CHAD Therapeutics Reports Fiscal 2003 Second Quarter and First Half Results.

Business Editors

CHATSWORTH, Calif.--(BUSINESS WIRE)--Nov. 6, 2002

CHAD Therapeutics, Inc. (AMEX:CTU), a producer and distributor of oxygen conserving devices and oxygen systems for pulmonary patients who need supplementary oxygen, today announced operating results for the second quarter and first six months of fiscal 2003 ended September 30, 2002.

For the second quarter of fiscal 2003, revenue declined 7% to $4,763,000 from $5,106,000 for the same period last year. Net earnings for this year's second quarter were $2,000, or $0.00 per diluted share, after $165,000 in unanticipated expenses incurred by the Company in connection with a proxy contest waged by a group of dissident shareholders who attempted unsuccessfully to elect their own nominees to CHAD's Board. Net income for last year's second quarter was $67,000, or $0.01 per diluted share.

For the first half of fiscal 2003, revenue declined 2% to $9,726,000 from $9,953,000 for the first half of fiscal 2002. Net earnings were $180,000, or $0.02 per diluted share, compared to $80,000, or $0.01 per diluted share, for the same period last year.

At September 30, 2002, the Company had fully utilized its net operating loss carrybacks and had approximately $673,000 and $2,640,000 in Federal and California net operating loss carryforwards, respectively, available to offset future taxable income. In September of 2002, the State of California enacted legislation that suspends the utilization of net operating loss carryforwards during tax years starting in 2002 and 2003 effective retroactively to January 1, 2002. As a result, CHAD will be unable to use its California net operating loss carryforwards until the tax year beginning April 1, 2004. In addition, due to the retroactive nature of the law, California income taxes of $12,000 have been recorded in the quarter ended September 30, 2002, that relate to income earned in the quarter ended June 30, 2002.

Operations Review

Thomas E. Jones, Chief Executive Officer, said, "Domestic sales of conservers increased by 25% for the second quarter over the same quarter last year, continuing our strong performance in the oxygen conserver product line. Sales of our OXYMATIC(R) 400 series conservers remained robust, and CHAD's CYPRESS(TM) OXYPneumatic(R) conserver, which began nationwide shipping in August, is already becoming a significant contributor to the growth in conserver sales."

The CYPRESS conserver, the first non-electric conserver offered by CHAD, allows the Company to compete in the pneumatic segment of the conserver market for the first time. Pneumatic conservers are estimated to represent about 35% of the total conserver market. "This state-of-the-art pneumatic conserver includes features such as a conserving ratio in excess of 3:1 and the ability to use a single-lumen cannula, which we believe will make it a strong competitor. The addition of the CYPRESS conserver to CHAD's product line is further evidence of our commitment to providing homecare suppliers and their patients with the most extensive choice in conservers to suit individual needs, preferences and disease conditions," Jones said.

The CEO continued, "As anticipated, the continuing strong performance of our conserver products was offset by lower sales of our TOTAL O2(R) Delivery System. We have previously reported that the decline in TOTAL O2 system sales resulted primarily from the acquisition, in October of 2001, of a customer that was purchasing significant numbers of this product by a national chain that has discontinued these purchases. October of 2002 will be the last month that this factor has a significant impact on sales comparisons to the prior year. Accordingly, we expect a resumption of positive overall revenue comparisons beginning in the third quarter."

Outlook

Jones added, "Since gross margins for our conserver products are higher than for our TOTAL O2 system, the shift in product mix favorably affects our profitability. If current trends continue, we presently expect CHAD to generate net earnings for the fiscal year ending March 31, 2003 of between $900,000 and $1,100,000, or $0.09 to $0.11 per diluted share, after expenses incurred for the proxy contest and after providing for approximately $85,000 in California income tax expense resulting from the September 2002 tax law change, on revenue in the range of $19,500,000 to $20,500,000." For fiscal 2002, CHAD reported earnings before income taxes of $167,000 on revenue of $18,730,000.

"We are pleased with our progress in implementing CHAD's strategic growth plan. The success of our OXYMATIC(R) 400 series and CYPRESS(TM) OXYPneumatic(R) conservers is helping us restore CHAD's traditional leadership in this important market segment. We are optimistic about the continued growth potential of our conserver products. At the same time, CHAD is benefitting from improved margins and our continuing efforts to reduce costs throughout the organization. This is a powerful combination that we expect to support further revenue and earnings growth in the years ahead," Jones concluded.

The foregoing statements regarding prospects for future earnings and revenues, future sales trends for the OXYMATIC 400 series and CYPRESS conservers and the introduction of products under development are forward-looking statements 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 OXYMATIC 400 series and CYPRESS conservers, 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 OXYMATIC 400 series and CYPRESS conservers 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 home care providers and, with respect to products under development, obtaining timely regulatory approval. 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.
                       Selected Financial Data
                             (Unaudited)

                      Six Months Ended           Three Months Ended
                         September 30,               September 30,
                      2002          2001          2002          2001


Net Sales       $ 9,726,000   $ 9,953,000   $ 4,763,000   $ 5,106,000

Interest Income,
 Net                  9,000        31,000         5,000        17,000

Earnings before
 Income Taxes       196,000        83,000        15,000        69,000

Net Earnings        180,000        80,000         2,000        67,000

Basic Earnings
 Per Share           $ 0.02        $ 0.01        $ 0.00        $ 0.01

Diluted Earnings
 Per Share           $ 0.02        $ 0.01        $ 0.00        $ 0.01

Average Common
 & Equivalent
 Shares Outstanding
   Basic             10,068        10,053        10,068        10,053
   Diluted           10,417        10,340        10,406        10,409


                      Selected Balance Sheet Data

                       September 30,
                    2002          2001


Cash            $ 1,404,000   $ 1,423,000

Total Assets     12,365,000    11,552,000

Shareholders'
 Equity        $ 10,562,000   $ 9,291,000