U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A-1
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 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 December 13, 2004, 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/A-1
OCTOBER 31, 2004
INDEX
PAGE
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of October 31, 2004 and July 31, 2004.............3
Condensed Consolidated Statements of Operations for the Three-Month
Periods Ended October 31, 2004 and 2003..................................................4
Condensed Consolidated Statements of Cash Flows for the Three-Month
Periods Ended October 31, 2004 and 2003..................................................5
Notes to Condensed Consolidated Financial Statements.......................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Plan of Operation..........7
Item 3. Controls and Procedures....................................................................9
Part II. OTHER INFORMATION
Item 1. Legal Proceedings..........................................................................9
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds................................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...................................................................................9
2
PART 1. FINANCIAL INFORMATION
ITEM 1. Financial Statements
CHARTWELL INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS: October 31, 2004 July 31, 2004
---------------- -------------
(Unaudited)
Current Assets:
Cash $ 23,017 $ 4,178
Trade credits and related receivable 771 812
------------ ------------
Total current assets: 23,788 4,990
Investment in real estate 1,307,783 1,269,981
Recruiting systems and publishing rights, net 925,822 956,786
Receivables from related parties 13,418 14,489
Other assets, net 13,081 8,000
------------ ------------
TOTAL ASSETS $ 2,283,892 $ 2,254,246
============ ============
LIABILITIES AND STOCKHOLDERS'
Current Liabilities:
Bank loan payable $ 9,975 $ 10,000
Accounts payable and accrued expenses 203,130 178,224
------------ ------------
Total current liabilities: 213,105 188,224
Long-term Debt:
Due to related parties 563,060 528,666
Other notes payable 620,000 620,000
------------ ------------
Total liabilities 1,396,165 1,336,890
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 12,256,661 12,256,661
Treasury stock at cost (68,850 shares) (6,885) (6,885)
Accumulated deficit (12,190,256) (12,160,627)
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Total stockholders' equity 887,727 917,356
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,283,892 $ 2,254,246
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS
3
CHARTWELL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED
October 31, 2004 October 31, 2003
---------------- ----------------
(Unaudited) (Unaudited)
REVENUE:
Management and license fee revenue $ 57,224 $ 68,925
OPERATING EXPENSES:
General and administrative 62,965 51,248
Depreciation and amortization 30,964 30,964
------------ ------------
Total operating expenses 93,929 82,212
Operating Loss (36,705) (13,287)
Other income (expense)
Interest income (expense), net (12,924) (30,378)
Miscellaneous income, net 20,000 --
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Total other income (expense) 7,076 (30,378)
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Net (loss) $ (29,629) $ (43,665)
============ ============
(Loss) per common share (basic and diluted) $ (0.00) $ (0.00)
============ ============
Average common shares outstanding 21,486,720 21,486,720
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS
4
CHARTWELL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
October 31, 2004 October 31, 2003
---------------- ----------------
(Unaudited) (Unaudited)
Cash Flows from Operating Activities
Net income (loss) $(29,629) $(43,665)
Adjustments:
Depreciation and amortization 30,964 30,964
Changes in operating assets and liabilities:
Trade credits 41 1,459
Due from related parties 1,071 (16,424)
Prepaids and other assets (5,081) (6,491)
Accounts payable and accrued expenses 24,881 25,644
Related party liabilities 34,394 3,419
-------- --------
Net cash used in operating activities 56,641 (5,094)
Cash Flows from Investing Activities
Investment in real estate (37,802) --
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Net cash provided by investing activities (37,802) --
Cash Flows from Financing Activities
-------- --------
Net cash provided (used in) financing activities -- --
Net increase (decrease) in cash 18,839 (5,094)
Cash at beginning of period 4,178 7,465
-------- --------
Cash at end of period $ 23,017 $ 2,371
======== ========
Supplemental Cash Flow information
Cash paid for interest $ 20,151 $ 18,000
======== ========
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, 2004 AND 2003
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 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 October 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 months ended October
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, 2004 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 October 31, 2004 Chartwell had an approximate 24% 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
In the event that facts and circumstances indicate that the carrying value
of long-lived assets may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future undiscounted cash
flows associated with the asset would be compared to the asset's carrying amount
to determine if a write-down to market value or discounted cash flow value is
required.
NOTE 3. WRITE DOWN OF MINERAL PROPERTIES
The Company owns the right to mine a specified quantity of gypsum on Bureau
of Land Management land near St. George, Utah. The Company believed that these
mineral properties were properly recorded at a carrying value of $2,014,800 at
October 31, 2004 and in prior fiscal periods and were below independent
valuations the Company received for this asset. In addition, the Company had
made efforts to partner with third parties to develop and/or sell these mineral
reserves, although such efforts were unsuccessful. During the period of November
2002 through January 2003, the Company had a series of discussions with the
Staff of Division of Corporation Finance of the Securities and Exchange
Commission as to the accounting for these mineral properties. The Staff
concluded that the mineral properties should be written off in accordance with
SFAS 121, which was later amended by SFAS 144. The Company then appealed to the
Chief Accountant of the Division of Corporation Finance regarding its accounting
position on the mineral properties. The Company's appeal was denied and the
Company's communications with the SEC's Staff ceased in January 2003. In March
2005, the Company received correspondence from the SEC commenting on, among
other things, why the Company did not write-off the mineral properties in
accordance with the Staff's prior conclusion. The Company was under the mistaken
belief that the Company's position was still under consideration by the Staff
and that if the Company prepared a plan, or demonstrated it was taking action to
develop or dispose of this property, such actions would be sufficient to address
the SEC's concern. The Company implemented a plan to partner with third parties
to develop and/or dispose of the mineral reserves. However, these efforts have
been unsuccessful to date, and in light of the Staff's position, the Company's
mineral properties have been written off in the fiscal year ended July 31, 2004
in accordance with SFAS 121, which was later amended by SFAS 144.
The Company intends to continue to pursue a partnership with a third party
to begin to develop these reserves, or sell these rights and claims. If
successful, the Company will record a gain on any amounts received less
associated costs.
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 October 31, 2004 as Compared to July 31, 2004
Total assets increased from $2,254,246 at July 31, 2004 to $2,283,892 at
October 31, 2004, a change of approximately $29,600 primarily due additional
investment in the real estate owned by the Company of approximately $37,800, an
increase in other assets of approximately $5,100 and a higher cash balance.
These increases were partially offset by amortization of assets by approximately
$31,000 and a decrease in amounts due from related parties of approximately
$1,100.
Total liabilities increased from $1,336,890 at July 31, 2004 to $1,396,165
at October 31, 2004. This increase is primarily due an increase in accounts
payable and accrued expenses.
Stockholders' Equity decreased by $29,629 from $917,356 at July 31, 2004 to
$887,727 at October 31, 2004. This decrease is due to the reported net loss of
$29,629.
During the fiscal quarter ended October 31, 2004, the Company entered into
an agreement to reacquire 250,000 shares of its Series B Preferred Stock.
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, 2004 and 2003.
Comparison of Results of Operations for the Quarters Ended October 31, 2004 and
2003
Our revenues decreased to $57,224 for the quarter ended October 31, 2004,
from $68,925 in 2003, a decrease of $11,701 or 17%. 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. Estimated
monthly license fees for the quarters ended October 31, 2004 and 2003 were
$19,167 and $17,500, respectively. For the fiscal year ended July 31, 2004 and
2003, CPI annual revenue was estimated at approximately $18,500,000 and
$16,000,000. Actual CPI revenue for fiscal 2004 and 2003 was $18,472,413 and
$17,642,480, respectively, resulting in adjustments to revenue reported of
($276) and $16,425 in the first quarters of fiscal 2005 and 2004. Monthly
license fees will be adjusted quarterly based upon CPI's revenue results.
For the quarter ended October 31, 2004, our operating expenses increased to
$93,929 compared to $82,212 for the same period in 2003, an increase of $11,717
or 14%. This increase was primarily due to certain executives suspending
compensation payments during the fiscal quarter ended October 31, 2003, which
resumed for the fiscal quarter ended October 31, 2004, partially offset by
certain costs associated with preparing the Company's property for development
or sale during the quarter ended October 31, 2004.
7
During the quarter ended October 31, 2004, the Company received a $20,000
non-refundable deposit for the proposed sale of its land. The sale did not occur
and accordingly, the deposit was recorded to income.
Net interest expense decreased from $30,378 for the quarter ended October
31, 2003, to $12,924 for the quarter ended October 31, 2004, a decrease of
$17,454 or 57.5% principally due to a decrease in total debt outstanding
resulting from the conversion of liabilities to common stock during fiscal 2003.
As a result of the items discussed above, we generated a net loss of
$(29,629) for the quarter ended October 31, 2004, compared to a net loss of
$(43,665) for the prior year, each year generating losses of less than $(.002)
and $(.003) per share for 2004 and 2003, respectively.
Liquidity and Capital Resources
At October 31, 2004, we had $23,017 in cash and cash equivalents, an
increase of $18,839 from July 31, 2004. At October 31, 2004, our working capital
ratio was 0.11 to 1 based on current assets of $23,788 and current liabilities
of $213,105.
In our statement of cash flows, net cash provided by operations was $56,641
for the quarter ended October 31, 2004 compared to net cash used in operations
of $(5,094) for the quarter ended October 31, 2003. Net cash used in investing
activities was $37,802 and $0 for the fiscal quarters ended October 31, 2004 and
2003, respectively. The 2004 amount was the result of expenses incurred in
connection with preparing the Company's property for development or sale. 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 note is
paid, we will recognize income of $70,000.
Recovery of our investment in Recruiting Systems and Publishing Rights,
($925,822) is dependent on royalty payments received from CPI in which we have
an approximate 24% ownership interest as of December 13, 2004, and the
underlying value of the common stock investment in CPI (market value of
approximately $1,009,000 at December 10, 2004). 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, 2004, CPI reported a loss of
$1,246,270 compared to a loss of $562,223 for the prior fiscal year. Revenues
increased approximately 5% during 2004 over 2003, from $17,642,480 for 2003 to
$18,472,413 for 2004. In its Form 10-KSB for the fiscal year ended July 31,
2004, CPI reported that during fiscal 2004, it experienced a continued decline
in the rate of workshop attendance due to, they believe, the weakness in the
economy, delayed mail drops, use of direct mail and marketing lists and related
invitation that has proven to be less effective than that employed in prior
periods and a lower sales rate associated with an expansion of their sales force
in the fourth fiscal quarter of 2003. CPI reported that these factors plus
higher marketing and operating expenses resulted in increased operating losses
in fiscal 2004 as compared to fiscal 2003.
CPI reported that this trend is expected to continue into the first quarter
of the new fiscal year. Several initiatives are planned to be implemented in the
second and third quarters of fiscal year 2005, which if successful, will
increase their marketing effectiveness and reduce sales and marketing costs and
improve efficiencies within their direct marketing campaigns, and accordingly,
significantly improve operating results in subsequent quarters.
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.
8
For the fiscal year ended July 31, 2004, CPI met its obligations to us and
we anticipate that CPI will be able to continue to meet its obligations to us.
ITEM 3. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
At the end of the period reported on in this report, the Company carried
out an evaluation, under the supervision and participation of the Company's
Chief Executive and Financial Officer (the "Officer") of the effectiveness of
the design and operation of the Company's disclosure controls and procedures
pursuant to Securities Exchange Act Rule 13a-14. Based upon that evaluation, the
Officer concluded that the Company's disclosure controls and procedures are
effective in all material respects, with respect to the recording, processing,
summarizing and reporting, within the time periods specified in the SEC's rules
and forms, of information required to be disclosed by the Company in the reports
the Company files or submits under the Exchange Act.
Internal Controls
There were no significant changes made in the Company's internal controls
during the quarter ended October 31, 2004, or in other factors that could
significantly affect these controls subsequent to the date of the evaluation
described above.
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. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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
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 April 21, 2005.
CHARTWELL INTERNATIONAL, INC.
(Registrant)
By: /s/ Janice A. Jones
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Janice A. Jones, Chief Executive Officer
and Chief Financial Officer
10