HARRELL HOSPITALITY GROUP, INC.

16475 North Dallas Parkway, Suite 410
Addison, Texas 75001

Form 10-KSB

For the fiscal year ended:
September 30, 2001

Submitted to

SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.

Commission File No. 0-2661

**UNITED STATES**
**SECURITIES AND EXCHANGE COMMISSION**
Washington, D. C. 20549

FORM 10-KSB.

	[X]    ANNUAL REPORT UNDER TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended:     September 30, 2001

	[   ]     TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF 
			THE SECURITIES EXCHANGE ACT OF 1934

			For the transition period   from    to  

	Commission File No.:     0-2661

**HARRELL HOSPITALITY GROUP, INC.**
(Name of small business issuer in its charter)

			Delaware		13-1946181
(State of Incorporation)            (I.R.S. Employer Id. No.)

16475 North Dallas Parkway, Suite 410, Addison, Texas 75001
(Address of principal executive offices)  (Zip Code)

Issuer's telephone number: (972) 380-0273

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 $.002
(Title of Class)

	Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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]

	State issuer's revenues for its most recent fiscal year:  $6,113,699. 

	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 December 21, 2001, the last available quotation date:  Approximately $3,471,636.****
****
	State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practical date.  The number of shares of the registrant's Class A, $.002 par value Common Stock outstanding as of December 21, 2001 was 10,882,900. 

PART I

Item I. Description of Business

(A) Business Development: During the last three years the Company has focused on hotel management and in the acquisition, development and management of hotels through joint ventures and partnerships.

(B) Business of the Issuer:

HISTORY

	HARRELL HOSPITALITY GROUP, INC. (Formerly 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 multipurpose 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. 

	From 1983 to 1990 the Company was largely inactive, and Wilson Harrell, the president of the Company at that time, sought possible merger candidates. In 1991 and 1992 the Company entered into agreements with Xenex, Inc., now known as Businesship International ("BI"), to make an equity investment in the Company and fund certain loans to the Company.

	The Company decided to move into the real estate management and acquisition business. 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. The principals of HMG, Paul L. Barham and Norman L. Marks, had significant experience in hotel operations and management.

	Effective as of September 1, 1996 the Company and BI entered into a Preferred Stock Purchase and Release of Debt Agreement that replaced the debt obligation of the Company with 243,331 shares of $1.00, par value preferred stock (the "Preferred Stock").  The Preferred Stock is  non convertible, 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 November 23, 1999, the Company entered into a Stock Acquisition and Option Agreement (the "Stock Agreement") with Merchant Capital Holdings, Ltd. ("MCH"), a British Virgin Islands Company,  whereby MCH agreed to buy 1,000,000 shares of the Company's Class A $0.01 Par Value Common Stock for US$1.00 per share, together with certain options to purchase  additional shares.  As part of the Stock Agreement, two advisors of MCH, Geoffrey Dart ("Dart") and Gerard Thompson ("Thompson")  were  appointed to the Board of Directors of the Company, with Dart appointed as Chairman of the Board. In connection with the transactions contemplated under the Stock Agreement, the Company, MCH, Norman L. Marks (and his family affiliates) and Paul L. Barham (and his family affiliates) entered into a Shareholders Agreement, providing for certain transfer restrictions and voting agreements, on the Class A Common Stock held by certain of the parties.  Also, MCH required, as part of the Stock Agreement, that two Employment Agreements be entered into between the Company and Norman Marks and Paul Barham.

	On April 1, 2000, the Company changed its name to Harrell Hospitality Group, Inc. The name of the Company was changed to reflect the focus  of the Company on  hotel related services and business.     

	On July 19, 2000, the Board approved an extension of time of 90 days each for the second and third installments of the stock purchase by MCH in the amounts of $250,000 and $500,000, respectively. As of September 30, 2000, half of the second installment had been received.  Subsequent to September 20, 2000, the remaining half of the second installment was received.

	On September 1, 2000 the Board declared a five-for-one split of the Company's Class A Common Stock.  By amendment of the articles dated October 23, the par value of the Class A Common Stock was changed to $0.002 per share, and the number of authorized shares of Class A Common Stock was increased to 100,000,000.

	On April 12, 2001 the Board of Directors approved an amendment to the Stock Agreement to (i) exchange 842,000 shares of the Company's Class A Common Stock for certain shares of Cybertec Holdings, PLC, having a value at the date of the exchange of not less than $600,000 and (ii) issue to MCH the remaining 1,658,000 shares of the Company's Class A Common Stock that were issuable under the Stock Agreement.   Upon closing of the exchange of the Cybertec shares and in recognition of  MCH's business development efforts with Rotch Property Group, Ltd ("Rotch") and other companies, MCH's remaining obligations under the Stock Agreement were deemed satisfied and the remaining stock options under the Stock Agreement were issued to MCH.  The exchange transaction with Cybertec was completed on May 30, 2001, and the Company received shares of Cybertec stock.  Pursuant to the terms of the Stock Agreement, the board of directors was thereupon increased to a total of five (5) directors, and Stephen Komlosy was appointed to the board of directors.

OPERATIONS

APARTMENT MANAGEMENT

	In late 1992,  Hotel Management Group assumed the management of the Athena Gardens Apartments, Athens, Texas, Riviera Apartments, Dallas, Texas,  and Villa Martinique Apartments, Irving, Texas. The Riviera Apartments were sold in 1996, the Villa Martinique Apartments were sold in September 1999, and the Athena Gardens Apartments were sold in February, 2000. In the fiscal year ending September 30, 2000. Revenues from apartment management were approximately $14,833 constituting approximately 0.2% of the Company's total revenues for that year.

HOTEL MANAGEMENT

	The primary focus of the Company is on hotel management and investment in hotels.  At the present time virtually all of the Company's revenue is derived from management contracts to manage two hotels in California.  The Company is actively seeking and negotiating additional management contracts with other hotels.

	The Company  has managed nationally recognized franchises, including Sheraton, Holiday Inn, and Ramada, and is approved as one of a small group of  independent management companies accepted by Marriott as a franchise for its full service hotels. The Company is in negotiation on certain hotel projects that, if consumated, will result in approval of the Company additionally by Hilton Hotels.

	The Company believes that its approval as a franchisee by these major franchisors positions the Company ahead of many of its competitors for management opportunities where a franchise is of importance.  The Company has and is continuing to pursue such opportunities to capitalize on this advantage.

	The hotel management business is highly competitive, and the Company's market share in the total industry is insignificant.  The Company competes with larger corporations which have greater financial resources.

	Often, management of a hotel is coupled with some degree of ownership in the hotel, so the Company, to be competitive, must be prepared to make an equity investment in a hotel if necessary to comply with a condition to obtaining a management contract.  The capital injections by MCH into the Company have been used in large part to locate and develop suitable hotel investments.  The Company continues to seek additional sources of debt or equity to use for hotel investment.

	Executives of the Company have spent considerable time and effort towards the development of new hotels, the acquisition of management contracts of existing hotels, investment in hotels to be managed by the Company and the securing of equity and debt for these activities. 

	Through its the board of directors, the Company has established contacts with companies in the United Kingdom, and it has also sought investment opportunities and capital from the United Kingdom. In furtherance of these efforts in the United Kingdom, the Company opened an office in London, England in November 1999. In the last year, the Company has actively sought hotel investment in the United Kingdom and entered  into a strategic alliance with Rotch Property Group, Ltd. ("Rotch") in February 2001.  Rotch is a privately held real estate company that currently owns several hundred commercial real estate properties, primarily in the United Kingdom and Europe.  The agreement calls for Rotch to engage the Company in consulting, oversight, management and review functions relating to hotel assets, as well as Rotch assisting the Company in hotel acquisitions. 

	The Company further entered into a strategic alliance with Galway Financial Group ("Galway") on December 10, 2001 wherein Galway will provide equity and assist the Company in securing hotel purchase, leasing and management opportunities.  Under the memorandum of understanding with Galway, Galway will receive a fee at the time of each hotel acquisition and upon closing of each hotel acquisition will receive shares of Class A Common Stock in the Company.  As of December 21, 2001, the final terms of the agreement with Galway are subject to a definitive agreement that is expected to be negotiated in the coming weeks.

Hotel Management Subsidiaries

Hotel Management Group, Inc. ("HMG")

		On November 12, 2001 HMG entered into a contract to manage the Columbia Lakes Resort and Conference Center in West Columbia, Texas, a 660 acre, 162 room resort with a Tom Fazio golf course, 15,000 square feet of conference space, 8 tennis courts, a 300 acre lake, and other facilities.  HMG's contract is for a 5 year term with HMG receiving a monthly base fee of $7,500 per month plus and incentive fee of 17% of Gross Operating Profit.

Harrell Hospitality Group - California, Inc.("HHG California")

		Effective January 1, 1994, Hotel Management Group, Inc. 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.  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, 2003. 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, 2003.  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.

		Revenues of HMG California for the year ending September 30, 2001 amounted to approximately $6,083,343 constituting approximately 99.5% of the Company's total revenue.

		In March 2000, HMG California changed its name to Harrell Hospitality Group - California, Inc.

H.M.Group - Alabama, Inc. ("HMG Alabama")

		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 contract was terminated by mutual agreement on September 6, 2000.  Revenues of HMG Alabama amounted to approximately $946,130 constituting approximately 12.3% of the Company's total fees for that year.

Number of Employees

	At September 30, 2001, the Company and its subsidiaries had 193 full time employees and 51 part time employees.  Of these employees, 4 are paid from the revenues of the Company. The remaining 240 are paid from the revenues of the hotels or apartments.

Investment in Energy Technique, PLC

	On March 15, 2001 the Company entered into a Heads of Agreement whereby the Company would acquire, as a member of a consortium, an interest in a majority of the outstanding common stock of Energy Technique, PLC ("ET"), a United Kingdom publicly quoted energy related company ("ET").  The Company used 3,323,120 shares of the Cybertec Holdings, PLC stock that the Company owned to acquire 11,077,066 shares in ET, equating to approximately 15% of the outstanding common stock of ET.   The value of the Cybertec stock exchanged was equal to £333,000 at the time (approximately $480,000).  The transaction was completed June 14, 2001, at which time, Geoffrey Dart, Chairman of Harrell Hospitality Group was appointed Executive Chairman of ET and Paul Barham and Stephen Komlosy, Directors of Harrell Hospitality Group, were appointed as non-executive directors of ET.

Item 2. Description of  Property

(A)	Principal Offices

	The Company maintains its administrative and executive offices in leased commercial office space located at 16475 North Dallas Parkway, Suite 410, Addison, 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.

(B)	Investment Policies

	The Company may from time to time invest in hotel properties.  Typically such an investment would be a partial interest in the hotel property in concert with a hotel developer or other investors.  While it currently has no such investments, the Company is seeking, in part with Galway, such investments in both existing hotel properties and hotels to be constructed.  Expected ownership in any such hotel would range from a minority position in a real estate limited partnership to a more significant ownership position depending upon the particular investment.  Such hotel ownership is anticipated to be coupled with a management contract for the hotel(s).  These hotel investments, if made, are expected to be for long term capital appreciation rather than primarily for current income.  The Company has placed no express limitations on the amount or number of investments in hotel properties.

	The Company may from time to time invest in marketable securities.  

Item 3.  Legal Proceedings

	There were no material legal proceedings, either on-going, instituted by or against, or otherwise involving the Company during the period ended September 30, 2001.  

Item 4.  Submission of Matters to a Vote of Security Holders

	There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year ending September 30, 2001.

PART II

Item 5.  Market for Common Equity and Related Stockholder Matters

	(a)	During the fourth quarter of Fiscal 2000, the Company's Common Stock commenced trading on the NASD Over-the-Counter Bulletin Board (the "Bulletin Board") under the symbol "HLTLA."  There was no material market for the Company stock prior to this time.  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 Bulletin Board.  The quotations represent limited or sporadic trading and, therefore, do not constitute an "established public trading market".  The quotations represent inter- dealer prices, without retail markup, markdown or commission and may not necessarily represent actual transactions.

 **Fiscal 2000 Bid Prices****Fiscal 2001 Bid Prices** **High****Low****High****Low**     **First Quarter**NOT QUOTED1.5000.031**Second Quarter**NOT QUOTED
0.8130.250**Third Quarter**NOT QUOTED
0.6000.310**Fourth Quarter**0.550.010.3100.200

	(b)	As of September 30, 2001, there were 704 record holders of the Company's $.002 par value Class A Common Stock.

	There have been no cash dividends paid on the Company's Common Stocks in fiscal years 1996 to date.   On September 30, 2000, the Company paid the 10% dividend on the 243,331 shares of Preferred Stock.  The Company did not declare a dividend on the Preferred Stock for the year ended September 30, 2001.  The Company has no present plans to pay further dividends on the Company's Common Stock.

	In September 2001, the Board of Directors designated the first  series of its previously authorized Class B Preferred Stock, par value $0.01 per share.  The Certificate of Designations, Preferences and Rights filed with the Delaware Secretary of State on October 9, 2001, designates 500,000 shares as Class B Redeemable Preferred Stock Series 1(the "B Preferred Series 1").  The B Preferred Series 1 has a stated value of  $2.00 per share, is non- voting, has certain mandatory dividend and redemption rights and has certain conversion rights into Class A Common shares.  No shares of B Preferred Series 1 were issued or outstanding as of September 30, 2001.

Item 6.  Management's Discussion and Analysis or Plan of  Operation

	This discussion contains certain forward-looking statements that are subject to various factors which could cause actual results to differ materially from the expectations of management.  These factors include: changes in general, economic and market conditions involving the hospitality industry, the success of the Company in securing new management contracts, and the ability of the Company to make equity investments in hotels.  The Company does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time on behalf of the Company. 

RESULTS OF OPERATIONS

A.Revenues

	Revenues for the periods ended September 30, 2000 and 2001 were primarily produced from the Company's interest in Hotel Management Group. ****Revenues decreased from $7,662,843 for the fiscal year ending September 30, 2000 to $6,113,699 for the fiscal year ending September 30, 2001.  The decrease in revenues in 2001 over 2000 was a result of poorer performance in the hotels with incentive based management fees that the Company operates in California, brought about by the overall worsening economy and the decrease in travel following the events of September 11, 2001.

	The Company anticipates income from Hotel Management Group to remain flat in 2002 as the recession in the United States continues and the travel industry continues to be negatively impacted.  Beyond 2002, the Company expects its income to improve, but at rates of growth slower than it experienced in the late 1990's.

	However, the problems of the hospitality industry are creating needs for professional management companies that can turn around the performance of financially distressed hotels. The Company believes it has the management skill to help in such turn around efforts, and this business environment may actually boost the Company's opportunities to assume the management, and in some cases acquire ownership, of additional  hotels. 

B.Employee Compensation

	Employee compensation expense includes salaries for Messrs Barham and Marks, the accounting staff of HHG, as well as the employees in the hotel locations.  

	In January******1998, the Company purchased $500,000 and $300,000 increasing life insurance policies on the lives of each Paul L. Barham and Norman L. Marks, respectively.  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, or their heirs in the event of their death during employment. Additional policies were added in the year 2000 to bring coverages to $1,500,000 each.

C.Expenses

	Total Expenses for the fiscal year ending September 30, 2000 were $7,817,931, or 102% of revenue, and total expenses for the fiscal year ending September 30, 2001 were $6,650,158 or 109% of revenue.  The Company incurred additional expenses during fiscal 2001 in furtherance of its goals of securing hotel management or acquisition opportunities.  Included in such costs are additional travel expenses, contract fees and services, consulting fees, and legal fees, and in particular, the costs associated with expanding its operations into the United Kingdom.

LIQUIDITY AND CAPITAL RESOURCES

	The reduced revenues and increased costs outlined above resulted in a drain on the Company's cash flow.  During the year the Company generated $125,000 in cash from the sale of Class A Common Stock pursuant to the MCH Stock Purchase Agreement of November 1999.  At September 2001 the Company had $40,368 in cash and $1,042,966 in working capital

	On October 8, 2001, the Company sold 2,045,567 of its shares in Energy Technique ("ET") to London & Boston Investments (formerly Cybertec Holdings) at 3.30 pence sterling per share, raising approximately $100,000 to improve the Company's liquidity.  The Company has the right to repurchase the shares, by April 8, 2002 at 3.63 pence sterling per share or extend that right for a further six months upon payment of a fee equal to 10% of the purchase price (approximately $10,000).

	Additionally, on November 7, 2001, the Company borrowed approximately $150,000 from Netcentric Systems PLC, a company affiliated with London & Boston Investments PLC (formerly Cybertec Holdings) for 12 months at an interest rate of 6% in cash and 19% in Class A Common Stock of the Company (based on the then market price for the Company's Class A Common Stock.  The loan has no prepayment penalties and is secured by 4,215,000 of the Company's shares in ET.

	Effective October 1, 2001, the Company enacted certain expense and payroll economies, including the Company's directors and officers deferring 20% of their fees or salaries. 

	At the time of filing this report, the three hotels that the Company operates are generating insufficient cash to meet the Company's monthly operating and development expenses because (i) the United States economy has declined into a recession, (ii) the Biltmore Hotel in Silicon Valley has been negatively impacted by the downturn in the economy, (iii) the Rancho Santa Barbara Marriott and the Columbia Lakes Resort are both in their off season, and (iv) the hospitality industry in general is suffering lower revenues in the wake of the events of September 11, 2001. However, management believes that it will be able to support those cash shortfalls in the immediate term through the sale of the Company's Class A Common Stock, or further borrowings. 

	The Company believes that the downturn in the economy and the opportunities that have been created in the hospitality industry, coupled with the alliance with Galway Financial Group announced on December 10, 2001, will enable the Company to capitalize on its skills and experience and potentially yield significant management fee and profit participation income in the future.

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 Hospitality Group, Inc. (the "Company") as of September 30, 2001.

**Name****Principal Occupation for the past 5 years**
******Consecutive Service Since****Age**Paul L. BarhamCFO, Hotel Management Group, since December 1989

Current Position: Chief Executive Officer, Harrell Hospitality Group199248Norman L. MarksPresident, Hotel Management Group, since December 1989

Current Position: Chief Operating Officer, Harrell Hospitality Group199560Geoffrey G. DartChairman, Merchant Capital Holdings, Ltd.; Director, Avatar, Inc.; Director, Mortgage Advisors, Ltd., Chairman, Shillington's, Ltd.,

Current Position: Chairman, Harrell Hospitality Group199954Gerard M. ThompsonDirector, Netcentric Systems, Ltd., Director, Bariston Associates.

Current Position: Director, Harrell Hospitality Group, Inc.199956Stephen KomlosyChairman, London & Boston Investments.

Current Position: Director, Harrell Hospitality Group, Inc.200160

The following table provides certain information concerning each of the executive officers of the Company as of September 30, 2001.

**Name****Age****All Positions and Terms of Office with the Company and Five Year Employment History**Paul L. Barham	 	48Chief Executive Officer from November 1999; 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.Norman L. Marks60President since November 1999; 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

There has been no involvement by the executive officers or directors in any legal proceeding during the last five (5) years that is material to an evaluation of the ability or integrity of such officer or director.

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 contains information concerning the annual compensation and long-term compensation payable to named executive officers during each of the last three fiscal years.

Summary Compensation Table Annual Compensation Long term CompansationName and Principal PositionYearSalaryBonusOther Annual CompensationSecurities Underlying OptionsAll Other CompensationPaul L. Barham, 
Chief Executive Officer2001115,500 -4,062,500  2000109,9002000-937,500- 1999102,3752000- -Norman L. Marks,
President2001115,500  4,062,500- 2000109,9002000 937,500  1999102,3752000   

This table 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 2000.

	The following table provides information with rspect to the executive officers included in the summary compensation table who received option grants during the fiscal year ending September 30, 2001.

Option / SAR Grants in Last Fiscal YearIndividual GrantsNameNumber of Securities Underlying Options Granted% of Total Options Granted to Employees in fiscal yearExercise or Base PriceExpiration DatePaul L. Barham, 
Chief Executive Officer4,062,50050.0%$0.22 (1)12/31/05Norman L. Marks, 
President4,062,50050.0%$0.22 (1)12/31/05

	(1)	The exercise price through the year ending 12/31/2000 was $0.20, through the year ending 12/31/2001 is $0.22, through the year ending 12/31/2002 is $0.24, through the year ending 12/31/2003 is $0.26, through the year ending 12/31/2004 is $0.28, and through the year ending 12/31/2005 is $0.30. 

	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. 

	Each of the Directors of the Company who is not employed by the Company received Director Fees at the rate of $2,083.33 per month.

Item 11.  Security Ownership of Certain Beneficial Owners and Management

	The following table sets forth the persons who, as of December 20, 2001, who were known to the Company to be beneficial owners of more than five percent of each class of the equity securities of the Company:                       

**Class of Securities****Name and Address of Beneficial Owner****Amount and Nature of Beneficial Owner(1)****Percent of Class****(6)** DIRECTORS:  Class A CommonPaul L. Barham (2)
16475 North Dallas Parkway 
Suite 410
Addison, Texas 75001 [see (2) below] [see (2) below]Class A CommonNorman L. Marks (3)
16475 North Dallas Parkway 
Suite 410
Addison, Texas 75001 [see (3) below] [see (3) below] 5% BENEFICIAL OWNERS:  Class A CommonMerchant Capital Holdings Ltd
c/o Robert Edwards
17060 Dallas Parkway Suite 101
Dallas, TX 752482,658,000 plus
9,375,000 options67.0%Class A CommonBusinesship International, Inc.
One Alhambra Plaza
Suite 1400
Coral Gables, FL 331341,456,140 

17.0%Class A PreferredBusinesship International, Inc.
One Alhambra Plaza
Suite 1400
Coral Gables, FL 33134243,331 

100.0% **Name and Address of Beneficial Owner****Number of Shares of Class A Common Stock Beneficially owned as of September 30, 2001 (1)****Approximate Percent of Class**Class A CommonCybertec Holdings PLC
Rosedale House
Rosedale Road
Richmond Surrey
England TW 92 SZ1,392,00016.2%Class A CommonBarham Family Interests, Inc.
16475 North Dallas Parkway 
Suite 410
Addison, Texas 75001500,000 plus
5,000,000 options (4)40.5%Class A CommonMarks & Associates, Inc.
16475 North Dallas Parkway 
Suite 410
Addison, Texas 75001500,000 plus
5,000,000 options (4)40.5%Class A CommonRiverhead Services, Inc.
c/o Lloyds TSB Bank plc
Geneva Branch
Place Bel-Air 1
PO Box 5145 CH1211
Geneva 11, Switzerland625,000 
7.3%Class A CommonGerard Thompson
c/o Wachovia Bank
Attn: Larry Wachtel
180 Royal Palm Way
Palm Beach, FL 33480625,000 plus
625,000 options13.6%Class A CommonThe Estate of Wilson Harrell
7380 Pine Valley Road
Cumming, GA 30131822,850 (5)9.6%

	(1)	Except as noted below, the individual listed has sole voting and investment power.
	(2)	Barham and his other family members own 500,000 shares through Barham Family Interests, Inc. and Barham Family Interests, Inc. also has options to acquire 5,000,000 share as set forth in footnote 4 below.

	(3)	Marks and his other family members own 500,000 shares through Marks and Associates, Inc., and Marks and Associates, Inc. also has options to acquire 5,000,000 shares as set forth in footnote 4 below.

	(4)	On September 27, 1996, Businesship International granted Barham Family Interests, Inc., and Marks and Associates, Inc., each an option to acquire 318,195 shares from BI.  The options automatically expired on September 30, 2001, as they were not exercised.  During the fiscal years ending September 30, 2001 and 2000, the Company granted Marks and Associates, Inc. and Barham Family Interests, Inc. each the option to acquire 5,000,000 shares of the Company's Class A Common stock.  These options granted by Company expire, if not exercised, on December 31, 2005.

	(5)	The 29,250 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.

	(6)	The percentage of each class is based on the total amount of outstanding securities plus, as to each person or group, the number of securities that person or group has the right to acquire within 60 days pursuant to options, warrants, conversion privileges or other rights.  

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

(g.)	Exhibits -
The following exhibits, as required by Item 601 of Regulation SB, are attached hereto or incorporated herein by this reference: 

	(2)	Charter and bylaws:

		(a)	Restated Certificate of Incorporation as last amended, effective as of March 31, 2000, a copy of which was filed with the Company's Form 14-C report February 14, 2000.
		(b)	Certificate of Amendment of Restated Certificate of Incorporation, effective as of October 23, 2000, a copy of which was filed with the Company's 14-C report on October 3, 2000.
		(c)	Bylaws as amended July 19, 2000 and filed with the Form 10-Q report for the quarter ended June 30, 2000

	(3)	Instruments defining rights of security holders:  

		Certificate of Designations, Preferences and Rights of Class B Redeemable Preferred Stock Series 1, as filed with the Delaware Secretary of State on October 9, 2001.

	(6)	Material Contracts:

		(a)	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.
		(b)	Stock Acquisition and Option Agreement between the Company and Merchant Capital Holdings, Ltd., dated November 23, 1999.
		(c)	Employment Agreements (2) between the Company and Messrs. Marks and Barham dated November 23, 1999.
		(d)	Shareholders' Agreement dated November 23, 1999 by and among the Company, Merchant Capital Holdings, Ltd., Messrs. Marks and Barham, Barham Family Interests, Inc., and Marks & Associates, Inc.
		(e)	Loan Agreement London & Boston Investments
		(f)	Loan Agreement Netcentric

	(15)	Additional Exhibits:

		(a)	Letter from Chase Mellon Shareholder Services dated September 22, 1999, together with an attached memorandum dated June 8, 1992 to W. Powers, Vice President of Mellon Securities Trust Company.
		(b)	Acquisition or Disposition of Assets reporting the sale of 110,000 shares of Class A Common Stock at $2.75 to Cybertec Holdings, PLC.
		(c)	Other Events statement reporting that effective September 5, 2000, the Company relocated its principal offices to 16475 Dallas Parkway, Suite 410, Addison, Texas 75001; telephone:(972) 380-0273; fax: (972) 380-4795.

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 HOSPITALITY GROUP, INC.

						By:	      //Paul L. Barham//                       
							Paul L. Barham 						
							Chief Executive Officer
							And Director

DATE:          12/21/01                

	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.

    //Geoffrey Dart //                                                   12/21/01                  
	Geoffrey Dart							Date
	Chairman 

    //Paul L. Barham//                                                   12/21/01                 
	Paul L. Barham,						Date
	Chief Executive Officer and Director				

     //Norman L. Marks//                                               12/21/01                  
	Norman L. Marks,  President					Date
	Chief Operating Officer and Director

****
****
****
**HARRELL HOSPITALITY GROUP, INC.**
**AND SUBSIDIARIES**
****
****
**INDEX TO CONSOLIDATED FINANCIAL STATEMENTS**
****
****
****

 PageIndependent Auditors' ReportF-2Consolidated Balance Sheets at September 30, 2001 and 2000F-3Consolidated Statements of Operations For the Years Ended
	September 30, 2001 and 2000F-4Consolidated Statements of changes in Shareholders' Equity
	For the Years ended September 30, 2001 and 2000F-5Consolidated Statements of Cash Flows For the Years Ended
	September 30, 2001 and 2000F-6Notes to Consolidated Financial StatementsF-7
**INDEPENDENT AUDITORS' REPORT**
****
****
****
****Board of Directors and Shareholders
Harrell Hospitality Group, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of Harrell Hospitality Group, Inc. and subsidiaries as of September 30, 2001 and 2000, and the related consolidated statements of operations, 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 audit in accordance with auditing standards generally accepted in the United States of America.  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 Hospitality Group, Inc. and subsidiaries as of September 30, 2001 and 2000, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Jackson & Rhodes P.C.

Dallas, Texas
December 5, 2001

****
******HARRELL HOSPITALITY GROUP, INC. AND SUBSIDIARIES**
**CONSOLIDATED BALANCE SHEETS**
**September 30, 2001 and 2000****Assets**     2001    2000Current assets:    	Cash$40,368$461,717	Accounts receivable, net of the allowance for 	    			 doubtful accounts of $7,500 in 2001 36,741 101,072	Marketable securities (Note 3) 984,093 603,859	Other assets 47,766 27,891				Total current assets 1,108,968 1,194,539     Property and equipment:    	Furniture and fixtures 54,448 46,145		Less accumulated depreciation (43,965) (40,045)			Total property and equipment 10,483 6,100     Other assets:    	Deposits 10,410 -	Investment in Limited Partnerships - 1,850      $1,129,861$1,202,489     **Liabilities and Shareholders' Equity**     Current liabilities:    	Accounts payable and accrued liabilities$66,002$63,006	Dividends payable - 24,331				Total current liabilities 66,002 87,337     Commitments and contingencies (Note 7)         Shareholders' equity:    	Preferred stock:    		Class A, $1 par, 1,000,000 shares authorized, 			 	                243,331 shares issued and outstanding, $1.00 per                        share , involuntary liquidation preference (Note 4) 243,331 243,331         Class B, $0.01 par, 500,000 shares authorized, no shares                   issued, $2.00 per share, involuntary liquidation                           preference    	Common stock:    		Class A, $.002 par, 100,000,000 shares authorized, 		 			     10,882,900 and 7,307,900 shares issued and 			 				   outstanding, respectively 21,766 14,616	Additional paid-in capital 3,349,920 2,722,437	Accumulated deficit (2,540,040) (1,856,336)	Accumulative other comprehensive income (loss) (11,118) (8,896)				Total shareholders' equity 1,063,859 1,115,152      $1,129,861$1,202,489     See accompanying notes to consolidated financial statements	****

**HARRELL HOSPITALITY GROUP, INC. AND SUBSIDIARIES**
**CONSOLIDATED STATEMENTS OF OPERATIONS**     **Years Ended September 30, 2001 and 2000**       2001 2000Revenues:    	Management fees$432,285$611,485	Consulting fees 2,500 15,000	Hotel expense reimbursements 5,678,914 7,036,358		Total revenues 6,113,699 7,662,843     Expenses    	Employee compensation 6,116,861 7,456,969	General and administrative 543,297 360,962		Total expenses 6,660,158 7,817,931     		Operating loss (546,459) (155,088)     Other income (expense):    	Unrealized gain (loss) on marketable securities (137,245) 366,919		Total other income (expense) (137,245) 366,919     Net income (loss) (see Note 6) (683,704) 211,831     Preferred dividends accrued - 24,331     Net income (loss) available for common shareholders$(683,704)$187,500     Basic earnings (loss) per common share$(0.07)$0.03      Weighted average shares outstanding 9,270,400 6,068,315          

See accompanying notes to consolidated financial statements

**HARRELL HOSPITALITY GROUP, INC. AND SUBSIDIARIES**
**CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY**
**Years Ended September 30, 2001 and 2000**  Prefer- red Stock Common Stock-Class A Additio-nal Paid-In Accumu- lated Accumu-lated other compre- hensive Total Sharehol-ders  Amount Shares Amount Capital Deficit Income (loss) Equity               Balance, September 30, 1999$243,331 4,882,900$9,766$2,077,287$(2,043,836)$ $286,548               Net income         211,831   211,831               Cumulative translation adjustment           (8,896) (8,896)                    Total comprehensive income             202,935               Sale of common stock   2,425,000 4,850 645,150     650,000               Preferred dividends payable
   ($.10 per share)         (24,331)   (24,331)               Balance, September 30, 2000 24,331 7,307,900 14,616 2,722,437 (1,856,336) (8,896) 1,115,152               Net loss         (683,704)   (683,704)               Cumulative translation adjustment           (2,222) (2,222)                    Total comprehensive loss             (685,926)               Sale of common stock             126,425               Issuance of common stock for  	services             8,208Issuance of common stock for  	securities             500,000               Balance, September 30, 2001$243,331 10,882,900$21,766$3,349,920$(254,040)$(11,118)$1,063,859                              

See accompanying notes to consolidated financial statements
**HARRELL HOSPITALITY GROUP, INC. AND SUBSIDIARIES**
**CONSOLIDATED STATEMENTS OF CASH FLOWS**
**Years Ended September 30, 2001 and 2000**       2001 2000Cash flows from operating activities:    	Net income (loss) available for common shareholders$ (683,704)$187,500		Adjustments to reconcile net income (loss) to net cash used in 	 		operating activities:    			Depreciation 3,920 7,817			Unrealized gain (loss) on marketable securities 137,245 (366,919)			Shares issued for services 8,208 -			Changes in assets and liabilities:    				Accounts receivable 64,331 (34,078)				Other assets (19,875) (13,654)				Deposits (10,410) -				Accounts payable and accrued liabilities 2,995 23,488				Preferred dividends accrued - 24,331				Accrued salaries - (6,632)					Net cash used in operating activities (497,290) (178,147)     Cash flows from investing activities:    	Purchase of furniture and equipment (8,302) (3,662)	Sale of marketable securities (17,851) (245,836)					Net cash used in investing activities (26,153) (249,498)     Cash flows from financing activities:    	Sale of common stock 126,425 650,000	Dividends paid (24,331) (24,331)					Net cash provided by financing activities 102,094 625,669     Net increase (decrease) in cash (421,349) 198,024     Cash at beginning of year 461,717 263,693     Cash at end of year$ 40,368$461,717     

Non-cash Transactions:
	During 2001, the Company issued 2,500,000 common shares for certain marketable equity securities  valued at $500,000.

See accompanying notes to consolidated financial statements.
**September 30, 2001 and 2000**

**1.	Description of Business**

*Organization*
****Harrell Hospitality Group, Inc., a Delaware corporation (the "Company"), began operations in 1959.  The Company changed its name from Harrell International, Inc. on March 31, 2000.  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) beginning 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 United States.  The Company acquired Hotel Management Group, Inc. ("HMG") in August 1992.  The Company has five other wholly-owned subsidiaries - see Note 5.

**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.

**2.	Summary of Significant Accounting Policies (Continued)**
*********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***
**The Company computes earnings per common share in accordance with 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.  Because the Company has no potential dilutive securities outstanding, the accompanying presentation is only of basic earnings per share**.**The Company's Board of Directors authorized a common stock split of five-for-one, in September,  2000.  All share and per share amounts in the accompanying financial statements have been retroactively adjusted for the split.

*Foreign Currency Translation***The financial statements are presented in United States dollars.  In accordance with Statement of Financial Accounting Standards No. 52, "Foreign Currency Translation," foreign denominated monetary assets and liabilities are translated to their United States dollar equivalents using foreign exchange rates which prevailed at the balance sheet date.  Revenue and expenses are translated at average rates of exchange during the year. Related translation adjustments are reported as a separate component of stockholders' equity (accumulated other comprehensive income (loss)), whereas gains or losses resulting from foreign currency transactions are included in results of operations.

****
**3.	Investments in Marketable Securities**
********Marketable securities at September 30, 2001 consist of common stocks.  Statement of Financial Accounting Standards No. 115, "*Accounting for Certain Investments in Debt and Equity Securities*" (FAS 115) requires certain investments be recorded at fair value or amortized cost.  The appropriate classification of the investments in marketable equity securities is determined at the time of purchase and re-evaluated at each balance sheet date. The Company's marketable equity securities are classified as trading securities.  Marketable equity securities trading securities are carried at fair value, with unrealized gains and losses reported in the income statement.  The cost of marketable equity securities sold is determined on a specific identification basis.  The fair value of marketable equity securities is based on quoted market prices. Following is a summary of trading securities:
 September 30, 20012000Cybertec Holdings plc$447,077$603,859Energy Technique plc$537,016 Total$984,093$603,859

**4.	Preferred Stock Transactions**
********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 Class A Preferred Stock to be issued by the Company.  The preferred shares were from a new class of stock authorized by the Company and are nonvoting, non-convertible and will pay a 10% dividend ($24,331 annually), beginning with the year ended September 30, 1996.  The Company shall have the right, but not the obligation, to redeem the shares at any time at par value.  The Company did not declare a dividend for the year ending September 30, 2001.
In September 2001, the Board of Directors designated the first  series of its previously authorized Class B Preferred Stock, par value $0.01 per share.  The Certificate of Designations, Preferences and Rights filed with the Delaware Secretary of State on October 9, 2001, designates 500,000 shares as Class B Redeemable Preferred Stock Series 1(the "B Preferred Series 1").  The B Preferred Series 1 has a stated value of  $2.00 per share, is non-voting, has certain mandatory dividend and redemption rights and has certain conversion rights into Class A Common shares.  No shares of B Preferred Series 1 were issued or outstanding as of September 30, 2001.

**5.	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.

****
**5.	Acquisition of Hotel Management Group (Continued)****
**
*Harrell Hospitality Group - California, Inc.*
****Effective January 1, 1994, HMG formed a wholly-owned subsidiary, Harrell Hospitality Group - California, Inc. (formerly Hotel Management Group - California, Inc.) ("HHG - California"), to hold the management contract for the operations of the Biltmore Hotel and Suites in Santa Clara, California.  HHG - California now also manages the Rancho Santa Barbara Marriott.****

****
*****H. M. Group - Alabama, Inc.*
****On December 1, 1998, H.M. Group - Alabama, Inc., a wholly owned subsidiary of HMG, assumed the management of the Governors House Hotel in Montgomery, Alabama which was managed until September 6, 2000.

**6.	Income Taxes**
********As of September 30, 2001, the Company had net operating loss carry forwards of approximately $2,432,000 for book and tax purposes.  These losses may be used to offset future taxable inc9ome, subject to the provisions of Internal Revenue Code Section 382.  Accordingly, deferred tax assets have been offset in the accompanying financial statements by a valuation allowance.

	The loss carry forwards expire as follows:

Year of Expiration Operating Loss Carry forward Expirations   2002$74,0002003 26,0002004 1,116,0002005 278,0002006 35,0002007 134,0002008 105,0002009 118,0002016 546,000    $2,432,000
****
**7.	Commitments and Contingencies**
*********Leases*

****The Company leases its office facilities from an unrelated party.  The lease expires in February 2003.  The Company also leases an off-site storage facility on a month-to-month basis.  Rental expense for the years ended September 30, 2001 and 2000 amounted to $95,232 and $87,760, respectively. 
****

****	Lease commitments are as follows:

2002$63,442
2003$6,188

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.

**8.	Management Fee Revenues**
****
****The Company had significant sales to two major customers as follows:

20012000
	Biltmore Hotel & Suites 		 87%	 80%
	Rancho Santa Barbara Marriott	 	13%	 10%	
**9.	Shareholders' Equity**
********On November 23, 1999, the Company entered into a Stock Acquisition and Option Agreement (the "Stock Agreement") with Merchant Capital Holdings, Ltd. ("MCH"), a British Virgin Islands Company, whereby MCH agreed to buy 5,000,000 shares of the Company's Class A Common Stock for US$.20 per share.  MCH also received certain options to purchase additional shares of Class A Common Stock.  On July 19, 2000, the Board approved an extension of time of 90 days each for the second and third installments of the stock purchase by MCH in the amounts of $250,000 and $500,000, respectively. As of September 30, 2000, half of the second installment had been received.  Subsequent to September 30, 2000, the remaining half of the second installment was received. 

**9.	Shareholders' Equity (Continued)******
****On April 12, 2001 the Board of Directors approved an amendment to the Stock Agreement to (i) exchange 842,000 shares of the Company's Class A Common Stock for certain shares of Cybertec Holdings, PLC, and (ii) issue to MCH the remaining 1,658,000 shares of the Company's Class A Common Stock that were issuable under the Stock Agreement.   Upon closing of the exchange of the Cybertec shares and in recognition of  MCH's business development efforts with Rotch Property Group, Ltd ("Rotch") and other companies, MCH's remaining obligations under the Stock Agreement were deemed satisfied and the remaining stock options under the Stock Agreement were issued to MCH .  The exchange transaction with Cybertec was completed on May 30, 2001, and the Company received   shares of Cybertec stock.

As part of the Stock Agreement, two advisors of MCH, Geoffrey Dart ("Dart") and Gerard Thompson ("Thompson") were appointed to the Board of Directors of the Company, with Dart appointed as Chairman of the Board.   In connection with the transactions contemplated under the Stock Agreement, the Company, MCH, Norman L. Marks (and his family affiliates) and Paul L. Barham (and his family affiliates) entered into a Shareholders Agreement, providing for certain transfer restrictions and voting agreements, on the Class A Common Stock held by certain of the parties.  

Under the terms of the Stock Agreement, when fully completed, MCH had the right to appoint a fifth member to the board of the Company.  Accordingly, effective May 31, 2001, Stephen Komlosy, the Chairman of Cybertec Holdings, was elected to the board.

The Company's Board of Directors authorized a common stock split of five-for-one, effective as of September 1, 2000.  All share and per share amounts in the accompanying financial statements and notes have been retroactively adjusted for the split.  The par value for common stock was also changed to $.002 per share and authorized Class A common shares were increased to 100,000,000.

**10.	Stock Options**
********In connection with the Stock Agreement (Note 9), MCH 
was
 granted options to purchase an additional 5,000,000 shares of Class A Common Stock upon receipt by the Company of the initial $1,000,000 investment.  All such options are exercisable at a price which begins at $.20 per share in 2000 and escalates $.02 per share each year until the options expire on December 31, 2005.  Therefore, under the Stock Agreement, MCH agreed to purchase 5,000,000 shares, and, 
upon
completion
  also hold
s
 options to purchase an additional 10,000,000 shares.  

As an inducement to enter into the employment agreements, the Company agreed to issue options to Barham and Marks to acquire shares of the Company's Class A Common Stock.  The strike price and the term of the options to Barham and Marks are the same as the options issued to MCH.  Barham and Marks 
were
 granted options in installments as MCH 
has
 granted options, except that each 
was
 granted the option to purchase one share for every two shares that MCH 
was
 given the 
option to purchase.  As of  November 17, 2000, the Board of Directors completed the option grant to Barham and Marks, subject to a right of the Company to cancel the options if MCH did not complete its equity contributions under the Stock Agreement within one year from that date.

	Following is a summary of options for the years ended September 30, 2001 and 2000:

 
2001Weighted Average Exercise Price2000Weighted Average Exercise PriceOutstanding at beginning of year4,075,000$0.25  Granted16,850,000$0.294,075,000$0.25Forfeited(85,000)$0.20  Exercised    Outstanding at end of year20,840,000$0.284,075,000$0.25Exercisable at end of year20,840,000$0.283,750,000$0.25     
In October 1995, the Financial Accounting Standards Board ("FASB") issued SFAS 123, "Accounting for Stock-Based Compensation."  SFAS 123 defines a fair value based method of accounting for an employee stock option or similar equity instrument and encourages all entities to adopt that method of accounting for all of their employee stock compensation plans.  Under the fair value based method, compensation cost is measured at the grant date based on the value of the award.  However, SFAS 123 also allows an entity to continue to measure compensation cost for those plans using the intrinsic value based method of accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees." 

Under the intrinsic value based method, compensation cost is the excess, if any, of the quoted market price of the stock at grant date or other measurement date over the amount an employee must pay to acquire the stock.  Entities electing to remain with the accounting in Opinion 25 must make pro forma disclosures of net income and earnings per share as if the fair value based method of accounting had been applied.  The Company has elected to measure compensation cost, including options issued, under Opinion 25.  Under this method, there was no compensation expense for the years ended September 30, 2001 and 2000.  

Pro forma disclosures as required by SFAS 123 for the year ended September 30, 2001 are as follows:

Net loss$(3,605,521)Net loss per share$(0.59)

****
**11.	Investment in Energy Technique, PLC******
****On March 15, 2001 the Company entered into a Heads of Agreement whereby the Company would acquire as a member of a consortium, an interest in a majority of the outstanding common stock of Energy Technique, PLC ("ET"), a United Kingdom publicly quoted energy related company ("ET").  The Company used 3,323,120 shares of the Cybertec Holdings, PLC stock that the Company owned, to acquire 11,077,066 shares in ET, equating to approximately 15% of the outstanding common stock of ET.   The value of the Cybertec stock exchanged was equal to £333,000 (approximately $480,000).  The transaction was completed June 14, 2001, at which time, Geoffrey Dart, Chairman of Harrell Hospitality Group was appointed Executive Chairman of ET and Paul Barham and Stephen Komlosy, Directors of Harrell Hospitality Group, were appointed as non-executive directors of ET.

**12.	Subsequent Events**
****On October 8, 2001, the Company sold 2,045,567 of its shares in Energy Technique ("ET") to London & Boston Investments (formerly Cybertec Holdings) at 3.30 pence sterling per share, raising approximately $100,000 to improve the Company's liquidity.  The Company has the right to repurchase the shares, by April 8, 2002 at 3.63 pence sterling per share or extend that right for a further six months upon payment of a fee equal to 10% of the purchase price (approximately $10,000).

Additionally, on November 7, 2001, the Company borrowed approximately $150,000 from Netcentric Systems PLC, a company affiliated with London & Boston Investments PLC (formerly Cybertec Holdings) for 12 months at an interest rate of 6% in cash and 19% in Class A Common Stock of the Company (based on the then market price for the Company's Class A Common Stock.  The loan has no prepayment penalties and is secured by 4,215,000 of the Company's shares in ET.

****
****The Company has entered into a strategic alliance with Galway Financial Group ("Galway") on December 10, 2001 wherein Galway will provide equity and assist the Company in securing hotel purchase, leasing and management opportunities.  Under the memorandum of understanding with Galway, Galway will receive a fee at the time of each hotel acquisition and upon closing of each hotel acquisition will receive shares of Class A Common Stock in the Company.  As of December 21, 2001, the final terms of the agreement with Galway are subject to a definitive agreement that is expected to be negotiated in the coming weeks.