U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
Commission file number ________________
THE HARTCOURT COMPANIES, INC.
(Exact name of small business issuer as specified in its character)
Utah 87-0400541
----------------------------- -------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
19104 S. Norwalk Boulevard, Artesia, California 90701
-----------------------------------------------------
(Address of principal executive offices)
(562) 403-1126
-------------------------
(Issuer's telephone number)
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: Yes [X] No [ ].
As of February 24, 1997, The Hartcourt Companies, Inc. had 10,687,380
shares of Common Stock Outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE>
TABLE OF CONTENTS
THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
Report on Form 10-QSB
for quarter ended
March 31, 1997
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets -- March 31, 1997 and
December 31, 1996 3
Consolidated Statement of Operations -- Three months ended
March 31, 1997 and 1996 5
Consolidated Statement of Shareholders' Equity -- Three
months ended March 31, 1997 6
Consolidated Statements of Cash Flows -- Three months ended
March 31, 1997 and 1996 7
Notes to the Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and results of Operations 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Charges in Securities 12
Item 3. Defaults upon Senior Securities 12
Item 4. Submission of Matters to Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
2
<PAGE>
Item 1. THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
1997 1996
CURRENT ASSETS (Unaudited)
----------- -----------
Cash $ 815 $ 822
Accounts receivable, net of allowance
for doubtful accounts of $19,034
in 1997 and 1996, respectively 7,938 19,034
Trade dollar receivables 35,492 72,054
Inventory, net 312,354 311,424
Interest receivable 7,660 3,877
Note receivable, current portion 131,225 133,764
Prepaid expenses 318,042 -
Prepaid consulting fees 900,000 900,000
Due from related party 39,734 32,356
----------- -----------
TOTAL CURRENT ASSETS 1,753,260 1,473,331
PROPERTY AND EQUIPMENT, net 40,909 44,809
INVESTMENTS 17,906,520 17,906,520
NOTE RECEIVABLE 1,182,405 1,190,795
OTHER ASSETS 506,950 7,550
----------- -----------
$21,390,044 $20,623,005
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 153,788 $ 148,569
Trade dollar payables 145,304 -
Accrued expenses 2,893 133,747
Notes payable - current portion 56,162 56,396
Bank overdrafts - 5,691
Subscription deposits 100,000 45,000
----------- -----------
TOTAL CURRENT LIABILITIES 458,147 389,403
NOTES PAYABLE, net of current portion 524,369 524,369
----------- -----------
TOTAL LIABILITIES 982,516 913,772
THE NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS STATEMENT
3
<PAGE>
Item 1. THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Cont'd)
SHAREHOLDERS' EQUITY
Original preferred stock, $0.01 par
value 1,000 shares authorized;
issued and outstanding 10 10
Common stock, $0.001 par value,
50,000,000 (10,000,000 in 1995)
shares authorized; 11,952,024
shares outstanding at March 31, 1997
and 10,560,352 at December 31, 1996 11,952 10,560
Treasury stock, at cost (279,928) (279,928)
Additional paid-in capital 24,002,712 23,204,260
Retained deficit (3,327,218) (3,225,669)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 20,407,528 19,709,233
----------- -----------
$21,390,044 $20,623,005
=========== ===========
THE NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS STATEMENT
4
<PAGE>
THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended
March 31,
-------------------------
1997 1996
--------- ---------
REVENUES
Product sales $ 4,106 $ 237,958
--------- ---------
TOTAL REVENUES 4,106 237,958
COST OF SALES 4,399 205,696
--------- ---------
Gross profit (293) 32,262
OPERATING EXPENSES
General and administrative 102,657 210,179
Depreciation 4,725 236,801
--------- ---------
TOTAL OPERATING EXPENSES 107,382 446,980
--------- ---------
LOSS FROM OPERATIONS (107,675) (414,718)
OTHER INCOME (EXPENSES)
Minority interest - 300,429
Interest expense (2,241) (343,105)
Interest income 8,744 12,963
--------- ---------
TOTAL OTHER INCOME (EXPENSE) 6,503 (29,713)
--------- ---------
NET LOSS BEFORE INCOME TAXES (101,172) (444,431)
Income taxes 377 (218)
--------- ---------
NET LOSS $(101,549) $(444,213)
========= =========
NET LOSS PER COMMON SHARE $ (.01) $ (.16)
========= =========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 10,827,412 2,749,303
========== =========
THE NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS STATEMENT
5
<PAGE>
THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Additional Total
Common Stock Preferred Stock Treasury Stock Paid-in Retained Shareholders'
Shares Amounts Shares Amount Shares Amount Capital Deficit Equity
----------- -------- ------ ------ ------ --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 10,560,352 $10,560 1,000 $10 24,364 $(279,928) $23,204,260 $(3,225,669) $ 19,709,233
Shares issued for settle-
ment of payables 2,672 3 - - - - 5,341 - 5,344
Shares issued for
consulting agreement 100,000 100 - - - - 149,900 - 150,000
Shares issued to present
and former employees and
Board of Directors 289,000 289 - - - - 144,211 - 144,500
Sale of shares under
Regulation S 1,000,000 1,000 - - - - 499,000 - 500,000
Net loss - - - - - - - (101,549) (101,549)
---------- ------- ----- --- ------ --------- ----------- ----------- ------------
Balance, March 31, 1997 11,952,024 $11,952 1,000 $10 24,364 $(279,928) $24,002,712 $(3,327,218) $ 20,407,528
========== ======= ===== === ====== ========= =========== =========== ============
</TABLE>
THE NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS STATEMENT
6
<PAGE>
THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended
March 31,
----------------------
1997 1996
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(101,549) $(444,213)
Adjustments to reconcile net income to net cash
used in operating activities:
Stock issued for services 294,500 -
Minority interest in loss of joint venture - 263,782
Accrued interest income (3,783) -
Depreciation 4,500 236,801
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable 47,658 (340,849)
Note loans receivable 10,929 (312,270)
Inventory (930) 182,403
Prepaid expenses (318,042) 35,515
Increase in:
Accounts payable and accrued expenses 25,013 (225,113)
Due from related party (6,778) 92,307
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (48,482) (511,637)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (600) (75,370)
Investments - (589)
Deposits (500,000) -
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (500,600) (75,959)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Bank overdraft (5,691) -
Other loans (234) 164,838
Issuance of common stock subscribed 55,000 -
Sale of common stock 500,000 347,882
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 549,075 512,720
--------- ---------
NET DECREASE IN CASH (7) (74,876)
CASH, BEGINNING OF PERIOD 822 142,047
--------- ---------
CASH, END OF PERIOD $ 815 $ 67,171
========= =========
THE NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS STATEMENT
7
<PAGE>
THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Organization and Nature of Operations:
Harcourt Investments (USA), Inc., (Harcourt Investments) was
incorporated on April 23, 1993. Principal business activities are the
design, manufacture and sale of writing instruments. During its first
two years of operation, Harcourt Nevada used foreign contract
manufacturers to produce various types of pens and markers which were
then imported for sale in the U.S. market. In August 1994, Harcourt
Investments acquired a 60% interest in the Xinhui Harchy Modern Pens,
Ltd. Joint Venture (Xinhui JV) owned by a Hong Kong corporation for
common stock valued at $2,149,200. The Xinhui JV is located in the
Guangdong Province of China. Pursuant to an amendment to the joint
venture agreement governing the Xinhui JV entered into in October
1995, the Company's interest was reduced to a 52% interest in the
Xinhui JV.
In November 1994, Stardust, Inc., Production-Recording-Promotion
(Stardust) acquired 100% of the outstanding shares of Harcourt
Investments for 8,280,000 shares of its common stock in a transaction
accounted for as a recapitalization of Harcourt Investments with
Harcourt Investments as the acquirer (reverse acquisition).
Therefore, the historic cost of assets and liabilities were carried
forward to the consolidated entity. In 1996, a reverse stock split
changed the number of shares issued and outstanding to 2,735,952. The
consolidated financial statements were restated to reflect this
capital stock transaction. Stardust's name was changed to the
"Hartcourt Companies, Inc."
Hartcourt Pen Factory, Inc. (Hartcourt Pen) was incorporated in
October 1993. Principal business activities are the sale of writing
instruments. In December 1994, Harcourt Investments acquired 100% of
the outstanding shares of the common stock of Hartcourt Pen for
52,500 shares of its common stock and 1,000 shares of its original
preferred stock in a transaction accounted for similar to a pooling
of interests. In 1995, stock dividends and a reverse stock split
changed the number of shares issued to 38,625 to acquire Hartcourt
Pen. The consolidated financial statements were restated to reflect
these capital stock transactions.
Note 2. Basis of Presentation:
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. These financial statements should be read in
8
<PAGE>
THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
conjunction with the financial statements and related notes included
in the Company's 1996 Form 10-KSB.
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (which include only normal
recurring adjustments) necessary to present fairly the balance sheet
of The Hartcourt Companies, Inc. and Subsidiaries as of March 31,
1997 and the results of their operations and their cash flows for the
three months ended March 31, 1997 and 1996, respectively. The
financial statements are consolidated to include the accounts of The
Hartcourt Companies and its subsidiary Hartcourt Pen (together "the
Company").
Certain 1996 amounts have reclassified to conform to current period
presentation. These reclassifications have no effect on previously
reported net income.
The accounting policies followed by the Company are set forth in Note
1 to the Company's financial statements as stated in its report on
Form 10-K for the fiscal year ended December 31, 1996.
Note 3. Material Event:
Sale of Harcourt Investments, Inc.
In September 1996 the Company sold its wholly-owned subsidiary,
Harcourt Investments (USA), Inc., (Harcourt Investments) to CKES,
Inc. located in Sunnyvale, California. Harcourt Investments owned a
52% interest in Xin Hui Harcy Modern Pens, Ltd., a joint venture in
the Peoples Republic of China. All of the outstanding shares of
Harcourt Investments were sold for a $3 million dollar note
receivable which is payable in 60 equal monthly installments of
$50,000 each, beginning October 1, 1998. Interest accrues at 6% per
annum and is payable in full at the end of the loan period. The note
receivable is secured by a security agreement. This agreement allows
the Company to have a security interest in all assets of CKES, Inc.
Investment in Peony Gardens
In August 1996 the Company purchased an apartment complex located
near Beijing, China for $22 million from NuOasis International, Inc.
The purchase price included the issuance of 4 million shares of
common stock, valued at $10 million, and a promissory note to NuOasis
for $12 million. The Note is due and payable on August 17, 1997 or,
if construction is not complete, then the note is extended to the
date the certificate of occupancy is received. Under the deposit
method of accounting in accordance with Financial Accounting
9
<PAGE>
THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Standards No. 66 the promissory note for $12,000,000 is currently
being deferred until the complete consummation of the Peony Gardens
sale. Also the 4 million shares of common stock is recorded as a
deposit at December 31, 1996.
Investment in Alaskan Gold Claims
In September 1996 the Company purchased several gold mining claims
encompassing 320 acres of land in the state of Alaska for $6 million.
The purchase was made by issuing 1,298,700 shares of the Company's
common stock. Under the deposit method of accounting in accordance
with Financial Accounting Standards No. 66, the 1,298,700 shares of
common stock is recorded as a deposit at December 31, 1996.
Note 4. Supplemental Disclosure of Non-cash Financing Activities:
On January 29, 1997 the Company issued 2,672 shares valued at $2.00
per share ($5,344) for services rendered in 1996.
On February 12, 1997 the Company issued 100,000 shares valued at
$1.50 per share ($150,000) in connection with an investment banking
services agreement.
On March 31, 1997 the Company issued 289,000 shares valued at $0.50
per share ($144,500) for present and former employees and directors
as bonuses.
Note 5. Income (Loss) Per Common Share
Income (loss) per common share is based on the weighted average
number of common shares outstanding during the period. No material
dilution of earnings per share would result for the periods if it
were assumed that all outstanding warrants were exercised.
Note 6. Subsequent Event:
On April 8, 1997 the Company entered into a preliminary stock
purchase agreement with Michael V. Caruana, officer and owner of Pego
Systems, Inc. The Company intends to acquire all outstanding shares
of Pego Systems, Inc. The parties are negotiating final terms of this
agreement and estimates completion of the transaction mid year 1997.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations:
As discussed in the Company's annual report, the Company sold its
interest in the XinHui Joint Venture during 1996 and, therefore,
comparability of assets, liabilities, income and expenses between the
first quarter of 1997 and the first quarter of 1996 is not
meaningful.
Liquidity and capital resources.
During the first quarter of 1997 the Company continued its plan of
restructuring by liquidating unprofitable existing operations and
seeking new business opportunities. An investment advisor was
retained to assist in seeking potential new investments as well as
arranging appropriate financing for future acquisitions. The Company
issued the investment advisor 100,000 shares of the Company's stock,
valued at $150,000, in prepayment of services to be rendered over a
twelve month period ending in February 1998.
In March 1997, the Company issued 1 million shares of stock to
foreign investors, under Regulation S of the Securities and Exchange
Commission, for $500,000. The proceeds will be used in the Company's
acquisition program and is currently on deposit in an escrow account.
Also in the first quarter 1997, the Company issued 289,000 shares of
stock to current and former employees for past services to the
Company. Most of these past service costs had been accrued at
December 31, 1996.
As mentioned in the annual report, the Company has a stock
subscription agreement with foreign investors that will provide the
Company with up to $20,000 per month during the twelve month period
beginning November 1996. The Company received $55,000 during the
first quarter under this agreement. The deposits received under the
subscription agreement are shown in current liabilities as
subscription deposits and totaled $100,000 at March 31, 1997.
Results of operations.
The Company's operating subsidiary, Hartcourt Pen Factory Inc., had
minimal activity during both first quarters of 1997 and 1996 due in
part because sales activity in the first quarter of the year are
normally lower, following the holiday season, and because Hartcourt
Pen, in 1997, has reduced its marketing and sales activities due to
the pending restructuring referred to above. Revenues of Hartcourt
Pen in the first quarter of 1996 were $37,300 as compared to $4,100
for 1997. General and administrative expenses were relatively high
during the first quarter of 1997 due to higher legal and accounting
fees incurred in connection with the Company's annual audit, SEC
reporting and restructuring program.
The Company plans to focus its future acquisitions on profitable
operating companies with adequate cash flows. Currently, cash flows
are primarily from the issuance's of the Company's common stock.
11
<PAGE>
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
There have been no changes since the Company's last report in Item 3, "Legal
Proceedings" of Form 10-KSB for the fiscal year ended December 31, 1996.
Item 2. CHANGES IN SECURITIES
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
None.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits - None.
(b) Reports on Form 8-K - None.
12
<PAGE>
PART II OTHER INFORMATION
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
THE HARTCOURT COMPANIES, INC.
Date: August 7, 1997 By: /s/ Alan V. Phan
------------------
Dr. Alan V. Phan
President
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 815
<SECURITIES> 0
<RECEIVABLES> 62,464
<ALLOWANCES> 19,034
<INVENTORY> 312,354
<CURRENT-ASSETS> 1,753,260
<PP&E> 71,823
<DEPRECIATION> 30,914
<TOTAL-ASSETS> 21,390,044
<CURRENT-LIABILITIES> 458,147
<BONDS> 0
0
10
<COMMON> 11,952
<OTHER-SE> 20,395,566
<TOTAL-LIABILITY-AND-EQUITY> 20,407,528
<SALES> 4,106
<TOTAL-REVENUES> 4,106
<CGS> 4,399
<TOTAL-COSTS> 107,382
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,241)
<INCOME-PRETAX> (101,172)
<INCOME-TAX> 377
<INCOME-CONTINUING> (101,549)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (101,549)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
<FN>
<F1> Options and warrants outstanding as of March 31, 1997 are antidilutive for
purposes of calculating primary and filly diluted earnings per share and are,
therefore, ignored.
</FN>
</TABLE>
