Allion Healthcare (ALLI) 8-K/A Financial Statements and Exhibits

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K/A

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15 (D) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): August 4, 2005

Commission File Number: 0-17821

ALLION HEALTHCARE, INC.

(Exact name of registrant as specified in its charter)

Delaware	11-2962027
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1660 Walt Whitman Road, Suite 105, Melville, NY 11747

(Address of principal executive offices)

Registrant’s telephone number, including area code: (631) 547-6520

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communication pursuant to Rule 425 under Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) Under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) Under the Exchange Act (17 CFR 240.13e-4(c))

INFORMATION TO BE INCLUDED IN REPORT

Item 9.01 Financial Statements and Exhibits

On August 10, 2005, Allion Healthcare, Inc. filed a current report on Form 8-K in connection with its acquisition, through its wholly-owned subsidiary Medicine Made Easy, of all right, title and interest in certain assets of Frontier Pharmacy & Nutrition, Inc. doing business as (d/b/a) PMW Pharmacy, Inc., including but not limited to its inventory and customer lists, pursuant to the previously disclosed Asset Purchase Agreement dated August 4, 2005.

Pursuant to Item 9.01 of Form 8-K, set forth below are the financial statements and pro forma financial statements relating to the acquisition of assets of Frontier Pharmacy.

(a) Financial Statements of Business Acquired

The report of independent auditors and Financial Statements of Frontier Pharmacy & Nutrition, Inc. as of December 31, 2004 and 2003 and for the two years ended December 31, 2004 and the Notes thereto.

The reviewed financial statements of Frontier Pharmacy & Nutrition, Inc. for the six months ended June 30, 2005.

(b) Pro Forma Financial Information

The unaudited pro forma consolidated balance sheet as of June 30, 2005 and the unaudited pro forma consolidated statements of operations for the year ended December 31, 2004 and the six months ended June 30, 2005

The unaudited pro forma consolidated financial statements of Allion Healthcare, Inc. attached hereto are not necessarily indicative of the results that actually would have been attained if the acquisition had been in effect on the dates indicated or which may be attained in the future. Such statements should be read in conjunction with the historical financial statements of Allion Healthcare, Inc.

SIGNATURE

Pursuant to the requirements 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.

Date: October 14, 2005

Allion Healthcare, Inc.
By:	/s/ James G. Spencer
	James G. Spencer Chief Financial Officer, Secretary and Treasurer

Contents

Independent Auditor’s Report	1
Financial Statements
Balance Sheets	2
Statements of Income	3
Statements of Stockholders’ Equity	4
Statements of Cash Flows	5
Notes to the Financial Statements	6 -8

Independent Auditor’s Report

To the Board of Directors

Frontier Pharmacy & Nutrition, Inc.

Long Beach, California

We have audited the accompanying balance sheets of Frontier Pharmacy & Nutrition, Inc. as of December 31, 2004 and 2003, and the related statements of income, stockholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits 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 audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Frontier Pharmacy & Nutrition, Inc. as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Des Moines, Iowa	/s/ McGladrey & Pullen, LLP
September 8, 2005

1

Frontier Pharmacy & Nutrition, Inc.

Balance Sheets

December 31, 2004 and 2003

	2004		2003
ASSETS
CURRENT ASSETS
Cash	$	32,941	$	509,578
Accounts receivable		1,595,111		1,090,161
Inventories		298,671		271,711
Other current assets		1,475		1,475
Total current assets		1,928,198		1,872,925
EQUIPMENT AND FURNITURE, net of accumulated depreciation 2004 $16,351; 2003 $ 12,848		45,549		48,579
INTANGIBLE ASSETS, net of accumulated amortization 2004 $19,088; 2003 $ 14,509		37,912		42,491
	$	2,011,659	$	1,963,995
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	962,180	$	746,811
Accrued expenses, including $10,070 due stockholder		19,857		—
Total current liabilities		982,037		746,811
LONG TERM DEBT TO STOCKHOLDER		191,803		191,803
STOCKHOLDERS’ EQUITY
Common stock, no par value, authorized 100,000 shares; issued and outstanding 2004 1,250 shares; 2003 1,136 shares		639,874		329,681
Retained earnings		197,945		695,700
		837,819		1,025,381
	$	2,011,659	$	1,963,995

See Notes to Financial Statements.

2

Frontier Pharmacy & Nutrition, Inc.

Statements of Income

Years Ended December 31, 2004 and 2003

	2004			2003
Sales, net	$	24,009,941		$	19,770,960
Cost of sales		20,810,829			17,074,544
Gross profit		3,199,112			2,696,416
Selling, general and administrative expenses		1,180,481			1,145,697
Operating income		2,018,631			1,550,719
Interest expense on long term liability to stockholder		(10,070	)		(11,544	)
Net income	$	2,008,561		$	1,539,175
Basic earnings per common share	$	1,606.85		$	1,441.17
Distributions declared per common share	$	2,005.05		$	1,254.68
Unaudited proforma net income:
Income before income tax	$	2,008,561		$	1,539,175
Proforma income tax expense		763,253			584,887
Proforma net income	$	1,245,308		$	954,288
Weighted average number of shares outstanding		1,250			1,068

See Notes to Financial Statements.

3

Frontier Pharmacy & Nutrition, Inc.

Statements of Stockholders’ Equity

Years Ended December 31, 2004 and 2003

	Common Stock		Retained Earnings			Total
Balance, December 31, 2002	$	1,000	$	496,525		$	497,525
Net income		—		1,539,175			1,539,175
Issuance of common stock to an employee stockholder for services, at fair value (Note 5)		328,681		—			328,681
Distributions		—		(1,340,000	)		(1,340,000	)
Balance, December 31, 2003		329,681		695,700			1,025,381
Net income		—		2,008,561			2,008,561
Issuance of common stock to an employee stockholder for services, at fair value (Note 5)		310,193		—			310,193
Distributions		—		(2,506,316	)		(2,506,316	)
Balance, December 31, 2004	$	639,874	$	197,945		$	837,819

See Notes to Financial Statements.

4

Frontier Pharmacy & Nutrition, Inc.

Statements of Cash Flows

Years Ended December 31, 2004 and 2003

	2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	2,008,561		$	1,539,175
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		8,082			10,175
Common stock issued for services		310,193			328,681
Changes in working capital components:
Accounts receivable		(504,950	)		(222,142	)
Inventories		(26,960	)		(61,040	)
Accounts payable		215,369			74,137
Accrued expenses		19,857			—
Net cash provided by operating activities		2,030,152			1,668,986
CASH FLOWS FROM INVESTING ACTIVITIES, purchase of equipment and furniture		(473	)		(13,132	)
CASH FLOWS FROM FINANCING ACTIVITIES, distributions		(2,506,316	)		(1,340,000	)
Net increase (decrease) in cash		(476,637	)		315,854
CASH
Beginning		509,578			193,724
Ending	$	32,941		$	509,578
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION, cash payments for interest	$	—		$	12,000

See Notes to Financial Statements.

5

Notes to Financial Statements

Note 1. The Company and Significant Accounting Policies

Nature of business: Frontier Pharmacy & Nutrition, Inc. (the Company) began operations July 8, 2000 and is engaged in the pharmacy business in California. The Company focuses on delivering its specialty pharmacy products primarily to HIV/AIDS patients.

Accounting estimates and assumptions: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain 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 revenue and expenses during the reporting periods. Such estimates primarily relate to the allowance for doubtful accounts receivable. Actual results could differ from those estimates.

Accounts receivable: Accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables, if any, based on a review of all outstanding amounts. Management reviews the collectibility of accounts receivable by tracking collection and write-off activity. An allowance for estimated uncollectible accounts is adjusted as needed to reflect current collection, write-off and other trends, including changes in assessment of realizable value.

Inventories: Inventories consist mainly of pharmaceuticals that are available for sale. Inventories are recorded at lower of cost or market, cost being determined on a first-in, first-out (FIFO) basis.

Equipment and furniture: Equipment and furniture are recorded at historical cost and depreciated over their estimated useful lives.

Depreciation expense was approximately $3,500 and $5,600 for the years ended December 31, 2004 and 2003, respectively.

Intangible assets: Intangible assets represent the purchase price paid for prescription files and a covenant not to compete acquired in 2000. Intangible assets are being amortized over 15 years using the straight-line method.

Long term liability, stockholder: This liability resulted from a stockholder contributing cash and inventory for initial operations. This liability is presented as long-term as no payment is expected within a one year time period. Interest is paid annually at rates ranging from 5.25% to 6.25%.

Interest expense related to this liability was approximately $10,000 and $12,000 for the years ended December 31, 2004 and 2003, respectively.

Revenue recognition: Revenue is recognized as medications are provided to customers. A substantial portion of the Company’s revenue is billed to third-party payors, including governmental payors, insurance companies and managed-care plans. Revenue is recorded at contractual amounts based on agreements with each third-party payor.

Income taxes: The Company has elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. As such, the taxable income of the Company is includable in the individual income tax returns of the stockholders, and the Company generally will not be subject to tax. The unaudited pro forma net income information in the accompanying statements of net income reflects the application of corporate income taxes to the Company’s taxable income of an assumed combined federal and state tax rate of 38%.

6

Notes to Financial Statements

Credit risk: Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and accounts receivable. The Company has all of its cash in two bank accounts. The balances are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $100,000. Such cash balances, at times, may exceed FDIC limits. The Company has not experienced any losses in such accounts. A large portion of the Company’s trade receivables are from third-party reimbursement programs as described in Note 3.

Earnings per share: Basic and diluted earnings per share are computed using the weighted average number of common shares outstanding during the periods. The Company has no potentially dilutive securities outstanding during the periods presented.

Advertising: Advertising costs are expensed as incurred. Advertising costs were approximately $6,000 and $7,000 for the years ending 2004 and 2003, respectively, and were included in selling, general and administrative expenses.

Note 2. Leases

The Company conducts its operation in a premise leased under an operating lease, which expires June 2007. Rental expense was approximately $38,000 and $37,000 for the years ended December 31, 2004 and 2003, respectively. Approximate future minimum monthly rental payments of $3,150 under the noncancelable operating lease with lease terms in excess of one year as of December 31, 2004 will be paid through June 2007.

Note 3. Concentrations of Credit Risk and Major Third-Party Payor

The Company provides prescription medications to customers located in California. A significant number of the Company’s customers have a substantial amount of their costs paid by government sponsored third-party reimbursement programs. Under these California third-party reimbursement programs, the Company had net sales of approximately $22,809,000 and $18,782,000 for the years ended December 31, 2004 and 2003, respectively. At December 31, 2004 and 2003, the Company had an aggregate outstanding receivables from these programs of approximately $1,035,000 and $1,470,000, respectively.

Credit losses relating to customers historically have been minimal and within management’s expectations.

Note 4. Major Suppliers

During the years ended December 31, 2004 and 2003, all of the Company’s purchases of prescription medications were primarily from two vendors. Such purchases are shown as cost of sales on the accompanying statements of income.

Note 5. Stock-Based Compensation

On July 1, 2003, the Company entered into an agreement with a stockholder that granted 136 shares of common stock in consideration for services. On January 1, 2004, the Company entered into another agreement with the same shareholder that granted an additional 114 shares of common stock in consideration for services. The Company recognized compensation expense equal to managements’ estimated fair value of the shares of approximately $310,000 and $329,000 for the years ending December 31, 2004 and 2003, respectively, related to these grants.

7

Note 6. Fair Value of Financial Instruments

The carrying amount of cash, accounts receivable, accounts payable and long-term liability, stockholder approximate their fair value.

Note 7. Subsequent Event

On August 5, 2005, MOMS Pharmacy, Inc., a California corporation and wholly owned subsidiary of Allion Healthcare, Inc., a Delaware corporation, entered into an Asset Purchase Agreement with the owners of 100% of the stock of the Company. On the same day, MOMS Pharmacy acquired patient lists and other tangible and intangible assets owned by the Company as of the date of the closing. As a result of these transactions, the Company voluntarily terminated its S Corporation status.

8

Frontier Pharmacy & Nutrition, Inc.

Condensed Balance Sheet (Unaudited)
June 30, 2005
ASSETS
CURRENT ASSETS
Cash	$	497
Accounts receivable		1,521,569
Inventories		319,000
Other current assets		1,475
Total current assets		1,842,541
Equipment and furniture, net of accumulated depreciation of $16,351		45,549
Intangible assets, net of accumulated amortization of $19,088		37,912
	$	1,926,002
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES, accounts payable
Accounts payable	$	982,236
Accrued expense		10,070
Total current liabilities		992,306
LONG TERM LIABILITY TO SHAREHOLDER		191,803
STOCKHOLDERS’ EQUITY
Common stock, no par value, authorized 100,000 shares; issued and outstanding 1,250 shares		639,874
Retained earnings		102,019
		741,893
	$	1,926,002

See Notes to Unaudited Condensed Financial Statements.

9

Frontier Pharmacy & Nutrition, Inc.

Condensed Statements of Income (Unaudited)
Six Months Ended June 30, 2005 and 2004
	2005		2004
Sales, net	$	12,681,305	$	11,350,407
Cost of sales		11,005,437		10,127,023
Gross profit		1,675,868		1,223,384
Selling, general and administrative expenses		409,794		748,724
Net income	$	1,266,074	$	474,660
Basic earnings per common share	$	1,012.86	$	379.74
Distributions declared per common share	$	199.51	$	520.00
Unaudited proforma net income:
Income before income tax	$	1,266,074	$	474,660
Proforma income tax expense		481,108		180,371
Proforma net income	$	784,966	$	294,289
Weighted average number of shares outstanding		1,250		1,250

See Notes to Unaudited Condensed Financial Statements.

10

Frontier Pharmacy & Nutrition, Inc.

Notes to Unaudited Condensed Financial Statements

Note 1.     The Company and Significant Accounting Policies

Nature of business:   Frontier Pharmacy & Nutrition, Inc. (the Company) began operations July 8, 2000 and is engaged in the pharmacy business in California. The Company focuses on delivering its specialty pharmacy products primarily to HIV/AIDS patients.

The accompanying financial statements for the six month periods ended June 30, 2005 and June 30, 2004 are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods. These unaudited financial statements should be read in conjunction with the audited financial statements and notes thereto, for the year ended December 31, 2004. The results of operations for the six months ended June 30, 2005 and 2004 are not necessarily indicative of the results for the entire year.

Accounting estimates and assumptions:   The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain 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 revenue and expenses during the reporting periods. Such estimates primarily relate to the allowance for doubtful accounts receivable. Actual results could differ from those estimates.

Note 2.     Concentrations of Credit Risk and Major Third-Party Payor

The Company provides prescription medications to customers located in California. A significant number of the Company’s customers have a substantial amount of their costs paid by third-party reimbursement programs. Under California third-party reimbursement programs, the Company had net sales of approximately $12,047,000 and $10,783,000 for the six months ending June 30, 2005 and 2004, respectively. At June 30, 2005, the Company had aggregate outstanding receivables from these programs of approximately $1,522,000.

Credit losses relating to customers historically have been minimal and within management’s expectations.

Note 3.     Major Suppliers

During the six months ending June 30, 2005 and 2004, all of the Company’s purchases of prescription medications were primarily from two vendors. Such purchases are shown as cost of sales on the accompanying statements of income.

Note 4.     Stock-Based Compensation

On January 1, 2004, the Company entered into an agreement with a shareholder that granted 114 shares of common stock in consideration for services. The Company recognized compensation expense equal to the estimated fair value of the shares of approximately $310,000 for the six months ended June 30, 2004 related to the grant.

11

Frontier Pharmacy & Nutrition, Inc.

Notes to Unaudited Condensed Financial Statements

Note 5.     Subsequent Event

On August 5, 2005, MOMS Pharmacy, Inc., a California corporation and wholly owned subsidiary of Allion Healthcare, Inc., a Delaware corporation, entered into a Asset Purchase Agreement with the owners of 100% of the stock of the Company. On the same day, MOMS Pharmacy acquired patient lists and other tangible and intangible assets owned by the Company as of the date of the closing. As a result of these transactions, the Company voluntarily terminated its S Corporation status.

12

Pro Forma Consolidated Financial Statements (Unaudited)

The accompanying pro forma consolidated financial statements have been prepared by recording pro forma adjustments to the historical consolidated financial statements of Allion Healthcare, Inc. The pro forma consolidated balance sheet as of June 30, 2005 and the pro forma consolidated statements of operations for the year ended December 31, 2004 and the six months ended June 30, 2005 have been prepared as if the Frontier Pharmacy & Nutrition, Inc. (“PMW”) acquisition occurred on January 1, 2004. The pro forma consolidated statements of operations for the year ended December 31, 2004 also has been prepared as if the Specialty Pharmacy, Inc. (“Specialty”) acquisition which occurred on February 28, 2005 and the North American Health Supply, Inc. (“NAHH”) acquisition which occurred on January 1, 2005 had occurred on January 1, 2004. The proforma consolidated statement of operations for the six months ended June 30, 2005 also has been prepared as if the Specialty acquisition occurred at the beginning of the period, thus the actual results from January 1, 2005 through February 28, 2005 were added to Allion’s results of operations.

These pro forma consolidated financial statements are not necessarily indicative of the financial position or results of operations that would have occurred had the transaction been effected on the assumed dates. Additionally, future results may vary significantly from the results reflected in the pro forma consolidated income statement due to changes in prices, future transactions and other factors. These statements should be read in conjunction with our audited consolidated financial statements and the related notes for the year ended December 31, 2004 included in our 2004 Form 10-K, the current report on Form 10-Q filed on August 15, 2005 which included the unaudited financial statements for the quarter ended June 30, 2005, the current report on Form 8-K/A filed on March 31, 2005 which included the financial statements of NAHH, the current report on Form 8-K/A filed on April 14, 2005 which included the financial statements of Specialty and the unaudited pro forma financial statements of the combined company, the audited financial statements of PMW for the year ended December 31, 2004 and the reviewed financial statements of PMW for the six months ended June 30, 2005 are included herein. The pro forma information reflects preliminary estimates of the allocation of the amounts paid at closing which may be adjusted.

13

Allion Health Care, Inc. & Subsidiaries

Proforma Consolidated Statement of Operations (Unaudited)

Year Ended December 31, 2004

	Allion Year Ended 2004			NAHH Year Ended 2004			Specialty Year Ended 2004			Pro Forma Adjustments - NAHH & Specialty		Allion, NAHH & Specialty Pro Forma Consolidated			PMW			Pro Forma Adjustments - PMW		Pro Forma Consolidated
Net sales	$	60,080,003		$	15,400,938		$	26,093,338				$	101,574,279		$	24,009,941					125,584,220
Cost of goods sold		53,162,201			10,716,273			21,964,563					85,843,037			20,810,829					106,653,866
Gross profit		6,917,802			4,684,665			4,128,775					15,731,242			3,199,112					18,930,354
Operating expenses:
Selling, general & administrative expenses		9,162,734			3,167,781			2,399,491		366,116	(1)		16,007,078			1,180,481		680,219	(7)		17,867,778
										310,955	(2)
										600,000	(6)
Operating income (loss)		(2,244,932	)		1,516,884			1,729,284		(1,277,072	)		(275,836	)		2,018,631		(680,219	)		1,062,576
Other income (expense):
Interest expense		(233,460	)					(1,242	)	(137,750	)(3)		(849,640	)		(10,070	)				(859,710	)
										(72,188	)(4)
										(405,000	)(5)
Loss on disposal of assets		4,466			(25,659	)							(21,193	)							(21,193	)
Total other income (expense)		(228,994	)		(25,659	)		(1,242	)	(614,938	)		(870,833	)		(10,070	)	0			(880,903	)
Income before taxes & discontinued operations		(2,473,926	)		1,491,225			1,728,042		(1,892,009	)		(1,146,668	)		2,008,561		(680,219	)		181,674
Provision for income taxes		(76,202	)										(76,202	)							(76,202	)
Income (loss) from continuing operations		(2,550,128	)		1,491,225			1,728,042		(1,892,009	)		(1,222,870	)		2,008,561		(680,219	)		105,472
Basic income (loss) from Cont. Ops. per common share	$	(0.82	)									$	(0.39	)						$	.03
Diluted income (loss) from Cont. Ops. per common share	$	(0.82	)									$	(0.39	)						$	.01
Basic weighted average of common shares outstanding		3,100,000											3,100,000								3,100,000
Diluted weighted average of common shares outstanding		3,100,000											3,100,000								8,977,020

See notes to pro forma consolidated statement of operations

14

Allion Health Care, Inc. & Subsidiaries

Proforma Consolidated Statement of Operations (Unaudited)

Six Months Ended June 30, 2005

	Allion Six Months Ended June 2005			Specialty Two Months Ended February 2005		Pro Forma Adjustments - Specialty			Allion & Specialty Pro Forma Consolidated			PMW		Pro Forma Adjustments - PMW			Pro Forma Consolidated
Net sales	$	51,277,848		$	4,566,109				$	55,843,957		$	12,681,305				$	68,525,262
Cost of goods sold		43,563,031			3,569,576					47,132,607			11,005,437					58,138,044
Gross profit		7,714,817			996,533					8,711,350			1,675,868		0			10,387,218
Operating expenses:
Selling, general & administrative expenses		7,435,911			390,173		61,019	(1)		7,887,103			409,794		340,109	(7)		8,637,007
Operating income (loss)		278,906			606,360		(61,019	)		824,247			1,266,074		(340,109	)		1,750,211
Other income (expense):
Interest expense		(558,573	)				(22,958	)(3)		(581,531	)							(581,531	)
Other income		373,744					(67,500	)(5)		306,244								306,244
Total other income (expense)		(184,829	)		0		(90,458	)		(275,287	)		0		0			(275,287	)
Income before taxes & discontinued operations		94,077			606,360		(151,478	)		548,959			1,266,074		(340,109	)		1,474,924
Provision for income taxes (9)
Income (loss) from continued operations		94,077			606,360		(151,478	)		548,959			1,266,074		(340,109	)		1,474,924
Deemed dividend on preferred stock		(1,338,047	)		—		—			(1,338,047	)		—		—			(1,338,047	)
Income (Loss) from continuing operations available to common shareholders	$	(1,243,970	)	$	606,360	$	(151,478	)	$	(789,087	)	$	1,266,074	$	(340,109	)	$	136,877
Basic income (loss) from Cont. Ops. per common share	$	(0.35	)						$	(0.22	)						$	.04
Diluted income (loss) from Cont. Ops.per common share	$	(0.35	)						$	(0.22	)						$	.01
Basic weighted average of common shares outstanding		3,587,580								3,587,580								3,587,580
Diluted weighted average of common shares outstanding		3,587,580								3,587,580								9,273,613

See notes to pro forma consolidated statement of operations

15

Allion Health Care, Inc. & Subsidiaries

Proforma Consolidated Balance Sheet (Unaudited)

June 30, 2005

	Allion			PMW		Pro Forma Adjustments - PMW			Allion & PMW Pro Forma Consolidated
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	23,964,641		$	497		(8,881,765	)(8)	$	15,082,876
							(497	)(8)
Investments in short term securities		13,387,000							$	13,387,000
Accounts receivable, net		9,000,283			1,521,569		(1,521,569	)(8)		9,000,283
Inventories		1,770,591			319,000		(167,235	)(8)		1,922,356
Prepaid expenses and other current assets		1,261,829			1,475		(1,475	)(8)		1,261,829
Total current assets		49,384,344			1,842,541		(10,572,541	)		40,654,344
Property and equipment, net		603,001			45,549		(45,549	)(8)		603,001
Goodwill		12,189,156					3,304,004	(8)		15,493,160
Intangible assets		11,388,404			37,912		6,695,996	(8)		18,084,400
							(37,912	)(8)
Other assets		75,190								75,190
TOTAL ASSETS	$	73,640,095		$	1,926,002	$	(656,002	)	$	74,910,095
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses	$	12,540,413		$	992,306		300,000	(8)	$	12,840,413
							(992,306	)(8)
Dividends payable
Notes payable-subordinated		1,557,721								1,557,721
Revolving credit line		59,240								59,240
Current portion of capital lease obligations		133,658								133,658
Other current liabilities		100,000					970,000	(8)		1,070,000
Total current liabilities		14,391,032			992,306		277,694			15,661,032
LONG TERM LIABILITIES:
Note payable		673,994								673,994
Capital lease obligations		136,249								136,249
Other		24,189			191,803		(191,803	)(8)		24,189
Total liabilities		15,225,464			1,184,109		85,891			16,495,464
CONTINGENCIES
STOCKHOLDERS’ EQUITY
Common stock		11,992			639,874		(639,874	)(8)		11,992
Additional paid-in capital		70,211,067								70,211,067
Accumulated income (deficit)		(11,808,428	)		102,019		(102,019	)(8)		(11,808,428	)
Total stockholders’ equity		58,414,631			741,893		(741,893	)		58,414,631
Total liabilities and stockholders’ equity	$	73,640,095		$	1,926,002	$	(656,002	)	$	74,910,095

See notes to pro forma consolidated financial statements

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Footnotes to Unaudited Pro Forma Consolidated Statement of Operations:

(1) To record amortization expense on the intangibles of $366,116 for the year ended December 31, 2004 ($61,019 for the two months ended February 28, 2005), relating to the acquisition of Specialty.

(2) To record amortization expense on the intangibles of $310,955 for the year ended December 31, 2004, relating to the acquisition of NAHH.

(3) To record interest expense of $137,750 for the $1.9 million promissory note for the year ended December 31, 2004 ($22,958 for the two months ended February 28, 2005), relating to the acquisition of Specialty, at an contractual interest rate of 7.25% per annum (prime rate + 2%).

(4) To record interest expense of $72,188 for the $675,000 and $700,000 promissory notes for the year ended December 31, 2004, relating to the acquisition of NAHH, at an imputed interest rate of 5.25% per annum.

(5) To record interest expense on borrowings under our revolving credit lines of $405,000 for the year ended December 31, 2004 ($67,500 for the 2 months ended February 28,2005), to fund the acquisitions of NAHH and Specialty. We used $4,500,000 of borrowings under the facility with GE Capital (with interest at the Prime Rate plus 2% per annum) and $1,500,000 of borrowings under the revolving credit line with West Bank (with interest at the Prime Rate per annum).

(6) To record $600,000 for the year ended December 31, 2004 of contingent consideration as compensation under the Purchase Agreement dated February 28,2005 between Specialty and Michael Tubb.

This amount is payable to Michael Tubb based on his continued employment for one year post acquisition and is non-recurring.

(7) To record amortization expense on the intangibles of $680,219 for the year ended December 31, 2004 and $340,109 for the six months ended June 30, 2005, relating to the acquisition of PMW

(8) To record the purchase of inventories and intellectual properties of PMW (the FAS 141 valuation is preliminary and subject to change):

Purchase Price Paid
Cash paid at closing	$	8,230,000
Cash paid in advance of closing		500,000
Cash paid for inventory		151,765
Escrow payment due		970,000
Direct acquisition costs		300,000
Total Purchase Price		10,151,765
less: net tangible assets		(151,765	)
	$	10,000,000
Allocation of Purchase Price
Covenant Not to Compete (three year life)		876,822
Referral Lists (fifteen year life)		5,819,174
Workforce (part of goodwill)		110,350
Goodwill		3,193,654
	$	10,000,000

(9) For the six months ended June 30, 2005, the Company believes it would be able to use its historical losses to offset taxable income in the Pro Forma Consolidated Statement of Operations.

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