Hi gang....Just walked in the door and will catch up later tonight...But I did want to post a copy of Dr. Phan's State of Harcourt speech....Read and Enjoy....Will be back later tonight....Aloha
STATE OF HARTCOURT
Shareholders’ Meeting Of 7/20/2001
Thank you for being here. I appreciate your time and effort to attend this meeting, despite the gloomy market conditions and the horrible share price of Hartcourt. Your support and patience is the cornerstone of this company, it gives the management the incentive to pursue Hartcourt’s mission against any odds or challenge.
Today, I will present to you the "State Of Hartcourt" in a straightforward manner without any cosmetic attempt.
THE SHARE PRICE
This subject is probably the most important one in the shareholders’ mind. The most-often asked question is " is there something wrong with the operations? Why does our share price drop so low?" The answer of course is NO. Our operations have grown at least 15 times bigger than when our share price is at $8.00 (post-split). Back in February 2000, we had only Financial Telecom and UAC Online. Today, we control 8 operating companies (FTL, UAC, Guo Mao, Shangdi, SA, LogicSpace, Fintel Wireless and Elephant Talk) and have 3 portfolio companies (Empact, Wind Info and TSS). We had only one strategic partner then (China Telecom). Today, we can count on Equis/Reuters, Yahoo!China, Microsoft, IBM, Hewlett-Packard, SIFTT/Nokia, Legend, Innostar, People’s Daily, China Info, China Securities, YesMobile, Cal State Fullerton and Northern Jiao Tong University. So how come our share price is almost at an all-time low? The factors are complicated: market conditions and momentum, US-China relations, OTC vulnerability, short selling, shareholders’ disappointment, lack of new buyers…among others. Whatever management can do to rectify the situation, we will.
Another question is what effect this low share price will have on Hartcourt operations? Not much on existing operations, but it will hamper our ability to expand aggressively on future mergers and acquisitions. One example is the Koffman Securities acquisition: we cannot afford to give away 10% of Hartcourt for this company.
However, we would like to emphasize two things: first, when the share price goes down, it does not mean our existing assets will disappear or have a lower value because of it. Second, we manage the company by long-term objectives and by operational achievements in market position, revenue, earnings, and technological excellence. We cannot manage a company according to the daily fluctuation of the share price. We are as frustrated and disappointed as you are on this share price, and you can take your frustration and disappointment out on the management, but it won’t help in any way.
THE FINANCIAL PROJECTIONS
We have put out a Press Release this morning on the projections. We expect a 600% increase in revenue this Q2 and over 900% in Q3. This is the most conservative estimate, and we fully expect to meet this projection. If a bull market persists and our share price appreciates, the planned acquisitions and mergers will bring in much higher revenue.
The management is very focused on the fundamentals of the company. Besides market positions and technological excellence, financial performance is always a yardstick of a company’s value. No one is more aware of this fact than the Hartcourt team.
THE SPIN-OFF OF ASSETS
We are committed to spin off Sinobull, ElephantTalk and StreamingAsia into 3 separate public entities. There has been a lot of concern due to delays in realizing these goals. However, spinning-off a major asset is like selling your home. Unless you are desperate, you cannot get the best value by rushing into accepting the first offer or by selling into a depressed real estate market, etc… Sometimes, you might want to do some renovation and remodeling to your properties to obtain a much higher price. All of our companies are good assets and we are not desperate to get rid of any of them. We are working on additional acquisitions to make them more attractive to the public. The process of getting these companies public is not difficult, just like selling your house at a bargain price will get you a buyer. However, we want to obtain the best price, and I know I will take a lot of personal heat for this decision, but I will delay the spin-off, as long as necessary to obtain the best value for these units (which means having them at the right size and selling them at the right time).
Later, the three CEO’s of SA, SB , ET and Grace Li of E-Education will give you detailed presentation on their respective units.
THE SYNERGY
As you can see from the chart, while SB and E-Education are the content providers, SA is the technology company, using the infrastructure created by ET. The streaming video expertise of SA powers the delivery systems for our E-Education, which offers alternative distance learning, and sends financial data to the homes and offices of investors and financial institutions over the fiber optic networks managed by ET.
This is the connecting framework of Hartcourt’s Internet vision. This is the mission we promised to realize over the next 10 years in the biggest market of the world. This is the business plan which we have focused our energy, resources and execution.
FUNDING OF WORKING CAPITAL
Many shareholders have questioned how we have been funding Hartcourt lately. First, although our agreement with Swartz for $35 Million is still in effect, we do not expect to use it because it would have an adverse effect on potential dilution of HRCT’s share price. Second, because of our low share price, we haven’t done any major private placements. Therefore, our cash position is kept to the minimum necessary for effective operation. We will have enough working capital to keep the operations stable.
The largest cost factor in funding our US operations include general administration and legal and accounting bills. It cost us over $ 2 Million last year. If we cut down these expenses dramatically, we will be able to fund our working capital needs easily.
THE MANAGEMENT CHANGE
We are moving our Executive Operations to China to streamline them and to reduce overall costs. This will not impair our visibility in the U.S. and we will continue to maintain a strong presence here to service the shareholders.
At the same time, the Chinese executives running our operations are quickly learning modern management technique and skills from the West. Many have their educational degrees at American and European universities. They will readily replace the US-based executives at approximately 20 percent of the cost. As one incentive, Hartcourt will pay for all the executives’ tuition at educational and training programs at Hartcourt’s E-Education facility run by Cal State Fullerton and Northern Jiaotong University.
THE LESSONS OF FAILURE
One of the most frequent criticisms of management is we tend to announce things too early and we are too optimistic in our communications. Coupling that with the enthusiasm of the shareholders, we create a very high expectations. And, sometimes, the pendulum swings the other way. When we experience delay, frustration and negativity result. Life is often a self-fulfilling prophecy, so these negativity can turn deadly to a good company. We have learned this lesson well. We have let ourselves get carried away, like most Internet executives by the irrational exuberance at the height of the bull market of 1999. As recently promised, we have been very careful in making predictions and projections, even if it means that we must withhold information from our shareholders about projects in development.
One failure is the UAC operation. In March 1998, when we acquired 50% of UAC, they had a unique position of having the exclusive use of the 162 Intranet Network of China Telecom, allowing brokerage customers to trade online. In September 1999, the Chinese government reversed itself, allowing online stock trading over the Internet, taking away the unique advantage of UAC. We scrambled to change our products and come up with innovative software in partnerships with Microsoft, HP and IBM. But it was too little too late and UAC’s revenues plummeted. Two lessons here: we cannot rely on legislative protection and we must adapt faster and better with the changing market environment.
We also experienced setbacks with some mergers and acquisitions. Many Chinese companies failed to meet the due diligence process imposed by international accounting standards. As such, our progress has been slower than expected. However, the standard success ratio of all M&A deals are roughly 42 percent , so we consider ourselves much better than average, especially for those operating in China.
THE INFLUENCING FACTORS
What effect could the following events have on Hartcourt?
First, the 2008 Olympics. Obviously, having the Olympic games in Beijing will be a $10 Billion boost in the economy of Beijing and China. All types of businesses will benefit. ET will increase its IDD services used by visitors and the media. We expect to provide plenty of multi-media streaming by our SA division. Demand for language and business skills to deal with foreigners will increase the revenue of our E-Education program. Of course, as Chinese investors become more sophisticated with the influx of foreign visitors and businessmen, the need for financial data from Sinobull will grow accordingly.
As for the WTO, foreign investment and trade will increase steadily, expanding an already hot economy. As the pie grows bigger, our share should also be bigger as long as we maintain our competitive advantages. New world-class competitors will arrive, but they have to go through the same learning curve about China like we did a few years ago. As such, I think we are still ahead by a 2-year gap.
Of course, another big factor is US-China relations. It has seen the ups and the downs, depending mostly on the political trend in the US. Whoever is in power, Republican, Democrat, Conservative, or Internationalist could effect this policy greatly. However, one fact is indisputable: China and US are interdependent, not only in the global power game, but also in economical cooperation. The realists from both sides will make sure that the pendulum won’t swing too far to either extreme.
THE INCREASE IN AUTHORIZED SHARES
We are increasing the number of authorized shares from 100 million to 250 million. Normally, the total authorized shares in most public companies is about 3 times the total outstanding and issued shares. The reason is that any company must be ready to grow and will need greater numbers of outstanding shares in order to take advantage of business opportunities in our exciting market of China.
We promise you that these shares will be used only for acquisitions that would be expected to double or triple the market value of Hartcourt.
CONCLUSION
Two years ago, we started the journey with next to nothing. Today, Hartcourt is the proud owner of many valuable assets, tangible and intangible, in the most exciting market in the world. I also expect the company to be profitable by 2002. However, these are the trying times for Hartcourt shareholders, with our share price as low as it is.
Last year, I told you the following if you’ll remember; ‘Abraham Lincoln once said, "I do the best I know how, the very best I can; and I mean to keep on doing it to the end. If the end brings me out all right, what is said against me will not amount to anything. If the ends brings me out all wrong, ten angels swearing I was right would make no difference." In three more years, you will have the opportunity to sing the victory song with me, or to organize a lynching party. I will take full responsibility for all results."
I repeat this statement, because I am still standing behind my words. Many shareholders are worried that I am discouraged because of the constant virulent attack on our share price. I want to assure everyone that I will NEVER walk away from my mission. The greater the pressure, the more determined I am, the better my performance. I keep telling myself that the measure of success is how high you bounce when you hit bottom.
Let me end with the wisdom of Alexander Bell, who had failed so many times in his works," What this power is I cannot say; all I know is that it exists and it becomes available only when a man is in that state of mind in which he knows exactly what he wants and is fully determined not to quit until he finds it."
God bless us all. Thank you.
News 
Market Data 
Discover 
AI
