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: June, 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
| Form 20-F | X | 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.
| Yes | No |
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.
| July 12, 2004 | signed"Don Gleason" Don Gleason, CFO |
2
PRESS RELEASE
CHARTWELL ANNOUNCES RECORD REVENUE AND CONTINUED
PROFITABILITY
— Revenue growth of 40%, Net Income of $0.05 per share —
| Chartwell Technology Inc. | TSX: CWH |
Calgary, Canada, June 17, 2004, Chartwell Technology Inc. (TSX:CWH) a leading provider of gaming software systems and entertainment content to the online and remote gaming industry, announces unaudited financial results for the second quarter ended April 30, 2004.
Highlights of the quarter included:
| • | Revenue of $2,725K compared with $1,946K during the same period in fiscal 2003; |
| • | Net earnings of $792K or $0.05 per diluted share compared with net earnings of $153K or $0.01 per diluted share during the same period in fiscal 2003; |
| • | Working capital of $8,369K compared to $6,587K during the same period in fiscal 2003; |
| • | The opening of our London based European sales, marketing and business development office; |
| • | Commenced trading on the Toronto Stock Exchange on May 3, 2004. |
“This has been a strong financial quarter for Chartwell, consistent with our financial objectives for 2004", states Don Gleason, Chief Financial Officer. “We achieved record revenues, posted our sixth consecutive quarter of profitability and increased our working capital and cash position while continuing to invest in key areas of our business. The establishment of our European operation in London, our rollout of new products and platforms and our strong balance sheet will enable us to carry this financial momentum through the remainder of fiscal 2004".
Three Months Ended April 30, 2004
Revenue and earnings momentum continued into the second quarter ended April 30, 2004. Compared to the same period of 2003, revenue increased 40%, operating income increased 31%, earnings increased 418% and earnings per share diluted increased 400%.
Total revenue increased to $2,725K from $1,946K in the comparative quarter in 2003. Recurring license fee revenue is continuing to show quarter over quarter growth with second quarter fees approximately 39% higher than the previous quarter. The large increase in revenue is due to continued growth within our traditional customer base and the revenue contribution of new licensees.
Income from operations increased to $706K from $537K in the comparative quarter of 2003.
Net earnings increased to $792K from $153K in the comparative quarter of 2003. Net earnings are positively influenced by the recognition of future tax assets which are used to minimize current tax expense. Basic and diluted earnings per share increased to $0.06 and $0.05 respectively from $0.01 in the comparative quarter of 2003.
Six Months Ended April 30, 2004
Compared to the same six month period of 2003, revenue increased 39%, operating income increased 43%, earnings increased 170% and earnings per share diluted increased 125%.
Total revenue increased to $5,065K from $3,638K in the comparative six month period in 2003. License fees increased by 68% to $4,639K from $2,760K in the comparative six month period of 2003. Recurring license fees have consistently shown quarter over quarter growth over the last 12 months.
Income from operations increased to $1,268K from $885K in the comparative six month period of 2003. The increase is due to a larger growth in revenue than in expenses.
Net earnings increased to $1,351K from $500K in the comparative six month period of 2003. Basic and diluted earnings per share increased to $0.10 and $0.09 respectively from $0.04 in the comparative six month period of 2003.
Balance Sheet
The Company continued to strengthen its balance sheet. At April 30, 2004, Chartwell had no debt, total cash (including short term investments) of $6,452K and $8,369K in working capital.
Operating cash flow for the second quarter of 2004 was $198K and was positive due to increased cash generated from earnings, which was partially offset by an increase in accounts receivable. Cash provided by financing was $510K and cash used in investing was $322K.
Business Initiatives
During the second quarter of 2004 the Company delivered on two significant business initiatives.
1. Established a European Corporate Presence.
In keeping with the Company’s European market focus, Chartwell opened an office in London, U.K. in March. The London office will enhance the Company’s sales, marketing and business development initiatives and will be responsible for increasing Chartwell’s corporate presence and expansion into the strategic European market.
2. TSX Listing
On May 3, 2004 Chartwell commenced trading its shares on the Toronto Stock Exchange and delisted its shares from the TSX Venture Exchange. The TSX listing will provide the Company with increased visibility and greater market recognition. Investor and customer interest in Chartwell continues to grow.
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. |
| Don Gleason, Chief Financial Officer (877) 261-6619 or (403) 261-6619 dgleason@chartwelltechnology.com | David Bajwa, Investor Relations (877) 669-4180 or (604) 669-4180 info@chartwelltechnology.com |
The Toronto Stock Exchange has not reviewed and 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.
CHARTWELL TECHNOLOGY INC.
Consolidated Balance Sheets (unaudited)
| As at April 30, 2004 (unaudited) | As at October 31, 2003 | ||||
|---|---|---|---|---|---|
| ASSETS | |||||
| Current assets: | |||||
| Cash and cash equivalents | $ 3,189,378 | $ 3,465,120 | |||
| Short term investments | 3,262,808 | 1,712,890 | |||
| Accounts receivable | 2,172,037 | 1,991,725 | |||
| Prepaid expenses & deposits | 204,829 | 148,699 | |||
| 8,829,052 | 7,318,434 | ||||
| Due from related parties | 174,599 | 190,512 | |||
| Capital assets | 563,690 | 338,969 | |||
| Goodwill (note 2) | 811,666 | -- | |||
| Deferred software development costs | 705,948 | 530,948 | |||
| Future Income tax asset | 508,490 | 520,000 | |||
| $ 11,593,445 | $ 8,898,863 | ||||
| LIABILITIES AND SHAREHOLDERS EQUITY | |||||
| Current liabilities: | |||||
| Accounts payable and accrued liabilities | $ 331,805 | $ 217,012 | |||
| Current portion of obligations under capital lease | 16,109 | 5,956 | |||
| Deferred revenue | 111,681 | 343,311 | |||
| 459,595 | 566,279 | ||||
| Obligations under capital lease | 28,851 | 3,031 | |||
| Shareholders' equity: | |||||
| Share capital | 16,233,993 | 14,809,723 | |||
| Deficit | (5,128,994 | ) | (6,480,170 | ) | |
| 11,104,999 | 8,329,553 | ||||
| $ 11,593,445 | $ 8,898,863 | ||||
See accompanying notes to consolidated interim financial statements.
CHARTWELL TECHNOLOGY INC.
Consolidated Statements of Income and Deficit
(unaudited)
| Three months ended April 30 | Six months ended April 30 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | 2004 | 2003 | ||||||
| Revenue: | |||||||||
| Software development fees | $ -- | $ 342,500 | $ 357,438 | $ 823,000 | |||||
| Software license fees | 2,699,462 | 1,576,740 | 4,638,661 | 2,760,048 | |||||
| Interest and other | 25,658 | 27,257 | 69,366 | 54,925 | |||||
| 2,725,120 | 1,946,497 | 5,065,465 | 3,637,973 | ||||||
| Expenses: | |||||||||
| Software development and support | 986,485 | 971,181 | 1,958,725 | 1,843,034 | |||||
| General and administrative | 979,179 | 388,245 | 1,750,284 | 811,446 | |||||
| Depreciation and amortization | 53,431 | 22,276 | 87,964 | 43,568 | |||||
| Amortization of deferred software | |||||||||
| development costs | -- | 27,517 | -- | 55,034 | |||||
| 2,019,095 | 1,409,219 | 3,796,973 | 2,753,082 | ||||||
| Income from operations | 706,025 | 537,278 | 1,268,492 | 884,891 | |||||
| Foreign currency losses (gains) | (77,764 | ) | 384,415 | (119,194 | ) | 384,415 | |||
| Contracts acquired on acquisition (note 2) | 25,000 | -- | 25,000 | -- | |||||
| Net income before taxes | 758,789 | 152,863 | 1,362,686 | 500,476 | |||||
| Income taxes: | |||||||||
| Income tax expense | 256,940 | -- | 476,940 | -- | |||||
| Future income tax recovery | (290,430 | ) | -- | (465,430 | ) | -- | |||
| (33,490 | ) | -- | 11,510 | -- | |||||
| Net income | 792,279 | 152,863 | 1,351,176 | 500,476 | |||||
| Deficit, beginning of period | (5,921,273 | ) | (7,743,409 | ) | (6,480,170 | ) | (8,091,022 | ) | |
| Deficit, end of period | $(5,128,994 | ) | $(7,590,546 | ) | $(5,128,994 | ) | $(7,590,546 | ) | |
| Net earnings per share basic | $ 0.06 | $ 0.01 | $ 0.10 | $ 0.04 | |||||
| Net earnings per share diluted | $ 0.05 | $ 0.01 | $ 0.09 | $ 0.04 | |||||
| See accompanying notes to consolidated interim financial statements. | |||||||||
| Weighted-average number of shares - basic | 13,920,417 | 13,503,593 | 13,793,753 | 13,495,312 | |||||
| Weighted-average number of shares - diluted | 15,607,694 | 13,503,593 | 15,481,030 | 13,495,312 | |||||
CHARTWELL TECHNOLOGY INC.
Consolidated Statements of Cash Flow
(unaudited)
| Three months ended April 30 | Six months ended April 30 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | 2004 | 2003 | ||||||
| Cash provided by (used in): | |||||||||
| Operations: | |||||||||
| Funds from operations: | |||||||||
| Net income | $ 792,279 | $ 152,863 | $ 1,351,176 | $ 500,476 | |||||
| Depreciation and amortization | 53,431 | 22,276 | 87,964 | 43,568 | |||||
| Unrealized foreign exchange losses | (77,764 | ) | 253,481 | (119,194 | ) | 253,481 | |||
| Interest income capitalized | (2,035 | ) | (1,902 | ) | (4,087 | ) | (3,843 | ) | |
| Amortization of deferred software | |||||||||
| development costs | -- | 27,517 | -- | 55,034 | |||||
| Future income tax recovery | (33,490 | ) | -- | 11,510 | -- | ||||
| Contracts acquired on acquisition | 25,000 | -- | 25,000 | -- | |||||
| Deferred set-up costs | -- | -- | -- | 91,629 | |||||
| 757,421 | 454,235 | 1,352,369 | 940,345 | ||||||
| Change in non-cash working capital: | |||||||||
| Accounts receivable | (532,916 | ) | (115,591 | ) | (180,312 | ) | (656,404 | ) | |
| Due from related parties | -- | -- | 20,000 | -- | |||||
| Prepaid expenses | (52,728 | ) | (8,798 | ) | (56,130 | ) | (44,173 | ) | |
| Deferred revenue | 3,339 | (40,254 | ) | (231,630 | ) | 31,000 | |||
| Accounts payable and accrued liabilities | 23,188 | (46,123 | ) | 114,793 | (62,218 | ) | |||
| (559,117 | ) | (210,766 | ) | (333,279 | ) | (731,795 | ) | ||
| 198,304 | 243,469 | 1,019,090 | 208,550 | ||||||
| Financing: | |||||||||
| Issue of shares | 472,244 | 25,000 | 587,604 | 25,000 | |||||
| Repayment of lease obligations | 37,875 | (1,672 | ) | 35,973 | (3,273 | ) | |||
| 510,119 | 23,328 | 623,577 | 21,727 | ||||||
| Investments: | |||||||||
| Purchase of short term investments | (19,605 | ) | 791,004 | (1,549,918 | ) | 1,498,679 | |||
| Purchase of capital assets | (127,250 | ) | (6,999 | ) | (312,685 | ) | (37,923 | ) | |
| Deferred software development costs | (175,000 | ) | -- | (175,000 | ) | -- | |||
| (321,855 | ) | 784,005 | (2,037,603 | ) | 1,460,756 | ||||
| Effect of foreign exchange rate changes | |||||||||
| on cash and cash equivalents | 77,764 | (253,481 | ) | 119,194 | (253,481 | ) | |||
| 77,764 | (253,481 | ) | 119,194 | (253,481 | ) | ||||
| Increase (decrease) in cash | 464,332 | 797,321 | (275,742 | ) | 1,437,552 | ||||
| Cash, beginning of period | 2,725,046 | 2,344,498 | 3,465,120 | 1,704,267 | |||||
| Cash, end of period | $ 3,189,378 | $ 3,141,819 | $ 3,189,378 | $ 3,141,819 | |||||
| Supplemental cash flow information: | |||||||||
| Cash interest received | $ 23,623 | $ 25,355 | $ 65,279 | $ 51,082 | |||||
| Cash interest paid | 826 | 527 | 1,123 | 1,124 | |||||
See accompanying notes to consolidated interim financial statements.
CHARTWELL TECHNOLOGY INC.
Notes to Consolidated Interim Financial Statements
For the six months ended April 30, 2004 (unaudited)
These consolidated interim financial statements of Chartwell Technology Inc. (the “Company”) have been prepared in accordance with Canadian generally accepted accounting principles for interim financial information. As the interim financial statements do not contain all of the disclosures required in annual financial statements, they should be read in conjunction with the audited consolidated financial statements for the year ended October 31, 2003. The interim financial statements follow the same accounting policies as the October 31, 2003 audited financial statements, except for the policy on goodwill as explained in note 2.
| 1. | Share capital: |
| As at April 30, 2004 and October 31, 2003 the Company had 16,477,901 and 15,987,701 common shares outstanding and 2,600,900 and 2,616,100 options to acquire common shares respectively. The weighted average number of shares outstanding for the quarter were 13,920,417. Diluted shares of 15,607,694 reflect the dilutive effect of the exercise of the options outstanding. |
| 2. | Release of Escrowed Shares |
| On November 1, 1998, the Company acquired all of the issued and outstanding shares of Gateway Technology Inc. (“GTI”) for consideration of 1,000,000 common shares. Under the terms of the purchase Agreement, the shares were placed in escrow and were releasable 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. The escrowed shares were considered contingent consideration and valued at $nil in the financial statements at November 1, 1998. |
| 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. On February 12, 2004, the Exchange provided approval for the release of the shares and on April 27, 2004 the shares were released from escrow. The release of the additional shares have been accounted for as an additional cost of the purchase of GTI, equal to the fair value of the shares on February 12, 2004 of $836,667. |
| The following is a summary of the initial purchase consideration and the allocation to the assets and liabilities aquired based on their fair values at the date of acquisition. |
| Cash | $ 68,285 | ||
| Software | $ 391,628 | ||
| Capital Assets | $ 229,839 | ||
| Net working capital deficiency | ($341,947 | ) | |
| Long Term Debt | ($297,805 | ) | |
| Net assets acquired | $ 50,000 | ||
| The additional consideration of $836,667 has been assigned to license contracts acquired, in the amount of $25,000 and the remaining $811,667 to goodwill. The contracts expired in 2001 and have been written off as a current period expense. |
| In conjunction with the release of shares and the allocation of their fair value, in part, to goodwill, the Company has adopted the following policy of accounting for goodwill. |
| Goodwill is the residual amount that results when the purchase price of an acquired business exceeds the sum of the amounts allocated to the assets acquired, less liabilities assumed, based on their fair values. Goodwill is allocated as of the date of the business combination to the Company’s reporting units that are expected to benefit from the synergies of the business combination. |
| Goodwill is not amortized and is tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test is carried out in two steps. In the first step, the carrying amount of the reporting unit is compared with its fair value. When the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not to be impaired and the second step of the impairment test is unnecessary. The second step is carried out when the carrying amount of a reporting unit exceeds it fair value, in which case the implied fair value of the reporting unit’s goodwill is compared with its carrying amount to measure the amount of the impairment loss, if any. The implied fair value of goodwill is determined in the same manner as the value of goodwill is determined in a business combination described in the preceding paragraph, using the fair value of the reporting unit as if it was the purchase price. When the carrying amount of reporting unit goodwill exceeds the implied fair value of the goodwill, an impairment loss is recongnized in an amount equal to the excess and is presented as a separate line item in the statement of earnings before extraordinary items and discontinued operations. |
| 3. | 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 Canadian Institute of Chartered Accountants. The Company’s software set-up and license fees are from domestic and foreign entities and originate from the following countries of operations: |
| Three months ended April 30 | Six months ended April 30 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 | Canada | Belize | Total | Canada | Belize | Total | |||||||
| Software set-up fees | $ -- | $ -- | $ -- | $ -- | $ 357,438 | $ 357,438 | |||||||
| Software license fees | $53,363 | $2,646,099 | $2,699,462 | 110,154 | 4,528,507 | 4,638,661 | |||||||
| Three months ended April 30 | Six months ended April 30 | ||||||||||||
| 2003 | Canada | Belize | Total | Canada | Belize | Total | |||||||
| Software set-up fees | $ -- | $ 342,500 | $ 342,500 | $ -- | $ 823,000 | $ 823,000 | |||||||
| Software license fees | $63,440 | $1,513,300 | $1,576,740 | $118,078 | $2,641,970 | $2,760,048 | |||||||
| 4. | Stock-based compensation |
| 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 Company has calculated the fair value of stock options granted to employees, directors, and officers using the Black Scholes option pricing model with a dividend yield of 0% and with the following weighted-average assumptions: Risk free interest rate-4%, Volatility-71%, Expected option life-5 years. Had compensation expense been determined based on the fair value of the employee stock option awards at the grant dates in accordance with the new recommendations, the Company’s net income and earnings per share would have been changed to the following pro forma amounts: |
| Three months ended April 30, 2004 | Six months ended April 30, 2004 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| As reported | Pro forma | As responded | Pro forma | ||||||
| Net income | $ 792,279 | $ 675,030 | $ 1,351,176 | $ 1,180,385 | |||||
| Earnings per share basic | $ 0.06 | $ 0.05 | $ 0.10 | $ 0.09 | |||||
| Earnings per share diluted | $ 0.05 | $ 0.04 | $ 0.09 | $ 0.08 | |||||