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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM
10-K
 FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 (Mark One)
 þ
    
    Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the
fiscal year ended March 31, 2007
 OR
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for
the transition period from  to
 Commission file number 1-12214
 CHAD Therapeutics, Inc.
  California
    
    95-3792700(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 21622 Plummer Street, Chatsworth, CA
    
    91311(Address of principal executive offices)
    
    (Zip Code)
   Name of each exchangeTitle of each class
    
    on which registeredCommon Shares, $.01 par value
    
    American Stock Exchange
  o þ
 o þ
 þ o
 o
  o o þ
 o þ




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TABLE OF CONTENTS  PART IItem 1. BusinessItem 1A. Risk Factors.Item 1B. Unresolved Staff Comments.Item 2. Properties.Item 3. Legal Proceedings.Item 4. Submission of Matters to a Vote of Security Holders.PART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities.Item 6. Selected Financial Data.Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.Item 7a. Quantitative and Qualitative Disclosures About Market Risk.Item 8. Financial Statements and Supplementary Data.Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.Item 9A. Controls and Procedures.Item 9B. Other Information.PART IIIItem 10. Directors, Executive Officers and Corporate Governance.Item 11. Executive Compensation.Item 12. Security Ownership of Certain Beneficial Owners and Management.Item 13. Certain Relationships and Related Transactions and Director Independence.Item 14. Principal Accountant Fees and Services.PART IVItem 15. Exhibits, Financial Statement SchedulesSIGNATURESExhibit IndexEXHIBIT 13.1EXHIBIT 23.1EXHIBIT 23.2EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2EXHIBIT 99.12    Table of Contents  
  
 Business
  Pulmonary Disease and Oxygen Therapy
         2




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2
  CHADs Products
  OXYMIZER® and OXYMIZER Pendant Oxygen Conserving Devices
   3




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OXYMATIC® Electronic Oxygen Conservers
   LOTUS Electronic Oxygen Conservers.
 CYPRESS OXYPneumatic® Conservers
 4




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BONSAI Pneumatic Conservers
  SAGE
Oxygen Therapeutic Device
 OXYCOIL® Coiled Oxygen Tubing
 TOTAL O2® Delivery System 2  2
 2 2 2 2
 5




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2
 2
 Other Products
 Products Under Development
  Research and Development
  Licensing and Related Agreements
   6




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2
  Manufacturing and Sources of Supply
    2
 7




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Marketing
   2
   8




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Customers, Backlog and Orders
  
 2007
    
    2006
    
    2005SalesUnited States
    
    $
    15,795
    
    
    $
    17,996
    
    
    $
    22,912Canada
    
    
    174
    
    
    
    193
    
    
    
    306Japan
    
    
    346
    
    
    
    506
    
    
    
    405Europe
    
    
    2,054
    
    
    
    3,337
    
    
    
    418Indonesia
    
    
    271
    
    
    
    42
    
    
    
    20All other countries
    
    
    341
    
    
    
    280
    
    
    
    226Total
    
    $
    18,981
    
    
    $
    22,354
    
    
    $
    24,287
   9




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Competition
     2 2 2
 10




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Patents and Trademarks
 2
     2.
 Governmental Regulation
  11




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2
 Employees
  
      12




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Unresolved Staff Comments.
  
 Properties
  
 Legal Proceedings
  
 Submission of Matters to a Vote of Security Holders
  15




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Market for Registrants Common Equity, Related Stockholder Matters, and Issuer
Purchases of Equity Securities
  
 Selected Financial Data
  
 Managements Discussion and Analysis of Financial Condition and Results of
Operations
  
 Quantitative and Qualitative Disclosures About Market Risk
  
   
 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
  
 Controls and Procedures
 (a) Evaluation of Disclosure Controls and Procedures
 (b) Changes in Internal Control Over Financial Reporting
 
 Other Information
  16




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Directors, Executive Officers and Corporate Governance
  Name
    
    Age
    
    Position
    
    Director SinceClass IPhilip T. Wolfstein (1) (2) (3)
    
    
    56
    
    
    Director
    
    
    1994James M. Brophy (1) (2) (3)
    
    
    57
    
    
    Director
    
    
    2000Kathleen M. Griggs (1) (3) (4)
    
    
    52
    
    
    Director
    
    
    2003Class IIThomas E. Jones
    
    
    63
    
    
    Chairman and Director
    
    
    1997John C. Boyd (2) (3)
    
    
    74
    
    
    Director
    
    
    1986Earl L. Yager
    
    
    61
    
    
    Chief Executive Officer, President and Director
    
    
    1988
 
 
     17




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Audit Committee
    
    Compensation Committee
    
    Corporate Governance CommitteeKathleen F. Griggs*
    
    Philip T. Wolfstein*
    
    James M. Brophy*James M. Brophy
    
    John C. Boyd
    
    John C. BoydPhilip T. Wolfstein
    
    James M. Brophy
    
    Kathleen F. Griggs
Philip T. Wolfstein
 
 *
    
    Indicates Committee Chair      19




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Corporate Governance Committee
   Stockholder Communications with the Board
  
  20




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Change in pensionvalue andnonqualifiedNon-equity
    
    
    deferredFees earned or paid
    
    
    
    
    
    
    
    
    
    
    incentive plan
    
    
    compensation
    
    
    All otherName
    
    in cash ($)
    
    
    Stock awards ($)
    
    
    Option awards ($)
    
    
    compensation ($)
    
    
    earnings
    
    
    compensation ($)
    
    
    Total ($)John C. Boyd
    
    
    
    
    
    None
    
    None
    
    None
    
    None
    
    NoneJames M. Brophy
    
    
    
    
    
    None
    
    None
    
    None
    
    None
    
    NoneKathleen M. Griggs
    
    
    
    
    
    None
    
    None
    
    None
    
    None
    
    NonePhilip T. Wolfstein
    
    
    
    
    
    None
    
    None
    
    None
    
    None
    
    None
      21




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##### Table of Contents



Name
    
    Age
    
    PositionThomas E. Jones
    
    
    63
    
    
    ChairmanEarl L. Yager
    
    
    61
    
    
    President and Chief Executive OfficerTracy A. Kern
    
    
    39
    
    
    Chief Financial OfficerAlfonso Del Toro
    
    
    49
    
    
    Vice President, ManufacturingErika Laskey
    
    
    41
    
    
    Senior Vice President, Sales and MarketingKevin McCulloh
    
    
    46
    
    
    Senior Vice President, Engineering and Product
DevelopmentPaula OConnor
    
    
    54
    
    
    SecretarySamuel Patton
    
    
    46
    
    
    Vice President, Quality Assurance and Regulatory
AffairsOscar J. Sanchez
    
    
    65
    
    
    Vice President, Business Development
        22




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
    
    Attract and retain well-qualified executives
    
    Create a performance-oriented environment
    
    Strengthen the identification of executive officers with shareholder interests
    
    Reward long-term commitment.
   23




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Report on Executive Compensation in the Medical Equipment and Supply Industry
    
    
    Sales objective
    30%
    
    Pre-tax earnings objective
    40%
    
    Individual performance goals
    30%.
  24




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Change in pensionvalue andnonqualifiedName and
    
    
    
    
    
    
    
    
    
    
    
    Non-equity
    
    deferred
    
    All otherprincipal
    
    
    
    Salary
    
    Bonus
    
    Stock
    
    Option
    
    incentive plan
    
    compensation
    
    compensationposition
    
    Year
    
    ($)
    
    (1)($)
    
    awards ($)
    
    awards ($)
    
    compensation ($)
    
    earnings ($)
    
    (2) ($)
    
    Total ($)Thomas E. Jones,
Chairman
    
    2007
    
    160,000
    
    -0-
    
    -0-
    
    -0-
    
    -0-
    
    -0-
    
    7,500
    
    167,500Earl L. Yager,
President and Chief
Executive Officer
    
    2007
    
    240,000
    
    -0-
    
    -0-
    
    -0-
    
    -0-
    
    -0-
    
    7,500
    
    247,500Tracy A. Kern,
Chief Financial
Officer
    
    2007
    
    112,200
    
    -0-
    
    -0-
    
    -0-
    
    -0-
    
    -0-
    
    6,405
    
    118,605Erika Laskey, Sr.
Vice President,
Sales and Marketing
    
    2007
    
    198,600
    
    35,120
    
    -0-
    
    -0-
    
    -0-
    
    -0-
    
    7,158
    
    240,878Kevin McCulloh, Sr.
Vice President
Engineering and
Product Development
    
    2007
    
    155,550
    
    21,000
    
    -0-
    
    -0-
    
    -0-
    
    -0-
    
    7,057
    
    183,607
 
 (1)
    
    Annual bonus amounts are earned and accrued during the fiscal years indicated and paid within
30 days subsequent to the end of the fiscal year indicated.(2)
    
    These amounts consist of contributions by the Company in 2007 to the CHAD
Therapeutics, Inc. Employee Savings and Retirement Plan. 26




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All other
    
    ExerciseAll other
    
    option
    
    or basestock awards:
    
    awards: # of
    
    price ofEstimated future payouts under
    
    Estimated future payments under
    
    Number of
    
    securities
    
    optionGrant
    
    non-equity incentive plan awards
    
    equity incentive plan awards
    
    shares of stock
    
    underlying
    
    awardName
    
    date
    
    Threshold ($)
    
    Target ($)
    
    Maximum (#)
    
    Threshold ($)
    
    Target ($)
    
    Maximum (#)
    
    or units (#)
    
    options (#)
    
    ($/Shares)Thomas E. Jones
    
    NoneEarl L. Yager
    
    NoneTracy A. Kern
    
    NoneErika Laskey
    
    NoneKevin McCulloh
    
    None
 
 Option AwardsEquity incentiveplan awards:number ofNumber of
    
    
    
    
    
    securitiessecurities underlying
    
    Option
    
    Option
    
    underlyingunexercised options (#)
    
    exercise
    
    expiration
    
    unexercised
    
    
    StockName
    
    Exercisable\Unexercisable
    
    price ($)
    
    date
    
    unearned options (#)
    
    
    AwardsThomas E. Jones
    
    27,779\-0-
    
    1.50
    
    01/29/200950,000\-0-
    
    1.00
    
    09/14/200950,000\-0-
    
    1.00
    
    09/14/2010Earl L. Yager
    
    8,107/-0-
    
    1.50
    
    01/29/200930,000/-0-
    
    1.00
    
    09/14/200950,000/-0-
    
    1.00
    
    09/14/2010Tracy A. Kern
    
    8,000/2,000
    
    2.19
    
    01/01/201315,000/-0-
    
    3.45
    
    07/28/2015Erika Laskey
    
    10,000/-0-
    
    .50
    
    01/05/20115,000/-0-
    
    3.14
    
    10/22/201110,000/-0-
    
    3.80
    
    03/05/201212,000/3,000
    
    2.74
    
    12/02/2012Kevin McCulloh
    
    10,000/-0-
    
    1.75
    
    12/01/20086,000/-0-
    
    1.00
    
    09/13/20095,000/-0-
    
    2.00
    
    03/21/201020,000/-0-
    
    1.00
    
    09/14/2010
 27




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Option awards
    
    Stock awardsNumber of shares
    
    Value
    
    Number of shares
    
    Valueacquired on
    
    realized on
    
    acquired on
    
    realized onName
    
    exercise (#)
    
    exercise ($)
    
    vesting (#)
    
    vesting ($)Thomas E. Jones
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-Earl L. Yager
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-Tracy A. Kern
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-Erika Laskey
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-Kevin McCulloh
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    Number ofSecuritiesRemainingAvailable forNumber of
    
    
    
    
    
    Future IssuanceSecurities to be
    
    
    
    
    
    Under EquityIssued Upon
    
    Weighted-Average
    
    CompensationExercise of
    
    Exercise Price of
    
    Plans [ExcludingOutstanding
    
    Outstanding
    
    SecuritiesOptions, Warrants,
    
    Options, Warrants,
    
    Reflected inPlan Category
    
    and Rights
    
    and Rights
    
    Column (a)](a)
    
    (b)
    
    (c)1994 Stock Option
Plan
    
    
    874,000
    
    
    $
    2.05
    
    
    
    -0-2004 Equity
Compensation Plan
    
    
    30,000
    
    
    $
    3.40
    
    
    
    720,000Total
    
    
    904,000
    
    
    
    
    
    
    
    720,000
   28




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Security Ownership of Certain Beneficial Owners and Management
  Name and Address (1)
    
    Amount (2)
    
    Percent OwnedThomas E. Jones
    
    
    339,450
    
    
    
    3.3
    %Earl L. Yager
    
    
    287,990
    
    
    
    2.8
    %John C. Boyd
    
    
    162,481
    
    
    
    1.6
    %Philip T. Wolfstein
    
    
    156,142
    
    
    
    1.5
    %James M. Brophy
    
    
    53,859
    
    
    
    0.5
    %Kathleen M. Griggs
    
    
    27,405
    
    
    
    0.3
    %All Officers & Directors as a group (11 people)
    
    
    1,352,178
    
    
    
    13.3
    %Kevin Kimberlin (3)
    
    
    836,560
    
    
    
    8.2
    %Palo Alto Investors (4)
    
    
    511,681
    
    
    
    5.0
    %
 
 (1)
    
    The address of each director is 21622 Plummer Street, Chatsworth, CA 91311.(2)
    
    Includes shares subject to options which are currently exercisable or which become
exercisable within sixty (60) days: Thomas E. Jones  127,779 shares, John C. Boyd  39,310
shares, Philip T. Wolfstein  39,310 shares, James M. Brophy  43,454 shares, Kathleen M.
Griggs  15,000 shares, Earl L. Yager  88,107 shares, all Officers and Directors as a group
 558,210 shares.(3)
    
    Mr. Kimberlins address is c/o Spencer Trask, 535 Madison Avenue, New York, NY 10022.(4)
    
    Palo Alto Investors address is 470 University Avenue, Palo Alto, CA 94301. 
 Certain Relationships and Related Transactions and Director Independence
  
 Principal Accountant Fees and Services
   Rose, Snyder and Jacobs
    
    KPMGFee Category
    
    Fiscal 2007 fees
    
    Fiscal 2006 fees
    
    Fiscal 2007 fees
    
    Fiscal 2006 feesAudit Fees (1)
    
    $
    14,400
    
    
    
    -0-
    
    
    $
    166,100
    
    
    $
    154,000Audit Related Fees (2)
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-Tax Fees (3)
    
    
    -0-
    
    
    
    -0-
    
    
    $
    26,905
    
    
    $
    21,500Total Feels
    
    $
    14,400
    
    
    
    -0-
    
    
    $
    193,005
    
    
    $
    175,500
 
 (1)
    
    Aggregate fees billed for professional services rendered for the audit of our 2007 and 2006
fiscal year annual financial statements and review of financial statements included in our
quarterly reports on Form 10-Q or services that are normally provided in connection with
statutory and regulatory filings or engagements for the 2007 and 2006 fiscal years.(2)
    
    Aggregate fees billed for assurance and related services that are reasonably related to the
performance of the audit or review of our financial statements which are not reported under
Audit Fees above.(3)
    
    Aggregate fees billed for tax compliance and tax planning.  30




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Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of
Independent Accountants
        31




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32




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(5)
 (1)
 (1)
 (3)
 (4)
 (6)
 (6)
 2 (7)
 (12)
   33




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(1)
 (2)
  (3)
 2 (7)
 (8)
 (8)
 2 (9)
 (10)
 (11)
 (13)
  
 (1)
    
    Previously filed as an Exhibit to the Registrants Registration Statement on Form S-18,
File No. 2-83926. 34




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(2)
    
    Previously filed as an Exhibit to the Registrants Annual Report on Form 10-K for the year
ended March 31, 1984.(3)
    
    Previously filed as an Exhibit to the Registrants Annual Report on Form 10-K for the year
ended March 31, 1986.(4)
    
    Previously filed as an Exhibit to the Registrants Annual Report on Form 10-K for the year
ended March 31, 1993.(5)
    
    Previously filed as an exhibit to the Registrants Annual Report on Form 10-K for the year
ended March 31, 1994.(6)
    
    Previously filed as an exhibit to the Registrants Annual Report on Form 10-K for the year
ended March 31, 1996.(7)
    
    Previously filed as an exhibit to the Registrants Annual Report on Form 10-K for the year
ended March 31, 1998.(8)
    
    Previously filed as an exhibit to the Registrants Annual Report on Form 10-K for the year
ended March 31, 2001.(9)
    
    Previously filed as an exhibit to the Registrants Annual Report on Form 10-K for the year
ended March 31, 2002.(10)
    
    Previously filed as an exhibit to the Registrants Annual Report on Form 10-K for the year
ended March 31, 2003.(11)
    
    Previously filed as an exhibit to the Registrants Annual Report on Form 10-K for the year
ended March 31, 2004.(12)
    
    Previously filed as Appendix A of the Registrants Proxy Statement for the 2004 Annual
Shareholders Meeting.(13)
    
    Previously filed as an exhibit to the Registrants Annual Report on Form 10-K for the year
ended March 31, 2005. 35




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CHAD THERAPEUTICS, INC.By
    /s/ Earl L. YagerEarl L. Yager, Chief Executive Officer  Signature
    
    Title
    
    Date/s/ Thomas E. Jones

Thomas E. Jones
    
    Chairman of the Board of Directors
    
    June 29, 2007/s/ Earl L. Yager

Earl L. Yager
    
    Chief Executive Officer, President,
and Director
(Principal Executive Officer)
    
    June 29, 2007/s/ Tracy A. Kern

Tracy A. Kern
    
    Chief Financial Officer
(Principal Financial and Accounting Officer)
    
    June 29, 2007/s/ Kathleen M. Griggs

Kathleen M. Griggs
    
    Director
    
    June 29, 2007/s/ John C. Boyd

John C. Boyd
    
    Director
    
    June 29, 2007/s/ Philip T. Wolfstein

Philip T. Wolfstein
    
    Director
    
    June 29, 2007/s/ James M. Brophy

James M. Brophy
    
    Director
    
    June 29, 2007
 36




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##### Table of Contents



Exhibit No.
    
    Document13.1
    
    Annual Report to Shareholders for the year ended March 31, 200723.1
    
    Consent of Independent Registered Public Accounting Firm for the year ended March 31, 200723.2
    
    Consent of Independent Registered Public Accounting Firm for the year ended March 31, 200631.1
    
    Certification of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    Certification of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 200299.12
    
    Letter from the FDA authorizing the Company to market the BONSAI Pneumatic Conserver
 37