##### Table of Contents



FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549

Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934

For Quarter Ended: June 30, 2003

Commission file number: 1-12214

CHAD THERAPEUTICS, INC.

---

(Exact name of registrant as specified in its charter)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|California                                                     |  | 95-3792700                          
|(State of other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification No.)
|                                                              
|21622 Plummer Street, Chatsworth, CA 91311                    
|                                                              
|(Address of principal executive offices)                       |  | (Zip Code)                          

(818) 882-0883

---

(Registrants telephone number, including area code)




---

(Former Address)


(Former name, former address and former fiscal year, if changed since last
report.)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X... No....

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act. Yes .... NoX...

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date:

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





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TABLE OF CONTENTS



|                                                                                      |                                          |  |  |  |  |  |  | 
|------------------------------------------------------------------------------------- | ---------------------------------------- |  |  |  |  |  |  | 
|Condensed Balance Sheets                                                             
|Condensed Statements of Operations                                                   
|Condensed Statement of Shareholders Equity                                          
|Condensed Statements of Cash Flows                                                   
|Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                                                      | Item 4. Controls and Procedures         
|PART II                                                                              
|                                                                                      | Item 6. Exhibits and Reports on Form 8-K
|SIGNATURES                                                                           
|EXHIBIT 31.1                                                                         
|EXHIBIT 31.2                                                                         
|EXHIBIT 32                                                                           



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CHAD THERAPEUTICS, INC.
Condensed Balance Sheets
June 30, 2003 and March 31, 2003
(Unaudited)

ASSETS

|                                     |                                                                                                                      |                                            |           |             |            |  |           |             |            |  | 
|------------------------------------ | -------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | --------- | ----------- | ---------- |  | --------- | ----------- | ---------- |  | 
|                                     |                                                                                                                      |                                            |           |             | June 30,   |  | March 31,
|                                     |                                                                                                                      |                                            |           |             | 2003       |  | 2003     
|                                     |                                                                                                                      |                                            |           |             |            |  |          
|Current Assets:                      |                                                                                                                      |                                            |           |             |            |  |           |            
|                                     | Cash                                                                                                                 |                                            | $         | 1,431,000   |            |  | $         | 1,596,000   |           
|                                     | Accounts receivable, less allowance for
doubtful accounts of $80,000 at
June 30, 2003 and $112,000 at
March 31, 2003 |                                            |           | 2,946,000   |            |  |           | 2,517,000   |           
|                                     | Income taxes refundable                                                                                              |                                            |           | 4,000       |            |  |           | 4,000       |           
|                                     | Inventories (Note 2)                                                                                                 |                                            |           | 5,802,000   |            |  |           | 5,511,000   |           
|                                     | Prepaid expenses                                                                                                     |                                            |           | 455,000     |            |  |           | 601,000     |           
|                                     |                                                                                                                      |                                            |           |             |            |  |           |            
|                                     |                                                                                                                      | Total current assets                       |           |             | 10,638,000 |  |           |             | 10,229,000 | 
|Property and equipment, at cost      |                                                                                                                      |                                            | 6,298,000 |             |            |  | 6,215,000 |            
|                                     | Less accumulated depreciation                                                                                        |                                            |           | 5,140,000   |            |  |           | 4,979,000   |           
|                                     |                                                                                                                      |                                            |           |             |            |  |           |            
|                                     |                                                                                                                      | Net property and equipment                 |           |             | 1,158,000  |  |           |             | 1,236,000  | 
|                                     |                                                                                                                      |                                            |           |             |            |  |           |            
|Other assets, net                    |                                                                                                                      |                                            | 735,000   |             |            |  | 640,000   |            
|                                     |                                                                                                                      |                                            |           |             |            |  |           |            
|                                     |                                                                                                                      | Total assets                               |           | $           | 12,531,000 |  |           | $           | 12,105,000 | 
|                                     |                                                                                                                      |                                            |           |             |            |  |           |            
|LIABILITIES AND SHAREHOLDERS EQUITY
|Current liabilities:                 |                                                                                                                      |                                            |           |             |            |  |           |            
|                                     | Accounts payable                                                                                                     |                                            | $         | 801,000     |            |  | $         | 741,000     |           
|                                     | Accrued expenses                                                                                                     |                                            |           | 1,397,000   |            |  |           | 1,263,000   |           
|                                     | Income taxes payable                                                                                                 |                                            |           | 9,000       |            |  |           | 1,000       |           
|                                     |                                                                                                                      |                                            |           |             |            |  |           |            
|                                     |                                                                                                                      | Total current liabilities                  |           |             | 2,207,000  |  |           |             | 2,005,000  | 
|                                     |                                                                                                                      |                                            |           |             |            |  |           |            
|Shareholders equity:                |                                                                                                                      |                                            |           |             |            |  |           |            
|                                     | Common shares, $.01 par value, authorized
40,000,000 shares; 10,076,000 and 10,076,000
shares issued and outstanding |                                            |           | 13,257,000  |            |  |           | 13,257,000  |           
|                                     | Accumulated deficit                                                                                                  |                                            |           | (2,933,000) |            |  |           | (3,157,000) |           
|                                     |                                                                                                                      |                                            |           |             |            |  |           |            
|                                     |                                                                                                                      | Total shareholders equity                 |           |             | 10,324,000 |  |           |             | 10,100,000 | 
|                                     |                                                                                                                      |                                            |           |             |            |  |           |            
|                                     |                                                                                                                      | Total liabilities and shareholders equity |           | $           | 12,531,000 |  |           | $           | 12,105,000 | 
|                                     |                                                                                                                      |                                            |           |             |            |  |           |            

See accompanying notes to condensed financial statements.





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CHAD THERAPEUTICS, INC.
Condensed Statements of Operations
For the three months ended June 30, 2003 and 2002
(Unaudited)

|                    |                                     |                              |                              |           |                    |            |           |           |         |            | 
|------------------- | ----------------------------------- | ---------------------------- | ---------------------------- | --------- | ------------------ | ---------- | --------- | --------- | ------- | ---------- | 
|                    |                                     |                              |                              |           | Three Months Ended
|                    |                                     |                              |                              |           | June 30,          
|                    |                                     |                              |                              |           |                   
|                    |                                     |                              |                              |           | 2003               |            | 2002     
|                    |                                     |                              |                              |           |                    |            |          
|Net sales           |                                     | $                            | 5,669,000                    |           |                    | $          | 5,022,000 |          
|Cost of sales       |                                     |                              | 3,151,000                    |           |                    |            | 2,882,000 |          
|                    |                                     |                              |                              |           |                    |            |           |          
|                    |                                     |                              | Gross profit                 |           |                    | 2,518,000  |           |           |         | 2,140,000  | 
|Costs and expenses: |                                     |                              |                              |           |                    |            |           |          
|                    | Selling, general and administrative |                              |                              | 1,965,000 |                    |            |           | 1,700,000 |        
|                    | Research and development            |                              |                              | 323,000   |                    |            |           | 263,000   |        
|                    |                                     |                              |                              |           |                    |            |           |          
|                    |                                     |                              | Total costs and expenses     |           |                    | 2,288,000  |           |           |         | 1,963,000  | 
|                    |                                     |                              |                              |           |                    |            |           |          
|                    |                                     |                              | Operating income             |           |                    | 230,000    |           |           |         | 177,000    | 
|                    | Other income  interest income, net |                              |                              | 5,000     |                    |            |           | 4,000     |        
|                    |                                     |                              |                              |           |                    |            |           |          
|                    |                                     |                              | Earnings before income taxes |           |                    | 235,000    |           |           |         | 181,000    | 
|Income tax expense  |                                     |                              | 11,000                       |           |                    |            | 3,000     |          
|                    |                                     |                              |                              |           |                    |            |           |          
|                    |                                     | Net earnings                 |                              | $         | 224,000            |            |           | $         | 178,000 |           
|                    |                                     |                              |                              |           |                    |            |           |          
|                    |                                     | Basic earnings per share     |                              | $         | .02                |            |           | $         | .02     |           
|                    |                                     |                              |                              |           |                    |            |           |          
|                    |                                     | Diluted earnings per share   |                              | $         | .02                |            |           | $         | .02     |           
|                    |                                     |                              |                              |           |                    |            |           |          
|                    |                                     | Weighted shares outstanding: |                              |           |                    |            |           |           |         |           
|                    |                                     |                              | Basic                        |           |                    | 10,076,000 |           |           |         | 10,068,000 | 
|                    |                                     |                              | Diluted                      |           |                    | 10,276,000 |           |           |         | 10,429,000 | 
|                    |                                     |                              |                              |           |                    |            |           |          

See accompanying notes to condensed financial statements.





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CHAD THERAPEUTICS, INC.
Condensed Statement of Shareholders Equity
For the three months ended June 30, 2003
(Unaudited)

|                          |  |        |            |               |  |         |            |             |  |   |            |  
|------------------------- |  | ------ | ---------- | ------------- |  | ------- | ---------- | ----------- |  | - | ---------- | -
|                          |  |        |            | Common Shares |  |         |            | Accumulated
|                          |  | Shares |            | Amount        |  | Deficit
|                          |  |        |            |               |  |        
|Balance at
March 31, 2003 |  |        | 10,076,000 |               |  | $       | 13,257,000 |             |  | $ | (3,157,000 | )
|Net earnings              |  |        |           |               |  |         |           |             |  |   | 224,000    |  
|                          |  |        |            |               |  |         |            |             |  |   |            |  
|Balance at
June 30, 2003  |  |        | 10,076,000 |               |  | $       | 13,257,000 |             |  | $ | (2,933,000 | )
|                          |  |        |            |               |  |         |            |             |  |   |            |  

See accompanying notes to condensed financial statements.





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##### Table of Contents






CHAD THERAPEUTICS, INC.
Condensed Statements of Cash Flows
For the three months ended June 30, 2003 and 2002
(Unaudited)

|                                      |                                                                                               |                                                         |                                             |                                                     |         |                    |         |   |  |   |         |         |         |          |         |  
|------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------------- | ------------------------------------------- | --------------------------------------------------- | ------- | ------------------ | ------- | - |  | - | ------- | ------- | ------- | -------- | ------- | -
|                                      |                                                                                               |                                                         |                                             |                                                     |         | Three Months Ended
|                                      |                                                                                               |                                                         |                                             |                                                     |         | June 30,          
|                                      |                                                                                               |                                                         |                                             |                                                     |         |                   
|                                      |                                                                                               |                                                         |                                             |                                                     |         | 2003               |         |   |  |   | 2002   
|                                      |                                                                                               |                                                         |                                             |                                                     |         |                    |         |   |  |   |        
|Cash flows from operating activities: |                                                                                               |                                                         |                                             |                                                     |         |                    |         |   |  |   |         |        
|                                      | Net earnings                                                                                  |                                                         | $                                           | 224,000                                             |         |                    |         |   |  |   | $       | 178,000 |        
|                                      | Adjustments to reconcile net earnings to
net cash provided by (used in) operating activities: |                                                         |                                             |                                                     |         |                    |         |   |  |   |         |         |        
|                                      |                                                                                               | Depreciation and amortization of property and
equipment |                                             |                                                     | 161,000 |                    |         |   |  |   |         |         | 169,000 |         
|                                      |                                                                                               | Amortization of intangibles                             |                                             |                                                     |        |                    |         |   |  |   |         |         | 27,000  |         
|                                      |                                                                                               | Changes in assets and liabilities:                      |                                             |                                                     |         |                    |         |   |  |   |         |         |         |         
|                                      |                                                                                               |                                                         | Decrease (increase) in accounts receivable  |                                                     |         | (429,000           | )       |   |  |   |         |         |         | (286,000 | )      
|                                      |                                                                                               |                                                         | Decrease (increase) in inventories          |                                                     |         | (291,000           | )       |   |  |   |         |         |         | (225,000 | )      
|                                      |                                                                                               |                                                         | Decrease (increase) in prepaid expenses     |                                                     |         | 146,000            |         |   |  |   |         |         |         | (8,000   | )      
|                                      |                                                                                               |                                                         | Decrease (increase) in other assets         |                                                     |         | (95,000            | )       |   |  |   |         |         |         | 13,000   |        
|                                      |                                                                                               |                                                         | Increase (decrease) in accounts payable     |                                                     |         | 60,000             |         |   |  |   |         |         |         | 38,000   |        
|                                      |                                                                                               |                                                         | Increase (decrease) in accrued expenses     |                                                     |         | 134,000            |         |   |  |   |         |         |         | 176,000  |        
|                                      |                                                                                               |                                                         | Increase (decrease) in income taxes payable |                                                     |         | 8,000              |         |   |  |   |         |         |         | 3,000    |        
|                                      |                                                                                               |                                                         |                                             |                                                     |         |                    |         |   |  |   |         |        
|                                      |                                                                                               |                                                         |                                             | Net cash provided by (used in)
operating activities |         |                    | (82,000 | ) |  |   |         |         |         |          | 85,000  |  
|Cash flows from investing activities: |                                                                                               |                                                         |                                             |                                                     |         |                    |         |   |  |   |         |        
|                                      |                                                                                               | Capital expenditures                                    |                                             |                                                     | (83,000 | )                  |         |   |  |   |         |         | (65,000 | )       
|                                      |                                                                                               |                                                         |                                             |                                                     |         |                    |         |   |  |   |         |        
|                                      |                                                                                               |                                                         |                                             | Net cash used in investing activities               |         |                    | (83,000 | ) |  |   |         |         |         |          | (65,000 | )
|                                      |                                                                                               |                                                         |                                             |                                                     |         |                    |         |   |  |   |         |        
|Cash flows from financing activities: |                                                                                               |                                                         |                                             |                                                     |         |                    |         |   |  |   |         |        
|                                      |                                                                                               | Exercise of stock options                               |                                             |                                                     |        |                    |         |   |  |   |         |         | 9,000   |         
|                                      |                                                                                               |                                                         |                                             |                                                     |         |                    |         |   |  |   |         |        
|                                      |                                                                                               |                                                         |                                             | Net cash provided by financing activities           |         |                    |        |   |  |   |         |         |         |          | 9,000   |  
|                                      |                                                                                               |                                                         |                                             |                                                     |         |                    |         |   |  |   |         |        
|Net increase (decrease) in cash       |                                                                                               |                                                         | (165,000                                    | )                                                   |         |                    |         |   |  |   | 29,000  |        
|Cash beginning of period              |                                                                                               |                                                         | 1,596,000                                   |                                                     |         |                    |         |   |  |   | 520,000 |        
|                                      |                                                                                               |                                                         |                                             |                                                     |         |                    |         |   |  |   |         |        
|Cash end of period                    |                                                                                               | $                                                       | 1,431,000                                   |                                                     |         |                    |         |   |  | $ | 549,000 |        
|                                      |                                                                                               |                                                         |                                             |                                                     |         |                    |         |   |  |   |         |        



See accompanying notes to condensed financial statements.





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##### Table of Contents



CHAD THERAPEUTICS, INC.
June 30, 2003
(Unaudited)



|1. |  | Interim Reporting                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Chad Therapeutics, Inc. (the Company) is in the business of developing,
producing and marketing respiratory care devices designed to improve the
efficiency of oxygen delivery systems for home health care and hospital
treatment of patients suffering from pulmonary diseases.                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | In the opinion of management, all adjustments necessary, which are of a
normal and recurring nature, for a fair presentation of the results for the
interim periods presented have been made. The results for the three-month
period ended June 30, 2003, are not necessarily indicative of the results
expected for the year ended March 31, 2004. The interim statements are
condensed and do not include some of the information necessary for a more
complete understanding of the financial data. Accordingly, your attention
is directed to the footnote disclosures found in the March 31, 2003, Annual
Report and particularly to Note 1 which includes a summary of significant
accounting policies.
|  
|2. |  | Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   |  | Inventories in 2003, are summarized as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

|                |  |         |           |          |  |   |           | 
|--------------- |  | ------- | --------- | -------- |  | - | --------- | 
|                |  | June 30 |           | March 31
|                |  |         |           |         
|Finished goods  |  | $       | 1,185,000 |          |  | $ | 1,245,000 | 
|Work-in-process |  |         | 1,327,000 |          |  |   | 1,382,000 | 
|Raw materials   |  |         | 3,290,000 |          |  |   | 2,884,000 | 
|                |  |         |           |          |  |   |           | 
|                |  | $       | 5,802,000 |          |  |   | 5,511,000 | 
|                |  |         |           |          |  |   |           | 



|3. |  | Earnings Per Common Share                                                                                                                
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Following is a reconciliation of the numerators and denominators used in the
calculation of basic and diluted earnings per common shares:

|                                                       |                                            |   |                    |            |      |   |            |            | 
|------------------------------------------------------ | ------------------------------------------ | - | ------------------ | ---------- | ---- | - | ---------- | ---------- | 
|                                                       |                                            |   | Three Months Ended
|                                                       |                                            |   | June 30,          
|                                                       |                                            |   |                   
|                                                       |                                            |   | 2003               |            | 2002
|Basic earnings per share:                              |                                            |   |                    |            |      |   |            |           
|Numerator-net earnings                                 |                                            | $ | 224,000            |            |      | $ | 178,000    |           
|Denominator-weighted average
common shares outstanding |                                            |   | 10,076,000         |            |      |   | 10,068,000 |           
|                                                       |                                            |   |                    |            |      |   |            |           
|Basic earnings per share                               |                                            | $ | .02                |            |      | $ | .02        |           
|                                                       |                                            |   |                    |            |      |   |            |           
|Diluted earnings per share:                            |                                            |   |                    |            |      |   |            |           
|Numerator-net earnings                                 |                                            | $ | 224,000            |            |      | $ | 178,000    |           
|Denominator:                                           |                                            |   |                    |            |      |   |            |           
|                                                       | Weighted average common
shares outstanding |   |                    | 10,076,000 |      |   |            | 10,068,000 | 
|                                                       | Dilutive effect of common
stock options    |   |                    | 178,000    |      |   |            | 361,000    | 
|                                                       |                                            |   |                    |            |      |   |            |           
|                                                       |                                            |   | 10,254,000         |            |      |   | 10,429,000 |           
|                                                       |                                            |   |                    |            |      |   |            |           
|Diluted earnings per share                             |                                            | $ | .02                |            |      | $ | .02        |           
|                                                       |                                            |   |                    |            |      |   |            |           





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CHAD THERAPEUTICS, INC.
June 30, 2003
(Unaudited)



|3. |  | Earnings Per Common Share (contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Options to purchase 551,000 shares of common stock at prices ranging from
$1.69 to $13.47 per share and 466,000 shares of common stock at prices
ranging from $3.35 to $13.47 per share were not included in the computation
of diluted earnings per share for the three month periods ended June 30,
2003 and 2002, respectively, because their effect would have been
anti-dilutive.                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|4. |  | Income Tax Expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   |  | Income tax expense for the three month period ended June 30, 2003, relates
primarily to state income taxes which are provided for at an effective rate
of 4.5%. The Company has federal and California net operating loss
carryforwards of $111,000 and $2,405,000, respectively, against which a full
valuation allowance has been recorded. In September, 2002, the state of
California enacted legislation that suspends the utilization of net
operating loss carryforwards during tax years starting 2002 and 2003,
effective retroactively back to January 1, 2002. As a result, the Company
will be unable to use its California net operating loss carryforwards until
the tax year beginning April 1, 2004. The Company also has manufacturing
tax credit carryforwards of $46,000 available to offset future California
taxable income.
|  
|5. |  | Geographic Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | The Company has one reportable operating segment. Geographic information
regarding the Companys sales is as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

|                    |  |                    |           |      |  |   |           | 
|------------------- |  | ------------------ | --------- | ---- |  | - | --------- | 
|                    |  | Three Months Ended
|                    |  | June 30,          
|                    |  |                   
|                    |  | 2003               |           | 2002
|                    |  |                    |           |     
|United States       |  | $                  | 5,416,000 |      |  | $ | 4,791,000 | 
|Canada              |  |                    | 95,000    |      |  |   | 78,000    | 
|Germany             |  |                    | 41,000    |      |  |   | 13,000    | 
|Japan               |  |                    | 38,000    |      |  |   | 51,000    | 
|All other countries |  |                    | 79,000    |      |  |   | 89,000    | 
|                    |  |                    |           |      |  |   |           | 
|                    |  | $                  | 5,669,000 |      |  | $ | 5,022,000 | 



|   |  | All long-lived assets are located in the United States.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Sales of OXYMATIC® and CYPRESS OXYPneumatic conservers accounted for 77% and
73% of the Companys sales for the three month periods ended June 30, 2003
and 2002, respectively.                                                                                                                                                                                                                                                                                                                                                                                
|  
|6. |  | Stock Option Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |  | The company accounts for its stock option plan in accordance with the
provisions of Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. The Company has
also adopted the pro forma disclosure provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation, which permits entities to provide pro forma net income and pro
forma net earnings per share disclosures as if the fair-value-based method
defined in SFAS 123 had been applied.





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##### Table of Contents



CHAD THERAPEUTICS, INC.
June 30, 2003
(Unaudited)



| |  | The Company applies Account Principles Board Opinion No. 25 in accounting
for the Plan and no compensation expense has been recognized for its stock
options in the accompanying financial statements. The following table
illustrates the effect on net earnings (loss) and earnings (loss) per share
if the Company had applied the fair value recognition provision of FASB
Statement No. 123, Accounting for Stock Based Compensation, to stock-based
employee compensation:
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                                                            |                       |   |                    |      |      |   |         |      | 
|------------------------------------------------------------------------------------------------------------------------------------------- | --------------------- | - | ------------------ | ---- | ---- | - | ------- | ---- | 
|                                                                                                                                            |                       |   | Three Months Ended
|                                                                                                                                            |                       |   | June 30,          
|                                                                                                                                            |                       |   | 2003               |      | 2002
|                                                                                                                                            |                       |   |                    |      |     
|Net earnings (loss), as reported                                                                                                            |                       | $ | 224,000            |      |      | $ | 178,000 |     
|Deduct: Total stock based employee compensation
expense determined under fair value-based method
for all awards, net of related tax effects |                       |   | 29,000             |      |      |   | 35,000  |     
|                                                                                                                                            |                       |   |                    |      |      |   |         |     
|Pro forma net income (loss)                                                                                                                 |                       | $ | 195,000            |      |      | $ | 143,000 |     
|Earnings (loss) per share:                                                                                                                  |                       |   |                    |      |      |   |         |     
|                                                                                                                                            | Basic  as reported   |   |                    | 0.02 |      |   |         | 0.02 | 
|                                                                                                                                            | Basic  pro forma     |   |                    | 0.02 |      |   |         | 0.01 | 
|                                                                                                                                            | Diluted  as reported |   |                    | 0.02 |      |   |         | 0.02 | 
|                                                                                                                                            | Diluted  pro forma   |   |                    | 0.02 |      |   |         | 0.01 | 





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##### Table of Contents






CHAD THERAPEUTICS, INC.

Managements Discussion and Analysis of
Financial Condition and Results of Operations

June 30, 2003

Overview

The Company develops, assembles and markets medical devices that furnish
supplementary oxygen to home health care patients. The Company was a pioneer
in developing oxygen conserving devices that enhance the quality of life for
patients by increasing their mobility and, at the same time, lower operating
costs by achieving significant savings in the amount of oxygen actually
required to properly oxygenate patients. The market for oxygen conserving
devices has been and continues to be significantly affected by increased
competition, consolidation among home oxygen dealers and revisions (and
proposed revisions) in governmental reimbursement policies. All of these
factors, as described more fully below, have contributed to a more competitive
market for the Companys products, as devices that were less expensive but
which provided lower oxygen savings (or, in some cases, did not truly provide
ambulatory oxygen) have achieved some level of success.

The current procedures for reimbursement by Medicare for home oxygen services
provide a prospective flat fee monthly payment based solely on the patients
prescribed oxygen requirement. Under this system, inexpensive concentrators
have grown in popularity because of low cost and less frequent servicing
requirements. At the same time, oxygen conserving devices, such as the
Companys products, have also grown in popularity due to their ability to
extend the life of oxygen supplies and reduce service calls by dealers, thereby
providing improved mobility for the patient and cost savings for dealers.

In addition, other changes in the health care delivery system, including the
increase in the acceptance and utilization of managed care, have stimulated a
significant consolidation among home oxygen dealers. Major national and
regional home medical equipment chains have continued to expand their
distribution networks through the acquisition of independent dealers in
strategic areas. Margins on sales to national chains are generally lower due to
quantity pricing. Four major national chains accounted for approximately 51%
and 49% of the Companys net sales for the three month periods ended June 30,
2003 and 2002, respectively. One chain accounted for 25% of sales in both of
the three month periods ended June 30, 2003 and 2002, and one chain accounted
for 15% and 14% of sales in the three month periods ended June 30, 2003 and
2002, respectively.

The Company believes that price competition, continuing industry consolidation
and competitive products with features not found in the Companys products
prior to the introduction of the OM-400 series conservers discussed below
adversely affected sales during the three years ending March 31, 2001. To
combat the erosion in sales of the oxygen conserver product line, the Company
developed and introduced several new products in this area. The first of
these, the OXYMATIC 401 conserver, received 501(k) clearance from the Food and
Drug Administration in June 2000, and shipments of the new product began in
July 2000. The second, the OXYMATIC 411 conserver was cleared in December 2000
and shipments began in January 2001. The third, the OXYMATIC 401A and 411A
conservers, received clearance in March 2001 with shipments beginning that
month. The SEQUOIA OXYMATIC 300 series conservers began shipping in December
2001 and the Company began shipment of the CYPRESS OXYPneumatic conserver in
July 2002. Management believes the features and improvements in these products
have enabled the Company to regain some of the market share lost in the
conserver market prior to 2001 and reestablish the Company as a leader in the
conserver market. No estimate can currently be made regarding the level of
success the Company may achieve with these new lines of conservers. For
information that may affect the forward- looking statements made in this
paragraph about new conservers, see Outlook: Issues and Risks  New Products.
Table of Contents

CHAD THERAPEUTICS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations

June 30, 2003

In 1998 the Company introduced the TOTAL O2 system, which provides stationary
oxygen for patients at home, portable oxygen, including an oxygen conserving
device for ambulatory use, and a safe and efficient mechanism for filling
portable oxygen cylinders in the home. This provides home care dealers with a
means to reduce their monthly cost of servicing patients while at the same time
providing a higher quality of service by maximizing ambulatory capability. The
Company received clearance in November 1997, to sell this product from the Food
and Drug Administration. Initial sales of the TOTAL O2 system were adversely
affected by several factors, including the overall home oxygen market climate
as well as start-up manufacturing and related supplier quality issues. The
Company has taken a number of steps to resolve the manufacturing and supplier
issues and now believes the success of this product will be dependent on the
healthcare communitys acceptance of this technology and willingness to
substitute a higher capital acquisition cost for lower operating costs. While
the Company will continue its efforts to promote this product, based on current
sales levels, the Company wrote off the unamortized license fees related to the
TOTAL O2 system in March 2003. For information that may affect the outcome of
forward-looking statements made in this paragraph about the TOTAL O2 systems,
see Outlook: Issues and Risks  New Products.

As discussed above, during the past two years, the Company has recovered
substantial market share in the conserver market and is using that platform to
spearhead its growth strategy for the future, which includes the following:



| |  | Development of additional oxygen conserver models, such as the CYPRESS
OXYPneumatic conserver introduced in July, 2002, that diversify the
product line in order to offer customers a range of oxygen
conservation choices;                                                                                                                                                                                            
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | A continued promotional and educational campaign with respect to the
benefits of the TOTAL O2 system, coupled with an ongoing emphasis on
improving the performance of component suppliers; and                                                                                                                                                                                                                        
| 
| |  | An effort to expand the Companys product lines and improve existing
products through the investment in and development of new
technologies, such as the proprietary sensor technology and control
software licensed in January of 2003. These new technologies will
provide the Company with an opportunity to expand its oxygen conserver
products lines and potentially enter the high-growth sleep disorder
market.

While the turnaround measures of the past two years have had a positive impact
and management believes the current growth strategy should continue to enhance
the Companys competitive position and future operating performance, no
assurances can be given that these objectives will be achieved. Management of
the Company will continually monitor the success of these efforts and will
attempt to remain flexible in order to adjust to possible future changes in the
market for respiratory care devices.

Results of Operations

Three months ended June 2003 compared to three months ended June 2002

Sales for the three month period ended June 30, 2003, increased by $647,000
(12.9%) compared to the three month period ended June 30, 2002. The Company
has experienced a significant increase in sales of its conservers, primarily as
a result of the introduction of the OXYMATIC 400 series conservers and the
CYPRESS OXYPneumatic conserver. Domestic unit sales of conservers for the
three months ended June 30, 2003, increased 29.2% over the prior year, while
the increase in domestic revenues from conserver sales was 20.6%. This resulted
from price
Table of Contents

CHAD THERAPEUTICS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations

June 30, 2003

reductions, the impact of national chain contract pricing (see above) and the
generally lower pricing for pneumatic conservers in the marketplace.

On July 31, 2002, a national chain accounting for less than 10% of sales in
2003 filed a Plan of Reorganization under Chapter 11 of the United States
Bankruptcy Code (the Plan). The Bankruptcy Court has approved the plan and
payments to the unsecured creditors commenced on July 1, 2003. The secured
creditors have appealed the Bankruptcy Courts decision approving the plan. No
assurance can be given that all of the payments will be made as proposed under
the Plan. As of June 30, 2003, this chain was indebted to the Company for
approximately $245,000, and in July 2003 the Company received payments of
$39,000 against the debt. In addition, it is too early to determine what
impact, if any, this reorganization proceeding will have on future sales by the
Company to this chain.

Sales to foreign distributors represented 4.4% and 4.6% of total sales for the
three months ended June 30, 2003 and 2002, respectively. Management expects an
increase in sales to foreign distributors during the upcoming twelve months,
however, quarter-to-quarter sales may fluctuate depending on the timing of
shipments. All foreign sales are denominated in US dollars, except Canada.

Cost of sales as a percent of net sales decreased from 57.4% to 55.6% for the
three months ended June 30, 2003 as compared to the same period in the prior
year. This was the result of increased sales volume and the change in the
product mix, as the TOTAL O2 system has a lower gross profit margin than
conservers.

Selling, general and administrative expenditures were $1,965,000 (34.7% of
sales) for the three months ended June 30, 2003, an increase from $1,700,000
(33.9% of sales) for the three months ended June 30, 2002.

The Companys cost reduction efforts over the past two years have helped align
staffing and operating expenses more closely with current sales expectations,
but were offset to some extent by commissions paid to the Companys field sales
force of manufacturers representatives. Research and development expenses
increased by $60,000 for the three months ended June 30, 2003 as compared to
the same period in the prior year. Currently, management expects research and
development expenditures to total approximately $1,430,000 in the fiscal year
ending March 31, 2004, on projects to enhance and expand the Companys product
line. Interest income increased $1,000 for the period ended June 30, 2003 as
compared to the prior year due to the increase in cash balance in the current
year.

At June 30, 2003, the Company had fully utilized its net operating loss
carrybacks and had approximately $111,000 and $2,405,000 in Federal and
California net operating loss carryforwards, respectively. As a result of
valuation allowances placed on the net operating loss carryforwards and
deferred tax assets, these net operating loss carryforwards and deferred tax
assets will be available to offset future income tax expense when and if the
Company generates additional taxable income. In September of 2002, the state
of California enacted legislation that suspends the utilization of net
operating loss carryforwards during tax years starting 2002 and 2003 effective
retroactively back to January 1, 2002. As a result, the Company will be unable
to use its California net operating loss carryforwards until the tax year
beginning April 1, 2004. The Company has manufacturing tax credit
carryforwards of $46,000 available to offset future California taxable income.





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##### Table of Contents



CHAD THERAPEUTICS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations

June 30, 2003

Financial Condition

At June 30, 2003, the Company had cash totaling $1,431,000 or 11.4% of total
assets, as compared to $1,596,000 (13.2% of total assets) at March 31, 2003.
Net working capital increased from $8,224,000 at March 31, 2003, to $8,431,000
at June 30, 2003. Net accounts receivable increased $429,000 during the three
month period ended June 30, 2003, due to the increase in sales. For
information regarding the reorganization proceedings of one of our customers
please see the discussion in Results of Operations. Future increases or
decreases in accounts receivable will generally coincide with sales volume
fluctuations and the timing of shipments to foreign customers. During the same
period, inventories increased $291,000. The Company attempts to maintain
sufficient inventories to meet its customer needs as orders are received.
Thus, future inventory and related accounts payable levels will be impacted by
the ability of the Company to maintain its safety stock levels. If safety
stock levels drop below target amounts, then inventories in subsequent periods
will increase more rapidly as inventory balances are replenished. Currently,
inventory balances are generally near safety stock levels.

Management believes cash balances and funds derived from operations should be
adequate to meet the Companys cash requirements for the next twelve months
given the recent recovery of market share for oxygen conservers. Cash derived
from operations will depend on the ability of the Company to maintain
profitable operations and the timing of increases in receivables and
inventories. If profitable operations do not continue, the Company may need to
seek other sources of working capital but currently has no such arrangements in
place and no assurances can be given that if and when needed other sources of
working capital would be available. The Company expects capital expenditures
during the next twelve months to be approximately $600,000.

The Company has not adopted any programs that provide for post employment
retirement benefits, however, it has on occasion provided such benefits to
individual employees. The Company does not have any off balance sheet
arrangements with any special purpose entities or any other parties, does not
enter into any transactions in derivatives and has no material transactions
with any related parties.

Significant Accounting Policies

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
significantly from those estimates under different assumptions and conditions.
Management believes that the following discussion addresses the accounting
policies and estimates that are most important in the portrayal of the
Companys financial condition and results.

Allowance for doubtful accounts  the Company provides a reserve against
receivables for estimated losses that may result from our customers inability
to pay. The amount of the reserve is based on an analysis of known
uncollectible accounts, aged receivables, historical losses and
credit-worthiness. Amounts later determined and specifically identified to be
uncollectable are charged or written off against this reserve. The likelihood
of material losses is dependent on general economic conditions and numerous
factors that affect individual accounts.





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CHAD THERAPEUTICS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations

June 30, 2003

Inventories  the Company provides a reserve against inventories for excess and
slow moving items. The amount of the reserve is based on an analysis of
inventory turnover for individual items in inventory. The likelihood of
material write-downs is dependent on customer demand and competitor product
offerings.

Intangible and long-lived assets  the Company assesses whether or not there
has been an impairment of intangible and long-lived assets in evaluating the
carrying value of these assets. Assets are considered impaired if the carrying
value is not recoverable over the useful life of the asset. If an asset is
considered impaired, the amount by which the carrying value exceeds the fair
value of the asset is written off. The likelihood of a material change in the
Companys reported results is dependent on each assets ability to continue to
generate income, loss of legal ownership or title to an asset and the impact of
significant negative industry or economic trends.

Deferred income taxes  the Company provides a valuation allowance to reduce
deferred tax assets to the amount expected to be realized. The likelihood of a
material change in the expected realization of these assets depends on the
Companys ability to generate future taxable income.

Outlook: Issues & Risks

This report contains forward-looking statements, which reflect the Companys
current views with respect to future events and financial performance. These
forward-looking statements are subject to certain risks and uncertainties,
which may cause actual operating results to differ materially from currently,
anticipated results. Among the factors that could cause actual results to
differ materially are the following:

Dependence Upon a Single Product Line

Although the Company currently markets a number of products, these products
comprise a single product line for patients requiring supplementary oxygen.
The Companys future performance is thus dependent upon developments affecting
this segment of the health care market and the Companys ability to remain
competitive within this market sector.

New Products

The Companys future growth in the near term will depend in significant part
upon its ability to successfully introduce new products. In recent years, the
Company has introduced the OXYMATIC 400 series, the SEQUOIA and CYPRESS
OXYPneumatic conservers, and the TOTAL O2 Delivery System; the Company is
currently developing additional new products. The success of these products
will depend upon the health care communitys perception of such products
capabilities, clinical efficacy and benefit to patients as well as obtaining
timely regulatory approval. In addition, prospective sales will be impacted by
the degree of acceptance achieved among home oxygen dealers and patients
requiring supplementary oxygen. As with any product, the Companys ability to
successfully promote the OXYMATIC 400, Sequoia and CYPRESS OXYPneumatic series
conservers, the TOTAL O2 Delivery System and other new products cannot be
determined at this time.

Consolidation of Home Care Industry

The home health care industry is undergoing significant consolidation. As a
result, the market for the Companys products is increasingly influenced by
major national chains. Four major national chains accounted for 51% of the
Companys net sales during the period ended June 30, 2003. For
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CHAD THERAPEUTICS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations

June 30, 2003

information regarding the reorganization proceedings of one of our customers
please see the discussion in Results of Operations. Future sales may be
increasingly dependent on a limited number of customers, which may have an
impact on margins due to quantity pricing.

Competition

Chads success in the early 1990s has drawn competition to vie for a share of
the home oxygen market. These new competitors include both small and very
large companies. While the Company believes the quality of its products and
its established reputation will continue to be a competitive advantage, some
competitors have successfully introduced lower priced products that do not
provide oxygen conserving capabilities comparable to the Companys products.
Most of these competitors have greater capital resources than the Company. No
assurance can be given that increased competition in the home oxygen market
will not have an adverse affect on the Companys operations.

Rapid Technological Change

The health care industry is characterized by rapid technological change. The
Companys products may become obsolete as a result of new developments. The
Companys ability to remain competitive will depend to a large extent upon its
ability to anticipate and stay abreast of new technological developments
related to oxygen therapy. The Company has limited internal research and
development capabilities. Historically, the Company has contracted with
outside parties to develop new products. Some of the Companys competitors
have substantially greater funds and facilities to pursue research and
development of new products and technologies for oxygen therapy.

Potential Changes in Administration of Health Care

A number of bills proposing to regulate, control or alter the method of
financing health care costs have been discussed and certain of such bills have
been introduced in Congress, including various proposals for competitive
bidding, and various state legislatures. Because of the uncertain state of
health care proposals, it is not meaningful at this time to predict the effect
on the Company if any of these proposals is enacted.

Approximately 80% of home oxygen patients are covered by Medicare and other
government programs. Federal law has altered the payment rates available to
providers of Medicare services in various ways during the last several years.
Congress has passed legislation, which has reduced Medicare spending. It
cannot yet be predicted how future changes in reimbursement levels will affect
the home oxygen industry and there can be no assurance that such changes will
not have an adverse effect on the Companys business.

Protection of Intellectual Property Rights

The Company pursues a policy of protecting its intellectual property rights
through a combination of patents, trademarks, trade secret laws and
confidentiality agreements. The Company considers the protection of its
proprietary rights and the patentability of its products to be significant to
the success of the Company. To the extent that the products to be marketed by
the Company do not receive patent protection, competitors may be able to
manufacture and market substantially similar products. Such competition or
claims that the Companys products infringe the patent rights of others could
have an adverse impact upon the Companys business.





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##### Table of Contents



CHAD THERAPEUTICS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations

June 30, 2003

Product Liability

The nature of the Companys business subjects it to potential legal actions
asserting that the Company is liable for damages for product liability claims.
Although the Company maintains product liability insurance in an amount which
it believes to be customary in the industry, there is no assurance that this
insurance will be sufficient to cover the costs of defense or judgments which
might be entered against the Company. The type and frequency of these claims
could have an adverse impact on the Companys results of operations and
financial position.

Availability and Reliability of Third Party Component Products

The Company tests and packages its products in its own facility. Some of its
other manufacturing processes are conducted by other firms; the Company expects
to continue using outside firms for certain manufacturing processes for the
foreseeable future and is thus dependent on the reliability and quality of
parts supplied by these firms. From time to time, the Company has experienced
problems with the reliability of components produced by third party suppliers.
The Companys agreements with its suppliers are terminable at will or by
notice. The Company believes that other suppliers would be available in the
event of termination of these arrangements. No assurance can be given,
however, that the Company will not suffer a material disruption in the supply
of parts required for its products.

Accounting Standards

Accounting standards promulgated by the Financial Accounting Standards Board
change periodically. Changes in such standards may have an impact on the
Companys future financial position.

In October 2001, the Financial Accounting Standards Board issued FASB Statement
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,which
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. While Statement No. 144 supersedes FASB Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of,it retains many of the fundamental provisions of that
Statement. The Company adopted the provisions of Statement 144 effective April
1, 2002. During 2003, the Company wrote-off the remaining unamortized balance
of an intangible license fee asset in the amount of $934,000 in accordance with
Statement No. 144.

In July 2002, the FASB issued Statement No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. This standard requires companies
to recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of the commitment to an exit or disposal plan.
This statement is effective prospectively to exit or disposal activities
initiated after December 31, 2002. We adopted SFAS 146 effective August 1,
2002, and the adoption of this standard did not have an impact on our financial
statements.

In November 2002, the FASB issued Interpretation Number 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others(FIN 45). This interpretation elaborates
on the disclosures to be made by a guarantor in its interim and annual
financial statements about its obligations under certain guarantees that it has
issued. It also clarifies that a guarantor is required to recognize, at the
inception of a guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. The disclosure requirements of FIN 45 are
effective for interim and annual periods after December 15,
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CHAD THERAPEUTICS, INC.
Managements Discussion and Analysis of
Financial Condition and Results of Operations

June 30, 2003

2002.     We adopted FIN 45 effective January 1, 2003 and the adoption of FIN 45
did not have a material impact on the Companys financial statements.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure  an amendment of FASB Statement No.
123.SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based
Compensation,to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosure requirements of
SFAS No. 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The
disclosure requirements apply to all companies for fiscal years ending after
December 15, 2002. The interim disclosure provisions are effective for
financial reports containing financial statements for interim periods beginning
after December 15, 2002. The adoption of SFAS No. 148 did not have a material
impact on the Companys financial statements.

Additional Risk Factors

Additional factors, which might affect the Companys performance, may be listed
from time to time in the reports filed by the Company with the Securities and
Exchange Commission.




Item 4. Controls and Procedures

The Company has evaluated the effectiveness of the design and operation of its
disclosure controls and procedures as of June 30, 2003 (the Evaluation Date).
Such evaluation was conducted under the supervision and with the
participation of the Companys Chief Executive Officer (CEO) and its Chief
Financial Officer (CFO). Based upon such evaluation, the Companys CEO and
CFO have concluded that, as of the Evaluation Date, the Companys disclosure
controls and procedures were effective. There have been no significant changes
in the Companys internal control over financial reporting that occurred during
the Companys most recent fiscal quarter that have materially affected, or are
reasonably likely to materially affect, the Companys internal control over
financial reporting.




PART II




Item 6. Exhibits and Reports on Form 8-K



|    |  |  |      |  |  |                                                                
|--- |  |  | ---- |  |  | ---------------------------------------------------------------
|(a) |  |  | 31.1 |  |  | Certification pursuant to Section 302 of Sarbanes-Oxley for CEO
|(b) |  |  | 31.2 |  |  | Certification pursuant to Section 302 of Sarbanes-Oxley for CFO
|(c) |  |  | 32   |  |  | Certification pursuant to 18 U.S.C. Section 1350               

Reports on Form 8-K:

Item 9. Press release regarding write off of intangible asset filed April
22, 2003

Item 9. Press release regarding year-end operating results filed May 23,
2003





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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|              |  |  |  |                                                               
|------------- |  |  |  | --------------------------------------------------------------
|              |  |  |  | CHAD THERAPEUTICS, INC.                                       
|              |  |  |  |                                                               
|              |  |  |  | (Registrant)                                                  
|             
|Date 08/08/03 |  |  |  | /S/ Thomas E. Jones                                           
|              |  |  |  |                                                               
|              |  |  |  | Thomas E. Jones                                               
|              |  |  |  | Chairman and Chief Executive Officer                          
|             
|Date 08/08/03 |  |  |  | /S/ Earl L. Yager                                             
|              |  |  |  |                                                               
|              |  |  |  | Earl L. Yager
President, Chief Financial Officer and
Secretary