<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
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 0-29615
COMPASS KNOWLEDGE HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 87-0471549
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
2710 REW CIRCLE, SUITE 100
OCOEE, FLORIDA 34761
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)
(407) 573-2000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
(407) 656-7585
(REGISTRANT'S FACSIMILE NUMBER, INCLUDING AREA CODE)
WWW.COMPASSKNOWLEDGE.COM
(REGISTRANT'S WEBSITE ADDRESS)
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.
[X] Yes [ ] No
There were 14,750,000 shares outstanding of the Registrant's common
stock, $0.001 par value, as of August 14, 2000.
<PAGE> 2
COMPASS KNOWLEDGE HOLDINGS, INC.
FORM 10-QSB
FOR THE QUARTER ENDED JUNE 30, 2000
PART I - Financial Information
Item 1 Financial Statements
Consolidated Balance Sheet as of June 30, 2000
and December 31, 1999 3
Consolidated Statements of Operations for the Three
Months and Six Months ended June 30, 2000 and
1999 4
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2000 and 1999 5
Notes to Financial Statements 6
Item 2 Management's Discussion and Analysis of Results
of Operations and Financial Condition 7
PART II - Other Information
Item 6 Exhibits and Reports on Form 8-K 14
Signatures 15
2
<PAGE> 3
COMPASS KNOWLEDGE HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,060,873 $ 4,781,033
Accounts receivable, net of allowance 9,264 484,961
for doubtful accounts of $0 and $10,887
at June 30, 2000 and December 31, 1999
respectively
Due from related parties -- 4,332
Note receivable from related party 115,830 115,830
Prepaid expenses 143,985 48,299
Other assets 26,069 6,650
----------- -----------
Total current assets 4,356,021 5,441,105
PROPERTY AND EQUIPMENT, net 169,269 85,752
GOODWILL, net 945,051 977,769
OTHER ASSETS, net 846,601 320,898
----------- -----------
Total assets $ 6,316,942 $ 6,825,524
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued expenses $ 274,436 $ 179,149
Deferred student fees 267,257 449,263
Accrued preferred stock dividends -- 17,500
Amounts due to related parties 500 314,230
----------- -----------
Total liabilities 542,193 960,142
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, 5,000,000 shares authorized, 2,000 shares issued
and outstanding 1,667,026 1,667,026
Common stock, $0.001 par value; 50,000,000 shares authorized,
14,750,000 shares issued and outstanding 14,750 14,750
Additional paid-in-capital 4,303,821 4,283,509
Unearned compensation (29,554) (20,150)
Retained deficit (181,294) (79,753)
----------- -----------
Total stockholders' equity 5,774,749 5,865,382
----------- -----------
Total liabilities and stockholders' equity $ 6,316,942 $ 6,825,524
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
3
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COMPASS KNOWLEDGE HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ ------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
TOTAL STUDENT FEE REVENUE
Net student fee revenue from degree programs $ 575,956 $ 497,692 $ 1,155,189 $ 843,619
Gross student fee revenue from certificate programs 153,591 157,966 266,081 413,293
Other revenue 2,583 10,127 5,257 16,252
------------ ------------ ------------ ------------
Net student fee revenue 732,130 665,785 1,426,527 1,273,164
INSTRUCTION COSTS AND SERVICES 113,465 182,129 310,371 305,179
------------ ------------ ------------ ------------
Gross profit 618,665 483,656 1,116,156 967,985
------------ ------------ ------------ ------------
OPERATING EXPENSES
Selling and promotional 121,636 67,472 211,309 162,213
General and administrative 625,298 316,781 1,083,016 513,754
------------ ------------ ------------ ------------
Total operating expenses 746,934 384,253 1,294,325 675,967
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS (128,269) 99,403 (178,169) 292,018
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest income 58,314 2,565 151,603 5,097
Interest expense -- (395) (155) (10,789)
------------ ------------ ------------ ------------
Total other income 58,314 2,170 151,448 (5,692)
------------ ------------ ------------ ------------
INCOME BEFORE MINORITY INTEREST IN NET INCOME OF (69,955) 101,573 (26,721) 286,326
SUBSIDIARY
MINORITY INTEREST IN NET INCOME OF SUBSIDIARY -- 38,910 -- 109,396
------------ ------------ ------------ ------------
NET (LOSS) INCOME (69,955) 62,663 (26,721) 176,930
LESS: PREFERRED STOCK DIVIDENDS 35,000 74,822
------------ ------------ ------------ ------------
NET (LOSS) INCOME AVAILABLE TO COMMON STOCKHOLDERS $ (104,955) $ 62,663 $ (101,543) $ 176,930
============ ============ ============ ============
LOSS PER SHARE
Basic $ (.007) $ -- $ (.007) $ --
============ ============ ============ ============
Diluted $ (.007) $ -- $ (.006) $ --
============ ============ ============ ============
PRO FORMA EARNINGS PER SHARE
Basic $ -- $ .005 $ -- $ 0.014
============ ============ ============ ============
Diluted $ -- $ .005 $ -- $ 0.014
============ ============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 14,750,000 -- 14,750,000 --
============ ============ ============ ============
Diluted 15,570,823 -- 15,676,397 --
============ ============ ============ ============
PRO FORMA WEIGHTED AVERAGE SHARES OUTSTANDING
Basic and Diluted -- 12,250,000 -- 12,250,000
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
4
<PAGE> 5
COMPASS KNOWLEDGE HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss)/Income $ (26,721) $176,930
Adjustments to reconcile net income to net cash
used in/provided by operating activities
Depreciation and Amortization 148,894 6,817
Amortization of unearned compensation 10,909 13,386
Minority interest in net income 0 109,396
Changes in assets and liabilites related to operations
Accounts receivable 475,697 530,797
Due from related parties 4,332 0
Prepaid expenses (95,686) (52,597)
Other current assets (19,419) 18,323
Other long term assets (108,743) 0
Accounts payable and accrued expenses 95,287 92,929
Due to related parties (301,220) (65,091)
Deferred student fees (182,006) (283,169)
Cash payments for content development costs (203,309) (45,657)
Cash payments for direct marketing costs (307,226) 0
--------- --------
Net cash (used in)/provided by
operating activities (509,211) 502,064
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (106,117) (9,814)
--------- --------
Net cash used in investing
activities (106,117) (9,814)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of notes payable to stockholders (12,510) (30,000)
Payment of note payable to related parties 0 (25,000)
Payment of preferred dividend (92,322) 0
--------- --------
Net cash used in financing
activities (104,832) (55,000)
--------- --------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (720,160) 437,252
CASH AND CASH EQUIVALENTS, beginning of period 4,781,033 103,058
--------- --------
CASH AND CASH EQUIVALENTS, end of period $4,060,873 $540,310
========== ========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
5
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COMPASS KNOWLEDGE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Principles of Interim Statements. The following unaudited financial
statements have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and note
disclosures which are normally included in annual financial statements
prepared in accordance with generally accepted accounting principles
have been omitted pursuant to those rules and regulations. The
information presented in the unaudited consolidated financial
statements reflects all adjustments, which are, in the opinion of the
management, necessary to present fairly the Company's financial
position and the results of operations for the interim periods. The
consolidated format is designed to be read in conjunction with the
Company's Form 10-SB/A. For further information refer to the
consolidated financial statements and the notes thereto included in the
Company's Form 10-SB/A for the year ended December 31, 1999 filed with
the Securities and Exchange Commission on May 12, 2000.
The results of operations for the six months ended June 30, 2000 are
not necessarily indicative of results to be expected for the entire
year.
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. Intercompany balances and
transactions have been eliminated in consolidation.
2. Reclassification. Certain 1999 amounts have been reclassified to be
consistent with the 2000 presentation. These reclassifications did not
have an impact on the 1999 results of operations or financial position.
3. As of June 30, 2000 there were 2,000 shares of Preferred Stock
outstanding, convertible into 875,000 common shares. Also, there were
options to purchase 2,414,800 shares of common stock outstanding at
June 30, 2000. The impact of the assumed conversion of the preferred
stock was not included in the computation of diluted earnings per share
because the effect of the assumed conversion had an antidilutive
effect.
For purposes of presenting earnings per share, common stock issued to
effectuate the transaction with Winthrop Industries, Inc. and in the
exchange between Compass Knowledge Group, Inc. and Rehabilitation
Training Institute, Inc. are assumed to have been outstanding for the
period ended June 30, 1999. Accordingly, the earnings per share
presentation for this period has been labeled as pro forma earnings per
share.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
The following discussion should be read in conjunction with the more
detailed information included in our consolidated financial statements
and accompanying notes, as well as the other financial information
appearing elsewhere in this report. The following discussion may
contain certain forward-looking statements that involve risks and
uncertainties. Such statements consist of any statement other than a
recitation of historical fact and can be identified by the use of
forward-looking terminology such as "may," "expect," "anticipate,"
"estimate" or "continue" or the negative thereof, other variations
thereof, or comparable terminology. readers are cautioned not to place
undue reliance on forward-looking statements, which reflect
management's opinions only as of the date hereof. We undertake no
obligation to revise or publicly release the results of any revision to
these forward-looking statements. Forward-looking statements are
subject to certain risks and uncertainties that could cause actual
results to differ materially from those reflected in such
forward-looking statements. Such statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act
of 1995. The risks and uncertainties we face include, but are not
limited to, those discussed in the section entitled "Risk Factors"
included in this report. Readers should carefully review these risk
factors as well as other risk factors described in other documents we
file from time to time with the Securities and Exchange Commission,
including Form 10-SB filed with the Securities and Exchange Commission
on May 12, 2000, Annual Reports on Form 10-K and Quarterly Reports on
Form 10-Q.
OVERVIEW
The following discussion of our results of operations and
financial condition should be read in conjunction with the text and
consolidated financial statements and the notes thereto as included in
our Form 10-SB/A for the fiscal year ended December 31, 1999, filed
with the Securities and Exchange Commission on May 12, 2000. Our
operating results for the three and six month periods ended June 30,
2000 are not necessarily indicative of the results that may be expected
for the year ended December 31, 2000. The balance sheet at December 31,
1999 has been derived from the audited financial statements at that
date but does not include all of the information and footnotes required
by generally accepted accounting principles for complete financial
statements.
Because of the somewhat seasonal pattern of student
enrollments and the academic calendar, which affect the results of
operations and the timing of cash inflows, we believe that comparisons
of our results of operations should be made to the corresponding period
in the preceding year. Comparisons of financial position should be made
to both the end of the previous fiscal year and to the end of the
corresponding period in the preceding year. Because of the seasonality
of student enrollments, our first, second and fourth quarters have
historically represented the periods of highest revenues and net income
within a fiscal year.
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RESULTS OF OPERATIONS
Set for below is certain of our selected consolidated financial and
operating information for the three months and six months ended June 30, 2000
and the comparable period in 1999. The selected consolidated financial
information is derived from our consolidated financial statements for such
periods. The information set forth below should be read in conjunction with
Management's Discussion and Analysis of Financial Conditions and Results of
Operations and our Consolidated Financial Statements and Notes thereto.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
---------------------- ------------------------
2000 1999 2000 1999
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Total student fee revenue $ 732,130 $ 665,785 $ 1,426,527 $ 1,273,164
Gross Profit $ 618,665 $ 483,656 $ 1,116,156 $ 967,985
Net (Loss)/ Income Before Minority Interest $ (69,955) $ 101,573 $ (26,721) $ 286,326
Net (Loss)/ Income After Minority Interest $ (69,955) $ 62,663 $ (26,721) $ 176,930
Loss per share, basic (.007) -- (.007) --
Loss per share, diluted (.007) -- (.006) --
Pro forma earnings per share, basic -- $ .005 -- $ 0.014
Pro forma earnings per share, diluted -- $ .005 -- $ 0.014
Weighted average shares outstanding
(in thousands)
Basic 14,750 -- 14,750 --
Diluted 15,571 -- 15,676 --
Pro forma weighted average shares outstanding
(in thousands)
Basic and diluted 12,250 12,250
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 2000
----------------
<S> <C>
Working Capital $3,813,828
Total Current Assets $4,356,021
Total Property and Equipment, net $ 169,269
Total Current Liabilities $ 542,193
Stockholders' Equity $5,774,749
</TABLE>
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
Total revenues increased by $66,345 to $732,130 for the three months
ended June 30, 2000 from $665,785 for the comparable 1999 period, representing
an increase of 10.0%. The revenue increase is due to the growth in our core
degree business, which increased by $78,264 or 15.7%, to $575,956 for the three
months ended June 30, 2000, from $497,692 for the comparable 1999 period. While
we are planning on launching several new degree programs during the remainder of
2000, the second quarter degree program revenues reflect only revenue from our
Doctorate in Pharmacy and our Doctorate in Audiology programs.
Gross profit grew by $135,009 to $618,665 for the three months ended
June 30, 2000 from $483,656 for the comparable 1999 period, representing an
increase of 27.9%. This increase is principally the result of growth in our
degree programs combined with program efficiencies. Our gross profit margin
increased to 84.5% for the three months ended June 30, 2000 from 72.6% for the
comparable 1999 period.
Operating expenses increased by $362,681 to $746,934 for the three
months ended June 30, 2000 from $384,253 for the three months ended June 30,
1999, representing an increase of 94.4%. The increase is primarily due to the
growth in our personnel, from 11 on June 30, 1999 to 29 at June 30, 2000, which
resulted in a significant increase in payroll and other employee related costs
as well as higher infrastructure related
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expenses. The growth in personnel and infrastructure are directly related to our
plans to grow, both internally and through acquisitions, our business. Among the
employees hired during the second quarter of 2000 were three executives,
including a Chief Financial Officer, an Executive Vice President of Business
Development and a Vice President as well as personnel in our curriculum
development, marketing and technology departments. We expect the rapid growth in
personnel and infrastructure to be largely completed during the third quarter.
In addition, travel expenses, consulting costs and professional fees increased
over the comparable 1999 period reflecting our aggressive efforts to establish
new programs and affiliations with educational institutions and other
prospective partners. During the second quarter of 2000, we also leased 2,500
additional square feet of office space in the same office park as our Ocoee,
Florida headquarters.
Interest income increased by $55,749 to $58,314 for the three months
ended June 30, 2000 as compared to the comparable 1999 period. The increase was
due to the investment, in short term and liquid financial instruments, of funds
raised during the fourth quarter of 1999.
There was no minority interest in net income of subsidiary for the
three months ended June 30, 2000 compared to $38,910 in the comparable 1999
period. We own 100% of all of our subsidiaries following our purchase, in the
fourth quarter of 1999, of the 35.5% interest the University of Florida
foundation owned in one of our subsidiaries, Intelicus, L.C.
As a result of the above changes, net income declined by $132,618,
resulting in a net loss of $69,955 for the three months ended June 30, 2000 from
$62,663 in the comparable 1999 period.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
Total revenues increased by $153,363 to $1,426,527 for the six months
ended June 30, 2000 from $1,273,164 for the comparable 1999 period, representing
an increase of 12.0%. The revenue increase is due to the combination of growth
in our core degree business, which increased by $311,570 or 36.9%, to $1,155,189
for the six months ended June 30, 2000, from $843,619 for the comparable 1999
period. The revenue increase was partially offset by a decrease in certificate
program revenues. Certificate program revenues declined by 35.6%, to $266,081
for the six months ended June 30, 2000 from $413,293 in the comparable 1999
period. In the first quarter of 2000, we reduced the number of certificate
programs actively marketed to one, from three in the comparable 1999 period. We
took this action to focus on maximizing the profitability from the remaining
program and to launch new programs. In the second quarter of 2000, we launched a
new certificate program.
Gross profit increased by $148,171 to $1,116,156 for the six months
ended June 30, 2000 from $967,985 for the comparable 1999 period, representing
an increase of approximately 15.3%. This increase is the result of growth in our
degree programs. Our gross profit percentage increased to 78.2% for the six
months ended June 30, 2000 from 76.0% for the comparable 1999 period.
Operating expenses increased by $618,358 to $1,294,325 for the six
months ended June 30, 2000 from $675,967 for the six months ended June 30, 1999,
representing an increase of 91.5%. The increase is primarily due to the growth
in our personnel from 11 on June 30, 1999 to 29 at June 30, 2000, which resulted
in increased payroll and other employee related expenses and additional costs
required to expand our infrastructure. The growth in personnel and
infrastructure are directly related to our plans to grow, both internally and
through acquisitions, our business. Among the employees hired during 2000 were
three executives, including a Chief Financial Officer, an Executive Vice
President of Business Development and a Vice President as well as personnel in
our curriculum development, marketing and technology departments. We expect the
rapid growth in personnel and infrastructure to be largely completed during the
third quarter. In addition, travel expenses, consulting costs and professional
fees increased over the comparable 1999 period reflecting our aggressive efforts
to establish new programs and affiliations with educational institutions and
other prospective partners. During the second quarter of 2000, we also leased
2,500 additional square feet of office space in the same office park as our
Ocoee, Florida headquarters.
Interest income increased by $146,506 to $151,603 for the six months
ended June 30, 2000 as compared to the comparable 1999 period. The increase was
due to the investment, in short term and liquid financial instruments, of funds
raised during the fourth quarter of 1999.
There was no minority interest in net income of subsidiary for the six
months ended June 30, 2000 compared to $109,396 in the comparable 1999 period.
We own 100% of all of our subsidiaries following our
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purchase, in the fourth quarter of 1999, of the 35.5% interest the University of
Florida foundation owned in one of our subsidiaries, Intelicus, L.C.
As a result of the above changes, net income declined by $203,651,
resulting in a net loss of $26,721for the six months ended June 30, 2000 from
$176,930 in net income for the comparable 1999 period.
LIQUIDITY AND CAPITAL RESOURCES
Our cash and cash equivalents amounted to $4,060,873 at June 30, 2000,
compared to $4,781,033 at December 31, 1999. The net cash used in our operations
was $509,211 for the six months ended June 30, 2000 compared to operations
providing $502,064 in the comparable 1999 period. Net cash used in operating
activities consisted primarily of increased direct marketing costs of $307,226
and higher content development costs of $157,652.
We used $106,117 in investing activities in the six months ended June
30, 2000 compared with $9,814 in the comparable 1999 period to purchase computer
and other office equipment due to the increase in personnel.
We used $104,832 in financing activities in the six months ended June
30, 2000 compared with $55,000 in the comparable 1999 period. The increase is
primarily due the payment of preferred dividends related to the November 1999
sale of $1,750,000 of preferred stock, partially offset by a reduction in notes
payable to shareholders that were redeemed in January 1999.
We expect our current cash and cash equivalents to be sufficient to
meet our working capital and capital expenditure requirements for at least the
next 12 months unless additional cash is needed for acquisitions. Beyond the
next 12 months, we may need to obtain additional debt and/or equity financing to
fund our operations and anticipated growth. There is no assurance that such
funds will be available to us.
SEASONALITY
We typically offer courses during all three semesters (fall-August
through December; spring-December through April; and summer-May through August)
of the school year. We believe that the summer semester typically experiences
lower enrollment of new students as well as an increase in the number of
students taking a "break" from their programs.
RISK FACTORS
AS INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
BEFORE DECIDING TO INVEST IN SHARES OF OUR COMMON STOCK, PLEASE CAREFULLY
CONSIDER THE FOLLOWING RISK FACTORS AND THE OTHER INFORMATION IN THIS REPORT AS
WELL AS OTHER RISK FACTORS DESCRIBED IN OTHER DOCUMENTS WE FILE FROM TIME TO
TIME WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING OUR FORM 10-SB,
ANNUAL REPORTS ON FORM 10-K AND THE QUARTERLY REPORTS ON FORM 10-Q. ANY OF THE
FOLLOWING RISKS COULD SERIOUSLY HARM OUR BUSINESS AND RESULTS OF OPERATIONS. AS
A RESULT, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU COULD
LOSE PART OR ALL OF YOU INVESTMENT.
A FAILURE TO MANAGE OUR GROWTH COULD ADVERSELY AFFECT OUR BUSINESS
Our strategy is to grow aggressively, both internally and through
acquisitions. This strategy will place significant demands on our financial,
operational, and management resources and will expose us to a variety of risks.
Our growth has resulted in an increase in the level of responsibility for our
key personnel. Expenses arising from our efforts to complete our recent
acquisitions, develop new products, or increase our existing market penetration
could have an adverse impact on our business, results of operations, and
financial condition.
We might not be able to integrate acquisition candidates successfully
or to manage any addition products and services resulting from such
acquisitions. We might experience slower than expected integration efforts. In
addition, contemplated recent acquisitions involves products and
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services in areas in which we do no currently operate.
These acquisitions, if completed, as well as similar types of acquisition or
development will require our management to develop expertise in new areas and to
attract new customers, both of which may be difficult to do.
WE HAVE RESTRUCTURED OUR SALES FORCE RECENTLY, AND WE DO NOT KNOW YET IF WE HAVE
RESOLVED THE TRANSITION ISSUES
We historically have relied heavily on our telemarketing sales force.
Recently, we have restructured our sales force to provide, among other things,
specialized expertise within additional vertical markets and product areas.
Management will continue to address these transition issues in fiscal 2000 by
making additional adjustments within the sales organization. The transition
issues associated with the restructuring may recur, and our revenue growth rates
may decline and expenses may increase in future quarters.
WE MAY ENGAGE IN ACQUISITIONS, AND WE MAY BE UNABLE TO INTEGRATE ANY NEW
OPERATIONS, TECHNOLOGIES, PRODUCTS OR PERSONNEL
As part of our business strategy, we expect to continue to acquire
businesses that offer complementary products, services and technologies. Any
acquisitions or investments will be accompanied by the risks commonly
encountered in acquisitions of businesses. These risks include, among other
things, the:
o difficulty of assimilating the operations and personnel of the acquired
businesses,
o potential disruption of our ongoing business,
o distraction of management from our core business,
o inability of management to maximize our financial and strategic
position,
o increase in general and administrative expenses,
o expansion of management information systems,
o need for greater facilities requirements,
o increase in overall headcount,
o maintenance of uniform standards, controls, procedures and policies,
and
o impairment of relationships with employees and clients as a result of
any integration of new management personnel
Any of these factors could have a material adverse effect on our
business, results of operations or financial conditions, particularly in the
case of a larger acquisition.
Consideration paid for future acquisitions could be in the form of:
o cash,
o stock,
o rights to purchase stock, or
o a combination of the above types of consideration.
While we intend to participate in only accretive transactions, dilution
of existing stockholders and to earnings per share may result in connection with
any such future acquisitions. Our integration processes may also not be
successful and the anticipated benefits of any past or future acquisition may
not be realized.
SOME OF OUR PRODUCTS ARE LESS PROFITABLE THAN OTHERS
Some of our revenues are derived from products such as our certificate
programs which, as a percentage of revenues, currently require a higher level of
development, distribution and support expenditures compared to some of our
degree programs. To the extent that revenues generated from these products
become a greater percentage of our total revenues, our operating margins will
decrease, unless the expenses associated with these products decline as a
percentage of revenues.
OUR STOCK PRICE MAY BE VOLATILE
The market price of our common stock has experienced significant
fluctuations and may continue to fluctuate significantly. The trading price of
our common stock could be subject to wide fluctuations in
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response to various factors, some of which are beyond our control, including:
o actual or anticipated variations in quarterly results of operations,
o changes in our intellectual property rights or our competitors,
o announcements of technological innovations,
o our introduction of new programs, products or services or changes in
product pricing by our competitors,
o changes in financial estimates by securities analysts ,
o announcement of significant acquisitions, strategic partnerships, joint
ventures or capital commitments by us or our competitors, and
o additions or departures of key personnel.
The stock prices for many companies in the education sector have
experienced wide fluctuations, which often have been unrelated to their
operating performance. These fluctuations may adversely affect the market price
of our common stock.
THE MARKET FOR DISTANCE LEARNING IN HIGHER EDUCATION CONTINUES TO DEVELOP.
The market for distance learning continues to develop, but still
remains only a small portion of the overall higher education market. Our success
will depend upon colleges, universities, associations and companies continuing
to implement distance learning programs. To date, we have entered into contracts
with only three universities. Any failure of online learning to gain continuing
market acceptance would have a material adverse effect on our business and
financial results.
WE OPERATE IN A HIGHLY COMPETITIVE MARKET AND WE MAY NOT HAVE ADEQUATE RESOURCES
TO COMPETE SUCCESSFULLY.
The distance learning market continues to quickly evolve and is subject
to rapid technological change and is extremely competitive in nature. Our
competitors vary in size and in the scope and breadth of the products and
services they offer. Competition is most intense from colleges' and
universities' internal information technology departments. Some colleges and
universities construct online learning systems utilizing in-house personnel and
creating their own software or purchasing software components from a vendor. We
also face significant competition from a variety of companies including:
>> other companies which seek to offer a complete solution including
software and services;
>> software companies with specific products for the college and
university market;
>> systems integrators; and
>> hardware vendors.
Other competitors in this market include a wide range of education and
training providers. These companies use video, cable, correspondence, CD-ROM,
computer-based training, and online training.
We believe that the level of competition will continue to increase as
current competitors increase the sophistication of their offerings and as new
participants enter the market. Many of our current and potential competitors
have longer operating histories, larger customer bases, greater brand
recognition and significantly greater financial, marketing and other resources
than we do and may enter into strategic or commercial relationships with larger,
more established and well-financed companies. Certain competitors may be able to
secure alliances with customers and affiliates on more favorable terms, devote
greater resources to marketing and promotional campaigns and devote
substantially more resources to systems development than we can. In addition,
new technologies and the expansion of existing technologies may increase the
competitive pressures we face. Increased competition may result in reduced
operating margins, our inability to achieve projected market share and brand
recognition. We may not be able to compete successfully against current and
future competitors, and competitive pressures we face could have a material
adverse effect on our business and financial results.
OUR MARKET IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE.
The market for our products and services is characterized by rapid
technological change, changes in
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customer demands and evolving industry standards. The introduction of services
embodying new technologies and the emergence of new industry standards can
render existing services obsolete and unmarketable. To succeed, we must address
the increasingly sophisticated needs of higher education by improving our
software and services to keep pace with technological developments, emerging
industry standards and customer requirements. Presently, we purchase our
technology from third party vendors as we have no proprietary technology. While
we continue to strive to upgrade our technology and seek to acquire companies
with state of the art technology, we may not be competitively successful in the
future.
TITLE IV AND OTHER GOVERNMENT REGULATIONS COULD ADVERSELY AFFECT OUR BUSINESS.
Our operating results could be materially impaired if our revenue
splits with our Knowledge Partners are deemed to be "incentive payments" under
Title IV or we become subject to burdensome government regulation and legal
uncertainties.
OUR OPERATING RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY AND MAY BE BELOW
EXPECTATIONS.
The following factors may affect our quarterly, as well as our annual,
operating results:
>> our ability to attract and retain colleges, universities, associations
and companies;
>> our ability to successfully implement our proposed distributed learning
programs;
>> the amount and timing of operating costs and capital expenditures
relating to expansion of our business;
>> our introduction of new or enhanced services and products, and similar
introductions by our competitors;
>> our ability to upgrade and develop our systems and infrastructure;
>> our ability to attract, motivate and retain personnel; and
>> technical difficulties in delivering our services.
As a result, we believe that our prior sales and operating results may
not necessarily be meaningful, and that such comparisons may not be accurate
indicators of future performance. Just because our business grew substantially
during the last two years, we can give no assurance that these percentages will
reflect the ongoing pattern of our business.
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ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the Company during the quarter ended
June 30, 2000.
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SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
COMPASS KNOWLEDGE HOLDINGS, INC.
Date: August 14, 2000 By: /s/ Rogers W. Kirven, Jr.
--------------- --------------------------------------
Chief Executive Officer and Director
Date: August 14, 2000 By: /s/ Anthony Ruben
--------------- --------------------------------------
Chief Financial Officer and Treasurer
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