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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
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CHARTWELL INTERNATIONAL, INC.
(Name of Small Business Issuer in its Charter)
NEVADA 95-3979080
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification Number)
organization)
5275 DTC PARKWAY, SUITE 110
DENVER, COLORADO 80111
(Address of principal executive offices) (Zip Code)
(303) 804-0100
(Issuer's telephone number)
Securities to be registered under Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
None None
Securities to be registered under Section 12(g) of the Act:
COMMON STOCK
(Title of Class)
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Some of the statements contained in this Form 10-SB for Chartwell
International, Inc. ("Chartwell" or the "Company"), discuss future
expectations, contain projections of results of operations or financial
condition or state other "forward-looking" information. The term "Chartwell"
or the "Company" refers to Chartwell International, Inc. or to Chartwell
International, Inc. and its consolidated subsidiaries, as applicable. These
statements are subject to known and unknown risks, uncertainties, and other
factors that could cause the actual results to differ materially from those
contemplated by the statements. The forward-looking information is based on
various factors and is derived using numerous assumptions. Important factors
that may cause actual results to differ from projections include, for example:
- the success or failure of management's efforts to implement its
business strategy;
- the ability of the Company to raise sufficient capital to meet
operating requirements;
- the ability of the Company's subsidiaries and affiliated companies
to compete within the industries in which they engage in business;
- the ability of the Company to compete with major established
companies;
- the effect of changing economic conditions;
- the ability of the Company to attract and retain quality
employees; and
- other risks that may be described in future filings with the U.S.
Securities and Exchange Commission ("SEC").
GENERAL
Chartwell International, Inc. is a Nevada corporation that was
incorporated in December 1984. The Company conducts its operations in the
following areas:
- National College Recruiting Association, Inc. ("NCRA") is a wholly
owned subsidiary that owns a high school athlete college recruiting and
scholarship assistance program as well as the publishing rights to "BlueChip
Illustrated," a magazine associated with the NCRA programs. All of NCRA's
rights were licensed to College Bound Student Alliance, Inc. in June, 1997.
All NCRA's principal business operations have also been assigned to College
Bound Student Alliance, Inc.
- College Bound Student Alliance, Inc. ("CBSA"), is a business that
was begun by the Company in June, 1997, to develop college athlete and
student scholarship advisory services that were sold to it by NCRA. CBSA
became a public company in January, 1988. Chartwell currently holds
approximately 47% (approximately 8,200,000 Shares) of the outstanding common
shares of CBSA. See Financial Statements.
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- Approximately 200 acres of undeveloped residential real estate near
Ramona, California, east of San Diego, that is currently listed for sale.
- Undeveloped gypsum mining rights and claims on U.S. Bureau of Land
Management property near St. George, Utah, that are currently for sale or
joint venture.
The Company's long-term strategy is to dispose of a portion of its
existing assets in an orderly manner and pursue acquisitions of one or more
private companies.
CHARTWELL INTERNATIONAL, INC.
In December 1984, the Company was incorporated in Nevada under the
name Chartwell Publishing Company, Inc. In June, 1985, it was the surviving
corporation in a merger of Ladies Three, Inc. a Utah corporation. Ladies
Three, Inc. was a company in the business of temporary secretarial and
clerical services that had ceased doing business prior to the merger. Ladies
Three was a publicly traded company at the time of the merger and the
transaction, therefore, resulted in Chartwell becoming a public company.
In 1989, the point at which the Company became an operating
business, Chartwell purchased 100% of CBC, Inc. CBC, Inc. shortly thereafter
changed its name to Sports Media, Inc. Sports Media was a publisher of
official team yearbooks for teams in the National Football League, the
National Basketball Association and the National Hockey League. Sports Media
became public in 1991 and Chartwell liquidated all of its interest in Sports
Media between 1992 and 1994. The Company changed its name to Chartwell
International, Inc. in June, 1993.
The Company is located at 5275 DTC Parkway, Suite 110, Englewood,
Colorado 80111. Its telephone number is (303) 804-0100. Chartwell shares
these facilities with two of its affiliated companies, National College
Recruiting Association, Inc. and College Bound Student Alliance, Inc.
As of September 1, 1999, the Company employed two persons on a
full-time basis and three persons on a part-time basis, none of whom are
covered by a collective bargaining agreement.
RAMONA, CALIFORNIA, PROPERTY
In 1994, Chartwell purchased 200 acres of residential real estate
near Ramona, California, about 40 miles east of San Diego, California. The
property is located in the northern portion of the county of San Diego just
south of a sub-division known as San Diego Country Estates and above the San
Vicente Golf Course. Adjacent to the east of the property are subdivided
parcels of five to ten acres including easements for open space. Parcels
further west and on the hills above the golf course include well-developed
lots with fine residences. Lands to the north include smaller lots of the San
Diego Country Estates developed more than twenty-five years ago. Larger
undeveloped acreage in large parcels exists to the south of the property.
The parcel has a sloping topography, varying from moderate to steep in grade.
Zoning is agricultural/residential (one dwelling per 6-10 acres).
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The Ramona property is currently listed for sale with an asking
price of $2.2 million under a standard listing contract with a Ramona,
California, real estate agent, Keller William Realty. The contract provides
for a six percent commission to the agent upon sale of the property. The
property has been listed since November, 1998, and the asking price was
reduced from $2.4 million to its current asking price in February, 1999. The
Company is unaware of any current potential buyers for the property.
The property was originally purchased for $1.2 million from the
bankruptcy estate for Poway Partners, a California general partnership and an
unaffiliated third party. The $1.2 million consisted of cash, Sports Media,
Inc. stock and Chartwell Series C Preferred stock. Subsequent to litigation
involving the seller and Chartwell, refinancing of the property and pledging
of the property as collateral for additional Chartwell obligations, the
property is subject to approximately $1,250,000 of obligations as follows:
- $600,000 note to Scripps Bank, Trustee FBO Edward Dessaw Clarkson
Jr., IRA and Edward Dessaw Clarkson, Jr., Trustee for the E.D.C. JR., Trust,
unaffiliated third parties, dated February 22, 1999, and secured by a first
deed of trust. Interest is at 12% per annum. Payments are of interest only
of approximately $6,000 per month until March 1, 2004, at which time all
remaining accrued interest and principal becomes due and payable.
- $31,684 note to Lester Summerfield, an unaffiliated third party,
dated August 1, 1998, and secured by a deed of trust. Interest is at 10% per
annum. Payments are of interest only until October 31, 1999 ("Maturity
Date"). $10,000 of principal was due and paid on November 9, 1999." All
remaining unpaid principal and accrued interest is due upon the funding of the
Company.
- $170,000 note to Mr. John J. Grace, a consultant to and
shareholder of the Company, dated March 5, 1999, secured by a deed of trust
as well as Chartwell's security investments in Chartwell Automotive Group,
Inc. (a dormant wholly owned subsidiary), College Bound Student Alliance,
Inc. (see below), Prentice Capital, Inc. (see "Utah Gypsum Mining Claims and
Rights," below) and Canaima Gold Corporation (see "Miscellaneous," below).
Interest is at 10% per annum compounded monthly. All principal and accrued
interest is due and payable August 1, 2000. See "Management's Discussion and
Analysis" and "Security Ownership of Certain Beneficial Owners and
Management."
- $300,000 note to John J. Grace IRA Rollover Account dated March 5,
1999, secured by a deed of trust as well as Chartwell's security investments
in Chartwell Automotive Group, Inc. (a dormant wholly owned subsidiary),
College Bound Student Alliance, Inc. (see below), Prentice Capital, Inc. (see
"Utah Gypsum Mining Claims and Rights," below) and Canaima Gold Corporation
(see "Miscellaneous," below). Interest is at 10% per annum compounded
monthly. All principal and interest is due and payable August 1, 2000. See
Management's Discussion and Analysis" and "Security Ownership of Certain
Beneficial Owners and Management."
- $130,000 note to John J. Grace IRA Rollover Account dated March 5,
1999, secured by a deed of trust as well as Chartwell's security investments
in Chartwell Automotive Group, Inc. (a dormant wholly owned subsidiary),
College Bound Student Alliance, Inc. (see below), Prentice Capital, Inc. (see
"Utah Gypsum Mining Claims and Rights," below) and Canaima Gold Corporation
(see "Miscellaneous," below). Interest is at 10% per annum compounded
monthly. All principal and interest is due and payable August 1, 2000. See
"Management's Discussion and Analysis" and "Security Ownership of Certain
Beneficial Owners and Management."
- $14,362.69 note to Burg, Simpson, Eldredge & Hersh, P.C., an
unaffiliated third party, dated November 23, 1998, secured by a deed of
trust. $10,000 of principal was paid on this note April 23, 1999, $1,000 was
paid November 2, 1999, and another $1,000 is due December 1, 1999. Interest
is at 12% per annum. All principal and accrued interest is due upon the
earlier of the following (i) the sale of the Ramona property or (ii) (by
amendment) January 1, 2000.
- An obligation to the seller of the property as follows: "Within
90 days of completion and full County approval of the Final Map and platting
of all lots, Chartwell shall convey title by special warranty deed, free of
all encumbrances to Poway [Partners, a California general partnership] of
lots equivalent in value to $250,000.00." Because the Final Map and platting
was not done by November 25, 1999, the contract involved secondary collateral
in the form of a two-year option to purchase 333,333 shares in
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another company held by Chartwell (College Bound Student Alliance, Inc. f/k/a
SportsStar Marketing, Inc.) at $.75 per share (such shares are in escrow).
The shares of the other company currently trade at about half the option
exercise price. Chartwell has the right at any time to repurchase these
options for $350,000 but has no current plans to do so. In addition, no work
has commenced on the Final Map and platting and Chartwell has no current
plans to map and plat the property prior to sale. The agreement does not
specify what is to happen upon sale of the whole tract without the final
mapping and platting.
NATIONAL COLLEGE RECRUITING ASSOCIATION, INC.
National College Recruiting Association, Inc. ("NCRA") is a
California corporation that was formed in November, 1991. Chartwell
purchased all of the outstanding stock of NCRA in May, 1995. The purchase
price was valued at $2,120,000 and consisted of cash, promissory notes and
stock in Chartwell. Subsequent to the purchase, the parties settled
litigation that resulted in cancellation of the promissory notes and return
of a portion of the stock to Chartwell. The litigation settlement was
treated in the fiscal 1996 financial statements as a gain of $1,277,555.
NCRA owns the rights to a program to promote high school athletes to
colleges in the pursuit of scholarship money for the athletes. The program's
principal method of promotion is through area consultants who act as
promotional agents for the athletes (some of whom are franchised) and through
publication of a quarterly magazine, "BlueChip Illustrated." "BlueChip
Illustrated" lists many high school athletes in several sports and highlights
the enhanced profiles (often with photographs) of athletes who have paid for
the enhanced profile. Athletes also pay for the services of the promotional
services of area consultants. College coaches are the typical subscribers of
"BlueChip Illustrated."
In June, 1997, NCRA licensed its program and assigned all its
business operations, including all data banks, technology, publishing rights
and franchises, to College Bound Student Alliance, Inc. ("CBSA", formerly
known as SportsStar Marketing, Inc.), a Colorado corporation formed and then
wholly owned by Chartwell as described below. The terms of the licensing
agreement are fully described in the following section, "College Bound
Student Alliance, Inc. - General." In addition, NCRA shares its office space
with CBSA on a rent free basis. Other than its licensing revenue, NCRA is
inactive and has no paid employees. All operational details of NCRA's former
business including the granting of, areas covered by, training provided to
and pricing for franchises are determined by CBSA.
NCRA has overlapping officers and directors with Chartwell as
follows:
- Janice A. Jones, Ph.D. is Chief Executive Officer and a director
of Chartwell as well as President and a director of NCRA.
- Ms. Alice Gluckman is Secretary, Treasurer and a director of
Chartwell as well as Secretary, Treasurer and a director of NCRA.
INTELLECTUAL PROPERTY
NCRA has a trademark for "BlueChip Illustrated" registered with the
U.S. Patent and Trademark Office in the class of paper goods and printed matter.
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NCRA also has a service mark for its NCRA logo registered with the same
office. The logo consists of the NCRA initials over the words "NATIONAL
COLLEGE RECRUITING ASSOCIATION" and flanked by the silhouettes of two persons
in college graduation dress.
COLLEGE BOUND STUDENT ALLIANCE, INC.
GENERAL
Chartwell currently holds approximately 47% (approximately 8,200,000
shares) of College Bound Student Alliance, Inc. ("CBSA"). CBSA was
incorporated in the State of Colorado on July 15, 1993, under the name Winter
Park Ventures, Inc. and acquired by the Company in 1996 through purchase of
100% of its outstanding stock from its sole shareholder, for $600. On April
22, 1997, Winter Park Ventures, Inc. changed its name to SportsStar
Marketing, Inc. and on July 15, 1999, changed its name to College Bound
Student Alliance, Inc. CBSA common stock is traded under the symbol "GRAD" on
the Over The Counter Bulletin Board operated by the National Association of
Securities Dealers, Inc. CBSA is not currently a reporting company under the
Securities Exchange Act of 1934, but plans to file a Form 10-SB with the SEC
to become a reporting company in the near future. Current information on
CBSA is provided to the marketplace for its stock pursuant to the SEC's Rule
15c2-11. Chartwell may continue to reduce its interest in CBSA if Chartwell's
cash requirements make such liquidation prudent.
CBSA became a public company in January, 1998, pursuant to the sale
of $1,000,000 of common stock (2,000,000 shares) under Rule 504 of Regulation
D promulgated by the SEC. After such sales, Chartwell owned approximately
70% of the outstanding CBSA common stock. Subsequent to January, 1998,
Chartwell experienced further dilution of its holdings to approximately 47%
of CBSA's outstanding stock (approximately 8,200,000 shares) as a result of a
major Chartwell shareholder's/officer's conversion of a convertible
promissory note into CBSA shares and the issuance of CBSA shares by CBSA upon
acquisition of College Bound Student Athletes, Inc. The name of this company,
"College Bound Student ATHLETES, Inc." should not be confused with
Chartwell's minority-owned subsidiary, "College Bound Student ALLIANCE,
Inc.", and to a lesser extent, the issuance of shares by CBSA as compensation
to its directors, employees and consultants and the occasional sales of CBSA
stock by Chartwell as funds were needed by the Company. Chartwell's plan is
to continue to be a long term holder of CBSA stock, but to sell shares on the
open market as Chartwell's cash needs may dictate. See Financial Statements
and "Management's Discussion and Analysis."
CBSA is a development-stage company with a staff of consultants
nationwide who represent high school students and student-athletes seeking
financial, informational, recruiting and admissions assistance to attend
college. In June, 1997, CBSA licensed its data banks, technology, publishing
rights and franchises from NCRA (see "National College Recruiting
Association, Inc." above). The term of the Agreement is for a 5-year period,
with unlimited 5-year renewals under the same terms and conditions. As
consideration for the license, CBSA paid NCRA an initial payment of $150,000
and is obligated to pay 2.5% of the gross revenues realized from the business
operations of CBSA. An additional $50,000 will be due and payable to NCRA out
of any proceeds realized from an offering of up to $1,000,000 of CBSA common
stock being conducted by that company (currently in registration with the
state of Nevada under Rule 504 of Regulation D promulgated by the SEC) and
$50,000 will be due from proceeds received in subsequent fundings or from
future operations of CBSA. CBSA's current plans are to seek an additional
$5,000,000 in a future financing. Other than the registration of the
offering in Nevada, however, CBSA has not embarked upon any definite strategy
to raise the additional financing. There can be no assurance that CBSA's
current offering or future financing will be successful.
In April, 1999, CBSA was the surviving corporation in an acquisition
of College Bound Student Athletes, Inc. The name of this company, "College
Bound Student ATHLETES, Inc." should not be confused with Chartwell's
minority-owned subsidiary, "College Bound Student ALLIANCE, Inc.",
("Athletes"), Milwaukee, Wisconsin. This acquisition was accounted for as an
acquisition.
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Athletes, formerly a direct competitor of CBSA, was in the college recruiting
business for approximately 10 years. Athletes had approximately 200 sales
personnel; generated revenues between $1.8 and $2.2 million per year over the
last 3 years; and had been profitable in its business operations. To date,
Athletes has served and assisted over 18,000 students with their collegiate
goals in over 43 states and 10 countries. Students assisted by Athletes have
received financial assistance packages aggregating over $170,000,000. The
joint resources of the CBSA and Athletes is expected to greatly enhance
CBSA's ability to expand aggressively in the student financial aid market.
MANAGEMENT SERVICES AGREEMENT
In February, 1999, CBSA entered into a Management Services Agreement
with Chartwell under which Chartwell provides certain accounting, financial
and management services and personnel to CBSA on an as-needed basis in
exchange for $7,500 per month. Pursuant to the terms of the Agreement, when
CBSA's revenues exceed $4,000,000 per year, the monthly fee will be increased
to 2 1/2% of total revenues. In addition, all out-of-pocket expenses
incurred by Chartwell on behalf of the CBSA are reimbursed. Under this
agreement, CBSA currently owes Chartwell $75,210.
BACKGROUND AND HISTORY OF CBSA's INDUSTRY
According to data derived from the National Center for Education
Statistics, the Digest of Education Statistics and the NCAA Educational
Services, each year approximately 1.9 million high school graduates go on to
enroll at a college or university. The cost of a college education has
escalated over the years to the point where few qualified students can afford
to attend the schools of their choice without some form of financial
assistance. Recent figures put the cost of a four-year degree between $35,000
for a state university and $150,000 at the more exclusive private colleges
and universities. In addition, only 55% of students complete their degrees in
four years. As a consequence, more and more students and their parents are
seeking an efficient and effective method to increase the chances of securing
as much financial aid as possible and to find the "right" college for them.
The initial focus for CBSA when it licensed NCRA's operations was on
student-athletes. In an effort to expand its business, however, CBSA's focus
has recently been broadened to serve the larger areas of academics and fine
arts. Furthermore, athletic scholarships are often supplemented by other
financial aid and/or merit award programs. For every athlete, there are 50
non-athletes planning on entering college and looking for financial help.
Financial aid is a $58-billion-dollar-a-year industry. CBSA provides:
college financial aid analysis and planning, financial aid application
submissions and annual renewal, and merit award search for students with
grade point averages of 3.0 and above.
CBSA's MARKET
The market for CBSA's services in assisting students to gain
entrance into colleges, is very large and is growing rapidly. According to
the above mentioned services, each year approximately 1.9 million high school
graduates enroll at a college or university, and approximately 80% of those
graduates seek some kind of financial aid. There are 3.5 million new
students entering high school each year, and this number is expected to
increase to 5.5 million entrants over the next decade.
CBSA currently serves three distinct markets of students seeking
financial aid: academic, fine arts and athletic. CBSA's primary method is to
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repeatedly expose the talents and ability levels (the "student profile") of
high school students to those schools in the United States and Canada that
they qualify to attend. This exposure, along with CBSA's guidance, brings
students higher levels of collegiate recruitment opportunities. The goal is
for the students to gain entrance into colleges that are not only "right" for
them, but also present them with many financial assistance opportunities to
subsidize the costs of their education.
CBSA has achieved success in securing letters of interest,
admissions, or financial aid for all of its students. While not always
obtaining partial or full scholarships for all of its students, CBSA has
always obtained recruiting interest and has over a 92% customer satisfaction
rate with its clients, as determined by regular mailings to clients.
MARKETING AND SALES
CBSA markets its services largely through corporate sponsors and an
organization of full- and part-time consultants. The consultants live in
specified areas and are familiar with the high schools, students, teachers,
and athletics coaches in those areas. CBSA targets students and athletes who
meet minimum standards of academic, fine arts and athletic performance.
Sales are generally conducted at the student's home with the student's
parents and the student.
Over the last three years, CBSA and its merger partner, College
Bound Student Athletes, Inc., (see "College Bound Student Alliance,
Inc.--General," above) have assisted approximately 7,300 students through its
programs at an approximate rate of 200 students per month. CBSA estimates
that over $170 million of financial assistance and scholarships have been
awarded to clients of CBSA and its merger partner.
CBSA is currently seeking financing to develop an Internet-driven
delivery vehicle that provides students, parents, high schools and college
staffs worldwide with comprehensive and cost-effective programs and services
for helping to bring students and colleges together. Via an expanded
Internet presence, the focus of CBSA will be to greatly expand it efforts in
four distinct markets: the academics, fine arts and athletics assistance
markets currently being served by CBSA as well as an additional vocational
studies assistance market.
REVENUE SOURCES
1. Direct Sale of Student Profiles: Sold directly to students and
parents via the Internet and/or direct contact through CBSA's 200
consultants; $695 to $995 per student.
2. Corporate Sponsorships: National and local organizations cover
the students' fees for utilizing CBSA's programs primarily for public
relations and employee benefits. Current corporate sponsors include -
McDonald's, Coca-Cola, Kentucky Fried Chicken, CitiCorp, the Denver Broncos
and the Pittsburgh Steelers. Sponsorships have ranged from $1,000 to $25,000.
3. Employee Benefit Programs: Organizations cover the student fees
for CBSA services as an addition to their current employee benefits package.
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CBSA services are treated as an expanded tuition reimbursement program to
help attract and retain employees. This program has not yet generated any
revenue.
4. "BlueChip Illustrated" Magazine Sales: "BlueChip Illustrated"
has generated revenues through athlete-directed advertising and has
historically had approximately 4,000 subscribers. Subscriber revenue has
been less than $10,000 per year. It is also a great credibility builder for
CBSA, often referenced by USA Today and ESPN as a good source for college
recruiting analysis. Publication of "BlueChip Illustrated" has recently been
suspended pending CBSA receiving additional capital.
5. Additional Revenue Sources: Additional programs, such as
student highlights videos, student camps, SAT and ACT preparation programs,
course tutoring, selection evaluations and college-major interest tests are
also available from CBSA for additional fees.
COMPETITION
CBSA estimates that less than 1% of the potential market is being
served by CBSA and its competitors. There are two primary types of student
recruiting: (i) Internet companies where, for a small fee, the student
places his/her own information on an Internet site, and (ii) companies with
operations similar to those of CBSA.
Internet Based - CBSA has informally gathered information that
admissions directors, department heads, and coaches do not express a great
deal of interest in Internet profiles due to the biased, undocumented and
unverified nature of the information presented.
Similar Operations - With the merger of CBSA and Athletes, there are
only two companies (College Prospects of America and The National Scouting
Report) which have been identified as conducting business similar to that of
CBSA. Both of these companies are franchise or license-based, are smaller
than CBSA and are not felt by CBSA to be a competitive threat to its future
growth.
There can be no assurance CBSA will be able to maintain its position
in the industry. Barriers to entry into Internet based businesses are low
and the development by others of new, improved or modified programs and/or
services could make CBSA's products and/or services obsolete. Therefore,
even if CBSA develops services or products that prove to be commercially
feasible, there is no assurance that a new development by a competitor will
not supersede any such services or products. CBSA must, therefore,
continuously improve its services and develop new products in order to be
competitive. In this regard, CBSA may not have sufficient resources to
undertake the research and development necessary to remain competitive in the
industry.
RECENT ACQUISITION ANNOUNCEMENT
On August 23, 1999, CBSA announced that it had signed a binding
letter of intent to acquire College Management Resource, Inc. d/b/a College
Financial Aid Services of America ("CFASA"). The purchase price is to
consist of 2,000,000 shares of CBSA common stock and $4,000,000 in five
percent notes due through 2004 payable out of cash flow. CFASA is one of
the country's largest providers of career counseling, college selection and
financial aid analysis for college students and their families. In 1998 it
earned revenues of $7.1 million and $1.9 million in pre-tax operating cash
flow. Significant issues regarding the proposed acquisition have arisen
(including renegotiation of the acquisition price) and it is unclear at this
time whether the acquisition will be consumated.
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GOVERNMENT REGULATION
Few regulations control CBSA's business and operations, other than
regulations applicable to businesses generally. It is possible, however,
that future laws and regulations may be adopted with respect to college
financial aid covering such issues as privacy, pricing, quality of services,
and libel, among others. Any such new legislation or regulation could have
an adverse impact on CBSA's business.
CBSA is subject to state and federal laws regarding its past sales
of franchises to a small number of its area consultants (approximately 15% of
CBSA's area consultants are franchisees). The last franchise was sold in
January, 1999. CBSA, however, has discontinued offering franchises and has
no plans to offer franchises in the future.
EMPLOYEES
CBSA has a total of 6 employees (5 full-time) in its Denver offices
and a total of 12 employees (all full-time) at its offices in Wisconsin. In
addition, CBSA has over 200 independent sales consultants located throughout
the country.
CBSA's continued future success depends in significant part upon the
continued service of its key senior management personnel and its continuing
ability to attract and retain highly qualified technical and managerial
personnel. The time that the officers and directors devote to the business
affairs of CBSA and the skill with which they discharge their
responsibilities will substantially impact CBSA's success. To the extent the
services of these individuals would be unavailable to CBSA for any reason,
CBSA would be required to identify, hire, train and retain other highly
qualified technical and managerial personnel to manage and operate CBSA.
CBSA's business could be adversely affected to the extent such key
individuals could not be replaced.
EXECUTIVE OFFICES
CBSA's executive offices are located at 5270-5275 DTC Parkway, Suite
110, Englewood, Colorado 80111. CBSA leases approximately 5,000 sq. ft. of
office space from Chartwell at a monthly rental rate of $4,121. The term of
the lease is until July 1, 2000, at which time CBSA intends to renegotiate
the lease term with Chartwell. The current monthly rental rate is
competitive with comparable office space in the area. See "Certain
Transactions".
In connection with the acquisition of Athletes, CBSA also assumed a
lease agreement with an unrelated third party for approximately 4,710 sq. ft.
of office and warehouse space located at N 19 W 6717 Commerce Court,
Cedarburg, Wisconsin, where it conducts its Athletes operations. The term of
the lease is for 5 years, commencing on September 1, 1995, at a monthly
rental rate of approximately $3,700 per month, a competitive rental rate for
comparable office space in the area.
MANAGEMENT
CBSA and Chartwell have overlapping management as follows: Janice
A. Jones, Ph.D. is Corporate Secretary, Treasurer and a Director of CBSA as
well as Chief Executive Officer and a Director of Chartwell; William R.
Willard is a Director of CBSA and Chartwell as well as a paid consultant to
each company. See "Directors and Executive Officers, Promoters and Control
Persons." CBSA has
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four Directors, the other two of whom are otherwise unaffiliated
with Chartwell or NCRA.
The directors of CBSA are elected annually by the shareholders and
hold office until their successors are elected and qualified. The officers
of CBSA will serve in their respective capacities until the next annual
meeting of CBSA's Board of Directors or until their successors are duly
appointed and have qualified. Set forth below are the names and positions of
the current officers and directors of CBSA.
<TABLE>
<CAPTION>
Name Age Position(s)
<S> <C> <C>
Jerome M. Lapin 69 Chief Executive Officer and
Director
Richard N. Newton 48 Chairman of the Board of
Directors
Kevin Gemas 37 President and Chief Operating
Officer
Arthur D. Harrison 67 Chief Financial Officer
and Treasurer
William R. Willard 57 Director
Dr. Janice A. Jones 51 Director and Secretary
Serena V. Riedel 29 Vice President - Administration
</TABLE>
BACKGROUND OF OFFICERS AND DIRECTORS
JEROME M. LAPIN has been Chief Executive Officer and a Director of
CBSA since September 1, 1999. From January, 1994, to July, 1999, Mr. Lapin
was President, CEO and Chairman of the Board of Directors of American Coin
Merchandising Corporation, a publicly traded company, (symbol ACMI). Mr.
Lapin was a co-founder of International House of Pancakes in 1958. In 1966
he retired to Australia where he pursued private business interests including
World Hosts Pty, Ltd. which owned Caprice Restaurant and introduced Orange
Julius to Australia. In 1978 Mr. Lapin returned to the United States and
became President and CEO of Topsy's International, Inc. which acquired the
Tastee Freez chain of 800 units. He was also President of Sanwa Foods, Inc.,
a soup manufacturer in Los Angeles that was subsequently acquired by Campbell
Soups.
RICHARD N. NEWTON has been the Chairman of the Board of Directors of
CBSA since April, 1999. From November, 1996 to March, 1999, he was Director
of Corporate Finance Services at American Express Co. From April, 1990, to
October, 1996, he was CEO of Systems Science Institute. Mr. Newton has more
than 28 years of multi-industry experience ranging from start-up to Fortune
500 companies, and is primarily responsible for CBSA's recent acquisition of
Athletes. He graduated from the University of Colorado with a Degree in
Engineering. Mr. Newton devotes approximately 20% of his time to the
business of CBSA.
KEVIN GEMAS has been the President and Chief Operating Officer of
CBSA since April, 1999. From January, 1991 to April, 1999, he was President
of College Bound Student Athletes, Inc., which he founded and operated and
which
11
<PAGE>
was acquired by CBSA in April, 1999. He graduated from Clemson University in
1985 with a B.S. Degree in Business Administration. Mr. Gemas devotes full
time to the business of CBSA.
ARTHUR D. HARRISON has been the Chief Financial Officer of CBSA
since February, 1999. Since 1983, he has also been owner of Arthur Harrison
& Co., a financial services consulting firm in Englewood, Colorado. He has
represented companies in Colorado's manufacturing, construction, distribution
and service industries and has served a Vice Chairman of Colorado Venture
Centers and The Rockies Venture Club. In addition, he served on the Boards
of Jackson Sound, Atmospheric Instrumentation Research, Inc. and Napro
Biotherapeutics, Inc., a publicly-traded pharmaceutical company. As
co-editor of a column for The Denver Post newspaper for 6 years, he provided
business advice to many high-tech and low-tech companies. He graduated from
Bucknell University in 1954 with a B.S. Degree in Commerce & Finance. Mr.
Harrison devotes his time as required to the business of CBSA.
WILLIAM R. WILLARD has been a Director of CBSA since 1997. Since
1997, he has also been a Director of Chartwell. Mr. Willard's background is
set forth in Chartwell's management item , below. Mr. Willard devotes his
time as required to the business of CBSA.
JANICE A. JONES, Ph.D., has been a Director, Treasurer and Corporate
Secretary of CBSA since 1998. Dr. Jones' background is set forth in
Chartwell's management item, below. Dr. Jones devotes full time to the
business of CBSA.
SERENA V. RIEDEL has been the Vice President of Administration for
CBSA since November, 1998. She is also Director of Investor Relations for
Chartwell. From March, 1998, to November, 1998, she was Vice President of
Operations for Ryan Insurance Strategies Corporation, an insurance company in
Denver, Colorado. From July, 1997 to March, 1998, she was Executive
Administrative Assistant for Yale Residential Security, a lock/door hardware
manufacturer in Norcross, Georgia. From September, 1996, to June, 1997, she
was Sales Coordinator/Manager of Operations for National Practice Brokerages,
Inc., a company which markets optometry practices in Lakewood, Colorado.
From April, 1995, to September, 1996, she was Executive Secretary for Bertram
& MacLeod, a wholesale furniture manufacturer in Lancaster, Pennsylvania and
from Mary, 1989, to August, 1996, she was Payroll Secretary for Pets N
Stuff/Birds N Stuff in Lancaster, Pennsylvania. Ms. Riedel devotes her time
as required to the business of CBSA.
ADVISORY BOARD
CBSA has just recently engaged the following persons to serve on its
newly-formed Advisory Board:
<TABLE>
<S> <C>
Jerome M. Lapin Chairman of Advisory Board; Chief Executive Officer and
director of CBSA; former Chief Executive Officer of
American Coin Merchandising Corporation
John Brodie National Football League (Most Valuable Player, San
Francisco 49ers Quarterback) & Senior Professional
Golf Association Veteran
Stedman Graham Chief Executive Officer of Graham, Gregory and Bozel;
Director of National Urban League; Director of
12
<PAGE>
National Junior Achievement; Founder and Executive
Director of Athletes Against Drugs
Tom Donahoe V.P.-General Manager of the Pittsburgh Steelers
The Hon. Terry Lister Minister of Development - Bermuda
Jack Renkins Recruiting Realties
Steve Garban Sr. V.P.-Finance, Operations & Treasurer-Pennsylvania
State University; Director of Metropolitan Life
Series Fund and State Street Management Mutual
Funds
Donald Harper Human Resource Contract Consultant
Paul A. Lester, Esq. Founding Partner - Fieldstone, Lester, Shear & Denberg
Jeff Tripician Dairy Industry's "Milk Mustache" Innovator
</TABLE>
CBSA intends to continue recruiting professionals throughout the country to
serve on its Advisory Board.
CONSULTANTS
On March 29, 1999, in connection with the acquisition of Athletes,
CBSA entered into a Consulting Agreement with Wayne O. Gemas, father of Kevin
Gemas, President and COO of CBSA. Pursuant to the terms of the Consulting
Agreement, Wayne Gemas will provide consulting services to CBSA on all
matters pertaining to the business of CBSA for a period of 5 years and will
receive a fee of $1,500.00 per month for such services. In addition, Mr.
Gemas is entitled to health insurance coverage, with the premium for such
policy to be paid by CBSA.
EMPLOYMENT AGREEMENTS
Upon joining CBSA, Jerome M. Lapin entered into a compensation
agreement under which he is to receive $60,000 deferred cash compensation and
an option to purchase 500,000 shares of CBSA common stock at 80% of the June
1, 1998, market value for five years. 250,000 of the options vested on
August 9, 1999, and 250,000 of the options are to vest August 9, 2000.
On March 29, 1999, Kevin Gemas, President and Chief Operating
Officer of CBSA, and the former founder of Athletes, entered into an
Executive Employment Agreement with CBSA. Pursuant to the terms of the
Agreement, Mr. Gemas will be employed by CBSA for an initial term of 5 years,
with annual extensions thereafter by mutual consent of the parties, and is to
be paid an annual cash compensation of $90,000, subject to annual review. In
addition, Mr. Gemas will receive a standard benefit package (health
insurance, vacation pay, sick pay) and after the first year, will be entitled
to participate in any CBSA executive management bonus and/or stock option
plans.
In February, 1999, CBSA entered into a written employment agreement
with Arthur D. Harrison, Chief Financial Officer, whereby Mr. Harrison
receives compensation for his services as follows: $15.00 per hour cash,
payable upon receipt of hourly billing; $35.00 per hour payable upon receipt
of financing in excess of $750,000; and $90.00 per hour in the form of CBSA
warrants or stock options based on the current offering valuation.
13
<PAGE>
In April, 1999, CBSA entered into an employment contract with
Richard N. Newton, Chairman of the Board of Directors. Pursuant to the terms
of the contract, Mr. Newton received 50,000 shares of CBSA's restricted
common stock upon engagement of his services as Chairman and a 5-year option
to purchase up to an additional 1,000,000 shares at $.50 per share, to be
vested at the rate of 200,000 shares per year. In addition, upon reaching
operating profitability of $100,000 per year, Mr. Newton will commence
receiving an annual salary of $25,000. On August 10, 1999, the Board of
Directors rescinded the 5-year option to purchase up to 1,000,000 shares, but
granted Mr. Newton the option to purchase up to a total of 60,000 shares, the
amount vested since his employment commenced.
CBSA has entered into a verbal agreement with Janice A. Jones, a
Director and Secretary, and William Willard, a Director, whereby both parties
receive 8,000 shares of CBSA's restricted common stock per quarter as
compensation for their services. In addition, Mr. John J. Grace, husband of
Dr. Jones, receives 8,000 shares of CBSA's restricted common stock per
quarter as compensation for services he renders to CBSA.
CBSA presently has no pension, retirement, annuity, profit sharing
or similar benefit plans.
EXECUTIVE COMPENSATION
The following tables contain compensation data for the Chief
Executive Officer and other named executive officers of CBSA for the most
recent fiscal year:
<TABLE>
<CAPTION>
Cash
Name of Individual Capacities Served Compensation
<S> <C> <C>
Kevin Gemas President and Chief $90,000/yr. (1)
Operating Officer
Jerome M. Lapin Chief Executive Officer $60,000/yr. (2)
</TABLE>
- ----------------
(1) CBSA commenced paying this compensation on April 1, 1999, when it
acquired Athletes and Mr. Gemas became an Officer and Director of CBSA.
(2) Commencing September 1, 1999, and deferred until the Company's cash
flow permits payment.
- ----------------
No CBSA executive officer receives an annual salary and bonus in excess
of $100,000.
UTAH GYPSUM MINING CLAIMS AND RIGHTS
In April, 1985, Chartwell entered into an agreement with Milton R.
Pollard and Central Pacific Assurance Limited ("Central") to have the right
to mine up to 2,000,000 tons of gypsum from the Riverview Placer Claims 1
through 9 on Bureau of Land Management land near St. George, Utah. Central
has represented that it received its rights to mine "ten million tons of high
grade gypsum" by assignment from Transamerican Minerals, Ltd. This agreement
expires January 4, 2001. The mining rights were acquired in exchange for the
issuance of an 8% convertible debenture in the amount of $42,300; 1,080,000
shares of Chartwell common stock valued at $472,500 and 150,000 shares of
Chartwell Series B Preferred Stock valued at $10.00 per share (converted to
14
<PAGE>
3,000,000 shares of Common Stock in 1995). As part of the agreement, an
outside party TransAmerican Minerals, Ltd. has royalty rights of 25% of net
mining profits (selling price less expenses to mine) or $1.00 per ton of
materials, whichever is greater. To protect its interest in this property,
the Company re-staked and re-filed the claims in its own name in 1993 and
renamed them as "New Riverview Claims" 1 through 12. The property underlying
the New Riverview Claims 1 through 9 is believed to be (and was intended to
be) identical to the property underlying the Riverview Placer Claims 1
through 9. New Riverview Claims 10, 11 and 12 adjoin New Riverview Claims 1
through 9. Because the original mining interest was contractual with the
original lessee, re-staking and re-filing the claims protects Chartwell's
rights to mine a property in the case where the original lessee abandons his
prior claim to the property. Chartwell entered into a secondary claim to the
properties, in order to ensure the right to mine any abandoned property if
another party filed a claim to the property prior to any claim being made by
Chartwell.
In January, 1993, the Company purchased rights from Central Pacific
Assurance Limited to mine 3,000,000 tons of gypsum from the same claims in
exchange for $1,500,000 in the form of 150,000 shares of Chartwell's Series B
Preferred stock (since converted to Common Stock). This agreement expires
January 4, 2001.
The BLM accepts the payment by Chartwell of the annual maintenance
fee ($2,100) for the twelve New Riverview Claims. As to the Riverview Placer
Claims, the BLM has most recently responded that, "After reviewing our
records, the Riverview [Placer Claims] 1-3 and Riverview [Placer Claims] 5-6
were closed by Bureau of Land Management Decision dated June 17, 1994." The
BLM goes on to say, "Furthermore, the 1999 maintenance fees were already paid
for the Riverview [Placer Claims] 4 and the Riverview [Placer Claims] 7-9
mining claims . . . by Western Gypsum, Inc." As a result of additional
investigation, Chartwell has concluded that because of its earlier re-staking
and re-filing of the claims in its own name, it owns mining claims to the
property covered by the New Riverview Claims, 1, 2, 3, 5 and 6 (formerly named
"Riverview Placer Claims 1, 2, 3, 5 and 6") and New Riverview Claims 10, 11,
and 12. It also has contractual mining rights for the full 5,000,000 tons of
gypsum as to the property covered by Riverview Placer Claims 4, 7, 8 and 9
currently owned and maintained by Western Gypsum, Inc. Chartwell does not know
specifically when Western Gypsum, Inc. became the successor in interest to the
original claimant, Transamerican Minerals, Ltd. Chartwell is unaware of any
additional federal mining claims on the property.
Gypsum is the commercial or generic name for calcium sulfate. In
September, 1992, Chartwell engaged Ludlow Engineering, Nephi, Utah,
("Ludlow") to update an earlier engineering report on the claims.
It is Ludlow's "opinion that the Riverview Placer Claims have large
reserves of high grade gypsum and by selective mining, Chartwell can recover
their entire 2 million tons as food and pharmaceutical applications by mining
the higher grade beds. Food and pharmaceutical grade gypsum commands a
substantial premium price over the conventional lower grade gypsum that are
commonly used in the construction and agricultural industry. Current [1992]
market price for the higher grade food and pharmaceutical gypsum ranges from
about $320 per ton for powder grade to about $960 per ton for specially
processed granular grade. This compare [sic] with $8.50 per ton for gypsum
currently [1992] sold from producing mines in the vicinity to the
construction and agricultural industry."
The price per ton quoted above does not reflect the value of the
gypsum in the claims for any time after 1992, but the information is
significant because it illustrates the substantially higher price paid for
pharmaceutical grade gypsum when contrasted with that paid for construction
and agricultural grade gypsum. In addition, the above prices per ton do not
reflect any of the expenses of mining the gypsum. Ludlow estimated in 1992,
however, that on a 50,000 tons per year basis, mining costs would begin at
$3.59 per ton for the first year and go down thereafter to $3.29 per ton plus
cost of inflation. Chartwell has done no investigations as to the current
cost of mining or the current market price for various grades of gypsum, but
assumes that mining costs, at least, will be higher than the 1992 estimates.
Finally, the Ludlow report gives no indication as to whether there should be
any distinction between the quality and value of the gypsum in (a) the
property on which Chartwell has mining rights and (b) the property on which
Chartwell has mining claims (other than Riverview Claims 10, 11 and 12, which
are not covered by the Ludlow report).
15
<PAGE>
The claims and rights have been for sale since July, 1998, at which
time there was a cancellation of a development contract with Prentice
Capital, Inc., an unaffiliated third party that had contracted to purchase and
develop the claims. (The cancellation was due to the developer's inability
to secure financing and was effectively a rescission of the earlier
development contract, except that Chartwell and the broker involved in the
transaction retained a portion of the purchase price - approximately 140,000
and 30,000 shares, respectively, of the developer's common stock which
currently has no market value.) Chartwell would also consider a joint
venture development of the claims and rights. The Company, however, has no
plans to be the lead developer of the claims and rights or to develop the
claims and rights by itself. Although the Company has had recent inquiries
regarding the claims and rights, no discussions have resulted in, or
presently indicate the likelihood of, any purchase or joint venture proposals.
COMPANY'S ACQUISITION OBJECTIVES
The Company's long-term strategy is to dispose of or develop most of
its existing assets in an orderly manner and to pursue an acquisition or
merger with one or more private companies. The Company's objective is to
acquire profitable operating companies or companies with extraordinary
potential in transactions that would not result in a change of control of the
Company. The Company has had early discussions with one potential
acquisition candidate, but terms have not yet been established or agreed upon
and there is no assurance that this acquisition will be completed.
MISCELLANEOUS
During 1994 the Company made various investments in gold mining
concessions in the State of Bolivar in Southeastern Venezuela. These
investments were made through Canaima Gold Corporation A.V.V., an 85% owned
subsidiary incorporated in Aruba. Canaima has no significant assets other
than the gold mining concessions. Chartwell's investment was in the form of
the issuance of 60,000 shares of Series C Preferred Stock then valued at
$600,000. Due to the difficulty the Company has experienced in engaging an
operator for the property and what it views as an unstable political
situation in Venezuela, the Company has written down the value of the
concessions to $45,000. Although the Company's current plans are to
eventually sell any interest it has in the concessions, it has not been
actively pursuing the matter.
Chartwell has four dormant wholly owned subsidiaries for which it
has no current plans.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OPERATIONS AND LIQUIDITY
The Company's primary focus over the last three years has been on
organizing, recruiting personnel, acquiring a competitor, and expanding the
business of its 47% owned entity, College Bound Student Alliance, Inc.
("CBSA"). The Company plans to continue to perform these services for CBSA as
needed.
In July 1999 the Company's ownership interest in CBSA decreased
below 50%, which required the Company to change its accounting for CBSA from
consolidation to the equity method of accounting.
In addition the Company will continue to attempt to sell or enter
into joint ventures to develop its real estate holdings in San Diego County,
California and its gypsum deposits in St. George, Utah.
The Company also plans to seek acquisition candidates during the
next 12 months with emphasis on profitable operating companies or companies
with promising products. The Company expects to finance any acquisitions by
issuing debt to the sellers, the issuance of equity securities, raising
independent financing for the transactions, or a combination of these sources.
In addition, the Company could raise cash, if necessary, by
liquidating or joint venturing its land and mineral properties. The Company
has had its land and mineral properties for sale since July 1998. There is no
assurance that the Company will be successful in liquidating or joint
venturing these properties.
The Company will also continue to receive license fees and
management fees from CBSA. The Company anticipates that CBSA will continue
to grow and be successful in fiscal 2000, and accordingly, the Company
believes that it will earn increased license fee income and that the market
value of its investment in CBSA will increase.
16
<PAGE>
The Company expects to meet its cash requirements over the next 12
months as it has over the last 3 years, either through borrowings from
related parties and third parties or by selling portions of its securities of
CBSA.
The Company has maintained low cash balances and has historically
had limited liquidity and little or no cash reserves. The Company has met
its cash requirements principally through borrowings from related parties and
third parties and by selling portions of its securities of CBSA. Also, the
Company has been able to make payments of various liabilities by conveying
shares of its CBSA stock to third parties and also to related parties, which
indirectly contributes to cash flow.
The Company also receives management fees of $7,500 per month from
CBSA and also license fees, which have not been significant to date. The
Company believes that CBSA will continue to grow and that such license fees
will increase in the future and contribute to cash flow of the Company.
At July 31, 1999, the Company's working capital ratio was 0.5 to 1
based on current assets of $149,217 and current liabilities of $293,242. At
July 31, 1998, the Company's working capital ratio was 0.2 to 1 based on
current assets of $100,666 and current liabilities of $470,919. The
improvement in working capital ratio resulted primarily from the use of some
of the Company's CBSA stock to pay current liabilites and from the settlement
of disputed legal services.
In the statement of cash flows, net cash (used) in operations was
$(354,286) in fiscal 1999 and $(313,154) in fiscal 1998. In each year, the
Company had gains from disposal of portions of its CBSA securities, which did
not directly contribute to cash flows because most of the disposals consisted
of payments of operating liabilities and amounts owed pursuant to borrowings.
Further, the Company used the CBSA stock to pay for an array of services.
In fiscal 1999 and 1988, the Company had net cash provided by
investing activities of $147,898 and $112,906, respectively. In each case,
the amount consisted of stock of CBSA owned by the Company that was sold for
cash to unknown third parties in the open market through brokers.
In fiscal 1999 and 1988, the Company had net cash provided by
financing activites of $217,279 and $198,493, respectively. In each fiscal
year, the Company had net borrowings of approximately $100,000 from both
related parties and third parties.
The Company's current cash requirements are approximately $20,000
per month for payment of current obligations and operating expenses. The
Company expects to be able to meet these requirements by cash available from
management fees of $7,500 per month due from CBSA, license fees, sales of its
securities of CBSA, and borrowings from related or third parties. The Company
has no commitments for capital expenditures through July 31, 2000 and does not
expect any capital expenditures for which it is not already committed during
that period.
The Company's holdings in CBSA amount to approximately $2,700,000
based on the July 30, 1999 public trading price. Of the Company's holdings of
approximately 8,200,000 shares of CBSA common stock, approximately 5,800,000
are subject to option, pledge, collateral or other agreements. Thus, the
Company had approximately 2,400,000 shares of CBSA that could be sold at July
31, 1999.
The Company's holdings of approximately 8,200,000 shares of CBSA
common stock had a value of approximately $2,700,000 based on the closing
market price of $.33 per share on July 31, 1999 of CBSA common stock in
public trading. Based on the last trading price of $.27 per share of CBSA
common stock in public trading on November 18, 1999, the value of the
Company's holdings of CBSA common stock was approximately $2,200,000. The
shares of CBSA owned by the Company are not registered for public trading and
are subject to resale restrictions and therefor the Company may not be able
to realize the full amount of this value upon resale.
However, there can be no assurance that adequate funds from any
source will continue to be available on terms acceptable to the Company.
ANALYSIS OF STATEMENT OF OPERATIONS
Management and license fee revenue increased from $10,500 in fiscal
1998 to $90,989 in fiscal 1999 primarily as a result of management fees
earned by the Company from CBSA. The Company expects management and license
fee revenue to continue at this higher level.
General and administrative expenses decreased to $278,447 in fiscal
1999 from $799,910 in fiscal 1998. In fiscal 1998, the Company's travel
expenses and legal expenses were higher than in fiscal 1999 by approximately
$142,000 and $97,000, respectively. Travel expenses were higher in fiscal
1998 as a result of significantly more activity regarding investigation of
potential acquisition candidates. Legal expenses were lower in fiscal 1999
primarily as a result of a settlement of legal services for $77,000 less than
had been recorded as a liability in fiscal 1997 and fiscal 1996. Two other
factors accounted for most of the remaining difference. First, in fiscal
1998, the Company settled a dispute with a third party, which increased
fiscal 1998 expenses by approximately $154,000. Secondly, in fiscal 1999,
general and administrative expenses were reduced by approximately $65,000 as
a result of the reversal of certain liabilities of NCRA that had been
established in prior years. The Company determined that payment of these
will not be necessary. The Company expects fiscal 2000 general and
administrative expenses to be in the range of $270,000.
Depreciation and amortization expense was at the same level in
fiscal 1998 ($128,663) and fiscal 1999 ($128,663), because the Company did
not add any significant new depreciable or amortizable assets in either
fiscal year.
Gains on sales of stock related to sales of CBSA shares owned by the
Company and totaled $1,012,794 in fiscal 1998 and $370,113 in fiscal 1999.
The primary reason for the lower gain in fiscal 1999 was that the Company
sold less shares in fiscal 1999 (901,650 shares) than in fiscal 1998
(2,664,117 shares).
The Company reported a gain on its interest in CBSA in fiscal 1998
as a result of an increase in its proportionate interest in the net assets of
CBSA after the completion of a public offering in which CBSA realized net
cash proceeds of $745,000. The Company believes that such gains may also be
realized in the future, including with respect to a 504 offering of up to
$1,000,000, which has been approved by the State of Nevada Securities
Division and was announced by the Company on November 10, 1999.
The Company's share of net loss of CBSA on the equity method
decreased from $450,492 in fiscal 1998 to $207,836 because the Company
discontinued recognizing its share of CBSA losses in fiscal 1999 when the
recognition of losses resulted in the Company's investment in CBSA being
reduced to a zero balance.
Interest expense decreased from $129,775 in fiscal 1998 to $95,484
in fiscal 1999 primarily as a result of the waiver of interest accrued during
fiscal 1999 by a related party.
17
<PAGE>
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer systems that use two
digits rather than four to define the applicable year that may prevent such
systems from accurately processing dates ending in the year 2000 and after.
This could result in system failures or in miscalculations causing disruption
of operations, including, but not limited to, an inability to process
transactions, to send and receive electronic data, or to engage in routine
business activities and operations.
Management has spoken to all management personnel at each of its
businesses regarding each company's reliance on computer systems. Based upon
these discussions, management believes that the Company does not have
significant exposure to the Year 2000 issue. The businesses of Chartwell's
associated companies do not rely on computer operations for conducting the
significant parts of their business, and accordingly, the Company does not
believe that their products and services involve any material year 2000 risks.
The Company does not presently anticipate that the costs to address
the Year 2000 issue will have a material adverse effect on the Company's
financial condition, results of operations or liquidity due to the
aforementioned factors. However, management has not performed a formal
estimate of the costs for conversion of systems necessitated by the Year 2000
issue.
The Company presently anticipates that it will complete its Year
2000 assessment and any necessary remediations by December 31, 1999.
However, there can be no assurance that the Company will be successful in
implementing its year 2000 remediation plan according to the anticipated
schedule. In addition, the Company may be adversely affected by the
inability of other companies whose systems interact with the Company to
become year 2000 compliant and by potential interruptions of utility,
communication or transportation systems as a result of year 2000 issues.
The Company's operation does not depend on computer processing of
third parties and, accordingly, the Company has not taken any measures to
assess the readiness of third parties.
The worst-case scenario related to the year 2000 issue would be a
failure of the Company's computers to operate causing an inability to access
Company accounting and textual data on the machines until the problem is
resolved. Such information that would be difficult to recreate (e.g.,
accounting data) is sufficiently backed up and stored in a non-electronic
format. Therefore, even in a worst-case scenario it is not anticipated that
the year 2000 problems will have a material impact on the Company's internal
operations.
ITEM 3. DESCRIPTION OF PROPERTY
The Company operates from its office in Englewood, Colorado. The
Company leases its office space pursuant to a lease that expires July 31,
2000. Lease payments are $5,270 per month, of which $4,121 per month is paid
by College Bound Student Alliance, Inc. with whom Chartwell and National
College Recruiting Association, Inc. (Chartwell's wholly owned subsidiary)
share the space. See "Description of Business - Ramona, California,
Property" and "Description of Business - Utah Gypsum Mining Claims" for a
description of additional properties. The Company believes its facilities
are adequate to meet current business needs and that its properties are
adequately covered by insurance.
18
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of September 9, 1999, the number
and percentage of outstanding shares of Company Common Stock owned by (i)
each person known to the Company to beneficially own more than 5% of its
outstanding Common Stock, (ii) each director, (iii) each named executive
officer, and (iv) all executive officers and directors as a group. The
following calculations are made according to the rules of the SEC. Share
ownership is deemed to include all shares that may be acquired through the
exercise or conversion of any other security immediately or within the next
sixty days. Such shares that may be so acquired are also deemed outstanding
for purposes of calculating the percentage of ownership for that individual
or any group of which that individual is a member. Shares outstanding were
determined as of July 31, 1999.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF PERCENTAGE OF NUMBER OF SHARES OF COMMON
BENEFICIAL OWNER OWNERSHIP STOCK BENEFICIALLY OWNED
<S> <C> <C>
Janice A. Jones, Ph.D. (1) 48% 39,080,841(2)
5275 DTC Parkway, No. 110
Denver, CO 80111
William R. Willard * 60,000
356 Playa Del Norte, No. 2
La Jolla, CA 92037
Barry M. Goldwater, Jr. * 200,000
3104 East Camelback Rd., No. 274
Phoenix, AZ 85016
John J. Grace (1)(3) 11% 7,280,689
5275 DTC Parkway, No. 110
Denver, CO 80111
K.T. Mao (4) 8% 5,458,794
2676 East Easter Ave.
Littleton, CO 80122
Jennifer Mao Jones Trust (5) 7% 4,000,000
c/o Janice Jones
5275 DTC Parkway, No. 110
Denver, CO 80111
Justin Mao Jones Trust (5) 7% 4,000,000
c/o Janice Jones
5275 DTC Parkway, No. 110
Denver, CO 80111
All executive officers and 49% 39,340,841
directors as a group (2)(6)
(4 persons)
</TABLE>
- ----------------
* Indicates ownership of less than one percent.
(1) Dr. Jones and Mr. Grace are husband and wife. Each disclaims
beneficial ownership of shares owed individually by the other. They have no
joint ownership of any shares.
19
<PAGE>
(2) Includes shares owned by the following entities that are 100% owned
and controlled by Dr. Jones: Family Jewels II Limited Partnership, Jones
Family Limited Partnership II, The Chartwell Group, Inc., and East West
Trust. Also includes 18,996,790 shares that may be acquired through the
exercise of options or the conversion of Series A Preferred Stock or Series B
Preferred Stock. Also includes 1,500,000 shares that may be purchased
pursuant to warrants that Dr. Jones is to receive from K.T. Mao pursuant to a
contractual obligation. Also includes 960,000 shares in the children's trusts
listed below in the table.
(3) Includes 5,000,000 shares that may be acquired through the exercise
of options.
(4) Mr. Mao is the former husband of Dr. Jones. Includes 4,000,000
shares that may be acquired through the exercise of warrants. Includes
1,500,000 shares that may be purchased pursuant to warrants that Mr. Mao is
obligated to convey to Dr. Jones Mao pursuant to a contract.
(5) Trusts for the benefit of the children of Dr. Jones and Mr. Mao.
Dr. Jones' mother, Dorothy Jones, is the sole trustee as to trusts owning
3,520,000 for the benefit of each child. Dr. Jones is the sole trustee as to
the trusts owning 480,000 shares for each child. Dr. Jones disclaims
beneficial interest in the children's trusts in which Dorothy Jones is trustee.
(6) Alice Gluckman, an executive officer and Director, has no beneficial
ownership in any shares of the Company.
- ----------------
<TABLE>
<CAPTION>
NAME AND ADDRESS OF PERCENTAGE OF NUMBER OF SHARES OF SERIES
BENEFICIAL OWNER OWNERSHIP A PREFERRED BENEFICIALLY
OWNED (1)
<S> <C> <C>
Janice A. Jones, Ph.D. 92% 550,000 (2)
5275 DTC Parkway, No. 110
Denver, CO 80111
R. Bradford 8% 50,000
45 Sunshine Ave.
Sausalito, CA 94965
All executive officers and 92% 550,000
directors as a group
(4 persons)
</TABLE>
- ----------------
(1) Each share of Series A Preferred Stock is convertible into one share of
Common Stock.
(2) Includes 250,000 shares owned by East West Trust that is owned and
controlled by Dr. Jones.
- ----------------
20
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS OF PERCENTAGE OF NUMBER OF SHARES OF SERIES
BENEFICIAL OWNER OWNERSHIP B PREFERRED BENEFICIALLY
OWNED (1)
<S> <C> <C>
Janice A. Jones, Ph.D. 17% 5,000
5275 DTC Parkway, No. 110
Denver, CO 80111
ITEX Corporation (2) 83% 25,000
One Lincoln Center
P.O. Box2309
Portland, OR 97208
All executive officers and 17% 5,000
directors as a group
(4 persons)
</TABLE>
- ----------------
(1) Each share of Series B Preferred Stock is convertible into twenty
shares of Common Stock.
(2) Itex Corporation is a widely held public company.
- ----------------
The Company currently has no information as to the beneficial ownership
of its Series C Preferred Stock, of which 42,412 shares are outstanding. Each
share of Series C Preferred Stock is convertible into ten shares of Common
Stock. No executive officers or directors own any Series C Preferred Stock.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Pursuant to the Company's Certificate of Incorporation and its By-Laws,
the members of the Board of Directors serve for one-year terms. The Company's
directors and executive officers are:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Janice A. Jones, Ph.D. 51 Chair of the Board,
Chief Executive
Officer, Director
Alice M. Gluckman 54 Secretary, Treasurer,
Director
William R. Willard 57 Director
Barry M. Goldwater, Jr. 61 Director
</TABLE>
- ----------------
JANICE A. JONES, Ph.D. has been a Director of the Company since
inception and Chair of the Board, President and Treasurer since August, 1990.
Her positions with the Company have been her full time occupation since 1990.
Dr. Jones is also a director and Secretary of College Bound Student Alliance,
Inc., a publicly held company, and President and a director of National College
Recruiting, Inc., both of which are affiliated with the Company as described
above. In 1979 she formed, and continues to keep active, The Chartwell Group,
Inc., an investment banking and financial relations firm serving emerging growth
companies. Dr. Jones was engaged in investor relations for several companies
21
<PAGE>
from 1973 to 1982 including Cameron & Associates from 1976 to 1980. Dr.
Jones holds Ph.D., 1980, and Masters, 1976, degrees in Social Sciences from
Yeshiva University, and a B.A., 1973, from Hunter College. She received the
Hunter College Hall of Fame Award in 1986.
In June, 1995, Dr. Jones consented to the entry of an Order of the
Commission relative to Cease and Desist Proceedings instituted by the SEC.
Without admitting or denying the matters set forth therein, Dr. Jones was
found to have failed to have failed for three years and two month to file a
Schedule 13G or amendments thereto or to timely file Forms 3, 4 and 5 with
respect to a public company of which she was an officer, director and greater
than 5% shareholder.
ALICE M. GLUCKMAN has been Secretary, Treasurer and a Director of
the Company since June, 1993, and was Assistant Secretary of the Company
prior to that time from September, 1991. Ms. Gluckman is also Secretary,
Treasurer and a director of National College Recruiting Association, Inc., a
company affiliated with Chartwell as described above. From June, 1997, to
the present Ms. Gluckman has been Assistant to the Associate Director,
Division of Educational Advancement and Innovation at Johns Hopkins
University Institute for the Advancement of Youth (Programs for Gifted
Youth), Los Angeles, CA. From January, 1997, to June, 1997, she was
President and owner of A & J Enterprises, a secretarial business. From
October, 1987 to 1994 Ms. Gluckman was Executive Secretary for Chartwell
while it was principally engaged in the sports media business.
Ms. Gluckman filed a Chapter 7 Petition in Bankruptcy, Central
District of California, in 1998 under which debts were discharged in January,
1999.
WILLIAM R. WILLARD has been a Director and consultant to the Company
since April, 1997. Mr. Willard is actively involved with public offerings,
private placements mergers and acquisitions and other corporate finance
activities both domestically and internationally at Bridgestream Partners,
L.L.C. since May, 1992, where he is Managing Partner and owns 100% of the
membership interest. Prior to that time he formed Willard Capital Group Ltd.
in 1988. Prior to forming Willard Capital Group Ltd., Mr. Willard was First
Vice President in Corporate Finance for Bateman Eichler, Hill Richards, Inc.
Mr. Willard has diverse experience at several other investment bankers,
consulting firms and an advertising firm. Mr. Willard received his B.S. in
Political Science and International Relations from the University of
Wisconsin in 1965 and an M.B.A. in Finance and International Business from
the University of Chicago, Graduate School of Business in 1971. He also
attended the Sorbonne (Paris, France) where he received his Cour Practique
certificate. He serves on the boards of directors of: College Bound Student
Alliance, Inc. (a company affiliated with Chartwell as described above),
Trans-Leasing International, Inc. (a reporting company under the Securities
Exchange Act of 1934), IDAS Corporation, E-2000, Chick's Natural.
BARRY M. GOLDWATER, JR. has been a Director of the Company since
September, 1998. Since 1994 Mr. Goldwater has been a self-employed business
consultant specializing in finance, management and government and political
affairs. His consulting projects included acting as Director of Business
Affairs for Hormel Enterprises (1994-96) among other engagements. From 1984
to 1993 he was a General Partner of Hambrose Leasing, Ltd. He was a
Congressman from the State of Arizona from 1969 to 1984. Mr. Goldwater is
active in many civic organizations including the Boy Scouts of America, Big
Brothers of America
22
<PAGE>
and the National Wildlife Federation. Mr. Goldwater graduated from the
University of Arizona in 1962 with a B.S. in Marketing and Management.
DIRECTORS AND OFFICERS LIABILITY INSURANCE
The Company maintains an officer and director liability insurance
policy in the face amount of $1,000,000 in the aggregate ($30,000 or $100,000
max. per claim described below) underwritten by certain Underwriters at
Loyd's London, England. The Correspondent issuing the certificate of
insurance is HSBC Gibbs Limited, London, England. The annual premium is
US$12,000 and expires April 29, 2000.
The policy, among other things, states as follows:
"Underwriters shall pay on behalf of the Company for Loss sustained by the
Company resulting from any Securities Action Claim first made during the
Policy Period against the Company for a Wrongful Act. . . . "Securities
Action Claim" means any judicial or administrative proceeding initiated
against any of the Directors and Officers or the Company based upon, arising
out of, or in any way involving the Securities Act of 1933, the Securities
Exchange Act of 1934, rules or regulations of the Securities Exchange
Commission under either or both Acts, similar securities laws or regulations
of any state, or any common law relating to any transaction arising out of,
involving, or relating to the sale of securities in which they may be
subjected to a binding adjudication of liability for damages or other relief,
including any appeal therefrom." The limits of this coverage are $100,000.
The policy provides no coverage for each of the Directors and
Officers personally. The amount by which the "Underwriters shall reimburse
the Company for Loss which the Company pays as indemnification to any of the
Officers and Directors resulting form any Claim first made during the Policy
Period for a Wrongful Act" is limited to $30,000, except for a Securities
Action Claim as described above.
The policy excludes any "Claim brought about or contributed to in
fact by any dishonest, fraudulent or criminal act or omission, or any
personal profit or advantage gained by any of the Directors and Officers to
which they were not legally entitled as established by a judgment or other
final adjudication.
ITEM 6. EXECUTIVE COMPENSATION
The following tables contain compensation data for the Chief
Executive Officer and other named executive officers of the Company for the
fiscal year ended July 31, 1999:
<TABLE>
<CAPTION>
Annual Compensation
---------------------
Name Other
And Annual
Principal Compen-
Position Salary Bonus sation
<S> <C> <C> <C>
Janice A. $-0- $-0- $58,400(1)(2)
Jones, Ph.D.
23
<PAGE>
Chair of
Board, CEO,
Director
</TABLE>
- ----------------
(1) Dr. Jones receives 8,000 shares of CBSA restricted common stock per
calendar quarter from CBSA as compensation to serve as Secretary and as a
Director on CBSA's Board. The CBSA shares are valued at $.50 per share.
(2) Consists of: personal use of trade credits from barter exchanges of
$22,000; payments by Company on life insurance policy of $20,400.
- ----------------
No other executive officer of the Company or any of its subsidiaries
receives an annual salary and bonus in excess of $100,000.
EMPLOYMENT ARRANGEMENTS
Pursuant to September 1, 1999, resolutions of the Company's Board of
Directors (subject to the expected final signature by the Company's three
disinterested Directors), Dr. Jones is employed pursuant to an Employment
Agreement that was originally entered into March 10, 1995. The terms of that
agreement were ignored by both the Company and Dr. Jones because the Company
had no significant funds or income with which to make the payments. In the
September 1, 1999, resolution, however, Dr. Jones and the Company agreed to
forego compensation obligations to Dr. Jones under the 1995 agreement through
July 31, 1999, but reaffirmed it for the balance of its term commencing
August 1, 1999. The agreement employs Dr. Jones as Executive President for a
term of eight years and retains her as an advisor and consultant for life.
Dr. Jones is not required to devote more than thirty hours in any month in her
capacity as advisor and consultant to the Company. Compensation from Chartwell
is to be at the rate of $5,000 per month for each company (other than its
current holdings) from which Chartwell receives revenues on a cash basis.
Total compensation for the first 12 months shall be no larger than $15,000 per
month. Compensation shall increase to maximum $22,500 per month during the
second 12 months and to maximum $30,000 per month during the following 72
months. Dr. Jones is to receive additional bonus compensation at the rate of 1%
of the amount by which net profits (as defined) in any year exceed the net
profits for the fiscal year ended July 15, [sic] 1995, plus 1/10 of 1% of the
amount by which net sales (as defined) in any year exceed the net sales of the
company for its fiscal year ending July 15, [sic] 1995. Further bonuses and
stock options are at the discretion of the Board of Directors. (Terms for
restricted stock options within the agreement itself were not specified.)
During the period that Dr. Jones is engaged as an advisor and consultant to the
Company, she is to receive office space comparable to that she has as the
Executive President and no further compensation. Upon disability during the
eight-year term of the agreement, Dr. Jones continues to receive full
compensation. Upon death during the eight-year term of the agreement, her
spouse or, if no spouse, her estate, is to receive two years of compensation
over five years or in a lump sum, respectively. The September 1, 1999,
resolutions provide Dr. Jones additional compensation as follows:
- Personal use of trade credits from barter exchanges, including ITEX
Corporation, BXI, Trade Bank International, and any other trade barter company,
for the period March 10, 1995 through the end of the employment contract
(initially March 10, 2003);
24
<PAGE>
- Life insurance payments of $1,700 per month and family health
insurance through the employment term.
- Conveyance of 7 1/2% interest in any acquisition made by the
Company through her employment period, but excluding acquisitions made by
CBSA.
- A five year option to purchase 500,000 shares of the Company's
CBSA common stock at $.30 per share with cashless exercise privileges.
- Addition of the cashless exercise privileges to all other options
on Company CBSA stock currently held by her.
The September 1, 1999, resolutions also provide Dr. Jones with $2,500 per
month compensation commencing August 1, 1999, to serve as a Director of the
Company.
Pursuant to a letter agreement dated April 4, 1997, Mr. Willard is
to be compensated at the rate of $2,000 per month payable quarterly in
Chartwell restricted common stock "at $.10 per share for the first quarter
and at market value for issuance thereafter." Market value is not defined in
the letter agreement. The Company, however, has been paying Mr. Willard
periodically with shares of CBSA at $.50 per share.
Pursuant to a letter agreement with Mr. Goldwater dated September
24, 1998, in consideration for his first year of service as Director, he
received a two year option to purchase 200,000 shares of Chartwell common
stock at $.15 per share.
Pursuant to various resolutions of the Company's Board of Directors,
Ms. Gluckman receives $1,000 per month payable periodically (approximately
once per year has been the past practice) in Chartwell restricted common
stock, although the Company has paid this obligation periodically with shares
of CBSA common stock at $.50 per share.
STOCK OPTIONS AND WARRANTS
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1999
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
FY 1999 End FY 1999 End
Shares Acquired Exercisable/ Exercisable/
Name on Exercised Unexercisable Unexercisable
<S> <C> <C> <C>
Janice A. Jones, Ph.D. -0- 18,596,790/-0- $-0-/$-0-
</TABLE>
- ----------------
(1) Computed based on the differences between the fair market value on
July 31, 1999 and aggregate exercise prices. All exercise prices are $.10
per share.
25
<PAGE>
- ----------------
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Several of the following transactions involve shares of CBSA common
stock owned by Chartwell. All such shares owned by Chartwell were acquired
by the Company for a de minimus amount.
On October 27, 1997, in consideration for the extension of
additional credit to the Company of $100,000, John J. Grace, a consultant to
the Company, was issued 350,000 shares of restricted Common Stock as
compensation. These share were valued at $.01 per share. In addition, Mr.
Grace was granted an option to purchase 2,000,000 shares of restricted Common
Stock until November 11, 2000, at $.10 per share. These options were valued
at a de minimus amount.
On October 31, 1997, Janice A. Jones entered into an arrangement to
convert $1,000,000 of the Company's debt to her into 2,000,000 of CBSA
restricted common stock owned by the Company. The loan bears interest at 10%
per annum. In addition, Dr. Jones forfeited "interest income on the debt
converted provided that if at the end of one year from October 31, 1997, upon
the sale of her stock she receives full payment for the debt in cash
equivalents." In the event that the value of the CBSA stock on October 31,
1998, were not equal to $1,000,000 then she was to "be granted additional
consideration, including accrued interest." Dr. Jones received 1,000,000 CBSA
shares for the described conversion on October 31, 1997, and was allowed to
maintain the 1,000,000 conversion in abeyance under a conversion option that was
to expire July 31, 1998. See September 2, 1998, and June 7, 1999, transactions
described below.
On December 31, 1997, Janice A. Jones agreed to forgive $396,000 of
the company's indebtedness to her; the related interest income due her on the
underlying notes for the period from August 1, 1997, through December 31,
1997, to continue to be owing to her. The loan bears interest at 10%
per annum.
On April 2, 1998, John J. Grace, a consultant to the Company was
issued 1,000,000 shares of restricted Common Stock for services rendered.
These shares were valued at $.01 per share. On that date the Company also
entered into an agreement to compensate Mr. Grace at the rate of $100,000 per
year.
On April 16, 1998, the Company issued 10,000 shares of CBSA
restricted common stock to Alice M. Gluckman as compensation for Director and
Treasurer services.
On May 29, 1998, Janice A. Jones agreed to forgive $228,000 of the
Company's indebtedness to her; the related interest income due her on the
underlying notes for the period from August 1, 1997, through May 31, 1998, to
continue to be owing to her. The loans bear interest at 10% per annum.
On June 1, 1998, in consideration for extending the due dates on
several loans owing by the Company to Janice A. Jones and entities that she
owns and controls, the Company granted Dr. Jones an option to acquire 400,000
shares of CBSA common stock at the market price on July 31, 1998 ($.32), said
options to expire July 31, 2003. The loans bear interest at 10% per annum. At
that time and as part of the same transaction, the Company also granted an
option to acquire 4,354,110 shares of Chartwell restricted common stock at $.10
per share until June 1, 2003, to an entity that is owned and controlled by
Janice A. Jones. Another entity owned and controlled by Dr. Jones was granted
similar options to acquire 3,062,680 shares of
26
<PAGE>
Chartwell restricted Common Stock. In addition, Dr. Jones was granted
similar options to acquire 3,500,000 shares of Chartwell restricted Common
Stock. All of these options replaced conversion features in the related
convertible promissory notes. New notes were executed by the Company to Dr.
Jones in the principal amount of $690,936 with simple interest at 10% per
annum and due August 1, 2002, and with the original conversion features
deleted. On that same date the Company granted John J. Grace options for
200,000 shares of CBSA common stock similar to those described above for
extending the due dates on loans owed by the Company to him. These loans
also bear interest at 10% per annum. Finally, the Company also granted to
John J. Grace a similar option to acquire 1,500,000 shares of Chartwell
Common Stock.
On July 31, 1998, 300,000 shares of restricted Series A Preferred
Stock were issued to Family Jewels Ltd, Partnership II in conversion to
equity of $300,000 in notes payable owed to the partnership. These loans
were at interest of 10% per annum. The partnership is wholly owned by Janice
A. Jones. These shares were valued at $300,000.
On September 2, 1998, the Company adjusted the October 31, 1997,
conversion rate set forth above with respect to the conversion into CBSA
common stock of amounts owed to Janice A. Jones. Dr. Jones received an
additional 500,000 shares of CBSA restricted common stock. In addition,
interest was to "accrue from October 31, 1997, and continue to be an
obligation of the Company until the cash value received by Dr. Jones reaches
$500,000." Finally, Dr. Jones extended "the cash value due date from October
31, 1998, to April 30, 1999, at which time if the bid price of CBSA common
stock was above $.50 per share on that date, "then no additional shares will
be issued and interest accrued will cease." The additional shares were issued
so that the total value equalled the value of the debt as determined by the
public trading price at the subsequent date. The transaction was treated as
an adjustment of the conversion rate. No accounting entry was made for the
adjustment. The CBSA shares owned by Chartwell are carried at zero value.
On September 15, 1998, the Company granted Barry M. Goldwater, Jr.
an option to purchase 200,000 shares of Chartwell restricted Common stock
until September 15, 2000, at $.15 per share in consideration for his services
as a Director of the Company.
On September 17, 1998, the Company agreed to William R. Willard's
compensation in the form of CBSA common stock at the rate of $.50 per share
through July 31, 1998, and authorized the payment of its board members for
the second half of fiscal 1999 and fiscal 2000 "in either cash, stock, or a
combination of the two depending on the cash position and needs of the
Company."
On March 5, 1999, John J. Grace, a consultant to the Company, was
granted an option to purchase 1,500,000 shares of restricted Common Stock for
five years at $.10 per share. The grant was in consideration of the
extension of loans due from the Company to Mr. Grace, for the loan of $16,000
with interest at 10% per annum compounded monthly, and for deferral of
payment of compensation due him for his services. These options were valued
at a de minimus amount. The Company also granted Mr. Grace a second deed of
trust on the Ramona, California, property and pledged 1,500,000 shares of
CBSA common stock as additional security for his loans in satisfaction of
part of the security granted to Mr. Grace pursuant to the terms of the
original 1997 loan agreement. New promissory notes were prepared in the
principal amount of $600,000 with interest at 10% per annum, compounded
monthly.
On May 31, 1999, Alice M. Gluckman received 17,000 shares of CBSA
shares for "Director's Fees for the period July 16, 1998 through May 31,
1999. On that same date William R. Willard received 48,000 shares of CBSA
common stock for "Director's Fees for the period April 4, 1998 through April
4, 1999."
27
<PAGE>
On June 7, 1999, the Company further adjusted the conversion rate
with respect to transactions entered into with Janice A. Jones on October 31,
1997. On June 7, 1999, Dr. Jones waived the interest provision of the
September 2, 1998, agreement. Dr. Jones was also issued 155,000 shares of
CBSA restricted common stock in exchange for waiving any future adjustments
under the conversion agreement. Finally, Dr. Jones was granted a 5 year
option to purchase 200,000 shares of CBSA common stock at $.50 per share.
The conversion option with respect to the "remaining $500,000 of Dr. Jones'
(&/or her related entities) debt not yet converted" remained in effect. See
discussion of September 2, 1998, transaction, above.
On July 31, 1999, Janice A. Jones forgave $37,000 of the Company's
principal obligation due her and the Company issued new note to Janice A.
Jones in the principal amount of $143,554 replacing the old $180,554 note.
The note's interest rate is 10% per annum.
On September 1, 1999, the Company entered into its employment
agreement with Janice A. Jones described in the Item 6 hereof. All prior
compensation agreements with Dr. Jones that are reflected in various Board of
Directors minutes were cancelled; Dr. Jones received no compensation under
those arrangements. At that time Dr. Jones had accrued approximately $90,000
on her credit cards for the benefit of the Company on which the Company had
been making monthly payments. Dr. Jones agreed to continue to be
contingently liable on the credit card debt; forgave $137,461 interest on her
notes due her through July 31, 1998 and $88,567 interest for the year ended
July 31, 1999; and forgave $37,000 principal balance on her note due her as
of July 31, 1999. The interest rates on the notes is 10% per annum.
Janice A. Jones is paid by CBSA for services to that company as a
director and Secretary. Dr. Jones' arrangements are described in Item 6,
above. William R. Willard is paid by CBSA for services to that company as a
director (8,000 shares of CBSA restricted common stock per quarter). John J.
Grace also receives 8,000 shares of CBSA restricted common stock per quarter
from CBSA for consulting services he renders to that company.
ITEM 8. DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue up to 90,000,000 shares of Common
Stock, of which 60,272,512 shares are issued and outstanding as of July 31,
1999 and 29,502,910 shares are reserved for issuance pursuant to the exercise
of outstanding options, warrants or convertible preferred stock. Holders of
Common Stock have no cumulative voting rights, and, accordingly, the holders
of a majority of the outstanding shares have the ability to elect all of the
directors. Holders of Common Stock have no preemptive or other rights to
subscribe for shares.
PREFERRED STOCK
The Company has 10,000,000 authorized preferred shares issuable in
one or more series with rights and preferences as determined by the Board of
Directors. As of July 31, 1999, the Board of Directors had authorized the
following:
- Series A Preferred Stock - 2,000,000 shares; par value $0.001 per
share; non-cumulative dividend of $.30 per share prior to any dividend on the
Common Stock and participating in any dividend on the Common Stock
thereafter; liquidation preference of $.30 per share and participating with
the Common Stock
28
<PAGE>
thereafter; identical voting rights with the Common Stock; convertible at any
time into Common Stock on a one-to-one basis; and the conversion privilege is
protected by an anti-dilution provision in the event the number of shares of
Common Stock outstanding is changed through a stock split, reverse stock
split, share dividend or other similar corporate action. The number of
Series A Preferred shares outstanding as of July 31, 1999, was 600,000.
- Series B Preferred Stock - 150,000 shares authorized; stated
value $10.00 per share; "dividends rate, non-cumulative, of 0% in year one,
3% at end of year two of date of issue, 3% at end of year three, 4% at end of
year 4, 5% at end of year 5 and 6% at the end of year six and each year
thereafter"; liquidation preference of $10.00 per share before any payment
shall be made in respect of the Company's Common Stock or junior stock and
participating with the Common Stock thereafter; identical voting rights with
the Common Stock; convertible at any time into twenty shares Common Stock;
the conversion privilege is protected by an anti-dilution provision in the
event the number of shares of Common Stock outstanding is changed through a
stock split, reverse stock split, share dividend or other similar corporate
action; and the stock is callable by the Company at 110% of stated value with
15 days written notice to the holders thereof. The number of Series A
Preferred shares outstanding as of July 31, 1999, was 30,000.
- Series C Preferred Stock - 300,000 shares authorized; stated
value $10.00 per share; non-cumulative dividends, "pari passu with all other
series or shares of preferred stock", before any dividend is paid on Common
Stock and participating in any dividend on the Common Stock thereafter;
liquidation preference "pari passu with all other series or shares of
preferred stock" of $10.00 per share before any payment shall be made in
respect of the Company's Common Stock or junior stock and participating with
the Common Stock thereafter; identical voting rights with the Common Stock;
convertible at any time commencing eighteen months after the date of issuance
into ten shares Common Stock; and the conversion privilege is protected by an
anti-dilution provision in the event the number of shares of Common Stock
outstanding is changed through a stock split, reverse stock split, share
dividend or other similar corporate action. The number of Series A Preferred
shares outstanding as of July 31, 1999, was 50,612.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
The Company's Common Stock trades under the symbol "CHAP" on the OTC
Electronic Bulletin Board. The following table sets forth the high and low
bid prices per share of the Common Stock for the last two fiscal years as
reported by the OTC Electronic Bulletin Board and available through America
Online. These prices reflect inter-dealer prices, without retail mark-ups,
mark-downs or commissions, and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
HIGH LOW
FISCAL 1998
<S> <C> <C>
First Quarter .13 .0625
Second Quarter .12 .06
Third Quarter .13 .0625
Fourth Quarter .08 .06
29
<PAGE>
FISCAL 1999
First Quarter .07 .03
Second Quarter .08 .03
Third Quarter .0625 .03
Fourth Quarter .07 .04
</TABLE>
The Company has been informed by its transfer agent that as of July
31, 1999, there were approximately 506 record owners of its Common Stock.
It is the present policy of the Company not to pay cash dividends
and to retain future earnings to support the Company's growth. Any payment
of cash dividends in the future will be dependent upon the amount of funds
legally available therefor, the Company's earnings, financial condition,
capital requirements and other factors that the Board of Directors may deem
relevant. The Company does not anticipate paying any cash dividends in the
foreseeable future.
ITEM 2. LEGAL PROCEEDINGS
None.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
1 - On September 6, 1996, and as amended on October 7, 1996, the
Company and two of its shareholders, the Company's Chief Executive Officer
and her former husband, K.T. Mao, entered into a transaction for the benefit
of the Company as follows:
The shareholders agreed to contribute and return to the Company
3,500,000 shares each of the Company's restricted Common Stock for use by the
Company to attract new management and to meet certain pending obligations.
The shareholders agreed that up to 1,000,000 shares each could be liquidated
pursuant to Rule 144 of the Securities Act of 1933 and that the net proceeds
from such sales were to be contributed to the Company as a capital
contribution. These 1,000,000 shares each were in fact sold by the
shareholders at the direction of the Company without any return of the shares
themselves to the Company. As part of the same transaction, the non-officer
shareholder was granted an option until January 2, 2002, to purchase
4,000,000 share of restricted common stock at $.20 per share. The proceeds
of these sales amounted to approximately $211,000.
2 - On September 30, 1996, 700,000 shares of unrestricted Common
Stock valued at $.05 per share were issued to One Capital Corporation in
exchange for $35,000 of business and acquisition advisory services.
3 - On January 8, 1997, the following shares of restricted Common
Stock were issued in lieu of compensation and valued at $.10 per share:
30
<PAGE>
(a) Alice Gluckman 100,000 ($10,000)
(b) James Conway 63,000 ($6,300)
(c) Paul Shumard 60,000 ($6,000)
4 - On January 8, 1997, issued into escrow 230,000 shares of
restricted Common Stock as collateral for a rent obligation to Stuart Marks.
Because the obligation was not met by September 30, 1997, the escrow was to
closed with the shares being transferred to Mr. Marks. The shares were
valued at $20,000.
5 - On January 10, 1997, Janice A. Jones, Ph.D. was granted an
option to purchase 10,810,790 shares of restricted Common Stock until April
1, 2002, at $.10 per share in consideration for the forgiveness of interest
owed to her by the Company on several promissory notes. The options were
valued at a de minimus amount.
6 - On February 14, 1997, 25,000 shares of Series C Preferred Stock
were issued to ITEX Corporation in consideration of $250,000 of ITEX barter
credits. See Financial Statements.
7 - On April 1, 1997, John J. Grace, a consultant to the Company,
was granted an option to purchase 1,500,000 shares of restricted Common Stock
until April 1, 2002, at $.10 per share. These options were valued at a de
minimus amount. On that same date Mr. Grace was issued 730,000 shares of
restricted Common Stock for services rendered through March 3, 1997. These
shares were valued at $.10 per share ($73,000).
8 - On May 5, 1997, William Kroske and Kathryn Lydens were
respectively issued 107,500 and 10,000 shares of restricted Common Stock as
employee compensation. These shares were valued at $.10 per share, $10,750
and $1,000, respectively.
9 - On August 1, 1997, the Company issued 14, 000 shares of
restricted Common Stock to First Southwest Co. for services. These shares
were valued at $.01 per share ($1,400).
10 - On August 19, 1997, the Company issued shares of restricted
Common Stock valued at $.01 per share for services to the following persons:
(a) Bridgestream Trust 60,000 ($600)
(b) Robert Kihm 20,000 ($200)
(c) William Rogers, Jr. 50,000 ($500)
11 - On October 10, 1997, the Company issued shares of restricted
Common Stock valued at $.01 per share for services to the following persons:
(a) Kathryn Chase 27,680 ($276.80)
(b) Robert Kihm 50,000 ($500)
(c) Robert Fahey 90,000 ($900)
12 - On October 27, 1997, John J. Grace, a consultant to the Company,
was issued 350,000 shares of restricted Common Stock as compensation. These
31
<PAGE>
share were valued at $.01 per share ($3,500). In addition, Mr. Grace was
granted an option to purchase 2,000,000 shares of restricted Common Stock
until November 11, 2000, at $.10 per share. These options were valued at a
de minimus amount.
13 - On November 4, 1997, the Company issued 85,429 shares of
restricted Common Stock to Hial Gernert for services. These shares were
valued at $.01 per share ($854.29).
14 - On December 23, 1997, Robert Fahey was issued 90,000 shares of
restricted Common Stock as compensation. These shares were valued at $.01
per share ($900).
15 - On April 2, 1998, John J. Grace, a consultant to the Company
was issued 1,000,000 shares of restricted Common Stock for services rendered.
These share were valued at $.01 per share per share ($10,000).
16 - On July 31, 1998, 300,000 shares of restricted Series A
Preferred Stock were issued to Family Jewels Ltd, Partnership II in
conversion to equity of $300,000 in notes payable owed to the partnership.
The partnership is wholly owned by Janice A. Jones, Ph.D. These shares were
valued at $300,000.
17 - On March 5, 1999, John J. Grace, a consultant to the Company,
was granted an option to purchase 1,500,000 shares of restricted Common Stock
for five years at $.10 per share. The grant was in consideration of the
extension of loans due from the Company to Mr. Grace and for deferral of
payment of compensation due him for his services. These options were valued
at a de minimus amount.
The Company believes transactions in 1 through 17 were exempt from
registration pursuant to Section 4(2) of the Act as privately negotiated,
isolated, non-recurring transactions not involving any public solicitation.
The purchasers in each case represented their intention to acquire the
securities for investment only and not with a view to the distribution
thereof. Appropriate restrictive legends are affixed to the stock
certificates issued in such transactions. All recipients either received
adequate information about the Company or had access, through employment or
other relationships, to such information. In addition, the purchasers
described in paragraphs 3(a), 3(b), 5, 7, 9, 10(a), 12, 14, 15, 16, and 17,
above, were "accredited investors" (as that term is defined in Rule 501(a)(3)
of Regulation D).
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Nevada General Corporation Law allows the Company to indemnify any
person who was or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding by reason of the fact that he or she
is or was a director, officer, employee or agent of the Company or is or was
serving at the request of the Company as a director, officer, employee or
agent of any corporation, partnership, joint venture, trust or other
enterprise. The Company may advance expenses in connection with defending
any such proceeding, provided the indemnitee undertakes to pay any such
amounts if it is later determined that such person was not entitled to be
indemnified by the Company. The Company's Bylaws provide for indemnification
of all directors, officers, and control persons. In addition, the Company's
Articles of Incorporation eliminate personal liability for breach of
fiduciary duty by an officer or director to the extent permitted under Nevada
law. The Company has purchased director and
32
<PAGE>
officer errors and omissions liability insurance as described in detail
above. See Item 5, above.
Insofar as indemnification by the Company for liabilities arising
under the Act may be permitted to directors, officers and controlling persons
of the Company pursuant to provisions of the Certificate of Incorporation and
Bylaws, or otherwise, the Company has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy and is, therefore, unenforceable. In the event that a claim for
indemnification by such director, officer or controlling person of the
Company in the successful defense of any action, suit or proceeding is
asserted by such director, officer or controlling person in connection with
the securities being offered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Act and will be governed
by the final adjudication of such issue.
PART F/S
PART III
ITEM 1. EXHIBITS
The following exhibits are filed as part of the Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
<S> <C>
2(1) Articles of Incorporation and amendments thereto.
2(2) By-laws
6(1) 9/6/96 Agreement regarding contribution to capital by
shareholders and amendments thereto
6(2) 11/25/97 Settlement Agreement between Chartwell
International, Inc. and Poway Partners
6(3) 6/20/97 Agreement licensing assets of National College
Recruiting Association, Inc. to SportsStar Marketing,
Inc.
6(4) 2/ /98 Management Service Agreement between Chartwell
International, Inc. and SportsStar Marketing, Inc.
6(5) 3/10/95 Agreement Between Chartwell International, Inc.
and Janice Jones regarding employment and 9/1/99 Board
of Directors Resolution modifying same
6(6) 4/4/97 letter regarding compensation of William Willard
6(7) 9/24/98 letter regarding compensation of Barry M.
33
<PAGE>
Goldwater, Jr.
6(8) 6/8/99 letter regarding compensation of Alice M.
Gluckman
6(9) 6/1/98 Promissory Note for $78,400 held by Janice Jones
6(10) 7/31/99 Promissory Note for $133,554 held by Janice
Jones
6(11) 6/1/98 Promissory Note for $612,536 held by Janice Jones
6(12) 3/5/99 Promissory Note for $300,000 held by John J.
Grace's IRA Rollover Account
6(13) 3/5/99 Promissory Note for $130,000 held by John J.
Grace's IRA Rollover Account
6(14) 3/5/99 Promissory Note for $170,000 held by John J.
Grace
6(15) 4/1/99 Promissory Note for $16,000 held by John J. Grace
6(16) 6/1/98 Option for 4,354,110 shares held by Family Jewels
II Limited Partnership
6(17) 6/1/98 Option for 3,062,680 shares held by The Chartwell
Group, Inc.
6(18) 6/1/98 Option for 3,500,00 shares held by Dr. Janice A.
Jones
6(19) 9/6/96 Warrant for 4,000,000 shares held by K.T. Mao
6(20) 8/1/97 Option for 6,000,000 shares held by Dr. Janice A.
Jones
6(21) 7/31/97 Option for 1,680,000 shares held by Dr. Janice
A. Jones
6(22) 3/5/99 Option for 1,500,000 shares held by John J. Grace
6(23) 6/1/98 Option for 1,500,000 shares held by John J. Grace
6(24) 10/27/97 Option for 2,000,000 shares held by John J.
Grace
6(25) 9/15/98 Option for 200,000 shares held by Barry M.
Goldwater, Jr.
6(26) 6/1/98 Option for 200,000 shares held by John J. Grace
6(27) 10/31/97 Option for 1,000,000 shares held by Dr. Janice
A. Jones
34
<PAGE>
6(28) 6/1/98 Option for 400,000 shares held by Dr. Janice A.
Jones
6(29) 6/7/99 Option for 200,000 shares held by Dr. Janice A.
Jones
</TABLE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
CHARTWELL INTERNATIONAL, INC.
Dated: September 20, 1999 By:/s/ Janice A. Jones
------------------------------------------
Janice A. Jones, Chief Executive Officer
35
<PAGE>
CHARTWELL INTERNATIONAL, INC.
CONSOLIDATED FINANCIAL STATEMENTS
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountant F-1
Consolidated Balance Sheets at July 31, 1999 and 1998 F-2
Consolidated Statements of Operations for the Fiscal Years
Ended July 31, 1999 and 1998 F-3
Consolidated Statements of Stockholders' Equity for the
Fiscal Years Ended July 31, 1999 and 1998 F-4
Consolidated Statements of Cash Flows for the Fiscal
Years Ended July 31, 1999 and 1998 F-5
Notes to Consolidated Financial Statements F-6
</TABLE>
<PAGE>
Ronald R. Chadwick, P.C.
CERTIFIED PUBLIC ACCOUNTANT
3025 S. PARKER ROAD
SUITE 109
AURORA, COLORADO 80014
TELEPHONE: (303) 306-1967
TELECOPIER: (303) 306-1944
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Chartwell International, Inc.
Englewood, Colorado
I have audited the accompanying consolidated balance sheets of Chartwell
International, Inc. as of July 31, 1998 & 1999 and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
then ended. These financial statements are the responsibility of the
Company's management. My responsibility is to express an opinion on these
financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. I believe that my audit provides a
reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Chartwell International,
Inc. as of July 31, 1998 & 1999 and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
Aurora, Colorado /s/ Ronald R. Chadwick, P.C.
August 27, 1999 RONALD R. CHADWICK, P.C.
F-2
<PAGE>
CHARTWELL INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
JULY 31, 1999 AND 1998
<TABLE>
<CAPTION>
July 31, 1999 July 31, 1998
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 15,574 $ 4,683
Trade credits 24,606 39,161
Receivables from related parties 109,037 56,822
------------- -------------
Total current assets 149,217 100,666
Investment in real estate 1,195,655 1,195,655
Mineral properties 2,014,800 2,296,236
Recruiting systems and publishing rights, net 1,506,883 1,603,068
Organization costs and goodwill, net 32,784 104,529
Investment in CBSA -- 234,793
Other assets, net 88,385 24,691
------------- -------------
Total assets $ 4,987,724 $ 5,559,638
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 235,673 $ 405,393
Notes payable, current 57,569 65,526
------------- -------------
Total current liabilites 293,242 470,919
Long-term debt:
Due to related parties 1,517,845 1,393,055
Other notes payable 665,863 669,453
------------- -------------
Total liabilities 2,476,950 2,533,427
------------- -------------
Minority interests -- 41,323
------------- -------------
Stockholders' Equity:
Preferred Series C stock (preferable 1,106,120 1,106,120
to all other classes of stock in liquidation)
Preferred Series A stock (preferable to common 600 600
stock and equal to Preferred Series A Stock in
liquidation)
Preferred Series B stock (preferable to common 300,000 300,000
stock and equal to Preferred Series B stock
in liquidation)
Common stock; $.001 par value; 90,000,000 60,272 61,772
shares authorized; 60,272,512 and 61,772,512
issued in 1999 and 1998, respectively
Additional paid-in capital 10,013,901 9,975,401
Accumulated deficit (8,963,234) (8,452,120)
------------- -------------
2,517,659 2,991,773
Less, Treasury stock (68,850 shares) at cost (6,885) (6,885)
------------- -------------
Total stockholders' equity 2,510,774 2,984,888
------------- -------------
Total liabilities and stockholders' equity $ 4,987,724 $ 5,559,638
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
CHARTWELL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JULY 31, 1999 AND 1998
<TABLE>
<CAPTION>
Year Ended Year Ended
July 31, 1999 July 31, 1998
------------- -------------
<S> <C> <C>
Management and license fee revenue $ 90,989 $ 10,500
Operating expenses:
General and administrative 278,447 799,910
Depreciation and amortization 128,663 128,636
Writedown of mineral property 284,668
------------- -------------
Total operating expenses 691,778 928,546
------------- -------------
Operating loss (600,789) (918,046)
Other income (expenses):
Gain on sales of stock 370,113 1,012,794
Gain on capital transaction of
equity method investee 569,000
Share of CBSA loss (207,386) (450,492)
Minority interest share of losses 41,323 1,093
Interest expense, net (95,484) (129,775)
Miscellaneous (expense), net (18,891) (52,216)
------------- -------------
Total other income (expense) 89,675 950,404
------------- -------------
Net loss $ (511,114) $ 32,358
------------- -------------
------------- -------------
Loss per common share $ (0.01) $ 0.00
------------- -------------
------------- -------------
Weighted average number of common shares 61,647,512 60,351,541
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
CHARTWELL INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JULY 31, 1999 AND 1998
<TABLE>
<CAPTION>
Series A Series B Series C
Preferred Preferred Preferred Common Additional
Stock Stock Stock Stock Paid-in Capital
--------- --------- --------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Balances, August 1, 1997:
Shares 300,000 30,000 166,512 58,850,403
Amount $ 300 $300,000 $1,665,120 $ 58,850 $ 8,421,996
Officer cancellation of debt:
Shares $ 624,000
Amount
Officer conversion of debt:
Shares 300,000
Amount $ 300 $ 299,700
Conversion of Series C Preferred:
Shares (55,900) 559,000
Amount (559,000) $ 559 $ 558,441
Stock issued for services:
Shares 2,363,109
Amount $ 2,363 $ 71,264
Change in valuation allowance:
Shares
Amount
Net loss, fiscal 1997:
Shares
Amount
Balances, July 31, 1998:
Shares 600,000 30,000 110,612 61,772,512
Amount $ 600 $300,000 1,106,120 $ 61,772 $ 9,975,401
Cancellation of common stock:
Shares (1,500,000)
Amount $ (1,500) $ 1,500
Officer cancellation of debt:
Shares
Amount $ 37,000
Net loss, fiscal 1999:
Shares
Amount
Balances, July 31, 1999:
Shares 600,000 30,000 110,612 60,272,512
Amount $ 600 $300,000 1,106,120 $ 60,272 $10,013,901
<CAPTION>
Valuation
Allowance Total
for Equity Treasury Accumulated Stockholders'
Securities Stock Deficit Equity
---------- --------- ----------- -------------
<S> <C> <C> <C> <C>
Balances, August 1, 1997:
Shares (68,850)
Amount $ (255,000) $ (6,885) $(8,484,478) $ 1,699,903
Officer cancellation of debt:
Shares $ 624,000
Amount
Officer conversion of debt:
Shares
Amount $ 300,000
Conversion of Series C Preferred:
Shares
Amount
Stock issued for services:
Shares
Amount $ 73,627
Change in valuation allowance:
Shares
Amount $ 255,000 $ 255,000
Net loss, fiscal 1997:
Shares
Amount $ 32,358 $ 32,358
Balances, July 31, 1998:
Shares (68,850)
Amount $ 0 $ (6,885) $(8,452,120) $ 2,984,888
Cancellation of common stock:
Shares
Amount
Officer cancellation of debt:
Shares
Amount $ 37,000
Net loss, fiscal 1999:
Shares
Amount $ (511,114) $ (511,114)
Balances, July 31, 1999:
Shares (68,850)
Amount $ 0 $ (6,885) $(8,963,234) $ 2,510,774
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
CHARTWELL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JULY 31, 1999 AND 1998
<TABLE>
<CAPTION>
Year Ended Year Ended
July 31, 1999 July 31, 1998
------------- -------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $ (511,114) $ 32,358
Adjustments to reconcile net income to net
cash (used for) operating activities:
Depreciation and amortization 128,663 128,636
Services paid for in stock 77,500 473,515
Gain on sale of securities (370,113) (1,102,174)
Gain on capital transaction of equity method investee (569,000)
Share of loss from investee accounted for by
the equity method 242,960 450,492
Writedown of mineral property 284,668
Minority interest share of net loss (41,323) (1,093)
Changes in assets and liabilities:
Decrease in trade credits 56,688 152,183
(Increase) decrease in accounts receivable 22,995 (6,378)
(Increase) Decrease in due from related parties (75,210) 94,843
(Increase) Decrease in prepaid and other assets (35,826) 57,308
(Decrease) in accounts payable and accruals (190,366) (80,467)
Increase in accrued interest due to related parties 56,192 56,623
------------- -------------
Net cash (used for) operating activities (354,286) (313,154)
------------- -------------
Cash Flows From Investing Activities:
Proceeds from sale of securities 147,898 112,906
------------- -------------
Net cash provided by investing
activities 147,898 112,906
------------- -------------
Cash Flows From Financing Activities:
Proceeds from borrowings from related parties 102,149 105,208
Proceeds from borrowings from third parties 200,000 100,000
Repayments on borrowings from related parties (4,000)
Repayments on borrowings from third parties (84,870) (2,715)
------------- -------------
Net cash provided by financing activities 217,279 198,493
------------- -------------
Net increase (decrease) in cash 10,891 (1,755)
Cash, beginning of year 4,683 6,438
------------- -------------
Cash, end of year $ 15,574 $ 4,683
------------- -------------
------------- -------------
Supplemental Cash Flow Information:
Cash paid for interest $ 48,267 $ 24,333
------------- -------------
------------- -------------
</TABLE>
Schedule of Non-Cash Investing and Financing Activities:
Fiscal year ended July 31, 1998:
(a) The Company recovered mineral properties with cost of $2,014,800 that had
been exchanged for securities in the year ended July 31, 1997.
(b) An officer made a contribution to additional paid-in capital by
cancellation of debt totalling $624,000
(c) An officer converted debt of $300,000 into Series A Preferred Stock.
(d) Series C Preferred Stock totaling $559,000 was converted into common stock.
Fiscal year ended July 31, 1999:
(a) An officer made a contribution to additional paid-in capital by
cancellation of debt totaling $37,000.
(b) The Company cancelled 1,500,000 shares of common stock held by a third
party in connection with its successful litigation against the former
owners of NCRA, Inc.
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
CHARTWELL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 1999 AND 1998
NOTE 1. ORGANIZATION, OPERATIONS, AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
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 procurement of
scholarships for high school athletes and related education and media
activities. The Company also owns rights to gypsum deposits and owns a parcel
of real estate which is being held for future development or sale.
A summary of the Company's significant accounting policies follows:
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Chartwell International, Inc., its wholly owned subsidiary, National College
Recruiting Association, Inc. (NCRA), and Chartwell's 47% owned entity College
Bound Student Alliance, Inc. (CBSA) (f/k/a SportsStar Marketing, Inc.), which
is accounted for by the equity method. Intercompany accounts and transactions
have been eliminated.
TRADE CREDITS
The Company accounts for trade credits according to EITF 93-11. Trade credits
are recorded at cost, and represent purchasing value for goods and services
on established barter markets. The Company reviews its trade credits
periodically to assess the fair value of carrying amounts.
MINERAL PROPERTIES
Costs of acquiring specific mineral properties are capitalized on a property
by property basis. Mineral properties are periodically assessed for
impairment of value and any impairments are charged to operations at the time
of impairment. Should a property be sold or abandoned, its capitalized costs
are charged to operations and gain or loss recognized.
FAIR VALUE OF DEBT
The carrying value of the Company's financial instruments approximates fair
value.
MANAGEMENT FEE AND LICENSE FEE REVENUE
Management fee revenue and license fee revenue are recognized when earned, on
an accrual basis.
INCOME TAX
The Company has a net operating loss carry forward at July 31, 1999 of
approximately $7,600,000, which will begin to expire in the year 2002 if not
used. The resulting deferred tax asset of approximately $2,700,000 has been
offset by a 100% valuation allowance.
F-7
<PAGE>
CHARTWELL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 1999 AND 1998
NOTE 1 (CONTINUED)
LOSS PER SHARE
STARTUP COSTS
Effective August 1, 1998, the Company has adopted AICPA Statement of
Position ("SOP") 98-5, which requires nongovernmental entities to expense
startup costs as incurred. The adoption of SOP 98-5 is not expected to have a
material impact on the Company's financial statements. The Company has no
startup operations at this time. The Company has expensed startup costs in
the past and will in the future if it has any.
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.
LOSS PER SHARE
The loss per share is computed by dividing the net loss by the weighted
average number of common shares outstanding. Warrants, stock options,
convertible notes payable, and common stock issuable upon conversion of the
Company's preferred stock are not included in the computation when there is a
loss because the effect of such inclusion would be anti-dilutive.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of significant contingent assets and liabilities at the date of
the financial statements and revenues and expenses during the reporting
period. Actual results could differ from those estimates and assumptions.
NOTE 2. MINERAL PROPERTIES AND MARKETABLE SECURITIES:
NEW RIVERVIEW CLAIMS, WASHINGTON COUNTY, UTAH
On April 15, 1997, the Company sold its interest in the New Riverview Claims,
Washington County, Utah, with a carrying value of $2,014,800 for 2,000,000
shares of restricted common stock and 170,000 shares of free trading common
stock in a publicly traded company. The market valuation of the shares at
date of closing totaled
<PAGE>
$4,340,000, resulting in a gain of $2,325,200 that was deferred because of
contingencies associated with the sale.
The terms of the sale provided for the purchaser to pay Chartwell additional
cash or marketable securities, or return the mineral property interest if the
value of, and to the extent that, the securities fell below $4,000,000 by
April 1998. The market price of the purchaser's stock declined significantly
and during the year ended July 31, 1998, the mineral property interest was
returned to the Company and the claims are included in the Company's balance
sheet at their original cost of $2,014,800. The 2,000,000 shares of
restricted stock were returned to the publicly traded company and the other
170,000 shares were kept by the company, but became worthless and were
written off during the year ended July 31, 1998.
The valuation allowance for equity securities of $255,000 that was reversed
during the fiscal year ended July 31, 1998 in the Statement of Stockholder's
Equity related to the 170,000 shares of free trading stock of the publicly
traded company referred to above. The Company recorded this valuation
allowance during the fiscal year ended July 31, 1997 and reversed it as part
of writing off the securities when they became worthless in the fiscal year
ended July 31, 1998.
ALTO SUPAMO II AND III
The writedown of mineral property of $284,668 in fiscal 1999 related to the
Company's interests in the Alto Supamo II and III properties in Venezuela.
There was a change in government in Venezuela during calendar 1988 and during
fiscal 1999, it became apparent that the new government was not pursuing
policies that are favorable to foreign developers of mineral properties. The
writedown reduced the carrying value of the property to its estimated net
realizable value of $45,000.
NOTE 3. INVESTMENT IN REAL ESTATE:
The Company owns 200 acres of development land known as San Vincente Estates,
located in San Diego County, Ramona, California. The Company intends to
either develop the property with joint venture partners, or to sell the
property to outside investors. Pursuant to an agreement, the Company must
convey title to lots equivalent to $250,000 in value upon county approval of
the final map and plotting of all lots. Such conveyance is collateralized by
333,333 shares of the Company's holdings in College Bound Student Alliance,
Inc. common stock.
F-8
<PAGE>
CHARTWELL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 1999 AND 1998
NOTE 4. NOTES PAYABLE AND LONG TERM DEBT
<TABLE>
<CAPTION>
DUE TO RELATED PARTIES July 31,
- ---------------------- --------
Notes payable to related parties are as follows: 1999 1998
---- ----
<S> <C> <C>
Notes payable to an officer and entities controlled
by the officer, due variously from August 1, 2000 through
July 1, 2004, with interest at 10%, collateralized by the
Company's shares in CBSA and its investments $ 834,490 $ 871,490
Notes payable to a key advisor, due August 1, 2000 with
interest at 10%, collateralized by the Company's shares
in CBSA and its investments 600,000 400,000
Note payable to an officer's family member, due on
August 1, 2000 with interest at 8%, collateralized by the
Company's shares in CBSA and its investments 39,500 39,500
Note payable to a key advisor, due on August 1, 2002, with
interest at 10%, collateralized by a vehicle 16,000 16,000
Other 16,000 18,405
----------- -----------
Total 1,505,990 1,345,395
Accrued interest on above notes, not required to be paid
during the fiscal year ending July 31, 2000 11,855 47,660
----------- -----------
$ 1,517,845 $ 1,393,055
----------- -----------
----------- -----------
</TABLE>
Notes payable to an officer of $500,000 are convertible into 1,000,000 shares
of College Bound Student Alliance, Inc. common stock owned by the Company.
F-9
<PAGE>
CHARTWELL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 1999 AND 1998
NOTE 4 (CONTINUED)
<TABLE>
<CAPTION>
NOTES PAYABLE TO OTHERS July 31,
- ---------------------- --------
Other notes payable are as follows: 1999 1998
---- ----
<S> <C> <C>
Note payable to a bank and an individual,
monthly payments of interest only at 12%
with the principal due on March 1, 2004, collateralized
by a first deed of trust on San Vincente Estates $ 600,000 $ 400,000
Note payable to an individual, due on October 31, 1999
with interest at 10%, collateralized by a deed of trust
on the San Vincente Estates 31,684 25,000
Note payable to a partnership with interest
at 12%, payable at $572 per month, collateralized
by a second deed of trust on the San Vincente Estates - 57,200
Note payable to an individual due on April 6, 2000 with
interest at 10% - 100,000
Line of credit with a bank, due on demand with interest
at the bank's prime rate plus 2% - 11,860
Other 91,748 140,919
----------- -----------
723,432 734,979
Less, current portion 57,569 65,526
----------- -----------
Long-term portion $ 665,863 $ 669,453
----------- -----------
----------- -----------
</TABLE>
Minimum scheduled principal payments on long-term debt to maturity as of
July 31, 1999 are as follows:
<TABLE>
<CAPTION>
Related Parties Others
--------------- ------
<S> <C> <C>
Years ending July 31,
2000 $ - $ 57,569
2001 655,500 20,500
2002 78,400 17,863
2003 159,554 17,500
2004 - 610,000
Thereafter 612,536 -
---------- ---------
Total $1,505,990 $ 723,432
---------- ---------
---------- ---------
</TABLE>
F-10
<PAGE>
CHARTWELL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 1999 AND 1998
NOTE 4 (CONTINUED)
The Company's Board of Directors granted a security interest to a group of
lenders with notes outstanding in the aggregate of $2,165,547 in Company real
estate and its investment in College Bound Student Alliance, Inc.
NOTE 5. OPERATING LEASE
The Company leases office space in Englewood, Colorado pursuant to a lease
which expires July 31, 2000. Lease payments are $5,270 a month, of which
$4,121 is paid by College Bound Student Alliance, Inc.
Rent expense for the years ended July 31, 1999 and 1998 was approximately
$15,000 and $24,000, respectively, and is expected to be $15,000 for the year
ending July 31, 2000.
NOTE 6. STOCKHOLDERS' EQUITY
PREFERRED STOCK
The Company has 10,000,000 authorized preferred shares issuable in one or
more series. From these authorized shares, the Company has established the
following preferred stock:
PREFERRED SERIES A STOCK - The Company has provided for the issuance of
2,000,000 shares, par value $0.001 share, convertible Preferred Series
A Stock ("Series A"), of which 600,000 shares were outstanding as of
July 31, 1999 and 1998.
Each Series A share is convertible into one share of the Company's
common stock at any time after the date of issuance.
No call provision exists with respect to the Series A shares. The
Series A stock is not subject to any operation of a retirement or
sinking fund. The Series A stock has preferential dividend and
liquidation rights to the common stock, equal dividend and
liquidation rights to the Preferred Series C Stock and liquidation
rights that are subordinate to the Preferred Series B Stock.
PREFERRED SERIES B STOCK - The Company has provided for the issuance of
150,000 shares of stated value $10 per share convertible Preferred
Series B Stock ("Series B"), of which 30,000 shares were outstanding as
of July 31, 1999. Each Series B share is convertible into 20 shares of
the Company's common stock.
F-11
<PAGE>
CHARTWELL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 1999 AND 1998
NOTE 6 (CONTINUED)
Series B shares are callable at 110% of par value with 15 days prior
notice to give the holders an opportunity to convert. The Series B
stock is not subject to any operation of a retirement or sinking fund.
The Series B stock has a dividend rate of 2% in year two, increasing
gradually to 6% in year six, and each year thereafter, and preferential
liquidation rights to the common stock, Preferred Series A Stock and
Preferred Series C Stock.
PREFERRED SERIES C STOCK - The Company has provided for the issuance of
300,000 shares stated value $10 per share convertible Preferred Series
C Stock ("Series C"), of which 110,612 shares were outstanding as of
July 31, 1999 and 1998. Each Series C share is convertible into 10
shares of the Company's common stock at any time commencing 18 months
after the date of issuance.
No call provision exists relevant to the Series C shares. The Series C
stock is not subject to any operation of a retirement or sinking fund.
The Series C stock has preferential dividend rights to the common
stock, equal dividend rights to the Preferred Series A Stock, and
preferential liquidation rights to the common stock, equal liquidation
rights to the Preferred Series A Stock and subordinate liquidation
rights to the Preferred Series B Stock.
On September 1, 1999 the Company received 60,000 shares of outstanding
Preferred C Stock in exchange for $27,500 in cash and notes payable as
a settlement of a dispute.
COMMON STOCK
The Company has 90,000,000 authorized shares of common stock, par value
$0.001, of which 60,272,512, and 61,772,512 shares were outstanding at
July 31, 1999 and 1998, respectively.
The Company has exercisable stock options and warrants outstanding
issued in connection with debt instruments and capital transactions as
follows:
<TABLE>
<CAPTION>
Number of Shares Exercise Price Date of Expiration
---------------- -------------- ------------------
<S> <C> <C>
6,000,000 $0.10 August 1, 2002
1,680,000 0.10 July 31, 2002
12,416,790 0.10 June 1, 2002
2,000,000 0.10 November 1, 2002
1,500,000 0.10 March 5, 2004
4,000,000 0.20 January 2, 2002
----------
27,596,790
----------
----------
</TABLE>
Of the above options and warrants, 23,596,790 are held by related parties.
F-12
<PAGE>
NOTE 7. EMPLOYEE STOCK OPTIONS
During fiscal 1999, the Company awarded options to purchase 200,000 shares of
common stock to a director. The Company applies APB Opinion 25 and related
interpretations in accounting for stock options using the intrinsic value
method. Accordingly, no compensation expense has been recognized in the
statement of operations for the stock option award in 1999. Had compensation
cost for the Company's stock option award been determined based on the fair
value method of FASB Statement 123, there would have been no change to the
Company's net loss. The reason no expense would have been recognized is that
the effect under the Black-Scholes option pricing model of the option
exercise price ($0.15) being greater than the market price of ($0.06) of the
Company's stock on the date of grant. The Black Scholes option pricing model
was applied assuming a two-year term, volatility of 105%, a stock price of
$.06 with the option price at $.15 and a risk free interest rate of 5%, and
no expected dividends.
Following is a summary of stock options for the period August 1, 1997 to July
31, 1999:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF SHARES EXERCISE PRICE
<S> <C> <C>
Outstanding, August 1, 1997 --- ---
Granted during fiscal year ended July 31, 1999 200,000 $0.15
Outstanding, July 31, 1999 200,000 $0.15
</TABLE>
NOTE 8. RECRUITING SYSTEMS, PUBLISHING RIGHTS, AND OTHER AMORTIZABLE ASSETS:
Recruiting systems, publishing rights, and other amortizable assets are as
follows as of July 31, 1999 and 1998:
<TABLE>
<CAPTION>
July 31, 1999 July 31, 1998
------------- -------------
Accumulated Net Accumulated Net
Cost Amortization Book Value Cost Amortization Book Value
---------- ------------ ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Recruiting Systems $1,173,702 $(261,600) $ 912,102 $1,173,702 $(202,915) $ 970,787
Publishing Rights 750,000 (155,219) 594,781 750,000 (117,719) 632,281
Franchise Rights 47,400 (19,841) 27,559 47,400 (15,101) 32,299
Goodwill - - - 100,390 (42,119) 58,271
Organization Costs 63,499 (58,274) 5,225 63,499 (49,540) 13,959
---------- --------- ---------- ---------- --------- ----------
$2,034,601 $(494,934) $1,539,667 $2,134,991 $(427,394) $1,707,597
---------- --------- ---------- ---------- --------- ----------
---------- --------- ---------- ---------- --------- ----------
</TABLE>
Recruiting systems and publishing rights represent the allocation of part
of the purchase price of NCRA based on an independent valuation study.
Publishing rights consists of rights owned by the Company to NCRA's name and
recruiting publications. Recruiting systems consist of NCRA's nationwide
network of universities and coaches which use and promote NCRA products as
well as a comprehensive college database of over 4,000 institutions
throughout the United States and Canada consisting of approximately 28,000
coaches, 5,000 admissions directors and department heads within 100 sports,
fine arts, and academic programs. This database supports a personal and
proactive college exposure service which consists of developing a detailed
student profile and distributing it via mail, fax, and/or e-mail to every
college that best suits the student's activities and financial resources.
Organization costs are costs incurred to establish a company. Amortization
expense is provided on a straight-line basis using estimated lives of twenty
years for recruiting systems and publishing rights and five years for
organization costs. Amortization expense for the years ended July 31, 1999
and 1998 was $128,663 and $128,636, respectively.
NOTE 9. NCRA SUBSIDIARY:
NCRA is wholly subsidiary of the Company through which it licenses marketing
and publishing rights to College Bound Student Alliance, Inc.
F-13
<PAGE>
NOTE 10. INVESTMENT IN COLLEGE BOUND STUDENT ALLIANCE, INC. (CBSA):
The financial statements include the Company's investment in CBSA on the
equity method. Generally accepted accounting principles require restating
prior financial statements to use the equity method when the Company's equity
interest in a previously majority-owned entity falls to 50% or less because
this represents a change in the reporting entity as defined in APB Opinion
No. 20, Accounting Changes. This occurred in the fourth quarter of fiscal
1999 with respect to the Company's interest in CBSA. CBSA was previously
accounted for as a consolidated subsidiary when the Company's holdings were
over 50%.
Summarized information on assets, liabilities, and results of operations for
CBSA are as follows:
<TABLE>
<CAPTION>
July 31, 1999 July 31, 1998
------------- -------------
ASSETS (unaudited)
<S> <C> <C>
Current assets $ 214,187 $ 173,832
Equipment and other assets 129,245 70,809
Recruiting systems, technology, net 1,381,422 162,750
------------- ------------
Total $ 1,666,418 $ 465,827
------------- ------------
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 803,332 $ 61,476
Long-term notes payable to
former owners of CBSA 776,000 -
Stockholders' equity 87,096 404,351
------------- ------------
Total $ 465,827 $ 1,666,418
------------- ------------
------------- ------------
RESULTS OF OPERATIONS
Revenues $ 707,006 $ 194,672
Operating and other expenses 1,264,033 852,099
------------- ------------
Net Loss $ (557,027) $ (657,427)
------------- ------------
------------- ------------
</TABLE>
Under generally accepted accounting principles, the Company is required to
carry its investment in CBSA at cost as adjusted for the equity method, which
is zero at July 31, 1999. CBSA is a publicly traded Company and the Company's
47% interest (8,200,000 shares) in CBSA has a value of approximately
$2,700,000 at July 31, 1999 based on the market price of CBSA publicly traded
stock.
The Company can recognize gains on its investment only upon disposition of
its stock in CBSA (which resulted in gains of $1,012,794 in fiscal 1998 and
$370,113 in fiscal 1999), or as third party investments in CBSA increase the
amount of the Company's proportionate share of net equity of CBSA (which
resulted in a gain of $569,000 in fiscal 1998).
During the fiscal year ended July 31, 1998, the Company realized gains of
$1,012,794 from the disposal of 2,664,117 shares of its CBSA common stock.
The consideration received consisted of $112,906 in cash from sales in the
open market through brokers, elimination of previously recorded liabilities
of the Company totaling $738,206, and services totaling $161,682. The Company
simultaneously recorded expenses totaling $161,682 with respect to the CBSA
stock given in exchange for services.
During the fiscal year ended July 31, 1999, the Company realized gaines of
$370,113 from the disposal of 901,650 shares of its CBSA common stock. The
consideration received consisted of $147,898 in cash from sales in the open
market through brokers, trade credits totaling $42,133, elimination of a
previously recorded liability of $102,582, and services totaling $77,500. The
Company simultaneously recorded expenses totaling $77,500 with respect to
CBSA stock given in exchange for services.
Certain related parties hold options to acquire up to 1,800,000 shares of the
Company's CBSA stock at prices ranging from $0.32 to $0.50 per share.
F-14
<PAGE>
CHARTWELL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 1999 AND 1998
NOTE 11. CONTINGENCIES:
The Company is contingently liable on notes payable of third parties of
approximately $28,000. During fiscal 1999 the Company cancelled 1,500,000
common shares held by a third party in connection with its successful
litigation against the former owners of NCRA, Inc.
NOTE 12. SUBSIDIARY STOCK ISSUANCES
The Company recognizes gains and losses from subsidiary stock issuance. In
fiscal 1998 the Company issued 1,540,000 shares of common stock in its then
subsidiary, CBSA, in a public offering resulting in net cash proceeds of
$745,000 or $48 per share and a gain of $569,000. The Company's
proportionate interest in CBSA decreased from 86% to 77%. No deferred taxes
were provided because of the Company's significant tax loss carryforward.
During the fiscal year ended July 31, 1998, CBSA issued a total of 2,590,800
shares of common stock, including the 1,540,000 shares issued in the offering
described above. During the fiscal year ended July 31, 1999, CBSA issued
1,460,504 shares of common stock.
F-15
<PAGE>
[LETTERHEAD]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
I hereby consent to the use in this amended Form 10-SB filing by Chartwell
International, Inc. of my report dated August 27, 1999 relating to the
consolidated financial statements of Chartwell International, Inc. which
appear in said filing. I also consent to the reference to my firm under the
heading "Experts" in said filing.
Aurora, Colorado /s/ Ronald R. Chadwick, P.C.
November 17, 1999 RONALD R. CHADWICK, P.C.
