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As filed with the Securities and Exchange Commission on February 28, 2000
Registration No. 333- ______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
THE HARTCOURT COMPANIES, INC.
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(Exact name of registrant as specified in its charter)
UTAH 87-0400541
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1196 E. Willow Street
Long Beach, California 90806
(562) 426-9796
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(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Dr. Alan V. Phan
1196 E. Willow Street
Long Beach, California 90806
(562) 426-9796
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(Name, address, including zip code, and telephone number, including area code,
for agent for service)
With a copy to
Sanford T. Sherman, Esq.
Jeffers, Shaff & Falk, LLP
18881 Von Karman Avenue, Suite 1400
Irvine, California 92612
Telephone (949) 475-9086
Facsimile (949) 475-9087
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
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PROPOSED PROPOSED
TITLE OF EACH CLASS OF MAXIMUM MAXIMUM
SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED UNIT(1) OFFERING PRICE REGISTRATION FEE
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
common stock 772,555(2) $12.03 $9,293,836.65 $2,453.57
common stock 13,530(3) $15.52 $209,985.60 $55.44
common stock 227,445(4) $13.19 $2,999,999.55 $792.00
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
Total 1,013,530(5) $12,503,821.80 $3,301.01
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
registration fee in accordance with Rule 457(c) and (g) under the
Securities Act of 1933, based upon the average of the bid and asked
price of the common stock as reported on the OTC Bulletin Board on
February 24, 2000.
(2) Includes a presently indeterminable number of shares of common stock,
estimated to be not more than 545,110 shares, to be offered and sold by
the selling shareholders named herein of Class II warrants upon
exercise of the Class II warrants to purchase shares of common stock.
(3) Common stock issuable upon the exercise of the Class I warrant to
purchase our common stock held by PYR Management, LLC.
(4) Common stock issuable upon the exercise of the Class I warrant to
purchase shares of common stock held by Dunwoody Brokerage Services,
Inc.
(5) The Registration Statement also covers any additional shares of common
stock which may become issuable by virtue of the antidilution
provisions of the warrants. No additional registration fee is included
for these shares.
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
(Subject to Completion, Dated February 28, 2000) PROSPECTUS
THE HARTCOURT COMPANIES, INC.
Certain of our shareholders named on page 1 of this prospectus are
offering and selling up to an estimated 1,013,530 shares of our common stock,
which includes up to (i) 240,975 shares of our common stock which are reserved
for issuance upon exercise of the Class I warrants and (ii) 545,110 shares of
our common stock issuable upon exercise of the Class II warrants.
We will not receive any of the proceeds from the sale of our common
stock by selling shareholders. However, 786,085 of the shares offered by the
selling shareholders are issuable upon the exercise of outstanding stock
purchase warrants at exercise prices ranging from $.001 to $15.52 per share. If
these warrants were exercised in full, we would receive gross proceeds of up to
$3,210,530.26.
The selling shareholders may offer and sell some, all or none of the
common stock under this prospectus. The selling shareholders may determine the
prices at which they will sell such common stock, which may be at market prices
prevailing at the time of such sale or some other price. In connection with such
sales, the selling shareholders may use brokers or dealers which may receive
compensation or commissions for such sales. Because the selling shareholders
will offer and sell the shares at various times, we have not included in this
prospectus information about the price to the public of the shares or the
proceeds to the selling shareholders.
Our common stock is quoted on the over-the-counter bulletin board under
the symbol HRCT. On February 24, 2000, the average of the bid and asked prices
of our common stock was $12.03 per share.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU
SHOULD INVEST IN OUR COMMON STOCK ONLY IF YOU CAN AFFORD TO LOSE YOUR ENTIRE
INVESTMENT. SEE "RISK FACTORS" BEGINNING ON PAGE 1 OF THIS PROSPECTUS.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the securities or passed on the
adequacy of the disclosure in this prospectus. Any representation to the
contrary is a criminal offense.
The date of this prospectus is _______________, 2000.
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No dealer, salesperson or any other person has been authorized to give
any information or to make any representations other than those contained in
this prospectus in connection with the offer made by this prospectus and, if
given or made, the information or representations must not be relied upon as
having been authorized by Hartcourt. This prospectus does not constitute an
offer to sell or a solicitation of any offer to buy any security other than the
securities offered by this prospectus, nor does it constitute an offer to sell
or a solicitation of any offer to buy the securities offered by this prospectus
by anyone in any jurisdiction in which the offer or solicitation is not
authorized, or in which the person making the offer or solicitation is not
qualified to do so, or to any person to whom it is unlawful to make an offer or
solicitation. Neither the delivery of this prospectus nor any sale made under
this prospectus shall, under any circumstances, create any implication that
information contained in this prospectus is correct as of any time subsequent to
the date of this prospectus.
SOME TERMS OF THE SALE
We have issued a Class II warrant to purchase an aggregate of
$3,000,000 of our common stock to a selling shareholder. The Class II warrant
may be exercised to purchase our common stock at any time at an exercise price
equal to $.001 per share. The number of shares the selling shareholder may
purchase is equal to $3,000,000 divided by the market price of our common stock
as such term is defined in the warrant. Currently, if the selling shareholder
exercised all of its Class II warrant, it would receive approximately 249,377
shares of our common stock.
As a result, the actual number of shares that we may issue to the
selling shareholders and which the selling shareholders may sell under this
prospectus will depend upon the market price and trading volume of our common
stock at various times. You should look at the discussion under "Selling
Shareholders" for more details about these terms.
In any event, the total number of shares which this prospectus covers
will be the maximum number of shares that we may issue to the selling
shareholders and which the selling shareholders may sell under this prospectus.
Table of Contents
Prospectus Summary..............................................................
Risk Factors....................................................................
Use of Proceeds.................................................................
Selling Security Holders........................................................
Plan of Distribution............................................................
Description of Securities to be Registered......................................
Interests of Named Experts and Counsel..........................................
Incorporation of Certain Information by Reference...............................
Disclosure of Commission Position on Indemnification for
Securities Act Liabilities....................................................
PROSPECTUS
1,013,530 Shares of Common Stock
THE HARTCOURT COMPANIES, INC.
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THE HARTCOURT COMPANIES, INC.
The Hartcourt Companies, Inc. ("Hartcourt") was incorporated in Utah in
September 1983 under the name of Stardust, Inc. After undergoing various
organizational changes, our new mission is to establish our company as a leading
Internet service provider in China. To date, we have not generated significant
revenue or positive net income from our business plan.
Our executive office is located at 1196 E. Willow Street, Long Beach,
California 90806, telephone number (562) 426-9796.
We have informed the selling shareholders that the anti-manipulative
rules under the Exchange Act of 1934, as amended (the "Exchange Act"), including
Regulation M, may apply to their sales in the market. We have furnished the
selling shareholders with a copy of these rules. We have also informed the
selling shareholders that they must deliver a copy of this prospectus with any
sale of their shares.
RISK FACTORS
An investment in our common stock is very risky. You should be aware
you could lose the entire amount of your investment. Prior to making an
investment decision, you should carefully consider the following risk factors
and the other information contained in this prospectus.
WE HAVE BEEN ENGAGED IN THE INTERNET BUSINESS FOR A VERY SHORT PERIOD OF TIME,
AND THEREFORE CANNOT PREDICT OUR SUCCESS OR FUTURE PERFORMANCE WITH ANY
REASONABLE DEGREE OF CERTAINTY.
Although we were incorporated over ten years ago, our existing line of
business commenced operations in 1999. As a result, our potential should be
considered in light of the risks, expenses, and problems frequently encountered
by companies in their early stage of development, particularly companies in new
and rapidly evolving Internet and software markets, and by companies operating
in international markets. Such risks include:
o our failure to anticipate and adapt to a developing market;
o the rejection of our products and services;
o development of superior products or services by our
competitors;
o the failure of the market to adopt the Internet as a
commercial medium; and
o the inability to identify, attract, retain, and motivate the
qualified personnel we will need to expand our operations.
There can be no assurance that we will be successful in addressing such
risks. It is likely that our expenses will exceed our revenues for the
foreseeable future, and it is possible that we will not be able to generate
enough revenue to sustain our operations.
In addition, our business has incurred net losses from inception. As a
result, we have a deficit in our retained earnings of $26,388,322 at September
30, 1999. We expect to continue to incur net losses as we continue to expend
substantial resources on sales, marketing and administration and the development
of our products and services. In addition, we currently intend to increase our
capital expenditures and operating expenses in order to expand our operations.
There can be no assurance that we will achieve or sustain profitability or
positive cash flow from our operations.
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WE MAY NOT BE ABLE TO IMPLEMENT OUR BUSINESS PLAN OR OUR GROWTH STRATEGY.
Our prospects are subject to the risks, expenses and uncertainties
frequently encountered by young companies that operate exclusively in the new
and rapidly evolving markets for Internet products and services, including the
risk that we will not be able to implement our business plan or our growth
strategy.
Successfully implementing the Internet portal portion of our business
plan depends on, among other things, our ability to:
o develop and extend the Hartcourt (SinoBull.com) brand;
o market our Internet properties to Internet users;
o develop new Internet properties;
o develop, maintain and increase the level of traffic on our
Internet properties; and
o effectively integrate new businesses and technologies into our
Internet properties.
The overall success of our business plan and growth strategy depends
on, among other things, our ability to:
o react to changing business, economic, and political
environments;
o anticipate the needs of our customers and the actions of our
competitors; and
o continue to identify, attract, retain and motivate qualified
personnel.
POTENTIAL FLUCTUATIONS IN OUR QUARTERLY RESULTS MAY ADVERSELY AFFECT OUR
OPERATING RESULTS, FINANCIAL CONDITION AND THE TRADING PRICE OF OUR COMMON
STOCK.
We cannot predict with any significant degree of certainty our
quarterly revenue and operating results, which have fluctuated in the past and
will likely fluctuate in the future. As a result, we believe that
period-to-period comparisons of our revenues and results of operations are not
necessarily meaningful and you should not rely upon them as indicators of future
performance. It is likely that in one or more future quarters our results may
fall below the expectations of analysts and investors. In such event, the
trading price of our common stock would likely decrease.
Our quarterly operating results may fluctuate significantly in the
future due to several factors, many of which are beyond our control. These
factors include the rate at which customers subscribe to our services, the
prices subscribers pay for such services, subscriber turnover rates and the
demand for Internet services. Additional factors that may affect our quarterly
operating results generally include the amount and timing of capital
expenditures and other costs relating to the expansion of our business, our or
our competitors' introduction of new Internet services, price competition or
pricing changes in the Internet industry, technical difficulties or network
downtime, general economic conditions and economic conditions specific to the
Internet and Internet media. Because we rely on revenue forecasts when
committing to a significant portion of our future expenditures, we may not be
able to adjust our spending in the event of revenue shortfalls. Consequently,
such shortfalls could have an immediate material adverse effect on our business
and financial condition and operating results. We also plan on increasing our
operating expenditures to fund increased sales and marketing efforts, general
and administrative activities and to strengthen our infrastructure. To the
extent that these expenditures are not accompanied by a commensurate increase in
revenues, our business, operating results and financial condition could be
materially adversely affected.
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OUR NETWORK'S SCALABILITY AND SPEED ARE UNPROVEN AND ITS VIABILITY HAS NOT BEEN
TESTED AT FULL CAPACITY.
Because we only recently initiated our services, we do not know whether
we will be able to connect and manage a substantial number of online subscribers
at high transmission speeds. If we achieve our expected subscriber levels, we
may not be able to maintain our system's superior performance. While peak
downstream data transmission speeds approach 10 megabits per second, the actual
downstream data transmission speeds over our system could be significantly
slower due to several factors, including the type and location of content,
Internet traffic, the number of active subscribers at the time and the
capability of modems used by such subscribers. As subscriber penetration
increases, we may need to augment our equipment in order to maintain adequate
downstream data transmission speeds. A subscriber's actual data delivery speed
also may be significantly lower than peak data transmission speeds due to the
subscriber's hardware, operating system and software configurations. Due to the
foregoing factors, as the number of subscribers to our system increases, we
cannot guarantee that we will be able to achieve or maintain high-speed data
transmission. Our failure to achieve or maintain high-speed data transmission
could significantly reduce consumer demand for our services and have a material
adverse effect on our business, operating results and financial condition.
MARKET ACCEPTANCE OF OUR SERVICES SUBSTANTIALLY DEPENDS UPON THE CONTINUED
GROWTH OF ONLINE COMMERCE AND INTERNET USAGE.
The markets for online commerce and Internet access services are at an
early stage of development and are rapidly evolving. As is typical for new and
rapidly evolving industries, demand and market acceptance for recently
introduced services are subject to a high level of uncertainty. In the case of
our Internet services, this uncertainty is compounded by the risks that
consumers will not adopt online commerce and that an appropriate infrastructure
necessary to support increased commerce on the Internet will fail to develop.
Critical issues concerning the commercial use of the Internet remain unresolved
and may affect the growth of Internet use, especially in the business and
consumer markets we have targeted. Inconsistent quality of service, the
unavailability of cost-effective, high-speed service, and a limited number of
local access points for corporate users, have deterred many consumers from
purchasing Internet access services. In addition, the inability to integrate
business applications on the Internet, and inadequate security to protect
confidential information have deterred consumers. The adoption of the Internet
for commerce and communications, particularly by those individuals and
enterprises that have historically relied upon alternative means of commerce and
communications, generally requires an understanding and acceptance of a new way
of conducting business and exchanging information. In particular, enterprises
that have already invested substantial resources in other means of conducting
commerce and exchanging information, or in relationships with other Internet
service providers, may be reluctant and slow to adopt a new strategy that may
make their existing personnel, infrastructure and relationships with other
service providers obsolete. If these markets fail to develop or develop more
slowly than expected, or if Internet usage decreases, our business, operating
results and financial condition may be materially adversely affected.
A FAILURE OF OUR SYSTEM COULD CAUSE INTERRUPTION OF OUR INTERNET SERVICES.
Our operations are dependent upon our ability to support our highly
complex network infrastructure and avoid damage from fires, earthquakes, floods,
power losses, telecommunications failures and similar events. The occurrence of
any one or more of these events could interrupt our services and materially
disrupt our operations. In addition, the failure of any of our service providers
to provide the communications capacity we require could interrupt our services
and materially disrupt our operations. Any systems damage or failure that
disrupts our operations could increase our operating costs and reduce our
operating income, and could have a material adverse effect on our business,
financial condition and prospects.
3
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WE MUST RESPOND QUICKLY TO TECHNOLOGICAL DEVELOPMENTS, INTRODUCTIONS OF NEW
COMPETING PRODUCTS AND SERVICES, AND EVOLVING INDUSTRY STANDARDS TO REMAIN
COMPETITIVE.
The markets for consumer and business Internet access services, online
content and data transmission services are characterized by rapid technological
developments, frequent introductions of new products and services, and evolving
industry standards. In order to remain competitive in these rapidly evolving
markets, we must continually improve the performance, features and reliability
of our network, Internet content and consumer and business services,
particularly in response to competitive offerings. We cannot assure you that we
will be able to respond quickly, cost effectively and sufficiently to any such
developments. The market opportunity for our Internet services may be limited or
short-lived. We cannot guarantee that we will successfully achieve widespread
acceptance of our services before competitors offer products and services with
performance features similar to our current offerings. Our inability to respond
quickly to any such developments could cause us to lose substantial market share
and could have a material adverse effect on our business, operating results and
financial condition.
WE WILL NEED SUBSTANTIAL CAPITAL INVESTMENTS TO FUND OUR FUTURE OPERATIONS.
Our business is very capital intensive. Because we intend to continue
our expansion efforts into additional markets, we may be required to seek
additional capital in the future through equity or debt financings or credit
facilities in order to fund such growth. We have no commitments for such
additional financing. We cannot guarantee that we will be successful in
obtaining such additional financing or that it will be available on satisfactory
terms when needed. If we are unable to obtain such additional funding in a
timely manner, we may be unable to expand into additional markets and implement
our business plan.
WE HAVE HAD NET LOSSES IN RECENT FISCAL PERIODS AND OUR AUDITORS HAVE EXPRESSED
DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.
We have had net losses in recent fiscal periods. We expect to incur
losses as we expend substantial resources on sales, marketing and administration
and the development of our products and services.
Our auditors, Harlan & Boettger have stated in the opinion on our
financial statements for fiscal year 1998 that there is doubt, as of December
31, 1998 as to whether we will be able to pay our liabilities in the normal
course of our business and thus continue as a going concern. We believe that we
have strengthened our financial position since that time by raising gross
proceeds of $3,000,000 in a private placement in January 2000. However, it is
possible that in the future our capital expenditures and operating losses will
limit our ability to pay our liabilities in the normal course of business and
that we may not be able to continue as a going concern.
THE TERMINATION OF ANY OF OUR RELATIONSHIPS WITH THIRD PARTIES UPON WHOM WE RELY
FOR ITEMS THAT ARE CRITICAL TO OUR OPERATIONS COULD ADVERSELY AFFECT OUR
BUSINESS.
We depend on arrangements with third parties for a variety of goods and
services that are critical to our operations. There can be no assurance that our
existing arrangements will result in sustained business partnerships, successful
service offerings, significant traffic on our Internet properties or significant
revenues. We cannot give you any assurance that these arrangements will continue
in the future, nor can there be any assurance that these arrangements will
generate significant revenues.
4
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ANY POTENTIAL ACQUISITIONS WE MAKE COULD DISRUPT OUR BUSINESS AND HARM OUR
FINANCIAL CONDITION.
While we have not identified any specific acquisitions, an element of
our growth strategy includes the acquisition of companies we believe have
synergistic business models. Acquisitions entail a number of risks that could
materially and adversely affect our business and operating results, including:
o problems integrating the acquired operations, technologies or
products;
o diversion of our management's time and attention from our core
business;
o difficulties in retaining business relations with suppliers
and customers of the acquired company;
o risks associated with entering markets in which we lack prior
experience; and
o potential loss of key employees from the acquired company.
WE MAY FACE POTENTIAL LIABILITY FOR FAILING TO PROTECT SUBSCRIBER INFORMATION
AND SYSTEMS FROM UNAUTHORIZED ACCESS, COMPUTER VIRUSES AND OTHER DISRUPTIVE
PROBLEMS.
Our network may be vulnerable to unauthorized access, computer viruses
and other disruptive problems. Internet service providers and online service
providers in the past have experienced, and in the future may experience,
interruptions in service as a result of the accidental or intentional actions of
Internet users, current and former employees or others. Unauthorized access
could also potentially jeopardize the security of confidential information
stored in our or our subscribers' computer systems. This may result in our
becoming liable to our subscribers and also might deter potential subscribers.
Prior industry-standard security measures employed by us have been susceptible
to circumvention. Accordingly, we cannot guarantee that new industry-standard
security measures employed by us will not be circumvented. Eliminating computer
viruses and alleviating other security problems may require interruptions,
delays or cessation of service to our subscribers. Any such interruptions,
delays or cessation of service to our subscribers, could have a material adverse
effect on our business, operating results and financial condition.
DIRECT AND INDIRECT GOVERNMENT REGULATION CAN ADVERSELY AFFECT OUR BUSINESS.
Our services are subject to current regulations of the Federal
Communications Commission. In addition, changes in the regulatory environment
relating to the Internet connectivity market could affect the prices at which we
may sell our services. These include regulatory changes that, directly or
indirectly, affect telecommunications costs, limit usage of subscriber-related
information or increase the likelihood or scope of competition from the regional
Bell operating companies or other telecommunications companies. For example,
regulations recently adopted by the Federal Communications Commission are
intended to subsidize Internet connectivity rates for schools and libraries,
which could affect demand for our services. We cannot predict the impact, if
any, that future regulation or regulatory changes might have on our business.
Any changes in law or regulations directly or indirectly relating to
telecommunications and the Internet, whether in the United States or abroad,
could materially adversely affect our business, operating results, financial
condition, prospects and ability to repay our debts. W
WE MAY FACE POTENTIAL LIABILITY FOR DEFAMATORY OR INDECENT CONTENT.
The law relating to liability of Internet service providers and online
service providers for information carried on or disseminated through their
networks is currently unsettled. A number of lawsuits have sought to impose
liability for defamatory speech and indecent materials. A recent federal statute
seeks to impose liability, in some circumstances, for transmission of obscene or
indecent materials. In one case, a court has held that an online service
provider could be found liable for defamatory matter provided through its
5
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service, on the grounds that the service provider exercised active editorial
control over postings to its service. Other courts have held that Internet
service providers and online service providers may, under certain circumstances,
be subject to damages for copying or distributing copyrighted materials. The
Telecommunications Act of 1996 prohibits, and imposes criminal penalties and
civil liability for using, an interactive computer service for transmitting
indecent or obscene communications. Because of the potential liability on
Internet service providers or online service providers for materials carried on
or disseminated through their systems, we may have to implement costly measures
to reduce our exposure to such liability. Consequently, we may be required to
expend substantial resources or discontinue certain product or service
offerings. In addition, our business, operating results and financial condition
could be adversely affected if we become liable for information carried on our
network.
WE ARE HIGHLY DEPENDENT ON THE CONTINUED EXPANSION OF THE INTERNET
INFRASTRUCTURE AND COMMERCIAL USE OF THE INTERNET.
The Internet has experienced, and is expected to continue to
experience, significant growth in the number of users and amount of traffic. The
current Internet infrastructure may not be able to support the demands placed on
it by this continued growth. Our business, operating results or financial
condition will be materially adversely affected if:
o critical issues concerning the commercial use of the Internet
are not favorably resolved;
o the necessary infrastructure is not developed; or
o the Internet does not become a viable commercial marketplace.
Several critical issues concerning the commercial use of the Internet
remain unresolved, including:
o security of information transferred via the Internet;
o reliability of the Internet;
o cost of using the Internet;
o ease of use;
o accessibility to the Internet; and
o quality of the services provided via the Internet.
Use of the Internet could also be adversely affected by delays in the
development or adoption of new standards and protocols, or an increase in
governmental regulation. Such issues may negatively affect the growth of
Internet use or the attractiveness of commerce and communications on the
Internet and, therefore impede our ability to grow.
WE ARE EXPOSED TO THE RISKS ASSOCIATED WITH PERIODIC FOREIGN ECONOMIC DOWNTURNS
AND FLUCTUATIONS IN FOREIGN CURRENCY EXCHANGE AND INTEREST RATES.
We expect that the international markets will represent most of our
business and our revenues for the foreseeable future. Revenues from outside of
the United States expose us to currency exchange rate fluctuations and to
fluctuating foreign interest rates. Past and future economic downturns in the
Asia Pacific region and the devaluation of Asian currencies against the U.S.
dollar have affected and in the future could affect our operating results. We do
not currently, but may in the future, hedge our receivables denominated in
foreign currencies. We cannot predict whether exchange rate fluctuations will
have a material adverse effect on our operations and financial results in the
future.
6
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BECAUSE WE MAY EARN REVENUES AND INCUR COSTS IN CHINESE RENMINBI, WE MAY BE
ADVERSELY AFFECTED BY CHANGES IN ITS RELATIVE VALUE.
We expect to sell our products and services in China and anticipate
that we will earn revenues and incur costs in the Chinese Renminbi. As a result,
we will be subject to the following risks associated with the Renminbi:
o the Renminbi is not a freely convertible currency; and
o conversion between the Renminbi and foreign currencies is
subject to government approval.
On January 1, 1994, the People's Bank of China implemented a managed
floating exchange rate system based on the market supply and demand of the
Renminbi and proposed to establish a unified foreign exchange inter-bank market
among designated banks. In place of the official rate and the swap center rate,
the People's Bank of China publishes a daily exchange rate for Renminbi based on
the previous day's dealings in the inter-bank market. It is expected that swap
centers will be phased out. However, the unification of exchange rates does not
imply full convertibility of Renminbi into U.S. dollars or other foreign
currencies. Payment for imported materials and remittance of earnings outside of
China are subject to the availability of foreign currency that is dependent on
official exchange rates set by the Chinese government. Approval for exchange at
the exchange center is granted to enterprises in China for valid reasons such as
the purchase of imported goods and the remittance of earnings. While conversion
of Renminbi into foreign currencies can generally be effected at the exchange
center, we cannot guarantee that it can be effected at all times. In the event
of shortages of foreign currency, we may be unable to convert sufficient
Renminbi into foreign currency to enable us to comply with foreign currency
payment obligations we may have.
WE WILL CONTINUE TO EXPAND OUR BUSINESS INTO INTERNATIONAL MARKETS AND THIS WILL
EXPOSE US TO THE RISKS ASSOCIATED WITH DOING BUSINESS IN EMERGING MARKETS, SUCH
AS THE RISK OF POLITICAL, CIVIL AND ECONOMIC INSTABILITY.
A key part of our business plan is to develop Hartcourt (SinoBull.com)
properties in international markets. To date, we have only limited experience in
developing, marketing and operating our products and services internationally.
International markets we have selected may not develop at a rate that supports
our level of investment.
In addition, we will face certain risks in doing business on an
international level, including:
o unexpected changes in regulatory requirements;
o trade barriers;
o difficulties in staffing and managing foreign operations
because of language and cultural differences;
o longer payment cycles;
o currency exchange rate fluctuations;
o problems in collecting accounts receivable;
o political and economic instability;
o import and export restrictions;
o seasonal fluctuations in business activity; and
o adverse tax consequences.
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These risks are dynamic and difficult to quantify. Many Asian
governments have liberalized their policies on international trade, foreign
ownership and development, investment and currency repatriation. While this has
increased both international trade and investment in Asia, such policies might
change unexpectedly.
OUR OPERATIONS IN CHINA ARE SUBJECT TO CHANGES IN GOVERNMENTAL AND ECONOMIC
POLICIES.
Our operations in China are subject to the rules and restrictions
imposed by China's legal and economic system as well as general economic and
political conditions in China.
In the past, China has had a centralized economy with rigid economic
controls imposed by the Chinese government. More recently, China has begun to
pursue economic reform policies that have improved business conditions in China
for foreign companies. We cannot give you any assurance that the Chinese
government will continue to pursue such policies, or that such policies will be
successful. In addition, China does not have a well-developed body of law
governing foreign enterprises, such as the permissible percentage of foreign
investment and permissible rates of equity returns. Official Chinese statements
regarding these evolving policies have been conflicting and are subject to broad
interpretation and modification.
As a result, our operations may be adversely affected by one or more of
the following:
o new laws or regulations, or different interpretations of
existing laws and regulations;
o preemption of provincial or local laws by national laws;
o our ability to timely obtain the necessary administrative
approvals;
o our ability to comply with applicable administrative
requirements;
o content restrictions on our Internet properties;
o confiscatory taxation;
o restrictions on imports;
o currency devaluations;
o expropriation or nationalization of our operations, which
could result in the total loss of ownership and control of any
assets or operations that we develop in China; and
o adoption of measures intended to reduce inflation, such as
price controls.
WE ARE SUBJECT TO REGULATION BY THE CHINESE MINISTRY OF POSTS AND
TELECOMMUNICATIONS AND OTHER GOVERNMENT AGENCIES.
The Ministry of Posts and Telecommunications regulates the
telecommunications industry in China. The Ministry of Posts and
Telecommunications directly or indirectly regulates:
o entry into the telecommunications industry;
o scope of permissible business;
o interconnection and transmission line arrangements;
o technology and equipment standards; and
o other aspects of the Chinese telecommunications industry.
This regulation may limit our ability to respond to certain development
opportunities in China. In addition, changes in existing regulations or policies
or adoption of new regulations or policies could have an adverse effect on our
operations in China.
8
<PAGE>
In addition, governmental agencies in China may:
o require us to obtain licenses in order to commence our
business;
o revoke or suspend any licenses we may have;
o regulate the rates that we will be permitted to charge for
telecommunications services; or
o impose or change the tariffs or fees on our operations.
Any of these actions could have an adverse effect on our operations in
China.
WE MUST ATTRACT AND RETAIN QUALIFIED EMPLOYEES TO SUCCEED IN OUR BUSINESS PLAN.
Current economic conditions make it difficult to attract, compensate
and retain qualified employees. We expect to hire additional personnel in all
segments of our business and in all of the markets in which we conduct business.
Our success will depend on getting the right people involved in our continued
growth and development. Our business could be materially adversely affected if
we are not able to attract new, qualified employees, or retain and motivate our
existing employees.
WE DEPEND ON OUR KEY PERSONNEL.
Certain of our employees are particularly valuable to us because:
o they have specialized knowledge about our company and
operations;
o they have specialized skills that are important to our
operations;
o they are integral to the management of our operations; or
o they would be particularly difficult to replace.
We depend on the continued service of these key personnel. The loss of
any of these employees could dramatically affect our productivity until we find
and train a replacement.
We do not maintain key person life insurance for any of our personnel.
As a result, we are exposed to the costs associated with the death of one or
more of our key employees.
WE LACK DISINTERESTED, INDEPENDENT DIRECTORS.
Our directors have a direct financial interest in our company. While
our management believes that our current directors will be able to exercise
their fiduciary duties as directors, there may exist inherent conflicts of
interest in the execution of their duties.
IT MAY BE DIFFICULT FOR A THIRD PARTY TO ACQUIRE OUR COMPANY, AND THIS COULD
DEPRESS OUR STOCK PRICE.
Our articles of incorporation provide that the holders of the original
preferred stock have the right to elect three of the five members of our board
of directors. This provision could delay, defer prevent a change in control of
our company or our management. This provision could also discourage proxy
contests and makes it more difficult for you and our other shareholders to elect
directors and take other corporate actions. As a result, this provision could
limit the price that investors are willing to pay in the future for shares of
our common stock.
THE LIQUIDITY OF OUR COMMON STOCK WOULD BE RESTRICTED IF OUR COMMON STOCK FALLS
WITHIN THE DEFINITION OF A PENNY STOCK.
Under the rules of the Securities and Exchange Commission, if the price
of our common stock on the OTC Bulletin Board is below $5.00 per share, our
common stock will come within the definition of a "penny stock." As a result, it
is possible that our common stock may become subject to the "penny stock" rules
and regulations.
9
<PAGE>
Broker-dealers who sell penny stocks to certain types of investors are
required to comply with the Commission's regulations concerning the transfer of
penny stock. These regulations require broker-dealers to:
o make a suitability determination prior to selling penny stock
to the purchaser;
o receive the purchaser's written consent to the transaction;
and
o provide certain written disclosures to the purchaser.
These requirements may restrict the ability of broker-dealers to sell
our common stock and may affect your ability to resell our common stock.
THE SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK THAT ARE ELIGIBLE FOR
FUTURE SALE IN THE PUBLIC MARKET COULD ADVERSELY AFFECT PREVAILING MARKET PRICES
OF OUR COMMON STOCK OR LIMIT OUR ABILITY TO RAISE ADDITIONAL CAPITAL.
Future sales of substantial amounts of our common stock in the public
market, or the perception that these sales might occur, could adversely affect
the prevailing market price of our common stock or limit our ability to raise
additional capital. We currently have 30,003,622 shares of our common stock
issued and outstanding.
No precise prediction can be made of the effect, if any, that market
sales of our common stock or the future availability of shares for sale will
have on the market price of our common stock from time to time. Sales of
substantial amounts of our common stock in the public market could adversely
affect prevailing market prices and limit our ability to raise additional
capital.
THE EXERCISE OF THE CLASS II WARRANT BY THE SELLING SHAREHOLDER MAY LOWER THE
MARKET PRICE OF OUR COMMON STOCK AND SUBSTANTIALLY DILUTE THE INTERESTS OF OTHER
HOLDERS OF OUR COMMON STOCK.
THE CLASS II WARRANT IS EXERCISABLE AT A RATE BELOW THE PREVAILING
MARKET PRICE OF OUR COMMON STOCK.
We have issued a warrant to purchase a number of shares of our common
stock equal to the stated value of $3,000,000 divided by the market price of our
common stock. The per share exercise price is equal to $.001 per share. However,
the number of shares issuable upon exercise of the Class II warrant is equal to
$3,000,000 divided by the market price of our common stock, as such term is
defined in the warrant. Accordingly, the number of shares issuable upon exercise
of the Class II warrant is a floating number. As a result, the lower the price
of our common stock is at the time the holder exercises the warrant, the more
shares of our common stock that such holder will receive. This right of the
holder of the Class II warrant to receive more shares of our common stock at
increasingly lower prices, may materially reduce the price of our common stock
to the detriment of our other shareholders.
THE EXERCISE OF OUR CLASS II WARRANT AND SALE OF MATERIAL AMOUNTS OF
OUR COMMON STOCK COULD REDUCE THE PRICE OF OUR COMMON STOCK AND ENCOURAGE SHORT
SALES.
As the selling shareholder exercises the Class II warrant and then
sells the common stock, our common stock price may decrease due to the
additional shares in the market. As the price of our common stock continues to
decrease, the selling shareholder will be able to exercise its Class II warrant
into a larger number of shares of our common stock. This may encourage short
sales, which could place further downward pressure on the price of our common
stock.
10
<PAGE>
THE EXERCISE OF OUR CLASS II WARRANTS MAY SUBSTANTIALLY DILUTE THE
INTERESTS OF OTHER HOLDERS.
The holder of our Class II warrant may exercise and sell the full
amount of the shares of common stock issuable upon exercise. As additional
shares of our common stock are sold, the price of our common stock may decrease
and entitle the holder of the Class II warrant to receive a greater number of
shares of our common stock upon exercise of the Class II warrant. As a result,
more shares of our common stock will be available for sale by the selling
shareholders, who may sell the full amount issuable upon exercise of the Class
II warrant. Accordingly, the exercise of the Class II warrant by the selling
shareholder may result in substantial dilution to the interests of the other
holders of our common stock.
OUR STOCK PRICE IS VOLATILE.
Our common stock's trading price could be subject to wide fluctuations
in response to quarterly variations in operating results, or in response to our
competitors' announcement of technological innovations or new products, and
other events or factors. In addition, in recent years the stock market has
experienced extreme price and volume fluctuations that have had a substantial
effect on the market prices for many computer, Internet and emerging growth
companies, which may be unrelated to the operating performance of the specific
companies. General market price declines or market volatility in the future
could adversely affect the price of our common stock, and thus, the current
market price may not be indicative of future market prices.
WE DO NOT INTEND TO PAY CASH DIVIDENDS ON OUR COMMON STOCK IN THE NEAR FUTURE.
The holders of our common stock are entitled to receive dividends when,
and if, declared by our board of directors out of funds legally available for
the payment of such dividends. To date, we have not paid any cash dividends. Our
board of directors does not intend to declare any cash dividends in the
foreseeable future, but instead intends to retain any and all earnings for use
in our business operations. Since we may be required to obtain additional
financing, it is likely that the terms of such financing will impose
restrictions on our ability to declare any dividends.
OUR SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus, in particular the
"Risk Factors" sections, discuss future expectations, contain projections of
results of operation or financial condition or state other unknown risks,
uncertainties, and other factors that could cause our actual results to differ
materially from those contemplated by the statements. The forward-looking
information is based on various factors and is derived using numerous
assumptions. Important factors that may cause actual results to differ from
projections include, for example: the success or failure of our management's
efforts to implement our business strategy, our ability to raise sufficient
capital to meet operating requirements, our ability to compete with major
established companies, the effect of changing economic conditions, our ability
to attract and retain quality employees, and other risks that may be described
in future filings with the Commission. We do not promise to update
forward-looking information to reflect actual results or changes in assumptions
or other factors that could affect those statements.
11
<PAGE>
USE OF PROCEEDS
We will not receive any of the proceeds from the offer and sale of the
shares by the selling shareholders. However, 786,085 of the shares offered by
the selling shareholders are issuable upon the exercise of outstanding warrants
at exercise prices ranging from $.001 to $15.52 per share. If these warrants
were exercised in full, we would receive up to $3,210,530.26 in the aggregate.
SELLING SHAREHOLDERS
The common stock covered by this prospectus consists of 227,445 shares
of our common stock, Class I warrants to purchase 240,975 shares of our common
stock and 545,110 shares of our common stock issued or issuable upon exercise of
Class II warrants. The selling shareholders acquired all of the stock and
warrants in exchange for a cash investment given to us on January 26, 2000.
The number of shares that may be actually sold by the selling
shareholders will be determined by the selling shareholders. Because the selling
shareholders may sell all, some or none of the shares of common stock that they
hold, and because the offering contemplated by this prospectus is not currently
being underwritten, no estimate can be given as to the number of shares of our
common stock that will be held by the selling shareholders upon termination of
the offering.
The following table sets forth information as of February 24, 2000
regarding the selling shareholders. The information presented is based on data
furnished to us by the selling shareholders and assumes exercise prices for the
warrants ranging from $.001 to $15.52 per share. The actual number of shares of
our common stock issuable upon exercise of the Class II warrants is subject to
adjustment and could be materially less or more than the amount set forth in the
table below, depending on factors which we cannot predict at this time,
including, among other factors, the future price of our common stock.
Under the registration rights agreement, we are required to register
for resale all of the shares issued to the selling shareholders in the private
placement and the shares issuable to the selling shareholders upon full exercise
of the Class I and the Class II warrants. There is no limit on this number of
shares. If the Class I warrants and Class II warrants were exercised in full at
the exercise price of $13.19, only 454,890 shares would be issued and available
for resale under this prospectus.
Pursuant to the terms of the Regulation D Subscription Agreement, the
Class I and Class II warrants are exercisable by the selling shareholders only
to the extent that the number of shares thereby issuable, together with the
number of shares of our common stock owned by such selling shareholders, would
not exceed 4.9% of the then outstanding shares of our common stock as determined
in accordance with Section 13(d) of the Securities Exchange Act of 1934.
Accordingly, the number of shares of our common stock set forth in the third and
fourth columns in the table below for the selling shareholders exceeds the
number of shares of our common stock that the selling shareholders beneficially
own in accordance with Section 13(d) as of February 24, 2000. This 4.9% limit
may not prevent any holder from exercising its warrants, because the holder can
exercise warrants to purchase 4.9% of our outstanding common stock, then sell
all of that stock to permit it to engage in further exercises. As a result, the
4.9% limit does not prevent the selling shareholders from selling more than 4.9%
of our common stock.
The percentages shown in the table are based upon 30,003,627 shares
issued as of the date of this prospectus. The numbers shown in the column
"Shares Being Offered" include additional shares that may be issuable to the
selling shareholders upon exercise of the Class I warrants and Class II
warrants.
12
<PAGE>
At our election, but subject to specific conditions, the Class I
warrants and Class II warrants are not exercisable for shares if, upon exercise,
the number of shares to be received would be more than 20% of the total number
of ordinary shares in issue.
The selling shareholders have advised us that they are the beneficial
owners of the shares being offered.
<TABLE>
<CAPTION>
Name and address of selling Number of shares Percent of class of Number of
shareholder beneficially shares beneficially shares offered
owned prior to owned prior to the hereby
the offering offering
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dunwoody Brokerage Services, Inc.(1) 13,530 * 13,530
1080 Holcomb Bridge Road
200 Roswell Summit, Suite 285
Roswell, GA 30076
PYR Management, LLC 454,890(2) 1.5% 1,000,000(3)
440 South LaSalle Street
Suite 700
Chicago, IL 60605
</TABLE>
*Represents less than 1%
(1) Dunwoody Brokerage Services, Inc. is beneficially owned and controlled
by Robert L. Hopkins and Dwight Bronhum.
(2) Includes 227,445 shares of our common stock that are subject to a
warrant that is exercisable in full.
(3) Includes up to: (i) 227,445 shares of our common stock issuable upon
exercise of the Class I warrant and (ii) 545,110 shares of our common
stock issuable upon exercise of the Class II warrant. The number of
shares that will ultimately be issued upon exercise of the Class II
warrant held by the selling shareholder depends upon the market price
of our common stock. By their terms, the Class I warrant and the Class
II warrant cannot be exercised at any time to the extent that exercise
would result in the selling shareholder having beneficial ownership of
more than 4.9% of the total number of shares of our common stock
outstanding at the time of exercise.
PRIVATE PLACEMENT TO SELLING SHAREHOLDERS
On January 26, 2000, PYR Management, LLC purchased from our company
a total of 227,445 units, with each unit consisting of one share of our common
stock and one Class I warrant. The purchase price was $13.19 per unit for a
total purchase price of $3,000,000. Along with the units, we also issued to the
selling shareholder a Class II warrant that entitles the selling shareholder to
purchase an unlimited number of additional units at an exercise price of $.001
per unit. As described below, the exercise price and the number of shares
issuable under the warrants are subject to various adjustments.
THE CLASS I WARRANTS
The selling shareholder received units that included a Class I
warrant to purchase 227,445 shares of our common stock prior to any adjustment.
The exercise price of the warrants was set at 85% of the five-day average bid
price for our shares of common stock prior to January 26, 2000.
13
<PAGE>
The warrants contain standard weighted average, anti-dilution
provisions designed to protect the selling shareholders if we sell or are deemed
to sell any shares or ordinary shares at below market price during the term of
the warrants, which ends on January 26, 2005.
Further, the exercise price of the Class I warrant is subject to
adjustment at the dates shown below. The adjusted price is the closing bid price
for the shares of our common stock in the five days preceding the adjustment
date, if less than the original unit price or any preceding adjustment. The
dates are:
1. the effective date of the registration statement of which this
prospectus is a part;
2. three months after the effective date of the registration
statement;
3. nine months after the effective date of the registration
statement; or
4. at any time between January 26, 2000 and January 26, 2002 that
we sell any equity security at a price less than the adjusted
price then in effect.
THE CLASS II WARRANT
The following table illustrates the number of shares issuable upon
exercise of the Class II warrants and the percentage ownership that each
represents assuming:
o the average bid price is 25%, 50%, 75% and 100% of the $13.19
price determined when the warrants were issued
o the number of shares of our common stock outstanding is the
number outstanding on January 31, 2000, which was 25,346,519
Percent of Bid Price Shares Issuable Shares Underlying %
-------------------- --------------- -------------------
25% ($3.30) 909,091 3.59%
50% ($6.60) 454,546 1.79%
75% ($9.89) 303,337 1.20%
100% ($13.19) 227,445 <1%
Limitations in the transaction agreements preclude the selling
shareholders from achieving these levels of beneficial ownership. The
restrictions on the levels of beneficial ownership in these documents do not,
however, restrict the selling shareholders from exercising the Class I warrants
or Class II warrants up to those limitations, selling shares to decrease their
level of beneficial ownership, and exercising the warrants to receive additional
shares. This could result in additional dilution to the holders of our common
stock and a potential decrease to the price of our common stock.
Under a registration rights agreement reached between us and the
selling shareholders in connection with the private placement, we are obligated
to register all the shares issued to the selling shareholders in the private
placement and the shares issuable to the selling shareholders upon full exercise
of the Class I warrants and the Class II warrants. However, the Regulation D
Subscription Agreement contains the restriction that we may not issue, and the
selling shareholders may not purchase, any of the warrants and any shares that
would cause the selling shareholders to beneficially own more than 4.9% of the
total shares of our common stock outstanding as determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934.
14
<PAGE>
REGULATION D SUBSCRIPTION AGREEMENT
On January 26, 2000, we completed a private placement of 227,445 units
and a Class II warrant to PYR Management, LLC ("PYR") for $3,000,000 pursuant to
a Regulation D Subscription Agreement ("Agreement"). Each unit consisted of one
share of our common stock and one Class I warrant to purchase one additional
share of our common stock. The Class II warrant entitles PYR to purchase
additional shares of our common stock at par value solely upon the occurrence of
certain events. We agreed under a Registration Rights Agreement to file a
registration statement to register the shares of our common stock, including the
shares issuable upon exercise of the Class I warrant and Class II warrant, under
the Securities Act of 1933 for resale by PYR. As part of the Agreement, we
granted PYR an option to purchase up to $5,000,000 of additional units and a
Class II warrant within five trading days after the effectiveness of the
registration statement. The units were placed by Dunwoody Brokerage Services,
Inc. who received as consideration for these services, a Class I warrant to
purchase 13,530 shares of our common stock. The Agreement, the Registration
Rights Agreement, the Class I warrant, the Class II warrant and other ancillary
documents are, by this reference, incorporated herein. This transaction was
disclosed in a Form 8-K filed with the Commission on February 4, 2000.
PLAN OF DISTRIBUTION
The sale of the shares of our common stock offered by this prospectus
may be made in the over-the-counter market at prices and at terms then
prevailing or at prices related to the then current market price or in
negotiated transactions. These shares may be sold by one or more of the
following:
o A block trade in which the broker or dealer will attempt to
sell shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction.
o Purchases by a broker or dealer as principal and resale by a
broker or dealer for its account using this prospectus.
o Ordinary brokerage transactions and transactions in which the
broker solicits purchasers.
o In privately negotiated transactions not involving a broker or
dealer.
Each sale may be made either at market prices prevailing at the time of
such sale, at negotiated prices, at fixed prices which may be changed, or at
prices related to prevailing market prices.
In effecting sales, brokers or dealers engaged to sell the shares may
arrange for other brokers or dealers to participate. Brokers or dealers engaged
to sell the shares will receive compensation in the form of commissions or
discounts in amounts to be negotiated immediately prior to each sale. These
brokers or dealers and any other participating brokers or dealers may be deemed
to be underwriters within the meaning of the Securities Act of 1933 in
connection with these sales. We will receive no proceeds from any resale of the
shares offered by this prospectus, and we anticipate that the brokers or
dealers, if any, participating in the sales of the shares will receive the usual
and customary selling commissions.
In connection with distributions of the shares or otherwise, the
selling shareholders may enter into hedging transactions with broker-dealers. In
connection with such transactions, broker-dealers may engage in short sales of
the shares registered hereunder in the course of hedging the positions they
assume with the selling shareholders. After the effective date of the
registration statement of which this prospectus is a part, the selling
shareholders may also sell shares short and deliver the shares registered
hereunder to close out such short positions. The selling shareholders may also
enter into option, swap, derivatives or other transactions with broker-dealers
which require the delivery to the broker-dealer of the shares covered by this
prospectus, which the broker-dealer may resell pursuant to this prospectus. The
selling shareholders may also pledge the shares registered hereunder to a broker
or dealer and upon a default, the broker or dealer may effect sales of the
pledged shares pursuant to this prospectus.
15
<PAGE>
From time to time the selling shareholders may engage in short sales,
short sales against the box, puts and calls and other hedging transactions in
our securities, and may sell and deliver the shares covered by this prospectus
in connection with such transactions or in settlement of securities loans. These
transactions may be entered into with broker-dealers or other financial
institutions. In addition, from time to time, the selling shareholders may
pledge their shares pursuant to the margin provisions of their customer
agreements with their broker-dealer. Upon delivery of the shares or a default by
the selling shareholders, the broker-dealer or financial institution may offer
and sell the pledged shares from time to time.
To comply with the securities laws of some states, if applicable, the
shares will be sold in those states only through brokers or dealers. In
addition, in some states, the shares may not be sold in those states unless they
have been registered or qualified for sale in those states or an exemption from
registration or qualification is available and is complied with.
If necessary, the specific shares of our common stock to be sold, the
names of the selling shareholders, the respective purchase prices and public
offering prices, the names of any agent, dealer or underwriter, and any
applicable commissions or discounts with respect to a particular offer will be
set forth in an accompanying prospectus supplement or, if appropriate, a
post-effective amendment to the registration statement of which this prospectus
is a part. We entered into a registration rights agreement in connection with
the private placement of our common stock, the warrants which required us to
register the underlying shares of our common stock under applicable federal and
state securities laws. The registration rights agreement provides for
cross-indemnification of the selling shareholders and our company and each
party's respective directors, officers and controlling persons against liability
in connection with the offer and sale of our common stock, including liabilities
under the Securities Act of 1933, and to contribute to payments the parties may
be required to make in respect thereof. We have agreed to indemnify and hold
harmless the selling shareholders from liability under the Securities Act of
1933.
Under applicable rules and regulations under Regulation M under the
Securities Exchange Act of 1934, any person engaged in the distribution of our
common stock generally may not simultaneously engage in market making activities
with respect to our common stock for a specified period set forth in Regulation
M prior to the commencement of such distribution and until its completion. In
addition, and without limiting the foregoing, the selling shareholders will be
subject to the applicable provisions of the Securities Act of 1933 and
Securities Exchange Act of 1934 and the rules and regulations thereunder,
including, without limitation, Regulation M, which provisions may limit the
timing of purchases and sales of shares of our common stock by the selling
shareholders. The foregoing may affect the marketability of our common stock.
We will bear all expenses of the offering of our common stock, except
that the selling shareholders will pay any applicable underwriting commissions
and expenses, brokerage fees and transfer taxes, as well as the fees and
disbursements of counsel to and experts for the selling shareholders.
DESCRIPTION OF SECURITIES
We are authorized to issue 110,001,000 shares, consisting of
100,000,000 shares of common stock, $.001 par value, of which 30,003,627 shares
are issued and outstanding, 1,000 shares of Preferred Stock, $.01 par value, the
"Original Preferred Stock," of which 1,000 shares are issued and outstanding,
and 10,000,000 shares of Preferred Stock, $.01 par value, the "Class A Preferred
Stock," of which no shares are issued and outstanding.
16
<PAGE>
COMMON STOCK
Each of our common stockholders is entitled to one vote in person or by
proxy for each share of our common stock. Dividends upon our capital stock,
subject to the provisions of the articles of incorporation, if any, may be
declared by our board of directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of capital
stock, subject to the provisions of our articles of incorporation. There are no
preemptive rights.
PREFERRED STOCK
Our board of directors has the power by resolution only and without
further action or approval, to cause us to issue one or more classes or one or
more series of preferred stock within any class thereof and which classes or
series may have such voting powers, full or limited, or no voting powers, and
such designations, preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions thereof, as
shall be stated and expressed in the resolution or resolutions adopted by our
board of directors, and to fix the number of shares constituting any classes or
series and to increase or decrease the number of shares of any such class or
series.
As sole holder of the 1,000 outstanding shares of Original Preferred
Stock, Dr. Phan is entitled to elect three of the five members of our board of
directors.
OVER-THE-COUNTER MARKET
Our common stock is currently listed on the OTC Bulletin Board. We
intend to list our common stock on the NASDAQ National Market, and believe that
we will be able to satisfy and maintain its current and proposed entry
standards.
If we are unable to satisfy the requirements for listing on the NASDAQ
National Market, trading, if any, of our shares, will continue to be conducted
in the over-the-counter market on the OTC Bulletin Board. Consequently, our
shares may be subject to Rule 15g-9 of the Securities Exchange Act. That rule
imposes additional sales practice requirements on broker-dealers that sell
low-priced securities to persons other than established customers, "accredited
investors" or institutional accredited investors. Accredited investors are
generally defined to include individuals with a net worth in excess of
$1,000,000 or annual incomes exceeding $200,000, or $300,000 together with their
spouses. For transactions covered by this rule, a broker-dealer must make a
special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to consummating the sale.
Consequently, the rule may affect the ability of the broker-dealers to sell our
shares and affect the ability of holders to sell our shares in the secondary
market.
TRANSFER AGENT
The transfer agent for our shares of common stock is Signature Stock
Transfer, 14675 Midway Road, Suite 221, Dallas, Texas 75244 and their telephone
number is (972)788-4193.
17
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the shares of our common stock
being offered hereby will be passed upon by Jeffers, Shaff & Falk, LLP, 18881
Von Karman Avenue, Suite 1400, Irvine, California 92612.
EXPERTS
The consolidated financial statements of Hartcourt appearing in our
Annual Report on Form 10-KSB for the year ended December 31, 1998 have been
audited by Harland & Boettger, independent certified public accountants, as set
forth in their report thereon included therein and incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any document we file with the Commission at the Commission's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call
the Commission at 1-800-SEC-0330 for further information on the public reference
room. Our Commission filings are also available to the public at the
Commission's web site at http://www.sec.gov.
The Commission allows us to "incorporate by reference" the information
we file with them, which means that we can disclose important information to you
by referring you to those documents. The information incorporated by reference
is considered to be part of this prospectus, and information that we file with
the Commission in the future will automatically update and supersede this
information. We incorporate by reference the documents listed below and any
future filings we make with the Commission under Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act prior to the termination of the offerings
described in this prospectus:
(a) Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1998;
(b) Quarterly Reports on Form 10-QSB, for the periods ended March
31, 1999, June 30, 1999 and September 30, 1999; and
(c) Current Reports on Form 8-K filed with the Commission on
October 20, 1999, December 6, 1999, December 8, 1999, February
4, 2000 and February 10, 2000.
You may request a copy of these filings, at no cost, by writing or
calling us as follows:
The Hartcourt Companies, Inc.
Attention: Investor Relations
1196 E. Willow Street
Long Beach, California 90806
(562) 426-9796
18
<PAGE>
This prospectus is part of a registration statement on Form S-3 we
filed with the SEC under the Securities Act. You should rely only on the
information or representations provided in this prospectus. We have authorized
no one to provide you with different information. We are not making an offer of
these securities in any state where the offer is not permitted. You should not
assume that the information in this prospectus is accurate as of any date other
than the date on the front of the document.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities
Act is permitted as to directors, officers and controlling persons, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy and is therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by us in
the successful defense of any action, suit or proceeding) is asserted, we will,
unless in the opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by us is against public policy. We will be governed by the
final adjudication of such issue.
Our Certificate of Incorporation and By-Laws provide:
"No officer or director shall be personally liable for any obligations
of the corporation or for any duties or obligations arising out of any acts or
conduct of said officer or director performed on behalf of the corporation. The
corporation shall and does hereby indemnify and hold harmless each person and
his heirs and administrators who shall serve at any time hereafter as a director
or officer of the corporation from and against any and all claims, judgments and
liabilities to which such person shall become subject by reason of his having
heretofore or hereafter been a director or officer of the corporation or by
reason of any action alleged to have been heretofore or hereafter taken or
omitted to have been taken by him as such director or officer, and shall
reimburse each such person for all legal and all other expenses reasonably
incurred by him in connection with any such claim or liability, including the
power to defend such person from all suits or claims as provided for under the
provisions of the Utah Business Corporation Act; provided however, that no such
person shall be indemnified against, or be reimbursed for, any expense incurred
in connection with any claim or liability arising out of his own negligence or
willful misconduct. The rights accruing to any person under the foregoing
provisions of this section shall not exclude any right to which he may be
lawfully entitled, nor shall anything herein contained restrict the right of the
corporation to indemnify or reimburse such person in any proper case, even
though not specifically herein provided for. The corporation, its directors,
officers, consultants and agents shall be fully protected in taking any action
or making any payment, or in refusing to do so in reliance upon the advice of
counsel."
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses, all of which are
being paid by us, in connection with this offering.
Registration Fee $ 3,301.01
Printing and Engraving $ 2,000.00
Legal Fees $ 25,000.00
Accounting Fees and Expenses $ 5,000.00
Miscellaneous $ 2,000.00
-----------
TOTAL $ 37,301.01
===========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Certificate of Incorporation and By-Laws provide:
"No officer or director shall be personally liable for any obligations
of the corporation or for any duties or obligations arising out of any acts or
conduct of said officer or director performed on behalf of the corporation. The
corporation shall and does hereby indemnify and hold harmless each person and
his heirs and administrators who shall serve at any time hereafter as a director
or officer of the corporation from and against any and all claims, judgments and
liabilities to which such person shall become subject by reason of his having
heretofore or hereafter been a director or officer of the corporation or by
reason of any action alleged to have been heretofore or hereafter taken or
omitted to have been taken by him as such director or officer, and shall
reimburse each such person for all legal and all other expenses reasonably
incurred by him in connection with any such claim or liability, including the
power to defend such person from all suits or claims as provided for under the
provisions of the Utah Business Corporation Act; provided however, that no such
person shall be indemnified against, or be reimbursed for, any expense incurred
in connection with any claim or liability arising out of his own negligence or
willful misconduct. The rights accruing to any person under the foregoing
provisions of this section shall not exclude any right to which he may be
lawfully entitled, nor shall anything herein contained restrict the right of the
corporation to indemnify or reimburse such person in any proper case, even
though not specifically herein provided for. The corporation, its directors,
officers, consultants and agents shall be fully protected in taking any action
or making any payment, or in refusing to do so in reliance upon the advice of
counsel."
ITEM 16. EXHIBITS
**5.1 Opinion re: legality
*10.1 Regulation D Subscription Agreement
*10.2 Class I Warrant to Purchase Common Stock issued to Dunwoody Brokerage
Services, Inc.
23.1 Consent of Independent Auditors
**23.2 Consent of Jeffers, Shaff & Falk, LLP
* Incorporated by reference to the Current Report on Form 8-K filed with
the Commission on February 4, 2000.
** To be filed by amendment
II-1
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ITEM 17. UNDERTAKINGS
(a) The undersigned company hereby undertakes:
(i) To file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to include
any additional or changed material information on the plan of distribution;
(ii) that, for determining any liability under the Securities
Act, treat each such post-effective amendment as a new registration statement of
the securities offered at that time shall be deemed to be the initial BONA FIDE
offering thereof; and
(iii) to file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
(e) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
(f) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's Annual Report pursuant to Section 13(a) or 15(d) of the Exchange
Act that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, we certify
that we have reasonable grounds to believe that we meet all of the requirements
for filing on the Form S-3 and have duly caused this registration statement to
be signed on our behalf by the undersigned, thereunto duly authorized, in the
City of Long Beach, State of California, on February 28, 2000.
The Hartcourt Companies, Inc.
/s/ Alan V. Phan
------------------------------------
Alan V. Phan
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
/s/ Alan V. Phan February 28, 2000
- ------------------------
Name: Alan V. Phan
Title: Director, Chief Executive Officer
/s/ Manu Ohri February 28, 2000
- ------------------------
Name: Manu Ohri
Title: Director, Chief Financial Officer
/s/ Fred Cohn February 28, 2000
- ------------------------
Name: Fred Cohn
Title: Director, Secretary
/s/ Kenneth Silva February 28, 2000
- ------------------------
Name: Kenneth Silva
Title: Director
/s/ Hans Kloepfer February 28, 2000
- ------------------------
Name: Hans Kloepfer
Title: Director
II-3
23.1 Consent of Independent Auditors
We consent to the incorporation by reference in this Registration Statement of
The Hartcourt Companies Inc. Form S-3 of our report dated March 6, 1999,
appearing in the Annual Report on Form 10-KSB of The Hartcourt Companies Inc.
for the year ended December 31, 1998, and to the reference to us under the
heading "Experts" in the Prospectus which is part of this Registration
Statement.
/s/ Harlan & Boettger, LLP
- -------------------------------
Harlan & Boettger
San Diego, California
February 17, 2000
