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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NO. 0-27506
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COHR INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-4559155
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION)
21540 PLUMMER STREET, CHATSWORTH, CALIFORNIA 91311-4103
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (818) 773-2647
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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 [ ]
As of November 12, 1998 there were outstanding 6,433,189 shares of the
Registrant's Common Stock, par value $0.01, which is the only class of common
stock of the Registrant.
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COHR INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998
PAGE
NUMBER
------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of September 30, 1998
(unaudited) and March 31, 1998............................ 4
Consolidated (unaudited) Statements of Operations for the
three months ended September 30, 1998 and 1997 and the six
months ended September 30, 1998 and 1997.................. 5
Consolidated (unaudited) Statements of Cash Flows for the
six months ended September 30, 1998 and 1997.............. 6
Notes to Consolidated Financial Statements.................. 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 15
Item 4. Submission of Matters to a Vote of Security Holders......... 16
Item 5. Other Information........................................... 16
Item 6. Exhibits and Reports on Form 8-K............................ 16
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FORWARD-LOOKING STATEMENTS
Statements in this Form 10-Q that are not historical facts are hereby
identified as "forward-looking statements" for the purposes of the safe harbor
provided by Section 21E of the Securities Exchange Act of 1934, as amended and
Section 27A of the Securities Act of 1933, as amended. COHR Inc. ("COHR" or the
"Company") cautions readers that such "forward-looking statements," including
without limitation, those relating to the Company's future business prospects,
revenues, working capital, liquidity, capital needs and income/(loss), wherever
they may appear in this document or in other statements attributable to the
Company, are necessarily estimates reflecting the best judgment of the Company's
management and involve a number of risks and uncertainties that could cause
actual results to differ materially from those suggested by the "forward-looking
statements." Such "forward-looking statements" should, therefore, be considered
in light of various important factors ("Cautionary Statements"), including those
set forth from time to time in the Company's reports and registration statements
filed with the Securities and Exchange Commission (the "SEC").
These "forward-looking statements" are found at various places throughout
this document. In addition, forward-looking statements generally can be
identified by the use of forward-looking terminology such as "may," "will,"
"expect," "should," "intend," "estimate," "anticipate," "believe," or "continue"
or the negative thereof or variations thereon or similar terminology. Moreover,
the Company, through its senior management or persons acting on its behalf, may
from time to time make "forward-looking statements" about the matters described
herein or other matters concerning the Company and such statements are subject
to the qualifications set forth herein and in the Cautionary Statements. The
Company disclaims any intent and undertakes no obligation to update publicly or
revise "forward-looking statements."
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PART I. FINANCIAL INFORMATION
COHR INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ITEM 1. FINANCIAL STATEMENTS
ASSETS
SEPTEMBER 30, MARCH 31,
1998 1998
------------- ---------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents................................. $ 12,826 $ 14,026
Accounts receivable, net of allowance for doubtful
accounts of $3,284 (September 30) and $4,232 (March
31).................................................... 13,456 16,946
Inventory................................................. 5,035 6,891
Prepaid expenses and other................................ 590 716
Income tax refund receivable.............................. 5,702 8,391
-------- --------
Total current assets.............................. 37,609 46,970
EQUIPMENT AND IMPROVEMENTS, net of accumulated depreciation
of $5,902 (September 30) and $5,416 (March 31)............ 5,889 6,804
INTANGIBLE ASSETS, net of accumulated amortization of $367
(September 30) and $261 (March 31)........................ 2,509 2,615
OTHER ASSETS................................................ 412 195
-------- --------
TOTAL............................................. $ 46,419 $ 56,584
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable............................................. $ $ 40
Accounts payable.......................................... 2,266 6,183
Accrued expenses.......................................... 12,090 11,174
Deferred revenue.......................................... 146 734
Current portion of long-term debt......................... 336 649
-------- --------
Total current liabilities......................... 14,838 18,780
LONG-TERM DEBT.............................................. 357 498
OTHER LONG-TERM LIABILITIES................................. 175 136
SHAREHOLDERS' EQUITY
Preferred Stock, $.01 par value; 2,000,000 shares
authorized; no shares issued and outstanding...........
Common Stock, $.01 par value; 20,000,000 shares
authorized; 6,433,189 shares issued and outstanding.... 887 887
Additional paid in capital................................ 55,153 55,153
Accumulated deficit....................................... (24,991) (18,870)
-------- --------
Total shareholders' equity........................ 31,049 37,170
-------- --------
TOTAL............................................. $ 46,419 $ 56,584
======== ========
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COHR INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1998 1997 1998 1997
------- ------- ------- -------
Revenues............................................ $24,798 $25,964 $51,311 $50,775
Direct operating expenses........................... 19,278 18,002 37,896 35,150
------- ------- ------- -------
Gross margin........................................ 5,520 7,962 13,415 15,625
Selling, general and administrative expenses........ 7,620 8,794 16,284 17,312
Special charges..................................... 3,148 3,627
------- ------- ------- -------
Operating loss...................................... (5,248) (832) (6,496) (1,687)
Interest income, net................................ 215 241 375 537
------- ------- ------- -------
Loss before income tax benefit...................... (5,033) (591) (6,121) (1,150)
Income tax benefit.................................. (192) (396)
------- ------- ------- -------
Net loss............................................ $(5,033) $ (399) $(6,121) $ (754)
======= ======= ======= =======
Net loss per common share Basic..................... $ (0.78) $ (0.06) $ (0.95) $ (0.12)
======= ======= ======= =======
Net loss per common share Diluted................... $ (0.78) $ (0.06) $ (0.95) $ (0.12)
======= ======= ======= =======
Number of shares used to compute net loss per common
share............................................. 6,433 6,433 6,433 6,426
======= ======= ======= =======
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COHR INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED
SEPTEMBER 30,
------------------
1998 1997
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(6,121) $ (754)
------- -------
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization........................... 756 1,046
Gain on sale of equipment and improvements.............. (17)
Gain on extinguishment of debt.......................... (185)
Special charges......................................... 3,116
Provision for losses on accounts receivable............. 355 485
Deferred income tax asset -- current portion............ 98
Increase in other long-term liabilities................. 39
Changes in assets and liabilities, net of effect of
acquisitions of certain assets:
(Increase) decrease in:
Accounts receivable................................ 2,221 (4,177)
Inventory.......................................... 406 (54)
Prepaid expense and other.......................... 126 (421)
Income tax refund receivable....................... 2,689 (2,479)
Other assets....................................... (217) (717)
Increase (decrease) in:
Accounts payable................................... (3,917) 1,537
Accrued expenses................................... 516 1,027
Deferred revenue................................... (588) 276
------- -------
Total adjustments....................................... 5,300 (3,379)
------- -------
Net cash used in operating activities................... (821) (4,133)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (117) (973)
Proceeds from sale of fixed assets........................ 47
Payment for business acquisitions......................... (1,327)
Sale of investments....................................... 4,000
------- -------
Net cash (used in) provided by investing activities..... (70) 1,700
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt and notes payable............ (309) (2,064)
------- -------
Net cash used in financing activities................... (309) (2,064)
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (1,200) (4,497)
CASH AND CASH EQUIVALENTS, beginning of period.............. 14,026 22,948
------- -------
CASH AND CASH EQUIVALENTS, end of period.................... $12,826 $18,451
======= =======
Supplemental disclosures of cash flow information -- Cash
paid during the period for:
Income taxes............................................ $ $ 2,775
======= =======
Interest................................................ $ 21 $ 37
======= =======
DETAILS OF BUSINESSES OR ASSETS ACQUIRED AT FAIR VALUE
ARE AS FOLLOWS:
Current assets............................................ $ $ 479
Equipment................................................. 138
Goodwill and other intangibles............................ 929
------- -------
1,546
------- -------
Liabilities assumed....................................... 219
------- -------
NET CASH PAID FOR ACQUISITIONS............................ $ $ 1,327
======= =======
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COHR INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying consolidated financial
statements include all adjustments necessary for a fair presentation of the
financial position of COHR Inc. ("COHR") and subsidiaries (collectively, the
"Company"), and the results of its operations and its cash flows for the interim
periods presented. Although COHR believes that the disclosures in these
consolidated financial statements are adequate to make the information presented
not misleading, certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. Results of operations for
the interim periods are not necessarily indicative of results to be expected for
any other interim period or for the full year.
The consolidated financial statements for the six months ended September
30, 1998 and 1997 are unaudited and should be read in conjunction with the
consolidated financial statements and notes thereto included in COHR's Annual
Report on Form 10-K for the year ended March 31, 1998.
On February 17, 1998, the Company disclosed that it had restated its
financial statements for the fiscal year ended March 31, 1997 and for the first
two quarters of the fiscal year ended March 31, 1998 ("the Restatement"). All
references herein to the financial statements for such periods refer to such
financial statements as restated. These restatements related primarily to
management's determination that certain equipment and software sales were
prematurely recorded and that certain liabilities and reserves were understated.
Consolidation of Subsidiaries -- The Company's financial statements include
the activity of all of its wholly owned subsidiaries over which the Company has
direct or indirect unilateral and perpetual control. All intercompany
transactions have been eliminated in consolidation.
2. SPECIAL CHARGES
The Company recorded special charges of $3.6 million for the six months
ended September 30, 1998. Included in the $3.6 million total were the write-down
of refurbishment parts inventory not sold separately and fixed assets related to
a refurbishment operation to be closed, disposition costs and the write-down of
assets related to a claims-management software business to be sold and severance
costs for those officers and employees who were terminated or removed from
office by the Company and so notified during the six months ended September 30,
1998.
3. INCOME TAXES
At September 30, 1998, the Company had net operating loss carryforwards
("NOLs") of approximately $12.7 million for Federal income tax purposes and
$11.8 million for state income tax purposes. The NOLs expire in 2013 and 2003,
respectively. Assuming the Company has sufficient future taxable income, the
NOLs could be of significant value to the Company, because generally the NOLs
could be used to offset future taxable income. However, if the Company has
undergone, or undergoes in the future, an "ownership change" within the meaning
of Section 382 of the Internal Revenue Code of 1986, as amended ("Code"), then
the Company's utilization of the NOLs generally will be limited to an annual
amount equal to the product of (a) the fair market value of the Company's stock
immediately before the ownership change and (b) the "long-term tax-exempt rate"
published by the Internal Revenue Service at the time of the ownership change
(5.02 percent for the month of September, 1998). Such a limitation could
significantly reduce the value of the NOLs.
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COHR INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
Generally speaking, an "ownership change" occurs whenever, within a
three-year period, the aggregate ownership of a company's stock by its "5
percent shareholders" (as defined by the applicable Federal income tax
regulations) increases by more than 50 percentage points. Making that
calculation is complex, uncertain and ongoing once a company has NOLs. The
Company has begun, but has not yet completed, an initial set of such
calculations. Nevertheless, because of the significant recent turnover in the
Company's stock, the Company believes that there is a strong possibility that an
"ownership change" has already occurred, or, if not, that an "ownership change"
could occur at any time. If so, then the Company's utilization of its NOLs would
be limited, as discussed above.
4. RECLASSIFICATIONS
Certain reclassifications have been made to the prior period's consolidated
financial statements to conform to the current period's presentation.
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COHR INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
5. BUSINESS SEGMENTS (UNAUDITED)
The Company currently provides services to the health care industry through
two principal business segments. The COHR MasterPlan segment provides equipment
servicing and sales to hospitals and other health care providers. The Purchase
Connection segment consists primarily of a group purchasing organization that
negotiates pricing for its membership with manufacturers and distributors. Other
services in the Purchase Connection segment include providing on-site security,
management consulting, employee-benefits insurance brokerage, medical
credentials verification and insurance claims-management software to hospitals,
integrated health systems and alternate site providers. General corporate
expenses are classified as Corporate. Identifiable assets are those used in the
Company's operations in each segment as estimated by management based upon
factors such as revenue generated, number of personnel and space occupied by
each segment. Information concerning the Company's business segments for the
periods ended September 30, 1998 and 1997 is as follows:
EQUIPMENT PURCHASING
SERVICES SERVICES CORPORATE TOTAL
--------- ---------- --------- -------
(DOLLARS IN THOUSANDS)
For the three months ended September 30, 1998
Revenues....................................... $19,785 $ 5,013 $24,798
Operating income (loss)........................ (1,186) 2,147 $ (6,209) (5,248)
Interest income, net........................... 215 215
Identifiable assets............................ 28,780 4,642 12,997 46,419
Depreciation and amortization.................. 193 57 128 378
Capital expenditures........................... 52 15 67
For the three months ended September 30, 1997
Revenues....................................... $20,363 $ 5,601 $25,964
Operating income (loss)........................ (200) 2,334 (2,966) (832)
Interest income, net........................... 241 241
Identifiable assets............................ 45,279 5,126 35,027 85,432
Depreciation and amortization.................. 346 130 65 541
Capital expenditures........................... 279 33 104 416
For the six months ended September 30, 1998
Revenues....................................... $40,566 $10,745 $51,311
Operating income (loss)........................ (397) 4,321 $(10,420) (6,496)
Interest income, net........................... 375 375
Identifiable assets............................ 28,780 4,642 12,997 46,419
Depreciation and amortization.................. 386 114 256 756
Capital expenditures........................... 90 27 117
For the six months ended September 30, 1997
Revenues....................................... $39,584 $11,191 $50,775
Operating income (loss)........................ 144 4,232 $ (6,063) (1,687)
Interest income, net........................... 537 537
Identifiable assets............................ 45,279 5,126 35,027 85,432
Depreciation and amortization.................. 669 251 126 1,046
Capital expenditures........................... 652 78 243 973
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of the Company's unaudited
consolidated results of operations and financial position should be read in
conjunction with the Company's unaudited consolidated financial statements,
including the notes thereto, appearing elsewhere in this Quarterly Report.
GENERAL
The Company is a national outsourcing service company, providing equipment
servicing and sales, group purchasing and other ancillary services to hospitals,
integrated health systems and alternative site providers.
On February 17, 1998, the Company disclosed that it had restated its
financial statements for the fiscal year ended March 31, 1997 and for the first
two quarters of the fiscal year ended March 31, 1998 ("the Restatement"). All
references herein to the financial statements for such periods refer to such
financial statements as restated. These restatements related primarily to
management's determination that certain equipment and software sales were
prematurely recorded and that certain liabilities and reserves were understated.
During the fourth quarter of fiscal year 1998 and the first two quarters of
fiscal year 1999, the Company undertook a cost-reduction program which resulted
in a 14% reduction in overall personnel, the closing or restructuring of certain
MasterPlan refurbishment and service operations, the closing of certain
under-utilized MasterPlan field offices and the decision to dispose of a
claims-management software business. The Company will continue to pursue
additional cost-reduction opportunities during the balance of fiscal year 1999.
The goal to improve profitability may include the elimination or repricing of
certain low margin or unprofitable contracts. The Company has also instituted
stronger credit and collection policies.
In connection with the Company's fiscal year end audit at March 31, 1998,
the Company's auditors noted certain conditions involving the Company's internal
control structure and its operations that were deemed to be material weaknesses
during the period from April 1, 1997 to March 31, 1998. The Company has
initiated actions it deems to be appropriate to address these conditions,
including the hiring of a new Chief Financial Officer and Controller, improving
communications between departments, centralizing certain accounting functions
and formalizing methodologies for certain accounting procedures.
Federal and state civil lawsuits have been filed against the Company
alleging, among other things, federal and/or state securities law violations and
the Securities and Exchange Commission (the "SEC") has commenced a formal
investigation of the Company. See Part II, Item 1 "Legal Proceedings" below.
RESULTS OF OPERATIONS
SIX MONTHS ENDED SEPTEMBER 30, 1998, VERSUS SIX MONTHS ENDED SEPTEMBER 30,
1997
Revenues. The Company's revenues for the six months ended September 30,
1998 totaled $51.3 million, an increase of $536,000 or 1.1% over revenues of
$50.8 million for the six months ended September 30, 1997. Revenues of the COHR
MasterPlan segment rose 2.5% to $40.6 million in the six months ended September
30, 1998 from $39.6 million in the same period last year. An increase in COHR
MasterPlan contract revenues was partially offset by a decrease in equipment
sales. The Purchase Connection segment, which consists primarily of the
Company's group purchasing organization (GPO) but includes other ancillary
businesses, experienced a decline in revenues of 4.0% to $10.7 million in the
six months ended September 30, 1998 from $11.2 million in the same period last
year. Revenue growth in the GPO was more than offset by declines in the
ancillary businesses, one of which was the claims management software business
slated for disposition.
Direct Operating Expenses. The Company's direct expenses for the six months
ended September 30, 1998 totaled $37.9 million, which represented an increase of
$2.7 million or 7.8% over the six months ended September 30, 1997 total of $35.2
million. This increase was primarily attributable to higher than anticipated
spending on outsourced services related to COHR MasterPlan contract revenues.
Direct operating expenses as
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a percentage of revenues for the six months ended September 30, 1998 increased
to 73.9% from 69.2% for the six months ended September 30, 1997.
Gross Margin. The Company's gross margin for the six months ended September
30, 1998 totaled $13.4 million, a decrease of $2.2 million or 14.1% from the six
months ended September 30, 1997 total of $15.6 million. Gross margin as a
percentage of revenues decreased to 26.1% for the six months ended September 30,
1998 from 30.8% for the six months ended September 30, 1997.
Selling, General and Administrative Expenses. The Company's selling,
general and administrative expenses for the six months ended September 30, 1998
totaled $16.3 million, a decrease of $1.0 million or 5.9% from the six months
ended September 30, 1997 total of $17.3 million. The decrease was primarily
attributable to lower personnel and administrative expenses resulting from the
Company's ongoing cost-reduction program, which were partially offset by higher
professional outside services and insurance costs. As a percentage of revenues,
selling, general and administrative expenses decreased during the six months
ended September 30, 1998 to 31.7% from 34.1% during the six months ended
September 30, 1997.
Special Charges. Special charges of $3.6 million for the six months ended
September 30, 1998 consisted of the write-down of refurbishment parts inventory
not sold separately and fixed assets related to a refurbishment operation to be
closed, disposition costs and the write-down of assets related to a claims-
management software business to be sold and severance costs for those officers
and employees who were terminated or removed from office by the Company and so
notified during the six months ended September 30, 1998.
Operating Loss. The Company's operating loss for the six months ended
September 30, 1998 totaled $6.5 million, an increase of $4.8 million over the
operating loss for the six months ended September 30, 1997 of $1.7 million. The
operating loss as a percentage of revenues for the six months ended September
30, 1998 was 12.7% compared to 3.3% for the six months ended September 30, 1997.
Income Tax Benefit. The Company recognized no income tax benefit for the
six months ended September 30, 1998 due to the Company's being in a net
operating loss carryforward position. The income tax benefit for the six months
ended September 30, 1997 was $396,000. The Company's effective tax benefit rate
was 34.4% for the six months ended September 30, 1997.
Net Loss. The Company's net loss for the six months ended September 30,
1998 totaled $6.1 million, an increase of $5.4 million from the net loss for the
six months ended September 30, 1997 of $754,000. As a percentage of revenues,
the net loss was 11.9% for the six months ended September 30, 1998 compared to
1.5% for the six months ended September 30, 1997.
THREE MONTHS ENDED SEPTEMBER 30, 1998, VERSUS THREE MONTHS ENDED SEPTEMBER
30, 1997
Revenues. The Company's revenues for the three months ended September 30,
1998 totaled $24.8 million, a decrease of $1.2 million or 4.5% from revenues of
$26.0 million for the three months ended September 30, 1997. The decline in
revenues was attributable primarily to operations that were either disposed of
or identified for closure or sale during the past two quarters. The COHR
MasterPlan segment generated revenues of $19.8 million in the three months ended
September 30, 1998, compared to $20.4 million in the same quarter last year. An
increase in COHR MasterPlan contract revenues was more than offset by a decrease
in equipment sales. The Purchase Connection segment, which consists primarily of
the Company's group purchasing organization (GPO) but includes other ancillary
businesses, produced revenues of $5.0 million in the three months ended
September 30, 1998, compared to $5.6 million in the same quarter last year.
Revenue growth in the GPO was more than offset by declines in the ancillary
businesses, one of which was the claims-management software business slated for
disposition.
Direct Operating Expenses. The Company's direct expenses for the three
months ended September 30, 1998 totaled $19.3 million, which represented an
increase of $1.3 million or 7.1% over the three months ended September 30, 1997
total of $18 million. This increase was primarily attributable to higher than
anticipated spending on outsourced services related to COHR MasterPlan contract
revenues. As a percentage of revenues,
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direct operating expenses increased to 77.7% for the three month period ended
September 30, 1998 from 69.3% for the three months ended September 30, 1997.
Gross Margin. The Company's gross margin for the three months ended
September 30, 1998 totaled $5.5 million, a decrease of $2.5 million or 30.7%
from the three months ended September 30, 1997 total of $8.0 million. Gross
margin as a percentage of revenues decreased to 22.3% for the three months ended
September 30, 1998 from 30.7% for the three months ended September 30, 1997.
Selling, General and Administrative Expenses. The Company's selling,
general and administrative expenses for the three months ended September 30,
1998 totaled $7.6 million, a decrease of $1.2 million or 13.4% from the three
months ended September 30, 1997 total of $8.8 million. This decrease was
primarily attributable to lower personnel and administrative expenses resulting
from the Company's ongoing cost-reduction program which were partially offset by
higher professional outside services and insurance costs. As a percentage of
revenues, selling, general and administrative expenses decreased during the
three months ended September 30, 1998 to 30.7% from 33.9% during the three
months ended September 30, 1997.
Special Charges. Special charges of $3.1 million for the three months ended
September 30, 1998 consisted primarily of the write-down of refurbishment parts
inventory not sold separately and fixed assets related to a refurbishment
operation to be closed and disposition costs and the write-down of assets
related to a claims-management software business to be sold.
Operating Loss. The Company's operating loss for the three months ended
September 30, 1998 totaled $5.2 million, an increase of $4.4 million over an
operating loss for the three months ended September 30, 1997 of $832,000. The
operating loss as a percentage of revenues for the three months ended September
30, 1998 was 21.2% compared to 3.2% for the three months ended September 30,
1997.
Income Tax Benefit. The Company recognized no income tax benefit for the
three months ended September 30, 1998 due to the Company's being in a net
operating loss carryforward position. The income tax benefit for the three
months ended September 30, 1997 was $192,000. The Company's effective tax
benefit rate was 36.5% for the three months ended September 30, 1997.
Net Loss. The Company's net loss for the three months ended September 30,
1998 totaled $5.0 million, an increase of $4.6 million over the net loss for the
three months ended September 30, 1997 of $399,000. As a percentage of revenues,
the net loss was 20.3% for the three months ended September 30, 1998 as compared
to 1.5% for the three months ended September 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $22.8 million and $28.2 million as of
September 30, 1998 and March 31, 1998, respectively. The Company had cash and
cash equivalents of $12.8 million and $14.0 million at those same respective
dates.
Net cash used in operating activities amounted to $821,000 and $4.1 million
for the six months ended September 30, 1998 and 1997, respectively. The factors
contributing to the negative cash flow from operations for the six months ended
September 30, 1998 were the net loss (offset in part by non-cash charges for
depreciation and amortization, provision for losses on accounts receivable and
certain special charges) and a reduction in trade accounts payable which was
balanced against the receipt of a $2.7 million income tax refund and a $2.2
million reduction in accounts receivable.
Net cash (used in) provided by investing activities was $(70,000) and $1.7
million in the six months ended September 30, 1998 and 1997, respectively. There
were no acquisitions of new businesses for the six months ended September 30,
1998 as compared to spending on acquisitions of $1.3 million for the same period
in the prior year. The Company also had sale of investments of $4.0 million for
the six months ended September 30, 1997.
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Cash used in financing activities for the repayment of long-term debt and
notes payable totaled $309,000 for the six months ended September 30, 1998 as
compared to $2.1 million for the six months ended September 30, 1997.
At present, the Company does not have a credit facility or line of credit.
The Company believes that its cash on hand and anticipated cash flows will be
sufficient to meet the Company's operating needs for the next twelve months. The
Company has not paid dividends since its initial public offering in February of
1996.
The Company is subject to various commitments and contingencies. See Part
II, Item 1 "Legal Proceedings" and "Additional Factors Affecting Operating
Results" below.
INFLATION
The Company believes that its operations have not been materially adversely
affected by inflation. The Company expects that salary and wage increases for
its skilled staff will continue to be higher than average wage increases, as is
common in the Company's industry.
ADDITIONAL FACTORS AFFECTING OPERATING RESULTS
The Company's business is subject to a number of risks, some of which are
beyond the Company's control. In addition to the factors described herein, the
Company has identified in "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Risk Factors" in its Annual Report on
Form 10-K for the fiscal year ending March 31, 1998, important factors that
could cause actual results to differ materially from those projected in any
forward-looking statements the Company may make from time to time.
RISKS ASSOCIATED WITH MANAGEMENT OF DATA AND YEAR 2000 ISSUES
The Company's business is dependent upon its ongoing ability to obtain,
process, analyze and manage data and to maintain and upgrade its data processing
capabilities. Interruption of data processing capabilities for any extended
period of time, the failure to upgrade data services, difficulties in converting
data and information systems after acquisitions, loss of stored data,
programming errors or other computer programs could have a material adverse
effect on the Company's business. As the year 2000 approaches, an issue ("Year
2000 Issue") affecting many companies has emerged regarding how existing
application software programs and operating systems can accommodate the date
value as described herein. In brief, many existing applications in the
marketplace and some proprietary database applications developed by the Company
were designed to use a two-digit data position to represent the year (e.g., "98"
is stored on the systems and represents the year 1998). The Company has
initiated an assessment of its own computer systems and other date-sensitive
electronic systems, such as security systems. The financial and general ledger
systems of the Company are substantially compliant already; the cost to upgrade
these systems is not expected to be material. The Company expects the year 2000
related modifications and conversions to its own systems and software, including
testing, to be substantially completed by December 1998. The Company has also
commenced communications with suppliers, customers, financial institutions and
others with whom it conducts business to assess whether the systems of these
other companies, with which the Company interfaces or on which the Company
relies, will be upgraded on a timely basis or that such systems will not have an
adverse effect on the Company's systems. The Company does not believe that it
will incur a material financial impact from the risk, or from assessing the
risk, arising from the Year 2000 Issues. However, there can be no assurance that
the Company's initial assessment of this risk will be accurate or that the Year
2000 Issue will not materially affect future financial results or future
financial conditions.
Another area of potential risk is with certain medical equipment which
belongs to the Company's customers but which is maintained or serviced by the
Company and has microprocessors with date functionality which could malfunction
in the year 2000. Among other steps, the Company has initiated formal
communications with all of its customers and with all of the major suppliers of
medical equipment to ensure that these third parties are also working to
remediate their own Year 2000 Issues, if applicable. However, the Company is
unable to determine whether the Year 2000 Issue related to customer's medical
equipment which
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is serviced or maintained by the Company will materially affect future financial
results or future financial conditions.
Upon the completion of the Company's assessment of its exposure to the risk
of Year 2000 non-compliance by third parties, the Company will formulate
contingency plans to handle the most likely worst-case Year 2000 scenarios.
Until the assessment is completed, the Company cannot reasonably define what
those scenarios might be.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
None.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company, certain of its present and former officers and directors and
others are named as defendants in four purported class action lawsuits which
allege, among other things, false and misleading statements in various public
disclosures in violation of federal and/or state securities laws. Sherleigh
Associates Inc. Profit Sharing Plan v. Cohr Inc. et al. (Case No. 98-3028 JSL)
was filed in the United States District Court for Central District of California
on or about April 21, 1998. Zabronsky et al. v. Cohr Inc. et al.(Case No.
98-3493 JSL) was filed in the same court on May 6, 1998. Bird v. Cohr Inc. et
al. (Case No. 98-4177 WMB) was filed in the same court on May 27, 1998. Leeds v.
Malhotra et al. (Case No. BC198490) was filed in the Superior Court of the State
of California, Los Angeles County, on April 16, 1998. The plaintiffs in each
action seek to represent a class of purchasers of the Company's common stock
during various time periods between 1996 and 1998.
The plaintiffs in each of the three federal actions filed in the United
States District Court for the Central District of California assert claims of
violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934,
and of certain regulations promulgated thereunder. The plaintiffs in each of the
three federal actions seek unspecified compensatory damages, interest,
attorneys' fees and costs, and injunctive and/or other relief as permitted by
law. The plaintiff in the action filed in California Superior Court asserts
claims of violations of California Corporations Code Section 25400 and 25500.
The plaintiff in that action seeks unspecified compensatory damages, interest,
attorneys' fees and costs, and injunctive and/or other relief as permitted by
law. No class has been certified in any of these actions.
A shareholder of the Company has brought a derivative lawsuit purportedly
on behalf of the Company, alleging breaches of fiduciary duty and related
claims, and naming certain of its present and former officers and directors as
defendants, with the Company as a nominal defendant. This action, which is
entitled Schug v. Chopra et al. (Case No. BC190933) was filed in the Superior
Court for the State of California, Los Angeles County, on May 12, 1998. The
shareholder-plaintiff seeks unspecified compensatory and punitive damages,
disgorgement of profits and gains, attorneys' fees and costs, injunctive relief,
and other relief as permitted by law.
The SEC is conducting an investigation relating to the Company. The Company
understands that the investigation relates to, among other things: (1) the
accuracy of the Company's financial statements and periodic filings with the
SEC; (2) the accuracy of the Company's books and records; (3) the adequacy of
the Company's system of internal accounting controls; and (4) trading of the
Company's securities by certain present or former officers, directors, or
employees, or other persons. In addition, the Nasdaq Listing Investigations, a
division of the Nasdaq Stock Market, has requested from the Company certain
documents in connection with its review of the Restatement and the Company's
compliance with its rules and regulations. The Company is cooperating fully with
the inquiries from all regulatory agencies.
Management is unable to predict at this time the final outcome of the
matters described above or whether the resolution of such matters will
materially affect the Company's results of operations, cash flows or financial
position.
The Company is also involved from time to time in various legal proceedings
incidental to the normal conduct of its business. Management does not believe
that such proceedings are likely, individually or in the aggregate, to have a
material adverse effect on the Company's business.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockhholders (the "Meeting") was held on
August 14, 1998. At the Meeting, Messrs. Stephen W. Gamble, Ronnie J. Messenger,
and Louis Simpson were nominated for election as to the Company's Board of
Directors to serve until the year 2001, and there were no other nominations.
There were present at the meeting, in person or by proxy, holders of 5,870,332
shares of the Company's common stock, 91.25% of the total shares outstanding.
Messrs. Gamble, Messenger, and Simpson were each elected to the Company's Board
of Directors with the vote cast as follows:
NAME OF NOMINEE VOTES FOR VOTES WITHHELD
--------------- --------- --------------
Stephen W. Gamble.......................... 5,850,356 19,976
Ronnie J. Messenger........................ 5,850,356 19,976
Louis Simpson.............................. 5,850,356 19,976
At the Meeting, Deloitte & Touche, LLP was ratified as the Company's
independent public accountants for the Company's fiscal year ended March 31,
1999 with the vote cast as follows:
VOTES FOR VOTES AGAINST ABSTAIN
- --------- ------------- -------
5,860,239 7,243 2,850
There were no other matters approved or ratified at the Meeting.
ITEM 5. OTHER INFORMATION
Mr. Raymond E. List, President and Chief Executive Officer, has agreed in
principle to the terms of a new three-year employment agreement.
On October 15, 1998, Mr. Peter Socha resigned his position as Executive
Vice President, Operations.
As described in the Company's Proxy Statement dated July 24, 1998 for the
Meeting, the Company and Mr. Paul Chopra, the Company's former Chief Executive
Officer, entered into a Standstill Agreement, dated April 3, 1998, pursuant to
which each party has agreed that the passage of time will not waive or prejudice
the rights of either of the parties with respect to the termination of Mr.
Chopra's employment. As of November 10, 1998, the parties extended the period of
the Standstill Agreement, which was to expire November 10, 1998, until January
31, 1999, on substantially the same terms as the prior agreement, except that
Mr. Chopra will be paid $5,000 per month instead of $10,000 per month and agreed
to the cancellation of 182,500 of his 280,000 stock options outstanding.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits included or incorporated herein:
See Index to Exhibits
(b) Reports on Form 8-K:
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COHR INC.
(Registrant)
Date: November 16, 1998 /s/ RAYMOND E. LIST
--------------------------------------
Raymond E. List
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 16, 1998 /s/ DANIEL F. CLARK
--------------------------------------
Daniel F. Clark
Executive Vice President and Chief
Financial Officer
(Principal Accounting and Financial
Officer)
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COHR INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1* Certificate of Incorporation of Registrant
3.2* By-laws of Registrant
3.3** By-laws of Registrant as amended on September 29, 1998
4.1* Form of Warrant to be issued to the Representatives of the
Underwriters
4.2* Form of Registration Rights Agreement between Registrant,
Healthcare Association of Southern California ("HASC") and
Hospital Council Coordinated Programs, Inc
4.3* Specimen Stock Certificate
10.2a Standstill Agreement dated as of April 3, 1998 between
Registrant and Mr. Paul Chopra
10.2b Amendment to Standstill Agreement dated as of November 10,
1998 between Registrant and Mr. Paul Chopra
11 Computation of Net Loss Per Share
27.1 Financial Data Schedule
- ---------------
* Incorporated by reference from Registrant's Registration Statement on Form
S-1, Registration No. 33-80635.
** Incorporated by reference from Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1998 (File No. 0-27506).
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