<PAGE> 1
SECURITY AND EXCHANGE COMMISSION
WASHINGTON, DC.
FORM 10 - QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1996 Commission File No: 0-2661
Harrell International, Inc.
---------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-194618
(State of jurisdiction) (I.R.S. Employer
identification No.)
17218 Preston Road, Suite 3200, Dallas, TX 75252
------------------------------------------------
(Address of Principal executive offices)
(214)250-6370
------------------------------------------------
(Registrant's telephone no., including area code)
| 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.
(1) Yes X No
--- ---
(2) Yes X No
--- ---
The number of shares outstanding of the registrant's Class A, $.01
par value common stock as of May 21, 1996, was 976,580.
<PAGE> 2
HARRELL INTERNATIONAL, INC.
INDEX
Page
----
Part I Financial Information
Item 1 Financial Statements
Consolidated Balance Sheets 3
-- As of June 30, 1996, and September 30 1995
Consolidated Statements of Income 4
-- Three Months Ended June 30, 1996 and 1995
Consolidated Statements of Cash Flows 5
-- Three Months Ended June 30, 1996 and 1995
Notes to Consolidated Financial Statements 6
Item 2 Management's discussion and analysis of Financial 7
Condition and Results of Operation
Part II Other Information 8
Signature Page 9
2
<PAGE> 3
Part I FINANCIAL INFORMATION
Item 1 Financial Statements
HARRELL INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1996 September 30, 1995
(Unaudited) (Audited)
------------ ------------------
<S> <C> <C>
ASSETS
------
Current Assets:
- --------------
Cash $ 56,315 $ 36,843
Accounts Receivable 44,732 41,201
Other Current Assets 4,132 5,961
----------- -----------
Total Current Assets $ 105,178 $ 84,005
Investment in Joint Ventures (3,309) (9,009)
Furniture & Equipment (net) 5,731 4,071
----------- -----------
Total Assets $ 107,600 $ 79,067
=========== ===========
LIABILITIES & STOCKHOLDERS' DEFICIT
-----------------------------------
Current Liabilities:
- -------------------
Accounts Payable and Accrued Liabilities $ 70,305 $ 50,819
Amounts Payable to Related Parties 11,078 15,077
Accrued Salaries & Payroll Taxes 1,684 16,516
----------- -----------
Total Current Liabilities $ 83,067 $ 82,412
Note Payable 0 0
----------- -----------
Total Liabilities $ 83,067 $ 82,412
Stockholders' Deficit:
- ---------------------
Preferred Stock to be issued $ 243,331 $ 243,331
Common Stock:
Class A $.01 par value, 9,000,000 shares authorized,
976580 issued and outstanding 9,766 9,766
Class B $.01 par value, 1,000,000 shares authorized,
No shares issued or outstanding 0 0
Additional Paid in Capital 2,077,287 2,077,287
Accumulated Deficit (2,305,850) (2,333,729)
----------- -----------
Total Stockholders' Deficit $ 24,534 $ (3,345)
----------- -----------
Total Liabilities & Stockholders' Deficit $ 107,600 $ 79,067
=========== ===========
</TABLE>
3
<PAGE> 4
HARRELL INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended June 30 Ended June 30
---------------------- ----------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
- ---------
Management Fees $ 106,093 $ 98,197 $ 298,602 $ 207,911
Accounting Fees 0 0 0 0
Consulting Fees 0 12,000 10,000 82,000
Equity in earnings (losses) of Joint Ventures (8,224) 1,526 (3,605) 5,336
Other Income 1,029 1,507 2,632 5,581
--------- --------- --------- ---------
Total Revenues $ 98,898 $ 113,230 $ 307,629 $ 300,828
Expenses:
- ---------
Employee Compensation & Related 72,650 58,890 189,272 185,797
General & Administrative Expenses 23,160 23,705 52,086 64,316
--------- --------- --------- ---------
Total Expenses $ 95,810 $ 82,595 $ 241,358 $ 250,113
Income (Loss) before Income Taxes $ 3,088 $ 30,635 $ 66,271 $ 50,715
Provision for Income Taxes 0 0 0 0
--------- --------- --------- ---------
Net Income (Loss) $ 3,088 $ 30,635 $ 66,271 $ 50,715
========= ========= ========= =========
Income (Loss) per common share $ 0.00 $ 0.03 $ 0.07 $ 0.05
Weighted average number of common
shares outstanding 976,580 976,580 976,580 976,580
</TABLE>
4
<PAGE> 5
HARRELL INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
For the Nine Months Ended June 30
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
- -------------------------------------
Net Income (Loss) $ 66,271 $ 50,714
Adjustments to reconcile Net Income (Loss) to Net
- -------------------------------------------------
Cash Provided (Used) for Operating Activities:
- ----------------------------------------------
Depreciation Expense 1,786 2,742
Equity in (Earnings) Losses of Joint Ventures (3,778) (2,905)
Accretion of Equity Interest in Assets of Joint Ventures
over Initial Investments (2,430) (2,430)
Distribution Received from Joint Ventures 1,750 4,100
Equity Contribution to Joint Ventures 0 0
Changes in Assets and Liabilities:
- ----------------------------------
(Increase) Decrease in Accounts Receivable (3,530) (18,344)
(Increase) Decrease in Other Current Assets 5,486 (5,932)
Purchase of Furniture & Equipment 3,446 (2,711)
Increase (Decrease) in Accounts Payable and Accrued
Liabilities (33,012) (6,692)
Increase (Decrease) in Amounts Due Related Parties 0 7,535
Increase (Decrease) in Accrued Salaries & Related (16,517) (42,994)
--------- ---------
Net Cash provided (used) by Operating Activities $ 19,472 $ (16,917)
Cash Flows from Financing Activities:
- -------------------------------------
Increase in Note Payable 0 (216,933)
Increase in Preferred Stock 0 243,331
--------- ---------
Net Increase (Decrease) in Cash $ 19,472 $ 9,481
========= =========
Cash at Beginning of Period 36,843 7,997
Cash at End of Period 56,315 17,478
--------- ---------
Net Increase (Decrease) in Cash $ 19,472 $ 9,481
========= =========
</TABLE>
5
<PAGE> 6
HARRELL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PRINCIPLES OF DISCLOSURE
The balance sheet as of June 30, 1996, and the related statements of income and
cash flows for the six month period ended June 30, 1996 and 1995, are
consolidated with the company's wholly-owned subsidiary (Hotel Management
Group, Inc.), and it's wholly owned subsidiaries Hotel Management Group
(California) and Hotel Management Group (Mississippi), and are unaudited. In
the opinion of management, all adjustments necessary for a fair presentation of
such financial statements have been included.
The financial statements and notes are presented as permitted by Form 10-QSB,
and do not contain certain information included in the Registrant's annual
financial statements and notes.
6
<PAGE> 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Material Changes in the Results of Operations.
(1) Joint Venture Projects
The Company recognizes revenue or expenses from its joint
venture projects in two respects. First, the Company records
income or losses from the normal operations of the ventures
which take into consideration the revenue and expenses from the
operation of the apartment projects owned and operated by them.
Second, the Company recognizes other income to the extent it
accretes over the assets' lives the difference between its
investment in the joint ventures and its share of the joint
ventures' initial net assets. This accretion into income is
produced as a result of the Company having received an interest
in the joint ventures without making an initial investment. For
the six month period ended June 30, 1996, the Company's share of
the amount of the earnings from joint ventures was a net income
of $1,909 and the accretion into other income was $810.
(2) Hotel Management Group, Inc. (HMG)
Hotel Management Group formed a wholly owned subsidiary Hotel
Management Group (California), Inc. [HMG(CA)] to operate its
California properties and Hotel Management Group Mississippi,
Inc. [HMG (MS)] to operate its Mississippi property. HMG (CA)
began operations January 1, 1994. HMG (MS) began operations July
1, 1994.
The following reflects a summary of the results of operations
for the six months ended June 30, 1996, and is fully
consolidated with Hotel Management Group (California) and Hotel
Management Group (Mississippi).
6 months
--------
Total Revenues 50,092
Total Expenses 21,659
Net Income 28,433
These results are fully consolidated with the Company on the
enclosed financial statements. Also they do not reflect any
management fee charged to HMG by Harrell International, which
are charged on an annual basis.
At the end of the quarter HMG managed two hotels and three
apartment complexes. A substantial amount of time and effort was
given by the principals of HMG to the location of additional
management contracts.
7
<PAGE> 8
Part II. OTHER INFORMATION
Item 1. Legal.
There were no material legal proceedings, either on-going, instituted
by or against, or otherwise involving the Registrant during the
quarter ended June 30, 1996.
Item 2. Change in Securities.
There were no changes in the Registrant's securities during the
quarter ended June 30, 1996.
Item 3. Defaults Upon Senior Securities.
The Registrant does not have any outstanding debt or securities of
this nature.
Item 4. Submission of Matters to a Vote of Security Holders.
The Registrant did not submit any matters to a vote of the security
holders during the quarter ended June 30, 1996.
Item 5. Other Information.
The Registrant had no events that would require disclosure under this
section during the quarter ended June 30, 1996.
Item 6. Exhibits and Reports on Form 8-K.
(a) One report on Form 8-K was filed by the Registrant for the
quarter ended June 30, 1996, a copy of which is attached hereto
by reference.
8
<PAGE> 9
S I G N A T U R E S
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 fully authorized.
HARRELL INTERNATIONAL, INC.
Date: /s/ Paul L. Barham
----------------------- ----------------------------------
Paul L. Barham
Vice President, Chief Financial
Officer and Director
9
<PAGE> 10
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
99 Form 8K to May 30, 1996
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 56,315
<SECURITIES> 0
<RECEIVABLES> 44,732
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 105,178
<PP&E> 25,343
<DEPRECIATION> 19,612
<TOTAL-ASSETS> 107,600
<CURRENT-LIABILITIES> 83,067
<BONDS> 0
0
243,331
<COMMON> 9,766
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 119,636
<SALES> 0
<TOTAL-REVENUES> 307,629
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 241,358
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 175
<INCOME-PRETAX> 66,271
<INCOME-TAX> 0
<INCOME-CONTINUING> 66,271
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 66,271
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
<PAGE> 1
EXHIBIT 99
SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 29549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 30, 1996
HARRELL INTERNATIONAL, INC.
---------------------------
(Exact name of Registrant as specified in its charter)
Delaware 0-2661 13-1946181
(State of other
jurisdiction of (Commission (IRS Employer
incorporation) File Number) Identification Number)
17218 Preston Road, Suite 3200, Dallas, Texas 75252
(Address of principal executive offices)
Registrant's telephone number, including area code: (214)250-6370
<PAGE> 2
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
(a) The Company formally declined to renew Arthur Andersen's engagement
as Registrant's independent accountants on May 30, 1996. Arthur Andersen's
reports on Registrant's audited financial statements for the fiscal years ended
September 30, 1993 and 1994 (the latest years for which audited financial
statements for Registrant have been prepared and filed with the Commission,
hereinafter referred to collectively as the "Two Most Recent fiscal Years") did
not contain an adverse opinion of a disclaimer of opinion, nor were such
reports qualified or modified as to uncertainty, audit scope or accounting
principles, except that such reports did contain explanatory paragraphs
regarding Registrant's ability to continue as a going concern.
the decision to change independent accountants was recommended and approved by
Registrant's board of directors. During the Two Most Recent Fiscal Years and
any subsequent interim period preceding such declination of re-engagement (the
"Subsequent Interim Period"), there were no disagreements with Arthur Andersen
on any matter of accounting or accounting principles or practices, financial
statements disclosure, or auditing scope or procedure (collectively
"Disagreements"). Moreover, during the Two Most Recent Fiscal Years and the
Subsequent Interim Period, Arthur Andersen did not advise Registrant that (A)
the internal controls for Registrant to develop reliable financial statements
did not exist, (B) information had come to their attention that had lead them
to no longer be ale to rely on management's representations or had made them
unwilling to be associated with the financial statements prepared by
Registrant's management, (C) it was necessary for them to expand significantly
the scope of their audit, or information had come to their attention that, if
further investigated, might have (i) materially impacted the fairness or
reliability of a previously issued audit report ( or underlying financial
statements) or financial statements issued or to be issued for periods
subsequent to the Two Most Recent Fiscal Years, or (ii) caused them to be
unwilling to rely on management's representations or be associated with
Registrant's financial Statements, or (D) information had come to their
attention that they had concluded materially impacted the fairness or
reliability of a previously issued audit report (or underlying financial
statements) or financial statements issued or to be issued for periods
subsequent to the Two Most Recent Fiscal Years (the types of events referred in
the preceding clauses (A) through (D) are hereinafter referred to collectively
as "Reportable Events").
(b) Registrant engaged Jackson and Rhodes ("J and R") as its independent
accountants on May 31, 1996 o audit Registrant's financial statements for its
fiscal year ended September 30, 1995. Neither Registrant nor anyone on
Registrant's behalf consulted with J and R during the Two Most Recent Fiscal
Years and the Subsequent Interim Period regarding (A) the application of
accounting principles to a specific transaction, whether completed or proposed,
(B) the type of audit opinion that might be rendered on Registrant's financial
statements, or (C) any matter was either the subject of a Disagreement between
Registrant and Arthur Andersen or a Reportable Event.
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(C) Exhibits:
99.1. Letter from Arthur Andersen regarding change on
certifying accountants, as required by Item 304(a)(3) or
Regulation S-K.
(The remainder of this page is left blank intentionally.)
<PAGE> 4
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
HARRELL INTERNATIONAL, INC
DATE: June 7, 1996 By: /s/ PAUL L. BARHAM
-- -----------------------------------
Paul L. Barham
Vice President and Chief Financial
Officer
<PAGE> 5
EXHIBIT
INDEX
-------
Exhibit
Number Description
------- -----------
99.1. Letter from Arthur Andersen regarding change on
certifying accountants, as required by Item 304(a)(3) or
Regulation S-K.
<PAGE> 6
EXHIBIT 99.1
[ARTHUR ANDERSEN & CO. SC LETTERHEAD]
June 6, 1996
Securities and Exchange Commission
Washington, DC 20549
Dear Ladies and Gentlemen:
We have read Item 4, included in the attached Form 8-K dated May 30, 1996, of
Harrell International, Inc. (Commission File #0-2661), to be filed with the
Securities and Exchange Commission and are in agreement with the statements
contained therein.
Very truly yours,
/s/ AUTHUR ANDERSEN LLP
BGW
