Mail Stop 4561
September 29, 2005
Don Gleason
Chief Financial Officer
Chartwell Technology, Inc.
Suite 400, 750 - 11th Street SW
Calgary, Alberta, Canada T2P 3N7
Re: Chartwell Technology, Inc.
Form 20-F: For the Year Ended October 31, 2004
Filed May 16, 2005
File No. 000-30456
Dear Mr. Gleason,
We have limited our review of your filing to those issues we
have addressed in our comments. Where indicated, we think you
should
revise your document in response to these comments. If you
disagree,
we will consider your explanation as to why our comments are
inapplicable or a revision is unnecessary. Please be as detailed
as
necessary in your explanation. In some of our comments, we may
ask
you to provide us with information so we may better understand
your
disclosure. After reviewing this information, we may raise
additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Form 20-F for the Year Ended October 31, 2004
Item 5. Operating and Financial Review and Prospects
Business Model, pages 21- 22
1. We note your statement that prior to the revision of your
revenue
recognition policy, set-up fees were recognized "using the
completed
contract method of accounting." We also note that in a press
release
dated September 30, 2004 (filed in Form 6-K on October 7, 2004)
that
the policy change was "from the separate element to the contract
method of accounting." Please clarify which accounting method was
previously followed for set-up fees and which method was adopted
in
2004. Address both the revenues and cost accounting for set-up
fees
and reference the authoritative accounting literature supporting
your
accounting in the context of both Canadian and US GAAP.
2. Your disclosure on page 22 states that as of "October 31, 2004
the
Company has $1.1 million of deferred set-up fees which will be
taken
into revenue over the next five years." Explain the basis for the
deferral of these fees and why such an extended period of time
lapses
before revenue recognition is complete when, according to your
disclosure on page 14, the initial term of your on-line game
license
is three years.
3. Please explain the nature of services provided in your set-up
fees. Explain how the set-up fees relate to each of the products
and
services you offer and whether set-up services are subject to
customer acceptance provisions that would impact the provision of
subsequent services. Describe the length of time and pattern of
service provided in set-up services and how that service relates
to
the initial term of your license arrangements.
4. We note your statement, in a September 30, 2004 press release,
that until the "recent KPMG review, the Company and KPMG believed
that the separate element method complied with generally accepted
accounting principles." Tell us if, as a result of the internal
KPMG
review, it was determined that the separate element method did not
comply with generally accepted accounting principles. In this
regard,
tell us how you considered whether this change represented the
correction of an error. Please provide us with any letter or
written
communication to and from KPMG and management, or the Audit
Committee, related to the Company`s revenue recognition policies
or
the internal KPMG review.
Results of Operations
Year Ended October 31, 2004 Compared to the Year Ended October 31,
2003, page 25
5. Part B of SEC Release 33-8350, Commission Guidance Regarding
Management`s Discussion and Analysis of Financial Condition and
Results of Operations, states that the purpose of MD&A is to
provide
readers information necessary to an understanding of a company`s
financial condition, changes in financial condition and results of
operations. The MD&A requirements are intended to satisfy three
principal objectives:
* to provide a narrative explanation of a company`s financial
statements that enables investors to see the company through the
eyes
of management;
* to enhance the overall financial disclosure and provide the
context
within which financial information should be analyzed; and
* to provide information about the quality of, and potential
variability of, a company`s earnings and cash flow, so that
investors
can ascertain the likelihood that past performance is indicative
of
future performance.
MD&A disclosures should avoid recitation of the financial
statements
in narrative form. MD&A should place an emphasis on analysis of
financial information; known material trends and uncertainties;
key
performance indicators, including non-financial indicators;
liquidity
and capital resources; and critical accounting estimates. For
example, your discussion of total revenue could be enhanced by
providing additional details about why revenue increased
significantly when the majority of your revenue has been generated
by
the same five customers in the past two years (i.e. why you
generated
more revenue from these five customers). Additionally, your
discussion of operating expenses should be expanded. You should
consider providing more detail about the types of costs included
in
each material income statement caption, how changes in those costs
impact current and future results and when various factors have
impacted results, quantify the impact of each material factor.
Tell us what consideration you gave to addressing each of the
foregoing MD&A matters in your current disclosures.
6. Tell us the extent to which the change in your revenue
recognition
policy impacted revenues in each of the periods presented and what
consideration you gave to disclosing the impact of the change in
your
discussion of Results of Operations.
Item 15. Controls and Procedures, page 57
7. We note your disclosure that "the Company`s disclosure controls
and procedures were adequate and effective to ensure that material
information relating to the Company and its consolidated
subsidiaries
would be made known to them by others within those entities".
Tell
us how your disclosure complies with the requirements of Item 307.
In this regard, it does not appear that your certifying officers
have
reached a conclusion that your disclosure controls and procedures
are
effective. In addition, your text suggests that the disclosure
controls and procedures that were evaluated were narrower than the
disclosure controls and procedures defined by paragraph (e) of
Rule
13a-15. Please advise.
8. We note your disclosure that "there were no significant changes
in
the Company`s internal controls." Tell us how your disclosure
complies with the requirements of Item 308(c) of Regulation S-K
that
requires that "any change" that "materially affected or was
reasonably likely to materially affect," your internal controls
over
financial reporting be disclosed.
Item 17. Financial Statements
Audit Opinion
9. We note that KPMG`s audit opinion does not make reference to
the
standards of the Public Company Accounting Oversight Board
(PCAOB).
Please revise to conform the opinion to PCAOB Auditing Standard
No. 1
(AS 1).
Notes to Consolidated Financial Statements
Note 1. Significant accounting policies
(e) Revenue recognition
10. Based on your disclosures in Note 11, there appear to be no
differences in Canadian and US GAAP related to your recognition of
revenue. Please address the following in the context of US GAAP
requirements:
a. Describe each of the services you offer in your arrangements
and
whether they are essential to the functionality of any other
element
of the arrangements. Tell us why your service offerings are not
accounted for separately or under contract accounting pursuant to
paragraphs 63-71 and 74-91 of SOP 97-2.
b. Explain the nature of the software upgrades that you offer to
your
licensees as disclosed on pages 15 and 20. Tell us if any
software
upgrade rights that are included in the initial license
arrangements
specify a version or upgrade with specific features and
functionality. Tell us if these rights include the roll-out of new
games noted on page 20. Tell us about your practice of providing
upgrades, specified or unspecified or additional software product
to
your installed customer base and how that practice is or is not
reflected in your contractual arrangements.
c. Explain how your accounting for arrangements that include
specified or unspecified upgrade rights or provision of additional
specified or unspecified software product complies with SOP 97-2.
d. Please clarify for us if you provide postcontract customer
support. If so, describe how you account for postcontract
customer
support and how your accounting and disclosure complies with SOP
97-
2.
e. Tell us how you determine the payment terms you offer your
customers and what you believe your normal and customary payment
terms are. Tell us how you recognize revenue on contracts that
involve extended payment terms. Refer to paragraphs 27 through 30
of
SOP 97-2 to support your accounting.
f. Refer to the description of the managed services solution
described on page 14. Tell us how revenue from such arrangements
is
recognized and clarify the extent to which the Company is the
primary
obligor of the services outsourced to Elite Club Management, N.V.
and
how your revenue recognition policy complies with EITF 99-19.
g. We note that license fees are accrued based on customer usage.
Tell us whether there is a lag between the recognition of revenue
and
when actual usage levels are reported by customers. If a lag
exists,
tell us whether there have been material differences between these
amounts
Note 11. Differences in Generally Accepted Accounting Principles
Between Canada and the United States
11. Tell us how you considered the provisions of SFAS No.109 in
your
reconciliation between Canadian and US GAAP. In this respect, we
note that there was no separate adjustment for taxes.
* * * * *
As appropriate, please amend your filing and respond to
these
comments within 10 business days or tell us when you will provide
us
with a response. Please submit all correspondence and
supplemental
materials on EDGAR as required by Rule 101 of Regulation S-T. You
may wish to provide us with marked copies of any amendment to
expedite our review. Please furnish a cover letter with any
amendment that keys your responses to our comments and provides
any
requested information. Detailed cover letters greatly facilitate
our
review. Please understand that we may have additional comments
after
reviewing any amendment and your responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that the
filing includes all information required under the Securities
Exchange Act of 1934 and that they have provided all information
investors require for an informed investment decision. Since the
company and its management are in possession of all facts relating
to
a company`s disclosure, they are responsible for the accuracy and
adequacy of the disclosures they have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filing;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comment on your filing.
You may contact Steve Williams at (202) 551-3478 or Tammy
Tangen at (202) 551-3443 if you have any questions regarding our
comments on the financial statements and related matters. Please
contact me at (202) 551-3730 with any other questions.
Sincerely,
Stephen Krikorian
Accounting Branch Chief
??
??
??
??
Don Gleason
Chartwell Technology, Inc.
September 29, 2005
Page 1