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 March 31, 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)
211 Louisiana Street, McKinney, Texas 75069
(Address of principal executive offices)
(972)542-9525
(Registrant's telephone number, 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 March 31, 1998, was 976,580. The
number of shares outstanding of the registrant's $1.00 par value
preferred stock as of March 31, 1998 was 243,331.
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HARRELL INTERNATIONAL, INC.
INDEX
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Part I Financial Information
Item 1 Financial Statements
Consolidated Balance Sheets 3
-- As of March 31, 1998, and September 30 1997
Consolidated Statements of Income 4
-- Three Months Ended March 31, 1998 and 1997
Consolidated Statements of Cash Flows 5
-- Three Months Ended March 31, 1998 and 1997
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
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2
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Part I FINANCIAL INFORMATION
Item 1 Financial Statements
HARRELL INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
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<CAPTION> March 31, 1998 September 30, 1997
(Unaudited) (Audited)
ASSETS
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Current Assets:
Cash $ 83,867 $ 98,908
Accounts Receivable 114,510 89,464
Other Current Assets 1,135 3,939
Total Current Assets $ 199,512 $ 192,311
Note Receivable 9,869 9,869
Investment in Joint Ventures 1,500 1,200
Investment in Limited Partnership 100,000 100,000
Furniture & Equipment (net) 16,396 8,163
Total Assets $ 327,278 $ 311,543
LIABILITIES & STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts Payable and Accrued Liabilities $ 18,521 $ 56,308
Amounts Payable to Related Parties 8,000 8,000
Accrued Salaries & Payroll Taxes 7,329 8,215
Total Current Liabilities $ 33,851 $ 72,523
Note Payable 0 0
Total Liabilities $ 33,851 $ 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
authorizerd, No shares issued or outstanding
Additional Paid in Capital 2,077,287 2,077,287
Accumulated Deficit -2,036,957 -2,091,364
Total Stockholders' Deficit $ 293,427 $ 239,019
Total Liabilities &
Stockholders' Deficit $ 327,278 $ 311,542
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HARRELL INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
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<CAPTION>
For the Three Months For the Six Months
Ended March 31 Ended March 31
<S> <C> <C> <C> <C>
1998 1997 1998 1997
Revenues:
Management Fees $ 150,240 $ 104,023 $ 275,545 $ 191,184
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 205 5,323 5,519 46,742
Total Revenues $ 150,445 109,346 $ 281,065 $ 237,926
Expenses:
Employee Compensation & Related 98,208 120,447 176,977 178,297
General & Administrative Expense 26,170 29,952 49,684 45,133
Total Expenses $ 124,378 150,399 $ 226,661 $ 223,429
Income (Loss) before Income $ 26,066 (41,053)$ 54,403 $ 14,496
Gain of Sale of Joint Venture 0 53,638
Income before Income Taxes 26,066 (41,053) 54,403 68,134
Provision for Income Taxes 0 0 0 0
Net Income (Loss) $ 26,066 (41,053)$ 54,403 $ 68,134
Income (Loss) per common share $0.03 ($0.04) $0.06 $0.07
Weighted average number of common
shares outstanding 976,580 976,580 976,580 976,580
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4
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HARRELL INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
For the Six Months Ended March 31
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<CAPTION>
1997 1997
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss) $ 54,403 $ 68,134
Adjustments to reconcile Net Income (Loss) to Net
Cash Provided (Used) for Operating Activities:
Depreciation Expense 1,196 1,196
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 -25,042 -17,988
(Increase) Decrease in Other Current Assets 2,803 -90
Purchase of Furniture & Equipment -9,430 0
Investment in Four Points Sheraton 0 -100,000
Investment in McKinney Hotel Project -300 -1,200
Increase (Decrease) in Accounts Payable and
Accrued Liabilities -37,786 -36,252
Increase (Decrease) in Amounts Due to Related 0 0
Increase (Decrease) in Accrued Salaries &
Related Parties -885 98
Net Cash provided (used) by
Operating Activities $ -15,040 $ -96,265
Cash Flows from Financing Activities:
Note Receivable 0 -9869
Increase in Note Payable 0 0
Increase in Preferred Stock 0 0
Increase in Capital Stock 0 0
Net Increase (Decrease) in Cash $ -15,040 $-106,134
Cash at Beginning of Period 98,908 140,286
Cash at End of Period 83,867 34,152
Net Increase (Decrease) in Cash $ -15,040 $-106,134
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5
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HARRELL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PRINCIPLES OF DISCLOSURE
The balance sheet as of March 31, 1998, and the related statements of
income and cash flows for the six month period ended March 31, 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
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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 operation
for the six months ended March 31, 1998, and is fully
consolidated with HMG(CA) HMG(TN), HMG(OK), and HMG(VA).
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<CAPTION>
6 months
<S> <C>
Total Revenues 280,686
Total Expenses 87,174
Net Income 193,513
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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 six 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.
Subsequent Events
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.
The loss of the management fee derived from the management of the
Memphis Four Points Hotel is not expected to have a material impact on
future financial results or the future financial conditions of the
Company.
7
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 March 31, 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 March 31, 1998.
8
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
9
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<CIK> 45694
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<PERIOD-TYPE> 6-MOS
<EXCHANGE-RATE> 1
<CASH> 83,867
<SECURITIES> 0
<RECEIVABLES> 114,510
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<DEPRECIATION> 23,800
<TOTAL-ASSETS> 327,278
<CURRENT-LIABILITIES> 33,851
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0
243,331
<COMMON> 9,766
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<TOTAL-LIABILITY-AND-EQUITY> 327,278
<SALES> 0
<TOTAL-REVENUES> 275,545
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 226,661
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 54,403
<INCOME-TAX> 0
<INCOME-CONTINUING> 54,403
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54,403
<EPS-PRIMARY> 0.06
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