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, 2003

                        Commission file number 000-30061


                       ELEPHANT TALK COMMUNICATIONS, INC.
             (Exact name of registrant as specified in its charter)


                                   CALIFORNIA
                            (State of incorporation)

                                   95-4557538
                      (I.R.S. Employer Identification No.)

  438 East Katella Avenue, Suite 217, Orange, California 92867, (714) 288-1570
    (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: No 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]




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         Issuer's revenues for most recent fiscal year: $867,171

         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
and asked prices of such stock,  as of a specified date within the past 60 days:
As of March 31, 2004, $9,103,718.

         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 31, 2004, there
were 37,206,442 shares of common stock outstanding.














































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                       ELEPHANT TALK COMMUNICATIONS, INC.

                         2003 Form 10-KSB Annual Report
                                Table of Contents

                                                                            Page
                                     PART I

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

  Item 2.   Description of Property.......................................... 24

  Item 3.   Legal Proceedings................................................ 24

  Item 4.   Submission of Matters to a Vote of Security Holders.............. 24

                                     PART II

  Item 5.   Market for Common Equity and Related Stockholder Matters......... 25

  Item 6.   Management's Discussion and Analysis or Plan of Operation........ 26

  Item 7.   Consolidated Financial Statements................................ 30

  Item 8.   Changes in and Disagreements with Accountants on
            Accounting and Financial Disclosure.............................. 30

                                    PART III

  Item 9.   Directors, Executive Officers, Promoters and Control Persons;
            Compliance With Section 16(a) of the Exchange Act................ 30

  Item 10.  Executive Compensation........................................... 32

  Item 11.  Security Ownership of Certain Beneficial Owners and
            Management....................................................... 33

  Item 12.  Certain Relationships and Related Transactions................... 36

                                     PART IV

  Item 13.  Exhibits, and Reports on Form 8-K................................ 37

  Item 14.  Controls and Procedures.......................................... 37

            Signatures....................................................... 38









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Explanatory Note:

Unless otherwise  indicated or the context  otherwise  requires,  all references
herein to the "Company" are to Elephant Talk Communications,  Inc., a California
corporation and its wholly owned  subsidiary,  Elephant Talk Limited.  All share
and per share  information  contained  herein has been adjusted to reflect a one
for ten reverse  split of the Company's  common stock  completed and effected on
January 22, 2002.


                                     PART I

Item 1:  Description of Business.

Organization and Nature of Operations

Elephant Talk Communications, Inc. (herein referred to as "ElephantTalk", "ETCI"
or  "Company"  formerly  known as  Staruni  Corporation),  was  incorporated  on
February  5,  1962  under  the  laws  of  the  state  of  California  as  Altius
Corporation.  The Company was involved in  manufacturing  of freeway  signs.  In
March 1997, Altius acquired Starnet Universe Internet, Inc., a web developer and
Internet Service Provider (ISP) and changed its name to Staruni Corporation.

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.
Pursuant to the merger agreement Staruni continued its corporate existence under
the laws of  California  and  Elephant  Talk  Limited  became  its  wholly-owned
subsidiary. In conjunction with the merger, Staruni changed its name to Elephant
Talk  Communications,  Inc. in order 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 Elephant Talk Limited  common stock,
par value of HK$1 (One Hong Kong Dollar) immediately prior to the effective time
of the merger  date,  by virtue of the merger and without any action on the part
of such holder,  was 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
Elephant  Talk Limited  common stock owned by such holder as of the merger date.
Collectively,  following the merger, the former holders of Elephant Talk Limited
common stock held 31,164,210  shares of our common stock,  which represented 90%
of our issued and  outstanding  shares of common  stock at the time.  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,  The  Hartcourt
Companies, Inc. ("Hartcourt") retained a majority ownership in ETCI.

Elephant Talk Limited, a limited liability company incorporated in Hong Kong, is
engaged  in long  distance  telephone  business.  Per the  terms  of the  merger
agreement,  the Company sold its Internet Service Provider ("ISP") business to a
related party,  Vision Aerospace Inc.  ("Vision") for 1,000,000 shares of Vision
valued at $10,385.  Vision is owned by the former President of the Company.  The
value of the shares was  recorded at the book value of the assets  exchanged  to


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acquire  the  shares of  Vision.  Pursuant  to the  terms of the share  exchange
agreement,  control of the combined companies passed to the former  shareholders
of Elephant Talk Limited.

Prior to the  merger,  Elephant  Talk  Limited  was a  51%-owned  subsidiary  of
Hartcourt,  a publicly  listed  company in the US and Germany.  On May 16, 2001,
Hartcourt  and  Elephant  Talk Limited  executed a Sale and  Purchase  Agreement
whereby  Hartcourt  acquired  51% of the  ownership  interest in  Elephant  Talk
Limited for a total  consideration  of  $4,194,000.  The terms of the  agreement
required  Elephant  Talk  Limited  to  increase  its  authorized   capital  from
25,000,000  shares to  30,000,000  shares.  Hartcourt  subscribed  to a block of
5,000,000 new shares;  issued  1,000,000  Hartcourt shares under Rule 144 of the
SEC regulations,  valued at 61.9 cents per share; and executed a promissory note
payable to Elephant Talk Limited in the amount of $1,250,000 due on February 16,
2002,  which was further  extended  for payment to May 31,  2002.  In  addition,
Hartcourt subscribed to another block of 10,300,000 Elephant Talk Limited 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 Elephant Talk Limited.

Pursuant to an execution of a Spin-Off Agreement,  dated September 12, 2002, and
through the subsequent  transactions that closed on January 4, 2003, the Company
terminated  its  relationship  with  Hartcourt.  Pursuant  to the  terms  of the
Spin-Off Agreement, the Company received from Hartcourt 17,895,579 of its common
shares  held by  Hartcourt  and  $349,000  in cash  advances,  in  exchange  for
returning  4,756,000  common  shares of  Hartcourt  held by the  Company and its
affiliates,  canceling two promissory notes of Hartcourt held by the Company and
its  affiliate  in the  respective  amounts  of  $1,250,000  and  $140,595,  and
canceling  the  indebtedness  of  cash  advances  by  issuing  5,000,000  of its
restricted  common  shares to  Hartcourt.  In addition to executing the Spin-Off
Agreement,  the parties executed a mutual release to end their  relationship and
place each other in a position whereby no party is indebted to the other party.

The Company's  business  purpose of the acquisition of Elephant Talk Limited via
the merger was to gain market share in the  telecommunication  industry in Asia.
Following our merger, we have adopted Elephant Talk Limited business as our own.
We are a  facility-based  international  long distance  carrier  offering highly
reliable and competitively priced services.  Our international call services are
provided  through  an  integrated  network  infrastructure  comprising  both the
packet-switched  system (IP based) and  circuit  switched  system  (conventional
phone based) focusing on the Asia Pacific region as well the U.S.  Elephant Talk
Limited   provides  its   services  to   first-tier   local  and   international
telecommunications carriers, enabling those carriers and other service providers
to  offer  voice  and  fax  services  to  their  end-customers.  In  view of the
deregulation  of the global  telecommunications  market and rapid  growth of the
Internet in favor of IP based telecommunications  services, the Group recognized
this huge  opportunity to set up a new  infrastructure  enabling the convergence
and leverage of the  strengths of  conventional  telephone  network and the VoIP
technology.

The Company's  operations  include  international long distance on both sides of
the Pacific,  serving over 20 foreign countries through an advanced and flexible
network.  As Elephant Talk Limited has been  expanding its foothold in Asia with
more  profitable  routes and the  development of value-added  services,  such as


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PC-to-Phone  service,  the Company will now continue  with that  expansion.  The
Company is also  actively  pursuing  new sales  channels  for the  higher-margin
prepaid  calling card market,  expanding  from the U.S. to several  countries in
South East Asia.

Background of Elephant Talk Limited

Established in late 1994,  Elephant Talk Limited is located and operated in Hong
Kong.  Elephant  Talk Limited owns  switching  facilities  in China,  Hong Kong,
United States and Singapore.  The Company  utilizes both IP and circuit switched
technologies over a common platform, and provides the following services:

  o  International  long distance  services in wholesale  market  principally to
     carriers;
  o  prepaid and post paid phone cards; and
  o  other value added services such as eTalk, as described below

Elephant Talk Limited's  customers  include some of the largest first and second
tier telecommunications  carriers in the U.S. and several carriers in South East
Asia,  including two of the four fixed network  operators in Hong Kong including
AT&T,  Global Crossing,  and MCI WorldCom in the U.S., and Wharf New T&T and New
World Telephone in Hong Kong.

Since  its  establishment,   Elephant  Talk  Limited  expanded  its  network  by
installing more switches and hubs internationally.  Because of this, the Company
has secured  termination  options  outside Asia by entering  into  international
operating  agreements  with  these  foreign-based  telecommunications  carriers,
including  AT&T  Corporation,  Global  Crossing,  Frontier  Telecom Ltd. and MCI
WorldCom Inc.

Capitalizing  on a unique position to gain market share in Asia, the Company has
leveraged  Elephant Talk Limited's early entrant status by forging an increasing
number of strategic  relationships  in order to gain a stronger  position in the
People's Republic of China ("PRC") through consistent business  cooperation with
various fixed line operators which are described more detailed elsewhere in this
Annual  Report.  In 1996,  only  one-third of Elephant  Talk  Limited's  traffic
terminated in the PRC. This increased to approximately  70% in 1998, to over 80%
since 1999.

The majority of our revenue comes from the sale of voice minutes over our IP and
circuit-based  networks.  Currently,  we market our services  through two units,
each focused on a different market for those services: (1) International Carrier
Services ("ICS"); and (2) Retail Services.  ICS Unit is responsible for the sale
of  international  long  distance   solutions   utilizing  VoIP  or  traditional
circuit-switched   technology.  Our  Retail  Services  Unit  sells  minutes  via
disposable calling cards (traditional PSTN),  primarily to customers in the U.S.
and  rechargeable  eTalk calling cards  (PC-to-phone)  primarily to consumers in
Asia Pacific region, and is also responsible for Retail IDD services.  This unit
is also  responsible  to market  co-branded  calling  cards with  large  telecom
operators in China such as China Railcom.

Technology Infrastructure

ETL's network infrastructure principally comprises a circuit switched system and


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a packet switched system.  These systems are installed at the company's  Network
Operation  Centre  in Kwun  Tong,  Hong  Kong and  Boston,  Massachussetts.  Our
integrated  network  infrastructure  comprises a combination  of voice  switches
(connected  to  telephone  systems  of  external  carriers)  and  VoIP  gateways
(connected  to the  Internet)  connecting  to each  other  through  our  private
telephone exchange system(s)  ("PBX").  The configuration  enables us to provide
telecommunication services to its customers on a 24x7 basis.

  o  Circuit  switched system - Our circuit  switched system consists of various
     carrier-grade  voice switches that are connected to the  conventional  PSTN
     through  lease  lines  provided by external  carriers.  Incoming  calls are
     routed  through  our PBX to  either  external  PSTN  carriers  or our  VoIP
     gateways.
  o  Packet switched system - Our  packet-switched  system comprises a number of
     brand-name  VoIP  gateways  that  connect to our IP Network as  provided by
     Global  Crossing.  In the event that outgoing  calls cannot be made via our
     VoIP system due to network congestion or other technical issues,  calls are
     automatically   re-routed   through  an  external   PSTN  to  the  intended
     destination.
  o  Integrated  prepaid calling card platform - Our prepaid calling card system
     has been  designed as a PSTN switch  with VoIP  functions,  and enables the
     Group to  provide  a  robust,  reliable  and  quick  prepaid  product.  Its
     architecture  includes  a  backbone  switching  mechanism  that  offers  an
     integration  of   circuit-switched   and  packet-switched   networks,   and
     automatically  detects and adopts the best routing  available having regard
     to  carrier  cost  and  QoS.  With  the  simultaneous  use of VoIP and PSTN
     switching,  we are  able  to  achieve  lower  routing  costs  through  VoIP
     functionality  whilst retaining stable  connections and QoS offered by PSTN
     platform.

Markets and Customers

Through our wholesale operations, the Company sells directly to first and second
tier telecommunications  carriers.  Elephant Talk Limited successfully developed
brand-awareness and beneficial  relationships  through numerous channels such as
industry  conference,  expos  and  word-of-mouth   recommendations  of  existing
customers  in the  telecom  industry in both the U.S.  and Hong Kong,  which the
Company will continue to capitalize on. We also market wholesale service to high
traffic  density  inter-Asian  carriers  that are looking for  services to lower
their cost. The ability to provide quality  acceptable to leading  carriers is a
prerequisite  for selling to them and others.  Major  carriers have traffic that
frequently exceeds their capacity and compels them to seek alternative  channels
that offer  comparable  quality,  particularly  where those  channels  can offer
better pricing. Elephant Talk Limited's experience was that once a carrier began
to use Elephant Talk Limited  network for a single country and found the quality
to be  acceptable,  the sales  process for other  countries  became  easier.  We
believe that will be our experience as well.

In  general,  telephone  companies  can be  segregated  by size into first tier,
second tier and third tier carriers.  Generally, first tier carriers in the U.S.
are large domestic and  international  carriers,  such as MCI WorldCom and AT&T.
First tier carriers  generally  have annual  revenues in excess of US$2 billion.
Second tier  carriers  have  revenues  generally  in the US$750  million to US$2
billion range,  but have fewer direct  operating  agreements with other carriers


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and fewer international facilities.

The  majority of traffic  over our network is from Tier One and Two  carriers in
the U.S. and Hong Kong, who transmit voice and fax traffic through our Points of
Presence  (POPs) in New York,  Los Angeles,  Boston and Hong Kong for completion
overseas. The ability to provide quality call completion consistently acceptable
to the Tier One carriers is of vital  importance  because  these  carriers  have
tremendous  volumes of commercial  and retail  traffic that  regularly  overflow
their capacity. Going forward, Tier One carriers will be a main area of focus of
our sales  force.  Our carrier  partners  gain  access to our network  through a
carrier  network  interconnection.   With  regard  to  our  traditional  carrier
interconnection,  we can  use an  ISDN  (integrated  services  digital  network)
interconnect for a PSTN (public switched telephone network) customer,  or we can
utilize other telephony  signaling  standards,  such as SS7 in the U.S. or C7 in
Europe.  Under VoIP  interconnection,  a newer  imperative,  we can interconnect
either via SIP or H323,  two of the primary VoIP  interconnect  standards in use
today. Once the networks are interconnected, we work with each partner to buy or
sell minutes to each other through a unilateral or bilateral carrier agreement.

Outside Hong Kong and U.S.,  Elephant  Talk Limited has  previously  established
relationships  with in-country  companies and local service  providers that have
local   market   expertise   and   relationships.   Some   of   these   overseas
partners/customers are very large,  well-established  national carriers, such as
China Unicom,  China Railcom and China Netcom.  We believe that others,  such as
NCIC and EADS Multicom are emerging  carriers or Internet service  providers who
are able to provide the services  necessary to terminate minutes for us in their
country.  In October,  2001, ETL signed a reseller agreement with JiTong Network
Communications Limited, one of the top 5 telecom operators in China, to exchange
traffic in China and various IP-based  services,  in addition to jointly promote
the services overseas. Similar arrangements have been made with China Unicom and
China NetCom, the other Top 2 operators during 2002.

Our prepaid calling card business has a proven channel of dealers established by
Elephant  Talk  Limited,  who sells  ETL-branded  cards mainly in the  Chinatown
regions  in Boston,  New York,  Los  Angeles  and San  Francisco.  The market is
competitive  but the profit margin is usually more  lucrative than wholesale IDD
services.  Using a niche market  strategy,  our sales  volume has been  steadily
increasing.  Currently,  we are attempting to line up additional dealers who are
capable of distributing  our cards to additional  regions in the U.S. New dealer
arrangements  will also be in place to promote  prepaid  calling  cards in South
East Asian markets, such as Indonesia, Taiwan and Thailand.

During the past twelve  months,  we have  de-emphasized  our  activities in some
markets,  which  include  Retail IDD Services and calling card  Services in Hong
Kong, and focused on what we believe are opportunities with higher gross margins
such as eTalk.

Strategies for Growth

Elephant  Talk Limited is one of the first of the  emerging  carriers to realize
the  potential of utilizing a niche  marketing  strategy.  Elephant Talk Limited
began by targeting large operators, providing sophisticated callback services at
low  price.  Elephant  Talk  Limited  has since  expanded  marketing  efforts by
developing  a  stronghold  in  delivery  of  international  traffic  into China.


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Currently,  we maintain a very good  relationship  with local and  international
carriers, as well as licensed China carriers. As such, we can further expand our
influence in related telecommunications opportunities in China, by joining force
with powerful ministries and operators.  This marketing approach has three major
advantages.  First,  it allows us to  concentrate  our traffic  volume in China,
winning much lower carrier rate and can resell at higher profit,  attracting the
critical mass, thereby locking in existing and potential wholesale customers who
may not be able to beat our rates.  When an operator would like to route traffic
to China,  our  company's  name will be there in  his/her  memory.  Second,  the
customers we target are mostly established  operators with larger traffic volume
and have low bad debt risk.  Third,  establishing good relationship in China can
ensure early presence in the market by developing further business opportunities
when present.

We usually have bilateral transmission  agreements with our customers,  implying
that these Tier One to Two carriers  serve as our customers as well as carriers.
We  believe  such  bilateral   relationships   increase   customer  loyalty  and
cross-selling possibilities.  As such, we would route our outbound international
calls via those foreign gateways to gain access to call destinations  worldwide,
and vise versa.  This  method  enables us to enhance  our global  reach  without
having  the  need  to  invest  large  sum of  capital  in  setting  up  overseas
infrastructure. We also have entered into strategic distribution and advertising
relationships with a number of calling card dealers throughout the United States
and South East Asia. We believe that these  relationships  are important because
they allow us to  leverage  the  distribution  channels  of these  companies  to
effectively market our products and services.

Long-term Growth Strategy

The key to long-term growth in the international  market rests in the deployment
of facilities. As international calling rates decrease, global facilities become
critical for  maintaining  strong  revenue  growth.  More  profitable  routes to
Vietnam, Indonesia and Cuba will become open soon in view of customer demand.

We also plan to offer new value added services to customers.  One recent project
is  PC-to-Phone  service  in  China,  which  enables  a  user  to  place  a call
conveniently  and  inexpensively to a standard  telephone  anywhere in the world
directly from a personal computer while remaining on-line.  In order to use this
service,  a user need to download  our  software  for free from our web site and
have access to the Internet.  Once the software is downloaded,  the user is able
to place a call from the user's  personal  computer and, while browsing the Web,
speak to a party who uses a standard telephone.

We believe  that our market  concentration  in China will be  beneficial  to the
Company  as the  telecommunications  industry  in China  experiences  continuous
growth  along  with  the  development  and  modernizations  of her  economy.  As
customers'  needs  become more  sophisticated  and  price-sensitive,  the market
demand for eTalk is expected to increase  significantly.  The  Accesssion to WTO
makes the  demand  for  international  calling  services  bigger.  We rely on an
increasingly   transparent   regulatory   environment   in  China   through  her
Telecommunications  Regulations,  and its  gradual  opening  up of the  domestic
market to foreign  participation;  it should create massive  opportunities  that
facilitate progress toward an improved operating environment.



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Internet Transmission

Elephant  Talk Limited has been using the Internet to transmit part of its voice
and fax traffic  because of the  Internet's  global  coverage,  rapid growth and
flexible  connectivity.  By continuing  to use the  Internet,  we believe we can
substantially  reduce the  deployment  cost. We have addressed the challenges of
using the Internet by:

  o  Selecting only high quality, service-oriented Internet service providers as
     our vendors; and
  o  Continuously monitoring the quality of the connections between each network
     office and the physical network itself including the Internet.

PC-to-phone service, eTalk

In Asian Pacific markets,  especially  China,  where  deregulation is relatively
limited  compared  to the U.S.,  we  believe  that our  customers  will look for
opportunities  to lower their long distance bills.  This creates what we believe
is a significant  opportunity  for us to gain market share by using the Internet
to transmit phone calls.

ETL's network infrastructure principally comprises a circuit switched system and
In order to take  advantage  of this  opportunity,  we have  decided  to deliver
high-quality  voice-over-IP  (VoIP)  telephony  services  to  small  and  medium
businesses in China, initially,  under the brand name of eTalk. Accompanying the
growth of PCs and use of the Internet,  we believe the market potential is huge.
We have  devised a phased  approach to launching  its services  beginning in the
year 2003. Our solution provides many benefits to its customers, including:

  o  Low Cost. Our services allow its customers to make telephone calls often at
     a fraction of the cost of traditional long distance  service.  Our low cost
     PC-to-phone service is also available all over the world.
  o  High  Voice  Quality.   We  offer   carrier-grade   voice  quality  through
     proprietary  packet-switching  technologies,  which reduces packet loss and
     delay, route packets efficiently and perform  quality-enhancing  functions,
     such as echo cancellation and massive redundancy.  We intend to continue to
     enhance the voice quality of our services as our customer base and business
     grows.
  o  Ease of Use and Access. Our services are designed to be convenient and easy
     to access. No additional telephone lines or special equipment are required.
  o  Reliable  Service.  Elephant  Talk  Limited  developed  its  own PC  client
     software  and   Gatekeeper.   Our  network  is  reliable   because  of  its
     technologically  advanced design.  This flexible design allows us to expand
     our  network  and add  capacity by adding  switches/spans  to the  existing
     network.  Our system also provides seamless service and high-quality  voice
     transmission through its ability to reroute if problems arise.
  o  Scalability.  Our  services  platform  is a flexible  solution  that can be
     readily  integrated at low cost and in large scale into  existing  systems.
     Our system integrates  quickly and seamlessly into the platforms of various
     communications  service  providers such as medium to large carriers,  ISPs,
     and enterprises

We are able to provide our  PC-to-Phone  service at rates  generally  lower than
those charged for  traditional  circuit  switched  calls.  We are able to charge
lower rates  because  its service  utilizes  packet-switched  technology  and it


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routes calls  directly from the Internet onto our  privately-managed  IP network
and to the  called  destination,  thus  avoiding  access  and  settlement  rates
associated   with   traditional   international   and  domestic   long  distance
telecommunications  services.  Initially, the services will commence in southern
part of  China,  namely,  Shenzhen  and  Guangzhou,  of  which  the  demand  for
connectivity for calls to international  destinations ranks among the highest in
Mainland China. The services will target corporate  customers,  by offering call
rates  generally  one-third to one-fifth of prevailing  fixed-line  IDD charges.
Should the launch prove  successful,  we plan to implement  further  services to
other big cities in China such as Beijing and  Shanghai  in the second  phase of
development. Test launches already began in other Asia Pacific countries such as
Singapore and Tokyo in the fourth quarter of 2003.

We  believe  that  reliable  and  flexible  billing,   information   management,
monitoring  and control  are  critical  to our  success,  and support all of our
services.  Accordingly,  we have invested  substantial  resources to develop and
implement our sophisticated  real-time call management  information  system. Key
features of this system include:

  o  customer provisioning;
  o  customer access;
  o  call routing;
  o  call monitoring; and,
  o  detailed call records.


RISK FACTORS

An investment in our common stock  involves a great deal of risk,  and should be
considered  only by those  persons who are able to afford a loss of their entire
investment.  In  evaluating  an  investment  in our  common  stock,  you  should
carefully  consider  the  following  risk  factors  in  addition  to  the  other
information filed by our company.

Competition

The market for  international  voice and fax call completion  services is highly
competitive.  We face  competition  from a variety  of sources  including  large
communications service providers with more resources, longer operating histories
and more established positions in the  telecommunications  marketplace,  some of
whom have begun to develop Internet telephony capabilities. We also compete with
small companies who have focused primarily on Internet  telephony or traditional
switched services. We believe that we compete principally on quality of service,
price and flexibility. It is arguable if any one company dominates the voice and
data  communications  market in the same  segment as we are. We also expect that
the ability to offer enhanced service capabilities, including new services, will
become an  increasingly  important  competitive  factor in the near  future.  In
addition, we compete with and expect continued competition from:

Telecommunications Companies and Long Distance Service Providers

Large   carriers  in  both  US  and  Asia  carry  a   substantial   majority  of
telecommunications  traffic.  Many of these  carriers have  commenced  deploying
packet-switched  networks for voice and fax traffic.  Despite the telecom market


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slump in the last year,  these carriers  retain  substantial  resources and have
amicable budgets  available for research and development.  In addition,  several
companies  are building  their own fiber optic  networks for Internet  telephony
traffic.  These  networks  can be expected to carry voice and fax and some newer
companies may expand into international markets.

The nature of the telecommunications marketplace is such that carriers regularly
buy from  and  sell to each  other.  Major  carriers  have  multiple  routes  to
virtually every  destination,  and frequently buy and sell based on the strength
and capacity to a particular  country.  We have relationships with many of these
carriers and have carried traffic for them in the past. We expect to continue to
exchange traffic with many of these companies in the future,  even as they begin
to devote more resources to competing in the Internet telephony market.

Internet Telephony Service Providers

A number of companies  have started  Internet  telephony  operations in last few
years. Companies, such as Net2Phone in the US and City Telecom in Hong Kong, are
currently focusing primarily on the retail market, but may compete more directly
with us in the future.

Market Competition and Pricing Pressures

The market for voice, fax and other enhanced  services is extremely  competitive
and will likely become more competitive in the future.  Also, Internet telephony
service  providers,  such as Net2Phone in the US, that presently focus on retail
customers,  may in the future  enter our  wholesale  market and compete with us.
Perceived competition with this market segment could drive our prices down.

We  directly  compete  at the  wholesale  level  with a number of other  smaller
regional to international  carriers.  Many of these companies are larger than we
are and have substantially  greater  managerial and financial  resources than we
do.  Intense  competition  in our  markets can be expected to continue to impose
downward  pressure on prices and adversely affect our  profitability.  We cannot
assure you that we will be able to compete  successfully against our competitors
and we may lose  customers  or fail to grow  our  business  as a result  of this
competition.  Moreover, we generate much of our wholesale revenue from a limited
number of customers.  Customers may discontinue their use of our services at any
time,  and without  notice.  Therefore,  in any given  quarter,  we would lose a
significant amount of revenue if we lost one or more of our major customers.

As a result of numerous  factors,  including  increased  competition  and global
deregulation  of  telecommunications  services,  prices for  international  long
distance calls have been decreasing.  This downward trend of prices to end-users
has caused us to lower the prices we charge communications service providers for
call completion on our network.  Moreover,  in order for us to lower our prices,
we have to  renegotiate  rates with our overseas  local  service  providers  who
complete calls for us. We may not be able to renegotiate  these terms  favorably
enough,  or fast  enough,  to  allow  us to  continue  to  offer  services  in a
particular country on a cost-effective basis. The continued downward pressure on
prices and our failure to renegotiate  favorable  terms in a particular  country
would have a material  adverse  effect on our ability to operate our network and
Internet telephony business profitably.



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<PAGE>

Attempting to Develop New Revenue Stream

In addition  to our  minutes-based  revenue,  we hope to take  advantage  of our
dealership   networks  to  increase  our  revenue  in  prepaid   calling   cards
(traditional and eTalk) in the US and South East Asia.  Furthermore,  we plan to
increase our capital  expenditure  to expand our eTalk services to our customers
in China, and subsequently  customers all over the world.  Although we intend to
devote  significant  resources  to create these new revenue  streams,  we cannot
guarantee that we will be successful.

If the market for Internet  telephony and other new services does not develop as
we expect,  or develops  more  slowly than  expected,  our  business,  financial
condition  and  results  of  operations  may  well be  adversely  affected.  Our
customers may be reluctant to use our Internet  telephony  services for a number
of reasons, including:

  o  perceptions that the quality of voice transmitted over the Internet is low;
  o  our inability to deliver  traffic over the Internet with  significant  cost
     advantages; and
  o  development of their own capacity on routes served by us.

The growth of our core  business  depends on carriers  and other  communications
service providers  generating an increased volume of international voice and fax
traffic and selecting our network to carry at least some of this traffic.  It is
only dependent of our ability to sell prepaid  calling cards through our network
of dealers as  planned.  If the volume of  international  voice and fax  traffic
fails to increase, or decreases, and these third parties do not use our services
as forecasted, our ability to become profitable may be adversely affected.

In addition, any perceived problems with the reliability or functionality of any
new services that we plan to offer could discourage  service providers or others
from offering these services to their customers. In addition, the development of
new  capabilities  or services may require  substantial  additional  capital and
marketing-related  expenditures  to be made well in  advance of  generating  any
revenue  from such  services  or  demonstrating  any market  acceptance  of such
services. If carriers,  communications service providers do not use our services
to offer any new  services  to their  customers,  or if their  customers  do not
subscribe  for the services  when  offered,  our results of  operations  will be
materially adversely affected.

We cannot be certain that end-users  will continue to purchase  services from us
or that our  customers  will  maintain  a demand  for our  services.  Our future
financial   performance  depends  substantially  on  sustaining  and  developing
profitable  routes,  sale of  prepaid  calling  cards as well as new  demand for
PC-to-Phone and new services such as voice  application  and speech  recognition
services and  products.  If the market for these  services and products does not
develop  or if we are unable to capture a  significant  portion of that  market,
either  directly  or through  our  partners,  our  revenues  and our  results of
operations will be adversely affected.

Reliance on Third Parties Vendors.

We rely upon  third-party  vendors to provide us with the equipment and software
that we use to transmit  calls  through  our voice  networks  using  principally


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<PAGE>
Nuera,  PCM and Cisco  equipment.  We cannot  assure you that we will be able to
continue  purchasing such equipment and software from our vendors, in such case,
we may not be able to maintain or expand our  network to  accommodate  growth or
provide or upgrade certain services when needed.

Parties that maintain  phone and data lines

Our business is dependent upon the  availability of the Internet and traditional
telephone  networks to transmit voice and data, and to provide other value added
services.  Third  parties  maintain and, in many cases,  own these  networks and
other  components  that comprise the Internet and certain  switching  facilities
connecting  to last mile.  Some of these third  parties are  domestic  telephone
companies in the US and a few are their smaller  counterparts in South East Asia
such as GridTel and  GreatWall  Broadband.  They may increase  their charges for
using these lines at any time and decrease our profitability. They may also fail
to maintain their lines  properly and disrupt our ability to provide  service to
our customers.  Any failure by these third parties to maintain these lines could
lead to a material  disruption  of our ability to route  calls or provide  other
services.  It could  discourage our customers from using our network or enhanced
services,  which could have the effect of delaying or preventing  our ability to
become profitable.

Strategic  Relationships

We depend in part on our  strategic  relationships  to expand  our  distribution
channels  and  develop and market our  services  especially  in prepaid  calling
cards.  In  particular,  we depend  in large  part on our  dealers  in the US to
maintain their nationwide sales channels,  and in the future, their counterparts
in South  East Asia.  Strategic  relationship  partners  may choose not to renew
existing  arrangements on commercially  acceptable  terms, if at all. If we lose
these key  strategic  relationships,  or if we fail to  maintain  or develop new
relationships  in the  future,  our ability to expand  revenue  stream and hence
scope of our network would be materially adversely affected.

Fast Leap in Technology Trends

Our  business  requires  that we handle a large  number of  international  calls
simultaneously.  As we expand our operations,  we expect to handle significantly
more  calls.  We will need to expand and upgrade our  hardware  and  software to
accommodate  such  increased  traffic.  If we do not expand and upgrade  quickly
enough, we will not have sufficient capacity to handle the traffic and growth in
our operating  performance  would suffer.  Even with such  expansion,  we may be
unable to manage new deployments or utilize them in a cost-effective  manner. In
addition to lost growth  opportunities,  any such failure could adversely affect
customer  confidence  in the Elephant Talk Network and could result in us losing
business outright.

As the Internet telephony  industry has grown,  sound quality has improved,  but
the  technology  requires  further  refinement.  Because the Internet  telephony
market and markets for our enhanced  services are new and  evolving,  predicting
the size of these  markets  and their  growth  rate is  difficult.  Transmitting
telephone  calls  over the  Internet,  and other  uses of the  Internet  for our
enhanced  services,  must also be accepted by  customers  as an  alternative  to
traditional  services. If our market fails to develop, then we will be unable to
grow our customer base and our results of operations will be adversely affected.

Key Personnel

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<PAGE>

Our future success will depend,  in large part, on the continued  service of our
key  management  and  technical  personnel.  If any of such  members  of  senior
management or others at the Company are unable or unwilling to continue in their
present positions,  our business,  financial condition and results of operations
could well suffer.  While many of the members of our  management  team have been
employed with us, we cannot ensure their continued employment with us.

Our future success will depend, in large part, on our ability to attract, retain
and  motivate  highly  skilled  employees,  particularly  operational  and sales
personnel.  Competition  for such employees in our industry is intense.  We have
from  time to  time in the  past  experienced,  and we  expect  to  continue  to
experience  in the future,  difficulty in hiring and  retaining  employees  with
appropriate  qualifications.  We may not be  able to  retain  our  employees  or
attract, assimilate or retain other highly qualified employees in the future. If
we do not succeed in attracting and retaining skilled  personnel,  we may not be
able to grow at a sufficient rate to attain profitable operations.

Asian Economy

An  economic  crisis in Asia where a  substantial  portion of our client base is
located  could result in a decrease in our revenues.  Several  countries in Asia
have  experienced   currency   devaluation  and/or   difficulties  in  financing
short-term  obligations.  We cannot  assure you that the  effect of an  economic
crisis on our customers  will not impact  operations,  or that the effect on our
customers  in that  region  will not  adversely  affect  both the demand for our
services and the collectibility of receivables.

Foreign Currencies

Fluctuations  in the  exchange  rate of the U.S.  dollar and foreign  currencies
could  have  a  material  adverse  effect  on  our  financial   performance  and
profitability.  A portion of our costs denominated in foreign  currencies.  As a
result,  changes  in the  exchange  rates  of  these  currencies  or  any  other
applicable  currencies  to the U.S.  dollar  will  affect our costs of goods and
services  sold and  operating  margins and could result in exchange  losses.  We
cannot fully  predict the impact of future  exchange  rate  fluctuations  on our
profitability.  From  time to  time,  we may  engage  in  exchange  rate-hedging
activities  in an effort to mitigate the impact of exchange  rate  fluctuations.
However,  we cannot assure you that any hedging  technique we may implement will
be  effective.  If it is not  effective,  we may  experience  reduced  operating
margins. We could suffer adverse tax and other financial consequences if U.S. or
foreign taxing  authorities do not agree with our  interpretation  of applicable
tax laws. Our corporate  structure is based,  in part, on assumptions  about the
various  tax  laws,  including  withholding  tax,  and  other  relevant  laws of
applicable  non-U.S.  jurisdictions.  We cannot  assure you that foreign  taxing
authorities will agree with our interpretations or that they will reach the same
conclusions. Our interpretations are not binding on any taxing authority and, if
these foreign  jurisdictions  were to change or to modify the relevant  laws, we
could  suffer  adverse  tax  and  other  financial   consequences  or  have  the
anticipated benefits of our corporate structure materially impaired.

Terrorism

Terrorist attacks, such as the attacks that occurred in New York and Washington,


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<PAGE>

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
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.

French Telecom:  On May 14, 2003, The Company  announced  signing of a bilateral
carrier's agreement with Europe's  prestigious telecom giant, France Telecom, to
transmit  voice  traffic  from Greater  China  throughout  Europe.  ElephantTalk
estimates the agreement will generate additional telecommunications traffic flow
of  approximately  60  million  user  minutes  per  month  as a  result  of more
cost-efficient routes.

ElephantTalk's  services and networks will be  significantly  enhanced by France
Telecom's broad international  network coverage and their world renowned telecom
research center. The infrastructure  strength and extensive industry contacts of
ElephantTalk in Greater  China's  telecom sector combined with France  Telecom's
world leading network hub positions  ElephantTalk to serve as China's  preferred
telecommunications gateway to the European continent.

France  Telecom  is one  of the  world's  leading  telecommunications  carriers.
Through its major international brands,  including Orange,  Wanadoo,  Equant and
GlobeCast, France Telecom provides business, consumers and other carriers with a
complete   portfolio  of  solutions   that  spans   local,   long-distance   and
international telephony,  wireless,  Internet,  multimedia,  data, broadcast and
cable TV services.  France Telecom is the  second-largest  wireless operator and
Internet  access  provider in Europe,  and a world leader in  telecommunications
solutions for multinational corporations. France Telecom (NYSE:FTE) is listed on
the    Paris    and   New   York    stock    exchanges.    Corporate    website:
www.francetelecom.com.

New  Century  InfoComm  Tech Co.  Ltd.  (NCIC):  On May 16,  2003,  the  Company
announced that  reciprocal  carriers'  agreement was signed earlier this year to
utilize each company's networks for bilateral telecommunications traffic and the
traffic has commenced between ElephantTalk and Taiwan's telecom conglomerate New
Century InfoComm Tech Co., Ltd. (www.sparq.com.tw).

NCIC has a solid telecommunications  infrastructure,  a comprehensive network of
operation centers and an extensive variety of telecom services.  Interconnecting
with NCIC's international voice networks further strengthen ElephantTalk's reach
into Greater  China's  telecom  markets.  ElephantTalk  and NCIC's  networks are



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<PAGE>

complementary  with no operational  overlap,  increasing  service efficiency and
operating  margins.  NCIC  was  established  in 2002  as a  result  of  Taiwan's
liberalization  of its telecom  markets.  NCIC was created to integrate  various
telecommunications  services,  fulfill  the growing  needs of  Taiwan's  telecom
customers,  and facilitate  high technology  standards in the industry.  Several
leading international  corporations in the telecommunications sector established
NCIC,  d.b.a.   Sparq.  Two  of  these  companies  are  Far-Eastern  Group  -  a
conglomerate  with  extensive  experience  in mobile  services,  and SingTel - a
Singapore-based  international  fixed-line  network  operator with more than 100
years of  experience in the  industry.  NCIC's wide range of  telecommunications
services to Taiwan  customers  include;  traditional  local and IDD voice / VoIP
services,  calling cards,  toll free number services,  web-hosting,  co-location
services, IPLC, Frame Relay, Internet access, and VPN services. More information
on NCIC can be obtained at www.sparq.com.tw.

Star Telenet Limited: On May 29, 2003, the Company signed an Agreement with Star
Telenet Limited to enrich  ElephantTalk's PC to Phone service,  eTalk, with Star
Telenet's  popular  chat line  services,  Touch,  Webj  CityLine,  and  WebJCity
(www.webjcity.com).  The pure chat line  services  provided by Star Telenet will
add another  content rich  dimension to eTalk,  our  cost-effective  PC to Phone
service.  Once a customer connects to the Internet,  they can enjoy high quality
PC to Phone International Direct Dial at substantial savings when using eTalk.

Star  Telenet  Limited was  established  in 1994.  The  company has  developed a
sophisticated IVRS system in house,  building a platform for the provision of an
extensive array of chat line services. They have operated these services for the
past decade in Hong Kong and  received  acclaim from  customers  and clients for
their high content  quality and operating  standards.  In this time Star Telenet
Limited has become the largest and most well known chat line service provider in
the  territory and has become one of the pioneers in the provision of web-J chat
services in Hong Kong.

Guangdong Belton  Telecommunications  Technology Development Co., Ltd. (Belton):
On August 14, 2003, the Company entered into  cooperation with Belton to develop
China's Voice over Internet Protocol (VoIP) market.  This will be ElephantTalk's
first   development   project   capitalizing   on  its  recent   acquisition  of
access/purchase  rights to Belton's 9000 km.  nation-wide fiber optic network in
China.  The  Company  plans to utilize  the fiber  optic  network  and  Belton's
extensive  industry  connections  to launch  new  Internet  protocol  (IP) based
services  and enhance  its  existing  IP based  value-added  services in Greater
China.

Belton (www.belton.net.cn) holds PRC nation-wide ISP, ICP, VSat, and Call Center
licenses and has  established  IP connections  with ChinaNet (CT),  China NetCom
(CNC),  China Unicom (CU),  and China RailCom  (CRC).  Belton is an  application
service  provider  (ASP)  to  these  operators  for  VoIP as well  as  other  IP
value-added  services:  PC2PC,  PC2Phone,  Web2Phone,  and GW2Phone  (gateway to
phone).

The  ElephantTalk/Belton  nation-wide fiber optic network is interconnected with
population  dense  local  metro-networks,  and  with  many of  China's  cable TV
networks,  providing access to large metropolitan markets. These include various
commercial  and  industrial  cities  in the  Guangdong  and  Jiangsu  provinces,
including Guangzhou,  Shenzhen,  Dongguan,  Shanghai and Suzhou. It is estimated


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<PAGE>

the customer  base covered by the cable TV networks in the Guangdong and Jiangsu
provinces  alone  amounts  to well over one  million.  With the  interconnection
between  Belton's  network  and that of the  incumbent  telecom  operators,  the
various  metro  IP  networks,  and  the  cable  TV  networks,  the  Company  can
significantly  expand its reach into the China  Mainland  market.  The Company's
expectations  are high for this  project  and it plans to enter into  additional
agreements to further consolidate its presence throughout Greater China."

Genesis Systems  International  Limited:  On September 15, 2003, the Company and
Genesis  Systems  International  Limited today  announced the  development  of a
strategic partnership allowing both companies to offer a complete suite of Voice
over  Internet  (VoIP)  solutions   combining  the  Genesis  VoIP  platform  and
ElephantTalk's long distance connectivity  services.  Genesis' high quality VoIP
hardware and  software and  ElephantTalk's  superior IP  interconnectivity  will
provide convenient "one-stop shopping" for corporate long distance customers and
rapidly deployable VoIP solutions for customers worldwide.

Genesis  is one of the  worlds  leading  providers  of  secure  virtual  private
networks  (VPN),  Voice-VPN,  and access to web and  client/server  applications
"anywhere". The company is a networking and business solutions provider that has
extensive hands-on experience in supplying business software, Internet solution,
SSL VPN  products  and services  that help small,  medium and large  enterprises
solve their  extranet  and remote  access  problems.  Pioneering  "open  source"
solutions (i.e.  solutions adaptable to Linux,  FreeBSD,  OpenBSD,  and NetBSD),
Genesis's  variety of products  and  solutions  include:  ERP,  EIP  (Enterprise
Information Portal), CRM, SFA, telemarketing, web collaborative systems, LAN/WAN
networking, VPN solutions,  e-mail security solutions, and a flexible as well as
sophisticated voice over IP solutions.

ElephantTalk's  partnership with Genesis will enrich and expand the reach of its
VoIP services by combining  Genesis  Systems  advanced VoIP  equipment with ET's
world-wide  IP platform,  PC2Phone  software and  advanced  network  technology.
Genesis  (www.vpn.net.hk)  VoIP  gateways  are  designed to provide  competitive
voice-Virtual  Private  Networks  over IP services.  These VoIP systems send and
receive  compressed voice or fax over existing data networks,  such as Internet,
IP-VPN,  and enterprise  intranets enabling users to save money on long distance
and international phone/fax communications.

Billion Online  Limited:  On November 10, 2003, the Company agreed to purchase a
majority stake in Billion Online Limited (BOL), an integrated  IP-based  telecom
solutions developer in China. This acquisition provides the Company an immediate
entry  into  the  worldwide  Voice  Over  Internet  Protocol  (VoIP)  market  on
PC-to-phone,   packet  telephony  and  other  Internet-related   services  while
increasing its presence and telecom service  offerings  throughout China and the
Far East.

Billion Online is a popular  China-based system integrator serving major sectors
of the Internet industry in China. It's top selling PC-to-phone system, "iTalk",
is branded as "eTalk" by ElephantTalk.  "eTalk" users can download  software and
purchase an access PIN through the web and start  talking to their  friends over
the phone in  minutes.  Quality is  comparable  to regular  toll  quality  while
significantly reducing the cost for the user. Since ElephantTalk began marketing
the  service in  September  2002 it has become  one of the  hottest  PC-to-phone
services in the  Fareast.  China Unicom is also  co-branding  the service to its


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customers throughout China.

In addition,  BOL's newest product,  the Next Generation  SoftsWitch (NGSW), has
been launched in Shanghai to serve the broadband telephony  subscribers of China
Railcom and its  strategic  partner,  China-on-line  Inc.  BOL also  provides an
Enterprise  Instant  Message (EIM)  service,  a  communication  tool utilized in
Virtual Private Networks within  organizations to increase  productivity.  These
services provide  ElephantTalk with increasing access to China's rapidly growing
telecom market while keeping the Company on the cutting edge technologically. In
combination  with "eTalk" they give the Company  additional high margin services
to compliment  their existing  telecom  offerings.  More  information on Billion
Online Limited can be found at www.bol2000.com

Shenzhen  Boyaa  Infotech Ltd.: On December 1, 2003, the Company signed a Letter
of Intent with  Shenzhen  Boyaa  Infotech Ltd.  (www.iChat.com.cn)  to acquire a
majority stake in the company and to immediately form a joint venture to further
develop  Boyaa's  existing  business.  These moves will  integrate  ElephantTalk
further into the rapidly expanding interactive message and voice chat markets in
Mainland China.

Boyaa is a  Chatroom  platform  provider  to over 300  telecom  carriers,  cable
operators,  Internet Content Providers (ICQ), and educational institutions.  Its
Chatroom  Rental  services allow users to create their own chatroom with private
banners to attract  visitors and make incomes through this service.  Interactive
Voice  Chat,  the newest  product of the  Company  will be  launched  in the 2nd
quarter of 2004.  This  platform is used to implement the text chat services for
more than  5,000,000  registered  subscribers  and allows  over  100,000  online
subscribers  to  interact  simultaneously.   Interactive  Voice  Chat  has  been
pre-ordered  by most  of  Boyaa's  existing  customers  and  with  their  strong
client-base,  the Company  expects there will be a continuing  demand to upgrade
existing  text-based  chatrooms to audio chat, and eventually  video chat.  This
release  is the next step in our  strategy  to  transform  our  company  through
development  of higher margin  business  opportunities  associated  with China's
explosive growth in the telecommunications and Internet sectors. With the recent
acquisition  of Billion  Online  Ltd.,  ElephantTalk  is  establishing  a strong
position as a content and service provider in China's online  revolution,  while
resourcing our nationwide  telecom networks to deliver cost effective  solutions
for our clients. More information on Boyaa can be found at www.ichat.com.cn.

JiTong Network  Communications  Company Limited ("JiTong"):  On October 8, 2001,
Elephant  Talk Limited  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,  Elephant Talk Limited
will  interconnect its global  point-of-presence  (POPs) with JiTong's  network.
Elephant  Talk  Limited  will  market  and  resell  JiTong's  IP-based  services
including  I-phone and I-fax  services,  while  JiTong will be  responsible  for
service  provisioning,  technical support and after-sales services to customers.
The agreement signifies the beginning of close,  long-term,  working partnership
between the two companies.  Elephant Talk Limited has expanded  their  agreement
with JiTong  Networks  Communications  Company  and also  signed  cross-branding


                                       19

<PAGE>

partnership  agreements  with China  Netcom  Corporation  Limited and Great Wall
Broadband Network detailed below.

This acquisition continues  ElephantTalk's  expansion into Indo-China's emerging
telecom  markets.  The Company  recently  signed  agreements with EADS Multicoms
(www.multicoms.net),   China  Railway  Communication  Co.,  Ltd.,  China  Netcom
Corporation    (www.cnc.net.cn),    and    Great    Wall    Broadband    Network
(http://www.gwbnet.com).

Risks Relating to the Greater China and Asian Internet Industry

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  eTalk  services  will  depend
substantially  upon the increased use of the Internet 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.

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.

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

Inappropriate  use of our  Internet  and phone  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


                                       20

<PAGE>

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
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.



                                       21

<PAGE>

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.

Risks relating to operating licenses

Currently,  ETL has been  granted two PNETS  licences in Hong Kong,  one for the
provision of external  telecommunications  services  (ETS) and the other for the
provision  of ISP  services  (ISP).  Under the terms of PNETS  licences,  we are
subject to regulation of the Office of Telecommunications  Authority (OFTA), the
official regulatory body. OFTA's regulatory powers permit it to cancel, withdraw
or suspend the company's  PNETS licences for a period as it may determine in the
event of any contravention by the Company of the Telecommunications Ordinance or
of any condition to which the company's PNETS Licence is granted.

PNETS  licences  are  customarily  granted  for 1-year  terms and are  renewable
annually. On the basis that ETL has successfully renewed its licences before, we
have no reason to believe  that we would fail to do so in the  future.  However,
there  can be no  assurance  that  our  PNETS  licences  will  be  renewed  upon
expiration.  The failure to obtain a renewal of its PNETS  licences would result
in the company having to cease to offer  telecommunication  services through its
network.

Doing business in China

ElephantTalk'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
ElephantTalk's investments in China.

Environmental Regulation

ElephantTalk's  U.S. 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.



                                       22

<PAGE>

Patents, Trademarks, and Licenses

We actively pursue the protection of intellectual  property rights in the United
States and relevant  foreign  jurisdictions.  We conduct our business  under the
"ElephantTalk"  brand  name and logo.  Currently,  Elephant  Talk  Limited  owns
certain  trademarks in China,  Singapore,  Hong Kong, USA and Canada,  which are
either registered in the Trademark Office or in the process of being registered.
Elephant Talk Limited owns External  Telecommunications  Service Licence and ISP
licences to conduct telecommunications business locally in Hong Kong.

Employees

ElephantTalk  currently  employs in the United States one full-time  employee at
its principal  executive  office  located in Orange,  California.  The executive
office provides  corporate  administrative and advisory services to ElephantTalk
and its  affiliates.  Elephant Talk Limited  employs at its two sites located in
Hong Kong four  full-time  employees,  while  technical,  administrative,  sales
support and accounting  services are provided by full time employees of Elephant
Talk Network Services,  Limited.  We believe that our future success will depend
in part on our  continued  ability  to  attract,  hire,  integrate,  retain  and
motivate  highly  qualified  personnel  in  various  disciplines,  and  upon the
continued service of our senior management personnel.  None of our employees are
represented  by a labor union.  We have never  experienced  a work  stoppage and
believe our relationship with our employees is good.

Research and Development

Elephant Talk Limited 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,  ElephantTalk's success will depend,
to a considerable  extent,  upon its ability to continue to grow its business by
acquiring  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.

No assurance  can be given that  agreements  entered into by  ElephantTalk  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  in  this  Annual  Report  be   successfully   completed.
ElephantTalk's  management,  which has  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,  ElephantTalk  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.  If  ElephantTalk  is not able to
raise the necessary  funds to fund its growth,  the  agreements  will need to be
modified or cancelled.

There  are  insignificant  amount  spent  during  the last two  fiscal  years on
research and development,  as we often use proven technologies  available in the
market which reduce the risk of bugs and unsteady  performances,  especially  in


                                       23

<PAGE>

initial launches of services.

There are no material costs incurred in order to comply with environment laws in
a local or worldwide basis owing to the nature of the telecom industry.

Item 2.  Description of Property

ElephantTalk's principal executive office is located at 438 East Katella Avenue,
Suite 217, Orange,  California  92867. The premises consist of approximately 300
square feet of office space with a large office and a file room. ElephantTalk is
leasing these  premises from an  unaffiliated  party and occupied these premises
since  September 5, 2002. The lease term is for one year commencing on September
5, 2002 with an option to renew for a month-to-month basis after the termination
of the lease.  The monthly  rent amounts to $332 with no  escalation  of monthly
rent during the lease term.

Elephant Talk Limited currently occupies the following portions of spaces leased
by ET Network Services Limited ("ETNS"), our related company:

  o  10,000 square feet in at 8/F,  145-159 Yeung Uk Road,  Tsuen Wan, Hong Kong
     for a period of two  years  commencing  May 1,  2002 for a monthly  rent of
     HK$65,200 ($8,359).
  o  5,000 square feet in 10E World Tech Centre, How Ming Street,  Hong Kong for
     a monthly rent of HK$15,000  ($1,900).
  o  Various  co-location spaces with square footage of under 200 square feet in
     Guangzhou,  Los Angeles,  Boston and Singapore where our telecommunications
     equipment are located.

The costs  associated  with the  facilities  occupied  under ETNS are  allocated
pro-rata, based upon the relative percentage of space occupied by the Company or
ETNS, with company-specific charges applied directly to the respective company.

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

Item 3.  Legal Proceedings

None

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

The Company  held its annual  meeting on December  12,  2003.  The  shareholders
elected Mr.  Russelle Choi, Mr. Pius Lam, Mr. Francis Lim, Mr. Manu Ohri and Mr.
James  Wang  to  one-year  term as  directors.  Additionally,  the  shareholders
ratified  the  appointment  of  Kabani  and  Company,   Inc.  as  the  Company's
independent auditor.








                                       24
<PAGE>

PART II

Item 5.  Market for Common Equity and Related Stockholder Matters

The  Company's  common  stock is  traded  on Over  the  Counter  Bulletin  Board
maintained by the National  Association  of Securities  Dealers,  Inc. under the
symbol  "ETLK".  Prior to the merger with  ElephantTalk  on January 4, 2002, the
Company's  common stock was traded under the symbol "SRUN".  The following table
sets  forth the range of high and low bid and asked  quotations  for the  common
stock  (adjusted for 1 for 10 reverse stock split  effected on January 22, 2002)
during the three most recent years  calendar  quarters  ended December 31, 2003,
2002 and 2001:
<TABLE>
---------------------------------------- ------------------- ---------------- ----------------- ---------------
                                              High Bid           Low Bid         High Asked        Low Asked
---------------------------------------- ------------------- ---------------- ----------------- ---------------
<S>                                        <C>               <C>               <C>               <C>
March 31, 2001                                  0.01              0.00              0.01              0.00
---------------------------------------- ------------------- ---------------- ----------------- ---------------
June 30, 2001                                   0.01              0.00              0.01              0.00
---------------------------------------- ------------------- ---------------- ----------------- ---------------
September 30, 2001                              0.01              0.01              0.01              0.01
---------------------------------------- ------------------- ---------------- ----------------- ---------------
December 29, 2001                               0.02              0.02              0.02              0.02
---------------------------------------- ------------------- ---------------- ----------------- ---------------
March 25, 2002                                  0.42              0.42              0.42              0.42
---------------------------------------- ------------------- ---------------- ----------------- ---------------
June 28, 2002                                   0.21              0.14              0.21              0.14
---------------------------------------- ------------------- ---------------- ----------------- ---------------
September 30, 2002                              0.06              0.05              0.06              0.05
---------------------------------------- ------------------- ---------------- ----------------- ---------------
December 31, 2002                               0.07              0.07              0.07              0.07
---------------------------------------- ------------------- ---------------- ----------------- ---------------
March 31, 2003                                  0.07              0.07              0.07              0.07
---------------------------------------- ------------------- ---------------- ----------------- ---------------
June 30, 2003                                   0.29              0.29              0.29              0.29
---------------------------------------- ------------------- ---------------- ----------------- ---------------
September 30, 2003                              0.28              0.28              0.28              0.28
---------------------------------------- ------------------- ---------------- ----------------- ---------------
December 31, 2003                               0.19              0.19              0.19              0.19
---------------------------------------- ------------------- ---------------- ----------------- ---------------
</TABLE>

The above prices were  obtained  from the National  Quotation  Bureau,  Inc. The
prices shown in the above table represent inter-dealer quotations without retail
mark-up,  mark-down or  commission,  and may not  necessarily  represent  actual
transactions.  On December 31, 2003, there were broker-dealers publishing quotes
for the common stock.

Holders

At March 31, 2004, ElephantTalk had approximately 2,640 holders of record of its
common stock holding a total of 37,206,442  shares of common stock.  The holders
of common  stock are  entitled  to one vote for each share held of record on all










                                       25

<PAGE>

matters  submitted  to a vote of  stockholders.  Holders of common stock have no
preemptive  rights and no right to  convert  their  common  stock into any other
securities. There are no redemption of sinking fund provisions applicable to the
common stock.

All of the  ElephantTalk'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  6,364,019  and  4,005,446  outstanding  Rule 144  shares  held by
principal and directors exist at December 31, 2003 and 2002, respectively.

Dividends

The Company has not declared any cash  dividends  since  inception  and does not
anticipates  paying any  dividends  in the  foreseeable  future.  The payment of
dividends is within the  discretion of the Board of Directors and will depend on
the Company's earnings,  capital  requirements,  financial condition,  and other
relevant  factors.  There are no restrictions that currently limit the Company's
ability to pay dividend on its Common Stock other than those  generally  imposed
by applicable state law.

Recent Sales of Unregistered Securities

On September 25, 2002,  pursuant to the terms of a Spin-Off  Agreement  with The
Hartcourt Companies, Inc., the Company issued 5,000,000 restricted common shares
to Hartcourt. These shares were valued at $320,000 based upon the current market
price on the  date of  distribution.  On the  close of  escrow  of the  Spin-Off
Agreement  on  January  4,  2003,  the  Company  received  back  from  Hartcourt
17,895,579  of  its  common  shares  held  by  Hartcourt  as  a  result  of  the
finalization of the terms of the Spin-Off  Agreement.  The issuances were exempt
from the  registration  provisions  of the  Securities  Act of 1933 by virtue of
Section 4(2).

On March 1,  2004,  the  Company  entered  into a Stock Sale  Agreement  with an
investor  who  agreed  to  purchase  2,000,000  restricted  (Rule  144 one  year
restriction) for a consideration of $300,000.  The restricted common shares were
issued on March 3, 2004 and the Company received $300,000.


Warrants

At March 31 2004, there was no warrants outstanding convertible to common stock.
During 2003 and 2002, no warrants were converted into shares of common stock.


Item 6.    Management's Discussion and Analysis of Financial Condition and
           Results of Operations.

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


                                       26

<PAGE>

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  ElephantTalk's  periodic reports
filed with the Commission. The forward-looking statements included in the Report
speak only as of the date hereof.

Plan of Operation

Elephant  Talk  Communications,  Inc.  is a  facility-based  international  long
distance carrier offering highly reliable and competitively priced services. Our
international   call  services  are  provided  through  an  integrated   network
infrastructure comprising both the packet-switched system (IP based) and circuit
switched system  (conventional  phone based) focusing on the Asia Pacific region
as well the U.S.  The Company  provides  its  services to  first-tier  local and
international  telecommunications  carriers,  enabling  those carriers and other
service  providers  to offer voice and fax services to their  end-customers.  In
view of the  deregulation  of the  global  telecommunications  market  and rapid
growth of the  Internet in favor of IP based  telecommunications  services,  the
Company recognized this huge opportunity to set up a new infrastructure enabling
the convergence and leverage of the strengths of conventional  telephone network
and the VoIP technology.

The Company's  operations  include  international long distance on both sides of
the Pacific,  serving over 20 foreign countries through an advanced and flexible
network.  As the  Company  has been  expanding  its  foothold  in Asia with more
profitable  routes  and  the  development  of  value-added  services,   such  as
PC-to-Phone  service,  the Company will now continue with that  expansion and is
actively pursuing new sales channels for the higher-margin  prepaid calling card
market, expanding from the U.S. to several countries in South East Asia.

ElephantTalk,  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."

Comparison of the fiscal years ended December 31, 2003 and December 31, 2002.

The results of  operations  of  ElephantTalk  for 2003  primarily  consisted  of
operations  of Elephant Talk  Communications,  Inc.,  Elephant  Talk Limited,  a
wholly-owned  subsidiary, and its  35.42%  equity  investment  interest  in ETNS
Singapore Pte, Ltd. The results of operations  for 2002  primarily  consisted of
operations  of Elephant Talk Limited and its 39% equity  investment  interest in
ETNS Singapore Pte, Ltd.

Revenues and Cost of  Revenues:  The Company  reported  revenues of $867,171 and
$5,672,284  during  the year ended  December  31,  2003 and 2002,  respectively.
Revenues  consisted  of  telecommunications  services  such as  voice  and  data
transmission  like IDD,  pre-paid  calling cards,  eTalk and facsimile  services
provided  to  a  wide  range  of  customers  including  major  telecommunication
companies to retail customers in the US, Europe, China, Indonesia and Hong Kong.


                                       27

<PAGE>
The major component of the decline in revenues comes from price  compression for
long distance business voice services.  Our international  business continues to
experience  significant  price  pressure  on  its  products  as we  continue  to
penetrate  the retail  markets  and though the  wholesale  market  continues  to
represent a large portion of our gross revenues.  The wholesale market continued
to be extremely price competitive, and this, in addition to bankruptcies in some
customers and industry players,  a reduction in circuits  connected to customers
related  to  their   internal   network   consolidation,   contributed   to  the
year-over-year  decrease.  Wholesale  revenues during 2002 were also impacted by
proactive  revenue  initiatives,  which were made to improve  the quality of the
wholesale  revenue  stream  as we shift our focus  from  revenue  growth to cash
generation.  Alternative  channels and small business  includes sales agents and
affiliates,  wholesale  alternative  channels,  small business,  prepaid calling
card.  Revenue reduction in 2003 is also attributable to a strategic decision on
our part to de-emphasize  certain services with longer settlement terms (such as
certain wholesale customers and most retail post-paid customers).

Cost of revenue was $845,438  and  $5,524,800  for the years ended  December 31,
2003 and 2002,  respectively.  Cost of revenue  included  the costs in providing
resale  arrangements  with long  distance  service  providers,  cost of  leasing
transmission   facilities,   international  gateway  switches  for  voice,  data
transmission  and facsimile  services.  Gross margin for the year ended December
31, 2003 remained flat at 2.5% compared to the year ended  December 31, 2002. It
was due to the  change  in the  revenue  mix for the  services  provided  to the
customers  as well as the direct  result of the pricing  pressure in the telecom
markets without adequate volume offsets. Our international business continues to
experience  significant  price  pressure on its  products.  Both the local voice
revenue and  long-distance  revenue  decreases  were  significantly  impacted by
continued weakness in the  telecommunications  industry and ongoing economic and
competitive  pressures from other  telecommunications  services providers in our
Hong Kong and the world.

Selling,  General and  Administrative  Expenses  (S,G&A):  S,G&A  expenses  were
$2,553,746  and  $1,531,772  for the years  ended  December  31,  2003 and 2002,
Respectively. During 2003, the Company incurred significant expenses in relating
to legal and professional fees,  shareholder and investor relation services, and
consulting  and  business  advisory  services  primarily  due  to  increase  the
Company's  awareness in the US markets.  Although the Company's  revenue base in
2003 was reduced by 85%,  bad debt  increased  to  $740,000 in 2003  compared to
$308,075  in  2002  primarily  due  to  the  current  economic  climate  in  the
telecommunications industry.

Impairments:  Impairments of property and equipment amounted to $250,000 in 2003
compared to $239,922 in 2002.  Impairments resulted primarily due to the Company
taking a  conservative  position and writing  down the  tangible  communications
equipment on hand due to significant  reduction in wholesale and prepaid calling
card business resulting in limited use. The Company divested its equity interest
in ETNS Singapore  Pte, Ltd. and recorded an impairment of $106,456 in 2003. The
Company also recorded an  impairment of investment of $10,835 in its  investment
in Vision  Aerospace,  Inc. in 2003. The Company did not record any  impairments
relating to its investments in 2002.

Other  Income and  Expenses:  Interest  income was $57,000 and  $177,067 for the
years  ended  December  31,  2003  and  2002,  respectively.  Other  income  was
represented  by interest  income earned on amounts due from entities  related to


                                       28

<PAGE>
Officers,  directors  and  shareholders  during  2003  and  2002,  respectively.
Interest expense was $30,435 in 2003 compared to $125,019 in 2002.  Reduction in
interest  expense was due to pay-off of the  shareholders'  loans and vendors by
the Company  during 2003.  The Company lost $32,825 for the year ended  December
31, 2003 on its equity  investment in ETNS  Singapore,  Pte. Ltd.  compared to a
loss of $3,356 for the same period in 2002. In addition,  the Company recorded a
net loss of $363,205 in its settlement with The Hartcourt  Companies,  Inc. as a
result of its  spin-off in January  2003.  The Company  also  recorded a loss of
$416,787 in settlement of its vendors debts amounting to $1,635,448 during 2003.

Comprehensive Loss: The Company's  investments comprised of its equity ownership
interest in ETNS  Singapore,  Pte Ltd.  classified  as  available-for-sale,  are
carried at their fair value of its  investments  at December  31, 2003 and 2002,
respectively.  Unrealized gains and losses are included in stockholders'  equity
as other comprehensive income or loss. The company also records foreign currency
translation  gains and  losses as  comprehensive  income  or loss.  The  company
recorded an unrealized loss of $1,531 due to foreign curreny  translation during
the year ended December 31, 2003 compared to $297,131 primarily due to reduction
in the market  value of the  marketable  securities  available-for-sale  held at
December 31, 2002.

Liquidity and Capital Resources:  The Company's  principal capital  requirements
during  the  year  2004  are to  fund  the  internal  operations  and  fund  the
acquisitions of growth  oriented  telecommunications  and related  businesses in
China,  Hong Kong and USA. The Company plans to raise necessary funds by selling
its own common shares to selected  investors  and bringing in business  partners
whose  contributions  include necessary cash. In view of low borrowing  interest
rates,  the Company is  actively  pursuing  additional  credit  facilities  with
financial  institutions  in Hong  Kong as a means to  obtain  new  funding.  The
Company's management estimates that it currently has the funds to operate for at
least twelve months without raising additional capital.

As shown in the accompanying  financial statements,  ElephantTalk incurred a net
loss of  $3,844,283  for the year ended  December  31, 2003 as compared to a net
loss of  $2,064,803  for the same period in 2002.  Additionally,  ElephantTalk's
current  liabilities  exceeded its current assets by $ 1,871,690 at December 31,
2003.  These factors and  ElephantTalk's  inability to meet its debt obligations
from current  operations,  and the need to raise  additional funds to accomplish
its  objectives,  create a  substantial  doubt about  ElephantTalk's  ability to
continue as a going concern.

Operating  activities:  Net cash used in operating activities for the year ended
December 31, 2003 amounted to $713,545  compared to $205,266 for the same period
in 2002. The decrease in net cash in operating activities resulted primarily due
to the  increase  in loss of  $1,379,480  in 2003  compared  to 2002  which  was
partially  mitigated  by  increase  in cash flows due to  increase  in  accounts
payable and  customer  deposits of $598,450  and  increase in cash  overdraft of
$381,153.

Investing  activities.  Net cash used in  investing  activities  during the year
ended December 31, 2003, was $54,199  compared to $39,404 for the same period in
2002. Cash was primarily used to purchase  property and equipment of $67,825 and
investment  in ETNS  Singapore  Pte,  Ltd. of $13,626  during  2003  compared to
purchase of property and equipment of $15,538 and  investment in ETNS  Singapore
Pte, Ltd. of $23,866 for the same period in 2002.


                                       29

<PAGE>
Financing activities.  Net cash provided by financing activities during the year
ended December 31, 2003 was $790,716 compared to $231,629 during the same period
in 2002. Net cash was provided due to net proceeds received from related parties
amounting to $1,019,355  during 2003 compared to $300,415 in 2002,  offsetted by
net cash used in payments on capital  leases of $30,434 and  reduction of factor
payable of $198,205.

As a result of the above activities,  the Company  experienced a net increase in
cash and cash  equivalents  of $22,972 for the year ended  December  31, 2003 as
compared  to a net  decrease in cash of $13,041 as of December  31,  2002.   The
ability of ElephantTalk to continue as a going concern is still dependent on its
success in obtaining additional financing from the institutional investors or by
selling its common shares and fulfilling its plan of  restructuring  as outlined
above.


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

None.





                                    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 ElephantTalk.

  Director Name        Age                    Position                     Since
--------------------------------------------------------------------------------

Mr. Russelle Choi      49     President and Chief Executive Officer         2002

Mr. Pius Lam           45       Vice-President and Chief Operating Officer  2002

Mr. Francis Lim        45       Director                                    2003

Mr. Manu Ohri          48       Executive Vice-President of Finance and
                                            Chief Financial Officer         2002

Mr. James Wang         46       Director                                    2003





                                       30

<PAGE>
Russelle Choi,  President and Chief Executive Officer:  Mr. Choi is a co-founder
of the Elephant Talk Limited, a wholly owned subsidiary of the Company. Mr. Choi
is  responsible  for the overall  strategic  direction  of the  Company,  and is
appointed as the President and Chief Executive Officer of the Company.  Mr. Choi
serves as Chairman  of ET Network  Services  Limited in Hong Kong.  Mr. Choi has
over 20  years  experience  in  management  and  leadership  in a wide  range of
industries  including media,  garment and  telecommunication  industries in Hong
Kong, China and U.S. In 1981, Mr. Choi established the "Happy Days  Association"
from which he made  connection in the media and  entertainment  industry in Hong
Kong. Mr. Choi serves as Chairman of WKA Association,  a leading association for
Thai-style  boxing for the South East Asia Region.  In 1985, Mr. Choi opened his
own  garment  factory in Canada  with  branches  in Hong Kong and China,  before
jointly founding Elephant Talk Limited in Hong Kong 1994.

Pius Lam, Vice President and Chief Operation Officer: Mr. Lam is a co-founder of
Elephant  Talk Limited.  Mr. Lam is  responsible  for the  Company's  day-to-day
management and operations.  Prior to the establishment of Elephant Talk Limited,
Mr.  Lam  successfully  co-founded  New Tech  Information  Systems  Limited,  an
international  systems integrator for the hospitality  industry,  both in US and
Hong Kong.  From August 1986 to August 1987, Mr. Lam served as a Program Analyst
with Omni's Solutions, Inc. Mr. Lam has over 16 years experience in the computer
and telecommunications  industries. Mr. Lam earned a Master's degree in Business
Administration  with emphasis in Economics and Finance from the State University
of New York in 1986 and a Bachelor's  degree in Science from State University of
Pennsylvania in 1984.

Francis Lim: Mr. Lim has over ten years of  experience  in market  entry,  joint
ventures  formation  and  mergers  and  acquisitions  in the  telecommunications
industry  covering  the full  spectrum of services  from  cellular and paging to
fixed  line  to  the  Internet.  Mr.  Lim  currently  serves  as an  independent
consultant to multinational  carriers in establishing and securing international
traffic terminations.  From April 2000 to March 2003, Mr. Lim served as Regional
Director  of  Business  Development  at Asia Global  Crossing,  responsible  for
establishing  the  partnerships  and securing  licenses for landing of East Asia
Crossing and the pan-Asia fiber optics  sub-sea cable.  From April 1994 to March
2000, Mr. Lim served as Regional  Managing  Director of Business  Development at
AT&A Asia Pacific Ltd.,  responsible  for executing  market entry plans for AT&T
into various countries in the Asia Pacific Region. Mr. Lim successfully  brought
AT&T into the cellular market in India and led all  negotiations in establishing
the first telecom  services joint venture in China. Mr. Lim headed the marketing
team of AT&T's leading edge Global  Clearinghouse  Business,  Asia pacific first
clearinghouse for the settlement of VoIP minutes.  Mr. Lim held variety of sales
and marketing  positions with Hutchison  Telecommunications  Ltd. and Xerox. Mr.
Lim  earned a  bachelor's  degree in  Chemical  Engineering  for  University  of
Wisconsin in 1980

Manu Ohri,  Executive Vice President Finance & Chief Financial Officer: Mr. Ohri
currently  serves as the Executive Vice  President of Finance & Chief  Financial
Officer  and  Director in the  Company  since May 2002.  Mr. Ohri served in this
capacity for The Hartcourt Companies, Inc. from December 1999 to September 2002.
From June 1999 to November  1999,  Mr. Ohri  served as the  President  and Chief
Executive  Officer of Pego Systems,  Inc.,  an industrial  air and gas equipment
manufacturer's  representative  organization,  an  affiliate  of  The  Hartcourt
Companies,  Inc.  From  January  1997 to March  1999,  Mr.  Ohri served as Chief



                                       31

<PAGE>

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 in 1979 and  Bachelors
degree in Accounting from University of Delhi in India in 1975.

Mr. James Wang: Mr. Wang has over twenty years of professional experience in all
aspects of manufacturing, research & development, sales and corporate management
for  hi-tech  industries  including  telecommunications,   data  communications,
computer networking and semi-conductor manufacturing.  Since June 2001, Mr. Wang
has been serving as the  President of Marconi  Communications  China in Beijing,
China.  Mr. Wang is  responsible  for all of  operations of Marconi China with a
target of tripling the revenue in three years and making Marconi a tier 1 vendor
in China. From July 1989 to May 2001, Mr. Wang held several positions in Alcatel
China,  the last being Vice President of Sales and Commercial.  Mr. Wang had the
overall  responsibility  of sales and marketing of Alcatel China and undertook a
major  role  in  promoting  company's  image  and  development  of  governmental
relationships.  Mr. Wang held  leadership and staff  positions at Network Access
Corporation,  BNR/Nortel  and Texas  Instruments  in Texas.  Mr. Wang earned his
Doctorate degree in Computer Science from Southern  Methodist  University (SMU),
Dallas, Texas in July 1995. Mr. Wang earned his dual Masters degrees in Computer
Science and in Robotics in 1987 and 1983 from SMU and Oklahoma State University,
Oklahoma.

Directors serve for a term of one year or until their successors are elected and
qualified.  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 the Company  except that Mr. Pius Lam,
Chief  Operating  Officer of the  Company,  is married  to Mr.  Russelle  Choi's
sister.

Item 10.  Executive Compensation.

Summary Compensation Table

The following table sets forth the total  compensation  earned by or paid to the
executive officers greater than $100,000 for the last three fiscal years.














                                       32

<PAGE>


<TABLE>
----------------- -------------------------------------------- -------------------------------------- -------------
                                    ANNUAL COMPENSATION                LONG TERM COMPENSATION
================= ======= ==================================== ====================================== =============
                                                                          Awards           Payouts
================= ======= ==================================== =========================== ========== =============
                    Year                             Other       Restricted    Securities    LTIP        All Other
                                                     Annual     Stock Awards   Underlying    Payouts   Compensation
                                Salary    Bonus  Compen-sation      ($)        Options/       ($)          ($)
                                  ($)      ($)        ($)                       SARs
                                                                                 (#)
================= ======= ============== ======= ============= ============== ============ ========== =============
<S>                 <C>        <C>         <C>      <C>             <C>            <C>        <C>          <C>
Russelle Choi,      2003       $120,000    $0       $20,000         $0             0          $0           $0
President and CEO   2002          $0       $0          $0           $0             0          $0           $0
                    2001          $0       $0          $0           $0             0          $0           $0
----------------- ------- -------------- ------- ------------- -------------- ------------ ---------- -------------
</TABLE>
No options or SARs where granted to any executive officers.

Employment and Related Agreements

On January 1, 2003,  ElephantTalk  entered into an employment agreement with Mr.
Russelle Choi to provide  salary,  bonuses,  and other fringe  benefits  through
December 31, 2005.  Annual base salary  payable to Mr.  Russelle  Choi under the
agreement was $120,000 per annum in the first year,  $132,000 in the second year
and  $150,000  in the  third  year.  Payments  are to be made in  equal  monthly
installments. In the event ElephantTalk did not have sufficient cash flow to pay
compensation  in  cash,  Mr.  Choi  has  the  option  to  accept  ElephantTalk's
restricted common shares for the same amount of compensation.  Share price is to
be calculated at 50% of the market trading bid price on the first trading day of
the month for which the compensation is paid. As of March 25, 2004, ElephantTalk
had issued  989,009  restricted  common  shares  valued at  $120,000 to Mr. Choi
towards his 2003  compensation  and 164,835  restricted  common shares valued at
$20,000 as Director fees for attending directors meetings during 2003. The share
price used in calculating  stock  compensation  was not discounted by 50% of the
market  trading  bid price on the first  trading  day of the month for which the
compensation was paid.

Compensation of Directors

For attending Board meetings,  the Board of Directors  approved the compensation
of the Company's  directors with $5,000 worth of restricted common shares valued
at the  closing  market  price of the common  shares on first day of each fiscal
quarter, starting January 1, 2003.


Item 11.  Security Ownership of Certain Beneficial Owners and Management

The following table sets forth  information as of December 31, 2003 with respect
to persons known to the Company 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 the Company and by all  directors and executive
officers of the Company as a group.








                                       33

<PAGE>
<TABLE>
------------------- ------------------------------------------- ----------------------------- --------------------
  Title of Class        Name & Address of Beneficial Owner          Amount and Nature of             Percent
                                                                  Beneficial Ownership (1)
------------------- ------------------------------------------- ----------------------------- --------------------
------------------- ------------------------------------------- ----------------------------- --------------------
<S>                 <C>                                           <C>                          <C>
Common stock        Man Eagle Limited                                    3,922,899                    7.5%
                    28/F Emperor Group Centre
                    288 Hennessy Road, Wanchai
                    Hong Kong
------------------- ------------------------------------------- ----------------------------- --------------------
Common stock        Supreme Luck Management Company Limited              2,703,832                    5.2%
                    6/F 24 Des Voeux Road, Central
                    Hong Kong
------------------- ------------------------------------------- ----------------------------- --------------------
Common stock        The Hartcourt Companies, Inc.                        17,895,580                   34.3%
                    2500 E. Colorado Blvd., Suite 301
                    Pasadena, California 91107
------------------- ------------------------------------------- ----------------------------- --------------------
Common stock        Russelle Choi, Director                              3,152,328                    6.0%
                    8/F, 145-159 Yeung Uk Road
                    Tsuen Wan, Hong Kong
------------------- ------------------------------------------- ----------------------------- --------------------
Common stock        Pius Lam, Director                                   1,494,381                    2.9%
                    8/F, 145-159 Yeung Uk Road
                    Tsuen Wan, Hong Kong
------------------- ------------------------------------------- ----------------------------- --------------------
Common stock        Theresa Tsoi, Secretary                              1,167,055                    2.2%
                    8/F, 145-159 Yeung Uk Road
                    Tsuen Wan, Hong Kong
------------------- ------------------------------------------- ----------------------------- --------------------
Common stock        Manu Ohri, Director                                   785,371                     1.5%
                    438 E. Katella Avenue, Suite 217
                    Orange, California 92867
------------------- ------------------------------------------- ----------------------------- --------------------
------------------- ------------------------------------------- ----------------------------- --------------------
                    All Officers and Directors as a group                6,599,135                    12.7%
------------------- ------------------------------------------- ----------------------------- --------------------
</TABLE>

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

Stock Option Plan

On April 11, 2002,  the Company  entered into an agreement  with an  individual,
Tang Wai Leong,  whereby the Company granted Mr. Leong an option to purchase two
million  (2,000,000) common shares of the Company at the closing market price of
April 11,  2002 i.e.  $0.32 (32 cents) per share.  Mr.  Leong  agreed to provide
consulting and advisory services to the Company in accordance with certain terms
and  conditions.  Mr. Leong shall have the right to exercise the option in whole
or in part through the close of business on April 10, 2003. On December 1, 2002,
the Company and Mr. Leong mutually  agreed to terminate the consulting  services
agreement.  Mr.  Leong did not  exercise  his option to purchase  the  Company's
common  shares  as of  the  date  of  termination  of  the  consulting  services
agreement.









                                       34

<PAGE>

Employee Benefit Plan

The Company adopted an employee  benefit plan called "The 2000 Employee  Benefit
Plan" (the "Plan") on May 30, 2000. Under the Plan, the Company may issue shares
or grant options to acquire the Company's common stock, no par value,  from time
to time to employees  of the Company or its  subsidiaries.  In addition,  at the
discretion of the Board of  Directors,  shares may be granted under this Plan to
other  individuals,  including  consultants  or advisors,  who contribute to the
success of the Company or its  subsidiaries,  provided  that bona fide  services
shall be rendered by  consultants  and advisors and such services must not be in
conjunction  with  the  offer  or  sale  of  securities  in  a  capital  raising
transaction.  No stock  may be  issued  or  options  granted  under  the Plan to
consultants,  advisors or other  persons who directly or  indirectly  promote or
maintain a market for the Company's securities.  The Plan is intended to aid the
Company in maintaining and developing a management  team,  attracting  qualified
officers and  employees  capable of assuring the future  success of the Company,
and  rewarding  those  individuals  who have  contributed  to the success of the
Company.  The Plan Administrators  under the direction of the Board of Directors
administers the Plan. A total of four million  (4,000,000)  common shares may be
subject to, or issued pursuant to, benefits  granted under the Plan. At any time
any stock  option is granted  under the terms of this  Plan,  the  Company  will
reserve for issuance the number of shares of Stock  subject to suck option until
it is exercised or expired.  The Plan Administrator shall determine from time to
time the terms,  conditions and price of the options granted.  Options shall not
be  construed to be stock and cannot be exercised  after the  expiration  of its
term.

On January 17, 2001, the Company granted and issued 1,700,000 common shares at a
price of $0.005 per share for a total  consideration of $8,500.  The Company did
not grant any options  under the Plan as of December  31,  2003.  Under the Plan
2,300,000  shares of common  stock  remain  available  for grant at December 31,
2003.

Warrants

The Company does not have any warrants outstanding at December 31, 2003.

Stock Split

As a condition precedent to the acquisition of Elephant Talk Limited and plan of
reorganization  that  completed  on January 4, 2002,  the Company  authorized  a
reverse  stock split of its common  shares  pursuant to which for every ten (10)
shares of the  issued and  outstanding  common  shares one (1) common  share was
exchanged.  On January 22, 2002 the Company completed and effected a one (1) for
ten (10) reverse stock split of its outstanding  common stock.  This reduced the
number of shares  outstanding  from 34,626,899  shares to 3,464,000 shares after
having 1,311 partial shares  redeemed.  As part of the  acquisition  and plan of
reorganization,  the  Company  issued  31,164,210  common  shares to the  former
shareholders  of Elephant  Talk  Limited.  In addition,  pursuant to a letter of
understanding,  on January 2, 2002, the Company sold the business  operations of
Vision Aerospace, Inc., owned principally by a former officer of the Company for
1,000,000 shares of the common stock of Vision  Aerospace,  Inc. The Company has
valued the investment in Vision  Aerospace,  Inc. at $10,835 being the net value
of assets and liabilities in exchange for 1,000,000 shares of Vision  Aerospace,
Inc.

                                       35

<PAGE>

Item 12: Certain Relationships and Related Transactions

On February  27, 2001,  Elephant  Talk  Limited  entered into an agreement  with
Elephant Talk, Inc. ("ETI"), a corporation organized and existing under the laws
of the Commonwealth of  Massachusetts,  whereby Elephant Talk Limited  appointed
ETI its sales agent in US for the sale of its products and services. The term of
the sales  agency  agreement  shall be for a period of five (5) years.  Elephant
Talk Limited  agreed to pay a fee totaling  three (3) percent of the cost of any
services  or products  purchased  by the  customers  through the efforts of ETI.
During 2003 and 2002,  ETI provided  calling  capacity and prepaid  calling card
sales to  Elephant  Talk  Limited in the  amounts of  $123,823  and  $3,470,851,
respectively.  Elephant Talk Limited paid  commissions to ETI $0 and $73,419 for
the years ended December 31, 2003 and 2002, respectively.

On May 16,  2001,  Hartcourt  and  Elephant  Talk  Limited  executed  a Sale and
Purchase Agreement whereby Hartcourt acquired 51% ownership interest in Elephant
Talk Limited 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 Elephant
Talk Limited,  executed a Promissory  Note of $1,250,000,  and issued  1,000,000
shares to Elephant Talk Limited, for the 51% ownership interest.

The Company executed a Spin-Off Agreement, dated September 12, 2002, and through
the  subsequent  transactions  that  closed on  January  4,  2003,  the  Company
terminated  its  relationship  with  Hartcourt.  Pursuant  to the  terms  of the
Spin-Off Agreement, the Company received 17,895,579 of its common shares held by
Hartcourt  and  $349,000  in cash  advances  from  Hartcourt,  in  exchange  for
returning  4,756,000  common  shares of  Hartcourt  held by the  Company and its
affiliates,  canceling two promissory notes of Hartcourt held by the Company and
its  affiliate  in the  respective  amounts  of  $1,250,000  and  $140,595,  and
canceling  the  indebtedness  of  cash  advances  by  issuing  5,000,000  of its
restricted  common  shares to  Hartcourt.  In addition to executing the Spin-Off
Agreement,  the parties executed a mutual release to end their  relationship and
place each other in a position  whereby no party is indebted to the other party.
Upon  receipt of the  shares on close of the  escrow on  January  4,  2003,  the
Company held  17,895,579  common shares as treasury  shares.  As a result of the
completion of the spin-off agreement with Hartcourt, the Company recorded a loss
of $363,205 in the accompanying financial statements for the year ended December
31, 2003.


















                                       36

<PAGE>


                                    PART IV.


Item 13.  Exhibits and Reports on Form 8-K

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

Exhibit No.                      Description of Document
--------------------------------------------------------------------------------

10.5       Spin-off Agreement with The Hartcourt Companies, Inc. Incorporated by
           reference  from the Company's  Current  Report on Form 8-K,  filed on
           January 9, 2003. SEC File No. 000-30061. Film No. 03509553.



Reports on Form 8-K:

During  the last  quarter  covered  by this  Report we did not file any  Current
Reports Form 8-K.




ITEM 14  CONTROLS AND PROCEDURES

Our Chief  Executive  Officer,  President,  and  Chief  Financial  Officer  (the
"Certifying   Officers")  are  responsible  for   establishing  and  maintaining
disclosure controls and procedures for the Company. The Certifying Officers have
designed  such  disclosure  controls  and  procedures  to ensure  that  material
information is made known to them,  particularly during the period in which this
report was prepared. The Certifying Officers have evaluated the effectiveness of
the Company's  disclosure  controls and procedures within 90 days of the date of
this report and believe that the Company's  disclosure  controls and  procedures
are effective based on the required  evaluation.  There have been no significant
changes in internal controls or in other factors that could significantly affect
internal  controls  subsequent  to the date of their  evaluation,  including any
corrective  actions  with  regard  to  significant   deficiencies  and  material
weaknesses.
















                                       37

<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.

                                   ELEPHANT TALK COMMUNICATIONS, INC.


Date:  April 14, 2004              By: /s/ Russelle Choi
                                   ------------------------------
                                   Russelle Choi
                                   Chairman of the Board
                                   President & Chief Executive Officer
                                   (Principal Executive Officer)

Date:  April 14, 2004              By: /s/ Manu Ohri
                                   --------------------------
                                   Manu Ohri
                                   Executive Vice President, Finance &
                                   Chief Financial Officer
                                   (Principal Financial Officer and
                                   Principal Accounting Officer)


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/ Russelle Choi            President, Chief Executive      April 14, 2004
-----------------            Officer and Director
Russelle Choi

/s/ Pius Lam                 Chief Operating Officer         April 14, 2004
------------                 and Director
Pius Lam

/s/ Manu Ohri                Chief Financial Officer         April 14, 2004
-------------                and Director
Manu Ohri

/s/ Theresa Tsoi             Secretary                       April 14, 2004
----------------
Theresa Tsoi






                                       38

<PAGE>











                       ELEPHANT TALK COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS
                             AS OF DECEMBER 31, 2003









































                                      F-i

<PAGE>







                       ELEPHANT TALK COMMUNICATIONS, INC.
                                AND SUBSIDIARIES


                                    CONTENTS


PAGE              F-1       INDEPENDENT AUDITORS' REPORT

PAGE              F-2       INDEPENDENT AUDITORS' REPORT OF THE SUBSIDIARY

PAGE              F-3       CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2003

PAGE              F-4       CONSOLIDATED STATEMENTS OF OPERATIONS AND
                            COMPREHENSIVE  LOSSES FOR THE YEARS ENDED DECEMBER
                            31, 2003 AND 2002

PAGE              F-5       CONSOLIDATED  STATEMENTS OF CHANGES IN STOCKHOLDERS'
                            EQUITY (DEFICIENCY)FOR THE YEARS ENDED DECEMBER 31,
                            2003 AND 2002

PAGE              F-6       CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS
                            ENDED DECEMBER 31, 2003 AND 2002

PAGES          F-7 - 15     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



























                                      F-ii


                          INDEPENDENT AUDITORS' REPORT

Board of Directors
Elephant Talk Communications, Inc.

We have audited the  accompanying  consolidated  balance  sheet of Elephant Talk
Communications, Inc., a California corporation and subsidiary (the "Company") as
of December  31, 2003 and the related  consolidated  statements  of  operations,
stockholders'  deficit and cash flows for the years then ended December 31, 2003
and 2002. 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 did not audit the
financial  statements of Elephant Talk Limited,  whose statements  reflect total
assets of approximately  $968,290 as of December 31, 2003 and total net revenues
of  $867,171  and  $5,672,284  for the years ended  December  31, 2003 and 2002,
respectively. Those statements were audited by other auditors whose reports have
been  furnished to us, and in our opinion,  insofar as it relates to the amounts
included  for Elephant  Talk  Limited for the years ended  December 31, 2003 and
2002, is based solely on the report of the other auditors.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position of Elephant  Talk
Communications,  Inc. and  subsidiary as of December 31, 2003 and the results of
its  operations  and its cash flows for the years  ended  December  31, 2003 and
2002, in conformity with accounting  principles generally accepted in the United
States of America.

The Company's consolidated financial statements are prepared using the generally
accepted accounting principles applicable to a going concern, which contemplates
the realization of assets and liquidation of liabilities in the normal course of
business.  The Company has accumulated  deficit of $8,789,448 which includes net
losses of $3,844,283  and  $2,064,803  for the years ended December 31, 2003 and
2002,  respectively.  The Company has an excess of total  liabilities over total
assets of $1,904,650 on December 31, 2003. These factors as discussed in Note 15
to the financial statements, raise substantial doubt about the Company's ability
to continue as a going  concern.  Management's  plans in regard to these matters
are also  described  in Note 15. The  financial  statements  do not  include any
adjustments that might result from the outcome of this uncertainty.


KABANI & COMPANY, INC.
CERTIFIED PUBLIC ACCOUNTANTS

Fountain Valley, California
April 8, 2004


                                      F-1

<PAGE>
INDEPENDENT AUDITORS' REPORT



To the Board of Directors
Elephant Talk Limited

We have audited the accompanying  balance sheet of Elephant Talk Limited, a Hong
Kong  Corporation  (the  "Company")  as of  December  31,  2003 and the  related
statements of operations,  stockholders' equity (deficit) and cash flows for the
years ended  December  31, 2003 and 2002.  These  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the  financial  position of Elephant Talk Limited as of
December 31, 2003 and the results of its  operations  and its cash flows for the
years ended December 31, 2003 and 2002, in conformity with accounting principles
generally accepted in the United States of America.

The Company's  financial  statements are prepared  using the generally  accepted
accounting  principles  applicable to a going concern,  which  contemplates  the
realization  of assets and  liquidation  of  liabilities in the normal course of
business.  The Company has accumulated  deficit of $6,747,312 which includes net
losses of $1,982,530  and  $1,426,082  for the years ended December 31, 2003 and
2002,  respectively.  The Company has an excess of total  liabilities over total
assets of $1,762,184 on December 31, 2003. These factors raise substantial doubt
about the  Company's  ability to  continue  as a going  concern.  The  financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.



JIMMY C. H. CHEUNG & CO.
CERTIFIED PUBLIC ACCOUNTANTS

Hong Kong
April 13, 2004










                                      F-2
<PAGE>
                       ELEPHANT TALK COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                DECEMBER 31, 2003

                                     ASSETS
CURRENT ASSETS
  Cash and cash equivalents                                         $     8,282
  Accounts receivable, net                                              156,192
  Prepaid expenses and other current assets                             108,912
                                                                    -----------
         Total Current Assets                                           273,386
                                                                    -----------
PROPERTY AND EQUIPMENT - NET                                            203,765

OTHER ASSETS
  Due from related parties                                              553,348
  Investment in ETNS Singapore Pte, Ltd.                                100,953
                                                                    -----------
         Total Other Assets                                             654,301
                                                                    -----------
TOTAL ASSETS                                                        $ 1,131,452
                                                                    ===========

                     LIABILITIES AND STOCHOLDERS' DEFICIENCY
CURRENT LIABILITIES
  Overdraft                                                         $   549,205
  Accounts payable and customer deposits                                481,145
  Deferred revenue                                                      161,539
  Accrued expenses and other payable                                    768,885
  Capital lease liability - current                                      14,018
  Due to related parties                                                170,284
                                                                    -----------
        Total Current Liabilities                                     2,145,076
                                                                    -----------
LONG-TERM LIABILITIES
  Note payable                                                          891,026
                                                                    -----------
TOTAL LIABILITIES                                                     3,036,102
                                                                    -----------
COMMITMENT AND CONTINGENCIES

STOCKHOLDERS' DEFICIENCY
Preferred stock Class B, no par value, 5,000,000 shares
  authorized none issued and outstanding                                   -
Common stock, no par value, 250,000,000 shares authorized,
  51,867,714 issued and outstanding                                   8,174,811
Common stock issued, not outstanding,
  17,895,579 common shares                                           (1,288,482)
Accumulated comprehensive loss, net                                      (1,531)
Accumulated deficit                                                  (8,789,448)
                                                                    -----------
        Total Stockholders' Deficiency                               (1,904,650)
                                                                    -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY                      $ 1,131,452
                                                                    ===========

           See accompanying notes to consolidated financial statements
                                      F-3

<PAGE>
                       ELEPHANT TALK COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
          CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

                                                        2003           2002
                                                   ------------    ------------
REVENUES, NET                                      $    867,171    $  5,672,284

COST OF REVENUE                                         845,438       5,524,800
                                                   ------------    ------------

GROSS PROFIT                                             21,733         147,484
                                                   ------------    ------------
OPERATING EXPENSES
  Selling, general and administrative                 2,553,746       1,531,772
  Impairment of property and equipment                  250,000         239,922
  Impairment of investment in ETNS Singapore, Pte       106,456            --
  Impairment of investment                               10,835            --
  Depreciation and amortization                         265,841         487,685
                                                   ------------    ------------
         Total Operating Expenses                     3,186,878       2,259,379
                                                   ------------    ------------
LOSS FROM OPERATIONS                                 (3,165,145)     (2,111,895)

OTHER INCOME (EXPENSE)
  Interest income                                        57,000         177,067
  Interest expense                                      (30,435)       (125,019)
  Equity in loss of unconsolidated
    affiliate                                           (32,825)         (3,356)
  Loss on settlement with Hartcourt                    (363,205)           --
  Loss on settlement of debts                          (416,787)           --
  Miscellaneous income                                  107,914            --
                                                   ------------    ------------
         Total Other Income (Expense)                  (678,338)         48,692
                                                   ------------    ------------

LOSS BEFORE INCOME TAXES                             (3,843,483)     (2,063,203)
  Income taxes                                              800           1,600
                                                   ------------    ------------
NET LOSS                                           $ (3,844,283)   $ (2,064,803)
                                                   ------------    ------------
OTHER COMPREHENSIVE INCOME (LOSS)
  Unrealized loss on available-for-sale securities         --          (300,000)
  Foreign currency translation gain (loss)               (1,531)          2,869
                                                   ------------    ------------
                                                         (1,531)       (297,131)
                                                   ------------    ------------
COMPREHENSIVE LOSS                                 $ (3,845,814)   $ (2,361,934)
                                                   ============    ============
Net loss per common share and equivalents
   - basic and diluted                             $      (0.15)   $      (0.06)
                                                   ============    ============
Weighted average shares outstanding during the
   period - basic and diluted                        25,102,850      37,147,939
                                                   ============    ============

           See accompanying notes to consolidated financial statements
                                      F-4



<TABLE>
<CAPTION>
                                                 ELEPHANT TALK COMMUNICATIONS, INC.
                                                          AND SUBSIDIARIES
                               CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
                                           FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
                                                                                                                            Total
                                                               Common Shares                       Other     Accumu-    Shareholders
                                            Common        Issued, not outstanding      Note   Comprehensive   lated        Equity
            Description                Shares     Amount    Shares       Amount     Receivable     Loss      Deficit      (Deficit)
---------------------------------- ---------- ---------- -----------  -----------  -----------  ---------  -----------  -----------
<S>                                <C>        <C>        <C>          <C>           <C>         <C>        <C>          <C>
Balance, December 31, 2001         30,000,000 $5,074,128         -       $    -    $(1,250,000) $(256,056) $(2,865,096) $   702,976


Recapitalization on reverse
    acquisition                     4,626,899     10,835         -            -            -          -            -         10,835
                                   ---------- ---------- -----------  -----------  -----------  ---------  -----------  -----------

Balance - Jan 4, 2002 after
    recapitalization               34,626,899  5,084,963         -            -     (1,250,000)  (256,056)  (2,865,096)     713,811


Interest on note receivable               -          -           -            -       (137,500)       -            -       (137,500)

Issuance of common stock for
    services                        1,810,000    579,200         -            -            -          -            -        579,200

Issuance of fractional shares           1,311        -           -            -            -          -            -            -

Issuance of shares in lieu of
    spin-off                        5,000,000    320,000         -            -            -          -            -        320,000

Other comprehensive loss                  -          -           -            -            -     (297,131)         -       (297,131)

Net loss                                  -          -           -            -            -          -     (2,080,069)  (2,080,069)
                                   ---------- ---------- -----------  -----------  -----------  ---------  -----------  -----------
Balance, December 31, 2002         41,438,210  5,984,163         -            -     (1,387,500)  (553,187)  (4,945,165)    (901,689)


Receipt of company shares as part
   of settlement with Hartcourt           -          -    17,895,572  (1,288,482)         -      553,187          -       (735,295)

Settlement with Hartcourt                 -          -           -            -      1,387,500        -            -      1,387,500

Shares issued to directors for fees   624,172     70,000         -            -            -          -            -         70,000

Shares issued to officers for
   salaries                         2,818,675    342,000         -            -            -          -            -        342,000

Shares issued to vendors for
   settlement of debt               6,259,415  1,635,448         -            -            -          -            -      1,635,448

Shares issued to consultants for
   services                           360,000    108,200         -            -            -          -            -        108,200

Shares issued to employees as bonus   367,242     35,000         -            -            -          -            -         35,000

Other comprehensive loss                  -          -           -            -            -       (1,531)         -         (1,531)

Net Loss                                  -          -           -            -            -          -     (3,844,283)  (3,844,283)
                                   ---------- ---------- -----------  -----------  -----------  ---------  -----------  -----------

Balance - December 31, 2003        51,867,714 $8,174,811  17,895,572 $(1,288,482)  $      -    $  (1,531)  $(8,789,448) $(1,904,650)
                                   ========== ========== ===========  ===========  ===========  =========  ===========  ===========
</TABLE>














           See accompanying notes to consolidated financial statements
                                      F-5

<PAGE>
                       ELEPHANT TALK COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

                                                          2003           2002
                                                     -----------    -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
      Net loss                                       $(3,844,283)   $(2,064,803)
      Adjustments to reconcile net loss to net
           cash provided by (used in)
      operating activities:
      Depreciation and amortization                      265,841        487,685
      Issuance of stock for compensation                 447,000        579,200
      Issuance of stock for consulting services          108,200            -
      Issuance of stock in lieu of spin-off                  -          320,000
      Impairment of property and equipment               250,000        239,922
      Impairment of investments                          117,291            -
      Equity in loss of unconsolidated affiliate          32,825          3,356
      Provision for doubtful accounts                    400,000        308,075
      Decrease in accounts receivable                    327,470        299,827
      Decrease in prepaid expenses, deposits and
           other assets                                   17,542        247,687
      Increase (Decrease) in accounts payable and
           customer deposits                             575,424     (1,205,335)
      Increase (Decrease) in deferred revenue             82,602       (115,063)
      Increase in accrued expenses and other payable     105,167        559,296
      Increase in cash overdraft                         381,153        134,887
                                                     -----------    -----------
           Net cash used in operating activities        (733,768)      (205,266)
                                                     -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
      Purchase of property and equipment                 (67,825)       (15,538)
      Investment in unconsolidated affiliate              13,626        (23,866)
                                                     -----------    -----------
           Net cash used in investing activities         (54,199)       (39,404)
                                                     -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
      Decrease of factor payable                        (198,205)           -
      Payment on capital leases                          (30,434)       (68,786)
      Proceeds from related parties                    1,019,355        300,415
                                                     -----------    -----------
           Net cash provided by financing activities     790,716        231,629
                                                     -----------    -----------
NET INCREASE (DECREASE) IN CASH                            2,749        (13,041)
CASH, BEGINNING OF THE YEAR                                5,533         18,574
                                                     -----------    -----------
CASH, END OF THE YEAR                                $     8,282    $     5,533
                                                     ===========    ===========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid during the year for interest               $    30,435    $   125,019

Cash paid during the year for income taxes           $       800    $     1,600


           See accompanying notes to consolidated financial statements
                                      F-6
<PAGE>



                       ELEPHANT TALK COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION

     (A) Organization and Nature of Operations

     Elephant Talk  Communications,  Inc. (herein referred to as "ElephantTalk",
     "ETCI" or "Company" formerly known as Staruni Corporation), incorporated on
     February  5,  1962  under  the laws of the  state of  California  as Altius
     Corporation, was involved in manufacturing of freeway signs. In March 1997,
     Altius  acquired  Starnet  Universe  Internet,  Inc., a web  developer  and
     Internet   Service   Provider   (ISP)  and  changed  its  name  to  Staruni
     Corporation.  On January 4,  2002,  the  Staruni  Corporation  merged  with
     Elephant Talk Limited;  a limited  company  incorporated  in Hong Kong, and
     filed a Certificate of Amendment of Articles of  Incorporation to amend the
     corporate name to Elephant Talk  Communications,  Inc. This name change was
     done in  conjunction  with  the  acquisition,  and to  emphasize  that  the
     Company's new focus will be the business of Elephant Talk Limited.

     On January 4, 2002, the Company  exchanged 90% of its common stock for 100%
     of the common stock of Elephant Talk Limited by issuing  31,164,210  shares
     of common stock to the  shareholders  of Elephant Talk  Limited,  a company
     engaged in long distance telephone business. Per the agreement, the Company
     sold its  Internet  Service  Provider  (ISP)  business to a related  party,
     Vision  Aerospace,  Inc,  (Vision) for 1,000,000 shares of Vision valued at
     $10,385.  Vision is owned by the former CEO and  President  of the Company.
     The  value of the  shares  was  recorded  at the book  value of the  assets
     exchanged  to acquire  the shares of Vision.  Pursuant  to the terms of the
     share exchange  agreement,  control of the combined companies passed to the
     former  shareholders of Elephant Talk Limited.  This type of share exchange
     has been treated as a capital  transaction  accompanied by recapitalization
     of Elephant Talk Limited in substance,  rather than a business combination,
     and is deemed a "reverse  acquisition"  for  accounting  purposes since the
     former  owners of Elephant  Talk Limited  controlled  majority of the total
     common  shares   outstanding   immediately   following   the   acquisition.
     Recapitalization  accounting resulted in consolidated  financial statements
     being issued under the name of Elephant Talk Communications, Inc., but were
     considered a continuation of Elephant Talk Limited.  No pro forma financial
     statements are being  presented as ETCI has no assets other than the shares
     of the related third party as discussed above.

     (B) Use of Estimates

     In preparing  financial  statements in conformity  with generally  accepted
     accounting  principles,  management  is  required  to  make  estimates  and
     assumptions  that affect the reported amounts of assets and liabilities and
     the  disclosure of  contingent  assets and  liabilities  at the date of the



                                      F-7

<PAGE>

     financial  statements and revenues and expenses during the reported period.
     Actual results could differ from those estimates.

     (C) Cash and Cash Equivalents

     For purposes of the cash flow statements,  the Company considers all highly
     liquid investments with original  maturities of three months or less at the
     time of purchase to be cash equivalents.

     (D) Foreign Currency Translation

     The  functional  currency  was the Hong Kong  Dollar  for the  years  ended
     December  31,  2003 and 2002.  The  December  31,  2003 and 2002  financial
     statements of the Company were  translated  to United States  dollars using
     year-end  exchange rates as to assets and liabilities and average  exchange
     rates as to revenues and  expenses.  Capital  accounts  were  translated at
     their historical exchange rates when the capital transactions occurred. Net
     gains and losses resulting from  translation of foreign currency  financial
     statements are included in the statements of stockholder's  equity as other
     comprehensive  income or (loss).  Foreign  currency  transaction  gains and
     losses are included in consolidated income (loss).

     (E) Property and Equipment

     Property and equipment are stated at cost, less  accumulated  depreciation.
     Depreciation is provided using the straight-line  method over the estimated
     useful life of the assets from three to seven years.

     (F) Marketable Securities

     The   Company's    investments    in   securities    are    classified   as
     available-for-sale  and, as such,  are  carried at fair  value.  All of the
     securities  comprised  of shares of common  stock of  investee.  Securities
     classified  as  available-for-sale  may be sold in  response  to changes in
     interest rates,  liquidity needs, and for other purposes.  The Company does
     not currently have any held-to-maturity or trading securities.

     Unrealized holding gains and losses for  available-for-sale  securities are
     excluded   from   earnings  and   reported  as  a  separate   component  of
     stockholder's  equity.  Realized gains and losses for securities classified
     as available-for-sale are reported in earnings based upon the adjusted cost
     of the specific security sold.

     (G) Carrier Deposit

     The Company has deposited security deposits with telecommunication carriers
     during the course of its  operations.  The deposits are  refundable  at the
     conclusion of the business relationship with the carriers.

     (H) Income Taxes

     The  Company  accounts  for income  taxes  under the  Financial  Accounting
     Standards  Board  Statement  of  Financial  Accounting  Standards  No.  109
     "Accounting  for Income Taxes"  ('Statement  109").  Under  Statement  109,


                                      F-8

<PAGE>

     deferred  tax  assets and  liabilities  are  recognized  for the future tax
     consequences  attributable to differences  between the financial  statement
     carrying  amounts of existing assets and  liabilities and their  respective
     tax bases.  Deferred tax assets and  liabilities are measured using enacted
     tax rates  expected to apply to taxable  income in the years in which those
     temporary  differences  are  expected to be  recovered  or  settled.  Under
     Statement  109,  the effect on  deferred  tax assets and  liabilities  of a
     change in tax rates is recognized in income in the period that includes the
     enactment date.

     (I) Revenue Recognition, Cost of Revenue and Deferred Revenue

     The Company's  revenue  recognition  policies are in compliance  with Staff
     accounting   bulletin  (SAB)  104.  The  Company   recognizes   sales  from
     telecommunications   services  as  services  are   provided.   The  Company
     recognizes revenue from prepaid calling cards as the services are provided.
     Payments   received  before  all  of  the  relevant  criteria  for  revenue
     recognition are satisfied are recorded as deferred revenue. Cost of revenue
     includes the cost of capacity associated with the revenue recognized within
     the corresponding time period.

     Deferred revenue  represents  amounts  received from the customers  against
     future  sales of  services  since the  Company  recognizes  revenue  on the
     performance  of  services.  Deferred  revenue  amounted  to  $161,539 as of
     December 31, 2003.

     (J) Basic and Diluted Net Loss Per Share

     Net loss per  share is  calculated  in  accordance  with the  Statement  of
     financial  accounting  standards  No.  128 (SFAS No.  128),  "Earnings  per
     share". SFAS No. 128 superseded  Accounting  Principles Board Opinion No.15
     (APB 15). Net loss per share for all periods presented has been restated to
     reflect the  adoption  of SFAS No.  128.  Basic net loss per share is based
     upon the weighted average number of common shares outstanding.  Diluted net
     loss per share is based on the  assumption  that all  dilutive  convertible
     shares and stock options were converted or exercised.  Dilution is computed
     by applying  the treasury  stock  method.  Under this  method,  options and
     warrants are assumed to be exercised at the  beginning of the period (or at
     the time of issuance, if later), and as if funds obtained thereby were used
     to purchase  common  stock at the average  market  price during the period.
     Weighted  average  number of shares used to compute  basic and diluted loss
     per  share  is  the  same  since  the  effect  of  dilutive  securities  is
     anti-dilutive.

     (K) Long-Lived Assets

     Effective  January 1, 2002,  the Company  adopted  Statement  of  Financial
     Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
     Long-Lived Assets" ("SFAS 144"), which addresses  financial  accounting and
     reporting  for  the  impairment  or  disposal  of  long-lived   assets  and
     supersedes  SFAS No. 121,  "Accounting  for the  Impairment  of  Long-Lived
     Assets and for Long-Lived Assets to be Disposed Of," and the accounting and
     reporting  provisions  of APB  Opinion  No. 30,  "Reporting  the Results of
     Operations  for  a  Disposal  of a  Segment  of a  Business."  The  Company


                                      F-9

<PAGE>

     periodically  evaluates the carrying value of long-lived  assets to be held
     and used in accordance with SFAS 144. SFAS 144 requires  impairment  losses
     to be recorded on long-lived  assets used in operations  when indicators of
     impairment  are present and the  undiscounted  cash flows  estimated  to be
     generated by those assets are less than the assets'  carrying  amounts.  In
     that event, a loss is recognized  based on the amount by which the carrying
     amount  exceeds the fair market  value of the  long-lived  assets.  Loss on
     long-lived  assets to be disposed  of is  determined  in a similar  manner,
     except that fair market  values are reduced for the cost of  disposal.  The
     Company  recorded an  impairment  of property and equipment of $250,000 and
     $239,922 for the years ended December 31, 2003 and 2002, respectively.

     (L) 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 amounts of the Company's
     accounts and other  receivables,  accounts  payable,  accrued  liabilities,
     factor  payable,   capital  lease  payable  and  notes  and  loans  payable
     approximates  fair value due to the relatively short period to maturity for
     these instruments.

     (M) Concentrations of Risk

     Financial   instruments   which   potentially   subject   the   Company  to
     concentrations of credit risk are cash and accounts receivable. The Company
     places its cash with financial  institutions  deemed by management to be of
     high  credit  quality.  The amount on deposit in any one  institution  that
     exceeds federally insured limits is subject to credit risk.

     (N) Reporting Segments

     Statement of financial  accounting  standards  No. 131,  Disclosures  about
     segments of an enterprise  and related  information  (SFAS No. 131),  which
     superceded  statement of financial  accounting  standards No. 14, Financial
     reporting for segments of a business enterprise,  establishes standards for
     the way that public enterprises report information about operating segments
     in  annual  financial   statements  and  requires   reporting  of  selected
     information  about  operating  segments  in  interim  financial  statements
     regarding products and services, geographic areas and major customers. SFAS
     No. 131 defines  operating  segments as components  of an enterprise  about
     which  separate  financial  information  is  available  that  is  evaluated
     regularly by the chief operating decision maker in deciding how to allocate
     resources and in assessing  performances.  The Company allocates  resources
     and assesses the performance of its sales activities as one segment.

     (O) Stock-based Compensation

     In October 1995, the FASB issued SFAS No. 123,  "Accounting for Stock-Based
     Compensation".  SFAS No. 123 prescribes  accounting and reporting standards


                                      F-10

<PAGE>

     for all stock-based  compensation plans,  including employee stock options,
     restricted  stock,  employee stock  purchase  plans and stock  appreciation
     rights. SFAS No. 123 requires compensation expense to be recorded (i) using
     the new fair  value  method or (ii)  using the  existing  accounting  rules
     prescribed by Accounting  Principles Board Opinion No. 25,  "Accounting for
     stock issued to employees"  (APB 25) and related  interpretations  with pro
     forma  disclosure of what net income and earnings per share would have been
     had the Company  adopted the new fair value  method.  The company  uses the
     intrinsic value method prescribed by APB25 and has opted for the disclosure
     provisions of SFAS No.123.

     (P) Issuance of Shares For Services

     The Company  accounts  for the  issuance of equity  instruments  to acquire
     goods and services based on the fair value of the goods and services or the
     fair value of the equity  instrument at the time of issuance,  whichever is
     more reliably measurable.

     (Q) Comprehensive Income

     Statement   of   financial   accounting   standards   No.  130,   Reporting
     comprehensive  income (SFAS No. 130),  establishes  standards for reporting
     and  display  of  comprehensive  income,  its  components  and  accumulated
     balances. Comprehensive income is defined to include all changes in equity,
     except those  resulting  from  investments by owners and  distributions  to
     owners. Among other disclosures,  SFAS No. 130 requires that all items that
     are  required  to be  recognized  under  current  accounting  standards  as
     components of comprehensive income be reported in financial statements that
     are  displayed  with the same  prominence  as other  financial  statements.
     Accumulated  other  comprehensive  income as reported  in the  accompanying
     consolidated balance sheet represents unrealized loss on available for sale
     securities.

     (R) Reclassifications

     For comparative  purposes,  prior years' consolidated  financial statements
     have been  reclassified  to  conform  with  report  classifications  of the
     current year.


     (S) New Accounting Pronouncements

     On May 15, 2003,  the Financial  Accounting  Standards  Board (FASB) issued
     FASB  Statement  No.  150  (FAS  150),  Accounting  for  Certain  Financial
     Instruments with  Characteristics  of both Liabilities and Equity.  FAS 150
     changes  the  accounting  for certain  financial  instruments  that,  under
     previous guidance,  could be classified as equity or "mezzanine" equity, by
     now requiring those  instruments to be classified as liabilities (or assets
     in some circumstances) in the statement of financial position. Further, FAS
     150  requires  disclosure  regarding  the  terms of those  instruments  and
     settlement alternatives.  FAS 150 affects an entity's classification of the
     following freestanding  instruments:  a) Mandatorily redeemable instruments
     b) Financial  instruments to repurchase an entity's own equity  instruments
     c)  Financial  instruments  embodying  obligations  that the issuer must or


                                      F-11

<PAGE>
     could choose to settle by issuing a variable  number of its shares or other
     equity  instruments  based solely on (i) a fixed  monetary  amount known at
     inception  or  (ii)  something   other  than  changes  in  its  own  equity
     instruments  d) FAS 150 does not apply to features  embedded in a financial
     instrument  that is not a derivative in its  entirety.  The guidance in FAS
     150 is generally  effective for all financial  instruments  entered into or
     modified after May 31, 2003, and is otherwise effective at the beginning of
     the first  interim  period  beginning  after  June 15,  2003.  For  private
     companies,  mandatorily redeemable financial instruments are subject to the
     provisions of FAS 150 for the fiscal period  beginning  after  December 15,
     2003.  The adoption of SFAS No. 150 does not have a material  impact on the
     Company's financial position or results of operations or cash flows.

     In December 2003, the Financial  Accounting Standards Board (FASB) issued a
     revised   Interpretation  No.  46,   "Consolidation  of  Variable  Interest
     Entities"   (FIN  46R).  FIN  46R  addresses   consolidation   by  business
     enterprises of variable  interest  entities and  significantly  changes the
     consolidation  application of consolidation  policies to variable  interest
     entities and, thus improves  comparability  between  enterprises engaged in
     similar  activities when those  activities are conducted  through  variable
     interest  entities.  The  Company  does  not  hold  any  variable  interest
     entities.

     (T) Principles of Consolidation

     The  accompanying  consolidated  financial  statements  for the years ended
     December  31,  2003  and  2002  include  the  accounts  of  Elephant   Talk
     Communications,  Inc.,  its  100%  wholly-owned  subsidiary  Elephant  Talk
     Limited. All significant  inter-company accounts and transactions have been
     eliminated in consolidation.

     (U) Supplemental Disclosure of Non-cash Investing and Financing Activities

     The cash flow  statements do not include the following  non-cash  investing
     and financing activities. In 2003, the Company issued 624,172 common shares
     to  directors  as fees for  attending  board  meetings,  valued at $70,000;
     2,818,675  common  shares  valued at $342,000 to officers as  compensation;
     367,242  common  shares  valued at $35,000 as bonus to  employees;  360,000
     common shares valued at $108,200 for consulting and advisory services;  and
     6,259,415  common  shares  to  certain  vendors  valued  at  $1,635,448  in
     settlement of debt of Elephant Talk Ltd.

     In 2002,  the Company issued  1,810,000  shares of common stock against the
     consulting and advisory services amounting $579,200.

NOTE 2   MARKETABLE SECURITIES

     The Company's securities are classified as available-for-sale and, as such,
     are carried at fair value.  All of the  securities  comprised  of shares of
     common stock of investee.  Securities classified as available-for-sale  may
     be sold in response to changes in interest rates,  liquidity needs, and for
     other purposes. The Company does not currently have any held-to-maturity or
     trading securities.





                                      F-12

<PAGE>

     Unrealized holding gains and losses for  available-for-sale  securities are
     excluded   from   earnings  and   reported  as  a  separate   component  of
     stockholder's  equity.  Realized gains and losses for securities classified
     as available-for-sale are reported in earnings based upon the adjusted cost
     of the specific security sold. On December 31, 2003, the Company determined
     that the  investment in marketable  securities was at zero value based upon
     the fair value of the  marketable  securities  on December  31,  2003.  The
     Company  determined the decline in value of the  marketable  securities was
     permanent and therefore,  recorded  an impairment on investments  amounting
     to $10,835.


NOTE 3   ACCOUNTS RECEIVABLE

     Accounts receivable at December 31 consisted of the following:

                                                                2003
                                                         ------------------

     Accounts receivable                                $           176,192
     Less allowance for doubtful accounts                           (20,000)
                                                         ------------------
                                                        $           156,192
                                                         ==================

     For the years  ended  December  31, 2003 and 2002,  the Company  recorded a
     provision for doubtful accounts of $20,000 and $33,722, respectively in its
     statement of operations.

NOTE 4   PROPERTY AND EQUIPMENT

     Property and equipment at December 31, 2003 consisted of the following:

                                                                2003
                                                         ------------------

     Office and computer equipment                      $         3,924,440
     Equipment under capital lease                                  213,977
     Leasehold improvement                                            6,410
     Furniture and fixtures                                          91,649
     Less accumulated depreciation and amortization              (4,032,711)
                                                         ------------------
                                                        $           203,765
                                                         ==================













                                      F-13

<PAGE>

     Depreciation and amortization  expense for the year ended December 31, 2003
     and 2002 was $265,841 and $487,685, respectively.

NOTE 5   INVESTMENT IN AFFILIATE

     The investment held by the Company consists of a 35.42% ownership  interest
     in ETNS  Singapore  Pte, Ltd. The investment is accounted for on the equity
     method. Pertinent financial information for ETNS Singapore, Pte, Ltd. as of
     December 31, 2003 is as follows:

       ------------------------------------ --- ------------- --- --------------
       Balance Sheet:
       ------------------------------------ --- ------------- --- --------------
              Assets                                           $        639,690
       ------------------------------------ --- ------------- --- --------------
              Liabilities                                               (54,120)
       ------------------------------------ --- ------------- --- --------------
              Equity                                                    585,570
       ------------------------------------ --- ------------- --- --------------
              Company's ownership                                         35.42%
       ------------------------------------ --- ------------- --- --------------
              Inventment on equity basis                                207,409
       ------------------------------------ --- ------------- --- --------------
              Impairment of investment                                 (106,456)
       ------------------------------------ --- ------------- --- --------------
              Value of equity investment                       $        100,953
                                                                     ===========
              on December 31, 2003
       ------------------------------------ --- ------------- --- --------------

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

       ------------------------------------ --- ------------- --- --------------
       Income Statement
       ------------------------------------ --- ------------- --- --------------
              Revenues                       $     2,645,950
       ------------------------------------ --- ------------- --- --------------
              Expenses                             2,738,623
       ------------------------------------ --- ------------- --- --------------
              Net Loss                              (92,673)
       ------------------------------------ --- ------------- --- --------------
                                                      35.42%
       ------------------------------------ --- ------------- --- --------------
       Company's share of net loss           $      (32,825)

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

     In May 2000,  the Company  acquired a 64.9% interest in ETNS Singapore Pte,
     Ltd. for $147,760.  In October 2000, the Company's  interest  decrease from
     64.9% to 42.9% due to the sale of  additional  shares of stock to unrelated
     parties  and was  further  reduced in 2001 to 39% and 35.42% in 2003 due to
     the sale of additional  shares of stock to unrelated  parties.  The Company
     did not record any goodwill as a result of the original  investment  or any
     additional  investments since the date of acquisition.  The Company's share


                                      F-14

<PAGE>

     of loss for 2003 was  $32,825  compared  to a loss of  $3,356  in 2002.  On
     December 31, 2003,  the Company  recorded an impairment  of the  investment
     based upon future  realization  of the  investment  for cash  amounting  to
     $100,953 resulting in the impairment of $106,456 in the year ended December
     31, 2003.

NOTE 6   DUE FROM RELATED PARTIES

     During 2003, the Company  advanced  funds to entities that officers  and/or
     shareholders have an ownership interest in. The balances as of December 31,
     2003 are:

                                                                       2003
                                                                ----------------

     Due from ET Network Services, Ltd.                        $     409,931

     Due from entity related to a director and shareholder             5,682

     Due from entities related to shareholders                       137,735
                                                                ----------------

                                                               $     553,348
                                                                ================

     The amounts are due on demand,  unsecured and carry interest at the rate of
     six percent (6%) per year.  Total interest  income from the related parties
     amounted to $57,000 and $102,039 for the years ended  December 31, 2003 and
     2002. The Company  provided an allowance for doubtful  accounts of $400,000
     and  $240,000 on amounts  due from  entities  related to certain  officers,
     directors and shareholders at December 31, 2003 and 2002.

NOTE 7   NOTE PAYABLE

     The Company entered into three term loan agreements for  notes  payable of:
       (i)   $282,051, due on  January  16,  2005.  Interest  is charged on the
             outstanding balance at the Bank's prime interest rate.
       (ii)  $200,000, due on December 24, 2011,  requiring payments of monthly
             installments of $2,677 with interest  at  1.5%  above  the  Bank's
             prime rate.
       (iii) $408,975, due on December 24, 2006,  requiring payments of monthly
             Installments  of  $12,535  with  interest  at 1.5% above the Bank'
             prime rate.

     The Company has a standby line of credit for  $591,026  with a bank in Hong
     Kong, which is personally guaranteed by four of the Company's shareholders.
     The standby line of credit is utilized by the Company for security purposes
     as well as for the  working  capital  requirements  of the  Company and its
     affiliates. At December 31, 2003, the total utilized balance of the standby
     line of credit was $279,705 of which the balance  receivable from a related
     party was $129,829.  The Company has an outstanding  receivable of $409,931
     from the same  related  party at December  31,  2003.  The standby  line of
     credit will expire on January 16, 2005.



                                      F-15

<PAGE>
NOTE 8   DUE TO RELATED PARTIES

     During 2003,  the Company  received  advances  from  entities  that certain
     officers and/or shareholders have an ownership interest. The balances as of
     December 31, 2003 are:

                                                                    2003
                                                             ------------------

     Due to entities related to certain officers,
     directors and shareholders                             $           157,409

     Due to directors                                                    12,875

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

                                                            $           170,284
                                                             ==================

     The amount due to  entities  related to  certain  officers,  directors  and
     shareholders is due on demand,  unsecured and carry interest at the rate of
     six percent (6%) per year.  Total interest expense from the related parties
     amounted to $10,200 and $86,773 for the years ended  December  31, 2003 and
     2002, respectively.

NOTE 9   STOCKHOLDERS' DEFICIENCY

     Common Stock

     The Company is presently  authorized to issue 250,000,000  shares of no par
     value Common Stock. The Company  currently has 51,867,714 shares issued and
     outstanding.  The  holders of common  stock,  and of shares  issuable  upon
     exercise of any Warrants or Options,  are entitled to equal  dividends  and
     distributions,  per share, with respect to the common stock when, as and if
     declared by the Board of Directors from funds legally available  therefore.
     No  holder  of any  shares  of  common  stock  has a  pre-emptive  right to
     subscribe  for any  securities  of the  Company  nor are any common  shares
     subject to redemption or convertible  into other securities of the Company.
     Upon  liquidation,  dissolution  or  winding up of the  Company,  and after
     payment of creditors and preferred stockholders, if any, the assets will be
     divided pro-rata on a share-for-share basis among the holders of the shares
     of common stock. All shares of common stock now outstanding are fully paid,
     validly issued and  non-assessable.  Each share of common stock is entitled
     to one vote with  respect  to the  election  of any  director  or any other
     matter upon which  shareholders are required or permitted to vote.  Holders
     of the Company's common stock do not have cumulative voting rights, so that
     the holders of more than 50% of the combined shares voting for the election
     of directors may elect all of the  directors,  if they choose to do so and,
     in that  event,  the  holders of the  remaining  shares will not be able to
     elect any members to the Board of Directors.

     In April 1999,  the Company  issued  5,500,000  common  shares for $991,581
     under a Rule 504 Regulation D offering.  The Company  received  $529,500 in
     cash and  $51,300 in services  rendered.  The  remaining  $410,781 in stock
     issued  remained  unpaid and was offset  against  the share  capital in the


                                      F-16

<PAGE>

     accompanying financial statements as of December 31, 2002. These subscribed
     and issued,  but unpaid shares are covered by the promissory  notes payable
     to the Company. The promissory notes are secured with recourse in corporate
     stock of an  unrelated  corporation,  and were due and payable on or before
     March 28, 2002.

     The  Company  has an  employee  benefit  plan (see Note 14). On January 17,
     2001,  a total of  1,700,000  common  shares were granted and issued to the
     former President and Chief Executive  Officer.  These shares are restricted
     and are valued at $0.005 per share, for a total consideration of $8,500.

     During 2002, the Company issued  1,810,000 common shares to consultants for
     services  performed  during the year.  The  company  recorded an expense of
     $579,200 in expenses for issuance of such shares. The shares were valued at
     the current market price on the date of issuance.

     On September 25, 2002,  the Company issued  5,000,000  common shares to The
     Hartcourt  Companies,  Inc. pursuant to a spin-off agreement that completed
     on January 4, 2003.  The shares were valued at the average  market price of
     five  days  trading  before  and after the date of  issuance.  The  Company
     recorded a value of the shares at  $320,000 in the  accompanying  financial
     statements.

     During  2003,  the  Company  issued  367,242  common  shares to certain key
     employees as bonus.  The Company  recorded a value of the shares at $35,000
     in the  accompanying  financial  statements.  During 2003, the Company also
     issued 360,000 common shares to  consultants  for providing  consulting and
     advisory  services.  The Company recorded a value of the shares at $108,200
     in the  accompanying  financial  statements.  The shares were valued at the
     average  market  price of five days  trading  before  and after the date of
     issuance.

     During 2003,  the Company  issued  6,259,415  shares to certain  vendors in
     settlement of their debts  amounting to $1,635,448.  The shares were valued
     at the average  market price of five days trading before and after the date
     of issuance.

     Class B Preferred Stock

     The Company's Articles of Incorporation  (Articles") authorize the issuance
     of 50,000,000  shares of no par value Class B Preferred Stock. No shares of
     Preferred Stock are currently issued and  outstanding.  Under the Company's
     Articles,  the Board of Directors has the power,  without further action by
     the holders of the Common  Stock,  to  designate  the  relative  rights and
     preferences of the preferred  stock,  and issue the preferred stock in such
     one or more series as designated by the Board of Directors. The designation
     of rights and  preferences  could include  preferences  as to  liquidation,
     redemption  and  conversion  rights,  voting  rights,  dividends  or  other
     preferences, any of which may be dilutive of the interest of the holders of
     the Common Stock or the Preferred  Stock of any other series.  The issuance
     of Preferred  Stock may have the effect of delaying or  preventing a change
     in  control  of the  Company  without  further  shareholder  action and may
     adversely  affect the rights and powers,  including  voting rights,  of the
     holders  of  Common  Stock.  In  certain  circumstances,  the  issuance  of
     preferred stock could depress the market price of the Common Stock.

                                      F-17

<PAGE>
     (A) Stock Issued for Services

     During 2003 and 2002,  the Company  issued  3,442,847 and 1,810,000  common
     shares  for  services  to  officers  and  directors  valued  for  financial
     accounting  purposes  based upon the then most recent cash offering  price.
     Accordingly,  compensation  expense of $412,000 and $579,200 was recognized
     in 2003 and 2002, respectively.

     (B) Stock Issued for settlement of Debt

     During 2003,  the Company  issued  6,259,415  shares to certain  vendors in
     settlement of their debts  amounting to $1,635,448.  The shares were valued
     at the average  market price of five days trading before and after the date
     of issuance.  The Company recorded  a  loss  of  $416,787  on settlement of
     debt.

NOTE 10  RELATED PARTY TRANSACTIONS

(A)      Elephant Talk, Inc.

     During  2003 and 2002,  the  Company  provided  calling  capacity  and paid
     commissions on prepaid calling card sales with a company related to certain
     officers, directors and shareholders.
                                               2003                   2002
                                        ------------------     -----------------

     Capacity costs (included in
     cost of revenue)                  $           123,823    $        3,470,851
                                        ==================     =================

     Commissions paid (included
     in operating expenses)            $                 -    $           73,419
                                        ==================     =================

     (B) ET Network Services, Ltd.

     During 2003 and 2002, the Company  provided  management and  administrative
     services  to  a  company  related  to  certain   officers,   directors  and
     shareholders.  The  total  amount  of  services  during  2003 and 2002 were
     $22,031 and $89,894, respectively.

     During   2003  and  2002,   the  Company  was   provided   management   and
     administrative  services  from  a  company  related  to  certain  officers,
     directors and  shareholders.  The total amount of services  during 2003 and
     2002 were $181,199 and $429,028, respectively.

     (C) Well Gear Inc.

     During 2003, the Company  received income and incurred carrier charges from
     a company related to certain officers, directors and shareholder. The total
     amount of income  received  was $14,170 and carrier  charges  incurred  was
     $20,229.

NOTE 11  COMMITMENTS AND CONTINGENCIES

     (A) Operating Leases

                                      F-18

<PAGE>

     The  Company  leases  its  corporate  office  space  under a month to month
     operating lease.  Monthly rental expense under the lease is $331 per month.
     Rent expense under  operating  leases for the years ended December 31, 2003
     and 2002 was $3,918 and $33,538, respectively.

     (B) Capital Lease Agreements

     Capital leases are summarized as follows at December 31:

                                               2003                  2002
                                        -----------------     -----------------
     Office equipment, 9.07% interest
       per annum, secured by equipment $                -    $            2,258

     Communications equipment, secured
       by equipment                                14,018                15,856

     Communications equipment, 11.57%
       interest per annum, secured by
       communications equipment                         -                26,338
                                        -----------------     -----------------
                                                   14,018                44,452
         Less: current portion                    (14,018)              (44,452)
                                        -----------------     -----------------
                                       $                -    $                -
                                        =================     =================

     Future  minimum  lease  payments  under  capital  leases  are as follows at
     December 31, 2003:

            2004                                        $           14,018
                                                           -----------------
            Total lease payments                                    14,018
            Less: interest                                               -
                                                           -----------------
                 Total                                  $           14,018
                                                           =================


NOTE 12  INCOME TAXES

     Income tax expense (benefit) for the years ended December 31, 2003 and 2002
     is summarized as follows:

                                               2003                2002
                                         ---------------     ----------------
     Current:
       Federal                           $    (1,190,000)    $       (707,200)
       State                                    (210,000)            (124,800)
     Deferred taxes                            1,399,200              833,600
                                         ===============     ================
     Income tax expense                  $           800     $          1,600
                                         ===============     ================


                                      F-19

<PAGE>

     The following is a reconciliation  of the provision for income taxes at the
     U.S.  federal  income  tax  rate  to  the  income  taxes  reflected  in the
     Consolidated Statements of Operations:

                                        December 31,            December 31,
                                           2003                     2002
                                      ----------------        -----------------

     Tax expense (credit) at
       statutory rate-federal                  (34%)                     (34%)
     State tax expense net of federal tax       (6%)                      (6%)
     Permanent differences                       -                         1%
     Valuation allowance                        40%                       39%
                                      -----------------       -----------------

     Tax expense at actual rate                  -                         -
                                      =================       =================

     The tax  effects of  temporary  differences  that gave rise to  significant
     portions of deferred tax assets and liabilities at December 31, 2003 are as
     follows:

       Deferred tax assets:
       Net operating loss carry forward                       $     2,680,000
                                                              -----------------
          Total gross deferred tax assets                           2,680,000
       Less valuation allowance                                    (2,680,000)
                                                              -----------------
       Net deferred tax assets                                $             -
                                                              =================

     At December 31, 2003,  the Company had net operating loss carry forwards of
     approximately  $6,700,000 for U.S. federal income tax purposes available to
     offset future taxable income expiring on various dates through 2017.

     The net change in the valuation  allowance  during the year ended  December
     31, 2003 and 2002 was an increase of $1,400,000 and $349,000, respectively.


NOTE 13  CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS

     During  2003 and 2002,  the Company  received  42% and 71.9% of its revenue
     from three  customers.  The Company had accounts  receivable due from these
     three customers in 2003 and 2002 of $12,071 and $117,070 respectively.

     During  2003 and 2002,  the  Company  purchased  10% and 39% of its calling
     capacity from one supplier.

NOTE 14  EMPLOYEE BENEFIT PLAN

     The Company  adopted an employee  benefit plan "The 2000  Employee  Benefit
     Plan" (the "Plan") on May 30, 2000.  Under the Plan,  the Company may issue
     shares or grant  options to acquire  the  Company's  common  stock,  no par
     value,  from time to time to employees of the Company or its  subsidiaries.


                                      F-20

<PAGE>

     In addition,  at the  discretion of the Board of  Directors,  shares may be
     granted  under this Plan to other  individuals,  including  consultants  or
     advisors, who contribute to the success of the Company or its subsidiaries,
     provided  that bona fide  services  shall be  rendered by  consultants  and
     advisors and such  services  must not be in  conjunction  with the offer or
     sale of securities in a capital raising transaction. No stock may be issued
     or options granted under the Plan to consultants, advisors or other persons
     who directly or  indirectly  promote or maintain a market for the Company's
     securities.  The Plan is  intended to aid the  Company in  maintaining  and
     developing a management team,  attracting  qualified officers and employees
     capable of assuring the future success of the Company,  and rewarding those
     individuals  who have  contributed to the success of the Company.  The Plan
     Administrators  under the  direction of the Board of Directors  administers
     the  Plan.  A total of four  million  (4,000,000)  common  shares  and four
     million  (4,000,000) options to acquire common shares may be subject to, or
     issued pursuant to, benefits  granted under the Plan. At any time any stock
     option is granted  under the terms of this Plan,  the Company  will reserve
     for issuance the number of shares of Stock  subject to suck option until it
     is exercised or expired.  The Plan Administrator  shall determine from time
     to time the terms,  conditions  and price of the options  granted.  Options
     shall not be  construed  to be stock  and  cannot  be  exercised  after the
     expiration of its term.

     On January 17, 2001, the Company granted and issued 1,700,000 common shares
     at a price of $0.005 per share for a total  consideration  of  $8,500.  The
     Company did not grant any options  under the Plan as of December  31, 2003.
     Under the Plan 2,300,000  shares of common stock remain available for grant
     at December 31, 2003. On April 11, 2002, the Company  granted  options to a
     consultant to acquire 2,000,000 shares of the Company's Common Stock at the
     exercise price of $0.32 per share.  The options had an expiry date of April
     11,  2003.  The  options  were  to be  vested  subject  to  performance  of
     consulting and advisory services.  The parties mutually agreed to terminate
     the  consulting  and advisory  agreement  and option  agreement in December
     2002.

NOTE 15  GOING CONCERN

     The accompanying  consolidated  financial  statements have been prepared in
     conformity with generally accepted accounting  principles which contemplate
     continuation of the company as a going concern. However, the Company has an
     accumulated  deficit of $8,389,448 at December 31, 2003 which  includes net
     losses of $3.844,283  (A) Stock Issued for Services and  $2,064,803 for the
     years ended December 31, 2003 and 2002,  respectively.  The Company's total
     liabilities  exceed its total assets by $1,904,650.  In view of the matters
     described  above,  recoverability  of a major portion of the recorded asset
     amounts shown in the accompanying  consolidated  balance sheet is dependent
     upon continued  operations of the company,  which in turn is dependent upon
     the Company's  ability to raise  additional  capital,  obtain financing and
     succeed in its future operations.  The financial  statements do not include
     any  adjustments  relating  to the  recoverability  and  classification  of
     recorded asset amounts or amounts and  classification  of liabilities  that
     might be  necessary  should the  Company be unable to  continue  as a going
     concern.

     Management  has  taken the  following  steps to revise  its  operating  and

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     financial  requirements,  which it believes are  sufficient  to provide the
     Company  with the ability to continue  as a going  concern.  The Company is
     actively  pursuing  additional  funding and potential merger or acquisition
     candidates  and  strategic  partners,  which  would  enhance  stockholders'
     investment.  Management  believes  that the above  actions  will  allow the
     Company to continue operations through the next fiscal year.

NOTE 16  SUBSEQUENT EVENTS

     Sale of equity  interest  in ETNS  Singapore - On February  18,  2004,  the
     Company's wholly-owned subsidiary Elephant Talk Ltd. sold all of its 35.42%
     equity  interest in ETNS Singapore for $100,953.  Based upon the realizable
     value of the investment, the Company recorded its equity investment in ETNS
     Singapore at $100,953 which resulted in impairment of $106,456.

     Sale of Shares to an  accredited  investor - On March 1, 2004,  the Company
     entered into a Stock Sale Agreement with an investor who agreed to purchase
     2,000,000 restricted (Rule 144 one year restriction) for a consideration of
     $300,000. The restricted common shares were issued on March 3, 2004 and the
     Company received $300,000.

     On March 30, 2004, the Company issued  2,152,778  restricted  (Rule 144 one
     year  restriction)  common shares valued at $358,228 to entities related to
     certain officers, directors and shareholders in partial settlement of their
     debt owed by the Company's wholly-owned subsidiary Elephant Talk Ltd.































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