10-K/A 1 c65120a1e10-ka.txt AMENDMENT TO FORM 10-K 1 FORM 10-K/A 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, 2001 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 19, 2001, the aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $12,800,000. As of September 19, 2001, 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 5, 2001 (portion) (Part III) 2 ALLIED HEALTHCARE PRODUCTS, INC. INDEX TO FORM 10-K

Page ---- PART I Item 1. Business.................................................... 1 Item 2. Properties.................................................. 9 Item 3. Legal Proceedings........................................... 9 Item 4. Submission of Matters to a Vote of Security Holders......... 9 PART II Item 5. Market for Registrant's Common Stock and Related Stockholder Matters..................................................... 10 Item 6. Selected Financial Data..................................... 10 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 11 Item 8. Financial Statements and Supplementary Data................. 20 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................... 38 PART III Item 10. Directors and Executive Officers of the Registrant.......... 38 Item 11. Executive Compensation...................................... 38 Item 12. Security Ownership of Certain Beneficial Owners and Management.................................................. 38 Item 13. Certain Relationships and Related Transactions.............. 38 PART IV Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K......................................................... 39

3 SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Statements contained in this Report which are not historical facts or information are "forward-looking statements." Words such as "believe," "expect," "intend," "will," "should," and other expressions that indicate future events and trends identify such forward-looking statements. These forward-looking statements involve risks and uncertainties which could cause the outcome and future results of operations and financial condition to be materially different than stated or anticipated based on the forward-looking statements. Such risks and uncertainties include both general economic risks and uncertainties, risks and uncertainties affecting the demand for and economic factors affecting the delivery of health care services, and specific matters which relate directly to the Company's operations and properties as discussed in Items 1, 3 and 7 in this Report. The Company cautions that any forward-looking statements contained in this report reflects only the belief of the Company or its management at the time the statement was made. Although the Company believes such forward-looking statements are based upon reasonable assumptions, such assumptions may ultimately prove inaccurate or incomplete. The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement was made. 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 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 4 MARKETS AND PRODUCTS In fiscal 2001, respiratory care products, medical gas equipment and emergency medical products represented approximately 28%, 57% and 15%, 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/ Large volume compressors; Timeter Hospitals and sub- Anesthesia Products ventilator calibrators; acute facilities humidifiers and mist tents Home Respiratory Care O2 cylinders; pressure Timeter; B&F; Schuco Patients at home Products regulators; nebulizers; portable large volume compressors; portable suction equipment and disposable respiratory products MEDICAL GAS EQUIPMENT Construction Products In-wall medical gas system Chemetron; Oxequip Hospitals and sub- components; central suction acute facilities pumps and compressors and headwalls Regulation Devices Flowmeters; vacuum regulators; Chemetron; Oxequip; Hospitals and sub- pressure regulators and related Timeter acute facilities products Disposable Cylinders Disposable oxygen and gas Lif-O-Gen First aid cylinders providers and specialty gas distributors Suction Equipment Portable suction equipment and Gomco; Allied; Schuco Hospitals; sub- disposable suction canisters acute facilities and home care products EMERGENCY MEDICAL PRODUCTS Demand resuscitation valves; LSP; Omni- Tech Emergency service Respiratory/Resuscitation bag mask resuscitators; providers emergency transport ventilators and oxygen regulators Trauma and Patient Spine immobilization products; LSP Emergency service Handling Products pneumatic anti-shock garments providers and trauma burn kits

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, 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, 2 5 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 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. While Allied sold the assets of its headwall manufacturing division, Hospital Systems, Inc. on May 28, 1999, the Company continues to sell headwall products in the construction product market. Allied's participation in this market includes the distribution of headwall components utilized by various headwall manufacturers, as well as the distribution of complete headwall systems purchased from outside manufacturers that are utilized in hospital construction and renovation. 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. 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. 3 6 The market for regulation devices and suction equipment includes 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. To complement the family of respiratory/resuscitation products, the Company offers a full line of oxygen product 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 4 7 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. Four product managers are responsible for the marketing activities of our 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. 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. INTERNATIONAL Allied's international business represents a potential growth area that the Company has been pursuing. Allied's net sales to foreign markets totaled 21% of the Company's net sales in fiscal 2001. 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. Allied manufactures small metal components from bar stock in a machine shop which includes automatic screw machines, horizontal lathes and drill presses and six 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 segregated from the product support function to allow the group to focus on the introduction of new products. 5 8 During fiscal 2001 the Company released several new products as a result of research and development programs. These products include a new B & F Oxygen regulator that now has a body made of brass, as well as a new articulating arm which allows gas and electrical connections to be positioned closer to the patient in operating rooms. The group also engaged in several research projects, one leading to a patent application. 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. 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, 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 6 9 certain devices, such as ventilators, which are life-supporting or life-sustaining devices used outside of a device user facility, some 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. As a result, 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 met with the FDA at their Kansas City field office in March 2001 to discuss the responses and actions. 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. 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 7 10 indirectly funds a significant percentage of such construction and renovation costs through Medicare and Medicaid reimbursements. In recent years, governmentally imposed limits on reimbursement to 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 2001 the Company applied for one patent. 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. 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. EMPLOYEES At June 30, 2001, the Company had approximately 465 full-time employees. Approximately 281 employees in the Company's principal manufacturing facility located in St. Louis, Missouri, are covered by a collective bargaining agreement that will expire on May 31, 2003. Approximately 13 employees at the Company's facility in Stuyvesant Falls, New York are also covered by a collective bargaining agreement that will expire on April 15, 2004. 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. 8 11 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 former manufacturing facility in Toledo was shut down and the operations consolidated into St. Louis during the second quarter of fiscal 1999. 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 a final audit of the results thereof was completed on December 22, 2000 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, 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. As a result, 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 met with the FDA at their Kansas City field office in March 2001 to discuss the responses and actions. 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 9 12 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 19, 2001, there were 234 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 2001 and 2000, respectively. The Company currently does not pay any dividend on its Common Stock. COMMON STOCK INFORMATION

2001 HIGH LOW 2000 HIGH LOW ----------------------------- ----- ----- ----------------------------- ----- ----- September quarter $3.38 $2.69 September quarter $2.94 $1.66 December quarter $3.25 $2.58 December quarter $2.94 $2.13 March quarter $3.69 $2.97 March quarter $3.63 $2.50 June quarter $3.50 $3.10 June quarter $3.77 $3.06

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

(In thousands, except per share data) Year ended June 30, 2001 2000 1999 1998 1997 ------------------------------------------------------------------------------------------------------ STATEMENT OF OPERATIONS DATA Net sales $64,928 $65,995 $74,666 $98,619 $120,582 Cost of sales 48,265 50,511 58,440 72,076 85,887 Gross profit 16,663 15,484 16,226 26,543 34,695 Selling, general and administrative expenses 14,573 16,097 18,024 23,074 32,852 Provision for restructuring and consolidation (1) -- -- 758 -- -- Provision for product recall(2) 80 (18) 1,500 -- -- Gain on sale of business(3) -- -- (27) (12,813) -- Non-recurring impairment losses(4) -- -- -- 9,779 -- Income (loss) from operations 2,010 (595) (4,029) 6,503 1,843 Interest expense 1,530 1,664 1,926 4,152 7,606 Other, net 74 149 36 198 186 Income (loss) before provision (benefit) for income taxes and extraordinary loss 406 (2,408) (5,991) 2,153 (5,949) Provision (benefit) for income taxes(5) 172 (695) (1,873) 9,019 (1,428) Income (loss) before extraordinary loss 234 (1,713) (4,118) (6,866) (4,521) Extraordinary loss on early extinguishment of debt, Net of income tax benefit -- -- -- 530 -- Net income (loss) $ 234 $(1,713) $(4,118) $(7,396) $ (4,521) Basic and diluted earnings (loss) per share $ 0.03 $ (0.22) $ (0.53) $ (0.95) $ (0.58) Basic weighted average common shares outstanding 7,807 7,807 7,807 7,805 7,797 Diluted weighted average common shares outstanding 8,126 7,807 7,807 7,805 7,797

10 13

(In thousands) June 30, 2001 2000 1999 1998 1997 ------------------------------------------------------------------------------------------------------ CONSOLIDATED BALANCE SHEET DATA Working capital $20,682 $20,261 $22,619 $21,308 $ 18,743 Total assets 65,993 67,212 74,275 80,180 126,343 Short-term debt 1,169 1,017 908 3,443 12,891 Long-term debt (net of current portion) 11,019 13,056 16,330 14,972 34,041 Stockholders' equity 46,440 46,206 47,919 52,037 59,365

(1) See Note 5 to the June 30, 2001 Consolidated Financial Statements for further discussion. (2) See Note 3 to the June 30, 2001 Consolidated Financial Statements for further discussion. (3) Gain on sale of Hospital Systems, Inc. in 1999 & Bear Medical Systems, Inc. in 1998. (4) Non-recurring impairment loss on goodwill recorded during fiscal 1998. (5) See Note 8 to the June 30, 2001 Consolidated Financial Statements for further discussion of the Company's effective tax rate. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. 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, 2001. 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. The results of operations for fiscal 2001 were affected by several unusual items, which are discussed further below. In the first quarter , on July 31, 2000 , the Company reached agreement with District No. 9 of the International Association of Machinist and Aerospace Workers. The strike had adversely affected shipments, revenue and income in the first quarter of fiscal 2001. Past due backlog increased while orders and shipments were missed. Additionally, the Company continued to benefit from the 15% workforce reduction initiated in the second quarter of fiscal 2000. Results for fiscal 2001 also benefited from the elimination of the valuation allowance for $0.3 million in state net operating loss carryforwards. This valuation allowance was previously established for the carryforwards due to uncertainty as to their eventual utilization. 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 impacted 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 while orders and shipments were missed. Additionally, in the fourth quarter the Company took a $0.9 million charge to provide for excess and 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. 11 14 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 $0.8 million net provision, $0.5 million after tax, for restructuring and consolidation. The Company also recorded a $1.5 million provision, $0.9 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 $0.03 million before tax, with the proceeds being used to pay down debt. 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, 2001, 2000, and 1999.

Dollars in thousands 2001 Year ended June 30, --------------------- Net % of Total Sales Net Sales ------- ---------- Respiratory care products $18,042 27.8% Medical gas equipment 36,916 56.9% Emergency medical products 9,970 15.3% ------- ------ Total $64,928 100.0% ======= ======

2000 Year ended June 30, --------------------- Net % of Total Sales Net Sales ------- ---------- Respiratory care products $19,550 29.6% Medical gas equipment 35,406 53.7% Emergency medical products 11,039 16.7% ------- ------ Total $65,995 100.0% ======= ======

1999 Year ended June 30, --------------------- Net % of Total Sales Net Sales ------- ---------- Respiratory care products $23,869 32.0% Medical gas equipment 40,201 53.8% Emergency medical products 10,596 14.2% ------- ------ Total $74,666 100.0% ======= ======

12 15 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, 2001 2000 1999 ------------------------------------------------------------ ----- ----- ----- Net sales 100.0% 100.0% 100.0% Cost of sales 74.3 76.5 78.3 ----- ----- ----- Gross profit 25.7 23.5 21.7 Selling, general and administrative expenses 22.4 24.4 24.1 Provision for product recall 0.1 -- 2.0 Provision for restructuring and consolidation -- -- (1.0) ----- ----- ----- Income (loss) from operations 3.2 (0.9) (5.4) Interest expense 2.4 2.5 2.6 Other, net 0.1 0.2 -- ----- ----- ----- Income (loss) before provision (benefit) for income taxes 0.7 (3.6) (8.0) Provision (benefit) for income taxes 0.3 (1.1) (2.5) ----- ----- ----- Net income (loss) 0.4% (2.6)% (5.5)% ===== ===== =====

FISCAL 2001 COMPARED TO FISCAL 2000 Net sales for fiscal 2001 of $65.0 million were $1.0 million, or 1.6% less than net sales of $66.0 million in fiscal 2000. The $1.0 million decline in product sales is discussed below. Respiratory care product sales in fiscal 2001 of $18.0 million were $1.6 million, or 8.2%, less than sales of $19.6 million in the prior year. The majority of this decline can be attributed to the delays we have experienced in our B & F disposable production. Medical gas equipment sales of $37.0 million in fiscal 2001 were $1.6 million, or 4.5%, above prior year sales of $35.4 million. Medical gas equipment sales experienced a $2.0 million increase resulting from growth achieved with our vacuum regulator line. The intermittent mini-vacutron was introduced in the second half of fiscal 2000. It was the final unit needed to complete the full offering for the mini-vacutron line. This increase is offset by a $0.5 million decline in construction products resulting from the continued decline in the hospital construction market. Emergency medical product sales in fiscal 2001 of $10.0 million were $1.0 million, or 9.1%, less than fiscal 2000 sales of $11.0 million. The decline in emergency medical product sales is a result of higher sales of oxygen regulators during fiscal 2000 as a result of a trade-in program offered in connection with the LSP regulator recall. These sales did not recur in fiscal 2001. International sales, which are included in the product lines discussed above increased $1.1 million, or 11.3%, to $13.7 million in fiscal 2001 compared to sales of $12.6 million in fiscal 2000. Export sales are affected by international economic conditions and the relative value of foreign currencies. Gross profit in fiscal 2001 was $16.7 million, or 25.7% of net sales, compared to a gross profit of $15.5 million, or 23.5% of net sales in fiscal 2000. Fiscal 2000 gross profit was adversely effected by a $0.9 million charge to write off excess and slow moving inventory purchased in prior years, and a $0.2 million charge related to the resolution of a vendor contract entered into in a prior year. Although the gross margin percentage continued to improve in fiscal 2001, the Company is continuing its efforts for further improvements in manufacturing efficiency. Selling, General and Administrative ("SG&A") expenses for fiscal 2001 were $14.6 million, a decrease of $1.5 million over SG&A expenses of $16.1 million in fiscal 2000. The decrease in fiscal 2001 SG&A costs can be attributed to cost reduction efforts initiated during the second quarter of fiscal 2000, primarily the 15% salary staff reduction. As a percentage of net sales, fiscal 2001 SG&A expenses were 22.4% compared to 24.4% in fiscal 2000. Interest expense decreased $0.2 million, or 10.5%, to $1.5 million in fiscal 2001 from 13 16 $1.7 million in fiscal 2000. Interest expense has been reduced due to the reduction in debt, and a reduction in interest rates. The Company had income before taxes of $0.4 million in fiscal 2001, compared to loss before taxes of $2.4 million in fiscal 2000. The Company recorded income tax expense of $0.2 million in fiscal 2001 compared to a benefit for income taxes of $0.7 million in fiscal 2000. Results for fiscal 2001 benefited from the release of the valuation allowance for $0.3 million in state net operating loss carryforwards. This valuation allowance was previously established for the carryforwards due to uncertainty as to their eventual utilization. For further discussion of the Company's income taxes please refer to the "Notes to Consolidated Financial Statements" section included in this Form 10-K. Net income in fiscal 2001 was $0.2 million, or $0.03 per diluted share, an improvement of $1.9 million from the net loss of $1.7 million, or $0.22 per diluted share, in fiscal 2000. 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 8,125,699 in fiscal 2001 and 7,806,682 in fiscal 2000. FISCAL 2000 COMPARED TO FISCAL 1999 Net sales for fiscal 2000 of $66.0 million were $8.7 million, or 11.6% less than net sales of $74.7 million in fiscal 1999. Of the $8.7 million decline, $3.2 million is related to the divested headwall products division. The remaining $5.5 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 rate 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. - 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 $19.6 million were $4.3 million, or 18.0%, less than sales of $23.9 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 $35.4 million in fiscal 2000 were $4.8 million, or 11.9%, below prior year sales of $40.2 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 14 17 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 $11.0 million were $0.4 million, or 3.8%, more than fiscal 1999 sales of $10.6 million. International sales, which are included in the product lines discussed above decreased $0.9 million, or 6.4%, to $12.6 million in fiscal 2000 compared to sales of $13.5 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 $15.5 million, or 23.5% of net sales, compared to a gross profit of $16.2 million, or 21.7% 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 $16.1 million, a decrease of $1.9 million over SG&A expenses of $18.0 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 24.4% compared to 24.1% 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: 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 and 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 $0.1 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 $2.0 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 15 18 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. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES The following table sets forth selected information concerning Allied's financial condition:

Dollars in thousands 2001 2000 1999 -------------------- ---- ---- ---- Cash............................................... $ 20 $ 568 $ 587 Working Capital.................................... $20,682 $20,261 $22,619 Total Debt......................................... $12,188 $14,073 $17,238 Current Ratio...................................... 3.44:1 3.55:1 3.30:1

The Company's working capital was $20.7 million at June 30, 2001 compared to $20.3 million at June 30, 2000. The increase in working capital is primarily attributable to the factors discussed below. Accounts receivable increased to $11.4 million at June 30, 2001, up $0.9 million from $10.5 million at June 30, 2000. The increase in accounts receivable is a result of increased sales in the fourth quarter of fiscal 2001 compared to the fourth quarter of fiscal 2000. Accounts receivable as measured in days sales outstanding ("DSO") decreased to 65 DSO at June 30, 2001 from 68 DSO at June 30, 2000, as collection efforts have improved the average time that is needed to collect from a customer. 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 increased to $17.1 million at June 30, 2001 from $16.7 million at June 30, 2000. Programs and policies were implemented during fiscal 2001 to reduce inventories, however, the effect of these programs have not been realized at June 30, 2001. Accounts payable decreased to $3.8 million at June 30, 2001, down $0.3 million from $4.1 million at June 30, 2000. Accrued liabilities increased by $0.6 million due to increases in accrued income tax and accrued compensation expense. 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 primarily 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. As discussed previously, 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 $0.8 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 net decrease in cash for the fiscal years ended June 30, 2001, 2000, and 1999 was $0.5 million, $0.02 million, and $0.6 million, respectively. Net cash provided by (used) operating activities was $2.1 million, $3.4 million, and $(0.2) million for the same periods. Cash flows provided by operating activities for the fiscal year ended June 30, 2001 consisted of a net income of $0.2 million, and $3.0 million in non-cash charges to operations for amortization and depreciation. Changes in working capital and deferred tax accounts unfavorably impacted cash flow from operations by $1.1 million. Cash flow was used to reduce debt and capital lease obligations by $1.9 million and make capital expenditures of $0.8 million. Cash flows provided by operating activities 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 and capital lease obligations by $3.2 million and make capital expenditures of $0.3 million. 16 19 Cash flows used in operating activities 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 and capital lease obligations by $1.2 million. At June 30, 2001 the Company had aggregate indebtedness of $12.2 million, including $1.2 million of short-term debt and $11.0 million of long-term debt. 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. 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 (6.75% at June 30, 2001) 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 $7.5 million at June 30, 2001. At June 30, 2001, $5.0 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 $0.8 million, $0.3 million and $1.1 million in fiscal 2001, 2000, and 1999, 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 2002. 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 have 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, 2001. 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 17 20 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, 2001 2001 2000 2000 2000 2000 1999 1999 --------------------------------------------------------------------------------------------------------------------- Net sales $16,556 $16,643 $16,709 $15,020 $15,174 $17,218 $17,160 $16,443 Gross profit 4,705 4,175 4,176 3,607 2,813 4,481 4,362 3,829 Income (loss) from 1,014 598 418 (20) (956) 919 359 (917) operations Net income (loss) 631 40 (90) (347) (894) 210 (126) (903) Basic and diluted 0.08 0.01 (0.01) (0.04) (0.11) .03 (0.02) (0.12) earnings (loss) per share Dollars in thousands, except per share data

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. The Company intends to defend these claims in cooperation with its insurers. Based on the progression of certain cases the Company recorded additional charges to operations during fiscal 2001 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. 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. As a result, 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 met with the FDA at their Kansas City field office in March 2001 to discuss the responses and actions. 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. 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 was 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 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. The recall is complete and a final audit of the results thereof was completed on December 22, 2000 by the FDA. The Company continues to experience minor expenditures relative to the recall and expects these expenditures to be substantially completed during fiscal 2002. As of June 30, 2001 the 18 21 Company has incurred $1.4 million for costs associated with the recall and has a remaining accrual balance of $0.1 million for future expected costs which management estimates to be appropriate. 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. 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 RECENT ACCOUNTING PRONOUNCEMENTS As required, Allied adopted Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"), effective for the fourth quarter of fiscal 2001. The adoption of SAB 101 did not result in a change to the Company's revenue recognition policy. Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities", establishes new accounting and reporting standards for derivative financial instruments. The Company adopted SFAS 133 during the first quarter of fiscal 2001. The adoption of SFAS 133 did not have a material impact on the consolidated financial position, or results of operations of the Company Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations", and Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets", establish new accounting and reporting standards for purchase business combinations and goodwill. The Company is currently in the process of evaluating the impact of the adoption of SFAS 141 and SFAS 142 and presently plans to adopt these pronouncements for the fiscal year ending June 30, 2002. Management has not assessed the impact that the adoption of SFAS 141 and SFAS 142 will have on the consolidated financial position, or results of operation of the Company. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK At June 30, 2001, the Company had $11.4 million in debt outstanding, of which $3.9 million is a term loan with a fixed interest rate of 7.75%. The remaining balance of $7.5 million represents amounts outstanding under the Company's revolving credit facility. The revolving credit facility bears an interest rate using the commercial bank's "floating reference rate" or LIBOR as the basis, as defined in the loan agreement, and therefore is subject to additional expense should there be an increase in market interest rates. With respect to the Company's fixed-rate debt outstanding at June 30, 2001, a 10% increase in interest rates would have resulted in approximately $0.05 million decrease in the market value of the debt and a 10% decrease in interest rates would have resulted in approximately $0.05 increase in the fair value of the debt respect to the Company's variable-debt. 19 22 The Company had no holdings of derivative financial or commodity instruments at June 30, 2001. Allied Healthcare Products has international sales, however these sales are denominated in U.S. dollars, mitigating foreign exchange rate fluctuation risk. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following described consolidated financial statements of Allied Healthcare Products, Inc. are included in response to this item: Report of Independent Accountants. Consolidated Statement of Operations for the fiscal years ended June 30, 2001, 2000 and 1999. Consolidated Balance Sheet for the fiscal years ended June 30, 2001 and 2000 Consolidated Statement of Changes in Stockholders' Equity for the fiscal years ended June 30, 2001, 2000 and 1999. Consolidated Statement of Cash Flows for the fiscal years ended June 30, 2001, 2000 and 1999. Notes to Consolidated Financial Statements. Schedule of Valuation and Qualifying Accounts and Reserves. 20 23 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Allied Healthcare Products, Inc. In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Allied Healthcare Products, Inc. and its subsidiaries at June 30, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2001, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule 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. PricewaterhouseCoopers LLP St. Louis, Missouri August 17, 2001 21 24 ALLIED HEALTHCARE PRODUCTS, INC. CONSOLIDATED STATEMENT OF OPERATIONS

Year ended June 30, 2001 2000 1999 --------------------------------------------------------------------------------------------------- Net sales $64,927,678 $65,994,968 $74,666,513 Cost of sales 48,265,110 50,510,411 58,440,766 ----------- ----------- ----------- Gross profit 16,662,568 15,484,557 16,225,747 Selling, general and administrative expenses 14,572,963 16,096,687 18,024,156 Provision for product recall 79,303 (17,600) 1,500,000 Gain on sale of business -- -- (27,246) Provision for restructuring and consolidation -- -- 758,467 ----------- ----------- ----------- Income (loss) from operations 2,010,302 (594,530) (4,029,630) ----------- ----------- ----------- Other expenses: Interest expense 1,530,481 1,664,477 1,925,757 Other, net 73,793 149,433 35,984 ----------- ----------- ----------- 1,604,274 1,813,910 1,961,741 ----------- ----------- ----------- Income (loss) before provision (benefit) for income taxes 406,028 (2,408,440) (5,991,371) Provision (benefit) for income taxes 171,892 (694,963) (1,872,976) ----------- ----------- ----------- Net income (loss) $ 234,136 $(1,713,477) $(4,118,395) =========== =========== =========== Basic and diluted income (loss) per share: Income (loss) per share $ 0.03 $ (0.22) $ (0.53) =========== =========== =========== Weighted average shares outstanding -- Basic 7,806,682 7,806,682 7,806,682 ----------- ----------- ----------- Weighted average common shares outstanding -- Diluted 8,125,699 7,806,682 7,806,682 ----------- ----------- -----------

See accompanying Notes to Consolidated Financial Statements 22 25 ALLIED HEALTHCARE PRODUCTS, INC. CONSOLIDATED BALANCE SHEET

June 30, 2001 2000 -------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 20,365 $ 568,197 Accounts receivable, net of allowance for doubtful accounts of $605,714 and $882,874, respectively 11,395,224 10,542,264 Inventories, net 17,079,033 16,742,178 Deferred income taxes -- current 369,453 -- Other current assets 292,596 358,407 ------------ ------------ Total current assets 29,156,671 28,211,046 ------------ ------------ Property, plant and equipment, net 10,892,268 12,176,616 Deferred income taxes 197,008 218,671 Goodwill, net 25,579,830 26,395,241 Other assets, net 107,377 210,503 ------------ ------------ Total assets $ 65,933,154 $ 67,212,077 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 3,843,092 $ 4,055,739 Current portion of long-term debt 1,169,044 1,016,611 Accrual for product recall 146,181 185,241 Other accrued liabilities 3,316,015 2,692,901 ------------ ------------ Total current liabilities 8,474,332 7,950,492 ------------ ------------ Long-term debt 11,019,081 13,055,980 Commitments and contingencies (Notes 7 and 13) -- -- Stockholders' equity: Preferred stock; $0.01 par value; 1,500,000 shares authorized; no shares issued and outstanding -- -- Series A preferred stock; $0.01 par value; 200,000 shares authorized; no shares issued and outstanding -- -- Common stock; $0.01 par value; 30,000,000 shares authorized; 7,806,682 shares issued and outstanding at June 30, 2001 and 2000 101,102 101,102 Additional paid-in capital 47,014,621 47,014,621 Retained earnings 20,055,446 19,821,310 Common stock in treasury, at cost (20,731,428) (20,731,428) ------------ ------------ Total stockholders' equity 46,439,741 46,205,605 ------------ ------------ Total liabilities and stockholders' equity $ 65,933,154 $ 67,212,077 ============ ============

See accompanying Notes to Consolidated Financial Statements 23 26 ALLIED HEALTHCARE PRODUCTS, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

Additional Preferred Common paid-in Retained Treasury Stock stock capital Earnings stock -------------------------------------------------------------------------------------------------------- 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) Net income for the year ended June 30, 2001 -- -- -- 234,136 -- ------- -------- ----------- ----------- ------------ Balance, June 30, 2001 $ -- $101,102 $47,014,621 $20,055,446 $(20,731,428) ======= ======== =========== =========== ============

See accompanying Notes to Consolidated Financial Statements 24 27 ALLIED HEALTHCARE PRODUCTS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS

Year ended June 30, 2001 2000 1999 --------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income (loss) $ 234,136 $ (1,713,477) $ (4,118,395) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 2,954,090 3,332,350 3,781,063 Provision for restructuring and consolidation -- -- 217,926 Provision for product recall (39,060) (409,484) 594,725 Gain on sale of Hospital Systems, Inc. -- -- (27,246) Deferred income taxes (356,668) (645,048) (375,435) Changes in operating assets and liabilities: Accounts receivable, net (852,960) 2,058,901 1,626,149 Inventories, net (336,855) 757,644 407,134 Income taxes receivable -- 1,635,866 (1,635,866) Other current assets 65,811 (220,047) 133,307 Accounts payable (212,647) (1,378,564) (373,046) Other accrued liabilities 631,992 (30,034) (455,986) ------------ ------------ ------------ Net cash provided by (used in) operating activities 2,087,839 3,448,175 (225,670) Cash flows from investing activities: Capital expenditures (751,205) (298,040) (1,061,309) Proceeds on sale of Toledo, Ohio facilities -- -- 1,393,287 Proceeds on sale of Hospital Systems, Inc. -- Net of disposal costs -- -- 495,178 ------------ ------------ ------------ Net cash provided by (used in) investing activities (751,205) (298,040) 827,156 Cash flows from financing activities: Proceeds from issuance of long-term debt -- -- 5,000,000 Payment of long-term debt (413,313) (367,206) (6,783,646) Payment of capital lease obligations (565,751) (569,679) (627,812) Borrowings under revolving credit agreement 63,807,625 69,661,053 88,063,847 Payments under revolving credit agreement (64,713,027) (71,893,563) (86,829,127) Debt issuance costs -- -- (32,104) ------------ ------------ ------------ Net cash used in financing activities (1,884,466) (3,169,395) (1,208,842) Net decrease in cash and equivalents (547,832) (19,260) (607,356) Cash and equivalents at beginning of year 568,197 587,457 1,194,813 ------------ ------------ ------------ Cash and equivalents at end of year $ 20,365 $ 568,197 $ 587,457 ============ ============ ============ Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 1,431,750 $ 1,662,150 $ 2,046,103 Income taxes $ 154,892 $ 252,869 $ 541,756

See accompanying Notes to Consolidated Financial Statements 25 28 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. USE OF ESTIMATES The policies utilized by the Company in the preparation of the financial statements conform to accounting principles generally accepted in the United States of America, 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. RECLASSIFICATIONS Certain financial statement amounts have been reclassified to conform with the current year presentation. REVENUE RECOGNITION Revenue is recognized for all sales, including sales to agents and distributors, at the time products are shipped and title has transferred to the customer, provided that a purchase order has been received or a contract has been executed, there are no uncertainties regarding customer acceptance, the sales price is fixed and determinable and collectibility is deemed probable. The Company's standard shipping terms are FOB shipping point. Sales discounts, returns and allowances are included in net sales, and the provision for doubtful accounts is included in selling, general and administrative expenses. Additionally, it is the Company's practice to include revenues generated from freight billed to customers in net sales with corresponding freight expense included in cost of sales in the Consolidated Statement of Operations. Allied adopted Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"), in the fourth quarter of fiscal 2001. The adoption of SAB 101 did not result in a change to the Company's revenue recognition policy. 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 $1,053,134 and $1,290,277 at June 30, 2001 and 2000, respectively, are included in accounts payable. FOREIGN CURRENCY TRANSACTIONS Allied Healthcare Products has international sales, however, these sales are denominated in U.S. dollars mitigating the foreign exchange rate fluctuation risk. 26 29 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, 2001 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 method (which approximates replacement cost) had been used in determining cost, inventories would have been $758,770 and $842,770 higher at June 30, 2001 and 2000, respectively. Changes in the LIFO reserve are included in cost of sales. In fiscal 2001, the cost of sales was reduced by $84,000 as a result of a LIFO liquidation. Costs in inventory include raw materials, direct labor and manufacturing overhead. Inventory is recorded net of a reserve for obsolete and excess inventory of $2,572,967 and $2,894,610 at June 30, 2001 and 2000, respectively. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are recorded at cost and are 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 37 to 40 years. Amortization expense for the years ended June 30, 2001, 2000 and 1999 was $815,411. Accumulated amortization at June 30, 2001 and 2000 was $7,946,509 and $7,131,098, respectively. OTHER ASSETS Other assets are primarily comprised of debt issuance costs. These costs are amortized using the effective interest rate method over the life of the related obligations. IMPAIRMENT OF LONG-LIVED ASSETS The Company evaluates impairment of long-lived assets under the provisions of Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets to be Disposed Of." SFAS 121 requires that long-lived assets, identifiable intangibles and goodwill related to those assets to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicated that the carrying amount of the assets may not be recoverable. Under SFAS 121, if the sum of the expected future cash flows (undiscounted and without interest charges) of the long-lived assets is less than the carrying amount of such assets, an impairment loss will be recognized. No impairment losses were recorded by the Company for fiscal years ended June 30, 2001, 2000 and 1999. 27 30 FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments consist of cash, accounts receivable, accounts payable and debt. The carrying amounts for cash, accounts receivable and accounts payable approximate their value due to the short maturity of these instruments. The fair value of long-term debt, excluding capital leases was $11.5 million and $12.6 million at June 30, 2001 and 2000, respectively, and the related carrying amounts were $11.4 million and $12.8 million, respectively. The Company estimated the fair value of its long-term, fixed-rate debt using discounted cash flow analysis based on the Company's current borrowing rates for debt with similar maturities. INCOME TAXES The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under SFAS 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. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. 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, 2001, 2000 and 1999 was $592,815, $726,315 and $1,315,593, 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 the sum of the weighted averaged number of shares of common stock and common stock equivalents outstanding during the year. The number of basic shares outstanding for the years ended June 30, 2001, 2000 and 1999 was 7,806,682. The number of diluted shares outstanding for the years ended June 30, 2001, 2000 and 1999 was 8,125,699, 7,806,682, and 7,806,682 shares, respectively. The dilutive effect of Company's employee's and director's stock option plans are determined by use of the treasury stock method. Employee and director stock option plans are not included as common stock equivalents for earnings per share purposes in fiscal 2000 and 1999 as the impact on the number of shares outstanding would have been anti-dilutive. 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") and its related interpretations. 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" ("SFAS 123"), became effective for the Company and prescribes the recognition of compensation expense based on the fair value of options or stock awards determined on the date of grant. Companies that elect to account for stock-based compensation plans in accordance with APB 25 are required to make certain pro forma disclosures as if the fair value method had been utilized. See Note 10 for additional disclosure. 28 31 NEW ACCOUNTING STANDARDS Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities", establishes new accounting and reporting standards for derivative financial instruments. The Company adopted SFAS 133 during the first quarter of fiscal 2001. The adoption of SFAS 133 did not have a material impact on the consolidated financial position, or results of operations of the Company. Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations," and Statement of Financial Accounting Standards No. 142 ("SFAS 142"),"Goodwill and Other Intangible Assets," establish new accounting and reporting standards for purchase business combinations and goodwill. The Company is currently in the process of evaluating the impact of the adoption of SFAS 141 and SFAS 142 and presently plans to adopt these pronouncements for the fiscal year ending June 30, 2002. Management has not assessed the impact that the adoption of SFAS 141 and SFAS 142 will have on the consolidated financial position, or results of operations. 3. LSP OXYGEN REGULATOR RECALL On February 4, 1999, Allied announced a voluntary recall of aluminum oxygen regulators marketed under its Life Support Products ("LSP") 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 was 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 introduced new brass regulators and also offered 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. The original provision for regulator recall included estimated costs of $1.3 million for aluminum regulator retrofitting and replacement, as well as $0.2 million for certain communications and legal costs expected to be incurred by the Company under the terms of the recall. A reconciliation of activity with respect to the Company's product recall is as follows:

2001 2000 1999 ---- ---- ---- Balance, beginning of year $185,241 $594,725 $ -- Provision for recall established -- -- 1,500,000 Addition to provision for recall 79,303 300,000 -- Reduction to provision for recall -- (317,600) -- Costs incurred related to product retrofitting and replacement 118,363 391,885 905,275 ---------------------------------- Balance, end of year $146,181 $185,241 $ 594,725 ==================================

During the first quarter of fiscal 2000, the Company recorded an additional provision of $0.3 million relative to the regulator recall. The addition represented a provision for additional aluminum regulator inventory not identified as part of the original $1.5 million estimate. The $0.3 million reduction to the provision in fiscal 2000 represented the subsequent disposal of the aluminum regulator inventory on a basis more favorable than originally estimated. During fiscal 2001 the Company recorded an additional provision of $0.1 million for the estimated additional cost to be incurred for product retrofitting and replacement. The Company has incurred various legal expenses related to claims associated with the LSP regulator recall. Accordingly, the Company recorded an additional provision for product liability litigation during fiscal 2001 for amounts estimated to be payable by the company under its self-insurance retention for legal costs 29 32 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, 2001, the Company has a litigation cost accrual balance of $0.1 million for legal expense associated to the LSP regulator recall. The Company received notification from the FDA that the recall was complete in December 2000. The Company continues to experience minor expenditures relative to the recall and expects these expenditures to be substantially completed during fiscal 2002. 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 In the first quarter of fiscal 1999, the city of Toledo, Ohio exercised the right of eminent domain on the B&F manufacturing facility. Pursuant to the pending sale of the B&F facility to the city of Toledo, Allied's board of directors voted to close the facility and consolidate production of the B&F line of home care products into its manufacturing facility in St. Louis, Missouri. The consolidation of the B&F facility eliminated excess capacity at the St. Louis facility and reduced manufacturing and overhead costs associated with the B&F facility. 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 original provision included a $0.4 million provision for severance liabilities associated with the closure of the Toledo facility. The severance liabilities related to the 140 hourly production employees and 29 production management and administrative employees at the Toledo facility. The severance payments were substantially complete in the second quarter of fiscal 1999. Approximately $0.2 million was included in the original provision for impaired assets to be disposed of in connection with the facility shutdown representing the excess of book value of land, building, machinery and equipment to be disposed of pursuant to the closure of the facility over estimated sales proceeds. The building was subsequently sold at its net realizable value and no further gain or loss was recorded. The remaining $0.4 million included in the original provision related to other exit costs including costs incurred to prepare the building for sale, travel and legal costs associated with the closure of the Toledo facility. Subsequent to the recording of the original $1.0 million provision, during the second quarter of fiscal 1999, the Company negotiated and received a $0.2 million cash payment from the City of Toledo as a partial reimbursement for closure costs. Accordingly, Allied recorded this cash payment as a reduction to the aforementioned provision resulting in a net provision of $0.8 million pre-tax, $0.5 million after tax, or $0.06 per share for the fiscal year ended June 30, 1999. The relocation of the Toledo facility was substantially complete during the second quarter of fiscal 1999. 30 33 6. FINANCING Long-term debt consisted of the following at June 30, 2001 and 2000:

2001 2000 ----------- ----------- UNSUBORDINATED DEBT Notes payable to bank or other financial lending institution Term loan -- principal due in varying monthly maturities ranging from $27,714 to $40,518 with remaining balance due August 1, 2003 $ 3,950,049 $ 4,347,118 Revolving credit facility -- aggregate revolving commitment of $25,000,000; principal due at maturity on January 6, 2003 7,493,505 8,398,907 Other -- 16,244 ----------- ----------- 11,443,554 12,762,269 ----------- ----------- SUBORDINATED DEBT Capital lease obligations 744,571 1,310,322 ----------- ----------- 12,188,125 14,072,591 Less -- Current portion of long-term debt, including $744,571 and $603,297 of capital lease obligations at June 30, 2001 and June 30, 2000, respectively (1,169,044) (1,016,611) ----------- ----------- $11,019,081 $13,055,980 =========== ===========

On August 7, 1998, the Company borrowed approximately $5.0 million from a bank. The term loan is collateralized by the Company's St. Louis facility. The term 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 term loan 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, 2001 and 2000. On September 8, 1998, the Company's revolving credit facility with a bank was amended. As amended, the revolving credit facility provides for borrowings up to $25.0 million. The revolving credit facility provides a borrowing base of the lesser of 85% of eligible accounts receivable or $8.0 million plus the lesser of 45% of eligible inventory or $10.0 million, adjusted as deemed appropriate by the bank. At June 30, 2001 and 2000, $5.0 million and $5.5 million , respectively, was available under the revolving credit facility for additional borrowings. The revolving credit facility accrues interest at the floating reference rate (6.75% and 9.25% at June 30, 2001 and 2000, respectively) plus 0.25%, as defined in the agreement. The amended revolving credit facility also provides the Company with a rate of LIBOR + 2.50%. At June 30, 2001 and 2000 no portion of the revolving credit facility was subject to the LIBOR provision. The amended revolving credit facility is collateralized by substantially all of the assets of the company. On June 28, 1999, the Company's credit facilities with a bank were further amended. The amendment provided 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, 2001 and 2000. The revolving credit facility also provides for a commitment guarantee up to a maximum of $3.0 million for letters of credit and requires a per annum fee of 0.75% on unused letters of credit. At June 30, 2001 and 2000, the Company had no letters of credit outstanding. 31 34 Aggregate maturities of long-term debt, excluding capital leases, for each of the three fiscal years subsequent to June 30, 2001 are as follows:

Fiscal Revolving Year Credit Facility Term Loan Total ------ --------------- ------------ ----------- 2002 -- $ 424,473 $ 424,473 2003 $7,493,505 463,411 7,956,916 2004 -- 3,062,165 3,062,165 ---------- ---------- ----------- $7,493,505 $3,950,049 $11,443,554 ========== ========== ===========

7. 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 ("SFAS 13"), "Accounting for Leases". In addition, the Company leases certain office equipment under noncancelable operating leases. Minimum lease payments under long-term capital leases and operating leases at June 30, 2001 are as follows:

Fiscal Capital Operating Year Leases Leases ------ -------- --------- 2002 $779,851 $235,085 2003 -- 154,030 2004 -- 83,378 -------- -------- Total minimum lease payments 779,851 $472,493 -------- ======== Less amount representing interest (35,280) -------- Present value of future net minimum lease payments, including current portion of $744,571 $744,571 ========

Rental expense incurred on operating leases in fiscal 2001, 2000, and 1999 totaled $658,426, $678,888 and $647,550, respectively. 8. INCOME TAXES The provision (benefit) for income taxes consists of the following:

2001 2000 1999 -------- --------- ----------- Current: Federal $528,560 $ (49,915) $(1,497,541) State -- -- -- -------- --------- ----------- Total current 528,560 (49,915) (1,497,541) -------- --------- ----------- Deferred: Federal (110,410) (561,137) (113,472) State (246,258) (83,911) (261,963) -------- --------- ----------- Total Deferred (356,668) (645,048) (375,435) -------- --------- ----------- $171,892 $(694,963) $(1,872,976) ======== ========= ===========

32 35 Income taxes were 42.3%, 28.9%, and 31.3% of pre-tax earnings (losses) in 2001, 2000, and 1999, respectively. The Company reversed $0.3 million in deferred tax valuation allowances during fiscal 2001 pursuant to the Company's reassessment of the underlying deferred tax assets and determination that it is more likely than not that the deferred tax assets will be fully utilized. The valuation allowance was previously established for state tax net operating tax carryforwards due to uncertainty as to their eventual utilization. The Company now believes that these carryforwards will be fully utilized. A reconciliation of income taxes, with the amounts computed at the statutory federal rate is as follows:

2001 2000 1999 -------- --------- ----------- Computed tax at federal statutory rate $138,050 $(818,869) $(2,037,066) State income taxes, net of federal tax benefit 43,779 (55,381) (172,876) Non deductible goodwill 277,240 277,240 277,240 Change in valuation allowance (325,391) -- -- Other, net 38,214 (97,953) 59,726 -------- --------- ----------- Total $171,892 $(694,963) $(1,872,976) ======== ========= ===========

The deferred tax assets and deferred tax liabilities recorded on the balance sheet as of June 30, 2001 and 2000 are as follows:

2001 2000 ---- ---- Deferred Deferred Tax Deferred Deferred Tax Tax Assets Liabilities Tax Assets Liabilities ------------ ------------ ------------ ------------ Current: Bad debts $ 236,228 $ -- $ 344,321 $ -- Accrued liabilities 328,817 -- 208,515 -- Inventory -- 646,275 -- 561,714 Other property basis 450,683 -- -- -- ---------- -------- ---------- -------- 1,015,728 646,275 552,836 561,714 ---------- -------- ---------- -------- Non Current: Depreciation 107,753 -- -- (5,407) Other property basis -- 147,192 -- (97,665) Intangible assets 176,737 -- 530,163 -- Net operating loss carryforward 170,998 -- 264,274 -- Other -- 111,288 -- 353,447 ---------- -------- ---------- -------- 455,488 258,480 794,437 250,375 ---------- -------- ---------- -------- Valuation allowance -- -- (325,391) -- ---------- -------- ---------- -------- Total deferred taxes $1,471,216 $904,755 $1,021,882 $812,089 ========== ======== ========== ========

9. 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, 2001, 2000 and 1999, the Company made contributions of $234,472, $296,134, and $359,087 respectively. 10. STOCKHOLDERS' 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 (collectively the"Employee Plans"). The Employee Plans provide for the granting of options to the Company's executive officers and key employees to purchase 33 36 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 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 the common stock exceeds required levels. The right to exercise the options expires in 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 (collectively the"Directors Plans"). The Directors Plans provide 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 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 in ten years from the date of grant, or earlier if an option holder ceases to be a director of the Company. A summary of stock option transactions in 2001, 2000 and 1999, respectively, pursuant to the Employee Plans and the Directors Plans is as follows:

Weighted Average Shares Subject Price To Option ------------------ -------------- 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 $3.50 767,750 -------- Exercisable at June 30, 2000 227,000 ======== June 30, 2000 $3.50 767,750 Options granted 3.17 95,500 Options exercised -- Options canceled 3.04 (67,850) -------- June 30, 2001 $3.50 795,400 -------- Exercisable at June 30, 2001 369,025 ========

34 37 The following table provides additional information for options outstanding and exercisable at June 30, 2001. OPTIONS OUTSTANDING

Weighted Average Weighted Average Range of Prices Number Remaining Life Exercise Price --------------- --------- ------------------ ------------------ $ 1.00-1.99 25,500 8.0 years $1.90 2.00 542,000 8.3 years 2.00 2.01-6.99 99,000 8.5 years 4.05 7.00-7.99 71,000 6.4 years 7.52 8.00-18.50 57,900 3.4 years 12.40 ------- $1.00-18.50 795,400 7.8 years $3.50

OPTIONS EXERCISABLE

Weighted Average Range of Prices Number Exercise Price --------------- --------- ------------------ $ 1.00-1.99 10,500 $1.89 2.00 237,125 2.00 2.01-6.99 27,500 5.24 7.00-7.99 39,750 7.50 8.00-18.50 54,150 12.67 ------- $1.00-18.50 369,025 $5.31

The Company has elected to follow the provisions prescribed by APB 25 and its related interpretations, for financial reporting purposes, whereby the difference between the exercise price and the fair value at the date of grant is recognized as compensation expense. The Company has elected to follow the disclosure provisions of SFAS No. 123. Accordingly, no compensation expense has been recognized for the plans under the provisions of SFAS No. 123. Had compensation cost for the plans been determined based upon the fair value at the grant date for employee awards under the Plan consistent with the methodology prescribed under SFAS No. 123, the Company's net loss would have been increased or decreased, respectively, to the following pro forma amount (in thousands, except per share).

2001 2000 1999 ----- ------- ------- Reported net income/(loss) $ 234 $(1,713) $(4,118) Pro forma net income/(loss) $ 45 $(1,918) $(4,374) Basic and diluted earnings per share -- as reported $0.03 $ (0.22) $ (0.53) Basic and diluted earnings per share -- pro forma $0.01 $ (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:

2001 2000 1999 -------- -------- -------- Expected life of option 10 years 10 years 10 years Risk-free interest rate 5.0% 5.9% 5.2% Expected volatility 49% 50% 37% Expected dividend yield 0% 0% 0%

35 38 The weighted-average fair value of options granted during fiscal 2001 and 2000 determined using the Black-Scholes options pricing model is as follows:

2001 2000 1999 ----- ----- ----- Per share value $2.20 $1.38 $1.27 Aggregate value (in thousands) $ 210 $ 780 $ 70

In conjunction with a refinancing, 28,124 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 on August 7, 1997. Each warrant entitles the holder to purchase one share of common stock at $7.025 per share through August 7, 2002. The fair value of the warrants using the Black-Scholes option pricing model was not significant. 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. At June 30, 2001, no common stock has been purchased under this plan. 11. EXPORT SALES Export sales for the years ended June 30, 2001, 2000, and 1999 are approximately as follows (in thousands):

2001 2000 1999 ------- ------- ------- Europe $ 1,500 $ 2,100 $ 2,600 Canada 1,500 1,800 1,900 Latin America 3,200 3,900 3,500 Middle East 1,200 1,300 1,300 Far East 4,200 2,600 2,700 Other 2,100 900 1,500 ------- ------- ------- $13,700 $12,600 $13,500 ======= ======= =======

36 39 12. SUPPLEMENTAL BALANCE SHEET INFORMATION

June 30, 2001 2000 ------------ ------------ INVENTORIES Work in progress $ 801,965 $ 1,237,534 Component parts 12,018,928 11,209,463 Finished goods 4,258,140 4,295,181 ------------ ------------ $ 17,079,033 $ 16,742,178 ============ ============ Estimated Useful Life (years) PROPERTY, PLANT AND EQUIPMENT Machinery and equipment 5-10 $ 15,670,224 $ 15,096,250 Buildings 28-35 11,928,686 11,751,455 Land and land improvements 5-7 934,216 934,216 Property held under capital leases 5 4,518,761 4,518,761 ------------ ------------ Total property, plant and equipment at cost 33,051,887 32,300,682 Less accumulated depreciation and amortization, including $4,260,952 and $3,526,799, respectively, related to property held under capital leases (22,159,619) (20,124,066) ------------ ------------ $ 10,892,268 $ 12,176,616 ============ ============ OTHER ACCRUED LIABILITIES Accrued compensation expense $ 1,114,128 $ 756,328 Accrued interest expense 89,468 101,142 Accrued income tax 1,621,785 1,247,546 Other 490,634 587,885 ------------ ------------ $ 3,316,015 $ 2,692,901 ============ ============

13. 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 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. As a result, 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 met with the FDA at their Kansas City field office in March 2001 to discuss the responses and actions. 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. 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. 37 40 14. QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial data for fiscal 2001 and 2000 appears below (all amounts in thousands except per share data):

June 30, March 31, Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Sept. 30, Three months ended, 2001 2001 2000 2000 2000 2000 1999 1999 --------------------------------------------------------------------------------------------------------------------- Net sales $16,556 $16,643 $16,709 $15,020 $15,174 $17,218 $17,160 $16,443 Gross profit 4,705 4,175 4,176 3,607 2,813 4,481 4,362 3,829 Income (loss) from 1,014 598 418 (20) (956) 919 359 (917) operations Net income (loss) 631 40 (90) (347) (894) 210 (126) (903) Basic and diluted 0.08 0.01 (0.01) (0.04) (0.11) .03 (0.02) (0.12) earnings (loss) per share

15. 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. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None 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, 2001. 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 6 and under the caption Section 16(a) Beneficial Ownership Reporting Compliance on page 14 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 7 through 8 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 4 through 5 of the definitive proxy statement, which information is incorporated herein by reference thereto. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None 38 41 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, 2001, 2000, and 1999 Consolidated Balance Sheet at June 30, 2001 and 2000 Consolidated Statement of Changes in Stockholders' Equity for the years ended June 30, 2001, 2000 and 1999 Consolidated Statement of Cash Flows for the years ended June 30, 2001, 2000 and 1999 Notes to Consolidated Financial Statements Report of Independent Accountants 2. FINANCIAL STATEMENT SCHEDULE Valuation and Qualifying Accounts and Reserves for the Years Ended June 30, 2001, 2000 and 1999 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 None. 39 42 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 /s/ DANIEL C. DUNN -------------------------------------- Daniel C. Dunn Vice President, Chief Financial Officer, and Secretary Dated: October 5, 2001 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 October 5, 2001.

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 * Director --------------------------------------------- James B. Hickey, Jr. *By: /s/ EARL R. REFSLAND --------------------------------------- Earl R. Refsland Attorney-in-Fact

------------------------- * Such signature has been affixed pursuant to the following Power of Attorney. 40 43 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 17, 2001 S-1 44 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, 2001 Reserve For Doubtful Accounts $(882,874) $(259,997) $537,157 (1) $(605,714) Inventory Allowance For Obsolescence And Excess Quantities $(2,894,610) $(149,000) $470,643 (2) $(2,572,967) --------------------------------------------------------------------------------------------------------------------------- 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) $(958,208) -- $(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 (3) $(1,936,402) ---------------------------------------------------------------------------------------------------------------------------

(1) Decrease due to bad debt write-offs and recoveries. (2) Decrease due to disposal of obsolete inventory. (3) Decrease due to disposal of obsolete inventory and a decrease of $228,928 due to the sale of the Headwall Products Division. S-2 45 INDEX TO EXHIBITS EXHIBIT NO. Description 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) 46 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) 10.22* Form of Indemnification Agreement with officers and directors 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) 47 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 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 (filed on Exhibit 10.27 to the 1999 Form 10-K and incorporated by reference) 10.28 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 (filed on Exhibit 10.28 to the 2000 Form 10-K and incorporated by reference) 10.29* Letter Agreement dated July 2, 2001 between Allied Healthcare Products, Inc. and Daniel C. Dunn 21 Subsidiaries of the Registrant (filed on Exhibit 21 to the 2000 Form 10-K) 24* Powers of Attorney * Previously filed