Stockreporter.de > Companies > Hartcourt Companies
Stockreporter.de begins coverage of The Hartcourt Companies (HRCT) with a strong buy
recommendation and a price target of $9 per share
Hartcourt started out 8 years ago as a manufacturing company, producing a variety of
products with plants in China, Mexico and the US. Lack of focus and lack of financing caused
the company to restructure in 1998. The first step was placing all manufacturing operations in
Enova Holdings Inc. and spun it off as dividends to shareholders. Hartcourt was left with $10
Million marketable securities and no operation. The second step was to focus on the new
mission of Hartcourt, which is to become a leading Internet in China. The Hartcourt team went
to China, used their contacts, and signed 3 Joint Venture contracts with major Chinese firms.
The third step is to secure financing to complete the transactions. The end result will be an
Internet company with a revenue projected at $ 26 Million in 2000 and $145 Million in 2005.
Contrary to most Internet operations, Hartcourt's operations are projected to be profitable on
Hartcourt's new international growth strategy was twofold. First, the company focused on
acquiring companies in electronics, industrial distribution, and the communications
industries, with a special interest in developing markets in Asia. Second, once a business
was acquired, Hartcourt assisted in the growth of the subsidiary by providing management
with support, capital infusion, and strategic alliances. In addition, the decision to divest itself
of the China facility provided the company with a firm asset base and cash flow to support the
company's expansion plans. Using these strategies, Hartcourt has evolved from a struggling
company with revenues of $74,000 in 1994 to a flourishing growth company with pro forma
revenues of over $20,000,000 in 1997. During this time, the capital base rose from
$2,000,000 to $37,000,000. Sales revenue for 1998 should exceed $23 million.
Since the sale of the China facility, and with the recent acquisitions of Pego Systems, Inc.
and the joint company of Electronic Components and Systems, Inc. (ESC)/Pruzin
Technologies, Inc., Hartcourt has become an impressive holding company combining several
small companies in the high-tech industry into one company large enough to be competitive.
Hartcourt's initial acquisition, Pego, is a 27-year-old corporation that manufactures and
distributes environmental and filtration control equipment. This company, which dominates
the California, Arizona, and Nevada regions, gets its revenues from three areas of
operations: distribution of environmental and filtration control equipment, custom-designed
air and gas processing systems, and equipment service for existing clients.
In 1997, Pego generated $6.6 million in sales and showed more than $400,000 in profit. The
company, which enjoys a competitive advantage in its marketplace, has been growing at an
annual rate of 10 percent. This established corporation has exclusive distribution agreements
with some of the country's leading Fortune 500 companies, including the Coca-Cola
Company, Procter & Gamble, Mobil, and Arco, as well as government installations such as
Air Force bases and several local municipalities.
Hartcourt's second acquisition, Electronic Components and Systems, Inc. (ECS) / Pruzin
Technologies, had merged operations in 1988 for greater operating efficiency. The
combined company has grown in revenue from $300,000 to over $14 million in 1997.
Pruzin pioneered the technology of ball-grid array connection for integrated circuits, which
dramatically improves the efficiency of most printed circuit boards. ECS specializes in
high-tech manufacturing and assembly of printed circuit boards, telephone cable wires, and
plastic injection. In addition, it has become the leading manufacturer of cable reception and
channel switching boxes for the cable television industry as a result of its contract with
General Instruments. Other major customers include Intel and Motorola.
To further enhance the twofold focus of the company and to strengthen the holdings of its
shareholders, Dr. Alan Phan, President of Hartcourt, has announced a separation of the
company's U.S. and foreign interests and the creation of a new publicly held company. The
Nevada-based Enova Holdings Inc. (ENVA) will hold, develop, and seek additional business
opportunities in the United States. Enova shares will be distributed to all existing Hartcourt
shareholders - what amounts to a stock split. "We are completing the Form 10-SB for
submittal to the SEC. We do not control the processing, so we cannot give you an exact date
for listing on OTC BB; but the average waiting period is about 100 days. As Pego Systems
is profitable and having strong growth, together with the completion of 2 potential
acquisitions, the starting bid price for Enova shares should be fantastic", Dr. Alan Phan,
President and Chairman of the Board of Hartcourt, said today. According to Dr. Phan,
Hartcourt, the parent company, will also seek additional opportunities and acquisitions in
Hartcourt and China's Internet
The number of Internet users in China will reach 2.2 million by the end of June 1999,
according to a survey conducted by Computer Network Information Centre - almost triple the
620,000 users in October 1998. Only a small fraction of China's 1.25 billion people currently
have access to the Internet, but growth in Internet use has been explosive and industry
analysts say the number of surfers could reach seven million by 2001. In the coming
millennium, this growth momentum may hit more than 100 percent per year, Qian Hualin, vice
president of China Daily, noted in March 1999.
Hartcourt has completed negotiations with three major Internet companies in China:
1. UAC Online Trading: UAC is the only firm allowed to use the Chinese intranet called
CHINAPAC to connect investors to the brokerage houses for trade execution. It has contracts
to extend the service to at least 98 offices this year; and should be able to connect all 4,000
brokerage offices in 3 years.
2. IPC Technology International : IPC is the representative of a major state-owned Internet
company in Beijing. It has the 5th national license of ISP for China; and is guaranteed
200,000. subscribers for its operation within 24 months.
3. Another company Stockreporter.de does not yet know the name of (name withheld until
announced by Hartcourt): This company is a real time stock quote and financial data
provider, who has operated out of Hongkong for 14 years. It is like the Standard & Poors of
Hongkong. This company and UAC will be a perfect match to launch a comprehensive
Internet financial service for China.
The negotiation process is complicated due to the high sensitivity of the Chinese government
on matters which have political impact. However, with Hartcourt's past record on Chinese
investments, the government has extended great flexibility toward the company and the
The reason for this prediction of rapid growth is the expectation that the Chinese government
will soon abolish much of the red tape now surrounding the application for an Internet
connection. If this subscriber target is met, CIH revenues should grow to an estimated $95
million, with a net of $14 million by December 2001.
These acquisitions by Hartcourt allow the company to have an exclusive opportunity in the
new but rapidly expanding commercial Internet business in China. The Chinese Internet
market historically has been very hard to break into; many leading American and European
Internet companies have tried unsuccessfully. The open-door policy initiated by the Chinese
government 25 years ago has created a situation where new opportunities emerge almost
daily. Yet, this is the first time that a foreign company will actually be allowed to participate in
state-owned assets, and could be the foundation of the first time in China that there is a
privately operated nationwide Internet business.
"Subject to our ability to commit the necessary resources and depending on the group's
ability to market and attract a high percentage of China's current population of 200 million
potential customers, the Chinese joint venture can buy out the government's position and
effectively convert the venture into a privately owned company and become Asia's largest
Internet provider," stated Dr. Phan. "China is, and will continue to be, an enormous and
lucrative market for foreign businesses and investors alike."
Hartcourt is working on 2 separate financing structures:
1. A private placement of $10 Million worth of HRCT shares: Hartcourt has received an offer
from a small banking firm for the $10 Million equity. However, Hartcourt does not like the fee
and the discount percentage on the share price. Hartcourt is also waiting on the due
diligence result from a well-known bank. Dr. Alan Phan's trip this week to Hongkong is to
finalize the banking agreement, if they decide to go ahead. Meanwhile, 4 individual investors
have agreed to purchase a total of $3.5 Million if Hartcourt undertakes to do its own offering
(it will save Hartcourt plenty of banking and commission fee). Overall, it is not a question of
whether Hartcourt will get the financing, but which terms should Hartcourt accept from whom?
Also, the $3 Million credit line obtained from the $10 Million marketable securities Hartcourt
owns will be sufficient to complete the UAC deal alone.
2. Convertible debts of $45 Million for the ISP Joint Venture: Hartcourt has ongoing
discussion with a major Hongkong investment banking firm and with a telecom investment
fund in New York. The results should be clear by end of August. Meanwhile, other investment
banks have expressed interest, so there are many alternatives to above firms. Please bear in
mind that this financing arrangement has nothing to do with the completion of the UAC deal
or the other deal.
Currently everybody is pushing Hartcourt to get the financing done to help the share price, but
according to Dr. Alan Phan, Hartcourt will wait for the best deal from the highest quality
companies. One of Hartcourt Îs mistakes in the past was its hasty acceptance of expensive
financing from low-quality people. "We will not repeat this mistake", Dr. Alan Phan said
The Strategic Alliance And The Merger
Since the announcement of the UAC and IPC transactions, Hartcourt has received many
offers and proposals, including the outright purchase of some small ISP companies in the
US. Hartcourt has discussed and planned to engage a well-known firm, specializing in
matching partners in hi-tech strategic alliances. "From the initial responses, we will have one
or two partners, who are major famous Internet companies in the US to help us with the
technical management. We should complete this step by October 1999. Meanwhile, we have
entered into serious discussion to acquire a sizable profitable Internet firm to create a solid
platform, technologically and financially. If the deal is consummated, it will change the whole
perception on Hartcourtâs Internet capabilities." Dr. Alan Phan said today.
The management of Hartcourt (HRCT) is first class and consists of Dr, Alan V. Phan, Mr.
Leonard J. Roman, Mr. James Pruzin, Mr. Michael Caruana, and a highly skilled team of
industry experts. With this group, the Company is able to fulfill each area of business required
to manage this Company effectively. In addition, the Company has access to other
intellectual resources that may be retained on an as-needed basis in the areas of technical
support, development, finance, and strategic planning:
Dr. Alan V. Phan, CEO and Chairman of the Board: Dr. Phan has over30 years of
experience in business management. He obtained his academictraining and degrees at
Pennsylvania State University and Sussex College ofTechnology. Executive Vice President
Em Kay Group and Eisenberg Companies, he established 11 industrial projects in Asia and
South America. Additionally, Dr. Phan's professional business experience includes real
estate development of over 200 homes. Due to Dr. Phan's extensive relationships in China,
Hartcourt has been able to align itself with the local government and businesses.
Mr. Leonard J. Roman, Executive Vice President, Chief Financial Officer and Director: Mr.
Roman has 28 years of diversified public and private business management experience
having been a member of senior management at Cosmar Corporation and Financial
Corporation of America, that during his tenure grew from obscurity to become the largest in
their categories. His multi-faceted experience includes operations, finance as well as
administrative functions in the manufacturing, distribution and the financial services
industries. He is a CPA with Big Five experience having been with Price Waterhouse for 5
years. Mr. Roman earned his B.S. degree from St. John's University.
Mr. James Pruzin, President of E.C.S., Inc.: Mr. Pruzin graduated with a B. S. degree in
accounting from Indiana University. He has been involved with manufacturing in Mexico for
over 22 years in the capacities of both financial and operational management. ECS was
started by Mr. Pruzin in 1988 and has grown to a company with revenue in excess of 14
million dollars, with operations in Phoenix and Tucson Arizona, as well as Mexico.
Mr. Michael Caruana, Director and President of Pego Systems, Inc.: Mr. Caruana is an
engineer graduate from California State University at engineering and equipment
manufacturing company specializing in unique applications of industrial processes, has
grown from $500,000 to $7 million in sales under his ownership. Mr. Caruana has also been
successful in exporting Pego products and services into Asia and Eastern Europe.
Regarding the further development of the company's human resources and future recruiting of
a new management team Dr. Alan V. Phan said today: "First of all, the management of these
3 operations will be the responsibilities of the Joint Venture partners. They are now
well-staffed with excellent and experienced Chinese engineers and scientists, as well as
international mangers and high-level technocrats. On Hartcourtâs side, the first step is to
strengthen the Board of Directors with well-known celebrities from the hi-tech world. We have
invited and conducted negotiations with a few individuals. These are news-makers in their
own right. The second step is to select a CEO who has experience in managing
a-billion-dollar hi-tech enterprise. We have engaged a head-hunting firm to do just that.
Furthermore, if we complete the above-mentioned merger with the American Internet firm, we
shall have over 50 hi-power ãtechniesä on our staff."
In this context another great fact was also announced by Dr. Alan V. Phan today: "Conforming
with our principle to work only with high-quality people, we have engaged the largest financial
relation firm in the world. The announcement should come shortly. With a staff of over 800,
this PR firm will create a completely new image for Hartcourt".
EVALUATION AND OUTLOOK
The following projections estimated by independent market experts according to Hartcourt's
revenue projections are based on conservative assumptions. So we consider these figures
to be both very realistic and achievable: With approximately 17.6 Million shares issued and
outstanding Hartcourt is supposed to be profitable in the year 2000 and to achieve
substantial earnings of $0.30 per share in the year 2000. Therefore we set our share price
target to a least $9 at a conservatively estimated PER of only 30 which in case of this
tremendous growth potential seems to be even too conservative.
On the whole it may be said that The Hartcourt Companies (HRCT) possibly will be able to
make even more profit in the year 2000 than we expect. Consequently we would like to
mention in advance that Stockreporter.de might have to increase the profit expectations upon
availability of new improved earnings projections. According to these facts we are strongly
convinced that the share of The Hartcourt Companies (HRCT) currently is drastically
undervalued. Therefore we believe that the Company is one of the most exciting companies
to come to our attention in recent years. Its enormous growth potential is both dynamic and
Last but not least we would like to mention an additional and very important aspects: The
management of the Company is currently beginning to apply for a listing at the NASDAQ. So
in particular, this forthcoming listing of The Hartcourt Companies (HRCT) with regard to the
renowned NASDAQ will massively inspire the share price. Therefore we believe especially
this fact of taking the stock public to a major stock exchange will bring a massive thrust of
both new retail and new institutional investors driving the share price into dimensions the
stock really deserves.
"As promised, we shall re-file the NASDAQ application once the share price reaches $5. We
believe that if we prove without any doubt that we have the financing to carry out the contracts,
the market will reward us with the desired price. Furthermore, if the merger with the selected
Internet firm is realized, this goal could be reached sooner than expected." Dr. Alan V. Phan,
CEO and Chairman of the Board, said today. He added: "The Hongkong GEM (Growth
Enterprise Market) will start accepting application in September, and we will be there. As for
Singapore, we are preparing the documents with our sponsors to apply to SESDAQ."
Furthermore The Hartcourt Companies (HRCT) is already listed at the Berlin Stock
Exchange, the major European OTC stock exchange, to increase the international exposure
and to establish new investor relations in Europe (the securities code is 900 009). All these
listings open the door for new major institutional investments by e.g. national funds and
investment bankers and will reduce the negative influence day traders currently have. For that
reason potential investors have got only now the extremely unique and promising opportunity
to invest in the shares of The Hartcourt Companies (HRCT) on a more than advantageous
share price level.
In this context Dr. Alan V. Phan, CEO and Chairman of the Board, said today: "I always
believe that Hartcourt is a long play which eventually pays off big for investors. However, I
understand that market forces and speculators could cause tremendous fluctuation to the
stock price, therefore, it is definitely not the stock for those who are interested in short-term
According to these facts and the great opportunities the new major listings probably will offer
we are strongly convinced that the shares of The Hartcourt Companies (HRCT) is drastically
undervalued at a current price of less than $1.20 offering a short and mid term potential of
more than 600%. For this reason we believe that the HRCT share currently is one of the most
exciting and most promising investment opportunities for both retail and institutional investors
and that the HRCT share is going to be one of the best performing micro cap shares in the
next weeks and months.