<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): September 30, 1998
-------------------
COMPASS INTERNATIONAL SERVICES CORPORATION
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Delaware 000-23217 22-3540815
- -------------------------------- -------------- -------------------
(State or Other Jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.
One Penn Plaza, Suite 4430, New York, New York 10119
---------------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (212) 967-7770
--------------
<PAGE> 2
Compass International Services Corporation (the "Company") hereby
amends Item 7(a) and Item 7(b) of its Current Report on Form 8-K filed with the
Securities and Exchange Commission on October 16, 1998 with respect to the
acquisition of the stock of Professional American Collections, Inc. to supply
certain financial statements and pro forma financial information that was not
available at such time.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
The following financial statements and pro forma financial information
are being provided as part of this filing:
a) Financial Statements of Business Acquired.
Audited financial statements of Professional American
Collections, Inc. as of December 31, 1997 and related
statements of income, changes in stockholders' equity and cash
flows for the year then ended.
Unaudited financial statements of Professional American
Collections, Inc. as of September 30, 1998 and related
statements of income, changes in stockholders' equity and
cash flows for the nine months then ended.
b) Pro Forma Financial Information.
Unaudited pro forma combined financial information as of
December 31, 1997 and for the year then ended.
Unaudited pro forma combined financial information as of
September 30, 1998 and for the nine months then ended.
2
<PAGE> 3
Compass International Services Corporation
Introduction to Unaudited Pro Forma Combined Financial Statements
Compass International Services Corporation ("Compass" or the "Company")
was organized to create a leading integrated provider of outsourced business
services to public and private entities throughout a customer's sales cycle. On
March 4, 1998, simultaneously with the closing of its initial public offering
(the "Offering") of its common stock (the "Common Stock"), Compass acquired all
of the outstanding capital stock of five companies providing accounts receivable
management services, mailing services and teleservices (the "Founding
Companies") in separate purchase transactions (the "Founding Companies
Acquisition"). The Founding Companies included The Mail Box, Inc. ("Mail Box"),
National Credit Management Corporation ("NCMC"), B.R.M.C. of Delaware, Inc.
("Bomar"), Mid-Continent Agencies Inc. ("MCA") and Impact Telemarketing Group,
Inc. ("Impact"). Prior to the Offering and the closing of the Founding Companies
Acquisition, Compass had no operating activities. Since the Offering, Compass
has completed several additional acquisitions and has reorganized certain of its
operating entities.
Pursuant to a Stock Purchase Agreement, dated as of September 30, 1998
(the "Purchase Agreement"), Compass Receivables Management Corporation ("CRMC"),
a Delaware corporation and a wholly-owned subsidiary of Compass International
Services Corporation, acquired all of the outstanding common stock of
Professional American Collections, Inc., an Illinois corporation ("PAC"), from
trusts (the "Selling Stockholders") established by Messrs. Steven McCormick,
David McCormick and Mark McCormick (the "Principals"). In consideration for the
shares of PAC, the Selling Stockholders received $10,425,000 in cash, 659,154
unregistered shares of common stock of the Company and interest bearing notes
of the Company in the aggregate principal amount of $5,850,000. CRMC also
agreed to contribute $1,275,000 to PAC in respect of a bonus paid by PAC to
Mr. John McCormick. The Purchase Agreement provides that contingent
consideration, in the form of unregistered shares of common stock of the
Company, may be payable by the Company in calendar 1999 and 2000 based on PAC
attaining certain earnings levels during calendar 1998 and 1999. The purchase
price agreed upon by the Company and Principals was the result of arms-length
negotiations. The cash paid pursuant to the Purchase Agreement was borrowed
under the Company's existing revolving credit facility.
The PAC acquisition was accounted for using the purchase method of
accounting. The Unaudited Pro Forma Combined Financial Statements reflect the
preliminary allocation of the purchase price for PAC. The final allocation of
such purchase price, and resulting amortization expense, may differ somewhat
from the preliminary estimates as additional information becomes available.
The following Unaudited Pro Forma Combined Financial Statements are
based upon the historical financial statements of PAC and the pro forma
financial statements of Compass and the Founding Companies, and have been
prepared using assumptions, as set forth in the accompanying Notes to Unaudited
Pro Forma Combined Financial Statements. The Unaudited Pro Forma Combined
Statement of Operations for the year ended December 31, 1997 gives effect to the
acquisition of PAC and the related financing as if they had occurred on January
1, 1997. The Unaudited Pro Forma Combined Balance Sheet as of December 31, 1997
gives effect to the acquisition of PAC and the related financing as if they had
occurred at that date. The Unaudited Pro Forma Combined Statement of Operations
3
<PAGE> 4
for the nine months ended September 30, 1998 gives effect to the Founding
Companies Acquisition and the acquisition of PAC as if they had occurred on
January 1, 1997. An Unaudited Pro Forma Combined Balance Sheet as of September
30, 1998 is not presented since the acquisition of PAC was reflected in the
historical consolidated balance sheet of Compass that was included in the Form
10-Q for the quarterly period ended September 30, 1998 that was filed with the
Securities and Exchange Commission on November 16, 1998 and was amended on
December 1, 1998.
The pro forma adjustments are based upon preliminary estimates,
available information and certain assumptions that management deems appropriate
and may be revised as additional information becomes available. The Unaudited
Pro Forma Combined Financial Statements do not purport to represent what the
Company's financial position or results of operations would have been if the
acquisitions of PAC or the Founding Companies had occurred on the dates
indicated and are not necessarily representative of Compass' financial position
or results of operations for any future period.
The Unaudited Pro Forma Combined Financial Statements should be read in
conjunction with the financial statements and notes thereto for the Company
included in the Company's Registration Statement on Form S-1 (No. 333-37205), as
amended, filed with the Securities and Exchange Commission in connection with
the Offering and the financial statements and notes thereto for PAC (filed
separately as part of Item 7(a) of this Form 8-K/A).
4
<PAGE> 5
Compass International Services Corporation
Unaudited Pro Forma Combined Statement of Operations
Year Ended December 31, 1997
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE DATA)
--------------------------------------------------------------------------
PRO FORMA PRO FORMA PRO FORMA
COMPASS(A) PAC ADJUSTMENTS COMBINED
------------------ ------------------ ------------------- ----------------
<S> <C> <C> <C> <C>
Revenues $ 87,153 $ 12,560 $ (471) (B) $ 99,242
Operating expenses 53,353 10,811 (375) (B) 62,769
(1,020) (C)
------------------ ------------------ ------------------- ----------------
Gross profit 33,800 1,749 924 36,473
Selling, general and
administrative expenses 23,229 939 - 24,168
Goodwill amortization 1,531 - 500 (D) 2,031
------------------ ------------------ ------------------- ----------------
Operating income 9,040 810 424 10,274
Interest (expense) income - net (625) 10 (1,181) (E) ( 1,796)
------------------ ------------------ ------------------- ----------------
Income before income taxes 8 415 820 (757) 8,478
Income tax provision 3,978 9 217 (F) 4,204
------------------ ------------------ ------------------- ----------------
Net income $ 4,437 $ 811 $ (974) $ 4,274
================== ================== =================== ================
Earnings per share:
Basic and Diluted $ .37 $ .34
================== ================
Weighted average shares
outstanding:
Basic and Diluted 11,833,460 (G) 12,492,614 (H)
================== ================
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
5
<PAGE> 6
Compass International Services Corporation
Notes to Unaudited Pro Forma Combined Statement of Operations
Year Ended December 31, 1997
(A) The unaudited Pro Forma Compass statement of operations gives effect to
the Founding Companies Acquisition and the Offering as if they had
occurred on January 1, 1997, and reflects reduction in salaries, bonuses
and certain benefits to the owners of the Founding Companies to which
they have agreed prospectively, reflects reductions in interest expense
associated with reductions in debt and gives effect to an acquisition by
one of the Founding Companies as if it had occurred on January 1, 1997.
(B) Reflects the elimination of the results of the First Centennial Mortgage
division of PAC that was not acquired by the Company.
(C) Reflects the reduction in salaries and bonuses paid to owners of PAC to
which they have agreed prospectively.
(D) Reflects the amortization of goodwill recorded as a result of the
acquisition of PAC that is based on a preliminary allocation of the
purchase price for PAC (future adjustment may be required). Goodwill
expense is amortized on a straight-line basis over an estimated life of
40 years.
(E) Reflects the incremental interest expense at 6.09% on the $11,700,000
necessary borrowings under the revolving credit facility to complete
the PAC acquisition (The interest rate is based on the current terms of
the Company's revolving credit facility and swap agreement, which fixed
the rate at 4.84% plus an increment 125 basis points) plus interest
expense at 8% on the $5,850,000 notes issued to the stockholders of PAC.
(F) Reflects the incremental provision for federal and state income taxes for
PAC assuming it was subject to federal and state income taxes (since it
was previously taxed as a S Corporation), and as a result of the
adjustments to the Statement of Operations described in these footnotes,
except for nondeductible goodwill amortization, at an effective
statutory tax rate of 40.0%.
(G) The shares used in computing basic and diluted earnings per share for Pro
Forma Compass include: (i) 1,682,769 shares issued to BGL Capital
Partners, LLC, and management of Compass; (ii) 5,435,691 shares issued to
owners of the Founding Companies in connection with the Founding
Companies Acquisition; and (iii) 4,715,000 shares representing the number
of shares sold in the Offering.
(H) The shares used in computing basic and diluted earnings per share for Pro
Forma Combined include 11,833,460 shares for Pro Forma Compass plus
659,154 shares issued to the stockholders of PAC in connection with the
acquisition.
6
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Compass International Services Corporation
Unaudited Pro Forma Combined Balance Sheet
December 31, 1997
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------------------------------------------------------------------
PRO FORMA PRO FORMA PRO FORMA
COMPASS(A) PAC ADJUSTMENTS COMBINED
------------------ ------------------ ------------------- ----------------
<S> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents $ 6,802 $ 1,364 $ - $ 8,166
Trade and other receivables, net 11,898 1,466 - 13,364
Inventory 733 - - 733
Postage on hand 1,231 - - 1,231
Prepaid expenses and other
current assets 1,385 29 - 1,414
------------------ ------------------ ------------------- ----------------
Total current assets 22,049 2,859 - 24,908
Property and equipment, net 8,570 256 - 8,826
Goodwill, net 50,818 - 19,715 (C) 70,533
Other assets 2,914 - - 2,914
------------------ ------------------ ------------------- ----------------
Total assets 84,351 3,115 19,715 107,181
================== ================== =================== ================
LIABILITIES:
Short term debt 1,021 600 5,850 (B) 7,471
Accounts payable and
accrued expenses 8,444 654 474 (C) 9,572
Collections due clients 1,249 710 - 1,959
Postage advances and deposits 950 - - 950
Income taxes payable 727 13 - 740
------------------ ------------------ ------------------- ----------------
Total current liabilities 12,391 1,977 6,324 20,692
Long-term debt 459 - 11,700 (B) 12,159
Capital lease obligations 1,551 - 1,551
Other non-current liabilities 674 - 674
------------------ ------------------ ------------------- ----------------
Total liabilities 15,075 1,977 18,024 35,076
STOCKHOLDERS' EQUITY:
Preferred stock - - - -
Common stock 112 1 7 (B) 119
(1) (D)
Additional paid-in capital 66,033 - 3,796 (B) 69,829
Retained earnings 3,131 1,137 (974) (C) 2,157
(1,137) (D)
------------------ ------------------ ------------------- ----------------
Total stockholders' equity 69,276 1,138 1,691 72,105
------------------ ------------------ ------------------- ----------------
Total liabilities and
stockholders' equity $ 84,351 $ 3,115 $ 19,715 $ 107,181
================== ================== =================== ================
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
7
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Compass International Services Corporation
Notes to Unaudited Pro Forma Combined Balance Sheet
December 31, 1997
(A) The unaudited Pro Forma Compass balance sheet gives effect to the
Founding Companies Acquisition and the Offering as if they had occurred
on December 31, 1997.
(B) Represents the consideration paid by Compass to acquire PAC, which is
comprised of $11,700,000 in cash that was borrowed by the Company under
its revolving credit agreement, $5,850,000 of interest bearing notes
payable in one year and 659,154 unregistered shares of the Company's
common stock which were recorded by Compass based upon a discounted
fair market value of $5.77 per share.
(C) Represents amount of goodwill recorded based on preliminary allocation of
the purchase price for PAC, net of amortization expense that would have
been recorded in the year ended December 31, 1997, and the additional
purchase price and pro forma adjustments reflected on the Unaudited Pro
Forma Combined Statement of Operations for the year ended December
31, 1997.
(D) Represents the elimination of the PAC equity balances.
8
<PAGE> 9
Compass International Services Corporation
Unaudited Pro Forma Combined Statement of Operations
Nine Months Ended September 30, 1998
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE DATA)
-------------------------------------------------------------------------------
PRO FORMA PRO FORMA PRO FORMA PRO FORMA
COMPASS ADJUSTMENTS (A) COMPASS PAC ADJUSTMENTS COMBINED
----------- ----------- ----------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 84,295 $ 16,034 $ 100,329 $ 13,018 $ (654) (B) $ 112,693
Operating expenses 55,242 9,872 65,114 8,386 (478) (B) 73,237
215 (C)
----------- ----------- ----------- ----------- -------------- -----------
Gross profit 29,053 6,162 35,215 4,632 (391) 39,456
Selling, general and
administrative expenses 18,490 3,987 22,477 968 - 23,445
Goodwill amortization 1,335 250 1,585 - 375 (D) 1,960
----------- ----------- ----------- ----------- -------------- -----------
Operating income 9,228 1,925 11,153 3,664 (766) 14,051
Interest (expense) income - net (879) (62) (941) 23 (885) (E) (1,803)
----------- ----------- ----------- ----------- -------------- -----------
Income before income taxes 8 349 1,863 10,212 3,687 (1,651) 12,248
Income tax provision 3,684 847 4,531 - 1,152 (F) 5,683
----------- ----------- ----------- ----------- -------------- -----------
Net income $ 4,665 $ 1,016 $ 5,681 $ 3,687 $ (2,803) $ 6,565
=========== =========== =========== =========== ============== ===========
Earnings per share:
Basic $ .45 $ .55 $ .50
=========== =========== ===========
Diluted $ .45 $ .55 $ .50
=========== =========== ===========
Weighted average shares
outstanding:
Basic 10,283,965 10,283,965 13,155,833 (G)
============ ============ ============
Diluted 10,349,287 10,349,287 13,221,155 (G)
============ ============ ============
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
9
<PAGE> 10
Compass International Services Corporation
Notes to Unaudited Pro Forma Combined Statement of Operations
Nine Months Ended September 30, 1998
(A) Represents the unaudited statements of operations for the Founding
Companies for the two months ended February 28, 1998, which represents
the results for the Founding Companies prior to the closing of the
Founding Companies Acquisition. Therefore, the Pro Forma Compass
amount represent the results as if the Founding Companies Acquisition
and the Offering had occurred on January 1, 1998, and reflects reduction
in salaries, bonuses and certain benefits to the owners of the Founding
Companies to which they have agreed prospectively and reflects reductions
in interest expense associated with reductions in debt.
(B) Reflects the elimination of the results of the First Centennial Mortgage
division of PAC that was not acquired by the Company.
(C) Reflects a net increase in salaries and bonuses paid to owners of PAC
to which they have agreed prospectively.
(D) Reflects the amortization of goodwill recorded as a result of the
acquisition of PAC that is based on a preliminary allocation of the
purchase price for PAC (future adjustment may be required). Goodwill
expense is amortized on a straight-line basis over an estimated life of
40 years.
(E) Reflects the incremental interest expense at 6.09% on the $11,700,000
necessary borrowings under the revolving credit facility to complete
the PAC acquisition (The interest rate is based on the current terms of
the Company's revolving credit facility and swap agreement, which fixed
the rate at 4.84% plus an increment 125 basis points) plus interest
expense at 8% on the $5,850,000 notes issued to the stockholders of PAC.
(F) Reflects the incremental provision for federal and state income taxes for
PAC assuming it was subject to federal and state income taxes (since it
was previously taxed as a S Corporation), and as a result of the
adjustments to the Statement of Operations described in these footnotes,
except for nondeductible goodwill amortization, at an effective statutory
tax rate of 40.0%.
(G) The computation of the Pro Forma Combined basic earnings per share for
the nine months ended September 30, 1998 (i) assumes that the 1,682,769
shares issued to BGL Capital Partners, LLC, and management of Compass,
the 5,435,691 shares issued to owners of Founding Companies in connection
with the Founding Companies Acquisition, the 4,715,000 shares sold in the
Offering and the 659,154 shares issued to the owners of PAC were all
issued as of January 1, 1998, and (ii) reflects the issuance of shares
during the period in connection with other acquisitions as of their
respective acquisition dates.
The computation of the Pro Forma Combined diluted earnings per share for
the nine months ended September 30, 1998 includes 65,322 shares which
represent the net effect of shares issuable for dilutive options and
warrants outstanding, net of treasury shares that could be purchased in
the open market based on the average closing share price for the period.
10
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PROFESSIONAL AMERICAN COLLECTIONS, INC.
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITOR'S REPORT
For the Year Ended
December 31, 1997
SIKICH GARDNER & CO, LLP
CONSULTANTS AND ACCOUNTANTS
11
<PAGE> 12
C O N T E N T S
- - - - - - - -
Page(s)
-------
INDEPENDENT AUDITOR'S REPORT................................... 13
FINANCIAL STATEMENTS
Balance Sheet.............................................. 14-15
Statement of Income........................................ 16
Statement of Changes in Stockholders' Equity............... 17
Statement of Cash Flows.................................... 18
Notes to Financial Statements.............................. 19-21
12
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INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Board of Directors and Stockholders
Professional American Collections, Inc.
North Aurora, Illinois
We have audited the accompanying balance sheet of Professional American
Collections, Inc. as of December 31, 1997 and the related statements of income,
changes in stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Professional American
Collections, Inc. as of December 31, 1997 and the results of its operations and
cash flows for the year then ended in conformity with generally accepted
accounting principles.
As discussed in Note 2 to the financial statements, the Company has elected S
Corporation status effective January 1, 1997.
/s/ SIKICH GARDNER & CO., LLP
Aurora, Illinois
February 20, 1998, except for Note 8
as to which the date is December 7, 1998
13
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PROFESSIONAL AMERICAN COLLECTIONS, INC.
BALANCE SHEET
December 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
ASSETS
<S> <C>
CURRENT ASSETS
Cash - operating $ 653,740
Cash - trust account 709,864
-----------
Total cash 1,363,604
Accounts receivable 1,465,736
Prepaid expenses and other 29,487
-----------
Total current assets 2,858,827
-----------
PROPERTY AND EQUIPMENT
Furniture and equipment 771,664
Vehicles 198,161
-----------
Subtotal 969,825
Less accumulated depreciation (713,349)
-----------
Net property and equipment 256,476
-----------
TOTAL ASSETS $ 3,115,303
===========
</TABLE>
See accompanying notes to financial statements.
14
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PROFESSIONAL AMERICAN COLLECTIONS, INC.
BALANCE SHEET
December 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
CURRENT LIABILITIES
Trust accounts payable $ 709,864
Other accounts payable 195,490
Note payable, bank 600,000
Accrued salaries and wages 240,615
Accrued profit sharing contribution 175,000
Accrued income taxes 12,500
Other accrued liabilities 43,907
----------
Total current liabilities 1,977,376
----------
Total liabilities 1,977,376
----------
STOCKHOLDERS' EQUITY
Common stock (10,000 shares authorized, 1,000 shares
issued and outstanding, no par value) 1,000
Retained earnings 1,136,927
----------
Total stockholders' equity 1,137,927
----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $3,115,303
==========
</TABLE>
See accompanying notes to financial statements.
15
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PROFESSIONAL AMERICAN COLLECTIONS, INC.
STATEMENT OF INCOME
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
<S> <C>
REVENUES
Commissions $ 12,559,911
OPERATING EXPENSES 10,811,067
------------
Gross profit 1,748,844
------------
GENERAL AND ADMINISTRATIVE EXPENSES 939,304
------------
Income from operations 809,540
------------
OTHER INCOME (EXPENSE)
Interest income 29,571
Interest expense (18,867)
------------
Total other income 10,704
------------
Income before provision for income taxes 820,244
PROVISION FOR INCOME TAXES (9,137)
------------
NET INCOME $ 811,107
============
</TABLE>
See accompanying notes to financial statements.
16
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PROFESSIONAL AMERICAN COLLECTIONS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Common Retained
Stock Earnings Total
-----------------------------------------
<S> <C> <C> <C>
BALANCES, DECEMBER 31, 1996 $ 1,000 $ 325,820 $ 326,820
Net income
- 811,107 811,107
-----------------------------------------
BALANCES, DECEMBER 31, 1997 $ 1,000 $1,136,927 $1,137,927
=========================================
</TABLE>
See accompanying notes to financial statements.
17
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PROFESSIONAL AMERICAN COLLECTIONS, INC.
STATEMENTS OF CASH FLOWS
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 811,107
-----------
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 92,325
Deferred income taxes (3,363)
(Increase) decrease in
Accounts receivable (516,199)
Prepaid expenses and other 4,691
Increase (decrease) in
Trust accounts payable 464,076
Other accounts payable 50,207
Accrued income taxes 10,672
Accrued salaries and wages 42,464
Accrued profit-sharing contribution 25,000
Other accrued liabilities (43,670)
-----------
Total adjustments 126,203
-----------
Net cash provided by operating activities 937,310
-----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (116,999)
-----------
Net cash used in investing activities (116,999)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in notes payable, bank (200,000)
-----------
Net cash used in financing activities (200,000)
-----------
NET INCREASE IN CASH 620,311
CASH, BEGINNING OF YEAR 743,293
-----------
CASH, END OF YEAR $ 1,363,604
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 18,867
===========
Cash paid during the year for income taxes $ 1,828
===========
</TABLE>
See accompanying notes to financial statements.
18
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PROFESSIONAL AMERICAN COLLECTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS
Professional American Collections, Inc. (the Company) is primarily
engaged in providing outsource services for consumer and commercial debt
collection and residential mortgage credit reporting. The markets for
the Company's services are throughout the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies applied in
the preparation of the financial statements.
Cash - Trust Account
--------------------
The Company segregates in a separate bank account cash due on trust
accounts payable.
Accounts Receivable
-------------------
No allowance for uncollectible accounts has been provided. Management
has evaluated the accounts and believes they are fully collectible.
Property and Equipment
----------------------
Property and equipment are stated at cost. Expenditures for maintenance
and repairs are charged to earnings as incurred and expenditures for
major renovations are capitalized. Depreciation is computed principally
by use of accelerated methods over the estimated useful lives as
follows:
Furniture and equipment 5-10 years
Vehicles 5 years
Revenue Recognition
-------------------
Collection revenue is recognized at a commission rate when a collection
payment is received. Revenue on all other services provided by the
Company is recognized when the service is performed.
19
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PROFESSIONAL AMERICAN COLLECTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
------------
The Company has elected S corporation status effective January 1, 1997.
Earnings and losses after that date will be included in the personal
income tax returns of the stockholders and taxed depending on their
personal tax strategies. Accordingly, the Company will not incur
additional income tax obligations, and future financial statements will
not include a provision for federal income taxes other than for state
replacement taxes. Prior to the change, income taxes currently payable
and deferred income taxes related primarily to differences between the
basis of property and equipment for financial and income tax reporting
and were recorded in the financial statements.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect 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 and the differences could be material to these financial
statements.
3. INCOME TAXES
The provision for income taxes consists of the following components:
<TABLE>
<S> <C>
Currently payable $ 12,500
Deferred provision (benefit) (3,363)
--------
TOTAL $ 9,137
========
</TABLE>
As discussed in Note 2, the Company changed its tax status from taxable
to non-taxable effective as of January 1, 1997. Accordingly, the
deferred tax liability at the date that the election for the change was
filed of $3,363 has been eliminated through a credit to the deferred tax
provision.
4. NOTES PAYABLE
Amounts up to $1,200,000 are available under line of credit agreements
through January 1999. These agreements are collateralized by
substantially all Company assets and are guaranteed by the Company's
stockholders. Interest is payable monthly at the prime rate, plus 1%
(9.5% at December 31, 1997). Amounts outstanding under these agreements
totaled $600,000 at December 31, 1997.
20
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PROFESSIONAL AMERICAN COLLECTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
5. LEASES AND RELATED PARTY TRANSACTIONS
Equipment
---------
The Company leases certain equipment under operating leases from a
partnership which includes the Company's shareholders. The leases carry
terms of one year and are subject to annual renewal. Amounts paid to the
partnership under these agreements totaled $95,280 in 1997.
Premises
--------
The Company leases its offices under an operating lease agreement from
the Company's President. The lease provides for monthly payments of
$20,000 through December 1997. From January 1, 1998, the Company is
leasing the facility on a monthly basis at $20,000 per month. Amounts
paid under this lease agreement totaled $240,000 in 1997.
6. PROFIT SHARING PLAN
The Company sponsors a profit sharing plan in which substantially all
full-time employees participate. Contributions to the plan are
discretionary and totaled $175,000 in 1997.
7. REVENUES
In 1997, no single client contributed 10% or more to operating revenues.
8. EVENT (UNAUDITED) SUBSEQUENT TO THE DATE OF THE INDEPENDENT AUDITOR'S
REPORT
Pursuant to a Stock Purchase Agreement, dated as of September 30, 1998,
among Compass Receivables Management Corporation ("Compass"), Compass
International Services Corporation ("Compass Parent") and the
stockholders of the Company (Stockholders), all of the shares of common
stock of the Company were acquired by Compass Parent for a purchase
price of $23,400,000. The purchase price was paid in the form of cash,
notes of Compass and shares of common stock of Compass Parent.
Additionally, the Purchase Agreement provides that contingent
consideration, in the form of unregistered shares of common stock of
Compass Parent, may be payable by Compass Parent in calendar 1999 and
2000 based the Company attaining certain earnings levels during calendar
1998 and 1999. The accompanying financial statements do not reflect any
adjustments resulting from this acquisition.
21
<PAGE> 22
PROFESSIONAL AMERICAN COLLECTIONS, INC.
FINANCIAL STATEMENTS AND
ACCOUNTANT'S COMPILATION REPORT
For the Nine Months Ended
September 30, 1998
SIKICH GARDNER & CO, LLP
CONSULTANTS AND ACCOUNTANTS
22
<PAGE> 23
C O N T E N T S
- - - - - - - -
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
ACCOUNTANT'S COMPILATION REPORT................................................ 24
FINANCIAL STATEMENTS
Balance Sheet.............................................................. 25-26
Statement of Income........................................................ 27
Statement of Changes in Stockholders' Equity............................... 28
Statement of Cash Flows.................................................... 29
Notes to Financial Statements.............................................. 30-32
</TABLE>
23
<PAGE> 24
ACCOUNTANT'S COMPILATION REPORT
-------------------------------
To the Board of Directors and Stockholders
Professional American Collections, Inc.
North Aurora, Illinois
We have compiled the accompanying balance sheet of Professional American
Collections, Inc. as of September 30, 1998 and the related statements of income
and changes in stockholders' equity and cash flows for the nine months then
ended, in accordance with Statements on Standards for Accounting and Review
Services issued by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on them.
/s/ SIKICH GARDNER & CO., LLP
Aurora, Illinois
December 7, 1998
24
<PAGE> 25
PROFESSIONAL AMERICAN COLLECTIONS, INC.
BALANCE SHEET
September 30, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
ASSETS
<S> <C>
CURRENT ASSETS
Cash - operating $ 2,349,028
Cash - trust account 282,826
-----------
Total cash 2,631,854
Accounts receivable 2,085,179
Prepaid expenses and other 12,497
-----------
Total current assets 4,729,530
-----------
PROPERTY AND EQUIPMENT
Furniture and equipment 979,832
Vehicles 240,629
-----------
Subtotal 1,220,461
Less accumulated depreciation (784,006)
-----------
Net property and equipment 436,455
-----------
TOTAL ASSETS $ 5,165,985
===========
</TABLE>
See accompanying notes to financial statements.
(See accountant's compilation report.)
25
<PAGE> 26
PROFESSIONAL AMERICAN COLLECTIONS, INC.
BALANCE SHEET
September 30, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
CURRENT LIABILITIES
Trust accounts payable $ 282,826
Other accounts payable 553,845
Accrued salaries and wages 286,725
Other accrued liabilities 28,685
----------
Total current liabilities 1,152,081
----------
Total liabilities 1,152,081
----------
STOCKHOLDERS' EQUITY
Common stock (10,000 shares authorized, 1,000 shares
issued and outstanding, no par value) 1,000
Retained earnings 4,012,904
----------
Total stockholders' equity 4,013,904
----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $5,165,985
==========
</TABLE>
See accompanying notes to financial statements.
(See accountant's compilation report.)
26
<PAGE> 27
PROFESSIONAL AMERICAN COLLECTIONS, INC.
STATEMENT OF INCOME
For the Nine Months Ended September 30, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
<S> <C>
REVENUES
Commissions $ 13,017,977
OPERATING EXPENSES 8,386,138
------------
Gross profit 4,631,839
------------
GENERAL AND ADMINISTRATIVE EXPENSES 968,124
------------
Income from operations 3,663,715
------------
OTHER INCOME (EXPENSE)
Interest income 36,594
Interest expense (13,239)
------------
Total other income 23,355
------------
NET INCOME $ 3,687,070
============
</TABLE>
See accompanying notes to financial statements.
(See accountant's compilation report.)
27
<PAGE> 28
PROFESSIONAL AMERICAN COLLECTIONS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Nine Months Ended September 30, 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Common Retained
Stock Earnings Total
----------------------------------------
<S> <C> <C> <C>
BALANCES, DECEMBER 31, 1997 $ 1,000 $ 1,136,927 $ 1,137,927
Net income - 3,687,070 3,687,070
Distributions to stockholders - (811,093) (811,093)
----------------------------------------
BALANCES, SEPTEMBER 30, 1998 $ 1,000 $ 4,012,904 $ 4,013,904
========================================
</TABLE>
See accompanying notes to financial statements.
(See accountant's compilation report.)
28
<PAGE> 29
PROFESSIONAL AMERICAN COLLECTIONS, INC.
STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,687,070
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 70,657
(Increase) decrease in
Accounts receivable (619,443)
Prepaid expenses and other 16,990
Increase (decrease) in
Trust accounts payable (427,038)
Other accounts payable 358,355
Accrued income taxes (12,500)
Accrued salaries and wages 46,110
Accrued profit-sharing contribution (175,000)
Other accrued liabilities (15,222)
-----------
Total adjustments (757,091)
-----------
Net cash provided by operating activities 2,929,979
-----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (250,636)
-----------
Net cash used in investing activities (250,636)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in notes payable, bank (600,000)
Distributions to stockholders (811,093)
-----------
Net cash used in financing activities (1,411,093)
-----------
NET INCREASE IN CASH 1,268,250
CASH, BEGINNING OF YEAR 1,363,604
-----------
CASH, END OF YEAR $ 2,631,854
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 13,239
===========
Cash paid during the year for income taxes $ -
===========
</TABLE>
See accompanying notes to financial statements.
(See accountant's compilation report.)
29
<PAGE> 30
PROFESSIONAL AMERICAN COLLECTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS
Professional American Collections, Inc. (the Company) is primarily
engaged in providing outsource services for consumer and commercial debt
collection and residential mortgage credit reporting. The markets for
the Company's services are throughout the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies applied in
the preparation of the financial statements.
Cash - Trust Account
--------------------
The Company segregates in a separate bank account cash due on trust
accounts payable.
Accounts Receivable
-------------------
No allowance for uncollectible accounts has been provided. Management
has evaluated the accounts and believes they are fully collectible.
Property and Equipment
----------------------
Property and equipment are stated at cost. Expenditures for maintenance
and repairs are charged to earnings as incurred and expenditures for
major renovations are capitalized. Depreciation is computed principally
by use of accelerated methods over the estimated useful lives as
follows:
Furniture and equipment 5-10 years
Vehicles 5 years
Revenue Recognition
-------------------
Collection revenue is recognized at a commission rate when a collection
payment is received. Revenue on all other services provided by the
Company is recognized when the service is performed.
(See accountant's compilation report.)
30
<PAGE> 31
PROFESSIONAL AMERICAN COLLECTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
------------
The Company has elected S corporation status effective January 1, 1997.
Earnings and losses after that date will be included in the personal
income tax returns of the stockholders and taxed depending on their
personal tax strategies. Accordingly, the Company will not incur
additional income tax obligations, and future financial statements will
not include a provision for federal income taxes other than for state
replacement taxes. Prior to the change, income taxes currently payable
and deferred income taxes related primarily to differences between the
basis of property and equipment for financial and income tax reporting
and were recorded in the financial statements.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect 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 and the differences could be material to these financial
statements.
3. NOTES PAYABLE
Amounts up to $1,200,000 are available under line of credit agreements
through January 1999. These agreements are collateralized by
substantially all Company assets and are guaranteed by the Company's
stockholders. Interest is payable monthly at the prime rate, plus 1%.
There were no amounts outstanding under these agreements at September
30, 1998.
4. LEASES AND RELATED PARTY TRANSACTIONS
Equipment
---------
The Company leases certain equipment under operating leases from a
partnership which includes the Company's shareholders. The leases carry
terms of one year and are subject to annual renewal. Amounts paid to the
partnership under these agreements totaled $97,508 for the nine months
ended September 30, 1998.
(See accountant's compilation report.)
31
<PAGE> 32
PROFESSIONAL AMERICAN COLLECTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
4. LEASES AND RELATED PARTY TRANSACTIONS (Continued)
Premises
--------
The Company leases its offices under an operating lease agreement from
the Company's President. The lease provides for monthly payments of
$20,000 through June 1998. From July 1, 1998, the Company is leasing the
facility on a monthly basis at $22,000 per month. Amounts paid under
this lease agreement totaled $186,000 for the nine months ended
September 30, 1998.
5. PROFIT SHARING PLAN
The Company sponsors a profit sharing plan in which substantially all
full-time employees participate. Contributions to the Plan are
discretionary. There were no contributions to the Plan during the nine
months ended September 30, 1998.
6. REVENUES
In 1998, no single client contributed 10% or more to operating revenues.
7. ACQUISITION OF THE COMPANY'S COMMON STOCK
Pursuant to a Stock Purchase Agreement, dated as of September 30, 1998,
among Compass Receivables Management Corporation ("Compass"), Compass
International Services Corporation ("Compass Parent") and the
stockholders of the Company (Stockholders), all of the shares of common
stock of the Company were acquired by Compass Parent for a purchase
price of $23,400,000. The purchase price was paid in the form of cash,
notes of Compass and shares of common stock of Compass Parent.
Additionally, the Purchase Agreement provides that contingent
consideration, in the form of unregistered shares of common stock of
Compass Parent, may be payable by Compass Parent in calendar 1999 and
2000 based on the Company attaining certain earnings levels during
calendar 1998 and 1999. The accompanying financial statements do not
reflect any adjustments resulting from this acquisition.
(See accountant's compilation report.)
32
<PAGE> 33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this amendment to the report to be signed on its
behalf by the undersigned hereunto duly authorized.
COMPASS INTERNATIONAL SERVICES
CORPORATION
Dated: December 15, 1998 By: /s/ LEEDS HACKETT
-----------------------------
Leeds Hackett
Chief Financial Officer
33
