10-K 1 0001.txt FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year June 30, 2000 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 Number 0-19266 _______________________________ ALLIED HEALTHCARE PRODUCTS, INC. [EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER] DELAWARE 25-1370721 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 1720 SUBLETTE AVENUE ST. LOUIS, MISSOURI 63110 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (314) 771-2400 ____________________________ SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Name of each exchange Title of each class on which registered None SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock Preferred Stock Preferred Stock Purchase Rights (Title of class) _______________________ Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes. X No. Indicate by check mark if 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. As of September 22, 2000, the aggregate market value of the voting stock held by non-affiliates (4,216,641 shares) of the Registrant was $12,122,843 (based on the closing price, on such date, of $2.875 per share). As of September 22, 2000, there were 7,806,682 shares of common stock, $0.01 par value (the "Common Stock"), outstanding. DOCUMENTS INCORPORATED BY REFERENCE Proxy Statement dated October 2, 2000 (portion) (Part III) ALLIED HEALTHCARE PRODUCTS, INC. INDEX TO FORM 10-K Page ---- PART I Item 1. Business . . . . . . . . . . . . . . . . . . . . . . 1 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . 9 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . 10 Item 4. Submission of Matters to a Vote of Security Holders 10 PART II Item 5. Market for Registrant's Common Stock and Related 10 Stockholder Matters Item 6. Selected Financial Data . . . . . . . . . . . . . . . 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . 12 Item 8. Financial Statements and Supplementary Data . . . . 23 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . 41 PART III Item 10. Directors and Executive Officers of the Registrant . 42 Item 11. Executive Compensation . . . . . . . . . . . . . . . 42 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . 42 Item 13. Certain Relationships and Related Transactions 42 PART IV Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . 42 PART I ITEM 1. BUSINESS GENERAL Allied Healthcare Products, Inc. ("Allied" or the "Company") manufactures a variety of respiratory products used in the health care industry in a wide range of hospital and alternate site settings, including sub-acute care facilities, home health care and emergency medical care. The Company's product lines include respiratory care products, medical gas equipment and emergency medical products. The Company believes that it maintains significant market shares in selected product lines. The Company's products are marketed under well-recognized and respected brand names to hospitals, hospital equipment dealers, hospital construction contractors, home health care dealers, emergency medical products dealers and others. Allied's product lines include: RESPIRATORY CARE PRODUCTS - respiratory care/anesthesia products - home respiratory care products MEDICAL GAS EQUIPMENT - medical gas system construction products - medical gas system regulation devices - disposable oxygen and specialty gas cylinders - portable suction equipment EMERGENCY MEDICAL PRODUCTS - respiratory/resuscitation products - trauma and patient handling products SIGNIFICANT EVENTS The following list includes significant events that are further discussed in the Management Discussion and Analysis (MDA) section and in the Consolidated Financial Statements in this Form 10-K: - July 1999 resignation of President, Chief Executive Officer and Director, Uma Nandan Aggarwal and subsequent announcement of his successor in August 1999, Earl R. Refsland as President, Chief Executive Officer and Director of the Company. - A work stoppage initiated by District No. 9 of the International Association of Machinists and Aerospace Workers at the Company's St. Louis manufacturing location coincident with the expiration of the labor contract at midnight on May 31, 2000. - On June 2, 2000 the Company announced that it expected to be able to ship products during a work stoppage initiated by District No. 9 of the International Association of Machinists and Aerospace Workers. - On July 31, 2000 the Company announced that it reached a new three year agreement with District No. 9 of the International Association of Machinists and Aerospace Workers. - On August 23, 2000 the Company announced the appointment of Gregory C. Kowert as Vice President Finance, Chief Financial Officer and Secretary. The Company also announced that Thomas A. Jenuleson had resigned as Vice President Finance, Chief Financial Officer and Secretary. The Company's principal executive offices are located at 1720 Sublette Avenue, St. Louis, Missouri 63110, and its telephone number is (314) 771-2400. 1 MARKETS AND PRODUCTS In fiscal 2000, respiratory care products, medical gas equipment and emergency medical products represented approximately 29%, 54% and 17%, respectively, of the Company's net sales. The Company operates in a single industry segment and its principal products are described in the following table:

PRINCIPAL PRODUCT DESCRIPTION BRAND NAMES PRIMARY USERS =============================== ======================================= ============== =================== RESPIRATORY CARE PRODUCTS Respiratory Care/Anesthesia Large volume compressors; ventilator Timeter Hospitals and sub- Products calibrators; humidifiers and mist tents acute facilities Home Respiratory Care O2 cylinders; pressure regulators; Timeter; B&F; Patients at home Products nebulizers; portable large volume Schuco compressors; portable suction equipment and disposable respiratory products MEDICAL GAS EQUIPMENT Construction Products In-wall medical gas system Chemetron; Hospitals and sub- components; central suction pumps Oxequip acute facilities and compressors and headwalls Regulation Devices Flowmeters; vacuum regulators; Chemetron; Hospitals and sub- pressure regulators and related Oxequip; acute facilities products Timeter Disposable Cylinders Disposable oxygen and gas cylinders Lif-O-Gen First aid providers and specialty gas distributors Suction Equipment Portable suction equipment and Gomco; Allied; Hospitals; sub- disposable suction canisters Schuco acute facilities and home care products EMERGENCY MEDICAL PRODUCTS Respiratory/Resuscitation Demand resuscitation valves; bag LSP; Omni- Emergency service mask resuscitators; emergency Tech providers transport ventilators and oxygen regulators Trauma and Patient Handling Spine immobilization products; LSP Emergency service Products pneumatic anti-shock garments and providers trauma burn kits

2 RESPIRATORY CARE PRODUCTS MARKET. Respiratory care products are used in the treatment of acute and chronic respiratory disorders such as asthma, emphysema, bronchitis and pneumonia. Respiratory care products are used in both hospitals and alternate care settings. Sales of respiratory care products are made through distribution channels focusing on hospitals and other sub-acute facilities. Sales of home respiratory care products are made through durable medical equipment dealers through telemarketing, independent sales representatives, and by contract sales with national chains. RESPIRATORY CARE/ANESTHESIA PRODUCTS. The Company manufactures and sells a broad range of products for use in respiratory care and anesthesia delivery. These products include large volume air compressors, calibration equipment, humidifiers, croup tents, equipment dryers, CO2 absorbent and a complete line of respiratory disposable products such as oxygen tubing, face masks, cannulas and ventilator circuits. HOME RESPIRATORY CARE PRODUCTS. Home respiratory care products represent one of Allied's potential growth areas. Allied's broad line of home respiratory care products include aluminum oxygen cylinders, oxygen regulators, pneumatic nebulizers, portable suction equipment and the full line of respiratory disposable products. MEDICAL GAS EQUIPMENT MARKET. The market for the medical gas equipment consists of hospitals, alternate care settings and surgery centers. The medical gas equipment group is broken down into three separate categories: construction products, regulation devices and suction equipment, and disposable cylinders. CONSTRUCTION PRODUCTS. Allied's medical gas system construction products consist of in-wall medical system components, central station pumps and compressors, and headwalls. These products are typically installed during construction or renovation of a health care facility and are built in as an integral part of the facility's physical plant. Typically, the contractor for the facility's construction or renovation purchases medical gas system components from manufacturers and ensures that the design specifications of the health care facility are met. Allied's in-wall components, including outlets, manifolds, alarms, ceiling columns and zone valves, serve a fundamental role in medical gas delivery systems. Central station pumps and compressors are individually engineered systems consisting of compressors, reservoirs, valves and controls designed to drive a hospital's medical gas and suction systems. Each system is designed specifically for a given hospital or facility, which purchases pumps and compressors from suppliers. The Company's sales of pumps and compressors are driven, in large part, by its share of the in-wall components market. The Company's construction products are sold primarily to hospitals, alternate care settings and hospital construction contractors. The Company believes that it holds a major share of the U.S. market for its construction products, that these products are installed in more than three thousand hospitals in the United States and that its installed base of equipment in this market will continue to generate follow-on sales. The Company believes that most hospitals and sub-acute care facility construction spending is for expansion or renovation of existing facilities. Many hospital systems and individual hospitals undertake major renovations to upgrade their operations to improve the quality of care they provide, reduce costs and attract patients and personnel. REGULATION DEVICES AND SUCTION EQUIPMENT. The Company's medical gas system regulation products include flowmeters, vacuum regulators and pressure regulators, as well as related adapters, fittings and hoses which measure, regulate, monitor and help transfer medical gases from walled piping or equipment to patients in hospital rooms, operating theaters or intensive care areas. The Company's leadership position in the in-wall components market provides a competitive advantage in marketing medical gas system regulation devices that are compatible with those components. 3 Portable suction equipment is typically used when in-wall suction is not available or when medical protocol specifically requires portable suction. The Company also manufactures disposable suction canisters, which are clear containers used to collect the fluids suctioned by in-wall or portable suction systems. The containers have volume calibrations which allow the medical practitioner to measure the volume of fluids suctioned. The market for regulation devices and suction equipment is hospital and sub-acute care facilities. Sales of these products are made through the same distribution channel as our respiratory care products. The Company believes that it holds a significant share of the U.S. market in both regulation devices and suction equipment. DISPOSABLE CYLINDERS. Disposable oxygen cylinders are designed to provide oxygen for short periods of time in emergency situations. Since they are not subjected to the same pressurization as standard containers, they are much lighter and less expensive than standard gas cylinders. The Company markets filled disposable oxygen cylinders through industrial safety distributors and similar customers, principally to first aid providers, restaurants, industrial plants and other customers that require oxygen for infrequent emergencies. EMERGENCY MEDICAL PRODUCTS MARKET. Emergency medical products are used in the treatment of trauma-induced injuries. The Company's emergency medical products provide patients resuscitation or ventilation during cardiopulmonary resuscitation or respiratory distress as well as immobilization and treatment for burns. The Company believes that the trauma care venue for health care services is positioned for growth in light of the continuing trend towards providing health care outside the traditional hospital setting. The Company also expects that other countries will develop trauma care systems in the future, although no assurance can be given that such systems will develop or that they will have a favorable impact on the Company. Sales of emergency medical products are made through specialized emergency medical products distributors to ambulance companies, fire departments and emergency medical systems volunteer organizations. The emergency medical products are broken down into two account groups: respiratory/resuscitator products and trauma patient handling products. RESPIRATORY/RESUSCITATION PRODUCTS. The Company's respiratory/resuscitation products include demand resuscitation valves, portable resuscitation systems, bag masks and related products, emergency transport ventilators, precision oxygen regulators, minilators, multilators and humidifiers. Demand resuscitation valves are designed to provide 100% oxygen to breathing or non-breathing patients. In an emergency situation, they can be used with a mask or tracheotomy tubes and operate from a standard regulated oxygen system. The Company's portable resuscitation systems provide fast, simple and effective means of ventilating a non-breathing patient during cardiopulmonary resuscitation and 100% oxygen to breathing patients on demand with minimal inspiratory effort. The Company also markets a full line of disposable and reusable bag mask resuscitators, which are available in a variety of adult and child-size configurations. Disposable mouth-to-mask resuscitation systems have the added advantage of reducing the risk of transmission of communicable diseases. The Company's autovent transport ventilator can meet a variety of needs in different applications ranging from typical emergency medical situations to more sophisticated air and ground transport. Each autovent is accompanied by a patient valve which provides effective ventilation during cardiopulmonary resuscitation or respiratory distress. When administration of oxygen is required at the scene of a disaster, in military field hospitals or in a multiple-victim incident, Allied's minilators and multilators are capable of providing oxygen to one or a large number of patients. 4 To complement the family of respiratory/resuscitation products, the Company offers a full line of oxygen products accessories. This line of accessory products includes reusable aspirators, tru-fit masks, disposable cuffed masks and related accessories. TRAUMA AND PATIENT HANDLING PRODUCTS. The Company's trauma and patient handling products include spine immobilization products, pneumatic anti-shock garments and trauma burn kits. Spine immobilization products include a backboard that is designed for safe immobilization of injury victims and provides a durable and cost effective means of emergency patient transportation and extrication. The infant/pediatric immobilization board is durable and scaled for children. The half back extractor/rescue vest is useful for both suspected cervical/spinal injuries and for mountain and air rescues. The Company's pneumatic anti-shock garments are used to treat victims experiencing hypovolemic shock. Allied's trauma burn kits contain a comprehensive line of products for the treatment of trauma and burns. SALES AND MARKETING Allied sells its products primarily to respiratory care/anesthesia product distributors, hospital construction contractors, emergency medical equipment dealers and directly to hospitals. The Company maintains a sales force of 37 sales professionals, all of whom are full-time employees of the Company. The sales force includes 25 medical gas specialists, 5 emergency specialists and 7 international sales representatives. In addition, a director of corporate and national accounts is responsible for pursuing business with large national group purchasing organizations, large homecare national chains and OEM sales. Five product managers are responsible for the marketing activities of these product lines. The 25 medical gas specialists are responsible for sales of all Allied products with the exception of emergency products within their territory. Sales of products are accomplished through respiratory care/anesthesia distributors for the regulation devices, suction equipment, respiratory care/anesthesia products and disposable cylinders. The homecare products are sold primarily through our own in house telemarketing and manufacturers representative groups across the country. Construction products are sold direct to hospital construction contractors and through distributors. Emergency medical specialists are responsible for sales of respiratory/resuscitation products, trauma and patient handling products. These products are principally sold to ambulance companies, fire departments and emergency medical systems volunteer organizations through specialized emergency medical products distributors. The Company's director of national accounts is responsible for marketing Allied's products to national hospital groups, managed care organizations and other health care providers, and to national chains of durable medical equipment suppliers through sales efforts at the executive level. Generally, the national account representatives secure a commitment from the purchaser to buy a specified quantity of Allied's products over a defined time period at a discounted price based on volume. INTERNATIONAL Allied's international business represents a potential growth area that the Company has been pursuing. Allied's net sales to foreign markets totaled 19% of the Company's net sales in fiscal 2000. International sales are made through a network of doctors, agents and U.S. exporters who distribute the Company's products throughout the world. Allied has market presence in Canada, Mexico, Central and South America, Europe, the Middle East and the Far East. MANUFACTURING Allied's manufacturing processes include fabrication, electro-mechanical assembly operations and plastics manufacturing. A significant part of Allied's manufacturing operations involves electro-mechanical assembly of proprietary products and the Company is vertically integrated in most elements of metal machining and fabrication. Most of Allied's hourly employees are involved in machining, metal fabrication, plastics manufacturing and product assembly. 5 Allied manufactures small metal components from bar stock in a machine shop which includes automatic screw machines, horizontal lathes and drill presses and five computer controlled machining centers. The Company makes larger metal components from sheet metal using computerized punch presses, brake presses and shears. In its plastics manufacturing processes, the Company utilizes both extrusion and injection molding. The Company believes that its production facilities and equipment are in good condition and sufficient to meet planned increases in volume over the next few years and that conditions in local labor markets should permit the implementation of additional shifts and days operated. In August 1998, Allied announced the closing of its Toledo, Ohio facility and subsequent consolidation of the production of its B&F disposable product line into the St. Louis facility. This move was completed during the second quarter of fiscal 1999. See further discussion of the closure of the Toledo operation in the following MDA section of this Form 10-K. RESEARCH AND DEVELOPMENT Allied's research and development group is responsible for the development of new products. This group is staffed with mechanical and electrical engineers. During the 2000 fiscal year this group was split off from the product support group to allow the group to focus on the introduction of new products. During fiscal 2000 the Company released several new products as a result of research and development programs. These products include a new portable Gomco suction pump that utilizes a rotary vacuum pump to provide high vacuum and flow levels. A cost reduced Oxygen timer was released which will allow Allied to compete more effectively in the marketplace. A smaller version of the Vacutron suction regulator was also released for sale. The group also engaged in several research projects, which have led to patent applications. GOVERNMENT REGULATION The Company's products and its manufacturing activities are subject to extensive and rigorous government regulation by federal and state authorities in the United States and other countries. In the United States, medical devices for human use are subject to comprehensive review by the United States Food and Drug Administration (the "FDA"). The Federal Food, Drug, and Cosmetic Act ("FDC Act"), and other federal statutes and regulations, govern or influence the research, testing, manufacture, safety, labeling, storage, record keeping, approval, advertising and promotion of such products. Noncompliance with applicable requirements can result in warning letters, fines, recall or seizure of products, injunction, refusal to permit products to be imported into or exported out of the United States, refusal of the government to clear or approve marketing applications or to allow the Company to enter into government supply contracts, or withdrawal of previously approved marketing applications and criminal prosecution. The Company is required to file a premarket notification in the form of a premarket approval ("PMA") with the FDA before it begins marketing a new medical device that offers new technology that is currently not on the market. The Company also must file a premarket notification in the form of a 510(k) with the FDA before it begins marketing a new medical device that utilizes existing technology for devices that are currently on the market. The 510(k)-submission process is also required when the Company makes a change or modifies an existing device in a manner that could significantly affect the device's safety or effectiveness. Compliance with the regulatory approval process in order to market a new or modified medical device can be uncertain, lengthy and, in some cases, expensive. There can be no assurance that necessary regulatory approvals will be obtained on a timely basis, or at all. Delays in receipt or failure to receive such approvals, the loss of previously received approvals, or failure to comply with existing or future regulatory requirements could have a material adverse effect on the Company's business, financial condition and results of operations. 6 The Company manufactures and distributes a broad spectrum of respiratory therapy equipment, emergency medical equipment and medical gas equipment. To date, all of the Company's FDA clearances have been obtained through the 510(k)-clearance process. These determinations are very fact specific and the FDA has stated that, initially, the manufacturer is best qualified to make these determinations, which should be based on adequate supporting data and documentation. The FDA however, may disagree with a manufacturer's determination not to file a 510(k) and require the submission of a new 510(k) notification for the changed or modified device. Where the FDA believes that the change or modification raises significant new questions of safety or effectiveness, the agency may require a manufacturer to cease distribution of the device pending clearance of a new 510(k) notification. Certain of the Company's medical devices have been changed or modified subsequent to 510(k) marketing clearance of the original device by the FDA. Certain of the Company's medical devices, which were first marketed prior to May 28, 1976, and therefore, grandfathered and exempt from the 510(k) notification process, also have been subsequently changed or modified. The Company believes that these changes or modifications do not significantly affect the device's safety or effectiveness or make a major change or modification in the device's intended uses and, accordingly, that submission of new 510(k) notification to FDA is not required. There can be no assurance, however, that FDA would agree with the Company's determinations. In addition, commercial distribution in certain foreign countries is subject to additional regulatory requirements and receipt of approvals that vary widely from country to country. The Company believes it is in compliance with regulatory requirements of the countries in which it sells its products. The Medical Device Reporting regulation requires that the Company provide information to FDA on deaths or serious injuries alleged to have been associated with the use of its devices, as well as product malfunctions that would likely cause or contribute to death or serious injury if the malfunction were to recur. The Medical Device Tracking regulation requires the Company to adopt a method of device tracking of certain devices, such as ventilators, which are life-supporting or life-sustaining devices used outside of a device user facility of which are permanently implantable devices. The regulation requires that the method adopted by the Company ensures that the tracked device can be traced from the device manufacturer to the person for whom the device is indicated (i.e., the patient). In addition, FDA prohibits a company from promoting an approved device for unapproved applications and reviews a company's labeling for accuracy. Labeling and promotional activities also are in certain instances, subject to scrutiny by the Federal Trade Commission. The Company's medical device manufacturing facilities are registered with the FDA, and have received ISO 9001 Certification for the St. Louis facility and certification per the Medical Device Directive (MDD - European) for certain products in 1998. As such, the Company will be audited by FDA, ISO, and European auditors for compliance with the Good Manufacturing Practices ("GMP"), ISO and MDD regulations for medical devices. These regulations require the Company to manufacture its products and maintain its products and documentation in a prescribed manner with respect to design, manufacturing, testing and control activities. The Company also is subject to the registration and inspection requirements of state regulatory agencies. In March through June 2000, the FDA conducted an inspection of the Company's St. Louis facility and provided a written report, known as an "FDA Form 483" or simply a "483," citing FDA observations concerning GMP compliance and quality control issues [applicable to Demand Valves, Emergency Ventilators, Circumcision Clamps, and Regulators]. The Company provided a written response to the FDA and in August 2000, the FDA issued a warning letter and requested that the Company clarify and supplement its responses to the 483 observations. The Company has submitted to the FDA a written supplemental response and is in the process of implementing actions to address the FDA concerns. The Company believes that its responses to date and its continuing attention to the matters raised by the FDA will avert any FDA action seeking to interrupt or suspend manufacturing or to require any recall or modification of products. There can be no assurance that any required FDA or other governmental approval will be granted, or, if granted, will not be withdrawn. Governmental regulation may prevent or substantially delay the marketing of the Company's proposed products and cause the Company to undertake costly procedures. In addition, the extent of potentially adverse government regulation that might arise from future administrative action or legislation cannot be predicted. Any failure to obtain, or delay in obtaining, such approvals could adversely affect the Company's ability to market its proposed products. 7 Sales of medical devices outside the United States are subject to foreign regulatory requirements that vary widely from country to country. Medical products shipped to the European Community require CE certification. Whether or not FDA approval has been obtained, approval of a device by a comparable regulatory authority of a foreign country generally must be obtained prior to the commencement of marketing in those countries. The time required to obtain such approvals may be longer or shorter than that required for FDA approval. In addition, FDA approval may be required under certain circumstances to export certain medical devices. The Company is also subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protections, fire hazard control and disposal of hazardous or potentially hazardous substances. THIRD PARTY REIMBURSEMENT The cost of a majority of medical care in the United States is funded by the U.S. Government through the Medicare and Medicaid programs and by private insurance programs, such as corporate health insurance plans. Although the Company does not receive payments for its products directly from these programs, home respiratory care providers and durable medical equipment suppliers, who are the primary customers for several of the Company's products, depend heavily on payments from Medicare, Medicaid and private insurers as a major source of revenues. In addition, sales of certain of the Company's products are affected by the extent of hospital and health care facility construction and renovation at any given time. The federal government indirectly funds a significant percentage of such construction and renovations costs through Medicare and Medicaid reimbursements. In recent years, governmentally imposed limits on reimbursement of hospitals and other health care providers have impacted spending for services, consumables and capital goods. In addition the Balanced Budget Act of 1997 reduced reimbursements by 25% for oxygen and oxygen equipment. A material decrease from current reimbursement levels or a material change in the method or basis of reimbursing health care providers is likely to adversely affect future sales of the Company's products. PATENTS, TRADEMARKS AND PROPRIETARY TECHNOLOGY The Company owns and maintains patents on several products that it believes are useful to the business and provides the Company with an advantage over its competitors. During fiscal 2000 the Company was granted one patent and applied for two new patents. The Company owns and maintains U.S. trademark registrations for Chemetron, Gomco, Oxequip, Lif-O-Gen, Life Support Products, Timeter, Vacutron and Schuco, its principal trademarks. Registrations for these trademarks are also owned and maintained in countries where such products are sold and such registrations are considered necessary to preserve the Company's proprietary rights therein. COMPETITION The Company has different competitors within each of its product lines. Many of the Company's principal competitors are larger than Allied and the Company believes that most of these competitors have greater financial and other resources than the Company. The Company competes primarily on the basis of price, quality and service. The Company believes that it is well positioned with respect to product cost, brand recognition, product reliability, and customer service to compete effectively in each of its markets. 8 EMPLOYEES At June 30, 2000, the Company had 411 full-time employees and 111 temporary full-time employees. Approximately 251 employees in the Company's principal manufacturing facility located in St. Louis, Missouri, were covered by a collective bargaining agreement that expired on May 31, 2000, and were participating in a strike that was settled on July 31, 2000. The new agreement expires May 31, 2003. Approximately 12 employees at the Company's facility in Stuyvesant Falls, New York are also covered by a collective bargaining agreement that will expire in 2001. ENVIRONMENTAL AND SAFETY REGULATION The Company is subject to federal, state and local environmental laws and regulations that impose limitations on the discharge of pollutants into the environment and establish standards for the treatment, storage and disposal of toxic and hazardous wastes. The Company is also subject to the federal Occupational Safety and Health Act and similar state statutes. From time to time the Company has been involved in environmental proceedings involving clean up of hazardous waste. There are no such material proceedings currently pending. Costs of compliance with environmental, health and safety requirements have not been material to the Company. The Company believes it is in material compliance with all applicable environmental laws and regulations. ITEM 2. PROPERTIES The Company's headquarters are located in St. Louis, Missouri and the Company maintains manufacturing facilities in Missouri and New York. Set forth below is certain information with respect to the Company's manufacturing facilities.

SQUARE FOOTAGE OWNED/ LOCATION (APPROXIMATE) LEASED ACTIVITIES/PRODUCTS -------------------------- --------------- ------ --------------------------- St. Louis, Missouri 270,000 Owned Headquarters; medical gas equipment; respiratory care products; emergency medical products Stuyvesant Falls, New York 30,000 Owned CO2 absorbent

In addition, the Company owns a 16.8-acre parcel of undeveloped land in Stuyvesant Falls, New York. As indicated elsewhere in this Form 10-K, Allied's facility in Toledo was shut down and the operations consolidated into St. Louis during the second quarter of fiscal 1999. Also as indicated in this Form 10-K, the Company's headwall division in Oakland, California was sold in May 1999. 9 ITEM 3. LEGAL PROCEEDINGS Product liability lawsuits are filed against the Company from time to time for various injuries alleged to have resulted from defects in the manufacture and/or design of the Company's products. Several such proceedings are currently pending, which are not expected to have a material adverse effect on the Company. The Company maintains comprehensive general liability insurance coverage which it believes to be adequate for the continued operation of its business, including coverage of product liability claims. In addition, from time to time the Company's products may be subject to product recalls in order to correct design or manufacturing flaws in such products. The Company has voluntarily effectuated the recall of its aluminum body regulators manufactured under the Life Supports Products, Inc. brand name in cooperation with the U.S. Food and Drug Administration ("FDA") under Product Recall No. Z-693/698-9 to conform with the industry wide recommendation to cease use of aluminum parts in oxygen regulators. The recall is complete and final review of the results thereof is presently being conducted by the FDA. In March through June 2000, the FDA conducted an inspection of the Company's St. Louis facility and provided a written report, know as an "FDA Form 483" or simply a "483," citing FDA observations concerning Good Manufacturing Practices compliance ("GMP") and quality control issues [applicable to Demand Valves, Emergency Ventilators, Circumcision Clamps, and Regulators]. The Company provided a written response to the FDA and in August 2000, the FDA issued a warning letter and requested that the Company clarify and supplement its responses to the 483 observations. The Company has submitted to the FDA a written supplemental response and is in the process of implementing actions to address the FDA concerns. The Company believes that its responses to date and its continuing attention to the matters raised by the FDA will avert any FDA action seeking to interrupt or suspend manufacturing or to require any recall or modification of products. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Allied Healthcare Products, Inc. began trading on the NASDAQ National market under the symbol AHPI on January 14, 1992, following its initial public offering. As of September 22, 2000, there were 247 record owners of the Company's Common Stock. The following tables summarize information with respect to the high and low closing prices for the Company's Common Stock as listed on the NASDAQ National market for each quarter of fiscal 2000 and 1999, respectively. The Company currently does not pay any dividend on its Common Stock. COMMON STOCK INFORMATION

2000 HIGH LOW 1999 HIGH LOW ----------------------- -------- -------- ----------------- -------- -------- September quarter $2-15/16 $1-21/32 September quarter $4-13/16 $ 1-3/4 December quarter 2-15/16 2-1/8 December quarter 3 1-1/4 March quarter 3-5/8 2-1/2 March quarter 2 1-1/4 June quarter 3-49/64 3-1/16 June quarter 2-3/8 1-9/16

10 ITEM 6. SELECTED FINANCIAL DATA

(In thousands, except per share data) Year ended June 30, 2000 1999 1998 1997 1996 ========================================================================================================= STATEMENT OF OPERATIONS DATA Net sales $64,277 $72,799 $ 96,467 $118,118 $120,123 Cost of sales 48,055 55,864 69,110 82,365 80,550 Gross profit 16,222 16,935 27,357 35,753 39,573 Selling, general and administrative expenses 16,835 18,733 23,889 33,910 31,449 Provision for restructuring and consolidation (1) -- 758 -- -- -- Provision for product recall (2) (18) 1,500 -- -- -- Gain on sale of business (3) -- (27) (12,813) -- -- Non-recurring impairment losses (4) -- -- 9,778 -- -- Income (loss) from operations (595) (4,029) 6,503 1,843 8,124 Interest expense 1,664 1,926 4,152 7,606 4,474 Other, net 149 36 198 186 350 Income (loss) before provision (benefit) for income taxes and extraordinary loss (2,408) (5,991) 2,153 (5,949) 3,300 Provision (benefit) for income taxes (5) (695) (1,873) 9,019 (1,428) 1,473 Income (loss) before extraordinary loss (1,713) (4,118) (6,866) (4,521) 1,827 Extraordinary loss on early extinguishment of debt, Net of income tax benefit -- -- 530 -- -- Net income (loss) $(1,713) $(4,118) $ (7,396) $ (4,521) $ 1,827 Basic and diluted earnings (loss) per share (6) $ (0.22) $ (0.53) $ (0.95) $ (0.58) $ 0.25 Weighted average common shares outstanding 7,807 7,807 7,805 7,797 7,378 (In thousands) June 30, 2000 1999 1998 1997 1996 ========================================================================================================= BALANCE SHEET DATA Working capital $20,261 $22,619 $ 21,308 $ 18,743 $ 38,030 Total assets 67,212 74,275 80,180 126,343 136,760 Short-term debt 1,017 908 3,443 12,891 3,849 Long-term debt (net of current portion) 13,056 16,330 14,972 34,041 49,033 Stockholders' equity 46,206 47,919 52,037 59,365 63,886 (1) See Note 5 to the June 30, 2000 Consolidated Financial Statements for further discussion. (2) See Note 3 to the June 30, 2000 Consolidated Financial Statements for further discussion. (3) See Notes 4 & 6 to the June 30, 2000 Consolidated Financial Statements for further discussion. (4) See Note 7 to the June 30, 2000 Consolidated Financial Statements for further discussion. (5) See Note 10 to the June 30, 2000 Consolidated Financial Statements for further discussion of the Company's effective tax rate. (6) See Note 2 to the June 30, 2000 Consolidated Financial Statements for adoption of FAS 128.

11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The following discussion summarizes the significant factors affecting the consolidated operating results and financial condition of the Company for the three fiscal years ended June 30, 2000. This discussion should be read in conjunction with the consolidated financial statements, notes to the consolidated financial statements and selected consolidated financial data included elsewhere herein. Certain statements contained herein are forward-looking statements. Actual results could differ materially from those anticipated as a result of various factors, including cyclical and other industry downturns, the effects of federal and state legislation on health care reform, including Medicare and Medicaid financing, the inability to realize the full benefit of recent capital expenditures or consolidation and rationalization activities, difficulties or delays in the introduction of new products or disruptions in selling, manufacturing and/or shipping efforts. The results of operations for fiscal 2000 were affected by several unusual items, which are discussed further below. In the first quarter of fiscal 2000 the Company recorded a $0.4 million charge for legal costs associated with defending product liability litigation. In addition, due to the resignation of the Company's President, Chief Executive Officer and Director, Uma Nandan Aggarwal on July 28, 1999, the Company recorded a $0.2 million charge for severance costs. In the second quarter the Company recorded a $0.2 million charge to operations for severance and related expenses to cover the cost of the previously announced 15% work force reduction estimated to yield $2.6 million annualized savings in payroll and benefit costs. In the fourth quarter the Company was affected by a labor strike at the Company's St. Louis facility that was initiated on June 1, 2000 and settled on July 31, 2000. The strike adversely affected shipments, revenue and income in the quarter. Past due backlog increased and order shipments were missed. Additionally, in the fourth quarter the Company took a $0.9 million charge to write off excess slow moving inventory purchased in prior years, recorded a $0.2 million charge related to the resolution of a vendor contract entered into in a prior year, and recorded an additional $.1 million charge related to product liability legal expenses. The results of operations for fiscal 1999 were affected by several non-recurring or unusual items, which are discussed further below. During the second quarter of fiscal 1999 the Company closed the Toledo, Ohio facility of its disposable products division and consolidated production of the B&F line of home care products into its manufacturing facility in St. Louis, Missouri. As a result of this shutdown the Company recorded a $.8 million net provision, $.5 million after tax, for restructuring and consolidation. The Company also recorded a $1.5 million provision, $.9 million after tax, in connection with a product recall of aluminum oxygen regulators during the third quarter of fiscal 1999. Also, on May 28, 1999 the Company sold the assets of its headwall products division for a gain of $.03 million before tax, with the proceeds being used to pay down debt. The results of operations for fiscal 1998 were also affected by several non-recurring or unusual items. On October 31, 1997, the Company sold the assets of its ventilation products division for a gain. The proceeds from this sale were used to significantly pay down debt and to provide additional liquidity. The Company also recorded several non-recurring or unusual charges to operations in the second quarter of fiscal 1998. Such non-recurring items reflect changes in business conditions resulting from the sale of the ventilation products division and other changes in market conditions. In addition, reserves for inventories and bad debts were increased throughout the fiscal year. For further discussion of these non-recurring items please refer to the "Notes to Consolidated Financial Statements" section of this Form 10-K. The review of and comparability of year to year operating results is complicated by the described sale of businesses during the yearly reporting periods. The specific transactions and events impacting 2000 and 1999 operating results, which make meaningful comparisons to prior years more difficult, are summarized as follows: 12 SENIOR MANAGEMENT CHANGE On July 28, 1999 the Company's President, Chief Executive Officer and Director Uma Nandan Aggarwal resigned. On August 24, 1999 the Company announced Earl R. Refsland as President, Chief Executive Officer and Director of the Company. As a result of Mr. Aggarwal's resignation, the Company recorded a $0.2 million charge to operations in the first quarter of fiscal year 2000 per terms of a mutually accepted departure agreement. LSP OXYGEN REGULATOR RECALL On February 4, 1999, Allied announced a voluntary recall of aluminum oxygen regulators marketed under its Life Support Products label. These products are used to regulate pressure of bottled oxygen for administration to patients under emergency situations. Following reports of regulator fires, the Company instituted the voluntary recall in May 1997, under which it provided retrofit kits to prevent contaminants from entering the regulators. The Company has also been testing regulator design with the help of the National Aeronautical and Space Administration's White Sands National Laboratories. While findings led the Company to believe the Company's products did not cause those fires, there is enough concern among the users that the Company, in cooperation with the U. S. Food and Drug Administration ("FDA"), agreed to institute the voluntary recall to replace aluminum components in the high pressure chamber of the regulators with brass components. The FDA has recommended that all regulator manufacturers cease use of aluminum in regulators. Accordingly, the Company has introduced new brass regulators. As a result of the recall, the Company recorded a charge of $1.5 million pre-tax, $0.9 million after tax, or $0.12 per share in the second quarter of fiscal 1999. As of June 30, 2000 the Company has incurred $1.3 million for costs associated with the recall and has a remaining accrual balance of $0.2 million for future expected costs which management estimates to be appropriate. LITIGATION AND CONTINGENCIES The Company becomes, from time to time, a party to personal injury litigation arising out of incidents involving the use of its products. More specifically there have been a number of lawsuits filed against the Company alleging that its aluminum oxygen pressure regulator, marketed under its Life Support Products label, has caused fires that have led to personal injury. The Company believes, based on preliminary findings, that its products did not cause the fires. However, the Company intends to defend these claims in cooperation with its insurers. Based on the progression of certain cases the Company recorded a $0.5 million charge to operations during fiscal 2000 for amounts estimated to be payable by the Company under its self-insurance retention for legal costs associated with defending these claims. The Company believes that any potential judgments resulting from these claims over its self-insured retention will be covered by the Company's product liability insurance. The Company is subject to various investigations, claims and legal proceedings covering a wide range of matters that arise in the ordinary course of its business activities. In fiscal 2000, the FDA conducted an inspection of the Company's St. Louis facility and provided a written report citing FDA observations concerning Good Manufacturing Practices ("GMP") compliance and quality control issues. The Company has provided written responses to the FDA and is taking corrective action to mitigate any further FDA inquiry or action. The Company believes that its responses to date and its continuing attention to the matters raised by the FDA will avert any FDA action seeking to interrupt or suspend manufacturing, or to require any recall or modification of products. Based upon currently available information, the Company does not believe that the FDA investigation will have a material impact on the Company's results of operations or financial position. SALE OF HEADWALL PRODUCTS DIVISION On May 28, 1999, the Company sold the assets of Hospital Systems, Inc. ("HSI") to David Miller (former General Manager-Hospital Systems, Inc.) for $0.5 million. The net proceeds of $0.5 million were utilized to repay a portion of its revolving credit facility. The sale of HSI, located in Oakland, California, resulted in a gain before taxes for financial reporting purposes of $0.03 million. 13 B&F CONSOLIDATION PROVISION On August 5, 1998 the Company's Board of Directors voted to close the Toledo facility of its disposable products division and consolidate production of the B&F line of home care products into its manufacturing facility in St. Louis, Missouri. This move was announced on August 10, 1998. The move was substantially completed during the second quarter of fiscal 1999. In connection with the shutdown of the facility, Allied recorded a provision of approximately $1.0 million pre-tax, $0.6 million after tax, or $0.07 per share, in the first quarter of fiscal 1999 to cover the cost of closing the facility. The provision reflects costs of certain fixed asset impairments, employee severance benefits and other related exit costs. Subsequently, during the second quarter of fiscal 1999, the company negotiated and received a $0.2 million cash payment from the City of Toledo as partial reimbursement for closure costs. Accordingly, Allied recorded this cash payment, in the second quarter of fiscal 1999, as a reduction to the aforementioned provision resulting in a net charge of $0.8 million pre-tax, $0.5 million after tax, or $0.06 per share for the fiscal year ended June 30, 1999. SUBSEQUENT EVENTS On July 31, 2000 the Company announced that it reached a new three year agreement with District No. 9 of the International Association of Machinists and Aerospace Workers. On August 23, 2000 the Company announced the appointment of Gregory C. Kowert as Vice President Finance, Chief Financial Officer and Secretary and the Company also announced that Thomas A. Jenuleson had resigned as Vice President Finance, Chief Financial Officer and Secretary. FISCAL 2000 FOURTH QUARTER RESULTS OF OPERATIONS Net sales for the three months ended June 30, 2000 were $14.7 million compared to sales of $18.6 million for the three months ended June 30, 1999. The net loss for the fourth quarter of fiscal 2000 was $0.9 million or $0.11 per share compared to $0.7 million or $0.10 per share loss in fiscal 1999. The Company continued to ship products during the strike initiated on June 1, 2000 by union workers at the Company's St. Louis facility. However, the strike had an adverse affect on shipments, revenues and income in the fourth quarter of fiscal 2000. See also the following "Fiscal 2000 Compared to Fiscal 1999" section for a discussion of various other internal and external factors affecting operations. Sales of respiratory care products for the fourth quarter of fiscal 2000 were $4.3 million, a decrease of $1.2 million, compared to sales of $5.5 million in the prior year same period. This decrease is primarily due to the strike and continued weak sales to the home care market, which declined $0.7 million, or 19.4%, during the fourth quarter of fiscal 2000 versus the same period of fiscal 1999. Sales of home care products, mainly the company's B&F line, continue to be lower due to sales lost in 1999 due to customer shipment disruptions caused by the relocation of the Company's Toledo operations. The Company continues efforts to improve efficiency and increase stocking levels of the B&F disposable products and has the goal of increasing the sale of these products. Sales of medical gas equipment for the fourth quarter of fiscal 2000 of $7.8 million were $2.3 million lower than fiscal 1999 sales in the same period of $10.1 million. This was primarily due to reduced hospital construction and market share decline due to late product introductions. The strike in the fourth quarter of fiscal 2000 was also a contributing factor. Additionally, the now divested headwall products division had sales of $0.5 million in fiscal 1999 and no comparable sales in fiscal 2000. Sales of emergency medical products decreased $0.4 million to $2.6 million in the fourth quarter of fiscal 2000 compared to the fourth quarter of fiscal 1999. This decrease was primarily due to the strike and higher than normal sales of brass oxygen regulators in the fourth quarter of fiscal 1999 due to the trade-in program instituted as a result of the aluminum oxygen regulator recall of fiscal 1999. 14 Gross profit for the fourth quarter of fiscal 2000 was $2.9 million, or 20.0% of sales, compared to $4.2 million or 22.4% of net sales in the fourth quarter of fiscal 1999. The decrease was primarily due to the strike and unusual issues addressed during the fourth quarter that negatively impacted gross profit. These included a $.9 million charge to write off excess slow moving inventory purchased in prior years and a $.2 million charge related to the settlement of a vendor contract entered into in a prior year. Selling, General and Administrative ("SG&A") expenses were $4.1 million in the fourth quarter of fiscal 2000, a decrease of $0.4 million from the fourth quarter of fiscal 1999. Various cost containment initiatives over the past fiscal year, including the 15% salary staff reduction implemented in the second quarter of fiscal 2000 favorably impacted SG&A expense in the fourth quarter of fiscal 2000. The loss from operations for the fourth quarter of fiscal 2000 increased to $1.0 million compared to $0.3 million in the prior year same period reflecting the factors discussed above. The Company incurred a loss before income taxes of $1.4 million in the fourth quarter of fiscal 2000 compared to a loss of $0.8 million in the same period for the prior year. The Company recorded a tax benefit of $0.6 million in the fourth quarter of fiscal 2000 compared to a tax benefit of less than $0.1 million in the fourth quarter of fiscal 1999. For a further discussion of the Company's income taxes see the "Notes to Consolidated Financial Statements" section of this Form 10-K. Results of operations in the fourth quarter of fiscal 2000 was a net loss of $0.9 million, or $0.11 per share, compared to a net loss of $0.7 million, or $0.10 per share, in the fourth quarter of fiscal 1999. RESULTS OF OPERATIONS Allied manufactures and markets respiratory products, including respiratory care products, medical gas equipment and emergency medical products. Set forth below is certain information with respect to amounts and percentages of net sales attributable to respiratory care products, medical gas equipment and emergency medical products for the fiscal years ended June 30, 2000, 1999, and 1998.

Dollars in thousands Year ended June 30, 2000 ===================== Net % of Total Sales Net Sales --------- ---------- Respiratory care products $ 19,042 29.6% Medical gas equipment 34,485 53.7% Emergency medical products 10,750 16.7% --------- ---------- Total $ 64,277 100.0% ========= ========== Year ended June 30, 1999 ===================== Net % of Total Sales Net Sales --------- ---------- Respiratory care products $ 23,273 32.0% Medical gas equipment 39,194 53.8% Emergency medical products 10,332 14.2% --------- ---------- Total $ 72,799 100.0% ========= ========== 15 Year ended June 30, 1998 ===================== Net % of Total Sales Net Sales --------- ---------- Respiratory care products $ 40,105 41.6% Medical gas equipment 45,033 46.7% Emergency medical products 11,329 11.7% --------- ---------- Total $ 96,467 100.0% ========= ==========

The following table sets forth, for the fiscal periods indicated, the percentage of net sales represented by certain items reflected in the Company's consolidated statement of operations.

Year ended June 30, 2000 1999 1998 =================================================== ====== ====== ====== Net sales 100.0% 100.0% 100.0% Cost of sales 74.8 76.7 71.6 ------ ------ ------ Gross profit 25.2 23.3 28.4 Selling, general and administrative expenses 26.1 25.7 24.8 Provision for restructuring and consolidation -- 1.0 -- Provision for product recall -- 2.1 -- Gain on sale of business -- -- (13.3) Non-recurring impairment losses -- -- 10.2 ------ ------ ------ Income (loss) from operations ( 0.9) (5.5) 6.7 Interest expense 2.6 2.6 4.3 Other, net 0.2 0.1 0.2 ------ ------ ------ Income (loss) before provision (benefit) for income taxes and extraordinary loss (3.7) (8.2) 2.2 Provision (benefit) for income taxes (1.0) (2.5) 9.3 ------ ------ ------ Loss before extraordinary loss (2.7) (5.7) (7.1) Extraordinary loss on early extinguishment of debt, net of income tax benefit -- -- 0.6 ------ ------ ------ Net loss (2.7)% (5.7)% (7.7)% ====== ====== ======

FISCAL 2000 COMPARED TO FISCAL 1999 Net sales for fiscal 2000 of $64.3 million were $8.5 million, or 11.7% less than net sales of $72.8 million in fiscal 1999. Of the $8.5 million decline, $3.2 million is related to the divested headwall products division. The remaining $5.3 million decline in product sales was due to various internal and external factors including: - There was a strike initiated on June 1, 2000 by union workers at the Company's St. Louis facility. Although the Company continued to ship product, shipments were at a reduced rated and the strike had an adverse affect on shipments, revenues and income in the fourth quarter of fiscal 2000. The strike was settled on July 31, 2000. - Home care product sales, mainly the B&F line, continue to be lower due to customer shipment disruptions caused by the relocation of the Company's Toledo operations in 1999. The Company continues efforts to improve efficiency and increase stocking levels of the B&F disposable products and has the goal of increasing the sale of these products. 16 - The hospital construction market showed a decline in fiscal 2000 due primarily to reduced construction. - Certain external issues have continued to impact the Company's operations in fiscal 2000. The emphasis on cost containment by health care providers has resulted in significant consolidation in the health care environment and pricing pressures for the past several years. Home care sales have also been adversely affected by reductions in Medicare reimbursements. While the Company is unable to predict when these issues will be resolved, management believes that over a long-term horizon, Allied is well positioned to capitalize on the demands for its products caused by an aging population, an increase in the occurrence of lung disease, advances in treatment of other respiratory illnesses in the home, hospital, and sub-acute care facilities and upgrading of medical treatment around the world. Respiratory care product sales in fiscal 2000 of $19.0 million were $4.3 million, or 18.5%, less than sales of $23.3 million in the prior year. This was primarily due to lower home care product sales, mainly the B&F line, due to customer shipment disruptions caused by the relocation of the Company's Toledo operations in 1999. The Company continues efforts to improve efficiency and increase stocking levels of the B&F disposable products and has the goal of increasing the sale of these products. Other causes included the fourth quarter fiscal 2000 strike by union workers at the Company's St. Louis plant and continued pricing pressures caused by the consolidation of home health care dealers. Medical gas equipment sales of $34.5 million in fiscal 2000 were $4.7 million, or 12.0%, below prior year sales of $39.2 million. Of the decline, $3.2 million is related to the divested headwall products division. Medical gas construction product sales are affected by large bid orders on new hospital construction and renovation of medical facilities. Hospital consolidation and budget constraints have resulted in decreased orders for these products. The strike in the fourth quarter of fiscal 2000 and late product introductions were also contributing factors. Emergency medical product sales in fiscal 2000 of $10.8 million were $.5 million, or 4.9%, more than fiscal 1999 sales of $10.3 million. International sales, which are included in the product lines discussed above decreased $.8 million, or 6.1%, to $12.3 million in fiscal 2000 compared to sales of $13.1 million in fiscal 1999. Export sales are affected by international economic conditions and the relative value of foreign currencies. Gross profit in fiscal 2000 was $16.2 million, or 25.2% of net sales, compared to a gross profit of $16.9 million, or 23.3% of net sales in fiscal 1999. The increased percentage was due to the Company's successful steps to reduce manufacturing overhead, focusing on selling higher margin products, and modest price increases during fiscal 2000. Although the gross margin percentage improved in fiscal 2000, the Company is continuing its efforts for further improvements in manufacturing efficiency. The improvements in fiscal 2000 were achieved despite the fourth quarter fiscal 2000 strike and continued pricing pressures brought on by the consolidations and cost containment initiatives of health care providers. Selling, General and Administrative ("SG&A") expenses for fiscal 2000 were $16.8 million, a decrease of $1.9 million over SG&A expenses of $18.7 million in fiscal 1999. The decrease in fiscal 2000 SG&A costs can be attributed to cost reduction efforts initiated during the second quarter, primarily the 15% salary staff reduction. As a percentage of net sales, fiscal 2000 SG&A expenses were 26.1% compared to 25.7% in fiscal 1999. This increase was attributable to lower sales in fiscal 2000, as discussed above. As discussed in the preceding Overview section, financial results for fiscal 2000 were impacted by certain unusual transactions and events which make meaningful comparisons to prior years more difficult. These specific transactions and events include the following items: 17 In the first quarter of fiscal 2000 the Company recorded a $0.4 million charge for legal costs associated with defending product liability litigation. In addition, due to the resignation of the Company's President, Chief Executive Officer and Director, Uma Nandan Aggarwal on July 28, 1999, the Company recorded a $0.2 million charge for severance related costs. In the second quarter of fiscal 2000 the Company recorded a $0.2 million charge to operations for severance and related expenses to cover the cost of the previously announced 15% work force reduction estimated to yield $2.6 million annualized savings in payroll and benefit costs. In the fourth quarter of fiscal 2000 the Company was affected by a labor strike at the Company's St. Louis facility that was initiated on June 1, 2000 and settled July 31, 2000. The strike adversely affected shipments, revenue and income in the quarter. Also, in the fourth quarter, the Company took a $0.9 million charge to write off excess slow moving inventory purchased in prior years, recorded a $0.2 million charge related to the settlement of a vendor contract entered into in a prior year, and recorded an additional $.1 million charge related to product liability legal expenses. . Loss from operations in fiscal 2000 was $0.6 million compared to a loss from operations of $4.0 million in fiscal 1999. Fiscal 2000 loss from operations includes charges for the unusual items discussed above which have an unfavorable impact of $1.9 million. Interest expense decreased $0.2 million, or 10.5%, to $1.7 million in fiscal 2000 from $1.9 million in fiscal 1999. Interest expense has been reduced due to the reduction in debt. The Company had a loss before taxes of $2.4 million in fiscal 2000, compared to loss before taxes of $6.0 million in fiscal 1999. The Company recorded an income tax benefit of $0.7 million in fiscal 2000 compared to a benefit for income taxes of $1.9 million in fiscal 1999. For further discussion of the Company's income tax calculation please refer to the "Notes to Consolidated Financial Statements" section included in this Form 10-K. Net loss in fiscal 2000 was $1.7 million, or $0.22 per diluted share, a decrease of $2.4 million from the net loss of $4.1 million, or $0.53 per diluted share, in fiscal 1999. Earnings per share amounts are diluted earnings per share, which are substantially the same as basic earnings per share. The weighted number of shares used in the calculation of the diluted per share loss was 7,806,682 in both fiscal 2000 and fiscal 1999. FISCAL 1999 COMPARED TO FISCAL 1998 Net sales for fiscal 1999 of $72.8 million were $23.7 million, or 24.5% less than net sales of $96.5 million in fiscal 1998. Of the $23.7 million decline, $10.4 million is attributable to fiscal 1998 sales generated by the ventilation products division prior to its sale in October 1997, $2.7 million is related to the headwall products division divested in May 1999, and $10.6 million relates to a decline in sales of core products. The decline in sales of core products reflected various internal and external factors. Home care product sales, mainly the B&F line, were negatively impacted due to shipping delays caused by the closure and consolidation of the Company's Toledo facility into St. Louis. As previously discussed, this facility was closed during the second quarter of fiscal 1999 and consolidated into St. Louis. The Company also experienced certain production and supply chain problems at its St. Louis facility that caused delays in delivery times on various products. Certain external issues have continued to impact the Company's operations in fiscal 1999. The emphasis on cost containment by health care providers has resulted in significant consolidation in the health care environment and pricing pressures for the past several years. Home care sales have also been adversely affected by reductions in Medicare reimbursements. 18 Medical gas equipment sales of $39.2 million in fiscal 1999 were $5.8 million, or 12.9%, below prior year sales of $45.0 million. Of the decline, $2.7 million is related to the now divested headwall products division. Medical gas system construction sales and medical gas suction and regulation device sales experienced decreases of 7.7% and 8.2%, respectively, in fiscal 1999 compared to fiscal 1998. A $0.8 million decrease in aluminum oxygen cylinder sales contributed to the $3.1 million decrease in base business medical gas equipment sales. Medical gas construction product sales are affected by large bid orders on new hospital construction and renovation of medical facilities. Hospital consolidation has caused a decrease in large bid orders for these products. Respiratory care product sales in fiscal 1999 of $23.3 million were $16.8 million, or 41.9%, less than sales of $40.1 million in the prior year. Of the decline, $10.4 million was attributable to revenues generated by the ventilation products division prior to its sale in October 1997 and $6.4 million relates to the Company's base respiratory product lines. Sales to the home health care market declined by 26.5%, primarily in the B&F disposable line, due to the factors discussed above. In addition, pricing pressures caused by the consolidation of home health care dealers and continued concern over potential reductions in Medicare and Medicaid reimbursement rates continued to impact sales of home health care products. Also contributing to the decrease in respiratory care products is the loss of air compressor OEM business to Bear Medical following its divestiture. Emergency medical product sales in fiscal 1999 of $10.3 million were $1.0 million, or 8.7%, less than fiscal 1998 sales of $11.3 million. A decrease in OEM sales of certain emergency products contributed to most of the decrease. Business in this market is largely replacement driven and is expected to reflect the demand for replacement orders in the short term. International sales, which are included in the product lines discussed above decreased $10.9 million, or 45.4%, to $13.1 million in fiscal 1999 compared to sales of $24.0 million in fiscal 1998. International sales declined $6.9 million due to the sale of the ventilation products division, headwall products sales decreased $1.0 million, while international sales of the base business decreased by $3.0 million. Export sales to the European Community were adversely affected by a delay in obtaining CE mark certification on certain products. Gross profit in fiscal 1999 was $16.9 million, or 23.3% of net sales, compared to a gross profit of $27.4 million, or 28.4% of net sales, in fiscal 1998. Manufacturing inefficiencies and the inability to recognize cost savings, in a timely manner, from the consolidation of the Toledo operations into St. Louis impacted gross margins in fiscal 1999. The sale of the ventilation products division adversely impacted gross profit as a percent of sales in fiscal 1999, as ventilation products typically have a higher gross profit margin than the Company's base business products. Continued pricing pressures brought on by the consolidations and cost containment initiatives of health care providers further served to reduce margins as a percent to net sales. Selling, General and Administrative ("SG&A") expenses for fiscal 1999 were $18.7 million, a decrease of $5.2 million over SG&A expenses of $23.9 million in fiscal 1998. $2.4 million of the decease in SG&A expenses in fiscal 1999 is attributable to direct expenses associated with the sale of the ventilation products division. Another $0.6 million decrease is due to administrative cost savings from the closing of the Toledo facility. The remainder of the decrease in 1999 SG&A costs can be attributed to cost reduction efforts initiated during fiscal 1999. As a percentage of net sales, fiscal 1999 SG&A expenses were 25.7% compared to 24.8% in fiscal 1998. This increase was attributable to lower sales in fiscal 1999, as discussed above. As discussed in the preceding Overview section, financial results for fiscal 1999 were impacted by certain non-recurring or unusual items and events which make meaningful comparisons to prior years more difficult. These specific transactions and events include the following items: 19 On August 5, 1998 the Company's Board of Directors voted to close its Toledo, Ohio facility and consolidate production of the B&F line of home care products into its manufacturing facility in St. Louis, Missouri. In connection with the shutdown of the facility, Allied recorded a provision of approximately $1.0 million pre-tax, $0.6 million after tax, or $0.07 per share, in the first quarter of fiscal 1999 to cover the cost of closing the facility. The provision reflects costs of certain fixed asset impairments, employee severance benefits and other related exit costs. Subsequently, during the second quarter of fiscal 1999, the Company negotiated and received a $0.2 million cash payment from the City of Toledo as partial reimbursement for closure costs. Accordingly, Allied recorded this cash payment, in the second quarter of fiscal 1999, as a reduction to the aforementioned provision resulting in a net charge of $0.8 million pre-tax, $0.5 million after tax, or $0.06 per share for the fiscal year ended June 30, 1999. On February 4, 1999, Allied announced a voluntary recall of aluminum oxygen regulators marketed under its Life Support Products label. Following reports of regulator fires, the Company instituted a recall in May 1997, under which it provided retrofit kits to prevent contaminants from entering the regulators. While preliminary findings led the Company to believe the Company's products did not cause those fires, there is enough concern among the users that the Company, in cooperation with the U. S. Food and Drug Administration ("FDA"), agreed to institute a voluntary recall to replace aluminum components in the high pressure chamber of the regulators with brass components. The FDA has recommended that all regulator manufacturers cease use of aluminum in regulators. Accordingly, the Company has now introduced new brass regulators and is also offering a trade in program to the existing users. As a result of the recall, the Company recorded a charge of $1.5 million pre-tax, $0.9 million after tax, or $0.12 per share, in the second quarter of fiscal 1999. As of June 30, 1999, the Company had incurred $0.9 million for costs associated with the recall and had a reserve balance of $0.6 million for future expected costs which management estimates to be appropriate. On May 28, 1999, the Company sold the assets of Hospital Systems, Inc. ("HSI") to David Miller (former General Manager-Hospital Systems, Inc.) for $0.5 million. The net proceeds of $0.5 million were utilized to repay a portion of its revolving credit facility. The sale of HSI, located in Oakland, California, resulted in a gain before taxes for financial reporting purposes of $0.03 million. Loss from operations in fiscal 1999 was $4.0 million compared to income from operations of $6.5 million in fiscal 1998. Fiscal 1999 loss from operations includes charges for the unusual items discussed above which have an unfavorable impact of $2.2 million. Fiscal 1998 income from operations included a $12.8 million gain on the sale of Bear Medical and $9.8 million of non-recurring charges mainly for goodwill write-downs attributable to the revaluation of the carrying value of various businesses. These fiscal 1998 non-recurring items had a favorable impact on operating income of $3.0 million. Without the impact of the various unusual items for both fiscal 1999 and fiscal 1998, income from operations decreased $5.3 million. Fiscal 1998 operating income also includes results from the operations of the ventilation products division for four months prior to its sale in October 1997. Interest expense decreased $2.3 million, or 53.6%, to $1.9 million in fiscal 1999 from $4.2 million in fiscal 1998. Interest expense has been significantly reduced due to the reduction in debt, which primarily reflected application of the proceeds from the sale of the ventilation products division in fiscal 1998. The Company had a loss before taxes of $6.0 million, compared to income before taxes and extraordinary loss of $2.2 million in fiscal 1998. The Company recorded an income tax benefit of $1.9 million in fiscal 1999 compared to a provision for income taxes of $9.0 million in fiscal 1998. As previously discussed, the gain on the sale of the ventilation products division resulted in a tax provision of $9.3 million in fiscal 1998. In addition, the non-recurring charge of $9.8 million was principally goodwill, and therefore non-deductible for income tax purposes. For further discussion of the Company's income tax calculation please refer to the "Notes to Consolidated Financial Statements" section included in this Form 10-K. 20 Net loss in fiscal 1999 was $4.1 million, or $0.53 per diluted share, a decrease of $3.3 million from the net loss of $7.4 million, or $0.95 per diluted share, in fiscal 1998. Net loss in fiscal 1998 included a $0.5 million extraordinary loss on early extinguishment of debt. Earnings per share amounts are diluted earnings per share, which are substantially the same as basic earnings per share. The weighted number of shares used in the calculation of the diluted per share loss was 7,806,682 in fiscal 1999 compared to 7,805,021 in fiscal 1998. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES The following table sets forth selected information concerning Allied's financial condition: Dollars in thousands 2000 1999 1998 -------------------- ------- ------- ------- Cash $ 568 $ 587 $ 1,195 Working Capital $20,261 $22,619 $21,308 Total Debt $14,073 $17,238 $18,415 Current Ratio 3.55:1 3.30:1 2.67:1 The Company's working capital was $20.3 million at June 30, 2000 compared to $22.6 million at June 30, 1999. The decrease in working capital is attributable to the factors discussed below. Accounts receivable declined to $10.5 million at June 30, 2000, down $2.1 million from $12.6 million at June 30, 1999. Accounts receivable as measured in days sales outstanding ("DSO") increased to 68 DSO at June 30, 2000 from 62 DSO at June 30, 1999. Collection efforts at the end of fiscal 2000 were hampered by the temporary reassignment of the collection staff to production and shipping assignments during the work stoppage by the union work force at the St. Louis production facility. Inventories declined to $16.7 million at June 30, 2000 from $17.5 million at June 30, 1999. The majority of this $.8 million decline is attributable to an increase in the reserve for obsolete and slow moving inventory as previously discussed. Income taxes receivable decreased $1.6 million from June 30, 1999 to June 30, 2000. Accounts payable decreased to $4.1 million at June 30, 2000, down $1.3 million from $5.4 million at June 30, 1999. The Company's working capital was $22.6 million at June 30, 1999 compared to $21.3 million at June 30, 1998. The increase in working capital was primarily due to the decrease in the current portion of long term debt attributable to debt refinancing discussed further below. Accounts receivable declined to $12.6 million at June 30, 1999 down $1.6 million from $14.2 million at June 30, 1998. Accounts receivable as measured in days sales outstanding ("DSO") decreased to 62 DSO from 69 DSO during fiscal 1999 as collection efforts have improved the average time that is needed to collect from a customer. Inventories declined to $17.5 million at June 30, 1999, or $0.8 million, from $18.3 million at June 30, 1998. Of this decline, $0.4 million is related to the core business while $0.4 million of decrease is due to the sale of the headwall products division. The net increase/(decrease) in cash for the fiscal years ended June 30, 2000, 1999, and 1998 was $0.0 million, $(0.6) million, and $0.2 million, respectively. Net cash provided by (used by) operations was $3.4 million, $(0.2) million, and $(5.2) million for the same periods. Cash provided by operations for the fiscal year ended June 30, 2000 consisted of a net loss of $1.7 million, which was offset by $3.3 million in non-cash charges to operations for amortization and depreciation. The provision for product recall was reduced and used $0.4 million. Changes in working capital and deferred tax accounts favorably impacted cash flow from operations by $2.2 million. Cash flow was used to reduce debt by $3.2 million and make capital expenditures of $0.3 million. Cash used by operations for the fiscal year ended June 30, 1999 consisted of a net loss of $4.1 million, which was offset by $3.8 million in non-cash charges to operations for amortization and depreciation, restructuring and consolidation of $0.2 million and product recall of $0.6 million. Changes in working capital and deferred tax accounts unfavorably impacted cash flow from operations by $0.7 million. Cash provided by investing activities, consisting of $1.4 million from the proceeds on the sale of the Toledo, Ohio facilities and $0.5 million of proceeds from the sale of the headwall products division, was used to fund capital expenditures of $1.1 million and reduce debt. 21 At June 30, 2000 the Company had aggregate indebtedness of $14.1 million, including $1.0 million of short-term debt and $13.1 million of long-term debt. At June 30, 1999 the Company had aggregate indebtedness of $17.2 million, including $0.9 million of short-term debt and $16.3 million of long-term debt. On August 7, 1998, the Company obtained a $5.0 million mortgage loan on its principal facility in St. Louis, Missouri with LaSalle National Bank. Under terms of this agreement the Company makes monthly principal and interest payments, with a balloon payment in 2003. Proceeds of the loan were used to reduce the obligation under the revolving credit agreement with Foothill Capital Corporation. The mortgage loan carries a fixed rate of interest of 7.75%, compared to the then current rate of 9.0% under the revolving credit agreement. The LaSalle credit facility was amended in the second quarter of fiscal 1999 and the first quarter of fiscal 2000 resulting in changes to certain debt covenants. On September 8, 1998, the Company's credit facilities with Foothill Capital Corporation were amended. The Company's existing term loan was eliminated and replaced with an amended revolving credit facility. As amended, the revolving credit facility remained at $25.0 million. The interest rate on the facility was reduced from the floating reference rate (9.25% at June 30, 2000) plus 0.50% to the floating reference rate plus 0.25%. The reference rate as defined in the credit agreement, is the variable rate of interest, per annum, most recently announced by Wells Fargo Bank, National Association, or any successor thereto, as its "base rate". This amendment also provides the Company with a rate of LIBOR +2.5%. Amounts outstanding under this revolving credit facility, which expires on January 6, 2003, totaled $8.4 million at June 30, 2000. At June 30, 2000, $5.5 million was available under the revolving facility for additional borrowings based on working capital requirements under the terms of the agreement. Capital expenditures, net of capital leases, were $0.3 million, $1.1 million and $0.6 million in fiscal 2000, 1999, and 1998, respectively. The Company believes that cash flow from operations and available borrowings under its credit facilities will be sufficient to finance fixed payments and planned capital expenditures in 2001. Inflation has not had a material effect on the Company's business or results of operations. The Company makes its foreign sales in dollars and, accordingly, sales proceeds are not affected by exchange rate fluctuations, although the effect on its customers does impact the pace of incoming orders. SEASONALITY AND QUARTERLY RESULTS In past fiscal years, the Company has experienced seasonal increases in net sales during its second and third fiscal quarter (October 1 through March 31) which, in turn, affected net income. Such seasonal variations were likely attributable to an increase in hospital equipment purchases at the beginning of each calendar year (which coincides with many hospitals' fiscal years) and an increase in the severity of influenza during winter months. The following table sets forth selected operating results for the eight quarters ended June 30, 2000. The information for each of these quarters is unaudited, but includes all normal recurring adjustments which the Company considers necessary for a fair presentation thereof. These operating results, however, are not necessarily indicative of results for any future period. Further, operating results may fluctuate as a result of the timing of orders, the Company's product and customer mix, the introduction of new products by the Company and its competitors, and overall trends in the health care industry and the economy. While these patterns have an impact on the Company's quarterly operations, the Company is unable to predict the extent of this impact in any particular period.

June 30, March 31, Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Sept. 30, Three months ended, 2000 2000 1999 1999 1999 1999 1998 1998 ================================================================================================================================= Net sales $ 14,722 $ 16,729 $ 16,758 $ 16,068 $ 18,621 $ 19,227 $ 17,092 $ 17,859 Gross profit 2,945 4,626 4,625 4,026 4,165 4,940 3,423 4,407 Income (loss) from operations (956) 919 359 (917) (323) 339 (2,601) (1,444) Net income (loss) (894) 210 (126) (903) (738) (189) (1,912) (1,279) Basic and diluted earnings (0.11) .03 (0.02) (0.12) (0.10) (0.02) (0.25) (0.16) (loss) per share Dollars in thousands, except per share data

22 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Allied Healthcare Products, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of changes in stockholders' equity, and of cash flows present fairly, in all material respects, the financial position of Allied Healthcare Products, Inc. and its subsidiaries at June 30, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2000, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP St. Louis, Missouri August 9, 2000 23

CONSOLIDATED STATEMENT OF OPERATIONS Year ended June 30, 2000 1999 1998 ====================================================================================================== Net sales $64,276,643 $72,799,372 $ 96,466,860 Cost of sales 48,054,458 55,864,554 69,110,274 ------------ ------------ ------------- Gross profit 16,222,185 16,934,818 27,356,586 Selling, general and administrative expenses 16,834,315 18,733,227 23,888,131 Provision for product recall (17,600) 1,500,000 -- Gain on sale of business -- (27,246) (12,812,927) Provision for restructuring and consolidation -- 758,467 -- Non-recurring impairment losses -- -- 9,778,259 ------------ ------------ ------------- Income (loss) from operations (594,530) (4,029,630) 6,503,123 ------------ ------------ ------------- Other expenses: Interest expense 1,664,477 1,925,757 4,151,986 Other, net 149,433 35,984 198,329 ------------ ------------ ------------- 1,813,910 1,961,741 4,350,315 ------------ ------------ ------------- Income (loss) before provision (benefit) for income taxes and extraordinary loss (2,408,440) (5,991,371) 2,152,808 Provision (benefit) for income taxes (694,963) (1,872,976) 9,018,488 ------------ ------------ ------------- Loss before extraordinary loss (1,713,477) (4,118,395) (6,865,680) Extraordinary loss on early extinguishment of debt, net of income tax benefit of $373,191 -- -- 530,632 ------------ ------------ ------------- Net loss $(1,713,477) $(4,118,395) $ (7,396,312) ============ ============ ============= Basic and diluted loss per share: Loss before extraordinary loss $ (0.22) $ (0.53) $ (0.88) Extraordinary loss -- -- (0.07) ------------ ------------ ------------- Loss per share $ (0.22) $ (0.53) $ (0.95) ============ ============ ============= See accompanying Notes to Consolidated Financial Statements

24

CONSOLIDATED BALANCE SHEET June 30, 2000 1999 ========================================================================================== ASSETS Current assets: Cash $ 568,197 $ 587,457 Accounts receivable, net of allowance for doubtful accounts of $882,874 and $834,883, respectively 10,542,264 12,601,165 Inventories 16,742,178 17,499,822 Income taxes receivable -- 1,635,866 Other current assets 358,407 138,360 ------------- ------------- Total current assets 28,211,046 32,462,670 ------------- ------------- Property, plant and equipment, net 12,176,616 14,287,037 Deferred income taxes 218,671 -- Goodwill, net 26,395,241 27,210,653 Other assets, net 210,503 314,828 ------------- ------------- Total assets $ 67,212,077 $ 74,275,188 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 4,055,739 $ 5,434,303 Current portion of long-term debt 1,016,611 907,649 Accrual for product recall 185,241 594,725 Other accrued liabilities 2,692,901 2,906,636 ------------- ------------- Total current liabilities 7,950,492 9,843,313 ------------- ------------- Long-term debt 13,055,980 16,330,185 Deferred income taxes -- 182,608 Commitments and contingencies (Notes 9 and 15) -- -- Stockholders' equity: Preferred stock; $.01 par value; 1,500,000 shares authorized; no shares issued and outstanding -- -- Series A preferred stock; $.01 par value; 200,000 shares authorized; no shares issued and outstanding -- -- Common stock; $.01 par value; 30,000,000 shares authorized; 7,806,682 shares issued and outstanding at June 30, 2000 and 1999 101,102 101,102 Additional paid-in capital 47,014,621 47,014,621 Retained earnings 19,821,310 21,534,787 Common stock in treasury, at cost (20,731,428) (20,731,428) ------------- ------------- Total stockholders' equity 46,205,605 47,919,082 ------------- ------------- Total liabilities and stockholders' equity $ 67,212,077 $ 74,275,188 ============= ============= See accompanying Notes to Consolidated Financial Statements

25

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY Additional Preferred Common paid-in Retained Treasury Stock stock capital Earnings stock =============================================================================================== Balance, June 30, 1997 $ -- $ 101,002 $46,945,971 $ 33,049,494 $(20,731,428) Issuance of common stock -- 100 68,650 -- -- Net loss for the year ended June 30, 1998 -- -- -- (7,396,312) -- ----------- ----------- ----------- ------------ ------------- Balance, June 30, 1998 -- 101,102 47,014,621 25,653,182 (20,731,428) Net loss for the year ended June 30, 1999 -- -- -- (4,118,395) -- ----------- ----------- ----------- ------------ ------------ Balance, June 30, 1999 - - 101,102 47,014,621 21,534,787 (20,731,428) Net loss for the year ended June 30, 2000 -- -- -- (1,713,477) -- ----------- ----------- ----------- ------------ ------------- Balance, June 30, 2000 $ - - $ 101,102 $47,014,621 $ 19,821,310 $(20,731,428) =========== =========== =========== ============ ============= See accompanying Notes to Consolidated Financial Statements

26

CONSOLIDATED STATEMENT OF CASH FLOWS Year ended June 30, 2000 1999 1998 =================================================================================================================== Cash flows from operating activities: Net loss $ (1,713,477) $ (4,118,395) $ (7,396,312) Adjustments to reconcile net loss to net cash provided by (used in) operating activities, Excluding the effects of divestitures: Depreciation and amortization 3,332,350 3,781,063 4,881,890 Provision for restructuring and consolidation -- 217,926 -- Provision for product recall (409,484) 594,725 -- Gain on sale of Hospital Systems, Inc. -- (27,246) -- Gain on sale of Bear Medical -- -- (12,812,927) Loss on refinancing of long-term debt -- -- 903,823 Noncash portion of non-recurring impairment losses -- -- 9,496,452 Decrease in accounts receivable, net 2,058,901 1,626,149 2,887,344 Decrease in inventories 757,644 407,134 2,412,551 Decrease (increase) in income taxes receivable 1,635,866 (1,635,866) -- Decrease (increase) in other current assets (220,047) 133,307 696,056 Decrease in accounts payable (1,378,564) (373,046) (6,671,539) Decrease in other accrued liabilities (213,735) (572,440) (1,688,283) Increase (decrease) in deferred income taxes - noncurrent (401,279) (258,981) 2,106,658 ------------- ------------- -------------- Net cash provided by (used in) operating activities 3,448,175 (225,670) (5,184,287) Cash flows from investing activities: Capital expenditures, net (298,040) (1,061,309) (644,080) Proceeds on sale of Toledo, Ohio facilities -- 1,393,287 -- Proceeds on sale of Hospital Systems, Inc. - Net of disposal costs -- 495,178 -- Proceeds on sale of Bear Medical - Net of disposal costs -- -- 35,362,286 ------------- ------------- -------------- Net cash provided by (used in) investing activities (298,040) 827,156 34,718,206 Cash flows from financing activities: Proceeds from issuance of long-term debt -- 5,000,000 26,000,000 Payment of long-term debt (936,885) (7,411,458) (37,267,757) Borrowings under revolving credit agreement 69,661,053 88,063,847 128,862,400 Payments under revolving credit agreement (71,893,563) (86,829,127) (146,033,153) Proceeds from issuance of common stock -- -- 68,750 Debt issuance costs -- (32,104) (957,782) ------------- ------------- -------------- Net cash used in financing activities (3,169,395) (1,208,842) (29,327,542) Net increase (decrease) in cash and equivalents (19,260) (607,356) 206,377 Cash and equivalents at beginning of period 587,457 1,194,813 988,436 ------------- ------------- -------------- Cash and equivalents at end of period $ 568,197 $ 587,457 $ 1,194,813 ============= ============= ============== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 1,662,150 $ 2,046,103 $ 5,256,981 Income taxes $ 252,869 $ 541,756 $ 5,380,817 See accompanying Notes to Consolidated Financial Statements

27 ALLIED HEALTHCARE PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION Allied Healthcare Products, Inc. (the "Company" or "Allied") is a manufacturer of respiratory products used in the health care industry in a wide range of hospital and alternate site settings, including post-acute care facilities, home health care and trauma care. The Company's product lines include respiratory care products, medical gas equipment and emergency medical products. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies followed by Allied are described below. The policies utilized by the Company in the preparation of the financial statements conform to generally accepted accounting principles in the United States, and require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions and intercompany balances are eliminated. REVENUE RECOGNITION Revenue from the sale of the Company's products is recognized upon shipment to the customer. Costs and related expenses to manufacture the Company's products are recorded as cost of sales when the related revenue is recognized. CASH AND CASH EQUIVALENTS For purposes of the statement of cash flows, the Company considers all highly liquid investments with a maturity of three months or less when acquired to be cash equivalents. Book cash overdrafts on the Company's disbursement accounts totaling $1,290,277 and $1,247,188 at June 30, 2000 and 1999, respectively, are included in accounts payable. CONCENTRATIONS OF CREDIT RISK The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company maintains reserves for potential credit losses and historically such losses have been within management's expectations. The Company's customers can be grouped into three main categories: medical equipment distributors, construction contractors and health care institutions. At June 30, 2000 the Company believes that it has no significant concentration of credit risk. INVENTORIES Inventories are stated at the lower of cost, determined using the last-in, first-out ("LIFO") method, or market. If the first-in, first-out ("FIFO") method (which approximates replacement cost) had been used in determining cost, inventories would have been $2,517,103 and $2,411,909 higher at June 30, 2000 and 1999, respectively. Inventories include the cost of materials, direct labor and manufacturing overhead. Inventory amounts are net of a reserve for obsolete and excess inventory of $2,894,610 and $1,936,402 at June 30, 2000 and 1999, respectively. 28 PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is carried at cost and is depreciated using the straight-line method over the estimated useful lives of the assets which range from 3 to 36 years. Properties held under capital leases are recorded at the present value of the non-cancelable lease payments over the term of the lease and are amortized over the shorter of the lease term or the estimated useful lives of the assets. Expenditures for repairs, maintenance and renewals are charged to income as incurred. Expenditures which improve an asset or extend its estimated useful life are capitalized. When properties are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in income. GOODWILL The excess of the purchase price over the fair value of net assets acquired in business combinations is capitalized and amortized on a straight-line basis over the estimated period benefited, not to exceed 40 years. The amortization period for all acquisitions to date ranges from 20 to 40 years. Amortization expense for the years ended June 30, 2000, 1999 and 1998 was $815,411, $816,411, and $1,077,959, respectively. Accumulated amortization at June 30, 2000 and 1999 was $7,131,098 and $6,315,687, respectively. The carrying value of goodwill is assessed for recoverability by management based on an analysis of future expected cash flows from the underlying operations of the Company. See Note 7 regarding goodwill impairment and related non-recurring charges recorded in the second quarter of the fiscal year ended June 30, 1998. Management believes that there has been no further impairment at June 30, 2000 to the remaining carrying value of goodwill. OTHER ASSETS Other assets are primarily comprised of debt issuance costs. Such costs are being amortized on an effective interest method basis over the life of the related obligations. INCOME TAXES The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109"). Under FAS 109, the deferred tax provision is determined using the liability method, whereby deferred tax assets and liabilities are recognized based upon temporary differences between the financial statement and income tax bases of assets and liabilities using presently enacted tax rates. RESEARCH AND DEVELOPMENT COSTS Research and development costs are expensed as incurred and are included in selling, general and administrative expenses. Research and development expense for the years ended June 30, 2000, 1999 and 1998 was $726,315, $1,315,593 and $1,688,071, respectively. EARNINGS PER SHARE Basic earnings per share are based on the weighted average number of shares of common stock outstanding during the year. Diluted earnings per share are based on weighted averaged number of shares of common stock and common stock equivalents outstanding during the year. The number of basic and diluted shares outstanding for the years ended June 30, 2000, 1999 and 1998 was 7,806,682, 7,806,682, and 7,805,021 shares, respectively. Options under the Company's employee's and director's stock option plans are not included as common stock equivalents for earnings per share purposes since they did not have a material dilutive effect. In March 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("FAS 128"), which requires public entities to present both basic and diluted earnings per share amounts on the face of their financial statements, replacing the former calculations of primary and fully diluted earnings per share. The Company adopted FAS 128 effective with its fiscal 1998 second quarter. All prior period earnings per share amounts have been restated. The adoption of FAS 128 did not have a material effect on current or previously reported earnings per common share. 29 EMPLOYEE STOCK-BASED COMPENSATION The Company accounts for employee stock options and variable stock awards in accordance with Accounting Principles Board No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Under APB 25, the Company applies the intrinsic value method of accounting. For employee stock options accounted for using the intrinsic value method, no compensation expense is recognized because the options are granted with an exercise price equal to the market value of the stock on the date of grant. During fiscal 1996, Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"), became effective for the Company. FAS 123 prescribes the recognition of compensation expense based on the fair value of options or stock awards determined on the date of grant. However, FAS 123 allows companies to continue to apply the valuation methods set forth in APB 25. For companies that continue to apply the valuation methods set forth in APB 25, FAS 123 mandates certain pro forma disclosures as if the fair value method had been utilized. See Note 12 for additional discussion. 3. LSP OXYGEN REGULATOR RECALL On February 4, 1999, Allied announced a voluntary recall of aluminum oxygen regulators marketed under its Life Support Products label. These products are used to regulate pressure of bottled oxygen for administration to patients under emergency situations. Following reports of regulator fires, the Company instituted a recall in May 1997, under which it provided retrofit kits to prevent contaminants from entering the regulators. The Company has also been testing regulator design with the help of the National Aeronautical and Space Administration's White Sands National Laboratories. While preliminary findings led the Company to believe the Company's products did not cause those fires, there is enough concern among the users that the Company, in cooperation with the U. S. Food and Drug Administration ("FDA"), agreed to institute a voluntary recall to replace aluminum components in the high pressure chamber of the regulators with brass components. The FDA has recommended that all regulator manufacturers cease use of aluminum in regulators. Accordingly, the Company has now introduced new brass regulators and is also offering a trade-in program to the existing users. As a result of the recall, the Company recorded a charge of $1.5 million pre-tax, $0.9 million after tax, or $0.12 per share in the second quarter of fiscal 1999. A reconciliation of activity with respect to the Company's product recall is as follows:

2000 1999 --------- ----------- Balance, beginning of year $594,725 $ -- Provision for recall (17,600) 1,500,000 Costs incurred related to product retrofitting and replacement 391,885 905,275 ---------------------- Balance, end of year $185,241 $ 594,725 ======================

The Company has incurred various legal expenses related to claims associated with the LSP regulators recall. Accordingly, the Company recorded a $0.5 million charge to operations during fiscal 2000 for amounts estimated to be payable by the company under its self-insurance retention for legal costs associated with defending these claims. These amounts are included along with other legal expenses of the Company as selling, general and administrative expenses. At June 30, 2000, the Company has a litigation cost accrual balance of $0.2 million for legal expense associated to the LSP regulator recall. 30 4. SALE OF HEADWALL PRODUCTS DIVISION On May 28, 1999, the Company sold the assets of Hospital Systems, Inc. ("HSI") to David Miller (former General Manager-Hospital Systems, Inc.) for $0.5 million. The net proceeds of $0.5 million were utilized to repay a portion of its revolving credit facility. The sale of HSI, located in Oakland, California, resulted in a gain before taxes for financial reporting purposes of $0.03 million. 5. B&F CONSOLIDATION PROVISION On August 5, 1998 the Company's Board of Directors voted to close the Toledo facility of its disposable products division and consolidate production of the B&F line of home care products into its manufacturing facility in St. Louis, Missouri. This move was announced on August 10, 1998. The move was substantially completed during the second quarter of fiscal 1999. In connection with the shutdown of the facility, Allied recorded a provision of approximately $1.0 million pre-tax, $0.6 million after tax, or $0.07 per share, in the first quarter of fiscal 1999 to cover the cost of closing the facility. The provision reflects costs of certain fixed asset impairments, employee severance benefits and other related exit costs. Subsequently, during the second quarter of fiscal 1999, the Company negotiated and received a $0.2 million cash payment from the City of Toledo as partial reimbursement for closure costs. Accordingly, Allied recorded this cash payment, in the second quarter of fiscal 1999, as a reduction to the aforementioned provision resulting in a net charge of $0.8 million pre-tax, $0.5 million after tax, or $0.06 per share for the fiscal year ended June 30, 1999. 6. SALE OF BEAR VENTILATION PRODUCTS DIVISION On October 31, 1997, the Company sold the assets of Bear Medical Systems, Inc. ("Bear") and its subsidiary BiCore Monitoring Systems, Inc. ("BiCore"), collectively referred to as the ventilation products division, to Thermo-Electron Corporation for $36.6 million plus the assumption of certain liabilities. The net proceeds of $29.5 million, after expenses, including federal and state taxes paid, were utilized to repay a significant portion of its term notes and to repay all of its subordinated debt. The sale of the ventilation products division resulted in a gain, before taxes, for financial reporting purposes of $12.8 million. This gain, as a discrete item, resulted in a tax provision of $9.3 million. The relatively higher effective tax rate on this transaction resulted because approximately $12.7 million of goodwill associated with these businesses was not deductible for income tax purposes. 7. GOODWILL IMPAIRMENT In the second quarter of fiscal 1998, the Company reevaluated the carrying value of its various businesses and recorded $9.8 million of non-recurring charges to reflect the changes in business conditions resulting from the sale of the ventilation product division and due to other changes in market conditions discussed below, which culminated during the second quarter of fiscal 1998. Goodwill writedowns, which were determined pursuant to the Company's impairment policy as described in Note 2, approximating $8.9 million, were comprised of the following: $4.4 million associated with the partial goodwill writedown related to the B&F disposable products business. Continuing weakness in financial results of the business due to various continuing operational issues, market condition changes in the home health care market including pressures on pricing, and overall weakness in financial results of the national home health care chains caused Allied to reevaluate and adjust the carrying value of this business. $2.4 million associated with the writedown of goodwill for Allied's headwall business. $1.6 million associated with the writedown of Omni-Tech Medical, Inc. goodwill. This transportation ventilator business is directly related to the divested Bear ventilation products division and is not anticipated to contribute to the ongoing operations of the Company. 31 $0.5 million associated with the write-down of goodwill for the Design Principles Inc. backboard business. Increased costs have significantly eroded the margins of this business necessitating a reevaluation of the carrying value of its goodwill. Management believes that there has been no further impairment at June 30, 2000 to the remaining carrying value of goodwill. In addition to the non-cash goodwill write-downs, the other non-recurring items include: $0.5 million of consulting fees related to a cooperative purchasing study. $0.4 million for the writedown of leasehold improvements and a reserve for the remaining lease payments for B&F's Mt. Vernon, Ohio facility which was closed as part of the Company's rationalization initiatives. 8. FINANCING Long-term debt consisted of the following at June 30, 2000 and 1999:

2000 1999 ------------ ------------ UNSUBORDINATED DEBT Notes payable to bank or other financial lending institution, collateralized by substantially all assets of the Company Term loan - principal due in varying monthly maturities ranging from $27,714 to $40,518 with remaining balance due August 1, 2003 $ 4,347,118 $ 4,714,669 Revolving credit facility - aggregate revolving commitment of $25,000,000; principal due at maturity on January 6, 2003 8,398,907 10,618,532 Other 16,244 32,819 ------------ ------------ 12,762,269 15,366,020 ------------ ------------ SUBORDINATED DEBT Capital lease obligations 1,310,322 1,871,814 ------------ ------------ 14,072,591 17,237,834 Less-Current portion of long-term debt, including $603,297 and 523,523 of capital lease obligations at June 30, 2000 and June 30, 1999, respectively (1,016,611) (907,649) ------------ ------------ $13,055,980 $16,330,185 ============ ============

On August 7, 1998, the Company borrowed approximately $5.0 million from LaSalle National Bank. The borrowing was collateralized by a first security interest in the Company's St. Louis facility. The loan requires monthly principal and interest payments of $0.06 million, with a final payment of all principal and interest remaining unpaid due at maturity on August 1, 2003. Interest is fixed at 7.75% annum. Proceeds from the borrowing were used to pay down existing debt, which bore a higher interest rate. The LaSalle credit facility was amended on March 24 and September 1, 1999 resulting in changes to certain debt covenants for which the Company was in compliance at June 30, 2000. On September 8, 1998, the Company's credit facilities with Foothill Capital Corporation were amended. The Company's existing term loan was eliminated and replaced with an amended revolving credit facility. As amended, the revolving credit facility remains at $25.0 million. The interest rate on the facility was reduced from the floating reference rate (9.25% at June 30, 2000) plus 0.50% to the floating reference rate plus 0.25%. The reference rate, as defined in the credit agreement, is the variable rate of interest, per annum, most recently announced by Wells Fargo Bank, National Association, or any successor thereto, 32 as its "base rate". This amendment also provides the Company with a rate of LIBOR + 2.50%. In addition, the fees charged to the Company were reduced along with certain debt covenants. On June 28, 1999, the Company's credit facilities with Foothill Capital Corporation were amended. The amendment provides for favorable interest rate reduction, based upon annual profitability, for fiscal years 2001 and 2002. The amendment also extended the maturity date to January 6, 2003 along with a favorable change to certain debt covenants for which the Company was in compliance at June 30, 2000. On March 3, 1999, the Company purchased the remaining $505,000 of its outstanding Missouri Industrial Revenue Bonds. The bonds, which bore a variable interest rate, had a final maturity date of April 1, 2001 and were repaid early using borrowings from the Company's revolving credit facility. Aggregate maturities of long-term debt, excluding capital leases, for each of the five fiscal years subsequent to June 30, 2000 are as follows:

Fiscal Revolving Year Credit Facility Term Other Total ---------------- ---------- ---------- ----------- 2001 $ -- $ 397,070 $ 16,244 $ 413,314 2002 -- 428,959 -- 428,959 2003 8,398,907 463,411 -- 8,862,318 2004 -- 3,057,678 -- 3,057,678 2005 -- -- -- -- ---------------- ---------- ---------- ----------- 8,398,907 $4,347,118 $ 16,244 $12,762,269 ================ ========== ========== ===========

9. LEASE COMMITMENTS The Company leases certain of its electronic data processing and manufacturing equipment under non-cancelable lease agreements. These agreements extend for a period of up to 60 months and contain purchase or renewal options on a month-to-month basis. The leases are reflected in the consolidated financial statements as capitalized leases in accordance with the requirements of Statement of Financial Accounting Standards No. 13 ("FAS 13"), "Accounting for Leases". In addition, the Company leases certain office equipment under noncancelable operating leases. These leases are reflected in the consolidated financial statements as operating leases in accordance with FAS 13. Minimum lease payments under long-term capital leases and the operating Leases at June 30, 2000 are as follows:

Capital Operating Leases Leases ----------- ----------- 2001 $ 737,250 $ 53,340 2002 779,851 53,340 2003 -- 53,340 2004 -- 44,450 2005 -- -- ----------- ----------- Total minimum lease payments 1,517,101 $ 204,470 =========== Less amount representing interest (206,779) ----------- Present value of net minimum lease payments, including current portion of $603,297 $1,310,322 ===========

33 Rental expense incurred on the operating leases in fiscal 2000, 1999, and 1998 totaled $333,505, $118,990 and $381,024, respectively. 10. INCOME TAXES The provision (benefit) for income taxes consisted of the following:

2000 1999 1998 ---------- ------------ ----------- Current Payable: Federal $ (49,915) $(1,497,541) $4,249,382 State -- -- 1,957,403 ---------- ------------ ----------- Total Current (49,915) (1,497,541) 6,206,785 ---------- ------------ ----------- Deferred: Federal (561,137) (113,472) $2,451,228 State (83,911) (261,963) 360,475 ---------- ------------ ----------- Total Deferred (645,048) (375,435) 2,811,703 ---------- ------------ ----------- $(694,963) $(1,872,976) $9,018,488 ========== ============ ===========

Income taxes were 28.9%, 31.3%, and 418.9% of pre-tax earnings (losses) in 2000, 1999, and 1998, respectively. A reconciliation of income taxes, with the amounts computed at the statutory federal rate follows:

2000 1999 1998 ---------- ------------ ------------ Computed tax at federal statutory rate $(818,869) $(2,037,066) $ 731,955 State income taxes, net of federal tax benefit (55,381) (172,876) 1,611,155 Non deductible goodwill 277,240 277,240 7,925,827 Other, net (97,953) 59,726 (1,250,449) ---------- ------------ ------------ Total $(694,963) $(1,872,976) $ 9,018,488 ========== ============ ============

The increase in the dollar amount of reconciling items during fiscal year 1998 relates to the effect of the sale of the Bear ventilation products division. The increase in the income tax provision was primarily attributable to the non-deductible portion of goodwill associated with the sale, and the effect of state income taxes associated with the transaction. The deferred tax assets and deferred tax liabilities recorded on the balance sheet as of June 30, 2000 and 1999 are as follows:

2000 1999 ---- ---- Deferred Deferred Tax Deferred Deferred Tax Tax Assets Liabilities Tax Assets Liabilities -------------- ------------ -------------- ------------ Current: Bad debts $ 344,321 $ -- $ 325,604 $ -- Accrued liabilities 208,515 -- 347,903 -- Inventory -- 561,714 -- 926,154 -------------- ------------ -------------- ------------ 552,836 561,714 673,507 926,154 -------------- ------------ -------------- ------------ Non Current: Depreciation -- (5,407) -- 52,629 Other property basis -- (97,665) -- 10,857 Intangible assets 530,163 -- 380,762 -- Net operating loss carryforward 264,274 -- 264,274 -- Other -- 353,447 -- 438,767 -------------- ------------ -------------- ------------ 794,437 250,375 645,036 502,253 -------------- ------------ -------------- ------------ Valuation allowance (325,391) -- (325,391) -- -------------- ------------ -------------- ------------ Total deferred taxes $ 1,021,882 $ 812,089 $ 993,152 $1,428,407 ============== ============ ============== ============

34 11. RETIREMENT PLAN The Company offers a retirement savings plan under Section 401(k) of the Internal Revenue Code to certain eligible salaried employees. Each employee may elect to enter a written salary deferral agreement under which a portion of such employee's pre-tax earnings may be contributed to the plan. During the fiscal years ended June 30, 2000, 1999 and 1998, the Company made contributions of $296,134, $359,087 and $464,227 respectively. 12. SHAREHOLDERS' EQUITY The Company has established a 1991 Employee Non-Qualified Stock Option Plan, a 1994 Employee Stock Option Plan, and a 1999 Incentive Stock Plan ("Employee Plans"). The Employee Plans provide for the granting of options to the Company's executive officers and key employees to purchase shares of common stock at prices equal to the fair market value of the stock on the date of grant. Options to purchase up to 1,800,000 shares of common stock may be granted under the Employee Plans. Options currently outstanding entitle the holders to purchase common stock at prices ranging between $1.88 and $16.00, subject to adjustment. Options generally become exercisable ratably over a four year period or one-fourth of the shares covered thereby on each anniversary of the date of grant, commencing on the first or second anniversary of the date granted, except certain options granted under the 1994 Employee Stock Option Plan which become exercisable when the fair market value of common stock exceeds required levels. The right to exercise the options expires ten years from the date of grant, or earlier if an option holder ceases to be employed by the Company. In addition, the Company has established a 1991 Directors Non-Qualified Stock Option Plan and a 1995 Directors Non-Qualified Stock Option Plan ("Directors Plans"). The Directors Plan provides for the granting of options to the Company's Directors who are not employees of the Company to purchase shares of common stock at prices equal to the fair market value of the stock on the date of grant. Options to purchase up to 250,000 shares of common stock may be granted under the Directors Plans. Options currently outstanding entitle the holders to purchase common stock at prices ranging between $1.88 and $18.25, subject to adjustment. Options shall become exercisable with respect to one-fourth of the shares covered thereby on each anniversary of the date of grant, commencing on the second anniversary of the date granted, except for certain options granted under the 1995 Directors Non-Qualified Stock Option Plan which become exercisable with respect to all of the shares covered thereby one year after the grant date. The right to exercise the options expires ten years from the date of grant, or earlier if an option holder ceases to be a Director of the Company. 35 A summary of stock option transactions in 2000, 1999 and 1998, respectively, pursuant to the Employee Plans and the Directors Plans follows:

Summary of Stock Options ------------------------ Average Shares Subject Price To Option -------- --------------- June 30, 1997 $ 9.22 594,500 Options Granted 7.63 173,500 Options Exercised 6.88 (10,000) Options Canceled 11.23 (132,550) --------------- June 30, 1998 $ 8.39 625,450 --------------- Exercisable at June 30, 1998 160,138 =============== June 30, 1998 $ 8.39 625,450 Options Granted 1.97 54,000 Options Exercised -- -- Options Canceled 10.54 (149,700) --------------- June 30, 1999 $ 7.13 529,750 --------------- Exercisable at June 30, 1999 148,500 =============== June 30, 1999 $ 7.13 529,750 Options Granted 2.00 567,500 Options Exercised -- Options Canceled 7.89 (329,500) --------------- June 30, 2000 $ 3.47 767,750 --------------- Exercisable at June 30, 2000 227,000 ===============

The following table provides additional information for options outstanding and exercisable at June 30, 2000:

OPTIONS OUTSTANDING Wtd. Avg. Wtd. Average Range of Prices Number Remaining Life Exercise Price -------------------- ------- --------------- ---------------- $ 1.00-1.99 55,500 8.8 years $ 1.88 2.00 542,000 9.2 years 2.00 2.01-6.99 35,500 6.8 years 5.55 7.00-7.99 75,000 7.3 years 7.53 8.00-18.50 59,750 4.2 years 12.40 -------- $ 1.00-18.50 767,750 8.5 years $ 3.47 OPTIONS EXERCISABLE Wtd. Avg. Range of Prices Number Exercise Price -------------------- ------- --------------- $ 1.00-1.99 500 $ 1.88 2.00 135,500 2.00 2.01-6.99 17,000 5.11 7.00-7.99 21,750 7.51 8.00-18.50 52,250 10.17 -------- $ 1.00-18.50 227,000 $ 4.63

36 Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," requires companies to measure employee stock compensation plans based on the fair value method of accounting. However, the Statement allows the alternative of continued use of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," with pro-forma disclosure of net income and earnings per share determined as if the fair value based method had been applied in measuring compensation cost. The Company adopted the new standard in the fiscal year ended June 30, 1997, and elected the continued use of APB Opinion No. 25. Had compensation expense for the Company's stock options been recognized based on the fair value of the options on the grant date under the methodology prescribed by FAS 123, the Company's net loss and loss per share for the years ended June 30, 2000 and 1999 would have been impacted as shown in the following table (in thousands, except per share): 2000 1999 ---------- ---------- Reported net loss $ 1,713 $ 4,118 Pro forma net loss 1,918 4,374 Reported earnings per share (0.22) (0.53) Pro forma earnings per share (0.25) (0.56) The fair value of options granted, which is amortized to expense over the option vesting period in determining the pro forma impact, has been estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: 2000 1999 ---------- ---------- Expected life of option 10 years 10 years Risk-free interest rate 5.9% 5.2% Expected volatility of Allied stock 50% 37% Expected dividend yield On Allied stock 0% 0% The weighted-average fair value of options granted during fiscal 2000 and 1999 determined using the Black-Scholes model is as follows: 2000 1999 ---------- ---------- Fair value of options granted $ 1.38 $ 1.27 Number of options granted 567,500 54,000 ---------- ---------- Total fair value of all Options granted (in thousands) $ 780 $ 70 For FAS 123 disclosure purposes, the weighted average fair value of stock options granted is required to be based on a theoretical option pricing model. In actuality, because the Company's stock options are not traded on any exchange, employees can receive no benefit and derive no value from holding stock options under these plans without an increase in the market price of Allied stock. Such an increase would benefit all stockholders. In conjunction with a refinancing, 62,500 warrants were issued to the holders of the subordinated notes payable and 50,000 warrants were issued to the commercial lender providing the revolving credit facilities and the term loan facilities. Each warrant entitles the holder to purchase one share of common stock at $7.025 per share through August 7, 2002. 37 STOCKHOLDER RIGHTS PLAN The Board of Directors adopted a Stockholder Rights Plan in 1996, that would permit stockholders to purchase common stock at prices substantially below market value under certain change-in-control scenarios. 13. EXPORT SALES Export sales for the years ended June 30, 2000, 1999, and 1998 are comprised as follows (in thousands):

2000 1999 1998 ------- ------- ------- Europe $ 2,000 $ 2,500 $ 5,700 Canada 1,800 1,800 1,900 Latin America 3,800 3,400 5,900 Middle East 1,200 1,200 1,600 Far East 2,600 2,600 6,000 Other 900 1,600 2,900 ------- ------- ------- $12,300 $13,100 $24,000 ======= ======= =======

14. SUPPLEMENTAL BALANCE SHEET INFORMATION

June 30, 2000 1999 ------------- ------------- INVENTORIES Work in progress $ 1,237,534 $ 779,027 Component parts 11,209,463 13,848,272 Finished goods 4,295,181 2,872,523 ------------- ------------- $ 16,742,178 $ 17,499,822 ============= ============= PROPERTY, PLANT AND EQUIPMENT Machinery and equipment $ 15,096,250 $ 14,905,236 Buildings 11,751,455 11,644,429 Land and land improvements 934,216 934,216 Property held under capital leases 4,518,761 4,518,761 ------------- ------------- Total property, plant and equipment at cost 32,300,682 32,002,642 Less accumulated depreciation and amortization, including $3,526,799 and $2,741,859, respectively, related to property held under capital leases (20,124,066) (17,715,605) ------------- ------------- $ 12,176,616 $ 14,287,037 ============= ============= OTHER ACCRUED LIABILITIES Accrued compensation expense $ 756,328 $ 1,211,251 Accrued interest expense 101,142 98,669 Accrued income tax 1,247,546 985,711 Other 587,885 611,005 ------------- ------------- $ 2,692,901 $ 2,906,636 ============= =============

38 15. COMMITMENTS AND CONTINGENCIES The Company is subject to various investigations, claims and legal proceedings covering a wide range of matters that arise in the ordinary course of its business activities. In fiscal 2000, the FDA conducted an inspection of the Company's St. Louis facility and provided a written report citing FDA observations concerning Good Manufacturing Practices ("GMP") compliance and quality control issues. The Company has provided written responses to the FDA and is taking corrective action to mitigate any further FDA inquiry or action. The Company believes that its responses to date and its continuing attention to the matters raised by the FDA will avert any FDA action seeking to interrupt or suspend manufacturing, or to require any recall or modification of products. Based upon currently available information, the Company does not believe that the FDA investigation will have a material impact on the Company's results of operations or financial position. The Company has recognized the costs and associated liabilities only for those investigations, claims and legal proceedings for which, in its view, it is probable that liabilities have been incurred and the related amounts are estimable. Based upon information currently available, management believes that existing accrued liabilities are sufficient and that it is not reasonably possible at this time that any additional liabilities will result from the resolution of these matters that would have a material adverse effect on the Company's consolidated results of operations or financial position. 16. QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial data for fiscal 2000 and 1999 appears below (all amounts in thousands except per share data):

Net Sales --------- 2000 1999 -------- -------- First Quarter $16,068 $17,859 Second Quarter 16,758 17,092 Third Quarter 16,729 19,227 Fourth Quarter 14,722 18,621 -------- -------- Total Year $64,277 $72,799 ======== ======== Gross Profit ------------ 2000 1999 -------- -------- First Quarter $ 4,026 $ 4,407 Second Quarter 4,625 3,423 Third Quarter 4,626 4,940 Fourth Quarter 2,945 4,165 -------- -------- Total Year $16,222 $16,935 ======== ======== 39 Net Income (Loss) ------------------ 2000 1999 -------- -------- First Quarter $ (903) $(1,279) Second Quarter (126) (1,912) Third Quarter 210 (189) Fourth Quarter (894) (738) -------- -------- Total Year $(1,713) $(4,118) ======== ======== Earnings (Loss) Per Share -------------------------- 2000 1999 -------- -------- First Quarter $ (.12) $ (.16) Second Quarter (.02) (.25) Third Quarter .03 (.02) Fourth Quarter (.11) (.10) -------- -------- Total Year $ (.22) $ (.53) ======== ========

17. SEGMENT INFORMATION The Company operates in one segment consisting of the manufacturing, marketing and distribution of a variety of respiratory products used in the health care industry to hospitals, hospital equipment dealers, hospital construction contractors, home health care dealers and emergency medical product dealers. The Company's product lines include respiratory care products, medical gas equipment and emergency medical products. The Company does not have any one single customer that represents more than 10 percent of total sales. 40 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None 41 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT A definitive proxy statement is expected to be filed with the Securities and Exchange Commission on or about October 3, 2000. The information required by this item is set forth under the caption "Election of Directors" on pages 2 through 3, under the caption "Executive Officers" on page 11 and under the caption Section 16(a) Beneficial Ownership Reporting Compliance on page 21 of the definitive proxy statement, which information is incorporated herein by reference thereto. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is set forth under the caption "Executive Compensation" on pages 12 through 13 of the definitive proxy statement, which information is incorporated herein by reference thereto. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is set forth under the caption "Security Ownership of Certain Beneficial Owners and Management" on pages 7 through 8 of the definitive proxy statement, which information is incorporated herein by reference thereto. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K 1. FINANCIAL STATEMENTS The following consolidated financial statements of the Company and its subsidiaries are included in response to Item 8: Consolidated Statement of Operations for the years ended June 30, 2000, 1999, and 1998 Consolidated Balance Sheet at June 30, 2000 and 1999 Consolidated Statement of Changes in Stockholders' Equity for the years ended June 30, 2000, 1999 and 1998 Consolidated Statement of Cash Flows for the years ended June 30, 2000, 1999 and 1998 Notes to Consolidated Financial Statements Report of Independent Accountants 2. FINANCIAL STATEMENT SCHEDULE Report of Independent Accountants on Financial Statement Schedule Valuation and Qualifying Accounts and Reserves for the Years Ended June 30, 2000, 1999 and 1998 42 All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. 3. EXHIBITS The exhibits listed on the accompanying Index to Exhibits are filed as part of this Report. 4. REPORTS ON FORM 8-K Form 8-K dated as of August 24, 1999 (announcing the appointment of Earl R. Refsland as President, Chief Executive Officer and Director, and the Company also announced that Uma Nandan Aggarwal had resigned as President, Chief Executive Officer and Director) Form 8-K dated as of June 5, 2000 (announcing a work stoppage by District No. 9 International Association of Machinists and Aerospace Workers effective midnight May 31, 2000. The work stoppage arose from a failure of the Union and the Company to consent to the terms of an Agreement between Allied Healthcare Products, Inc. Medical Products Division and District No. 9 International Association of Machinists and Aerospace Workers). Form 8-K dated as of July 31, 2000 (announcing the Company has reached an agreement on a new three-year contract with its employees who are members of District No. 9 International Association of Machinists and Aerospace Workers. Allied continued to ship products during the union work stoppage.) Form 8-K dated as of August 23, 2000 (announcing the appointment of Gregory C. Kowert as Vice President Finance, Chief Financial Officer and Secretary, and the Company also announced that Thomas A. Jenuleson had resigned as Vice President Finance, Chief Financial Officer and Secretary.) 43

3.1 Amended and Restated Certificate of Incorporation of the Registrant (filed as Exhibit 3(1) to the Company's Registration Statement on Form S-1, as amended, Registration No. 33-40128, filed with the Commission on May 8, 1991 (the "Registration Statement") and incorporated herein by reference) 3.2 By-Laws of the Registrant (filed as Exhibit 3(2) to the Registration Statement and incorporated herein by reference) 4.1 Certificate of Designations, Preferences and Rights of Series A Preferred Stock of Allied Healthcare Products, Inc. dated August 21, 1996 (filed with the Commission as Exhibit 4(1) to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1997 (the "1997 Form 10-K") and incorporated herein by reference) 10.1 NCG Trademark License Agreement, dated April 16, 1982, between Liquid Air Corporation and Allied Healthcare Products, Inc. (filed as Exhibit 10(24) to the Registration Statement and incorporated herein by reference) 10.2 Allied Healthcare Products, Inc. 1991 Employee Non-Qualified Stock Option Plan (filed as Exhibit 10(26) to the Registration Statement and incorporated herein by reference) 10.3 Employee Stock Purchase Plan (filed as Exhibit 10(3) to the Company's Annual Report on Form 10-K for the year ended June 30, 1998 (the "1998 Form 10-K") and incorporated by reference) 10.4 Allied Healthcare Products, Inc. 1994 Employee Stock Option Plan (filed with the Commission as Exhibit 10(39) to the Company's Annual Report on Form 10-K for the year ended June 30, 1994 (the "1994 Form 10-K") and incorporated herein by reference) 10.5 Allied Healthcare Products, Inc. 1995 Directors Non-Qualified Stock Option Plan (filed with the Commission as Exhibit 10(25) to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1995 (the "1995 Form 10-K") and incorporated herein by reference) 10.6 Allied Healthcare Products, Inc. Amended 1994 Employee Stock Option Plan (filed with the Commission as Exhibit 10(28) to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 (the "1996 Form 10-K") and incorporated herein by reference) 10.7 Employment Agreement dated November 19, 1996 by and between Allied Healthcare Products, Inc. and Uma N. Aggarwal (filed as Exhibit 10(1) to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1996 and incorporated herein by reference) 10.8 Option Agreement dated November 19, 1996 by and between Allied Healthcare Products, Inc. and Uma N. Aggarwal (filed as Exhibit 10(2) to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1996 and incorporated herein by reference) 10.9 Option Agreement dated November 19, 1996 between Allied Healthcare Products, Inc. and Uma N. Aggarwal (filed as Exhibit 10(3) to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1996 and incorporated herein by reference) 10.11 Loan and Security Agreement, dated as of August 7, 1997 by and among Allied Healthcare Products, Inc., B&F Medical Products, Inc., Bear Medical Systems, Inc., Hospital Systems, Inc., Life Support Products, Inc., and BiCore Monitoring Systems, Inc., as Borrowers, and Foothill Capital Corporation (filed with the Commission as Exhibit 10(31) to the Company's Annual Report on Form 10-K for the fiscal year ended June 20, 1997 (the "1997 Form 10-K") and incorporated herein by reference) 10.12 Warrant dated August 7, 1997 issued by Allied Healthcare Products, Inc. in favor of Woodbourne Partners, L.P. (filed with the Commission as Exhibit 10(36) to the 1997 Form 10-K and incorporated herein by reference) 10.13 Warrant dated August 7, 1997 issued by Allied Healthcare Products, Inc. in favor of Donald E. Nickelson (filed with the Commission as Exhibit 10(37) to the 1997 Form 10-K and incorporated herein by reference) 10.14 Warrant dated August 7, 1997 issued by Allied Healthcare Products, Inc. in favor of Dennis W. Sheehan (filed with the Commission as Exhibit 10(38) to the 1997 form 10-K and incorporated herein by reference) 10.15 Agreement effective as of June 1, 1997 between Allied Healthcare Products, Inc. and District No. 9 International Association of Machinists and Aerospace Workers (filed with the Commission as Exhibit 10(39) to the 1997 Form 10-K and incorporated herein by reference) 10.16 Asset Purchase Agreement by and between BM Acquisition Corp., ThermoElectron Corporation, Bear Medical Systems, Inc., BiCore Monitoring Systems, Inc., Allied Healthcare Products AG, Bear Medical Systems Foreign Sales Corporation and Allied Healthcare Products, Inc. (filed with the Commission as Exhibit 2.1 to the Form 8-K filed on November 14, 1997 and incorporated herein by reference) 10.17 Amendment Number One to Loan and Security Agreement dated as of March 3, 1998 among Allied Healthcare Products, Inc., B&F Medical Products, Inc., Hospital Systems, Inc. and Life Support Products, Inc. as Borrowers, and Foothill Capital Corporation (filed with the Commission as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 and incorporated herein by reference) 10.18 Loan and Security Agreement, dated as of August 7, 1998 by and between Allied Healthcare Products, Inc. and LaSalle National Bank (filed with the Commission as Exhibit 10(24) to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1998 (the "1998 Form 10-K") and incorporated herein by reference) 10.19 Amendment Number Two to Loan and Security Agreement dated as of September 10, 1998 among Allied Healthcare Products, Inc., B&F Medical Products, Inc., Hospital Systems, Inc. and Life Support Products, Inc. as Borrowers, and Foothill Capital Corporation (filed with the Commission as Exhibit 10(25) to the 1998 Form 10-K and incorporated herein by reference) 10.20 Letter Agreement dated February 11, 1999 between Allied Healthcare Products, Inc. and Gabriel S. Kohn (filed with the Commission as Exhibit 10(20) to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1999 (the "1999 Form 10-K") and incorporated herein by reference) 10.21 Letter Agreement dated February 11, 1999 between Allied Healthcare Products, Inc. and David A. Grabowski (filed with the Commission as Exhibit 10(21) to the 1999 Form 10-K and incorporated herein by reference) 10.22 Letter Agreement dated March 16, 1999 between Allied Healthcare Products, Inc. and Thomas A. Jenuleson (filed with the Commission as Exhibit 10(22) to the 1999 Form 10-K and incorporated herein by reference) 10.23 Amendment Number One to Amended and Restated Loan and Security Agreement dated as of June 28, 1999 among Allied Healthcare Products, Inc., B&F Medical Products, Inc. and Life Support Products, Inc. as Borrowers, and Foothill Capital Corporation (filed with the Commission as Exhibit 10(23) to the 1999 Form 10-K and incorporated herein by reference) 10.24 Asset Purchase Agreement dated May 28, 1999 by and between Allied Healthcare Products, Inc. and Hospital Systems, Inc. and David Miller (filed with the Commission as Exhibit 10(24) to the 1999 Form 10-K and incorporated herein by reference) 10.25 Employment Agreement dated August 24, 1999 by and between Allied Healthcare Products, Inc. and Earl Refsland (filed with the Commission as Exhibit 10(25) to the 1999 Form 10-K and incorporated herein by reference) 10.26 Allied Healthcare Products, Inc. 1999 Incentive Stock Plan (filed with the Commission as Exhibit 10(26) to the 1999 Form 10-K and incorporated herein by reference) 10.27 Letter of First Amendment to the $5,000,000 Promissory Note dated August 7, 1998 made by Allied Healthcare Products, Inc. to the order of LaSalle National Bank 10.28 Letter of Second Amendment to the $5,000,000 Promissory Note dated August 7, 1998 made by Allied Healthcare Products, Inc. to the order of LaSalle Bank National Association 10.29 Agreement between Allied Healthcare Products, Inc. Medical Products Division and District No. 9 International Association of Machinists and Aerospace Workers dated August 1, 2000 through May 31, 2003 10.30 Letter Agreement dated August 10, 2000 between Allied Healthcare Products, Inc. and Gregory C. Kowert 21 Subsidiaries of the Registrant 23 Consent of PricewaterhouseCoopers, LLP 24 Powers of Attorney 27 Financial Data Schedule

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. ALLIED HEALTHCARE PRODUCTS, INC. By: /s/ Earl R. Refsland ---------------------------------------- Earl R. Refsland President and Chief Executive Officer Dated : September 27, 2000 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 27, 2000. SIGNATURES TITLE * Chairman of the Board ----------------------------- John D. Weil * President, Chief Executive Officer and Director (principal Executive Officer) ----------------------------- Earl R. Refsland * Director ----------------------------- William A. Peck * Director ----------------------------- Brent D. Baird * ----------------------------- James B. Hickey, Jr. Director 44 * By: /s/ Earl R. Refsland ------------------------------- Earl R. Refsland Attorney-in-Fact ------------------ * Such signature has been affixed pursuant to the following Power of Attorney. POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears below constitutes and appoints Earl R. Refsland as his true and lawful attorney-in fact and agent, each with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign the 2000 Annual Report on Form 10-K of Allied Healthcare Products, Inc., and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite as fully to all intents and purposes as he might or could do in person, and ratifying and confirming all that said attorney-in-fact and agent or his substitute or substitutes may lawfully do or cause to be done by virtue hereof. 45 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of Allied Healthcare Products, Inc. Our audits of the consolidated financial statements referred to in our report dated August 9, 2000, appearing in the 2000 Annual Report to Shareholders of Allied Healthcare Products, Inc. (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in item 14(a)(2) of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material aspects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PricewaterhouseCoopers LLP St. Louis, Missouri August 9, 2000 S-1

ALLIED HEALTHCARE PRODUCTS, INC. RULE 12-09 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E ============================================================================================================= BALANCE AT CHARGED TO CHARGED TO BEGINNING OF COSTS OTHER ACCOUNTS - DEDUCTIONS - BALANCE AT END DESCRIPTION PERIOD AND EXPENSES DESCRIBE DESCRIBE OF PERIOD ============================================================================================================= FOR THE YEAR ENDED JUNE 30, 2000 Reserve For Doubtful Accounts $ (834,883) $ (68,667) $ 20,676 (1) $ (882,874) Inventory Allowance For Obsolescence And Excess Quantities $ (1,936,402) $ (1,200,000) $ 241,792 (5) $ (2,894,610) -------------------------------------------------------------------------------------- FOR THE YEAR ENDED JUNE 30, 1999 Reserve For Doubtful Accounts $ (1,035,833) $ (175,496) $ 376,446 (1) $ (834,883) Inventory Allowance For Obsolescence And Excess Quantities $ (2,189,000) $ (200,000) $ 452,598 (2) $ (1,936,402) ============================================================================================================= FOR THE YEAR ENDED JUNE 30, 1998 Reserve For Doubtful Accounts $ (1,225,326) $ (264,165) $ 453,658 (3) $ (1,035,833) Inventory Allowance For Obsolescence And Excess Quantities $ (1,689,000) $ (1,112,000) $ 612,000 (4) $ (2,189,000) ============================================================================================================= (1) Decrease due to bad debt write-offs, bad debt recoveries and changes in estimate. (2) Decrease due to inventory disposed of and changes in estimate. Additional decrease of $228,928 due to the sale of Hospital Systems, Inc. (3) Decrease due to bad debt write-offs, bad debt recoveries and changes in estimate. Additional decrease of $129,814 due to the sale of Bear Medical Systems, Inc. (4) Increase due to changes in estimate. Offsetting decrease of $612,000 due to the sale of Bear Medical Systems, Inc. (5) Decrease due to inventory disposed of and changes in estimate.

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