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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): DECEMBER 23, 1998
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CORE, INC.
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(Exact name of registrant as specified in its charter)
Commission file number 0-19600
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MASSACHUSETTS 04-2828817
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(State or other jurisdiction (IRS employer identification no.)
of incorporation)
18881 Von Karman Avenue, Suite 1750, Irvine, California 92612
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (949) 442-2100
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CORE, INC.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On March 17, 1998, TCM Services, Inc. ("TCM"), a wholly-owned subsidiary of
CORE, INC., a Massachusetts corporation ("CORE"), acquired the assets of
Transcend Case Management, Inc., a Georgia corporation specializing in the
business of managing workers compensation cases ("Transcend"), pursuant to an
Asset Purchase Agreement dated March 17, 1998 (the "Purchase Agreement").
Pursuant to the Purchase Agreement, the purchase price for such assets was to be
a number of shares of common stock of CORE, based upon revenue performance of
TCM in 1999 or 2000. The Purchase Agreement also provided that in the event TCM
incurred losses, as defined in the Purchase Agreement, in excess of $60,000 in
any three month period, TCM could elect to terminate the operation, subject to
Transcend's option to reacquire the assets of TCM with a minimum net book value
(the "Option to Reacquire the Assets").
In October 1998, TCM notified Transcend in writing that TCM lost more than
$60,000 in several three month periods and that due to such losses TCM was
planning to close their operation subject to Transcend's Option to Reacquire the
Assets. In December 1998, Transcend exercised its Option to Reacquire the
Assets. On December 23, 1998, TCM transferred substantially all its assets to
Transcend.
Notwithstanding the exercise of the Option to Reacquire the Assets,
Transcend has initiated arbitration concerning TCM's operation of the business
prior to Transcend's reacquisition of assets.
Management of CORE, INC. believes that there are meritorious defenses to
the claims made by Transcend, intends to vigorously defend against such claims
and intends to assert counterclaims against Transcend in the arbitration.
Prior to the consummation of these transactions there was no material
relationship between Transcend Case Management, Inc. or its owner, Transcend
Services, Inc., and CORE or any of CORE's affiliates, directors or officers, or
any associate of any such director or officer.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
Not applicable.
(b) PRO FORMA FINANCIAL INFORMATION.
No pro forma financial information has been provided for the year
ended December 31, 1997 because the acquisition and disposition of
the assets of TCM each occurred within the current calendar year
(1998) for which CORE has not yet filed an annual report. Pages
F-1 through F-4 contain an unaudited pro forma combined condensed
balance sheet as of September 30, 1998 and an unaudited pro forma
combined condensed statement of operations for the nine months
ended September 30, 1998.
(c) EXHIBITS.
Exhibit
Number Description
- -------- -----------
10.1 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.
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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: January 6, 1999 By: /s/ William E. Nixon
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William E. Nixon
Chief Financial Officer, Executive
Vice President and Treasurer
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CORE, INC.
PRO FORMA COMBINED CONDENSED FINANCIAL DATA (UNAUDITED)
On March 17, 1998, TCM Services, Inc. ("TCM"), a wholly-owned subsidiary
of CORE, INC., a Massachusetts corporation ("CORE"), acquired the assets of
Transcend Case Management, Inc., a Georgia corporation specializing in the
business of managing workers compensation cases ("Transcend"), pursuant to an
Asset Purchase Agreement dated March 17, 1998 (the "Purchase Agreement") in a
transaction accounted for as a purchase business combination. Pursuant to
the Purchase Agreement, the purchase price for such assets was to be a number
of shares of common stock of CORE, based upon revenue performance of TCM in
1999 or 2000. The Purchase Agreement also provided that in the event TCM
incurred losses, as defined in the Purchase Agreement, in excess of $60,000
in any three month period, TCM could elect to terminate the operation,
subject to Transcend's option to reacquire the assets of TCM with a minimum
net book value (the "Option to Reacquire the Assets"). In October 1998, TCM
notified Transcend in writing that TCM lost more than $60,000 in several
three months periods and that due to such losses TCM was planning to close
their operation subject to Transcend's Option to Reacquire the Assets. In
December 1998, Transcend exercised its Option to Reacquire the Assets. On
December 23, 1998, TCM transferred substantially all its assets to Transcend.
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
business combination. Pursuant to the Stock 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 Stock 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 unaudited pro forma combined condensed balance sheet and statement
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 and in the Company's
Quarterly Report on Form 10-Q for the quarterly period ended September 30,
1998. In addition, reference should be made to the Current Reports regarding
the acquisitions of TCM and DRMS filed by the Company during 1998 on Form 8-K
and each subsequently amended on Form 8-K/A. The unaudited pro forma
combined condensed balance sheet as of September 30, 1998 and the statement
of operations for the nine months ended September 30, 1998 gives effect to
the disposition of TCM and acquisition of DRMS as if these transactions had
occurred on January 1, 1998. The unaudited pro forma combined condensed
financial data set forth below are provided for comparative purposes only and
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-1
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CORE, INC.
PRO FORMA COMBINED CONDENSED BALANCE SHEET (UNAUDITED)
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
CORE ADJUSTMENTS PRO FORMA
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<S> <C> <C> <C> <C>
Cash and cash equivalents $ 1,992,497 $ 1,992,497
Accounts receivable 10,792,884 $ (426,066) (1a) 10,366,818
Other assets 1,289,214 (6,890) (1a) 1,282,324
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Total current assets 14,074,595 (432,956) 13,641,639
Property and equipment, net 7,503,572 (48,786) (1a) 7,454,786
Deposits and other assets 840,860 - 840,860
Goodwill, net 26,784,862 126,453 (1b) 26,911,315
Intangibles, net 80,478 - 80,478
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Total assets $ 49,284,367 $ (355,289) $ 48,929,078
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Accounts payable $ 1,993,138 $ (388,934) (1a) $ 1,604,204
Accrued expenses 3,129,271 (88,578) (1a) 3,040,693
Advances under revolving line of credit 2,500,000 - 2,500,000
Accrued payroll 366,312 (9,790) (1a) 356,522
Deferred income taxes 68,316 - 68,316
Notes payable 207,400 - 207,400
Capital lease obligations 12,354 - 12,354
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Total current liabilities 8,276,791 (487,302) 7,789,489
Notes payable, net of current portion 189,638 - 189,638
Advances under revolving line of credit, net of current portion 14,500,000 - 14,500,000
Other long-term liabilities 254,520 - 254,520
Common stock 781,614 - 781,614
Additional paid-in capital 37,761,173 - 37,761,173
Deferred compensation (13,392) - (13,392)
Accumulated deficit (12,465,977) 132,013 (1a) (12,333,964)
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Total stockholder's equity 26,063,418 132,013 26,195,431
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Total liabilities and stockholders' equity $ 49,284,367 $ (355,289) $ 48,929,078
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</TABLE>
F-2
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CORE, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
CORE DRMS ADJUSTMENTS PRO FORMA
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<S> <C> <C> <C> <C> <C>
Revenues $32,373,654 $3,823,530 $(939,022) (2a) $35,258,162
Cost of services 20,440,617 - (737,329) (2a) 20,659,171
955,883 (2b)
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Gross profit 11,933,037 3,823,530 (1,157,576) 14,598,991
Operating expenses:
Operating expense 2,148,828 (2,148,828) (2b) -
General and administrative 6,934,536 - (105,285) (2a) 7,383,922
554,671 (2b)
Sales and marketing 2,648,847 - (217,172) (2a) 2,737,557
305,882 (2b)
Non-recurring charges 5,579,586 - - 5,579,586
Depreciation and amortization 1,624,043 - (11,249) (2a) 2,470,186
107,392 (2b)
750,000 (2c)
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Total operating expense 16,787,012 2,148,828 (764,589) 18,171,251
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Income (loss) from continuing operations (4,853,975) 1,674,702 (392,987) (3,572,260)
Other income (expense):
Interest and other income 297,695 104,353 (120,000) (2d) 282,048
Interest and other expense (136,858) (123,399) (1,076,667) (2e) (1,336,924)
Nonrecurring charges directly
attributable to the transaction - - (225,000) (2f) (225,000)
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160,837 (19,046) (1,421,667) (1,279,876)
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Income (loss) before income taxes (4,693,138) 1,655,656 (1,814,654) (4,852,136)
Benefit for income taxes 195,000 - - 195,000
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Net income (loss) $(4,498,138) $1,655,656 $(1,814,654) $(4,657,136)
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Earnings (loss) per common share:
Net income (loss):
Basic $(0.61) $(0.60)
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Diluted $(0.61) $(0.60)
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Weighted average common shares and equivalents:
Basic 7,377,000 426,667 (2g) 7,803,667
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Diluted 7,377,000 426,667 (2g) 7,803,667
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</TABLE>
F-3
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CORE, INC.
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL DATA (UNAUDITED)
(1) The adjustments included on the Pro Forma Combined Condensed Balance Sheet
(Unaudited) consist of the following and represent:
(a) Elimination of TCM balances included in CORE's consolidated balances
as of September 30, 1998.
(b) Elimination of negative goodwill related to the acquisition of TCM.
(2) The adjustments included on the Pro Forma Combined Condensed Statement of
Operations (Unaudited) consist of the following and represent:
(a) Elimination of TCM operating results included in CORE's consolidated
operating results for the nine months ended September 30, 1998.
(b) 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 DRMS'
operating expenses to cost of services, general and administrative
expenses, sales and marketing expenses and depreciation and
amortization expenses.
(c) Pro forma amortization expense of goodwill purchased from DRMS, valued
at $22,000,000, and amortized on a straight-line basis over 20 years.
(d) 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.
(e) 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.
(f) Reclassification of expenses incurred by DRMS that are directly
related to the transaction, including mostly legal and financial
adviser fees incurred through September 30, 1998.
(g) Weighted average issuance of 480,000 shares of CORE common stock to
the former shareholder of DRMS upon the acquisition of DRMS.
F-4
