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, 2001

                        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.)

   19222 Pioneer Blvd., Suite 100, Cerritos, California 90703, (562) 653-0400
               (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: $ 10,621,205




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         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 March 7, 2001, $ 19,070,803.

         State the number of shares  outstanding of each of the issuer's classes
of common equity, as of the latest  practicable date: As of March 7, 2002, there
were 76,283,215 shares of common stock outstanding.
















































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                          THE HARTCOURT COMPANIES, INC.

                         2001 Form 10-KSB Annual Report
                                Table of Contents
                                                                          Page
                                     PART I

Item 1.  Description of Business.....................................       4

Item 2.  Description of Property.....................................      27

Item 3.  Legal Proceedings...........................................      28

Item 4.  Submission of Matters to a Vote of Security Holders.........      28

                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters....      29

Item 6.  Management's Discussion and Analysis or Plan of Operation...      32

Item 7.  Consolidated Financial Statements...........................      36

Item 8.  Changes in and Disagreements with Accountants on
           Accounting and Financial Disclosure.......................      36

                                    PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
           Compliance with Section 16(a) of the Exchange Act.........      36

Item 10. Executive Compensation......................................      40

Item 11. Security Ownership of Certain Beneficial Owners and
           Management................................................      42

Item 12. Certain Relationships and Related Transactions..............      45

                                     PART IV

Item 13. Exhibits and Reports on Form 8-K............................      46

         Signatures..................................................      50













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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; "); its 51% owned  subsidiary  Beijing UAC
Stock  Exchange  Online Co.,  Ltd.  ("UAC  Exchange"),  which was disposed of on
September  10,  2001;  its 58.53% owned  subsidiary  Financial  Telecom  Limited
("FTL");  its 51% owned subsidiary  Elephant Talk Limited (ET); its 66.67% owned
subsidiary   Haike   Caijin   TV   (HCTV);   and   its  85%   owned   subsidiary
StreamingAsia.Com  Ltd  ("StreamingAsia").  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,  a one for five reverse
split of  Hartcourt's  common  stock  effected on August 1, 1996 and two for one
stock split of Hartcourt's common stock effected on September 21, 2000.

                                     PART I

Item 1:  Description of Business.

Note 1:  Organization and Nature of Operations:

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

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

Hartcourt is developing  extensive business operations  throughout Greater China
to  position  itself to take full  advantage  of the  substantial  opportunities
presented by the emergence of the worlds largest consumer and business  markets,
and  China's  upcoming  entry  into  the  WTO.  Hartcourt's  ability  to  obtain
government  approved  licenses and its wide array of well  established  business
relationships  is  greatly  facilitating  these  goals and making  Hartcourt  an
attractive  entry point for many  corporations  seeking access to these markets.
Current  government  customers and partnerships of its subsidiaries and business
investments include: China Bank of Communications, China Central TV, Beijing TV,
Guangdong TV, Phoenix TV, Shenzhen  Radio,  Zhejiang  CableTV,  Innostar Hi Tech

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Enterprises,  Northern Jiaotong University, China Securities, Peoples Daily, and
China Telecom; for the Hong Kong Government: Stock Exchange of Hong Kong (SEHK),
Hong  Kong  Exchanges  and  Clearing  Limited  (HKEx),  Securities  and  Futures
Commission, and Department of Printing. Other business partners include; Yahoo!,
Equis/Reuters,  Legend,  IBM, YesMobile,  Comstock/Standard  and Poor's, and the
University of California/Fullerton.

Sinobull Financial Group:  Sinobull Financial Group operates one of China's most
popular Internet financial portals,  Sinobull.com,  and is initiating  financial
television  programming  in China  over  Sinobull  TV.  This group  consists  of
Financial  Telecom  Limited,  Sinobull  Information  Company  Limited  (formerly
Shanghai Guo Mao Science & Technology  Co. Ltd.),  Sinobull  Network  Technology
Company Limited (formally Beijing Shangdi Net Technologies Center Company, Ltd.)
and HCTV Financial TV Ltd. The Sinobull  Financial Group is a leading  financial
content  provider,   develops   technologically   advanced   financial  services
platforms,  and operates a financial Internet portal. Sinobull provides mainland
brokerages  and  financial  institutions  the  hardware,  software  and Internet
platforms to enable their customers' access to a comprehensive  suite of quality
financial  news,  real-time  market data,  financial  analysis and  professional
market commentary.  Sinobull.com, its financial services and information portal,
is one of China's most popular portals.  The company's  E-Finance platform is an
integration of the most advanced Internet, telecommunication and wireless access
systems  available in the market  today.  The service  platform  and  collateral
content  will be offered  via  subscription  to leading  securities  brokerages,
investment firms, banks, and media companies throughout Greater China.

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

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



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<PAGE>
E-learning  Group:  This  group  was  formed  in  a  partnership   agreement  in
cooperation  with Northern  Jiaotong  University and California State University
Fullerton to jointly develop  education  projects and introduce  American career
training courses and post-graduate  business programs in China. The project will
offer prestigious  American  education  programs in China,  utilizing one of the
first online education  licenses  awarded by China's Ministry of Education.  The
project is offering both  certificate and degree programs with courses  designed
for relevance in today's business world. Coursework will initially be offered in
the classroom and later expanded  online.  Hartcourt plans to extend its program
to other potential partners and institutions in the future.

Hartcourt Capital Group:

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

History of the Company:

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

OPERATIONS BY BUSINESS DIVISIONS

SINOBULL FINANCIAL GROUP:

The Sinobull Financial Group ("Sinobull Group") was formed in November 1999 with
the intention to consolidate  various related businesses acquired or expected to
be acquired by Hartcourt or Sinobull.com Inc. ("Sinobull"), a holding company of
the Group incorporated in British Virgin Islands. For the purposes of presenting
these   businesses   under  a  unified   structure  and  strong  brand  name,  a
restructuring  of the Group resulted in  consolidating  these  businesses  under
Sinobull.  On April 2, 2001, Sinobull's one share issued and outstanding held by
Mr. Tang Wing On was formally transferred to Hartcourt, and, therefore, Sinobull
became a wholly-owned  subsidiary of Hartcourt.  Hartcourt had advanced funds to
Sinobull  for  various  acquisitions  made  by  Sinobull  since  its  formation.
Hartcourt  plans to develop this  investment to a leading  position in financial
content,  content delivery,  financial services, and technology development.  On
October 2, 2001  Hartcourt  announced  its intent to merge  Sinobull  Group with
Global  Telephone  Communications  Inc. (OTC Bulletin Board:  GTCI). The reverse
merger will allow  Sinobull to actively  trade on the equity  markets and unlock
its  value  for  Hartcourt  investors.  The  merger  has been  approved  by GTCI
shareholders  and is waiting  approval by the SEC.  The merger is expected to be
completed by May 31, 2002.



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<PAGE>
Financial Telecom Limited (FTL): FTL was established in 1983 as a financial data
bank  providing  real-time  stock quotes and financial  information of Hong Kong
listed companies including information on other international stock exchanges in
the U.S. and Europe to institutional and retail investors.  FTL also acts 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.  In March 2002,  FTL decided to branch
out its operations into China providing the same services  currently provided to
Hong Kong  financial  community.  The  company is  debating  to phase out of the
financial  paging service business in Hong Kong and is considering to physically
relocateing to China. In addition,  FTL is currently  developing to market stock
and data feed of financial  information to investors and financial  institutions
that currently use legitimate data sources.

On November 17, 1999,  Hartcourt  entered into a stock  purchase  agreement with
FTL, a Hong Kong  corporation,  to purchase  4,964,990  shares of common  stock,
representing  58.53% of the total common stock  outstanding.  The purchase price
was agreed to be HK $4.713 (US$ 0.604) per share for a total of HK$25,563,842 or
US$3,277,412,  payable 50% in cash and the remaining balance in Hartcourt common
shares.  The acquisition was completed on October 4, 1999.  Hartcourt made total
cash  payments of $1,638,706  and issued  3,509,104  (post-split)  shares of its
common stock to FTL. During the year ended December 31, 2001, FTL sold 2,945,267
shares of Hartcourt  common stock for $1,375,401 to satisfy certain  obligations
and to raise working capital for its operations. The remaining 563,837 shares of
common stock issued to FTL are reflected as treasury shares in the  accompanying
financial  statements  at  December  31, 2001 since FTL became a  subsidiary  of
Hartcourt.

On March 27, 2000, FTL entered into a Memorandum of Understanding with NiceVoice
Investment  Holdings  Limited  (NiceVoice)  to form a joint venture named Fintel
Wireless  Internet Limited (FWL) for the purpose of establishing and operating a
financial paging service network in Hong Kong on the FLEX transmission  protocol
on a PDA receiver device. FTL agreed to invest cash by phases, to the amount not
to exceed HK$4,000,000 (approximately US$512,800) in exchange for a total of 51%
ownership interest in the joint venture.  After the completion of due diligence,
the parties signed the formal joint venture  agreement on April 28, 2000 and FWL
became a subsidiary of FTL. Although NiceVoice has contributed certain assets in
the FWL, due to the method of funding these assets  NiceVoice does not presently
have legal  ownership  title to such assets until the final  dollar  payment has
been made on these assets. The accompanying  financial statements as of December
31,  2001  reflect  FTL's  investment  of 51%  ownership  interest in FWL. As of
December 31,  2001,  FTL had advanced  approximately  HK$3,941,541  (US$505,326)
towards its investment in FWL.

Sinobull Network Technology Company Limited (Sinobull  Network):  Formally known
as  Beijing  Shangdi  Net  Technologies  Center  Company,  Ltd.  ("Shangdi")  is
principally  engaged in the  business of data  broadcasting  in China.  Its main



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activities include research,  development and sale of data broadcasting hardware
and software. Shangdi is a major shareholder of Hua Xia Info, the financial data
provider of Hua Xia  Securities,  the second  largest  stock  brokerage  firm in
China.  Hua Xia Info has its own financial  reporters for its  data-broadcasting
network via cable TV and magazine.  Shangdi has completed a software program for
cable set top boxes,  which  enable  users to trade stock online from their home
television sets.

On December 18, 1999,  Sinobull  signed a Term Sheet  Agreement  with Shangdi to
form a new corporation in Beijing.  Sinobull shall have 40% interest and Shangdi
shall have 60%  interest in the new  corporation.  On April 12,  2000,  Sinobull
signed a Term  Sheet  Agreement  with  revising  the  terms  of the  Term  Sheet
Agreement signed on December 18, 1999. The terms of the revised agreement stated
Sinobull  and Tiandi  Hulian  Technologies  Limited  ("Tiandi"),  an  investment
holding company incorporated in the British Virgin Islands, holding the interest
of the shareholders of Shangdi,  acquired  through its  wholly-owned  subsidiary
Sinobull Network  Technology  Company Limited  ("Sinobull  Network"),  a company
registered in Beijing,  all of the operating assets and business of Shangdi.  To
finance this  acquisition,  Tiandi issued new shares to Sinobull equal to 40% of
the  expanded  capital of Tiandi.  The terms of the revised  agreement  required
Sinobull to pay Shangdi  US$670,000 being the  consideration of all tangible and
intangible assets in relation to Shangdi's computer network information services
excluding  cash and debts;  invest  US$1,000,000  in  Sinobull  Network  for its
working capital needs;  issue 140,000  restricted  common shares of Hartcourt to
Shangdi and 60,000 restricted common shares of Hartcourt to Sinobull Network for
its working capital needs. In exchange,  Shangdi agreed to transfer  without any
pledge and debt,  all  tangible  and  intangible  assets in relation to computer
network information  services to Sinobull Network, and transfer to Hartcourt 40%
of the ownership interest in Tiandi. On December 28, 2000, Sinobull, Tiandi, and
Li  Chun  Ying  (representative  of  the  owners  of  Shangdi)  signed  a  Share
Subscription  and Sale and Purchase  Agreement  whereby,  Sinobull  owned 51% of
Tiandi and Li Chun Ying owned 49% of Tiandi after  payment of  consideration  to
Shangdi for purchase of all tangible and intangible  assets.  As of December 31,
2001,  Sinobull  through an advance from  Hartcourt has paid  $1,000,000 in cash
towards the purchase of which $670,000 was  distributed to the owners of and the
remaining $330,000 was deemed as capital contribution in Sinobull Network.

Shanghai Sinobull Information Company Limited (Sinobull  Information):  Formally
known as Shanghai Guo Mao Science & Technology  Co. Ltd.  ("Guo Mao"),  Sinobull
Information  is a major  real-time  financial  data provider in Shanghai using a
satellite network to transmit data specializes in stock quotes, futures, indexes
and commodities data that compliments the financial  information database of Hua
Xia Info and the financial data delivery  systems of FTL.  Association  with Guo
Mao gives  Sinobull a distinct edge over any  competitive  financial  portals in
China. On December 1, 1999,  Sinobull signed a Term Sheet Agreement with Guo Mao
whereby Guo Mao agreed to issue new shares for a total  proceeds  of  $1,000,000
which  represented  50% of the expanded  capital of Guo Mao.  Sinobull agreed to
subscribe  for all the new shares  issued by Guo Mao. On May 16, 2000,  Sinobull
and Hopeful Internet  Technologies Limited ("Hopeful") entered into an agreement
whereby  Hopeful,  an investment  holding  company  incorporated  in the British
Virgin Islands,  acquired through its wholly-owned  subsidiary Shanghai Sinobull
Information  Company  Limited  ("Sinobull  Information"),  all of the  operating
assets and business of Guo Mao. To finance this acquisition,  Hopeful issued new
shares to Sinobull  equal to 40% of the expanded  capital of Hopeful for a total



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consideration  of $1,000,000.  The terms of payment by Sinobull for the purchase
of new shares were: $200,000 in cash upon signing of the agreement;  $150,000 in
cash within 30 days of signing of the agreement; $150,000 in cash within 60 days
of signing of the  agreement;  and $500,000  within 30 days after signing of the
agreement in shares of Hartcourt  based on the average closing price in the last
7 trading days before payment, or in shares of Sinobull based upon the valuation
to be agreed on by the parties. On December 28, 2000, Sinobull, Hopeful, Guo Mao
and Lee Lu  Ping  (representative  of the  owners  of Guo  Mao)  signed  a Share
Subscription Agreement whereby,  Sinobull owned 51% ownership in Hopeful and Lee
Lu Ping owned 49% of ownership in Hopeful after payment of  consideration to Guo
Mao for  purchase of all  tangible  and  intangible  assets.  Sinobull  has paid
$500,000 in cash received from  Hartcourt  towards the purchase of new shares of
Hopeful  and issued  805,802  shares of its common  stock  valued at $500,000 to
Sinobull  Information  in February  2001.  The 805,802  common  shares issued to
Sinobull  Information  are  reflected  as  treasury  shares in the  accompanying
financial  statements at December 31, 2001 since Sinobull  Information  became a
subsidiary of Hartcourt.

TongBo  Software:   specializes  in  custom-made   software  solutions  for  the
securities market,  especially in commodity and currency trading. On November 6,
2000, Sinobull Information and Ningbo Shiji TongBao Software Limited ("TongBao")
agreed to form an alliance in creating software solutions for the securities and
futures  industry.  The parties agreed to a stock swap whereby TongBao agreed to
issue an additional  150% of its existing share capital to Sinobull  Information
resulting in Sinobull  Information becoming a 60% owner of TongBao. In exchange,
Sinobull Information agreed to exchange RMB100,000 worth of its shares valued at
the share price at the time when Sinobull Information goes for public listing to
the remaining 40% original  shareholders of TongBao. Upon issuance of RMB100,000
worth of its shares,  TongBao will become a wholly owned  subsidiary of Sinobull
Information.  During  2001,  Ningbo Shiji  TongBao  Software  Limited  moved its
operations  to  Shanghai  and merged  all its  assets,  liabilities  and all its
operations in a newly formed  company named  Shanghai  Yuanhe  Computer  Limited
(Tongbo).

On  October 1,  2001,  Tongbo  signed a Letter of  Understanding  with  Sinobull
Information whereby Tongbo assigned to Sinobull  Information all of its revenues
and revenue sources  including past due,  accrued and to be earned in the future
in exchange for  Sinobull  Information  assuming  all  ordinary  and  reasonable
operational  expenses of Tongbo  commencing  October 1, 2001.  The  accompanying
financial  statements  of  Sinobull  Information  at December  31, 2001  reflect
combined  revenues and expenses of Tongbo from October 1, 2001.  As of March 10,
2002,  Tongbo has honored its  commitment  by issuing 150% of its then  existing
share capital with 100% ownership held by Sinobull Information.

Haike  Caijin TV ("HCTV"):  HCTV is a joint  venture that calls for a multi-year
effort to jointly develop and deploy a financial TV channel to be marketed to 80
million  Chinese cable TV subscribers  across all Chinese  provinces and cities.
The  agreement  calls for  China  Cable  Networks  to  utilize  its  leading  TV
broadcasting expertise and integrated technologies and services for broadcasting
cable  channel  signals to market the "CCN  Financial  TV Channel"  with content
developed  by Shanghai  Guo Mao  Financial  Corporation.  The  content  would be
transmitted via satellite and ground transceiver  systems optimized for cable TV
networks.  The  financial  content will include  real-time  market data,  market
commentary, financial news and analysis, interviews, paid programming as well as
advertisements.

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<PAGE>
On September 7, 2000,  Hartcourt  signed a joint venture  agreement with Hopeman
Computer  Services  Corporation  Limited  (Hopeman")  to form a joint venture in
Shanghai and jointly develop and market a 24-hour financial  television  program
and/or provide  financial  data services to  existing/new  financial  television
programs for China  market.  The new joint  venture is named  "Haike  Caijin TV"
means Hartcourt Financial Television (HCTV) in English.  HCTV will be registered
in Shanghai  with a funding of $1.0  million.  The  agreement  defines the first
phase  joint  venture  investment  terms for the period from  September  2000 to
December  2000. In February  2001,  HCTV Joint Venture  Company was formed and a
temporary  license was  obtained to conduct  the  business of the joint  venture
pending  issuance  of a  new  license  upon  China's  entry  into  the  WTO  and
contribution  of $200,000 as the  subscribed  capital of the HCTV Joint  Venture
Company.  As of December  31, 2001,  Hopeman has invested  $50,000 for its 33.3%
investment  and  Hartcourt  has  invested  $100,000  towards  its  66.7%  equity
ownership in the HCTV joint venture. The temporary license issued by the Chinese
authorities  expired on February  14, 2002 pending  injection  of an  additional
$50,000  towards the capital  subscription.  Hopeman and Hartcourt are currently
negotiating  with the Chinese  authorities to renew the temporary  license until
such time as additional  $50,000 is injected in the joint venture company.  HCTV
operating results are consolidated with Hartcourt in the accompanying  financial
statements  as of  December  31,  2001.  As of  March  10,  2002,  either  party
contributed no additional funds.

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

On July 16,  2001,  Hartcourt  and UAC  Trading,  by mutual  consent,  agreed to
rescind the contractual joint venture  agreement named UAC Exchange.  As part of
the rescission,  Hartcourt  agreed to accept a promissory note for the amount of
its net  investment  in UAC Exchange as of the date of  rescission  amounting to
$2,858,286,  bearing  interest  at six per cent  (6%) per  anum  payable  over a
thirty-nine  months  period.  The  parties  mutually  agreed to forego all other
rights  and  benefits   provided   under  the   contractual   joint  venture  as
consideration  for the rescission of the contract.  On September 10, 2001,  Edda
Limited,  a  non-affiliated  company  incorporated  in Hong Kong,  expressed its
interest  to take  over all  existing  tangible  and  intangible  assets  of UAC
Exchange for the amount of  Hartcourt's  net  investment  in UAC  Exchange,  and
signed a promissory note in the amount of $2,858,286 bearing interest at six per
cent (6%) per anum,  payable in  quarterly  installments  of $50,000  commencing
November 1, 2001 with a balloon  payment of $2,715,772  due on December 1, 2006.
The promissory note is secured by a security agreement granting to Hartcourt all


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<PAGE>
tangible and intangible  property of Edda Limited. As of December 31, 2001, Edda
paid the first  quarterly note payment of $50,000 due November 1, 2001, and paid
an  additional  $57,829  towards  interest  due on the  promissory  note  due to
Hartcourt.  As of March 10, 2002,  Hartcourt received the second note payment of
$50,000 due February 1, 2002.

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

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

The investment  from Hartcourt to WindInfo was agreed to be paid as follows:  a)
upon  completion of the Agreement of JVC by both parties within 15 days from the
date of the Term Sheet Agreement signed,  Hartcourt shall arrange a payment from
Guo Mao as a loan to WindInfo in the amount of $500,000;  b) pay  $1,500,000  in
the temporary JVC account within 15 days of the  establishment  of the temporary
JVC bank account; c) pay $1,500,000 into the JVC no later than three months from
the date of establishment of the JVC. Upon receipt of all committed capital from
Hartcourt, WindInfo agreed to immediately pay back the $500,000 loan to Guo Mao.
Hartcourt has completed its due diligence  review on the operations of WindInfo.
On September 18, 2000, Sinobull advanced $500,000 to Guo Mao who loaned the same
amount to WindInfo on behalf of Hartcourt.  Pursuant to the addendum to the Term
Sheet  Agreement,  on January 10, 2001,  Hartcourt and WindInfo  signed a direct
investment  agreement  whereby Hartcourt agreed to convert the loan from Guo Mao
of  $500,000  to a 5% equity  ownership  in the JVC to be formed.  Upon  further
negotiations  between the two  parties,  Hartcourt  and WindInfo  have  mutually
agreed to  terminate  the Term Sheet  Agreement of formation of JVC and WindInfo
agreed to return Hartcourt's  contribution of $500,000 towards its investment in
the JVC. As of December  31, 2001,  WindInfo  returned  RMB500,000  ($60,241) to
Sinobull  Information on behalf of Hartcourt,  and an additional  RMB100,000 was
returned as of March 10,  2002.  The  accompanying  financial  statements  as of
December 31, 2001 reflect Hartcourt's loan of $439,759 to WindInfo. Both parties
are negotiating to an acceptable  payment plan for Hartcourt to receive its loan
the year 2002 from WindInfo.

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<PAGE>
Equis International Inc.((R)), a wholly owned subsidiary of Reuters Limited((R))
signed on June 1, 2001, an International  Distribution  Agreement with Hartcourt
including  Sinobull  Group in Shanghai,  Beijing and Hong Kong, a  non-exclusive
distributor  of licensed  products  within the People's  Republic of China (PRC)
except in Hong Kong and Taiwan. Equis granted to Hartcourt a non-exclusive right
and license to market,  promote and distribute the licensed  products in the PRC
to  sub-distributors,  resellers and end users to localize Equis'  award-winning
family of  MetaStock((R))  products and market them to over 10 million investors
in the Greater China area. The initial term of the agreement is for three years.
Under the terms of the agreement Equis also granted  Sinobull Group  conditional
territory  exclusivity for a period of twelve months for the Chinese versions of
MetaStock((R))   products   within  the  Greater   China   market.   Hartcourt's
remuneration  for the sale of licensed  products will be the difference  between
the selling price to its customers and Hartcourt's  discounted purchase price as
agreed between Hartcourt and Equis.  Hartcourt is currently strategizing various
alternatives  to market Equis's  products and services in China.  Sinobull Group
has recently  completed,  and is now ready to market, the Chinese version of the
MetaStock  software,   the  world's  leading  technical  analysis  and  charting
software.  MetaStock  has won the Technical  Analysis of Stocks and  Commodities
magazine's Reader's Choice award for analysis software the past 8 years running.
Sinobull  has  converted  the  MetaStock  software  to  localized  language  and
programming  to make it  accessible to millions of Chinese  investors  demanding
professional  financial  tools to manage their  trading  activity and  portfolio
positions.  Sinobull Group will also introduce  Sinobull  Wireless  Internet,  a
powerful  wireless  application using "Streaming  Mobile  Application  Real-Time
Technology" (SMART) to provide streaming,  automatically updating,  stock market
information  in real-time over wireless  devices from mobile  phones,  pagers to
PDA's.  Through Java programs,  SinoBull  Wireless Internet updates stock market
information  automatically,  anytime, anyplace, with the latest Hang Seng Index,
stock quotes, FX quotes, transaction volumes and chart analysis. As of March 10,
2002,  Hartcourt and its  affiliates  have not sold any of the Equis's  licensed
products since the date of this agreement.

YesMobile  Inc.  incorporated  in Hong  Kong,  is  currently  a leading  Chinese
Wireless Application Protocol (WAP) portal with open-standard and multi-platform
compatibility in Asia.  Sinobull.com HK Ltd.  (Sinobull HK) has signed a revenue
sharing  agreement  with  YesMobile  whereby,  Sinobull  HK  agreed  to  provide
financial  contents to YesMobile in China. The data will include real time stock
quotes,  commodities and currencies contracts,  economic news,  commentaries and
research reports. Pursuant to the terms of the agreement, Sinobull HK will share
70% of the  revenues  received  and  YesMobile  will  share  30% of the  revenue
received from the users of the Wireless  Application  Protocol  (WAP) portal and
the Short Message  Service (SMS) of YesMobile.  Users will access these contents
via their mobile phones, as well as PDAs and other wireless  devices.  YesMobile
is currently providing these services to over 105 million users of China Mobile.
As of March 10,  2002,  Sinobull  HK has not  received  any  revenues  under the
revenue sharing agreement.

BROADBAND/TELECOM GROUP:

The  Broadband/Telecom  Group is centered  around its  subsidiary  Elephant Talk
Communications,  Inc.  (formerly known as Elephant Talk Limited  "ElephantTalk")
and a future venture with Beijing  Innostar  Hi-Tech  Enterprises of China.  The
group is focused on development and delivery of comprehensive  telecommunication
services, broadband content, broadband enabling technology and the management of

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<PAGE>
services on broadband  infrastructure.  In addition, these broadband efforts are
being designed to provide  expanded  revenue  sources for  Hartcourt's  existing
subsidiary's  products  and  services.  Hartcourt is  continuing  its efforts to
identify and actuate strategic investments in the development of web hosting and
data  warehouse   solutions;   providing  secure  internet  services  for  China
businesses in e-commerce,  IP telephony,  internet exchange centers,  high speed
wireless platforms,  and ISP/Content  services.  On September 25, 2001 Hartcourt
announced its intent to publicly divest ElephantTalk subsidiary in a merger with
Staruni   Corporation   (OTC  Bulletin  Board:   SRUN)  in  an  effort  to  take
Broadband/Telecom  Group public. On January 4, 2002  ElephantTalk  completed the
merger with Staruni  Corporation and commenced  trading on OTC:BB on January 22,
2002 under the ticker symbol ETLK.

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

On May 16,  2001,  Hartcourt  and  ElephantTalk  executed  a Sale  and  Purchase
Agreement  whereby  Hartcourt   acquired  51%  of  the  ownership   interest  in
ElephantTalk for a total consideration of $4,194,000. The terms of the agreement
required  ElephantTalk to increase its authorized capital from 25,000,000 shares
to 30,000,000  shares.  Hartcourt  subscribed the block of 5,000,000 new shares;
issued  1,000,000  Hartcourt  shares  under Rule 144 or  Regulation S of the SEC
regulation,  valued at 61.9 cents per share;  and  executed  a  promissory  note
payable to ElephantTalk in the amount of $1,250,000 due on February 16, 2002. In
addition,  Hartcourt subscribed another block of 10,300,000  ElephantTalk shares
from private  owners for a  consideration  of  $2,325,000  and issued  3,756,058
Hartcourt  shares under Rule 144 for a combined total of 51% ownership  interest
in ElephantTalk. The 1,000,000 shares of common stock issued to ElephantTalk are
reflected  as  treasury  shares  in the  accompanying  financial  statements  at
December  31,  2001  since  the  results  of  operations  of  ElephantTalk  were
consolidated  with Hartcourt  from May 16, 2001 to December 31, 2001.  Hartcourt
and  ElephantTalk  agreed to extend the payment date of the  Promissory  Note of
$1,250,000 due May 31, 2002.

On October 8, 2001  ElephantTalk  entered into a reseller  agreement with JiTong
Network  Communications  Company  Limited  ("JiTong")  to  provide a variety  of
IP-based telecom services.  JiTong is one of the five  government-owned  telecom
giants in China with their own  communication  infrastructure.  It is the famous
owner and operator of the Golden Bridge fiber optics and Internet services. Both
companies will jointly  develop and market new brands of IP telephony  solutions
in major  countries  worldwide.  Under the terms of the agreement,  ElephantTalk
will  interconnect its global  point-of-presence  (POPs) with JiTong's  network.
ElephantTalk will market and resell JiTong's IP-based services including I-phone
and I-fax services,  while JiTong will be responsible for service  provisioning,

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<PAGE>
technical support and after-sales services to customers. The agreement signifies
the  beginning  of  close,  long-term,   working  partnership  between  the  two
companies.  ElephantTalk  has  expanded  their  agreement  with JiTong  Networks
Communications  Company and also signed  cross-branding  partnership  agreements
with China Netcom Corporation  Limited and Great Wall Broadband Network detailed
in the subsequent events section.

Pursuant to an Agreement of Merger and Plan of Reorganization,  effective August
27, 2001, and through the subsequent transaction that closed on January 4, 2002,
Staruni Corporation, a California corporation merged with Elephant Talk Limited.
Staruni is the surviving  corporation and shall continue its corporate existence
under the laws of California. On January 9, 2002, Staruni filed a Certificate of
Amendment of Articles of  Incorporation  to amend its corporate name to Elephant
Talk Communications,  Inc. (ETCI). This name change was done in conjunction with
the merger, and to emphasize that the new focus of the ETCI will be the business
of Elephant  Talk Limited.  Pursuant to the terms of the merger,  each holder of
ordinary shares of ElephantTalk  common stock,  par value of HK$1 (One Hong Kong
Dollar)  immediately  prior to the effective  time of the merger date shall,  by
virtue of the  merger and  without  any  action on the part of such  holder,  be
entitled  to  receive,  as of the merger  date,  such number of shares of common
stock of ETCI,  no par  value,  as the number of shares of  ElephantTalk  common
stock owned by such holder as of the merger date.  Collectively,  following  the
merger, the former holders of ElephantTalk common stock held an aggregate of 90%
of the issued and outstanding  shares of ETCI's common stock.  The merger caused
no change in any of the shares of the ETCI's  common  stock  outstanding  on the
merger date, and no other  securities  were converted as a result of the merger.
At the  conclusion  of the  merger on  January  4,  2002,  Hartcourt  retained a
majority ownership in ETCI.

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

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

MEDIA SERVICES GROUP:

The Media Services  Group  consists of  StreamingAsia  Holdings  Limited,  which
consists of the  operations of  StreamingAsia  Limited,  LogicSpace  Limited and
SyndicateAsia  Limited.  The  Media  Services  Group  provides  a  comprehensive
real-time  audio  and video  delivery  (Streaming  Media)  solution  along  with
Internet   consulting   and   web   application   development   to   businesses,

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<PAGE>
professionals,  organizations,  web sites and content publishers.  The Streaming
Media Group's network  infrastructure  enables the streaming of superior-quality
multimedia  advertising,  live event  broadcasting and on-demand audio and video
content over the Internet to target audiences  throughout Asia and Globally.  On
August 20, 2001,  Hartcourt  established a new wholly owned  subsidiary  AI-Asia
Inc. to hold and develop assets of the Media Services Group. AI-Asia's objective
is  identify,  develop,  and  maintain  first-mover  technologies,  products and
services  for  corporate  and consumer  Internet  deployment.  AI-Asia  plans to
provide its clientele with a comprehensive range of Internet enabling solutions,
preparing them to participate  in the rapidly  emerging  streaming and broadband
communications  revolution.  AI-Asia  will  create  synergy  not only  among its
streaming technology companies but will coordinate with other Hartcourt Groups.

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


LogicSpace  Limited  ("LogicSpace"):  LogicSpace,  a wholly-owned  subsidiary of
StreamingAsia Limited, is an Internet consulting and web application development
company  that  provides a wide range of  Internet  services  including  web page
design,  system  architecture  and solution  implementation.  LogicSpace  offers
cost-effective  and one-stop shop Internet  solutions  that enable  companies to
achieve  smooth  results in doing  business on the Internet.  Solutions  include

top-notch  eBusiness  & Internet  consultation,  B2B/B2C  Portal  Development  &
Implementation,   Web-Based  &  Wireless   application   design  and  "know-how"
implementation.  The  operating  results of  LogicSpace  are  consolidated  with
StreamingAsia  Limited in the accompanying  financial  statements as of December
31, 2001.

SyndicateAsia Limited  ("SyndicateAsia"):  SyndicateAsia,  is pioneer in content
distribution,   providing  the   marketplace   for   exchanging,   managing  and
distributing   content  media  across  the  Asian  region.   The   revolutionary
SyndicateAsia  platform  offers  flexibility  to providers and content buyers to
transform formats (Web to WAP) and exchange content,  including text, graphical,
audio  and  video,   across  a  wide  range  of  sources  in  the  Asia  region.
SyndicateAsia's  mission is to serve as the bridge between the content providers

                                       15
<PAGE>
and end users by  providing  the foremost  syndication  solution for delivery of
multi-media  content on cross  devices and  platforms,  including the World Wide
Web,  wireless,  and streaming media. In December 2000, the StreamingAsia  Group
issued 50% of the enlarged  share  capital of  SyndicateAsia  to  Hartcourt.  On
December 30, 2000, as part of the reorganization of the StreamingAsia Group, the
entire   beneficial   ownership  in  the  share  capital  of  SyndicateAsia  was
transferred to China Top Worldwide Limited ("China Top"), a company incorporated
in the British Virgin Islands.  As a result of the transfer  Hartcourt owned 50%
of the ownership  interest in China Top. The operating  results of SyndicateAsia
are  consolidated  with  StreamingAsia  Limited  in the  accompanying  financial
statements as of December 31, 2001.

On May 16, 2001  Hartcourt  took control over the  management  and operations of
Asia Top and  China  Top,  and  signed a Term  Sheet  Agreement  to  acquire  an
additional  35%  ownership  in Asia  Top and  China  Top for  HK$2,200,000.  The
agreement  required Hartcourt to place a down payment of HK$500,000 in an escrow
account,  pay  HK$300,000 in thirty days and place seven post dated  installment
checks  of  HK$200,000  each,  payable  each  month  upon  close of the  escrow.
Hartcourt  placed the  HK$500,000  in the escrow  account and  renegotiated  the
purchase price and payment terms pursuant to the Term Sheet Agreement. On August
9,  2001,  Hartcourt  closed  the escrow and  completed  the  acquisition  of an
additional 35% ownership interest in Asia Top and China Top for a total purchase
consideration  of HK$800,000.  The  accompanying  financial  statements  reflect
Hartcourt's  ownership  of 85% of the  StreamingAsia  Group and its  results  of
operations  from the date of acquisition are  consolidated  with Hartcourt as of
December 31, 2001.

V2 Technology  Limited ("V2"): On August 21, 2001 AI-Asia,  Inc. signed a Letter
of Intent to acquire all of the assets in V2  (www.v2tech,com),  a Beijing based
streaming and  communication  technology and services  company  developing  rich
media  and  communication   software.   Existing  products  include  MPEG4-based
streaming media and videoconferencing software designed for professional content
providers,  broadcasters,  broadband operators, eCommerce and corporations. Upon
completion of due diligence,  Hartcourt  determined  that it would not be in the
best interest of Hartcourt to consummate  the  acquisition  of V2 at the present
time.  On March 18, 2002,  Hartcourt  and V2 mutually  agreed to  terminate  the
Letter of Intent of merger of the two entities.

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

During the year ended December 31, 2001,  Harcourt  advanced  $185,171 as a loan
towards the working  capital of Renew  Logistics  bearing 6% interest  per anum,
secured by all tangible and intangible  assets of Renew Logistics.  The terms of
the MOU required the completion of acquisition of Renew Logistics and listing of
AI-Asia on the US stock exchange on or before January 31, 2002. After overseeing

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<PAGE>
the operations of Renew Logistics,  Hartcourt  determined that it was not in the
best interest to merge Renew  Logistics  operations  with AI-Asia at the present
time. Both parties agreed to terminate the terms of the MOU and therefore, as of
March 10, 2002,  the  acquisition  of Renew  Logistics  was not  completed  with
AI-Asia.

Beijing Total Solution System,  Ltd. ("TSS"):  On September 15, 2000,  Hartcourt
and TSS signed a Term Sheet  Agreement  to form a Joint  Venture  Company  (JVC)
called TSS Streaming,  Ltd to develop broadband enabling technology for internet
broadcasting  market and develop world leading  web-casting  solution and global
market.  Hartcourt agreed to contribute $2.4 million for 60% ownership  interest
in the JVC and TSS  agreed to  contribute  all of its  tangible  and  intangible
assets of its existing operations in China for its 40% ownership interest in the
JVC.  On  December  1,  2000,  Hartcourt  and TSS  signed a loan  agreement  and
Hartcourt  advanced  $70,000 as a loan to support  TSS's  2000  marketing  plan,
convertible into for the ownership of 5% shares of TSS. Upon contribution of the
remaining  $2,330,000,  Hartcourt could acquire the additional 55% shares of the
JVC.  Hartcourt  has not  converted  its loan into an  investment  of 5% in TSS.
Hartcourt has not exercised its right to subscribe for the additional 55% of the
ownership  interest in the JVC and such right has subsequently been lapsed.  The
accompanying  financial statements reflect Hartcourt's loan of $70,000 to TSS as
of  December  31,  2001.  Hartcourt  does not intend to acquire  any  additional
ownership interest in TSS at this time.

Control Tech Centenary Group Ltd. ("CTC"): On November 6, 2001, AI-Asia signed a
Term Sheet  agreement to acquire one hundred  percent (100%) of CTC, a streaming
technology solutions company specializing in audio and videoconference products.
CTC is one of the two exclusive authorized dealers in China for Polycom. Polycom
is a  recognized  global  leader in  multimedia  business  communication  tools,
videoconferencing,  audio  conferencing,  web  conferencing,  and network access
appliances.  CTC also  represents  Enznia,  Radivision,  Accord  and MCU.  CTC's
customers include PLA, Proctor and Gamble, Hong Kong Telecom, Shandong Power Co.
and other  major  multinational  companies  in China  (www.polycomctc.com).  The
parties  are  completing   their  due  diligence  and  expect  to  complete  the
transaction by April 30,2002.

Beijing Kangrunjiayuan  Technology Co., Limited ("Kangrun"):  On March 22, 2002,
AI-Asia entered into an agreement with Kangrun Technology Co., Limited (BVI) and
Control  Techniques,  Limited  (BVI),  herein  collectively  referred  to as the
"subscribers". The subscribers agreed to subscribe for certain shares in AI-Asia
and  AI-Asia  has  agreed to  transfer  to the  subscribers  the said  shares in
consideration for the subscribers  procuring Beijing  Kangrunjiayuan  Technology
Co.,  Limited  ("Kangrun")  (www.kangrun.com)  and  Kangtai  Shitong  Technology
Development  Company Limited ("CTC")  entering into a Revenue Sharing  Agreement
between them and a wholly owned  subsidiary of AI-Asia.  Kangrun provides system
integration, networking solutions, modular networking products, computer systems
and storage  devices to  corporate  enterprises  in China.  Two major  strategic
partnerships   of   Kangrun   are   IBM-China    (www.ibm.com)   and   Ortronics
(www.ortronics.com).  The company is also a distributor  for Hewlett Packard and
Cisco Systems  products.  The  agreement is subject to certain  conditions to be
fulfilled  by the  relevant  parties and these are  expected to be  completed no
later than 30th April 2002.




                                       17
<PAGE>
E-LEARNING GROUP:

On June 18, 2001,  Hartcourt executed a Revenue Sharing Agreement in cooperation
with Northern Jiaotong University and California State  University-Fullerton  to
jointly  develop  education  projects and  introduce  American  career  training
courses and  post-graduate  business  programs in China.  The project will offer
prestigious  American  education  programs in China,  utilizing one of the first
online education licenses awarded by China's Ministry of Education.  The project
is offering  both  certificate  and degree  programs  with courses  designed for
relevance in today's business world. Coursework will initially be offered in the
classroom and later expanded  online.  Hartcourt  plans to extend its program to
other potential partners and institutions in the future.  Hartcourt has advanced
$100,000  towards the working  capital for its  investment in this project as of
December 31, 2001. The accompanying financial statements as of December 31, 2001
reflect Hartcourt's  investment of $100,000 in the education project.  The total
financial  commitments  of  Hartcourt  and terms of payment on this  project are
currently being negotiated between the parties and expect to be finalized by May
30, 2002.

OTHER VENTURES:

eMPACT Solutions,  Inc.  ("eMPACT") - eMPACT,  development stage enterprise,  an
e-commerce systems management and consulting company,  specializing in providing
back-office   infrastructure  for  Internet  companies.   The  services  include
technology  selection,  system design and  management,  transaction  performance
monitoring,  resource utilization tracking and security monitoring. On April 30,
2000, Harcourt executed a Subscription  Agreement and Investment  Representation
and agreed to  subscribe  and  purchase  three  hundred  (300) shares of Class B
Convertible  Preferred Stock, par value $0.001 per share of eMPACT for $300,000.
Hartcourt had the option until May 30, 2000, to invest an additional  $1,700,000
in eMPACT at the same per share price for  additional  Class B Preferred  Stock.
After May 30, 2000, the terms of any additional  investment  shall be subject to
negotiation  between the parties.  Hartcourt has determined that at this time to
increase its  investment in eMPACT would not be  advantageous  to the company or
its  shareholders.  The accompanying  financial  statements at December 31, 2001
reflect  Hartcourt's  investment in eMPACT of $300,000 for the purchase of three
hundred  (300) Class B  Preferred  Stock of eMPACT.  On January 7, 2002,  eMPACT
received  $7,500,000  as the second  round of funding  from the venture  capital
partners for further expansion of the company's Internet related business.

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

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<PAGE>
Hartcourt  has  completed  its due  diligence  review and both the parties  have
mutually agreed to revise the purchase price and execute the purchase  agreement
prior to May 31, 2002. As of March 10, 2002,  Hartcourt has not entered into any
formal  purchase  agreement  with  Koffman  and has not made  any  contributions
towards the purchase of Koffman.

China  E-Laws:  On April 8, 2000,  Hartcourt  entered into an agreement  with DF
Ltd.,  Loughborough  Ltd., and Express Internet  Investment Ltd.  (collectively,
"the  Management") and a fourth investor to form a joint venture company for the
commercial exploitation of the Publication Rights of the internet and production
of the content of the website in respect of the laws of China.  Per the terms of
the agreement, both Hartcourt and the fourth investor's obligation are to invest
$2,000,000  each,  in the joint venture  company for 25% ownership  interest and
share  the  responsibility  in  providing  funding,  finance  and  technological
support.  The  obligation  of  Hartcourt  and the fourth  investor is to provide
funding  as  working  capital  for the  joint  venture  company  subject  to the
conditions  precedent that the joint venture  company shall have entered into an
agreement with the relevant parties in China for the commercial  exploitation of
the  Publication  Rights on the Internet and the website.  As of March 10, 2002,
the joint venture  company was still  negotiating  agreements  with the relevant
parties  in  China  and  has  not  been  granted  approval  for  the  commercial
exploitation  of  the  Publication  Rights  on the  Internet  and  the  website.
Therefore, as of March 10, 2002, Hartcourt has no payment obligations under this
agreement.

Acquisitions and Partnerships Disclaimer:

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

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

Funding:

Swartz Private Equity,  LLC ("Swartz") - Swartz is an investment  entity focused
on equity  investments  in  Internet  and other high  technology  companies.  On
November 3, 1999, Hartcourt signed an Investment  Agreement with Swartz.  Swartz
agreed to purchase  from  Hartcourt,  from time to time,  shares of  Hartcourt's
common stock, as part of an offering of common stock by Hartcourt to Swartz, for
a maximum aggregate offering amount of $25,000,000.  These funds will be used to
satisfy  Hartcourt's working capital  requirements and complete  acquisitions of

                                       19
<PAGE>
Internet related operations.  On January 5, 2000, Hartcourt and Swartz agreed to
increase the equity line funding to $35,000,000 due to the planned  acquisitions
of Internet  operations in China.  Hartcourt has filed a form SB-2  Registration
document with SEC on November 24, 2000 to register  additional common shares for
issuance to Swartz.  Once approved by SEC, Swartz has the obligation to purchase
these  shares at the market  price less 10 percent  discount  during the next 24
months.

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

Pursuant to the terms of the  agreement,  the quantity of Units and the exercise
price of the warrants will no longer  reset.  The final amount of Units that can
be  issued  shall be  4,000,000  shares of common  stock and  4,000,000  Class I
Warrants.  The cap  amount  shall be  8,000,000  shares  of  common  stock (on a
"post-split"   basis)  including  Class  I  warrants.   As  a  result  of  reset
calculations, Hartcourt issued on March 6, 2001 an additional 930,784 shares and
on May 18, 2001 an  additional  1,035,308  shares of common stock for a total of
4,000,000  shares as December 31, 2001 and  4,000,000  warrants  exercisable  at
$0.69375 per share of common stock.  No warrants have been  exercised to convert
into common shares as of March 10, 2002.

Fee Agreement for Introduction  Services:  On April 19, 2000,  Hartcourt entered
into a Fee Agreement for Introduction Services ("Agreement") with Tang Wai Leong
and Thomas Kwok,  (collectively  referred to as the  "Introducers")  whereby the
Introducers  will use their best efforts to search for,  identify and make known
to  Hartcourt   Internet-related   business  and   opportunities  for  potential
acquisition by Hartcourt.  Hartcourt agreed to satisfy the Introducers' time and
expense  incurred,  up to and including the first acquisition by Hartcourt of an
opportunity  introduced  or  arranged  by the  Introducers,  by  granting to the
Introducers options to purchase up to 2,500,000  (pre-split) shares of Hartcourt
common  stock  at  a  price  of  $5.50  per  share.  Upon  consummation  of  the
introduction  by the  Introducers  and  Hartcourt  completing  the  acquisition,
Hartcourt  agreed to register with the SEC under a Form S-8 such shares  granted
under the option  agreement,  and shall  cause such  registration  statement  to
remain effective at all times while the Introducers holds the options.

The Introducers have introduced to Hartcourt a potential acquisition opportunity
and on April 27, 2000,  Hartcourt  signed the necessary  documents to consummate
the purchase of an entity  (Shenzhen Rayes Group Limited).  The Introducers have
subsequently  exercised  their option to acquire  2,500,000  shares of Hartcourt
common stock.  On May 8, 2000, in  accordance  with the terms of the  Agreement,
Hartcourt  filed  a Form  S-8 to  register  with  the  Securities  and  Exchange
Commission the 2,500,000 options granted to the Introducers under the Agreement.
As of December 31, 2001, Hartcourt had only received $2,750,000 towards exercise
of 500,000  options into shares  exercised  by the  Introducers.  The  remaining
2,000,000  options converted into shares issued to Thomas Kwok were subsequently
cancelled due to non-receipt of  $11,000,000 in  subscription  receivables as of
December 31, 2001.

                                       20
<PAGE>
Edda Limited ("Edda"):  On December 26, 2000,  Hartcourt and Edda signed a Stock
Sale Agreement (Agreement) whereby Hartcourt agreed to sell 4,000,000 restricted
shares of its common stock as a block to Edda at the agreed price of fifty cents
($0.50)  per  share.  Pursuant  to the terms of the  Agreement,  Hartcourt  will
deliver to Edda the requisite number of common shares  restricted under the Rule
144 of SEC regulations  upon receipt of the full and complete  purchase price in
the amount of $2,000,000.  On October 31, 2001,  Hartcourt  issued an additional
1,363,636 common shares valued at $0.22 per share for a subscription  receivable
of $300,000.  The  accompanying  financial  statements  reflect  that  Hartcourt
received  $2,160,135 from Edda as of December 31, 2001. The remaining balance of
$139,865  has been  recorded as  subscriptions  receivable  in the  accompanying
financial  statements as of December 31, 2001. As of February 7, 2002, Hartcourt
received $122,755 towards the subscriptions receivable at December 31, 2001.

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

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
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.

                                       21
<PAGE>
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,   Compaq  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 Accenture,
     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,
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.

                                       22
<PAGE>
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.

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

                                       23
<PAGE>
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
effectively

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.

Terrorism

Terrorist attacks, such as the attacks that occurred in New York and Washington,
D.C. on  September  11,  2001,  and other acts of violence or war may affect the
markets on which our securities trade, the markets in which we and our customers
operate, our operations and our profitability.  Terrorist attacks may negatively
affect our operations and your investment.  There can be no assurance that there
will not be further terrorist attacks against the United States or United States
businesses.  These attacks or armed  conflicts may directly  impact our physical
facilities or those of our suppliers or  customers.  Furthermore,  these attacks
may make travel and the  transportation  more  difficult and more  expensive and
ultimately  affect the sales of our products  and services in the United  States
and overseas.  Also as a result of  terrorism,  the United States may enter into
armed  conflicts  which  could  have  a  further  impact  on  our  domestic  and
international sales, our supply chain, our production capability and our ability
to deliver our products and services to our  customers.  Political  and economic

                                       24
<PAGE>
instability  in some  regions of the world may also result and could  negatively
impact our  business.  The  consequences  of any of these  armed  conflicts  are
unpredictable,  and we may not be able to  foresee  events  that  could  have an
adverse effect on our business or your investment.

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 three (3) full-time  employees
at its principal  executive  offices  located in Cerritos,  California in United
States.  The executive  offices provide  corporate  administrative  and advisory
services  to  other  Hartcourt   subsidiaries   and  affiliates.   FTL  and  its
subsidiaries  employs  at its two  sites  located  in Hong  Kong  thirteen  (13)
full-time  employees,  comprising of three (3) engineers and technicians and ten
(10) office/administrative personnel. ElephantTalk shares its employees with its
affiliates  and employs ten (10) full time  employees,  five (5)  engineers  and
technicians and five (5) office/administrative  employees.  Sinobull Information
employs eighty (80) full-time  employees at all six of its locations  consisting
of twenty (20)  engineers,  programmers and  technicians,  and 60 (sixty) sales,
office and  administrative  personnel.  HCTV employs  twenty four (24) full time
employees in Shanghai  consisting  of engineers and  programmers.  StreamingAsia
Group  employs  six (6)  full-time  employees  three (3) are  engineers  and the
remaining three (3) are administrative employees.

Research and Development

Hartcourt has spent many 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 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

On January 1, 2002,  the Board of Directors  recruited and appointed Dr. Wallace
Ching as the President  and Chief  Executive  Officer of Hartcourt.  The Company
signed an  Employment  Agreement  with Dr. Ching for a one year term under which
Hartcourt is obligated to provide salary and fringe  benefits  through  December
31, 2002. Annual base salary for the fiscal year 2002 payable to Dr. Ching under
the  contract  was  $120,000.   Payments  were  to  be  made  in  equal  monthly
installments. Dr. Ching is also entitled to an incentive bonus of $180,000 worth
of Hartcourt  shares,  share price to be calculated at the average closing price
of the last  twenty  (20) days of  January  2002.  The  incentive  bonus will be
payable and decided by the Board of Directors  upon  meeting of certain  defined
objectives.  In addition,  Dr.  Ching was granted an option to purchase  300,000
shares of Hartcourt  stock at an exercise price of $0.65 per share.  The term of
the options expires on December 31, 2002.

                                       25
<PAGE>
On  January  4,  2002,   pursuant  to  an   Agreement  of  Merger  and  Plan  of
Reorganization,   effective   August  27,  2001,   and  through  the  subsequent
transaction that closed on January 4, 2002,  Staruni  Corporation,  a California
corporation  merged  with  ElephantTalk.  On January 9,  2002,  Staruni  filed a
Certificate  of  Amendment  of  Articles  of  Incorporation  under  the  laws of
California to amend its corporate  name to Elephant  Talk  Communications,  Inc.
(ETCI)  and shall be the  surviving  corporation.  This name  change was done in
conjunction  with the merger,  and to  emphasize  that the new focus of the ETCI
will be the  business of  ElephantTalk.  After the  conclusion  of the merger on
January 4, 2002,  Hartcourt's retained a majority ownership in ETCI. On February
16, 2002 Hartcourt and ETCI agreed to extend the payment terms of the promissory
note of $1,250,000 due May 31, 2002.

On  February  1, 2002  Hartcourt  received a note  payment of $50,000  from Edda
Limited and an additional $122,755 towards the stock subscription  receivable at
December 31, 2001.

On March 17, 2002 ElephantTalk announced an expanded reseller and cross branding
agreements for Voice-Over-Internet-Protocol  (VOIP) services with two of China's
largest and most influential  telecom operators,  JiTong Network  Communications

Company Limited  (http://www.gb.com.cn ), and China Netcom  Corporation  Limited
( www.cnc.net.cn ).  ElephantTalk  plans to provide a full range of IP telephony
services, including PC2phone, PC2fax and other IP-based valued added services to
selected high demand locations in Greater China in phase one of the program.

ElephantTalk  signed a letter  of  intent  with  Great  Wall  Broadband  Network
(http://www.gwbnet.com),  a  rising  star  spearheading  the  development  of  a
comprehensive broadband network across the major cities of China. Great Wall and
ElephantTalk  will  co-operate  in the sales and  marketing  of the PC2Phone and
PC2Fax  services in  targeting  their  customers  who are  subscribing  to their
broadband network services.

On March 22, 2002,  AI-Asia  entered into an agreement  with Kangrun  Technology
Co., Limited (BVI) and Control  Techniques,  Limited (BVI),  herein collectively
referred to as the  "subscribers".  The subscribers have agreed to subscribe for
certain shares in AI-Asia and AI-Asia has agreed to transfer to the  subscribers
the  said  shares  in  consideration  for  the  subscribers   procuring  Beijing
Kangrunjiayuan Technology Co., Limited ("Kangrun") (www.kangrun.com) and Kangtai
Shitong Technology  Development  Company Limited ("CTC") entering into a Revenue
Sharing Agreement between them and a wholly owned subsidiary of AI-Asia. Kangrun
provides system integration,  networking solutions, modular networking products,
computer  systems and storage  devices to corporate  enterprises  in China.  Two
major  strategic  partnerships  of  Kangrun  are  IBM-China   (www.ibm.com)  and
Ortronics  (www.ortronics.com).  The company is also a  distributor  for Hewlett
Packard  and Cisco  Systems  products.  The  agreement  is  subject  to  certain
conditions to be fulfilled by the relevant  parties and these are expected to be
completed no later than 30th April 2002.

On March 27, 2002  Hartcourt  obtained a  short-term  loan of  $125,000  from an
investor for its working capital. The loan bears 10% interest, and is payable on





                                       26
<PAGE>
September 26, 2002. The loan may be  convertible  to Hartcourt  common shares at
the discretion of Hartcourt.  The terms of conversion  into shares have not been
finalized as of this date.

No assurance can be given that Term Sheet and Heads of Agreements will result in
actual  agreements or that the terms of the agreements will not be significantly
changed,  or that  any of the  financing  needs  to  consummate  the  agreements
discussed  below will be  successfully  completed.  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 has  recently  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 has raised and continues 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.  If Hartcourt is not able to raise the necessary
funds  indicated in the  agreements,  the agreements will need to be modified or
cancelled.

Item 2.  Description of Property

Hartcourt's  principal  executive  offices are located at 19222  Pioneer  Blvd.,
Suite 100, Cerritos, California 90703. The premises consist of approximately 600
square feet of office space with a large  reception  room,  an office and a file
room.  Hartcourt  is  leasing  these  premises  from an  unaffiliated  party and
occupied  these  premises  since  November 15,  2001.  The lease term is for six
months commencing on November 15, 2001 and the monthly rent amounts to $777 with
no escalation of monthly rent during the lease term.

Hartcourt Capital,  Inc. leases an office space at 99 Queen's Road Central, Hong
Kong.  The  premises  consist  of  approximately  2,065  square  feet of  office
facility.  The lease term is for three years commencing on December 15, 1999 and
lease  allows  free rent of 12  months.  The  monthly  lease  payment  including
air-conditioning and management charges approximate HK$49,560  (US$6,353).  FTL,
through Topomedia  International Limited, a wholly owned subsidiary,  owns 1,439
sq.  ft. of office  space and  leases  the 918 sq.  ft. at the  monthly  rent of
HK$25,000  (US$3,205) per month.  The lease term expired on February 5, 2002 and
was renewed for a two-year term ending February 4, 2004.

Sinobull  Information  leases its six office premises in various cities in China
consisting of  approximately 8,907 square feet.  Lease terms range for up to two
years period  commencing from December 20, 2000 to December 31, 2002 at the rate
of  RMB55,752  (US$6,800)  per month.  HCTV leases its office  space in Shanghai
consisting of  approximately  1,603 square feet. The lease term is for two years
commencing January 1, 2001 at the monthly rent of RMB11,663 (US$1,422).

ElephantTalk  leases its office  space of  approximately  5,216  square  feet in
Kowloon,  Hong Kong for a period of two years  commencing  April 17,  2000 for a
monthly rent of HK$65,200 ($8,359).

Hartcourt  believes that its facilities  currently  under lease are adequate for
its  present  activities,  and  that  additional  facilities  are  available  on


                                       27
<PAGE>
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.

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

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

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

Charles  Hogue  filed a  complaint  to  claim  a  finder's  fee for  introducing
Hartcourt to a potential  acquisition target.  Hartcourt sent the payment to Mr.
Hogue via check in the amount of $40,500 for such  finder's  fee,  but Mr. Hogue
demanded  that he be paid in shares of  Hartcourt  with the  amount of shares in
dispute.  Hartcourt's  counsel in Florida failed to timely file an Answer to the
complaint,  and default judgment in the amount of  $2,901,752.39  was entered in
the  trial  court on  January  31,  2001  without a trial  and  despite  serious
questions   raised  by  Hartcourt  as  to  the  propriety  of  the  exercise  of
jurisdiction over it by a Florida court. Hartcourt brought a motion to set aside
the default,  which was denied.  Hartcourt has appealed the judgment  entered by
the trial court on multiple grounds,  each of which has substantial  independent
merit.  Oral arguments were presented to the appellate  court by both parties of
the action on October 1, 2001,  at which time the court seemed to indicate  that
it seriously  questioned  the legal  propriety  of several of the trial  court's
rulings.  Hartcourt and its Florida  counsel are very  optimistic that Hartcourt
will  prevail  on its  appeal,  especially  given  the  default  nature  and the
excessiveness of the damages.


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

None




                                       28
<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 years calendar quarters ended December 31, 2001, 2000 and 1999:

-------------------- -------------- -------------- -------------- --------------
                        High Bid       Low Bid       High Asked     Low Asked
-------------------- -------------- -------------- -------------- --------------

March 31, 1999          $ 0.23         $ 0.19         $ 0.23         $ 0.19
-------------------- -------------- -------------- -------------- --------------
June 30, 1999             0.45           0.37           0.44           0.36
-------------------- -------------- -------------- -------------- --------------
September 30, 1999        0.42           0.38           0.42           0.38
-------------------- -------------- -------------- -------------- --------------
December 31, 1999         7.69           7.13           7.69           7.13
-------------------- -------------- -------------- -------------- --------------
March 31, 2000            6.23           5.94           6.23           5.94
-------------------- -------------- -------------- -------------- --------------
June 30, 2000             4.38           4.06           4.37           4.06
-------------------- -------------- -------------- -------------- --------------
September 30, 2000        2.78           2.61           2.78           2.61
-------------------- -------------- -------------- -------------- --------------
December 29, 2000         0.61           0.52           0.61           0.52
-------------------- -------------- -------------- -------------- --------------
March 31, 2001            0.66           0.53           0.66           0.53
-------------------- -------------- -------------- -------------- --------------
June 29, 2001             0.38           0.35           0.38           0.35
-------------------- -------------- -------------- -------------- --------------
September 28, 2001        0.22           0.20           0.22           0.20
-------------------- -------------- -------------- -------------- --------------
December 31, 2001         0.44           0.35           0.44           0.35
-------------------- -------------- -------------- -------------- --------------

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, 2001, there were broker-dealers publishing quotes
for the common stock.

Holders

At March 10, 2002,  Hartcourt had approximately  11,344 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  that  exists  under  Rule 144.
Approximately  2,999,905  and  8,879,000  outstanding  Rule 144  shares  held by
principal and directors exist at December 31, 2001 and 2000, respectively.




                                       29
<PAGE>
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.

Warrants

At March 10,  2002,  there  were  4,413,530  outstanding  warrants  to  purchase
4,413,530 shares of common stock at $.001 par value, ranging from $0.69 - $15.52
per share. During 2001, no warrants were converted into shares of common stock.

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 Hartcourt 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 Hartcourt.

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
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.




                                       30
<PAGE>
During 1999,  Hartcourt sold to investors  700,000 shares of its common stock to
raise  $900,000  that 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.

On January 18, 2000,  Hartcourt issued 254,552 additional shares of common stock
to FTL in  settlement  of the post closing  adjustment  pursuant to the terms of
stock purchase agreement.

On January 19, 2000,  Hartcourt  entered into Stock Sale  agreement with Chateau
O'Doly under Regulation S and sold 300,000 restricted common shares at $4.00 per
share.  Hartcourt raised  $1,200,000 that it used towards the acquisition of UAC
and FTL.

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 consisted 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 the  adjustment
upon certain events.  The Class II Warrants entitled PYR to purchase  additional
shares of  Hartcourt  common stock at par value  solely upon the  occurrence  of
certain events. On January 27, 2000,  Hartcourt received  $2,743,000 from PYR to
be used for  working  capital  requirements  of  Hartcourt.  As a result  of the
occurrence  of  certain  events,  on  March 6,  2001,  Hartcourt  issued  to PYR
2,509,792  additional  common shares,  2,509,802  Class I Warrants and 1,035,308
Class II Warrants,  both Class I and Class II at the exercise price of $0.69375,
in accordance with terms of the Subscription Agreement.

During  2000,  Hartcourt  issued  49,161  shares of its common  stock  valued at
$144,000 to directors  for services  performed  during the year.  On January 31,
2000 and May 11, 2000  Hartcourt  issued  1,551,720  and 48,560 shares of common
stock to Dr. Alan Phan in lieu of his 1999  compensation of $225,000.  Hartcourt
issued 42,105 shares of common stock valued at $107,333 to the directors in lieu
of their compensation for the year 2000.

During 2000,  Hartcourt issued 122,754 shares of common stock valued at $180,435
to various consultants for their professional and legal services.

On May 4, 2000 and July 7,  2000,  Tang Wai Leong and  Michael  Rouge  exercised
their stock  options and  converted  into  500,000 and 200,000  shares of common
stock at the exercise price of $5.50 and $1.25 per share. As a result, Hartcourt
raised $3,000,000 and used it for its working capital requirements.

As of December 31, 2000,  Hartcourt  has received  $807,905  against the sale of
stock to Edda and additional remittances equal to $364,915 as of March 26, 2001.
Hartcourt  has not  issued  any  shares to Edda  under  this  Agreement  and has
received $364,915 in additional remittances subsequent to December 31, 2000.

During  2001,  Hartcourt  issued  1,136,054  shares  of common  stock  valued at
$374,173 to various  consultants and advisors for providing  consulting services
to the Company during the year.



                                       31
<PAGE>
In February  2001,  Hartcourt  issued  805,802  shares of common stock valued at
$500,000  in  connection  with the  acquisition  of  Shanghai  Guo Mao Science &
Technology  Co.  Ltd.  as  part of the  total  consideration.  On May 21,  2001,
Hartcourt  issued  4,756,058  shares of common  stock  valued at  $2,944,000  in
connection  with the  acquisition  of 51%  ownership  interest in Elephant  Talk
Limited.

On February  20, 2001,  American  Equities  exercised  their  cashless  right to
convert 400,000 warrants into 400,000 shares of common stock.

During 2001,  Hartcourt issued 806,970 shares of common stock valued at $339,840
to officers and directors in lieu of compensation and services.

On March 6, 2001 and May 18, 2001, Hartcourt issued an additional 930,784 shares
and  1,035,308  shares of  common  stock to PYR  Management  LLC  pursuant  to a
Regulation  D  Subscription  Agreement  due to the reset  provision of the share
price. As a result of reset calculations,  Hartcourt has issued 4,000,000 shares
of common stock and  4,000,000  Class I Warrants.  The Warrants can be converted
into common shares at an exercise price of $0.69375 per warrant.

On August 27, 2001, Hartcourt sold to investors 475,000 restricted shares of its
common  stock  under a private  placement  to raise  $95,000  for the  Company's
working capital needs.

On October 31, 2001 and  November  11,  2001,  Hartcourt  issued  1,363,636  and
4,000,000   restricted  shares  of  common  stock  to  Edda  Limited  valued  at
$2,300,000.  Hartcourt has received $2,160,135 from Edda Limited during the year
2001 and the  remaining  balance of  $139,865  is  classified  as  subscriptions
receivable at December 31, 2001. Edda Limited remitted the remaining balance due
to Hartcourt as March 10, 2002.

On December  31,  2001,  Hartcourt  cancelled  4,000,000  shares of common stock
issued to Thomas Kwok valued at  $11,000,000.  The shares were  cancelled due to
non-receipt of $11,000,000 previously recorded as subscriptions  receivable from
Thomas Kwok.


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.





                                       32
<PAGE>
Plan of Operation

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

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

Results of Operations

Comparison of the fiscal years ended December 31, 2001 and December 31, 2000.

During 2001,  Hartcourt  continued its  previously  implemented  plan to acquire
profitable  companies  that were in  established  industries  with a history  of
growth.  Since mid-1999,  Hartcourt has been focusing on assembling a collection
of  companies  and  services  that  will  provide  citizens  of China  with next
generation  communication services,  including China-focused Internet access and
financial  portals,  online  share  trading  services,  data  broadcasting,  and
financial services.  The Company signed underwriting  agreements for the initial
public offerings of shares of its two most developed investments,  both of which
were planned in the year 2001.  On January 4, 2002,  pursuant to an Agreement of
Merger and Plan of Reorganization,  Hartcourt's  subsidiary  ElephantTalk merged
with Staruni Corporation, a California corporation,  organized under the laws of
California  and  listed  on the over the  counter  on  bulletin  board of NASDAQ
exchange.  After the  conclusion  of the  merger  Hartcourt  retained a majority
ownership in ETCI.  Hartcourt's  division Sinobull Group intends to complete its
merger with Global Telephone  Communications,  Inc. ("GTCI") in May 2002 pending
approval  from SEC.  Hartcourt  plans to  eventually  build  all of its  current
operations into stand-alone entities that will also be taken public on US and/or
Asian Financial markets.

To stay focused and achieve its mission to become a leading  Internet company in
Asia and China,  Hartcourt continued to build a network of Internet companies in
partnership  with  young  Chinese  enterprenuers  as  well as  government  owned
entities. On May 16, 2001, Hartcourt acquired 51% ownership interest in Elephant
Talk. On July 16, 2001  Hartcourt  entered into a rescission  agreement with UAC
Trading and sold its 51%  ownership  interest in UAC  Exchange  for its original
investment of $2,858,286.  On August 9, 2001,  Hartcourt  acquired an additional
35% ownership interest in StreamingAsia Ltd. and its subsidiaries increasing its
ownership interest to 85%.


                                       33
<PAGE>
The  operations of Hartcourt for 2001  primarily  consisted of operations of FTL
(58.53%   ownership   interest),   StreamingAsia   (85%   ownership   interest),
ElephantTalk (51% ownership interest),  Sinobull (wholly-owned subsidiary), HCTV
(66.7%  ownership  interest),  AI-Asia  (wholly-owned  subsidiary) and Hartcourt
Capital,  Inc.  (wholly-owned  subsidairy)  and its  investments and advances to
entities in China,  Hong Kong and US. The operations of Hartcourt 2000 consisted
of  operations of FTL (58.53%  ownership  interest),  StreamingAsia  (50% equity
investment  interest),  UAC Exchange (51% ownership interest) and its investment
and advances to Sinobull for acquisitions in China and Hong Kong.

Net sales and cost of sales.  Net sales in 2001 amounted to $10,621,205 compared
to $1,391,666,  consisting of sales from providing  telecommunications services,
sale of prepaid  telephone  cards,  sale of  financial  pagers  and the  related
Internet and telephone  services.  Cost of sales  amounted to $7,757,779 in year
2001 compared to $1,409,364 during 2000. Cost of sales for 2001 included cost of
capacity associated with the sales recognized from providing  telecommunications
services,  costs  associated  with in acquiring  data-feed  from Honk Kong Stock
Exchange  and  various  commodities  exchanges  in  China  via TV  channels  and
satellite transmissions,  equipment rental in providing event real-time Internet
broadcasting and on-demand  multimedia content delivery and total web solutions.
Cost of sales for the year 2000  included a write down of $150,771 of  inventory
relating to the  financial  pagers that became  obsolete as FTL  switched  their
wireless network to a new platform during 2000.

Selling,   general   and   administrative   expenses.   Selling,   general   and
administrative  expenses  amounted to $7,379,192 for 2001 compared to $2,985,433
for 2000. The increase is primarily due to increase in legal,  professional  and
consulting  fees  amounting  to  $2,267,014  due to the  acquisition  of various
entities and public offering costs,  increase in compensation  expense amounting
to  $2,072,767  due to the  increase in the number of  employees  as a result of
acquisitions, and providing for the doubtful accounts of $898,059.

Impairments.  Impairments  in year  2001  amounted  to  $1,785,262  compared  to
$3,065,600  in the year 2000.  Impairments  in 2001  resulted  primarily  due to
Company taking  conservative  position and writing down the intangible  software
costs and  goodwill  of  $934,884 in FTL,  $742,207  in  Sinobull  Network;  and
$109,171 in StreamingAsia  due to consistent  operating losses in these entities
and general  market  conditions.  Impairments  in 2000 resulted due to the write
down of the marketable securities of $2,500,000 as a result of exchanging GoCall
preferred  shares,  and writing down of  investments by $480,871 and $565,600 in
UAC Exchange and FTL.

Loss from discontinued operations.  Hartcourt discontinued the operations of UAC
Exchange  during  2001  and  incurred   $377,952  in  losses  from  discontinued
operations.  Hartcourt did not discontinue any operations in 2000 and therefore,
no losses were incurred.

Gain  on  disposal  of  discontinued  operations.   Hartcourt  disposed  of  the
operations of UAC Exchange  during the year and recognized a gain of $1,060,371.
No operations were disposed off in the year 2000.

Gain on extinguishment of debt: During 2001, the Chairman of the Company donated
5,000,000 shares of Hartcourt to the Company.  Hartcourt  settled a loan payable


                                       34
<PAGE>
of $1,862,630 in exchange of 5,000,000 shares of common stock of Hartcourt.  The
accompanying  financial  statements at December 31, 2001 reflect the donation of
5,000,000  shares  recorded  as  treasury  shares  and  satisfaction  of loan of
$1,862,630.


Liquidity and Capital Resources

Hartcourt's  principal  capital  requirements  during  2001  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  $5,329,408  and  6,790,879  for the years ended  December 31, 2001 and 2000,
respectively. In addition,  Hartcourt's working capital deficit of $3,889,779 is
not adequate to meet its minimum  monthly  expenses.  These factors,  as well as
negative cash flows from current operations of $984,224,  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 in 2001, which in management's
opinion will provide the necessary  capital to continue its  operations  for the
next five years.  These steps included:  1) the settlement of certain matters of
litigation  and disputes;  2) signed a Investment  Agreement with Swartz Private
Equity,  LLC,  who  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, 3) raised $9,858,277 in cash through issuance of
its common  shares since the  beginning  of the year 2000  through  December 31,
2001.

Operating activities. Net cash used in current operating activities decreased to
$984,224 during the year 2001 compared to net cash used in operating  activities
of  $2,513,094  during the year 2000.  This is primarily due to the fact that in
2001,  Hartcourt  recorded a gain of $1,862,630 due to  extinguishment of a loan
payable, providing for $1,478,313 in depreciation and amortization of intangible
software casts,  write down of note  receivable of $329,171,  impairments due to
write down of goodwill and intangible  software  costs  amounting to $1,785,262,
increase in accounts  receivable  of 143,278,  decrease in inventory and prepaid
expenses  amounting  to $136,575  and  $543,846,  respectively,  and increase in
accounts  payable and accrued  expenses of  $1,811,444.  During 2000,  Hartcourt
recorded  impairments  due  to  write  down  of  the  marketable  securities  of
$2,500,000 as a result of exchanging GoCall preferred  shares,  writing down the
investments in UAC and FTL by $480,871 and $565,600, respectively, providing for
doubtful  accounts  of  $767,586,  write  down of the  wireless  network  assets
amounting to $193,905 as FTL switched  its wireless  network  structure to a new
platform  during 2000.  Net cash used in  discontinuing  operations  amounted to
$478,327 during 2001 compared to zero in 2000.

Investing activities. Net cash used in investing activities amounted to $338,950
during  2001  compared  to  $4,589,125  during  2000.  This is mainly due to the
payment of $823,585 in notes  receivable,  purchase of property and equipment of
$51,721,  offset by cash of $690,202  acquired in acquisitions of  ElephantTalk,

                                       35
<PAGE>
Sinobull Group and StreamingAsia.  Net Cash used in investing activities in 2000
was due to investment in eMPACT of $300,000, purchases of property and equipment
of $347,051,  and advances to Sinobull for  $2,819,884 for  acquisitions  during
2000.

Financing  activities.  Net cash  provided by financing  activities  amounted to
$1,984,912  in 2001  compared to net cash  provided by financing  activities  of
$7,174,155  during 2000.  Hartcourt  raised  $1,988,501  from issuance of common
stock during 2001,  made payments on loans due to related  parties  amounting to
$865,048,  made payments of shareholders loans of $999,436, and proceeds of long
tern debt of $1,619,807.  During 2000, Hartcourt raised $7,869,776 from issuance
of common  shares that was partially  offset by $81,094  $695,621 in payments to
related  parties and $614,527  payments on long term debt..  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.


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 February 8, 2001, Hartcourt appointed Weinberg & Company, P. A. "Weinberg" as
its new  independent  accountants  for the year ended  December  31, 2000 audit.
During  the two most  recent  fiscal  years  and  through  September  29,  2000,
Hartcourt had not consulted with Weinberg  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  Weinberg  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.


                                    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.



                                       36
<PAGE>
Name              Age   Position                                  Dates Held

Dr. Alan V. Phan   56   Chairman of the Board, President     Since November 1993
                        and Chief Executive Officer

Manu Ohri          46   Director, Executive Vice President   Since December 1999
                        Finance, Chief Financial Officer,
                        Secretary and Treasurer

Mr. Stephen Tang   55   Director                             Since July 2001

Jimmy Lui          54   Director                             Since July 2001

Dr. Charlie Yang   42   Director                             Since July 2001


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. 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.
From June 1999 to May 2000,  Mr. Ohri held the  position of  President,  CEO and
Director of Enova Holdings, Inc., an investment holding company and an affiliate
of  Hartcourt.  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.

Mr. Stephen Tang is the founder of Financial  Telecom Limited (FTL) and has been
involved in the development and implementation of consumer technologies for over
20 years.  From 1985 to present,  Mr. Tang held the position of Chief  Executive
Officer  of  FTL.  Mr.  Tang's  contributions  include  development  of new  and
innovative products and creation of strategic alliances in China,  Taiwan, Korea
and USA.  Mr.  Tang  holds a degree in  Business  Administration  from  AIM-Asia
Institute of Management in Manila.

                                       37
<PAGE>
Mr. Jimmy Lui is presently the Chairman,  Chief Executive Officer and founder of
Crown Star Consultant  Limited, a Hong Kong based consulting firm engaged in the
business of management consultancy.  From January 1998 to December 1999, Mr. Lui
was the General Manager-Group corporate relations of China CLP Holdings Limited.

From  October  1993  to  January  1998,  Mr.  Lui  was the  General  Manager  of
distribution and customer services of China Light & Power Company Limited.  From
1991 to 1993,  Mr. Lui worked as Vice President and Chief  Financial  Officer of
Utility  Consulting  International  Limited  in the US.  In  1991,  Mr.  Lui was
Cellnet's Field Operations and Planning Manager of Domestic  Automation  Company
in the US. Prior to joining Domestic Automation Company, Mr. Lui had worked over
22 years with China Light & Power Company  Limited in Hong Kong. Mr. Lui holds a
Masters degree in Business  Administration  from the Chinese  University of Hong
Kong,  and a  Bachelor  of Science  degree in  Electrical  Engineering  from the
University of Hong Kong.  Mr. Lui is a registered  Professional  Engineer in the
US, a Chartered  Engineer in the United  Kingdom and a fellow member of the Hong
Kong Institute of Engineers.

Dr.  Charlie Yang was the  President  and Chief  Executive  Officer of a leading
wireless access company in Beijing Xinwei Telecom  Limited,  joint venture owned
and invested in by the Chinese Ministry of Information  Industry and W.I. Harper
Group prior to joining Hartcourt in May 2000. From 1998 to 1999, Dr. Yang served
as the President and Chief Telecom  Research Analyst of  TelecomResearch.com,  a
leading online resource serving wireless  industry.  From 1995 to 1998, Dr. Yang
served as senior  product  manager at Hughes  Network  Systems Inc. From 1993 to
1995, Dr. Yang served as a senior product/business planner with Northern Telecom
Limited in the area of next generation of product development. Dr. Yang obtained
his Ph.D and Masters in Science  degrees in Wireless  Telecommunications  at the
University  of Victoria in Canada.  Dr. Yang  obtained his  Bachelors  degree in
Electrical Engineering at the University of Science and Technology of China.

Effective  January 1, 2002,  Dr. Alan Phan decided to relinquish his position of
President  & Chief  Executive  Officer  of  Hartcourt.  The  Board of  Directors
recruited and  appointed  Dr.  Wallace Ching to be the Company's new President &
Chief Executive Officer.  Dr. Alan Phan retained the position of the Chairman of
Hartcourt.  Prior to joining Hartcourt, Dr. Ching served as Managing Director of
PAMA Group Limited Hong Kong (formerly known as Prudential Asset Management Asia
Limited)  and was in charge of  technology-related  investment  activities.  Dr.
Ching was responsible for  originating,  evaluating,  structuring and completing
private equity and venture  capital  investment  with a technology  focus in the
Asia Pacific region. From 1995 to 1998, Dr. Ching worked for HSBC Private Equity
Management Limited as an Associate Director and was responsible for originating,
evaluating and executing investment  transactions and monitoring investments for
regional  private  equity  funds.  From 1993 to 1995,  Dr. Ching worked for HSBC
Asset  Management Hong Kong Limited as an Investment  Manager.  Prior to joining
HSBC,  he worked for Goldman Sachs & Co. as a fixed income  research  associate.
The HSBC Group is named after its  founding  member,  The Hong Kong and Shanghai
Banking Corporation Limited, which was established in 1865. HSBC Holdings PLC is
one of the largest  banking and financial  services  organizations  in the world
with 6,500 offices in 79 countries and  territories.  Dr. Ching holds a Bachelor
of Arts  degree in  engineering  science  with first  class  honors  from Oxford
University,  England,  and a Ph.D. in computer and information  science from the
University of Pennsylvania,  United States.  Dr. Ching is a Chartered  Financial
Analyst  and  also  an  assessor  of the  Small  Entrepreneur  Research  Program
("SERAP")  under  the  Innovation  and  Technology  commission  of the Hong Kong
Government.

                                       38
<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 on the
Board. For attending Board meetings, Hartcourt compensated its directors $12,000
each quarter  through the issuance of  restricted  shares of common stock at the
closing  market price of the common  shares  valued on first day of the calendar
quarter.

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 Class A preferred stock was issued and
outstanding as of December 31, 2001 and 2000, respectively.

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.  No Series A convertible  preferred
stock was issued and outstanding at December 31, 2001 and 2000, respectively.

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.  No Series B convertible  preferred
stock was issued and outstanding at December 31, 2001 and 2000, respectively.

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

                                       39
<PAGE>
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.  No Series AB  convertible  preferred  stock was issued and
outstanding at December 31, 2001 and 2000, respectively.

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. No Series C redeemable  preferred stock
was issued and outstanding at December 31, 2001 and 2000, respectively.

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. No Series D convertible preferred stock was
issued and outstanding at December 31, 2001 and 2000, respectively.

By virtue of the 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,  2001,  2000 and 1999 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        2001              $250,000
                                                 2000               1
                                                 1999               3,379,788

Hartcourt  was  obligated  under the  employment  contract with Dr. Alan Phan to
provide salary,  bonuses,  and other fringe benefits  through December 31, 2001.
Dr.  Phan's  employment  agreement  expired  on  December  31,  2001 and was not
renewed.  Annual base salary payable to Dr. Phan under the contract was $250,000
per annum for  fiscal  years  2000 and 2001.  Payments  were to be made in equal
monthly  installments.  In the event Hartcourt did not have sufficient cash flow
to pay  compensation  in cash,  Dr.  Phan had the  option to accept  Hartcourt's
restricted common shares for the same amount of compensation. Share price was to

                                       40
<PAGE>
be calculated at 50% of the market  trading bid price on January 1st of the year
of employment.  During the year 2001, Dr. Phan agreed to receive compensation of
1,245,793 shares of common stock valued at $250,000 as salary for the year ended
December  31,  2001.  During the year  2000,  Dr.  Phan  agreed to receive $1 in
compensation  as his  salary.  As of March 10,  2002,  Hartcourt  has not issued
1,245,793 shares of common stock to Dr. Phan.

On February  19,  2000,  Hartcourt  entered into an  employment  agreement  with
Frederic Cohn, Executive Vice President,  regarding the terms of his employment.
This  agreement  has a two-year  term ending  December 31, 2000.  The  agreement
provides for an annual  salary of $120,000 in the first year and $130,000 in the
second year.  Fifty percent (50%) of Mr. Cohn's annual salary is payable in cash
and the  balance  is  payable  in  shares  of  common  stock of  Hartcourt.  The
conversion  price is the closing market price on the first day of each month for
the salary owed that month.  Mr. Cohn resigned from his position in May 2001 due
to a mutual agreement.  During the year 2001 and 2000, Mr. Cohn received $17,000
and $60,000 of his salary in cash and Hartcourt  issued 69,833 and 20,558 shares
of restricted common stock valued at $ 50,000 and $60,000, respectively.

On April 12, 2000,  Hartcourt  entered  into an  employment  agreement  with Dr.
Charlie Yang, Chief Executive  Officer,  for a term of three years of employment
starting May 1, 2000. During the first year ending April 30, 2001, the agreement
provides  for an annual  salary of  $168,000  in cash plus an option to purchase
50,000  shares of  Hartcourt  common  stock at the  market  price of May 1, 2000
exercisable within twenty-four (24) months of its grant. In the second and third
year,  the annual  salary  increases to $180,000 and $200,000 plus the option to
purchase  shares  increases  to 100,000  and 150,000  shares of common  stock of
Hartcourt  as of May 1, 2001 and May 1,  2002,  exercisable  within  twenty-four
months of its grant.  On June 1, 2001,  Dr. Yang  resigned  from his position of
Chief Executive Officer at Hartcourt.  During 2001, Mr. Yang received $70,000 in
salary and did not exercise his options to purchase  50,000  shares of Hartcourt
common stock as of March 10, 2002.

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.  As of March 10,  2002,  options to purchase  320,000  shares of
common stock were  outstanding  under the plan at exercise  prices  ranging from
$1.00 to $5.75 per share.











                                       41
<PAGE>
Item 11.  Security Ownership of Certain Beneficial Owners and Management
The following table sets forth  information as of December 31, 2001 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.

-------------------- --------------------- -------------------------- ----------
Title of Class       Name & Address of     Amount and Nature of       Percent
                     Beneficial Owner      Beneficial Ownership (1)
-------------------- --------------------- -------------------------- ----------
-------------------- --------------------- -------------------------- ----------
Common stock         Dr. Alan V. Phan      2,270,243 (2)              2.8%
                     19222 Pioneer Blvd.,
                     Suite 100
                     Cerritos, CA 90703
-------------------- --------------------- -------------------------- ----------
Original  Preferred                        1,000 (2)                  100%
stock
-------------------- --------------------- -------------------------- ----------
-------------------- --------------------- -------------------------- ----------
Common stock         CEDE & Co.            55,135,753 (3)             69.0%
                     55 Water Street 2SL
                     New York, NY 10041
-------------------- --------------------- -------------------------- ----------
-------------------- --------------------- -------------------------- ----------
                     All  Officers  and    2,999,905                  3.75%
                     Directors as a group
-------------------- --------------------- -------------------------- ----------

(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).

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

                                       42
<PAGE>
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:
                                                               Weighted
                                                                Average
                                            Number of          Exercise
                                              Shares             Price
                                           ------------      ------------
Shares under option at January 1, 2000          400,000      $       1.00
    Granted                                      70,000              6.76
    Exercised                                         -                 -
    Canceled                                          -                 -
                                           ------------      ------------
Shares under option at December 31, 2000        470,000      $       1.86
    Granted                                           -                 -
    Exercised                                         -                 -
    Canceled                                   (150,000)            (3.05)
                                           ------------      ------------
Shares under option at December 31, 2001        320,000      $       1.30
                                           ============      ============

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, 2001 and 2000, would
not have been increased.

Additional  information relating to stock options outstanding and exercisable at
December 31, 2001 summarized by exercise price are as follows:

                                   Outstanding                Exercisable
                          ----------------------------  ------------------------
                                Weighted Average                Weighted Average
Exercise Price                  ----------------                ----------------
   Per Share     Shares   Life (Years)  Exercise Price  Shares   Exercise Price
--------------  --------  ------------  -------------- -------- ----------------
$1.00 to $5.75  320,000     2 to 6.5            $1.30  320,000       $1.30


In connection with a Fee Agreement for Introduction Services with Tang Wai Leong
and Thomas  Kwok,  (collectively  referred to as the  "Introducers"),  Hartcourt
agreed to grant to the Introducers options to purchase up to 2,500,000 shares of
Hartcourt common stock at a price of $5.50 per share. The options were issued at
the fair market  value on the date of  issuance  and  therefore,  no expense was
recorded.  On May 4, 2000,  the  Introducers  exercised  their option to acquire
2,500,000 shares of Hartcourt  common stock. As of December 31, 2001,  Hartcourt
received  $2,750,000  towards the exercise price of 500,000  options into shares
exercised by the Introducers.  The remaining 2,000,000 options (pre stock split)

                                       43
<PAGE>
were cancelled in December 2001 due to non-payment of cash to Hartcourt which is
reflected in the accompanying financial statements at December 31, 2001.

In connection with providing  consulting  services,  on July 21, 2000, Hartcourt
granted to a consultant  options to purchase 20,000 shares of Hartcourt stock at
a price of $5.75 per share. The options  originally expired on July 20, 2001 and
were later extended to July 20, 2003. The options were issued at the fair market
value on the date of issuance and, therefore, no expense was recorded.

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 non-assessable 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.  On December 14, 1999,  American Equities filed a
complaint  against  Hartcourt  alleging breach of Warranty  Agreement,  claiming
damages of  $30,000,000  and that  American  Equities  was  entitled  to receive
1,800,000  common  shares of  Hartcourt  pursuant  to the  anti-dilution  clause
contained  in its  December  1996  Warrant  Agreement.  Hartcourt  disputed  the
assertion and filed a counter claim against American equities seeking to rescind
the Consulting Agreement, Warrant Agreement and Purchase Agreement with American
Equities.  On February 20, 2001, Hartcourt and American Equities mutually agreed
to settle the  Lawsuits and executed  mutual  general  releases of all known and
unknown claims. As part of the settlement, Hartcourt agreed to issue to American
Equities 400,000 shares of common stock pursuant to the anti-dilution clause and
cancel the promissory note of $225,000. American Equities was allowed to further
exercise its cashless right and converted the remaining  1,200,000 warrants into
1,075,075  free  trading  common  shares of  Hartcourt  without  any  payment of
consideration.  On February 1, 2000,  American  Equities  exercised its cashless
right and converted the remaining 1,200,000 warrants into 1,075,075 free trading
common shares of Hartcourt.  On February 20, 2001,  American Equities  exercised
its cashless  rights and converted the remaining  400,000  warrants into 400,000
free trading common shares of Hartcourt.

In connection with consulting  services,  Hartcourt  issued warrants to purchase
350,000  shares at prices  ranging  from $1.25 to $1.50  that  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
on December 12, 1999,  Hartcourt  issued warrants to purchase  100,000 shares at
$4.00 that expire on December  12,  2000.  The  warrants  were issued above fair
market value and therefore no expense was recorded.

In connection with facilitating equity line and credit for Hartcourt, on January
26, 2000,  Hartcourt issued to Dunwoode  Brokerage Services warrants to purchase


                                       44
<PAGE>
13,530 shares at $15.52 per share that expire on January 25, 2004.  The warrants
were issued at the fair market value and therefore, no expense was recorded.

In connection  with completion of a private  placement of Hartcourt  shares with
PYR Management  LLC, on March 6, 2001,  Hartcourt  issued in total  2,509,802 of
Class I warrants and 1,035,308 of Class II warrants  exercisable at $0.69375 per
share of common stock and expire on January 26, 2005.

In connection  with signing an investment  agreement with Swartz Private Equity,
LLC,  on January  26,  2000,  Hartcourt  issued to Swartz  warrants  to purchase
400,000 shares at $13.10 per share that expire on January 25, 2004. The warrants
were issued at the fair market value and therefore, no expense was recorded.

During 2001,  400,000  warrants  were  converted  into 400,000  common shares of
Hartcourt due to the cashless  exercise of the  warrant-holders  rights.  During
2000,  the  warrant-holders  converted  warrants to purchase  407,000  shares of
common stock at prices ranging from $2.50 to $2.80 for a total  consideration of
$101,870.

Stock Split

On  September  14,  2000,  the  Board  of  Directors  of  Hartcourt  approved  a
two-for-one split of the company's common stock,  payable on October 23, 2000 to
the shareholders of record at the close of business on October 16, 2000.

Item 12: Certain Relationships and Related Transactions

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 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.

On May 16, 2001,  Hartcourt  and Elephant  Talk Limited (ET) executed a Sale and
Purchase Agreement whereby Hartcourt acquired 51% ownership interest in ET for a
total  consideration of $4,194,000.  Hartcourt issued 3,756,058 shares of common
stock valued at  $2,325,000 to the private  owners of ET,  executed a Promissory



                                       45
<PAGE>
Note of  $1,250,000,  and issued  1,000,000  shares to ET for the 51%  ownership
interest.  The 1,000,000 shares of common stock are reflected as treasury shares
in the accompanying  financial statements at December 31, 2001 since the results
of operations are consolidated with Hartcourt from May 16, 2001 onwards.

On August 16, 2001,  Hartcourt  acquired an additional 35% ownership interest in
Asia Top and China Top for a total consideration of HK$800,000 (US$102,564). The
accompanying  financial  statements reflect Hartcourt's  ownership of 85% in the
StreamingAsia  Group and its results of operations  from the date of acquisition
are consolidated with Hartcourt at December 31, 2001.

During  2001,  Hartcourt  issued  806,970  shares of its common  stock valued at
$339,840 to its directors and officers in connection with their compensation and
performance of services.

As at December 31, 2001,  Hartcourt  has a $400,000 note  receivable  from Pego,
non-interest bearing,  payable upon demand and unsecured.  Amount fully reserved
as of December 31, 2001.

                                    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)



                                       46
<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)



                                       47
<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 1999 Agreement with Beijing UAC Stock Trading Online Co. Ltd.

10.19 A 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

10.25 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.

10.26 February 4, 2000, Hartcourt completed a private placement of 227,445 Units
and a class II  Warrants  to PYR  Management  LLC for  $3,000,000  pursuant to a
regulation D Subscription  Agreement,  File No. 524390.  Incorporated  herein by
reference.

16.01 Resignation by Harlan & Boettger LLP, Certified Public Accountants,  dated
October 18,  1999,  File No.  99731003.  Amendment  to  resignation  of Harlan &
Boettger,  LLP, Certified Public  Accountants,  dated December 6, 1999, File No.
99769229

16.02  Appointment of BDO  International,  Certified Public  Accountants,  dated
February 8, 2000, File No. 530104

16.03 On September 28, 2000,  resignation  of BDO  International  as Hartcourt's
independent Certified Public Accountants, File No. 731300.

16.04 On September  29, 2000,  appointment  of KPMG as  Hartcourt's  independent
Certified Public Accountants, File No. 732487.


                                       48
<PAGE>
16.05 On December  11,  2000,  resignation  of KPMG as  Hartcourt's  independent
Certified Public Accountants, File No. 786290.

16.06  On  February  9,  2001,  appointment  of  Weinberg  &  Company,  P.A.  as
Hartcourt's independent Certified Public Accountants, File No. 1529253.

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.

(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:

   o     On May 22, 2001, acquisition of Elephant Talk Limited, File No. 500026.
         Incorporated 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.











                                       49
<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 12, 2002                        By: /s/ Alan V. Phan
                                             Alan V. Phan, Chairman




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 12, 2002
----------------
Alan V. Phan

/s/ Wallace Ching       President & Chief Executive Officer     April 12, 2002
-----------------
Wallace Ching

/s/ Manu Ohri           Executive Vice President Finance,       April 12, 2002
-------------           Chief Financial Officer, Secretary,
Manu Ohri               Treasurer and Director

/s/ Stephen Tang        Chief Operating Officer                 April 12, 2002
----------------        & Director
Stephen Tang



















                                       50
<PAGE>













                          THE HARTCOURT COMPANIES, INC.
                                AND SUBSIDIARIES
                        CONSOLIDATED FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000







































                                        i
<PAGE>





                          THE HARTCOURT COMPANIES, INC.
                                AND SUBSIDIARIES



                                    CONTENTS
                                    --------

PAGE      1        INDEPENDENT AUDITORS' REPORT

PAGES   2 - 3      CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2001 AND 2000

PAGES   4 - 5      CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
                   FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000

PAGES   6 - 9      CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE
                   YEARS ENDED  DECEMBER 31, 2001 AND 2000

PAGES  10 - 11     CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
                   DECEMBER 31, 2001 AND 2000

PAGES  12 - 43     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS






























                                       ii
<PAGE>
                          INDEPENDENT AUDITORS' REPORT

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

We have audited the  accompanying  consolidated  balance sheets of The Hartcourt
Companies,  Inc.  and  Subsidiaries  as of  December  31,  2001 and 2000 and the
related   consolidated   statements  of  operations  and   comprehensive   loss,
shareholders' equity and cash flows for the years 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 audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  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 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  audits  provide  a
reasonable basis for our opinion.

As discussed in Note 13(D) to the consolidated financial statements, the Company
is involved in  significant  litigation  with  Charles E.  Hogue.  During  2000,
Charles Hogue claimed a finder's fee for  introducing the Company to a potential
acquisition  target.  The  Company  sent a check to Mr.  Hogue in the  amount of
$40,500 for such finder's fee, but Mr. Hogue  demanded that he be paid in shares
of the  Company  with the amount of shares in  dispute.  The  Company  failed to
timely file an answer to the complaint,  and a default judgment in the amount of
$2,901,752  was entered in January 2001 in the Orange  County  Circuit  Court of
Florida.  On March 2, 2001, the Company filed an appeal in Florida.  The Company
and its legal  counsel  are  optimistic  that the  Company  will  prevail on its
appeal.  However,  uncertainty exists as to the resolution of the appeal, and if
the Company is  unsuccessful  in its appeal,  the result will have a significant
adverse impact on the Company's  financial  position,  results of operations and
cash flows.

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,  2001 and 2000 and the
results  of their  operations  and their  cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern.  As discussed in Note 1(R) to
the consolidated  financial statements,  the Company has a net loss from current
operations  of  $7,779,341  a  negative  cash flow from  current  operations  of
$984,224 and a working  capital  deficiency of  $3,889,779.  These matters raise
substantial  doubt about the Company's  ability to continue as a going  concern.
Management's  plans regarding these matters are also described in Note 1(R). The
consolidated  financial  statements  do not include any  adjustments  that might
result from the outcome of this uncertainty.

WEINBERG & COMPANY, P.A.

Los Angeles, California
April 12, 2002
                                       1
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2001 AND 2000
                           --------------------------
                                     ASSETS
                                     ------        2001            2000
                                              ------------    ------------
Current assets
 Cash and cash equivalents                    $    281,563    $    107,747
 Accounts receivable, net of allowance           1,443,673          86,383
 Inventory                                          15,882          64,196
 Notes receivable                                  896,874          70,000
 Prepaid expenses and other assets                 734,598          45,947
 Due from related companies                      1,494,730          19,270
                                              ------------    ------------
        Total Current Assets                     4,867,320         393,543
                                              ------------    ------------
PROPERTY & EQUIPMENT - NET                       2,445,432         507,725
                                              ------------    ------------
INVESTMENTS                                        400,000       1,258,050
                                              ------------    ------------
OTHER ASSETS
 Goodwill, net                                   5,257,649       1,414,173
 Intangibles, net                                1,191,959               -
 Investment in ETNS Singapore Pte., Ltd.           209,490               -
 Notes receivable                                2,608,286               -
 Advances pursuant to merger                             -       3,019,884
 Net assets of discontinued operations                   -       2,203,232
                                              ------------    ------------
        Total Other Assets                       9,267,384       6,637,289
                                              ------------    ------------
TOTAL ASSETS                                  $ 16,980,136    $  8,796,607
------------                                  ============    ============


                      LIABILITIES AND SHAREHOLDERS' EQUITY
                      ------------------------------------
CURRENT LIABILITIES
 Cash overdraft                               $     82,030    $          -
 Accounts payable                                4,607,238         688,405
 Deferred revenue                                  616,254         112,456
 Notes payable - current portion                 1,339,517          33,788
 Capital lease liability                            84,642               -
 Due to factor                                     198,205               -
 Due to related parties                          1,350,997       1,953,439
 Accrued expenses and other current liabilities    478,216         130,632
                                              ------------    ------------
        Total Current Liabilities                8,757,099       2,918,720

LONG-TERM LIABILITIES
 Notes payable                                     433,299         609,867
 Capital lease liability                            28,596               -
                                              ------------    ------------
TOTAL LIABILITIES                             $  9,218,994    $  3,528,587
-----------------                             ------------    ------------


          See accompanying notes to consolidated financial statements.
                                       2
<PAGE>
                                                        2001           2000
                                                   ------------   ------------
COMMITMENTS AND CONTINGENCIES                                 -              -

MINORITY INTERESTS                                    2,280,199         21,898
                                                   ------------   ------------
SHAREHOLDERS' EQUITY
 Preferred Stock:
 Original preferred stock, $0.01 par value,
  1,000 shares authorized, issued and
  outstanding                                                10             10
 Class A, 10,000,000 shares authorized, none
  issued and outstanding at December 31,
  2001 and 2000, respectively                                 -              -
 Series A, $1,000 stated value, 4,000 shares
  authorized, none issued and outstanding
  at December 31, 2001 and 2000, respectively                 -              -
 Series B, $1,000 stated value, 2,000 shares
  authorized, none issued and outstanding
  at December 31, 2001 and 2000, respectively                 -              -
 Series C, $1,000 stated value, 1,500 shares
  authorized, none issued and outstanding
  at December 31, 2001 and 2000, respectively                 -              -
 Series D, $1,000 stated value, 10,000 shares
  authorized, none issued and outstanding
  at December 31, 2001 and 2000, respectively                 -              -
 Series AB, $100 stated value, 25,000 shares
  authorized, none issued and outstanding
  at December 31, 2001 and 2000, respectively                 -              -
                                                   ------------   ------------
     Total Preferred Stock                                   10             10

 Common stock, $.0.001 par value, 100,000,000
  shares authorized, 73,885,656 and 62,176,044
  shares issued and outstanding, respectively            73,886         62,176
 Stock subscription receivable                         (139,865)   (12,192,094)
 Additional paid in capital                          55,774,225     62,464,649
 Treasury stock, at cost 2,418,367 and 3,557,832
  shares at December 31, 2001 and 2000,respectively  (1,662,233)    (1,918,634)
 Other comprehensive loss                               (61,687)             -
 Accumulated deficit                                (48,503,393)   (43,173,985)
                                                   ------------   ------------
     Total Shareholders' Equity                       5,480,933      5,246,122
                                                   ------------   ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY         $ 16,980,136   $  8,796,607
------------------------------------------         ============   ============









          See accompanying notes to consolidated financial statements.

                                        3
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------
                                                     2001          2000
                                                ------------  ------------
NET SALES                                       $ 10,621,205  $  1,391,666

COST OF SALES                                      7,757,779     1,409,364
                                                ------------  ------------
GROSS PROFIT (LOSS)                                2,863,426       (17,698)
                                                ------------  ------------
OPERATING EXPENSES
 Selling, general and administrative               7,379,192     2,985,433
 Depreciation and amortization                     1,478,313       443,439
 Impairments                                       1,785,262     3,065,600
                                                ------------  ------------
      Total Operating Expenses                    10,642,767     6,494,472
                                                ------------  ------------
LOSS FROM CONTINUING OPERATIONS BEFORE
OTHER INCOME (EXPENSE)                            (7,779,341)   (6,512,170)
                                                ------------  ------------
OTHER INCOME (EXPENSE)
 Equity in earnings (loss) of affiliate             (281,886)       60,614
 Interest expense                                   (196,168)     (125,792)
 Interest income                                     122,201        35,577
 Loss on disposal of property and equipment          (64,601)     (193,905)
 Provision for uncollectable note receivable        (329,171)            -
 Other income                                         12,590        20,031
 Other expense                                             -        (1,338)
                                                ------------  ------------
      Total Other Income (Expense)                  (737,035)     (204,813)
                                                ------------  ------------
LOSS FROM CONTINUING OPERATIONS BEFORE
  MINORITY INTEREST                               (8,516,376)   (6,716,983)

  Less: Loss in subsidiaries attributed to
   minority interests                                641,919       639,736
                                                ------------  ------------
LOSS BEFORE DISCONTINUED OPERATIONS               (7,874,457)   (6,077,247)















          See accompanying notes to consolidated financial statements.

                                        4
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------




DISCONTINUED OPERATIONS:
 Loss from discontinued operations                  (377,952)     (713,632)
 Gain on disposal of discontinued operations       1,060,371             -
                                                ------------  ------------
LOSS BEFORE EXTRAORDINARY ITEM                    (7,192,038)   (6,790,879)

  Extraordinary item - gain on extinguishment
       of debt                                     1,862,630             -
                                                ------------  ------------
NET LOSS                                          (5,329,408)   (6,790,879)
                                                ------------  ------------
OTHER COMPREHENSIVE LOSS
 Foreign currency translation loss                   (61,687)            -
                                                ------------  ------------
COMPREHENSIVE LOSS                              $ (5,391,095) $ (6,790,879)
------------------                              ============  ============

Basic and diluted loss per common share
 Loss from continuing operations                $      (0.12) $      (0.10)
 Income (Loss) from discontinued operations             0.01         (0.01)
 Income from extraordinary item                         0.03             -
                                                ------------  ------------
 Loss per share                                 $      (0.08) $      (0.11)
                                                ============  ============
Weighted average number of common shares
 outstanding - basic and diluted                  68,879,666    59,486,747
                                                ============  ============




















          See accompanying notes to consolidated financial statements.

                                        5
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
                 ----------------------------------------------
<TABLE>
<S>                      <C>      <C>     <C>        <C>        <C>            <C>
                                                                   Common
                                                                    Stock       Additional
                         Preferred Stock      Common Stock      Subscriptions     Paid-In
                         Shares   Amount    Shares    Amount      Receivable      Capital
                         ------   ------  ---------- ---------  -------------  -----------

Balance,
 December 31, 1999        1,000   $   10  47,664,304 $  47,664  $           -  $38,872,029

Shares issued to
 investors                    -        -   6,633,898     6,634     (1,192,094)   5,953,366

Issuance of shares to
 directors for services       -        -      49,161        49              -      143,951

Shares issued upon
 exercise of  warrants        -        -   2,954,150     2,954              -       98,916

Shares issued upon
 exercise of options          -        -   5,400,000     5,400    (11,000,000)  13,994,600

Shares redeemed in
 connection with
 litigation settlement        -        -   (400,000)     (400)              -     (499,600)

Shares issued to
 directors, officers
 and employees for
 services and accrued
 salary                       -        -   3,242,673     3,243              -    3,483,878

Shares issued to
 consultants                  -        -     122,754       123              -      180,312

Shares issued in
 connection with
 FTL acquisition              -        -     509,104       509              -      237,197

Net loss, 2000                -        -           -         -              -            -
                         ------   ------  ---------- ---------   ------------- -----------
Balance,
 December 31, 2000        1,000   $   10  66,176,044 $  66,176   $(12,192,094) $62,464,649

</TABLE>





          See accompanying notes to consolidated financial statements.

                                        6
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
                 ----------------------------------------------
<TABLE>
<S>                      <C>       <C>         <C>            <C>           <C>
                                                   Other
                           Treasury Stock      Comprehensive   Accumulated
                          Shares     Amount        Loss          Deficit      Total
                         --------- ----------- -------------  ------------  ----------

Balance,
 December 31, 1999       3,048,728 $(1,680,928)  $       -    $(36,383,106) $  855,669

Shares issued to
 investors                       -           -           -               -   4,767,906

Issuance of shares to
 directors for services          -           -           -               -     144,000

Shares issued upon
 exercise of  warrants           -           -           -               -     101,870

Shares issued upon
 exercise of options             -           -           -               -   3,000,000

Shares redeemed in
 connection with
 litigation settlement           -           -           -               -    (500,000)

Shares issued to
 directors, officers
 and employees for
 services and accrued
 salary                          -           -           -               -   3,487,121

Shares issued to
 consultants                     -           -           -               -     180,435

Shares issued in
 connection with
 FTL acquisition           509,104    (237,706)          -               -           -

Net loss, 2000                                           -      (6,790,879) (6,790,879)
                         ---------  ----------- -----------    ------------  ----------
Balance,
 December 31, 2000       3,557,832 $(1,918,634)  $       -    $(43,173,985) $5,246,122
</TABLE>







          See accompanying notes to consolidated financial statements.

                                        7
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
                 ----------------------------------------------
<TABLE>
<S>                                  <C>      <C>     <C>        <C>        <C>            <C>
                                                                               Common
                                                                                Stock       Additional
                                     Preferred Stock      Common Stock      Subscriptions     Paid-In
                                     Shares   Amount    Shares    Amount      Receivable      Capital
                                     ------   ------  ---------- ---------  -------------  -----------

Balance, January 1, 2000              1,000   $   10  66,176,044 $  66,176  $ (12,192,094) $62,464,649

Shares issued for cash                    -        -   1,838,636     1,839       (139,865)     393,161

Cash received from share
 subscriptions                            -        -           -         -      1,192,094            -

Issuance of shares to
 directors for services                   -        -     295,206       295              -      117,945

Shares issued for stock reset
 price                                    -        -   1,966,092     1,966              -       (1,966)

Shares issued upon exercise of
 cashless stock option warrants           -        -     400,000       400              -         (400)

Stock subscription cancelled              -        -  (4,000,000)   (4,000)    11,000,000  (10,996,000)

Shares issued in lieu of
 compensation                             -        -     511,764       512              -      221,088

Shares issued to consultants              -        -   1,136,054     1,136              -      373,037

Shares issued in connection
 with acquisition of ET                   -        -   4,756,058     4,756              -    2,939,244

Sale of treasury stock                    -        -           -         -              -     (235,727)

Shares issued in connection
 with acquisition of Sinobull             -        -     805,802       806              -      499,194

Other comprehensive loss                  -        -           -         -              -            -

Net loss, 2001                            -        -           -         -              -            -
                                     ------   ------  ---------- ---------  -------------  -----------

Total comprehensive loss                  -        -           -         -              -            -


Balance, December 31, 2001            1,000   $   10  73,885,656 $  73,886  $    (139,865) $55,774,225
--------------------------           ======   ======  ========== =========  =============  ===========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                        8
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
                 ----------------------------------------------
<TABLE>
<S>                              <C>        <C>          <C>             <C>           <C>
                                                             Other
                                     Treasury Stock      Comprehensive   Accumulated
                                   Shares     Amount         Loss          Deficit       Total
                                 ---------- ------------ -------------   ------------  -----------
Balance, January 1, 2000          3,557,832 $(1,918,634) $           -   $(43,173,985) $ 5,246,122

Shares issued for cash                    -           -              -                     255,135

Cash received from share
 subscriptions                            -           -              -              -    1,192,094

Issuance of shares to
 directors for services                   -           -              -              -      118,240

Shares issued for stock reset
 price                                    -           -              -              -            -

Shares issued upon exercise of
 cashless stock option warrants           -           -              -              -            -

Stock subscription cancelled              -           -              -              -            -

Shares issued in lieu of
 compensation                             -           -              -              -      221,600

Shares issued to consultants              -           -              -              -      374,173

Shares issued in connection
 with acquisition of ET           1,000,000    (619,000)             -              -    2,325,000

Sale of treasury stock           (2,945,267)  1,375,401              -              -    1,139,674

Shares issued in connection
 with acquisition of Sinobull       805,802    (500,000)             -              -            -

Other comprehensive loss                  -           -        (61,687)             -      (61,687)

Net loss, 2001                            -           -              -     (5,329,408)  (5,329,408)
                                 ---------- -----------  -------------   ------------   ----------

Total comprehensive loss                  -           -              -              -  $(5,391,095)

Balance, December 31, 2001       $2,418,367 $(1,662,233) $     (61,687)  $(48,503,393) $(5,480,943)
--------------------------       ========== ===========  =============   ============  ===========
</TABLE>




          See accompanying notes to consolidated financial statements.

                                        9
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------
<TABLE>
<S>                                                                                              <C>            <C>
                                                                                                     2001           2000
                                                                                                 ------------   ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net loss                                                                                        $(5,329,408)   $(6,790,879)
 Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
    Loss on disposal of property and equipment                                                        64,601        193,905
    Provision for uncollectable note receivable                                                      329,171        478,800
    Gain on extinguishment of debt                                                                (1,862,630)             -
    Depreciation                                                                                     671,282        231,972
    Amortization                                                                                     807,031        226,260
    Allowance for doubtful accounts                                                                   78,691        288,786
    Impairments - goodwill and intangible software                                                 1,785,262      1,046,471
    Impairments - investments                                                                              -      2,500,000
    Minority interest in loss of subsidiaries and equity in earnings of affiliate, net              (360,033)      (924,790)
    Stock issued for services                                                                        714,013        431,768
    Settlements                                                                                            -       (500,000)
 Changes in operating assets and liabilities:
    Accounts receivable                                                                             (143,278)       (69,209)
    Inventory                                                                                        136,575         62,895
    Prepaid expenses and other                                                                       543,846         72,736
    Cash overdraft                                                                                  (329,577)             -
    Accounts payable and accrued expenses                                                          1,811,444        204,212
    Deferred revenue                                                                                  98,786         33,979
                                                                                                 ------------   ------------
        Net Cash Used In Continuing Operations                                                      (984,224)    (2,513,094)
        Net Cash Used In Discontinued Operations                                                    (478,327)      (295,246)
                                                                                                 ------------   ------------
        Net Cash Used In Operating Activities                                                     (1,462,551)    (2,808,340)
                                                                                                 ------------   ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Purchase of property and equipment                                                                  (51,721)      (347,051)
 Cash acquired in acquisition                                                                        690,202        295,246
 Payments on notes receivable, net                                                                  (823,585)       (70,000)
 Advances on acquisitions                                                                                  -     (3,269,884)
 Investments                                                                                        (153,846)    (1,197,436)
                                                                                                 ------------   ------------
        Net Cash Used In Investing Activities                                                       (338,950)    (4,589,125)
                                                                                                 ------------   ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Payments due to related parties                                                                    (865,048)       (81,094)
 Proceeds from issuance of common stock                                                            1,988,501      7,869,776
 Shareholder loans                                                                                  (999,436)             -
 Due to factor                                                                                       198,205              -
 Proceeds (Payments) on long-term debt                                                             1,619,807       (614,527)
 Payments on capital lease                                                                            42,883              -
                                                                                                 ------------   ------------
        Net Cash Provided By Financing Activities                                                  1,984,912      7,174,155
                                                                                                 ------------   ------------

FOREIGN CURRENCY TRANSLATION                                                                          (9,595)             -

NET INCREASE (DECREASE) IN CASH                                                                      173,816       (223,310)

CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR                                                        107,747        331,057
                                                                                                 ------------   ------------
CASH AND CASH EQUIVALENTS - END OF YEAR                                                          $   281,563    $   107,747
---------------------------------------                                                          ============   ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid during the year for interest                                                           $   196,168    $   125,793
                                                                                                 ============   ============

</TABLE>
          See accompanying notes to consolidated financial statements.

                                        10
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

During 2001, the Company issued shares of treasury stock to settle notes payable
- shareholder of $598,402.

During 2000, the Company  satisfied  $3,379,788 of accrued  officer's salary for
3,103,448 shares of common stock.

During  2000,  the Company  satisfied  $237,706 of accrued  expenses for 509,104
shares of common stock to complete  the purchase of 58.53% of Financial  Telecom
Limited.

During 2000,  the Company  issued securities, with a fair value of $196,358, for
accrued expenses of $196,358.



































          See accompanying notes to consolidated financial statements.

                                        11
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------

NOTE 1   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
------   -----------------------------------------------------------
         (A) Basis of Presentation
         -------------------------
         The accompanying consolidated financial statements for 2001 include the
         accounts  of  The  Hartcourt  Companies,  Inc.  and  its  58.53%  owned
         subsidiary   Financial  Telecom  Limited,  its  100%  owned  subsidiary
         Sinobull.com,  Inc., its 85% owned  subsidiary Asia Top Finance,  Ltd.,
         its 66.67% owned  subsidiary HCTV Financial TV Channel,  Ltd., its 100%
         owned  subsidiary  Hartcourt  Capital,  Inc., its 51% owned  subsidiary
         Elephant Talk,  Ltd. and its 100% owned  subsidiary  AI-Asia,  Inc. For
         purposes  of these  consolidated  financial  statements  The  Hartcourt
         Companies,  Inc. and its  Subsidiaries  are referred to collectively as
         the "Company" or "Hartcourt".

         The accompanying  consolidated  financial statements of the Company for
         2000  include  the  accounts  of  the  Company  and  its  58.53%  owned
         subsidiary  Financial  Telecom  Limited  (See Note 2) and its 51% owned
         subsidiary,  Beijing UAC Stock Exchange Online, Co., Ltd. (See Note 2).
         The Company also has a 50% ownership interest in Asia Top Finance, Ltd.
         (See  Note 2) which is  accounted  for  using the  equity  method.

         All  material   intercompany   transactions   and  balances  have  been
         eliminated in consolidation.

         (B) 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.

         (C) 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.

         (D) Accounts Receivable
         -----------------------
         In the normal course of business,  the Company extends unsecured credit
         to  customers  in Hong Kong and China.  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.

                                       12
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------

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

         (F) 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.

         (G) 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.

         (H) Accounting for Business Combinations
         ----------------------------------------
         The  Acquisitions   were  recorded  as  purchases  in  accordance  with
         Accounting  Principles  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.

         (I) Impairment of Long-Lived Assets
         -----------------------------------
         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 2001 and
         2000.

         (J) Revenue Recognition
         -----------------------
         Revenue from product sales is recognized  upon shipment.  Revenue  from
         service  obligations is deferred and  recognized  when the services are

                                       13
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------

         provided. The Company recognizes sales from telecommunications services
         as services are provided.  Payments received before all of the relevant
         criteria for revenue recognition are satisfied are recorded as deferred
         revenue.


         (K) 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.

         (L) 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  valuing
         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.  23. 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.

         (M) 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.

                                       14
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------


         (N) Fair Value of Financial Instruments
         ---------------------------------------
         Statement of Financial Accounting Standards No. 107, "Disclosures about
         Fair  Value  of  Financial   Instruments",   requires   disclosures  of
         information about the fair value of certain  financial  instruments for
         which it is  practicable  to estimate that value.  For purposes of this
         disclosure,  the fair value of a financial  instrument is the amount at
         which  the  instrument  could be  exchanged  in a  current  transaction
         between willing parties, other than in a forced sale or liquidation.

         The carrying amount of the Company's financial  instruments,  including
         accounts   receivable,   notes  and  other  receivables,   investments,
         advances,   accounts  payable  and  accrued  expenses,   capital  lease
         obligation,   notes  payable  and  loans  payable,  and  other  current
         liabilities  approximates fair value due to the relatively short period
         to maturity for these instruments.

         (O) Loss 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 2001 and 2000,  basic and diluted  per share  amounts are the
         same.

         (P) Reclassification
         --------------------
         Certain  2000  amounts  have been  reclassified  to conform to the 2001
         consolidated financial statement presentation.

         (Q) New Accounting Pronouncements
         ---------------------------------
         The Financial  Accounting  Standards  Board has recently issued several
         new Statements of Financial Accounting Standards.

         Statement No. 141,  "Business  Combinations"  supersedes APB Opinion 16
         and various  related  pronouncements.  Pursuant to the new  guidance in
         Statement  No. 141, all  business  combinations  must be accounted  for
         under the  purchase  method  of  accounting;  the  pooling-of-interests
         method  is no longer  permitted.  SFAS 141 also  establishes  new rules
         concerning  the  recognition  of goodwill and other  intangible  assets
         arising in a purchase business  combination and requires  disclosure of
         more  information  concerning a business  combination  in the period in
         which it is  completed.  This  statement  is  generally  effective  for
         business combinations initiated on or after July 1, 2001.



                                       15
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------

         Statement No. 142,  "Goodwill and Other Intangible  Assets"  supercedes
         APB  Opinion  17  and  related   interpretations.   Statement  No.  142
         establishes  new rules on accounting for the  acquisition of intangible
         assets not acquired in a business  combination  and the manner in which
         goodwill and all other  intangibles  should be accounted for subsequent
         to their initial  recognition in a business  combination  accounted for
         under SFAS No. 141.  Under SFAS No. 142,  intangible  assets  should be
         recorded at fair value.  Intangible  assets  with finite  useful  lives
         should be amortized  over such period and those with  indefinite  lives
         should not be amortized.  All intangible assets being amortized as well
         as those  that are  not,  are both  subject  to  review  for  potential
         impairment  under  SFAS No.  121,  "Accounting  for the  Impairment  of
         Long-Lived  Assets and for  Long-Lived  Assets to be Disposed of". SFAS
         No. 142 also requires that goodwill  arising in a business  combination
         should not be  amortized  but is subject to  impairment  testing at the
         reporting  unit level to which the goodwill was assigned to at the date
         of the business combination.

         SFAS No. 142 is effective for fiscal years beginning after December 15,
         2001  and  must be  applied  as of the  beginning  of such  year to all
         goodwill and other intangible assets that have already been recorded in
         the  balance  sheet  as of the  first  day in  which  SFAS  No.  142 is
         initially  applied,  regardless  of when  such  assets  were  acquired.
         Goodwill  acquired in a business  combination whose acquisition date is
         on or after  July 1,  2001,  should  not be  amortized,  but  should be
         reviewed for impairment  pursuant to SFAS No. 121, even though SFAS No.
         142 has not yet been adopted.  However,  previously  acquired  goodwill
         should continue to be amortized until SFAS No. 142 is first adopted.

         Statement  No.  143  "Accounting  for  Asset  Retirement   Obligations"
         establishes  standards  for  the  initial  measurement  and  subsequent
         accounting for obligations  associated with the sale,  abandonment,  or
         other type of disposal of long-lived  tangible  assets arising from the
         acquisition,  construction,  or development  and/or normal operation of
         such assets. SFAS No. 143 is effective for fiscal years beginning after
         June 15, 2002, with earlier application encouraged.

         The  effect  of these  pronouncements  has not been  determined  on the
         Company's financial position or results of operations.

         (R) Organization and Going Concern
         ----------------------------------
         The Hartcourt  Companies,  Inc. 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,  telecommunications  and wireless  Internet Service
         Provider services.  Hartcourt's goal is to create a financial portal in
         the  Chinese  market by  building a network of  Internet  companies  in
         partnership  with young  Chinese  entrepreneurs  as well as  government
         entities.

                                       16
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------

         As shown in the accompanying financial statements, the Company incurred
         a net loss from current operations of $7,779,341,  a negative cash flow
         from current  operations of $984,224 and a working  capital  deficiency
         $3,889,779.  These matters raise  substantial doubt about the Company's
         ability to continue as a going concern.

         As  discussed  in Note 2, the Company has taken  certain  steps,  which
         management  believes will provide the necessary capital to continue its
         operations.  These steps include 1)  settlement  of certain  matters of
         litigation and disputes,  2) signed an Investment Agreement with Swartz
         Private  Equity,  LLC, who 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 (See Note 16B).

         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 ACQUISITIONS
------   ----------------------------
         (A) Investment in Peony Gardens
         -------------------------------
         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  $5,200,000.  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 $2,500,000 as of December 31, 1999. The Company
         also  recorded a loss on the  transaction  of  approximately  $200,000,
         which was included in selling,  general and administrative  expenses in
         1999.  The Company has not  appointed  any  directors as of the date of
         this report. On December 29, 2000, Hartcourt and GoCall mutually agreed
         to rescind  the  exchange  agreement  entered  on  December  23,  1999.
         Pursuant to the terms of the rescission  agreement,  Hartcourt returned
         1,000,000  shares of GoCall's  convertible  preferred stock in exchange
         for all the  marketable  securities  received  from  Dragon  King  plus
         192,000  shares of common stock of ECS. Due to lack of trading of these
         securities,  the Company  recorded an impairment  loss of $2,500,000 at
         December 31, 2000.



                                       17
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------

         (B) Purchase of Financial Telecom Limited
         -----------------------------------------
         On August 17, 1999,  Hartcourt entered into a stock purchase  agreement
         with Financial  Telecom Limited (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 3,000,000 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 a note  payable to FTL of  $138,706  and a
         payable for the issue of 148,512 shares of common stock of the Company.
         On January 18, 2000, the Company issued  509,104  additional  shares of
         common stock to FTL in settlement of the post closing  adjustment.  The
         Company has recorded the remaining  563,837 common shares issued to FTL
         as treasury shares in the accompanying financial statements.

         (C) Purchase of Beijing UAC Stock Exchange Online Co. Ltd.
         ----------------------------------------------------------
         On June 20, 1999,  Hartcourt  entered into an agreement  with UAC Stock
         Trading Online Co. Ltd.  ("UAC  Trading") to form a joint venture under
         the laws of the  People's  Republic  of  China.  The name of the  joint
         venture is UAC Stock Exchange Online Ltd. ("UAC  Exchange").  Under the
         terms of the agreement,  for a 35% interest in UAC Exchange,  Hartcourt
         agreed to invest $1 million in UAC  Exchange,  pay $1.7  million to the
         owners of UAC Trading and transfer 1,000,000 common shares of Hartcourt
         to UAC Exchange,  of which 200,000  common shares are to be used to pay
         UAC  Trading  for an  existing  loan to the  owner  of UAC  Trading  of
         $200,000  and  800,000  common  shares  to be  recorded  as  loan  from
         Hartcourt to UAC Exchange. On August 9, 1999, Hartcourt and UAC Trading
         agreed to convert  the loan of  $200,000  into an option to purchase an
         additional 15% interest in UAC Exchange from UAC Trading. The option to
         convert the loan into an  additional  15%  interest in UAC  Exchange is
         contingent  upon  Chinese  laws  and  regulations   governing   foreign
         ownership  of  Chinese  companies.  On  September  1,  2000,  Hartcourt
         exercised its option for an  additional  15% interest in UAC Exchange .
         On December 28, 2000,  the Company  purchased an additional 1% from the
         owners of UAC Trading making Hartcourt's  investment in UAC Exchange at
         51%.  As of  December  31,  2000,  Harcourt  has not  issued any of the
         1,000,000 shares due to UAC. Additionally, the Company had a payable in
         the amount of $1,418,000 to the owner of UAC Trading as of December 31,
         2000.  During 2001, the Company sold all of its 51% ownership  interest

                                       18
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------

         in UAC Exchange for a note  receivable of $2,858,286  and  recognized a
         gain of $1,060,371 on the disposal.  The results of its operations have
         been  reclassified  to net  assets of  disposal  of  operations  on the
         consolidated balance sheet and as loss from discontinued  operations on
         the consolidated statements of operations.

         (D) Investment in Streaming Asia.com Ltd.
         -----------------------------------------
         On April 14, 2000,  Sinobull.com  Inc. (See Note 4) agreed to subscribe
         for  1,200,000  newly  issued  and  outstanding  fully  paid  shares of
         Streaming Asia.com Ltd for HK$7,000,000  (approximately  US$897,500) on
         behalf of Hartcourt for a 50% ownership  interest in Streaming Asia.com
         Ltd.  As of  December  31,  2000,  Sinobull.com  Inc.  had  contributed
         $897,500  towards the  purchase of  Streaming  Asia.com  Ltd.  that was
         advanced by  Hartcourt  to  Sinobull.com  Inc.  The  Company  exchanged
         advances to Sinobull.com Inc. for a 50% ownership interest in Streaming
         Asia.com  Ltd.  The  2000  financial   statements  reflect  Hartcourt's
         investment  in  Streaming   Asia.com  Ltd.  on  the  equity  method  of
         accounting.  On  May  16,  2001,  the  Company  agreed  to  acquire  an
         additional  35%  ownership in Streaming  Asia.com  Ltd. for HK $800,000
         (approximately  US  $102,500).  The results of  operations of Streaming
         Asia.com  Ltd are  recorded  on the equity  method  through the date of
         merger and on the  consolidated  method from the date of merger through
         December 31, 2001.

         (E) Investment in eMPACT Solutions, Inc.
         ----------------------------------------
         The Company  agreed to subscribe and purchase  three hundred  shares of
         Class B  Convertible  Preferred  Stock,  par value  $0.001 per share of
         eMPACT for an investment of $300,000. The investments are accounted for
         under the cost method of accounting.

         (F) Investment in Haike Caijin
         ------------------------------
         On September 7, 2000,  Hartcourt signed a joint venture  agreement with
         Hopeman Computer  Services  Corporation  Limited to jointly develop and
         market in Shanghai financial  television programs for China Market. The
         new joint venture is named "Haike Caijin" (HCTV).

         During  February  2001,  the joint  venture  was formed and a temporary
         license was issued by the Chinese government. The Company has accounted
         for the investment  under the  consolidated  method of accounting  from
         inception  through December 31, 2001. The Company has invested $100,000
         for its 66.67% ownership of the joint venture.

         (G) Investment in Elephant Talk Limited
         ---------------------------------------
         On May 16,  2001,  the  Company  acquired  51% of the  common  stock of
         Elephant  Talk Limited for  4,756,058  shares of the  Company's  common
         stock with a fair value of $2,944,000  and a note payable of $1,250,000

                                       19
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------

         due  February  16,  2002,  extended  until May 5,  2002.  In  addition,
         Elephant Talk Limited  accounts for its 39% interest in ETNS  Singapore
         Pte. Ltd. under the equity method of accounting. The Company's share of
         the income  (loss)  for 2001 was  $59,976.  The  Company  has  recorded
         1,000,000  shares issued to Elephant Talk limited as treasury shares in
         the accompanying financial statements.


         (H) Investment in Sinobull.com, Inc.
         ------------------------------------
         During April 2001,  the Company  exchanged  advances of $3,019,884  and
         805,802  shares of common  stock with a fair value of $500,000 for 100%
         of the issued and outstanding  stock of Sinobull.com,  Inc. The Company
         recorded 805,802 shares issued to Sinobull.com, Inc. as treasury shares
         in the accompanying financial statements.

         (I) Investments
         ---------------
         The  following  is a summary  of  investments  recorded  under the cost
         method at December 31, 2001 and 2000:

                                                          2001          2000
                                                      -----------   -----------

         Investment in GoCall                         $       -     $ 2,500,000
         Investment in Asia Top Finance, Ltd.                 -         958,050
         Investment in Cooperation in Education
           Program Agreement                              100,000           -
         eMPACT                                           300,000       300,000
                                                      -----------   -----------
         Balance                                          400,000     3,758,050
                                                      -----------   -----------

         Impairments
           GoCall                                             -       2,500,000
                                                      -----------   -----------

         Balance                                      $   400,000   $ 1,258,050
                                                      ===========   ===========












                                       20
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------


NOTE 3   ACCOUNTS RECEIVABLE AND FACTOR AGREEMENT
-------  ----------------------------------------

         Accounts receivable at December 31, 2001 consisted of the following:

         Accounts receivable                                        $ 1,522,364
         Less allowance for doubtful accounts                            78,691
                                                                    -----------
                                                                    $ 1,443,673
                                                                    ===========

         For the years ended December 31, 2001 and 2000, the Company  recorded a
         provision for doubtful accounts of $78,691 and $33,742, respectively in
         its statement of operations.

         The Company factors trade accounts receivable,  with recourse, pursuant
         to a factoring  agreement (the "Agreement").  Under the Agreement,  the
         factor advances 70% of the face value of specific  approved  customers.
         The  Company  is charged at the  bank's  prime  rate of  interest.  The
         Agreement  expires on January 16,  2003.  At  December  31,  2001,  the
         Company has pledged accounts receivable of approximately $296,000.


NOTE 4   ADVANCES PURSUANT TO MERGER
-------  ---------------------------

         The following is a summary of advances  pursuant to mergers at December
         31, 2001 and 2000:

                                                          2001          2000
                                                      -----------   -----------

         HCTV                                         $         -   $   100,000
         Escrow deposit                                         -       100,000
         Sinobull                                               -     2,819,884
                                                      -----------   -----------
         Total                                        $         -   $ 3,019,884
                                                      ===========   ===========

         In  November  1999,  Sinobull  Group  ("Group")  was  formed  with  the
         intention  to  consolidate   various  related  businesses  acquired  or
         expected to be  acquired  by  Sinobull.com,  Inc.  ("Sinobull")  or the
         Company.  Sinobull  is  principally  engaged  in  the  operation  of  a
         financial portal and investment holding.  Sinobull had one share issued
         and outstanding  and was  controlled by a director of the Company as of
         December 31, 2000.  As of December 31, 2000,  Hartcourt had advanced to
         Sinobull $2,819,884  principally to make acquisitions in China and Hong
         Kong (See Note 2(H)).


                                       21
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------


NOTE 5   NOTES RECEIVABLE
-------  ----------------

         Notes receivable consist of the following:

                                                          2001          2000
                                                      -----------   -----------
         Note receivable from Edda, Ltd., interest at
          6% per annum, quarterly payments of $50,000
          plus  interest  with a balloon  payment  of
          $2,715,772 due December 1, 2006, secured by
          the tangible and intangible assets of Edda,
          Ltd. (See Note 18)                          $ 2,808,286   $       -

         Note    receivable    from   Shanghai   Wind
          Information Co., Ltd.,  bearing interest at
          5%, due on demand                               442,968           -

         Note  receivable  from UAC Exchange  Online,
          Ltd., non-interest bearing, due on demand       183,906           -

         Loan receivable from Beijing Total Solutions
          System, Ltd.,  non-interest bearing, due on
          demand,  convertible by the Company into 5%
          of the outstanding common stock, unsecured.      70,000        70,000

                                                      -----------   -----------
                                                        3,505,160        70,000

         Current                                          896,874        70,000
                                                      -----------   -----------

         Non-current                                  $ 2,608,286   $       -
                                                      ===========   ===========

         For the years ended December 31, 2001 and 2000, the Company recorded a
         provision for doubtful accounts of $179,171 and $228,800,
         respectively.












                                       22
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------


NOTE 6   Related Party Transactions
-------  --------------------------

         Related party loans receivable consist of the following:

                                                          2001          2000
                                                      -----------   -----------

         Loan to a  director,  non-interest  bearing,
          due on demand' unsecured.                   $       -     $     9,826

         Loans   receivable    from    unconsolidated
          affiliates,  non-interest bearing,  payable
          upon demand, unsecured.                           3,316           -

         Loan receivable  from a company related to a
          director  of  a  subsidiary,   non-interest
          bearing,  payable upon  demand,  unsecured.      12,095           -

         Loan receivable  from a company related to a
          director  of  a  subsidiary,   non-interest
          bearing, payable upon demand, unsecured.      1,072,668           -

         Loan receivable  from a company related to a
          director  of  a  subsidiary,   non-interest
          bearing,  payable upon  demand,  unsecured.     406,651           -


         Loan receivable  from a company related to a
          director  of  a  subsidiary,   non-interest
          bearing, payable upon demand,  unsecured.           -           9,444
                                                      -----------   -----------

         Total                                        $ 1,494,730   $    19,270
                                                      ===========   ===========

         The Company  recorded a provision for loans  receivable of $150,000 and
         $347,561 for the years ended December 31, 2001 and 2000, respectively.

         During  2001,  the Company  issued  295,206  shares of common stock for
         services to directors with a fair value of $118,240.

         During  2001,  the Company  issued  511,764  shares of common  stock to
         officers  in lieu of  compensation  for  services  with a fair value of
         $221,600.





                                       23
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------


         During 2000,  the Company  converted  $3,379,788  of accrued  officer's
         salary into 3,103,448 shares of common stock.

         During  2000,  the Company  issued  49,161  shares of common  stock for
         services to directors with a fair value of $144,000.

         During  2000,  the Company  issued  139,225  shares of common stock for
         services to officers with a fair value of $107,333.


NOTE 7   Property and Equipment
-------  ----------------------

         Property and equipment are summarized as follows:

                                                          2001          2000
                                                      -----------   -----------

         Computer and transmission equipment          $ 6,306,017 $  (1,713,741)
         Building                                         897,510       897,510
         Office equipment and computers                   481,246       377,511
         Furniture and fixtures                           381,224       170,464
         Leasehold improvements                           252,278        35,637
         Computer equipment held under capital lease      213,977           -
                                                      -----------   -----------
                                                        8,532,252     3,194,863
         Less accumulated depreciation                 (6,086,820)   (2,687,138)
                                                      -----------   -----------

         Property and equipment, net                  $ 2,445,432   $   507,725
                                                      ===========   ===========

         Depreciation expense for the years ended December 31, 2001 and 2000 was
         $671,282 and $458,232, respectively.

NOTE 8   Intangibles
-------  -----------

         Intangibles from the acquisition of FTL are summarized as follows:

                                                          2001          2000
                                                      -----------   -----------

         Goodwill - FTL                               $ 2,262,598   $ 2,262,598
         Loss on impairment                            (1,500,486)     (565,600)
         Less: accumulated amortization                  (444,443)     (282,825)
                                                      -----------   -----------
         Intangibles, net                             $   317,669   $ 1,414,173
                                                      ===========   ===========

                                       24
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------

         Pro forma  unaudited  information  assuring the acquisition of Elephant
         Talk Limited and  Streaming  Asia.com Ltd had occurred as of January 1,
         2000  is  not  provided  as  the  pro  forma   amounts   would  not  be
         significantly different than the Company's historical results.

         Consideration paid for Elephant Talk Limited:

                                                                        2001
                                                                    -----------
         Note payable                                               $ 1,250,000
         Hartcourt common shares                                      2,944,000
                                                                    -----------
                                                                    $ 4,194,000
                                                                    ===========


         Fair value of net assets received:

                                                                    May 15, 2001
                                                                    -----------

         Cash                                                       $   129,280
         Accounts receivable                                            823,846
         Prepaid expenses                                               851,812
         Investment - unconsolidated affiliate                          147,760
         Property and equipment                                       1,757,181
         Accounts payable and accruals                               (3,063,371)
         Other receivables                                              527,549
                                                                    -----------
                                                                      1,174,057
         Minority interest                                           (1,187,788)
                                                                    -----------
                                                                        (13,731)
                                                                    -----------
         Goodwill                                                     4,207,731
                                                                    -----------
                                                                    $ 4,194,000
                                                                    ===========













                                       25
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------


         Intangibles from the acquisition of Elephant Talk Limited are
         summarized as follows:

                                                               December 31, 2001
                                                               ----------------

         Goodwill                                                   $ 4,207,731
         Less: accumulated amortization                                (245,450)
                                                                    -----------
                                                                    $ 3,962,281
                                                                    ===========


         Consideration paid for Sinobull.com, Inc.:
                                                                        2001
                                                                    -----------

         Net cash advances                                          $ 3,069,884
         Hartcourt common shares                                        500,000
                                                                    -----------
                                                                    $ 3,569,884
                                                                    ===========



         Fair value of net assets received:
                                                                   April 1, 2001
                                                                    -----------

         Cash                                                       $   457,506
         Accounts receivable                                            201,360
         Prepaid expenses and other receivables                         841,097
         Inventories                                                     75,656
         Property and equipment                                         584,775
         Accounts payable and accruals                                  (18,096)
         Intangible software                                          1,390,619
                                                                    -----------
                                                                      3,532,917
         Minority interest                                           (1,525,821)
                                                                    -----------
                                                                      2,007,096

         Goodwill                                                     1,562,788
                                                                    -----------
                                                                    $ 3,569,884
                                                                    ===========



                                       26
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------

         Intangibles from the acquisition of Sinobull.com, Inc.
         are summarized as follows:

                                                               December 31, 2001
                                                               ----------------

         Goodwill                                                    $1,562,788
         Less: accumulated amortization                                 (78,682)
         Less: impairment                                              (742,207)
                                                                     ----------
                                                                     $  741,899
                                                                     ==========

         Intangible Software                                         $1,390,619
         Less: accumulated amortization                                (198,660)
                                                                     ----------
                                                                     $1,191,959
                                                                     ==========

         Consideration paid for Streaming Asia.com, Ltd.:
                                                                        2001
                                                                    -----------

         Cash                                                       $ 1,000,000
                                                                     ==========
         Fair value of net assets received:

                                                                    May 16, 2001
                                                                    -----------

         Cash                                                       $   103,416
         Accounts receivable                                            236,836
         Prepaid expenses and other assets                              397,677
         Property and equipment                                         270,997
         Accounts payable and accruals                                 (313,613)
                                                                    -----------
                                                                        695,313
         Minority interest                                              (47,084)
                                                                    -----------
                                                                        648,229

         Goodwill                                                       351,771
                                                                    -----------
                                                                    $ 1,000,000
                                                                    ===========






                                       27
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------

         Intangibles from the acquisition of Streaming Asia.com, Ltd.
         are summarized as follows:
                                                               December 31, 2001
                                                               ----------------

         Goodwill                                                   $   351,771
         Less: accumulated amortization                                  (6,800)
         Less: impairment                                              (109,171)
                                                                    -----------
                                                                    $   235,800
                                                                    ===========

<TABLE>
<CAPTION>
        The following table summarizes goodwill, net of accumulated amortization
        and impairments as of December 31, 2001:

                                 Financial                          Streaming
                                  Telecom           Elephant        Asia.com        Sinobull.com,
                                  Limited         Talk Limited         Ltd               Inc.              Total
                                -------------     -------------    ------------     ---------------    --------------
<S>                             <C>               <C>              <C>              <C>                <C>
         Goodwill               $ 2,262,598       $ 4,207,731      $  351,771       $   1,562,788      $  8,384,888
         Accumulated
           amortization            (444,443)         (245,450)         (6,800)            (78,682)         (775,375)
         Impairment              (1,500,486)              -          (109,171)           (742,207)       (2,351,864)
                                -------------     -------------    ------------     ---------------    --------------
                                $   317,669       $ 3,962,281      $  235,800       $     741,899      $  5,257,649
                                =============     =============    ============     ===============    ==============
</TABLE>



NOTE 9   DISCONTINUED OPERATIONS
-------  -----------------------

         During 2001, the Company disposed of its 51% ownership  interest in UAC
         Exchange  and  recorded a gain of  $1,060,371  in  connection  with the
         disposal.  The results of operations  for 2000 and the first six months
         of  2001  of  the  subsidiary  have  been  classified  as  discontinued
         operations in the consolidated financial statements.

         Information relating to the operations of the subsidiary for the
         periods ended December 31, 2001 and 2000 are as follows:

                                                       Six Months
                                                         Ended
                                                     June 30, 2001      2000
                                                      -----------   -----------

         Revenue                                      $       -     $   139,673
         Costs and expenses                               377,952       853,305
                                                      -----------   -----------

         Loss from discontinued operations            $  (377,952)  $  (713,632)
                                                      ===========   ===========

                                       28
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------


NOTE 10  Notes Payable
-------  -------------

         Notes payable are summarized as follows:

                                                          2001          2000
                                                      -----------   -----------

         Note payable,  for  acquisition  of Elephant
          Talk  Limited,  interest  at  8.1%.  Entire
          amount was due February  2002,  extended to
          May 31, 2002                                $ 1,250,000  $        -

         Note payable,  bank,  monthly  principal and
          interest   payments  of  $1,483   including
          interest at 1% below prime. Loan secured by
          the  Company's  property  and is  repayable
          over 144 monthly payments                       160,765           -

         Note payable,  former  officer and director,
          principal   and  interest  due  on  demand,
          interest at 6%                                   80,000           -

         Note payable,  bank,  monthly  principal and
          interest   payments  of  $8,413   including
          interest  at the bank's FTL prime rate plus
          2.5% per  annum,  9.5% and 11% at  December
          31,  2001 and 2000;  respectively,  due May
          2009; secured by building                           -         643,655

         Note  payable,  bank,  monthly  payments  of
          interest  at 2%  above  prime.  The note is
          secured by the  guarantees of the Company's
          shareholders.  The  note is due on  January
          16, 2003                                        282,051           -

                                                      -----------   -----------
                                                        1,772,816       643,655
         Less current portion                          (1,339,517)      (33,788)
                                                      -----------   -----------

         Notes payable, net of current portion        $   433,299   $   609,867
                                                      ===========   ===========







                                       29
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------

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

                                                2002                $ 1,339,517
                                                2003                    299,847
                                                2004                     17,796
                                                2005                     17,796
                                                2006                     17,796
                                             Thereafter                  80,064
                                                                    -----------

                                                Total               $ 1,772,816
                                                                    ===========

NOTE 11  PAYABLES TO RELATED PARTIES
-------  ---------------------------

         Payables to related parties are summarized as follows:

                                                          2001          2000
                                                      -----------   -----------

         Payable to ET Network Services, Ltd.         $   344,048   $       -
         Payable to shareholder of FTL                    548,295       728,454
         Payable to shareholders ET                       458,333           -
         Payable to shareholders                              321           -
         Payable to owner of UAC Trading                      -       1,224,985
                                                      -----------   -----------
         Total                                        $ 1,350,997   $ 1,953,439
                                                      ===========   ===========

         During 2001,  Financial Telecom Limited  exchanged  1,507,767 shares of
         the  Company's  common stock for  $598,402 in  shareholder  loans.  All
         amounts are due on demand and unsecured (See Note 14M).


NOTE 12  Accrued Expenses and Other Current Liabilities
-------  ----------------------------------------------

         Accrued expenses and other current liabilities are summarized as
         follows:

                                                          2001          2000
                                                      -----------   -----------

         Accrued officer's salary                     $   250,000   $       -
         Accrued payroll taxes                             50,000           -
         Accrued legal settlement                          40,000           -
         Accrued professional fees                         65,833           -
         Other current liabilities                         72,383       130,632
                                                      -----------   -----------
                                                      $   478,216   $   130,632
                                                      ===========   ===========
                                       30
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------


NOTE 13  Commitments and Contingencies
-------  -----------------------------

         (A) Operating Leases

         The Company leases its facilities under long-term, non-cancelable lease
         agreements   expiring  at  various  dates   through  March  2003.   The
         non-cancelable 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, 2001
         and 2000 was $372,408 and $152,467, respectively.

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

                                     Year Ending December 31,
                                               2002                 $   126,000
                                               2003                       9,000
                                                                    -----------
                                   Total future lease payments      $   135,000
                                                                    ===========


         (B) Capital Lease Agreements

         Capital leases are  summarized as follows at
          December 31, 2001:

         Office equipment,  9.07% interest per annum,
          secured by equipment                                      $     7,404


         Communications  equipment,  11.57%  interest
          per  annum,   secured   by   communications
          equipment                                                     105,834
                                                                    -----------
                                                                        113,238
              Less: current portion                                      84,642
                                                                    -----------
                                                                    $    28,596
                                                                    ===========








                                       31
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------

         Future minimum lease payments under capital leases are as follows at
         December 31, 2001:

                                               2002                 $    92,226
                                               2003                      31,849
                                                                    -----------
                                      Total lease payments              124,075
                                      Less: interest                     10,837
                                                                    -----------
                                      Total                         $   113,238
                                                                    ===========



         (C) Employment Agreement

         The Company was obligated  under an employment  contract with its chief
         executive officer  ("Executive") to provide salary,  bonuses, and other
         fringe  benefits  through  December 31, 2001.  Minimum salary  payments
         under the contract currently amounted to $250,000 per year. Payments to
         the  Executive  were to 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.  The employment  agreement  expired on December 31,
         2001 and was not renewed.

         Compensation expense reflected in the accompanying financial statements
         amounted to $250,000  and $1 for the years ended  December 31, 2001 and
         2000, respectively.

         Employment  agreement with the other  executives are terminable with or
         without  cause  with  prior  notice  of 90 days  or  less.  In  certain
         instances,  the  termination  of  employment  agreements  without cause
         entitles the executives to certain benefits,  including acceleration of
         the vesting of stock options and severance payments.

         (D) Legal Proceedings

         Comerica Bank of California  vs. Pego Systems,  Inc., et al ("Pego"),
         ---------------------------------------------------------------------
         Los Angeles  Superior Court No. NC  027075
         ------------------------------------------

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


                                       32
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------

         Pego which obligation went into non-financial default. The parties have
         executed a  stipulation  for entry of judgment to enforce a settlement
         agreement,  which  stipulation calls for certain payments and transfers
         of funds by Pego.  In the  event of  non-payment  by Pego,  Hartcourt's
         liability could be as much as approximately  $635,000,  with the amount
         decreasing upon payments by Pego.  During 2001 the Company
         realized  an  additional  $150,000  related  to  guarantees  under this
         obligation.  The Company has not accrued any  additional  amounts as of
         December 31, 2001.

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

         Charles Hogue filed a complaint to claim a finder's fee for introducing
         Hartcourt to a potential acquisition target. Hartcourt sent the payment
         to Mr. Hogue via check in the amount of $40,500 for such  finder's fee,
         but Mr. Hogue  demanded that he be paid in shares of Hartcourt with the
         amount of shares in dispute.  Hartcourt's  counsel in Florida failed to
         timely file an answer to the  complaint  and a default  judgment in the
         amount of $2,901,752 was entered on January 31, 2000. Hartcourt brought
         a motion to set aside the default, which was denied. Hartcourt plans to
         vigorously  appeal the ruling.  On or about March 2, 2001,  a Notice of
         Appeal  was  filed.  Hartcourt  and its new  Florida  counsel  are very
         optimistic that Hartcourt will prevail on its appeal,  especially given
         the default nature and  excessiveness  of the damages.  The Company has
         accrued $40,500 in the financial statements as of December 31, 2001.

         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 and employment
         matters.  While there can be no assurance that an adverse determination
         of any such  matters  could not have a material  adverse  impact in any
         future  period,  management  does not believe,  based upon  information
         known to it, that the final  resolution  of any of these  matters  will
         have  a  material  adverse  effect  upon  the  Company's   consolidated
         financial position and annual results of operations and cash flows.

         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



                                       33
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------

         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.  On
         December  14,  1999,   American  Equities  filed  a  complaint  against
         Hartcourt  alleging breach of warrant  agreement,  claiming  damages of
         $30,000,000  and  that  American   Equities  was  entitled  to  receive
         1,800,000  common  shares of  Hartcourt  pursuant to the  anti-dilution
         clause  contained in its December 1996 warrant  agreement.  On February
         20, 2001, Hartcourt and American Equities mutually agreed to settle the
         lawsuits and executed mutual general  releases of all known and unknown
         claims.  As  part of the  settlement,  Hartcourt  agreed  to  issue  to
         American  Equities  400,000  shares of its common stock pursuant to the
         anti-dilution  clause  and  cancel  the  promissory  note of  $225,000.
         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.

NOTE 14  SHAREHOLDERS' EQUITY
-------  --------------------

         (A) Capitalization

         The Company's articles provide that the total number of shares of stock
         which the Company  shall have the  authority  to issue is  110,001,000,
         consisting of  100,000,000  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 preferred series A, B, C,
         D,  and  AB  stock  are  4,000,  2,000,  1,500,   10,000,  and  25,000,
         respectively.

         (B) Original Preferred Stock

         Until  December 31,  2010,  with respect to the election of  directors,
         holders of Original Preferred Stock are entitled to elect the number of
         directors which  constitutes  three-fifths of the authorized  number of
         members of the Board of Directors  and, if such  three-fifths  is not a
         whole number, then the holders of Original Preferred Stock are entitled
         to elect the nearest higher whole number of directors.

         The holders of Original  Preferred  Stock are  entitled to convert each
         share  of  Original  Preferred  Stock  into  1,000  shares  of paid and
         non-assessable common stock. The original preferred shares are owned by
         the Chief Executive Officer of the Company.



                                       34
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------


         In the event of liquidation,  dissolution, or winding up of the affairs
         of the Company whether voluntary or involuntary,  the holders of record
         are entitled to be paid the full par value of Original Preferred Stock.
         The holders of shares of Original  Preferred  Stock are not entitled to
         receive any dividends.

         (C) 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.

         (D) 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.  No
         Series convertible preferred stocks were issued and outstanding.

         (E) 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.  No
         Series B convertible preferred stocks were issued and outstanding.

         (F) 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. No Series C redeemable  preferred  stocks were issued
         and outstanding.






                                       35
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------

         (G) 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.  No Series D convertible  preferred stock were issued and
         outstanding.

         (H) 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 (See Note 2).

         (I) Common Stock Issued for Cash

         During 2001,  the Company  issued  1,838,636  shares of common stock to
         individuals for cash of $395,000.

         (J) Common Stock Issued for Services

         During  2001,  the Company  issued  295,206  shares of common  stock to
         directors for services rendered having a fair value of $118,240.

         During  2001,  the Company  issued  511,764  shares of common  stock to
         officers for services rendered having a fair value of $221,600.

         During 2001,  the Company  issued  1,136,054  shares of common stock to
         consultants for services rendered having a fair value of $374,173.

         (K) Common Stock Issued for Warrants

         During 2001,  the Company  issued  1,966,092  shares of common stock to
         satisfy cashless exercisable stock options (See Note 13(D)).



                                       36
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------


         (L) Common Stock Issued for Stock Options

         During  2001,  the Company  issued  400,000  shares of common  stock to
         satisfy cashless exercisable stock options.

         (M) Common Stock Issued in Settlement of Note Payable

         During 2001, the Company's  Chief Executive  Officer donated  5,000,000
         shares  of the  Company's  common  stock to  settle a note  payable  of
         $1,506,853. The Company recognized a gain on the extinguishment of debt
         of $1,506,853.


NOTE 15  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, 2001 and 2000. 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, 2001 and 2000,  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.

         Impairment of  investments  and goodwill are not  deductible in 2001 or
         2000 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.

                                                          2001          2000
                                                      -----------   -----------
         Current:
           Federal                                    $       -     $       -
           State                                              -             -
           Deferred-Federal and State                         -             -
           Change in Valuation Allowance                      -             -
                                                      -----------   -----------
         Income tax expense (benefit)                 $       -     $       -
                                                      ===========   ===========







                                       37
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------

         The Company's tax expense differs from the "expected" tax expense for
         the years ended December 31, 2001 and 2000, as follows:

                                                          2001          2000
                                                      -----------   -----------

         U.S. Federal income tax provision (benefit)  $  (425,250)  $  (693,500)
         Effect of net operating loss carryforward        425,250       693,500
                                                      -----------   -----------
                                                      $       -     $       -
                                                      ===========   ===========

         The tax effects of temporary differences that gave rise to significant
         portions of deferred tax assets and liabilities at December 31 are as
         follows:

                                                          2001          2000
                                                      -----------   -----------
         Deferred tax assets:
         Net operating loss carryforward              $ 4,358,300   $ 3,107,600
                                                      -----------   -----------
         Total gross deferred tax assets                4,358,300     3,107,600
         Less valuation allowance                      (4,358,300)    3,107,600
                                                      -----------   -----------
         Net deferred tax assets                      $       -     $       -
                                                      ===========   ===========

         The Company has Federal and State net operating loss  carryforwards  of
         approximately $10,390,000 and $8,350,000, 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  from 2002  through  2022,
         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.

         The   valuation   allowance  at  January  1,  2000  was   approximately
         $3,107,600.  The net change in the valuation  allowance during the year
         ended December 31, 2001 was an increase of $1,250,700.









                                       38
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------

NOTE 16  Stock Option Plan and Warrants
-------  ------------------------------

         (A) 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:     Weighted
                                                                      Average
                                                         Number       Exercise
                                                       of Shares      Price
                                                      -----------   -----------

         Shares under option at January 1, 2000           400,000   $      1.00
           Granted                                         70,000          6.76
           Exercised                                          -             -
           Canceled                                           -             -
                                                      -----------   -----------
         Shares under option at December 31, 2000         470,000          1.86
           Granted                                            -             -
           Exercised                                          -             -
           Canceled                                       150,000          3.69
                                                      -----------   -----------
         Shares under option at December 31, 2001         320,000   $      1.30
                                                      ===========   ===========

         All stock options  issued to employees  have an exercise price not less
         than the  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



                                       39
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------

         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,  2001 and 2000  would not have
         changed.

         Additional  information  relating  to  stock  options  outstanding  and
         exercisable  at December 31, 2001  summarized by exercise  price are as
         follows:
<TABLE>
<CAPTION>
                                   Options Outstanding                                      Options Exercisable
               -------------------------------------------------------------------    --------------------------------
                Range of            Number            Weighted         Weighted           Number           Weighted
                                                      Average
                                Outstanding at       Remaining         Average         Exercisable          Average
                Exercise         December 31,       Contractual        Exercise        at December         Exercise
                  Price              2001               Life            Price            31, 2000            Price
               ------------    -----------------    -------------    -------------    ---------------     ------------
<S>            <C>                   <C>               <C>           <C>                   <C>            <C>
               $ 1.00-5.75           320,000           6.7 Year      $       1.30          320,000        $     1.30
</TABLE>

         In connection with a fee agreement for  introduction  services with two
         individuals, ("introducers"), Hartcourt agreed to grant the Introducers
         options to purchase up to 2,500,000 shares of Hartcourt common stock at
         a price of $5.50 per share. On May 4, 2000, the  Introducers  exercised
         their option to acquire  2,500,000 shares of Hartcourt common stock. As
         of  December  31,  2001,  Hartcourt  received  $2,275,000  towards  the
         exercise  price  of  500,000  options  into  shares  exercised  by  the
         Introducers.  The  remaining  2,000,000  options  and the  subscription
         receivable  balance  of  $11,000,000  were  cancelled  in  2001  due to
         non-payment.

         In connection  with providing  consulting  services,  on July 21, 2000,
         Hartcourt granted to a consultant  options to purchase 20,000 shares of
         Hartcourt  stock at a price of $5.75 per share.  The options  expire on
         July 20, 2003. The options were issued at the fair value on the date of
         issuance  using the  Black-Scholes  option pricing model as required by
         SFAS 123. The value of the options was not material.


         (B) Warrants

         In connection with facilitating an equity line of credit for Hartcourt,
         on January  26,  2000,  the  Company  issued to a broker for  brokerage
         services  warrants to purchase  13,530  shares at $15.52 per share that
         expire on January 25, 2004.  The warrants  were issued at
         the fair value on the date of issuance using the  Black-Scholes  option
         model as required by SFAS 123. The warrants were not material.

                                       40
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------

         In  connection  with  completion  of a private  placement  of Hartcourt
         shares with PYR Management LLC, on March 6, 2001, the Company issued in
         total 4,000,000 of Class II warrants  exercisable at $0.69375 per share
         of common  stock and expire on January  26,  2005.  The  warrants  were
         issued at fair  value at the fair value on the date of  issuance  using
         the  Black-Scholes  option  model as required by SFAS 123. The value of
         the warrants are a direct offering  expense and  accordingly,  has been
         charged to equity in 2001.

         In connection with signing an investment  agreement with Swartz Private
         Equity,  LLC, on January 26, 2000,  Hartcourt issued to Swartz warrants
         to purchase  400,000  shares at $13.10 per share that expire on January
         25, 2004.  The warrants  were issued at fair value at the fair value on
         the date of issuance using the  Black-Scholes  option model as required
         by SFAS 123.  The value of the warrants  are a direct  offering expense
         and accordingly, charged to equity in 2000.

         During 2000, the  warrant-holders  converted to purchase 407,000 shares
         of  common  stock at  prices  ranging  from  $2.50 to $2.80 for a total
         consideration of $101,870.

NOTE 17  Segment and Related Information
-------  -------------------------------

         The Company has four reportable  segments.  Each segment is a strategic
         business  that the Company  manages  separately  because each  business
         develops and sells products to a specific  market.  The four reportable
         segments  are as follows:  Telecommunications,  provides  comprehensive
         telecommunications  services;  Financial  Services,  provides financial
         content  through  various sources  including  television,  internet and
         wireless access systems;  Streaming  Media,  provides  internet related
         software  development  services  with an  expertise  in audio and video
         streaming to businesses.  The Consulting,  E-learning Group and Capital
         Groups operating segments do not meet the quantitative thresholds for a
         reportable  segment and are therefore included in the "Other" category.
         The  principal  market for the  Company's  products  is China.  Foreign
         sales,  primarily in China  amounted to  approximately  $10,169,000  in
         2001. The Chinese operations  account for approximately  $11,113,000 of
         consolidated  total  assets in 2001.  The  accounting  policies  of the
         segments  are the  same as  described  in the  summary  of  significant
         accounting policies. The Company evaluates segment performance based on
         income  from  prospective  operations.  All  intercompany  transactions
         between segments have been eliminated.  As a result,  the components of
         operating  loss  for one  segment  may  not be  comparable  to  another
         segment. Segment results for 2001 and 2000 are as follows:







                                       41
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------
<TABLE>
<CAPTION>
                           Tele-        Financial     Streaming
                      Communications    Services        Media         Other         Total
                      --------------   -----------   -----------   -----------   -----------
2001
----
<S>                      <C>           <C>           <C>           <C>           <C>
Net sales                $ 7,684,004   $ 2,157,632   $   326,962   $   452,607   $10,621,205

Loss from operations        (270,911)   (3,540,755)   (1,282,276)     (235,466)   (5,329,408)

Depreciation and
  amortization               631,704       753,592        85,997         7,020     1,478,313

Assets                     8,175,429     4,804,794       520,294     3,479,619    16,980,136

Capital expenditures             -             -             -          51,721        51,721
                        ======================================================================

2000
----
Net sales                $       -     $ 1,391,666   $       -            -      $ 1,391,666

Loss from operations             -      (1,695,057)          -     (5,095,822)    (6,790,879)

Depreciation and
  amortization                   -         424,748           -         18,691        443,439

Assets                           -       2,169,728           -      6,626,879      8,796,607

Capital expenditures             -         122,168           -        224,883        347,051
                        ======================================================================
</TABLE>

NOTE 18  Subsequent Events
-------  -----------------
(A) Employment Agreement

         On  January  1,  2002,  the Board of  Directors  signed  an  Employment
         Agreement   with  the  new  President  and  Chief   Executive   Officer
         ("Executive")  for a one year term under which the Company is obligated
         to provide salary and fringe benefits through December 31, 2002. Annual
         base salary for the fiscal year 2002  payable  under the  contract  was
         $120,000.  Payments are to be made in equal monthly installments.   The
         Executive is also entitled to an incentive  bonus of $180,000  worth of
         Hartcourt  shares,  share price to be calculated at the average closing
         price of the last twenty (20) days of January 2002. The incentive bonus
         will be payable and decided by the Board of  Directors  upon meeting of
         certain defined objectives.  In addition,  the Executive was granted an
         option to purchase  300,000  shares of  Hartcourt  stock at an exercise
         price of $0.65 per share.  The term of the options  expires on December
         31, 2002.

         (B) Acquisition of Subsidiary

         On January 4, 2002,  the Company's 51% owned  subsidiary  Elephant Talk
         Limited  was  acquired  by a public  company  for  stock.  The  Company
         retained a majority  ownership interest of the outstanding stock of the
         public company upon completion of the merger.

                                       42
<PAGE>
                 THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 2001 AND 2000
                        --------------------------------

         (C) Note Receivable

         On February 1, 2002  Hartcourt  received a note payment of $50,000 from
         Edda Limited and an additional  $122,755 towards the stock subscription
         receivable at December 31, 2001 (See Note 5).

         (D) Short-Term Loan

         On March 27, 2002 Hartcourt obtained a short-term loan of $125,000 from
         an investor for its working capital.  The loan bears 10% interest,  and
         is  payable on  September  26,  2002.  The loan may be  convertible  to
         Hartcourt  common shares at the  discretion of Hartcourt.  The terms of
         conversion into shares have not been finalized as of April 12, 2002.

         (E) Reverse Merger

         On October 2, 2001 the Company had announced its intention to merge its
         Sinobull  Financial  Group  division  in a reverse  merger  with Global
         Telephone  Communications,  Inc. The reverse  merger will result in the
         Sinobull  Financial Group division  actively trading on the U.S. equity
         markets. The transaction has not closed as of April 12, 2002.































                                       43