##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10 - K

[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934

(Fee Required) for the fiscal year ended March 31, 2003


OR

[  ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

(No Fee Required) for the transition period from          
to


Commission file number 1-12214

Chad Therapeutics, Inc.

(Exact name of registrant as specified in its charter)


|                                                                          |  |                                                
|------------------------------------------------------------------------- |  | -----------------------------------------------
|California
(State or other jurisdiction of
incorporation or organization) |  | 95-3792700
(I.R.S. Employer
Identification No.)

|                                                                              |  |                 
|----------------------------------------------------------------------------- |  | ----------------
|21622 Plummer Street, Chatsworth, CA
(Address of principal executive offices) |  | 91311
(Zip Code)

Registrants telephone number, including area code: (818) 882-0883

Securities registered pursuant to Section 12(b) of the Act: None.

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

Common Shares, $.01 par value
(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
filing requirements for the past 90 days. Yes [x] No [  ]

Indicate by check mark if disclosures of delinquent filers pursuant to
Item 405 of Regulation SK (229.405 of this chapter) is not contained herein,
and will not be contained, to the best of 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. [  ]

The aggregate market value of the voting shares held by non-affiliates of
the Registrant on June 16, 2003 (based on the closing price of such stock on
the American Stock Exchange on such date) was $17,532,000.





---



##### Table of Contents



Indicate the number of shares outstanding of each of the registrants
classes of common stock as of June 12, 2003:

|              |  |  |            | 
|------------- |  |  | ---------- | 
|Common Shares |  |  | 10,076,000 | 

Portions of the Registrants definitive Proxy Statement for its September
9, 2003, Shareholders meeting (Proxy Statement) (which Proxy Statement has
not been filed as of the date hereof) are incorporated into Part III as set
forth herein. Portions of the Registrants Annual Report to Shareholders for
the year ended March 31, 2003 (Annual Report) are incorporated into Part II
as set forth herein and only such portions of the Annual Report as are
specifically incorporated by reference are thereby made a part of this Annual
Report on Form 10-K.

2



---

TABLE OF CONTENTS



|              |                                                                                                |  |  |  |  |  |  | 
|------------- | ---------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I       
|              | Item 1. Business                                                                              
|              | Item 2. Properties.                                                                           
|              | Item 3. Legal Proceedings.                                                                    
|              | Item 4. Submission of Matters to a Vote of Security Holders.                                  
|              | Item 5. Market for Registrants Common Equity and Stockholder Matters.                        
|              | 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 Risk                                  
|              | Item 8. Financial Statements and Supplementary Data.                                          
|              | Item 9. Disagreements on Accounting and Financial Disclosure.                                 
|              | Item 10. Directors and Executive Officers of the Registrant.                                  
|              | Item 11. Executive Compensation.                                                              
|              | Item 12. Security Ownership of Certain Beneficial Owners and Management.                      
|              | Item 13. Certain Relationships and Related Transactions.                                      
|              | Item 14. Controls and Procedures                                                              
|PART IV      
|              | Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.                    
|SIGNATURES   
|Exhibit Index
|EXHIBIT 13.1 
|EXHIBIT 23.1 
|EXHIBIT 28.11



---



##### Table of Contents






PART I




Item 1. Business

Chad Therapeutics, Inc. (CHAD or the Company) was organized in August,
1982, to develop, produce and market respiratory care devices designed to
improve the efficiency of oxygen delivery systems for both home and hospital
treatment of patients who require supplemental oxygen. The Company introduced
its first respiratory care device in the market in June of 1983 and has
introduced additional respiratory care devices in subsequent years.

Pulmonary Disease and Oxygen Therapy

The Company was organized to pursue the development and marketing of
devices, which improve the efficiency of systems used to administer oxygen to
patients requiring supplemental oxygen. These are primarily patients suffering
from chronic obstructive pulmonary diseases.

Chronic obstructive pulmonary diseases (COPD) are progressive,
debilitating conditions that affect millions of Americans, severely limiting
their activities and shortening their lives. Such conditions, which include
chronic bronchitis, emphysema and severe asthma, decrease the capacity of the
lungs to oxygenate the blood. To make up for this deficiency, it is common
medical practice to administer supplemental oxygen, usually on a 24 hours per
day basis in an amount sufficient to increase blood oxygenation to near normal
levels.

According to the National Heart, Lung and Blood Institute of the National
Institutes of Health (NIH) between 1980 and 1990 the death rate from COPD
increased by 22 % in the United States and by 1998 had increased another 27%.

More recently, the American Lung Association reported that in 2001 there
were 14.1 million Americans suffering from COPD, which is the fourth leading
cause of death in the United States and claimed the lives of over 115,000
people that year. This report also notes that in 2001 the annual cost to the
nation for COPD in health care and indirect costs was estimated to be $32.1
billion.

Although precise data are not available, various individual and
institutional sources and reports estimate that there are more than 1 million
home care patients receiving supplementary administration of oxygen. Total
dealer revenues for home oxygen therapy were estimated at over $2 billion for
1996. Medicare, which accounts for about 60% of home oxygen dealers revenues,
spent approximately $1.8 billion in 2002 for home oxygen according to a report
by the Centers for Medicare and Medicaid Services Office of Actuary. This
represented a 13% increase over the previous year according to the report.

Chronic obstructive pulmonary diseases are also prevalent in other
countries, particularly in some European nations and the Far East where the
incidence is higher than in the United States. The potential international
market for home oxygen is expected to grow to 150% of the U.S. market over the
next five to ten years.

The primary oxygen supply for home patients is provided from cylinders
containing compressed gaseous oxygen (less than 1% of users), reservoirs
containing liquid oxygen (10-15%) or by means of concentrators which
concentrate oxygen from the ambient air (85-90%).

Standard oxygen delivery systems are characteristically inefficient,
permitting over 67% of the oxygen supply delivered to the patient to be wasted,
primarily because the oxygen is administered steadily to the patient, even
while he is exhaling. Since the normal breathing cycle consists of an
exhalation period which is approximately twice as long as the inhalation
period, at least two-thirds of the

3



---



##### Table of Contents



oxygen from this continuous flow system is wasted. Furthermore, it is
generally accepted that the oxygen breathed in during the first one-third of
the inhalation period provides most of the oxygenation benefit to the patient.

In June, 1989, the home oxygen market changed. A new procedure for payment
by Medicare for home oxygen services became effective. This procedure provides
a prospective flat fee monthly payment based solely on the patients prescribed
oxygen requirement and disregards modality, the type of system in use. Prior
to that time, dealers were reimbursed on the basis of total oxygen delivered by
the dealer with variances based on the modality used and other variables. The
prior procedure tended to encourage waste and inefficiency. Consequently, with
the incentive to operate efficiently, inexpensive concentrators have grown in
popularity because of their low cost and less frequent servicing requirements.
At the same time interest heightened in oxygen conserving devices which can
extend the life of oxygen supplies and reduce service calls by dealers. There
is also a separate fixed allowance from Medicare for patients who need to be
mobile and therefore require portable oxygen systems.

In January, 1998, the monthly amount that Medicare reimburses for home
oxygen was reduced by 25% and an additional 5% reduction was implemented in
January, 1999. While the long term impact of this reduction may be to cause
home care dealers to seek products that provide even greater cost saving
efficiencies, the concerns over the size of these cuts, in many cases, resulted
in the provision of systems to patients that do not provide truly ambulatory
oxygen.

While these cost pressures have intensified, mobility has increased in
importance as the treatment of pulmonary patients has moved away from hospitals
and into home care. Also, leading authorities now state that maintenance and
improvement of the patients quality of life should be a major objective in the
treatment of COPD. Maintaining quality of life and compliance with prescribed
exercise programs require that the patient be as mobile as possible and thus
increase the demand for portable oxygen equipment.

CHADs Products

Recognizing the need for more efficient oxygen delivery systems, the
Company has pursued, since its inception, the development and marketing of
devices that are designed to conserve oxygen. The benefits of such
improvements include substantial cost savings and increased mobility for
ambulatory patients who require portable oxygen supplies. These devices extend
the life of oxygen supplies, make possible more compact and longer lasting
portable systems and thereby improve the quality of life for home oxygen
patients.

OXYMIZER® and OXYMIZER Pendant Oxygen-Conserving Devices. In June,
1983, the Company began marketing its first product, the OXYMIZER disposable
oxygen-conserving device, a unique, patented, disposable device developed to
provide up to 4 to 1 savings of oxygen when used with any oxygen supply source.

The OXYMIZER device contains a collapsible reservoir, which captures
incoming oxygen delivered during expiration and prevents its waste. The oxygen
captured in this reservoir is then inhaled by the patient during the first
instant of his next inspiration. The OXYMIZER device thus both conserves
oxygen and provides the patient with an extra rich supply of oxygen at the
beginning of the inhalation period when it can be most effectively utilized.

Extensive clinical testing and trials over the past eighteen years have
repeatedly demonstrated that patients using the OXYMIZER device are able to
achieve equivalent blood oxygenation levels while using significantly less
oxygen. There have been more than 32 clinical evaluations from institutions
worldwide that have confirmed the efficacy and oxygen savings of the OXYMIZER
devices.

4



---



##### Table of Contents



The greater efficiency provided by the OXYMIZER devices over standard
oxygen delivery systems also permits home health care patients to achieve
greater mobility by enabling them to use smaller portable cylinders or by
obtaining two to four times the life from standard sized portable cylinders.

For home oxygen dealers the disposable OXYMIZER devices afford the cost
advantages of oxygen conservation without capital investment in expensive
equipment.

In hospitals the OXYMIZER devices are used for maintenance of certain
patients requiring higher flow levels of oxygen without having to resort to
uncomfortable oxygen masks.

The Company is pursuing a marketing strategy that emphasizes the cost
savings, efficiencies and level of patient comfort associated with the use of
the OXYMIZER devices. See Marketing and Competition.

The OXYMIZER Pendant device is similar to the OXYMIZER device, except that
its reservoir is located in a pendant which hangs over the patients chest
rather than under the nose. The OXYMIZER Pendant has a more traditional
appearance than the OXYMIZER. The Company began marketing the OXYMIZER Pendant
in August, 1984.

OXYMATIC® Electronic Oxygen Conservers. The Company began marketing the
OXYMATIC conserver in March, 1986. This product is a small electronic device,
designed for use with portable oxygen systems. The OXYMATIC conserver
electronically senses the optimal moment in the breathing cycle for delivery of
oxygen and at that moment, releases a very brief pulse of oxygen to the
patient. The OXYMATIC conserver concentrates the administration of oxygen
during the first one-third of the inhalation phase, when oxygen is most
efficiently utilized. Through its optimal efficiency the OXYMATIC electronic
conserver makes possible oxygen savings ratios of from 4 to 1 up to 12 to 1
depending on the users breathing rate. In clinical experience the average
saving has been shown to be 7 to 1 - about twice the efficiency of most
competitive products. There have been at least twelve controlled clinical
trials and studies of patient groups using the OXYMATIC conserver, all of which
have confirmed its efficacy and efficiency.

In May, 1995, the Company introduced the OXYMATIC Model 301 which replaced
the previous model. This model incorporated improved electronics, providing a
longer battery life and other improvements, which made it more user friendly.

In June, 1993, the Company introduced a different version of the OXYMATIC
conserver, the OXYMATIC - 2400. This model incorporates substantial
improvements and additional features, such as an alarm system, which are
designed to allow it to be used 24 hours a day with both primary and portable
oxygen sources. The OXYMATIC - 2400 conserver affords the same oxygen savings
ratios as the original OXYMATIC conserver.

In July, 2000, the Company introduced the first of the OXYMATIC 400 series
of conservers. Additional models were added to this line in January and March
of 2001. This new line of conservers was designed to capitalize on the proven
reliability and efficiency of the Companys previous models. In addition,
features and options were added to create state-of-the-art conservers that
would give homecare providers a wide choice of products to service their
patients individual needs and preferences. These new conservers include a
built-in regulator, expanded flow rates and provide average savings of 5 to 1
over continuous flow oxygen.

In November, 2001, the Company introduced the SEQUOIA OXYMATIC line of
conservers. These conservers replace the Model 301 conservers and utilize the
same electronic features as the OXYMATIC 400 series conservers but do not
contain a built-in regulator.

5



---



##### Table of Contents



CYPRESS OXYPneumatic® Conservers. In July, 2002, the company began
marketing the CYPRESS pneumatic conserver, which allows the Company to compete
in the pneumatic segment of the conserver market for the first time. This
device incorporates no electronic parts, thus eliminating the need for
batteries. It is lightweight, small and allows the use of a standard
single-lumen cannula, unlike many other pneumatic conservers that require
special cannulas. The CYPRESS conserver provides flow rates from one to six
liters per minute and oxygen savings greater than 3:1 over continuous flow
oxygen.

Sales of OXYMATIC electronic and CYPRESS OXYPneumatic conservers accounted
for approximately 72% of the Companys sales in 2003. Sales of OXYMATIC
electronic conservers accounted for approximately 60% and 42% of the Companys
sales in 2002 and 2001, respectively.

OXYLITE® Complete Portable Oxygen System. The Company also markets
OXYLITE complete portable oxygen systems. The components of these systems are
sold separately and combine an OXYMATIC electronic or CYPRESS pneumatic
conserver with small, lightweight oxygen cylinders and lightweight pressure
regulators in an attractive carrying pouch.

The OXYMATIC electronic and CYPRESS pneumatic conservers extend the time
the contents of the cylinders will last over continuous flow oxygen. They
provide ambulatory patients with greater mobility and less weight. These
systems offer a superior alternative to commonly used liquid oxygen systems for
mobile patients and are more cost effective for homecare dealers to supply.

OXYCOIL® Coiled Oxygen Tubing. In January, 1986, the Company began
marketing the OXYCOIL coiled oxygen tubing, a device which replaces the
standard supply tubing for the OXYMIZER devices, the OXYMATIC conserver or
conventional nasal cannulas. The OXYCOIL tubing is a convenience and safety
device which can be used with any oxygen system to help keep the supply tubing
out of the patients way, thus minimizing the tripping and tangling problems
associated with standard supply tubing.

TOTAL O2® Delivery System. In January, 1998, the Company began
marketing the TOTAL O2 Delivery System. This system provides stationary oxygen
for patients at home, portable oxygen including an oxygen conserving device for
ambulation and a safe and efficient mechanism for filling portable oxygen
cylinders. The TOTAL O2 Delivery System was designed to provide home care
dealers with a means to deal with the 25% and 5% cuts in home oxygen
reimbursement that went into effect on January 1, 1998 and 1999, respectively,
by allowing them to reduce the monthly cost of servicing patients while at the
same time providing the patients with a higher quality of service. This can be
accomplished as the home care dealer will no longer be required to make regular
monthly service calls to deliver full portable cylinders and the patient will
no longer be dependent on the dealer for those deliveries to obtain full
cylinders.

Initial sales of the TOTAL O2 system were adversely affected by several
factors, including the overall home oxygen market climate as well as start-up
manufacturing and supplier issues. The Company has taken a number of steps to
resolve the manufacturing and supplier issues. Nonetheless, the Company has
still not achieved the level of sales originally anticipated for this product
and now believes its success will be dependent on the healthcare communitys
acceptance of this technology and willingness to substitute a higher capital
acquisition cost for lower operating costs. No assurances can currently be
given regarding the level of success the Company may achieve with the TOTAL O2
system. See Outlook:Issues & Risks - New Product in the Companys Annual
Report to Shareholders.

The technology for each of the devices described above has been licensed
from the inventors thereof, with the exception of the CYPRESS OXYPneumatic
conserver, which belongs to the Company. The Company has acquired exclusive
licenses to manufacture and market the OXYMIZER devices, the OXYMATIC
conservers, the OXYCOIL tubing and the TOTAL O2 system. See Licensing and
Related Agreements.

6



---



##### Table of Contents



Other Products. The Company also offers a variety of ancillary products
that support the principal oxygen conserving products. These include oxygen
cylinders of various sizes and compositions, regulators, cannulas and
connecting tubing and assorted carrying pouches. In addition, with a field
sales force of manufacturers representatives and direct sales representatives
covering the entire United States (see Marketing) the Company will utilize
this team as part of a strategy to market and sell additional products that are
targeted for the Companys current customer base, the homecare provider.

Products Under Development

It is the Companys objective to continuously improve and add to its
oxygen conserving and related products. During the fiscal year ended March 31,
2000, the Company entered into contracts with outside vendors to develop two
new products in the oxygen conserver field. During the fiscal year ended March
31, 2003 the Company entered into contracts with outside vendors to develop
products in the home oxygen market and sleep disorder market. No assurance can
be given that any products developed pursuant to these contracts will be
successfully marketed or that the Company will ever derive significant revenues
or earnings from the sale of such products.

Research and Development

For the year ended March 31, 2003, the Company expended approximately
$989,000 on research and development and has expended approximately $6,327,000
since its inception in August of 1982. The Company operates in an industry
that is subject to rapid technological change, and its ability to compete
successfully depends upon, among other things, its ability to stay abreast or
ahead of new technological developments. Accordingly, the Company expects to
expend increasing amounts for the development or acquisition of new products or
the improvement of existing products. In the next fiscal year the Company
expects to spend approximately $1,430,000 on several projects. The Company
conducts research and development internally and also utilizes the services of
outside firms and consultants for its research and development activities.

Licensing and Related Agreements

The Company has entered into license agreements (the Inventors License
Agreements) with Brian L. Tiep, M.D., Robert E. Phillips and Ben A. Otsap, the
inventors of the OXYMIZER device (the Inventors), with respect to that device
and each of the additional oxygen conserving devices developed by them. At the
present time, the Company has licensed the OXYMATIC conserver, thereby
acquiring exclusive rights to manufacture and market such product.

Pursuant to the Inventors License Agreements, the Inventors grant to the
Company an exclusive license (with the right to grant sublicenses) to
manufacture, use and sell such device. The Inventors License Agreements
provide that the Company pay royalties to the Inventors on the net proceeds of
sales of the device covered by the agreement at the rate of 6% on amounts up to
$10 million and 3% on amounts of $10 million or more. The Inventors License
Agreements also provide that the Company pay minimum advance royalties for each
license year in the amount of $10,000 for each year. The advance payments are
to be applied toward royalties payable for the corresponding license year. The
Company is obligated to prosecute and defend, at its own expense, any
infringement suits related to manufacture or sale of each device covered by any
such agreement.

Each Inventors License Agreement continues until the expiration of the
last to expire of any patent covering the related device or, if no patent is
issued, for 17 years. The Inventors may terminate the Inventors License
Agreements at an earlier date if the Company is in arrears for 60 days on any
royalty payment or if the Company defaults in performing any other term of the
agreement and fails to cure such default within 60 days.

7



---



##### Table of Contents



The Company has also entered into a license agreement (the Northrop
License Agreement) with the Life Support Division of Northrop Grumman
(formerly Litton Life Support) for the TOTAL O2 Delivery System. Pursuant to
the Northrop License Agreement, the Licensor grants to the Company an exclusive
license (with the right to grant sublicenses) to manufacture, use and sell such
device in the health care market. The Northrop License Agreement provides that
the Company pay royalties to the Licensor on the net proceeds of sales of the
device covered by the agreement at the rate of 4% and requires minimum annual
royalties of $100,000, $300,000 and $500,000 in 1999, 2000 and subsequent
years, respectively. The Northrop License Agreement continues until the
expiration of the last to expire of any patent covering the related device or
until the Company ceases uses of the licensed technology. The Licensors may
terminate the Northrop License Agreement at an earlier date if the Company is
in arrears for 30 days on any royalty payment or if the Company defaults in
performing any other material obligation of the agreement and fails to cure
such default within 30 days.

Manufacturing and Sources of Supply

The Company tests and packages its products in its own facility. Some
other manufacturing processes are conducted by other firms and the Company
expects to continue using outside firms for certain manufacturing processes for
the foreseeable future. All outside manufacturing is conducted under the
supervision and control of the Company and with tooling provided by the
Company.

Pursuant to an oral agreement, the Company purchases semi-finished units
of the OXYMIZER Pendant device from a supplier in Southern California. Final
assembly and packaging are completed at the Companys facilities. The Company
does not contemplate entering into a formal written agreement for these units.
This arrangement is terminable at will by either party. The Company believes
that other injection molding facilities would be available in the event of a
termination of this arrangement. Pursuant to a written agreement, the Company
purchases finished units of the OXYMIZER device from a supplier in Hong Kong.
The Company believes that other injection molding facilities would be available
in the event of a termination of this arrangement.

Production of the OXYMATIC 300 series, 2400 and 400 series conservers and
the CYPRESS pneumatic conservers are being handled internally with only a
portion of the electronic assembly for electronic conservers being
subcontracted outside the Company. The Company is currently subcontracting
with two electronic assembly facilities and believes that other facilities
would be available in the event of an interruption of supply from the existing
facilities.

Pursuant to oral agreements, the Company purchases components for its
OXYLITE systems (other than the OXYMATIC conserver) from several suppliers.
These arrangements are terminable at will and the Company believes other
suppliers would be available in the event of termination of these arrangements.

Production of the TOTAL O2 system is being handled internally with a
number of subassemblies being subcontracted outside the Company. The Company
believes that there are alternate sources of supply for these subassemblies,
including internal manufacturing as production quantities increase.

The Company is not aware of any shortages of materials necessary for the
manufacture of its products. The Company provides customers the right to
return merchandise for credit and requires payment within a time frame
consistent with industry standards. The Company provides warranties for
certain of its products based on industry standards and accrues for the
estimated expenses associated with those warranties based on the best

information available, primarily historical claims experience.

8



---



##### Table of Contents



Marketing

The Companys products are designed to reduce the cost of health care
while maintaining or enhancing the therapeutic benefits to the patient, and
improving the users quality of life. The Companys marketing efforts have
focused primarily on providing home oxygen suppliers with products that they
can utilize to increase their revenues and provide a better quality of care at
less cost.

Homecare dealers have reportedly increased their revenues by assembling
small portable systems incorporating the Companys OXYMATIC electronic
conserver or CYPRESS pneumatic conserver as a vehicle to attract new and
additional patients to their business. The Company believes these lightweight,
long-lasting portable systems have both high professional and patient
acceptance which allows the supplier promoting these products to attract new
and additional customers. The Company has been advised that medical
professionals, who frequently refer patients to specific home oxygen suppliers,
find that these systems assist patients in more easily complying with
prescribed exercise programs and help them to achieve the therapeutic benefits
of maintaining a lifestyle as normal as possible. Patients, most of whom are
free to select their oxygen supplier, are reportedly receptive to changing
suppliers in order to obtain equipment that will allow them to travel and
maintain their quality of life.

A large portion of home oxygen patients are covered by Medicare or other
government programs. Since June 1989, home oxygen suppliers have been
reimbursed on a fixed monthly fee basis by Medicare. The monthly reimbursement
amount does not vary, as in the past, with either the type of oxygen delivery
equipment provided or the amount of oxygen supplied. Since monthly per patient
revenues are fixed, home oxygen suppliers can only increase their per patient
profitability by reducing costs. The Companys oxygen conserving products and
TOTAL O2 Delivery System allow these suppliers to decrease their costs while
providing their patients with improved therapeutic benefits and quality of
life.

While the home respiratory care dealer remains the primary focus of the
Companys marketing efforts, this focus has been augmented by a major effort to
increase professional awareness. Promotional programs target respiratory care
physicians, nurses and therapists.

The Company markets its products directly to home oxygen suppliers
throughout the U.S. The Company currently has a Vice President of Sales &
Marketing, two regional sales managers, an art and media manager, a marketing
manager, a Customer Relations Manager and six in-house sales and customer
service representatives who are in regular and frequent proactive telephone
sales contact with customers and potential customers. In addition, the Company
has a field sales force of direct sales representatives and independent
manufacturers sales representatives to handle direct selling to customers.
This field sales force is currently comprised of 4 direct sales representatives
and 38 manufacturers sales representatives with coverage throughout the United
States. The Company also utilizes direct mail, trade show attendance, trade
advertising and a web site to promote the benefits of its products to home care
dealers. Additionally, the Company actively seeks to increase professional
awareness of its products through professional advertising and participation in
professional meetings.

Home oxygen therapy markets outside the United States are, in most cases,
at a much earlier stage of development. In many countries, these patients are
cared for in institutional settings. As the trend develops to move patients
into home care, opportunities for the Companys products should increase.
Sales of the OXYMATIC conserver in Canada and Japan have become an important
part of the Companys business. Based on industry market research projections,
the Company expects the international market to increase to 150% of the U.S.
potential over the next five to ten years.

The Company has entered into exclusive distributorship agreements in
Germany, Japan, Australia and several other countries. The Companys largest
distributor in Germany covers portions of the European Community. The Company
also has non-exclusive distributors in many other countries.

9



---



##### Table of Contents



Sales outside of the United States subjects the Company to certain risks,
including those involving political and economic factors, interruption of
shipments of products, currency fluctuations and devaluations and governmental
restrictions and regulations.

Customers, Backlog and Orders

The Company presently has an active list of over 4,000 dealer and hospital
customers. Based upon information developed from various lists the Company
believes that there are approximately 7,000 to 8,000 home oxygen dealers and
3,000 general hospitals in the United States which are potential customers or
customer sources for the Company. Of these 7,000 to 8,000 homecare providers,
approximately 40% are represented by three major national chain accounts. No
one customer exceeded 10% of net sales in 2001. One national chain customer
accounted for 26% and 20% of net sales during 2003 and 2002, respectively, and
one other chain accounted for 13% of sales in 2003.

Financial Information Relating to Foreign and
Domestic Operations and Export Sales

|                   |                     |  |      |        |      |  |      |        |  |  |  |        | 
|------------------ | ------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|                   |                     |  | 2003 |        | 2002 |  | 2001
|                   |                     |  |      |        |      |  |     
|Sales (thousands): |                     |  |      |        |      |  |      |        |  |  |  |       
|                   | United States       |  | $    | 18,639 |      |  |      | 17,904 |  |  |  | 10,368 | 
|                   | Canada              |  |      | 307    |      |  |      | 265    |  |  |  | 192    | 
|                   | Japan               |  |      | 207    |      |  |      | 240    |  |  |  | 639    | 
|                   | Germany             |  |      | 46     |      |  |      | 289    |  |  |  | 751    | 
|                   | All other countries |  |      | 342    |      |  |      | 308    |  |  |  | 450    | 
|                   |                     |  |      |        |      |  |      |        |  |  |  |        | 
|                   | Total               |  | $    | 19,541 |      |  |      | 19,006 |  |  |  | 12,400 | 
|                   |                     |  |      |        |      |  |      |        |  |  |  |        | 

All identifiable assets are located in the United States.

At March 31, 2003, the Company had no backlog of orders for any of its
products. The Company presently endeavors to maintain sufficient inventory to
ship all of its products immediately upon receipt of orders. The Company
believes that maintaining such levels of inventory is necessary to meet the
requirements of its customers.

Competition

The Company is aware of several demand valve, electronically controlled
devices currently being marketed. Of these devices, those that have been the
principal competitors of the OXYMATIC conserver in the past were targeted
primarily to a specific segment of the market - liquid oxygen usage. Several
companies, including Caire Inc. and Puritan Bennett market small (3.4 to 5.5
lbs.) portable liquid oxygen systems incorporating simple oxygen conserving
devices which double the useful life of these systems. Some of these companies
have substantially greater marketing and financial resources than the Company.
However, these units are more expensive than systems utilizing the OXYMATIC
conservers and still require the supplier to make frequent and costly oxygen
deliveries. The Company does not know the levels of sales achieved by the
companies marketing these systems.

Several of these competitors are now marketing conservers in direct
competition with the Companys OXYMATIC electronic and CYPRESS pneumatic
conservers. Some of these conservers only provide 2:1 to 3:1 savings ratios.
As a result, these units while weighing about the same as the OXYMATIC
conserver provide only 1/3 or 1/2 as much ambulation time. In addition, the
Company is aware of two companies marketing oxygen conserving devices which
claim similar oxygen savings ratios as the OXYMATIC conserver. The Company
believes that some of these competitors have been able to

10



---



##### Table of Contents



offer their oxygen conservers as part of a bundle of products with perceived
pricing advantages over the Companys products. In addition, some of these
competitors had introduced conservers with features not found in the Companys
products prior to the introduction of the OXYMATIC 400 series conservers.
While the reliability and superior conservation of the OXYMATIC conservers
partially offset these advantages, some of these companies have attained market
share at the Companys expense. The Company does not know the level of sales
achieved by these companies.

There are several other types of portable oxygen systems which compete
with the Companys OXYMATIC conservers but do not utilize oxygen conserving
devices. Aluminum and steel oxygen cylinders with continuous flow regulators
are utilized by some oxygen suppliers as portable systems. Although they do
provide users with some portability, their size and bulk limits their use by
patients who need or want to be truly ambulatory. The most commonly used of
these cylinders is approximately three feet high, weighs over 20 lbs., and
provides an average patient with less than 5 hours of oxygen. These systems
are enjoying some level of success due to their lower unit price advantage.
The OXYMATIC electronic and CYPRESS pneumatic conservers allow the use of
smaller, lighter cylinders and thus provides greater mobility.

Until the availability of OXYLITE systems and the previously cited changes
in Medicare oxygen reimbursement, liquid oxygen was the modality of choice for
truly mobile users. Portable liquid oxygen systems that weigh 3.4 to 10 lbs.,
provide an average patient with 6 to 8 hours of oxygen, compared to the
smallest OXYLITE system which weighs 4.5 lbs. and provides an average patient
with 7.3 hours of oxygen. These systems are more costly than OXYLITE systems
and require frequent and expensive (often weekly) deliveries of bulk liquid
oxygen to the patients home. In addition, the patient must remain within
range of the base unit for refilling, unlike with the OXYLITE systems with
which a patient can take ass many cylinders as needed to provide the amount of
time necessary to be away from their base unit.

The Company is aware of one combination oxygen concentrator and refilling
station being marketed in competition with the TOTAL O2 system by Invacare.
This system is larger and heavier and does not contain some of the integrated
features found in the TOTAL O2 system. The Company does not know the level of
sales achieved by Invacare for this system.

Patents and Trademarks

The Company regards the products that it develops or licenses and its
manufacturing processes as proprietary and relies on a combination of patents,
trademarks, trade secret laws and confidentiality agreements to protect its
rights in its products. U.S. patents have been issued covering the original
the OXYMATIC conserver, the CYPRESS OXYPneumatic conserver and the TOTAL O2
Delivery System. A number of foreign patent applications pertaining to the
Companys activities have also been issued.

The Company pursues a policy of obtaining patents for appropriate
inventions related to products marketed or manufactured by the Company. The
Company considers the patentability of products developed for it to be
significant to the success of the Company. To the extent that the products to
be marketed by the Company do not receive patent protection, competitors may be
able to manufacture and market substantially similar products. Such
competition could have an adverse impact upon the Companys business.

There can be no assurance that patents, domestic or foreign, will be
obtained with respect to the Companys products, or that, if issued, they will
provide substantial protection or be of commercial benefit to the Company. In
addition, the patent laws of foreign countries may differ from those of the
United States as to the patentability of the Companys products and processes
and, accordingly, the degree of protection afforded by foreign patents may be
more or less than in the United States.

11



---



##### Table of Contents



In the United States, although a patent has a statutory presumption of
validity, the issuance of a patent is not conclusive as to such validity or as
to the enforceable scope of its claims therein. The validity and
enforceability of a patent can be attacked by litigation after its issuance by
the U.S. Patent and Trademark Office. If the outcome of such litigation is
adverse to the owner of the patent in that the patent is held to be invalid,
other parties may then use the invention covered by the patent. Accordingly,
there can be no assurance that patents with respect to the Companys products,
if issued, will afford protection against competitors with similar products,
nor can there be any assurance that the patents will not be infringed upon or
designed around by others.

Through patent searches, contacts in the industry and representations and
indemnities received from licensors and development partners, the Company seeks
to ensure that its products do not infringe on the intellectual property rights
claimed by others. However, interpretation of the scope and validity of
existing patent rights may differ, and no assurance can be given that the
Company products will in all cases not infringe on the rights of others.
Moreover, any dispute regarding potential infringement may require substantial
management and financial resources to defend.

The Company has obtained U.S. registration for the trademarks OXYMIZER,
OXYMATIC, OXYPneumatic, CHAD, OXYCOIL and TOTAL O2. A series of
foreign applications to register the trademark OXYMIZER in a number of
countries of commercial interest to the Company have been filed.

Governmental Regulation

The commercialization of the OXYMIZER, OXYMATIC, CYPRESS and TOTAL O2
devices is subject to the Federal Food, Drug and Cosmetic Act (the Food and
Drug Act) and to regulations issued thereunder. The Company anticipates that
commercialization of other devices that it intends to market will also be
subject to the Food and Drug Act. The Food and Drug Act is administered by the
FDA, which has authority to regulate the marketing, manufacturing, labeling,
packaging and distribution of products subject to the Food and Drug Act. In
addition, there are requirements under other federal laws and under state,
local and foreign statutes that may apply to the manufacture and marketing of
the Companys products. The Medical Device Amendments of 1976 to the Food and
Drug Act (the Amendments) and the Safe Medical Device Act of 1990
significantly extended the authority of the FDA to regulate the
commercialization of medical devices. The Amendments established three
classifications of medical devices: Class I, Class II and Class III. With
respect to all three classes, the general provisions of the Food and Drug Act
prohibit adulteration and misbranding. A medical device may be adulterated if
the device is or could be adversely affected by its methods of manufacture,
storage or packaging. A medical device may be misbranded if its labeling is
false or misleading or if its labeling does not contain specific information
required by law applicable to such type of device. In addition, failure to
register a medical device covered under the Food and Drug Act will render it
misbranded under the Food and Drug Act.

All manufacturers of medical devices must register with the FDA and list
all medical devices produced by them. This listing must be updated annually.
In addition, prior to commercial distribution of additional devices, the
manufacturer must file with the FDA and receive approval prior to the
commencement of such commercial distribution, a notice setting forth certain
information about the device, including the classification into which the
manufacturer believes it falls.

Class I devices are subject only to the general controls concerning
adulteration, misbranding, good manufacturing practices, record keeping and
reporting requirements. Class II devices must, in addition, comply with
performance standards as promulgated by the FDA.

The Company has registered with the Bureau of Medical Devices of the FDA
as a Medical Device Establishment and with the Department of Health Services of
the State of California as a Medical

12



---



##### Table of Contents



Device Manufacturer. In addition, the Company has developed procedures to
comply with FDA standards concerning good manufacturing practices, record
keeping and reporting and is ISO 9001 certified.

The Company has filed notification submissions pursuant to Section 510(k)
of the Food and Drug Act of its intent to market the OXYMIZER, the OXYMIZER
Pendant, the OXYMATIC conserver, the CYPRESS OXYPneumatic conserver, the
OXYCOIL and the TOTAL O2 Delivery System; it has been granted permission by the
FDA to market the OXYMIZER and the OXYMIZER Pendant as Class I devices.
Permission has been granted to market the OXYMATIC, the CYPRESS OXYPneumatic,
the OXYCOIL and TOTAL O2 Delivery System as Class II devices.

Employees

As of June 12, 2003, CHAD had 107 full-time employees and 3 part-time
employees. Seventy-six of the Companys employees are engaged in manufacturing
and the remaining are engaged in marketing, sales, administration and
management. None of the Companys employees are represented by unions; the
Company believes its employee relations are satisfactory. The Company will
employ additional personnel in all phases of its activities as required by the
growth in its activities. The number of additional personnel will be dependent
on sales levels of individual products.




Item 2. Properties.

The Companys offices and manufacturing facilities are situated in
premises located in Chatsworth, California and consist of approximately 55,500
square feet, at a monthly rental fee of $31,000 pursuant to a lease expiring in
June, 2008. Management believes this facility should adequately handle the
Companys needs for the foreseeable future. The Company does not own any real
property and does not anticipate acquiring any in the foreseeable future.




Item 3. Legal Proceedings.

The Company becomes involved in legal proceedings in the ordinary course
of business. The Company maintains product liability insurance in an amount it
deems customary in the industry for protection of the Company against potential
product liability claims. Although the Company believes its product liability
insurance is sufficient and no pending legal proceeding poses a material
threat, no assurance can be given that pending or future proceedings will not
have a material impact on the Companys financial condition or results of
operations.




Item 4. Submission of Matters to a Vote of Security Holders.

Not applicable.

PART II




Item 5. Market for Registrants Common Equity and Stockholder Matters.

The information required herein is hereby incorporated by reference to the
information contained under the caption Corporate Data in the Companys
Annual Report.




Item 6. Selected Financial Data.

The information required herein is hereby incorporated by reference to the
information contained under the caption Selected Financial Data in the
Companys Annual Report.

13



---



##### Table of Contents






Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.

The information required herein is hereby incorporated by reference to the
information contained under the caption Managements Discussion and Analysis
of Financial Condition and Results of Operations in the Companys Annual
Report.




Item 7a. Quantitative and Qualitative Disclosures about Risk

The Company has no significant risks in this area.




Item 8. Financial Statements and Supplementary Data.

The information required herein is hereby incorporated by reference to the
Financial Statements and the Notes thereto contained in the Companys Annual
Report.




Item 9. Disagreements on Accounting and Financial Disclosure.

None.

PART III




Item 10. Directors and Executive Officers of the Registrant.

The information required herein is hereby incorporated by reference to the
information appearing under the captions Election of Directors and Executive
Officers in the Companys definitive Proxy Statement to be filed with the
Securities and Exchange Commission.




Item 11. Executive Compensation.

The information required herein is hereby incorporated by reference to the
information appearing under the caption Compensation of Directors and
Executive Officers in the Companys definitive Proxy Statement to be filed
with the Securities and Exchange Commission.




Item 12. Security Ownership of Certain Beneficial Owners and Management.

The information required herein is hereby incorporated by reference to the
information appearing under the caption Voting Securities and Principal
Holders Thereof in the Companys definitive Proxy Statement to be filed with
the Securities and Exchange Commission.




Item 13. Certain Relationships and Related Transactions.

None.




Item 14. Controls and Procedures

The Company has evaluated the effectiveness of the design and operation of its
disclosure controls and procedures as of a date within 90 days prior to the
filing of this annual report on Form 10-K (the Evaluation Date). Such
evaluation was conducted under the supervision and with the participation of
the Companys Chief Executive Officer (CEO) and its Chief Financial Officer
(CFO). Based upon such evaluation, the Companys CEO and CFO have concluded
that, as of the Evaluation Date, the Companys disclosure controls and
procedures were effective. There have been no significant changes in the
Companys internal controls or other factors that could significantly affect
these controls subsequent to the date of their most recent evaluation.

14



---



##### Table of Contents






PART IV




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

(a)  (1) Financial Statements.

Included in Part II of this Report:

Independent Auditors Report

Balance Sheets  March 31, 2003 and 2002

Statements of Operations  Years ended March 31, 2003, 2002 and 2001.

Statements of Shareholders Equity  Years ended March 31, 2003, 2002 and
2001.

Statements of Cash Flows  Years ended March 31, 2003, 2002 and 2001.

Notes to Financial Statements.

(a)  (2) Financial Statement Schedules.

See Notes to Financial Statements.

(3) Exhibits.



| |  | 3.1 Articles of Incorporation of the Registrant, as amended*****                                                                                                 
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | 3.2 Bylaws of the Registrant, as amended*                                                                                                                        
|
| |  | 10.5 Pulser System License Agreement, as amended, with Robert E.
Phillips, Brian L. Tiep, M.D. and Ben A. Otsap. (The Pulser System
is now called the OXYMATIC.)*
|
| |  | 10.20 OXYCOIL tubing License Agreement with Mary Smart (licensed under
the name Respi-Coil).***                                                                  
|
| |  | 10.23 Summary plan description for Chad Therapeutics, Inc. Employee
Savings and Retirement Plan****                                                              
|
| |  | 10.24 1994 Stock Option Plan******                                                                                                                               
|
| |  | 10.25 Lease on real property at 21622 Plummer Street, Chatsworth, California******                                                                               
|
| |  | 10.26 TOTAL O2 Delivery System License Agreement, as amended, with the
Life Support Division of Litton Industries, Inc.*******                                   
|
| |  | 13.1 Annual Report to Shareholders for the year ended March 31, 2003.                                                                                            
|
| |  | 23.1 Consent of Independent Accountant                                                                                                                           
|
| |  | 28.1 Letter from the FDA authorizing the Company to market the
OXYMIZER oxygen conserving device as a Class 1 device.*                                           

15



---



##### Table of Contents





| |  | 28.2 Letter from the FDA authorizing the Company to market the
OXYMIZER Pendant oxygen conserving device as a Class 1 device.**
| |  | -------------------------------------------------------------------------------------------------------------------------------
|
| |  | 28.5 Letter from the FDA authorizing the Company to market the
OXYMATIC electronic oxygen conserver as a Class 2 device.***    
|
| |  | 28.6 Letter from the FDA authorizing the Company to market the
OXYCOIL coiled oxygen tubing as a Class 2 device.***            
|
| |  | 28.7 Letter from the FDA authorizing the Company to market the
TOTAL O2 Delivery System as a Class 2 device*******             
|
| |  | 28.9 Letter from the FDA authorizing the Company to market the OXYMATIC
411 conserver as a Class 2 device********              
|
| |  | 28.10 Letter from the FDA authorizing the Company to market the OXYMATIC
401A and 411A conservers as a Class 2 devices******** 
|
| |  | 28.11 Letter from the FDA
authorizing the Company to market the TOTAL 02
Post Valve Cylinders*********                         
|
| |  | 28.12 Letter from the FDA authorizing the Company to market the CYPRESS
OXYPneumatic conserver                                 

(b)  Reports on Form 8-K - None filed.

(c)  Index to Exhibits.

(d)  Financial Statement Schedules - None



---

|*         |  | Previously filed as an Exhibit to the Registrants Registration Statement
on Form S-18, File No. 2-83926.       
|--------- |  | ----------------------------------------------------------------------------------------------------------------
|         
|**        |  | Previously filed as an Exhibit to the Registrants Annual Report on
Form 10-K for the year ended March 31, 1984.
|         
|***       |  | Previously filed as an Exhibit to the Registrants Annual Report on
Form 10-K for the year ended March 31, 1986.
|         
|****      |  | Previously filed as an Exhibit to the Registrants Annual Report on
Form 10-K for the year ended March 31, 1993.
|         
|*****     |  | Previously filed as an exhibit to the Registrants Annual Report on
Form 10-K for the year ended March 31, 1994.
|         
|******    |  | Previously filed as an exhibit to the Registrants Annual Report on
Form 10-K for the year ended March 31, 1996.
|         
|*******   |  | Previously filed as an exhibit to the Registrants Annual Report on
Form 10-K for the year ended March 31, 1998.
|         
|********  |  | Previously filed as an exhibit to the Registrants Annual Report on
Form 10-K for the year ended March 31, 2001.
|         
|********* |  | Previously filed as an exhibit to the Registrants Annual Report on
Form 10-K for the year ended March 31, 2002.

16



---



##### Table of Contents






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, in the City of Los
Angeles, State of California, on the 20th day of June, 2003.

| |  |                         |  |                                         
| |  | ----------------------- |  | ----------------------------------------
| |  | CHAD THERAPEUTICS, INC.
| |  |                         |  |                                         
| |  | By                      |  | /s/ Thomas E. Jones                     
| |  |                         |  | Thomas E. Jones, Chief Executive Officer

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.

|                                      |  |                                                                                                            |  |              
|------------------------------------- |  | ---------------------------------------------------------------------------------------------------------- |  | -------------
|Signature                             |  | Title                                                                                                      |  | Date         
|/s/ Thomas E. Jones

Thomas E. Jones  |  | Chairman, Chief Executive Officer and
Director (Principal Executive Officer)                               |  | June 20, 2003
|                                      |  |                                                                                                            |  |              
|/s/ Earl L. Yager

Earl L. Yager      |  | President, Chief Financial
Officer and Secretary and Director
(Principal Financial and Accounting Officer) |  | June 20, 2003
|                                      |  |                                                                                                            |  |              
|/s/ David L. Cutter

David L. Cutter  |  | Director                                                                                                   |  | June 20, 2003
|                                      |  |                                                                                                            |  |              
|/s/ John C. Boyd

John C. Boyd        |  | Director                                                                                                   |  | June 20, 2003
|                                      |  |                                                                                                            |  |              
|/s/ Norman Cooper
Norman Cooper       |  | Director                                                                                                   |  | June 20, 2003
|                                      |  |                                                                                                            |  |              
|/s/ Philip Wolfstein
Philip Wolfstein |  | Director                                                                                                   |  | June 20, 2003
|                                      |  |                                                                                                            |  |              
|/s/ James M. Brophy

James M. Brophy  |  | Director                                                                                                   |  | June 20, 2003

17



---



##### Table of Contents



I, Thomas E. Jones, as Chief Executive Officer of CHAD Therapeutics, Inc. (the
Company), certify that:



|(1) |  | I have reviewed this annual report on Form 10-K of CHAD Therapeutics,
Inc.;                                                                                                                                                                                                                                             
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|   
|(3) |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   
|   
|(4) |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                  



| | (a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the Evaluation Date); and                                                                                                  
|
| | (c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|(5) |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have identified
for the registrants auditors any material weaknesses in internal
controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        



|(6) |  | The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                    |  |                                                   
|------------------- |  | --------------------------------------------------
|Date: June 20, 2003 |  | /S/Thomas E. Jones
          Thomas
E. Jones      
|                    |  | Chief Executive Officer of CHAD Therapeutics, Inc.

18



---



##### Table of Contents



I, Earl L. Yager, as Chief Financial Officer of CHAD Therapeutics, Inc. (the
Company), certify that:



|(5) |  | I have reviewed this annual report on Form 10-K of CHAD Therapeutics,
Inc.;                                                                                                                                                                                                                                             
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(6) |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|   
|(7) |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   
|   
|(8) |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                  



| | (d) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (e) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the Evaluation Date); and                                                                                                  
|
| | (f) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|(6) |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have identified
for the registrants auditors any material weaknesses in internal
controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (d) |  | any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        



|(6) |  | The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                    |  |                                                   
|------------------- |  | --------------------------------------------------
|Date: June 20, 2003 |  | /S/Earl L. Yager
          Earl
L. Yager          
|                    |  | Chief Financial Officer of CHAD Therapeutics, Inc.

19



---



##### Table of Contents






Exhibit Index

|            |  |                                                                                          |  |               |  | 
|----------- |  | ---------------------------------------------------------------------------------------- |  | ------------- |  | 
|            |  | Exhibit Index                                                                            |  | Sequentially 
|Exhibit No. |  | Document                                                                                 |  | Numbered Page
|            |  |                                                                                          |  |              
|13.1        |  | Annual Report to Shareholders for the year ended
March 31, 2003                         
|            |  |                                                                                         
|23.1        |  | Consent of Independent Accountants                                                      
|            |  |                                                                                         
|28.11       |  | Letter from the FDA authorizing the Company to market the
CYPRESS OXYPneumatic conserver

20