10-K/A 1 file001.htm FORM 10-K/A

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A


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

For the fiscal year ended September 30, 2003


	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)
555 Madison Avenue New York, New York	(212) 750-0064	10022
(Address of principal executive offices)	(Registrant's telephone number, including area code)	(Zip Code)

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

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


None
(Title of Class)

(Title of Class)

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 an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes No

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of March 31, 2003 was approximately $31,717,101 based on the closing sales price of $3.99 per share of common stock of the registrant on such date, as reported by the American Stock Exchange.

The number of shares of common stock of the registrant outstanding on December 26, 2003 was 22,104,628.

DOCUMENTS INCORPORATED BY REFERENCE
None

EXPLANATORY NOTE

Allied Healthcare International Inc. (the "Company") is filing this Form 10-K/A to amend its Annual Report on Form 10-K for the fiscal year ended September 30, 2003, as filed with the Securities and Exchange Commission on December 29, 2003. The purpose of filing this Form 10-K/A is to include a financial statement schedule that was not included in the Form 10-K. In addition, note 16 to the consolidated financial statements of the Company has been revised.

Item 8. Financial Statements and Supplementary Data.

The consolidated financial statements and required financial statement schedules of our company are located beginning on page F-1 of this Annual Report on Form 10-K/A.

PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports On Form 8-K.

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


(1)	Consolidated Financial Statements:	Page
	Independent Auditors' Report		F-1
	Report of Independent Auditors		F-2
	Consolidated Balance Sheets — September 30, 2003 and 2002		F-3
	Consolidated Statements of Operations — For the Years Ended September 30, 2003, 2002 and 2001		F-4
	Consolidated Statements of Changes in Shareholders' Equity — For the Years Ended September 30, 2003, 2002 and 2001		F-5
	Consolidated Statements of Cash Flows — For the Years Ended September 20, 2003, 2002 and 2001		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 that 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
3.3				Certificate of Amendment to the Restated Certificate of Incorporation of our company filed with the New York Secretary of State 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 our company filed with the New York Secretary of State 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 our company filed with the New York Secretary of State 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 our company filed with the New York Secretary of State 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				Restated Bylaws of our company, as amended (incorporated herein by reference to Exhibit 3.4 of our Annual Report on Form 10-K for the year ended October 31, 1996).
3.8				Amendment to the Bylaws of our company 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).
3.9				Certificate of Amendment to the Certificate of Incorporation of our company which defines the rights of the Series A Convertible Preferred Stock, filed with the New York Secretary of State 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).
3.10				Certificate of Amendment to the provisions of the Certificate of Incorporation of our company that defines the rights of the Series A Convertible Preferred Stock, filed with the New York Secretary of State on February 12, 2003 (incorporated herein by reference toExhibit 3.8 of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2003).
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).
4.2				Specimen Certificate of Series A Convertible Preferred Stock (incorporated herein by reference to Exhibit 4.2 of Amendment No. 1 to our Registration Statement on Form S-4 (Reg. St. No. 333-87304) filed with the Securities and Exchange Commission on May 21, 2002).
10.1				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 with our company (incorporated herein by reference to Exhibit 10.31 of our Annual Report on Form 10-K for the year ended October 31, 1994).


Exhibit Number				Title
10.3				Transworld Home HealthCare, Inc. 1997 Option Plan for Non-Employee Directors (incorporated herein by reference to Exhibit A of our Proxy Statement for its Annual Meeting held on May 28, 1997).
10.4				Voting Trust Agreement dated December 17, 1999 by and among Transworld Holdings (UK) Limited (now known as Allied Healthcare Group Limited ("Allied Healthcare (UK)"), Transworld Healthcare (UK) Limited ("TWUK"), our company, Triumph Partners III, L.P. and Richard Green, as trustee (incorporated herein by reference to Exhibit 10.65 of our Annual Report on Form 10-K for the year ended September 30, 1999).
10.5				Securities Purchase Agreement , dated December 17, 1999, among Allied Healthcare (UK), TWUK and the Purchasers identified therein (incorporated herein by reference to Exhibit 10.66 of our Annual Report on Form 10-K for the year ended September 30, 1999).
10.6				Senior Credit Agreement, dated as of December 17, 1999, among Allied Healthcare (UK), TWUK, Paribas as Arranger, Paribas and Barclays Bank PLC as Underwriters, Barclays Bank PLC as Agent and SecurityAgent and Others (incorporated herein by reference to Exhibit 10.67 of our Annual Report on Form 10-K for the year ended September 30, 1999).
10.7				Mezzanine Credit Agreement, dated as of December 17, 1999, among Allied healthcare (UK), TWUK, Paribas as Arranger, Underwriter and Agent, Barclays Bank PLC as Security Agent and Others (incorporated herein by reference to Exhibit 10.68 of our Annual Report on Form 10-K for the year ended September 30, 1999).
10.8				Warrant Instrument to subscribe for Shares in TWUK in favor of the mezzanine lenders, dated as of December 17, 1999 (incorporated herein by reference to Exhibit 10.69 of our Annual Report on Form 10-K for the year ended September 30, 1999).
10.9				Share Sale and Purchase Agreement of Nightingale Nursing Bureau Limited, dated as of April 6, 2000, between Transworld Healthcare (UK) Limited, W.A. Thompson, D.T. Thompon and others (incorporated herein by reference to Exhibit 99.1 of our Current Report on Form 8-K dated April 20, 2000).
10.10				Asset Purchase Agreement, dated as of September 18, 2000, between MK Diabetic Support Services, Inc., Respiflow, Inc. and Transworld Ostomy, Inc. and Express-Med, Inc. (incorporated herein by reference to Exhibit 10.1 of our Current Report on Form 8-K filed October 11, 2000).
10.11				Sale and Purchase Agreement of entire share capital of Amcare Limited with its subsidiary Novacare UK Limited dated November 22, 2000 between Omnicare Limited and Bristol-Myers Squibb Holdings Limited (incorporated herein by reference to Exhibit 10.73 of our Annual Report on Form 10-K for the year ended September 30, 2000).
10.12				Agreement for Sale and Purchase of Staffing Enterprise Limited and Staffing Enterprise (PSV) Limited between Allied Healthcare (UK) Limited and David Christopher Pain and Deborah Kay Pain dated September 27, 2001 (incorporated herein by reference to Exhibit 10.2 of our Current Report on Form 8-K filed October 12, 2001).
10.13				Second Amendment Agreement, dated September 27, 2001, relating to the Mezzanine Credit Agreement dated December 17, 1999 among Allied Healthcare Group Limited, Transworld Healthcare (UK) Limited, BNP Paribas as Arranger, Underwriter and Agent, Barclays Bank PLC as Agent and Security Agent and Others (incorporated herein by reference to Exhibit 10.3 of our Current Report on Form 8-K filed October 12, 2001).


Exhibit Number				Title
10.14				Second Amendment Agreement, dated September 27, 2001, relating to the Senior Credit Agreement dated December 17, 1999 among Allied Healthcare Group Limited, Transworld Healthcare (UK) Limited, BNP Paribas as Arranger, Underwriter and Agent, Barclays Bank PLC as Agent and Security Agent and Others (incorporated herein by reference to Exhibit 10.4 of our Current Report on Form 8-K filed October 12, 2001).
10.15				Employment Agreement, dated September 24, 2001, between our company and Timothy M. Aitken (incorporated herein by reference to Exhibit 10.16 of our Annual Report on Form 10-K for the year ended September 30, 2001).
10.16				Employment Agreement, dated September 24, 2001, between our company and Sarah Eames (incorporated herein by reference to Exhibit 10.17 of our Annual Report on Form 10-K for the year ended September 30, 2001).
10.17				Master Reorganization Agreement, dated as of April 24, 2002, among our company, Allied Healthcare (UK), TWUK and the Investors named therein (incorporated herein by reference to Annex A-1 to the proxy statement/prospectus forming a part of our Registration Statement on Form S-4 (Reg. St. No. 333-87304) filed with the Securities and Exchange Commission on May 1, 2002).
10.17A				First Amendment to Master Reorganization Agreement, dated as of May 16, 2002, by and among our company, Allied Healthcare (UK), TWUK and the Investors named therein (incorporated herein by reference to Exhibit 10.17A of Amendment No. 1 to our Registration Statement on Form S-4 (Reg. St. No. 333-87304) filed with the Securities and Exchange Commission on May 21, 2002).
10.17B				Second Amendment to Master Reorganization Agreement, dated as of June 26, 2002, by and among our company, Allied Healthcare (UK), TWUK and the Investors named therein (incorporated herein by reference to Exhibit 10.3 of our Current Report on Form 8-K filed with the Securities and Exchange Commission on August 9, 2002).
10.18				Amendment No. 1, dated as of July 25, 2002, among Allied Healthcare (UK), TWUK and the Purchasers identified therein to the Securities Purchase Agreement dated December 17, 1999 (incorporated herein by reference to Exhibit 10.4 of our Current Report on Form 8-K filed with the Securities and Exchange Commission on August 9, 2002).
10.19				Registration Rights Agreement, dated as of July 25, 2002, among our company and the persons named therein (incorporated herein by reference to Exhibit 10.5 of our Current Report on Form 8-K filed with the Securities and Exchange Commission on August 9, 2002).
10.20				Amendment No. 1, dated as of July 25, 2002, among TWUK, Allied Healthcare (UK), Richard Green, Triumph Partners III, L.P. and our company to the Voting Trust Agreement dated December 17, 1999 (incorporated herein by reference to Exhibit 10.6 of our Current Report on Form 8-K filed with the Securities and Exchange Commission on August 9, 2002).
10.21A				Tax Bonus, Tax Loan and Tax Indemnification Agreement, dated as of April 22, 2002, by and among TWUK, our company and Timothy M. Aitken (incorporated herein by reference to Exhibit 10.21 of our Registration Statement on Form S-4 (Reg. St. No. 333-87304) filed with the Securities and Exchange Commission on May 1, 2002).


Exhibit Number				Title
10.21B				Tax Bonus, Tax Loan and Tax Indemnification Agreement, dated as of April 22, 2002, by and among TWUK, our company and Sarah L. Eames (incorporated herein by reference to Exhibit 10.22 of our Registration Statement on Form S-4 (Reg. St. No. 333-87304) filed with the Securities and Exchange Commission on May 1, 2002).
10.22A				Promissory Note, dated April 30, 2002, executed by Timothy M. Aitken in favor of our company (incorporated herein by reference to Exhibit 10.7A of our Quarterly Report on Form 10-Q for the quarterly period ended June 10, 2002).
10.22B				Promissory Note, dated April 30, 2002, executed by Sarah L. Eames in favor of our company (incorporated herein by reference to Exhibit 10.7B of our Quarterly Report on Form 10-Q for the quarterly period ended June 10, 2002).
10.23A				Pledge and Security Agreement, dated as of April 30, 2002, between Timothy M. Aitken and our company (incorporated herein by reference to Exhibit 10.8A of our Quarterly Report on Form 10-Q for the quarterly period ended June 10, 2002).
10.23B				Pledge and Security Agreement, dated as of April 30, 2002, between Sarah L. Eames and our company (incorporated herein by reference to Exhibit 10.8B of our Quarterly Report on Form 10-Q for the quarterly period ended June 10, 2002).
10.24				Registration Rights Agreement, dated April 30, 2002, among our company, Timothy M. Aitken and Sarah L. Eames (incorporated herein by reference to Exhibit 10.25 of our Registration Statement on Form S-4 (Reg. St. No. 333-87304) filed with the Securities and Exchange Commission on May 1, 2002).
10.25A				Irrevocable Undertaking, dated April 22, 2002, of Timothy M. Aitken relating to the redeemable shares of TWUK (incorporated herein by reference to Exhibit 10.26 of our Registration Statement on Form S-4 (Reg. St. No. 333-87304) filed with the Securities and Exchange Commission on May 1, 2002).
10.25B				Irrevocable Undertaking, dated April 22, 2002, of Sarah L. Eames relating to the redeemable shares of TWUK (incorporated herein by reference to Exhibit 10.27 of our Registration Statement on Form S-4 (Reg. St. No. 333-87304) filed with the Securities and Exchange Commission on May 1, 2002).
10.26				Stock Purchase Agreement, dated as of April 22, 2002, among our company, Hyperion TWH Fund II LLC, Triumph Partners III, L.P. and Triumph III Investors, L.P. (incorporated herein by reference to Exhibit 10.28 of our Registration Statement on Form S-4 (Reg. St. No. 333-87304) filed with the Securities and Exchange Commission on May 1, 2002).
10.27				Registration Rights Agreement, dated April 30, 2002, among our company, 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).
10.28				2002 Stock Option Plan (incorporated herein by reference to Annex D to the proxy statement/prospectus forming a part of Amendment No. 1 to our Registration Statement on Form S-4 (Reg. St. No. 333-87304) filed with the Securities and Exchange Commission on May 21, 2002).
10.29				Stock Purchase Agreement, dated as of April 6, 2002, by and between Promptcare Acquisition Corporation and our company (incorporated herein by reference to Exhibit 10.1 of our Current Report on Form 8-K filed with the Securities and Exchange Commission on April 17, 2003).


Exhibit Number				Title
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/A).
14				Allied Healthcare International Inc. Code of Conduct (incorporated herein by reference to Exhibit 14 of our Annual Report on Form 10-K for the year ended September 30, 2003).
16				Letter, dated April 14, 2003, from Ernst & Young LLP to the Report on Form 8-K filed with the Securities and Exchange Commission on April 15, 2003).
21				Subsidiaries of our company (incorporated herein by reference to Exhibit 21 of our Annual Report on Form 10-K for the year ended September 30, 2003).
23.1*				Consent of Deloitte & Touche LLP, independent auditors of our company.
23.2*				Consent of Ernst & Young LLP, former independent auditors of our company.
31.1*				Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer, President and Chief Operating Officer.
31.2*				Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
32.1*				Section 1350 Certification of Chief Executive Officer, President and Chief Executive Officer.
32.2*				Section 1350 Certification of Chief Financial Officer.

*	Filed herewith.

(b) Reports on Form 8-K.

During the quarter ended September 30, 2003, we furnished the following Current Report on Form 8-K to the Securities and Exchange Commission:

On August 13, 2002, we furnished to the Securities and Exchange Commission a Current Report on Form 8-K that included information required by Item 12 of Form 8-K. The Form 8-K disclosed that we had issued a press release on August 13, 2003 announcing our earnings for the quarter ended June 30, 2003. No financial statements were filed. However, the press release attached to the Form 8-K included a table containing statement of operations data.

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
								Sarah L. Eames Chief Executive Officer, President and Chief Operating Officer

Dated: May 14, 2004

POWER OF ATTTORNEY

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




/s/ Timothy M. Aitken*	Chairman of the Board	May 14, 2004

Timothy M. Aitken

/s/ Sarah L. Eames	Chief Executive Officer, President and Chief Operating Officer	May 14, 2004

Sarah L. Eames

/s/ Charles F. Murphy	Chief Financial Officer (Principal Financial and Accounting Officer)	May 14, 2004

Charles F. Murphy

/s/ G. Richard Green*	Director	May 14, 2004

G. Richard Green

/s/ David J. MacFarlane*	Director	May 14, 2004

David J. MacFarlane

/s/ Wayne Palladino*	Director	May 14, 2004

Wayne Palladino

/s/ Jeffrey S. Peris*	Director	May 14, 2004

Jeffrey S. Peris

/s/ Scott A. Shay*	Director	May 14, 2004

Scott A. Shay


*	By: /s/ Charles F. Murphy, Attorney-in-Fact

Allied Healthcare International Inc.


Index to Consolidated Financial Statements	Page
Independent Auditors' Report		F-1
Report of Independent Auditors		F-2
Consolidated Balance Sheets — September 30, 2003 and 2002		F-3
Consolidated Statements of Operations — for the years ended September 30, 2003, 2002 and 2001		F-4
Consolidated Statements of Changes in Shareholders' Equity — for the years ended September 30, 2003, 2002 and 2001		F-5
Consolidated Statements of Cash Flows — for the years ended September 30, 2003, 2002 and 2001		F-6
Notes to Consolidated Financial Statements		F-8
Index to Consolidated Financial Statements Schedules
Schedule I - Condensed Financial Information		S-1
Schedule II - Valuation and Qualifying Accounts		S-5

INDEPENDENT AUDITORS' REPORT

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

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

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

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

/s/ Deloitte & Touche LLP

Jericho, New York
December 10, 2003
(April 8, 2004 as to Note 16)

F-1

REPORT OF INDEPENDENT AUDITORS

Shareholders and Board of Directors
Allied Healthcare International Inc.

We have audited the accompanying consolidated balance sheet of Allied Healthcare International Inc. (the "Company") as of September 30, 2002 and the related consolidated statements of operations, shareholders' equity, and cash flows for the years ended September 30, 2002 and 2001. Our audits also included the financial statement schedules listed in the Index at Item 15 for the years ended September 30, 2002 and 2001. These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the 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. at September 30, 2002, and the consolidated results of its operations and its cash flows for the years ended September 30, 2002 and 2001, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedules for the years ended September 30, 2002 and 2001, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.

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

/s/ Ernst & Young LLP

New York, New York
November 8, 2002

F-2

ALLIED HEALTHCARE INTERNATIONAL INC.

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Per Share Data)


	September 30, 2003			September 30, 2002
ASSETS
Current assets:
Cash and cash equivalents	$	21,691		$	18,278
Restricted cash		37,693			19,840
Accounts receivable, less allowance for doubtful accounts of $3,346 and $22,849, respectively		35,745			32,113
Unbilled accounts receivable		11,278			7,046
Assets of discontinued operations		—			8,733
Inventories		431			359
Prepaid expenses and other assets		1,772			1,642
Total current assets		108,610			88,011
Property and equipment, net		10,326			8,098
Restricted cash		3,008			43,678
Intangible assets, net		185,722			123,514
Deferred financing costs and other assets		4,002			4,812
Total assets	$	311,668		$	268,113
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable	$	37,693		$	19,840
Short-term debt		—			3,480
Current portion of long-term debt		9,005			6,249
Dividends payable		4,464			941
Liabilities of discontinued operations		690			1,270
Accounts payable		2,676			1,505
Accrued expenses		24,969			23,995
Taxes payable		4,332			4,813
Total current liabilities		83,829			62,093
Long-term debt		118,680			118,961
Derivative liability		211			—
Deferred income taxes and other long-term liabilities		634			862
Total liabilities		203,354			181,916
Commitments and contingencies
Redeemable convertible Series A preferred stock, $.01 par value; authorized 8,000 shares, 7,774 shares issued and outstanding (liquidation value $35,213)		33,151			32,254
Shareholders' equity:
Preferred stock, $.01 par value; authorized 2,000 shares, issued and outstanding — none		—			—
Common stock, $.01 par value; authorized 62,000 shares, issued 22,689 and 20,945 shares, respectively		227			209
Additional paid-in capital		142,897			139,309
Accumulated other comprehensive income (loss)		3,140			(3,112	)
Accumulated deficit		(68,814	)		(80,785	)
		77,450			55,621
Less notes receivable from officers		(1,002	)		(958	)
Less cost of treasury stock (408 and 266 shares, respectively)		(1,285	)		(720	)
Total shareholders' equity		75,163			53,943
Total liabilities and shareholders' equity	$	311,668		$	268,113

See notes to consolidated financial statements.

F-3

ALLIED HEALTHCARE INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Per Share Data)


	Year Ended			Year Ended			Year Ended
	September 30,			September 30,			September 30,
	2003			2002			2001
Revenues:
Net patient services	$	287,964		$	237,890		$	130,719
Net respiratory, medical equipment and supplies		6,415			4,938			7,322
Total revenues		294,379			242,828			138,041
Cost of revenues:
Patient services		209,422			173,869			90,614
Respiratory, medical equipment and supplies		3,634			2,880			4,936
Total cost of revenues		213,056			176,749			95,550
Gross profit		81,323			66,079			42,491
Selling, general and administrative expenses		53,648			48,847			32,514
General and administrative expenses related to mail-order operations		—			—			3,883
Losses due to sale of subsidiary		—			—			354
Operating income		27,675			17,232			5,740
Interest income		(2,032	)		(3,024	)		(1,587	)
Interest expense		13,311			16,496			10,020
Gain on settlement of PIK interest		—			(5,143	)		—
Foreign exchange loss		18			19			400
Income (loss) before income taxes, minority interest and discontinued operations		16,378			8,884			(3,093	)
Provision for income taxes		4,910			4,971			24,117
Income (loss) before minority interest and discontinued operations		11,468			3,913			(27,210	)
Minority interest		—			120			22
Income (loss) from continuing operations		11,468			3,793			(27,232	)
Discontinued operations:
(Loss) income from discontinued operations		(16	)		1,001			620
Gain on disposal of subsidiaries, net of taxes of $775		519			—			—
		503			1,001			620
Net income (loss)		11,971			4,794			(26,612	)
Redeemable preferred dividends and accretion		4,005			1,016			—
Net income (loss) available to common shareholders	$	7,966		$	3,778		$	(26,612	)
Basic and diluted income (loss) per share of common stock from:
Income (loss) from continuing operations	$	0.34		$	0.15		$	(1.57	)
Income from discontinued operations		0.02			0.05			0.04
Net income (loss) available to common shareholders	$	0.36		$	0.20		$	(1.53	)
Weighted average number of common shares outstanding:
Basic		21,962			18,565			17,408
Diluted		22,304			18,932			17,408

See notes to consolidated financial statements.

F-4

ALLIED HEALTHCARE INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(In Thousands)


								Accumulated Other Comprehensive (Loss) Income
	Common Stock				Additional Paid-in Capital							Retained (Deficit) Earnings			Officers' Loan			Treasury Shares			Total
	Shares		Amount		Additional Paid-in Capital							Retained (Deficit) Earnings			Officers' Loan			Treasury Shares			Total

Balance, October 1, 2000		17,551	$	176	$	128,070		$	(6,248	)	$	(58,967	)	$	—		$	—		$	63,031
Comprehensive loss:
Net loss												(26,612	)								(26,612	)
Foreign currency translation adjustment									648												648
Comprehensive loss																					(25,964	)
Issuance of common stock for exercise of stock options		4				7															7
Cost of treasury shares																		(720	)		(720	)
Balance, September 30, 2001		17,555		176		128,077			(5,600	)		(85,579	)		—			(720	)		36,354
Comprehensive income:
Net income												4,794									4,794
Foreign currency translation adjustment									2,488												2,488
Comprehensive income																					7,282
Issuance of common stock for:
Hyperion shares		375		4		1,590															1,594
Triumph shares		375		4		1,590															1,594
Non-cash based compensation		1,171		11		4,205															4,216
Reorganization		1,469		14		5,727															5,741
Common stock issuance costs						(864	)														(864	)
Accretion of Series A preferred stock issuance costs						(75	)														(75	)
Dividends on Series A preferred stock						(941	)														(941	)
Notes issued to officers															(940	)					(940	)
Interest on notes to officers															(18	)					(18	)
Balance, September 30, 2002		20,945		209		139,309			(3,112	)		(80,785	)		(958	)		(720	)		53,943
Comprehensive income:
Net income												11,971									11,971
Foreign currency translation adjustment									6,252												6,252
Comprehensive income																					18,223
Issuance of common stock for:
Reorganization		890		9		3,471															3,480
Acquisition of Medic-One Group Limited		670		7		2,873															2,880
Exercise of stock options		184		2		666															668
Common stock issuance costs						(20	)														(20	)
Accretion of Series A preferred stock issuance costs						(482	)														(482	)
Dividends on Series A preferred stock						(3,523	)														(3,523	)
Issuance of warrants for professional services						603															603
Cost of treasury shares																		(565	)		(565	)
Interest on notes to officers															(44	)					(44	)
Balance, September 30, 2003		22,689	$	227	$	142,897		$	3,140		$	(68,814	)	$	(1,002	)	$	(1,285	)	$	75,163

See notes to consolidated financial statements.

F-5

ALLIED HEALTHCARE INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)


	Year Ended			Year Ended			Year Ended
	September 30,			September 30,			September 30,
	2003			2002			2001
Cash flows from operating activities:
Net income (loss)	$	11,971		$	4,794		$	(26,612	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Income from discontinued operations		(503	)		(1,001	)		(620	)
Depreciation and amortization		1,778			1,337			1,402
Amortization of goodwill		—			—			3,722
Amortization of other intangible assets		207			—			3
Amortization of debt issuance costs and warrants		1,858			2,218			1,117
Provision for doubtful accounts		1,205			985			2,586
(Gain) loss on sale of fixed assets		(48	)		(13	)		33
Losses due to sale of subsidiary		—			—			354
Interest in kind		645			3,063			3,964
Minority interest		—			120			22
Stock based compensation — employees		587			5,835			—
Interest accrued on loans to officers		(44	)		(18	)		—
Write-off of deferred financing fees and debt discount		613			925			—
Gain on settlement of PIK interest		—			(5,143	)		—
Gain on acquisition of minority interest		—			(179	)		—
Deferred income taxes		(906	)		159			21,494
Changes in assets and liabilities, excluding the effect of businesses acquired and sold:
Increase in accounts receivable		(30	)		(3,251	)		(4,511	)
(Increase) decrease in inventories		(45	)		1			(414	)
Increase in prepaid expenses and other assets		(3,313	)		(1,434	)		(1,305	)
Increase (decrease) in accounts payable and other liabilities		674			(1,268	)		1,376
Net cash provided by continuing operations		14,649			7,130			2,611
Net cash provided by (used in) discontinued operations		461			2,936			(259	)
Net cash provided by operating activities		15,110			10,066			2,352
Cash flows from investing activities:
Capital expenditures		(4,026	)		(3,091	)		(1,259	)
Proceeds from sale of property and equipment		175			105			12
Notes issued to officers		—			(940	)		—
Proceeds from sale of discontinued operations		8,195			—			—
Payments for acquisitions — net of cash acquired		(9,531	)		(2,047	)		(14,616	)
Proceeds limited to future acquisitions		26,053			11,018			(52,487	)
Proceeds from sale of business		—			—			15,075
Payments on acquisitions payable		(7,031	)		(1,038	)		(2,163	)
Net cash provided by (used in) investing activities		13,835			4,007			(55,438	)

(Continued)

See notes to consolidated financial statements.

F-6

ALLIED HEALTHCARE INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(In Thousands)


	Year Ended			Year Ended			Year Ended
	September 30,			September 30,			September 30,
	2003			2002			2001
Cash flows from financing activities:
Payments for financing fees and issuance costs		(20	)		(4,053	)		(2,004	)
Proceeds from issuance of stock		—			3,188			—
Payments on notes payable		(19,363	)		(4,575	)		—
Payments on revolving loan		—			—			(6,550	)
Proceeds from long-term debt		—			—			72,115
Principal payments on long-term debt		(6,727	)		(5,150	)		(4,038	)
Payments for treasury shares acquired		(565	)		—			(720	)
Stock options and warrants exercised, net, including tax benefit		80			—			7
Net cash (used in) provided by financing activities		(26,595	)		(10,590	)		58,810
Effect of exchange rate on cash		1,063			1,461			584
Increase in cash		3,413			4,944			6,308
Cash and cash equivalents, beginning of period		18,278			13,334			7,026
Cash and cash equivalents, end of period	$	21,691		$	18,278		$	13,334
Supplemental cash flow information:
Cash paid for interest	$	10,679		$	10,728		$	5,669
Cash paid for income taxes, net	$	6,691		$	5,914		$	2,101
Supplemental disclosure of non-cash investing and financing activities:
Details of business acquired in purchase transactions:
Fair value of assets acquired	$	12,254		$	2,525		$	44,395
Liabilities assumed or incurred	$	2,408		$	341		$	6,080
Cash paid for acquisitions (including related expenses)	$	9,846		$	2,184		$	18,297
Cash acquired		315			137			3,681
Net cash paid for acquisitions	$	9,531		$	2,047		$	14,616
Issuance of notes payable	$	36,026		$	3,747		$	20,018
Issuance of common stock	$	6,360		$	9,960
Issuance of Series A preferred stock				$	35,051

See notes to consolidated financial statements.

F-7

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 one of the leading providers of flexible healthcare staffing services, including nursing and ancillary services, to the United Kingdom ("U.K.") healthcare industry. The Company operates a community-based network of over 115 branches, with the capacity to provide nurses, carers (often referred to as home health aides in the United States) and specialized medical personnel to locations covering approximately 90% of the population of Great Britain. The Company provides healthcare staffing services to hospitals, local governmental authorities, nursing homes and private patients in the U.K. Through its U.K. operations, the Company also supplies medical grade oxygen for use in respiratory therapy to the U.K. pharmacy market and to private patients in Northern Ireland.

2. Summary of Significant Accounting Policies:

Basis of Accounting and Principles of Consolidation:

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

Cash and Cash Equivalents:

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

Restricted Cash:

Restricted cash represents proceeds limited to future acquisitions. The proceeds refer to amounts available for payment of consideration for certain permitted acquisitions under our senior collateralized term and revolving credit facility (the "Senior Credit Facility"), including the payment of contingent consideration for completed transactions, which have been advanced under the Senior Credit Facility.

The current portion of restricted cash represents the amount on deposit, as required by the senior credit lender, for the sole purpose of repaying the notes payable issued in connection with the acquisition of certain U.K. flexible staffing agencies. (See Notes 4 and 7.)

Inventories:

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

Property and Equipment:

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

Intangible Assets:

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

F-8

ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Per Share Data)

In accordance with Statement of Financial Accounting Standards ("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 will be subject to annual impairment tests. The Company completed its annual impairment test required under FAS No. 142 during the fourth quarter of fiscal 2003 and determined there is no impairment to its recorded goodwill balance.

Had amortization of goodwill not been recorded during the year ended September 30, 2001, the net loss would have been reduced by $3,722, net of taxes, and basic and diluted net loss per share would have decreased by $0.21.

The following table presents the changes in the carrying amount of goodwill for the year ended September 30, 2003:


	Year Ended September 30, 2003
	U.K. Operations		U.S. Corporate		Total
Balance at September 30, 2002	$	121,214	$	2,300	$	123,514
Goodwill acquired during year		51,983		—		51,983
Foreign exchange effect		8,206		—		8,206
Balance at September 30, 2003	$	181,403	$	2,300	$	183,703

Of the $51,983 of goodwill acquired during the year ended September 30, 2003, $41,036 related to the Company's fiscal 2001 through fiscal 2003 acquisitions of various flexible staffing agencies that had earned contingent consideration based upon the earnings of the acquired entities. The Company satisfied its obligation to pay under these contingent consideration agreements by cash payments as well as the issuance of notes payable. Accordingly, in the first quarter of fiscal 2003, the Company issued notes payable of $36,026 to satisfy amounts owed under these agreements. The notes predominately relate to the Company's September 27, 2001 acquisition of the issued and outstanding shares of Staffing Enterprise Limited and Staffing Enterprise (PSV) Limited (collectively, "Staffing Enterprise"), a London based provider of flexible staffing of specialist nurses and other healthcare professionals to London NHS Trust and independent hospitals.

Intangible assets subject to amortization after the adoption of FAS No. 142 are being amortized on the straight-line method and consist of the following:


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

Amortization expense for other intangible assets still subject to amortization was $207 for the year ended September 30, 2003. At September 30, 2003, estimated future amortization expense of other intangible assets still subject to amortization is as follows: approximately $281, $274, $214, $202 and $200 for the years ended September 30, 2004, 2005, 2006, 2007 and 2008, respectively.

Deferred Financing Costs:

Costs incurred in obtaining long-term financing are amortized over the terms of the long-term financing agreements using the interest method. At September 30, 2003 and 2002, other assets

F-9

ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Per Share Data)

included $3,675 and $4,746 of deferred financing costs, net of accumulated amortization of $4,250 and $2,677, respectively. Amortization of deferred financing costs is included in interest expense in the accompanying Consolidated Statements of Operations.

Income Taxes:

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

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

Revenue Recognition:

Patient services and respiratory therapy revenues are recognized when services are performed and substantiated by proper documentation. For patient services, which account for over 95% of the Company's business, revenue is recognized upon completion of timesheets that also require the signature of the recipient of services and are billed at fixed rates. Unbilled accounts receivable represents amounts due for services performed but not billed as of the balance sheet date. Revenues from the rental of home medical equipment (including respiratory equipment) are recognized over the rental period (typically on a month-to-month basis) and approximated $457, $328 and $274 in fiscal 2003, 2002 and 2001, respectively. Revenues from the sale of oxygen and supplies for use in respiratory therapy are recognized when products are shipped, a contractual arrangement exists, the sales price is either fixed or determinable and collection is reasonably assured.

The Company receives a majority of its revenue from the National Health Services (the "NHS") and other U.K. governmental payors. Certain revenues are subject to review by third-party payors, and adjustments, if any, are recorded when determined. For the years ended September 30, 2003, 2002 and 2001, 65%, 68% and 61%, respectively, of the Company's net revenues were attributable to the NHS and other U.K. governmental payor programs.

Earnings (Loss) Per Share:

Basic earnings (loss) 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, warrants and redeemable convertible stock only when such effect is dilutive. In future periods, the impact of the assumed conversion of the 7,774 of redeemable convertible preferred stock could potentially dilute basic EPS. At September 30, 2003, 2002 and 2001, the Company had outstanding stock options and warrants to purchase 2,244, 705 and 579 shares, respectively, of common stock ranging in price from $4.00 to $7.25, $5.41 to $7.25 and $4.31 to $7.25 per share, respectively, that were not included in the computation of diluted EPS because the exercise price was greater than the average market price of the common shares.

F-10

ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Per Share Data)

The weighted average number of shares used in the basic and diluted earnings (loss) per share computations for the years ended September 30, 2003, 2002 and 2001 are as follows:


	2003		2002		2001
Weighted average number of common shares outstanding		21,962		18,399		17,408
Weighted average number of common shares contingently issuable		—		166		—
Weighted average number of common shares outstanding as used in computation of basic earnings (loss) per share of common stock		21,962		18,565		17,408
Effect of dilutive securities — stock options		342		367		—
Shares used in computation of diluted earnings (loss) per share of common stock		22,304		18,932		17,408

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, unrealized gains and losses on investments available for sale and minimum pension liability. Currency translation is the only item of other comprehensive income (loss) impacting the Company.

Stock-based Compensation:

The accompanying consolidated financial statements of the Company have been prepared in accordance with the Accounting Principles Board's Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"). Under APB No. 25, generally, no compensation expense is recognized in connection with the awarding of stock option grants to employees provided that, as of the grant date, all terms associated with the award are fixed and the quoted market price of the stock is equal to or less than the amount an employee must pay to acquire the stock as defined.

The Company adopted the disclosure only provisions of FAS No. 123, "Accounting for Stock-Based Compensation," which requires certain financial statement disclosures, including pro forma operating results had the Company prepared its consolidated financial statements in accordance with the fair value based method of accounting for stock-based compensation. In December 2002, the Financial Accounting Standards Board ("FASB") issued FAS No. 148, "Accounting for Stock-Based Compensation — Transition Disclosure, An Amendment of FAS Statement No. 123." This statement provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, FAS No. 148 amends the disclosure requirements of FAS No. 123 to require more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation. The adoption of FAS No. 148 did not have an impact on the Company's financial position or results of operations.

F-11

ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Per Share Data)

If the Company had elected to recognize compensation expense based on the fair value of the options at grant date as prescribed by FAS No. 123, net income (loss) and net income (loss) per share would have been adjusted to the pro forma amounts indicated in the table below for the three years ended September 30:


	2003			2002			2001
Net income (loss) available to common shareholders, as reported
Add: Stock-based compensation included in reported net income (loss), net of related tax effect	$	7,966		$	3,778		$	(26,612	)
		587			—			—
Less: Total stock-based compensation expense determined under fair value based method for all awards, net of related tax effects		(728	)		(173	)		(96	)
Pro forma net income (loss) available to common shareholders	$	7,825		$	3,605		$	(26,708	)
Net income (loss) per share:
Basic — as reported	$	0.36		$	0.20		$	(1.53	)
Basic — pro forma	$	0.36		$	0.19		$	(1.53	)
Net income (loss) per share:
Diluted — as reported	$	0.36		$	0.20		$	(1.53	)
Diluted — pro forma	$	0.35		$	0.19		$	(1.53	)

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


	2003			2002			2001
Expected life (years)		9			9			4
Risk-free interest rate		4.1	%		5.1	%		5.5	%
Volatility		66.1	%		69.1	%		61.4	%
Expected dividend yield		0	%		0	%		0	%

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

Impairment of Long-lived Assets:

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

Foreign Currency Translation:

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

F-12

ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Per Share Data)

Fair Value of Financial Instruments:

Cash, restricted cash, accounts receivable, unbilled accounts receivable, dividends payable, accounts payable, accrued expenses and taxes payable approximate fair value due to the short-term maturity of those instruments. The derivative liability is recorded at its estimated fair value. The estimated fair value of the Company's outstanding borrowings was $166,772 and $149,198 at September 2003 and 2002, respectively, compared to $165,378 and $148,530 total debt outstanding.

Concentrations of Credit Risk:

Financial instruments which potentially subject the Company to concentrations of credit risk are cash equivalents and accounts receivable. The Company places its cash equivalents with high credit quality financial institutions. The Company believes no significant concentration of credit risk exists with respect to these cash equivalents.

The Company grants credit without collateral to its patients, who are primarily insured under third-party agreements. The Company maintains an allowance for doubtful accounts based on the expected collectibility of accounts receivable. At September 30, 2003 and 2002, 78.2% and 77.1% of accounts receivable was due from the NHS and other U.K. governmental payors, respectively, with the balance due from various other third-party payors and self-pay patients (none of which comprise greater than 10% of the balance).

Use of Management's Estimates:

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

Reclassifications:

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

Recent Accounting Pronouncements:

In April 2002, the FASB issued FAS No. 145, "Rescission of FASB Statements No. 4 (Reporting Gains and Losses From Extinguishment of Debt), 44 (Accounting for Intangible assets of Motor Carries), and 64 (Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements), Amendment of FASB Statement No.13 (Accounting for Leases), and Technical Corrections" ("FAS No. 145"). FAS No. 145 addresses gain or loss on the extinguishment of debt and sale-leaseback accounting for certain lease modifications. This statement is effective for fiscal years beginning after May 15, 2002. The Company adopted FAS No. 145, effective October 1, 2001, and recorded a charge of $925 in interest expense in the fourth quarter of fiscal 2002.

In June 2002, the FASB issued FAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." FAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)" ("FAS No. 146"). This statement is effective for exit and disposal activities initiated after December 15, 2002. The adoption of FAS No. 146 did not have a material impact on the Company's consolidated financial position or results of operations.

F-13

ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Per Share Data)

In November 2002, the FASB approved FASB Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others, an Interpretation of FASB Statement No. 5, 57 and 107 and Rescission of FASB Interpretation No. 34 ("FIN 45"). FIN 45 clarifies the requirements of SFAS No. 5, Accounting for Contingencies, relating to a guarantor's accounting for, and disclosure of, the issuance of certain types of guarantees. Specifically, FIN 45 requires a guarantor to recognize a liability for the non-contingent component of certain guarantees, representing the obligation to stand ready to perform in the event that specified triggering events or conditions occur. The provisions for initial recognition and measurement are effective on a prospective basis for guarantees that are issued or modified after December 31, 2002, irrespective of a guarantor's fiscal year end. However, the disclosure provisions of FIN 45 are effective for financial statements for the interim and annual periods ending after December 15, 2002. The adoption of FIN 45 did not have a material impact on the Company's consolidated financial position or results of operations. The Company has disclosed all guarantees in Note 7 to the Notes to Consolidated Financial Statements.

In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities ("FIN 46"). FIN 46 clarifies the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements, to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The Company is required to adopt the provisions of FIN 46 for variable interest entities created after January 31, 2003. The Company does not have any variable interest entities and therefore, the adoption of FIN 46 will not have a material impact on its consolidated financial position or results of operations.

In April 2003, the FASB issued FAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" ("FAS No. 149"). FAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under FAS No. 133 and is effective for contracts entered into or modified after June 30, 2003. The adoption of FAS No. 149 did not have a material effect on the Company's consolidated financial position or results of operations.

In May 2003, the FASB issued FAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity" ("FAS No. 150"). FAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. This statement requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. FAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of FAS No. 150 did not have a material effect on the Company's consolidated financial position or results of operations.

3. Corporate Reorganization:

On April 24, 2002, the Company entered into a Master Reorganization Agreement ("Reorganization Agreement") with two of its U.K. subsidiaries — Allied Healthcare Group Limited ("Allied Healthcare (UK)") and Transworld Healthcare (UK) Limited ("TWUK") — and certain investors in such subsidiaries. Both the Reorganization Agreement and the reorganization (the "Reorganization") were voted upon and approved at the Company's annual meeting of shareholders on June 7, 2002 and the Reorganization subsequently was consummated on July 25, 2002. Pursuant to the Reorganization, equity investments in TWUK and subordinated debt investments in Allied Healthcare (UK) were exchanged for shares of the Company's common stock and shares of the Company's new Series A preferred stock. The net effect of the Reorganization was that TWUK

F-14

ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Per Share Data)

became an indirect wholly-owned subsidiary of the Company and the senior subordinated debt investments in Allied Healthcare (UK) were replaced by shares of the Company's Series A preferred stock. The primary purpose of the Reorganization was the Company's desire to increase shareholder value by having the Company and its subsidiaries be viewed as "one company" by the marketplace. Other objectives of the Reorganization were to streamline the Company's corporate structure, improve the potential for equity financings in order to take advantage of attractive opportunities in the U.S. healthcare staffing services market and, effectively convert the equity and subordinated debt investments in the Company's U.K. subsidiaries into direct investments in the Company. The Company's management believes that the Reorganization resulted in the Company having a more straight-forward and integrated management and corporate structure.

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

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

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

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


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

F-15

ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Per Share Data)

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


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


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


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


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

4. Business Combinations and Disposals:

Combinations:

On July 8, 2003, the Company completed its acquisition of Cynon Health Agency, a supplier of flexible healthcare staffing services primarily to hospitals, nursing homes and prisons in the U.K. The consideration included a payment of $1,237 in cash and additional contingent cash consideration of $1,751 dependent upon future earnings of the acquired entity.

On June 27, 2003, the Company completed its acquisition of Carewise Nursing Agency, which specializes in supplying qualified critical care nurses to intensive care units across National Health Service (the "NHS") hospitals in the U.K. The consideration included a payment of $91 in cash and additional contingent cash consideration of $1,575 dependent upon future earnings of the acquired entity.

On April 11, 2003, the Company completed its acquisition of First Force Medical Recruitments Limited, a supplier of flexible healthcare staffing services primarily to military and NHS hospitals in the U.K. The consideration included a payment of $787 in cash and additional contingent cash consideration of $2,084 dependent upon future earnings of the acquired entity.

On March 17, 2003, the Company completed its acquisitions of Ablecare Oxfordshire and Ablecare Northamptonshire, collectively referred to as "Ablecare", both suppliers of flexible healthcare staffing services primarily to local authority social services departments in the U.K. The consideration included a payment of $809 in cash and additional contingent cash consideration dependent upon future earnings of the acquired entities. In August of 2003, contingent cash consideration of $630 was earned and paid. No additional consideration is required in connection with this acquisition.

On January 13, 2003, the Company completed its acquisition of Yorkshire Careline, a supplier of nurses and carers to local authority social service departments in the U.K. The consideration included a payment of $965 in cash and additional contingent cash consideration of $642 dependent upon future earnings of the acquired entity. Such contingent consideration was earned and paid in August of 2003. No additional consideration is required in connection with this acquisition.

On November 28, 2002, the Company completed its acquisition of Medic-One Group Limited, a supplier of temporary staffing to the NHS hospitals and private hospitals in the U.K. The consideration included $4,642 in cash, and the issuance of 670 shares of the Company's common stock and up to approximately $14,270 of additional contingent consideration based on future earnings. At

F-16

ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Per Share Data)

September 30, 2003, the Company is only obligated to issue additional contingent consideration of up to approximately $8,169 dependent upon future earnings of the acquired entity as $6,101 of the previous contingent consideration was unearned and will not be required. The additional contingent consideration, if any, will be satisfied by a combination of cash and shares of the Company's stock.

On November 18, 2002, the Company completed its acquisition of Dalesway Nursing Services, a supplier of temporary staffing to NHS hospitals, local government authorities and private patients in the U.K. The consideration paid was $306 in cash.

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

The Company completed its purchase price allocation of the Medic-One Group Limited acquisition. Accordingly, tangible assets, identifiable intangible assets and liabilities were assigned values of approximately $2,861, $1,410 and $2,157, respectively, with the remaining portion of $6,576 attributable to goodwill.

The preliminary purchase price allocations for the remaining acquisitions are subject to adjustments and will be finalized once additional information concerning asset and liability valuations are obtained. Then, final asset and liability fair values may differ from those set forth on the accompanying consolidated balance sheet at September 30, 2003; however, the changes are not expected to have a material effect on the consolidated financial position, results of operations or cash flows of the Company.

As noted above, the transactions related to the acquisitions of Cynon Health Agency, Carewise Nursing Agency, First Force Medical Recruitments Limited and Medic-One Group Limited include provisions to pay additional amounts in contingent consideration dependent upon future earnings of the acquired entities, payable by a combination of cash and shares of the Company's stock, aggregating $13,579 at September 30, 2003.

In fiscal 2002, the Company acquired a total of 6 flexible staffing agencies for approximately $2,184 in cash. The transactions included provisions to pay additional amounts, payable in cash, of up to $5,606 in contingent consideration dependent upon future earnings of the acquired entities. Of the $5,606 in contingent consideration, $4,450 was earned and paid in fiscal 2003. The remaining amount of contingent consideration of $1,156 was unearned and will not be required. These acquisitions were accounted for as purchase business combinations. The pro forma results of operations and related per share information for these acquisitions have not been presented as the amounts are considered immaterial.

On September 27, 2001, TWUK acquired all of the issued and outstanding shares of Staffing Enterprise Limited and Staffing Enterprise (PSV) Limited (collectively "Staffing Enterprise"), a London based provider of flexible staffing of specialist nurses and other healthcare professionals to London NHS Trust and independent hospitals. The consideration included $7,100 in cash, $14,800 in demand notes plus an additional sum of up to approximately $30,800 in contingent consideration dependent upon Pre-Tax Profits (as defined in the agreement for sale and purchase) for the fiscal year ended September 30, 2002. The Company satisfied its obligation to pay under this contingent consideration agreement by the issuance of notes payable, in the first quarter of fiscal 2003.

F-17

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 and related per share information for the year ended September 30, 2001, as if the acquisition of Staffing Enterprise was completed as of October 1, 1999:


	2001
	(unaudited)
Net revenues	$	191,936
Net loss		(24,181	)
Net loss per share of common stock:
Basic and Diluted		(1.39	)

The acquisition was accounted for as a purchase business combination. Accordingly, the total cost of the acquisition was allocated on the basis of the estimated fair value of the assets acquired and liabilities assumed and incurred. Assets acquired and liabilities assumed were assigned values of approximately $11,200 and $4,200, respectively, with the remaining portion of approximately $14,900 attributable to goodwill and other identifiable intangible assets. As the acquisition was completed on September 27, 2001, there are no amounts relating to Staffing Enterprise included in the Consolidated Statement of Operations for fiscal 2001.

In addition to the acquisition of Staffing Enterprise, during fiscal 2001, the Company acquired a total of 11 other flexible staffing agencies for approximately $9,144 in cash and the issuance of $5,720 in demand notes and resulted in the Company recording approximately $13,300 of additional goodwill and other identifiable intangible assets. The transactions included provisions to pay additional amounts, payable in cash, of up to $12,993 in contingent consideration dependent upon future earnings of the acquired entities. Of the $12,993 in contingent consideration, $6,588 was earned and paid in fiscal 2002 and 2003. The remaining amount of contingent consideration of $6,405 was unearned and will not be required. These acquisitions were accounted for as purchase business combinations. The pro forma results of operations and related per share information for these acquisitions have not been presented as the amounts are considered immaterial.

Dispositions:

U.S. Home Healthcare

On April 16, 2003, the Company sold all of the issued and outstanding capital stock of two of its subsidiaries, The PromptCare Companies, Inc. and Steri-Pharm, Inc., collectively referred to as "Home Healthcare" for approximately $8,500 in cash. Home Healthcare, which comprised the Company's U.S. operations, was concentrated in New York and New Jersey, and supplied infusion therapy, respiratory therapy and home medical equipment. In accordance with the provisions of FAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," the Company has accounted for Home Healthcare as a discontinued operation. The consolidated financial statements reflect the assets and liabilities of the discontinued operations and the operations for the current and prior periods are reported in discontinued operations.

F-18

ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Per Share Data)

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


	Year Ended September 30,
	2003		2002		2001
Revenues:
Net infusion services	$	6,685	$	12,373	$	12,505
Net respiratory, medical equipment and supplies		2,479		4,697		4,087
Total revenues		9,164		17,070		16,592
Cost of revenues:
Infusion services		5,159		9,068		8,959
Respiratory, medical equipment and supplies		1,438		2,292		2,146
Total cost of revenues		6,597		11,360		11,105
Selling, general and administrative expenses		2,583		4,709		4,867
Gain on sale of subsidiaries, net of tax		519		—		—
Income from discontinued operations	$	503	$	1,001	$	620
Diluted income per share from discontinued operations	$	0.02	$	0.05	$	0.04

At September 30, 2003, liabilities of discontinued operations of $690 relate to tax contingencies. At September 30, 2002, assets of discontinued operations consisted primarily of goodwill, accounts receivable, property and equipment, inventory, cash and other assets of $3,884, $1,521, $1,408, $597, $530 and $793, respectively, and liabilities of discontinued operations of $1,270 consisted primarily of accounts payable and accrued payroll and related costs.

U.S. Mail-order

In September 2000, the Company approved a plan to exit its U.S. Mail-Order Operations and on September 18, 2000, entered into an agreement to sell certain assets of this segment located in Jacksonville, Florida. Under the terms of the transaction, the Company received $2,000 plus an additional $556 representing the book value of on-hand saleable inventory at September 29, 2000.

Based upon additional information and revised cost benefit estimates by management, the Company recorded an additional charge of $1,900 to reflect the write-down of the remaining accounts receivable to their estimated net realizable value for the first quarter of fiscal 2001. In addition to the write-down, the Company incurred operating expenses of $1,983 in fiscal 2001, prior to the closing of the U.S. Mail-Order Operations.

As of September 30, 2002, the Company had satisfied its obligations under the restructuring plan and reversed the remaining lease commitments restructuring accrual of $280 into income.

Amcare Ltd.

On November 22, 2000, the Company sold its U.K. subsidiary, Amcare Ltd., for approximately $13,826 in cash. The Company recorded a loss of $354 and realized a foreign exchange loss of $391 in fiscal 2001 as a result of the completion of the transaction.

F-19

ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Per Share Data)

5. Property and Equipment:

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


	2003		2002
Revenue producing equipment	$	11,776	$	8,962
Furniture, fixtures and equipment		9,901		7,300
Land, buildings and leasehold improvements		776		745
		22,453		17,007
Less, accumulated depreciation and amortization		12,127		8,909
	$	10,326	$	8,098

Depreciation and amortization of property and equipment for the years ended September 30, 2003, 2002 and 2001 was $1,778, $1,337 and $1,402, respectively. The net book value of revenue producing equipment was $6,623 and $5,398 at September 30, 2003 and September 30, 2002, respectively.

6. Accrued Expenses:

Accrued expenses consist of the following at September 30:


	2003		2002
Payroll and related expenses	$	17,927	$	13,779
Other		7,042		10,216
	$	24,969	$	23,995

7. Debt:

Outstanding borrowings consist of the following at September 30:


Facility	2003		2002		Interest Rate	Final Maturity
Senior Credit Facilities:
Term loan A	$	26,840	$	31,697	LIBOR + 2.00%	Dec. 17, 2005
Term loan C		83,355		78,070	LIBOR + 3.50%	Jun. 30, 2007
Total senior credit facilities		110,195		109,767
Mezzanine Term Loan⁽¹⁾		17,490		15,443	LIBOR + 7.00%	Dec. 17, 2007
Notes With Warrants		—		3,480	9.375%	Dec. 17, 2008
Notes Payable⁽²⁾		37,693		19,840	2.65% to 5.25%	Sept. 27, 2004
Total Debt		165,378		148,530
Less Current Maturities		46,698		29,569
Net Long-term Debt	$	118,680	$	118,961

¹⁾	Net of unamortized discount of $1,394 and $1,615 as of September 30, 2003 and 2002, respectively.

²⁾	Net of unamortized discount of $597 as of September 30, 2002.

On December 17, 1999, as amended on September 27, 2001, the Company's U.K. subsidiaries obtained new financing denominated in pounds sterling. The new financing consists of a senior collateralized term and revolving credit facility (the "Senior Credit Facility"), mezzanine indebtedness (the "Mezzanine Loan") and the Notes.

F-20

ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Per Share Data)

Senior Credit Facility. The Senior Credit Facility consists of a $46,679 term loan A, maturing December 17, 2005, (ii) $20,839 acquisition term loan B, maturing December 17, 2006 which may be drawn upon during the first nine years following closing, (iii) per the September 27, 2001 amendment, $83,355 term loan C, maturing June 30, 2007, and (iv) a $8,335 revolving credit facility, maturing December 17, 2005. Repayment of the loans commenced on July 30, 2000 and continues until final maturity. The loans bear interest at rates equal to LIBOR plus 2.00% to 3.50% per annum. As of September 30, 2003, the Company had outstanding borrowings of $110,195 under the Senior Credit Facility and $49,013 in available borrowings. As of September 30, 2003 and 2002, borrowings under the senior credit facilities bore interest at a rate of 5.63% to 7.13% and 6.25% to 7.50%, respectively.

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

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

Mezzanine Loan. The Mezzanine Loan is a term loan maturing December 17, 2007 and bears interest at the rate of LIBOR plus 7% per annum, where LIBOR plus 3.5% will be payable in cash, with the remaining interest being added to the principal amount of the loan. The Mezzanine Loan contains other terms and conditions substantially similar to those contained in the Senior Credit Facility. As of September 30, 2003 and 2002, borrowings under the mezzanine term loan bore interest at a rate of 10.63% and 11.00%, respectively.

Notes with Warrants. In connection with the Reorganization, the notes with warrants were settled with the issuance of 890 shares of the Company's common stock in the first quarter of fiscal 2003.

Notes Due in Connection with Acquisitions. In fiscal 2003, the Company repaid, through TWUK, notes payable of $19,363 issued in connection with the acquisition of certain U.K. flexible staffing agencies and wrote-off $613 of related debt discount. In fiscal 2003, the Company also issued notes payable of $36,026 to satisfy amounts owed under agreements to pay additional consideration dependent upon future earning of certain acquired entities. The notes payable are secured by the Company's senior credit lender which requires us to keep an amount on deposit for the sole purpose of repaying the notes payable. These notes bear interest at rates ranging from 2.65% to 5.25%. In general, the Company may not redeem the notes on or before three years after the date of issuance; however, such notes may be redeemed by the holder within one year from the first interest payment due date upon giving not less than sixty days written notice. At September 30, 2003 and 2002, the Company had outstanding notes payable of $37,693 and $19,840, respectively, and related cash restricted to the payment of such notes have been classified as current in the accompanying Consolidated Balance Sheets.

Guarantees. The Company's U.K. subsidiaries guarantee the debt and other obligations of certain wholly-owned U.K. subsidiaries under agreements with the senior collateralized term and revolving credit facility, mezzanine indebtedness and various notes issued in connection with the acquisition of certain U.K. flexible staffing agencies. At September 30, 2003 and September 30, 2002, the amounts guaranteed, which approximates the amounts outstanding, totaled approximately $167,000 and $151,000, respectively.

F-21

ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Per Share Data)

Derivative Instrument. The Company is subject to fluctuating interest rates that may impact its consolidated results of operations or cash flows for its variable rate Senior Credit Facility, Mezzanine Loan and cash equivalents. In accordance with provisions of the 1999 refinancing, on January 25, 2000, the Company capped its interest rate (LIBOR cap of 9%) on approximately $41,935 of its floating rate debt in a contract which expired on June 30, 2003. On March 20, 2003, the Company entered into a new Rate Cap and Floor Collar Agreement that caps its interest rate at LIBOR of 5.50% and its interest floor at LIBOR of 4.47%, subject to special provisions, on approximately $83,355 of its floating rate debt in a contract which expires March 20, 2008. In accordance with FAS No. 133, "Accounting for Certain Derivative Instruments and Certain Hedging Activities," as amended by FAS No. 138 and related implementation guidance, the Company has calculated the fair value of the interest cap and floor derivative to be a liability of $211 at September 30, 2003. In addition, changes in the value from period to period of the interest cap and floor derivative are recorded as interest expense or income, as appropriate.

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


Year Ending September 30,
2004	$	46,698
2005		11,670
2006		30,841
2007		58,348
2008		17,821
Thereafter		—
	$	165,378

8. Series A Preferred Stock:

In connection with the Reorganization, the Company issued 7,774 shares of its Series A preferred stock with a liquidation preference of £22,287 ($35,213) to certain equity investors in TWUK in exchange for 22,287 TWUK ordinary shares which were issued to the equity investors upon exercise of their TWUK equity warrants that had been issued to them in connection with the 1999 sale of the senior subordinated notes of Allied Healthcare (UK). The Series A preferred stock has been recorded net of issuance costs which are being accreted using the interest rate method through December 17, 2007. The following summary highlights the terms of the Series A preferred stock.

Dividends. Each share of Series A preferred stock is entitled to receive cumulative, compounding dividends at the per share rate of 9.375% of £2.867 ($4.53) per year. The shares of Series A preferred stock are entitled to receive dividends at a higher rate in the event of a Covenant Breach, (as that term is defined in the Certificate of Amendment (relating to the Series A preferred stock) to the Company's Certificate of Incorporation), which principally relate to the protection of the preferred shareholders rights. Any accrued but unpaid dividends will be paid upon liquidation, redemption or conversion of the Series A preferred stock. The Company may not declare or pay any dividends, make any distributions, or set aside any funds or assets for payment or distribution with regard to its common stock or any other class or series of its stock ranking junior to the Series A preferred stock until all accumulated dividends on the Series A preferred stock have been paid.

Voting Rights. Each outstanding share of Series A preferred stock is entitled to that number of votes equal to the number of shares of common stock into which such share of Series A preferred stock is convertible. Except for the directors to be elected by the holders of the Series A preferred stock, voting as a class, the Series A preferred stock and the common stock will vote as a single class on all matters submitted to a vote of the Company's shareholders. Until Triumph Partners III, L.P. (or any of its affiliates) beneficially owns less than 50% of the shares of Series A preferred stock issued to

F-22

ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Per Share Data)

it in the Reorganization, the holders of Series A preferred stock will be entitled, voting as a separate class, to elect one director to the Company's board of directors. In addition, the Series A preferred stock and the Company's common stock will vote as a single class in the election of all other directors of its board of directors. In the event of a Covenant Breach (as that term is defined in the Certificate of Amendment (relating to the Series A preferred stock) to the Company's Certificate of Incorporation), the holders of the Series A preferred stock will be entitled to elect one additional director to the Company's board of directors.

Liquidation Preference. In the event of any liquidation, dissolution or winding up of the Company, the holders of Series A preferred stock will be entitled to receive, before the holders of common stock or any other class or series of stock ranking junior to the Series A preferred stock in respect of their shares, a liquidation preference equal to £2.867 ($4.53) per share (subject to adjustment for stock splits, stock dividends, recapitalizations and similar transactions), plus any accrued or declared but unpaid dividends on such shares of Series A preferred stock, which the Company refers to as the "Series A Preference Amount"; provided, however, that in the event that the holders of Series A preferred stock would have received an amount greater than the Series A Preference Amount had they converted their Series A preferred stock into shares of common stock immediately prior to the liquidation, dissolution or winding up of the Company, such holders will be entitled to receive an amount per share equal to the amount they would have received had they effectuated such a conversion.

Conversion into Common Stock. Each share of Series A preferred stock is currently convertible, at the option of the holder thereof, into one share of common stock without the payment of additional consideration. Subject to the satisfaction of certain conditions, the Company has the right to require the holders of the Series A preferred stock to convert all, but not less than all, of their shares into common stock. At issuance, as the value of the common stock into which the preferred share would convert was less than the fair value of the redeemable preferred stock, there was no beneficial conversion feature.

Redemption. Subject to certain limitations, a majority in interest of the holders of the Series A preferred stock have the right to require the Company to redeem their shares of Series A preferred stock upon the occurrence of a liquidity event (as described in the Certificate of Amendment (relating to the Series A preferred stock) to the Company's Certificate of Incorporation) or at any time after December 17, 2007 if the Company has paid its Senior Credit Facility and the Mezzanine Loan in full on or before such date. The redemption right can be exercised up to three times, but for not less than £5 million on any one occasion (or such lower amount as is necessary to redeem all of the shares of Series A preferred stock then outstanding). Upon such a redemption, the holders of the Series A preferred stock will be entitled to receive an amount equal to the Series A Preference Amount.

The following table presents the changes in the carrying amount of the Series A preferred stock for the years ended September 30, 2003 and 2002:


	2003		2002
Balance at October 1,	$	32,254	$	—
Issuance of Series A preferred stock		—		35,051
Issuance costs		—		(2,620	)
Accretion of issuance costs		482		75
Foreign exchange effect		415		(252	)
Balance at September 30,		33,151		32,254

F-23

ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Per Share Data)

9. Shareholders' Equity:

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

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

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

In January 2001, the Company initiated a stock repurchase program, whereby the Company may purchase up to approximately $1,000 of its outstanding common stock in open market or privately negotiated transactions. In May 2003, the Company initiated another stock repurchase program, whereby the Company may purchase up to an additional $3,000 of its outstanding common stock in open market transactions or in privately negotiated transactions. As of September 30, 2003, the Company had acquired 408 shares for an aggregate purchase price of $1,285 which is reflected as treasury stock in the consolidated balance sheet at September 30, 2003.

10. Income Taxes:

The provision for income taxes from continuing operations for the years ended September 30 is summarized as follows:


	2003			2002		2001
Current:
Federal	$	(1,806	)	$	—	$	—
Foreign		7,622			4,770		2,623
Deferred:
Federal		—			—		21,462
Foreign		(906	)		201		32
Provision for income taxes	$	4,910		$	4,971	$	24,117

F-24

ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Per Share Data)

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 are as follows:


	2003			2002
Deferred tax assets:
Provision for doubtful accounts	$	958		$	6,755
Accrued expenses		233			265
Federal net operating loss carryforward		24,450			19,916
State net operating loss carryforward		1,998			1,666
Capital loss carryforward		768			768
Charitable contribution		8			—
AMT credit		68			—
Other, net		83			592
Gross deferred tax assets		28,566			29,962
Valuation allowance		(27,645	)		(28,187	)
Net deferred tax assets		921			1,775
Deferred tax liabilities:
Depreciation		(938	)		(1,949	)
Intangible assets		(510	)		—
Other, net		—			(575	)
Deferred tax liabilities		(1,448	)		(2,524	)
Net deferred tax liability	$	(527	)	$	(749	)

Management had been previously committed to implementing tax strategies that provided for the sale of appreciated assets, including a portion of the Company's ownership interest in its U.K. subsidiary, to generate sufficient taxable income to realize the tax net operating losses prior to their expiration. While the Company believes it will eventually realize the value of its tax losses, current developments, including the continued expansion of the U.K. operations, have increased the uncertainty as to both the execution of the original strategy and the appropriateness of a tax strategy which may not align with the Company's current business strategy. These uncertainties have impaired the Company's ability to determine whether it is more likely than not that its deferred tax assets will be realized. Accordingly, a full valuation allowance for all remaining U.S. deferred tax assets has been provided.

As of September 30, 2003, the Company has a Federal net operating loss carryforward of approximately $73,000 which if unused, will expire in the years 2019 through 2023. The Company has a capital loss carryforward of approximately $2,100 which, if unused, will expire in fiscal 2004.

F-25

ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Per Share Data)

Reconciliations of the differences between income taxes computed at Federal statutory tax rates and consolidated provisions for income taxes on income (loss) before equity income of and interest income earned from U.K. subsidiaries for the years ended September 30 are as follows:


	2003			2002			2001
Income taxes at 34%	$	5,569		$	3,021		$	(1,052	)
Tax contingency		(1,874	)		—			—
Nondeductible expenses, primarily amortization and write down of intangible assets		6			943			1,305
Valuation allowance		1,304			1,896			24,745
Foreign tax, net		(189	)		—			—
Other, net		94			(889	)		(881	)
Provision for income taxes	$	4,910		$	4,971		$	24,117

Provision has not been made for U.S. or additional foreign taxes on approximately $109,556 of undistributed earnings of the U.K. foreign subsidiaries. Those earnings have been and will continue to be reinvested. Determination of the amount of unrecognized deferred tax liability with respect to such earnings is not practical. We believe that the amount of additional taxes that might be payable on the earnings of foreign subsidiaries, if remitted, would be partially offset by the U.S. foreign tax credits.

Income before income taxes generated from the U.K. operations for the years ended September 30, 2003, 2002 and 2001 was $20,307, $14,271 and $3,684, respectively.

11. Stock Option Plan and Warrants:

Stock Options:

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

F-26

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, 2003, 2002 and 2001:


	2003					2002					2001
	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		1,530			4.24		1,394			4.22		1,040			5.22

Granted		1,415			4.30		205			5.41		400			1.75
Exercised		(403	)		2.40		—					(4	)		1.75
Forfeited		(288	)		4.42		(69	)		7.25		(42	)		5.59

Outstanding end of year		2,254			4.58		1,530			4.24		1,394			4.22

Weighted-average fair value of options granted during the year					3.29					2.93					0.34

Available for future grants		1,814

On May 28, 1997, the Company adopted a stock option plan for non-employee directors (the "Directors Plan") which gives non-employee directors options to purchase up to 100 shares of common stock. As of September 30, 2003, no options have been granted under the Directors Plan. Options under the Directors Plan may be granted by the Board of Directors which determines the exercise price, vesting provisions and term of such grants.

A summary of the 2,254 options outstanding as of September 30, 2003 is as follows:


Range of Exercise Price ($)	Number Outstanding		Weighted Average Exercise Price of Options Outstanding ($)		Weighted Average Remaining Contractual Life In Years		Number Exercisable		Weighted Average Exercise Price of Options Exercisable ($)
1.75		351		1.75		2.2		351		1.75
3.83		9		3.83		9.9		—		—
4.00		237		4.00		9.7		185		4.00
4.00		556		4.00		11.0		—		—
4.31		10		4.31		5.2		10		4.31
4.70		501		4.70		9.1		—		—
5.41		90		5.41		8.7		30		5.41
7.25		500		7.25		4.3		500		7.25
1.75 to 7.25		2,254		4.58		7.5		1,076		4.82

Warrants:

In the fourth quarter of fiscal 2003, in connection with the execution of an agreement with an unaffiliated third party pursuant to which such third party agreed to provide us with consulting services related to corporate finance and investment banking matters, the Company issued to such third party warrants to purchase up to an aggregate of 350 shares of its common stock. Of the 350 warrants issued, 100 of the warrants are exercisable at $4.75 per share, 175 of the warrants are exercisable at $5.50 per share and 75 of the warrants are exercisable at a price of $6.00 per share. The warrants expire on August 13, 2007. At issuance, the fair value of the warrants of $603 was recorded

F-27

ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Per Share Data)

as a deferred cost and is being amortized over the two year life of the agreement. For the year ended September 30, 2003, the Company recorded $41 in amortization related to such warrants.

12. Commitments and Contingencies:

Acquisition Agreements:

Related to the Company's acquisitions of certain flexible staffing agencies, we have entered into agreements to pay additional amounts, payable in cash and shares of the Company's stock, of up to $13,579 at September 30, 2003, in contingent consideration dependent upon future earnings of such acquired entities.

Employment Agreements:

The Company has two employment agreements with certain executive officers (the Company's Chief Executive Officer and the Company's Chief Operating Officer) that provided for minimum aggregate annual compensation of $825 in fiscal 2003. Each employment agreement contains, among other things, customary confidentiality and termination provisions and provides that in the event of the termination of the executive following a "change of control" of the Company (as defined in such agreements), or a significant change in their responsibilities, such person will be entitled to receive a cash payment of up to 2.9 times their average annual base salary during the preceding 12 months. Each employment agreement expire on September 24, 2004; however, each employment agreement shall be automatically renewed on such date, and on each anniversary of such date, for an additional period of one-year, unless the Company or the executive gives notice to the other of its intents to terminate the employment agreement within 90 days of the then applicable termination date.

Operating Leases:

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

Future minimum rental commitments required under operating leases that have non-cancelable lease terms in excess of one year as of September 30, 2003 are as follows:


2004	$	1,643
2005		1,372
2006		1,191
2007		1,116
2008		789
Thereafter		2,438
	$	8,549

Rent expense under non-capitalized, non-cancelable lease agreements for the years ended September 30, 2003, 2002 and 2001 amounted to $2,749, $2,002 and $1,565, respectively.

F-28

ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Per Share Data)

Litigation:

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

Contingencies:

Some of the Company's subsidiaries were Medicare Part B suppliers who submit 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. Some of the Company's subsidiaries currently have pending such audits. If the outcome of any audit results in a denial or a finding of an overpayment, then the affected subsidiary has appeal rights. Under postpayment audit procedures, the supplier generally pays the alleged overpayment and can pursue appeal rights for a refund of any paid overpayment incorrectly assessed against the supplier. Some of the subsidiaries currently are responding to these audits and pursuing appeal rights in certain circumstances.

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

The Company is involved in various other legal proceedings and claims incidental to its normal business activities. The Company is vigorously defending its position in all such proceedings and has recorded an accrual of approximately $1,117 to cover its estimate for exposure related to these matters. 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.

13. Operations by Business Segments and Geographic Areas:

As disclosed in Note 4, the Company sold all of the issued and outstanding capital stock of its Home Healthcare operations on April 16, 2003 and the Home Healthcare results of operations have been classified as discontinued operations. As a result of this transaction, the Company no longer operates in the U.S. Home Healthcare segment. Accordingly, during the years ended September 30, 2003, 2002 and 2001, the Company's continuing operations were in the U.K. The U.K. operations derive its revenues from flexible healthcare services, principally nursing and ancillary services, and provision of respiratory therapy products to patients throughout most of the U.K.

F-29

ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Per Share Data)

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

The following tables present certain financial information by reportable business segment and geographic area of operations for the years ended September 30, 2003, 2002 and 2001.


	Year Ended September 30, 2003
	U.K. Operations		Total
Net patient services	$	287,964	$	287,964
Net respiratory, medical equipment and supplies		6,415		6,415
Total revenues to unaffiliated customers	$	294,379	$	294,379
Segment operating profit	$	31,497	$	31,497

Corporate expenses				(3,822	)
Interest expense, net				(11,279	)
Foreign exchange loss				(18	)
Income before income taxes and discontinued operations			$	16,378

Depreciation and amortization	$	1,976	$	1,976
Corporate depreciation and amortization				9
Total depreciation and amortization			$	1,985

Identifiable assets, September 30, 2003	$	302,309	$	302,309

Corporate assets				9,359
Total assets, September 30, 2003			$	311,668

Capital expenditures	$	4,015	$	4,015
Corporate capital expenditures				11
Total capital expenditures			$	4,026

F-30

ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Per Share Data)


	Year Ended September 30, 2002
	U.K. Operations		Total
Net patient services	$	237,890	$	237,890
Net respiratory, medical equipment and supplies		4,938		4,938
Total revenues to unaffiliated customers	$	242,828	$	242,828
Segment operating profit	$	27,786	$	27,786

Corporate expenses				(10,554	)
Interest expense, net				(13,472	)
Gain on settlement of PIK interest				5,143
Foreign exchange loss				(19	)

Income before income taxes, minority interest and discontinued operations			$	8,884

Depreciation and amortization	$	1,321	$	1,321

Corporate depreciation and amortization				16

Total depreciation and amortization			$	1,337


Identifiable assets, September 30, 2002	$	256,407	$	256,407

Assets of discontinued operations				8,733

Corporate assets				2,973

Total assets, September 30, 2002			$	268,113

Capital expenditures	$	3,082	$	3,082

Corporate capital expenditures				9
Total capital expenditures			$	3,091

F-31

ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Per Share Data)


	Year Ended September 30, 2001
	U.K. Operations		Total
Net patient services	$	130,719	$	130,719
Net respiratory, medical equipment and supplies		7,322		7,322
Revenues to unaffiliated customers	$	138,041	$	138,041
Segment operating profit	$	12,676	$	12,676

Corporate expenses				(3,053	)
Mail-order expenses				(3,883	)
Interest expense, net				(8,433	)
Foreign exchange loss				(400	)

Loss before income taxes, minority interest and discontinued operations			$	(3,093	)
Depreciation and amortization	$	5,080	$	5,080

Corporate depreciation and amortization				47
Total depreciation and amortization			$	5,127
Identifiable assets, September 30, 2001	$	236,472	$	236,472

Assets of discontinued operations				10,899
Corporate assets				702
Total assets, September 30, 2001			$	248,073

Capital expenditures	$	1,244	$	1,244
Corporate capital expenditures				15
Total capital expenditures			$	1,259

The net assets for the U.K. Operations were $109,556 and $81,377 as of September 30, 2003 and 2002, respectively.

14. Profit Sharing Plan:

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

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

The Company may make additional matching cash contributions at its discretion. The Company's contributions to the plan were approximately $35, $30 and $19 for the years ended September 30, 2003, 2002 and 2001, respectively.

F-32

ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Per Share Data)

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 $131, $252 and $26 for the years ended September 30, 2003, 2002 and 2001, respectively.

15. Selected Quarterly Financial Data (unaudited):

The following table presents the comparative unaudited quarterly results for the years ended September 30, 2003 and 2002:


2003 Quarter Ended	December 31,		March 31,			June 30,			September 30,
Total revenues	$	67,998	$	71,686		$	75,274		$	79,421
Gross profit	$	18,898	$	19,625		$	20,595		$	22,205
Discontinued operations	$	184	$	(62	)	$	381		$	—
Net income	$	2,303	$	3,526	^(a)	$	2,120		$	4,022
Net income available to common shareholders	$	1,309		2,552		$	1,117		$	2,988
Basic and diluted net income per share of common stock	$	0.06	$	0.11		$	0.05		$	0.13
2002 Quarter Ended	December 31,		March 31,			June 30,			September 30,
Total revenues	$	56,582	$	57,511		$	60,587		$	68,148
Gross profit	$	14,903	$	15,149		$	16,412		$	19,615
Discontinued operations	$	203	$	265		$	234		$	299
Net income (loss)	$	1,457	$	1,626		$	(5,465)	^(b)	$	7,176	^(c)
Net income (loss) available to common shareholders	$	1,457		1,626		$	(5,579	)	$	6,274
Basic net income (loss) per share of common stock	$	0.08	$	0.09		$	(0.30	)	$	0.30
Diluted net income (loss) per share of common stock	$	0.06	$	0.07		$	(0.30	)	$	0.26

(a)	Includes benefit $1,873 related to the reversal of an estimated income tax liability for a business that was previously discontinued and no longer has any tax liabilities.

(b)	Includes a non-cash charge of $4,216 for the issuance of shares of the Company's common stock to senior management and a charge for $2,341 for tax equalization bonuses paid to senior management for reimbursement of income taxes incurred as a result of the share issuances.

(c)	Includes net charges of $2,410 related to the completion of the Reorganization and $5,143 gain in the settlement of PIK interest.

F-33

ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In Thousands, Except Per Share Data)

16. Subsequent Events:

(a) On December 2, 2003, Mr. Aitken and Ms. Eames repaid in full the principal and accrued interest on the promissory notes issued by them to the Company in connection with the Reorganization in fiscal 2002. The principal and accrued interest repaid aggregated $591 and $419, respectively. The loans were repaid by delivery to the Company of 104 and 73 shares of the Company's common stock held by Mr. Aitken and Ms. Eames, respectively, valued at $5.70 per share, the closing price on the day prior to the repayment date. The Company also agreed to reimburse Mr. Aitken and Ms. Eames for the taxes incurred by them on the disposition of the shares to the Company, which are estimated to be approximately $83 and $51, respectively.

(b) On December 24, 2003, the Company completed its acquisition of Primary Care Agency Limited, a supplier of flexible healthcare staffing services primarily to hospitals, primary care trusts and learning disability homes in the U.K. The consideration included a payment of $2,095 in cash and additional contingent cash consideration of $1,873 dependent upon future earnings of the acquired entity.

(c) On April 8, 2004, the Company completed its acquisition of certain assets of the business of Kingston Care & Yorkshire Care, a supplier of home health aides to social service providers in the Yorkshire area of the U.K. The consideration included an initial payment of $1,196 in cash and additional contingent cash consideration of up to a further $2,009 dependent upon future earnings of the acquired business over the next 12 months.

F-34

SCHEDULE I

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


	September 30, 2003			September 30, 2002
ASSETS
Current assets:
Cash and cash equivalents	$	5,813		$	383
Receivables from subsidiaries		46,242			56,631
Prepaid expenses and other assets		897			202
Total current assets		52,952			57,216
Property and equipment, net		21			23
Investment in subsidiaries		60,699			31,922
Goodwill		2,300			2,300
Other assets		327			66
Total assets	$	116,299		$	91,527
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Dividends payable	$	4,464		$	941
Liabilities of discontinued operations		690			—
Accounts payable		676			434
Accrued expenses		1,983			1,913
Taxes payable		68			1,931
Total current liabilites		7,881			5,219
Long-term liabilities		104			111
Total liabilities		7,985			5,330
Commitments and contingencies
Redeemable convertible Series A preferred stock, $.01 par value; authorized 8,000 shares, 7,774 shares issued and outstanding (liquidation value $35,213)		33,151			32,254
Shareholders' equity:
Preferred stock, $.01 par value; authorized 2,000 shares, issued and outstanding - none		—			—
Common stock, $.01 par value; authorized 62,000 shares, issued 22,689 and 20,945 shares, respectively		227			209
Additional paid-in capital		142,897			139,309
Accumulated other comprehensive income (loss)		3,140			(3,112	)
Accumulated deficit		(68,814	)		(80,785	)
		77,450			55,621
Less notes receivable from officers		(1,002	)		(958	)
Less cost of treasury stock (408 and 266 shares, respectively)		(1,285	)		(720	)
Total shareholders' equity		75,163			53,943
Total liabilities and shareholders' equity	$	116,299		$	91,527

See note to condensed financial information.

S-1

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


	Year Ended September 30, 2003			Year Ended September 30, 2002			Year Ended September 30, 2001
Revenue	$	—		$	—		$	—
Expenses:
Selling, general and administrative expenses		4,178			10,848			3,054
Forgiveness of intercompany debt		12,106			—			—
Total expenses		16,284			10,848			3,054
Gain on settlement of PIK interest		—			(5,143	)		—
Equity in income (loss) of subsidiares		26,043			10,615			(2,195	)
Other expense (income)		113			116			(99	)
Income (loss) before income taxes and discontinued operations		9,646			4,794			(5,150	)
(Benefit from) provision for income taxes		(1,806	)		—			21,462
Income (loss) before discontinued operations		11,452			4,794			(26,612	)
Discontinued operations —
Gain on disposal of subsidiaries, net of taxes of $775		519			—			—
		519			—			—
Net income (loss)	$	11,971		$	4,794		$	(26,612	)

See note to condensed financial information.

S-2

SCHEDULE I

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


	Year Ended September 30, 2003			Year Ended September 30, 2002			Year Ended September 30, 2001
Cash flows from operating activities:
Net income (loss)	$	11,971		$	4,794		$	(26,612	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Equity interest in net income (loss) of subsidiaries		(26,043	)		(10,615	)		2,195
Gain on sale of subsidiaries		(519	)		—			—
Depreciation and amortization		9			16			47
Amortization of debt issuance costs and warrants		203			—			—
Forgiveness of intercompany debt		12,106			—			—
Loss on sale of fixed assets		3			—			5
Minority interest		—			120			22
Stock based compensation - employees		587			5,835			—
Interest accrued on loans to officers		(44	)		(18	)		—
Gain on settlement of PIK interest		—			(5,143	)		—
Gain on acquisition of minority interest		—			(179	)		—
Deferred income taxes		—			—			21,462
Changes in operating assets and liabilities, excluding the effect of businesses acquired and sold:
Decrease (increase) in receivables from subsidiaries		1,164			4,287			(394	)
(Increase) decrease in prepaid expenses and other assets		(394	)		(82	)		62
Increase (decrease) in accounts payable and other liabilities		(1,641	)		305			(110	)
Net cash used in continuing operations		(2,598	)		(680	)		(3,323	)
Net cash provided by discontinued operations		463			1,640			1,679
Net cash (used in) provided by operating activities		(2,135	)		960			(1,644	)
Cash flows from investing activities:
Capital expenditures		(11	)		(9	)		(15	)
Loans to officers		—			(940	)		—
Proceeds from sale of discontinued operations		8,195			—			—
Net cash provided by (used in) investing activities		8,184			(949	)		(15	)
Cash flows from financing activities:
Payments for stock issuance costs		(20	)		(4,054	)		—
Proceeds from issuance of stock		—			3,188			—
Payments for treasury shares acquired		(565	)		—			(720	)
Stock options and warrants exercised, net, including tax benefit		80			—			7
Net cash used in financing activities		(505	)		(866	)		(713	)
Effect of exchange rate on cash		(114	)		252			1
Increase (decrease) in cash		5,430			(603	)		(2,371	)
Cash and cash equivalents, beginning of period		383			986			3,357
Cash and cash equivalents, end of period	$	5,813		$	383		$	986

See note to condensed financial information.

S-3

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

Basis of Presentation:

Certain information and footnote disclosures normally included in financial statements prepared in conformity with generally accepted accounting principles have been condensed or omitted. Accordingly, these financial statements should be read in conjunction with the consolidated financial statements of Allied Healthcare International Inc. (the "Company") in its 2003 Annual Report on Form 10-K/A.

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

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
Description	Balance at Beginning of Period		Cost and Expenses		Other Accounts			Deductions			Balance at End of Period
Allowance for Doubtful
Accounts:
Year ended September 30, 2003	$	22,849	$	1,205	$	227	(B)	$	20,935	(A)	$	3,346
Year ended September 30, 2002	$	22,737	$	985	$	158	(B)	$	1,031	(A)	$	22,849
Year ended September 30, 2001	$	20,751	$	2,586	$	347	(B)	$	947	(A)	$	22,737

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

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

S-5

Title of Each Class

Name of Each Exchange on Which Registered

Common Stock, $.01 par value

American Stock Exchange