Here is some DD I found on the company. Maybe the Truth Seeker can disect it for us. You must go to the url to click on the link for more information. There is that NewOasis company he was talking about.
hartcourt.com
THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
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A. Summary of Significant Accounting Policies:
Organization and Nature of Operations
Harcourt Investments (USA), Inc., (Harcourt Investments) was incorporated on April 23, 1993. Principal business activities are the design, manufacture and sale of writing instruments. During its first two years of operation, Harcourt Nevada used foreign contract manufacturers to produce various types of pens and markers which were then imported for sale in the U.S. market. In August 1994, Harcourt Investments acquired a 60% interest in the Xinhui Harchy Modern Pens, Ltd. Joint Venture (Xinhui JV) owned by a Hong Kong corporation for common stock valued at $2,149,200. The Xinhui JV is located in the Guangdong Province of China. Pursuant to an amendment to the joint venture agreement governing the Xinhui JV entered into in October 1995, the Company's interest was reduced to a 52% interest in the Xinhui JV. In September 1996, Harcourt Investments sold its investment in Xinhui JV to CKES, Inc. of Sunnyvale, California (Notes C and F).
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 Hartcourt Pen for 52,500 shares of its common stock and 1,000 shares of its original preferred stock in a transaction accounted for similar to a pooling of interests. In 1995, stock dividends and a reverse stock split changed the number of shares issued to 38,625 to acquire Hartcourt Pen. The consolidated financial statements were restated to reflect these capital stock transactions.
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 (Note C).
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 (Note C).
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 shareholder (Note C).
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 (Notes C and N).
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.
In 1997, the Company's total revenue amounted to $4,723,905, which consists of twelve months of domestic sales of writing instruments, $156,336 from Hartcourt Pen, three months of revenue, $1,881,159 from Pego and two months of revenue, $2,686,410 from ECS.
Basis of Accounting
The Company's policy is to use the accrual method of accounting and to prepare and present financial statements which conform to generally accepted accounting principles.
Cash and Cash Equivalents
For purposes of the Statement of Cash Flows, the Company considers all highly liquid investments purchased with an initial maturity of three months or less to be cash equivalents.
Accounts Receivable
In the normal course of business, the Company extends unsecured credit to customers located in North America. Credit is extended based on an evaluation of the customer's financial condition. The allowance for doubtful accounts is based on management's evaluation of outstanding accounts receivable at the end of the period. The allowance for doubtful accounts was $76,477 and $19,034 at December 31, 1997 and 1996, respectively. It is reasonably possible that the Company's estimate of allowance for doubtful accounts will change.
Inventory
Inventory is stated at the lower of cost or market, cost being determined on the first-in, first-out (FIFO) method, and includes material, labor, and overhead.
Property and Equipment
Plant and equipment are stated at cost or estimated fair market value on the date of acquisition. Depreciation is provided over the estimated useful lives of the respective assets on the straight-line basis ranging from five to twenty years. The Company's policy is to evaluate the remaining lives and recoverability in light of current conditions. It is reasonably possible that the Company's estimate to recover the carrying amount of property and equipment will change.
Advertising Costs
Advertising costs are generally expensed as incurred. Advertising expense included in selling, general and administrative expenses were $84,573, $14,182 and $26,134 for 1997, 1996 and 1995, respectively.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of The Hartcourt Companies, Inc. and its wholly-owned subsidiaries; Harcourt Investments, which includes the accounts of Hartcourt Pen, Pego Systems, Inc., and Electronic Components and Systems, Inc. For purposes of these consolidated financial statements, The Hartcourt Companies, Inc. and its subsidiaries will be referred to collectively as "the Company". All material, intercompany transactions and balances have been eliminated. All assets, liabilities and operations of Xinhui JV are reflected in the consolidated financial statements. The interest of the joint venture partner in the assets and net loss of the joint venture are reported as "Minority Interest."
Foreign Currencies (Xinhui JV)
Assets and liabilities denominated in foreign currencies are translated into the currency of U.S. dollars using the exchange rates at the balance sheet date. For revenues and expenses, the average exchange rate during the year was used to translate China (RMB) into U.S. dollars. Translation gains and losses resulting from changes in the exchange rate are included in the determination of the net loss for the period. Translation gains and losses are excluded from the consolidated statements of operations and are credited or charged directly to a separate component of shareholders' equity.
Accounting for Business Combinations
The acquisitions were recorded as purchases in accordance with Accounting Principle Board Opinion No. 16 (APB No. 16) "Business Combinations", and the purchase prices were allocated to the assets acquired, (except for finished goods and work-in-process inventory), and liabilities assumed based upon their estimated fair value at the purchase date. The finished goods and work-in-process inventory (percentage completed) at the purchase date was valued, in accordance with APB No. 16, at the "sales price" less reasonable profit allowances for selling effort consisting of sales profit and selling costs. The operating results of the acquired entities are included in the Company's consolidated financial statements from the dates of acquisition.
Income Taxes
Income taxes are provided for using the liability method of accounting in accordance with Statement of Financial Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes." A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting. Deferred tax expense (benefit) results from the net change during the year of deferred tax assets and liabilities. The components of the deferred tax asset and liability are individually classified as current and non-current based on their characteristics.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Reclassification
Certain 1996 and 1995 amounts have been reclassified to conform to the 1997 consolidated financial statement presentation. These reclassifications have no effect on previously reported net loss.
Investments
Investments are provided for using the deposit method of accounting in accordance with Statement of Financial Accounting Standards No. 66 (SFAS No. 66), "Accounting for Sales of Real Estate." The deposit method of accounting shall be used until a sale has been consummated. "Consummation" usually requires that all conditions precedent to closing have been performed, including that the buildings, in the Peony Gardens acquisition, be certified for occupancy and that the geological survey of the Lodestar claims in Alaska have a minimum value of $10,000,000 (Note C).
Loss Per Share
Net loss per share is provided in accordance with Statement of Financial Accounting Standard No. 128 (SFAS No. 128) "Earnings Per Share". Basic earnings per share are computed by dividing earnings available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect per share amounts that would have resulted if dilutive common stock equivalents had been converted to common stock. The net loss per share calculations reflect the effect of stock dividends and stock splits. As required by SFAS No. 128, prior year earnings per share amounts have been restated. Earnings per share for the years ended December 31, 1996 and 1995 increased $.00 and $.07, respectively, as a result of this restatement.
Stock Option Plan
Effective January 1, 1996, the Company adopted a method of accounting for stock-based compensation plans as required by Statement of Financial Accounting Standard No. 123 (SFAS No. 123) "Accounting for Stock-Based Compensation". SFAS No. 123 allows for two methods of valuating stock-based compensation. The first method allows for the continuing application of Accounting Principle Board Opinion No. 25 (APB No. 25) in measuring stock-based compensation, while complying with the disclosure requirements of SFAS No. 123. The second method uses an option pricing model to value stock compensation and record as such within the consolidated financial statements. The Company will continue to apply APB No. 25, while complying with SFAS No. 123 disclosure requirements (Note U).
Use of Estimates
The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Intangibles
Goodwill and other intangible assets are amortized on the straight-line basis over the estimated future periods to be benefitted (not exceeding 25 years). Goodwill, the excess of the Company's purchase price over the fair value of the net assets acquired, is amortized over 25 years. Covenant not to compete is amortized on the straight line basis over five years. It is reasonably possible that the Company's estimate of the recoverability of goodwill will change.
Fair Value of Financial Instruments
The following methods and assumptions were used by the Company to estimate the fair values of financial instruments as disclosed herein:
Cash and cash equivalents: The carrying amount approximates fair value because of the short period to maturity of the instruments.
Marketable securities: For marketable securities, the carrying amounts approximate fair value, which is based on prices guaranteed by Capital Commerce, Ltd.
Notes receivable: The fair value of notes receivable is estimated based on discounted cash flows using a current risk-weighted interest rate and on the current rates offered by the Company for notes of the same remaining maturities.
Short-term borrowings: The carrying amount approximates fair value since the interest rate fluctuates with the lending banks' prime rate.
Long-term debt: The fair value of long-term debt is estimated based on interest rates for the same or similar debt offered to the Company having the same or similar remaining maturities and collateral requirements.
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