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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
AMENDMENT #3 TO
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
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)
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, 1998. Chartwell currently holds approximately 47%
(approximately 8,200,000 Shares) of the outstanding common shares of CBSA. See
Financial Statements.
- 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.
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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).
The Ramona property is currently available 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 Company has not committed to
a plan to dispose of the property, although the Company would sell the land for
a price at or near its asking price. The carrying value of the land in the
balance sheet is approximately $1.2 million.
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.
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- $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 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
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(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. 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.
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 a total of $5-10
million in additional financing from both the debt and equity markets. There
can be no assurance that CBSA's current offering or future financing will be
successful.
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In April, 1999, CBSA acquired College Bound Student Athletes, Inc.
("Athletes"), Milwaukee, Wisconsin (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."). This acquisition was
accounted for as an acquisition. 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.
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 3.8 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
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.
CBSA'S 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"). In a press release dated December 14, 1999,
CBSA announced they curtailed the acquisition plans based on philosophical
differences.
EMPLOYEES AND MANAGEMENT OF CBSA
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 Chief Executive Officer is Jerome M. Lapin, who was also
appointed as Director on 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.
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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.
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
was acquired by CBSA in April, 1999.
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 four
Directors, the other two of whom are otherwise unaffiliated with Chartwell or
NCRA.
EXECUTIVE OFFICES
CBSA's executive offices are located at 5270-5275 DTC Parkway, Suite
110, Englewood, Colorado 80111. CBSA leases approximately 4,000 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".
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 a specified quantity 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. There is no assurance, however, that a commercially viable mineral deposit
exists on any of our properties, and that further exploration will be required
before a final evaluation as to the economic and legal feasibility is
determined. 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 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. The Company's ability to mine the gypsum will be
dependent on the results of further exploration and evaluation as to the
economic and legal feasibility, and a determination that commercially viable
mineral deposits exist.
In January, 1993, the Company purchased rights from Central Pacific
Assurance Limited to mine a specified quantity 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 Company's ability to mine the gypsum will be dependent on
the results of further exploration and evaluation as to the economic and legal
feasibility, and a determination that commercially viable mineral deposits
exist.
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
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"Riverview Placer Claims 1, 2, 3, 5 and 6") and New Riverview Claims 10, 11
and 12. It also has contractual mining rights for mining gypsum in the
property covered by Riverview Placer Claims 4, 7, 8 and 9 currently owned and
maintained by Western Gypsum, Inc. The Company's ability to mine the gypsum
will be dependent on the results of further exploration and evaluation as to
the economic and legal feasibility, and a determination that commercially
viable mineral deposits exist. 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. Chartwell
has only a brief description of the geology on the properties which is
insufficient to indicate 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. In
addition, estimates of gypsum reserves would require detailed studies including
a mining plan, a list of types of required equipment, mining methods, and
extensive drill sampling of the geology on the properties. Chartwell has no
present plans to engage in such detailed studies. Also, the Company has not yet
established reserves for the gypsum properties.
The claims and rights have been available for sale since July, 1998,
although the Company has not committed to a plan to dispose of the property. The
Company would sell the property for an amount substantially in excess of its
carrying value in the balance sheet, which is approximately $2 million. In July
1998, there was a cancellation of an exploration agreement with Prentice
Capital, Inc., an unaffiliated third party that had contracted to purchase and
explore the claims. (The cancellation was due to the exploration company's
inability to secure financing and was effectively a rescission of the earlier
exploration agreement, 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 exploration company's common stock which
currently has no market value.) Chartwell would also consider a joint venture
exploration of the claims and rights. The Company, however, has no present plans
to be the lead exploration company of the claims and rights or to explore 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.
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During the year ended July 31, 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, effective August
1, 1998.
In addition the Company's real estate holdings in San Diego County,
California and its gypsum deposits in St. George, Utah are available for sale at
prices substantially in excess of their carrying values, although the Company
has not committed to a plan to dispose of either. The Company would also
consider entering into a joint venture to develop either property.
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 believes it could raise cash, if necessary, by
committing to a plan to dispose of or joint venturing its land and mineral
properties. There is no assurance that the Company would be successful in
selling 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.
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 0.7 to 1 based on current
assets of $352,678 and current liabilities of $532,395. At July 31, 1998, the
assets and liabilities of CBSA were included in the balance sheet on a
consolidated basis. Without the CBSA assets and liabilities, the Company's
working capital ratio at July 31, 1998 would have been 0.2 to 1, based on
current assets of $100,666 and current liabilities of $470,919. The improvement
in working capital ratio, as adjusted to 0.2 to 1 July 31, 1998 to 0.5 to 1 at
July 31, 1999, 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
$(528,118) in fiscal 1999 and $(955,496) 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. Also,
the amount for fiscal 1998 includes cash (used) in operations by CBSA of
approximately $(470,000), which was accounted for by consolidation. In fiscal
1999, the CBSA investment was accounted for by the equity method.
The Company had negative cash flow from operating activities because
the Company did not have any operating businesses that generated revenue except
for CBSA, which was consolidated in fiscal 1998, which was still in a formative
stage with negative cash flow. In fiscal 1999, the Company did not have any
operating revenue. The only revenue in
9
<PAGE>
fiscal 1999 consisted of management fees and royalties from CBSA. The effect of
the negative operating cash flow will be that until the Company can acquire or
develop operating businesses that generate positive cash flow, the Company will
be dependent for its cash needs on financing by loans from third parties and
related parties and on proceeds from sales of its common stock held in CBSA.
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
activities of $217,279 and $976,718, respectively. In each fiscal year, the
Company had net borrowings of approximately $100,000 from both related parties
and third parties. The amount for fiscal 1998 included net proceeds of $745,000
from the sale of newly issued shares of CBSA common stock, which was a
consolidated subsidiary in fiscal 1998, in a public offering.
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 payment terms with respect to the management fees from CBSA are not
specified. However, the Company expects such fees to be paid within 30 days
after each month end. The Company has temporarily granted deferrals of payment
to CBSA to enable CBSA to have more working capital available and expects
current payments to resume within 90 to 120 days from January 1, 2000. The
impact of this temporary deferral could be that the Company will have to depend
more for its cash requirements on financing by loans from third parties and
related parties and on proceeds from sales of its common stock held in CBSA.
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 zero in fiscal 1998
to $90,989 in fiscal 1999 primarily as a result of management fees earned by the
Company from CBSA. In fiscal 1998, the Company earned management and license
fees of $10,500 from CBSA, which were eliminated in consolidation. The Company
expects management and license fee revenue to continue at this higher level.
The entire amount of revenue of $90,989 for the year ended July 31, 1999 was
earned from CBSA, a related party.
General and administrative expenses decreased to $278,447 in fiscal
1999 from $1,626,249 in fiscal 1998. The fiscal 1998 amount included $826,339
for CBSA, which was consolidated in fiscal 1998 but not in fiscal 1999. 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
10
<PAGE>
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 $134,692 in fiscal 1998 and
$119,929 fiscal 1999. The Company did not add any significant new depreciable or
amortizable assets in either fiscal year. The reduction was attributable to
$6,056 of depreciation and amortization in fiscal 1998 for CBSA, and to the
write-off of the cumulative effect of the accounting change for organization
costs at August 1, 1998, which had the effect of reducing fiscal 1999
depreciation and amortization by $8,734.
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 was
$207,386 in fiscal 1999. 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 $138,979 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., and the inclusion of net interest expense of
$9,204 by CBSA.
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.
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.
11
<PAGE>
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.
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
12
<PAGE>
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.
(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.
13
<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
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.
14
<PAGE>
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 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
15
<PAGE>
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
---------------------
<S> <C>
Name Other
And Annual
Principal Compen-
Position Salary Bonus sation
Janice A. $-0- $-0- $58,400(1)(2)
Jones, Ph.D.
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
16
<PAGE>
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);
- 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.
17
<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 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.
18
<PAGE>
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."
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.
19
<PAGE>
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
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.
20
<PAGE>
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
<S> <C> <C>
FISCAL 1998
First Quarter .13 .0625
Second Quarter .12 .06
Third Quarter .13 .0625
Fourth Quarter .08 .06
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.
21
<PAGE>
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:
<TABLE>
<S> <C> <C>
(a) Alice Gluckman 100,000 ($10,000)
(b) James Conway 63,000 ($6,300)
(c) Paul Shumard 60,000 ($6,000)
</TABLE>
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:
<TABLE>
<S> <C> <C>
(a) Bridgestream Trust 60,000 ($600)
(b) Robert Kihm 20,000 ($200)
(c) William Rogers, Jr. 50,000 ($500)
</TABLE>
11 - On October 10, 1997, the Company issued shares of restricted
Common Stock valued at $.01 per share for services to the following persons:
<TABLE>
<S> <C> <C>
(a) Kathryn Chase 27,680 ($276.80)
(b) Robert Kihm 50,000 ($500)
(c) Robert Fahey 90,000 ($900)
</TABLE>
22
<PAGE>
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
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 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.
23
<PAGE>
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.
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.
24
<PAGE>
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
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
23 **Consent of Independent Certified Public Accountant
dated December 20, 1999
</TABLE>
* Indicates exhibits previously filed
** Indicates exhibits filed with Amendment #2
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: December 29, 1999 By:/s/ Janice A. Jones
----------------------
Janice A. Jones, Chief Executive Officer
25
<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-1
<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 $ 178,515
Trade credits 24,606 88,674
Receivables from related parties 109,037 57,482
Accounts receivable -- 16,090
Other -- 11,917
--------------- ---------------
Total current assets 149,217 352,678
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
Other assets, net 115,944 180,285
--------------- ---------------
Total assets $ 4,982,499 $ 5,627,922
--------------- ---------------
--------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 235,673 $ 466,869
Notes payable, current 57,569 65,526
--------------- ---------------
Total current liabilites 293,242 532,395
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 2,594,903
--------------- ---------------
Minority interests -- 48,131
--------------- ---------------
Stockholders' Equity:
Preferred Series B stock (preferable to common 300,000 300,000
stock and equal to Preferred Series A stock
in liquidation)
Preferred Series A stock (preferable to common 600 600
stock and equal to Preferred Series C Stock in
liquidation)
Preferred Series C stock (preferable 1,106,120 1,106,120
to all other classes of 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 (8,968,459) (8,452,120)
--------------- ---------------
2,512,434 2,991,773
Less, Treasury stock (68,850 shares) at cost (6,885) (6,885)
--------------- ---------------
Total stockholders' equity 2,505,549 2,984,888
--------------- ---------------
Total liabilities and stockholders' equity $ 4,982,499 $ 5,627,922
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<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>
Revenue:
Management and license fee revenue $ 90,989 $ --
Franchise sales -- 107,543
Profile and other sales -- 87,129
Total revenue 90,989 194,672
Operating expenses:
General and administrative 278,447 1,626,249
Depreciation and amortization 119,929 134,692
Writedown of mineral property 284,668
--------------- ---------------
Total operating expenses 683,044 1,760,941
--------------- ---------------
Operating loss (592,055) (1,566,269)
Other income (expenses):
Gain on sales of stock 370,113 1,012,794
Gain on capital transaction of subsidiary 569,000
Share of CBSA loss (207,386) --
Minority interest share of losses 48,131 208,028
Interest expense, net (95,484) (138,979)
Miscellaneous (expense), net (25,699) (52,216)
--------------- ---------------
Total other income (expense) 89,675 1,598,627
Income (loss) before cumulative effect of
change in accounting principle (502,380) 32,358
Cumulative effect of change in accounting
principle (13,959) --
--------------- ---------------
Net income (loss) $ (516,339) $ 32,358
--------------- ---------------
--------------- ---------------
Income (loss) per common share:
Before cumulative effect of change in
accounting principle $ (0.01) $ 0.00
Cumulative effect of change in accounting
principle 0.00 --
Net income (loss) $ (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-3
<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 income (loss), fiscal 1998:
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
</TABLE>
<TABLE>
<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 income (loss), fiscal 1998:
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 $ (516,339) $ (516,339)
Balances, July 31, 1999:
Shares (68,850)
Amount $ 0 $ (6,885) $(8,968,459) $ 2,505,549
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<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) $ (516,339) $ 32,358
Adjustments to reconcile net income to net
cash (used for) operating activities:
Depreciation and amortization 119,929 130,381
Services paid for in stock 77,500 473,515
Gain on sale of securities (370,113) (1,102,174)
Gain on capital transaction of subsidiary (569,000)
Share of loss from investee accounted for by
the equity method 207,386 --
Writedown of mineral property 284,668
Minority interest share of net loss (48,131) (208,028)
Changes in assets and liabilities:
Decrease in trade credits 8,151 148,365
(Increase) decrease in accounts receivable -- (5,436)
(Increase) Decrease in due from related parties (51,555) 94,843
(Increase) Decrease in prepaid and other assets (43,964) 35,175
(Increase) in accounts payable and accruals (251,842) 2,349
Increase in accrued interest due to related parties 56,192 56,623
-------------- --------------
Net cash (used for) operating activities (528,118) (955,496)
-------------- --------------
Cash Flows From Investing Activities:
Proceeds from sales of securities 147,898 112,906
-------------- --------------
Net cash provided by investing
activities 147,898 112,906
-------------- --------------
Cash Flows From Financing Activities:
Stock issuance by subsidiary -- 778,225
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 217,279 976,718
-------------- --------------
Net increase (decrease) in cash (162,941) 134,128
Cash, beginning of year 178,515 44,387
-------------- --------------
Cash, end of year $ 15,574 $ 178,515
-------------- --------------
-------------- --------------
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-5
<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
was accounted for as a consolidated subsidiary in fiscal 1998 and by the equity
method in fiscal 1999. Intercompany accounts and transactions have been
eliminated.
TRADE CREDITS
The Company accounts for trade credits consistent with 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. The major portion of receivables from related parties consist of
$75,210 currently due to the Company from CBSA, primarily for management fees. A
portion of this balance has been paid and the remainder is expected to be paid
before July 31, 2000. The payment terms with respect to the management fees from
CBSA are not specified. However, the Company expects such fees to be paid within
30 days after each month end. The Company has temporarily granted deferrals of
payment to CBSA to enable CBSA to have more working capital available and
expects current payments to resume within 90 to 120 days after January 1, 2000.
The remaining amount is owed to the Company by another related party and is
expected to be paid before July 31, 2000. The entire amount of revenue of
$90,989 for the year ended July 31, 1999 was earned from CBSA, a related
party.
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-6
<PAGE>
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.
The following compares amounts reported in the statement of operations to
proforma amounts assuming the new method was applied retroactively:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JULY 31,
1999 1998
<S> <C> <C>
Reported in the Statement of Operations:
Net income (loss) $(516,339) $32,358
Net income (loss) per share $(0.01) $0.00
Proforma Amounts Assuming the New Method was Applied Retroactively:
Net income (loss) $(502,380) $43,292
Net income (loss) $(0.01) $0.00
</TABLE>
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.
F-7
<PAGE>
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 $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. The Company has not committed to a plan to dispose of the
property. 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.
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
F-8
<PAGE>
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.
<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-9
<PAGE>
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.
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.
F-10
<PAGE>
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> <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-11
<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 (49,540) 13,959
---------- --------- ---------- ---------- --------- ----------
$1,971,102 $ 436,660 $1,534,442 $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. 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.
F-12
<PAGE>
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.
NOTE 10. INVESTMENT IN COLLEGE BOUND STUDENT ALLIANCE, INC. (CBSA):
The financial statements include the Company's investment in CBSA on the equity
method commencing August 1, 1998. Generally accepted accounting principles
accounting by the equity method when the Company's equity interest in a
previously majority-owned entity falls to 50% or less. . 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
-------------
<S> <C>
ASSETS (unaudited)
Current assets $ 214,187
Equipment and other assets 129,245
Recruiting systems, technology, net 1,381,422
-------------
Total $ 1,666,418
-------------
-------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 803,332
Long-term notes payable to
former owners of CBSA 776,000
Stockholders' equity 87,096
-------------
Total $ 1,666,418
-------------
-------------
RESULTS OF OPERATIONS
Revenues $ 707,006
Operating and other expenses 1,264,033
-------------
Net Loss $ (557,027)
-------------
-------------
</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.
F-13
<PAGE>
The elimination of previously recorded liabilities included the conveyance of
1,665,000 shares of CBSA stock to the Company's chief executive officer in
payment of a note payable of $500,000. This was comprised of 1,000,000 shares
that were conveyed in fiscal 1998 and also an additional 655,000 shares conveyed
in fiscal 1999 pursuant to a requirement to convey additional shares based on
subsequent decreases in the market price of the CBSA stock.
During the fiscal year ended July 31, 1999, the Company realized gains 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.
NOTE 11. CONTINGENCIES:
The Company is contingently liable on notes payable of third parties of
approximately $28,000. During fiscal 1999 the Company canceled 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 $0.48 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.
In fiscal 1998, most of the 1,050,800 shares of CBSA common stock that were
newly issued, in addition to the 1,540,000 shares issued in the public offering
described above, related to compensation for services and did not increase the
book value of the Company's proportionate interest in CBSA. Therefore, the
Company did not record a gain or loss as a result of the subsidiary stock
issuance. In fiscal 1999, most of the newly issued shares of CBSA were given as
consideration for an acquisition of a business, not resulting in cash proceeds
from an offering. The Company did not record a gain from an increase in its
proportionate interest for this transaction.
F-14
<PAGE>
EXHIBIT INDEX
<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.
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
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
23 **Consent of Independent Certified Public Accountant
dated December 20, 1999
</TABLE>
* Indicates exhibits previously filed
** Indicates exhibits filed with Amendment #2
