U. S. SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-QSB


 [X]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
         EXCHANGE ACT OF 1934

               For the quarterly period ended: September 30, 2001


 [ ]     QUARTERLY REPORT PURSUANT TO SECTION 13 0R 15(d) OF THE SECURITIES AND
         EXCHANGE ACT OF 1934

        For the transition period from ______________ to _______________

                        Commission File Number: 001-12671


                          The Hartcourt Companies, Inc.
        (Exact name of small business issuer as specified in its charter)

                                      Utah
         (State or other jurisdiction of incorporation or organization)

                                   87-0400541
                        (IRS Employer Identification No.)

          9800 Sepulveda Blvd., Suite 818, Los Angeles California 90045
                    (Address of principal executive offices)

                                 (310) 410-7290
                           (Issuer's telephone number)

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days: Yes [ X ] No [ ].

As of September 30, 2001, The Hartcourt Companies, Inc. had 75,317,790 shares of
Common Stock Outstanding.

Transitional Small Business Disclosure Format (check one):

                                Yes [ ] No [ X ]











                                       F-1
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                                TABLE OF CONTENTS

                              Report on Form 10-QSB
                                For quarter ended
                               September 30, 2001
                                                                      Page
PART 1   FINANCIAL INFORMATION                                        ----

Item 1.  Financial Statements

         Consolidated Balance Sheets at September 30, 2001
         (Unaudited) and December 31, 2000                            F-3

         Consolidated Statements of Operations for the Three
         Months and Nine Months ended September 30, 2001 and
         2000 (Unaudited)                                             F-5

         Consolidated Statements of Shareholders' Equity for the
         Nine Months ended September 30, 2001 (Unaudited)             F-6

         Consolidated Statements of Cash Flows for the Nine Months
         ended September 30, 2001 and 2000 (Unaudited)                F-7

         Notes to the Consolidated Financial Statements               F-8

Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations                         F-29


PART II  OTHER INFORMATION

Item 1.  Legal Proceedings                                           F-32

Item 2.  Changes in Securities                                       F-34

Item 3.  Defaults upon Senior Securities                             F-34

Item 4.  Submission of Matters to Vote of Security Holders           F-34

Item 5.  Other Information                                           F-34

Item 6.  Exhibits and Reports on Form 8-K                            F-34

Signatures                                                           F-35











                                       F-2
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

Part I
Item 1
                                          September 30, 2001
                                              (Unaudited)     December 31, 2000
                                            ----------------   ----------------
ASSETS

Current assets:
     Cash and cash equivalents              $        432,425   $        402,993
     Accounts receivable, net                      1,956,674            146,891
     Inventory                                       130,389             66,331
     Notes receivable, current portion               232,549             70,000
     Prepaid expenses and other                      678,983             56,378
     Due from related parties                      2,291,020            176,697
                                            ----------------   ----------------
Total current assets                               5,722,040            919,290
                                            ----------------   ----------------

Property and equipment, net                        2,813,349            736,259

Investments, net                                     617,760          1,258,050

Notes receivable, net of current portion           2,658,286                  -

Other Assets
     Advances pursuant to mergers                    500,000          3,019,884
     Goodwill, net                                 5,057,270          2,856,786
     Computer software costs, net                  1,312,368            970,172
                                            ----------------   ----------------
Total other assets                                 6,869,638          6,846,842
                                            ----------------   ----------------
Total assets                                $     18,681,073   $      9,760,441
                                            ================   ================















          See accompanying notes to consolidated financial statements.




                                       F-3
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS


                                          September 30, 2001
                                              (Unaudited)     December 31, 2000
                                            ----------------   ----------------
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Short-term bank loan                   $        550,061   $              -
     Accounts payable                              2,298,272            723,647
     Deferred revenue                                370,973            112,456
     Notes payable, current portion                1,789,069             33,788
     Accrued expenses and other
        current liabilities                        2,785,190            130,632
     Payables to related parties                     270,009          2,146,454
                                            ----------------   ----------------
Total current liabilities                          8,063,574          3,146,977

Notes payable, net of current portion              1,730,411            609,867
                                            ----------------   ----------------
Total liabilities                                  9,793,985          3,756,844
                                            ----------------   ----------------
Contingencies

Minority interest                                  1,795,871            757,475

Shareholders' Equity
  Preferred stock:
  Original preferred stock, $0.01
    par value 1,000 authorized, issued
    and outstanding                                       10                 10
  Common stock, $0.001 par value,
    100,000,000 shares authorized;
    71,317,790 shares and 62,176,044 shares
    issued and outstanding at September 30,
    2001 and December 31, 2000, respectively          71,318             62,176
  Common stock to be issued 4,000,000 shares
    at September 30, 2001 and December 31, 2000,
    respectively                                       4,000              4,000
Stock subscriptions receivable                   (11,607,178)       (12,192,094)
Treasury stock, at cost, 3,761,316 shares and
    3,557,832 Shares at September 30, 2001 and
    December 31, 2000                             (2,289,332)        (1,918,634)
Additional paid-in capital                        66,507,474         62,464,649
Accumulated deficit                              (45,595,075)       (43,173,985)
                                            ----------------   ----------------
Total shareholders' equity                         7,091,217          5,246,122
                                            ----------------   ----------------

Total liabilities and shareholders' equity  $     18,681,073   $      9,760,441
                                            ================   ================

          See accompanying notes to consolidated financial statements.

                                       F-4
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<S>                                          <C>            <C>              <C>            <C>
                                                  Three Months Ended               Nine Months Ended
                                                     September 30,                    September 30,
                                             ----------------------------    ----------------------------
                                                   2001           2000             2001           2000
                                             -------------  -------------    -------------  -------------
Net sales                                    $   3,809,526  $     333,641    $   5,940,752  $   1,024,081
Cost of sales                                    3,200,375        271,448        4,499,619        503,520
                                              ------------  -------------    -------------  -------------
Gross profit                                       609,151         62,193        1,441,133        520,561
                                              ------------  -------------    -------------  -------------
Operating expenses:
   Selling, general and administrative           1,654,047        715,863        4,389,752      3,612,095
   Depreciation and amortization                   535,986         99,980          995,973        307,466
   Impairments                                           -      2,217,745                -      2,217,745
                                              ------------  -------------    -------------  -------------
Total operating expenses                         2,190,033      3,033,588        5,385,725      6,137,306
                                              ------------  -------------    -------------  -------------
Loss from continuing operations
  before other income (expense)                 (1,580,882)    (2,971,395)      (3,944,592)    (5,616,745)

Other income (expense):
   Equity in earnings (loss) of affiliate                -         21,577         (183,536)       (11,340)
   Interest expense                                (44,094)       (32,999)        (122,750)      (114,953)
   Interest income                                  19,164            259           47,243         22,214
   Other                                            12,072         10,124           37,796         24,610
                                              ------------   ------------     ------------   ------------
Total other expense                                (12,858)        (1,039)        (221,247)       (79,469)
                                              ------------   ------------     ------------   ------------
Loss from continuing operations before
minority interest and extraordinary item        (1,593,740)    (2,972,434)      (4,165,839)    (5,696,214)

Less:  loss in subsidiary attributed
  to minority interest                             264,556        241,672          653,764        413,942
                                              ------------   ------------     ------------   ------------
Loss before discontinued operations             (1,329,184)    (2,730,762)      (3,512,075)    (5,282,272)


Discontinued operations:
  Loss from discontinued operations                      -              -          377,952              -
  Gain on disposal of discontinued
  operations                                     1,113,160              -        1,113,160              -
                                              ------------  -------------    -------------  -------------
Loss before extraordinary item                    (216,024)    (2,730,762)      (2,776,867)    (5,282,272)

Extraordinary item:
  Gain on debt extinguishment                            -              -          355,777              -
                                              ------------  -------------    -------------  -------------
Net loss                                      $   (216,024) $  (2,730,762)   $  (2,421,090) $  (5,282,272)
                                              ============  =============    =============  =============
Basic and fully diluted loss per common share:
  Loss from continuing operations             $      (0.02) $       (0.05)   $       (0.05) $       (0.09)
  Gain from discontinued operations                   0.02              -             0.01              -
  Extraordinary item                                     -              -                -              -
                                              ------------  -------------    -------------  -------------
  Loss per share                              $       0.00  $       (0.05)   $       (0.04) $       (0.09)
                                              ============  =============    =============  =============
Weighted average number of shares outstanding
  - Basic and fully diluted                     70,014,935     60,478,590       66,818,048     57,151,722
                                              ============    ===========    =============  =============

</TABLE>




                                       F-5
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<S>                                   <C>         <C>       <C>    <C>     <C>           <C>

                                            Common Stock  Preferred Stock   Additional       Stock
                                          --------------- ---------------    Paid-In     Subscriptions
              Description                 Shares   Amount  Shares  Amount    Capital      Receivable
------------------------------------- ----------  -------  ------  ------  -----------   ------------
Balance - December 31, 2000           66,176,044  $66,176   1,000  $   10  $62,464,649   $(12,192,094)

Shares issued for consulting services    186,054      186       -       -      183,987              -
Stock subscriptions received                            -       -       -            -        584,916
Shares issued to investors             2,441,092    2,441       -       -       92,559              -
Shares issued in connection with
  acquisitions                         5,561,860    5,562       -       -    3,438,438              -
Shares issued to directors in lieu
  of compensation and for services       552,740      553       -       -      264,887              -
Shares issued in connection with
  cashless exercise of warrants in
  settlement of litigation               400,000      400       -       -         (400)             -
Sale of shares by subsidiary                   -        -       -       -       63,354              -
Net loss                                       -        -       -       -            -              -
                                      ----------  -------  ------  ------  -----------   ------------
Balance - September 30, 2001          75,317,790  $75,318   1,000  $   10  $66,507,474   $(11,607,178)
                                      ==========  =======  ======  ======  ===========   ============
</TABLE>
<TABLE>
<S>                                   <C>        <C>           <C>              <C>
                                          Treasury Stock                             Total
                                      ----------------------    Accumulated      Shareholders'
              Description              Shares       Amount        Deficit           Equity
------------------------------------- ---------  -----------   -------------    -------------
Balance - December 31, 2000           3,557,832  $(1,918,634)  $ (43,173,985)   $   5,246,122

Shares issued for consulting services         -            -               -          184,173
Stock subscriptions received                  -            -               -          584,916
Shares issued to investors                    -            -               -           95,000
Shares issued in connection with
  acquisitions                        1,805,802   (1,119,000)              -        2,325,000
Shares issued to directors in lieu
  of compensation and for services            -            -               -          265,440
Shares issued in connection with
  cashless exercise of warrants in
  settlement of litigation                    -            -               -                -
Sale of shares by subsidiary         (1,602,318)     748,302               -          811,656
Net loss                                      -            -      (2,421,090)      (2,421,090)
                                      ---------  -----------   -------------    -------------
Balance - September 30, 2001          3,761,316  $(2,289,332)  $ (45,595,075)   $   7,091,217
                                      =========  ===========   =============    =============
</TABLE>





          See accompanying notes to consolidated financial statements.








                                       F-6
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                                                 Nine Months Ended September 30,
                                                  -----------------------------
                                                       2001            2000
                                                   ------------    ------------
Cash flows from operating activities:
   Net loss                                         $(2,421,090)   $(5,282,272)
   Adjustments to reconcile net loss to net cash
     used in operating activities:
     Depreciation and amortization                      995,973        307,466
     Impairments                                              -      2,217,745
     Gain on debt extinguishment                        419,131              -
     Gain on sale of affiliate                       (1,113,160)             -
     Minority interest in loss of subsidiaries         (653,764)      (413,942)
     Equity in loss of affiliate                        183,536         11,340
     Stock return on lawsuit settlement                 152,173              -
     Shares issued in lieu of compensation and services 297,440      3,661,772
     Allowance for doubtful notes receivable                  -        225,000
     Net loss on sale of property and equipment               -        218,692
     Changes in operating assets and liabilities:
       (Increase) decrease in:
       Accounts receivable                             (547,741)       (22,558)
       Inventory                                         34,564         75,845
       Prepaid expenses and other                       605,915        (58,186)
       Short-term bank loan                             336,286              -
       Accounts payable                              (1,013,494)       288,850
       Accrued expenses and other current liabilities 2,654,558     (3,085,144)
       Net changes in due from related parties                -       (152,000)
       Deferred revenue                                (146,495)       (10,505)
                                                     ----------    -----------
Net cash used in operating activities                  (216,168)    (2,017,897)
                                                     ----------    -----------
Cash flows from investing activities:
   Advance towards investments                         (500,000)    (3,762,761)
   Advance towards eMPACT investment                          -       (300,000)
   Purchase of property and equipment                    (3,465)             -
   Cash acquired in acquisitions                        690,202              -
   Proceeds from notes receivable                       (32,549)             -
                                                     ----------    -----------
Net cash provided by (used in) investing activities     154,188     (4,062,761)
                                                     ----------    -----------
Cash flows from financing activities:
   Proceeds on sale of common stock                     308,897      2,743,000
   Proceeds on exercise of options and warrants               -      4,401,870
   Proceeds on stock subscriptions                      584,916              -
   Proceeds on loans and lines of credit                (25,409)             -
   Payments to related parties                         (560,111)      (450,000)
   Payments on note payable                            (216,881)      (604,616)
   Payments on loans from shareholders                        -        (30,350)
                                                     ----------    -----------
Net cash provided by financing activities                91,412      6,059,904
Net increase (decrease) in cash                          29,432        (20,754)
Cash and cash equivalents, beginning of period          402,993        331,057
                                                     ----------    -----------
Cash and cash equivalents, end of period             $  432,425    $   310,303
                                                     ==========    ===========
          See accompanying notes to consolidated financial statements.
                                       F-7
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2001 (UNAUDITED)

Item 1

Note 1:  Organization and Nature of Operations:

The Hartcourt  Companies,  Inc. (herein referred to as "Hartcourt" or "Company")
is a holding and  development  enterprise  that is  building a broad  network of
Internet,   media,  and   telecommunication   companies  in  Greater  China.  In
partnership  with  leading  Chinese   entrepreneurs   and   government-sponsored
entities,  Hartcourt is developing and investing in emerging  technologies while
building an  integrated  commercial  framework  for its  subsidiaries  and their
partners.  Hartcourt's  operative  business  strategy is  designed to  establish
market-leading  position and facilitate a series of venture divestitures via IPO
or public mergers in its four main business divisions to fully realize the value
of these assets for its investors.  The four business divisions are the Sinobull
Financial  Group,  the Media Services  Group,  the  Broadband/Telecommunications
Group and the E-learning Group.

Hartcourt,  through a combination  of expertly  managed  internal  expansion and
accretive strategic  acquisitions,  is executing plans to provide a sustainable,
growing,  diversified and profitable revenue base throughout its operations. The
company is aggressively identifying and pursuing the best business opportunities
available.  Through a continued  refinement  of  operational  efficiencies,  and
increasing   revenue  margins,   the  Company  is  providing  a  clear  path  to
profitability for its current and future businesses.

Hartcourt is developing  extensive business operations  throughout Greater China
to  position  itself to take full  advantage  of the  substantial  opportunities
presented by the emergence of the worlds largest consumer and business  markets,
and  China's  upcoming  entry  into  the  WTO.  Hartcourt's  ability  to  obtain
government  approved  licenses and its wide array of well  established  business
relationships  is  greatly  facilitating  these  goals and making  Hartcourt  an
attractive  entry point for many  corporations  seeking access to these markets.
Current  government  customers and partnerships of its subsidiaries and business
investments include: China Bank of Communications, China Central TV, Beijing TV,
Guangdong TV, Phoenix TV, Shenzhen  Radio,  Zhejiang  CableTV,  Innostar Hi Tech
Enterprises,  Northern Jiaotong University,  China Securities  (Huaxia),  Guosen
Securities,  Xiangcai Securities,  Anshan Securities, Huaan Securities,  Peoples
Daily, and China Telecom;  for the Hong Kong Government:  Stock Exchange of Hong
Kong (SEHK),  Hong Kong Exchanges and Clearing  Limited  (HKEx),  Securities and
Futures Commission, and Department of Printing. Other business partners include;
Yahoo!, Equis/Reuters,  Legend, IBM, Sifft/Nokia,  YesMobile,  Comstock/Standard
and Poor's, and the University of California/Fullerton.

Sinobull  Financial  Group:  This group consists of Financial  Telecom  Limited,
Sinobull  Information  Company  Limited  (formerly  Shanghai  Guo Mao  Science &
Technology Co. Ltd.),  Sinobull  Network  Technology  Company Limited  (formally
Beijing Shangdi Net  Technologies  Center Company,  Ltd.), Ton Bo Software Ltd.,
HCTV Financial TV Ltd.,  Sinobull  Magazine Ltd. and Hartcourt's  investments in




                                       F-8
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2001 (UNAUDITED)


Shanghai Wind  Information  Company Limited.  The Sinobull  Financial Group is a
leading financial content provider,  develops technologically advanced financial
services platforms,  and operates a financial Internet portal. Sinobull provides
mainland  brokerages  and  financial  institutions  the  hardware,  software and
Internet platforms to enable their customers' access to a comprehensive suite of
quality  financial  news,   real-time  market  data,   financial   analysis  and
professional  market  commentary.   Sinobull.com,  its  financial  services  and
information  portal  is one of  China's  most  popular  portals.  The  company's
E-Finance   platform  is  an   integration   of  the  most  advanced   Internet,
telecommunication and wireless access systems available on the market today. The
service  platform and collateral  content is offered via subscription to leading
securities  brokerages,  investment firms, banks, and media companies throughout
Greater China.

Broadband/Telecommunications Group: This group is centered around its subsidiary
Elephant Talk Limited and a future venture with Innostar Hi-Tech  Enterprises of
China.  The group is focused on the  development  and delivery of  comprehensive
telecommunication services, broadband content, broadband enabling technology and
the  management  of services on broadband  infrastructure.  In  addition,  these
broadband  efforts are being designed to provide  expanded  revenue  sources for
Hartcourt's existing subsidiary's products and services. Hartcourt is continuing
its efforts to identify and actuate strategic  investments in the development of
web hosting and data warehouse solutions; providing secure Internet services for
China businesses in e-commerce,  IP telephony,  Internet exchange centers,  high
speed wireless platforms, and ISP/content services.

Media  Services  Group:  AI-Asia  Inc.  is a  holding  and  development  company
established  by Hartcourt  to acquire  assets and  companies in the  multi-media
technology  and services  sector.  Its  objective is to identify,  develop,  and
maintain  first-mover  technologies,  products and services  for  corporate  and
consumer  Internet  deployment.  AI-Asia plans to provide its  clientele  with a
comprehensive   range  of  Internet  enabling   solutions,   preparing  them  to
participate  in the rapidly  emerging  streaming  and  broadband  communications
revolution. The operating companies in this group include StreamingAsia Limited,
LogicSpace Limited,  Syndicate Asia Limited, V2 Technology Inc., Renew Logistics
Ltd. and an investment in Beijing Total System Solutions Ltd. The group provides
comprehensive  real-time audio and video delivery  (Streaming  Media)  solutions
along with Internet  consulting and web application  development for businesses,
professionals,  organizations,  web sites and content publishers.  The Streaming
Media Group's network  infrastructure  enables the streaming of superior-quality
multimedia  advertising,  live event  broadcasting and on-demand audio and video
content over the Internet to target audiences throughout Asia and globally.

E-learning  Group:  This  group  was  formed  in  a  partnership   agreement  in
cooperation  with Northern  Jiaotong  University and California State University
Fullerton  to  jointly develop  education projects and introduce American career





                                       F-9
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2001 (UNAUDITED)


training courses and post-graduate  business programs in China. The project will
offer prestigious  American  education  programs in China,  utilizing one of the
first online education  licenses  awarded by China's Ministry of Education.  The
project is offering both  certificate and degree programs with courses  designed
for relevance in today's business world. Coursework will initially be offered in
the classroom and later expanded  online.  Hartcourt plans to extend its program
to other potential partners and institutions in the future.

History of the Company:

Stardust,  Inc.-  Production-recording-Promotion   ("Stardust"),  a  corporation
organized under the laws of the State of Utah in September 1983, acquired all of
the  outstanding  shares of Hartcourt  Investments,  a Nevada  corporation,  for
6,110,337  shares of Stardust  common stock (after taking into account a reverse
stock  split  and  stock  dividend)   pursuant  to  an  Agreement  and  Plan  of
Reorganization dated November 5, 1994. At the time of this acquisition, Stardust
was a "shell" entity with no assets,  business or operations.  Subsequent to the
acquisition of Hartcourt Investments, Stardust changed its name to The Hartcourt
Companies, Inc.

OPERATIONS BY BUSINESS DIVISIONS

SINOBULL FINANCIAL GROUP:

The Sinobull  Financial  Group  ("Group")  was formed in November  1999 with the
intention to consolidate  various related businesses  acquired or expected to be
acquired by Hartcourt or  Sinobull.com  Inc.  ("Sinobull").  For the purposes of
presenting these  businesses under a unified  structure and strong brand name, a
restructuring  of the Group resulted in  consolidating  these  businesses  under
Sinobull,  the  holding  company of the Group  incorporated  in  British  Virgin
Islands.  On April 2, 2001,  Sinobull's one share issued and outstanding held by
Mr. Tang Wing On was formally transferred to Hartcourt, and, therefore, Sinobull
became a wholly-owned  subsidiary of Hartcourt.  Hartcourt had advanced funds to
Sinobull  for  various  acquisitions  made  by  Sinobull  since  its  formation.
Hartcourt  plans to develop this  investment to a leading  position in financial
content,  content delivery,  financial services, and technology development.  On
October 2, 2001 Hartcourt  announced its intent to publicly  divest the Sinobull
Group in a merger with Global Telephone Communications Inc. (OTC Bulletin Board:
GTCI).  The reverse  merger will allow  Sinobull to actively trade on the equity
markets and unlock its value for  Hartcourt  investors.  The merger is dependent
upon  the  approval  of  GTCI  shareholders,  completion  of due  diligence  and
subsequent signing and execution of the final agreement.

Financial Telecom Limited (FTL): FTL was established in 1983 as a financial data
bank  providing  real-time  stock quotes and financial  information of Hong Kong
listed companies as well as information on other  international  stock exchanges
in the U.S. and Europe to institutional and retail investors. FTL is also acting




                                      F-10
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2001 (UNAUDITED)


as the  marketing  agent for  Standard & Poor's  Comstock,  a division of McGraw
Hill, in Hong Kong. FTL was the first company in Hong Kong to transmit real-time
financial  services via a network of wireless system for  dissemination of data.
This was considered as a major breakthrough in the information and communication
industry  in Hong  Kong.  Investors  were no  longer  restricted  to fixed  line
terminals and could use a wireless  network,  such as financial pager, to access
real-time financial  information.  At present,  FTL maintains a financial portal
featuring stock trading,  real-time  quotes and company data banks for investors
in China and Hong Kong. These investors include major investment houses,  banks,
securities firms and mutual fund houses.

On November 17, 1999,  Hartcourt  entered into a stock  purchase  agreement with
Financial  Telecom  Limited  ("FTL"),  a  Hong  Kong  corporation,  to  purchase
4,964,990 shares of common stock,  representing 58.53% of the total common stock
outstanding. The purchase price was agreed to be HK $4.713 (US$ 0.604) per share
for a total  of  HK$25,563,842  or  US$3,277,412,  payable  50% in cash  and the
remaining  balance in Hartcourt common shares.  The acquisition was completed on
October 4, 1999.  Hartcourt  made total cash payments of  $1,638,706  and issued
1,754,552  shares of its common stock to FTL. During the quarter ended September
30, 2001, FTL sold 1,602,318 shares of Hartcourt common stock for  approximately
$811,656 to satisfy  certain  obligations  and to raise working  capital for its
operations.  The  remaining  1,906,786  shares of common stock issued to FTL are
reflected  as  treasury  shares  in the  accompanying  financial  statements  at
September 30, 2001 since FTL became a subsidiary of Hartcourt.

On March 27, 2000, FTL entered into a Memorandum of Understanding with NiceVoice
Investment  Holdings  Limited  (NiceVoice)  to form a joint venture named Fintel
Wireless  Internet Limited (FWL) for the purpose of establishing and operating a
financial paging service network in Hong Kong on the FLEX transmission  protocol
on a PDA receiver device. FTL agreed to invest cash by phases, to the amount not
to exceed HK$4,000,000 (approximately US$512,800) in exchange for a total of 51%
ownership interest in the joint venture.  After the completion of due diligence,
the parties signed the formal joint venture  agreement on April 28, 2000 and FWL
became a subsidiary of FTL. Although NiceVoice has contributed certain assets in
the FWL, due to the method of funding these assets  NiceVoice does not presently
have legal  ownership  title to such assets until the final  dollar  payment has
been made on these assets. The accompanying financial statements as of September
30,  2001  reflect  FTL's  investment  of 51%  ownership  interest in FWL. As of
November 10,  2001,  FTL had advanced  approximately  HK$3,804,474  (US$487,753)
towards its investment in FWL.

Sinobull Network Technology Company Limited (Sinobull  Network):  Formally known
as  Beijing  Shangdi  Net  Technologies  Center  Company,  Ltd.  ("Shangdi")  is
principally  engaged in the  business of data  broadcasting  in China.  Its main
activities include research,  development and sale of data broadcasting hardware
and software. Shangdi is a major shareholder of Hua Xia Info, the financial data





                                      F-11
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2001 (UNAUDITED)


provider of Hua Xia  Securities,  the second  largest  stock  brokerage  firm in
China.  Hua Xia Info has its own financial  reporters for its data  broadcasting
network via cable TV and  magazine.  Through this  relationship,  Sinobull  will
operate accounts through Hua Xia Securities Brokerages  nationwide.  Shangdi has
recently  completed  a software  program for cable set top boxes,  which  enable
users to trade stock online from their home television  sets.  Shangdi is also a
major  shareholder  of Orient  Research,  a well  respected  stock  research and
analysis firm in Shanghai.

On December 18, 1999,  Sinobull  signed a Term Sheet  Agreement  with Shangdi to
form a new corporation in Beijing.  Sinobull shall have 40% interest and Shangdi
shall have 60%  interest in the new  corporation.  On April 12,  2000,  Sinobull
signed a Term Sheet Agreement with Shangdi  revising the terms of the Term Sheet
Agreement signed on December 18, 1999. The terms of the revised agreement stated
Sinobull  and Tiandi  Hulian  Technologies  Limited  ("Tiandi"),  an  investment
holding company incorporated in the British Virgin Islands, holding the interest
of the shareholders of Shangdi, will acquire through its wholly-owned subsidiary
Sinobull  Network  Technology  Company Limited  (Sinobull  Network"),  a company
registered in Beijing,  all of the operating assets and business of Shangdi.  To
finance this acquisition,  Tiandi will issue new shares to Sinobull equal to 40%
of the expanded capital of Tiandi.  The terms of the revised agreement  required
Sinobull to pay Shangdi  US$670,000 being the  consideration of all tangible and
intangible assets in relation to Shangdi's computer network information services
excluding  cash and debts;  invest  US$1,000,000  in  Sinobull  Network  for its
working capital needs;  issue 140,000  restricted  common shares of Hartcourt to
Shangdi and 60,000 restricted common shares of Hartcourt to Sinobull Network for
its working capital needs. In exchange,  Shangdi agreed to transfer  without any
pledge and debt,  all  tangible  and  intangible  assets in relation to computer
network information  services to Sinobull Network, and transfer to Hartcourt 40%
of the ownership  interest in Tiandi.  On December 28, 2000,  Sinobull,  Tiandi,
Shangdi  and Li Chun Ying  (representative  of the owners of  Shangdi)  signed a
Share Subscription and Sale and Purchase  Agreement  whereby,  Sinobull will own
51% of  Tiandi  and Li  Chun  Ying  will  own 49% of  Tiandi  after  payment  of
consideration to Shangdi for purchase of all tangible and intangible  assets. As
of September  30, 2001,  Sinobull  through an advance from  Hartcourt,  has paid
$1,000,000  in cash  towards  the  purchase  of  Shangdi of which  $670,000  was
distributed  to the owners of Shangdi and the  remaining  $330,000 was deemed as
capital contribution in Sinobull Network.

Shanghai Sinobull Information Company Limited (Sinobull  Information):  Formally
known as Shanghai Guo Mao Science & Technology  Co. Ltd.  ("Guo Mao"),  Sinobull
Information  is a major  real-time  financial  data provider in Shanghai using a
satellite network to transmit data specializes in stock quotes, futures, indexes
and commodities data that compliments the financial  information database of Hua
Xia Info and the financial data delivery  systems of FTL.  Association  with Guo
Mao gives  Sinobull a distinct edge over any  competitive  financial  portals in
China.




                                      F-12
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2001 (UNAUDITED)


On December 1, 1999, Sinobull signed a Term Sheet Agreement with Guo Mao whereby
Guo Mao agreed to issue new shares for a total proceeds of $1,000,000 which will
represent 50% of the expanded  capital of Guo Mao.  Sinobull agreed to subscribe
for all the new shares issued by Guo Mao. On May 16, 2000,  Sinobull and Hopeful
Internet  Technologies  Limited  ("Hopeful")  entered into an agreement  whereby
Hopeful,  an  investment  holding  company  incorporated  in the British  Virgin
Islands,  will acquire through its  wholly-owned  subsidiary  Shanghai  Sinobull
Information  Company  Limited  ("Sinobull  Information"),  all of the  operating
assets and business of Guo Mao. To finance this acquisition,  Hopeful will issue
new shares to  Sinobull  equal to 40% of the  expanded  capital of Hopeful for a
total  consideration  of  $1,000,000.  The terms of payment by Sinobull  for the
purchase of new shares will be:  $200,000 in cash upon signing of the agreement;
$150,000  in cash within 30 days of signing of the  agreement;  $150,000 in cash
within 60 days of signing of the  agreement;  and $500,000  within 30 days after
signing of the  agreement  in shares of Hartcourt  based on the average  closing
price in the last 7 trading days before payment,  or in shares of Sinobull based
upon the  valuation  to be agreed  on by the  parties.  On  December  28,  2000,
Sinobull,  Hopeful, Guo Mao and Lee Lu Ping (representative of the owners of Guo
Mao)  signed  a Share  Subscription  Agreement  whereby,  Sinobull  will own 51%
ownership in Hopeful and Lee Lu Ping will own 49% of ownership in Hopeful  after
payment of  consideration to Guo Mao for purchase of all tangible and intangible
assets.  Sinobull has paid $500,000 in cash received from Hartcourt  towards the
purchase of new shares of Hopeful and issued  805,802 shares of its common stock
valued at $500,000 to Sinobull  Information in February 2001. The 805,802 common
shares issued to Sinobull  Information  are reflected as treasury  shares in the
accompanying financial statements since Sinobull Information became a subsidiary
of Hartcourt.

Ton  Bo  Software:   specializes  in  custom-made  software  solutions  for  the
securities market,  especially in commodity and currency trading. On November 6,
2000, Sinobull Information and Ningbo Shiji TongBao Software Limited ("TongBao")
agreed to form an alliance in creating  software  solutions  for the  securities
industry.  The parties agreed to a stock swap whereby TongBao agreed to issue an
additional 150% of its existing share capital to Sinobull Information  resulting
in Sinobull Information  becoming a 60% owner of TongBao. In exchange,  Sinobull
Information  agreed to  exchange  RMB100,000  worth of its shares  valued at the
share price at the time when Sinobull Information goes for public listing to the
remaining  40% original  shareholders  of TongBao.  Upon  issuance of RMB100,000
worth of its shares,  TongBao will become a wholly owned  subsidiary of Sinobull
Information.  As of November 10,  2001,  TongBao has honored its  commitment  by
issuing 150% of its then existing  share  capital.  The  transaction is awaiting
registration  approval and is expecting to receive the approval from the Chinese
authorities by December 31, 2001.

Haike  Caijin TV ("HCTV"):  HCTV is a joint  venture that calls for a multi-year
effort to jointly develop and deploy a financial TV channel to be marketed to 80
million  Chinese cable TV subscribers  across all Chinese  provinces and cities.
The  agreement  calls for  China  Cable  Networks  to  utilize  its  leading  TV



                                      F-13
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2001 (UNAUDITED)


broadcasting expertise and integrated technologies and services for broadcasting
cable  channel  signals to market the "CCN  Financial  TV Channel"  with content
developed  by Shanghai  Guo Mao  Financial  Corporation.  The  content  would be
transmitted via satellite and ground transceiver  systems optimized for cable TV
networks.  The  financial  content will include  real-time  market data,  market
commentary, financial news and analysis, interviews, paid programming as well as
advertisements.

On September 7, 2000,  Hartcourt  signed a joint venture  agreement with Hopeman
Computer  Services  Corporation  Limited  (Hopeman")  to form a joint venture in
Shanghai and jointly develop and market a 24-hour financial  television  program
and/or provide  financial  data services to  existing/new  financial  television
programs for China  market.  The new joint  venture is named  "Haike  Caijin TV"
means Hartcourt Financial Television (HCTV) in English.  HCTV will be registered
in Shanghai  with a funding of $1.0  million.  The  agreement  defines the first
phase  joint  venture  investment  terms for the period from  September  2000 to
December  2000. In February  2001,  HCTV Joint Venture  Company was formed and a
temporary  license was  obtained to conduct  the  business of the joint  venture
pending  issuance  of a new  license  upon  China's  entry  into the WTO.  As of
September 30, 2001,  Hopeman has invested  $50,000 for its 33.3%  investment and
Hartcourt invested $50,000 with an additional $50,000 to be invested by December
1, 2001  towards  its 66.7%  equity  ownership  in the HCTV joint  venture.  The
non-contributed  balance  of  $50,000  was  recorded  as a  payable  to  HCTV by
Hartcourt as of September 30, 2001. HCTV operating results are consolidated with
Hartcourt in the accompanying  financial statements as of September 30, 2001. As
of November 10, 2001,  no  additional  funds were  contributed  by either of the
parties.

Beijing UAC Stock Trading  Online Co. Ltd. (UAC Trading):  UAC Trading  operates
one of the leading  nationwide online securities  trading network called UAC 162
Network,  connecting investors with their stock brokerage offices via China Pac.
China Pac is the  nationwide  packet  switched  network in China  owned by China
Telecom  since  1991.  In May 1999,  UAC  Trading  was  granted a license by the
Chinese  government  and signed a contract with China Telecom to start  building
the network.  On June 20, 1999  Hartcourt  entered  into an  agreement  with UAC
Trading to form a joint venture  company  Beijing UAC Stock Exchange  Online Co.
Ltd. ("UAC  Exchange").  Under the terms of the agreement,  Hartcourt  agreed to
invest in cash and stock  $2,868,000 for the purchase of 51% ownership  interest
in UAC Exchange.  In September 2000, the Chinese  government  allowed all online
transactions  to be conducted via  Internet.  It caused UAC Exchange to lose its
competitiveness  as the  efficiencies  of 162 Network was not  compatible to the
Internet.  Therefore, UAC Exchange started converting its operations to Internet
based operations.

On July 16,  2001,  Hartcourt  and UAC  Trading,  by mutual  consent,  agreed to
rescind the contractual joint venture  agreement named UAC Exchange.  As part of
the rescission,  Hartcourt  agreed to accept a promissory note for the amount of
its  net  investment  in  UAC Exchange as of the date of rescission amounting to



                                      F-14
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2001 (UNAUDITED)


$2,858,286,  bearing  interest  at six per cent  (6%) per  anum  payable  over a
thirty-nine  months  period.  The  parties  mutually  agreed to forego all other
rights  and  benefits   provided   under  the   contractual   joint  venture  as
consideration  for the rescission of the contract.  On September 10, 2001,  Edda
Limited,  a  non-affiliated  company  incorporated  in Hong Kong,  expressed its
interest to take over all existing tangible and intangible assets of UAC Trading
for the amount of  Hartcourt's  net  investment  in UAC  Exchange,  and signed a
promissory  note in the amount of  $2,858,286  bearing  interest at six per cent
(6%) per anum, payable in quarterly  installments of $50,000 commencing November
1, 2001 with a balloon  payment of  $2,715,772  due on  December  1,  2006.  The
promissory  note is secured by a security  agreement  granting to Hartcourt  all
tangible and intangible  property of Edda Limited. As of November 10, 2001, Edda
has paid $107,829 towards the amount owed to Hartcourt.

Shanghai Wind Information Company, Limited ("WindInfo"):  WindInfo is China's #1
financial  research content  provider,  developing  original content through its
nationwide  network.  WindInfo's  flagship  product  is widely  used by  China's
investment  banking and  securities  brokerage  firms.  The  Shanghai  Municipal
Government awarded WindInfo "The High-Tech Model Company" in 1999.  WindInfo has
over 1,000 registered  corporate clients,  including all major investment banks,
securities brokerage firms, and media companies.

On September 18, 2000,  Hartcourt and WindInfo signed a Term Sheet Agreement and
agreed to form a  Joint-Venture  Company  (JVC) to  expand  the  financial  data
service  business in China.  WindInfo agreed to transfer its entire fixed assets
excluding cash and marketable securities held at July 31, 2000 and the insurance
advisory business and related assets,  and is entitled an ownership  interest of
sixty six point sixty seven  percent  (66.67%) in the JVC.  Hartcourt  agreed to
invest $3.0 million  that  represented  thirty three point thirty three  percent
(33.33%)  ownership in the JVC. Upon  successful  completion of due diligence by
Hartcourt,  WindInfo  will  transfer  all its  assets  except  cash,  marketable
securities  and  insurance  advisory  business  and  related  assets in the JVC.
WindInfo  will  be  responsible  to  obtain  all  relevant  approvals  from  all
governmental  authorities  and  agencies  required to  facilitate  the new share
structure and expanded capitalization.  WindInfo will be responsible to have the
JVC  listed  in the  public  stock  market  within  15  months  from the date of
establishment  of the JVC. It is mutually  agreed that if WindInfo fails to list
the JVC on or before  such a time  frame,  Hartcourt  shall have the  management
right for listing of the company in the public market.

The investment  from Hartcourt to WindInfo was agreed to be paid as follows:  a)
upon  completion of the Agreement of JVC by both parties within 15 days from the
date of the Term Sheet  Agreement  signed,  Hartcourt shall arrange a payment to
from Guo Mao as a loan to WindInfo in the amount of $500,000;  b) pay $1,500,000
in the  temporary  JVC  account  within  15  days  of the  establishment  of the
temporary JVC bank account;  c) pay $1,500,000  into the JVC no later than three
months from the date of  establishment of the JVC. Upon receipt of all committed
capital from  Hartcourt,  WindInfo  agreed to immediately  pay back the $500,000
loan to Guo Mao.  Hartcourt  has  completed  its  due  diligence  review  on the


                                      F-15
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2001 (UNAUDITED)


operations of WindInfo. On September 18, 2000, Sinobull advanced $500,000 to Guo
Mao who loaned the same amount to WindInfo on behalf of  Hartcourt.  Pursuant to
the addendum to the Term Sheet  Agreement,  on January 10, 2001,  Hartcourt  and
WindInfo  signed a direct  investment  agreement  whereby  Hartcourt  agreed  to
convert the loan from Guo Mao of $500,000 to a 5% equity ownership in the JVC to
be formed.  The  accompanying  financial  statements  as of September  30, 2001,
reflect Hartcourt's advance of $500,000 towards its 5% ownership interest in the
JVC. The JVC has not been formed as of November 10, 2001. In addition,  both the
parties  mutually  agreed to extend to December  31, 2001 all defined  effective
dates per the Term Sheet Agreement.

Equis  International  Inc.(R),  a wholly owned subsidiary of Reuters  Limited(R)
signed on June 1, 2001, an International  Distribution  Agreement with Hartcourt
including  Sinobull  Group in Shanghai,  Beijing and Hong Kong, a  non-exclusive
distributor  of licensed  products  within the People's  Republic of China (PRC)
except in Hong Kong and Taiwan,  and grants to Hartcourt a  non-exclusive  right
and license to market,  promote and distribute the licensed  products in the PRC
to  sub-distributors,  resellers and end users to localize Equis'  award-winning
family of MetaStock(R)  products and market them to over 10 million investors in
the Greater  China area.  The initial term of the  agreement is for three years.
Under the terms of the agreement Equis International also granted Sinobull Group
conditional  territory exclusivity for a period of twelve months for the Chinese
versions of MetaStock  products  within the Greater  China  market.  Hartcourt's
remuneration  for the sale of licensed  products will be the difference  between
the selling price to its customers and Hartcourt's  discounted purchase price as
agreed between Hartcourt and Equis.  Hartcourt is currently strategizing various
alternatives to market Equis's products and services in China. Hartcourt and its
affiliates have not sold any of the Equis's licensed  products since the date of
this agreement.

YesMobile  Inc.  incorporated  in Hong  Kong,  is  currently  a leading  Chinese
Wireless Application Protocol (WAP) portal with open-standard and multi-platform
compatibility  in  Asia.  Sinobull.com  HK Ltd.  has  signed a  revenue  sharing
agreement with YesMobile whereby,  Sinobull agreed to provide financial contents
to YesMobile in China. The data will include real time stock quotes, commodities
and currencies  contracts,  economic news,  commentaries  and research  reports.
Pursuant to the terms of the  agreement,  Sinobull  will share 70% and YesMobile
will  share  30% of  the  revenue  received  from  the  users  of  the  Wireless
Application  Protocol  (WAP)  portal  and the  Short  Message  Service  (SMS) of
YesMobile.  Users will access these contents via their mobile phones, as well as
PDAs and other wireless devices. YesMobile is currently providing these services
to over 105 million users of China Mobile.

BROADBAND/TELECOM GROUP:

The  Broadband/Telecom  Group is centered  around its  subsidiary  Elephant Talk
Limited and a future venture with Beijing Innostar Hi-Tech Enterprises of China.
The  group  is  focused  on   the  development  and  delivery  of  comprehensive



                                      F-16
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2001 (UNAUDITED)


telecommunication services, broadband content, broadband enabling technology and
the  management  of services on broadband  infrastructure.  In  addition,  these
broadband  efforts are being designed to provide  expanded  revenue  sources for
Hartcourt's existing subsidiary's products and services. Hartcourt is continuing
its efforts to identify and actuate strategic  investments in the development of
web hosting and data warehouse solutions; providing secure internet services for
China businesses in e-commerce,  IP telephony,  internet exchange centers,  high
speed  wireless  platforms,  and  ISP/Content  services.  On September  25, 2001
Hartcourt  announced its intent to publicly  divest its Elephant Talk subsidiary
in a merger with Staruni  Corporation (OTC Bulletin Board: SRUN) in an effort to
take Broadband/Telecom Group public. The reverse merger will allow Elephant Talk
to  actively  trade on the equity  markets  and  unlock its value for  Hartcourt
investors.  Elephant  Talk will have its own  access to the  capital  markets to
raise the necessary  capital to expand its business.  The merger is dependent on
the  approval of GTCI  shareholders  and  completion  of due  diligence  by both
parties. The details of the transaction will be provided upon subsequent signing
and execution of the merger agreement.

Elephant Talk Limited ("ET"):  Elephant Talk Limited is a brand-name provider of
long-distance telecom services in China and Hong Kong commenced its operation in
March 1995. ET is licensed with US FCC 214, HK ETS and HK ISR with facilities in
Hong Kong and the United  States.  Having had carrier  interconnection,  special
termination arrangements and existing circuits between US and Hong Kong, ET aims
to  provide  the  best  price  and  first-mover  advantages  to  customers.   By
integrating the most advanced and sophisticated  telecommunication  technologies
from  USA,  ET  brings  to  Hong  Kong a  wide  variety  of and a more  complete
international telecommunication services.

On May 16, 2001, Hartcourt and ET executed a Sale and Purchase Agreement whereby
Hartcourt acquired 51% of the ownership interest in ET for a total consideration
of $4,194,000. The terms of the agreement required ET to increase its authorized
capital from 25,000,000 shares to 30,000,000  shares.  Hartcourt  subscribed the
block of 5,000,000 new shares for a total  consideration  of $1,500,000;  issued
1,000,000 Hartcourt shares under Rule 144 or Regulation S of the SEC regulation,
valued at 61.9 cents per share;  and executed a promissory note payable to ET in
the amount of  $1,250,000  due on February  16,  2002.  In  addition,  Hartcourt
subscribed  another  block of  10,300,000  ET shares from  private  owners for a
consideration of $2,325,000 and issued 3,756,058 Hartcourt shares under Rule 144
for a combined  total of 51% ownership  interest in ET. The 1,000,000  shares of
common stock issued to ET are reflected as treasury  shares in the  accompanying
financial statements at September 30, 2001 since the results of operations of ET
were consolidated with Hartcourt from May 16, 2001 onwards.

On October 8, 2001 ET entered  into a reseller  agreement  with  JiTong  Network
Communications  Company  Limited  ("JiTong")  to provide a variety  of  IP-based
telecom services.  JiTong is one of the five government-owned  telecom giants in
China with their own  communication infrastructure.   It is the famous owner and




                                      F-17
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2001 (UNAUDITED)

operator of the Golden Bridge fiber optics and Internet services. Both companies
will jointly  develop and market new brands of IP  telephony  solutions in major
countries worldwide.  Under the terms of the agreement, ET will interconnect its
global point-of-presence (POPs) with JiTong's network. ET will market and resell
JiTong's  IP-based services  including I-phone and I-fax services,  while JiTong
will be responsible for service provisioning,  technical support and after-sales
services  to  customers.   The  agreement  signifies  the  beginning  of  close,
long-term,  working  partnership  between the two companies.  The details of the
reseller  agreement  are  currently  being  negotiated  and  the  terms  will be
finalized by November 30, 2001.

Beijing Innostar Hi-Tech  Enterprises,  Ltd.  ("Innostar") -. Innostar  provides
wireless ISP network and IP phone service in Beijing in cooperation with Chinese
telecom companies. It provides high-speed Internet connections to hotels, office
buildings and apartment  complexes using a Chinese satellite with bi-directional
data  transmission to these  commercial  users. The joint venture with Hartcourt
and Innostar's  license for nationwide ISP service will allow  expansion to many
other cities and individual users eventually reaching users throughout China.

On October 20, 1999, Hartcourt signed a Joint Venture Agreement with Innostar to
establish a wireless  nationwide  Internet service provider network and IP phone
services in China via a Chinese satellite. The total amount of investment in the
joint  venture  company  will be $24.0  million of which $14.0  million  will be
contributed  by  Innostar  for 65%  ownership  interest  and  $10.0  million  by
Hartcourt for 35% ownership  interest.  The national license will also allow the
joint venture to engage in e-commerce  activities and other  Internet  services.
Hartcourt and Innostar have agreed to expand the scope of the business  model of
the Joint Venture and have  re-applied  for the grant of business  license.  The
license is pending government and regulation approval.

MEDIA SERVICES GROUP:

The Media Services  Group  consists of  StreamingAsia  Holdings  Limited,  which
consists of the  operations of  StreamingAsia  Limited,  LogicSpace  Limited and
SyndicateAsia  Limited and an investment in Beijing Total System  Solutions Ltd.
The Media  Services  Group provides a  comprehensive  real-time  audio and video
delivery  (Streaming  Media)  solutions  along with Internet  consulting and web
application development to businesses,  professionals,  organizations, web sites
and content  publishers.  The  Streaming  Media Group's  network  infrastructure
enables the streaming of  superior-quality  multimedia  advertising,  live event
broadcasting  and on-demand  audio and video content over the Internet to target
audiences throughout Asia and Globally. On August 20, 2001 Hartcourt established
a new wholly owned  subsidiary  AI-Asia  Inc. to hold and develop  assets of the
Media Services Group.  AI-Asia's  objective is identify,  develop,  and maintain
first-mover  technologies,  products  and services  for  corporate  and consumer
Internet deployment. AI-Asia plans to provide its clientele with a comprehensive
range of Internet  enabling  solutions,  preparing  them to  participate  in the
rapidly emerging streaming and  broadband  communications  revolution.   AI-Asia




                                      F-18
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2001 (UNAUDITED)


will create synergy not only among its streaming  technology  companies but will
coordinate with other Hartcourt Groups.

StreamingAsia Holdings Limited  ("StreamingAsia  Group"):  StreamingAsia Limited
provides  Internet-related  software  development  service  with an expertise in
audio and video  delivery or  streaming  solutions  to a variety of business and
industry,  including major financial institutions.  On April 14, 2000, Hartcourt
announced  that  Sinobull  signed a  Subscription  and  Shareholders'  Agreement
("Agreement")  relating to StreamingAsia  Limited,  whereby Sinobull  subscribed
1,200,000  newly  issued  and  outstanding  fully paid  shares of  StreamingAsia
Limited for HK$7,000,000 (approximately US$897,500) on behalf of Hartcourt. Upon
subscription  of such  shares,  Sinobull  acquired  50%  ownership  interest  in
StreamingAsia Limited and contributed $897,500 towards its purchase.  Such funds
were advanced by Hartcourt to Sinobull for StreamingAsia Limited acquisition. In
addition,  both Sinobull and Hartcourt  agreed and confirmed that as part of the
financing  arrangements  Sinobull held the  subscribed  shares in  StreamingAsia
Limited on behalf of Hartcourt and those shares were transferred to Hartcourt on
December 29, 2000.  On December 30, 2000, as part of the  reorganization  of the
StreamingAsia   Holdings   Limited,   the  beneficial   ownership   interest  in
StreamingAsia  Limited was transferred to Asia Top Finance Limited ("Asia Top"),
a company organized under the laws of British Virgin Islands. As a result of the
above  transfer,  Hartcourt  owned  50% of the  Asia Top and the  remaining  50%
ownership was held by the selling shareholders of StreamingAsia Limited.

LogicSpace  Limited  ("LogicSpace"):  LogicSpace,  a wholly-owned  subsidiary of
StreamingAsia Limited, is an Internet consulting and web application development
company  that  provides a wide range of  Internet  services  including  web page
design,  system  architecture  and solution  implementation.  LogicSpace  offers
cost-effective  and one-stop shop Internet  solutions  that enable  companies to
achieve  smooth  results in doing  business on the Internet.  Solutions  include
top-notch  eBusiness  & Internet  consultation,  B2B/B2C  Portal  Development  &
Implementation,   Web-Based  &  Wireless   application   design  and  "know-how"
implementation.  The  operating  results of  LogicSpace  are  consolidated  with
StreamingAsia  Limited in the accompanying  financial statements as of September
30, 2001.

SyndicateAsia Limited  ("SyndicateAsia"):  SyndicateAsia,  is pioneer in content
distribution,   providing  the   marketplace   for   exchanging,   managing  and
distributing   content  media  across  the  Asian  region.   The   revolutionary
SyndicateAsia  platform  offers  flexibility  to providers and content buyers to
transform formats (Web to WAP) and exchange content,  including text, graphical,
audio  and  video,   across  a  wide  range  of  sources  in  the  Asia  region.
SyndicateAsia's  mission is to serve as the bridge between the content providers
and end users by  providing  the foremost  syndication  solution for delivery of
multi-media  content on cross  devices and  platforms,  including the World Wide
Web,  wireless,  and streaming media. In December 2000, the StreamingAsia  Group
issued 50% of the enlarged  share  capital  of  SyndicateAsia to Hartcourt.   On




                                      F-19
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2001 (UNAUDITED)

December 30, 2000, as part of the reorganization of the StreamingAsia Group, the
entire   beneficial   ownership  in  the  share  capital  of  SyndicateAsia  was
transferred to China Top Worldwide Limited ("China Top"), a company incorporated
in the British Virgin Islands.  As a result of the transfer  Hartcourt owned 50%
of the ownership interest in China Top.

On May 16, 2001  Hartcourt  took control over the  management  and operations of
Asia Top and  China  Top,  and  signed a Term  Sheet  Agreement  to  acquire  an
additional  35%  ownership  in Asia  Top and  China  Top for  HK$2,200,000.  The
agreement  required for  Hartcourt to place a down payment of  HK$500,000  in an
escrow  account,  pay  HK$300,000  in thirty  days and place  seven  post  dated
installment  checks of  HK$200,000  each,  payable  each month upon close of the
escrow.  Hartcourt  placed the HK$500,000 in the escrow account and renegotiated
the purchase  price and payment terms pursuant to the Term Sheet  Agreement.  On
August 9, 2001,  Hartcourt  closed the escrow and completed the  acquisition  of
additional 35% ownership interest in Asia Top and China Top for a total purchase
consideration  of HK$800,000.  The  accompanying  financial  statements  reflect
Hartcourt's  ownership  of 85% of the  StreamingAsia  Group and its  results  of
operations  from the date of acquisition are  consolidated  with Hartcourt as of
September 30, 2001.

V2 Technology  Limited ("V2"): On August 21, 2001 AI-Asia,  Inc. signed a Letter
of Intent acquire all of the ownership in V2  (www.v2tech,com),  a Beijing based
streaming and  communication  technology and services  company  developing  rich
media  and  communication   software.   Existing  products  include  MPEG4-based
streaming media and videoconferencing software designed for professional content
providers,  broadcasters,  broadband operators,  eCommerce and corporations. The
details of acquisition are currently being negotiated and a definitive agreement
is expected to be signed and executed by November 30, 2001.

Renew Logistics Ltd. ("Renew Logistics"):  On October 15, 2001, AI-Asia signed a
Term Sheet agreement to acquire  one-hundred  percent (100%) of the ownership in
Renew Logistics,  a Hong Kong based company which operates a cyber-related  game
and  educational  portal  service to children and families  (www.abc222.com)  in
Asia. Renew Logistics has a 6-year exclusive  marketing agreement with Toys-R-Us
Asia Ltd.  Toys-R-Us Asia Ltd. is a joint venture  between Li & Fung Company,  a
major  manufacturing,  trading  and  marketing  conglomerate  in Hong Kong,  and
Toys-R-Us,  the international  brand-name retailer of toys and games.  Toys-R-Us
Asia  currently owns and operates 26 retailers in Hong Kong,  Macau,  Singapore,
Malaysia and Indonesia,  and is planning a major expansion into China next year.
The counsels are currently reviewing the details of the purchase agreement and a
definitive agreement is expected to be executed by November 30, 2001.

Renew Logistics will issue coupons for merchandise and services  provided on its
portal.  These coupons can then be redeemed at all Toys-R-Us outlets in Asia for
merchandise  of equal  value.  Similarly  Toys-R-Us  will  issue  coupons to its
customers to access,  purchase content and products on Renew Logistic's  portal.
The two companies would then exchange and  redeem  the  coupons.   The agreement




                                      F-20
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2001 (UNAUDITED)


also  provides  the rights for Renew  Logistics  to  provide  on-line  fee based
education/entertainment  service  under the brand  name  Toys-R-Us,  the sale of
cyber products like computers, scanners, digital cameras, etc., and the right of
first refusal to provide  internet  service for Toys-R-Us Asia.  Renew Logistics
plans to develop  additional  revenues with B to B content  provider  agreements
through web site entry fees,  advertising  agreements  with  manufacturers,  and
agreements  with  other  cyber   product/service   providers  for  ventures  and
partnerships. The two companies have successfully completed a trial run and plan
to launch a full-scale operation in time for the holiday buying season.

Control Tech Centenary Group Ltd. ("CTC"): On November 6, 2001, AI-Asia signed a
Term Sheet  agreement to acquire one hundred  percent (100%) of CTC, a streaming
technology solutions company specializing in audio and videoconference products.
CTC is one of the two exclusive authorized dealers in China for Polycom. Polycom
is a  recognized  global  leader in  multimedia  business  communication  tools,
videoconferencing,  audio  conferencing,  web  conferencing,  and network access
appliances.  CTC also  represents  Enznia,  Radivision,  Accord  and MCU.  CTC's
customers include PLA, Proctor and Gamble, Hong Kong Telecom, Shandong Power Co.
and other  major  multinational  companies  in China  (www.polycomctc.com).  The
parties  are  completing   their  due  diligence  and  expect  to  complete  the
transaction by December 31, 2001,

Beijing Total Solution System,  Ltd. ("TSS"):  On September 15, 2000,  Hartcourt
and TSS signed a Term Sheet  Agreement  to form a Joint  Venture  Company  (JVC)
called TSS Streaming,  Ltd to develop broadband enabling technology for internet
broadcasting  market and develop world leading  web-casting  solution and global
market.  Hartcourt agreed to contribute $2.4 million for 60% ownership  interest
in the JVC and TSS  agreed to  contribute  all of its  tangible  and  intangible
assets of its existing operations in China for its 40% ownership interest in the
JVC.  On  December  1,  2000,  Hartcourt  and TSS  signed a loan  agreement  and
Hartcourt  advanced  $70,000 as a loan to support  TSS's  2000  marketing  plan,
convertible into for the ownership of 5% shares of TSS. Upon contribution of the
remaining  $2,330,000,  Hartcourt could acquire the additional 55% shares of the
JVC. Hartcourt has converted its loan into an investment of 5% in TSS. Hartcourt
has not exercised its right to subscribe for the additional 55% of the ownership
interest  in  the  JVC  and  such  right  has  subsequently  been  lapsed.   The
accompanying  financial statements reflect Hartcourt's  investment of $70,000 in
the JVC as of  September  30,  2001.  Hartcourt  does not intend to acquire  any
additional ownership interest in TSS at this time.

E-LEARNING GROUP:

On June 18, 2001,  Hartcourt executed a Revenue Sharing Agreement in cooperation
with Northern Jiaotong University and California State  University-Fullerton  to
jointly  develop  education  projects and  introduce  American  career  training
courses and post-graduate business programs  in China.  The  project  will offer





                                      F-21
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2001 (UNAUDITED)


prestigious  American  education  programs in China,  utilizing one of the first
online education licenses awarded by China's Ministry of Education.  The project
is offering  both  certificate  and degree  programs  with courses  designed for
relevance in today's business world. Coursework will initially be offered in the
classroom and later expanded  online.  Hartcourt  plans to extend its program to
other potential partners and institutions in the future.  Hartcourt has advanced
$100,000  towards the working  capital for its  investment in this project as of
September  30,  2001.  The  $100,000  was loaned to  Hartcourt  by Sino  Harvest
Limited,  a  company  registered  in  Hong  Kong.  The  accompanying   financial
statements as of September 30, 2001 reflect  Hartcourt's  investment of $100,000
in the  education  project and a  corresponding  payable to Sino Harvest for the
same amount.  The total financial  commitments of Hartcourt and terms of payment
on this project are being currently finalized as of November 10, 2001.

OTHER  VENTURES:

eMPACT Solutions, Inc. ("eMPACT") - eMPACT, an e-commerce systems management and
consulting  company,  specializes in providing  back-office  infrastructure  for
Internet companies. The services include technology selection, system design and
management,  transaction performance  monitoring,  resource utilization tracking
and security  monitoring.  On April 30, 2000,  Harcourt  executed a Subscription
Agreement  and  Investment  Representation  and agreed to subscribe and purchase
three  hundred (300) shares of Class B Convertible  Preferred  Stock,  par value
$0.001 per share of eMPACT for $300,000.  Hartcourt had the option until May 30,
2000, to invest an  additional  $1,700,000 in eMPACT at the same per share price
for  additional  Class B Preferred  Stock.  After May 30, 2000, the terms of any
additional investment shall be subject to negotiation between the parties. As of
November 10, 2001,  Hartcourt paid a total consideration of $300,000 towards the
purchase of three hundred (300) Class B Preferred Stock of eMPACT. Hartcourt has
determined  that at this time to increase its  investment in eMPACT would not be
advantageous to the company or its shareholders.

Koffman Securities Limited ("Koffman"): On June 12, 2000, Hartcourt entered into
a Stock Purchase Agreement Term Sheet with Koffman, a securities brokerage firm,
to purchase  30% of the  expanded  capital  stock of Koffman  for  HK$22,285,000
(approximately US$2,857,050).  The transaction shall close no later than 60 days
following  the  execution of the  Agreement  during which time all due diligence
shall  have  been  completed,  which  shall  include  but not be  limited  to an
evaluation of Koffman by the auditors, appraisers and legal counsel appointed by
Hartcourt  for  this  purpose  and a  legal  opinion  of its  counsel  as to the
acceptability  of the proposed  structure of  Hartcourt's  acquisition of 30% of
Koffman,  financial  reviews,  and other usual and customary due diligence.  The
purchase  price shall be payable as follows:  25% of the purchase price shall be
payable upon  execution  of a definitive  agreement to purchase and sell by both
parties based upon completion of all of its due diligence,  including evaluation
and appraisal and  confirmation by legal counsel as to the  acceptability of the
proposed structure of Hartcourt's  acquisition of 30% of Koffman; and 75% of the
purchase  price  payable  in  three  successive  equal   monthly   installments.



                                      F-22
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2001 (UNAUDITED)




Hartcourt  has  completed  its due  diligence  review and both the parties  have
mutually agreed to revise the purchase price and execute the purchase  agreement
prior to November 30, 2001.  As of November 10, 2001,  Hartcourt has not entered
into  any  formal  purchase   agreement  with  Koffman  and  has  not  made  any
contributions towards the purchase of Koffman.

China  E-Laws:  On April 8, 2000,  Hartcourt  entered into an agreement  with DF
Ltd.,  Loughborough  Ltd., and Express Internet  Investment Ltd.  (collectively,
"the  Management") and a fourth investor to form a joint venture company for the
commercial exploitation of the Publication Rights of the internet and production
of the content of the website in respect of the laws of China.  Per the terms of
the agreement, both Hartcourt and the fourth investor's obligation are to invest
$2,000,000  each,  in the joint venture  company for 25% ownership  interest and
share  the  responsibility  in  providing  funding,  finance  and  technological
support.  The  obligation  of  Hartcourt  and the fourth  investor is to provide
funding  as  working  capital  for the  joint  venture  company  subject  to the
conditions  precedent that the joint venture  company shall have entered into an
agreement with the relevant parties in China for the commercial  exploitation of
the Publication Rights on the Internet and the website. As of November 10, 2001,
the joint venture  company was still  negotiating  agreements  with the relevant
parties  in  China  and  has  not  been  granted  approval  for  the  commercial
exploitation  of  the  Publication  Rights  on the  Internet  and  the  website.
Therefore,  as of November 10, 2001 Hartcourt has no payment  obligations  under
this agreement.

Acquisitions and Partnerships Disclaimer:

Hartcourt's  partners  in the  joint  ventures  discussed  above  are  expecting
Hartcourt to provide key elements in these joint ventures:  Internet  technology
and  investment  capital.   Hartcourt  management  has  hired  individuals  with
extensive  experience and expertise in relevant industry sectors, and intends to
provide  Internet  technology  by merging  with or acquiring  companies  already
active in these  businesses.  On the financial  side,  Hartcourt  plans to raise
substantial  funds  necessary to carry out the plans of its venture  partners by
selling its own common  shares to selected  investors/partners  and  bringing in
partners  whose  contributions  to each joint venture will include the necessary
cash  contributions.  If  Hartcourt  is not able to raise  the  necessary  funds
indicated  in  the  agreements,  the  agreements  may  need  to be  modified  or
cancelled.

No assurance can be given that all  agreements  discussed  herein will result in
actual  agreements or that the terms of the agreements will not be significantly
changed,  or that  all of the  financing  needs  to  consummate  the  agreements
discussed below will be successfully completed.  Furthermore,  approval from the
Chinese regulatory authorities may be required to consummate some agreements.




                                      F-23
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2001 (UNAUDITED)


Funding:

Swartz Private Equity,  LLC ("Swartz") - Swartz is an investment  entity focused
on equity  investments  in  Internet  and other high  technology  companies.  On
November 3, 1999, Hartcourt signed an Investment  Agreement with Swartz.  Swartz
agreed to purchase  from  Hartcourt,  from time to time,  shares of  Hartcourt's
common stock, as part of an offering of common stock by Hartcourt to Swartz, for
a maximum aggregate offering amount of $25,000,000.  These funds will be used to
satisfy  Hartcourt's working capital  requirements and complete  acquisitions of
Internet related operations.  On January 5, 2000, Hartcourt and Swartz agreed to
increase the equity line funding to $35,000,000 due to the planned  acquisitions
of Internet  operations in China.  Hartcourt has filed a form SB-2  Registration
document with SEC on November 24, 2000 to register  additional common shares for
issuance to Swartz.  Once approved by SEC, Swartz has the obligation to purchase
these  shares at the market  price less 10 percent  discount  during the next 24
months.

PYR Management LLC ("PYR") - On January 26, 2000,  Hartcourt completed a private
placement of 227,445  Units,  each unit  consisting  of a Class I and a Class II
Warrant,  to  PYR  for  $3,000,000  pursuant  to  a  Regulation  D  Subscription
Agreement.  On January 27, 2000,  Hartcourt  received  $2,743,000 from PYR to be
used for  working  capital  requirements  of  Hartcourt.  On  February  4,  2000
Hartcourt filed a Form 8-K with the SEC. On February 21, 2001, Hartcourt and PYR
Management  entered into a Letter  Agreement  whereby the parties  agreed on the
maximum  number of Units PYR can  receive  under  the  reset  provisions  of the
Subscription Agreement.

Pursuant to the terms of the  agreement,  the quantity of Units and the exercise
price of the warrants will no longer  reset.  The final amount of Units that can
be  issued  shall be  4,000,000  shares of common  stock and  4,000,000  Class I
Warrants.  The cap  amount  shall be  8,000,000  shares  of  common  stock (on a
"post-split"  basis)  including  Class I and Class II  warrants.  As a result of
reset  calculations,  Hartcourt  has  issued as of  September  30,  2001 a total
4,000,000  shares  of its  common  stock,  2,509,802  of  Class I  warrants  and
1,035,308  of Class II  warrants  exercisable  at  $0.69375  per share of common
stock.

Fee Agreement for Introduction  Services:  On April 19, 2000,  Hartcourt entered
into a Fee Agreement for Introduction Services ("Agreement") with Tang Wai Leong
and Thomas Kwok,  (collectively  referred to as the  "Introducers")  whereby the
Introducers  will use their best efforts to search for,  identify and make known
to  Hartcourt   Internet-related   business  and   opportunities  for  potential
acquisition by Hartcourt.  Hartcourt agrees to satisfy the Introducers' time and
expense  incurred,  up to and including the first acquisition by Hartcourt of an
opportunity  introduced  or  arranged  by the  Introducers,  by  granting to the
Introducers options to purchase up to 2,500,000 shares of Hartcourt common stock
at a price of $5.50 per share.  Upon consummation  of the  introduction  by  the




                                      F-24
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2001 (UNAUDITED)


Introducers  and  Hartcourt  completing  the  acquisition,  Hartcourt  agreed to
register  with the SEC under a Form S-8 such  shares  granted  under the  option
agreement,  and shall cause such  registration  statement to remain effective at
all times while the Introducers holds the options.

The Introducers have introduced to Hartcourt a potential acquisition opportunity
and on April 27, 2000,  Hartcourt  signed the necessary  documents to consummate
the purchase of an entity  (Shenzhen Rayes Group Limited).  The Introducers have
subsequently  exercised  their option to acquire  2,500,000  shares of Hartcourt
common stock.  On May 8, 2000, in  accordance  with the terms of the  Agreement,
Hartcourt  filed  a Form  S-8 to  register  with  the  Securities  and  Exchange
Commission the 2,500,000 options granted to the Introducers under the Agreement.
As of September 30, 2001,  Hartcourt  received  $2,750,000  towards  exercise of
2,500,000  options  into shares  exercised  by the  Introducers.  The  remaining
balance of $11,000,000 is recorded as subscriptions  receivable at September 30,
2001 in the accompanying financial statements.

Edda Limited ("Edda"):  On December 26, 2000,  Hartcourt and Edda signed a Stock
Sale Agreement (Agreement) whereby Hartcourt agreed to sell 4,000,000 restricted
shares of its common stock as a block to Edda at the agreed price of fifty cents
($0.50)  per  share.  Pursuant  to the terms of the  Agreement,  Hartcourt  will
deliver to Edda the requisite number of common shares  restricted under the Rule
144 of SEC regulations  upon receipt of the full and complete  purchase price in
the amount of $2,000,000.  The accompanying  financial  statements  reflect that
Hartcourt  has  received  $1,415,084  from Edda as of September  30,  2001.  The
remaining  balance of $584,916 has been recorded as subscriptions  receivable in
the accompanying  financial  statements as of September 30, 2001. As of November
10, 2001,  Hartcourt has not issued any shares to Edda under this  Agreement and
has not received any additional remittances subsequent to September 30, 2001.

Hartcourt's future business,  including  expansion of its current operations and
acquisition plans requires  additional  equity and/or debt financing,  which may
not be  available  in a  timely  manner  or on  commercially  reasonable  terms.
Currently,  Hartcourt's  primary objective is to acquire  established  operating
companies with histories of growth and profitability,  in order to diversify and
create a multi-dimensional Internet service related company.

Note 2.    Basis of Presentation

The accompanying  unaudited consolidated financial statements have been prepared
in  accordance  with  generally  accepted  accounting   principles  for  interim
financial  information and with the  instructions  to Form 10-QSB.  Accordingly,
they do not include all of the information  and footnotes  required by generally
accepted  accounting  principles for complete  financial  statements and related
notes included in the Company's 2000 Form 10-KSB.






                                      F-25
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2001 (UNAUDITED)


In the opinion of management,  the accompanying unaudited consolidated financial
statements   contain  all  adjustments  (which  include  only  normal  recurring
adjustments)  necessary to present  fairly the Balance  Sheets of The  Hartcourt
Companies,  Inc. and its  subsidiaries as of September 30, 2001 and December 31,
2000,  and the  results of their  operations  and their cash flows for the three
months  and nine  months  ended  September  30,  2001 and  2000.  The  financial
statements  for the three months ended  September 30, 2001 are  consolidated  to
include  the  accounts  of  The  Hartcourt  Companies  Inc.,  its  58.53%  owned
subsidiary  Financial Telecom Limited,  its 85% owned  subsidiaries Asia Top and
China Top of  StreamingAsia  Limited Group,  its 51% owned  subsidiary  Elephant
Talk,  its  wholly  owned  subsidiary  Sinobull.com  Inc.,  and its 66.7%  owned
subsidiary  HCTV. The financial  statements for the three months ended September
30,  2000 are  consolidated  to  include  only  the  accounts  of The  Hartcourt
Companies,  Inc., its 58.53% owned subsidiary Financial Telecom Limited, and its
35% equity investment in UAC Exchange.

The results of operations for the three months ended  September 30, 2001 are not
necessarily indicative of the results to be expected for the entire year.

Certain  2000  amounts  have been  reclassified  to conform  to  current  period
presentation.  These reclassifications have no effect on previously reported net
income.

The accounting  policies  followed by the Company are set forth in Note A to the
Company's  financial  statements  as stated in its report on Form 10-KSB for the
fiscal year ended December 31, 2000.

Note 3.    Supplemental Disclosure of Non-Cash Financing Activities


                                                Nine Months        Nine Months
                                                   Ended              Ended
                                               September 30,      September 30,
                                                    2001               2000
                                               -------------      -------------
Cash paid for:
   Interest                                    $     122,750      $     114,953
   Taxes                                                   -                  -
                                               =============      =============

Non-cash operating and financing activities:
   Shares issued to directors for services     $     265,440      $           -
   Shares issued to director in liquidation
      of payable                                           -          3,560,621
   Shares issued for consulting services             184,173                  -
   Shares issued in connection with
      acquisitions                                 2,325,000                  -




                                      F-26
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2001 (UNAUDITED)

Note 4.    Loss per Share
<TABLE>
<S>                                     <C>            <C>             <C>            <C>
                                        Three Months   Three Months     Nine Months    Nine Months
                                            Ended          Ended           Ended          Ended
                                        September 30,  September 30,   September 30,  September 30,
                                             2001           2000            2001           2000
                                        ------------   ------------    ------------   ------------
 Net loss                               $    216,024   $  2,730,762    $  2,421,090   $  5,282,272
 Effects of dilutive securities                    -              -               -              -
                                        ------------   ------------     -----------   ------------
 Weighted average shares outstanding      70,014,935     60,478,590      66,818,048     57,151,722
                                        ============   ============     ===========   ============
 Basic and dilutive earnings per share  $       (.00)  $       (.05)    $      (.04)  $       (.09)
                                        ============   ============     ===========   ============
</TABLE>
At September 30, 2001 and 2000, the Company had 4,376,640 and 2,421,950 warrants
and options outstanding,  each exercisable into one share of common stock. These
instruments  were not included in the computation of diluted  earnings per share
for any of the periods presented,  due to their  anti-dilutive  effects based on
the net loss reported for each period.

On  September  14,  2000,  the  Board  of  Directors  of  Hartcourt  approved  a
two-for-one split of the company's common stock to be distributed in the form of
a stock dividend,  payable on October 23, 2000 to the  shareholders of record at
the close of business on October 16, 2000.  All  references in the  consolidated
financial  statements  to shares,  share prices and per share  amounts have been
adjusted retroactively for the split.

Note 5.  Litigations

ComericaBank of California ("Comerica") vs. Pego Systems, Inc., et al. ("Pego"),
Los Angeles Superior Court Case No. NC 027 075:

This litigation concerns  Hartcourt's alleged obligation as an alleged guarantor
of another  entity's  ("Pego")  alleged  obligation on a promissory note that is
asserted to be in non-financial  default.  The complaint  alleges that Hartcourt
executed  a  guarantee  of  obligation  of  Pego  which   obligation  went  into
non-financial default. Comerica entered the stipulation for entry of judgment to
enforce the settlement  agreement,  which stipulation calls for certain payments
and transfers of funds by Pego, and a judgment of approximately  $635,000 exists
of which  Hartcourt is a  co-guarantor.  The assets of Pego  including  accounts
receivable will be liquidated to pay down the debt.











                                      F-27
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2001 (UNAUDITED)


Charles  Hogue vs. The  Hartcourt  Companies,  Inc.,  Circuit Court of the Ninth
Judicial Circuit, Orange County, Florida. Circuit Court Case No. CI00-002190:

Charles  Hogue filed a complaint on or about March 22, 2000, to claim a finder's
fee for introducing Hartcourt to a potential acquisition target.  Hartcourt sent
the payment to Mr.  Hogue via check in the amount of $40,500  for such  finder's
fee, but Mr.  Hogue  demanded  that he be paid in shares of  Hartcourt  with the
amount of shares in  dispute.  Hartcourt's  counsel in Florida  failed to timely
file an  Answer  to the  Complaint,  and a  default  judgment  in the  amount of
$2,901,752  was entered on January 31, 2001.  Hartcourt  brought a motion to set
aside the default,  which was denied.  Hartcourt plans to vigorously  appeal the
ruling.  On or about March 2, 2001, a Notice of Appeal was filed.  Hartcourt has
retained new appellate counsel to aggressively contest the appeal. On October 1,
2001,  oral  arguments  were  presented  to the  Circuit  Court Judge in Florida
Courts.  We are  awaiting  to hear the  decision  of the  appellate  court after
presenting our arguments.

The Company is party to various claims and legal proceedings  arising out of the
normal  course  of its  business.  These  claims  and legal  proceedings  relate
primarily to contractual rights and obligations,  and employment matters.  While
there can be no  assurance  that an adverse  determination  of any such  matters
could not have a material  adverse impact in any future period,  management does
not believe,  based upon  information  known to it, that the final resolution of
any of these  matters  will have a material  adverse  effect upon the  Company's
consolidated financial position and annual results of operations and cash flows.


























                                      F-28
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                         SEPTEMBER 30, 2001 (UNAUDITED)


Part I

Item 2

The Hartcourt  Companies,  Inc. is a holding and development  enterprise that is
building a broad network of Internet, media, and telecommunication  companies in
Greater  China.   In  partnership   with  leading  Chinese   entrepreneurs   and
government-sponsored entities, Hartcourt is developing and investing in emerging
technologies  while  building  an  integrated   commercial   framework  for  its
subsidiaries  and their partners.  Hartcourt's  operative  business  strategy is
designed to establish market-leading position and facilitate a series of venture
divestitures  via public  offerings or public  merger in its four main  business
divisions to fully realize the value of these assets for its investors. The four
business   divisions  are  Sinobull   Financial  Group,  Media  Services  Group,
Broadband/Telecommunications Group and E-learning Group.

Hartcourt,  through a combination  of expertly  managed  internal  expansion and
accretive strategic  acquisitions,  is executing plans to provide a sustainable,
growing,  diversified  and profitable  revenue base  throughout its  operations.
Hartcourt is developing  extensive business operations  throughout Greater China
to  position  itself to take full  advantage  of the  substantial  opportunities
presented by the emergence of the worlds largest consumer and business  markets,
and  China's  upcoming  entry  into  the  WTO.  Hartcourt's  ability  to  obtain
government  approved  licenses and its wide array of  well-established  business
relationships is greatly facilitating these goals and establishing  Hartcourt as
an attractive entry point for corporations seeking access to these markets.

Results of Operations:

During 2001,  Hartcourt  continued its  previously  implemented  plan to acquire
profitable  companies  that were in  established  industries  with a history  of
growth.  Since mid-1999,  Hartcourt has been focusing on assembling a collection
of  companies  and  services  that  will  provide  citizens  of China  with next
generation  communication  services.  Each of the companies that  constitute the
four operating  business  divisions were  independent  companies  prior to their
affiliation with Hartcourt and were brought into the fold via share acquisitions
by Hartcourt to fulfill  specific niches within  Hartcourt's  current  expansion
plans.   Hartcourt  plans  to  eventually  build  its  current  operations  into
stand-alone  entities  that will be taken  public on US and/or  Asian  Financial
markets.

To stay focused and achieve its mission to become a leading  Internet company in
Asia and China, Hartcourt continued to build a network of Internet companies. On
December 28, 2000,  Sinobull completed its acquisition of 51% ownership interest
in  Sinobull  Network  and 51%  ownership  in  Sinobull  Information.  Hartcourt
completed its  acquisition of 100% ownership  interest in  Sinobull.com  Inc. on
April 2, 2001; 51% ownership interest in Elephant Talk Limited




                                      F-29
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                         SEPTEMBER 30, 2001 (UNAUDITED)


on May 16, 2001; and 85% ownership  interest in  StreamingAsia  Limited Group on
August 9, 2001.  In addition,  on July 16, 2001,  Hartcourt  rescinded its joint
venture  agreement  with Beijing UAC Trading and  accepted a secured  promissory
note from Edda Limited for Hartcourt's net investment of $2,858,286 in the joint
venture.

The operations of Hartcourt for the three months and nine months ended September
30,  2001  consisted  of the  operations  of FTL  (58.53%  ownership  interest),
Sinobull.com  Inc.  (100%  ownership  interest),  Elephant  Talk (51%  ownership
interest),  StreamingAsia  Holdings  Limited  (85%  ownership  interest),   HCTV
(66.67%  ownership  interest) and  Hartcourt's  investment and advances to other
entities in US,  China and Hong Kong.  Operations  for the three months and nine
months ended September 30, 2000 consisted of operations of FTL (58.53% ownership
interest) and Hartcourt's 35% equity investment interest in UAC Exchange.

Net sales and cost of sales:  The Company  recorded net sales of $3,809,526  and
$5,940,752  for the three  months and nine  months  ended  September  30,  2001,
compared to $333,641 and  $1,024,081  for the same periods in 2000. Net sales in
the third quarter of 2001 primarily  consisted of revenues derived from Elephant
Talk,  an  international   long  distance  carrier  that  provides  voice,  data
transmission  like IDD,  pre-paid calling cards and ISP services to a wide range
of customers  including major  telecommunication  companies in US and Hong Kong.
Net sales also include sale of wireless  pagers,  rental of  equipment,  and the
related Internet and telephone  services  provided by FTL;  real-time  financial
data  services  provided by  Sinobull  Financial  Information  using a satellite
network to transmit  data  specializes  in stock  quotes,  futures,  indexes and
commodities to its customers in China; and  StreamingAsia  providing web hosting
and  software  development  services in audio and video  delivery  or  streaming
solutions.  Cost of sales  amounted to $3,200,375  and  $4,499,619 for the three
months and nine  months  ended  September  30, 2001  compared  to  $271,448  and
$503,520  for the same  periods in 2000.  Cost of sales for the three months and
nine months ended  September 30, 2001 primarily  included the costs in providing
resale arrangements with long distance providers,  cost of leasing  transmission
facilities,  international  gateway  switches voice,  data  transmission and ISP
services offered by Elephant Talk; cost of wireless pagers, cost of transmission
and  Internet  services  provided to FTL and FWL  customers;  costs  incurred in
providing  financial data services in stock quotes,  futures and  commodities by
Sinobull; and costs incurred in providing audio and video delivery and streaming
solutions by  StreamingAsia.  Operational  margins  continued to show  sustained
improvements  during  the third  quarter  of 2001 when  compared  to the  second
quarter of 2001 as Elephant Talk reported full three months operating results in
the third quarter of 2001.

Selling,  general and administrative  expenses (SG&A):  SG&A were $1,654,047 and
$4,389,752  for the three  months  and nine  months  ended  September  30,  2001
compared to $715,863 and  $3,612,095  for the same periods in 2000. The increase
is primarily attributed due to additional  consulting,  legal and administrative
costs  incurred  due  to  the  completion  of  acquisitions  of  Elephant  Talk,
StreamingAsia and Sinobull.com Inc. during the third quarter of 2001.  Hartcourt


                                      F-30
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                         SEPTEMBER 30, 2001 (UNAUDITED)


recorded a one-time charge of $581,578  relating to costs incurred in connection
with  StreamingAsia's public offering and a one-time charge of $230,566 due to a
write-down of FTL  Investments  during the third quarter of 2001.  Although SG&A
for the nine months ended September 30, 2001 increased by $777,657 when compared
to the same period of 2000,  SG&A as a percentage of sales decreased to 43% from
75% during the same comparable  periods in 2000. The decrease resulted primarily
because of the company eliminating less productive units, reduced consulting and
legal costs associated due to restructuring of Hartcourt's business in China.

Other  expenses:  Total other  expenses  net of other  income  were  $12,858 and
$221,247 for the three months and nine months ended  September 30, 2001 compared
to $1,039 and  $79,468  for the same  periods  in 2000.  The  increase  in other
expenses net of other  income  resulted  primarily  due to the equity in loss of
affiliates of $183,536 for the nine months ended  September 30, 2001 compared to
the same period in 2000.

Discontinued  operations:  During the three  months  ended  September  30, 2001,
Hartcourt  rescinded  its joint venture  agreement  with Beijing UAC Trading and
accepted  a secured  promissory  note  from Edda  Limited  for  Hartcourt's  net
investment of $2,858,286 in the joint venture.  Loss from the  discontinuance of
UAC Exchange joint venture operations during the nine months ended September 30,
2001 were $377,952. Hartcourt also recorded a one-time gain of $1,113,160 on the
disposition  of the UAC  Exchange  operations  during  the  three  months  ended
September 30, 2001.

Extraordinary  items:  Increase in  extraordinary  items  during the nine months
ended  September 30, 2001 as compared to the same period in 2000 resulted due to
the recording of one-time gain of $355,777 recorded by FTL in the second quarter
of 2001 due to forgiveness of debt as a result of refinancing their computer and
transmission equipment.

Liquidity and Capital Resources:

Hartcourt's  principal capital requirements during the year 2001 are to fund the
acquisitions of growth oriented  Internet related  operating  companies in China
and Asia. During the nine months ended September 30, 2001,  Hartcourt has raised
necessary funds to carry out its plans of acquisitions by selling its own common
shares  to  selected   investors  and  bringing  in  business   partners   whose
contributions included the necessary cash.

As shown in the accompanying financial statements, Hartcourt incurred a net loss
of $2,421,090 for the nine months ended  September 30, 2001 as compared to a net
loss of  $5,282,272  for the  same  period  in 2000.  Additionally,  Hartcourt's
current  liabilities  exceeded its current assets by $2,341,534 at September 30,
2001. These factors and Hartcourt's  inability to meet current debt obligations,
and the need to raise  additional  funds to accomplish its objectives,  create a
substantial doubt about Hartcourt's ability to continue as a going concern.




                                      F-31
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                         SEPTEMBER 30, 2001 (UNAUDITED)


Hartcourt  has taken  certain  restructuring  steps,  which in the  management's
opinion will provide the  necessary  capital to continue its  operations.  These
steps included: 1) the settlement of certain matters of litigation and disputes;
2) signed a Investment  Agreement with Swartz Private Equity,  LLC, which agreed
to purchase from time to time, up to $35,000,000  of Hartcourt  shares of common
stock. The Investment  Agreement with Swartz is still subject to the approval of
the SEC; 3) raised  $8,599,692 in cash through the issuance of its common shares
since the beginning of the year 2000 through September 30, 2001; 4) common stock
subscriptions receivable of $11,607,178 as of September 30, 2001.

Operating activities.  During the nine months ended September 30, 2001, net cash
used by operating activities decreased to $216,168 compared to $2,017,897 during
the same period in 2000. The decrease in operating activities resulted primarily
due to the gain of  $1,113,160  on  rescission  of UAC  Trading  joint  venture,
increase  in accounts  receivable,  short-term  bank loan and accrued  expenses,
decrease in accounts payable, prepaid expenses and deferred revenue.

Investing activities.  Net cash provided by investing activities during the nine
months ended  September 30, 2001,  was $154,188  compared to $ 4,062,761 for the
same period in 2000.  Cash  provided was  primarily  due to the cash acquired in
acquisitions  of ET,  Sinobull  Group and  StreamingAsia  offset by  advance  of
$500,000 towards WindInfo investment.

Financing activities.  Net cash provided by financing activities during the nine
months ended  September 30, 2001 was $91,412  compared to $6,059,904  during the
same period in 2000.  Net cash was provided due to proceeds  from sale of common
stock  amounting  to  $308,897,  proceeds on stock  subscriptions  of  $584,916,
payments  to  related  parties  of  $560,111  and  payments  on note  payable of
$216,881.

As a result of the above activities,  the company  experienced a net increase in
cash of $29,432 for the nine months ended  September  30,  2001.  The ability of
Hartcourt  to continue as a going  concern is still  dependent on its success in
obtaining  additional  financing and  fulfilling  its plan of  restructuring  as
outlined above.

Part II

Item 1.    LEGAL PROCEEDINGS

ComericaBank of California ("Comerica") vs. Pego Systems, Inc., et al. ("Pego"),
Los Angeles Superior Court Case No. NC 027 075:

This litigation concerns  Hartcourt's alleged obligation as an alleged guarantor
of another  entity's  ("Pego")  alleged  obligation on a promissory note that is
asserted to be in non-financial  default.  The complaint  alleges that Hartcourt
executed a guarantee of obligation of Pego which




                                      F-32
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                         SEPTEMBER 30, 2001 (UNAUDITED)


obligation went into non-financial default. Comerica entered the stipulation for
entry of judgment to enforce the settlement  agreement,  which stipulation calls
for  certain  payments  and  transfers  of  funds  by Pego,  and a  judgment  of
approximately  $635,000 exists of which Hartcourt is a co-guarantor.  The assets
of Pego including accounts receivable will be liquidated to pay down the debt.

Charles  Hogue vs. The  Hartcourt  Companies,  Inc.,  Circuit Court of the Ninth
Judicial Circuit, Orange County, Florida. Circuit Court Case No. CI00-002190:

Charles  Hogue filed a complaint on or about March 22, 2000, to claim a finder's
fee for introducing Hartcourt to a potential acquisition target.  Hartcourt sent
the payment to Mr.  Hogue via check in the amount of $40,500  for such  finder's
fee, but Mr.  Hogue  demanded  that he be paid in shares of  Hartcourt  with the
amount of shares in  dispute.  Hartcourt's  counsel in Florida  failed to timely
file an  Answer  to the  Complaint,  and a  default  judgment  in the  amount of
$2,901,752  was entered on January 31, 2001.  Hartcourt  brought a motion to set
aside the default,  which was denied.  Hartcourt plans to vigorously  appeal the
ruling.  On or about March 2, 2001, a Notice of Appeal was filed.  Hartcourt has
retained new appellate counsel to aggressively contest the appeal. On October 1,
2001,  oral  arguments  were  presented  to the  Circuit  Court Judge in Florida
Courts.  We are  awaiting  to hear the  decision  of the  appellate  court after
presenting our arguments.

The Company is party to various claims and legal proceedings  arising out of the
normal  course  of its  business.  These  claims  and legal  proceedings  relate
primarily to contractual rights and obligations,  and employment matters.  While
there can be no  assurance  that an adverse  determination  of any such  matters
could not have a material  adverse impact in any future period,  management does
not believe,  based upon  information  known to it, that the final resolution of
any of these  matters  will have a material  adverse  effect upon the  Company's
consolidated financial position and annual results of operations and cash flows.




















                                      F-33
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                                OTHER INFORMATION
                         SEPTEMBER 30, 2001 (UNAUDITED)


Item 2.  CHANGES IN SECURITIES

Not applicable

Item 3.  DEFAULTS UPON SENIOR SECURITIES

Not applicable

Item 4.  SUBMISSION OF MATTERS TO VOTE OF SECURITIES HOLDERS

None

Item 5.  OTHER INFORMATION

None

Item 6.  EXHIBITS AND REPORTS ON FORM 8-K

    a) Exhibits
        None.

    b) Reports on Form 8-K
        None




























                                      F-34
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                                OTHER INFORMATION
                         SEPTEMBER 30, 2001 (UNAUDITED)


                                   SIGNATURES

In accordance  with the  requirements  of the Exchange Act, the  registrant  has
caused  this  report  signed on its behalf by the  undersigned,  thereunto  duly
authorized.


                                            The Hartcourt Companies, Inc.

Date:  November 12, 2001                    By: /s/ Alan V. Phan
                                            --------------------------------
                                            Dr. Alan V. Phan
                                            Chairman






































                                      F-35