<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 10 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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) 656-3906
(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.
[ ] Yes [X] No
There were 14,750,000 shares outstanding of the Registrant's common
stock, $0.001 par value,as of May 15, 2000.
<PAGE> 2
COMPASS KNOWLEDGE HOLDINGS, INC.
FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 2000
PART I - Financial Information
Item 1 Financial Statements
Consolidated Balance Sheets as of March 31, 2000
and December 31, 1999 3
Consolidated Statements of Operations
for the Three Months Ended March 31, 2000 and 1999 4
Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Results
of Operations and Financial Condition 7
PART II - Other Information 10
Item 6 Exhibits and Reports on Form 8-K 10
Signature 11
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
COMPASS KNOWLEDGE HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,476,572 4,781,033
Accounts receivable, net of allowance
for doubtful accounts of $0 and
$10,887 at March 31, 2000 and
December 31, 1999, respectively 41,012 404,961
Due from related parties 120,162 120,162
Prepaid expenses 28,631 48,299
Other assets 11,859 6,650
----------- -----------
Total current assets 4,678,236 5,441,105
PROPERTY AND EQUIPMENT, net 101,826 85,752
GOODWILL, net 961,410 977,769
OTHER ASSETS, net 488,401 320,898
----------- -----------
Total assets $ 6,229,873 $ 6,825,524
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued expenses $ 125,831 $ 179,149
Deferred student fees 230,279 449,263
Accrued preferred stock dividends -- 17,500
Amounts due to related parties 500 314,230
----------- -----------
Total liabilities 356,610 960,142
----------- -----------
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 4,283,509 4,283,509
Unearned compensation (15,683) (20,150)
Retained deficit (76,339) (79,753)
----------- -----------
Total stockholders' equity 5,873,263 5,865,382
----------- -----------
Total liabilities and
stockholders' equity $ 6,229,873 $ 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 ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
TOTAL STUDENT FEE REVENUE
Net student fee revenue from degree programs $ 579,234 $ 345,927
Gross student fee revenue from certificate programs 112,490 255,327
Other revenue 2,674 6,125
------------ ------------
Total student fee revenue 694,398 607,379
INSTRUCTION COSTS AND SERVICES 196,906 123,050
------------ ------------
Gross profit 497,492 484,329
------------ ------------
OPERATING EXPENSES
Selling and promotional 89,673 117,082
General and administrative 457,717 174,632
------------ ------------
Total operating expenses 547,390 291,714
------------ ------------
(LOSS) INCOME FROM OPERATIONS (49,898) 192,615
------------ ------------
OTHER INCOME (EXPENSE)
Interest income 93,289 2,532
Interest expense (155) (10,594)
------------ ------------
Total other income 93,134 (8,062)
------------ ------------
INCOME BEFORE MINORITY INTEREST IN NET INCOME OF
SUBSIDIARY 43,236 185,553
MINORITY INTEREST IN NET INCOME OF SUBSIDIARY -- 70,286
------------ ------------
NET INCOME 43,236 114,267
LESS: PREFERRED STOCK DIVIDENDS 39,822 --
------------ ------------
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 3,414 $ 114,267
============ ============
EARNINGS PER SHARE
Basic $ 0.000 $ --
============ ============
Diluted $ 0.000 $ --
============ ============
PRO FORMA EARNINGS PER SHARE
Basic $ -- $ 0.009
============ ============
Diluted $ -- $ 0.009
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 14,750,000 --
============ ============
Diluted 15,648,720 --
============ ============
PRO FORMA WEIGHTED AVERAGE SHARES OUTSTANDING
Basic -- 12,250,000
============ ============
Diluted -- 12,250,000
============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
4
<PAGE> 5
COMPASS KNOWLEDGE HOLDINGS, INC. AND SUBIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 43,236 $ 114,267
Adjustments to reconcile net income to net cash
used in/provided by operating activities -
Depreciation and amortization 56,330 2,572
Amortization of unearned compensation 4,467 5,354
Minority interest in net income -- 70,286
Changes in assets and liabilities related to operations-
Accounts receivable 443,949 530,797
Prepaid expenses 19,668 (103,518)
Other current assets (5,209) 13,974
Other long term assets (198,093) (21,171)
Accounts payable and accrued expenses (53,318) 38,876
Deferred student fees (218,983) (408,484)
Due to related parties (301,220) (65,091)
----------- -----------
Net cash/used in provided by
operating activities (209,173) 177,862
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (25,457) (5,572)
----------- -----------
Net cash used in investing
activities (25,457) (5,572)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of notes payable to stockholders (12,510) (30,000)
Payment of note payable -- (25,000)
Payment of preferred dividends (57,321) --
----------- -----------
Net cash used in financing
activities (69,831) (55,000)
----------- -----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (304,461) 117,290
CASH AND CASH EQUIVALENTS, beginning of period 4,781,033 103,058
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 4,476,572 $ 220,348
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
5
<PAGE> 6
COMPASS KNOWLEDGE HOLDINGS, INC. AND SUBSIDIARIES
NOTES UNAUDITED TO CONSOLIDATED FINANCIAL STATEMENTS
1. Principles of Interim Statements. The accompanying 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 Form10-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 three months ended March 31, 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. Total student fee revenue for courses offered by us for the first
three months ended March 31, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
2000 1999
---------- --------
<S> <C> <C>
Gross student fee revenues from degree programs $1,346,115 $628,958
Less: portion retained by university partners 766,881 283,031
---------- --------
Net student fee revenue from degree programs 579,234 345,927
Gross student fee revenue from certificate programs 112,490 255,327
Other revenue 2,674 6,125
---------- --------
Total student fee revenue $ 694,398 $607,379
========== ========
</TABLE>
4. As of March 31, 2000 there were 2,000 shares of Preferred Stock
outstanding, convertible into 875,000 common shares. Also, there were
options to purchase 1,500,000 shares of common stock outstanding at
March 31, 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 March 31, 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.
FORWARD LOOKING STATEMENTS. THE DISCUSSION CONTAINED HEREIN REGARDING
OUR BUSINESS AND OPERATIONS MAY INCLUDE "FORWARD LOOKING STATEMENTS."
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 "BELIEVE", OTHER VARIATIONS
THEREOF OR COMPARABLE TERMINOLOGY. ALL FORWARD-LOOKING STATEMENTS ARE
NECESSARILY SPECULATIVE, AND THERE ARE CERTAIN RISKS AND UNCERTAINTIES
THAT COULD CAUSE ACTUAL EVENTS OR RESULTS TO DIFFER MATERIALLY FROM
THOSE REFERRED TO IN SUCH FORWARD-LOOKING STATEMENTS. EXCEPT FOR
HISTORICAL INFORMATION, MATTERS DISCUSSED IN THIS REPORT REGARDING
FINANCIAL RESULTS AND DEMAND FOR PRODUCTS AND SERVICES ARE
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES,
INCLUDING THOSE RELATED TO THE FURTHER DEVELOPMENT OF OUR PRODUCTS AND
SERVICES AND MARKET ACCEPTANCE OF SUCH PRODUCTS AND SERVICES.
OVERVIEW
The following discussion of the Company's results of
operations and financial condition should be read in conjunction with
the text and the consolidated financial statements of the Company and
the notes thereto as included in the Company's Form 10-SB/A for the
fiscal year ended December 31, 1999, filed with the Securities and
Exchange Commission on May 12, 2000.
Because of the somewhat seasonal pattern of the Company's
enrollments and its term starting dates, which affect the results of
operations and the timing of cash inflows, the Company's management
believes that comparisons of its 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, the Company's
first, second and fourth quarters have historically represented the
periods of highest revenues and net income within a fiscal year.
In March 2000, we entered into a ten year Licensing Agreement
with the College of West Virginia ("CWV") whereby CWV will provide us
with the content and curriculum to provide to prospective students a
degree program in Criminal Justice. We anticipate launching this
program in the fall semester of 2000.
7
<PAGE> 8
RESULTS OF OPERATIONS
Set forth below is certain of our selected consolidated
financial and operating information for first quarter ended March 31,
2000 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 Unaudited Consolidated
Financial Statements and Notes thereto.
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31
------------------------------------
2000 1999
---------- -------------
<S> <C> <C>
Total Student Revenue $ 694,398 $607,379
Gross Profit $ 497,492 $484,329
Net Income Before Minority Interest $ 43,236 $184,753
Net Income After Minority Interest $ 43,236 $114,267
Earnings per share, basic $ .000 $ --
Earnings per share, diluted $ .000 $ --
Pro forma earnings per share, basic $ -- $ .009
Pro forma earnings per share, diluted $ -- $ .009
Weighted average shares outstanding
(in thousands)
Basic 14,750 --
Diluted 15,849 --
Pro Forma Weighted Average Shares Outstanding
Basic and Diluted
(in thousands) -- 12,250
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 2000
-----------------
<S> <C>
Working Capital $4,321,626
Total Current Assets $4,678,236
Total Property and Equipment, net $ 101,826
Total Current Liabilities $ 356,610
Total Stockholders' Equity $5,873,263
</TABLE>
8
<PAGE> 9
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 1999
Total student revenues increased by $87,019 to $694,398 for
the three months ended March 31, 2000 from $607,379 for the comparable
1999 period, representing an increase of 14.3%. The revenue increase is
primarily due to growth in our core degree business, which increased by
$233,307 or 67.4%, to $579,234 for the three months ended March 31,
2000, from $345,927 for the comparable 1999 period. The revenue
increase was partially offset by a decrease in certificate program
revenues. Certificate program revenues declined by 55.9%, to $112,490
for the three months ended March 31, 2000, compared with $255,327 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.
Gross profit increased by $13,163 to $497,492 for the three
months ended March 31, 2000 from $484,329 for the comparable 1999
period, representing an increase of approximately 2.7%. This increase
was the result of growth in our degree programs partially offset by
lower revenues in the higher margin certificate programs. Our gross
profit percentage decreased to 71.6% for the three months ended March
31, 2000 from 79.7% in the comparable 1999 period.
Operating expenses increased by $255,676 to $547,390 for the
three months ended March 31, 2000 from $291,714 for the three months
ended March 31, 1999, representing an increase of 87.6%. The increase
is primarily due to the growth in our personnel, from nine in the three
months ended March 31, 1999 to 23 for the three months ended March 31,
2000, which resulted in increased payroll and other employee related
expenses as well as 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.
Interest income increased by $90,757 to $93,289 for the three
months ended March 31, 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 March 31, 2000 compared to an amount of $70,286
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
$71,031 to $43,236 for the three months ended March 31, 2000 from
$114,267 in the comparable 1999 period.
LIQUIDITY AND CAPITAL RESOURCES
Our cash and cash equivalents amounted to $4,476,572 at March
31, 2000, compared to $4,781,033 at December 31, 1999. The net cash
used in our operations was $209,173 for the three months ended March
31, 2000 compared to operations providing $177,862 in the comparable
1999 period. Net cash used in operating activities primarily consisted
of reductions in amounts due to related parties and deferred student
fees partially offset by a decrease in accounts receivable due to the
recognition of deferred revenue.
We used $25,457 in investing activities in the three months
ended March 31, 2000 compared with $5,572 in the comparable 1999
period, primarily to purchase computer and other office equipment.
We used $69,831 in financing activities in the three months
ended March 31, 2000 compared with $55,000 in the comparable 1999
period, due primarily to the payment of preferred stock dividends.
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 will need to obtain additional debt and/or
9
<PAGE> 10
equity financing to fund our operations and anticipated growth.
Although there can be no guarantee, we believe such funds will be
available to us.
SEASONALITY
We typically offer courses during all three semesters (fall,
spring and summer) 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.
PROPERTIES AND FACILITIES
Effective March 1, 2000, the Company entered into a sublease
agreement that expires on July 31, 2001, with Outstart, LLC to lease
existing professional office space in Ocoee, Florida.
PART II - OTHER INFORMATION
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 March 31, 2000.
10
<PAGE> 11
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: MAY 15, 2000 BY: /s/ ROGERS W. KIRVEN, JR.
------------ --------------------------------------
Chief Executive Officer and Director
Date: MAY 15, 2000 BY: /s/ ANTHONY RUBEN
------------ --------------------------------------
Chief Financial Officer and Treasurer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS AS OF FOR THE PERIOD ENDED MARCH 31, 2000 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 4,476,572
<SECURITIES> 0
<RECEIVABLES> 41,012
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,678,236
<PP&E> 101,826
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,229,873
<CURRENT-LIABILITIES> 356,610
<BONDS> 0
0
1,667,026
<COMMON> 14,750
<OTHER-SE> 4,191,487
<TOTAL-LIABILITY-AND-EQUITY> 6,229,873
<SALES> 694,398
<TOTAL-REVENUES> 694,398
<CGS> 196,906
<TOTAL-COSTS> 547,390
<OTHER-EXPENSES> (93,289)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 155
<INCOME-PRETAX> 3,414
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,414
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,414
<EPS-BASIC> .000
<EPS-DILUTED> .000
</TABLE>
