SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB
(Mark One)

[X]      ANNUAL  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
         EXCHANGE ACT OF 1934 [Fee Required]

[        ]  TRANSITION  REPORT  UNDER  SECTION  13 OR  15(d)  OF THE  SECURITIES
         EXCHANGE ACT OF 1934 [No Fee Required]  For fiscal year ended  December
         31, 1999

                        Commission file number 001-12671

                          THE HARTCOURT COMPANIES, INC.
             (Exact name of registrant as specified in its charter)

                                      UTAH
                            (State of incorporation)

                                   87-0400541
                      (I.R.S. Employer Identification No.)

                9800  Sepulveda  Blvd.,  Suite # 818,  Los  Angeles,  California
       90045, (310) 410-7290 (Address, including zip code, and
        telephone number, including area code, of registrant's executive
                                    offices)

                   Securities registered pursuant to Section 12(b) of the Act:

                              Title of each class
                                      None

                   Name of each exchange on which registered
                                      None

                   Securities  registered pursuant to Section 12(g) of the Act:
                          Common Stock $.001 par value
                                (Title of class)

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

         Check if  disclosure  of  delinquent  filers in response to item 405 of
Regulation  S-B is not  contained  in  this  form,  and no  disclosure  will  be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]

         Issuer's revenues for most recent fiscal year: $ 379,000

         State the aggregate market value of voting stock held by non-affiliates
computed by reference  to the price at which the stock was sold,  or the average
bid and asked  prices of such stock,  as of a specified  date within the past 60
days: As of April 13, 2000, $163,987,000.

         State the number of shares  outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: As of April 13, 2000, there
were 30,060,100 shares of common stock outstanding.

<PAGE>

                          THE HARTCOURT COMPANIES, INC.

                         1999 Form 10-KSB Annual Report
                                Table of Contents

                                     PART I                                Page

  Item 1.        Description of Business...................................

  Item 2.        Description of Property...................................

  Item 3.        Legal Proceedings.........................................

  Item 4.        Submission of Matters to a Vote of Security Holders.......

                                     PART II

  Item 5.        Market for Common Equity and Related Stockholder Matters..

  Item 6.        Management's Discussion and Analysis or Plan of Operation.

  Item 7.        Consolidated Financial Statements.........................

  Item 8.        Changes in and Disagreements with Accountants on Accounting and
                 Financial Disclosure .....................................

                                    PART III

  Item 9.        Directors, Executive Officers, Promoters and Control Persons;
                 Compliance with Section 16(a) of the Exchange Act.........

  Item 10.       Executive Compensation....................................

  Item 11.       Security Ownership of Certain Beneficial Owners
                 and Management ...........................................

  Item 12.       Certain Relationships and Related Transactions............

                                     PART IV

  Item 13.       Exhibits and Reports on Form 8-K..........................

                 Signatures................................................

<PAGE>

Explanatory Note:

         Unless  otherwise  indicated  or the context  otherwise  requires,  all
references herein to the "Company" are to The Hartcourt Companies,  Inc., a Utah
corporation, and its wholly owned subsidiaries, Hartcourt Investments (USA) Inc.
("Hartcourt  Investments"),  the Hartcourt Pen Factory, Inc,. ("Hartcourt Pen"),
Pego Systems, Inc. ("Pego") and Electronic Components and Systems, Inc. ("ECS"),
which were spun-off on March 1, 1999, and its 58.53% owned subsidiary, Financial
Telecom Limited ("FTL") and its 35% owned equity  investment,  Beijing UAC Stock
Exchange Online Co., Ltd. ("UAC"). All share and per share information contained
herein  has  been  adjusted  to  reflect  a  five-for-seven   reverse  split  of
Hartcourt's common stock effected on October 6, 1995, and a one-for five reverse
split of Hartcourt's common stock effected on August 1, 1996.

                                     PART I

Item 1:  Description of Business.

General


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" corporation with no assets, business or operations.  Subsequent to
the  acquisition  of Hartcourt  Investments,  Stardust  changed its name to "The
Hartcourt Companies, Inc."

Hartcourt  Investments  was  organized  under the laws of the State of Nevada in
April  1993,  to  engage  in  the  design,   manufacture  and  sale  of  writing
instruments. Hartcourt Investments entered into a Stock Exchange Agreement dated
August 8, 1994 with Eastern  Rochester  Limited's  60% interest in Xinhui Harchy
Modern Pens,  Ltd. (The "Xinhui  JV"), a joint venture  located in the Guangdong
province of the People's  Republic of China  ("China"),  in exchange for 250,000
shares of Hartcourt  Investments  common stock,  representing  80% of the common
stock of Hartcourt Investments  outstanding  immediately subsequent to the joint
venture  agreement  governing  the  Xinhui  JV  entered  into in  October  1995,
Hartcourt's  interest  was reduced to a 52%  interest in the Xinhui JV, with the
remaining 48% held by the Xinhui Orient Light Industrial Corp.

Hartcourt  Pen was  organized  under the laws of the State of Nevada in  October
1993 to engage in the sale of writing instruments. Hartcourt Pen entered into an
Agreement  and Plan of  Reorganization  dated  December  1, 1994 with  Hartcourt
Investments,  pursuant  to  which  Hartcourt  Investments  acquired  all  of the
outstanding  shares of Hartcourt  Pen in exchange for 38,625 shares of Hartcourt
Investments  common  stock.  1,000  shares  of  Hartcourt  Investments  Original
Preferred  Stock  were  issued to Dr.  Alan  Phan in  consideration  of  certain
intangible  assets and  services  rendered  by Dr. Phan in  connection  with the
establishment  of Hartcourt  Pen.  Through  1995,  Hartcourt  conducted  certain
limited  research and development  activities in the United States,  but has not
engaged in any domestic manufacturing activities.

Hartcourt   commenced   limited  business   activities   involving  the  design,
manufacture  and sale of writing  instruments in December 1994.  Through January
1999,  Hartcourt's  operations  relating  to writing  instruments  involved  the
assembly and  distribution of writing  instruments.  In January,  1999 Hartcourt
discontinued  the  operations of Hartcourt  Investments  and Hartcourt  Pen, and
disposed of all its pen related assets in the United States.

<PAGE>

In April 1993,  the Xinhui JV commenced  construction  of a 170,000  square foot
manufacturing  plant  approximately ten miles north of Xinhui City in China. The
plant commenced limited operations in December 1994 and was fully operational by
July 1995.  By July 1996,  the plant was operating at  approximately  20% of its
capacity and employed  approximately  80 people.  It was estimated by management
that additional working capital in the amount of approximately  $3,000,000 would
be required to permit the plant to operate at full  capacity  (300,000,000  pens
annually).  There was no contractual obligation on the part of the joint venture
partners to provide this additional financing.

In April 1994,  Hartcourt  entered  into a Lease  Agreement  with  Scripto-Toaki
Corporation ("Anja"),  for the use of five special ball pen assembly machines by
the Xinhui JV. The lease  provided  for  semi-annual  payments of $25,000 over a
ten-year term, subject to adjustment based on future purchases of merchandise by
Hartcourt  from the lessor.  The  machinery  that was delivered did not function
properly and  Hartcourt  and Anja agreed to terminate  the lease upon  Hartcourt
agreeing to pay Anja a termination fee of $200,000.  During 1998, Hartcourt paid
$100,000 on the note.  During 1999, the remaining balance was reduced to $10,000
which was paid.

In September 1996, CKES  Acquisitions,  Inc. ("CKES"),  a corporation  organized
under  the laws of the  State of  Nevada in  September  1996,  a  non-affiliate,
acquired  the  Xinhui  JV  of  Hartcourt's   wholly-owned  subsidiary  Hartcourt
Investments, pursuant to a Purchase and Sale Agreement dated September 27, 1996,
thus replacing  Hartcourt as a joint venture partner in the Xinhui JV. Ownership
in the joint venture was transferred to CKES in return for a Secured  Promissory
Note in the principal sum of  $3,000,000,  payable  monthly,  beginning  October
1998,  with  accrued  compound  interest  at six  percent  (6%) per  annum.  The
promissory note is secured by a security  agreement and allows Hartcourt to have
a security  interest in  substantially  all of the assets of CKES, Inc. The note
was determined by management to be unrecoverable  and was written off in full on
December  31,  1998.  To date,  no  payments  have  been  received  on the note.
Hartcourt has no present contractual obligation to the Xinhui JV.

In January 1996, Hartcourt entered into a Memorandum of Understanding to acquire
Yafa Pen  Company  ("Yafa"),  a  California  corporation,  with  offices  in Los
Angeles,  California. The purchase price consisted of an initial cash payment of
$285,000 and 80,000 shares (valued at $1.00 per share) of Hartcourt's  preferred
stock. Pursuant to the Memorandum of Understanding, Hartcourt advanced to Yafa a
total of $200,000,  secured by two promissory notes ($100,000 on January 3, 1996
at 1% over prime due July 3, 1996 and  $100,000  on  February 9, 1996 at 1% over
prime due August 9, 1996),  the amount of this advance to be offset  against the
purchase price for Yafa.  Various disputes arose between Hartcourt and Yafa, and
in September 1996 the parties entered into a confidential  settlement  agreement
and agreed to terminate the Memorandum of Understanding.  Yafa made all required
payments  according to the  settlement  agreement with the final payment made in
July 1998.

In August  1996,  Hartcourt  entered  into a Purchase  and Sale  Agreement  with
NuOasis International,  Inc. ("NuOasis"),  a corporation  incorporated under the
laws of the  Commonwealth  of Bahamas,  for the  purchase of a  commercial  real
estate  project,  consisting of three 5-7 story  apartment  buildings,  commonly
known as the Peony Gardens  Property,  ("Peony  Gardens") located in the eastern
part of Tongxian in Beijing, China. The purchase price consists of a Convertible
Secured  Promissory  Note  granted  to  NuOasis,  in  the  principal  amount  of
$12,000,000,  a security  interest in the property and the greater of 10,000,000
shares of  Hartcourt's  common  stock,  or that number of shares of  Hartcourt's
common stock having a market value equal to  $10,000,000  immediately  preceding
the  closing  date.  On August 8, 1996,  an Addendum  to the  Purchase  and Sale
Agreement  was  agreed  to  by  Hartcourt  and  NuOasis,  by  which  Hartcourt's
obligation to issue stock to NuOasis was reduced to 4,000,000  shares (valued at
$10,000,000)  of its common  stock.  As of  December  31,  1996,  the  apartment
buildings were  approximately 35% complete,  and it was anticipated by Hartcourt
that the project would be completed by August 1997.  Hartcourt has no obligation
for construction  costs or any other costs relating to the project's  completion
and may at its option rescind the Purchase and Sale Agreement if construction is
not completed by August 1997. As of December 31, 1998, the project was still

<PAGE>

incomplete  because the  developer  has elected to wait a period of time for the
Beijing real estate  market to return to  conditions  which existed prior to the
recent Asian  financial  crisis.  On March 15, 1999,  Hartcourt  entered into an
Exchange  Agreement with Dragon King  Investment  Services Inc.  ("Dragon King")
pursuant to which  Hartcourt  agreed to assign its rights under the Purchase and
Sale  Agreement  dated  August 8,  1996 of its  interest  in the  Peony  Gardens
development for investment securities valued at $10 million. Due to restrictions
on the ability to trade the investment  securities received,  Hartcourt recorded
an impairment of $5,000,000 as of December 31, 1998.

In September  1996,  Hartcourt  entered  into a Sales  Agreement  with  Mandarin
Overseas  Investment Co., Ltd.  ("Mandarin"),  an unaffiliated  Turks and Caicos
chartered  company  located in Hong Kong,  for its  undivided  50%  interest  in
thirty-four  State of Alaska  mineral lease gold lode claims,  known as Lodestar
claims  numbered  35-68,  consisting  of 160  acres  each,  all  located  in the
Melozitna mining district near Tanana, Alaska,  approximately 300 air-kilometers
west of the City of Fairbanks,  Alaska.  Hartcourt paid  $3,000,000 in shares of
its common stock to Mandarin for its undivided 50% interest in the mineral lease
gold lode claims,  The number of shares were determined by the average price per
share  over a 10 day  period  for the 10 days  prior  to the  execution  of this
agreement.

In  September  1996,  Hartcourt  entered  into a  Sales  Agreement  with  Promed
International  Ltd.  ("Promed"),  an  unaffiliated  Turks and  Caicos  chartered
company with offices in the British crown colony of Gibraltar,  for the purchase
of their  undivided 50% interest in  thirty-four  State of Alaska  mineral lease
gold lode claims,  known as Lodestar  claims  numbered  1-34,  consisting of 160
acres each, all located in the Melozitna  mining  district near Tanana,  Alaska,
approximately  300  air-kilometers  west  of  the  City  of  Fairbanks,  Alaska.
Hartcourt  paid  $3,000,000  in shares  of its  common  stock to Promed  for its
undivided  50% interest in the mineral  lease gold lode claims,  all shares were
issued  pursuant to Regulation  "S." The number of shares were determined by the
average  price  per  share  over a 10 day  period  for the 10 days  prior to the
execution of this agreement.

In July 1998,  Hartcourt  filed  notice  upon  Mandarin  and  Promed  requesting
rescission of the purchase of the Alaska gold mine mineral leases as the sellers
failed to provide Hartcourt with the required geological  evaluations.  On March
8,  1999  Hartcourt  entered  into a  rescission  agreement  with  the  sellers,
returning the claims and receiving  back  1,298,700  shares of Hartcourt  common
stock.

In December 1996,  Hartcourt  entered into a Consulting  Agreement with American
Equities,  LLC, ("American  Equities"),  a California Limited Liability Company.
Hartcourt  intended  to  acquire,  manage and  develop a real  estate  portfolio
through  the year 2001.  On  September  3, 1998,  American  Equities  filed suit
against Hartcourt for breach of contract.  Hartcourt denied that it had breached
any contract with American  Equities and filed a  cross-complaint  for fraud and
non-performance  against American Equities and additional  cross-defendants.  As
settlement of these matters on March 8, 1999,  the parties  agreed that all fees
paid to American  Equities were earned and to provide  American  Equities with a
27.65%  interest in ECS. Also,  American  Equities  agreed to pay back 1,075 the
Series AB preferred  stock  dividend  issued by Hartcourt in 1998 and  1,000,000
shares  of  Hartcourt  common  stock.  Accordingly,  all  expenses  relating  to
settlement  were  recorded in the year ended  December 31,  1998.  Additionally,
American Equities agreed to provide working capital for ECS.

In July 1997,  Hartcourt entered into an agreement with Capital  Commerce,  Ltd.
("Capital")  (an Isle of Man  corporation)  whereby  Capital  agreed to  provide
Hartcourt  $6,000,000  in free  trading  securities  for the purchase of Pego, a
California  corporation,  and the  formation  of ECS, a Nevada  corporation.  In
consideration  for the  $6,000,000 in  securities,  Hartcourt  issued to Capital
$4,000,000 in Series A and $2,000,000 in Series B, both 9% convertible preferred
stock. Due to Hartcourt's inability to sell the marketable securities,  in March
8, 1999,  Hartcourt and Capital reached an agreement  whereby,  Capital returned
all  $4,000,000 of  outstanding  Series A and $2,000,000 of Series B convertible
preferred stock, plus the Series AB preferred stock dividend issued by Hartcourt
in 1998.  Hartcourt returned to Capital all unsold marketable  securities with a
book value of $4,894,393, issued 1.9 million shares of Hartcourt's common stock

<PAGE>

plus a 7.35%  ownership  interest  in ECS to the  authorized  agent of  Capital.
Simultaneously,  Capital  then  assigned  its rights to the common  stock to its
authorized  agent, who then assigned 1.3 million shares of common stock received
to Mandarin and Promed and returned 600,000 shares to Hartcourt in settlement of
a subscription receivable balance.

In March 1997,  Hartcourt  entered into a  consulting  agreement  with  DanAllen
Investments,  Inc.  ("DanAllen")  to  provide  investment  banking  services  to
Hartcourt.   DanAllen  will  make  recommendations  on  Hartcourt's  merger  and
acquisition activities,  especially on financing structure and options. DanAllen
will also assist in the due diligence and negotiation process.  Hartcourt issued
to DanAllen 100,000 shares of common stock at $1.50 per share for these services
to be performed. The agreement expired in 1998 and no services were performed by
DanAllen.

In July 1997,  Hartcourt agreed to purchase a shopping center located in Perris,
California called Freeway Plaza for a total purchase price of $6.75 million. The
building  complex has 85,000  square feet with 82 percent  leased and an average
income of $620,000 per year.  Terms of the  transaction  included a $25,000 cash
down payment,  bank  financing of  $3,725,000,  and 34 of Hartcourt's 68 mineral
lease gold lode claims,  valued at $3,000,000.  The transaction was cancelled as
of December 31, 1998 and  Hartcourt  has been  receiving  periodic  payments for
return of the escrow  deposit.  The carrying  amount of this escrow  deposit was
converted into a note receivable of $3,800 as of December 31, 1999.

On October 3, 1997,  Hartcourt  purchased all of the outstanding  shares of Pego
and Pego became a wholly-owned  subsidiary of Hartcourt.  Pego, a manufacturer's
representative  organization for air and gas handling  equipment,  offers a full
line of value added services including  distribution,  service and manufacturing
of custom process  equipment  packages.  The acquisition was accounted for using
the purchase method of accounting.  In connection  with the purchase,  Hartcourt
paid $500,000 in cash, issued 450,000 shares of restricted  common stock,  1,500
shares of Series C redeemable  preferred  stock,  and entered into a non-compete
agreement with Pego's majority shareholder and director. The total value of this
transaction was approximately $2,300,000.

On August 6, 1998, Pego acquired 100% percent of the outstanding common stock of
Pacific Pneumatics,  Inc. ("PPI"), a California  corporation,  located in Chino,
California. The purchase price of $215,000 was paid $200,000 in cash and $15,000
in  value  through  issue of  9,796  shares  of  Hartcourt  common  shares . PPI
manufactures  pneumatic  conveying,  industrial  dust  collection and industrial
process  electrical  controls.  PPI  has  been  manufacturing  and  selling  its
components  under the trademark  names "Pore Poly",  "Posit Dust  Collectors and
Filters" and "Pow-Air" for over 20 years.

On October 28, 1997, Hartcourt through a wholly-owned  subsidiary,  acquired ECS
and Pruzin  Technologies,  Inc. ("Pruzin"),  an Arizona  corporation,  a related
entity of ECS. ECS specializes in high  technology  contract  manufacturing  and
assembly  of  printed  circuit  boards,  phone  and cable  wires.  ECS has three
manufacturing  facilities,  and contracts  with a maquiladora  in the free trade
zone  in  Sonora,   Mexico.   The  acquisition  was  structured  as  a  tax-free
reorganization and was accounted for using the purchase method of accounting. In
connection with the acquisition,  Hartcourt paid $250,000 in cash, issued a note
payable for  $250,000,  issued  3,400 shares of Series D  convertible  preferred
stock  and  2,500,000  shares  of its  common  stock.  The  total  value  of the
transaction was approximately $9,500,000.

On August 24, 1998,  Hartcourt  and ECS executed an agreement and plan of merger
with Elan Manufacturing,  Inc. ("Elan"),  a contract  manufacturer of electronic
components similar to ECS, located in the Silicon Valley, California.  Under the
terms of the  agreement,  Elan was  merged  into and with ECS,  thereby  ceasing
Elan's existence.  The merger was effective  September 1, 1998, and the purchase
price of $616,240 was paid by Hartcourt  issuing 724,990 of its common shares to
the three selling shareholders based on a value of $0.85 per share.

<PAGE>

On October 21, 1998, Mr. James Pruzin, the selling  shareholder and president of
ECS,  formally  requested a  rescission  of the  October  28,  1997  acquisition
whereby,  Hartcourt  through a wholly owned subsidiary  acquired ECS and Pruzin.
Mr. Pruzin alleged that he was authorized to request  rescission of the original
transaction based on an alleged breach of the acquisition agreement by Hartcourt
which Hartcourt denied.  On November  10,1998,  Hartcourt and Mr. Pruzin entered
into a memorandum of  understanding  whereby Mr. Pruzin could  reacquire ECS and
Pruzin from Hartcourt by returning all of the  Hartcourt's  common and preferred
shares  originally  issued  to  Mr.  Pruzin,  making  payment  to  Hartcourt  of
$1,850,000 during 1999, negotiating the return of Hartcourt common shares issued
in the Elan transaction,  and issued to Hartcourt a promissory note for $400,000
amortized over five years with monthly payments beginning in 2000.

Subsequently,  Mr.  Pruzin  was  unable to meet the terms of the  memorandum  of
understanding and entered into new negotiations  with Hartcourt.  Mr. Pruzin and
Hartcourt  reached an agreement whereby Mr. Pruzin agreed to return to Hartcourt
2,000,000 common shares of Hartcourt  representing 80% of the amount  originally
issued, and 3,400 shares of Series D preferred stock. Hartcourt agreed to assign
to Mr.  Pruzin a 30%  ownership  interest  in ECS,  and has a right to  purchase
500,000  shares of Hartcourt  common  stock held by Mr.  Pruzin at $1 per share.
Additionally,  as part of the  agreement,  the payment terms for the  promissory
note and advances were changed to thirty-six  monthly payments of $7,083 with no
interest until paid in full.

Effective February 1, 1999,  pursuant to a Share Purchase  Agreement,  Hartcourt
acquired  one (1) share of common  stock of Enova  Holdings  Inc.  ("Enova"),  a
Nevada corporation representing 100% of the total issued and outstanding capital
stock of Enova, making Enova a wholly-owned subsidiary. Effective March 1, 1999,
Hartcourt  and Enova  executed an  Exchange  Agreement  (the "Enova  Agreement")
whereby   Hartcourt   exchanged  all  of  its  ownership  in  two   wholly-owned
subsidiaries,  Pego and ECS , for 5,213,594 additional shares of common stock of
Enova.  On March 24,  1999,  Hartcourt  entered  into a  Distribution  Agreement
pursuant to which Hartcourt  agreed to distribute to all  shareholders of record
on March 31, 1999,  the  5,213,595  shares of common stock of Enova and to file,
within a reasonable period of time following such  distribution,  a Registration
Statement  on Form  10-SB  to  cause  the  distributed  shares  of  Enova  to be
registered  under the  Securities  Exchange  Act of 1934.  Enova's  Registration
Statement on Form 10-SB was filed under the  Securities  Exchange Act of 1934 on
January 24, 2000.

As a result  of the  Share  Purchase  Agreement,  the  Enova  Agreement  and the
Distribution  Agreement,  each  shareholder  of record of Hartcourt on March 31,
1999  received  one (1)  share of Enova  for  every  four  (4)  shares  owned of
Hartcourt.  Following the  distribution of the Enova shares,  both Hartcourt and
Enova continue to operate as separate companies.

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$23.4  million
or US$3.0  million,  payable 50% in cash and the remaining  balance in Hartcourt
common shares.  The  acquisition was completed on October 4, 1999 with Hartcourt
making  total cash  payments of  $801,860,  recorded a payable for  $797,140 and
issued  1,500,000  shares of its  common  stock.  The stock  purchase  agreement
required a post closing  adjustment  for any deficiency to be paid to FTL in the
event the final  closing  net worth as of the  closing  date  shall be more than
$5,000 over and above the net worth reported in calculating  the purchase price.
As a result of the post closing  adjustment,  the purchase  price was revised to
HK$25,563,842  or  US$3,277,412.  At December 31, 1999,  Hartcourt  recorded the
increase in purchase  price as a result of the post  closing  adjustment,  as an
note payable to FTL of $138,706 and a payable for the issue of 148,512 shares of
common  stock of  Hartcourt.  On January  18,  2000,  Hartcourt  issued  254,552
additional  shares  of common  stock to FTL in  settlement  of the post  closing
adjustment.

<PAGE>

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.

On June 20, 1999,  Hartcourt  entered  into an agreement  with Beijing UAC Stock
Trading Online Co., Ltd. ("UAC  Trading") to form a joint venture  company under
the laws of China.  The name of the joint  venture  company is Beijing UAC Stock
Exchange Online Co. Ltd.  ("UAC").  Under the terms of the agreement,  for a 35%
interest in UAC, Hartcourt agreed to invest $1,000,000 in UAC, pay $1,700,000 to
the owners of UAC Trading and transfer  1,000,000  common shares of Hartcourt to
UAC.  200,000 of these common shares will be  transferred  to UAC Trading for an
existing  loan of $200,000  and 800,000  common  shares have not been issued and
will be recorded as a loan from  Hartcourt  to UAC upon  issuance.  On August 9,
1999, Hartcourt and UAC Trading agreed to convert the Hartcourt loan of $200,000
into an option to purchase an  additional  15% interest in UAC from UAC Trading.
As of December 31, 1999,  Hartcourt  has not exercised its option to convert the
loan into an additional 15% interest in UAC.

UAC operates the first and only nationwide  online  securities  trading network,
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.  UAC 162  Network  consists  of  proprietary  server
software and user interface, servers, gateways and other communication hardware.
Through a PC,  investors  can dial a local number 162 from  anywhere in China to
trade stocks online.  Once  connected to the network,  users can check real time
stock quotes, trade stocks and other securities,  access news bulletin and other
related  information.  UAC intends to use the cash  received  from  Hartcourt to
complete the testing and  installation of its systems into all 98 offices of Hua
Xia Securities, the second largest brokerage firm in China. In May 1999, UAC was
granted a license by the  Chinese  government  and signed a contract  with China
Telecom to start building the network. As the first and only China Pac operating
agent  designated by China  Telecom,  UAC is in a unique  position to market the
services of China Pac and UAC 162 Network to all brokerage firms in China.

On December 30, 1996,  Hartcourt  and American  Equities  entered into a Warrant
Agreement,  whereby Hartcourt agreed to issue and sell to American Equities, for
the price of $100,  a warrant to purchase up to  2,000,000  shares of its common
stock,  $.01 par value, in connection with the consulting  services  provided to
Hartcourt.  American  Equities  shall have the right to purchase at any time and
from time to time prior to December 30, 2002, up to the number of fully paid and
nonassessable  shares of warrants stock, upon payment of specific exercise price
or apply the cashless  exercise clause specified in the Agreement.  On September
9, 1999, pursuant to Cashless Exercise clause in the Warrant Agreement, American
Equity exercised its cashless exercise right and converted 800,000 warrants into
621,674  Hartcourt's  common shares  without  payment of any  consideration.  On
December  14,  1999,  American  Equities  files a  complaint  against  Hartcourt
allegeing breach of Warrant Agreement, claiming damages of $30,000,000. The case
concerned  dispute over whether shares issued under the Warrant  Agreement would
be issued as  restricted  shares or free trading  shares.  An agreement has been
reached and the litigation was settled on March 20, 2000.  American Equities was
allowed to further  exercise  its  cashless  exercise  right and  converted  the
remaining  1,200,000  warrants  into  1,070,075  free trading  common  shares of
Hartcourt without any payment of consideration.

In addition,  pursuant to a Purchase  Agreement  with  American  Equities  dated
September 9, 1999, (a) Hartcourt agreed to sell 500,000 shares of restricted

<PAGE>

common  stock  valued at $0.60 per share.  The terms of the  Purchase  Agreement
required  American Equities to issue a promissory note in the amount of $225,000
to Hartcourt,  payable at the rate of $75,000 per month,  commencing on the 30th
day following the closing date,  and shall pay the balance of the purchase price
to  Hartcourt on the closing  date.  Hartcourt  received  $75,000 in cash on the
closing date and American  Equities  issued a promissory note for $225,000 dated
October 27, 1999,  bearing no interest,  payable in full on or before six months
from the execution date; (b) American  Equities caused ECS to issue to Hartcourt
157,000  shares  of ECS  in  full  satisfaction  of all  outstanding  claims  of
Hartcourt  against ECS; (c) Hartcourt  permitted  immediate  transfer of 724,990
common shares of Hartcourt into freely tradable unrestricted shares, pursuant to
Rule 144. Such shares were previously  issued to Elan shareholders in connection
with the purchase of Elan on August 24, 1998. Hartcourt shall no liability under
the Elan  Indemnity.  The terms of the agreement were complied by both Hartcourt
and American Equities.

On December 23,  1999,  Hartcourt  entered  into an  agreement  with GoCall Inc.
("GoCall"), a Delaware corporation,  to form a strategic alliance for the common
interest  of the  respective  corporations,  including  but not  limited  to the
development  of  GoCall's  Internet  related  development-stage  businesses  and
software.  GoCall agreed to give Hartcourt  1,000,000  shares of its convertible
preferred stock (par value $5.00). Each share of convertible  preferred stock is
convertible  into 10 shares of common  stock  (restricted  under Rule 144 for 12
months).  In  return,  Hartcourt  agreed to give  GoCall  all of the  marketable
securities  received  from Dragon King which are  carried at $5.0  million  plus
192,000  shares of common stock of ECS.  Hartcourt  withheld  192,000  shares of
common  stock of ECS,  valued at $196,358 at the date of closing on December 29,
1999,  and this was  recorded as payable to GoCall at  December  31,  1999.  The
GoCall  convertible  preferred stock has subsequently been valued at $2,500,000.
Accordingly,  Hartcourt has recorded an  impairment  of  $2,696,358  against the
marketable  securities for the year ended  December 31, 1999.  Hartcourt has the
option to appoint  three out of the five  directors  of GoCall.  As of March 30,
2000,  Hartcourt  has not appointed any director to the GoCall board and has not
exercised any control on GoCall's operations.

Currently,  Hartcourt  is  involved  in  Internet  joint  ventures  in  Asia  to
facilitate  the expansion of the People's  Republic of China's  ("China")  first
commercial e-trade financial network and Internet Service Provider.  Hartcourt's
goal is to  create  the  premiere  financial  portal  in the  Chinese  market by
building a network of  Internet  companies  in  partnership  with young  Chinese
enterprenuers as well as government owned entities. Its mission is to become one
of the leading  Internet  companies in Asia.  Through the  combined  services of
Beijing based UAC and Hong Kong based FTL,  Hartcourt intends to merge these two
service providers and create a premier financial portal of Chinese Internet with
a  comprehensive  Web site and  supporting  utilities  that will be  capable  of
executing securities transactions on-line in a timely and efficient manner while
providing real-time quotes,  research,  charts and other collateral  information
regarding stocks,  bonds,  currencies and other markets in China and other Asian
markets.

Hartcourt's  future  business,   including  expansion  of  its  current  limited
operations  and  acquisition  plans  requires   additional  equity  and/or  debt
financing,  which  may not be  available  in a  timely  manner  on  commercially
reasonable  terms, or at all.  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.

Risks Relating to the Greater China and Asian Internet Industry

Our industry is intensely competitive

The Greater China and Asian Internet  market is  characterized  by an increasing
number of entrants  because the  start-up  costs are fairly  low.  The  Internet
industry is relatively new and subject to continuing definition and as a result,
our competitors may better position themselves to compete in this market as it

<PAGE>

matures.  Many  of our  competitors,  as  well  as a  number  of  potential  new
competitors,  have longer operating  histories in the Internet  market,  greater
name recognition,  larger customer bases and databases and significantly greater
financial,  technical  and  marketing  resources  than us. Any of our present or
future  competitors may provide  products and services that provide  significant
performance,  price,  creative or other  advantages over those offered by us. We
can provide no assurance  that we will be able to compete  successfully  against
our current or future competitors.

Portal  competition - Our competition with respect to user traffic,  ease of use
and functionality include:

     o    Chinese  language  based Web search and  retrieval  companies  such as
          Yahoo!China,  Sina.com.  Netease, Sohu, Shanghai Online, ChinaByte and
          Netvigator;
     o    English  Language  based Web search and  retrieval  companies  such as
          Infoseek, Lycos, Yahoo! and Microsoft Network (MSN); and
     o    Retreival  services  and  products  offered  by  AltaVista,   HotWired
          Venture's and Open Text.

In the future,  we may encounter  competition  from ISPs, Web site operators and
providers of Web browser software that incorporate search and retrieval features
into their  offerings.  Our  competitors  may develop  Web search and  retrieval
services  that are equal or superior to those we offer our users and may achieve
greater market acceptance than our offerings in the area of performance, ease of
use and functionality.

Web Solutions Competition - Our competition with respect to strategic expertise,
technical knowledge and problem solving skills include:

     Computer hardware and service vendors such as IBM, DEC and Hewlett-Packard;
     Internet integrators and Web site design and development  companies such as
     iXL, Modern Media Poppe Tyson and Proxicom;
     Large information  technology consulting service providers such as Andersen
     Consulting, Cambridge Technology Partners and EDS; and
     Telecommunications  companies  such  as  AT&T,   Hutchison  and  Hong  Kong
     Telecom.

The Greater China and Asian Internet industry is a developing market and has not
been proven as an effective commercial medium

The market for  Internet  services in Greater  China and Asia has only  recently
begun to  develop.  Since the  Internet  is an  unproven  medium for  commercial
services, our future operating results from portal competition and web solutions
services  will depend  substantially  upon the increased use of the internet for
information,  publication,  distribution and commerce in Greater China and Asia.
Critical  issues  concerning the commercial use of the Internet in Greater China
and Asia such as security, reliability, cost, ease of deployment, administration
and quality of service may affect the adoption of the Internet to solve business
needs. For example,  the cost of access may prevent many potential users in Asia
from using the Internet. Moreover, the use of credit cards in sales and purchase
transactions is not a common practice in parts of Asia.  Until the use of credit
cards, or another  alternative  viable means of electronic  payment becomes more
prevalent,  the  development  of e-commerce  through our portal  network will be
seriously  impeded.  In  addition,  even when credit  cards or another  means of
electronics payment becomes prevalent throughout Asia, consumers will have to be
confident that adequate security  measures protect  electronic sale transactions
conducted over the Internet and prevent fraud.

Our entry into the Chinese  Internet market depends on the  establishment  of an
adequate telecommunications infrastructure in China by the Chinese government

Unlike  Taiwan and Hong Kong,  where the  telecommunications  infrastructure  is
comparable to U.S.  standards and where private  companies  compete as ISPs, the
telecommunications  infrastructure in China is not well developed.  In addition,

<PAGE>

access to the Internet is  accomplished  primarily by means of the  government's
backbone of separate  national  interconnecting  networks  that connect with the
international  gateway  to the  Internet,  which is owned  and  operated  by the
Chinese  government and is the only channel  through which the domestic  Chinese
Internet network can connect to the  international  Internet  network.  Although
private  sectors  ISPs exist in the China,  almost all access to the Internet is
accomplished through ChinaNet,  the Chinese primary commercial network, which is
owned and operated by the Chinese government. We rely on this backbone and China
Telecom  to  provide  data  communications   capacity  primarily  through  local
telecommunications lines. As a result, we will continue to depend on the Chinese
government to establish and maintain a reliable Internet infrastructure to reach
a broader  base of  Internet  users in China.  We will have no means of  getting
access to alternative networks and services, on a timely basis or at all, in the
event of any disruption or failure.  There can be no assurance that the Internet
infrastructure  in Greater  China  will  support  the  demands  associated  with
continued  growth.  If the  necessary  infrastructure  standards or protocols or
complementary products,  services or facilities are not developed by the Chinese
government, our business could be materially and adversely affected.

Our computer network is vulnerable to hacking, viruses and other disruptions

Inappropriate  use of our Internet  services  could  jeopardize  the security of
confidential  information stored in our computer system,  which may cause losses
to  us.   Inappropriate  use  of  the  Internet  includes   attempting  to  gain
unauthorized  access to information or systems - commonly known as "cracking" or
"hacking".  Although  we intend to  implement  security  measures to protect our
facilities, such measures could be circumvented.  Alleviating problems caused by
computer viruses or other  inappropriate  uses or security  breaches may require
interruptions, delays or cessation in our services.

There are  political,  economic  and  regulatory  risks  associated  with  doing
business in China and Asia

China's economy has experienced  significant growth in the past decade, but such
growth has been uneven across  geographic and economic  sectors and has recently
been  slowing.  There can be no assurance  that such growth will not continue to
decrease or that any slow down will not have a negative  effect on our business.
The Chinese  economy is also  experiencing  deflation  which may continue in the
future.  The current economic  situation may adversely affect our  profitability
over time as  expenditures  may decrease due to the results of slowing  domestic
demand and  deflation.  A significant  part of our facilities and operations are
currently  located in Hong Kong.  Hong Kong is a Special  Administrative  Region
("SAR") of China with its own  government  and  legislature.  Hong Kong enjoys a
high degree of autonomy  from China under the  principle  of "one  country,  two
systems".  We can give no  assurance  that  Hong  Kong  will  continue  to enjoy
autonomy from China. The Hong Kong dollar has remained  relatively  constant due
to the U.S. dollar peg and currency board system that has been in effect in Hong
Kong  since  1983.   Since  1998,   interest  rates  in  Hong  Kong  have  risen
significantly,  real  estate and retail  sales have  declined  and Hong Kong has
slipped into a recession. In recent months, Hong Kong has suffered deflation and
the currency has been subject to currency speculation and the SAR government has
substantially  supported the market for the Hong Kong dollar,  both directly and
indirectly  through the  large-scale  purchase of securities  listed on the Hong
Kong Stock  Exchange.  We can give no assurance  that the Hong Kong economy will
not worsen or that the  historical  currency  peg of the Hong Kong dollar to the
U.S. dollar will be maintained.  Continued recession in Hong Kong,  deflation or
the  discontinuation  of the historical  currency peg could adversely affect our
business.

Regulation  of the  information  industry  in China  may  adversely  affect  our
business

China has enacted regulations  governing Internet access and the distribution of
news and other information. We cannot predict the effect of further developments
in the Chinese legal system, particularly with regard to the Internet, including
promulgation of the new laws, changes to the existing laws or the interpretation
or enforcement thereof, or the preemption of local regulations by national laws.

<PAGE>

A change in currency  exchange  rates could  increase our costs  relative to our
revenues

In future, substantial amount of our revenues,  expenses and liabilities will be
denominated  in Hong Kong  dollars and  Chinese  Renminbi.  As a result,  we are
subject to the  effects of exchange  rate  fluctuations  with  respect to any of
these  currencies.  We have not entered into  agreements  or purchase  financial
instruments  to hedge  our  exchange  rate  risks  although  we may do so in the
future.

Restrictions  on currency  exchange may limit our ability to utilize our revenue
effectly

Although Chinese governmental  policies were introduced in 1996 to allow greater
convertibility  of the  Renminbi,  significant  restrictions  still  remain.  We
provide no assurance  that the Chinese  regulatory  authorities  will not impose
greater   restrictions  on  the  convertibility  of  the  Renminbi.   Because  a
significant  amount of our future  revenues may be in the form of Renminbi,  any
future  restrictions  on  currency  exchanges  may limit our  ability to utilize
revenue generated in Renminbi to fund our business activities outside China,

Doing business in China

Hartcourt's operations in China involve certain risks and special considerations
not  typically  associated  with  operations in the United  States.  These risks
generally  related to: (i) social,  economic  and  political  uncertainty;  (ii)
substantial  governmental  involvement in and control over the Chinese  economy;
(iii) the possibility that the Chinese government could elect to discontinue its
support of the  economic  reform  programs  implemented  in 1978 and return to a
completely  centrally  planned  economy;  and (iv) possible  nationalization  or
expropriation  of assets.  Accordingly,  government  actions in the future could
have a  significant  effect on economic  conditions  in China.  Such actions and
resulting changes in the Chinese economy could  significantly  adversely affect,
limit or  eliminate  opportunities  for foreign  investment,  the  prospects  of
private  sector  enterprises  operating  in China and the  value of  Hartcourt's
investments in China.

Environmental Regulation

Hartcourt's  United  States  and  Chinese  operations  are  subject  to  various
governmental  laws and  regulations.  The costs and effects of  compliance  with
environmental  laws and  regulations  in the United States  (federal,  state and
local) and China have not been material in the past and are not  anticipated  to
be material in the future.

Patents, Trademarks and Licenses

Hartcourt  does  not  have  any  patents,  trademarks,   licenses,   franchises,
concessions or royalty agreement.

Employees

Hartcourt  currently  employs in the United States seven full-time  employees at
its principal executive offices located in Los Angeles, California in the United
States.  The executive  offices provide  corporate  administrative  and advisory
services to other  Hartcourt  entities.  FTL employs at its two sites located in
Hong Kong  twenty-two (22) full-time  employees,  comprising of 10 engineers and
technicians and 12 office/administrative personnel.

Research and Development

Hartcourt  spent  approximately  18 months doing research and development of our
current business strategy, the cost of which has been borne through the issuance
of  securities  in the  acquisitions.  Because of the  continuing  technological
changes that characterize the Internet, Web design and telecommunications and

<PAGE>

computer industries,  Hartcourt's success will depend, to a considerable extent,
upon its  ability  to  continue  to  acquire  companies  that  are  ahead of the
competition  in our industry  and develop  competitive  technologies  internally
through research and development.  Management does not anticipate  incurring any
significant  costs for such research and development in the near term other than
through acquisitions.

Subsequent Events

No assurance can be given that Term Sheets will result in actual agreements.

Beijing Innostar Hi-Tech Enterprises,  Ltd.  ("Innostar") - On October 20, 1999,
Hartcourt signed a Joint Venture Agreement with Innostar to establish a wireless
nationwide  Internet service provider network and IP phone services in China via
a Chinese satellite. The total amount of investment in the joint venture company
will be $24.0 million of which $14.0 million will be contributed by Innostar for
65%  ownership  interest  and  $10.0  million  by  Hartcourt  for 35%  ownership
interest.  The  profits  and  losses  of  the  joint  venture  company  will  be
distributed in accordance with their ownership  interest ratios. The duration of
the  Joint  Venture  Agreement  is  fifteen  (15)  years.  The date of  official
establishment  of the  joint  venture  company  shall be the  date the  business
license is issued. The license is expected to be granted by June 2000.  Innostar
currently  provides  wireless  ISP  network  and IP phone  service in Beijing in
cooperation  with Chinese telecom  companies.  It provides  high-speed  internet
connections to hotels,  office buildings and apartment complexes using a Chinese
satellite with  bi-directional  data transmission to these commercial users. The
joint venture with Hartcourt and  Innostar's  license for nationwide ISP service
will allow  expansion  to many  other  cities and  individual  users  eventually
reaching users throughout  China. The national license will also allow the joint
venture to engage in e-commerce activities and other internet services.

eSAT, Inc.  ("eSAT") - On November 29, 1999,  Hartcourt signed a Term Sheet with
eSAT to create a strategic  alliance through the exchange of their common shares
to establish a wireless Internet service provider and IP phone network in China.
In a private  placement,  Hartcourt will purchase  2,000,000  restricted  common
shares of eSAT.  eSAT will  also  grant  Hartcourt  an  option  to  purchase  an
additional  2,000,000  restricted common shares of eSAT at the exercise price of
$4.00 per share subject to customary antidilution provisions and exercisable for
a three year period.  Fully exercised,  it will represent 20% ownership in eSAT.
In exchange,  Hartcourt will issue 1,000,000 of its restricted  common shares to
eSAT.  All the shares and  options  will be placed in an escrow  with a mutually
agreed agent. The operation is expected to start in late April 2000. If by April
30, 2000, eSAT does not obtain a satisfactory exclusive supply contract with the
Innostar  Joint  Venture,  either party may void the  agreement,  and the escrow
agent will be  instructed  to return the  shares and  options to the  respective
parties.

eSAT  specializes in providing  high-speed  Internet  connections via satellite,
through their proprietary satellite internet gateway products and services. eSAT
system is a user-friendly cost-effective,  solution, plug and play installation,
and easily interfaces with any existing computer local and network. eSAT systems
have been  serving  multi-national  corporations,  governments  and  educational
institutions.

Sinobull.  Com, Inc.  ("Sinobull") - On November 18, 1999,  Hartcourt  announced
that UAC and FTL  agreed to merge into a new  holding  entity  called  Sinobull.
Three major  American and Chinese  companies have agreed in principle to be part
of Sinobull.  Sinobull will have the most  comprehensive  and premier  financial
portal and service company in Chinese  Internet in operation by the end of April
2000.  Hartcourt is currently  discussing  the  structure and  incorporation  of
Sinobull  under the laws of China and Hong Kong and  proposes  to  finalize  the
structure by the end of April 2000. As part of the proposed structure,  Sinobull
will be a subsidiary of Hartcourt.

StreamingAsia.Com  Ltd.  ("StreamingAsia.com")  - On December 6, 1999, Hartcourt
announced  that  Sinobull  signed a Term  Sheet  Agreement  to  purchase  50% of
StreamingAsia.com, a leading Internet software company in Hong Kong for

<PAGE>

HK$5,000,000  (approximately  US$650,000).  StreamingAsia.com  agreed  to  issue
2,000,000 new shares to Hartcourt for a total consideration of HK$5,000,000. The
terms of payment included  HK$500,000  payable in cash upon signing of the Share
Purchase Agreement,  HK$500,000 payable in cash within 30 days after signing the
Share  Purchase  Agreement,  HK$1,000,000  payable in cash  within 60 days after
signing the Share  Purchase  Agreement,  HK$1,000,000  payable in cash within 90
days after signing of the Share Purchase  Agreement,  HK$500,000 payable in cash
within 120 days after signing of the Share Purchase Agreement,  and HK$1,500,000
within 14 days after signing of the Share Purchase  Agreement  payable in shares
of  Hartcourt  based on the  closing  price in the last 7  trading  days  before
payment.  Sinobull will be paid an  additional  amount in shares of Hartcourt if
StreamingAsia's sales amount reaches certain targets within the first six months
after  signing  of the Share  Purchase  Agreement.  Sinobull  will  appoint  two
directors  to the  board  of  StreamingAsia.  Together  with  the  existing  two
directors,  the new board shall consist of four  directors.  The  transaction is
expected to close in April 2000.

StreamingAsia.com  provides comprehensive  Internet-related software development
service with expertise in audio and video  delivery or streaming  solutions to a
variety of business and industry, especially major financial institutions.

Beijing Shangdi Net Technologies Center Co., Ltd.  ("Shangdi") - 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. The terms of agreement required Sinobull to
invest $2,670,000 in the new corporation payable as follows: $200,000 payable in
cash by UAC on behalf of Sinobull  within  three days from the date of execution
of this Term Sheet Agreement, $1,470,000 in cash payable within 15 days from the
closing of the transaction,  and $1,000,000 in cash payable, within 60 days from
the close of the  transaction.  The agreement  required the new  corporation  to
maintain  $2,000,000 as equity and the remaining  $670,000 could be withdrawn as
payment to Shangdi's  existing  shareholders.  Shangdi will invest the following
assets  to  the  new  corporation:   the  wed  site  and  trading  center  under
development, 33.84% shares of Hua Xia Info (a Chinese corporation specialized in
financial  information and data provider,  free and clear), 51% shares of Orient
Future Financial  Information  Corporation ( a Chinese  Corporation  going to be
registered in Shanghai), and all tangible and intangible assets except cash. The
transaction is expected to close in April 2000.

Shangdi is principally engaged in the business of data broadcasting in China and
its main activities include research,  development and sale of data broadcasting
hardware  and  software.  Shandgi 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.  Shangdi is
also a major shareholder of Orient Research, a well respected stock research and
analysis firm in Shanghai.

Shanghai  Guo Mao Science &  Technology  Co.  Ltd.  ("Guo Mao") - On December 1,
1999,  Sinobull  signed a Term Sheet  Agreement  with Guo Mao. Guo Mao agreed to
issue  new  shares  for a  total  proceeds  of  $1,000,000  that is  subject  to
negotiation,  will  represent  30% to 50% of the  expanded  capital  of Guo Mao.
Sinobull  agreed to subscribe for all the new shares issued by Guo Mao.  Subject
to approval of the Share Purchase  Agreement and the Joint Venture  Agreement by
the  relevant  government  authorities,  payment by Sinobull  for the new shares
shall be as  follows:  $100,000  in cash  upon  signing  of the  Share  Purchase
Agreement,  $100,000 in cash within 30 days after signing of the Share  Purchase
Agreement,  $100,000 in cash within 60 days after signing of the Share  Purchase
Agreement,  $100,000  in cash  within 90 days,  $100,000 in cash within 120 days
after signing of the Share Purchase Agreement, and $500,000 within 14 days after
the signing of the Share Purchase  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 on valuation  to be agreed by both  parties.  Sinobull.com  will
appoint not more than five directors to the board of Guo Mao.  Together with the
existing  five  directors,  the new  board  shall  consist  of not more than ten
directors. The transaction is expected to close in April 2000.

<PAGE>

Guo Mao, a major real-time  financial data provider in Shanghai,  China, using a
satellite  network  to  transmit  data  specializes  in  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 portal in China.

Swartz Private Equity,  LLC ("Swartz") - Swartz is an investment  entity focused
on equity  investments  in  Internet  and other high  technology  companies.  On
November 3, 1999,  Hartcourt signed an Investment Agreement with Swartz . Swartz
agreed to purchase  from  Hartcourt,  from time to time,  shares of  Hartcourt's
common stock, as part of an offering of common stock by Hartcourt to Swartz, for
a maximum aggregate offering amount of $25,000,000.  These fundings will be used
to  satisfy  Hartcourt's  working  capital  requirements  for the year  2000 and
complete  acquisitions  of  Internet  related  operations.  On  January 5, 2000,
Hartcourt and Swartz  agreed to increase the equity line funding to  $35,000,000
due to the planned  acquisition  of a Linux  Internet  operations  in China.  On
February 28, 2000 Hartcourt filed a form SB-2 Registration  document with SEC to
register  additional common shares for issuance to Swartz. Once approved by SEC,
Swartz has the  obligation to purchase  these shares at the market price less 10
percent  discount  during  the next 24  months.  The  Registration  document  is
currently under the review of SEC.

PYR Management LLC ("PYR") - On January 26, 2000,  Hartcourt completed a private
placement of 227,445 Units and a Class II Warrant to PYR for $3,000,000 pursuant
to a Regulation D  Subscription  Agreement.  Each Unit  consists of one share of
Hartcourt common stock and a Class I Warrant to purchase one additional share of
Hartcourt  common stock at the Unit Price,  subject to  adjustment  upon certain
events.  The Class II Warrant  entitles  PYR to  purchase  additional  shares of
Hartcourt  common  stock at par value  solely  upon the  occurrence  of  certain
events.  Hartcourt has also agreed under a Registration Rights Agreement to file
a  registration  statement  to register the shares of  Hartcourt  common  stock,
including the shares  issuable upon exercise of the Class I Warrant and Class II
Warrant,  under  the  Securities  Act of 1933  for  sale by PYR.  As part of the
Agreement,  Hartcourt  granted  PYR an option to purchase  up to  $5,000,000  of
additional  Units and a Class II Warrant  within five (5) trading days after the
effectiveness of the registration statement. On February 4, 2000 Hartcourt filed
a Form 8-K with the SEC. On January 27, 2000, Hartcourt received $2,743,000 from
PYR to be used for working capital requirements of Hartcourt.

eMPACT Solutions,  Inc. ("eMPACT") - On February 9, 2000, Hartcourt entered into
a Stock  Purchase  Agreement  Term Sheet to purchase 30% of the  authorized  and
outstanding  shares of eMPACT's new shares of common stock.  The purchase  price
was agreed to be $2,000,000,  payable $1,000,000 in cash at the date of closing,
and the remainder $1,000,000 in cash within ninety days of closing. In the event
that  eMPACT  shall fail to meet the  revenues  projections  for the fiscal year
2000,  Hartcourt shall receive an additional one percent of the shares of eMPACT
for every  percent that revenue does not meet the  projections  for revenue to a
maximum of an additional twenty percent. The closing is expected in April 2000.

eMPACT, an e-commerce systems management and consulting company,  specializes in
providing  back-office  infrastructure  for  Internet  companies.  The  services
include  technology  selection,   system  design  and  management,   transaction
performance  monitoring,  resource utilization tracking and security monitoring.
eMPACT will establish a centralized network of servers to facilitate business to
business services for emerging Chinese e-commerce  companies  including web site
construction and management services.

Shenzhen  China Cable  Integrated  Network Co. Ltd.  ("SCIC") - On February  25,
2000,  Hartcourt signed a Letter of Intent with Shenzhen Sinlan  Investment Co.,
Ltd. to jointly  invest in SCIC.  No terms have been  reached  and a  definitive
agreement to form a joint venture  company is expected to be signed by April 30,
2000.

<PAGE>

SCIC operates an exclusive  television  and cable network in the capital city of
Chengdu.  SCIC is  planning  an  expansion  program  to add  subscribers  and to
modernize  the  existing  system  and  make  it a  showcase  cable  system  with
interconnecting   data  transmission  via  a  network  of  satellite  and  cable
transmission.

Hartcourt's  partners  in the  above  mentioned  joint  ventures  are  expecting
Hartcourt  to  provide  two key  elements  in  these  joint  ventures:  Internet
technology and investment capital. Hartcourt management, which will soon include
newly-hired  individuals  with  extensive  experience  and expertise in relevant
industry  sectors,  intends to provide  Internet  technology  by merging with or
acquiring  companies already active in these businesses.  On the financial side,
Hartcourt plans to raise the substantial  funds necessary to carry out the plans
of  its  venture   partners  by  selling  its  own  common  shares  to  selected
investors/partners  and bringing in partners whose  contributions  to each joint
venture will include the necessary cash contributions.

Item 2.  Description of Property

Hartcourt's  principal  executive  offices are located at 9800 Sepulveda  Blvd.,
Suite 818, Los Angeles,  California 90045. The premises consist of approximately
2,700  square feet of office space with a conference  room,  reception  and file
room facilities.  Hartcourt is leasing these premises from an unaffiliated party
and occupied  these premises on April 4, 2000. The lease term is for three years
commencing  on April 1, 2000 and the  monthly  rent  amounts  to $2,400  with no
escalation of monthly rent during the lease term.

FTL leases an office space at 99 Queen's Road Central,  Hong Kong.  The premises
consist of approximately 2,000 square feet of office facility. The lease term is
for three  years  commencing  on  December  15,  1999 and allows free rent of 12
months.  The monthly lease payment  including  air-conditioning  and  management
charges  approximate  HK$60,917  (US$7,810).   Through  Topomedia  International
Limited,  a wholly owned subsidiary,  FTL owns 1,439 sq. ft. of office space and
leases the 918 sq. ft. at HK$21,573 (US$2,766) per month. The lease commenced on
February 5, 1999 for a term of three years. FTL also rents 35 roof-top sites for
installation of its transmission equipment. The contract terms vary from site to
site and monthly  rent ranges from  HK$1,500  (US$192) to HK$3,500  (US$449) per
site.

Hartcourt  believes that its facilities  currently  under lease are adequate for
its  present  activities,  and  that  additional  facilities  are  available  on
competitive  market terms to provide for such future  expansion  of  Hartcourt's
operations as may be warranted.

Investment Policies

Hartcourt  has placed no  limitation  on the  percentage  of assets  that may be
invested in any one investment.  This policy may be changed by Hartcourt's Board
of  Directors  and  without  a  vote  of  Hartcourt's  security  holders.  It is
Hartcourt's policy to acquire assets primarily to add to its equity base and for
income.

Item 3.  Legal Proceedings.

ComericaBank  of California  ("Comerica")  vs. Enova.  Et al.  Superior Court of
California, County of Los Angeles, California Case No. BC 221594

This litigation concerns  Hartcourt's alleged obligation as an alleged guarantor
of another  entity's  ("Pego")  alleged  obligation on a promissory note that is
asserted to be in non-financial  default. The plantiff in that matter may be the
subject of a  cross-complaint  by  Hartcourt,  which will depend on the evidence
disclosed by documents Hartcourt has demanded be produced. The complaint alleges
that  Hartcourt  executed  a  guarantee  of  obligation  of Pego  (approximately
$925,000) which obligation went into non-financial  default.  Pego expects to be
able to settle with plantiff and such settlement will eliminate Hartcourt's

<PAGE>

liability.  The prospects for the success of those settlement  negotiations,  as
well as the approximate range or amount of any potential loss by Hartcourt,  are
uncertain at this time.

Item 4.  Submission of Matters to a Vote of Security Holders.

At the special  meeting of the Board of Directors  held on December 7, 1999, the
Chairman of the Board  appointed  Mr.  Frederic  Cohn to serve as  Director  and
Secretary, and Mr. Manu Ohri to serve as Director and Treasurer of Hartcourt. In
addition,  the Board  appointed Mr. Hans Kloepfer and Mr. Kenneth Silva to serve
as Directors who, together with Mr. Manu Ohri will serve as members of the audit
committee.  The Board of Directors approved the appointment of BDO International
as Hartcourt's independent accountants for the year ended December 31, 1999.

<PAGE>

                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters

The common  stock is quoted on the  bulletin  board  maintained  by the National
Association of Securities Dealers, Inc. The following table sets forth the range
of high and low bid and asked  quotations  for the common stock during the three
most recent calendar quarters ended December 31, 1999, 1998 and 1997:

<TABLE>
<CAPTION>

                                              High Bid           Low Bid         High Asked        Low Asked
---------------------------------------- ------------------- ---------------- ----------------- -----------------
<S>                                      <C>                 <C>              <C>               <C>
---------------------------------------- ------------------- ---------------- ----------------- -----------------
March 31, 1997                                 3.0000            1.5000            4.0000            3.0000
---------------------------------------- ------------------- ---------------- ----------------- -----------------
June 30, 1997                                  3.1250            2.2500            3.3750            2.6875
---------------------------------------- ------------------- ---------------- ----------------- -----------------
September 30, 1997                             2.3750             .6875            2.6875            .8750
---------------------------------------- ------------------- ---------------- ----------------- -----------------
December 31, 1997                              3.1250             .8750            3.3750            1.0000
---------------------------------------- ------------------- ---------------- ----------------- -----------------
March 31, 1998                                 1.9220            1.0000            1.9220            1.0000
---------------------------------------- ------------------- ---------------- ----------------- -----------------
June 30, 1998                                  1.7970             .7970            1.7970            .7970
---------------------------------------- ------------------- ---------------- ----------------- -----------------
September 30, 1998                             1.9380             .2500            1.9380            .2500
---------------------------------------- ------------------- ---------------- ----------------- -----------------
December 31, 1998                              .5630              .2500            .5630             .2500
---------------------------------------- ------------------- ---------------- ----------------- -----------------
March 31, 1999                                 .4690              .3750            .4680             .3750
---------------------------------------- ------------------- ---------------- ----------------- -----------------
June 30, 1999                                  .8900              .7300            .8900             .7300
---------------------------------------- ------------------- ---------------- ----------------- -----------------
September 30, 1999                             .8400              .7600            .8400             .7600
---------------------------------------- ------------------- ---------------- ----------------- -----------------
December 31, 1999                             15.6250            13.8750          15.6250           13.8750
---------------------------------------- ------------------- ---------------- ----------------- -----------------
</TABLE>

The above prices were  obtained  from the National  Quotation  Bureau,  Inc. The
prices shown in the above table represent inter-dealer quotations without retail
mark-up,  mark-down or  commission,  and may not  necessarily  represent  actual
transactions.  On December 31, 1999, there were broker-dealers publishing quotes
for the common stock.

Holders

At April 13, 2000,  Hartcourt had approximately  10,062 holders of record of its
common stock.

All of the Hartcourt's  issued stock has been issued pursuant to Rule 144 of the
Securities  Act and could  come into any  market  which  exists  under Rule 144.
Approximately  8,416,000  and  495,000  outstanding  Rule  144  shares  held  by
principal and directors exist at December 31, 1999 and 1998, respectively.

Dividends

Each shareholder of record on March 31, 1999 received one (1) share of Enova for
every four (4) shares of Hartcourt  common stock.  Hartcourt does not anticipate
payment of any other stock or cash dividends in the foreseeable future.

Hartcourt  does not  anticipate  payment of any other stock or cash dividends in
the foreseeable future.

<PAGE>

Warrants

At March 14, 2000, there were 690,975  outstanding  warrants to purchase 690,975
shares of common  stock at $.001 par  value,  ranging  from  $1.25 - $15.52  per
share.  During  1999,  warrants  converted  to  393,000  shares of common  stock
resulted in proceeds of $61,635,  and American Equities  excercised its cashless
exercise right and converted  800,000  warrants into 621,674 shares of Hartcourt
common stock without payment of any consideration. On January 25, 2000, American
Equities  exercised  its cashless  exercise  right and  converted  the remaining
1,200,000  warrants  into  1,070,075  free  trading  common  shares of Hartcourt
without payment of any consideration.

The following  information sets forth certain information for all securities the
Company  sold  during  the past  three  years  without  registration  under  the
Securities Act of 1933 (the "Securities Act"). All transactions were effected in
reliance on the  exemption  from  registration  afforded by Section 4 (2) of the
Securities Act for transactions  not involving a public offering.  There were no
underwriters in any of these transactions.

All the transaction  hereunder were between the Company and accredited investors
as  defined  in  Section  4(2) of the  Securities  Act of 1933 or  sophisticated
investors  that possessed  sufficient  knowledge and experience in financial and
business  matters to be able to evaluate the merits and risks of the  investment
and who were allowed access to the books and records of the Company.

On January 29,  1997,  Hartcourt  issued  18,672  shares of its common  stock to
various vendors in settlement of $40,225 in accounts payable.

Pursuant to an investment banking services agreement with DanAllen  Investments,
Inc. dated February 1997, Hartcourt issued 100,000 shares of its common stock at
a value of $1.50 per share for investment banking services.

On March 17,  1997 and May 7,  1997,  Hartcourt  issued  1,000,000  and  138,000
shares, respectively, of Hartcourt's common stock, pursuant to Regulation "S" to
Pacific Rim Capital for $569,000 in cash.  Cash was used for working capital and
acquisition  of Pego.

On April 7, 1997 and October 4, 1997, Hartcourt issued 289,000 shares at a value
of $.50/share and 50,000  shares,  at a value of $1.00/share of its common stock
to various officers, directors and employees of Hartcourt as follows:

         Dr. Alan Phan              200,000 shares
         Directors                   35,000 shares
         Employees                  104,000 shares

Pursuant to an agreement with Capital,  dated July 31, 1997, Hartcourt issued to
Mercantile  Investment  Trust,  Ltd.  685,715  shares of common  stock valued at
$600,000  for services as  intermediary,  broker and finder with respect to this
agreement.

Pursuant to an agreement  with Capital,  dated July 31, 1997,  Hartcourt  issued
4,000  shares of Series A 9%  Convertible  Preferred  Stock and 2,000  shares of
Series B 9%  Convertible  Preferred  Stock.  Dividends on the Series A and B are
declared and paid monthly.

In connection  with the  acquisition of Pego,  dated October 3, 1997,  Hartcourt
issued 1,500 shares,  stated value $1,000 per share,  redeemable preferred stock
to Michael Caruana, along with 200,000 shares of its common stock. Additionally,
250,000 shares of Hartcourt's common stock was issued to Simerco Trading,  Ltd.,
a British Virgin Islands Company.

<PAGE>

On October 28, 1997, pursuant to the reorganization agreement,  Hartcourt issued
3,400 shares of 9% Convertible  Preferred Stock,  stated value $1,000 per share,
and 2,500,000  shares of its common stock in connection  with the acquisition of
ECS.

On November 30, 1997,  Hartcourt  issued  650,000  shares of its common stock to
Mandarin Overseas  Investment Co., Ltd.  (Mandarin) pursuant to Regulation S for
$520,000 in cash. Cash was used in part for the acquisition of ECS.

During the second quarter of 1998, Hartcourt sold 2,000,000 shares of its common
stock pursuant to regulation S. Hartcourt  raised  $825,000 of cash and recorded
$301,000  in  subscriptions.  As part of  settlement  agreements  in March 1999,
600,000  shares of  Hartcourt's  common stock was returned in  settlement of the
subscriptions receivable.

On June 4, 1998 and July 13, 1998,  Hartcourt  issued 332,857 and 45,000 shares,
respectively  at a value of $.50/share of its common stock to various  officers,
directors and employees of Hartcourt as follows:

         Dr. Alan Phan              240,571 shares
         Directors                  101,000 shares
         Employees                   36,286 shares

On August 6, 1998, Pego acquired 100% percent of the outstanding common stock of
Pacific Pneumatics, Inc. (PPI), located in Chino, California. The purchase price
of  $215,000  was paid in the form of $200,000 in cash and $15,000 in value with
Hartcourt  common shares (9,796 shares).  Under the  acquisition  agreement Pego
caused PPI to prepay $35,000 of its notes payable to a selling shareholder.  PPI
manufactures  pneumatic  conveying,  industrial  dust  collection and industrial
process  electrical  controls.   PPI  has  been  manufacturing  and  selling  it
components  under the trademark  names "Pore Poly",  "Posit Dust  Collectors and
Filters" and "Pow-Air" for over 20 years.

On August 24, 1998,  Hartcourt  and ECS executed an agreement and plan of merger
with Elan  Manufacturing,  Inc.  Elan is a contract  manufacturer  of electronic
components  similar to ECS, located in the Silicon Valley.  Under the agreement,
Elan was merged into and with Hartcourt,  thereby ceasing Elan's existence.  The
merger was effective  September 1, 1998,  and the purchase price of $616,240 was
paid  by  Hartcourt   issuing   724,990  common  shares  to  the  three  selling
shareholders  based  at a value  of  $0.85  per  share.  Hartcourt  and ECS have
guaranteed to the three selling  shareholders that the value of such shares will
be not less than $.85 per share on September 1, 1999. If the value of the shares
does not equal $.85 per share on September 1, 1999,  Hartcourt and ECS will make
up any  shortfall  by  issuing  additional  free  trading  shares or cash to the
selling shareholders.

On December 28, 1998, Hartcourt sold 200,000 shares of its common stock pursuant
to Rule 144,  raising  $25,000  in cash.  Another  203,000  shares  were sold on
January 4, 1999 for $24,500.

In March 1999,  Hartcourt  cancelled 3,000,000 shares of its common stock valued
at  $1,875,000,  and 4,000 of  Preferred  Stock Series A stated value $1,000 per
share, 2,000 of Preferred Stock Series B stated value $1,000 per share, 3,400 of
Preferred Stock Series D stated value $1,000 per share, 4,050 of Preferred Stock
Series AB stated value $100 per share,  valued at $9,805,000 in connection  with
settlement of litigation with American Equities, Capital and Pruzin.

On September 8, 1999, the Board of Directors issued 118,110 shares to a director
for paying $50,000 as escrow deposit in connection  with the  acquisition of UAC
and  settlement  of payment to vendors in the amount of  $100,000.  In addition,
Hartcourt issued 1,000,000 shares of its common stock to an investor for

<PAGE>

exercising options in the amount of $1,250,0000.  Cash in the amount of $763,748
received from the investor was used in connection  with the  acquisition  of FTL
and UAC. The remaining  balance of $485,252 was recorded as accounts  receivable
and  subsequently  determined  to be  uncollectible  and fully  reserved  for at
December 31, 1999.  Hartcourt  issued  1,000,000 shares of its common stock to a
director upon exercise of options raising $500,000, which was used in connection
with the acquisition of FTL.

On September 27, 1999,  Hartcourt issued 1,500,000 shares of its common stock in
connection with the acquisition of FTL valued at $1,401,000.

During 1999, Hartcourt issued 1,014,674 shares of its common stock upon exercise
of warrants to various  warrant  holders  raising  cash in the amount of $61,629
used for working capital.

During  1999,  Hartcourt  issued  394,153  shares of its common stock to several
consultants for services performed during the year valued at $341,223.

On December 14, 1999,  Hartcourt exchanged 100,000 shares of its common stock in
settlement of all  obligations  due to Pego  amounting to $1,058,642  and 35,000
shares of ECS owned by Enova valued at $16,358.

During 1999,  Hartcourt  issued 140,000 shares of its common stock in connection
with settlement of loan from investors amounting to $54,000.

During 1999,  Hartcourt sold to investors  700,000 shares of its common stock to
raise  $900,000  which was paid in connection  with the  acquisition  of FTL and
investment in UAC.

During the course of the year,  Hartcourt  issued  910,833  shares of its common
stock valued at $1,004,045 to its directors in connection  with  performance  of
services.

Item 6.  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

Currently,  Hartcourt  is  involved  in  Internet  joint  ventures  in  Asia  to
facilitate the expansion of China's first commercial  e-trade  financial network
and  Internet  Service  Provider.  Hartcourt's  goal is to create  the  premiere
financial  portal in the  Chinese  market by  building  a  network  of  Internet
companies in partnership with young Chinese  entreprenuers as well as government
owned entities.  Its mission is to become one of the leading Internet  companies
in Asia.  Through  the  combined  services of Beijing  based UAC Stock  Exchange
Online,  Ltd.  ("UAC")  and Hong Kong  based  Financial  Telecom  Ltd.  ("FTL"),
Hartcourt  intends to merge  these two  service  providers  and create a premier
financial  portal  of  Chinese  Internet  with  a  comprehensive  Web  site  and
supporting utilities that will be capable of executing  securities  transactions
on-line in a timely and  efficient  manner  while  providing  real-time  quotes,
research,  charts and other  collateral  information  regarding  stocks,  bonds,
currencies and other markets in China and other Asian markets.

<PAGE>

Results of Operations

Comparison of the fiscal years ended December 31, 1999 and December 31, 1998

During 1999,  Hartcourt  continued its  previously  implemented  plan to acquire
profitable  companies  that were in  established  industries  with a history  of
growth.  As a  result  of  continuing  losses,  particularly  at Pego  and  ECS,
Hartcourt  recorded  significant  impairments  to its goodwill in 1998. In March

1999, Hartcourt entered into a series of agreements and transactions that in the
aggregate  were  designed  to  streamline  and  restructure  the  company  while
dissolving  the entities  comprising of inactive  assets and settle  outstanding
litigation.   The  restructuring  included  settlement  of  certain  litigation,
settlement of certain  agreements,  and a spin-off of Hartcourt's  investment in
Pego  (100%)  and ECS  (35%)  to  Enova.  Effective  March  1,  1999,  Hartcourt
distributed its investment in Enova to Hartcourt shareholders of record of March
31, 1999 as stock dividend. In addition,  Hartcourt  discontinued its operations
of Hartcourt Pen and Hartcourt  Investments,  and  effectively  became an entity
with no operations  and its  principal  assets being the  marketable  securities
received  in  exchange  for its  investment  in the  Peony  Gardens  condominium
project.

To stay focused and achieve its mission to become a leading  Internet company in
Asia and China,  Hartcourt  decided to build a network of Internet  companies in
partnership  with  young  Chinese  enterprenuers  as  well as  government  owned
entities.  Hartcourt  acquired 58.53% FTL on October 4, 1999. FTL is 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 U.S. and Europe to institutional and retail  investors.  On October
18, 1999, Hartcourt formed a joint venture company, UAC, under the laws of China
with UAC Trading.  UAC operates the first and only nationwide  online securities
trading  network  connecting  investors with their stock  brokerage  offices via
ChinaPac in China. UAC network consists of proprietary  server software and user
interface,  servers,  gateways and other communication  hardware.  Through a PC,
investors  can dial a local  number 162 from  anywhere in China to trade  stocks
online.  Once  connected to the UAC  network,  users can ckeck  real-time  stock
quotes,  trade stocks and other  securities,  access news and bulletin and other
related information.

The  operations  of Hartcourt in 1999  primarily  consisted of operations of FTL
from  the  date of  acquisition.  Operations  of  Hartcourt  Pen  and  Hartcourt
Investments  were  discontinued  in 1999,  and  operations  of Pego and ECS were
disposed off as a result of spin-off to Enova and the subsequent distribution of
Enova as stock dividend.

Net sales and cost of sales. Net sales in 1999 amounted to $378,677 consisted of
sales of financial pagers and the related Internet and telephone services.  Cost
of  sales  amounted  to  approximately  $71,810.  Hartcourt  did  not  have  any
operations in 1998 that were still ongoing in 1999.

Selling, general and administrative expenses. Selling general and administrative
expenses increased from $1,472,286 for 1998 to $7,029,180 for 1999. The increase
is primarily due to Hartcourt  incurring about  $1,925,000 in  professional  and
consulting fees in connection with  litigations and  settlements,  providing for
allowance for doubtful  receivables  amounting to about $653,000,  and recording
non-cash  compensation expense of about $3,380,000 to the officers and directors
of Hartcourt.

<PAGE>

Impairments.  No impairments  were identified in 1999.  Impairments  expenses in
1998 were resulted from the write down of the  investments  in the Peony Gardens
of $6,932,500 and the Alaskan Goldmines of $4,838,413.

Settlements loss. Hartcourt recognized a net settlement loss of $384,013 in 1999
as a result  of  exchanging  investments  with  GoCall,  settling  disputes  and
litigations with Pruzin, American Equities, and Capital.  Hartcourt recognized a
loss of $1,212,327 in 1998 in connection with the settlements of litigations and
disputes with American Equities and Mandarin/Promed.

Loss from discontinued operations. Loss from discontinued operations of $420,810
in 1999 represents the total net loss of Pego of $25,875 and the net loss of ECS
of $394,935  prior to their  transfer to Enova and  subsequently  distributed to
shareholders  of  Hartcourt  as  stock  dividend.  Hartcourt  Pen and  Hartcourt
Investments  did not have any operations in 1999 and were also  discontinued  in
1999.  Loss from  discontinued  operations of $6,840,127 in 1998  represents the
results of operations of Pego, ECS,  Hartcourt Pen and Hartcourt  Investments in
1998.

Loss on disposal of  discontinued  operations.  Loss on disposal of discontinued
operations  of $7,759  represents  the net of the loss of disposals of Hartcourt
Investments  amounted to $95,000,  and gain on disposalof Hartcourt Pen amounted
to $87,241. There were no operations disposed of during 1998.

Liquidity and Capital Resources

Hartcourt's  principal  capital  requirements  during  1999  were  to  fund  the
acquisitions of growth oriented  Internet related  operating  companies in China
and Asia. Hartcourt raised substantial funds necessary 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 net losses
of $7,862,468  and  $21,295,653  for the years ended December 31, 1999 and 1998,
respectively. Additionally, Hartcourt's current liabilities exceeded its current
assets by $6,450,275 at December 31, 1999.  These  factors,  as well as negative
cash flows from operations,  Hartcourt's inability to meet debt obligations, and
the  need to  raise  additional  funds  to  accomplish  its  objectives,  create
substantial doubt about Hartcourt's ability to continue as a going concern.

Hartcourt  has  taken  certain  restructuring  steps,  which in the  opinion  of
management, will provide the necessary capital to continue its operations. These
steps included 1) the settlement of certain  matters of litigation and disputes;
2) exchange of its interests in Peony Gardens for investment  securities;  which
were  subsequently  exchanged for the  investment in GoCall Inc.; 3) completed a
private  placement with PYR Management,  LLC and received  $2,743,000 on January
27, 2000; 4) signed a Investment  Agreement  with Swartz  Private  Equity,  LLC,
which agreed to purchase from time to time, up to $35,000,000  Hartcourt  shares
of common stock.  The  Investment  Agreement with Swartz is still subject to the
approval of SEC.

Operating  activities.  Net  cash  used by  operating  activities  decreased  to
$239,218 in fiscal 1999,  compared to $1,308,746 in fiscal 1998.  This is mainly
due to the fact that Hartcourt has discontinued the operations of Hartcourt Pen,
Hartcourt  Investments  and the spin-off of Pego and ECS during 1999.  All these
subsidiaries had losses in both years.

Investing  activities.  Net  cash  used by  investing  activities  increased  to
$1,408,162 in fiscal 1999, compared to net cash provided by investing activities
of $13,082 in fiscal 1998. This is mainly due to the acquisitions of FTL and UAC
during  1999,  which were  partly  paid by cash.  Acquisitions  and  purchase of
property and equipment  during 1998 amounted to 792,113,  which were financed by
proceeds on sales of  marketable  securities  and  proceeds on notes  receivable
within investing activities.

<PAGE>

Financing  activities.  Net cash provided by financing  activities  increased to
$1,959,603  in fiscal 1999,  compared to  $1,602,429  in fiscal  1998.  The main
financing sources of Hartcourt are the line of credit from the bank, issuance of
long term debt,  proceeds  from  issuance of its common  stock,  and proceeds on
exercise of its options and warrants.

The ability of  Hartcourt  to continue as a going  concern is  dependent  on its
success in fulfilling its plan.

Impact of Year 2000

The Year 2000 Issue  ("Y2K") is the result of computer  programs  being  written
using two  digits  rather  than  four to  define  the  applicable  year.  Any of
Hartcourt's computer programs that have time-sensitive  software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system  failure  or  miscalculations  causing  disruption  of normal  business
activities.

Hartcourt's  project to assess and correct Y2K related issues regarding the Year
2000 has been completed and the company has not  experienced any significant Y2K
related events.  However,  interactions  with other  companies'  systems make it
difficult to conclude  there will not be future  effect.  Consequently,  at this
time,  management  cannot provide  assurances that the Year 2000 issues will not
have an impact on Hartcourt's operations.

Item 7.    Consolidated Financial Statements

Financial  Statements  are  referred  to in Item  13(a),  listed in the Index to
Financial  Statements and filed and included  elsewhere herein as a part of this
Annual Report on Form 10-KSB.

Item  8.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
          Financial Disclosure

On  October  18,  1999,  Hartcourt  received  a letter of  resignation  from its
independent  accountants,  Harlan & Boettger,  LLP. Harlan & Boettger previously
issued a qualified  report  dated March 6, 1999.  The report  noted that because
Hartcourt had suffered recurring losses from operations which raises significant
doubt about the ability of the  Company to  continue as a going  concern.  Other
than  Hartcourt's  ability to  continue as a going  concern,  the report did not
contain any adverse opinions or disclaimers of opinion,  or any qualification as
to uncertainty,  audit scope or accounting principles. Such report subsequent to
issuance  has not been  modified.  There  were no  disagreements  with  Harlan &
Boettger,  LLP on any matters of accounting  principles or practices,  financial
statement disclosures or auditing scope or procedures during the two-year period
covered by their report and subsequently through October 18, 1999.

On  February  8,  2000,   Hartcourt  appointed  BDO  International  as  its  new
independent  accountants.  During the two most recent  fiscal  years and through
February 8, 2000,  Hartcourt has not consulted with BDO International  regarding
either (1) the application of accounting principles to a specified  transaction,
either  completed  or  proposed,  or the type of  audit  opinion  that  might be
rendered on Hartcourt's  financial  statements,  and either a written report was
provided  to  Hartcourt  or oral  advice  was  provided  that BDO  International
concluded was an important factor considered by Hartcourt in reaching a decision
as to the accounting,  auditing or financial  reporting issue; or (2) any matter
that was either the subject of a  disagreement,  as that term is defined in Item
304 (a) (1) (iv) of Regulation S-K and the related  instructions  in Item 304 of
Regulation  S-K, or a reportable  event, as that term is defined in Item 304 (a)
(1) (iv) or Regulation S-K.

<PAGE>

                                    PART III

Item 9.   Directors,   Executive   Officers,   Promoters  and  Control  Persons;
          Compliance with Section 16(a) of the Exchange Act.

The  following  table sets forth  certain  information  about the  directors and
executive officers of Hartcourt.

<TABLE>
<CAPTION>

Name              Age      Position                                    Dates Held
<S>               <C>      <C>                                 <C>

Dr. Alan V. Phan  54       Chairman of the Board, President    Since November 1993
                           and Chief Executive Officer

Frederic Cohn(1)  60       Director, Vice President            Since December 1999
                           and Secretary

Manu Ohri         44       Director, Executive Vice President  Since December 1999
                           Finance, Chief Financial Officer
                           and Treasurer

Kenneth Silva     73       Director                            Since December 1999

Hans Kloepfer     50       Director                            Since December 1999

Fred Luke         52       Director                            March 1999 - December 1999

Jon L. Lawver     61       Director                            March 1999 - December 1999

Leonard J. Roman  50       Director                            September 1998 - March 1999

</TABLE>

Dr. Alan V. Phan is the founder of Hartcourt  and has been  Chairman,  President
and Chief  Executive  Officer  since  November  1993.  He is also the founder of
Hartcourt  Investments  and Hartcourt  Pen. From 1986 to 1993,  Dr. Phan was the
owner of Hartcourt Consulting, an engineering, equipment and technology exporter
to Asia and South America.  From 1981 to 1986, Dr. Phan served as Executive Vice
President of EM Kay Group,  which is an international  aircraft leasing company,
as well as owner of Village Bank of New Jersey and Magic Marker Industries. From
1975 to 1981,  Dr. Phan was the owner of Alpha  Development,  a California  real
estate  development  company;  and UBI Business Brokers of Orange County, a real
estate and  business  brokerage  office.  From 1970 to 1975,  Dr.  Phan was Area
Manager for Eisenberg Group, an Israeli conglomerate, specialized in trading and
manufacturing  of  industrial  and  consumer  products.  Dr. Phan  received  his
academic  training and degrees in Environmental  Engineering  from  Pennsylvania
State University in 1967, and Sussex College of Technology in1975.

Mr. Fred Cohn, Vice  President,  Secretary and Director since December 1999, has
over 30 years of diversified experience in business management.  During the last
five years, Mr. Cohn was a successful  entrepreneur  owning and operating medium
size companies in the fields of transportation, entertainment, manufacturing and
distribution.  Mr. Cohn is a member of the Board of Directors of Enova Holdings,
Inc. Mr. Cohn  obtained his law degree from New York School of Law and Bachelors
degree in Accounting from Wilkes University.

Mr. Manu Ohri,  Executive  Vice  President  Finance & Chief  Financial  Officer,
Treasurer and Director  since  December  1999,  has over 19 years of diversified
business  management and operations  experience in public and private companies.
In addition to serving as the Chief  Financial  Officer of  Hartcourt,  Mr. Ohri
currently holds the position of President, CEO and Director of Enova Holdings,

<PAGE>

Inc. From January 1997 to March 1999, Mr. Ohri served as Chief Operating Officer
and Chief Financial  Officer of Dynamic Cooking Systems,  Inc., a privately-held
manufacturing  company. From September 1989 to December 1996, Mr. Ohri served as
Chief  Financial  Officer of Startel  Corporation,  a NASDAQ company in software
development business.  Mr. Ohri's multi-faceted  experience includes operations,
finance as well as administrative  functions in the manufacturing,  distribution
and software development  industries.  Mr. Ohri is a Certified Public Accountant
with   over  six   years   experience   with   Deloitte   &   Touche,   LLP  and
PriceWaterhouseCoopers,  LLP.  Mr. Ohri  earned his  Masters  degree in Business
Administration  from  University of Detroit and  Bachelors  degree in Accounting
from University of Delhi in India.

Kenneth Silva has been a director of Hartcourt  since  December  1999. Mr. Silva
retired from active work in July 1996 and has been  associated with Hartcourt in
various  capacities  since his  retirement.  Mr. Silva earned his B.A. degree in
accounting  and banking from  Armstrong  College in 1950 and  attended  graduate
courses at  American  Institute  of Banking.  Mr.  Silva has been in banking for
almost 40 years,  including 22 years at Wells Fargo Bank where he last served as
Vice President of Business Development. In addition, Mr. Silva has experience in
real estate finance as Controller for a large  construction  firm in Los Angeles
called Intercell Industries.

Hans J. Kloepfer has been a director of Hartcourt since December 1999. From July
1999 to  February  2000,  Mr.  Kloepfer  served  as Vice  President,  Sales  and
Marketing for Pego Systems,  Inc., a distributor and  representative  of air and
gas handling equipment.  In March, 2000, Mr. Kloepfer was appointed President of
Pego  Systems,  Inc.  From  January  1997 to  March  1999,  Mr.  Kloepfer  was a
partner/owner  of Strategic  Sports  Marketing  Group, a company  engaged in the
development, sales and implementation of a media based turnkey marketing system.
From July 1986 to December 1996,  Mr.  Kloepfer  served as Regional  Manager for
Sullair  Corporation,  a division of Sundstrand  Corporation,  a manufacturer of
industrial and portable air compressors.  Mr. Kloepfer graduated from California
State University  Fullerton with a Bachelors  Degree in Business  Administration
and Economics.

Fred Luke has more than  twenty-nine  (29) years of  experience  in domestic and
international  financing  and the  management  of privately  and  publicly  held
companies.  Since 1982, Mr. Luke has provided consulting services and has served
as Chief Executive Officer and/or Chairman of the Board of various publicly held
and privately held  companies in  conjunction  with such financial and corporate
restructuring  services. In addition to his position as director with Hartcourt,
Mr. Luke  currently  serves as Chairman and Chief  Executive  Officer of NuOasis
Resorts, Inc., (formerly, Nona Morelli's II, Inc.) ("NuOasis Resorts"), Chairman
and  President  of  NuVen,  Chairman  and  President  of Hart  Industries,  Inc.
("Hart"),  and Chairman and  President of  Diversified  Land &  Exploration  Co.
("DL&E"),  Scientific NRG,  Incorporated,  and  NetCommerce,  Inc. among others.
NuVen provides managerial, acquisition and administrative services to public and
private  companies.  Mr. Luke received a Bachelor of Arts Degree in  Mathematics
from California State University, San Jose in 1969.

Jon Lawver has 22 years of experience in the area of bank financing where he has
assisted  medium  size  companies  ($5  million  to $15  million)  by  providing
expertise in  documentation  preparation  and locating  financing  for expansion
requirements.  From 1970 to present  Mr.  Lawver has served as  President  and a
Director of J.L.  Lawver Corp.,  a financial  consulting  firm.  Since 1988, Mr.
Lawver has served as  President  and a Director  of Eurasia,  a private  finance
equipment leasing company  specializing in oil and gas industry  equipment.  Mr.
Lawver also  serves as a director  of  NetCommerce,  SNRG,  Hart and NuVen.  Mr.
Lawver was with Bank of America from 1961 to 1970, ending his employment as Vice
President and Manager of one of its branches.

Leonard  J Roman  has 28  years  of  diversified  public  and  private  business
management  experience.  From 1995 to 1997,  Mr. Roman was President of Trumpets
Holdings, Inc. and was Executive Vice President,  Chief Financial Officer of W-C
Designs,  Inc.  From 1991 to 1994,  Mr.  Roman  was  General  Manager  and Chief
Financial  Officer  of  Cosmar  Corporation.  Mr.  Roman is a  Certified  Public
Accountant and holds a Bachelors Degree from St. John's University.

<PAGE>

Directors serve for a term of one year or until their successors are elected and
qualified.  Directors do not receive any cash  compensation for serving as such,
although  Hartcourt  is  contemplating  the  adoption  of a plan  to  compensate
directors  through the issuance of shares of common  stock.  The terms of such a
plan currently are under consideration and there can be no assurance as to when,
if ever, it will be implemented.

Executive  officers  are  appointed  by and  serve at the  will of the  Board of
Directors.  There  are no  family  relationships  between  or  among  any of the
directors or executive officers of Hartcourt.

Rights and Preferences of Preferred Stock

Original Preferred Stock

As the sole holder of the 1,000 outstanding shares of Company Original Preferred
Stock, Dr. Phan is entitled to elect 3/5 of the number of members of Hartcourt's
Board of  Directors,  whereas  the holders of the  outstanding  shares of common
stock are entitled to elect 2/5 of that number.

Class A Preferred Stock

The 10,000,000  shares of authorized and unissued Class A Preferred Stock may be
split  with  such  designations,   powers,  preferences  and  other  rights  and
qualifications,  limitations and restrictions  thereof as the Company's Board of
Directors elects for a given series. No shares have been issued.

Series A 9% Convertible Preferred Stock

Non-voting  convertible  preferred stock,  4,000 shares authorized with a stated
value of $1,000  per  share.  Holders  of shares  shall be  entitled  to receive
cumulative  dividends  at a rate  equal to 9% per  annum.  Series A  convertible
preferred  stock  is  subject  to  redemption  at any  time,  at the  option  of
Hartcourt,  at a  redemption  price  equal to $1,000 per share plus  accrued and
unpaid  dividends  to the date of  redemption.  Holders of Series A  Convertible
Preferred  Stock may convert  their shares into either (A) a number of shares of
fully  paid and  non-assessable  common  stock of ECS,  equal to .0075% of total
outstanding shares of ECS or (B) shares of fully paid and non-assessable  common
stock of Hartcourt. Dividends are to be declared and paid monthly. In connection
with settlement of certain  litigation and other claims,  all outstanding shares
of the Series A Preferred Stock was returned to Hartcourt and cancelled.

Series B 9% Convertible Preferred Stock

Non-voting  convertible  preferred stock,  2,000 shares authorized with a stated
value of $1,000  per  share.  Holder  of shares  shall be  entitled  to  receive
cumulative  dividends  at a rate  equal to 9% per  annum.  Series B  convertible
preferred  stock  is  subject  to  redemption  at any  time,  at the  option  of
Hartcourt,  at a  redemption  price equal to $1,000 per share,  plus accrued and
unpaid  dividends  to the date of  redemption.  Holders of Series B  convertible
preferred  stock may convert  their shares into either (A) a number of shares of
fully paid and non-assessable  shares of common stock of Pego, equal to .015% of
total  outstanding  shares of Pego or, (B)  shares of fully paid  non-assessable
common stock of Hartcourt.  Dividends  are to be declared and paid  monthly.  In
connection  with  settlement  of  certain   litigation  and  other  claims,  all
outstanding shares of the Series B Preferred Stock was returned to Hartcourt and
cancelled.

Series C Redeemable Preferred Stock

Non-voting, non-participating redeemable preferred stock, 1,500 authorized, with
a par value of  $1,000  per  share.  Series C  preferred  stock is junior to the
original  preferred  stock and any other class or series of capital stock of the
Company which are  specifically  ranked  senior  (senior  securities).  Series C
preferred stock is redeemable at any time, at the discretion of the Company,  at
a redemption  price of $1,000 per share.  During 1998, the Company  redeemed the
stock for  $1,300,000  in cash and 200,000  shares of the Company  common  stock
valued ar $1 per share.

Series AB 9% Convertible Preferred Stock

Non-voting  convertible  preferred stock, 25,000 shares authorized with a stated
value of $1,000  per  share.  Holder  of shares  shall be  entitled  to  receive
cumulative  dividends  at a rate  equal to 9% per annum.  Series AB  convertible
preferred  stock  is  subject  to  redemption  at any  time,  at the  option  of
Hartcourt,  at a  redemption  price equal to $1,000 per share,  plus accrued and
unpaid  dividends to the date of  redemption.  Holders of Series AB  convertible
preferred stock may convert their shares into fully paid  non-assessable  common
stock of Hartcourt.  In connection  with  settlement of certain  litigation  and
other  claims,  all  outstanding  shares of the  Series AB  Preferred  Stock was
returned to Hartcourt and cancelled.

<PAGE>

Series D Convertible Preferred Stock

Voting convertible preferred stock, 10,000 shares authorized with a stated value
of $1,000 per share.  Holders of Series D Convertible  Preferred  Stock shall be
entitled to receive, when declared by the Board of Directors, dividends at a par
with  holders  of  Hartcourt's  common  stock,  as if the  Series D  Convertible
Preferred  Stock had been  converted  in common stock on the record date for the
payment of dividend.  Each outstanding  share of Series D Convertible  Preferred
Stock shall be  convertible,  at the option of its holder,  at any time,  into a
number of shares of common  stock of  Hartcourt  at a  conversion  rate equal to
$1,000  divided by the market price of  Hartcourt's  common stock.  The Series D
Preferred  Stock was retired in March 1999, in connection with the sale of a 30%
interest in ECS to Mr. James Pruzin.

By virtue of his activities in founding and organizing Hartcourt, as well as his
beneficial  ownership of its voting  securities,  Dr. Phan may be deemed to be a
"promoter" of Hartcourt.

Item 10.  Executive Compensation.

The  following  summary   compensation  table  sets  forth  certain  information
regarding compensation,  required to be paid pursuant to an employment agreement
during each of the three years ended  December  31,  1999,  1998 and 1997 to the
person serving as Hartcourt's Chief Executive Officer:

Name and Principal Position                  Fiscal Year    Annual Salary

Dr. Alan V. Phan, Chief Executive Officer    1999           $3,379,788
                                             1998           $200,000
                                             1997           $175,000

Hartcourt is obligated under  employment  contract with Dr. Alan Phan to provide
salary,  bonuses,  and other fringe benefits through December 31, 2001. The term
of the contract will be  automatically  extended for an additional term of three
(3) years,  unless  Hartcourt  or Dr.  Phan gives a written  notice to the other
party before the expiration of the term.  Annual base salary  payments under the
contract  will be $250,000  per annum for fiscal  years 2000 and 2001.  Payments
will be made in equal monthly installments. In the event Hartcourt does not have
sufficient  cash flow to pay  compensation,  Dr.  Phan has the  option to accept
Hartcourt's restricted common shares for the same amount of compensation.  Share
price will be calculated  at 50% of the market  trading bid price on January 1st
of the year of  employment.  Dr. Phan  received  100% of his salary in shares of
common stock of Hartcourt  during the last three fiscal years.  Hartcourt issued
restricted common shares to Dr. Phan in the amounts of 1,600,284 shares, 213,333
shares and 116,667 shares for the years ended December 31, 1999,  1998 and 1997,
respectively.

There are no salary,  bonus or incentive  plans  covering  cash or company stock
except  Hartcourt's  1995  Stock  Option  Plan  (the  "Plan").  Under  the Plan,
incentive and non-qualified stock options may be granted to directors,  officers
and key  employees  to purchase  up to  2,000,000  shares of common  stock at an
option  price not less than the fair  market  value of the stock at the time the
option is granted; the option period shall not exceed ten years from the date of
grant. Except in the case of the death or disability of an option holder, vested
options  lapse  90  days  following  termination  of  continuous  employment  by
Hartcourt.  Vested  options  lapse one year after the death or  disability of an
option holder. No options have been granted under the Plan.

<PAGE>

Item 11.  Security Ownership of Certain Beneficial Owners and Management

The following table sets forth  information as of December 31, 1999 with respect
to persons known to Hartcourt to be the beneficial owners of more than 5% of its
voting  securities  and  with  respect  to  the  beneficial  ownership  of  such
securities  by each  director of Hartcourt  and by all  directors  and executive
officers of Hartcourt as a group.

<TABLE>
<CAPTION>

Title of Class       Name & Address of                   Amount and Nature of  Beneficial  Percent
                     Beneficial Owner                    Ownership (1)
<S>                  <C>                                 <C>                               <C>

Common stock         Dr. Alan V. Phan                    6,204,229 (2)                     20.7%
                     1196 E. Willow Street
                     Long Beach, CA 90806
-------------------- ----------------------------------- --------------------------------- ------------------
Original  Preferred                                      1,000 (2)                         100%
stock
-------------------- ----------------------------------- --------------------------------- ------------------
-------------------- ----------------------------------- --------------------------------- ------------------
Common stock         CEDE & Co.                          19,319,239 (3)                    64.4%
                     55 Water Street 2SL
                     New York, NY 10041
-------------------- ----------------------------------- --------------------------------- ------------------
-------------------- ----------------------------------- --------------------------------- ------------------
Common stock         Financial Telecom Limited           1,500,000 (4)                     5.0%
                     The Center, Suite 2705
                     99 Queen's Road Central, Hong Kong
-------------------- ----------------------------------- --------------------------------- ------------------
-------------------- ----------------------------------- --------------------------------- ------------------
                     All  Officers  and  Directors as a  6,204,229
                     group
-------------------- ----------------------------------- --------------------------------- ------------------
</TABLE>

(1) Except as otherwise  indicated,  each of the parties  listed has sole voting
and  investment  power with  respect to all  shares of common  stock  indicated.
Beneficial  ownership is calculated in accordance  with Rule 13-d-3(d) under the
Securities Exchange Act of 1934, as amended.

(2) Includes (i) an aggregate of 1,000,000  shares of common stock issuable upon
conversion of 1,000 shares of Original  Preferred  Stock.  As the sole holder of
the 1,000 outstanding  shares of Original  Preferred Stock, Dr. Phan is entitled
to elect 3/5 of the number of members of Hartcourt's Board of Directors.

(3) CEDE & Co. Is a deposit trust corporation (stock brokerage company).

(4) Represents  Hartcourt  shares issued in connection with the purchase of FTL.
An additional  254,552 shares of common stock were issued on January 18, 2000 as
a result of post closing adjustment to the purchase price of FTL.

Other than the  arrangements  disclosed in Part I, Item 1 -  Subsequent  Events,
Hartcourt  is not  aware of any  arrangement  that  might  result in a change in
control in the future.

<PAGE>

Stock Option Plan

In April 1995, the Company adopted a stock option plan (the Plan) to attract and
retain  qualified  persons  for  positions  of  substantial   responsibility  as
officers,  directors,   consultants,  legal  counsel,  and  other  positions  of
significance  to the  Company.  The  Plan  provides  for  the  issuance  of both
Incentive  Stock Options and  Non-Qualified  Stock Options.  The Plan,  which is
administered  by the Board of Directors,  provides for the issuance of a maximum
of  2,000,000  options to purchase  shares of common  stock at the market  price
thereof on the date of grant.  Such options are generally  exercisable over a 10
year  period  from the date of  grant.  Each  option  lapses  90 days  after the
optionee has terminated his continuous activity with the Company, except that if
his continuous activity with the Company terminates by reason of his death, such
option of the deceased optionee may be exercised within one year after the death
of such  optionee.  Options  granted under the Plan are restricted as to sale or
transfer.  All options  were  granted at not less than fair value at the date of
grant and have terms of 10 years.

The following table summarizes the activity in the plan:

<TABLE>
<CAPTION>

                                                                                                     Weighted
                                                                              Number of               Average
                                                                                Shares            Exercise Price
                                                                           -----------------      ----------------
<S>                                                                        <C>                  <C>

Shares under option at January 1, 1998                                                    -     $               -
    Granted                                                                         400,000                  1.00
    Exercised                                                                             -                     -
    Canceled                                                                              -                     -
                                                                           -----------------      ----------------

Shares under option at December 31, 1998                                            400,000     $            1.00
    Granted                                                                       2,000,000                 1.265
    Exercised                                                                    (2,000,000 )               1.265
    Canceled                                                                              -                     -
                                                                           -----------------      ----------------

Shares under option at December 31, 1999                                            400,000     $            1.00
                                                                           -----------------      ----------------

</TABLE>

All stock options  issued to employees  have an exercise price not less than the
fair market value of the  Company's  common  stock on the date of grant,  and in
accordance  with the accounting for such options  utilizing the intrinsic  value
method  there is no  related  compensation  expense  recorded  in the  Company's
financial  statements.  Had compensation cost for stock-based  compensation been
determined  based on the fair value at the grant  dates in  accordance  with the
method  delineated in Statement of  Accounting  standards No. 123, the Company's
net loss and loss per share for the year ended  December  31,  1998,  would have
been increased to the pro forma amounts presented below:

<TABLE>
<CAPTION>

                                                                                 1998
                                                                           -----------------
<S>                                                                        <C>

Net loss:
    As reported                                                          $      (21,295,653 )
    Pro forma                                                            $      (21,683,133 )

Loss per share:
    As reported                                                                       (1.18 )
    Pro forma                                                                         (1.20 )

</TABLE>

<PAGE>

Additional  information relating to stock options outstanding and exercisable at
December 31, 1999 summarized by exercise price are as follows:

<TABLE>
<CAPTION>

                                                    Outstanding                          Exercisable
                                         -----------------------------------  ----------------------------------
        Exercise Price                            Weighted Average                    Weighted Average
                                         -----------------------------------  ----------------------------------
           Per Share        Shares        Life (Years)      Exercise Price      Shares         Exercise Price
       ------------------ ------------   ----------------   ----------------  ------------   -------------------
<S>    <C>                <C>            <C>                <C>               <C>            <C>

          $1.00               400,000          8.5               $1.00            400,000          $1.00

</TABLE>

Warrants

On December 30, 1996,  Hartcourt  and American  Equities  entered into a Warrant
Agreement,  whereby Hartcourt agreed to issue and sell to American Equities, for
the price of $100,  a warrant to purchase up to  2,000,000  shares of its common
stock,  $.01 par value at prices ranging from $0.30 to $2.10 in connection  with
the consulting services provided to Hartcourt.  American Equities shall have the
right to purchase at any time and from time to time prior to December  30, 2002,
up to the number of fully paid and nonassessable shares of warrants,  stock upon
payment  of  specific  exercise  price or apply  the  cashless  exercise  clause
specified in the agreement.  On September 9, 1999,  pursuant to the terms of the
Warrant  Agreement,  American Equities exercised its cashless exercise right and
converted  800,000  warrants  into 621,674  Hartcourt's  common  shares  without
payment of any consideration.

In connection with consulting  services,  Hartcourt  issued warrants to purchase
350,000  shares at prices  ranging  from $1.25 to $1.50 which  expire at various
dates  through July 12, 2000.  The warrants were issued at the fair market value
on the date of issuance and therefore no expense was recorded.

In  connection  with the sale of  200,000  restricted  shares of its own  common
stock,  Hartcourt  issued  warrants  to purchase  100,000  shares at $4.00 which
expire on December  12, 2000.  The warrants  were issued above fair market value
and therefore no expense was recorded.

<PAGE>

Item 12: Certain Relationships and Related Transactions

In August 1996,  Hartcourt  purchased an apartment complex located near Beijing,
China  for  $22  million  from  NuOasis  International,  Inc.  (a  wholly  owned
subsidiary of Nona  Morelli's II). The purchase price included the issuance of 4
million shares of common stock, valued at $10 million,  and a promissory note to
NuOasis for $12  million.  The Note is due and payable on August 17, 1997 or, if
construction  is not  complete,  then  the  note is  extended  to the  date  the
certificate of occupancy is received.  NuOasis is a non-affiliate  of Hartcourt.
Under the deposit method of accounting in accordance  with Financial  Accounting
Standards No. 66 the  promissory  note for  $12,000,000  was deferred  until the
complete  consummation  of the Peony Gardens sale.  Also the 4 million shares of
common stock was  recorded as a deposit at December 31, 1998 and 1997.  In March
1999,  Hartcourt entered into an Exchange  Agreement pursuant to which Hartcourt
agreed to assign its rights and any and all of its interest in Peony Gardens for
marketable securities which were subsequently valued at $5,000,000.  Dragon King
is a wholly owned subsidiary of NuOasis. Subsequent to the transaction,  the CEO
of Dragon King became a director of Hartcourt.

On October 3, 1997,  Hartcourt  purchased the  outstanding  shares of Pego where
Pego became a  wholly-owned  subsidiary  of Hartcourt.  In  connection  with the
purchase,  Hartcourt paid $500,000 in cash,  issued 450,000 shares of restricted
common stock, 1,500 shares of Series "C" redeemable preferred stock, and entered
into a non-compete agreement with Pego's majority shareholder,  Michael Caruana,
who was prior to the acquisition, a director of Hartcourt.

Effective February 1, 1999,  pursuant to a Share Purchase  Agreement,  Hartcourt
acquired one (1) share of common stock of Enova,  representing 100% of the total
issued and  outstanding  capital  stock of Enova,  making  Enova a  wholly-owned
subsidiary.  Effective  March 1, 1999,  Hartcourt and Enova executed an Exchange
Agreement  (the  "Enova  Agreement")  whereby  Hartcourt  exchanged  all  of its
ownership  in  two  wholly-owned  subsidiaries,  Pego  and  ECS,  for  5,213,594
additional shares of common stock of Enova. On March 24, 1999, Hartcourt entered
into a Distribution  Agreement  pursuant to which Hartcourt agreed to distribute
to all  shareholders of record on March 31, 1999, all of the 5,213,595 shares of
common stock of Enova.  As a result of the Share Purchase  Agreement,  the Enova
Agreement  and  the  Distribution  Agreement,  each  shareholder  of  record  of
Hartcourt  on March 31, 1999  received one (1) share of Enova for every four (4)
shares owned of Hartcourt.  The Board of Directors of Enova  includes  directors
from Hartcourt.

On June  20,  1999,  Hartcourt  entered  into an  agreement  to  acquire  35% of
ownership interest in UAC. In connection with the purchase, Hartcourt recorded a
payable of $1,868,000  to Shi Zhang,  owner of UAC Trading at December 31, 1999.
In addition,  Hartcourt agreed to transfer  1,000,000 shares of its common stock
to UAC,  200,000 of these common  shares will be used to offset with UAC Trading
for an existing loan of $200,000 and 800,000 common shares were not issued as of
December  31,  1999.  On August 9, 1999,  Hartcourt  and UAC  Trading  agreed to
convert the Hartcourt  loan of $200,000 into an option to purchase an additional
15% interest in UAC from UAC Trading. As of December 31, 1999, Hartcourt has not
exercised its option to convert the loan for the additional 15% interest in UAC.
The  option  to  convert  the loan into an  additional  15%  interest  in UAC is
contingent  upon Chinese laws and  regulations  governing  foreign  ownership of
Chinese companies. As of December 31, 1999, Hartcourt has payables in the amount
of $87,112 to UAC and 1,868,000 to the owner of UAC Trading.

On August 17, 1999,  Hartcourt entered into a stock purchase  agreement with FTL
to purchase 4,964,990 shares of common stock,  representing  58.53% of the total
common stock  outstanding.  In connection  with the purchase,  Hartcourt  issued
1,500,000  shares of its  common  stock and  recorded  an amount  payable to FTL
$840,676 at December 31, 1999.  On January 18, 2000,  Hartcourt  issued  254,552
additional shares of its common stock to FTL for revision in purchase price as a
result of post closing adjustment.

<PAGE>

On September 8, 1999, the Board of Directors  authorized to issue 118,110 shares
to Mr. Fred Luke, a Director, for paying $50,000 as escrow deposit in connection
with the  acquisition of UAC and settlement of payments to vendors in the amount
of $100,000. In addition, Hartcourt issued 1,000,000 of common stock to Mr. Fred
Luke dba NuVen Advisors,  upon exercise of 1,000,000  options raising  $500,000,
which was used in connection  with the acquisition of FTL.

On December 14, 1999,  Hartcourt exchanged 100,000 shares of its common stock in
settlement of all  obligations  due to Pego  amounting to $1,058,642  and 35,000
shares of ECS owned by Enova valued at $16,358.

During the course of the year,  Hartcourt  issued  910,833  shares of its common
stock valued at $1,004,045  to its  directors  and officers in  connection  with
their compensation and performance of services.

At December 31, 1999 and 1998,  Hartcourt had  outstanding  advances to Dr. Alan
Phan, a director,  executive officer and promoter of Hartcourt, in the amount of
$ 58,221 and $142,522, respectively.

As at December 31, 1999,  Hartcourt  has a $50,000  note  receivable  from Pego,
non-interest bearing, payable upon demand and unsecured.

<PAGE>

                                    PART IV.

Item 13.  Exhibits and Reports on Form 8-K

The following  list  describes the exhibits  filed as part of this Annual Report
Form 10-KSB.

Exhibit No.    Description of Document

2.01           Agreement  and Plan of  Reorganization,  dated  November  5, 1994
               among  Stardust,  Inc.-Production-Recording-Promotion,  Hartcourt
               Investments (USA) Inc.  ("Hartcourt USA") and the shareholders of
               Hartcourt USA. (1)

2.02           Agreement and Plan or Reorganization dated December 1, 1994 Among
               Hartcourt USA. The Hartcourt Pen Factory,  Inc.("Hartcourt  Pen")
               and the Hartcourt Pen shareholder. (1)

2.03           Agreement   between  The  Hartcourt   Companies,   Inc.  and  the
               shareholder of Pego Systems,  Inc.,  "Stock Purchase  Agreement",
               dated June 29, 1997 (4)

2.04           Agreement  and Plan of  Reorganization,  dated  October 28, 1997,
               between The Hartcourt Companies,  Inc.,  Electronic Component and
               Systems, Inc., and Pruzin Technologies, Inc. (5)

3.01           Articles of Incorporation of Hartcourt, as amended. (1)

3.02           Bylaws of Hartcourt. (1)

3.03           Amendment to the Bylaws of Hartcourt. (1)

4.01           Articles of Amendment to Articles of  Incorporation  of Hartcourt
               regarding  the Creation of Preferred  Stock and the  Statement of
               Rights and Preferences of Common stock,  Original Preferred Stock
               and Class A Preferred Stock. (1)

<PAGE>

4.02           Articles of  Amendment of the  Articles of  Incorporation  of The
               Hartcourt  Companies,  Inc.,  Designating  Series A 9%  Preferred
               Stock.

4.03           Articles  of  Amendment  of  Articles  of  Incorporation  of  The
               Hartcourt  Companies,  Inc.  Designating  Series  B 9%  Preferred
               Stock.

4.04           Certificate of Amendment of the Articles of  Incorporation of The
               Hartcourt Companies, Inc. Designating Series C Preferred Stock.

4.05           Articles of  Amendment of the  Articles of  Incorporation  of The
               Hartcourt Companies, Inc. Designating Series D Preferred Stock.

10.01          Lease  between  Hartcourt  and Larry M.  Mitobe  for  Hartcourt's
               headquarters facility, dated April 9, 1996. (1)

10.02          Equipment  Lease  between  Hartcourt  USA  and  Anja  Engineering
               Corporation, dated April 4, 1994. (1)

10.03          Stock  Exchange  Agreement  between  Hartcourt  USA  and  Eastern
               Rochester, dated August 8, 1994. (1)

10.04          1995 Stock Option Plan. (1)

10.05          Purchase  Contract  between The  Hartcourt  Companies,  Inc.  and
               Exceptional Specialty Products, Inc., dated March 21, 1996. (1)

10.06          Purchase and Sale  Agreement,  dated August 8, 1996,  between The
               Hartcourt Companies,  Inc. and NuOasis  International,  Inc., and
               Addendum to Purchase and Sale Contract. (1)

10.07          Convertible  Secured  Promissory  Note,  dated August 8, 1996, in
               connection with Purchase and Sale Agreement, dated August 8, 1996
               between The Hartcourt Companies,  Inc. and NuOasis International,
               Inc.(1)

10.08          Convertible  Secured  Promissory  Note,  dated August 8, 1996, in
               connection with Purchase and Sale Agreement, dated August 8, 1996
               between The Hartcourt Companies,  Inc. and NuOasis International,
               Inc., as amended. (1)

10.09          Sales Agreement,  dated September 17, 1996, between The Hartcourt
               Companies, Inc. and Promed International, Ltd. (1)

10.10          Sales Agreement,  dated September 17, 1996, between The Hartcourt
               Companies, Inc. and Mandarin Overseas Investment Co., Ltd. (1)

10.11          Purchase and Sale Agreement,  dated  September 27, 1996,  between
               The Hartcourt Companies, Inc. and CKES Acquisitions, Inc. (1)

10.12          Secured  Promissory Note, dated September 27, 1996, in connection
               with Purchase and Sale Agreement between The Hartcourt Companies,
               Inc. and CKES Acquisitions, Inc. (1)

10.13          Consulting  Agreement,  dated  December  30,  1996,  between  The
               Hartcourt Companies, Inc. and American Equities LLC, a California
               limited liability company. (3)

<PAGE>

10.14          Investment  Banking  Agreement,  dated  March  1998,  between The
               Hartcourt Companies, Inc. and DanAllen Investment Group. (2)

10.16          Marketable Securities Agreement, dated July 31, 1997, between The
               Hartcourt Companies, Inc. and Capital Commerce, Ltd. (2)

10.17          Lease  Termination  Agreement,  dated  March  24,  1998,  between
               Hartcourt   Investment   (USA)   Corporation  and   Scripto-Tokai
               Corporation. (2)

10.17          Lease  Termination  Agreement,  dated  March  24,  1998,  between
               Hartcourt   Investment   (USA)   Corporation  and   Scripto-Tokai
               Corporation. (2)

10.18          Share  Purchase  Agreement  with  Enova  Holdings,   Inc.,  dated
               February 1, 1999,  Exchange Agreement,  dated March 23, 1999, and
               Distribution Agreement, dated March 24, 1999, File # 99579493.

10.19          Agreement with Beijing UAC Stock Trading Online Co., Ltd.

10.19.1        Financial  Statements  of Beijing UAC Stock  Exchange Online Co.,
               Ltd. for the period from  October 18, 1999 (date of inception) to
               December 31, 1999

10.20          Agreement with GoCall.com

10.21          FTL Stock Purchase Agreement

10.22          Advisory Agreement and 1999 Stock Plan with NuVen Advisors,  Inc.
               and Hartcourt dated March 18, 1999, File No. 333-74933.

10.23          Consulting Agreement with Fred G. Luke, dba NuVen Advisors,  File
               No. 99768860

10.24          Consulting Agreement with Archer & Weed, File No. 99768860

16.01          Resignation   by  Harlan  &  Boettger   LLP,   Certified   Public
               Accountants, dated October 18, 1999, File No. 99731003.

16.02          Amendment to  resignation  of Harlan & Boettger,  LLP,  Certified
               Public Accountants, dated December 6, 1999, File No. 99769229

23.01          Consent  of  Independent   Certified  Public  Accountants.   (BDO
               International)

23.02          Consent of Independent  Certified Public  Accountants.  (Harlan &
               Boettger, LLP)

27.01          Financial Data Schedule. Pursuant to Rule 12b-32 under Securities
               and Exchange Act of 1934, as amended.

(1) Previously  filed as an exhibit to Hartcourt's  Form 10SB, File No. 97636406
and incorporated herein by reference.

(2) Previously filed as an exhibit to Hartcourt's 10-KSB,  dated April 13, 1998,
File No. 98592254 and incorporated herein by reference.

<PAGE>

(3) Previously filed as an exhibit to Hartcourt's 10-KSB,  dated April 15, 1997,
File No. 97581142 and as amended by Hartcourt's Form  10-KSB40/A,  dated July 3,
1997, File No. 97636294. Incorporate herein by reference.

(4) Previously  filed as an exhibit to  Hartcourt's  Form 8-K, dated October 21,
1997, file No. 97698732 and as amended by Hartcourt's Form 8-K/A,  dated October
27, 1997, File No. 97701302. Incorporated herein by reference.

(5)  Previously  filed as exhibit to  Hartcourt's  Form 8-K,  dated November 12,
1997, File No. 97715149. Incorporated herein by reference.

Reports on Form 8-K:

(1)      On October 18, 1999,  Hartcourt  filed a report on Form 8-K to disclose
         the resignation by Harlan & Boettger LLP, Certified Public Accountants,
         File No. 99731003. Incorporated herein by reference.

(2)      On December 6, 1999,  Hartcourt filed a report on Form 8-K/A concerning
         the   resignation  of  Harlan  &  Boettger,   LLP,   Certified   Public
         Accountants, File No. 99769229. Incorporated herein by reference.

(3)      On December 8, 1999,  Hartcourt  filed a report on Form 8-K to disclose
         the resignations of Fred Luke and Jon L. Lawver Directors and Officers,
         File No. 99770546. Incorporated herein by reference.

(4)      Appointment of BDO International,  Certified Public Accountants,  dated
         February 10, 2000, File No. 530104. Incorporated herein by reference.


SUPPLEMENTAL  INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.

The  Registrant  did not send an Annual  Report  covering the fiscal year ending
December 31, 1996 nor did it send proxy materials to security  holders.  If such
report and proxy materials are mailed to security holders,  the Registrant shall
furnish to the Commission,  for its  information,  four (4) copies of the Annual
Report to security holders and four (4) copies of the proxy materials.

<PAGE>

                                   SIGNATURES

In accordance with Section 13 or 15 (d) of the Securities  Exchange Act of 1934,
the registrant has duly caused this  registration  statement to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                        THE HARTCOURT COMPANIES, INC.



Date: April 14, 2000                    By:  /s/  Alan V. Phan
                                             ----------------------------------
                             Alan V. Phan, President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the dates indicated.

Signature                          Title                         Date

/s/ Alan V. Phan
-----------------------------      Chairman of the Board,        April 14, 2000
Alan V. Phan                       President and Chief
                                   Executive Officer

/s/ Manu Ohri                      Executive Vice President      April 14, 2000
----------------------------       Finance, Chief Financial
Manu Ohri                          Officer, Treasurer and
                                   Director

/s/ Fred Cohn                      Secretary and Director        April 14, 2000
---------------------------------
Fred Cohn

<PAGE>

                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

                          INDEX TO FINANCIAL STATEMENTS



Independent Auditors' Reports ........................................F-2

Consolidated Financial Statements
     Balance Sheets as of December 31, 1999 and 1998 .................F-4
     Statements of Operations for the Years Ended
      December 31, 1999 and 1998 .....................................F-6
     Statements of Shareholders' Equity for the Years Ended
      December 31, 1999 and 1998 .....................................F-7
     Statements of Cash Flows for the Years Ended
      December 31, 1999 and 1998 .....................................F-8

Summary of Significant Accounting Policies ...........................F-10

Notes to Consolidated Financial Statements ...........................F-14

<PAGE>

                          Independent Auditors' Report



The Board of Directors and Shareholders of
The Hartcourt Companies, Inc.


We have audited the  accompanying  consolidated  balance  sheet of The Hartcourt
Companies,  Inc.  and  Subsidiaries  as of  December  31,  1999 and the  related
consolidated  statements of operations,  shareholders' equity and cash flows for
the  year  then  ended.   These  consolidated   financial   statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position of The  Hartcourt
Companies,  Inc.  and  Subsidiaries  as of December  31, 1999 and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated  financial  statements,  the Company has suffered  recurring losses
from  operations,  has a negative  working capital and needs to raise additional
funds to accomplish its objectives.  These matters raise substantial doubt about
the Company's ability to continue as a going concern. The consolidated financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.

                                        /s/  BDO International
                                        --------------------------------------
                                             BDO International

Hong Kong
March 30, 2000

                                       F-2

<PAGE>

                          Independent Auditors' Report



To the Board of Directors and Shareholders of
The Hartcourt Companies, Inc. and Subsidiaries


We have audited the  accompanying  consolidated  balance  sheet of The Hartcourt
Companies,  Inc. (a Utah  corporation) and Subsidiaries as of December 31, 1998,
and the related consolidated statements of operations,  changes in shareholders'
equity  and cash flows for the year then  ended.  These  consolidated  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audits to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated  financial statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audit  provides a  reasonable  basis for our
opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position of The  Hartcourt
Companies,  Inc. and  Subsidiaries  as of December 31, 1998,  and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated  financial  statements,  the Company has suffered  recurring losses
from operations  that raises  substantial  doubt about the Company's  ability to
continue  as a going  concern.  The  consolidated  financial  statements  do not
include any adjustments that might result from the outcome of this uncertainty.

                                        /s/  Harlan & Boettger, LLP
                                        ---------------------------------------
                                             Harlan & Boettger, LLP

San Diego, California
March 6, 1999

                                       F-3

<PAGE>

<TABLE>
<CAPTION>

                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

                                                                                              December 31,
                                                                                    ---------------------------------
                                                                                             1998               1999
                                                                                    ---------------------------------
<S>                                                                               <C>                <C>

ASSETS

Current assets:
   Cash and cash equivalents                                                      $        18,834    $       331,057
   Accounts receivable, net of allowance of $167,497                                            -             37,626
   Inventory                                                                                    -            127,091
   Notes receivable (Note 3)                                                               91,523            228,800
   Prepaid expenses and other                                                              68,355            129,114
   Due from related parties (Note 4)                                                      142,522            108,222
                                                                                    --------------     --------------

Total current assets                                                                      321,234            961,910
                                                                                    --------------     --------------

Property and equipment, net (Note 5)                                                            -            815,085

Investments (Note 2)                                                                   11,030,000          5,554,644

Intangibles, net (Note 6)                                                                       -          2,206,033

Net assets of discontinued operations (Note 7)                                          6,939,611                  -
                                                                                    --------------     --------------

Total assets                                                                      $    18,290,845    $     9,537,672
                                                                                    --------------     --------------

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Accounts payable                                                                $        40,635    $       152,709
  Deferred revenue                                                                              -             78,477
  Notes payable - current portion (Note 8)                                                 25,000            649,998
  Accrued expenses and other current liabilities (Note 10)                                 32,951          4,073,504
  Payables to related parties (Note 9)                                                  1,091,081          2,457,497
                                                                                    --------------     --------------

Total current liabilities                                                               1,189,667          7,412,185

Notes payable, net of current portion (Note 8)                                                  -            608,184
                                                                                    --------------     --------------

Total liabilities                                                                       1,189,667          8,020,369
                                                                                    --------------     --------------

Commitments and Contingencies (Notes 11 and 18)

Minority Interest (Note 2)                                                                      -            661,634

                                       F-4

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

                                                                                              December 31,
                                                                                    ---------------------------------
                                                                                             1998               1999
                                                                                    ---------------------------------
<S>                                                                               <C>                <C>

Shareholders' Equity
   Preferred Stock: (Note 12)
      Original preferred stock, $0.01 par value, 1,000
         authorized, issued and outstanding                                                    10                 10
      Series A, $1,000 stated value, 4,000 shares authorized,
         4,000 and 0 issued and outstanding at December 31,
         1998 and 1999                                                                  4,000,000                  -
      Series B, $1,000 stated value, 2,000 shares authorized,
         2,000 and 0 issued and outstanding at December 31,
         1998 and 1999                                                                  2,000,000                  -
      Series D, $1,000 stated value, 10,000 shares authorized,
         3,400 and 0 shares issued and outstanding at
         December 31, 1998 and 1999                                                     3,400,000                  -
      Series AB, $100 stated value, 25,000 shares authorized,
         4,050 and 0 issued and outstanding at December 31,
         1998 and 1999                                                                    405,000                  -
                                                                                    --------------     --------------

Total preferred stock                                                                   9,805,010                 10

Common stock, $0.001 par value, 50,000,000 shares authorized;
   19,954,382 shares and 23,832,152 shares issued and
   outstanding at December 31, 1998 and 1999                                               19,955             23,833
Stock subscription receivable                                                            (301,000 )                -
Treasury stock, at cost (24,364 shares and 1,524,364
  shares at December 31,  1998 and 1999)                                                 (279,928 )       (1,680,928 )
Additional paid-in capital                                                             33,257,835         38,895,860
Accumulated deficit                                                                   (25,400,694 )      (36,383,106 )
                                                                                    --------------     --------------

Total shareholders' equity                                                              7,296,168            855,669
                                                                                    --------------     --------------

Total liabilities and shareholders' equity                                        $    18,290,845    $     9,537,672
                                                                                    --------------     --------------

</TABLE>

               See accompanying summary of accounting policies and
                   notes to consolidated financial statements.

                                       F-5

<PAGE>

<TABLE>
<CAPTION>

                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                                                For the Years Ended December 31,
                                                                             ---------------------------------------
                                                                                   1998                  1999
                                                                             -----------------     -----------------
<S>                                                                        <C>                   <C>

Net sales                                                                  $                -    $          378,677

Cost of sales                                                                               -                71,810
                                                                             -----------------     -----------------

Gross profit                                                                                -               306,867
                                                                             -----------------     -----------------

Operating expenses
   Selling, general and administrative                                              1,472,286             7,029,179
   Depreciation and amortization                                                            -                85,879

   Impairments (Note 2)                                                            11,770,913                     -

   Settlements, net (Note 2)                                                        1,212,327               384,013
                                                                             -----------------     -----------------

Total operating expenses                                                           14,455,526             7,499,071
                                                                             -----------------     -----------------

Loss from continuing operations before items below                                (14,455,526)           (7,192,204 )
                                                                             -----------------     -----------------

Other income (expense):
   Equity in earnings of affiliate                                                          -                (9,714 )
   Interest expense                                                                         -              (103,709 )
   Interest income                                                                          -                 4,130
   Other expense                                                                            -              (189,790 )
                                                                             -----------------     -----------------

Total other income (expense)                                                                -              (299,083 )
                                                                             -----------------     -----------------

   Loss from continuing operations before minority interest                       (14,455,526)           (7,491,287 )

Less:  Loss in subsidiary attributed to minority interest                                   -                57,388
                                                                             -----------------     -----------------

Loss before discontinued operations                                               (14,455,526)           (7,433,899 )

Discontinued operations:
   Loss from discontinued operations                                               (6,840,127)             (420,810 )
   Loss on disposal of discontinued operations                                              -                (7,759 )
                                                                             -----------------     -----------------


Net loss                                                                   $      (21,295,653)$          (7,862,468 )
                                                                             -----------------     -----------------

Basic and fully diluted loss per common share (Note 15)

   Loss from continuing operations                                         $            (0.80)$               (0.38 )
   Loss from discontinued operations                                                    (0.38)                (0.02 )
                                                                             -----------------     -----------------

   Loss per share                                                          $            (1.18)$               (0.40 )
                                                                             -----------------     -----------------

Weighted average number of shares outstanding                                      18,061,430            19,702,678
                                                                             -----------------     -----------------

</TABLE>

               See accompanying summary of accounting policies and
                   notes to consolidated financial statements.

                                       F-6

<PAGE>

<TABLE>
<CAPTION>

                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                                                                                                                  Common
                                                Common Stock              Preferred Stock         Additional       Stock
                                          -------------------------   -------------------------    Paid-In      Subscriptions
              Description                   Shares        Amount        Shares        Amount       Capital      Receivable
----------------------------------------  -----------   -----------   -----------   -----------   -----------   ------------
<S>                                       <C>         <C>             <C>         <C>           <C>          <C>

Balance - January 1, 1998                 16,441,739  $     16,442        11,900  $ 10,900,010  $ 31,083,604 $      (26,000 )

Sale of shares under Regulation S          2,000,000         2,000             -             -     1,123,002       (300,000 )
Stock subscriptions received                       -             -             -             -             -         25,000
Shares issued to employees and BOD           377,857           378             -             -       196,123              -
Shares issued for purchase of PPI              9,796            10             -             -        14,990              -
Shares issued for purchase of
  Elan Manufacturing                         724,990           725             -             -       615,516              -
Preferred stock redeemed for cash                  -             -        (1,300 )  (1,300,000 )           -              -
Preferred stock exchanged for common
  stock                                      200,000           200          (200 )    (200,000 )     199,800              -
Shares issued to investors                   200,000           200             -             -        24,800              -
Preferred stock dividend                           -             -         4,050       405,000             -              -
Net loss                                           -             -             -             -             -              -
                                          -----------   -----------   -----------   -----------   -----------   ------------

Balance - December 31, 1998               19,954,382        19,955        14,450     9,805,010    33,257,835       (301,000 )

Shares issued to investors                   700,000           700             -             -       899,300              -
Sale of shares to directors                  118,110           118             -             -       149,882              -
Shares issued upon exercise of options     1,000,000         1,000             -             -     1,249,000              -
Shares issued upon exercise of options
  by director                              1,000,000         1,000             -             -     1,279,000              -
Stock subscriptions rescinded                      -                                                       -        301,000
Shares redeemed in connection with
  sale of ECS                             (2,000,000 )      (2,000 )      (3,400 )  (3,400,000 )  (1,248,000 )            -
Shares redeemed in connection with
  litigation settlement                   (1,000,000 )      (1,000 )     (10,050 )  (6,405,000 )    (624,000 )            -
Shares issued to directors and
  employees for services                     910,833           911             -             -     1,003,134              -
Shares issued upon exercise of warrants    1,014,674         1,015             -             -        60,614              -
Shares issued in connection with FTL
  acquisition                              1,500,000         1,500             -             -     1,399,500              -
Shares issued for services                   394,153           394             -             -       340,829              -
Shares issued to related party in
  settlement of debt                         100,000           100             -             -     1,074,900              -
Shares issued in settlement of debts         140,000           140             -             -        53,866              -
Dividend of Enova common stock to
  shareholders (Notes 2 and 7)                     -             -             -             -             -              -

Net loss                                           -             -             -             -             -              -
                                          -----------   -----------   -----------   -----------   -----------   ------------

Balance - December 31, 1999               23,832,152  $     23,833         1,000  $         10  $ 38,895,860  $           -
                                          -----------   -----------   -----------   -----------   -----------   ------------

</TABLE>

               See accompanying summary of accounting policies and
                   notes to consolidated financial statements.

                                       F-7

<PAGE>

<TABLE>
<CAPTION>

                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY


                                           Treasury Stock                          Total
                                        ----------------------    Accumulated    Shareholders'
              Description                Shares       Amount       Deficit        Equity
--------------------------------------- ---------    ---------    -----------    ------------
<S>                                     <C>        <C>        <C>            <C>

Balance - January 1, 1998                 24,364   $ (279,928)$   (3,835,041)$   37,859,087

Sale of shares under Regulation S              -            -              -        825,002
Stock subscriptions received                   -            -              -         25,000
Shares issued to employees and BOD             -            -              -        196,501
Shares issued for purchase of PPI              -            -              -         15,000
Shares issued for purchase of
  Elan Manufacturing                           -            -              -        616,241
Preferred stock redeemed for cash              -            -              -     (1,300,000)
Preferred stock exchanged for common
  stock                                        -            -              -              -
Shares issued to investors                     -            -              -         25,000
Preferred stock dividend                       -            -       (270,000 )      135,000
Net loss                                       -            -     (21,295,653)   (21,295,65)
                                        ---------    ---------    -----------    ----------

Balance - December 31, 1998               24,364     (279,928 )   (25,400,694)   17,101,178

Shares issued to investors                     -            -              -        900,000
Sale of shares to directors                    -            -              -        150,000
Shares issued upon exercise of options         -            -              -      1,250,000
Shares issued upon exercise of options
  by director                                  -            -              -      1,280,000
Stock subscriptions rescinded                  -            -              -        301,000
Shares redeemed in connection with
  sale of ECS                                  -            -              -     (4,650,000)
Shares redeemed in connection with
  litigation settlement                        -            -              -     (7,030,000)
Shares issued to directors and
  employees for services                       -            -              -      1,004,045
Shares issued upon exercise of warrants        -            -              -         61,629
Shares issued in connection with FTL
  acquisition                           1,500,000    (1,401,00)            -              -
Shares issued for services                     -            -              -        341,223
Shares issued to related party in
  settlement of debt                           -            -              -      1,075,000
Shares issued in settlement of debts           -            -              -         54,006
Dividend of Enova common stock to
  shareholders (Notes 2 and 7)                 -            -     (3,119,944 )   (3,119,944)

Net loss                                       -            -     (7,862,468 )   (7,862,468)
                                        ---------    ---------    -----------    ----------

Balance - December 31, 1999             1,524,364  $(1,680,92)$  (36,383,106 )$     855,669
                                        ---------    ---------    -----------    ----------

</TABLE>

               See accompanying summary of accounting policies and
                   notes to consolidated financial statements.

                                       F-7A

<PAGE>

<TABLE>
<CAPTION>

                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

Increase (Decrease) in Cash                                                  For the Years Ended December 31,
                                                                          ---------------------------------------
                                                                                1998                  1999
                                                                          -----------------     -----------------
<S>                                                                     <C>                   <C>

Cash flows from operating activities:
   Net loss                                                             $      (21,295,653 )  $       (7,862,468 )
   Adjustments to reconcile net loss to net cash used in operating
     activities:
       Loss on discontinued operations                                                   -               420,810
       Loss on disposal of discontinued operations                                       -                 7,759
       Loss on sale of equipment                                                    70,419                     -
       Write down on note receivable                                             1,043,795               576,775
       Depreciation                                                                405,481                29,314
       Amortization                                                                411,928                56,565
       Allowance for doubtful accounts                                             (27,003 )                   -
       Impairments                                                              17,231,138                     -
       Forgiveness of debt                                                         (90,000 )                   -
       Minority interest in loss of subsidiaries                                         -               (47,674 )
       Stock issued for services                                                   196,501             2,125,268
       Inventory valuation                                                          50,000                     -
       Settlements                                                               1,212,327               384,013
       Changes in operating assets and liabilities:
         Accounts receivables                                                     (731,054 )             (26,314 )
         Inventory                                                                 923,046                (3,897 )
         Prepaid expenses and other                                                 13,938               (64,559 )
         Accounts payable and accrued expenses                                    (758,243 )           4,186,927
         Payable to Mexican affiliate                                              130,630                     -
         Deferred revenue                                                                -               (21,737 )
         Other liabilities                                                         (95,996 )                   -
                                                                          -----------------     -----------------

Net cash used by operating activities                                           (1,308,746 )            (239,218 )
                                                                          -----------------     -----------------

Cash flows from investing activities:
   Purchase of property and equipment                                             (329,570 )              (2,572 )
   Proceeds on sale of equipment                                                     3,000                     -
   Proceeds on sale of marketable securities                                       595,573                     -
   Proceeds on notes receivable                                                    206,622                     -
   Payments on acquisitions                                                       (462,543 )          (1,405,590 )
                                                                          -----------------     -----------------

Net cash provided by (used in) investing activities                                 13,082            (1,408,162 )
                                                                          -----------------     -----------------

</TABLE>

                                       F-8

<PAGE>

<TABLE>
<CAPTION>

                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                             For the Years Ended December 31,
                                                                          ---------------------------------------
                                                                                1998                  1999
                                                                          -----------------     -----------------
<S>                                                                     <C>                   <C>

Cash flows from financing activities:
   Common stock subscriptions                                                      (15,000 )                   -
   Payments on loans to related parties                                                  -                     -
   Proceeds from issuance of common stock                                          875,002               (32,439 )
   Net proceeds from line of credit                                              1,302,609               699,007
   Payments on loans from shareholders                                            (209,509 )                   -
   Payments on capital lease obligations                                          (226,045 )                   -
   Payments on long-term debt                                                     (617,207 )                   -
   Proceeds from issuance of long-term debt                                      1,792,579               (33,342 )
   Proceeds on exercise of options and warrants                                          -             1,326,377
   Redeemed preferred stock                                                     (1,300,000 )                   -
                                                                          -----------------     -----------------

Net cash provided by financing activities                                        1,602,429             1,959,603
                                                                          -----------------     -----------------

Net increase in cash                                                               306,765               312,223

Cash in discontinued operations                                                   (365,619 )                   -

Cash and cash equivalents, beginning of period                                      77,688                18,834
                                                                          -----------------     -----------------

Cash and cash equivalents, end of period                                $           18,834    $          331,057
                                                                          -----------------     -----------------

</TABLE>

               See accompanying summary of accounting policies and
                   notes to consolidated financial statements.

                                      F-9

<PAGE>

                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

                   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements for 1998 include the accounts
of The Hartcourt Companies,  Inc. and its wholly-owned  subsidiaries;  Hartcourt
Pen Factory,  Inc. and Hartcourt  Investments  (USA),  Inc.,  which includes the
accounts of Pego Systems, Inc., and Electronic Components and Systems, Inc.
These subsidiaries were disposed of during 1999.

The accompanying consolidated financial statements for 1999 include the accounts
of The  Hartcourt  Companies,  Inc. and its 58.53% owned  subsidiary,  Financial
Telecom Limited (see Note 2). Financial Telecom Limited is located in Hong Kong.
For purposes of these consolidated financial statements The Hartcourt Companies,
Inc. and its subsidiary  will be referred to  collectively as "the Company." All
material  intercompany  transactions  and  balances  have been  eliminated.  The
Company also has a 35% ownership  interest in Beijing UAC Stock Exchange  Online
Co., Ltd. (see Note 2), which is accounted for using the equity method.

Cash and Cash Equivalents

For purposes of the Statements of Cash Flows,  the Company  considers all highly
liquid investments purchased with an initial maturity of three months or less to
be cash equivalents.

Accounts Receivable

In the normal  course of  business,  the  Company  extends  unsecured  credit to
customers located in Hong Kong. Credit is extended based on an evaluation of the
customer's financial condition.  The allowance for doubtful accounts is based on
management's  evaluation of  outstanding  accounts  receivable at the end of the
reporting period.

Inventory

Inventory is stated at the lower of cost or market, cost being determined on the
first-in, first-out (FIFO) method.

Property and Equipment

Property and equipment are stated at cost or estimated  fair market value on the
date of acquisition. Depreciation is provided over the estimated useful lives of
the  respective  assets on the  straight-line  basis  ranging from five to forty
years.   The  Company's   policy  is  to  evaluate  the   remaining   lives  and
recoverability in light of current conditions.

Intangibles

Goodwill and other intangible assets are amortized on the straight-line over the
estimated future periods to be benefited.  Goodwill, the excess of the Company's
purchase price over the fair value of the net assets acquired, is amortized over
10 years.

                                      F-10

<PAGE>

                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

                   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Foreign Currencies

Assets and liabilities denominated in foreign currencies are translated into the
currency of U.S. dollars using the exchange rates at the balance sheet date. For
revenues and  expenses,  the average  exchange  rate during the year was used to
translate Hong Kong dollars and Chinese Renminbi into U.S. dollars.  Translation
gains and losses  resulting  from changes in the exchange  rate are deferred and
are  shown as a  separate  component  of  shareholders'  equity  when  material.
Transaction  gains and losses are included in the  determination of net loss for
the period.

Accounting for Business Combinations

The  acquisitions  were  recorded as purchases  in  accordance  with  Accounting
Principle  Board  Opinion No. 16 (APB No. 16) "Business  Combinations",  and the
purchase prices were allocated to the assets acquired,  and liabilities  assumed
based upon their  estimated fair value at the purchase date. The excess purchase
price over the net asset value has been  recorded as goodwill and is included in
intangibles  in the  accompanying  balance sheet.  The operating  results of the
acquired  entities  are  included  in  the  Company's   consolidated   financial
statements from the dates of acquisition.

Income Taxes

Income taxes are provided in accordance  with Statement of Financial  Accounting
Standards No. 109 (SFAS No. 109),  "Accounting for Income Taxes." A deferred tax
asset or liability is recorded for all temporary  differences  between financial
and tax reporting.  Deferred tax expense  (benefit)  results from the net change
during the year of deferred tax assets and liabilities.

Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management,  it is more likely than not that some portion or all of the deferred
tax  assets  will not be  realized.  Deferred  tax assets  and  liabilities  are
adjusted  for the  effects  of  changes  in tax  laws  and  rates on the date of
enactment.

Fair Value of Financial Instruments

The following  methods and assumptions  were used by the Company to estimate the
fair values of financial instruments as disclosed herein:

The  carrying  amounts  of  financial   instruments   including  cash  and  cash
equivalents and accounts  payable  approximate fair value because of their short
maturity.

The  carrying  amount of  long-term  debt  approximates  fair value  because the
interest  rates on these  instruments  approximate  the rate the  Company  could
borrow at December 31, 1999.

The fair value of notes  receivable  and loans from  related  parties  cannot be
determined due to their related party nature.

                                      F-11

<PAGE>

                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

                   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Loss Per Share

The  Company  adopted  Statement  of  Financial  Accounting  Standard  No.  128,
"Earnings Per Share" (SFAS 128).  SFAS 128 provides for the calculation of Basic
and Diluted  earnings per share.  Basic  earnings per share includes no dilution
and is computed by dividing  income (loss)  available to common  shareholders by
the weighted average number of common shares outstanding for the period. Diluted
earnings per share  reflects the  potential  dilution of  securities  that could
share in the earnings of the entity.  Since the Company  incurred losses in 1998
and 1999, basic and diluted per share amounts are the same.

For the year ended  December  31,  1999,  potential  common  stock  representing
400,000  outstanding  stock  options and 450,000  outstanding  warrants  are not
included since their effect would be anti-dilutive.

Stock-Based Compensation

The Company  has adopted a method of  accounting  for  stock-based  compensation
plans as required by Statement of  Financial  Accounting  Standard No. 123 (SFAS
No. 123) "Accounting for Stock-Based Compensation".  SFAS No. 123 allows for two
methods of valuating stock-based  compensation.  The first method allows for the
continuing application of Accounting Principle Board Opinion No. 25 (APB No. 25)
in measuring  stock-based  compensation,  while  complying  with the  disclosure
requirements  of SFAS No. 123. The second method uses an option pricing model to
value stock  compensation and record as such within the  consolidated  financial
statements. Under both methods,  compensation cost for stock options is measured
as the excess,  if any, of the fair market price of the  Company's  stock at the
date of grant over the amount an employee  must pay to acquire  the stock.  Such
cost is charged to  operations.  The Company will  continue to apply APB No. 25,
while complying with SFAS No. 123 disclosure requirements.

Use of Estimates

The  preparation  of  consolidated   financial  statements  in  conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the consolidated
financial  statements,  and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.

Impairment of Long-Lived Assets

The Company has adopted  Statement of  Financial  Accounting  Standards  No. 121
("SFAS  121")  Accounting  for  the  Impairment  of  Long-Lived  Assets  and for
Long-Lived Assets to be Disposed Of. Under the provisions of this statement, the
Company has evaluated its long-lived assets for financial  impairment,  and will
continue to evaluate  them as events or changes in  circumstances  indicate that
the carrying amount of such assets may not be fully recoverable.

The Company  evaluates the  recoverability of long-lived assets by measuring the
carrying  amount of the assets  against the estimated  undiscounted  future cash
flows associated with them. At the time such flows of certain  long-lived assets
are not sufficient to recover the carrying value of such assets,  the assets are
adjusted  to  their  fair  values.  Accordingly,  based  on  these  evaluations,
management has adjusted the carrying  value of investments  and goodwill in 1998
and 1999.

                                      F-12

<PAGE>

                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

                   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

Revenue from product sales are recognized  upon  shipment.  Revenue from service
obligations is deferred and recognized when the services are provided.

Reclassification

Certain 1998 amounts have been  reclassified to conform to the 1999 consolidated
financial  statement  presentation.  These  reclassifications  have no effect on
previously reported net loss.

                                      F-13

<PAGE>

                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--Organization

Organization and Going Concern

The Hartcourt  Companies,  Inc.  ("Company" or "Hartcourt")  was incorporated in
Utah in  September  1983.  Currently,  Hartcourt  is involved in Internet  joint
ventures in Asia to facilitate the expansion of China's first commercial e-trade
financial network and wireless Internet Service Provider  services.  Hartcourt's
goal is to create a financial  portal in the Chinese market through the combined
services  of  Beijing-based  UAC Stock  Exchange  Online  Ltd.  ("UAC") of which
Hartcourt owns 35%, and Hong Kong based Financial Telecom Ltd. ("FTL"), of which
Hartcourt owns a 58.53%.

As shown in the  accompanying  financial  statements,  the Company  incurred net
losses of $7,862,468 and  $21,295,653  for the years ended December 31, 1999 and
1998, respectively. Additionally, the Company's current liabilities exceeded its
current  assets by $6,450,275 at December 31, 1999.  These  factors,  as well as
negative  cash flows  from  operations,  the  Company's  inability  to meet debt
obligations,   and  the  need  to  raise  additional  funds  to  accomplish  its
objectives,  create substantial doubt about the Company's ability to continue as
a going concern.

As discussed in Note 2, the Company has taken certain restructuring steps, which
in the opinion of management, will provide the necessary capital to continue its
operations.  These  steps  included:  1) the  settlement  of certain  matters of
litigation  and  disputes;  2) exchange of its  interests  in Peony  Gardens for
investment  securities;  which were subsequently exchanged for the investment in
GoCall  Inc.;  3) completed a private  placement  with PYR  Management,  LLC and
received  $2,743,000  on January  27,  2000 (Note  18);  4) signed a  Investment
Agreement with Swartz Private Equity, LLC, which agreed to purchase from time to
time,  up to  $35,000,000  Hartcourt  shares of  common  stock.  The  Investment
Agreement with Swartz is still subject to the approval of SEC (Note 11).

The ability of the Company to continue as a going  concern is  dependent  on its
success in  fulfilling  its plan.  The  financial  statements do not include any
adjustments  that might be  necessary  if the Company is unable to continue as a
going concern.

NOTE 2-- Investments and Business Acquisitions

Investment in Peony Gardens

In August 1996, the Company purchased an apartment complex located near Beijing,
China for $22 million from NuOasis International,  Inc. (NuOasis).  The purchase
price included the issuance of 4 million  shares of common stock,  valued at $10
million,  and a promissory note to NuOasis for $12 million.  The Note is due and
payable  upon  completion  of  construction  and the  date  the  certificate  of
occupancy is received.

Under the  deposit  method of  accounting  in  accordance  with SFAS No. 66, the
promissory   note  for  $12  million  was  being  deferred  until  the  complete
consummation  of the Peony Gardens sale.  Additionally,  the 4 million shares of
common stock was  recorded as a deposit at December  31,  1998.  At December 31,
1997,  the  construction  of the complex  was halted due to the  downturn in the
economy in Asia. The Company had the unilateral option of extending the date for
completion of the contract or rescinding the purchase contract.

                                      F-14

<PAGE>

                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2-- Investments and Business Acquisitions (Continued)

On March 15, 1999, Hartcourt entered into an exchange agreement with Dragon King
Investment Services, Inc. ("Dragon King"), a wholly-owned subsidiary of NuOasis,
pursuant to which  Hartcourt  agreed to assign its rights under the Purchase and
Sale Agreement dated August 8, 1996 and any and all of its interest in the Peony
Gardens  development  located in a suburb of Beijing City,  China for investment
securities  valued at $10 million.  Due to  restrictions on the ability to trade
the  investment  securities  received,   Hartcourt  recorded  an  impairment  of
$5,000,000 as of December 31, 1998.  Subsequent to the  transaction,  the CEO of
Dragon King became a director of the Company.

On December 23, 1999,  Hartcourt entered into an exchange agreement with GoCall,
Inc.,  ("GoCall"),  pursuant to which GoCall agreed to exchange 1,000,000 shares
of its Convertible Preferred Stock (par value $5.00), convertible into 10 shares
of Common  Stock  (Restricted  under Rule 144 for 12  months)  for each share of
Convertible  Preferred Share, for all of the marketable  securities  received by
Hartcourt from Dragon King, valued at approximately  $5.2 million.  In addition,
the Company has the option to appoint three of the five  directors to the GoCall
Board. As part of the exchange of the securities with GoCall, Hartcourt withheld
marketable  securities  -  192,000  shares  of  common  stock of ECS,  valued at
$196,358 at the date of closing on December 29, 1999.  The amount is recorded as
a payable  to GoCall at  December  31,  1999.  Due to the  GoCall  shares  being
restricted,  the Company recorded a loss on the settlement of the transaction of
$2.5 million as of December 31,  1999.  The Company also  recorded a loss on the
transaction of approximately $200,000, which is included in selling, general and
administrative  expenses.  The Company has not appointed any directors as of the
date of this report.

Investment in Alaskan Gold Mines

On September  17, 1996,  the Company  purchased a 50% interest in 68 gold mining
claims encompassing 320 acres of land in the state of Alaska for $6 million. The
purchase was made by issuing  1,298,700  shares of the  Company's  common stock.
Under the  deposit  method of  accounting  in  accordance  with SFAS No. 66, the
1,298,700  shares of common stock was recorded as a deposit at December 31, 1998
pending a formal  geological  survey of the land.  In March  1999,  the  Company
entered into a rescission  and settlement  agreement with Capital,  Mandarin and
Promed  whereby,  Mandarin and Promed  returned 1.3 million  shares of Hartcourt
common stock in exchange  for the return of the interest in the claims.  The net
result  of the  above  transaction  and the  transactions  below  with  Capital,
Mandarin and Promed resulted in an impairment to the assets at December 31, 1998
of $4,838,413.

Marketable Securities

On July 31, 1997, the Company  entered into an agreement with Capital  Commerce,
Ltd.  (Capital) whereby Capital agreed to provide the Company $6,000,000 in free
trading  securities  for the  purchase of Pego  Systems,  Inc.  ("Pego") and the
formation of Electronic  Components  and Systems,  Inc.  ("ECS").  The agreement
stipulated that should the value of the stock received by the Company  decrease,
Capital shall  compensate the Company for such  reduction by issuing  additional
shares to equate to the total  value of  $6,000,000.  In  consideration  for the
$6,000,000 in securities,  the Company issued to Capital  $4,000,000 in Series A
and  $2,000,000  in Series B, both 9%  convertible  preferred  stock  (Note 12).
Dividends are declared and paid monthly at 9% per annum. Terms of this agreement

                                      F-15

<PAGE>

                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2-- Investments and Business Acquisitions (Continued)

are  over a ten  year  period.  Due to the  Company's  inability  to sell  these
marketable securities,  in March 1999, the Company entered into a rescission and
settlement agreement with Capital,  Mandarin and Promed whereby Capital returned
all  $4,000,000 of  outstanding  Series A and $2,000,000 of Series B convertible
preferred stock, plus the AB preferred stock issued by the Company as dividends.
The  Company  returned  all unsold  marketable  securities  with a book value of
$4,894,393,  assigned a 7.35%  ownership  interest in ECS and issued 1.9 million
shares of the Company's  common stock to an agent of Capital,  who then assigned
1.3 million shares to Mandarin and Promed and assigned 600,000 shares to Pacific
Rim.  Pacific  Rim  returned  the  shares  to the  Company  in  settlement  of a
subscription receivable balance. The remaining balance of prepaid commissions in
conjunction with the original securities exchange totaling $547,557 were written
off in 1998.  The  Company  recorded a  settlement  loss of  $376,906 in 1999 in
connection with this transaction.

Purchase of Pego Systems, Inc.

On October 3, 1997,  the Company  purchased all the  outstanding  shares of Pego
Systems,  Inc. (Pego).  Payment terms of the transaction included a cash payment
of  $500,000,  the  issuance of $450,000 of  restricted  common  stock and 1,500
shares or $1,500,000 of Series C Redeemable Preferred Stock. (Note 12). Included
in the acquisition price is a covenant not-to compete. The excess purchase price
over the fair value of the net assets of $1,326,083 was recorded as goodwill. In
1998, the Company redeemed the Series C Preferred Stock.

Purchase of Electronic  Components  and Systems,  Inc. and Pruzin  Technologies,
Inc.

On October 28, 1997,  the Company  acquired  Electronic  Components and Systems,
Inc. (ECS) and Pruzin Technologies, Inc. through a tax-free reorganization.  The
Company paid $250,000 in cash,  issued a note for $250,000,  issued 3,400 shares
of Series D 9%  Convertible  Preferred  Stock (Note 12) and 2,500,000  shares of
common stock. The excess purchase price over the fair value of the net assets of
$8,010,307 was recorded as goodwill.

On October 21, 1998, James Pruzin, the selling shareholder and President of ECS,
formally  requested a rescission of the October 28, 1997  acquisition,  whereby,
the  Company,  through  a  wholly  owned  subsidiary,  acquired  ECS and  Pruzin
Technologies,  Inc.  Mr.  Pruzin  alleged  that  he was  authorized  to  request
rescission  of the  original  transaction  based  on an  alleged  breach  of the
acquisition  agreement by the Company which the Company denied.  On November 10,
1998,  the Company and Mr. Pruzin  entered into a memorandum  of  understanding,
whereby,  he could  reacquire  ECS from the Company by returning  all  Hartcourt
common  and  preferred  stock  originally  issued  to  him,  making  payment  of
$1,850,000 to the Company during 1999,  negotiate the return of Company's common
stock issued in the  acquisition of Elan  Manufacturing,  Inc., and issue to the
Company a promissory  note for $400,000  amortized  over five years with monthly
payments beginning in 2000.

Subsequently,  Mr.  Pruzin  was  unable to meet the terms of the  memorandum  of
understanding  and entered into new negotiations  with the Company.  The Company
and Mr. Pruzin reached an agreement  whereby Mr. Pruzin  returned to the Company
2,000,000  shares of  Hartcourt  common  stock  representing  80% of the  amount
originally  issued,  and 3,400 shares of Series D preferred  stock.  The Company
assigned to Mr. Pruzin a 30% ownership interest in ECS and reserved the right to
purchase  500,000 shares of Hartcourt  common stock held by Mr. Pruzin at $1 per
share.  As of December  31,  1999,  the Company has not  exercised  its right to
purchase the shares.  The Company  recorded a settlement  gain of  $3,146,302 in
connection with this transaction during 1999.

                                      F-16

<PAGE>

                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2-- Investments and Business Acquisitions (Continued)

Purchase of Elan Manufacturing, Inc.

On August 24,  1998,  the Company  through  its ECS  subsidiary,  purchased  all
outstanding  shares of Elan  Manufacturing,  Inc.  (Elan).  Payment terms of the
transaction included issuance of 724,990 shares of Hartcourt common stock with a
guaranteed  value of $.85 per share for total  consideration  of  $616,240.  The
excess  purchase  price  over the fair  value of the net  assets  which  totaled
$892,642 was recorded as goodwill.

Purchase of Pacific Pneumatics, Inc.

On August 6, 1998,  the  Company  through  its Pego  subsidiary,  purchased  all
outstanding shares of Pacific Pneumatics,  Inc. (Pacific).  Payment terms of the
transaction  included  $200,000 of cash and 9,796 shares of Company common stock
valued at  $15,000.  Included  in the  acquisition  price was a covenant  not-to
compete.  The excess  purchase price over the fair value of the net assets which
totaled $442,543 was recorded as goodwill.

Purchase of Assets of SM Technology, Inc.

On December 17, 1998, the Company through its ECS  subsidiary,  purchased a book
of business from SM Technology,  Inc. (SM) in exchange for cash in the amount of
$10,001 and a note payable due to the majority  shareholder  of SM in the amount
of $350,000.  The value of the  intangible  assets at the  acquisition  date was
$10,001.  The excess  purchase  price  over the fair  value of the assets  which
totaled $350,000 was recorded as goodwill.

Enova Holdings, Inc.

Effective February 1, 1999, pursuant to a Share Purchase Agreement,  the Company
acquired  one (1)  share  of  common  stock of Enova  Holdings,  Inc.,  a Nevada
corporation  (Enova)  representing  100% of the  total  issued  and  outstanding
capital stock of Enova, making Enova a wholly-owned subsidiary.  Effective March
1, 1999,  the Company  and Enova  executed  an  Exchange  Agreement  (the "Enova
Agreement")  whereby,  the  Company  exchanged  all  of  its  ownership  in  two
subsidiaries,  Pego and ECS,  collectively,  the  "subsidiaries",  for 5,213,594
additional  shares of common  stock of Enova.  On March 24,  1999,  the  Company
entered into a  Distribution  Agreement  pursuant to which the Company agreed to
distribute to all  shareholders  of record of The Hartcourt  Companies,  Inc. on
March 31,  1999,  all of the  5,213,595  shares of common  stock of Enova and to
file,  within  a  reasonable  period  of time  following  such  distribution,  a
Registration Statement on Form 10-SB to cause the distributed shares of Enova to
be  registered  under the  Securities  Exchange Act of 1934.  As a result of the
Share Purchase  Agreement,  the Enova Agreement and the Distribution  Agreement,
each  shareholder  of record of the Company on March 31, 1999  received  one (1)
share of Enova for every four (4) shares  owned of the  Company.  Following  the
distribution  of the Enova  shares,  both the Company and Enova will continue to
operate as separate companies. However, the Board of Directors of Enova includes
directors from Hartcourt.

                                      F-17

<PAGE>

                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2-- Investments and Business Acquisitions (Continued)

Purchase of Financial Telecom Limited (Note 6)

On August 17, 1999,  Hartcourt entered into a stock purchase agreement with FTL,
to purchase 4,964,990 shares of common capital stock, representing 58.53% of the
total common  capital  stock  outstanding.  The purchase  price was agreed to be
HK$4.713  per share  for a total  consideration  of  HK$23.4  million  or US$3.0
million,  payable  50% in cash and the  remaining  balance in  Hartcourt  common
shares.  The acquisition was completed on October 4, 1999 with Hartcourt  making
cash  payments  amounting to $801,860,  issuing  1,500,000  shares of its common
stock and recording a payable of $797,140. The stock purchase agreement required
a post-closing  adjustment for any deficiency to be paid to FTL in the event the
final  closing net worth as of the  closing  date shall be more than $5,000 over
and above  the net worth  reported  on  February  28,  1999 in  calculating  the
purchase price. As a result of the post-closing  adjustment,  the purchase price
was revised to HK$25,563,842 or  US$3,277,412.  At December 31, 1999,  Hartcourt
recorded  the  increase  in  purchase  price  as a  result  of the  post-closing
adjustment as an additional amount payable to FTL.

Investment in Beijing UAC Stock Exchange Online Co. Ltd.

On June 20, 1999,  Hartcourt  entered  into an agreement  with Beijing UAC Stock
Trading Online Co. Ltd. ("UAC Stock") to form a joint venture  company under the
laws of the People's Republic of China. The name of the joint venture company is
Beijing  UAC Stock  Exchange  Online Co.  Ltd.  ("UAC").  Under the terms of the
agreement, for a 35% interest in UAC, Hartcourt agreed to invest $1.0 million in
UAC, pay $1.7 million to the owners of UAC Stock and transfer  1,000,000  common
shares of Hartcourt to UAC, of which 200,000 common shares are to be used to pay
UAC Stock for an existing loan to the owner of UAC Stock of $200,000 and 800,000
common  shares to be recorded as loan from  Hartcourt to UAC. On August 9, 1999,
Hartcourt  and UAC  agreed to  convert  the loan of  $200,000  into an option to
purchase an additional 15% interest in UAC from UAC Stock. The option to convert
the loan into an additional 15% interest in UAC is contingent  upon Chinese laws
and regulations governing foreign ownership of Chinese companies. As of December
31, 1999,  Hartcourt  has not  exercised  its option to convert the loan for the
additional  15% interest in UAC and Harcourt has not issued any of the 1,000,000
shares.  Additionally,  the Company has payables in the amount of $87,112 to UAC
and $1,868,000 to the owner of UAC Stock as of December 31, 1999.

                                      F-18

<PAGE>

                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2-- Investments and Business Acquisitions (Continued)

<TABLE>
<CAPTION>

The following is a summary of investments at December 31, 1998 and 1999:

                                                                             December 31,          December 31,
                                                                                 1998                  1999
                                                                           -----------------      ----------------
<S>                                                                      <C>                    <C>

Investment in GoCall                                                     $                -     $       2,500,000
Investment in UAC                                                                         -             2,858,286
Marketable securities                                                             4,894,393               196,358
Peony Gardens                                                                    11,932,500                     -
Alaskan Gold Mines                                                                5,974,020                     -
                                                                           -----------------      ----------------

Balance                                                                          22,800,913             8,054,644
                                                                           -----------------      ----------------

Impairments
     Peony Gardens                                                               (6,932,500 )                   -
     Alaskan Gold Mines                                                          (4,838,413 )                   -
                                                                           -----------------      ----------------

Total impairments                                                               (11,770,913 )                   -
                                                                           -----------------      ----------------

Balance                                                                  $       11,030,000     $       5,554,644
                                                                           -----------------      ----------------
</TABLE>

The  following is a summary of the  settlement  (gain) loss at December 31, 1998
and 1999:

<TABLE>
<CAPTION>

                                                                             December 31,          December 31,
                                                                                 1998                  1999
                                                                           -----------------      ----------------
<S>                                                                      <C>                    <C>

American Equities (Note 11)                                              $          664,770     $         653,409
Capital, Mandarin and Promed (Note 2)                                               547,557               376,906
GoCall (Note 2)                                                                           -             2,500,000
Pruzin (Note 2)                                                                           -            (3,146,302 )
                                                                           -----------------      ----------------

Total                                                                    $        1,212,327     $         384,013
                                                                           -----------------      ----------------
</TABLE>

                                      F-19

<PAGE>

                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3--NOTES RECEIVABLE

Notes receivable consist of the following:

<TABLE>
<CAPTION>

                                                                             December 31,          December 31,
                                                                                 1998                  1999
                                                                           -----------------      ----------------
<S>                                                                      <C>                    <C>

Note receivable from former attorney Kevin Quinn, interest at 9% per
    annum; due on demand; secured by real estate.  Included in the
    balance is accrued interest of $8,871 at December 31, 1999 and
    1998.  The note has been fully impaired at December 31, 1999.        $           91,523     $               -

Note receivable from American Equities, non-interest bearing,
    payable upon demand; unsecured.                                                       -               225,000

Note receivable from individual, non-interest bearing, payable upon
    demand; unsecured.                                                                    -                 3,800
                                                                           -----------------      ----------------

Total                                                                    $           91,523     $         228,800
                                                                           -----------------      ----------------

</TABLE>

                                      F-20

<PAGE>

                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4-- Related Party Transactions

Related party loans receivable consist of the following:

<TABLE>
<CAPTION>

                                                                             December 31,          December 31,
                                                                                 1998                  1999
                                                                           -----------------      ----------------
<S>                                                                      <C>                    <C>

Loan to officer of Hartcourt, non-interest bearing; due on demand;
    unsecured.                                                           $          142,522     $          58,222

Note receivable from Pego Systems, non-interest bearing, payable
    upon demand; unsecured.                                                               -                50,000
                                                                           -----------------      ----------------

Total                                                                    $          142,522     $         108,222
                                                                           -----------------      ----------------
</TABLE>

During  1998,  the  Company  issued  377,857  shares of common  stock  valued at
$196,501 to employees  and the Board of  Directors  of the  Company.  The common
stock was valued at the fair  market  value of the stock on the date of issuance
and the amount was charged to operations.

During  1999,  the  Company  issued  910,833  shares of common  stock  valued at
$1,004,045  to employees  and the Board of Directors of the Company.  The common
stock was  valued at the  market  price of the stock on the date of the Board of
Directors minutes and the amount was charged to operations.

During 1999, the Company issued 1,000,000 options to a director with an exercise
price of  $0.50.  The  market  price  at the date of  issuance  was  $1.28.  The
difference of $780,000 was charged to operations.  The options were exercised in
1999.

During 1999,  the Company issued  100,000  restricted  common shares to Enova to
satisfy its debt to Pego Systems of $1,058,642 and in exchange for 35,000 common
shares of ECS.

NOTE 5-- Property and Equipment

Property and equipment are summarized as follows:

<TABLE>
<CAPTION>

                                                                                                   December 31,
                                                                                                       1999
                                                                                                  ----------------
<S>                                                                                         <C>

Computer and transmission equipment                                                             $       2,508,986
Building                                                                                                  459,237
Furniture and fixtures                                                                                    158,589
Office equipment and computers                                                                            576,663
Leasehold improvements                                                                                     17,192
                                                                                                  ----------------
                                                                                                        3,720,667

Less accumulated depreciation and amortization                                                         (2,905,582 )
                                                                                                  ----------------
Property and equipment, net
                                                                                            $             815,085
                                                                                                  ----------------

</TABLE>

                                      F-21

<PAGE>

                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6-- Intangibles

Intangibles are summarized as follows:

<TABLE>
<CAPTION>

                                                                                                   December 31,
                                                                                                       1999
                                                                                                  ----------------
<S>                                                                                             <C>

Goodwill - FTL                                                                                  $       2,262,598

Less accumulated amortization                                                                             (56,565 )
                                                                                                  ----------------

Intangibles, net                                                                                $       2,206,033
                                                                                                  ----------------
</TABLE>

Goodwill  consists of amounts paid in excess of the fair value of the net assets
in the acquisitions.

Consideration paid for FTL:

<TABLE>
<CAPTION>

                                                                                                   October 4,
                                                                                                       1999
                                                                                                  ----------------
<S>                                                                                             <C>

Cash                                                                                            $       1,638,706

Hartcourt common shares                                                                                 1,638,706
                                                                                                  ----------------

                                                                                                $       3,277,412
                                                                                                  ----------------

Fair value of net assets received:

                                                                                                   October 4,
                                                                                                       1999
                                                                                                  ----------------


Cash                                                                                            $       1,096,036
Accounts receivable and prepaids                                                                        1,160,414
Inventory                                                                                                 123,194
Investment                                                                                              1,401,000
Property and equipment, net                                                                               841,827
Accounts payable and accruals                                                                            (994,511 )
Other receivables                                                                                      (1,894,123 )
                                                                                                  ----------------

                                                                                                        1,733,837
Minority interest                                                                                        (719,023 )
                                                                                                  ----------------

                                                                                                        1,014,814
                                                                                                  ----------------

Goodwill                                                                                                2,262,598
                                                                                                  ----------------

                                                                                                $       3,277,412
                                                                                                  ----------------
</TABLE>

Pro forma unaudited  information assuming the acquisition of FTL had occurred as
of  January  1, 1998,  is not  provided  as the  proforma  amounts  would not be
significantly different than the Company's historical results.

                                      F-22

<PAGE>

                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7--DISCOUNTINUED OPERATIONS

During March 1999, the Company  disposed of Hartcourt  Investments and Hartcourt
Pen and  spun-off  Pego and ECS,  the  "subsidiaries."  As a result the  Company
recorded  a loss  of  $7,759  in  connection  with  the  disposal  of  Hartcourt
Investments  and Hartcourt  Pen and a dividend of $3,119,944 in connection  with
the  spin-off of Pego and ECS (Note 2). The results of  operations  for 1998 and
the  first two  months  of 1999 of the  subsidiaries  have  been  classified  as
discontinued operations in the financial statements.

Information  relating to the operations of the  subsidiaries for the years ended
December 31, 1998 and 1999 are as follows:

<TABLE>
<CAPTION>

                                                                                                     Two Months
                                                                                                       Ended
                                                                                                    February 29,
                                                                                 1998                   1999
                                                                           -----------------      -----------------
<S>                                                                      <C>                    <C>

Net revenue                                                              $       23,282,452     $        2,822,596
Expenses                                                                         30,122,579              3,243,406
                                                                           -----------------      -----------------

Loss from discontinued operations                                                (6,840,127 )
                                                                         $                  $             (420,810 )
                                                                           -----------------      -----------------
</TABLE>

The assets and  liabilities of the  subsidiaries  have been  reclassified as net
assets  of  discontinued  operations  and are in the  accompanying  consolidated
balance sheet as of December 31, 1998 as follows:

<TABLE>
<CAPTION>
         <S>                                                             <C>
         Assets
              Cash                                                       $         365,619
              Accounts receivable                                                3,175,305
              Inventory                                                          2,613,560
              Notes receivable                                                      10,000
              Prepaid expenses                                                      44,713
              Due from related parties                                              33,385
              Property and equipment                                             4,262,120
              Intangibles                                                        5,198,033
              Other assets                                                          18,423
                                                                           ----------------

         Total                                                                  15,721,158
                                                                           ----------------

         Liabilities
              Accounts payable and accrued liabilities                           3,150,566
              Line of credit                                                     1,502,609
              Notes payable                                                      2,449,630
              Capital lease obligations                                          1,070,964
              Payables to related parties                                          607,778
                                                                           ----------------

         Total liabilities                                                       8,781,547
                                                                           ----------------

         Net assets                                                      $       6,939,611
                                                                           ----------------
</TABLE>

                                      F-23

<PAGE>

                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8-- Notes Payable

Notes payable are summarized as follows:

<TABLE>
<CAPTION>

                                                                             December 31,          December 31,
                                                                                 1998                  1999
                                                                           -----------------      ----------------
<S>                                                                      <C>                    <C>

Note payable, bank, monthly principal and interest payments of
    $8,413 including interest at the bank's prime rate plus 2.5% per
    annum, 11% at December 31, 1999; due May 2009; secured by
    building                                                             $                -     $         619,183

Trade facilities, bank, monthly interest payments at the bank's
    prime rate plus 4.5% per annum, 13% at December 31, 1999;
    secured by substantially all assets of FTL with a personal
    guarantee from a shareholder                                                          -               576,362

Note payable, bank, monthly principal and interest payments of $851
    including interest at the bank's prime rate plus 2.5% per annum,
    11% at December 31, 1999; due August 2001, secured by building                        -                62,637

Other                                                                                25,000                     -
                                                                           -----------------      ----------------

                                                                                     25,000             1,258,182

Less current portion                                                                (25,000 )            (649,998 )
                                                                           -----------------      ----------------

Notes payable, net of current portion                                    $                -     $         608,184
                                                                           -----------------      ----------------
</TABLE>

The following is a summary of principal maturities of notes payable:

<TABLE>
<CAPTION>

Year ending December 31,                                                        Amount
                                                                           -----------------
<S>                                                                      <C>

         2000                                                            $          649,998
         2001                                                                        46,067
         2001                                                                        51,525
         2002                                                                        57,630
         2003                                                                        64,458
         Thereafter                                                                 388,504
                                                                           -----------------

         Total                                                           $        1,258,182
                                                                           -----------------
</TABLE>

The Company was  delinquent  on  payments of the notes  payable at December  31,
1999.

                                      F-24

<PAGE>

                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9-- PAYABLES TO RELATED PARTIES

Payables to related parties are summarized as follows:

<TABLE>
<CAPTION>

                                                                             December 31,          December 31,
                                                                                 1998                  1999
                                                                           -----------------      ----------------
<S>                                                                      <C>                    <C>

Payable to owner of UAC                                                  $                -     $       1,868,000
Payable to UAC                                                                            -                87,112
Payable to shareholder of FTL                                                             -               502,385
Payable to Pego                                                                     991,081                     -
Payable to shareholder                                                              100,000                     -
                                                                           -----------------      ----------------

Total                                                                    $        1,091,081     $       2,457,497
                                                                           -----------------      ----------------
</TABLE>

NOTE 10-- Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities are summarized as follows:

<TABLE>
<CAPTION>

                                                                             December 31,          December 31,
                                                                                 1998                  1999
                                                                           -----------------      ----------------
<S>                                                                      <C>                    <C>

Accrued wages                                                            $                -     $       3,379,788
Accrued brokers fees                                                                      -                57,000
Accrued professional fees                                                                 -               159,851
Other current liabilities                                                            32,951               476,865
                                                                           -----------------      ----------------

                                                                         $           32,951     $       4,073,504
                                                                           -----------------      ----------------
</TABLE>

NOTE 11-- Commitments and Contingencies

Operating Leases

The  Company  leases  its  facilities  under  long-term,   non-cancelable  lease
agreements  expiring  at various  dates  through  June 2004.  The  noncancelable
operating  lease  agreements  provide  that the  Company  pays  property  taxes,
insurance and certain operating expenses applicable to the leased premises. Rent
expense  for the  years  ended  December  31,  1999 and 1998  was  $105,611  and
$48,842, respectively.

The future minimum annual lease payments required under the operating leases are
as follows:

 Year Ending December 31,

      2000                                    $      84,020
      2001                                           84,020
      2002                                           61,894
                                                ------------

 Total future lease payments                  $     229,934
                                                ------------

                                      F-25

<PAGE>

                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11-- Commitments and Contingencies (Continued)

Employment Agreement

The Company is obligated  under an employment  contract with its chief executive
officer  ("Executive")  to provide  salary,  bonuses,  and other fringe benefits
through  December  31,  2001.  The term of the  contract  will be  automatically
extended for an  additional  term of three (3) years,  unless the Company or the
Executive  gives a written notice to the other party at least 90 days before the
expiration of the term  remaining.  Minimum  salary  payments under the contract
currently amount to $250,000 per year. Payments to the Executive will be made in
equal monthly  installments.  In the event the Company does not have  sufficient
cash flow to pay compensation,  the Executive will accept Hartcourt's restricted
common shares for the same amount of compensation,  share price to be calculated
at 50% of the market trading bid price on January 1st of the year of employment.

Compensation expense reflected in the accompanying financial statements amounted
to  $3,379,788  and  $200,000  for the years ended  December  31, 1999 and 1998,
respectively.  The  Company  issued  213,333  restricted  common  shares  to the
Executive in 1999 for 1998's salary of $200,000.  The Company  issued  1,551,887
restricted common shares to the Executive in 2000 for 1999's salary of $225,000.

Consulting Agreements

On December 30, 1996,  the Company  entered  into a  consulting  agreement  with
American  Equities,  LLC (American  Equities),  a California  Limited  Liability
Company  which  expires  on  December  31,  2001.  Pursuant  to the terms of the
agreement,  the Company issued  1,000,000 common shares at $1.50 per share as an
advance against future fees to be earned by American Equities.  The Company also
advanced  300,000  common  shares at $0.50 per share to  American  Equities  for
future operating expenses.

On  September  3, 1998,  American  Equities  filed suit  against the Company for
breach of contract.

The Company denied that it had breached any contract with American  Equities and
filed a cross-complaint for fraud and non-performance  against American Equities
and additional cross-defendants.  In March 1999, as settlement of these matters,
the  parties  agreed  that all fees paid to  American  Equities  were earned and
American  Equities  received  a 27.65%  interest  in ECS.  Accordingly,  prepaid
expenses  amounting to $664,770 were  written-off to operating  expenses for the
year ended  December  31,  1998.  The  Company  recorded an  additional  loss of
$653,409 in 1999 in connection with this transaction.

In  connection  with the  agreement  the  Company  also  entered  into a warrant
agreement with American Equities (Note 12).

Investments

On October 20, 1999,  Hartcourt  signed a Joint Venture  Agreement  with Beijing
Innostar  Hi-Tech  Enterprises,   Ltd.  ("Innostar")  to  establish  a  wireless
nationwide  Internet service provider network and IP phone services in China via
a Chinese satellite. The total amount of investment in the joint venture company
will be $24.0 million of which $14.0 million will be contributed by Innostar for
65% ownership

                                      F-26

<PAGE>

                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11-- Commitments and Contingencies (Continued)

interest and $10.0 million by Hartcourt for 35% ownership interest.  The profits
and losses of the joint venture  company shall be distributed in accordance with
their ownership  interest ratios. The duration of the Joint Venture Agreement is
fifteen  (15) years.  The date of official  establishment  of the joint  venture
company  shall be the date the  business  license  is  issued.  The  license  is
expected to be granted by June 2000.

On November 29, 1999, Hartcourt signed a Term Sheet with eSAT, Inc. ("eSAT"), to
create a strategic  alliance  through the  exchange  of their  common  shares to
establish a wireless Internet service provider and IP phone network in China. In
a private placement,  Hartcourt will purchase 2,000,000 restricted common shares
of eSAT.  eSAT will also grant  Hartcourt  an option to purchase  an  additional
2,000,000  restricted  common shares of eSAT at the exercise  price of $4.00 per
share subject to customary  antidilution  provisions and exercisable for a three
year period.  Fully  exercised,  it will  represent  20%  ownership in eSAT.  In
exchange,  Hartcourt  will issue  1,000,000 of its  restricted  common shares to
eSAT.  All the shares and  options  will be placed in an escrow  with a mutually
agreed agent. The operation is expected to start in late April 2000. If by April
30, 2000, eSAT does not obtain a satisfactory exclusive supply contract with the
Innostar  Joint  Venture,  either party may void the  agreement,  and the escrow
agent will be  instructed  to return the  shares and  options to the  respective
parties.

On November 3, 1999,  Hartcourt entered into an Investment Agreement with Swartz
Private Equity,  LLC ("Swartz") which was  subsequently  amended on November 19,
1999. The Investment  Agreement,  as amended,  entitles the Company to issue and
sell its common  stock to Swartz for up to an aggregate of $35 million from time
to time during the three-year  period ending on November 3, 2002.  Each election
by the Company to sell stock to Swartz is referred to as a put right.

In order to invoke a put right, the Company must have an effective  registration
statement on file with the Securities and Exchange  Commission  registering  the
resale  of the  shares of the  Company's  common  stock  that may be issued as a
consequence of the exercise of that put right.  The number of common shares sold
to Swartz may not exceed the lesser of (i) 15% of the aggregate  daily  reported
trading  volume  during a period that  begins on the  business  day  immediately
following  the day the Company  exercises the put right and ends on and includes
the day that is 20 business days after the date of exercise of the put right, or
(ii) 9.9% of the total number of shares of Hartcourt  common stock that would be
outstanding upon completion of the put.

For each share of Hartcourt common stock, Swartz will pay the Company the lesser
of the market price for such share,  minus $.10,  or 91% of the market price for
the share.

Within five business days after the end of each pricing  period,  the Company is
required to issue and deliver to Swartz a warrant to purchase a number of shares
of Hartcourt  common stock equal to 8% of the common  shares issued to Swartz in
the  applicable  put.  Each  warrant  will be  exercisable  at a price that will
initially  equal 110% of the market price of Hartcourt  common stock on the date
on which the Company  exercised the put right.  Each warrant will be immediately
exercisable  and have a term  beginning  on the date of issuance and ending five
years thereafter.

                                      F-27

<PAGE>

                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11-- Commitments and Contingencies (Continued)

Legal Proceedings

ComericaBank  of California  ("Comerica")  vs. Enova.  Et al.  Superior Court of
California, County of Los Angeles, California. Case No. BC 221594.

This litigation concerns  Hartcourt's alleged obligation as an alleged guarantor
of another  entity's  ("Pego")  alleged  obligation on a promissory note that is
asserted to be in non-financial  default. The plantiff in that matter may be the
subject of a  cross-complaint  by  Hartcourt,  which will depend on the evidence
disclosed by documents Hartcourt has demanded be produced. The complaint alleges
that  Hartcourt  executed  a  guarantee  of  obligation  of Pego  (approximately
$925,000) which obligation went into non-financial  default.  Pego expects to be
able to settle with plaintiff and such  settlement  will  eliminate  Hartcourt's
liability.  The prospects for the success of those settlement  negotiations,  as
well as the  approximately  range or amount of any potential  loss by Hartcourt,
are uncertain at this time.

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 to
contractual rights and obligations,  employment  matters,  and claims of product
liability.  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 12-- Capital Stock

The Company's  Articles of  Incorporation  (Articles)  authorize the issuance of
preferred  stock.  The Articles provide that the total number of shares of stock
which the Company shall have the authority to issue is 60,001,000, consisting of
50,000,000  shares of common stock,  $0.001 par value,  1,000 shares of original
preferred  stock having a par value of $0.01 per share (the  Original  Preferred
Stock);  and 10,000,000  shares of preferred stock,  having a par value of $0.01
per share (the Class A Preferred Stock).

In September and October 1997, the Company's  Articles were amended to authorize
the  issuance of Series A, B, C, D, and AB  preferred  stock.  As  amended,  the
Articles provide that the total number of shares of preferred series A, B, C, D,
and AB stock are 4,000, 2,000, 1,500, 10,000, and 25,000, respectively.

Original Preferred Stock

Until December 31, 2010,  with respect to the election of directors,  holders of
Original  Preferred  Stock shall be  entitled  to elect the number of  directors
which constitutes  three-fifths  (3/5ths) of the authorized number of members of
the Board of Directors and, if such three-fifths (3/5ths) is not a whole number,
then the  holders of  Original  Preferred  Stock  shall be entitled to elect the
nearest higher whole number of directors that is at least three-fifths  (3/5ths)
of such membership.

The  holders of record of shares of Original  Preferred  Stock  shall,  at their
option, be entitled to convert each share of Original Preferred Stock into 1,000
shares of fully paid and  non-assessable  common stock. Such shares are owned by
the President of the Company.

                                      F-28

<PAGE>

                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12-- Capital Stock (Continued)

In the event of  liquidation,  dissolution,  or winding up of the affairs of the
Company  whether  voluntary  or  involuntary,  the  holders  of record  shall be
entitled to be paid the full par value of Original Preferred Stock, and no more.
The  holders of shares of  Original  Preferred  Stock  shall not be  entitled to
receive any dividends.

Class A Preferred Stock

The 10,000,000  shares of authorized and unissued Class A Preferred Stock may be
split  with  such  designations,   powers,  preferences  and  other  rights  and
qualifications,  limitations and restrictions  thereof as the Company's Board of
Directors elects for a given series. No shares have been issued.

Series A 9% Convertible Preferred Stock

Non-voting  convertible  preferred stock,  4,000 shares authorized with a stated
value of $1,000  per  share.  Holders  of shares  shall be  entitled  to receive
cumulative  dividends  at a rate  equal to 9% per  annum.  Series A  convertible
preferred  stock is  subject  to  redemption  at any time,  at the option of the
Company, at a redemption price equal to $1,000 per share plus accrued and unpaid
dividends to the date of redemption.  Holders of Series A convertible  preferred
stock may convert  their shares into either (A) a number of shares of fully paid
and non-assessable  common stock of Electronic Components Systems, Inc. equal to
 .0075%  of total  outstanding  shares  of ECS or (B)  shares  of fully  paid and
non-assessable  common  stock of the Company.  Dividends  are to be declared and
paid monthly.  Dividends  totaling $90,000 were accrued at December 31, 1997 for
Series A.  During  1998,  Series AB  preferred  stock was  issued as  payment of
accrued dividends.  In March 1999, the Series A convertible  preferred stock was
returned and canceled (Note 2).

Series B 9% Convertible Preferred Stock

Non-voting  convertible  preferred stock,  2,000 shares authorized with a stated
value of $1,000  per  share.  Holder  of shares  shall be  entitled  to  receive
cumulative  dividends  at a rate  equal to 9% per  annum.  Series B  convertible
preferred  stock is  subject  to  redemption  at any time,  at the option of the
Company,  at a  redemption  price  equal to $1,000 per share,  plus  accrued and
unpaid  dividends  to the date of  redemption.  Holders of Series B  convertible
preferred  stock may convert  their shares into either (A) a number of shares of
fully paid and  non-assessable  shares of common stock of Pego Systems,  Inc., a
California  Corporation,  equal to .015% of total outstanding shares of Pego or,
(B) shares of fully paid non-assessable  common stock of the Company.  Dividends
are to be declared and paid monthly.  Dividends totaling $45,000 were accrued at
December  31,  1997 for Series B. During  1998,  Series AB  preferred  stock was
issued as payment for accrued dividends. In March 1999, the Series B convertible
preferred stock was returned and canceled (Note 2).

Series C Redeemable Preferred Stock

Non-voting, non-participating redeemable preferred stock, 1,500 authorized, with
a par value of  $1,000  per  share.  Series C  preferred  stock is junior to the
original  preferred  stock and any other class or series of capital stock of the
Company which are  specifically  ranked  senior  (senior  securities).  Series C
preferred stock is redeemable at any time, at the discretion of the Company,  at
a redemption  price of $1,000 per share.  During 1998, the Company  redeemed the
stock for  $1,300,000 in cash and 200,000  shares of Company common stock valued
at $1 per share.

                                      F-29

<PAGE>

                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12-- Capital Stock (Continued)

Series D Convertible Preferred Stock

Voting convertible preferred stock, 10,000 shares authorized with a stated value
of $1,000 per share.  Holders of Series D Convertible  Preferred  Stock shall be
entitled to receive,  when declared by the Board of Directors,  dividends at par
with  holders of the  Company's  common  stock,  as if the Series D  Convertible
Preferred  Stock had been converted into common stock on the record date for the
payment of dividend.  Each outstanding  share of Series D Convertible  Preferred
Stock shall be  convertible,  at the option of its holder,  at any time,  into a
number of shares of common  stock of the Company at a  conversion  rate equal to
$1,000 divided by the market price of the Company's common stock. In March 1999,
the Series D convertible preferred stock was returned and canceled (Note 2).

Series AB Convertible Preferred Stock

Non-voting  convertible  preferred stock, 25,000 shares authorized with a stated
value of $100 per share.  Series AB  convertible  preferred  stock is subject to
redemption  at any time,  at the option of the Company,  at a  redemption  price
equal to $100 per share plus accrued  interest and unpaid  dividends to the date
of  redemption.  Holders of Series AB  convertible  preferred  stock may convert
their preferred shares into common stock.  During 1998, the Company issued 4,050
shares of Series AB  convertible  preferred  stock in payment of  dividends  for
Series A and B convertible  preferred stock. In March 1999, certain shares of AB
preferred stock were returned and canceled (Note 2).

In addition,  pursuant to a Purchase  Agreement  with  American  Equities  dated
September 9, 1999,  (a)  Hartcourt  agreed to sell 500,000  shares of restricted
common  stock  valued at $0.60 per share.  The terms of the  Purchase  Agreement
required  American Equities to issue a promissory note in the amount of $225,000
to Hartcourt,  payable at the rate of $75,000 per month,  commencing on the 30th
day following the closing date,  and shall pay the balance of the purchase price
to  Hartcourt on the closing  date.  Hartcourt  received  $75,000 in cash on the
closing date and American  Equities  issued a promissory note for $225,000 dated
October 27, 1999,  bearing no interest,  payable in full on or before six months
from the execution date; (b) American  Equities caused ECS to issue to Hartcourt
157,000  shares  of ECS  in  full  satisfaction  of all  outstanding  claims  of
Hartcourt  against ECS; (c) Hartcourt  permitted  immediate  transfer of 724,990
common shares of Hartcourt into freely tradable unrestricted shares, pursuant to
Rule 144 previously  issued to Elan shareholders in connection with the purchase
of Elan on August 24, 1998.  Hartcourt  shall have no  liability  under the Elan
Indemnity.  The terms of the  agreement  were  complied  by both  Hartcourt  and
American Equities.

NOTE 13-- Income Taxes

The Company has deferred tax assets for the tax effects of temporary differences
between  financial and tax  reporting for the years ended  December 31, 1999 and
1998.  The deferred tax assets  consist  primarily of net  operating  losses and
impairments  of  investments  and goodwill.  The Company has  established a 100%
valuation  allowance  against the  deferred  tax assets at December 31, 1999 and
1998,  because  management  is unable to determine if it is more likely than not
that these net operating losses and impairments of investments and goodwill will
be realized.

                                      F-30

<PAGE>

                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13-- Income Taxes (Continued)

Impairment of  investments  and goodwill are not  deductible in 1998 or 1999 for
income tax purposes.  Losses on investments for income tax purposes may be taken
in the year the respective  transactions  are  completed.  Goodwill is amortized
over fifteen  years for income tax purposes or until the Company has disposed of
its ownership in the entity in which the goodwill relates.

The  Company  has  Federal  and  State  net  operating  loss   carryforwards  of
approximately $7,100,000 and $3,200,000, respectively. The regular net operating
loss carryforwards,  which are approximately the same as the alternative minimum
tax net operating loss  carryforwards,  if not utilized,  will expire in varying
amounts  through  2019  and  2004,  respectively  for  Federal  and  State.  The
realization  of any  future  income tax  benefits  from the  utilization  of net
operating losses may be limited.  Federal and state tax laws provide that when a
more  than 50%  change in  ownership  of a company  occurs  within a three  year
period,  the net operating  loss may be limited.  It has not been  determined if
such change has occurred.

NOTE 14-- Stock Option Plan and Warrants

Stock Option Plan

In April 1995, the Company adopted a stock option plan (the Plan) to attract and
retain  qualified  persons  for  positions  of  substantial   responsibility  as
officers,  directors,   consultants,  legal  counsel,  and  other  positions  of
significance  to the  Company.  The  Plan  provides  for  the  issuance  of both
Incentive  Stock Options and  Non-Qualified  Stock Options.  The Plan,  which is
administered  by the Board of Directors,  provides for the issuance of a maximum
of  2,000,000  options to purchase  shares of common  stock at the market  price
thereof on the date of grant.  Such options are generally  exercisable over a 10
year  period  from the date of  grant.  Each  option  lapses  90 days  after the
optionee has terminated his continuous activity with the Company, except that if
his continuous activity with the Company terminates by reason of his death, such
option of the deceased optionee may be exercised within one year after the death
of such  optionee.  Options  granted under the Plan are restricted as to sale or
transfer.  All options  were  granted at not less than fair value at the date of
grant and have terms of 10 years.

The following table summarizes the activity in the plan:

<TABLE>
<CAPTION>

                                                                                                     Weighted
                                                                              Number of               Average
                                                                                Shares            Exercise Price
                                                                           -----------------      ----------------
<S>                                                                        <C>                  <C>

Shares under option at January 1, 1998                                                    -     $               -
    Granted                                                                         400,000                  1.00
    Exercised                                                                             -                     -
    Canceled                                                                              -                     -
                                                                           -----------------      ----------------

Shares under option at December 31, 1998                                            400,000     $            1.00
    Granted                                                                       2,000,000                 1.265
    Exercised                                                                    (2,000,000 )               1.265
    Canceled                                                                              -                     -
                                                                           -----------------      ----------------

Shares under option at December 31, 1999                                            400,000     $            1.00
                                                                           -----------------      ----------------
</TABLE>



                                      F-31

<PAGE>

                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14-- Stock Option Plan and Warrants (Continued)

All stock options  issued to employees  have an exercise price not less than the
fair market value of the  Company's  common  stock on the date of grant,  and in
accordance  with the accounting for such options  utilizing the intrinsic  value
method  there is no  related  compensation  expense  recorded  in the  Company's
financial  statements.  Had compensation cost for stock-based  compensation been
determined  based on the fair value at the grant  dates in  accordance  with the
method  delineated in Statement of  Accounting  Standards No. 123, the Company's
net loss and loss per share for the year ended  December  31,  1998,  would have
been increased to the pro forma amounts presented below:

<TABLE>
<CAPTION>

                                                                                                       1998
                                                                                                  ----------------
<S>                                                                                             <C>

Net loss:
    As reported                                                                                 $     (21,295,653 )
    Pro forma                                                                                         (21,683,133 )

Loss per share:
    As reported                                                                                 $           (1.18 )
    Pro forma                                                                                               (1.20 )
</TABLE>

Additional  information relating to stock options outstanding and exercisable at
December 31, 1999 summarized by exercise price are as follows:

<TABLE>
<CAPTION>

                                                    Outstanding                          Exercisable
                                         -----------------------------------  ---------------------------------
        Exercise Price                            Weighted Average                     Weighted Average
                                         -----------------------------------  ---------------------------------
           Per Share        Shares        Life (Years)      Exercise Price      Shares         Exercise Price
       ------------------ ------------   ----------------   ----------------  ------------   -------------------
<S>    <C>                <C>            <C>                <C>               <C>            <C>

          $1.00               400,000          8.5               $1.00            400,000          $1.00
</TABLE>

During 1999,  an individual  exercised  1,000,000  stock  options at $1.25.  The
individual  paid the Company  $764,748.  The  remaining  balance of $485,252 was
deemed uncollectible and written off as of December 31, 1999.

Warrants

On December 30, 1996,  Hartcourt  and American  Equities  entered into a Warrant
Agreement,  whereby Hartcourt agreed to issue and sell to American Equities, for
the price of $100,  a warrant to purchase up to  2,000,000  shares of its common
stock,  $.01 par value at prices ranging from $0.30 to $2.10 in connection  with
the consulting services provided to Hartcourt.  American Equities shall have the
right to purchase at any time and from time to time prior to December  30, 2002,
up to the number of fully paid and nonassessable shares of warrants,  stock upon
payment  of  specific  exercise  price or apply  the  cashless  exercise  clause
specified in the agreement.  On September 9, 1999,  pursuant to the terms of the
Warrant  Agreement,  American Equity  exercised its cashless  exercise right and
converted  800,000  warrants  into 621,674  Hartcourt's  common  shares  without
payment of any consideration.

                                      F-32

<PAGE>

                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14-- Stock Option Plan and Warrants (Continued)

In connection with  consulting  services in 1999, the Company issued warrants to
purchase  350,000  shares at prices  ranging from $1.25 to $1.50 which expire at
various dates through July 12, 2000. The warrants were issued at the fair market
value on the date of issuance.

In connection  with the sale of 200,000  restricted  shares,  the Company issued
warrants to purchase 100,000 shares at $4.00, which expire on December 12, 2000.
The fair value of warrants issued was not significant.

NOTE 15-- Loss Per Share

The following  reconciles  amounts reported in the financial  statements for the
years ended December 31, 1999 and 1998, respectively:

<TABLE>
<CAPTION>

                                                                                  1998
                                                         Income (loss)           Shares              Per-share
                                                          (Numerator)         (Denominator)           Amount
                                                        ----------------     ----------------     ----------------
<S>                                                   <C>                    <C>                <C>

 Income (loss) from continuous operations             $     (14,455,526 )         18,061,430    $           (0.80 )

 Income (loss) from discontinued operations                  (6,840,127 )         18,061,430                (0.38 )
                                                        ----------------     ----------------     ----------------

 Income (loss) available to common stockholders -
    basic earnings per share                                (21,295,653 )         18,061,430    $           (1.18 )

 Effect of dilutive securities                                        -                    -                    -
                                                        ----------------     ----------------     ----------------

 Income (loss) available to common stockholders -
    diluted earnings per share                        $     (21,295,653 )         18,061,430    $           (1.18 )
                                                        ----------------     ----------------     ----------------

                                                                                  1999
                                                         Income (loss)           Shares              Per-share
                                                          (Numerator)         (Denominator)           Amount
                                                        ----------------     ----------------     ----------------

 Income (loss) from continuous operations             $      (7,433,899 )         19,702,678    $           (0.38 )

 Income (loss) from discontinued operations                    (428,569 )         19,702,678                (0.02 )
                                                        ----------------     ----------------     ----------------

 Income (loss) available to common stockholders -
    basic earnings per share                                 (7,862,468 )         19,702,678                (0.40 )

 Effect of dilutive securities                                        -                    -                    -
                                                        ----------------     ----------------     ----------------

 Income (loss) available to common stockholders -
    diluted earnings per share                        $      (7,862,468 )         19,702,678    $           (0.40 )
                                                        ----------------     ----------------     ----------------
</TABLE>

                                      F-33

<PAGE>

                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15-- Loss Per Share (Continue)

During  1999  and  1998,  the  Company  had  1,650,000  and  2,000,000  warrants
outstanding,  each  convertible  into one share of common  stock.  In  addition,
during 1999 and 1998 the Company had  convertible  preferred  stock  outstanding
(Note 12), each share convertible into common stock.  These instruments were not
included in the  computation of diluted  earnings per share for any of the years
presented, due to their antidilutive effects based on the net loss reported each
year.

NOTE 16-- Segment and Related Information

Segments

The Company  adopted  Financial  Accounting  Standards  No. 131 (SFAS No.  131),
"Disclosures About Segments of an Enterprise and Related Information."

The Company currently  operates in one business segment.  Total revenues of that
segment are approximately  $379,000 for the three months ended December 31, 1999
with a net loss of  $138,000.  Total  assets of the  segment  are  approximately
$2,735,000.

NOTE 17-- Supplemental Cash Flow Information

Supplemental cash flow information:

<TABLE>
<CAPTION>

                                                                                 1998                  1999
                                                                           -----------------      ----------------
<S>                                                                      <C>                    <C>

Cash paid for interest and income taxes:
    Interest                                                             $          380,022     $         103,709
    Income taxes                                                                        943                     -

Noncash investing and financing activities:
    Preferred stock issued for dividends                                            270,000                     -
    Preferred stock issued for accrued expenses                                     135,000                     -
    Preferred stock converted into common stock                                     200,000                     -
    Stock subscription receivable                                                   275,000                     -
    Stock issued to related party in settlement of debt                                   -             1,075,000
    Dividend of Enova stock                                                               -             3,119,944

</TABLE>

                                      F-34

<PAGE>

                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18-- Subsequent Events

On January 26, 2000, Hartcourt completed a private placement with PYR Management
LLC  ("PYR")  of  227,445  Units and a Class II  Warrant  to PYR for  $3,000,000
pursuant to a Regulation D  Subscription  Agreement.  Each Unit  consists of one
share of Hartcourt common stock and a Class I Warrant to purchase one additional
share of Hartcourt  common stock at the Unit Price,  subject to adjustment  upon
certain events. The Class II Warrant entitles PYR to purchase  additional shares
of Hartcourt  common stock at par value  solely upon the  occurrence  of certain
events.  Hartcourt has also agreed to file a registration  statement to register
the  shares of  Hartcourt  common  stock,  including  the shares  issuable  upon
exercise of the Class I Warrant and Class II Warrant,  under the  Securities Act
of 1933 for sale by PYR.  As part of the  Agreement,  Hartcourt  granted  PYR an
option to purchase up to $5,000,000  of additional  Units and a Class II Warrant
within five trading days after the effectiveness of the registration  statement.
On January  27,  2000,  Hartcourt  received  $2,743,000  from PYR to be used for
working capital requirements of Hartcourt.

During March 2000, American Equities exercised 1.2 million warrants, pursuant to
the terms of the  Warrant  Agreement  dated  December  30,  1996 (Note 14), in a
cashless  transaction  and  converted the 1.2 million  warrants  into  1,070,073
Hartcourt common shares.

eMPACT Solutions,  Inc. ("eMPACT") - On February 9, 2000, Hartcourt entered into
a Stock  Purchase  Agreement  Term Sheet to purchase 30% of the  authorized  and
outstanding  shares of eMPACT's new shares of common stock.  The purchase  price
was agreed to be $2,000,000,  payable $1,000,000 in cash at the date of closing,
and the remainder $1,000,000 in cash within ninety days of closing. In the event
that  eMPACT  shall fail to meet the  revenues  projections  for the fiscal year
2000,  Hartcourt shall receive an additional one percent of the shares of eMPACT
for every  percent that revenue does not meet the  projections  for revenue to a
maximum of an additional twenty percent.  The closing is expected in April 2000.
No  assurance  can be given that Term Sheets or Letters of Intent will result in
actual agreements.

Shenzhen  China Cable  Integrated  Network Co. Ltd.  ("SCIC") - On February  25,
2000,  Hartcourt signed a Letter of Intent with Shenzhen Sinlan  Investment Co.,
Ltd.  to  jointly  invest in SCIC.  No detail  terms  have  been  reached  and a
definitive agreement to form a joint venture company is expected to be signed by
April 30, 2000.  No assurance can be given that Term Sheets or Letters of Intent
will result in actual agreements.

                                      F-35

<PAGE>

Exhibit List

10.19     Agreement with Beijing UAC Stock Trading Online Co., Ltd.

10.19.1   Financial  Statements  of  Beijing UAC Stock Exchange Online Co., Ltd.
          for   the   period   from  October 18,  1999  (date of  inception)  to
          December 31, 1999

10.20     Agreement with GoCall.com

10.21     FTL Stock Purchase Agreement

27.01     Financial Data Schedule