**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**







þ
            
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**


**For
      the quarterly period ended September 30, 2008**


o
            
            **TRANSITION
                REPORT PURSUANT TO 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**
            
            **95-3979080**(State
                or Other Jurisdiction of
            
            (I.R.S.
                Employer Identification No.)Incorporation
                or Organization)





**140
      East Main Street**


**Middletown,
      New York 10940**


(Address
      of Principal Executive Offices)





**(949) 335-5319**


(Issuer’s
      Telephone Number)





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
      during the preceding 12 months (or for such shorter period that the registrant
      was required to file such reports), and (2) has been subject to such filing
      requirements for the past 90 days.  Yes þ   No o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting company.
      See
      the definitions of “large accelerated filer,” “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act.





Large
                accelerated filer ̈
            Accelerated
                filer ̈Non-accelerated
                filer ̈
              (Do
                not check if smaller reporting company)
            Smaller
                reporting companyþ





Indicate
      by check mark whether the Registrant is a shell company (as defined in
      Rule 12b-2 of the Exchange Act). Yes o No þ





As
      of
      November 13, 2008 the Registrant had 16,237,900 outstanding shares of common stock, $0.001 par value per share.









CHARTWELL
      INTERNATIONAL, INC.


FORM
      10-Q


SEPTEMBER
      30, 2008


INDEX


PAGEPart
                  I. FINANCIAL INFORMATIONItem 1.
                  Financial Statements
              3Consolidated
                  Balance Sheets at September 30, 2008 (Unaudited) and June 30,
                  2008
              3Consolidated
                  Statements of Stockholders’ Equity at September 30, 2008 (Unaudited)
              4Consolidated
                  Statements of Operations (Unaudited) for the three months ended
                  September
                  30, 2008 and2007, and, from inception on March 3, 2005 to September 30,
                  2008
              5Consolidated
                  Statements of Cash Flows (Unaudited) for the three months ended
                  September
                  30, 2008 and2007, and, from inception on March 3, 2005 to September 30,
                  2008
              6Notes
                  to Interim Consolidated Financial Statements
              8Item 2.
                  Management’s Discussion and Analysis of Financial Conditions and Results
                  of Operation
              16Item
                  3. Quantitative and Qualitative Disclosures About Market
                  Risk
              20Item 4.
                  Controls and Procedures
              20Part
                  II. OTHER INFORMATION
              20Item 1.
                  Legal Proceedings
              20Item
                  1A. Risk Factors
              20Item
                  2. Unregistered Sales of Equity Securities and Use of
                  Proceeds
              24Item 3.
                  Defaults Upon Senior Securities
              24Item
                  4. Submission of Matters to a Vote of Security Holders
              25Item
                  5. Other Information
              25Item
                  6. Exhibits
              25Signatures
              26ExhibitIndex
              27
 2





**PART
      1. FINANCIAL INFORMATION**


**Item 1.** **Financial Statements**


**Chartwell
      International, Inc.**


**(A
      Development Stage Company)**


**Consolidated
      Balance Sheets**


**(In
      thousands)**




September
                30,
            
            June
                30,2008
            
            2008**(Unaudited)****Assets****Current
                Assets**Cash
            
            $
            91
            
            $
            182Accounts
                receivable
            
            
            11
            
            
            19Deposits
            
            
            —
            
            
            391Prepaid
                expense and other
            
            
            38
            
            
            19Total
                current assets
            
            
            140
            
            
            611**Long-term
                Assets**Property
                and equipment, net
            
            
            2,117
            
            
            2,125Land
            
            
            1,192
            
            
            1,192Mineral
                rights
            
            
            5,447
            
            
            5,447Investment,
                at cost
            
            
            123
            
            
            123Other
            
            
            9
            
            
            9Total
                long-term assets
            
            
            8,888
            
            
            8,896**Total
                Assets**
            
            $
            9,028
            
            $
            9,507**Liabilities
                and Stockholders’ Equity****Current
                Liabilities**Accounts
                payable and accrued liabilities
            
            $
            303
            
            $
            345Due
                to related parties
            
            
            45
            
            
            19Notes
                payable
            
            
            2,039
            
            
            2,007Total
                current liabilities
            
            
            2,387
            
            
            2,371**Long-term
                Liabilities**Notes
                payable, net of current portion
            
            
            4,025
            
            
            4,264Total
                long-term liabilities
            
            
            4,025
            
            
            4,264**Total
                Liabilities**
            
            
            6,412
            
            
            6,635**Commitments
                and Contingencies****Stockholders’
                Equity**Preferred
                stock, $0.001 par value, 25,000 shares authorized.
              Series A
                Preferred shares, $0.001 par value, 20 shares designated and 2 issued
                and
                outstanding
            
            
            2,000
            
            
            2,000Common
                shares, $0.001 par value, 100,000 shares authorized 16,238 and 14,051
                shares issued and outstanding at September 30, 2008 and June 30,
                2008, respectively
            
            
            16
            
            
            14Additional
                paid in capital
            
            
            14,481
            
            
            14,182Accumulated
                deficit
            
            
            (13,881
            )
            
            (13,324
            )Total
                stockholders’ equity
            
            
            2,616
            
            
            2,872**Total
                Liabilities and Stockholder’s Equity**
            
            $
            9,028
            
            $
            9,507




See
      accompanying notes to unaudited interim consolidated financial
      statements





3




**Chartwell
                International, Inc and Subsidiaries****(A
                Development Stage Company)****Consolidated
                Statements of Stockholders' Equity****(in
                thousands)****(Unaudited)**


Preferred
              
              Preferred
              
              Common
              
              Common
              
              Additional
              
              
              
              TotalStock
              
              Stock
              
              Stock
              
              Stock
              
              Paid-in
              
              Accumulated
              
              Stockholders'Shares
              
              $
              
              Shares
              
              $
              
              Capital
              
              Deficit
              
              Equity**Balance,
                  June 30, 2008**
              
              
              2
              
              $
              2,000
              
              
              14,051
              
              $
              14
              
              $
              14,182
              
              $
              (13,324
              )
              $
              2,872Fair
                  value of stock options granted
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              6
              
              
              
              
              
              6Common
                  stock issued for services
              
              
              
              
              
              
              
              
              2,187
              
              
              2
              
              
              289
              
              
              
              
              
              291Swing
                  sale profit on common stock
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              4
              
              
              
              
              
              4Net
                  loss for the Period ended September 30, 2008
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (557
              )
              
              (557
              )**Balance,
                  September 30, 2008**
              
              
              2
              
              $
              2,000
              
              
              16,238
              
              $
              16
              
              $
              14,481
              
              $
              (13,881
              )
              $
              2,616




(See
      accompanying notes to Consolidated Financial Statements)




4




**Chartwell
      International, Inc.**


**(A
      Development Stage Company)**


**Consolidated
      Statement of Operations**


**(In
      thousands, except per share data)**


**(Unaudited)**


For
                  the three
                months
                  ended
                September
                  30,
                2008
              
              For
                  the three
                months
                  ended
                September
                  30,
                2007
              
              from
                  March 3,
                2005,
                  Inception
                to
                  September
                30,
                  2008**Revenues**
              
              $
              58
              
              $
              2,221
              
              $
              9,958**Cost
                  of revenues**
              
              
              —
              
              
              2,289
              
              
              9,221**Gross
                  profit (loss)**
              
              
              58
              
              
              (68
              )
              
              737General
                  and administrative expenses
              
              
              286
              
              
              914
              
              
              12,155Loss
                  (gain) on sale of property and equipment
              
              
              —
              
              
              93
              
              
              324Loss
                  (gain) on sale of capacity and loading rights
              
              
              —
              
              
              —
              
              
              (147
              )**Loss
                  from operations**
              
              
              (228
              )
              
              (1,075
              )
              
              (11,595
              )Other
                  income (expense)Interest,
                  net
              
              
              (114
              )
              
              (120
              )
              
              (1,266
              )Gains
                  on notes settlements
              
              
              —
              
              
              —
              
              
              254Finance
                  placement fees
              
              
              (215
              )
              
              —
              
              
              (1,275
              )Total
                  other income (expense)
              
              
              (329
              )
              
              (120
              )
              
              (2,287
              )**Loss
                  before income tax provision**
              
              
              (557
              )
              
              (1,195
              )
              
              (13,882
              )**Income
                  tax provision**
              
              
              —
              
              
              —
              
              
              —**Net
                  loss**
              
              $
              (557
              )
              $
              (1,195
              )
              $
              (13,882
              )**Net
                  loss per common share,**basic
                  and diluted
              
              $
              (0.04
              )
              $
              (0.09
              )
              $
              (1.04
              )**Weighted
                  average number of common shares outstanding,**basic
                  and diluted
              
              
              15,267
              
              
              14,041
              
              
              13,336


See
      accompanying notes to unaudited interim consolidated financial
      statements




5




**Chartwell
      International, Inc.**


**(A
      Development Stage Company)**


**Consolidated
      Statement of Cash Flows**


**(In
      thousands)**


**(Unaudited)**


For
                  the three
                months
                  ended
                September
                  30,
                2008
              
              For
                  the three
                months
                  ended
                September
                  30,
                2007
              
              Cumulative
                from
                  March 3,
                2005,
                  Inception
                to
                  September 30,
                2008**Cash
                  flows from operating activities**Net
                  loss
              
              $
              (557
              )
              $
              (1,195
              )
              $
              (13,882
              )Adjustments
                  to reconcile net loss to net cash provided by (used in) operating
                  activitiesDepreciation
                  and amortization
              
              
              8
              
              
              92
              
              
              584Impairment
                  of asset value
              
              
              —
              
              
              —
              
              
              2,255Loss on
                  sale of property and equipment
              
              
              —
              
              
              93
              
              
              324Gain
                  on sale of capacity and loading rights
              
              
              —
              
              
              —
              
              
              (147
              )Gain
                  on settlement of note receivable
              
              
              —
              
              
              —
              
              
              (35
              )Gain
                  on settlement of note payable
              
              
              —
              
              
              —
              
              
              (219
              )Stock
                  compensation
              
              
              6
              
              
              78
              
              
              441Fair
                  value of common stock issued for services
              
              
              291
              
              
              —
              
              
              1,974Increase
                  (decrease) in cash from changes in assets and
                  liabilitiesAccounts
                  receivable
              
              
              8
              
              
              (142
              )
              
              (9
              )Deposits
              
              
              391
              
              
              8
              
              
              —Prepaid
                  and other
              
              
              (19
              )
              
              (18
              )
              
              (37
              )Accounts
                  payable and accrued liabilities
              
              
              69
              
              
              569
              
              
              687Due
                  to related parties
              
              
              26
              
              
              —
              
              
              45Net
                  cash provided by (used in) operating activities
              
              
              223
              
              
              (515
              )
              
              (8,019
              )**Cash
                  flows from investing activities**Purchase
                  of property and equipment
              
              
              —
              
              
              —
              
              
              (3,794
              )Purchase
                  of capacity and loading rights
              
              
              —
              
              
              —
              
              
              (1,509
              )Proceeds
                  on sale of property and equipment
              
              
              —
              
              
              119
              
              
              619Proceeds
                  on sale of capacity and loading rights
              
              
              —
              
              
              —
              
              
              1,455Exercise
                  of mining rights options
              
              
              —
              
              
              —
              
              
              (102
              )Deposits
              
              
              —
              
              
              5
              
              
              (109
              )Investment
                  in affiliate
              
              
              —
              
              
              —
              
              
              (123
              )Restricted
                  cash
              
              
              —
              
              
              (4
              )
              
              —Cash
                  paid in acquisitions
              
              
              —
              
              
              —
              
              
              (4,597
              )Cash
                  received in acquisitions
              
              
              —
              
              
              —
              
              
              82Net
                  cash provided by (used in) investing activities
              
              
              —
              
              
              120
              
              
              (8,078
              )**Cash
                  flows from financing activities**Proceeds
                  from notes receivable
              
              
              —
              
              
              —
              
              
              635Payment
                  for notes receivable
              
              
              —
              
              
              —
              
              
              (275
              )Borrowings
                  under notes payable
              
              
              —
              
              
              —
              
              
              5,375Repayments
                  under notes payable
              
              
              (318
              )
              
              (56
              )
              
              (1,700
              )Issuance
                  of common stock
              
              
              —
              
              
              —
              
              
              10,924Short
                  swing sale profit on common stock
              
              
              4
              
              
              —
              
              
              4Issuance
                  of preferred stock
              
              
              —
              
              
              —
              
              
              1,500Redemption
                  of common stock
              
              
              —
              
              
              —
              
              
              (275
              )Net
                  cash provided by (used in) financing activities
              
              
              (314
              )
              
              (56
              )
              
              16,188




See
      accompanying notes to unaudited interim consolidated financial
      statements




6




**Chartwell
      International, Inc.**


**(A
      Development Stage Company)**


**Consolidated
      Statement of Cash Flows (continued)**


**(In
      thousands)**


**(Unaudited)**





For
                the three
              months
                ended
              September
                30,
              2008
            
            For
                the three
              months
                ended
              September
                30,
              2007
            
            Cumulative
              from
                March 3,
              2005,
                Inception
              to
                September 30,
              2008Net
                increase (decrease) in cash
            
            
            (91
            )
            
            (451
            )
            
            91Cash
                and cash equivalents, beginning of period
            
            
            182
            
            
            704
            
            
            —Cash
                and cash equivalents, end of period
            
            $
            91
            
            $
            253
            
            $
            91**Supplemental
                disclosure of cash flow information**Cash
                paid during the period for:Interest
            
            $
            100
            
            $
            94
            
            $
            1,298Income
                taxes
            
            $
            —
            
            $
            —
            
            $
            —**Non-Cash
                Investing and Financing Activities**Notes
                payable assumed by purchaser on sale of equipment
            
            $
            —
            
            $
            —
            
            $
            337Deposits
                applied to accounts payable
            
            $
            —
            
            $
            —
            
            $
            (105
            )Preferred
                stock issued in exchange for redemption Of common stock
            
            $
            —
            
            $
            —
            
            $
            (500
            )Common
                stock issued in partial payment of note receivable
            
            $
            —
            
            $
            —
            
            $
            (325
            )Software
                acquired under capital lease
            
            $
            —
            
            $
            —
            
            $
            (27
            )Common
                stock issued in partial payment of acquisition of E-Rail Logistics,
                Inc.
            
            $
            —
            
            $
            —
            
            $
            (1,803
            )Note
                payable issued in partial payment of acquisition of Cranberry Creek
                Railroad, Inc.
            
            $
            —
            
            $
            —
            
            $
            (500
            )Interest
                accrued to notes payable
            
            $
            (14
            )
            $
            (26
            )
            $
            (483
            )




See
      accompanying notes to unaudited interim consolidated financial
      statements


7




**Chartwell
      International, Inc.**


**Notes
      to Interim Consolidated Financial Statements**


**September
      30, 2008**


**(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, 2008 has
      been derived from the audited consolidated financial statements of Chartwell
      International, Inc. at that date. Unless stated otherwise, references in this
      Form 10-Q 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 the three-month period
      ended September 30, 2008 and the operating results from inception on
      March 3, 2005 through September 30, 2008 are not necessarily indicative of
      the results that may be expected for the year ended June 30, 2009. Further,
      we have had limited operations in all reporting periods through September 30,
      2008. For further information, refer to the financial statements included in
      our
      Annual Report on Form 10-KSB filed on September 17, 2008.





**Principles
      of Consolidation**





The
      consolidated financial statements as of September 30, 2008 and for the three
      months ended September 30, 2008 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”), and Middletown and New Jersey Railway Company, Inc. (“MNJ”). The
      consolidated financial statements for the three months ended September 30,
      2007
      include the accounts of Chartwell International, Inc. and the operations of
      our
      wholly-owned subsidiaries Belville, Greater Ohio, Greater Hudson, Hudson, Hudson
      Logistics Loading, Inc. (“HLL) and MNJ. Inter-company accounts and transactions
      have been eliminated. The corporate charter of HLL was surrendered on May 30,
      2008.





**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 evaluations of long-term assets and the valuation of stock-based
      compensation.





**Revenue
      Recognition**





We
      generate revenue from rail transportation and we generated revenue from solid
      waste transportation and disposal services until January 24, 2008. The
      timing of our revenue recognition for solid waste transportation and disposal
      services depended on the type of service that we provided to our customers.
      We
      recognized revenue at our transload facility upon delivery by our customers
      of
      waste to our facilities. We recognized revenue for waste management services
      when we completed the delivery of waste to the site designated as part of our
      contract with the customer. Our credit terms for our transload facility were
      generally prepayment, cash on delivery or weekly payment. Our credit terms
      for
      waste management services were 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 maintained reserves for potential credit losses on solid
      waste disposal services based on a specific identification of customers that
      have exceeded credit terms and our assessment of their ability to pay. We do
      not
      maintain a reserve for rail transportation revenue as we have one customer
      and
      we have not incurred any losses since we began generating revenue in
      February 2006.





**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. During the quarters ended December 31, 2007
      and
      March 31, 2008, our management identified certain railroad equipment assets,
      and, land and related infrastructure associated with our MNJ subsidiary that
      were not being used in current operations and evaluated the market value of
      these assets. We determined the value of these assets had been impaired in
      comparison to prices for similar assets and we recorded write-downs totaling
      $2,255,000 based on our estimates of their market value. These write-downs
      were
      included in general and administrative expenses on the Consolidated Statement
      of
      Operations.





8





**Chartwell
      International, Inc.**


**Notes
      to Interim Consolidated Financial Statements (Continued)**


**September
      30, 2008**


**(Unaudited)**





**Note
      1. Basis of Presentation and Accounting Policies
      (continued)**





**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 fiscal year that began
      on
      August 1, 2005, we adopted the accounting and disclosure provisions of 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**





We
      adopted the provisions of Financial Accounting Standards Board (FASB)
      Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an
      interpretation of FASB No. 109 (FIN 48) on July 1, 2007. As a result of the
      implementation of FIN 48, we recognized no liability for unrecognized income
      tax
      benefits at June 30, 2008.





In
      May
      2007, the FASB issued FSB FIN 48-1, Definition of a Settlement in FASB
      Interpretation No. 48 (FSP FIN 48-1). FSP FIN 48-1 clarifies when a tax position
      is considered settled under FIN 48. Under FSP FIN 48-1, a tax position is
      considered “effectively settled” upon completion of the examination by the
      taxing authority without being legally extinguished. For “effectively settled”
tax positions, a company can recognize the full amount of the tax benefit.
      FSP
      FIN 48-1 is effective upon a company’s adoption of FIN 48. FSP FIN 48-1 did not
      have a material impact on our financial position or results of
      operations.





Our
      continuing practice is to recognize interest and/or penalties related to income
      tax matters in income tax expense. At June 30, 2008, we had no accrued interest
      related to uncertain tax positions and no accrued penalties.





In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities” (SFAS 159). SFAS 159 provides
      companies with an option to report selected financial assets and liabilities
      at
      fair value. SFAS 159 also establishes presentation and disclosure requirements
      designed to facilitate comparisons between companies that choose different
      measurement attributes for similar types of assets and liabilities and to
      provide additional information that will help investors and other financial
      statement users to more easily understand the effect of the company’s choice to
      use fair value on its earnings. Finally, SFAS 159 requires entities to display
      the fair value of those assets and liabilities for which the company has chosen
      to use fair value on the face of the balance sheet. SFAS 159 is effective as
      of
      the beginning of an entity’s first fiscal year beginning after November 15,
      2007. Early adoption is permitted as of the beginning of the previous fiscal
      year provided that the entity makes that choice in the first 120 days of that
      fiscal year and also elects to apply the provisions of SFAS 157 (see below).





In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS
      157). SFAS 157 provides enhanced guidance for using fair value to measure assets
      and liabilities and also expands information about the extent to which companies
      measure assets and liabilities at fair value, the information used to measure
      fair value, and the effect of fair value measurements on earnings. SFAS 157
      applies whenever other accounting standards require or permit assets and
      liabilities to be measured at fair value and does not expand the use of fair
      value in any new circumstances. SFAS 157 is effective for financial statements
      issued for fiscal years beginning after November 15, 2007 and interim periods
      within those fiscal years.




9




**Chartwell
      International, Inc.**


**Notes
      to Interim Consolidated Financial Statements (Continued)**


**September
      30, 2008**


**(Unaudited)**





**Note
      1. Basis of Presentation and Accounting Policies
      (continued)**





In
      December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business
      Combinations - Revised 2007. SFAS 141R provides guidance on improving the
      relevance, representational faithfulness, and comparability of information
      that
      a reporting entity provides in its financial reports about a business
      combination and its effects. SFAS 121R applies to business combinations where
      the acquisition date is on or after the beginning of the first annual reporting
      period beginning on or after December 15, 2008. The Company is in the process
      of
      analyzing the effects SFAS 141R will have on its financial
      statements.





**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 providers of rail-based
      transportation. Our primary focus until January 24, 2008 was on the
      transportation and disposal of non-hazardous solid waste as well as the
      transportation of other commodities. Subsequent to January 24, 2008 we are
      providing limited rail-based transportation of commodities through our MNJ
      subsidiary. We had, until January 24, 2008, been pursuing a growth strategy
      through acquisitions of assets, properties and access rights that can be
      combined and strategic relationships with those companies that focus on waste
      by
      rail services, rail transportation logistics, and disposal options, including
      landfill management. We are currently re-evaluating our strategy and we are
      focusing on evaluating the best business approach to monetizing some land,
      mineral and mineral rights assets that we acquired to generate liquidity to
      fund
      future business activity.





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 issued 25,838,433 pre-split shares of our common stock to
      one
      of our directors in a private transaction for $200,000, which proceeds were
      used
      to pay off the promissory note issued previously to Kingsley Capital, and we
      issued an additional 19,161,567 pre-split shares of our common stock to the
      same
      director 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 rail-based transportation
      and
      solid waste management industries. Most of our activities during the period
      from
      March 3, 2005 to September 30, 2008 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 solid waste landfill and other 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.





On
      April 26, 2006, we completed the acquisition of Cranberry Creek, 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. We
      surrendered the corporate charter of Cranberry Creek on November 15,
      2006.





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 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.





10





**Chartwell
      International, Inc.**


**Notes
      to Interim Consolidated Financial Statements (Continued)**


**September
      30, 2008**


**(Unaudited)**





**Note
      2. Description of Business (continued)**




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 primarily consisting of
      construction and demolition debris 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.





On
      January 24, 2008, our wholly-owned subsidiaries HLI and HLL entered into an
      Amended and Restated Purchase Agreement with Perry New Jersey, LLC for the
      sale
      of substantially all of their assets to Perry New Jersey I, LLC for cash
      consideration of $1,700,000, subject to a $803,594 holdback, and assumption
      by
      Perry of certain debts and leases of Hudson and HLL. This transaction closed
      on
      January 24, 2008. As a result of the asset sale we are no longer have
      rail-based solid waste transportations operations. We have assigned remaining
      assets and liabilities of HLI and HLL to Chartwell International, Inc. and
      surrendered the corporate charters of HLL and HLI on May 30, 2008 and September
      19, 2008, respectively.





Our
      executive offices are based in Middletown, New York.





**Note
      3. 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 0% to 6.5% per annum secured by land 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 $1,638,000 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 then current accessible borrowing rate based on proposals for debt
      financing on comparable assets. On June 8, 2006, we negotiated an early payoff
      of one of the notes that resulted in gain on the settlement of the note of
      $39,000. During the year ended June 30, 2007 we either paid off or renegotiated
      the repayment terms of the notes and have determined that the remaining face
      value fairly represents the present value of minimum future payments based
      on
      the borrowing rates that we recently received from new debt assumed. We
      suspended making payments against the remaining notes in February 2008 while
      we
      are in the process of restructuring certain of the terms with the note holders.
      We continue to accrue interest based on the existing interest rates. As of
      September 30, 2008 the outstanding balances including accrued interest were
      $1,023,000 of which $543,000 are due in one year or less.





On
      February 15, 2006, we issued a $500,000 convertible promissory 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, was due on February 15, 2008,
      interest is payable quarterly, and the principal balance plus any accrued
      interest can be converted into shares of our common stock at a rate of $3.165
      per share at any time. The conversion rights have expired. With the written
      consent of the note holder, we did not pay off the note payable on its due
      date.
      To date, we have attempted and continue to negotiate with the note holder to
      extend and restructure the note payable beyond its original due date. However,
      we are in default of the note and the note holder filed a lawsuit against us
      in
      Orange County, New York on July 17, 2008. We have continued to accrue interest
      on the note payable at the original note interest rate. At September 30, 2008,
      the balance of the note payable plus accrued interest was $525,000.





On
      March
      15, 2006, we issued a $1,000,000 convertible promissory note payable to an
      accredited private investor. The note bore interest at the rate of 6% per annum,
      was due on March 15, 2009, interest accrued until the note is repaid or
      converted, and the principal balance plus any accrued interest could be
      converted into shares of our common stock at a rate of $2.00 per share at any
      time. On June 10, 2008 we agreed to renegotiate the note whereby accrued
      interest and principal totaling $174,000 was forgiven, the note became secured
      by substantially all of our assets subject to the existing lien priorities
      of
      other secured lenders and the conversion feature was eliminated. The interest
      rate, interest accrual provision and due date remain unchanged. At September
      30,
      2008, the balance of the note payable plus accrued interest was
      $971,000.




11




**Chartwell
      International, Inc.**


**Notes
      to Interim Consolidated Financial Statements (Continued)**


**September
      30, 2008**


**(Unaudited)**





**Note
      3. Notes Payable (continued)**




On
      April
      30, 2006, we issued a $3,000,000 secured convertible promissory 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 shares of our common stock at a rate of $2.30 per share
      at
      any time subject to a maximum of 5% of our outstanding common stock at the
      time
      of the conversion. In June 2008, we agreed to increase the collateral securing
      the note to include substantially all of our assets subject to the existing
      lien
      priorities of other secured lenders in exchange for delays in interest payments.
      We further agreed to make principal reductions as collateral was sold. In April
      2008 we paid a principal repayment of $134,000. On July 24, 2008 we made
      interest and principals payments totaling $315,000. At September 30, 2008,
      the
      balance of the note payable plus accrued interest was $2,717,000.





On
      October 23, 2006, we issued five convertible notes payable totaling
      $250,000 to accredited foreign private investors. The notes bears interest
      at
      the rate of 7.75% per annum, are due on May 23, 2012, interest accrues until
      the
      notes are repaid or converted, and the principal balances plus any accrued
      interest can be converted into our common stock at rate of $3.00 per share
      at
      any time. At September 30, 2008, the balance of the notes payable plus accrued
      interest was $287,000.





On
      March 5, 2007, we issued a convertible note payable totaling $500,000 to an
      accredited foreign private investor. The note bears interest at the rate of
      5.00% per annum, is due on May 23, 2012, interest accrues until the notes
      are repaid or converted, and the principal balance plus any accrued interest
      can
      be converted into our common stock at the rate of $2.50 per share at any time.
      At September 30, 2008, the balance of the notes payable plus accrued interest
      was $541,000.





**Note
      4. Equity**





**Common
      Stock Transactions**





On
      October 10, 2006 we issued 25,000 shares of common stock to a director in
      exchange for services valued at $1.18 per share or $30,000. Our management
      valued the shares of common stock at the closing stock market price on the
      date
      of the transaction.





On
      October 26, 2006 we issued 120,000 shares of common stock to accredited
      foreign investors in exchange for cash of $300,000 pursuant to a private
      placement subscription.





On
      March 5, 2007 we redeemed 400,000 shares of common stock valued at $500,000
      in exchange for a portion of the issuance of 1,950 Series A preferred
      shares and related redemption rights as discussed below in Preferred Stock
      Transactions. Our management valued the shares of common stock at $1.25 per
      share, the then current stock market price.





On
      March 12, 2007 we issued 400,000 shares of common stock to a consultant in
      exchange for services valued at $1.00 per share or $400,000. Our management
      valued the shares of common stock at the closing stock market price on the
      date
      of the transaction.





On
      December 31, 2007 we issued 10,000 shares of common stock to a consultant
      in exchange for services valued at $0.04 per share or $400. Our management
      valued the shares of common stock at the closing stock market price on the
      date
      of the transaction.





On
      August
      11, 2008 we issued 575,000 shares of common stock to an officer and two
      directors in exchange for services valued at $0.13 per share or $74,750, and
      we
      issued 1,661,539 common shares to Orchestra for services valued $0.13 per share
      or $215,000. Our management valued the shares of common stock at the closing
      stock market price on the date of the transaction.





On
      September 2 and 3, 2008, our principal shareholder, Orchestra, involuntary
      sold
      59,000 common shares as result of a broker margin call. On September 23, 2008,
      Orchestra remitted $4,000 to us which represented the profit on the short swing
      sale or our common stock.


12





**Chartwell
      International, Inc.**


**Notes
      to Interim Consolidated Financial Statements (Continued)**


**September
      30, 2008**


**(Unaudited)**





**Note
      4. Equity (continued)**





**Preferred
      Stock Transactions**





On
      March 2, 2007, we designated 20,000 shares of our authorized Preferred
      Stock as Series A Preferred Stock (“Series A Stock”). Each share of
      Series A Stock is convertible at the option of the holder at any time into
      shares of our common stock as is determined by dividing $1,025.65 per share
      by
      the conversion price, as adjusted for stock splits, subdivision and stock
      dividends. The initial conversion price is $2.50. Additionally, a holder of
      Series A Stock has the right to acquire a redemption right prior to
      March 5, 2007. If a holder of Series A Stock acquires such redemption
      right, the holder may require us to redeem its shares of Series A Stock at
      $1,000.00 per share on December 31, 2010 if we are not traded on a national
      exchange at such date. Our Series A Stock has no voting
      rights.





On
      March 5, 2007 we issued 1,950 shares of Series A Stock for a purchase
      price of $0.50 per share to a foreign accredited investor. Additionally, the
      investor acquired the Redemption Right. The 1,950 shares of Series A Stock
      and the Redemption Right were acquired for an aggregate purchase price of
      $2,000,000 consisting of $1,500,000 in cash and 400,000 shares of our common
      stock redeemed at a value of $500,000.





**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 1,633,389 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 or the most recent
      direct issuance of our common stock for cash closest to the date of the option
      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 on 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 requisite service period on a straight line
      basis.





During
      the three-month periods ended September 30, 2008 and 2007 we did not grant
      any
      stock options to our employees or directors.





The
      following table summarizes information about stock option transactions for
      the
      period shown:


All
                  Options
              
              Three-month
                  period ended
                September
                  30, 2008Shares
              
              Weighted
                    Average
                  Exercise
                    PriceOutstanding
                  at beginning of period
              
              
              850,000
              
              $
              2.61Options
                  granted
              
              
              —
              
              
              —Options
                  forfeited
              
              
              —
              
              
              —Options
                  expired
              
              
              —
              
              
              —Options
                  exercised
              
              
              —
              
              
              —Outstanding
                  at end of period
              
              
              850,000
              
              $
              2.61Exercisable
                  at end of period
              
              
              816,667
              
              $
              2.61
 
 13


**Chartwell
      International, Inc.**


**Notes
      to Interim Consolidated Financial Statements (Continued)**


**September
      30, 2008**


**(Unaudited)**





**Note
      4. Equity (continued)**





**Stock
      Options**





Non-vested
                Options
            
            Three-month
                period ended
              September
                30, 2008Shares
            
            Weighted
                Average
              Exercise
                PriceNon-vested
                at beginning of period
            
            
            33,333
            
            $
            2.70Options
                granted
            
            
            —
            
            
            —Options
                forfeited
            
            
            —
            
            
            —Options
                expired
            
            
            —
            
            
            —Options
                vested
            
            
            —
            
            
            —Non-vested
                at end of period
            
            
            33,333
            
            $
            2.70





The
      weighted average remaining contractual lives of the options outstanding and
      options exercisable at September 30, 2008, were 3.2 years and
      3.2 years respectively.





We
      recorded $6,000 of compensation expense for employee and non-employee stock
      options during the three-month period ending September 30, 2008. At September
      30, 2008 there was a total of $14,000 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 0.6 years.
      The total fair value of shares vested during the three-month period ended
      September 30, 2008 was $0.





**Note
      5. Related Party Transactions**





On
      March
      15, 2006, we entered into a two-year agreement with Orchestra, 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 January 1, 2008, we extended
      the agreement on a month-to-month basis. On August 11, 2008, we renewed the
      agreement for two years retroactive to January 1, 2008. On August 11, 2008,
      we
      issued 1,661,539 common shares valued at $215,000 for finance placement fees
      to
      Orchestra related to services for equity, debt, acquisition and divestiture
      transactions. On September 23, 2008, Orchestra remitted $4,000 to us in
      connection with a short swing sale profit on the involuntary sale of 59,000
      common shares.





On
      September 2 and 3, 2008, our principal shareholder, Orchestra, involuntary
      sold
      59,000 common shares as result of a broker margin call. On September 23, 2008,
      Orchestra remitted $4,000 to us which represented the profit on the short swing
      sale or our common stock.





We
      paid
      $13,000 in cash for legal services to a law firm, during the three months ended
      September 30, 2008, at which a director of ours is a shareholder. As of
      September 30, 2008, we reported $45,000 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
      6. Contingencies and Commitments**




L **egal
      Proceedings**





On
      June
      14, 2007 U.S. Rail Corporation filed a lawsuit against us alleging that we
      failed to pay for railcar storage services totaling $88,200 from October 2005
      through March 2006. We did not contract for these services and we intend to
      legally dispute this claim, however we have recorded the total disputed amount
      of the lawsuit as a current liability on our balance sheets.





On
      July
      17, 2008, Lucy Rasmussen filed a lawsuit against the Company for non-payment
      of
      a $500,000 note payable that was due on February 15, 2008. The Company had
      been
      and will continue to attempt to negotiate a reasonable settlement, including
      an
      extension to this note. This note plus accrued interest is included in current
      liabilities in the accompanying Consolidated Balance Sheet.




14




**Chartwell
      International, Inc.**


**Notes
      to Interim Consolidated Financial Statements (Continued)**


**September
      30, 2008**


**(Unaudited)**





**Note
      6. Contingencies and Commitments (continued)**





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 except as set forth above, there are no pending
      actions currently or no threatened actions that management believes would have
      a
      significant material impact on our financial position, results of operations
      or
      cash flows.





**Leases**





On
      September 13, 2007, we assigned the lease for office space in Morristown,
      New Jersey that until August 31, 2007 served as our executive offices.
      Although we assigned the lease to a third party we may still be held responsible
      for lease payments in the event the assignee defaults on its payments due to
      the
      landlord. The assigned lease expires on August 26, 2009 and has minimum
      monthly lease payments of $4,647.




15





**Item 2.** **Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations** **.**





The
      following discussion should be read in conjunction with our consolidated
      financial statements and notes thereto included elsewhere in this 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 a
      multi-industry holding company that is currently in the development stage.
      We,
      through our wholly-owned subsidiaries, are providers of rail-based
      transportation. Our primary focus until January 24, 2008 was on the
      transportation and disposal of non-hazardous solid waste as well as the
      transportation of other commodities. Subsequent to January 24, 2008 we are
      providing limited rail-based transportation of commodities through our MNJ
      subsidiary. We had, until January 24, 2008, been pursuing a growth strategy
      through acquisitions of assets, properties and access rights that can be
      combined and strategic relationships with those companies that focus on waste
      by
      rail services, rail transportation logistics, and disposal options, including
      landfill management. We are currently re-evaluating our strategy and we are
      focusing on evaluating the best business approach to monetizing some land,
      mineral and mineral rights assets that we acquired to generate liquidity to
      fund
      future business activity.





**Background
      and Corporate History**





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 Capital. On March 23,
      2005, in two separate but concurrent transactions, we sold 25,838,433 pre-split
      shares of our common stock to one of our Directors 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 one of our
      Directors 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 rail-based transportation
      and
      solid waste management industries. Most of our activities during the period
      from
      March 3, 2005 to September 30, 2008 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 Logistics, Inc. (“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 solid waste
      landfill and other industrial 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 Belville 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 Logistics, Inc. (“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. (“Cranberry Creek”), a New Jersey corporation including its wholly-owned
      subsidiary, Middletown and New Jersey Railway Company, Inc. (“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. We
      surrendered the corporate charter of Cranberry Creek on November 15,
      2006.





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.





16




On
      August 29, 2006, our wholly-owned subsidiaries, Hudson and Hudson Logistics
      Loading, Inc. (“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 primarily
      consisting of construction and demolition debris 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 $34,000 in legal fees bringing our capitalized cost
      of
      these agreements to $1,509,000. We further agreed to either pay off 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.





On
      January 24, 2008, our wholly-owned subsidiaries HLI and HLL entered into an
      Amended and Restated Purchase Agreement with Perry New Jersey, LLC for the
      sale
      of substantially all of their assets to Perry New Jersey I, LLC for cash
      consideration of $1,700,000, subject to a $803,594 holdback, and assumption
      by
      Perry of certain debts and leases of Hudson and HLL. This transaction closed
      on
      January 24, 2008. As a result of the asset sale we no longer have
      rail-based solid waste transportations operations. We have assigned remaining
      assets and liabilities of HLI and HLL to Chartwell International, Inc. and
      surrendered the corporate charters of HLL and HLI on May 30, 2008 and September
      19, 2008, respectively.





We
      have
      been exploring and continue to explore a variety of opportunities to increase
      our cash position through selling strategic assets. On September 26, 2008,
      we
      entered into a non-binding letter of intent to sell a controlling interest
      in
      our company to Universal Property Development and Acquisition Corporation
      (“UPDA”) through a series of transactions involving several asset transfers.
      UPDA provided a deposit of $25,000 on October 1, 2008 to be applied towards
      legal expenses incurred in completing the contemplated transactions. As of
      October 27, 2008, we were notified by UPDA that it decided not to proceed with
      the contemplated transactions given the challenging economic environment,
      significant declines in the global financial markets and continuing credit
      and
      liquidity crisis. While we have several other opportunities we are pursuing,
      this represented our best immediate opportunity to generate the necessary cash
      flow to meet our short term operational and debt obligations. We will consider
      all available and remaining options to best address our immediate needs,
      including less desirable options like the sale of certain assets at discounted
      values, bankruptcy proceedings or voluntary dissolution.





**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 rail transportation and we generated revenue from solid
      waste transportation and disposal services until January 24, 2008. The
      timing of our revenue recognition for solid waste transportation and disposal
      services depended on the type of service that we provide to our customers.
      We
      recognized revenue at our transload facility upon delivery by our customers
      of
      waste to our facilities. We recognized 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 were
      generally prepayment, cash on delivery or weekly payment. Our credit terms
      for
      waste management services were 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 maintained reserves for potential credit losses on solid
      waste disposal services based on a specific identification of customers that
      have exceeded credit terms and our assessment of their ability to pay. We don’t
      maintain a reserve for rail transportation revenue as we have one customer
      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 1,633,389 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).





17




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 on 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 requisite service life 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. During the quarters ended December 31, 2007
      and March 31, 2008, our management identified certain railroad equipment assets,
      and, land and related infrastructure associated with our MNJ subsidiary that
      were not being used in current operations and evaluated the market value of
      these assets. We determined the value of these assets had been impaired and
      we
      recorded write-downs totaling $2,255,000 based on our estimates of their market
      value.





**Results
      of Operations**





**Comparison
      of the Three Months Ended September 30, 2008 and September 30,
      2007**





We
      reported a net loss for the three months ended September 30, 2008 of $557,000
      or
      $0.04 per share on a basic and diluted basis as compared to a loss of $1,195,000
      or $0.09 per share on a basic and diluted basis for the three months ended
      September 30, 2007.





**Revenues**





Revenues
      for the three months ended September 30, 2008 of $58,000 consisted primarily
      of
      rail transportation income from MNJ. We recorded revenue of $2,221,000, which
      consisted primarily of solid waste disposal fees from our transload facility
      in
      Passaic, New Jersey of $2,186,000 and rail transportation income from MNJ of
      $35,000 during the three-month period ended September 30, 2007. The decline
      in
      our revenue during the current period was the result of the sale of the assets
      and closure of our transload facility on January 24, 2008.





**Cost
      of Revenues**





Cost
      of
      revenues for the three months ended September 30, 2008 was $0 or 0.0% of
      revenues as compared to $2,289,000 or 103.0% of revenues for the three months
      ended September 30, 2007. There is no cost of revenue associated with our rail
      transportation income. Our cost of revenues in prior periods where we had solid
      waste disposal operations consisted primarily of truck and rail transportation
      costs; landfill tipping fees and other waste disposal equipment operational
      costs. Our cost of revenues varied 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.





**Gross
      Profit (Loss)**





We
      incurred a gross profit of $58,000 for the three months ended September 30,
      2008
      as compared to a gross loss of $68,000 for the three months ended September
      30,
      2007. Our gross profit as a percentage of revenue varied from period to period
      due to variations in factors discussed above in ‘Cost of Revenues’.





**General
      and Administrative Expenses**





General
      and administrative expenses decreased by $629,000 to $286,000 for the
      three-month period ended September 30, 2008 from $914,000 for the three-month
      period ended September 30, 2007. This decrease was primarily due to the sale
      of
      the assets and the closure of our transload facility on January 24, 2008.
      General and administrative expenses during the current period consisted
      primarily of the following:


·
              salaries
                  and employee expenses of $86,000
 
 ·
              engineering
                  and other consulting services of
                  $4,000
 
 ·
              rents,
                  utilities, telephone and office related expenses of
                  $10,000
  18
  ·
              professional
                  fees of $56,000
  ·
              investment
                  and management consulting fees of
                  $30,000
 
 ·
              travel
                  expenses of $9,000
 
 ·
              depreciation
                  and amortization expense of $8,000.
 
 General
        and administrative expenses during the three-month period ended September
        30,
        2007 consisted primarily of the following:
 
 ·
              salaries
                  and employee expenses of $411,000
 
 ·
              engineering
                  and other consulting services of
                  $85,000
 
 ·
              rents,
                  utilities, telephone and office related expenses of
                  $63,000
 
 ·
              professional
                  fees of $97,000
 
 ·
              investment
                  and management consulting fees of
                  $30,000
 
 ·
              travel
                  expenses of $26,000
 
 ·
              depreciation
                  and amortization expense of
                  $92,000.





**Other
      Income and Expenses**





Other
      expenses increased by $210,000 to $330,000 for the three-month period ended
      September 30, 2008 from $120,000 for the three-month period ended September
      30,
      2007. Other expenses incurred during the current period consisted of net
      interest expense of $114,000 and financing fees of $215,000 for services
      provided in connection with equity, debt, acquisition and divestiture
      transactions. Other expenses for the three-month period ended September 30,
      2007
      included net interest expense of $120,000.





**Income
      Tax Provision**





We
      have
      incurred operating losses for the reporting periods. Full reserves are provided
      for the related deferred tax asset.





**Liquidity
      and Capital Resources**





At
      September 30, 2008, we had working capital deficiency of $2,247,000. We recorded
      a loss for the three-month period ended September 30, 2008 of $557,000 and
      we
      have accumulated losses from inception on March 3, 2005 of $13,882,000.
      Given our September 30, 2008 cash balance of $91,000 and our
      projected operating cash requirements, we anticipate that our existing capital
      resources may not be adequate to satisfy our cash flow requirements through
      December 31, 2009 and we will be required to raise capital through debt or
      equity financings or sell, dispose or liquidate certain of our assets to
      generate cash and reduce our short term debt obligations. There are no
      assurances that any of these financing alternatives will be available to us,
      or
      if available, on terms satisfactory to us. If we are unable to raise additional
      capital or generate necessary working capital from operations or through the
      sale of assets, we may have to explore a sale of our company or assets, or
      dissolution proceedings.





The
      following is a summary discussion of our cash flow:





Cash
      decreased by $91,000 for the three months ended September 30, 2008 from
      $182,000.





We
      reported cash flow provided by operations of $223,000 consisting primarily
      of a
      decrease in deposits of $391,000 and the fair value of common stock issued
      for
      services of $291,000, and partially offset by our loss of $557,000





There
      was
      no cash provided by or used in investing activities.





Cash
      used in financing activities totaled $314,000 consisting primarily of principal
      payments on notes payable.





19




Our
      long-term debt includes approximately $2,039,000 of principal payments and
      $26,000 in accrued interest expenses that are due within the next year. We
      cannot be sure that our future working capital or cash flows will be sufficient
      to meet our debt obligations and commitments. Any insufficiency and failure
      by
      us to renegotiate such existing debt obligations and commitments would have
      a
      negative impact on our business and financial condition, and may result in
      legal
      claims by our creditors. 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 sell or
      liquidate 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 may be able
      to foreclose on our assets or force us into bankruptcy proceedings or
      involuntary receivership.





W e
      intend
      to make infrastructure improvements to MNJ to facilitate the expansion of our
      rail transportation operations provided that we find a strategic partner or
      alliance that can assist us in this task. 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 arrangements.





**Item
      3.** **Quantitative
      and Qualitative Disclosures About Market Risk** **.**





Not
      Applicable.





**Item 4.** **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
      2009 and that material weaknesses exist in our internal control structure,
      due
      in particular to the lack of appropriate resources dedicated to external
      financial reporting.





There
      were no changes in our internal controls over financial reporting that occurred
      during the three months ended September 30, 2008 that have materially affected,
      or are reasonably likely to materially affect, our internal controls over
      financial reporting.





**PART
      II. OTHER INFORMATION**





**Item
      1.** **Legal
      Proceedings** **.**




On
      July
      17, 2008, Lucy Rasmussen filed a lawsuit against us in the Supreme Court of
      the
      State of New York, County of Orange Index
      No. 2008-07570 ,
      for
      non-payment of a $500,000 note payable that became due on February 15, 2008.
      We
      have been and will continue to attempt to negotiate a reasonable settlement,
      including an extension to this note. This note is included in Notes payable
      reported as a current liability on the accompanying balance sheet.




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 except as set forth above, there are no pending
      actions currently or no threatened actions that management believes would have
      a
      significant material impact on our financial position, results of operations
      or
      cash flows.





**Item
      1A.** **Risk
      Factors** **.**




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.




20




**Risks
      Related to Our Acquisition Strategy and Operations**





**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 be assured 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
      experienced**  **management
      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 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 not**  **currently
      have historical experience upon which to base an evaluation of
      the**  **future
      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
      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 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 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
      or**  **equity
      financings, in order to complete strategic acquisitions or make
      required**  **purchases
      of capital equipment needed to conduct our operations
      efficiently,**  **either
      of which could adversely effect our financial condition and ability
      to**  **execute
      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 properties, railroads,
      transfer stations and other facilities, as well as the ongoing maintenance
      of
      such properties, 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, MNJ
      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
      acquire**  **which
      we fail or are unable to discover which could have a material
      adverse**  **effect
      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.




21




**Larger
      competitors may compete with us for acquisition targets, making
      it**  **more
      difficult for us to acquire businesses that fit within our
      business**  **strategy,
      or increasing the cost of making such acquisitions, either of
      which**  **could
      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 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
      continuing**  **relationships
      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
      by**  **other
      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
      and**  **future
      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 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
      planned mining operations are inherently subject to conditions that
      could**  **affect
      levels of production and production costs at particular mines
      for**  **varying
      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 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
      honor**  **reclamation
      obligations that have been assumed by previous mine operators,
      we**  **could
      be required to expend greater amounts than we currently anticipate,
      which**  **could
      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.




22




**Defects
      in title or loss of any leasehold interests in our
      properties**  **could
      limit our ability to mine these properties or result in
      significant**  **unanticipated
      costs.** Mining
      operations are planned 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 considerable**  **uncertainty.** 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
      cash**  **flow
      to meet our debt service requirements.** As
      of
      September 30, 2008, we had indebtedness of $6,064,000 of which $2,039,000 is
      due
      in less than one year. We cannot be assured 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 or force us into bankruptcy
      proceedings or involuntary receivership.





**Risks
      Related to our Industry**





**Strategic
      growth through acquisitions is dependent on our ability to**  **internally
      grow our logistics infrastructure, and there is no
      historical**  **perspective
      to validate our belief that we can attain certain gross
      margins**  **competitively,
      the failure of which would adversely affect our financial**  **condition.** 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
      to**  **meet
      our obligations which could materially impact our financial condition
      and**  **strategy.** 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 logistics**  **business
      is highly competitive, and we will face competition from
      companies**  **that
      may be better financed than we are which could impact our ability
      to**  **compete
      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
      motor**  **carriers,
      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, 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.




23




**Our
      railroad and real estate ownership are subject to
      significant**  **governmental
      regulation and our failure to comply with such regulations
      could**  **have
      a material adverse effect on our operating results, financial
      condition**  **and
      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 the last two fiscal years,
      we
      offset a small 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 may**  **adversely
      affect our ability to sell coal, and excess production capacity
      in**  **the
      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 NMA, the top ten coal producers in 1994 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. 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 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.





**Judicial
      and administrative proceedings related to our business are**  **routine,
      and penalties, fines, or remediation orders could materially
      impact**  **our
      cash flow or working capital from time-to-time, which could impair
      our**  **business
      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
      operations. 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.





**Item
      2.** **Unregistered
      Sales of Equity Securities and Use of Proceeds** **.**





None





**Item 3.** **Defaults
      Upon Senior Securities** **.**





Convertible
      Promissory Note in the principal amount of $500,000 to Estate of Pierre T.
      Rasmussen. The outstanding balance of the note was due on February 15,
      2008. We did not make this final payment and on July 17,
      2008, Lucy Rasmussen, the trustee, filed a lawsuit against us in the Supreme
      Court of the State of New York, County of Orange Index
      No. 2008-07570 ,
      for
      non-payment of the note. We
      are
      currently in negotiations to restructure the note. The outstanding unpaid
      principal balance and accrued interest as of September 30, 2008 is
      $525,000.





24




**Item
      4.** **Submission
      of Matters to a Vote of Security Holders.**





None





**Item
      5.** **Other
      Information**





None





**Item
      6.** **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





25




**SIGNATURES**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned thereunto
      duly authorized.




**CHARTWELL
                INTERNATIONAL, INC.**
              (Registrant)Date:
                November 13, 2008
            By:
            /s/ Imre
              EszenyiImre
                Eszenyi, Acting President and Chairman of the Board
              (Principal
                  Executive Officer)


Date:
                November 13, 2008
            By:
            /s/ Paul
              BiberkrautPaul
                Biberkraut, Chief Financial andAdministrative
                Officer
              (Principal
                  Financial Officer andPrincipal
                  Accounting Officer)




26




**Exhibit
      Index**





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





27