FORM 6K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of: February, 2004
Commission File Number: 0-30456
| CHARTWELL TECHNOLOGY INC. |
| (Translation of registrant’s name into English) |
Suite 700, 407 2nd Street SW
Calgary, Alberta
Canada T2P 2Y3 |
| (Address of principal executive offices) |
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to rule 12g3-2(b) under the Securities Exchange Act of 1934.
If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b) 82 —
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| February 23, 2004 | signed"Don Gleason"
Don Gleason, CFO |
2
Chartwell Technology Inc.
PRESS RELEASE
CHARTWELL ANNOUNCES FISCAL YEAR 2003 FOURTH QUARTER
AND YEAR END RESULTS
— Revenue growth of 97%, Net Income of $1.6M —
| Chartwell Technology Inc. | TSX-VEN: CWH |
Calgary, Canada, February 2, 2004, Chartwell Technology Inc. (TSX-VEN: CWH) a leading provider of gaming software systems and entertainment content to the online and mobile gaming industry, is pleased to announce financial results for the year ended October 31, 2003.
Highlights of the year included:
| | • | | Revenue of $7.3M compared with $3.7M in 2002; |
| | • | | Operating income of $1.9M and net income of $1.6M compared with a net loss of $(1.4M) in 2002; |
| | • | | Earnings per share of $0.11 compared with a net loss per share of ($0.11) in 2002; |
| | • | | Software license fees of $6.3M compared to $2.6M in 2002; |
| | • | | Cash flow from operations of $1.4M compared to a negative cash flow of $(1.2M) in 2002; |
| | • | | Working capital of $6.7M compared to $6.0M in 2002; |
Revenue growth and consistent profitability were the key characteristics of Chartwell’s 2003 financial performance.
“We are pleased to report that we met our fiscal 2003 financial objectives on all fronts”, states Don Gleason, CFO. “We concluded the year with significant revenue growth, achieved profitability in four successive quarters and generated $0.11 in earnings per share. With a solid financial foundation, an expanded product offering and a growing customer base we have a strong platform from which to continue to expand our business and extend this momentum into fiscal 2004".
Revenue
Revenue for the three months ended October 31, 2003 was $1,748,400, an increase of 29% compared to $1,346,902 in the same period of 2002. For the twelve months ended October 31, 2003 revenue was $7,353,141, an increase of 97% compared to $3,737,994 for the previous year. Growth continues to be attributable to the quarter over quarter increase in license fees from the installed base of clients. License fee revenue for the fourth quarter of 2003 was $1,847,097 compared to $1,144,948 for the same period of the previous year, representing an increase of 61%. For the twelve months ending October 31, 2003 license fee revenue totaled $6,300,335 compared to $2,646,766, an increase of 138% compared to the previous year.
Operating Expenses
Total operating expenses excluding foreign exchange gains or losses, for the three month period totaled $1,163,248 compared to $1,420,049 for the same period of 2002. For the twelve months ended October 31, 2003 total operating expenses were $5,467,103 compared to $5,255,071 for the previous year. Software development and support costs, which represent the Company’s largest expenditure area, increased 23% over the prior year as resources were added to meet product development and customer support initiatives. These costs included the deferral of $530,248 of development costs relating to the building of new products. For the three months and twelve months ended October 31,
2003, general and administrative expenses decreased 9% and 22% respectively compared to the same periods of 2002.
Foreign Exchange
The continued decline of the US dollar compared to its Canadian counterpart and the corresponding revaluation of US monetary assets resulted in foreign currency losses for the three months and twelve months ending October 31, 2003 of $209,728 and $795,186, respectively. There were no comparative losses for the same period of 2002.
Net Income
Net income for the fourth quarter was $895,424 compared with a loss of $(72,415) for the corresponding period of the previous year. Net income for the twelve months ending October 31, 2003 was $1,610,852 or $0.11 per share compared to a loss of ($1,431,282) or ($0.11) per share for the previous year. Net income in the fourth quarter was positively impacted by the recognition of $520,000 in future tax assets relating primarily to prior period losses. At October 31, 2003, $1,067,287 of realizable future tax assets remain available to be applied against future income tax expense.
Chartwell continues to maintain a solid financial base from which to execute its growth strategy. At October 31, 2003, Chartwell had $5,178,010 in cash, cash equivalents and short term investments, working capital of $6,752,155 and remains debt free.
Stock Options
Mr. Steve Latham, a Director of the Company, has been granted an option to purchase 100,000 common shares. The options were granted for a five year term pursuant to the Company’s Stock Option Plan.
About Chartwell
Chartwell Technology Inc. specializes in the development of leading edge gaming applications and entertainment content for the Internet and wireless platforms and other remote access devices. Chartwell’s Java and Flash based software products and games are designed for deployment in gaming, entertainment, advertising and promotional applications. Chartwell does not participate in the online gaming business of its clients. Chartwell’s team of highly trained professionals is committed to delivering the highest quality software and maintaining its leading edge through continuous development and unparalleled customer support.
Chartwell invites you to preview and play our games at:www.chartwelltechnology.com
For further information, please contact:Chartwell Technology Inc.
Darold H Parken, President
(877) 261-6619 or (403) 261-6619
dhp@chartwelltechnology.com | David Bajwa, Investor Relations
(877) 669-4180 or (604) 669-4180
info@chartwelltechnology.com |
The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: The statements contained herein which are not historical fact are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements, including, but not limited to, certain delays in testing and evaluation of products, regulation of the online gaming industry, and other risks detailed from time to time in Chartwell’s filings with the Securities & Exchange Commission. We assume no responsibility for the accuracy and completeness of these statements and are under no duty to update any of the forward-looking statements contained herein to conform these statements to actual results. This is not an offer to sell or a solicitation of an offer to purchase any securities.
kpmg
| | Consolidated Financial Statements of |
| | CHARTWELL TECHNOLOGY INC. |
| | As at October 31, 2003 and 2002 and for
each of the years in the three year period
ended October 31, 2003 |
AUDITORS’ REPORT TO THE SHAREHOLDERS
We have audited the consolidated balance sheets of Chartwell Technology Inc. as at October 31, 2003 and 2002 and the consolidated statements of operations and deficit and cash flows for each of the years in the three year period ended October 31, 2003. These financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
With respect to the consolidated financial statements for the years ended October 31, 2003 and 2002, we conducted our audits in accordance with Canadian generally accepted auditing standards and auditing standards generally accepted in the United States of America. With respect to the consolidated financial statements for the year ended October 31, 2001, we conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Corporation as at October 31, 2003 and 2002 and the results of its operations and its cash flows for each of the years in the three year period ended October 31, 2003 in accordance with Canadian generally accepted accounting principles.
Canadian generally accepted accounting principles vary in certain significant respects from accounting principles generally accepted in the United States. Application of accounting principles generally accepted in the United States would have affected results of operations for each of the years in the three year period ended October 31, 2003 and assets and shareholders’ equity as at October 31, 2003 and 2002 to the extent summarized in note 11 to the consolidated financial statements.
(Signed) KPMG LLP
Chartered Accountants
Calgary, Canada
December 5, 2003
CHARTWELL TECHNOLOGY INC.
Consolidated Balance Sheets
As at October 31
(stated in Canadian dollars)
|
| 2003 | 2002 |
|---|
|
| Assets | | | | | |
| | |
| Current assets: | |
| Cash | | $ 3,465,120 | | $ 1,704,267 | |
| Short term investments (note 8) | | 1,712,890 | | 3,181,494 | |
| Accounts receivable | | 1,991,725 | | 1,128,639 | |
| Deferred set-up expense | | -- | | 91,629 | |
| Prepaid expenses | | 148,699 | | 79,147 | |
|
| | | 7,318,434 | | 6,185,176 | |
| | |
| Due from related parties (note 6) | | 190,512 | | 162,565 | |
| | |
| Capital assets (note 2) | | 338,969 | | 268,374 | |
| | |
| Deferred software development costs (note 3) | | 530,948 | | 110,068 | |
| | |
| Future income tax asset (note 7) | | 520,000 | | -- | |
|
| | | $ 8,898,863 | | $ 6,726,183 | |
|
| Liabilities and Shareholders' Equity | |
| | |
| Current liabilities: | |
| Accounts payable and accrued liabilities | | $ 217,012 | | $ 169,154 | |
| Current portion of obligations under capital lease | | 5,956 | | 6,841 | |
| Deferred revenue | | 343,311 | | -- | |
|
| | | 566,279 | | 175,995 | |
| | |
| Obligations under capital lease | | 3,031 | | 8,987 | |
| | |
| Shareholders' equity: | |
| Share capital (note 4) | | 14,809,723 | | 14,632,223 | |
| Deficit | | (6,480,170 | ) | (8,091,022 | ) |
|
| | | 8,329,553 | | 6,541,201 | |
| | |
| Commitments (note 9) | |
|
| | | $ 8,898,863 | | $ 6,726,183 | |
|
See accompanying notes to consolidated financial statements.
On behalf of the Board:
Signed "Darold H. Parken" Director
Signed "Rod A. Ferguson" Director
CHARTWELL TECHNOLOGY INC.
Consolidated Statements of Operations and Deficit
Years ended October 31
(stated in Canadian dollars)
|
| 2003 | 2002 | 2001 |
|---|
|
| Revenue: | | | | | | | |
| Software license fees | | $ 6,300,335 | | $ 2,646,766 | | $ 908,876 | |
| Software set-up fees | | 943,395 | | 789,197 | | 1,928,696 | |
| Interest and other | | 109,411 | | 302,031 | | 394,782 | |
|
| | | 7,353,141 | | 3,737,994 | | 3,232,354 | |
| Expenses: | |
| Software development | | 3,272,353 | | 2,651,335 | | 2,013,601 | |
| General and administrative | | 1,947,372 | | 2,385,652 | | 2,059,697 | |
| Gain from extinguishment of debt (note 6) | | -- | | -- | | (242,512 | ) |
| Amortization of deferred software | |
| development costs | | 110,068 | | 110,076 | | 110,076 | |
| Depreciation and amortization | | 137,310 | | 108,008 | | 121,446 | |
| Foreign currency loss (gain) | | 795,186 | | (85,795 | ) | 6,013 | |
|
| | | 6,262,289 | | 5,169,276 | | 4,068,321 | |
|
| Net income (loss) before income taxes | | 1,090,852 | | (1,431,282 | ) | (835,967 | ) |
| |
| Income taxes: | |
| Future income tax recovery (note 7) | | (520,000 | ) | -- | | -- | |
|
| Net income (loss) | | 1,610,852 | | (1,431,282 | ) | (835,967 | ) |
| |
| Deficit, beginning of year | | (8,091,022 | ) | (6,659,740 | ) | (5,823,773 | ) |
|
| Deficit, end of year | | $(6,480,170 | ) | $(8,091,022 | ) | $(6,659,740 | ) |
|
| |
| Net income (loss) per share - basic and diluted | | $ 0.11 | | $ (0.11 | ) | $ (0.06 | ) |
|
See accompanying notes to consolidated financial statements.
CHARTWELL TECHNOLOGY INC.
Consolidated Statements of Cash Flows
Years ended October 31
(stated in Canadian dollars)
|
| 2003 | 2002 | 2001 |
|---|
|
| Cash provided by (used in): | | | | | | | |
| | |
| Operations: | |
| Net income (loss) | | $ 1,610,852 | | $(1,431,282 | ) | $ (835,967 | ) |
| Depreciation and amortization | | 137,310 | | 108,008 | | 121,446 | |
| Unrealized foreign exchange losses550,234 | | -- | | -- | |
| Amortization of deferred software | |
| development costs | | 110,068 | | 110,076 | | 110,076 | |
| Interest income capitalized | | (27,947 | ) | (11,570 | ) | -- | |
| Issue of shares as finders fee | | 25,000 | | -- | | -- | |
| Future income tax recovery | | (520,000 | ) | -- | | -- | |
| Write-down of long-term securities | | -- | | 42,882 | | -- | |
| Loss on disposal of capital assets- | | 24,258 | | -- | |
| | |
| Change in non-cash working capital: | |
| Accounts receivable | | (863,086 | ) | (79,598 | ) | (1,056,283 | ) |
| Deferred set-up expense | | 91,629 | | (91,629 | ) | -- | |
| Prepaid expenses | | (69,552 | ) | 720 | | (7,899 | ) |
| Accounts payable and accrued liabilities | | 47,858 | | 109,257 | | (725,645 | ) |
| Deferred revenue | | 343,311 | | -- | | (299,789 | ) |
|
| | | 449,840 | | (61,250 | ) | (2,089,616 | ) |
|
| | | 1,435,677 | | (1,218,878 | ) | (2,694,061 | ) |
| | |
| Financing: | |
| Issue of shares | | 152,500 | | 121,088 | | 92,500 | |
| Repayment of lease obligations | | (6,841 | ) | (10,286 | ) | (3,735 | ) |
|
| | | 145,659 | | 110,802 | | 88,765 | |
| | |
| Investing: | |
| Sale (purchase) of short term investments | | 1,468,604 | | 168,513 | | (3,350,007 | ) |
| Purchase of capital assets | | (207,905 | ) | (97,248 | ) | (97,093 | ) |
| Deferred software development costs | | (530,948 | ) | -- | | -- | |
|
| | | 729,751 | | 71,265 | | (3,447,100 | ) |
| | |
| Effect of foreign exchange rate changes on cash | | (550,234 | ) | -- | | -- | |
|
| Increase (decrease) in cash | | 1,760,853 | | (1,036,811 | ) | (6,052,396 | ) |
| | |
| Cash, beginning of year | | 1,704,267 | | 2,741,078 | | 8,793,474 | |
|
| Cash, end of year | | $ 3,465,120 | | $ 1,704,267 | | $ 2,741,078 | |
|
| | |
| Supplemental cash flow information: | |
| Cash interest received | | $ 101,464 | | $ 290,462 | | $ 393,709 | |
| Cash interest paid | | (1,955 | ) | (2,201 | ) | (3,409 | ) |
|
See accompanying notes to consolidated financial statements.
CHARTWELL TECHNOLOGY INC.
Notes to Consolidated Financial Statements
Years ended October 31, 2003, 2002 and 2001
(stated in Canadian dollars)
Chartwell Technology Inc. (the “Company”) is incorporated under the Business Corporations Act (Alberta). The Company specializes in the development of leading edge games and entertainment content for Internet and Intranet deployment. The Company’s software products and games are designed for use in gaming, entertainment, advertising and promotional applications.
| 1. | | Significant accounting policies: |
| | (a) | | Basis of presentation: |
| | The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Gateway Technology Inc. (“GTI”), a United States company, and Chartwell Games Corp. (“CGC”) (formerly Gaming Tech Corporation), a Belize company. GTI is a US incorporated company, which was acquired on November 1, 1998, and CGC was incorporated in Belize and commenced operations November 1, 1999. The accounting policies of the Company are in accordance with generally accepted accounting principles in Canada and Canadian dollars is the functional currency. Except for the information disclosed in note 11 there are no material differences between Canadian and United States generally accepted accounting principles in these consolidated financial statements. |
| | Capital assets are recorded at cost and amortization is provided for on a declining balance basis using the following rates: |
|
| Capital assets under lease | | 30 | % |
| Computer equipment | | 30 | % |
| Furniture and equipment | | 20 | % |
|
| | (c) | | Deferred software development costs: |
| | Research costs are expensed as incurred. Costs related to the development of software are expensed as incurred unless such costs meet the criteria for deferral and amortization under Canadian generally accepted accounting principles. The criteria include identifiable costs attributable to a clearly defined product, the establishment of technical feasibility, identification of a market for the software, the Company’s intent to market the software, and the existence of adequate resources to complete the project. In the year ended October 31, 2003, the Company has deferred $530,948 of software development costs which will be amortized over an estimated useful life of three years, commencing in the year when commercial sales of the products commence. In addition, the deferred purchase cost of previously acquired software has been fully amortized over its expected useful life of five years. Capitalized software development is evaluated in each reporting period to determine whether it continues to meet the criteria for continued deferral and amortization. |
CHARTWELL TECHNOLOGY INC.
Notes to Consolidated Financial Statements, Page 2
Years ended October 31, 2003, 2002 and 2001
(stated in Canadian dollars)
| 1. | | Significant accounting policies (continued): |
| | (d) | | Foreign currency translation: |
| | Accounts of foreign operations, all of which are considered financially and operationally integrated, are translated to Canadian dollars using average exchange rates for the year for revenue and expenses. Monetary assets and liabilities are translated at the year-end current exchange rate and non-monetary assets and liabilities are translated using historical rates of exchange. Gains or losses resulting from these translation adjustments are included in net income. |
| | Transactions in foreign currencies are translated at rates in effect at the time of the transaction. Monetary assets and liabilities are translated at current rates. Gains and losses are included in income. |
| | Revenue is recognized in accordance with the terms of the Company’s various licensing agreements. Software set-up fees, which require software customization, modification and integration, are recognized following the completed contract method. Licensing revenue, including revenue related to software maintenance and upgrades, is recognized on an accrual basis as earned over the life of the licensing agreement. |
| | Basic per share amounts are calculated using the weighted average number of shares outstanding during the year. Diluted per share amounts are calculated based on the treasury stock method, which assumes that any proceeds obtained on exercise of options would be used to purchase common shares at the average market price during the period. The weighted average number of shares outstanding is then adjusted by the net change. |
| | The Company follows the liability method of accounting for income taxes, whereby future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using substantively enacted tax rates expected to apply when the asset is realized or the liability settled. A valuation allowance is recorded against future income tax assets if it is more likely than not that all or a portion of the assets will not be realized. |
CHARTWELL TECHNOLOGY INC.
Notes to Consolidated Financial Statements, Page 3
Years ended October 31, 2003, 2002 and 2001
(stated in Canadian dollars)
| 1. | | Significant accounting policies (continued): |
| | (h) | | Stock-based compensation plan: |
| | Effective November 1, 2002, the Company adopted the Canadian standards for accounting for stock-based compensation and other stock-based payments. The new recommendations require equity instruments awarded to employees and the cost of the service received as consideration to be measured and recognized based on the fair value of the equity instruments issued. Compensation expense is recognized over the period of related employee service, usually the vesting period of the equity instrument awarded. In addition, the new standards require that equity instruments issued to non-employees be recorded at their fair value at the date of issue. The new recommendations permit the measurement of compensation expense for stock options granted to employees and directors that are not direct awards of stock, stock appreciation rights or otherwise call for settlement in cash or other assets by an alternative method and to provide pro forma disclosure of the financial results using the fair value method. |
| | The Company has elected to follow an alternative method of accounting for stock options awarded to employees and recognize no compensation expense when stock options are granted. |
| | The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Areas of significant estimate include the recoverability of deferred software development costs, amortization periods for capital assets and provision for doubtful accounts. Actual results could differ from management’s best estimates and underlying assumptions as additional information becomes available in the future. |
| | Certain comparative figures have been reclassified to conform with the current year financial statement presentation. |
CHARTWELL TECHNOLOGY INC.
Notes to Consolidated Financial Statements, Page 4
Years ended October 31, 2003, 2002 and 2001
(stated in Canadian dollars)
|
| 2003 | Cost | Accumulated
amortization | Net book
value |
|---|
|
| Capital assets under lease | | $ 47,005 | | $ 36,047 | | $ 10,958 | |
| Computer equipment | | 730,773 | | 447,361 | | 283,412 | |
| Furniture and equipment | | 89,558 | | 44,959 | | 44,599 | |
|
| | | $867,336 | | $528,367 | | $338,969 | |
|
| 2002 | | | |
|---|
|
| Capital assets under lease | | $ 47,005 | | $ 31,350 | | $ 15,655 | |
| Computer equipment | | 535,356 | | 325,898 | | 209,458 | |
| Furniture and equipment | | 77,070 | | 33,809 | | 43,261 | |
|
| | | $659,431 | | $391,057 | | $268,374 | |
|
| 3. | | Deferred software development costs: |
|
| 2003 | 2002 |
|---|
|
| Software development costs | | $ 1,055,097 | | $ 524,149 | |
| Less: accumulated amortization | | (524,149 | ) | (414,081 | ) |
|
| Net book value | | $ 530,948 | | $ 110,068 | |
|
CHARTWELL TECHNOLOGY INC.
Notes to Consolidated Financial Statements, Page 5
Years ended October 31, 2003, 2002 and 2001
(stated in Canadian dollars)
| | 100,000,000 common shares without par value |
|
| Number
of shares |
Amount |
|---|
|
| Balance, October 31, 2000 | | 15,550,501 | | $14,418,635 | |
| |
| Issued for cash on exercise of stock options | | 20,000 | | 20,000 | |
| Issued for cash on exercise of Warrants | | 58,000 | | 72,500 | |
|
| Balance, October 31, 2001 | | 15,628,501 | | 14,511,135 | |
| |
| Issued for cash on exercise of stock options | | 189,200 | | 121,088 | |
|
| Balance, October 31, 2002 | | 15,817,701 | | 14,632,223 | |
| |
| Issued for cash on exercise of stock options | | 145,000 | | 152,500 | |
| Issued as finders fee | | 25,000 | | 25,000 | |
|
| Balance, October 31, 2003 | | 15,987,701 | | $14,809,723 | |
|
| | 375,000 shares are held in escrow on behalf of the principals of the Company and are subject to the direction and determination of the regulatory authorities in the Province of British Columbia. |
| | 955,400 shares are held in escrow on behalf of the principals of the Company and others, and subject to the direction and determination of the regulatory authorities in the Province of Alberta. |
| | Pursuant to the Company’s acquisition of all of the issued shares of GTI, 1,000,000 shares were held in escrow and were realizable from time to time as one escrowed share for each $1.00 of cash flow generated by GTI subsequent to its acquisition by the Company. Shares remaining in escrow at October 31, 2003 were to be returned to the Company and cancelled. At October 31, 2003 application was made to the TSX Venture Exchange for release of 333,333 shares, in accordance with the terms of the escrow agreement. |
CHARTWELL TECHNOLOGY INC.
Notes to Consolidated Financial Statements, Page 6
Years ended October 31, 2003, 2002 and 2001
(stated in Canadian dollars)
| 4. | | Share capital (continued): |
| | The Company has a stock option plan for its directors, officers, employees and key consultants whereby an amount of options to a maximum of 3,110,100 shares may be granted subject to certain terms and conditions. Stock option vesting privileges are at the discretion of the Board. The exercise price for stock options granted is no less than the quoted market price on grant date.Changes in the number of options, with their weighted average exercise prices, are summarized below: |
|
| October 31,
2003 | October 31,
2002 | October 31,
2001 |
|---|
| Shares | Weighted
average
exercise
price | Shares | Weighted
average
exercise
price | Shares | Weighted
average
exercise
price |
|---|
|
| Outstanding, beginning | | | | | | | | | | | | | |
| of year | | 2,388,866 | | $1.21 | | 2,011,566 | | $1.15 | | 1,777,532 | | $1.02 | |
| Granted | | 503,900 | | 1.08 | | 426,400 | | 1.54 | | 579,100 | | 1.35 | |
| Exercised | | (145,000 | ) | 1.05 | | -- | | -- | | (209,200 | ) | 0.67 | |
| Forfeited | | (131,666 | ) | 1.38 | | (49,100 | ) | 1.80 | | (135,866 | ) | 1,03 | |
|
| Outstanding, end of | |
| year | | 2,616,100 | | $1.19 | | 2,388,866 | | $1.21 | | 2,011,566 | | $1.15 | |
|
| | On June 5, 2001 the Company re-priced certain employee stock options with original exercise prices ranging from $1.77 to $4.20, to a new exercise prices ranging from $1.06 to $1.17. |
| | The following table summarizes information about the stock options outstanding at October 31, 2003: |
|
| Options Outstanding | Options Exercisable |
|---|
Range of
exercise prices | Number | Weighted
average
remaining
contractual
life (years) | Weighted
average
exercise
price | Number | Weighted
average
exercise
price |
|---|
|
| $ 1.00-1.50 | | 2,123,600 | | 2.3 | | $1.07 | | 2,073,163 | | $1.08 | |
| 1.51-2.00 | | 442,500 | | 2.9 | | 1.67 | | 181,597 | | 1.65 | |
| 2.01-2.09 | | 50,000 | | 2.8 | | 2.09 | | 50,000 | | 2.09 | |
|
| $ 1.00-2.09 | | 2,616,100 | | 2.4 | | $1.19 | | 2,304,760 | | $1.15 | |
|
| | The weighted average grant date fair value of stock options granted during the year was $0.78. |
CHARTWELL TECHNOLOGY INC.
Notes to Consolidated Financial Statements, Page 7
Years ended October 31, 2003, 2002 and 2001
(stated in Canadian dollars)
| 4. | | Share capital (continued): |
| | The weighted average number of shares outstanding for the year was 14,504,036 (2002 – 13,485,109; 2001 – 13,286,063). Diluted shares of 14,748,159 for 2003 reflect the dilutive effect of the exercise of the options outstanding. Diluted loss per share was not disclosed separately in 2002 and 2001 as the exercise of options outstanding would have had an anti-dilutive effect on net loss per share. Contingently returnable and issuable shares held in escrow have been excluded from the calculations. |
| 5. | | Stock-based compensation: |
| | The Company has calculated the fair value of stock options granted in 2003 to employees, directors, and officers using the Black Scholes option pricing model, assuming a dividend yield of 0%, a risk-free interest rate of 4%, volatility of 99%, and an expected option life of 5 years. Had compensation expense been determined based on the fair value of the 2003 employee stock option awards at the grant dates, the Company’s net income and loss per share for 2003 would have been changed to the following pro forma amounts: |
|
| As reported | Pro Forma |
|---|
|
| Net income | | $ 1,610,852 | | $ 1,534,321 | |
|
| Net income per share: | |
| Basic | | $ 0.11 | | $ 0.11 | |
| Diluted | | $ 0.11 | | $ 0.10 | |
|
| 6. | | Related party transactions: |
| | For the year ended October 31, 2003, the Company incurred legal fees of $60,000 (2002 — $60,000; 2001 — $60,000) and consulting fees of $165,000 (2002 — $165,000; 2001 — $162,000) to various directors of the Company in the normal course of business. These transactions were measured at the exchange amount and recorded in general and administrative expenses. |
| | Amounts due from related parties of $190,512 consist of amounts due from Company officers, directors and employees. Of these amounts, $49,907 is non-interest bearing, unsecured and with no set terms of repayment. The remaining $140,605 bears 6% interest, is secured by 189,200 common shares of the Company and has no set terms of repayment. |
| | In 2001, the Company determined that $242,512 of liabilities, which were recognized upon the acquisition of the issued and outstanding shares of GTI, were no longer payable, and therefore these amounts have been recognized as income in the 2001 year. |
CHARTWELL TECHNOLOGY INC.
Notes to Consolidated Financial Statements, Page 8
Years ended October 31, 2003, 2002 and 2001
(stated in Canadian dollars)
| | Income tax recovery differs from the amount that would be computed by applying the basic combined Canadian federal and provincial statutory income tax rate to the net loss for the year. The reasons for the differences are as follows: |
|
| 2003 | 2002 | 2001 |
|---|
|
| Net income (loss) before income taxes | | $ 1,090,852 | | $(1,431,282 | ) | $(835,967 | ) |
|
| Combined Canadian federal and provincial | |
| statutory rate | | 37.2 | % | 39.7 | % | 42.6 | % |
| | |
| Computed provision (recovery) | | $ 405,797 | | $ (568,219 | ) | $(356,121 | ) |
| Non-tax-based amortization | | 40,945 | | 43,653 | | 44,605 | |
| Difference in foreign tax rates | | (2,358,077 | ) | (956,101 | ) | (762,816 | ) |
| Foreign accrual property income | | 2,358,077 | | 1,034,320 | | 741,800 | |
| (Realization) benefit of future tax assets | |
| not recognized | | (457,648 | ) | 438,060 | | 321,978 | |
| Non deductible expenses | | 10,906 | | 8,287 | | 10,554 | |
| Reduction of valuation allowance | | (520,000 | ) | -- | | -- | |
|
| Actual recovery | | $ (520,000 | ) | $ -- | | $ -- | |
|
| | The adjustment in respect of differences in foreign tax rates includes amounts arising from the differences in taxable income in the various jurisdictions in which the Company operates. |
| | The components of the Company’s net future income tax asset at October 31, 2003 and 2002 are as follows: |
|
| 2003 | Canada | United States | Total |
|---|
|
| Non-capital/net operating losses | | $ 64,930 | | $ 20,995 | | $ 85,925 | |
| Capital assets | | 81,337 | | -- | | 81,337 | |
| Share issue costs | | 57,140 | | -- | | 57,140 | |
| Resource deductions | | 78,039 | | -- | | 78,039 | |
| Deferred development costs | | 1,284,846 | | -- | | 1,284,846 | |
|
| | | 1,566,292 | | 20,995 | | 1,587,287 | |
| |
| Less: valuation allowance | | 1,046,292 | | 20,995 | | 1,067,287 | |
|
| | | $ 520,000 | | $ -- | | $ 520,000 | |
|
CHARTWELL TECHNOLOGY INC.
Notes to Consolidated Financial Statements, Page 9
Years ended October 31, 2003, 2002 and 2001
(stated in Canadian dollars)
| 7. | | Income taxes (continued): |
|
| 2002 | Canada | United States | Total |
|---|
|
| Non-capital/net operating losses | | $1,200,628 | | $ 24,823 | | $1,225,451 | |
| Capital assets | | 116,966 | | -- | | 116,966 | |
| Share issue costs | | 120,340 | | -- | | 120,340 | |
| Resource deductions | | 87,963 | | -- | | 87,963 | |
| Deferred development costs | | 449,460 | | -- | | 449,460 | |
|
| | | 1,975,357 | | 24,823 | | 2,000,180 | |
| Less: valuation allowance | | 1,975,357 | | 24,823 | | 2,000,180 | |
|
| | | $ -- | | $ -- | | $ -- | |
|
| | At October 31, 2003, the Company has non-capital loss carry-forwards for Canadian income tax purposes of approximately $187,550 (2002 – $1,377,491) available for deduction against future years’ taxable income. These losses expire in 2008. The Company also has $3,700,719 of unused deferred development costs which may be carried forward indefinitely. |
| | In addition, the Company has net operating losses carry-forward for United States income tax purposes of approximately $61,750 (2002 – $73,008) available for deduction against future year’s taxable income. These losses expire between 2018 and 2019. |
| 8. | | Financial instruments: |
| | The Company’s financial instruments consist of cash, short term investments, accounts receivable, amounts due from related parties, accounts payable and accrued liabilities and capital lease obligations. The fair value of these financial instruments approximate their carrying values. It is management’s opinion that the Company is not exposed to significant interest and or credit risk. The Company’s credit risk lies in its accounts receivable where the balance is due from a small number of customers. The Company’s short term investments consist of investments in low risk, fixed interest, corporate and government bonds. A substantial portion of the Company’s revenue is exposed to currency fluctuations. |
CHARTWELL TECHNOLOGY INC.
Notes to Consolidated Financial Statements, Page 10
Years ended October 31, 2003, 2002 and 2001
(stated in Canadian dollars)
| | Future minimum annual payments under operating leases are as follows: |
|
| 2004 | | $338,326 | |
| 2005 | | 385,977 | |
| 2006 | | 282,782 | |
| 2007 | | 283,480 | |
| 2008 | | 283,620 | |
| Thereafter | | 25,203 | |
|
| 10. | | Segmented information: |
| | The Company has aggregated its Canadian and Belize operating segments into one reporting segment as management has determined that the nature of the operations in each segment meets the aggregation criteria specified by the CICA. The Company’s software set-up and license fees are from domestic and foreign entities and originate from the following countries of operation: |
|
| 2003 | Canada | Belize | Total |
|---|
|
| Software set-up fees | | $ -- | | $ 943,395 | | $ 943,395 | |
| Software license fees | | $ 227,538 | | $6,072,797 | | $6,300,335 | |
| Total assets | | $7,621,838 | | $1,277,025 | | $8,898,863 | |
|
|
| 2002 | | | |
|---|
|
| Software set-up fees | | $ 47,529 | | $ 741,668 | | $ 789,197 | |
| Software license fees | | $ 231,071 | | $2,415,695 | | $2,646,766 | |
| Total assets | | $4,660,842 | | $2,065,341 | | $6,726,183 | |
|
|
| 2001 | | | |
|---|
|
| Software set-up fees | | $212,361 | | $1,716,335 | | $1,928,696 | |
| Software license fees | | $ 67,022 | | $ 841,854 | | $ 908,876 | |
|
| | During the year ended October 31, 2003, 4 licensees (2002 – 3; 2001 – 5), each of which provided more than 10% of the Company’s total sales revenue, accounted for 72.6% (2002 – 68.5%; 2001 – 54.9%) of the Company’s 2003 total set-up fee and license revenue. |
CHARTWELL TECHNOLOGY INC.
Notes to Consolidated Financial Statements, Page 11
Years ended October 31, 2003, 2002 and 2001
(stated in Canadian dollars)
| 11. | | Differences in generally accepted accounting principles between Canada and the United States: |
| | The financial statements have been prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”). Any differences in United States generally accepted accounting principles (“U.S. GAAP”) as they pertain to the Company’s financial statements are not material except as follows: |
| | (a) | | Reconciliation of Canadian GAAP to U.S. GAAP net income (loss): |
| | The effect on the net income (loss) for each of the years in the three year period ended October 31, 2003 of the differences between Canadian GAAP and U.S. GAAP is summarized as follows: |
|
| Years ended October 31, |
|---|
| 2003 | 2002 | 2001 |
|---|
|
| Net income (loss) from continuing operations | | | | | | | |
| for the year as reported in | |
| accordance with Canadian GAAP | | $ 1,610,852 | | $(1,431,282 | ) | $ (835,967 | ) |
| Repricing of stock options | | (228,900 | ) | 95,820 | | (702,660 | ) |
| Software development costs | | (530,948 | ) | -- | | -- | |
| Stock based compensation expense: | |
| APB 25 | | -- | | (7,981 | ) | (37,580 | ) |
| FAS 123 | | -- | | (105,119 | ) | (94,870 | ) |
|
| Net income (loss) - U.S. GAAP | | 851,004 | | (1,448,562 | ) | (1,671,077 | ) |
| Deficit, beginning of year - U.S. GAAP | | (9,275,469 | ) | (7,826,907 | ) | (6,155,830 | ) |
|
| Deficit, end of year - U.S. GAAP | | $(8,424,465 | ) | $(9,275,469 | ) | $(7,826,907 | ) |
|
| Net income (loss) per share - basic and diluted | | $ 0.06 | | $ (0.11 | ) | $ (0.13 | ) |
|
| | For U.S. GAAP purposes, the amounts of interest income would not be included in the subtotal of revenue. |
CHARTWELL TECHNOLOGY INC.
Notes to Consolidated Financial Statements, Page 12
Years ended October 31, 2003, 2002 and 2001
(stated in Canadian dollars)
11. Differences in generally accepted accounting principles between Canada and the United States (continued):
(a) Reconciliation of Canadian GAAP to U.S. GAAP net income (loss) (continued):
The components of comprehensive income are as follows:
|
| 2003 | 2002 | 2001 |
|---|
|
| Net income (loss) - U.S. GAAP | | $ 851,004 | | $(1,448,562 | ) | $(1,671,077 | ) |
| Other comprehensive (loss) income: | |
| Change in fair value of available | |
| for sale long-term securities | | (1,365 | ) | (85,426 | ) | 27,625 | |
|
| Comprehensive income (loss) | | $ 849,639 | | $(1,533,988 | ) | $(1,643,452 | ) |
|
| | Balance sheet items which vary in conformity with U.S. GAAP and SEC requirements: |
|
| 2003 | 2002 |
|---|
|
| Assets: | | | | | |
| Available for sale long-term securities | | $ -- | | $ 1,365 | |
| Deferred software development costs | | -- | | -- | |
|
| | | $ -- | | $ 1,365 | |
|
| Shareholders' equity: | |
| Accumulated other comprehensive income | | $ (59,166 | ) | $ (57,801 | ) |
| Deficit | | (8,424,465 | ) | (9,275,469 | ) |
|
| | | $(8,483,631 | ) | $(9,333,270 | ) |
|
| | There are no variations between the amounts of liabilities and those amounts measured using U.S. GAAP. |
| | Accumulated other comprehensive income at October 31, 2002 has been restated to correct an error of $27,625. |
CHARTWELL TECHNOLOGY INC.
Notes to Consolidated Financial Statements, Page 13
Years ended October 31, 2003, 2002 and 2001
(stated in Canadian dollars)
| 11. | | Differences in generally accepted accounting principles between Canada and the United States (continued): |
| | (b) | | Stock based compensation: |
| | The Company applies the intrinsic value-based method of accounting prescribed by Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees”, and related interpretations, in accounting for its stock options issued to employees, directors and officers of the Company for purposes of reconciliation to U.S. GAAP. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. SFAS No. 123, “Accounting for Stock-Based Compensation”, established accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, the Company has elected to continue to apply the intrinsic value-based method of accounting described above and has adopted the disclosure requirements of SFAS No. 123. Stock options issued to consultants and other third parties are accounted for at their fair values in accordance with SFAS No. 123. During 2003, there were no options granted to consultants or other third parties. |
| | With the exception of 100,000 options granted to a consultant in the year ended October 31, 2002 and 50,000 options granted to a consultant in the year ended October 31, 2001, all options granted to date have been fixed and granted to employees, directors and officers of the Company. There was $nil (2002 – $105,119; 2001 — $94,870) charged to income for those options in 2003. |
| | The Company has calculated the fair value of stock options granted to employees, directors and officers under the minimum valued method using the Black Scholes option pricing model with the following weighted-average assumptions: |
|
| 2003 | 2002 | 2001 |
|---|
|
| Risk free interest rate | | 4 | % | 5 | % | 6 | % |
| Volatility | | 99 | % | 72 | % | 100 | % |
| Expected option life (in years) | | 5 | | 5 | | 5 | |
| Dividend yield | | 0 | % | 0 | % | 0 | % |
|
CHARTWELL TECHNOLOGY INC.
Notes to Consolidated Financial Statements, Page 14
Years ended October 31, 2003, 2002 and 2001
(stated in Canadian dollars)
| 11. | | Differences in generally accepted accounting principles between Canada and the United States (continued): |
| | (b) | | Stock based compensation (continued): |
| | Had the Company determined compensation costs based on the fair value at the date of grant for its stock options under SFAS 123, net earnings in accordance with US GAAP would have been as reported in the following table. The Company has not recognized in income any amount under SFAS 123 for stock-based employee compensation expense. These pro forma earnings reflect compensation cost amortized over the vesting periods of the options. |
|
| Years ended October 31, |
|---|
| 2003
| 2002
(revised) | 2001
(revised) |
|---|
|
| Net income (loss) - U.S. GAAP: | | | | | | | |
| As reported | | $ 851,004 | | $ (1,448,562 | ) | $ (1,671,077 | ) |
| Pro forma (revised) | | 865,651 | | (1,848,151 | ) | (1,417,313 | ) |
|
| Net income (loss) per share - | |
| basic and diluted: | |
| As reported | | $ 0.06 | | $ (0.11 | ) | $ (0.13 | ) |
| Pro forma (revised) | | $ 0.06 | | $ (0.14 | ) | $ (0.11 | ) |
|
| | Previously reported pro forma amounts of $(1,683,131) for 2002 and $(1,889,073) for 2001, and pro forma net loss per share of $ (.12) and $ (.14) for those years respectively, have been revised to correct calculation errors in the prior years. |
| | (c) | | Additional disclosures under U.S. GAAP: |
| | | (i) | | The Company follows SFAS 130 regarding comprehensive income for purposes of reconciliation to U.S. GAAP. Under U.S. GAAP, items defined as other comprehensive income are separately classified in the financial statements and the accumulated balance of other comprehensive income (loss) is reported separately in shareholders’ equity on the balance sheet. For the three years ended October 31, 2003 there are no items classified as other comprehensive income, with the exception of a change in the fair value of available for sale securities of $(1,365)for the year ended October 31, 2003 (2002 – $(85,426); 2001 — $27,625). |
| | | (ii) | | The 1,663,733 common shares held in escrow for the year ended October 31, 2003 (2002 – 2,330,400 and 2001 – 2,330,400) have not been included in the calculation of basic or diluted earnings per share as doing so would be anti-dilutive. |
CHARTWELL TECHNOLOGY INC.
Notes to Consolidated Financial Statements, Page 14
Years ended October 31, 2003, 2002 and 2001
(stated in Canadian dollars)
| 11. | | Differences in generally accepted accounting principles between Canada and the United States (continued): |
| | (c) | | Additional disclosures under U.S. GAAP (continued): |
| | | (iii) | | As disclosed in note 4(c) to the consolidated financial statements, in 2001 certain stock options were repriced. In accordance with the intrinsic value method of accounting for stock options, an expense of $702,660 was recognized in the year of repricing. In fiscal 2003 and 2002 these stock options have been accounted for using variable price accounting, resulting in an expense of $228,900 in 2003 and an expense reduction of $95,820 in 2002. |
| | | (iv) | | Under U.S. GAAP, deferred software development costs are accounted for under SFAS 86, Accounting for Costs of Computer Software to be Sold, Leased or Otherwise Marketed, which requires the expensing of all amounts incurred to the date of technical feasibility. Under Canadian GAAP, these amounts have been capitalized as they meet all of the required criteria. |
