On August 9, 1996, the Company completed a public offering of 2,000,000 shares of Common Stock through a group of underwriters managed by Smith Barney Inc. and Cowen & Company. The public offering price was $8.00 per share. On September 3, 1996, the Company issued an additional 248,800 shares of its Common Stock to cover over-allotments in connection with the public offering. CORE intends to use the net proceeds from this offering for investments in its operating capacity and for working capital and general corporate purposes.
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 $4,902,000 (38%) from $12,839,000 in 1995 to $17,741,000 in 1996. The increase is primarily the result of additional payroll costs associated with processing a higher volume of referrals and increased staffing levels required to service new and growing WorkAbility clients. CORE's gross profit performance for the years ended 1995 and 1996 is unchanged at approximately 38%, despite the addition of a significant customer during 1996. Typically, when a major client such as Bell Atlantic Corporation is implemented the Company expends a significant amount of resources during the implementation which can result in lower gross profit margins during the implementation period. Consequently, the Company's results of operations for any one quarter may not be indicative of results to be expected for any other quarter or for a particular fiscal year.
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 revenues, such as participation in and attendance at industry trade shows and conferences. Sales and marketing increased $245,000 (16%) from $1,499,000 in 1995 to $1,744,000 in 1996. The increase is primarily due to increased travel expenses in the account management department and increased staffing to support the marketing department. The Company's sales and marketing strategy has historically focused the efforts of an industry known senior management team and a smaller sales and marketing staff on fewer but significantly larger sales prospects. During 1996, the Company maintained this approach, however has added staffing to increase its distribution sales effort which is aimed at intermediaries, e.g., insurance companies and TPAs, who
provide sales leverage and access to companies with 1,000-5,000 employees, thereby, broadening the Company's target market.
Other income consists primarily of interest income, which represents amounts earned by the Company on investments held, as reduced by interest expense, which primarily relates to borrowings under lines of credit. During 1996, other income increased $190,000 (108%) from $176,000 in 1995 to $366,000 in 1996 due to an increase in funds available for investment following the public offering in August 1996 and the Company significantly reducing its use of its lines of credit.
Revenues increased by $4,023,000 (24%) from $16,746,000 in 1994 to $20,769,000 in 1995. The volume of reviews processed in each of the Company's three principal service lines increased. These increases were primarily attributable to the addition of new clients and an increase in review volume from existing clients. Approximately $2,224,000 (55%) of the Company's increase in revenues during 1995 came from the growth in managed disability services, including WorkAbility, analytic and bill audit services. During 1995, CORE added Hughes Electronics Corporation as a key WorkAbility client and increased its services to smaller corporate clients under the Company's distribution relationship with CIGNA Insurance. Additionally, with the acquisition of CRS in October 1995, CORE expanded its ability to service the workers' compensation market with bill audit services. CRS revenues represented 21% of the Company's 1995 increase in revenues. CORE's specialty physician and behavioral health review services grew by $1,420,000 (19%) in 1995. This growth was due primarily to increased demand for specialty-matched physician reviews across a broad range of markets, including but not limited to the group health, workers' compensation and disability management markets. During 1995 the Company's top five clients represented 30% of revenues, compared to 37% during 1994. No single client represented more than 10% of total revenues in 1995.
Cost of services increased by $1,534,000 (14%) from $11,305,000 for 1994 to $12,839,000 for 1995. This increase is primarily the result of additional payroll and physician review costs associated with processing a higher volume of referrals and increased staffing levels required to service new and growing WorkAbility clients. During 1995, CORE's cost of services increased by only 14% to service a 24% increase in revenue. Accordingly, gross profit performance improved from 33% in 1994 to 38% in 1995. This improvement is generally due to efficiencies obtained as the result of the CMI/PRA Merger, which included a consolidation of facilities and management staff, a consolidation of the companies' benefit plans and greater economies of scale related to higher revenues.
The Company has net operating loss carryforwards for income tax purposes of approximately $6 million as of December 31, 1996, 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 these net operating loss carryforwards may be subject to further limitation provided by the Internal Revenue Code of 1986 and similar state provisions. See Note 9 of Notes to Consolidated Financial Statements of the Company.