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CORE INC - 10-K405 - 20000331 - PART_I
PART I
ITEM 1. BUSINESS.
CORE, INC. is a national provider of employee absence management
services to Fortune 500 companies and other self-insured employers, third-party
administrators and insurance carriers. CORE's services include Integrated
Disability Management (which consist of CORE's proprietary
WorkAbility-Registered Trademark- Absence Management program, disability
reinsurance management services, social security disability benefits advocacy,
analytic consulting services, onsite job profiling analysis and workplace risk
management services, and licensing), Peer Review Analysis (which consist of
specialty physician and behavioral health review services), and other services
including Medicare coordination of benefits, health care benefits utilization
review and case management services. CORE's services are designed to prevent
absence, promote early return to work, improve productivity, and manage
disabilities from "day one" through return to work or retirement, without
compromising the quality of health care services provided to patients.
CORE's Integrated Disability Management services include monitoring the
appropriateness of absences and durations under short and long-term disability
plans, family medical leave and similar plans, and workers' compensation
programs, in order to reduce unnecessary absenteeism and its related costs of
wage replacement, hiring and training replacement personnel and lost
productivity. These services are provided through CORE's WorkAbility program,
which uses a proprietary software program developed and supported through the
statistical analysis of disability utilization data collected over a 10-year
period. CORE's WorkAbility program provides an objective, medically based method
for recommending and monitoring employees' return-to-work status. The
WorkAbility program is designed to obtain and analyze relevant medical and
work-related information with the initial onset of the employee's absence and
thus assure that the employee, attending physician and employer all have
reasonable and consistent expectations as to the projected return-to-work date.
CORE's reinsurance and group disability risk management services include
providing marketing, underwriting advice, claims, actuarial and compliance
services to its insurance company clients and risk management expertise for
reinsurers in a reinsurance facility. CORE's social security disability benefits
advocacy program provides assistance to disabled employees with obtaining their
Social Security Disability Insurance benefits.
CORE's Peer Review Analysis program provides pre-certification,
concurrent, appellate, retrospective, medical policy, quality and forensic
independent specialty physician review services for use within utilization
management programs of CORE's insurance company and self-insured corporate
clients. CORE believes its more than 330 Board certified physician reviewers
comprise the largest independent physician review service in the country.
CORE's behavioral health review program provides comparable review service by
psychiatric specialists in specialties such as general, child and adolescent
and addiction psychiatry.
This Annual Report on Form 10-K contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 and
CORE's actual results could differ materially from those contemplated by such
statements. Such statements reflect management's current views, are based on
many assumptions and are subject to risks and uncertainties, including those
described in the subsection entitled "Risk Factors," below.
HISTORY OF CORE
CORE was incorporated in Massachusetts in April 1984 under the name
Peer Review Analysis, Inc. ("PRA") to provide physician-intensive utilization
management services to commercial insurance companies and self-insured
employers. PRA became a publicly held entity in December 1991 with the
completion of an initial public offering.
In March of 1995, PRA completed its merger (the "CMI/PRA Merger")
involving Core Management, Inc., a Delaware corporation ("CMI"). CMI was
incorporated in 1990 to acquire the health and disability cost management
services business (including the WorkAbility program) of Health Data Institute,
Inc., a subsidiary of Baxter International, Inc. In April 1993, CMI acquired the
mental health case management services business of Integrated Behavioral Health,
a California corporation ("IBH"). In July 1995, CORE changed its name from Peer
Review Analysis, Inc. to CORE, INC.
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In October 1995, CORE acquired all the capital stock of Cost Review
Services, Inc. ("CRS"), a regional workers' compensation bill audit firm. In
June 1997, CORE purchased certain of the assets of Social Security Disability
Consultants and Disability Services, Inc. (collectively, "SSDC"), a disability
management services firm which provides social security disability benefits
advocacy and Medicare coordination of benefits. In July 1997, CORE purchased the
assets and certain liabilities of Protocol Work Systems, Inc. ("PWS"), a
provider of job analysis, employee physical agility testing and other loss
prevention services to the workers' compensation market. In March 1998, a
wholly-owned subsidiary of CORE, TCM Services, Inc. ("TCM"), acquired
substantially all of the assets and certain liabilities of Transcend Case
Management, Inc. ("Transcend"), a regional provider of workers' compensation
case management services. In September 1998, CORE acquired all shares of stock
of Disability Reinsurance Management Services, Inc. ("DRMS"), a full-service
reinsurance intermediary manager.
In October 1998, CORE discontinued the operations of CRS. In December
1998, TCM transferred substantially all its assets and certain liabilities to
Transcend following the exercise by Transcend of its option to reacquire the
assets, as described in the Asset Purchase Agreement dated March 17, 1998. In
June 1999, CORE sold the assets of IBH to a non-affiliated party.
CORE's executive offices are located at 18881 Von Karman Avenue, Suite
1750, Irvine, California 92612, and its telephone number at that address is
(949) 442-2100.
"WorkAbility," "Peer Review Analysis," "PRA" and "CORE" are registered
trademarks of CORE.
INDUSTRY OVERVIEW
In recent years, large corporations have begun to recognize the
magnitude of the annual cost of occupational and non-occupational injuries and
illnesses, which according to one 1999 study represented 12.8% of total payroll
costs. These expenses present a significant challenge to corporate productivity.
CORE estimates that total U.S. costs due to injury and illness-related workplace
absence will reach $340 billion for the year 2000, double what they were in
the early 1990's.
According to industry sources, disability costs including workers'
compensation expenditures grew at an average annual rate of over 18% from 1990
through 1996, and CORE believes this growth is continuing. CORE estimates that
workers' compensation costs were approximately $80 billion in 1998. Despite the
general awareness of this high level of workers' compensation costs,
expenditures for group disability (including short-term disability and long-term
disability plans), sick pay and family leave represent a far larger share of
total expenditures estimated at 60% to 75% of total disability costs. Two
driving factors behind the increase in group disability and workers'
compensation expenditures are workplace and legislative changes. Work-related
changes that have contributed to rising benefits costs include the aging of the
active workforce, increased volatility in hiring and layoffs (which often
results in increased benefits utilization) and increased diagnoses of repetitive
stress-related injuries. Also contributing to rising disability benefit costs
and awareness are legislative changes such as the Family and Medical Leave Act
and the Americans with Disabilities Act, which mandate accommodation for family
circumstances and disabled workers, which both have a growing impact on
accommodation and lost time issues.
In response to these rising costs, a variety of insurance companies,
managed care organizations and self-insured employers have used various cost
reduction techniques, often borrowed from group health managed care, including
securing pricing concessions from providers, using case management tools, and
implementing "gatekeepers" as a means to control utilization. However, these
managed care initiatives focus almost entirely on medical costs generated after
a disability claim is received, not on the more significant productivity (lost
time) impacts of employee ill health. Furthermore, work absence duration, and
consequently disability payments, have traditionally been driven by the decision
of the treating physician. While workers' compensation cases are typically
attended by an occupational specialist, employees with non-occupational
disabilities tend to utilize their own primary care physician who have little or
no interaction with the employer and limited sensitivity to productivity (lost
time) issues.
As traditional managed care tools become standard industry-wide, they
are generating diminishing marginal savings for employers, who must find more
aggressive and sophisticated utilization review mechanisms to yield further
savings. In addition, the new-found awareness of the additional costs associated
with workplace absence has brought with it an increasing demand for cost saving
strategies that address both health care expenditures and the productivity
impact of an employee's ill health. Tight labor markets and global competition
have focused Corporate America on achieving real productivity gains. With the
importance of each job magnified, employers are actively looking for new tools
to help control
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workplace absence. Until recently, recognition and management of these
productivity costs have been impaired by their difficulty in measurement, the
fragmentation of responsibilities for disability programs within human
resources and risk management departments of most corporations and the
historical focus on group health managed care.
While a small group of companies is emerging that are applying managed
care principles to the workers' compensation industry, historically there have
been few, if any, companies focusing on the provision of managed care techniques
to the broader disabilities market. With the support of its analytic and
physician services, CORE's products provide employers with an integrated and
comprehensive approach to disability benefits management.
SERVICES AND PRODUCTS
CORE offers services and products designed to assist CORE's clients
control and monitor disability, workers' compensation and health care costs
without compromising the quality of care or services available to patients.
CORE's service lines include:
- Integrated Disability Management,
- Peer Review Analysis,
- Exiting/exited services, and
- Other service lines.
INTEGRATED DISABILITY MANAGEMENT
Integrated Disability Management includes the following products and services:
WorkAbility Absence Management Program
Disability Reinsurance Management Services
Social Security Advocacy
CORE Analytic
Protocol Work Systems
Licensing
WORKABILITY ABSENCE MANAGEMENT PROGRAM
CORE estimates that total direct and indirect expenditures for
medically-related workplace absence are 25% of the related to workers'
compensation payments. The cost of absenteeism includes wage replacement, the
costs of hiring and training replacement personnel and lost productivity.
CORE's WorkAbility Absence Management Program provides for the monitoring of
the appropriateness of absences and their duration under short and long term
disability plans, family medical leave and similar plans, and workers'
compensation programs. The program is focused on reducing unnecessary
absenteeism and the costs associated with such absences, thereby improving
workplace productivity.
The WorkAbility program is built on the foundation of a proprietary
software system developed by CORE and maintained through the statistical and
clinical analysis of disability utilization data. The WorkAbility program allows
CORE to work with employee's physicians to establish expected absence duration
using duration guidelines that are specific and objective. These guidelines are
packaged in a software module called WorkAbility On-Line Medical Protocols
(WOMP). WOMP is proprietary to CORE. The WorkAbility program, which contains
WOMP, was developed along six key absence management concepts:
DAY ONE INTERVENTION. Unlike retrospective disability review which is
triggered only after an extended employee absence or after significant
costs have been incurred, the WorkAbility program is designed to
facilitate absence management from the first day of the absence (or
sooner, in the case of planned absences such as elective surgery or
childbirth). This proactive approach allows return-to-work
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expectations to be set early with the doctor, the patient and the
workplace, and supports efforts to return patients to work on modified
hours or with modified duties.
PROPRIETARY TECHNOLOGY AND DATABASE. CORE began developing its
WorkAbility program in 1986. The WOMP protocols are regularly updated
using COREbase, a database of more than 650,000 disability and workers'
compensation records collected by CORE over a period of more than 10
years. This database-driven updating process allows CORE to field
absence duration guidelines that are based on actual return-to-work
experience. The database continues to grow as CORE adds more clients,
and as clients integrate across more lost time benefits.
CLINICAL COLLEGIALITY AND CREDIBILITY. The WorkAbility program is based
on conducting a clinically credible dialog with an employee's physician
to reach agreement on an appropriate return-to-work plan. The clinical
depth and complexity of the WOMP protocols support this activity by
providing a foundation of clinical credibility. Our approach is focused
on making this dialog a collegial interaction.
CONCURRENT REVIEW. In addition to the initial recommendation of an
appropriate return-to-work plan, the WorkAbility program includes
ongoing review of the progress of the case. The information from these
subsequent reviews add to the cumulative database driving the
development of the protocol system, thereby ensuring that the
guidelines serve both the initial review, as well as the sequential
reviews over time as an illness or injury progresses toward return to
work.
COMPLETE WORKFORCE COVERAGE. The WorkAbility program is designed to
cover all workplace absences, not only the longer term and more costly
absences. The WOMP protocols cover over 10,000 clinical endpoints for
medical conditions and surgical procedures. The breadth of the
protocols ensures consistent return-to-work planning, regardless of
whether the condition causing the absence is a result of workplace
injury covered by workers' compensation or an injury occurring outside
of the workplace covered by a disability plan.
FLEXIBILITY. The system is designed to allow CORE to customize the
product and services to meet client needs and culture. The guidelines
are based on a statistical distribution so that a client can choose how
to monitor and to manage durations. The system generates communications
that are all customized to the client's benefit plan. In addition,
depending on the technical capability of the client, other modalities
such as e-mail, intranet and internet can be used to disseminate
information on claim approvals and status.
The WorkAbility software system is used by customer service
representatives and registered nurse reviewers to assess each disability claim
in the early stages of an employee's absence. Under the WorkAbility program, the
employee contacts CORE and the employee's eligibility for the benefit is
assessed using information previously supplied by the employer and loaded onto
CORE's system. Once eligibility is determined, CORE's nurse reviewer contacts
the employee's physician or office staff (depending on the severity of the
case). The nurse reviewer enters information on the diagnosis and severity of
the condition into CORE's proprietary WorkAbility system. The return-to-work
plan is established by the nurse using the WorkAbility program's automated
clinical protocols. The protocols consider such factors as the employee's age
and general health, job requirements, symptoms and severity of the condition,
diagnosis of the attending physician, treatment plan, medical procedure(s)
performed, prognosis for recovery and comorbid factors in establishing a
recommended absence duration.
To assure consistency, reviews are guided by program standards based on
both statistical and clinical analysis and, in certain circumstances, are
referred to physicians for further review. If CORE and the attending physician
agree with respect to the anticipated absence duration, letters stating the
expected return-to-work date are sent to the employee and physician on the date
the review is completed. The employer is notified of the return-to-work date
electronically. If the employee's physician disagrees with the suggested
return-to-work plan (as occurs in less than 15% of the cases), the case is
referred to a WorkAbility physician advisor who will discuss the case with the
treating physician. In the event that they cannot reach agreement, the case is
referred to the employer for consultation to determine whether or not an
independent medical examination (IME) should be requested. IMEs are required in
fewer than 2% of the cases. If the employee's condition or medical treatment
changes during the absence or the employee is not ready to return to work on the
expected date, a request for an extension of the absence is reviewed on a
case-by-case basis using the WOMP duration guidelines with the additional
information provided by the attending physician and/or patient.
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In general, CORE's WorkAbility services are advisory only. The
attending physician and the patient remain responsible for determining the
work-absence period and all other aspects of the plan of treatment. Generally,
the employer or other payor is responsible for making all decisions with respect
to the payment or denial of benefits under the applicable benefits plan. Certain
clients, including Bell Atlantic Corporation, have delegated to CORE the
authority to decide whether an employee is eligible for benefits under the
client's plan.
In addition to direct absence management activities, the WorkAbility
program provides to clients reports that track utilization and cost trends and
return-to-work plan performance. In addition to the standard report package,
clients can obtain additional services, such as adding health care claims to
provide a more complete picture of the clinical factors and costs associated
with disability. Clients with integrated benefits often customize the reporting
packages to present their utilization separately by plan (e.g. short-term
disability, long term disability) as well as on a combined basis.
DISABILITY REINSURANCE MANAGEMENT SERVICES
DRMS, acquired by CORE in September 1998, is a reinsurance intermediary
providing turnkey disability reinsurance and management services for insurance
company clients marketing other forms of employee benefit products such as
medical, dental, and group life insurance. DRMS provides a comprehensive array
of services designed to increase its clients success at marketing disability
products. These services include strategic planning, sales and marketing,
product development, actuarial, underwriting, claims management and compliance
services. DRMS' customer-focused team uses proprietary systems to provide
creative solutions and day-to day decisions quicker and more efficiently than
its competitors.
As a reinsurance intermediary, DRMS does not assume insurance risk.
Reinsurance risk protection to DRMS' clients is provided through the Disability
Alliance for Reinsurance Treaties ("DART"). The lead reinsurer for DART assumes
the risk from DRMS clients and passes on portions of it to a group of
participating reinsurers. In addition to managing the reinsurance risk, DRMS
provides accounting and administrative services to DART.
During 1999, DRMS began providing additional long-term disability
services to CORE customers. Through DRMS, CORE also provides an insurance option
to CORE clients. Finally, DRMS' network of insurance contacts bring
opportunities for CORE to provide services to insurance carriers.
SOCIAL SECURITY ADVOCACY
CORE's social security disability benefits advocacy program includes
claim file reviews, auditing, designing and implementing Social Security
assistance programs, and representation and assistance with Social Security
claims and appeals. CORE's model is unique in that it integrates all aspects of
the Social Security process, producing a streamlined, efficient and effective
service.
CORE ANALYTIC
In addition to the services provided to WorkAbility clients, CORE
Analytic provides data analysis and consulting services directly to large
corporate clients. These services include in-depth customized information
concerning their disability and health care costs and utilization experience.
Health care costs, disability costs and workers' compensation costs are often
under separate departments in a large employer (human resources, benefits and
risk management), which has historically impaired corporations' ability to
recognize the magnitude of, and to manage, these costs. The basic objectives of
CORE's Analytic services are to help employers and insurers obtain better value
for their disability, workers' compensation and health care expenditures with a
company's specific goals in mind. CORE assists in identifying the best means to
reduce the total costs of these benefits or slow the rate of increase, enhance
the appropriateness and quality of care, predict future benefit costs and
increase the return on investment from managed care programs. CORE's Analytic
consulting services can coordinate and analyze information on a company-wide
basis and use the client's information and CORE's proprietary disability and
medical cost data analysis methodologies to simulate changes in a benefit plan's
structure and the resulting impacts on overall benefit program cost. For
example, CORE serves as a data partner to several Fortune 500 companies and
provides quarterly "CORE Impact Reports" on integrated claims experience of the
client covering disability, workers' compensation and group health benefits.
PROTOCOL WORK SYSTEMS
The JobSafe program of CORE's Protocol Work Systems division provides
on-site job profiling and functionality assessments in a program that compares
the physical agility of each worker with the actual demands of the job to create
a
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safer working environment. The JobSafe program is tailored to each client's
specific facility to help ensure compliance with the Americans with Disabilities
Act, Occupational Safety Health Administration regulations and quality control
requirements of ISO 9000. The program begins with an on-site tour of the
client's facility. The tour is followed by a meeting with supervisors,
interviews with employees, and the collection of measurement and weight
statistics. Job descriptions then are created, videotapes are produced with
descriptive commentary for each job, and finally, physical agility testing of
each employee is conducted. The process culminates with a compilation of
information for the client, along with instructions on how to operate the
program.
LICENSING
In addition to the key role the WOMP protocols plays within the
WorkAbility software system, the WOMP protocols have also been licensed by CORE
to third parties as a separate product. These WorkAbility protocols are updated
annually to, among other things, reflect recent advancements in medical
technology and procedures, and to update the recommended disability durations
using the collective experiential data collected by CORE through its services to
clients.
PEER REVIEW ANALYSIS
Peer Review Analysis includes the following products and services:
Physician Review Services
Behavioral Health Review
PHYSICIAN REVIEW SERVICES
CORE's independent specialty physician review program, known
commercially as Peer Review Analysis or PRA, provides pre-certification,
concurrent, appellate, retrospective, medical policy, quality and forensic
physician review services for use with existing utilization management
programs of clients, including insurance carriers that service the group
health, disability and workers' compensation markets, and other managed care
companies. CORE believes its more than 330 Board certified physician
reviewers comprise the largest independent physician review organization in
the country. CORE's consulting relationship with this large base of
physicians has positioned CORE to offer an independent external appeal review
service, which is mandated under several state laws and generally requires
specialty-matched reviews. CORE believes that appellate review is one of the
growing sectors of the otherwise mature health care utilization management
industry.
When a client's nurse reviewer determines that a case does not meet
the client's established criteria, the nurse reviewer will forward a referral to
CORE. The referral describes the principal diagnosis of the patient and the
reason for referral for physician review. In most instances the reason for
referral is based upon a question of medical necessity or therapeutic benefit of
a proposed treatment plan. CORE's independent physician reviews the case
information, which will have been previously entered into CORE's data processing
systems, and then telephones the attending physician to ascertain any additional
clinical data, the attending physician's rationale for the proposed treatment
plan or the proposed length of hospital stay. Based on discussions with the
attending physician, including, when appropriate, discussions of possible
alternative treatment plans, and using clinical judgment as well as criteria
based on national norms, CORE's physician makes a recommendation concerning the
appropriateness of the proposed or revised treatment plan.
CORE then notifies its client of its recommendation regarding the
medical necessity or appropriateness under the client's health care benefit plan
of the proposed treatment plan, hospitalization or length of stay. If the
proposed hospitalization is not certifiable as such under the plan, the payor
typically denies or reduces the payment of benefits for the proposed
hospitalization. The decision of the payor may be appealed by the patient or the
attending physician. In such event a second CORE independent physician of the
same specialty who was not involved in the original decision will review the
case on the merits of the clinical criteria or any additional information.
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Reviews under CORE's specialty physician review program are managed
from CORE's offices, and the majority of all review decisions are completed
within 24 hours of referral. In most instances, CORE's physician review services
are advisory in nature. Determinations as to the payment or denial of benefits
are typically made by the third party payor, and the patient and the attending
physician make decisions as to the patient's medical treatment.
CORE is certified by the American Accreditation HealthCare Commission
("AAHC/URAC") to perform various utilization review functions. AAHC/URAC is a
nationally recognized organization that has developed standards to encourage the
availability of effective, efficient and consistent utilization review of health
care services throughout the United States. One of AAHC/URAC's objectives is to
establish standards for the procedures used to process appeals of utilization
review determinations. Many of CORE's clients rely on CORE's specialty physician
and behavioral health review services to comply with AAHC/URAC's appellate
procedures.
BEHAVIORAL HEALTH REVIEW
CORE's behavioral health review program provides psychiatric review
services similar to CORE's specialty physician review services by psychiatrists
who are supported by a team of multi-specialty physicians. CORE's independent
psychiatrists include specialists in various psychiatric specialties such as
general psychiatry, child and adolescent psychiatry and addiction psychiatry.
CORE believes that its multi-specialty psychiatrists and CORE's emphasis on
intensive specialty review distinguish it from psychiatric review performed by
other utilization management firms and better addresses the more subjective
nature of many behavioral health reviews.
EXITING/EXITED SERVICES
Operations within the exiting/exited services line ceased in 1999. The line had
included the following products and services:
Regional workers' compensation field case management (CRS and TCM)
Regional workers' compensation bill audit (CRS)
Integrated Behavioral Health (IBH)
On June 21, 1999, CORE sold the assets of IBH, a provider of mental
health case management services, to a non-affiliated third party. This sale
completed our strategic decision to focus on building CORE's leadership position
in employee absence management services and to exit certain businesses in which
market leadership or sufficient profit margins did not appear to be attainable.
Both CRS and TCM were exited during 1998.
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OTHER SERVICE LINES
Other service lines includes the following products and services:
Utilization Review and Case Management
Medicare Coordination of Benefits
UTILIZATION REVIEW AND CASE MANAGEMENT
CORE provides medical and behavioral health utilization review and case
management services to Fortune 500 companies and other self-insured employers,
third-party administrators ("TPAs") and an insurance carrier. CORE's services
are designed to evaluate the medical necessity and appropriateness of health
care services prescribed for participants in health care benefits plans,
including hospital admissions, proposed length of hospital stay, use of
outpatient facilities and other treatment alternatives. In cases of high cost
diseases, conditions or catastrophic illnesses, CORE may also render case
management services of individual cases in order to assure that cost-effective
treatment alternatives are utilized. Clients may elect to contract for all of
the services offered under the programs or, in the alternative, may elect to
contract for only certain portions of services offered.
CORE provides its utilization review services and case management
services through a staff consisting primarily of registered nurses and
physicians. Clients which utilize CORE's utilization review programs advise
their participants of review requirements including the requirement to contact
CORE within a specified period of time. From these contacts, CORE's medical and
behavioral health review staff gathers the necessary personal and medical
information and enters this information into CORE's review system. Based on this
information and using CORE's review criteria, CORE conducts its review.
For cases requiring intensive case management, CORE assigns a nurse
case manager to the case. These nurse reviewers work with providers and insurers
to provide the appropriate health care benefits to patients facing catastrophic
or chronic illness.
CORE plans to continue to offer these services to support our existing
clients, especially those who have integrated their medical and disability case
management programs. Our ability to manage catastrophic cases with an absence
management perspective continues to provide value to CORE by building
relationships with providers and expanding our clinical credibility.
MEDICARE COORDINATION OF BENEFITS
Through its SSDC subsidiary, CORE provides services to help large
employers identify those employees or retirees who should be receiving Medicare
benefits. CORE then assists the client in establishing or documenting Medicare
primacy, identifying the health care plan payments and costs that can be offset
by Medicare, and implements an overpayment recovery program.
Because this product is geared toward the large employer client, one of
CORE's target markets, CORE will continue to market and provide these services.
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CLIENTS AND MARKETING
CORE has over 350 customers across the country, including numerous
Fortune 500 companies. Revenues from Fortune 500 companies accounted for
approximately 69% of total revenues in 1999. The following is a selected list of
CORE's clients which, CORE believes, is representative of its overall client
base:
- BELL ATLANTIC CORPORATION
- BMW
- BRISTOL-MYERS SQUIBB
- CHAMPION INTERNATIONAL CORPORATION
- CNA INSURANCE COMPANY
- COMMONWEALTH OF VIRGINIA
- DAIMLERCHRYSLER
- DANA CORPORATION
- GENERAL ELECTRIC CORPORATION
- GTE COMMUNICATIONS SYSTEM CORPORATION
- LIBERTY MUTUAL INSURANCE COMPANY, INC.
- MEDICAL MUTUAL OF OHIO
- MOTOROLA CORPORATION
- PCS HEALTH SYSTEMS, INC.
- RELIASTAR FINANCIAL CORP.
CORE markets its services primarily to national, direct accounts,
including self-insured employers, and through group health and disability
insurance carriers and third party administrators.
During 1999 and 1998, Bell Atlantic Corporation represented 19% and
21%, respectively, of total revenues. No other client represented more than 10%
of total revenues. During the years ended December 31, 1999 and 1998, CORE's
five largest clients represented 43% and 45%, respectively, of total revenue.
CORE typically enters into service agreements with its clients.
These agreements have automatically renewable successive terms of between one
and three years, but are generally terminable upon 60 to 90 days notice. They do
not generally provide for minimum payments and are usually non-exclusive.
Certain contracts include provisions that the fees payable to CORE can vary
based upon CORE's performance and the savings achieved by the client under the
contract.
For many of its programs, CORE charges its clients a "capitated fee"
(i.e., a fixed per employee per month ("PEPM") fee or a fixed per employee per
quarter fee). The amount of this fee varies depending on the number and type of
review programs selected by the client and the size of the client. For other
services, CORE charges fees on an hourly, per case, percentage of risk premium
(for turnkey and reinsurance management services) or percentage of cost recovery
(for social security advocacy and Medicare programs) basis rather than a
capitated basis. Notwithstanding the outcome of CORE's review, decisions as to
the payment or denial of benefits and eligibility or coverage under the benefit
plan are typically made by the administrator of the participant's health care
plan, not by CORE.
The patient and the attending physician always make decisions as to the
patient's medical treatment, not CORE. However, for several clients, CORE
accepts fiduciary responsibility for their disability benefit programs. CORE's
confidence in its clinical decisions permits it to assume these
responsibilities. CORE charges increased fees to those clients for which it
serves as a plan fiduciary.
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INFORMATION SYSTEMS
CORE's key products and services are supported by administrative
software that was developed and is maintained by in-house staff. Each of these
software programs incorporates e-mail and other external data exchange features
for client and remote user communications.
CORE's wide area network ("WAN") is designed to support the
organization's rapid growth. A scalable architecture has provided flexibility,
allowing for timely deployment of upgraded facilities in response to the
business' needs. Additionally, CORE provides for alternative backup WAN
capability that will assure continuous business operations during network
outages. Another ongoing initiative within information systems development is
the continual implementation of available information technology to
significantly enhance the productivity of all CORE's key products and services.
This includes, specifically, the integration of imaging, network fax computer
integrated telephony, and Internet technologies into the workflow. Additionally,
CORE's largest WorkAbility client has direct access to real-time information via
an Extranet. This "self service" model application provides for both the
initiation, as well as, the checking of status on claims on a near 24 hours by
seven days per week basis.
The WorkAbility-Plus system, CORE's multi-tier, client/server
technology based application, has provided for the ability to migrate rapidly
into expanding business opportunities. CORE continues to expand its industry
leading capabilities in regard to the family medical leave ("FML") business.
Totally integrated with other absence management capabilities, the FML module
provides robust capabilities tailored to Federal guidelines as set forth in the
Family and Medical Leave Act and other state sponsored legislation. This
architecture is designed to allow for client server operation and rapid feature
development. Additionally, CORE continues to evolve the system capabilities in
regard to the management and payment of long-term disability claims. Integration
with software developed by CORE's subsidiary, DRMS, was completed in 1999. The
WorkAbility-Plus application utilizes software architecture that provides
maximum flexibility in attaching industry-standard databases to support growth
and varying client needs. CORE believes that this architecture will support the
integration of additional absence management capabilities.
Funding for the initial development of CORE's WorkAbility software
(original version) was provided by Chrysler Motor Corporation ("Chrysler") in
exchange for a perpetual, non-exclusive, non-transferable license to use such
software. Ownership of the WorkAbility software has been retained by CORE, which
has the exclusive right to market the software to others.
GOVERNMENT REGULATION; HEALTH CARE REFORM
A number of states, including several of those in which CORE transacts
business, have extensive licensing and other requirements applicable to CORE's
business. Additionally, CORE's clients, including insurance companies, are
subject to regulations that indirectly affect CORE.
The laws of many states regulate the provision of health care
utilization management services. These regulations generally require the
provider of utilization management services to be reasonably accessible by
telephone to doctors and patients, to have adequately qualified personnel, to
provide physicians and patients a procedure to appeal determinations of
non-reimbursement, and to maintain the confidentiality of patient records. Other
states regulate the provision of claims administration services and preferred
provider organizations which may affect CORE. CORE believes it is in compliance
with all applicable regulations governing the provision of managed health care
services in the states where CORE is subject to such regulations, as currently
in force and as currently interpreted.
CORE's operations depend upon its continued good standing under
applicable laws and regulations. To date, the cost of compliance has not been
material. Such laws and regulations, however, are subject to amendment or new
interpretation by authorities in each jurisdiction. If amended regulations or
new interpretations of federal or state laws or regulations arise, CORE, may
have difficulty complying without significant expense or changes in operations.
CORE is unable to predict what additional government regulations, if any,
directly or indirectly affecting its business may be promulgated. Although CORE
believes that it is currently in compliance with applicable regulations in those
states in which it is subject to regulation, CORE's business could be adversely
affected by a revocation of or failure to obtain required licenses and
governmental approvals, a failure to comply with applicable regulations or
significant changes in regulations applicable to its clients.
12
In addition to existing government health care regulation, there have
been numerous initiatives at the federal and state levels, as well as by
third-party payers, for comprehensive reforms affecting the payment for and
availability of health care services. CORE believes that such initiatives will
continue during the foreseeable future. CORE is unable to predict what, if any,
reform initiatives may be adopted, or what effect, if any, their adoption may
have on CORE.
COMPETITION
CORE presently competes in two different markets: (1) managed
disability and workers' compensation and (2) health care utilization management.
The managed disability and workers' compensation market is a developing
market, which is highly competitive. Competitors include both new companies
focused solely on the workers' compensation market and large established
disability insurance carriers who have traditionally dealt with disability from
an underwriting rather than an employee productivity perspective. Some of the
competitors are significantly larger and have greater financial and marketing
resources than CORE. CORE competes on the basis of quality and
cost-effectiveness in this market, and CORE believes that its proprietary
disability management protocols and database of clinically defined disability
episodes give it a significant competitive advantage.
The health care utilization management market is fragmented but is
consolidating rapidly as national health care reform and other forces drive
independent utilization review and cost management firms into niche markets or
to consolidation with large insurance carriers and provider groups. The health
care utilization management market is also highly competitive. Competitors
include large established insurance carriers and large managed care
organizations. Some of the competitors are significantly larger and have greater
financial and marketing resources than CORE. CORE competes on the basis of
quality, cost-effectiveness and service.
EMPLOYEES AND PHYSICIAN CONSULTANTS
In addition to its available staff of over 330 physician consultants
covering the major medical specialties, CORE has over 625 employees. Generally,
CORE's physician consultants are paid by CORE on a per hour or per case review
basis. Almost all of CORE's physicians are retained by CORE as independent
contractors and also maintain active practices. The majority of CORE's
physicians work between 5 and 20 hours per week for CORE. Compensation to CORE's
reviewers is not related to any cost savings achieved by CORE's clients.
RISK FACTORS
The factors listed below represent certain important factors CORE
believes could negatively affect its business. These factors are not intended to
represent a complete list of the general or specific risks that may affect CORE.
Investors should recognize that other risks may be significant, presently or in
the future, and the risks set forth below may affect CORE to a greater extent
than indicated.
RELIANCE ON WORKABILITY-REGISTERED TRADEMARK- PROGRAM. Part of CORE's
strategy is to focus its growth efforts on, and commit significant
management, marketing and other resources to expanding, its managed
disability services, and in particular its WorkAbility disability
management program. CORE's focus on its managed disability services may
not ultimately be profitable.
CORE's managed disability services depend on its WorkAbility computer
software. CORE's ability to continue to derive revenue from the
WorkAbility software depends, in part, on maintaining its proprietary
and confidential nature. CORE relies on a combination of database size,
trade secret, copyright, trademark and contractual protections to
establish and protect its proprietary rights to the WorkAbility
software. The precautions taken by CORE may not be adequate to prevent
misappropriation or re-creation of CORE's database. In addition, these
protections and precautions will not prevent development by independent
third parties of competitive technology or products, and some companies
have developed products which, to some extent, perform functions
similar to those performed by the WorkAbility software.
DEPENDENCE ON KEY CLIENTS. Contracts with several key clients account
for a substantial portion of CORE's
13
revenues. The majority of CORE's contracts with its clients, including
those with its major clients, permit cancellation by the client upon 90
days' notice, while certain other of CORE's contracts permit immediate
cancellation under certain circumstances. The failure to renew, the
exercise of cancellation rights or a significant reduction in the
volume of services requested by CORE's clients, could have a material
adverse effect on CORE. See "Business-Clients and Marketing."
RISKS RELATED TO GROWTH STRATEGY. Part of CORE's strategy is to
continue its internal growth and, as strategic opportunities arise in
the managed disability services market, to pursue relationships with
other companies in related lines of business. As a result, CORE is
subject to certain growth-related risks, including the risks that it
will be unable to retain personnel or acquire other resources necessary
to service such growth adequately. Expenses arising from CORE's efforts
to increase its market penetration may have a negative impact on
operating results. In addition, suitable opportunities for strategic
relationships or acquisitions may not arise or, if they do arise, the
transactions contemplated thereby may not be completed. See
"Business-Strategy."
UNCERTAINTY OF FUTURE PROFITABILITY. Although profitable in 1999, 1997
and 1996, CORE recorded net losses of $3,760,000 for 1998. CORE may not
be able to maintain profitability on a quarterly or annual basis.
Moreover, the level of profitability, if any, cannot be accurately
predicted. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
EXPOSURE TO PROFESSIONAL LIABILITY. CORE, through its managed care
services, makes recommendations regarding benefit plan coverage and
work absence periods based upon judgments of the appropriateness of
proposed medical treatment plans and length of absence. In certain
instances CORE can determine or deny such coverage or absence periods.
Consequently, CORE has and may in the future become subject to claims
related to adverse medical consequences or for the costs of services
denied and claims, such as malpractice, arising from the errors or
omissions of health care professionals. A successful claim against CORE
could have a material adverse effect on CORE's financial position and
results of operations. Furthermore, claims against CORE, regardless of
their merit or eventual outcome, may involve substantial defense costs.
Procedures implemented by CORE to limit its liability may not be
effective and litigation to which CORE is or may become subject may
adversely affect its financial position or results of operations. CORE
maintains professional liability insurance and such other coverages as
CORE believes are reasonable in light of its experience to date.
However, such insurance may not be sufficient to protect CORE from
liability or may not continue to be available to CORE at reasonable
cost or at all.
GOVERNMENT REGULATION; HEALTH CARE REFORM. The health care industry is
subject to extensive federal and state regulation relating to
licensure, conduct of operations and prices for services. A number of
states, including several of those in which CORE transacts business,
have extensive licensing and other regulatory requirements applicable
to CORE's business, including utilization review and workers'
compensation. These requirements include compliance with federal and
state prohibitions on the offer or receipt of payment for patient
referral or other items or services. CORE's clients, including
insurance companies, are also subject to regulations which indirectly
affect CORE. Regulation in the health care field is constantly
evolving. CORE can not predict what additional government regulations,
if any, may directly or indirectly affect its business. Although CORE
believes it is in material compliance with applicable statutes,
licensing requirements and regulations in those states in which it is
subject to regulation, a revocation of or failure to obtain required
licenses and governmental approvals, a failure to comply with
applicable statutes or regulations or significant changes in
regulations applicable to its clients could adversely affect CORE's
business. See "Business-Government Regulation; Health Care Reform."
In addition to existing government health care regulation, there have
been numerous initiatives at the federal and state levels, as well as
by private third-party payers, for comprehensive reforms affecting the
payment for and availability of health care services. CORE believes
that such initiatives will continue during the foreseeable future. CORE
can not predict what, if any, reform initiatives may be adopted, or
what effect, if any, their adoption may have on CORE.
RELIANCE ON DATA PROCESSING CAPABILITIES. CORE's business in general,
and its WorkAbility disability management program in particular,
depends on the ability to continuously store, retrieve, process and
manage data. Interruption of data processing capabilities for any
extended length of time, loss of stored data, programming errors or
other computer problems could have a material adverse effect on CORE's
business.
14
COMPETITION. The markets in which CORE operates are highly competitive.
In addition to other utilization management and disability management
companies, CORE competes with insurance companies, third-party
administrators and preferred provider organizations. Many of CORE's
competitors are larger and have greater financial and other resources
than CORE. Competitive factors in CORE's markets may have an adverse
effect on CORE. See "Business-Competition."
DEPENDENCE ON KEY PERSONNEL. CORE's success will depend to a
significant extent upon the skills of a number of executive officers
and key employees. In addition, CORE's success will depend to an extent
on its ability to recruit credentialed physicians for CORE's peer
review activities. The future loss of the services of one or more key
persons could adversely affect CORE.
POTENTIAL VOLATILITY OF STOCK PRICE. The market prices for CORE's
Common Stock and the securities of certain other companies in the
health care industry have historically been significantly volatile. The
trading price of the Common Stock could continue to significantly
fluctuate due to uncertainties regarding the businesses of CORE,
announcements or actions by competitors, developments involving CORE's
relationships with key clients, government regulation, fluctuations in
quarterly results and other factors. These broad market fluctuations,
as well as general economic conditions and the financial performance of
CORE, may adversely affect the market price of CORE Common Stock. See
"Price Range of Common Stock."
ITEM 2. PROPERTIES.
CORE occupies its executive headquarters in Irvine, California
pursuant to leases for approximately 20,600 sq. feet, which expire in
September 2000 and June 2003. CORE also leases facilities of approximately
18,000 sq. feet in Boston, Massachusetts under a lease that expires in May
2000 (a facility lease was recently entered into effective June 2000 for
25,000 sq. feet at a different site in Boston that expires in September
2010), and approximately 21,000 sq. feet in Burlington, Massachusetts under
leases that expire in December 2000 and April 2002. Additionally, CORE leases
facilities of approximately 35,500 sq. feet in Los Angeles, California under
lease agreements that expire in November 2001 and January 2002 and February
2004; approximately 18,000 sq. feet in Silver Spring, Maryland under a lease
that expires in June 2001; approximately 12,000 sq. feet in Novi, Michigan
under a lease that expires in August 2001; and approximately 10,400 sq. feet
in Portland, Maine under a lease agreement that expires in March 2004.
15
ITEM 3. LEGAL PROCEEDINGS.
On February 10, 2000, an arbitrator issued an Interim Award in which
he concluded that CORE and its wholly owned subsidiary TCM Services, Inc.
("TCM") breached an Asset Purchase Agreement dated March 17, 1998 with
Transcend Case Management, Inc. and Transcend Services, Inc. (collectively
"Transcend"). Transcend had initiated an arbitration proceeding against CORE
and TCM with the American Arbitration Association on December 16, 1998 and
the dispute was arbitrated over a three-day period beginning on December 13,
1999.
TCM had acquired the assets related to Transcend's workers'
compensation case management services (the "Business") in March 1998. In lieu of
a payment at closing, the Asset Purchase Agreement provided for a subsequent
earn-out payment in the form of CORE common stock based upon TCM's quarterly
revenues in either 1999 or 2000. The Asset Purchase Agreement, however,
permitted TCM to discontinue the operation of the Business if the Business was
generating certain losses in a particular period, and that if TCM elected to
discontinue the Business due to such losses, then TCM had to allow Transcend the
option to reacquire the assets of the Business prior to TCM's discontinuation of
the Business (the "Option to Reacquire the Assets"). By letter dated October 26,
1998, TCM notified Transcend that its losses exceeded the amount set forth in
the Asset Purchase Agreement during the relevant period, and that TCM intended
to discontinue the Business. Transcend elected to exercise its Option to
Reacquire the Assets of the Business. On December 23, 1998, TCM transferred
substantially all of the assets relating to the Business to Transcend.
In the Interim Award, the arbitrator concluded that TCM had not
incurred the requisite losses as of the date of the October 26, 1998 notice and
that, despite Transcend's exercise of the Option to Reacquire the Assets,
Transcend had been deprived of the benefit of the bargain, i.e., the earn-out
payment. The arbitrator ordered CORE and TCM to pay Transcend the earn-out
payment based upon the formula established in the Asset Purchase Agreement and
to reimburse Transcend for its attorneys' fees and costs. The resulting earn-out
consideration is to be delivered in the form of CORE common stock based on the
market price as of December 20, 1999 ($7.00). The Interim Award further stated
that the parties should attempt to agree on a procedure to return the assets to
TCM or other disposition, and to determine the exact number of shares of CORE
common stock to be transferred to Transcend. CORE does not expect to seek
judicial review of the Interim Award.
In connection with the Interim Award, CORE recorded a charge of
$2,200,000 in 1999. See Current Developments under "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and Notes 2, 5 and 6
under "Notes to Consolidated Financial Statements," contained elsewhere within
this report for additional information.
Generally, the review services provided by CORE are advisory in nature,
and final determination as to payment or nonpayment of benefits is not made by
CORE. Certain clients, including Bell Atlantic Corporation, have delegated to
CORE the authority to decide whether an employee is eligible for benefits under
the client's plan. Determinations as to the medical care provided to a patient
are always made by the patient or the attending physician and are not made by
CORE. However, due to the significant number of claims in the medical
malpractice field in general, it is possible that a patient may assert claims
against CORE for damages due to adverse medical consequences. New or existing
legal theories by which patients or physicians may attempt to assert liability
against CORE or other companies engaged in the industry are developing and are
expected to continue to develop. Although CORE believes that its procedures
result in reasonable and accurate determinations of coverage, there can be no
assurance that claims will not be made or that CORE's procedures for limiting
liability will be effective. CORE maintains professional liability insurance and
such other coverages as CORE believes are reasonable in light of CORE's
experience to date. However, there can be no assurance that such insurance will
be sufficient to protect CORE from liability which might adversely affect CORE's
business, operating results or financial condition or will continue to be
available to CORE at reasonable cost or at all.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
16
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of CORE's executive officers:
NAME AGE POSITION
---- --- --------
George C. Carpenter IV 41 Chairman of the Board of Directors
and Chief Executive Officer
Craig C. Horton 45 President, Chief Operating Officer and General
Manager, WorkAbility
William E. Nixon 39 Executive Vice President, Chief Financial Officer,
Treasurer and Clerk
Michael Darkoch 56 Senior Vice President, Client Development
R. Gary Dolenga 55 President, SSDC Corp.
Stuart T. Greer 40 General Manager, Peer Review Analysis
James T. Fallon 36 Managing Director, DRMS
Lisa O. Hansen 37 Managing Director, DRMS
Michael D. Lachance 45 Managing Director, DRMS
|
Executive officers of CORE are elected by the Board of Directors on an
annual basis and serve at the discretion of the Board of Directors.
George C. Carpenter IV was re-elected a Class III Director at the June
1997 Annual Stockholders Meeting, and was elected the Chairman of the Board of
Directors and Chief Executive Officer of CORE effective with CORE's March 24,
1995 merger involving Core Management, Inc. (the "CMI/PRA Merger"). Mr.
Carpenter served as the Chief Executive Officer and a Director of Core
Management, Inc., a Delaware corporation ("CMI") and now wholly-owned subsidiary
of CORE, since its formation in 1990. From 1988 to 1990, Mr. Carpenter served as
a Vice President, Operations of The Health Data Institute, Inc., a provider of
utilization review, case management and analytic services and a developer of
related software, a subsidiary of Baxter International, Inc.
Craig C. Horton was re-elected a Class III Director at the June 1997
Annual Stockholders Meeting and was elected the President and Chief Operating
Officer of CORE on March 30, 1995. Mr. Horton was appointed General Manager,
WorkAbility in October 1999. Mr. Horton served as the President and a Director
of CMI from its formation in 1990, and also served as the acting Chief Financial
Officer of CMI from 1994 to 1995. From 1988 to 1990, Mr. Horton was Vice
President, Operations of The Health Data Institute, Inc., a subsidiary of Baxter
International, Inc.
William E. Nixon is the Executive Vice President, Chief Financial
Officer, Treasurer and Clerk of CORE. Mr. Nixon joined CORE in December 1988 as
Controller. In June 1989, Mr. Nixon became Assistant Treasurer; in September
1990, he was elected Vice President, Finance and Administration; in September
1991, he assumed his position as Treasurer. In December 1993, Mr. Nixon was
elected Chief Financial Officer of CORE. In December 1994, Mr. Nixon was elected
Executive Vice President and in March 1995, he was elected Clerk. Prior to his
employment with CORE, from 1985 to 1988, Mr. Nixon served as a Senior Accountant
at Gray, Gray and Gray, a public accounting firm.
Michael Darkoch joined CORE in September 1997 and was elected Senior
Vice President, Client Development in December 1997. Mr. Darkoch came to CORE
from Caremark International, where he held senior management positions,
including Vice President of Corporate Account Management and Vice President of
Business Development. His background includes account management process design
and sales development. Mr. Darkoch has over 24 years of experience in the health
care industry.
R. Gary Dolenga joined the Company in June 1997 upon acquisition of
certain of the assets of Social Security Disability Consultants and Disabilty
Services, Inc. (collectively, "SSDC"). SSDC was formed by Mr. Dolenga in 1979.
For the 18 years prior to the acquisition of SSDC by CORE, Mr. Dolenga served as
the Managing Director and President of SSDC where he was responsible for the
administration, professional service and sales of the social security disability
benefits advocacy and Medicare coordination of benefits components of SSDC.
17
Stuart T. Greer joined CORE as a Manager, Physician Review Services
in November 1994. Mr. Greer has over thirteen years experience in medical
specialty consultation management and he has held several positions with
CORE, including Director, Peer Review Services; Director, Peer Review
Analysis; and Managing Director, Peer Review Analysis. Mr. Greer was
appointed General Manager, Peer Review Analysis in October 1999.
James T. Fallon joined CORE with Ms. Hansen and Mr. Lachance in
September 1998 upon CORE's acquisition of Disability Reinsurance Management
Services, Inc. ("DRMS"). Mr. Fallon was a founder of DRMS and has served as a
Managing Director of DRMS since its establishment in 1993. Previously, from 1985
through 1993, Mr. Fallon held various sales and marketing management positions
with UNUM Life Insurance Company of America ("UNUM") and UNUM's reinsurance
division (later Duncanson & Holt).
Lisa O. Hansen joined CORE with Mr. Fallon and Mr. Lachance in
September 1998 upon CORE's acquisition of DRMS. Ms. Hansen was a founder of DRMS
and has served as a Managing Director of DRMS since its establishment in 1993.
Ms. Hansen began her insurance career in Paul Revere Life Insurance Company's
sales force in 1984, then joined UNUM in 1985 where she held several sales and
marketing management positions within UNUM's reinsurance division (later
Duncanson & Holt.)
Michael D. Lachance joined CORE with Mr. Fallon and Ms. Hansen in
September 1998 upon CORE's acquisition of DRMS. Mr. Lachance was a founder of
DRMS and has served as a Managing Director of DRMS since its establishment in
1993. In 1983, Mr. Lachance joined UNUM where he spent over eleven years in a
variety of Individual Disability and Group Reinsurance management positions. Mr.
Lachance earned his Fellow Society of Actuaries ("FSA") designation in 1986.
18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
PRICE RANGE OF COMMON STOCK
CORE's Common Stock is traded on the Nasdaq National Market tier of The
Nasdaq Stock Market ("Nasdaq - NNM") under the symbol: "CORE." The following
table shows the range of high and low sales prices per share for the shares of
Common Stock on the Nasdaq - NNM for the calendar quarters indicated as reported
by Nasdaq. Over-the-counter market quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission and do not necessarily represent
actual transactions.
1998 HIGH LOW
------------- ---------- -----------
First Quarter $16 3/8 $11 1/4
Second Quarter 16 7 3/4
Third Quarter 10 1/16 3 3/4
Fourth Quarter 8 1/2 5 1/2
1999 HIGH LOW
------------- ----------- -----------
First Quarter $ 9 $6
Second Quarter 10 7 3/16
Third Quarter 9 9/16 7 1/2
Fourth Quarter 9 3/4 5 7/16
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On March 20, 2000, the closing sale price of CORE's Common Stock, as
quoted on the Nasdaq - NNM, was $6.375 per share.
As of March 20, 2000, there were approximately 150 record holders of
CORE's Common Stock and CORE believes there are over 1,000 beneficial owners.
There are no outstanding shares of CORE's Preferred Stock and, accordingly, no
market for said shares.
DIVIDEND POLICY
CORE has never paid a cash dividend. Inasmuch as CORE intends to retain
earnings for the operation and expansion of its business, CORE does not intend
to pay dividends on its Common Stock for the foreseeable future. Additionally,
CORE's Credit Agreement with Fleet National Bank prohibits the payment of
dividends by CORE without Fleet's written consent. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Financial
Condition, Liquidity and Capital Resources." CORE's Board of Directors will
determine future dividend policy in light of the then prevailing financial
condition of CORE and other relevant factors.
RECENT SALES OF UNREGISTERED SECURITIES
CORE made no sales of unregistered securities in the fourth quarter of
1999.
19
ITEM 6. SELECTED FINANCIAL DATA.
The data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the consolidated
financial statements and related notes, and other financial information included
elsewhere in this report.
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
--------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Revenues $64,130 $45,609 $38,507 $28,806 $20,769
Cost of services 36,349 27,833 23,330 17,741 12,839
------- ------- ------- ------- -------
Gross profit 27,781 17,776 15,177 11,065 7,930
Operating expenses:
General and administrative 12,879 9,487 7,940 6,285 4,787
Sales and marketing 4,921 3,649 2,483 1,744 1,499
Depreciation and amortization 3,677 2,503 1,955 1,338 905
Provision for doubtful accounts 415 253 - - -
Merger costs - - - - 994
Write-off of AmHealth acquisition - - - 1,920 -
Write-off of goodwill and intangibles - 4,085 - - -
Arbitration costs 2,200 736 - - -
Charges in connection with disposal of
subsidiaries - 658 - - -
Other non-recurring charges - 156 - - -
------- ------- ------- ------- -------
Total operating expenses 24,092 21,527 12,378 11,287 8,185
------- ------- ------- ------- -------
Income (loss) from operations 3,689 (3,751) 2,799 (222) (255)
Other income (expense):
Gain on sale of subsidiary assets, net 332 - - - -
Interest income 31 303 590 385 240
Interest expense (1,574) (505) (27) (35) (83)
Other income (expense) - - - 16 19
------- ------- ------- ------- -------
Total other income (expense) (1,211) (202) 563 366 176
------- ------- ------- ------- -------
Income (loss) before income taxes 2,478 (3,953) 3,362 144 (79)
Income tax benefits (provision) (738) 193 (610) - -
------- ------- ------- ------- -------
Net income (loss) $ 1,740 $(3,760) $ 2,752 $ 144 $ (79)
======= ======= ======= ======= =======
Net income (loss) per common share:
Basic $ 0.22 $ (0.50) $ 0.38 $ 0.03 $ (0.02)
======= ======= ======= ======= =======
Diluted $ 0.21 $ (0.50) $ 0.35 $ 0.02 $ (0.02)
======= ======= ======= ======= =======
Weighted average number of common
shares and equivalents outstanding:
Basic 7,941 7,489 7,246 5,713 4,755
======= ======= ======= ======= =======
Diluted 8,416 7,489 7,934 6,473 4,755
======= ======= ======= ======= =======
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
--------------------------------------------------------------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents $ - $ 2,226 $ 7,945 $ 4,282 $ 1,006
Working capital 6,761 3,466 11,850 15,781 3,152
Total assets 51,600 48,732 32,815 27,844 11,869
Long-term debt and capital lease obligations 14,618 13,874 190 344 817
Stockholders' equity 31,339 26,827 27,659 24,456 7,648
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20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
CURRENT DEVELOPMENTS
SALE OF INTEGRATED BEHAVIORAL HEALTH
On June 21, 1999, CORE sold the assets of one of its operating
subsidiaries, Integrated Behavioral Health, a California corporation ("IBH"), to
a non-affiliated party for $50,000 in cash and a $463,000 promissory note. A net
gain of $332,000 was realized from the sale of the assets. IBH provided mental
health case management services.
ARBITRATION COSTS
On February 10, 2000, an arbitrator issued an Interim Award in which he
concluded that CORE and its wholly-owned subsidiary, TCM Services, Inc. ("TCM")
breached an Asset Purchase Agreement dated March 17, 1998 with Transcend
Services, Inc. and Transcend Case Management, Inc. (collectively "Transcend").
See "Legal Proceedings," above.
CORE recorded a charge of $2,200,000 in 1999 for estimated costs in
connection with the Interim Award. The major components of the charge includes
$1,741,000 in CORE common stock issuable for the earn-out payment, $386,000 for
legal fees and reimbursements and $73,000 in other associated costs.
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data
for the periods indicated expressed as a percentage of revenues:
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
------------------------------
Revenue 100.0% 100.0% 100.0%
Cost of services 56.7 61.0 60.6
Gross profit 43.3 39.0 39.4
General and administrative expense 20.1 20.8 20.6
Sales and marketing expense 7.7 8.0 6.4
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The following table sets forth the contribution to total revenues of
each of CORE's principal service lines for the periods indicated:
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1999 1998 1997
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
----------------------------------------------------------
(Dollars in thousands)
Integrated Disability Management $47,582 74% $26,959 59% $18,514 48%
Peer Review Analysis 9,144 14% 8,004 17% 8,415 22%
Exiting/exited services 1,008 2% 3,558 8% 3,049 8%
Other service lines 6,396 10% 7,088 16% 8,529 22%
------- ---- ------- ---- ------- ----
$64,130 100% $45,609 100% $38,507 100%
======= ==== ======= ==== ======= ====
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21
YEARS ENDED DECEMBER 31, 1999 AND 1998
CORE's revenues increased 41% during 1999, as compared to 1998. Growth
in Integrated Disability Management contributed $20,623,000 (111%) of the
overall net increase in revenues. CORE's WorkAbility Absence Management program
contributed 63% of the revenue increase in Integrated Disability Management due
to the addition of new clients over the course of 1998 and 1999 and the
expansion of services to existing clients. During 1999, revenues for this
service line include a full year of revenues from Disability Reinsurance
Management Services, Inc. ("DRMS") which was acquired by CORE in September 1998.
As a result, revenues from DRMS contributed 32% of the increase in Integrated
Disability Management revenues during 1999.
The 14% increase in revenues from Peer Review Analysis in 1999, as
compared to 1998, is primarily due to an increase in the volume of referrals for
specialty physician review services. This increase in volume resulted from the
addition of new clients and the expansion of services to existing clients.
Revenues from services that CORE exited decreased by 72% in 1999, as
compared to 1998. During 1998, these service lines consisted of regional
workers' compensation case management services of both Cost Review Services,
Inc. ("CRS") and TCM, regional bill audit activities of CRS, and the behavioral
health programs of IBH. The CRS operations, which contributed $548,000 to our
revenues during 1998 was closed as of October 31, 1998. The operations of TCM,
which was acquired on March 17, 1998 and contributed $1,287,000 of the revenues
during 1998, was exited in December 1998. In 1999, IBH contributed all of the
revenue in our exiting/exited services, amounting to $1,008,000, a decrease of
$715,000 as compared to revenue of $1,723,000 from IBH in 1998. As a result of
the sale of IBH's assets on June 21, 1999, operations within the exiting/exited
services line ceased.
Revenues from other service lines (which includes utilization review,
Medicare coordination of benefits and other case management services), decreased
10% overall for 1999, as compared to 1998. This decrease was primarily
attributable to the utilization review program stemming from a decline in
enrollment in our clients' indemnity plan based group health business. However,
the overall decline was partially offset by an increase in revenues from CORE's
Medicare coordination of benefits services.
For 1999, CORE's top five clients represented 43% of revenues compared
to 45% during 1998. Bell Atlantic accounted for approximately 19% of revenues in
1999 and 21% of revenues for 1998. No other single client represented more than
10% of total revenues in 1999 or 1998.
Cost of services for CORE include direct expenses associated with the
delivery of its review and managed care services, including salaries for
professional, clerical and license support staff, the cost of physician reviewer
consultants and telephone expense. Cost of services increased 31% in 1999, as
compared to 1998. The increase is primarily the result of increased staffing
levels required to service new and growing WorkAbility Absence Management
program clients in addition to the added cost of services associated with a full
year of operations from DRMS.
Gross profit performance for each of CORE's principal lines of service
for the years ended 1999 and 1998, respectively, are: 44% and 41% for Integrated
Disability Management, 38% and 36% for Peer Review Analysis, 23% and 16% for
exiting/exited services and 49% and 47% for other service lines. The gross
profit performance realized under Integrated Disability Management was
significantly enhanced by the growth in CORE's WorkAbility Absence Management
program which provided for greater efficiencies in providing services to a
larger client base. The addition of disability reinsurance management services
now provided by CORE pursuant to the DRMS acquisition also increased the gross
profit performance within Integrated Disability Management during 1999, as
compared to the prior year. The slight increase in gross margin realized under
Peer Review Analysis is due to efficiencies realized in servicing an expanded
client base. The increase in gross margins realized under other service lines is
primarily due to an increased share of revenue generated from the Medicare
coordination of benefits program.
General and administrative expenses include the cost of executive,
administrative and information services personnel, rent and other overhead
items. Higher personnel and other costs associated with supporting CORE's
expanded growth in operations primarily contributed to the increase in general
and administrative expenses of 36% in 1999, as compared to 1998. During 1999,
CORE added a new facility in Los Angeles in order to meet the service needs of a
significant new client. CORE has also incurred additional costs associated with
the maintenance of our computer network hardware and software as capacity has
been expanded to accommodate growth. General and administrative expenses, as a
percentage of revenues, decreased to 20% in 1999 from 21% in 1998. This
improvement is generally due to greater economies of scale related to higher
revenues.
22
Sales and marketing expenses include, but are not limited to, salaries
for sales and account management personnel and travel expenses. Sales and
marketing expenses also include costs designed to increase exposure, such as
participation in and attendance at industry trade shows and conferences. Sales
and marketing expenses increased 35% in 1999, as compared to 1998. The increase
is primarily due to expanded staffing to support the sales and product
development departments.
Depreciation and amortization expenses increased 47% during 1999, as
compared to the prior year, due mainly to the increased amortization of
goodwill and intangibles acquired in the purchase of DRMS in September 1998.
Increased depreciation expense also resulted following the addition of new
equipment during 1999, which was necessary to accommodate the growth in
revenues from new and existing clients. Amortization of internally developed
software and related equipment also increased due to CORE's continuing
investment in web-based technologies and enhancements to our operating
systems.
A provision for doubtful accounts in the amount of $415,000 was
recorded in 1999 as compared to $253,000 in 1998. The 1999 provision primarily
relates to the termination of an uncompleted project within the onsite job
profiling analysis and workplace risk management service's unit.
As discussed under Current Developments, above, CORE recorded a charge
of $2,200,000 in 1999 for estimated costs in connection with an arbitration
award. The major components of the charge includes $1,741,000 of CORE common
stock issuable for the earn-out payment, $386,000 for legal fees and
reimbursements and $73,000 in other associated costs.
Other income and expense, net, consists primarily of interest
expense as offset by interest income. In 1999, total other expense also
included a gain of $332,000 recognized on the June 21, 1999 sale of IBH
assets, net of transaction costs. Interest expense represents amounts
incurred related to outstanding borrowings under CORE's August 1998 Credit
Agreement, as amended, with Fleet National Bank. Interest income represents
amounts earned by CORE's investments. The 90% decrease in interest income and
the 212% concurrent rise in interest expense are primarily due to a decrease
in funds available for investment and an increase in outstanding borrowings
following the acquisition of DRMS.
YEARS ENDED DECEMBER 31, 1998 AND 1997
CORE's revenues increased 18% during 1998, as compared to 1997. Growth
in Integrated Disability Management contributed 119% of the overall net increase
in revenues. Revenues for this service line include revenues from DRMS acquired
in September 1998 and a full year of operations from SSDC and PWS, which were
acquired in June and July 1997, respectively. CORE's WorkAbility Absence
Management program contributed 52% of the revenue increase in Integrated
Disability Management during 1998 due to the addition of new clients and the
expansion of services to existing clients during the latter half of 1997 and
throughout 1998. Revenues from DRMS contributed 36% of the increase in
Integrated Disability Management revenues during 1998.
A decrease in the volume of referrals in the behavioral health review
services program resulted in an overall reduction of 5% in revenues realized
from the Peer Review Analysis service line in 1998, as compared to 1997.
Revenues from services that CORE exited in 1998 or expected to exit in
1999 increased overall by 17% during 1998, as compared to the prior year. The
net increase in these services during 1998 related principally to the
acquisition of TCM in March 1998. TCM operations were exited in December 1998
due to poor net operating performance. The CRS operations were closed as of
October 31, 1998 due to the loss of a significant portion of its customer base.
Revenues from other service lines declined 17% overall for 1998, as
compared to 1997. This decrease was primarily attributable to the utilization
review program stemming from a decline in enrollment in our clients' indemnity
plan based group health business.
For 1998, CORE's top five clients represented 45% of revenues compared
to 43% during 1997. Bell Atlantic accounted for approximately 21% of revenue in
1998 and 23% of revenues for 1997. No other single client represented more than
10% of total revenues in 1998 or 1997.
The 19% increase in cost of services during 1998, as compared to the
prior year, is primarily the result of additional payroll costs associated with
business acquisitions completed in 1998 and the summer of 1997 in addition to
increased staffing levels required to service new and growing WorkAbility
clients. Additionally, increased amortization expense was incurred as software
enhancements to the Company's operating systems were placed into service.
23
CORE's gross profit performance for 1998 remained unchanged compared to
1997 at 39%. Gross profit performance for each of CORE's principal lines of
service for the years ended 1998 and 1997, respectively, are: 41% and 35% for
Integrated Disability Management, 36% and 39% for Peer Review Analysis, 16% and
27% for exiting/exited services and 47% and 52% for other service lines. The
increase in gross margins realized under Integrated Disability Management is
primarily due to the addition of disability reinsurance management services now
provided by CORE pursuant to the acquisition of DRMS. The decline in gross
margins realized under Peer Review Analysis is due mostly to the decrease in
revenues generated under the behavioral health program and an increase in
expenses (mostly payroll) added in advance of expected program revenues with
certain new Peer Review Analysis clients. The decline in gross margins realized
under other service lines is primarily due to a decrease in revenues generated
from the utilization review and Medicare coordination of benefits programs.
General and administrative expenses increased 19% in 1998, as compared
to 1997, due primarily to higher costs associated with additional staffing in
the information services areas to support the growth of operations. Higher costs
in rent, insurance costs, equipment rental and other general and administrative
expenses relate primarily to CORE's acquisitions during the summer of 1997 and
March and September of 1998. CORE also incurred additional costs associated with
the maintenance of its computer network hardware and software as capacity was
expanded to accommodate growth. General and administrative expenses, as a
percentage of revenues, remained unchanged in 1998, compared to 1997, at 21%.
Sales and marketing expenses increased 47% in 1998, as compared to
1997, due primarily to CORE's acquisitions during the summer of 1997 and March
and September of 1998. The balance of the increase is primarily due to expanded
staffing to support the sales and product development departments.
Depreciation and amortization expense increased 28% in 1998, as
compared to 1997. The increase is mainly attributable to increased amortization
on the goodwill and intangibles acquired in the purchases of DRMS in September
1998 and of SSDC and PWS in June and July 1997, respectively.
During 1998, CORE recorded write-offs of goodwill and intangibles
totaling $4,085,000 pursuant to its review of long-lived assets. During June
1998, CRS was informed that its principal client (representing nearly 70% of CRS
revenues) would not be renewing its contract in October 1998. This information
combined with CRS's operating losses indicated that the net book value of the
goodwill and intangibles related to the CRS operations, amounting to $1,935,000,
was not recoverable and thus, written-off effective as of June 30, 1998. CORE
also determined that an impairment loss existed related to certain identifiable
intangibles acquired from SSDC in June 1997. The impairment loss primarily
resulted from a significant decline in revenues realized under SSDC's Medicare
coordination of benefits program. As it appeared that the decline in revenues
would continue, intangibles in the amount of $2,150,000 were written off as of
June 30, 1998.
On June 2, 1998, CORE entered into a settlement agreement with the
former shareholders of CRS. The settlement agreement related to an arbitration
dispute and included the immediate payment by CORE of $425,000 and CORE's
issuance of promissory notes in the amount of $190,000 payable in 1999. In
addition, CORE incurred approximately $121,000 in other costs related to the
arbitration (primarily legal and travel expenses).
During 1998, CORE recorded $658,000 in charges relating to its
termination of operations at two subsidiaries. Effective October 31, 1998, CORE
discontinued the operations of CRS. In connection with this action, CORE
recorded estimated charges totaling $417,000. On December 23, 1998,
substantially all the assets and certain liabilities relating to TCM were
reacquired by the original seller pursuant to terms set forth in the Asset
Purchase Agreement dated March 17, 1998. CORE recorded charges of $241,000 in
connection with this transfer.
During 1998, CORE recorded other non-recurring charges totaling
$156,000. These costs primarily consisted of costs related to the CORE's
relocation of its accounting department from Boston, Massachusetts to its
corporate offices in Irvine, California.
Other income and expense, net, consists primarily of interest expense
as offset by interest income. Interest expense represents amounts incurred
related to outstanding borrowings under the CORE's August 1998 Credit Agreement
with Fleet National Bank. Interest income represents amounts earned by the
CORE's investments. Other income and expense, net, decreased $765,000 to a net
other expense of $202,000 in 1998 from a net other income of $563,000 in 1997.
The decrease in 1998 versus 1997 is due to a decrease in funds available for
investment and an increase in borrowings outstanding used to complete the
acquisition of DRMS in September 1998.
24
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
On August 31, 1998, CORE entered into a revolving line of credit
agreement (the "Credit Agreement") with Fleet National Bank ("Fleet"). Under the
terms of the Third Amendment to the Credit Agreement dated April 28, 1999 (the
"Third Amendment"), CORE may borrow up to specified amounts at either (i) the
prime base rate plus 0.50%, or (ii) the London Interbank Offered Rate ("LIBOR")
plus 3.50%. The maximum credit availability under the Third Amendment of
$18,500,000 is subject to mandatory commitment reductions each quarter
(beginning on March 31, 2000) in amounts ranging from $875,000 to $1,250,000.
The Third Amendment extended the credit facility through June 30, 2004.
At December 31, 1999 and 1998, CORE had outstanding borrowings of
$14,300,000 and $16,500,000, respectively, under the Credit Agreement which were
all tied to the prime base lending rate (8.50% at December 31, 1999) plus the
applicable margin. The Credit Agreement is secured by substantially all of
CORE's assets and requires CORE to meet certain financial covenants, including
minimum ratios for interest, debt service and fixed charge coverage along with
minimum net worth levels. Additionally, the Credit Agreement prohibits the
payment of dividends by CORE without the Bank's written consent. CORE was in
compliance with the financial covenants contained in the Credit Agreement at
December 31, 1999.
CORE has entered into an interest rate protection arrangement with
Fleet that limits CORE's exposure to significant increases in the base lending
rate. The arrangement places an effective cap on the prime base lending rate at
9.75% (or LIBOR at 6.75%) for a substantial portion of the outstanding
borrowings over the life of the Credit Agreement.
In connection with the Credit Agreement and related amendments, CORE
has issued two Warrants to purchase shares of its Common Stock to Fleet. The
original Warrant granted on August 31, 1998 entitles the holder to purchase up
to 156,322 shares of CORE's Common Stock (subject to certain adjustments), at an
exercise price of $6.92 per share. The original Warrant was exercisable
beginning August 31, 1999 and expires August 31, 2003. The second Warrant
granted in connection with the Third Amendment to the Credit Agreement, entitles
the holder to purchase up to 187,000 shares of CORE's Common Stock (subject to
certain adjustments), at an exercise price of $12.00 per share. The second
Warrant was exercisable upon the April 1999 execution of the Third Amendment and
expires June 30, 2004.
During 1999, CORE used all of its available cash to reduce the levels
of outstanding borrowings under the Credit Agreement which accounted for the
significant reduction to cash and cash equivalents compared to the prior year.
For the year ended 1999, operating activities provided $3,151,000 of cash. This
increase in cash was greater than the net income reported for the period of
$1,740,000 due primarily to the net effect of certain non-cash activities
including depreciation and amortization and charges in connection with the TCM
arbitration, as offset by increases in accounts and unbilled receivables. The
increase in receivables was primarily attributable to the contractual timing of
certain client billings. CORE's investing activities used $3,151,000 of cash
mostly to fund additions to property and equipment (including software
development) during 1999. CORE's financing activities used $2,227,000 of cash
during this period, mainly to repay outstanding borrowings on the credit
facility. CORE expects to continue using all of its available cash to repay
outstanding borrowings during future periods.
CORE leases its facilities and certain computer and office equipment.
Future lease commitments (including certain facility leases executed in March
2000), which relate substantially to space rental, for the years ended December
31, 2000 and December 31, 2001 are approximately $3.2 million and $2.8 million,
respectively.
CORE has net operating loss carryforwards for federal and state income
tax purposes of approximately $2.0 million and $9.9 million, respectively, as of
December 31, 1999, which can be used to reduce future obligations for federal
and state income taxes. The amount of net operating loss carryforwards that can
be utilized in any future year are limited due to "equity structure shifts" in
1995 involving "5% shareholders" (as these terms are defined in Section 382 of
the Internal Revenue Code), which resulted in a more than 50 percentage point
change in ownership. The utilization of the net operating loss carryforwards may
be subject to further limitation provided by the Internal Revenue Code of 1986
and similar state provisions.
CORE plans to finance its operations and working capital requirements
primarily with future earnings from
25
operations. To the extent that working capital needs exceed currently
available working capital, CORE has the flexibility to borrow additional
funds up to the maximum commitment available under the Credit Agreement. CORE
believes that this available financing, along with future earnings from
operations and other sources of available funds will be sufficient to meet
its liquidity and funding requirements through at least the year 2000.
IMPACT OF YEAR 2000 SYSTEM COMPLIANCE
In reports for prior periods, CORE discussed the nature and progress of
its plans to become Year 2000 ready. In late 1999, CORE completed its
remediation and testing of systems. As a result of those planning and
implementation efforts, CORE experienced no significant disruptions in mission
critical information technology and non-information technology systems and
believes those systems successfully responded to the Year 2000 date change.
CORE is not aware of any material problems resulting from Year 2000
issues, either with its internal systems or the products and services of third
parties. CORE will continue to monitor its mission critical computer
applications and those of its suppliers and vendors throughout the year 2000 to
ensure that any latent Year 2000 matters that may arise are addressed promptly.
26
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
CORE entered into a revolving line of credit agreement with Fleet
National Bank ("Fleet") on August 31, 1998 (the "Credit Agreement"). The Credit
Agreement was entered into for purposes other than trading. The outstanding
borrowings under the Credit Agreement bear interest at variable rates, which
reset as prevailing market conditions change. CORE also entered into a
derivative financial instrument in January 1999 for purposes of managing its
interest rate exposure.
See "Notes to Consolidated Financial Statements," Notes 1 and 7
contained elsewhere within this report for additional information.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary data of CORE called for by
this item appear under the caption Index to Financial Statements (page F-1
hereof). Such information is included elsewhere herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Pursuant to General Instruction G(3) to Form 10-K, information required
under this item is incorporated by reference from the Registrant's definitive
proxy statement with respect to the 2000 Annual Stockholders Meeting, to be
filed with the Securities and Exchange Commission pursuant to Regulation 14A.
Certain information as it pertains to executive officers, is included
at the end of Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
Pursuant to General Instruction G(3) to Form 10-K, information required
under this item is incorporated by reference from the Registrant's definitive
proxy statement with respect to the 2000 Annual Stockholders Meeting, to be
filed with the Securities and Exchange Commission pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Pursuant to General Instruction G(3) to Form 10-K, information required
under this item is incorporated by reference from the Registrant's definitive
proxy statement with respect to the 2000 Annual Stockholders Meeting, to be
filed with the Securities and Exchange Commission pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Pursuant to General Instruction G(3) to Form 10-K, information required
under this item is incorporated by reference from the Registrant's definitive
proxy statement with respect to the 2000 Annual Stockholders Meeting, to be
filed with the Securities and Exchange Commission pursuant to Regulation 14A.
27
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULE, AND REPORTS ON FORM 8-K.
(a) Financial Statements, Financial Statements Schedule and
Exhibits.
1. FINANCIAL STATEMENTS. The information called for by this item
appears under the caption Index to Financial Statements (page
F-1 hereof). Such information is incorporated by reference
herein.
2. FINANCIAL STATEMENTS SCHEDULE. The information called for by
this item appears under the caption Index to Financial
Statements (page F-1 hereof). Such information is incorporated
by reference herein.
3. Exhibits.
Exhibit
Number Description
------- -----------
2.1 Asset Purchase Agreement dated June 14, 1997, by and among CORE, INC.,
SSDC Corp., Social Security Disability Consultants Limited Partnership,
Disability Services, Inc., DSI Medicare Consultants, Inc., R. Gary
Dolenga and Phylis M. Dolenga, including Amendment No. 1 to Asset
Purchase Agreement, dated June 25, 1997, and Exhibit A - Performance
Criteria (excluding other Exhibits and Schedules). Filed as exhibit 2.1
to Registrant's Current Report on Form 8-K, filed July 15, 1997, and
incorporated herein by reference.
2.2 Asset Purchase Agreement dated March 17, 1998, by and among CORE, INC.,
TCM Services, Inc., Transcend Case Management, Inc. and Transcend
Services, Inc. (excluding Exhibits and Schedules). Filed as exhibit 2.4
to Registrant's Annual Report on Form 10-K, filed April 1, 1998, and
incorporated herein by reference.
2.3 Capital Stock Purchase Agreement, dated as of August 31, 1998, by and
among CORE, INC., Disability Reinsurance Management Services, Inc., and
the Stockholders of Disability Reinsurance Management Services, Inc.,
including Exhibit A-1 (excluding other Exhibits and Schedules). Filed
as exhibit 2.1 to Registrant's Current Report on Form 8-K, filed
September 17, 1998, and incorporated herein by reference.
2.4 Asset Purchase Agreement, dated as of June 21, 1999, by and amongst
Integrated Behavioral Health, Tom H. Yankoff and TD Ventures, Inc.
(excluding Exhibits and Schedules). Filed as exhibit 2.1 to
Registrant's Quarterly Report on Form 10-Q, filed August 13, 1999, and
incorporated herein by reference.
3.1 Restated Articles of Organization of the Registrant, dated November 22,
1991, as further amended by Articles of Amendment, dated March 24,
1995, July 28, 1995 and October 28, 1996. Filed as exhibit no. 4.1 to
Registrant's Quarterly Report on Form 10-Q, filed November 13, 1996,
and incorporated herein by reference.
3.2 Certificate of Vote of Directors Establishing a Series of a Class of
Stock of CORE, INC. classifying and designating the Series A
Participating Cumulative Preferred Stock. Filed as Exhibit 3.1 to
Registrant's Current Report on Form 8-K, filed October 21,1999, and
incorporated herein by reference.
3.3* Articles of Merger of Parent and Subsidiary Corporations concerning the
merger of CORE Management, Inc. into CORE, INC.
3.4 By-Laws of the Registrant, as amended. Filed as exhibit no. 3.2 to
Registrant's Annual Report on Form 10-K, filed March 30, 1993, and
incorporated herein by reference.
4.1 Specimen Common Stock certificate. Filed as exhibit no. 4.1 to
Registrant's Annual Report on Form 10-K, filed April 1, 1996, and
incorporated herein by reference.
4.2 Warrant Agreement, dated as of August 31, 1998, between CORE, INC. and
Fleet National Bank (excluding Exhibits). Filed as exhibit 4.1 to
Registrant's Current Report on Form 8-K, filed September 17, 1998, and
incorporated herein by reference.
4.3 Warrant Agreement, dated as of April 27, 1999, between CORE, INC. and
Fleet National Bank (excluding
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28
Exhibits). Filed as exhibit 4.1 to Registrant's Quarterly Report on
Form 10-Q, filed May 13, 1999, and incorporated herein by reference.
4.4 Shareholder Rights Agreement, dated as of October 21, 1999, between
Registrant and State Street Bank and Trust Company, as Rights Agent,
including Form of Rights Certificate as Exhibit B. Filed as Exhibit 4.1
to Registrant's Current Report on Form 8-K, filed October 21, 1999, and
incorporated herein by reference.
4.5* Form of first Amendment to Shareholder Rights Agreement between
Registrant and State Street Bank and Trust Company.
10.1 Amendment No. 1 to Software License Agreement, dated December 23, 1987,
between Chrysler and HDI. Filed as exhibit no. 10.60 to the
Registrant's Registration Statement on Form S-4 (Registration No.
33-73906), filed January 10, 1994, and incorporated herein by
reference.
10.2 Services Agreement, dated as of August 1, 1996, between CORE, INC. and
Bell Atlantic Corporation (without Schedules and Appendices). Filed as
exhibit 10.1 to registrant's Quarterly Report on Form 10-Q, filed
August 13, 1997, and incorporated herein by reference.
10.3 Credit Agreement, dated as of August 31, 1998, between CORE, INC. and
Fleet National Bank, including Exhibit A (excluding Schedules and other
Exhibits). Filed as exhibit 10.1 to Registrant's Current Report on Form
8-K, filed September 17, 1998, and incorporated herein by reference.
10.4 First Amendment to the Credit Agreement, dated as of December 31, 1998,
between CORE, INC. and Fleet National Bank. Filed as exhibit 10.5 to
Registrant's Annual Report on 10-K, filed April 1, 1999, and
incorporated herein by reference.
10.5 Second Amendment to the Credit Agreement, dated as of February 19,
1999, between CORE, INC. and Fleet National Bank. Filed as exhibit 10.6
to Registrant's Annual Report on 10-K, filed April 1, 1999, and
incorporated herein by reference.
10.6 Third Amendment to Credit Agreement, dated as of April 27, 1999,
between CORE, INC. and Fleet National Bank (excluding Exhibits and
Schedules). Filed as exhibit 10.1 to Registrant's Quarterly Report on
10-Q, filed May 13, 1999, and incorporated herein by reference.
10.7 Registration Rights Agreement, dated as of April 27, 1999, between
CORE, INC. and Fleet National Bank. Filed as exhibit 10.2 to
Registrant's Quarterly Report on 10-Q, filed May 13, 1999, and
incorporated herein by reference.
10.8 Registrant's Amended and Restated 1991 Stock Option Plan. Filed as
exhibit no. 4.3 to the Registrant's Registration Statement on Form S-8
(Registration No. 333-15261), filed October 31, 1996, and incorporated
herein by reference.
10.9 Form of Stock Option Agreement, granted March 23, 1995, to non-employee
directors for services in 1994 and through March 23, 1995, including
schedule of optionees. Filed as Exhibit No. 10.1 to Registrant's
Quarterly Report on Form 10-Q, filed November 14, 1995, and
incorporated herein by reference.
10.10 Form of Stock Option Agreement for 19,500 shares to vest quarterly over
three years granted March 24, 1995, to non-employee directors,
including schedule of optionees. Filed as Exhibit No. 10.2 to
Registrant's Quarterly Report on Form 10-Q, filed November 14, 1995,
and incorporated herein by reference.
10.11 Form of Stock Option Agreement for 4,875 shares, granted March 24, 1995
to non-employee directors, including schedule of optionees. Filed as
Exhibit No. 10.3 to Registrant's Quarterly Report on Form 10-Q, filed
November 14, 1995, and incorporated herein by reference.
10.12 Form of Stock Option Agreement, granted April 27, 1995, to executive
officers, including schedule of executive officer optionees. Filed as
Exhibit No. 10.4 to Registrant's Quarterly Report on Form 10-Q, filed
November 14, 1995, and incorporated herein by reference.
29
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10.13 Form of Stock Option Agreement, granted April 27, 1995, for consulting
and other services, including schedule of optionees. Filed as Exhibit
No. 10.5 to Registrant's Quarterly Report on Form 10-Q, filed November
14, 1995, and incorporated herein by reference.
10.14 Form of Stock Option Agreement for 12,375 shares of Registrant's common
stock granted November 8, 1995 to four non-employee directors. Filed as
exhibit no. 10.58 to the Registrant's Annual Report on Form 10-K, filed
April 1, 1996, and incorporated herein by reference.
10.15 Form of Stock Option Agreement, granted March 29, 1996, to officers,
including schedule of officer optionees. Filed as exhibit no. 10.31 to
Registrant's Registration Statement on Form S-1 (Registration No.
333-03639), filed May 13, 1996, and incorporated herein by reference.
10.16 Form of Stock Option Agreement, granted March 29, 1996, for consulting
services, including schedule of optionees. Filed as exhibit no. 10.32
to Registrant's Registration Statement on Form S-1 (Registration No.
333-03639), filed May 13, 1996, and incorporated herein by reference.
10.17 Core Management, Inc. Employee Stock Option Plan. Filed as exhibit no.
10.65 to CORE's Registration Statement on Form S-4 (Registration No.
33-73906), filed January 10, 1994, and incorporated herein by
reference.
10.18 Forms of Stock Option Agreement under Core Management, Inc. Employee
Stock Option Plan. Filed as exhibit no. 10.66 to the Registrant's
Registration Statement on Form S-4 (Registration No. 33-73906), filed
January 10, 1994, and incorporated herein by reference.
10.19 Form of Non-Employee Director Stock Option Agreement of Core
Management, Inc. Filed as exhibit no. 10.67 to CORE's Registration
Statement on Form S-4 (Registration No. 33-73906), filed January 10,
1994, and incorporated herein by reference.
10.20 Registration Rights Agreement, dated March 17, 1998, between CORE, INC.
and Transcend Services, Inc. Filed as exhibit 10.22 to Registrant's
Annual Report on Form 10-K, filed April 1, 1998, and incorporated
herein by reference.
10.21 Registration Rights Agreement, dated as of August 31, 1998, between
CORE, INC. and James T. Fallon, Lisa O. Hansen, Michael D. Lachance,
David C. Mitchell and David K. Rich. Filed as exhibit 10.2 to
Registrant's Current Report on Form 8-K, filed September 17, 1998, and
incorporated herein by reference.
10.22 Registration Rights Agreement, dated as of August 31, 1998, between
CORE, INC. and Fleet National Bank. Filed as exhibit 10.3 to
Registrant's Current Report on Form 8-K, filed September 17, 1998, and
incorporated herein by reference.
10.23 Option Agreement, dated June 14, 1997, by and between CORE, INC. and R.
Gary Dolenga. Filed as exhibit 99.1 to Registrant's Current Report on
Form 8-K, filed July 15, 1997, and incorporated herein by reference.
10.24 CORE, INC. 1997 Stock Option Plan, including forms of stock option
agreements. Filed as exhibit 10.1 to Registrant's Quarterly Report on
Form 10-Q, filed November 14, 1997, and incorporated herein by
reference.
10.25 Employment Agreement, dated June 25, 1997, by and between SSDC Corp.
and R. Gary Dolenga. Filed as exhibit 99.2 to Registrant's Current
Report on Form 8-K, filed July 15, 1997, and incorporated herein by
reference.
10.26 Employment Agreement by and between Disability Reinsurance Management
Services, Inc. and James T. Fallon (excluding Attachments). Filed as
exhibit 10.4 to Registrant's Current Report on Form 8-K, filed
September 17, 1998, and incorporated herein by reference.
10.27 Employment Agreement by and between Disability Reinsurance Management
Services, Inc. and Lisa O. Hansen (excluding Attachments). Filed as
exhibit 10.5 to Registrant's Current Report on Form 8-K, filed
September 17, 1998, and incorporated herein by reference.
30
|
10.28 Employment Agreement by and between Disability Reinsurance Management
Services, Inc. and Michael D. Lachance (excluding Attachments). Filed
as exhibit 10.6 to Registrant's Current Report on Form 8-K, filed
September 17, 1998, and incorporated herein by reference.
10.29 Employment Agreements executed on July 15, 1999 by and between CORE,
INC. and executives George C. Carpenter IV, Craig C. Horton, William E.
Nixon and Nancy S. Moore, respectively. The form of Employment
Agreement filed as exhibit 10.1 to Registrant's Quarterly Report on
Form 10-Q, filed November 12, 1999, and incorporated herein by
reference.
10.30 401(k) Plan. Filed as exhibit no. 10.34 to the Registrant's
Registration Statement on Form S-1 (Registration No. 33-43418), filed
October 18, 1991, and incorporated herein by reference.
10.31 Form of Indemnification Agreement. Filed as exhibit no. 10.35 to the
Registrant's Registration Statement on Form S-1 (Registration No.
33-43418), filed October 18, 1991, and incorporated herein by
reference.
21.1* Subsidiaries of the Registrant.
23.1* Consent of Independent Auditors.
27.1* Financial Data Schedule for year ended December 31, 1999.
------------------------------------
|
* Filed herewith
(b) Reports on Form 8-K.
On October 21, 1999, CORE filed a report on Form 8-K concerning the
adoption of a Shareholders Rights Agreement effective October 21, 1999.
31
CORE, INC.
INDEX TO FINANCIAL STATEMENTS
CORE, INC. AUDITED FINANCIAL STATEMENTS
Report of Independent Auditors F-2
Consolidated Balance Sheets - December 31, 1999 and 1998 F-3
Consolidated Statements of Operations - Years ended December 31, 1999, 1998 and 1997 F-5
Consolidated Statements of Stockholders' Equity - Years ended December 31, 1999, 1998 and 1997 F-6
Consolidated Statements of Cash Flows - Years ended December 31, 1999, 1998 and 1997 F-7
Notes to Consolidated Financial Statements F-9
Schedule II - Valuation and Qualifying Accounts F-20
|
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and,
therefore, have been omitted.
F-1
REPORT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS AND STOCKHOLDERS
CORE, INC.
We have audited the accompanying consolidated balance sheets of CORE, INC. as of
December 31, 1999 and 1998, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1999. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial statements
and schedule are the responsibility of CORE's management. Our responsibility is
to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of CORE,
INC. at December 31, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respects, the information set forth
therein.
/s/ ERNST & YOUNG LLP
Orange County, California
February 18, 2000
|
F-2
CORE, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
------------------------------------
1999 1998
------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ - $ 2,226,020
Accounts receivable, net of allowance for doubtful accounts
of $476,444 in 1999 and $405,013 in 1998 8,669,329 8,280,630
Unbilled receivables 2,628,030 465,167
Notes receivable from officers 69,662 90,462
Prepaid expenses 802,990 284,525
Other current assets 182,584 99,918
-------------- --------------
Total current assets 12,352,595 11,446,722
Unbilled receivables, net of current portion 2,577,723 930,333
Property and equipment, net 8,918,285 7,931,150
Other assets, net 1,787,226 1,315,037
Goodwill and intangibles, net of accumulated amortization
of $2,308,023 in 1999 and $863,077 in 1998 25,963,841 27,108,298
-------------- --------------
Total assets $ 51,599,670 $ 48,731,540
============== ==============
|
F-3
CORE, INC.
CONSOLIDATED BALANCE SHEETS-CONTINUED
DECEMBER 31,
------------------------------------
1999 1998
------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 875,795 $ 1,363,785
Accrued expenses 1,982,831 1,859,117
Accrued payroll 1,073,642 807,124
Income taxes payable 658,845 217,816
Accrued vacation 851,183 717,500
Advances under revolving credit agreement - 2,750,000
Notes payable 77,674 259,510
Capital lease obligations 71,981 6,015
-------------- --------------
Total current liabilities 5,591,951 7,980,867
Advances under revolving credit agreement, net of current
portion 14,300,000 13,750,000
Notes payable, net of current portion 41,528 123,633
Deferred rent, net of current portion 50,234 50,410
Capital lease obligations, net of current portion 276,878 -
Commitments and contingencies
Stockholders' equity:
Preferred stock, no par value, authorized 500,000 shares;
no shares outstanding - -
Common stock, $0.10 par value per share; authorized
30,000,000 shares; issued and outstanding 8,114,288
in 1999 and 7,824,512 in 1998 811,429 782,451
Additional paid-in capital 40,515,660 37,778,640
Deferred compensation - (6,697)
Accumulated deficit (9,988,010) (11,727,764)
-------------- --------------
Total stockholders' equity 31,339,079 26,826,630
-------------- --------------
Total liabilities and stockholders' equity $ 51,599,670 $ 48,731,540
============== ==============
|
See accompanying notes.
F-4
CORE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
------------------------------------------------
1999 1998 1997
------------------------------------------------
Revenues $ 64,130,000 $ 45,609,284 $ 38,506,563
Cost of services 36,349,243 27,832,974 23,330,004
---------------- --------------- ---------------
Gross profit 27,780,757 17,776,310 15,176,559
Operating expenses:
General and administrative 12,878,813 9,486,540 7,940,005
Sales and marketing 4,921,112 3,648,707 2,482,561
Depreciation and amortization 3,676,963 2,503,402 1,954,810
Provision for doubtful accounts 415,000 253,380 -
Write-off of goodwill and intangibles - 4,085,449 -
Arbitration costs 2,200,000 736,009 -
Charges in connection with disposal of subsidiaries - 657,670 -
Other non-recurring charges - 156,116 -
---------------- --------------- ---------------
Total operating expenses 24,091,888 21,527,273 12,377,376
---------------- --------------- ---------------
Income (loss) from operations 3,688,869 (3,750,963) 2,799,183
Other income (expense):
Gain on sale of subsidiary assets, net 331,567 - -
Interest income 31,030 302,784 589,853
Interest expense (1,573,392) (504,746) (27,315)
---------------- --------------- ---------------
Total other income (expense) (1,210,795) (201,962) 562,538
---------------- --------------- ---------------
Income (loss) before income taxes 2,478,074 (3,952,925) 3,361,721
Income tax benefit (provision) (738,320) 193,000 (610,000)
---------------- --------------- ---------------
Net income (loss) $ 1,739,754 $ (3,759,925) $ 2,751,721
================ =============== ===============
Net income (loss) per common share:
Basic $ 0.22 $ (0.50) $ 0.38
================ =============== ===============
Diluted $ 0.21 $ (0.50) $ 0.35
================ =============== ===============
Weighted average shares:
Basic 7,941,000 7,489,000 7,246,000
================ =============== ===============
Diluted 8,416,000 7,489,000 7,934,000
================ =============== ===============
|
See accompanying notes.
F-5
CORE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
ACCUMULATED TOTAL
ADDITIONAL OTHER STOCK-
COMMON STOCK PAID-IN DEFERRED COMPREHENSIVE ACCUMULATED HOLDERS' COMPREHENSIVE
SHARES AMOUNT CAPITAL COMPENSATION INCOME DEFICIT EQUITY INCOME
--------- -------- ----------- ------------ ------------- ------------ ----------- -------------
BALANCE AT
DECEMBER 31, 1996 7,172,711 $717,271 $34,465,146 $(38,640) $ 31,983 $(10,719,560) $24,456,200
Exercise of stock options 130,368 13,037 462,986 - - - 476,023
Amortization of deferred
compensation costs - - - 6,695 - - 6,695
Reduction of deferred
compensation costs due
to extinguishment of
unvested options - - (18,553) 18,553 - - -
Change in unrealized gain
(loss) on investments
available-for-sale - - - - (31,983) - (31,983) $ (31,983)
Net income - - - - - 2,751,721 2,751,721 2,751,721
--------- -------- ----------- ------------- ------------- ------------ ----------- -------------
BALANCE AT
DECEMBER 31, 1997 7,303,079 730,308 34,909,579 (13,392) - (7,967,839) 27,658,656 $ 2,719,738
============
Exercise of stock options 41,433 4,143 173,661 - - - 177,804
Amortization of deferred
compensation costs - - - 6,695 - - 6,695
Compensation recognized
under stock option plan - - 13,400 - - - 13,400
Issuance of common stock
pursuant to acquisition
of Disability
Reinsurance Management
Services, Inc. 480,000 48,000 2,682,000 - - - 2,730,000
Net loss - - - - - (3,759,925) (3,759,925) $(3,759,925)
--------- -------- ----------- ------------- ------------- ------------ ----------- -------------
BALANCE AT
DECEMBER 31, 1998 7,824,512 782,451 37,778,640 (6,697) - (11,727,764) 26,826,630 $(3,759,925)
============
Exercise of stock options 355,776 35,578 1,343,568 - - - 1,379,146
Cancellation of shares in
connection with the
exercise of stock
options financed through
stock for stock
exchanges (66,000) (6,600) (602,468) - - - (609,068)
Issuance of warrants in
connection with credit
agreement - - 255,000 - - - 255,000
Amortization of deferred
compensation costs - - - 6,697 - - 6,697
Common stock to be issued
in connection with
arbitration - - 1,740,920 - - - 1,740,920
Net income - - - - - 1,739,754 1,739,754 $ 1,739,754
--------- -------- ----------- ------------- ------------- ------------ ----------- -------------
BALANCE AT
DECEMBER 31, 1999 8,114,288 $811,429 $40,515,660 $ - $ - $ (9,988,010) $31,339,079 $ 1,739,754
========= ======== =========== ============= ============= ============ =========== =============
|
See accompanying notes.
F-6
CORE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
-------------------------------------------
1999 1998 1997
-------------------------------------------
OPERATING ACTIVITIES:
Net income (loss) $ 1,739,754 $ (3,759,925) $ 2,751,721
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation 2,590,721 2,195,378 1,651,110
Amortization 1,855,723 1,124,603 931,206
Write-off of goodwill and intangibles - 4,085,449 -
Gain on sale of subsidiary assets (331,567) - -
Disposal of subsidiaries, net of cash payments and other charges - 520,421 -
Provision for doubtful accounts receivable 415,000 253,380 -
Arbitration costs, net of cash payments 2,200,000 239,605 -
Amortization of origination and other fees pursuant to credit
agreement 154,780 11,640 -
Compensation expense related to issuance of stock options 6,697 20,095 6,695
Changes in operating assets and liabilities:
Increase in accounts receivable (853,699) (1,258,378) (1,927,299)
Increase in unbilled receivables (3,810,253) (1,395,500) -
Increase in prepaid expenses and other assets (702,038) (688,900) (70,870)
Increase (decrease) in accounts payable and accrued expenses (113,709) 136,283 585,849
------------- ------------- -------------
Net cash provided by operating activities 3,151,409 1,484,151 3,928,412
------------- ------------- -------------
INVESTING ACTIVITIES:
Purchases of property and equipment (3,215,901) (3,504,240) (1,828,321)
Net additions to intangible assets (100,489) - (391,307)
Decrease in cash pledged as collateral - - 192,000
Decrease in deposits and other assets 47,808 64,081 42,162
Proceeds from initial deposit and reductions in note receivable
pursuant to sale of subsidiary assets 117,816 - -
Payments for acquisitions, net of cash acquired - (20,366,271) (5,434,612)
Payments on non-compete obligations to former shareholders - - (50,000)
Purchases of investments available-for-sale - (16,579,100) (44,647,453)
Sales of investments available-for-sale - 17,767,137 51,862,964
------------- ------------- -------------
Net cash used in investing activities (3,150,766) (22,618,393) (254,567)
------------- ------------- -------------
FINANCING ACTIVITIES:
Borrowings under credit agreement 11,100,000 17,228,500 -
Repayments under credit agreement (13,300,000) (500,000) -
Payments for origination and other fees pursuant to credit
agreement (472,276) (228,500) -
Payments on obligation from acquisition - (1,125,000) (375,000)
Payments on obligations to former shareholders - (50,000) -
Payments on notes payable (263,941) (56,806) (64,840)
Payments on capital lease obligations (60,524) (30,331) (47,427)
Issuance of common stock upon exercise of stock options 770,078 177,804 476,023
------------- ------------- -------------
Net cash provided by (used in) financing activities (2,226,663) 15,415,667 (11,244)
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents (2,226,020) (5,718,575) 3,662,601
Cash and cash equivalents at beginning of year 2,226,020 7,944,595 4,281,994
------------- ------------- -------------
Cash and cash equivalents at end of year $ - $ 2,226,020 $ 7,944,595
============= ============= =============
|
F-7
CORE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Year ended December 31,
--------------------------------------------
1999 1998 1997
--------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 1,413,178 $ 500,612 $ 23,492
Income taxes paid $ 425,301 $ 164,500 $ 221,393
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Increase in property and equipment in connection with
capital lease obligations $ 403,368 - -
Issuance of warrants in connection with Credit Agreement $ 255,000 - -
Increase in intangibles pursuant to licensing agreement $ 200,000 - -
Issuance of common stock in connection with acquisition - $ 2,730,000 -
Increase in accrued expenses in connection with acquisition - $ 618,286 -
Net decrease in intangibles pursuant to licensing agreement - $ 200,000 -
|
See accompanying notes.
F-8
CORE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND PURPOSE
CORE, INC. ("CORE") is a national provider of employee absence management
services to Fortune 500 companies and other self-insured employers, third-party
administrators and insurance carriers. CORE's services include Integrated
Disability Management (which consist of CORE's proprietary WorkAbility Absence
Management program, disability reinsurance management services, social security
disability benefits advocacy, analytic consulting services, onsite job profiling
analysis and workplace risk management services, and licensing), Peer Review
Analysis (which consist of specialty physician and behavioral health review
services), and other services including Medicare coordination of benefits,
health care benefits utilization review and case management services.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of CORE and its
wholly owned subsidiaries. All significant intercompany transactions have been
eliminated in consolidation.
RISKS AND UNCERTAINTIES
CORE provides its services to companies throughout the United States in various
industries, including, but not limited to the healthcare and insurance
industries. Management does not believe significant credit risk exists at
December 31, 1999 as a result of the large and diverse nature of CORE's customer
base. CORE performs periodic credit evaluations of its ongoing customers and
generally does not require collateral. CORE maintains allowances for potential
credit losses, and these losses have consistently been within management's
expectations.
SIGNIFICANT ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments primarily consist of cash and cash equivalents,
receivables, payables and borrowings. CORE believes the recorded values of
all financial instruments approximate current values. CORE also entered into
a derivative financial instrument in January 1999 for purposes of managing
its interest rate exposure. The cost of the interest rate protection
arrangement is being amortized to interest expense ratably over the life of
the arrangement. Payments to be received as a result of the arrangement will
be accrued, if applicable, as a reduction of interest expense. The net
amortized cost of the arrangement is included in other assets in the
accompanying consolidated balance sheets.
CASH AND CASH EQUIVALENTS
All highly liquid investments with a maturity of three months or less at the
date of purchase are considered to be cash equivalents.
PRE-CONTRACT COSTS
Pre-contract costs incurred for a specific contract are deferred if the costs
can be directly associated with the contract and the recoverability from the
gross profits on the revenue generated by the contract is probable. The
anticipated gross profit must be sufficient to absorb deferred pre-contract
costs as well as future period costs. Pre-contract costs are amortized on a
straight-line basis over the contract period, generally not longer than three
years.
F-9
CORE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
REVENUE RECOGNITION
CORE engages principally in capitated (fixed rate per employee per month),
hourly, per case basis or management fee based contracts. Management fee based
contracts represent a percentage of the premiums on disability policies of the
Disability Alliance for Reinsurance Treaties ("DART") pool that are managed by
CORE.
Revenue on contracts is recognized using either the percentage-of-completion
method or as services are performed based on contracted rates. The percentage of
completion method measures revenue principally by comparing the cost of services
performed to date with the total estimated cost of services required through
completion applied to the entire estimated contract value.
Unbilled receivables and revenues are recorded as costs are incurred on
certain contracts. Billings for these amounts are included as part of the
base service rates and collected over the life of the contracts. Costs to
complete estimates are reviewed periodically and revised as required.
Provisions are made for the full amount of anticipated losses, if any, on all
contracts in the period in which they are first determinable.
Profit commissions, representing a percentage of the overall profits on the
pooled policies under management are recognized as the annual operating results
of the DART become determinable. Licensing fees are primarily based on use by
the customer and are recognized as revenue when earned.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Major additions and betterments are
capitalized while repairs and maintenance expenditures, which do not improve or
extend the life of the respective assets, are expensed when incurred.
DEPRECIATION AND AMORTIZATION
Property and equipment are depreciated using the straight-line method. The
estimated useful lives of the related assets are as follows:
Computer and office equipment 3-7 years
Software and software development costs 3-5 years
Furniture and fixtures 7 years
Leasehold improvements Shorter of lease term or estimated useful life
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SOFTWARE DEVELOPMENT COSTS
Certain costs of software, developed for internal use, are capitalized during
the application development stage. Costs incurred for maintenance and customer
support are charged to expense as incurred. Software development costs are
amortized using the straight-line method.
GOODWILL AND OTHER INTANGIBLES
Goodwill and other intangibles, which include the cost of customer contracts,
management agreements and license agreements are being amortized over three to
thirty-five years, on a straight-line basis. The recoverability of goodwill is
assessed periodically based on management estimates of undiscounted future
operating cash flows from each of the acquired businesses to which the goodwill
relates.
LONG-LIVED ASSETS
CORE follows Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and of Long-Lived Assets to
be Disposed Of," which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present.
In performing the review for recovery, CORE estimates the future cash flows
expected to result from the use of the asset and its eventual disposition. If
the sum of the future cash flows (undiscounted and without interest charges) is
less than the carrying amount of the asset, an impairment loss is recognized.
Otherwise, an impairment loss is not recognized. If applicable, an impairment
loss is recorded in an amount equal to the difference between the carrying
amount and the fair value of the asset. Examples of certain events or changes in
circumstances that would indicate a potential impairment include shortfalls in
projections of operating income relating to acquired subsidiaries or an
accumulation of costs significantly in excess of the amount originally expected
to acquire or develop an asset.
F-10
CORE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
INCOME TAXES
CORE provides for income taxes under the liability method. Under this method,
deferred income taxes are recognized for the future tax consequences of
differences between the tax and financial accounting of assets and liabilities
at each year-end. Deferred income taxes are based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to effect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amounts expected to be realized.
INCOME (LOSS) PER COMMON SHARE
CORE accounts for income (loss) per share in accordance with SFAS No. 128,
"Earnings Per Share." Under SFAS No. 128, basic earnings per share excludes any
dilutive effect of options, warrants and convertible securities. Diluted
earnings per share is similar to fully diluted earnings per share.
COMPREHENSIVE INCOME
CORE reports comprehensive income under SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components. SFAS No. 130 requires unrealized gains
or losses on CORE's available-for-sale securities to be included in other
comprehensive income.
SEGMENT REPORTING
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," establishes standards for the way that public companies report
information about operating segments and related disclosures about products and
services, geographic areas and major customers in annual consolidated financial
statements. CORE operates in a single industry segment: employee absence
management services.
STOCK-BASED COMPENSATION
CORE applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for stock-based awards to employees and has
adopted the disclosure-only alternative of SFAS No. 123, "Accounting for
Stock-Based Compensation." Options granted to non-employees, as defined, have
been accounted for at fair market value in accordance with SFAS No. 123.
RECLASSIFICATIONS
Certain reclassifications of 1998 and 1997 amounts have been made to permit
comparison.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." CORE expects to
adopt the new Statement effective January 1, 2001. SFAS No. 133 will require
CORE to recognize all derivatives on the balance sheet at fair value. CORE does
not anticipate that the adoption of this Statement will have a significant
effect on its consolidated results of operations or financial position.
2. BUSINESS ACQUISITIONS
On September 1, 1998, CORE acquired all shares of stock of Disability
Reinsurance Management Services, Inc. ("DRMS"), a Delaware corporation,
pursuant to a Capital Stock Purchase Agreement dated as of August 31, 1998
(the "Stock Purchase Agreement") in a transaction accounted for as a
purchase. Pursuant to the Stock Purchase Agreement, all shares of stock of
DRMS were acquired in exchange for a $20,000,000 cash payment, the issuance
of 480,000 shares of CORE's common stock and the future issuance of up to an
additional $7,000,000 of CORE's common stock after September 30, 2001, based
upon the future performance of DRMS. The purchase price is subject to certain
adjustments as set forth in the Stock Purchase Agreement. The excess of the
purchase price over the estimated fair market value of the net assets
acquired, representing goodwill and certain identifiable intangibles
amounting to approximately $22,762,000, is being amortized on a straight-line
basis over periods of three to thirty-five years. DRMS is a full service
reinsurance intermediary manager providing marketing, underwriting advice,
claims, actuarial and compliance services to its insurance company clients
and risk management expertise for reinsurers in a reinsurance facility.
F-11
CORE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
On March 17, 1998, a wholly-owned subsidiary of CORE, TCM Services, Inc. ("TCM")
purchased certain operating assets and liabilities pursuant to an Asset Purchase
Agreement (the "Asset Purchase Agreement") with Transcend Services, Inc. and
Transcend Case Management, Inc. (collectively "Transcend"). The assets acquired
related to Transcend's workers' compensation case management services (the
"Business"). The transaction was accounted for as a purchase. In lieu of a
payment at closing, the Asset Purchase Agreement provided for a subsequent
earn-out payment in the form of CORE common stock based upon TCM's quarterly
revenues in either 1999 or 2000. The Asset Purchase Agreement, however,
permitted TCM to discontinue the operation of the Business if the Business was
generating certain losses in a particular period, and that if TCM elected to
discontinue the Business due to such losses, then TCM had to allow Transcend the
option to reacquire the assets of the Business prior to TCM's discontinuation of
the Business (the "Option to Reacquire the Assets"). By letter dated October 26,
1998, TCM notified Transcend that its losses exceeded the amount set forth in
the Asset Purchase Agreement during the relevant period, and that TCM intended
to discontinue the Business. Transcend elected to exercise its Option to
Reacquire the Assets of the Business. On December 23, 1998, TCM transferred
substantially all of the assets relating to the Business to Transcend. See Notes
5 and 6.
On June 25, 1997, a wholly-owned subsidiary of CORE purchased certain assets and
liabilities of Social Security Disability Consultants and Disability Services,
Inc. (collectively, "SSDC") for an initial cash payment of $5,000,000,
additional obligations of $1,500,000 (paid in quarterly installments through
June 30, 1998), and additional performance related cash payments in a
transaction accounted for as a purchase. As of December 31, 1999, all contingent
performance based payments had been made and totaled $239,000 on a cumulative
basis. SSDC provides disability management services with two key areas of
business: social security disability benefits advocacy and Medicare coordination
of benefits.
The consolidated financial statements include the operating results of DRMS, TCM
and SSDC from the dates of acquisition. The following unaudited pro forma
information has been prepared as if the acquisition of DRMS had occurred on
January 1, 1998 and the TCM acquisition and subsequent disposition had not
occurred at all. The pro forma financial information set forth below includes
adjustments for amortization of intangibles arising from the transactions,
interest expense incurred on funds borrowed to finance the transactions,
reductions in interest income from the use of short-term investments to fund the
transactions and for additional shares of common stock issued in the DRMS
transaction.
YEAR ENDED DECEMBER 31,
----------------------------------
1999 1998
----------------------------------
Revenues $ 64,130,000 $ 48,145,000
=============== ================
Net income (loss) $ 1,740,000 $ (3,640,000)
=============== ================
Net income (loss) per common share:
Basic $ 0.22 $ (0.47)
=============== ================
Diluted $ 0.21 $ (0.47)
=============== ================
|
The pro forma financial information is presented for informational purposes only
and is not necessarily indicative of what the actual consolidated results of
operations might have been had the transactions occurred on the dates indicated.
F-12
CORE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
1999 1998
---------------------------------
Computer and office equipment $ 7,093,000 $ 6,485,000
Software and software development costs 8,535,000 6,249,000
Furniture and fixtures 2,634,000 2,143,000
Leasehold improvements 1,956,000 1,984,000
--------------- --------------
20,218,000 16,861,000
Accumulated depreciation (11,300,000) (8,930,000)
--------------- --------------
Property and equipment, net $ 8,918,000 7,931,000
=============== ==============
|
Included in furniture and fixtures at December 31, 1999 and 1998 are assets
acquired under capital lease agreements amounting to $404,000 and $35,000,
respectively. At December 31, 1999 and 1998, accumulated depreciation on these
assets totaled $52,000 and $35,000, respectively.
4. IMPAIRMENT LOSSES ON LONG-LIVED ASSETS
During June 1998, CORE's wholly-owned subsidiary, Cost Review Services, Inc.
("CRS") was informed that its principal client (representing nearly 70% of
CRS revenues) would not be renewing its contract in October 1998. This
information combined with present operating losses incurred by CRS indicated
that the carrying value of the goodwill and intangibles related to the CRS
operations, amounting to $1,935,000, was not recoverable and thus, was
written-off. See Note 5.
CORE also performed a review of other long-lived assets during 1998. The results
of its review indicated that an impairment loss existed related to certain
identifiable intangible contract values resulting from the acquisition of SSDC
in June 1997. The impairment loss primarily resulted from a significant decline
in revenues realized under SSDC's Medicare coordination of benefits program. As
it appeared that the decline in revenues would continue, intangibles in the
amount of $2,150,000 were written off during 1998.
5. DISPOSAL OF SUBSIDIARIES
On June 21, 1999, CORE sold the assets of one of its operating subsidiaries,
Integrated Behavioral Health, a California corporation ("IBH"), to a
non-affiliated party for $50,000 in cash and a $463,000 promissory note, bearing
interest at ten percent (10%) per annum. The terms of the note require the
purchaser to make 36 equal monthly installments of principle and interest. A net
gain of $332,000 was realized from the sale of assets. IBH provided mental
health case management services. The note receivable is included in other
assets, in the accompanying consolidated balance sheets.
On December 23, 1998, TCM transferred substantially all its assets and certain
liabilities to Transcend following the exercise by Transcend of their Option to
Reacquire the Assets, as described in the Asset Purchase Agreement. CORE
recorded charges of $241,000 in connection with the December 1998 transfer. See
Notes 2 and 6.
Effective October 31, 1998, CORE discontinued the operations of its subsidiary,
CRS. In connection with this action, CORE recorded estimated charges totaling
$417,000. The major components of the charges were $157,000 of employee
separation costs, $58,000 of non-cash charges to dispose of certain assets
through abandonment and $75,000 to terminate lease and other contractual
obligations. CRS provided regional bill audit and workers' compensation case
management services to insurance companies and third-party administrators of
workers' compensation programs.
F-13
CORE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
6. ARBITRATION CHARGES
On February 10, 2000, an arbitrator issued an Interim Award in which he
concluded that CORE and TCM breached the Asset Purchase Agreement with Transcend
(see Note 2). Transcend had initiated an arbitration proceeding against CORE and
TCM with the American Arbitration Association on December 16, 1998 and the
dispute was arbitrated over a three-day period beginning on December 13, 1999.
In the Interim Award, the arbitrator concluded that TCM had not incurred the
requisite losses as of the date of the October 26, 1998 notice and that, despite
Transcend's exercise of the Option to Reacquire the Assets, Transcend had
thereby been deprived of the benefit of the bargain, i.e., the earn-out payment.
The arbitrator ordered CORE and TCM to pay Transcend the calculated earn-out
payment based upon the formula established in the Asset Purchase Agreement and
to reimburse Transcend for its attorneys' fees and costs. The resulting earn-out
consideration is to be delivered in the form of CORE common stock based on the
market price as of December 20, 1999 ($7.00). The Interim Award further stated
that the parties should attempt to agree on a procedure to return the assets to
TCM or other disposition, and to determine the exact number of shares of CORE
common stock to be transferred to Transcend.
CORE recorded a charge of $2,200,000 in 1999 for estimated costs in connection
with the Interim Award. The major components of the charge includes $1,741,000
of CORE common stock issuable for the earn-out payment, $386,000 for legal fees
and reimbursements and $73,000 in other associated costs.
CORE incurred costs of $736,000 as a result of a settlement agreement entered
into with the former shareholders of CRS on June 2, 1998. The settlement
agreement related to an arbitration dispute and included the immediate payment
of $425,000 and the issuance of promissory notes in the amount of $190,000
payable in twelve monthly installments beginning January 1999. In addition, CORE
incurred $121,000 in other costs related to the arbitration.
7. CREDIT AGREEMENT
On August 31, 1998, CORE entered into a revolving line of credit agreement (the
"Credit Agreement") with Fleet National Bank ("Fleet"). Under the terms of the
Third Amendment to the Credit Agreement dated April 28, 1999 (the "Third
Amendment"), CORE may borrow up to specified amounts at either (i) the prime
base rate plus 0.50%, or (ii) the London Interbank Offered Rate ("LIBOR") plus
3.50%. The maximum credit availability under the Third Amendment of $18,500,000
is subject to mandatory commitment reductions each quarter (beginning on March
31, 2000) in amounts ranging from $875,000 to $1,250,000. The Third Amendment
extended the credit facility through June 30, 2004.
At December 31, 1999 and 1998, CORE had outstanding borrowings of $14,300,000
and $16,500,000, respectively, under the Credit Agreement which were all tied to
the prime base lending rate (8.50% at December 31, 1999) plus the applicable
margin. The Credit Agreement is secured by substantially all of CORE's assets
and requires CORE to meet certain financial covenants, including minimum ratios
for interest, debt service and fixed charge coverage along with minimum net
worth levels. Additionally, the Credit Agreement prohibits the payment of
dividends by CORE without the Bank's written consent. CORE was in compliance
with the financial covenants contained in the Credit Agreement at December 31,
1999.
CORE has entered into an interest rate protection arrangement with Fleet that
limits CORE's exposure to significant increases in the base lending rate. The
arrangement places an effective cap on the prime base lending rate at 9.75% (or
LIBOR at 6.75%) for a substantial portion of the outstanding borrowings over the
life of the Credit Agreement.
In connection with the Credit Agreement and related amendments, CORE has issued
two Warrants to purchase shares of its common stock to Fleet. The original
Warrant granted on August 31, 1998 entitles the holder to purchase up to 156,322
shares of CORE's common stock (subject to certain adjustments), at an exercise
price of $6.92 per share. The original Warrant was exercisable beginning August
31, 1999 and expires August 31, 2003. The second Warrant granted in connection
with the Third Amendment to the Credit Agreement, entitles the holder to
purchase up to 187,000 shares of CORE's common stock (subject to certain
adjustments), at an exercise price of $12.00 per share. The second Warrant was
exercisable upon the April 1999 execution of the Third Amendment and expires
June 30, 2004.
F-14
CORE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Scheduled mandatory commitment reductions, as amended, for the next five years
as of December 31 are:
Mandatory Maximum
Commitment Credit Availability
Reduction As of December 31:
2000 $ 3,500,000 $ 15,000,000
2001 4,500,000 10,500,000
2002 4,000,000 6,500,000
2003 4,000,000 2,500,000
2004 2,500,000 0
-------------
$ 18,500,000
=============
|
8. STOCK OPTION PLANS
CORE has elected to follow Accounting Principals Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under SFAS
No. 123, "Accounting for Stock-Based Compensation," requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, because the exercise price of CORE's employee stock
options equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized. On March 28, 1997, options for the purchase
of 586,189 shares with exercise prices ranging between $7.46 and $12.25 were
re-priced to $6.25. The re-pricing of these options did not affect the financial
statements under APB 25; however, the affect of the re-pricing has been
reflected in the SFAS 123 pro forma disclosures set forth below.
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, and has been determined as if CORE had accounted for its employee
stock options under the fair value method of that Statement. The fair value for
these options was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted average assumptions for 1999, 1998 and
1997, respectively: risk-free interest rates of 5.29%, 5.28% and 6.12%;
volatility factors of the expected market price of CORE's common stock of 90%,
90% and 93%; and a weighted average expected life of the options of 5 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
CORE's employee stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its employee stock options.
For purposes of pro-forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. CORE's pro forma
information for the years ended December 31, is as follows:
1999 1998 1997
-------------------------------------------
Pro forma net income (loss) $(2,456,000) $(7,305,000) $ 229,000
============= ============= =============
Pro forma net income (loss) per share $ (0.31) $ (0.98) $ 0.03
============= ============= =============
|
F-15
CORE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
CORE has reserved 2,150,000 shares of common stock for issuance under stock
option plans established in 1991 and 1997. CORE has also granted or assumed
1,322,582 non-plan stock options and warrants of which 354,503, 329,758 and
308,758 have been exercised as of December 31, 1999, 1998 and 1997,
respectively. As of December 31, 1999, 1998 and 1997, respectively, 75,611,
21,212 and 7,812 of these non-plan stock options have been cancelled. Other than
the 892,468 non-plan stock options outstanding at December 31, 1999, no shares
have been reserved for non-plan stock options.
Plan and non-plan stock options activity and related information for the years
ended December 31, is as follows:
1999 1998 1997
-------------------------------------------
Outstanding at beginning of year 2,470,192 2,008,083 1,395,693
Granted 596,683 595,139 795,126
Canceled (175,582) (91,597) (52,368)
Exercised (355,775) (41,433) (130,368)
------------- ------------- --------------
Outstanding at end of year 2,535,518 2,470,192 2,008,083
============= ============= ==============
Price range of outstanding options $3.125-$13.75 $2.94-$13.75 $2.94-$11.13
============= ============= ==============
Price range of options exercised $2.94-$8.063 $2.94-$8.75 $2.50-$8.75
============= ============= ==============
Exercisable at end of year 1,825,194 1,393,743 1,004,625
============= ============= ==============
Available for grant at end of year 77,499 9,150 369,768
============= ============= ==============
|
The weighted average exercise prices are as follows:
1999 1998 1997
-------------------------------------------
Granted $ 9.04 $ 8.76 $ 8.90
Canceled 8.61 9.12 6.92
Exercised 3.83 4.89 3.92
Outstanding at end of year 7.64 6.80 6.29
Exercisable at end of year 7.47 5.96 5.15
|
The weighted average fair value of options granted during the years ended
December 31, 1999, 1998 and 1997 are $5.48, $5.84 and $6.60, respectively. Stock
options will expire on various dates through December 2004. The weighted average
remaining contractual life of options outstanding at December 31, 1999 is 2.6
years.
9. INCOME TAXES
The income tax benefit (provision) is comprised of the following:
1999 1998 1997
-------------------------------------------
Current:
Federal $ (526,000) $ 116,000 $ (490,000)
State (212,000) (141,000) (120,000)
------------- ------------- ---------------
(738,000) (25,000) (610,000)
Deferred-
Federal - 218,000 -
------------- ------------- ---------------
$ (738,000) $ 193,000 $ (610,000)
============= ============= ===============
|
F-16
CORE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The approximate effect of temporary differences and carryforwards that give rise
to deferred tax assets and liabilities as of December 31 is as follows:
1999 1998
----------------------------
Deferred tax assets:
Bad debt reserve $ 192,000 $ 165,000
Expense accruals 353,000 342,000
Depreciation 12,000 -
Goodwill amortization 474,000 710,000
Loss on disposal of business 893,000 -
Net operating loss carryforwards 1,329,000 2,265,000
Valuation allowance (2,167,000) (2,856,000)
------------- -------------
1,086,000 626,000
Deferred tax liabilities:
Depreciation - (59,000)
Unbillable revenues (1,086,000) (567,000)
------------- -------------
Net deferred tax asset (liability) $ - $ -
============ =============
|
The valuation allowance primarily relates to deferred tax assets related to
federal and state net operating loss ("NOL") carryforwards of approximately $2.0
million and $9.9 million, respectively, at December 31, 1999 and losses recorded
for the disposal of the TCM business. With respect to the NOL carryforwards,
they expire through 2013, and will be carried forward for reduction of future
federal and state income taxes. The amount of NOL carryforwards that can be
utilized in any future year are limited due to "equity structure shifts" in 1995
involving "5% shareholders" (as these terms are defined in Section 382 of the
Internal Revenue Code), which resulted in a more than 50 percentage point change
in ownership. The utilization of these NOL carryforwards may be subject to
further limitation provided by the Internal Revenue Service Code of 1986 and
similar state provisions. No benefit for these carryforwards has been recognized
in the financial statements.
Income tax benefit (expense) for the years ended December 31, 1999, 1998 and
1997 is different than the amount computed by applying the U.S. federal income
tax rate to income before income taxes. The reasons for these differences are as
follows:
1999 1998 1997
----------------------------------------------
Statutory federal tax benefit (expense) $ (843,000) $ 1,344,000 $(1,143,000)
State income tax expense, net of federal benefit (140,000) (94,000) (202,000)
Decrease in valuation allowance 689,000 149,000 978,000
Losses not benefited (365,000) - -
Alternative minimum taxes (61,000) - -
Goodwill amortization not deductible for tax purposes - (1,467,000) -
Other (18,000) (22,000) (243,000)
Resolution of prior years' tax exposures - 283,000 -
------------- --------------- --------------
Effective tax benefit (expense) $ (738,000) $ 193,000 $ (610,000)
============= =============== ==============
|
F-17
CORE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
10. LEASES
CORE leases its facilities and certain office equipment under non-cancelable
operating leases, which expire at various dates through March 2004.
The terms of the lease agreements at the Boston, Massachusetts location,
scheduled to expire in May 2000, and the Irvine, California location, scheduled
to expire in June 2003 include base rent increases over the terms of the leases
and options to renew for one five-year term at the then prevailing rental rate.
The total amount of the base rent payments is being charged to expense on the
straight-line method over the term of the lease. CORE has recorded a deferred
credit to reflect the excess of rent expense over cash payments since inception
of the lease.
CORE received free rent concessions under terms of lease agreements at the
Boston, Massachusetts, Burlington, Massachusetts and Los Angeles, California
locations. Total lease payments under these agreements are amortized on a
straight-line basis over the terms of the related leases. The excess of the
expense incurred over the cash paid is included as deferred rent in the
accompanying consolidated balance sheets.
At December 31, 1999, future minimum annual commitments under operating lease
agreements are as follows:
2000 $ 2,825,000
2001 1,789,000
2002 853,000
2003 509,000
2004 30,000
---------------
$ 6,006,000
===============
|
Total expense recognized under operating leases amounted to $2,981,000,
$2,017,000 and $1,848,000 for the years ended December 31, 1999, 1998 and
1997, respectively.
During 1999, CORE entered into capital lease agreements related to the
acquisition of office furniture. At December 31, 1999, future minimum annual
commitments under capital lease agreements are as follows:
2000 $ 93,000
2001 93,000
2002 93,000
2003 93,000
2004 39,000
---------------
$ 411,000
===============
|
11. COMMITMENTS AND CONTINGENCIES
Certain of CORE's service agreement contracts have provisions that allow clients
to audit CORE's performance under the contracts.
CORE has several 401(k) profit sharing plans covering all employees meeting
certain service requirements. The Plans provide for discretionary contributions
by CORE. Matching contributions for the years ended December 31, 1999, 1998 and
1997 were $255,000, $196,000 and $136,000, respectively, and are included in
general and administrative expenses in the accompanying consolidated statements
of operations.
CORE is involved in various claims and legal proceedings arising in the ordinary
course of business. While it is not feasible to predict or determine the outcome
of these proceedings, management believes that they will not result in a
materially adverse effect on CORE's financial position, results of operations or
liquidity.
F-18
CORE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
12. EARNINGS PER SHARE
The following table sets forth the computation of earnings (loss) per share as
of December 31:
YEAR ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
-----------------------------------------
Numerator:
Net income (loss) $ 1,740,000 $ (3,760,000) $ 2,752,000
=========== ============== ===========
Denominator:
Denominator for basic earnings (loss) per
share: weighted-average shares 7,941,000 7,489,000 7,246,000
Effect of dilutive stock options and warrants 475,000 - 688,000
----------- ------------- -----------
Denominator for diluted earnings (loss)
per share: adjusted weighted-average
shares and assumed conversions 8,416,000 7,489,000 7,934,000
=========== ============= ===========
Basic earnings (loss) per share $ 0.22 $ (0.50) $ 0.38
=========== ============= ===========
Diluted earnings (loss) per share $ 0.21 $ (0.50) $ 0.35
=========== ============= ===========
|
13. RELATED PARTIES
The notes receivable from officers are due in April 2000 and accrue interest at
current market rates.
14. SIGNIFICANT CLIENTS
CORE has service agreements with a major client, which accounted for
approximately 19%, 21% and 23% of total revenues for the years ended December
31, 1999, 1998 and 1997, respectively. No other client represented 10% or more
of revenue during these years.
15. SHAREHOLDER RIGHTS PLAN
In September 1999, CORE's Board of Directors adopted a ten-year Shareholder
Rights Agreement (the "Plan"), effective October 21, 1999. Under the Plan,
CORE's shareholders of record at November 1, 1999 received rights to purchase
one one-thousandth of a share of a newly created class of voting preferred
stock for each share of common stock held on that date. In the absence of
further Board action, each right (other than rights held by acquirors
disqualified by the Plan) generally becomes exercisable if any person
acquires 15 percent or more of CORE's outstanding common stock or is
determined by the Board to be an "adverse person." An "adverse person" is
one who acquires 10 percent or more of the outstanding common stock for
purposes which the Board determines to be inconsistent with the best
interests of CORE and its shareholders. If applicable, each right would
become exercisable, at the exercisable price then in effect, for a number of
shares of the preferred stock having a market value of two times the exercise
price.
F-19
CORE, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT
BEGINNING OF CHARGED TO COSTS DEDUCTIONS- BALANCE AT END
DESCRIPTION PERIOD AND EXPENSES DESCRIBE OF PERIOD
----------------------------------------------------------------------------------------------------------
Year ended December 31, 1999-
Allowance for doubtful accounts $ 405,000 $ 415,000 (a) $ (344,000)(b) $ 476,000
Year ended December 31, 1998-
Allowance for doubtful accounts $ 152,000 $ 253,000 (a) $ - $ 405,000
Year ended December 31, 1997-
Allowance for doubtful accounts $ 222,000 $ - $ (70,000)(b) $ 152,000
|
[a] The allowance for doubtful accounts was increased by a reserve against
receivables which related to revenues recoreded during previous years and
thus, charged to expense during the current year.
[b] The allowance for doubtful accounts was reduced by the actual write-off
of receivables, which had been reserved for in previous years and deemed
uncollectible.
F-20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
CORE, INC.
Date: March 27, 2000 By: /s/ George C. Carpenter IV
------------------------------------
George C. Carpenter IV
Chairman of the Board and
Chief Executive Officer
Date: March 27, 2000 By: /s/ William E. Nixon
------------------------------------
William E. Nixon
Chief Financial Officer, Executive
Vice President and Treasurer
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
/s/ George C. Carpenter IV Chairman of the Board of Directors March 27, 2000
-------------------------------- and Chief Executive Officer
George C. Carpenter IV
/s/ Craig C. Horton Director, President and Chief March 27, 2000
-------------------------------- Operating Officer
Craig C. Horton
/s/ William E. Nixon Chief Financial Officer, Executive March 27, 2000
-------------------------------- Vice President and Treasurer
William E. Nixon
/s/ Bradley J. Timon Controller and Chief Accounting March 27, 2000
-------------------------------- Officer
Bradley J. Timon
/s/ Leslie M. Alexandre, Dr.P.H. Director March 27, 2000
--------------------------------
Leslie M. Alexandre, Dr.P.H.
/s/ Stephen C. Caulfield Director March 27, 2000
--------------------------------
Stephen C. Caulfield
/s/ David M. Tourangeau Director March 27, 2000
--------------------------------
David M. Tourangeau
/s/ Richard J. Towle Director March 27, 2000
--------------------------------
Richard J. Towle
|
FEDERAL
IDENTIFICATION
NO. 04-2828817
Fee: $250.00
THE COMMONWEALTH OF MASSACHUSETTS
Examiner WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
ARTICLES OF MERGER OF PARENT AND SUBSIDIARY CORPORATIONS
(GENERAL LAWS, CHAPTER 156B, SECTION 82)
We, CRAIG C. HORTON, , President,
----------------------------------------------------
and Stephen M. Kane , Asst. Clerk,
-------------------------------------------------
of CORE, INC. ,
---------------------------------------------------------------
(EXACT NAME OF CORPORATION)
|
organized under the laws of Massachusetts and herein called the
parent corporation, certify as follows:
1. That the subsidiary corporation(s) to be merged into the parent
corporation is/are:
NAME STATE OF ORGANIZATION DATE OF ORGANIZATION
Core Management, Inc. Delaware December 30, 1992
(f.k.a. IBH Core Holdings,
Inc.)
2. The parent corporation, at the date of the vote, owned not less
than ninety percent (90%) of the outstanding shares of each class of
stock of the subsidiary corporation or corporations with which it has
voted to merge.
ITEM 3 BELOW MAY BE DELETED IF ALL THE CORPORATIONS ARE ORGANIZED
UNDER THE LAWS OF MASSACHUSETTS AND IF GENERAL LAWS, CHAPTER 156B IS
APPLICABLE TO THEM.
3. That in the case of each of the above named corporations, the laws
of the state of its organization, if other than Massachusetts, permit
the merger herein described, and that all action required under the
laws of each such state in connection with this merger has been duly
taken.
* DELETE THE INAPPLICABLE WORDS. IN CASE THE PARENT CORPORATION IS
ORGANIZED UNDER THE LAWS OF A STATE OTHER THAN MASSACHUSETTS, THESE
ARTICLES ARE TO BE SIGNED BY OFFICERS HAVING CORRESPONDING POWERS AND
DUTIES.
P.C.
4. That at a meeting of the directors of the parent corporation, the
following vote, pursuant to General Laws, Chapter 156B, Section 82,
Subsection (a) was duly adopted:
SEE ATTACHMENT 1 HERETO.
NOTE: VOTES, FOR WHICH THE SPACE PROVIDED ABOVE IS NOT SUFFICIENT, SHOULD BE
LISTED ON ADDITIONAL SHEETS TO BE NUMBERED 4A, 4B, ETC. ADDITIONAL SHEETS MUST
BE 8 1/2 X 11 AND HAVE A LEFT HAND MARGIN OF 1 INCH. ONLY ONE SIDE SHOULD BE
USED.
5. The effective date of the merger shall be the date approved and
filed by the Secretary of the Commonwealth. If a LATER effective date
is desired, specify such date, which shall not be more than THIRTY
DAYS after the date of filing:
December 31, 1999
SECTION 6 BELOW MAY BE DELETED IF THE PARENT CORPORATION IS ORGANIZED
UNDER THE LAWS OF MASSACHUSETTS.
6. The parent corporation hereby agrees that it may be sued in the
Commonwealth of Massachusetts for any prior obligation of any
corporation organized under the laws of Massachusetts with which it
has merged, and any obligation hereafter incurred by the parent
corporation, including the obligation created by General Laws, Chapter
156B, Section 82, Subsection (e), so long as any liability remains
outstanding against the parent corporation in the Commonwealth of
Massachusetts, and it hereby irrevocably appoints the Secretary of the
Commonwealth as its agent to accept service of process in any action
for the enforcement of any such obligations, including taxes, in the
same manner as provided in Chapter 181.
SIGNED UNDER THE PENALTIES OF PERJURY, this 21st day of December 1999,
/s/ Craig C. Horton , President,
---------------------------------------------------------
/s/ Stephen M. Kane , Asst. Clerk,
-------------------------------------------------------
* DELETE THE INAPPLICABLE WORDS. IN CASE THE PARENT CORPORATION IS ORGANIZED
UNDER THE LAWS OF A STATE OTHER THAN MASSACHUSETTS, THESE ARTICLES ARE TO BE
SIGNED BY OFFICERS HAVING CORRESPONDING POWERS AND DUTIES.
|
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF MERGER OF PARENT AND SUBSIDIARY CORPORATIONS
(GENERAL LAWS, CHAPTER 156B, SECTION 82)
I hereby approve the within Articles of Merger of Parent and
Subsidiary Corporations and, the filing fee in the amount of $250.00,
having been paid, said articles are deemed to have been filed with me
this 29th day of Dec., 1999.
EFFECTIVE DATE: December 31, 1999
------------------------------------------------------
/s/ William Francis Galvin
WILLIAM FRANCIS GALVIN
SECRETARY OF THE COMMONWEALTH
|
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF DOCUMENT TO BE SENT TO:
Rich, May, Bilodeau & Flaherty, P.C. Attn: Stephen M. Kane, Esq.
176 Federal Street
Boston, MA 02110-2223
Telephone: (617) 556-3827
FIRST AMENDMENT
TO
SHAREHOLDER RIGHTS AGREEMENT
January __, 2000
First Amendment to that certain Shareholder Rights Agreement, (the
"Agreement"), made as of October 21, 1999, between CORE, INC., a Massachusetts
corporation (the "Company"), and State Street Bank and Trust Company, a
Massachusetts chartered trust company (the "Rights Agent").
Capitalized terms used herein and not otherwise defined will have the
meanings ascribed to them in the Agreement.
WHEREAS, pursuant to the provisions of Section 27 of the Agreement,
prior to the occurrence of a Section 11(a)(ii) Event, the Company and the Rights
Agent shall, if the Board of Directors of the Company so directs, supplement or
amend any provision of this Agreement as the Board of Directors of the Company
may deem necessary or desirable without the approval of any holders of
certificates representing shares of Common Stock of the Company;
WHEREAS, as of the date hereof there has not occurred a Section
11(a)(ii) Event;
WHEREAS, on December 21, 1999, the Board of Directors of the Company
voted to amend the Agreement with respect to ownership of shares of the Common
Stock of the Company by Gilder Gagnon Howe & Co., LLC and Gagnon Securities;
NOW, THEREFORE, pursuant to the provisions of Section 27 of the
Agreement, the Company and the Rights Agent hereby agree as follows:
1. The Agreement is hereby amended so that Gagnon Securities shall be
deemed to be a "Grandfathered Person" under the Agreement. In furtherance
thereof, the Company and the Rights Agent hereby amend SECTION 1(q) of the
Agreement so that, as amended, it shall read in its entirety as follows:
"(q) "GRANDFATHERED PERSON" shall mean any of (i) Gilder Gagnon Howe &
Co., LLC, (ii) Warburg, Pincus Asset Management, Inc. or (iii) Gagnon
Securities, or any of their respective Affiliates or Associates,
PROVIDED, HOWEVER, that any Affiliate or Associate of Gagnon Securities
shall be deemed to be a Grandfathered Person only during such time as
such Person continues to be an Affiliate or Associate of Gagnon
Securities."
2. The Agreement is hereby amended so that the "Grandfathered
Percentage" of Gagnon Securities under the Agreement shall be twenty (20%)
percent of the outstanding shares of Common Stock of the Company. In furtherance
thereof, the Company and the Rights Agent hereby amend SECTION 1(p) of the
Agreement so that, as amended, it shall read in its entirety as follows:
"(p) "GRANDFATHERED PERCENTAGE" shall mean, (i) with respect to any
Grandfathered Person other than Gagnon Securities or any of its
Affiliates or Associates, the percentage of the outstanding shares of
Common Stock that such Grandfathered Person, together with all
Affiliates and Associates of such Grandfathered Person, beneficially
owns as of the Grandfathered Time plus an additional two percent (2%)
and (ii) with respect to Gagnon Securities or any of its Affiliates or
Associates, twenty (20%) percent; provided, however, that, in the event
any Grandfathered Person other than Gagnon Securities or any of its
Affiliates or Associates shall sell, transfer, or otherwise dispose of
any outstanding shares of Common Stock after the Grandfathered Time,
the Grandfathered Percentage shall, subsequent to such sale, transfer
or disposition, mean, with respect to such Grandfathered Person, the
lesser of (i) the Grandfathered Percentage as in effect immediately
prior to such sale, transfer or disposition or (ii) the percentage of
outstanding shares of Common Stock that such Grandfathered Person
beneficially owns immediately following such sale, transfer or
disposition plus an additional two percent (2%)."
3. The Agreement is hereby amended so that the "Grandfathered
Percentage" of Gagnon Securities under the Agreement shall be twenty (20%)
percent of the outstanding shares of Common Stock of the Company. In furtherance
thereof, the Company and the Rights Agent hereby amend SECTION 1(a) of the
Agreement by striking the final sentence of the first paragraph of SECTION 1(a)
and replacing it with the following sentence:
"Any Grandfathered Person who after the Grandfathered Time becomes the
Beneficial Owner of less than 15% of the shares of Common Stock of the
Company then outstanding shall cease to be a Grandfathered Person;
PROVIDED, HOWEVER, that the provisions of this sentence shall not apply
to Gagnon Securities or any of its Affiliates or Associates."
4. Except as otherwise expressly provided herein, all provisions of the
Agreement shall remain in full force and effect.
2
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as an instrument under seal and attested, all as of the day and
year first above written.
Attest: CORE, INC.
By: By:
----------------------------- --------------------------------
Name:
------------------------------
Title:
-----------------------------
Attest: STATE STREET BANK AND
TRUST COMPANY, as rights agent
By: By:
----------------------------- --------------------------------
Name:
------------------------------
Title:
-----------------------------
|
3
CORE, INC.
SUBSIDIARIES OF THE REGISTRANT
The following corporations are wholly-owned subsidiaries of CORE, INC.:
Core Management, Inc. (a California corporation)
Cost Review Services, Inc. (a Texas corporation)
CORE Securities Corp. (a Massachusetts corporation)
Disability Reinsurance Management Services, Inc. (a Delaware corporation)
Integrated Behavioral Health (a California corporation)
Protocol Work Systems, Inc. (a Delaware corporation)
SSDC Corp. (a Delaware corporation)
TCM Services, Inc. (a Delaware corporation)
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-59740), pertaining to the Amended and Restated 1986 Stock
Option Plan, 1991 Stock Option Plan and Stock Option Plan for Directors of
Peer Review Analysis, Inc., and in the Registration Statement (Form S-8 No.
333-00354) pertaining to the CORE, INC. 1991 Stock Option Plan, as amended,
and in the Registration Statement (Form S-8 No. 333-04144) pertaining to the
CORE, INC. 1991 Stock Option Plan, as amended, and in the Registration
Statement (Form S-8 No. 333-15261) pertaining to the CORE, INC. 1991 Stock
Option Plan, as amended, and in the Registration Statement (Form S-8 No.
333-16961) pertaining to the CORE, INC. 1991 Stock Option Plan, as amended,
and in the Registration Statement (Form S-8 No. 333-52923) pertaining to the
CORE, INC. 1991 Stock Option Plan, as amended, Core Management, Inc. Employee
Stock Option Plan and other Stock Options, of our report dated February 18,
2000, with respect to the consolidated financial statements and schedule of
CORE, INC. included in the Annual Report (Form 10-K) for the year ended
December 31, 1999.
/s/ ERNST & YOUNG LLP
Orange County, California
March 29, 2000
|
|
|
|
PERIOD TYPE
|
YEAR
|
|
FISCAL YEAR END
|
DEC 31 1999
|
|
PERIOD START
|
JAN 01 1999
|
|
PERIOD END
|
DEC 31 1999
|
|
CASH
|
0
|
|
SECURITIES
|
0
|
|
RECEIVABLES
|
11,773,803
|
|
ALLOWANCES
|
476,444
|
|
INVENTORY
|
0
|
|
CURRENT ASSETS
|
12,352,595
|
|
PP&E
|
20,217,902
|
|
DEPRECIATION
|
11,299,617
|
|
TOTAL ASSETS
|
51,599,670
|
|
CURRENT LIABILITIES
|
5,591,951
|
|
BONDS
|
0
|
|
PREFERRED MANDATORY
|
0
|
|
PREFERRED
|
0
|
|
COMMON
|
811,429
|
|
OTHER SE
|
30,527,650
|
|
TOTAL LIABILITY AND EQUITY
|
51,599,670
|
|
SALES
|
0
|
|
TOTAL REVENUES
|
64,130,000
|
|
CGS
|
0
|
|
TOTAL COSTS
|
36,349,243
|
|
OTHER EXPENSES
|
0
|
|
LOSS PROVISION
|
415,000
|
|
INTEREST EXPENSE
|
1,573,392
|
|
INCOME PRETAX
|
2,478,074
|
|
INCOME TAX
|
738,320
|
|
INCOME CONTINUING
|
1,739,754
|
|
DISCONTINUED
|
0
|
|
EXTRAORDINARY
|
0
|
|
CHANGES
|
0
|
|
NET INCOME
|
1,739,754
|
|
EPS BASIC
|
0.22
|
|
EPS DILUTED
|
0.21
|
|
|
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