<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-K



         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                   For the fiscal year ended DECEMBER 31, 1998
                                             -----------------

                         Commission file number 0-19600
                                                -------

                                   CORE, INC.
                                   ----------
             (Exact name of registrant as specified in its charter)

                  MASSACHUSETTS                                 04-2828817
---------------------------------------------------------  -------------------
(State of jurisdiction of incorporation or organization)     (IRS employer
                                                           identification no.)

        18881 VON KARMAN AVENUE, SUITE 1750, IRVINE, CALIFORNIA  92612
        ---------------------------------------------------------------
          (Address of principal executive offices)          (zip code)

       Registrant's telephone number, including area code: (949) 442-2100
                                                           --------------

        Securities registered pursuant to Section 12(b) of the Act: NONE
                                                                   -----

          Securities registered pursuant to Section 12(g) of the Act:

                     COMMON STOCK, PAR VALUE $0.10 PER SHARE
                     ---------------------------------------
                                (Title of class)

Indicate by check "X" whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X  No
                                      ---   ---

Indicate by check "X" if disclosure of delinquent filers pursuant to Item 405 
of Regulation S-K is not contained herein, and will not be contained, to the 
best of the Registrant's knowledge, in definitive proxy or information 
statements incorporated by reference in Part III of this Form 10-K or any 
amendment to this Form 10-K. [ ]

The aggregate market value of the voting stock held by non-affiliates of the 
Registrant as of March 22, 1999 was $54,771,047. On March 22, 1999, there 
were 7,891,577 shares of the Registrant's Common Stock outstanding.

         Documents incorporated by reference: INFORMATION CALLED FOR IN PART 
III OF THIS FORM 10-K IS INCORPORATED BY REFERENCE TO THE REGISTRANT'S 
DEFINITIVE PROXY STATEMENT WITH RESPECT TO THE 1999 ANNUAL MEETING OF 
STOCKHOLDERS, TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION 
PURSUANT TO REGULATION 14A.

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                             TABLE OF CONTENTS

<TABLE>
<CAPTION>

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<S>         <C>                                                                                <C>
PART I

Item 1      Business                                                                             3

Item 2      Properties                                                                          14

Item 3      Legal Proceedings                                                                   15

Item 4      Submission of Matters to a Vote of Security Holders                                 15

            Executive Officers of the Registrant                                                16


PART II

Item 5      Market for Registrant's Common Equity and Related Stockholder Matters               18

Item 6      Selected Financial Data                                                             20

Item 7      Management's Discussion and Analysis of Financial Condition and
                Results of Operations                                                           21

Item 7a     Quantitative and Qualitative Disclosures About Market Risk                          28

Item 8      Financial Statements and Supplementary Data                                         28

Item 9      Changes in and Disagreements with Accountants on Accounting and
                Financial Disclosure                                                            28


PART III

Item 10     Directors and Executive Officers of the Registrant                                  28

Item 11     Executive Compensation                                                              28

Item 12     Security Ownership of Certain Beneficial Owners and Management                      28

Item 13     Certain Relationships and Related Transactions                                      28


PART IV

Item 14     Exhibits, Financial Statement Schedules and Reports on Form 8-K                     29

            Index to Financial Statements                                                      F-1
</TABLE>
                                       2

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                                     PART I

ITEM 1.  BUSINESS.

         CORE, INC. ("CORE" or the "Company") is a national provider of 
employee absence management services to Fortune 500 companies and other 
self-insured employers, third-party administrators and insurance carriers. 
The Company's services include Integrated Disability Management (which 
consist of the Company's proprietary WorkAbility-Registered Trademark- 
Absence Management program, disability reinsurance management services, 
social security disability benefits advocacy, analytic consulting services, 
onsite job profiling and 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. The 
Company'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, medical policy and quality independent specialty 
physician review services for use within utilization management programs of 
the Company's insurance company and self-insured corporate clients. The 
Company believes its more than 325 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 the Company'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. Some important factors the Company believes could cause such 
results to differ include the Company's reliance on its WorkAbility program, 
the Company's dependence on key clients, risks associated with the Company's 
growth strategy, increases or changes in government regulation and 
competition. The foregoing list of factors is not intended to represent a 
complete list of the general or specific risks that may affect the Company. 
It should be recognized that other risks may be significant, presently or in 
the future.

HISTORY OF CORE

         The Company 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. The CMI/PRA 
Merger was treated as a pooling of interests for accounting purposes. In July 
1995, the Company changed its name from Peer Review Analysis, Inc. to CORE, 
INC. The description herein of the business of the Company includes the 
operations of both PRA and CMI from the inception of both companies.

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         On October 2, 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, the Company 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 the Company, 
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, the Company acquired all shares of stock of Disability 
Reinsurance Management Services, Inc. ("DRMS"), a full-service reinsurance 
intermediary manager.

         Effective October 31, 1998, the Company discontinued the operations 
of CRS. On December 23, 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.

         The Company'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 the Company.


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 several 1997 studies exceeded $2,200 per 
employee, or 8% of total payroll costs. These expenses present a significant 
challenge to corporate productivity. The Company estimates that total U.S. 
costs due to injury and illness-related workplace absence will grow to $340 
billion by the year 2000, double what they were at the start of the decade.

      According to industry sources, disability costs including workers' 
compensation expenditures grew at an average annual rate of over 18% from 
1990 through 1996, and the Company believes this growth is continuing. The 
Company 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%-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. Corporate downsizing and 
global competition have focused Corporate America on achieving real 
productivity gains. With the importance of each remaining job magnified, 
employers are actively looking for new tools to help control workplace 
absence. Until recently, recognition and management of these productivity 

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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 the Company's 
clients control and monitor disability, workers' compensation and health care 
costs without compromising the quality of care or services available to 
patients. The Company's service lines include: 

         (1)  Integrated Disability Management,

         (2)  Peer Review Analysis, 

         (3)  Exiting/exited services, and 

         (4)  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

         The Company estimates that total direct and indirect expenditures 
for medically-related workplace absence are approximately $260 billion 
annually, of which less than 25% are 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 

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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 the Company and maintained through the 
statistical and clinical analysis of disability utilization data. The 
WorkAbility program allows the Company 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 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
            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 the Company 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 

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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.

         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 the Company 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.

         The addition of DRMS to the CORE family provides a strategic 
opportunity to provide additional long-term disability services to CORE 
customers. Through DRMS, CORE can also provide an insurance option to CORE 
clients. Finally, DRMS' network of insurance contacts can provide possible 
opportunities for CORE to provide services to insurance carriers.

         SOCIAL SECURITY ADVOCACY

         The Company'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. The Company'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

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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 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 
the Company 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.

         The Company is also considering licensing other software products, 
such as the family medical leave administration system to third parties.


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, medical policy and quality 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. The Company believes 
its more than 325 Board certified physician reviewers comprise the largest 
independent physician review organization in the country. The Company's 
consulting relationship with this large base of physicians has positioned the 
Company to offer an independent external appeal review service, which is 
mandated under several state laws and generally requires specialty-matched 
reviews. The Company 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

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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.

         Reviews under the Company'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.

         The Company 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 the Company'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 the Company'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.

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EXITING/EXITED SERVICES

Exiting/exited services includes the following products and services:
         Regional workers' compensation field case management (CRS and TCM)
         Regional workers' compensation bill audit (CRS)
         Integrated Behavioral Health

         During 1998, the Company assessed the performance and outlook for 
each of its service lines and made a 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 minimum profit margins 
did not appear to be attainable. The following three product lines were 
identified as not satisfying the long-term goals of the Company:

         -    Regional workers' compensation field case management services as
              delivered through CORE's subsidiaries, CRS and TCM. Both of 
              these subsidiaries operated at a loss during 1998. Core believed
              that these subsidiaries could not operate at minimum profit margin
              targets. Accordingly, the Company exited CRS's and TCM's regional
              field case management services on October 31 and December 23,
              1998, respectively.

         -    Regional workers' compensation bill audit services were delivered
              by CRS. Again, it was determined that these services would not
              meet CORE's profit and market leadership goals, and as such, were
              exited as of October 31, 1998.

         -    Integrated Behavioral Health, a California corporation ("IBH") is
              a wholly-owned subsidiary that provides mental health case
              management services. Because of the size of the operations, and
              the limited market share it enjoys, the Company does not believe
              that IBH is compatible, on a long-term basis, with CORE's profit
              margin and product leadership goals. The Company has granted an
              exclusive option to a non-affiliated party to purchase the assets
              of IBH and intends to exit the operations of this unit during
              1999. See "Notes to Consolidated Financial Statements," Note 17,
              contained elsewhere within this report for additional information.


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

         The Company 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. The Company'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.

                                       10

<PAGE>

         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.

         The Company 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 the 
Company by building relationships with providers and expanding our clinical 
credibility.


         MEDICARE COORDINATION OF BENEFITS

         Through its SSDC subsidiary, the Company provides services to help 
large employers identify those employees or retirees who should be receiving 
Medicare benefits. The Company 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, 
which is CORE's target market, the Company will continue to market and 
provide these services.


CLIENTS AND MARKETING

            CORE has over 325 customers across the country, including 
numerous Fortune 500 companies. Revenues from Fortune 500 companies accounted 
for approximately 62% of total revenues in 1998. The following is a selected 
list of CORE's clients which, the Company believes, is representative of its 
overall client base:

BELL ATLANTIC CORPORATION                        MOTOROLA CORPORATION
DAIMLERCHRYSLER                                  HUGHES ELECTRONICS CORPORATION
RELIASTAR FINANCIAL CORP.                        CNA INSURANCE COMPANY
FLEET FINANCIAL GROUP                            COMMONWEALTH OF VIRGINIA
CHAMPION INTERNATIONAL CORPORATION               DANA CORPORATION
MEDICAL MUTUAL OF OHIO                           PCS HEALTH SYSTEMS, INC.
LIBERTY MUTUAL INSURANCE COMPANY, INC.           GENERAL ELECTRIC CORPORATION
GTE COMMUNICATIONS SYSTEM CORPORATION

         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. The Company also maintains 
a distribution agreement with Reliastar Financial Corp. to offer CORE's 
WorkAbility services to their customers. For providing WorkAbility services, 
the Company is paid fees by the insurance company.

         During 1997 and 1998, Bell Atlantic Corporation represented 23% and 
21%, respectively, of total revenues. No other client represented more than 
10% of total revenues. During the years ended December 31, 1997 and 1998, the 
Company'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. 
Subject to earlier termination provisions set forth therein, CORE's Bell 
Atlantic agreements range from three to ten years. 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

                                      11

<PAGE>

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 turn-key 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.

         During 1998, several clients requested that CORE accept fiduciary 
responsibility for their disability benefit program. The Company's confidence 
in its clinical decisions permitted it to assume these responsibilities. CORE 
charges increased fees to those clients for which it serves as a plan 
fiduciary.

         During the second half of 1998, the Company bid on and was awarded 
several significant contracts, including contracts with the Commonwealth of 
Virginia and GTE. CORE's services to these clients are for an integrated 
disability management program, which further validated the Company's 
marketing strategy of offering a range of disability management services that 
operate in an integrated fashion.


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. CORE plans 
to offer this service to other clients in 1999.

         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 burgeoning 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 newest subsidiary, DRMS 
is near completion. The WorkAbility-Plus application utilizes software 
architecture that provides maximum flexibility in attaching industry-standard 
databases to support growth and varying client needs. The Company 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.

                                      12

<PAGE>

GOVERNMENT REGULATION; REIMBURSEMENT; HEALTH CARE REFORM

         A number of states, including several of those in which the Company 
transacts business, have extensive licensing and other requirements 
applicable to the Company's business. Additionally, the Company's clients, 
including insurance companies, are subject to regulations that indirectly 
affect the Company.

         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. The Company is unable to predict what additional government 
regulations, if any, directly or indirectly affecting its business may be 
promulgated. Although the Company believes that it is currently in compliance 
with applicable regulations in those states in which it is subject to 
regulation, the Company'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.

         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. The Company believes that such 
initiatives will continue during the foreseeable future. The Company is 
unable to predict what, if any, reform initiatives may be adopted, or what 
effect, if any, their adoption may have on the Company.


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 the Company 
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.

                                      13

<PAGE>

EMPLOYEES AND PHYSICIAN CONSULTANTS

         In addition to its available staff of over 325 physician consultants 
covering the major medical specialties, CORE has over 600 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 the 
Company as independent contractors and also maintain active practices. The 
majority of the Company's physicians work between 5 and 20 hours per week for 
the Company. Compensation to CORE's reviewers is not related to any cost 
savings achieved by CORE's clients.

ITEM 2.  PROPERTIES.

         The Company occupies its executive headquarters in Irvine, 
California pursuant to leases for approximately 20,600 sq. feet, which expire 
in September 2000 and June 2003. The Company also leases facilities of 
approximately 18,000 sq. feet in Boston, Massachusetts under a lease that 
expires in May 2000, and approximately 22,500 sq. feet in Burlington, 
Massachusetts under leases that expire in December 2001 and April 2002. 
Additionally, the Company leases facilities of approximately 23,700 sq. feet 
in Los Angeles, California under lease agreements that expire in November 
2001 and January 2002; 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 6,500 sq. feet in Portland, Maine under a lease agreement that 
expires in August 1999.

                                      14

<PAGE>

ITEM 3.  LEGAL PROCEEDINGS.

         Transcend Case Management, Inc. and Transcend Services, Inc. 
(collectively "Transcend") initiated an arbitration proceeding with the 
American Arbitration Association on December 16, 1998, in Atlanta, Georgia, 
against CORE and its wholly-owned subsidiary TCM Services, Inc. ("TCM") in 
connection with the sale to TCM and subsequent re-acquisition by Transcend of 
the certain assets. Upon a motion by the Company, the matter was transferred 
and the arbitration will occur in Orange County, California. Transcend seeks 
unspecified damages relating to TCM's obligations under an Asset Purchase 
Agreement (the "Agreement") dated March 17, 1998, pursuant to which TCM 
acquired substantially all of the assets relating to Transcend's workers' 
compensation case management business (the "Business").

         In lieu of a payment at closing, the Agreement provided for a 
subsequent earn-out payment based on TCM's quarterly revenues in either 1999 
or 2000. The Agreement also provided TCM with the opportunity to discontinue 
the operation of the Business if the Business incurred substantial losses, 
provided TCM first allowed Transcend the option to reacquire the assets of 
the Business prior to TCM's discontinuance of the Business (the "Option to 
Reacquire the Assets"). In October 1998, TCM notified Transcend that due to 
operating losses 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 their Demand for Arbitration, Transcend maintains that 
notwithstanding Transcend's exercise of the Option to Reacquire the Assets, 
CORE and TCM are required to compensate Transcend for unspecified damages.

         CORE intends to vigorously defend against Transcend's claims in the 
arbitration and has asserted a counterclaim in the amount of $337,054.55 
against Transcend based on a provision in the Agreement that sets forth a 
formula for establishing the book value of the assets TCM was required to 
transfer back to the Transcend upon Transcend's exercise of the Option to 
Reacquire the Assets.

         Generally, the review services provided by the Company are advisory 
in nature, and final determination as to payment or nonpayment of benefits is 
not made by the Company. 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 the Company for damages 
due to adverse medical consequences. New or existing legal theories by which 
patients or physicians may attempt to assert liability against the Company or 
other companies engaged in the industry are developing and are expected to 
continue to develop. Although the Company 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 the Company's procedures for 
limiting liability will be effective. The Company maintains professional 
liability insurance and such other coverages as the Company believes are 
reasonable in light of the Company's experience to date. However, there can 
be no assurance that such insurance will be sufficient to protect the Company 
from liability which might adversely affect the Company's business, operating 
results or financial condition or will continue to be available to the 
Company at reasonable cost or at all.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

         Not applicable.

                                      15

<PAGE>

EXECUTIVE OFFICERS OF THE REGISTRANT

         The following is a list of CORE's executive officers:

<TABLE>
<CAPTION>
         NAME                           AGE     POSITION
         ----                           ---     --------
         <S>                            <C>     <C>
         George C. Carpenter IV         40      Chairman of the Board of Directors
                                                   and Chief Executive Officer
         Craig C. Horton                44      President and Chief Operating Officer
         William E. Nixon               38      Executive Vice President, Chief Financial Officer,
                                                   Treasurer and Clerk
         Nancy S. Moore                 49      Senior Vice President, Operations
         Michael Darkoch                55      Senior Vice President, Client Development
         James T. Fallon                35      Managing Director, DRMS
         Lisa O. Hansen                 36      Managing Director, DRMS
         Michael D. Lachance            44      Managing Director, DRMS
</TABLE>


         Executive officers of the Company 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 the Company effective with 
the Company'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 the Company, 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 the Company on March 30, 1995. 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 the Company.  Mr. Nixon joined the Company 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 the Company.  
In December 1994, Mr. Nixon was elected Executive Vice President and in March 
1995, he was elected Clerk.  Prior to his employment with the Company, from 
1985 to 1988, Mr. Nixon served as a Senior Accountant at Gray, Gray and Gray, 
a public accounting firm.

         Nancy S. Moore was elected Senior Vice President, Operations in 
September 1997. Ms. Moore served as Vice President, Eastern Operations of the 
Company since the March 24, 1995 CMI/PRA merger.  Ms. Moore joined the 
Company in July 1990 as Manager, Case Management.  In November 1992 she 
became Director, Operations and was promoted to Vice President, Operations in 
May 1994.  Prior to her employment with the Company, Ms. Moore served as 
Administrator, Behavioral Health Utilization Review Department of Blue Cross 
and Blue Shield of Massachusetts and Director of Nursing Services of Charles 
River Hospital, Community Care Systems, Inc.

         Michael Darkoch joined the Company 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 23 years of 
experience in the health care industry.


                                      16

<PAGE>

         James T. Fallon joined the Company with Ms. Hansen and Mr. Lachance 
in September 1998 upon the Company'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 the Company with Mr. Fallon and Mr. Lachance 
in September 1998 upon the Company'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 the Company with Mr. Fallon and Ms. 
Hansen in September 1998 upon the Company'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.

                                      17
<PAGE>

                                      PART II

ITEM 5.     MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
            MATTERS.

PRICE RANGE OF COMMON STOCK

The Company'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.

<TABLE>
<CAPTION>
                                             HIGH                LOW
                                           ----------        ----------
<S>                                        <C>               <C>
           1997
                First quarter                 $ 9 5/8          $  5 7/8
                Second quarter                  9                 6 1/8
                Third quarter                  11 1/8             8 5/8
                Fourth quarter                 12 1/2             9 7/8

           1998
                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

</TABLE>

         On March 22, 1999, the closing sale price of the Company's Common 
Stock,  as quoted on the Nasdaq - NNM, was $8.19 per share.

         As of March 22, 1999, there were approximately 152 record holders of 
the Company's Common Stock and over 1,000 beneficial owners. There are no 
outstanding shares of the Company's Preferred Stock and, accordingly, no 
market for said shares.

DIVIDEND POLICY

         The Company has never paid a cash dividend. Inasmuch as the Company 
intends to retain earnings for the operation and expansion of its business, 
the Company does not intend to pay dividends on its Common Stock for the 
foreseeable future. The Company's Board of Directors will determine future 
dividend policy in light of the then prevailing financial condition of the 
Company and other relevant factors.

                                         18

<PAGE>

RECENT SALES OF UNREGISTERED SECURITIES


         During the quarter ended December 31, 1998, the Company sold the 
following shares of Common Stock, which were not registered under the 
Securities Act at the time of issuance. Except as otherwise noted, such 
shares were sold to a former investor upon the exercise of previously granted 
stock warrants.

<TABLE>
<CAPTION>
                                                                           NUMBER OF     PURCHASE PRICE
DATE               SECURITY              PURCHASER                          SHARES         PER SHARE
----------------- ------------------     ---------------------------     --------------  ---------------
<S>               <C>                    <C>                             <C>             <C>
10/27/98           Common Stock           Ventana Partnership III, L.P.         6,700          $3.73
</TABLE>

        These foregoing securities were not registered under the Securities 
Act at the time of sale and issuance, in reliance upon the exemption 
contained in Section 4(2) of the Securities Act for transactions by an issuer 
not involving any public offering.

                                        19

<PAGE>

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 herein.

<TABLE>
<CAPTION>
                                                                                   Year ended December 31,
                                                       ------------- ------------- --------------- -------------- -------------
                                                           1994          1995           1996           1997           1998
                                                       ------------- ------------- --------------- -------------- -------------
                                                                           (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                    <C>           <C>           <C>             <C>            <C>

STATEMENT OF OPERATIONS DATA:
Revenues                                                    $16,746       $20,769         $28,806       $38,507       $45,609
Cost of services                                             11,305        12,839          17,741        23,330        27,833
                                                       ------------- ------------- --------------- ------------- -------------
      Gross profit                                            5,441         7,930          11,065        15,177        17,776

Operating expenses:
   General and administrative                                 4,265         4,787           6,285         7,940         9,740
   Sales and marketing                                        1,563         1,499           1,744         2,483         3,649
   Depreciation and amortization                                915           905           1,338         1,955         2,503
   Merger costs                                               1,114           994             -              -             -
   Non-recurring write-off of AmHealth acquisition
                                                                 -             -            1,920            -             -
   Write-off of goodwill                                      2,294            -              -              -          4,085
   Arbitration costs                                             -             -              -              -            736
   Charges in connection with disposal of
     subsidiaries                                                -             -              -              -            658
   Other non-recurring charges                                   -             -              -              -            156
                                                       ------------- ------------- --------------- ------------- -------------
      Total operating expenses                               10,151         8,185          11,287        12,378        21,527
                                                       ------------- ------------- --------------- ------------- -------------

Income (loss) from operations                                (4,710)         (255)           (222)        2,799        (3,751)

Other income (expense):
   Interest income                                              296           240             385           590           303
   Interest expense                                            (158)         ( 83)            (35)          (27)         (505)
   Other income (expense)                                      (127)           19                16            -             -
                                                       ------------- ------------- --------------- ------------- -------------
                                                                 11           176             366           563          (202)
                                                       ------------- ------------- --------------- ------------- -------------
Income (loss) before income taxes                            (4,699)          (79)            144         3,362        (3,953)
Income tax (provision) benefit                                   -             -              -            (610)          193
                                                       ------------- ------------- --------------- ------------- -------------
Net income (loss)                                          $ (4,699)        $ (79)           $144        $2,752      $ (3,760)
                                                       ============= ============= =============== ============= =============

Net income (loss) per common share:
    Basic                                                   $ (1.01)      $ (0.02)         $ 0.03        $ 0.38       $ (0.50)
                                                       ============= ============= =============== ============= =============
    Diluted                                                 $ (1.01)      $ (0.02)         $ 0.02        $ 0.35       $ (0.50)
                                                       ============= ============= =============== ============= =============
Weighted average number of common shares 
and equivalents outstanding:
    Basic                                                     4,668         4,755           5,713         7,246         7,489
                                                       ============= ============= =============== ============= =============
                                                       ============= ============= =============== ============= =============
    Diluted                                                   4,668         4,755           6,473         7,934         7,489
                                                       ============= ============= =============== ============= =============
</TABLE>

<TABLE>
<CAPTION>
                                                                                    December 31,
                                                       ------------- ------------- --------------- ------------- -------------
                                                           1994          1995           1996           1997          1998
                                                       ------------- ------------- --------------- ------------- -------------
                                                                                   (In thousands)
<S>                                                    <C>           <C>           <C>             <C>           <C>
BALANCE SHEET DATA:
Cash and cash equivalents                                   $ -            $1,006          $4,282         $7,945        $2,226
Working capital                                               4,612         3,152          15,781         11,850         5,093
Total assets                                                 12,504        11,869          27,844         32,815        48,732
Long-term debt and capital lease obligations                    121           817             344            190        13,874
Stockholders' equity                                          7,553         7,648          24,456         27,659        26,827

</TABLE>

                                           20

<PAGE>


ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS.

OVERVIEW

         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. The Company's services 
include Integrated Disability Management (which consist of the Company's 
proprietary WorkAbility(R) Absence Management program, disability reinsurance 
management services, social security disability benefits advocacy, analytic 
consulting services, onsite job profiling and 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.

         The Company is typically compensated for these services either on a 
per employee per month ("PEPM"), per case, hourly, percentage of risk premium 
(for full service reinsurance management services) or percentage of cost 
recovery (for social security advocacy and Medicare benefits services) basis. 
The integrated disability management services line also includes a limited 
amount of revenue (1% for the year ended December 31, 1998) from licensing 
fees attributable to license grants by the Company of the medical protocol 
portion of the WorkAbility software program.

CURRENT DEVELOPMENTS

      On March 17, 1998, a wholly-owned subsidiary of the Company, TCM 
Services, Inc. ("TCM") purchased the operating assets and certain liabilities 
of Transcend Case Management, Inc. ("Transcend"). Transcend, with offices 
based in Orlando, Florida is a provider of workers' compensation case 
management services to clients located principally in Florida, Texas and 
Georgia. On December 23, 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. The Company recorded charges of $241,000 in 
connection with this transfer.

      On June 2, 1998, the Company entered into a settlement agreement with 
the former shareholders of Cost Review Services, Inc. ("CRS"). CORE acquired 
CRS in October 1995. The settlement agreement related to an arbitration 
dispute and included the immediate payment by CORE of $425,000 and the 
issuance by CORE of promissory notes in the amount of $190,000 payable in 
twelve monthly installments beginning January 1999. In addition, the Company 
incurred approximately $121,000 in other costs related to the arbitration 
(primarily legal and travel expenses).

      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 present operating losses 
incurred by CRS 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, was written-off. The Company also performed a review of 
other long-lived assets prior to the close of its results for the quarter 
ended June 30, 1998. The results of its review indicated that an impairment 
loss existed related to certain identifiable intangible contract values 
resulting from the acquisition of Social Security Disability Consultants and 
Disability Services, Inc. (collectively, "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.

      On September 1, 1998, the Company 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"). 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 the Company's 
common stock and the future issuance of up to an additional $7,000,000 of the 
Company'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.

      Effective October 31, 1998, the Company discontinued the operations of 
CRS. In connection with this action, the Company recorded 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.

                                 21


<PAGE>

RESULTS OF OPERATIONS

         The following table sets forth certain statement of operations data 
for the periods indicated expressed as a percentage of revenues:

<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31,
                                                   ---------- ------------ -----------
                                                     1996        1997         1998
                                                   ---------- ------------ -----------
<S>                                                <C>        <C>          <C>
Revenue                                               100.0%       100.0%      100.0%
Cost of services                                       61.6         60.6        61.0
Gross profit                                           38.4         39.4        39.0
General and administrative expense                     21.8         20.6        21.4
Sales and marketing expense                             6.1          6.4         8.0

</TABLE>

      The following table sets forth the contribution to total revenues of 
each of the Company's principal service lines for the periods indicated:

<TABLE>
<CAPTION>
                                                                     YEAR ENDED DECEMBER 31,
                                             ----------------------- ------------------------ -----------------------
                                                      1996                    1997                     1998
                                             ----------------------- ------------------------ -----------------------
                                               AMOUNT     PERCENT      AMOUNT      PERCENT      AMOUNT     PERCENT
                                             ----------- ----------- ------------ ----------- ----------- -----------
                                                                       (Dollars in thousands)
<S>                                          <C>         <C>         <C>          <C>         <C>         <C>

Integrated Disability Management                $10,696         37%      $18,514         48%     $26,959         59%
Peer Review Analysis                              7,670         27%        8,415         22%       8,004         17%
Exiting/exited services                           4,454         15%        3,049          8%       3,558          8%
Other service lines                               5,986         21%        8,529         22%       7,088         16%
                                             ----------- ----------- ------------ ----------- ----------- -----------
                                                $28,806        100%      $38,507        100%      $45,609       100%
                                             =========== =========== ============ =========== =========== ===========
</TABLE>

YEARS ENDED DECEMBER 31, 1998 AND 1997

         Revenues increased by $7,102,000 (18%) from $38,507,000 in 1997 to 
$45,609,000 in 1998. Growth in Integrated Disability Management contributed 
$8,445,000 (119%) of the Company's overall net increase in revenues. Revenues 
for this service line include revenues from DRMS acquired in September 1998 
(which expanded CORE's programs to include disability reinsurance management 
services) 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 the Company exited in 1998 or expects to 
exit in 1999 increased overall by 17% during 1998, as compared to the prior 
year. These service lines consist of regional workers' compensation case 
management services (of both CRS and TCM), regional bill audit activities of 
CRS, and the behavioral health programs of the Company's wholly-owned 
subsidiary, Integrated Behavioral Health ("IBH"). The net increase in these 
services during 1998 related principally to the acquisition of TCM in March 
1998. Specifically, TCM contributed $1,287,000 in new workers' compensation 
case management revenues, however 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. The Company expects revenues in these service lines to decrease 
significantly in 1999 due to the exiting of the CRS and TCM operations 
together with its intent to exit the operations of IBH in 1999.

      Revenues from other service lines (which includes utilization review, 
Medicare coordination of benefits and other case management services), 
decreased 17% overall for 1998, as compared to 1997. This decrease was 
primarily attributable

                                  22


<PAGE>

to the utilization review program stemming from a decline in enrollment in 
our clients' indemnity plan based group health business. Although the Company 
expects revenues from utilization review and other case management services 
to further decline during 1999, these anticipated decreases may be partially 
offset by an increase in revenues from its Medicare coordination of benefits 
program, following the introduction of certain new products developed during 
1998.

      For 1998, the Company'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.

      Cost of services for the Company 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 
$4,503,000 (19%) from $23,330,000 in 1997 to $27,833,000 in 1998. The 
increase 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.

      CORE's gross profit performance for 1998 remained unchanged compared to 
1997 at 39%. Gross profit performance for each of the Company'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 the Company 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 include the cost of executive, 
administrative and information services personnel, rent and other overhead 
items. General and administrative expenses increased $1,800,000 (23%) from 
$7,940,000 in 1997 to $9,740,000 in 1998. Expenses increased due primarily to 
higher costs associated with additional staffing in the information services 
areas to support the growth of the Company. Higher costs in rent, insurance 
costs, equipment rental and other general and administrative expenses relate 
primarily to the Company's acquisitions during the summer of 1997 and March 
and September of 1998. The Company has also incurred additional costs 
associated with the maintenance of its computer network hardware and software 
as capacity has been 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 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 $1,166,000 (47%) from $2,483,000 in 
1997 to $3,649,000 in 1998. The increase is primarily due to the Company'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. The Company expects to continue to 
invest an increased amount of resources in sales and marketing in future 
periods.

      Depreciation and amortization expenses increased $548,000 (28%) from 
$1,955,000 in 1997 to $2,503,000 in 1998. The increase is mainly attributable 
to increased amortization on the goodwill acquired in the purchases of DRMS 
in September 1998 and of SSDC and PWS in June and July 1997, respectively.

      During 1998, the Company 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 present 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. The Company 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.

                                 23


<PAGE>

      On June 2, 1998, the Company 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 
twelve monthly installments beginning January 1999. In addition, the Company 
incurred approximately $121,000 in other costs related to the arbitration 
(primarily legal and travel expenses).

      During 1998, the Company recorded $658,000 in charges relating to its 
termination of operations at two subsidiaries. Effective October 31, 1998, 
the Company discontinued the operations of CRS. In connection with this 
action, the Company recorded estimated charges totaling $417,000. CRS 
provided regional bill audit and workers' compensation case management 
services to insurance companies and third-party administrators of workers' 
compensation programs. 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. The Company recorded charges of $241,000 in connection with this 
transfer. TCM provided regional worker's compensation case management 
services.

      During 1998, the Company recorded other non-recurring charges totaling 
$156,000. These costs primarily consisted of costs related to the Company'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 Company's August 1998 Credit 
Agreement with Fleet National Bank. Interest income represents amounts earned 
by the Company's investments. Other income and expense, net, decreased 
$765,000 from a net other income of $563,000 in 1997 to a net other expense 
of $202,000 in 1998. The decrease 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.

YEARS ENDED DECEMBER 31, 1997 AND 1996

         Revenues increased by $9,701,000 (34%) from $28,806,000 in 1996 to 
$38,507,000 in 1997. Growth in Integrated Disability Management contributed 
$7,818,000 (81%) of the Company's increase in revenues which included 
revenues from the June and July 1997 acquisitions of SSDC and Protocol Work 
Systems, respectively. Approximately 50% of the total revenue increase for 
the year is attributable to revenues generated from Bell Atlantic 
Corporation. CORE continued to expand its services provided to Bell Atlantic 
Corporation during 1997, its first full year as a client. Each of the revenue 
components of Integrated Disability Management services grew during 1997, 
except for analytic consulting which had a slight decline of 2%. An increase 
in the volume of referrals resulted in increased revenues realized from Peer 
Review Analysis, growing 10% for the year ended 1997, as compared to the 
prior year.

        Revenues from service lines that the Company exited in 1998 or 
expects to exit in 1999 declined overall by 32% during 1997, as compared to 
1996. The principal reason for the overall decline related to bill audit 
services, which recorded significantly lower revenues as a result of 
renegotiated client contracts.

         Revenues from other service lines increased 42% overall for 1997 as 
compared to 1996 despite a slight decline in enrollment in our clients' 
indemnity plan based group health business. The increase was primarily 
attributable to the June 1997 acquisition of SSDC (which expanded CORE's 
programs to include Medicare coordination of benefits services). The Company 
expects utilization review and case management revenues to decline in future 
periods, as compared to current year levels.

         For 1997, the Company's top five clients represented 43% of revenues 
compared to 36% during 1996. Bell Atlantic accounted for approximately 23% of 
revenue in 1997 and 13% of revenues for 1996. No other single client 
represented more than 10% of total revenues in 1997 or 1996.

         Cost of services increased $5,589,000 (32%) from $17,741,000 in 1996 
to $23,330,000 in 1997. The increase is primarily the result of additional 
payroll costs associated with business acquisitions completed in June and 
July of 1997 and increased staffing levels required to service new and 
growing WorkAbility clients and growth in the Company's Peer Review Analysis 
services. Additionally, increased amortization expense was incurred as 
software enhancements to the Company's operating systems were placed into 
service.

         CORE's gross profit performance for 1997 improved slightly to 39% 
from 38% in 1996. Gross profit performance for each of the Company's 
principal service lines for the years ended 1997 and 1996, respectively, are: 
35% and 41% for Integrated Disability Management, 39% and 39% for Peer Review 
Analysis, 27% and 42% for

                              24


<PAGE>

exiting/exited services and 52% and 30% for other service lines. The decline 
in gross margins realized by Integrated Disability Management is largely 
attributable to costs of integrating the new programs pursuant to the June 
1997 acquisition of SSDC (which added social security disability benefits 
advocacy services) and the July 1997 acquisition of PWS. The significant 
decline in overall gross margins realized for those service lines being 
exited in 1998 or expected to be exited in 1999 is mainly attributable to a 
62% decrease in revenues generated from bill audit services during 1997. The 
increase in gross margins realized for other service lines is attributable to 
the addition of Medicare coordination of benefits services in June 1997.

         General and administrative expenses increased $1,655,000 (26%) from 
$6,285,000 in 1996 to $7,940,000 in 1997. Expenses increased due primarily to 
higher costs associated with additional staffing in the information services 
areas to support the growth of the Company. Higher costs in rent, insurance 
costs, equipment rental and other general and administrative expenses relate 
primarily to the Company's Silver Spring, Maryland operating center that 
opened in July 1996, the expansion of space in the Company's Burlington, 
Massachusetts facility in early 1997, and the acquisitions of SSDC and 
Protocol Work Systems in June and July 1997, respectively. General and 
administrative expenses, as a percentage of revenues, decreased from 22% for 
1996 to 21% for 1997. This improvement is generally due to greater economies 
of scale related to higher revenues.

         Sales and marketing expenses increased $739,000 (42%) from 
$1,744,000 in 1996 to $2,483,000 in 1997. The increase is primarily due to 
increased staffing to support the sales and product development departments 
as well as additional travel costs and costs for participation in tradeshows. 
During 1997, the Company expanded its sales organization to focus its efforts 
on Fortune 500 company prospects. Additionally, a sales tracking system was 
implemented in 1997 to streamline prospective sales activities, centrally 
manage the Company's sales activities and assist in identifying cross-selling 
opportunities of the Company's products and services to take advantage of the 
acquisitions of SSDC and Protocol Work Systems.

         Depreciation and amortization expenses increased $617,000 (46%) from 
$1,338,000 in 1996 to $1,955,000 in 1997. The increase is largely 
attributable to increased depreciation expense on assets purchased for the 
operating center in Silver Spring, Maryland to service the Bell Atlantic 
Corporation contract as well as increased amortization expense on the 
goodwill acquired in the purchases of SSDC and Protocol Work Systems.

         Other income consists primarily of interest income, which represents 
amounts earned by the Company's investments as reduced by interest expense. 
Other income increased $196,000 (54%) from $366,000 in 1996 to $562,000 in 
1997. The increase is due to an increase in funds available for investment 
following a public offering in August 1996 and a reduction in the use of the 
Company's line of credit.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

         On August 31, 1998, the Company entered into a revolving line of 
credit agreement (the "Credit Agreement") with Fleet National Bank ("Fleet"). 
Under the Credit Agreement, which was amended on December 31, 1998 and 
expires August 31, 2003, the Company may borrow up to specified amounts 
beginning at $17,000,000 at the prime base rate plus 0.50% or London 
Interbank Offered Rate ("LIBOR") plus 3.50%. The $17,000,000 credit 
availability is subject to mandatory commitment reductions each quarter in 
amounts ranging from $250,000 to $1,000,000. At December 31, 1998, the 
Company had outstanding borrowings of $16,500,000 under the Credit Agreement 
which were all tied to the prime base lending rate (7.75%) plus the 
applicable margin. The Credit Agreement is secured by substantially all of 
the Company's assets and requires the Company 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 the Company without the 
Bank's written consent. The Company was in compliance with the financial 
covenants contained in the Credit Agreement at December 31, 1998.

         In connection with the Credit Agreement, the Company issued a 
Warrant to purchase shares of its Common Stock to Fleet. The Warrant entitles 
the holder to purchase up to 156,322 shares of the Company's Common Stock 
(subject to certain adjustments), at an exercise price of $6.92 per share. 
The Warrant is exercisable beginning August 31, 1999 and expires August 31, 
2003.

         On January 15 1999, the Company entered into an interest rate 
protection arrangement with Fleet that limits the Company'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%) 
over the life of the Credit Agreement.

                                  25
<PAGE>

         A Second Amendment to the Credit Agreement, dated February 19, 1999
revised the scheduled maximum commitment available from $16,000,000 as of the
date of the second amendment to $17,000,000, subject to a revised schedule of
mandatory commitment reductions.

         For the year ended December 31, 1998, the Company's cash and cash 
equivalents decreased by $5,719,000. For this period, operating activities 
provided $1,484,000 of cash despite net losses of $3,760,000 and a net 
increase in accounts receivable and other current assets of $3,343,000, as 
these were offset by depreciation and amortization of $3,332,000 and the 
write-off of goodwill and intangibles of $4,085,000. The increase in accounts 
receivable and other current assets is due primarily to the increase in 
revenues over 1997 and the contractual timing of certain client billings. The 
Company's investing activities used $22,618,000 of cash mostly to fund the 
acquisition of DRMS for $20,366,000 and additions to property and equipment 
(including software development) of $3,504,000. The Company's financing 
activities provided $15,416,000 of cash for this period due primarily to 
$16,500,000 in net borrowings under a new credit agreement dated August 31, 
1998, as offset by $1,125,000 in payments made on an obligation related to a 
prior year acquisition.

         The Company leases its facilities and certain office equipment. Future
lease commitments, which relate substantially to space rental, for the years
ended December 31, 1999 and December 31, 2000 are approximately $2.4 million and
$2.1 million, respectively. All obligations held by the Company under lease
commitments expire on various dates through June 30, 2003 and total $6.1 million
as of December 31, 1998.

         The Company has net operating loss carryforwards for income tax
purposes of approximately $5.5 million as of December 31, 1998, 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.

         The Company has recently entered into certain client service agreements
and is currently negotiating other client service agreements that may require
the Company to expend working capital ahead of the contractual billing periods.
To the extent that such working capital needs exceed currently available working
capital, the Company believes that it can obtain such additional working capital
from its present lender or others. The Company believes that this additional
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 1999.


YEAR 2000 SYSTEM COMPLIANCE

         The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. As a result,
the Company's computer programs or hardware that have date-sensitive software or
embedded chips may not properly recognize a year that begins with "20" instead
of the familiar "19." If not corrected, the Company is at risk of a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.

         The Company's primary computer application platforms were essentially
designed to process and store dates in a four-character format. The Company
believes this substantially reduces the magnitude of the effort required to
address the Year 2000 issue. The Company has completed an assessment of internal
applications and licensed operating systems, software tools and utilities.
Additionally, the Company has evaluated third party data feeds, primarily to and
from clients information systems and will have to modify or replace portions of
its software so that its computer systems will function properly with respect to
dates in the year 2000 and thereafter. The Company presently believes that with
modifications and replacement of existing software, the Year 2000 issue can be
mitigated. However, if such modifications and replacements are not made, or are
not completed timely, the Year 2000 issue could have an impact on the operations
of the Company.

         The Company's plan to resolve the Year 2000 issue involves the
following five phases: assessment, remediation, testing, implementation, and
certification. To date the Company has fully completed its assessment of all
systems that could be significantly affected by the year 2000. The completed
assessment indicated that most of the Company's major systems are effectively
Year 2000 compliant and will require only minor modifications. The Company
believes that with modifications to existing software and conversions to new
software, the Year 2000 issue will not pose significant operational problems for
its computer systems. The Company has initiated formal communications with all
of its significant vendors and large customers to determine the extent to which
the Company's interface systems are vulnerable to those third parties'


                                26

<PAGE>

failure to remediate their own Year 2000 issues. There is no guarantee that 
the systems of other companies on which the Company's systems rely will be 
timely converted and would not have an adverse effect on the Company's 
systems.

         For its internal applications and licensed operating systems, software
tools and utilities exposures, to date the Company is approximately 80% complete
on the remediation phase and expects to complete the software reprogramming and
replacement no later than the second quarter of 1999. Once software is
reprogrammed and replaced for a system, the Company begins testing and
implementation. These phases run concurrently for different systems. To date,
the Company has completed approximately 70% of its testing and has implemented
approximately 80% of its remediated systems. The testing phase for all
significant systems is expected to be completed in the second quarter of 1999,
with all remediated systems fully tested and certified in the third quarter of
1999, which is prior to any anticipated impact on its operating systems. Also,
during the third quarter of 1999, the Company plans to carry out a certification
process to validate the whole information technology environment, once again, to
ensure Year 2000 compliance.

         Because the results to date of the completed assessment have indicated
that most of the Company's major systems are effectively Year 2000 compliant and
will require only minor modifications, no contingency plans have been developed
at this time. The Company will develop contingency plans as deemed necessary if
a significant risk related to our Year 2000 compliance or a delay in the
anticipated timeline for compliance occurs. These contingency plans may involve,
among other actions, manual workarounds.

         The Company has queried its material clients that do not share
information systems with the Company. To date, the Company is not aware of any
external agent Year 2000 issue that would materially impact the Company's
results of operations, liquidity, or capital resources. However, the Company has
no means of ensuring that external agents will be Year 2000 issue compliant. The
inability of external agents to resolve their Year 2000 issues in a timely
manner could materially impact the Company. The effect of non-compliance by
external agents is not determinable.

         The Company will utilize both internal and external resources to
reprogram, or replace, test, and implement software for Year 2000 modifications.
The total cost of the Year 2000 project is estimated at $800,000 and is being
funded through operating cash flows. These costs include internal information
systems resources redirected to the Company's Year 2000 program. To date, the
costs incurred by the Company related to all phases of the Year 2000 project
have been immaterial and have been expensed as incurred. Of the total remaining
project costs, approximately $200,000 is attributable to the purchase of new
software and operating equipment, which will be capitalized. The remaining
$580,000 related to repair of hardware and software and will be expensed as
incurred.

         The costs of the Year 2000 project and the date on which the Company
believes it will complete the Year 2000 modifications are based on management's
best estimates, which were derived utilizing numerous assumptions of future
events, including the continued availability of certain resources, and other
factors. Estimates on the status of completion and the expected completion dates
are based on costs incurred to date compared to total expected costs. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties. Readers are
cautioned that forward-looking statements contained in this discussion should be
read in conjunction with our disclosure with regard to forward-looking
statements, see "Item 1. Business."


                                 27


<PAGE>


ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

         The Company 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. The Company 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 3 and 9 
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 1999 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 1999 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 1999 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 1999 Annual Stockholders Meeting,
to be filed with the Securities and Exchange Commission pursuant to Regulation
14A.

                                  28

<PAGE>

                                             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.

<TABLE>
<CAPTION>

Exhibit
Number    Description
-------   -----------
<S>       <C>
2.1       Second Agreement and Plan or Reorganization by and between Core 
          Management,  Inc.,  Registrant and PRA Sub, Inc. dated as of 
          December 19, 1994.  Filed as Appendix I to Prospectus and Joint 
          Proxy  Statement in Amendment No. 5 to Registrant's  Registration  
          Statement on Form S-4  (Registration  No. 33-73906), filed February 
          14, 1995, and incorporated herein by reference.

2.2       Capital Stock Purchase Agreement, by and between Registrant, Cost
          Review Services, Inc., Larry Bertrand Wallace and Leigh B. Goodwin,
          dated October 2, 1995 (without exhibits). Filed as exhibit 2.1 to
          Registrant's Current Report on Form 8-K, filed October 16, 1995, and
          incorporated herein by reference.

2.3       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.

2.4       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.

2.5       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.

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       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.

10.1      Software License Agreement, dated August 26, 1986, between Chrysler
          Corporation ("Chrysler") and The Health

                                     29
<PAGE>

          Data Institute ("HDI"). Filed as exhibit no. 10.59 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      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.

10.3      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 Form 10-Q, filed 
          August 13, 1997, and incorporated herein by reference.

10.4      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.

10.5*     First Amendment to the Credit Agreement, dated as of December 31, 
          1998, betweeen CORE, INC. and Fleet National Bank.

10.6*     Second Amendment to the Credit Agreement, dated as of February 19, 
          1999, between CORE, INC. and Fleet National Bank.

10.7      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.

10.8      Form of Stock Option Agreement, dated as of May 17, 1993, between
          Registrant and William E. Nixon. Filed as exhibit no. 10.5 to
          Registrant's Quarterly Report on Form 10-Q, filed June 30, 1993, 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.

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 the Company'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.


                                             30

<PAGE>

          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 the Company'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 February 23, 1994, between CMI
          and Silicon Valley Bank. Filed as exhibit no. 10.81 to Amendment No. 1
          to the Registrant's Registration Statement on Form S-4 (Registration
          No. 33-73906), filed June 8, 1994, and incorporated herein by
          reference.

10.21     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.

10.22     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.

10.23     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.

10.24     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.

10.25     CORE, INC. 1997 Stock Option Plan, including forms of stock option
          agreements. Filed as exhibit no. 10.1 to Registrant's Quarterly
          Report on Form 10-Q, filed November 14, 1997, and incorporated
          herein by reference.

10.26     Employment Agreement, dated November 19, 1993, between the Registrant
          and William E. Nixon. Filed as exhibit no. 10.49 to Registrant's
          Registration Statement on Form S-4 (Registration No. 33-73906),
          filed January 10, 1994, and incorporated herein by reference.

10.27     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.

10.28     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.

10.29     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.

10.30     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.

10.31     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.

10.32     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.

                                31

<PAGE>

27.1*     Financial Data Schedule for year ended December 31, 1998.

</TABLE>

--------------------------------
*   Filed herewith

          (b) Reports on Form 8-K.

          On October 20, 1998, the Company filed a Form 8-K/A (Amendment No. 1)
related to the acquisition of all shares of stock of Disability Reinsurance
Management Services, Inc. ("DRMS") which included the audited balance sheet of
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; 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; and the
audited balance sheets of Disability Reinsurance Management Services, Inc. as of
December 31, 1996 and 1995 and the related statements of operations, accumulated
deficit and cash flows for the years then ended.

                                        32
<PAGE>



                                                   CORE, INC.

                                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S>                                                                                                             <C>
CORE, INC. audited financial statements

Report of Independent Auditors                                                                                   F-2

Consolidated Balance Sheets - December 31, 1997 and 1998                                                         F-3

Consolidated Statements of Operations - Years ended December 31, 1996, 1997 and 1998                             F-5

Consolidated Statements of Stockholders' Equity - Years ended December 31, 1996, 1997 and 1998                   F-6

Consolidated Statements of Cash Flows - Years ended December 31, 1996, 1997 and 1998                             F-7

Notes to Consolidated Financial Statements                                                                       F-9


FINANCIAL STATEMENTS SCHEDULE

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.
</TABLE>

                                      F-1


<PAGE>


                        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, 1997 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, 1998. 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 the Company'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 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 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, 1997 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, 1998, in conformity with generally accepted accounting 
principles. 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
March 26, 1999

                                      F-2

<PAGE>


                                                   CORE, INC.
                                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                              DECEMBER 31,
                                                                    ---------------------------------
                                                                         1997             1998
                                                                    ---------------  ----------------
<S>                                                                 <C>              <C>
ASSETS
Current assets:
   Cash and cash equivalents                                          $7,944,595       $ 2,226,020
   Investments available-for-sale                                      1,188,037            --

   Accounts receivable, net of allowance for doubtful
     accounts of  $151,633 in 1997 and $405,013 in 1998                6,473,037         8,280,630

   Unbilled receivables                                                    --            1,395,500

   Notes receivable from officers                                        106,388            90,462

   Prepaid expenses and other current assets                             815,100         1,080,993
                                                                    ---------------  ----------------
Total current assets                                                  16,527,157        13,073,605

Property and equipment, net                                            6,444,803         7,931,150

Deposits and other assets                                                494,208           618,487

Goodwill and intangibles, net of accumulated
    amortization of $460,000 in 1997 and
    $863,077 in 1998                                                  9,348,864         27,108,298
                                                                    ---------------- ----------------
Total assets                                                         $32,815,032       $48,731,540
                                                                    ================ ================
</TABLE>



                                      F-3


<PAGE>


                                                   CORE, INC.
                                    CONSOLIDATED BALANCE SHEETS - CONTINUED
<TABLE>
<CAPTION>
                                                                              DECEMBER 31,
                                                                    ----------------------------------
                                                                        1997              1998
                                                                    ---------------  -----------------
<S>                                                                 <C>                 <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                                 $   833,898          $ 1,363,785
   Accrued expenses                                                   1,201,283            2,076,933
   Accrued payroll                                                      650,230              807,124
   Accrued vacation                                                     645,262              717,500
   Advances under revolving credit agreement                              --               2,750,000
   Deferred income taxes                                                 74,816               --
   Notes payable                                                         64,900              259,510
   Obligation from acquisition                                        1,125,000               --
   Current portion of obligations to former shareholders                 50,000               --
   Current portion of capital lease obligations                          31,651                6,015
                                                                    ---------------  -----------------
Total current liabilities                                             4,677,040            7,980,867

Advances under revolving credit agreement, net of current portion         --              13,750,000
Note payable, net of current portion                                    185,049              123,633
Capital lease obligations, net of current portion                         4,695               --
Deferred rent, net of current portion                                   146,592               50,410
Deferred income taxes                                                   143,000               --

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 7,303,079 and 7,824,512 at
   December 31, 1997 and 1998, respectively                             730,308              782,451
Additional paid-in capital                                           34,909,579           37,778,640
Deferred compensation                                                   (13,392)              (6,697)
Accumulated deficit                                                  (7,967,839)         (11,727,764)
                                                                    ----------------------------------
Total stockholders' equity                                           27,658,656           26,826,630
                                                                    ----------------------------------

Total liabilities and stockholders' equity                          $32,815,032          $48,731,540
                                                                    ==================================
</TABLE>

See accompanying notes.


                                      F-4

<PAGE>



                                                   CORE, INC.
                                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                   YEAR ENDED DECEMBER 31,
                                                                     ---------------- ----------------- ----------------
                                                                          1996              1997             1998
                                                                     ---------------- ----------------- ----------------
<S>                                                                  <C>              <C>               <C>
Revenues                                                                 $28,805,590       $38,506,563      $45,609,284
Cost of services                                                          17,740,901        23,330,004       27,832,974
                                                                     ---------------- ----------------- ----------------
Gross profit                                                              11,064,689        15,176,559       17,776,310

Operating expenses:
    General and administrative                                             6,284,651         7,940,005        9,739,920
    Sales and marketing                                                    1,744,386         2,482,561        3,648,707
    Depreciation and amortization                                          1,338,122         1,954,810        2,503,402
    Write-off of AmHealth acquisition                                      1,919,871              --               --
    Write-off of goodwill and intangibles                                       --                --          4,085,449
    Arbitration costs                                                           --                --            736,009
    Charges in connection with disposal of subsidiaries                         --                --            657,670
    Other non-recurring charges                                                 --                --            156,116
                                                                     ---------------- ----------------- ----------------
        Total operating expenses                                          11,287,030        12,377,376       21,527,273

Income (loss) from operations                                               (222,341)        2,799,183       (3,750,963)

Other income (expense):
    Interest income                                                          385,394           589,853          302,784
    Interest expense                                                         (35,512)          (27,315)        (504,746)
    Realized gain on sale of investments available-for-sale                   16,003              --               --
    Other income                                                                 481              --               --
                                                                     ---------------- ----------------- ----------------
                                                                             366,366           562,538         (201,962)
                                                                     ---------------- ----------------- ----------------
Income (loss) before income taxes                                            144,025         3,361,721       (3,952,925)
    Income tax (provision) benefit                                              --            (610,000)         193,000
                                                                     ---------------- ----------------- ----------------
Net income (loss)                                                           $144,025        $2,751,721      $(3,759,925)
                                                                     ================ ================= ================
Net income (loss) per common share:
    Basic                                                                      $0.03             $0.38           $(0.50)
                                                                     ================ ================= ================
    Diluted                                                                    $0.02             $0.35           $(0.50)
                                                                     ================ ================= ================
Weighted average number of common shares and 
  equivalents outstanding:
    Basic                                                                  5,713,000         7,246,000        7,489,000
                                                                     ================ ================= ================
    Diluted                                                                6,473,000         7,934,000        7,489,000
                                                                     ================ ================= ================
</TABLE>

See accompanying notes.


                                      F-5
<PAGE>

                                                   CORE, INC.
                                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                                                                  
                                                       ADDITIONAL                 
                                             COMMON STOCK       PAID-IN       DEFERRED    
                                          SHARES     AMOUNT     CAPITAL      COMPENSATION 
                                          ------     ------     -------      ------------ 
<S>                                     <C>         <C>        <C>           <C>          
BALANCE AT DECEMBER 31, 1995            4,794,403   $ 479,440  $18,052,547   $ (51,120)   
Exercise of stock options                 129,508      12,951      349,416          -     
Issuance of common stock from         
   public offering (net of            
   offering costs)                      2,248,800     224,880   16,063,183          -     
Amortization of deferred              
   compensation                             -           -            -            12,480  
Change in unrealized                  
   gain (loss) on investments         
   available-for-sale                       -           -            -              -     
Net income                                  -           -            -              -     
                                        --------------------------------------------------
BALANCE AT DECEMBER 31, 1996            7,172,711    717,271   34,465,146        (38,640) 
Exercise of stock options                 130,368     13,037      462,986           -     
Amortization of deferred              
   compensation costs                       -           -            -             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                       -           -            -              -     
Net income                                  -           -            -              -     
                                        --------------------------------------------------
BALANCE AT DECEMBER 31, 1997            7,303,079    730,308   34,909,579        (13,392) 
Exercise of stock options                  41,433      4,143      173,661           -     
Amortization of deferred              
   compensation costs                       -           -            -             6,695  
Compensation recognized               
   under stock option plan                  -           -          13,400           -     
Issuance of common stock              
   pursuant to acquisition            
   of Disability Reinsurance          
   Management Services, Inc.              480,000     48,000    2,682,000           -     
Net loss                                    -           -            -              -     
                                        --------------------------------------------------
BALANCE AT DECEMBER 31, 1998            7,824,512  $ 782,451  $37,778,640       $ (6,697) 
                                        ==================================================

<CAPTION>

                                           ACCUMULATED                               
                                              OTHER                              TOTAL             
                                          COMPREHENSIVE     ACCUMULATED       STOCKHOLDERS'   COMPREHENSIVE
                                              INCOME          DEFICIT            EQUITY          INCOME
                                          --------------      -------            ------          ------
<S>                                        <C>              <C>                <C>            
BALANCE AT DECEMBER 31, 1995               $  30,975        $(10,863,585)     $ 7,648,257      
Exercise of stock options                          -              -               362,367     
Issuance of common stock from                                                                 
   public offering (net of                                                                    
   offering costs)                                 -              -            16,288,063 
Amortization of deferred                                                                      
   compensation                                    -              -                12,480 
Change in unrealized                                                                          
   gain (loss) on investments                                                                  
   available-for-sale                            1,008            -                 1,008   $     1,008  
Net income                                         -             144,025          144,025       144,025  
                                         -----------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996                    31,983       (10,719,560)      24,456,200   $   145,033
                                                                                            ==============

Exercise of stock options                          -               -              476,023 
Amortization of deferred                                                                  
   compensation costs                              -               -                6,695 
Reduction of deferred                                                                     
   compensation costs due                                                                 
   to extinguishment of                                                                   
   unvested options                                -               -                 -    
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                       -          (7,967,839)      27,658,656   $ 2,719,738
                                                                                            ==============
Exercise of stock options                          -               -              177,804 
Amortization of deferred                                                                  
   compensation costs                              -               -                6,695 
Compensation recognized                                                                   
   under stock option plan                         -               -               13,400 
Issuance of common stock                                                                  
   pursuant to acquisition                                                                
   of Disability Reinsurance                                                              
   Management Services, Inc.                       -               -            2,730,000 
Net loss                                           -          (3,759,925)      (3,759,925)  $(3,759,925)
                                         -----------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998                  $    -       $ (11,727,764)     $26,826,630   $(3,759,925)
                                         =================================================================

</TABLE>
See accompanying notes.
                                   F-6

<PAGE>

                                                   CORE, INC.
                                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                                    YEAR ENDED DECEMBER 31,
                                                                         --------------- -------------- ----------------
                                                                              1996            1997            1998
                                                                         --------------- -------------- ----------------
<S>                                                                      <C>             <C>            <C>
OPERATING ACTIVITIES:
Net income (loss)                                                             $144,025     $2,751,721      $(3,759,925)
Adjustments to reconcile net income (loss) to net cash provided
   by (used in) operating  activities:
    Depreciation                                                             1,189,488      1,651,110        2,195,378
    Amortization                                                               374,799        931,206        1,136,243
    Write-off of goodwill and intangibles                                        -              -            4,085,449
    Disposal of subsidiaries, net of cash payments and other                              
       charges                                                                   -              -              520,421
    Provision for losses on accounts receivable                                  -              -              253,380
    Arbitration costs, net of cash payments                                      -              -              239,605
    Realized gain on sale of investments available-for-sale                    (16,003)         -                -
    Compensation expense related to issuance of stock options                   12,480          6,695           20,095
    Decrease in obligations to former shareholders                            (261,225)         -                -
    Changes in operating assets and liabilities:
       Increase in accounts receivable                                      (1,558,382)    (1,927,299)      (1,258,378)
       Increase in unbilled receivables                                          -              -           (1,395,500)
       Increase in prepaid expenses and other assets                        (1,000,060)       (71,408)        (688,900)
       Increase in accounts payable and accrued expenses                        31,140        585,849          136,283
                                                                         --------------- -------------- ----------------
Net cash provided by (used in) operating activities                         (1,083,738)     3,927,874        1,484,151

INVESTING ACTIVITIES:
   Net additions to property and equipment                                  (4,589,839)    (1,828,321)      (3,504,240)
   Net additions to intangible assets                                         (176,119)      (391,307)           -
   Decrease in cash pledged as collateral                                      106,000        192,000            -
   (Increase) decrease in deposits                                             (69,268)        42,162           64,081
   (Increase) decrease in notes receivable from officers                       (71,419)           538            -
   Payments for acquisitions, net of cash acquired                               -         (5,434,612)     (20,366,271)
   Payments on non-compete obligations to former shareholders                    -            (50,000)           -
   Purchases of investments available-for-sale                             (23,612,768)   (44,647,453)     (16,579,100)
   Sales of investments available-for-sale                                  16,725,858     51,862,964       17,767,137
                                                                         --------------- -------------- ----------------
Net cash used in investing activities                                      (11,687,555)      (254,029)     (22,618,393)

FINANCING ACTIVITIES:
     Borrowings under credit agreement                                           -               -          17,000,000
     Repayments under credit agreement                                           -               -            (500,000)
     Payments on obligation from acquisition                                     -           (375,000)      (1,125,000)
     Payments on obligations to former shareholders                           (682,390)          -             (50,000)
     Issuance of notes payable                                                 328,518           -                -
     Payments on notes payable                                                (169,723)       (64,840)         (56,806)
     Payments on capital lease obligations                                     (79,355)       (47,427)         (30,331)
     Proceeds from issuance of common stock, net of offering costs          16,288,063           -                -
     Issuance of common stock upon exercise of stock options and
       warrants                                                                362,367        476,023          177,804
                                                                         --------------- -------------- ----------------
Net cash provided by (used in) financing activities                         16,047,480        (11,244)      15,415,667
                                                                         --------------- -------------- ----------------
Net increase (decrease) in cash and cash equivalents                         3,276,187      3,662,601       (5,718,575)

Cash and cash equivalents at beginning of year                               1,005,807      4,281,994        7,944,595
                                                                         --------------- -------------- ----------------
Cash and cash equivalents at end of year                                    $4,281,994    $ 7,944,595     $  2,226,020
                                                                         =============== ============== ================
</TABLE>
                                   F-7
<PAGE>

                                                   CORE, INC.
                               CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

<TABLE>
<CAPTION>

                                                                                    YEAR ENDED DECEMBER 31,
                                                                         -----------------------------------------------
                                                                              1996            1997            1998
                                                                         -----------------------------------------------
<S>                                                                      <C>             <C>             <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

   Interest paid                                                               $55,697        $23,492         $500,612
   Income taxes paid                                                             -           $221,393         $164,500

NON-CASH INVESTING AND FINANCING ACTIVITIES:
    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

</TABLE>

See accompanying notes.


                                   F-8

<PAGE>

                                   CORE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               December 31, 1998

1.  ORGANIZATION AND PURPOSE


CORE, INC. ("CORE" or the "Company") is a national provider of employee 
absence management services to Fortune 500 companies and other self-insured 
employers, third-party administrators and insurance carriers. The Company's 
services include Integrated Disability Management (which consist of the 
Company's proprietary WorkAbility Absence Management program, disability 
reinsurance management services, social security disability benefits 
advocacy, analytic consulting services, onsite job profiling and 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.

2.  BUSINESS ACQUISITIONS


On September 1, 1998, the Company 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 the Company's common stock and the future issuance of up 
to an additional $7,000,000 of the Company'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.

On March 17, 1998, a wholly-owned subsidiary of the Company, TCM Services, 
Inc. ("TCM") purchased the operating assets and certain liabilities of 
Transcend Case Management, Inc. ("Transcend") pursuant to an Asset Purchase 
Agreement (the "Asset Purchase Agreement") in a transaction accounted for as 
a purchase. Transcend is a provider of workers' compensation case management 
services. Pursuant to the Asset Purchase Agreement, the assets of Transcend 
were acquired in exchange for the assumption of certain liabilities and a 
contingent issuance of shares of common stock of the Company, the number of 
which was to be equal to a valuation based upon the future performance of the 
acquired operations. On December 23, 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. See Note 7.

On June 25, 1997, a wholly-owned subsidiary of the Company 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. Performance based 
payments of $139,000 have been made as of December 31, 1998 and up to an 
additional $320,000 is payable, based upon the future performance of SSDC. 
SSDC provides disability management services with two key areas of business: 
social security disability benefits advocacy and Medicare coordination of 
benefits.

                                      F-9

<PAGE>

                                   CORE, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

2.  BUSINESS ACQUISITIONS (continued)


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 acquisitions of DRMS and SSDC 
had occurred on January 1, 1997 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.

<TABLE>
<CAPTION>
                                                                             Year ended December 31,
                                                                          1997                  1998
                                                                --------------------------------------------
             <S>                                                         <C>                   <C>
             Revenues                                                    $46,452,000           $48,145,000
             Income (loss) before extraordinary item                      $3,018,000            $(3,640,000)
                                                                --------------------------------------------
                                                                --------------------------------------------
             Net income (loss)                                            $4,122,000            $(3,640,000)
                                                                --------------------------------------------
                                                                --------------------------------------------
             Earnings (loss) per common share:
               Net income (loss) before extraordinary item:
                 Basic                                                         $0.39                $ (0.47)
                                                                --------------------------------------------
                                                                --------------------------------------------
                   Diluted                                                     $0.36                $ (0.47)
                                                                --------------------------------------------
                                                                --------------------------------------------
                Net income (loss):
                   Basic                                                       $0.53                $ (0.47)
                                                                --------------------------------------------
                                                                --------------------------------------------
                   Diluted                                                     $0.49                $ (0.47)
                                                                --------------------------------------------
                                                                --------------------------------------------
</TABLE>

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 
date indicated.

                                     F-10

<PAGE>

                                   CORE, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


3.  ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and 
its wholly-owned subsidiaries. All significant intercompany transactions have 
been eliminated in consolidation.

RISKS AND UNCERTAINTIES
The Company 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, 1998 as a result of the large and diverse nature of the Company's
customer base. The Company 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 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.

FINANCIAL INSTRUMENTS
Financial instruments primarily consist of cash and cash equivalents, 
investments available-for-sale, receivables, payables and borrowings. The 
Company 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 will be included in 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 unamortized cost of the arrangement will be included in other 
assets.

CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to concentrations
of credit risk, principally consist of cash and cash equivalents, investments
available-for-sale and receivables.

FAIR VALUES
Cash, receivables, notes receivable, accounts payable, accrued expenses and 
notes payable are reflected in the financial statements at fair value because 
of the short-term maturity of those instruments. Outstanding borrowings under 
a revolving line of credit agreement are reflected in the financial 
statements at fair value because the variable borrowing rates accruing on the 
debt approximate the current rates offered for similar debt.

INVESTMENTS
Investments are accounted for in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." Under the SFAS 115, debt securities that the
Company has both the positive intent and ability to hold to maturity are
classified as held-to-maturity securities and are carried at amortized cost.
Debt securities that the Company does not have the positive intent or ability to
hold to maturity and equity securities are classified as available-for-sale and
are carried at fair market value. Increases or declines in fair market value of
available-for-sale securities judged to be other than temporary are recorded as
a component of other income. Temporary declines are reported as a separate
component of stockholders' equity.

The Company considers all highly liquid investments with a maturity of three 
months or less at the date of purchase to be cash equivalents. Investments 
available-for-sale represent the investment of excess cash in commercial 
paper, corporate bonds and United States Government securities.

PRECONTRACT COSTS
Precontract 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 precontract 
costs as well as future period costs. Precontract costs are amortized on a 
straight-line basis over the contract period, generally not longer than 
three years.

                                     F-11

<PAGE>

                                   CORE, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

3.  ACCOUNTING POLICIES (continued)


REVENUE RECOGNITION 
The Company engages principally in capitated (fixed per employee per month), 
hourly, or per case basis contracts. Revenue on these 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. 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. Profit commissions, representing a percentage of 
the overall profits on the pooled policies under management are not 
recognized until annual operating results of the DART are determinable. 
Licensing fees are primarily based on use by the customer and are recognized 
as revenue when earned.

Unbilled receivables and revenues are recorded as costs are incurred on 
certain contracts, and will be billed as services are commenced under the 
specified 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.

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:

<TABLE>
    <S>                                            <C>
    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
</TABLE>

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. The Company capitalized 
software development costs of $718,589 and $1,780,161 during the years ended 
December 31, 1997 and 1998, respectively. Software development costs are 
amortized using the straight-line method. Amortization in the amount of 
$110,165, $262,956 and $360,580 is included in cost of services for the years 
ended December 31, 1996, 1997 and 1998, respectively.

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. Recoverability of all intangible
assets, including goodwill arising from business acquisitions, is reviewed
annually or sooner if events or changes in circumstances indicate that the
carrying amount may exceed fair value.

                                     F-12

<PAGE>

                                   CORE, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

3.  ACCOUNTING POLICIES (continued)


INCOME TAXES
The Company 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
The Company 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
As of January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
this statement had no impact on the Company's net income or stockholders'
equity. SFAS No. 130 requires unrealized gains or losses on the Company's
available-for-sale securities, which prior to adoption were reported separately
in stockholders' equity, to be included in other comprehensive income.

SEGMENT REPORTING 
The Company adopted SFAS No. 131 "Disclosures about Segments of an Enterprise 
and Related Information,"  during 1998.  SFAS No. 131 supercedes SFAS No. 14 
"Financial Reporting for Segments of a Business Enterprise."  SFAS No. 131 
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. The Company operates in a single industry segment: employee 
absence management services.  The adoption of SFAS No. 131 did not affect the 
consolidated results of operations or financial position of the Company.

STOCK-BASED COMPENSATION 
The Company applies Accounting Principles Board Opinion No. 25 and related 
interpretations in accounting for stock option grants to employees (and 
non-employees prior to January 1, 1996). Since January 1, 1996, the Company 
applies SFAS No. 123, "Accounting for Stock-Based Compensation" and related 
interpretations for accounting for stock option grants to non-employees.

RECLASSIFICATIONS
Certain reclassifications of 1996 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." The Company
expects to adopt the new Statement effective January 1, 2000. SFAS No. 133 will
require the Company to recognize all derivatives on the balance sheet at fair
value. The Company does not anticipate that the adoption of this Statement will
have a significant effect on its results of operations or financial position.


4.  INVESTMENTS

At December 31, 1997 the Company's investments consisted of mortgaged-backed
securities with maturities due after three months through one year. The
amortized cost and estimated fair value of the investments at December 31, 1997
were $1,188,037.

For the years ended December 31, 1997 and 1998, the Company sold
available-for-sale securities with a fair value on the date of sale of
$51,862,964 and $17,767,137, respectively. There were no realized gains and
losses on sales during 1997 and 1998.

                                     F-13

<PAGE>

                                   CORE, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


5.  PROPERTY AND EQUIPMENT

Property and equipment consist of the following at December 31:

<TABLE>
<CAPTION>
                                                            1997            1998
                                                     --------------------------------
      <S>                                                <C>             <C>
      Computer and office equipment                      $6,315,821      $7,298,554
      Software and software development costs             3,157,620       5,430,844
      Furniture and fixtures                              1,979,795       2,131,005
      Leasehold improvements                              1,963,954       2,001,217
                                                     --------------------------------
                                                     --------------------------------
                                                         13,417,190      16,861,620
      Accumulated depreciation                           (6,972,387)     (8,930,470)
                                                     --------------------------------
      Property and equipment, net                        $6,444,803      $7,931,150
                                                     --------------------------------
                                                     --------------------------------
</TABLE>

6.   IMPAIRMENT LOSSES ON LONG LIVED ASSETS

In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived 
Assets and of Long-Lived Assets to be Disposed Of", the Company records 
impairment losses on long-lived assets used in operations when indicators of 
impairment are present and the undiscounted cash flows estimated to be 
generated by those assets are less than the assets' carrying amount.

During June 1998, the Company'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 net book 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 7).

The Company 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.

7.  DISPOSAL OF SUBSIDIARIES

Effective October 31, 1998, the Company discontinued the operations of its 
subsidiary, CRS. In connection with this action, the Company 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.

On December 23, 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 (see Note 2). The Company recorded charges of $241,000 
in connection with this transfer.

8.  ARBITRATION

The Company 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, the Company incurred $121,000 in other costs related to 
the arbitration.

                                     F-14

<PAGE>

                                   CORE, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


9.  CREDIT AGREEMENT

On August 31, 1998, the Company entered into a revolving line of credit 
agreement (the "Credit Agreement") with Fleet National Bank ("Fleet"). Under 
the Credit Agreement, which was amended on December 31, 1998 and expires 
August 31, 2003, the Company may borrow up to specified amounts beginning at 
$17,000,000 at the prime base rate plus 0.50% or London Interbank Offered 
Rate ("LIBOR") plus 3.50%. The $17,000,000 credit availability is subject to 
mandatory commitment reductions each quarter in amounts ranging from $250,000 
to $1,000,000. At December 31, 1998, the Company had outstanding borrowings 
of $16,500,000 under the Credit Agreement which were all tied to the prime 
base lending rate (7.75%) plus the applicable margin. The Credit Agreement is 
secured by substantially all of the Company's assets and requires the Company 
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 the 
Company without the Bank's written consent. The Company was in compliance 
with the financial covenants contained in the Credit Agreement at December 
31, 1998.

In connection with the Credit Agreement, the Company issued a Warrant to 
purchase shares of its Common Stock to Fleet. The Warrant entitles the holder 
to purchase up to 156,322 shares of the Company's Common Stock (subject to 
certain adjustments), at an exercise price of $6.92 per share. The Warrant is 
exercisable beginning August 31, 1999 and expires August 31, 2003.

On January 15 1999, the Company entered into an interest rate protection 
arrangement with Fleet that limits the Company'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%) over the life of 
the Credit Agreement.

A Second Amendment to the Credit Agreement, dated February 19, 1999 revised 
the scheduled maximum commitment available from $16,000,000 as of the date of 
the second amendment to $17,000,000, subject to a revised schedule of 
mandatory commitment reductions.

Scheduled mandatory commitment reductions, as amended, for the next five 
years are as follows:

<TABLE>
                          <S>                          <C>
                          1999                         $2,750,000
                          2000                          3,125,000
                          2001                          3,625,000
                          2002                          4,000,000
                          2003                          3,000,000
                                                 -----------------
                                                      $16,500,000
                                                 -----------------
                                                 -----------------
</TABLE>

                                    F-15

<PAGE>

                                   CORE, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


10. STOCK OPTION PLANS

The Company 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 the Company'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 the Company 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 1996, 1997 and 1998, respectively: risk-free interest rates 
of 6.18%, 6.12% and 5.28%; volatility factors of the expected market price of 
the Company's common stock of 99%, 93%, and 90%; 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 the Company'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. The 
Company's pro forma information for the years ended December 31, is as 
follows:

<TABLE>
<CAPTION>
                                                            1996            1997            1998
                                                       --------------- --------------- ---------------
<S>                                                    <C>             <C>             <C>
Pro forma net income (loss)                              $(1,390,000)        $181,000    $(7,212,000)
                                                       =============== =============== ===============
Pro forma net income (loss) per share                         $(0.24)           $0.02         $(0.96)
                                                       =============== =============== ===============
</TABLE>

The Company has reserved 1,800,000 shares of common stock for issuance under 
stock option plans established in 1991 and 1997. The Company has also granted 
or assumed 1,124,082 non-plan stock options and warrants of which 223,904, 
308,758 and 329,758 have been exercised as of December 31, 1996, 1997 and 
1998, respectively. As of December 31, 1997 and 1998, respectively, 7,812 and 
21,212 of these non-plan stock options have been cancelled. Other than the 
773,112 non-plan stock options outstanding at December 31, 1998, 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:

<TABLE>
<CAPTION>
                                                      ------------------------------------------------------
                                                                1996              1997             1998
                                                      ------------------------------------------------------
<S>                                                     <C>               <C>               <C>
Outstanding at beginning of year                             1,267,853         1,395,693         2,008,083
Granted                                                        429,589           795,126           595,139
Canceled                                                      (172,241)          (52,368)          (91,597)
Exercised                                                     (129,508)         (130,368)          (41,433)
                                                      ------------------------------------------------------
Outstanding at end of year                                   1,395,693         2,008,083         2,470,192
                                                      ======================================================
Price range of outstanding options                      $2.50 - $13.38    $2.94 - $11.13    $2.94 - $13.75
                                                      ======================================================
Price range of options exercised                        $2.50 - $ 9.38     $2.50 - $8.75     $2.94 - $8.75
                                                      ======================================================
Exercisable at end of year                                     811,132         1,004,625         1,393,743
                                                      ======================================================
Available for grant at end of year                             175,338           369,768             9,150
                                                      ======================================================
</TABLE>

                                     F-16

<PAGE>

                                   CORE, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


10.  STOCK OPTION PLANS (continued)

The weighted average exercise prices are as follows:

<TABLE>
<CAPTION>
                                                                          DECEMBER 31,
                                                          ---------------------------------------
                                                                 1996         1997         1998
                                                          ---------------------------------------
<S>                                                             <C>           <C>          <C>
Granted                                                         $11.10        $8.90        $8.76
Canceled                                                         $7.90        $6.92        $9.12
Exercised                                                        $3.40        $3.92        $4.89
Outstanding at end of year                                       $6.25        $6.29        $6.80
Exercisable at end of year                                       $5.50        $5.15        $5.96
</TABLE>


The weighted average fair value of options granted during the years ended 
December 31, 1996, 1997 and 1998 are $8.80, $6.80 and $5.84, respectively. 
Stock options will expire on various dates through November 2003. The 
weighted average remaining contractual life of options outstanding at 
December 31, 1998 is 2.9 years.

11. INCOME TAXES


The income tax provision (benefit) is comprised of the following:

<TABLE>
<CAPTION>
                                           YEAR ENDED DECEMBER 31,
                                    --------------------------------------
                                         1996       1997        1998
                                    --------------------------------------
<S>                                   <C>        <C>          <C>
Current:
  Federal                             $      -   $ (490,000)  $ 116,000
  State                                      -     (120,000)   (141,000)
                                    --------------------------------------
                                             -     (610,000)    (25,000)
Deferred:
  Federal                                    -         -        218,000 
                                    --------------------------------------
                                      $      -   $ (610,000)  $ 193,000
                                    ======================================
</TABLE>


The approximate effect of temporary differences and carryforwards that give rise
to deferred tax assets and liabilities as of December 31 is as follows:

<TABLE>
<CAPTION>
                                                                       1997              1998
                                                               ----------------- ----------------
<S>                                                            <C>                 <C>
Deferred tax assets:
   Bad debt reserve                                               $   62,000      $   136,000
   Expense accruals                                                  320,000          347,000
   Goodwill amortization                                                -             710,000
   Net operating loss carryforwards                                1,050,000          901,000
   Valuation allowance                                            (1,391,000)      (1,987,000)
                                                               ----------------- ----------------
                                                                      41,000          107,000
Deferred tax liabilities:
   Change in accounting method from cash to accrual                  (95,000)            -
   Depreciation                                                     (164,000)        (107,000)
                                                               ----------------- ----------------
                                                                    (259,000)        (107,000)
                                                               ----------------- ----------------
Net deferred tax liability                                        $ (218,000)     $      -
                                                               ================= ================
</TABLE>

                                     F-17

<PAGE>

                                   CORE, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


11. INCOME TAXES (continued)

The valuation allowance primarily relates to deferred tax assets for federal 
and state net operating loss carryforwards of approximately $2.0 million and 
$3.5 million, respectively. These unutilized net operating loss ("NOL") 
carryforwards, which expire through 2011, will be carried forward for 
reduction of future federal and state income taxes payable. 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 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 expense for the years ended December 31, 1996, 1997 and 1998 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:

<TABLE>
<CAPTION>
                                                               ------------------------------------------------
                                                                       1996           1997            1998
                                                               ------------------------------------------------
<S>                                                                <C>           <C>             <C>
Statutory federal tax (benefit)                                    $  49,000     $ 1,143,000     $ (1,344,000)  
State income taxes (benefit), net of federal benefit                  (16,000)       202,000           94,000 
Utilization of net operating loss carryforwards                      (119,000)      (978,000)        (149,000) 
Goodwill amortization not deductible for tax purposes                   -               -           1,467,000
Other                                                                  86,000        243,000           22,000
Resolution of prior years' tax exposures                                -               -            (283,000)
                                                               -----------------------------------------------
Effective tax expense                                              $    -        $   610,000     $   (193,000)
                                                               ===============================================
</TABLE>

12. LEASES

The Company leases its facilities and certain office equipment under 
non-cancelable operating leases, which expire at various dates through June 
2003.

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 September 2000 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. 
The Company has recorded a deferred credit to reflect the excess of rent 
expense over cash payments since inception of the lease.

The Company 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 balance sheets.

At December 31, 1998, future minimum annual rental commitments under all of 
the lease agreements described above are as follows:

<TABLE>
               <S>                       <C>
               1999                            $2,431,000
               2000                             2,061,000
               2001                             1,161,000
               2002                               300,000
               2003                               127,000
                                         -----------------
                                               $6,080,000
                                         =================
</TABLE>

Total rent expense amounted to $1,432,851, $1,848,220 and $2,016,635 for the 
years ended December 31, 1996, 1997 and 1998, respectively.

                                    F-18

<PAGE>

                                   CORE, INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


13. COMMITMENTS AND CONTINGENCIES

Certain of the Company's service agreement contracts have provisions which 
allow clients to audit the Company's performance under the contracts.

The Company has several 401(k) profit sharing plans covering all employees 
meeting certain service requirements. The Plans provide for discretionary 
contributions by the Company. Matching contributions for the years ended 
December 31, 1996, 1997 and 1998 were $131,948, $136,112 and $195,580, 
respectively, and are included in general and administrative expenses in the 
accompanying statements of operations.

The Company 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 the Company's financial 
position, results of operations or liquidity.

14. EARNINGS PER SHARE

The following table sets forth the computation of earnings (loss) per share 
as of December 31:

<TABLE>
<CAPTION>
                                                                 1996                 1997                1998
                                                        --------------------- ------------------- --------------------
<S>                                                      <C>                  <C>                 <C>
Numerator:                                         
   Net income (loss)                                           $   144,025          $ 2,751,721        $  (3,759,925)
                                                       
Denominator:                                           
   Denominator for basic earnings (loss) per share     
      weighted-average shares outstanding                        5,713,000            7,246,000            7,489,000
   Effect of dilutive stock options and warrants                   760,000              688,000                   -
                                                         --------------------- ------------------- --------------------
   Denominator for diluted earnings (loss) per share             6,473,000            7,934,000            7,489,000
                                                         ===================== =================== ====================
Basic earnings (loss) per share                                      $0.03                $0.38              $(0.50)
                                                         ===================== =================== ====================
Diluted earnings (loss) per share                                    $0.02                $0.35              $(0.50)
                                                         ===================== =================== ====================
</TABLE>


15. RELATED PARTIES

The notes receivable from officers are due in April 1999 and accrue interest 
at current market rates.

16. SIGNIFICANT CLIENTS

The Company has service agreements with a major client, which accounted for 
approximately 13%, 23% and 21% of total revenues for the years ended December 
31, 1996, 1997 and 1998, respectively. No other client represented 10% or 
more of revenue during these years.

17. SUBSEQUENT EVENT

On January 7, 1999, the Company granted an exclusive option to sell the 
assets of one of its' operating subsidiaries, Integrated Behavioral Health, a 
California corporation ("IBH") to a non-affiliated party. This exclusive 
option was granted in exchange for consulting services. If the option is 
exercised, the sale of the assets of IBH is expected to close on or before 
July 15, 1999, however the closing of the exercise of the option and the sale 
of the assets of IBH is subject to a definitive agreement (the "Agreement"). 
The purchaser and IBH have not yet begun negotiations concerning or executed 
the Agreement.

                                     F-19

<PAGE>

                                   CORE, INC.
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS


<TABLE>
<CAPTION>
                                            BALANCE AT
                                           BEGINNING OF        CHARGED TO COSTS         DEDUCTIONS -       BALANCE AT END OF
DESCRIPTION                                   PERIOD             AND EXPENSES             DESCRIBE              PERIOD
-------------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>                 <C>                     <C>                 <C>
Year ended December 31, 1998:
Allowance for doubtful accounts              $151,633              $253,380(a)         $     -                $405,013
Year ended December 31, 1997:
Allowance for doubtful accounts              $221,925              $      -            $ 70,292(b)            $151,633
Year ended December 31, 1996:
Allowance for doubtful accounts              $170,337              $ 52,026(c)         $    438(b)            $221,925
</TABLE>


(a)  The allowance for doubtful accounts was increased by a reserve against
     receivables which related to revenues recorded 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.

(c)  The allowance for doubtful accounts was increased by a reserve against
     receivables which related to revenues recorded during the current year and
     thus, charged directly against revenues during the current year.

                                     F-20

<PAGE>


                                 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 29, 1999                    By: /s/ George C. Carpenter IV
                                            ------------------------------------
                                            George C. Carpenter IV
                                            Chairman of the Board and
                                                Chief Executive Officer


Date:  March 29, 1999                    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.

<TABLE>
<S>                                   <C>                                           <C>

/s/ George C. Carpenter IV            Chairman of the Board of Directors and         March 29, 1999
--------------------------------                     Chief Executive Officer
George C. Carpenter IV      

                                               
/s/ Craig C. Horton                            Director, President and Chief         March 29, 1999
-------------------------------                            Operating Officer 
Craig C. Horton


/s/ William E. Nixon                       Chief Financial Officer, Executive        March 29, 1999
-------------------------------                  Vice President and Treasurer
William E. Nixon


/s/ Bradley J. Timon                                               Controller        March 29, 1999
-------------------------------
Bradley J. Timon


/s/ Leslie M. Alexandre, Dr.P.H.                                     Director        March 29, 1999
-------------------------------
Leslie M. Alexandre, Dr.P.H.


/s/ Stephen C. Caulfield                                             Director        March 29, 1999
-------------------------------
Stephen C. Caulfield


/s/ Richard H. Egdahl, M.D.                                          Director        March 29, 1999
-------------------------------
Richard H. Egdahl, M.D.


/s/ David M. Tourangeau                                              Director        March 29, 1999
-------------------------------
David M. Tourangeau


/s/ Richard J. Towle                                                 Director        March 29, 1999
-------------------------------
Richard J. Towle
</TABLE>