1
EXHIBIT 13.1
ANNUAL REPORT
[LOGO]
2001
2
LETTER FROM THE CEO
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[PHOTO]
I am pleased to report that during the fiscal year ended March 31, 2001,
significant progress was made in executing our turnaround strategy. Although we
did incur a loss for the year, the foundation upon which our strategy is based
was solidified. Sales increased by 20% in the fourth quarter over the prior
year's comparable period and, as we recently reported, sales are increasing at
an even faster pace in the first quarter of our new fiscal year. These sales
increases are being driven by international sales of the TOTAL O(2)(R)
Delivery System and domestic sales of several new OXYMATIC(R) conservers,
which we believe will provide the basis for a return to profitability.
As discussed in last year's letter, we introduced the first model of the
OXYMATIC 400 Series conservers in July 2000. This Model OM-401 is an alternate
breath conserver with an all brass integrated regulator. It provides flow
equivalents of 1-6 liters per minute and incorporates an emergency
2-liter-per-minute by-pass switch. This new conserver has been very well
received by our homecare provider customers.
We followed the OM-401 with the OM-411, a product similar in appearance and
function, except that the OM-411 offers every breath oxygen delivery. This
conserver was introduced in January 2001, for those homecare providers and
patients who desire this type of oxygen delivery, and it was a totally new
approach from CHAD. Again, I can report that this addition to our line has been
well received by our customers.
A much lighter, aluminum regulator version of both the alternate breath and the
every breath delivery conservers was introduced in late March 2001 after
extensive testing, which included a new ASTM Ignition Test Standard for
regulators. These aluminum versions of the 400 Series conservers reduced overall
weight by 35% as compared to the brass versions and, due to their lighter
weight, are proving to be even more popular with our customers for quality of
life reasons.
The addition of these state-of-the-art conservers to our product line
demonstrates CHAD's leadership in bringing new technology to the home oxygen
market. We now offer the widest choice of electronic conservers to fit
individual needs and preferences. With other development projects in progress in
this area, we plan to expand our product offerings even further in the upcoming
year.
With this expanded line of OXYMATIC conservers, we have redoubled our efforts to
maintain strong relationships with the large national chain accounts in our
industry. At this time we are able to report that we have been successful with
several of these companies and are continuing our efforts with the others, as
well as with our independent homecare provider customers.
Our past efforts to secure the CE mark for the TOTAL O(2) system, our integrated
home oxygen concentrator that allows patients to fill their portable cylinders
at home, proved fruitful when our principal European distributor began a
significant market introduction in February 2001. To date that introduction is
going well and we look forward to continued market penetration in Western Europe
as well as other international markets.
In the United States our market penetration with the TOTAL O(2) system continues
at a slow, but steadily increasing growth rate. Our lone competitor in this
specific product line introduced its version of the product in late March 2001,
with FDA clearance. If anything, we have seen a slight increase in activity
since this competitor's introduction, which we attribute to the additional
market awareness provided by their marketing efforts. We are continuing with our
efforts to reduce the unit cost of the TOTAL O(2) system and add features based
on feedback from our customers. As this product evolves and the home oxygen
market adapts to this still relatively new technology, we believe the rate of
market penetration of the TOTAL O(2) system may accelerate.
The niche of the health care industry in which CHAD participates, namely home
oxygen therapy, was spared
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LETTER FROM THE CEO
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the monumental changes in reimbursement experienced in recent years. Another
year of experience for the Competitive Bidding Demonstration in Polk County,
Florida, and the beginning of another trial in San Antonio, Texas, coupled with
an ever-so-slight cost of living reimbursement increase were the highlights. It
is still too early to determine what impact, if any, the competitive bidding
projects may have on the future of home oxygen therapy. The competitive nature
of the business, still under intense cost containment pressure, has not changed
and we at CHAD do not expect either the cost containment pressure or the
price/feature competition to change in the foreseeable future.
Despite our operating loss, we have finished the year with over $1,000,000 in
cash and still have no long-term debt. We were able to accomplish this through
diligent utilization of our resources and, with the sales success we are
experiencing, believe we have adequate working capital for the upcoming year.
Although our loss was a disappointment, we did meet our targets of getting new
products approved and into the market. The ultimate success of these efforts
will not be clear until several operating quarters have passed. We do know that
as of the writing of this report our revenues for this year are running far
ahead of last year. As a result, while we cannot predict the future, if current
trends continue we expect to turn the corner during this fiscal year 2002 and
return to profitability.
However, we are not resting. As stated earlier, we have several additional
product development efforts underway that we expect to bring to fruition during
the fiscal year ending March 31, 2002. These are not at a stage where it would
be appropriate to disclose details but, if successful, these products should
improve the market penetration potential of both our conserver line and the
TOTAL O(2) system. As we discussed last year we continue our efforts to
strengthen our engineering capabilities, which will enhance our ability to
develop new products in a timely fashion. To this end we have added three
associates to the technical staff in this area during the past fiscal year.
Organizationally, CHAD had two significant changes during the fiscal year ended
March 31, 2001. In September 2000, the Board of Directors named Earl L. Yager to
the additional position of Chief Operating Officer to reflect his
responsibilities for the everyday operation of the Company. Earl will continue
in his role as Chief Financial Officer as well. From the progress CHAD has made,
I sm sure you will agree that he fills this role well. In October 2000, L.
Robert Mogue, Director of Sales and Marketing, announced his resignation to
enter into a business venture closer to his home. We were fortunate to locate an
experienced and energetic candidate to fill this position, Erika Laskey. Erika
joined CHAD in January 2001, and brings twelve years of varied pharmaceutical
and medical device sales, marketing and management experience to CHAD. Her
immediate past position was with Nellcor Puritan Bennett Division of
Mallinkrodt, Inc., as Global Account Business Manager. We believe that Erika
will strengthen our sales and marketing team, both here in Chatsworth as well as
in the field with our manufacturer's representatives. She has already
demonstrated a high level of enthusiasm and energy in the performance of her
duties.
We are very excited as we look ahead to the upcoming fiscal year and there is no
shortage of opportunities. We believe our plans to take advantage of a number of
these opportunities, by continuing to bring new products to market, will enhance
our market penetration and improve our operating results. We appreciate the
support of our shareholders as we have developed and executed our turnaround
strategy. All of us at CHAD will continue to put forth our very best efforts to
build a successful future for the Company.
Thomas E. Jones
/s/ THOMAS E. JONES
Chief Executive Officer
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SELECTED FINANCIAL DATA
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SELECTED FINANCIAL DATA YEARS ENDED MARCH 31,
-------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
------------ ---------- ---------- ---------- ----------
Net Sales $ 12,158,000 12,774,000 14,064,000 16,593,000 26,161,000
Interest Income,Net 87,000 43,000 41,000 164,000 113,000
Net Earnings (loss) (3,011,000) (2,511,000) (1,464,000) 797,000 5,035,000
Basic Earnings (loss) Per Share (.30) (.25) (.15) .08 .51
Diluted Earnings (loss) Per Share (.30) (.25) (.15) .08 .49
Net Working Capital 5,847,000 8,389,000 10,164,000 10,704,000 10,985,000
Total Assets 10,788,000 13,583,000 15,899,000 17,436,000 15,861,000
Shareholders' Equity 9,211,000 12,207,000 14,693,000 16,074,000 15,110,000
No cash dividends have been declared or paid during the periods presented.
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BALANCE SHEETS
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MARCH 31,
--------------------------------
2001 2000
------------ ----------
ASSETS
Current assets:
Cash $ 1,059,000 1,772,000
Accounts receivable,less allowance for doubtful
accounts of $33,000 and $95,000 in 2001 and 2000,respectively 2,352,000 2,003,000
Inventories (Note 2) 3,415,000 5,297,000
Income taxes refundable (Note 3) -- 175,000
Prepaid expenses 598,000 518,000
------------ ----------
Total current assets 7,424,000 9,765,000
------------ ----------
Property and equipment,at cost:
Office equipment and furniture 1,697,000 1,597,000
Machinery and equipment 855,000 840,000
Tooling 1,223,000 1,098,000
Leasehold improvements 1,801,000 1,797,000
------------ ----------
5,576,000 5,332,000
Less accumulated depreciation and amortization 3,534,000 2,731,000
------------ ----------
Net property and equipment 2,042,000 2,601,000
------------ ----------
Other assets,net (Note 4) 1,322,000 1,217,000
------------ ----------
$ 10,788,000 13,583,000
============ ==========
2001 2000
------------ ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 465,000 314,000
Accrued expenses (Note 7) 1,109,000 1,062,000
Income taxes payable (Note 3) 3,000 --
------------ ----------
Total current liabilities 1,577,000 1,376,000
------------ ----------
Commitments (Note 8)
Shareholders' equity (Note 5):
Common shares,no par value
Authorized 40,000,000 shares;
10,052,000 and 10,035,000 shares issued and outstanding 13,092,000 13,077,000
Retained earnings (Accumulated deficit) (3,881,000) (870,000)
------------ ----------
Net shareholders' equity 9,211,000 12,207,000
------------ ----------
$ 10,788,000 13,583,000
============ ==========
See accompanying notes to financial statements.
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STATEMENTS OF OPERATIONS
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YEARS ENDED MARCH 31,
----------------------------------------------------
2001 2000 1999
------------ ---------- ----------
Net sales $ 12,158,000 12,774,000 14,064,000
Cost of sales 9,431,000 8,995,000 9,768,000
------------ ---------- ----------
Gross profit 2,727,000 3,779,000 4,296,000
Costs and expenses:
Selling,general and administrative 5,165,000 5,451,000 6,119,000
Research and development 658,000 560,000 625,000
------------ ---------- ----------
Total costs and expenses 5,823,000 6,010,000 6,744,000
------------ ---------- ----------
Operating income (loss) (3,096,000) (2,231,000) (2,448,000)
Interest income,net 87,000 43,000 41,000
------------ ---------- ----------
Earnings (loss) before income taxes (3,009,000) (2,188,000) (2,407,000)
Income tax expense (benefit) (Note 3) 2,000 323,000 (943,000)
------------ ---------- ----------
Net earnings (loss) $ (3,011,000) (2,511,000) (1,464,000)
============ ========== ==========
Basic earnings (loss) per share $ (.30) (.25) (.15)
============ ========== ==========
Diluted earnings (loss) per share $ (.30) (.25) (.15)
============ ========== ==========
Weighted shares outstanding:
Basic 10,044,000 10,024,000 10,012,000
Diluted 10,044,000 10,024,000 10,012,000
============ ========== ==========
See accompanying notes to financial statements.
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STATEMENTS OF SHAREHOLDERS' EQUITY
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FOR THE YEARS ENDED MARCH 31, 2001, 2000 AND 1999
RETAINED
COMMON SHARES (NOTE 5) EARNINGS
----------------------------- (ACCUMULATED TREASURY
SHARES AMOUNT DEFICIT) SHARES
---------- ----------- ----------- -----------
Balance at March 31,1998 10,008,000 $13,100,000 $ 3,105,000 $ (131,000)
Common shares repurchased at cost -- -- -- (104,000)
Common shares issued for purchases
under employee benefit plan (72,000) -- 235,000
Exercise of stock options 4,000 24,000 -- --
Net loss -- -- (1,464,000) --
---------- ----------- ----------- -----------
Balance at March 31,1999 10,012,000 13,052,000 1,641,000 --
Common shares issued in lieu of
cash for directors fees 23,000 25,000 -- --
Net loss -- -- (2,511,000) --
---------- ----------- ----------- -----------
Balance at March 31,2000 10,035,000 13,077,000 (870,000) --
Common shares issued in lieu of
cash for directors fees 17,000 15,000 -- --
Net loss -- -- (3,011,000) --
---------- ----------- ----------- -----------
Balance at March 31,2001 10,052,000 $13,092,000 $(3,881,000) $ --
========== =========== =========== ===========
See accompanying notes to financial statements.
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STATEMENTS OF CASH FLOWS
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YEARS ENDED MARCH 31,
-------------------------------------------------
2001 2000 1999
----------- ----------- -----------
Cash flows from operating activities:
Net earnings (loss) $(3,011,000) $(2,511,000) $(1,464,000)
Adjustments to reconcile net earnings (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization 909,000 894,000 894,000
Loss on disposition of property and equipment -- -- 77,000
Compensation expense related
to option grants and stock issued 15,000 25,000 --
Changes in assets and liabilities:
Decrease (increase) in accounts receivable (349,000) 162,000 304,000
Decrease (increase) in inventories 1,882,000 2,345,000 (509,000)
Decrease (increase) in income taxes refundable 175,000 512,000 (115,000)
Decrease (increase) in prepaid expenses (80,000) (224,000) (45,000)
Decrease (increase) in deferred income taxes -- 445,000 (381,000)
Decrease (increase) in other assets (50,000) 90,000 64,000
Increase (decrease) in accounts payable 151,000 87,000 (503,000)
Increase (decrease) in accrued expenses 47,000 83,000 347,000
Increase (decrease) in income taxes payable 3,000 -- --
----------- ----------- -----------
Net cash provided by (used in) operating activities (308,000) 1,908,000 (1,331,000)
----------- ----------- -----------
Cash flows from investing activities:
Additions to other assets (150,000) (150,000) --
Capital expenditures (266,000) (123,000) (194,000)
Dispositions of property and equipment 11,000 -- --
----------- ----------- -----------
Net cash used in investing activities (405,000) (273,000) (194,000)
----------- ----------- -----------
Cash flows from financing activities:
Exercise of stock options -- -- 24,000
Common shares purchased -- -- (104,000)
Common shares issued -- -- 163,000
----------- ----------- -----------
Net cash provided by financing activities -- -- 83,000
----------- ----------- -----------
Net increase (decrease) in cash (713,000) 1,635,000 (1,442,000)
Cash beginning of year 1,772,000 137,000 1,579,000
----------- ----------- -----------
Cash end of year 1,059,000 1,772,000 137,000
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes $ -- $ -- $ --
=========== =========== ===========
See accompanying notes to financial statements.
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NOTES TO FINANCIAL STATEMENTS
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(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments approximate fair value as of March
31, 2001 and 2000. The carrying amounts related to cash, accounts receivable,
other current assets, and accounts payable approximate fair value due to the
relatively short maturity of such instruments.
INVENTORIES
Inventories are valued at lower of cost or market. Cost is determined based on
standard cost which approximates the first-in, first-out method.
DEPRECIATION
Depreciation of property and equipment is provided using the straight-line
method based on the estimated useful lives of the related assets as follows:
Office Equipment and Furniture 5-10 YEARS
Machinery and Equipment 5-10 YEARS
Tooling 4 YEARS
Amortization of leasehold improvements is over the life of the related lease or
asset, whichever is shorter.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities at the balance sheet date and the reporting of
revenues and expenses during the periods to prepare these financial statements
in conformity with accounting principles generally accepted in the United States
of America. Actual results could differ from those estimates.
The Company amortizes its intangible assets using the straight line method over
the remaining estimated economic life of the asset. The Company continually
evaluates the carrying value of intangible assets. Considerable management
judgement is necessary to estimate future operating cash flows as future cash
flows are impacted by competitive and other factors that are generally out of
management's control. Accordingly, actual results could vary significantly from
management's estimates. Any impairment would be recognized when the expected
future discounted operating cash flows derived from such intangible assets is
less than their carrying value.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to undiscounted future net cash
flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets.
REVENUE RECOGNITION
Revenue from product sales is recognized upon shipment of merchandise. Reserves
for customer returns have not been established as historical experience has been
minor.
COMPREHENSIVE INCOME (LOSS)
Comprehensive income is the change in equity of a business enterprise during a
period from transactions and all other events and circumstances from
non-shareholder sources. Other comprehensive income includes foreign currency
items, minimum pension liability adjustments and unrealized gains and losses on
certain investments in debt and equity securities. The Company did not have
components of other comprehensive income during the periods ended March 31,
2001, 2000 and 1999. As a result, comprehensive (loss) is the same as net loss
for the periods ended March 31, 2001, 2000 and 1999.
EARNINGS (LOSS) PER COMMON SHARE
Following is a calculation of basic and diluted earnings (loss) per common share
for the years ended March 31, 2001, 2000 and 1999, respectively:
2001 2000 1999
------------ ------------ ------------
Basic earnings per share
Numerator - net earnings (loss) $ (3,011,000) $ (2,511,000) $ (1,464,000)
Denominator - common
shares outstanding 10,044,000 10,024,000 10,012,000
------------ ------------ ------------
Basic earnings per share $ (.30) $ (.25) $ (.15)
============ ============ ============
Diluted earnings (loss) per share
Numerator - net earnings (loss) $ (3,011,000) $ (2,511,000) $ (1,464,000)
Denominator -
Common shares outstanding 10,044,000 10,024,000 10,012,000
Common stock options -- --
------------ ------------ ------------
10,044,000 10,024,000 10,012,000
------------ ------------ ------------
Diluted earnings (loss) per share $ (.30) $ (.25) $ (.15)
============ ============ ============
Options to purchase 1,010,000, 979,000 and 1,045,000 shares of common stock at
prices ranging from $.50 to $12.54, $.88 to $12.54, and from $1.50 to $12.54 per
share were not included in the computation of diluted earnings per share in
2001, 2000, and 1999, respectively, because their inclusion would be
anti-dilutive.
INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
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NOTES TO FINANCIAL STATEMENTS
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MAJOR CUSTOMER
No one customer exceeded 10% of net sales during 2001, 2000, and 1999. The
Company's customers are affected by Medicare reimbursement policy as
approximately 80% of home oxygen patients are covered by Medicare and other
government programs.
STOCK OPTION PLAN
The Company accounts for its stock option plan in accordance with the provisions
of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. The Company has also adopted the pro
forma disclosure provisions of Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based Compensation, which permits entities
to provide pro forma net income and pro forma net earnings per share disclosures
as if the fair-value-based method defined in SFAS No. 123 had been applied.
SEGMENT INFORMATION
The Company operates in only one segment, the respiratory care market.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year's balances to conform
to the 2001 presentation.
(2) INVENTORIES
At March 31, 2001 and 2000, inventories consisted of the following:
2001 2000
---------- ---------
Finished goods $ 930,000 1,783,000
Work in process 594,000 654,000
Raw materials
and supplies 1,891,000 2,860,000
---------- ---------
$3,415,000 5,297,000
========== =========
During the years ended March 31, 2001, 2000 and 1999, the Company incurred
inventory write-downs totaling $112,000, $294,000 and $734,000, respectively.
(3) INCOME TAXES
The provision (benefit) for income taxes for fiscal 2001, 2000, and 1999
consisted of the following:
2001 2000 1999
--------- ------- --------
Current:
Federal $ -- $(123,000) $(517,000)
State 2,000 1,000 (45,000)
--------- --------- ---------
2,000 (122,000) (562,000)
Deferred:
Federal -- 231,000 (183,000)
State -- 214,000 (198,000)
--------- --------- ---------
-- 445,000 (381,000)
--------- --------- ---------
Total $ 2,000 $ 323,000 $(943,000)
========= ========= =========
A reconciliation of the difference between the Company's provision (benefit) for
income taxes and the statutory income tax for the years ended March 31, 2001,
2000 and 1999, respectively, is as follows:
2001 2000 1999
----------- --------- --------
Statutory tax
expense (benefit) $(1,023,000) $ (744,000) $(819,000)
State income tax, net (84,000) (91,000) (109,000)
Valuation Allowance 1,109,000 1,151,000 --
Warranty and other -- 10,000 --
Tax Credits, Net -- (3,000) (15,000)
----------- ----------- --------
$ 2,000 $ 323,000 $(943,000)
=========== =========== =========
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets at March 31, 2001 and 2000 are presented as follows:
2001 2000
----------- ----------
Bad debt reserves $ 14,000 $ 41,000
Accrued expenses 322,000 324,000
Inventories 287,000 357,000
Depreciation 111,000 --
Net Operating Loss 1,640,000 517,000
Tax Credits 46,000 55,000
----------- -----------
Total deferred tax assets 2,420,000 1,294,000
Deferred tax liabilities:
Depreciation -- (27,000)
State Taxes (160,000) (116,000)
----------- -----------
Subtotal 2,260,000 1,151,000
Valuation Allowance (2,260,000) (1,151,000)
----------- -----------
Net deferred tax assets $ -- $ --
=========== ===========
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will be realized. At March 31, 2001, the Company's net deferred tax
assets are fully offset by a valuation allowance. The Company will continue to
assess the valuation allowance and to the extent it is determined that such
allowance is no longer required, the tax benefit of the remaining net deferred
tax assets will be recognized in the future. The Company has Federal and
California net operating loss carry forwards of $4,020,000 and $3,090,000,
respectively. The Federal and California net operating losses expire in 2020 and
2010, respectively.
(4) OTHER ASSETS
Other assets includes $1,250,000 paid during 1997 and 1998 for a license on a
new product and $150,000 paid in each of 2001 and 2000 on new and existing
products. The license fee is being amortized beginning in 1998 using the
straight-line method over the life of the related patents, 14 years. Accumulated
amortization on the license fee amounted to $307,000 and $212,000 at March 31,
2001 and 2000, respectively. Net intangible assets were $1,214,000 and
$1,269,000 at March 31, 2001 and 2000, respectively.
11
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NOTES TO FINANCIAL STATEMENTS
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(5) SHAREHOLDERS' EQUITY
In 1999 the Company purchased its own stock for purposes of funding
contributions to the Company's 401(k) plan. Periodically as common shares were
sold to the plan, the difference between the cost and market value at the date
of transfer was charged or credited to shareholders' equity.
The Company has an incentive stock option plan (the Plan) for key employees as
defined under Section 422(A) of the Internal Revenue Code. The Plan as amended,
provides that 1,509,000 common shares be reserved for issuance under the Plan,
which expires on September 10, 2004. In addition, the Plan provides that
non-qualified options can be granted to directors and independent contractors of
the Company. Transactions involving the stock option plan are summarized as
follows:
WEIGHTED
AVERAGE
OPTION OPTION PRICE
SHARES AMOUNT PER SHARE
-------- ----------- ---------
Incentive Options:
Outstanding --
March 31, 1998 788,000 $ 5,808,000 7.37
Cancelled (30,000) (225,000) 7.39
Expired (226,000) (2,221,000) 9.88
Granted 349,000 1,532,000 4.38
Exercised (1,000) (8,000) 5.08
-------- ----------- ----
Outstanding --
March 31, 1999 880,000 4,886,000 5.55
Cancelled (261,000) (1,510,000) 5.79
Granted 204,000 216,000 1.06
-------- ----------- ----
Outstanding --
March 31, 2000 823,000 3,592,000 4.36
Cancelled (228,000) (1,121,000) 4.92
Granted 244,000 227,000 0.93
-------- ----------- ----
Outstanding --
March 31, 2001 839,000 $ 2,698,000 3.22
======== =========== ====
Exercisable--
March 31, 2001 377,000 $ 1,796,000 4.76
======== =========== ====
Non-qualified Options:
Outstanding --
March 31, 1998 153,000 $ 1,388,000 9.07
Granted 15,000 118,000 7.63
Exercised (3,000) (16,000) 5.18
-------- ----------- ----
Outstanding --
March 31, 1999 165,000 1,490,000 9.03
Cancelled (25,000) (96,000) 3.84
Granted 16,000 35,000 2.19
-------- ----------- ----
Outstanding --
March 31, 2000 156,000 1,429,000 9.16
Cancelled (16,000) (64,000) 4.00
Granted 31,000 43,000 1.39
-------- ----------- ----
Outstanding --
March 31, 2001 171,000 $ 1,408,000 8.23
======== =========== ====
Exercisable--
March 31, 2001 132,000 $ 1,352,000 10.24
======== =========== ====
At March 31, 2001, information regarding outstanding options is summarized as
follows:
RANGE OF EXERCISE PRICES
$ .50-6.69 7.63-12.54
----------- ----------
Number outstanding 787,000 223,000
Weighted average
remaining life (yrs.) 7.2 6.4
Weighted average
exercise price $ 2.25 10.49
Number exercisable 330,000 179,000
Weighted average
exercise price $ 3.74 10.68
Incentive and non-qualified options were granted at prices not less than 100% of
market value at dates of grant. Options under the Plan become exercisable on the
anniversary of the grant date on a prorata basis over a defined period and
expire 10 years after the date of grant. To the extent the Company derives a tax
benefit from options exercised by employees, such benefit is credited to Common
Shares when realized on the Company's income tax returns.
The Company applies Accounting Principles Board Opinion No. 25 in accounting for
the Plan and no compensation expense has been recognized for its stock options
in the accompanying financial statements. Had compensation cost for awards under
the Company's stock option plan been determined based upon the fair value of the
option at the grant date prescribed under Statement of Financial Accounting
Standards No. 123, the Company's net earnings (loss) in 2001, 2000 and 1999
would have been reduced (increased) by approximately (172,000), ($266,000), and
($415,000), respectively, and earnings (loss) per share would have been reduced
(increased) by ($.02), ($.03), and ($.04) per share in 2001, 2000 and 1999,
respectively. The weighted average fair value of options granted during 2001,
2000 and 1999 is estimated at $.51, $.75, and $2.03, respectively. The
disclosure of compensation cost under this pronouncement may not be
representative of the effects on net earnings (loss) for future years. The fair
value of options granted during each period was estimated using the
Black-Scholes option pricing model with the following assumptions:
2001 2000 1999
---- ---- ----
Risk-free interest rate 5.9% 5.9% 5.9%
Forfeiture rate 2.0% 2.0% 2.0%
Dividend yield .0 .0 .0
Volatility 90% 82% 63%
Expected life (years) 5.0 5.0 5.0
(6) EMPLOYEE BENEFIT PLAN
In December, 1992, the Company adopted a defined contribution profit sharing
plan, including features under Section 401(k) of the Internal Revenue Code. The
purpose of the plan is to provide an incentive for employees to make regular
savings for their retirement. Company contributions to the profit sharing plan
are discretionary and are determined by the Board of Directors. There were no
contributions in 2001, 2000 and 1999.
12
12
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(7) ACCRUED EXPENSES
Accrued expenses consist of the following:
2001 2000
---------- ---------
Accrued royalties $ 431,000 262,000
Product and business
liability insurance 48,000 48,000
Deferred rent 39,000 57,000
Accrued vacation 110,000 97,000
Retirement liability 142,000 208,000
Other 339,000 390,000
---------- ---------
$1,109,000 1,062,000
========== =========
At March 31, 2001, the Company had an obligation to pay its founder and former
Chief Executive Officer $75,000 per year in retirement pay for two years ending
March 31, 2002 and 2003. The retirement liability represents the net present
value of this obligation.
(8) COMMITMENTS
The Company is currently leasing its administrative and plant facilities and
certain office equipment under noncancelable operating leases which expire
through June, 2003.
The Company's minimum annual rental commitments under these leases are as
follows:
2002 $ 363,000
2003 377,000
2004 102,000
-----------
TOTAL: $ 842,000
===========
Rent expense amounted to $431,000, $430,000, and $442,000 for the years ended
March 31, 2001, 2000 and 1999, respectively.
The Company is involved in certain legal actions resulting from the ordinary
course of business. The Company believes the ultimate outcome of the legal
actions will not have a material adverse impact on the Company's financial
position.
(9) GEOGRAPHIC INFORMATION
The Company has one reportable operating segment as defined in Note 1.
Geographic information regarding the Company's net sales is as follows:
2001 2000 1999
----------- ---------- ----------
United States $10,126,000 11,508,000 12,350,000
Germany 751,000 40,000 642,000
All other countries 1,281,000 1,226,000 1,072,000
----------- ---------- ----------
$12,158,000 12,774,000 14,064,000
=========== ========== ==========
All long-lived assets are located in the United States.
Sales of OXYMATIC(R) conservers and OXYLITE(R) systems accounted for 42%, 56%,
and 72% of the Company's net sales for the years ended March 31, 2001, 2000 and
1999, respectively.
(10) VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
The following is the Company's schedule of activity in the valuation and
qualifying accounts and reserves for the years ended March 31, 2001, 2000 and
1999:
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
OF YEAR EXPENSES DEDUCTIONS OF YEAR
------- -------- ---------- -------
Allowance for
doubtful accounts:
1999 105,000 117,000 134,000 88,000
2000 88,000 59,000 52,000 95,000
2001 95,000 70,000 132,000 33,000
(11) QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents summarized unaudited quarterly financial data for
2001 and 2000:
Basic &
Diluted
Net Earnings
Gross Earnings (Loss)
Revenue Profit (Loss) Per Share
----------- ----------- ----------- ----------
2001
First Quarter $ 2,965,000 $ 691,000 $ (720,000) $ (0.07)
Second Quarter 3,134,000 735,000 (685,000) (0.07)
Third Quarter 2,757,000 549,000 (856,000) (0.09)
Fourth Quarter 3,302,000 752,000 (750,000) (0.07)
----------- ----------- ----------- --------
Year $12,158,000 $ 2,727,000 $(3,011,000) $ (0.30)
=========== =========== =========== ========
2000
First Quarter $ 3,638,000 $ 1,321,000 $ (154,000) $ (0.02)
Second Quarter 3,416,000 1,108,000 (434,000) (0.04)
Third Quarter 2,959,000 915,000 (683,000) (0.07)
Fourth Quarter 2,761,000 435,000 (1,240,000) (0.12)
----------- ----------- ----------- --------
Year $12,774,000 $ 3,779,000 $(2,511,000) $ (0.25)
=========== =========== =========== ========
In the fourth quarter of 2000, the Company recorded an inventory write-down of
$294,000.
(12) NEW ACCOUNTING PRONOUNCEMENTS
In March, 2000 the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 44 (Interpretation 44), Accounting for Certain Transactions
Involving Stock Compensation. Interpretation 44 provides criteria for the
recognition of compensation expense in certain stock-based compensation
arrangements that are accounted for under Accounting Principles Board Opinion
No. 25, Accounting for Stock-Based Compensation. Interpretation 44 is effective
July 1, 2000, with certain provisions that are effective retroactively to
December 15, 1998 and January 12, 2000. Interpretation 44 did not have an impact
on the Company's financial statements.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101, as amended, summarizes certain of the SEC's views of applying
generally accepted accounting principles to revenue recognition in financial
statements. SAB 101 was adopted in the fourth quarter of fiscal 2001 and did not
have a material impact on the Company's financial statements.
13
13
INDEPENDENT AUDITORS REPORT
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS AND SHAREHOLDERS
CHAD Therapeutics, Inc.
We have audited the accompanying balance sheets of Chad Therapeutics, Inc. as of
March 31, 2001 and 2000 and the related statements of operations, shareholders'
equity and cash flows for each of the years in the three year period ended March
31, 2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Chad Therapeutics, Inc. as of
March 31, 2001 and 2000 and the results of its operations and its cash flows for
each of the years in the three year period ended March 31, 2001, in conformity
with accounting principles generally accepted in the United States of America.
/s/ KPMG LLP
Los Angeles, California
May 4, 2001
14
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
OVERVIEW
The Company develops, assembles and markets medical devices that furnish
supplementary oxygen to home health care patients. The Company was a pioneer in
developing oxygen conserving devices that enhance the quality of life for
patients by increasing their mobility and, at the same time, lower operating
costs by achieving significant savings in the amount of oxygen actually required
to properly oxygenate patients. The market for oxygen conserving devices has
been significantly affected during the past several years by increased
competition, consolidation among home oxygen dealers and revisions (and proposed
revisions) in governmental reimbursement policies. All of these factors, as
described more fully below, have contributed to an erosion of the Company's
market share, as devices that are less expensive but which provide lower oxygen
savings (or, in some cases, do not truly provide ambulatory oxygen) have
prospered in this environment. The Company's market share for conservers has
also been affected by the introduction of competing devices that offer features
not available on the OXYMATIC 301, which was the Company's primary product in
this market until July of 2000.
The TOTAL O(2) Delivery System, which combines the benefits of an oxygen
concentrator with a system enabling patients to refill their portable cylinders,
has the potential for improving the Company's performance. Introduced in 1998,
the acceptance of the TOTAL O(2) system by home oxygen dealers has been slowed
by several factors discussed below. As a result, the increased sales generated
by the TOTAL O(2) system have, to date, failed to make up for lower OXYMATIC 301
sales.
In order to address this situation, the Company has implemented a four-part
strategy:
- - Introduction of the OXYMATIC 400 series with improved features, which should
place these oxygen conservers at the forefront of the industry;
- - Development of additional oxygen conserver models that will diversify the
product line in order to offer customers a range of oxygen conservation choices;
- - A continued promotional and educational campaign with respect to the benefits
of the TOTAL O(2) system, coupled with greater focus on monitoring the
performance of component suppliers; and
- - Cost cutting to align the Company's operating expenses more closely with its
revenue profile.
While the Company believes that these measures should enhance its competitive
position and future operating performance, no assurances can be given that these
objectives will be achieved. Management of the Company will continually monitor
the success of these efforts and will attempt to remain flexible in order to
adjust to possible future changes in the market for oxygen conserving devices.
RESULTS OF OPERATIONS
Sales for the years ended March 31, 2001 and 2000, decreased $616,000 (4.8%) and
$2,529,000 (15.3%), respectively, from the prior years. Approximately 50% of the
decrease in sales relates to price reductions and the balance relates to lower
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. However, during the three months ended March 31,
2001, sales increased 19.6% over the prior year's period largely as a result of
sales of the new OXYMATIC 400 series conservers and sales of the TOTAL O(2)
system in Europe.
Sales to foreign distributors represented 17%, 10% and 12% of total sales for
the years ended March 31, 2001, 2000 and 1999, respectively. Currently,
management expects an increase in sales to foreign distributors during the
upcoming twelve months, however, quarter-to-quarter sales may fluctuate
depending on the timing of shipments. All foreign sales are denominated in US
dollars.
The current procedures for reimbursement by Medicare for home oxygen services
provide 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 January of 1998 and
1999, the Federal government implemented reimbursement cuts of 25% and 5%,
respectively. These cuts affected homecare providers' purchasing patterns as
they struggled to deal with significant reductions in their revenues.
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 18%, 20% and 21% of the
Company's domestic sales for the years ended March 31, 2001, 2000
15
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
and 1999, respectively. Margins on these sales are generally 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. 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.
As stated above, the Company believes that its revenues during the past three
years have been adversely affected by several factors. These include pricing,
continuing industry consolidation and competitive products with features not
found in the Company's products prior to the introduction of the OM-400 series
conservers discussed below. The effects of managed care and concerns over the
severity of reimbursement cuts have, in many cases, resulted in the provision of
systems to patients that do not provide truly ambulatory oxygen. Management
believes these factors may continue to adversely affect the Company's revenues
from sales of oxygen conserving devices for the foreseeable future. To combat
the erosion in sales of the oxygen conserver product line, the Company is
developing and introducing several new products in this area. The first of
these, the OXYMATIC 401 conserver, received 501(k) clearance from the Food and
Drug Administration in June 2000, and shipments of the new product began in July
2000. The second, the OXYMATIC 411 conserver was cleared in December 2000, and
shipments began in January, 2001. Management believes the features and
improvements in these products may enable the Company to regain some of the
market share lost in the conserver market over the past three years. Sales in
the quarter ending March 31, 2001, and the first two months of the quarter
ending June 30, 2001, reflect an increase over the prior year's periods that is
being driven by sales of the OXYMATIC 400 Series conservers. No estimate can
currently be made regarding the level of success the Company may achieve with
the OXYMATIC 400 series conservers. For information, which may affect the
forward, looking statements made in this paragraph about the OXYMATIC 400 series
conservers, see Outlook: Issues and Risks - New Products.
Management also believes that, based on its experience in the home oxygen
industry, future revenues may be positively affected by sales of the TOTAL O(2)
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 this
product from the Food and Drug Administration. 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 Company believes the sales potential for
the new system is significant as the market size for units is similar to the
conserver market and the average selling price is approximately four times that
of the OXYMATIC and OXYLITE systems. No estimates can currently be made
regarding the level of success the Company may achieve with the TOTAL O(2)
system. For information which may affect the outcome of forward- looking
statements made in this paragraph about the TOTAL O(2) systems, see Outlook:
Issues and Risks - New Products.
Cost of sales as a percent of net sales increased from 70.4% to 77.6% and from
69.4% to 70.4% for the years ended March 31, 2001 and 2000, respectively. Both
periods have been affected by decreased sales volume and the corresponding
impact of fixed overhead costs on units produced, price competition and the
lower gross profit margin on the TOTAL O(2) system.
Selling, general and administrative expenditures decreased from $5,451,000 to
$5,165,000 and from $6,119,000 to $5,451,000 for the years ended March 31, 2001
and 2000, respectively. The Company's cost reduction efforts over the past two
years, including reductions in personnel, should align staffing and operating
expenses more closely with current sales expectations, but will be offset to
some extent by commissions paid to the Company's field sales force of
manufacturer's representatives. Research and development expenses increased by
$98,000 for the year ended March 31, 2001 and decreased $65,000 for the year
ended March 31, 2000, as compared to the prior years. Currently, management
expects research and development expenditures to total approximately $830,000 in
the fiscal year ended March 31, 2002, on projects to enhance and expand the
Company's product line. Interest income increased $44,000 for the year ended
March 31, 2001, as compared to the prior year due to generally higher cash
balances than in the prior year.
At March 31, 2001, the Company had fully utilized its net operating loss
carrybacks and had approximately $4,020,000 and $3,090,000 in Federal and
California net operating loss carryforwards, respectively. As a result of
16
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
valuation allowances placed on the net operating loss carryforwards and deferred
tax assets, these net operating loss carryforwards and deferred tax assets will
be available to offset future income tax expense when and if the Company
generates taxable income.
FINANCIAL CONDITION
At March 31, 2001, the Company had cash totaling $1,059,000 or 10% of total
assets, as compared to $1,772,000 (13% of total assets) at March 31, 2000. Net
working capital decreased from $8,389,000 at March 31, 2000 to $5,847,000 at
March 31, 2001. Accounts receivable increased $349,000 during the year ended
March 31, 2001, due to the increase in foreign sales. Future increases or
decreases in accounts receivable will generally coincide with sales volume
fluctuations and the timing of shipments to foreign customers. During the same
period, inventories decreased $1,882,000. This decrease relates primarily to
utilization of raw materials purchased in prior years for the (manufacture of
the 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. Currently, inventory balances are
generally at or above safety stock levels.
Management believes cash balances and funds derived from operations should be
adequate to meet the Company's cash requirements for the next twelve months
given the recent recovery of market share for oxygen conservers. The Company's
ability to continue to recover market share and improve operating results is
essential to achieving this goal. If operations do not continue to improve, the
Company may need to seek other sources of working capital. No assurance can be
given that other sources of working capital will be available if and when
needed. The Company expects capital expenditures during the next twelve months
to be approximately $200,000.
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.
OUTLOOK: ISSUES & RISKS
This annual 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, the OXYMATIC 400
series conservers and other new products which are under development. The
success of these new products will depend upon the health care community's
perception of such products capabilities, clinical efficacy and benefit to
patients and obtaining timely regulatory approval. 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, the OXYMATIC 400 series conservers 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 accounted for 18% of the
Company's domestic sales during the year ended March 31, 2001. Future sales may
be increasingly dependent on a limited number of customers, which may have an
impact on margins due to quantity pricing.
COMPETITION
CHAD's success in the early 1990's has drawn new competition to vie for a share
of the home oxygen market. These new competitors include both small and very
large companies. The Company believes the quality of its products and its
established reputation will continue to be a competitive advantage. In addition,
the Company believes the recently introduced OXYMATIC 400 Series conservers
17
17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
will enhance its ability to compete with products available from its
competitors. However, 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. Because of the
uncertain state of 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 future 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.
PATENTS AND TRADEMARKS
The Company pursues a policy of protecting its intellectual property rights
including 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 or claims that the Company's products
infringe the patent rights of others 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 product 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.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101, as amended, summarizes certain of the SEC's views of applying
generally accepted accounting principles to revenue recognition in financial
statements. SAB 101 was adopted in the fourth quarter of fiscal 2001 and did not
have a material impact on the Company's financial statements.
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.
18
18
CORPORATE DATA
- --------------------------------------------------------------------------------
Common Stock Price Range
Beginning August 3, 1993, the Company's common shares were traded on the
American Stock Exchange Emerging Company Marketplace and on June 6, 1994, the
Company's shares moved to the primary list of the American Stock Exchange with
the symbol CTU. The following table sets forth, for the periods indicated, the
high and low closing prices as furnished by the American Stock Exchange. Prices
have been adjusted to reflect a 2 for 1 split distributed October 15, 1993, and
a 3 for 2 split distributed on October 16, 1995.
Quarter Ended High Low
- ------------- ---- ---
June 30, 1999 ................................ 2.75 1.50
September 30, 1999 ........................... 1.38 .75
December 31, 1999 ............................ 1.00 .50
March 31, 2000 ............................... 2.38 .75
June 30, 2000 ................................ 1.88 .81
September 30, 2000 ........................... 1.69 1.00
December 31, 2000 ............................ 1.06 .50
March 31, 2001 ............................... 1.14 .50
As of June 12, 2001, there were approximately 266 shareholders of record and
approximately 3,800 beneficial owners of the Company's common stock. No cash
dividends have been paid on the common stock.
SEC FORM 10-K
A copy of the Company's annual report to the Securities and Exchange Commission
on Form 10-K is available without charge upon written request to:
Chief Financial Officer
CHAD Therapeutics, Inc.
21622 Plummer Street
Chatsworth, CA 91311
CHAIRMAN EMERITUS
- -------------------
CHARLES R. ADAMS
OFFICERS
- -------------------
THOMAS E. JONES
Chief Executive Officer
and President
EARL L. YAGER
Chief Operating Officer,
Executive Vice President,
Chief Financial Officer and Secretary
OSCAR J. SANCHEZ
Vice President, Business Development
ALFONSO DEL TORO
Vice President, Manufacturing
KEVIN McCULLOH
Vice President, Engineering
DIRECTORS
- -------------------
THOMAS E. JONES
Chief Executive Officer & President
CHAD Therapeutics, Inc.
EARL L. YAGER
Chief Operating Officer
CHAD Therapeutics, Inc.
DAVID L. CUTTER
Retired Chairman Of The Board
Cutter Laboratories, Inc.
NORMAN COOPER
Retired Chairman
Kallir, Philips, Ross, Inc.
JOHN C. BOYD
Retired
PHILIP T. WOLFSTEIN
President
Wolfstein International, Inc.
JAMES M. BROPHY
President
Missouri Baptist Medical Center
CORPORATE DATA
- -------------------
CORPORATE HEADQUARTERS
21622 Plummer Street
Chatsworth, CA 91311
(818) 882-0883
LEGAL COUNSEL
Square, Sanders & Dempsey LLP
AUDITORS
KPMG LLP
Los Angeles, California
TRANSFER AGENT AND REGISTRAR
American Stock Transfer Company
40 Wall Street
New York, NY 10005
19