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, 2002

   [ ]   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.)

               2500E. Colorado Blvd. Suite 301, Pasadena, CA 91107
                    (Address of principal executive offices)

                                 (626) 844-2442
                           (Issuer's telephone number)

           19222 Pioneer Blvd., Suite 100, Cerritos, California 90703
                                (Former address)

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 92 days:

                                            Yes [X ]                No [  ].

As of September 30, 2002, The Hartcourt Companies, Inc. had 82,197,088 shares of
Common Stock Outstanding.

Transitional Small Business Disclosure Format (check one):

                                            Yes [  ]                No [ X ]

<PAGE>


                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                                TABLE OF CONTENTS

                              Report on Form 10-QSB
                                For quarter ended
                                  Sep 30, 2002
                                                                            Page

PART 1   FINANCIAL INFORMATION

Item 1.  Financial Statements

         Consolidated Balance Sheets at September 30, 2002 (Unaudited)
         and December 31, 2001                                              F-3

         Consolidated Statements of Operations for the Three Months and
         Nine Months ended September 30, 2002 and 2001 (Unaudited)          F-5

         Consolidated Statements of Shareholders' Equity for the Nine
         Months ended September 30, 2002 (Unaudited)                        F-6

         Consolidated Statements of Cash Flows for the Nine Months ended
         September 30, 2002 and 2001 (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-27


PART II  OTHER INFORMATION

Item 1.  Legal Proceedings                                                  F-32

Item 2.  Changes in Securities                                              F-33

Item 3.  Defaults upon Senior Securities                                    F-33

Item 4.  Submission of Matters to Vote of Security Holders                  F-33

Item 5.  Other Information                                                  F-33

Item 6.  Exhibits and Reports on Form 8-K                                   F-33

Signatures                                                                  F-34




<PAGE>




                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS


Part I
Item 1

                                                   September 30,    December 31,
                                                        2002            2001
                                                   ------------    ------------
                                                    (Unaudited)
ASSETS

Current assets:
   Cash and cash equivalents                       $     40,673    $    281,563
   Accounts receivable, net                           2,174,563       1,443,673
   Inventory                                            104,114          15,882
   Notes receivable, current portion                    772,196         896,874
   Prepaid expenses and other                           644,790         734,598
   Due from related parties                             887,314       1,494,730
                                                   ------------    ------------

Total current assets                                  4,623,650       4,867,320
                                                   ------------    ------------

Property and equipment, net                           1,444,122       2,445,432

Investments, net                                        410,835         400,000

Other assets
   Goodwill, net                                      3,336,970       5,257,649
   Intangibles, net                                   1,015,529       1,191,959
   Investment in ETNS Singapore Pte., Ltd.              201,606         209,490
   Notes receivable, net of current portion           2,458,286       2,608,286
                                                   ------------    ------------

Total other assets                                    7,012,391       9,267,384
                                                   ------------    ------------


Total assets                                       $ 13,490,998    $ 16,980,136
                                                   ------------    ------------









          See accompanying notes to consolidated financial statements.

                                      F-3
<PAGE>
                                                   September 30,    December 31,
                                                        2002            2001
                                                   ------------    ------------
                                                    (Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
   Overdraft facility                              $    423,101    $     82,030
   Accounts payable                                   3,699,110       4,607,238
   Deferred revenue                                     198,055         616,254
   Notes payable, current portion                       902,166       1,339,517
   Capital lease liability                               26,282          84,642
   Due to factor                                        198,205         198,205
   Due to related parties                               867,868       1,350,997
   Accrued expenses and other current liabilities       518,194         478,216
                                                   ------------    ------------

Total current liabilities                             6,832,981       8,757,099

Long term Liabilities:
   Notes payable, net of current portion                   --           433,299
   Capital lease liability                               36,100          28,596
                                                   ------------    ------------

Total liabilities                                     6,869,081       9,218,994
                                                   ------------    ------------

Contingencies

Minority interests                                    2,075,656       2,280,199

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; 82,148,360 shares
     and 73,885,656 shares issued and
     outstanding at September 30, 2002 and
     December 31, 2001                                   82,149          73,886
   Stock subscriptions receivable                      (473,181)       (139,865)
   Treasury stock, at cost, 1,854,530 and
     2,418,367 shares at September 30, 2002
     and December 31, 2001                           (1,398,928)     (1,662,233)
   Additional paid-in capital                        56,808,302      55,774,225
   Other comprehensive loss                             (71,094)        (61,687)
   Accumulated deficit                              (50,400,997)    (48,503,393)
                                                   ------------    ------------

Total shareholders' equity                            4,546,261       5,480,943
                                                   ------------    ------------

Total liabilities and shareholders' equity         $ 13,490,998    $ 16,980,136
                                                   ------------    ------------

          See accompanying notes to consolidated financial statements.

                                      F-4

<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
                                             For the Three Months Ended      For the Nine Months Ended
                                                    September 30                    September 30
                                            ----------------------------    ----------------------------
                                                 2002            2001            2002            2001
                                            ------------    ------------    ------------    ------------
<S>                                         <C>             <C>             <C>             <C>
Net sales                                   $  1,044,252    $  3,809,526    $  6,387,816    $  5,940,752
                                                                                            ------------
Cost of sales                                    954,311       3,200,375       5,410,967       4,499,619
                                            ------------    ------------    ------------    ------------

Gross profit                                      89,941         609,151         976,849       1,441,133
                                            ------------    ------------    ------------    ------------

Operating expenses:
   Selling, general and administrative ..        622,333       1,654,047       2,509,261       4,389,752
   Depreciation and amortization                 469,230         535,986       1,999,593         995,973
                                            ------------    ------------    ------------    ------------
                                                                                            ------------

Total operating expenses                       1,091,563       2,190,033       4,508,854       5,385,725
                                            ------------    ------------    ------------    ------------

Loss from continuing operations               (1,001,622)     (1,580,882)     (3,532,005)     (3,944,592)

Other income (expense):
   Equity in earnings (loss) of affiliate           --             7,554        (183,536)
   Loss on abandonment of
      property and equipment                        --              --          (164,973)           --
   Interest expense                               (8,567)        (44,094)        (55,980)       (122,750)
   Interest income                                  --            19,164         119,299          47,243
   Other                                            --            12,072          58,887          37,796
                                            ------------    ------------    ------------    ------------
Total other income (expense)                      (8,567)        (12,858)        (35,213)       (221,247)
                                            ------------    ------------    ------------    ------------

Loss from continuing operations before
   minority interest                          (1,010,189)     (1,593,740)     (3,567,218)     (4,165,839)
                                                                                            ------------
Less:  loss in subsidiary attributed to
   minority interest                             273,235         264,556       1,009,961         653,764
                                            ------------    ------------    ------------    ------------
Loss before discontinued operations             (736,954)     (1,329,184)     (2,557,257)     (3,512,075)
                                                                                            ------------
Discontinued operations:                            --
   Loss from discontinued operations                --              --              --          (377,952)
   Gain on disposal of subsidiaries/
      discontinued operations                    659,653       1,113,160         659,653       1,113,160
                                            ------------    ------------    ------------    ------------
Loss before extraordinary item              $    (77,301)   $   (216,024)   $ (1,897,604)   $ (2,776,867)
                                            ------------    ------------    ------------    ------------

Extraordinary item:
   Gain on debt extinguishment                      --              --           355,777
                                            ------------    ------------    ------------    ------------

Net loss                                         (77,301)       (216,024)     (1,897,604)     (2,421,090)
                                            ------------    ------------    ------------    ------------

Other comprehensive gain (loss):
   Foreign currency translation (loss) ..           --              --            (9,407)           --
                                            ------------    ------------    ------------    ------------
Comprehensive loss                          $    (77,301)   $   (216,024)   $ (1,907,011)   $ (2,421,090)
                                            ------------    ------------    ------------    ------------

Basic and fully diluted loss per
   common share:
   Loss from continuing operations          $      (0.01)   $      (0.02)   $      (0.02)   $      (0.05)
   Gain from discontinued operations                0.01            0.02            --              0.01
                                            ------------    ------------    ------------    ------------

   Loss per share                           $      (0.00)   $      (0.00)   $      (0.02)   $      (0.04)
                                            ------------    ------------    ------------    ------------

Weighted average number of shares
   outstanding
   - Basic and fully diluted                  82,148,360      70,014,935      78,806,648      66,818,048
                                            ------------    ------------    ------------    ------------
</TABLE>
          See accompanying notes to consolidated financial statements.
                                      F-5

<PAGE>



                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                                 Common
                                                                                Additional       Stock

                                   Common Stock          Preferred Stock          Paid-In     Subscriptions     Treasury Stock
                               ---------------------- -----------------------                                ----------------------
        Description             Shares      Amount      Shares       Amount        Capital      Receivable     Shares      Amount
-----------------------------  ----------  ---------- ----------  -----------   ------------  -------------  ----------  ----------

<S>                           <C>        <C>              <C>   <C>           <C>           <C>              <C>       <C>
Balance - December 31, 2001   73,885,656 $    73,886      1,000 $         10  $  55,774,225 $    (139,865)   2,418,367 $ (1,662,233)

Shares issued for
  consulting services            900,000         900           -            -        181,920              -           -           -
Stock subscriptions received           -           -           -            -              -        139,865           -           -
Shares issued to directors
  in lieu of compensation
  and for services             2,362,704       2,363           -            -        437,238              -           -           -
Sale of treasury stock                 -           -           -            -      (180,081)              -   (563,837)     263,305
Shares issued for
  subscriptions receivable     5,000,000       5,000           -            -        595,000      (473,181)           -           -
Other comprehensive gain               -           -           -            -              -
Net loss                               -           -           -            -              -              -           -           -
                               ----------  ---------- ----------  -----------   ------------  -------------  ----------  ----------

Balance - September 30, 2002   82,148,360 $   82,149      1,000 $         10  $  56,808,302 $    (473,181)   1,854,530 $ (1,398,928)
                               ----------  ---------- ----------  -----------   ------------  -------------  ----------  ----------
</TABLE>




                                                                  Total
                                     Other
                                 Comprehensive   Accumulated   Shareholders
        Description                  Loss         Deficit        Equity
-----------------------------    --------------  -----------   ------------

Balance - December 31, 2001     $      (61,687) $(48,503,393)    5,480,943

Shares issued for
  consulting services                        -            -        182,820
Stock subscriptions received                 -            -        139,865
Shares issued to directors
  in lieu of compensation
  and for services                           -            -        439,601
Sale of treasury stock                       -            -         83,224
Shares issued for
  subscriptions receivable                   -            -        126,819
Other comprehensive gain                (9,407)           -         (9,407)
Net loss                                         (1,897,604)    (1,897,604)
                                 --------------  -----------   ------------

Balance - September 30, 2002    $      (71,094 )$(50,400,997)    4,546,261
                                 --------------  -----------   ------------



          See accompanying notes to consolidated financial statements.


                                       F-6

<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)

                                                 Nine Months Ended September 30,
                                                     --------------------------
                                                         2002           2001
Cash flows from operating activities:                -----------    -----------
   Net loss                                          $(1,897,604)    (2,421,090)
   Adjustments to reconcile net loss to net cash
     used in operating activities:
     Loss on abandonment of property and equipment       164,973           --
     Depreciation and amortization                     1,999,593        995,973
     Gain on debt extinguishment                            --          419,131
     Gain on sale of affiliate                          (659,653)    (1,113,160)
     Minority interest in loss of subsidiaries        (1,009,961)      (653,764)
     Equity in (income) loss of affiliate                 (7,554)       183,536
     Stock return on lawsuit settlement                     --          152,173
     Shares issued in lieu of compensation and
        services                                         622,420        297,440
     Changes in operating assets and liabilities:
       (Increase) decrease in:
       Accounts receivable                              (415,430)      (547,741)
       Inventory                                         (89,089)        34,564
       Prepaid expenses and other                         63,738        605,915
       Cash overdraft                                    341,071        336,286
       Accounts payable                                 (688,253)    (1,013,494)
       Accrued expenses and other current
          liabilities                                    573,052      2,654,558
       Deferred revenue                                 (402,635)      (146,495)
                                                     -----------    -----------
Net cash used in operating activities                 (1,405,332)      (216,168)
                                                     -----------    -----------
Cash flows from investing activities:
   Proceeds on notes receivable                          324,678        (32,549)
   Advance towards investments                           (10,835)      (500,000)
   Cash acquired in acquisitions                            --          690,202
   Purchase of property and equipment                    (97,877)        (3,465)
                                                     -----------    -----------
Net cash provided by investing activities                215,966        154,188
                                                     -----------    -----------
Cash flows from financing activities:
   Proceeds on sale of common stock                         --          308,897
   Proceeds on stock subscriptions                       349,909        584,916
   Proceeds on loans and lines of credit                    --          (25,409)
   Payments to related parties                           866,870       (560,111)
   Payments on notes payable                            (208,040)      (216,881)
   Payments on capital leases                            (50,856)          --
                                                     -----------    -----------
Net cash provided by financing activities                957,883         91,412
                                                     -----------    -----------
Foreign currency translation                              (9,407)          --

Net increase (decrease) in cash                         (240,890)        29,432

Cash and cash equivalents, beginning of period           281,563        402,993
                                                     -----------    -----------
Cash and cash equivalents, end of period             $    40,673    $   432,425
                                                     -----------    -----------
          See accompanying notes to consolidated financial statements.
                                       F-7

<PAGE>



                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2002 (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 five main business divisions to fully realize the value
of these assets for its  investors.  The five  business  divisions  are Sinobull
Financial  Group,  Media  Services  Group,  Broadband/Telecommunications  Group,
E-learning Group and Hartcourt Capital 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


                                       F-8

<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2002 (UNAUDITED)


Beijing Net  Technologies  Center  Company,  Ltd.) and Tongbo  Software Ltd. 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  financial  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  Communications,  Inc. of Hong Kong.  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  LogicSpace  Asia
Limited.  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 Media  Services  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
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.

                                       F-9
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2002 (UNAUDITED)


Hartcourt  Capital  Group:  Hartcourt  recently  formed  under  this group a new
company  Hartcourt  Capital Inc., an  investment-banking  arm to act as a bridge
between high-growth Chinese companies and the U.S. capital markets.  The company
will provide a wide range of strategic and financial  advisory services covering
mergers and acquisitions,  fund raising, private placement,  restructuring,  and
public market listings.

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"),  the holding company of
the Group incorporated in British Virgin Islands. On May 16, 2002,  Sinobull.com
Inc.  changed its name to Hartcourt  Companies  Limited.  In the test hereafter,
Hartcourt  Capital  Limited  is  referred  to as  "Sinobull".  On April 2, 2001,
Sinobull's  one share  issued  and  outstanding  held by Mr.  Tang Wing On,  was
formally transferred to Hartcourt, and Sinobull became a wholly owned subsidiary
of  Hartcourt.  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.  GTCI
shareholders have approved the merger. Hartcourt is ready to complete its merger
as soon as GTCI resolves certain disputes with its creditors.

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
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.

                                       F-10

<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2002 (UNAUDITED)


On August 17, 1999,  Hartcourt entered into a stock purchase agreement with 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, 2002, FTL sold  remaining  344,031
shares of Hartcourt  common stock for  approximately  $22,215 to satisfy certain
obligations.

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,  and Nice Voice agreed to  contribute
certain assets in FWL. 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, 2002 reflect
FTL's  investment  of 51%  ownership  interest in FWL. FWL ceased  operations on
March  1,  2002  after  all its  customers  were  sold to a third  party.  As of
September 30, 2002,  FTL had advanced  approximately  HK$4,216,162  (US$540,534)
towards its investment in FWL.  During the quarter ended 30 September  2002, FTL
disposed  off its  wholly  owned  subsidiary  Topomedia  to  Bowland,  the other
shareholder of FTL.

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
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.

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  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,  acquired  through its  wholly-owned  subsidiary


                                       F-11

<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2002 (UNAUDITED)


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 issued 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  as the  consideration  for 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  transferred without any pledge
and debt,  all tangible and  intangible  assets in relation to computer  network
information  services to Sinobull  Network,  and transferred to Hartcourt 40% of
the ownership interest in Tiandi. On December 28, 2000, Sinobull, Tiandi, and Li
Chun Ying  (representative of the owners of Shangdi) signed a Share Subscription
and Sale and Purchase  Agreement  whereby,  Sinobull  owned 51% of Tiandi and Li
Chun Ying owned 49% of Tiandi  after  payment of  consideration  to Shangdi  for
purchase of all tangible and intangible assets. Sinobull through an advance from
Hartcourt, had paid $1,000,000 in cash towards the purchase of its 51% ownership
interest  of which  $670,000  was  distributed  to the owners of Shangdi and the
remaining  $330,000  was deemed as capital  contribution  in  Sinobull  Network.
Sinobull Network ceased its operations as of May 16, 2001.

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. 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


                                       F-12

<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2002 (UNAUDITED)


Hartcourt  towards  the  purchase  of new shares of Hopeful  and issued  805,802
shares of Hartcourt's 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.

Tongbo  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.  During  2001,  Ningbo Shiji  TongBao  Software  Limited  moved its
operations  to  Shanghai  and merged  all its  assets,  liabilities  and all its
operations in a newly formed  company named  Shanghai  Yuanhe  Computer  Limited
(Tongbo).

On  October 1,  2001,  Tongbo  signed a Letter of  Understanding  with  Sinobull
Information whereby Tongbo assigned to Sinobull  Information all of its revenues
and revenue sources  including past due,  accrued and to be earned in the future
in exchange for  Sinobull  Information  assuming  all  ordinary  and  reasonable
operational  expenses of Tongbo  commencing  October 1, 2001.  The  accompanying
financial  statements  of Sinobull  Information  at  September  30, 2002 reflect
combined revenues and expenses of Tongbo.

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
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 was named "Haike  Caijin TV"
means  Hartcourt  Financial  Television  (HCTV)  in  English.  HCTV  was  to  be
registered in Shanghai with a funding of $1.0 million. The agreement defined 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


                                       F-13

<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2002 (UNAUDITED)


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  and
contribution  of $200,000 as the  subscribed  capital of the HCTV Joint  Venture
Company.  As of June 30,  2002,  Hopeman  has  invested  $50,000  for its  33.3%
investment  and  Hartcourt  has  invested  $100,000  towards  its  66.7%  equity
ownership in the HCTV joint venture. The temporary license issued by the Chinese
authorities  expired on February  14, 2002 pending  injection  of an  additional
$50,000  towards  the  capital  subscription.  Due  to  the  complex  regulation
regarding foreign  investment in the TV industry sector and due to the fact that
Hartcourt  will  not  have  the  financial  resources  to  support  the  initial
investment  capital required,  on August 28, 2002,  Hartcourt has agreed to sell
its entire  interest  in this joint  venture  back to  Hopeman.  Hartcourt  will
receive back all of its investment from Hopeman.

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 invested 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
$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,  purchased all
existing  tangible  and  intangible  assets of UAC  Exchange  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 September  30,  2002,  Edda paid three  quarterly  note
payments of $50,000 each, and paid an additional  $139,579  towards interest due
on the promissory note due to Hartcourt.

Shanghai Wind Information Company, Limited ("WindInfo"):  WindInfo is China's #1
financial  research content  provider,  developing  original content through its


                                       F-14

<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2002 (UNAUDITED)


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. On September  18,  2000,  Hartcourt  through its

subsidiary Sinobull loaned $500,000 to WindInfo. 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 of
$500,000  to a 5%  equity  ownership  in the  JVC  to be  formed.  Upon  further
negotiations between the two parties,  Hartcourt and WindInfo mutually agreed to
terminate  the Term Sheet  Agreement of formation of JVC and WindInfo  agreed to
return  Hartcourt's  contribution of $500,000 towards its investment in the JVC.
As of September 30, 2002,  WindInfo  returned  RMB630,000  ($76,829) to Sinobull
Information on behalf of Hartcourt.  The accompanying financial statements as of
September  30, 2002  reflect  Hartcourt's  loan of $423,171  to  WindInfo.  Both
parties are  negotiating to an acceptable  payment plan for Hartcourt to receive
the remainder of its loan during the year 2002 and 2003.

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. As of September 30, 2002,  Hartcourt and its
affiliates sold 22 copies of the English Equis's licensed products for HK$95,000
(US$12,179) and recorded data feed income of HK$45,600  (US$5,846) for MetaStock
products,  since the  inception  of this  agreement.  The beta  testing  for the
Chinese  language  program  has been  completed  and  Hartcourt  will  start its
marketing and sales in December 2002.




                                       F-15

<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2002 (UNAUDITED)


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. As of November 10, 2002, Sinobull has
not received any revenues under the revenue sharing agreement.

BROADBAND/TELECOM GROUP:

The   Broadband/Telecom   Group   currently   consists  of  only  Elephant  Talk
Communications,  Inc.  The group is  focused  on  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. On
September 25, 2001 Hartcourt announced its intent to merge Elephant Talk Limited
subsidiary with Staruni  Corporation (OTC Bulletin Board: SRUN), in an effort to
take  Broadband/Telecom  Group public.  On January 4, 2002 Elephant Talk Limited
completed its merger with Staruni Corporation and commenced trading on OTC:BB on
January 22, 2002 under the ticker symbol ETLK.

Elephant  Talk  Communications  Inc.  (formerly  known as Elephant  Talk Limited
"ElephantTalk   or   ET"):    ElephantTalk   (OTC:BB   ETLK),   is   a   leading
telecommunications  company  located and  operated in Hong Kong with  offices in
Cerritos,  California and switching facilities in China, Hong Kong, U.S., Taiwan
and Singapore. ElephantTalk operates international long distance service on both
sides of the Pacific to over 220 foreign cities. They enable  telecommunications
carriers and other service providers the ability to offer long distance,  voice,
data/fax,  calling card, and  voice-over-internet-phone  (VOIP) services through
advanced,  scaleable  networks.  ElephantTalk  is expanding its networks and has
international operating agreements with telecommunications  carriers,  including
AT&T Corp.,  Cignal Global Ltd., Frontier Telecom Ltd. and MCI Worldcom Inc. Its
customers include the largest first and second tier telecommunications  carriers
in the U.S. and Asia,  including two of the four fixed network operators in Hong
Kong; New T&T and New World Telephone.

On May 16,  2001,  Hartcourt  and  ElephantTalk  executed  a Sale  and  Purchase
Agreement  whereby  Hartcourt   acquired  51%  of  the  ownership   interest  in
ElephantTalk for a total consideration of $4,194,000.



                                       F-16

<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2002 (UNAUDITED)


Pursuant to an Agreement of Merger and Plan of Reorganization,  effective August
27, 2001, and through the subsequent transaction that closed on January 4, 2002,
Staruni Corporation, a California corporation merged with Elephant Talk Limited.
Staruni was the surviving  corporation  and  continued  its corporate  existence
under the laws of California. On January 9, 2002, Staruni filed a Certificate of
Amendment of Articles of  Incorporation  to amend its corporate name to Elephant
Talk Communications,  Inc. (ETCI). This name change was done in conjunction with
the merger, and to emphasize that the new focus of the ETCI will be the business
of Elephant  Talk Limited.  Pursuant to the terms of the merger,  each holder of
ordinary shares of ElephantTalk  common stock,  par value of HK$1 (One Hong Kong
Dollar) immediately prior to the effective time of the merger date, by virtue of
the merger and without any action on the part of such holder, received as of the
merger date, such number of shares of common stock of ETCI, no par value, as the
number of shares of  ElephantTalk  common  stock  owned by such holder as of the
merger  date.  Collectively,   following  the  merger,  the  former  holders  of
ElephantTalk common stock held an aggregate of 90% of the issued and outstanding
shares of ETCI's common stock.  The merger caused no change in any of the shares
of the  ETCI's  common  stock  outstanding  on the  merger  date,  and no  other
securities were converted as a result of the merger.  Prior to the completion of
the merger  with  Staruni,  on January 2, 2002,  Hartcourt  purchased  7,500,000
shares of  Elephant  Talk  Limited  from a  shareholder  for a note  payable  of
$140,595  bearing an annual interest rate of 8%. At the conclusion of the merger
on  January  4,  2002,  Hartcourt  retained  a 51.7%  ownership  in ETCI.  As of
September 30, 2002, ETCI has issued new shares and the  outstanding  shares were
36,438,310.  However,  Hartcourt has received the proxy of 1,500,000 shares from
Enova  Holdings  Inc.,  therefore,  Hartcourt  still  retained  the  controlling
interest of ETCI as of September 30, 2002.  Accompanying  consolidated financial
statements include the operating results of ETCI for the presented.

However,  on October 21,  2002,  Hartcourt  has decided to  distribute 5 million
shares of ETCI that it still  retained as dividends to all of its  shareholders.
Furthermore,  on October 23, 2002, Hartcourt and ETCI has completed an agreement
in which  Hartcourt  agreed  to  return  to ETCI  12,895,579  shares  of ETCI in
exchange for 2 promissory notes of $1,250,000 and $140,595 plus 4,756,000 shares
of HRCT held by ETCI and its shareholders.  As a result, as of October 23, 2002,
Hartcourt no longer has any interest in ETCI.


MEDIA SERVICES GROUP:

The Media Services Group  consisted of  StreamingAsia  Holdings  Limited,  which
consisted of the operations of  StreamingAsia  Limited,  LogicSpace  Limited and
SyndicateAsia  Limited.  The  Media  Services  Group  provides  a  comprehensive
real-time  audio  and video  delivery  (Streaming  Media)  solution  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


                                       F-17

<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2002 (UNAUDITED)


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  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 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.  Hartcourt
advanced  such funds 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 remaining 50% ownership
interest 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, 2002

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


                                       F-18

<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2002 (UNAUDITED)


issued 50% of the enlarged  share  capital of  SyndicateAsia  to  Hartcourt.  On
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  interest in Asia Top and China Top. On August 9, 2001,
Hartcourt  closed the escrow and completed the  acquisition of an additional 35%
ownership interest in Asia Top and China Top for a total purchase  consideration
of  HK$800,000  (US$102,564).  On April 1,  2002,  Asia Top and China Top ceased
operations  and  transferred  its 85%  ownership  in  StreamingAsia  Limited and
Syndicated  Asia  Limited  to  Hartcourt  Companies  Limited.  The  accompanying
financial statements at September 30, 2002 reflect Hartcourt's  ownership of 85%
of the  StreamingAsia  Limited  and  Syndicate  Asia  Limited and its results of
operations  from  the  date of  acquisition  are  consolidated  with  Hartcourt.
StreamingAsia  Limited and  SyndicateAsia  Limited ceased their  operation as of
September 2002.

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 not  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 loan of $70,000 to TSS as
of  September  30,  2002.  Hartcourt  does not intend to acquire  any  ownership
interest in TSS at this time.

Beijing Kangrunjiayuan Technology Co., Limited ("Kangrun"): On March 22, 2002,
AI-Asia entered into an agreement with Kangrun Technology Co., Limited (BVI) and
Control Techniques, Limited (BVI), herein collectively referred to as the
"subscribers". The subscribers agreed to subscribe for certain shares in AI-Asia
and AI-Asia has agreed to transfer to the subscribers the said shares in
consideration for the subscribers procuring Beijing Kangrunjiayuan Technology
Co., Limited ("Kangrun") (www.kangrun.com) and Kangtai Shitong Technology
Development Company Limited ("CTC") entering into a Revenue Sharing Agreement
between them and a wholly owned subsidiary of AI-Asia. Kangrun provides system
integration, networking solutions, modular networking products, computer systems
and storage devices to corporate enterprises in China. Two major strategic
partnerships of Kangrun are IBM-China (www.ibm.com) and Ortronics


                                       F-19

<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2002 (UNAUDITED)


(www.ortronics.com). The company is also a distributor for Hewlett Packard and
Cisco Systems products. The agreement is subject to certain conditions to be
fulfilled by the relevant parties. The parties have completed their due
diligence and are negotiating the final terms of the agreement. The transaction
is expected to be completed by March 30, 2003.

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  offers
prestigious  American  education  programs in China,  utilizing one of the first
online education licenses awarded by China's Ministry of Education.  The project
offers both  certificate and degree programs with courses designed for relevance
in today's business world. Coursework will be offered initially 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, 2002. The  accompanying  financial  statements as of September 30,
2002 reflect  Hartcourt's  investment of $100,000 in the education project.  The
total  financial  commitments  of Hartcourt and terms of payment on this project
are currently being negotiated between the parties and expect to be finalized by
March 30, 2003.

OTHER VENTURES:

eMPACT Solutions,  Inc.  ("eMPACT") - eMPACT,  development stage enterprise,  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 has determined  that at this time to increase its investment in eMPACT
would not be  advantageous  to the  company or its  shareholders.  On January 7,
2002, eMPACT received $7,500,000 as the second round of funding from the venture
capital  partners  for  further  expansion  of the  company's  Internet  related
business.  The accompanying  financial  statements at September 30, 2002 reflect
Hartcourt's investment in eMPACT of $300,000.

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


                                       F-20

<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2002 (UNAUDITED)


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.

Funding:

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 warrants. As a result of reset
calculations, Hartcourt issued on March 6, 2001 an additional 930,784 shares and
on May 18, 2001 an  additional  1,035,308  shares of common stock for a total of
4,000,000  shares as December 31, 2001 and  4,000,000  warrants  exercisable  at
$0.69375 per share of common stock.  No warrants have been  exercised to convert
into common shares as of November 10, 2002.

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.  On October 31, 2001,  Hartcourt  issued an additional
1,363,636 common shares valued at $0.22 per share for a subscription  receivable
of  $300,000.  On March 4,  2002,  Hartcourt  and Edda  signed a new Stock  Sale
Agreement  whereby  Hartcourt agreed to sell 5,000,000  restricted shares of its
common stock as a block to Edda at the agreed price of twelve cents  ($0.12) per
share or $600,000.  The accompanying financial statements reflect that Hartcourt
received  $2,426,819 from Edda as of September 30, 2002. The balance of $473,181
has been  recorded as  subscriptions  receivable in the  accompanying  financial
statements as of September 30, 2002.

Enlight Corporation ("Enlight"):  On May 9, 2002, Hartcourt and Enlight signed a
Stock Sale  Agreement  whereby  Hartcourt  agreed to sell  5,000,000  restricted


                                       F-21

<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2002 (UNAUDITED)


shares of its common stock as a block to Edda at the agreed price of eight cents
($0.08)  per share.  On 10 October  2002,  Hartcourt  and  Enlight  revised  the
agreement.  Pursuant  to the  terms of the  revised  Agreement,  Hartcourt  will
deliver to Enlight US$1,000,000 worth of common shares of Hartcourt,  restricted
under Rule 144 and/or Reg S regulation at a specified price. As of September 30,
2002,  Hartcourt  received  advance  payment from  Enlight  amounted to $700,000
towards  purchase of common shares and no shares have been issued yet to Enlight
as of November 10, 2002.

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 2001 Form 10-KSB.

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, 2002 and December 31,
2001,  and the results of their  operations for the three months and nine months
and their cash flows for the nine  months  ended  September  30,  2002 and 2001,
respectively.  The financial statements for the three months ended September 30,
2002 are  consolidated to include the accounts of The Hartcourt  Companies Inc.,
its  58.53%  owned  subsidiary  Financial  Telecom  Limited,  its  wholly  owned
subsidiary  Hartcourt Companies Ltd. (formerly known as Sinobull.com Inc.) which
owns 85% of StreamingAsia  Limited Group,  its 51.7% owned  subsidiary  Elephant
Talk  Communications,  Inc., and its wholly owned subsidiary  Hartcourt  Capital
Inc. The operations of HCTV and Topomedia  were disposed off and therefore,  are
shown separately  under  discontinued  operations in the accompanying  financial
statements.

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 50% owned subsidiary
StreamingAsia Limited Group, its 51% owned subsidiary Elephant Talk Limited, and
its  wholly  owned  subsidiary  Hartcourt  Capital  Limited  (formerly  known as
Sinobull.com  Inc.).  The  operations  of UAC  Exchange  were  discontinued  and
disposed off and therefore,  are shown separately under discontinued  operations
in the accompanying financial statements.

The results of operations for the three months ended  September 30, 2002 are not
necessarily indicative of the results to be expected for the entire year.

                                       F-22

<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2002 (UNAUDITED)



Certain  2001  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, 2001.

Note 3.  Supplemental Disclosure of Non-Cash Financing Activities

<TABLE>
<CAPTION>
                                                                      Nine Months Ended          Nine Months Ended
                                                                      September 30, 2002         September 30, 2001
                                                                     ---------------------      ---------------------
Cash paid for:
<S>                                                               <C>                        <C>
  Interest                                                        $               55,980     $              122,750
  Taxes                                                                             -                          -

                                                                     =====================      =====================

Non-cash operating and financing activities:
  Shares issued to directors for compensation and services        $              439,601     $              265,440
  Shares issued for consulting services                                          182,820                    184,173
  Shares issued in connection with acquisitions                                     -                     3,438,438
</TABLE>


Note 4.  Loss per Share

<TABLE>
<CAPTION>
                                                  Three Months         Three Months         Nine Months         Nine Months
                                                      Ended               Ended                Ended               Ended
                                                  September 30,       September 30,        September 30,       September 30,
                                                      2002                 2001                2002                2001
                                                 ----------------    -----------------    ----------------    ----------------

<S>                                           <C>                 <C>                  <C>                 <C>
Net loss                                      $           77,301  $          216,024   $        1,897,604  $        2,421,090
Effects of dilutive securities                             -                    -
                                                                                          ----------------    ----------------
                                                 ----------------    -----------------

Weighted average shares outstanding                  82,148,360            70,014,935          78,806,648          66,818,048
                                                 ================    =================    ================    ================

Basic and dilutive earnings per share         $           (0.00)  $            (0.00)  $           (0.02)  $           (0.04)
                                                 ================    =================    ================    ================
</TABLE>

At September 30, 2002 and 2001, the Company had 4,733,530 and 4,528,640 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.

Note 5.  Accounting change - Goodwill amortization

Effective January 1, 2002,  Hartcourt adopted SFAS No. 142,  "Goodwill and Other
Intangible Assets", under which goodwill is no longer amortized.  Following is a


                                       F-23

<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2002 (UNAUDITED)


reconciliation  of previously  reported net loss to pro forma net loss excluding
goodwill amortization for the nine months ended September 30, 2001:

                                           2002           2001
                                    -----------    -----------

Net loss as reported                $(1,897,604)   $(2,421,090)
Goodwill amortization, net of tax          --          140,646

                                    -----------    -----------

Pro forma net loss                  $(1,897,604)   $(2,280,444)
                                    ===========    ===========

Note 6.  Segment and related information:

The Company has four reportable segments. Each segment is a strategic business
that the Company manages separately because each business develops and sells
products to a specific market. The reportable segments are as follows:
Telecommunications, provides comprehensive telecommunications services;
Financial Services, provides financial content through various sources including
television, internet and wireless access systems; Streaming Media, provides
internet related software development services with an expertise in audio and
video streaming to businesses. The Consulting, E-learning Group and Capital
Groups operating segments do not meet the quantitative threshold for a
reportable segment and are therefore included in the "Other" category. The
principal market for the Company's products is China. Foreign sales, primarily
in China amounted to $6,387,016 during the nine months ended September 30, 2002.
The Chinese operations account for $10,356,150 of consolidated total assets as
of September 30, 2002. The accounting policies of the segments are the same as
described in the summary of significant accounting policies. The Company
evaluates segment performance based on income from prospective operations. All
inter company transactions between segments have been eliminated. As a result,
the components of operating loss for one segment may not be comparable to
another segment.

Segment results for the nine months ended September 30, 2002 and 2001 are as
follows:













                                       F-24

<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2002 (UNAUDITED)
<TABLE>
<CAPTION>
                                   Tele-Communications   Financial        Streaming         Other            Total
                                     Services Media
                                   -----------------    ------------     ------------    ------------     -------------
2002

<S>                             <C>                  <C>              <C>             <C>              <C>
Net sales                       $        5,041,793   $     917,983    $      97,301   $     330,739    $     6,387,816

Loss from operations                      (927,639)          85,819        (405,786)       (649,998)       (1,897,604)

Depreciation and amortization               544,795       1,191,876          251,463          11,459         1,999,593

Assets                                    5,299,145       4,807,844          142,649       3,241,360        13,490,998

Capital expenditures                       (72,576)        (25,301)            -               -              (97,877)
                                   ----------------- -- ------------ --- ------------ -- ------------ --- -------------

2001

Net sales                       $         3,969,893  $    1,279,200   $      408,069  $      283,590   $     5,940,752

Loss from operations                      (219,302)     (1,079,078)        (786,217)       (336,493)       (2,421,090)

Depreciation and amortization               228,437         416,975          209,901         140,660           995,973

Assets                                    7,394,589       6,000,295          500,238       4,785,951        18,681,073

Capital expenditures                          -             (3,465)            -              -                (3,465)
                                   ----------------- -- ------------ --- ------------ -- ------------ --- -------------
</TABLE>

Note 7.  Litigations

Comerica Bank of California ("Comerica") v. 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 Pego's  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 a 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.  The case is ongoing  and the  Company has not
accrued  any of  the  guaranteed  payments  in its  financial  statements  as of
September 30, 2002.

Charles  Hogue v. The Hartcourt  Companies,  Inc.  Orange Court  Circuit  Court,
Florida Case No. CIO 00-2190, filed on or about March 22, 2000:

Charles  Hogue  filed a  complaint  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 default  judgment in the amount of $2,901,752 was entered in the
trial court on January 31, 2001  without a trial and despite  serious  questions
raised by Hartcourt as to the propriety of the exercise of jurisdiction  over it
by a Florida court.  Hartcourt brought a motion to set aside the default,  which
was  denied.  Hartcourt  appealed  the  judgment  entered by the trial  court on

                                       F-25

<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2002 (UNAUDITED)


multiple grounds. On June 7, 2002, the Florida Appellate Court ruled in favor of
Hartcourt and reversed the judgment in its  entirety,  finding that Florida does
not have jurisdiction over Hartcourt. The case is no longer active.

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.

Note 8.  Subsequent events

ETCI: On October 21, 2002,  Hartcourt has decided to distribute 5 million shares
of  ETCI  that  it  still  retained  as  dividends  to all of its  shareholders.
Furthermore,  on October 23, 2002, Hartcourt and ETCI has completed an agreement
in which  Hartcourt  agreed  to  return  to ETCI  12,895,579  shares  of ETCI in
exchange for 2 promissory notes of $1,250,000 and $140,595 plus 4,756,000 shares
of HRCT held by ETCI and its shareholders.  As a result, as of October 23, 2002,
Hartcourt no longer has any interest in ETCI.

Enlight Corporation ("Enlight"):  On May 9, 2002, Hartcourt and Enlight signed a
Stock Sale  Agreement  whereby  Hartcourt  agreed to sell  5,000,000  restricted
shares of its common stock as a block to Edda at the agreed price of eight cents
($0.08)  per share.  On 10 October  2002,  Hartcourt  and  Enlight  revised  the

agreement.  Pursuant  to the  terms of the  revised  Agreement,  Hartcourt  will
deliver to Enlight US$1,000,000 worth of common shares of Hartcourt,  restricted
under Rule 144 and/or Reg S regulation at a specified price. As of September 30,
2002,  Hartcourt  received  advance  payment from  Enlight  amounted to $700,000
towards  purchase of common shares and no shares have been issued yet to Enlight
as of November 10, 2002.



















                                      F-26
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                         SEPTEMBER 30, 2002 (UNAUDITED)




Part I

Item 2  Management's Discussion and Analysis or Plan of Operation

General

The following is a summary of certain  information  contained in this report and
is  qualified  in  its  entirety  by  the  detailed  information  and  financial
statements that appear elsewhere herein.  Except for the historical  information
contained herein,  the matters set forth in this report include  forward-looking
statements  within the meaning of the "safe  harbor"  provisions  of the Private
Securities Litigation Reform Act of 1995. These  forward-looking  statements are

subject  to risks and  uncertainties  that may cause  actual  results  to differ
materially. These risks and uncertainties are detailed throughout the report and
will be further  discussed  from time to time in  Hartcourt's  periodic  reports
filed with the commission. The forward-looking statements included in the report
speak only as of the date hereof.

Plan of Operation

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 IPO or public  mergers in its five main business  divisions to
fully  realize the value of these assets for its  investors.  The five  business
divisions   are   Sinobull    Financial    Group,    Media    Services    Group,
Broadband/Telecommunications Group, E-learning Group and Hartcourt Capital.

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."

Results of Operations

During 2002,  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,  including China-focused Internet access and


                                      F-27
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                         SEPTEMBER 30, 2002 (UNAUDITED)


financial  portals,  online  share  trading  services,  data  broadcasting,  and
financial services.  The Company signed underwriting  agreements for the initial
public offerings of shares of its two most developed investments,  both of which
were planned in the year 2001.  On January 4, 2002,  pursuant to an Agreement of
Merger and Plan of Reorganization,  Hartcourt's subsidiary Elephant Talk Limited
merged with Staruni Corporation,  a California corporation,  organized under the
laws of  California  and  listed on the over the  counter on  bulletin  board of
NASDAQ  exchange.  Prior to the  conclusion  of the merger,  Hartcourt  acquired
additional  equity in Elephant  Talk Limited and  retained a 51.7%  ownership in
ETCI  upon  conclusion  of  the  merger.  Hartcourt's  division  Sinobull  Group
anticipates completion of its merger with Global Telephone Communications,  Inc.
("GTCI") by September 2002 pending  resolution of disputes  between GTCI and its
creditors.  Hartcourt  plans to eventually  build all of its current  operations
into  stand-alone  entities  that will also be taken  public on US and/or  Asian
Financial markets.

The operations of Hartcourt for the three months and nine months ended September
30,  2002  consisted  of the  operations  of FTL  (58.53%  ownership  interest),
Hartcourt Capital Limited (formerly known as Sinobull.com  Inc.) (100% ownership
interest)  which  holds 85%  ownership  interest  in  StreamingAsia  Limited and
Syndicate Asia Limited, Ai-Asia Limited (100% ownership interest), Elephant Talk
Communications,  Inc. (51.7% ownership  interest),  Hartcourt Capital Inc. (100%
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, 2001  consisted  of  operations  of FTL (58.53%  ownership
interest),   StreamingAsia  Limited  and  Syndicate  Asia  Limited  (50%  equity
investment interest), Elephant Talk Limited (51% ownership interest),  Hartcourt
Capital Limited (100% ownership interest),  HCTV (66.7% ownership interest), and
Hartcourt's   investment   and  advances  to  Hartcourt   Capital   Limited  for
acquisitions  in China  and Hong  Kong.  The  operations  of UAC  Exchange  were
discontinued  and  disposed  off  and  therefore,  are  shown  separately  under
discontinued operations in the accompanying financial statements.

Net sales and cost of sales:  The Company  recorded net sales of $1,044,252  and
$6,387,816  for the three  months and nine  months  ended  September  30,  2002,
compared to $3,809,526  and  $5,940,752  for the same periods in 2001. Net sales
during the three months ended September 30, 2002 primarily consisted of revenues
derived  from  providing  telecommunication  services  relating  to 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.  Net sales for the three months ended September 30, 2001 consisted of
the revenues  derived from Elephant Talk  providing  voice,  data  transmission,
pre-paid calling cards and ISP services to customers in Hong Kong and China, FTL
providing sale of wireless pagers,  rental of equipment and related Internet and


                                      F-28
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                         SEPTEMBER 30, 2002 (UNAUDITED)


telephone  services.  The significant drop in sales during the three months when
compared  to the  same  period  of 2001  is  mainly  due to the  fact  that  the
telecommunication  sector has  undergone  into  severe  deflation  from its over
capacity.  Prices have been fallen steadily even if the volume of calls is still
the same.  Meanwhile,  the financial sector has been affected badly by the stock
market downturn. As a result, most banks and brokerage houses have reduced their
spending on data services, causing additional price-cutting among competitors.

Cost of sales for the three  months and nine  months  ended  September  30, 2002
amounted to $954,311 and  $5,410,967  compared to $3,200,375  and $4,499,619 for
the same periods in 2001. Cost of sales for the three months ended September 30,
2002 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 Hartcourt Capital Limited;
and costs incurred in providing audio and video delivery and streaming solutions
by  StreamingAsia.  Cost of sales for the three months ended  September 30, 2001
consisted of cost of sales in providing resale  arrangements  with long distance
carriers of Elephant  Talk  Limited,  cost of leasing  transmission  facilities,
international gateway switches voice, data transmission and ISP services offered
by Elephant Talk, cost of a very small number of wireless pagers in circulation,

cost of transmission  and Internet  services  provided to FTL and FWL customers.
The  drop  in   operating   margin  is  mainly  due  to  the  lower   margin  in
tele-communication  services  rendered by Elephant Talk, which was suffered from
intense price-cutting by competitors in Hongkong.

Selling,  general and  administrative  expenses  (SG&A):  SG&A were $622,333 and
$2,509,261  for the three  months  and nine  months  ended  September  30,  2002
compared to $1,654,047 and  $4,389,752 for the same periods in 2001.  Apart from
dispose off  subsidiaries  during the three months ended 30 September  2002, the
decrease in SG&A is primarily  attributed to reduction in consulting,  legal and
administrative  costs incurred  during the three and nine months ended September
30,  2002 as  compared  to the same  periods in 2001.  Hartcourt  completed  the
acquisition  of Elephant Talk Limited in May 2001,  which  required  significant
legal and  administrative  expense to complete the  acquisition.  Hartcourt  has
taken drastic cost cutting measures and deliberately slowed down the development
process of all projects on hand. The Company  recorded an impairment of $256,691
during three months ended  September 30, 2002 to write down its  investments  in
Sinobull  Group.  Such  expense  was not  included  in the SG&A during the three
months  ended  September  30,  2002.   Hartcourt  continued  to  eliminate  less
productive  units,   reduced  consulting  and  legal  costs  associated  due  to
restructuring of the Company's business in Hong Kong and China.

Other income and expenses:  Total other  expenses net of other income was $8,567
during the three months  ended  September  30, 2002  compared to $12,858 for the
same period in 2001.  Total other  expenses net of income was $35,213 during the
nine months ended  September  30, 2002  compared to total other  expenses net of


                                      F-29
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                         SEPTEMBER 30, 2002 (UNAUDITED)


other  income of $221,247  for the same  period in 2001.  During the nine months
ended  September  30,  2002,  Hartcourt  recorded  a  loss  of  $164,973  due to
abandonment  of property and equipment due to relocation of  ElephantTalk's  and
StreamingAsia  Group's  office  facilities  and gain of $7,554  due to equity in
earnings of its ETNS  Singapore,  Pte.,  Ltd  affiliate.  During the nine months
ended September 30, 2001,  Hartcourt recorded an equity loss of $183,536 in loss
of its  affiliates.  Interest income  increased  during the nine months ended 30
September 2002 due to Hartcourt receiving interest payments from Edda Limited on
a promissory note of $2,856,286 for acquiring UAC Exchange on August 9, 2001.

Discontinued  operations:  Hartcourt  rescinded its joint venture agreement with
Beijing  UAC  Trading  during  July 2001.  Loss from the  discontinuance  of UAC
Exchange  joint venture  operations  during the nine months ended  September 30,
2001 were $377,952. The Company did not have any discontinued  operations during
the three and nine months ended September 30, 2002. The gain in 2002 is the gain
on the disposal of subsidiaries.

Liquidity and Capital Resources:

Hartcourt's  principal capital requirements during the year 2002 are to fund the
acquisitions of growth oriented  Internet related  operating  companies in China
and Asia.  During the nine months ended  September  30, 2002,  Hartcourt  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 $1,897,604 for the nine months ended  September 30, 2002 as compared to a net
loss of  $2,421,090  for the  same  period  in 2001.  Additionally,  Hartcourt's
current  liabilities  exceeded its current assets by $2,209,331 at September 30,
2002. 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.

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;
and 2) signed stock sale agreements with accredited investors to raise in excess
of  $1,000,000  over the next six  months.  The Company  plans to actively  seek
funding  sources  once  Hartcourt is able to  discontinue  and  dispose-off  all
non-profitable  assets by selling or spinning-off or  restructuring  to minimize
loss or liability.

Operating activities.  During the nine months ended September 30, 2002, net cash
used by operating  activities amounted to $1,405,332 compared to $216,168 during
the same period in 2001.  The net  increase  in  operating  activities  resulted
primarily due to more payments on settle of  liabilities  during the nine months
ended 30 September  2002  compared to the same period of 2001.  It resulted also
due to the increase of minority  interest offset by increase in depreciation and
amortization, increase in shares issued in lieu of compensation and services and
other changes in operating activities.

                                      F-30
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                         SEPTEMBER 30, 2002 (UNAUDITED)



Investing activities.  Net cash provided by investing activities during the nine
months ended September 30, 2002, was $215,966  compared to $154,188 for the same
period in 2001.  Cash provided  during the nine months ended September 30, 2002,
was primarily due to payments received on note receivables amounting to $324,678
from third parties on sales of Hartcourt's ownership interest in UAC Exchange as
compared to cash acquired in acquisition of 690,202 in the corresponding  period
of last year.  Cash used in purchase of property and equipment  and  investments
amounted to $97,877 and $10,835, respectively.

Financing activities.  Net cash provided by financing activities during the nine
months ended September 30, 2002 was $957,883 compared to $91,412 during the same
period in 2001. The increase resulted primary from proceeds from related parties
and  shareholders  loan of $866,870 as compare to payments to related parties of
$560,111 during the same period of 2001.  Besides,  net cash was provided due to
proceeds  from sale of common  stock and treasury  stock  amounting to $349,909,
payments  on  notes  payable  and  capital   leases  of  $208,040  and  $50,856,
respectively.

As a result of the above activities,  the company  experienced a net decrease in
cash of $240,890 for the nine months ended  September  30, 2002.  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.




























                                      F-31
<PAGE>



                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                                OTHER INFORMATION
                         SEPTEMBER 30, 2002 (UNAUDITED)





Part II

Item 1.  LEGAL PROCEEDINGS

Comerica Bank of California ("Comerica")v.  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 Pego's  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 a 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. The case is ongoing.

Charles  Hogue v. The Hartcourt  Companies,  Inc.  Orange Court  Circuit  Court,
Florida Case No. CIO 00-2190, filed on or about March 22, 2000:

Charles  Hogue  filed a  complaint  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 default  judgment in the amount of $2,901,752 was entered in the
trial court on January 31, 2001  without a trial and despite  serious  questions
raised by Hartcourt as to the propriety of the exercise of jurisdiction  over it
by a Florida court.  Hartcourt brought a motion to set aside the default,  which
was  denied.  Hartcourt  appealed  the  judgment  entered by the trial  court on
multiple grounds. On June 7, 2002, the Florida Appellate Court ruled in favor of
Hartcourt and reversed the judgment in its  entirety,  finding that Florida does
not have jurisdiction over Hartcourt. The case is no longer active.

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-32
<PAGE>


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

Changes in CEO



On August 21, 2002, Hartcourt announced that its Board of Directors has accepted
the  resignation  of Dr.  Wallace  Ching as its CEO, and has appointed Mr. David
Chen, its President, to be Acting CEO, while searching for the right candidate.

Previously,  Mr. Chen served as President of Sinobull Media,  and Executive Vice
President  of  Hartcourt  Capital.   His  past  experiences   included  Regional
Advertising  Director for Turner  Broadcasting  TBS  International  and Regional
Marketing Director for CNN International,  both AOL Time Warner companies. Other
experiences  included  Managing  Director  of  HelloAsia  (recently  acquired by
Brience  Inc.),  CEO  of V2  Technology  and  Business  Development  Manager  of
Management Publishing Group.

Item 6.  EXHIBITS AND REPORTS ON FORM 8-K


    a) Exhibits
        None.

    b) Reports on Form 8-K
        None

















                                      F-33
<PAGE>



                                   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 14, 2002                    By: /s/ Alan V. Phan
                                            --------------------------------
                                            Dr. Alan V. Phan
                                            Chairman


Date:  November 14, 2002                    By: /s/ David Chen
                                            --------------------------------
                                            David Chen
                                            Acting Chief Executive Officer and
                                            Principal Accounting Officer


































                                      F-34