SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12

Chad Therapeutics, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:

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(2) Aggregate number of securities to which transaction applies:

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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):

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(4) Proposed maximum aggregate value of transaction:

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(5) Total fee paid:

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[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

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(2) Form, Schedule or Registration Statement No.:

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(3) Filing Party:

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(4) Date Filed:

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2

CHAD THERAPEUTICS, INC.

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

NOTICE OF ANNUAL SHAREHOLDERS MEETING

TO BE HELD SEPTEMBER 12, 2001

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

The Annual Meeting of Shareholders of CHAD Therapeutics, Inc. (the "Company")
will be held at the Warner Center Marriott Hotel, 21850 Oxnard Street, Woodland
Hills, CA 91367 on September 12, 2001, at 10:00 a.m., Los Angeles time (the
"Meeting"), for the following purposes:

1. To elect three (3) directors of the Company to the 2003 Class to serve
during the ensuing two years or until their successors have been duly
elected and qualified. The Board of Directors' nominees for election are
David L. Cutter, Philip Wolfstein, and James M. Brophy.

2. To ratify the appointment of KPMG LLP, certified public accountants, as
independent auditors; and

3. To transact such other business as may properly come before the Meeting
and any adjournments thereof.

Pursuant to the Bylaws of the Company, the Board of Directors has fixed July 16,
2001, as the record date for the determination of such shareholders entitled to
notice of and to vote at the Meeting, and all adjournments thereof, and only
shareholders of record at the close of business on that date are entitled to
such notice and to vote at the Meeting.

We hope that you will use this opportunity to take an active part in the affairs
of the Company by voting on the business to come before the Meeting by executing
and returning the enclosed proxy. Whether or not you expect to attend the
Meeting in person, please date and sign the accompanying proxy and return it
promptly in the envelope enclosed for that purpose. If a shareholder receives
more than one proxy because he owns shares registered in different names or
addresses, each proxy should be completed and returned.

By Order of the Board of Directors

EARL L. YAGER
Secretary

Chatsworth, California
July 20, 2001

CHAD THERAPEUTICS, INC.

21622 Plummer Street
Chatsworth, California 91311
(818) 882-0883
-------------------------------

ANNUAL MEETING OF SHAREHOLDERS

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

September 12, 2001

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

PROXY STATEMENT
----------------

GENERAL INFORMATION

This Proxy Statement is furnished in connection with the solicitation of Proxies
by the Board of Directors of CHAD Therapeutics, Inc. (the "Company") for use at
the Annual Meeting of Shareholders to be held at the Warner Center Marriott
Hotel, 21850 Oxnard Street, Woodland Hills, CA 91367, at 10:00 a.m., Los Angeles
time, on September 12, 2001, and any adjournments thereof (the "Meeting").

VOTING AND REVOCABILITY OF PROXY

July 16, 2001, has been fixed as the record date or the determination of
shareholders entitled to notice of and to vote at the Meeting and all
adjournments thereof. As of July 16, 2001, there were 10,052,436 of the
Company's Common Shares entitled to a vote at the Meeting. This Proxy Statement
and the accompanying proxy will first be mailed to shareholders on or about July
23, 2001. The Company's 2001 Annual Report to Shareholders, including financial
statements for the fiscal year ended March 31, 2001, has been enclosed for the
benefit of shareholders entitled to vote at the Meeting.

Proxies may be revoked at any time before they are voted by filing with the
Secretary of the Company a written notice of revocation, or by executing a proxy
bearing a later date. Proxies may also be revoked by any shareholder present at
the Meeting who expresses a desire to vote his shares in person. Subject to any
such revocation, all shares represented by properly executed Proxies will be
voted in accordance with the specifications on the enclosed proxy. If no such
specification is made, the shares will be voted as follows: (1) for the election
of each of the nominees named herein as directors and (2) to ratify the
appointment of KPMG LLP, certified public accountants, as the Company's
independent auditors for its fiscal year commencing April 2, 2001. In the event
that any nominee becomes unavailable to serve, the proxyholders presently intend
to vote for the election of the remaining nominees named herein and permit the
new Board of Directors to fill any vacancy that may exist on the Board. However,
the proxyholders reserve the right to vote for other persons if any nominee
named herein becomes unavailable to serve and the proxyholders deem it to be in
the best interests of the Company to vote for such other persons.

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VOTE REQUIRED FOR APPROVAL

1. Election of Directors

Section 708 of the California Corporations Code provides that a
shareholder may vote for one or more directors by cumulative voting provided
that the name of the candidates for whom the cumulative votes would be cast have
been placed in nomination prior to the voting and that the shareholder has been
given notice at the Meeting prior to the voting of the shareholder's intention
to cumulate his votes. If any one shareholder has given such notice, all
shareholders may cumulate their votes for the election of directors. Cumulative
voting means that each shareholder is entitled to as many votes as equal the
number of shares that he owns multiplied by the number of directors to be
elected. He may cast all of such votes for a single nominee or he may distribute
them among any two or more nominees, as he sees fit. If cumulative voting is not
requested, each shareholder will be entitled to one vote per share for each
director to be elected.

The enclosed proxy vests in the proxyholders' cumulative voting rights.
The persons authorized to vote shares represented by executed Proxies in the
enclosed form (if authority to vote for the election of directors is not
withheld) will have full discretion and authority to vote cumulatively and to
allocate votes among any or all of the Board of Directors' nominees as they may
determine or, if authority to vote for a specified candidate or candidates has
been withheld, among those candidates for whom authority to vote has not been
withheld. In any case, the Proxies may be voted for less than the entire number
of nominees if any situation arises which, in the opinion of the proxyholders,
makes such action necessary or desirable. The three (3) nominees who receive the
largest number of votes shall be elected, provided that each of them receives at
least a majority of the quorum.

2. Other Matters

On any matters which may come before the Meeting, shareholders will be
entitled to one vote for each share held of record. Approval of the proposal to
ratify the appointment of KPMG, requires the affirmative vote of a majority of
the Common Shares represented and voting at the Meeting.

The presence in person or proxy of the persons entitled to vote a
majority of the issued and outstanding Common Shares constitutes a quorum for
the transaction of business at the Meeting.

VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF

The following table sets forth as of June 12, 2001, the ownership of the
Common Shares by those persons known by the Company to own beneficially 5% or
more of such shares, by each director who owns any such shares and by all
officers and directors of the Company as a group:

NAME AND ADDRESS AMOUNT PERCENT OWNED
- ---------------- --------- -------------

Thomas E. Jones (1)(2) 182,783 1.8%
David L. Cutter (1)(2) 96,463 1.0%
Norman Cooper (1)(2) 102,053 1.0%
John C. Boyd (1)(2) 158,069 1.6%
Philip Wolfstein (1)(2) 185,088 1.8%
Earl L. Yager (1)(2) 237,063 2.4%
All Officers and Directors as a group (10 people)(2) 1,139,753 11.3%
Charles R. Adams (1) 543,741 5.4%
Kevin Kimberlin (3) 836,560 8.3%

(1) The address of each director and Mr. Adams is 21622 Plummer Street,
Chatsworth, CA 91311.

(2) Includes shares subject to options which are currently exercisable or
which become exercisable within sixty (60) days: Thomas E. Jones -
92,779 shares, David L. Cutter - 32,830 shares, Norman Cooper - 32,830
shares, John C. Boyd - 32,830 shares, Philip Wolfstein - 39,010 shares,
Earl L. Yager - 87,907 shares, all Officers and Directors as a group -
371,104 shares.

(3) Mr. Kimberlin's address is c/o Spencer Trask, 535 Madison Avenue, New
York, NY 10022.

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SECTION 16 REPORTS

Under the Federal securities laws, the Company's directors, its
executive officers and any persons holding more than ten percent of the
Company's common stock are required to report their ownership of the Company's
common stock and any changes in that ownership to the Securities and Exchange
Commission. Specific due dates for these reports have been established and the
Company is required to report in this Proxy Statement any failure to file by
these dates during the most recent fiscal years or prior fiscal years. In making
these statements, the Company has relied on the written representations of its
directors and executive officers and its ten-percent shareholders and copies of
the reports that they have filed with the Securities and Exchange Commission. To
the best of the Company's knowledge, all of the filing requirements were
satisfied by the Company's directors and executive officers and ten-percent
shareholders in fiscal 2001.

ELECTION OF DIRECTORS

NOMINEES

The Bylaws of the Company, as amended, provide that the Board of
Directors shall not be less than five and not more than 13 and shall be fixed
from time to time by resolution of the Board of Directors. At its meeting in
June 1999, the Board of Directors fixed the number of directors constituting the
entire Board as seven.

The Bylaws divide the Board into two classes, Class I and Class II.
Three directors have terms of office that expire at the 2001 Annual Meeting, and
these three directors are standing for reelection for a two-year term as Class I
members. These directors are Messrs. Cutter, Wolfstein, and Brophy. The
remaining Class II members will continue to serve until 2002 Annual Meeting.

It is the intention of the persons named in the proxy to vote such
proxies for the election of the three listed nominees, each of whom has
consented to be a nominee and serve as a director if elected. In the event that
any nominee becomes unavailable to serve, the proxyholders presently intend to
vote for the election of the remaining nominees named herein and permit the new
Board of Directors to fill any vacancy that may exist on the Board. However, the
proxyholders reserve the right to vote for other persons if any nominee named
herein becomes unavailable to serve and the proxyholders deem it to be in the
best interests of the Company to vote for such other persons.

The nominees for election to Class I and the incumbents in Class II have
supplied the following information pertaining to their age and principal
occupation or employment during the past five (5) years:

NAME AGE POSITION DIRECTOR SINCE
- ---- --- -------- --------------

NOMINEES IN CLASS I
David L. Cutter 72 Director 1983
Philip Wolfstein 50 Director 1994
James M. Brophy 51 Director 2000

INCUMBENTS TO CLASS II
Thomas E. Jones 57 Chief Executive Officer and Director 1997
Norman Cooper 70 Director 1986
John C. Boyd 68 Director 1986
Earl L. Yager 55 Executive Vice President, 1988
Chief Financial Officer and Director

David L. Cutter has been a director of the Company since May 1983. He is
the retired Chairman of the Board of Trustees of Alta Bates Medical Center and a
director of Civic Bancorp. He was the President of Herrick Hospital and Health
Center from 1978 to 1984. He is the retired Chairman of the Board of Cutter
Laboratories, Inc., a wholly owned subsidiary of Bayer A.G. Leverkusen, Germany.
He was a director of the Pharmaceutical Manufacturers Association from 1972 to
1978 (past chairman of the Medical Devices and Diagnostic Products Section), and
a director of the Medical Surgical Manufacturers Association from 1971 to 1973.

Philip Wolfstein has been a director of the Company since October 1994.
He has been President and a director of Wolfstein International, Inc., an
international trading company, since 1976. Mr. Wolfstein was elected Vice
Chairman of the U.S. Meat Export Federation effective November 2000, and has
been a director and member of the Federation's Executive Committee since
November 1997.

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James M. Brophy has been a director of the Company since September 2000.
He is currently the President of Missouri Baptist Medical Center. From 2000 to
2001 he was the Deputy Executive Director of Truman Health System and from 1992
to 1999 he was President of Saint Luke's Northland and St. Luke's Hospitals. He
has worked in the health care field as a senior executive and administrator
since 1973. He is currently a Fellow of the American College of Healthcare
Executives and is a past member of the board of directors of HealthNet, Premier
Alliance Insurance Company and the Illinois Hospital Association.

Thomas E. Jones was elected Chief Executive Officer of the Company
effective April 1, 1998, and has been Vice Chairman and a director since October
1997. From 1996 to 1997 he was an independent consultant to numerous companies
in the health care field, including the Company from March 1997. From 1973 to
1996, he was employed by Nellcor Puritan Bennett Corporation and its
predecessor, Puritan Bennett, Inc., a major manufacturer of respiratory products
where Mr. Jones served in a number of positions leading up to Senior Vice
President and General Manager of home care business from 1989 to 1996. Mr. Jones
was a director of the Compressed Gas Association for 16 years, including a
one-year term as Chairman, and was a director of the International Oxygen
Manufacturers Association for eight years. He is currently a member of the
Engineering Advisory Board at the University of Kansas.

Norman Cooper has been a director of the Company since May 1986. Mr.
Cooper is the retired Chief Executive Officer and Chairman of the Board of
Kallir, Philips, Ross, Inc., a major advertising agency specializing in the
health care field. He had been with Kallir, Philips, Ross, Inc. since 1965 and
was named Executive Vice President in 1972, Chief Operating Officer in 1981,
President in 1985 and Chief Executive Officer in 1990. Mr. Cooper is currently a
member of the Advisory Board for Duke Children's Hospital in Durham, North
Carolina.

John C. Boyd has been a director of the Company since May 1986. Mr. Boyd
was General Manager of Dunaway Equipment Co., Inc. from 1991 to 1994, a company
specializing in the sale and service of equipment in the logging industry. He
was President of Beaty Leasing & Rental, an automobile leasing and rental firm
which he founded, from 1982 to 1991. From 1969 to 1982, Mr. Boyd served as
Personnel Director and Manager of Marketing Administration for Riker
Laboratories, Inc.

Earl L. Yager has been Chief Operating Officer of the Company since
September 2000, Executive Vice President since April 1999, Senior Vice President
since April 1995, Chief Financial Officer since May 1983, and Secretary and a
director since July 1988. Mr. Yager has been a certified public accountant since
1970 and is a member of the American Institute of Certified Public Accountants.
He is currently a member of the Board of Directors of Athanor Group, Inc.

INFORMATION CONCERNING BOARD OF DIRECTORS AND CERTAIN COMMITTEES

The Board of Directors holds regular meetings and held a total of four
(4) meetings during the fiscal year ended March 31, 2001. Each director attended
every meeting of the Board and of each committee of which he was a member with
the exception of Mr. Cutter, who was unable to attend one meeting of the
Organization Committee. In addition, the Board considered and adopted
resolutions by unanimous written consent during the fiscal year ended March 31,
2001.

Four (4) committees have been created by the Board of Directors, which
functioned during the past year - an Audit Committee, a Compensation Committee,
an Organization Committee and a Stock Option Committee. The members of the Audit
Committee are Messrs. Cutter, Cooper and Wolfstein. Mr. Cutter is the Chairman
of the Audit Committee. The Audit Committee met four times during the fiscal
year ended March 31, 2001. The members of the Compensation Committee are Messrs.
Boyd, Brophy and Wolfstein. Mr. Boyd is the Chairman of the Compensation
Committee. The Compensation Committee met twice during the fiscal year ended
March 31, 2001. The members of the Organization Committee are Messrs. Boyd,
Brophy, Cooper, Cutter, Wolfstein, and Jones. Mr. Cooper is the Chairman of the
Organization Committee. The Organization Committee met twice and held a number
of informal discussions during the fiscal year ended March 31, 2001. The Stock
Option Committee administered the Company's Stock Option Plan and was comprised
of Messrs. Boyd, Cutter and Wolfstein. Mr. Wolfstein was Chairman of the Stock
Option Committee, which met one (1) time during the past fiscal year. In
September 2000, the Stock Option Committee was dissolved and its
responsibilities were transferred to the Compensation Committee.

The functions of the Audit Committee include, among other things,
reviewing and making recommendations to the Board of Directors with respect to
(1) the engagement or reengagement of an independent accounting firm to audit
the Company's financial statements, (2) the policies and procedures of the
Company and management with respect to maintaining the Company's books and
records and furnishing necessary information to the independent auditors, and
(3) the adequacy of the Company's internal accounting controls. The Company has
adopted a charter governing the functions of the Audit Committee in accordance
with SEC guidelines.

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The functions of the Compensation Committee include making
recommendations to the Board of Directors regarding compensation for the
principal officers and other key employees of the Company, incentive
compensation to employees and other employee compensation and benefits.

The functions of the Organization Committee include reviewing and making
recommendations for Board committee assignments, screening and making
recommendations regarding candidates for Board of Directors vacancies, and
studying and making recommendations regarding succession and replacement of key
executives.

Each non-employee director is entitled to receive his expenses and a fee
of $1,000 for each Board meeting attended and $100 for each committee meeting
attended unless the committee meeting occurs on the same day as the Board
meeting, in which event, each non-employee director receives only the fee for
attending a Board meeting. In addition, each non-employee director receives a
quarterly retainer in the amount of $2,500. Directors who are also employees do
not receive separate compensation for services as directors.

The Company has adopted a plan pursuant to which outside directors may
elect to receive all or a portion of their fees for the year in shares of the
Company's common stock. Any such election must be made no later than March 1 for
the fiscal year commencing on the following April 1. All such elections are
irrevocable for the duration of the fiscal year. The number of shares issuable
to a director who elects to participate in this plan is determined based upon
the closing price of the Company's shares on the last trading day preceding a
Payment Date (as defined in the plan). The Company has agreed to register for
resale any shares issued to directors pursuant to this plan. For the fiscal year
commencing April 1, 2001, no directors have elected to receive any of their
director's fees in the form of Company shares.

EXECUTIVE OFFICERS

The executive officers of the Company are:

NAME AGE POSITION
- ---- --- --------

Thomas E. Jones 57 Chief Executive Officer and President
Earl L. Yager 55 Chief Operating Officer, Executive Vice President,
Chief Financial Officer and Secretary
Oscar J. Sanchez 58 Vice President, Business Development
Alfonso Del Toro 43 Vice President, Manufacturing
Kevin McCulloh 40 Vice President, Engineering

Oscar J. Sanchez was appointed Vice President of Business Development of
the Company in March 2000, Vice President of Engineering and Development from
September 1996 to February 2000, Vice President of Manufacturing from April 1993
to August 1996, and Manufacturing Manager from April 1983 to April 1993. Prior
to these assignments with the Company, Mr. Sanchez occupied various positions of
responsibility in Engineering and Management both inside and outside the U.S.,
the most recent as Director of Manufacturing for Riker Laboratories in Mexico
City. He has been an active member of the Society of Manufacturing Engineers for
20 years where he served two terms as elected Chairman of the Los Angeles
Chapter.

Alfonso Del Toro was appointed Vice President, Manufacturing of the
Company in January 1998, and was Manufacturing Manager from January 1997 to
December 1997. From 1993 to 1996, he was Manufacturing Manager for VIA Medical
Corp. From 1986 to 1993, he was employed by Nellcor, Inc., a major manufacturer
of respiratory products where Mr. Del Toro served in several positions leading
up to Senior Principal Manufacturing Engineer.

Kevin McCulloh was appointed Vice President of Engineering of the
Company in March 2000. He was Engineering Manager from March 1999 to February
2000, and was Manufacturing Engineer from July 1998 when he joined the Company
to March 1999. From 1982 to 1998, Mr. McCulloh was employed by Litton Life
Support where he had broad based experience in product design and development
leading up to the position of Senior Design Engineer.

For the biographies of Messrs. Jones and Yager, see "Election of
Directors - Nominees."

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SUMMARY COMPENSATION TABLE

ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
------------------------- ------------------------------------
SECURITIES ALL OTHER
NAME AND SALARY BONUS (1) UNDERLYING OPTIONS COMPENSATION (2)
PRINCIPAL POSITION YEAR ($) ($) (#) ($)
- ------------------ ---- ------- --------- ------------------ ----------------

Thomas E. Jones (3) 2001 204,000 -- 50,000 5,250
Chief Executive Officer 2000 200,000 -- 50,000 5,000
and President 1999 233,000 -- 27,779 --

Earl L. Yager (4)
Chief Operating Officer, 2001 168,000 -- 50,000 5,250
Executive Vice President, 2000 145,920 -- 30,000 --
Chief Financial Officer 1999 170,240 -- 8,107 --
and Secretary

Oscar J. Sanchez 2001 132,240 -- 20,000 5,250
Vice President, 2000 132,240 -- -- 5,000
Business Development 1999 132,240 -- -- 5,000

Alfonso Del Toro 2001 120,000 -- 20,000 5,250
Vice President, 2000 120,000 -- 25,000 5,000
Manufacturing 1999 120,000 -- -- 5,000

Kevin McCulloh 2001 108,000 -- 20,000 5,250
Vice President, 2000 100,032 -- 15,000 2,501
Engineering 1999 75,024 -- 10,000 --

(1) Annual bonus amounts are earned, accrued and paid during the fiscal
years included.

(2) These amounts consist of contributions by the Company in 2001, 2000 and
1999 to the CHAD Therapeutics, Inc. Employee Savings and Retirement
Plan.

(3) Voluntarily agreed to reduce base salary by 20% on December 1, 1998 and
18% on April 1, 2000.

(4) Voluntarily agreed to reduce base salary by 20% on December 1, 1998 and
8% on April 1, 2000. Option Grants for the Year Ended March 31, 2001

POTENTIAL REALIZED VALUE
% OF TOTAL AT ASSUMED ANNUAL RATES
OPTIONS OF STOCK PRICE APPRECIATION
OPTIONS GRANTED TO EXERCISE FOR OPTION TERM (4)
GRANTED (#) EMPLOYEES PRICE ($) PER ---------------------------
NAME (1,2) DURING 2001 SHARE (3) EXPIRATION DATE 5% 10%
- ---- ----------- ----------- ------------- ------------------ --------- ------

Thomas E. Jones 50,000 20% 1.00 September 14, 2010 31,000 80,000
Earl L. Yager 50,000 20% 1.00 September 14, 2010 31,000 80,000
Oscar J. Sanchez 20,000 8% 1.00 September 14, 2010 13,000 32,000
Alfonso Del Toro 20,000 8% 1.00 September 14, 2010 13,000 32,000
Kevin McCulloh 20,000 8% 1.00 September 14, 2010 13,000 32,000

(1) These options vest in annual cumulative 50% installments, with the first
installment vesting on the first anniversary of the date of the grant.

(2) Under the terms of the Company's stock option plan, the Stock Option
Committee retains discretion, subject to plan limits, to modify the
terms of the outstanding options.

(3) The exercise price and tax withholding obligations related to exercise
may be paid by delivery of already owned shares, subject to certain
conditions.

(4) These amounts represent certain assumed rates of appreciation only.
Actual gains, if any, on stock option exercises are dependent on the
future performance of the common stock, overall stock conditions, as
well as the optionholder's continued employment through the vesting
period. The amounts reflected in this table may not necessarily be
achieved.

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AGGREGATED OPTION EXERCISES IN LAST FISCAL AND OPTION VALUES AT MARCH 31, 2001

VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY OPTIONS
SHARES UNDERLYING UNEXERCISED AT MARCH 31, 2001
ACQUIRED ON OPTIONS AT MARCH 31, 2001 EXERCISABLE
NAME EXERCISE (#) VALUE REALIZED ($) EXERCISABLE/UNEXERCISABLE UNEXERCISABLE ($)
- ---- ------------ ------------------ ------------------------- ---------------------

Thomas E. Jones -0- -0- 92,779 / 135,000 52,000 / 90,000
Earl L. Yager -0- -0- 87,907 / 82,000 41,000 / 74,000
Oscar J. Sanchez -0- -0- 33,418 / 20,000 61,250 / 20,000
Alfonso Del Toro -0- -0- 12,500 / 32,500 11,000 / 31,000
Kevin McCulloh -0- -0- 7,000 / 38,000 11,000 / 46,500

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

None of the members of the Compensation Committee are or formerly were
officers or employees of the Company or had any relationship requiring
disclosure under Item 404 of Regulation S-K. Furthermore, none of the executive
officers of the Company served as a member of the Board of Directors,
Compensation Committee or committee performing equivalent functions of any other
company.

EMPLOYMENT AGREEMENT

Effective April 1, 1998, the Company and Thomas E. Jones entered into an
employment agreement pursuant to which the Company employs Mr. Jones as Chief
Executive Officer and Vice Chairman of the Board of Directors (the "Employment
Agreement"). The Employment Agreement provides a base salary of $250,000 per
year, which amount is subject to annual review by the Board of Directors. In
addition, Mr. Jones is eligible to receive a bonus in an amount to be determined
by the Board of Directors. In order to assist Mr. Jones with his relocation to
Southern California, the Company has agreed to reimburse Mr. Jones for certain
expenses not to exceed $2,300 a month during the first 24 months of Mr. Jones'
employment. Beginning April 1, 2000, the time frame was extended indefinitely
and the reimbursement was reduced to $1,800 per month. Mr. Jones is entitled to
participate in all stock option, severance and benefit plans adopted by the
Company.

The Employment Agreement does not have a specific term. The Employment
Agreement may be terminated at any time by the Company, with or without cause,
and may be terminated by Mr. Jones upon 90 days' notice. If Mr. Jones resigns or
is terminated for cause (as defined in the Employment Agreement), he is entitled
to receive only his base salary and accrued vacation through the effective date
of his resignation or termination. If Mr. Jones is terminated without cause
after March 31, 2000, he is entitled to receive a severance benefit in
accordance with the Company's Severance and Change of Control Plan (the "Plan")
or, if such Plan is not applicable, a severance benefit equal to 200% of his
salary and incentive bonus for the prior fiscal year. A description of the Plan
is set forth below.

In connection with his employment, Mr. Jones was granted options to
acquire 90,000 shares at $9.75 per share. The options vest over 5 years;
however, all outstanding options will accelerate and become immediately
exercisable upon a Change of Control or Ownership Change as defined in the Plan.

SEVERANCE AND CHANGE OF CONTROL PLAN

The Company has adopted a Severance and Change of Control Plan pursuant
to which 12 of the Company's officers, including each of the named executive
officers, have entered into Severance and Change of Control Agreements with the
Company (the "Severance Agreements"). The Severance Agreements provide that each
named executive officer is entitled to a lump sum severance benefit equal to
200% of his aggregate compensation for the prior calendar year (the amounts vary
for other officers) if the officer is terminated without cause (as defined in
the Severance Agreements) and not offered a comparable position within 60 days
or if the executive suffers a change in duties, in either case, within 24 months
of a Change of Control or Ownership Change of the Company (as defined in the
Severance Agreements). If any payment due a named executive officer pursuant to
the Severance Agreements would be deemed an excess parachute payment under
Section 280G of the Internal Revenue Code, then the Company may reduce such
payment to the extent necessary to avoid all taxes and penalties under Section
280G. Separately, the Company provided for accelerated vesting of all
outstanding options upon a Change of Control or Ownership Change of the Company.

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A change in duties is defined in the Severance Agreements to include,
among other things, an involuntary reduction in authority, any reduction in
annual salary, a reduction of 10% or more in aggregate compensation or
re-location to a site more than 50 miles from the executive's principal place of
employment.

A Change of Control or Ownership Change shall be deemed to have occurred
if (i) as a result of a tender offer or sale of stock any person acquires 20% or
more of the Company's Common Stock, (ii) the Company merges into another
corporation or, as a result of a merger, shareholders of the Company own less
than 70% of the voting stock of the surviving entity, (iii) more than one third
of the Company's directors are replaced during any 12-month period by directors
who were not endorsed by a majority of the Board, (iv) the Company is dissolved
or sells substantially all of its assets, or (v) any other event occurs which
the Board of Directors deems to constitute an Ownership Change.

RETIREMENT AGREEMENT

On March 22, 1999, the Compensation Committee approved the payment of a
retirement benefit of $75,000 per year for the ensuing four years to Charles R.
Adams, the Company's founder and former Chairman and Chief Executive Officer.

REPORT OF THE COMPENSATION COMMITTEE

All members of the Compensation Committee are independent, non-employee
directors. The Compensation Committee is responsible for reviewing the Company's
compensation policies and making recommendations to the Board with respect to
executive compensation. In addition, the Company formerly had a Stock Option
Committee, comprised entirely of independent non-employee directors, which was
responsible for administering the Company's Stock Option Plan. These duties have
now been assumed by the Compensation Committee.

The Company's compensation policies are designed to:

- Attract and retain well-qualified executives who are willing to
work in a small, growing company;

- Create a performance-oriented environment which recognizes both
annual and long-term results;

- Strengthen the identification of executive officers with
shareholder interests; and

- Reward long-term commitment to the Company.

Compensation of the Company's executive officers is composed primarily
of salary, bonuses and stock options.

1. SALARIES - Salaries for executive officers are established with a view
toward maintaining the Company's competitive ability to retain
well-qualified executive officers. The Committee reviews executive pay
statistics compiled by the Health Industry Manufacturers Association
("HIMA"). It generally seeks to fix executive salaries at or near the
midpoint for positions of comparable responsibility in companies of
comparable size in the HIMA study. Salaries are reviewed annually by the
Compensation Committee which consults with the Chief Executive Officer
on the appropriate salary levels for each of the executive officers.
Salary levels are generally increased as executives assume new or
expanded responsibilities.

2. BONUSES - The Company does not have a formal incentive bonus plan with
fixed performance standards. The Compensation Committee annually reviews
executive performance to determine if bonuses would be appropriate.
Payment of bonuses is entirely discretionary and bonuses have generally
not exceeded 20% of base compensation. Cash bonuses are the Company's
primary means for rewarding superior performance during the immediate
past year. The Compensation Committee's standards for determining bonus
amounts are subjective and are not governed by any specific,
quantitative criteria. The Compensation Committee confers with the Chief
Executive Officer regarding the contribution which each executive
officer made to the Company's performance during the previous year in
order to determine if bonuses should be paid and, if so, the appropriate
amount of bonus to be paid. Factors considered in the award of bonuses
include (in order of importance) - profitability, growth in profits,
growth in sales, improved gross profit margins and achievement of goals
which enhance the Company's opportunities for future growth. The
Compensation Committee does not accord any specific numerical weight to
these factors. No bonuses were paid for the year ended March 31, 2001.

-10-
11

3. STOCK OPTIONS - Stock Options are intended to strengthen the
identification of executive officers with the interests of the Company's
shareholders. Stock options are used by the Stock Option Committee as a
form of long-term incentive compensation and not as remuneration for the
past year's services. The Stock Option Committee grants options and
fixes their terms subject to the provisions of the Company's stock
option plan adopted on September 20, 1994. There are no fixed
performance criteria that govern the grant of stock options. The Stock
Option Committee's standards for determining the number of options
granted are subjective. The Stock Option Committee confers with the
Chief Executive Officer regarding the contribution which each executive
officer made to the Company's performance during previous years and
likely future contributions in order to determine if stock options
should be granted and, if so, the appropriate amount of options to be
granted. The Stock Option Committee generally grants options as a reward
for sustained superior performance reflected in the Company's operating
results as well as to reward long-term commitment to the Company. Stock
option grants are generally structured to provide executives with an
incentive to continue with the Company. In this regard, consideration is
given to the number of options held by an officer, their exercise price
and vesting dates. All options granted have an option price not less
than the fair market value of the stock on the date of the grant,
generally vest over period of two to five years and only attain a value
if the price of the stock increases.

BASIS FOR COMPENSATION OF THE CEO

During the fiscal year ending March 31, 2001, Thomas E. Jones received
total annual compensation of $204,000. Mr. Jones was entitled to an annual base
salary of $250,000 pursuant to the terms of his employment agreement with the
Company. However, Mr. Jones took a voluntary reduction of 18% from his base
salary in view of the Company's financial performance. The Compensation
Committee noted this action on the part of Mr. Jones and, partly as a result
thereof, determined to award Mr. Jones with a stock option grant of 50,000
options exercisable at $1.00 per share (the market price on the date of grant).
Mr. Jones did not receive any cash bonus for fiscal 2001 and the Compensation
Committee has not proposed any increase in his current compensation
arrangements. However, the Compensation Committee will continue to review Mr.
Jones' efforts to improve the operating performance of the Company and, to the
extent he succeeds in these efforts, will consider appropriate recognition of
his contributions.

Compensation Committee

John Boyd (Chairman)
Philip Wolfstein
James M. Brophy

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COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG CHAD THERAPEUTICS, MEDIA GENERAL INDEX
AND SIC CODE INDEX

[PERFORMANCE GRAPH]

FISCAL YEAR ENDING
COMPANY/INDEX/MARKET 3/29/1996 3/31/1997 3/31/1998 3/31/1999 3/31/2000 3/31/2001

Chad Therapeutics 100.00 80.72 56.60 16.70 12.99 7.42
Surgical & Medical Instruments 100.00 102.03 140.76 166.86 153.38 168.53
Media General Index 100.00 115.67 169.21 187.34 231.87 172.49

ASSUMES $100 INVESTED ON
APRIL 1, 1996

ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING
MARCH 31, 2001

The broad market index chosen was Media General Composite. The Industry Index
chosen was SIC code 3841, Surgical and Medical Instruments & Apparatus. The
current composition of the index is as follows:

ADVANCED NEUROMO SYSTEMS.
AKSYS LTD.
ALARIS MEDICAL INC.
AMPERSAND MEDICAL CORP.
ANGEION CORP.
APPLIED IMAGING CORP.
ARROW INTERNATIONAL INC.
ATRION CORPORATION
BAXTER INTERNATIONAL INC.
BECTON, DICKINSON & CO.
BIO-PLEXUS INC.
BIOJECT MEDICAL TECH
BIONX INMPLANTS INC.
BOSTON SCIENTIFIC CORP.
BOVIE MEDICAL
C.R. BARD INC.
CARESIDE INC,.
CLOSURE MEDICAL CORP.
COHESION TECHNOLOGIES
COLORMAX TECHNOLOGIES
CONCEPTUS INC.
CPC OF AMERICA
CRYO-CELL INTERNAT INC.
DIASYS CORP.
EP MEDSYSTEMS INC.
EYE DYNAMICS
FOCAL INC.
FRESENIUS MED CARE AG
FUSION MEDICAL TECH
GENETRONICS BIOMEDICAL
GENZYME SURGCL PRD. DIV.
GISH BIOMEDICAL INC.
GPN NETWORK INC.
GUIDANT CORP.
HAEMONETICS CORP.
HEARTPORT INC.
HEARX LTD.
HEMASURE INC.
HYPERTENSION DIAGNOSITCS
I-FLOW CORP.
ICU MDEICAL INC.
IMPLANT SCIENCES CORP.
INTEGRATED SURGICAL SYST.
KENSEY NASH CORP.
LIFEPOINT INC.
MED-DESIGN CORP
MEDAMICUS INC.
MEDI-JECT CORPORATION
MEDICAL DYNAMICS INC.
MEDICAL TECHN. SYS.
MEDISCIENCE TECH
MEDWAVE INC.
MERIDIAN MEDICAL TECH
MERIT MEDICAL SYSTEMS
MICRO THERAPEUTICS INC.
MINNTECH CORP.
NMT MEDICAL INC.
NOVACON
NOVAMETRIX MEDICAL SYSTEM
OPHTHALMIC IMAGING SYSTEM
OPTICAL SENSORS INC.
ORTHOLOGIC CORP.
ORTHOVITA INC.
OXBORO MEDICAL INC.
PARADIGM MEDICAL IND.
RADIANCE MEDICAL SYSTEMS
REPRO MED SYSTEM
RESMED INC.
ROCHESTER MEDICAL CORP.
SALIVA DIAGNOSTIC
SEPRAGEN-A
SOMNUS MEDICAL TECHS INC.
SONOSITE INC.
SPECILIZED HEALTH PRODS.
STRATEGIC DIAGNOSTICS
STRYKER CORP.
SURGIDYNE INC.
SWISSRAY INTERNATIONAL
SYBRON DENTAL SPCLTS.
THORATEC CORP.
TRANSPIRATOR TECH
UNIVEC
UROMED CORP.
UROPLASTY
UTAH MEDICAL PRODUCTS
VASCULAR SOLUTIONS INC.
VASOGEN INC.
VENTANA MEDICAL SYSTEMS
VIDAMED INC.
VITAL SIGNS INC.
VUVUS INC.
W.R. GRACE & CO.
WORLD DIAGNOSITCS INC.

-12-
13

AUDIT COMMITTEE REPORT

On behalf of the Board of Directors, the Audit Committee monitors the
Company's financial reporting processes and internal controls, as well as the
Company's relationship with its independent accountants and the performance of
such accountants. All of the members of the Audit committee are independent
directors and the Chairman of the Audit Committee has been a Certified Public
Accountant. The Board of Directors has adopted a charter for the Audit
committee, which is attached to this Proxy Statement as Appendix A.

Management has the primary responsibility for preparation of the
Company's financial reports, the Company's financial reporting systems and its
internal controls. The Audit Committee is not intended to supersede in any
respect management's responsibilities in this regard. Management has represented
to the Audit Committee that the Company's financial statements were prepared in
accordance with generally accepted accounting principles and the Audit Committee
has reviewed and discussed such financial statements with management and with
the Company's independent accountants. The Audit Committee has also discussed
with the independent accountants their evaluation of the Company's financial
reporting systems and internal controls, their plan of audit for fiscal 2002,
the application of new accounting principles to the Company's financial
statements and other matters required to be communicated to the Committee by the
independent accountants pursuant to standards established by the American
Institute of Certified Public Accountants.

The Audit Committee has received from the independent accountants a
letter addressing matters which might bear on the independence of the
accountants. The Audit Committee has discussed independence issues with the
accountants and has reviewed their fees and scope of services rendered to the
Company. The Audit Committee has discussed the performance of the independent
accountants with the Company's management.

In reliance on the foregoing, the Audit Committee has recommended to the
Board of Directors the inclusion of the audited financial statements in the
Company's Annual Report on Form 10-K for the year ended March 31, 2001.

David L. Cutter, Chairman
Norman Cooper
Philip Wolfstein

INDEPENDENT AUDITORS

The Board of Directors has appointed, subject to ratification by the
shareholders, KPMG LLP as independent auditors for the fiscal year commencing
April 1, 2001. A representative of KPMG LLP is expected to attend the Meeting to
make any statements he may desire and respond to shareholders' questions.

KPMG's fees for our 2001 annual audit and review of interim financial
statements were $71,000. KPMG did not render any professional services to the
Company during fiscal 2001 with respect to the design and implementation of
financial information systems. KPMG's fees for all other services rendered to
the Company during fiscal 2001 were $7,500. Such services consisted of
preparation of the Company's income tax returns.

THE BOARD OF DIRECTORS RECOMMENDS RATIFICATION OF THE APPOINTMENT OF KPMG LLP.

DATE FOR SUBMISSION OF SHAREHOLDER PROPOSALS
FOR 2002 ANNUAL MEETING

Any proposal, relating to a proper subject, which a shareholder may
intend to present for action at the Annual Meeting of Shareholders to be held in
September 2002, and which such shareholders may wish to have included in the
proxy materials for such, in accordance with the provisions of Rule 14a-8
promulgated under the Securities Exchange Act of 1934, must be received in
proper form by the Secretary of the Company at 21622 Plummer Street, Chatsworth,
California 91311, not later than March 15, 2002. It is suggested that any such
proposal be submitted by certified mail, return receipt requested.

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14

OTHER PROPOSED ACTION

The Meeting is called for the purposes set forth in the notice thereof
accompanying this Proxy Statement. Management is not aware of any matters to
come before the Meeting other than those stated in this Proxy Statement.
However, inasmuch as matters of which management is not now aware may come
before the Meeting or any adjournment thereof, the Proxies confer discretionary
authority with respect to acting thereon, and the person named in such Proxies
intends to vote, act and consent in accordance with his best judgment with
respect thereto.

PERSONS MAKING THE SOLICITATION

The accompanying proxy is solicited by the Board of Directors of the
Company. The Company will pay all expenses of the preparation, printing and
mailing to the shareholders of the enclosed proxy, accompanying notice and Proxy
Statement.

-14-
15

APPENDIX A
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS CHARTER

I. PURPOSE

The primary function of the Audit Committee is to assist the Board of
Directors in fulfilling its oversight responsibilities by reviewing: the
financial reports and other financial information provided by the
Corporation to any governmental body or the public; the Corporation's
systems of internal controls regarding finance, accounting, legal
compliance and ethics that senior management and the Board have
established; and the Corporation's auditing, accounting and financial
reporting processes generally. The Audit Committee's primary duties and
responsibilities are to:

Serve as an independent and objective party to monitor the
Corporation's financial reporting process and internal control
system.

Review and appraise the audit efforts of the Corporation's
independent accountants and internal auditing activities.

Provide an open avenue of communication among the independent
accountants, financial and senior management, the internal
auditing department, and the Board of Directors.

The Audit Committee will primarily fulfill these responsibilities by
carrying out the activities enumerated in Section IV of this Charter.

II. COMPOSITION

The Audit Committee shall be comprised of three or more directors as
determined by the Board, each of whom shall be an independent director
and free from any relationship that, in the opinion of the Board, would
interfere with the exercise of his or her independent judgment as a
member of the Committee. All members of the Committee shall have a
working familiarity with basic finance and accounting practices, and at
least one member of the Committee shall have accounting or related
financial management expertise. Committee members may enhance their
familiarity with finance and accounting by participating in educational
programs at the expense of the Corporation. The members of the Committee
shall be appointed by the Board at the annual organizational meeting of
the Board or until their successors shall be duly elected and qualified.
The Chair shall be appointed by the full Board.

III. MEETINGS

The Committee shall meet at least four times annually, or more
frequently as circumstances dictate. As part of its job to foster open
communication, the Committee should meet at least annually with senior
management, the CEO, the CFO, and the independent accountants in
separate executive sessions to discuss any matters that the Committee or
each of these groups believe should be discussed privately. In addition,
the Committee or at least its Chair or his designee should confer with
the independent accountants and senior management quarterly to review
the Corporation's financials consistent with IV.3. below.

IV. RESPONSIBILITIES AND DUTIES

To fulfill its responsibilities and duties the Audit Committee shall:

DOCUMENTS/REPORTS REVIEW

1. Review and update this Charter periodically, as conditions
dictate.

2. Review the organization's annual financial statements and any
reports or other financial information submitted to any
governmental body, or the public, including any certification,
report, opinion, or review rendered by the independent
accountants.

3. Review, with financial management and the independent
accountants, the 10-Q prior to its filing or prior to the
release of earnings. The Chair of the Committee or his designee
may represent the entire Committee for purposes of this review.

-15-
16

INDEPENDENT ACCOUNTANTS

4. Recommend to the Board of Directors the selection of the
independent accountants, considering independence and
effectiveness and approve the fees and other compensation to be
paid to the independent accountants. On an annual basis, the
Committee should review and discuss with the accountants all
significant relationships the accountants have with the
Corporation to determine the accountants' independence.

5. Review the performance of the independent accountants and
approve any proposed discharge of the independent accountants
when circumstances warrant.

6. Periodically consult with the independent accountants, out of
the presence of senior management, about internal controls, the
capabilities of the Corporation's finance and internal audit
staff, cooperation of the Corporation with the independent
accountants, the accounting principles used by the Corporation,
and the reliability of the organization's financial statements.

FINANCIAL REPORTING PROCESSES

7. In consultation with the independent accountants and the
internal auditors, review the integrity of the organization's
financial reporting processes, both internal and external.

8. Consider the independent accountants' judgments about the
quality and appropriateness of the Corporation's accounting
principles as applied in its financial reporting.

9. Consider and approve, if appropriate, major changes to the
Corporation's auditing and accounting principles and practices
as suggested by the independent accountants, senior management,
or the internal auditing department.

PROCESS IMPROVEMENT

10. Establish regular and separate systems of reporting to the Audit
Committee by each of senior management, the independent
accountants, the CEO and the CFO regarding any significant
judgments made in senior management's preparation of the
financial statements and the view of each as to appropriateness
of such judgments.

11. Following the completion of the annual audit, review separately
with each of senior management and the independent accountants
any significant difficulties encountered during the course of
the audit, including any restrictions on the scope of the work
or access to required information.

12. Review any significant disagreement among senior management and
the independent accountants in connection with the preparation
of the financial statements.

13. Review with the independent accountants and senior management
the extent to which changes or improvements in financial or
accounting practices, as approved by the Audit Committee, have
been implemented. (This review should be conducted at an
appropriate time subsequent to implementation of changes or
improvements, as decided by the Committee.)

ETHICAL AND LEGAL COMPLIANCE

14. Review, with the organization's counsel, any legal matter that
could have a significant impact on the organization's financial
statements.

15. Perform any other activities consistent with this Charter, the
Corporation's By-laws and governing law, as the Committee or the
Board deems necessary or appropriate.

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17
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!

ANNUAL MEETING OF SHAREHOLDERS
CHAD THERAPEUTICS, INC.

SEPTEMBER 12, 2001

Please Detach and Mail in the Envelope Provided
- --------------------------------------------------------------------------------

A [X] Please mark your
votes as in this
example.

FOR ALL
NOMINEES WITHHELD FOR AGAINST ABSTAIN
1. Election of Nominees: David L. Cutter 2. Proposal to ratify the appointment
Directors. [ ] [ ] Philip Wolfstein of KPMG LLP as independent Certified [ ] [ ] [ ]
James M. Brophy Accountants and Auditors.

For, except vote withheld from the following PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY
nominee(s): CARD PROMPTLY USING THE ENCLOSED ENVELOPE

____________________________________________

SIGNATURE_____________________________________________________ DATE_____________

Note: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.

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

CHAD THERAPEUTICS, INC.

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints Thomas E. Jones and Earl L. Yager, and
either of them, as Proxyholders, with the power of substitution, and hereby
authorizes them to represent and vote, as designated on the reverse, all the
shares of voting capital stock of Chad Therapeutics, Inc. held of record by the
undersigned at the close of business on July 16, 2001 (and in the case of item 1
to cumulate and allocate said votes for directors in his discretion), at the
Annual Meeting of Shareholders to be held on September 12, 2001, and at any and
all adjournment(s) thereof.

The shares represented by this Proxy, when properly executed, will be
voted in the manner directed herein by the undersigned shareholder. IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ALL THE NOMINEES FOR DIRECTOR
AND FOR APPROVAL OF PROPOSAL 2.

In their discretion the proxyholders are authorized to vote upon such
other business as may properly come before the meeting.

(TO BE SIGNED ON REVERSE SIDE)

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