<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER 000-23217
COMPASS INTERNATIONAL SERVICES CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 22-3540815
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
ONE PENN PLAZA
SUITE 4430
NEW YORK, NEW YORK 10119
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(212) 967-7770
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
13,781,506 Shares of Common Stock, par value $.01 per share, at November 12,
1998
<PAGE> 2
COMPASS INTERNATIONAL SERVICES CORPORATION
FORM 10-Q
INDEX
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
General Information
Compass International Services Corporation Condensed
Consolidated Statement of Operations for the
Three Months Ended September 30, 1998
(Unaudited)
Compass International Services Corporation Condensed
Consolidated Statement of Operations for the
Nine Months Ended September 30, 1998 (Unaudited)
Compass International Services Corporation Condensed
Consolidated Balance Sheets at December 31, 1997
and September 30, 1998 (Unaudited)
Compass International Services Corporation Condensed
Consolidated Statement of Cash Flows for the
Nine Months Ended September 30, 1998 (Unaudited)
Compass International Services Corporation Condensed
Consolidated Statement of Stockholders' Equity
for the Nine Months Ended September 30, 1998
(Unaudited)
The Mail Box, Inc. (Accounting Acquiror) Condensed
Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 1997
and the Two Months Ended February 28, 1998
(Unaudited)
The Mail Box, Inc. (Accounting Acquiror) Condensed
Consolidated Balance Sheets at December 31, 1997
and February 28, 1998 (Unaudited)
The Mail Box, Inc. (Accounting Acquiror) Condensed
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1997 and the Two
Months Ended February 28, 1998 (Unaudited)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Unaudited)
PART II OTHER INFORMATION (UNAUDITED)
Item 1 Legal Proceedings
Item 2 Changes in Securities and Use of Proceeds
Item 6 Exhibits and Reports on Form 8-K
Signatures
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
GENERAL INFORMATION
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
Acquisitions, Compass had no operating activities. Since the Offering, Compass
has completed several additional acquisitions and has reorganized certain of its
operating entities.
<TABLE>
<CAPTION>
COMPASS INTERNATIONAL SERVICES CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
Three Months
Ended
September 30, 1998
------------------
<S> <C>
Revenues $ 42,121
Cost of revenues 28,248
-----------
Gross profit 13,873
Selling, general and administrative expenses 9,377
-----------
Operating income 4,496
Interest expense (738)
Interest income 36
-----------
Income before income taxes 3,794
Provision for income taxes 1,605
-----------
Net income $ 2,189
===========
Earnings per share:
Basic $ 0.17
===========
Diluted $ 0.17
===========
Weighted average shares outstanding:
Basic 13,126,101
===========
Diluted 13,126,101
===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE> 4
<TABLE>
<CAPTION>
COMPASS INTERNATIONAL SERVICES CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
Nine Months
Ended
September 30, 1998
------------------
<S> <C>
Revenues $ 84,295
Cost of revenues 55,242
----------
Gross profit 29,053
Selling, general and administrative expenses 19,825
----------
Operating income 9,228
Interest expense (1,014)
Interest income 135
----------
Income before income taxes 8,349
Provision for income taxes 3,684
----------
Net income $ 4,665
==========
Earnings per share:
Basic $ 0.45
==========
Diluted $ 0.45
==========
Weighted average shares outstanding:
Basic 10,283,965
==========
Diluted 10,349,287
==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE> 5
COMPASS INTERNATIONAL SERVICES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
(Audited) (Unaudited)
--------- -----------
ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents $ - $ 9,370
Trade and other receivables, less
allowance of $432 at September 30, 1998 - 23,704
Inventory - 1,244
Postage on hand - 2,759
Prepaid expenses and other current assets - 2,390
------ --------
Total current assets - 39,467
Deferred offering costs 3,942 -
Property and equipment, net - 15,715
Goodwill, net of accumulated amortization
of $1,335 at September 30, 1998 - 116,634
Other assets - 572
------ --------
Total assets $3,942 $172,388
====== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short term debt $1,045 $ 7,547
Accounts payable and accrued expenses 2,747 13,739
Collections due to clients - 4,525
Postage advances and deposits - 3,396
Income taxes payable - 196
Capital lease obligations - 879
------ --------
Total current liabilities 3,792 30,282
Long-term debt - 47,083
Capital lease obligations - 1,238
Other non-current liabilities - 993
------ --------
Total liabilities 3,792 79,238
------ --------
Stockholders' equity:
Preferred stock, 10,000,000 shares authorized,
no shares issued or outstanding - -
Common Stock: 50,000,000 share authorized,
$.01 par value, 1,682,769 and 13,781,506 shares
issued and outstanding at December 31, 1997
and September 30, 1998, respectively 17 138
Additional paid-in capital 133 84,844
Retained earnings - 8,168
------ --------
Total stockholders' equity 150 93,150
------ --------
Total liabilities and stockholders' equity $3,942 $172,388
====== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE> 6
COMPASS INTERNATIONAL SERVICES CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months
Ended
September 30, 1998
------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 4,665
Adjustments to net income to net cash
provided by operating activities:
Depreciation 2,121
Amortization 1,335
CHANGES IN OPERATING ASSETS AND LIABILITIES, NET
OF EFFECT FROM ACQUISITIONS:
Trade and other receivables (3,567)
Inventory (2)
Postage on hand (1,245)
Prepaid expenses and other current assets (764)
Other assets (18)
Accounts payable and accrued expenses (2,699)
Collections due to clients 1,537
Postage advances and deposits 1,677
Income taxes payable (372)
Other non-current liabilities (128)
--------
Net cash provided by operating activities 2,540
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property & equipment (3,661)
Business acquisitions, net of cash acquired (57,659)
--------
Net cash used in investing activities (61,320)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of capital lease obligations (958)
Net proceeds from initial public offering 40,089
Proceeds from revolving credit facility borrowings 45,300
Repayment of acquired debt (16,281)
--------
Cash flows from financing activities 68,150
--------
Net increase in cash and cash equivalents 9,370
Cash and cash equivalents, beginning of period -
--------
Cash and cash equivalents, end of period $ 9,370
========
Supplemental Disclosures of cash flow information:
Cash paid for interest $ 709
========
Cash paid for income taxes $ 4,483
========
Non cash investing activities:
Fair value of net assets acquired $134,857
Value of common stock issued (59,944)
Value of warrants issued (50)
Notes issued (8,650)
--------
Net cash paid 66,213
Cash acquired in acquisitions (8,554)
--------
Net cash paid for acquisitions $ 57,659
========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE> 7
COMPASS INTERNATIONAL SERVICES CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Common Stock Additional
------------ Paid-in Retained
Shares Amount Capital Earnings Total
------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance,
December 31, 1997 1,682,769 $ 17 $ 133 $ - $ 150
Shares issued in
Offering 4,715,000 47 45,995 - 46,042
Offering Costs - - (5,953) - (5,953)
Shares issued
for Acquisitions 7,383,737 74 30,634 - 30,708
Retained earnings
of Mailbox, accounting
acquiror - - - 3,503 3,503
Increase in value of
shares exchanged
for Compass
pre-offering shares - - 13,985 - 13,985
Other - - 50 - 50
Net Income - - - 4,665 4,665
---------- ---- ------- ------ -------
Balance,
September 30, 1998 13,781,506 $138 $84,844 $8,168 $93,150
========== ==== ======= ====== =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE> 8
THE MAIL BOX, INC.
(ACCOUNTING ACQUIROR)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE NINE TWO
MONTHS MONTHS MONTHS
ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, FEBRUARY 28,
1997 1997 1998
---- ---- ----
<S> <C> <C> <C>
Revenues $7,384 $23,188 $ 5,866
Cost of Revenues 4,919 15,286 3,814
------ ------- -------
Gross Profit 2,465 7,902 2,052
Selling, general and administrative
expenses 1,989 5,642 1,392
------ ------- -------
Operating income 476 2,260 660
Interest expense 101 310 71
------ ------- -------
Income before income taxes 375 1,950 589
Provision for income taxes 135 697 217
------ ------- -------
Net income $ 240 $ 1,253 $ 372
====== ======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE> 9
THE MAIL BOX, INC.
(ACCOUNTING ACQUIROR)
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
December 31, February 28,
1997 1998
(Audited) (Unaudited)
--------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 16 $ 239
Accounts receivable, net of allowance for doubtful
accounts of $125 and $125, at December 31, 1997
and February 28, 1998 4,481 4,411
Inventories 733 722
Postage on hand 1,231 1,435
Prepaid expenses and other current assets 154 155
Deferred income taxes 44 44
--------- ---------
Total current assets 6,659 7,006
Property and equipment, net 4,327 4,534
Other assets 304 274
--------- ---------
Total assets $ 11,290 $ 11,814
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit $ 1,168 $ 1,191
Note payable, current portion 471 328
Secured equipment financing facilities,
current portion 329 434
Capitalized lease obligations, current portion 423 423
Accounts payable 1,373 1,519
Accrued expenses and other liabilities 1,235 1,192
Income taxes payable 416 181
Postage advances and deposits 950 1,416
-------- ---------
Total current liabilities 6,365 6,684
Long-term liabilities:
Note payable, net of current portion 242 326
Secured equipment financing facilities, net
of current portion 712 533
Capitalized lease obligations, net of current
portion 622 548
Deferred income taxes 165 167
-------- ---------
Total liabilities 8,106 8,258
Stockholders' equity:
Common stock, $.10 par value, 500,000 shares
authorized, 138,900 and 138,900
shares issued and 102,900 and 96,900 shares
outstanding at December 31, 1997 and
February 28, 1998, respectively 14 14
Additional paid in capital 1,126 1,126
Treasury stock at cost 36,000 shares at
December 31, 1997 (1,087) (1,087)
Retained earnings 3,131 3,503
--------- ---------
Total stockholders' equity 3,184 3,556
--------- ---------
Total liabilities and stockholders' equity $ 11,290 $ 11,814
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE> 10
THE MAIL BOX, INC.
(ACCOUNTING ACQUIROR)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS TWO MONTHS
ENDED ENDED
SEPTEMBER 30, FEBRUARY 28,
1997 1998
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 1,253 $ 372
Adjustments to Net income to net cash
provided by operating activities:
Depreciation and amortization 744 168
Provision for doubtful accounts 70 --
Changes in deferred taxes 37 2
Changes in operating assets & liabilities:
Accounts receivable (538) 70
Inventory (73) 11
Postage on hand 1,151 (204)
Prepaid expense and other assets (165) 29
Income taxes payable (174) (235)
Postage advances and deposits (1,099) 466
Accounts payable and accrued expenses 148 103
------- ------
Net cash provided by operating activities 1,354 782
------- ------
Cash flows from investing activities:
Purchases of property & equipment (1,236) (375)
Proceeds from disposal of property and equipment 38 --
------- ------
Net cash used in investing activities (1,198) (375)
------- ------
Cash flows from financing activities:
Net (payments) borrowings on line of credit (443) 23
Repayments of capital lease obligations (561) (74)
Repurchase of treasury stock (987) --
Repayment of debt (509) (133)
Proceeds from issuance of common stock 180 --
Cash dividends paid (97) --
Proceeds from long term debt 1,517 --
------- ------
Net cash used in financing activities (900) (184)
------- ------
Net (decrease) increase in cash and
cash equivalents (744) 223
Cash and cash equivalents, beginning of period 1,419 16
------- ------
Cash and cash equivalents, end of period $ 675 $ 239
======= ======
Supplemental Disclosure of cash flow information
Cash paid for interest $ 310 $ 71
======= ======
Cash paid for income taxes $ 833 $ 450
======= ======
Noncash investing and financing activities:
Equipment acquired under capital leases $ 600 $ --
======= ======
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE> 11
COMPASS INTERNATIONAL SERVICES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
1. BASIS OF PRESENTATION
Compass was formed in April, 1997 and organized to create a leading
provider of outsourced business services to public and private entities. On
March 4, 1998, Compass acquired the Founding Companies for consideration
consisting of cash and Common Stock. The closing of the Founding Companies
Acquisitions and the Offering occurred on that date. Prior to the Offering and
the closing of the Founding Companies Acquisitions, Compass had no operating
activities. Since the closing of the Offering, Compass has completed an internal
reorganization of certain of its operating entities.
The Founding Companies Acquisitions were accounted for using the
purchase method of accounting. For financial statement purposes, Mail Box, one
of the Founding Companies, has been identified as the accounting acquiror.
Accordingly, in recording the Founding Companies Acquisitions the accounts of
Mail Box continue to be reflected on its historic basis of accounting, while the
aggregate purchase price for the other Founding Companies was allocated based on
the fair value of assets acquired and liabilities assumed. The allocations were
based on preliminary estimates and may be revised as additional information
becomes available. The excess of purchase price over the net assets acquired of
approximately $55 million is being amortized on a straight-line basis over
lives ranging from 15-40 years. The results of operations of the Founding
Companies have been included in the consolidated results of the Company since
the Founding Companies Acquisitions.
The interim financial statements as of September 30, 1998 are
unaudited. However, they have been prepared in accordance with Rule 10-01 of
Regulation S-X and, in the opinion of management, all adjustments, consisting
only of normal recurring adjustments necessary to fairly present the financial
position, results of operations and cash flows with respect to the interim
statements, have been included. The results of operations for the interim period
are not necessarily indicative of the results for the year ending December 31,
1998. These statements should be read in conjunction with the financial
statements and notes thereto of Compass and the Founding Companies 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.
2. ACQUISITIONS
During the three months ended June 30, 1998, Compass acquired all of
the outstanding capital stock of two mail services providers, Bender Direct Mail
Service, Inc. and Maher & Associates Mailing Services, Inc., located in Tulsa,
Oklahoma and Dallas, Texas, respectively, and all of the outstanding capital
stock of two affiliated direct mail printing service providers, MetroWebb, Inc.
and MWI Laser Group, Inc., both located in Dallas, Texas. Compass also acquired
the assets and assumed certain liabilities of Delivery Verification Service,
Inc., a provider of letter-based accounts receivable collection services based
in Wilmington, Delaware, and Nationwide Debt Recovery, Ltd., a provider of
consumer accounts receivable collection services based in Houston, Texas.
Compass also acquired all of the outstanding capital stock of Midwest Collection
Service, Inc., an Indiana based provider of accounts receivable collection
services to the healthcare sector.
During the three months ended September, 1998, Compass acquired all of
the outstanding capital stock of The Rosenfeld Attorney Network, a provider of
legal network and accounts receivable collection services based in Washington,
DC, and Professional American Collections, Inc., a provider of credit reporting
and collection services based in North Aurora, IL. Compass also acquired the
assets and assumed certain liabilities of R.C. Wilson Company, a provider of
accounts receivable management services based in St. Louis, MO.
<PAGE> 12
The acquisitions described above (collectively the "Purchase
Acquisitions") were acquired for an aggregate purchase price of approximately
$71 million, which includes acquisition related costs. In addition, certain of
the Purchase Acquisitions provide that contingent payments may be payable by
Compass in calendar 1999 and 2000 based on certain of the acquired companies
attaining certain earnings levels during calendar 1998 and 1999. The Purchase
Acquisitions were funded by Compass with cash payments aggregating $48.1 million
(of which $43 million was borrowed under the $50 million revolving credit
facility), the issuance of 1,948,046 shares of common stock and $8.65 million of
notes.
The Purchase Acquisitions will each be accounted for using the purchase
method of accounting. The excess of the purchase price over the net assets
acquired of approximately $62.9 million is being amortized on a straight-line
basis over 40 years subject to revisions as additional information becomes
available. The results of the operations of the Purchase Acquisitions have been
included in the consolidated results of operations of the Company from their
respective dates of acquisition.
3. CREDIT FACILITY
On April 23, 1998, Compass entered into an agreement (the "Revolver")
with Bank of America, NT & SA together with a group of other financial
institutions, with respect to a $35 million revolving credit facility. On August
7, 1998, the Revolver was amended to increase the total amount available to $50
million. On November 16, 1998, the Revolver was further amended to increase the
amount available to $55 million and to add another lender to the Credit
Agreement. The Revolver may be used for acquisitions, capital expenditures,
refinancing debt, and for general corporate purposes. The Revolver also provides
that a maximum of $1 million of the total $55 million available may be used for
letters of credit. The Revolver requires Compass to comply with various
covenants which include maintenance of certain financial ratios, restrictions on
additional indebtedness and restrictions on liens, guarantees, investments,
capital expenditures, sales of assets, mergers and acquisitions, and dividends.
Indebtedness under the Revolver bears interest based on an initial increment,
based on the Company maintaining a specified leverage ratio, of 125 basis points
over the Interbank Offered Rate or a Base Rate, as defined therein. The Revolver
has a three year term. The Revolver is secured by the common stock of Compass'
current and future subsidiaries. In addition, if the Company fails to maintain
specified financial ratios, the lenders may perfect a security interest in
substantially all of the assets of the Company and its subsidiaries.
At November 16, 1998, the outstanding amount under the Revolver is
$45.8 million and the outstanding amount of letters of credit is $.8 million.
The borrowing rate under the Revolver on November 16, 1998 is 6.56%. However, on
October 13, 1998, the Company entered into an interest rate swap arrangement to
effectively lock in a fixed rate covering $40 million of the Company's total
outstanding borrowings. The rate under the swap agreement on October 13, 1998 is
6.09%, which is comprised of a fixed rate of 4.84% plus an initial increment,
based on the Company maintaining a specified leverage ratio, of 125 basis
points. This swap arrangement was entered into with two of the lenders that are
parties to the Revolver and terminates on October 15, 2000.
Effective November 16, 1998 due to a change in the Company's leverage
ratio, the initial margin increment for the Revolver and the swap arrangement
will be increased to 150 basis points.
<PAGE> 13
4. CAPITAL STOCK
In addition to 1,682,769 shares of Compass common shares outstanding at
December 31, 1997, on March 4, 1998, Compass issued an aggregate of 9,535,691
shares of Common Stock in connection with the Founding Companies Acquisitions
(5,435,691 shares) and the Offering (4,100,000 shares). Shares issued in
connection with the Offering were sold at a price to the public of $10.50 per
share. The net proceeds to Compass from the Offering (after deducting
underwriting discounts, commissions and offering expenses) were approximately
$34.1 million. Of this amount, $17.6 million represents the cash consideration
paid to Founding Company shareholders. An additional $13.5 million was paid by
Compass to repay certain indebtedness of Founding Companies. On March 25, 1998,
the underwriters' overallotment option was exercised and an additional 615,000
shares were issued, yielding net proceeds (after deducting underwriting
discounts) of $6.0 million.
In addition, between the Offering and September 30, 1998, Compass
issued an additional 1,948,046 shares of unregistered common stock, which
contain restrictions on transfer, in connection with the Purchase Acquisitions.
5. EARNINGS PER SHARE
The nine months ended September 30, 1998 represent the results of
operations of Compass since January 1, 1998, the Founding Companies since March
1, 1998 and the Purchase Acquisitions since their respective dates of
acquisition.
The computation of basic earnings per share ("Basic EPS") for the nine
months ended September 30, 1998 reflects the number of shares of Common Stock
outstanding (1,682,769) attributable to BGL Capital Partners, LLC and Compass
management from January 1, 1998 until February 27, 1998, the number of shares
following the Founding Companies Acquisitions and Offering (11,218,460) from
February 27, 1998 until March 25, 1998, the number of shares following the
exercise of the underwriters' overallotment option (11,833,460) from March 25,
1998 until the respective dates of the Purchase Acquisitions that occurred
through September 30, 1998. The computation of basic earnings per share for the
three months ended September 30, 1998 reflects the number of shares of Common
Stock outstanding as of July 1, 1998 (13,108,067) plus the effect of the
additional shares issued in connection with the Purchase Acquisitions from their
respective dates for the remainder of the three months ended September 30, 1998.
Diluted earnings per share ("Diluted EPS") for the three and nine
months ended September 30, 1998 includes the 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
periods presented.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, 1998 September 30, 1998
------------------ ------------------
<S> <C> <C>
Basic (weighted average shares outstanding) 13,126,101 10,283,965
Effect of dilutive potential securities - 65,322
---------- ----------
Shares used in calculation of Diluted EPS 13,126,101 10,349,287
========== ==========
</TABLE>
The above calculations do not include shares which may be issued under
earn-out arrangements for Professional American Collections, Inc. in calendar
1999 and 2000 if certain earnings levels are attained during calendar 1998 and
1999. See Note 2 of Notes to Condensed Consolidated Financial Statements.
<PAGE> 14
6. PRO FORMA RESULTS OF OPERATIONS
The unaudited pro forma financial information for the three and nine
months ended September 30, 1997 and 1998 includes the results of Compass
combined with the Founding Companies and the Purchase Acquisitions as if the
Offering and Founding Companies Acquisitions and the Purchase Acquisitions had
all occurred on January 1, 1997. The pro forma financial information includes
the effects of: (i) the Founding Companies Acquisitions and the Offering; (ii)
certain adjustments to salaries, bonuses, and benefits to former owners and key
management of the Founding Companies and the Purchase Acquisitions; (iii)
provision for income taxes as if income were subject to corporate federal and
state income taxes during the period; (iv) repayment of long term debt acquired;
(v) amortization of goodwill and other intangible assets resulting from the
Founding Companies Acquisitions and the Purchase Acquisitions; and (vi) interest
expense on additional debt for the Purchase Acquisitions. Prior to the Founding
Companies Acquisitions and the Purchase Acquisitions, the operations of each
company were not under the common control of management. Consequently, the pro
forma financial information may not be indicative of the results of operations
had the Founding Companies Acquisitions and Offering and the Purchase
Acquisitions taken place on January 1, 1997.
The pro forma results were (in thousands except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Pro Forma Revenues $37,090 $45,381
======= =======
Pro Forma Net Income $ 1,007 $ 2,439
======= =======
Pro forma Basic Earnings Per Share $ 0.07 $ 0.18
======= =======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Pro Forma Revenues $110,317 $134,262
======== ========
Pro Forma Net Income $ 4,164 $ 8,002
======== ========
Pro forma Basic Earnings Per Share $ 0.30 $ 0.58
======== ========
</TABLE>
Pro forma Basic EPS was computed using a share count that included (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 Acquisitions; (iii) 4,715,000 shares representing
the number of shares sold in the Offering; and (iv) 1,948,046 shares issued in
connection with the Purchase Acquisitions.
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (UNAUDITED)
The following discussion should be read in conjunction with the
Financial Statements of Compass, Mail Box and the other Founding Companies and
related notes thereto included herein and 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.
Presented below are discussions of the Company's results of operations
on a historical and pro forma basis. Although the Company was formed in April,
1997, there were no operating activities prior to the Offering and the closing
of the Founding Companies Acquisitions. Furthermore, since the Founding
Companies Acquisitions did not occur until March 4, 1998, the historical
operating results for the nine months ended September 30, 1998 include only
seven months of results from the Founding Companies and include the results for
the Purchase Acquisitions from their respective dates of acquisition.
Accordingly, management has also provided a discussion of the pro forma
operating results which readers may find useful.
Certain statements contained in this discussion regarding future events
and financial performance are not based on historical facts and, as such,
constitute "forward looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995, that involve uncertainties and risk.
There can be no assurance that actual results will not differ materially from
the Company's expectations. Factors that could cause such differences include
the timing and pace of acquisitions, the Company's ability to achieve expected
growth in revenues, earnings and operating efficiencies, and other risks
described in the Company's Registration Statement.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998-HISTORICAL
Historical results of operations reflect the activities of Compass and
the Founding Companies since February 28, 1998 and the Purchase Acquisitions
since their respective dates of acquisition.
Revenues. Revenues for the three months ended September 30, 1998 were $42.1
million.
Operating Expenses. Operating expenses for the three months ended September 30,
1998 were $28.2 million, or 67.1% of revenues. Gross profit for the three months
ended September 30, 1998 was $13.9 million, or 32.9% of revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended September 30, 1998 were $9.4
million, or 22.3% of revenues.
Operating Income. Operating income was $4.5 million, or 10.7% of revenues, for
the three months ended September 30, 1998.
NINE MONTHS ENDED SEPTEMBER 30, 1998-HISTORICAL
Historical results of operations reflect the activities of Compass and
the Founding Companies since February 28, 1998 and the Purchase Acquisitions
since their respective dates of acquisition.
Revenues. Revenues for the nine months ended September 30, 1998 were $84.3
million.
Operating Expenses. Operating expenses for the nine months ended September 30,
1998 were $55.2 million, or 65.5% of revenues. Gross profit for the nine months
ended September 30, 1998 was $29.1 million, or 34.5% of revenues.
<PAGE> 16
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the nine months ended September 30, 1998 were $19.8
million, or 23.5% of revenues.
Operating Income. Operating income was $9.2 million, or 11.0% of revenues, for
the nine months ended September 30, 1998.
THREE MONTHS ENDED SEPTEMBER 30, 1998-PRO FORMA COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1997-PRO FORMA
Pro forma results presented below assume that the Founding Companies
Acquisitions and the Purchase Acquisitions occurred on January 1, 1997 and
reflect certain pro forma adjustments. See Note 6 of Notes to Condensed
Consolidated Financial Statements.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
(Dollars in thousands) 1997 1998
---- ----
<S> <C> <C> <C> <C>
Revenues $37,090 100.0% $45,381 100.0%
Operating Expenses 24,616 66.4 30,182 66.6
Gross Profit 12,474 33.6 15,199 33.5
Selling, General & Administrative 9,521 25.7 9,859 21.7
Operating Income 2,953 8.0 5,340 11.8
</TABLE>
Revenues. Revenues increased $8.3 million, or 22.4%, from $37.1 million in the
three months ended September 30, 1997 to $45.4 million in the three months ended
September 30, 1998. The increase was primarily attributable to increases in
revenues from printing and mailing services, accounts receivable management and
teleservices call volume.
Operating Expenses. Operating expenses increased $5.5 million, or 22.6%, from
$24.7 million in the three months ended September 30, 1997 to $30.2 million in
the three months ended September 30, 1998. The increases were primarily
attributable to increases in operating expenses for printing and mailing
services, which were at a rate proportionally greater than the rate of increase
in its revenues, and increases in expenses for accounts receivable management
and teleservices, which were at rates proportionately less than the rates of
increases in their respective revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $.3 million, or 3.6%, from $9.5 million in the
three months ended September 30, 1997 to $9.8 million in the three months ended
September 30, 1998. The increases were primarily attributable to increases in
selling, general and administrative expenses for printing and mailing services
and teleservices, which were at rates proportionately less than the rates of
increases in their respective revenues, partially offset by a decrease in
selling, general and administrative expenses for accounts receivable management.
Operating Income. Operating income increased $2.4 million, or 80.8%, from $2.9
million in the three months ended September 30, 1997 to $5.3 million in the
three months ended September 30, 1998. The increase was primarily attributable
to increases in revenues for printing and mailing services, accounts receivable
management and teleservices and the effect of lower selling, general and
administrative expenses in proportion to the level of revenues achieved.
<PAGE> 17
NINE MONTHS ENDED SEPTEMBER 30, 1998-PRO FORMA COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1997-PRO FORMA
Pro forma results presented below assume that the Founding Companies
Acquisitions and the Purchase Acquisitions occurred on January 1, 1997 and
reflect certain pro forma adjustments. See Note 6 of Notes to Condensed
Consolidated Financial Statements.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
(Dollars in thousands) 1997 1998
---- ----
<S> <C> <C> <C> <C>
Revenues $110,317 100.0% $134,262 100.0%
Operating Expenses 71,503 64.8 87,614 65.3
Gross Profit 38,814 35.2 46,648 34.7
Selling, General & Administrative 28,006 25.4 29,485 22.0
Operating Income 10,808 9.8 17,163 12.8
</TABLE>
Revenues. Revenues increased $23.9 million, or 21.7%, from $110.3 million in the
nine months ended September 30, 1997 to $134.2 million in the nine months ended
September 30, 1998. The increase was primarily attributable to increases in
revenues from printing and mailing services, accounts receivable management and
teleservices call volume.
Operating Expenses Operating expenses increased $16.1 million, or 22.5%, from
$71.5 million in the nine months ended September 30, 1997 to $87.6 million in
the nine months ended September 30, 1998. The increases were primarily
attributable to increases in operating expenses for printing and mailing
services and teleservices, which were at a rates proportionally greater than the
rates of increases in their respective revenues, and increases in expenses for
accounts receivable management, which were at a rate proportionately less than
the rate of increase in its revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.5 million, or 5.3%, from $28.0 million in
the nine months ended September 30, 1997 to $29.5 million in the nine months
ended September 30, 1998. The increases were primarily attributable to increases
in selling, general and administrative expenses for printing and mailing
services and teleservices, which were at rates proportionately less than the
rates of increases in their respective revenues, partially offset by a decrease
in selling, general and administrative expenses for accounts receivable
management.
Operating Income. Operating income increased $6.4 million, or 58.8%, from $10.8
million in the nine months ended September 30, 1997 to $17.2 million in the nine
months ended September 30, 1998. The increase was primarily attributable to
increases in revenues for printing and mailing services, accounts receivable
management and teleservices and the effect of lower selling, general and
administrative expenses in proportion to the level of revenues achieved.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY AND CAPITAL TRANSACTIONS
During the nine months ended September 30, 1998, net cash provided by
operating activities was approximately $2.5 million. This was comprised
primarily of $8.1 million of earnings before depreciation and amortization
offset by a $ 3.6 million increase in trade and other receivables and a $2.7
million decrease in accounts payable and accrued expenses. Capital expenditures
of approximately $ 3.7 million were comprised primarily of purchases of
equipment for printing and mailing services and teleservices. Repayment of
acquired debt was approximately $16.3 million. Proceeds from borrowing on the
revolving credit facility were $45.3 million.
<PAGE> 18
Management believes that current cash and anticipated future cash flows
from operations will be sufficient to provide for anticipated working capital,
debt service and capital expenditure requirements.
OFFERING AND ACQUISITIONS
On March 4, 1998, Compass issued an aggregate of 9,535,691 shares of
Common Stock in connection with the Founding Companies Acquisitions (5,435,691
shares) and the Offering (4,100,000 shares). Shares issued in connection with
the Offering were sold at a price to the public of $10.50 per share. The net
proceeds to Compass from the Offering (after deducting underwriting discounts,
commissions and offering expenses) were approximately $34.1 million. Of this
amount, $17.6 million represents the cash consideration paid to Founding Company
shareholders. An additional $13.5 million was paid by Compass to repay certain
indebtedness of Founding Companies. On March 25, 1998, the underwriters'
overallotment option was exercised. Accordingly, an additional 615,000 shares
were issued, yielding net proceeds (after deducting underwriting discounts) of
$6.0 million.
In addition, between the Offering and September 30, 1998, the Company
consummated the Purchase Acquisitions that were acquired for an aggregate
purchase price of approximately $71 million, which includes acquisition related
costs. In addition, certain of the Purchase Acquisitions provide that contingent
payments may be payable by Compass in calendar 1999 and 2000 based on certain of
the acquired companies attaining certain earnings levels during calendar 1998
and 1999. The Purchase Acquisitions were funded by Compass with cash payments
aggregating $48.1 million, of which $43 million was borrowed under the $50
million revolving credit facility, the issuance of 1,948,046 shares of common
stock and $8.65 million of notes.
CREDIT FACILITY
On April 23, 1998, Compass entered into an agreement (the "Revolver")
with Bank of America, NT & SA together with a group of other financial
institutions, with respect to a $35 million revolving credit facility. On August
7, 1998, the Revolver was amended to increase the total amount available to $50
million. On November 16, 1998, the Revolver was further amended to increase the
amount available to $55 million and to add another lender to the Credit
Agreement. The Revolver may be used for acquisitions, capital expenditures,
refinancing debt, and for general corporate purposes. The Revolver also provides
that a maximum of $1 million of the total $55 million available may be used for
letters of credit. The Revolver requires Compass to comply with various
covenants which include maintenance of certain financial ratios, restrictions on
additional indebtedness and restrictions on liens, guarantees, investments,
capital expenditures, sales of assets, mergers and acquisitions, and dividends.
Indebtedness under the Revolver bears interest based on an initial increment,
based on the Company maintaining a specified leverage ratio, of 125 basis points
over the Interbank Offered Rate or a Base Rate, as defined therein. The Revolver
has a three year term. The Revolver is secured by the common stock of Compass'
current and future subsidiaries. In addition, if the Company fails to maintain
specified financial ratios, the lenders may perfect a security interest in
substantially all of the assets of the Company and its subsidiaries.
At November 16, 1998, the outstanding amount under the Revolver is
$45.8 million and the outstanding amount of letters of credit is $.8 million.
The borrowing rate under the Revolver on November 16, 1998 is 6.56%. However, on
October 13, 1998, the Company entered into an interest rate swap arrangement to
effectively lock in a fixed rate covering $40 million of the Company's total
outstanding borrowings. The rate under the swap agreement on October 13, 1998 is
6.09%, which is comprised of a fixed rate of 4.84% plus an initial increment,
based on the Company maintaining a specified leverage ratio, of 125 basis
points. This swap arrangement was entered into with two of the lenders that are
parties to the Revolver and terminates on October 15, 2000.
Effective November 16, 1998, due to a change in the company's leverage
ratio, the initial margin increment for the Revolver and the swap arrangement
will be increased to 150
<PAGE> 19
basis points.
RECENT DEVELOPMENTS
On November 3, 1998, the Company announced several new appointments
that relate to its executive management. Mr. Michael J. Cunningham remains
Chairman, Mr. Mahmud Haq was appointed Chief Executive Officer, Mr. Leeds
Hackett was appointed Executive Vice President and Chief Financial Officer and
Mr. Richard Alston was appointed Executive Vice President, Corporate
Development. The changes announced by the Company reflect organizational needs
that result from its growth due to acquisitions.
Compass is continuing to pursue acquisitions opportunities. The Company
cannot predict, however, the timing, size or success of any acquisition effort,
nor the associated potential capital commitments. The Company intends to fund
future acquisitions primarily through a combination of stock and cash from bank
borrowings and cash flows generated by the Founding Companies and the Purchase
Acquisitions. The Company has registered 3,000,000 shares of its Common Stock
under the Securities Act of 1933 for use as consideration in future
acquisitions. To the extent that sources of financing other than those described
above are required to fund future acquisitions, if any, there can be no
assurance that the Company can secure such financing if and when it may be
needed or upon terms acceptable to the Company.
CAPITAL EXPENDITURES
To continue growth through internal sources and acquisitions, it will
be necessary for Compass to make capital commitments for information systems
technology, among others. Compass expects that the financial systems software
and hardware acquired in April, 1998 will enable the Founding Companies and the
operations acquired in the Purchase Acquisitions to improve financial reporting
controls and the timeliness and availability of periodic financial data. Capital
expenditures for the first nine months of 1998 total approximately $3.7 million,
and the Company anticipates that the capital expenditures of approximately $.3
million will be made in the fourth quarter of 1998. Such capital expenditures
primarily represent costs for printing, mailing, computer and office equipment
as well as equipment needed to upgrade the operating systems.
YEAR 2000
The Company has assembled a Year 2000 Task Force which is in the
process of identifying and assessing potential operating and software problems
related to the "Year 2000" issue, both internally and externally. The Company's
Year 2000 program will address both information technology and non-information
technology. The Company's Year 2000 Task Force has completed an inventory of the
hardware and software used in its operations and has assessed the Year 2000
readiness of most of the hardware and software inventoried. Based on this
effort, the Company has identified only non-material Year 2000 issues, all of
which are being remediated and will also be tested on or before September 30,
1999. Two of the Company's acquisitions have non-compliant hardware and
software, but the hardware and software used by those acquisitions are in the
process of being replaced in the course of a broader upgrade which will bring
them into compliance. The financial reporting systems that are not currently
Year 2000 compliant are being replaced with the new, Year 2000 compliant
financial system described above under "Capital Expenditures", which would have
been implemented irrespective of the Year 2000 issue and is expected to be
implemented throughout the current operations of the Company before January 31,
1999. Additionally, the Company has communicated with landlords, significant
vendors and other critical service providers to determine if such parties are
year 2000 compliant or have effective plans in place to address the year 2000
issue and to
<PAGE> 20
determine the extent of the Company's vulnerability to the failure of such
parties to remediate such issues. Based upon the responses that it receives from
these third parties, the Company will assess its risks and develop appropriate
contingency plans as needed.
The Company does not expect the impact of the Year 2000 to have a
material adverse impact on the Company's business or results of operations.
However, no assurances can be given that any failure to effectively complete the
necessary changes to the Company's financial and operating systems on a timely
basis or that unanticipated or undiscovered Year 2000 compliance problems arise
that could have a material adverse effect on the Company's business and results
of operations. In addition, there can be no assurance that Year 2000
non-compliance by any of the Company's clients or significant suppliers or
vendors will not have a material adverse effect on the Company's business or
results of operations.
SEASONALITY
The operations of Compass, the Founding Companies and the Purchase
Acquisitions are not subject to seasonal factors that have a material impact on
results from operations.
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
Disputes Relating to the APS Patent
On August 11, 1998, the Company announced that it had resolved all
disputes concerning a patent (the "APS Patent") owned by the Company's
subsidiary, National Credit Management Corporation ("NCMC") and used in its
Accelerated Payment Systems ("APS") process to provide telephonic check drafting
services. NCMC was engaged in litigation with the inventor of the APS process.
In addition, NCMC was the plaintiff in two lawsuits (the "Patent Infringement
Lawsuits") alleging that a competitor and a former customer willfully infringed
the APS Patent. Such disputes were described in the Company's Report on Form
10-Q for the quarter ended March 31, 1998.
On August 4, 1998, NCMC entered into a settlement agreement with
AutoScribe Corp. and Robert E. Pollin, the inventor of the APS process. Pursuant
to the agreement, NCMC assigned its APS patent rights to AutoScribe Corp. in
return for a royalty free license to utilize the patent and other intellectual
property rights for the life of the patent. In addition, NCMC filed a motion
with the Southern District Court in New York substituting AutoScribe Corp. in
place of NCMC as plaintiff in the litigation alleging infringement of the patent
by an APS competitor. This case was dismissed on October 15, 1998.
On June 22, 1998, a Stipulation of Dismissal was entered in the United
States District Court for the District of Maryland dismissing litigation between
NCMC and Novus Services and Dean Witter, Discover & Co. alleging patent
infringement. The Dismissal was filed as a result of a settlement agreement
entered into by the parties on June 19, 1998.
NCMC received an undisclosed payment as a result of this agreement.
Other Disputes
In October 1997, Mid-Continent and its New York subsidiary filed a
lawsuit in the State of New York, Supreme Court, County of Erie (the "New York
Supreme Court") against Vincent S. Burgio, Eric R. Main and Michael Luksch (all
of whom are former employees of Mid-Continent's subsidiary), as well as
Continental Commercial Group of New York, Inc. and L.A. Commercial Group, Inc.
The complaint alleges (i) breach of employment agreement; (ii) breach of the
duty of loyalty; (iii) interference with business relationships; (iv) conversion
of confidential information; and (v) misappropriation of trade secrets, and
seeks injunctive relief and unspecified damages. The litigation is currently in
the discovery stage.
<PAGE> 21
In February 1998, the defendants in the above-described lawsuit filed
two lawsuits in the New York Supreme Court. The first lawsuit, filed by Mr.
Burgio, names as defendants Mid-Continent, its New York subsidiary and William
Vallecourse, an employee of the subsidiary, and alleges (i) breach of contract;
(ii) breach of contract and constructive discharge; (iii) fraud; (iv) tortious
interference with employment contract; and (v) unjust enrichment. The complaint
seeks aggregate damages in excess of $1.3 million. The second lawsuit, filed by
Messrs. Burgio, Main and Luksch, names as defendants Mid-Continent, its New York
subsidiary, Les J. Kirschbaum, Mr. Vallecourse and Michelle Helmer (an employee
of the New York subsidiary), alleges defamation of Messrs. Burgio, Main and
Luksch and seeks aggregate compensatory damages of $1.5 million in addition to
punitive damages. Mid-Continent believes that the allegations against it and its
co-defendants are without merit, however, because this litigation is at an early
state, its outcome cannot be predicted. Mid-Continent's stockholders have agreed
to indemnify the Company for losses and damages, if any, arising from these
lawsuits.
In October 1998, one of the Founding Companies, Bomar, and Compass
Receivables Management Corporation received a Civil Investigative Demand from
the Federal Trade Commission's Chicago Regional Office ("FTC") requesting
various categories of information relating to compliance with the Fair Debt
Collection Practices Act. The Company is cooperating fully with the FTC's
request. The Company, along with counsel, has reviewed the requests but since
the matter is still in the very early stage, an assessment of its duration and
outcome, and associated liability and expense, if any, cannot reasonably be made
at this time. However, there can be no assurances that future developments
relating to this matter will not have a material adverse impact on the Company's
business, financial condition or results of operations.
The Company is not involved in any other legal proceedings material to
the business, financial condition or results of operations of the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(c) On July 23, 1998, Compass issued 14,285 shares of common stock to
R.C. Wilson Company, as a portion of the purchase price for Compass' acquisition
of the assets of the R.C. Wilson Company.
On September 30, 1998, Compass issued 659,154 shares of common stock to
the stockholders of Professional American Collections, Inc., as a portion of the
purchase price for Compass' acquisition of the stock of Professional American
Collections, Inc.
All such sales were exempt from registration pursuant to Section 4(2)
of the Securities Act of 1933, as amended, as transactions not involving a
public offering.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
Exhibit No. 27 - Financial Data Schedule
(b) FORM 8-K:
A Form 8-K regarding the acquisition of Professional American
Collections, Inc. was filed on October 15, 1998.
<PAGE> 22
SIGNATURES
Pursuant to the requirements 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.
COMPASS INTERNATIONAL SERVICES CORPORATION
Dated: November 16, 1998 By: /s/ Michael J. Cunningham
-------------------------
Michael J. Cunningham
Chairman of the Board
Dated: November 16, 1998 By: /s/ Mahmud Haq
--------------
Mahmud Haq
Chief Executive Officer
Dated: November 16, 1998 By: /s/ Leeds Hackett
-----------------
Leeds Hackett
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 9,370
<SECURITIES> 0
<RECEIVABLES> 24,136
<ALLOWANCES> 432
<INVENTORY> 2,759
<CURRENT-ASSETS> 39,467
<PP&E> 35,048
<DEPRECIATION> 19,333
<TOTAL-ASSETS> 172,388
<CURRENT-LIABILITIES> 30,282
<BONDS> 47,083
0
0
<COMMON> 138
<OTHER-SE> 93,012
<TOTAL-LIABILITY-AND-EQUITY> 172,388
<SALES> 0
<TOTAL-REVENUES> 84,295
<CGS> 0
<TOTAL-COSTS> 55,242
<OTHER-EXPENSES> 19,825
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<INTEREST-EXPENSE> 1,014
<INCOME-PRETAX> 8,349
<INCOME-TAX> 3,684
<INCOME-CONTINUING> 4,665
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