UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549  FORM 10-QSB  x
        QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  For the quarterly period ended September 30, 2006  o
        TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from _______ to _______
  Commission File No. 000-51342  CHARTWELL INTERNATIONAL, INC. (Exact name of small business issuer as specified in its charter)  NEVADA
(State or Other Jurisdiction of
Incorporation or Organization)
        95-3979080
(I.R.S. Employer Identification No.)
  177 Madison Avenue, 2nd Floor Morristown, New Jersey 07960 (Address of Principal Executive Offices)  (973) 400-7010 (Issuers Telephone Number)  Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YesxNo o  Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  Nox  As of October 25, 2006 the Registrant had 13,921,361 outstanding shares of common stock, $0.001 par value per share.  Transitional Small Business Disclosure Format (check one): Yes [  ]  Nox
   1    CHARTWELL INTERNATIONAL, INC.  FORM 10-QSB  SEPTEMBER 30, 2006  INDEX  PAGE
 Part I.  FINANCIAL INFORMATION  Item 1.  Financial Statements
        3
  Consolidated Balance Sheets at September 30, 2006 (Unaudited) and June 30, 2006
        3
  Consolidated Statements of Operations (Unaudited) for the three months ended September 30, 2006 and October 31, 2005, and, from inception on March 3, 2005 to September 30, 2006
        4
  Consolidated Statements of Cash Flows (Unaudited) for the three months ended September 30, 2006 and October 31, 2005, and, from inception on March 3, 2005 to September 30, 2006
        5
  Notes to Interim Consolidated Financial Statements
        7
  Item 2. Management's Discussion and Analysis or Financial Conditions and Results of Operation
        18
  Item 3. Controls and Procedures
        32
  Signatures
        33
  Exhibits
        34
   2     PART 1.  FINANCIAL INFORMATION  Item 1.Financial Statements  Chartwell International, Inc. (A Development Stage Company) Consolidated Balance Sheets (In thousands)  September 30,
        
        June 30,2006
        
        2006(Unaudited)AssetsCurrent AssetsCash
        $            551
        
        $          3,018Accounts receivable
        940
        
        25Deposits
        550
        
        533Prepaid expense and other
        88
        
        38Total current assets
        2,129
        
        3,614Long-term AssetsProperty and equipment, net
        4,672
        
        4,573Land
        1,735
        
        1,735Mineral rights
        5,447
        
        5,447Capacity and loading rights, net
        1,492
        
        -Other
        19
        
        19Total long-term assets
        13,365
        
        11,774Total Assets
        $        15,494
        
        $         15,388Liabilities and Stockholders' EquityCurrent LiabilitiesAccounts payable and accrued liabilities
        $            999
        
        $             191Due to related parties
        54
        
        21Notes payable
        334
        
        310Total current liabilities
        1,387
        
        522Long-term LiabilitiesNotes payable, net of current portion
        5,550
        
        5,557Total long-term liabilities
        5,550
        
        5,557Total Liabilities
        6,937
        
        6.079Commitments and ContingenciesStockholders' EquityPreferred stock, $0.001 par value, 25,000 shares authorizedCommon shares, $0.001 par value, 100,000 shares authorized13,896 issued and outstanding at September 30, 2006and June 30, 2006
        14
        
        14Additional paid in capital
        13,600
        
        13,566Accumulated deficit
        (5,057)
        
        (4,271)Total stockholders' equity
        8,557
        
        9,309Total Liabilities and Stockholders Equity
        $         15,494
        
        $         15,388
 See accompanying notes to unaudited interim consolidated financial statements  3    Chartwell International, Inc. (A Development Stage Company) Consolidated Statement of Operations (In thousands, except per share data) (Unaudited)  CumulativeFor the three
        
        For the three
        
        from March 3,months ended
        
        months ended
        
        2005, InceptionSeptember  30,
        
        October  31,
        
        to September 30.2006
        
        2005
        
        2006Revenues
        $          1,549
        
        $              -
        
        $          1,600Cost of revenues
        1,468
        
        -
        
        1,468Gross profit
        81
        
        -
        
        132General and administrative expenses
        802
        
        1,067
        
        4,014Loss from operations
        (721)
        
        (1,067)
        
        (3,882)Other income (expense)Interest, net
        (118)
        
        (13)
        
        (245)Gain on sale of property and equipment
        59
        
        -
        
        59Gain on notes settlements
        -
        
        -
        
        74Finance placement fees
        -
        
        (32)
        
        (1,058)Total other income (expense)
        (59)
        
        (45)
        
        (1,170)Loss before income tax provision
        (780)
        
        (1,112)
        
        (5,052)Income tax provision
        5
        
        -
        
        5Net loss
        $          (785)
        
        $         (1,112)
        
        $         (5,057)Net loss per common share,basic and diluted
        $         (0.06)
        
        $           (0.08)
        
        $           (0.41)Weighted average number of common shares outstanding,Basic and diluted
        13,896
        
        14,044
        
        12,254
  See accompanying notes to unaudited interim consolidated financial statements  4    Chartwell International, Inc. (A Development Stage Company) Consolidated Statement of Cash Flows (In thousands) (Unaudited)  CumulativeFor the three
        
        For the three
        
        from March 3,months ended
        
        months ended
        
        2005, InceptionSeptember 30,
        
        October 31,
        
        to September  30,2006
        
        2005
        
        2006Cash flows from operating activitiesNet loss
        $           (785)
        
        $         (1,112)
        
        $         (5,057)Adjustments to reconcile net loss to net cashprovided by (used in) operating activitiesDepreciation and amortization
        39
        
        3
        
        88Gain on sale of property and equipment
        (59)
        
        -
        
        (59)Gain on settlement of note receivable
        -
        
        -
        
        (35)Gain on settlement of note payable
        -
        
        -
        
        (40)Fair value of stock options granted
        34
        
        -
        
        66Fair value of common stock issued for services
        -
        
        705
        
        1,254Increase (decrease) in cash from changes in assetsand liabilitiesAccounts receivable
        (915)
        
        -
        
        (938)Deposits
        (17)
        
        390
        
        (550)Prepaid and other
        (51)
        
        (31)
        
        (88)Accounts payable and accrued liabilities
        836
        
        130
        
        825Due to related parties
        33
        
        153
        
        54Net cash (used in) provided by operating activities
        (885)
        
        238
        
        (4,480)Cash flows from investing activitiesPurchase of property and equipment
        (135)
        
        (1,429)
        
        (3,098)Purchase of capacity and loading rights
        (1,504)
        
        -
        
        (1,504)Proceeds on sale of property and equipment
        69
        
        -
        
        69Exercise of mining rights options
        -
        
        -
        
        (102)Deposits
        -
        
        (1)
        
        (14)Cash paid in acquisitions
        -
        
        (2,288)
        
        (4,597)Cash received in acquisitions
        -
        
        26
        
        82Net cash used in investing activities
        (1,570)
        
        (3,691)
        
        (9,164)Cash flows from financing activitiesProceeds from notes receivable
        -
        
        -
        
        635Payment for notes receivable
        -
        
        (275)
        
        (275)Borrowings under notes payable
        47
        
        -
        
        4,047Repayments under notes payable
        (59)
        
        (44)
        
        (578)Issuance of common stock
        -
        
        500
        
        10,641Redemption of common stock
        -
        
        -
        
        (275)Net cash (used in) provided by financing activities
        (12)
        
        181
        
        14,195Net increase (decrease) in cash
        (2,467)
        
        (3,272)
        
        551Cash and cash equivalents, beginning of period
        3,018
        
        7,686
        
        -Cash and cash equivalents, end of period
        $          551
        
        $          4,414
        
        $           551
  See accompanying notes to unaudited interim consolidated financial statements  5    Chartwell International, Inc. (A Development Stage Company) Consolidated Statement of Cash Flows (continued) (In thousands) (Unaudited)  CumulativeFor the three
        
        For the three
        
        from March 3,months ended
        
        months ended
        
        2005, InceptionSeptember 30,
        
        October 31,
        
        to September  30,2006
        
        2005
        
        2006Supplemental disclosure of cash flow informationCash paid during the period for:Interest
        $            106
        
        $             89
        
        $            650Income Taxes
        $              11
        
        $                -
        
        $              11Non-Cash Investing and Financing ActivitiesCommon stock issued in partial payment of note       receivable
        $                 -
        
        $         (325)
        
        $         (325)Software acquired under capital lease
        $                 -
        
        $           (27)
        
        $           (27)Common stock issued in partial payment of acquisition ofE-Rail Logistics, Inc.
        $                -
        
        $      (4,650)
        
        $      (1,803)Note payable issued in  partial payment of acquisition ofCranberry Creek Railroad, Inc.
        $                -
        
        $                -
        
        $         (500)Interest accrued to notes payable
        $           (28)
        
        $                -
        
        $         (104)
  See accompanying notes to unaudited interim consolidated financial statements  6    Chartwell International, Inc. Notes to Interim Consolidated Financial Statements September 30, 2006 (Unaudited)  Note 1.  Basis of Presentation and Accounting Policies  Unaudited Interim Financial Information. The accompanying unaudited interim consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (SEC) for the presentation of interim financial information, but do not include all the information and footnotes required by accounting principles generally accepted in the United States of America. The balance sheet as of June 30, 2006 has been derived from the audited consolidated financial statements of Chartwell International, Inc. at that date. Unless stated otherwise, references in this Form 10-QSB to we, us, or our refer to Chartwell International, Inc.  In the opinion of our management, all adjustments considered necessary for a fair presentation have been included. Operating results for three-month period ended September 30, 2006 and the operating results from inception on March 3, 2005 through September 30, 2006 are not necessarily indicative of the results that may be expected for year ended June 30, 2007. Further, we have had limited operations in all reporting periods through September 30, 2006. For further information, refer to the financial statements included in our Annual Report on Form 10-KSB filed on September 27, 2006.  Principles of Consolidation  The consolidated financial statements as at September 30, 2006 and for the three months ended September 30, 2006 include the accounts of Chartwell International, Inc., and the operations of our wholly owned subsidiaries Belville Mining Company, Inc. (Belville), Greater Ohio Resources, Inc. (Greater Ohio), Greater Hudson Resources, Inc. (Greater Hudson), Hudson Logistics, Inc. (Hudson), Hudson Logistics Loading, Inc. (HLL), Cranberry Creek Railroad, Inc., (Cranberry Creek) and Middletown and New Jersey Railway Company, Inc. (MNJ).  The consolidated financial statements for the three months ended October 31, 2005 include the accounts of Chartwell International, Inc. and the operations of our wholly-owned subsidiaries Belville and E-Rail Logistics, Inc. (E-Rail). On April 1, 2006 we assigned all the
assets and liabilities of E-Rail and transitioned its operations to Hudson. The corporate charter of E-Rail was surrendered on August 2, 2006. On May 12, 2006 we assigned all the assets and liabilities of Cranberry Creek to MNJ and began the process to surrender the corporate charter of Cranberry Creek. Inter-company accounts and transactions have been eliminated.  Use of Estimates  The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported periods. Actual results could materially differ from those estimates. Areas where significant estimation is involved include, but are not limited to the valuation of stock-based compensation.  7    Chartwell International, Inc. Notes to Interim Consolidated Financial Statements (continued) September 30, 2006 (Unaudited)  Note 1.  Basis of Presentation and Accounting Policies (continued)  Comprehensive Income  Effective January 1, 1998, we adopted Statement of Accounting Standards No. 130, Reporting Comprehensive Income (SFAS 130). SFAS 131 established new rules for the reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. The adoption of SFAS 130 had no affect on the accompanying financial statements, because we had and continue to have no other components of comprehensive income.  Stock Based Compensation  On February 8, 2006 our shareholders approved a stock based compensation plan (the 2006 Plan) for the benefit of our employees, directors and other eligible parties. The 2006 Plan permits the granting of restricted stock and options of up to 9% of our outstanding common stock including common stock that is convertible from other securities. Effective with our current fiscal year that began on August 1, 2005, we adopted the accounting and disclosure provisions of Statement of Financial Accounting Standards (SFAS) No. 123(R), Share-Based Payments.  As part of adopting the modified prospective approach during the transitional period, the Company has implemented the modified prospective application for SFAS No. 123(R) that includes the determination of a one-time cumulative effect adjustment for the portion of stock options granted after December 15, 1994 that had not vested by July 31, 2005. No cumulative effect adjustment was required as the Company did not have any prior stock option grants outstanding nor did the Company have a stock based compensation plan.  Recently Issued Accounting Pronouncements  SFAS No. 123(R)  In March 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123(R), "Share-Based Payment." SFAS 123(R) amends SFAS No. 123, "Accounting for Stock-Based Compensation," and APB Opinion 25, "Accounting for Stock Issued to Employees." SFAS No.123(R) requires that the cost of share-based payment transactions (including those with employees and non-employees) be recognized in the financial statements. SFAS No. 123(R) applies to all share-based payment transactions in which an entity acquires goods or services by issuing (or offering to issue) its shares, share options, or other equity instruments (except for those held by an Employee Stock Ownership Plan) or by incurring liabilities (1) in amounts based (even in part) on the price of the entity's shares or other equity instruments, or (2) that require (or may require) settlement by the issuance of an entity's shares or
other equity instruments. This statement is effective (1) for public companies qualifying as SEC small business issuers, as of the first interim period or fiscal year beginning after March 15, 2005, or (2) for all other public companies, as of the first interim period or fiscal year beginning after June 15, 2005, or (3) for all nonpublic entities, as of the first fiscal year beginning after March 15, 2005.  We adopted SFAS No. 123(R) effective with our fiscal year that began on August 1, 2005.  8    Chartwell International, Inc. Notes to Interim Consolidated Financial Statements (continued) September 30, 2006 (Unaudited)  Note 2.  Description of Business  We are a multi-industry holding company that was formed as a Nevada corporation in 1984. We, through our wholly-owned subsidiaries, are developing natural resources, rail-based transportation industries and related infrastructures. We are pursuing a growth strategy through successful acquisitions of assets, properties and access rights that can be synergistically combined and strategic relationships with those companies that focus on waste by rail services, rail transportation logistics, and disposal options, including landfill management.  Until early 2005 our principal activity consisted of the oversight of investments, principally in College Partnership, Inc. On January 31, 2005, we transferred all assets and liabilities to our then wholly-owned subsidiary, Kingsley Capital, Inc. (Kingsley) and subsequently transferred all of our Kingsley stock to our then existing shareholders as a dividend effective March 3, 2005 effecting a spin-off of Kingsley.  On March 23, 2005, in two separate but concurrent transactions, we sold 25,838,433 pre-split shares of our common stock to Imre Eszenyi in a private transaction for $200,000, which proceeds were used to pay off the promissory note issued previously to Kingsley, and our controlling affiliates sold an additional 19,161,567 pre-split shares of our common stock to Imre Eszenyi in a private transaction for $250,000.  Since March 3, 2005 and following the discontinuation of our former operations and business, we changed our focus and strategic direction and pursued operations as a development stage company in the natural resources and rail-based transportation industries. Most of our activities during the period from March 3, 2005 to September 30, 2006 were dedicated to seeking acquisition targets with viable on-going operations, or acquisition of assets, properties and access rights that could be most synergistically combined and allow us to begin operations.  On September 8, 2005, we acquired E-Rail, a development stage company with assets and minimal operations in the solid waste transportation and disposal industry. Because E-Rail was not deemed a business, the acquisition was treated as an acquisition of assets. The acquisition included E-Rails wholly-owned subsidiary, Belville, based in Ohio, which has significant interests and rights to over 9,600 acres of land and minerals in South-Central Ohio, a portion of which land we intend to permit for certain industrial uses. The property principally contains coal, clay and limestone. We are only beginning the permitting process, and cannot estimate at this time when operational use of the property will begin. In addition to permits, the site will require significant infrastructure improvements, which we are evaluating. Subsequent to the acquisition, E-Rail assigned the Belville shares to
Chartwell so that it is functioning as one of our direct subsidiaries.  On April 1, 2006, in an effort to better streamline operations, E-Rail assigned all of its assets and liabilities to Hudson. We surrendered the corporate charter of E-Rail on August 2, 2006.  9    Chartwell International, Inc. Notes to Interim Consolidated Financial Statements (continued) September 30, 2006 (Unaudited)  Note 2.  Description of Business (continued)  On April 26, 2006, we completed the acquisition of Cranberry Creek, a New Jersey corporation including its wholly-owned subsidiary, MNJ, that owns and operates a regional short-line railroad in Middletown, New York. MNJ owns and operates a regional short-line railroad headquartered and based in Middletown, New York. MNJs current operations are limited and we have begun capital improvements and are considering operational infrastructure alternatives to both increase the volume of activity on the railroad as well as integrating the railroad with our other developing operations.  On May 12, 2006, in an effort to further simplify our corporate structure, we assigned all the assets and liabilities of Cranberry Creek to MNJ and began the process to surrender the corporate charter of Cranberry Creek.  Founded in 1947, MNJ, headquartered in Middletown, New York has historically been an integral part of the growth of Orange County, New York. MNJ and its predecessors transported milk, milk products, livestock, feed and coal. As recently as in the mid 1980s, MNJ serviced a chemical and a fertilizer plant on its short-line. The business is currently serving Genpak, a national plastic packaging company and Orange & Rockland Utilities.  On August 29, 2006, our wholly-owned subsidiaries, Hudson and HLL completed the acquisition of certain agreements from Steel Wheels Transport, LLC and Team G Loading, LLC, that they respectively held with New York and Greenwood Lake Railway Company, Inc. (Greenwood).  One agreement is a Facility Capacity Agreement, which grants Hudson the right to utilize a guaranteed amount of capacity at Greenwoods railroad at Dundee Yard in Passaic, New Jersey. The other agreement is a Railroad Car Loading Agreement, which grants HLL the exclusive right to perform loading of bulk materials to railcars at Greenwoods railroad at Dundee Yard. As consideration for the assignment and assumption of these agreements Hudson and HLL paid an aggregate of $1,475,000 and agreed to either payoff or assume certain equipment loans and leases.  We acquired the Facility Capacity Agreement and Railroad Car Loading agreements as part of our strategy to offer rail-based solid waste transportation and disposal services. Our initial plans for this location are to operate as a transload facility to attract truckers hauling construction and demolition debris to our site, where we will load the debris onto railway cars and ship the debris to landfill sites in Ohio owned and operated by third party providers. We began transload activities on this site on September 11, 2006.  Our executive and administrative offices are based in Morristown, New Jersey.  10    Chartwell International, Inc. Notes to Interim Consolidated Financial Statements (continued) September 30, 2006 (Unaudited) Note 3.  Acquisitions  E-Rail Logistics, Inc.  On September 8, 2005, we acquired E-Rail, a development stage company with assets and minimal operations in the solid waste disposal industry.  The acquisition included E-Rails wholly-owned subsidiary, Belville based in Ohio which has significant interests and rights to over 9,600 acres of land and minerals in Ohio, a portion of which we intend to permit for certain industrial and commercial uses.  Pursuant to SEC Regulation S-X Rule 3-05 and 11-01 and ETIF 98-3:Determining Whether a Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business, we determined that the acquisition did not constitute a business combination.  E-Rail lacked almost all the significant elements to constitute a "business" at the time of the acquisition, was in the development stage and had not commenced planned principal operations.  As such, the transaction is treated as an acquisition of assets.  The Purchase price included:
  Cash
        $   2,867,0001,201,981 shares of common stock @ $1.50 per share
        1,803,000Assumption of debt
        1,822,000Total Purchase Price
        $   6,492,000
  The total purchase price was allocated to the assets acquired as follows:  Cash
        $          26,000Other Assets
        5,000Property and Equipment
        108,000Land
        1,008,000Mineral Rights
        1,606,000Option for Mineral Rights
        3,739,000Total Assets Acquired
        $     6,492,000
  On March 15, 2006, the original purchase price of $9,165,000 was reduced as part of the settlement of a lawsuit, involving a claim by a former member or creditor of E-Rail. The reduced purchase price included the return of some property and equipment acquired and its associated debt and the reduction of common shares issued to selling shareholders partially offset by additional cash payments.  Determination of the purchase price of the acquisition and corresponding allocation of the purchase price to the net assets included the following:  Fair value of our common stock issued was determined by our Board of Directors based on market conditions, including an independent assessment by a reputable firm specializing in such matters.  Accounts payable and accrued liabilities assumed were recorded at the carrying value at the date of the acquisition, which our management believes, reflected the fair value.  11    Chartwell International, Inc. Notes to Interim Consolidated Financial Statements (continued) September 30, 2006 (Unaudited)  Note 3.  Acquisitions (continued)  E-Rail Logistics, Inc. (continued)  Promissory notes assumed in the acquisition were valued at the present value of the minimum payments required to be paid under the notes at 11% which our management believes fairly reflect our current accessible borrowing rate based on recent proposals for debt financing.  Cash, other assets, and property and equipment were recorded at the carrying value at the date of the acquisition, which our management believes reflected the fair value.  Our management believes that at the date of the acquisition the book value of the land, mineral rights and mineral rights under option as reported by the acquired company does not reflect fair value.  To establish fair value, we received an independent appraisal of the land and a portion of the mineral rights owned prior to the close of the transaction. Additionally, we conducted a reserve analysis and obtained a lease proposal to mine our minerals.  Our management determined the fair value of the land, mineral rights and mineral rights under option based on the appraisal, analysis and proposal, and allocated the excess purchase price to the land, mineral rights and mineral rights under option on a pro-rata basis. As a result of the purchase price reduction that occurred on March 15, 2006, the net reduction after accounting for the reduction of property and equipment and its associated debt
was applied on a pro-rata basis to the mineral rights and mineral rights under option.  Following an analysis of other contracts and rights acquired, our management determined that there was no additional value that should be allocated from the excess purchase price to those other contracts and rights.  12     Chartwell International, Inc. Notes to Interim Consolidated Financial Statements (continued) September 30, 2006 (Unaudited)  Note 3.  Acquisitions (continued)  Cranberry Creek Railroad, Inc.  On April 26, 2006, we completed the acquisition of 100% of the outstanding common shares of Cranberry Creek. Cranberry Creeks primary asset is its wholly-owned subsidiary MNJ which owns and operates a regional short-line railroad located in Middletown, New York.  The acquisition price of $2,230,000 includes $1,730,000 paid in cash and a convertible note payable in the amount of $500,000. We completed the purchase of the first 66 2/3% of Cranberry Creeks outstanding common shares on February 10, 2006 and we have used this date for the purposes of valuation and the commencement of the inclusion of the results of operations in Chartwell. MNJ consists of approximately 14.6 miles of rail track (approximately 2 miles of the track is in usable condition) that run from Middletown, New York south to the New Jersey state border and several parcels of land in Orange County, New York for a total of approximately 13



8 acres.  The MNJ interchanges with Norfolk Southern Corporations railroad at its northern end.  The table below presents the balances of each major asset and liability caption of Cranberry Creek as of the acquisition date.  We determined the allocation of the purchase price of Cranberry based on the following:  Cash, accounts receivable, accounts payable and accrued liabilities were recorded at the carrying value at the date of the acquisition, which our management believes reflected the fair value.  Our management believes that at the date of the acquisition, the book value of the land, property and equipment as reported by Cranberry Creek does not reflect its fair value.  To establish fair value, we received an independent appraisal of the land, property and equipment based on the closing date or our acquisition.  Our management determined the fair value of the land, property and equipment based on the appraisal and allocated the excess purchase price to the land, property and equipment on a pro-rata basis.  February 10, 2006Cash
        $         56,000Accounts receivable
        2,000Land
        726,000Property and equipment
        1,524,000Accounts payable and accrued liabilities
        (78,000)Purchase price
        $    2,230,000
   13    Chartwell International, Inc. Notes to Interim Consolidated Financial Statements (continued) September 30, 2006 (Unaudited)  Note 4.  Capacity and Loading Rights  On August 29, 2006, our wholly-owned subsidiaries, Hudson and HLL, completed the acquisition of certain agreements from Steel Wheels Transport, LLC and Team G Loading, LLC, that they respectively held with Greenwood. One agreement is a Facility Capacity Agreement, which grants Hudson the right to utilize a guaranteed amount of capacity at Greenwoods railroad at Dundee Yard in Passaic, New Jersey. The other agreement is a Railroad Car Loading Agreement, which grants HLL the exclusive right to perform loading of bulk materials to railcars at Greenwoods railroad at Dundee Yard. As consideration for the assignment and assumption of these agreements, Hudson and HLL paid an aggregate of $1,475,000. Additionally, we incurred approximately $29,000 in legal fees bringing our capitalized cost of the capacity and loading rights to $1,504,000. We further agreed to either payoff or assume
certain equipment loans and leases. We began operations under the capacity and loading agreements in Passaic, New Jersey on September 11, 2006.  Note 5.  Notes Payable  On September 8, 2005, in connection with our acquisition of E-Rail, we assumed five promissory notes with a face value of $1,823,000 bearing interest at rates between 5.5% to 6.5% per annum secured by land and equipment owned by our Belville subsidiary and payable over two to five years in monthly installments of principal and interest. The promissory notes were recorded with a value of $1,636,000 which our management believes fairly represents the present value of minimum payments required to be paid under the notes with an interest rate of 11% per annum based on our current accessible borrowing rate based on recent proposal for debt financing on comparable assets. As of September 30, 2006 the outstanding balances were $1,304,000 of which $317,000 are due in one year or less.  On February 15, 2006, we issued a $500,000 convertible note payable to a selling shareholder of Cranberry Creek in connection with our acquisition. The note bears interest at the rate of 8% per annum, is due on February 15, 2008, interest is payable quarterly, and the principal balance plus any accrued interest can be converted into our common stock at rate of $3.165 per share at any time. At September 30, 2006, the balance of the note payable plus accrued interest was $500,000 and there was $5,000 of accrued interest.  On March 15, 2006, we issued a $1,000,000 convertible note payable to an accredited private investor. The note bears interest at the rate of 6% per annum, is due on March 15, 2009, interest accrues until the note is repaid or converted, and the principal balance plus any accrued interest can be converted into our common stock at rate of $2.00 per share at any time. At September 30, 2006, the balance of the note payable plus accrued interest was $1,033,000.  On April 30, 2006, we issued a $3,000,000 secured convertible note payable to an accredited foreign private investor. The note bears interest at the rate of 10% per annum, is due on April 30, 2012, interest is payable monthly, is secured by our railway flatbed cars, and the principal balance plus any accrued interest can be converted into our common stock at rate of $2.30 per share at any time. At September 30, 2006, the balance of the note payable was $3,000,000 and there was no accrued interest.  On September 14, 2006, we executed a secured note payable for $47,000 with Foley Equipment in connection was the purchase of equipment for our waste transload facility. The note bears no interest, is payable in 36 monthly principal installments of $1,315, and is secured by the equipment purchased. At September 30, 2006, the balance of the note payable was $47,000.  14     Chartwell International, Inc. Notes to Interim Consolidated Financial Statements (continued) September 30, 2006 (Unaudited)  Note 6.  Equity  Stock Options  Our 2006 Equity Incentive Plan (the 2006 Plan) was approved by shareholders on February 8, 2006, and permits the granting of up to 9% of our outstanding shares of common stock and the number of common shares issuable from convertible securities or 1,428,534 shares to employees and directors. Stock option awards are granted with an exercise price that is generally equal to or greater than the market price of our common stock on the date of the grant. The options vest generally over a range of two to four years and expire five years after the grant date. Stock options under the 2006 Plan provide for accelerated vesting if there is a change in control (as defined by the 2006 Plan).  The fair value of each stock option granted is estimated on the date of the grant using the Black-Scholes option pricing model and factors in an estimated forfeiture based on management assessment of historical employee termination experience as well as estimates of future terminations where historical information is limited. The Black-Scholes option-pricing model has assumptions for risk free interest rates, dividends, stock volatility and expected life of an option grant. The risk free interest rate is based the U.S. Treasury Bill rate with a maturity based on the expected life of the options and on the closest day to an individual stock option grant. Dividend rates are based on our dividend history. The stock volatility factor is based on up to the past three years of market prices of our common stock. The expected life of an option grant is based on its vesting period. The fair value of
each option grant is recognized as compensation expense over the expected life of the option on a straight line basis.  During the three-month period ended September 30, 2006 and the three-month-period October 31, 2005 we did not grant any stock options to our employees or directors.  15    Chartwell International, Inc. Notes to Interim Consolidated Financial Statements (continued) September 30, 2006 (Unaudited)  Note 6. Equity (continued)  Stock Options (continued)  The following table summarizes information about stock option transactions for the period shown:  All Options
        Three Month Period Ended
September 30, 2006Shares
        Weighted Average
Exercise PriceOutstanding at beginning of period
        350,000
        $ 2.83Options granted
        -
        -Options forfeited
        -
        -Options expired
        -
        -Options exercised
        -
        -Outstanding at end of period
        350,000
        $ 2.83Exercisable at end of period
        -
        $       -
   Non-vested Options
        Three Month Period Ended
September 30, 2006Shares
        Weighted Average Exercise PriceNon-vested at beginning of period
        350,000
        $  2.83Options granted
        -
        -Options forfeited
        -
        -Options expired
        -
        -Options vested
        -
        -Non-vested at end of period
        350,000
        $  2.83
  The weighted average remaining contractual lives of the options outstanding and options exercisable at September 30, 2006, were 4.5 years and 0.0 years respectively.  We recorded $34,000 of compensation expense for employee stock options during the three month period ending September 30, 2006. At September 30, 2006 there was a total of $228,000 of unrecognized compensation costs related to non-vested share-based compensation arrangements under the 2006 Plan. The cost is expected to be recognized over a weighted average period of 1.8 years. The total fair value of shares vested during the three month period ended September 30, 2006 was approximately $0.  16    Chartwell International, Inc. Notes to Interim Consolidated Financial Statements (continued) September 30, 2006 (Unaudited)  Note 7.  Related Party Transactions  On March 15, 2006, we entered into a two-year management advisory agreement with Orchestra Finance, LLP, whereby Orchestra would provide management and financial advisory services to us for a monthly fee of $10,000 retroactive to January 1, 2006. As of September 30, 2006, we reported $30,000 due to Orchestra for consulting and financing placement fees under the agreement.  We paid $0 in cash for legal services to a law firm, during the three months ended September 30, 2006, at which a director of ours is a shareholder.  As of September 30, 2006, we reported $24,000 due to this same firm for legal services.  We also reimbursed officers and directors for approved business expenses incurred in the ordinary course of business and in accordance with our expense reimbursement policy.  Note 8.  Contingencies and Commitments  Legal Proceedings  In the normal course of operations, we may have disagreements or disputes with employees, vendors or customers.  These disputes are seen by our management as a normal part of business, and there are no currently pending actions or no threatened actions that management believes would have a significant material impact on our financial position, results of operations or cash flows.  17    Item 2.  Managements Discussion and Analysis or Financial Condition and Results of Operations The following discussion should be read in conjunction with our consolidated financial statements and notes thereto included elsewhere in this quarterly report.  Forward-looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments.  Forward-looking statements are based upon estimates, forecasts, and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change.  These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by us, or on our behalf.  We disclaim any obligation to update forward-looking statements  Overview  We are currently a development stage company focused on the natural resources and rail-based transportation industries, including related infrastructures, and evaluate opportunities for expansion within those industries through acquisition or other strategic relationships.  During the current quarter we began limited operations through our Hudson and HLL units that included providing rail-based solid waste transportation and disposal services from our Passaic, New Jersey transload facility and contract services for solid waste transportation and disposal for a national corporation.  Background and Corporate History  We are a multi-industry holding company that was formed as a Nevada corporation in 1984. We, through our wholly-owned subsidiaries are developing natural resources, rail-based transportation industries and related infrastructures. We are pursuing a growth strategy through successful acquisitions of assets, properties and access rights that can be synergistically combined and strategic relationships with those companies that focus on waste by rail services, rail transportation logistics, and disposal options, including landfill management.  Until early 2005 our principal activity consisted of the oversight of investments, principally in College Partnership, Inc. On January 31, 2005, we transferred all assets and liabilities to our then wholly-owned subsidiary, Kingsley Capital, Inc. and subsequently transferred all of our Kingsley stock to our then existing shareholders as a dividend effective March 3, 2005 effecting a spin-off of Kingsley Capital. On March 23, 2005, in two separate but concurrent transactions, we sold 25,838,433 pre-split shares of our common stock to Imre Eszenyi in a private transaction for $200,000, which proceeds were used to pay off the promissory note issued previously to Kingsley Capital, and our controlling affiliates sold an additional 19,161,567 pre-split shares of our common stock to Imre Eszenyi in a private transaction for $250,000.  Since March 3, 2005 and following the discontinuation of our former operations and business, we changed our focus and strategic direction and pursued operations as a development stage company in the natural resources and rail-based transportation industries. Most of our activities during the period from March 3, 2005 to September 30, 2006 were dedicated to seeking acquisition targets with viable on-going operations, or acquisition of assets, properties and access rights that could be most synergistically combined and allow us to begin operations.  On September 8, 2005, we acquired E-Rail, a development stage company with assets and minimal operations in the solid waste transportation and disposal industry. Because E-Rail was not deemed a business, the acquisition was treated as an acquisition of assets. The acquisition included E-Rails wholly-owned subsidiary, Belville based in Ohio which has significant interests and rights to over 9,600 acres of land and minerals in South-Central Ohio, a portion of which land we intend to permit for certain industrial  18    uses. The property principally contains coal, clay and limestone. We are only beginning the permitting process, and cannot estimate when operational use of the property will begin at this time. In addition to permits, the site will require significant infrastructure improvements, which we are evaluating. Subsequent to the acquisition, E-Rail assigned the Belville shares to Chartwell so that it is functioning as one of our direct subsidiaries.  On April 1, 2006, in an effort to better streamline operations, E-Rail assigned all of its assets and liabilities to Hudson. We surrendered the corporate charter of E-Rail on August 2, 2006.  On April 26, 2006, we completed the acquisition of Cranberry Creek Railroad, Inc., a New Jersey corporation including its wholly-owned subsidiary, MNJ. that owns and operates a regional short-line railroad in Middletown, New York . MNJ owns and operates a regional short-line railroad headquartered and based in Middletown, New York. MNJs current operations are limited and we have begun capital improvements and are considering operational infrastructure alternatives to both increase the volume of activity on the railroad as well as integrating the railroad with our other developing operations.  On May 12, 2006, in an effort to further simplify our corporate structure, we assigned all the assets and liabilities of Cranberry Creek to MNJ and began the process to surrender the corporate charter of Cranberry Creek.  Founded in 1947, MNJ, headquartered in Middletown, New York has historically been an integral part of the growth of Orange County, New York. MNJ and its predecessors transported milk, milk products, livestock, feed and coal. As recently as in the mid 1980s, MNJ serviced a chemical and a fertilizer plant on its short-line. The business is currently serving Genpak, a national plastic packaging company and Orange & Rockland Utilities.  On August 29, 2006, our wholly-owned subsidiaries, Hudson and HLL completed the acquisition of certain agreements from Steel Wheels Transport, LLC and Team G Loading, LLC, that they respectively held with New York and Greenwood Lake Railway Company, Inc. (Greenwood). One agreement is a Facility Capacity Agreement, which grants Hudson the right to utilize a guaranteed amount of capacity at Greenwoods railroad at Dundee Yard in Passaic, New Jersey. The other agreement is a Railroad Car Loading Agreement, which grants HLL the exclusive right to perform loading of bulk materials to railcars at Greenwoods railroad at Dundee Yard. As consideration for the assignment and assumption of these agreements Hudson and HLL paid an aggregate of $1,475,000. Additionally, we incurred approximately $29,000 in legal fees bring our capitalized cost of these agreements to $1,504,000.  We
further agreed to either payoff or assume certain equipment loans and leases.  We acquired the Capacity and Loading agreements as part of our strategy to offer rail-based solid waste transportation and disposal services. Our initial plans for this location are to operate as a transload facility to attract truckers hauling construction and demolition debris to our site, where we will load the debris onto railway cars and ship the debris to landfill sites in Ohio owned and operated by third party providers. We began transload activities on this site on September 11, 2006.  Recent Developments  Hudson Logistics, Inc.  In addition to our recently opened transload facility in Passaic, New Jersey, we are focusing our business development efforts in intermodal services. Intermodal transportation is the movement of freight via trailer or container using two or more modes of transportation, which typically includes a rail and truck segment.  19    We have purchased rail cars and containers, and through Hudson, we have agreements with intermodal and maintenance facilities to support our operations.  We anticipate that we will continue to enter into similar arrangements to facilitate the transportation of commodities and bulk materials.  Greater Ohio Resources, Inc.  We have begun and will continue to apply for all necessary permits to utilize portions of our Ohio properties for certain commercial and industrial uses.  This application process could take up to one year for approval. While we intend to aggressively pursue such applications, there are no guarantees we will be successful.  Middletown and New Jersey Railroad Company, Inc.  We have begun and are planning to make significant infrastructure improvements to increase traffic on MNJs railroad. We anticipate that the infrastructure improvements will allow us to attract new customers and expand the level of service that we provide to existing customers. We plan to partner with local, state and federal government agencies to attract rail-served commerce to the Orange County, New York region where MNJ is located. Critical Accounting Policies and Estimates Our Financial Statements are based on the selection and application of significant accounting policies, which require our management to make estimates and assumptions that affect the amounts reported in the Balance Sheets and the Statements of Operations. We believe that the following are the most critical areas that may affect our financial condition and results of operations.  Revenue Recognition.We generate revenue from solid waste transportation and disposal services and from rail transportation. The timing of our revenue recognition for solid waste transportation and disposal services depends on the type of service that we provide to our customers. We recognize revenue at our transload facility upon delivery by our customers of waste to our facilities. We recognize revenue for waste management services when we complete the delivery of waste to the site designated as part of our contract with the customer. Our credit terms for our transload facility are generally prepayment, cash on delivery or weekly payment. Our credit terms for waste management services are generally 15 to 30 days. We generate limited revenue from rail transportation and we recognize revenue on the completion of transportation across our short line railroad. Our
credit terms are generally 15 to 30 days. We do not maintain reserves for potential credit losses in either solid waste disposal services or rail transportation as we have limited historical experience of credit losses and we have not incurred any losses since we began generating revenue in February 2006.  Stock Based Compensation.Our 2006 Equity Incentive Plan (2006 Plan) was approved by our shareholders on February 8, 2006 and permits the granting of up to 9% of our outstanding shares of common stock and the number of shares of common stock issuable from convertible securities, or 1,428,534 shares to employees and directors. Stock option awards are granted with an exercise price that is generally equal to or greater than the market price of our common stock on the date of the grant. The options vest generally over a range of two to four years and expire five years after the grant date. Stock options under the 2006 Plan provide for accelerated vesting if there is a change in control (as defined by the 2006 Plan).  The fair value of each stock option granted is estimated on the date of the grant using the Black-Scholes option pricing model and factors in an estimated forfeiture based on management assessment of historical employee termination experience as well as estimates of future terminations where historical information is limited. The Black-Scholes option pricing model has assumptions for risk free interest rates, dividends, stock volatility and expected life of an option grant. The risk free interest rate is based the U.S.  20    Treasury Bill rate with a maturity based on the expected life of the options and on the closest day to an individual stock option grant. Dividend rates are based on our dividend history. The stock volatility factor is based on up to the past three years of market prices of our common stock. The expected life of an option grant is based on its vesting period. The fair value of each option grant is recognized as compensation expense over the expected life of the option on a straight line basis. Impairment of Long-Term Assets.In the event that facts and circumstances indicate that the carrying value of long-term assets may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset would be compared to the assets carrying amount to determine if a write-down to market value or discounted cash flow value is required. The write-down, if any, would be charged to operations in the period that impairment was identified. As of September 30, 2006, our management has not identified any impaired assets. Results of Operations  Comparison of the Three Months Ended September 30, 2006 and October 31, 2005  We reported a net loss for the three months ended September 30, 2006 of $785,000 or $0.06 per share on a basic and diluted basis as compared to a loss of $1,112,000 or $0.08 per share on a basic and diluted basis for the three months ended October 31, 2005. As a result of the change in our fiscal year end from July 31 to June 30 effective with our fiscal year beginning July 1, 2006, we are making comparisons to previous periods that are off by one month.  Revenues  Revenues for the three months ended September 30, 2006 of $1,549,000 consisted primarily of solid waste disposal fees from our transload facility in Passaic, New Jersey of $279,000, solid waste disposal fees from a waste management contract servicing a national corporation in New Jersey of $1,238,000 and rail transportation income from MNJ of $32,000. We did not record any revenue during the three month period ended October 31, 2005 as we had no active operations at that time.  Cost of Revenues  Cost of revenues for the three months ended September 30, 2006 of $1,468,000 or 94.8% of revenues consisted primarily of truck and rail transportation costs, landfill tipping fees and other waste disposal equipment operational costs. Our cost of revenues will vary from period to period as percentage of revenue depending on such factors as the volume of waste disposal services, the cost of fuel, our ability to negotiate favorable contracts with transportation companies and landfills, the type and cost of railway cars and other equipment used and the leveraging of operational efficiencies. We did not record any revenues during the three-month period ended October 31, 2005 and therefore we did not have any cost of revenues.  Gross Profit  Gross profit for the three months ended September 30, 2006 of $81,000 or 5.2% of revenues. Our gross profit as a percentage of revenue will vary from period to period due to variations in factors discussed above in Cost of Revenues. We did not record any revenues during the three month period ended October 31, 2005 and therefore did not have any gross profit.  General and Administrative Expenses  General and administrative expenses decreased by $265,000 to $802,000 for the three month period ended September 30, 2006 from $1,067,000 for the three month period ended October 31, 2005. General and administrative expenses during the current period consisted primarily of the following:  21    
        salaries and employee expenses of  $249,000
 
        engineering and other consulting services of  $109,000
 
        rents, utilities, telephone and office related expenses of  $64,000
 
        professional fees of  $164,000
 
        investment and management consulting fees of  $30,000
 
        travel expenses of  $57,000
 
        depreciation and amortization expense of $39,000.
  General and administrative expenses during the three-month period ended October 31, 2005 consisted primarily of the following:  
        salaries and employee expenses of $110,000
 
        rents, utilities, telephone and office related expenses of  $31,000
 
        professional fees of  $900,000
 
        travel expenses of  $23,000
  With exception of the reduction of professional fees, general and administrative expenses increased due to commencement of our operations in waste disposal and management services during the three month period ended September 30, 2006 and as a result of on-going short line rail operations at MNJ that did not exist in the comparable three month period ended October 31, 2005. Professional fees for the three-month period ending October 31, 2005 included approximately $705,000 of expenses from the issuance of shares of common stock to our board members for their services and to financial advisors in connection with raising capital and advice on the acquisition of our subsidiaries.  Other Income and Expenses  Other expenses increased by $14,000 to $59,000 for the three-month period ended September 30, 2006 from $45,000 for the three-month period ended October 31, 2005. Other expenses incurred during the current period consisted of net interest expense of $118,000 that was partially offset by gains on sales of scrap equipment from our Belville unit of $59,000. Other expenses for the three-month period ended October 31, 2005 included net interest expense of $13,000 and finance placement fees of $32,000. Net interest expense increased $105,000 in current period over the comparable period last year due to the combination of increased debt financing during the latter part of fiscal 2006 and the reduction of cash balances earning interest.  Liquidity and Capital Resources  At September 30, 2006, we had working capital of $742,000. We recorded a loss for the three-month period ended September 30, 2006 of $785,000 and we have accumulated losses from inception on March 3, 2005 of $5,057,000. Given our September 30, 2006 cash balance of $551,000 and our projected operating cash requirements, we anticipate that our existing capital resources may be adequate to satisfy our cash flow requirements through June 30, 2007 provided that we do not expand current operations. However, to execute our acquisition strategy and business plan we anticipate that we will have to raise additional capital through asset based lines of credit and term loans or additional debt or equity financings to fund additional operations and acquisitions during the next six to twelve months.  Cash decreased by $2,467,000 for the three months ended September 30, 2006 from $3,018,000 to $551,000.  We reported cash flow used in operations of $885,000 consisting primarily of our net loss of $785,000 and an increase in accounts receivable of $915,000 partially offset by an increase of $869,000 in  22    accounts payable and accrued liabilities including amounts due to related parties.  Cash used in investing activities totaled $1,570,000 consisting primarily of our purchases of property and equipment of $135,000 and capacity and loading rights for our transload facility of $1,504,000.  Cash used by financing activities totaled $12,000 consisted of principal payments on notes payable of $59,000 partially offset by the proceeds from a secured note payable of $47,000. Our long-term debt includes approximately $334,000 of principal payments and $406,000 in accrued interest expenses that are due within the next year. The potential impact of servicing our long-term debt on short-term liquidity may be a reduction in cash available for contemplated infrastructure improvements and potential acquisitions. We cannot be sure that our future working capital or cash flows will be sufficient to meet our debt obligations and commitments. Any insufficiency would have a negative impact on our business. Our ability to generate cash flow from operations sufficient to make scheduled payments on our debt as they become due will depend on our future performance and our ability to implement our business strategy successfully. Failure to pay our interest expense or make our principal payments would result in a default. A default, if not waived, could result in acceleration
of our indebtedness, in which case the debt would become immediately due and payable. If this occurs, we may be forced to reduce or delay capital expenditures and implementation of our business strategy, sell assets, obtain additional equity capital or refinance or restructure all or a portion of our outstanding debt on terms that may be less favorable to us.  In the event that we are unable to do so, we may be left without sufficient liquidity and we may not be able to repay our debt and the lenders will be able to foreclose on our assets.  Although we have recently begun transload and other waste management activities through our Hudson and HLL subsidiaries, and, we intend to obtain all the necessary permits to operate a landfill on our recently acquired Ohio properties, there are no guarantees that we will be successful.  If we are not successful, that may have a material adverse effect on how soon we will be able to generate significant revenue and cash flow from on-going operations.  Additionally, we intend to make infrastructure improvements to MNJ to facilitate the expansion of our rail transportation operations. We have been approved for grants from the New York State Department of Transportation and we are currently requesting additional grants. The level of infrastructure spending is dependent on our success at receiving grants and there is no guarantee as to the level of approved grants that we may ultimately receive.
Any such shortfall in projected revenues or limitations of grants may cause us to seek additional financing at an earlier date.  There are no assurances that such financing will be available, or be available on terms acceptable to us.  Off-Balance Sheet Transactions  There are no off balance sheet items, and all transactions are in U.S. dollars, and we are not subject to currency fluctuations or similar market risks.  23    Factors That May Affect Our Business, Future Operating Results and Financial Condition  The risks described below are the ones we believe are the most important for you to consider, these risks are not the only ones that we face. If events anticipated by any of the following risks actually occur, our business, operating results or financial condition could suffer and the trading price of our common stock could decline.  Recent change of control and discontinued prior operations do not give ahistorical basis upon which to evaluate our current efforts, and the change instrategic direction has certain inherent risks.We recently experienced a change of control and discontinued all prior activities. As of March 2005, we had no assets and no operations. In addition, our periodic and current reports filed prior to March 2005 will contain information, which will no longer be applicable or relevant to our current and future business operations.  Our short financial history contributes to the risk inherent of an investment in our capital stock. In addition, we are still in the process of implementing certain systems and controls. Failure to do so on a timely basis could have adverse results on our operations.  We have changed our business focus and we intend to acquire operationsunrelated to past activities, and there are no assurances that management willbe successful in acquiring a business or integrating the operationssuccessfully, which would impair our value further.In connection with the recent change of control, we have shifted our focus towards acquisitions. On September 8, 2005, we entered into an Agreement and Plan of Merger with E-Rail Logistics, Inc. (E-Rail), pursuant to which we acquired E-Rail, a development stage company. Additionally, on April 26, 2006, we completed the acquisition of Cranberry Creek Railroad, Inc. whose principal asset is Middletown and New Jersey Railway Company, Inc.
(MNJ), a regional railroad. Although the acquisition of these assets is part of our strategic business plan, there can be no assurance that we will be successful in integrating the assets of E-Rail and MNJ as part of us.  We may be unable to execute our acquisition growth strategy.Our ability to execute our growth strategy depends in part on our ability to identify and acquire desirable acquisition candidates as well as our ability to successfully consolidate acquired operations into our business. The consolidation of our operations with the operations of acquired companies, including the consolidation of systems, procedures, personnel and facilities, the relocation of staff, and the achievement of anticipated cost savings, economies of scale and other business efficiencies, presents significant challenges to our management, particularly if several acquisitions occur at the same time. In short, we cannot assure you that: desirable acquisition candidates exist or will be identified, we will be able to acquire any of the candidates identified, we will effectively consolidate
companies which are acquired and fully or timely realize the expected cost savings, economies of scale or business efficiencies, or any acquisitions will be profitable or accretive to our earnings.  We face challenges in attracting and retaining a qualified and experiencedmanagement team.Our success will depend largely on our ability to hire and retain qualified individuals to operate our business including, our directors, senior management and other key personnel. The loss of the services of any of these key personnel could have a material adverse effect on our business and financial results. Although we are actively pursuing additional personnel to manage MNJ and to replace former executives of E-Rail to utilize its assets following the acquisition and subsequent transfer to our Hudson subsidiary, there is no assurance that we will be successful in attracting qualified individuals. Our failure to attract and retain qualified personnel could have a material adverse effect on our business and financial condition.  Integration of proposed acquisitions poses certain risks, and we do notcurrently have historical experience upon which to base an evaluation of thefuture prospects of success.We have only a limited operating history upon which to base an evaluation of our business and our prospects. There can be no assurance that our recently assembled senior management team will be able to manage the business  24    successfully and implement our operating and growth strategies effectively. Our effective integration of acquired businesses into our organization and operations is and will continue to be important to our growth and future financial performance. A part of our strategy is to achieve economies of scale and operating efficiencies by increasing our size through acquisitions. These goals may not be achieved even if we effectively combine the operations of acquired businesses with our existing operations due to factors beyond our control, such as market position or customer base. Because of our limited operating history, there can be no assurance that our recently assembled senior management team will succeed in integrating our future acquisitions. Any difficulties we encounter in the integration process could have a material adverse effect on our business, financial condition and results of operations.  Additional factors may negatively impact our acquisition growth strategy.Our acquisition strategy may require spending significant amounts of capital. If we are unable to obtain additional needed financing on acceptable terms, we may need to reduce the scope of our acquisition growth strategy, which could have a material adverse effect on our growth prospects. The intense competition among our competitors pursuing the same acquisition candidates may increase purchase prices for solid waste businesses or short-line railroads and increase our capital requirements and/or prevent us from acquiring certain acquisition candidates. If any of the aforementioned factors force us to alter our growth strategy, our financial condition, results of operations and growth prospects could be adversely affected.  We may not be able to attract the required capital, through either debt orequity financings, in order to complete strategic acquisitions or make requiredpurchases of capital equipment needed to conduct our operations efficiently,either of which could adversely affect our financial condition and ability toexecute on our business plan.We anticipate that any future business acquisitions will be financed through cash from potential operations, borrowings, the issuance of shares of our common stock and/or seller financing. If acquisition candidates are unwilling to accept, or we are unwilling to issue, shares of our common stock as part of the consideration for such acquisitions,
we may be required to use more of our available cash resources or debt, to the extent it is available, to fund such acquisitions. To the extent that cash from potential operations and debt are insufficient to fund acquisitions, we will require additional equity and/or debt financing, the terms of which may be unfavorable or unavailable. Additionally, growth through the development or acquisition of new landfills, railroads, transfer stations and other facilities, as well as the ongoing maintenance of such landfills, railroads, transfer stations or other facilities, may require substantial capital expenditures. There can be no assurance that we will have sufficient existing capital resources or be able to raise sufficient additional capital resources on terms satisfactory to us to meet any or all of the foregoing capital requirements. For example, our wholly-owned subsidiary, Middletown and New Jersey Railroad has been approved for a federal railroad improvement grant; however, there
are no assurances that we will be successful in receiving such funding if we do not meet certain state and local regulatory requirements.  There may be undisclosed liabilities in the businesses that we acquirewhich we fail or are unable to discover which could have a material adverseeffect on our operations and business conditions.As a successor owner to entities we acquire, we often assume prior liabilities incurred and there can be no assurances that these liabilities are properly disclosed to us. Even if we obtain legally enforceable representations, warranties, covenants and indemnities from the sellers of such businesses, we may not be successful in fully covering the liabilities. Certain environmental liabilities, even if we do not expressly assume them, may be imposed upon us under various regulatory schemes and legal theories, and as such may materially affect our ability to operate and grow our business.  Larger competitors may compete with us for acquisition targets, making itmore difficult for us to acquire businesses that fit within our businessstrategy, or increasing the cost of making such acquisitions, either of whichcould negatively affect our performance.We compete for acquisition candidates with other entities, some of which have greater financial resources than us. Increased competition for acquisition candidates may result in fewer acquisition opportunities being available to us, as well as less  25    attractive acquisition terms, including increased purchase prices. These circumstances may increase acquisition costs to levels that are beyond our financial capability or pricing parameters or that may have an adverse effect on our results of operations and financial condition. The ability to utilize our securities as consideration for potential acquisitions may depend in large part on the relative market price and capital appreciation prospects of the common stock compared to the equity securities of our competitors. If the market price of our common stock were to decline materially over a prolonged period of time, our acquisition program could be materially adversely affected.  The success of our railroad operations is dependant on our continuingrelationships with Class I carriers.  The railroad industry in the United States is dominated by a small number of Class I carriers that have substantial market control and negotiating leverage. Our ability to provide rail service to our customers in North America depends in large part upon our ability to maintain cooperative relationships with Class I carriers with respect to, among other matters, freight rates, car supply, reciprocal switching, and interchange and trackage rights. In addition, loss of customers or service interruptions or delays by our Class I interchange partners relating to customers who ship over our track, may decrease our revenue. Because we depend on a Class I railroad, Norfolk Southern Corp. and other connecting carriers for
our operations, our operating results, financial condition and liquidity may be adversely affected if our relationships with these carriers deteriorate.  Much of the freight transported by railroads moves on railcars supplied byother independent providers.If the number of railcars supplied by such other rail providers is insufficient, or if the cost of obtaining these railcars increases, we might not be able to obtain replacement railcars on favorable terms or at all and shippers may seek alternate forms of transportation.  We may be partially depending on government funding for our existing andfuture capital projects and track rehabilitation.Government funding for our projects is limited, and there is no guarantee that budget pressure at the federal, state and local level or changing governmental priorities will not eliminate future funding availability. In addition, competition for government funding from other short line railroads, Class I railroads, infrastructure and other companies is significant and the receipt of government funds is often contingent on the acceptance of contractual obligations that may not be strictly profit maximizing. In certain jurisdictions, the acceptance of government funds may impose additional legal obligations on our operations. We look to utilize the grant funds as a supplement to our normal capital
programs. In return for the grants, the railroads pledge to maintain various levels of service and maintenance on the rail lines that have been rehabilitated or constructed. We believe that the levels of service and maintenance required under the grants are not materially different from those we would otherwise provide. However, we can offer no assurance that government grants will continue to be available or that even if available, our railroads will be able to obtain them.  Our mining operations are inherently subject to conditions that couldaffect levels of production and production costs at particular mines forvarying lengths of time and could reduce our profitability.Our planned coal mining operations are subject to conditions or events beyond our control that could disrupt operations, affect production and increase the cost of mining for varying lengths of time and negatively affect our profitability. These conditions or events include, (i) unplanned equipment failures, which could interrupt production and require us to expend significant sums to repair our capital equipment that we would use to remove the soil that overlies coal deposits; (ii) geological conditions, such as variations in the quality of the coal produced from a
particular seam, variations in the thickness of coal seams and variations in the amounts of rock and other natural materials that overlie the coal that we are mining; (iii) unexpected delays and difficulties in acquiring, maintaining or renewing necessary permits or mining or surface rights; (iv) unavailability of mining equipment and supplies and increases in the price of mining equipment and supplies; (v) shortage of qualified labor and a significant rise in labor costs; (vi) fluctuations in the cost of industrial supplies, including steel-based supplies, natural gas, diesel fuel and oil; (vii) unexpected or accidental surface subsidence from underground mining; (viii) accidental mine water  26    discharges, fires, explosions or similar mining accidents; (ix) regulatory issues involving the plugging of and mining through oil and gas wells that penetrate the coal seams we mine; and (x) adverse weather conditions and natural disasters, such as heavy rains and flooding. If any of these conditions or events occur in the future at any of our mining complexes, our cost of mining and any delay or halt of production either permanently or for varying lengths of time could adversely affect our operating results.  We have reclamation obligations and if we are required to honorreclamation obligations that have been assumed by previous mine operators, wecould be required to expend greater amounts than we currently anticipate, whichcould affect our profitability in future periods.We are responsible under federal and state regulations for the ultimate reclamation of the mines we operate. In some cases, the previous mine operators have assumed these liabilities by contract and have posted bonds or have funded escrows to secure their obligations. We estimate our future liabilities for reclamation and other mine-closing costs from time to time based on a variety of assumptions. If our assumptions are incorrect, we could be required in
future periods to spend more on reclamation and mine-closing activities than we currently estimate, which could harm our profitability. Likewise, if previous mine operators default on the unfunded portion of their contractual obligations to pay for reclamation, we could be forced to make these expenditures ourselves and the cost of reclamation could exceed any amount we might recover in litigation, which would also increase our costs and reduce our profitability.  Defects in title or loss of any leasehold interests in our propertiescould limit our ability to mine these properties or result in significantunanticipated costs.We conduct some of our mining operations on properties that we lease. A title defect or the loss of any lease could adversely affect our ability to mine the associated reserves. Because title to most of our leased properties and mineral rights is not usually verified until we make a commitment to develop a property, which may not occur until after we have obtained necessary permits and completed exploration of the property, our right to mine some of our reserves may, in the future, be adversely affected if defects in title or boundaries exist. In order to obtain leases or mining contracts to conduct our mining
operations on property where these defects exist, we may in the future have to, incur unanticipated costs. In addition, we may not be able to successfully negotiate new leases or mining contracts for properties containing additional reserves, or maintain our leasehold interests in properties where we have not commenced mining operations during the term of the lease.  Estimates of proven and probable reserves are subject to considerableuncertainty.Such estimates are, to a large extent, based on interpretations of geologic data obtained from drill holes and other sampling techniques. We use feasibility studies to derive estimates of capital and operating costs based upon anticipated tonnage and grades of minerals to be mined and processed, the costs of comparable facilities, the costs of operating and processing equipment and other factors. Actual operating costs and economic returns on projects may differ significantly from original estimates. Further, it may take many years from the initial phase of exploration before production is possible and, during that time, the economic feasibility of exploiting a discovery may change.  We may not be able to raise sufficient capital or generate sufficient cashflow to meet our debt service requirements.As of September 30, 2006, we had indebtedness of $5,884,000 of which $334,000 is due in less than one year. We cannot assure you that our future working capital or cash flows will be sufficient to meet our debt obligations and commitments. Any insufficiency would have a negative impact on our business. Our ability to generate cash flow from operations sufficient to make scheduled payments on our debt as they become due will depend on our future performance and our ability to implement our business strategy successfully. Failure to pay our interest expense or make our principal payments would result in a default. A default, if not waived, could result in acceleration of our indebtedness, in which case
the debt would become immediately due and payable. If this occurs, we may be forced to reduce or delay capital expenditures and implementation of our business strategy, sell assets, obtain additional equity capital or refinance or restructure all or a portion of our outstanding debt on terms that may be less favorable to us. In the event that we are unable to do so, we may be left without sufficient liquidity and we may not be able to  27    repay our debt and the lenders will be able to foreclose on our assets.  Regulatory approval to develop or expand our landfills and transferstations may be delayed or denied.Our plans include developing new landfills and transfer stations, as well as expanding the disposal and transfer capacities of certain landfills and transfer stations, respectively. Various parties, including citizens groups and local politicians, sometimes challenge these projects. Responding to these challenges has, at times, increased our costs and extended the time associated with establishing new facilities and expanding existing facilities. In addition, failure to receive regulatory and zoning approval may prohibit us from establishing new facilities and expanding existing facilities.  Seasonal changes may adversely affect our businesses and operations.Our operations may be adversely affected by periods of inclement weather which could increase or decrease the volume of waste collected, delay the transportation and disposal of waste, reduce the volume of waste delivered to our disposal sites, or delay the construction or expansion of our landfill sites and other facilities.  Risks Related to our Industry  Strategic growth through acquisitions is dependent on our ability tointernally grow our logistics infrastructure, and there is no historicalperspective to validate our belief that we can attain certain gross marginscompetitively, the failure of which would adversely affect our financialcondition.Our growth strategy includes (i) expanding through acquisitions, and (ii) generating internal growth of its infrastructure and logistics capabilities. Our ability to execute our growth strategy will depend on a number of factors, including the success of existing and emerging competition, the availability of acquisition targets, the ability to maintain profit margins in the face of
competitive pressures, the ability to continue to recruit, train and retain qualified employees, the strength of demand for our services and the availability of capital to support our growth.  Rapid growth could create risks of over leverage or undercapitalization tomeet our obligations, which could materially impact our financial condition andstrategy.If we are able to execute our growth strategy, we may experience periods of rapid growth. Such growth, if it occurs, could place a significant strain on our management, operational, financial and other resources. Our ability to maintain and manage our growth effectively will require us to expand our management information systems capabilities and our operational and financial systems and controls. Moreover, we will need to attract, train, motivate, retain and manage additional senior managers, technical professionals and other employees, as well as integrate accounting and reporting for disclosure controls and
compliance with Section 404 of the Sarbanes-Oxley Act. Any failure to expand our operational and financial systems and controls or to recruit and integrate appropriate personnel at a pace consistent with our revenue growth could have a material adverse effect on our business, financial condition and results of operations.  The rail-based transportation, transloading and intermodal logisticsbusinesses are highly competitive, and we will face competition from companiesthat may be better financed than we are, which could impact our ability tocompete for customers and employees.Certain of the markets in which we compete or will likely compete are served by one or more large, national companies, as well as by numerous regional and local companies of varying sizes and resources, some of which have accumulated substantial goodwill. Certain of our competitors may also be better capitalized, have greater name recognition or be able to provide services at a lower cost than us. Our inability to compete with governmental service providers and larger and
better capitalized companies could have a material adverse effect on our business, financial condition and results of operations.  We compete directly with other modes of transportation, including motorcarriers, ships and barges.Competition is based primarily upon the rate charged and the transit time required, as well as the quality and reliability of the service provided. While we must build or acquire and maintain our rail system,  28    trucks are able to use public roadways. Any future improvements or expenditures materially increasing the quality of these alternative modes of transportation in the locations in which we operate, or legislation granting materially greater latitude for motor carriers and barges with respect to size, weight limitations, or other operating restrictions could have a material adverse effect on our results of operations and financial condition.  Our railroad and real estate ownership are subject to significantgovernmental regulation and our failure to comply with such regulations couldhave a material adverse effect on our operating results, financial conditionand liquidity.We are subject to governmental regulation by a significant number of federal, state and local regulatory authorities, including the Surface Transportation Board, the Federal Railroad Administration and state departments of transportation, with respect to our railroad operations and a variety of health, safety, labor, environmental and other matters. Some of the regulations require us to obtain and maintain various licenses, permits and other authorizations, which we may not continue to be able to do so.  Rising fuel costs could adversely affect our business. Fuel prices and supplies are influenced significantly by international, political and economic circumstances. If fuel supply shortages or unusual price volatility were to arise for any reason, the resulting higher fuel prices could significantly increase our operating costs. During 2006, we offset a portion of higher fuel costs through our participation in Class I carriers fuel surcharge programs. However, to the extent that we are unable to maintain and expand the existing fuel surcharge program, increases in fuel prices could have an adverse effect on our operating results, financial condition or liquidity.  As part of our railroad operations, we may transport hazardous materials.We are required to transport hazardous materials to the extent of our common carrier obligation. An accidental release of hazardous materials could result in significant loss of life and extensive property damage. The associated costs could have an adverse effect on our operating results, financial condition or liquidity.  Increased consolidation and competition within the coal industry mayadversely affect our ability to sell coal, and excess production capacity inthe industry could put downward pressure on coal prices.During the last several years, the U.S. coal industry has experienced increased consolidation, which has contributed to the industry becoming more competitive. According to the National Mining Association (NMA), in 1994, the top ten coal producers accounted for approximately 45% of total domestic coal production. By 2004, however, the top ten coal producers share had increased to approximately 69% of total domestic coal production, according to the NMA. Consequently, some of our competitors in the domestic coal industry are major coal producers who have
greater financial resources than we do. The intense competition among coal producers may impact our ability to retain or attract customers and may, therefore, adversely affect our future revenue and profitability. Recent increases in coal prices could encourage the development of expanded coal producing capacity in the United States. Any resulting overcapacity from existing or new competitors could reduce coal prices and, therefore, our revenue.  We may be unable to obtain and renew permits necessary for our operations,which would reduce our production, cash flow and profitability.Mining companies must obtain numerous permits that strictly regulate environmental and health and safety matters in connection with mining, including permits issued by various federal and state agencies and regulatory bodies. We believe that we are in the process of obtaining the necessary permits to mine our developed reserves at our mining complexes. However, as we commence mining our undeveloped reserves, we will need to apply for and obtain the required permits. The permitting rules are complex and change frequently, making our ability to comply with the applicable requirements more difficult or even impossible, thereby precluding continuing or future mining operations. Private
individuals and the public at large have certain rights to comment on and otherwise engage in the permitting process, including through intervention in the courts. Accordingly, the permits we need for our mining operations may not be issued, or, if issued, may not be issued in a timely fashion, or may involve  29    requirements that may be changed or interpreted in a manner which restricts our ability to conduct our mining operations or to do so profitably. An inability to conduct our mining operations pursuant to applicable permits would reduce our production, cash flow and profitability.  Our operations may impact the environment or cause exposure to hazardoussubstances, and our properties may have environmental contamination, whichcould result in material liabilities to us.Our operations will potentially use hazardous materials and generate limited quantities of hazardous wastes from time to time. We could become subject to claims for toxic torts, natural resource damages and other damages as well as for the investigation and clean up of soil, surface water, groundwater, and other media. Such claims may arise, for example, out of conditions at sites that we currently own or operate, or may acquire. Our liability for such claims may be joint and several, so that we may be held responsible for more than our share of the contamination or other damages, or
even for the entire share. We are not subject to material claims arising out of contamination at our facilities or other locations, but may incur such liabilities in the future. Unforeseen impacts that our operations may have on the environment, as well as exposures to hazardous substances or wastes associated with our operations, could result in costs and liabilities that could materially and adversely affect us.  Our inability to maintain landfill permits and licenses could adverselyaffect financial resources or require significant expenditures to comply withthe regulations, either of which could materially affect gross margins and cashflow from operations.If we implement our strategy for landfill ownership and operation, it will be necessary to obtain and maintain in effect one or more licenses or permits, as well as zoning, environmental and/or other land use approvals. These licenses or permits and approvals are difficult and time-consuming to obtain and renew and are frequently subject to opposition by various elected officials or citizens groups, whose positions may change in the future in ways that may adversely effect
continuing operations or materially affect the cost of operations. The design, operation and closure of landfills are extensively regulated. These regulations include, among others, the Resource Conservation and Recovery Ad (RCRA), Subtitle D (Subtitle Regulations). Failure to comply with these regulations could require us to undertake investigatory or remedial activities, to curtail operations or to close a landfill temporarily or permanently. Future changes to these regulations may require us to modify, supplement or replace equipment or facilities at costs that may be substantial. The failure of regulatory agencies to enforce these regulations vigorously or consistently may give an advantage to our competitors whose facilities do not comply with the Subtitle D Regulations or their state counterparts. Our financial obligations arising from any failure to comply with these regulations could have a material adverse effect on our business, financial condition
and results of operations.  Judicial and administrative proceedings related to our business areroutine, and penalties, fines, or remediation orders could materially impactour cash flow or working capital from time-to-time, which could impair ourbusiness plan objectives.Companies in the short-line and regional rail are frequently subject in the normal course of business to judicial and administrative proceedings involving federal, state or local agencies or citizens groups. Governmental agencies may seek to impose fines or penalties on us or to revoke or deny renewal of our operating permits, franchises or licenses for violations or alleged violations of environmental laws or regulations or require us to make expenditures to remediate potential
environmental problems relating to waste disposed of or stored by us or our predecessors, or resulting from us or our predecessors transportation and collection operations. We may also be subject to actions brought by individuals or community groups in connection with the permitting, franchising or licensing of our operations, any alleged violation of such permits, franchises or licenses or other matters. Any adverse outcome in these proceedings could have a material adverse effect on our business, financial condition and results of operations and may subject us to adverse publicity.  We may be subject to liability for any environmental damage that our solidwaste facilities may cause, including damage to neighboring landowners orresidents, particularly as a result of the contamination of soil, groundwateror surface water, and especially drinking water, which could  30    materially impactour cash flow in any given period.Our potential liability includes damage resulting from conditions existing prior to the acquisition of such facilities by us. We may also be subject to liability for any off-site environmental contamination caused by pollutants or hazardous substances whose transportation, treatment or disposal was arranged by us or our predecessors. Any substantial liability for environmental damage incurred by us could have a material adverse effect on our business, financial condition and results of operations. Further, the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) imposes joint and several strict liabilities on the present owners and operators of facilities from which a release of hazardous substances into the environment has occurred, as well as any
party that owned or operated the facility at the time of disposal of the hazardous substances, regardless of when the hazardous substance was first detected. CERCLA defines the term hazardous substances very broadly to include more than 700 substances that are specified under RCRA, have specific hazardous characteristics defined under RCRA or are regulated under any of several other statutes. Similar liability is imposed on the generators of waste that contains hazardous substances and on hazardous substance transporters that select the treatment, storage or disposal site. All such persons, who are referred to as potentially responsible parties, generally are jointly and severally strictly liable for the expense of waste site investigation, waste site cleanup costs and natural resource damages, regardless of whether they exercised due care and complied with all relevant laws and regulations. These costs can be very substantial. Furthermore, such liability can be based on
the existence of even very small amounts of hazardous substances; unlike most of the other statutes that regulate hazardous substances, CERCLA does not require any minimum volume or concentration of a hazardous substance to be present before imposing liability. It is likely that hazardous substances have in the past come to be located in landfills with which we are or will become associated. If any of our sites or operations ever experiences environmental problems, we could be subject to substantial liability, which could have a material adverse effect on our business, financial condition and results of operations. As such we carry a broad range of insurance coverage, including, general liability, real and personal property, directors and officers liability and other coverages we believe are customary in the industries we operate. However, there is no assurance that the level of insurance coverage we have procured is sufficient to protect us against all
liabilities.  Various states have enacted, or are considering enacting, laws thatrestrict the disposal, within the state, of solid waste generated outside thestate.While laws that overtly discriminate against out-of-state waste have been found to be unconstitutional, some laws that are less overtly discriminatory have been upheld in court. Additionally, certain state and local governments have enacted flow control regulations, which attempt to require that all waste generated within the state or local jurisdiction be deposited at specific sites. In 1994, the United States Supreme Court ruled that a flow control ordinance was unconstitutional. However, other courts have refused to apply the Supreme Court precedent in various circumstances. In addition, from time to time,
the United States Congress has considered legislation authorizing states to adopt regulations, restrictions, or taxes on the importation of out-of-state or out-of-jurisdiction waste. These congressional efforts have to date been unsuccessful. The United States Congress adoption of legislation allowing restrictions on interstate transportation of out-of-state or out-of-jurisdiction waste or certain types of flow control, the adoption of legislation affecting interstate transportation of waste at the state level, or the courts interpretation or validation of flow control legislation could adversely affect our solid waste management services.  Downturns in the U.S. economy have had and may have an adverse impact onour industries and hence our operating results.A weak economy generally results in decreases in the volumes of waste generated, energy consumed, goods transported. In the past, weakness in the U.S. economy has had a negative effect on operating results in our industries, including decreases in revenues and operating cash flows. Additionally, in a down-cycle economic environment, we may experience the negative effects of increased competitive pricing pressure and customer turnover. There can be no assurance that worsening economic conditions or a prolonged or recurring recession will not have a significant adverse impact on our operating results. Additionally, there can be no assurance that an improvement in economic conditions will result in an
immediate, if at all positive, improvement in our operating results.  31    Item 3.Controls and Procedures Our management with the participation and under the supervision of our Principal Executive Officer and Principal Financial Officer reviewed and evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined by Rule 240.13a-15(e) or 15d-15(e)) of the Exchange Act Rule 13a-15 as of the end of the period covered by this report.  Based upon their evaluation, our Principal Executive Officer and Principal Financial Officer concluded that, as of the end of such period, our disclosure controls and procedures are not effective as of the end of the first quarter of fiscal 2007 and that material weaknesses exist in our internal control structure, due in particular to the lack of appropriate resources dedicated to external financial reporting. Our management is taking steps to address such weaknesses, including the hiring of additional accounting staff
to allow for segregation of duties. One additional accounting staff was hired during the quarter ended September 30, 2006.  There were no changes in our internal controls over financial reporting that occurred during the three months ended September 30, 2006 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.  SIGNATURES IMMEDIATELY FOLLOW  32    SIGNATURES  In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.  CHARTWELL INTERNATIONAL, INC.
(Registrant)Date: October 25, 2006
        By: /s/ Imre Eszenyi
Imre Eszenyi, Acting President
(Principal Executive Officer) and Chairman of the BoardDate: October 25, 2006
        By: /s/ Paul Biberkraut
Paul Biberkraut, Chief Financial and Administrative Officer (Principal Financial Officer and Principal Accounting Officer)
   33    Exhibits  31.1
        Certificate of Principal Executive Officer pursuant to Section 302 of The Sarbanes Oxley Act of 200231.2
        Certificate of Principal Financial Officer and Principal Accounting Officer pursuant to Section 302 of The Sarbanes -Oxley Act of 200232
        Certificate of Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002
   34