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, 1998 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.)
211 Louisiana Street, McKinney, Texas 75069
ERR
(972)542-9525
(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, 1998, was 976,580. The number
of shares outstanding of the registrant's $1.00 par value preferred
stock as of June 30, 1998 was 243,331.
<PAGE>
HARRELL INTERNATIONAL, INC.
INDEX
<TABLE>
<CAPTION> Page
<S> <C>
Part I Financial Information
Item 1 Financial Statements
Consolidated Balance Sheets 3
-- As of June 30, 1998, and September 30 1997
Consolidated Statements of Income 4
-- Six Months Ended June 30, 1998 and 1997
Consolidated Statements of Cash Flows 5
-- Six Months Ended June 30, 1998 and 1997
Notes to Consolidated Financial Statemen 6
Item 2 Management's discussion and analysis of 7
Condition and Results of Operation
Part IIOther Information 9
Signature Page 10
</TABLE>
2
<PAGE>
Part I FINANCIAL INFORMATION
Item 1 Financial Statements
HARRELL INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION> Jun 30, 1998 Sep 30, 1998
(Unaudited) (Audited)
ASSETS
<S> <C> <C>
Current Assets:
Cash $ 189,057 $ 98,908
Accounts Receivable 132,353 89,464
Other Current Assets 2,395 3,939
Total Current Assets $ 323,804 $ 192,311
Note Receivable 9,869 9,869
Investment in Joint Ventures 1,850 1,200
Investment in Limited Partnership 0 100,000
Furniture & Equipment (net) 17,004 8,163
Total Assets $ 352,528 $ 311,543
LIABILITIES & STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts Payable and Accrued Liabilities $ 21,991 $ 56,308
Amounts Payable to Related Parties 8,000 8,000
Accrued Salaries & Payroll Taxes 4,275 8,215
Total Current Liabilities $ 34,266 $ 72,523
Note Payable 0 0
Total Liabilities $ 34,266 $ 72,523
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 (2,012,123) (2,091,364)
Total Stockholders' Deficit $ 318,261 $ 239,020
Total Liabilities & Stockholders' Deficit $ 352,528 $ 311,543
<TABLE/>
3
<PAGE>
HARRELL INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
</TABLE>
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended June 30 Ended June 30
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues:
Management Fees 159,964 140,329 435,509 331,513
Accounting Fees 0 0 0 0
Consulting Fees 0 0 0 0
Equity in earnings (losses)
of Joint Ventures 0 0 0 0
Other Income 533 4,865 6,052 51,607
Total Revenues 160,497 145,194 441,561 383,120
Expenses:
Employee Compensation
& Related Expense 104,411 80,439 281,388 258,736
General & Admin Expense 31,252 18,837 80,936 63,970
Total Expenses 135,663 99,276 362,324 322,705
Income (Loss) before
Income Tax 24,834 45,919 79,238 60,415
Gain of Sale of Joint Venture 0 53,638
Income before Income
Taxes 24,834 45,919 79,238 114,053
Provision for Income Tax 0 0 0 0
Net Income (Loss) 24,834 45,919 79,238 114,053
Income(Loss) per common
share $0.03 $0.05 $0.08 $0.12
Weighted average number
of common shares
outstanding 976,580 976,580 976,580 976,580
<TABLE/>
4
<PAGE>
HARRELL INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
For the Nine Months Ended June 30
</TABLE>
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss) 79,238 114,053
Adjustments to reconcile Net Income (Loss) to Net
Cash Provided (Used) for Operating Activities:
Depreciation Expense 1,795 1,795
Equity in (Earnings) Losses of Joint Ventures 0 (10,577)
Accretion of Equity Interest in Assets of Joint Ventures
over Initial Investments 0 (88)
Distribution Received from Joint Ventures 0 501
Equity Contribution to Joint Ventures 0 0
Changes in Assets and Liabilities:
(Increase) Decrease in Accounts Receivable (42,885) (29,946)
(Increase) Decrease in Other Current Assets 1,544 (706)
Purchase of Furniture & Equipment (10,636) (3,870)
Investment in Four Points Sheraton 100,000 (100,000)
Investment in McKinney Hotel Project (650) (1,200)
Increase (Decrease) in Accounts Payable and Accrued
Liabilities (34,317) (51,587)
Increase (Decrease) in Amounts Due to Related Parties 0 0
Increase (Decrease) in Accrued Salaries & Related (3,940) 1,979
Net Cash provided (used) by Operating Activities 90,149 (79,647)
Cash Flows from Financing Activities:
Note Receivable 0 (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 90,149 (89,516)
Cash at Beginning of Period 98,908 140,287
Cash at End of Period 189,057 50,771
Net Increase (Decrease) in Cash 90,149 (89,516)
<TABLE/>
5
<PAGE>
HARRELL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PRINCIPLES OF DISCLOSURE
The balance sheet as of June 30, 1998, and the related statements of
income and cash flows for the six month period ended June 30, 1998 and
1997, 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), Hotel Management Group (Virginia), 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>
Item 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Material Changes in the 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, Hotel Management
Group (Oklahoma), Inc. [HMG(OK)] to operate its Oklahoma
property, and Hotel Management Group (Virginia), Inc.
[HMG(VA)] to manage its Virginia property. HMG (CA) began
operations January 1, 1994. HMG (TN) began operations
October 17, 1996. HMG(OK) began operations June 4, 1997.
HMG(VA) began operations in February 1998. 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. The following reflects a summary of the
results of operations for the nine months ended June 30,
1998, and is fully consolidated with HMG(CA) HMG(TN),
HMG(OK), and HMG(VA).
</TABLE>
<TABLE>
<CAPTION>
9 months
<S> <C>
Total Revenues 440,994
Total Expense 152,687
Net Income 288,307
<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.
(2) On February 17, 1998 HMG(VA) assumed the management of the
Chamberlin Hotel in Hampton Virginia, an historic 225 room
hotel overlooking the Chesapeake Bay. Plans call for a $2M
renovation of the property.
(3) 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.
(4) Investment in Limited Partnerships
The Company completed negotiations with LW-LP, Inc. for the
sale of its limited partnership interest in Texas Memphis
Investors, Ltd., a limited partner owning 29.5% of Memphis
Hotel Owners, L.P., the owner of the Four Points Hotel in
Memphis, TN.
The Company received the return of its investment on April
3, 1998. At the point of consummation of the transaction,
HMG(TN) resigned as manager of the Memphis Four Points
Hotel.
7
<PAGE>
On June 3, 1998, the transaction closed with LW-LP, Inc.
wherein the guarantors (Messrs Marks and Barham) of
certain aspects of the acquisition, renovation, and
on-going operation of the Select Hotel in Tulsa, Oklahoma,
sold their interests to LW-LP, Inc. As part of the
transaction, HMG(OK) resigned as manager of the Select
Hotel, Tulsa.
The loss of the management fees derived from the management
of the Memphis Four Points Hotel and the Select Hotel,
Tulsa are not expected to have a material impact on future
financial results or the future financial conditions of
the Company.
8
<PAGE>
Part IIOTHER 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, 1998.
Item 2.Change in Securities.
There were no changes in securities during the quarter.
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, 1998.
9
<PAGE>
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:
Paul L. Barham
Vice President, Chief Financial
Officer and Director
10
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<CIK> 45694
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<PERIOD-TYPE> 9-MOS
<EXCHANGE-RATE> 1
<CASH> 189,057
<SECURITIES> 0
<RECEIVABLES> 132,353
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 323,804
<PP&E> 41,403
<DEPRECIATION> 24,398
<TOTAL-ASSETS> 352,528
<CURRENT-LIABILITIES> 34,266
<BONDS> 0
0
243,331
<COMMON> 9,766
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 352,528
<SALES> 0
<TOTAL-REVENUES> 435,509
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 362,324
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 79,238
<INCOME-TAX> 0
<INCOME-CONTINUING> 79,238
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 79,238
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
