AEQUITRON MEDICAL INC, 10-K, 1995-07-31

AEQUITRON MEDICAL INC
10-K, 1995-07-31
ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended April 30, 1995
Commission file number 0-11571
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AEQUITRON MEDICAL, INC.
(Exact name of registrant as specified in its charter)

14800 TWENTY EIGHTH AVENUE NORTH
MINNEAPOLIS, MINNESOTA 55447
(Address of principal executive offices)

INCORPORATED UNDER THE LAWS IRS IDENTIFICATION NUMBER
OF THE STATE OF MINNESOTA 41-1359703

(612) 557-9200
(Registrant's telephone number including area code)

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

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

COMMON STOCK, $.01 PAR VALUE PER SHARE
(Title of Class)
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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 and (2) has been subject to such filing
requirements for the past 90 days. /X/ Yes / / 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. /X/
The issuer's revenues for 1995, its most recent fiscal year, were
$30,802,300.
The aggregate market value of the Company's common stock held by
nonaffiliates of the Company on July 24, 1995 computed at the NASDAQ National
Market System closing price of $6.00 was $17,365,374.
The Company has one class of equity securities outstanding: common stock,
$.01 par value per share. On July 24, 1995, there were 4,854,762 shares
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive proxy statement for its 1995 annual
meeting of shareholders are incorporated by reference into Items 10, 11, 12 and
13 of Part III.

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PART I

ITEM 1. BUSINESS

Aequitron Medical, Inc. (the "Company" or "Aequitron") is primarily engaged
in the development, manufacture and distribution of medical electronic devices
for home health care and hospital use. The Company was formed as a Minnesota
corporation on May 8, 1980. The Company's medical electronic products include
electronic equipment and related accessories for monitoring and analyzing
respiration and heart rate data for infants considered susceptible to episodes
of apnea, a line of ventilator products used to assist respiration in patients
suffering from chronic obstructive pulmonary disease or other breathing
difficulties, and sleep disorder diagnostic products.

The Company, through its Crow River Industries, Incorporated subsidiary
("Crow River"), also manufactures and sells wheelchair lifts, securement systems
and automobile hand controls for the mobility-impaired.

In June 1995, the Company acquired a line of products and inventory for the
diagnosis of sleep disorders. As a result of the acquisition, the Company now
designs, manufactures and markets computer-based diagnostic devices for sleep
disorders such as sleep apnea (the cessation or interruption of breathing during
sleep), insomnia and narcolepsy. The products produced include (i) a sleep lab
product line, SLEEPLAB(R), which records, processes and permits analysis of
comprehensive sleep study data, (ii) a portable sleep staging device, the Sleep
I/T(R), (iii) a portable recording device, the PolyG(R), for in-home sleep apnea
testing, (iv) a portable recording device, ApneaScreen(TM) I and II, marketed
internationally, and (v) Matrix Sleep(TM), a Windows(R)-based sleep analysis
software package.

INFANT APNEA PRODUCTS

The Company designs, manufactures and markets monitors intended to detect
apnea, bradycardia (an abnormally low heart rate) and tachycardia (an abnormally
fast heart rate) in infants. Apnea incidents are generally considered to be a
contributing factor of Sudden Infant Death Syndrome ("SIDS"), commonly referred
to as "Crib Death." Although it is presently impossible to predict precisely
which infants are susceptible to SIDS due to apnea, it is known statistically
that certain categories of infants have a higher incidence of SIDS. These
categories include infants with low birth weights, premature infants, infants
with siblings who have had apnea-related problems or have succumbed to SIDS, and
infants who have experienced apnea episodes and survived.

The Company's principal products in this area are its Model 9500/9550
respiration/heart rate memory monitors (the "Model 9500/9550 Memory Monitors"),
which are designed to be used in homes and hospitals. The Model 9500/9550 Memory
Monitors, which were introduced in May 1989, have respiration and heart rate
monitoring capabilities as well as internal recording capabilities. The Company
has manufactured and marketed respiration/heart rate monitors since June 1982.
Additionally, the Company offers the Model 9216 respiration/heart rate monitor
used in hospital monitoring.

Since June 1990 the Company has also been selling the Model 9101
multi-channel recording and analysis system (the "Model 9101"), which is a
diagnostic device designed to assist physicians in managing patients of all ages
who experience breathing disorders while sleeping. A portable version of the
Model 9101 was introduced in July 1991 for home or hospital use.

The Company's infant apnea-related products and accessories accounted for
approximately 27%, 28% and 33% of the Company's net sales in fiscal 1995, 1994
and 1993, respectively.

Model 9500/9550 Respiration/Heart Rate Memory Monitors

The Model 9500/9550 Memory Monitors are portable monitoring devices which
are attached by placing a padded belt holding electrodes around the infant's
torso in the correct position on the infant's skin. Model 9500/9550 Memory
Monitors are used to monitor the infant's respiratory and cardiac functions and
are intended to sound an alarm when these detected functions deviate from norms
established by the physician for

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that infant. The alarm can be set for apnea, tachycardia and bradycardia events.
The alarm normally alerts the parents or caregiver in attendance of the possible
need to stimulate the infant or take other appropriate action.

Model 9500/9550 Memory Monitors have capabilities so that information on
apnea, bradycardia or tachycardia events is recorded internally and can be
printed out at a later time in graphic format. Both the Model 9500 and 9550
Memory Monitors record on/off times and provide a complete log, a summary report
of what happened during the monitoring period, and a compliance graph and event
histograms. The information generated provides clinicians with compliance
patterns, objective alarm verification data, and assistance in determining
monitor discontinuance. The Model 9550 Memory Monitor also interfaces with a
pulse oximeter which measures pulse rate and blood oxygen saturation level.

Recorded information can be transmitted by telephone or by a direct
connection from the Model 9500/9550 to a compatible PC. Report generator
software analyzes the data received and provides the physician with a printed
copy of the recorded data.

The Model 9500/9550 Memory Monitors, which have been designed for both
hospital and home use, are used primarily for the monitoring of infants in the
home. Monitoring at home is less expensive than hospitalization and has proven
to be a cost-effective alternative to hospital monitoring when the necessary
training, service and supervision for in-home use are available.

The Company sells its products primarily to home health care dealers, who
in turn rent or sell units to families of infants who have been diagnosed as
susceptible to apnea. The expense of the monitor is generally covered by third
party payors.

The Company also has a series of accessories that may be used with Model
9500/9550 Memory Monitors or may be sold separately. These include remote
alarms, a digital ratemeter, an impedance tester, cables, carrying cases and a
variety of electrodes.

Model 9216 Respiration/Heart Rate Monitor

In February 1988, the Company introduced and sold its first Model 9216
Respiration/Heart Rate Monitor, which is designed to meet the needs of hospitals
that monitor both adult and pediatric patients. The Model 9216 is portable (7
lbs.), contains an eight-hour rechargeable battery and displays the patient's
heart and respiration rates. The Model 9216 is used in a number of
cardiorespiratory monitoring applications, such as in neonatal intensive care
units, patient transport and recovery rooms.

Model 9101 Recording and Analysis System

In June 1990, the Company introduced the Model 9101, a multi-channel
recording and analysis system which can be used in conjunction with the
Company's respiration/heart monitors. This diagnostic device has been designed
to help physicians manage patients of all ages who experience breathing
disorders while sleeping. It records and analyzes eight physiological parameters
including the patient's respiration, EKG, air flow, blood oxygen saturation and
esophageal pH. The Model 9101 processes the recorded data through a
sophisticated software program for analysis. The Model 9101 has been designed
for use in sleep or breathing disorder laboratories and in neonatal and
pediatric intensive care units. A portable version of the Model 9101 was
introduced in July 1991 for both home and hospital use.

PORTABLE COMPACT VENTILATORS

In August 1986, the Company purchased for $6 million all the outstanding
stock of Life Products, Inc. ("Life Products"), a Colorado-based corporation
engaged in the manufacture and sale of portable breathing assistance devices.
With the acquisition of Life Products, the Company began to manufacture a line
of compact, portable breathing assistance devices and related accessories for
use in home, hospital, nursing facility and patient transport settings. The
devices are used to assist and monitor respiration in patients suffering from
chronic obstructive pulmonary disease or breathing difficulties caused by spinal
cord injuries, polio or other trauma. In June 1991, the Company introduced the
Model LP10 Compact Volume Ventilator ("LP10 Ventilator"). The LP6 Plus
Ventilator ("LP6 Plus") was introduced in July 1992 to replace the

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Company's original LP6 Ventilator ("Original LP6"). The Company designed the LP6
Plus in order to utilize more current technology and incorporate parts and
supplies which are more readily available.

Traditionally, positive-pressure ventilators are one of two types: (i)
intensive care unit ventilators designed for continuous use in hospitals and
(ii) portable ventilators designed for continuous use in the home, subacute
settings or for transport. The LP6 Plus and LP10 Ventilators, like all positive
pressure ventilators, force air into the patient's lungs at regular pre-set
intervals and are used in all patient care settings.

The Company believes the LP6 Plus and LP10 Ventilators are well-known to
dealers as state-of-the art technology and are well-established in the
marketplace. The LP6 Plus and LP10 Ventilators use a microprocessor controlled
system with an integrated motor, gear box and pumping process, which greatly
reduces periodic maintenance intervals and improves access to the system. The
LP6 Plus and LP10 Ventilator casing has a one-piece molded manifold that reduces
potential for air leaks. The LP6 Plus and LP10 Ventilators have been designed
for ease of operation with calibrated control knobs, an analog pressure meter
and audible/visual alarms. The units are portable (32 lbs.) and have a remote
alarm and remote printer accessories, as well as other accessories. The most
notable features of the LP10 Ventilator include a pressure plateau valve for the
pediatric market and a printer interface for recording data to assist resolution
of potential problems and offer greater detail to alarm occurrences.

The LP6 Plus and LP10 Ventilators are marketed for general use in the home;
in hospitals for various uses including intensive care units, burn care units,
cardio-pulmonary treatment, and patient transport; in nursing homes; in air and
ground emergency transport; and in long-term acute care/subacute care
facilities. The Company's principal focus has historically been home health care
sales. The LP6 Plus (or its predecessor, the Original LP6) and LP10 Ventilators
and accessories accounted for approximately 47%, 44% and 42% of the Company's
net sales in fiscal 1995, 1994 and 1993, respectively.

Pursuant to an original equipment manufacturer agreement between the
Company and Dragerwerk Aktiengesellschaft, a corporation with its principal
place of business in Germany ("Dragerwerk"), the Company has redesigned the
Original LP6 and LP10 Ventilators to Dragerwerk's specifications for
distribution by Dragerwerk outside the United States. Dragerwerk markets the
redesigned ventilators under the name Drager EV800 and EV801.

SLEEP DISORDER DIAGNOSTIC DEVICES

On June 1, 1995, the Company acquired the sleep diagnostic business from
CNS, Inc. pursuant to an Asset Purchase Agreement dated May 8, 1995. The assets
acquired include all rights to CNS, Inc.'s sleep diagnostic products, all
applicable patents and a product currently under development.

Following the acquisition, the Company now manufactures two new types of
computer-based products used to diagnose sleep disorders: (i) hospital and
clinic-based sleep laboratory equipment and (ii) portable devices for use
primarily outside traditional hospital sleep laboratories. The diagnosis and
treatment of sleep disorders such as sleep apnea, insomnia and narcolepsy have
expanded significantly in recent years.

The Company believes the largest market for its sleep disorder diagnostic
devices is sleep apnea, which is estimated to afflict 4% of the U.S. adult
population. Sleep apnea patients typically stop breathing hundreds of times
during the night, disrupting their sleep and causing significant
cardiorespiratory problems. In addition, because their sleep is frequently
disrupted, apnea patients have greater difficulty staying awake during the day
and are more likely to fall asleep at work or while driving. The Company
believes that the level of interest in providing more testing for sleep apnea
has been increasing because of the large number of people believed to be
affected by this disorder and because safe and effective therapy is available.
However, the extent to which this trend will continue may be influenced by
potentially lower reimbursement rates.

In sleep labs, patients are typically monitored for one or two nights with
a polysomnograph which records any or all of the following data: EEG, EKG, eye
movement, respiration (flow and effort of breathing), muscle activity from the
chin and legs, blood oxygen level, snoring sounds and body position. The
Company's sleep disorder diagnostic products reduce the costs and time required
to gather, analyze and store sleep study data

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obtained compared with other data that is obtained without the use of
computer-based diagnostic equipment and when compared to competitive systems.

The Company currently manufactures and sells the following computer-based
products used principally in the diagnosis of sleep related disorder.

SLEEP LAB(R) (Sleep Disorders Laboratory Systems)

The Company's laboratory systems are used primarily in hospital sleep labs
where comprehensive sleep studies are performed. The Company's systems record
EEG, EKG, eye movement, respiration, muscle activity from the chin and legs,
blood oxygen level, snoring sounds, body position and penile tumescence, and
stores that information on an optical disk cartridge or onto a hard disk. In
addition to recording and storing the patient's physiologic data, the systems
process data on-line during the recording session using the Company's
proprietary software algorithms, and provide a compressed representation of the
data for rapid review and analysis after the recording session has been
completed. The operator reviews samples of the raw data selected from the
findings in the processed data, and has the ability to set parameters so that
the analysis of the data can be tailored to a specific patient. In addition, the
analysis software provides the user with extensive editing capabilities that
allow a user to override the computer's decisions on an event-by-event basis.

The Company believes its diagnostic systems increase the operating
efficiencies and improve the results of sleep labs by reducing analysis time,
increasing technician productivity, expediting communication of test results,
reducing recording and storage costs and providing a more standardized analysis.

Sleep I/T(R) (Sleep Integrated Technology) Portable Sleep Staging Device

The Sleep I/T is a portable sleep staging device intended for use outside
the sleep laboratory. This small, 1.5 pound, battery-operated device can be
placed at the home bedside for nighttime recording of the patient's sleep data.
The information recorded using Sleep I/T differs from PolyG and includes EEG,
eye movements, limb activity and muscle activity from either the chin or legs,
providing the operator with information regarding the quality of the patient's
sleep. Oxygen saturation, snoring sounds and respiratory effort can also be
recorded. Once the unit is returned to the physician, the data can be
transferred to a computer, analyzed and viewed. In addition to testing for sleep
apnea, the device may also be used to test for a variety of other sleep
disorders, including insomnia.

PolyG(R) Portable Apnea Recorder

The PolyG is a portable sleep disorder diagnostic device used primarily for
sleep apnea testing. This small, 12 pound, battery-operated device measures and
records EKG, oxygen saturation, respiratory flow and effort, body position and
the level of positive airway pressure delivered to the patient via continuous
positive airway pressure ("CPAP") delivered at the nose. The information
collected with the PolyG can be analyzed using the Company's sleep disorders
laboratory system or an IBM(R) compatible personal computer operating the
Company's analysis software.

Patients can be tested using the portable PolyG in locations other than in
the sleep laboratory. For example, the PolyG is useful in intensive care units
for testing patients too ill to be tested in the sleep lab. It is well suited
for small hospitals and physician group practices. Additional software programs
for IBM compatible personal computers are available to allow users to manipulate
and analyze data collected using a PolyG.

ApneaScreen(TM) Devices

The ApneaScreen I and II are portable devices used primarily to perform
apnea testing on adults. Both products record oxygen saturation, pulse rate,
respiratory flow, body position and limb activity. The ApneaScreen II, in
addition, records respiratory effort and tracheal sound. Both devices are
battery-operated and are capable of performing an analysis function without the
aid of an additional computer. These products are sold in international markets
only, as they presently are not cleared by the FDA to be marketed

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domestically. In January 1995, CNS, Inc. submitted a 510(k) application to the
FDA for the ability to market these products domestically and approval is
pending.

Matrix Sleep(TM) Analysis Software

Matrix Sleep is a Windows(R)-based sleep analysis software package which
provides user-friendly options in recording, analyzing and reporting sleep study
data. Some of these options include customer requested features such as
"Snapshot," which lets the user capture specific segments of important data for
immediate or later review. Also, the Patient Profile Screen provides the viewer
with critical and milder events simultaneously allowing a patient classification
by sleep disorder and severity. The ReportGenerator function allows the user to
print reports while analyzing a case or using other Windows applications.

MOBILITY EQUIPMENT

In December 1986, the Company acquired all the assets, properties and
equipment of Crow River Industries, Inc., a Minnesota corporation that
manufactured and marketed wheelchair lifts, securement systems and automobile
hand controls for the mobility-impaired. These products are manufactured and
sold through the Company's subsidiary which operates under the name Crow River
Industries, Incorporated ("Crow River").

Crow River products are installed in vans, school buses, nursing home
transporters and certain municipal buses used in transportation of handicapped
or mobility-impaired persons. The Company's wheelchair lifts are sold under the
names Vangater(TM), Mini-Vangater(TM), Transgater(TM) and Ultragater(TM).

The lifts are powered either electro-mechanically or electro-hydraulically.
Crow River also markets a complete line of driving assistance aids under the
name Mobility Products and Design. Crow River products accounted for
approximately 26%, 26% and 22% of the Company's net sales in fiscal 1995, 1994
and 1993, respectively.

OTHER MATTERS

New Products and Research & Development

The Company's research and development efforts focus primarily on
developing improvements to its existing products and introducing new products in
its areas. Research and development costs of $2,953,700, $1,896,600 and
$1,680,000 were incurred in the fiscal years ended April 30, 1995, 1994 and
1993, respectively, for product development and improvements of existing
products.

Raw Materials and Supplies

The Company assembles its medical electronic products from electronic
components and housings manufactured by other companies and from other parts,
including control panels, which subcontractors make to comply with Company
specifications. The Company has not experienced any significant shortage of
materials or parts, even though a few of the components that the Company uses
are manufactured by only one or a few companies. The Company believes it
maintains sufficient inventory and, in most cases, has the ability to design
around temporary shortages caused by an inability to obtain components from its
suppliers.

Intellectual Property

The areas in which the Company is engaged are characterized by significant
research and development and are noted for frequent introduction of new and
advanced techniques, products and devices. Therefore, despite existing and
potential patent protection, products in this market, including the Company's,
are subject to possible technological obsolescence. In addition, there can be no
assurance that the Company will be successful in obtaining patents on its
products. Therefore, although the Company has obtained patents on several of the
processes used in its products and will continue to seek patent protection for
its significant products in the future, it believes such protection is not
essential to its continued competitiveness. The

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Company has obtained registration of its trademark, Aequitron Medical. The
Company believes that its trademarks have been and will be useful in developing
and protecting market recognition for its products.

As a result of the Company's acquisition of the sleep disorder diagnostic
business from CNS, Inc., the Company acquired all the domestic and foreign
patents and patents-pending and the U.S. trademark registrations for "SLEEPLAB",
"Sleep I/T", "PolyG" granted by the United States Patent and Trademark Office.
In addition, a trademark registration for ApneaScreen(TM) is pending.

In August 1993, the Company signed a license agreement with Carmeli Adahan,
an individual residing in Jerusalem, Israel, to develop and manufacture new,
more compact portable ventilators. The design of the new units was to combine
volume ventilation and transport capability in a smaller unit than is otherwise
available. The Company paid an initial license fee of $500,000. The license
agreement is currently the subject of mediation or arbitration proceedings. See
"Legal Proceedings."

Seasonal Aspects of Business

The Company has not experienced significant seasonal variations in the sale
of its products.

Working Capital Requirements

The Company is not subject to unusual working capital requirements with
regard to receivables, inventories and payables.

Government Contracts

No portion of the business of the Company is subject to renegotiation of
profits or termination of contracts or subcontracts at the election of the
government.

Competition

Traditionally, the Company's main competitor in the production of apnea
monitoring systems has been Healthdyne, Inc., which has substantially greater
financial resources than the Company and which the Company believes
traditionally accounted for a predominant share of the market. Since entering
the market in fiscal 1983, the Company has been able to develop a significant
market share, which management attributes to the reliability of its monitors
(including low false alarm rates), portability and the Company's customer
service, sales and support. As a result, the Company is the second largest
seller of apnea memory monitors nationally. Apart from Healthdyne, Inc.,
Corometrics Medical Systems, Inc., Arvee and Nellcor (EdenTec), the Company
believes no other company has a significant market share in the apnea monitoring
market.

Competition within the market for apnea monitoring systems is based
primarily on the quality and features of the products sold as well as the price
of the systems. The Company believes its future success in the apnea field
depends upon its service and responsiveness to the physicians and other health
care professionals who are involved in apnea monitoring and recording, and upon
its ability to design innovative and reliable products that meet the needs of
the marketplace.

Competition within the home health care ventilator market is based upon a
number of factors including product features, ease of operation, service,
reliability and price. The market is competitive and the Company faces
competition from such companies as LIFECARE Services, Inc. and Bear Medical
Systems, Inc. The Company believes its competitive strengths include the
state-of-the-art design of its ventilators and their multiple applications,
effective distribution methods and the Aequitron reputation for quality and
service, including its technical support and clinical education for individuals
who use and maintain the equipment.

The apnea and ventilator industries in which the Company operates are
subject to rapid technological change. Although the Company has been a leader in
the apnea and ventilator industries, there can be no assurance that the Company
will be able to react and adapt to any such change or that developments by
competitors will not render the Company's products and services obsolete.

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Within the sleep disorder diagnostic market, the Company competes with
several companies that market products designed for use in hospital-based sleep
labs. Telefactor Corporation, Oxford Medilog, Inc., Nicolet Instrument
Corporation, Bio-Logic Systems Corp., Healthdyne Technologies, Inc. and
Sensormedics, Inc. offer computerized sleep disorder diagnostic systems. Several
companies, including EdenTec, Inc. and Healthdyne Technologies, Inc., market
products that compete with the portable PolyG device. The sleep disorder
diagnostic market is not believed to be the primary market served by the
competitors named above.

The Company competes in the sleep disorder diagnostic products market on
the basis of its technology and broad diagnostic product line. The competitors'
systems also allow for electronic data storage, but provide only a portion of
the analysis capability of the Company's sleep disorders laboratory systems. The
Company's laboratory systems, and its portable PolyG and Sleep I/T devices,
complement one another.

There are a number of companies that compete with the Company's Crow River
subsidiary in the sales of wheelchair lifts, securement systems and hand
controls. The Company believes that traditionally these markets have been
fragmented with no company dominating the market.

The medical device industry is highly competitive and characterized by
rapid technological change. Moreover, the adoption of government-imposed and
other changes to reimbursement programs has created economic incentives to
reduce health care costs. The Company believes that these factors may shorten
medical product life cycles and increase clinical evaluation expenses and
regulatory compliance expenditures.

There can be no assurance that other companies have not developed, are not
developing, or will not develop products which will be perceived as superior to
the Company's products. Further, as the markets for the Company's products
develop more fully, the Company will likely face additional competition from
more established companies with greater technological, financial, manufacturing
and marketing resources. There can be no assurance that the Company will be able
to compete effectively with either present or future competitors in any of its
markets.

Regulatory Matters

The manufacture, testing, packaging, labeling and distribution of medical
devices and the manufacturing procedures relating to devices are regulated under
the Federal Food, Drug and Cosmetic Act, as amended (the "Act"), and additional
regulations promulgated thereunder. In general, these statutes and regulations
require that manufacturers conform to certain procedures and controls designed
to ensure the safety and effectiveness of medical products.

Under the Act, all medical devices are classified as Class I, Class II or
Class III devices. All of the Company's products are classified as Class II
devices. In general, Class II devices must comply with labeling and
record-keeping requirements and are subject to other general controls. In
addition to general controls, certain Class II devices may have to comply with
special controls established by the FDA, and all manufacturers are subject to
periodic inspection by the FDA. Class III devices must receive pre-market
approval from the FDA before they can be commercially distributed in the United
States. Furthermore, state, local and foreign governments have adopted
regulations relating to the manufacture and marketing of medical health care
products. The Company believes that it is presently in material compliance with
all applicable regulations.

Environmental Regulation

The Company believes that the federal, state and local regulations relating
to the protection of the environment have had no material effect upon the
Company.

Employees

The Company had approximately 268 full-time employees as of July 10, 1995,
including 9 in management, 25 in administration, 157 in production, 36 in
research and development and 41 in sales and marketing.

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Sales and Marketing

The Company's apnea and ventilator products are sold to home health care
dealers, hospitals and hospital distributors through the Company's sales and
distribution force of both independent manufacturers representatives and direct
sales representatives.

The Company markets its sleep products primarily to hospital sleep lab
personnel and sleep specialty physicians. This group is believed to have the
necessary expertise to effectively diagnose and treat sleep disordered patients,
and is normally involved in the decision to purchase sleep diagnostic products.
Portable sleep disorder diagnostic products can provide the necessary screening
and post-diagnostic follow-up function, and their use may serve to expand the
number of patients which may be tested for sleep disorders. The Company believes
that home care providers are becoming more involved in non-sleep lab testing,
and are excellent candidates to purchase portable systems.

The Company's Crow River products are sold to independent dealers for
resale to the ultimate consumers.

The Company's marketing of its products includes advertising in appropriate
medical journals, trade show attendance and direct mail campaigns.

Foreign Sales

Prior to fiscal 1990, substantially all of the Company's sales had been
generated from domestic sales of its products. In fiscal 1995, 1994 and 1993,
foreign sales amounted to 12%, 11% and 14% of total sales, with Dragerwerk
accounting for 5%, 4% and 7% of such sales, respectively. See also footnote 11
to the Company's 1995 Financial Statements.

On March 3, 1988, the Company entered into an original equipment
manufacturer agreement (the "Agreement") with Dragerwerk. Under the Agreement,
Dragerwerk was granted the exclusive right to purchase the Original LP6
Ventilator on an original equipment manufacturer's basis for distribution in
selected European countries, and non-exclusive distribution rights in other
international markets. Dragerwerk agreed to develop and implement an effective
program for marketing, distribution and servicing of the ventilators, to use its
best efforts to promote and increase sales of the ventilators and accessory
products, and to purchase all of this type of ventilator from Aequitron. The
Agreement was first amended and extended through December 31, 1993. In March
1994, the Agreement was again amended. The current agreement, which extends
through December 31, 1995 with automatic annual renewals thereafter, covers both
the Company's LP6 and LP10 ventilators and offers certain volume incentives.
Dragerwerk markets the ventilators under the name Drager EV800 and EV801.

Significant Customers and Suppliers

The Company sells a substantial portion of its product to one customer (the
loss of which, however, would not materially adversely impact the Company).
During 1995, 1994 and 1993, sales to that customer aggregated $2.8 million, $4.3
million and $1.6 million, respectively. At April 30, 1995 and 1994, amounts due
from that customer included in trade accounts receivable were $301,100 and
$430,000, respectively.

Firm Backlog of Orders

As of April 30, 1995 and 1994, the Company had a firm backlog in the amount
of $1,252,700 and $2,500,000, respectively.

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Executive Officers of the Company

The following table sets forth the names and ages of the Company's
Executive Officers, together with all positions and offices held with the
Company by each such Executive Officer. Officers are appointed to serve until
the meeting of the Board of Directors following the next Annual Meeting of
Shareholders and until their successors have been elected and have qualified.

<TABLE>
<CAPTION>
NAME AGE OFFICE
- --------------------------------- ---- --------------------------------------------------
<S> <C> <C>
James B. Hickey, Jr. ............ 42 President, Chief Executive Officer and Director
Jeffrey A. Blair................. 47 Senior Vice President, Sales and Marketing
Patricia A. Hamm................. 41 Vice President, Human Resources
William M. Milne................. 51 Chief Financial Officer
Robert C. Samec.................. 42 Vice President, Quality Assurance/Regulatory
Affairs
Edson R. Weeks, III.............. 42 Vice President, Operations
</TABLE>

James B. Hickey, Jr. has been the President and Chief Executive Officer of
the Company since June 1993. From October 1989 to June 1993, Mr. Hickey served
as President of Baxter Healthcare, Inc.'s Respiratory/Anesthesia Systems
Division and prior to October 1989, he was President of Baxter's Hospitex
Division for three years.

Jeffrey A. Blair joined the Company as Senior Vice President of Sales and
Marketing in September 1993. Before joining the Company, Mr. Blair served as
Senior Vice President of Sentinel Monitoring, Inc., a medical device
manufacturing company based in Indianapolis, from May 1989 through April 1993.
Prior to May 1989, Mr. Blair held various management positions with Glasrock
Home Health Care, Inc. and Baxter Healthcare, Inc.

Patricia A. Hamm has been with the Company since January 1995 in the
position of Vice President of Human Resources. Prior to joining the Company, she
held a variety of positions with First Bank System in Minneapolis, most recently
as Vice President, Marketing from August 1991 through December 1995.

William M. Milne has served as Chief Financial Officer of the Company since
August 1989 and was acting President and acting Chief Executive Officer of the
Company from January 1993 to June 1993. From 1984 through July 1989, Mr. Milne
was employed by The Griffin Cos., Inc. of Minneapolis, Minnesota, a real estate
investment and property management firm, where he served as Vice President of
Finance, Secretary and Treasurer. He was employed by Graco, Inc of Minneapolis,
Minnesota from 1974 to 1984 holding various positions including corporate tax
manager and assistant treasurer.

Robert C. Samec has been with the Company since January 1982, serving as
vice president primarily in roles relating to quality assurance and regulatory
affairs. Since August 1993, he has held the position of Vice President, Quality
Assurance/Regulatory Affairs.

Edson R. Weeks, III has been with the Company since May 1984 and has served
as Vice President, Manufacturing since May 1990. Prior to that, Mr. Weeks served
as Director of Manufacturing from September 1986 through April 1990 and
Materials Manager from May 1984 to September 1986.

ITEM 2. PROPERTIES

The Company leases approximately 67,140 square feet of office, production
and warehouse space in a building in suburban Minneapolis under a lease expiring
on December 31, 1996. Monthly payments are currently $46,813. The Company
believes there is adequate adjacent space for its short-term growth. The
Company's Crow River subsidiary owns a 33,000 square foot manufacturing facility
in Brooten, Minnesota. Both facilities have adequate space for the Company to
conduct its current business.

ITEM 3. LEGAL PROCEEDINGS

Currently there are no material products liability claims pending against
the Company. However, the Company believes that products liability claims are
incidental to its business and the medical products

9
<PAGE> 11

industry. Generally, the Company maintains reserves for the cost of defending
such claims which, together with its products liability insurance coverage, are
believed to be adequate to protect the Company against losses that could have a
material adverse impact on the Company. Nevertheless, there is no assurance that
future products liability claims will not be made seeking compensation
significantly in excess of the Company's reserves and insurance coverage, and
such claims could, if upheld in a court of law, have a material adverse impact
on the Company's financial position.

On January 18, 1995, Adahan, Inc. of Israel served on the Company a Demand
for Arbitration in New York City under the rules of the American Arbitration
Association. Adahan is claiming $21,650,000 in loss of anticipated royalty
payments and $500,000 for special tooling. Adahan is also requesting an
injunction prohibiting use of its technology. The Company is seeking a refund of
the $500,000 paid to Adahan plus expenses incurred on the project due to product
inadequacies and lack of required documentation for submission to the FDA.
Adahan and the Company have agreed to an informal mediation proceeding prior to
moving forward with the formal arbitration proceedings.

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

No matters were submitted to a vote of Aequitron shareholders during the
fourth quarter of fiscal year 1995.

10
<PAGE> 12

PART II

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

Price Range of Common Stock

The Company's Common Stock is traded in the over-the-counter market under
the National Association of Securities Dealers, Inc. Automated Quotation System
- -- National Market System ("NASDAQ/NMS") symbol "AQTN." The following table sets
forth, for the periods indicated, the high and low last sales prices.

<TABLE>
<CAPTION>
FISCAL 1995: HIGH LOW
---------------------------------------------------------- ---- ---
<S> <C> <C>
First Quarter............................................. 3 7/16 2 3/4
Second Quarter............................................ 5 3/4 2 13/16
Third Quarter............................................. 5 3/8 4
Fourth Quarter............................................ 5 3/8 4 1/8
</TABLE>

<TABLE>
<CAPTION>
FISCAL 1994: HIGH LOW
---------------------------------------------------------- ---- ---
<S> <C> <C>
First Quarter............................................. 3 1/8 2
Second Quarter............................................ 2 5/8 1 7/8
Third Quarter............................................. 3 2 1/8
Fourth Quarter............................................ 3 3/8 2 1/2
</TABLE>

Approximate Number of Holders of Common Stock

<TABLE>
<CAPTION>
APPROXIMATE NUMBER OF
RECORD HOLDERS AS OF
TITLE OF CLASS JULY 24, 1995
---------------------------------------------------- ---------------------
<S> <C>
Common Stock, $.01 par value........................ 780
</TABLE>

Dividends

The Company has never paid any cash dividends on its Common Stock. The
Board of Directors presently intends to retain all earnings for use in the
Company's business and does not anticipate paying cash dividends in the
foreseeable future. Any future determinations as to payments of dividends will
depend upon the financial condition and results of operations of the Company and
such other factors as are deemed relevant by the Board of Directors.

11
<PAGE> 13

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

5-YEAR SUMMARY

<TABLE>
<CAPTION>
YEARS ENDED APRIL 30
------------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATIONS DATA:
Net sales.................. $30,802,300 $26,310,200 $26,984,900 $24,573,100 $26,899,900
Gross profit............... 16,919,300 13,290,900 13,665,200 12,478,900 13,662,800
Sales, general and
administrative
expenses................. 11,280,100 10,136,100 10,536,900 10,413,400 10,067,100
Research and development
expenses................. 2,953,700 1,896,600 1,680,000 1,395,000 1,752,400
Other (income) expense..... (359,700) 580,800(1) (31,100) (466,100)(2) 98,700
Income before income taxes
and change in accounting
principle................ 3,045,200 677,400 1,479,400 1,136,600 1,744,600
Income taxes............... 1,187,600 301,600 581,400 480,900 560,800
Income before change in
accounting principle..... 1,857,600 375,800 898,000 655,700 1,183,800
Accounting change.......... (92,600)(3)
Net income................. $ 1,857,600 $ 283,200 $ 898,000 $ 655,700 $1,183,800
Net income per share....... $ .36 $ .06 $ .19 $ .14 $ .25
Weighted average number of
shares outstanding....... 5,125,200 4,777,300 4,751,700 4,735,900 4,698,000
BALANCE SHEET DATA:
Total assets............... $17,943,300 $15,318,000 $14,773,100 $14,486,400 $15,767,900
Working capital............ $ 9,388,800 $6,770,800 $6,519,600 $6,123,700 $5,525,900
Current ratio.............. 3.4/1 3.1/1 3.2/1 3.1/1 2.2/1
Long-term debt............. $ 64,000 $ 85,700 $ 139,900 $ 727,400 $1,166,800
Shareholders' equity....... $13,956,800 $11,999,400 $11,681,000 $10,738,800 $10,041,200
Book value per share....... $ 2.88 $ 2.50 $ 2.45 $ 2.26 $ 2.12
</TABLE>

- ---------------

(1) Includes $712,900 charge for the disposal of the oxygen concentrator line.

(2) Includes $522,500 resulting from the settlement of a claim against a vendor.

(3) Cumulative effect of change in accounting for income taxes.

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

YEAR ENDED APRIL 30, 1995 COMPARED TO YEAR ENDED APRIL 30, 1994

Results of Operations

Net sales in fiscal 1995 increased $4,492,100, or 17.1 percent from fiscal
1994. Sales increased in the ventilation, apnea and mobility product lines.
Service and rental income decreased from the prior year due to two major
accounts converting their rental units to purchases. The Company experienced
strong sales for fiscal 1995 and expects positive sales trends to continue.

Gross margins for fiscal 1995 increased to 54.9 percent compared to 50.5
percent for the prior year. This increase reflects the benefit of the
discontinuation of the oxygen concentrator product line and the increased
absorption of overhead due to increased volume in production. Gross margins are
expected to continue at the 1995 level.

12
<PAGE> 14

Sales and marketing expenses increased $412,200 in fiscal 1995 compared to
fiscal 1994. The increase in expenses reflects the increase in commissions paid
to the Company's manufacturers' representatives as a result of the increased
sales volume. However, overall sales and marketing expenses as a percentage of
sales decreased to 20.3 percent in fiscal 1995 from 22.2 percent in fiscal 1994.
Sales and marketing expenses are expected to remain at similar levels for fiscal
1996.

General and administrative expenses increased $731,800, or 17.1 percent,
over fiscal 1994, and represented 16.3 percent of sales for both fiscal 1994 and
the current year. The increase was due to increased professional fees, training
costs and employee benefits. The Company expects fiscal 1996 general and
administrative expenses to be consistent with fiscal 1995 levels.

Research and development expenses for fiscal 1995 increased $1,057,100, or
55.7 percent, from fiscal 1994 representing an increase to 9.6 percent of sales
from 7.2 percent in fiscal 1994. The increase was due in part to the
cancellation of a license agreement for new ventilator technology with Adahan,
Inc. This resulted in a $500,000 write-off for amounts previously paid to
Adahan, Inc. The balance of the increase was due to the Company's commitment to
increase funding for product development projects. This commitment is expected
to continue in fiscal 1996 resulting in increased research and development
expenses.

Other income increased by $225,500 from fiscal 1994 which is primarily the
result of an increase in interest income on the Company's higher average cash
balance. Interest expense decreased $2,100 from fiscal 1994 as a direct result
of the decrease in long-term debt from the prior year.

The effective tax rate for fiscal 1995 decreased to 39.0 percent from 44.5
percent for fiscal 1994. The decrease is due to the effect of non-deductible
goodwill and the benefit of the Foreign Sales Corporation on the higher earnings
for the year.

On June l, 1995, the Company acquired all assets, including inventory,
fixed assets, receivables and certain intangibles, of the sleep diagnostics
division of CNS, Inc. for $2.3 million in cash, $3.1 million in notes payable
and $294,000 in liabilities. The acquisition will be accounted for as a purchase
and, accordingly, the net assets and results of operations will be included in
the fiscal year 1996 financial statements from the date of acquisition.

Liquidity and Capital Resources

Cash and cash equivalents increased to $4,986,800 at April 30, 1995, an
increase of $2,611,600 from $2,375,200 at April 30, 1994. Operating activities
provided cash of $3,285,300 during the fiscal year compared to $2,916,000 during
fiscal 1994. The increased cash during fiscal 1995 was attributable to the
increase in net income, which was offset by increases in accounts receivable of
$387,800, inventory of $401,500 and the write-off of $587,600 related to various
license agreements, with the Carmeli Adahan agreement representing $500,000. The
Company expects to make increased capital expenditures in fiscal 1996. The
Company renewed its line of credit with its bank for $2,000,000 on June 1, 1995.
In addition, a long-term note of $2,500,000 was obtained to purchase the sleep
diagnostics product line from CNS, Inc. The Company believes that internally
generated funds and existing borrowing potential will provide sufficient working
capital to meet all present and anticipated commitments.

YEAR ENDED APRIL 30, 1994 COMPARED TO YEAR ENDED APRIL 30, 1993

Results of Operations

Net sales in fiscal 1994 decreased $674,700, or 2.5%, from fiscal 1993.
Sales increased in the ventilation and mobility product lines, but decreased in
the apnea and the discontinued oxygen concentrator product lines. Service and
rental revenues in each of the product lines remained consistent with the prior
year. The Company experienced strong sales in the last three quarters of fiscal
1994.

Gross margins remained consistent at 51% for both fiscal 1994 and 1993.

Sales and marketing expenses decreased $58,000 in fiscal 1994 compared to
fiscal 1993. The decrease in expenses reflects the reduction in commissions paid
to the Company's manufacturers representatives as a

13
<PAGE> 15

result of the lower volume of sales. However, overall sales and marketing
expenses as a percentage of sales increased to 22.2% in fiscal 1994 from 21.9%
in fiscal 1993.

General and administrative expenses decreased $342,800, or 7.4%, over
fiscal 1993, representing a decrease to 16.3% of sales from 17.2% in fiscal
1993. The most significant factor in the decrease was the benefit resulting from
the discontinuation of the oxygen concentrator product line during the first
quarter of fiscal 1994. This benefit of reduced operating expenses was offset by
the settlement of a legal claim during the fourth quarter of fiscal 1994 and the
legal costs incurred in such matter.

Research and development expenses for fiscal 1994 increased $216,600, or
12.9%, from fiscal 1993 representing an increase to 7.2% of sales from 6.2% in
fiscal 1993. The increase was due to continued funding of two product
development projects.

During fiscal 1994, the Company recorded a charge of $712,900 due to the
disposal of the oxygen concentrator product line. This amount includes asset
write-offs of $311,600 for inventory, $38,300 for a covenant not to compete, and
$6,900 for miscellaneous equipment. The remaining $356,100 of charges includes
$166,800 for severance pay, $37,300 for rework of inventory, and $152,000 for
lease obligations. Cash payments made on accruals in 1994 were $242,300 and the
remaining obligation of $113,800 is included in other accrued liabilities at
April 30, 1994. The charges reduced after tax earnings by $454,800, or $.10 per
share.

Other income increased by $40,200 from fiscal 1993 which is primarily the
result of an increase in interest income on the Company's cash balance. Interest
expense decreased $60,800 from fiscal 1993 as a direct result of the decrease in
long-term debt from the prior year.

The effective tax rate for fiscal 1994 increased to 44.5% from 39.3% for
fiscal 1993. The increase is due to the effect of nondeductible goodwill and the
offsetting benefit of the Foreign Sales Corporation on the lower earnings for
the year. The Company adopted Statement of Financial Accounting Standards Board
(SFAS) No. 109, "Accounting for Income Taxes", in the first quarter of fiscal
1994. The adoption of SFAS No. 109 resulted in a cumulative effect charge of
$92,600 or $.02 per share.

14
<PAGE> 16

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ART WORK

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Aequitron Medical, Inc.

We have audited the accompanying consolidated balance sheets of Aequitron
Medical, Inc. as of April 30, 1995 and 1994, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended April 30, 1995. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Aequitron
Medical, Inc. at April 30, 1995 and 1994, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
April 30, 1995, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.

As discussed in Note 8, in 1994 the Company changed its method of
accounting for income taxes.

Ernst & Young LLP

Minneapolis, Minnesota
June 14, 1995

15
<PAGE> 17

AEQUITRON MEDICAL, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
APRIL 30
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $4,986,800 $2,375,200
Accounts receivable, less allowances of $243,500 in 1995 and
$200,500 in 1994........................................... 4,311,200 4,036,600
Inventories................................................... 3,071,100 2,669,600
Deferred income taxes......................................... 606,100 624,100
Prepaid expenses and other.................................... 336,100 298,200
----------- -----------
Total current assets............................................ 13,311,300 10,003,700
Property and equipment:
Buildings..................................................... 652,600 648,700
Equipment..................................................... 3,930,900 4,396,600
Leasehold improvements........................................ 26,800 26,800
----------- -----------
4,610,300 5,072,100
Less allowances for depreciation................................ (2,901,400) (3,601,400)
----------- -----------
1,708,900 1,470,700
Other assets:
Goodwill, net of accumulated amortization of $2,520,000 in
1995 and $2,232,000 in 1994................................ 1,789,500 2,077,500
Demonstration, evaluation and rental equipment, net of
accumulated amortization of $749,900 in 1995 and $812,400
in 1994.................................................... 1,133,600 1,178,300
Other assets.................................................... -- 587,800
----------- -----------
2,923,100 3,843,600
---------- -----------
Total assets.................................................... $17,943,300 $15,318,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................. $ 1,161,100 $ 915,900
Employee compensation......................................... 1,104,900 589,200
Commissions payable........................................... 543,200 421,200
Other liabilities and accrued expenses........................ 1,075,000 1,252,400
Current maturities of long-term debt.......................... 38,300 54,200
----------- ----------
Total current liabilities....................................... 3,922,500 3,232,900
Long-term debt.................................................. 64,000 85,700
Shareholders' equity:
Preferred Stock, no par value per share:
Authorized shares -- 4,000,000
Issued and outstanding shares -- none
Common Stock, $.01 par value per share:
Authorized shares -- 15,000,000
Issued and outstanding shares -- 4,848,500 in 1995 and
4,792,600 in 1994........................................ 48,500 47,900
Additional paid-in capital.................................... 5,933,700 5,834,500
Retained earnings............................................. 7,974,600 6,117,000
---------- ----------
Total shareholders' equity...................................... 13,956,800 11,999,400
---------- ----------
Total liabilities and shareholders' equity...................... $17,943,300 $15,318,000
========== ==========
</TABLE>

See accompanying notes.

16
<PAGE> 18

AEQUITRON MEDICAL, INC.

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED APRIL 30
--------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Product............................................ $28,385,100 $23,553,700 $24,179,300
Service............................................ 2,417,200 2,756,500 2,805,600
---------- ---------- ----------
Total revenues....................................... 30,802,300 26,310,200 26,984,900
Cost of sales:
Product............................................ 13,061,600 11,943,200 12,203,800
Service............................................ 821,400 1,076,100 1,115,900
---------- ---------- ----------
Total cost of sales.................................. 13,883,000 13,019,300 13,319,700
---------- ---------- ----------
Gross profit......................................... 16,919,300 13,290,900 13,665,200
Operating expenses:
Sales and marketing................................ 6,258,500 5,846,300 5,904,300
General and administrative......................... 5,021,600 4,289,800 4,632,600
Research and development........................... 2,953,700 1,896,600 1,680,000
Disposal of oxygen concentrator line............... -- 712,900 --
---------- ---------- ----------
14,233,800 12,745,600 12,216,900
---------- ---------- ----------
Operating income..................................... 2,685,500 545,300 1,448,300
Other income (expense):
Interest income.................................... 302,000 109,400 85,400
Interest expense................................... (24,800) (26,900) (87,700)
Other -- net....................................... 82,500 49,600 33,400
---------- ---------- ----------
Income before income taxes and cumulative effect of
change in accounting principle..................... 3,045,200 677,400 1,479,400
Income taxes......................................... 1,187,600 301,600 581,400
---------- ---------- ----------
Income before cumulative effect of change in
accounting principle............................... 1,857,600 375,800 898,000
Cumulative effect of change in accounting for income
taxes.............................................. -- (92,600) --
---------- ---------- ----------
Net income........................................... $ 1,857,600 $ 283,200 $ 898,000
========== ========== ==========
Earnings per common share:
Income before cumulative effect of change in
accounting principle............................ $.36 $.08 $.19
Cumulative effect of change in accounting for
income taxes.................................... -- (.02) --
---------- ---------- ----------
Net income per common share.......................... $.36 $.06 $.19
========== ========== ==========
Weighted average shares outstanding.................. 5,125,200 4,777,300 4,751,700
========== ========== ==========
</TABLE>

See accompanying notes.

17
<PAGE> 19

AEQUITRON MEDICAL, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
-------- ------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Balance at May 1, 1992............ 4,747,800 47,500 5,755,500 4,935,800 10,738,800
Net income...................... -- -- -- 898,000 898,000
Stock options exercised......... 8,600 100 15,500 -- 15,600
Stock issued under employee
stock purchase plan.......... 17,900 200 28,400 -- 28,600
-------- ------- --------- --------- ----------
Balance at April 30, 1993......... 4,774,300 47,800 5,799,400 5,833,800 11,681,000
Net income...................... -- -- -- 283,200 283,200
Stock options exercised......... 1,000 -- 2,100 -- 2,100
Stock issued under employee
stock purchase plan.......... 17,300 100 33,000 -- 33,100
-------- ------- --------- --------- ----------
Balance at April 30, 1994......... 4,792,600 $47,900 $5,834,500 $6,117,000 $11,999,400
Net income...................... -- -- -- 1,857,600 1,857,600
Stock options exercised, net.... 57,700 700 134,100 -- 134,800
Stock issued under employee
stock purchase plan.......... 20,100 100 65,900 -- 66,000
Stock repurchased............... (21,900) (200) (100,800) -- (101,000)
-------- ------- --------- --------- ----------
Balance at April 30, 1995......... 4,848,500 $48,500 $5,933,700 $7,974,600 $13,956,800
========= ======= ========= ========= ==========
</TABLE>

See accompanying notes.

18
<PAGE> 20

AEQUITRON MEDICAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED APRIL 30
--------------------------------------
1995 1994 1993
--------- --------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.......................................... $1,857,600 $ 283,200 $ 898,000
Adjustments to reconcile to net cash provided by
operating activities:
Depreciation...................................... 478,900 467,500 531,400
Amortization of goodwill.......................... 288,000 359,300 369,000
Cumulative effect of change in accounting for
income taxes................................... -- 92,600 --
Provision for losses on accounts receivable....... 113,100 144,100 100,900
Change in deferred income taxes................... 18,000 (170,600) (21,100)
Loss on sale of property, plant and equipment..... 18,800 9,700 17,100
Payments under license agreements................. -- (525,000) --
Write-off of license agreements................... 587,800 -- --
Changes in operating assets and liabilities:
Accounts receivable............................ (387,700) 793,800 (914,000)
Inventories.................................... (401,500) 890,500 235,300
Rental equipment............................... 44,700 258,200 (386,600)
Accounts payable............................... 245,200 76,200 108,600
Other current assets and liabilities........... 422,400 236,500 205,000
--------- --------- ----------
Net cash provided by operating activities........... 3,285,300 2,916,000 1,143,600
INVESTING ACTIVITIES
Purchases of property, plant and equipment.......... (742,000) (593,100) (471,300)
Proceeds from disposals of property and equipment... 6,100 26,300 5,500
--------- --------- ----------
Net cash used in investing activities............... (735,900) (566,800) (465,800)
FINANCING ACTIVITIES
Proceeds from short-term borrowings................. 16,600 394,000 507,900
Payments on short-term borrowings................... -- (394,000) (507,900)
Proceeds from long-term debt........................ -- -- 81,000
Reduction of long-term debt......................... (54,200) (145,800) (1,020,200)
Net proceeds from exercise of stock options and sale
of common stock................................... 99,800 35,200 44,200
--------- --------- ----------
Net cash provided by (used in) financing
activities........................................ 62,200 (110,600) (895,000)
--------- --------- ----------
Net increase (decrease) in cash and cash
equivalents....................................... 2,611,600 2,238,600 (217,200)
Cash and cash equivalents at beginning of year...... 2,375,200 136,600 353,800
--------- --------- ----------
Cash and cash equivalents at end of year............ $4,986,800 $2,375,200 $ 136,600
========= ========= ==========
</TABLE>

See accompanying notes.

19
<PAGE> 21

AEQUITRON MEDICAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

APRIL 30, 1995

1. BUSINESS ACTIVITY

Aequitron Medical, Inc. is engaged in one business -- the development,
manufacturing and distribution of medical devices used primarily in the home
health care and physically impaired industries. The Company's continuing product
lines include a family of monitors which detect apnea, which is the cessation of
breathing; a line of portable compact ventilators used to assist and monitor
respiration in patients suffering from chronic obstructive pulmonary disease and
other breathing difficulties; and a line of wheelchair lifts, automobile hand
controls and securement systems for the physically impaired. The Company also
offers disposables and service for each of its product lines.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Aequitron
Medical, Inc. and its wholly-owned subsidiary after elimination of intercompany
accounts and transactions. Certain amounts for fiscal 1994 have been
reclassified to conform with the fiscal 1995 financial statement presentation.

CASH EQUIVALENTS

The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.

REVENUE RECOGNITION

Revenues from sales are recognized when a product is shipped, from rentals
as they accrue, and from service when performed.

INVENTORIES

Inventories are stated at the lower of cost or market with cost being
determined on a first-in, first-out basis.

DEMONSTRATION, EVALUATION AND RENTAL EQUIPMENT

This equipment is held for sale and is amortized over an estimated useful
life of 36 to 60 months.

PROPERTY AND EQUIPMENT

Owned property and equipment are carried at cost. Property and equipment
acquired under capital leases are stated at the lower of the present value of
minimum lease payments or fair market value at the inception of the lease. The
Company provides for depreciation using the straight line method at rates
designed to amortize the cost of property and equipment over their estimated
useful lives. Property and equipment under capital leases are amortized over the
lease terms or the estimated useful lives of the assets, whichever is less.
Maintenance, repairs and minor renewals are expensed as incurred.

GOODWILL

Goodwill resulting from the fiscal 1987 acquisition of Life Products, Inc.
is being amortized using the straight line method over fifteen years. The
carrying value of goodwill will be reviewed if the facts and circumstances
suggest that it may be impaired.

20
<PAGE> 22

AEQUITRON MEDICAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

WARRANTIES

Estimated product warranty costs are provided at the time of sale of the
related products.

CREDIT RISK

The Company is required by SFAS No. 105, "Disclosure of Information about
Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk," to disclose significant concentrations of credit
risk regardless of the degree of such risk. Financial instruments which
potentially subject the Company to concentrations of credit risk consist
principally of trade receivables. The Company requires no collateral from its
customers. Historically, the Company has not incurred significant credit related
losses and believes no significant credit risk exists at April 30, 1995.

During 1995, 1994 and 1993, sales to one customer aggregated $2.8 million,
$4.3 million, and $1.6 million, respectively. At April 30, 1995 and 1994,
amounts due from that customer included in trade accounts receivable were
$301,100 and $430,000, respectively.

NET INCOME PER SHARE

Net income per share of Common Stock is computed by dividing net income by
the weighted average number of shares outstanding during the periods, including
the dilutive effect of shares issuable under the terms of stock options and
warrants.

3. DISPOSAL OF OXYGEN CONCENTRATOR LINE

In fiscal 1994, the Company recorded a $712,900 charge due to the disposal
of the oxygen concentrator product line. This amount included write-offs of
$311,600 for inventory, $38,300 for a covenant not to compete, and $6,900 for
miscellaneous equipment. The remaining $356,100 of charges included $166,800 for
severance pay, $37,300 for rework of inventory, and $152,000 for lease
obligations. The charges reduced after tax earnings by $454,800 or $.10 per
share. Cash payments of $48,000 and $242,300 were made on the remaining
liabilities during fiscal 1995 and 1994, respectively. The remaining obligations
totaling $65,800 at April 30, 1995, included in other liabilities, will be paid
during fiscal 1996.

4. OTHER LIABILITIES AND ACCRUED EXPENSES

The significant components of other liabilities and accrued expenses are as
follows:

<TABLE>
<CAPTION>
APRIL 30
-----------------------
1995 1994
--------- ---------
<S> <C> <C>
Accrued product liability and professional costs.................. $ 264,500 $ 531,500
Accrued warranty.................................................. 388,500 279,800
Other............................................................. 422,000 441,100
--------- ---------
$1,075,000 $1,252,400
========= =========
</TABLE>

21
<PAGE> 23

AEQUITRON MEDICAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. INVENTORIES

The major classes of inventories consist of the following:

<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Raw materials..................................................... $1,594,300 $1,517,700
Work in progress.................................................. 854,500 707,400
Finished goods.................................................... 622,300 444,500
--------- ---------
$3,071,100 $2,669,600
========= =========
</TABLE>

6. FINANCING ARRANGEMENTS

The Company has a working capital line of credit with a bank whereby it may
borrow up to $2,000,000. Any amounts outstanding under the line of credit accrue
interest at the bank's fixed rate cost of funds plus 2.75%. The line of credit
matures on October 30, 1996. All borrowings under the line are secured by the
Company's receivables, inventories, equipment and intangibles. There were no
outstanding balances with the bank under the line of credit agreement at April
30, 1995 and 1994, respectively.

7. LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
APRIL 30
---------------------
1995 1994
-------- --------
<S> <C> <C>
Note payable to the City of Brooten, Minnesota, 3.5% interest, due in
120 monthly installments of $801 with final payment due on November
1, 2002. $ 63,900 $ 71,200
Capital lease obligation, 8.7% effective interest rate, due in
monthly installments of $1,200 through October 1997; secured by
equipment. 21,600 34,900
Capital lease obligation, 9.0% effective interest rate, due in
monthly installments of $1,500 through March 1996; secured by
equipment 16,800 --
Capital lease obligation, 9.6% effective interest rate, due in
quarterly installments of $22,300 through October 1994; secured by
equipment. -- 33,800
-------- --------
102,300 139,900
Less current portion (38,300) (54,200)
-------- --------
Total long-term debt $ 64,000 $ 85,700
======== ========
</TABLE>

Total interest paid on all short-term and long-term debt for the years
ended April 30, 1995, 1994 and 1993 was $24,800, $26,900 and $87,700,
respectively.

Maturities of long-term debt due for the next five years are as follows:

22
<PAGE> 24

AEQUITRON MEDICAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. INCOME TAXES

The Company adopted SFAS No. 109, "Accounting for Income Taxes," as of the
beginning of fiscal 1994, changing its method of accounting for income taxes
from the deferred method to the liability method. As permitted under the new
rules, prior years' financial statements have not been restated. The cumulative
effect of adopting SFAS No. 109 as of May 1, 1993, was to decrease net income by
$92,600, or $.02 per share.

The components of the provision for income taxes attributable to income
before the change in accounting principle were as follows:

<TABLE>
<CAPTION>
LIABILITY METHOD DEFERRED
----------------------- METHOD
1995 1994 1993
--------- --------- --------
<S> <C> <C> <C>
Federal................................................ $1,071,800 $ 429,200 $548,500
State.................................................. 97,800 43,000 54,000
Deferred............................................... 18,000 (170,600) (21,100)
--------- --------- --------
$1,187,600 $ 301,600 $581,400
========= ========= ========
</TABLE>

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The components of the
deferred income tax liabilities and assets as of April 30, 1995 and 1994 were as
follows:

<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation......................................... $(24,300) $(25,600)
Deferred tax assets:
Vacation accrual................................................... 106,400 89,500
Obsolescence reserve............................................... 85,100 75,600
Consignment inventory amortization................................. 45,300 59,100
Warranty reserves.................................................. 140,600 101,300
Accrued product liability and professional costs................... 95,800 137,000
Trade-in reserves.................................................. 2,200 23,300
Bad debt reserve..................................................... 88,100 72,600
Inventory capitalization............................................. 43,100 30,200
Deferred compensation................................................ -- 18,300
Accrued rent......................................................... 23,800 41,200
Other................................................................ -- 1,600
-------- --------
Net deferred tax assets.............................................. $606,100 $624,100
======== ========
</TABLE>

23
<PAGE> 25

AEQUITRON MEDICAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Included in the provision for deferred federal income taxes for years ended
1993 are the effects of timing differences as follows:

<TABLE>
<CAPTION>
1993
--------
<S> <C>
Accelerated depreciation........................................................ $(70,600)
Obsolescence reserves........................................................... 27,700
Accrued product liability and professional costs................................ 21,600
Consignment inventory amortization.............................................. 27,900
Accrued moving costs............................................................ 18,000
Warranty reserves............................................................... 26,200
Deferred compensation........................................................... (57,800)
Other........................................................................... (14,100)
--------
$(21,100)
========
</TABLE>

The reconciliation of the statutory federal income tax rate to the
Company's effective tax rate is as follows:

<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
U.S. statutory rate.................................................. 34.0% 34.0% 34.0%
State taxes, net of federal tax benefit.............................. 2.2 2.8 2.3
Goodwill............................................................. 3.2 14.5 6.6
Foreign Sales Corporation benefit.................................... (2.5) (8.4) (4.2)
Other................................................................ 2.0 1.6 .6
---- ---- ----
Effective tax rate................................................... 38.9% 44.5% 39.3%
==== ==== ====
</TABLE>

Total income taxes paid during fiscal 1995, 1994 and 1993 were $1,213,600,
$493,700 and $608,000, respectively.

24
<PAGE> 26

AEQUITRON MEDICAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. SHAREHOLDERS' EQUITY

The Company has stock option plans which permit the granting of incentive
stock options or non-qualified options to key employees, outside directors, and
members of the Scientific Advisory Board. Options are granted at 100% of market
value at the date of grant. Under the terms of these plans, 1,300,000 shares
have been reserved for grants. A total of 433,800 shares is available for future
issuance under the plans at April 30, 1995.

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------
SHARES
------------------------ PRICE
TOTAL EXERCISABLE PER SHARE
-------- ----------- -----------
<S> <C> <C> <C>
Balance at April 30, 1993............................. 361,500 181,500 $2.13/$4.00
Canceled............................................ (114,000) (68,625) 2.13/ 3.88
Options becoming exercisable........................ -- 100,000 2.06/ 3.25
Granted............................................. 505,000 -- 2.19/ 2.44
Exercised........................................... (1,000) (1,000) 2.13
-------- -----------
Balance at April 30, 1994............................. 751,500 211,875 2.06/ 3.00
Canceled............................................ (41,400) (23,000) 2.19/ 2.69
Options becoming exercisable........................ -- 190,275 2.13/ 2.44
Granted............................................. 120,000 -- 3.25/ 4.81
Exercised........................................... (70,800) (70,800) 2.13/ 3.00
-------- -----------
Balance at April 30, 1995............................. 759,300 308,350 $2.06/$4.81
======== ========
</TABLE>

The Company has an employee stock purchase plan under which eligible
employees may purchase shares of the Company's Common Stock. At April 30, 1995,
27,751 shares remain available for issuance under the plan.

10. LEASES

The Company leases equipment, warehouse, office and assembly facilities
under noncancelable operating leases expiring in various years through fiscal
1998. These leases, some of which are subject to renewal options and options for
additional space, require the Company to pay all maintenance costs, insurance
and real estate taxes. The Company also entered into capital leases for a copier
and its computer system during fiscal 1992 and 1990, respectively, for $58,600
and $367,500. These obligations are included in long-term debt.

At April 30, 1995, future minimum lease payments under noncancelable
operating leases with initial or remaining terms of one year or more are as
follows:

Rent expense for the years ended April 30, 1995, 1994 and 1993 was
$502,400, $670,000 and $704,500, respectively.

25
<PAGE> 27

AEQUITRON MEDICAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. INTERNATIONAL SALES

The Company distributes its products to major home health care dealers
outside of the United States. International (primarily Europe) sales for fiscal
1995, 1994 and 1993 were $3,871,600, $2,832,300 and $3,704,500, respectively.

12. PROFIT SHARING AND 401(K) PLAN

The Company sponsors a defined contribution benefit plan which covers
virtually all employees. Under the plan, eligible employees can elect to
contribute up to 15% of their annual compensation to the plan. The Company is
permitted, but not required, to make a 50% matching contribution to the plan up
to a maximum of 3% of each participating employee's annual compensation. The
Company made matching contributions in 1995 and 1994 of $137,000 and $114,800,
respectively.

13. COMMITMENTS AND CONTINGENCIES

On January 18, 1995, Adahan, Inc. served on the Company a demand for
arbitration in New York City under the rule of the American Arbitration
Association. Adahan is seeking $21,650,000 in loss of anticipated royalty
payments and $500,000 for failure to pay for the delivery of special tooling.
Adahan is also requesting an injunction against the Company from using the
know-how or technology received from Adahan and the return of miscellaneous
property. During the second quarter of fiscal 1995, the Company wrote off
$500,000 related to amounts previously paid for a licensing agreement with
Adahan. The Company is vigorously defending the claim. Any potential liability
arising from the claim cannot be determined at this time; however, it is the
opinion of the Company's legal counsel and management that the outcome of the
claim will not have a material impact on the financial position of the Company.

The Company is engaged in certain other legal proceedings and claims
arising in the ordinary course of its business. The ultimate liabilities, if
any, which may result from these or other pending or threatened legal actions
against the Company cannot be determined at this time. However, it is the
opinion of management that facts known at the present time do not indicate that
there is a probability that such litigation, after giving effect to insurance
coverage, will have a material effect on the financial position of the Company.

14. RELATED PARTY TRANSACTIONS

During fiscal years 1995 and 1994, the Company paid $246,400 and $224,000,
respectively, in legal fees to a law firm of which a senior partner also serves
on the Company's Board of Directors.

15. SUBSEQUENT EVENT

On June 1, 1995, the Company acquired certain assets, consisting primarily
of inventory, fixed assets, receivables and certain intangibles of the sleep
diagnostics division of CNS, Inc. The purchase price of $5.7 million included
$2.3 million in cash, $3.1 million in notes payable and the assumption of
$294,000 in liabilities.

The acquisition will be accounted for as a purchase and, accordingly, the
net assets and results of operations will be included in the fiscal year 1996
financial statements from the date of acquisition.

26
<PAGE> 28

AEQUITRON MEDICAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

16. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
-----------------------------------------------------
JULY 31 OCTOBER 31 JANUARY 31 APRIL 30
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Fiscal year 1995:
Net sales............................. $8,104,400 $8,057,900 $7,298,900 $7,341,100
Cost of sales......................... 3,637,400 3,685,200 3,363,000 3,197,400
--------- ---------- ---------- ---------
Gross profit.......................... 4,467,000 4,372,700 3,935,900 4,143,700
Net income............................ $ 583,400 $ 337,300 $ 478,000 $ 454,000
========= ========= ========= =========
Net income per common share........... $.12 $.06 $.09 $.09
========= ========= ========= =========
Fiscal year 1994:
Net sales............................. $5,578,100 $6,800,500 $6,864,200 $7,067,400
Cost of sales......................... 3,082,600 3,193,400 3,274,000 3,469,300
--------- ---------- ---------- ---------
Gross profit.......................... 2,495,500 3,607,100 3,590,200 3,598,100
(Loss) income before cumulative effect
of change in accounting for income
taxes.............................. (662,600) 341,700 383,800 312,900
Cumulative effect of change in
accounting for income taxes........ 92,600 -- -- --
--------- ---------- ---------- ---------
Net (loss) income(1).................... $(755,200) $ 341,700 $ 383,800 $ 312,900
========= ========= ========= =========
Fiscal year 1994:
Earnings (loss) per share:
Before cumulative effect of change in
accounting for income taxes........ $(.14) $.07 $.08 $.07
Cumulative effect of change in
accounting for income taxes........ (.02) -- -- --
--------- ---------- ---------- ---------
Net (loss) income per common share(1)... $(.16) $.07 $.08 $.07
========= ========= ========= =========
</TABLE>

- ---------------

(1) First quarter results include a charge of $750,000 resulting from the
disposal of the oxygen concentrator line (see Note 3). This charge reduced
net income by $.10 per share. Net income also includes a charge of $92,600
or $.02 per share for the cumulative effect of a change in the accounting
for income taxes.

Fourth quarter results include a change in estimate of $37,100 relating to
the disposal disposal of the oxygen concentrator line.

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

None.

27
<PAGE> 29

PART III

ITEMS 10, 11, 12 AND 13.

The information required by Item 10 concerning the executive officers of
the Company is submitted in a separate section of Part I of this Report.

Additional information called for by Items 10, 11, 12 and 13 is
incorporated by reference from the Company's definitive proxy statement pursuant
to Regulation 14A which involves the election of directors and will be filed
with the Commission within 120 days after the end of the fiscal year.

28
<PAGE> 30

PART IV

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

(a) Documents filed or incorporated by reference as part of this Form 10-K

1. Financial Statements.

Report of Independent Auditors

Consolidated Balance Sheets --
April 30, 1995 and 1994

Consolidated Statements of Operations --
Years ended April 30, 1995, 1994 and 1993

Consolidated Statements of Shareholders' Equity --
Years ended April 30, 1995, 1994 and 1993

Consolidated Statements of Cash Flows --
Years ended April 30, 1995, 1994 and 1993

Notes to Consolidated Financial Statements --
April 30, 1995

2. Financial Statement Schedules. The following financial statement
schedule is filed as part of this report on Form 10-K:

<TABLE>
<CAPTION>
SCHEDULE DESCRIPTION
-------- ------------------------------------------------------------------------------
<S> <C>
II Valuation and Qualifying Accounts and Reserves
</TABLE>

All other schedules are omitted as the required information is inapplicable
or the information is presented in the financial statements or related notes.

3. Exhibits. See "Exhibit Index" on the page of this report on Form 10-K
which follows the signature page.

(b) Reports on Form 8-K

The Company did not file a Report on Form 8-K in its last fiscal quarter of
1995.

29
<PAGE> 31

AEQUITRON MEDICAL, INC.

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

<TABLE>
<CAPTION>
COL. C
------------------------
ADDITIONS
COL. B ------------------------
---------- CHARGED TO COL. D COL. E
COL. A BALANCE AT CHARGED TO OTHER ------------- --------------
- --------------------------------- BEGINNING COSTS AND ACCOUNTS - DEDUCTIONS - BALANCE AT
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE END OF PERIOD
- --------------------------------- ---------- ---------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Year ended April 30, 1995:
Deducted from asset accounts:
Allowance for doubtful
accounts.................. $ 200,500 $144,900 $(101,900) $243,500
Reserve for obsolescence.... 209,000 98,600 (72,600) 235,000
---------- ---------- ------------- --------------
$ 409,500 $243,500 $(174,500) $478,500
======== ======== ========== ===========
Product warranty liability..... $ 279,800 $288,000 $(179,300) $388,500
======== ======== ========== ===========
Accrued product liability and
professional costs.......... $ 531,500 $370,000 $(637,000) $264,500
======== ======== ========== ===========
Year ended April 30, 1994:
Deducted from asset accounts:
Allowance for doubtful
accounts.................. $ 185,800 $154,900 $(140,200) $200,500
Reserve for obsolescence.... 174,000 199,700 (164,700) 209,000
---------- ---------- ------------- --------------
$ 359,800 $354,600 $(304,900) $409,500
======== ======== ========== ===========
Product warranty liability..... $ 183,900 $382,100 $(286,200) $279,800
======== ======== ========== ===========
Accrued product liability and
professional costs.......... $ 161,500 $787,200 $(417,200) $531,500
======== ======== ========== ===========
Year ended April 30, 1993:
Deducted from asset accounts:
Allowance for doubtful
accounts.................. $ 159,000 $110,800 $ (84,000) $185,800
Reserve for obsolescence.... 251,000 210,600 (287,600) 174,000
---------- ---------- ------------- --------------
$ 410,000 $321,400 $(371,600) $359,800
======== ======== ========== ===========
Product warranty liability..... $ 256,700 $232,200 $(305,000) $183,900
======== ======== ========== ===========
Accrued product liability and
professional costs.......... $ 227,500 $352,100 $(418,100) $161,500
======== ======== ========== ===========
</TABLE>

30
<PAGE> 32

SIGNATURES

Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Company has caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.

Dated: July 26, 1995
AEQUITRON MEDICAL, INC. "Company"

/s/ JAMES B. HICKEY, JR.
-----------------------------------
James B. Hickey, Jr., President and
Chief Executive Officer

/s/ WILLIAM M. MILNE
-----------------------------------
William M. Milne, Chief Financial
Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Company in the
capacities and on the dates indicated.

(Power of Attorney)

Each person whose signature appears below constitutes and appoints JAMES B.
HICKEY, JR. and WILLIAM M. MILNE as his true and lawful attorneys-in-fact and
agents, each acting alone, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
or all amendments to this Annual Report on Form 10-K and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, each acting alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all said attorneys-in-fact and agents,
each acting alone, or his substitute or substitutes, may lawfully do or cause to
be done by virtue thereof.

<TABLE>
<CAPTION>
SIGNATURE AND TITLE DATE
- ----------------------------------------------- --------------

<S> <C>
/s/ JAMES B. HICKEY, JR. July 26, 1995
- -----------------------------------------------
James B. Hickey, Jr., President,
Chief Executive Officer and
Director (Principal Executive Officer)

/s/ WILLIAM M. MILNE July 26, 1995
- -----------------------------------------------
William M. Milne,
Chief Financial Officer
(Principal Financial Officer)

/s/ LAWRENCE A. LEHMKUHL July 26, 1995
- -----------------------------------------------
Lawrence A. Lehmkuhl, Director
</TABLE>

31
<PAGE> 33

<TABLE>
<CAPTION>
SIGNATURE AND TITLE DATE
- ----------------------------------------------- --------------

<S> <C>
/s/ DAVID B. MORSE July 26, 1995
- -----------------------------------------------
David B. Morse, Director

/s/ GERALD E. RHODES July 26, 1995
- -----------------------------------------------
Gerald E. Rhodes, Director

/s/ ERVIN F. KAMM, JR. July 26, 1995
- -----------------------------------------------
Ervin F. Kamm, Jr., Director
</TABLE>

32
<PAGE> 34

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

AEQUITRON MEDICAL, INC.

EXHIBIT INDEX TO FORM 10-K

For the fiscal year ended April 30, 1995 Commission File Number 0-11571

<TABLE>
<CAPTION>
EXHIBIT REPORT DESCRIPTION
-------------- --------------------------------------------------------------------------
<S> <C>
3.1 Company's Restated Articles of Incorporation. Incorporated by reference
from Exhibit 1 to October 31, 1987 Form 10-Q.
3.2 Company's Bylaws, as amended. Incorporated by reference from Exhibit 3.2
to 1989 Form 10-K.
10.1 Lease Agreement, dated June 17, 1987, between Realpro Limited Partnership
and the Company relating to premises at 14800 28th Avenue North, Plymouth,
Minnesota, First Amendment thereto dated July 17, 1987, Second Amendment
thereto dated March 4, 1988, Third Amendment thereto dated February 27,
1989, and Fourth Amendment thereto dated June 29, 1990.
10.2 Aequitron Medical, Inc. 1985 Incentive Stock Option Plan, as amended.
Incorporated by reference to Exhibit 10.7 to the Company's 1990 Form 10-K.
(1)
10.3 Aequitron Medical, Inc. 1988 Stock Option Plan. Incorporated by reference
from Exhibit 10.7 to 1989 Form 10-K. (1)
10.4 OEM Agreement between Aequitron Medical, Inc. and Dragerwerk
Aktiengesellschaft regarding LP6 Volume Ventilator. Incorporated by
reference from Exhibit 1 to March 3, 1988 Form 8-K.
10.5 Term Loan and Credit Agreement and related Term Note and Current Note with
Norwest Bank Minnesota, National Association all dated December 28, 1990.
Incorporated by reference to Exhibit 10.9 to the Company's 1991 Form 10-K.
10.6 First Amendment to Term and Credit Agreement with Norwest Bank Minnesota,
National Association dated February 11, 1991. Incorporated by reference to
Exhibit 10.10 to the Company's 1991 Form 10-K.
10.7 Second Amendment to Term Loan and Credit Agreement dated November 1, 1991
between Norwest Bank Minnesota, National Association and the Company.
Incorporated by reference to Exhibit 10.11 to the Company's 1992 Form
10-K.
10.8 Fifth Amendment to Office/Warehouse Lease dated January 1, 1992 between
Realpro Limited Partnership and the Company. Incorporated by reference to
Exhibit 10.12 of 1993 Form 10-KSB.
10.9 Third Amendment to Term Loan and Credit Agreement dated November 27, 1992
between Norwest Bank Minnesota, National Association and the Company.
Incorporated by reference to Exhibit 10.13 of 1993 Form 10-KSB.
10.10 Fourth Amendment to Term Loan and Credit Agreement dated August 19, 1993
between Norwest Bank Minnesota, National Association and the Company.
Incorporated by reference to Exhibit 10.13 of 1994 Form 10-KSB.
10.11 Second Amendment to the OEM Agreement between Aequitron Medical, Inc. and
Dragerwerk Aktiengesellschaft dated March 17, 1994. Incorporated by
reference by Exhibit 10.14 of 1994 Form 10-KSB. (2)
10.12 License Agreement between Aequitron Medical, Inc. and Carmeli Adahan dated
August 26, 1993 with respect to a compact ventilator. Incorporated by
reference to Exhibit 10.15 of 1994 Form 10-KSB. (2)
</TABLE>

33
<PAGE> 35

<TABLE>
<CAPTION>
EXHIBIT REPORT DESCRIPTION
-------------- --------------------------------------------------------------------------
<S> <C>
10.13 Employment Agreement dated June 11, 1993 between Aequitron Medical, Inc.
and Mr. James B. Hickey, Jr. Incorporated by reference to Exhibit 10.16 of
1994 Form 10- KSB. (1)
10.14 Employment Agreement dated September 9, 1993 between Aequitron Medical,
Inc. and Mr. Jeffrey A. Blair. Incorporated by reference to Exhibit 10.17
of 1994 Form 10-KSB. (1)
10.15 Amendment dated September 22, 1993 to Aequitron Medical, Inc. 1988 Stock
Option Plan. Incorporated by reference to Exhibit 10.18 of 1994 Form
10-KSB. (1)
10.16 Asset Purchase Agreement dated May 8, 1995 by and among Aequitron Medical,
Inc. and CNS, Inc. Upon the request of the Commission, the Company agrees
to furnish a copy of the exhibits and schedules to the Asset Purchase
Agreement. Incorporated by reference to Exhibit 2.1 of Form 8-K dated June
1, 1995.
10.17 Non-Competition Agreement dated May 8, 1995 by and between Dan Cohen and
Aequitron Medical, Inc. Incorporated by reference to Exhibit 2.2 of Form
8-K dated June 1, 1995.
10.18 Term Loan and Credit Agreement dated June 1, 1995 by and between Norwest
Bank Minnesota, N. A. and Aequitron Medical, Inc. Incorporated by
reference to Exhibit 2.3 of Form 8-K dated June 1, 1995.
10.19 Term Note from Aequitron Medical, Inc. to Norwest Bank Minnesota, N.A.
dated June 1, 1995 in the amount of $2,500,000. Incorporated by reference
to Exhibit 2.4 of Form 8-K dated June 1, 1995.
10.20 Security Agreement dated June 1, 1995 for Norwest Bank Minnesota, N.A. by
Aequitron Medical, Inc. Incorporated by reference to Exhibit 2.5 of Form
8-K dated June 1, 1995.
10.21 Change in Control Employment Agreement dated December 9, 1994 between
James B. Hickey, Jr. and Aequitron Medical, Inc.(1)
10.22 Change in Control Employment Agreement dated December 9, 1994 between Wil-
liam M. Milne and Aequitron Medical, Inc.(1)
10.23 Change in Control Employment Agreement dated December 9, 1994 between
Jeffrey A. Blair and Aequitron Medical, Inc.(1)
10.24 Change in Control Employment Agreement dated December 9, 1994 between
Robert C. Samec and Aequitron Medical, Inc.(1)
10.25 Change in Control Employment Agreement dated December 9, 1994 between
Edson R. Weeks, III and Aequitron Medical, Inc.(1)
10.26 Change in Control Employment Agreement dated December 30, 1994 between
Patricia A. Hamm and Aequitron Medical, Inc.(1)
11 Net income per share computation.
21 List of Subsidiaries
23 Consent of Ernst & Young LLP
24 Power of Attorney appointing James B. Hickey, Jr. and William M. Milne as
attorneys-in-fact for the remaining persons signing this Form 10-K to sign
any amendment to this Form 10-K is contained on the signature page of this
Form 10-K.
</TABLE>

- ---------------

(1) Indicates a management contract.

(2) Confidential treatment was requested and received for certain portions of
this document.

<PAGE> 1

EXHIBIT 10.21

CHANGE IN CONTROL EMPLOYMENT AGREEMENT

This Change in Control Employment Agreement (the "Agreement") is hereby
made and entered into effective as of December 9, 1994, by and between Aequitron
Medical, Inc., a Minnesota corporation (the "Company"), and James B. Hickey, Jr.
("Executive").

Recitals

1. Executive is currently employed by the Company as Company's President
and Chief Executive Officer under the terms and conditions of a written
agreement dated June 11, 1993 and executed by Executive and a representative of
the Company on June 13, 1993.

2. Company desires to provide Executive with assurances justifying
Executive's continued employment at a time when Company anticipates that there
may be offers for its acquisition by outside third parties.

Agreement

1. Employment. The Company agrees to continue to employ Executive as its
President and Chief Executive Officer upon the terms and conditions set forth in
the June 11, 1993 Agreement between the Company and Executive.

2. Benefits Available to Executive When Employment Termination Results
Subsequent to a Change in Control.

a. If, at any time, subsequent to the date of this Agreement, the Company
undergoes a "change in control" as hereinafter defined and thereafter Executive
is terminated without cause or if Executive voluntarily resigns within one year
after such "change in control," Executive shall receive two times the total of
his base compensation and two times the amount of target bonus pursuant to the
Company's approved management incentive plan in effect at the time of the change
in control. Within ten (10) days from the date of termination of Executive's
employment or Executive's voluntary resignation, all sums due the Executive for
his base compensation and target bonus under this Agreement shall be paid in one
lump sum (subject to applicable deductions and withholding for FICA and state
and federal income taxes) unless a schedule specifying dates upon which such
payments will be made has been agreed to by the Executive in writing. Executive
will also receive the health benefits in effect at the time of termination for a
period of two years or until he attains new employment and qualifies for similar
health coverage, whichever occurs earlier. The health coverage to be received
will be consistent with the Aequitron Medical, Inc. policy for full-time
employees in effect on the date a "change in control" occurs. In addition, all
outstanding stock options on the date of resignation or termination to the
extent they are not then vested will become vested immediately, and Executive
shall thereafter have the right to exercise all such options for a period of
three months after Executive is terminated or voluntarily resigns.

b. A change in control shall be deemed to have occurred if: (i) any person
or entity becomes the beneficial owner of 35% or more of the Company's
outstanding securities in conjunction with a "change in the Board of Directors
composition": (ii) any person or entity increased his or her or its ownership of
the Company by an amount equal to 25% of the Company's outstanding securities in
conjunction with a "change in the Board of Directors composition"; (iii) the
consummation of a merger, acquisition or consolidation of the Company into or
with any other entity; (iv) the consummation of a plan of complete liquidation
of the Company or the sale of substantially all of the Company's assets; or (v)
a "change in the Board of Directors composition."

c. A "change in the Board of Directors composition" shall be deemed to have
occurred if, at any time, while Executive is employed by the Company a numerical
majority of the Company's Board of Directors is comprised of persons whose
nomination was not approved by vote of at least two-thirds of the Company's
directors.
<PAGE> 2

3. Except for the specific occurrence of a "change in control" or a "change
in the composition of the Board of Directors" of Company as defined herein,
Executive's employment with Company shall continue to be on an at will basis and
such other Company employment policies as are from time to time approved and
adopted for Company's full-time employees.

IN WITNESS WHEREOF, the parties have hereto executed this Change in Control
Employment Agreement as of the day and year first written above.

AEQUITRON MEDICAL, INC.

/s/ DAVID B. MORSE
By: ------------------------------
Its Chair Bd. of Directors

/s/ JAMES B. HICKEY, JR.
------------------------------
Executive

<PAGE> 1

EXHIBIT 10.22

CHANGE IN CONTROL EMPLOYMENT AGREEMENT

Recitals

1. Executive has been employed by the Company since August 21, 1989 on an
"at will basis."

Agreement

1. Employment. The Company agrees to continue to employ Executive as its
Chief Financial Officer on an at will basis.

2. Benefits Available to Executive When Employment Termination Results
Subsequent to a Change in Control.

be on an at will basis and such other Company employment policies as are from
time to time approved and adopted for Company's full-time employees.

IN WITNESS WHEREOF, the parties have hereto executed this Change in Control
Employment Agreement as of the day and year first written above.

AEQUITRON MEDICAL, INC.

/s/ JAMES B. HICKEY, JR.
By: ------------------------------
Its President and CEO

/s/ WILLIAM M. MILNE
By: ------------------------------
Executive

<PAGE> 1

EXHIBIT 10.23

CHANGE IN CONTROL EMPLOYMENT AGREEMENT

Recitals

1. Executive is currently employed by the Company as Company's Senior Vice
President of Sales and Marketing under the terms and conditions of a written
agreement dated September 9, 1993 and executed by Executive approximately
September 14, 1993 and by a representative of the Company on September 9, 1993.

Agreement

1. Employment. The Company agrees to continue to employ Executive as its
Senior Vice President of Sales and Marketing upon the terms and conditions set
forth in the September 9, 1993 Agreement between the Company and Executive.

2. Benefits Available to Executive When Employment Termination Results
Subsequent to a Change in Control.

IN WITNESS WHEREOF, the parties have hereto executed this Change in Control
Employment Agreement as of the day and year first written above.

AEQUITRON MEDICAL, INC.

/s/ JAMES B. HICKEY, JR.
By: ------------------------------
Its President and CEO

/s/ JEFFREY A. BLAIR
------------------------------
Executive

<PAGE> 1

EXHIBIT 10.24

CHANGE IN CONTROL EMPLOYMENT AGREEMENT

Recitals

1. Executive has been employed by the Company since January 4, 1982 on an
"at will basis."

Agreement

1. Employment. The Company agrees to continue to employ Executive as its
Vice President of Quality Assurance and Regulatory Affairs on an at will basis.

2. Benefits Available to Executive When Employment Termination Results
Subsequent to a Change in Control.

be on an at will basis and such other Company employment policies as are from
time to time approved and adopted for Company's full-time employees.

IN WITNESS WHEREOF, the parties have hereto executed this Change in Control
Employment Agreement as of the day and year first written above.

AEQUITRON MEDICAL, INC.

/s/ JAMES B. HICKEY, JR.
By: ------------------------------
Its President and CEO

/s/ ROBERT C. SAMEC
------------------------------
Executive

<PAGE> 1

EXHIBIT 10.25

CHANGE IN CONTROL EMPLOYMENT AGREEMENT

Recitals

1. Executive has been employed by the Company since May 7, 1984 on an "at
will basis."

Agreement

1. Employment. The Company agrees to continue to employ Executive as its
Vice President of Manufacturing on an at will basis.

2. Benefits Available to Executive When Employment Termination Results
Subsequent to a Change in Control.

be on an at will basis and such other Company employment policies as are from
time to time approved and adopted for Company's full-time employees.

IN WITNESS WHEREOF, the parties have hereto executed this Change in Control
Employment Agreement as of the day and year first written above.

AEQUITRON MEDICAL, INC.

/s/ JAMES B. HICKEY, JR.
By: ------------------------------
Its President and CEO

/s/ EDSON R. WEEKS, III
------------------------------
Executive

<PAGE> 1

EXHIBIT 10.26

CHANGE IN CONTROL EMPLOYMENT AGREEMENT

This Change in Control Employment Agreement (the "Agreement") is hereby
made and entered into effective as of December 30, 1994, by and between
Aequitron Medical, Inc., a Minnesota corporation (the "Company"), and Patricia
A. Hamm ("Executive").

Recitals

1. Executive has been employed by the Company since December 30, 1994 on an
"at will basis."

Agreement

1. Employment. The Company agrees to continue to employ Executive as its
Vice President of Human Resources on an at will basis.

2. Benefits Available to Executive When Employment Termination Results
Subsequent to a Change in Control.

be on an at will basis and such other Company employment policies as are from
time to time approved and adopted for Company's full-time employees.

IN WITNESS WHEREOF, the parties have hereto executed this Change in Control
Employment Agreement as of the day and year first written above.

AEQUITRON MEDICAL, INC.

/s/ JAMES B. HICKEY, JR.
By: -----------------------------
Its President and CEO

/s/ PATRICIA A. HAMM
-----------------------------
Executive

<PAGE> 1

EXHIBIT 11

AEQUITRON MEDICAL, INC.

NET INCOME PER SHARE COMPUTATION

<TABLE>
<CAPTION>
YEAR ENDED APRIL 30
-------------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Primary
Average shares outstanding........................... 4,823,900 4,777,300 4,751,700
Net effect of dilutive stock options and warrants --
based on the treasury stock method using average
market price....................................... 301,300 47,200 --
--------- --------- ---------
Total................................................ 5,125,200 4,824,500 4,751,700
========= ========= =========
Net income........................................... $1,857,600 $ 283,200 $ 898,000
========= ========= =========
Net income per share of Common Stock................. $ .36 $ .06 $ .19
========= ========= =========
Fully diluted
Average shares outstanding........................... 4,823,900 4,777,300 4,751,700
Net effect of dilutive stock options and warrants
--based on the year-end market price, if higher
than average market................................ 396,900 182,200 10,500
--------- --------- ---------
Total................................................ 5,220,800 4,959,500 4,762,200
========= ========= =========
Net income........................................... $1,857,600 $ 283,200 $ 898,000
========= ========= =========
Net income per share of Common Stock................. $ .36 $ .06 $ .19
========= ========= =========
</TABLE>

<PAGE> 1

EXHIBIT 21

LIST OF SUBSIDIARIES

<TABLE>
<CAPTION>
NAME STATE OF INCORPORATION
------------------------------------------------------------------------------------------
<S> <C>
Aequitron Medical International, Inc.......................... Minnesota
Crow River Industries, Incorporated........................... Minnesota
Life Products, Inc............................................ Colorado
Mobility Products and Design of Minnetonka, Inc.(1)........... Minnesota
</TABLE>

- ---------------

(1) Mobility Products and Design of Minnetonka, Inc. is a subsidiary of Crow
River Industries, Incorporated.

<PAGE> 1

EXHIBIT 23

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in (i) Registration Statement
Number 33-13783 on Form S-8 dated April 24, 1987, (ii) Registration Statement
Number 33-21862 on Form S-8 dated March 4, 1988, (iii) Registration Statement
Number 33-25981 on Form S-8 dated December 7, 1988 and (iv) Registration
Statement Number 33-89950 on Form S-8 dated March 3, 1995 of our report dated
June 14, 1995, with respect to the consolidated financial statements and
schedule of Aequitron Medical, Inc. included in its Annual Report (Form 10-K)
for the year ended April 30, 1995 filed with the Securities and Exchange
Commission.

Ernst & Young LLP

Minneapolis, Minnesota
July 26, 1995

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1995
<PERIOD-START> MAY-01-1994
<PERIOD-END> APR-30-1995
<CASH> 4986800
<SECURITIES> 0
<RECEIVABLES> 4554700
<ALLOWANCES> 243500
<INVENTORY> 3071100
<CURRENT-ASSETS> 13311300
<PP&E> 4610300
<DEPRECIATION> 2901400
<TOTAL-ASSETS> 17943300
<CURRENT-LIABILITIES> 3922500
<BONDS> 102300
<COMMON> 48500
0
0
<OTHER-SE> 13908300
<TOTAL-LIABILITY-AND-EQUITY> 17943300
<SALES> 30802300
<TOTAL-REVENUES> 30802300
<CGS> 13883000
<TOTAL-COSTS> 13883000
<OTHER-EXPENSES> 14233800
<LOSS-PROVISION> 243500
<INTEREST-EXPENSE> 24800
<INCOME-PRETAX> 3045200
<INCOME-TAX> 1187600
<INCOME-CONTINUING> 1857600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1857600
<EPS-PRIMARY> .36
<EPS-DILUTED> .36

</TABLE>