CHAD Therapeutics Reports First Quarter Results; Management Increases Earnings Guidance for Fiscal 2005.CHATSWORTH, Calif. -- CHAD Therapeutics therapeutics Treatment and care to combat disease or alleviate pain or injury. Its tools include drugs, surgery, radiation therapy, mechanical devices, diet, and psychiatry. , Inc. (AMEX AMEX See: American Stock Exchange :CTU CTU Colorado Technical University CTU Czech Technical University in Prague CTU Counter Terrorist Unit CTU Clinical Trials Unit CTU Catholic Theological Union CTU Chicago Teachers Union CTU Computer Training Unit CTU Control Unit ) today announced improved operating results for the first quarter of fiscal 2005, and increased earnings guidance for the year as a whole. First Quarter Results For the three months ended June 30, 2004, revenue increased 8% to $6,099,000 from $5,669,000 for the first quarter of fiscal 2004. Net earnings for the first quarter of fiscal 2005 increased 17% to $262,000, or $0.02 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share. This compares to net earnings for the first quarter of fiscal 2004 of $224,000, or $0.02 per diluted share. At June 30, 2004, CHAD had no long-term debt Long-Term Debt Loans and financial obligations lasting over one year. Notes: For example debts obligations such as bonds and notes which have maturities greater than one year would be considered long-term debt. and cash of $3,475,000, or 26% of total assets. At March 31, 2004, cash was $2,708,000. Operations Review "CHAD's best quarterly revenue performance in seven years was driven by increased sales of our OXYMATIC(R) 400 Series electronic conservers and CYPRESS Cypress, city, United States Cypress (sī`prəs), city (1990 pop. 42,655), Orange co., S Calif. near Long Beach; inc. 1956. Forest Lawn–Cypress, a branch of the famous cemetery in Glendale, Calif. (TM) OXYPneumatic(R) conservers," said Earl L. Yager, Chief Executive Officer and President. "Both domestic and international sales of oxygen conservers increased for the quarter. We continued to gain market share in the domestic conserver market and increased our momentum internationally, which we attribute to the success of our strategy to offer the widest array of choices in conserver products." He said that international revenue was up by 16% for this year's first quarter over the same period of the prior year. Yager continued: "As we anticipated in our announcements of last fiscal year's third and fourth quarter operating results, gross margin in this year's first quarter was affected by pricing pressures brought on by the recently enacted Medicare Improvement and Modernization modernization Transformation of a society from a rural and agrarian condition to a secular, urban, and industrial one. It is closely linked with industrialization. As societies modernize, the individual becomes increasingly important, gradually replacing the family, Act. Increased unit sales unit sales Sales measured in terms of physical units rather than dollars. Unit sales data are often used by financial analysts when evaluating the health of a company. and cost reductions associated with higher sales volume have helped us partially offset this impact. We anticipate additional cost savings in the current quarter as cost reductions we have negotiated with our suppliers take full effect." Outlook for Growth Yager added: "The foundation of our strategic growth plan has been the enhancement of CHAD's traditional leadership position in the conserver market. We expect to make continued progress in this area in the current fiscal year. We have also made substantial progress with a second element of our strategic plan, which involves CHAD's entry into related markets and product lines with significant growth potential. Earlier this year we introduced our new SAGE(TM) Oxygen Therapeutic Device, which uses our proprietary technologies to sense a patient's movements and automatically adjust the rate of oxygen delivery to reduce the risk of oxygen desaturation desaturation /de·sat·u·ra·tion/ (de-sach?ah-ra´shun) the process of converting a saturated compound to one that is unsaturated, such as the introduction of a double bond between carbon atoms of a fatty acid. as activity increases. Our customers have responded positively to this new technology, and we have received purchase orders that will consume our SAGE production capability through January of 2005. "Interest in our TOTAL O(2)(R) home oxygen filling system continues to increase as homecare providers seek more cost-effective ways to service their home oxygen patients. The TOTAL O(2) system produces unlimited oxygen just like a standard oxygen concentrator An oxygen concentrator, also called an oxygen generator, is a device used to provide oxygen therapy to a patient at substantially higher concentrations than those of ambient air, used as an alternative to tanks of compressed oxygen. , while simultaneously allowing patients to easily and safely refill refill noun A second allotment of a prescription agent obtained from a pharmacy, which is allowed by the original prescription verb Pharmacology To obtain more of a particular drug, after the initially prescribed amount of the agent has been used or their portable oxygen cylinders at home. Because this eliminates the costs of picking up, refilling and delivering portable oxygen cylinders to patients, costs that are becoming increasingly burdensome as reimbursement Reimbursement Payment made to someone for out-of-pocket expenses has incurred. drops, we believe this technology provides home oxygen providers with a cost-effective way to deal with reductions in reimbursement without compromising patient care. While it is still too soon to predict that our TOTAL O(2) system will become a significant contributor to CHAD's growth, sales increased in the first quarter and met our expectations. "We also continued to make progress on the products we are developing for the sleep disorder Sleep disorder Any condition that interferes with sleep. At least 84 have been identified, according to the American Sleep Disorders Association. Mentioned in: Insomnia, Night Terrors market under licenses we acquired in 2003. While these products are still in the development stage, we believe they may provide additional growth opportunities beyond the home oxygen market. We have financed our growth and product development programs entirely from internal sources, and expect to continue to do so." Management Increases Earnings Guidance for Fiscal 2005 Yager concluded: "Based on these developments, we are updating our net earnings guidance for fiscal 2005. If current sales and expense trends continue, we currently expect CHAD to generate net earnings of between $2,500,000 and $2,700,000, or $0.24 to $0.26 per diluted share, for the fiscal year ending March 31, 2005." This compares with management's previous expectation for fiscal 2005 of net earnings of between $1,900,000 and $2,100,000, or $0.18 to $0.20 per diluted share. For fiscal 2004, CHAD reported net earnings of $1,001,000, or $0.10 per diluted share. Operating Loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. Carryforwards At June 30, 2004, the Company had fully utilized its net operating loss carrybacks Net operating loss carrybacks The application of losses to offset earnings in previous years. and had approximately $2,785,000 in California net operating loss carryforwards Net operating loss carryforwards Application of losses to offset earnings in future years. available to offset future taxable income Under the federal tax law, gross income reduced by adjustments and allowable deductions. It is the income against which tax rates are applied to compute an individual or entity's tax liability. The essence of taxable income is the accrual of some gain, profit, or benefit to a taxpayer. . In September of 2002, the State of California enacted legislation that suspended the utilization of net operating loss carryforwards during tax years starting in 2002 and 2003 effective retroactively ret·ro·ac·tive adj. Influencing or applying to a period prior to enactment: a retroactive pay increase. [French rétroactif, from Latin to January 1, 2002. As a result, CHAD has been unable to use its California net operating loss carryforwards until the tax year beginning April 1, 2004. Conference Call CHAD will host a conference call today at 11:00 a.m. ET. A simultaneous webcast of the conference call will be available at www.fulldisclosure.com/company.asp?client=cb&ticker ticker An automated quotation system on which security transactions are reported after they occur on an exchange floor. Even though the newer systems are electronic and no longer actually tick, the name of the old mechanical device has stuck. =ctu or from the Investor Relations Investor relations The process by which the corporation communicates with its investors. link at www.CHADtherapeutics.com. A replay will be available after 1:00 p.m. ET at these same Internet addresses There are two kinds of addresses that are widely used on the Internet. One is a person's e-mail address, and the other is the address of a Web site, which is known as a URL. Following is an explanation of Internet e-mail addresses only. For more on URLs, see URL and Internet domain name. . For a telephone replay, dial 800-633-8284, reservation #21203553. About CHAD Therapeutics CHAD Therapeutics, Inc. is in the business of developing, producing and marketing respiratory care devices designed to improve the efficiency of oxygen delivery systems for home health care and hospital treatment of patients suffering from pulmonary pulmonary /pul·mo·nary/ (pool´mo-nar?e) 1. pertaining to the lungs. 2. pertaining to the pulmonary artery. pul·mo·nar·y adj. Of, relating to, or affecting the lungs. diseases. For more information, visit www.CHADtherapeutics.com. Safe Harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. Statements under the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. The foregoing statements regarding prospects for future earnings and revenues, future sales trends and the introduction of products under development are forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. that involve certain risks and uncertainties. A number of important factors could cause actual results to differ materially from those contemplated by such forward-looking statements. These include the loss of one or more major customers, increased competition, the introduction of new products with perceived competitive advantages over the Company's products, changes or proposed changes in health care reimbursement which affect home care providers, and CHAD's ability to anticipate and respond to technological and economic changes in the home oxygen market. Moreover, the success of the Company's products and products under development will depend on their efficacy, reliability and the health care community's perception of the products' capabilities and benefits, the degree of acceptance the products achieve among homecare providers and, with respect to products under development, obtaining timely regulatory approval. Our ability to meet the earnings guidance set forth above may also be adversely affected if we experience unexpected problems or costs in ramping up production of the SAGE Oxygen Therapeutic Device. Additional factors that could cause actual results to differ materially from those contemplated in this press release can be found in the Company's annual and quarterly reports filed with the Securities and Exchange Commission under the caption "Outlook: Issues and Risks."
CHAD THERAPEUTICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
June 30,
2004 2003
Net sales $ 6,099,000 $ 5,669,000
Cost of sales 3,553,000 3,151,000
Gross profit 2,546,000 2,518,000
Costs and expenses:
Selling, general and administrative 1,862,000 1,965,000
Research and development 410,000 323,000
Total costs and expenses 2,272,000 2,288,000
Operating income 274,000 230,000
Other income 8,000 5,000
Earnings before income taxes 282,000 235,000
Income tax expense 20,000 11,000
Net earnings $ 262,000 $ 224,000
Basic earnings per share $ 0.03 $ 0.02
Diluted earnings per share $ 0.02 $ 0.02
Weighted shares outstanding:
Basic 10,110,000 10,076,000
Diluted 10,617,000 10,254,000
CHAD THERAPEUTICS, INC.
CONDENSED BALANCE SHEETS
(unaudited)
June 30, June 30,
2004 2003
Assets
Current assets:
Cash $ 3,475,000 $ 1,431,000
Accounts receivable, net 3,074,000 2,946,000
Income taxes refundable -- 4,000
Inventories, net 4,773,000 5,802,000
Prepaid expenses 138,000 455,000
Deferred income taxes 224,000 --
Total current assets 11,684,000 10,638,000
Property, plant and equipment, net 1,175,000 1,158,000
Other assets 775,000 735,000
Total Assets $ 13,634,000 $ 12,531,000
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 811,000 $ 801,000
Accrued expenses 1,307,000 1,397,000
Income taxes payable 63,000 9,000
Total current liabilities 2,181,000 2,207,000
Shareholders' equity:
Common shares, no par value, authorized
40,000,000 shares, 10,122,000 and
10,076,000 issued and outstanding 13,347,000 13,257,000
Retained earnings (accumulated deficit) (1,894,000) (2,933,000)
Net shareholders' equity 11,453,000 10,324,000
Total Liabilities and Shareholders'
Equity $ 13,634,000 $ 12,531,000
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