<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 SEPTEMBER 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.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 87-0471549
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(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 14,875,000 shares outstanding of the Registrant's common
stock, $0.001 par value, as of November 6, 2000.
<PAGE> 2
COMPASS KNOWLEDGE HOLDINGS, INC.
FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
PART I - Financial Information
<TABLE>
<CAPTION>
<S> <C> <C>
Item 1 Financial Statements
Consolidated Balance Sheet as of September 30, 2000
and December 31, 1999 3
Consolidated Statements of Operations for the Three Months and Nine
Months ended September 30, 2000 and 1999 4
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 2000 and 1999 5
Notes to Financial Statements 6
Item 2 Management's Discussion and Analysis of Results
of Operations and Financial Condition 6
PART II - Other Information
Item 6 Exhibits and Reports on Form 8-K 13
Signatures 14
</TABLE>
2
<PAGE> 3
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COMPASS KNOWLEDGE HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,442,637 $ 4,781,033
Accounts receivable, net of allowance 590,196 484,961
for doubtful accounts of $15,000 and $10,887
at September 30, 2000 and December 31, 1999
respectively
Note receivable from related parties -- 120,162
Prepaid expenses 13,600 48,299
Other assets 140,450 6,650
----------- -----------
Total current assets 2,186,883 5,441,105
PROPERTY AND EQUIPMENT, net 200,708 85,752
GOODWILL, net 3,356,703 977,769
OTHER ASSETS, net 1,086,301 320,898
----------- -----------
Total assets $ 6,830,595 $ 6,825,524
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued expenses $ 396,795 $ 179,149
Deferred student fees 1,018,993 449,263
Accrued preferred stock dividends -- 17,500
Amounts due to related parties 500 314,230
----------- -----------
Total liabilities 1,416,288 960,142
----------- -----------
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,
14,875,000 shares issued and outstanding 14,875 14,750
Additional paid-in-capital 4,557,296 4,283,509
Unearned compensation (20,218) (20,150)
Retained deficit (804,672) (79,753)
----------- -----------
Total stockholders' equity 5,414,307 5,865,382
----------- -----------
Total liabilities and stockholders' equity $ 6,830,595 $ 6,825,524
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
3
<PAGE> 4
COMPASS KNOWLEDGE HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
TOTAL STUDENT FEE REVENUE
Net student fee revenue from degree programs $ 502,519 $ 490,764 $ 1,657,709 $ 1,334,383
Gross student fee revenue from non-degree programs 297,732 138,125 569,069 567,670
------------ ------------ ------------ ------------
Net student fee revenue 800,251 628,889 2,226,778 1,902,053
INSTRUCTION COSTS AND SERVICES 231,630 154,483 542,001 459,662
------------ ------------ ------------ ------------
Gross profit 568,621 474,406 1,684,777 1,442,391
------------ ------------ ------------ ------------
OPERATING EXPENSES
Selling and promotional 207,248 105,272 418,557 289,826
General and administrative 993,919 272,714 2,076,935 764,127
------------ ------------ ------------ ------------
Total operating expenses 1,201,167 377,986 2,495,492 1,053,953
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS (632,546) 96,420 (810,715) 388,438
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest income 44,167 5,269 195,770 10,366
Interest expense -- (793) (155) (11,582)
------------ ------------ ------------ ------------
Total other income 44,167 4,476 195,615 (1,216)
------------ ------------ ------------ ------------
INCOME BEFORE MINORITY INTEREST IN NET INCOME OF
SUBSIDIARY (588,379) 100,896 (615,100) 387,222
MINORITY INTEREST IN NET INCOME OF SUBSIDIARY -- 38,670 -- 148,066
------------ ------------ ------------ ------------
NET (LOSS)/INCOME (588,379) 62,226 (615,100) 239,156
LESS: PREFERRED STOCK DIVIDENDS 35,000 -- 109,822 --
------------ ------------ ------------ ------------
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ (623,379) $ 62,226 $ (724,922) $ 239,156
============ ============ ============ ============
EARNINGS PER SHARE
Basic $ (0.042) $ -- $ (0.049) $ --
============ ============ ============ ============
Diluted $ (0.040) $ -- $ (0.046) $ --
============ ============ ============ ============
PRO FORMA EARNINGS PER SHARE
Basic $ -- $ 0.005 $ -- $ 0.020
============ ============ ============ ============
Diluted $ -- $ 0.005 $ -- $ 0.020
============ ============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 14,832,880 -- 14,777,828 --
============ ============ ============ ============
Diluted 15,408,491 -- 15,643,638 --
============ ============ ============ ============
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 NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss)/Income $ (615,100) $ 239,156
Adjustments to reconcile net income to net cash
used in/provided by operating activities
Depreciation and Amortization 376,927 9,590
Amortization of unearned compensation 23,846 21,418
Minority interest in net income -- 147,866
Changes in assets and liabilites related to operations
Accounts receivable 300,814 (189,737)
Provision for losses on accounts receivable (10,887) --
Prepaid taxes (13,600) --
Prepaid expenses (76,984) (31,753)
Other current assets (8,515) 13,974
Other long term assets (1,012,336) (82,964)
Accounts payable and accrued expenses 200,146 46,859
Due to related parties (313,730) (65,091)
Deferred student fees 150,493 36,252
----------- -----------
Net cash (used in)/provided by
operating activities (998,926) 145,570
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (149,497) (9,815)
Acquisitions, net of cash (2,080,151) --
----------- -----------
Net cash used in investing
activities (2,229,648) (9,815)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of notes payable to stockholders -- (30,000)
Payment of note payable to related parties -- (25,000)
Payment of preferred dividend (109,822) --
----------- -----------
Net cash used in financing
activities (109,822) (55,000)
----------- -----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (3,338,396) 80,755
CASH AND CASH EQUIVALENTS, beginning of period 4,781,033 103,058
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 1,442,637 $ 183,813
=========== ===========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements
5
<PAGE> 6
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 filed on May 12, 2000.
The results of operations for the nine months ended September 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 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 of financial position.
3. As of September 30, 2000 there were 2,000 shares of Preferred Stock
outstanding, convertible into 875,000 common shares. Also, there were
options to purchase 2,464,800 shares of common stock outstanding at
September 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 September 30, 1999. Accordingly, the earnings per share
presentation for this period has been labeled as pro forma earnings per
share.
4. We have not recorded an income tax provision due to recurring losses.
As a result of the uncertainty of the timing of the net operating loss
carryforwards, no net deferred tax asset has been recorded.
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
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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
filed 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 nine month periods ended September
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.
RESULTS OF OPERATIONS
Set for below is certain of our selected consolidated
financial and operating information for the three months and nine
months ended September 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Total student fee revenue $ 800,251 $ 628,889 $ 2,226,778 $ 1,902,053
Gross Profit $ 568,621 $ 474,406 $ 1,684,777 $ 1,442,391
Net (Loss)/ Income Before Minority Interest $ (623,380) $ 100,896 $ (724,921) $ 387,222
Net (Loss)/ Income After Minority Interest $ (623,380) $ 62,226 $ (724,921) $ 239,156
Earnings per share, basic $ (0.042) -- $ (0.049) --
Earnings per share, diluted $ (0.040) -- $ (0.046) --
Pro forma earnings per share, basic -- $ 0.005 -- $ 0.020
Pro forma earnings per share, diluted -- $ 0.005 -- $ 0.020
Weighted average shares outstanding
(in thousands)
Basic 14,833 -- 14,778 --
Diluted 15,408 -- 15,644 --
Pro forma weighted average shares outstanding
(in thousands)
Basic and diluted 12,250 12,250
</TABLE>
7
<PAGE> 8
AT SEPTEMBER 30, 2000
---------------------
Working Capital $ 770,595
Total Current Assets $2,186,883
Total Property and Equipment, net $ 200,708
Total Current Liabilities $1,416,288
Stockholders' Equity $5,414,307
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1999
Total revenues increased by $171,362 to $800,251 for the three
months ended September 30, 2000 from $628,889 for the comparable 1999
period, representing an increase of 27.2%. The increase is primarily
due to growth in our non-degree business, which increased by $159,607,
or 116%, to $297,732 for the three months ended September 30, 2000
compared to $138,125 in the year ago period. The increase was driven by
the contribution from the August 2000 acquisitions of Jamita, Inc.
("Jamita") and Rutherford Learning Group ("RLG"), combined with
revenues from two new non-degree programs launched during the September
2000 quarter. The revenue gains were partially offset by the negative
revenue impact of not offering several unprofitable non-degree programs
that were sold during the comparable year ago period. Our degree
program business grew by 2.4%, to $502,519 for the three months ended
September 30, 2000, from $490,764 for the comparable 1999 period. The
increase in core degree revenue reflects the addition of our new degree
program, Administration of Criminal Justice, which we launched during
the September 2000 quarter.
Gross profit increased by 19.9%, to $568,621 for the three
months ended September 30, 2000 from $474,406 for the comparable 1999
period. This increase is principally due to the contribution of our
non-degree business, driven by the Jamita and RLG acquisitions. Our
gross profit margin declined to 71.1% for the three months ended June
30, 2000 from 75.4% for the comparable 1999 period reflecting start-up
inefficiencies associated with the launch of one new degree program and
two new non-degree programs.
Operating expenses increased by $823,181 to $1,201,167 for the
three months ended September 30, 2000 from $377,986 for the three
months ended September 30, 1999, representing an increase of 218%. The
increase is primarily due to the growth in our personnel, from 12
full-time employees on September 30, 1999 to 41 full-time employees at
September 30, 2000, which resulted in a significant increase in payroll
and other employee related costs as well as higher infrastructure
related expenses. The growth in personnel and infrastructure are
directly related to our plans to grow our business, both internally and
through acquisitions. The third quarter 2000 expenses reflected the
first full quarter of expenses associated with a number of key
executives hired during the second quarter of 2000 as well as the
addition of several highly talented business development and support
employees hired during the third quarter. We believe our current team
is presently adequate to support our planned growth. Therefore, we
expect the growth in general and administrative to slow in future
quarters. In addition to personnel and infrastructure costs, sales
expenses, travel expenses, consulting costs and professional fees
increased over the year ago period reflecting our aggressive efforts to
establish and launch new programs.
Interest income increased by $38,898 to $44,167 for the three
months ended September 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 September 30, 2000 compared to $38,670 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, Intelicus, L.C.
except for Jamita which has a 10% minority ownership.
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As a result of the above changes, net income declined by
$650,605, resulting in a net loss of $588,379 for the three months
ended September 30, 2000 compared with net income of $62,226 in the
comparable 1999 period.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1999
Total revenues increased by $324,725 to $2,226,778 for the
nine months ended September 30, 2000 from $1,902,053 for the comparable
1999 period, representing an increase of 17.1%. The increase is
primarily due to growth of our degree business, which increased by
$323,326, or 24.2%, to $1,657,709 for the nine months ended September
30, 2000 compared to $1,334,383 in the year ago period. Growth in our
PhD programs combined with the launch of a new degree program in the
third quarter of 2000 drove the increase. Our non-degree program
revenue was up 0.2% for the nine months ended September 30, 2000, to
$569,069 from $567,670, an increase of $1,399. The contribution from
the August 2000 acquisitions of Jamita and RLG, combined with revenues
from three new non-degree programs launched during 2000 was offset by
the impact of not offering several non-degree programs that were sold
during the comparable 1999 period.
Gross profit increased by 16.8%, to $1,684,777 for the nine
months ended September 30, 2000 from $1,442,391 for the comparable 1999
period. This increase is principally due to the growth in our degree
program business combined with new margin dollars from the non-degree
programs provided by the Jamita and RLG acquisitions partially offset
by reduced margin contribution from other non-degree business. Our
gross profit margin declined to 75.7% for the nine months ended June
30, 2000 from 75.8% for the comparable 1999 period.
Operating expenses increased by $1,441,539 to $2,495,492 for
the nine months ended September 30, 2000 from $1,053,953 for the nine
months ended September 30, 1999, representing an increase of 137%. The
increase is primarily due to the growth in our personnel, from 12
full-time employees on September 30, 1999 to 41 full time employees at
September 30, 2000, which resulted in a significant increase in payroll
and other employee related costs as well as higher infrastructure
related expenses. The growth in personnel and infrastructure are
directly related to our plans to grow, both internally and through
acquisitions, our business. We believe our current team is largely
adequate to support our planned growth. Therefore, we expect the growth
in general and administrative to slow in future quarters. In addition
to personnel and infrastructure costs, sales expenses, travel expenses,
consulting costs and professional fees increased over the year ago
period reflecting our aggressive efforts to establish new programs and
affiliations with educational institutions and other prospective
partners.
Net interest income increased by $196,831 to $195,615 for the
nine months ended September 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 nine months ended September 30, 2000 compared to $148,066 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, Intelicus, L.C.
except for Jamita which has a 10% minority ownership.
As a result of the above changes, net income declined by
$1,002,322, resulting in a net loss of $615,100 for the nine months
ended September 30, 2000 compared with net income of $387,222 in the
comparable 1999 period.
LIQUIDITY AND CAPITAL RESOURCES
Our cash and cash equivalents amounted to $1,442,637 at
September 30, 2000, compared to $4,781,033 at December 31, 1999. The
net cash used in our operations was $998,926 for the nine months ended
September 30, 2000 compared to operations providing $145,570 in the
comparable 1999 period. We have extended our scope of operations by
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investing in the identification, contracting of, repurposing and
marketing our new degree and non-degree programs. Four of these
programs have been launched through September 30, 2000 while several
others will be launched over the next few quarters. These investments
increased direct marketing and content costs of $518,032 and $474,405
respectively, for the nine months ended September 30, 2000.
We spent $2,080,151 to acquire Jamita and RLG. Of that amount,
$1,875,000 in cash was paid to Jamita, $50,000 in cash was paid to RLG
and $155,151 constituted deal expenses. The details of the Jamita and
RLG transactions are described in the 8K/A filed by us on October 30,
2000.
We used $149,497 in investing activities during the nine
months ended September 30, 2000 compared with $9,815 in the comparable
1999 period. The increase was primarily for the purchase of computers
and other office equipment directly related to the increase in
personnel and programs.
We used $109,822 in financing activities during the nine
months ended September 30, 2000 compared with $55,000 in the comparable
1999 period. The increase is due the payment of preferred dividends
related to the November 1999 sale of $1,750,000 of preferred stock.
We expect the cash generated from operations and our current
cash and cash equivalents 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 integrate 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 our acquisitions
successfully or to manage any addition products and services resulting
from such acquisitions. We might experience slower than expected
integration efforts. In addition, our recent acquisitions of Jamita and
the Rutherford Learning Group involve products or services in areas in
which we have not previously operated. These acquisitions 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.
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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 and added a
business development group to provide, among other things, specialized
expertise corporate business development, additional vertical markets
and product areas. Management will continue to address these transition
issues in fiscal 2000 by making additional adjustments within our sales
organization. The transition issues associated with this 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 engage in joint
ventures and alliances as well as to continue to acquire businesses
that offer complementary products, services and technologies. Any
ventures, alliances, acquisitions or investments will be accompanied by
certain risks. These risks include, among other things, the:
o difficulty of assimilating the operations and personnel of the
targeted 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 response to various factors, some of which are beyond
our control, including:
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o unanticipated adverse market conditions,
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, 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 five
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:
o other companies which seek to offer a complete solution
including software and services;
o companies which provide large libraries of content;
o software companies with specific products for the college and
university market;
o systems integrators; and
o 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.
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OUR MARKET IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE.
The market for our products and services is characterized by
rapid technological change, changes in 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:
o our ability to attract and retain colleges, universities,
associations and companies;
o our ability to successfully implement our proposed distributed
learning programs;
o the amount and timing of operating costs and capital
expenditures relating to expansion of our business;
o our introduction of new or enhanced services and products, and
similar introductions by our competitors;
o our ability to upgrade and develop our systems and
infrastructure;
o our ability to attract, motivate and retain personnel; and
o 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.
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
10.8 Employment Agreement dated May 1, 2000 between Anthony R.
Ruben and Compass Knowledge Holdings, Inc.
10.9 Employment Agreement dated May 1, 2000 between Ramsey Hashem
and Compass Knowledge Holdings, Inc.
27 Financial Data Schedule
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(b) Reports on Form 8-K
On August 23, 2000 we filed Form 8-K (pursuant to Items 2 and 7)
whereby we acquired all of the capital stock of Jamita, Inc.
(Jamita) and Rutherford Learning Group, Inc. (RLG). Pursuant to
the Jamita agreement, we paid the Jamita shareholders $1.875
million (before contingent consideration) solely in cash. In
addition, we issued, in escrow, 562,500 shares of our common stock
valued at $2.00 per share for distribution to the Jamita
shareholders subject to Jamita having net collections of
approximately $1 million in the first fiscal year following the
closing.
Pursuant to the RLG agreement, we paid Michael Rutherford, the
sole shareholder, $50,000 in cash and issued him 125,000 shares of
our common stock valued at $2.00 per share and 10% of the total
issued and outstanding capital stock of Jamita.
On October 13, 2000 we filed Form 8K/A whereby we submitted the
financial information required pursuant to Item 7.
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: NOVEMBER 7, 2000 BY: /s/ ROGERS W. KIRVEN, JR.
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Chief Executive Officer and Director
Date: NOVEMBER 7, 2000 BY: /s/ ANTHONY RUBEN
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Chief Financial Officer and Treasurer
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