Form 10QSB/A for HARTCOURT COMPANIES INC
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18-Aug-2004
Quarterly Report
Item 2 Management's Discussion and Analysis or Plan of Operation
General
The following is a discussion of the results of operations and analysis of financial condition for six months ended June 30, 2004 and June 30, 2003. The following discussion may be understood more fully by reference to the financial statements, notes to the financial statements, and the Management's discussion and Analysis or Plan of Operation section contained in our Annual report on Form 10-KSB/A, filed with the Securities and Exchange Commission on April 20, 2004.
Results of Operations
The operations of Hartcourt for the three months and six months ended June 30, 2004 consisted of operations of Huaqing (51% ownership interest), GuoWei (50.5% ownership interest), NewHuaSun (45% ownership interest), ZhongNan Group (51% ownership interest), Challenger Group (51% ownership interest), Hartcourt Capital Inc. (100% ownership interest), Hartcourt China, Inc (formerly known as Hartcourt Companies Limited) (100% ownership interest), Ai-Asia Inc. (100% ownership interest), and Hartcourt's investments in other entities located in Hong Kong and China. The operations of Hartcourt for the three months and six months ended June 30, 2003 consisted of the operations of Huaqing (45% ownership interest acquired in February 2003), GuoWei (45% ownership interest acquired in April 2003), NewHuaSun (45% ownership interest acquired in April 2003), FTL (58.53% ownership interest), Hartcourt Companies Limited (formerly known as Sinobull.com Inc.) (100% ownership interest), Ai-Asia Limited (100% ownership interest), Hartcourt Capital Inc. (100% ownership interest) and Hartcourt's investment and advances to other entities located in US, China and Hong Kong.
Net sales and cost of sales: The Company recorded net sales of $70,655,261 and $138,378,366 for the three months and six months ended June 30, 2004, compared to $28,112,109 and $33,834,458 for the same period in 2003. Net sales during the three months and six months ended June 30, 2004 represented revenues derived from sales of IT products and after sales services to commercial customers and consumers. Net sales during the three months and six months ended June 30, 2003 primarily included revenue derived from sales of IT products sold to customers provided by HuaQing, Guowei and NewHuasun and the related Internet and telephone services provided by FTL. The increase in sales was mainly due to Huaqing, GuoWei, NewHuaSun, ZhongNan group and Challenger group, the five new acquisitions made in 2003, compared with two months' result of Guowei and NewHuaSun and four months' results of Huaqing consolidated in the quarter ended June 30, 2003.
Cost of sales amounted to $67,148,651 and $131,353,497 for the three months and six months ended June 30, 2004 compared to $27,012,645 and $32,343,510 for the same period in 2003. Cost of sales for the three months and six months ended June 30, 2004 represented the cost of IT products sold to customers provided by Huaqing, GuoWei, NewHuaSun, ZhongNan group and Challenger group. Cost of sales for the three months and six months ended June 30, 2003 primarily included the costs of IT products sold to customers provided by HuaQing, Guowei and NewHuasun; cost of transmission and Internet services provided by FTL to its customers.
The increase in the gross margin was mainly contributed by the commercial product group while the consumer product group had a slightly higher margin as well.
Selling, general and administrative expenses: The selling, general and administrative expenses were $2,636,358 and $5,305,424 for the three months and six months ended June 30, 2004 compared to $760,206 and $1,191,001 for the same period in 2003. The increase in expenses was mainly due to the consolidation of newly acquired business.
Depreciation and amortization expenses: the depreciation and amortization expenses were $42,087 and $55,583 for the three months and six months ended June 30, 2004 compared to $18,550 and 47,250 for the same period in 2003. The increase was mainly due to depreciation cost from newly acquired business.
Gain (loss) on disposal of property and equipment: the gain on disposal of property and equipment of $109,359 for the three and six months ended June 30, 2004 compared to a loss of 72,371 for the same period in 2003. The gain was from the disposal of one investment property owned by Huaqing.
Results of Operations - COntinued
Interest income: Interest income were $39,946 and $56,077 for the three and six months ended June 30, 2004 compared to $0 and $508 for the same period in 2003, the increase was mainly in line with the increase of cash and bank balances.
Interest expenses: Interest expenses were $232,539 and $465,780 for the three months and six months ended June 30, 2004 compare to $79,742 and $92,891 for the same period in 2003. The increase was mainly attributable to borrowing of cash to finance the Samsung business growth.
Other revenue: Other revenue mainly represented income from warranty services and other after sales services.
Gain/(loss) in subsidiary attributed to minority interest: Gain/(loss) in subsidiary attributed to minority interest represented the profit/loss shared by the minority shareholders as mentioned above.
Income tax: The Company made provision for income taxes of $355,207 and $523,037 for the three and six months ended June 30, 2004 compared to $58,270 for the same period of 2003. The provision for taxes relates to the estimated amount of taxes that will be imposed by tax authorities in the PRC, the increase of income tax provision was mainly due to the higher profit generated by the PRC subsidiaries.
Liquidity and Capital Resources:
Hartcourt's principal capital requirements during the year 2004 are funded by bank borrowings, followed by issuing additional stocks.
As shown in the accompanying financial statements, Hartcourt incurred a net gain of $55,494 and $113,336 for the three and six months ended June 30, 2004 as compared to a net loss of $3,268 and $190,184 for the same period in 2003 (after excluding the one-time gain on disposal of discontinued operation). In addition, Hartcourt's current assets exceeded its current liabilities by $14,624,834 on June 30, 2004.
As of June 30, 2004, we had working capital of US$14,624,834. In addition to our working capital on hand, we intend to obtain the required capital in a combination of bank debt and sales of equity securities. However, there are no commitments or agreements on the part of anyone to provide us with additional bank financing or purchase of securities. If we are unable to raise the additional working capital, our proposed plan of operations may be adversely affected.
Operating activities: During the six months ended June 30, 2004, net cash used by operating activities increased to $2,432,573 compared to $1,305,922 during the same period in 2003. The increase in cash used in operation activities was mainly in line with the expansion of business.
The cash inflow in operating activities resulted primarily due to the increase of accounts payable of $8,303,193, increase of accrued liabilities of $620,356, increase of deferred revenue of $1,246,997, decrease of prepaid expenses of $408,439, minority interest of $1,019,389, net operation gain of $113,336 and other non-cash related expenses of $205,834. The outflow of operating activities is mainly due to the increase of accounts receivable of $3,550,613, increase of trade deposits to suppliers of $2,633,886, increase of inventories of $8,056,259 and gain on abandonment of property and equipment of $109,359.
Liquidity and Capital Resources - Continued
Investing activities: Net cash provided by investing activities during the six months ended June 30, 2004, was $3,739,498 compared to $3,221,292 for the same period in 2003.
The increase was mainly due to cash generated from the disposal of one property by Shanghai Huaqing of $222,029 and increase in proceeds from the recovery of notes receivables of $239,351.
Financing activities: Net cash provided by financing activities during the six months ended June 30, 2004 was $2,849,400 compared to $4,090,467 during the same period in 2003. The decrease was primarily due to lower short term bank borrowing.
As a result of the above activities, the company experienced a net increase in cash of $4,156,325 for the six months ended June 30, 2004. Most of the increase is due to one-off events, such as the Beijing Challenger acquisition and the proceeds from stock subscription
Off-Balance Sheet Arrangements:
We do not have any off-balance sheet financing arrangements.
Forward Looking Statements:
We make written and oral statements from time to time regarding our business and prospects, such as projections of future performance, statements of management's plans and objectives, forecasts of market trends, and other matters that are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Statements containing the words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimates," "projects," "believes," "expects," "anticipates," "intends," "target," "goal," "plans," "objective," "should" or similar expressions identify forward-looking statements, which may appear in documents, reports, filings with the Securities and Exchange Commission, news releases, written or oral presentations made by officers or other representatives made by us to analysts, stockholders, investors, news organizations and others, and discussions with management and other representatives of us. For such statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
Our future results, including results related to forward-looking statements, involve a number of risks and uncertainties that are described in our 2003 Annual Report on Form 10-KSB/A filed with the Securities and Exchange Commission on April 20, 2004. No assurance can be given that the results reflected in any forward-looking statements will be achieved. Any forward-looking statement made by or on behalf of us speaks only as of the date on which such statement is made. Our forward-looking statements are based upon assumptions that are sometimes based upon estimates, data, communications and other information from suppliers, government agencies and other sources that may be subject to revision. Except as required by law, we do not undertake any obligation to update or keep current either (i) any forward-looking statement to reflect events or circumstances arising after the date of such statement, or (ii) the important factors that could cause our future results to differ materially from historical results or trends, results anticipated or planned by us, or which are reflected from time to time in any forward-looking statement which may be made by or on behalf of us.
3.Quartal
Hartcourt Files Third Quarter Results (10QSB)
Tuesday November 9, 8:00 am ET
SHANGHAI, CHINA--(MARKET WIRE)--Nov 9, 2004 -- The Hartcourt Companies, Inc. (OTC BB:HRCT.OB - News) (Frankfurt: 900009), www.hartcourt.com, China's IT wholesale, retail and service provider today announced its results for the quarter ended September 30, 2004.
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Hartcourt reported consolidated revenue of US$54 million, up 62% compared to the same period last year. 34% of revenue was contributed by commercial sales. The consumer sales were up 44% compared to a year ago same quarter after excluding the discontinued operations.
Continued operating gross margin percentage was up 0.7% compared to a year ago, despite fierce price competition and overall margin erosion in the market place.
Hartcourt reported EBIT of US$711K after excluding the discontinued operation. The consolidated net income was US$49K. The discontinued operations were Guangdong NewHuaSun, a Samsung distributor and Wenzhou Zhongnan Group, an IT retailer.
The current ratio was kept healthy at 1.45. Trade receivable was 18 days. Inventory was 15 days. Our trade receivable and inventories turnover ratio were better than industry average in China.
Details of this financial report could be found in our 10Q filing on www.sec.gov.
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