14.

Subsequent Events:

On July 28, 2010 the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Saga Group Limited (“Saga”) and AHL Acquisition Corp., a wholly-owned subsidiary of Saga (“Acquisition Sub”). Upon the consummation of the merger contemplated by the Merger Agreement, each outstanding share of Company common stock, other than shares owned by Saga, Acquisition Sub or any other wholly-owned subsidiary of Saga and shares held in the treasury of the Company, will be converted into the right to receive $3.90 in cash, without interest. Each outstanding option and stock appreciation right (“SAR”) that has vested prior to the merger, including those options and SARs that vest as a result of the merger, will be converted into the right to receive $3.90 less the per share exercise price of the option or SAR, multiplied by the number of shares of common stock subject to such option or SAR. If the exercise price of any option or SAR is equal to or greater than $3.90, the option or SAR will be cancelled without payment. The completion of the merger is subject to various conditions, including, among others, obtaining the approval of the Company’s shareholders, which, under New York law, will require the vote of at least two-thirds of the Company’s outstanding shares of common stock. The parties expect to notify the merger to the Competition Authority in Ireland, where the Company and affiliates of Saga have operations, as soon as possible. Consummation of the merger is not subject to a financing condition. The Merger Agreement provides that it may be terminated by either party if the merger contemplated thereby has not occurred on or prior to December 31, 2011; provided, however, that if the only reason for the failure to consummate the merger on or before such date is the failure to have obtained the necessary antitrust clearance in Ireland, the termination date shall be extended to February 29, 2012. Under the Merger Agreement, the Company may be required to pay Saga a termination fee of $5.2 million under certain circumstances, including if the Board of Directors of the Company, following the receipt of a superior proposal, changes its recommendation to the shareholders to vote in favor of the merger.

In connection with the execution of the Merger Agreement, the Company entered into a retention bonus agreement with its Chief Executive Officer and Allied Healthcare Group Limited, a subsidiary of the Company, entered into a retention bonus agreement with the Chief Financial Officer of the Company.

Copies of the Merger Agreement and the retention bonus agreements were filed as exhibits to the Current Report on Form 8-K of the Company that was filed with the Securities and Exchange Commission on August 1, 2011.

On August 3, 2011, a putative class action complaint was filed by a shareholder of the Company against the Company, the members of the Company’s Board of Directors, Saga and Acquisition Sub in the Supreme Court of the State of New York for the County of New York challenging the proposed merger, captioned Zimmerman v. Allied Healthcare International Inc., No. 652158/2011 (N.Y. Sup. Ct. filed August 3, 2011). The complaint alleges that the Company’s directors breached their fiduciary duties in negotiating and approving the merger agreement. The complaint further alleges that the Company and/or Saga aided and abetted the members of the board in their alleged breaches of fiduciary duties. The complaint seeks various forms of relief, including injunctive relief to prevent consummation of the merger.

The Company intends to defend this lawsuit vigorously.

In July 2011, the Company’s U.K. subsidiary, Allied Healthcare Group Limited, reached an agreement to assume responsibility for the homecare business of Sue Ryder. Sue Ryder is a national charity organization, which has been providing health and social care services in local communities since the early 1990’s. Its homecare business consists of 8 branches in England with the sites in Doncaster, Bournemouth, Wolverhampton, Wigan, Trafford, Lincoln, Macclesfield and Newark, providing 8,000 hours of care each week. Last year Sue Ryder revenues from homecare activities were in excess of £5 million ($8 million).

In connection with the transaction, the Company has agreed to pay a deferred consideration of up to a maximum of £130 thousand ($210 thousand, at the transaction date exchange rate) linked to the hours transferred after a three-month period.