2007, of the Company as if the disposition of the respiratory therapy segment was completed on October 1, 2006:

			Consolidated						Pro Forma Adjustments						Consolidated Pro Forma
Net revenues				$	277,795					$						$	277,795
Cost of revenues					193,839												193,839
Gross profit					83,956												83,956
Selling, general and administrative expenses					75,284												75,284
Operating income					8,672												8,672
Interest (expense) income, net					(3,273	)					(3,188	)(a)					(85	)
Foreign exchange gain					285												285
Income before income taxes and discontinued operations					5,684						(3,188	)					8,872
Provision for income taxes					2,068						(956	)(b)					3,024
Income from continuing operations					3,616						(2,232	)					5,848
Income from discontinued operations, net of taxes					6,266						(1,099	)(a)					7,365
Gain on disposal of subsidiaries, net of taxes					56,471												56,471
					62,737						(1,099	)					63,836
Net income				$	66,353					$	(3,331	)				$	69,684
Basic income per share of common stock from:
Income from continuing operations				$	0.08											$	0.13
Income from discontinued operations					1.40												1.42
Net income				$	1.48											$	1.55
Diluted income per share of common stock from:
Income from continuing operations				$	0.08											$	0.13
Income from discontinued operations					1.39												1.41
Net income				$	1.47											$	1.54
Weighted average number of common shares outstanding:
Basic					44,962												44,962
Diluted					45,147												45,147

(a) To record interest savings on pay down of senior credit facility from the proceeds from the sale of the respiratory therapy segment.

(b) To record tax expense attributable to pro forma adjustments at the UK statutory rate of 30%.

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

			Consolidated						Pro Forma Adjustments						Consolidated Pro Forma
ASSETS
Current assets:
Cash and cash equivalents				$	20,241					$	(462	)(a&c)				$	19,779
Accounts receivable, less allowance for doubtful accounts					21,490												21,490
Unbilled accounts receivable					14,375												14,375
Restricted cash					55,819						(54,795	)(a)					1,024
Deferred income taxes					182						192	(b)					374
Assets of discontinued operations					205												205
Derivative asset					640						(640	)(b)					—
Prepaid expenses and other assets					1,448												1,448
Total current assets					114,400						(55,705	)					58,695
Property and equipment, net					9,767												9,767
Goodwill					122,843												122,843
Other intangible assets, net					5,465												5,465
Deferred income taxes					304												304
Total assets				$	252,779					$	(55,705	)				$	197,074
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt				$	54,795					$	(54,795	)(a)				$	—
Accounts payable					3,950												3,950
Accrued expenses					30,614						(1,102	)(c)					29,512
Liabilities of discontinued operations					1,286												1,286
Taxes payable					3,375						192	(b)					3,567
Total liabilities					94,020						(55,705	)					38,315
Stockholders’ equity:
Preferred stock, $.01 par value; authorized 10,000 shares, issued and outstanding – none Common stock, $.01 par value; authorized 80,000 shares, issued 45,571					456												456
Additional paid-in capital					240,206												240,206
Accumulated other comprehensive income					18,018												18,018
Retained deficit					(97,627	)											(97,627	)
					161,053												161,053
Less cost of treasury stock (585 shares)					(2,294	)											(2,294	)
Total stockholders’ equity					158,759												158,759
Total liabilities and stockholders’ equity				$	252,779					$	(55,705	)				$	197,074

(a) To record use of cash proceeds from the sale of the respiratory segment to pay down the senior credit facility.

(b) To record sale of interest rate swaps and tax impact as related debt was paid down.

(c) To record payment of accrued interest costs and costs associated with prepayment of the senior credit facility.

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

4.    Reorganization:

In the fourth quarter of fiscal 2005, in response to the changing structure of the method of supply to the NHS, the Company reorganized its operations to condense the number of subsidiaries used to supply healthcare staff. As a result of this reorganization, and in accordance with FAS No. 146, ‘‘Accounting for Costs Associated with Exit or Disposal Activities,’’ the Company recognized pre-tax charges of $631 to satisfy existing lease obligations on the closure of several of its U.K. offices and $442 for severance and employee related costs in its fourth quarter of fiscal 2005. At September 30, 2007 and 2006, $175 and $315, respectively, to satisfy existing lease obligations on the closure of several of its U.K. offices has not been paid.

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

5.    Property and Equipment:

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

			2007						2006
Furniture, fixtures and equipment (including software)				$	27,656					$	24,377
Land, buildings and leasehold improvements					1,284						872
					28,940						25,249
Less, accumulated depreciation and amortization					19,173						14,318
				$	9,767					$	10,931

In the fourth quarter of fiscal 2006 the Company recognized a pre-tax charge of $9,040 of software costs related to its computerized accounting and payroll system based on the Oracle platform that was implemented in fiscal 2005. The Company has discovered that the system is too slow for the nature of its business and therefore is not achieving full functionality. As such, the Company has decided to abandon certain of the software features of the Oracle platform and not continue with the planned expansion to its other branches as it believes the cost to have a workable model would exceed alternate solutions. The Company is currently in the process of comparing various operating systems in order to determine which system best supports its branch network and allows the Company to interface with our customers and communicate with our staff. The write-off is classified within ‘‘Impairment of long-lived assets’’ on the Consolidated Statements o f Operations.

Depreciation and amortization of property and equipment for the years ended September 30, 2007, 2006 and 2005 were $3,377, $3,729 and $2,514, respectively.

6.    Accrued Expenses:

Accrued expenses consist of the following at September 30:

			2007						2006
Payroll and related expenses				$	20,153					$	17,795
Acquisitions payable (on earned contingent consideration)					1,917	(A)					4,210	(A)
Professional fees					2,655						2,276
Interest payable					1,102						696
Other					4,787						4,067
				$	30,614					$	29,044

(A) At September 30, 2007 and 2006 includes $1,179 and $1,077, respectively, that is currently under negotiation with the owners of the previously acquired entity.

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

At September 30, 2007, liabilities of discontinued operations consist of accrued refunds payable and accrued patient electric usage reimbursement.

7.    Debt:

In the fourth quarter of fiscal 2004, the Company’s U.K. subsidiary, Allied Healthcare Group Holdings Limited (‘‘Allied Holdings’’) obtained a new senior credit facility. As described in more detail below, in December 2006, the senior credit facility was amended and restated (the ‘‘Amended Senior Credit Facility’’).

On December 12, 2006, the Company’s U.K. subsidiary, Allied Holdings, entered into the Amended Senior Credit Facility, which provides for a £46,000 ($94,194) multicurrency senior credit facility to replace the senior credit facility. The Amended Senior Credit Facility is collateralized by a first priority lien on the assets of Allied Holdings and certain of its subsidiaries, and payment is guaranteed by the Company and certain of the subsidiaries of Allied Holdings. The Company has also granted the banks a security interest in substantially all of its assets to secure the payment of its guarantee.

The Amended Senior Credit Facility consists of the following:

	•	an £18,000 ($36,859) term loan A that matures in July 2009;

	•	a £12,500 ($25,596) revolving loan B1 that may be drawn upon until June 2009 and that matures in July 2009

	•	a £7,500 ($15,358) invoice discounting facility B2 that may be drawn upon until June 2009 and that matures in July 2009; and

	•	an £8,000 (16,381) revolving loan C that may be drawn upon until June 2009 and that matures in July 2009.

Repayment of term loan A was made semi-annually until final maturity. Repayment of revolving loan B1 is on the last day of its interest period. Repayment of the invoice discounting loan B2 shall be on the maturity date (July 2009). Repayment of revolving loan C shall be on the maturity date (July 2009) or, if earlier, the date that the other facilities are repaid. The loans bore interest at rates equal to LIBOR (if sterling) or EURIBOR (if euros) plus any bank mandatory costs (if applicable) plus 0.70% to 3.50% per annum (depending on consolidated debt to consolidated profit ratios). As of September 30, 2007, the Company had outstanding borrowings of $24,572, $25,596 and $4,627 relating to term loan A, revolving loan B1 and invoice discounting facility B2, respectively, under the Amended Senior Credit Facility, that bore interest at rates ranging from 7.69% to 8.79%. As of September 30, 2006, the Company had outstanding borrowings o f $33,707 and $37,452 relating to term loan A and revolving loan B1, respectively, under the senior credit facility, that bore interest at rates ranging from 5.66% to 5.68%.

The invoice discount facility commenced in January 2007 and provides, among other things, the following:

	•	the Company can borrow on 85% of its approved flexible staffing accounts receivable, which excludes accounts receivable greater than 120 days, credit balances and reserves;

	•	no one debtor can exceed 10% of the outstanding approved accounts receivable; and

	•	accounts receivable relating to private individuals are not fundable.

Prior to the commencement of the invoice discount facility, the Company had a £7,500 ($14,769) revolving loan B1 which was repaid upon commencement of the invoice discount facility.

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

On September 28, 2007 Allied Holdings gave irrevocable written notice to the agent for the banks under the Amended Senior Credit Facility that it wished to prepay the amounts outstanding under the term loan A £12,000 ($24,572) and the term loan B1 £12,500 ($25,596) on October 1, 2007 from the proceeds of sale of its respiratory therapy segment. Allied Holdings also gave irrevocable written notice that it wished to cancel term loan A, term loan B1 and revolving loan C on October 1, 2007. On October 1, 2007 Allied Holdings prepaid the amounts outstanding under the term loan A and the term loan B1 facilities from the proceeds of sale of its respiratory therapy segment. Allied Holdings also cancelled term loan A, term loan B1 and revolving loan C on October 1, 2007. As a result of the irrevocable written notice to prepay the term loan A and term loan B1, the Company has classified the debt as current on i ts Consolidated Balance Sheets at September 30, 2007. The invoice discount facility continues to be available.

The Amended 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 Amended Senior Credit Facility prohibits or restricts the following, among other things:

	•	incurring liens and granting security interests in the assets of certain of the Company’s U.K. subsidiaries;

	•	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;

	•	repurchasing shares; and

	•	entering into certain transactions with affiliates.

The Amended 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 Amended 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, 2007, the Company was in compliance with all such covenants.

The Amended Senior Credit Facility places limits on the Company’s ability to incur capital expenditures, required the Company to separate the role of the Chairman and the Chief Executive Officer no later than August 1, 2007, and requires the Company to engage a consultant to review its operations and make recommendations with respect thereto. In fiscal 2007, the Company had engaged an outside consultant to review its operations and in October 2007 terminated the consulting agreement as a result of the debt repayment. In July 2007, the role of the Chairman and Chief Executive Officer were separated. The Company obtained an extension of time to February 1, 2008 to appoint a permanent Chief Executive Officer.

In the fourth quarter of fiscal 2006, the senior credit facility was amended to provide an overdraft facility (‘‘Overdraft Facility’’) in the amount of £3,000 ($5,618) for general corporate purposes. The Company had utilized such Overdraft Facility in the first quarter of fiscal 2007 and in the fourth quarter of fiscal 2006 and had no amounts outstanding as of September 30, 2007 and 2006. The Overdraft Facility was repayable upon the earlier of demand from the bank or January 11, 2007.

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

Interest on the Overdraft Facility was charged at the same rate as loans under the revolving loan B. In December 2006, the Overdraft Facility was rolled over and incorporated in the Company’s loan under the Amended Senior Credit Facility.

Notes Due in Connection with Acquisitions.    The Company repaid, through Allied Holdings, notes payable of $1,850 issued in connection with the acquisition of certain U.K. flexible staffing agencies in fiscal 2005.

Guarantees.    The Amended Senior Credit Facility is collateralized by a first priority lien on the assets of the Allied Holdings and certain of its subsidiaries. Together with Allied Holdings and certain of its subsidiaries, the Company is guaranteeing the debt and other obligations of certain wholly-owned U.K. subsidiaries under the Amended Senior Credit Facility. At September 30, 2007 and 2006, the amounts guaranteed, which approximate the amounts outstanding, totalled $54,795 and $71,159, respectively. Further, in conjunction with the execution of the Amended Senior Credit Facility, the Company has granted the senior lenders a security interest in substantially all of its assets to secure the payment of its guarantee.

Financial Instruments.    In March 2003, the Company entered into a Rate Cap and Floor Collar Agreement that capped its interest rate at LIBOR of 5.50% and its interest floor at LIBOR of 4.47%, subject to special provisions, on approximately $93,630 of the Company’s floating rate debt under a contract which would have expired in March 2008. In February 2005, the Company sold this derivative instrument for approximately $100.

In February 2005, the Company entered into two interest rate swap agreements, which expire in July 2009, the objective of which is to protect the Company against the potential rising of interest rates on its floating rate debt. The two interest rate swap agreements cover approximately $61,431 of the Company’s floating rate debt until January 2008 and then decreases by $6,143 each six month period, in order to reflect the amortizing effect of the Company’s floating rate debt, until the end of the interest rate swap agreements. The interest rate under the swap agreements is fixed at 4.935% and is payable semi-annually. In the third quarter of fiscal 2005, the Company designated the two interest rate swap agreements as cash flow hedges. 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 (‘‘FAS No. 133’’), the Company calculated the fair value of the interest rate swap agreements to be an asset of $640 and $252 at September 30, 2007 and 2006, respectively. Prior to the cash flow hedge designation, changes in the value from period to period of the interest rate swap agreements was recorded as other expense or income, as appropriate. At September 30, 2007, the cash flow hedges were deemed to be ineffective as the Company entered into an irrevocable agreement to prepay the amounts outstanding under its term loan A and term loan B1 and subsequently, on October 1, 2007, sold the swaps. Thus, the cumulative amount in other comprehensive income and the change in value were recorded in other income and totaled $531, net of $228 in income tax, in fiscal 2007. At September 30, 2006, the effective portion of the income on the interest rate swap agreements designated as cash flow hedges was $272, net of $117 in income tax, and was included in other comprehensive income. In fiscal 2006, the Company we recognized other income of $27 thousand, net of $12 thousand of income tax, related to the cash flow hedge ineffectiveness.

8.    Shareholders’ Equity:

In the fourth quarter of fiscal 2007, the Company recognized a charge of $64 related to the issuance of 29 shares of common stock to Parthenon Group LLC for partial payment of professional services.

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Table of Contents

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

9.    Income Taxes:

The provision for income taxes from continuing operations for the years ended September 30, 2007, 2006 and 2005 is summarized as follows:

			2007						2006						2005
Current:
Federal				$	10					$	(2	)				$	2
Foreign					1,273						2,697						6,335
Deferred:
Foreign					785						(4,582	)					109
Provision for (benefit from) income taxes				$	2,068					$	(1,887	)				$	6,446

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, 2007 and 2006 are as follows:

			2007						2006
Deferred tax assets:
Accrued expenses				$	978					$	348
Federal net operating loss carryforward					25,630						25,939
State net operating loss carryforward					8,922						9,026
Provision for doubtful accounts					316						691
Depreciation					1,182						1,108
Intangible assets					48						67
Stock Options					478						242
Other, net					10						6
Gross deferred tax assets					37,564						37,427
Valuation allowance					(35,609	)					(35,563	)
Net deferred tax assets					1,955						1,864
Deferred tax liabilities:
Intangible assets					(1,072	)					(900	)
Other, net					(192	)					(76	)
Deferred tax liabilities					(1,264	)					(976	)
Net deferred tax asset				$	691					$	888
Classification of Deferred Taxes:
Current Deferred Tax Asset					182						547
Current Deferred Tax Asset (included in Assets of discontinued operations					205						144
Non Current Deferred Tax Asset					304						538
Long-Term Deferred Tax Liabilities (included in Liabilities of discontinued operations					—						(341	)
Net deferred tax asset					691						888

The Company has recorded a full valuation allowance against its 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.

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

As of September 30, 2007, the Company has a federal net operating loss carryforward of approximately $75,382 which if unused, will expire in the years 2018 through 2024. Current or future ownership changes may limit the future realization of these net operating losses in accordance with Internal Revenue Code Section 382.

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, 2007, 2006 and 2005 are as follows:

			2007						2006						2005
Income taxes at 34%				$	1,933					$	(36,734	)				$	7,281
Nondeductible goodwill impairment					—						31,163						—
Valuation allowance					46						(324	)					55
Stock options					—						(3	)					(424	)
Foreign tax, net					(245	)					4,344						(804	)
Enacted U.K. rate change					148						—						—
Other, net					186						(333	)					338
Provision (benefit) for income taxes				$	2,068					$	(1,887	)				$	6,446

Provision has not been made for U.S. or additional foreign taxes for undistributed earnings of the U.K. foreign subsidiaries. Any of 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 earning of foreign subsidiaries, if remitted, would be partially offset by the U.S. foreign tax credits.

Income (loss) before income taxes and discontinued operations generated from the U.K. operations for the years ended September 30, 2007, 2006 and 2005 was $6,112, ($108,599) and $20,098, respectively.

10.    Stock Options and Warrants:

Stock Options:

Under the shareholder approved 1992 Stock Option Plan and 2002 Stock Option Plan, the Company may grant incentive and non-qualified options to purchase its common stock to key employees, officers, directors and non-employee independent contractors. Effective with the adoption of the Company’s 2002 Stock Option Plan (‘‘Option Plan’’), no further options may be granted under the 1992 Stock Option Plan. Stock options are generally issued at an exercise price per share which is not less than the fair market value of the stock on the grant date and generally vest over a three year period and expire ten years from the grant date. Options granted under the plans 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. Certain option awards provide for accelerated vesting if there is a change in control. Shares delivered under the 200 2 Stock Option Plan will be available from authorized but unissued shares of common stock or from shares of common stock reacquired by the Company. Shares available for future grant under the 2002 Stock Option Plan were 1,557 shares at September 30, 2007.

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Table of Contents

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, 2007, 2006 and 2005:

			2007												2006												2005
			Number Of Stock Options						Weighted Average Exercise Price ($)						Number of Stock Options						Weighted Average Exercise Price ($)						Number of Stock Options						Weighted Average Exercise Price ($)
Outstanding beginning of year					2,633						4.99						2,610						5.49						2,646						4.87
Granted					1,440						2.03						465						2.18						652						5.93
Exercised					—						—						(101	)					4.04						(410	)					2.18
Forfeited or expired					(1,096	)					4.75						(341	)					5.28						(278	)					5.54
Outstanding end of year					2,977						3.64						2,633						4.99						2,610						5.49

A summary of the options outstanding and exercisable as of September 30, 2007 is as follows:

Range of Exercise Price ($)			Number Outstanding						Weighted-Average Exercise Price of Options Outstanding ($)						Weighted-Average Remaining Contractual Life in Years						Aggregate Intrinsic Value ($)
1.72 – 2.71					1,380						2.05						7.6						518
3.02 – 4.70					704						4.10						2.6						—
5.41 – 6.20					893						5.73						3.0						—
					2,977						3.64						5.1						518

Range of Exercise Price ($)			Number Exercisable						Weighted-Average Exercise Price of Options Exercisable ($)						Weighted-Average Remaining Contractual Life in Years						Aggregate Intrinsic Value ($)
1.72 – 2.71					562						1.93						5.2						277
3.02 – 4.70					674						4.15						2.3						—
5.41 – 6.20					864						5.72						2.9						—
					2,100						4.20						3.3						277

The weighted average grant-date fair value of stock options granted during the years ended September 30, 2007, 2006 and 2005 was $1.13, $1.34 and $4.44, respectively. The total intrinsic value of options exercised during the years ended September 30, 2006 and 2005 was $240 and $1,718. For options exercised during the years ended September 30, 2006 and 2005, $411 and $791, respectively, was received in cash to cover the exercise price of the options exercised. In addition, for the year ended September 30, 2005, 19 option shares were also used to cover the exercise price of the options exercised.

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

			2007						2006						2005
Expected life (years)					6						6						9
Risk-free interest rate					4.7	%					4.7	%					4.1	%
Volatility					54.1	%					66.0	%					63.9	%
Expected dividend yield					0	%					0	%					0	%

The average risk-free interest rate is based on the U.S. treasury security rate in effect as of the grant date. The Company determined expected volatility using a weighted average of its historical month-end close stock price. The expected life was determined using the simplified method.

F-26

Table of Contents

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

Following is a summary of the status of the Company’s nonvested stock options as of September 30, 2007 and changes during the year ended September 30, 2007:

Nonvested Share Options			Share Options						Weighted-Average Grant-Date Fair Value ($)
Nonvested at October 1, 2006					285						2.98
Granted					1,440						1.13
Vested					(303	)					1.62
Forfeited					(545	)					1.49
Nonvested at September 30, 2007					877						1.34

The total fair value of share options vested during the years ended September 30, 2007, 2006 and 2005 was $493, $1,153 and $2,286, respectively.

In fiscal 2007, the Company granted certain options that, in addition to the time vesting requirement, had a performance condition based on the Company’s earnings before interest and taxes. Of the 2,977 options outstanding at September 30, 2007, 510 options, with a weighted average grant date fair value of $1.16, will vest upon the timing and performance conditions being met.

For the year ended September 30, 2007 stock-based compensation cost recognized in selling, general and administrative expenses decreased income before income taxes and discontinued operations by $764 and net income by $634. For the year ended September 30, 2006 stock-based compensation cost recognized in selling, general and administrative expenses increased loss before income taxes and discontinued operations, by $736 and net loss by $663. For both the years ended September 30, 2007 and 2006, stock-based compensation had a $0.01 impact on basic and diluted EPS. The Company recognizes compensation expense on a straight-line basis over the requisite service period. As of September 30, 2007 there was $738 of total unrecognized compensation cost related to nonvested share-based compensation awards, net of estimated forfeitures, which the Company expects to recognize over a weighted average period of approximately 1.7 years. T he 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.

The following presents pro forma net income and related per share amounts as if the fair value based method had been used to account for the Company’s stock options for the year ended September 30, 2005:

			2005
Net income, as reported				$	18,736
Add: Stock-based compensation included in reported net income, net of related tax effect					21
Less: Total stock-based compensation expense determined under fair value based method for all awards, net of related tax effects					(2,143	)
Pro forma net income attributable to common shareholders				$	16,614
Net income per share:
Basic – as reported				$	0.42
Basic – pro forma				$	0.37
Net income per share:
Diluted – as reported				$	0.41
Diluted – pro forma				$	0.37

F-27

Table of Contents

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

Warrants:

In the third quarter of fiscal 2007, in connection with the execution of an agreement with an unaffiliated third party pursuant to which such third party agreed to provide the Company with consulting services related to investment banking advise, investor awareness and business advisory services, the Company issued to such third party warrants to purchase up to an aggregate of 135 shares of its common stock. Of the 135 warrants issued, 45 of the warrants are exercisable at $3.00 per share, 45 of the warrants are exercisable at $3.35 per share and 45 of the warrants are exercisable at a price of $3.75 per share. The warrants expire on October 18, 2008. At issuance, the warrants were immediately vested and the Company recognized a charge of $177 related to the fair value of the 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 the Company 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. At issuance, the warrants had a fair value of $603, which was recognized by the Company in previous fiscal years. In the third quarter of fiscal 2007, the Company extended the expiration date of the warrants from August 13, 2007 to August 31, 2008 and recognized a charge of $258 related to the additional fair value of the warrants.

The fair value of the warrants issued is estimated on the date of issuance using the Black-Scholes pricing model.

11.    Commitments and Contingencies:

Guarantees:

The Amended Senior Credit Facility is collateralized by a first priority lien on the assets of the Allied Holdings and certain of its subsidiaries. Together with Allied Holdings and certain of its subsidiaries, the Company is guaranteeing the debt and other obligations of certain wholly-owned U.K. subsidiaries under the Amended Senior Credit Facility. At September 30, 2007 and 2006, the amounts guaranteed, which approximate the amounts outstanding, totalled $54,795 and $71,159, respectively.

Employment Agreements:

The Company has two employment agreements that provided for minimum aggregate annual compensation of $639 in fiscal 2007.

In September 2001, the Company entered into an employment agreement with Ms. Eames, which was modified in November 2004 and September 2005 and amended and restated in October 2006. Pursuant to her amended and restated employment agreement, Ms. Eames has agreed to continue to serve as Executive Vice President of the Company for a period of 18 months. The amended and restated employment agreement is subject to automatic renewal for successive periods of one year each unless terminated by either party on 90 days’ notice. Pursuant to her amended and restated employment agreement, Ms. Eames’ base salary is $250 per annum. In addition, she is entitled to receive $5 for each trip of five business days or more that she makes to the U.K. on Company business, up to a maximum of $50 in any calendar year.

Ms. Eames’ amended and restated employment agreement provides that (a) if the Company terminates her employment during the term of the agreement, or (b) if, within six months of a

F-28

Table of Contents

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

‘‘change in control’’ (as defined in the amended and restated employment agreement) of the Company, Ms Eames or the Company terminates her employment, or (c) if Ms. Eames terminates her employment for ‘‘good reason’’ (as defined in the amended and restated employment agreement), then (1) all stock options in the Company held by Ms. Eames will immediately vest, (2) Ms. Eames will be entitled to receive a cash payment of 1.9 times her annual base salary during the twelve month preceding the termination of employment or the change in control and (3) the Company must provide Ms. Eames the benefits to which she was entitled immediately prior to the date of termination for a period of twelve (12) months following the date of termination, except that if Ms. Eames becomes entitled to some or all of such benefits during the twelve-month post-termination period, then the obligation to provide her with those benefits will cease. However, pursuant to the provisions of Ms. Eames’ amended and restated employment agreement, she is not entitled to the foregoing benefits if (a) the Company terminates her employment for cause, death or disability or (b) the termination of Ms. Eames’ employment is the result of the non-renewal of the employment agreement by either party.

Ms. Eames’ employment agreement was not further amended upon her becoming the interim chief executive officer of the Company in July 2007.

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

In July 2006 the Company entered into an employment agreement with Mr. Moffatt, its Chief Financial Officer. The employment agreement with Mr. Moffatt provides that, during the first six months thereof, either party may terminate the agreement upon one month’s written notice and, thereafter, either party may terminate the agreement upon six month’s written notice. The employment agreement with Mr. Moffatt further provides that Mr. Moffatt will not compete against us for a period of six months following the termination of his employment with us. Pursuant to his employment agreement, Mr. Moffatt currently receives a salary of $389. In addition, pursuant to his employment agreement with us, Mr. Moffatt receives a car allowance and agreed to make a payment equal to 15% of his annual salary towards his U.K.-based private pension fund. In addition, under the employment agreement with Mr. Moffatt, the Company is requi red to pay him 12 months’ salary in the event he is terminated due to an acquisition.

Operating Leases:

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

The Company’s future minimum rental commitments as of September 30, 2007 are as follows:

2008				$	2,587
2009					1,831
2010					1,218
2011					724
2012					579
Thereafter					156
				$	7,095

Rent expense under non-capitalized lease or rental agreements for the years ended September 30, 2007, 2006 and 2005 amounted to $3,303, $3,272 and $3,344, respectively.

F-29

Table of Contents

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

Contingencies:

Some of the Company’s inactive subsidiaries were Medicare Part B suppliers who submitted claims to the designated carrier who is the U.S. government’s claims processing administrator. From time to time, the carrier may request 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.

The Company believes that it has been 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. 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, 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. Management believes these matters should not have a material adverse impact on the consolidated financial position, cash flows or results of operations of the Company.

Liabilities for loss contingencies, arising from claims, assessments, litigation and other sources are recorded when it is probable that a liability has been incurred and the amount of liability can be reasonably estimated. Based on management’s best estimate of probable liability, the Company has accrued $971 and $661 for such costs at September 30, 2007 and 2006, respectively.

12.    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.

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 $94, $42 and $68 for the years ended September 30, 2007, 2006 and 2005, respectively.

F-30

Table of Contents

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

13.    Selected Quarterly Financial Data (Unaudited):

The following table presents the comparative unaudited quarterly results for the years ended September 30, 2007 and 2006:

2007 Quarter Ended			December 31,						March 31,						June 30,						September 30,
Total revenues				$	66,854					$	67,210					$	70,503					$	73,228
Gross profit				$	20,099					$	19,921					$	21,240					$	22,696
Net income (loss) from continuing operations				$	1,382					$	1,087					$	(303	)(a)				$	1,450
Discontinued Operations				$	529					$	920					$	1,418					$	3,399
Gain on disposal of subsidiaries				$	—					$	—					$	—					$	56,471
Net income				$	1,911					$	2,007					$	1,115					$	61,320
Basic income (loss) per share of common stock from:
Continuing operations				$	0.03					$	0.02					$	(0.01	)				$	0.03
Discontinued operations					0.01						0.02						0.03						1.33
Net income				$	0.04					$	0.04					$	0.02					$	1.36
Diluted income (loss) per share of common stock from:
Continuing operations				$	0.03					$	0.02					$	(0.01	)				$	0.03
Discontinued operations					0.01						0.02						0.03						1.33
Net income				$	0.04					$	0.04					$	0.02					$	1.36

(a) Includes $922 severance costs and related professional fees incurred upon the resignation of the Chairman and Chief Executive Officer and $435 charge related to the issuance of new warrants and the extension of the expiation date on previously-issued warrants.

2006 Quarter Ended			December 31,						March 31,						June 30,						September 30,
Total revenues				$	73,679					$	68,048					$	69,234					$	69,244
Gross profit				$	22,535					$	20,751					$	21,326					$	21,118
Net income (loss) from continuing operations				$	3,020					$	2,953					$	1,911					$	(114,037	)(a)
Discontinued Operations				$	386					$	(384	)				$	(561	)				$	(17,059	)(b)
Net income				$	3,406					$	2,569					$	1,350					$	(131,096	)
Basic and diluted income (loss) per share of common stock from:
Continuing operations				$	0.07					$	0.07					$	0.04					$	(2.54	)
Discontinued operations					0.01						(0.01	)					(0.01	)					(0.38	)
Net income				$	0.08					$	0.06					$	0.03					$	(2.92	)

(a) Includes total charges of $115,192, net of tax, related to impairment charges on goodwill, other intangibles and fixed assets.

(b) Includes total charges of $16,229, net of tax, related to impairment charges on goodwill, other intangibles and fixed assets.

F-31

Table of Contents

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

14.    Subsequent Events:

On October 1, 2007 Allied Holdings prepaid the amounts outstanding under the term loan A and the term loan B1 facilities. Allied Holdings also cancelled term loan A, term loan B1 and revolving loan C on October 1, 2007. In October 2007, Allied Holdings also paid off the amounts outstanding on its invoice discount facility. In addition, on October 3, 2007, the Company sold its interest rate swaps related to the bank debt that had been paid down.

F-32

Table of Contents

ALLIED HEALTHCARE INTERNATIONAL INC.
(PARENT COMPANY ONLY)

SCHEDULE I — CONDENSED FINANCIAL INFORMATION
BALANCE SHEETS
(In thousands, except per share data)

			September 30, 2007						September 30, 2006
ASSETS
Current assets:
Cash and cash equivalents				$	8					$	18
Prepaid expenses and other assets					108						161
Total current assets					116						179
Property and equipment, net					1						4
Investment in and advances to subsidiaries					158,072						85,234
Goodwill					2,300						2,300
Other assets					—						66
Total assets				$	160,489					$	87,783
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable				$	405					$	103
Accrued expenses					1,315						607
Liabilities of discontinued operations					—						690
Taxes payable					10						—
Total liabilities					1,730						1,400
Commitments and contingencies
Shareholders’ equity:
Preferred stock, $.01 par value; authorized 10,000 shares, issued and outstanding – none					—						—
Common stock, $.01 par value; authorized 80,000 shares, issued 45,571 and 45,542 shares, respectively					456						455
Additional paid-in capital					240,206						238,944
Accumulated other comprehensive income					18,018						13,258
Accumulated deficit					(97,627	)					(163,980	)
					161,053						88,677
Less cost of treasury stock (585 shares)					(2,294	)					(2,294	)
Total shareholders’ equity					158,759						86,383
Total liabilities and shareholders’ equity				$	160,489					$	87,783

See note to condensed financial information.

S-1

Table of Contents

ALLIED HEALTHCARE INTERNATIONAL INC.
(PARENT COMPANY ONLY)

SCHEDULE I — CONDENSED FINANCIAL INFORMATION
STATEMENTS OF OPERATIONS
(In thousands)

			Year Ended September 30, 2007						Year Ended September 30, 2006						Year Ended September 30, 2005
Revenue				$	—					$	—					$	—
Expenses:
Selling, general and administrative expenses					4,257						3,230						3,090
Total expenses					4,257						3,230						3,090
Equity in income (loss) of subsidiaries					4,053						(106,715	)					14,092
Interest income					3,765						3,795						3,810
Other income (expense)					65						(5	)					159
Income (loss) before income taxes and discontinued operations					3,626						(106,155	)					14,971
Provision for (benefit from) income taxes					10						(2	)					2
Income (loss) before discontinued operations					3,616						(106,153	)					14,969
Discontinued operations:
Income (loss) from discontinued operations, net of taxes					6,266						(17,618	)					3,767
Gain on disposal of subsidiaries, net of taxes					56,471						—						—
					62,737						(17,618	)					3,767
Net income (loss)				$	66,353					$	(123,771	)				$	18,736

See note to condensed financial information.

S-2

Table of Contents

SCHEDULE I

ALLIED HEALTHCARE INTERNATIONAL INC.
(PARENT COMPANY ONLY)

SCHEDULE I — CONDENSED FINANCIAL INFORMATION
STATEMENTS OF CASH FLOWS
(In thousands)

			Year Ended September 30, 2007						Year Ended September 30, 2006						Year Ended September 30, 2005
Cash flows from operating activities:
Net income (loss)				$	66,353					$	(123,771	)				$	18,736
Adjustments to reconcile net income (loss) to net cash used in operating activities:
(Income) loss from discontinued operations					(6,266	)					17,618						(3,767	)
Gain on disposal of subsidiaries					(56,471	)					—						—
Equity interest in net (income) loss of subsidiaries					(4,053	)					106,715						(14,092	)
Depreciation and amortization					3						5						6
Issuance and amortization of warrants					499						—						261
Stock based compensation – employees					764						736						21
Forgiveness of intercompany debt					(125	)					—						—
Changes in operating assets and liabilities, excluding the effect of businesses acquired and sold:
Increase in receivables from subsidiaries					(1,852	)					(1,269	)					(2,649	)
Decrease (increase) in prepaid expenses and other assets					120						(111	)					119
Increase (decrease) in accounts payable and other liabilities					1,018						(660	)					(1,011	)
Net cash used in operating activities					(10	)					(737	)					(2,376	)
Cash flows from financing activities:
Stock options exercised					—						411						791
Net cash provided by financing activities					—						411						791
Effect of exchange rate on cash					—						—						23
Decrease in cash					(10	)					(326	)					(1,562	)
Cash and cash equivalents, beginning of period					18						344						1,906
Cash and cash equivalents, end of period				$	8					$	18					$	344

See note to condensed financial information.

S-3

Table of Contents

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, this condensed financial information should be read in conjunction with the consolidated financial statements of Allied Healthcare International Inc. (the ‘‘Company’’) in its 2007 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

Table of Contents

ALLIED HEALTHCARE INTERNATIONAL INC.
(In thousands)

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

Column A			Column B						Column C												Column D						Column E
Description			Balance at Beginning of Period						Additions Charged to												Deductions						Balance at End of Period
									Cost and Expenses						Other Accounts
Allowance for Doubtful Accounts:
Year ended September 30, 2007				$	1,703					$	222					$	168	(B)				$	523	(A)				$	1,570
Year ended September 30, 2006				$	1,726					$	428					$	125	(B)				$	576	(A)				$	1,703
Year ended September 30, 2005				$	1,232					$	788					$	(62	)(B)				$	232	(A)				$	1,726

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

(B) Adjustments arising from translation of foreign financial statements to U.S. dollars.

S-5

EX-2.1

Agreement

Air Liquide Limited

and

Omnicare Limited

and

Allied Healthcare Group Holdings Limited

and

Air Liquide UK Limited

for the sale and purchase of all of the issued shares of Allied Respiratory Limited

30 September 2007

CONTENTS

CLAUSE		PAGE
1.	INTERPRETATION	1
2.	SALE AND PURCHASE	5
3.	COMPLETION	5
4.	INTRA-GROUP INDEBTEDNESS	7
5.	POST COMPLETION UNDERTAKINGS	8
6.	WARRANTIES	8
7.	PROTECTION OF GOODWILL	9
8.	CONFIDENTIAL INFORMATION	11
9.	ANNOUNCEMENTS	11
10.	ASSIGNMENT	11
11.	COSTS	12
12.	EFFECT OF COMPLETION	12
13.	FURTHER ASSURANCES	12
14.	ENTIRE AGREEMENT	12
15.	VARIATIONS	13
16.	WAIVER	13
17.	INVALIDITY	13
18.	NOTICES	13
19.	COUNTERPARTS	15
20.	GOVERNING LAW AND JURISDICTION	15
21.	THIRD PARTY RIGHTS	15
22.	GUARANTEE AND INDEMNITY	16
23.	INDEMNITY	16
24.	GROSS-UP	18
25.	BONUS PAYMENTS	18
26.	BOOKS AND RECORDS	18
27.	CASH AT BANK	19
28.	TITLE DEEDS	19

SCHEDULE 1	20
Particulars relating to the Company	20
SCHEDULE 2	21
Particulars relating to the Subsidiary	21
SCHEDULE 3	22
The Warranties	22
SCHEDULE 4	45
Seller Protection Clauses	45
SCHEDULE 5	49
The Properties	49
SCHEDULE 6	53
The Seller’s Guarantee and Indemnity	53
SCHEDULE 7	55
The Buyer’s Guarantee and Indemnity	55

THIS AGREEMENT is made on 30 September 2007

BETWEEN:

(1) AIR LIQUIDE LIMITED (No. 02103630) whose registered office is at Station Road, Coleshill, Birmingham, West Midlands B46 1JY (the “Buyer”);

(2) OMNICARE LIMITED (No. 3073148) whose registered office is at Medicare House, Stone Business Park, Brooms Road, Stone, Staffordshire ST15 0TL (the “Seller”);

(3) ALLIED HEALTHCARE GROUP HOLDINGS LIMITED (No. 3890177) whose registered office is at Medicare House, Stone Business Park, Brooms Road, Stone, Staffordshire ST15 0TL (the “Seller’s Guarantor”); and

(4) AIR LIQUIDE UK LIMITED (No. 00232592) whose registered office is at Station Road, Coleshill, Birmingham, West Midlands B46 1JY (the “Buyer’s Guarantor”).

THE PARTIES AGREE AS FOLLOWS:

1. INTERPRETATION

1.1 In this agreement the following words and expressions and abbreviations have the following meanings, unless the context otherwise requires:

“Accounts Date” means 30 September 2006;

“Books and Records” means the books and records of the Company relating exclusively to the business of the Company in the period up to Completion on whatever medium they are stored;

“Business Day” means a day (excluding Saturdays) on which banks generally are open in London and Paris for the transaction of normal banking business;

“Buyer’s Group” means the Buyer, its holding companies and the subsidiary undertakings and associated companies from time to time of such holding companies, all of them and each of them as the context admits;

“Company” means Allied Respiratory Limited (No. 2230411);

“Completion” means the completion of the sale and purchase of the Shares in accordance with clause 3;

“Completion Date” means the date of this agreement;

“Completion Payment” means the aggregate of the Intra-Group Indebtedness and the Share Consideration less the Escrow Amount;

“Confidential Information” means all information belonging to any Group Company which is not publicly known;

“Deed of Release” means the deed of release in the agreed terms in respect of all charges granted by the Company and the Subsidiary pursuant to existing facility arrangements with Barclays Bank plc (as agent);

“Disclosure Letter” means a letter of today’s date together with the attachments thereto, to the extent specified in such letter, addressed by the Seller to the Buyer disclosing, on the terms of clause 8.4, exceptions to the Warranties;

1

“Encumbrance” means all security interests, options, charges, mortgages, pledges, liens, contractual rights to acquire, equities, claims, or other third party rights including rights of pre-emption or conversion of any nature whatsoever;

“Escrow Agreement” means an escrow agreement in the agreed terms;

“Escrow Agents” has the meaning given to it in the Escrow Deed;

“Escrow Amount” means the sum of £500,000;

“Group” means the Company and the Subsidiary and “Group Company” means either one of them;

“HMRC” means Her Majesty’s Revenue and Customs and, where relevant, any predecessor body which carried out part of its functions;

“Intellectual Property” means patents, trade marks, design rights, trade names, copyrights, (in each case whether registered or not and any applications to register or rights to apply for registration of any of the foregoing), rights in inventions, Know-How, trade secrets and other confidential information, and all other intellectual property rights of a similar or corresponding character in any part of the world;

“Intra-Group Indebtedness” means £7,061,804, being the amount by which the Intra-Group Payables exceed the Intra-Group Receivables;

“Intra-Group Payables” means the aggregate amount of indebtedness for borrowed monies outstanding from Group Companies to members of the Seller’s Group as at the commencement of business on the Completion Date, other than monies owed (whether or not due and payable) for the supply and/or purchase of goods and services in the ordinary course of business;

“Intra-Group Receivables” means the aggregate amount of indebtedness for borrowed monies outstanding from members of the Seller’s Group to members of the Group as at the commencement of business on the Completion Date, other than monies owed (whether or not due and payable) for the supply and/or purchase of goods and services in the ordinary course of business;

“Know-How” means confidential or proprietary industrial, technical or commercial information and techniques in any form (including paper, electronically stored data, magnetic media, files and micro-film) including, drawings, data relating to inventions, formulae, test results, reports, research reports, project reports and testing procedures, shop practices, instruction and training manuals, market forecasts, specifications, quotations, lists and particulars of customers and suppliers, marketing methods and procedures, show-how and advertising copy;

“Leakage” means any of the following which occur on or after 31 August 2007, but on or before Completion:

(a) any dividend, or distribution declared, paid or made by any Group Company (other than to another Group Company);

(b) any payments made (including management fees), or agreed to be made, by any Group Company, to (or assets transferred or surrendered to or liabilities assumed, indemnified, or incurred for the benefit of) any member of the Seller’s Group (including, without limitation, any payment, accrual of interest or net cash pooling payment);

(c) any payments made or agreed to be made by any Group Company other than to another Group Company in respect of any share capital or other securities of any

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Group Company being issued, redeemed, purchased or repaid, or any other return of capital being made;

(d) any payments made or agreed to be made by any Group Company (other than to another Group Company) to any member of the Seller’s Group in respect of any loan capital of any Group Company;

(e) the waiver by any Group Company of any amount owed to that Group Company by any member of the Seller’s Group;

(f) any payment by any Group Company of any fees or expenses in connection with the preparation for, negotiation or consummation of the sale and purchase of the Shares pursuant to, or the entry into of, this agreement;

(g) the agreement or undertaking by any member of the Group to do any of the matters set out in (a) to (f) above; and

(h) any charge to tax suffered by any Group Company in relation to the above;

“Losses” means all losses, liabilities, costs (including, without limitation, reasonable legal costs and reasonable experts’ and consultants’ fees), charges, expenses, actions, proceedings, penalties, fines, claims and demands;

“Pension Benefits” means the provisions of any pension or lump sum on retirement or on death, or in anticipation of retirement or, in connection with past service, after retirement or death as set out in paragraph 19 of schedule 3;

“Properties” means the properties described in schedule 5 or any part or parts thereof and “Property” shall mean any one of them;

“Related Person” means in relation to any party the subsidiary undertakings and associated companies from time to time of such holding company, all of them and each of them as the context admits;

“Resignation Notices” means the resignation notices in the agreed terms in respect of the Company and the Subsidiary in relation to existing financing arrangements with Barclays Bank plc (as agent);

“Security Agent” means Barclays Bank plc, acting as security agent;

“Seller’s Account” means the account in the name of Allied Healthcare Group Limited, account number 40329231 at Barclays Bank plc of Broadgate, London, sort code 20-77-67;

“Seller’s Group” means the Seller, its holding companies, and the subsidiary undertakings and associated companies of such holding companies, excluding the Company and the Subsidiary, from time to time, all of them and each of them as the context admits;

“Seller’s Solicitors” means Ashurst of Broadwalk House, 5 Appold Street, London EC2A 2HA;

“Shares” means all of the issued shares in the capital of the Company;

“Share Consideration” means the sum of £29,438,196;

“Subsidiary” means Medigas Limited (No.1143289), a subsidiary undertaking of the Company;

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“TA” means the Income and Corporation Taxes Act 1988;

“Tax” or “tax” or “Taxation” means any tax, and any duty, contribution, impost, withholding, levy or charge in the nature of tax, whether domestic or foreign, and any fine, penalty, surcharge or interest connected therewith and includes (without prejudice to the foregoing) corporation tax, income tax (including income tax required to be deducted or withheld from or accounted for in respect of any payment), national insurance and social security contributions, capital gains tax, inheritance tax, value added tax, customs excise and import duties, stamp duty, stamp duty land tax, stamp duty reserve tax, insurance premium tax, air passenger duty, rates and water rates, landfill tax, petroleum revenue tax, advance petroleum revenue tax, gas levy and any other payment whatsoever which any person is or may be or become bound to make to any person and which is or purports to be in the nature of taxation;

“Taxation Statutes” means all statutes, statutory instruments, orders enactments, laws, by-laws, directives and regulations, whether domestic or foreign decrees, providing for or imposing any Tax;

“Tax Deed” means a deed of covenant in the agreed terms;

“Transitional Services Agreement” means the transitional services agreement in the agreed form to be entered into on the Completion Date between the Company and Allied Healthcare Group Limited;

“Transitional Trademark Licence” means the trademark licence in the agreed terms to be entered into on the Completion Date between the Seller, Allied Healthcare Group Limited and the Company;

“UK Listing Authority” means the Financial Services Authority in its capacity as the competent authority for the purposes of Part VI of the Financial Services and Markets Act 2000; and

“Warranties” means the warranties set out in schedule 5.

1.2 In this agreement unless otherwise specified, reference to:

(a) a “subsidiary undertaking” is to be construed in accordance with section 258 of the Companies Act 1985 and a “subsidiary” or “holding company” is to be construed in accordance with section 736 of that Act;

(b) a document in the “agreed terms” is a reference to that document in the form approved and for the purposes of identification signed by or on behalf of each party;

(c) “FA” followed by a stated year means the Finance Act of that year;

(d) “includes” and “including” shall mean including without limitation;

(e) a “party” means a party to this agreement and includes its assignees (if any) and/or the successors in title to substantially the whole of its undertaking;

(f) a “person” includes any person, individual, company, firm, corporation, government, state or agency of a state or any undertaking (whether or not having separate legal personality and irrespective of the jurisdiction in or under the law of which it was incorporated or exists);

(g) a “statute” or “statutory instrument” or “accounting standard” or any of their provisions is to be construed as a reference to that statute or statutory

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instrument or accounting standard or such provision as the same may have been amended or re-enacted before the date of this agreement;

(h) “clauses”, “paragraphs” or “schedules” are to clauses and paragraphs of and schedules to this agreement;

(i) “writing” includes any methods of representing words in a legible form (other than writing on an electronic or visual display screen) or other writing in non-transitory form;

(j) words denoting the singular shall include the plural and vice versa and words denoting any gender shall include all genders;

(k) the time of day is reference to time in London, England;

(l) any question as to whether a person is connected with any other person shall be determined in accordance with the provisions of section 839 of the TA and a reference to an “associate” is to a person who is an associate of another within the meaning of section 417 of the TA; and

(m) “directly” or “indirectly” means either alone or jointly with any other person and whether on his or its own account or in partnership with another or others or as the holders of any interest in or as officer, employee or agent of or consultant to any other person.

1.3 The schedules form part of the operative provisions of this agreement and references to this agreement shall, unless the context otherwise requires, include references to the schedules.

1.4 The index to and the headings and the descriptive notes in brackets relating to provisions of Taxation Statutes in this agreement are for information only and are to be ignored in construing the same.

2. SALE AND PURCHASE

2.1 Upon the terms and subject to the conditions of this agreement, the Seller shall sell with full title guarantee and the Buyer shall purchase the Shares with effect from Completion free from any Encumbrance and together with all accrued benefits and rights attached thereto and all dividends paid after 31 August 2007 in respect of the Shares.

2.2 The Seller waives or agrees to procure the waiver of any rights or restrictions conferred upon it in relation to the Shares under the articles of association of the Company or otherwise.

2.3 The total consideration for the sale and purchase of the Shares shall be the Share Consideration, as adjusted under the terms of this agreement.

3. COMPLETION

3.1 Completion shall take place at the offices of the Seller’s Solicitors immediately after the execution of this agreement.

3.2 On Completion the Seller shall deliver to or, if the Buyer shall so agree, make available to the Buyer:

(a) transfers in common form relating to all the Shares duly executed in favour of the Buyer (or as it may direct);

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(b) the register of members and register of directors of the Company and the Subsidiary;

(c) share certificates relating to the Shares (or a duly executed indemnity in a form reasonably acceptable to the Buyer in the case of any found to be missing);

(d) resignations in the agreed terms duly executed as deeds of all the directors and the secretary of any Group Company from their offices as director or secretary of any Group Company containing a confirmation that they have no claims (whether statutory, contractual or otherwise) against any Group Company;

(e) the written resignations of the auditors of each Group Company containing an acknowledgement that they have no claim against any Group Company for compensation for loss of office, professional fees or otherwise and a statement under section 394(1) of the Companies Act 1985;

(f) the Tax Deed duly executed by the Seller;

(g) the Deed of Release duly executed by the Security Agent;

(h) acceptance of the Resignation Notices by the Security Agent;

(i) title deeds and other documents relating to the Properties to the extent held by the Seller;

(j) to the extent not in the possession of any Group Company, all books of account concerning the businesses of any Group Company;

(k) a counterpart of the Transitional Services Agreement and the Transitional Trademark Licence duly executed by the parties thereto;

(l) a copy of the minutes of a duly held meeting of the directors of each of the Seller and the Seller’s Guarantor (or a duly constituted committee thereof) authorising the execution by the Seller and the Seller’s Guarantor of this agreement and each other document to be executed by it hereunder and, where such execution is authorised by a committee of the board of directors of the Seller or the Seller’s Guarantor, a copy of the minutes of a duly held meeting of the directors constituting such committee or the relevant extract thereof, in each case certified to be true by a director or the secretary of the relevant party;

(m) a release in the agreed form duly executed as a deed releasing each Group Company and their respective officers and employees from any liability whatsoever which may be owing by them to the Seller or any member of the Seller’s Group (including, for the avoidance of doubt, any Intra-Group Indebtedness owing immediately after Completion);

(n) duly executed transfers of each share in the Subsidiary not registered in the name of any Group Company in favour of the Buyer (or as it may direct); and

(o) a counterpart of the Escrow Deed duly executed by the Seller.

3.3 On Completion, the Seller shall procure the passing of board resolutions of each Group Company:

(a) sanctioning for registration (subject where necessary to due stamping) the transfers in respect of the Shares and any shares to which clause 3.2(n) refers;

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(b) removing all of the directors and the secretary as directors and secretary of each Group Company and appointing Olivier Petit and Jean Baptiste Dellon to be the directors and Paul Humber to be the secretary of each Group Company;

(c) revoking all mandates to bankers and giving authority in favour of the directors appointed under clause 3.3(b) above or such other persons as the Buyer may nominate to operate the bank accounts thereof; and

(d) resolving that the registered office of each Group Company be changed to Station Road, Coleshill, Birmingham, West Midlands B46 1JY.

3.4 On Completion, the Buyer shall:

(a) pay the Share Consideration less the Escrow Amount to the Seller’s Account by way of telegraphic transfer in immediately available funds;

(b) procure that the Company pays to the Seller’s Account by way of telegraphic transfer in immediately available funds an amount equal to the Intra-Group Indebtedness; and,

receipt by such bank of such sum shall be good discharge to the Buyer;

(c) pay the Escrow Amount to the account of the Escrow Agents as set out in the Escrow Agreement by way of telegraphic transfer in immediately available funds; and

(d) deliver to the Seller:

(i) a counterpart of the Tax Deed duly executed by the Buyer;

(ii) a counterpart of the Escrow Deed duly executed by the Buyer; and

(iii) a copy of the minutes of a duly held meeting of the directors of the Buyer (or a duly constituted committee thereof) authorising the execution by the Buyer of this agreement and each other document to be executed by it hereunder and, where such execution is authorised by a committee of the board of directors of the Buyer, a copy of the minutes of a duly held meeting of the directors constituting such committee or the relevant extract thereof, in each case certified to be true by a director or the secretary of the Buyer.

4. INTRA-GROUP INDEBTEDNESS

4.1 If following the making of the payment required by clause 3.4(b):

(a) any Intra-Group Payables remain outstanding, the relevant Group Company shall promptly settle such amounts and the Seller shall pay to the Buyer an equivalent amount; or

(b) any Intra-group Receivables remain outstanding the relevant member of the Seller’s Group shall promptly settle such amounts and the Buyer shall pay to the Seller an equivalent amount,

and in each case any payment made by the Buyer or the Seller pursuant to this clause 4.1 shall be deemed to be and take effect as an adjustment to the Share Consideration.

4.2 Between the date of this agreement and the making of the payments under clause 4.1 the Buyer and the Seller shall procure that no demand or enforcement action is taken in

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respect of the Intra-Group Payables or Intra-Group Receivables. During such period the Intra-Group Payables and Intra-Group Receivables shall not attract interest.

4.3 The Seller on behalf of each member of the Seller’s Group acknowledges that receipt by it of the payment pursuant to clause 3.4(b) represents payment in full of the Intra-Group Payables due from the Company and payment in full of the Intra-Group Receivables due to the Company.

5. POST COMPLETION UNDERTAKINGS

5.1 The Seller confirms that there has been no Leakage and undertakes, subject to Completion, that if there has been any Leakage the Seller will pay to the Buyer on demand an amount equal to such Leakage.

5.2 Following Completion, the Seller undertakes to the Buyer to use all reasonable endeavours to ensure that each Group Company is released from any guarantee, indemnity, bond, letter of comfort or Encumbrance or other similar obligation given or incurred by it prior to Completion which relates in whole or in part to debts or other liabilities or obligations, whether actual or contingent, of a member of the Seller’s Group and prior to such release the Seller undertakes to the Buyer (on behalf of itself and as trustee on behalf of each Group Company) to keep each Group Company fully indemnified against any failure to make any such repayment or any liability arising under any such guarantee, indemnity, bond, letter of comfort or Encumbrance.

5.3 Following Completion the Buyer undertakes:

(a) to the Seller to use all reasonable endeavours to ensure that each member of the Seller’s Group is released from any guarantee, indemnity, bond, letter of comfort or Encumbrance or other similar obligation given or incurred by it which relates in whole or in part to debts or other liabilities or obligations, whether actual or contingent, of any Group Company and prior to such release the Buyer undertakes to the Seller (on behalf of itself and as trustee on behalf of each member of the Seller’s Group) to keep each member of the Seller’s Group fully indemnified against any failure to make any such repayment or any liability arising under any such guarantee, indemnity, bond, letter of comfort or Encumbrance; and

(b) to procure that, save as permitted by, and subject to the terms of, the Transitional Trademark Licence, as soon as reasonably practicable after Completion and in any event within three months afterwards, the Group shall cease in any manner whatsoever to use, or display any trade or service marks, trade or service names or logos used or held by any member of the Seller’s Group or any confusingly similar mark, name or logo.

6. WARRANTIES

6.1 The Seller warrants to the Buyer in the terms of the Warranties as at the date of this agreement and each of the Warranties shall be construed as a separate warranty.

6.2 Subject to clause 6.1, any information supplied by or on behalf of any Group Company to or on behalf of the Seller in connection with the Warranties, the Disclosure Letter or otherwise in relation to the business and affairs of any Group Company shall not constitute a representation or warranty or guarantee as to the accuracy thereof by any Group Company and the Seller hereby waives any and all claims which it might otherwise have against any Group Company or any of their respective directors, officers, employees, agents or advisers in respect thereof save in respect of any rights it may have against any of them in respect of fraud or wilful non-disclosure.

6.3 Any claim under the Warranties is subject to the terms and provisions of this clause 6 and schedule 4.

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6.4 The Seller shall be under no liability under the Warranties in relation to any matter forming the subject matter of a claim thereunder to the extent that the same or circumstances giving rise thereto are fairly disclosed in the Disclosure Letter (and for the purposes hereof, “fairly” means with sufficient detail to identify the nature and scope of the matters disclosed).

6.5 Each of the Warranties shall be construed as a separate warranty, and (unless expressly provided to the contrary) shall not be limited by the terms of any of the other Warranties.

6.6 The Buyer warrants to the Seller that the execution and delivery of this agreement and the Completion of the transactions contemplated hereby, have, where required, been duly and validly authorised and no other proceedings or action on the part of the Buyer is necessary to authorise the agreement or to complete the transactions contemplated.

6.7 The only warranties given by the Seller in respect of or relating to:

(a) Intellectual Property are contained in paragraph 6 of schedule 3;

(b) Information technology and data protection are contained in paragraph 11 of schedule 3;

(c) officers, employees and trade unions are contained in paragraph 17 of schedule 3;

(d) the Properties are contained in paragraph 18 of schedule 3;

(e) Pension Benefits are contained in paragraph 19 of schedule 3;

(f) Tax or any Taxation Statutes are contained in paragraph 20 of schedule 3; and

(g) Environmental Matters are contained in paragraphs 5, 18.7 and 21 of schedule 3,

and no claim or proceeding for breach of Warranty which could be brought within any of the paragraphs specified in this clause 6.7 shall be brought except under one of those paragraphs and no liability which arises under one of those paragraphs shall also arise under any other such paragraph or under any other Warranty provided that, notwithstanding the foregoing, any claim in respect of any subject matter may be brought under paragraph 3 of schedule 3 (Accounts Warranties).

6.8 Any payment due in respect of any claim under this agreement (including, for the avoidance of doubt, under the Warranties and the indemnities in clause 23) or the Tax Deed shall for all purposes be deemed to be and shall take effect as an adjustment to the Share Consideration.

6.9 The Seller irrevocably and unconditionally agrees: (a) that it will not bring any contribution proceedings, claims or the like under the Civil Liability (Contribution) Act 1978 against any person until after the final determination of any claim and/or proceedings arising out of or in connection with this agreement brought against the Seller by the Buyer (or any person entitled to bring a claim against the Seller under this agreement or any agreement related thereto; and (b) that the Seller shall not be entitled to claim any right of set-off or apply for any form of stay of any proceedings brought by the Buyer against the Seller arising out of or in connection with this agreement in respect of any such claim.

7. PROTECTION OF GOODWILL

7.1 The Seller hereby undertakes to procure that (except as otherwise agreed in writing with the Buyer) either solely or jointly with any other person (either on its own account or as the agent of any other person) no member of the Seller’s Group will:

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(a) for a period of three years from Completion carry on or be engaged or (except as the holder of shares in a listed company which confer not more than five per cent. of the votes which can generally be cast at a general meeting of the company) interested directly or indirectly in a business which competes with the type of business carried on by any member of the Group at Completion in the United Kingdom;

(b) for a period of two years from Completion induce, solicit or endeavour to entice to leave the service or employment of any member of the Group, any person who during the period of three months prior to Completion was an employee of any member of the Group occupying a senior or managerial position and likely (in the opinion of the Buyer) to be:

(i) in possession of confidential information relating to; or

(ii) able to influence the customer relationships or connections of,

any member of the Group provided that this shall not restrict any member of the Seller’s Group from advertising or otherwise taking steps to recruit (and/or subsequently employing) any person which is or are not specifically aimed at a particular employee or group of employees of any Group Company.

7.2 Nothing in clause 7.1 shall prevent or restrict any member of the Seller’s Group from:

(a) carrying on or being engaged in or economically interested in any business referred to in clause 7.1(a) after such time as the Buyer’s Group ceases to carry on or be engaged in or economically interested in such business to any material extent;

(b) being the holder of shares (conferring not more than five per cent. of the votes which would normally be cast at a general meeting of that company) or debentures of a company which is engaged in any business referred to in clause 7.1(a);

(c) acquiring the whole or any part of a business which, or the share capital of a company or group of companies whose business or a part of whose business, includes operations the carrying on of which would otherwise amount to a breach of the undertaking contained in clause 7.1 (the “Competitive Operations”), as part of a larger acquisition or series of related acquisitions if the Competitive Operations comprise a minor part of the business or the business of such company, group of companies or businesses acquired or in which the Seller’s Group has acquired an interest and provided that (i) the Seller’s Group does not expand or develop the Competitive Operations such that they cease to be a minor part of the business and for the purpose of this clause 7.2 a “minor part” of the business of such company, group of companies or business shall be part of its overall business in which the turnover of the Competitive Operations does not exceed five per cent. of the gross turnover of the company, group of companies or business acquired and (ii) the Competitive Operations are, as soon as reasonably practicable following their acquisition by the Seller’s Group, offered for sale to the Buyer (or any member of the Buyer’s Group that the Buyer shall nominate for that purpose) on substantially the same terms as those on which the Seller’s Group acquired the Competitive Operations.

7.3 While the restrictions contained in this clause 7 are considered by the Parties to be reasonable in all the circumstances, it is recognised that restrictions of their nature may fail for technical reasons. Accordingly it is agreed that, if any of such restrictions shall be found to be invalid or unenforceable as going beyond what is legally permissible for the protection of the interests of the Buyer or otherwise, but would be valid or enforceable if part of the wording of the restriction were deleted or the period for which it applies were reduced or the range of activities or area dealt with by it were reduced in scope, the

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restriction concerned shall apply with such modifications as may be necessary to make it valid and enforceable.

8. CONFIDENTIAL INFORMATION

8.1 The Seller shall not and shall procure that no other member of the Seller’s Group shall use or disclose to any person Confidential Information.

8.2 Clause 8.1 does not apply to:

(a) disclosure of Confidential Information to or at the written request of the Buyer;

(b) use or disclosure of Confidential Information required to be disclosed by law or the London Stock Exchange or NASDAQ or the UK Listing Authority or Euronext Paris or the United States Securities and Exchange Commission or any other regulatory body;

(c) disclosure of Confidential Information to professional advisers for the purpose of advising the Seller; or

(d) Confidential Information which becomes generally known other than by the Seller’s breach of clause 8.1.

8.3 The restrictions contained in this clause 8 shall apply without limit of time.

9. ANNOUNCEMENTS

9.1 No party shall disclose the making of this agreement or its terms or the existence or the terms of any other agreement referred to in this agreement (except those matters set out in the press release in the agreed terms) and each party shall procure that each of its Related Persons shall not make any such disclosure without the prior consent of the other party unless disclosure is:

(a) to its professional advisers; or

(b) required by law or the rules or standards of the London Stock Exchange or NASDAQ or the UK Listing Authority or Euronext Paris or the United States Securities and Exchange Commission or the rules and requirements of any other regulatory body and disclosure shall then only be made by that party:

(i) after it has taken all such steps as may be reasonable in the circumstances to agree the contents of such announcement with the other party before making such announcement and provided that any such announcement shall be made only after notice to the other party; and

(ii) to the person or persons and in the manner required by law or the London Stock Exchange or the UK Listing Authority or Euronext Paris or the United States Securities and Exchange Commission or such other regulatory body or as otherwise agreed between the parties.

9.2 The restrictions contained in clause 9.1 shall apply without limit of time.

10. ASSIGNMENT

10.1 This agreement is personal to the parties and accordingly no party without the prior written consent of the other parties shall assign, transfer, charge or declare a trust of the benefit of all or any of any other party’s obligations nor any benefit arising under this agreement and neither shall any party delegate any of its obligations under this

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agreement or subcontract their provision to any third party or agent whatsoever, save in accordance with clauses 10.2 and 10.3.

10.2 Subject to clauses 10.4 and 10.5, either the Buyer or the Seller may, without the consent of the other, assign the benefit and burden of the whole of this agreement to any member of the Buyer’s Group or the Seller’s Group, as the case may be, provided however that such assignment shall not be absolute but shall be expressed to have effect only for so long as the assignee remains a member of the Buyer’s Group or the Seller’s Group, as the case may be and in any case only if such assignment is part of a larger intra-group transfer of business or undertaking or reorganisation.

10.3 The Buyer may without consent grant security over or assign the benefit of this agreement (in whole or in part) to any provider of finance to the Buyer’s Group.

10.4 If any assignment is made in accordance with clauses 10.2 or 10.3, the assignee shall not be entitled to benefit from any greater obligation, or to receive any greater amount, than that to which the assignor would have been entitled, and the liability of any other party to this agreement shall be no greater than it would have been in the absence of such assignment

10.5 For the avoidance of doubt, neither the Seller’s Guarantor nor the Buyer’s Guarantor shall be permitted to assign or delegate any of their respective obligations under this agreement to any third party or agent whatsoever without the prior written consent of the other parties.

11. COSTS

Unless expressly otherwise provided in this agreement each of the parties shall bear its own legal, accountancy and other costs, charges and expenses connected with the sale and purchase of the Shares.

12. EFFECT OF COMPLETION

The terms of this agreement (insofar as not performed at Completion and subject as specifically otherwise provided in this agreement) shall continue in force after and notwithstanding Completion.

13. FURTHER ASSURANCES

Each of the parties shall from time to time upon request from the other do or procure the doing of all acts and/or execute or procure the execution of all such documents in so far as each is reasonably able and in a form reasonably satisfactory to the party concerned for the purpose of transferring to the Buyer the Shares and otherwise giving the other party the full benefit of this agreement.

14. ENTIRE AGREEMENT

Each party on behalf of itself and as agent for each of its Related Persons acknowledges and agrees with the other party (each such party acting on behalf of itself and as agent for each of its Related Persons) that:

(a) this agreement together with any other documents referred to in this agreement (together the “Transaction Documents”) constitute the entire and only agreement between the parties and their respective Related Persons relating to the subject matter of the Transaction Documents;

(b) neither it nor any of its Related Persons have been induced to enter into any Transaction Document in reliance upon, nor have they been given, any warranty, representation, statement, assurance, covenant, agreement, undertaking,

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indemnity or commitment of any nature whatsoever other than as are expressly set out in the Transaction Documents and, to the extent that any of them have been, it (acting on behalf of itself and as agent on behalf of each of its Related Persons) unconditionally and irrevocably waives any claims, rights or remedies which any of them might otherwise have had in relation thereto; and

(c) the only remedies available to it in respect of the Transaction Documents (and, where appropriate, to its Related Persons) are damages for breach of contract and, for the avoidance of doubt, neither it (nor its Related Persons, where appropriate) have any right to rescind or terminate any Transaction Documents either for breach of contract or for negligent or innocent misrepresentation or otherwise;

PROVIDED THAT the provisions of this clause 14 shall not exclude any liability which any of the parties or, where appropriate, their Related Persons would otherwise have to any other party or, where appropriate, to any other party’s Related Persons or any right which any of them may have to rescind this agreement in respect of any statements made fraudulently by any of them prior to the execution of this agreement or any rights which any of them may have in respect of fraudulent concealment by any of them.

15. VARIATIONS

This agreement may be varied only by a document signed by or on behalf of each of the Seller, the Seller’s Guarantor, the Buyer and the Buyer’s Guarantor.

16. WAIVER

16.1 A waiver of any term, provision or condition of, or consent granted under, this agreement shall be effective only if given in writing and signed by the waiving or consenting party and then only in the instance and for the purpose for which it is given.

16.2 No failure or delay on the part of any party in exercising any right, power or privilege under this agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege.

16.3 No breach of any provision of this agreement shall be waived or discharged except with the express written consent of the Seller, the Seller’s Guarantor, the Buyer and the Buyer’s Guarantor.

17. INVALIDITY

17.1 If any provision of this agreement is or becomes invalid, illegal or unenforceable in any respect under the law of any jurisdiction:

(a) the validity, legality and enforceability under the law of that jurisdiction of any other provision; and

(b) the validity, legality and enforceability under the law of any other jurisdiction of that or any other provision,

shall not be affected or impaired in any way.

18. NOTICES

18.1 Any notice, demand or other communication given or made under or in connection with the matters contemplated by this agreement shall be in writing and shall be delivered personally or sent by fax or prepaid first class post (air mail if posted to or from a place outside the United Kingdom):

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In the case of the Buyer and the Buyer’s Guarantor to:	75 Quai d’Orsay 75007 Paris France
Fax:	+33 1 4062 5050
Attention:	Legal department - Air Liquide Sante International
With a copy to:	Station Road Coleshill Birmingham West Midlands B46 1JY
Fax:	01675 467022
Attention:	Jean Baptiste Dellon
In the case of the Seller or the Seller’s Guarantor to:	Allied Healthcare Group Holdings Limited Medicare House Stone Business Park Brooms Road, Staffordshire ST15 0TL
Fax:	01785 819031
Attention:	Chief Financial Officer

and shall be deemed to have been duly given or made as follows:

(a) if personally delivered, upon delivery at the address of the relevant party;

(b) if sent by first class post, two Business Days after the date of posting;

(c) if sent by air mail, five Business Days after the date of posting; and

(d) if sent by fax, when despatched;

provided that if, in accordance with the above provisions, any such notice, demand or other communication would otherwise be deemed to be given or made (i) before 9.00 a.m. on a Business Day, such notice, demand or other communication shall be deemed to have been received at 9.00 a.m. on that day or (ii) after 5.00 p.m. on a Business Day or on a day that is not a Business Day, such notice, demand or other communication shall be deemed to be given or made at 9.00 a.m. on the next Business Day.

18.2 A party may notify the other party to this agreement of a change to its name, relevant addressee, address or fax number for the purposes of clause 18.1 provided that such notification shall only be effective:

(a) on the date specified in the notification as the date on which the change is to take place; or

(b) if no date is specified or the date specified is less than five Business Days after the date on which notice is given, the date falling five Business Days after notice of any such change has been given.

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19. COUNTERPARTS

This agreement may be executed in any number of counterparts which together shall constitute one agreement. Any party may enter into this agreement by executing a counterpart and this agreement shall not take effect until it has been executed by all parties.

20. GOVERNING LAW AND JURISDICTION

20.1 This agreement (and any dispute, controversy, proceedings or claim of whatever nature arising out of or in any way relating to this agreement or its formation) shall be governed by and construed in accordance with English law.

20.2 Each of the parties to this agreement irrevocably agrees that the courts of England shall have exclusive jurisdiction to hear and decide any suit, action or proceedings, and/or to settle any disputes, which may arise out of or in connection with this agreement or its formation (respectively, “Proceedings” and “Disputes”) and, for these purposes, each party irrevocably submits to the jurisdiction of the courts of England.

20.3 Each party irrevocably waives any objection which it might at any time have to the courts of England being nominated as the forum to hear and decide any Proceedings and to settle any Disputes and agrees not to claim that the courts of England are not a convenient or appropriate forum for any such Proceedings or Disputes and further irrevocably agrees that a judgment in any Proceedings or Disputes brought in any court referred to in this clause 20 shall be conclusive and binding upon the parties and may be enforced in the courts of any other jurisdiction.

20.4 Without prejudice to any other permitted mode of service the parties agree that service of any claim form, notice or other document (“Documents”) for the purpose of any Proceedings begun in England shall be duly served upon it if delivered personally or sent by registered post, in the case of:

(a) the Seller or the Seller’s Guarantor to Allied Healthcare Group Holdings Limited, Medicare House, Stone Business Park, Brooms Road, Stone, Staffordshire ST15 0TL (marked for the attention of the Chief Financial Officer); and

(b) the Buyer or the Buyer’s Guarantor to Air Liquide UK Limited, Station Road, Coleshill, Birmingham B46 1JY (marked for the attention of Jean Baptiste Dellon)

or such other person and address in England and/or Wales as any party shall notify the others in writing or vice versa from time to time.

21. THIRD PARTY RIGHTS

21.1 Any person (other than the parties to this agreement) who is given any rights or benefits under clauses 5.2, 6.2 and 14 (a “Third Party”) shall be entitled to enforce those rights or benefits against the parties in accordance with the Contracts (Rights of Third Parties) Act 1999.

21.2 Save as provided in clause 21.1 above the operation of the Contracts (Rights of Third Parties) Act 1999 is hereby excluded.

21.3 The parties may, amend, vary or terminate this agreement in such a way as may affect any rights or benefits of any Third Party which are directly enforceable against the parties under the Contracts (Rights of Third Parties) Act 1999 without the consent of such Third Party.

21.4 Any Third Party entitled pursuant to the Contracts (Rights of Third Parties) Act 1999 to enforce any rights or benefits conferred on it by this agreement may not veto any

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amendment, variation or termination of this agreement which is proposed by the parties and which may affect the rights or benefits of the Third Party.

22. GUARANTEE AND INDEMNITY

22.1 In consideration of the Buyer entering into this agreement and the Tax Deed the Seller’s Guarantor gives in favour of the Buyer the guarantee and indemnity in the terms set out in schedule 6.

22.2 In consideration of the Seller entering into this agreement and the Tax Deed the Buyer’s Guarantor gives in favour of the Seller the guarantee and indemnity in the terms set out in schedule 7.

22.3 The Seller’s Guarantor warrants to the Buyer that each of the Warranties set out in paragraphs 1.1 (Authorisations) and 14 (Insolvency) of schedule 3 is true and accurate at the date of this agreement save that the reference in paragraph 1.1 to the Seller and references in paragraph 14 to the Company shall be replaced by appropriate references to the Seller’s Guarantor.

22.4 The Buyer’s Guarantor warrants to the Seller that each of the Warranties set out in paragraphs 1.1 (Authorisations) and 14 (Insolvency) of schedule 3 is true and accurate at the date of this agreement save that the reference in paragraph 1.1 to the Seller and references in paragraph 14 to the Company shall be replaced by appropriate references to the Buyer’s Guarantor.

23. INDEMNITY

23.1 Subject to clause 23.2, the Seller undertakes to the Buyer to indemnify and keep indemnified each Group Company against any Losses which it suffers or incurs arising out of:

(a) any liability (including, without limitation, any fines or penalties imposed on the Group) to the Department of Health (or any other relevant governmental body) arising out of any errors or inaccuracies in billings by the Group to the Department of Health in so far as any such error or inaccuracy relates to the period prior to Completion (being the net amount by which any over-billings exceed any recoverable under billings);

(b) any amounts due (including, without limitation, any amounts due in respect of energy rebates) to any NHS patient by the Group relating to the period prior to Completion to the extent that such amount exceeds the provision in the balance sheet of the Company as at Completion for this matter;

(c) any claims relating to dilapidations or other termination costs arising in connection with the termination of leases of the properties occupied by the Group in Slough, Cardiff and Carlisle;

(d) any claims brought against the Group by Oxygen Delivery Service in connection with any arrangement in place prior to Completion between the Group and Oxygen Delivery Service or the termination of such arrangement;.

(e) any claims brought against the Company by Graham John Wall in relation to an incident as described in a claim letter dated 23 August 2007 from his solicitors;

(f) any claims brought by Edith Dean in respect of an incident at her home involving the use of one of the Company’s oxygen cylinders;

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(g) all bonus payments due or paid to any employee of the Company in connection with or as a result of the sale of the Shares under arrangements put in place by the Seller prior to Completion; and

(h)	any liability of any Group Company to contribute towards the pension arrangements of any or all of the former BOC employees whose employment was transferred to the Company in February 2006 in respect of their pensionable service with the Company from such transfer to Completion,
	(each an “Event”) (a “Relevant Claim”).

23.2 If the Buyer or the Company becomes aware of a matter which might reasonably give rise to a Relevant Claim:

(a) the Buyer shall as soon as practicable give notice in writing to the Seller of the matter setting out reasonable details as are available to the Buyer or the Company and consult with the Seller with respect to the matter; if (and when) the matter has become the subject of proceedings, the Buyer shall notify the Seller within sufficient time to enable the Seller to contest the proceedings before final judgment;

(b) the Buyer shall provide to the Seller and its advisers reasonable access to premises and personnel and to all relevant assets, documents and records that it possesses or controls for the purposes of investigating the matter and enabling the Seller to take the action referred to in clause 23.3(d);

(c) the Seller (at its cost) may take copies of the documents or records specified in clause 23.3(b);

(d) the Buyer shall:

(i) take any action and institute any proceedings, and give any information and assistance the Seller may reasonably request:

(A) in relation to the matter (including disputing, resisting, appealing, compromising, defending, remedying or mitigating any claim or demand arising in relation to or in connection with the matter); or

(B) to enforce against a person (other than the Seller) the Buyer’s rights in relation to or in connection with the matter;

(ii) in connection with proceedings related to the matter (other than against the Seller) use advisers chosen by the Seller and, if the Seller requests, allow the Seller the exclusive conduct of the action or proceedings in the name of the Company or any negotiations or decisions in relation thereto provided that:

(A) in the case of the Events in clauses 23.1(a), (b) and (c), the Buyer shall be kept informed on significant developments in relation to the relevant Event and, where practicable, provide an opportunity to the Buyer to make representations in relation to such developments to the Seller; and

(B) in the case of the Events in clauses 23.1(d), (e) and (f), the Buyer shall be consulted on all matters and be afforded the opportunity to have a representative present at all such negotiations or decisions where any third parties are present; and

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(iii) seek to recover any Loss it has incurred in respect of those matters covered by this clause 23 under any relevant policy of insurance taken out by the Buyer or the Company and, to the extent that any Loss is recovered under such policy (or would be recoverable but for this clause 23), the Buyer’s right of recovery against the Seller under this Clause shall be reduced (net of any costs incurred by it in making such recovery) and if the Seller shall have already paid to the Buyer an amount in respect of such claim by the time the Buyer makes recovery from its insurers the Buyer shall repay to the Seller an amount equal to the amount so recovered or, if lower, the amount paid by the Seller to the Buyer; and

(e) the Buyer may not admit liability in respect of or settle the matter without first obtaining the Seller’s written consent (not to be unreasonably withheld or delayed).

23.3 Nothing in this clause 23 in any way restricts the Buyer’s general obligation at law to mitigate a loss which it may incur as a result of a matter giving rise to a Relevant Claim.

23.4 The Buyer shall not encourage or promote any demand, claim or proceeding by any third party against it in relation to any Event.

24. GROSS-UP

24.1 All sums payable by the Seller to the Buyer under clause 23 shall be paid free and clear of all deductions or withholdings (including Tax) unless the deduction or withholding is required by law, in which event, or in the event that the Buyer shall incur any liability for Tax chargeable or assessable in respect of any payment pursuant to this deed, the Seller shall pay such additional amounts as shall be required to ensure that the net amount received and retained by the Buyer (after Tax) will equal the full amount which would have been received and retained by it had no such deduction or withholding been made and/or no such liability to Tax been incurred and, in applying this clause 24, no account shall be taken of the extent to which any liability for Tax may be mitigated or offset by any Relief (where used in this clause 24, as defined in the Tax Deed) available to the Buyer so that where such Relief is available the additional amount payable hereunder shall be the amount which would have been payable in the absence of such availability.

24.2 If, following the payment of an additional amount under clause 24.1 above, the Buyer subsequently obtains a saving, reduction, credit or payment in respect of the deduction or withholding giving rise to such additional amount, the Buyer shall pay to the Seller a sum equal to the amount of such saving, reduction, credit or payment (in each case to the extent of the additional amount) such payment to be made within seven days of the receipt of the saving, reduction, credit or payment as the case may be.

25. BONUS PAYMENTS

The Seller covenants to pay the Buyer such amount as the Company (or, if relevant, the Subsidiary), prior to Completion, agreed to pay to certain officers and employees of the Company (or, if relevant, the Subsidiary) by way of bonuses plus any employer national insurance contributions payable on such sum in connection with the preparation for, negotiation or consummation of the sale and purchase of the Shares pursuant to, or the entry into of, this agreement at least two Business Days before such sum is payable by the Company (or, if relevant, the Subsidiary).

26. BOOKS AND RECORDS

26.1 From Completion until the publication of the annual accounts for the year ending 30 September 2007 of the Seller’s ultimate parent company, the Buyer shall maintain and preserve, and allow the Seller, its employees and agents and any other person authorised by the Seller to inspect (and to take copies of) the Books and Records at reasonable times

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during Business Days on reasonable notice for the purpose of completing the audit of such accounts.

26.2 The Buyer shall allow the Seller when exercising its rights pursuant to clause 24.1 to have reasonable access upon reasonable notice to the employees of the Company responsible for maintaining the Books and Records or the relevant part thereof for the purpose of answering any reasonable queries in relation to the Books and Records.

27. CASH AT BANK

The Seller covenants that as at close of business on the Completion Date, the Company shall have at least £1,500,000 of cash in credit in its bank account.

28. TITLE DEEDS

The Seller will use reasonable endeavours to provide to the Buyer all original title deeds relating to the Properties and, to the extent such original title deeds are still missing after 28 days from Completion, will use reasonable endeavours to provide statutory declarations as to the loss of the original title deeds principally stating (but without fettering the right of the declarant to make such declaration in his/her own words) that:

(a) the relevant title deeds are lost having conducted a thorough search of the Seller’s premises and made reasonable enquiries of its lawyers;

(b) the copies provided to the Buyer prior to Completion are, so far as the Seller is aware, complete copies;

(c) the relevant title deeds have not been placed with anyone as security; and

(d) if found the Seller will deliver them to the Buyer as soon as reasonably practicable after discovery.

IN WITNESS whereof this agreement has been executed on the date first above written.

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SCHEDULE 1

Particulars relating to the Company

Authorised share capital:	£1,125,000 comprised of: 1,889,500 ordinary shares of 45p each; 166,500 ‘A’ convertible cumulative redeemable preference shares of 45p each; and 444,000 ‘B’ convertible cumulative redeemable preference shares of 45p each
Issued share capital:	1,280,693 ordinary shares of 45p each
Directors:	D D Ashford S J Bateman J M Graham D S Moffatt P Weston
Secretary:	P J Westwood
Auditors:	Baker Tilly Audit UK LLP
Accounting reference date:	30 September
Registered Office:	Charles House Enterprise Drive Four Ashes Wolverhampton WV10 7DF

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SCHEDULE 2

Particulars relating to the Subsidiary

Medigas Limited

Authorised share capital:	£262,000 comprised of: 10,000 ordinary shares of £1 each; and 252,000 10% non cumulative, non convertible preference shares of £1 each
Issued share capital:	1,176 ordinary shares of £1 each 252,000 10% non cumulative, non convertible preference shares of £1 each
Directors:	D D Ashford S J Bateman J M Graham D S Moffatt P Weston
Secretary:	P J Westwood
Auditors:	Baker Tilly Audit UK LLP
Accounting reference date:	30 September
Registered Office:	Charles House Enterprise Drive Four Ashes Wolverhampton WV10 7DF

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SCHEDULE 3

The Warranties

For the purpose of this schedule 3 “Company” means Allied Respiratory Limited and includes the Subsidiary.

Any Warranty expressed to be given “to the best of the Seller’s knowledge and belief” or “so far as the Seller is aware” or otherwise qualified by reference to the knowledge of the Seller means the actual knowledge and belief of the following persons: Dennis Ashford, Stephen Bateman, John Graham, David Moffatt and Paul Weston (the “Directors”); and the knowledge, information, belief or awareness the Directors would have had had they made due and careful enquiries of Vince Cook, Elizabeth Phipps and Keith Thomas.

In this schedule 3 the following words have the following meanings, unless the context otherwise requires:

“Accounts” means the audited financial statements of each Group Company, comprising the balance sheet and profit and loss account of each Group Company, together in each case with the notes thereon, directors’ report and auditors’ report (if applicable), as at and for the financial period ended on the Accounts Date;

“Activities” means any act or omission by the Group, any employee of the Group or any contractor, agent or other third party in respect of the Properties;

“Disclosed” means fairly disclosed (and for this purpose, “fairly” means with sufficient details to identify the nature and scope of the matter disclosed) by the Disclosure Letter and “Disclosure” shall be construed accordingly);

“Environment” means any and all of the following media namely the air, water and land and any living organisms or systems supported by those media including, for the avoidance of doubt, man;

“Environmental Consent” means a permit, licence, consent, approval, certificate, qualification, specification, registration, exemption and other authorisation required under Environmental Laws in any jurisdiction;

“Environmental Laws” means all applicable statutes and subordinate legislation and other national, EU or local laws, common laws, guidance notes or codes of conduct insofar as they relate to or apply to Environmental Matters;

“Environmental Matters” means the disposal, release, spillage, deposit, escape, discharge, leak or emission of substances which may be hazardous to the Environment or waste and the creation of any noise, vibration, radiation, common law or statutory nuisance or other adverse impact on the Environment and any other matters in relation to the Properties and the business of the Company which are related to pollution or protection of the Environment;

“FA 1986” means the Finance Act 1986;

“FA 1998” means the Finance Act 1998;

“FA 2000” means the Finance Act 2000;

“FA 2003” means the Finance Act 2003;

“FA 2004” means the Finance Act 2004;

“Hazardous Substance” means any natural or artificial substance (whether solid, liquid, gas, noise, non-vapour, electro magnetic or radiation, and whether alone or in combination with any substance) which is capable of causing harm to the Environment;

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“IFRS” means the International Financial Reporting Standards;

“ITEPA” means the Income and Tax (Earnings and Pensions) Act 2003;

“Management Accounts” means the unaudited accounts of the Company for the five month period from 1 April 2007 to 31 August 2007, a copy of which is annexed to the Disclosure Letter;

“Permit” means a permit, licence, consent, approval, certificate, qualification, specification, registration and other authorisation necessary in any jurisdiction for the legal operation of each Group Company’s business, its ownership, possession, occupation or use of an asset or the execution and performance of this agreement;

“Senior Employee” means any officer or employee of the Company earning in excess of £29,000 per annum;

“Substantial Customer” means a customer accounting for more than five per cent. of the Group’s sales in the financial year ended on the Accounts Date;

“Substantial Supplier” means a supplier accounting for more than five per cent. of the Group’s purchases in the financial year ended on the Accounts Date;

“Systems” means all plant, equipment, systems, devices and components which contain or are controlled or monitored by computer systems, microprocessors or software which are owned or controlled by the Company and which are used in the conduct of the business of the Company;

“Taxation Authority” means any local, municipal, governmental, state, federal or fiscal, revenue, customs or excise authority, body, agency or official anywhere in the world having or purporting to have power or authority in relation to Tax including HMRC.

“TCGA” means the Taxation of Chargeable Gains Act 1992;

“Transfer Regulations” means the Transfer of Undertakings (Protection of Employment) Regulations 2006;

“TULR(C)A” means the Trade Union and Labour Relations (Consolidation) Act 1992; and

“VATA” means the Value Added Tax Act 1994 and “VAT legislation” means VATA and all regulations and orders made thereunder.

1. SELLER’S CAPACITY

1.1 Authorisations

The Seller is entitled to sell and transfer the legal title to and full beneficial ownership of the Shares on the terms set out in this agreement and has obtained all corporate authorisations and all other applicable governmental, statutory, regulatory or other consents, licences, waivers or exemptions required to empower it to enter into and to perform its obligations under this agreement and any agreement to be entered into pursuant to this agreement.

2. THE COMPANY, THE SHARES AND THE SUBSIDIARY

2.1 Incorporation and existence

The Seller, the Seller’s Guarantor, the Company and the Subsidiary are limited companies duly organised and validly existing under English law and have been in continuous existence since incorporation.

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2.2 The information relating to the Company and the Subsidiary set out in schedules 1 and 2 respectively is true and accurate in all respects.

2.3 The Shares

(a) The Seller is the only legal and beneficial owner of the Shares.

(b) The Company has not allotted any shares other than the Shares and the Shares have been properly allotted and issued and are fully paid or credited as fully paid.

(c) There is no Encumbrance in relation to any of the Shares or unissued shares in the capital of the Company. No person has claimed to be entitled to an Encumbrance in relation to any of the shares of the Company and neither the Company nor any member of the Seller’s Group is under any obligation (whether actual or contingent) to sell, charge or otherwise dispose of any shares in the Company or any interest therein.

(d) Other than this agreement, there is no agreement, arrangement or obligation requiring the creation, allotment, issue, sale, transfer, redemption or repayment of, or the grant to a person of the right (conditional or not) to require the creation, allotment, issue, sale, transfer, redemption or repayment of, a share in the capital of the Company (including an option or right of pre-emption or conversion).

2.4 The Subsidiary

(a) The Company does not have any subsidiary undertakings other than the Subsidiary. The Subsidiary is a wholly-owned subsidiary of the Company and each of the shares in the capital of the Subsidiary has been properly allotted and issued and is fully paid or credited as fully paid.

(b) There is no Encumbrance in relation to any of the shares or unissued shares in the capital of the Subsidiary. No person has claimed to be entitled to an Encumbrance in relation to any of the shares of the Subsidiary and no Group Company is under any obligation (whether actual or contingent) to sell, charge or otherwise dispose of any shares in the Subsidiary or any interest therein.

(c) Other than this agreement, there is no agreement, arrangement or obligation requiring the creation, allotment, issue, sale, transfer, redemption or repayment of, or the grant to a person of the right (conditional or not) to require the creation, allotment, issue, sale, transfer, redemption or repayment of, a share in the capital of the Subsidiary (including an option or right of pre-emption or conversion).

(d) The Company does not own any shares or stock in the capital of nor does it have any beneficial or other interest in any company or business organisation other than the Subsidiary nor does the Company control or take part in the management of any other company or business organisation.

(e) Neither the Company nor the Subsidiary has any branch, agency, place of business or permanent establishment outside the United Kingdom.

3. ACCOUNTS

3.1 General

(a) The Accounts show a true and fair view in accordance with UK GAAP (which shall mean for the purposes of this paragraph 3, generally accepted accounting principles in the United Kingdom which shall include, where stated, IFRS) of the assets, liabilities, financial position and state of affairs at the Accounts Date and of

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the profits and losses for the financial year ended on the Accounts Date of the Company.

(b) The Accounts have been prepared in accordance with the law and applicable standards, principles and practices generally accepted in the United Kingdom.

(c) Except as stated in the Accounts, the Accounts have been prepared on a basis consistent with the basis upon which all audited accounts of the Company have been prepared in respect of the two years before the Accounts Date.

(d) Save as stated in the Accounts, the Accounts are not affected by any extraordinary items.

3.2 Off Balance Sheet Financing

No member of the Group is engaged in any financing (including the incurring of any borrowing or any indebtedness in the nature of acceptances or acceptance credits) of a type which would not be required to be shown or reflected in the Accounts.

3.3 Accounting and Other Records

(a) The books of account and all other records of the Company are up-to-date, in its possession and in all material respects in accordance with the law.

(b) All material deeds and documents belonging to the Company or which ought to be in the possession of the Company are in the possession of the Company.

3.4 Accounting Reference Date

The accounting reference date of the Company under section 224 of the Companies Act 1985 is, and during the last two years has always been, 30 September.

3.5 Management Accounts

The Management Accounts have been prepared by the Company on a basis consistent with that adopted in the preparation of the Accounts and show with reasonable accuracy the state of affairs and financial position of the business carried on by the Group as at 31 August 2007 and for the period to which they relate but it is hereby acknowledged that they are not prepared on an audited, statutory basis.

4. CHANGES SINCE THE ACCOUNTS DATE

4.1 General

Since the Accounts Date:

(a) the Company has carried on its business in the ordinary and usual course and so as to maintain the business of the Group as a going concern; and

(b) there has been no material adverse change in the financial or trading position or prospects of the Group.

4.2 Specific

Since the Accounts Date:

(a) the Company has not, other than in the ordinary course of trading or as part of any transaction with another member of the Group disposed of, or agreed to dispose of, an asset which is material to the Group;

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(b) the Company has not agreed to make or agreed to incur, a commitment or connected commitments involving capital expenditure exceeding in total £75,000. Details of all capital expenditure exceeding in total £75,000 incurred since the Accounts Date is contained in the Disclosure Letter;

(c) no Substantial Supplier or Substantial Customer has ceased to trade or substantially reduced its trade with the Company or has given notice of its intention to cease or substantially reduce trading with the Company;

(d) the Company has not declared, paid or made a dividend or other distribution (including a distribution within the meaning of the TA) except to the extent provided in the Accounts;

(e) no resolution of the shareholders of the Company has been passed (except for those representing the ordinary business of an annual general meeting);

(f) the Company has not allotted, issued, repaid, purchased or redeemed share or loan capital, or made (whether or not subject to conditions) an agreement or arrangement or undertaken an obligation to do any of those things; and

(g) there has been no material change in the manner or time of issue of invoices or collection of debts.

5. ASSETS

5.1 Title and Condition

(a) There are no Encumbrances, nor has the Company agreed to create any Encumbrances, over any part of its undertaking or assets and all material assets included in the Accounts (other than assets sold in the ordinary course of business) are:

(i) legally and beneficially owned by the Company; and

(ii) where capable of possession, in the possession or under the control of the Company.

(b) The Company owns all material assets (tangible or intangible) necessary for the operation of its business as currently conducted and without limitation no rights (other than rights as shareholders in the Company) relating to the business of the Company are owned or otherwise enjoyed by or on behalf of any member of the Seller’s Group.

5.2 Hire Purchase and Leased Assets

(a) So far as the Seller is aware, copies of any bill of sale or any hiring or leasing agreement, hire purchase agreement, credit or conditional sale agreement, agreement for payment on deferred terms or any other similar agreement to which the Company is a party and which are material to the operation of its business are annexed to the Disclosure Letter or form part of the Data Room Information.

(b) In respect of any agreements referred to in paragraph 5.2(a), so far as the Seller is aware, there has been no material default by the Company in the performance or observance of any of the provisions of such agreements.

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5.3 Stock

(a) So far as the Seller is aware, the Company has not supplied, or agreed to supply, goods which have been, or will be, defective or which fail, or will fail, to comply with their terms of sale.

(b) So far as the Seller is aware, no goods in a state ready for supply by the Company are, or will be, defective or will fail to comply with terms of sale similar to terms of sale on which similar goods have previously been sold by the Company.

6. INTELLECTUAL PROPERTY

6.1 General

(a) All material Intellectual Property used in the business is owned by or licensed to the Company.

(b) The Intellectual Property owned by the Company in connection with its business is free from material Encumbrances.

6.2 Licences

There are no licences that have been granted by or to the Company relating to Intellectual Property which are material to the business of the Company and there are no other arrangements pursuant to which Intellectual Property is licensed by or to the Company. The Company has not been and is not in material breach of such licences or arrangements and, so far as the Seller is aware, there has been or is no material breach of such licences or arrangements by any other third parties.

6.3 Infringement

(a) The use by the Company of any Intellectual Property in connection with the business of the Company as far as the Seller is aware does not infringe the Intellectual Property of any other person.

(b) The Seller is not the subject of any proceedings, claims or complaints which have been brought by any third party or competent authority in relation to the Intellectual Property owned by or licensed to the Company nor is the Seller aware that any such proceedings, claims or complaints have been threatened by any third party.

(c) So far as the Seller is aware, no third party is infringing the Intellectual Property owned by or licensed to the Company.

6.4 Confidential Agreements

So far as the Seller is aware, none of the operations of the Company involve the unauthorised use of confidential information disclosed to the Company in circumstances which might entitle a third party to make a claim against the Company for breach of any obligation of confidence owed to such party.

7. EFFECT OF SALE

Neither the execution nor performance of this agreement or any document to be executed at or before Completion will:

(a) conflict with or result in a material breach of or give rise to an event of default under or require the consent of a party under, or enable a party to terminate or

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relieve a party from an obligation under a material agreement, arrangement or obligation to which the Company is party; or

(b) so far as the Seller is aware, result in any Substantial Customer ceasing to deal with the Company; or

(c) so far as the Seller is aware, result in any Substantial Supplier ceasing to supply the Company; or

(d) so far as the Seller is aware, result in any officer or Senior Employee leaving the Company; or

(e) make the Company liable to transfer or purchase any assets, including shares held by it in other bodies corporate under their articles of association or any agreement or arrangement; or

(f) so far as the Seller is aware, result in the Company losing the benefit of a material permit or a material asset, licence, grant, subsidy, right or privilege which it enjoys at the date of this agreement.

8. CONSTITUTION

8.1 Intra Vires

The Company has the power to carry on its business as now conducted and the business of the Company has at all times been carried on intra vires.

8.2 Memorandum and Articles

The memorandum and articles of association of the Company in the form annexed to the Disclosure Letter are true and complete and have embodied therein or annexed thereto copies of all resolutions and agreements as are referred to in section 380 of the Companies Act 1985.

8.3 Register of Members

The register of members of the Company has been properly kept and contains true and complete records of the members from time to time of the Company and the Company has not received any notice or allegation that any of the records of such members is incorrect or incomplete or should be rectified.

8.4 Powers of Attorney

The Company has not executed any power of attorney or conferred on any person other than its directors, officers and employees any authority to enter into any transaction on behalf of or to bind the Company in any way and which power of attorney remains in force or was granted or conferred within six months of the Completion Date.

8.5 Statutory Books and Filings

(a) The statutory books (including all registers and minute books) of the Company have been properly kept, are up-to-date, in its possession and are true and complete in accordance with the law.

(b) All resolutions, annual returns and other documents required to be delivered to the Registrar of Companies (or other relevant company registry or other corporate authority in any jurisdiction) have been properly prepared and filed and are true and complete and the common seal of the Company is in its possession.

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9. INSURANCE

9.1 Policies

The Disclosure Letter contains a list of each current insurance and indemnity policy in respect of which the Company has an interest (together the “Policies”). So far as the Seller is aware, each of the Policies is valid and enforceable and is not void or voidable.

9.2 Claims

No claim is outstanding under any of the Policies and so far as the Seller is aware no matter exists which might give rise to a claim under any of the Policies.

9.3 Premiums

The Company has paid all premiums due in respect of all the Policies.

10. CONTRACTUAL MATTERS

10.1 Validity of Agreements

(a) The Seller has no knowledge of the invalidity or unenforceability of, or a ground for termination, avoidance or repudiation of, any material agreement to which the Company is a party. No party with whom the Company has entered into an agreement, arrangement or obligation which is material to the Group has given notice of its intention to terminate, or has sought to repudiate or disclaim, the agreement, arrangement or obligation.

(b) So far as the Seller is aware, no party with whom the Company has entered into an agreement or arrangement which is material to the Group is in material breach of the agreement or arrangement. So far as the Seller is aware, no matter exists which might give rise to such breach.

(c) The Company is not in breach of any agreement or arrangement which is material to the Group. So far as the Seller is aware, no matter exists which might give rise to such breach.

(d) No orders or similar instructions have been made by any court or other competent authority requiring the modification of any agreement, arrangement or obligation to which the Company is party and the Seller is not aware of any circumstances which could give rise to any such order or similar instruction in the future.

10.2 NHS and CSA Contracts

A complete copy of each current contract between the Company and/or the Subsidiary and any part of the National Health Service and the Northern Ireland Health and Social Services Central Services Agency has been Disclosed.

10.3 Material Agreements

(a) The Company is not a party to and is not liable under any material contract, transaction, arrangement or liability which:

(i) is outside the ordinary course of the Company’s business;

(ii) was entered into otherwise than by way of a bargain at arm’s length terms;

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(iii) is of a long-term nature (that is, unlikely to have been fully performed, in accordance with its terms, more than six months after the date of Completion);

(iv) is incapable of termination in accordance with its terms, by the Company, on three months’ notice or less;

(v) involves an aggregate outstanding expenditure by the Company of more than £100,000; or

(vi) in any way restricts the Company’s freedom to carry on the whole or any part of its business as carried on in the UK at Completion in such manner as it thinks fit.

(b) The Company is not a party to and is not liable under:

(i) an agreement, arrangement or obligation by which the Company is a member of a joint venture, consortium, partnership or association (other than a bona fide trade association), shareholder or similar arrangement or agreement or any agreement which purports to regulate control or otherwise affects the voting or disposition of its shares; or

(ii) a distributorship, promotional, representation, franchising, agency, marketing or management agreement or arrangement.

10.4 Contracts with Connected Persons

Neither the Company nor the Subsidiary owes any obligation or sum to nor do they and neither will they immediately after Completion have any contractual or other arrangements of any sort with the Seller or any of its connected persons.

10.5 Disability Discrimination Act 1995

(a) The Company has made all reasonable adjustments to its practices, policies and procedures to comply with its duties as a provider of services under the Disability Discrimination Act 1995.

(b) No person has made a claim under the Disability Discrimination Act 1995 in respect of alleged discrimination in connection with the provision of services by the Company and the Seller is not aware of any circumstances which could give rise to any such claim in the future.

(c) The Seller is not aware of the invalidity, unenforceability or any ground for avoidance under section 26(1) of the Disability Discrimination Act 1995 of any agreement, arrangement or obligation to which the Company is party.

(d) No orders have been made under section 26(3) of the Disability Discrimination Act 1995 in respect of any agreement, arrangement or obligation to which the Company is party and the Seller is not aware of any circumstances which could give rise to any such order in the future.

11. INFORMATION TECHNOLOGY AND DATA PROTECTION

11.1 Breakdowns

(a) In the twelve months prior to the date hereof the Company has not suffered any material failures or bugs in or breakdowns of any of the Systems which have caused any substantial disruption or substantial interruption in or to their use and

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the Seller is not aware of any fact or matter which may so disrupt or interrupt or affect the use of the Systems following Completion.

(b) The Company has in place disaster recovery plans which are appropriate and adequate to ensure that the Systems and the data stored on them can be replaced or substituted without material disruption to the business of the Company in the event of a failure of the Systems (whether due to natural disaster, power failure or otherwise).

11.2 Adequacy

The Systems have appropriate and adequate capability and capacity for the processing, communications and other functions required to enable the Company to carry on its business effectively in the manner and in the places in which that business is currently carried on.

11.3 Ownership

All Systems are owned by or under the control of the Company and are not wholly or partly dependent on any facilities which are not under the ownership or control of the Company and, so far as the Seller is aware, do not infringe the rights of any third party. All software used in the business is owned by or licensed (in relation to any bespoke software, for no fee) to the Company.

11.4 Data Protection

(a) In this paragraph 11.4, “personal data”, “data subject” and “processed” shall have the meanings attributed to them in the Data Protection Act 1998.

(b) So far as the Seller is aware, the Company complies in full with, and has in place all necessary registrations, notifications and procedures to comply with the Data Protection Act 1998.

(c) The Company has not received any requests from data subjects for access to personal data nor, so far as the Seller is aware, have any complaints been made in respect of such data and no enforcement notices have been served on the Company by the Information Commissioner.

12. LIABILITIES

12.1 Debts owed by the Company

The Company does not have any outstanding, and has not agreed to create any, borrowing or indebtedness in the nature of borrowing (including, any indebtedness for moneys borrowed or raised under any acceptance credit, bond, note, bill of exchange or commercial paper, finance lease, hire purchase agreement, trade bills (other than those on terms normally obtained), forward sale or purchase agreement or conditional sale agreement or other transaction having the commercial effect of a borrowing) other than:

(a) Intra-Group Payables details of which are set out in the Disclosure Letter;

(b) finance lease obligations, details of which are set out in the Disclosure Letter; and

(c) moneys borrowed from third parties and details of which are set out in the Disclosure Letter.

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12.2 Guarantees and Indemnities

(a) The Company is not a party to a guarantee, indemnity or other agreement to secure or incur a financial or other obligation with respect to another person’s obligation (other than in respect of another Group Company, details of which are set out in the Disclosure Letter).

(b) No part of the loan capital, borrowing or indebtedness in the nature of borrowing of the Company is dependent on the guarantee or indemnity of, or security provided by, another person (other than in respect of a Group Company, details of which are set out in the Disclosure Letter).

12.3 Events of Default

No event has occurred or is subsisting or been alleged in writing or so far as the Seller is aware is likely to arise which:

(a) constitutes an event of default, or otherwise gives rise to an obligation to repay, or to give security under an agreement relating to borrowing or indebtedness in the nature of borrowing;

(b) will lead to an Encumbrance constituted or created in connection with borrowing or indebtedness in the nature of borrowing, a guarantee, an indemnity, suretyship or other obligation of the Company becoming enforceable; or

(c) with the giving of notice and/or lapse of time constitute or result in a default or the acceleration of any obligation under any agreement or arrangement to which the Company is a party or by which it or any of its properties, revenues or assets is bound.

12.4 Grants

During the period of six years preceding the date of this agreement, the Company has not applied for or received any grant or allowance from any authority or agency.

13. PERMITS

13.1 Compliance with Permits

The Company has obtained all material Permits and complied with the terms and conditions of each such Permit in all material respects.

13.2 Status of Permits

There are no pending or threatened proceedings which might in any way affect any material Permits and the Seller is not aware of any other reason why any such Permits should be suspended, threatened or revoked or be invalid.

14. INSOLVENCY

14.1 Winding up

No order has been made, petition presented or resolution passed for the winding up of or for the appointment of a provisional liquidator to the Company or the Seller.

14.2 Administration

Neither the Company nor the Seller has been or are in administration (as defined in schedule B1 of the Insolvency Act 1986) and no step (including but without limitation the

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service of any notice or the filing of any document(s)) has been taken under schedule B1 of the Insolvency Act 1986 by any person to place the Company or the Seller in administration.

14.3 Receivership

No receiver, receiver and manager or administrative receiver has been appointed in respect of the whole or part of either the Company’s or the Seller’s business or assets nor, so far as the Seller is aware, has any step been taken for or with a view to the appointment of such a person.

14.4 Compromises with Creditors

(a) No voluntary arrangement under section 1 of the Insolvency Act 1986 has been proposed or approved in respect of the Company or the Seller.

(b) No compromise or arrangement under section 425 of the Companies Act 1985 has been proposed, agreed to or sanctioned in respect of the Company or the Seller.

(c) Neither the Company nor the Seller has entered into any compromise or arrangement with its respective creditors or any class of its respective creditors generally.

14.5 Insolvency

Neither the Company nor the Seller is unable to pay its debts within the meaning of section 123 of the Insolvency Act 1986.

14.6 Payment of Debts

Neither the Company nor the Seller has had a claim made against it for not paying its debts as they fall due and neither the Company nor the Seller has, by reason of actual or anticipated financial difficulties, entered into commercial negotiations with one or more of its creditors with a view to rescheduling any of their respective indebtedness.

14.7 Distress etc.

No distress, execution or other process has been levied on an asset of the Company or the Seller and, so far as the Seller is aware, no creditor of the Company or the Seller has taken any steps to enforce, or has enforced, any security over any asset of the Company or the Seller.

14.8 Unsatisfied Judgments

There is no unsatisfied judgment or court order outstanding against the Company or the Seller.

14.9 Striking Out

No action is being taken by the Registrar of Companies to strike the Company or the Seller off the register under section 652 of the Companies Act 1985.

15. LITIGATION AND COMPLIANCE WITH LAW

15.1 Litigation

(a) Neither the Company nor a person for whose acts or defaults the Company may be vicariously liable is involved, or has during the two years preceding the date of this agreement been involved, in a civil, criminal, arbitration, administrative or other

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proceeding in any jurisdiction which might reasonably give rise to a material liability on the Company. So far as the Seller is aware, no civil, criminal, arbitration, administrative or other proceeding in any jurisdiction which might reasonably give rise to a material liability on the Company, is pending or threatened by or against the Company or a person for whose acts or defaults the Company may be vicariously liable;

(b) So far as the Seller is aware, no matter exists that might give rise to a civil, criminal, arbitration, administrative or other proceeding in any jurisdiction involving the Company or a person for whose acts or defaults the Company may be vicariously liable and which might reasonably give rise to a material liability on the Company; and

(c) So far as the Seller is aware, there is no outstanding judgment, order, decree, arbitral award or decision of a court, tribunal, arbitrator or governmental agency in any jurisdiction against the Company.

15.2 Compliance with Law

The Company has conducted its business, affairs and dealt with its assets in all material respects in accordance with all applicable legal and administrative requirements in any jurisdiction.

15.3 Competition

(a) In this paragraph 15.3, “Competition Laws” shall mean the Fair Trading Act 1973, Competition Act 1998, Enterprise Act 2002, Articles 81 and 82 EC Treaty and regulations thereunder and EC Council Regulation 139/2004 and regulations made thereunder or any other competition or similar legislation in any jurisdiction material to the operation of the Company’s business.

(b) Neither the Company nor (in a capacity in which they act on behalf of the Company) any director of or individual employed by the Company is or has been a party to, engaged in or otherwise concerned with any agreement, arrangement, practice or course of conduct which:

(i) materially infringes any of the Competition Laws or is or has been the subject of any proceedings in which the Competition Laws were pleaded or relied upon; or

(ii) so far as the Seller is aware, is or has been subject to any investigation, enquiry or disciplinary proceeding (whether judicial, quasi-judicial or otherwise) in any jurisdiction and none is pending or threatened, and neither has the Company received any request for information from, any court or governmental authority (including any national competition authority and the Commission of the European Communities and the EFTA Surveillance Authority) under any anti-trust or similar legislation in any jurisdiction. So far as the Seller is aware no matter exists which might give rise to such an investigation, enquiry, proceeding or request for information.

(c) The Company has not received any complaint or threat to complain under or referring to any of the Competition Laws from any person.

(d) The Company has not given any undertaking or assurance to the Office of Fair Trading or the Secretary of State for Trade and Industry or the European Commission or Court of Justice of the European Community or, so far as the Seller is aware, to any other court or person relating to any of the Competition Laws.

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(e) The Company is not in default or in contravention of any decision, regulation, order, settlement or undertaking or assurance made in relation to the Company under any of the Competition Laws.

15.4 Unlawful Payments

Neither the Company nor a person for whose acts or defaults the Company may be vicariously liable has:

(a) induced a person to enter into an agreement or arrangement with the Company by means of an unlawful or immoral payment, contribution, gift or other inducement;

(b) offered or made an unlawful or immoral payment, contribution, gift or other inducement to a government official or employee; or

(c) directly or indirectly made an unlawful contribution to a political activity.

All references to the Company in this paragraph 15 should be deemed to include the Company’s officers, agents and employees.

16. BROKERAGE OR COMMISSIONS

No person is entitled to receive from the Company a finder’s fee, brokerage or commission in connection with this agreement or anything in it and the Company is not liable to pay to any of its directors, employees, agents and advisers any sum whatsoever in connection with the sale of the Shares.

17. OFFICERS AND EMPLOYEES

17.1 Particulars of officers and employees

(a) All remuneration and remuneration arrangements and other benefits (whether in cash or in kind) provided to the officers and employees of the Company have been Disclosed, including true and complete particulars of all profit sharing, incentive, commission and bonus arrangements to which the Company is a party whether legally binding on the Company or not.

(b) The names and job titles of each officer and employee, as at 31 August 2007, have been Disclosed.

17.2 Terms and conditions

(a) Examples of the standard terms and conditions applicable to each grade or class of employee, terms of appointment or employment for each Director of the Company, staff handbooks and policies which apply to officers and employees of the Company have been Disclosed.

(b) There are no terms and conditions in any contract with any director, officer, employee or consultant of the Company pursuant to which such person will be entitled to receive any payment or benefit or such person’s rights will change as a direct consequence of the transaction contemplated by this agreement.

(c) Copies of all current contracts (including contracts of employment and any other relevant commitments, agreements or arrangements) between the Company and the Senior Employees have been Disclosed.

(d) There is not now outstanding any contract of employment between the Company and any of its directors, officers or employees which is not terminable by the

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Company without compensation (other than statutory compensation) on three months’ notice or less at any given time.

17.3 Notice of Termination and Outstanding Offers

(a) Since the Accounts Date, no Senior Employee has given or received notice to terminate his employment or engagement.

(b) There are no outstanding offers of employment or engagement by the Company relating to Senior Employees and no Senior Employee has accepted such an offer but not yet taken up the position accepted.

(c) Since the Accounts Date, no change has been made, announced or proposed in the rate of remuneration or the emoluments or pension benefits of any Senior Employee of the Company and no change has been made, announced or proposed in the terms of engagement of any such Senior Employee.

17.4 Payment up to Completion

All salaries and wages and other benefits of all employees or officers of the Company have, to the extent due, been paid or discharged in full.

17.5 Industrial relations

(a) No trade union, staff association, works council or any other body representing workers is recognised by the Company.

(b) There are no collective agreements between the Company and any trade union, staff association works council or any other body representing workers.

(c) So far as the Seller is aware, no request made pursuant to:

(i) Part 1 of Schedule A1 to the TULR(C)A for recognition of any trade union;

(ii) Regulation 7 of the Information and Consultation of Employees Regulations 2004 to negotiate an agreement in respect of information or consultation; or

(iii) the Transnational Information and Consultation of Employees Regulations 1999 to negotiate an agreement for a European Works Council or an information and consultation procedure,

has been received by the Company.

(d) During the 12 months preceding the date of this agreement, there has been no industrial or similar action by or in relation to the employees of the Company or any of them and no industrial or similar action is being or has been threatened, and no ballot for such action has been approved or arranged.

17.6 Claims by officers and employees

(a) No past or present officer or employee of the Company or any predecessor in business has instigated any claim or right of action against the Company for breach of any contract of services or for services or for loss of office or arising out of or connected with the termination of his office or employment.

(b) There is no dispute between the Company and two or more of its employees or former employees and no payments or compensation are due from the Company under the Employment Rights Act 1996.

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(c) No Senior Employee of the Company is subject to any disciplinary action or engaged in any grievance procedure.

(d) The Company is not party to any legal proceedings in respect of any past, present or prospective officers or employees of the Company and, so far as the Seller is aware, no such proceedings are pending or have been threatened.

17.7 Transfer Regulations

The Company has not within the one year preceding the date hereof entered into any agreement which involved or may involve the Company (and no event has occurred which may involve the Company in the future) acquiring or disposing of any undertaking or part of one such that the Transfer Regulations applied or may apply thereto or been a party to a relevant transfer (as defined in the Transfer Regulations) or failed to comply with an obligation imposed by the Transfer Regulations.

17.8 Redundancies

(a) In the 12 months preceding the date of this agreement, the Company has not given notice of redundancies to the relevant Secretary of State or started consultations with a trade union under Chapter II of Part IV of the TULR(C)A or failed to comply with its obligations under Chapter II of Part IV of the TULR(C)A.

(b) The Company does not operate and has not operated any custom, policy, practice or arrangement (whether contractual or non-contractual) pursuant to which employees who are redundant (within the meaning of section 139 of the Employment Rights Act 1996) are entitled to payments which are in excess of those required to be paid under section 135 of the Employment Rights Act 1996.

17.9 Absence

Names of all employees who are absent from work for more than four weeks for any reason other than paid annual holiday and/or who are absent due to ill-health and have been for more than four weeks are Disclosed in the Disclosure Letter.

17.10 Consultants and working arrangements

(a) Other than as Disclosed, the Company does not use the services of consultants, agency workers or other self-employed persons to a material extent.

(b) No application for flexible working by a Senior Employee has been made to the Company within the 12 months preceding the date of this agreement.

(c) The Company has not entered into any secondment arrangement in respect of any Senior Employee.

17.11 Compliance

(a) The Company has, in relation to each of its officers and employees (and, so far as relevant, to each of its former officers and employees) complied with all material obligations imposed on it by, and all orders and awards made under, all directives, statutes, regulations and collective agreements relevant to the relations between it and its employees or any trade union, or to the conditions of service of its employees and has maintained current, adequate and suitable records regarding the service of each of such officers and employees.

(b) There are no persons engaged by or to provide services to the Company who are persons not granted leave to enter or remain in the United Kingdom or who are not

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entitled to work in the United Kingdom under the Immigration, Asylum and Nationality Act 2006.

18. PROPERTIES

18.1 All Property

The Properties comprise all the freehold and leasehold land owned, used or occupied in any part of the world by the Company and all the rights vested in the Company relating to any land at the date hereof.

18.2 No Other Liabilities

The Company has no actual or contingent obligations or liabilities (in any capacity including as principal contracting party or guarantor) in relation to any lease, licence or other interest in, or agreement relating to, any land apart from the Properties.

18.3 Property Unencumbered

The Company is solely legally and beneficially entitled to the Properties for an unencumbered estate in possession and the particulars of each of the Properties set out in schedule 5 to this agreement are true and accurate in all respects.

18.4 Leasehold Properties

(a) Each of the Properties is leasehold and is held under a lease brief details of which are set out in schedule 5.

(b) All rents and service charges have been paid to date and no notice of any alleged breach of any of the terms of any such lease or tenancy agreement as aforesaid has been received and, so far as the Seller is aware, all material covenants and material obligations on the part of the tenant have been performed.

18.5 No Disputes

The Company has not received any notices to the effect that the Properties are materially affected by any outstanding disputes (nor is it aware of any situation which is likely to result in such a notice being issued). The Company has not received any notices which materially affect the use of the Properties for the purposes for which they are now used and so far as the Seller is aware there are no matters or Encumbrances affecting the Properties and which would prevent or impede the Company from operating and carrying on the businesses currently carried on at the Properties.

18.6 No charges

The Properties are not subject to or affected by any mortgage or charge (whether legal or equitable, fixed or floating), debenture, lien, pledge, security interest or other encumbrance including without limitation any which secure the payment of money or relate to any obligation or liability of any third party.

18.7 Northern Irish properties

The agreements in relation to the properties at Unit E3, Ankelon Industrial Estate and 45a Letterkenny Road (the “Northern Irish Units”) contain no onerous or unusual terms and the Company has complied with all statutes, orders or regulations affecting the Northern Irish Units.

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19. PENSIONS

19.1 Pensions arrangements disclosed

Save under the arrangements disclosed at paragraph 19 of the Disclosure Letter (the “Disclosed Schemes”) and the state pension schemes, the Group is under no obligation to provide any pension or lump sum on retirement or on death, or in anticipation of retirement or, in connection with past service, after retirement or death (“Pension Benefits”) to or in respect of any employee or former employee.

19.2 Undertakings

No written promise has been given or will before Completion be given by the Group to any member of the Disclosed Schemes as to the continuance or the improvement of any Pension Benefits.

19.3 Disclosure of documents

In respect of each Disclosed Scheme, the Buyer or its advisers have been supplied with a list of the members of the Disclosed Schemes.

19.4 Payment of contributions

All contributions and premiums which have become due and payable to the Disclosed Schemes in respect of any member of the Disclosed Schemes have been duly made.

19.5 Legal compliance

So far as the Seller is aware, the Disclosed Schemes are in all material respects administered in accordance with and comply with all applicable legislation.

19.6 Claims and litigation

So far as the Seller is aware, no claim has been made in writing by or in respect of any member of the Disclosed Schemes against the Group, the trustees of the Disclosed Schemes or any employer participating in the Disclosed Schemes which remains outstanding (other than routine claims for benefits).

19.7 Insured death benefits

All death benefits which may be payable under the Disclosed Schemes (other than a refund of members’ contributions with interest where appropriate) are fully insured with an insurance company authorised under the Financial Services and Markets Act 2000 to carry on long-term insurance business.

19.8 Moral Hazard Risk

The Company is not and has not since 27 April 2004 been an associate of or connected with (within the meaning of sections 38 and 51 of the Pensions Act 2004) any person who is an employer in relation to any occupational pension scheme which operates on a defined benefit basis and there is no contribution notice, financial support direction or restoration order (as defined in sections 38 to 56 of the Pensions Act 2004) in force or pending in which the Company is named.

19.9 Transfer Regulations

None of the officers or employees of the Company have a right that arose on or before Completion as a result of a transfer under the Transfer of Undertakings (Protection of

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Employment) Regulations 1981 or the Transfer Regulations to relevant benefits payable on or after the Completion Date.

20. TAXATION

20.1 Returns

The Company has complied in full with all its duties under all taxation statutes and has kept all records, made all returns and supplied all information and given all notices to HMRC or other Taxation Authority as reasonably requested or required by law within any requisite period and all such returns and information and notices and any statements or disclosures made to any Taxation Authority are correct and accurate in all respects and are not the subject of any dispute, and so far as the Seller is aware, there are no facts or circumstances likely to give rise to or be the subject of any such dispute.

20.2 Clearances

No action has been taken by the Company in respect of which any consent or clearance from HMRC or other Taxation Authority was required save in circumstances where such consent or clearance was validly obtained and all such actions were carried into effect only in accordance with the terms of the relevant consent or clearance.

20.3 Payment of Tax

The Company has duly and punctually paid all Tax to the extent that the same ought to have been paid and is not liable nor has it within three years prior to the date hereof been liable to pay any penalty or interest in connection therewith.

20.4 Restricted Securities

No restricted securities or restricted interests in securities within the meaning of ITEPA 2003 section 423 have been acquired by employees of the Company since 15 April 2003.

20.5 Withholdings

The Company has in the last three years duly and punctually complied with its obligations to deduct, withhold or retain amounts of or on account of Tax from any payments made by it and to account for such amounts to the relevant Taxation Authority and has complied with all its reporting obligations to the relevant Taxation Authority in connection with any such payments made.

20.6 PAYE

The Company has made all payments, deductions, withholdings or reductions as it should have made in respect of any remuneration or benefits of any kind paid or provided to employees, sub-contractors or workers supplied by agencies in respect of taxation, national insurance or social security contributions, and all sums payable by the Company to any taxation authority in respect of such amounts due to be paid to the relevant authority before Completion have been paid in accordance with the prescribed time limits. No PAYE audit in respect of the Company has been made by HMRC nor has the Company been notified that any such audit will be made.

20.7 Provision for Tax in the Accounts

The Accounts make full provision or reserve in respect of the period ended on the Accounts Date for all Tax assessed or liable to be assessed on the Company or for which it is accountable at the Accounts Date whether or not the Company has or may have any right of reimbursement against any other person and full provision has been made and

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shown in the Accounts for deferred taxation in accordance with generally accepted accounting principles.

20.8 Post-Accounts Date Events

Since the Accounts Date:

(a) the Company has not been involved in any transaction which has given, may give or would, but for the availability of any relief, give rise to any Tax other than in respect of actual income earned by the Company in the course of its trade;

(b) no accounting period (as defined in section 12 of the TA) of the Company has ended as referred to in section 12(3) of the TA;

(c) the Company has not submitted any amended Tax returns to any Taxation Authority;

(d) the Company has not changed any accounting policy, any Tax accounting basis, payment or reporting practice (except where such change was necessary to comply with generally accepted accounting principles); and

(e) the Company has not ceased to be a member of a group (as defined in section 170 of the TCGA).

20.9 Sales at Undervalue/Overvalue

All transactions entered into by the Company have been entered into on an arm’s length basis and the consideration (if any) charged or received or paid by the Company on all transactions entered into by it has been equal to the consideration which might have been expected to be charged received or paid (as appropriate) between independent persons dealing at arm’s length. The Company has retained contemporaneous documentary evidence sufficient to demonstrate the same in relation to transactions in the past five years.

20.10 Company Residence

The Company has always been resident in the territory in which it was incorporated and has not been assessed to Tax in any other jurisdiction. The Company does not have a permanent establishment or other taxable presence in any jurisdiction other than that in which it was incorporated.

20.11 Book Value

The Disclosure Letter sets out full particulars of all claims and elections made (or assumed in the Accounts to have been made) under any of sections 23, 152-162 and 165 of the Taxation of Chargeable Gains Act 1992 insofar as they could affect the chargeable gain or allowable loss which would arise in the event of a disposal by the Company of any of its assets after Completion.

20.12 Intra-Group Transfers

Save as Disclosed in the Disclosure Letter, the Company has not acquired any asset other than trading stock from any other company belonging at the time of acquisition to the same group of companies as the Company within the meaning of section 170 of the TCGA.

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20.13 Group Relief and Consortium Relief

The Disclosure Letter contains particulars (including details of any payments made or received) of all arrangements relating to the surrender of relief under sections 402-413 of the TA to which the Company is or has been a party.

20.14 Group Payment Arrangements

In the last three years the Company has not made nor been party to any arrangements with HMRC with respect to payment of corporation tax pursuant to section 36 of the FA 1998.

20.15 Close Company

The Company is not a close company as defined by section 414 of the TA.

20.16 Secondary Liability

So far as the Seller is aware, no transaction or event has occurred in consequence of which the Company is or may be held liable for any Tax where a member of the Seller’s Group other than the Company and the Subsidiary is or may become primarily liable for the Tax in question.

20.17 Indemnities

The Company has not entered into any indemnity, guarantee or covenant under which the Company has agreed to pay or discharge any amount equivalent to or by reference to any other person’s liability to Tax.

20.18 Tax Schemes

(a) the Company has not entered into any transaction forming part of notifiable arrangements (as defined by section 306 of the FA 2004); and

(b) the Company has not entered into any marketed tax avoidance scheme for the avoidance or deferral of tax.

20.19 Tax Fraud

The Company has not been party to any transaction within section 144 of the FA 2000 (offence of fraudulent evasion of income tax).

20.20 Value Added Tax

(a) The Company is a member of a group for VAT purposes of which Allied Healthcare Group Limited is the representative member. The Disclosure Letter contains full details of such VAT group registration including details of each company which is, or has been in the period of three years ending with the date of Completion, a member of that group.

(b) The Company is not, nor has it been in the period of three years ending with the date of Completion, a member of a group of companies for VAT purposes other than the group of companies referred to in paragraph 20.18(a) above.

(c) The Company has complied in all respects with the requirements and provisions of the VAT legislation and has made and maintained and will pending Completion make and maintain accurate and up-to-date records, invoices, accounts and other documents required by or necessary for the purposes of the VAT legislation and the

42

Company has at all times paid and made all payments and returns required thereunder.

(d) All supplies made by the Company are taxable supplies. The Company has not been denied full credit for all input tax (as defined in the VAT legislation) paid or suffered by it.

20.21 Stamp Duty and Stamp Duty Land Tax

(a) All documents in respect of which the Company is or may be interested have been duly stamped and since the Accounts Date the Company has not been a party to any transaction whereby the Company was or is or could become liable to stamp duty reserve tax or stamp duty land tax.

(b) Neither the Company nor any company which, by reason of this agreement, will be a “relevant associated company” in relation to the Company within the meaning of paragraph 3 or paragraph 9 of schedule 7 of the FA 2003 holds any estate or interest in land that was acquired by the Company in a transaction the effective date (as defined in section 119 of the FA 2003) of which for stamp duty land tax purposes occurred within the period of three years preceding this agreement being a transaction that was exempt from stamp duty land tax on the basis that group relief under paragraph 1 of schedule 7 of the FA 2003 or reconstruction or acquisition relief under paragraph 7 or 8 of schedule 7 of the FA 2003 applied, and neither the Company nor any such company holds an estate or interest in land that is derived from an estate or interest that was so acquired.

(c) In respect of each of the Properties which the Company holds as a leasehold interest, the Company has not been liable to pay stamp duty land tax by reason of the increase in the rent payable in accordance with the provisions of the lease being regarded as abnormal pursuant to paragraph 15 of schedule 17A of the FA 2003 and the Company is not aware of circumstances that are likely to produce such an abnormal increase after Completion.

(d) The Company has in its possession copies of all stamp duty land tax returns filed by the Company in relation to land in which or in part of which the Company has an interest.

21. ENVIRONMENTAL MATTERS

21.1 Consents

So far as the Seller is aware, the Group has obtained and complied with the terms and conditions of all Environmental Consents. All current Environmental Consents remain in full force and effect. The Group has not received any notice of and so far as the Seller is aware there are no circumstances that may lead to the revocation, modification or suspension of, or that may prejudice or require material expenditure for the renewal, extension, grant or transfer of, any current Environmental Consents.

21.2 Liability

(a) So far as the Seller is aware, the Company and the Properties comply and have at all times complied with all Environmental Laws and, so far as the Seller is aware, there are no facts or circumstances which interfere or prevent compliance with any Environmental Laws.

(b) There are no material civil, criminal arbitration or administrative actions, claims, proceedings or suits currently being brought against the Company arising from or relating to Environmental Consents or Environmental Law and so far as the Seller is

43

aware none are pending or threatened and there are no circumstances which may lead to such material actions, claims, proceedings or suits.

21.3 Notices and Complaints

The Company has not received any notice of enforcement, prohibition, improvement, remediation or other notice of equivalent nature, or any judgment, order, decree, award, demand or decision in respect of the Environment from any court, tribunal, arbitrator or governmental or regulatory authority and so far as the Seller is aware there have been no complaints, investigations, enquiries, requests for information or other formal indications of any possible claims or legal actions in respect of the Environment from any person including any neighbour, governmental or regulatory authority, current or former employee or third party.

21.4 Contaminated Land

So far as the Seller is aware, there has not been and there is not present on, at or under the Properties and there is and has been no release, migration, leakage, spill, discharge, entry, deposit or emission onto or from the Properties of any Hazardous Substance.

So far as the Seller is aware, there has not been any disposal, storage, release, leakage, migration, spill, discharge, entry, deposit or emission of any Hazardous Substance into the Environment caused by the Activities.

21.5 Former Properties

So far as the Seller is aware, there are no Environmental Matters at any property (other than the Properties) owned or occupied by the Group or in relation to any former business of the Group which is currently or could give rise to a liability under Environmental Laws.

21.6 Disclosure of Reports

So far as the Seller is aware, all material reports, audits or assessments prepared in relation to the Environment in the three years preceding Completion and which are in the control of the Seller’s Group have been disclosed to the Buyer in the Data Room.

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SCHEDULE 4

Seller Protection Clauses

1. Save in the case of fraud or fraudulent concealment by the Seller, the Seller shall be under no liability in respect of any claim under the Warranties and any such claim shall be wholly barred and unenforceable unless written notice of such claim setting out reasonable details of the relevant claim shall have been served upon the Seller by the Buyer:

1.1 in the case of a claim under the Warranties  (other than the Warranties relating to Tax) by not later than 5.00 p.m. on the date falling 18 months from the date hereof; and

1.2 in the case of a claim under the Warranties relating to Tax by not later than 5.00 p.m. on the seventh anniversary of the date hereof,

and, subject to clause 5.2 below, the liability of the Seller for any claim specified in such notice shall absolutely determine and cease if (unless the amount payable in respect of the relevant claim has been agreed by the Seller within six months of the date of such written notice) legal proceedings have not been instituted in respect of such claim by the due service of process on the Seller within six months of the date of such written notice.

For the purpose of this paragraph 1 legal proceedings shall not be deemed to have been commenced unless they shall have been properly issued and validly served upon the Seller.

2. Save in the case of fraud or fraudulent concealment by the Seller, the Seller shall be under no liability in respect of any claim under the Warranties or the Tax Deed:

2.1 where the liability of the Seller in respect of that claim (or a series of claims arising from substantially the same facts or circumstances) would (but for this paragraph) have been less than £50,000; or

2.2 unless and until the liability in respect of that claim (not being a claim for which liability is excluded under paragraph 2.1 above) when aggregated with the liability of the Seller in respect of all other such claims (other than any Excluded Claims) shall exceed £365,000, provided that the provisions of this paragraph 2.2 shall not apply in relation to any claim under the Tax Deed in relation to a liability for corporation tax in relation to the financial year ended 30 September 2007 (an “Excluded Claim”), in which case the Seller shall be liable for the total amount of the claim and not merely the excess above £365,000.

3. Save in the case of fraud or fraudulent concealment by the Seller, the aggregate liability of the Seller (before any netting off or set off of any liability of the Buyer) in respect of all claims whatsoever under this agreement (other than clause 2.1) and the Tax Deed shall not in any circumstances exceed 50 per cent. of the aggregate of the Share Consideration and the Intra-Group Indebtedness.

4. The Seller shall be under no liability in respect of any claim under the Warranties to the extent that the facts or circumstances giving rise thereto are fairly disclosed (and for this purpose, “fairly” means with sufficient detail to identify the nature and scope of the matters disclosed) in the Disclosure Letter. Nothing in the Disclosure Letter shall constitute a representation or warranty as to the accuracy of the information forming part of the Disclosure Letter.

5. No liability (whether in contract, tort or otherwise) shall attach to the Seller in respect of any claim under the Warranties to the extent that:

5.1 the claim or the events giving rise to the claim would not have arisen but for an act, omission or transaction of the Buyer’s Group which it knew, or ought reasonably to have

45

known, would or might reasonably be expected to have given rise to a claim for breach of Warranty, otherwise than an act, omission or transaction:

(i) in the ordinary course of trading of the Group as at present carried on and which the Buyer or member of the Buyer’s Group could not reasonably have avoided ; or

(ii) required by law; or

(iii) pursuant to a contractual commitment entered into prior to Completion,

or which would not have arisen but for any claim, election or surrender or disclaimer made or omitted to be made or notice or consent given or omitted to be given by the Buyer’s Group under the provisions of any statutes relating to Tax;

5.2 the claim is based upon a liability which is contingent only, unless and until such contingent liability becomes an actual liability or until the same is finally adjudicated provided that for the purposes of paragraph 1 of this schedule 4, the six month period referred to in paragraph 1 shall commence on the day that the contingent liability becomes an actual liability or until the same is finally adjudicated;

5.3 the claim occurs wholly or partly out of or the amount thereof is increased as a result of:

(a) any change in the accounting principles or practices of the Buyer’s Group introduced or having effect after the date of this agreement unless the same is introduced to bring the accounting principles and practices into line with generally accepted accounting principles and practices in the UK in relation to a business of the type carried on by the Company or the Subsidiary; or

(b) any increase in the rates of taxation made after the date hereof; or

(c) any change in law or regulation or in its published interpretation or administration by the English courts, by HMRC or by any other fiscal, monetary or regulatory authority (whether or not having the force of law); or

5.4 the loss or damage giving rise to the claim (i) is insured against under the terms of any insurance policy of the Company or the Subsidiary for the time being in force and (ii) the Company or the Subsidiary recovers under that policy of insurance (net of recovery costs associated therewith). In the event that the Buyer or any member of the Group has a right of recovery under an insurance policy in respect of the loss or damage forming the basis of a claim, the Buyer will procure that it will use all reasonable endeavours to make recovery thereunder.

6. No liability (whether in contract, tort or otherwise) shall attach to the Seller in respect of any claim under the Tax Deed to the extent that the facts or circumstances giving rise to the claim also give rise to a claim under the Warranties and the Seller shall have satisfied such claim. The Buyer shall only claim under the Tax Deed to the extent that the liability of the Seller thereunder exceeds the damages obtained by the Buyer in its claim for breach of the Warranties.

7. In assessing any liabilities damages or other amounts recoverable by the Buyer as a result of any claim under the Warranties there shall be taken into account any benefit accruing to the Buyer’s Group (including, without prejudice to the generality of the foregoing, any amount of any tax relief obtained or obtainable by the Buyer’s Group and any amount by which any taxation for which the Buyer’s Group is or may be liable to be assessed or accountable is actually reduced or extinguished) arising directly or indirectly in consequence of the matter which gives rise to such claim.

7.1 This clause shall apply in circumstances where:

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(a) any claim is made against the Buyer’s Group which may give rise to a claim by the Buyer against the Seller under the Warranties other than the Warranties applying to Taxation (the “General Warranties”); or

(b) the Buyer’s Group is or may be entitled to make recovery from some other person any sum in respect of any facts or circumstances by reference to which the Buyer has or may have a claim against the Seller under the General Warranties; or

(c) the Seller shall have paid to the Buyer an amount in respect of a claim under the General Warranties and subsequent to the making of such payment the Buyer’s Group becomes or shall become entitled to recover from some other person a sum which is referable to that payment.

For the avoidance of doubt any claim under the Warranties relating to Tax shall be governed by clause 4 of the Tax Deed.

7.2 The Buyer shall and shall procure that the Company and each Subsidiary shall:

(a) (subject to the Company and any Subsidiary being indemnified and secured to the reasonable satisfaction of the Buyer by the Seller against all reasonable costs and expenses which may properly be incurred by reason of such action) as soon as reasonably practicable take such action as the Seller may reasonably request including the institution of proceedings and the instruction of professional advisers approved by the Seller to act on behalf of the Buyer or the Company or any Subsidiary to avoid, dispute, resist, compromise, defend or appeal against any such claim against the Group as is referred to in paragraph 8.1(a) or to make such recovery by the Group as is referred to in paragraph 8.1(b) or paragraph 8.1(c), as the case may be, in accordance with the instructions of the Seller; and

(b) not settle or compromise any liability or claim to which such action is referable without the prior written consent of the Seller which consent shall not be unreasonably withheld or delayed; and

(c) in the case of paragraph 7.1(c) only, as soon as reasonably practicable repay to the Seller an amount equal to the amount so recovered (less any Tax paid in respect thereof) or, if lower, the amount paid by the Seller to the Buyer,

provided that nothing in this paragraph 7.2 shall permit the Seller to take, or require the Buyer or the Company or the Subsidiary to take, any action which, in the opinion of the Buyer (acting reasonably) is or is likely to be materially prejudicial to the Company.

8. Save where to do so would or might breach or endanger the Buyer’s or the relevant Group Company’s legal privilege in any material accounts, documents or records, the Buyer shall:

8.1 as soon as reasonably practicable inform the Seller in writing of any fact, matter, event or circumstance which comes to its notice or to the notice of the Buyer’s Group whereby it appears that the Seller is or may be liable to make any payment in respect of any claim under the General Warranties or whereby it appears the Buyer’s Group shall become or may become entitled to recover from some other person a sum which is referable to a payment already made by the Seller in respect of such a claim;

8.2 thereafter keep the Seller fully informed of all developments in relation thereto; and

8.3 provide access to its personnel, premises and chattels and give all such information and documentation (no matter how it is recorded or stored) as the Seller shall reasonably request in connection therewith and also in connection with any proceedings instituted by or against the Buyer’s Group under paragraph 7.1.

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8.4 No liability in respect of any claim for Tax under the Warranties shall become payable:

8.5 in the case of a claim for taxation involving an actual payment of tax or the loss or set off of a relief against taxation, prior to the date three days before the date on which a payment of taxation becomes finally due and payable under or in consequence of the claim for taxation in question; or

8.6 in the case of a claim for taxation involving the loss of or reduction of a right to repayment of taxation, prior to the day on which any repayment or increased repayment of taxation which, but for such claim for taxation would have been available, would have been due.

9. In the event that the Seller at any time after the date hereof shall wish to take out insurance against its liability hereunder the Buyer undertakes to provide such information as the prospective insurer may reasonably require before effecting such insurance.

10. The Buyer confirms that it does not have knowledge (being the actual knowledge of Wayne Bohannon and Paul Damiani only) of any fact relating to the Company or its business which has been disclosed to it with sufficient clarity for it to understand its nature and scope and which, so far as it is aware, gives rise (or is reasonably likely to give rise) to a right to bring a claim for breach of Warranty.

11. Nothing in this agreement shall or shall be deemed to relieve the Buyer of any common law or other duty to mitigate any loss or damage incurred by it.

12. The Seller shall not be liable under this agreement or the Tax Deed in respect of any claim to the extent that any provision or reserve is made for the matter relating to such claim in the Accounts.

13. The Buyer shall not be entitled to recover damages in respect of any claim under the Warranties or the Tax Deed or otherwise obtain reimbursement or restitution more than once in respect of the same fact or subject matter.

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SCHEDULE 5

The Properties

Property Reference Number	Property	Type of Interest	Parties	Brief Description of Document
1	Charles House Enterprise Way Four Ashes Wolverhampton	Leasehold	(1) Mr & Mrs J. Goodreid (2) Medigas Limited	Lease dated 25 September 2003 for a term of 10 years commencing 24 September 2003 and expiring 23 September 2013 and the rent for the year ending 30 September 2008 is £24,750 per annum
2	Unit 1 Charlwoods Place East Grinstead RH19 2HY (Offices)	Leasehold	(1) Darren Hawney and Julie Claire Hawney (2) Medigas Limited	Lease dated 27 February 2006 for a term of 6 years commencing 27 February 2006 and expiring on 26 February 2012 and the rent for the year ending 30 September 2008 is £46,150 per annum
3	Harbruc House Charlwoods East Grinstead (Warehouse)	Licence	(1) Harbruc Engineering Limited (2) Allied Respiratory Company Limited	Rolling licence with 4 months notice to terminate
4	Unit P224.03C Longtown Industrial Estate	Leasehold	(1) Northern Trust Company Limited (2) Medigas Limited	Short Business Letting dated 23 May 2006 for a term of 3 years commencing 23 May 2006 and expiring 22 May 2009
5	Unit 13 Roman Industrial Estate Tait Road Croydon	Leasehold	(1) Alycidon Investments Limited (2) Medigas Limited	Lease dated 31 January 2006 for a term of 5 years commencing 30 January 2006 and expiring 29 January 2011
6	Unit No. 18 Palace Industrial Estate Parkwood Maidstone Kent	Leasehold	(1) Chartland Properties Limited (2) Medigas Limited	Lease dated 2 December 2005 for a term of 5 years commencing on 2 December 2005 and expiring on 1 December 2010

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Property Reference Number	Property	Type of Interest	Parties	Brief Description of Document
8	Unit 5 Vulcan Court Vulcan Way Sandhurst Berkshire	Leasehold	(1) Salebeech Limited (2) Medigas Limited	Lease dated 24 January 2006 for a term of 3 years commencing 24 January 2006 and expiring 23 January 2009
9	Unit 3 Griffin Industrial Mall Griffin Lane Aylesbury Bucks	Leasehold	(1) Panstar Group Limited (2) Medigas Limited	Lease dated 19 December 2005 for a term of 5 years commencing 19 December 2005 and expiring 18 December 2010
10	Unit 212 864 Plymouth Road Slough Industrial Estate	Leasehold	(1) Slough Borough Council (2) Medigas Limited	Notice to terminate lease has been served and lease will terminate on 19 October 2007
11	Ground Floor Premises 25 The Parkwood Centre Aston Road Waterlooville Hants	Leasehold	(1) Robert George Carrell and Denton & Co Trustees Limited as trustees of Dentons SSIP R G Carrell (2) SDS Engineering and Machinery Limited (3) Stuart Smith	Lease dated 18 July 2002 for a term of 6 years commencing 18 July 2002 and expiring 17 July 2008
12	Ground Floor Premises 25 The Parkwood Centre Aston Road Waterlooville Hants	N/A	(1) Robert George Carrell and Denton & Co Trustees Limited (2) Medigas Limited (3) Allied Respiratory Limited (4) Allied Healthcare Limited	Licence to assign dated 14 February 2007 the Lease dated 18 July 2002 between (1) Robert George Carrell and Denton & Co Trustees Limited as trustees of Dentons SSIP R G Carrell and (2) SDS Engineering and Machinery Limited

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Property Reference Number	Property	Type of Interest	Parties	Brief Description of Document
13	Ground Floor Premises 25 The Parkwood Centre Aston Road Waterlooville Hants	N/A	(1) Robert George Carrell and Denton & Co Trustees Limited (2) Medigas Limited (3) Allied Respiratory Limited	Authorised Guarantee Agreement dated 14 February 2007 in respect of assignment the Lease dated 18 July 2002 between (1) Robert George Carrell and Denton & Co Trustees Limited as trustees of Dentons SSIP R G Carrell and (2) SDS Engineering and Machinery Limited
14	Ground Floor Premises 25 The Parkwood Centre Aston Road Waterlooville Hants	N/A	(1) Medigas Limited (2) Allied Respiratory Limited	Assignment dated 16 February 2007 of Lease dated 18 July 2002 between (1) Robert George Carrell and Denton & Co Trustees Limited as trustees of Dentons SSIP R G Carrell and (2) SDS Engineering and Machinery Limited
15	Unit 5A Craigmore Industrial Estate Newry County Down	Leasehold	(1) Thomas Fletcher (2) Allied Oxy-Care Limited	Lease for a term of five years commencing 14 June 2004
16	Office Unit The Diamond Tempo County Fermanagh	Licence	(1) Tempo Developments Limited (2) Not stated	Licence commencing on 1 October 2006 terminable on one full calendar month’s notice with rent of £152 per month.
17	Antrim Unit Unit E3 Ankelon Industrial Estate Randalstown Road Antrim	Licence	(1) O’Connor Kennedy Turtle (2) Unknown	Unknown but rent being paid at £125 per month.

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Property Reference Number	Property	Type of Interest	Parties	Brief Description of Document
18	Derry Unit (container) 45a Letterkenny Road Londonderry	Licence	(1) Samuel McKean (2) Unknown	Verbal agreement with rent of £108 per month.

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SCHEDULE 6

The Seller’s Guarantee and Indemnity

1. Guarantee and Indemnity

The Seller’s Guarantor irrevocably and unconditionally:

(a) guarantees to the Buyer as principal obligor the due and punctual performance and observance by the Seller of all of its obligations under this agreement and the Tax Deed; and

(b) undertakes to indemnify the Buyer against all Losses incurred by the Buyer arising from any failure by the Seller to perform and/or observe any of its obligations under this agreement and the Tax Deed,

(together “this Guarantee and Indemnity”).

2. Continuing Security

This Guarantee and Indemnity is to be a continuing security which shall remain in full force and effect until all of the obligations of the Seller under this agreement and the Tax Deed shall have been fulfilled or shall have expired in accordance with the terms of this agreement and the Tax Deed and this Guarantee and Indemnity is to be in addition, and without prejudice to, and shall not merge with, any other right, remedy, guarantee, indemnity or security which the Buyer may now or hereafter hold in respect of all or any of the obligations of the Seller under this agreement and the Tax Deed.

3. Buyer’s Protections

The liability of the Seller’s Guarantor under this Guarantee and Indemnity shall not be affected, impaired or discharged by reason of any act, omission, matter or thing which but for this provision might operate to release or otherwise exonerate the Seller’s Guarantor from its obligations hereunder including, without limitation:

(a) any amendment, variation or modification to, or replacement of:

(i) this agreement; and/or

(ii) the Tax Deed;

(b) the taking, variation, compromise, renewal, release, refusal or neglect to perfect or enforce any rights, remedies or securities against the Seller or any other person;

(c) any time or indulgence or waiver given to, or compromise made with, the Seller or any other person; or

(d) the Seller becoming insolvent, going into receivership or liquidation or having an administrator appointed.

4. Further Protection

This Guarantee and Indemnity shall continue in full force and effect notwithstanding:

(a) that any purported obligation of the Seller or any other person to the Buyer (or any security therefor) becomes wholly or partly void, invalid or unenforceable for any reason whether or not known to the Buyer or the Seller’s Guarantor; or

53

(b) any incapacity or any change in the constitution of, or any amalgamation or reconstruction of, the Seller’s Guarantor or the Seller or any other matter whatsoever.

5. Primary Obligations

This Guarantee and Indemnity shall constitute the primary obligations of the Seller’s Guarantor and the Buyer shall not be obliged to make any demand on the Seller or any other person before enforcing its rights against the Seller’s Guarantor under this Guarantee and Indemnity.

6. Waiver

No delay or omission of the Buyer in exercising any right, power or privilege under this Guarantee and Indemnity shall impair such right, power or privilege or be construed as a waiver of such right, power or privilege nor shall any single or partial exercise of any such right, power or privilege preclude any further exercise thereof or the exercise of any other right, power or privilege.

7. Invalidity

If at any time any one or more of the provisions of this Guarantee and Indemnity is or becomes invalid, illegal or unenforceable in any respect under any law, the validity, legality and enforceability of the remaining provisions hereof shall not be in any way affected or impaired thereby.

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SCHEDULE 7

The Buyer’s Guarantee and Indemnity

1. Guarantee and Indemnity

The Buyer’s Guarantor irrevocably and unconditionally:

(a) guarantees to the Seller as principal obligor the due and punctual performance and observance by the Buyer of all of its obligations under this agreement and the Tax Deed; and

(b) undertakes to indemnify the Seller against all Losses incurred by the Seller arising from any failure by the Buyer to perform and/or observe any of its obligations under this agreement and the Tax Deed,

(together “this Guarantee and Indemnity”).

2. Continuing Security

This Guarantee and Indemnity is to be a continuing security which shall remain in full force and effect until all of the obligations of the Buyer under this agreement and the Tax Deed shall have been fulfilled or shall have expired in accordance with the terms of this agreement and the Tax Deed and this Guarantee and Indemnity is to be in addition, and without prejudice to, and shall not merge with, any other right, remedy, guarantee, indemnity or security which the Seller may now or hereafter hold in respect of all or any of the obligations of the Buyer under this agreement and the Tax Deed.

3. Seller’s Protections

The liability of the Buyer’s Guarantor under this Guarantee and Indemnity shall not be affected, impaired or discharged by reason of any act, omission, matter or thing which but for this provision might operate to release or otherwise exonerate the Buyer’s Guarantor from its obligations hereunder including, without limitation:

(a) any amendment, variation or modification to, or replacement of:

(i) this agreement; and/or

(ii) the Tax Deed;

(b) the taking, variation, compromise, renewal, release, refusal or neglect to perfect or enforce any rights, remedies or securities against the Buyer or any other person;

(c) any time or indulgence or waiver given to, or compromise made with, the Buyer or any other person; or

(d) the Buyer becoming insolvent, going into receivership or liquidation or having an administrator appointed.

4. Further Protection

This Guarantee and Indemnity shall continue in full force and effect notwithstanding:

(a) that any purported obligation of the Buyer or any other person to the Seller (or any security therefor) becomes wholly or partly void, invalid or unenforceable for any reason whether or not known to the Seller or the Buyer’s Guarantor; or

55

(b) any incapacity or any change in the constitution of, or any amalgamation or reconstruction of, the Buyer’s Guarantor or the Buyer or any other matter whatsoever.

5. Primary Obligations

This Guarantee and Indemnity shall constitute the primary obligations of the Buyer’s Guarantor and the Seller shall not be obliged to make any demand on the Buyer or any other person before enforcing its rights against the Buyer’s Guarantor under this Guarantee and Indemnity.

6. Waiver

No delay or omission of the Seller in exercising any right, power or privilege under this Guarantee and Indemnity shall impair such right, power or privilege or be construed as a waiver of such right, power or privilege nor shall any single or partial exercise of any such right, power or privilege preclude any further exercise thereof or the exercise of any other right, power or privilege.

7. Invalidity

If at any time any one or more of the provisions of this Guarantee and Indemnity is or becomes invalid, illegal or unenforceable in any respect under any law, the validity, legality and enforceability of the remaining provisions hereof shall not be in any way affected or impaired thereby.

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Signed by for and on behalf of AIR LIQUIDE LIMITED in the presence of: ) ) ) ) /s/ Olivier Petit

Signed by for and on behalf of OMNICARE LIMITED in the presence of: ) ) ) ) /s/ David Moffatt

Signed by for and on behalf of ALLIED HEALTHCARE GROUP HOLDINGS LIMITED in the presence of : ) ) ) ) ) /s/ David Moffatt

Signed by for and on behalf of AIR LIQUIDE UK LIMITED in the presence of: ) ) ) ) /s/ J.B. Dellon

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EX-3.11

Exhbit 3.11

CERTIFICATE OF CHANGE

OF

ALLIED HEALTHCARE INTERNATIONAL INC.

_______________

Under Section 805-A of the Business Corporation Law

FIRST:  The name of the corporation is "Allied Healthcare International, Inc.",  (the "Corporation").  The name under which the Corporation was formed is United States Home Health Care Corp.

SECOND:  The Certificate of Incorporation was filed by the Department of State on November 30, 1981.

THIRD:  The address to which the Secretary of State shall forward copies of process accepted on behalf of the Corporation is changed to read in its entirety as follows:  c/o Marvet Abassi, 245 Park Avenue, New York, NY 10167.

FOURTH:  The change was authorized by the Board of Directors of the Corporation.

Dated:  April 25, 2007

/s/ Marvet Abbassi

Name:  Marvet Abbassi

Title:    Financial Comptroller

EX-21

Exhibit 21

Subsidiaries of Allied Healthcare International Inc.

Subsidiary			Jurisdiction of Organization
Allied Healthcare Group Holdings Limited (formerly known as Allied Healthcare Group Limited and as Transworld Holdings (UK) Limited)			England
Allied Healthcare Holdings Limited (formerly known as Transworld Healthcare (UK) Limited)			England
Omnicare Limited			England
Allied Healthcare Group Limited			England

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement No. 333-90890 on Form S-3, Registration Statement No. 333-112628 on Form S-8, and Registration Statement No. 333-49387 on Form S-8 of our reports dated December 11, 2007, related to our audits of the consolidated financial statements and financial statement schedules and our audit of the retrospective adjustment to the 2005 consolidated financial statements for the operations discontinued in 2007, of Allied Healthcare International Inc. and of management’s assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting, appearing in this Annual Report on Form 10-K of Allied Healthcare International Inc. for the year ended September 30, 2007.

/s/ Eisner LLP

New York, New York
December 11, 2007

EX-23.2

Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANT

We consent to the incorporation by reference in Registration Statement No. 333-90890 on Form S-3, Registration Statement No. 333-112628 on Form S-8, and Registration Statement No. 333-49387 on Form S-8, of our report dated November 28, 2005, relating to the consolidated financial statements, (before retrospective adjustments to the financial statements for the effects of discontinued operations) (not presented herein) and financial statement schedules of Allied Healthcare International Inc., appearing in this Annual Report on Form 10-K of Allied Healthcare International Inc. for the year ended September 30, 2007.

/s/Deloitte & Touche LLP
New York, New York
December 11, 2007

EX-31.1

Exhibit 31.1

Rule 13a-14(a)/15d-14(a) Certification

I, Sarah L. Eames, certify that:

1.	I have reviewed this Annual Report on Form 10-K of Allied Healthcare International Inc. (the ‘‘Registrant’’);

2.	Based on my knowledge, this Annual Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Annual Report;

3.	Based on my knowledge, the consolidated financial statements and other financial information included in this Annual Report fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Annual Report;

4.	The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and we have:

(a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Annual Report is being prepared;

(b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)	evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Annual Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Annual Report based on such evaluation; and

(d)	disclosed in this Annual Report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s fourth fiscal quarter ended September 30, 2007 that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting;

5.	The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors:

(a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: December 13, 2007

/s/ Sarah L. Eames                        

Sarah L. Eames
Interim Chief Executive Officer
(principal executive officer)

EX-31.2

Exhibit 31.2

Rule 13a-14(a)/15d-14(a) Certification

I, David Moffatt, certify that:

1.	I have reviewed this Annual Report on Form 10-K of Allied Healthcare International Inc. (the ‘‘Registrant’’)

2.	Based on my knowledge, this Annual Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Annual Report;

3.	Based on my knowledge, the consolidated financial statements and other financial information included in this Annual Report fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Annual Report;

4.	The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and we have:

(a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Annual Report is being prepared;

(b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)	evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Annual Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Annual Report based on such evaluation; and

(d)	disclosed in this Annual Report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s fourth fiscal quarter ended September 30, 2007 that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting;

5.	The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors:

(a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: December 13, 2007

/s/ David Moffatt                        

David Moffatt
Chief Financial Officer
(principal financial officer)

EX-32.1

Exhibit 32.1

Section 1350 Certification

In connection with the Annual Report of Allied Healthcare International Inc. (the ‘‘Company’’) on Form 10-K for the period ended September 30, 2007, as filed with the Securities and Exchange Commission on the date hereof (the ‘‘Report’’), I, Sarah L. Eames, Interim Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: December 13, 2007

/s/ Sarah L. Eames                                                       

Sarah L. Eames
Interim Chief Executive Officer of the Company
(principal executive officer)

EX-32.2

Exhibit 32.2

Section 1350 Certification

In connection with the Annual Report of Allied Healthcare International Inc. (the ‘‘Company’’) on Form 10-K for the period ended September 30, 2007, as filed with the Securities and Exchange Commission on the date hereof (the ‘‘Report’’), I, David Moffatt, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: December 13, 2007

/s/ David Moffatt                                            

David Moffatt
Chief Financial Officer of the Company
(principal financial officer)