<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 December 31, 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)
(972)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 December 31, 1996, was 976,580. The number of
shares outstanding of the registrant's $1.00 par value perferred stock as of
December 31, 1996 was 243,331.
<PAGE> 2
HARRELL INTERNATIONAL, INC.
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
Part I Financial Information
Item 1 Financial Statements
Consolidated Balance Sheets 3
-- As of December 31, 1996, and September 30 1996
Consolidated Statements of Income 4
-- Three Months Ended December 31, 1996 and 1995
Consolidated Statements of Cash Flows 5
-- Three Months Ended December 31, 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
</TABLE>
2
<PAGE> 3
Part FINANCIAL INFORMATION
Item 1 Financial Statements
HARRELL INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1996 September 30, 1996
(Unaudited) (Audited)
----------------- ------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 45,999 $ 140,287
Accounts Receivable 56,901 54,837
Other Current Assets 3,413 2,889
-------------- --------------
Total Current Assets $ 106,314 $ 198,012
Note Receivable 9,869
Investment in Joint Ventures (10,164)
Investment in Limited Partnership 100,000
Furniture & Equipment (net) 4,534 5,132
-------------- --------------
Total Assets $ 220,717 $ 192,981
============== ==============
LIABILITIES & STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts Payable and Accrued Lia $ 29,099 $ 65,969
Amounts Payable to Related Parties 8,000 8,000
Accrued Salaries & Payroll Taxes 1,667 551
-------------- --------------
Total Current Liabilities $ 38,766 $ 74,520
Note Payable 0 0
-------------- --------------
Total Liabilities $ 38,766 $ 74,520
Stockholders' Deficit:
Preferred Stock $ 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
Additional Paid in Capital 2,077,287 2,077,287
Accumulated Deficit (2,148,433) (2,211,923)
-------------- --------------
Total Stockholders' Deficit $ 181,951 $ 118,461
-------------- --------------
Total Liabilities & Stockho $ 220,717 $ 192,981
============== ==============
</TABLE>
3
<PAGE> 4
HARRELL INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
For the Three Months Ended December 31
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Revenues:
Management Fees $ 87,161 $ 89,973
Accounting Fees 0 0
Consulting Fees 41,300 0
Equity in earnings (losses) of Joint Ventures 0 2,049
Other Income 118 1,215
------------ ------------
Total Revenues $ 128,579 $ 93,236
Expenses:
Employee Compensation & Related 95,359 57,849
General & Administrative Expenses 23,369 15,181
------------ ------------
Total Expenses $ 118,728 $ 73,030
Income before Gain on Sale of Joint Venture 9,851 20,206
Gain of Sale of Joint Venture 53,638 0
------------ ------------
Income before Income Taxes 63,490 20,206
Provision for Income Taxes 0 0
------------ ------------
Net Income $ 63,490 $ 20,206
============ ============
Income per common share $0.07 $0.02
Weighted average number of common shares outstanding 976,580 976,580
</TABLE>
4
<PAGE> 5
HARRELL INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the Three Months Ended December 31
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss) $ 63,490 $ 20,206
Adjustments to reconcile Net Income (Loss) to Net
Cash Provided (Used) for Operating Activities:
Depreciation Expense 598 590
Equity in (Earnings) Losses of Joint Ventures (10,577) (1,239)
Accretion of Equity Interest in Assets of Joint Ventures
over Initial Investments (88) (810)
Distribution Received from Joint Ventures 501 750
Equity Contribution to Joint Ventures 0 0
Changes in Assets and Liabilities:
(Increase) Decrease in Accounts Receivable (2,065) 5,531
(Increase) Decrease in Other Current Assets (525) 404
Purchase of Furniture & Equipment (0) (404)
Investment in Four Points Sheraton (100,000)
Increase (Decrease) in Accounts Payable and Accrued
Liabilities (36,870) 2,733
Increase (Decrease) in Accrued Salaries & Related 1,116 (16,517)
------------ ------------
Net Cash provided (used) by Operating Ac $ (84,419) $ 11,243
Cash Flows from Financing Activities:
Note Receivable (9,869) 0
Increase in Note Payable 0 0
Increase in Preferred Stock 0 0
Increase in Capital Stock 0 0
------------ ------------
Net Increase (Decrease) in Cash $ (94,288) $ 11,243
============ ============
Cash at Beginning of Period 140,287 36,843
Cash at End of Period 45,999 48,087
------------ ------------
Net Increase (Decrease) in Cash $ (94,288) $ 11,243
============ ============
</TABLE>
5
<PAGE> 6
HARRELL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PRINCIPLES OF DISCLOSURE
The balance sheet as of December 31, 1996, and the related statements of income
and cash flows for the three month period ended December 31, 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), Hotel Management Group (Tennessee) 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 three month period ended December 31, 1995, the Company's
share of the amount of the earnings from joint ventures was a
net income of $1,239 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, Hotel Management Group (Mississippi),
Inc. [HMG(MS)] to operate its Mississippi property, and Hotel
Management Group (Tennessee), Inc. [HMG (TN)] to operate its
Tennessee property. HMG (CA) began operations January 1, 1994.
HMG(MS) began operations in July 1994 and ceased operations in
July 1996 due to the cancellation of the Managment Contract
because the property was to be domolished by the State Highway
Department. HMG (TN) began operations October 17, 1996.
The following reflects a summary of the results of operations
for the three months ended December 31, 1996, and is fully
consolidated with HMG(CA) and HMG(TN).
<TABLE>
<CAPTION>
3 months
----------
<S> <C>
Total Revenues 76,661
Total Expenses 10
Net Income 76,651
</TABLE>
These results are fully consolidated with the Company on the
enclosed financial statements. Also they do not reflect any
management fees charged to HMG by Harrell International, which
are charged on an annual basis.
At the end of the quarter HMG managed three hotels and two
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 December 31, 1996
Item 2. Change in Securities.
The Registrant issued 243,331 $1.00 par value Preferred shares on
December 31, 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 Company obtained the written consent of the majority of the
Company's shareholders for the fiscal year ended September 30, 1996,
in the following matters:
(I) Sale of the Company's 20% Interest in Athena Gardens
Apartments;
(II) Preferred Stock Purchase and Release of Debt Agreement.
Item 5. Other Information.
Memphis Airport Sheraton:
On October 17, 1996 the Company purchased a minority limited
partnership interest in the Sheraton Four Points Hotel, located near
the Memphis Airport in Memphis, Tennessee. At the same closing a
subsidiary of the Company contracted with the new ownership to manage
the hotel.
In June of 1996 an unaffiliated company, LTS Group, Inc. entered into
a contract to purchase the hotel for a purchase price of $9 million.
Hotel Management Group, Inc. entered into an agreement with LTS
Group, Inc. to study feasibility and prepare recommendations and
budgets. Hotel Management Group, Inc. was paid at the closing $25,000
for these efforts. Costs to renovate the hotel are budgeted to be
approximately $2.5 million, which together with closing costs and
working capital for the hotel estimat
Also in connection with the transaction, a newly formed subsidiary of
the Company, HMG-Tennessee, entered into a management agreement to
manage the hotel and supervise the renovations. HMG- Tennessee and LTS
Group, Inc. have agreed to share certain fees in connection with the
management agreement. HMG- Tennessee will receive a net monthly
management fee of $5,000 per month for the first 8 months, with fees
thereafter changing to be a net 8% of the net operating income of the
hotel before debt service. I
McKinney Texas Development:
On November 19, 1996, Hotel Management Group, Inc., as Agent for
McKinney Hotel Development Group, Ltd., a Texas Limited Partnership in
organization, entered into an agreement to purchase approximately five
acres of land in McKinney, Texas, on which the Partnership intends to
build two small hotels and a conference center. The Company will be a
limited partner in the venture and Hotel Management Group will manage
the hotels and conference centers if the project is completed.
Item 6. Exhibits and Reports on Form 8-K.
(a) No report on Form 8-K was filed by the Registrant for the quarter
ended December 31, 1996.
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: March 4, 1997 /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
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 45,999
<SECURITIES> 0
<RECEIVABLES> 56,901
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 106,314
<PP&E> 25,343
<DEPRECIATION> 20,809
<TOTAL-ASSETS> 220,717
<CURRENT-LIABILITIES> 38,766
<BONDS> 0
0
243,331
<COMMON> 9,766
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 220,717
<SALES> 0
<TOTAL-REVENUES> 128,579
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 118,728
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 63,490
<INCOME-TAX> 0
<INCOME-CONTINUING> 63,490
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 63,490
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
