<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-19600
CORE, INC.
(Exact Name of Registrant as Specified in Charter)
AMENDMENT NO. 1
The undersigned Registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K (date
of earliest event reported: September 1, 1998) as set forth in the pages
attached hereto:
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to be signed on its behalf by the
undersigned, hereto duly authorized.
CORE, INC.
Date: October 19, 1998 By: /s/ William E. Nixon
--------------------
William E. Nixon
Chief Financial Officer, Treasurer
and Executive Vice President (Duly
authorized officer)
<PAGE>
CORE, INC.
Item 7 of the Current Report on Form 8-K (date of earliest event reported:
September 1, 1998) of CORE, INC., a Massachusetts corporation, is hereby amended
to read in its entirety as follows:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired.
Pages F-1 through F-7 contain the audited balance sheet of
Disability Reinsurance Management Services, Inc. ("DRMS") as of June 30, 1998
and the related statements of income and accumulated deficit, and cash flows
for the six months then ended; the audited balance sheet of DRMS as of
December 31, 1997 and the related statements of income and accumulated
deficit, and cash flows for the year then ended; and the unaudited balance
sheet of DRMS as of June 30, 1997 and the related statements of income and
accumulated deficit, and cash flows for the six months then ended. Pages F-8
through F-14 contain the audited balance sheets of Disability Reinsurance
Management Services, Inc. as of December 31, 1996 and 1995 and the related
statements of operations and accumulated deficit, and cash flows for the
years then ended.
(b) PRO FORMA Financial Information.
Pages F-15 through F-19 contain an unaudited pro forma
combined condensed balance sheet as of June 30, 1998 and unaudited pro forma
combined condensed statements of operations for the year ended December 31, 1997
and the six months ended June 30, 1998.
(c) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
2.1 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.
10.1 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.
10.1 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.
10.2 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.
10.3 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.
2
<PAGE>
10.4 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.
10.5 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.
10.6 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.
</TABLE>
3
<PAGE>
INDEPENDENT AUDITORS REPORT
The Board of Directors and Stockholders
Disability Reinsurance Management Services, Inc.
We have audited the accompanying balance sheets of Disability Reinsurance
Management Services, Inc., as of June 30, 1998 and December 31, 1997, and the
related statements of income and accumulated deficit, and cash flows for the six
months ended June 30, 1998 and the year ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Disability Reinsurance
Management Services, Inc., as of June 30, 1998 and December 31, 1997, and the
results of its operations and its cash flows for the six months ended June 30,
1998 and the year ended December 31, 1997 in conformity with generally accepted
accounting principles.
/s/ Berry, Dunn, McNeil & Parker
Portland, Maine
August 19, 1998
F-1
<PAGE>
DISABILITY REINSURANCE MANAGEMENT SERVICES, INC.
BALANCE SHEETS
JUNE 30, 1998 AND 1997 AND DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
JUNE 30, December 31, June 30,
1998 1997 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 133,732 $ 187,970 $ 43,970
Management fee receivable 851,081 618,968 461,665
Current portion of notes receivable, stockholders 130,600 93,500 46,800
Prepaid expenses and other current assets 15,999 21,266 6,175
--------------- -------------- -------------
TOTAL CURRENT ASSETS 1,131,412 921,704 558,610
PROPERTY AND EQUIPMENT, NET 168,681 159,347 130,691
NOTES RECEIVABLE, STOCKHOLDERS, EXCLUDING CURRENT PORTION 1,569,400 1,686,500 1,753,200
SOFTWARE COSTS, NET 120,849 134,288 111,329
DEFERRED CHARGES - 86,663 92,852
--------------- -------------- -------------
$ 2,990,342 $ 2,988,502 $ 2,646,682
--------------- -------------- -------------
--------------- -------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 248,900 $ 219,500 $ 50,000
Accounts payable 113,177 74,855 47,429
Accrued expenses and other current liabilities 134,693 140,536 183,694
--------------- -------------- -------------
TOTAL CURRENT LIABILITIES 496,770 434,891 281,123
LONG-TERM DEBT, EXCLUDING CURRENT PORTION 1,853,913 1,850,500 2,150,000
--------------- -------------- -------------
TOTAL LIABILITIES 2,350,683 2,285,391 2,431,123
--------------- -------------- -------------
COMMITMENTS (Note 6)
STOCKHOLDERS' EQUITY
Common stock, $1 par value; 20,000 shares authorized;
7,090 shares issued and outstanding 7,090 7,090 7,090
Paid-in capital 701,910 701,910 701,910
Accumulated deficit (69,341) (5,889) (493,441)
--------------- -------------- -------------
TOTAL STOCKHOLDERS' EQUITY 639,659 703,111 215,559
--------------- -------------- -------------
$ 2,990,342 $ 2,988,502 $ 2,646,682
--------------- -------------- -------------
--------------- -------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
DISABILITY REINSURANCE MANAGEMENT SERVICES, INC.
STATEMENTS OF INCOME AND ACCUMULATED DEFICIT
SIX MONTHS ENDED JUNE 30, 1998 AND 1997 AND
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
JUNE 30, December 31, June 30,
1998 1997 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
OPERATING REVENUES
Management fees $ 2,471,625 $ 3,670,810 $ 1,681,159
Consulting fees 38,794 7,206 -
Commissions - 518,870 -
Interest 185,731 355,131 122,117
---------------- ---------------- --------------
TOTAL OPERATING REVENUES 2,696,150 4,552,017 1,803,276
OPERATING EXPENSES 1,609,609 2,112,253 1,010,239
---------------- ---------------- --------------
OPERATING INCOME 1,086,541 2,439,764 793,037
---------------- ---------------- --------------
OTHER INCOME (EXPENSE)
Interest income 74,800 154,629 78,343
Interest expense (94,793) (314,842) (156,932)
Loss on disposition of equipment - (460) -
---------------- ---------------- --------------
OTHER EXPENSE, NET (19,993) (160,673) (78,589)
---------------- ---------------- --------------
NET INCOME 1,066,548 2,279,091 714,448
ACCUMULATED DEFICIT, BEGINNING OF PERIOD (5,889) (414,980) (414,980)
Less distributions to stockholders ( 1,130,000) (1,870,000) (792,909)
---------------- ---------------- --------------
ACCUMULATED DEFICIT, END OF PERIOD $ (69,341) $ (5,889) $ (493,441)
---------------- ---------------- --------------
---------------- ---------------- --------------
</TABLE>
The accompanying notes are an integral part of these fianancial statements.
F-3
<PAGE>
DISABILITY REINSURANCE MANAGEMENT SERVICES, INC.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997 AND
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
JUNE 30, December 31, June 30,
1998 1997 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,066,548 $ 2,279,091 $ 714,448
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 80,574 153,401 73,619
Loss on disposition of equipment - 460 -
Write-off of deferred charges 86,663 - -
Decrease (increase) in:
Management fee receivable (232,113) (248,223) (45,541)
Prepaid expenses and other current assets 5,267 (1,696) (31,984)
Increase (decrease) in:
Accounts payable 38,322 21,897 (5,529)
Accrued expenses and other current liabilities (5,843) 20,536 63,694
---------------- ---------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,039,418 2,225,466 768,707
---------------- ---------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans to stockholders - (2,200,000) (2,200,000)
Repayments of notes receivable, stockholders 80,000 420,000 400,000
Capital expenditures (41,962) (145,212) (63,848)
Purchase of software (34,507) (75,752) (31,448)
Deferred charges - (8,604) (8,604)
---------------- ---------------- ---------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 3,531 (2,009,568) (1,903,900)
---------------- ---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 2,200,000 2,600,000 2,600,000
Principal payments on long-term debt (2,167,187) (530,000) (400,000)
Distributions to stockholders (1,130,000) (1,870,000) (792,909)
Repayment of due to affiliates - (400,000) (400,000)
---------------- ---------------- ---------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (1,097,187) (200,000) 1,007,091
---------------- ---------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (54,238) 15,898 (128,102)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 187,970 172,072 172,072
---------------- ---------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 133,732 $ 187,970 $ 43,970
---------------- ---------------- ---------------
---------------- ---------------- ---------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest $ 214,400 $ 184,300 $ 93,400
---------------- ---------------- ---------------
---------------- ---------------- ---------------
</TABLE>
The accompanying notes are an integral part of these fianancial statements.
F-4
<PAGE>
DISABILITY REINSURANCE MANAGEMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
NATURE OF OPERATIONS
The Company was incorporated on June 1, 1993, in the state of Delaware. The
Company is a reinsurance manager specializing in disability insurance and
provides claims administration, fiduciary account management, underwriting,
marketing, and support services. The Company derives its revenues primarily
from a management services agreement with the sponsor of a disability
reinsurance alliance and the members thereof.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
The Company considers all liquid investments with an original maturity of
three months or less to be cash equivalents. The Company maintains its cash
accounts in bank deposit accounts, which, at times, may exceed federally
insured limits. The Company has not experienced any losses in such
accounts. The Company believes it is not exposed to any significant risk on
cash and cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciation is provided
using the straight-line method over the estimated useful lives of the
assets. Expenditures for repairs and maintenance are charged to operations
as incurred.
SOFTWARE COSTS
Software is stated at cost and amortization is provided using the
straight-line method over the estimated useful lives of the assets.
DEFERRED CHARGES
Deferred charges consist of costs related to long-term debt issuance,
discussed in Note 7, which were charged against operations when the debt
was repaid.
INCOME TAXES
The Company, with the consent of its stockholders, has elected to be taxed
as an S corporation under the provisions of the Internal Revenue Code,
which provides that, in lieu of corporate income taxes, the stockholders
are taxed on their proportionate share of the Company's taxable income. The
financial statements do not include any provision or liability for
corporate federal income taxes.
REVENUE RECOGNITION
Management fees, representing a percentage of the premiums on disability
policies of the Disability Alliance for Reinsurance Treaties (DART) pool
that are managed by the Company, are recorded monthly as earned.
Commissions, representing a percentage of the overall profits on the pooled
policies under management, are calculated annually based on operating
results that are not known until after the third quarter of the Company's
fiscal year. It is the Company's policy to record commissions only when
they can be reasonably determined. Accordingly, the income statements for
the six months ended June 30, 1998 and 1997 reflect no commissions revenue.
F-5
<PAGE>
DISABILITY REINSURANCE MANAGEMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
2. NOTES RECEIVABLE, STOCKHOLDERS
The Company loaned $2,200,000 of the proceeds of the debt issued on January
22, 1997 (see Note 7) to certain stockholders, owning 50% of the Company's
common stock, who acquired the other 50% with the funds. The notes
receivable are collateralized by the stockholders' stock in the Company,
and are collectible in quarterly installments ranging from $23,000 to
$105,000, together with interest at 8.5%, through December 2004. The note
balance at June 30, 1998, was $1,700,000. Maturities for the next five
years are as follows:
<TABLE>
<S> <C>
1998 $ 130,600
1999 210,100
2000 294,700
2001 379,300
2002 421,600
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Furniture and fixtures $ 114,429 $ 93,554
Office equipment 176,141 155,054
------------ ------------
290,570 248,608
Less accumulated depreciation 121,889 89,261
------------ ------------
$ 168,681 $ 159,347
------------ ------------
------------ ------------
</TABLE>
Depreciation expense was $32,628 and $38,931 for the six months ended
June 30, 1998 and the year ended December 31, 1997, respectively.
4. SOFTWARE COSTS
Software costs consist of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Software costs $ 418,836 $ 384,329
Less accumulated amortization 297,987 250,041
------------ ------------
$ 120,849 $ 134,288
------------ ------------
------------ ------------
</TABLE>
Amortization expense was $47,946 and $102,097 for the six months ended
June 30, 1998 and the year ended December 31, 1997, respectively.
5. TRUSTEE
In its fiduciary capacity, the Company is entrusted with funds of a
reinsurance facility. The balance of these funds as of June 30, 1998 and
December 31, 1997 was approximately $6,154,000 and $5,481,000,
respectively. These funds are not reflected in the accompanying financial
statements. The Company is entitled to a certain percentage of the interest
earned by this facility. The Company earned approximately $181,000 and
$351,000 in interest for the six months ended June 30, 1998 and the year
ended December 31, 1997, respectively.
F-6
<PAGE>
DISABILITY REINSURANCE MANAGEMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
6. LEASES
The Company leases its office space under noncancelable operating leases
that expire over the next two years. Future minimum lease payments are as
follows:
<TABLE>
<S> <C>
1999 $ 62,200
2000 10,400
--------
$ 72,600
--------
--------
</TABLE>
Total rental expense for operating leases approximated $35,000 and $77,000
for the six months ended June 30, 1998 and the year ended December 31,
1997, respectively.
7. BORROWINGS
Long-term debt consists of the $2,102,813 balance of a $2,200,000 8.5% note
issued on January 8, 1998. The debt is due in monthly installments of
approximately $35,000, including interest charged at 8.5%, through January
2005. The debt is collateralized by all corporate assets, the stockholders'
pledges of the Company's common stock, and the stockholders' limited
personal guarantees.
The Company used the proceeds to repay the $2,070,000 balance of a note
issued on January 22, 1997, together with approximately $130,000 of accrued
interest. The unamortized portion of deferred charges, discussed in Note 1,
was charged against earnings in 1998.
Maturities on this long-term debt for the next five years are estimated to
be as follows:
<TABLE>
<S> <C>
1998 $248,900
1999 270,900
2000 294,900
2001 321,000
2002 349,300
</TABLE>
The Company has available a $250,000 line of credit which bears interest at
prime rate and is collateralized by all Company assets. No advances were
outstanding as of June 30, 1998 or 1997 or December 31, 1997.
8. RETIREMENT PLAN
The Company has a 401(k) plan that covers all employees. Expenses are
funded through contributions to the Plan. Amounts included in operating
expenses were $34,602 and $60,652 for the six months ended June 30, 1998
and the year ended December 31, 1997, respectively.
F-7
<PAGE>
INDEPENDENT AUDITORS REPORT
The Board of Directors and Stockholders
Disability Reinsurance Management Services, Inc.
We have audited the accompanying balance sheet of Disability Reinsurance
Management Services, Inc., as of December 31, 1996, and the related
statements of operations and accumulated deficit, and cash flows for the year
then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The financial statements of
Disability Reinsurance Management Services, Inc., as of and for the year
ended December 31, 1995, were audited by other auditors whose report dated
May 7, 1996, expressed an unqualified opinion on these statements.
We conducted our audit in accordance with generally accepted auditing
standards. 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 our audit provides a reasonable
basis for our opinion.
In our opinion, the 1996 financial statements referred to above present
fairly, in all material respects, the financial position of Disability
Reinsurance Management Services, Inc., as of December 31, 1996, and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
/s/ Berry, Dunn, McNeil & Parker
Portland, Maine
January 17, 1997 (except for Note 9 which date is January 22, 1997)
F-8
<PAGE>
DISABILITY REINSURANCE MANAGEMENT SERVICES, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 172,072 $ 268,901
Management fee receivable 370,745 162,437
Current portion of notes receivable, stockholders - 30,500
Prepaid expenses and other current assets 19,570 28,237
-------- ---------
TOTAL CURRENT ASSETS 562,387 490,075
PROPERTY AND EQUIPMENT, NET 53,526 37,933
NOTES RECEIVABLE, STOCKHOLDERS, EXCLUDING CURRENT PORTION - 29,750
SOFTWARE COSTS, NET 160,633 125,159
DEFERRED CHARGES 90,432 -
--------- ---------
$ 866,978 $ 682,917
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 52,958 $ 9,565
Accrued expenses and other current liabilities 120,000 14,000
Due to affiliate 400,000 513,165
-------- -------
TOTAL CURRENT LIABILITIES 572,958 536,730
-------- --------
STOCKHOLDERS' EQUITY
Common stock, $1 par value; 20,000 shares authorized;
7,090 shares issued and outstanding 7,090 7,090
Paid in capital 701,910 701,910
Accumulated deficit (414,980) (562,813)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 294,020 146,187
-------- --------
$ 866,978 $ 682,917
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
DISABILITY REINSURANCE MANAGEMENT SERVICES, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<C> <C>
OPERATING REVENUES
Management fees $2,082,882 $1,031,280
Consulting fees - 14,858
Commissions 303,653 -
Interest 250,321 75,035
--------- ----------
TOTAL OPERATING REVENUES 2,636,856 1,121,173
OPERATING EXPENSES 2,489,023 1,174,972
--------- ---------
NET INCOME (LOSS) 147,833 (53,799)
ACCUMULATED DEFICIT, BEGINNING OF YEAR (562,813) (509,014)
---------- ----------
ACCUMULATED DEFICIT, END OF YEAR $ (414,980) $ (562,813)
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 147,833 $ (53,799)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities
Depreciation and amortization 103,953 63,928
Decrease (increase) in:
Management fee receivable (208,308) (96,103)
Prepaid expenses and other current assets 8,667 (25,723)
Increase (decrease) in:
Accounts payable 43,393 9,565
Accrued expenses and other current liabilities 106,000 (70,048)
--------- ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 201,538 (172,180)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (37,896) (5,647)
Redemption of certificate of deposit - 51,000
Purchase of software (117,124) (91,460)
Deferred charges (90,432) -
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (245,452) (46,107)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Notes receivable, stockholders 60,250 30,500
Note payable, bank - (41,686)
Due to affiliates (113,165) 369,685
--------- ---------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (52,915) 358,499
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (96,829) 140,212
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 268,901 128,689
--------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 172,072 $ 268,901
--------- ---------
--------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest $ - $ 576
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
DISABILITY REINSURANCE MANAGEMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NATURE OF OPERATIONS
The Company was incorporated on June 1, 1993, in the state of Delaware. The
Company is a reinsurance manager specializing in disability insurance and
provides claims administration, fiduciary account management, underwriting,
marketing, and support services. The Company derives its revenues primarily
from a management services agreement with the sponsor of a disability
reinsurance alliance and the members thereof.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
The Company considers all liquid investments with an original maturity of
three months or less to be cash equivalents. The Company maintains its cash
accounts in bank deposit accounts, which, at times, may exceed federally
insured limits. The Company has not experienced any losses in such
accounts. The Company believes it is not exposed to any significant risk on
cash and cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciation is provided
using the straight-line method over the estimated useful lives of the
assets. Expenditures for repairs and maintenance are charged to operations
as incurred.
SOFTWARE COSTS
Software is stated at cost and amortization is provided using the
straight-line method over the estimated useful lives of the assets.
DEFERRED CHARGES
Deferred charges consist of costs related to long-term debt issuance,
discussed in Note 9, to be amortized over the term of the debt.
INCOME TAXES
The Company, with the consent of its stockholders, has elected to be taxed
as an S corporation under the provisions of the Internal Revenue Code,
which provides that, in lieu of corporate income taxes, the stockholders
are taxed on their proportionate share of the Company's taxable income. The
financial statements do not include any provision or liability for
corporate federal income taxes.
2. NOTES RECEIVABLE, STOCKHOLDERS
Three stockholders issued promissory notes in satisfaction of the purchase
of common stock. The notes were paid in full during 1996.
F-12
<PAGE>
DISABILITY REINSURANCE MANAGEMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
3. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Furniture and fixtures $ 51,747 $44,835
Office equipment 53,931 22,945
-------- -------
105,678 67,780
Less accumulated depreciation 52,152 29,847
-------- -------
$ 53,526 $37,933
-------- -------
-------- -------
</TABLE>
Depreciation expense was $22,305 and $15,967 for the years ended
December 31, 1996 and 1995, respectively.
4. SOFTWARE COSTS
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Software costs $308,577 $191,455
Less accumulated amortization 147,944 66,296
-------- --------
$160,633 $125,159
-------- --------
-------- --------
</TABLE>
Amortization expense was $81,648 and $47,961 for the years ended December
31, 1996 and 1995, respectively.
5. DUE TO AFFILIATE
The balance due at December 31, 1996 and 1995, represents expenses paid on
behalf of the Company by an affiliate. The Company paid $600,000 to the
affiliate for consulting services during 1996.
6. TRUSTEE
In its fiduciary capacity, the Company is entrusted with funds of a
reinsurance facility. The balance of these funds as of December 31, 1996
and 1995 was approximately $3,494,000 and $2,338,000, respectively. These
funds are not reflected in the accompanying financial statements. The
Company is entitled to include in income a certain percentage of the
interest earned by this facility. The Company earned approximately $242,000
and $67,000 in interest for the years ended December 31, 1996 and 1995,
respectively.
7. LEASES
The Company leases its office space and certain computer equipment under
noncancelable operating leases that expire over the next two years. Future
minimum lease payments are as follows:
<TABLE>
<S> <C>
1997 $64,400
1998 36,100
</TABLE>
Total rental expense for operating leases approximated $64,400 in 1996 and
$52,200 in 1995.
F-13
<PAGE>
DISABILITY REINSURANCE MANAGEMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
8. RETIREMENT PLAN
The Company has a 401(k) plan that covers all employees. Expenses are
funded through contributions to the Plan. Expenses included in operating
expenses were $47,304 and $36,761 for the years ended December 31, 1996
and 1995, respectively.
9. SUBSEQUENT EVENT
On January 22, 1997, the Company issued $2,600,000 of long-term debt. The
debt is due in quarterly installments, beginning in 1998 through 2005,
ranging from $25,000 to $150,000. It bears interest at a stated rate of
8.5% plus supplemental interest due at the end of its term, or earlier at
the Company's discretion, necessary to provide the debt holder with a 15%
annualized return. The debt is collateralized by all corporate assets and
the shareholders pledges of the Company's common stock.
The Company loaned $2,200,000 of the proceeds to certain shareholders
owning 50% of the Company's common stock that acquired the other 50% with
the funds. The remaining proceeds were used to repay the amount due to
affiliate as of December 31, 1996.
F-14
<PAGE>
PROFORMA COMBINED CONDENSED FINANCIAL DATA (UNAUDITED)
On September 1, 1998, CORE, INC. (the "Company" or "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 "Purchase Agreement"). Pursuant to the Purchase
Agreement, all of the shares of stock of DRMS were acquired in exchange for the
cash payment of $20 million, the issuance of 480,000 shares of CORE common stock
and the future issuance of up to an additional $7 million of CORE common stock
after September 30, 2001, based on the future performance of DRMS. The purchase
price is subject to certain adjustments as set forth in the Purchase Agreement.
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. The acquisition has been accounted for as a purchase.
On March 17, 1998, a wholly owned subsidiary of CORE acquired the
assets of Transcend Case Management, Inc., a Georgia corporation ("TCM"), in
exchange for the assumption of certain liabilities and the future issuance of
shares of common stock of CORE, the number of which shall be equal to a
valuation based upon future revenue performance of TCM. TCM is a provider of
workers' compensation case management services. The acquisition has been
accounted for as a purchase.
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 purchase price of
$6,500,000 and additional performance related cash payments of up to $920,000.
SSDC provides disability management services with two key areas of business:
social security disability benefits advocacy and Medicare coordination of
benefits. The acquisition has been accounted for as a purchase.
The unaudited pro forma combined condensed balance sheet and
statements of operations and accompanying notes should be read in conjunction
with the consolidated financial statements of CORE contained in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997, the
Company's Quarterly Report on Form 10-Q for the quarterly period ended June
30, 1998 and DRMS's financial statements for the period ended June 30, 1998
and the years ended December 31, 1997, 1996 and 1995 included in this Form
8-K/A. The unaudited pro forma combined condensed balance sheet as of June
30, 1998 and the statements of operations for the year ended December 31,
1997 and the six months ended June 30, 1998 gives effect to the acquisitions
of SSDC, TCM and DRMS as if the transactions had occurred on January 1, 1997.
The unaudited pro forma combined condensed financial data set forth below do
not purport to represent what the Company's results of operations would have
been had the transactions described above occurred on the date indicated, or
to project the Company's results of operations for any future period or date,
nor does it give effect to any matters other than those described in the
notes thereto.
F-15
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED BALANCE SHEET (UNAUDITED)
AS OF JUNE 30, 1998
ACQUISITION
CORE DRMS ADJUSTMENTS PRO FORMA
---- ---- ----------- -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 3,791,211 $ 133,732 $(3,000,000) (1a) $ 924,943
Investments 2,239,224 2,239,224
Accounts receivable 8,362,788 851,081 9,213,869
Notes receivable, current portion 130,600 (130,600) (1b) -
Other assets 768,953 15,999 784,952
----------- ----------- ----------- ------------
Total current assets 15,162,176 1,131,412 (3,130,600) 13,162,988
Property and equipment, net 7,181,023 289,530 7,470,553
Notes receivable, net of current
portion 1,569,400 (1,569,400) (1b) -
Deposits and other assets 1,203,360 1,203,360
Goodwill, net 4,453,734 21,646,605 (1c) 26,900,339
800,000 (1d)
Intangibles, net 91,839 91,839
----------- ----------- ----------- ------------
Total assets $28,092,132 $ 2,990,342 $17,746,605 $ 48,829,079
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
Accounts payable $ 922,528 $ 113,177 $ 1,035,705
Accrued expenses 2,042,984 134,693 (10,923) (1b) 2,966,754
800,000 (1d)
Accrued payroll 800,232 800,232
Deferred income taxes 68,316 68,316
Notes payable 89,582 248,900 (248,900) (1b) 2,339,582
2,250,000 (1e)
Capital lease obligations 16,707 16,707
----------- ----------- ---------- ------------
Total current liabilities 3,940,349 496,770 2,790,177 7,227,296
Notes payable, net of current portion 323,824 1,853,913 (1,853,913) (1b) 15,073,824
14,750,000 (1e)
Other long-term liabilities 307,508 307,508
Common stock 733,321 7,090 48,000 (1f) 781,321
(7,090) (1g)
Additional paid-in capital 35,063,322 701,910 2,652,000 (1f) 37,715,322
(701,910) (1g)
Deferred compensation (13,392) (13,392)
Accumulated deficit (12,262,800) (69,341) 69,341 (1g) (12,262,800)
----------- ----------- ---------- ------------
Total stockholders' equity 23,520,451 639,659 2,060,341 26,220,451
----------- ----------- ---------- ------------
Total liabilities and stockholders'
equity $28,092,132 $ 2,990,342 $17,746,605 $48,829,079
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
F-16
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
ACQUISITION
CORE SSDC TCM DRMS ADJUSTMENTS PRO FORMA
---- ---- --- ---- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $38,506,563 $3,392,938 $1,860,571 $4,552,017 $ (108,409) (2a) $48,203,680
Cost of services 23,330,004 1,661,951 1,420,370 (2b) 27,897,126
(108,409) (2a)
1,593,210 (2c)
------------------------------------------------------------- ---------- -------------
Gross profit 15,176,559 3,392,938 198,620 4,552,017 (3,013,580) 20,306,554
Operating expenses:
Operating 1,972,584 2,112,253 (1,972,584) (2b)
expenses (2,112,253) (2c)
General and 7,940,005 675,640 (102,000) (2a) 9,243,320
administrative 437,163 (2b)
292,512 (2c)
Sales and 2,482,561 527,877 86,847 (2b) 3,170,415
marketing 73,130 (2c)
Depreciation 1,954,810 102,000 (2a) 3,488,506
and amortization 23,795 (2b)
153,401 (2c)
162,500 (2d)
1,100,000 (2e)
(8,000) (2f)
------------------------------------------------------------- ---------- -------------
Total 12,377,376 1,972,584 1,203,517 2,112,253 (1,763,489) 15,902,241
operating expense
------------------------------------------------------------- ---------- -------------
Income (loss) from 2,799,183 1,420,354 (1,004,897) 2,439,764 (1,250,091) 4,404,313
continuing
operations
Other income
(expense):
Interest and 589,853 70,455 154,629 (150,000) (2g) 484,937
other income (180,000) (2h)
Interest and (27,315) (315,302) (4,410) (2b) (1,962,027)
other expense
(1,615,000) (2i)
------------------------------------------------------------- ---------- -------------
562,538 70,455 (160,673) (1,949,410) (1,477,090)
------------------------------------------------------------- ---------- -------------
Income (loss)
before income 3,361,721 1,490,809 (1,004,897) 2,279,091 (3,199,501) 2,927,223
taxes and
extraordinary
item
Provision for (610,000) (216,000) (2j) (731,000)
income taxes 183,000 (2k)
(88,000) (2l)
------------------------------------------------------------- ---------- -------------
Income (loss)
before $ 2,751,721 $ 1,490,809 $(1,004,897) $ 2,279,091 $(3,320,501) $ 2,196,223
extraordinary
item
------------------------------------------------------------- ---------- -------------
------------------------------------------------------------- ---------- -------------
Earnings per
common share:
Income before
extraordinary
item:
Basic $0.38 $0.40
----------- -------------
----------- -------------
Diluted $0.35 $0.37
----------- -------------
----------- -------------
Weighted average
common shares and
equivalents:
Basic 7,246,000 480,000 (2m) 7,726,000
----------- -------------
----------- -------------
Diluted 7,934,000 530,000 (2n) 8,464,000
----------- -------------
----------- -------------
</TABLE>
F-17
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
ACQUISITION
CORE TCM DRMS ADJUSTMENTS PRO FORMA
---- --- --- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues $20,930,741 $432,563 $2,696,150 $ (25,474) (2a) $24,033,980
Cost of services 13,442,629 221,646 (25,474) (2a) 14,582,501
943,700 (2c)
--------------------------------------------- ----------- ---------------
Gross profit 7,488,112 210,917 2,696,150 (943,700) 9,451,479
Operating expenses:
Operating expense 1,609,609 (1,609,609) (2c) --
General and administrative 4,487,961 101,556 (6,250) (2a) 4,826,532
243,265 (2c)
Sales and marketing 1,717,516 73,776 117,070 (2c) 1,908,362
Non-recurring charges 4,935,732 4,935,732
Depreciation and
amortization 1,021,552 6,250 (2a) 1,658,376
80,574 (2c)
550,000 (2e)
--------------------------------------------- ----------- ---------------
Total operating expense 12,162,761 175,332 1,609,609 (618,700) 13,329,002
--------------------------------------------- ----------- ---------------
Income (loss) from (4,674,649) 35,585 1,086,541 (325,000) (3,877,523)
continuing operations
Other income (expense):
Interest and other income 239,416 74,800 (90,000) (2h) 224,216
Interest and other expense (94,793) (807,500) (2i) (902,293)
Nonrecurring charges
directly attributable to
the transaction (225,000) (2o) (225,000)
--------------------------------------------- ----------- ---------------
239,416 (19,993) (1,122,500) (903,077)
--------------------------------------------- ----------- ---------------
Income (loss) before income (4,435,233) 35,585 1,066,548 (1,447,500) (4,780,600)
taxes
Benefit for income taxes 135,000 135,000
--------------------------------------------- ----------- ---------------
Net income (loss) $(4,300,233) $ 35,585 $1,066,548 $(1,447,500) $(4,645,600)
--------------------------------------------- ----------- ---------------
--------------------------------------------- ----------- ---------------
Earnings (loss) per common share:
Net income (loss):
Basic $ (0.59) $ (0.60)
------------ ---------------
------------ ---------------
Weighted average common shares and equivalents:
Basic 7,319,000 480,000 (2m) 7,799,000
------------ ---------------
------------ ---------------
</TABLE>
F-18
<PAGE>
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL DATA (UNAUDITED)
(1) The acquisition adjustments included on the Proforma Combined Condensed
Balance Sheet (Unaudited) consist of the following and represent:
(a) Decrease in cash balances upon the acquisition of DRMS.
(b) Elimination of notes receivable, notes payable and related
interest payable which were excluded from the acquisition of DRMS.
(c) Goodwill acquired in the DRMS acquisition.
(d) Transaction costs incurred in connection with the acquisition
of DRMS.
(e) Debt incurred upon the acquisition of DRMS.
(f) CORE common stock issued to the former shareholders of
DRMS upon the acquisition of DRMS.
(g) Elimination of DRMS book equity.
The allocation of the DRMS purchase price is tentative pending
completion of fair value determinations for the net assets acquired.
The allocation may change with the completion of these
determinations.
(2) The acquisition adjustments included on the Proforma Combined Condensed
Statements of Operations (Unaudited) consist of the following and
represent:
(a) Certain of TCM's expenses have been reclassified to be consistent
with CORE's classifications. The reclassifications have no impact
on income from operations. Expenses reclassified include
depreciation expenses (included in TCM's general and
administrative expenses) and billable travel costs (included in
TCM's costs of services rather than netted against revenues as
with CORE's classifications).
(b) Certain of SSDC's expenses have been reclassified to be consistent
with CORE's classifications. The reclassifications have no impact
on income from operations. Expenses reclassified include salaries
and benefits, equipment and facilities rent and result in the
reclassification of SSDC's operating expenses to cost of services,
general and administrative expenses, sales and marketing expenses,
depreciation and amortization expenses and interest expenses.
(c) Certain of DRMS' expenses have been reclassified to be consistent
with CORE's classifications. The reclassifications have no impact
on income from operations. Expenses reclassified include salaries
and benefits, travel, and rent and result in the reclassification
of SSDC's operating expenses to cost of services, general and
administrative expenses, sales and marketing expenses and
depreciation and amortization expenses.
(d) Pro forma amortization expense of goodwill purchased from
SSDC, valued at $6,500,000, and amortized on a straight-line basis
over 20 years.
(e) Pro forma amortization expense of goodwill purchased from
DRMS, valued at $22,000,000, and amortized on a straight-line
basis over 20 years.
(f) Decrease in depreciation for SSDC assets not acquired in the
purchase.
(g) Reduction of investment income resulting from the use of
short-term investments to finance the initial purchase price paid
for SSDC.
(h) Reduction of investment income resulting from the use of
short-term investments to finance $3,000,000 of the cash purchase
price paid for the acquisition of DRMS.
(i) Increase in interest expense resulting from interest charges
incurred (at 9.50%) on the funds borrowed to finance $17,000,000
of the cash purchase price paid for the acquisition of DRMS.
(j) Increase in income tax provision as a result of the income
recognized by SSDC for the six month period ended June 24, 1997.
The pro forma provision for income taxes has been computed
assuming the pro forma results of operations had been included in
a consolidated federal income tax return.
(k) Decrease in income tax provision as a result of the loss
recognized by TCM for the year ended December 31, 1997. The pro
forma provision for income taxes has been computed assuming the
pro forma results of operations had been included in a
consolidated federal income tax return.
(l) Increase in income tax provision as a result of the income
recognized by DRMS for the year ended December 31, 1997, as offset
by certain acquisition adjustments. The pro forma provision for
income taxes has been computed assuming the pro forma results of
operations had been included in a consolidated federal income tax
return.
(m) Issuance of 480,000 shares of CORE common stock to the former
shareholder of DRMS upon the acquisition of DRMS.
(n) Issuance of shares (as noted in footnote 2m), plus the
dilutive effect of options issued upon the acquisition of DRMS.
(o) Reclassification of expenses incurred by DRMS that are
directly related to the transaction, including mostly legal and
financial adviser fees incurred through June 30, 1998.
F-19
