Letter from Dr. Alan Phan:
September 25th, 2000
Dear Shareholders:
The press conference held on 9/21/00 in Hong Kong was a great success. Over 30 newspapers, including major papers like the South China Morning Post, Hong Kong Economic Times, and HK Standards, carried our story the next day, and some even put our story and photos across their front pages. I was nervous when only 3 reporters asked questions during the conference, but at the lunch afterwards, about 20 reporters came up to ask all sorts of questions (I guess Chinese reporters need time to digest everything). Our objective was to introduce HRCT to new Asian investors and to make sure they take notice of our IPO's. They did. In a big way. The results are not immediate; but I have already received plenty of calls from interested institutional investors as well as investment bankers.
Many shareholders have emailed me questions on the announced news; and here are my clarifications:
1. The Merger:
The merger with a major Hong Kong-listed company was on track; but the change in their stock price caused the negotiated price to be too high for Hartcourt. Therefore, we opted to do the IPO's instead, where the total value obtained for Hartcourt shareholders would be projected at $300 Million US. The two IPO's are projected for an initial market value of $600 Million US, of which Hartcourt owns roughly half. With the merger, shareholders would get much less direct value and likely IPO shares could not be distributed directly to the shareholders. However, we are ready to resume the merger talks at anytime if their major shareholders agree to a similarly equitable price, and as always we are constantly aware of the opportunities partnerships could bring. Also, another listed firm has approached us recently for merger discussion. We shall keep all our options open, up until you receive your dividends. Whatever our decision is, your interest is the biggest factor.
2. The GEM listing:
Being American, we naturally want a NASDAQ listing. However, the GEM offers many advantages: more analysts, knowledgeable Asian investors, high valuation, less competition and stronger PR. In fact, the Sohu and Netease management now say that they regretted the decision to list on the NASDAQ instead of Hong Kong, where they have much greater recognition. By the way, we may still seek NASDAQ listings after the IPO's.
3. The Underwriters:
Some shareholders were looking for a big American firm for the underwriting. However, we plan to do the IPO's in Hong Kong, not in the US. So we chose Yuanta-Core Pacific- Yamaichi, the biggest firm in Taiwan and Hong Kong, with reach all across Asia. Besides their long list of successful IPO's, in Hong Kong they simply have more retail brokers as well as institutional clients than any American firm there. Also, there is much Taiwanese money focused on China's markets as well.
4. The Dividend of IPO Shares:
We expect at least $300 Million US worth of IPO shares from our ownership in StreamingAsia and SinoBull (about half of the projected $600 Million US total), and we plan to give them all to you as we have plenty of other assets ready to be injected into Hartcourt. One major concern is the tax liability of the company and the shareholders. We are working with our legal staff for the right structure to minimize this effect. However, if we cannot get some sort of a tax-free exchange, we still plan to distribute all of these shares, but maybe over a tax-friendly time period instead.
5. The Stock Split:
Two reasons for this decision: one, we expect our share price to go up substantially once the analysts and the institutional investors do the math; two, we are trying to attract more Asian investors who are used to the lower Hong Kong share prices. In fact, our bankers advised us to prepare to do more stock splits if necessary. One example to bear in mind is the recent Hong Kong offerings of Microsoft, Intel and other major NASDAQ stocks which turned out as a big flop, since Asian investors found those share prices much too high for their comfort zone. Besides, they probably like holding lots of tens of thousands of shares.
6. The Change in Management:
My management principle is to produce results in a shortest time at a minimum cost. We are like a football team, the quarterback must be replaced if he fails to deliver. At Hartcourt, we must compete with the fastest players in this new economy, and executives, including myself, must produce or we will be history. We will continue to change and seek out opportunity to keep up with the rising expectations, and there will be no excuse for failure.
7. The Financial Status:
Right now, we have $11 Million receivables from the exercise of options by Mr. Thomas Kwok. In addition, we have a $35 Million equity line from Swartz. We have also agreed to sell $20 Million worth of restricted shares to a private party. On December 31st, 1999, we had about $300,000 in cash and we went out and bought 6 companies since then. Let's see what we can do with $65 Million in our war chest.
8. New Acquisitions:
The $600 Million market cap for StreamingAsia and SinoBull is just the first step. More acquisitions are on the way to make our IPO's even bigger. From our news releases in the next few weeks, you will realize how big our aim is. We are like the express train, it will be non-stop until we reach our destination.
9. Other Divisions:
With all the news centering around StreamingAsia and SinoBull, we tend to forget that the other assets of Hartcourt are as big and as important. Hartcourt Capital is working hard with Koffman Securities to implement a wide field of online financial transactions ranging from brokerages to banking and insurance. Dr. Charlie Yang is in Beijing negotiating on details of a COL/Innostar broadband ISP network. We plan to bring two more IPO's to the market in 2002, continuing our plan of successive IPO's.
Of course, we have many critics. A year ago, when we announced that we signed these purchase agreements, they said we would never had the money to close the deals. Once we closed the deals, they said we would never be able to realize any profit from these deals. Now that we are able to "monetize" these assets for the shareholders, they said let's talk about history: the pens, the NASDAQ listing, the merger, etc. No wonder why people have never built a statue to any critic, only those willing to brave the odds.
We have worked very hard to arrive at this stage of the journey. Of course, we have experienced many delays and frustrations along the way. But our greatest glory, like Confucius once said, is not in never falling, but in rising every time we fall. And I guess the harder we work, the luckier we get.
With your strong support, we are creating an exciting future for all of us. The intensity of our desire to succeed is immeasurable. We go an extra mile on every task because we believe that nothing is impossible to a willing heart. We know what Robert Collier meant when he said, "In the moment that you carry this conviction, your dreams will become a reality."
Sincerely,
Dr. Alan V. Phan
Chairman & CEO
Certain statements in this letter may constitute "forward - looking" statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Such "forward - looking" statements involve risks, uncertainties and other factors, which may cause the actual results, performance or achievements expressed or implied by such "forward - looking" statements to differ materially.
