<PAGE>
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, 1998 Commission File No:0-2661
Harrell International, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-1946181
(State of jurisdiction) (I.R.S. Employer)
211 Louisiana Street, McKinney, Texas 75069
(Address of Principal executive offices)
(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 December 31, 1998,
was 976,580. The number of shares outstanding of the
registrant's $1.00 par value preferred stock as of December
31, 1998 was 243,331.
In October 1997, the Company changed transfer agents from
Chase Mellon to Registrar and Transfer Company. When
transferring the records to Registrar and Transfer Company,
Chase Mellon showed additional shares of common stock of the
Company as being issued and outstanding. Chase Mellon gave no
explanation for this discrepancy, and for the past several
years has consistently reported the number of shares
outstanding as approximately 976,580. The Company has made
three written inquiries to Chase Mellon but has received no
response. The Company will continue to follow up. It is not
known at this time whether Chase Mellon's records are in
error, and for purposes of this report and until a
satisfactory answer is received from Chase Mellon, the Company
shall continue to use 976,580 as the number of outstanding
shares.
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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 December 31, 1998, and September
30 1998
Consolidated Statements of Income 4
-- Three Months Ended December 31, 1998
and 1997
Consolidated Statements of Cash Flow 5
-- Three Months Ended December 31, 1998
and 1997
Notes to Consolidated Financial Stat 6
Item 2 Management's discussion and analysis 7
Condition and Results of Operation
Part II Other Information 8
Signature Page 9
</TABLE>
2
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Part I FINANCIAL INFORMATION
Item 1 Financial Statements
HARRELL INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December September
31, 1998 30, 1998
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 217,138 $ 194,792
Accounts Receivable 76,605 116,543
Other Current Assets 1,906 150
Total Current Assets 295,648 311,485
Note Receivable 9,869 9,869
Investment in Joint Ventures 1,850 1,850
Investment in Limited Partnership 0 0
Furniture & Equipment (net) 14,768 16,044
Total Assets $ 322,135 $ 339,248
LIABILITIES & STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts Payable and Accrue $ 35,403 $ 30,400
Amounts Payable to Related Parties 8,000 8,000
Accrued Salaries & Payroll Taxes 19,274 16,496
Total Current Liabilities 62,678 54,896
Note Payable 0 0
Total Liabilities 62,678 54,896
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 (2,070,926) (2,046,032)
Total Stockholders' Deficit 259,458 284,352
Total Liabilities $ 322,135 $ 339,248
</TABLE>
3
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HARRELL INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
For the Three Months Ended December 31
<TABLE>
<CAPTION> 1998 1997
<S> <C> <C>
Revenues:
Management Fees $ 116,846 $ 125,305
Accounting Fees 0 0
Consulting Fees 0 0
Equity in earnings (losses) 0 0
Other Income 1,678 5,315
Total Revenues $ 118,524 $ 130,620
Expenses:
Employee Compensation &
Related 109,850 78,769
General & Administrative
Expenses 33,568 23,514
Total Expenses $ 143,418 $ 102,283
Income (Loss) before Gain
on Sale of Joint Venture (24,894) 28,336
Gain of Sale of
Joint Venture 0 0
Income (Loss) before Income
Taxes (24,894) 28,336
Provision for Income Taxes 0 0
Net Income (Loss) $ (24,894) $ 28,336
Income (Loss) per common
share ($0.03) $0.03
Weighted average number of
common shares outstanding 976,580 976,580
</TABLE>
4
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HARRELL INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the Three Months Ended December 31
<TABLE>
<CAPTION> 1998 1997
<S> <C> <C>
Cash Flows from Operating
Activities:
Net Income (Loss) $ (24,894) $ 28,336
Adjustments to reconcile Net Income
(Loss) to Net Cash Provided (Used) for
Operating Activities:
Depreciation Expense 1,567 602
Equity Contribution to Joint Venture 0 (300)
Changes in Assets and Liabilities:
(Increase) Decrease in Accounts
Receivable 39,938 20,121
(Increase) Decrease in Other Current
Assets (1,756) 2,042
Purchase of Furniture & Equipment (291) (4,550)
Increase (Decrease) in Accounts Payable
and Accrued Liabilities 5,003 (38,620)
Increase (Decrease) in Accrued Salaries
& Related 2,778 6,974
Net Cash provided (used) by
Operating Activities $ 22,346 $ 14,605
Cash Flows from Financing Activities:
Note Receivable 0 0
Increase in Note Payable 0 0
Increase in Preferred Stock 0 0
Increase in Capital Stock 0 0
Net Increase (Decrease) in
Cash $ 22,346 $ 14,605
Cash at Beginning of Period 194,792 98,908
Cash at End of Period 217,138 113,513
Net Increase (Decrease) in $ 22,346 $ 14,605
</TABLE>
5
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HARRELL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PRINCIPLES OF DISCLOSURE
The balance sheet as of December 31, 1998, and the related
statements of income and cash flows for the three month
period ended December 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), H M Group (Alabama), 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) Consolidated Results
The Company's wholly owned subsidiary,
Hotel Management Group, Inc. (HMG)
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, Hotel
Management Group (Virginia), Inc.
[HMG(VA)] to manage its Virginia
property, and H M Group (Alabama) Inc.,
[HMG(AL)] to manage its Alabama
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 three months ended December 31,
1998, and is fully consolidated with
HMG, HMG(CA) HMG(TN), HMG(OK),
HMG(VA), and HMG(AL).
3 months
Total Revenues 118,524
Total Expenses 143,419
Net Income (24,894)
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.
The loss incurred by the Company for
the quarter arose from the following:
(a) a prior period professional
fee charge of $5,125, and
(b) lower than anticipated fee
income from the California
hotels operated by HMG(CA),
arising from a slower than
expected fourth quarter.
Management has adjusted the company's
operating expenses accordingly and does
not expect the results of the quarter
to have a material adverse effect on
the company's overall profitability or
liquidity.
(2) On February 17, 1998 Hotel Management
Group - Virginia, Inc. assumed the
management of the Chamberlin Hotel in
Hampton Virginia, an historic 225 room
hotel overlooking the Chesapeake Bay.
Plans called for a $2M renovation of
the property. On November 6, 1998 the
owner took over the management of the
hotel and incorporated it into a
portfolio of hotels that it had
acquired and which it was then going to
operate without the use of a third
party management company.
(3) In August 1997, HMG entered into a
management agreement to manage the
Holiday Inn Express in Ennis, Texas.
Under the agreement HMG receives a
management fee of $2,500 per month.
Subsequent to December 31, 1998, the
owners decided to operate the hotel
without the use of a third party
management company and by mutual
agreement the contract was terminated
effective February 1, 1999.
(4) On December 1, 1998, HMG(AL) entered
into a management agreement to manage
the Governors House Hotel and
Conference Center in Montgomery,
Alabama. Under the agreement, HMG(AL)
receives a management fee of $5,000 per
month.
(5) 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.
7
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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
December 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
December 31, 1998
8
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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:
Paul L. Barham
Vice President, Chief Financial
Officer and Director
9
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<S> <C>
<CIK> 45694
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<PERIOD-TYPE> 3-MOS
<EXCHANGE-RATE> 1
<CASH> 217,138
<SECURITIES> 0
<RECEIVABLES> 76,605
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 295,648
<PP&E> 42,298
<DEPRECIATION> 27,530
<TOTAL-ASSETS> 322,135
<CURRENT-LIABILITIES> 62,678
<BONDS> 0
0
243,331
<COMMON> 9,766
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 322,135
<SALES> 0
<TOTAL-REVENUES> 118,524
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 143,418
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (24,894)
<INCOME-TAX> 0
<INCOME-CONTINUING> (24,894)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (24,894)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
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