CTU Chad Therapeutics,

CHAD Therapeutics, Inc. (AMEX:CTU) today reported financial results for the fourth quarter and fiscal 2006, and provided an update on the Company's evaluation of strategic alternatives to maximize shareholder value. Fourth Quarter and Fiscal 2006 Results For the three months ended March 31, 2006, revenue declined to $5,177,000 from $5,435,000 for the fourth quarter of fiscal 2005. The net loss for the fourth quarter of fiscal 2006 was $460,000, or $0.05 per diluted share, which included an inventory reserve of $739,000 reflected in cost of goods sold for the Company's SAGE Oxygen Therapeutic Device, whose sales have not met expectations. For the fourth quarter of fiscal 2005, net earnings were $589,000, or $0.06 per diluted share. For the twelve months ended March 31, 2006, revenue declined to $22,354,000 from $24,287,000 for fiscal 2005. The net loss for fiscal 2006 was $673,000, or $0.07 per diluted share, which included the inventory reserve mentioned above. This compares to net earnings for fiscal 2005 of $1,811,000, or $0.17 per diluted share. Revenue from sales of oxygen conservers and therapeutic devices declined 11% for fiscal 2006 compared to fiscal 2005, reflecting a 29% decline in sales to domestic customers and a 331% increase in international sales. The decline in domestic sales was primarily due to pricing pressure and the reduction in sales to a major customer reported previously. Sales of CHAD's proprietary TOTAL O(2)(R) home oxygen filing system increased 3% for fiscal 2006 compared to fiscal 2005. President and CEO Earl Yager said, "Effective January 1, 2006, Medicare reimbursement procedures were modified to provide that title for equipment used by an oxygen patient transfers to the patient after 36 months. This new policy has intensified pressure on homecare providers to reduce operating and equipment costs. Over time, we believe this will stimulate demand for CHAD's TOTAL O(2) home oxygen filling system, which is a cost-effective solution to the changing economics of the home oxygen market. However, the immediate impact among our customers has been a 'wait and see' approach until important questions are answered regarding equipment repair and the provision of oxygen to patients after the transfer of title. We have taken appropriate steps to adjust our operating model and inventory posture in light of these developments. We also are continuing our efforts to expand our product offerings, and are pleased by our progress in the development of proprietary diagnostic and therapeutic products for the sleep disorder market." Working capital was approximately $9.8 million at March 31, 2006, including cash and cash equivalents of $935,000 versus $177,000 at March 31, 2005. Yager noted that the Company's cash position has increased further during the first quarter of the new fiscal year. CHAD has no debt. Update on Evaluation of Strategic Opportunities As previously reported, CHAD is in discussions with several parties concerning the distribution of both the Company's TOTAL O(2) home oxygen filling system and the products it is developing for the sleep disorder market. During the course of these discussions, the Board of Directors decided to broaden the scope of its consideration of various strategic alternatives for the Company, and engaged an investment banking firm to assist the Board in evaluating strategic opportunities to maximize value for CHAD's shareholders. "While we cannot assure shareholders that we will be successful in these efforts, and no final determination will be made until all of our alternatives have been carefully analyzed in concert with our investment banker, we are pleased to report that this process is nearing its conclusion. We will report publicly as soon as new information is available," Yager said. About CHAD Therapeutics CHAD Therapeutics, Inc. is in the business of developing, producing and marketing respiratory care devices designed to improve the efficiency of oxygen delivery systems for home health care and hospital treatment of patients suffering from pulmonary diseases. For more information, visit www.CHADtherapeutics.com. Safe Harbor Statements under the Private Securities Litigation Reform Act of 1995. The foregoing statements regarding prospects for future earnings and revenues, future sales trends and the introduction of products under development are forward-looking statements that involve certain risks and uncertainties. A number of important factors could cause actual results to differ materially from those contemplated by such forward-looking statements. These include the potential loss of one of our major customers upon whom we depend for a material portion of our business, increased competition and continuing downward pressure on prices for certain of our products, the potential introduction of new products with perceived competitive advantages over the Company's products, changes or proposed changes in health care reimbursement which affect home care providers, the terms of any distribution agreement which may be negotiated with respect to our TOTAL O(2) system or our sleep products, and CHAD's ability to anticipate and respond to technological and economic changes in the home oxygen market. Moreover, the success of the Company's products and products under development will depend on their efficacy, reliability and the health care community's perception of the products' capabilities and benefits, the degree of acceptance the products achieve among homecare providers and, with respect to products under development, obtaining timely regulatory approval. Additional factors that could cause actual results to differ materially from those contemplated in this press release can be found in the Company's annual and quarterly reports filed with the Securities and Exchange Commission under the caption "Outlook: Issues and Risks." -0- *T CHAD THERAPEUTICS, INC. CONDENSED STATEMENTS OF OPERATIONS (Unaudited) Twelve Months Ended Three Months Ended March 31, March 31, ---------------------------------------------------- 2006 2005 2006 2005 ------------ ------------ ------------ ------------ Net sales $22,354,000 $24,287,000 $ 5,177,000 $ 5,435,000 Cost of sales 15,113,000 14,581,000 3,919,000 3,465,000 ------------ ------------ ------------ ------------ Gross profit 7,241,000 9,706,000 1,258,000 1,970,000 Selling, general and administrative 6,788,000 6,947,000 1,687,000 1,641,000 Research and development 1,574,000 1,473,000 372,000 266,000 ------------ ------------ ------------ ------------ Total costs and expenses 8,362,000 8,420,000 2,059,000 1,907,000 ------------ ------------ ------------ ------------ Operating income (loss) (1,121,000) 1,286,000 (801,000) 63,000 Other income, net 17,000 41,000 (6,000) 13,000 ------------ ------------ ------------ ------------ Earnings (loss) before income taxes (1,104,000) 1,327,000 (807,000) 76,000 Income tax (benefit) (431,000) (484,000) (347,000) (513,000) ------------ ------------ ------------ ------------ Net earnings (loss) $ (673,000) $ 1,811,000 $ (460,000) $ 589,000 ============ ============ ============ ============ Earnings (loss) per share: Basic $ (0.07) $ 0.18 $ (0.05) $ 0.06 Diluted $ (0.07) $ 0.17 $ (0.05) $ 0.06 ============ ============ ============ ============ Weighted shares outstanding: Basic 10,146,000 10,122,000 10,158,000 10,131,000 Diluted 10,146,000 10,625,000 10,158,000 10,636,000 CHAD THERAPEUTICS, INC. CONDENSED BALANCE SHEETS (Unaudited) March 31, Assets 2006 2005 ------------ ------------ Current assets: Cash $ 935,000 $ 177,000 Accounts receivable, net 3,220,000 3,745,000 Income taxes refundable 383,000 -- Inventories, net 6,381,000 8,512,000 Prepaid expenses and other assets 178,000 264,000 Deferred income taxes 666,000 461,000 ------------ ------------ Total current assets 11,763,000 13,159,000 ------------ ------------ Property, plant and equipment, net 950,000 1,191,000 Intangible assets, net 972,000 802,000 Deferred income taxes 600,000 568,000 Other assets 71,000 70,000 ------------ ------------ Total Assets $14,356,000 $15,790,000 ============ ============ Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 522,000 $ 1,196,000 Accrued expenses 1,435,000 1,370,000 Income taxes payable -- 200,000 ------------ ------------ Total current liabilities 1,957,000 2,766,000 Other long-term liabilities 4,000 -- ------------ ------------ Total liabilities 1,786,000 2,766,000 ------------ ------------ Shareholders' equity: Common shares, $.01 par value, authorized 40,000,000 shares, 10,158,000 and 10,134,000 issued and outstanding 13,413,000 13,369,000 Accumulated deficit (1,018,000) (345,000) ------------ ------------ Shareholders' equity 12,395,000 13,024,000 ------------ ------------ Total Liabilities and Shareholders' Equity $14,356,000 $15,790,000 ============ ============ *T