Letter from Dr. Alan Phan:
January 31, 2000
Dear Shareholders:
It has been a busy two weeks since our meeting in
Long Beach. We have been trying to move things forward
as quickly as possible as China will be on vacation for
the next 2 weeks. It is their New Year - the Year of
The Dragon. How appropriate, for Hartcourt is emerging
as the Dragon of the Chinese Internet. This will be
our year.
Now, let me update you on our progress:
1. Nasdaq NMS Listing:
As promised, we filed on time. I am optimistic that
Nasdaq will process the application quickly and we
should be notified of the results shortly.
2. American Partner:
The legal paperwork seems endless. I will be in New
York next week to personally push it forward. I hope to
have something to report to you in a few days.
3. The Ernst & Young Report on the Sinobull.com IPO:
We should have the first draft next week and if all
items are in order, the final version will be published
on our Web site soon after.
4. The Sinobull.com IPO Underwriting Agreement:
We are continuing our discussion with the bankers.
Nothing will be signed until the E&Y report is
officially issued.
5. Acquisition of Chinese Companies:
We have 3 major deals outstanding, but nothing more can
be done until Feb. 14th when the Chinese return to
work. I will also be back in China then to sign the
deals and to launch the Sinobull.com Web site.
6. The Innostar Joint Venture:
We expect to get the license in February and we shall
commence the works immediately thereafter.
7. US Technology Group:
To bolster our technical strength, we have decided to
invest in a few leading-edge technology companies here
in the U.S. and will be their partner to market their
products and services in China. ESAT is an example of
how this process works. During the next few weeks, we
should be able to close the deals on a Linux software
company, an Internet phone company and a B2B (Business
to Business) E-commerce company.
8. The CEO Position:
We are narrowing down the list to 3 candidates and are
negotiating their employment terms. The CEO could start
as soon as March 1st. The CTO position would also be
filled then.
9. Board of Directors:
We are still in discussion with a few national figures.
Since they are very high profile and busy people, the
timing is not in our control.
10. Financing:
We just obtained a $3 Million equity line to pay for
the Shangdi and Guo Mao acquisitions and another $10
Million is in the works. Together with the $35 Million
from Swartz, this will be sufficient until the
Sinobull.com IPO.
11. Clarification of a lawsuit to Enova:
As was disclosed in the 10SB registration of the Enova
company, Enova/Pego is in dispute with Comerica Bank
regarding a $900,000 credit line. Let me emphasize that
Pego has not missed a single payment and has sufficient
liquidity and assets to pay off the loan immediately.
The lawsuit and the Enova counter-lawsuit are in regard
to the bad faith of the bank in overcharging and
over-penalizing Pego. The lawsuit has no effect on the
financial situation of either Pego or Hartcourt, and we
plan on resolving the issue as quickly as possible.
This will not impede Hartcourt's progress, nor will we
miss a step. Hartcourt continues to proceed as planned.
Since I am a positive person, many shareholders
wonder if I am overly optimistic about Hartcourt's
future. They want to know more about the risks to their
investment. Actually, if you carefully read the SEC
reports and the prospectus, you see that we have
continuously warned shareholders of all the standard
risks associated with buying stock in any small company.
However, let me analyze the 3 biggest concerns people
have inquired about regarding investing in this sector:
a) What if the Stock Markets crash and the Internet
Bubble bursts?
Personally, I would not try to predict a major market
correction. People have been predicting them for some
time, but overall the markets continue to prosper.
Every new economy trend enjoys a honeymoon cycle, and
the supply-demand situation of Internet stocks is still
in good ratio. However, in the worst case scenario, the
odds are in favor of companies with good fundamentals.
Hartcourt is one such company. By the end of 2001, we
should have more revenue and earnings than most
Internet companies.
b) What if the Chinese economy collapses or the Chinese
government decides to nationalize foreign assets?
This is the same question that I was asked when I went
into business in China 20 years ago. The risk is less
and less every day as remarkable progress is being made
by the average Chinese individual. The government is
stable because the standard of living keeps rising and
because it is in firm control of the Army (whether we
like it or not, political power does grow out of the
gun's barrel). The principle stimulant of the economy
is foreign investment, to the tune of $35 Billion a
year. It would certainly not be in the best interest of
the current Chinese leadership to create havoc in the
system by turning off or endangering this income stream.
c) What if the WTO is implemented and Hartcourt faces
hundreds of world-class competitors?
Unlike Russia, China opens its doors very slowly. I do
not expect that the WTO will be implemented until the
end of 2001. Our foreign competitors will have to go
through the learning curve of business in China and -
in my opinion - won't be ready to enter in a big way
until late 2002. With a minimum two-year headstart,
Hartcourt should be able to secure a strong foothold
with its market position and be ready to wage battle
with all takers. Besides, the potential market is so
big that a 10 percent market share in any area would
generate substantial profit for the company.
Overall, the progress is steady, the performance
is solid and the harvest is near. There is still much
hard work ahead and there will always be plenty of
challenges, obstacles and insects along the way. But,
we are extremely pleased with our achievements. With
your strong support, we will arrive at our destination
on time.
As de Buffon once said, "Hold on; hold fast, hold
out. Patience is genius."
Sincerely,
Dr. Alan V. Phan
Chairman & CEO
January 31, 2000
Dear Shareholders:
It has been a busy two weeks since our meeting in
Long Beach. We have been trying to move things forward
as quickly as possible as China will be on vacation for
the next 2 weeks. It is their New Year - the Year of
The Dragon. How appropriate, for Hartcourt is emerging
as the Dragon of the Chinese Internet. This will be
our year.
Now, let me update you on our progress:
1. Nasdaq NMS Listing:
As promised, we filed on time. I am optimistic that
Nasdaq will process the application quickly and we
should be notified of the results shortly.
2. American Partner:
The legal paperwork seems endless. I will be in New
York next week to personally push it forward. I hope to
have something to report to you in a few days.
3. The Ernst & Young Report on the Sinobull.com IPO:
We should have the first draft next week and if all
items are in order, the final version will be published
on our Web site soon after.
4. The Sinobull.com IPO Underwriting Agreement:
We are continuing our discussion with the bankers.
Nothing will be signed until the E&Y report is
officially issued.
5. Acquisition of Chinese Companies:
We have 3 major deals outstanding, but nothing more can
be done until Feb. 14th when the Chinese return to
work. I will also be back in China then to sign the
deals and to launch the Sinobull.com Web site.
6. The Innostar Joint Venture:
We expect to get the license in February and we shall
commence the works immediately thereafter.
7. US Technology Group:
To bolster our technical strength, we have decided to
invest in a few leading-edge technology companies here
in the U.S. and will be their partner to market their
products and services in China. ESAT is an example of
how this process works. During the next few weeks, we
should be able to close the deals on a Linux software
company, an Internet phone company and a B2B (Business
to Business) E-commerce company.
8. The CEO Position:
We are narrowing down the list to 3 candidates and are
negotiating their employment terms. The CEO could start
as soon as March 1st. The CTO position would also be
filled then.
9. Board of Directors:
We are still in discussion with a few national figures.
Since they are very high profile and busy people, the
timing is not in our control.
10. Financing:
We just obtained a $3 Million equity line to pay for
the Shangdi and Guo Mao acquisitions and another $10
Million is in the works. Together with the $35 Million
from Swartz, this will be sufficient until the
Sinobull.com IPO.
11. Clarification of a lawsuit to Enova:
As was disclosed in the 10SB registration of the Enova
company, Enova/Pego is in dispute with Comerica Bank
regarding a $900,000 credit line. Let me emphasize that
Pego has not missed a single payment and has sufficient
liquidity and assets to pay off the loan immediately.
The lawsuit and the Enova counter-lawsuit are in regard
to the bad faith of the bank in overcharging and
over-penalizing Pego. The lawsuit has no effect on the
financial situation of either Pego or Hartcourt, and we
plan on resolving the issue as quickly as possible.
This will not impede Hartcourt's progress, nor will we
miss a step. Hartcourt continues to proceed as planned.
Since I am a positive person, many shareholders
wonder if I am overly optimistic about Hartcourt's
future. They want to know more about the risks to their
investment. Actually, if you carefully read the SEC
reports and the prospectus, you see that we have
continuously warned shareholders of all the standard
risks associated with buying stock in any small company.
However, let me analyze the 3 biggest concerns people
have inquired about regarding investing in this sector:
a) What if the Stock Markets crash and the Internet
Bubble bursts?
Personally, I would not try to predict a major market
correction. People have been predicting them for some
time, but overall the markets continue to prosper.
Every new economy trend enjoys a honeymoon cycle, and
the supply-demand situation of Internet stocks is still
in good ratio. However, in the worst case scenario, the
odds are in favor of companies with good fundamentals.
Hartcourt is one such company. By the end of 2001, we
should have more revenue and earnings than most
Internet companies.
b) What if the Chinese economy collapses or the Chinese
government decides to nationalize foreign assets?
This is the same question that I was asked when I went
into business in China 20 years ago. The risk is less
and less every day as remarkable progress is being made
by the average Chinese individual. The government is
stable because the standard of living keeps rising and
because it is in firm control of the Army (whether we
like it or not, political power does grow out of the
gun's barrel). The principle stimulant of the economy
is foreign investment, to the tune of $35 Billion a
year. It would certainly not be in the best interest of
the current Chinese leadership to create havoc in the
system by turning off or endangering this income stream.
c) What if the WTO is implemented and Hartcourt faces
hundreds of world-class competitors?
Unlike Russia, China opens its doors very slowly. I do
not expect that the WTO will be implemented until the
end of 2001. Our foreign competitors will have to go
through the learning curve of business in China and -
in my opinion - won't be ready to enter in a big way
until late 2002. With a minimum two-year headstart,
Hartcourt should be able to secure a strong foothold
with its market position and be ready to wage battle
with all takers. Besides, the potential market is so
big that a 10 percent market share in any area would
generate substantial profit for the company.
Overall, the progress is steady, the performance
is solid and the harvest is near. There is still much
hard work ahead and there will always be plenty of
challenges, obstacles and insects along the way. But,
we are extremely pleased with our achievements. With
your strong support, we will arrive at our destination
on time.
As de Buffon once said, "Hold on; hold fast, hold
out. Patience is genius."
Sincerely,
Dr. Alan V. Phan
Chairman & CEO
