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                       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 
                     FOR THE FISCAL YEAR ENDED JULY 3, 1998

                                       OR

/ /  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 For the transition period from _____________to
     _____________

                           Commission File No. 0-12744

                              SUNRISE MEDICAL INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

          DELAWARE                                        95-3836867
(STATE OR OTHER JURISDICTION OF                         (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION)                         IDENTIFICATION NO.)

                         2382 FARADAY AVENUE, SUITE 200
                               CARLSBAD, CA 92008

                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (760) 930-1500

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Securities registered pursuant to Section 12(b) of the Act:
     TITLE OF CLASS                    NAME OF EACH EXCHANGE ON WHICH REGISTERED
--------------------------------------------------------------------------------
Common Stock, par value $1.00                New York Stock Exchange
Common Stock Purchase Rights                 New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:  None

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best 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. /X/

     Indicate by check mark whether 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 and (2) has been subject to such filing
requirements for the past 91 days. YES /X/ NO / /

     State the aggregate market value of the voting stock held by 
non-affiliates of the registrant: $125,500,000 as of September 4, 1998.

     On September 4, 1998, the registrant had 22,172,483 outstanding shares of
$1 par value common stock.

                      DOCUMENTS INCORPORATED BY REFERENCE

            DOCUMENTS                                  FORM 10-K REFERENCES
           -----------                                 --------------------
Portions of the company's Definitive Proxy       Part III, Items 10-13 (Page 55)
Statement for its Annual Meeting of 
Stockholders to be held on November 20, 1998

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<PAGE>

                              SUNRISE MEDICAL INC.

                                    FORM 10-K

                     FOR THE FISCAL YEAR ENDED JULY 3, 1998

                                      INDEX

<TABLE>
<CAPTION>
                                                                                        Page
                                                                                        ----
                                     PART I
<S>       <C>                                                                            <C>
Item 1.   Business . . . . . . . . . . . . . . . . . . . . . . .  . . . . . . . . . .     2
Item 2.   Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    12
Item 3.   Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    13
Item 4.   Submission of Matters to a Vote of Security Holders . . . . . . . . . . . .    13
  --      Executive Officers of the Company . . . . . . . . . . . . . . . . . . . . .    14


                                     PART II

Item 5.   Market for Registrant's Common Equity and Related Stockholder Matters . . .    16
Item 6.   Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . .    17
Item 7.   Management's Discussion and Analysis of Financial Condition                       
          and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . .    18
Item 8.   Financial  Statements and  Supplementary  Data. . . . . . . . . . . . . . .    31
Item 9.   Changes in and Disagreements with Accountants on Accounting and 
          Financial Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . .    31


                                    PART III


Item 10.  Directors and Executive  Officers of the  Registrant. . . . . . . . . . . .    55
Item 11.  Executive  Compensation . . . . . . . . . . . . . . . . . . . . . . . . . .    55
Item 12.  Security Ownership of Certain Beneficial Owners and Management. . . . . . .    55
Item 13.  Certain  Relationships and Related  Transactions. . . . . . . . . . . . . .    55


                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . .    56
          Signatures.  .  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    58
</TABLE>

                                       1

<PAGE>

                                     PART I

ITEM 1.   BUSINESS

     Sunrise Medical Inc. ("Sunrise" or the "company") is a worldwide leader 
in the design and manufacture of medical products used in three attractive 
growth markets -- home healthcare, extended care and assistive technology. 
Sunrise maintains number one or number two global market share positions for 
many of its products. The company's core product lines include custom manual 
and power wheelchairs and related seating systems; ambulatory, bathing and 
lifting products; home respiratory devices; healthcare beds and furniture; 
therapeutic mattresses and other patient support surfaces; and augmentative 
communication devices. Headquartered in Carlsbad, California, the company is 
publicly traded on the New York Stock Exchange under the ticker symbol "SMD".

     The company manufactures products in the United States, Mexico, the 
United Kingdom, Germany, France and Spain and distributes them through 
company-owned sales and distribution organizations in those countries, as 
well as in most of the rest of Europe, Canada and Australia. It also 
distributes through independent importers/distributors in more than 80 other 
countries. International sales accounted for 39% of total company revenues in 
the fiscal year ended July 3, 1998.

     Sunrise was founded in 1983 to take advantage of the shift in patients 
from hospitals to alternate site settings. The company believes that a number 
of factors will contribute to continued worldwide growth in the homecare and 
extended care markets, including: (i) the aging of the population; (ii) 
greater utilization of lower-cost, alternate-site treatment; (iii) patient 
preference for home healthcare; (iv) advances in technology facilitating 
improved outpatient care; (v) greater emphasis on integrating the disabled 
into the workplace and the community; and (vi) the increasing popularity of 
wheelchair sports and recreational activities among the disabled.

     The company's long-term strategic objective, which it calls its 
"strategic intent," is to achieve global market leadership positions in 
homecare, extended care and assistive technology products. Sunrise is already 
one of the largest firms in its industry internationally and is a leader in 
most of its U.S. product markets as measured by industry sales. The company 
seeks to achieve global market leadership through five growth strategies:

-    NEW PRODUCT DEVELOPMENT. Maintain leadership in product innovation by
     applying the latest technologies to solve patient problems associated with
     disabilities, respiratory ailments and alternate site care. Continue to
     invest in high potential, long-range new product development, but give
     increased attention to the value end of the price spectrum in each product
     market.

-    CUSTOMER SERVICE LEADERSHIP. Offer a full range of products and services to
     target customer groups--home care providers and extended care
     institutions--thereby leveraging the company's strong salesforces and
     distribution networks. Provide an exceptional level of 


                                       2
<PAGE>

     customer service, including fast delivery, convenient financing plans, 
     user friendly electronic commerce and educational support programs.

-    GROWTH MARKET INITIATIVES. Leverage Sunrise's well known brands into
     complementary adjacent markets such as retail drugstores, assisted living
     facilities and acute care markets.

-    GLOBAL EXPANSION. Extend domestic market leadership internationally through
     an aggressive export sales function. Lead the industry in global
     consolidation, establishing company owned sales/distribution companies in
     major countries around the world. Leverage competitive advantages in
     product technology, manufacturing capacity, distribution coverage and
     management systems to capitalize on worldwide market growth trends.

-    STRATEGIC ACQUISITIONS. Enhance core businesses by acquiring proprietary
     technologies and product lines that yield immediate synergy or help enter
     fast growing market niches.

RE-ENGINEERING PROGRAM

     In recent years government budgetary pressures and the rise of managed care
organizations have dramatically changed the U.S. healthcare marketplace, causing
homecare products to be viewed more generically and imposing downward pressure
on prices. Further, home medical equipment providers have been consolidating
into national chains and buying groups, which have used their new purchasing
power to intensify this pressure.

     Through the early 1990's, Sunrise operated with a decentralized 
structure, built around product-specific operating divisions with their own 
salesforces and management teams. As the new industry reality emerged, the 
company implemented a progression of re-engineering steps that included the 
consolidation of five U.S. homecare divisions into one; consolidation of 
divisions within each major European market; consolidation of U.S. 
salesforces; implementation of common computer software and hardware systems; 
and headcount reductions across all Sunrise divisions. This re-engineering 
program, which is substantially complete, has spanned the past three fiscal 
years.

     As a result of the most recent trends in the healthcare business
environment, Sunrise has realigned its group structure around distribution
channels rather than the end markets where the products are used, a strategy
designed to better focus on its customers and maximize the effectiveness of its
salesforces. Effective in July 1998, all product lines sold primarily through
dealers or distributors shifted to the Home Healthcare Group, while the
Continuing Care Group assumed responsibility for representing all Sunrise
products sold direct to nursing homes and other healthcare institutions
internationally, as well as in the U.S. As a result of this change, Bio Clinic
patient support surfaces and Hoyer lifter products were transferred from the
Continuing Care Group to the Home Healthcare Group. Included in the new global
Continuing Care Group are the Joerns (U.S.) and Corona (France) patient room bed
and furnishings businesses and the Parker (U.K.) bathing equipment division.


                                       3
<PAGE>

HOME HEALTHCARE GROUP

     The Home Healthcare Group ("HHG") was consolidated into a single 
business in fiscal 1997. Headquartered in Longmont, Colorado, HHG focuses on 
the outpatient equipment needs of the elderly and the disabled. Headquarters 
functions include sales, marketing, finance, information systems, customer 
service, distribution and human resources. Also located at HHG are SunMed 
Finance, the company's dealer installment financing division, and Sunrise 
Consulting, the company's new Medicare reimbursement consulting business. 
Product development and manufacturing activities are assigned to three 
product divisions, each with a global market perspective. The three divisions 
are as follows: Mobility Products (wheelchairs, including custom, power, 
pediatric and standard wheelchairs, and seating and positioning systems); 
Personal Care Products (standardized medical products designed to assist in 
walking, bathing, toileting, patient care lifting, patient transport and 
wound prevention); and Respiratory Products (aerosol, oxygen and sleep 
therapy products). The products of the three divisions are sold through a 
single nationwide salesforce that calls on a network of home medical 
equipment ("HME") providers, and drug wholesalers. Included within HHG are 
the company's distribution organizations in Canada and Australia and its 
export sales activities throughout the Americas and the Pacific Rim. Sales of 
the Home Healthcare Group were $344 million, and accounted for 53% of the 
company's total sales in 1998.

MOBILITY PRODUCTS DIVISION

     The Mobility Products Division's primary product lines are QUICKIE 
custom wheelchairs and JAY seating systems. The QUICKIE range includes manual 
ultralight rigid and folding chairs, standard lightweight chairs, pediatric 
positioning chairs, power chairs, and wheelchairs designed for racing, 
basketball, tennis, and other disabled sports. U.S. wheelchair plants are 
located in Fresno, California and Avon Lake, Ohio. QUICKIE brand products are 
also manufactured by the company's U.K. subsidiary for European customers. 
JAY wheelchair cushions and modular positioning systems provide flexible, 
cost-effective solutions to the seating and postural needs of wheelchair 
users. The cushions and pads are filled with JAY FLOW, a patented fluid 
material designed and manufactured at the company's facility in Longmont, 
Colorado. JAY products are designed to fit all major brands of wheelchairs. 
Mobility also designs, manufactures and markets strollers, push wheelchairs, 
positioning systems, and other adaptive medical equipment for the pediatric 
rehabilitation market, including units designed to be transportable by bus. 
These products are sold under the KID-KART brand name.

In November 1997, Sunrise enhanced its seating product line with the 
acquisition of Mechanical Applications Designs, Inc. ("MADI") located in 
Katy, Texas, near Houston. MADI designs, manufactures and markets a line of 
power tilt/recline seating systems ("TILTMASTER") for use on various 
manufacturers' manual and power wheelchairs. The TILTMASTER system maintains 
the user's center of gravity throughout the tilt range by the use of a 
sliding mechanism which effectively eliminates many of the performance issues 
inherent in the more traditional tilt systems on the market.

                                       4
<PAGE>

PERSONAL CARE PRODUCTS DIVISION

     The Personal Care Products Division features the professional line of 
GUARDIAN brand patient aids, marketed through HME providers. The GUARDIAN 
brand includes crutches, walkers, standard wheelchairs, bedside commodes and 
bath safety products. A number of these same products have been packaged as a 
line of consumer personal care products under the CAREMATE brand name, which 
is distributed through drug stores, home centers, department stores and 
specialty retailers.

     In May 1998, Sunrise introduced the BREEZY 100, a new standard 
wheelchair. The BREEZY 100 is the first in the market to offer options that 
can reduce a dealer's parts inventory by up to 50% with leg and foot rests 
that fit either the right or left side and are fully interchangeable with the 
market leader's standard wheelchair. This chair represents Sunrise's in-house 
designed and manufactured product to address the approximately $165 million 
standard wheelchair market. Shipments of the BREEZY 100 are expected to begin 
in September 1998.

     The Personal Care Products division markets support surfaces products 
under the BIO CLINIC brand name. These products cover a range of 
cost-effective solutions addressing the prevention and treatment of pressure 
sores--dermal wounds that can afflict immobilized patients. This broad 
product line includes: portable low air loss mattress systems; specialty 
mattresses; foam overlays; and foam positioners for use in the operating 
room. BIO CLINIC disposable products are sold through medical/surgical 
distributors, who supply them to their hospital and nursing home customers. 
HOYER patient lifters and slings, used in institutional and home settings to 
lift and transfer disabled patients between bed, bathtub, wheelchair and 
automobile, are also manufactured and sold through this division.

     During 1998, the division completed the move of its patient aids and 
standard wheelchair production from its main plant in Simi Valley, California 
to a leased facility in Tijuana, Mexico. Product development and management 
activities were relocated to a small leased facility in Chula Vista, 
California just across the U.S./Mexico border from the manufacturing plant in 
Tijuana. The company has sub-leased its Simi Valley facility for the 
remainder of its lease term. The BIO CLINIC foam products and HOYER lift 
products continue to be manufactured in Mississippi and Wisconsin, 
respectively.

RESPIRATORY PRODUCTS DIVISION

     The Respiratory Products Division, located in Somerset, Pennsylvania, 
manufactures a broad range of respiratory products for use in the home. 
Product categories include a broad range of aerosol, oxygen and sleep therapy 
home respiratory products under the DEVILBISS brand name. Aerosol devices 
convert liquid medicine into airborne particles to treat breathing disorders 
such as asthma and cystic fibrosis. Oxygen concentrators are 
electro-mechanical devices that enrich normal room air up to 93% purity for 
patients suffering from chronic obstructive lung diseases such as emphysema 
and bronchitis. Portable liquid and gas oxygen systems allow oxygen users to 
leave their homes and resume normal activities for up to eight hours at a 
time. The PULSEDOSE line of proprietary oxygen conservers can triple the 
range of an ambulatory patient using a given measured supply of liquid or 
gaseous oxygen. Sunrise also manufactures the DEVILBISS HORIZON line of sleep 
products, which alleviate adult obstructive sleep apnea by supplying 
continuous 

                                       5
<PAGE>


positive airway pressure ("CPAP") while patients are sleeping. DEVILBISS 
products are distributed globally through company-owned distribution 
organizations in Europe, Australia and Canada and independent distributors 
elsewhere.

SUNRISE CONSULTING

     During 1998, HHG established a Medicare reimbursement consulting 
business with the addition of three persons who provide, for a fee, 
assistance to home medical equipment providers in securing payment from 
Medicare for custom wheelchairs and other homecare products. Sunrise 
Consulting will offer mock-Medicare audits to help suppliers ensure their 
compliance with recordkeeping requirements and post-audit recovery programs 
for suppliers with denied Medicare claims.

SUNMED FINANCE

     Sunrise offers competitive, market-rate financing to its dealers through 
its SunMed Finance division.

CONTINUING CARE GROUP

     The global Continuing Care Group ("CCG"), with headquarters in Stevens 
Point, Wisconsin, manufactures and markets products that foster ease of care 
for recovering patients and long term residents in nursing homes, sub-acute 
facilities, hospitals and assisted living centers. Product lines include 
healthcare beds, overbed tables, nursing home furniture, and specialized 
institutional bathing systems. CCG's products are sold through a salesforce 
focused on extended care and assisted living facilities. In addition, 
homecare beds and therapeutic mattresses are sold through the HHG salesforce 
to homecare dealers. Foreign sales of institutional products are made through 
Sunrise's international export sales and distribution network. CCG sales were 
$80 million in 1998, and represented 12% of total company sales.


                                       6
<PAGE>


     The JOERNS product line consists of healthcare beds, patient room 
furniture, overbed tables, dining room and commons area furnishings. PARKER 
bathing systems, manufactured in the U.K., are specialized bathtubs that 
recline or elevate with lifters designed specifically for a nursing home.

     In Tours, France, Sunrise manufactures nursing home beds and furniture 
under the CORONA brand. CORONA products are marketed to French nursing homes 
and hospitals through a direct salesforce.

DYNAVOX

     In April 1998, Sunrise completed the acquisition of Sentient Systems 
Technology, Inc., which has been renamed DynaVox Systems, Inc. ("DynaVox"), 
located in Pittsburgh, Pennsylvania. DynaVox designs, manufactures and 
markets hardware and software products for persons with speech, language and 
cognitive disabilities, and is a global market leader in the field of 
augmentative communication. Its DYNAVOX and DYNAMYTE products communicate in 
a computer-synthesized voice for those that cannot speak due to conditions 
such as cerebral palsy, traumatic brain injury, degenerative neuromuscular 
diseases and stroke. DynaVox sales were $15 million in 1998, and represented 
2% of total company sales.

     In May of 1998, DynaVox launched its new generation of communication 
devices, the DYNAVOX 3100 and DYNAMYTE 3100, along with new DSS software for 
both Windows and MacIntosh system environments. This new hardware provides 
users with more speed, faster vocabulary access, more customizable features, 
longer battery life, and an improved touchscreen.

EUROPEAN HOMECARE

     Sunrise manufactures homecare products in four European countries 
(United Kingdom, Germany, France and Spain) and also owns distribution 
companies in France, the Netherlands, Norway, Sweden, Italy and Switzerland 
that distribute the company's products into these and surrounding countries. 
European Homecare sales were $218 million, accounting for 33% of total 
company sales in 1998.

     In 1997 Sunrise announced a series of consolidations of its European 
operations within each major country in order to eliminate administrative 
redundancies, capitalize on economies of scale, and enhance cost 
efficiencies. In Germany, the distribution and manufacturing activities were 
integrated into the SOPUR business in Malsch. In the U.K., Sunrise purchased 
an existing 370,000 square-foot manufacturing facility in Stourbridge 
(Birmingham area) England, refurbished it, and relocated four factories to 
the new site (wheelchairs, patient lifters, personal care products and 
respiratory products). These factory moves, involving approximately 1,150 
jobs, were completed in October 1997.

     In the United Kingdom, Sunrise manufactures and markets five major 
product lines: wheelchairs, personal care products, patient lifters, 
respiratory products and bathing systems. The wheelchair product line 
includes QUICKIE custom manual wheelchairs, POWERTEC power wheelchairs, 
STERLING electric scooters and MINIVATOR home stairlifts. COOPERS canes, 
walkers, bath safety products and aids for daily living are sold through 
homecare dealers and retail drugstores. DEVILBISS oxygen concentrators are 
rented through the U.K. National Health Service and exported throughout 
Europe. The OXFORD line of Sunrise lifting systems for patient transfers 
covers a broad range of applications in both institutional and home care 
uses. In recent years exports have increased steadily to more than 50 
countries, including, most importantly, the company's European distribution 
network.

     During fiscal 1998, the company's two German subsidiaries, Sopur and 
DeVilbiss GmbH were merged and all operations were consolidated to become 
Sunrise Germany. Sunrise Germany manufactures and markets the SOPUR line of 
custom lightweight manual, power, and pediatric and performance wheelchairs. 
In 1998 Sopur introduced several new products: STABILANCE 120/140U - a joint 
venture with Procon, for construction of wheelchair seats; CLASSIC 140 - a 
modular constructed wheelchair and Power 140 - a battery-operated wheelchair. 
Other Sunrise homecare products such as JAY seating systems, DEVILBISS oxygen 
concentrators and Spanish manufactured standard wheelchairs are also 
distributed by this organization to homecare dealers throughout Germany and 
Austria.

                                       7
<PAGE>


     The company's Spanish subsidiary, located in Bilbao, manufactures 
URIBARRI standard wheelchairs and patient aids, providing Sunrise with a 
low-cost European manufacturing base. URIBARRI wheelchairs and patient aids 
are sold throughout Spain and exported to many countries, including Sunrise 
divisions in Europe and Australia. During fiscal 1998, Sunrise launched the 
new BREEZY 300 aluminum/composite wheelchair that has received excellent 
response in Europe and Australia.

     In France, homecare products are sold through a nationwide network of 
home medical equipment dealers. Sunrise France also distributes QUICKIE and 
SOPUR brand wheelchairs, and the DEVILBISS line of respiratory products.

SALES AND DISTRIBUTION

     Home Healthcare Group products are sold through a nationwide salesforce 
that calls on a network of 12,000 HME providers, rehabilitation technology 
suppliers and drug wholesalers. Special attention has been directed to larger 
regional and national accounts, including the deployment of incentive 
programs that benefit customers who purchase from multiple Sunrise divisions. 
HHG offers consolidated customer service, order entry, distribution and 
credit functions for all products sold to the domestic HME market. Order 
processing centers are maintained in Colorado and Pennsylvania, and seven 
regional distribution centers are located throughout the United States. Large 
national accounts and independent homecare providers are able to purchase 
standard products across all Sunrise divisions by placing a single order; 
products are shipped the next day from one of the regional distribution 
centers. However, customized products, such as most QUICKIE wheelchairs and 
many JAY cushion products, continue to be manufactured to order directly and 
shipped from those factories within 3 days to 3 weeks.

     The Continuing Care Group generally sells its products directly to 
nursing homes and other healthcare institutions through its own nationwide 
salesforce. Company account representatives demonstrate and sell products 
directly to nursing homes and other continuing care institutions where 
clinicians such as directors of nursing play a key role in product 
evaluations and ultimate decision making. In connection with the realignment 
around distribution channels in July 1998, certain products manufactured by 
CCG that are sold primarily through dealers or distributors will now be 
handled by the HHG salesforce.

     Sunrise products are marketed in Europe through distribution channels 
that resemble U.S. patterns. Home medical equipment products are distributed 
through independent medical equipment dealers in most countries, although, 
under Scandinavia's state-controlled healthcare systems, the local technical 
aid centers perform a similar function. The company has its own salesforces 
calling on these distribution channels in all major countries of Western 
Europe.

     Two separate export sales teams represent all Sunrise product lines in 
their respective global regions. They are responsible for developing import 
distributor relationships in all countries where Sunrise products are sold. 
One team, part of HHG, covers the Americas and Pacific Rim, while the second 
team, part of Sunrise U.K., covers Europe, the Middle East, Africa and 
Central Asia.


                                       8
<PAGE>


COMPETITION

     Sunrise encounters significant domestic and foreign competition from a 
number of established manufacturers in each of its product lines. Sunrise's 
primary competitors in the U.S. are Invacare Corporation, Graham-Field, 
Mallinckrodt, Respironics and Hillenbrand Industries. Invacare competes with 
Sunrise in almost every product line and market. In the European homecare 
market, Meyra Ortopedia (Germany) and Scandinavian Mobility (Denmark) are the 
largest competitors.

     Sunrise competes primarily on the basis of the competitiveness of its 
prices, its product features and performance, the range of products offered, 
the quality of its customer service and delivery, the technical expertise of 
its salesforces, and the strength of its distribution operations and 
independent dealer network. In certain countries and product markets, 
including the United States, the company faces competition from other 
manufacturers that have larger market shares, more extensive financial 
resources or other competitive advantages.

MANUFACTURING

     The company operates 16 manufacturing plants in the U.S., Mexico and 
Western Europe. Manufacturing processes include metal fabrication, 
welding/brazing, injection molding, circuit board assembly, powder coating, 
final assembly, life testing and quality assurance. Certain components used 
in the company's products, such as small motors and electronic controls, are 
manufactured by third parties. Although the company purchases most of its raw 
materials, components and supplies from a number of different vendors, it 
does procure a few components and materials on a single-source basis. If one 
of these single-source vendors failed to deliver components as planned, the 
company would be temporarily unable to ship certain of its products. 
Historically, prices paid by the company for certain raw materials, such as 
aluminum, foam and wood, have fluctuated widely. When prices have increased, 
the company has not always been able to pass along the full effect of such 
increases to its customers. In addition, its manufacturing margins have 
recently been hurt by the strengthening of the British pound, since a major 
portion of Sunrise Europe sales come from products manufactured in the U.K. 
and sold on the European Continent.

     The company has utilized a variety of operational tools such as 
"just-in-time" manufacturing, demand flow technology, value engineering, 
total quality management, target costing, and its Associate suggestion system 
to reduce product costs, increase quality, shorten delivery cycles and 
improve asset turnover. These complementary techniques are all part of the 
company's Pursuit of Excellence program. All Sunrise factories have earned  
or are in the process of earning ISO 9001 certification, the international 
standard for quality assurance in design and manufacturing.

RESEARCH AND DEVELOPMENT

     Sunrise conducts research and development at each of its manufacturing
divisions. For the year ended July 3, 1998, the company spent $17.9 million on
research and development, or 


                                       9
<PAGE>


2.7% of sales, compared to $17.5 million, or 2.6% of sales, in the prior 
year. Each operating unit establishes annual objectives for introducing new 
products, and the company tracks progress against those objectives on a 
regular basis. The company introduced more than 100 new products in each of 
the last two fiscal years.

PATENTS AND TRADEMARKS

     Sunrise currently holds patents associated with certain existing 
products and has filed applications for additional patents covering certain 
of its newer products. Although some of these patents can provide a 
meaningful competitive advantage in a particular product market, overall, 
management does not consider the ownership of patents essential to its 
current or future market position. The company relies primarily on product 
quality and features, strong marketing and distribution networks, competitive 
prices, and responsive customer service to protect and improve its 
competitive positions.

     This annual report discusses many of the brands and trademarks owned and 
used by Sunrise and its subsidiaries. For ease of reading, these brands have 
been italicized, and trademark and registration designations have been 
omitted.

WARRANTY

     The company's products are generally sold with limited warranties for 
periods of up to five years. Customers may also purchase extended warranties 
on certain products. Some components of the company's wheelchair products 
have a lifetime warranty. The expected warranty expense associated with each 
product sold is recorded at the time of sale, and the adequacy of those 
warranty reserves is reviewed regularly.

GOVERNMENT FUNDING AND REGULATION

     The healthcare industry is affected by extensive government funding and 
regulation at the federal and state levels.

     MEDICARE AND MEDICAID. Medicare is a federally funded health insurance 
program administered by private insurance companies providing health 
insurance coverage for persons 65 or older and certain persons with 
disabilities. Medicaid is a federally and state-funded health insurance 
program administered by state governments that provides reimbursement for 
healthcare related expenses for certain financially and medically needy 
persons regardless of age. These programs provide reimbursement to homecare 
providers for rentals and sales of medical equipment and related supplies. 
Medicare generally pays 80% of the allowable rate of reimbursement for home 
medical equipment items, while Medicaid generally pays 100%.

     The company estimates that approximately 23% of its 1998 sales were 
ultimately funded by these U.S. government programs. The company is a 
provider under Medicaid through its DynaVox division. While the company 
itself is not a provider under Medicare, its products are sold to homecare 
dealers, nursing homes and hospitals that are providers under these programs 
and do depend upon Medicare and Medicaid reimbursement for a portion of their 
revenue. Changes in Medicare/Medicaid regulations can adversely impact the 
company's revenues and 


                                       10
<PAGE>


collections indirectly by reducing the reimbursement rate received by HME 
providers, thus making it less profitable for them to sell or rent products 
to the end-user. This, in turn, can put downward pressure on prices charged 
for the company's products sold through this channel.

     Management believes that intensified healthcare cost containment efforts 
through managed care continue to favor lower cost alternatives such as home 
healthcare and nursing home care, as has been the case historically. 
Increasingly, government funded programs are relying on managed care programs 
to provide healthcare insurance to their beneficiaries. The company has made 
special efforts in recent years to allocate more of its new product 
engineering dollars to lower cost, more generic products favored by managed 
care and Medicare/Medicaid programs.

     The Balanced Budget Act of 1997 reduced reimbursement for oxygen 
concentrator rentals by 30% over two years, beginning January 1, 1998. 
Domestic sales of oxygen concentrators accounted for approximately 3% of the 
company's sales in 1998, and a lesser percentage of gross profit.

     FDA REGULATION. Medical products manufactured by the company in the U.S. 
are subject to regulation by the U.S. Food and Drug Administration ("FDA"). 
Most such medical devices must be the subject of device listings filed with 
the FDA, and medical device manufacturers must be registered. Certain 
products require clearance by the FDA prior to marketing and distribution in 
the United States. Delays in receiving such approval can adversely affect the 
company's ability to introduce new products on a timely basis and impact the 
company's results of operations and financial condition. During the last two 
years, such delays have slowed a number of new product introductions and, in 
some cases, have led to their initial marketing overseas in advance of the 
United States.

EMPLOYEES (ASSOCIATES)

     The company employed approximately 4,400 full-time Associates worldwide 
as of July 3, 1998. Approximately 400 Associates at two factories in the 
United States are covered by collective bargaining agreements that expire in 
2002. In Europe, approximately 300 Associates in the United Kingdom and 150 
in Germany are covered by national union arrangements. The company has not 
experienced a strike, work stoppage or labor disturbance during its 15-year 
history. The company believes that its labor relations are good. Sunrise 
refers to its employees as Associates.

BACKLOG

     Sunrise's backlog of firm orders at July 3, 1998 was approximately $43 
million compared to $39 million at June 27, 1997. Approximately $13 million 
in 1998 and $16 million in 1997 represented orders for patient room beds and 
furnishings, the one portion of Sunrise's business for which backlog is 
believed to be a meaningful predictive factor because of the long order lead 
times in this market. Generally, Sunrise manufactures the balance of its 
products to its forecast of near-term demand, shipping immediately from 
stock, or else produces customized products based on actual orders received 
and ships within a short period thereafter. As a result, Sunrise 


                                       11
<PAGE>


does not have a substantial backlog for these products. Management does not 
believe that its overall backlog at any particular time is a meaningful 
indicator of future sales levels.

WORKING CAPITAL REQUIREMENTS

     The company does not maintain inventory of its products for a 
significant period of time (see "Backlog"). Many of the company's products 
are manufactured in connection with specific orders which are shipped in less 
than 30 days, and in many cases less than 72 hours, from receipt of the 
order. Patient room bed and furnishing products also are manufactured in 
connection with specific orders, but may take from one to three months until 
products are ready to ship. The company maintains a larger stock of those 
component parts that require longer lead times to obtain from suppliers to 
minimize the risk of extending time periods to fulfill product orders. Most 
of the company's sales are made on standard terms requiring payment by the 
customer within 30-60 days of delivery. Some sales are made on extended terms 
on a selective basis. Certain customers elect to finance their purchases with 
installment note contracts offered by the company's captive finance 
subsidiary. The company occasionally accepts products for replacement upon 
customer request. However, returns for credit or refund have not been a 
material aspect of the company's business.

FOREIGN OPERATIONS

     Sunrise has foreign subsidiaries with manufacturing and distribution 
operations in the United Kingdom, France, Germany, Spain and Mexico. In 
addition, company-owned sales/distribution companies are located in Canada, 
Australia, the Netherlands, Norway, Sweden, Switzerland and Italy. All of 
Sunrise's manufacturing and distribution facilities are located in 
industrially developed areas where qualified labor and material supply have 
been readily available at economic rates.

ITEM 2.     PROPERTIES

     Sunrise's corporate headquarters office is located in Carlsbad, 
California, and comprises approximately 21,000 square feet of leased space 
that Sunrise occupies under a lease expiring in 2004. Sunrise conducts its 
U.S. operations from 12 leased facilities, including a facility in Tijuana, 
Mexico that supports the U.S. operations, totaling approximately 562,000 
square feet under leases with expiration dates ranging from 1998 through 
2008, and also operates factories using five company-owned facilities 
totaling approximately 713,000 square feet.

     For its international operations, Sunrise leases 28 facilities in 
Europe, Canada and Australia (totaling approximately 256,000 square feet) 
under leases with expiration dates extending through 2017, together with six 
company-owned facilities in Europe with approximately 675,000 square feet.

     Sunrise's facilities are used primarily for manufacturing, distribution 
and administration. Sunrise has options to renew a number of its leases. 
Management believes that its facilities are adequate for Sunrise's current 
needs.


                                       12
<PAGE>


ITEM 3.  LEGAL PROCEEDINGS

     The company is a party to various legal proceedings arising in the 
ordinary course of business. Management does not believe that the outcome of 
any of these actions will have a material adverse effect upon the financial 
position or results of operations of the company.

     The Securities and Exchange Commission ("SEC") has entered a formal 
order of private investigation into the circumstances underlying the 
restatement of the company's 1995 and 1994 financial statements. The company 
is cooperating fully with the SEC in its investigation.

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were submitted to a vote of the company's stockholders during 
the fourth quarter of fiscal 1998.


                                       13
<PAGE>


                      EXECUTIVE OFFICERS OF THE COMPANY

Pursuant to General Instruction G(3) of Form 10-K, the following information is
included as an unnumbered Item in Part I of this Report.

The following is a list of names and ages of the executive officers (within the
meaning of Item 401 of Regulation S-K) of the company, indicating all positions
and offices with the company held by each such person and each such person's
principal occupation or employment during the past five years. Executive
officers serve at the discretion of the Board of Directors. No person other than
those listed below has been chosen to be an executive officer of the company.

Name                  Age  Position
----                  ---  ---------

Richard H. Chandler    55  Chairman of the board, chief executive officer and
                           president

Ben Anderson-Ray       43  Senior vice president operations and group president
                           - Continuing Care Group

Steven A. Jaye         42  Senior vice president, general counsel and secretary

Thomas H. O'Donnell    55  Senior vice president operations and group president 
                           - Home Healthcare Group

Barrie Payne           61  Senior vice  president  operations, group president 
                           and managing director - Sunrise Medical Ltd.

John M. Radak          38  Vice president and controller

Ted N. Tarbet          45  Senior vice president and chief financial officer

Richard H. Chandler has served as chairman of the Board of Directors and 
chief executive officer of the company since its inception in January 1983 
through the present. In January 1996 he also became president, a position he 
previously held from January 1983 until July 1993. From 1982 to 1983, he was 
president of Richard H. Chandler company, a management consulting firm, 
during which period he planned the formation of the company. From 1979 to 
1982, he was president and chief executive officer of Abbey Medical, Inc. Mr. 
Chandler participated in the leveraged buy-out of Abbey Medical from Sara Lee 
Corporation in June 1979 and arranged for its sale to American Hospital 
Supply Corporation in April 1981. From 1974 to 1979, he held senior 
management positions with Sara Lee Corporation, ending as a group vice 
president and including two years when he was president of its Abbey 
Rents/Abbey Medical division.

Ben Anderson-Ray was elected group president in July 1998 of the newly 
defined Sunrise Medical global Continuing Care Group, which manufactures 
Joerns and Corona beds and furniture and Parker Bath bathing equipment for 
nursing homes and other healthcare institutions. From November 1996 to this 
new election, Mr. Anderson-Ray was president of the Mobility Products 
Division. From 1994 to 1996 he served as vice president of marketing and 
business development for the Rubbermaid Home Products Division. Prior to 
this, he was general manager of cooking, cleaning and beverage products for 
Black & Decker Corporation. From 1984 to 1993 


                                       14
<PAGE>


Mr. Anderson-Ray held positions at General Electric including manager of 
Asia-Pacific marketing and sales, manager of international automotive 
products and product manager of lighting products.

Steven A. Jaye was elected senior vice president, general counsel and 
secretary of the company in August 1996 after joining the company as vice 
president and general counsel in August 1995. From 1991 through 1995, Mr. 
Jaye served as the vice president - legal affairs for Magma Power company, a 
publicly traded international power producer. From 1984 through 1991, he 
served as a business attorney with the law firm of Latham & Watkins. Prior to 
receiving his legal degree, Mr. Jaye served as a design, production and 
quality assurance engineer for a subsidiary of Hughes Aircraft company. In 
addition to his legal duties, Mr. Jaye manages the worldwide purchasing, 
quality, risk management and real estate matters for Sunrise.

Thomas H. O'Donnell was elected president of the Home Healthcare Group in 
June 1997. He served as executive vice president - operations of the company 
from January 1987 until August 1988, when he was elected president of Quickie 
Designs Inc. (a Sunrise subsidiary). In January 1996 he was named senior vice 
president - North America. In 1986 Mr. O'Donnell was president and chief 
operating officer of General Computer company, a manufacturer and distributor 
of personal computer peripherals. From 1984 to 1985, he was chief executive 
officer of Connecting Point of America, Inc., a chain of computer retail 
stores. From 1967 to 1984, he was with IBM Corporation in a variety of 
management positions, most recently as vice president - product management 
for the Entry Systems Division.

Barrie Payne was elected managing director of Sunrise Medical Ltd. (U.K.) and 
a corporate senior vice president as of February 1, 1998. Previously, he had 
been senior vice president - Europe since January 1996, after serving as 
managing director of Sunrise Medical Ltd. (a Sunrise subsidiary) since June 
1983. Previously, Mr. Payne was president of A-BEC Mobility Inc., a 
distributor of electric wheelchairs and other power mobility products that 
was founded by him in 1972 and was purchased by Sunrise Medical in 1983.

John M. Radak was elected vice president and controller in January 1995. From 
1992 to 1995, Mr. Radak was vice president, finance for the respiratory care 
subsidiary of Bird Medical Technologies Inc., a medical device manufacturer. 
Prior to joining Bird, he held various financial management positions with 
Calcomp Inc., a Lockheed/Martin subsidiary that manufactures printers and 
plotters for computer graphics applications. Mr. Radak is a certified public 
accountant.

Ted N. Tarbet was elected senior vice president and chief financial officer 
in August 1993. Mr. Tarbet joined Sunrise in 1986 as corporate controller. In 
1988 he was made a vice president of the company and in 1989 he was elected 
to the position of vice president, chief financial officer and secretary. 
From 1981 to 1986, Mr. Tarbet served as controller and then as vice president 
and chief financial officer of Anadex Inc., a manufacturer of personal 
computer products. Mr. Tarbet is a certified public accountant.


                                       15
<PAGE>


                                     PART II

ITEM 5.   MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
          RELATED STOCKHOLDER MATTERS

The company's common stock, $1 par value, trades on the New York Stock Exchange
under the symbol "SMD." The highest and lowest daily closing price for each
quarterly period during the last two fiscal years was as follows:

<TABLE>
<CAPTION>
                                 Fiscal Year 1998                      Fiscal Year 1997
                                -------------------                   -------------------
                                High            Low                   High            Low
                                ----            ---                   ----            ---
--------------------------------------------------------------------------------------------------
<S>                            <C>            <C>                    <C>            <C>
First Quarter                  16 1/2         14 1/16                18 1/8         15 1/8
Second Quarter                 16 9/16        14 3/4                 15 7/8         13 5/8
Third Quarter                  16 3/8         13 9/16                16 1/2         12 5/8
Fourth Quarter                 16 3/16        14 1/8                   15           10 1/8
Year                           16 9/16        13 9/16                18 1/8         10 1/8
--------------------------------------------------------------------------------------------------
</TABLE>

The number of holders of record of Sunrise common stock as of September 4, 
1998 was 540. The company estimates it has approximately 6,100 beneficial 
holders of its common stock. The closing price of the common stock on 
September 4, 1998 was 8 3/8.

The company has not paid cash dividends to holders of its common stock and 
has no plans to do so in the foreseeable future. Provisions of the company's 
credit facility and senior notes restrict the payment of dividends.


                                       16
<PAGE>


ITEM 6.   SELECTED FINANCIAL DATA
          (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                          Years Ended
----------------------------------------------------------------------------------------------------------
                                                 July 3,     June 27,    June 28,    June 30,      July 1,
CONSOLIDATED RESULTS OF OPERATIONS DATA (1):       1998        1997        1996        1995         1994
                                                   ----        ----        ----        ----         ----
<S>                                             <C>         <C>         <C>          <C>         <C>
     Net sales                                  $ 657,169   $ 670,545   $ 675,417    $ 609,086   $ 474,284
     Gross profit                                 205,538     222,739     225,788      210,154     171,744
     Marketing, selling and administrative
         expenses                                 155,998     162,504     172,847      145,148     111,159
     Research and development expenses             17,919      17,483      16,265       14,587      11,555
     Amortization of intangibles                    8,440       8,273       8,686        6,823       5,435
     Re-engineering expenses, merger
          costs and unusual items                  29,016           -      65,152            -           -
     Corporate operating (loss) income             (5,835)     34,479     (37,162)      43,596      43,595
     Interest expense                              15,222      14,774      16,687       10,366       6,105
     (Loss) income before taxes                   (11,802)     23,477     (51,749)      34,584      37,487
     Net (loss) income                          $ (12,010)  $  12,114   $ (40,378)   $  19,956   $  22,673
                                                ---------   ---------   ---------    ---------   ---------
                                                ---------   ---------   ---------    ---------   ---------

     Basic net (loss) income per share          $  (0.55)   $    0.56   $  (1.89)    $    0.93   $    1.08
                                                ---------   ---------   ---------    ---------   ---------
                                                ---------   ---------   ---------    ---------   ---------

     Weighted average shares outstanding           22,001      21,656      21,391       21,400      20,898
                                                ---------   ---------   ---------    ---------   ---------
                                                ---------   ---------   ---------    ---------   ---------

     Diluted net (loss) income per share        $  (0.55)   $    0.55   $  (1.89)    $    0.93   $    1.08
                                                ---------   ---------   ---------    ---------   ---------
                                                ---------   ---------   ---------    ---------   ---------

     Weighted average shares outstanding           22,001      21,933      21,391       21,556      21,054
                                                ---------   ---------   ---------    ---------   ---------
                                                ---------   ---------   ---------    ---------   ---------

CONSOLIDATED BALANCE SHEET DATA (1):

     Working capital                            $ 107,579   $ 103,087   $ 107,193    $ 121,381   $ 103,035
     Total assets                                 616,305     615,731     624,578      607,320     474,375
     Long-term debt (2)                           188,029     188,061     207,456      182,054     118,743
     Stockholder's equity (3)                   $ 272,660   $ 283,692   $ 263,281    $ 301,731   $ 261,292
                                                ---------   ---------   ---------    ---------   ---------
                                                ---------   ---------   ---------    ---------   ---------
</TABLE>

------------------------
(1)  All financial data has been restated to reflect the 1998 acquisition
     Sentient Systems, Inc., accounted for as a pooling-of-interests.
(2)  Excludes current installments of long-term debt.
(3)  The company did not declare cash dividends for the years 1994 through 1998.


                                       17
<PAGE>

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Sunrise closed its fiscal year ended July 3, 1998 with worldwide revenues of 
$657 million, a decrease of 2% from 1997. The company's fiscal year ends on 
the Friday closest to June 30, resulting in years of either 52 or 53 weeks. 
The year ended July 3, 1998 contained 53 weeks, while the years ended June 
27, 1997 and June 28, 1996 each contained 52 weeks. Net sales grew 2% in 1998 
after adjusting for the effects of foreign currency translation, divestitures 
and acquisitions. The company reported a net loss of $12 million, after 
re-engineering expense, compared to net income of $12.1 million in 1997. The 
loss per share was $0.55 for 1998 compared to diluted net income per share of 
$0.55 in 1997. Excluding re-engineering expenses and merger costs, the 
company earned $5.4 million or $0.24 per share in 1998. All financial data 
has been restated to reflect the 1998 acquisition of Sentient Systems, Inc., 
which has been accounted for as a pooling of interests.

In the fourth quarter of 1998, the company completed its multi-year, 
company-wide re-engineering program and also concluded its merger with 
Sentient Systems, Inc., now renamed DynaVox Systems (DynaVox). Approximately 
$29 million in re-engineering expenses and merger costs were incurred during 
1998 to complete these activities. The re-engineering expenses were 
principally related to the implementation of computer system conversions, the 
relocation of production activities and personnel and the disposition of 
facilities and equipment. In addition, the company realigned certain  
divisions at year end into three distribution channel focused operating 
groups: the Home Healthcare Group (HHG), the global Continuing Care Group 
(CCG) and European Homecare. The primary impact is that all product lines 
sold through dealers or distributors in the U.S. will be handled by HHG, 
while CCG will assume responsibility for representing all Sunrise products 
sold directly to nursing homes and other healthcare institutions in the U.S. 
and internationally. This re-alignment has been reflected in the following 
tables and the related discussion of sales and expenses.

NET SALES ANALYSIS

Sales decreased 2% in 1998 to $657 million from sales of $671 in 1997, 
following a decrease of 1% from sales of $675 million recorded in 1996. The 
sale of the company's Comfort Clinic division in October 1996, marking the 
company's exit from the consumer products market, reduced sales by 5% in 
1997. The merger with DynaVox in April 1998 contributed $15 million or 2% of 
net sales in 1998, 2% in 1997 and 1% in 1996. International sales accounted 
for 39% of worldwide net sales, compared with 44% in 1997 and 42% in 1996.

The acquisition of Kid-Kart, Inc. in December 1996 increased sales by 1% in 
1997. The acquisition of three European-based businesses between April and 
October 1995 added 11% to the company's sales in 1996. Sunrise used 
acquisitions during these periods to enhance existing businesses and expand 
internationally.

Fluctuations of foreign currency rates decreased overall net sales by 3% in 1998
and 1% in 1997 while increasing net sales by approximately 1% in 1996. The
impact of foreign currency 


                                       18
<PAGE>

fluctuations on net sales is not necessarily indicative of the impact on 
operating results due to the offsetting foreign currency impact on costs and 
expenses and the company's hedging activities. (See Note 1 to the 
consolidated financial statements for the company's accounting policies for 
foreign currency instruments.)

Internal sales growth of 2% from 1997 to 1998 was primarily the result of 
continued unit sales increases partially offset by generally declining prices 
due to pricing pressures and to a change in the product mix to lower-priced 
products. Internal growth of 5% from 1996 to 1997 was primarily the result of 
unit sales increases. Average selling prices in a number of major product 
lines declined in 1997, primarily due to healthcare cost containment 
pressures.

Healthcare cost reduction continues to be pursued in the United States and 
Europe, causing downward pressure on the company's prices. Management 
believes that it is appropriately reducing its cost structure through a 
strategic re-alignment and by consolidating business units, factories and 
salesforces.

A summary of sales by business group as a percentage of total 
net sales follows:

ANALYSIS OF PRODUCT LINE SALES CONTRIBUTION ($ in millions)

<TABLE>
<CAPTION>
                                           1998                   1997                  1996
                                      ---------------       ---------------        ---------------
<S>                                   <C>      <C>          <C>       <C>          <C>      <C>
Home Healthcare Group                 $  344      53%       $  329      49%        $  315      47%

Continuing Care Group                     80      12%           84      13%            90      13%

DynaVox                                   15       2%           14       2%             8       1%

European Homecare                        218      33%          230      34%           218      32%

Comfort Clinic (1)                         -        -           14       2%            44       7%
                                      ------   ------       ------    -----        ------   ------

    Total                             $  657     100%       $  671     100%        $  675     100%
                                      ------   ------       ------    -----        ------   ------
                                      ------   ------       ------    -----        ------   ------
</TABLE>

(1)  Divested in October 1996

Net sales of the Home Healthcare Group (HHG) reached record levels in each of 
the last three years, growing 5% to $344 million in 1998, after an increase 
of 4% to $329 million in 1997 from sales of $315 million in 1996. Strong 
sales of mobility products led the increase in 1998, while respiratory and 
personal care products advanced only modestly. Respiratory sales were 
negatively impacted by the Balanced Budget Act of 1997, which reduced 
reimbursement for oxygen concentrator rentals beginning January 1, 1998, 
causing respiratory dealers to delay their purchases of equipment for their 
rental fleets. Growth in custom wheelchair sales was attributed primarily to 
strong sales of standard lightweight manual wheelchairs. Sales of respiratory 
products led the increase in 1997, followed by custom wheelchairs and 
personal care products. Average selling prices decreased primarily as a 
result of the increase in discounts to large national accounts and to a 
change in the product mix to lower priced products.


                                       19
<PAGE>

Continuing Care Group (CCG) sales decreased 5% in 1998 to $80 million. This 
followed a decline of 7% in 1997 to $84 million. Although 1998 unit volume 
increased in sales of beds, patient room furniture and bathing systems, these 
were partially offset by a decline in unit sales of accessories. Generally, 
in 1998, average selling prices declined as a result of a change in mix to 
lower-priced products, while the decrease in unit sales of accessories was 
attributed to customers' purchasing fewer of them with their new bed orders. 
The decline in sales in 1997 was attributed to the decline of average selling 
prices as a result of growth in large national contracts, while the decrease 
in unit sales of patient furniture was attributed to the shift in new 
construction funding from nursing homes to assisted living centers. Unit 
volume sales of bathing systems also declined in 1997, primarily due to the 
discontinuation of several products. In order to address the decline in sales 
at CCG, the company has taken a number of steps, including implementing 
management changes, introducing new products and aggressively seeking new 
business such as a supply contract, won from a competitor, to serve all 
public healthcare institutions in Paris, France.

The acquisition of DynaVox contributed $15 million to net sales in 1998, an 
increase of 11% from 1997. Sales grew 75% to $14 million in 1997. The 
increases each year were primarily the result of the introduction of new 
products. DynaVox introduced eight new products in the fourth quarter of 1998 
that led to a build-up in backlog at year-end.

Sales in Europe decreased by 5% in 1998 to $218 million following an increase 
of 5% in 1997 to $230 million from $218 million in 1996. In 1998, overall 
European unit sales volumes were up on relatively flat prices, partially 
offset by a shift in product mix to lower-priced products. Sales were also 
negatively impacted by disruptions related to the consolidation of four 
factories in the U.K. and unfavorable foreign currency exchange rates. The 
impact on European sales of these unfavorable rates was 6% in 1998 and 4% in 
1997 while in 1996 the rates had a favorable impact of 1%. Excluding the 
impact of acquisitions and foreign currency exchange movements, sales grew by 
1% in 1998 after growth of 5% in 1997. In 1998 sales growth within Europe was 
strongest in France, Spain, and the company's country distribution 
organizations. Overall, during 1997, European unit sales volumes increased 
from their 1996 levels, while average selling prices were lower than prior 
years' in several markets due to increasing discounts to dealers. Product 
sales growth was led by custom wheelchairs, which remained the largest 
European product line and demonstrated modest volume increases. Personal care 
products and beds also contributed to the total growth in sales in 1997, 
while respiratory sales declined, primarily due to the termination of a 
distribution agreement Sunrise had with another manufacturer.

EXPENSE AND PROFIT ANALYSIS

In 1998, gross margin (gross profit as a percentage of net sales) decreased 
1.9% to 31.3% and .2% to 33.2% in 1997. Gross margin in a number of domestic 
product lines was adversely affected by market pricing pressures and product 
mix shifts indirectly driven by the growth of managed healthcare and 
consolidation of the company's customer base. In Europe, gross margins were 
adversely affected by unfavorable foreign exchange rates, the disruptive 
impact of factory consolidations and the growth of buying groups.

                                       20
<PAGE>

Marketing, selling and administrative expenses decreased .5% as a percentage 
of net sales in 1998, after a decrease of 1.4% in 1997. Marketing, selling 
and administrative expenses for 1998 include costs estimated to be 
approximately $2.3 million for positions duplicated temporarily during the 
consolidation of divisions. In 1997 one-time costs of $1.4 million were 
included in this category for the company's sponsorship of the 1996 Atlanta 
Paralympic Games. Excluding these costs, marketing, selling and 
administrative expenses decreased to 23.4% of net sales in 1998, from 24.0% 
of net sales in 1997 and 25.6% in 1996.

Research and development (R&D) expenses increased 2% to $17.9 million in 1998 
following an increase of 7% in 1997. The growth in R&D spending has been 
slightly ahead of sales growth and continues to reflect the company's focus 
on applying new technologies to address unmet user needs, lower product costs 
and enhance existing products. Management believes that investing significant 
resources in R&D will result in future revenue growth and market share gains.

The following is a summary of expenses and profits as a percentage of net 
sales:

<TABLE>
<CAPTION>
                                                                                                        % Increase
                                                                                                        (Decrease)
                                                                                                  -----------------------
($ in millions)                                 1998              1997             1996           1998/97         1997/96
-------------------------------------------------------------------------------------------------------------------------
Net sales                                    $  657.2          $  670.5         $  675.4            (2)%            (1)%
-------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>               <C>              <C>                <C>            <C>
Gross profit                                    205.5             222.7            225.8            (8)%            (1)%
    % of net sales                               31.3%             33.2%            33.4%
Marketing, selling and
    administrative expenses                     156.0             162.5            172.8            (4)%            (6)%
    % of net sales                               23.7%             24.2%            25.6%
Research and development expenses                17.9              17.5             16.3             2%              7%
    % of net sales                                2.7%              2.6%             2.4%
Amortization of goodwill
    and other intangibles                         8.4               8.3              8.7             2%             (5)%
    % of net sales                                1.3%              1.2%             1.3%
Re-engineering expenses,
    merger costs and unusual items               29.0               -               65.2             *               *
    % of net sales                                4.4%                               9.6%            -               -
-------------------------------------------------------------------------------------------------------------------------
Corporate operating (loss) income                (5.8)             34.5            (37.2)            *               *
    % of net sales                               (0.9)%             5.1%            (5.5)%
Interest expense                                 15.2              14.8             16.7             3%            (11)%
    % of net sales                                2.3%              2.2%             2.5%
Interest income and other, net                    9.3               3.8              2.1           145%             81%
    % of net sales                                1.4%              0.6%             0.3%
-------------------------------------------------------------------------------------------------------------------------
(Loss) income before income taxes               (11.8)             23.5            (51.8)            *               *
    % of net sales                               (1.8)%             3.5%            (7.7)%

Income tax expense (benefit)                      0.2              11.4            (11.4)            *               *
    % of (loss) income before taxes               1.8%             48.4%           (22.0)%
-------------------------------------------------------------------------------------------------------------------------
Net (loss) income                            $  (12.0)         $   12.1         $  (40.4)            *               *
    % of net sales                               (1.8)%             1.8%            (6.0)%
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

*    Percentage not meaningful


                                       21
<PAGE>

In January 1997, the company announced the consolidation of its five U.S. 
homecare divisions into the Home Healthcare Group based in Longmont, 
Colorado, and also initiated a series of consolidations of European 
operations. These actions were designed to improve manufacturing and 
marketing efficiencies while reducing operating costs. Pre-tax charges of 
$4.7 million were incurred in 1997 in connection with these consolidations. 
Approximately $27 million in non-recurring costs were incurred during 1998 to 
complete these activities. In addition, the company merged with DynaVox in 
April 1998. Merger related expenses incurred were approximately $2 million. 
Of the total charges of $29 million incurred in 1998, approximately $23 
million required cash payments and $6 million represented non-cash charges.

In 1996, after an intensive review of the company's businesses, settlement of 
stockholder litigation related to the announcement of the investigation of 
accounting practices in its support surfaces business, subsequent 
restatement of the company's 1995 and 1994 financial statements, and the 
initiation of a major plan of reorganization, the company recorded pre-tax 
charges from unusual items of $65.2 million. These charges included: $18.6 
million for costs of the internal investigation, restatement, and reissuance 
of historical financial statements and the settlement of related litigation, 
including attorneys' fees; $27.6 million for the write-down of assets at Bio 
Clinic and Comfort Clinic to reflect revised estimates of net asset 
realizations, including goodwill; and $19.0 million related to the company's 
reorganization and cost reduction program (including severance costs of $3.2 
million). Of the total charges of $65.2 million, approximately $36.2 million 
required cash payments and $29.0 million represented non-cash charges. During 
1997, these reserves were adjusted downward by $4.6 million because of lower 
than expected costs to relocate operations and to write down assets to be 
sold.

Corporate operating income (excluding re-engineering expenses, merger costs 
and unusual items) decreased to 3.5% of sales in 1998, compared to 5.1% in 
1997, primarily due to the decline in the gross margin to 31.3% from 33.2% in 
1997. The improvement to 5.1% in 1997 was primarily due to the decrease in 
marketing, selling and administrative expenses and the improvement in the 
support surfaces business.

Interest expense increased by 3% in 1998 to $15.2 million following a 
decrease of 11% to $14.8 million in 1997. Higher interest rates caused by 
less favorable terms in the company's credit agreement and higher interest 
rates for the new senior notes, which fixed interest rates for seven to 10 
years, contributed to the increase in interest expense in 1998. The 1997 
reduction resulted from lower average borrowings during 1997, as well as 
lower average interest rates.

Interest income increased 8.5% in 1998 to $3.7 million after an increase of 
17.2% in 1997, reflecting the growth in installment receivables in 1997 and 
interest resulting from an income tax refund. Management believes that the 
wide range of installment financing plans offered by its SunMed Finance 
subsidiary is an important contributor to its market position in the U.S. 
home healthcare market.


                                       22
<PAGE>

Other income (expense), net increased to $5.6 million in 1998 from $.4 
million in 1997 primarily as a result of the receipt of a legal settlement 
payment of $4.4 million and approximately $.5 million from the sale of a 
facility.

In 1998, the company's tax expense was $208,000 compared to tax expense of 
$11.4 million in 1997 and a tax benefit of $11.4 million in 1996. The 
effective tax rates of 1.8%, 48.4% and (22.0)% differ from the U.S. corporate 
tax rate of 35% primarily because of non-deductible goodwill amortization. In 
addition to the goodwill impact, the effective tax rate of 1.8% in 1998 on a 
loss of $12.0 million was also driven by tax expense recorded on pre-tax 
income in certain foreign jurisdictions with high tax rates.

The net loss in 1998 was $12.0 million or (1.8)% of net sales compared to net 
income in 1997 of $12.1 million. Excluding the after-tax impact of 
re-engineering expenses and costs associated with the DynaVox merger in 1998, 
net income was $5.4 million or 0.8% of net sales. In 1996, as a result of the 
unusual item charges, the company incurred a net loss of $40.4 million.

The company attempts to minimize or offset the impact of inflationary 
pressures on labor and raw material costs through increased sales volume, 
improved productivity, active cost control measures, and, to a lesser extent, 
increases in product pricing. The company believes that inflationary material 
cost increases may continue and that the markets in which it sells its 
products will remain price-sensitive, thereby limiting its ability to offset 
higher costs with pricing actions.

FINANCIAL POSITION, CAPITAL RESOURCES AND LIQUIDITY

CASH FLOW

Primarily as a result of re-engineering expenditures, cash flows provided by 
operations decreased to $8 million in 1998 from $40 million in 1997. Cash 
flows provided by operations were $21 million in 1996.

Cash generation (defined as net income plus non-cash charges) has 
historically been an important source of funding for capital spending, 
working capital and acquisitions. Cash generation was $10 million in 1998, 
reflecting the impact of re-engineering expenses and merger costs. This 
compares to $44 million (366% of net income) in 1997 and $3 million in 1996. 
The company also evaluates the results of operations of the business using 
EBITDA, defined by the company as earnings (loss) before interest, taxes, 
depreciation and amortization. Excluding re-engineering expenses, merger 
costs and unusual items, EBITDA was $56 million, $65 million and $58 million 
in 1998, 1997 and 1996, respectively.

As noted above, the unusual item charges in 1996 included $36.2 million 
requiring the payment of cash, of which $4.1 million was paid in 1998, $9.9 
million in 1997 and $18.8 million in 1996. Management estimates that the 
remaining liability of $3.4 million will be paid out in 1999 of the total 
charges of $29 million incurred in 1998 approximately $23 million was paid in 
cash, and the remaining $6 million is expected to be paid in 1999.


                                       23
<PAGE>

CAPITAL EXPENDITURES

Capital spending in 1998 was $15.6 million, approximately equal to 
depreciation expense, compared to $29.5 million, in 1997, or 164% of 
depreciation expense and $19 million in 1996, which was approximately equal 
to depreciation expense. Significant investments made in 1998 include 
leasehold improvements, enhancements in machinery and equipment and new 
product tooling, and computer hardware and software for the conversions 
taking place throughout the company. The company expects capital expenditures 
in 1999 to be higher than in 1998.

ACQUISITIONS

On April 13, 1998, the company exchanged approximately 2.7 million shares of 
common stock valued at approximately $40 million for all of the outstanding 
common stock of Sentient Systems Technology, Inc., now named DynaVox Systems, 
a manufacturer of augmentative communication devices and software for persons 
affected by speech disabilities. The transaction was accounted for as a 
pooling of interests.

On November 20, 1997, the company completed the acquisition of Mechanical 
Application Designs, Inc. (MADI), a manufacturer of tilt/recline seating 
systems, for approximately 100,000 shares valued at $1.6 million and cash of 
$.4 million. The transaction was accounted for as a purchase. Pro forma 
results of operations giving effect to the acquisition as though it had 
occurred on June 28, 1997 would not differ materially from amounts reported.

On December 27, 1996, the company acquired Kid-Kart, Inc., a manufacturer of 
pediatric positioning strollers and other dependent mobility products, for 
416,000 shares of common stock valued at $6.5 million and cash of $.5 
million. The transaction was accounted for as a purchase. Pro forma results 
of operations giving effect to the acquisition as though it had occurred on 
July 1, 1995 would not differ materially from amounts reported.

CAPITAL STRUCTURE AND LEVERAGE

The company's capital structure consists of two primary components: 
stockholders' equity and long-term debt. Stockholders' equity was $272.7 
million at the end of 1998, a decrease of $11.0 million from the prior 
year-end primarily from the net loss of $12.0 million incurred during the 
year.


                                       24
<PAGE>

<TABLE>
<CAPTION>
ANALYSIS OF LONG-TERM DEBT
                                                          1998               1997           1996
--------------------------------------------------------------------------------------------------
<S>                                                       <C>                <C>            <C>
Fixed-rate debt as a percentage of total debt
    at year-end                                            93%                69%            66%

Foreign denominated debt as a percentage
    of total debt at year-end                              36%                58%            56%

Weighted average annual interest rate                     7.8%               7.4%           7.8%

Interest coverage (before unusual items)                  1.5 x              2.2x           1.6x

--------------------------------------------------------------------------------------------------
</TABLE>

Long-term debt, excluding current installments, of $188 million at July 3, 
1998, was approximately equal to long-term debt at June 27, 1997. The ratio 
of debt to total capitalization increased to 41% at year-end, compared to 40% 
at the end of 1997.

Sunrise attempts to minimize interest expense while also managing exposure to 
variable interest rates by employing interest rate exchange agreements, or 
swaps, to convert its bank borrowings from floating rate into the equivalent 
of fixed rate debt. However, as a policy Sunrise does not use interest rate 
swaps or any other derivatives that have a level of complexity or risk which, 
in the judgment of Sunrise's management, is higher than the exposure to be 
hedged. The company does not hold or issue such instruments for trading 
purposes.

Sunrise has used foreign-denominated borrowings from its multi-currency 
credit facility to hedge against foreign currency balance sheet exposures 
that would otherwise result from changes in currency values. Total 
foreign-denominated debt at year-end was $68 million in 1998 compared to $112 
million and $119 million in 1997 and 1996, respectively.

On October 28, 1997, the company completed a private placement of $100 
million of senior notes, $50 million maturing after seven years and bearing 
interest at 7.09%, with the remaining $50 million maturing after 10 years at 
an interest rate of 7.25%. The proceeds of this debt issuance were used to 
reduce the outstanding debt on the company's unsecured multi-currency credit 
facility.

The company's multi-currency credit facility, amended as of July 3, 1998, 
provides for maximum borrowings of $120 million, declining to $115 million in 
January 2000, and maturing in January 2001. The company must comply with 
certain covenants, such as the maintenance of leverage ratio and interest 
coverage, minimum levels of tangible net worth, and certain restrictions on 
acquisitions. As of July 3, 1998 the company had approximately $46 million of 
funds available from the credit facility.


                                       25
<PAGE>


FOREIGN CURRENCY RISK MANAGEMENT

Operating on a global basis requires a posture of active currency risk 
management. To finance imports and exports, the company utilizes a variety of 
foreign currencies that are constantly shifting in relative value. The 
company engages in hedging activities to reduce potential transaction losses 
on net cash flows and balances denominated in these currencies. These amounts 
can arise from cross-border trade flows or intercompany financing 
transactions. The company's financial statements are also affected by foreign 
currency translation fluctuations. These distort the comparative results of 
foreign operations when they are translated into U.S. dollars using 
dissimilar rates.

In contrast to transaction gains or losses, translation adjustments are not 
the result of a cash exchange of currencies and, therefore, do not give rise 
to a direct economic gain or loss. In these cases the costs to execute hedges 
would exceed any consistently realizable tangible benefits. Consequently, 
Sunrise does not commit economic resources to hedge against the potential 
effect of foreign currency translation fluctuations. It believes that the 
best long-term protection of stockholder value is to do business in a broad 
number of currencies.

DIVIDEND POLICY

While provisions of the company's credit facility and senior notes restrict 
the payment of dividends, the company's present policy is to use available 
cash flow for reinvestment in its core businesses, for future acquisitions 
and for debt reduction rather than to pay a cash dividend. This policy 
reflects an appraisal by management and the Board of Directors, which 
includes the company's largest stockholder, of the attractiveness of the 
company's investment opportunities and their confidence in its ability to 
increase economic value for its stockholders through cash retention and 
reinvestment. This policy is reviewed periodically as industry conditions 
change. Provisions of the company's credit facility and senior notes 
currently restricts the payment of dividends.

YEAR 2000 COMPLIANCE

Many currently installed computer systems and software products in use around 
the world today are coded to accept only two digit entries in the date code 
field. These date code fields will need to accept four digit entries to 
distinguish 21st century dates from 20th century dates. This could result in 
system failures or miscalculations causing disruptions of operations 
including, among other things, a temporary inability to process transactions, 
send invoices or engage in similar normal business activities. As a result, 
many companies' software and computer systems may need to be upgraded or 
replaced in order to comply with such "Year 2000" requirements.

A corporate oversight task force is in operation at Sunrise to address Year 
2000 issues. Milestones have been established and detailed plans are actively 
being implemented so that Sunrise research programs, products and internal 
computer, financial, manufacturing and other infrastructure systems are 
reviewed, and the necessary changes are addressed. Corporate and divisional 
staff, including the company's internal auditors, are performing independent 
reviews and evaluations of equipment and systems to verify compliance. 
Additionally, Sunrise customer and supplier relationships are being reviewed 
to assess and address Year 2000 issues. The company has undertaken internal 
reviews to assess Year 2000 issues related to Sunrise products.


                                       26
<PAGE>


During 1998, all Sunrise information processing operations in the U.S. were 
consolidated onto two system platforms from 10 original legacy systems. In 
Europe, the conversion of Sunrise operations to a common Year 2000 compliant 
system is complete in the U.K. and France, with the conversions for Germany, 
Spain and the outlying distribution companies scheduled to be completed by 
mid-calendar 1999.

Due to the mechanical nature and the absence of date-dependent functions in 
most products manufactured and sold by Sunrise, Year 2000 compliance is 
virtually assured. Those products with date functions will be analyzed and 
tested by the company's engineering and quality assurance staff by 
mid-calendar 1999 to determine whether they will be in any way affected by 
the Year 2000 situation. While the company is taking numerous steps to ensure 
that all products are Year 2000 compliant and to make information on the Year 
2000 readiness of Sunrise products available to its customers, there is no 
way to fully guarantee that the company will be completely successful in 
either case.

Also, Sunrise is requesting assurances from its major suppliers that they are 
addressing this issue and that products procured by Sunrise will function 
properly in the Year 2000. Year 2000 compliance is a requisite for achieving 
and maintaining Approved Supplier status. Certain critical suppliers have 
been unwilling to provide such assurances and do not expect to provide such 
assurances prior to the Year 2000. Other critical suppliers do not expect to 
be able to provide such assurances until 1999. In both instances, this is 
particularly the case outside of the United States where Sunrise has 
significant operations. This could result in manufacturing delays and 
backlogs. In addition, many governmental agencies (including agencies which 
directly or indirectly provide funding for the purchase of products sold by 
Sunrise) and other third parties (such as telephone, electricity and other 
utility companies) may not be Year 2000 compliant. As a result, it is 
difficult for the company to assess the likelihood, or the impact on its 
business, of such entities' failure to be Year 2000 compliant.

The company anticipates that its systems, equipment and processes will be 
substantially Year 2000 compliant by the end of June 1999. Although a budget 
has been established, the cost to the company of achieving Year 2000 
compliance is evolving; however, it is not expected to have a material effect 
on the company's financial condition or results of operations. The company 
currently expects that the Year 2000 issue will not pose significant 
operational problems. However, delays in the company's remediation efforts, 
or a failure to timely identify all Year 2000 dependencies in the systems, 
equipment or processes of the company, its vendors, customers, financial 
institutions or other third parties could have material adverse consequences, 
including delays in the manufacture, delivery or sale of products. The 
company is in the process of developing contingency plans along with its 
remediation efforts for continuing operations in the event such problems 
arise, but no assurances can be given that the company will be fully 
successful in this regard.



                                       27
<PAGE>


RECENT ACCOUNTING DEVELOPMENTS

The company intends to adopt Statement of Financial Accounting Standards No. 
130, "Reporting Comprehensive Income" (SFAS 130), and Statement of Financial 
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise 
and Related Information" (SFAS 131), in 1999. Both standards will require 
additional disclosure, but will not have a material effect on the company's 
financial position or results of operations. SFAS 130 establishes standards 
for the reporting and display of comprehensive income and is expected to 
first be reflected in the company's first quarter of 1999 interim financial 
statements. Components of comprehensive income include items such as net 
earnings, foreign currency translation adjustments and changes in value of 
available-for-sale securities. SFAS 131 changes the way companies report 
segment information and requires segments to be determined and reported based 
on how management measures performance and makes decisions about allocating 
resources. SFAS 131 will first be reflected in the company's 1999 Annual 
Report.

In June 1998, the Financial Accounting Standards Board issued Statement of 
Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative 
Instruments and Hedging Activities", which establishes accounting and 
reporting standards for derivative instruments and hedging activities. SFAS 
133 requires that an entity recognize all derivatives as either assets or 
liabilities in the statement of financial position and measure those 
instruments at fair value. The Statement is effective for all fiscal quarters 
of fiscal years beginning after June 15, 1999. Earlier application of the 
Statement is permitted. Adoption of SFAS 133 is not expected to have a 
material effect on the company's financial position or results of operations.

FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

The company has made forward-looking statements in this report, including the 
estimated benefits to be realized from the consolidation of various Sunrise 
divisions worldwide, timing of the completion of the conversion of European 
computer systems and the level of future capital expenditures. These 
statements are only predictions. Actual events or results may differ 
materially as a result of risks and uncertainties facing the company 
including:

COMPETITION - The company encounters significant competition domestically 
from a number of well-established manufacturers in each of its product lines, 
and from foreign sources for some products. In certain countries and product 
markets, including the United States, the company may face competition from 
other manufacturers that have larger market shares or other competitive 
advantages.

PRICING PRESSURES - The growth in national chains and buying groups among 
home medical equipment providers has caused manufacturers, including the 
company, to reduce their effective prices by offering increased volume 
discounts. The increasing penetration of managed care into the home medical 
equipment industry is exacerbating this trend. If the company is unable to 
achieve sufficient manufacturing and technological efficiencies to offset any 
future price reductions, its profit margins will be adversely affected.

RE-ENGINEERING PROGRAM - The company has completed its three-year corporate 
re-engineering program that has consolidated its domestic and European 
divisions and its U.S. salesforces. In 


                                       28
<PAGE>

1998, the company invested approximately $27 million in this program, including 
the costs of new and upgraded management information systems necessary to 
support the newly consolidated operations. These investments are expected to 
result in future cost reductions and operating efficiencies. However, there is
no assurance that the anticipated re-engineering savings and efficiencies will 
in fact be achieved.

RAW MATERIAL COSTS - Historically, prices paid for certain raw materials, 
such as aluminum, steel and foam, have fluctuated. When prices have 
increased, the company has not always been able to pass along the full effect 
of such increases to its customers in order to maintain or enhance its market 
position.

NEW PRODUCTS - The company's future results will depend in part on its 
ability to enhance existing products and to introduce new products on a 
timely and cost-effective basis that meet evolving customer requirements. 
Delays in introduction or a disappointing market acceptance could have an 
adverse effect on the company's business.

MEDICARE/MEDICAID FUNDING - The U.S. healthcare industry is heavily reliant 
upon extensive government regulation and funding at the federal and state 
levels. The company is a provider under Medicaid through our DynaVox 
division. The company is not a provider under Medicare or Medicaid for its 
homecare or extended care products. However, such products are sold to home 
medical equipment ("HME") providers, nursing homes and hospitals that are 
providers under these programs and do depend upon Medicare and/or Medicaid 
reimbursement for a portion of their revenue. Changes in Medicare/Medicaid 
regulations could adversely impact the company's revenues and collections 
indirectly by reducing the reimbursement rate received by providers and thus 
make it less profitable for them to sell or rent products to the end-user. 
This, in turn, can put downward pressure on prices charged for the company's 
products sold through this channel. (See "Business-Government Funding and 
Regulation.")

GOVERNMENT REGULATION - Medical equipment manufactured or sold by the company 
in the U.S. is subject to regulation by the U.S. Food and Drug Administration 
("FDA"). All such medical devices must be the subject of device listings 
filed with the FDA, and medical device manufacturers must be registered. 
Certain products require clearance by the FDA prior to marketing and 
distribution in the United States. Delays in receiving such approval could 
adversely affect the company's ability to introduce new products on a timely 
basis, and could impact the company's results of operations and financial 
condition. In addition, the company and its products are subject to similar 
regulation in other countries.

INTERNATIONAL OPERATIONS - A significant portion of the company's sales in 
recent years has been derived from its international operations. The 
company's international financial results could be significantly affected by 
such factors as: government budgetary pressures and payment policies for 
healthcare products, difficulties in staffing and managing foreign 
operations, the conversion of certain European countries to the Euro currency 
and other risks associated with international activities.

YEAR 2000 - The information about the Year 2000 status of Sunrise Medical 
Inc. and its subsidiaries included in this report under the heading "Year 
2000 Compliance" is believed to be accurate, but is presented for information 
purposes only, and is not a contractual commitment or modification of any 
contract that may exist between Sunrise and any third party.


                                       29
<PAGE>

The company disclaims any obligation to update any of the above factors that 
may affect future operating results to announce publicly the result of any 
revisions to any of the forward-looking statements contained in this report 
or to make corrections to reflect future events or developments.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

FOREIGN CURRENCY FORWARD CONTRACTS  Although the majority of the company's 
transactions are in U.S. dollars, some transactions are based in various 
foreign currencies. The company purchases forward exchange contracts to hedge 
the impact of foreign currency fluctuations on certain underlying assets, 
liabilities and commitments for operating costs denominated in foreign 
currencies. The purpose of entering into these hedge transactions is to 
minimize the impact of foreign currency fluctuations on the results of 
operations. A majority of the increases or decreases in the company's local 
currency operating costs are offset by gains and losses on the hedges. The 
contracts have maturity dates that do not normally exceed 12 months. The 
unrealized gains and losses on these contracts are deferred and recognized in 
the results of operations in the period in which the hedged transaction is 
consummated. The company does not purchase short-term forward exchange 
contracts for trading purposes.

As of July 3, 1998, the company had outstanding the following purchased 
foreign currency forward contracts (in millions, except average contract 
rate):

<TABLE>
<CAPTION>
                                      Contract               Weighted Average            Unrealized
                                       Amount              Rate Against Sterling         Gain (loss)
                                      --------------------------------------------------------------
                                           U.S. Dollar Equivalent Amounts -- Except Contract Rates
                                                               (in millions)

    <S>                               <C>                  <C>                           <C>
Foreign currency forward contracts:
    European Currency Unit            $11.0                       1.45                       $0.3
    Belgian Franc                       0.3                      58.41                          -
    U.S. Dollar                         1.0                       1.62                          -
    French Franc                        2.1                       9.54                        0.1
    Italian Lira                        0.4                   2,825.95                          -
    Norwegian Krone                     1.1                      12.10                        0.1
    Dutch Guilder                      10.8                       3.21                        0.3
    Swiss Franc                         0.4                       2.36                          -
    Swedish Krona                       0.8                      12.52                          -
    German Deutsche Mark                1.8                       2.85                        0.1
    Spanish Peseta                      2.1                     242.65                          -
                                       ----                                                  ----
                                      $31.8                                                  $0.9
                                       ----                                                  ----
                                       ----                                                  ----


</TABLE>

All foreign currency forward contracts were for the purchase of British 
Pounds Sterling.

INTEREST RATE SWAPS  The company is exposed to interest rate risk through its 
variable interest rate borrowing activities. The company uses interest rate 
swap agreements to minimize the impact of interest rate fluctuations on 
interest expense.

As of July 3, 1998, the company has the following interest rate swaps 
outstanding:

<TABLE>
<CAPTION>
                                      Contract               Weighted Average            Unrealized
                                       Amount                  Interest Rate             Gain (loss)
                                      --------------------------------------------------------------
                                           U.S. Dollar Equivalent Amounts (in millions)
    <S>                               <C>                  <C>                           <C>
    U.S. Dollar                        $30.0                       5.63%                    $  -
    French Franc                        58.1                       5.78%                     (1.5)
    German Deutsche Mark                45.6                       4.93%                     (0.4)
                                      ------                                                 -----
                                      $133.7                                                $(1.9)
                                      ------                                                 -----
                                      ------                                                 -----
</TABLE>

The interest rate swaps mature at varying dates from April 1999 through April 
2001.

    

                                                           



                                       30
<PAGE>

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following are included herein:

<TABLE>
<CAPTION>
                                                                                   PAGE
                                                                                   ----
<S>                                                                                <C>
Report of Management                                                                32

Independent Auditors' Report                                                        33

Consolidated balance sheets as of July 3, 1998 and June 27, 1997                    34

Consolidated statements of operations for the years ended
 July 3, 1998, June 27, 1997 and June 28, 1996                                      35

Consolidated statements of cash flows for the years ended
 July 3, 1998, June 27, 1997 and June 28, 1996                                      36

Consolidated statements of stockholders' equity for the years ended 
 July 3, 1998, June 27, 1997 and June 28, 1996                                      37

Notes to consolidated financial statements                                          38

</TABLE>

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
FINANCIAL DISCLOSURE

     None.


                                       31
<PAGE>

                              REPORT OF MANAGEMENT

The management of Sunrise Medical Inc. is responsible for the preparation, 
integrity and accuracy of the accompanying financial statements and related 
information. The consolidated financial statements have been prepared in 
conformity with generally accepted accounting principles applied on a 
consistent basis and include amounts based on our best estimates and informed 
judgments, as required.

Management maintains a comprehensive system of internal controls supported by 
formal policies and procedures, a written code of business conduct, periodic 
internal audits and management reviews. Although no cost-effective system 
will preclude all errors and irregularities, we believe Sunrise Medical has 
in place a system of internal controls which provides reasonable assurance 
that assets are safeguarded against material loss from unauthorized use or 
disposition, transactions are recorded in accordance with our policies, and 
the financial information presented to our stockholders is reliable.

The Audit Committee of the Board of Directors is comprised solely of outside 
directors. The Audit Committee meets periodically with the independent 
auditors, our internal auditors and financial management to ensure that each 
is carrying out its responsibilities. Both the independent auditors and the 
internal auditors have free and direct access to the Audit Committee.

The company's independent auditors are recommended by the Audit Committee and 
selected by the Board of Directors. The consolidated financial statements 
have been audited by KPMG Peat Marwick LLP, who have expressed their opinion 
elsewhere herein with respect to the fairness of the statements. Their audits 
included a review of the system of internal control and tests of transactions 
to the extent they considered necessary to render their opinion.

Richard H. Chandler
CHAIRMAN AND CHIEF EXECUTIVE OFFICER

Ted N. Tarbet
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER

John M. Radak
VICE PRESIDENT AND CONTROLLER


                                       32
<PAGE>


                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
of Sunrise Medical Inc.:

We have audited the accompanying consolidated balance sheets of Sunrise 
Medical Inc. and Subsidiaries as of July 3, 1998 and June 27, 1997, and the 
related consolidated statements of operations, stockholders' equity, and cash 
flows for each of the years in the three-year period ended July 3, 1998. In 
connection with our audits of the consolidated financial statements, we have 
also audited the financial statement schedule as listed in Item 14.a (2). 
These consolidated financial statements and financial statement schedule are 
the responsibility of the Company's management. Our responsibility is to 
express an opinion on these consolidated financial statements and financial 
statement schedule based on our audits.

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

In our opinion, the consolidated financial statements referred to above 
present fairly, in all material respects, the financial position of Sunrise 
Medical Inc. and Subsidiaries as of July 3, 1998 and June 27, 1997, and the 
results of their operations and their cash flows for each of the years in the 
three-year period ended July 3, 1998 in conformity with generally accepted 
accounting principles. Also, in our opinion, the related financial statement 
schedule, when considered in relation to the basic consolidated financial 
statements taken as a whole, presents fairly, in all material respects, the 
information set forth therein.



                                       /s/ KPMG Peat Marwick LLP

Los Angeles, California
August 19, 1998


                                       33
<PAGE>

                      SUNRISE MEDICAL INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                        July 3,       June 27,
ASSETS                                                                   1998           1997
------                                                               -------------------------
<S>                                                                  <C>            <C>
Current assets:
    Cash and cash equivalents                                        $      931     $    4,223
    Trade receivables, net of allowance for doubtful
        accounts of $8,155 and $5,075, respectively                     121,967        115,986
    Installment receivables, net                                         12,329         13,351
    Income tax refunds receivable                                         4,013          3,794
    Inventories                                                          94,589         90,034
    Deferred income taxes                                                19,288         11,343
    Other current assets                                                  3,622          3,729
                                                                     ----------     ----------
        Total current assets                                            256,739        242,460
    Property and equipment, net of accumulated
        depreciation and amortization of $81,753 and $84,009, 
        respectively                                                     85,804         91,534
    Goodwill and other intangible assets, less accumulated
        amortization of $50,691 and $39,440, respectively               266,815        274,435
    Other assets, net                                                     6,947          7,302
                                                                     ----------     ----------
Total assets                                                         $  616,305     $  615,731
                                                                     ----------     ----------
                                                                     ----------     ----------
LIABILITIES AND STOCKHOLDERS' EQUITY 

Current liabilities:
    Current installments of long-term debt                           $    3,753     $    5,751
    Trade accounts payable                                               48,723         48,107
    Accrued compensation and other liabilities                           93,890         83,308
    Accrued income taxes                                                  2,794          2,207
                                                                     ----------     ----------
         Total current liabilities                                      149,160        139,373

Long-term debt, less current installments                               188,029        188,061
Deferred income taxes                                                     6,456          4,605
Stockholders' equity:

    Preferred stock, $1 par. Authorized 5,000 shares; none issued             -              -
    Common stock, $1 par. Authorized 40,000 shares; 22,151 and
        21,885 shares, respectively, issued and outstanding              22,151         21,885
Additional paid-in capital                                              203,346        201,044
Retained earnings                                                        46,994         59,004
Cumulative foreign currency translation adjustment                          169          1,759
                                                                     ----------     ----------
    Total stockholders' equity                                          272,660        283,692
                                                                     ----------     ----------
Total liabilities and stockholders' equity                             $616,305       $615,731
                                                                     ----------     ----------
                                                                     ----------     ----------
</TABLE>

          (See accompanying notes to consolidated financial statements)


                                       34
<PAGE>

                      SUNRISE MEDICAL INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                     (in thousands, except per share amount)

<TABLE>
<CAPTION>
                                                                      Years Ended
                                                        ---------------------------------------
                                                         July 3,       June 27,       June 28,
                                                          1998           1997           1996
                                                          ----           ----           ----
<S>                                                     <C>            <C>            <C>
Net sales                                               $ 657,169      $ 670,545      $ 675,417
Cost of sales                                             451,631        447,806        449,629
                                                        ---------      ---------      ---------
Gross profit                                              205,538        222,739        225,788

Marketing, selling and administrative expenses            155,998        162,504        172,847
Research and development expenses                          17,919         17,483         16,265
Amortization of goodwill and other intangibles              8,440          8,273          8,686
Re-engineering expenses, merger costs and
      unusual items                                        29,016              -         65,152
                                                        ---------      ---------      ---------

Corporate operating (loss) income                          (5,835)        34,479        (37,162)
                                                        ---------      ---------      ---------

Other (expense) income:

    Interest expense                                      (15,222)       (14,774)       (16,687)
    Interest income                                         3,659          3,372          2,878
    Other income and expense, net                           5,596            400           (778)
                                                        ---------      ---------      ---------
                                                           (5,967)       (11,002)       (14,587)
                                                        ---------      ---------      ---------

(Loss) income before income taxes                         (11,802)        23,477        (51,749)
Income tax expense (benefit)                                  208         11,363        (11,371)
                                                        ---------      ---------      ---------

Net (loss) income                                       $ (12,010)     $  12,114      $ (40,378)
                                                        ---------      ---------      ---------
                                                        ---------      ---------      ---------

Basic (loss) earnings per share                            ($0.55)         $0.56         ($1.89)
                                                        ---------      ---------      ---------
                                                        ---------      ---------      ---------

Weighted average number of shares outstanding              22,001         21,656         21,391
                                                        ---------      ---------      ---------
                                                        ---------      ---------      ---------

Diluted (loss) earnings per share                          ($0.55)         $0.55         ($1.89)
                                                        ---------      ---------      ---------
                                                        ---------      ---------      ---------

Weighted average number of shares outstanding              22,001         21,933         21,391
                                                        ---------      ---------      ---------
                                                        ---------      ---------      ---------
</TABLE>

          (See accompanying notes to consolidated financial statements)

                                       35
<PAGE>

                      SUNRISE MEDICAL INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     (in thousands, except per share amount)

<TABLE>
<CAPTION>
                                                                      Years Ended
                                                         -------------------------------------
                                                          July 3,        June 27,      June 28,
                                                           1998            1997          1996
                                                           ----            ----          ----
<S>                                                      <C>            <C>           <C>
Cash flows from operating activities:
    Net (loss) income                                    $(12,010)      $ 12,114      $ (40,378)
    Depreciation and amortization                          15,510         17,987         19,219
    Amortization of goodwill and other intangibles          8,440          8,273          8,686
    Deferred income taxes                                  (1,537)         5,983        (13,116)
Other non-cash items                                         (508)             -         28,978
Changes in asset and liabilities, net of effect
    of acquisitions:
    Trade receivables, net                                 (4,526)         1,423          3,348
    Installment receivables, net                              474         (3,468)         2,476
    Inventories                                            (4,338)        (8,398)         2,354
    Other assets                                           (5,581)         5,539          2,851
    Accrued income taxes                                      587            135         (2,858)
    Trade accounts payable and other liabilities           11,089            432          9,180
                                                         --------       --------      ---------

Net cash provided by operating activities                   7,600         40,020         20,740
                                                         --------       --------      ---------

Cash flows from investing activities:
    Purchase of property and equipment, net               (15,571)       (29,544)       (19,173)
    Proceeds from sale of property                          6,363              -              -
    Proceeds from sales of businesses                           -         14,000          6,004
    Net cash invested in acquisition of businesses           (418)          (856)       (23,072)
                                                         --------       --------      ---------

Net cash used for investing activities                     (9,626)       (16,400)       (36,241)
                                                         --------       --------      ---------

Cash flows from financing activities:
    Borrowings of long-term debt                          235,393        125,185        192,134
    Repayments of long-term debt                         (237,982)      (146,986)      (177,433)
    Proceeds from issuance of common stock                  1,012            458            284
                                                         --------       --------      ---------

Net cash (used for) provided by financing activities       (1,577)       (21,343)        14,985
                                                         --------       --------      ---------

Effect of exchange rate changes on cash                       311            (11)           (60)
                                                         --------       --------      ---------

Net (decrease) increase in cash and cash equivalents       (3,292)         2,266           (576)
Cash and cash equivalents at beginning of year              4,223          1,957          2,533
                                                         --------       --------      ---------
Cash and cash equivalents at end of year                     $931         $4,223         $1,957
                                                         --------       --------      ---------
                                                         --------       --------      ---------
</TABLE>

(See accompanying notes to consolidated financial statements)

                                       36

<PAGE>

                      SUNRISE MEDICAL INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (in thousands)


<TABLE>
<CAPTION>
                                                                                               Cumulative
                                                   Common Stock                                 Foreign       Total
                                               ---------------------  Additional                Currency     Stock-
                                                Number                  Paid-in     Retained   Translation  holders'
                                               of Shares    Amount      Capital     Earnings   Adjustment    Equity
                                               ---------   ---------   ---------    --------   -----------  --------
<S>                                            <C>         <C>         <C>          <C>        <C>          <C>
Balance at June 30, 1995                          21,178   $  21,178   $ 188,620    $  87,268  $    4,665   $ 301,731
                                                --------   ---------   ---------    ---------  ----------   ---------
     Exercise of stock options, including
         associated tax benefits, net                 27          27         246            -           -         273
     Issuance of stock for acquisitions              223         223       5,705            -           -       5,928
     Net loss                                          -           -           -      (40,378)          -     (40,378)
     Foreign currency translation
         adjustment                                    -           -           -            -      (4,273)     (4,273)
                                                --------   ---------   ---------    ---------  ----------   ---------
Balance at June 28, 1996                          21,428      21,428     194,571       46,890         392     263,281
                                                --------   ---------   ---------    ---------  ----------   ---------
     Exercise of stock options, including
         associated tax benefits                      41          41         405            -           -         446
     Issuance of stock for acquisition               416         416       6,068            -           -       6,484
     Net income                                        -           -           -       12,114           -      12,114
     Foreign currency translation
         adjustment                                    -           -           -            -       1,367       1,367
                                                --------   ---------   ---------    ---------  ----------   ---------
Balance at June 27, 1997                          21,885      21,885     201,044       59,004       1,759     283,692
                                                --------   ---------   ---------    ---------  ----------   ---------
     Exercise of stock options, including
         associated tax benefits, net                166         166         846            -           -       1,012
     Issuance of stock for acquisitions              100         100       1,456            -           -       1,556
     Net loss                                          -           -           -      (12,010)          -     (12,010)
     Foreign currency translation
         adjustment                                    -           -           -            -      (1,590)     (1,590)
                                                --------   ---------   ---------    ---------  ----------   ---------
Balance at July 3, 1998                           22,151   $  22,151    $203,346    $  46,994  $      169    $272,660
                                                --------   ---------   ---------    ---------  ----------   ---------
                                                --------   ---------   ---------    ---------  ----------   ---------
</TABLE>



          (See accompanying notes to consolidated financial statements)


                                       37

<PAGE>

                      SUNRISE MEDICAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (Dollars in thousands, except per share amounts)

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

THE COMPANY Sunrise Medical Inc. (the "company") designs, manufactures and 
markets medical products used in homecare and extended care settings that 
address the recovery, rehabilitation, and respiratory needs of the patient. 
Products include custom, manual and electric wheelchairs, wheelchair seating 
systems, ambulatory and bath safety aids, home respiratory devices, 
patient-room beds and furnishings, and therapeutic mattresses and support 
surfaces and assistive technology products. The company's products are 
designed to meet the special needs of four groups of people: the elderly, the 
disabled, the recovering patient, and the respiratory sufferer.

BASIS OF PRESENTATION The consolidated financial statements include domestic 
and foreign subsidiaries. All material intercompany profits, balances and 
transactions have been eliminated. Accounts denominated in foreign currencies 
have been translated using year-end exchange rates for assets and 
liabilities, while revenues and expense are translated at exchange rates 
prevailing during the year. Adjustments for foreign currency translation 
fluctuations are deferred as a separate element of consolidated stockholders' 
equity. As described more fully in Note 4, on April 13, 1998 the company 
merged with Sentient Systems, Inc. , now renamed DynaVox Systems, Inc. 
(DynaVox). The merger was accounted for as a pooling-of-interests and, 
accordingly, the consolidated financial statements reflect the combined 
financial position and operating results of the company and DynaVox for all 
periods presented.

The preparation of financial statements in conformity with generally accepted 
accounting principles requires management estimates and assumptions that 
affect amounts reported in the financial statements and accompanying notes. 
Actual results could differ from management's estimates.

FISCAL YEAR END The company's fiscal year ends on the Friday closest to June 
30, resulting in years of either 52 or 53 weeks. The year ended July 3, 1998 
included 53 weeks, while the years ended June 27, 1997 and June 28, 1996 each 
contained 52 weeks.

INVENTORIES Certain inventories are stated at the lower of last-in, first-out 
(LIFO) cost or market value. All other inventories are stated at the lower of 
first-in, first-out (FIFO) cost or market value.

PROPERTY AND EQUIPMENT Property and equipment are stated at cost and 
depreciated over estimated useful lives by the straight-line or declining 
balance methods. Assets recorded under capital leases and leasehold 
improvements are amortized over the shorter of their useful lives or the 
related lease terms by the straight-line method. The estimated useful lives 
are five to 40 years for buildings and improvements and two to 10 years for 
machinery and equipment.


                                       38
<PAGE>

GOODWILL The excess of purchase price over the fair value of net assets of 
acquired businesses (goodwill) is amortized on a straight-line basis over 
periods of 20 to 40 years, depending on the nature and type of business 
acquired.

LONG-LIVED ASSETS Effective with the first quarter of 1997, the company 
adopted Statement of Financial Accounting Standards No. 121, "Accounting for 
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed 
Of." The statement requires that impairment losses be recorded on long-lived 
assets used in operations, such as property and equipment and intangible 
assets, when indicators of impairment are present and the undiscounted cash 
flows estimated to be generated by those assets are less than the carrying 
amount of the assets. This loss is measured by the difference between 
carrying amounts and estimated fair values.

FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK In the ordinary course of 
business and as part of the company's asset and liability management, the 
company enters into various types of transactions that involve contracts and 
financial instruments with off-balance-sheet risk. These transactions are 
entered into in order to manage financial market risk, primarily interest 
rate and foreign exchange risk. The company enters into these transactions 
with major international financial institutions utilizing over-the-counter as 
opposed to exchange traded instruments. These transactions are entered into 
only for purposes of risk management.

Sunrise attempts to minimize interest expense while also managing its 
exposure to variable interest rates by employing interest rate agreements, or 
swaps, to convert bank borrowings from floating rate into the equivalent of 
fixed rate debt. Sunrise has used foreign-denominated borrowings from its 
multi-currency credit facility to hedge against foreign currency balance 
sheet exposures that would otherwise result from changes in currency values.

The company enters into foreign exchange forward and option contracts with 
financial institutions primarily to protect against currency exchange risks 
associated with existing assets and liabilities, and certain firmly committed 
transactions, as well as probable but not firmly committed transactions. In 
addition, the company has entered into foreign exchange forward contracts to 
hedge certain intercompany loan transactions between European divisions. The 
company's foreign exchange risk management policy calls for it to hedge 
substantially all of its existing material foreign exchange transaction 
exposures. However, the company may not hedge certain foreign exchange 
transaction exposures that are immaterial either in terms of their minimal 
U.S. dollar value or in terms of their historically high correlation with the 
U.S. dollar.

Probable but not firmly committed transactions comprise sales of the 
company's products in currencies other than the U.S. dollar. A majority of 
these non-U.S. dollar-based sales are made through the company's subsidiaries 
in the U.K. and Europe. The duration of foreign exchange hedging instruments, 
whether for firmly committed transactions or for probable but not firmly 
committed transactions, currently does not exceed one year.

Interest rate and foreign exchange instruments generally qualify as 
accounting hedges if their maturity dates are the same as the hedged 
transactions and if the hedged transactions meet certain 


                                       39
<PAGE>

requirements. Sold interest rate and foreign exchange instruments do not 
qualify as accounting hedges. Gains and losses on accounting hedges of 
existing assets or liabilities are generally recorded currently in income or 
stockholders' equity against the losses and gains on the hedged transactions. 
Gains and losses related to qualifying accounting hedges of firmly committed 
or probable but not firmly committed transactions are deferred and recognized 
in income in the same period as the hedged transactions. Gains and losses on 
interest rate and foreign exchange contracts that do not qualify as 
accounting hedges are recorded currently in income. Gains and losses on 
accounting hedges realized before the settlement date of the related hedged 
transaction are also generally deferred and recognized in income in the same 
period as the hedged transactions.

The company monitors interest rate and foreign exchange positions based on 
applicable and commonly used pricing models. The correlation between the 
changes in the fair value of hedging instruments and the changes in the 
underlying hedged items is assessed periodically over the life of the hedged 
instrument. In the event that it is determined that a hedge is ineffective, 
including if and when the hedged transactions no longer exists, the company 
recognizes in income the change in market value of the instrument beginning 
on the date it was no longer an effective hedge.

Further information regarding the company's accounting treatment of its 
financial instruments may be found in Note 8 - "Derivatives."

REVENUE RECOGNITION The company recognizes revenue from product sales upon 
shipment and provides an appropriate allowance for estimated returns and 
adjustments.

WARRANTY COSTS Certain products are covered by warranties against defects in 
material and workmanship for periods of up to five years. Components of 
certain products carry a lifetime warranty. The estimated warranty cost is 
recorded at the time of sale and is adjusted periodically to reflect actual 
experience.

RESEARCH AND DEVELOPMENT COSTS Research and development costs relate to both 
present and future products and are expensed in the year incurred. 

STOCK-BASED COMPENSATION Statement of Financial Accounting Standards No. 123 
(SFAS 123), "Accounting for Stock-Based Compensation," encourages but does 
not require companies to record compensation cost for stock-based employee 
compensation plans at fair value. The company has chosen to present required 
disclosures and to continue to account for stock-based employee compensation 
using the method prescribed in Accounting Principles Board Opinion No. 25 
(APB 25), "Accounting for Stock Issued to Employees." Accordingly, 
compensation cost for stock options is measured as the excess, if any, of the 
quoted market price of the company's stock at the date of grant over the 
amount an employee must pay to acquire the stock.

NET INCOME (LOSS) PER SHARE The company adopted Statement of Financial 
Accounting Standards No. 128, "Earnings Per Share" (SFAS 128) in 1998. SFAS 
128 simplifies the computation of earnings per share ("EPS") previously 
required in Accounting Principles Board (APB) Opinion No. 15, "Earnings Per 
Share," by replacing primary and fully diluted EPS with basic and diluted 
EPS. Under SFAS 128, basic EPS is calculated by dividing net earnings (loss) 
by the weighted-average common shares outstanding during the period. Diluted 
EPS reflects the 


                                       40
<PAGE>

potential dilution to basic EPS that could occur upon conversion or exercise 
of securities, options, or other such items, to common shares using the 
treasury stock method based upon the weighted-average fair value of the 
company's common shares during the period. Earnings per share for prior 
periods have been restated in accordance with SFAS 128. See Note 13 "Net 
Income (Loss) Per Share" for computation of EPS.

CASH FLOW INFORMATION Cash payments for interest in 1998, 1997 and 1996 were 
$14,380, $14,200, and $16,079, respectively. Cash payments of $5,696, $11,740 
and $8,842 were made for income taxes in 1998, 1997 and 1996, respectively. 
The company received income tax refunds of $6,131 in 1998, $9,680 in 1997 and 
$7,002 in 1996.

RECLASSIFICATION Certain reclassifications have been made to the 1997 and 
1996 amounts to conform to the 1998 presentation.

2.   FINANCIAL INSTRUMENTS

CASH AND CASH EQUIVALENTS Cash and cash equivalents include all cash balances 
and highly liquid investments with original maturities of three months or 
less. The carrying amount of cash and cash equivalents approximates their 
fair value.

INSTALLMENT RECEIVABLES
Installment receivables consist of the following:

<TABLE>
<CAPTION>
                                                            July 3,         June 27,
                                                             1998             1997
                                                             ----             ----
<S>                                                        <C>              <C>
    Current portion                                        $ 16,198         $ 17,994
    Less:
          Unearned interest                                  (2,185)          (2,409)
          Allowance for doubtful accounts                    (1,684)          (2,234)
                                                           --------         --------
          Net current portion                                12,329           13,351
    Due after one year (included in other assets)             5,716            6,190
                                                           --------         --------
    Total installment receivables, net                     $ 18,045         $ 19,541
                                                           --------         --------
</TABLE>

The carrying amount of installment receivables approximates their fair value. 
The majority of these receivables are due in less than one year, and the 
related interest rates have not varied significantly over the past two years.

LONG-TERM DEBT Based on borrowing rates currently available to the company 
for bank loans with similar terms and average maturities, the carrying amount 
of long-term debt at July 3, 1998 and June 27, 1997 approximated its fair 
value.

FOREIGN CURRENCY FORWARD EXCHANGE CONTRACTS The company transacts business in 
various foreign currencies, primarily European currencies. The company uses 
currency forward contracts and currency options to protect against reductions 
in value and volatility of future cash flows caused by changes in foreign 
exchange rates. The maturities of these instruments are generally less than 
one year. Deferred gains or losses attributable to foreign currency 
instruments are not material.


                                       41
<PAGE>

SWAP AGREEMENTS The fair market value of interest rate swap agreements (Note 
8) is the amount the company would be required to pay to terminate them, 
which is estimated to be $1.9 million at July 3, 1998 ($1.6 million at June 
27, 1997). Net receipts or payments under all swap agreements are included in 
interest expense. The company is exposed to credit loss in the event of 
nonperformance by the other party to the interest rate swap agreements. 
However, the company considers the risk of nonperformance by the other party 
to be minimal because the party to each swap agreement is a member of the 
company's bank group.

3.  BALANCE SHEET ITEMS

Inventories consist of the following:

<TABLE>
<CAPTION>
                                                              July 3,       June 27,
                                                               1998           1997
                                                               ----           ----
<S>                                                        <C>            <C>
    Raw material                                           $  42,634      $  35,167
    Work-in-progress                                          12,588         11,946
    Finished goods                                            39,367         42,921
                                                           ---------      ---------
    Total inventories                                      $  94,589      $  90,034
                                                           ---------      ---------
                                                           ---------      ---------
</TABLE>

If all inventories had been valued at FIFO cost, inventories would have been
approximately $95,817 and $91,455 for 1998 and 1997, respectively.

The components of property and equipment are as follows:

<TABLE>
<CAPTION>
                                                           July 3,       June 27,
                                                            1998           1997
                                                            ----           ----
<S>                                                        <C>            <C>
    Land                                                   $  4,611       $  5,194
    Buildings, machinery and equipment                      150,806        160,759
    Leasehold improvements                                   12,140          9,590
                                                           --------       --------
                                                            167,557        175,543

    Less accumulated depreciation and
       amortization                                         (81,753)       (84,009)
                                                           --------       --------
    Property and equipment, net                            $ 85,804       $ 91,534
                                                           --------       --------
                                                           --------       --------
</TABLE>

4.   ACQUISITIONS AND MERGERS

On April 13, 1998 the company issued 2.7 million shares of its common stock 
for all outstanding common stock of DynaVox, a manufacturer of speech 
augmentation devices. This business combination has been accounted for as a 
pooling-of-interests and, accordingly, the consolidated financial statements 
for periods prior to the combination have been restated to include the 
accounts and results of operations of DynaVox.

The results of operations previously reported by the separate enterprises and 
the combined amounts presented in the accompanying consolidated financial 
statements are summarized below.


                                       42
<PAGE>

<TABLE>
<CAPTION>
                                    Years Ended
                          June 27, 1997     June 28, 1996
                          -------------     -------------
<S>                         <C>                <C>
Net sales:
     Sunrise, as previously
        reported            $ 656,742          $ 667,130
     DynaVox                   13,803              8,287
                            ---------          ---------

     Combined               $ 670,545          $ 675,417
                            ---------          ---------
                            ---------          ---------

Net income (loss):
     Sunrise, as previously
        reported            $  10,569          $ (40,867)
     DynaVox                    1,545                489
                            ---------          ---------

     Combined               $  12,114          $ (40,378)
                            ---------          ---------
                            ---------          ---------
</TABLE>

On November 20, 1997 the company acquired the assets and liabilities of 
Mechanical Design Applications, Inc. for 100,000 shares of common stock 
valued at $1.6 million and cash of $.4 million. The transaction was accounted 
for as a purchase. Pro forma results of operations giving effect to the 
acquisition as though it had occurred on June 28, 1997 would not differ 
materially from amounts reported.

On December 27, 1996 the company acquired Kid-Kart, Inc., a manufacturer of 
pediatric positioning strollers and other dependent mobility products, for 
416,000 shares of common stock valued at $6.5 million and cash of $.5 
million. The transaction was accounted for as a purchase. Pro forma results 
of operations giving effect to the acquisition as though it had occurred on 
July 1, 1995 would not differ materially from amounts reported.

In July 1995, the company acquired Coopers Healthcare Plc, a United 
Kingdom-based manufacturer of patient aids, for 222,266 shares of common 
stock (valued at $5.9 million) and cash of $2.5 million. In October 1995 the 
company acquired Parker Bath Group, a U.K. manufacturer and distributor of 
bathing systems and patient lifters, for cash and notes amounting to $30.0 
million.

With the exception of DynaVox, all of these acquisitions were accounted for 
by the purchase method of accounting. The excess of the aggregate purchase 
price over the fair market value of net assets acquired of approximately $2 
million in 1998 and $6 million in 1997 was recognized as goodwill and is 
being amortized over periods ranging from 20 to 40 years. The operating 
results of all acquisitions are included in the consolidated results of 
operations from the respective dates of acquisition.

5.   RE-ENGINEERING EXPENSES, MERGER COSTS AND UNUSUAL ITEMS

In December 1995, the company completed an intensive review of its operations 
and businesses and initiated Operation Rebound, a corporate-wide profit 
improvement plan. This plan involved four major elements: the consolidation 
of the company's U.S. salesforces from twelve to six; the 


                                       43
<PAGE>

integration of a number of the company's smaller divisions operating within 
the same country or market; establishment of profit improvement programs at 
all divisions; and the sale of the Bio Clinic division's air therapy rental 
business because of declining margins and high administrative costs. 
Approximately 250 positions were eliminated (including 83 positions in the 
air therapy rental business transferred as of January 31, 1996 to the buyer 
of that business), or 6% of the company total. The air therapy rental 
business had net sales of $7.6 million in 1996 through the date of sale.

In June 1996 the company reached a settlement of stockholder litigation 
initiated in October and November 1995 following the announcement of an 
internal investigation of financial reporting at the Bio Clinic division.

Also in June 1996, following a strategic review of its businesses, the 
company decided to sell its Comfort Clinic division in order to concentrate 
on its core healthcare products business, necessitating a write-down of its 
investment to estimated net realizable value which was recorded in the fourth 
quarter of 1996. The Comfort Clinic division was sold in October 1996 for 
cash of $14 million. Sales through the date of sale were $13.9 million, while 
the division's sales in 1996 were $44 million.

As a result of these actions, the company in 1996 recorded pretax charges 
from unusual items of $65.2 million. These charges included: $18.6 million 
for costs of the internal investigation and settlement of related litigation, 
including attorneys' fees; $27.6 million related to Bio Clinic and Comfort 
Clinic, consisting of loss on the sale of businesses of $5.8 million, 
goodwill write-downs of $13.8 million and other asset adjustments of $8.0 
million to reflect revised estimates of net asset realizations; and $19.0 
million related to the company's reorganization and cost reduction program. 
During 1997, these reserves were adjusted downward by $4.6 million because of 
lower than expected costs to relocate operations and to write down assets to 
be sold.

Of the original charges of $65.2 million, approximately $36.2 million require 
cash payments and $29.0 million represent non-cash charges. Cash payments of 
$4.1 million were made in 1998, $9.9 million in 1997 and $18.8 million in 
1996. Management estimates that the remaining liability at July 3, 1998 of 
$3.4 million will be paid out in 1999.

In 1997 the company announced the consolidation of its four U.S. homecare 
divisions into the Home Healthcare Group based in Longmont, Colorado, and a 
series of consolidations in its European operations. These actions were 
designed to reduce operating costs and improve manufacturing and marketing 
efficiencies. Pre-tax charges of $4.7 million were incurred in 1997 in 
connection with these consolidations.

Approximately $27 million in non-recurring costs were incurred during 1998 to 
complete these activities, principally to complete its factory consolidations 
and to implement related information system conversions. In addition, the 
company completed its merger with DynaVox in April 1998. Merger related 
expenses incurred were approximately $2 million. Of the total charges of $29 
million incurred in 1998, approximately $23 million required cash payments 
and $6 million represented non-cash charges.


                                       44
<PAGE>

6.   LEASES

The company leases office and operating facilities, machinery and equipment 
and automobiles under operating leases that expire over the next 20 years. 
Rent expense for operating leases amounted to $11,200, $10,600 and $9,800 for 
1998, 1997 and 1996, respectively.

Minimum lease payments under operating leases expiring subsequent to July 3, 
1998 are:

                Year Ended                             Amount
                ----------                             ------
                   1999                              $ 10,900
                   2000                                 9,300
                   2001                                 6,600
                   2002                                 5,100
                   2003                                 3,500
                                                     --------
                 Thereafter                            13,300
                                                     --------

                 Total minimum lease payments        $ 48,700
                                                     --------
                                                     --------

7.   LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                       July 3,            June 27,
                                                                        1998                1997
                                                                        ----                ----
     <S>                                                             <C>                 <C>
     Borrowings under multi-currency credit agreement                $  73,970           $ 170,581
     
     Senior notes                                                      100,000                   -
     
     Unsecured subordinated notes maturing from 1998 to 2003, 
     payable in installments with interest rates from 7% to 9.1%
     (7% to 10% in 1997)                                                 9,460              13,860
     
     Unsecured European Coal and Steel Community
     job creation loan due 2002; interest at Libor +1%
     payable semiannually                                                4,148               4,161
     
     Mortgages payable in monthly installments with interest at 
     various rates from 6.65% to 9.1%, maturing from 1998
     through 2004, secured by property                                   3,134               3,473
     
     Obligations under capital leases with lease periods expiring 
     at various dates through 2005; interest at various rates from
     6.25% to 14.8%                                                      1,070               1,737
                                                                     ---------           ---------
     Total long-term debt                                              191,782             193,812
     
     Less current installments                                          (3,753)             (5,751)
                                                                     ---------           ---------
     Long-term debt, net of current installments                     $ 188,029           $ 188,061
                                                                     ---------           ---------
                                                                     ---------           ---------
</TABLE>

                                       45
<PAGE>

As of July 3, 1998, aggregate debt maturities were as follows: 1999--$3,753; 
2000--$4,880; 2001--$75,937; 2002--$4,457; 2003--$321; and 
thereafter--$102,434.

On October 28, 1997, the company completed a private placement of $100 
million of unsecured senior notes, $50 million maturing after seven years, 
bearing interest at 7.09% and the remaining $50 million maturing after ten 
years at an interest rate of 7.25%. The proceeds of this debt issuance were 
used to reduce the outstanding debt on the company's unsecured multi-currency 
credit facility. The senior notes require the company to comply with certain 
covenants such as limitations on indebtedness, liens, asset sales and the 
maintenance of net worth.

The company's unsecured multi-currency bank credit facility provides for 
maximum borrowings of $120 million, decreasing to $115 million in January 
2000. The maturity date is January 2001 and interest is at the prime rate 
plus 1.25%. The company has the option of using interbank offered rates as a 
basis for interest and can fix the interest rate on the outstanding portion 
for up to six months. A commitment fee of .20% to .50% per year, depending 
upon the company's leverage ratio, is payable on the unused portion of the 
line. The credit facility requires the company to comply with certain 
covenants such as maintenance of leverage ratio, tangible net worth, and 
interest coverage, and places certain restrictions on acquisitions and 
payments of dividends. At July 3, 1998, the amount of funds available from 
the credit facility was approximately $46 million.

8.   DERIVATIVES

The company manufactures its products in the United States and Europe, but 
generated approximately 39% of 1998 revenues from sales made outside the U.S. 
Sales generated by the company's distribution subsidiaries generally utilize 
the subsidiary's local currency, thereby exposing the company to the risk of 
foreign currency fluctuations when the subsidiary imports Sunrise 
manufactured products. Also, as the company is a net borrower, it is exposed 
to the risk of fluctuating interest rates. The company utilizes derivative 
instruments in an effort to mitigate these risks. The company's policy is not 
to speculate in derivative instruments to profit on the foreign currency 
exchange or interest rate price fluctuation, nor to enter trades for which 
there are no underlying exposures, nor enter into trades to intentionally 
increase the underlying exposure. Instruments used as hedges must be 
effective at reducing the risk associated with the exposure being hedged and 
are designated as a hedge at the inception of the contract. Accordingly, 
changes in market values of hedge instruments are highly correlated with 
changes in market values of underlying hedged items both at the inception of 
the hedge and over the life of the hedge contract.

Various foreign currency contracts are used to hedge anticipated transactions 
denominated in foreign currencies and to mitigate the impact of changes in 
foreign currency exchange rates on the company's operations. The company uses 
forward contracts to hedge transactions between its foreign subsidiaries. The 
hedge instruments mature at various dates with resulting gains or losses 
recognized at the maturity date, which approximates the transaction date. The 
notional values of forward contracts afforded hedge accounting treatment at 
July 3, 1998 was 19.1 million pounds or $31.8 million ( No such contracts 
existed at June 27, 1997.)

                                       46
<PAGE>

When the company uses foreign currency contracts and the hedged currency 
strengthens against foreign currencies, the decline in the value of future 
foreign currency cash flows is partially offset by the recognition of gains 
in the value of the foreign currency contracts designated as hedges of the 
transactions. Conversely, when the hedged currency weakens, the increase in 
the value of future foreign currency cash flows is reduced by the recognition 
of any loss in the value of the forward contracts designated as hedges. Gains 
and losses on these contracts are recognized in income in the same period 
that the underlying transactions are settled and generally offset the losses 
and gains on the underlying transactions.

SWAP AGREEMENTS The company has entered into eight interest rate swap 
agreements with U.S. money center banks in order to minimize the impact of 
interest rate fluctuations on the company's interest expense. Each swap 
agreement is denominated in the currency of the related borrowings. Under the 
terms of each agreement the company receives compensation when the 
three-month interbank offered rate of the respective currency exceeds the 
swap rate and pays compensation when it falls below the swap rate. At July 3, 
1998 the three-month interbank offered rates were: French francs--3.53%; U.S. 
dollars--5.63%; and German marks--3.53%.

The following table summarizes the company's interest rate swap agreements. 
The U.S. dollar equivalent is based on exchange rates in effect at July 3, 
1998.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------

                                   U.S.
Notional                          Dollar         Swap
Amount         Currency           Amount         Rate         Effective Period
------         --------           ------         ----         ----------------
<S>            <C>                <C>            <C>          <C>
100,000        French francs     $ 16,380        7.59%        April 1997 - April 2000
 85,000        French francs     $ 13,923        4.15%        April 1998 - April 1999
 85,000        French francs     $ 13,923        5.09%        April 1999 - April 2000
 85,000        French francs     $ 13,923        5.95%        April 2000 - April 2001
 33,000        German marks      $ 18,134        4.09%        February 1998 - February 1999
 25,000        German marks      $ 13,738        5.01%        February 1999 - February 2000
 25,000        German marks      $ 13,738        5.97%        February 2000 - February 2001
 30,000        U.S. dollars      $ 30,000        5.63%        September 1995 - September 2000
</TABLE>

The company is exposed to credit risk in the event of non-performance of the 
counterparties to its foreign currency and interest rate contracts, which the 
company believes is remote. Nevertheless, the company monitors its 
counterparty credit risk and utilizes internal policies to mitigate its risk. 
The disclosed derivatives are indicative of the volume and types of 
instruments used throughout the year.

9.   BUSINESS AND CREDIT CONCENTRATIONS

The company manufactures and distributes durable medical equipment and 
supplies primarily to the home healthcare and extended care markets. A 
significant portion of the company's receivables are due from home healthcare 
and medical equipment dealers located throughout the United States, Canada 
and Europe. Many of these product sales to dealers are ultimately funded 


                                       47
<PAGE>

through government reimbursement programs such as Medicare and Medicaid. Any 
changes in these programs could affect dealer liquidity and profitability. 
This, in turn, could put pressure on prices charged and credit terms offered 
for the company's products sold through this channel of distribution.

The company estimates an allowance for doubtful accounts based on the 
creditworthiness of its customers as well as general economic conditions.

10.  INCOME TAXES

The provision (benefit) for income taxes consists of the following:

<TABLE>
<CAPTION>
                                                                      Years Ended
                                                         -------------------------------------
                                                         July 3,       June 27,       June 28,
                                                          1998           1997           1996
                                                          ----           ----           ----
<S>                                                     <C>           <C>            <C>
    Current:
        Federal                                         $(1,470)      $    700       $ (5,740)
        State                                               118            217             23
        Foreign                                           3,097          4,463          7,486
                                                        -------       --------       --------
                                                          1,745          5,380          1,769

    Deferred:
        Federal                                           2,589          5,935        (12,060)
        State                                               (74)           533           (238)
        Foreign                                          (4,052)          (485)          (842)
                                                        -------       --------       --------
                                                         (1,537)         5,983        (13,140)
                                                        -------       --------       --------
    Total                                               $   208       $ 11,363       $(11,371)
                                                        -------       --------       --------
                                                        -------       --------       --------
</TABLE>

Foreign income taxes are based upon $(8,308), $8,768 and $16,126 of foreign 
earnings (or losses) before income taxes during 1998, 1997 and 1996, 
respectively. No U.S. income taxes have been provided for cumulative 
unrepatriated foreign earnings of approximately $57 million as the company 
has no plans or intentions to repatriate foreign earnings or liquidate the 
related foreign assets. At July 3, 1998, the company had foreign tax loss 
carryforwards of approximately $15,174, consisting of $534 which expires in 
2000 through 2001, $5,685 which expires in 2002 through 2004, and $8,955 
which does not expire.


                                       48
<PAGE>

A reconciliation between the federal statutory tax rate and the effective income
tax rate follows:

<TABLE>
<CAPTION>
                                                                      Years Ended
                                                         -------------------------------------
                                                         July 3,       June 27,       June 28,
                                                          1998           1997           1996
                                                          ----           ----           ----
<C>                                                      <C>            <C>            <C>
    Statutory federal income tax rate                    (35.0)%         35.0%         (35.0)%
    Amortization of goodwill                              15.0            6.8           10.8
    State income taxes, net of federal taxes               2.1            2.9            0.2
    Taxation of foreign operations                        18.7            4.6            2.0
    Other, net                                             1.0           (0.9)             -
                                                         -----           ----          -----
         Effective income tax rate                         1.8%          48.4%         (22.0)%
                                                         -----           ----          -----
                                                         -----           ----          -----
</TABLE>

Significant components of deferred income tax assets and liabilities are shown
below:

<TABLE>
<CAPTION>
                                                                 July 3,       June 27,
                                                                  1998           1997
                                                                  ----           ----
<S>                                                            <C>            <C>
    Deferred income tax assets:
        Allowance for doubtful accounts                        $   (730)      $  3,563
        Inventory reserves                                        4,393          4,295
        Other reserves and accrued expenses                      13,111          5,030
        Net operating losses                                      5,638          2,700
        State and local taxes                                       116         (1,545)
                                                               --------       --------
        Total deferred income tax assets                         22,528         14,043
                                                               --------       --------
    Deferred income tax liabilities:
        Depreciation and amortization and other                   9,696          7,305
                                                               --------       --------

    Net deferred income taxes                                  $ 12,832       $  6,738
                                                               --------       --------
                                                               --------       --------
</TABLE>

Management believes that realization of the tax benefit of net deferred income
tax assets is more likely than not.

11.  PROFIT SHARING/SAVINGS PLAN

The company has 401(k) profit sharing/savings plans covering most U.S. employees
("Associates"). Under the profit sharing portion of the plan, the company will
contribute to Associates' accounts a percentage of their salary for the fiscal
year ranging from 4 to 6 percent. The percentage amount is based upon attainment
of certain earnings targets by the company as a whole in the case of corporate
office Associates, or by the subsidiary where the Associate 


                                       49
<PAGE>

works. The plan is discretionary with the amounts determined by the Board of 
Directors. During 1998, 1997 and 1996, $2,534, $2,533, $2,518, respectively, 
were accrued for this plan. Under the savings feature of the plan, individual 
Associates may make contributions to the plan, which are matched by the 
company in an amount determined by the Board of Directors. During 1998, 1997 
and 1996, $655, $767 and $790, respectively, of Associate contributions were 
matched by the company.

12.  STOCKHOLDERS' EQUITY

COMMON STOCK PURCHASE RIGHTS In April 1990 the company's Board of Directors 
declared a dividend of one common share purchase right ("Right") for each 
outstanding share of common stock. Pursuant to the stockholder Rights 
Agreement as amended in May 1997, an exercisable Right will, under certain 
conditions, entitle its holder to purchase from the company one-half of one 
share of common stock at the exercise price of $60.00 per whole share, 
subject to adjustment, until May 16, 2007. The Rights will become exercisable 
ten days after a person (an "Acquiring Person") acquires 15% or more of the 
common stock, or ten days after a person announces a tender offer which would 
result in such person acquiring 15% or more of the common stock. The Rights 
may be redeemed by the Board of Directors for $.01 per Right at any time 
until ten days following the public announcement that a person has become an 
Acquiring Person. Under certain circumstances after a person becomes an 
Acquiring Person, or after a merger or other business combination involving 
the company, an exercisable Right will entitle its holder (other than the 
Acquiring Person) to purchase shares of common stock (or shares of an 
acquiring company) having a market value of two times the exercise price of 
one Right.

STOCK OPTION PLANS The 1983 Stock Option Plan as amended ("the 83 Plan") 
provided for the grant of up to 1,800,000 shares of common stock to officers, 
key Associates and outside directors in the form of incentive stock options 
or non-qualified stock options. The 83 Plan expired in August 1995.

In August 1993 the company adopted the 1993 Stock Option Plan ("the 93 Plan") 
providing for the grant of up to 4,000,000 shares of common stock to 
officers, outside directors and key Associates in the form of incentive stock 
options or non-qualified stock options. At the time of adoption, 300,000 
unissued shares of common stock were reserved for future grants under the 93 
Plan. The number of unissued shares of common stock reserved for future 
grants under the 93 Plan increases annually by a number equal to 1.5% of the 
number of shares of common stock issued and outstanding as of the last day of 
each fiscal year. The 93 Plan expires in August 2003.

As a result of the DynaVox merger in April 1998, Sunrise acquired another 
stock option plan. This stock option plan was originally adopted by DynaVox 
on March 12, 1993. The plan originally covered 100,000 shares. On April 28, 
1998, the plan was amended and restated by the Board of Directors. As a 
result the number of shares and options that were outstanding under the plan 
and options that are granted in the future will now be exercised for shares 
of Sunrise stock in the merger ratio of 2.27 to 1. The total number of 
options available for grant under this plan are 227,000.


                                       50
<PAGE>

Under all plans, the option price (exercise price) is equal to the closing 
market price on the day prior to the grant date. Options become exercisable 
in four equal annual amounts, beginning one year after the grant date. Option 
exercisability is cumulative. Unexercised options expire up to ten years and 
one day after the date of grant. As of July 3, 1998 there were 268,038 
unissued shares of common stock reserved for future grants under the 93 Plan.

Shares subject to option under both plans are summarized as follows:

<TABLE>
<CAPTION>
                                                                               Years ended
                                        ------------------------------------------------------------------------------------
                                                     July 3, 1998                June 27, 1997                 June 28, 1996
                                                     ------------                -------------                 -------------
                                                         Weighted                     Weighted                      Weighted
                                                          Average                      Average                       Average
                                                          Exercise                     Exercise                      Exercise
                                           Shares           Price      Shares            Price       Shares            Price
                                           ------           -----      ------            -----       ------            -----
<S>                                      <C>             <C>          <C>             <C>          <C>             <C>
Outstanding at beginning of year         1,665,545       $   15.48    1,465,275       $   16.23    1,342,280       $   17.37
Granted                                    504,860           13.94      440,145           12.44      346,695            6.72
Exercised                                 (166,373)           4.25      (41,850)          10.05      (27,200)           8.36
Canceled                                  (306,836)          18.38     (198,025)          18.80     (196,500)          20.90
                                         ---------       ---------    ---------       ---------    ---------       ---------
Outstanding at end of year               1,697,196       $   15.60    1,665,545       $   15.48    1,465,275       $   16.23
                                         ---------                    ---------                    ---------
                                         ---------                    ---------                    ---------

Exercisable at end of year                 917,305       $   16.13      944,074       $   14.38      789,572
                                         ---------                    ---------                    ---------
                                         ---------                    ---------                    ---------       $   13.60

Weighted average fair value of
   options granted during the year                       $    6.14                    $    6.29                    $    6.72
                                                         ---------                    ---------                    ---------
                                                         ---------                    ---------                    ---------
</TABLE>

The following table summarizes information about stock options outstanding at
July 3, 1998:

<TABLE>
<CAPTION>
                          Options Outstanding                            Options Exercisable
----------------------------------------------------------------      ---------------------------
                                         Weighted
                                          Average       Weighted                         Weighted
   Range of                              Remaining       Average                          Average
   Exercise               Number        Contractual     Exercise        Number           Exercise
    Prices               Outstanding        Life          Price       Exercisable          Price
    ------               -----------        ----          -----       -----------          -----
<S>                       <C>               <C>         <C>             <C>              <C>
$  0.70 to $12.00           241,470         4.7         $  6.74         196,995          $  5.97
$ 12.38 to $15.88           972,901         7.9         $ 14.47         298,242          $ 14.06
$ 17.25 to $21.88           275,975         4.7         $ 19.73         254,675          $ 19.90
$ 23.50 to $34.50           206,850         6.0         $ 25.78         167,393          $ 26.03
                          ---------         ---         -------         -------          -------
                          1,697,196         6.7         $ 15.60         917,305          $ 16.13
                          ---------                                     -------
                          ---------                                     -------
</TABLE>

The company applies APB 25 and related interpretations in accounting for grants
to employees under its stock option plans. Because the exercise price of the
options equals the market price of the underlying stock on the date of grant, no
compensation cost has been recognized in the company's financial statements. Pro
forma disclosures assuming compensation cost had been 


                                       51
<PAGE>

determined based on the fair value of stock options at the grant dates 
consistent with the method of SFAS 123 are as follows:

<TABLE>
<CAPTION>
                                                              1998           1997        1996
                                                              ----           ----        ----
<S>                                <C>                       <C>           <C>         <C>
  Net income (loss)                As reported               $(12,010)     $ 12,114    $(40,378)
                                   Pro forma                 $(13,594)     $ 11,232    $(40,805)
  Earnings (loss) per share        As reported               $  (0.55)     $   0.55    $  (1.89)
                                   Pro forma                 $  (0.62)     $   0.51    $  (1.91)
</TABLE>

The fair value of options granted has been estimated using the Black-Scholes 
option-pricing model with the following weighted-average assumptions for 
grants in 1998, 1997 and 1996, respectively: expected volatility of 43% for 
1998 and 1997 and 46% for 1996 (based on daily closing stock prices for the 
preceding four years); risk-free interest rates of 5.5%, 6.4% and 6.7% 
respectively; expected lives of 4.8 years; and no dividend yield. For 
purposes of the pro forma disclosures, the estimated fair value of the 
options has been amortized to expense over the vesting period of the options. 
Because SFAS 123 is applicable only to options granted subsequent to June 28, 
1995, the pro forma effect will not be fully reflected until 1999.

13.  NET INCOME (LOSS) PER SHARE

In accordance with SFAS 128, the following is a reconciliation of the 
numerators and denominators of the basic and diluted EPS computations.

<TABLE>
<CAPTION>
                                      Income          Shares      Per-Share
                                    (Numerator)    (Denominator)    Amount
                                    -----------    -------------    ------
<S>                                   <C>            <C>           <C>
Basic 1998 EPS
Net (loss)                            $(12,010)        22,001      $  (0.55)
Effect of dilutive stock options            --             --            --
                                      --------         ------      --------
Diluted EPS (1)                       $(12,010)        22,001      $  (0.55)
                                      --------         ------      --------
                                      --------         ------      --------

Basic 1997 EPS
Net income                            $ 12,114         21,656      $   0.56
Effect of dilutive stock options            --            277         (0.01)
                                      --------         ------      --------
Diluted EPS                           $ 12,114         21,933      $   0.55
                                      --------         ------      --------
                                      --------         ------      --------

Basic 1996 EPS
Net (loss)                            $(40,378)        21,391      $  (1.89)
Effect of dilutive stock options            --             --            --
                                      --------         ------      --------

Diluted EPS (1)                       $(40,378)        21,391      $  (1.89)
                                      --------         ------      --------
                                      --------         ------      --------
</TABLE>

(1)  The company was in a net loss position in 1998 and 1996, and under
     generally accepted accounting principles, 275,000 and 249,000 common share
     equivalents were not used to compute diluted loss per share, as the effect
     was antidilutive.


                                       52
<PAGE>

14.  GEOGRAPHIC SEGMENT INFORMATION

Selected geographic information is summarized as follows:

<TABLE>
<CAPTION>
                                                       Years Ended
                                          --------------------------------------
                                          July 3,        June 27,       June 28,
                                           1998           1997           1996
                                           ----           ----           ----
<S>                                     <C>             <C>            <C>
Net sales:
  United States                         $ 404,749       $ 402,154      $ 420,648
  Europe                                  252,420         268,391        254,769
                                        ---------       ---------      ---------
        Total                           $ 657,169       $ 670,545      $ 675,417
                                        ---------       ---------      ---------
                                        ---------       ---------      ---------

Corporate operating (loss) income:
  United States                         $  (7,576)      $  13,201      $ (59,512)
  Europe                                    1,741          21,278         22,350
                                        ---------       ---------      ---------
         Total                             (5,835)         34,479        (37,162)
                                        ---------       ---------      ---------

Interest expense                           15,222          14,774         16,687
Interest income                             3,659           3,372          2,878
Other income and expense, net               5,596             400           (778)
                                        ---------       ---------      ---------
Loss (income) before income taxes       $ (11,802)      $  23,477      $ (51,749)
                                        ---------       ---------      ---------
                                        ---------       ---------      ---------

Identifiable assets at end of year
     United States                      $ 301,408       $ 276,632      $ 311,673
     Europe                               314,897         339,099        312,905
                                        ---------       ---------      ---------
           Total                        $ 616,305       $ 615,731      $ 624,578
                                        ---------       ---------      ---------
                                        ---------       ---------      ---------
</TABLE>

Amounts reported for United States include results from subsidiaries in 
Canada and Australia. Eliminated from net sales shown above for 1998, 1997 
and 1996 were $6,168, $4,261 and $1,270, respectively, of sales by European 
subsidiaries to North American subsidiaries, and $14,679, $17,496 and $18,146 
of sales, respectively, by North American subsidiaries to European 
subsidiaries. Sales between geographic locations are based upon manufacturing 
costs plus a reasonable profit element.


15.  LITIGATION

The company is a party to various legal proceedings arising in the ordinary 
course of business. Management does not believe that the outcome of any of 
these actions will have a material adverse effect upon the financial position 
or results of operations of the company.

The Securities and Exchange Commission ("SEC") has entered a formal order of 
private investigation into the circumstances underlying the restatement of 
the company's 1995 and 1994 financial statements. The company is cooperating 
fully with the SEC in its investigation.


                                       53
<PAGE>

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(in thousands, except per share data)

<TABLE>
<CAPTION>
                               First          Second         Third          Fourth             Fiscal
                              Quarter         Quarter       Quarter         Quarter             Year
                              -------         -------       -------         -------             ----
1998
<S>                          <C>            <C>            <C>             <C>                <C>
Net sales                    $ 155,032      $ 169,089      $ 164,415       $ 168,633          $ 657,169
Gross profit                    50,959         53,127         52,313          49,139            205,538
Re-engineering expenses
and merger costs                 4,635          7,043          5,307          12,031             29,016
Net (loss) income                  869            928            (98)        (13,709)(1)        (12,010)
(Loss) income per share
(Basic)                      $    0.04      $    0.04      $    0.00       $   (0.62)(1)      $   (0.55)
(Loss) income per share
(Diluted)                    $    0.04      $    0.04      $    0.00       $   (0.62)(1)      $   (0.55)

1997

Net sales                    $ 169,388      $ 173,450      $ 161,192       $ 166,515          $ 670,545
Gross profit                    57,069         57,037         52,557          56,076            222,739
Net income                       3,574          2,952          1,291           4,297             12,114
Income per share
(Basic)                      $    0.17      $    0.14      $    0.06       $    0.20          $    0.56
Income per share
(Diluted)                    $    0.16      $    0.14      $    0.06       $    0.19          $    0.55

</TABLE>

(1) Included in the company's results for the fourth quarter was an 
additional tax expense of $5.5 million to adjust the company's year-to-date 
effective tax rate to 1.8% from 65.7% at the end of the third quarter.

                                       54
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information regarding the directors of the company will be included under the 
caption "Election of Directors" in the company's Definitive Proxy Statement 
for its Annual Meeting of Stockholders to be held on November 20, 1998 and is 
incorporated herein by reference. Information regarding the executive 
officers of the company is included under a separate caption in Part I 
hereof, and is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

Certain information regarding executive compensation will be set forth under 
the caption "Compensation of Executive Officers" in the company's Definitive 
Proxy Statement for its Annual Meeting of Stockholders to be held on November 
20, 1998 and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information regarding security ownership will be set forth under the caption 
"Security Ownership of Certain Beneficial Owners and Management" in the 
company's Definitive Proxy Statement for its Annual Meeting of Stockholders 
to be held on November 20, 1998 and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information regarding related transactions will be set forth under the 
caption "Certain Transactions" in the company's Definitive Proxy Statement 
for its Annual Meeting of Stockholders to be held on November 20, 1998 and is 
incorporated herein by reference.

                                          55
<PAGE>

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)  INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
     (1)  FINANCIAL STATEMENTS:                                                        PAGE
                                                                                       ----
     <S>                                                                               <C>
     Report of Management                                                                32

     Independent Auditors' Report                                                        33

     Consolidated Balance Sheets as of July 3, 1998 and June 27, 1997                    34

     Consolidated Statements of Operations for the years ended July 3, 1998,
     June 27, 1997 and June 28, 1996                                                     35

     Consolidated Statements of Cash Flows for the years ended July 3, 1998,
     June 27, 1997 and June 28, 1996                                                     36

     Consolidated Statements of Stockholders' Equity for the years ended July
     3, 1998, June 27, 1997 and June 28, 1996                                            37

     Notes to Consolidated Financial Statements                                          38

     (2)  FINANCIAL STATEMENT SCHEDULES:

     Schedule II -- Valuation and Qualifying Accounts for the years ended
     July 3, 1998, June 27, 1997 and June 28, 1996                                       57

</TABLE>

     All other financial statement schedules have been omitted because they
     are not required or are not applicable, or the information is otherwise
     included.

(b)  REPORTS ON FORM 8-K

     A report on Form 8-K dated April 13, 1998, was filed in connection the
     company's acquisition of Sentient Systems Inc.

(c)  EXHIBITS

     Reference is made to the Index of Exhibits immediately preceding the
     exhibits hereto, which index is incorporated herein by reference.


                                       56
<PAGE>

                                                                     SCHEDULE II

                      SUNRISE MEDICAL INC. AND SUBSIDIARIES

                        VALUATION AND QUALIFYING ACCOUNTS

                    Fiscal Years Ended July 3, 1998, June 27,
                           1997 and June 28, 1996 (in
                                   thousands)

<TABLE>
<CAPTION>
                                                    Additions
                                             ------------------------
                               Balance at    Charged to    Charged to                  Balance at
                                beginning     costs and       other                        end
Description                     of period     expenses      accounts     Deductions     of period
-----------                     ---------     --------      --------     ----------     ---------
<S>                             <C>           <C>          <C>           <C>            <C>
1996
----
Allowance for doubtful
    receivables                  $5,904         9,421         167 (1)     (3,969)(2)     $11,523
Reserve for installment
    receivables                  $  954           980            1(1)      ( 179)(2)     $ 1,756
Reserve for inventory
    obsolescence                 $7,474         8,683        1,249(1)     (3,742)(3)     $13,664

1997
----
Allowance for doubtful
    receivables                 $11,523         1,954      (3,302)(1)     (5,100)(2)    $  5,075
Reserve for installment
    receivables                 $ 1,756         1,586          125(1)     (1,233)(2)    $  2,234
Reserve for inventory
    obsolescence                $13,664         4,598      (1,033)(1)     (3,486)(3)     $13,743

1998
----
Allowance for doubtful
    receivables                 $ 5,075         5,342         (52)(1)    (2,210) (2)     $ 8,155
Reserve for installment
    receivables                 $ 2,234           898               0    (1,448) (2)     $ 1,684
Reserve for inventory
    obsolescence                $13,743         3,106             514    (2,384) (3)     $14,979
</TABLE>

(1)  Represents foreign currency translation adjustment, amounts recorded on
     books of acquired subsidiaries at dates of acquisition, and reserves
     related to businesses sold.
(2)  Includes write-off of uncollectible accounts. 
(3)  Disposition of items previously reserved.


                                       57
<PAGE>

                                   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.


                                                 SUNRISE MEDICAL INC.

                                                 By:    
                                                    -------------------------
                                                    Senior vice president and
                                                    chief financial officer

Date: September ____, 1998

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 indicated on September ____, 1998.

        SIGNATURE                                    TITLE

----------------------                Chairman, president and chief executive 
  Richard H. Chandler                 officer (principal executive officer)

----------------------                Senior vice president and chief financial 
  Ted N. Tarbet                       officer (principal financial officer)

----------------------                Vice president and controller
  John M. Radak                       (principal accounting officer)

----------------------                Director
  J. R. Woodhull

----------------------                Director
  Joseph Stemler

----------------------                Director
  Lee A. Ault III

----------------------                Director
  Michael Hammes

----------------------                Director
  Murray H. Hutchison

----------------------                Director
  William L. Pierpoint


                                       58
<PAGE>

                                INDEX OF EXHIBITS

Exhibit
Number                                       Description
------                                       -----------

  3.1    Certificate of Incorporation of the company and amendments
         thereto. (a)

  3.2    Amendment to Certificate of Incorporation of the company as set
         forth under the caption "Article III - Liability of Director to
         the Corporation." (b)

  3.3    Bylaws of the company. (a)

  3.4    Amendment to Article II, Section 2, of the company's Bylaws. (c)

  3.5    Amendment to Certificate of Incorporation of the company as to the
         number of authorized shares. (d)

  3.6    Amendment of Bylaws to increase the number of directors to eight.
         (c)

  3.7    Amendment of Bylaws to increase the number of directors to nine.
         (f)

  3.8    Amendment of Bylaws to reduce the number of directors to eight.
         (g)

  3.9    Amended and Restated Bylaws as of April 29, 1997. (r)

  4.1    Shareholders' Rights Agreement dated April 24, 1990. (h)

  4.2    Amended and Restated Shareholders' Rights Agreement dated May 16,
         1997. (q)

  10.6   Amended and Restated Stock Option Plan for Key Associates. (i)

  10.7   1993 Stock Option Plan. (j)

  10.8   Management Incentive Bonus Plan. (a)

  10.9   Special Bonus Plan. (a)

  10.10  Agreement for the Purchase of Certain Stock of Homecare Holdings,
         Inc. dated as of June 29, 1993 among Sunrise Medical Inc.,
         Homecare Holdings, Inc., and the selling shareholders listed
         therein. (l)

  10.11  Asset Purchase Agreement for the Purchase of Certain Assets of Jay
         Medical, Ltd. (m)

  10.12  Agreement for the Purchase of Shares of S.E.P.A.C., Corona S.A.,
         Tecktona Bois S.A., Tecktona Sante S.A., and Sci La Planche by
         Homecare Holdings France S.A. (n)


                                       59
<PAGE>

INDEX OF EXHIBITS--CONTINUED

Number                               Description
------                               -----------

  10.13  Second Amended and Restated Credit Agreement dated as of September
         29, 1995 among Sunrise Medical Inc. and certain subsidiary
         borrowers and guarantors, Bank of America as agent and other
         lenders. (o)

  10.14  First Amendment to Second Amended and Restated Credit Agreement
         and Waiver dated as of May 2, 1996 among Sunrise Medical Inc. and
         certain subsidiary borrowers and guarantors, Bank of America as
         agent and other lenders. (g)

  10.15  Second Amendment to Second Amended and Restated Credit Agreement
         and Waiver dated as of August 22, 1996 among Sunrise Medical Inc.
         and certain subsidiary borrowers and guarantors, Bank of America
         as agent and other lenders.(p)

  10.16  Form of Change in Control Agreements dated June 27, 1997 between
         Sunrise Medical Inc. and certain employees. (r)

  10.17  Third Amended and Restated Credit Agreement and Waiver dated as of 
         August 28, 1997 among Sunrise Medical Inc. and certain subsidiary 
         borrowers and guarantors, Bank of America as agent and other 
         lenders. (s)

  10.18  Note Purchase Agreement dated as of October 1, 1997 for $50 million 
         7.09% Series A Senior Notes Due October 28, 2004 and for $50 million 
         7.25% Series B Senior Notes Due October 28, 2007. (s)

  10.19  1998 Management Incentive Bonus Plan.

  10.20  Amended and Restated Sentient/Sunrise Stock Option Plan.

  10.21  Supplemental Executive Retirement Plan.

  21     List of Subsidiaries.

  23     Consent of Independent Auditors.

  27     1998 Financial Data Schedule.

  27.1   1997 Financial Data Schedule.

  27.2   1996 Financial Data Schedule.

  27.3   1st, 2nd and 3rd Quarter 1998 Financial Data Schedule.

  27.4   1st, 2nd and 3rd Quarter 1997 Financial Data Schedule.
---------------------------

(a)  Incorporated herein by reference to the company's Registration Statement
     No. 2-86314.
(b)  Incorporated herein by reference to the company's 1987 Definitive Proxy
     Statement.
(c)  Incorporated herein by reference to the company's Form 10-Q for the quarter
     ended December 28, 1990.
(d)  Incorporated herein by reference to the company's Form 10-Q for the quarter
     ended January 1, 1993.
(e)  Incorporated herein by reference to the company's Form 10-Q for the quarter
     ended December 31, 1993.
(f)  Incorporated herein by reference to the company's Form 10-K for the fiscal
     year ended July 1, 1994.
(g)  Incorporated herein by reference to the company's Form 10-Q for the quarter
     ended March 29, 1996.
(h)  Incorporated herein by reference to the company's Form 10-Q for the quarter
     ended March 30, 1990.
(i)  Incorporated herein by reference to the company's 1990 Definitive Proxy
     Statement.
(j)  Incorporated herein by reference to the company's 1993 Definitive Proxy
     Statement. 
(k)  Incorporated herein by reference to the company's Form 10-K
     for the fiscal year ended July 3, 1992.
(l)  Incorporated herein by reference to the company's Form 8-K dated June 29,
     1993.
(m)  Incorporated herein by reference to the company's Form 8-K dated September
     16, 1994. 
(n)  Incorporated herein by reference to the company's Form 8-K
     dated April 7, 1995. 
(o)  Incorporated herein by reference to the company's
     Form 10-K/A for the fiscal year ended June 30, 1995.
(p)  Incorporated herein by reference to the company's Form 10-K for the year
     ended June 28, 1996.
(q)  Incorporated herein by reference to the company's Form 8-K dated May 16,
     1997.
(r)  Incorporated herein by reference to the company's Form 10-K for the year 
     ended June 27, 1997.
(s)  Incorporated herein by reference to the company's Form 10-Q dated 
     November 10, 1997.

                                       60