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 January 31, 2004
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 March 10, 2004, the Registrant had 21,486,720 shares of common stock,
$.001 par value per share outstanding.
CHARTWELL INTERNATIONAL, INC.
FORM 10-QSB
JANUARY 31, 2004
INDEX
PAGE
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of January 31,
2004 and July 31, 2003..........................................3
Condensed Consolidated Statements of Operations for the
Three-Month and Six-Month Periods Ended January 31,
2004 and 2003...................................................4
Condensed Consolidated Statements of Cash Flows for the
Three-Month and Six-Month Periods Ended January 31,
2004 and 2003...................................................5
Notes to Condensed Consolidated Financial Statements..............6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................7
Item 3. Controls and Procedures...........................................9
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................9
Item 2. Changes in Securities.............................................9
Item 3. Defaults Upon Senior Securities...................................9
Item 4. Submission of Matters to a Vote of Security Holders...............9
Item 5. Other Information.................................................9
Item 6. Exhibits and Reports of Form 8-K..................................9
ITEM 1. FINANCIAL INFORMATION
CHARTWELL INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS: January 31, 2004 July 31, 2003
---------------- -------------
Current Assets:
Cash $ 1,893 $ 7,465
Trade credits and related receivable 64,473 66,097
Receivables from related parties 110,117 61,774
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Total current assets: 176,483 135,336
Investment in real estate 1,195,655 1,195,655
Mineral properties 2,014,800 2,014,800
Recruiting systems, publishing and franchise rights, net 1,018,714 1,080,642
Receivables from related parties 22,634 30,552
Other assets, net 8,498 3,516
------------ ------------
TOTAL ASSETS $ 4,436,784 $ 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 198,238 192,086
------------ ------------
Total current liabilities: 808,238 802,086
Long-term Debt:
Due to related parties 472,918 456,891
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Total liabilities 1,281,156 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 (68,850 shares) (6,885) (6,885)
Accumulated deficit (9,903,329) (9,857,433)
------------ ------------
Total stockholders' equity 3,155,628 3,201,524
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,436,784 $ 4,460,501
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS
3
CHARTWELL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended Three Months Ended
January 31, January 31,
---------------------------- ----------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
REVENUE:
Management and license fee revenue $ 145,425 $ 105,000 $ 76,500 $ 52,500
OPERATING EXPENSES:
General and administrative 68,263 183,275 17,015 96,912
Depreciation and amortization 61,928 61,928 30,964 30,964
------------ ------------ ------------ ------------
Total operating expenses 130,191 245,203 47,979 127,876
------------ ------------ ------------ ------------
Operating Loss 15,234 (140,203) 28,521 (75,376)
Other income (expense)
Gains on dispositions of stock -- -- -- --
Interest income (expense), net (61,130) (111,733) (30,752) (48,010)
------------ ------------ ------------ ------------
Total other income (expense) (61,130) (111,733) (30,752) (48,010)
------------ ------------ ------------ ------------
Net (loss) $ (45,896) $ (251,936) $ (2,231) $ (123,386)
============ ============ ============ ============
(Loss) per common share (basic and diluted) $ (0.00) $ (0.04) $ (0.00) $ (0.02)
============ ============ ============ ============
Average common shares outstanding 21,486,720 6,649,521 21,486,720 7,099,906
============ ============ ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS
4
CHARTWELL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTH PERIOD ENDED
January 31, 2004 January 31, 2003
---------------- ----------------
Cash Flows from Operating Activities
Net income (loss) $ (45,896) $(251,935)
Adjustments:
Depreciation and amortization 61,928 61,928
Compensatory stock issuance to related party -- 10,000
Services and other expenses paid for with stock -- --
Changes in operating assets and liabilities:
Trade credits 1,624 5,295
Due from related parties (40,425) 7,737
Prepaids and other assets (4,982) 3,018
Accounts payable and accrued expenses 6,152 44,605
Related party liabilities 16,027 120,422
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Net cash (used in) operating activities (5,572) 1,070
Cash Flows from Investing Activities -- --
--------- ---------
Net cash provided by investing activities -- --
Cash Flows from Financing Activities
Proceeds from borrowings from related parties -- --
--------- ---------
Net cash provided by financing activities -- --
Net increase (decrease) in cash (5,572) 1,070
Cash at beginning of period 7,465 4,089
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Cash at end of period $ 1,893 $ 5,159
========= =========
Supplemental Cash Flow information
Cash paid for interest $ 36,000 $ 36,000
========= =========
Non-cash Investing and Financing Activities:
During the six months ended January 31, 2003, 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 SIX MONTHS ENDED JANUARY 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 hold claims for gypsum deposits and owns a 200 acre parcel of real estate
which is 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 January 31, 2004 and
2003, 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 and six months ended
January 31, 2004 and 2003 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.
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 January 31, 2004, 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 is
currently discussing 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 begun to explore various marketing opportunities for these properties.
6
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 January 31, 2004 as Compared to July 31, 2003
Total assets decreased from $4,460,501 at July 31, 2003 to $4,436,784 at
January 31, 2004, a change of approximately $23,700 primarily due to
amortization of assets by approximately $62,000, partially offset by an increase
in related party receivables and other assets. The remaining difference is due
to use of trade credits for purchases and a lower cash balance.
Total liabilities increased from $1,258,978 at July 31, 2003 to $1,281,156
at January 31, 2004. This increase is primarily due to an increase in accounts
payable and accrued expenses, and an increase in accrued interest due to related
parties in connection with loans.
Stockholders' Equity decreased by $45,896, from $3,201,524 at July 31, 2003
to $3,155,628 at January 31, 2004. This decrease is due to the reported net loss
of $45,896.
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 six months ended January 31, 2004 and 2003.
Comparison of Results of Operations for the Six Months Ended January 31, 2004
and 2003
Our revenues increased to $145,425 for the six months ended January 31,
2004, from $105,000 in 2003, an increase of $40,425, or 39%. All of our revenues
were from license fees generated from College Partnership, Inc. ("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. Based on first quarter results and
estimated second quarter results, annual CPI revenues for the fiscal year ending
July 31, 2004 are estimated to be approximately $21,000,000 resulting in
additional revenue reported of $24,000 in the second quarter of fiscal 2004.
For the six months ended January 31, 2004, our operating expenses decreased
to $130,191 from $245,203 for the same period in the prior fiscal year, a
decrease of $115,012 or 47%. This decrease was due primarily to a decrease in
legal fees and a reduction in compensation payments to an executive and an
advisor during the six months ended January 31, 2004, and reductions of certain
obligations as a result of renegotiations during the period ended 2004.
7
Net interest expense decreased from $111,733 to $61,130 for the six months
ended January 31, 2004 from 2003, resulting from the conversion of liabilities
to common stock during fiscal 2003.
As a result of the items discussed above, we generated net losses of
($45,896) for the six months ended January 31, 2004, compared to a net loss of
$(251,936) for the same period of the prior year. These losses resulted in loss
per share of $.00 for the six month period ended January 31, 2004 compared to
loss per share of $.04 for the six month period ended January 31, 2003.
Liquidity and Capital Resources
At January 31, 2004, we had $1,893 in cash and cash equivalents, a decrease
of $5,572 from July 31, 2003. At January 31, 2004, our working capital ratio was
0.22 to 1 based on current assets of $176,483 and current liabilities of
$808,238. 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 used in operations was $(5,572)
for the six months ended January 31, 2004 and $1,070 in 2003. There were no cash
flows from investing or 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,
($1,018,714) is dependent on royalty payments received from CPI in which we have
an approximate 22% ownership interest as of March 12, 2004, and the underlying
value of the common stock investment in CPI (market value of approximately
$1,725,000 at March 12, 2004). Our CEO, Dr. Janice A. Jones and our Senior
Advisor, John J. Grace, are officers and directors of CPI. Dr. Jones and Mr.
Grace are husband and wife.
On August 1, 2000, we agreed with CPI to a 50% deferral ($75,000) of the
fiscal year's royalty payments, without interest, with the full royalty payment
to be made beginning August 1, 2001. CPI has met its commitments in both fiscal
2002 and in fiscal 2003, and has paid $55,000 of the fiscal 2001 deferral as of
January 31, 2004.
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 revenues of $5,506,586 and net losses of $441,614 for the
fiscal quarter ended October 31, 2003 compared to revenues of $3,652,503 and net
losses of $204,710 for the same period in 2002, an increase of $1,854,083 or 51%
and $236,904 or 116%, respectively.
CPI reported that they had experienced improvements in these trends and
expect their operating results to improve, but with continued losses, in the
second quarter of fiscal 2004 and a modest increase in annual revenue from their
core business for fiscal 2004 over fiscal 2003.
8
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.
Effective March 1, 2004, the Company refinanced its $600,000 mortgage note
with the mortgagor. The note is due March 1, 2005 with monthly interest only
payments and is renewable in one year increments on four successive annual
occasions.
ITEM 3. CONTROLS AND PROCEDURES
Within 90 days prior to the date of filing of this quarterly report on Form
10-QSB, we carried out an evaluation, under supervision and with the
participation of our management, including our CEO, of the effectiveness of the
design and operation of our disclosure controls and procedures pursuant to
Exchange Act Rule 13a-14. Based upon that evaluation, our CEO concluded that our
disclosure controls and procedures are effective in timely alerting them to
material information relating to us required to be included in our periodic SEC
filings. Subsequent to the date of that evaluation, there have been no changes
in internal controls or in other factors that could significantly affect
internal controls, nor were any corrective actions required with regard to
significant deficiencies and material weaknesses.
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.
(a.) Exhibits
31. Certification of Financial Statements in accordance with Section
302 of the Sarbanes-Oxley Act of 2002
32. Certification of Financial Statements in accordance with Section
906 of the Sarbanes-Oxley Act of 2002
(b.) Reports on Form 8-K
None.
9
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 March 15, 2004.
CHARTWELL INTERNATIONAL, INC.
(Registrant)
By: /s/ Janice A. Jones
-----------------------------------------
Janice A. Jones, Chief Executive Officer,
Treasurer
10