U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 0R 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________
Commission File Number: 001-12671
The Hartcourt Companies, Inc.
(Exact name of small business issuer as specified in its charter)
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 restraint 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 March 31, 1998, The Hartcourt Companies, Inc. had 16,441,739 shares of
Common Stock Outstanding.
Transitional Small Business Disclosure Format (check one ):
Yes [ ] No [ X ]
TABLE OF CONTENTS
THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
Report on Form 10-QSB
For quarter ended
March 31, 1998
Page
PART 1 FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited )
Consolidated Balance Sheets - March 31, 1998 and December 31, 1997
3 - 4
Consolidated Statements of Operations - Three months ended March
31, 1998
and 1997
5
Consolidated Statements of Shareholders' Equity - Three Months
ended March 31, 1998
6
Consolidated Statements of Cash Flows - Three months ended
March 31, 1998 and
1997 7
Notes to the Consolidated Financial
Statements 8 - 11
Item 2. Management's Discussion and Analysis of Financial Condition
And results of
Operations 12 - 13
PART II OTHER INFORMATION
Item 1. Legal
Proceedings 14
Item 2. Changes in
Securities 14
Item 3. Defaults upon Senior
Securities 14
Item 4. Submission of Matters to Vote of Security Holders 14
Item 5. Other
Information 14
Item 6. Exhibits and Reports on Form
8-K 14
Signatures
15
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Part I THE HARTCOURT COMPAMIES INC. AND SUBSIDIARIES
Item 1. CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, 1998 December 31, 1997
CURRENT ASSETS
<S> <C> <C>
Cash $ 184,871 $ 77,688
Marketable Securities (Note 3) 4,951,063 5,474,966
Accounts receivable, net of allowance for
doubtful accounts of $76,477, in 1998 and 1997
respectively 2,500,404 2,332,977
Trade dollar receivable 15,086 22,670
Notes receivable, current portion 111,523 293,673
Inventory 2,959,961 3,541,321
Prepaid expenses 130,554 130,554
Prepaid consulting fees 664,770 664,770
Due from related parties 166,209 131,398
- - -------------- ----------------
TOTAL CURRENT ASSETS 11,684,441 12,670,017
PROPERTY AND EQUIPMENT, net 3,578,817 3,568,507
INVESTMENTS 17,906,520 17,906,520
NOTES RECEIVABLE, net of current portion 1,211,705 1,058,267
OTHER ASSETS 575,751 552,289
INTANGIBLES 9,267,045 9,365,000
--------------- --------------
TOTAL ASSETS $4,224,279 $45,120,600
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 1,976,180 2,824,419
Accrued expenses and other current
liabilities 1,438,258 1,046,881
Payable to Mexican affiliate 368,708 352,942
Line of credit - 200,000
Notes payable, related parties-current
portion 292,904 295,000
Notes payable-current
portion 208,917 205,245
Capital lease obligation-current
portion 206,771 200,222
Debentures 50,000 50,000
Subscription deposits received - 15,000
- - --------------- -----------------
TOTAL CURRENT LIABILITIES 4,541,738 5,189,709
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Item 1. THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
(cont.) CONSOLIDATED BALANCE SHEETS
(CONTINUED)
March 31, 1998 December 31, 1997
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
(cont.)
NOTES PAYABLE, RELATED PARTIES, net of current portion 125,000 125,000
NOTES PAYABLE, net of current portion 1,301,087 1,334,327
CAPITAL LEASE OBLIGATIONS, net of current portion 562,595 612,477
- - -------------- -------------
TOTAL LIABILITIES 6,530,420 7,261,513
COMMITMENT AND
CONTINGENCIES
-
SHAREHOLDERS' EQUITY
Preferred Stock
Original preferred stock, $0.01 par value,
1,000
shares 10 10
authorized, issued and outstanding
Series A, $1,000 stated value, 4,000 shares
authorized, issued and
outstanding 4,000,000 4,000,000
Series B, $1,000 stated value, 2,000
shares authorized, issued and outstanding 2,000,000 2,000,000
Series C, $1,000 par value, 1,500
shares authorized, issued and outstanding 1,250,000 1,500,000
Series D, $1,000 stated value, 10,000
shares authorized, 3,400 shares issued and 3,400,000 3,400,000
outstanding
Series AB, $1,000 stated value, 25,000
shares authorized, 270 shares issued and
outstanding 270,000 -
Class A, no par, 10,000,000 shares authorized,
none issued and
outstanding - -
- - ----------------- ----------------
TOTAL PREFERRED STOCK 10,920,010 10,900,010
Common stock, $0.01 par value, 50,000,000
shares authorized; 16,441,739
shares issued and outstanding at
March 31, 1998 and December 31,
1997 16,442 16,442
Stock subscription receivable (1,000) (26,000)
Treasury stock, at cost (24,364 shares
in 1998 and 1997) (279,928) (279,928)
Additional paid-in capital 31,083,604 31,083,604
Accumulated deficit (4,045,269) (3,835,041)
---------------- ---------------
TOTAL SHAREHOLDERS' EQUITY 37,693,859 37,859,087
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $44,224,279 $45,120,600
========== ==========
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Item 1. THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
(cont.) CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended
March 31,
1998 1997
- - -------------------------------------
REVENUES
Product Sales $ 5,102,999 $ 4,106
- - -------------- --------------
TOTAL REVENUE 5,102,999 4,106
COST OF SALES 3,746,447 4,399
- - -------------- --------------
Gross profit 1,356,552 (293)
OPERATING EXPENSES
Selling, general and
administrative 1,189,788 102,657
Depreciation and
amortization 188,282 4,725
- - ------------- --------------
TOTAL OPERATING EXPENSES 1,378,070 107,382
- - ------------- --------------
LOSS FROM OPERATIONS (21,518) (107,675)
OTHER INCOME (EXPENSES)
Interest expense (62,023) (2,241)
Interest income 9,588 8,744
- - -------------- ---------------
TOTAL OTHER INCOME (EXPENSE) (52,435) 6,503
- - -------------- ---------------
NET LOSS BEFORE INCOME TAXES (73,953) (101,172)
Income taxes 1,275 377
- - ---- ---------- ---------------
NET LOSS $ (75,228) (101,549)
======== =========
BASIC AND FULLY DILUTED LOSS PER SHARE $ (.01) $ (.01)
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 16,417,375 10,827,412
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Item 1. THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
(cont.) CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
Common
Additional Stock Total
Common Stock Preferred Stock Paid Subscription Treasury Stock Accumulated Shareholders'
Shares Amount Shares Amount Capital Receivable Shares Amount Deficit Equity
------------- --------------- ----------- ------------ -------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,December 31,1997 16,441,739 $16,442 11,900 $10,900,010 $31,083,604 $(26,000) 24,364 $(279,928) $(3,835,041) $37,859,087
Preferred Stock Issued 270 270,000 270,000
Preferred Stock Redeemed (250) (250,000) (250,000)
Preferred Stock Dividend ( 135,000) (135,000)
Stock Subscription Received 25,000 25,000
Net Loss (75,228) (75,228)
----------------- --------------- ------------ ----------- -------------- ----------- ------------
Balance, March 31, 1998 16,441,739 $16,442 11,900$10,920,010 $31,083,604$( 1,000) 24,364 $(279,928) $(4,045,269)$36,693,859
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Item 1. THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
(cont.) CONSOLIDATED STATEMENT OF CASH FLOW
(UNAUDITED)
Three months ended March 31, 1998 1997
- - -------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Loss $ (75,228) $(101,549)
Adjustments to reconcile net loss to net cash
used in operating activities:
Stock issued for services - 294,500
Accrued interest income - (3,783)
Depreciation and amortization 188,282 4,500
Changes in operating assets and liabilities:
Accounts receivable (159,974) 47,658
Inventory 581,360 (930)
Note loan receivable - 10,929
Prepaid expenses and other - (318,042)
Accounts payable and accrued expenses(321,863) 25,013
Due from related party (34,811) (6,778)
Payable to Mexican affiliate 15,766 -
- - ------------- -------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITES 193,532 (43,769)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (100,637) (600)
Deposits - (500,000)
Proceeds on sale of marketable securities 523,903 -
Payments on notes receivable 5,382 -
- - -------------- --------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 428,648 (500,600)
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock - 500,000
Common stock subscriptions 10,000 55,000
Bank overdrafts - (5,691)
Other Loans - (234)
Payments on related party payable (2,096) -
Payments on long term-debt (22,935) -
Payments on capital lease obligation (49,966) -
Payments on line of credit (200,000) -
Redemption of preferred stock (250,000) -
- - -------------- --------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (514,997) 549,075
- - -------------- ------------
NET INCREASE (DECREASE) IN CASH 107,183 (7)
CASH, BEGINNING OF PERIOD 77,688 822
- - -------------- -------------
CASH, END OF PERIOD $ 184,871 $ 815
========= ========
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Item 1. THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
(cont.) 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 operations, 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, Harcourt Investments
interest was reduced to a 52% interest in the Xinhui JV. In
September 1996, Harcourt Investments sold its investment in Xinhui
JV to CKES, Inc. of Sunnyvale, California.
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
1995 and 1996, reverse stock splits changed the number of shares
issued and outstanding to 6,110,337, then to 2,735,952. The
consolidated financial statements were restated to reflect this
capital stock transaction.
Stardust's name was changed to the "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
Harcourt 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 interest. In 1995, stock dividends and
reverse stock split changed the number of shares issued to 38,625
to acquire Harcourt Pen. The consolidated financial statements
were restated to reflect these capital stock transactions.
In August 1996, The Hartcourt Companies, Inc. (Company) entered
into a purchase and sale agreement with NuOasis International,
Inc. (NuOasis), a corporation incorporated under the laws of the
Commonwealth of the 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 Company issued 4,000,000 shares of its common stock
with respect to this purchase.
In September 1996, the Company entered into a sales agreement with
Mandarin Overseas Investment Co., Ltd. (Mandarin) and Promed
International Ltd. (Promed), both unaffiliated Turks and Caicos
chartered companies, for the purchase of their 50% interest in
sixty-eight mineral lease gold lode claims in the state of Alaska,
known as Lodestar claims 1-68 and consisting of 320 acres. All
claims are located in the Melozitna mining district near Tanana,
Alaska. The Company issued 1,298,700 shares of its common stock
with respect to this purchase.
Item 1. THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
(cont.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Organization and Nature of Operations (cont.):
In October 1997, the Company purchased the outstanding shares of
Pego Systems, Inc. (Pego) whereby Pego became a wholly owned
subsidiary of the Company. Pego, a manufacturer's representative
organization for air and gas handling equipment, offers a full
line of value added services including distribution, service and
the manufacturing of custom process equipment packages. In
connection with the purchase, the Company paid $500,000 in cash,
issued 450,000 shares of common stock, 1,500 shares of series C
redeemable preferred stock, and entered into a non-compete
agreement with Pego's majority shareholders.
On October 28, 1997, the Company, through a wholly owned
subsidiary, acquired Electronic Components and Systems, Inc. (ECS)
and Pruzin Technologies, Inc. (Pruzin) a related entity of ECS.
ECS and Pruzin specialize in high technology contract
manufacturing and assembly of printed circuit boards, phone and
cable wires. ECS has three facilities in Arizona and has a service
contract with a maquiladora in the free trade zone in Sonora,
Mexico. The Company issued 3,400 shares of Series D convertible
preferred stock, 2,500,000 shares of the Company's common stock,
$250,000 in cash and a $250,000 promissory note.
ECS maintains manufacturing operations under maquiladora
agreements in Nogales, Mexico. The 100% shareholder of the
maquiladora is also the President of ECS. A substantial amount of
ECS's cables and electronic components are manufactured and
assembled at the Mexico facility. ECS also has smaller
manufacturing facilities in Tucson and Chandler, Arizona and a
distribution facility in Nogales, Arizona.
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 and
related notes included in the Company's 1997 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 31,1998 and the results of their operations and their
cash flows for the three months ended March 31, 1998 and 1997,
respectively. The financial statements are consolidated to include
the accounts of The Hartcourt Companies and its subsidiaries
Harcourt Investments, USA, including the accounts of Hartcourt
Pen, Pego Systems, Inc. and Electronic Components and Systems,
Inc. (together "the Company").
Certain 1997 amounts have been 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 A. to the Company's financial statements as stated in its
report on Form 10-KSB for the fiscal year ended December 31, 1997.
Item 1. THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
(cont.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 3. Marketable Securities:
In July 1997, the Company entered into an agreement with Capital
Commerce, Ltd. (Capital) (an Isle of man Corporation) whereby
Capital agreed to provide the Company $6,000,000 in free trading
securities for the purchase of Pego Systems, Inc. and the
formation of Electronic Components and Systems, Inc., a Nevada
corporation. In consideration for the $6,000,000 in securities,
the Company issued to Capital $4,000,000 in Series A and
$2,000,000 in Series B, both 9% convertible preferred stock.
Dividends are declared and paid monthly at 9% per annum. The
Company pays the dividends through the issuance of Series AB
convertible preferred stock (Note 5).
As of March 31, 1998, the Company had sold $1,048,937 worth of its
securities, and has available $4,951,063. Marketable Securities
are reported at the guaranteed value of the contract.
Note 4. Supplemental Disclosure of Non-Cash Financing Activities:
Quarter Ended
Quarter Ended March 31, 1998
March 31, 1997
--------------------- ---------------------
(unaudited) (unaudited)
Cash paid for
interest and
income taxes:
Interest $ 62,023 $2,241
Taxes - -
Non-cash investing and financing activities:
Preferred stock
issued for dividends $135,000 -
Preferred stock
issued for accrued
Liabilities $135,000 -
Note 5. Capital Stock:
In October 1997, the Company's Articles were amended to
authorize the issuance of AB preferred stock. As amended, the
Articles provide that the total number of shares of Series AB
preferred are 25,000 with a stated value of $1,000 per share. The
Series AB preferred shares may be redeemed by the Company at any
time at a redemption value equal to $1,000 per share plus any
accrued and unpaid dividends to the date of redemption. In
addition, at the option of the holder of the Series AB preferred
shares, the shares may be converted into 1,334 shares of the
Company's common stock (conversion rate).
In February 1998, the Company redeemed $250,000 (250 shares) of
the Company's Series C redeemable preferred stock, pursuant to the
Pego Stock Purchase Agreement, dated October 3, 1997.
Item 1. THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
(cont.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 6. Loss per Share :
Quarter Ended
Quarter Ended
March
31,1998 March 31,1997
-------------------- ---------------------
Income (Loss) from continuous
Operations: $(75,228) $(101,549)
Less preferred stock dividends
(135,000) -
---------------- --------------
Income (Loss) available
to common shareholders
(210,228) (101,549)
Effects of dilutive
securities - -
Weighted average
shares outstanding 16,417,375 10,827,412
Basic and dilutive
earnings per share $ (.01) $ (.01)
During 1998 and 1997, the Company had 2,000,000 warrants
outstanding, each convertible into one share of common stock. In
addition, during 1998 and 1997, the company had convertible
preferred stock outstanding, each share convertible into common
stock. These instruments were not included in the computation of
diluted earnings per share for any of the periods presented, due
to their antidilutive effects based on the net loss reported for
each period.
Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations:
As discussed in the Company's annual report filed on Form 10-KSB,
during 1997 the Company actively implemented a plan to acquire
operating companies that are in established industries with a
history of growth. The Company successfully completed two
acquisitions during the fourth quarter of 1997. Pego Systems, Inc.
was acquired October 3, 1997 and the assets and liabilities and
Electronic Components and Systems, Inc. along with the assets and
liabilities of Pruzin Technologies, Inc., a related entity, were
acquired on October 27, 1997. Thus, comparing income and expenses
between the first quarter of 1998 and the first quarter of 1997 is
not meaningful.
Results of Operations:
The Company's revenue for the first three months of 1998 was
$5,103,000. Domestic writing instrument operations had minimal
activity as the Company continues to restructure from unprofitable
existing operations and seeks new business opportunities. The
Company's subsidiaries Pego Systems, Inc. (Pego) and Electronic
Components and Systems, Inc. (ECS) represent 99% of total revenues
for the quarter. Pego's revenues were $1,506,300 and ECS's
revenues were $3,559,200. ECS's revenues for the first three
months were below management's expectations as its major customer,
General Instruments, pushed production schedules out to future
production cycles.
Components of cost of sales were as follows: writing instruments
$12,851, Pego $958,961, 64% as a percent of Pego's revenue; and
ECS, $2,705,453, 76% as a percent of ECS's revenue. Consolidated
cost of sales, $3,677,265 is 72% of consolidated revenue. ECS's
cost of sales, as a percent of revenue, has returned to
management's expectations following the acquisition adjustment
that occurred in the fourth quarter of 1997.
Components of selling, general and administrative (SGA) expenses
were as follows: corporate- $74,221, Pego- $403,905 and ECS-
$850,026. SGA expenses as a percent of consolidated revenues (26%)
were better than anticipated by management. The better than
expected results were attributable to on going efforts to
eliminate unprofitable operations.
Goodwill related to the Pego and ECS acquisition is being
amortized over 25 years. Amortization costs of $95,955 were
recorded for the first three months of 1998. Depreciation expense
of $90,327 was incurred during the same period.
Interest expense incurred in connection with facilities mortgages,
notes and short-term lines of credit, capital lease obligations
and factoring agreement was $62,000 for the three months ended
March 31,1998.
Liquidity and Capital Resources:
During the first quarter of 1998, the Company sold approximately
$525,000 of its marketable securities for working capital needs of
its consolidated operations and the redemption (250 shares) of the
Company's Series C preferred stock. The Company intends to sell
additional marketable securities over the next twelve months for
any additional working capital requirements, capital expenditures
and future acquisitions that may occur. In addition, the Company
may elect to sell shares of its own common stock to overseas
investors (Regulation S) under regulations of the Securities and
Exchange Commission.
The Company's current ratio and working capital changed slightly
from December 31,1997 to March 31, 1998. Current ratio at March
31, 1998 was 2.6 compared to 2.4 at December 31, 1997. Working
capital was $7,142,703 at March 31, 1998 and $7,480,308 at
December 31, 1997.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations:
(cont.)
Liquidity and Capital Resources: cont.
The Company's operating activities provided cash of approximately
$194,000 for the three months ended March 31, 1998. The Company
had operating income, before depreciation and amortization of
approximately $113,000. In addition, decreases in inventories of
$581,360, offset by changes in accounts receivable, due from
related party and accounts payable provided an additional $81,000.
Cash provided by investing activities for the three months-ended
March 31,1998 was approximately $429,000. The Company sold
$525,000 in marketable securities, purchased of property and
equipment of $100,637 and received payments on notes receivable of
$5,382.
Financing activities consumed approximately $265,000 during the
first quarter of 1998. Payments on short-term lines of credit,
capital lease obligations; long-term debt and preferred stock
redemption accounted for the reduction in cash.
As a result of the above activities, the company experienced an
increase in cash of $107,000 for the first three months of 1998.
Business Risks:
As discussed previously, the Company intends to acquire additional
profitable operating businesses. At this time, the Company is in
negotiations with several potential acquisition candidates.
However, no definitive agreements have been reached. If any
acquisition agreements are reached in the near term, the Company
can make no assurances that it will be able to obtain the
financing necessary to complete the any transaction.
Competition:
The Company does not have any direct across the board competitors,
but does have competition within the industries its subsidiaries
operate. The Company believes that these markets are relatively
fragmented and highly competitive. The Company 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. There can
be no assurance that the Company will be able to compete in its
markets.
Management of Growth:
If the Company is successful in implementing its growth strategy,
the Company believes it could undergo a period of rapid growth
that could place a significant strain on its management, financial
and other resources. The Company's ability to manage its growth
will require it to continue to improve its operational and
financial systems and to motivate and effectively manage its
employees. If the Company grows it will have to implement new
financial, budgeting, management information and internal control
systems. The Company's success will depend upon its ability to
attract and retain highly skilled personnel. There can be no
assurance that the Company will be successful in attracting and
retaining key management, technical, marketing and sales
personnel. Its failure to do so would materially and adversely
affect the Company's business and results of operations.
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, 1997.
Item 2. CHANGES IN SECURITIES
In October 1997, the Company's Articles were amended to
authorize the issuance of AB preferred stock. As amended, the
Articles provide that the total number of shares of Series AB
preferred are 25,000 with a stated value of $1,000 per share. The
Series AB preferred shares may be redeemed by the Company at any
time at a redemption value equal to $1,000 per share plus any
accrued and unpaid dividends to the date of redemption. In
addition, at the option of the holder of the Series AB preferred
shares, the shares may be converted into 1,334 shares of the
Company's common stock (conversion rate). During the first quarter
of 1998, the Company issued 270 shares of Series AB to Capital
Commerce, Ltd.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITIES 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
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: May 18,1998 By: _/s/ Alan V. Phan
Dr. Alan V. Phan
President
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
AS OF MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000949427
<NAME> THE HARTCOURT COMPANIES, INC.
<MULTIPLIER> 1
<CURRENCY> US dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 184,871
<SECURITIES> 4,951,063
<RECEIVABLES> 2,576,881
<ALLOWANCES> 76,477
<INVENTORY> 2,959,961
<CURRENT-ASSETS> 11,684,441
<PP&E> 2,555,600
<DEPRECIATION> 190,354
<TOTAL-ASSETS> 44,224,279
<CURRENT-LIABILITIES> 4,541,738
<BONDS> 0
1,250,000
9,670,010
<COMMON> 16,442
<OTHER-SE> 26,757,407
<TOTAL-LIABILITY-AND-EQUITY> 44,224,279
<SALES> 5,102,999
<TOTAL-REVENUES> 5,102,999
<CGS> 3,746,447
<TOTAL-COSTS> 5,124,517
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62,023
<INCOME-PRETAX> (73,953)
<INCOME-TAX> 1,275
<INCOME-CONTINUING> (73,953)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (75,228)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
