Letter to Shareholders by new CEO, Dr. Ching

Letter to Shareholders by new CEO, Dr. Ching
Dear Shareholders,

I have spent my first week as the CEO of Hartcourt and it was as challenging and rewarding as I had hoped. Following my initial review of our operations I have developed a brief summary of our strategy and goals for the upcoming year that I would like to share with all of you. This is not intended to serve as a definitive company mission statement or organizational analysis but it will provide a basic outline for reference as we roll out our near term business initiatives. As we lay out our long range business plan you will receive a more detailed description of our operational strategies and upcoming events.

Achievements
As Dr. Phan described in his farewell letter, he and his management team, "started out with nothing in March 1999 to build an Internet conglomerate in Greater China. Today, we own the majority shares of 12 operating companies and investments in 3 portfolio companies. These companies have solid assets, revenue and good market positioning in the fastest growing market in the world. They have 22 major strategic partners who are the well-known leaders of their industry in global markets."

Despite the deflation of the tech bubble, and the subsequent economic downturn, Hartcourt has weathered the storm well and is on schedule to spin off its ElephantTalk and Sinobull subsidiaries. Under Dr. Phan`s leadership Hartcourt has established an influential and respected reputation in the region for successfully providing access to the U.S. capital markets for high quality, high-growth technology companies in China and the region.

Opportunity
Our focus will still be primarily to capture opportunities in China. Despite the dismal economic conditions in the rest of Asia, China`s economy is still posed for very strong growth, in excess of 5% per annum. It is anticipated that more deregulation and liberalization will take place across various sectors (e.g. telecommunication, media and retail), thus opening up investment and acquisition opportunities for well-positioned foreign companies such as Hartcourt.

Profitability
My first priority on the job will be to return Hartcourt to profitability. As a result of the global economic downturn, the capital markets today have returned to more traditional company valuation methodologies. These are primarily based on earnings and cash flows. To achieve this goal; (1) each subsidiary of Hartcourt will strive to reach profitability in 2002 by actively implementing appropriate operational strategies and exploiting the benefits of synergies resulting from mergers, (Sinobull and AI-Asia, for instance). This commerce framework, structured to create interrelated business opportunities throughout our organization, is already producing increases in revenue streams and reductions in GSA margins. And, (2) develop and expand existing and new high margin business opportunities, including E-learning and Hartcourt Capital.

Growth
In addition, a sustainable high growth rate is an important variable in the valuation equation, as only high growth companies deserve high valuation multiples. Apart from the organic growth that each subsidiary will strive to attain, we plan to identify small high-quality, profitable, technology companies for acquisition in order to provide impetus and momentum for growth.


Key business areas
Hartcourt will continue to explore business and investment opportunities in high growth industry sectors. Right now our main focus is in financial data provisioning and application development (Sinobull), broadband infrastructure (Elephant Talk), software development (AI-Asia), e-education and media. We will, however, continue to monitor and evaluate the growth prospects of these sectors and made decisions to divest and switch from slow-growth to high-growth sectors from time to time.

Hartcourt Capital
In light of the deal sourcing and referral network that Dr. Phan, myself and other senior management team members have established over the years we have decided to set up a new subsidiary, Hartcourt Capital, to capitalize on this network of deal originations. Hartcourt Capital will focus on providing fee-based investment banking type services to small to medium size technology companies in the Greater China region. In particular, we will aim to service those companies that are suitable for a direct or backdoor listing on the US Nasdaq, Amex, or OTC markets. Hartcourt itself may or may not be involved in the transaction as a principal depending on the nature of the transaction and degree of compatibility with Hartcourt`s overall strategic direction.

We will also contact a selected number of qualified and institutional investors to explore the likelihood of setting up a Hartcourt China Venture Fund to invest in late-stage technology companies that are ready for an initial public offering within two years` time.

Subject to U.S. Securities regulation, I will be happy to update you all from time to time on the progress of various initiatives, business development, and acquisition activities. As I assume the leadership of the new management team I hope you will continue to provide the dedicated support that was so appreciated by Dr. Phan.

Yours sincerely,

Dr. Wallace Ching, CFA.