-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DL42qxANvMZ2zU5HwooGAeeeToOeXjiOCyzJD9l+iGGk28K76naDmjIvFce9WaC5 Tj+jepmTzu1MXouPLo8SvQ== 0000950152-98-009581.txt : 19981216 0000950152-98-009581.hdr.sgml : 19981216 ACCESSION NUMBER: 0000950152-98-009581 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980930 ITEM INFORMATION: FILED AS OF DATE: 19981215 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMPASS INTERNATIONAL SERVICES CORP CENTRAL INDEX KEY: 0001046817 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MAILING, REPRODUCTION, COMMERCIAL ART & PHOTOGRAPHY [7330] IRS NUMBER: 223540815 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-23217 FILM NUMBER: 98770127 BUSINESS ADDRESS: STREET 1: ONE PENN PLAZA SUITE 4430 CITY: NEW YORK STATE: NY ZIP: 10119 BUSINESS PHONE: 6095145156 MAIL ADDRESS: STREET 1: 5 INDEPENDENCE WAY STREET 2: SUITE 300 CITY: PRINCETON STATE: NJ ZIP: 08540 8-K/A 1 COMPASS INTERNATIONAL--FORM 8-K/AMENDMENT #1 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A (Amendment No. 1) CURRENT REPORT Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 Date of Report (Date of Earliest Event Reported): September 30, 1998 ------------------- COMPASS INTERNATIONAL SERVICES CORPORATION -------------------------------------------------- (Exact Name of Registrant as Specified in Charter) Delaware 000-23217 22-3540815 - -------------------------------- -------------- ------------------- (State or Other Jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No. One Penn Plaza, Suite 4430, New York, New York 10119 ---------------------------------------------- ----- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (212) 967-7770 -------------- 2 Compass International Services Corporation (the "Company") hereby amends Item 7(a) and Item 7(b) of its Current Report on Form 8-K filed with the Securities and Exchange Commission on October 16, 1998 with respect to the acquisition of the stock of Professional American Collections, Inc. to supply certain financial statements and pro forma financial information that was not available at such time. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. The following financial statements and pro forma financial information are being provided as part of this filing: a) Financial Statements of Business Acquired. Audited financial statements of Professional American Collections, Inc. as of December 31, 1997 and related statements of income, changes in stockholders' equity and cash flows for the year then ended. Unaudited financial statements of Professional American Collections, Inc. as of September 30, 1998 and related statements of income, changes in stockholders' equity and cash flows for the nine months then ended. b) Pro Forma Financial Information. Unaudited pro forma combined financial information as of December 31, 1997 and for the year then ended. Unaudited pro forma combined financial information as of September 30, 1998 and for the nine months then ended. 2 3 Compass International Services Corporation Introduction to Unaudited Pro Forma Combined Financial Statements Compass International Services Corporation ("Compass" or the "Company") was organized to create a leading integrated provider of outsourced business services to public and private entities throughout a customer's sales cycle. On March 4, 1998, simultaneously with the closing of its initial public offering (the "Offering") of its common stock (the "Common Stock"), Compass acquired all of the outstanding capital stock of five companies providing accounts receivable management services, mailing services and teleservices (the "Founding Companies") in separate purchase transactions (the "Founding Companies Acquisition"). The Founding Companies included The Mail Box, Inc. ("Mail Box"), National Credit Management Corporation ("NCMC"), B.R.M.C. of Delaware, Inc. ("Bomar"), Mid-Continent Agencies Inc. ("MCA") and Impact Telemarketing Group, Inc. ("Impact"). Prior to the Offering and the closing of the Founding Companies Acquisition, Compass had no operating activities. Since the Offering, Compass has completed several additional acquisitions and has reorganized certain of its operating entities. Pursuant to a Stock Purchase Agreement, dated as of September 30, 1998 (the "Purchase Agreement"), Compass Receivables Management Corporation ("CRMC"), a Delaware corporation and a wholly-owned subsidiary of Compass International Services Corporation, acquired all of the outstanding common stock of Professional American Collections, Inc., an Illinois corporation ("PAC"), from trusts (the "Selling Stockholders") established by Messrs. Steven McCormick, David McCormick and Mark McCormick (the "Principals"). In consideration for the shares of PAC, the Selling Stockholders received $10,425,000 in cash, 659,154 unregistered shares of common stock of the Company and interest bearing notes of the Company in the aggregate principal amount of $5,850,000. CRMC also agreed to contribute $1,275,000 to PAC in respect of a bonus paid by PAC to Mr. John McCormick. The Purchase Agreement provides that contingent consideration, in the form of unregistered shares of common stock of the Company, may be payable by the Company in calendar 1999 and 2000 based on PAC attaining certain earnings levels during calendar 1998 and 1999. The purchase price agreed upon by the Company and Principals was the result of arms-length negotiations. The cash paid pursuant to the Purchase Agreement was borrowed under the Company's existing revolving credit facility. The PAC acquisition was accounted for using the purchase method of accounting. The Unaudited Pro Forma Combined Financial Statements reflect the preliminary allocation of the purchase price for PAC. The final allocation of such purchase price, and resulting amortization expense, may differ somewhat from the preliminary estimates as additional information becomes available. The following Unaudited Pro Forma Combined Financial Statements are based upon the historical financial statements of PAC and the pro forma financial statements of Compass and the Founding Companies, and have been prepared using assumptions, as set forth in the accompanying Notes to Unaudited Pro Forma Combined Financial Statements. The Unaudited Pro Forma Combined Statement of Operations for the year ended December 31, 1997 gives effect to the acquisition of PAC and the related financing as if they had occurred on January 1, 1997. The Unaudited Pro Forma Combined Balance Sheet as of December 31, 1997 gives effect to the acquisition of PAC and the related financing as if they had occurred at that date. The Unaudited Pro Forma Combined Statement of Operations 3 4 for the nine months ended September 30, 1998 gives effect to the Founding Companies Acquisition and the acquisition of PAC as if they had occurred on January 1, 1997. An Unaudited Pro Forma Combined Balance Sheet as of September 30, 1998 is not presented since the acquisition of PAC was reflected in the historical consolidated balance sheet of Compass that was included in the Form 10-Q for the quarterly period ended September 30, 1998 that was filed with the Securities and Exchange Commission on November 16, 1998 and was amended on December 1, 1998. The pro forma adjustments are based upon preliminary estimates, available information and certain assumptions that management deems appropriate and may be revised as additional information becomes available. The Unaudited Pro Forma Combined Financial Statements do not purport to represent what the Company's financial position or results of operations would have been if the acquisitions of PAC or the Founding Companies had occurred on the dates indicated and are not necessarily representative of Compass' financial position or results of operations for any future period. The Unaudited Pro Forma Combined Financial Statements should be read in conjunction with the financial statements and notes thereto for the Company included in the Company's Registration Statement on Form S-1 (No. 333-37205), as amended, filed with the Securities and Exchange Commission in connection with the Offering and the financial statements and notes thereto for PAC (filed separately as part of Item 7(a) of this Form 8-K/A). 4 5 Compass International Services Corporation Unaudited Pro Forma Combined Statement of Operations Year Ended December 31, 1997
(IN THOUSANDS, EXCEPT SHARE DATA) -------------------------------------------------------------------------- PRO FORMA PRO FORMA PRO FORMA COMPASS(A) PAC ADJUSTMENTS COMBINED ------------------ ------------------ ------------------- ---------------- Revenues $ 87,153 $ 12,560 $ (471) (B) $ 99,242 Operating expenses 53,353 10,811 (375) (B) 62,769 (1,020) (C) ------------------ ------------------ ------------------- ---------------- Gross profit 33,800 1,749 924 36,473 Selling, general and administrative expenses 23,229 939 - 24,168 Goodwill amortization 1,531 - 500 (D) 2,031 ------------------ ------------------ ------------------- ---------------- Operating income 9,040 810 424 10,274 Interest (expense) income - net (625) 10 (1,181) (E) ( 1,796) ------------------ ------------------ ------------------- ---------------- Income before income taxes 8 415 820 (757) 8,478 Income tax provision 3,978 9 217 (F) 4,204 ------------------ ------------------ ------------------- ---------------- Net income $ 4,437 $ 811 $ (974) $ 4,274 ================== ================== =================== ================ Earnings per share: Basic and Diluted $ .37 $ .34 ================== ================ Weighted average shares outstanding: Basic and Diluted 11,833,460 (G) 12,492,614 (H) ================== ================
See Notes to Unaudited Pro Forma Combined Financial Statements. 5 6 Compass International Services Corporation Notes to Unaudited Pro Forma Combined Statement of Operations Year Ended December 31, 1997 (A) The unaudited Pro Forma Compass statement of operations gives effect to the Founding Companies Acquisition and the Offering as if they had occurred on January 1, 1997, and reflects reduction in salaries, bonuses and certain benefits to the owners of the Founding Companies to which they have agreed prospectively, reflects reductions in interest expense associated with reductions in debt and gives effect to an acquisition by one of the Founding Companies as if it had occurred on January 1, 1997. (B) Reflects the elimination of the results of the First Centennial Mortgage division of PAC that was not acquired by the Company. (C) Reflects the reduction in salaries and bonuses paid to owners of PAC to which they have agreed prospectively. (D) Reflects the amortization of goodwill recorded as a result of the acquisition of PAC that is based on a preliminary allocation of the purchase price for PAC (future adjustment may be required). Goodwill expense is amortized on a straight-line basis over an estimated life of 40 years. (E) Reflects the incremental interest expense at 6.09% on the $11,700,000 necessary borrowings under the revolving credit facility to complete the PAC acquisition (The interest rate is based on the current terms of the Company's revolving credit facility and swap agreement, which fixed the rate at 4.84% plus an increment 125 basis points) plus interest expense at 8% on the $5,850,000 notes issued to the stockholders of PAC. (F) Reflects the incremental provision for federal and state income taxes for PAC assuming it was subject to federal and state income taxes (since it was previously taxed as a S Corporation), and as a result of the adjustments to the Statement of Operations described in these footnotes, except for nondeductible goodwill amortization, at an effective statutory tax rate of 40.0%. (G) The shares used in computing basic and diluted earnings per share for Pro Forma Compass include: (i) 1,682,769 shares issued to BGL Capital Partners, LLC, and management of Compass; (ii) 5,435,691 shares issued to owners of the Founding Companies in connection with the Founding Companies Acquisition; and (iii) 4,715,000 shares representing the number of shares sold in the Offering. (H) The shares used in computing basic and diluted earnings per share for Pro Forma Combined include 11,833,460 shares for Pro Forma Compass plus 659,154 shares issued to the stockholders of PAC in connection with the acquisition. 6 7 Compass International Services Corporation Unaudited Pro Forma Combined Balance Sheet December 31, 1997
(IN THOUSANDS) -------------------------------------------------------------------------- PRO FORMA PRO FORMA PRO FORMA COMPASS(A) PAC ADJUSTMENTS COMBINED ------------------ ------------------ ------------------- ---------------- ASSETS: Cash and cash equivalents $ 6,802 $ 1,364 $ - $ 8,166 Trade and other receivables, net 11,898 1,466 - 13,364 Inventory 733 - - 733 Postage on hand 1,231 - - 1,231 Prepaid expenses and other current assets 1,385 29 - 1,414 ------------------ ------------------ ------------------- ---------------- Total current assets 22,049 2,859 - 24,908 Property and equipment, net 8,570 256 - 8,826 Goodwill, net 50,818 - 19,715 (C) 70,533 Other assets 2,914 - - 2,914 ------------------ ------------------ ------------------- ---------------- Total assets 84,351 3,115 19,715 107,181 ================== ================== =================== ================ LIABILITIES: Short term debt 1,021 600 5,850 (B) 7,471 Accounts payable and accrued expenses 8,444 654 474 (C) 9,572 Collections due clients 1,249 710 - 1,959 Postage advances and deposits 950 - - 950 Income taxes payable 727 13 - 740 ------------------ ------------------ ------------------- ---------------- Total current liabilities 12,391 1,977 6,324 20,692 Long-term debt 459 - 11,700 (B) 12,159 Capital lease obligations 1,551 - 1,551 Other non-current liabilities 674 - 674 ------------------ ------------------ ------------------- ---------------- Total liabilities 15,075 1,977 18,024 35,076 STOCKHOLDERS' EQUITY: Preferred stock - - - - Common stock 112 1 7 (B) 119 (1) (D) Additional paid-in capital 66,033 - 3,796 (B) 69,829 Retained earnings 3,131 1,137 (974) (C) 2,157 (1,137) (D) ------------------ ------------------ ------------------- ---------------- Total stockholders' equity 69,276 1,138 1,691 72,105 ------------------ ------------------ ------------------- ---------------- Total liabilities and stockholders' equity $ 84,351 $ 3,115 $ 19,715 $ 107,181 ================== ================== =================== ================
See Notes to Unaudited Pro Forma Combined Financial Statements. 7 8 Compass International Services Corporation Notes to Unaudited Pro Forma Combined Balance Sheet December 31, 1997 (A) The unaudited Pro Forma Compass balance sheet gives effect to the Founding Companies Acquisition and the Offering as if they had occurred on December 31, 1997. (B) Represents the consideration paid by Compass to acquire PAC, which is comprised of $11,700,000 in cash that was borrowed by the Company under its revolving credit agreement, $5,850,000 of interest bearing notes payable in one year and 659,154 unregistered shares of the Company's common stock which were recorded by Compass based upon a discounted fair market value of $5.77 per share. (C) Represents amount of goodwill recorded based on preliminary allocation of the purchase price for PAC, net of amortization expense that would have been recorded in the year ended December 31, 1997, and the additional purchase price and pro forma adjustments reflected on the Unaudited Pro Forma Combined Statement of Operations for the year ended December 31, 1997. (D) Represents the elimination of the PAC equity balances. 8 9 Compass International Services Corporation Unaudited Pro Forma Combined Statement of Operations Nine Months Ended September 30, 1998
(IN THOUSANDS, EXCEPT SHARE DATA) ------------------------------------------------------------------------------- PRO FORMA PRO FORMA PRO FORMA PRO FORMA COMPASS ADJUSTMENTS (A) COMPASS PAC ADJUSTMENTS COMBINED ----------- ----------- ----------- ----------- -------------- ----------- Revenues $ 84,295 $ 16,034 $ 100,329 $ 13,018 $ (654) (B) $ 112,693 Operating expenses 55,242 9,872 65,114 8,386 (478) (B) 73,237 215 (C) ----------- ----------- ----------- ----------- -------------- ----------- Gross profit 29,053 6,162 35,215 4,632 (391) 39,456 Selling, general and administrative expenses 18,490 3,987 22,477 968 - 23,445 Goodwill amortization 1,335 250 1,585 - 375 (D) 1,960 ----------- ----------- ----------- ----------- -------------- ----------- Operating income 9,228 1,925 11,153 3,664 (766) 14,051 Interest (expense) income - net (879) (62) (941) 23 (885) (E) (1,803) ----------- ----------- ----------- ----------- -------------- ----------- Income before income taxes 8 349 1,863 10,212 3,687 (1,651) 12,248 Income tax provision 3,684 847 4,531 - 1,152 (F) 5,683 ----------- ----------- ----------- ----------- -------------- ----------- Net income $ 4,665 $ 1,016 $ 5,681 $ 3,687 $ (2,803) $ 6,565 =========== =========== =========== =========== ============== =========== Earnings per share: Basic $ .45 $ .55 $ .50 =========== =========== =========== Diluted $ .45 $ .55 $ .50 =========== =========== =========== Weighted average shares outstanding: Basic 10,283,965 10,283,965 13,155,833 (G) ============ ============ ============ Diluted 10,349,287 10,349,287 13,221,155 (G) ============ ============ ============
See Notes to Unaudited Pro Forma Combined Financial Statements. 9 10 Compass International Services Corporation Notes to Unaudited Pro Forma Combined Statement of Operations Nine Months Ended September 30, 1998 (A) Represents the unaudited statements of operations for the Founding Companies for the two months ended February 28, 1998, which represents the results for the Founding Companies prior to the closing of the Founding Companies Acquisition. Therefore, the Pro Forma Compass amount represent the results as if the Founding Companies Acquisition and the Offering had occurred on January 1, 1998, and reflects reduction in salaries, bonuses and certain benefits to the owners of the Founding Companies to which they have agreed prospectively and reflects reductions in interest expense associated with reductions in debt. (B) Reflects the elimination of the results of the First Centennial Mortgage division of PAC that was not acquired by the Company. (C) Reflects a net increase in salaries and bonuses paid to owners of PAC to which they have agreed prospectively. (D) Reflects the amortization of goodwill recorded as a result of the acquisition of PAC that is based on a preliminary allocation of the purchase price for PAC (future adjustment may be required). Goodwill expense is amortized on a straight-line basis over an estimated life of 40 years. (E) Reflects the incremental interest expense at 6.09% on the $11,700,000 necessary borrowings under the revolving credit facility to complete the PAC acquisition (The interest rate is based on the current terms of the Company's revolving credit facility and swap agreement, which fixed the rate at 4.84% plus an increment 125 basis points) plus interest expense at 8% on the $5,850,000 notes issued to the stockholders of PAC. (F) Reflects the incremental provision for federal and state income taxes for PAC assuming it was subject to federal and state income taxes (since it was previously taxed as a S Corporation), and as a result of the adjustments to the Statement of Operations described in these footnotes, except for nondeductible goodwill amortization, at an effective statutory tax rate of 40.0%. (G) The computation of the Pro Forma Combined basic earnings per share for the nine months ended September 30, 1998 (i) assumes that the 1,682,769 shares issued to BGL Capital Partners, LLC, and management of Compass, the 5,435,691 shares issued to owners of Founding Companies in connection with the Founding Companies Acquisition, the 4,715,000 shares sold in the Offering and the 659,154 shares issued to the owners of PAC were all issued as of January 1, 1998, and (ii) reflects the issuance of shares during the period in connection with other acquisitions as of their respective acquisition dates. The computation of the Pro Forma Combined diluted earnings per share for the nine months ended September 30, 1998 includes 65,322 shares which represent the net effect of shares issuable for dilutive options and warrants outstanding, net of treasury shares that could be purchased in the open market based on the average closing share price for the period. 10 11 PROFESSIONAL AMERICAN COLLECTIONS, INC. FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR'S REPORT For the Year Ended December 31, 1997 SIKICH GARDNER & CO, LLP CONSULTANTS AND ACCOUNTANTS 11 12 C O N T E N T S - - - - - - - - Page(s) ------- INDEPENDENT AUDITOR'S REPORT................................... 13 FINANCIAL STATEMENTS Balance Sheet.............................................. 14-15 Statement of Income........................................ 16 Statement of Changes in Stockholders' Equity............... 17 Statement of Cash Flows.................................... 18 Notes to Financial Statements.............................. 19-21 12 13 INDEPENDENT AUDITOR'S REPORT ---------------------------- To the Board of Directors and Stockholders Professional American Collections, Inc. North Aurora, Illinois We have audited the accompanying balance sheet of Professional American Collections, Inc. as of December 31, 1997 and the related statements of income, changes in stockholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Professional American Collections, Inc. as of December 31, 1997 and the results of its operations and cash flows for the year then ended in conformity with generally accepted accounting principles. As discussed in Note 2 to the financial statements, the Company has elected S Corporation status effective January 1, 1997. /s/ SIKICH GARDNER & CO., LLP Aurora, Illinois February 20, 1998, except for Note 8 as to which the date is December 7, 1998 13 14 PROFESSIONAL AMERICAN COLLECTIONS, INC. BALANCE SHEET December 31, 1997
- ------------------------------------------------------------------------------------ ASSETS CURRENT ASSETS Cash - operating $ 653,740 Cash - trust account 709,864 ----------- Total cash 1,363,604 Accounts receivable 1,465,736 Prepaid expenses and other 29,487 ----------- Total current assets 2,858,827 ----------- PROPERTY AND EQUIPMENT Furniture and equipment 771,664 Vehicles 198,161 ----------- Subtotal 969,825 Less accumulated depreciation (713,349) ----------- Net property and equipment 256,476 ----------- TOTAL ASSETS $ 3,115,303 ===========
See accompanying notes to financial statements. 14 15 PROFESSIONAL AMERICAN COLLECTIONS, INC. BALANCE SHEET December 31, 1997
- ------------------------------------------------------------------------------------ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Trust accounts payable $ 709,864 Other accounts payable 195,490 Note payable, bank 600,000 Accrued salaries and wages 240,615 Accrued profit sharing contribution 175,000 Accrued income taxes 12,500 Other accrued liabilities 43,907 ---------- Total current liabilities 1,977,376 ---------- Total liabilities 1,977,376 ---------- STOCKHOLDERS' EQUITY Common stock (10,000 shares authorized, 1,000 shares issued and outstanding, no par value) 1,000 Retained earnings 1,136,927 ---------- Total stockholders' equity 1,137,927 ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,115,303 ==========
See accompanying notes to financial statements. 15 16 PROFESSIONAL AMERICAN COLLECTIONS, INC. STATEMENT OF INCOME For the Year Ended December 31, 1997
- ------------------------------------------------------------------------------------ REVENUES Commissions $ 12,559,911 OPERATING EXPENSES 10,811,067 ------------ Gross profit 1,748,844 ------------ GENERAL AND ADMINISTRATIVE EXPENSES 939,304 ------------ Income from operations 809,540 ------------ OTHER INCOME (EXPENSE) Interest income 29,571 Interest expense (18,867) ------------ Total other income 10,704 ------------ Income before provision for income taxes 820,244 PROVISION FOR INCOME TAXES (9,137) ------------ NET INCOME $ 811,107 ============
See accompanying notes to financial statements. 16 17 PROFESSIONAL AMERICAN COLLECTIONS, INC. STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY For the Year Ended December 31, 1997
- --------------------------------------------------------------------------------------------------- Common Retained Stock Earnings Total ----------------------------------------- BALANCES, DECEMBER 31, 1996 $ 1,000 $ 325,820 $ 326,820 Net income - 811,107 811,107 ----------------------------------------- BALANCES, DECEMBER 31, 1997 $ 1,000 $1,136,927 $1,137,927 =========================================
See accompanying notes to financial statements. 17 18 PROFESSIONAL AMERICAN COLLECTIONS, INC. STATEMENTS OF CASH FLOWS For the Year Ended December 31, 1997
- ------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 811,107 ----------- Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 92,325 Deferred income taxes (3,363) (Increase) decrease in Accounts receivable (516,199) Prepaid expenses and other 4,691 Increase (decrease) in Trust accounts payable 464,076 Other accounts payable 50,207 Accrued income taxes 10,672 Accrued salaries and wages 42,464 Accrued profit-sharing contribution 25,000 Other accrued liabilities (43,670) ----------- Total adjustments 126,203 ----------- Net cash provided by operating activities 937,310 ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (116,999) ----------- Net cash used in investing activities (116,999) ----------- CASH FLOWS FROM FINANCING ACTIVITIES Decrease in notes payable, bank (200,000) ----------- Net cash used in financing activities (200,000) ----------- NET INCREASE IN CASH 620,311 CASH, BEGINNING OF YEAR 743,293 ----------- CASH, END OF YEAR $ 1,363,604 =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for interest $ 18,867 =========== Cash paid during the year for income taxes $ 1,828 ===========
See accompanying notes to financial statements. 18 19 PROFESSIONAL AMERICAN COLLECTIONS, INC. NOTES TO FINANCIAL STATEMENTS December 31, 1997 - -------------------------------------------------------------------------------- 1. DESCRIPTION OF BUSINESS Professional American Collections, Inc. (the Company) is primarily engaged in providing outsource services for consumer and commercial debt collection and residential mortgage credit reporting. The markets for the Company's services are throughout the United States. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies applied in the preparation of the financial statements. Cash - Trust Account -------------------- The Company segregates in a separate bank account cash due on trust accounts payable. Accounts Receivable ------------------- No allowance for uncollectible accounts has been provided. Management has evaluated the accounts and believes they are fully collectible. Property and Equipment ---------------------- Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to earnings as incurred and expenditures for major renovations are capitalized. Depreciation is computed principally by use of accelerated methods over the estimated useful lives as follows: Furniture and equipment 5-10 years Vehicles 5 years Revenue Recognition ------------------- Collection revenue is recognized at a commission rate when a collection payment is received. Revenue on all other services provided by the Company is recognized when the service is performed. 19 20 PROFESSIONAL AMERICAN COLLECTIONS, INC. NOTES TO FINANCIAL STATEMENTS (Continued) - -------------------------------------------------------------------------------- 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Income Taxes ------------ The Company has elected S corporation status effective January 1, 1997. Earnings and losses after that date will be included in the personal income tax returns of the stockholders and taxed depending on their personal tax strategies. Accordingly, the Company will not incur additional income tax obligations, and future financial statements will not include a provision for federal income taxes other than for state replacement taxes. Prior to the change, income taxes currently payable and deferred income taxes related primarily to differences between the basis of property and equipment for financial and income tax reporting and were recorded in the financial statements. Use of Estimates ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and the differences could be material to these financial statements. 3. INCOME TAXES The provision for income taxes consists of the following components: Currently payable $ 12,500 Deferred provision (benefit) (3,363) -------- TOTAL $ 9,137 ========
As discussed in Note 2, the Company changed its tax status from taxable to non-taxable effective as of January 1, 1997. Accordingly, the deferred tax liability at the date that the election for the change was filed of $3,363 has been eliminated through a credit to the deferred tax provision. 4. NOTES PAYABLE Amounts up to $1,200,000 are available under line of credit agreements through January 1999. These agreements are collateralized by substantially all Company assets and are guaranteed by the Company's stockholders. Interest is payable monthly at the prime rate, plus 1% (9.5% at December 31, 1997). Amounts outstanding under these agreements totaled $600,000 at December 31, 1997. 20 21 PROFESSIONAL AMERICAN COLLECTIONS, INC. NOTES TO FINANCIAL STATEMENTS (Continued) - -------------------------------------------------------------------------------- 5. LEASES AND RELATED PARTY TRANSACTIONS Equipment --------- The Company leases certain equipment under operating leases from a partnership which includes the Company's shareholders. The leases carry terms of one year and are subject to annual renewal. Amounts paid to the partnership under these agreements totaled $95,280 in 1997. Premises -------- The Company leases its offices under an operating lease agreement from the Company's President. The lease provides for monthly payments of $20,000 through December 1997. From January 1, 1998, the Company is leasing the facility on a monthly basis at $20,000 per month. Amounts paid under this lease agreement totaled $240,000 in 1997. 6. PROFIT SHARING PLAN The Company sponsors a profit sharing plan in which substantially all full-time employees participate. Contributions to the plan are discretionary and totaled $175,000 in 1997. 7. REVENUES In 1997, no single client contributed 10% or more to operating revenues. 8. EVENT (UNAUDITED) SUBSEQUENT TO THE DATE OF THE INDEPENDENT AUDITOR'S REPORT Pursuant to a Stock Purchase Agreement, dated as of September 30, 1998, among Compass Receivables Management Corporation ("Compass"), Compass International Services Corporation ("Compass Parent") and the stockholders of the Company (Stockholders), all of the shares of common stock of the Company were acquired by Compass Parent for a purchase price of $23,400,000. The purchase price was paid in the form of cash, notes of Compass and shares of common stock of Compass Parent. Additionally, the Purchase Agreement provides that contingent consideration, in the form of unregistered shares of common stock of Compass Parent, may be payable by Compass Parent in calendar 1999 and 2000 based the Company attaining certain earnings levels during calendar 1998 and 1999. The accompanying financial statements do not reflect any adjustments resulting from this acquisition. 21 22 PROFESSIONAL AMERICAN COLLECTIONS, INC. FINANCIAL STATEMENTS AND ACCOUNTANT'S COMPILATION REPORT For the Nine Months Ended September 30, 1998 SIKICH GARDNER & CO, LLP CONSULTANTS AND ACCOUNTANTS 22 23 C O N T E N T S - - - - - - - -
Page(s) ------- ACCOUNTANT'S COMPILATION REPORT................................................ 24 FINANCIAL STATEMENTS Balance Sheet.............................................................. 25-26 Statement of Income........................................................ 27 Statement of Changes in Stockholders' Equity............................... 28 Statement of Cash Flows.................................................... 29 Notes to Financial Statements.............................................. 30-32
23 24 ACCOUNTANT'S COMPILATION REPORT ------------------------------- To the Board of Directors and Stockholders Professional American Collections, Inc. North Aurora, Illinois We have compiled the accompanying balance sheet of Professional American Collections, Inc. as of September 30, 1998 and the related statements of income and changes in stockholders' equity and cash flows for the nine months then ended, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. A compilation is limited to presenting in the form of financial statements information that is the representation of management. We have not audited or reviewed the accompanying financial statements and, accordingly, do not express an opinion or any other form of assurance on them. /s/ SIKICH GARDNER & CO., LLP Aurora, Illinois December 7, 1998 24 25 PROFESSIONAL AMERICAN COLLECTIONS, INC. BALANCE SHEET September 30, 1998
- ------------------------------------------------------------------------------------ ASSETS CURRENT ASSETS Cash - operating $ 2,349,028 Cash - trust account 282,826 ----------- Total cash 2,631,854 Accounts receivable 2,085,179 Prepaid expenses and other 12,497 ----------- Total current assets 4,729,530 ----------- PROPERTY AND EQUIPMENT Furniture and equipment 979,832 Vehicles 240,629 ----------- Subtotal 1,220,461 Less accumulated depreciation (784,006) ----------- Net property and equipment 436,455 ----------- TOTAL ASSETS $ 5,165,985 ===========
See accompanying notes to financial statements. (See accountant's compilation report.) 25 26 PROFESSIONAL AMERICAN COLLECTIONS, INC. BALANCE SHEET September 30, 1998
- ------------------------------------------------------------------------------------ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Trust accounts payable $ 282,826 Other accounts payable 553,845 Accrued salaries and wages 286,725 Other accrued liabilities 28,685 ---------- Total current liabilities 1,152,081 ---------- Total liabilities 1,152,081 ---------- STOCKHOLDERS' EQUITY Common stock (10,000 shares authorized, 1,000 shares issued and outstanding, no par value) 1,000 Retained earnings 4,012,904 ---------- Total stockholders' equity 4,013,904 ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,165,985 ==========
See accompanying notes to financial statements. (See accountant's compilation report.) 26 27 PROFESSIONAL AMERICAN COLLECTIONS, INC. STATEMENT OF INCOME For the Nine Months Ended September 30, 1998
- ------------------------------------------------------------------------------------ REVENUES Commissions $ 13,017,977 OPERATING EXPENSES 8,386,138 ------------ Gross profit 4,631,839 ------------ GENERAL AND ADMINISTRATIVE EXPENSES 968,124 ------------ Income from operations 3,663,715 ------------ OTHER INCOME (EXPENSE) Interest income 36,594 Interest expense (13,239) ------------ Total other income 23,355 ------------ NET INCOME $ 3,687,070 ============
See accompanying notes to financial statements. (See accountant's compilation report.) 27 28 PROFESSIONAL AMERICAN COLLECTIONS, INC. STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY For the Nine Months Ended September 30, 1998
- ----------------------------------------------------------------------------------------------------- Common Retained Stock Earnings Total ---------------------------------------- BALANCES, DECEMBER 31, 1997 $ 1,000 $ 1,136,927 $ 1,137,927 Net income - 3,687,070 3,687,070 Distributions to stockholders - (811,093) (811,093) ---------------------------------------- BALANCES, SEPTEMBER 30, 1998 $ 1,000 $ 4,012,904 $ 4,013,904 ========================================
See accompanying notes to financial statements. (See accountant's compilation report.) 28 29 PROFESSIONAL AMERICAN COLLECTIONS, INC. STATEMENT OF CASH FLOWS For the Nine Months Ended September 30, 1998
- ------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 3,687,070 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 70,657 (Increase) decrease in Accounts receivable (619,443) Prepaid expenses and other 16,990 Increase (decrease) in Trust accounts payable (427,038) Other accounts payable 358,355 Accrued income taxes (12,500) Accrued salaries and wages 46,110 Accrued profit-sharing contribution (175,000) Other accrued liabilities (15,222) ----------- Total adjustments (757,091) ----------- Net cash provided by operating activities 2,929,979 ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (250,636) ----------- Net cash used in investing activities (250,636) ----------- CASH FLOWS FROM FINANCING ACTIVITIES Decrease in notes payable, bank (600,000) Distributions to stockholders (811,093) ----------- Net cash used in financing activities (1,411,093) ----------- NET INCREASE IN CASH 1,268,250 CASH, BEGINNING OF YEAR 1,363,604 ----------- CASH, END OF YEAR $ 2,631,854 =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for interest $ 13,239 =========== Cash paid during the year for income taxes $ - ===========
See accompanying notes to financial statements. (See accountant's compilation report.) 29 30 PROFESSIONAL AMERICAN COLLECTIONS, INC. NOTES TO FINANCIAL STATEMENTS September 30, 1998 - -------------------------------------------------------------------------------- 1. DESCRIPTION OF BUSINESS Professional American Collections, Inc. (the Company) is primarily engaged in providing outsource services for consumer and commercial debt collection and residential mortgage credit reporting. The markets for the Company's services are throughout the United States. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies applied in the preparation of the financial statements. Cash - Trust Account -------------------- The Company segregates in a separate bank account cash due on trust accounts payable. Accounts Receivable ------------------- No allowance for uncollectible accounts has been provided. Management has evaluated the accounts and believes they are fully collectible. Property and Equipment ---------------------- Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to earnings as incurred and expenditures for major renovations are capitalized. Depreciation is computed principally by use of accelerated methods over the estimated useful lives as follows: Furniture and equipment 5-10 years Vehicles 5 years Revenue Recognition ------------------- Collection revenue is recognized at a commission rate when a collection payment is received. Revenue on all other services provided by the Company is recognized when the service is performed. (See accountant's compilation report.) 30 31 PROFESSIONAL AMERICAN COLLECTIONS, INC. NOTES TO FINANCIAL STATEMENTS (Continued) - -------------------------------------------------------------------------------- 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Income Taxes ------------ The Company has elected S corporation status effective January 1, 1997. Earnings and losses after that date will be included in the personal income tax returns of the stockholders and taxed depending on their personal tax strategies. Accordingly, the Company will not incur additional income tax obligations, and future financial statements will not include a provision for federal income taxes other than for state replacement taxes. Prior to the change, income taxes currently payable and deferred income taxes related primarily to differences between the basis of property and equipment for financial and income tax reporting and were recorded in the financial statements. Use of Estimates ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and the differences could be material to these financial statements. 3. NOTES PAYABLE Amounts up to $1,200,000 are available under line of credit agreements through January 1999. These agreements are collateralized by substantially all Company assets and are guaranteed by the Company's stockholders. Interest is payable monthly at the prime rate, plus 1%. There were no amounts outstanding under these agreements at September 30, 1998. 4. LEASES AND RELATED PARTY TRANSACTIONS Equipment --------- The Company leases certain equipment under operating leases from a partnership which includes the Company's shareholders. The leases carry terms of one year and are subject to annual renewal. Amounts paid to the partnership under these agreements totaled $97,508 for the nine months ended September 30, 1998. (See accountant's compilation report.) 31 32 PROFESSIONAL AMERICAN COLLECTIONS, INC. NOTES TO FINANCIAL STATEMENTS (Continued) - -------------------------------------------------------------------------------- 4. LEASES AND RELATED PARTY TRANSACTIONS (Continued) Premises -------- The Company leases its offices under an operating lease agreement from the Company's President. The lease provides for monthly payments of $20,000 through June 1998. From July 1, 1998, the Company is leasing the facility on a monthly basis at $22,000 per month. Amounts paid under this lease agreement totaled $186,000 for the nine months ended September 30, 1998. 5. PROFIT SHARING PLAN The Company sponsors a profit sharing plan in which substantially all full-time employees participate. Contributions to the Plan are discretionary. There were no contributions to the Plan during the nine months ended September 30, 1998. 6. REVENUES In 1998, no single client contributed 10% or more to operating revenues. 7. ACQUISITION OF THE COMPANY'S COMMON STOCK Pursuant to a Stock Purchase Agreement, dated as of September 30, 1998, among Compass Receivables Management Corporation ("Compass"), Compass International Services Corporation ("Compass Parent") and the stockholders of the Company (Stockholders), all of the shares of common stock of the Company were acquired by Compass Parent for a purchase price of $23,400,000. The purchase price was paid in the form of cash, notes of Compass and shares of common stock of Compass Parent. Additionally, the Purchase Agreement provides that contingent consideration, in the form of unregistered shares of common stock of Compass Parent, may be payable by Compass Parent in calendar 1999 and 2000 based on the Company attaining certain earnings levels during calendar 1998 and 1999. The accompanying financial statements do not reflect any adjustments resulting from this acquisition. (See accountant's compilation report.) 32 33 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this amendment to the report to be signed on its behalf by the undersigned hereunto duly authorized. COMPASS INTERNATIONAL SERVICES CORPORATION Dated: December 15, 1998 By: /s/ LEEDS HACKETT ----------------------------- Leeds Hackett Chief Financial Officer 33 -----END PRIVACY-ENHANCED MESSAGE-----