SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
[Fee Required]
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
[No Fee Required]
For fiscal year ended December 31, 1996
Commission file number 001-12671
HARTCOURT COMPANIES, INC.
(Exact name of registrant as specified in its charter)
UTAH 87-0400541
(State of incorporation) (I.R.S. Employer Identification No.)
19104 S. Norwalk Blvd.
Artesia, California 90701
310-403-1126
(Address, including zip code, and telephone number, including area code,
of registrant's executive offices)
Securities registered pursuant to Section 12(b) of
the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.001 par value
(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. Yes(X)No( )
Check if 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 most recent fiscal year: $272,409
State the aggregate market value of voting stock held by nonaffiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days: As of February 24, 1997, $25,570,999.
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: As of February 24, 1997,
there were 10,687,380 shares of common stock outstanding.
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HARTCOURT COMPANIES, INC.
1994 Form 10-KSB Annual Report
Table of Contents
Page
PART I
Item 1. Description of Business 3
Item 2. Description of Property 8
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 10
Item 6. Management's Discussion and Analysis or Plan of Operation 13
Item 7. Financial Statements 13
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 28
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 28
Item 10. Executive Compensation 29
Item 11. Security Ownership of Certain Beneficial Owners and
Management 31
Item 12. Certain Relationships and Related Transactions 32
PART IV
Item 13. Exhibits and Reports on Form 8-K 33
Signatures 35
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Explanatory Note:
Unless otherwise indicated or the context otherwise requires, all
references herein to the "Company" are to The Hartcourt Companies, Inc., a Utah
corporation, and its wholly owned subsidiaries, Harcourt Investments (USA) Inc.
("Harcourt Investments") and the Hartcourt Pen Factory, Inc. ("Hartcourt Pen").
All share and per share information contained herein has been adjusted to
reflect a five-for-seven reverse split of the Company's Common Stock effected on
October 6, 1995, and a one-for-five reverse split of the Company's Common Stock
effected on August 1, 1996.
PART 1
ITEM 1: DESCRIPTION OF BUSINESS.
General
Stardust, Inc.-Production-recording-Promotion ("Stardust"), a
corporation organized under the laws of the State of Utah in September 1983,
acquired all of the outstanding shares of Harcourt Investments, a Nevada
corporation, for 6,110,337 shares of Stardust common stock (after taking into
account a reverse stock split and stock dividend) pursuant to an Agreement and
Plan of Reorganization dated November 5, 1994. At the time of this acquisition,
Stardust was a "shell" corporation with no assets, business or operations.
Subsequent to the acquisition of Harcourt Investments, Stardust changed its name
to "The Hartcourt Companies, Inc."
Harcourt Investments was organized under the laws of the State of
Nevada in April 1993, to engage in the design, manufacture and sale of writing
instruments. Harcourt Investments entered into a Stock Exchange Agreement dated
August 8, 1994 with Eastern Rocester Limited's 60% interest in Xinhui Harchy
Modern Pens, Ltd. (The "Xinhui JV"), a joint venture located in the Guangdong
province of the People's Republic of China ("China"), in exchange for 250,000
shares of Harcourt Investments common stock, representing 80% of the common
stock of Harcourt Investments outstanding immediately subsequent 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, with the
remaining 48% held by the Xinhui Orient Light Industrial Corp.
Hartcourt Pen was organized under the laws of the State of Nevada in
October 1993 to engage in the sale of writing instruments. Hartcourt Pen entered
into an Agreement and Plan of Reorganization dated December 1, 1994 with
Harcourt Investments, pursuant to which Harcourt Investments acquired all of the
outstanding shares of Hartcourt Pen in exchange for 38,625 shares of Harcourt
Investments common stock. In connection with this transaction, 1,000 shares of
Harcourt Investments Original Preferred Stock were issued to Dr. Alan Phan in
consideration of certain intangible assets and services rendered by Dr. Phan in
connection with the establishment of Hartcourt Pen. Hartcourt Pen currently is
in the business of importing pens, markers and components from China, Germany,
Taiwan and Italy for assembly (often by others) in the United States. It
conducts certain limited research and development activities in the United
States, but engages in no domestic manufacturing activities.
The Hartcourt Companies, Inc. commenced limited business activities
involving the design, manufacture and sale of writing instruments in December
1994. The Company's present operations involve the assembly and distribution of
writing instruments. The Company's current primary objective is to acquire
operating companies with related products to maximize the marketing process and
expand the distribution of writing instruments. A secondary objective is to
acquire real property assets and to utilize profits from the development of the
Company's present real property assets in order to diversify and create a
multi-dimensional company.
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The principal executive offices of the Company are located at 19104 South
Norwalk Boulevard, Artesia, California 90701. The Company's telephone number is
(310) 403-1126.
In April 1993, the Xinhui JV commenced construction of a 170,000 square
foot manufacturing plant approximately ten miles north of Xinhui City. The plant
commenced limited operations in December 1994 and was fully operational by July
1995. By July 1996, the plant was operating at approximately 20% of its capacity
and employed approximately 80 people. It is estimated by management that
additional working capital in the amount of approximately $3,000,000 will be
required to permit the plant to operate at full capacity (300,000,000 pens
annually). There is no contractual obligation on the part of the joint venture
partners to provide this additional financing.
In April 1994, the Company entered into a Lease Agreement with
Tokai-Anza-Scripto Pen Company ("Anja"), for the use of five special ball pen
assembly machines by the Xinhui JV. The lease provides for semi-annual payments
of $25,000 over a ten-year term, subject to adjustment based on future purchases
of merchandise by the Company from the lessor. Consequently, annual lease
payments could range from zero, if annual purchases are in excess of $1,000,000,
to $100,000, if annual purchases are less than $100,000. The machinery was
delivered by Anja in June 1995. However, the machinery initially did not
function properly and therefore, the lease term did not commence until February
1996. In December 1996, the machinery was shipped by vessel back from the Xinhui
JV to the Company and is scheduled to arrive in January 1997. The Company and
Anja have agreed to terminate the lease upon delivery of the machinery to Anja
with no further obligation to the Company. To date, there have been no payments
under this lease.
CKES Acquisitions, Inc. ("CKES"), a corporation organized under the
laws of the State of Nevada in September 1996, and a non-affiliate, acquired all
of the outstanding shares of the Company's wholly-owned subsidiary Harcourt
Investments, pursuant to a Purchase and Sale Agreement dated September 27, 1996,
thus replacing the Company as a joint venture partner in the Xinhui JV. Title to
the shares was transferred to CKES in return for a Secured Promissory Note in
the principal sum of $3,000,000, payable monthly, with accrued compound interest
at six percent (6%) per annum. The Company has no present contractual obligation
to the Xinhui JV.
In January 1996, the Company entered into a Memorandum of Understanding
to acquire Yafa Pen Company ("Yafa"), a California corporation, with offices in
Los Angeles, California. The purchase price consisted of an initial cash payment
of $285,000 and 80,000 shares of the Company's Preferred Stock. Pursuant to the
Memorandum of Understanding, the Company advanced to Yafa a total of $200,000,
secured by two promissory notes, the amount of this advance to be offset against
the purchase price for Yafa. Various disputes arose between the Company and
Yafa, and in September 1996 the parties entered into a confidential settlement
agreement and agreed to terminate the Memorandum of Understanding.
Pursuant to a Purchase Contract dated March 21, 1996, between the
Company and Exceptional Specialty Products, Inc., a California corporation,
located in Laguna Hills, California, the Company acquired a complete line of
cosmetics valued at $310,815, including creams, cleansers, scrubs, liquid
makeup, eye shadow, accent pencils, mascara, makeup brushes, translucent powder,
makeup bags, and mirrors, for 60,000 shares of the Company's Common Stock.
Included in this purchase is the United States trademarked brand name Camille
St. Moritz, under which the inventory will be marketed, as well as containers,
labels, packaging, stationery and promotional materials. The Company had not
sold any of the cosmetic products since the purchase and market and is currently
seeking overseas importers, primarily in China, to purchase the entire inventory
and market the products. The Company does not intend to distribute the cosmetics
other than to importers who will be responsible for their own marketing networks
and money collection.
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In August 1996, The Company entered into a Purchase and Sale Agreement
with NuOasis International, Inc. ("NuOasis"), a corporation incorporated under
the laws of the Commonwealth of Bahamas, for the purchase of a commercial real
estate project, consisting of three 5-7 story apartment buildings, commonly
known as the Peony Gardens Property, ("Peony Gardens") located in the eastern
part of Tongxian in Beijing city, mainland China. The purchase price consists of
a Convertible Secured Promissory Note, granted NuOasis a security interest in
the property, in the principal amount of $12,000,000 and the greater of
10,000,000 shares of the Company's Common Stock, or that number of shares of the
Company's Common Stock having a market value equal to $10,000,000 immediately
preceding the closing date. On August 8, 1996, an Addendum to the Purchase and
Sale Contract was agreed to by the Company and NuOasis, by which the Company's
obligation to issue stock to NuOasis was reduced to 4,000,000 shares of its
Common Stock. As of December 31, 1996, the apartment buildings were
approximately 35% complete, and it is anticipated by the Company that the
project will be completed by August 1997. The Company has no obligation for
construction costs or any other costs relating to the project's completion and
may at its option rescind the Purchase and Sale Agreement, if construction is
not completed by August 1997. At completion, the Company will commence operation
of the project. It is anticipated that the Company may sell some of the
buildings, or units within the buildings, to provide initial operating funds.
There can be no assurance, however, as to when, if ever, the Company will be
successful in selling some of the buildings, or units within the buildings to
obtain operating funds, or whether, or to what extent, the project will be
profitable. See Part 1, Item 2, "Description of Property - Real Estate and
Operating Data."
In September 1996, the Company entered into a Sales Agreement with
Mandarin Overseas Investment Co., Ltd. ("Mandarin"), an unaffiliated Turks and
Caicos chartered company located in Central Hong Kong, for its undivided 50%
interest in thirty-four State of Alaska mineral lease gold lode claims, known as
Lodestar claims numbered 35-68, consisting of 160 acres each, all located in the
Melozitna mining district near Tanana, Alaska, approximately 300 air-kilometers
west of the City of Fairbanks, Alaska. The Company will pay $3,000,000 in shares
of its Common Stock to Mandarin for its undivided 50% interest in the mineral
lease gold lode claims, all shares to be issued pursuant to Regulation "S".
Certain maintenance and administrative costs will be incurred to maintain the
claims in a good standing status with all regulatory agencies. The Company has
agreed to pay Mandarin fifty percent (50%) of all such administrative costs
necessary to maintain the claims in good standing, such costs not expected to
exceed $2,500 annually and, at the end of two years from the date of the
Agreement, the Company will pay an additional amount representing fifty percent
(50%) of no less than twenty-five thousand dollars ($25,000) in connection with
the requirements of regulatory agencies.
In September 1996, the Company entered into a Sales Agreement with
Promed International Ltd. ("Promed"), an unaffiliated Turks and Caicos chartered
company with offices in the British crown colony of Gibraltar, for the purchase
of their undivided 50% interest in thirty-four State of Alaska mineral lease
gold lode claims, known as Lodestar claims numbered 1-34, consisting of 160
acres each, all located in the Melozitna mining district near Tanana, Alaska,
approximately 300 air-kilometers west of the City of Fairbanks, Alaska. The
Company will pay $3,000,000 in shares of its Common Stock to Promed for its
undivided 50% interest in the mineral lease gold lode claims, all shares to be
issued pursuant to Regulation "S." Certain maintenance and administrative costs
will be incurred to maintain the claims in good standing with all regulatory
agencies. The Company has agreed to pay Promed fifty percent (50%) of all such
costs, not to exceed $2,500 annually, and at the end of two years from the date
of the Agreement, the Company will pay an additional amount representing fifty
percent (50%) of no less than twenty-five thousand dollars ($25,000) in
connection with requirements of regulatory agencies.
Management intends to obtain the services of an independent geo-survey
company to prepare detailed geo-maps of the gold lode claims acquired from
Mandarin and Promed, and to evaluate existing studies, at an
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estimated cost of approximately $160,000. If these studies confirm the valuation
that has been represented, the Company intends to complete the Purchase and Sale
Agreement and raise sufficient capital to fulfill the requirements of the mining
project. Management does not expect this to affect other activities in which the
Company is involved. There can be no assurance, however, as to when, if ever,
the Company will obtain the necessary capital to fulfill the requirements of the
mining project, or whether, or to what extent, the project will be profitable,
should operations commence. See Item 2. "Description of Property - Mineral Lease
Gold Lode Claims."
During 1996 the Company entered into a Consulting Agreement with
American Equities, LLC, a California Limited Liability Company. The Company
intends to acquire, manage and develop a real estate portfolio through the year
2001. See Part II, F/S, "Consolidated Financial Statements, Years Ended December
31, 1996 and 1995 -- Notes to Financial Statements," Note H. "Commitments and
Contingencies."
Except for certain limited operations involving the manufacture and
distribution of writing instruments in China through the Xinhui JV and the
assembly and distribution of writing instruments in the United States through
Hartcourt Pen, the Company's activities to date primarily have consisted of
raising capital, obtaining financing, locating and acquiring equipment,
identifying prospective customers and suppliers, installing and testing
equipment and administrative activities relating to the foregoing, as well as
identifying real property for potential acquisition. The Company's future
business, including expansion of its current limited operations, requires
substantial additional equity and/or debt financing, which may not be available
in a timely manner, on commercially reasonable terms, or at all.
See Part III, Item 12, "Certain Relationships and Related Transactions"
for information about the interests of certain directors, executive officers and
promoters of the Company in the formation and reorganization transactions
described above involving Stardust, Harcourt Investments and Hartcourt Pen.
See Part I, Item 2, "Description of Property," for information about
the Company's facilities.
PRINCIPAL PRODUCTS, DISTRIBUTION AND COMPETITIVE CONDITIONS
The Company's present business activities consist of the assembly and
distribution of a broad range of writing instruments, ranging from the most
commonly used and inexpensive plastic ballpoint pens to high-priced luxury and
collectible fountain pens. The Company also distributes special order stationery
items, such as daily diaries and planners, organizers and desk sets and other
desk items, manufactured by others.
Commonly used and inexpensive writing instruments ("Popular Items")
assembled and sold by the Company include a broad range of ballpoint pens,
roller pens, cosmetic pens, white board markers, water color markers, permanent
markers, highlighters, erasable ballpoint pens and magic ink pens. The Company's
Popular Items are available in various compositions and colors of plastic
barrels and in a variety of ink colors.
Higher priced and luxury writing instruments ("Luxury Items") sold by
the Company include ballpoint, roller and fountain pens as well as mechanical
pencils. The barrels of Luxury Items generally are composed of brass or
stainless steel with lacquer or engraved designs and have nibs (the point of the
pen that regulates ink flow) of German-made iridium, as well as gold-planted
accessories.
Management believes that the materials and equipment used in the
assembly of the Company's products generally are available from multiple sources
on competitive terms. Therefore, the Company does not anticipate any significant
delays in the acquisition, of, or shortages of, either materials or equipment.
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The Company believes that the markets for its broad range of writing
instruments are relatively fragmented and highly competitive. There are many
local, national and multinational importers of writing instruments in the United
States and elsewhere, and the Company's ability to compete successfully will be
dependent upon numerous factors, including its ability to obtain necessary
financing in a timely manner and on commercially acceptable terms, as well as
upon the design, quality and price of its products and its customer service.
Many of the Company's competitors have greater experience and far greater
financial and other resources than the Company, which is in the development
stage. There can be no assurance that the Company will be able to compete
successfully in its markets.
DOING BUSINESS IN CHINA
GENERAL. Because the Company's Peony Gardens project is in China and
China is among the possible markets targeted by the Company for future
acquisitions, as well as a market for the purchase of its cosmetic products
inventory, China is important to the Company's success. The operation of
facilities in China involves certain risks and special considerations not
typically associated with operations in the United States.
These risks generally related to: (i) social, economic and political
uncertainty; (ii) substantial governmental involvement in and control over the
Chinese economy; (iii) the possibility that the Chinese government could elect
to discontinue its support of the economic reform programs implemented in 1978
and return to a completely centrally planned economy; and (iv) possible
nationalization or expropriation of assets. Accordingly, government actions in
the future could have a significant effect on economic conditions in China. Such
actions, and result changes in the Chinese economy, could significantly aversely
affect, limit or eliminate opportunities for foreign investment, the prospects
of private sector enterprises operating in China and the value of the Company's
investments in China.
RESTRICTIONS ON FOREIGN CURRENCY EXCHANGE. In order to meet foreign
currency obligations and remit dividends to foreign owners, a joint venture
operating in China must convert a portion of its funds from the Chinese
currency, the Chinese Renminbi (the "RMB"), to other currencies. Because China
controls its foreign currency reserves, RMB earnings within China can not freely
be converted into foreign currencies, except with government permission and at
rates which are determined in part by supply and demand at authorized financial
institutions, such as the People's Bank of China or at government-regulated
foreign exchange swap centers established by the State Administration of
Exchange Control. In the event of shortages of foreign currencies, the Company
may be unable to convert sufficient RMB's into foreign currencies to enable it
to comply with foreign currency payment obligations or to make distributions to
equity holders located outside of China.
VOLATILITY OF EXCHANGE RATES. There has been significant volatility in
the exchange rates of RMBs to U.S. Dollars in the recent past and future
exchange rates may also experience significant volatility.
ENVIRONMENTAL REGULATION. The Company's Chinese operations are subject
to central, provincial and local environmental protection laws and regulations.
The costs and effects of compliance with environmental laws and regulations in
the United States (federal, state and local) and China (central, provincial and
local) have not been material in the past and are not anticipated to be material
in the future.
EMPLOYEES
The Company currently employs four full-time and three part-time
employees at its principal executive offices in the United States. Hartcourt Pen
is located at this headquarters location, which also is the site for
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certain research and development activities. The Company does not expect any
significant changes in the number of employees during the next twelve months.
RESEARCH AND DEVELOPMENT
The Company currently conducts limited research and development
activities involving the creation of ink formulas, as well as the engineering
design of pens and material used for the components of writing instruments.
During the fiscal years ended December 31, 1993, 1994 and 1995, $100,650,
$180,440 and $38,205 respectively, was expended in connection with such
activities. During the 12 month period ended December 31, 1996 no expense was
incurred in connection with research and development activities. Management
anticipates that research and development costs as a percentage of sales will
not increase materially from current levels.
ITEM 2. DESCRIPTION OF PROPERTY
PRINCIPAL PLANTS AND OTHER PROPERTY
The Company's principal executive offices are located at 19104 South
Norwalk Boulevard, Artesia, California 90701. Hartcourt Pen is located at this
headquarters site, which also is the site of certain limited research and
development activities. The premises, which are leased from an unaffiliated
party, consist of 5,200 square feet, approximately 2,000 square feet of which is
used for warehousing, approximately 2,000 square feet for assembly of writing
instruments, and approximately 1,200 square feet for executive and clerical
offices. Monthly rent is $1,230 until May 31, 1997, $1,640 from June 1, 1997
through May 31, 1998 and $2,050 for the remainder of the lease term, through May
31, 2001; provided, however, that no rent will be due for the months of June
1999 and June 2000.
See Part I, Item 1, "Description of Business--General" for information
about the manufacturing facilities of Xinhui JV.
The Company believes that its property and equipment are adequate for
its present activities. See Part I, Item 1, "Description of Business--Proposed
Activities," and Part II, Item 6, "Management's Discussion and Analysis or Plan
of Operation--Liquidity and Capital Resources."
INVESTMENT POLICIES
The Company has placed no limitation on the percentage of assets which
may be invested in any one investment. This policy may be changed by the
Company's Board of Directors and without a vote of the Company's security
holders. It is the Company's policy to acquire assets primarily to add to its
equity base and for income.
REAL ESTATE INVESTMENTS
The Company's investments in real estate are not restricted to
developed or undeveloped properties, or properties of any specific type or
location. It is the present intent of Management to acquire commercial
properties that can be operated by outside management and do not require the
Company's hands-on operation. With the exception of the Peony Gardens Project
(See Item 1, "Description of Business General"), it is the present intent of
Management that real estate will be purchased, free and clear of any mortgage,
with shares of the Company's Common Stock. Any necessary management services in
connection with the Peony Gardens
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Project, and any future acquisitions, will be compensated, if possible, through
the issuance of the Company's Common Stock.
REAL ESTATE AND OPERATING DATA
On September 8, 1996, the Company completed the purchase of a
commercial real estate project, commonly known as the Peony Gardens Project
("Peony Gardens"), located in mainland China. See Part I, Item 1, "Description
of Business." The land use right of the property has been granted to Beijing
Grand Canal Real Estate Development Co. Ltd., the project's developer, for a
term of seventy (70) years, commencing from May 3, 1994. NuOasis, the seller,
holds the Company's Convertible Secured Promissory Note in the principal amount
of $12,000,000, granting NuOasis a security interest in the property, which is
otherwise free of any mortgages, liens or encumbrances.
Peony Gardens, upon its anticipated completion, will be comprised of
three 5-7 story apartment buildings located at the eastern part of Tongxian of
Beijing city. The property is connected to a network of highways and roads, and
is located in one of the city's strategic areas for outward expansion, with a
relatively good transport system consisting of public buses and taxicabs between
the city center and the development.
As of December 1996, the development is approximately 35% complete, and
it is anticipated that it will be fully developed by August 1997. The Company
has no obligation for construction costs, or any other costs relating to the
project's completion, and will not assume operating costs until full completion
of the project. It is the opinion of the Company's management that present
insurance coverage is adequate. Upon completion of the project, it is the intent
of the Company to acquire, if possible, the services of an independent real
estate management company for the properties through the issuance of the
Company's Common Stock. At present, real estate management company fees in China
are 4% of total rents collected. It is estimated that the total annual rental
income, after completion of the project's four residential apartment buildings,
will be $5,764,000 at 70% occupancy. Management estimates expenses to be
approximately $1,441,000 annually. Depreciation is based on twenty years, which
is standard depreciation for apartment buildings. Real estate and governmental
taxes in connection with the Peony Gardens purchase are the obligation of the
developer and were included in the purchase price. All rental taxes will be paid
by the tenants. Management estimates that leases will be for a minimum period of
two years, which is the standard lease term for the area. The property is not,
at present, subject to the usual competitive conditions associated with rental
or leased residential apartment property, since the apartment buildings have
been mandated by the Chinese government as a special project for the use of
foreigners. However, should the government rescind that mandate, or should
conditions occur which would cause the Chinese government to expel foreigners,
the apartments would be subject to extremely competitive lease and sale pricing.
See Part I, Item 1, "Description of Business--Doing Business in China."
MINERAL LEASE GOLD LODE CLAIMS
In September 1996, the Company, through separate transactions with
Mandarin Overseas Investment Co., Ltd. ("Mandarin") and Promed International,
Ltd. ("Promed"), acquired an undivided 50% interest in a total of 68 (34 from
each transaction) mineral lease gold lode claims, consisting of 160 acres each,
all located in the Melozitna mining district near Tanana, Alaska, some 300
air-kilometers west of the City of Fairbanks, Alaska. A gravel landing strip
near Golden Creek, about 12 kilometers north of the Yukon River, can be used to
access and service the area during snow-free months. Aircraft up to the size of
DC-3 can land on this strip to supply fuel and other supplies to mining camps in
the area. Scheduled passenger flights from Fairbanks west to points along the
Yukon River can be persuaded to provide passenger service to and from the Golden
Creek landing strip. Larger equipment and fuel supplies can be barged down from
the Yukon River to several points where tractor roads lead into the mineral
lease area.
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Certain maintenance and administrative costs will be incurred by the
Company to maintain the claims in a good standing status with all regulatory
agencies. Pursuant to the Sales Agreements, with Mandarin and Promed, the
Company has agreed to pay fifty percent (50%) of all such administrative costs
necessary to maintain the claims in good standing, such costs not expected to
exceed a total of $5,000 annually, payable to Mandarin and Promed in the amount
of $2,500 each, respectively. At the end of two years from the date of the
Agreements, the Company will pay an additional amount representing fifty percent
(50%) of no less than twenty-five thousand dollars ($25,000) to Mandarin, and an
additional amount representing fifty percent (50%) of no less than twenty-five
thousand dollars ($25,000) to Promed, in connection with the requirements of
regulatory agencies. See Part I, Item 1., "Description of Business--General."
Recent exploration activity in Alaska has been stimulated by the
discovery of low-grade bulk tonnage gold mineralization at the Fort Knox
deposit, near Fairbanks. The gold is associated with high concentrations of
tungsten and bismuth. Other unaffiliated companies, with gold lode claims in
areas adjacent to the Company's gold lode claims, commenced field work on a
portion of the adjacent area in July and August 1996. However, the Company does
not expect to enter into any mining operations on its gold lode claims until
such time as detailed geo-maps and evaluation of existing studies of the gold
lode claims are obtained from an independent geo-survey company, at an estimated
cost of $160,000. If these studies confirm the valuation that has been
represented, the Company intends to raise sufficient capital to fulfill the
requirements of the mining project. There can be no assurance, however, as to
when, if ever, the company will obtain the necessary capital to fulfill the
requirements of the mining project, or whether, or to what extent, the project
will be profitable, should operations commence.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries currently is a party
to, or owns property subject to, any pending or threatened legal proceedings
which, in the opinion of management, are likely to have a material adverse
impact on the financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS OF SECURITY HOLDERS
None
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is quoted on the bulletin board maintained by the
National Association of Securities Dealers, Inc. The following table sets forth
the range of high and low bid and asked quotations for the Common stock during
the two most recent calendar years ended December 31, 1996 and 1995:
High Bid Low Bid High Asked Low Asked
March 31, 1995 5.00 3.00 8.00 3.62
June 30, 1995 3.62 3.50 4.25 3.87
September 30, 1995 3.75 3.62 4.37 4.00
December 31, 1995 5.75 3.50 7.12 4.25
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High Bid Low Bid High Asked Low Asked
March 31, 1996 5.75 4.25 6.37 5.00
June 30, 1996 5.75 4.62 6.50 5.12
September 30, 1996 7.50 3.00 12.25 5.00
December 31,1996 5.00 1.50 6.00 2.75
The above prices were obtained from the National Quotation Bureau, Inc.
The prices shown in the above table represent inter-dealer quotations without
retail mark-up, mark-down or commission, and may not necessarily represent
actual transactions. On December 31, 1996, there were broker-dealers publishing
quotes for the Common Stock.
All of the Company's issued stock has been issued pursuant to Rule 144
of the Securities Act and could come into any market which exists under Rule
144.
As of December 31, 1996 there were 428 holders of the Company's Common
Stock. The Company believes there are numerous additional beneficial owners of
the Common Stock whose shares are held in "street name".
In September 1995 the Company declared a 3% stock dividend on its
Common Stock. Certain holders of shares of the Common Stock of the Company
waived their rights to receive this dividend. As a result, on October 31, 1995,
the Company issued a dividend of an aggregate of 21,753 shares of Common Stock
to holders of 713,010 shares of the Company's Common Stock.
In May 1996, the Company declared 3% stock dividend on its Common
Stock. As a result, on May 3, 1996, the Company issued a dividend of an
aggregate of 83,574 shares of Common Stock to holders of 2,785,813 shares of the
Company's Common Stock.
In June 1996, the Company declared a 3% stock dividend on its Common
Stock. As a result, on July 31, 1996, the Company issued a dividend of an
aggregate of 86,277 shares of Common Stock to holders of 2,875,906 shares of the
Company's Common Stock. The Company does not anticipate payment of any other
stock or cash dividends in the foreseeable future.
The following information sets forth certain information for all
securities the Company sold during the past three years without registration
under the Securities Act of 1933 (the "Securities Act"). All transactions were
effected in reliance on the exemption from registration afforded by Section 4
(2) of the Securities Act for transactions not involving a public offering.
There were no underwriters in any of these transactions.
Pursuant to a Stock Exchange Agreement, dated August 8, 1994, Harcourt
Investments issued 250,000 shares of its common stock (representing 80% of its
common stock outstanding immediately subsequent to the transaction) to Eastern
Rocester Limited, a Hong Kong corporation, in exchange for a 60% interest in the
Xinhui JV. After the transaction, Harcourt Investments was 80% held by Eastern
Rocester Limited, 2% by Dr. Alan Phan, a director, executive officer and
promoter of the Company, and 18% by an unaffiliated person. All of the
outstanding common stock of Eastern Rocester Limited subsequently was
transferred to Tiana Corporation, of which Dr. Phan beneficially owns 20% of its
common stock.
Dr. Phan acquired ten Harcourt Investments shares in April 1993 for
nominal consideration.
11
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The Company acquired all of the outstanding Harcourt Investments shares
for 6,110,337 shares of the Company's Common Stock pursuant to an Agreement and
Plan of Reorganization dated November 5, 1994. Dr. Phan received 291,500 of such
shares in exchange for his Harcourt Investments shares.
Pursuant to an Agreement and Plan of Reorganization dated December 1,
1994, the Company acquired all of the outstanding shares of Harcourt Pen from
Dr. Phan for 38,625 shares of the Company's Common Stock and 1,000 shares of its
Original Preferred Stock.
On March 27, 1996, the Company acquired a complete line of cosmetics,
including inventory, valued at $161,250 and marketed under a brand name, for
12,000 shares of the Company's Common Stock.
On June 3, 1996, the Company issued 5,000 shares of the Company's
Common Stock to Cavaform, Inc. for outstanding liabilities, in the amount of
$106,775, on behalf of Xinhui JV.
On June 3, 1996, the Company issued a total of 1,267 shares of its
Common Stock for the purchase of inventory valued at $30,164 to Kenneth
Johnson/Marvin Lieberman and Edmund Murray in the amount of 667 shares and 600
shares, respectively.
On June 11, 1996, the Company issued 112 shares of the Company's Common
Stock to Idea International, Inc. in settlement of $2,814 in accounts payable.
Pursuant to a Sales Agreement dated September 17,1996, the Company
acquired a fifty percent (50%) interest in thirty four gold lode claims, valued
at approximately $3,000,000 from Promed International, Ltd.
for 649,350 shares of the Company's Common Stock.
Pursuant to a Sales Agreement dated September 17, 1996, the Company
acquired a fifty percent (50%) interest in thirty four gold lode claims, valued
at approximately $3,000,000 from Mandarin Overseas Investment Co., Ltd. for
649,350 shares of the Company's Common Stock.
Pursuant to a Purchase and Sales Agreement, dated September 27, 1996,
CKES Acquisitions, Inc., a Nevada corporation, acquired all of the outstanding
25,000 shares of the Company's wholly-owned subsidiary Harcourt Investments for
a Secured Promissory Note in the principal sum of $3,000,000, with accrued
compound interest at six percent (6%) per annum.
On September 30, 1996, pursuant to a purchase and Sales Agreement,
dated July 8, 1996, and its Addendum, dated August 8, 1996, the Company acquired
a commercial real estate project, commonly known as the Peony Gardens Property,
located in mainland China, for 4,000,000 shares of the Company's Common Stock,
and a Convertible Secured Promissory Note. On September 30, 1996, Pacific Rim
Capital received 400,000 shares of the Company's Common Stock and Philip Cavana
received 200,000 shares of the Company's Common Stock for $1,000,000 in
brokerage fees in connection with this purchase.
On September 30, 1996, pursuant to a Resolution of the Company's Board
of Directors, the Company issued 425,000 shares of the Company's Common Stock to
Pacific Rim Capital on account of funds advanced in the amount of $271,395
during the January 1, 1996 to September 30, 1996 period.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
See Part II, Item 7, "Financial Statements".
12
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ITEM 7. FINANCIAL STATEMENTS
The audited consolidated financial statements of Hartcourt Companies, Inc. and
Subsidiaries as of December 31, 1996 and 1995 are omitted from this 10K-SB
filing due to a delay in the parents' subsidiary completing its audit for the
period ending December 31, 1996. Management estimates that the subsidiary audit
will be completed in three to four weeks or there abouts. However, no assurance
can be given at this time with regards to this completion date.
Once the audit is complete, an amended 10K-SB/A will be filed with the audited
statements along with the Accountants Report immediately.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The following table sets forth certain information about the directors
and executive officers of the Company.
Name Age Position
- ---- --- --------
Dr. Alan V. Phan 51 Chairman of the Board, President,
Chief Executive Officer and Chief Financial Officer
Frederic Cohn 57 Secretary, Treasurer and Director
Kenneth Silva 70 Vice-President, Marketing and Sales and Director
Michael L. Caruana 53 Director
James De Rosa 65 Director
Dr. Alan V. Phan is the founder of the Company and has been Chairman, President,
Chief Executive Officer and Chief Financial Officer since November 1993. He also
is the founder of Harcourt Investments and Hartcourt Pen. See Part I, Item 1,
"Description of Business--General." From 1986 to October 1993, Dr. Phan was the
owner of Hartcourt Consulting, an export management firm and, from 1980 to 1986,
he was the Executive Vice President of EM Kay Group (which owned Magic Marker
Industries). In addition to his activities in the export and writing instrument
business, Dr. Phan has been involved in gold mining operations, as manager in
the Phillippines (1971-1972) for Eisenberg Group, a company located in Israel.
He was active in the real estate industry from 1976 until 1982 as owner of Alpha
Development, a California real estate company. Dr. Phan received his academic
training and degrees at Pennsylvania State University (1967), and Sussex College
of Technology, Sussex England (1975).
13
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Frederic Cohn has been a director and Secretary since November 1993. He
is responsible for all financial, tax, accounting, personnel, management
information system and administrative functions. From 1990 to 1993, Mr. Cohn was
the President and Chief Executive Officer of Aladdin Enterprises, Inc., an
entertainment equipment leasing firm, located in Santa Monica, California. Mr.
Cohn is a graduate of New York Law School (1978).
Kenneth Silva has been Vice President, Sales and Marketing and a
director, since January 1996. Prior to joining the Company, Mr. Silva was a Vice
President and a Manager for a number of banks, including Capital National Bank
(two years), Bank of Downey (four years), Interstate Bank (10 years), and 22
years at Wells Fargo Bank where he served as Vice President of Business
Development. Mr. Silva holds a B.A. degree in accounting and banking from
Armstrong College in San Francisco, California (1964), and attended graduate
courses at American Institute of Banking.
Michael L. Caruana has been a director since June 1994. Mr. Caruana is
a graduate of California State University at Long Beach (1972) with a degree in
engineering. He currently is the President, Chief Executive Officer and majority
owner of Pego Systems, Inc., an engineering and industrial equipment
manufacturing company, and has held various positions with Pego since 1975. See
Part I, Item 1, "Description of Business-General" and Part III, Item 12,
"Certain Relationships and Related Transactions."
James De Rosa has been a director of the Company since September 1996.
A graduate of Tufts College (1960), and Suffolk Law School, Boston,
Massachusetts (1963), Mr. De Rosa is a Real Estate investor and developer and
has been active in the real estate business since 1974. Mr. De Rosa is President
of De Rosa Properties, Inc.
Directors serve for a term of one year or until their successors are
elected and qualified. Directors do not receive any cash compensation for
serving as such, although the Company is contemplating the adoption of a plan to
compensate directors through the issuance of shares of Common Stock. The terms
of such a plan currently are under consideration and there can be no assurance
as to when, if ever, it will be implemented.
Executive officers are appointed by and serve at the will of the Board
of Directors. There are no family relationships between or among any of the
directors or executive officers of the Company.
As the sole holder of the 1,000 outstanding shares of Original
Preferred Stock, Dr. Phan is entitled to elect 3/5 of the number of members of
the Company's Board of Directors, whereas the holders of the outstanding shares
of Common Stock are entitled to elect 2/5 of that number. See Part I, Item 8,
"Description of Securities" for more information about the rights of the Common,
and Original Preferred stockholders.
By virtue of his activities in founding and organizing the Company, as
well as his beneficial ownership of its voting securities, Dr. Phan may be
deemed to be a "promoter" of the Company.
ITEM 10. EXECUTIVE COMPENSATION.
The following summary compensation table sets forth certain information
regarding compensation paid during each of the three fiscal years ended December
31,1996, 1995 and 1994 to the person serving as the Company's Chief Executive
Officer during the years ended December 31, 1996. No annual compensation in
excess of $100,000 was awarded to, earned by or paid to any director or
executive officer of the Company for services rendered in any/all capacity/ies
in any of the fiscal years indicated.
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Name and Principal Position Fiscal Year Annual Salary
- --------------------------- ----------- -------------
Dr. Alan V. Phan, Chief Executive Officer 1996 $100,000
1995 $ 70,000
1994 $ 35,000
There is no employment agreement with any executive officer. There are
no salary, bonus or incentive plans covering cash or securities except the
Company's 1995 Stock Option Plan (the "Plan"). Under the Plan, incentive and
non-qualified stock options may be granted to directors, officers and key
employees to purchase up to 2,000,000 shares of Common Stock at an option price
not less than the fair market value of the stock at the time the option is
granted; the option period shall not exceed ten years from the date of grant.
Except in the case of the death or disability of an option holder, vested
options lapse 90 days following termination of continuous employment by the
Company. Vested options lapse one year after the death or disability of an
option holder. No options have been granted under the Plan.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of December 31, 1996 with
respect to persons known to the Company to be the beneficial owners of more than
5% of its voting securities and with respect to the beneficial ownership of such
securities by each director of the Company and by all directors and executive
officers of the Company as a group.
Name and Address of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership (1) (2) Common Stock
- ------------------- ---------------------------- ------------
Dr. Alan V. Phan 1,478,878 (3) 14.0%
19104 South Norwalk Boulevard
Artesia, California 90701
Frederic Cohn 1,609 *
19104 South Norwalk Boulevard
Artesia, CA 90701
Michael L. Caruana 1,609 *
19104 South Norwalk Boulevard
Artesia, CA 90701
James De Rosa 1,609 *
19104 South Norwalk Boulevard
Artesia, CA 90701
Philadep & Co. 617,989 5.8%
P.O. Box 15891
Philadelphia, PA 19103-0891
CEDE & Co. 536,351 5.1%
55 Water Street 2SL
New York, NY 10041
15
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Tiana Corporation 1,022,949 (4) (5) 9.7%
Kai Tak Commercial Building
Room 704A
317 Des Voeux Road Central
Hong Kong, China
NuOasis International, Inc. 4,000,000 37.8%
2 Park Plaza, Suite 470
Irvine, California 92714
All officers and directors
as a group 1,483,705 14.1%
* Less than 1%
(1) Except as otherwise indicated, each of the parties listed has sole
voting and investment power with respect to all shares of Common Stock
indicated. Beneficial ownership is calculated in accordance with Rule
13-d-3(d) under the Securities Exchange Act of 1934, as amended.
(2) Except as otherwise indicated, shares held are Common Stock.
(3) Includes (i) an aggregate of 1,000,000 shares issuable upon conversion
of 1,000 shares of Original Preferred Stock and (ii) an aggregate of
171,718 shares held by two sons who reside with Dr. Phan when not
attending college and law school, respectively. the sole holder of the
1,000 outstanding shares of Original Preferred Stock, Dr. Phan is
entitled to elect 3/5 of the number of members of the Company's Board
of Directors.
(4) As the owner of 204,589 shares of stock in Tiana corporation, Dr. Alan
V. Phan's son, Art Phan, holds a 20% interest in Tiana Corporation. Dr.
Phan disclaims any beneficial ownership in these shares.
(5) Tiana Corporation is a British Virgin Islands corporation owned by
various Asian business groups located in Hong Kong, Singapore,
Malaysia, and Indonesia.
The Company is not aware of any arrangement which might result in a change in
control in the future.
ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Dr. Alan Phan, a director, executive officer and promoter of the
Company, acquired ten shares of Hartcourt Investments for nominal consideration
upon its organization in April 1993. Pursuant to a stock exchange agreement
dated August 8, 1994 with Eastern Rocester Limited, Harcourt Investments
acquired a 60% interest in the Xinhui JV in exchange for 250,000 shares of
Harcourt Investments common stock, representing 80% of the common stock of
Harcourt Investments outstanding immediately subsequent to the transaction.
After giving effect to this transaction, Harcourt Investments was held 80% by
Eastern Rocester Limited, 3% by Dr. Phan and 18% by an unaffiliated person. See
Part I, Item I, "Description of Business--General" and Part III, Item 9,
"Directors, Executive Officers, Promoters and Control Persons."
16
<PAGE>
The Company acquired all of the outstanding shares of Harcourt
Investments in exchange for 6,110,337 shares of the Company's Common Stock
pursuant to an Agreement and Plan of Reorganization dated November 5, 1994. In
connection with this transaction, Dr. Phan received 38,625 of such shares.
Michael Caruana, who currently serves as a director of the Company, was Vice
President of the Company at the time of this transaction. See Part I, Item 1,
"Description of business--General" and Part III, Item 9, "Directors, Executive
Officers, Promoters and Control Persons.
Dr. Phan acquired ten shares of Hartcourt Pen for nominal consideration
upon its organization in October 1993. All of the outstanding shares of
Hartcourt Pen were acquired by the Company pursuant to an Agreement and Plan of
Reorganization dated December 1, 1994. As the sole stockholder of Hartcourt Pen,
Dr. Phan received all 38,625 shares of the Company's Common Stock and 1,000
shares of Original Preferred Stock issued by the Company in connection with this
transaction. See Part I, Item 1, "Description of Business--General" and Part
III, Item 9, "Directors, Executive Officers, Promoters, and Control Persons."
During 1994 and 1995, the Company made advances in the aggregate amount
of $168,575 to the Company's joint venture partner in the Xinhui JV. All of
these advances are non-interest bearing and due on demand.
During 1994 and 1995, Pacific Rim Capital ("Pacific Rim"), a
non-affiliated financier for the Company advanced a total of $272,416 to the
Company. The advance was unsecured, bearing interest at the rate of 24% per
annum and subject to no fixed repayment terms. On September 30, 1996, Pacific
Rim agreed to convert this loan for 425,000 shares of the Company's Common
Stock.
In June 1995, the Company entered into an Agreement and Plan of
Reorganization with Pego Systems, Inc. to acquire all of the outstanding shares
of Pego common stock in exchange for 1,500,000 shares of the Company's Class A
Preferred Stock. The transaction was terminated prior to its completion. The
owner of Pego, Michael L. Caruana is a current director of the Company.
PART IV.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
The following list describes the exhibits filed as part of this Annual
Report Form 10-KSB.
Exhibit No. Description of Document
- ----------- -----------------------
2.01 Agreement and Plan of Reorganization, dated November
5, 1994 among Stardust, Inc.-Production-Recording-Promotion,
Harcourt Investments (USA) Inc. ("Harcourt USA") and the
shareholders of Harcourt USA. (1)
2.02 Agreement and Plan or Reorganization dated December 1, 1994
Among Harcourt USA. The Hartcourt Pen Factory, Inc.
("Hartcourt Pen") and the Hartcourt Pen shareholder. (1)
17
<PAGE>
3.01 Articles of Incorporation of the Company, as amended. (1)
3.02 Bylaws of the Company. (1)
3.03 Amendment to the Bylaws of the Company. (1)
4.01 Articles of Amendment to Articles of Incorporation of the
Company regarding the Creation of Preferred Stock and the
Statement of Rights and Preferences of Common Stock,
Original Preferred Stock and Class A Preferred Stock. (1)
10.01 Lease between the Company and Larry M. Mitobe for the
Company's headquarters facility, dated April 9, 1996. (1)
10.02 Equipment Lease between Harcourt USA and Anja
Engineering Corporation, dated April 4, 1994. (1)
10.03 Stock Exchange Agreement between Harcourt USA
and Eastern Rocester, dated August 8, 1994. (1)
10.04 1995 Stock Option Plan. (1)
10.05 Purchase Contract between The Hartcourt Companies, Inc.
and Exceptional Specialty Products, Inc., dated March 21,
1996. (1)
10.06 Purchase and Sale Agreement, dated August 8, 1996,
between The Hartcourt Companies, Inc. and NuOasis
International, Inc., and Addendum to Purchase and Sale
Contract. (1)
10.07 Convertible Secured Promissory Note, dated August 8, 1996,
in connection with Purchase and Sale Agreement, dated
August 8, 1996 between The Hartcourt Companies, Inc. and
NuOasis International, Inc. (1)
10.08 Convertible Secured Promissory Note, dated August 8, 1996,
in connection with Purchase and Sale Agreement, dated
August 8, 1996 between The Hartcourt Companies, Inc. and
NuOasis International, Inc., as amended. (1)
10.09 Sales Agreement, dated September 17, 1996, between The
Hartcourt Companies, Inc. and Promed International, Ltd. (1)
10.10 Sales Agreement, dated September 17, 1996, between The
Hartcourt Companies, Inc. and Mandarin Overseas Investment
Co., Ltd. (1)
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<PAGE>
10.11 Purchase and Sale Agreement, dated September 27, 1996,
between The Harcourt Companies, Inc. and CKES Acquisitions,
Inc. (1)
10.12 Secured Promissory Note, dated September 27, 1996, in
connection with Purchase and Sale Agreement between The
Hartcourt Companies, Inc. and CKES Acquisitions, Inc. (1)
10.13 Consulting Agreement, dated December 30, 1996, between
Hartcourt Companies, Inc. and American Equities LLC, a
California limited liability company.
21.01 Subsidiaries of the Company. (1)
27.01 Financial Data Schedule. (1)
Pursuant to Rule 12b-32 under Securities and Exchange Act of 1934, as amended.
(1) Incorporated by reference to the Registrant's Registration Statement on
Form 10 and exhibits thereto, as filed with the Securities and Exchange
Commission, Registration Number 001-12671 and which was declared effective
on March 24, 1997.
(b) Reports on Form 8-K - none
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT.
The Registrant did not send an Annual Report covering the fiscal year
ending December 31, 1996 nor did it send proxy materials to security holders. If
such report and proxy materials are mailed to security holders, the Registrant
shall furnish to the Commission, for its information, four (4) copies of the
Annual Report to security holders and four (4) copies of the proxy materials.
19
<PAGE>
SIGNATURES
In accordance with Section 13 or 15 (d) of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
THE HARTCOURT COMPANIES, INC.
Date: April 15, 1997 By:/s/ Alan V. Phan
----------------
Alan V. Phan, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Alan V. Phan Chairman of the Board, April 15, 1997
- --------------------- President, Chief Executive
Alan V. Phan Officer and Chief Financial
Officer
/s/ Frederick Cohn Secretary, Treasurer and April 15, 1997
- --------------------- Director
Frederic Cohn
/s/ Kenneth Silva Vice President, Marketing April 15, 1997
- --------------------- and Sales and Director
Kenneth Silva
/s/ Michael Caruana Director April 15, 1997
- ---------------------
Michael Caruana
/s/ James De Rosa Director April 15, 1997
- ---------------------
James De Rosa
20
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Exhibit 10.13
CONSULTING AGREEMENT
This Consulting Agreement (the "Agreement") is entered into on December
30, 1996, by and between Hartcourt Companies, Inc., a Utah corporation and its
subsidiaries or affiliates (the "Company"), and American Equities LLC, a
California limited liability company ("Consultant").
WHEREAS, the Company's desires to acquire, manage and develop a large
real estate portfolio for its real estate division (the "Business"), including,
but not limited to, office, retail, industrial and multi-family properties, and
raw land;
WHEREAS, the Company recognizes that the Consultant can contribute to
the acquisition, management and development of a real estate portfolio;
WHEREAS, the Company believes it to be important both to the future
prosperity of the Business and to the Company's general interest to retain
Consultant as an exclusive consultant to the Company and have Consultant
available to the Company for consulting services in the manner and subject to
the terms, covenants, and conditions set forth herein;
WHEREAS, the Company and Consultant have entered into that agreement
dated December 20, 1996 which contains a summary of the provisions herein (the
"Term Sheet") and hereby desire to more fully document the agreement contained
in the Term Sheet in accordance with the provisions therein; and
WHEREAS, in order to accomplish the foregoing, the Company and
Consultant desire to enter into this Agreement, effective on January 1, 1997, to
provide certain assurances as set forth herein.
NOW THEREFORE, in view of the foregoing and in consideration of the
premises and mutual representations, warranties, covenants and promises
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound hereby agree as follows:
1. RETENTION. The Company hereby retains the Consultant during the
Consulting Period (as defined in Section 2 below), and Consultant
hereby agrees to be so retained by the Company, all subject to the
terms and provisions of this Agreement.
2. CONSULTING PERIOD. The Consulting Period shall commence on January 1,
1997 and terminate no earlier than December 31, 2001. After December
31, 2001, either party may terminate this agreement upon at least 30
days written notice.
3. DUTIES OF CONSULTANT. During the Consulting Period, the Consultant
shall use reasonable and best efforts to perform those actions and
responsibilities necessary to analyze, purchase, sell, refinance and
manage real property (the "Services"), throughout the world. Consultant
shall render such services diligently and to the best of its ability.
Consultant shall report to Dr. Alan V. Phan, President. Consultant
shall present various opportunities to the Company, and the Company
shall be under no obligation to accept such opportunities. The Company
shall not retain or hire any other person to perform services similar
or related to the Services, including but not limited to, real estate
brokers, mortgage brokers or property managers. The Company shall
provide all necessary financing required in order to purchase
properties approved by the Company, including cash or freely tradable
or restricted securities. Such securities
21
<PAGE>
may include freely tradable Common Stock, restricted Common Stock,
preferred stock in the Company, debt, convertible debt or any other
security.
4. OTHER ACTIVITIES OF CONSULTANT. The Company recognizes the Consultant
shall perform only those services that are reasonably required to
accomplish the goals and objectives set forth herein, and that
Consultant shall provide services to other businesses and entities
other than the Company. Consultant shall be free to directly or
indirectly own, manage, operate, join, purchase, organize or take
preparatory steps for the organization of, build, control, finance
acquire, lease or invest or participate in the ownership, management,
operation, control or financing of, or be connected as an officer,
director, employee, partner, principal, manager, agent, representative,
associate, consultant, investor, advisor or otherwise with
(collectively, be "Affiliated" with), any business or enterprise, or
permit its name or any part thereof to be used in connection with any
business or enterprise engaged in any business, including but not
limited to, any business that is the same as, substantially similar to
or otherwise competitive with, adverse, to affiliated with, or
otherwise related to the Company. Consultant may be Affiliated with any
entity which may provide services to the Company. In the event
Consultant is Affiliated with any entity which proposes to sell real
property to, or purchase real property from, the Company, Consultant
shall disclose the nature of such relationship to the Company prior to
the Company making any decision, and shall obtain the approval of the
Company, which approval shall be conclusively deemed granted upon
written notice from Dr. Alan V. Phan or his or the Company's designated
representative. The Company hereby waives any conflict of interest that
may arise from a relationship between Consultant and any entity which
Consultant is Affiliated with. This Agreement may be assigned by
Consultant to an entity designated by Consultant, whether Affiliated or
not Affiliated with Consultant, and wherever located.
Consultant shall present any real estate project which it is
considering acquiring for its own account first to the Company, and
Consultant hereby grants to the Company an exclusive right to acquire
any such real estate project prior to Consultant making such
acquisition for its own account. In the event that the Company elects
not to go forward with said acquisition of real property, Consultant
may, in and for its own account, acquire said property.
5. COMPENSATION. In consideration for Consultant entering into this
Agreement, the Company shall compensate Consultant as follows:
a. MONTHLY FEES AND BENEFITS:
i. Retainer. The Company shall pay to Consultant a non-
refundable monthly retainer of $5,000.
ii. Expenses. The Company shall pay all such expenses reasonably
incurred during the Consulting Period by the Consultant for
business purposes related to or in furtherance of the goals
and objectives of the Company and/or the provision of the
Services (collectively, "Company Purposes"), including,
without limitation, expenses incurred with respect to the
Consultant's travel (including business class travel for
flights of less than three hours and first class travel for
flights of three hours or more), meals and entertainment and
other customary and reasonable expenses for Company
Purposes. The Company shall pay such expenses directly, or,
upon submission of bills, receipts and/or vouchers by the
Consultant, by direct reimbursement to the Consultant.
iii. Automobile Allowance. The Company shall pay to Consultant an
automobile allowance of $750 per month, and shall pay for
fuel, maintenance and automobile insurance. The Company
acknowledges that Consultant may have a master
22
<PAGE>
automobile insurance policy covering more than one
automobile, and that, for purposes of this paragraph,
Consultant will reasonably determine the portion of the
insurance premium to be allocated to the automobile used by
Consultant for Company Purposes.
iv. Benefit Plans. Two employees of Consultant, which shall be
designated by Consultant, shall be entitled to participated
in and receive benefits under any retirement plan, health
and dental plan, disability plan and life insurance plan or
employee benefit plan or arrangement currently or in the
future made available by the Company to its employees and/or
consultants ("Benefit Plans") and to which Consultant is
eligible, in accordance with the terms, conditions and
overall administration of such Benefit Plans; provided,
however, that if under the terms of any Benefit Plan, the
Company shall provide the Consultant with benefits that are
substantially similar to the benefits that would have been
provided under such Benefit Plan. At the Company's option,
and with at least 30 days notice, in lieu of providing the
benefits under any or all of the Benefit Plans, the Company
may elect to pay to the Consultant a monthly amount equal to
the Company's cost of providing such benefits to Consultant.
Nothing in this Agreement shall limit the Company's ability
to adopt, terminate or amend any such benefits at any time
provided the Consultant is provided with benefits that are
at least substantially similar to the benefits provided
prior to such adoption, amendment or termination. Any
Benefit Plans that are determined according to annual
compensation shall be calculated assuming an annual salary
of $250,000 for each of Consultant's two designated
employees.
b. ADVANCE. The Company shall pay to the Consultant the following
advance and Warrants (as defined below). The Warrants and any
unearned portion of the advance described in this section shall
not be refundable and shall be considered earned by Consultant in
the event the Agreement is terminated by the Company, with or
without cause.
i. The Company shall transfer or cause to be transferred
1,000,000 shares of the Company's common stock (the "Common
Stock") as an advance against future fees to be earned from
the acquisition, sale or refinance of real property, or any
other fees due and payable hereunder. Such Common Stock
shall not be freely tradable. The Company shall be obligated
to prepare and file a registration statement (the
"Registration Statement") and amendments thereto, with the
Securities and Exchange Commission (the "Commission") for
the registration of the Common Stock under the Securities
and Exchange Act of 1933 (the "Act)") and shall be obligated
to cause such registration statement, and amendments
thereto, to be declared effective by the Commission on or
prior to May 1, 1997. The Company shall be obligated to the
Consultant to continually maintain, at the Company's own
expense, the currency and effectiveness of such registration
statement of the Company, including the filing of any and
all applications and other notifications, filings and post
effective amendments and supplements (collectively, the
"Current Registration Statement"), as may be necessary, so
as to permit the resale of the Common Stock until the
earlier of the time that all shares of Common Stock have
been sold pursuant to the Current Registration Statement or
two years from the date of the effectiveness of the
Registration Statement. In lieu of filing such Registration
Statement, the Company may exchange the Common Stock for
common stock of the Company, which is freely tradable
pursuant to a registration statement filed on Form S-8. As
fees are earned pursuant to paragraph 5(d) below, the
advance will be considered earned at the rate equal to the
Bid Price on the date prior to the date of
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this Agreement. For example, if the Bid Price on the date
prior to the execution of this Agreement was $3.00, then the
advance will have been earned after the Consultant will have
become entitled to $3,000,000 of fees pursuant to paragraph
5(d) below.
c. WARRANTS. The Company shall issue warrants to purchase Common
Stock (the "Warrants"), which shall vest immediately, and which
may be exercised by Consultant at any time through the payment of
cash or a promissory note bearing interest at six percent (6%) per
annum, at Consultant's option. The exercise price of the Warrants
shall be based on the closing bid price of the Common Stock as
quoted on the NASDAQ Bulletin Board, or such other U.S. stock
market as it shall be quoted on, on the day prior to the date of
this Agreement (the "Bid Price"). The Company shall, at its sole
expense, cause the Common Stock underlying the Warrants to be
registered with the Securities and Exchange Commission upon
demand, or upon the first registration of any of the Common Stock
of the Company after the date of this Agreement. In the event the
Company issues or sells Common Stock or any other equity
securities of the Company after the date of this agreement to any
party other than Consultant for cash consideration or non-cash
consideration which has a fair value below the closing bid price
as of the date prior to such issuance or sale, the terms of the
Warrants herein shall be adjusted so as to protect Consultant
against any dilution of its interest in the Common Stock
underlying the Warrants. Within five business days of the
execution of this Agreement, the Company shall issue the following
Warrants to Consultant and/or its assignee:
i. 400,000 Warrants at 20% of the Bid Brice
ii. 400,000 Warrants at 40% of the Bid Price
iii. 400,000 Warrants at the Bid Price
iv. 400,000 Warrants at 120% of the Bid Price
v. 400,000 Warrants at 140% of the Bid Price
d. ACQUISITION AND DISPOSITION FEES. The Company shall pay to the
Consultant the following fees for the acquisition or sale of real
property in each year during the Consulting Period, which fees may
be paid in cash or Common Stock at the closing of each
transaction:
i. Six percent (6%) of the first 100,000,000 of gross purchase
or sale price in each year;
ii. Five percent (5%) of the second $100,000,000 of gross
purchase or sale price in each year;
iii. Four percent (4%) of the third $100,000,000 of gross
purchase or sale price in each year;
iv. Three percent (3%) of the fourth $1,000,000 of gross
purchase or sale price in each year;
v. Two percent (2%) of the fifth $1,000,000 of gross purchase
or sale price in each year;
vi. 1%of the aggregate gross purchase and sales prices in each
year during the Consulting Period in excess of $600,000,000
on any one year.
e. PROPERTY MANAGEMENT, ASSET MANAGEMENT AND REFINANCING FEES. The
Company shall pay to Consultant the following fees for services to
be provided:
i. Management Fee: Six percent (6%) of all gross income or
receipts from all properties owned or controlled by the
Company ("Company Properties"), including, but not limited
to, rental fees, storage fees, application fees and any
other operating income.
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ii. Asset Management Fee: One percent (1%) per annum of the
gross value of all real property assets owned by the
Company, including, but not limited to, all Company
Properties.
iii. Refinancing Fee: One percent (1%) of the gross amount of all
refinancings that take place on any of the real property
assets owned or controlled by the Company.
iv. All fees under this section shall be payable monthly
commencing January 1, 1997. In the event the Company shall
defer payment of such fees, for a maximum of six months from
January 1, 1997, the deferred fees shall accrue interest at
1% per month.
f. THIRD PARTY COMMISSIONS. Consultant and/or its Affiliates shall be
entitled to share in any fees or commissions payable by third
parties on any transaction contemplated herein, including, but not
limited to, real estate or mortgage brokerage commissions payable
by third party sellers or purchasers arising from any acquisition
or sale of real property by the Company (a "Commission"). The
Company hereby waives any conflict of interest that may arise due
to any transaction wherein Consultant receives such a Commission,
including, but not limited to, any conflict of interest which may
arise as a result of the dual representation by Consultant of the
seller or purchaser of real property on the one hand, and the
Company on the other. The Company acknowledges that, from time to
time, the Consultant may present to the Company as a possible
acquisition real property owned or controlled by Consultant.
Consultant shall fully disclose to the Company the nature of
Consultant's interest in such real property prior to the Company
entering into any agreement to purchase said real property. In
cases in which Consultant owns or controls all or any part of real
property which has been presented to the Company as a possible
acquisition, the Company is encouraged, and shall have the right
to retain an unaffiliated consultant to assist the Company in
evaluating that property only.
6. OFFICE AND STAFF. The Company shall provide Consultant with a
reasonable office and staff, along with the necessary costs and
expenses to carry out the objectives of the Company. Such office and
staff shall be commensurate with the offices and staff reasonably
required by other companies with similar real estate assets and
operations. It is acknowledged that until such time as additional
office space and personnel are needed to service the real estate
operations of, and properties acquired by, the Company, the Company
will provide an executive suite to Consultant in the West Los Angeles
area at an approximate cost of $2,000 per month, plus operating
expenses including, but not limited to, telephone (including cellular),
utility, facsimile and copy machine charges as well as required office
staff.
7. TERMINATION. Subject to the cure provisions contained herein, the
Company may terminate the Consulting Period upon written notice for
Cause at any time. Cause shall mean that during the Consulting Period,
the Consultant engaged in gross and willful misconduct that is
materially and significantly injurious to the Company, and, after
written notice of such conduct, Consultant has failed to cease such
conduct within not less than 30 days. Any termination pursuant to this
section shall be communicated by written Notice of Intended
Termination. For purposes of this Agreement, a "Notice of Intended
Termination" shall mean a notice which shall clearly state the specific
termination provision in this Agreement relied upon and shall set forth
in reasonable and specific detail the facts and circumstances claimed
to provide a basis for termination of the Consulting Period. No Notice
of Intended Termination shall be valid unless it is signed by the
entire board of directors of the Company (the "Board").
a. Not less than 15 days after receipt of the Notice of Intended
Termination, Consultant shall have the opportunity to a full,
complete and fair hearing in the presence of the entire Board. The
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Board shall present to Consultant its reasons for the termination,
including the specific actions, inactions, omissions or other
facts relied upon by the Board in making its determination that
Consultant has engaged in gross and willful misconduct and that
the Company has the right to terminate this Agreement for Cause.
Consultant shall have the right to rebut any evidence or
allegations of wrongdoing and shall have the right to be
represented by counsel of Consultant's choice at such hearing.
After such hearing, should the Board determine that this Agreement
shall be terminated for Cause, it shall issue a written Final
Notice of Termination to Consultant, signed by all members of the
Board, setting forth in detail the specific facts, conclusions and
findings of the Board in determining that Cause exists for the
termination of this Agreement. The Final Notice of Termination
shall contain an effective termination date, which effective
termination date shall be no less than thirty (30) days from the
date of the Final Notice of Termination.
b. For a term of one (1) year, in the event the Company terminates
this Agreement, then the Company shall pay to Consultant, as
liquidated damages, 87,500 shares of freely tradable Common Stock
for each month or fraction thereof commencing with January 1, 1997
through the effective date of such termination, up to a maximum of
1,000,000 shares. All compensation paid to Consultant pursuant to
Section 5 hereof shall be deemed earned, including, but not
limited to, the Warrants; provided, however, that after Company
has delivered the liquidated damages as described above,
Consultant shall return to Company the unearned portion of the
1,000,000 shares advanced to Consultant pursuant to Section 5(a).
8. NOTICE. Any notice required, permitted or desired to be given pursuant
to any of the provisions of this Agreement shall be deemed to have been
sufficiently given or served for all purposes if delivered in person or
sent by certified mail, return receipt requested, postage and fees
prepaid, or by national overnight delivery prepaid service to the
parties at their addresses set forth above. Copies of notices to
Consultant shall be sent to the attention of Reid Breitman, Esq. at the
address below. Notice to Consultant shall be sent to Consultant at the
address below. Any party hereto may at any time and from time to time
hereafter change the address to which notice shall be sent hereunder by
notice to the other party given under this paragraph. The date of the
giving of any notice sent by mail shall be the day two days after the
posting of the mail, except that notice of an address change shall be
deemed given when received. The addresses of the parties are as
follows:
TO CONSULTANT: With a Copy to:
AMERICAN EQUITIES, LLC Reid Breitman, Esq.
1860 N. Fuller Avenue, #401 Kaye, Scholer, Fierman,
Los Angeles, California 90046 Hays & Handler LLP
Telephone: (213) 850-1478 1999 Avenue of the Stars, 17th Floor
Los Angeles, California 90067
Telephone: (310) 788-1077
TO THE COMPANY:
Dr. Alan V. Phan, President
Hartcourt Companies, Inc.
19104 S. Norwalk Blvd.
Artesia, California 90701
Telephone: (310) 403-1126
Facsimile: (310) 403-1130
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9. WAIVER. No course of dealing nor any delay on the part of either party
in exercising any rights hereunder will operate as a waiver of any
rights of such party. No waiver of any default or breach of this
Agreement or application of any term, covenant or provision hereof
shall be deemed a continuing waiver or a waiver of any other breach or
default or the waiver of any other application of any term, covenant or
provision.
10. DEFINITION OF "REASONABLE AND BEST EFFORTS". Reasonable and best
efforts shall not include the payment of any non-reimbursable
out-of-pocket costs or other payments by Consultant. Consultant shall
not guarantee, make any representation concerning (which representation
would survive the closing of any escrow or other transaction) or
warrant (1) the condition, performance, value, or profitability of any
real property purchased, sold by, or otherwise considered for purchase
by the Company; (2) the validity, marketability or insurability of any
title to any real property purchased, sold by, or otherwise considered
for purchase by the Company; (3) the validity, enforceability or value
of any leases of or pertaining to all or any part of any real property
purchased, sold by, or otherwise considered for purchase by the
Company; (4) the market value of any real property purchased, sold by,
or otherwise considered for purchase by the Company; (5) the ability to
finance, refinance or otherwise mortgage or encumber any real property
purchased, sold by, or otherwise considered for purchase by the
Company; or (6) that Consultant will find or present any real property
which the Company will consider, approve or ultimately purchase or be
able to purchase.
11. SUCCESSORS; BINDING AGREEMENTS. Prior to the effectiveness of any
succession (whether direct or indirect, by purchase, merger
consolidation or otherwise) to all or substantially all of the business
and/or assets of the Company, the Company will require the successor to
expressly assume and agree to perform it if no such succession had
occurred. As used in this Agreement, "Company" shall mean the Company
as defined above and any successor to its business and/or assets which
executes and delivers the Agreement provided for in this Section 10 or
which otherwise becomes bound by all the terms and provisions of this
agreement by operation of law.
12. SURVIVAL OF TERMS. Notwithstanding the termination of this Agreement
for whatever reason, the provisions hereof shall survive such
termination, unless the context requires otherwise.
13. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one and the same instrument. Any
signature by facsimile shall be valid and binding as if an original
signature were delivered.
14. CAPTIONS. The caption headings in this Agreement are for convenience of
reference only and are not intended and shall not be construed as
having any substantive effect.
15. GOVERNING LAW. This Agreement shall be governed, interpreted and
construed in accordance with the laws of the state of California
applicable to agreements entered into and to be performed entirely
therein. Any suit, action or proceeding with respect to this Agreement
shall be brought exclusively in the state courts of the State of
California or in the federal courts of the United States which are
located in Los Angeles, California. The parties hereto hereby agree to
submit to the jurisdiction and venue of such courts for the purposes
hereof. Each party agrees that, to the extent permitted by law, the
losing party in a suit, action or proceeding in connection herewith
shall pay the prevailing party its reasonable attorneys' fees incurred
in connection therewith.
16. ENTIRE AGREEMENT/MODIFICATIONS. This Agreement constitutes the entire
agreement between the parties and supersedes all prior understandings
and agreements, whether oral or written regarding Consultant's
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retention by the Company, including, but not limited to, the Term
Sheet. This Agreement shall not be altered or modified except in
writing, duly executed by the parties hereto.
17. WARRANTY. The Company and Consultant each hereby warrant and agree that
each is free to enter into this Agreement, that the parties signing
below are duly authorized and directed to execute this agreement, and
that this Agreement is a valid, binding and enforceable against the
parties hereto.
18. SEVERABILITY. If any term, covenant or provision, or any part thereof,
is found by any court of competent jurisdiction to be invalid, illegal
or unenforceable in any respect, the same shall not affect the
remainder of such term, covenant or provision, any other terms,
covenants or provisions or any subsequent application of such term,
covenant or provision which shall be given the maximum effect possible
without regard to the invalid, illegal or unenforceable term, covenant
or provision, the parties hereto intend that there shall be added as
part of this Agreement a term, covenant or provision as similar in
terms to such invalid, illegal or unenforceable term, covenant of
provision, or part thereof, as may be possible and be valid, legal and
enforceable.
IN WITNESS HEREOF, the parties hereto have duly executed and delivered
this Agreement as of the day and year first written above.
AMERICAN EQUITIES LLC HARTCOURT COMPANIES, INC.
By: /s/ Reid Breitman By: /s/ Alan V. Phan
- ----------------------- --------------------------
Reid Breitman, President Dr. Alan V. Phan, President
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ADDENDUM TO CONSULTING AGREEMENT
This Addendum to Consulting Agreement is entered into on December 30,
1996, by and between Hartcourt Companies, Inc., a Utah corporation and its
subsidiaries or affiliates (the "Company"), and American Equities LLC, a
California limited liability company ("Consultant").
The parties hereby acknowledge that the "Bid Price," as defined in the
Consulting Agreement, is One Dollar and Fifty Cents ($1.50).
IN WITNESS HEREOF, the parties hereto have duly executed and delivered
this Addendum as of the day and year first above written.
AMERICAN EQUITIES LLC HARTCOURT COMPANIES, INC.
By: /s/ Reid Breitman By: /s/ Alan V. Phan
- --------------------- --------------------
Reid Breitman, President Dr. Alan V. Phan, President
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December 20, 1996
Dr. Alan Phan
Hartcourt Investments, Inc.
19104 S. Norwalk Blvd.
Artesia, California 90701
Re: American Equities LLC Consulting Agreement
Dear Dr. Phan:
This letter shall clarify certain issues raised by you in connection
with the consulting agreement (the "Consulting Agreement") between American
Equities LLC ("American Equities") and Hartcourt Investments, Inc. ("Hartcourt")
and shall be incorporated as part of such Consulting Agreement reached on
December 20, 1996. Hartcourt and American Equities agree to the following:
1. Exclusivity. All real estate purchases shall be for Harcourt only.
Not to go forward with said property, Consultant agrees not to purchase said
property.
2. Minimum Performance Objective. Consultant shall have increased the
assets and/or market capitalization of Harcourt by a minimum of $50,000,000 by
December 31, 1997. In the event Consultant shall not meet this minimum
performance objective, Consultant shall return that portion of the 1,000,000
shares of Common Stock advanced to Consultant, valued at $.50 per share, which
has not been earned pursuant to the terms set forth in the Consultant Agreement,
or shall pay to Hartcourt the sum equal to the number of shares unearned
multiplied by $0.50. For purposes of the minimum performance objective, the
assets of Hartcourt shall be defined as all assets that Hartcourt acquires of
any kind, including real estate, other operating companies, all other tangible
and intangible assets, and any increase in the market capitalization of
Hartcourt. The market capitalization as of December 17, 1996 is agreed to be
$18,569,432. Therefore, if the market capitalization of Hartcourt exceeds
$68,569,432 at any time, or if the total assets of Hartcourt exceeds
approximately $82,000,000 at any time, or, if in the aggregate, the total assets
plus market capitalization of Hartcourt shall exceed $100,500,000 at any time,
this minimum performance objective will have been satisfied. To the extent any
assets are sold or removed from Hartcourt's balance sheet, this calculation will
be adjusted to the extent of the dollar value of such sale or removal so as to
reduce the minimum performance objective.
3. Expense Cap. Hartcourt shall sell to Consultant 300,000 shares of
restricted Common Stock at $0.50 per share. Hartcourt shall advance to
Consultant $50,000 to be used for the opening and operating of an office. The
initial budget to open said office shall not exceed $10,000. The parties agree
that Hartcourt shall pay the monthly operating expenses of this office pursuant
to the Consulting Agreement. Hartcourt shall advance twelve thousand dollars
($12,000) per month towards the agreed upon budget. Consultant shall advance any
portion in excess of $12,000 per month which shall be reimbursed by Hartcourt
upon approval of such expenses. Any travel expenses, except for local travel,
must be approved in advance by Hartcourt and will be reimbursed by Hartcourt.
Hartcourt agrees to set aside an additional $100,000 in a segregated account to
pay for the operating expenses of the consultant.
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IN WITNESS WHEREOF, the parties hereby agree to this modification of
the Consulting Agreement. All other terms remain the same and are in full force
and effect.
AMERICAN EQUITIES LLC HARTCOURT INVESTMENTS, INC.
By: /s/ Reid Breitman By: /s/ Alan V. Phan
- --------------------- --------------------
Reid Breitman, President Dr. Alan V. Phan, President
31
