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: December 31, 2003
Commission file number: 1-12214
CHAD THERAPEUTICS, INC.
| California (State of other jurisdiction of incorporation or organization) |
95-3792700 (I.R.S. Employer Identification No.) |
21622 Plummer Street, Chatsworth, CA 91311
(818) 882-0883
(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 ISSURES:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
| Common Shares | 10,091,000 |
CHAD THERAPEUTICS, INC.
Condensed Balance Sheets
December 31, 2003 and March 31, 2003
(Unaudited)
| December 31, | March 31, | |||||||||||
| 2003 | 2003 | |||||||||||
| ASSETS | ||||||||||||
Current Assets: |
||||||||||||
Cash |
$ | 1,374,000 | $ | 1,596,000 | ||||||||
Accounts receivable, less allowance for
doubtful accounts of $93,000 at
December 31, 2003 and $112,000 at
March 31, 2003 |
3,004,000 | 2,517,000 | ||||||||||
Income taxes refundable |
4,000 | 4,000 | ||||||||||
Inventories (Note 2) |
5,713,000 | 5,511,000 | ||||||||||
Prepaid Expenses |
377,000 | 601,000 | ||||||||||
Total current assets |
10,472,000 | 10,229,000 | ||||||||||
Property and equipment, at cost |
6,450,000 | 6,215,000 | ||||||||||
Less accumulated depreciation |
5,328,000 | 4,979,000 | ||||||||||
Net property and equipment |
1,122,000 | 1,236,000 | ||||||||||
Other assets, net |
737,000 | 640,000 | ||||||||||
Total assets |
$ | 12,331,000 | $ | 12,105,000 | ||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||
Current liabilities: |
||||||||||||
Accounts payable |
$ | 353,000 | $ | 741,000 | ||||||||
Accrued expenses |
1,006,000 | 1,263,000 | ||||||||||
Income taxes payable |
35,000 | 1,000 | ||||||||||
Total current liabilities |
1,394,000 | 2,005,000 | ||||||||||
Shareholders’ equity: |
||||||||||||
Common shares, $.01 par value, authorized
40,000,000 shares; 10,091,000 and 10,076,000
shares issued and outstanding |
13,302,000 | 13,257,000 | ||||||||||
Accumulated deficit |
(2,365,000 | ) | (3,157,000 | ) | ||||||||
Total shareholders’ equity |
10,937,000 | 10,100,000 | ||||||||||
Total liabilities and shareholders’ equity |
$ | 12,331,000 | $ | 12,105,000 | ||||||||
See accompanying notes to condensed financial statements.
CHAD THERAPEUTICS, INC.
Condensed Statements of Operations
For the three months ended December 31, 2003 and 2002
(Unaudited)
| Three Months Ended | |||||||||||
| December 31, | |||||||||||
| 2003 | 2002 | ||||||||||
Net Sales |
$ | 5,237,000 | $ | 4,980,000 | |||||||
Cost of Sales |
2,890,000 | 2,848,000 | |||||||||
Gross profit |
2,347,000 | 2,132,000 | |||||||||
Costs and expenses: |
|||||||||||
Selling, general and administrative |
1,587,000 | 1,681,000 | |||||||||
Research and development |
343,000 | 207,000 | |||||||||
Total costs and expenses |
1,930,000 | 1,888,000 | |||||||||
Operating income |
417,000 | 244,000 | |||||||||
Other Income |
20,000 | 6,000 | |||||||||
Earnings before income taxes |
437,000 | 250,000 | |||||||||
Income tax expense |
19,000 | 22,000 | |||||||||
Net earnings |
$ | 418,000 | $ | 228,000 | |||||||
Basic earnings per share |
$ | 0.04 | $ | 0.02 | |||||||
Diluted earnings per share |
$ | 0.04 | $ | 0.02 | |||||||
Weighted shares outstanding: |
|||||||||||
Basic |
10,088,000 | 10,073,000 | |||||||||
Diluted |
10,401,000 | 10,364,000 | |||||||||
See accompanying notes to condensed financial statements.
CHAD THERAPEUTICS, INC.
Condensed Statements of Operations
For the nine months ended December 31, 2003 and 2002
(Unaudited)
| Nine Months Ended | |||||||||||
| December 31, | |||||||||||
| 2003 | 2002 | ||||||||||
Net Sales |
$ | 16,190,000 | $ | 14,842,000 | |||||||
Cost of Sales |
8,959,000 | 8,527,000 | |||||||||
Gross profit |
7,231,000 | 6,315,000 | |||||||||
Costs and expenses: |
|||||||||||
Selling, general and administrative |
5,420,000 | 5,189,000 | |||||||||
Research and development |
1,011,000 | 695,000 | |||||||||
Total costs and expenses |
6,431,000 | 5,884,000 | |||||||||
Operating income |
800,000 | 431,000 | |||||||||
Other Income |
29,000 | 15,000 | |||||||||
Earnings before income taxes |
829,000 | 446,000 | |||||||||
Income tax expense |
37,000 | 38,000 | |||||||||
Net earnings |
$ | 792,000 | $ | 408,000 | |||||||
Basic earnings per share |
$ | 0.08 | $ | 0.04 | |||||||
Diluted earnings per share |
$ | 0.08 | $ | 0.04 | |||||||
Weighted shares outstanding: |
|||||||||||
Basic |
10,080,000 | 10,070,000 | |||||||||
Diluted |
10,331,000 | 10,398,000 | |||||||||
See accompanying notes to the condensed financial statements.
CHAD THERAPEUTICS, INC.
Condensed Statement of Shareholders’ Equity
For the nine months ended December 31, 2003
(Unaudited)
| Common Shares | Accumulated | |||||||||||
| Shares | Amount | Deficit | ||||||||||
Balance as of March 31, 2003 |
10,076,000 | $ | 13,257,000 | $ | (3,157,000 | ) | ||||||
Exercise of stock options |
15,000 | 22,000 | — | |||||||||
Stock options granted as part of
technology acquisition |
— | 23,000 | ||||||||||
Net earnings |
— | — | 792,000 | |||||||||
Balance at December 31, 2003 |
10,091,000 | $ | 13,302,000 | $ | (2,365,000 | ) | ||||||
See accompanying notes to consolidated financial statements.
CHAD THERAPEUTICS, INC.
Condensed Statements of Cash Flows
For the nine months ended December 31, 2003 and 2002
(Unaudited)
| Nine Months Ended | ||||||||||||
| December 31, | ||||||||||||
| 2003 | 2002 | |||||||||||
Cash flows from operating activities: |
||||||||||||
Net earnings |
$ | 792,000 | $ | 408,000 | ||||||||
Adjustments to reconcile net earnings to net cash
provided by operating activities: |
||||||||||||
Depreciation and amortization of property and
equipment |
349,000 | 497,000 | ||||||||||
Amortization of intangibles |
1,000 | 83,000 | ||||||||||
Changes in assets and liabilities: |
||||||||||||
Decrease (increase) in accounts receivable |
(487,000 | ) | (492,000 | ) | ||||||||
Decrease (increase) in inventories |
(202,000 | ) | 106,000 | |||||||||
Decrease (increase) income taxes refundable |
— | 995,000 | ||||||||||
Decrease (increase) in prepaid expenses |
224,000 | (455,000 | ) | |||||||||
Decrease (increase) in other assets |
(12,000 | ) | (15,000 | ) | ||||||||
Increase (decrease) in accounts payable |
(388,000 | ) | 3,000 | |||||||||
Increase (decrease) in accrued expenses |
(257,000 | ) | 35,000 | |||||||||
Increase (decrease) in income taxes payable |
34,000 | 27,000 | ||||||||||
Net cash provided by operating activities |
54,000 | 1,192,000 | ||||||||||
Cash flows from investing activities: |
||||||||||||
Additions to other assets |
(63,000 | ) | ||||||||||
Capital expenditures |
(235,000 | ) | (194,000 | ) | ||||||||
Net cash used in investing activities |
(298,000 | ) | (194,000 | ) | ||||||||
Cash flows from financing activities: |
||||||||||||
Exercise of stock options |
22,000 | 20,000 | ||||||||||
Net cash provided by financing activities |
22,000 | 20,000 | ||||||||||
Net increase (decrease) in cash |
(222,000 | ) | 1,018,000 | |||||||||
Cash beginning of period |
1,596,000 | 520,000 | ||||||||||
Cash end of period |
$ | 1,374,000 | $ | 1,538,000 | ||||||||
See accompanying notes to condensed financial statements.
CHAD THERAPEUTICS, INC.
December 31, 2003
(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, for a fair presentation of the results for the interim periods presented have been made. The results for the three and nine month periods ended December 31, 2003, are not necessarily indicative of the results expected for the year ended March 31, 2004. 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 in the March 31, 2003, Annual Report and particularly to Note 1 which includes a summary of significant accounting policies. | ||
| 2. | Inventories | |
| Inventories in 2003 are summarized as follows: |
| December 31 | March 31 | |||||||
Finished goods |
$ | 949,000 | $ | 1,245,000 | ||||
Work-in-process |
1,565,000 | 1,382,000 | ||||||
Raw materials |
3,199,000 | 2,884,000 | ||||||
| $ | 5,713,000 | $ | 5,511,000 | |||||
CHAD THERAPEUTICS, INC.
December 31, 2003
(Unaudited)
| 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: |
| Three Months Ended | Nine Months Ended | |||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||||
Basic earnings per share: |
||||||||||||||||||
Numerator-net earnings |
$ | 418,000 | $ | 228,000 | $ | 792,000 | $ | 408,000 | ||||||||||
Denominator-weighted average
common shares outstanding |
10,088,000 | 10,073,000 | 10,080,000 | 10,070,000 | ||||||||||||||
Basic earnings per share |
$ | 0.04 | $ | 0.02 | $ | 0.08 | $ | 0.04 | ||||||||||
Diluted earnings per share: |
||||||||||||||||||
Numerator-net earnings |
$ | 418,000 | $ | 228,000 | $ | 792,000 | $ | 408,000 | ||||||||||
Denominator: |
||||||||||||||||||
Weighted average common shares
outstanding |
10,088,000 | 10,073,000 | 10,080,000 | 10,070,000 | ||||||||||||||
Diluted effect of common stock
options |
313,000 | 291,000 | 251,000 | 328,000 | ||||||||||||||
| 10,401,000 | 10,364,000 | 10,331,000 | 10,398,000 | |||||||||||||||
Diluted earnings per share |
$ | 0.04 | $ | 0.02 | $ | 0.08 | $ | 0.04 | ||||||||||
| Options to purchase 395,000 shares of common stock at prices ranging from $2.39 to $13.47 per share and 551,000 shares of common stock at prices ranging from $2.75 to $13.47 were not included in the computation of diluted earnings per share for the three and nine month periods ended December 31, 2003 and 2002, respectively, because their effect would have been anti-dilutive. | ||
| 4. | Income Tax Expense | |
| Income tax expense for the three and nine month periods ended December 31, 2003, relate primarily to state income taxes which are provided for at an effective rate of 4.5%. The Company has California net operating loss carryforwards of $2,785,000, against which a full valuation allowance has been recorded. In September, 2002, the state of California enacted legislation that suspends the utilization of net operating loss carryforwards during tax years starting 2002, effective retroactively back to January 1, 2002. As a result, the company will be unable to use its California net operating loss carryforwards until the tax year beginning April 1, 2004. The company also has manufacturing tax credit carryforwards of $46,000 available to offset future California taxable income. |
CHAD THERAPEUTICS, INC.
December 31, 2003
(Unaudited)
| 5. | Geographic Information | |
| The Company has one reportable operating segment. Geographic information regarding the Company’s sales is as follows: |
| Three Months Ended | Nine Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||
United States |
$ | 4,977,000 | $ | 4,775,000 | $ | 15,471,000 | $ | 14,172,000 | ||||||||
Canada |
67,000 | 70,000 | 213,000 | 175,000 | ||||||||||||
Germany |
7,000 | 21,000 | 52,000 | 39,000 | ||||||||||||
Japan |
123,000 | 49,000 | 178,000 | 166,000 | ||||||||||||
All other countries |
63,000 | 65,000 | 276,000 | 290,000 | ||||||||||||
| $ | 5,237,000 | $ | 4,980,000 | $ | 16,190,000 | $ | 14,842,000 | |||||||||
| All long-lived assets are located in the United States. | ||
| Sales of OXYMATIC® and CYPRESS OXYPneumatic® conservers systems accounted for 78% and 74% of the Company’s sales for the nine month periods ended December 31, 2003 and 2002, respectively. | ||
| 6. | 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 123 had been applied. |
CHAD THERAPEUTICS, INC.
December 31, 2003
(Unaudited)
| 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. The following table illustrates the effect on net earnings and earnings per share if the Company had applied the fair value recognition provision of FASB Statement No. 123, Accounting for Stock Based Compensation, to stock-based employee compensation: |
| Three Months Ended | Nine Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||