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Shareholder Q&A with Hartcourt Management, May 2003
Q. What are you going to do to keep PPS around a buck? So tired of news with increase in PPS then back down to basement. Some call HRCT a pump and dump, I think not.
R. In all correspondences, we kept emphasizing that the management could only focus on the execution of our business plan and strategy. We could not do anything regarding the share price. We believe that the market will reward the shareholders properly once we complete our objective: making Hartcourt a profitable company in 2003 and continue to expand aggressively in the same business in 2004. Since none of the management team has sold or bought any HRCT shares, we don’t see why we should pump or dump.
Q. When is next China Report magazine due out? Will SARS affect PPS in short term?
R. Due to the late submittal of some advertising layouts, we must delay the magazine until next week. As for SARS, its impact on Chinese economy is projected to reduce about 1 percent of its GDP growth rate. We expect to see about 7.2 percent of growth, instead of 8.3 percent. Again, we could not predict its effect on our share price.
Q. Who was behind these PC companies’ acquisition deals? Dr. Phan or David Chen? Or both?
R. Dr. Phan is no longer involved in the daily management of Hartcourt. The credit belongs to the whole Hartcourt management team, from David Chen, Richard Yan to Raymond Liu and everyone else.
Q. Any new plan to add management positions? HRCT is now an $80 Million company, should we need more executives?
R. Yes, we are looking for more independent Directors to increase corporate governance of the company. We also plan to add an experienced CFO to our team; as well as a few investment associates.
Q. Give us an overview of Hartcourt business plan in the next 24 months. What kind of projected revenue and profit? Growth rate? On what business model?
R. Our business plan for the next 2 years is simply expanding our core operations by making more acquisitions. We are quite ambitious in this plan; but it is counter-productive to announce the numbers publicly. As we have experienced in the past, any missed target would cause a much bigger backlash against the company.
Q. The latest news was GREAT. Are there more things in the near future that will make us all more warm and fuzzy? PR's or a nice letter from Dr Phan?
R. Whenever we complete an acquisition or we spin-off an asset, we will announce the news. We learned not to raise shareholders’ expectation.
Q. Would you say that the computer marketing business will be the only area Hartcourt will focus on in the next 3 to 5 years? If so, are there any plans to expand Hartcourt Capitals business during this period? Will they do outside jobs or just direct its attention solely on Hartcourt companies?
R. Hartcourt will focus solely on the business of IT product distribution, marketing and service. We find out that we do not have sufficient financial resources and managerial bandwidth to involve in other business models. We love the financial information and data business, with its potential and Sinobull’s unique market position. However, we think it’s better to merge it with a much bigger entity so it can grow properly. In the end, shareholders would benefit more from the dividends, as ETLK has proved, than for us to hold on to these assets. We expect to spin-off Hartcourt Capital, E-Education and other assets in the similar fashion.
Q. Which of the previous acquisitions are being sold off and how will their sale affect the bottom line, i.e. how much of the profits of the new acquisition were applied towards covering their losses?
R. It’s true that most of our recent losses came from ETLK and FTL operations. As they will be gone from Hartcourt financial statements after their respective spin off (FTL in Q3 of 2003), we shall realize fully the profit figures from new acquisitions (HuaQing, NewHuaSun, and GuoWei).
Q. As I looked through the First Shanghai web site I notice that their company is active in the exact same area as Hartcourt Capital. Will there be any future mergers with this company? Perhaps a partnership with Hartcourt itself? Is First Shanghai Group currently an owner of Hartcourt shares?
R. We have an excellent working relationship with First Shanghai and we are partners in Sinobull/GTI. Both of us are continually looking for potential partnership in variety of projects. It’s difficult to predict what the final results will be; except that we keep an open mind on all possibilities. We don’t know if First Shanghai owns any HRCT shares.
Q. About the Sinobull merger. "After the merger, Sinobull shareholders will own approximately 17 percent of the combined entity." Could you tell us the value (US$) of Sinobull Information after we should get 17%?
R. Before the merger, we have independent appraisal of both companies, GTI and Sinobull Info. The 17 percent was the result of comparative valuations based on revenue, profit, net assets, intangibles and cash position. It’s difficult to estimate the value of the merged entity before it goes public; but we hope that it shall be bigger than ETLK.
Q. Will Hartcourt Capital accomplish or assist in the Sinobull IPO?
R. We presume that First Shanghai would be the lead sponsor of any GTI-Sinobull IPO because of their credential in Hong Kong. Of course, Hartcourt would assist in any way possible to expedite the process.
Q. Hartcourt has said that they want to be a household name in China after this plan (acquisition of PC companies) is successful. Will this computer sales network ever be called Hartcourt computers? What name will it take?
R. Hartcourt is committed to become a major force in China’s IT and digital economy. Hartcourt will earn its name as the investment holding and corporate development company that link all the subsidiaries together and create this major force.
Q. Shanghai’s growth dropped down in the 1st quarter of 2003 around 50%. What does it mean for the growth of HuaQing, NewHuaSun and GuoWei?
R. I think you got the wrong figure. Shanghai recorded a GDP growth rate of 10.3 percent in the first quarter of 2003, amongst highest in China. Due to SARS, this rate might drop down to 7.2 percent in second quarter. If it is so, then the financial results of HuaQing and GuoWei shall also be affected. However, the Chinese growth figures are still much higher than most developed countries.
Q. HuaQing, NewHuaSun and GuoWei are operating in the richest provinces. Which other provinces are important to create a top Computer Marketing Company in China? Could you give geographic overview about this business?
R. According to the official statistics, the Eastern Seaboard of China is the most advanced region of the country. Guangdong, Shanghai and nearby provinces are among the top. We would like to have some network in the Beijing-Tianjin area; as well as Shenyang and Qingdao area. However, the Western provinces are catching up fast with the active assistance of the government. In short, China is such a big country that we are happy to grow wherever the opportunity arises.
Q. As this network of computer marketers grows, will Hartcourt entertain proposals for a complete buy out of the company? Or possibly a majority sold to a large partner?
R. The Board of Directors considers shareholders’ interest the top issue. We keep an open mind on this subject; the long-term benefit to all shareholders will dictate our decision.
Q. What type of response has China Report magazine gotten? How many new subscribers? Will the distribution area be enlarged or are you waiting for more subscribers before going forth?
R. The response has been moderate. It was our first issue and there is still much room for improvement. As the magazine is distributed free during its first year: we don’t have any paid subscribers. We rely on advertising revenue for income. Fortunately, the ads are increasing better than projected; as you could see in the coming Issue No 2.
Q. What are your perceptions on GoNow's performance up until now? It seems like we have gotten a lot of exposure since they came on.
R. As expressed in previous Q&A, there are many concurrent campaigns on PR-IR. They include China Report, active participation from existing shareholders, GoNow web site and our extensive marketing to institutional investors. We are happy that this combination of efforts has been fruitful.
Q. Have all the requirements to list on the BBX been made? What is the status? Application complete?
R. BBX would accept application starting July this year. We are planning to file early.
Q. Do you have any plans for a shareholder meeting yet, and a location?
R. Provisionally, we plan to hold the Annual Shareholders’ meeting on August 22nd in San Francisco. However, we shall make it official in the Proxy to be sent to shareholders in June.
Forward-looking statements
The statements made in this press release, 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 release pertains. The actual results of the specific items described in this release, 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 release, 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.
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