<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: September 30, 1999
Commission file number: 0-11363
CHAD THERAPEUTICS, INC.
-----------------------
(Exact name of registrant as specified in its charter)
California 95-3792700
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
21622 Plummer Street, Chatsworth, CA 91311
------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(818) 882-0883
(Registrant's telephone number, including area code)
------------------------------------------
(Former Address)
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Common Shares 10,019,368
<PAGE> 2
CHAD THERAPEUTICS, INC.
Balance Sheets
September 30, 1999 and March 31, 1999
ASSETS
<TABLE>
<CAPTION>
September 30, March 31,
1999 1999
------------- -----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 1,804,000 $ 137,000
Accounts receivable, less allowance for
doubtful accounts of $94,000 at
September 30, 1999 and $88,000 at
March 31, 1999 2,279,000 2,165,000
Inventories (Note 2) 6,353,000 7,642,000
Income taxes refundable 175,000 687,000
Prepaid expenses 272,000 294,000
Deferred income taxes 445,000 445,000
----------- -----------
Total current assets 11,328,000 11,370,000
Property and equipment, at cost 5,425,000 5,366,000
Less accumulated depreciation 2,484,000 2,086,000
----------- -----------
Net property and equipment 2,941,000 3,280,000
----------- -----------
Other assets, net 1,136,000 1,249,000
----------- -----------
Total assets $15,405,000 $15,899,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 266,000 $ 227,000
Accrued expenses 1,022,000 979,000
----------- -----------
Total current liabilities 1,288,000 1,206,000
----------- -----------
Shareholders' equity:
Common shares, $.01 par value, authorized
40,000,000 shares; 10,019,000 and 10,012,000
shares issued and outstanding 13,064,000 13,052,000
Retained earnings 1,053,000 1,641,000
----------- -----------
Total shareholders' equity 14,117,000 14,693,000
----------- -----------
Total liabilities and shareholders' equity $15,405,000 $15,899,000
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 3
CHAD THERAPEUTICS, INC.
Statements of Operations
For the six months ended September 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
September 30
--------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net sales $ 7,054,000 $ 8,057,000
Cost of sales 4,625,000 4,603,000
------------ ------------
Gross profit 2,429,000 3,454,000
Costs and expenses:
Selling, general and administrative 2,864,000 2,982,000
Research and development 282,000 322,000
------------ ------------
Total costs and expenses 3,146,000 3,304,000
------------ ------------
Operating income (loss) (717,000) 150,000
Other income - interest income, net 7,000 31,000
------------ ------------
Earnings (loss) before income taxes (710,000) 181,000
Income tax expense (benefit) (122,000) 72,000
------------ ------------
Net earnings (loss) $ (588,000) $ 109,000
============ ============
Basic earnings (loss) per share $ (.06) $ .01
============ ============
Diluted earnings (loss) per share $ (.06) $ .01
============ ============
Weighted shares outstanding:
Basic 10,017,000 10,011,000
Diluted 10,017,000 10,092,000
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 4
CHAD THERAPEUTICS, INC.
Statements of Operations
For the three months ended September 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30
--------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net sales $ 3,416,000 $ 3,860,000
Cost of sales 2,308,000 2,346,000
------------ ------------
Gross profit 1,108,000 1,514,000
Costs and expenses:
Selling, general and administrative 1,445,000 1,411,000
Research and development 127,000 114,000
------------ ------------
Total costs and expenses 1,572,000 1,525,000
------------ ------------
Operating income (loss) (464,000) (11,000)
Other income - interest income, net 8,000 14,000
------------ ------------
Earnings (loss) before income taxes (456,000) 3,000
Income tax expense (benefit) (22,000) 1,000
------------ ------------
Net earnings (loss) $ (434,000) $ 2,000
============ ============
Basic earnings (loss) per share $ (.04) $ .00
============ ============
Diluted earnings (loss) per share $ (.04) $ .00
============ ============
Weighted shares outstanding:
Basic 10,019,000 10,012,000
Diluted 10,019,000 10,058,000
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 5
CHAD THERAPEUTICS, INC.
Statement of Shareholders' Equity
For the six months ended September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Common Shares Retained
Shares Amount Earnings
----------- ----------- -----------
<S> <C> <C> <C>
Balance at
March 31, 1999 10,012,000 $13,052,000 $ 1,641,000
Common Shares issued in
lieu of cash for directors
fees 7,000 12,000 --
Net loss -- -- (588,000)
----------- ----------- -----------
Balance at
September 30, 1999 10,019,000 $13,064,000 $ 1,053,000
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 6
CHAD THERAPEUTICS, INC.
Statements of Cash Flows
For the six months ended September 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
September 30
------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (588,000) $ 109,000
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 398,000 402,000
Compensation expense related to stock issued 12,000 --
Changes in assets and liabilities:
Decrease (increase) in accounts receivable (114,000) (214,000)
Decrease (increase) in inventories 1,289,000 (1,840,000)
Decrease (increase) in income taxes
refundable 512,000 518,000
Decrease (increase) in prepaid expenses 22,000 (12,000)
Decrease (increase) in other assets 113,000 89,000
Increase (decrease) in accounts payable 39,000 352,000
Increase (decrease) in accrued expenses 43,000 153,000
----------- -----------
Net cash provided by (used in)
operating activities 1,726,000 (443,000)
----------- -----------
Cash flows from investing activities:
Capital expenditures (59,000) (106,000)
----------- -----------
Net cash used in investing
activities (59,000) (106,000)
----------- -----------
Cash flows from financing activities:
Exercise of stock options -- 24,000
Common shares repurchased -- (69,000)
Common shares issued -- 108,000
----------- -----------
Net cash provided by
financing activities -- 63,000
----------- -----------
Net increase (decrease) in cash 1,667,000 (486,000)
Cash beginning of period 137,000 1,579,000
----------- -----------
Cash end of period $ 1,804,000 $ 1,093,000
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 7
CHAD THERAPEUTICS, INC.
September 30, 1999
(Unaudited)
1. Interim Reporting
Chad Therapeutics, Inc. (the Company) 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 diseases.
In the opinion of management, all adjustments necessary, which are of a
normal and recurring nature, to a fair statement of the results for the
interim periods presented have been made. The interim statements are
condensed and do not include some of the information necessary for a more
complete understanding of the financial data. Accordingly, your attention is
directed to the footnote disclosures found on pages 10, 11, 12 and 13 of the
March 31, 1999, Annual Report and particularly to Note 1 which includes a
summary of significant accounting policies. Certain reclassifications have
been made to the prior period's balances to conform to the 1999
presentation.
2. Inventories
Inventories in 1999, are summarized as follows:
<TABLE>
<CAPTION>
September 30 March 31
------------ ----------
<S> <C> <C>
Finished goods $1,356,000 1,619,000
Work-in-process 1,277,000 1,278,000
Raw materials 3,720,000 4,745,000
---------- ----------
$6,353,000 7,642,000
========== ==========
</TABLE>
3. Earnings Per Common Share
Following is a reconciliation of the numerators and denominators used in the
calculation of basic and diluted earnings per common shares:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30 September 30
----------------------------- -----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Basic earnings per share:
Numerator-net earnings (loss) $ (434,000) $ 2,000 $ (588,000) $ 109,000
Denominator-common shares
outstanding 10,019,000 10,012,000 10,017,000 10,011,000
------------ ------------ ------------ ------------
Basic earnings (loss) per
share $ (.04) $ .00 $ (.06) $ .01
============ ============ ============ ============
Diluted earnings per share:
Numerator-net earnings (loss) $ (434,000) $ 2,000 $ (588,000) $ 109,000
Denominator:
Common shares outstanding 10,019,000 10,012,000 10,017,000 10,011,000
Common stock options -- 46,000 -- 81,000
------------ ------------ ------------ ------------
10,019,000 10,058,000 10,017,000 10,092,000
------------ ------------ ------------ ------------
Diluted earnings (loss) per
share $ (.04) $ .00 $ (.06) $ .01
============ ============ ============ ============
</TABLE>
<PAGE> 8
CHAD THERAPEUTICS, INC.
September 30, 1999
(Unaudited)
3. Earnings Per Common Share (cont'd)
Options to purchase 1,141,000 and 1,041,000 shares of common stock at prices
ranging from $1.00 to $13.47 per share were not included in the computation
of diluted earnings per share for the three and six month periods ended
September 30, 1999, respectively, because their effect would have been
anti-dilutive.
4. Income Taxes
Income taxes have been provided for at an effective combined Federal and
California rate of approximately 17% and 40% for the periods ended September
30, 1999 and 1998, respectively. The income tax benefit for the six month
period ended September 30, 1999, relates primarily to Federal income tax
carrybacks. The Company has approximately $300,000 in Federal income tax net
operating loss carryforwards generated in the periods ended September 30,
1999, for which the income tax benefit has not been recognized.
5. Geographic Information
The Company has one reportable operating segment. Geographic information
regarding the Company's sales is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30 September 30
------------------------ ------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
United States $3,096,000 3,344,000 6,326,000 6,954,000
Germany 3,000 274,000 39,000 573,000
All other countries 317,000 242,000 689,000 530,000
---------- ---------- ---------- ----------
$3,416,000 3,860,000 7,054,000 8,057,000
========== ========== ========== ==========
</TABLE>
All long-lived assets are located in the United States.
Sales of OXYMATIC(R) conservers and OXYLITE(R) systems accounted for 51% and
68% of the Company's sales for the six month periods ended September 30,
1999 and 1998, respectively.
<PAGE> 9
CHAD THERAPEUTICS, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
September 30, 1999
Results of Operations
Sales for the three and six months ended September 30, 1999, decreased $444,000
(11.5%) and $1,003,000 (12.5%), respectively, from the prior year's periods.
While there have been price reductions in 1999 and 1998, the decrease in sales
relates primarily to decreases in domestic unit sales of OXYMATIC conservers and
OXYLITE complete portable oxygen systems which are being affected by the current
marketing environment for home oxygen therapy discussed below.
Sales to foreign distributors represented 10% and 14% of total sales for the six
month periods ended September 30, 1999 and 1998, respectively. Currently,
management expects a decrease in sales to foreign distributors during the
upcoming fiscal year and quarter to quarter sales will fluctuate depending on
the timing of shipments. In addition, all foreign sales are transacted in US
dollars, thus annual unit sales could be affected by foreign currency
fluctuations.
The current procedure for reimbursement by Medicare for home oxygen services
provides a prospective flat fee monthly payment based solely on the patient's
prescribed oxygen requirement. Under this system, inexpensive concentrators have
grown in popularity because of low cost and less frequent servicing
requirements. At the same time, interest heightened in oxygen conserving
devices, such as the Company's products, which can extend the life of oxygen
supplies and reduce service calls by dealers, thereby providing improved
mobility for the patient and cost savings for dealers.
In addition, other changes in the health care delivery system - including the
increase in the acceptance and utilization of managed care - have stimulated a
significant consolidation among home oxygen dealers. As major national and
regional home medical equipment chains attempt to secure managed care contracts
and improve their market position, they have expanded their distribution
networks through the acquisition of independent dealers in strategic areas.
Three major national chains accounted for approximately 21% of the Company's
domestic sales for the six months ended both September 30, 1999 and 1998.
Margins on these sales may be somewhat lower due to quantity pricing. In some
instances consolidation has resulted in reduced purchases as the former
independent provider complies with the chain's purchasing policies. The
Company's products, which allow homecare dealers to provide cost efficient home
oxygen therapy, are ideally suited for use in a managed care environment and as
a tool for dealers to increase revenues
<PAGE> 10
CHAD THERAPEUTICS, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
September 30, 1999
Results of Operations (cont'd)
and profits. To ensure continued awareness of the benefits of the Company's
products by chain headquarters personnel, a proactive marketing and
communication program is in effect with all of the major national chains.
The Company believes that its revenues during the past two years have been
adversely affected by several factors. During the three and six month periods
ended September 30, 1999 and 1998, sales to national chain accounts as well as
independent dealers have been impacted by increased competitive factors and
uncertainties regarding the size of cuts in Medicare home oxygen reimbursement
which were enacted as part of the Federal budget process during the year ended
March 31, 1998. This process was finalized and a 25% cut in home oxygen
reimbursement went into effect January, 1998, with an additional 5% cut
effective January 1, 1999. The effects of managed care and concerns over the
severity of reimbursement cuts has, in many cases, resulted in the provision of
systems to patients that do not provide truly ambulatory oxygen. Management
believes these factors, including uncertainties as to how home care providers
are responding to the 25% and 5% cuts, may continue to adversely affect the
Company's revenues from sales of oxygen conserving devices for the foreseeable
future.
Management also believes future revenues may be positively affected by sales of
a new product, the TOTAL O(2)(TM) Delivery System. The TOTAL O(2) system
provides stationary oxygen for patients at home, portable oxygen including an
oxygen conserving device for ambulation and a safe and efficient mechanism for
filling portable oxygen cylinders. This should provide home care dealers with
means to deal with the reimbursement cuts discussed above by reducing their
monthly cost of servicing patients while at the same time providing a higher
quality of service by maximizing ambulatory capability. The Company received
clearance in November, 1997, to sell the new product from the Food and Drug
Administration. The Company began shipping TOTAL O(2) systems in January, 1998,
and realized approximately $1,342,000 and $560,000 in sales during the six month
periods ended September 30, 1999 and 1998, respectively. Initial sales of the
TOTAL O(2) system have been adversely affected by several factors, including the
overall home oxygen market climate as well as start-up manufacturing and related
supplier quality issues. The Company has taken a number of steps to resolve the
manufacturing and supplier issues. The sales potential for the new system is
significant as the average selling price is approximately four times that of the
OXYMATIC and OXYLITE systems. No estimate can currently be made regarding the
level of success the Company may achieve with the
<PAGE> 11
CHAD THERAPEUTICS, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
September 30, 1999
Results of Operations (cont'd)
TOTAL O(2) system. For information which may affect the outcome of forward
looking statements made in this paragraph see Outlook: Issues and Risks - New
Product.
Cost of sales as a percent of net sales increased from 60.7% to 67.6% and from
57.1% to 65.6% for the three and six month periods ended September 30, 1999, as
compared to the prior year's periods. Both periods have been affected by
decreased sales volume and start-up costs associated with the manufacture of the
TOTAL O(2) system. Management believes the gross margins should improve in the
future periods if sales increase.
Selling, general and administrative expenditures increased from $1,411,000 to
$1,445,000 and decreased from $2,982,000 to $2,864,000 for the three and six
month periods ended September 30, 1999 and 1998, respectively. The Company
anticipates that recent cost reduction efforts should align staffing and
operating expenses more closely with current sales expectations, but will be
offset to some extent by commissions to be paid to the Company's new field sales
force of manufacturer's representatives. This field sales force has recently
been hired and trained, and now provides full coverage in the United States.
Historically, the Company has relied entirely on its internal sales personnel
and extensive marketing efforts to generate sales. The shift to a field sales
force will cause selling, general and administrative expenses to fluctuate more
closely with sales volume. Research and development expenses decreased by
$40,000 for the six month period ended September 30, 1999, as compared to the
prior year's period. Currently, management expects research and development
expenditures to total approximately $525,000 in the fiscal year ended March 31,
2000, on projects to enhance and expand the Company's product line. Interest
income declined $24,000 for the six month period ended September 30, 1999, as
compared to the prior year's period due to the reduction in the Company's cash
balances.
Financial Condition
At September 30, 1999, the Company had cash totaling $1,804,000 or 12% of total
assets, as compared to $137,000 (1%) at March 31, 1999. Net working capital
increased from $10,164,000 at March 31, 1999 to $10,195,000 at September 30,
1999. Accounts receivable increased $114,000 during the six month period ended
September 30, 1999. Future increases or decreases in accounts receivable will
generally coincide with sales volume fluctuations and the timing of shipments
<PAGE> 12
CHAD THERAPEUTICS, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
September 30, 1999
Financial Condition (cont'd)
to foreign customers. During the same period, inventories decreased $1,289,000.
This decrease relates primarily to utilization of raw materials purchased in the
prior year for the manufacture of the new TOTAL O(2) product line. The Company
attempts to maintain sufficient inventories to meet its customer needs as orders
are received. Thus, future inventory and related accounts payable levels will be
impacted by the ability of the Company to maintain its safety stock levels. If
safety stock levels drop below target amounts, then inventories in subsequent
periods will increase more rapidly as inventory balances are replenished.
Management believes funds derived from operations and income tax refunds should
be adequate to meet the Company's present cash requirements. The Company expects
capital expenditures during the next twelve months to be approximately $250,000.
The Company has not adopted any programs which provide for post employment
retirement benefits, however, it has on occasion provided such benefits to
individual employees.
Year 2000
Management has initiated an enterprise-wide program to prepare the Company's
computer systems and applications for the year 2000 and to ensure Year 2000
compliance by its customers and suppliers. The Company's products do not contain
embedded chips that are date sensitive and thus they are not at risk for Year
2000 issues. The Company has completed the assessment and upgrading of its
internal computer hardware and software and believes that all systems are Year
2000 compliant. The Company has completed the assessment of its third party
relationships and, based upon the information available, does not believe there
will be any significant disruption in goods or services available. The Company
expects to incur internal staff costs as well as consulting and other expenses
related to infrastructure and facilities enhancements necessary to prepare the
systems for the year 2000. The cost of testing and conversion of system
applications is not expected to be material. A significant proportion of these
costs are not likely to be incremental costs to the Company, but rather will
represent the redeployment of existing information technology resources.
The Company is in the process of developing a contingency plan in the event of
various problem scenarios. If the Company is unsuccessful or if remediation
efforts with key suppliers or customers are unsuccessful in dealing with Year
2000 problems, there may be a material adverse impact on the
<PAGE> 13
CHAD THERAPEUTICS, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
September 30, 1999
Year 2000 (cont'd)
Company's results of operations and financial condition. The Company is unable
to quantify any potential adverse impact at this time.
Outlook: Issues & Risks
This quarterly report contains forward-looking statements which reflect the
Company's current views with respect to future events and financial performance.
These forward-looking statements are subject to certain risks and uncertainties
which may cause actual operating results to differ materially from currently
anticipated results. Among the factors that could cause actual results to differ
materially are the following:
Dependence Upon a Single Product Line
Although the Company currently markets a number of products, these products
comprise a single product line for patients requiring supplementary oxygen. The
Company's future performance is thus dependent upon developments affecting this
segment of the health care market and the Company's ability to remain
competitive within this market sector.
New Products
The Company's future growth in the near term will depend in significant part
upon the commercial success of the TOTAL O(2) Delivery System and other new
products which are under development. The success of these new products will
depend upon the health care community's perception of the system's capabilities,
clinical efficacy and benefit to patients, as well as timely resolution of
manufacturing and supplier issues. In addition, prospective sales will be
impacted by the degree of acceptance achieved among home oxygen dealers and
patients requiring supplementary oxygen. As with the introduction of any new
product, the Company's ability to successfully promote the TOTAL O(2) Delivery
System and other new products cannot be assessed at this time.
Consolidation of Home Care Industry
The home health care industry is undergoing significant consolidation. As a
result, the market for the Company's products is increasingly influenced by
major national chains. Three major national chains presently account for 21% of
the Company's domestic sales. Future sales may be increasingly dependent on a
limited number of customers which may have an impact on margins due to quantity
pricing.
<PAGE> 14
CHAD THERAPEUTICS, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
September 30, 1999
Competition
Chad's success over the past several years has drawn new competition to vie for
a share of the home oxygen market. These new competitors include both small and
very large companies. While the Company believes the quality of its products and
its established reputation will continue to be a competitive advantage, some
competitors have successfully introduced lower priced products which do not
provide oxygen conserving capabilities comparable to the Company's products. No
assurance can be given that increased competition in the home oxygen market will
not continue to have an adverse affect on the Company's operations.
Rapid Technological Change
The health care industry is characterized by rapid technological change. The
Company's products may become obsolete as a result of new developments. The
Company's ability to remain competitive will depend to a large extent upon its
ability to anticipate and stay abreast of new technological developments related
to oxygen therapy. The Company has limited internal research and development
capabilities. Historically, the Company has contracted with outside parties to
develop new products. Some of the Company's competitors have substantially
greater funds and facilities to pursue research and development of new products
and technologies for oxygen therapy.
Potential Changes in Administration of Health Care
A number of bills proposing to regulate, control or alter the method of
financing health care costs have been discussed and certain of such bills have
been introduced in Congress and various state legislatures. There are wide
variations among these bills and proposals. Because of the uncertain state of
the health care proposals, it is not meaningful at this time to predict the
effect on the Company if any of these proposals is enacted.
Approximately 80% of home oxygen patients are covered by Medicare and other
government programs. Federal law has altered the payment rates available to
providers of Medicare services in various ways during the last several years.
Congress has passed legislation which has reduced Medicare spending. It cannot
yet be predicted how changes in reimbursement levels will affect the home oxygen
industry and there can be no assurance that such changes will not have an
adverse effect on the Company's business.
<PAGE> 15
CHAD THERAPEUTICS, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
September 30, 1999
Patents and Trademarks
The Company pursues a policy of obtaining patents for appropriate inventions
related to products marketed or manufactured by the Company. The Company
considers the patentability of its products to be significant to the success of
the Company. To the extent that the products to be marketed by the Company do
not receive patent protection, competitors may be able to manufacture and market
substantially similar products. Such competition could have an adverse impact
upon the Company's business.
Products Liability
The nature of the Company's business subjects it to potential legal actions
asserting that the Company is liable for damages for product liability claims.
Although the Company maintains products liability insurance in an amount which
it believes to be customary in the industry, there is no assurance that this
insurance will be sufficient to cover the costs of defense or judgments which
might be entered against the Company. The type and frequency of these claims
could have an adverse impact on the Company's results of operations and
financial position.
Availability of Third Party Component Products
The Company tests and packages its products in its own facility. Some of its
other manufacturing processes are conducted by other firms and the Company
expects to continue using outside firms for certain manufacturing processes for
the foreseeable future and is thus dependent on the reliability and quality of
parts supplied by these firms. The Company's agreements with its suppliers are
terminable at will or by notice. The Company believes that other suppliers
would be available in the event of termination of these arrangements. No
assurance can be given, however, that the Company will not suffer a material
disruption in the supply of its products.
Accounting Standards
Accounting standards promulgated by the Financial Accounting Standards Board
change periodically. Changes in such standards may have an impact on the
Company's future financial position.
Additional Risk Factors
Additional factors which might affect the Company's performance may be listed
from time to time in the reports filed by the Company with the Securities and
Exchange Commission.
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHAD THERAPEUTICS, INC.
(Registrant)
Date 11/11/99 /S/ Thomas E. Jones
-------------- ------------------------------
Thomas E. Jones
Chief Executive Officer
Date 11/11/99 /S/ Earl L. Yager
-------------- ------------------------------
Earl L. Yager
Executive Vice President,
Chief Financial Officer and
Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,804
<SECURITIES> 0
<RECEIVABLES> 2,279
<ALLOWANCES> 0
<INVENTORY> 6,353
<CURRENT-ASSETS> 11,328
<PP&E> 5,425
<DEPRECIATION> 2,484
<TOTAL-ASSETS> 15,405
<CURRENT-LIABILITIES> 1,288
<BONDS> 0
0
0
<COMMON> 13,064
<OTHER-SE> 1,053
<TOTAL-LIABILITY-AND-EQUITY> 15,405
<SALES> 7,054
<TOTAL-REVENUES> 0
<CGS> 4,625
<TOTAL-COSTS> 3,146
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (710)
<INCOME-TAX> (122)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (588)
<EPS-BASIC> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
