HARRELL INTERNATIONAL, INC.
211 East Louisiana Street
McKinney, Texas 75069
Form 10-KSB
For the fiscal year ended:
September 30, 1998
Submitted to
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
Commission File No. 0-2661
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB.
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: Commission File No.:
September 30, 1998 0-2661
HARRELL INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-1946181
(State of Incorporation) (I.R.S. Employer Id. No.)
211 East Louisiana Street, McKinney, Texas 75069
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972)
542-9525
Securities registered pursuant to Section 12(b) of the
Act:
None
Securities registered pursuant to Section 12(g) of the
Act:
Class A Common Stock, Par Value $.01
(Title of Class)
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
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this form 10-KSB or any amendment
to this Form 10-KSB. [ X]
Issuer's revenues for its most recent fiscal year
$628,518
The aggregate market value of the registrant's Class A
Common Stock held by non-affiliates of the registrant,
computed by reference to the average bid and asked prices of
such stock as of July 1, 1991, the last available quotation
date: Approximately $95,099.
The number of shares of the registrant's Class A, $.01
par value Common Stock outstanding as of September 30,1998
was 976,580. The number of shares of the registrant's $1
par value preferred stock outstanding as of September 30,
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.
PART I
Item I. Description of Business
Since September 30, 1990, the Company's intention has
been to engage in the acquisition, development and
management of real estate properties directly and through
affiliates, including joint ventures and partnerships (in
which its interests would be that of a general partner
having substantial involvement or participation in
management). The Company focused its initial real estate
activities upon purchase, development and management of
condominiums, apartments and other residential properties
located in the Southwestern and Southeastern United States
but did not rule out the possibility of pursuing similar
opportunities with respect to office buildings, shopping
centers and other commercial real estate projects throughout
the United States and abroad.
These proposed activities of the Company were
intended to be structured in such a way as to preclude the
Company from being deemed to be an investment company for
purposes of the Investment Company Act of 1940.
In August 1992, with the Company's acquisition of Hotel
Management Group, Inc., the Company expanded its focus to
include the acquisition, development, and management of
hotels,directly and through affiliates.
HISTORY
HARRELL INTERNATIONAL, INC. (the "Company") is a
Delaware corporation which was originally incorporated in
1959 in Massachusetts under the name of Formula 409, Inc.
In 1967, the Company's name was changed to The Harrell
Corporation and in 1968 to Harrell International, Inc. The
Company changed its state of incorporation from
Massachusetts to Delaware in March, 1987. The Company
originally manufactured and sold a multi-purpose
household spray cleaner under the registered trademark
"Formula 409." In 1970, the Company sold the rights to
"Formula 409" to Clorox Corporation. During the period 1970
to 1983 the Company was primarily engaged in the business of
acquiring and operating food and non-food brokers which
represented the products of various unrelated manufacturers
to either the U. S.Domestic Civilian Market or to the U. S.
Military Resale System. In 1983, the Company completed the
divestiture of its consumer products brokerage businesses
and entered a phase during which its revenues were derived
primarily from the collection of receivables acquired in
connection with such divestitures.
During fiscal 1988, the Company continued to attempt to
develop a business as an international marketing agent for
foreign-produced goods in the United States and for U.S.
products abroad. However, because of disappointing results
and the high costs of continuing to operate the Company, the
Board of Directors decided to explore the liquidation or
reorganization of the Company.
During the fall of 1988, Wilson Harrell, then President
of the Company, began the search for a possible merger
candidate, and to negotiate the sale of notes receivable
from the divestiture of its consumer product brokerage
business. The Company and Sarvis, Incorporated entered
into a Note Purchase Agreement dated as of August 15, 1989.
The sale of the Sarvis Note was consummated on October 11,
1989.
Following the sale of the Sarvis Note, the Company
continued searching for a possible merger candidate. In
early March, 1990, Wilson Harrell renewed discussions with
Geoffrey G.Dart ("Dart"), of Clover, Inc., an Australian
businessman with whom the Company had negotiated to the
point of a verbal understanding in September, 1988.
On June 12, 1990, the Company and Clover, Inc.
("Clover") entered into a Stock Purchase Agreement.
Pursuant to the Stock Purchase Agreement, as amended in
August 1990, in exchange for a purchase price of $500,000,
Clover was issued certain shares of Class A Common Stock and
warrants to purchase shares of a new Class B stock. In
addition, Dart was elected president and CEO and added as a
new director. Clover paid $65,000 at closing with the
remainder due within approximately six months, in two
installments of $185,000 and $250,000 respectively.
Clover failed to make either additional payment and on
December 23, 1991, the Company and Clover entered into a
Restructuring Agreement.
In light of Clover's failure to make the additional
installments and the Company's need for capital in order to
pursue the business plan discussed above, the Company
determined that it should seek a new capital partner. On
December 23, 1991, the Company's Board of Directors
authorized Wilson Harrell and Geoffrey Dart to actively seek
such a partner.
In October 1991, the Company borrowed $50,000 from
Xenex International, Inc., a Florida corporation. In 1992
the Company and Xenex entered into agreements whereby Xenex
agreed to treat the $50,000 loan as an equity investment in
the Company and invest an additional $100,000 into the
Company in exchange for 291,228 shares of the Company's
common stock. In 1993 Xenex loaned the Company $150,000, and
in 1994 the parties entered into an agreement (the "Debt
Agreement") to convert the loan into stock of the Company.
On December 15, 1994, Agreement was reached between
Businesship International, Inc.("BI") and its wholly owned
subsidiary Xenex, Inc. to merge Xenex, Inc. into Businesship
International, Inc. The effect was to transfer 291,228
shares of the Company's Common Stock from Xenex, Inc. to BI.
Effective as of September 1, 1996 the Company and BI
entered into a Preferred Stock Purchase and Release of Debt
Agreement (the "Modification Agreement") that modified and
replaced the Debt Agreement. Under the terms of the
Modification Agreement, the parties agreed that the Company
would issue 243,331 shares of $1.00 , a new class of par
value preferred stock (the "Preferred Stock") in exchange
for a release of the Company's obligation to BI on the Xenex
Loan. Under the Modification Agreement the Preferred Stock
is nonconvertible, nonvoting, noncumulative dividend, with
dividends of 10% of par value. The Company has the right,
but not the obligation, to redeem the Preferred Shares at
any time at par value. The Preferred Shares are not
registered under federal securities laws or the laws of any
state.
On December 31, 1996, the Articles of Incorporation of
the Company were amended to authorize 1,000,000 shares of
Preferred Stock and to eliminate the Class B Common Stock.
On December 31, 1996, the closing of the Modification
Agreement occurred and the 243,331 shares of Preferred Stock
were issued to BI.
OPERATIONS
In furtherance of the Company's intention at September
30, 1990, to acquire, develop and manage real estate
projects, the Company has, since December, 1990, entered
into the three separate transactions involving residential
real estate, the Riviera Project, the Villa Martinique
Project and the Athena Garden Project. All such
transactions included as a component the Company's entering
into a joint venture agreement with another corporation and
the acquisition by such joint venture of an interest in an
existing apartment complex. After any necessary
renovations, the apartment complexes were, and in the case
of Villa Martinique and Athena Gardens, continue to be,
operated by the joint ventures.
Riviera Project
The Riviera Project, a 37 unit apartment complex in
Dallas, Texas, was managed by the Company for about five and
one-half years, then sold in August 1996. The net proceeds
from the sale was approximately equal to the investment in
the property.
Villa Martinique Project
The Company entered into a joint venture agreement
dated July 15, 1991, with Villa Martinique Investors
Corporation, a Texas corporation ("VMIC"), forming the
"Villa Martinique Apartments Joint Venture." VMIC
contributed $275,000 to the venture's capital and the
Company contributed 80.714% of its rights in an agreement
dated June 17, 1991, to purchase a 146 unit apartment
complex (the "VM Project") known as the Villa Martinique
Apartments located in Irving, Texas, from Home Savings of
America, F.A. ("Home Savings"). The Company's remaining
19.286% interest in the contract was assigned to Wilson L.
Harrell in consideration for his agreement to be a co-maker
with VMIC of the purchase money promissory note. On August
13, 1991, the VM Project was acquired by the Villa
Martinique Joint Venture and Wilson L. Harrell from Home
Savings for a purchase price of $1,750,000.
Pursuant to the joint venture agreement, 87.6% and
12.4% of the joint venture's distributable cash, less
reasonable reserves, was distributable to VMIC and the
Company,respectively. The Company's 12.4% interest in the
venture equated to a 10% interest in the VM Project.
Although VMIC and the Company shared equally the right to
manage the venture, the Company supervised the venture's
day-to-day operations, through Hotel Management Group.
On July 13, 1994, the Company, along with the other
partners of Villa Martinique Apartments Joint Venture
entered into a Compromise, Settlement and Release Agreement
(the "Settlement") with Home Savings, settling claims by the
venture against Home Savings as seller of the Villa
Martinique Project for roof problems, which caused the
complex to experience leaking and ceiling failures rendering
15 units uninhabitable. The Settlement called for a new
roof being installed at the Villa Martinique Project, as
well as an allowance for other minor repairs.
Additionally, the partners negotiated a reduction in
the interest rate on the Mortgage and an increase of
$100,000 to the Mortgage, which amount has been used to make
other improvements to the property.
In order to enhance the Company's liquidity, on
November 30, 1996, the Company sold its 10% interest in the
Villa Martinique Apartments Joint Venture to the Villa
Martinique Investors Corporation, the Company's joint
venture partner in the apartment project, for the sum of
$38,889, payable as to $29,020 in cash at closing with a
note in the amount of $9,869 bearing interest at the prime
rate, with principal and interest all due in 2 years. The
VM Project continues to be operated by Hotel Management
Group.
Athena Gardens Project
The Company entered into a joint venture agreement
dated November 26, 1991, with Athena Gardens Investors
Corporation, a Texas corporation ("AGIC"), forming the
"Athena Gardens Joint Venture." AGIC contributed $235,500
to the venture's capital and the Company contributed its
rights in an agreement dated October 9, 1991, to purchase a
72-unit apartment complex (the "AG Project") known as the
Athena Gardens Apartments located in Athens, Texas, from
Camarilla Development, Inc. for $600,000. Financing in the
amount of $420,000 was secured from First State Bank of
Athens, Texas, in order to complete the acquisition.
Pursuant to the joint venture agreement between the
Company and AGIC, 80% and 20% of the venture's distributable
cash is distributed to AGIC and the Company, respectively.
Although AGIC and the Company share equally the right to
manage the venture, the Company supervises the venture's
day-to-day operations, through Hotel Management Group.
In order to enhance the Company's liquidity, on August
20, 1996, the Company sold its 20% Interest in Athena
Garden Apartments Joint Venture, to AGIC, the Company's
joint venture partner in the apartment project, for the sum
of $100,000. The AG Project continues to be operated by
Hotel Management Group, Inc.
Hotel Management Group Transaction
On August 18, 1992, the Company entered into an
Agreement with Hotel Management Group, Inc., a Texas
corporation ("HMG"), wherein the Company acquired one
hundred percent (100%) of HMG's issued and outstanding
shares in exchange for 200,000 shares of the Company's
Class A Common Stock.
On September 1, 1993, the Company completed the
acquisition of Hotel Management Group, Inc.
Apartment Management
Effective November 2, 1992, Hotel Management Group
assumed the management of the Athena Gardens, Riviera and
Villa Martinique apartments at that time, and continues to
operate Athena Gardens and Villa Martinique Apartments at
September 30, 1998.
HOTEL MANAGEMENT
Hotel Management Group - California, Inc.("HMG
California")
Effective January 1, 1994, Hotel Management Group,
Inc. formed a wholly owned subsidiary, Hotel Management
Group - California, Inc., to hold the management contract
for the operations of the Biltmore Hotel and Suites in Santa
Clara,California. The Biltmore Hotel is a 262 room full
service hotel with 8,000 square feet of meeting space. HMG
California's management contract is a two-year renewable
contract that began in January 1992 and has a current
expiration of December 31, 1999. HMG California receives a
management fee equal to ten percent (10%) of the hotel's net
income pre debt, after a 3% reserve for furniture,fixtures
and equipment.
HMG California entered into a management contract
of the Rancho Santa Barbara Marriott in May 1995.The
Marriott is a 149 room full service hotel with 8,000 square
feet of meeting space and health and spa facilities. HMG
California's management contract is a two-year renewable
contract that began in June 1995 and has a current
expiration of December 31, 1999. HMG California receives a
management fee equal to ten percent (10%) of the hotel's net
income pre-debt,after a 3% reserve for furniture, fixtures
and equipment.
Hotel Management- Tennessee, Inc. ("HMG Tennessee")
On October 17, 1996, for the sum of $100,000, 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, HMG Tennessee, contracted with
the new ownership to manage the hotel.
After undergoing substantial renovation in 1996
and 1997, the hotel failed to reach budgeted profitability
figures. The majority owner, an affiliate of Lehman
Brothers, agreed to purchase the limited partnership
interest of the Company for its original investment of
$100,000. The transaction closed in April 1998, and HMG
Tennessee resigned as manager of the hotel. Pursuant to the
resignation agreement, HMG Tennessee was to be paid certain
outstanding management fees by the limited partnership.
However, to date, the partnership, citing lack of funds, has
not paid the remaining amount of $33,247.66.
Hotel Management- Oklahoma, Inc. ("HMG Oklahoma")
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, HMG Oklahoma, contracted with the new ownership to
manage the hotel.
Hotel Management Group, Inc. ("HMG") was not paid
a fee for work in acquiring the hotel but instead received
an equity ownership of 2.5%. Entities affiliated with
Paul Barham and Norman Marks each received an equity
ownership of 1% as consideration for the personal guaranties
of certain obligations in connection with the hotel and its
renovation.
After undergoing substantial renovation in 1997
and 1998, the hotel was positioned to operate as a Holiday
Inn Select. The majority owner, an affiliate of Lehman
Brothers, however, desired to have the hotel be under common
management with the Memphis hotel and agreed to purchase the
limited partnership interest of Barham, Marks, and the
Company, for a total of $25,000. Of this amount, the
Company's portion was $13,888.90 and Barham and Marks each
received $5,555.55. The transaction closed in June 1998,
and all of the proceeds to the Company were booked as a
gain. At closing, HMG Oklahoma resigned as manager of the
hotel; HMG Oklahoma is not owed any management fees.
Ennis, Texas hotel
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 through the initial term ending December 31, 1998,
By its terms, since no notice of termination was given by
October 31, 1998, the agreement was automatically extended
for a two year period. However, discussions are underway
between the parties regarding the extension of the contract.
Hotel ManagementGroup - Virginia, Inc. ("HMG Virginia")
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.
Subsequent Events: H.M.Group - Alabama, Inc.
On December 1, 1998, H.M.Group - Alabama, Inc.
assumed the management of the Governors House Hotel in
Montgomery Alabama, a 200 room full service hotel
The loss of management fees derived from the management
of the Memphis Four Points Hotel, the Select Hotel in Tulsa
and the Chamberlin Hotel is not expected to have a material
impact on future financial results or the future financial
conditions of the Company.
Number of Employees
At September 30, 1998, the Company and its subsidiaries
had 404 full time employees and 99 part time employees.
Item 2. Description of Property
The Company maintains its administrative and executive
offices in a commercial office building located at 211 East
Louisiana Street, McKinney, Texas. In the opinion of
management, the premises are suitable and adequate for the
present requirements of the Company and ample comparable
space is available on comparable terms in the market.
Item 3. Legal Proceedings
There were no material legal proceedings, either
on-going, instituted by or against, or otherwise involving
the Registrant during the period ended September 30, 1998.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security
holders during the year ended September 30, 1998.
PART II
Item 5. Market for Common Equity and Related Security
Holder Matters
(a) The following table shows the range of closing bid
prices for the Company's Common Stock in the over-the-
counter market for the fiscal quarters indicated, as
reported by the National Quotation Bureau. The quotations
represent limited or sporadic trading and, therefore,
do not constitute an "established public trading market".
The quotations represent prices in the over-the-counter
market between dealers in securities, do not include retail
markup, markdown or commission and do not represent actual
transactions.
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1998
Bid Prices Bid Prices
Fiscal Period High Low High Low
<S> <C> <C>
First Quarter NOT QUOTED NOT QUOTED
Second Quarter NOT QUOTED NOT QUOTED
Third Quarter NOT QUOTED NOT QUOTED
Fourth Quarter NOT QUOTED NOT QUOTED
</TABLE>
(b) As of September 30, 1998, there were 694 record
holders of the Company's $.01 par value Class A Common
Stock.
(c) There have been no cash dividends paid on the
Company's Common Stocks in fiscal years 1996, 1997 or any
subsequent year. On September 30, 1998, the Company paid
the 10% dividend on the 243,331 shares of Preferred Stock.
The Company has no present plans to pay further dividends on
the Company's Common Stock.
Item 6. Management's Discussion and Analysis or Plan of
Operation
RESULTS OF OPERATIONS
A. Revenues
Revenues for the periods ended September 30, 1997 and
1998 were primarily produced from the Company's interest in
Hotel Management Group. The increase in revenues in 1998
over 1997 was a result of improved performance in the hotels
with incentive based management fees, as well as additional
fees gained from new contracts secured during the course of
the year.
The Company anticipates income from Hotel Management
Group to increase as the subsidiary secures more management
and consulting assignments, and that the Company will be
able to meet its cash requirements from operations.
B. Employee Compensation
Employee compensation expense includes salaries for
Messrs Barham and Marks as well as accounting staff of HMG.
The accounting staff was increased to handle the increased
activity of additional management contracts.
In January 1998, the Company purchased $500,000
increasing life insurance policies on the lives of each Paul
L. Barham and Norman L. Marks. The purposes of the policies
are both (i) to protect the Company's financial interest in
the event of the premature death of either of these key
employees, and (ii) to provide an employee benefit to these
key employees. The Company is the owner and beneficiary of
the policies, although the cash value accumulation will
accrue to the benefit of the key employees and is payable to
the employees upon their retirement or termination of
employment.
C. General and Administrative Expenses
General and Administrative Expenses increased because
of the relocation of the corporate office to a larger
facility in McKinney, Texas, and because of additional
support staff.
LIQUIDITY AND CAPITAL RESOURCES
Funds generated from company operations are the major source
of liquidity. The Company generated $42,548 in cash from
operating activities in the 1998 fiscal year and provided
and additional $101,998 in cash from investing activities.
At September 30, 1998, the Company had $194,792 in cash and
$274,458 in working capital. Management of the Company
believes that it will have sufficient working capital to
fund its operating and investing needs during fiscal 1999.
YEAR 2000
The Company currently believes that it does not have any
significant exposure to uncertainties nor material
anticipated costs related to Year 2000 issues including
Company, vendor, and customer issues. The Company's current
systems and any anticipated upgrades are Year 2000
compliant.
Item 7. Financial Statements
The following financial statements are filed as a part
of this report:
See the Index to Financial Statements on page F-1
immediately following page 23 of this report. All such
financial statements, schedules and supplementary data are
incorporated herein by this reference.
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
There were no disagreements regarding matters of
accounting principles or practices, financial statement
disclosure, or auditing scope or procedure. Thus, pursuant
to Item 304 of Regulation 8-KSB, and Rule 12b-2 under the
Exchange Act, no further disclosure regarding the Company's
change in accountants is necessary or provided herein.
PART III
Item 9. Directors, Executive Officers, Promoters and
Control Persons: Compliance with Section 16 (a) of the
Exchange Act
The following table provides certain information
concerning each of the directors of Harrell International,
Inc. (the "Company") as of September 30, 1998.
<TABLE>
<CAPTION>
Name Principal Occupation Consecu- Age
For the past 5 years tive
Service
Since
<S> <C> <C> <C>
Paul L. Barham CFO, Hotel Management 1992 45
Group, since December
1989
Current Position: Chief
Financial Officer,
Harrell International
Norman L. Marks President, Hotel 1995 57
Management Group,
since December 1989
Current Position: Chief
Operating Officer,
Harrell International
</TABLE>
The following table provides certain information concerning
each of the executive officers of the Company as of
September 30, 1997.
<TABLE>
<CAPTION>
Name Age All Positions and Terms of Office
with the Company and Five Year
Employment History
<S> <C> <C>
Norman L. Marks 57 Executive Vice President and Chief
Operating Officer from August 19,
1992, Member of Board of Directors
from September 20, 1995. President
of Hotel Management Group, Inc.
since December 1989
Paul L. Barham 45 Vice President and Chief Financial
Officer of the Company from August 19, 1992,
Member of Board of Directors of Company
from August 19,1992; Secretary to Board of
Directors of Company from August 19, 1992;
CFO, Hotel Management Group since December 1989.
</TABLE>
The Company has not made inquiry of its Directors, Officers
and 10 % or more security holders,and otherwise does not
have information to determine the level of compliance with
the reporting obligation under Section 16 (a) of the
Exchange Act.
Item 10. Executive Compensation
The following table shows the aggregate cash
compensation for services in all capacities paid or accrued
by the Company and its subsidiaries during the fiscal year
ended September 30, 1998, to (i) each executive officer
whose aggregate cash compensation exceeded $100,000 during
such year and (ii) all executive officers of the Company as
a group.
<TABLE>
<CAPTION>
Name of Individual Capacity in which Compensation (1)
Number of Persons served
in Group
<S> <C> <C>
Norman L. Marks COO $105,787
Paul L. Barham CFO $105,787
<FN>
(1) This does not include medical expense reimbursement,
club dues, or the value of automobiles (and their
maintenance, repair and insurance) furnished to all of the
executive officers of the Company, which in the aggregate
for all officers amounted to $15,600 during fiscal year
1998.
</TABLE>
At the present time the Company has, and at all times
during the past three fiscal years, the Company had no
pension, retirement, annuity, deferred compensation,
incentive or stock purchase, thrift or profit-sharing plan,
except the accumulated cash value of the life insurance
policies detailed under item 6B above.
Directors receive no fees for serving in such capacity.
Item 11. Security Ownership of Certain Beneficial Owners
and Management
The following table sets forth as of September 30,
1998, (i) the name of each current director of the Company
and each person or entity known to the Company to be the
beneficial owner of more than 5% of the Company's Class A
Common Stock, (ii) the number of shares of the Company's
Class A Common Stock beneficially owned by each such current
director and 5% beneficial owner and all officers and
directors of the Company as a group, and (iii) the percent
of outstanding Class A Common Stock so owned by each such
director, 5% beneficial owner and management group:
<PAGE>
<TABLE>
<CAPTION>
Name and Address Number of Shares Approximate
of Beneficial of Class A Common Percent of
Owner Stock Class
Beneficially owned as of
September 30, 1998 (1)
DIRECTORS:
<S> <C> <C>
Paul L. Barham (2) 0 0
211 East Louisiana St
McKinney, Texas 75069
Norman L. Marks (3) 0 0
211 East Louisiana St
McKinney, Texas 75069
5% BENEFICIAL OWNERS:
Businesship
International, Inc. 291,288 29.82%
One Alhambra Plaza
Suite 1400
Coral Gables, FL 33134
Barham Family
Interests, Inc. 100,000 10.24%
211 East Louisiana St 63,639 options (4)
McKinney, Texas 75069
Marks & Associates, Inc. 100,000 10.24%
211 East Louisiana St 63,639 options (4)
McKinney, Texas 75069
The Estate of Wilson
Harrell 164,570 (5) 16.85%
7380 Pine Valley Road
Cumming, GA 30131
Clover, Inc 50,000 5.12%
2661 Midway Rd Ste 224
Carrollton, Texas 75006
<FN> (1) Except as noted below, the individual listed
has sole voting and investment power.
(2) Barham and his other family members own 100,000
shares through Barham Family Interests, Inc.
(3) Marks and his other family members own 100,000
shares through Marks and Associates, Inc.
(4) On September 27, 1996, Businesship
International granted Barham Family Interests, Inc., and
Marks and Associates, Inc., each an option to acquire 63,639
shares from BI. The options shall automatically expire on
September 30, 2001, if not exercised.
(5) The 5,850 shares of Class A Common Stock owned
by Charlene Echols Harrell, Wilson L. Harrell's widow, are
included in the estate's beneficial ownership in the above
table.
</TABLE>
As of September 30, 1998, the Company had 976,580
shares of Class A Common Stock, issued and outstanding. 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.
Item 12. Certain Relationships and Related Transactions
Transactions involving related parties in the last two years
are outlined in Item 1 of this report.
PART IV
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits --
(1) The following exhibits, as required by Item
601 of Regulation SB, are attached hereto or incorporated
herein by this reference:
(2) Certificate of Incorporation as last amended,
effective as of January 21, 1989, a copy of which was filed
with the Company's Form 10-K report for the fiscal year
ended September 30, 1990.
(3) Material Contracts:
(A) Stock Purchase Agreement between the
Company and Clover, Inc., dated June 12, 1990, and the
amendment thereto dated August 27, 1990, copies of which
were filed with the Company's Form 10-K report for the
fiscal year ended September 30, 1990.
(B) Restructuring Agreement between the
Company and Clover, Inc., dated December 23, 1991, a copy of
which was attached to the Company's Form 10-K report for the
fiscal year ended September 30, 1990.
(C) Stock Option Agreements between the
Company and each Douglas C. Echols, Irvin Atkins and David
A. Woodcock, Jr., all of which are dated December 7, 1991,
copies of which were attached to the Company's Form 10-K
report for the fiscal year ended September 30, 1990.
(D) Stock Purchase Agreement between the
Company and Xenex International, Inc., dated May 28, 1992, a
copy of which was attached to the Company's Form 10K report
for the fiscal year ended September 30, 1992.
(E) Acquisition agreement between the
Company and the Hotel Management Group, Inc., dated August
18, 1992, a copy of which was attached to the Company's Form
10K report for the fiscal year ended September 30, 1992.
(F) Employment agreements between the
Company and Messrs. Marks and Barham, copies of which were
attached to the Company's Form 10 K report for the fiscal
year ended September 30, 1992.
(G) Settlement Compromise and Release
Agreement between Villa Martinique Apartments Joint Venture,
Wilson L. Harrell, the Company and Home Savings of America
F. S. B., a copy of which was attached to the Company's Form
10-KSB report for the fiscal year ended September 30, 1994.
(H) Preferred Stock Purchase and Release of
Debt Agreement between the Company and Businesship
International, Inc. dated September 1, 1996, a copy of which
was attached to the Company's Form 10-KSB for the fiscal
year ended September 30, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of
1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned,
thereunto duly authorized.
HARRELL INTERNATIONAL, INC.
By:
Paul L. Barham
Vice President,
Chief Financial Officer
And Director
DATE: ________________________
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the
following persons comprising the majority of the current
Directors on behalf of the registrant and in the capacities
and on the dates indicated.
__________________________________ _____________________
Paul L. Barham, Vice President, Date
Chief Financial Officer and Director
__________________________________ _____________________
Norman L. Marks, Vice President Date
Chief Operating Officer and Director
HARRELL INTERNATIONAL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report F-2
Consolidated Balance Sheets at September 30,
1998 and 1997 F-3
Consolidated Statements of Income For the
Years Ended September 30, 1998 and 1997 F-4
Consolidated Statements of Changes in
Shareholders' Equity For the Years Ended
September 30, 1998 and 1997 F-5
Consolidated Statements of Cash Flows
For the Years Ended
September 30, 1998 and 1997 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Harrell International, Inc.
We have audited the accompanying consolidated balance sheets
of Harrell International, Inc. and subsidiaries as of
September 30, 1998 and 1997, and the related consolidated
statements of income, changes in shareholders' equity and
cash flows for the years then ended. These financial
statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects,
the consolidated financial position of Harrell
International, Inc. and subsidiaries as of September 30,
1998 and 1997, and the results of their operations and their
cash flows for the years then ended in conformity with
generally accepted accounting principles.
Jackson & Rhodes P.C.
HARRELL INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
September 30, 1998 and 1997
Assets
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Current assets:
Cash 194,792 98,908
Accounts receivable, net
allowance for doubtful
accounts of $33,248 in 1998 116,543 9,464
Note receivable 9,869 9,869
Other assets 150 3,939
Total current assets 321,354 202,180
Property and equipment:
Furniture and fixtures 42,008 30,767
Less accumulated depreciation (25,964) 22,604)
Total property
and equipment 16,044 8,163
Other assets:
Investment in limited
partnerships (Note 5) 1,850 101,200
339,248 311,543
Liabilities and Shareholders'
Equity
Current liabilities:
Accounts payable and
accrued liabilities 30,400 31,977
Dividends payable 0 24,331
Accrued salaries 16,496 8,215
Total current liabilities 46,896 64,523
Long-term debt:
Amounts payable to
related parties 8,000 8,000
Total liabilities 54,896 72,523
Commitments and contingencies
(Note 8) 0 0
Shareholders' equity:
Preferred stock, $1 par,
1,000,000 shares
authorized, 243,331
shares issued
and Outstanding (Note 3) 243,331 243,331
Common stock:
Class A, $.01 par;
9,000,000 shares
authorized, 976,580
shares issued
and outstanding 9,766 9,766
Class B, $.01 par;
1,000,000 shares authorized,
no shares issued or
outstanding 0 0
Additional paid-in capital 2,077,287 2,077,287
Accumulated deficit (2,046,032) (2,091,364)
Total shareholders' equity 284,352 239,020
339,248 311,543
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
HARRELL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Revenues:
Management fees 623,719 486,226
Consulting fees 3,500 42,800
Other 1,299 10,816
Total revenues 628,518 539,842
Expenses:
Employee compensation 393,318 343,653
General and administrative 179,426 100,349
Total expenses 572,744 444,002
Operating income 55,774 95,840
Gain on sale of
joint ventures 13,889 49,052
Net income (see Note 7) 69,663 144,892
Preferred dividends accrued 24,331 24,331
Net income available for
common Shareholders 45,332 120,561
Basic earnings per
common share $0.05 $0.12
Weighted average shares
outstanding 976,580 976,580
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
HARRELL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years Ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
Preferred Stock Common Stock
Shares Amount Shares
<S> <C> <C> <C> <C>
Balance, Sep 30,
1996 243,331 243,331 976,580 9,766
Net income 0 0 0 0
Preferred dividends
payable ($.10 per
share) 0 0 0 0
Balance, Sep 30,
1997 243,331 243,331 976,580 9,766
Net income 0 0 0 0
Preferred dividends
payable
($.10 per share) 0 0 0 0
Balance, Sep 30,
1998 243,331 243,331 976,580 9,766
<C> <C> <C>
2,077,287 (2,211,925) 118,459
0 144,892 144,892
0 (24,331) (24,331)
2,077,287 (2,091,364) 239,020
0 69,663 69,663
0 (24,331) (24,331)
2,077,287 (2,046,032) 284,352
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
HARRELL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended September 30, 1998 and 1997
<TABLE>
1998 1997
<S> <C> <C>
Cash flows from operating
activities:
Net income available for
common shareholders 45,332 120,561
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation 3,360 2,393
Gain on sale of joint venture (13,889) (49,052)
Changes in assets and
liabilities:
Accounts receivable (27,079) (39,752)
Other assets 3,789 (1,051)
Accounts payable and
accrued liabilities (1,577) (9,664)
Preferred dividends accrued 24,331 24,331
Accrued salaries 8,281 7,664
Net cash provided by
operating activities 42,548 55,430
Cash flows from investing
activities:
Purchase of furniture and
equipment (11,241) (5,424)
Proceeds from sale of joint
venture/limited part 113,239 29,020
Receivable from affiliate 0 5,125
Investment in limited
partnership 0 (101,200)
Net cash provided by
(used in) investing
activities 101,998 (72,479)
Cash flows from financing
activities:
Dividends paid (48,662) (24,331)
Net increase (decrease) in
cash 95,884 (41,380)
Cash at beginning of year 98,908 140,288
Cash at end of year 194,792 98,908
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
1. Description of Business
Organization
Harrell International, Inc., a Delaware corporation
(the "Company"), began operations in 1959. The Company
entered into the acquisition, development and management of
real estate properties including joint ventures and
partnerships (in which its interests would be that of a
general partner having substantial involvement in
management) in December 1990. The Company plans to focus
its real estate activities upon purchase, development and
management of hotels, and other income-producing properties
located in the southwestern and southeastern United States.
The Company acquired Hotel Management Group, Inc. ("HMG") in
August 1992. The Company has created four other
wholly-owned subsidiaries (see Note 4.)
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the
accounts of the Company and its subsidiaries. All
significant intercompany balances and transactions are
eliminated in consolidation.
Use of Estimates and Assumptions
Preparation of the Company's financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those
estimates.
Cash Equivalents
For statement of cash flow purposes, the Company
considers short-term investments with original maturities of
three months or less to be cash equivalents.
Property and Equipment
Property and equipment is recorded at cost.
Depreciation is computed on the straight-line method over
the estimated lives of the assets, principally over three
years.
Investments in Joint Ventures
The Company uses the equity method of accounting for
its investments in joint ventures. Accordingly, the Company
recorded its investment in joint ventures at cost and
records subsequent contributions, returns of capital and
equity in earnings as an adjustment to the initial
investment (Note 6).
Income Taxes
The Company accounts for income taxes pursuant to
Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS 109) which utilizes the
asset and liability method of computing deferred income
taxes. The objective of the asset and liability method is
to establish deferred tax assets and liabilities for the
temporary differences between the financial reporting basis
and the tax basis of the Company's assets and liabilities at
enacted tax rates expected to be in effect when such amounts
are realized or settled.
Earnings Per Common Share
In March 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128,
Earnings Per Share ("SFAS 128"). SFAS 128 provides a
different method of calculating earnings per share than was
formerly used in APB Opinion 15. SFAS 128 provides for the
calculation of basic and diluted earnings per share. Basic
earnings per share includes no dilution and is computed by
dividing income available to common stockholders by the
weighted average number of common shares outstanding for the
period. Dilutive earnings per share reflects the potential
dilution of securities that could share in the earnings of
the Company. The Company was required to adopt this
standard in the fourth quarter of calendar 1997. Because
the Company has no potential dilutive securities
outstanding, the accompanying presentation is only of basic
earnings per share.
3. Preferred Stock Transaction
By agreement with Businesship International
("Businesship") dated September 27, 1996, the outstanding
balance of a certain note of $243,331, including accrued
interest of $26,398, was converted into preferred stock
issued by the Company. The preferred shares were from a new
class of stock authorized by the Company and are nonvoting,
non-convertible and pay a 10% dividend ($24,331 annually),
beginning with the year ended September 30, 1996. The
Company has the right, but not the obligation, to redeem the
shares at any time at par value. By agreement, the Company
paid a full year's dividend on the preferred shares for
1996.
4. Acquisition of Hotel Management Group
In August 1992, the Company purchased 100% of the
issued and outstanding common stock of HMG. HMG is engaged
in the business of managing the general operations of hotels
and providing them with accounting services.
Hotel Management Group - California, Inc.
Effective January 1, 1994, HMG formed a wholly-owned
subsidiary, Hotel Management Group - California, Inc. ("HMG
- California"), to hold the management contract for the
operations of the Biltmore Hotel and Suites in Santa Clara,
California.
Hotel Management Group - Tennessee, Inc.
Effective September 23, 1996, HMG formed a wholly-owned
subsidiary, Hotel Management Group - Tennessee, Inc. ("HMG -
Tennessee"), to hold the management contract for the
Sheraton Four Points Hotel in Memphis, Tennessee. The
Company also had a limited partnership interest in the
hotel. (See Note 5.)
Hotel Management Group - Oklahoma, Inc.
Effective May 20, 1997, HMG formed a wholly-owned
subsidiary, Hotel Management Group - Oklahoma, Inc. ("HMG -
Oklahoma"), to hold the management contract for the Ramada
Inn in Tulsa, Oklahoma. The Company also had a limited
partnership interest in the hotel. (See Note 5.)
Hotel Management Group - Virginia, Inc.
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
$2,000,000 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.
Subsequent Events: H.M. Group - Alabama, Inc.
On December 1, 1998, H.M.Group - Alabama, Inc. assumed
the management of the Governors House Hotel in Montgomery,
Alabama, a 200 room full service hotel.
5. Hotel Investments
Tennessee Hotel Project
On October 17, 1996 the Company purchased, for
$100,000, a minority limited partnership interest in the
Sheraton Four Points Hotel, located near the Memphis Airport
in Memphis, Tennessee and a subsidiary of the Company was
contracted to manage the hotel. The hotel is owned through
limited partnerships, with the Company owning a limited
partnership interest equating to 7%. The Company accounted
for its interest in the hotel utilizing the cost method.
The Lender required as a condition of a 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 non-recourse provisions of the loan,
guarantee certain environmental warranties regarding the
hotel and guarantee completion of the renovations
(collectively "Guaranties"). Texas Memphis Investors
Limited offered Barham and Marks, or their assigns, in
exchange for their Guaranties, each a limited partnership
interest in Texas Memphis Investors Limited, which
constitutes an interest in the Hotel of one percent (1%).
The $11.65 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 on
the loan of all net operating income of the hotel (after
expenses, certain reserves and management fees), with a
final additional payment of approximately $2 million.
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 received a net monthly
management fee of $5,000 per month for the first eight
months, with fees thereafter to be 8% of the net operating
income of the hotel before debt service.
The Company completed negotiations for the sale of its
limited partnership interest in the hotel. The Company
received the return of its investment on April 3, 1998. At
the point of consummation of the transaction, the Company
resigned as manager of the Memphis Four Points Hotel, and
was to be paid all remaining fees through the point of
termination "promptly after closing." To date the
partnership, citing lack of funds, has not paid the
remaining amounts ($33,248) and the Company has therefore
fully provided for the amount.
Tulsa Hotel Project
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. ("LTS") entered into a contract to purchase the
hotel for a purchase price of $4,575,000. HMG entered into
an agreement with LTS to study feasibility and prepare
recommendations and budgets. HMG was not paid a fee for its
work but instead was provided a 2 1/2% Limited Partnership
interest in the project. Costs to renovate the hotel were
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. ("Lehman Brothers") loaned approximately $9 million and
contributed equity of $700,000. LTS and others contributed
equity of $300,000. The hotel was owned through limited
partnerships with the Company owning a limited partnership
interest equating to 2 1/2% interest in the hotel, LTS and
others 27 1/2%, and Lehman Brothers and its affiliates 70%.
LTS, the Company and others comprise Texas Tulsa Investors
Limited ("Texas Tulsa"), a Texas limited partnership. The
Lender required as a condition of the loan to the
partnership that Barham and Marks individually guarantee
certain recourse provisions of the loan, guarantee certain
environmental warranties regarding the hotel and guarantee
completion of the renovations (collectively "Guarantees").
Texas Tulsa offered Barham and Marks, or their assigns, in
exchange for their Guarantees, each a limited partnership
interest in Texas Tulsa, which constitutes an interest in
the hotel of one percent (1%). The $9 million loan in
connection with the purchase was 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 - Oklahoma entered into a
management agreement to manage the hotel and supervise the
renovations. HMG - Oklahoma and LTS agreed to share certain
fees in connection with the management agreement. HMG -
Oklahoma received a net monthly management fee of $5,000 per
month for the first eight months, with fees thereafter
changing to 8% of the net operating income of the hotel
before debt service.
On June 3, 1998, the transaction closed wherein the
guarantors of certain aspects of the acquisition, renovation
and on-going operation of the hotel sold their interests.
As part of the transaction, the Company has resigned as
manager of the hotel.
McKinney Texas Development
On November 19, 1996, HMG, 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 HMG will manage the hotels and conference
centers if the project is completed, which looks doubtful at
this time.
6. Investments in Joint Ventures
In furtherance of management's stated intention to
acquire, develop and manage real estate projects, the
Company entered into three separate related party
transactions with directors of the Company (among others).
The initial transactions involved contributions by the
Company of rights or assets other than cash. All three
transactions required the Company to enter into a joint
venture agreement with another corporation whereunder the
joint venture acquired an interest in an apartment complex.
During 1996, the Company sold its interest in two of the
properties, Athena Gardens and Riviera, resulting in a gain
of $96,070. Also, in November of 1996, the Company sold its
interest in the third joint venture, Villa Martinique,
resulting in a gain of $49,052. The Company still operates
the Athens Gardens and Villa Martinique projects, receiving
management fees aggregating $42,000 each year in 1998 and
1997.
7. Income Taxes
As of September 30, 1998, the Company had net operating
loss carryforwards of approximately $2,333,000 for book and
tax purposes. Unused operating loss carryforwards may
provide future tax benefits, although there can be no
assurance that these net operating losses can be recognized
in the future. Also, if substantial changes in the
Company's ownership should occur, there may be an annual
limitation on the amount of the carryforwards which can be
utilized. Accordingly, deferred tax assets have been offset
in the accompanying financial statements by a valuation
allowance.
The loss carryforwards expire as follows:
<TABLE>
<CAPTION>
Year of Operating Loss
Expiration Carryforward Expirations
<S> <C>
1999 485,000
2002 74,000
2003 26,000
2004 1,116,000
2005 278,000
2006 26,000
2007 134,000
2008 105,000
2009 89,000
2,333,000
</TABLE>
8. Commitments and Contingencies
Leases
The Company leases its office facilities from an
unrelated party. The lease expires on December 31, 1998 and
the lease commitment for the remaining three month period is
$6,600. The Company also leases an off-site storage
facility on a month-to-month basis. Rental expense for the
years ended September 30, 1998 and 1997 amounted to $28,002
and $17,555, respectively.
Concentration of Credit Risk
The Company invests its cash and certificates of
deposit primarily in deposits with major banks. Certain
deposits, at times, are in excess of federally insured
limits. The Company has not incurred losses related to its
cash.
9. Related Party Transactions
During the year ended September 30, 1991, the Company
entered into two joint venture agreements with entities
controlled by certain directors of the Company (Note 6).
Also, on December 4, 1991, the Company entered into a third
joint venture agreement with certain entities controlled by
certain directors of the Company. Under the terms of the
joint venture agreements, all joint venturers can exert
significant influence over the operations of the joint
ventures.
Amounts payable to related parties includes $8,000 to
Villa Martinique Joint Venture for capital contributions and
cash calls as of September 30, 1998 and 1997.
10. Management Fee Revenues
The Company received approximately 64% and 76% of gross
management revenues from the Biltmore Hotel in California
for the years ended September 30, 1998 and 1997,
respectively.
11. Accounting Developments
SFAS 129
Statement of Financial Accounting Standards No. 129,
Disclosure of Information about Capital Structure ("SFAS
129"), effective for periods ending after December 15, 1997,
establishes standards for disclosing information about an
entity's capital structure. SFAS 129 requires disclosure of
the pertinent rights and privileges of various securities
outstanding (stock, options, warrants, preferred stock, debt
and participating rights) including dividend and liquidation
preferences, participant rights, call prices and dates,
conversion or exercise prices and redemption requirements.
Adoption of SFAS 129 has had no effect on the Company as it
currently discloses the information specified.
SFAS 130
Statement of Financial Accounting Standards (SFAS) 130,
"Reporting Comprehensive Income", establishes standards for
reporting and display of comprehensive income, its
components and accumulated balances. Comprehensive income
is defined to include all changes in equity except those
resulting from investments by owners and distributions to
owners. Among other disclosures, SFAS 130 requires that all
items that are required to be recognized under current
accounting standards as components of comprehensive income
be reported in a financial statement that is displayed with
the same prominence as other financial statements. Results
of operations and financial position are unaffected by
implementation of this new standard.
SFAS 131
SFAS 131, "Disclosure about Segments of a Business
Enterprise", establishes standards for the way that public
enterprises report information about operating segments in
annual financial statements and requires reporting of
selected information about operating segments in interim
financial statements issued to the public. It also
establishes standards for disclosures regarding products and
services, geographic areas and major customers. SFAS 131
defines operating segments as components of an enterprise
about which separate financial information is available that
is evaluated regularly by the chief operating decision maker
in deciding how to allocate resources and in assessing
performance. This accounting pronouncement will not have an
effect on the Company's financial statements, since the
Company only operates in one segment of business, the
management of real estate properties.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 194792
<SECURITIES> 0
<RECEIVABLES> 116543
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 321354
<PP&E> 42008
<DEPRECIATION> 25964
<TOTAL-ASSETS> 339248
<CURRENT-LIABILITIES> 46896
<BONDS> 0
0
243331
<COMMON> 9766
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 339248
<SALES> 0
<TOTAL-REVENUES> 628518
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 572744
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 45332
<INCOME-TAX> 0
<INCOME-CONTINUING> 45332
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45332
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
