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: September 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 —
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.
| October 5, 2004 | signed"Don Gleason" Don Gleason, CFO |
2
[COMPANY LOGO]
CHARTWELL TECHNOLOGY, INC.
PRESS RELEASE
CHARTWELL ANNOUNCES STRONG THIRD QUARTER PERFORMANCE -
Revenue growth of 83%, Earnings of $1,210K and
Net Income of $0.07 per diluted share -
Chartwell Technology Inc. TSX: CWH
Calgary, Canada, September 30, 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
third quarter ended July 31, 2004, and accounting policy change.
Highlights of the quarter included:
o Revenue of $3,598K compared with $1,966K during the same period in
fiscal 2003;
o Net earnings of $1,210K or $0.07 per diluted share compared with net
earnings of $ 213K or $0.02 per diluted share during the same period
in fiscal 2003;
o Cash flow from operations of $1,411K compared with $ 308K during the
same period in 2003;
o Working capital of $9,708K,
o Retroactive change in revenue recognition policy
"Solid revenue and earnings performance continued in the third quarter and we
remain on track to achieve our financial objectives for 2004", states Don
Gleason, Chief Financial Officer. "Our license fee revenue continues to grow at
planned levels and prudent and effective cost management have enabled the
Company to increase operating margins and net earnings. For the remainder of
2004 we will continue to focus on profitability, expanding our customer base and
product portfolio".
THREE MONTHS ENDED JULY 31, 2004
All amounts for comparative periods below are as restated.
Compared to the same period of 2003, revenue increased 83%, operating income
increased 266%, earnings increased 466% and earnings per diluted share increased
250%.
Total revenue increased to $3,598K from $1,966K in the comparative quarter in
2003. Although software set-up revenues are below last year's level, recurring
license fee revenue continues to show sequential quarterly growth. License fees
increased by 26% to $3,392K over the previous quarter and by 100% over the
comparable quarter of 2003.
Operating expenses increased to $2,079K from $1,024K in the comparative quarter
of 2003. Overall, operating expenses as a percentage of total revenue have
decreased to 57.7% of total revenue compared to 78.9% in the third quarter of
2003. Planned headcount additions in the software development and support
organizations and investments in building the Poker Community have increased
software development costs by 13.3% to $1,172K compared to $1,024K in the
comparative quarter of 2003. Software development accounted for 56% of the
Company's costs in the third quarter of 2004 compared to 52% in the comparable
quarter of 2003. Sales, general and administrative expenses increased by 62% to
$764K compared to $473K in the comparable quarter of 2003. The increase is
partially attributable to investments made in sales and marketing including the
London office.
Despite planned increases in costs associated with investing in the Company's
growth, income from operations increased to $1,519K from $414K in the
comparative quarter of 2003.
For the three months ended July 31, 2004 the Company reported a foreign exchange
loss of $105K. The loss resulted from the revaluation of U.S. dollar monetary
assets, including outstanding accounts receivable. Net earnings increased to
$1,210K from $213K in the comparative quarter of 2003. Basic and diluted
earnings per share increased to $0.08 and $0.07 respectively from $0.02 in the
comparative quarter of 2003.
NINE MONTHS ENDED JULY 31, 2004 Compared to the same nine-month period of 2003, revenue increased 67%, operating income increased 211%, earnings increased 731% and earnings per diluted share increased 220%. Total revenue increased to $8,711K from $5,214K in the comparative nine-month period in 2003. License fees increased by 80% to $8,031K from $4,453K and software set-up fees decreased by 12% to $590K from $674K in the comparative nine-month period of 2003. Recurring license fees have consistently shown quarter over quarter growth in the last six quarters. Operating expenses increased to $5,924K from $4,321K in the comparative nine-month period of 2003. As a percentage of total revenue, operating costs have decreased to 68% from 83% in the prior year. Software development and support costs increased by 10% to $3,180K from $2,883K and sales, general and administrative costs increased by 96% to $2,514K from $1,285K. Income from operations increased to $2,787K from $893K in the comparative nine-month period of 2003. For the nine months ended July 31, 2004 the Company reported a foreign currency gain of $15K compared to a loss of $586K in the comparative period of 2003. Net earnings increased to $2,560K from $308K in the comparative nine-month period of 2003. Basic and diluted earnings per share increased to $0.18 and $0.16 respectively from $0.05 in the comparative nine-month period of 2003. BALANCE SHEET Positive cash generation continued to strengthen the Company's balance sheet. At July 31, 2004, Chartwell had no debt, cash and short-term investments of $7,620K and $9,709K in working capital. Operating cash flow for the third quarter of 2004 was $1,411K compared to $308K in the same period of 2003. For the nine months ended July 31, 2004 operating cash flow was $2,431K compared to $517K in the same period of 2003. This year's operating cash flow has significantly increased due to the substantial increase in revenues and the corresponding increase in earnings. For the three months ended July 31, 2004 the Company generated proceeds of $139K from the exercise of stock options. There were no other financing activities. Cash used in investing to purchase capital assets was $273K. CHANGE IN REVENUE RECOGNITION POLICY The third quarter financial statements reflect a change in policy from the separate element to the contract method of accounting for revenue recognition. This change in policy has necessitated a restatement of financial results for the fiscal years ended October 31, 2003, 2002 and 2001 which will be completed over the next thirty days. The anticipated impact of the restatement is described below and the Company regards the change for the years ended October 31, 2002, 2003 and for the six months ended April 30, 2004 to be not adversely material to the financial statements. This accounting policy change will affect the timing of recognition of revenue and the allocation of that revenue and associated costs to reporting periods but will have no effect on the cumulative revenue or gross margin that the Company will realize from its software licensing contracts. In addition, the policy change does not impact the Company's past or present cash flow, future business plans or prospects or the Company's recurring revenue from ongoing license fees. These ongoing license fees represented 92% of revenue for the nine months ended July 31, 2004. The decision to change the accounting policy followed a recommendation from the Company's independent auditors, KPMG LLP, arising from an internal KPMG practice review. Prior to 2000, the Company followed the contract method of accounting for revenue recognition. During 2000, the Company appointed KPMG as auditors and adopted the separate element method of accounting for revenue recognition with the full concurrence of KPMG. Until this recent KPMG review, the Company and KPMG believed that the separate element method complied with generally accepted accounting principles. KPMG had satisfactorily completed their audit of the financial statements and had issued unqualified opinions for the years ended October 31, 2003, 2002 and 2001. Under the separate element accounting policy, the Company recognized revenue for non-refundable set-up and design services upon delivery and recognized ongoing software license fees when receivable, each as separate
elements. Under the new policy, contract accounting, all types of revenue are
recognized on the basis of the contract as a whole. This means that set-up and
design service revenue and costs are recognized ratably over the term of the
software license agreement, rather than when delivered or incurred.
Although a restatement of the prior three fiscal years has not yet been fully
completed and audited, the Company estimates that the effect on revenues, costs
and net income will approximate the following:
- ---------------------------------------------------------------------------------------------------
Six Months Ended
2001 2002 2003 April 30, 2004
- ---------------------------------------------------------------------------------------------------
Revenue
- ---------------------------------------------------------------------------------------------------
Old Policy 3,232,354 3,737,984 7,353,141 5,065,465
New Policy 2,157,648 3,845,347 7,329,638 5,113,470
Change (1,074,706) 107,363 (23,503) 48,005
% Change -33.25% +2.87% -0.32% +0.9%
Costs
Old Policy 4,068,321 5,169,276 6,262,289 3,796,973
New Policy 3,962,300 5,166,164 6,278,100 3,845,842
Change (106,021) (3,112) 15,811 48,489
% Change +2.60% -0.06% +0.25% +1.3%
Net Income
Old Policy (835,967) (1,431,292) 1,610,852 1,351,176
New Policy (1,804,652) (1,320,817) 1,571,538 1,350,312
Change (968,685) 110,475 (39,314) (864)
% Change -118% +7.72% -2.4% 0%
- ---------------------------------------------------------------------------------------------------
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 David Bajwa, Investor Relations
(877) 261-6619 or (403) 261-6619 (877) 669-4180 or (604) 669-4180
dgleason@chartwelltechnology.com 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
- ------------------------------------------------------------------------------------------------------
As at As at
July 31, October 31,
2004 2003
(unaudited) (unaudited
as restated)
- ------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 4,339,635 $ 3,465,120
Short term investments 3,279,581 1,712,890
Accounts receivable 2,259,864 2,073,231
Deferred set-up expense 25,526 47,452
Prepaid expenses & deposits 207,253 148,699
- ------------------------------------------------------------------------------------------------------
10,111,859 7,447,392
Due from related parties 176,780 190,512
Capital assets 733,584 338,969
Goodwill 811,666 -
Deferred software development costs 666,729 530,948
Deferred set-up expense 118,683 162,390
Future Income tax asset 304,215 520,000
- ------------------------------------------------------------------------------------------------------
$ 12,923,516 $ 9,190,211
- ------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 155,767 $ 217,012
Current portion of obligations under capital lease 15,428 5,956
Deferred revenue 232,143 535,072
- ------------------------------------------------------------------------------------------------------
403,338 758,040
Long-term deferred revenue 1,095,813 1,152,863
Obligations under capital lease 24,784 3,031
Shareholders' equity:
Share capital 16,372,814 14,809,723
Deficit (4,973,233) (7,533,446)
- ------------------------------------------------------------------------------------------------------
11,399,581 7,276,277
- ------------------------------------------------------------------------------------------------------
$ 12,923,516 $ 9,190,211
- ------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated interim financial statements.
CHARTWELL TECHNOLOGY INC.
Consolidated Statements of Income and Deficit
(unaudited)
- --------------------------------------------------------------------------------------------------------------------
Three months ended July 31 Nine months ended July 31
-------------------------------- -------------------------------
2004 2003 2004 2003
- --------------------------------------------------------------------------------------------------------------------
(As restated) (As restated)
Revenue:
Software set-up fees $ 184,168 $ 240,992 $ 589,611 $ 673,595
Software license fees 3,392,556 1,693,190 8,031,217 4,453,238
Interest and other 20,867 31,933 90,233 86,858
- --------------------------------------------------------------------------------------------------------------------
3,597,591 1,966,115 8,711,061 5,213,691
Expenses:
Software development and support 1,172,293 1,024,367 3,179,887 2,883,444
General and administrative 763,505 473,422 2,513,789 1,284,868
Depreciation and amortization 103,493 26,231 191,457 69,799
Amortization of deferred software
development costs 39,219 27,517 39,219 82,551
- --------------------------------------------------------------------------------------------------------------------
2,078,510 1,551,537 5,924,352 4,320,662
Income from operations 1,519,081 414,578 2,786,709 893,029
Foreign currency losses (gains) 104,905 201,043 (14,289) 585,458
Contracts acquired on acquisition - - 25,000 -
- --------------------------------------------------------------------------------------------------------------------
Net income before taxes 1,414,176 213,535 2,775,998 307,571
Income taxes:
Income tax expense 494,705 - 971,645 -
Future income tax recovery (290,430) - (755,860) -
- --------------------------------------------------------------------------------------------------------------------
204,275 - 215,785 -
Net income 1,209,901 213,535 2,560,213 307,571
Deficit, beginning of period (6,183,134) (7,996,986) (7,533,446) (8,091,022)
- --------------------------------------------------------------------------------------------------------------------
Deficit, end of period $ (4,973,233) $ (7,783,451) $ (4,973,233) $ (7,783,451)
- --------------------------------------------------------------------------------------------------------------------
Net earnings per share basic $ 0.08 $ 0.02 $ 0.18 $ 0.02
Net earnings per share diluted $ 0.07 $ 0.02 $ 0.16 $ 0.02
- --------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated interim financial statements.
Weighted-average number of shares - basic 14,524,388 13,512,301 14,039,076 13,501,037
Weighted-average number of shares - diluted 16,742,739 13,512,301 16,110,428 13,501,037
CHARTWELL TECHNOLOGY INC.
Consolidated Statements of Cash Flow
(unaudited)
- -------------------------------------------------------------------------------------------------------------------
Three months ended July 31, Nine months ended July 31,
-------------------------------- ------------------------------
2004 2003 2004 2003
- -------------------------------------------------------------------------------------------------------------------
Cash provided by (used in): (As restated) (As restated)
Operations:
Funds from operations:
Net income $ 1,209,901 $ 213,535 $ 2,560,213 $ 307,571
Depreciation and amortization 103,493 26,231 191,457 69,799
Unrealized foreign exchange losses 104,905 145,139 (14,289) 398,620
Interest income capitalized (2,181) (2,052) (6,268) (5,895)
Amortization of deferred software
development costs 39,219 27,517 39,219 82,551
Future income tax recovery 204,275 - 215,785 -
Contracts acquired on acquisition - - 25,000 -
Deferred set-up costs 64,769 34,378 65,633 142,050
- -------------------------------------------------------------------------------------------------------------------
1,724,381 444,748 3,076,750 994,696
Change in non-cash working capital:
Accounts receivable (6,321) (204,521) (186,633) (860,925)
Due from related parties - - 20,000 -
Prepaid expenses (2,424) 9,976 (58,554) (34,197)
Deferred revenue (128,349) (49,979) (359,979) 371,418
Accounts payable and accrued liabilities (176,038) 108,112 (61,245) 45,894
- -------------------------------------------------------------------------------------------------------------------
(313,132) (136,412) (646,411) (477,810)
- -------------------------------------------------------------------------------------------------------------------
1,411,249 308,336 2,430,339 516,886
Financing:
Issue of shares 138,821 - 726,425 25,000
Repayment of lease obligations (4,748) (1,746) 31,225 (5,019)
- -------------------------------------------------------------------------------------------------------------------
134,073 (1,746) 757,650 19,981
Investments:
Purchase of short term investments (16,773) (22,471) (1,566,691) 1,476,208
Purchase of capital assets (273,387) (155,282) (586,072) (193,205)
Deferred software development costs - - (175,000) -
- -------------------------------------------------------------------------------------------------------------------
(290,160) (177,753) (2,327,763) 1,283,003
Effect of foreign exchange rate changes
on cash and cash equivalents (104,905) (145,139) 14,289 (398,620)
- -------------------------------------------------------------------------------------------------------------------
(104,905) (145,139) 14,289 (398,620)
- -------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash 1,150,257 (16,302) 874,515 1,421,250
Cash, beginning of period 3,189,378 3,141,819 3,465,120 1,704,267
- -------------------------------------------------------------------------------------------------------------------
Cash, end of period $ 4,339,635 $ 3,125,517 $ 4,339,635 $ 3,125,517
- -------------------------------------------------------------------------------------------------------------------
Supplemental cash flow information:
Cash interest received $ 18,685 $ 29,881 $ 83,964 $ 80,963
Cash interest paid 391 454 1,514 1,578
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated interim financial statements.
CHARTWELL TECHNOLOGY INC.
Notes to Consolidated Interim Financial Statements
For the nine months ended July 31, 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.
1. Share capital:
As at July 31, 2004 and October 31, 2003 the Company had 15,904,476 and
15,987,701 common shares outstanding and 2,507,658 and 2,616,100 options to
acquire common shares respectively. The weighted average number of shares
outstanding for the quarter were 14,524,388. Diluted shares of 16,742,739
reflect the dilutive effect of the exercise of the options outstanding.
2. 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 July 31 Nine months ended July 31
-------------------------- -------------------------
2004 Canada Belize Total Canada Belize Total
----------------------------------------------------------------------------------------------------------------
Software set-up fees $ - $ 184,168 $ 184,168 $ - $ 589,611 $ 589,611
Software license fees $ 56,088 $3,336,468 $3,392,556 $ 168,395 7,862,822 8,031,217
----------------------------------------------------------------------------------------------------------------
2003 Canada Belize Total Canada Belize Total
----------------------------------------------------------------------------------------------------------------
Software set-up fees $ - $ 240,992 $ 240,992 $ - $ 673,595 $ 673,595
Software license fees $ 55,942 $1,637,248 $1,693,190 $ 174,020 $ 4,279,218 $4,453,238
----------------------------------------------------------------------------------------------------------------
3. 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 Nine months ended
July 31, 2004 July 31, 2004
------------------------- ------------------------
As reported Pro forma As reported Pro forma
Net income $1,209,900 $1,091,209 $ 2,560,213 $ 2,270,750
Earnings per share basic $ 0.08 $ 0.08 $ 0.18 $ 0.16
Earnings per share diluted $ 0.07 $ 0.07 $ 0.16 $ 0.14
4. Accounting Policy Change - Revenue Recognition
Subsequent to October 31, 2003 the Company revised its accounting policy
for the recognition of set-up fee revenue and related expenses. The
Company's contractual agreements with licensees provide for the provision
of graphics, web design and software implementation services and the
licensing of software and provision of software upgrades over the fixed
term of the contract. Set-up fees and related costs are recognized ratably
over the term of the contract. License fees are recognized on an accrual
basis as earned over the life of the contract. Prior to the revision in
policy, the Company recognized set-up fees, and related costs, for
implementation and integration services separately from license fees using
the completed contract method of accounting. This accounting change has
been adopted retroactively, resulting in the following changes to amounts
previously reported for the three and nine months ended July 31, 2003:
Three months ended July 31, 2003 As previously reported As restated Change
---------------------- ----------- ------
Set-up fee revenue $ 241,645 $ 240,992 ($653)
Total costs $ 1,751,816 $ 1,752,580 ($764)
Net income (loss) $ 214,952 $ 213,535 ($1,417)
Net income per share - basic $ 0.02 $ 0.02 $0.00
Deferred set-up expense $ 0 $ 208,847 $208,847
Deferred revenue $ 13,982 $ 1,692,540 $1,678,558
Deficit $ 7,375,594 $ 7,783,451 ($407,852)
Nine months ended July 31, 2003 As previously reported As restated Change
---------------------- ----------- ------
Set-up fee revenue $ 1,064,685 $ 673,595 ($391,050)
Total costs $ 4,889,313 $ 4,906,120 $16,807
Net income (loss) $ 715,428 $ 307,571 $407,857
Net income per share - basic $ 0.05 $ 0.02 ($0.03)
Deferred set-up expense $ 0 $ 208,847 $208,847
Deferred revenue $ 13,982 $ 1,692,540 $1,678,558
Deficit $ 7,375,594 $ 7,783,451 ($407,852)