SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO.___)
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CHAD THERAPEUTICS
(Name of Registrant as Specified In Its Charter)
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THERAPEUTICS
|
FOR IMMEDIATE RELEASE | 21622 Plummer Street | ||
Innovative Respiratory Solutions
|
Chatsworth, CA 91311 | |||
| Toll Free: 800.423.8870 | ||||
| Phone: 818.882.0883 | ||||
| Main Fax: 818.882.1809 | ||||
Company Contact:
|
Investor Contact: | |||
Earl L. Yager
|
Neil Berkman Associates | |||
President and CEO
|
(310) 826-5051 | |||
www.CHADtherapeutics.com |
info@BerkmanAssociates.com |
CHAD Therapeutics to Sell Its Oxygen Conserver Business
and Focus on Development and Marketing of
Patented Medical Devices For the Sleep Disorder Market
and Focus on Development and Marketing of
Patented Medical Devices For the Sleep Disorder Market
Announces Fiscal 2008 Second Quarter
and First Half Financial Results
and First Half Financial Results
CHATSWORTH, California, November 19, 2007 . . . CHAD Therapeutics, Inc.
(AMEX:CTU) announced today that it has entered into a definitive agreement to sell to
Inovo Inc., a privately held manufacturer of oxygen regulators and conservers based in
Naples, Florida, substantially all of the Company’s assets related to the oxygen conserver
business, including accounts receivable, inventory, and certain equipment and intellectual
property, for $5,250,000 in cash. The purchase price is subject to adjustment based on
changes in working capital between the signing date and the closing of the sale, provided
that in no event will the selling price exceed $5,500,000. Based on the current selling
price, the Company would not incur a loss on the sale of these assets. Pursuant to the
agreement, Inovo would assume certain liabilities and obligations related to CHAD’s oxygen
conserver business. CHAD will retain the assets related to its TOTALO2 system
and in-home oxygen transfilling business as well as products in development for the sleep
disorder market. The agreement is subject to certain closing conditions, including
approval of CHAD’s shareholders.
“We are very pleased to add Chad’s outstanding products and technology to our line of
oxygen conservers and regulators,” said George Harris, Inovo’s President and CEO. “Our
strategy is to continue CHAD’S tradition as the market leader in electronic and pneumatic
conservers.”
“The acquisition of the Chad conserver assets fits nicely with our strategy of
providing cost-effective portability solutions for home oxygen equipment dealers,
distributors, and patients,” added Michael Mulroy, Inovo’s Vice President.
“If the asset sale is approved by CHAD’s shareholders, the Company’s future efforts
will focus on the sleep disorder market, and we will seek to realize appropriate value for
the sleep business and the TOTALO2 system and transfilling assets,” said
President and CEO Earl Yager.
“Uncertainty regarding Medicare reimbursement has contributed to operating losses at
CHAD in recent quarters and clouded the outlook for the near term future of the Company’s
oxygen therapy business. Given the many attractive growth opportunities we see in the
multi-billion dollar sleep disorder market, we have decided to sell the oxygen conserver
business in order to focus exclusively on the proprietary medical devices we are
developing for the diagnosis and treatment of obstructive sleep apnea. We hope to receive
510k clearance from the FDA to market our initial sleep device early next year, and to
submit 510k applications for two additional devices in 2008,” Yager said.
Yager said that the sale would result in a significant reduction in CHAD’s operating
expenses. “INOVO plans to operate in CHAD’s facility during a transition period which
would end no later than June 2008. During the transition period, INOVO will reimburse us
for the costs of our employees who perform transition-related services, as well as rent
and other facilities charges.”
(more)
CHAD, OXYMATIC, OXYMIZER, OXYLITE, and TOTAL O2 are Registered Trademarks of Chad Therapeutics, Inc.
ISO 13485 Certified Company
WWW.CHADTHERAPEUTICS.COM
ISO 13485 Certified Company
WWW.CHADTHERAPEUTICS.COM
CHAD Therapeutics to Sell Its Oxygen Conserver Business and Focus on Development and Marketing of
Patented Medical Devices For the Sleep Disorder Market
November 19, 2007
Page Two
Patented Medical Devices For the Sleep Disorder Market
November 19, 2007
Page Two
Following the sale of its oxygen conserver business, payment of outstanding debt and payment
of severance obligations related to the sale, CHAD anticipates that its remaining assets would
include net operating loss carryforwards , the assets related to its in-home transfilling business
and the patented sleep technology the Company has been developing for the past three years.
CHAD’s Sleep Product Opportunity
“We believe that our sleep products offer unique features that can improve the diagnosis and
treatment of obstructive sleep apnea. With three products now in an advanced stage of development,
a clear roadmap of additional product development opportunities based on our proprietary
technology, and a sound marketing plan, we believe we have the opportunity to build CHAD’s position
in this large and growing industry,” Yager said.
Targeted for use in sleep laboratories, CHAD believes that its FloChannelTM sleep
diagnostic device is the only device that can independently monitor left and right nasal airflow,
oral airflow and snoring. The device is designed to provide constant baseline airflow volumetric
sleep scoring and to evaluate the effects of nasal resistance and nasal cycling. “CHAD believes
these features should provide a competitive advantage over products currently in the market, which
treat the nasal passages as one airway when in fact they are two airways.
CHAD’s FloPAPTM therapeutic device is designed to monitor and control the left and
right nasal airflows individually to create a comfortable equalizing of airflows throughout
respiration. This allows for lower operating pressures, as well as greater airway support and less
drying, all of which are expected to contribute to better compliance by patients with CHAD’s device
than with devices currently on the market. “Our device unilaterally compensates for nasal
resistance, which we believe may be a competitive advantage once our products are introduced. The
system will use a proprietary and patented mask and hose system that will need to be replaced at
regular intervals, typically twice a year,” Yager said.
CHAD also is developing a diagnostic device for performing unattended sleep studies, including
at-home studies. This device is intended to enable ear, nose & throat specialists (ENTs),
pediatricians and primary care physicians to diagnose sleep disorders for the first time. “More
than 10 million people in the U.S. alone are estimated to have an undiagnosed sleep disorder, and
in many cases the waiting time for testing at many of the nation’s sleep labs-which is the most
common way to diagnose the problem today-may last weeks,” Yager noted.
All of CHAD’s sleep products will use proprietary and patented nasal cannula kits, which will
be required for each patient tested.
Required Approval of CHAD Stockholders
The proposed sale of the oxygen conserver business is subject to approval by CHAD’s
stockholders. CHAD will schedule a special stockholders’ meeting and will distribute a proxy
statement in connection with such meeting describing the proposed sale in greater detail.
STOCKHOLDERS ARE ENCOURAGED TO READ THE PROXY STATEMENT WHEN IT BECOMES AVAILABLE AS IT WILL
CONTAIN IMPORTANT INFORMATION ABOUT THE REASONS FOR THE PROPOSED SALE, ITS TERMS AND CONDITIONS AND
THE RISKS INVOLVED WITH SUCH SALE. COPIES OF THE PROXY STATEMENT WILL BE AVAILABLE FROM THE
COMPANY AND ALSO MAY BE OBTAINED FOR FREE ON THE SEC’S WEBSITE AT WWW.SEC.GOV.
Fiscal 2008 Second Quarter Financial Results
For the three months ended September 30, 2007, net sales decreased to $3,206,000 compared to
$4,983,000 for the second quarter of fiscal 2007. The net loss for this year’s second quarter was
$1,353,000, or $0.13 per basic and diluted share, compared to a net loss for last year’s second
quarter of $371,000, or $0.03 per basic and diluted share.
(more)
CHAD Therapeutics to Sell Its Oxygen Conserver Business and Focus on Development and Marketing of
Patented Medical Devices For the Sleep Disorder Market
November 19, 2007
Page Three
Patented Medical Devices For the Sleep Disorder Market
November 19, 2007
Page Three
Liquidity and Capital Resources
Historically, the Company has depended primarily upon its cash flow from operations to finance
its inventory and operating expenses and to meet its capital requirements. However, recent
operating trends have required the Company to seek outside financing in order to enhance its cash
resources. The Company’s cash flow for the six months ended September 30, 2007 was negative and
the Company currently is dependent upon financing under its line of credit to fund its daily
operations. Continued availability of funding under this line of credit will depend upon a number
of factors, including the amount of eligible assets owned by the Company. While the sale of the
oxygen conserver assets described above would address the Company’s near term liquidity
requirements, such sale is subject to certain closing conditions, including stockholder approval,
and, in any event, is not likely to close for several months. As a result, liquidity for the next
several months will continue to be depedent upon borrowings under the Company’s line of credit.
About Inovo, Inc.
Based in Naples, FL, Inovo, Inc. is a fully integrated designer, developer, and manufacturer
of oxygen flow control products which are private labeled for leading distributors and
manufacturers in the home respiratory, hospital, and emergency medical markets.
About CHAD Therapeutics
CHAD Therapeutics, Inc. develops, produces and markets 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 the potential sale of the Company’s oxygen conserver
business, 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 failure to complete the
sale of CHADs oxygen business, the failure to obtain shareholder approval of such sale during the
first calendar quarter of 2008, inability to access sufficient capital resources to continue
ordinary business operations pending the sale of the oxygen conserver business, the potential
introduction of new products with perceived competitive advantages over the Company’s products, the
terms of any distribution agreement which may be negotiated with respect to CHAD’s sleep products,
and CHAD’s ability to anticipate and respond to technological and economic changes in the sleep
disorder market. Additionally, CHAD’s products for the sleep disorder market have not yet been
commercially introduced. The ability of the Company to successfully introduce these products will
depend upon obtaining necessary regulatory approvals and demonstrating the efficacy and reliability
of the products to the health care community. As with any new products, the Company cannot know if
the products will perform as expected after they have been commercially introduced. The sleep
disorder market is a new market for the Company, and the Company will be competing with several
well-established and much larger competitors in this market. These competitors may offer more
attractive prices for their products and may introduce new products that have technological
capabilities equal or superior to the Company’s products. As a result, the Company cannot predict
the level of success, if any, that it will achieve with its products for the sleep disorder market.
The projected timing for the introduction of new products may be delayed as a result of unforeseen
difficulties encountered in the design, manufacture and quality testing for such products. The
Company has limited design and manufacturing resources and it relies to a significant extent upon
independent contractors for the development of products for the sleep disorder market. As a
result, the Company may have more difficulty ensuring adherence to projected timetables for the
introduction of such products. 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 “Risk
Factors.”
(tables attached)
CHAD THERAPEUTICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2007 | 2006 | 2007 | 2006 | |||||||||||||
Net sales |
$ | 3,206,000 | $ | 4,983,000 | $ | 7,179,000 | $ | 10,459,000 | ||||||||
Cost of sales |
2,607,000 | 3,366,000 | 5,785,000 | 7,028,000 | ||||||||||||
Gross profit |
599,000 | 1,617,000 | 1,394,000 | 3,431,000 | ||||||||||||
Costs and expenses: |
||||||||||||||||
Selling, general and administrative |
1,408,000 | 1,682,000 | 2,957,000 | 3,384,000 | ||||||||||||
Research and development |
391,000 | 322,000 | 853,000 | 657,000 | ||||||||||||
Total costs and expenses |
2,799,000 | 2,004,000 | 3,810,000 | 4,041,000 | ||||||||||||
Operating (loss) |
(1,200,000 | ) | (387,000 | ) | (2,416,000 | ) | (610,000 | ) | ||||||||
Other income, net |
153,000 | 16,000 | 223,000 | 39,000 | ||||||||||||
Loss before income taxes |
(1,353,000 | ) | (371,000 | ) | (2,639,000 | ) | (571,000 | ) | ||||||||
Income tax expense (benefit) |
— | (64,000 | ) | 4,000 | (148,000 | ) | ||||||||||
Net loss |
$ | (1,353,000 | ) | $ | (307,000 | ) | $ | (2,643,000 | ) | $ | (423,000 | ) | ||||
Loss per share: |
||||||||||||||||
Basic |
$ | (0.13 | ) | $ | (0.03 | ) | $ | (0.26 | ) | $ | (0.04 | ) | ||||
Diluted |
$ | (0.13 | ) | $ | (0.03 | ) | $ | (0.26 | ) | $ | (0.04 | ) | ||||
Weighted shares outstanding: |
||||||||||||||||
Basic |
10,180,000 | 10,169,000 | 10,180,000 | 10,169,000 | ||||||||||||
Diluted |
10,180,000 | 10,169,000 | 10,180,000 | 10,169,000 | ||||||||||||
CHAD THEREAPEUTICS, INC.
CONDENSED BALANCE SHEETS
(Unaudited)
CONDENSED BALANCE SHEETS
(Unaudited)
| September 30, | ||||||||
| 2007 | 2006 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash |
$ | 387,000 | $ | 1,777,000 | ||||
Accounts receivable, net |
1,775,000 | 2,568,000 | ||||||
Income taxes refundable |
2,000 | 182,000 | ||||||
Inventories, net |
6,785,000 | 6,303,000 | ||||||
Prepaid expenses and other assets |
434,000 | 146,000 | ||||||
Deferred income taxes |
— | 640,000 | ||||||
Total current assets |
8,383,000 | 11,616,000 | ||||||
Property, plant and equipment, net |
619,000 | 818,000 | ||||||
Intangible assets, net |
1,068,000 | 1,073,000 | ||||||
Deferred income taxes |
— | 610,000 | ||||||
Other assets |
301,000 | 44,000 | ||||||
Total Assets |
$ | 10,371,000 | $ | 14,161,000 | ||||
Liabilities and Shareholders’ Equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 858,000 | $ | 923,000 | ||||
Accrued expenses |
1,163,000 | 1,206,000 | ||||||
Revolving line of credit |
1,094,000 | — | ||||||
Current portion of long-term debt |
292,000 | — | ||||||
Total current liabilities |
3,407,000 | 2,129,000 | ||||||
Long-term debt |
458,000 | — | ||||||
Total liabilities |
3,865,000 | 2,129,000 | ||||||
Shareholders’ equity: |
||||||||
Common shares, $.01 par value, authorized 40,000,000 shares, 10,180,000 and
10,144,000 issued and outstanding |
13,581,000 | 13,473,000 | ||||||
Accumulated deficit |
(7,075,000 | ) | (1,441,000 | ) | ||||
Net shareholders’ equity |
6,506,000 | 12,032,000 | ||||||
Total Liabilities and Shareholders’ Equity |
$ | 10,371,000 | $ | 14,161,000 | ||||