[CURRENCY] U.S.DOLLARS
[FISCAL-YEAR-END] SEP-30-1997
[PERIOD-END] JUN-30-1997
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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, 1997 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 June 30, 1997, was 976,580. The number of
shares outstanding of the registrant's $1.00 par value preferred stock as of
June 30, 1997 was 243,331.
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HARRELL INTERNATIONAL, INC.
INDEX
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<CAPTION> Page
<S> <C>
Part I Financial Information
Item 1 Financial Statements
Consolidated Balance Sheets 3
-- As of June 30, 1997, and September 30 1996
Consolidated Statements of Income 4
-- Nine Months Ended June 30, 1997 and 1996
Consolidated Statements of Cash Flows 5
-- Nine Months Ended June 30, 1997 and 1996
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 9
Signature Page 10
</TABLE>
2
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Part I FINANCIAL INFORMATION
Item 1 Financial Statements
HARRELL INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION> June 30 Sept 30
1997 1996
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current Assets:
Cash 50,771 140,287
Accounts Receivable 94,652 54,837
Other Current Assets 3,595 2,889
Total Current Assets 149,018 198,012
Investment in Joint Ventures 101,200 (10,164)
Furniture & Equipment (net) 7,207 5,132
Total Assets 257,425 192,981
LIABILITIES & STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts Payable and Accrued Liabilities 14,382 65,969
Amounts Payable to Related Parties 8,000 8,000
Accrued Salaries & Payroll Taxes 2,530 551
Total Current Liabilities 24,912 74,520
Note Payable 0 0
Total Liabilities 24,912 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 0
Additional Paid in Capital 2,077,287 2,077,287
Accumulated Deficit (2,097,870)(2,211,923)
Total Stockholders' Deficit 232,514 118,461
Total Liabilities & Stockholders' Deficit 257,425 192,981
</TABLE>
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<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended June 30 Ended June 30
1,997 1,996 1,997 1,996
<S> <C> <C> <C> <C>
Revenues:
Management Fees 140,329 106,093 331,513 298,602
Accounting Fees 0 0 0 0
Consulting Fees 0 0 0 10,000
Equity in earnings (losses) of 0 (8,224) 0 (3,605)
Other Income 4,865 1,029 51,607 2,632
Total Revenues 145,194 98,898 383,120 307,629
Expenses:
Employee Compensation & Relate 80,439 72,650 258,736 189,272
General & Administrative Expen 18,837 23,160 63,970 52,086
Total Expenses 99,276 95,810 322,705 241,358
Income (Loss) before Income Ta 45,919 3,088 60,415 66,271
Gain of Sale of Joint Venture 53,638
Income before Income Taxes 45,919 3,088 114,053 66,271
Provision for Income Taxes 0 0 0 0
Net Income (Loss) 45,919 3,088 114,053 66,271
Income (Loss) per common share 0 0 0 0
Weighted average number of common
shares outstanding 976,580 976,580 976,580 976,580
</TABLE>
4
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HARRELL INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended June 30 1,997 1,996
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss) 114,053 66,271
Adjustments to reconcile Net Income (Loss) to Net
Cash Provided (Used) for Operating Activities:
Depreciation Expense 1,795 1,786
Equity in (Earnings) Losses of Joint Ventures (10,577) (3,778)
Accretion of Equity Interest in Assets of Joint Ventures
over Initial Investments (88) (2,430)
Distribution Received from Joint Ventures 501 1,750
Equity Contribution to Joint Ventures 0 0
Changes in Assets and Liabilities:
(Increase) Decrease in Accounts Receivable (29,946) (3,530)
(Increase) Decrease in Other Current Assets (706) 5,486
Purchase of Furniture & Equipment (3,870) 3,446
Investment in Four Points Sheraton (100,000)
Investment in McKinney Hotel Project (1,200)
Increase (Decrease) in Accounts Payable and Accrued
Liabilities (51,587) (33,012)
Increase (Decrease) in Amounts Due to Related Parti 0 0
Increase (Decrease) in Accrued Salaries & Related 1,979 (16,517)
Net Cash provided (used) by Operating Activities (79,647) 19,472
Cash Flows from Financing Activities:
Note Receivable (9,869)
Increase in Note Payable 0 0
Increase in Preferred Stock 0 0
Increase in Capital Stock 0 0
Net Increase (Decrease) in Cash (89,516) 19,472
Cash at Beginning of Period 140,287 36,843
Cash at End of Period 50,771 56,315
Net Increase (Decrease) in Cash (89,516) 19,472
</TABLE>
5
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HARRELL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PRINCIPLES OF DISCLOSURE
The balance sheet as of June 30, 1997, and the related statements of
income and cash flows for the nine month period ended June 30, 1997
and 1996, 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), Hotel Management Group (Oklahoma), 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
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
(1) 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, Hotel Management Group(Tennessee), Inc. [HMG (TN)]
to operate its Tennessee property, and Hotel Management Group (Oklahoma),
Inc. [HMG(OK)] to operate its Oklahoma 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 Management Contract because the
property was to be demolished by the State Highway Department. HMG(TN) began
operations October 17, 1996. HMG(OK) began operations June 4, 1997.
The following reflects a summary of the results of operations for the nine
months ended June 30, 1997, and is fully consolidated with HMG(CA), HMG(OK)
and HMG(TN).
9 months
Total Revenues 382,883
Total Expenses 105,961
Net Income 276,923
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.
(2) At the end of the quarter HMG managed four 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.
(3) On June 4, 1997, the Company acquired a limited partnership
interest in the Ramada Inn, located on I-44 in Tulsa, Oklahoma. At the same
closing a subsidiary of the Company contracted with the new ownership to
manage the hotel.
In March of 1997, an unaffiliated company, LTS Group, Inc. entered into a
contract to purchase the hotel for a purchase price of $4,575,000.
Hotel Management Group, Inc. entered into an agreement with LTS Group, Inc.
to study feasibility and prepare recommendation and budgets. Hotel Management
Group, Inc. was not paid a fee for its work, but was instead provided a
2 1/2% Limited Partnership interest in the project. Costs to renovate the
hotel are budgeted to be approximately $4.5 million which together with closing
costs and working capital for the hotel estimated at $1 million comprise the
$10 million transaction. Of the $10 million, Lehman Brothers Holdings, Inc.
loaned approximately $9 million and contributed equity of $700,000. LTS Group
and others contributed equity of $300,000. The hotel is owned through limited
partnerships with the Company owning limited partnership interest equating to
2 1/2% interest in the hotel LTS Group, Inc., its affiliates and others
27 1/2%, and Lehman Brothers and its affiliates 70%. LTS Group, Inc. the
Company and others comprise Texas Tulsa Investors Limited, a Texas limited
partnership. The Lender required as a condition of the loan to the
partnership that Paul L. Barham ("Barham") an officer and director of the
Company, and Norman L. Marks ("Marks"), also an officer and director of the
Company, individually guarantee certain recourse provisions of the loan,
7
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guarantee certain environmental warranties regarding the hotel, and
guarantee completion of the Renovations (collectively "Guaranties"). Texas
Tulsa Investors Limited offered Barham and Marks, or their assigns, in
exchange for their Guaranties, each a limited partnership interes in Texas
Tulsa Investors Limited, which constitutes an interest in the hotel of one
percent (1%). The $9 million loan in connection with the purchase is for a
three year term secured by a first lien mortgage on the hotel, and contains
provisions for required payment to the loan of all net operating income of
the hotel (after expenses, certain reserves and management fees), with a
final additional payment of approximately $1.6 million.
Also in connection with the transaction, a newly formed subsidiary of the
Company, HMG(OK) entered into a management agreement to manage the hotel
and supervise the renovations. HMG(OK) and LTS Group, Inc. have agreed to
share certain fees in connection with the management agreement. HMG(OK) 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. In recent years the hotel has had
no net operating income, although the Company believes that if the proposed
renovations and management of hte hotel are successful, net income may be able
to be increased substantially.
8
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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, 1997.
Item 2. Change in Securities
The Registrant issued 243,331 $1.00 par value 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
No items were submitted to a vote of the security holders during
this quarter.
Item 5. Other Information.
None
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 June 30, 1997.
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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
---------------------- --------------------------------
Vice President, Chief Financial
Officer and Director
<PAGE> 10
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -----------
<S> <C>
27 - Financial Data Schedule
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<EXCHANGE-RATE> 1
<CASH> 50771
<SECURITIES> 0
<RECEIVABLES> 94652
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 149018
<PP&E> 29212
<DEPRECIATION> 22005
<TOTAL-ASSETS> 257425
<CURRENT-LIABILITIES> 24912
<BONDS> 0
0
243331
<COMMON> 9766
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 257425
<SALES> 0
<TOTAL-REVENUES> 383120
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 269067
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 114053
<INCOME-TAX> 0
<INCOME-CONTINUING> 114053
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 114054
<EPS-PRIMARY> .12
<EPS-DILUTED> .12