Shareholder Q & A
February 2004
Q: Is the company on pace with meeting previously projected time frames (i.e. Exchange
application) or have they been extended?
A: Yes. We are now preparing the documents. The formal application will be submitted
after the filing of the 10K Annual Report.
Q: Since HRCT now appears to be using cash to fund acquisitions, is there any
thoughts/plans to do a stock buy back?
A: We are considering all possible alternatives, based on the most effective way to utilize
our cash reserve and stock issuance. Since we are planning an aggressive schedule of
acquisitions, the issue of stock buy-back must wait.
Q: What happened at the court hearing re the SEC lawsuit?
A: As reported from our legal counsel," The parties agreed to court-recommended
mediation and for a stay of all depositions through June 1, 2004, but written discovery is
allowed. The Court ordered a mediation completion date of April 30, 2004, and a postmediation
status conference for June 1, 2004. If the case does not settle at mediation, a
trial date will likely be set at the post-mediation status conference."
Q: Is there already a shareholders' meeting planned for Vegas in August?
A: The Board will make a decision some time in June. Las Vegas is likely to be chosen as
requested by many shareholders.
Q: What are the near-term plans to build Hrct's share price and attract more investors?
Asian, as well?
A: After filing the 10K and submitting our application for a new listing, Hartcourt should be
ready to present itself to major institutional investors and fund managers in the US,
Europe and Asia. We should also be able to attract research coverage from major
brokerages and independent analysts. Meanwhile, we are actively searching for a
suitable IR-PR firm to represent the company.
Q: Is the streamlining process for the subs, that is being done by Carrie Hartwick, going
well?
A: The streamlining and integration process involves many companies, managers, internal
cultures and external factors. Ms. Carrie Hartwick has surpassed our expectation in the
overall progress. The ERP system is being installed and tested. There are many
challenges ahead and the effect of her effort on our bottom line won't show up until later
this year.
Q: Will the acquisition phase slow at all, because of the low share price?
A: We don't think 7 major acquisitions in one year could be classified as "slow". However,
with our increased financial strength and strategic market position, we are more
selective and go after bigger and better candidates. The negotiation and due diligence
processes would naturally take longer to complete.
Q: Has there been any thought of acquiring 100 percent of these companies when Chinese
law allows for such an event? How would the current owners of these companies feel
about Hrct being 100 percent owners?
A: Operating in a complex environment like China requires local partners who are
experienced, connected and motivated. These are the reasons we want to have minor
partners in our subsidiaries. The law might soon be changed, but we need a compelling
analysis on financial results to increase our investment.
Q: When I look through the subs web sites I see a lot of Samsung, of course IBM and Intel
among others...Have any of these companies approached Hrct to talk about buying in as
a partner, or is it too early in the game to be considering such a thing? It seems as the
network grows, large foreign companies that have IT products to sell in China, would
love to get a piece of this pie..
A: We think it's a little early to discuss this matter with our partners. We must focus on
building the biggest and best IT distribution network in China first. Once the ball park is
built, there should be no shortage of players, considering the fast track development of
China economy.
Q: Why was David's interview with Tom Allinder at Hotstockchat.com removed so abruptly?
A: Since we did not pay for the interview, we had no say in the decision of hotstockchat.com.
Q: Will the video of the August shareholder meeting ever be available?
A: We did not take any video, but we believe some shareholders might have the recorded
tape. Please post your request to various chat rooms on Hartcourt.
Q: What kind of agreement was made with the shareholders of the 55 million restricted
shares? Legal binding? Or a promise, smile and a handshake?
A: It's legally binding.
Q: Did you structure the FTL dividend so that it goes straight to us shareholders this time?
Or is it going to be another ETLK fiasco?
A: Since we got plenty of complaints from ETLK distribution, the Board of FTL does not
want to distribute restricted shares like ETLK. Therefore, they are waiting for the SEC
approval on their SB-2 filing. Once it's done, the distributed shares will be free-trading.
The SEC needs the audited financial statements of 2003 on this filing and we hope to file
it by April.
Q: Can you provide some insight into the 4th qtr financials prior to the release of the 10K?
A: We cannot comment yet on this matter. Please wait for the filing.
Q: Does Hrct have any long-term plans beyond IT? How long will the
acquisition/streamlining process take before we can see a fully mature network of
companies running on all cylinders?
A: Our business plan for the next 2 years is to increase the profit margin and net revenue of
existing subsidiaries and to acquire more synergistic companies to achieve $1 billion in
sales. Any other longer term planning is pure speculative.
Q: How are retail sales going so far in 2004? Which cities are producing the most potential?
Has Hrct landed any large distribution contracts lately? How many people do they have in
charge of that major part of Hrct's distribution business?
A: Sales revenues of existing subsidiaries are matching overall growth of China market in
our industry, according to IDG. The best growth rates are recorded in major cities like
Shanghai, Beijing, Guangzhou. Our subsidiaries employ over 1000 people nationwide.
Q: Concerning the SEC suit, are HRCT corporate officers bonded? If Phan had been I think
this money issue would not be on the table.
A: At present, Hartcourt directors have no D&O insurance; but we are planning to obtain a
policy soon. We think a lawsuit has many aspects and money is not the only issue.
According to our legal counsels, they are very optimistic on the outcome.
Forward-looking statements
The statements made in this Q&A, which are not historical facts, contain certain forward-looking statements
concerning potential developments affecting the business, prospects, financial condition and other aspects of the
company to which this document pertains. The actual results of the specific items described in this document,
and the company's operations generally, may differ materially from what is projected in such forward-looking
statements. Although such statements are based upon the best judgments of management of the company as of
the date of this document, significant deviations in magnitude, timing and other factors may result from business
risks and uncertainties including, without limitation, the company's dependence on third parties, general market
and economic conditions, technical factors, the availability of outside capital, receipt of revenues and other
factors, many of which are beyond the control of the company. The company disclaims any obligation to update
information contained in any forward-looking statement.
©2002 The Hartcourt Companies, Inc. U.S. OTCBB: HRCT, Frankfurt: 900009
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