Funniest thing I ever read->DAVID CHEN SHAREHOLDERS LETTER 9/15/02
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Posted by: Tin-Berrygood
In reply to: None Date:9/16/2002 3:58:25 PM
Post #of 13593
DAVID CHEN SHAREHOLDERS LETTER 9/15/02
Dear Shareholders:
As promised, I am updating you on the current status of Hartcourt operations. During the last 4 weeks, we have been concentrating on disposing unprofitable divisions and acquiring new profitable business. This effort will continue through out the remaining of the year.
The process of cutting back the G & A expenses by terminating high cost personnel and close down high cost offices and rebuild our corporate management functions in Shanghai is very time consuming. In fact, we must pay out a substantial amount for severance packages and other termination costs, so you will see some increase in Q3 losses. However, the pain will be endured only by a few more months, by Q1 of 2003, we will have only $360,000 overhead cost. Our target of creating a very lean and mean, yet very efficient, organization in Shanghai will be met without a question.
Furthermore, when the former management teams envisioned the business plan for the 5 operating subsidiaries, they had counted on a high share price to support the funding needed for continuous expansion. With funding, the 5-year plan would create 5 gigantic divisions from telecommunications to investment banking of which they could be spun-off by IPO or merger to get substantial dividends to shareholders. With the stock market as is, the plan could not be executed in its original grandiose. We cannot wait for another 3 years until maturity. Therefore, we have replaced it with a one-year plan whereas we will spin-off or dispose most divisions and will acquire only one big profitable business, instead of trying to support 5 start-up ones. Fortunately, the value of the existing assets is high enough for us to exit in a profitable manner.
I assure you that we are working hard to implement this one-year plan and you should see the tangible results reflected in our Q1-2003 financial report. I am confident and optimistic. Once we achieve this crucial step, we will be able to wait out the depressed market and continue the journey with even better prospects than before.
We appreciate your patience and we count on your support.
Now, let's get on to the Q & A section:
Q: Please tell us how are you going to cut these expenses? Which executives must resign, which have agreed to take a big pay cut, which will be replaced by cheaper Chinese executives and how are you going to do it to get to $360,000?
A: From the recent PR releases you can see we have already started doing this. Personnel movement and salary are sensitive questions so we can not give you all the details, but we can tell you that executives based in HK and US will be replaced by executives based in Shanghai, all to be completed within this quarter.
Q: Is it true that Hartcourt has to go back to the traditional business sector to get the profitable companies which will be the foundation of the new acquisition strategy of Hartcourt? Would it mean that Hartcourt is abandoning the hi-tech business model?
A: We are still seeking businesses in high growth sectors in the technology and communications-related industries. The most important criteria for the new acquisition are revenues and profits.
Q: How will you spin-off the Sinobull division, the AI-Asia division? By reverse take-over like ETLK or by other means?
A: The spin-off will require us to evaluate all of the available options including, merger with a competitor, private sale, partial sale, direct spin-off, reverse listing, etc. We will keep you informed of the progress.
Q: Has the stake in ETLK already been paid now? It is not in the 10Q. When do we get our ETLK shares?
A: We are committed to distribute the share dividends. Please be patient and wait for our legal consul completing the paperwork with the transfer agent.
Q: What's about your cash-situation? Since years you are burning cash. How long you will be able to afford?
A: While we are doing our best to change direction and initiate major cost saving, we are lucky to have some very supporting shareholders who really believe in our operations to continue the funding.
Q: What's about the VC (Schwartz?) who gave a LOI or even a MOU (2 years ago) to invest another big amount of USD in your company?
A: The equity line is still available, but we run major risk of tanking the share price, so we have refrained from utilizing this resource.
Q: Wouldn't downsizing the company to show a minimal profit create uncertainty in the minds of new investors?
A: Our plan is not downsizing the company but to replace non-performance divisions with profitable ones. The move of our headquarters to Shanghai shall save two-third of the overhead cost. Furthermore, we think that the new investors would care more about the bottom line of the company: profit and cash flow.
Q: Which subs is HRCT counting on in the near term for the most profit?
A: The new ones we are bringing in.
Q: Is it possible to share an overview of the company plan or outline with investors...How has that plan changed in the past year?
A: Like I said at the beginning, the original business plan required a tremendous amount of financial resources, which the present market environment has rendered it impossible. We must face reality and dispose quickly the negative cash flow operations. We are working to replace these assets with profitable ones so we could move on, bad times or good times.
Q: Can we get a "firm/finalized" DATE-LOCATION for shareholders meeting?
A: It will be held on the 15th November 2002 at the Holiday Inn, Los Angeles Airport subject to the final proxy to be sent out to all shareholders soon.
Q: Sinobull was reportedly to have "first mover" position...based on Sohu's news (below) "where" do we stand now? biz.yahoo.com
A: I can not comment on Sohu's strategy but Sinobull is not an online stock trading brokerage, but rather a financial information and technology provider to banks, brokerage and investors in the market. UAC online trading operation has been disposed of more than 2 years ago.
Q: Of all our domestic (USA) partnerships/affiliations/alliances, WHICH can you specifically provide "revenue generating" confirmation from?
WHO _ ANNUAL REVENUE APPROX. $__
A: Most of our AI-ASIA operations obtain their revenue from their US based suppliers (IBM, Polycom, Ortronics, Sony, Radvision, etc). Reuters and S&P exchange data feed with Sinobull in Hong Kong. Equis Metastock is already launched in HK and will be launched shortly in China.
Q: What is "current" cash/burn rate? Date of zero sum?
A: At headquarters, we shall reduce our total G & A to be about $400,000 by December.
Q: Hartcourt website is boring & information dated, including unusable links to Lexington LLC. What are plans to update/keep fresh for new investors research?
A: Revamping the Web site is on our list of things to do. However, in view of the lack of interest from new investors, we do not place a high priority on this task. We prefer to use limited resources on other projects.
Q: What could you tell us about the contacts between Hartcourt and the government? Mr. Lu Hao, Chairman of Beijing Government Committee for High-Tech Industry: "We are very impressed with Hartcourt's vision and understanding of the huge business and investment opportunities here in Beijing as well as in other parts of China. We particularly welcome foreign companies like Hartcourt, who see the great opportunities and also understand the way of working with us, together, to improve the foreign investment environment in China."
A: It's very counter-productive to make any comment on our relationship with any government.
Q: What's the most important bank for us and our product?
A: Sinobull in China has good business relationships with most of the banks in China including: Bank of Communications, Industrial Commerce Bank, Bank of China, Construction Bank. We hope that all banks and brokerage houses will become our clients.
Q: What can you tell us about e139.com?
A: e139.com is a part of Cellstar, one of the largest mobile communication data and services providers in China, a partner of Sinobull.com.
13. David Chen: "Prior to his technology experience, he was the Regional Marketing Director at CNN International and Sales Director for Turner Broadcasting Systems - subsidiaries of AOL-Time Warner." It's difficult to find some more information. What was your job exactly and do you have contacts to your old companies?
A: I worked at CNN and TBS for 5 years. I have many friends there.
Q: Any existing business relations to ET.NET (etnet.com)?
A: ETNS or Etns.net was started by the founders of Elephant Talk (ETLK). Officially, we have no business relationship yet.
Q: Are we in the process of selling any subs or portions of them and is that why HRCT is so confident we will show profits by the end of 4th quarter?
A: We cannot give any answer on this sensitive subject.
Q: I have noticed that IBM has some sort of deal with the state banks and central government...Can you elaborate on the significance to HRCT (Kangrun)?
A: Any progress made by IBM in China should have positive impact on Kangrun. How much? It remains to be seen.
Q: Was the work by Wallace successfully terminated concerning the fund?
A: Due to market uncertainties, Wallace had a tough time in recruiting investors for the new fund. We must postpone any work on this project until the market returns to normal.
Q: What can you tell us about the influence of Reuters in the Chinese market? Is it possible we get trouble to sell our product if they are there too?
A: Reuters are trying to set up their data center in China. They are gearing more to serve overseas investors, whereas Sinobull is focusing its marketing on Chinese investors. We are cooperating with Reuters whenever possible. However, no one can tell about the future. All we can do is to try delivering to our customers better and better products and services each and every day.
Q: Please give us (shareholders) once and for all the straight story as to why No big money American or other foreign corporations have truly invested in HRCT as a window to their China operations? Where are the big money institutional shareholders and why are they not attracted?
A: Dr. Ching had been trying to rectify this situation regarding institutional investors. Unfortunately, the adverse market conditions have negatively impacted his effort. We shall try again when the right timing arrives.
Q: Hi Mr. Chen, as you can see the uncertainty is very high between us shareholders.
As long term shareholder I am sometimes wondering about the numerous changes in the Hartcourt- management and public relation-firms. Why did they all leave us?
This is the very important question for me, because all the speculations around the changes make me and the most of us very crazy. Thanks in advance.
A: Sometimes people leave us and sometimes we leave them. Hartcourt's board is very demanding in terms of performance especially in this tough market. Perhaps many executives with background of big corporate structures found themselves unfamiliar with the rough environment of managing a hi-tech start-up. I also think the downturn of the stock market makes the compensation options for these executives unattractive. Whatever the real reasons, we are still here to carry on and to perform. I think you should judge us by operational results and progress toward the final goal, and nothing else.
Q: Could you explain why we do not hear of Asian investments in this an Asian based company, supplying technology to the Asian community? Why does this company (HRCT) not command better shareholder support from the Asian community?
A: The last time I looked at the shareholders name list, there are about 24 percent Asian shareholders. I think it is much more than the representative demography in the US or Europe.
Q: Yes or no...Will Hartcourt be ready for the BBX?
A: The answer is YES.
Q: Besides ETLK, which other subs are you planning to dispose? Sinobull, StreamingAsia, E-Education, HRCT Capital?
A: Please be patient and wait for the Press Releases.
Q: Will you maintain any office in US or Hong Kong, now that you are moving everything to Shanghai?
A: Mr. John Furutani, our legal counsel, will maintain our US office for all legal and administrative matters. The address is: 2500 E. Colorado Blvd Suite 301 Pasadena, CA. 91107 Tel: 626- 844 2437 Fax: 626- 844 2442.
Our Hartcourt office in Hong Kong will be moved to FTL office: Suite 308 Hangbong Commercial Centre, 28 Shanghai Street, Kowloon, Hong Kong Tel: 852- 2302 1388 Fax: 852- 2877 5021.
The best way to reach us is still by Email, david.chen@hartcourt.com.
Q: You said there will be new profitable acquisitions. Please provide us with the funding possibility of such move.
A: There are a variety of funding methods and sources. New equities will be preferable than debts. However, we shall be very creative and try not to engage in ruinous approaches like convertible bonds or equity line. We remain committed to grow Hartcourt bigger and bigger on a profitable platform.
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. |
