U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2003
Commission File No. 000-27395
CHARTWELL INTERNATIONAL, INC.
-----------------------------
(Exact name of small business issuer as specified in its charter)
NEVADA 95-3979080
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(State or Other Jurisdiction of (I.R.S Employer
Incorporation or Organization) Identification No.)
333 South Allison Parkway, Suite 100
Lakewood, Colorado 80226
(303) 804-0100
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(Address, including zip code and telephone number,
including area code of registrant's executive offices)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the preceding twelve 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 [ ]
As of December 12, 2003, the Registrant had 21,486,720 shares of common stock,
$.001 par value per share outstanding.
Transitional small Business Disclosure Format (check one): Yes [ ] No [X]
CHARTWELL INTERNATIONAL, INC.
FORM 10-QSB
OCTOBER 31, 2003
INDEX
PAGE
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of October 31, 2003 and July 31, 2003..........3
Condensed Consolidated Statements of Operations for the Three-Month
Periods Ended October 31, 2003 and 2002...............................................4
Condensed Consolidated Statements of Cash Flows for the Three-Month
Periods Ended October 31, 2003 and 2002...............................................5
Notes to Condensed Consolidated Financial Statements....................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Plan of Operation.......8
Part II. OTHER INFORMATION
Item 1. Legal Proceedings......................................................................10
Item 2. Changes in Securities..................................................................10
Item 3. Defaults Upon Senior Securities........................................................10
Item 4. Submission of Matters to a Vote of Security Holders....................................10
Item 5. Other Information......................................................................10
Item 6. Exhibits and Reports of Form 8-K.......................................................10
2
ITEM 1. FINANCIAL INFORMATION
CHARTWELL INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS: October 31, 2003 July 31, 2003
---------------- -------------
Current Assets:
Cash $ 2,371 $ 7,465
Trade credits and related 64,638 66,097
receivable
Receivables from related parties 81,693 61,774
------------ ------------
Total current assets: 148,702 135,336
Investment in real estate 1,211,206 1,195,655
Mineral properties 2,014,800 2,014,800
Recruiting systems, publishing and franchise rights, net 1,049,678 1,080,642
Receivables from related parties 27,057 30,552
Other assets, net 10,007 3,516
------------ ------------
TOTAL ASSETS $ 4,461,450 $ 4,460,501
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Bank loan payable $ 10,000 $ 10,000
Note payable 600,000 600,000
Accounts payable and accrued expenses 217,730 192,086
------------ ------------
Total current liabilities: 827,730 802,086
Long-term Debt:
Due to related parties 460,310 456,891
------------ ------------
Total liabilities 1,288,040 1,258,977
Stockholders' Equity:
Preferred Series B Stock (preferable in liquidation to
other classes of stock) 300,000 300,000
Preferred Series A Stock (preferable to common stock
and equal to Preferred Series C Stock in liquidation) 600 600
Preferred Series C Stock (preferable to common stock
and equal to Preferred Series A Stock in liquidation) 506,120 506,120
Common stock; $.001 par value; 50,000,000 shares
authorized; 21,486,720 shares issued
and outstanding 21,487 21,487
Additional paid-in capital 12,237,635 12,237,635
Treasury stock at cost (6,885 shares) (6,885) (6,885)
Accumulated deficit (9,885,547) (9,857,433)
------------ ------------
Total stockholders' equity 3,173,410 3,201,524
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,461,450 $ 4,460,501
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS
3
CHARTWELL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE-MONTH PERIOD ENDED
October 31, 2003 October 31, 2002
---------------- ----------------
REVENUE:
License fee revenue $ 68,925 $ 52,500
OPERATING EXPENSES:
General and administrative 35,697 86,363
Depreciation and amortization 30,964 30,964
------------ ------------
Total operating expenses 66,661 117,327
Operating income (loss) 2,264 (64,827)
Other income (expense)
Gains on dispositions of stock -- --
Interest income (expense), net (30,378) (63,723)
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Total other income (expense) (30,378) (63,723)
------------ ------------
Net (loss) $ (28,114) $ (128,550)
============ ============
(Loss) per common share (basic and diluted) $ (0.00) $ (0.02)
============ ============
Average common shares outstanding 21,486,720 6,199,135
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS
4
CHARTWELL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE-MONTH PERIOD ENDED
October 31, 2003 October 31, 2002
---------------- ----------------
Cash Flows from Operating Activities
Net income (loss) $ (28,114) $(128,550)
Adjustments:
Depreciation and amortization 30,964 30,964
Compensatory stock issuance to related party -- 10,000
Changes in operating assets and liabilities:
Trade credits 1,459 4,965
Due from related parties (16,424) 4,336
Prepaids and other assets (6,491) 1,509
Accounts payable and accrued expenses 25,644 9,608
Related party liabilities 3,419 64,923
--------- ---------
Net cash (used in) operating activities 10,457 (2,245)
Cash Flows Used in Investing Activities
Property improvements (15,551) --
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Net cash used in investing activities (15,551) --
Cash Flows from Financing Activities -- --
--------- ---------
Net cash provided by financing activities -- --
Net (decrease) in cash (5,094) (2,245)
Cash at beginning of period 7,465 4,089
--------- ---------
Cash at end of period $ 2,371 $ 1,844
========= =========
Supplemental Cash Flow information
Cash paid for interest $ 18,000 $ 18,000
========= =========
Non-cash Investing and Financing Activities:
During the fiscal quarter ended October 31, 2002, the Company paid certain liabilities
totaling $202,000 to related parties by issuing 1,010,000 shares of the Company's common
stock to the parties.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS
5
CHARTWELL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED OCTOBER 31, 2003 AND 2002
NOTE 1. UNAUDITED, INTERIM INFORMATION:
Chartwell International, Inc. (formerly Chartwell Publishing Company,
Inc.)("Chartwell" or the "Company") was incorporated in the State of Nevada on
December 27, 1984. The Company's principal line of business is oversight of its
investment in College Partnership, Inc. ("CPI") (f/k/a College Bound Student
Alliance, Inc.), which includes career planning, test preparation, and college
selection services for college bound students and their families. The Company
also owns rights to gypsum deposits and owns a 200 acre parcel of real estate
which are being held for future development or sale.
Chartwell International, Inc. and its wholly-owned subsidiaries prepare and
report financial results using a fiscal year ending July 31. This Form 10-QSB
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 for the interim periods ended October 31, 2003 and
2002, include all normal recurring adjustments which, in the opinion of
management, 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 months ended October
31, 2003 and 2002 are not necessarily indicative of the result that may be
expected for the fiscal year ending July 31, 2004.
The Notes to the Consolidated Financial Statements included in the
Company's July 31, 2003 annual report on Form 10-KSB should be read in
conjunction with these consolidated financial statements.
RECENT PRONOUNCEMENTS
In December 2002, the FASB issued Statements of Financial Accounting
Standards No. 148 ("SFAS 148"), "Accounting for Stock-Based Compensation-
Transition and Disclosure-An Amendment of FASB Statement 123" (SFAS 123"). For
entities that change their accounting for stock-based compensation from the
intrinsic method to the fair value method under SFAS 123, the fair value method
is to be applied prospectively to those awards granted after the beginning of
the period of adoption (the prospective method). The amendment permits two
additional transition methods for adoption of the fair value method. In addition
to the prospective method, the entity can choose to either (a) restate all
periods presented (retroactive restatement method), or (b) recognize
compensation cost from the beginning of the fiscal year of adoption as if the
fair value method had been used to account for awards (modified prospective
method). For fiscal years beginning after December 15, 2003, the prospective
method will no longer be allowed. The Company currently accounts for its
stock-based compensation using the intrinsic value method as proscribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and plans to continue using this method to account for stock options.
Therefore, the Company does not intend to adopt the transition requirements as
specified in SFAS 148. The Company adopted the new disclosure requirements of
SFAS148.
In May 2003, the FASB issued Statements of Financial Accounting Standards No.
150, "Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity" ("SFAS 150"). SFAS 150 requires issuers to classify as
liabilities (or assets in some circumstances) three classes of freestanding
financial instruments that embody obligations for the issuer. SFAS 150 is
effective for financial instruments entered into or modified after May 21, 2003,
and is otherwise effective at the beginning of the first interim period
beginning after June 15, 2003. The adoption of SFAS 150 is not expected to have
a material effect on the Company's financial position or results of its
operations.
6
NOTE 2. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Chartwell
International, Inc. and its wholly owned subsidiary, National College Recruiting
Association, Inc. ("NCRA"), through which it licenses marketing and publishing
rights to CPI. As of October 31, 2003, Chartwell had an approximate 22% equity
interest in CPI, which is accounted for in the consolidated financial statements
by the equity method. Intercompany accounts and transactions have been
eliminated.
Impairment Testing for Long-Lived Assets
The Company accounts for its long-lived assets in conformity with FASB
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." Statement 121 requires impairment losses
to be recorded on long-lived assets used in operations or expected to be
disposed of when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount.
NOTE 3. SEC INQUIRIES
The Company received an inquiry from the Securities and Exchange Commission
staff regarding the Company's accounting for its mineral properties and had
discussions concerning the basis for the balance sheet carrying values of these
assets with the SEC staff. The Company is continuing to discuss the valuation
and accounting treatment of its mineral properties with the SEC staff. If these
discussions are not concluded on a basis favorable to the Company, the Company
may be required to adjust the carrying values of these assets. The Company has
recently been exploring various marketing opportunities for these properties.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with our
consolidated financial statements and notes thereto included elsewhere in this
Report. In connection with, and because we desire to take advantage of the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995, we
caution readers regarding certain forward looking statements in the following
discussion and elsewhere in this Report and in any other statement made by us,
or on our behalf, whether or not in future filings with the Securities and
Exchange Commission. Forward looking statements are statements not based on
historical information and which relate to future operations, strategies,
financial results or other developments. Forward looking statements are based
upon estimates, forecasts, and assumptions that are inherently subject to
significant business, economic and competitive uncertainties and contingencies,
many of which are beyond our control and many of which, with respect to future
business decisions, are subject to change. These uncertainties and contingencies
can affect actual results and could cause actual results to differ materially
from those expressed in any forward looking statements made by us, or on our
behalf. We disclaim any obligation to update forward-looking statements.
Financial Condition as of October 31, 2003 as Compared to July 31, 2003
Total assets increased from $4,460,501 at July 31, 2003 to $4,461,450 at
October 31, 2003, a change of approximately $900 primarily due to an increase in
related party receivables and other assets of approximately $22,900 and property
improvements of approximately $15,600. The property improvements relate to
engineering and legal expenses associated with preparing the property for
development. These increases were partially offset by amortization of assets of
approximately $31,000. The remaining difference is due to use of trade credits
for purchases and a lower cash balance.
Total liabilities increased from $1,258,977 at July 31, 2003 to $1,288,040
at October 31, 2003. This increase is primarily due an increase in accounts
payable and accrued expenses.
Stockholders' Equity decreased by $28,114, from $3,201,524 at July 31, 2003
to $3,173,410 at October 31, 2003. This decrease is due to the reported net loss
of $28,114.
Results of Operations
The following information is intended to highlight developments in our
operations, to present our results of operations, to identify key trends
affecting our businesses and to identify other factors affecting our results of
operations for the fiscal quarters ended October 31, 2003 and 2002.
Comparison of Results of Operations for the Quarters Ended October 31, 2003 and
2002
Our revenues increased to $68,925 for the quarter ended October 31, 2003,
from $52,500 in 2002, an increase of $16,425 or 31%. All of our revenues were
from license fees generated from CPI. Effective August 1, 2000, the agreement
called for 1.5% of the first $10,000,000 in revenues of CPI and 1% of revenues
over $10,000,000, subject to a minimum monthly license fee of $12,500. For the
fiscal year ended July 31, 2003, CPI annual revenue was estimated at
approximately $16,000,000. Actual CPI revenue for fiscal 2003 was $17,642,480
resulting in additional revenue reported of $16,425 in the first quarter of
fiscal 2004. Annual license fees for the first quarter of fiscal 2004 remained
at $17,500 per month and will be adjusted upon CPI first quarter revenue
results.
For the quarter ended October 31, 2003, our operating expenses decreased to
$66,661 compared to $117,327 for the same period in 2002, a decrease of $50,666
or 43%. This decrease was due primarily to a decrease in legal fees and the CEO
and Senior Advisor suspending compensation payments during the fiscal quarter
ended October 31, 2003.
Net interest expense decreased from $63,723 for the quarter ended October
31, 2002, to $30,378 for the quarter ended October 31, 2003, a decrease of
$33,345 or 52.3% principally due to a decrease in total debt outstanding during
fiscal 2003, resulting from the conversion of certain debt to common stock
during fiscal 2003.
As a result of the items discussed above, we generated a net loss of
$(28,114) for the quarter ended October 31, 2003, compared to a net loss of
$(128,501) for the prior year, each year generating losses of less than $(.005)
per share and approximately $(.02) per share for 2003 and 2002, respectively.
8
Liquidity and Capital Resources
At October 31, 2003, we had $2,371 in cash and cash equivalents, a decrease
of $5,094 from July 31, 2003. At October 31, 2003, our working capital ratio was
0.21 to 1 based on current assets of $176,759 and current liabilities of
$827,730. Included in current liabilities is a 12% note payable due March 1,
2004 totaling $600,000 which we are currently negotiating to extend.
In our statement of cash flows, net cash provided by operations was
$(10,457) for the quarter ended October 31, 2003 compared to net cash used in
operations of $(2,245) in 2002. Net cash used in investing activities was
$15,551 and $0 for the fiscal quarters ended October 31, 2003 and 2002,
respectively. The cash used for investing activities relates to engineering and
legal fees associated with preparing our property for development. There were no
cash flows from financing activities for either quarter presented. We believe we
have sufficient cash flows and sources of funding to meet our obligations over
the foreseeable future.
In addition to the receivables included in the balance sheet, we have a
note receivable related to an advance to CPI of $70,000, which we were required
to write off during the fiscal year ended July 31, 2000. CPI has been paying its
obligations to us in accordance with the stated terms and we expect that this
$70,000 note receivable will also be paid by CPI. When this $70,000 is paid, we
will recognize income of $70,000.
Recovery of our investment in Recruiting Systems and Publishing Rights,
($1,049,678) is dependent on royalty payments received from CPI in which we have
an approximate 22% ownership interest as of December 12, 2003, and the
underlying value of the common stock investment in CPI (market value of
approximately $1,130,000 at November 12, 2003). Our CEO, Dr. Janice A. Jones is
an officer and director of CPI and our Senior Advisor, John J. Grace, is an
officer of CPI. Dr. Jones and Mr. Grace are husband and wife.
During the fiscal year ended July 31, 2003, CPI reported a loss of $562,223
compared to a loss of $398,431 for the prior fiscal year. Revenues increased
approximately 44% during 2003 over 2002, from $12,244,429 for 2002 to
$17,642,480 for 2003. In its Form 10-KSB for the fiscal year ended July 31,
2003, CPI reported while its revenues increased 44% in fiscal 2003 over 2002 as
a result of increased attendance at its workshops, it experienced a decline in
the rate of growth beginning toward the end of the third quarter and continuing
through the first quarter of fiscal 2004. CPI management believes that the
decline was caused by a lower rate of workshop attendance due to the war in
Iraq, the weakness in the economy, delayed mail drops and a lower sales rate
associated with a 35% expansion of its sales force in the fourth quarter of
fiscal 2003. CPI reported that these factors plus higher marketing and operating
expenses resulted in significant operating losses in the fourth quarter of
fiscal 2003 and to a lesser extent, the first fiscal quarter of 2004.
CPI reported that they had experienced improvements in these trends and
expect their operating results to substantially improve in the second quarter of
fiscal 2004 and a modest increase in annual revenue from their core business for
fiscal 2004 over fiscal 2003.
CPI management believes that CPI's cash requirements through next year will
be satisfied by the following sources: (1) cash expected to be generated from
operations, (2) obtaining further senior debt financing (3) possible subordinate
debt financing, and (4) possible equity financing. No assurance can be given,
however, that they will be successful in obtaining additional capital to take
advantage of replacing existing obligations at a significant discount and fund
future expansion and at what terms such capital will be available.
For the fiscal year ended July 31, 2003, CPI met its obligations to us and
we anticipate that CPI will be able to continue to meet its obligations to us.
9
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of the date of this Report we are not party to any material legal
proceedings, nor have any such proceedings been threatened against us.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K.
None.
10
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Company caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized, on December 15, 2003.
CHARTWELL INTERNATIONAL, INC.
(Registrant)
By: /s/ Janice A. Jones
-----------------------------------------
Janice A. Jones, Chief Executive Officer,
Treasurer
11
CERTIFICATION
I Janice A. Jones, certify that:
2. I have reviewed this quarterly report on Form 1 Q of Chartwell
International, Inc.
3. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report.
4. Based on my knowledge, the financial statements and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report:
5. The registrant's other certifying officers and are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
6. designed such disclosure controls and procedure to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
7. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
8. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
9. The registrant's other certifying officers and have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function);
10. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
11. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
12. The registrant's other certifying officers and have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
December 15, 2003
By: /s/ Janice A. Jones
-----------------------
Janice A. Jones
Chief Executive Officer
Chief Financial Officer