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Friday, 04/12/2002 5:15:30 PM

Friday, April 12, 2002 5:15:30 PM

Post# of 200
Letter from CEO of HRCT:

Letter from CEO, Dr. Wallace Ching:
April 12th, 2002

General Update

Much has happened since my last letter; let me bring you up to date. Apart from working closely with each subsidiary, I have focused a lot of my efforts building the team and client base for Hartcourt Capital. For instance, David Chen has joined us full time as Investment Director after helping us to set up Sinobull Media, and Belle Liang has come on board from Credit Suisse First Boston (CSFB) where she was a research analyst covering Greater China. With the addition of our locally recruited associates, the team is rapidly taking shape and our teammates in Shanghai and Hong Kong have already started to actively solicit and evaluate companies in China. The focus is on companies in select high-growth sectors for either direct acquisition or to provide a selection of investment banking services, for instance, to assist them in obtaining a listing on the U.S. markets.

We have already made significant progress and are close to signing a few mandates, including a private placement exercise for a Korean company, and a listing advisory service for an advertising company in Guangzhou. We will certainly keep you updated once these mandates are signed and become disclose-able to the public.

As some of you may notice, we have recently appointed Lexington Enterprises as our official investor relations firm. From the outset, you should expect to see a more structured and aggressive approach in releasing corporate updates and promotion of Hartcourt's business strategy to a broader group of private and institutional investors. Together with our newly designed websites, which are rapidly progressing, we hope to present to our investors a stronger, more focused, unified corporate image.

As for our other group companies, ElelphantTalk has obtained its listing status on the OTC and signed a number of new initiatives, which we have detailed in recent press releases. With assistance from Lexington Enterprises, the next step is to increase media and analyst awareness and convey to potential investors and institutions the company's potential to become one of the leading telecommunication service providers in the Asia Pacific, Indo-China region.

Sinobull Financial Group continues to make progress in post-merger integration and our subsidiaries are already cross-selling products using each other's sales force. A case in point is the recent launch of the MetaStock product in Shanghai which is a result of collaboration between Financial Telecom and Sinobull Information. Our popular financial portal is generating over 30 million visitors monthly and we are planning to utilize this exposure more aggressively to market the products and services of our subsidiaries.

At the recent Shanghai Securex financial trade show the local bank branches of the Industrial and Commercial Bank of China, the Bank of Communications, and the Agricultural Bank of China all were showing their electronic banking systems embedded with our SinoBull quotation service.

We developed many direct sales leads from bank officials, brokerage firms, and professional investors for our Chinese version of MetaStock and our Sinobull Wireless PDA. Sinobull's PDA bundles the advanced GPRS network application from China Mobile Shanghai, and the top Compaq PDA model, to offer the fastest mobile streaming quotation service in China. This product also provides a plug-in for institutions to download their trading systems into our PDA. In addition, we are currently in talks with China Mobile Shanghai for a joint promotion.

Sinobull's Data services also generated significant interest and after the show we conducted a number of discussions with TV stations, both in Shanghai and Beijing, on the provision of HK stock quotes for their financial TV programs. We also plan to participate in the upcoming nation-wide seminar to be attended by hundreds of China TV channels this summer (possibly in Zhuhai) and to present the Sinobull Data feed to all the attending TV channels.

The status of the Sinobull market listing is progressing and we are replying to a last minute request from the SEC for additional audit information. This is a routine request and we are currently waiting for the group's audit to be completed for submission to the SEC. Once that information is filed and cleared, we expect the reverse merger of Sinobull to take place shortly after. Our CFO and accounting firm are working diligently to bring this to a timely resolution. And, there is a silver lining to this unexpected delay as Sinobull companies have signed additional business in the past few weeks and this should add to any listing valuation.

AI-Asia has combined the operations of LogicSpace and StreamingAsia to reduce overhead and will continue to provide web solution and streaming services while expanding development of Enterprise Resource Planning programs (ERP). We are working hard writing code and expanding this product to take advantage of higher product margins and to meet the increasing demand for business management software from Chinese businesses. The first contract for these services has already been signed.

The development of a small sum transaction payment gateway is in the final stages; this will facilitate online transactions for online games, subscriptions for research articles, and other value added internet services. In addition, AI-Asia has established an engineering team in Shenzhen, which borders Hongkong, to save on costs and is setting up a sales team to market its services in the Pearl Delta area, targeting medium size enterprises.

AI-Asia is also planning to add Kangrun Technologies to provide products and services for network enterprises and media system technology. Kangrun is one of the top IBM distributors (5 star) in China for PC, server, laptop, storage devices and solutions for corporate customers. They are the general sales agent in Northern China for Ortronics. Their clients include; Tsinghua University, Beijing University, China Telecom, SK Corp, People's Daily,, and the Chang Sheng Fund. In 2001, Kangrun's unaudited sales revenue was $57 Million RMB / $7.1 Million US.

We continue to structure the division to prepare it for public listing and after signing the acquisition agreements with most of the relevant parties in December 2001, our team has worked hard to overcome any remaining legal obstacles in bringing together the companies under AI-Asia's umbrella. We envision the consolidation of Kangrun Technologies, Control Tech, and LogicSpace will be completed in the second quarter and thereafter we will proceed to take AI-Asia to the public markets.

Lastly, I am looking forward to my trip to the US and Germany. I hope to see you all there and share with you my views and vision for the company.

Comments on the 10K

Last year saw a continuing contraction in the global economic sector and more than three trillion dollars of wealth effect lost from the US stock markets alone. There was also a severe economic downturn in Hong Kong that had a negative impact on some of our businesses. Failure to meet planned objectives on some ventures was an unpleasant reality and a condition Hrct shared with a majority of publicly traded companies.

Our organization doesn't operate in a vacuum and the same environment that effected the overall markets had a pronounced impact on some of our operations and projected ventures. To counterbalance this we lowered overhead, relocated many personnel and operations to China where the costs are significantly lower, consolidated operations, and sought out new markets as we attempted to stay ahead of sharply deteriorating market conditions, while maintaining a balance in our distribution of resources to insure continued growth.

In the past our approach to acquisitions was in line with the highly valued markets and rapidly expanding technology sector. As these market conditions reversed it resulted in the failure of some of these acquired companies to produce the results that were anticipated. As the year reached an end we had some hard decisions to make in relation to certain operations and decided to be proactive and take a very conservative approach by writing down much of the goodwill on under performing assets in the 4th quarter of 2001.

We felt this was especially prudent in light of the potential changes in the regulatory environment in accounting practices for technology companies. While this strategy produced one-time loss items, it allows us to move forward in 2002 with minimal exposure to unusual events and to significantly lessen their continuing drag on our financials. This will help expedite the company's successful transition to cash flow positive and profitable operations.

In addition, this conservative approach has prompted us to change the timeline for completion of the V-2 Technology acquisition while we examine viable strategies to restructure the areas of the business with high cash burn rate and consolidate the valuable remaining assets. We will continue to pursue development and distribution agreements with V-2 in the interim. To compensate for this move we have acquired Kangrun Technologies (see recent press release), a firm with $7 million in revenues. We have also decided to suspend our development of Renew Logistics until we can devote the necessary resources to make this venture successful.

Our objective is to create a solid foundation for our future growth and establish the most favorable conditions to achieve our financial objectives. We have made significant progress, while maintaining a strong and growing presence in our business segments as we continue to pursue new business opportunities and target complementary acquisitions.

We plan to continue to oversee and refine our operations and ventures to maintain this level of accountability throughout our organization. We expect additional challenges but we are confident in our ability to successfully achieve our goals.

Looking forward

We have just been through one of the sharpest recession in the last twenty years. Hartcourt has persevered, and it has made our operations more efficient and more focused.

In spite of the poor market conditions Hartcourt has evolved into a synergistic network of 5 business divisions, with 200 employees, and 12 portfolio-operating companies with estimated annual revenues in excess of $20 million. A figure that currently doesn't include revenues from Kangrun Technology, Control Tech, or potential contributions from Hartcourt Capital.

Now we begin our task of taking a refocused and revitalized organization forward as the opportunities in China continue to expand and we make strong and successful efforts to extend our operational reach to additional locations in Greater Asia.

I am excited about our future and I look forward to updating you on our progress. And finally, I would like to thank you, our shareholders. I know these have been difficult times and the entire Hartcourt organization extends its deepest appreciation for your support.

Best Regards,

Dr. Wallace Ching

M&M Man