UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB/A
AMENDMENT NO. 1
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
April 30, 2002
Commission File Number 0-27395
CHARTWELL INTERNATIONAL, INC.
----------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Nevada 95-3979080
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
333 SOUTH ALLISON PARKWAY, SUITE 100, LAKEWOOD, CO 80226
--------------------------------------------------------
(Address of principal executive offices including zip code)
(303) 804-0100
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(Registrant's telephone number including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes /X/ No / /
Number of shares outstanding of Common Stock, $0.001 par value outstanding at
June 7, 2002: 60,389,179
(This Form 10-QSB/A includes 10 pages)
CHARTWELL INTERNATIONAL, INC.
FORM 10-QSB/A
AMENDMENT NO. 1
For the Quarterly Period Ended
April 30, 2002
INDEX
Page
----
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheet at April 30, 2002 3
Consolidated Statements of Operations for the Three and Nine Months
Ended April 30, 2002 and 2001 4
Consolidated Statements of Cash Flows for the Nine Months
Ended April 30, 2002 and 2001 5
Notes to Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 7
PART II. OTHER INFORMATION 10
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHARTWELL INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
As of April 30, 2002
April 30, 2002
ASSETS --------------
Current assets:
Cash $ 6,536
Trade credits 11,676
Accounts receivable 48,863
Receivables from related parties 99,019
Prepaids and other 1,512
------------
Total current assets 167,606
Investment in real estate 1,195,655
Mineral properties 2,014,800
Recruiting systems and publishing rights, net 1,219,368
Other assets, net 72,758
------------
Total assets $ 4,670,187
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank loan payable $ 8,000
Accounts payable and accrued liabilities 127,124
------------
Total current liabilities 135,124
Long-term debt:
Due to related parties 1,654,571
Other notes payable 600,000
Other long-term liablilities 93,000
------------
Total liabilities 2,482,695
------------
Stockholders' Equity:
Preferred Series B Stock (preferable in liquidation
to other classes of stock 300,000
Preferred Series A Stock (preferable to common
stock and equal to Preferred Series C stock
in liquidation) 600
Preferred Series C Stock (preferable to common
stock and equal to Preferred Series A stock
in liquidation) 506,120
Common stock; $.001 par value; 90,000,000
shares authorized; 60,389,179 shares issued 60,389
Additional paid-in capital 10,675,867
Accumulated deficit (9,348,599)
------------
2,194,377
Less, Treasury stock (68,850 shares) at cost (6,885)
------------
Total stockholders' equity 2,187,492
------------
Total liabilities and stockholders' equity $ 4,670,187
============
The accompanying notes are an integral part of the
consolidated financial statements.
3
CHARTWELL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED
April 30, 2002 AND 2001
Three Months Ended Nine Months Ended
April 30, April 30,
----------------------------- -----------------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Royalty and license fee revenue $ 37,500 $ 37,500 $ 112,500 $ 119,750
Operating expenses:
General and administrative 40,445 111,291 60,166 317,658
Depreciation and amortization 32,875 32,455 92,635 97,365
--------- --------- --------- ---------
Total operating expenses 73,320 143,746 152,801 415,023
--------- --------- --------- ---------
Operating (loss) (35,820) (106,246) (40,301) (295,273)
Other income (expense):
Gain on sales of stock -- -- 4,000 --
Interest (expense), net (57,318) (53,678) (161,000) (153,575)
Miscellaneous income(expense), net -- (9,318) -- 1,020
--------- --------- --------- ---------
Total other (expense), net (57,318) (62,996) (157,000) (152,555)
--------- --------- --------- ---------
Net (loss) $ (93,138) $(169,242) $(197,301) $(447,828)
========= ========= ========= =========
Basic and diluted (loss)
per share $ (0.00) $ (0.00) $ (0.00) $ (0.01)
========= ========= ========= =========
Weighted average common shares
(in thousands) 60,389 60,366 60,389 60,319
========= ========= ========= =========
The accompanying notes are an integral part of the
consolidated financial statements.
4
CHARTWELL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine-Month Periods Ended
------------------------
April 30, April 30,
2002 2001
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Cash Flows From Operating Activities:
Net loss $(197,301) $(447,828)
Adjustments to reconcile net loss to net cash
(used for) operating activities:
Depreciation and amortization 92,635 97,365
Services paid for by issuance of stock 4,000 5,583
Changes in assets and liabilities:
Trade credits (2,274) 15,496
Accounts receivable 5,874 --
Due from related parties 3,086 (3,202)
Prepaid and other assets (26,162) 81,948
Accounts payable and accruals (96,136) 98,628
Deferred compensation 63,000 --
Interest and other amounts due to
related parties 123,742 102,065
--------- ---------
Net cash (used for) operating activities (29,536) (49,945)
--------- ---------
Cash Flows From Investing Activities:
No Activity 0 0
--------- ---------
0 0
--------- ---------
Cash Flows From Financing Activities:
Proceeds from bank loan -- 8,000
Proceeds from borrowings from related parties 18,000 --
--------- ---------
Net cash provided by financing activities 18,000 8,000
--------- ---------
Net (decrease) in cash (11,536) (41,945)
Cash, beginning of period 18,072 47,016
--------- ---------
Cash, end of period $ 6,536 $ 5,071
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 54,000 $ 54,000
========= =========
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
No significant noncash investing or financing activities occurred during the
nine-month periods ended April 30, 2002 and 2001.
The accompanying notes are an integral part of the consolidated financial
statements.
5
CHARTWELL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - UNAUDITED INTERIM INFORMATION
Chartwell International, Inc. (the "Company") and its wholly-owned subsidiaries
prepare and report financial results using a fiscal year ending July 31. This
Form 10-QSB/A includes the consolidated financial statements of the Company and
its wholly-owned subsidiaries. The Company's consolidated financial statements
included in this Form 10-QSB/A for the interim periods ended April 30, 2002 and
2001, include all normal recurring adjustments which, in the opinion of the
Company, are necessary for a fair statement of the results of operations,
financial position, and cash flows as of the dates and for the periods
presented. The Company's operating results for the three and nine month periods
ended April 30, 2002 are not necessarily indicative of the results that may be
expected for the fiscal year ending July 31, 2002.
The Notes to Consolidated Financial Statements included in the Company's July
31, 2001 Form 10-KSB should be read in conjunction with these consolidated
financial statements.
Recent Pronouncements- In June 2001, the Financial Accounting Standards Board
("FASB") issued Statements of Financial Accounting Standards No. 141 "Business
Combinations" ("SFAS 141") and No. 142 "Goodwill and Other Intangible Assets"
("SFAS 142"). SFAS 141 requires all business combinations initiated after June
30, 2001 to be accounted for under the purchase method. For all business
combinations for which the date of acquisition is after June 30, 2001, SFAS 141
also establishes specific criteria for the recognition of intangible assets
separately from goodwill and requires unallocated negative goodwill to be
written off immediately as an extraordinary gain, rather than deferred and
amortized. SFAS 142 changes the accounting for goodwill and other intangible
assets after an acquisition. The most significant changes made by SFAS 142 are:
1) goodwill and intangible assets with indefinite lives will no longer be
amortized; 2) goodwill and intangible assets with indefinite lives must be
tested for impairment at least annually; and 3) the amortization period for
intangible assets with finite lives will no longer be limited to forty years.
The Company intends to adopt this standard in the first quarter of fiscal 2003.
The Company does not believe that the adoption of these statements will have a
material adverse effect on its financial position, results of operations or cash
flows.
In August 2001, the FASB also approved SFAS 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
The new accounting model for long-lived assets to be disposed of by sale applies
to all long-lived assets, including discontinued operations, and replaces the
provisions of APB Opinion No. 30, "Reporting Results of Operations-Reporting the
Effects of Disposal of Segment of a Business," for the disposal of segments of a
business. SFAS 144 requires that those long-lived assets be measured at the
lower of carrying amount or fair value less cost to sell, whether reported in
continuing operations or in discontinued operations. Therefore, discontinued
operations will no longer be measured at realizable value or include amounts for
operating losses that have not yet occurred. SFAS 144 also broadens the
reporting of discontinued operations to include all components of an entity with
operations that can be distinguished from the rest of the entity and that will
be eliminated from the ongoing operations of the entity in a disposal
transaction. The provisions of SFAS 144 are effective for financial statements
issued for fiscal years beginning after December 15, 2001 and, generally, are to
be applied prospectively. At this time, the Company cannot estimate the effect
of this statement on its financial position, results of operations or cash
flows.
6
NOTE 2 - PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Chartwell International, Inc., its wholly owned subsidiary, National College
Recruiting Association, Inc. (NCRA), and Chartwell's 26% owned entity College
Bound Student Alliance, Inc. (CBSA) (f/k/a SportsStar Marketing, Inc.), which is
accounted for by the equity method commencing August 1, 1998. Previously, CBSA
was a consolidated subsidiary. Intercompany accounts and transactions have been
eliminated.
NOTE 3 - MODIFICATIONS TO ARRANGEMENTS WITH CBSA
Effective August 1, 2000, the Company entered into a modification of its
arrangements with CBSA. Under the modified arrangement, CBSA pays to the Company
a minimum monthly license fee of $12,500 or, if greater, 1.5% of CBSA's revenues
up to $10,000,000 and 1% of annual revenues of CBSA in excess of $10,000,000.
The Company has agreed to defer payment by CBSA of $6,250 per month through July
31, 2001, of the minimum license fee depending on the cash flow circumstances of
CBSA.
The modified arrangements will exist for 12 years from August 1, 2000 or, if
earlier, until total payments to the Company have equaled $2,120,000 plus an
interest factor, at which point CBSA will not be required to make any more
license payments to the Company. As a result, the Company has reduced the
remaining useful lives of its recruiting systems and publishing rights to 12
years from August 1, 2000, and is amortizing the remaining net book values of
these assets over 12 years from that date. This change in useful life increased
amortization expense for the three and nine months ended April 30, 2001 by
$5,814 and $17,442, respectively.
NOTE 4 - SECURITIES AND EXCHANGE COMMISSION ("SEC") INQUIRY ON ACCOUNTING FOR
MINERAL PROPERTIES
The Company received an inquiry from the SEC Staff regarding the Company's
accounting for its mineral properties. The Company is currently discussing the
basis for the balance sheet carrying values of these assets with the SEC Staff.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OPERATIONS AND LIQUIDITY
At April 30, 2002, the Company's working capital ratio was 1.2 to 1 based on
current assets of $167,606 and current liabilities of $135,124. In addition to
the receivables included in the balance sheet, the Company has a note receivable
related to an advance to CBSA of $70,000, which the Company was required to
write off under the requirements of the equity method during the fiscal year
ended July 31, 2000. CBSA has been paying its obligations to the Company in
accordance with the stated terms and the Company expects that this $70,000 note
receivable will also be paid by CBSA. When this $70,000 is paid, the Company
will recognize income of $70,000.
In the statement of cash flows, net cash (used) in operations was $(29,536) 2002
and $(49,945) in 2001.
We believe we have sufficient cash flows and sources of funding to meet our
obligations over the foreseeable future.
7
Recovery of our investment in Recruiting Systems and Publishing Rights,
($1,219,368) is dependent on royalty payments received from College Bound
Student Alliance, Inc. (CBSA) in which we have a 26% ownership interest, and the
underlying value of the common stock investment in CBSA (market value of
approximately $1,050,000 at June 7, 2002). Our CEO, Dr. Janice A. Jones and
Senior Advisor, John J. Grace are officers of CBSA.
On August 1, 2000, Chartwell and CBSA agreed to a 50% deferral of the fiscal
year's royalty payments and the full royalty payment would be made beginning
August 1, 2001. CBSA has met its commitments in both fiscal 2001 and in fiscal
2002, and has prepaid $30,000 of the fiscal 2001 deferral.
During the first nine months of the fiscal year ending July 31, 2002 CBSA
reported a loss of $1,206,317 compared to $4,209,035 during the same nine months
of the prior fiscal year. Revenues increased approximately 112% during the
nine-month period from $3,856,426 for 2001 to $8,159,385 for 2002.
In the form 10-QSB for the fiscal quarter ended April 30, 2002, CBSA reported
(in the Liquidity Section of its Management's Discussion and Analysis of
Financial Conditions and Results of Operations) that it incurred significant
operating losses and deterioration in working capital as it revamped and
improved product lines and its marketing organization, consolidated the
operations of it's acquired companies and invested in expansion of its
operations and infrastructure. CBSA stated it believes these activities consumed
considerable focus and resulted in significant losses during the first three
quarters of fiscal 2001. A portion of these costs and operating deficits were
funded by a financing of its on and off-balance sheet customer contract
receivables.
CBSA has not produced positive cash flow from operations since its inception in
1997, except for the quarters ended October 31, 2000, and April 30, 2002, which
produced positive cash flow from operations of $43,606 and $263,213,
respectively. However, the negative operating cash flow has been funded
principally by the financing of contract receivables. In the first quarter ended
April 30, 2002, CBSA reported net income of $241,000 and positive cash flow from
operations of $263,000 and that it expects to report sustained profitability in
the foreseeable future. We estimate that CBSA cash flow from operations over the
next year will exceed $1,000,000 and that CBSA will be able to continue to meet
its obligations to us.
8
ANALYSIS OF STATEMENT OF OPERATIONS
Royalty and and license fee revenue of $112,500 and $119,750 in the nine month
periods ended April 30, 2002 and 2001, respectively, consisted primarily of the
minimum license fee of $12,500 per month payable by CBSA in both years. For the
three month periods ended April 30, 2002 and 2001, royalty and license fee
revenue of $37,500 in each year consisted entirely of the minimum license fee
from CBSA.
General and administrative expenses decreased from $317,658 to $60,166 for the
nine month periods ended April 30, 2001 and 2002, respectively and from $111,291
to $40,445 for the three month periods ended April 30, 2001 and 2002,
respectively. These decreases resulted from various factors, including lower
costs related to outside consultants, higher cost reimbursements from CBSA in
2002, and reductions of certain obligations as a result of renegotiations.
Depreciation and amortization expense decreased from $97,365 to $92,635 for the
nine month periods ended April 30, 2002 and 2001, as a result of several assets
becoming fully depreciated. For the three month periods ended April 30, 2001 and
2002, depreciation and amortization was approximately the same at $32,455 and
$32,875, respectively.
Interest expense increased from $153,575 to $161,000 for the nine month periods
ended April 30, 2002 and 2001, respectively, and from $53,678 to $57,318 for the
three month periods ended April 30, 2001 and 2002, respectively. The increases
resulted primarily from related party loans of $18,000 made to the Company in
the three month period ended October 31, 2001.
FORWARD LOOKING INFORMATION
From time to time, the Company or its representatives have made or may make
forward-looking statements, orally or in writing. Such forward-looking
statements may be included in, but not limited to, press releases, oral
statements made with the approval of an authorized executive officer or in
various filings made by the Company with the Securities and Exchange Commission.
Words or phrases "will likely result", "are expected to", "will continue", "is
anticipated", "estimate", "project or projected", or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 (the "Reform Act"). The Company
wishes to ensure that such statements are accompanied by meaningful cautionary
statements, so as to maximize to the fullest extent possible the protections of
the safe harbor established in the Reform Act. Accordingly, such statements are
qualified in their entirety by reference to and are accompanied by the following
discussion of certain important factors that could cause actual results to
differ materially from such forward-looking statements.
9
Management is currently unaware of any trends or conditions that could have a
material adverse effect on the Company's consolidated financial position, future
results of operations, or liquidity.
However, investors should also be aware of factors that could have a negative
impact on the Company's prospects and the consistency of progress in the areas
of revenue generation, liquidity, and generation of capital resources. These
include: (i) variations in the mix of corporate trading and trade exchange
revenue, (ii) possible inability of the Company to attract investors for its
equity securities or otherwise raise adequate funds from any source, (iii)
increased governmental regulation of the barter business, (iv) a decrease in the
cash fees and commissions realized by the Company based upon a substantial
decrease in corporate or retail trade exchange transactions, and (v) unfavorable
outcomes to litigation to which the Company may become a party in the future.
The risks identified here are not all inclusive. Furthermore, reference is also
made to other sections of this report that include additional factors that could
adversely impact the Company's business and financial performance. Moreover, the
Company operates in a very competitive and rapidly changing environment. New
risk factors emerge from time to time and it is not possible for Management to
predict all of such risk factors, nor can it assess the impact of all such risk
factors on the Company's business or the extent to which any factor or
combination of factors may cause actual results to differ materially from those
contained in any forward-looking statements. Accordingly, forward-looking
statements should not be relied upon as a prediction of actual results.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
PART II. OTHER INFORMATION
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
CHARTWELL INTERNATIONAL, INC.
June 14, 2002 By: /s/ Janice A. Jones
- -------------- ---------------------------------
Date Janice A. Jones
Chief Executive Officer
10