++ HARTCOURT ++ SHAREHOLDERLETTER ++ WKN 900009

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++ HARTCOURT ++ SHAREHOLDERLETTER ++ WKN 900009 hjw2

++ HARTCOURT ++ SHAREHOLDERLETTER ++ WKN 900009

 
#1
Shareholders Letter

April 12th, 2000

Dear Shareholders:

The following are updates to the status of outstanding matters relating to our Company after my trip to China:

1. The Hard Launch of Sinobull.com:
The Website is a much bigger success than we had originally planned. Over the last few days, the combined site was averaging 1.3 Million page views per day, with the numbers continuing to climbing. We had to postpone the opening ceremony and the big advertising campaign, because we were afraid that the servers might not be able to handle the excessive load of even greater traffic it would create. We have added extra capacity with wider bandwidth access; and plan to start the promotion slowly to build traffic steadily over the next 2 months, allowing us to monitor the situation closely without any loss of performance. By that time, we will be ready for a big ceremony and at this rate, be able to name SinoBull.com as the number-one financial portal in China.

2. The Ernst & Young Business Plan and Info Memorandum:

The report was completed, but the issuance was delayed to verify that the legal structures are acceptable to both the Chinese government and the international investment community. Unlike the US or Europe, there is not yet a transparent legal framework for Internet companies in China; so we have to create it as we proceed. Together with Sina.com and Sohu.com, we are some of the first legal cases of this nature for the government. There were many adjustments that needed to be discussed and agreed to by many parties. Finally, we all managed to complete this process. The report should be made available next week, but only to a few investment bankers and strategic partners. We will make an exception and release to our shareholders; but only after he or she signs a strict Non-Disclosure Agreement, and provides positive proof of being a bonafide Hartcourt shareholder.

3. The NASDAQ NMS Listing:
As reported previously, the 10K Form for 1999 was requested, which will be furnished upon its completion, by April 15th. However, as the institutional investors were in panic, dumping the tech stocks indiscriminately, we were lucky that we were not hit with a huge SELL order in low volume from these big guys. On the other hand, we believe that companies with strong fundamentals will do well in any bull or bear market. SinoBull.com is estimated make $12 Million in revenues for 2000, and even some profit. After the shake-out of weak companies, we will be one of the few remaining which should increase our appeal to the investment community.

4. Form 10K (The Annual Report):
Due to a change in Independent Auditors and the numerous transactions in 1999, the process consumed much more time and money than expected. However, we should file it on time by this week. Please note we recorded less than $1 Million in revenue, because we only acquired Financial Telecom and UAC in October, reflecting only 2 full months of operations. On the loss side, we recorded a much bigger number than originally planned, because most of our expenses at the beginning of 1999 were paid with shares, which later appreciated too much. For example, my $200,000 salary became a $4 Million expense, some $100,000 consulting agreements became a $3 Million expense. But this loss is only on paper.

5. Innostar JV Project:
Our CTO, Mr. Duc Duong, is in Beijing right now with ESAT executives to prepare for the launch of the wireless ISP via satellite project. Dr. Charlie Yang, a foremost wireless expert and our COO, will be there in May as the operation should begin by mid-May. We have been in discussion with two well-known American firms interested in joining us in this Internet infrastructure venture. We are waiting for the Chinese decision. If all goes well, we could begin the IPO process for Innostar by year's end.

6. New Acquisitions:
Our strategy has always been "growth by acquisition". We are in the midst of acquiring one of the largest Internet infrastructure companies in China. It would create an instant IPO opportunity and would make Hartcourt truly the largest commercial Internet company in China in terms of revenues, page views, portals, etc. We are also working on acquiring a small bank and a stock brokerage firm in Hong Kong. Things should move quickly in the third quarter, if the Nasdaq index does not collapse. On the other hand, we also had our share of failures. We could not close the buy-out of a good Internet security company as another party with deep pockets came in and outbid us. A stock swap with a prominent Hong Kong-listed firm was put on hold due to their falling share price on the Hang Seng exchange.

7. FRB and the PR for Hartcourt:
As you know, we have not exposed Hartcourt to a lot of publicity, because we felt that we were not ready. Now we are, and we are working with FRB on a full campaign to bring the Hartcourt and SinoBull story to the major media and the investment community. As we have proven in our accomplishments during the past year, when we do something, we give it all 150 percent. We'd never accept being second best, we always strive to be the best. You will see our fireworks starting June 2000.

8. The Hartcourt Foundation:
We have been able to arrange with the Ministry of Arts and Culture for an exhibit of Tibetian art in the US. In addition, a stamp expo is being organized under the sponsorship of the Hartcourt Foundation. Also arrangements are in the works for a Chinese soccer team to come to the US as well. A Hartcourt community of shareholders is being formed to connect all of us in trips to China, in regional meetings and others. We hope that you would join us in this exciting social and charitable organization.

In conclusion, we are moving forward steadily, despite the turbulence of the Nasdaq market. We believe the most important element in the New Economy is the human capital. We have assembled a team of the best players available. Mike Bianco is attracting those investment bankers to our SinoBull IPO. Telecom magazines are vying to speak with and interview Dr. Charlie Yang. Internet techies are so at home with Duc Duong that they almost make Hartcourt's new office their home. Zhang Shi, Wang Qiang, Jiang Tai and Zhiyong Mu of Sinobull have become sort of celebrities in the Internet circle of Beijing. Stephen Tang of FTL is always considered a top manager of Hong Kong business. Patrick Kwan is being courted by prominent Hong Kong figures to bring StreamingAsia to their teams. We are like the Los Angeles Lakers of the NBA. With all this talent, I'd be surprised if we didn't win a championship.

Of course, we will face plenty of challenges and obstacles. We are not a bunch of Pollyannas who hide our heads in the sand. We analyze the realities, create detailed plans, execute them relentlessly and are patient in solving problems. One step at a time, we are marching to our destination. Like Jean Paul Sartre said, "The more sand that has escaped from the hourglass of our life, the clearer we should see through it."

Sincerely,

Dr. Alan V. Phan
Chairman & CEO





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