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 January 31, 2005
Commission File No. 000-27395
CHARTWELL INTERNATIONAL, INC.
---------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
NEVADA 95-3979080
------ ----------
(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
--------------
(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 1, 2005, the Registrant had 24,161,567 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
JANUARY 31, 2005
INDEX
PAGE
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of
January 31, 2005 and July 31, 2004 .................................. 3
Condensed Consolidated Statements of Operations for
the Three and Six-Month Periods Ended January 31, 2005 and 2004 ..... 4
Condensed Consolidated Statements of Cash Flows for
the Three and Six-Month Periods Ended January, 2005 and 2004 ........ 5
Notes to Condensed Consolidated Financial Statements .................. 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Plan of Operation ............... 7-9
Item 3. Controls and Procedures ..................................... 9
Part II. OTHER INFORMATION
Item 1. Legal Proceedings ........................................... 10
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds . 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 .................................................... 10
2
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
CHARTWELL INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS: January 31, 2005 July 31, 2004
---------------- -------------
(Unaudited)
Current Assets:
Cash $ 2,098 $ 4,178
Trade credits and related receivable 10,143 812
------------ ------------
Total current assets: 12,241 4,990
Investment in real estate 1,327,967 1,269,981
Recruiting systems and publishing rights, net 894,858 956,786
Receivables from related parties -- 14,489
Other assets, net -- 8,000
------------ ------------
TOTAL ASSETS $ 2,235,066 $ 2,254,246
============ ============
LIABILITIES AND STOCKHOLDERS'
Current Liabilities:
Bank loan payable $ 10,000 $ 10,000
Accounts payable and accrued expenses 140,565 178,224
Advance royalties 100,000 --
------------ ------------
Total current liabilities: 250,565 188,224
Long-term Debt:
Due to related parties 591,125 528,666
Other notes payable 620,000 620,000
------------ ------------
Total liabilities 1,461,690 1,336,890
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; 50,000,000 shares
authorized; 24,161,567 and 21,486,720 shares issued and
outstanding, respectively 24,162 21,487
Additional paid-in capital 12,811,656 12,256,661
Treasury stock at cost (68,850 shares) (6,885) (6,885)
Accumulated deficit (12,055,557) (12,160,627)
------------ ------------
Total stockholders' equity 773,376 917,356
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,235,066 $ 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 Months ended For the Six Months ended
January 31, January 31,
------------------------------- -------------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
REVENUE:
Management and license fee revenue $ 60,834 $ 76,500 $ 118,058 $ 145,425
OPERATING EXPENSES:
General and administrative 47,253 17,015 110,218 68,263
Depreciation and amortization 30,964 30,964 61,928 61,928
------------ ------------ ------------ ------------
Total operating expenses 78,217 47,979 172,146 130,191
Operating Income (Loss) (17,383) 28,521 (54,088) 15,234
Other income (expense)
Interest income (expense), net (10,460) (30,752) (23,384) (61,130)
Miscellaneous income, net -- -- 20,000 --
Other expense (124,393) -- (124,393) --
------------ ------------ ------------ ------------
Total other income (expense) (134,853) (30,752) (127,777) (61,130)
------------ ------------ ------------ ------------
Net (loss) $ (152,236) $ (2,231) $ (181,865) $ (45,896)
============ ============ ============ ============
(Loss) per common share (basic and diluted) $ (0.01) $ (0.00) $ (0.01) $ (0.00)
============ ============ ============ ============
Average common shares outstanding 22,388,027 21,486,720 21,937,374 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 For the Six Months Ended
January 31, January 31,
--------------------------- --------------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Cash Flows from Operating Activities
Net income (loss) $(152,236) $ (2,231) $(181,865) $ (45,896)
Adjustments:
Depreciation and amortization 30,964 30,964 61,928 61,928
Issued Common Stock for services 600 -- 600 --
Received CPI stock for royalties 100,000 -- 100,000 --
Received CPI Stock for related party receivables 13,265 -- 13,265 --
Stock option compensation 350 -- 350 --
Changes in operating assets and liabilities:
Trade credits 628 165 669 1,624
Due from related parties 153 (24,001) 1,224 (40,425)
Prepaids and other assets 13,081 1,509 8,000 (4,982)
Accounts payable and accrued expenses (10,605) (19,492) 14,276 6,152
Related party liabilities (4,935) 12,608 29,459 16,027
--------- --------- --------- ---------
Net cash provided by (used in)
operating activities (8,735) (478) 47,906 (5,572)
Cash Flows from Investing Activities
Investment in real estate (20,184) -- (57,986) --
Purchased Series B Preferred Shares (25,000) -- (25,000) --
--------- --------- --------- ---------
Net cash used in investing activities (45,184) -- (82,986) --
Cash Flows from Financing Activities
Proceeds from notes to related parties 33,000 -- 33,000 --
--------- --------- --------- ---------
Net cash provided by financing activities 33,000 -- 33,000 --
Net increase (decrease) in cash (20,919) (478) (2,080) (5,572)
Cash at beginning of period 23,017 2,371 4,178 7,465
--------- --------- --------- ---------
Cash at end of period $ 2,098 $ 1,893 $ 2,098 $ 1,893
========= ========= ========= =========
Supplemental Cash Flow information
Cash paid for interest $ 20,151 $ 18,000 $ 40,302 $ 36,000
========= ========= ========= =========
During the six months ended January 31, 2005, the Company reported the following non-cash transactions:
600,000 shares of Preferred Series A Stock were converted to 2,400,000 shares of Common Stock.
5,000 shares of Preferred Series B Stock were converted to 20,000 shares of Common Stock.
50,612 shares of Preferred Series C Stock were converted to 234,848 shares of Common Stock.
The Company received 1,940,718 shares of CPI stock for royalty fees of $11,000, prepayment of
royalty fees totaling $100,000 and net receivables of $83,042.
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 has been 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.
In January 2005, the company transferred its real estate, mineral claims,
assets, liabilities and operations to Kingsley Capital, Inc. ("Kingsley") which
was a wholly owned subsidiary of the Company at that time. The Board determined
that due to the costs of Sarbanes-Oxley compliance of a public reporting
company, the Company's shareholders would be better served by receiving a
dividend of shares in a private company to which all of the Company's assets,
liabilities and operations had been transferred. As a result, the Board approved
the spin-off of Kingsley pro-rata to shareholders as of March 2, 2005 as a
dividend, with the express intent that Kingsley will remain private and not seek
to be a public trading entity. The Company intends to pursue an orderly plan of
liquidation in order to maximize value to its shareholders.
Also, effective January 31, 2005, in consideration of part of the
assumption of outstanding debt of the Company, Kingsley was issued a $200,000
promissory note by the Company, due in six months.
The Company has no assets or operations as of March 2, 2005.
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, 2005 and
2004, 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, 2005 and 2004 are not necessarily indicative of the result that may
be expected for the fiscal year ending July 31, 2005.
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 subsidiaries, National College
Recruiting Association, Inc. ("NCRA"), through which it licenses marketing and
publishing rights to CPI, and Kingsley to which it transferred all of its
assets. As of January 31, 2005 the Company had an approximate 27% 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 of 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.
6
NOTE 3. SEC INQUIRIES
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
January 31, 2005 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.
Item 2. Management's Discussion and Analysis or Plan 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, 2005 as Compared to July 31, 2004
Total assets decreased from $2,254,246 at July 31, 2004 to $2,235,066 at
January 31, 2005, a change of approximately $19,200 primarily due to
amortization of assets by approximately $62,000 and a decrease in amounts due
from related parties of approximately $14,500, a decrease in other assets of
$8,000 and a lower cash balance. These decreases were partially offset by
additional investment in the real estate owned by the Company of approximately
$58,000 and an increase in trade credits of approximately $9,300.
Total liabilities increased from $1,336,890 at July 31, 2004 to $1,461,690
at January 31, 2005. This increase is primarily due an increase in amounts due
to related parties of $62,500 and CPI stock received for advance royalty
payments of $100,000. The increases were partially offset by a decrease in
accounts payable and accrued expenses of approximately $37,700.
7
Effective January 31, 2005, the Company transferred all of its assets,
liabilities and operations to Kingsley, its wholly owned subsidiary at that
time, and issued a promissory note to Kingsley for $200,000 due in six months,
as described above. On March 2, 2005, the Company completed a spin-off of
Kingsley and currently has no assets or operations.
Stockholders' Equity decreased by $143,980 from $917,356 at July 31, 2004
to $773,376 at January 31, 2005. This decrease is primarily due to the
acquisition and retirement of most of the Series B Preferred shares and the
reported net loss. During the fiscal quarter ended January 31, 2005, the holders
of the Series A Preferred Stock, the remaining Series B Preferred Stock and the
Series C Preferred Stock converted these shares to four shares of Common Stock
for each share of preferred stock held.
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 three and six-month periods ended January 31, 2005 and 2004.
Our revenues decreased to $60,834 and $118,058 for the quarter and six
months ended January 31, 2005, from $76,500 and $145,425 in 2004, respectively,
a decrease of $15,666 or 20% and $27,367 or 19%, respectively. 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. The decrease in revenue is primarily due to first quarter adjustments
to prior year estimates of CPI revenue of ($276) and $16,425 in the first
quarters of fiscal 2005 and 2004. Monthly license fees are adjusted quarterly
based upon CPI's revenue results.
For the quarter and six months ended January 31, 2005, our operating
expenses increased to $78,217 and $172,146 compared to $47,979 and $130,191 for
the same periods in 2004, respectively, an increase of $30,238 or 63% and
$41,955 or 32%, respectively. These increases were primarily due to an executive
and senior advisor suspending compensation payments during the quarter and six
months ended January 31, 2004, which resumed for the fiscal quarter and six
months ended January 31, 2005, partially offset by certain costs associated with
preparing the Company's property for development or sale during the quarter and
six months ended January 31, 2005.
During the six months ended January 31, 2005, 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.
During the quarter ended January 31, 2005, the Company received 1,940,718
shares of CPI stock for royalty fees of $11,000, prepayment of royalty fees
totaling $100,000 and net receivables of $83,042 (including the $70,000 note
receivable that was written down to $0 under the equity method). The Board of
Directors accepted this compromise with CPI to strengthen the financial position
of CPI and allow it time to improve its financial position. This increased our
ownership in CPI from 24% to 27%. The stock was written down to $0, as required,
under the equity method of accounting resulting in other expense reported of
$124,043 for the quarter and six months ended January 31, 2005.
Net interest expense decreased from $23,384 and $61,130 for the quarter and
six months ended January 31, 2004, to $10,460 and $30,752 for the quarter and
six months ended January 31, 2005, respectively, a decrease of $12,924 or 55%
and $30,378 or 50%, respectively, principally due to a decrease in total debt
outstanding resulting from the conversion of liabilities to common stock during
fiscal 2004.
As a result of the items discussed above, we generated a net loss of
$(152,236) and $(181,865) for the quarter and six months ended January 31, 2005,
compared to a net loss of $(2,231) and $(45,896) for the same periods of the
prior year. Net loss per share was $(0.01) for the quarter and six months ended
January 31, 2005 compared to net loss per share of $0.00 and less than $(.002)
for the quarter and six months ended January 31, 2004.
8
Liquidity and Capital Resources
At January 31, 2005, we had $2,098 in cash and cash equivalents, a decrease
of $2,080 from July 31, 2004. At January 31, 2005, our working capital ratio was
0.05 to 1 based on current assets of $12,241 and current liabilities of
$250,565.
In our statement of cash flows, net cash provided by operations was $47,906
for the six months ended January 31, 2005 compared to net cash used in
operations of $(5,572) for the six months ended January 31, 2004. Net cash used
in investing activities was $82,986 and $0 for the six months ended January 31,
2005 and 2004, respectively. The 2005 amount was the result of expenses incurred
in connection with preparing the Company's property for development or sale and
the purchase of 25,000 shares of the Company's Series B Preferred Stock which
was retired. Cash flows from financing activities were $33,000 and $0 for the
six months ended January 31, 2005 and 2004, respectively. The proceeds in 2005
were loans from related parties. Following the spin-off of Kingsley on March 2,
2005, the Company has no assets or operations. The Company intends to pursue an
orderly plan of liquidation in order to maximize value to its shareholders.
Recovery of our investment in Recruiting Systems and Publishing Rights,
($894,858 at January 31, 2005) is dependent on royalty payments received from
CPI in which we had an approximate 27% ownership interest as of March 1, 2005,
and the underlying value of the common stock investment in CPI (market value of
approximately $1,127,000 at March 1, 2005). 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.
CPI reported that during fiscal 2004, and continuing to the date of their
quarterly report for the quarter ended October 31, 2004, they began to
experience a decline in the rate of workshop attendance due to, they believe,
the weakness in the economy, delayed mail campaigns, use of direct mail
marketing lists and related literature that has proven to be less effective than
that employed in prior periods. These factors have resulted in continuing
revenue declines in the three months ended October 31, 2004.
They believe that they have identified the issues and that they took
corrective actions. They have, or are in process of reducing and better
targeting their direct mail campaign, decreasing the cost per mail piece,
adjusting their workforce and renegotiating their office leases. However, if
they continue to experience losses, it will have a negative impact on their
ability to fund their aggressive marketing program and could curtail not only
their initiatives required to improve their performance, but also future planned
operations and growth.
CPI reported that, as reflected in their consolidated financial statements,
they have continued losses from operations, negative working capital and a
stockholders' deficit. These matters raise doubt about their ability to continue
as a going concern.
In view of the matters described in the preceding paragraph recoverability
of a major portion of the recorded asset amounts shown in their consolidated
balance sheets is dependent upon their continued operations, which, in turn, is
dependent upon their ability to continue to raise capital and generate positive
cash flows from operations.
The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
amounts and classifications of liabilities that might be necessary should they
be unable to continue their existence.
For the six months ended January 31, 2005 CPI met 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
9
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 January 31, 2005, 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
During the quarter ended January 31, 2005, the Company reacquired and
cancelled 25,000 shares of Series B Preferred Stock from ITEX Corporation.
On January 3, 2005, the Company converted 600,000 Series A Preferred Shares
to 2,400,000 common shares, 5,000 Series B Preferred Shares to 20,000 common
shares, and 58,712 Series C Preferred Shares to 234,848 common shares. All
remaining preferred shares have now been converted.
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
Exhibits
--------
Exhibit No. Description
- ----------- -----------
31 Certificate of Chief Executive and Financial Officer pursuant to
Section 302 of The Sarbanes Oxley Act of 2002
32 Certificate of Chief Executive and Financial Officer pursuant to
Section 906 of The Sarbanes-Oxley Act of 2002
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 April 21, 2005.
CHARTWELL INTERNATIONAL, INC.
(Registrant)
By: /s/ Janice A. Jones
----------------------------------------
Janice A. Jones, Chief Executive Officer and
Chief Financial Officer
11