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]

                     For fiscal year ended December 31, 2002

[ ]     TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934 [No Fee Required]

                        Commission file number 000-30061

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

            CALIFORNIA                                    95-4557538
      ----------------------                 ----------------------------------
     (State of incorporation)               (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 ]

         Issuer's revenues for most recent fiscal year: $5,672,284

         State the aggregate market value of voting stock held by non-affiliates
computed by reference  to the price at which the stock was sold,  or the average
bid and asked  prices of such stock,  as of a specified  date within the past 60
days: As of March 11, 2003, $693,037.

         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 11, 2003, there
were 41,438,210 shares of common stock outstanding.

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<PAGE>
                       ELEPHANT TALK COMMUNICATIONS, INC.

                         2002 Form 10-KSB Annual Report
                                Table of Contents

                                                                        Page
                                                                        ----
                                     PART I

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

Item 2.   Description of Property......................................  20

Item 3.   Legal Proceedings............................................  20

Item 4.   Submission of Matters to a Vote of Security Holders..........  20

                                     PART II

Item 5.   Market for Common Equity and Related Stockholder Matters.....  21

Item 6.   Management's Discussion and Analysis or Plan of Operation....  22

Item 7.   Consolidated Financial Statements............................  26

Item 8.   Changes in and Disagreements with Accountants on
          Accounting and Financial Disclosure..........................  26

                                    PART III

Item 9.   Directors, Executive Officers, Promoters and Control Persons;
          Compliance With Section 16(a) of the Exchange Act............  27

Item 10.  Executive Compensation.......................................  28

Item 11.  Security Ownership of Certain Beneficial Owners and Management 29

Item 12.  Certain Relationships and Related Transactions...............  32

                                     PART IV

Item 13.  Exhibits, and Reports on Form 8-K............................  33

Item 14.  Controls And Procedures .....................................  33

          Signatures...................................................  34











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Explanatory Note:

Unless otherwise  indicated or the context  otherwise  requires,  all references
herein to the "Company" is 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
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,

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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 200 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
PC-to-Phone service, eTalk.  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

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Kong.  Elephant Talk Limited owns switching  facilities in China, Hong Kong, the
United  States  and  Singapore,  which the  Company  now owns as a result of the
Merger.  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
a packet switched system.  These systems are installed at the company's  Network
Operation  Centre in Kwun  Tong,  Hong Kong and  Boston,  Mass.  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.



                                        5
<PAGE>

 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.

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.


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.

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<PAGE>
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
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 the 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


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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.
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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<PAGE>
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.

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 August
2002. 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 near 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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<PAGE>
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 2002.


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
Who 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
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.

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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.

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



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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 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


                                       12
<PAGE>
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

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


                                       13
<PAGE>
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,
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, and our ability to deliver our 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


                                       14
<PAGE>
foresee  events  that  could  have an  adverse  effect on our  business  or your
investment.

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

Hicent Telecom (USA) Inc.: On December 15, 2002, ElephantTalk signed a Letter of
Intent to acquire  100  percent of Hicent  Telecom  (USA)  Inc.  ("Hicent  USA")
(www.hicent.com).  Hicent USA is a medium-sized  international  exchange carrier
with an exclusive relationship with Saigon Post  Telecommunications  Corp. (SPT)
one of Vietnam's three licensed telecom operators.  The transaction will provide
ElephantTalk  significant  additional corporate and wholesale  telecommunication
clients and expand the company's  established direct routing to transcontinental
operating hubs, satellite connections,  and related technical support facilities
throughout the region with a strong operational emphasis in Indo-China.

Hicent USA has  points of  presence  (POPs)  assets in Los  Angeles,  Hong Kong,
Vietnam,  and PRC.  The  company  has strong  relationships  with local ISPs and
international  carriers in the Indo-China regions, and provides direct routes to
China and Vietnam. Hicent USA records over 1.8 million calling minutes per month
to Vietnam  and has a traffic  termination  agreement  with SPT.  SPT owns legal
licenses  for   international   telecom  access  as  a  result  of  the  Vietnam
government's official issuance of telecommunications  business licenses in 1997.
Since opening its telecom markets, Vietnam has proceeded on a government-planned
and  regulated  pace  maintaining   significantly  higher  profit  margins  over
de-regulated  markets,  which are expected to continue  over the next few years.
Hicent USA is  expected to be  profitable  with annual  unaudited  revenues  for
fiscal 2002 projected to increase over $7.4 million.

Hicent USA's  presence and  relationship  with major  operators  throughout  the
region, especially Vietnam and China adds significant strength to ElephantTalk's
business.  This acquisition will  significantly  deepen our market  penetration,
expand our reach in the region and will enhance further co-operation and synergy
with   operators   in  Vietnam,   as  well  as   perfecting   our  backbone  for
voice-over-internet-protocol  (VoIP) roll out in Indo-China  and South Asia. The
addition of Hicent USA's  networks,  facilities,  and connections is expected to
put  ElephantTalk in a favorable  position when tapping the Indo-China  markets.
Furthermore,  this will bring an increase in efficiencies,  lower operating cost
per minute,  provide quicker time to market,  and improve profit margins for our
consolidated  operations.  This is the first big step in our  strategy to expand


                                       15
<PAGE>
our strong foothold in the emerging Asian telecom markets,  which still have low
user  penetration  and have yet to be fully  deregulated.  ElephantTalk is being
positioned to take advantage of their tremendous untapped potential."

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

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<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.

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

                                       17
<PAGE>
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  licenses 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  licenses,  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 licenses 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 License is granted.

PNETS  licenses  are  customarily  granted  for 1-year  terms and are  renewable
annually. On the basis that ETL has successfully renewed its licenses 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  licenses  will  be  renewed  upon
expiration.  The failure to obtain a renewal of its PNETS  licenses 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.

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

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<PAGE>
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 License and ISP
licenses 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 ET
Network  Services,  Limited  ("ETNS").  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 its business  plans 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
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.





                                       19
<PAGE>
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 $324 with no  escalation  of monthly
rent during the lease term.

Elephant Talk Limited currently occupies the following portions of spaces leased
by 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 November  29,  2002.  The  shareholders
elected Mr.  Russelle Choi, Mr. Pius Lam, Mr. Thomas Wong, Mr. Manu Ohri and Mr.
Ken Ieong to one-year term as directors. Additionally, the shareholders ratified
the  appointment  of Kabani  and  Company,  Inc.  as the  Company's  independent
auditor.












                                       20
<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, 2002,
2001 and 2000:

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

-------------------     --------     --------     ----------     ---------
March 31, 2000          $  0.08      $  0.04       $  0.08         $  0.04
-------------------     --------     --------     ----------     ---------
June 30, 2000              0.06         0.00          0.06            0.00
-------------------     --------     --------     ----------     ---------
September 30, 2000         0.06         0.02          0.06            0.02
-------------------     --------     --------     ----------     ---------
December 31, 2000          0.02         0.04          0.02            0.04
-------------------     --------     --------     ----------     ---------
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
-------------------     --------     --------     ----------     ---------


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, 2002, there were broker-dealers publishing quotes
for the common stock.

Holders

At March 11, 2003, ElephantTalk had approximately 1,700 holders of record of its
common stock holding a total of 41,438,210  shares of common stock.  The holders
of common  stock are  entitled  to one vote for each share held of record on all


                                       21
<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  4,005,446  and  3,267,689  outstanding  Rule 144  shares  held by
principal and directors exist at December 31, 2002 and 2001, 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).

Warrants

At March 11,  2003,  there were no warrants  outstanding  convertible  to common
stock.  During 2002 and 2001, 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
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.


                                       22
<PAGE>
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, 2002 and December 31, 2001.

The results of  operations  of  ElephantTalk  for 2002  primarily  consisted  of
operations  of Elephant Talk  Communications,  Inc.,  Elephant  Talk Limited,  a
wholly-owned subsidiary and its 39% equity investment interest in ETNS Singapore
Pte. Ltd. The results of operations for 2001  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 $5,672,284 and
$11,087,981  during the year ended  December  31,  2002 and 2001,  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.
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

                                       23
<PAGE>
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 2002 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).  Partially
offsetting  the items  contributing  to the  decrease  in total  revenue was the
introduction of eTalk - a PC to phone service offered in China through  pre-paid
call  arrangements  since the third quarter of 2002,  which saw small revenue in
the year but is expected to be more significant in future years.

Cost of revenue was $5,524,800 and  $10,509,701 for the years ended December 31,
2002 and 2001,  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, 2002 reduced to 2.6% compared to 5.2% for the year ended  December 31, 2001.
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.  Although our mix improved  towards a
preferred  blend of  pre-paid  mode versus  post-paid  mode,  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.  Partially  offsetting  this
situation was a rebate  confirmed  from Office of  Telecommunications  Authority
("OFTA") in Hong Kong, regarding volume charges of $110,000.

Selling,  General and  Administrative  Expenses  (S,G&A):  S,G&A  expenses  were
$1,531,772  and  $1,330,172  for the years  ended  December  31,  2002 and 2001,
respectively.  S,G&A  expenses as a  percentage  of revenues  increased to 27.0%
during the year  December  31,  2002  compared  to 11.99% in 2001.  The  Company
completed its  acquisition of Elephant Talk Limited in January 2002 and incurred
expenses  in  excess  of  $576,000  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.
The Company did not incur such expenses in 2001.  Although the Company's revenue
base in 2002 was reduced by 48.8%,  provision for bad debt increased to $308,075
in 2002  compared  to  $33,722 in 2001  primarily  due to the  current  economic
climate in the telecommunications industry. This was partly offset by absence of
bonus to the  management in 2002 compared to $641,000  incurred in 2001.  During
2002, the Company  utilized its resources  efficiently,  reduced payroll expense
and rent due to the downturn in economic and market  conditions in Hong Kong and
through right-sizing of the organization.

Other Income and  Expenses:  Other income was $177,067 and $62,500 for the years
ended December 31, 2002 and 2001, respectively.  Other income was represented by
interest income earned on a promissory note from  affiliates.  Interest  expense
was $125,019 in 2002 compared to $52,786 in 2001.  Reduction in interest expense
was due to pay-off of the  shareholders'  loans by the Company  during the first
six months of the year. In addition,  the Company lost $3,356 for the year ended
December 31, 2002 on its equity investment in ETNS Singapore, Pte. Ltd. compared



                                       24
<PAGE>
to income of $59,976  for the same  period in 2001.  During  2002,  the  Company
recorded impairment of fixed assets amounting $239,990.  There was no impairment
of fixed assets in 2001.

Comprehensive   Loss:   The  Company's   investments   comprised  of  marketable
securities,  all  classified  as  available-for-sale,  are carried at their fair
value based upon the quoted  market  prices of the  investments  at December 31,
2002 and  2001,  respectively.  Accordingly,  unrealized  gains and  losses  are
included in  stockholders'  equity as other  comprehensive  income or loss.  The
marketable  securities  are restricted as of December 31, 2002 and therefore not
included in current assets.  The company recorded an unrealized loss of $300,000
during the year ended December 31, 2002 compared to $259,000 in 2001.

Liquidity and Capital Resources:  The Company's  principal capital  requirements
during  the  year  2003  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  $2,064,803  for the year ended  December  31, 2002 as compared to a net
loss of  $1,305,656  for the same period in 2001.  Additionally,  ElephantTalk's
current  liabilities  exceeded its current assets by $ 3,603,290 at December 31,
2002.  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,  2002  amounted  to  $205,266  compared  to net cash  provided  by
operating  activities of $1,099,435 for the same period in 2001. The decrease in
net cash in  operating  activities  resulted  primarily  due to the  decrease in
accounts  payable and accrued  expenses of $1,227,200  in the current  period as
compared  to increase in  accounts  payable  and accrued  expenses of  $375,720,
increase in other  payables  and  customer  deposits of $106,915 and decrease in
accounts receivable of $447,891 in the corresponding period of last year.

Investing  activities.  Net cash used in  investing  activities  during the year
ended December 31, 2002, was $39,404  compared to $87,221 for the same period in
2001. Cash was primarily used to purchase  property and equipment of $15,538 and
investment  in ETNS  Singapore  Pte,  Ltd. of $23,866  during  2002  compared to
purchase of property and equipment of $33,375 and  investment in ETNS  Singapore
Pte, Ltd. of $53,846 for the same period in 2001.

Financing activities.  Net cash provided by financing activities during the year
ended  December  31,  2002  was  $231,629  compared  to cash  used in  financing
activities of $1,022,260  during the same period in 2001.  Net cash was provided
due to net proceeds  received from related parties  amounting to $300,415 during
2002  compared  to net cash used in  payments to related  parties  amounting  to
$1,366,232,  payments on capital  leases of $61,457 and payment of notes payable
of $74,827.

                                       25
<PAGE>
As a result of the above activities,  the Company  experienced a net increase in
cash and cash  equivalents  of $13,041 for the year ended  December  31, 2002 as
compared to a net decrease of $10,046.  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

On July 30, 2002, ElephantTalk appointed Kabani and Company, Inc. ("Kabani"), as
its new  independent  accountants  for the year ended  December  31, 2002 audit.
During the two most recent fiscal years and through July 30, 2002,  ElephantTalk
had not consulted with Kabani regarding either (1) the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on ElephantTalk's  financial statements,
and either a written  report was  provided  to  ElephantTalk  or oral advice was
provided  that  Kabani   concluded  was  an  important   factor   considered  by
ElephantTalk in reaching a decision as to the accounting,  auditing or financial
reporting   issue;  or  (2)  any  matter  that  was  either  the  subject  of  a
disagreement, as that term is defined in Item 304 (a) (1) (iv) of Regulation S-K
and the related  instructions  in Item 304 of  Regulation  S-K, or a  reportable
event, as that term is defined in Item 304 (a) (1) (iv) or Regulation S-K.




























                                       26
<PAGE>
                                    PART III

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

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

  Director Name       Age              Position                           Since
  -----------------------------------------------------------------------------
  Mr. Russelle Choi    48   President and Chief Executive Officer          2002

  Mr. Pius Lam         44   Vice-President and Chief Operating Officer     2002

  Mr. Thomas Wong      39   Vice President and Chief Technical Officer     2002

  Mr. Manu Ohri        47   Executive Vice-President of Finance and
                            Chief Financial Officer                        2002

  Mr. Ken Ieong        39   Chief Communications Officer                   2002


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.

Thomas Wong,  Vice  President and Chief  Technical  Officer:  Mr. Wong is also a
co-founder of the Elephant Talk Limited.  Mr. Wong is primarily  responsible for
the  Company's  technical  functions and network  implementation,  operation and
maintenance.  Mr. Wong is also one of the  co-founders  of New Tech  Information
Systems  Limited  through which he has over 16 years  experience in the computer
and  telecommunications  industries.  Mr.  Wong  earned a  Bachelors  degree  in
Computer Science from University of Massachusetts, USA in 1986.


                                       27
<PAGE>
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 has 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
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. Ken Ieong, Chief  Communications  Officer:  Mr. Ieong is responsible for all
corporate  communications  of  the  Company.  Mr.  Ieong  is  also  one  of  the
co-founders  of Elephant  Talk  Limited in 1994.  From 1988 to 1994,  Mr.  Ieong
worked for New Tech  Information  Systems  Limited where he was  responsible for
marketing and system  implementations.  Mr. Ieong earned his Master's  degree in
Business  Administration  from the  State  University  of New York in 1986 and a
Bachelor's degree in Science from York University, Canada in 1984.

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 for the last three fiscal years. None of our officers earned
more than $100,000 in the last three fiscal years.
















                                       28
<PAGE>
--------------------------------------------------------------------------------
                     ANNUAL COMPENSATION       LONG TERM COMPENSATION
================================================================================
                                                Awards        Payouts
================================================================================
               Year Salary Bonus Other  Restricted Securities  LTIP      All
                     ($)    ($)  Annual   Stock    Underlying Payouts   Other
                                 Compen-  Awards    Options/    ($) Compensation
                                 sation    ($)        SARs               ($)
                                  ($)                 (#)
================================================================================
Russelle Choi, 2002  $0     $0    $0       $0          0         $0      $0
President and  2001  $0     $0    $0       $0          0         $0      $0
CEO            2000  $0     $0    $0       $0          0         $0      $0
--------------------------------------------------------------------------------
No options or SARs were 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 11, 2003, ElephantTalk
had not issued any common shares to Mr. Choi for his compensation.

On August 1, 2001,  Elephant Talk Limited  executed a letter of intent employing
the services of Mr. Zhong Hua Li for a three-year term at the rate of $5,500 per
month. Mr. Li had the expertise in marketing of prepaid  telephone calling cards
of Elephant Talk Limited to distributors in the large  metropolitan areas in the
U.S.  The letter of intent of employing  Mr. Li's  services  was  terminated  by
mutual  consent of both parties in April 2002.  The Company is not  obligated to
pay any further compensation to Mr. Li subsequent to his termination.

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, 2002 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.




                                       29
<PAGE>
--------  --------------------------------- -------------------- --------------
Title of  Name & Address of                 Amount and Nature of     Percent
Class     Beneficial Owner                  Beneficial Ownership
                                                    (1)
--------  --------------------------------- -------------------- --------------
--------  --------------------------------- -------------------- --------------
Common    Man Eagle Limited                      3,996,969             9.5%
stock     28/F Emperor Group Centre
          288 Hennessy Road, Wanchai
          Hong Kong
--------  --------------------------------- -------------------- --------------
Common    Supreme Luck Management                2,703,832             6.4%
stock     Company Limited
          6/F 24 Des Voeux Road, Central
          Hong Kong
--------  --------------------------------- -------------------- --------------
Common    The Hartcourt Companies, Inc.         17,895,580            43.2%
stock     2500 E. Colorado Blvd., Suite 301
          Pasadena, California 91107
--------  --------------------------------- -------------------- --------------
Common    Russelle Choi, Director                1,763,369             4.3%
stock     8/F, 145-159 Yeung Uk Road
          Tsuen Wan, Hong Kong
--------  --------------------------------- -------------------- --------------
Common    Pius Lam, Director                       587,790             1.4%
stock     8/F, 145-159 Yeung Uk Road
          Tsuen Wan, Hong Kong
--------  --------------------------------- -------------------- --------------
Common    Thomas Wong, Director                    587,790             1.4%
stock     8/F, 145-159 Yeung Uk Road
          Tsuen Wan, Hong Kong
--------  --------------------------------- -------------------- --------------
Common    Manu Ohri, Director                      126,033             0.3%
stock     438 E. Katella Avenue, Suite 217
          Orange, California 92867
--------  --------------------------------- -------------------- --------------
Common    Ken Ieong, Director                      470,232             1.1%
stock     8/F, 145-159 Yeung Uk Road
          Tsuen Wan, Hong Kong
--------  --------------------------------- -------------------- --------------
--------  --------------------------------- -------------------- --------------
          All Officers and Directors             4,005,446             9.7%
          as a group
--------  --------------------------------- -------------------- --------------

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

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


                                       30
<PAGE>
April 11, 2002 which was $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.

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,  2002.  Under the Plan
2,300,000  shares of common  stock  remain  available  for grant at December 31,
2002.

Warrants

The Company does not have any warrants outstanding at December 31, 2002.

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

                                       31
<PAGE>
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.

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 2002 and 2001,  ETI provided  calling  capacity and prepaid  calling card
sales to Elephant  Talk  Limited in the amounts of  $3,470,851  and  $2,861,174,
respectively. Elephant Talk Limited paid commissions to ETI $73,419 and $206,322
for the years ended December 31, 2002 and 2001, 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 1,000,000
shares of common stock are reflected as  Investment in marketable  securities in
the accompanying financial statements at December 31, 2002.

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 will report a
loss  of  $277,613  due  to  the  share  exchange.  The  accompanying  financial
statements for the year ended December 31, 2002 do not reflect the loss incurred
by the Company.







                                       32
<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
------------------------------------

10.1         Agreement  of Merger  and Plan of  Reorganization  Between  Staruni
             Corporation  and Elephant Talk Limited.  Incorporated  by reference
             from the Company's Current Report on Form 8-K, filed on January 18,
             2002. SEC File No. 000-30061. Film No. 02512961 and 02580142.

10.2         Adoption  of the  Fiscal  Year  end of  Elephant  Talk  Limited  as
             Company's Fiscal Year. Incorporated by reference from the Company's
             Current  Report on Form 8-K,  filed on May 16,  2002.  SEC Film No.
             02654000.

10.3         Consulting  fees Agreement.  Dated April 29, 2002.  Incorporated by
             reference  from the Company's  Current Report on Form 8-K, filed on
             April 29, 2002. SEC File No. 333-87112. Film No. 02623607.

10.4         Option  Agreement  with  Tang Wai  Leong.  Dated  April  29,  2002.
             Incorporated by reference from the Company's Current Report on Form
             8-K,  filed on April  29,  2002  SEC File No.  333-87118.  Film No.
             02623728.

16.1         Appointment  of Kabani &  Company,  Certified  Public  Accountants.
             Incorporated by reference from the Company's Current Report on Form
             8-K, filed on August 6, 2002. File No. 02721024.



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.

                                       33
<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:  March 28, 2003                   By: /s/ Russelle Choi
                                        -----------------------------------
                                        Russelle Choi
                                        Chairman of the Board
                                        President & Chief Executive Officer
                                        (Principal Executive Officer)

Date:  March 28, 2003                   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         March 28, 2003
-----------------
Russelle Choi            Officer and Director

/s/ Pius Lam             Chief Operating Officer            March 28, 2003
------------
Pius Lam                 and Director

/s/ Thomas Wong          Chief Technology Officer           March 28, 2003
---------------
Thomas Wong              and Director

/s/ Manu Ohri            Chief Financial Officer            March 28, 2003
-------------
Manu Ohri                and Director

/s/ Ken Ieong            Chief Operating Officer            March 28, 2003
-------------
Ken Ieong                & Director





                                       34
<PAGE>
                           CERTIFICATION OF PRESIDENT
                PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934,
                             RULES 13a-14 AND 15d-14
                             AS ADOPTED PURSUANT TO
                  SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002


I, Russelle Choi, certify that:

1.   I  have  reviewed  this  Annual  Report  on  Form  10-KSB  of Elephant Talk
     Communications, Inc. and its subsidiaries;

2.   Based on my  knowledge,  this  Annual  Report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this Annual Report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this Annual Report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this Annual Report;

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Securities  Exchange Act Rules 13a-14 and 15d-14) for the registrant and
     we have:

       (a)    designed such  disclosure  controls and  procedures to ensure that
              material  information  relating to the  registrant,  including its
              consolidated  subsidiaries,  is made known to us by others  within
              those  entities,  particularly  during  the  period in which  this
              Annual Report is being prepared;

       (b)    evaluated  the   effectiveness  of  the  registrant's   disclosure
              controls and  procedures  as of a date within 90 days prior to the
              filing date of this Annual Report (the "Evaluation Date"); and

       (c)    presented  in  this  Annual  Report  our  conclusions   about  the
              effectiveness  of the disclosure  controls and procedures based on
              our evaluation as of the Evaluation Date;

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent function):

       (a)    all  significant  deficiencies  in  the  design  or  operation  of
              internal  controls which could adversely  affect the  registrant's
              ability to record,  process,  summarize and report  financial data
              and have  identified  for the  registrant's  auditors any material
              weaknesses in internal controls; and





                                       35
<PAGE>
       (b)    any fraud,  whether or not material,  that involves  management or
              other  employees who have a significant  role in the  registrant's
              internal controls; and

6.   The  registrant's  other  certifying  officers and I have indicated in this
     annual  report  whether or not there were  significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.


Date:  March 28, 2003

                                            /s/ Russelle Choi
                                            ------------------------------------
                                            Russelle Choi
                                            President & Chief Executive Officer,







































                                       36
<PAGE>
                    CERTIFICATION OF CHIEF FINANCIAL OFFICER
                PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934,
                             RULES 13a-14 AND 15d-14
                             AS ADOPTED PURSUANT TO
                  SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002


I, Manu Ohri, certify that:

1.   I  have  reviewed  this  Annual  Report  on  Form  10-KSB  of Elephant Talk
     Communications, Inc. and its subsidiaries;

2.   Based on my  knowledge,  this  Annual  Report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this Annual Report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this Annual Report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this Annual Report;

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Securities  Exchange Act Rules 13a-14 and 15d-14) for the registrant and
     we have:

       (a)    designed such  disclosure  controls and  procedures to ensure that
              material  information  relating to the  registrant,  including its
              consolidated  subsidiaries,  is made known to me by others  within
              those  entities,  particularly  during  the  period in which  this
              Annual Report is being prepared;

       (b)    evaluated  the   effectiveness  of  the  registrant's   disclosure
              controls and  procedures  as of a date within 90 days prior to the
              filing date of this Annual Report (the "Evaluation Date"); and

       (c)    presented  in  this  Annual  Report  our  conclusions   about  the
              effectiveness  of the disclosure  controls and procedures based on
              our evaluation as of the Evaluation Date;

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent function):

       (a)    all  significant  deficiencies  in  the  design  or  operation  of
              internal  controls which could adversely  affect the  registrant's
              ability to record,  process,  summarize and report  financial data
              and have  identified  for the  registrant's  auditors any material
              weaknesses in internal controls; and





                                       37
<PAGE>
       (b)    any fraud,  whether or not material,  that involves  management or
              other  employees who have a significant  role in the  registrant's
              internal controls; and

6.   The  registrant's  other  certifying  officers and I have indicated in this
     Annual  Report  whether or not there were  significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.


Date:  March 28, 2003

                                            /s/ Manu Ohri
                                            ------------------------------------
                                            Manu Ohri
                                            Chief Financial Officer







































                                       38
<PAGE>















                       ELEPHANT TALK COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS
                             AS OF DECEMBER 31, 2002




































                                      F-i
<PAGE>





                       ELEPHANT TALK COMMUNICATIONS, INC.
                                AND SUBSIDIARIES


                                    CONTENTS
                                    --------

PAGE     F-1        INDEPENDENT AUDITORS' REPORT

PAGE     F-2       CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2002

PAGE     F-3       CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
                   LOSSES FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

PAGE     F-4       CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                   (DEFICIENCY) FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

PAGE     F-5       CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
                   DECEMBER 31, 2002 AND 2001

PAGES    F-6 - 23  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS































                                     F-ii
<PAGE>
                          INDEPENDENT AUDITORS' REPORT
                          ----------------------------

To the Stockholders and 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, 2002 and the related  consolidated  statements  of  operations,
stockholders'  deficiency  and  cash  flows  for  the  year  then  ended.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audit.

We conducted our audit in accordance with 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, 2001 and the results of
its  operations and its cash flows for the year then ended,  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 4,929,899 which includes net
losses of $2,064,803  and  $1,305,656  for the years ended December 31, 2002 and
2001,  respectively.  The Company has an excess of total  liabilities over total
assets of $886,423 on December 31, 2002.  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
March 21, 2003








                                      F-1
<PAGE>
                       ELEPHANT TALK COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                             AS OF DECEMBER 31, 2002
                                   ASSETS                              2002
Current assets                     ------                          -------------
  Cash and cash equivalents                                         $     5,533
  Accounts receivable, net                                              483,662
  Prepaid expenses and other current assets                             126,274
                                                                    -----------
     Total Current Assets                                               615,649
                                                                    -----------
PROPERTY AND EQUIPMENT - NET                                            651,781
                                                                    -----------
OTHER ASSETS
   Due from related parties                                           1,700,646
   Investment in ETNS Singapore Pte, Ltd.                               233,356
   Investments, net                                                      70,835
   Carrier deposits                                                     342,300
                                                                    -----------
     Total Other Assets                                               2,347,137
                                                                    -----------
TOTAL ASSETS                                                        $ 3,614,567
------------                                                        ===========
               LIABILITIES AND STOCKHOLDERS' DEFICIENCY
               ----------------------------------------
CURRENT LIABILITIES
   Overdraft                                                        $   168,052
   Accounts payable and customer deposits                             1,618,372
   Deferred revenue                                                      78,937
   Accrued expenses and other payable                                   664,709
   Factor payable                                                       198,205
   Capital lease liability - current                                     44,452
   Due to related parties                                             1,446,212
                                                                    -----------
     Total Current Liabilities                                        4,218,939

LONG-TERM LIABILITIES
   Note payable                                                         282,051
                                                                    -----------
TOTAL LIABILITIES                                                     4,500,990
                                                                    -----------
COMMITMENTS & CONTINGENCIES

STOCKHOLDERS'  DEFICIENCY
   Preferred Stock Class B, no par value, 5,000,000
    shares authorized, 0 shares issued and outstanding                        -
   Common stock, no par value, 250,000,000 shares
    authorized, 41,438,210 shares issued and outstanding              5,984,163
   Accumulated deficit                                               (4,929,899)
   Accumulated other comprehensive loss, net                           (553,187)
   Less: note receivable - stock issuance                            (1,387,500)
                                                                    -----------
     Total Stockholders' Deficiency                                    (886,423)
                                                                    -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY                      $ 3,614,567
----------------------------------------------                      ===========
           See accompanying notes to consolidated financial statements
                                      F-2
<PAGE>
                       ELEPHANT TALK COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
          CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
                 FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

                                                       2002             2001
                                                   -------------   -------------
REVENUES, NET                                       $ 5,672,284     $11,087,981

COST OF REVENUE                                       5,524,800      10,509,701
                                                    -----------     -----------
GROSS PROFIT                                            147,484         578,280
                                                    -----------     -----------
OPERATING EXPENSES
 Depreciation and amortization                          487,685         623,454
 Selling, general and administrative                  1,531,772       1,330,172
                                                    -----------     -----------
      Total Operating Expenses                        2,019,457       1,953,626
                                                    -----------     -----------
LOSS FROM OPERATIONS                                 (1,871,973)     (1,375,346)
                                                    -----------     -----------
OTHER INCOME (EXPENSE)
 Interest income                                        177,067          62,500
 Interest expense                                      (125,019)        (52,786)
 Equity in income (loss) of unconsolidated affiliate     (3,356)         59,976
 Impairment of property and equipment                  (239,922)              -
                                                    -----------     -----------
      Total Other Income (Expense)                     (191,230)         69,690
                                                    -----------     -----------
LOSS BEFORE INCOME TAXES                            (2,063,203)      (1,305,656)
 Income taxes                                             1,600               -
                                                    -----------     -----------
NET LOSS                                            $(2,064,803)    $(1,305,656)
--------                                            -----------     -----------
OTHER COMPREHENSIVE LOSS
 Unrealized loss on available-for-sale securities      (300,000)       (259,000)
 Foreign currency translation gain (loss)                 2,869          (8,723)
                                                    -----------     -----------
                                                       (297,131)       (267,723)
                                                    -----------     -----------
COMPREHENSIVE LOSS                                  $(2,361,934)    $(1,573,379)
------------------                                  ===========     ===========
Net loss per common share and equivalents -
       basic and diluted                            $     (0.06)    $     (0.05)
                                                    ===========     ===========
Weighted average shares outstanding during the
period - basic and diluted                           37,147,939      27,591,781
                                                    ===========     ===========








           See accompanying notes to consolidated financial statements
                                      F-3
<PAGE>
                       ELEPHANT TALK COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
     CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
                 FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001


<TABLE>
<S>                              <C>            <C>          <C>           <C>            <C>            <C>           <C>

                                                                                                            Other
                                         Common Stock            Note      Subscriptions  Comprehensive  Accumulated
                                     Shares       Amount      Receivable     Receivable   Income (Loss)    Deficit         Total
                                 -------------  -----------  ------------  -------------  -------------  ------------  ------------
Balance, December 31, 2000         22,000,000   $2,820,513   $         -   $  (256,410)   $    11,667    $(1,559,440)  $ 1,016,330

Issuance of common stock for
 services                           3,000,000      384,615             -       256,410              -              -       641,025
Issuance of common stock for
 investments and note receivable    5,000,000    1,869,000    (1,250,000)            -              -              -       619,000
Other comprehensive loss                    -            -             -             -       (267,723)             -      (267,723)
Net loss, 2001                              -            -             -             -              -     (1,305,656)   (1,305,656)
                                 ------------   ----------   -----------   -----------    -----------    -----------   -----------
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
                                 ------------   ----------   -----------   -----------    -----------    -----------   -----------
                                   34,626,899    5,084,963    (1,250,000)            -       (256,056)    (2,865,096)      713,811
Balance - January 4, 2002 after
 recapitalization

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, 2002                              -            -             -             -              -     (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)
 -----------------               ============   ==========   ===========   ===========    ===========    ===========   ===========
</TABLE>
























           See accompanying notes to consolidated financial statements

                                      F-4
<PAGE>
                       ELEPHANT TALK COMMUNICATIONS, INC.
                                AND SUNSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
<TABLE>
<S>                                                            <C>             <C>
                                                                   2002            2001
                                                               ------------    ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net loss                                                      $(2,064,803)    $(1,305,656)
 Adjustments to reconcile net loss to net cash
   provided by (used in) operating activities:
 Depreciation and amortization                                     487,685         623,454
 Issuance of stock for compensation                                579,200         641,025
 Issuance of stock in lieu of spin-off (note 16)                   320,000               -
 Impairment of property and equipment                              239,922               -
 Equity in (income) loss of unconsolidated affiliate                 3,356         (59,976)
 Provision for doubtful accounts                                   308,075          33,722
 Decrease in accounts receivable                                   299,827         447,891
 Decrease in prepaid expenses, deposits
  and other assets                                                 247,687         250,202
 Increase in other receivables                                           -         (62,500)
 Increase (Decrease) in accounts payable and customer
  deposits                                                      (1,204,848)        375,720
 Increase (Decrease) in deferred revenue                          (115,063)        148,633
 Increase in accrued expenses and other payable                    559,296         106,915
 Increase (Decrease) in cash overdraft                             134,887         (99,995)
                                                               -----------     -----------
       Net cash provided by (used in) operating activities        (205,266)      1,099,435
                                                               -----------     -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Purchases of property and equipment                               (15,538)        (33,375)
 Investment in unconsolidated affiliate                            (23,866)        (53,846)
                                                               -----------     -----------
       Net cash used in investing activities                       (39,404)        (87,221)
                                                               -----------     -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Proceeds from factor                                                    -         198,205
 Proceeds from notes payable                                             -         282,051
 Payment on notes payable                                                -         (74,827)
 Payments on capital lease payable                                 (68,786)        (61,457)
 Payments on due to related companies,                             300,415      (1,366,232)
                                                               -----------     -----------
       Net cash provided by (used in) financing activities         231,629      (1,022,260)
                                                               -----------     -----------
NET INCREASE (DECREASE) IN CASH                                     13,041         (10,046)
CASH, BEGINNING OF YEAR                                             18,574          28,620
                                                               -----------     -----------
CASH, END OF YEAR                                              $     5,533     $    18,574
                                                               ===========     ===========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
-------------------------------------------------
Cash paid during the year for interest                         $    38,246     $    52,786
                                                               ===========     ===========
Cash paid during the year for income taxes                     $     1,600     $         -
                                                               ===========     ===========
</TABLE>





           See accompanying notes to consolidated financial statements

                                      F-5
<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 financial  statements and revenues and expenses  during the reported
        period. Actual results could differ from those estimates.



                                      F-6
<PAGE>
                      ELEPHANT TALK COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

        (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, 2002 and 2001.  The  December  31, 2002 and 2001  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  foreign
        translation of foreign currency financial statements are included in the
        statements of operations and 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

                                      F-7
<PAGE>
                      ELEPHANT TALK COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

        "Accounting for Income Taxes"  ('Statement  109").  Under Statement 109,
        deferred tax assets and  liabilities  are  recognized for the future tax
        consequences   attributable   to   differences   between  the  financial
        statements 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 and Cost of Revenue
        -------------------------------------------
        The Company's revenue recognition  policies are in compliance with Staff
        accounting  bulletin  (SAB)  101.  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.

        (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
        ---------------------
        Statement of Financial Accounting Standards No. 121, "Accounting for the
        Impairment  of  Long-lived  Assets  to be  Disposed  Of"  ("SFAS  121"),
        requires   the   Company  to  review   long-lived   assets  and  certain
        identifiable  assets  related to those  assets for  impairment  whenever
        circumstances  and  situations  change such that there is an  indication
        that the carrying amounts may not be recoverable.  If the non-discounted
        future  cash  flows of the  enterprise  are  less  than  their  carrying
        amounts, their carrying amounts are reduced to fair value and impairment
        loss  recognized.  The Company  recorded an  impairment  of property and
        equipment of $239,922 during the year ended December 31, 2002.

                                      F-8
<PAGE>
                      ELEPHANT TALK COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

        (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 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


                                      F-9
<PAGE>
                      ELEPHANT TALK COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

        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
        ---------------------------------
        In June 2001, the Financial  Accounting  Standards Board ("FASB") issued
        Statement  of   Financial   Accounting   Standards   ("SFAS")  No.  143,
        "Accounting  for  Asset  Retirement  Obligations".  SFAS  143  addresses
        financial  accounting and reporting for obligations  associated with the
        retirement  of  tangible  long-lived  assets  and the  associated  asset
        retirement costs.  This Statement is effective for financial  statements
        issued for fiscal years beginning after June 15, 2002.

        SFAS No. 144,  "Accounting  for the Impairment or Disposal of Long-Lived
        Assets," was issued in August 2001. SFAS No. 144 is effective for fiscal
        years  beginning  after  December  15,  2001,  and  addresses  financial
        accounting  and reporting  for the  impairment or disposal of long-lived
        assets.  This  statement  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 - Reporting the Effects of Disposal
        of a Segment of a Business, and Extraordinary,  Unusual and Infrequently


                                      F-10
<PAGE>
                      ELEPHANT TALK COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

        Occurring Events and  Transactions,"  for the disposal of a segment of a
        business.

        The  adoption of above  pronouncements,  did not  materially  impact the
        Company's financial position or results of operations.

        In May  2002,  the  Board  issued  SFAS  No.  145,  Rescission  of  FASB
        Statements  No. 4, 44, and 64,  Amendment of FASB  Statement No. 13, and
        Technical  Corrections  ("SFAS  145").  SFAS 145 rescinds the  automatic
        treatment   of  gains  or  losses  from   extinguishments   of  debt  as
        extraordinary  unless they meet the criteria for extraordinary  items as
        outlined  in APB Opinion No. 30,  Reporting  the Results of  Operations,
        Reporting  the  Effects  of  Disposal  of a Segment of a  Business,  and
        Extraordinary,   Unusual   and   Infrequently   Occurring   Events   and
        Transactions.  SFAS  145 also  requires  sale-leaseback  accounting  for
        certain lease  modifications that have economic effects that are similar
        to sale-leaseback  transactions and makes various technical  corrections
        to existing  pronouncements.  The  provisions of SFAS 145 related to the
        rescission of FASB Statement 4 are effective for fiscal years  beginning
        after May 15, 2002, with early adoption encouraged. All other provisions
        of SFAS 145 are effective for transactions occurring after May 15, 2002,
        with early adoption  encouraged.  The Company does not  anticipate  that
        adoption  of SFAS 145 will have a  material  effect on our  earnings  or
        financial position.

        In June  2002,  the FASB  issued  SFAS No.  146 "  Accounting  for Costs
        Associated with exit or Disposal  Activities." This Statement  addresses
        financial  accounting  and reporting for costs  associated  with exit or
        disposal  activities  and  nullifies  Emerging  Issues Task Force (EITF)
        Issue No. 94-3, "Liability  Recognition for Certain Employee Termination
        Benefits and Other Costs to Exit an Activity  (including  Certain  Costs
        Incurred in a Restructuring)."  This Statement requires that a liability
        for a cost  associated  with an exit or disposal  activity be recognized
        when the liability is incurred. Under Issue 94-3 a liability for an exit
        cost as defined, was recognized at the date of an entity's commitment to
        an exit plan.  This  statement  will not have a  material  impact on the
        Company's financial statements.

        In October 2002, the FASB issued SFAS No. 147,  "Acquisitions of Certain
        Financial  Institutions."  SFAS No. 147 removes the  requirement in SFAS
        No. 72 and  Interpretation  9 thereto,  to  recognize  and  amortize any
        excess of the fair value of  liabilities  assumed over the fair value of
        tangible   and   identifiable   intangible   assets   acquired   as   an
        unidentifiable  intangible  asset.  This  statement  requires that those
        transactions be accounted for in accordance with SFAS No. 141, "Business
        Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets."
        In addition,  this statement  amends SFAS No. 144,  "Accounting  for the
        Impairment  or  Disposal  of  Long-Lived  Assets,"  to  include  certain
        financial  institution-related  intangible  assets. The Company does not
        expect adoption of SFAS No. 147 would have a material impact, if any, on
        its financial position, results of operations or cash flows.


                                      F-11
<PAGE>
                      ELEPHANT TALK COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


        In  November  2002,  the  FASB  issued  FASB   Interpretation   No.  45,
        "Guarantor's  Accounting and  Disclosure  Requirements  for  Guarantees,
        Including  Indirect  Guarantees of Indebtedness of Others" (FIN 45). FIN
        45  requires  that  upon  issuance  of a  guarantee,  a  guarantor  must
        recognize a liability for the fair value of an obligation  assumed under
        a guarantee.  FIN 45 also requires additional disclosures by a guarantor
        in its interim and annual  financial  statements  about the  obligations
        associated with guarantees issued. The recognition  provisions of FIN 45
        are effective for any  guarantees  issued or modified after December 31,
        2002. The disclosure requirements are effective for financial statements
        of interim  or annual  periods  ending  after  December  15,  2002.  The
        adoption  of FIN45 is not  expected  to have a  material  effect  on the
        Company's financial position, results of operations, or cash flows.

        In December  2002,  the FASB issued SFAS No. 148  "Accounting  for Stock
        Based  Compensation-Transition and Disclosure". SFAS No. 148 amends SFAS
        No.  123,  "Accounting  for  Stock  Based   Compensation",   to  provide
        alternative  methods of  transition  for a voluntary  change to the fair
        value based method of accounting for stock-based employee  compensation.
        In  addition,  this  Statement  amends the  disclosure  requirements  of
        Statement  123 to  require  prominent  disclosures  in both  annual  and
        interim  financial   statements  about  the  method  of  accounting  for
        stock-based employee  compensation and the effect of the method used, on
        reported results.  The Statement is effective for the Companies' interim
        reporting  period ending  January 31, 2003.  The Companies do not expect
        the  adoption  of SFAS No.  148  would  have a  material  impact  on its
        financial position or results of operations or cash flows.

        (T) Principles of Consolidation
        -------------------------------
        The accompanying  consolidated  financial  statements for the year ended
        December 31, 2002 include the accounts of Elephant Talk  Communications,
        Inc., its 100% wholly-owned subsidiary Elephant Talk Limited and its 39%
        equity investment in ETNS Singapore Pte. Ltd. The consolidated financial
        statements  for the year ended December 31, 2001 include the accounts of
        Elephant Talk Limited and its 39% equity  investment  in ETNS  Singapore
        Pte, Ltd. 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 2002, the Company issued 1,810,000 shares
        of common stock against the consulting and advisory  services  amounting
        $579,200.

        In 2001,  the Company issued five million  (5,000,000)  shares of common
        stock against a note receivable of $1,250,000.


                                      F-12
<PAGE>
                      ELEPHANT TALK COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2  MARKETABLE SECURITIES
------  ---------------------
        The Company's marketable  securities are comprised of equity securities,
        all  classified as  available-for-sale,  which are carried at their fair
        value based upon the quoted  market  prices of those  investments  as of
        December 31, 2002. Accordingly, unrealized gains and losses are included
        in stockholders'  equity as other  comprehensive  income or (loss).  The
        shares are restricted as of December 31, 2002 and therefore not included
        in current assets.

        The composition of marketable  equity securities as of December 31, 2002
        is as follows:
                                                            Gross
          Available-For-Sale Securities:      Cost       Unrealized
                                                            Loss     Fair Value
                                          ------------  -----------  ----------
          Common stock                    $    629,835  $   559,000  $   70,835


NOTE 3  ACCOUNTS RECEIVABLE AND FACTOR AGREEMENT
------  ----------------------------------------
        The Company factors trade accounts receivable,  with recourse,  pursuant
        to a factoring  agreement (the  "Agreement").  Under the Agreement,  the
        factor  advances 70% of the face value of specific  approved  customer's
        accounts  receivable  balances..  The  Company  is charged at the bank's
        prime rate on the date of factoring.  The  Agreement  expires on January
        16,  2004.  At December  31,  2002,  the  Company  has pledged  accounts
        receivable of $150,614.

        Accounts receivable at December 31 consisted of the following:

                                                                 2002
                                                           ---------------
          Accounts receivable                              $       496,820
          Less allowance for doubtful accounts                      13,158
                                                           ---------------
                                                           $       483,662
                                                           ===============

        For the years ended December 31, 2002 and 2001,  the Company  recorded a
        provision for doubtful accounts of $308,075 and $33,722, respectively in
        its statement of operations.


NOTE 4  PROPERTY AND EQUIPMENT
------  ----------------------
        Property and equipment at December 31, 2002 consisted of the following:





                                      F-13
<PAGE>
                      ELEPHANT TALK COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                   2002
                                                              -------------
          Office and computer equipment                       $  4,107,166
          Equipment under capital lease                            213,977
          Leasehold improvement                                      6,410
          Furniture and fixtures                                    91,649
            Less accumulated depreciation and amortization      (3,767,421)
                                                              ------------
                                                              $    651,781
                                                              ============

        Depreciation  and  amortization  expense for the year ended December 31,
        2002 and 2001 was $487,685 and $623,454, respectively.


NOTE 5  INVESTMENT IN AFFILIATE
------  -----------------------
        The investment held by the Company consists of a 39% 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, 2002 is as follows:

        |----------------------------|---|------------|---|-------------|
        |Balance Sheet:              |   |            |   |             |
        |----------------------------|---|------------|---|-------------|
        |       Assets               |   |            | $ |    733,387  |
        |----------------------------|---|------------|---|-------------|
        |                            |   |            |   |             |
        |----------------------------|---|------------|---|-------------|
        |       Liabilities          | $ |   135,038  |   |             |
        |----------------------------|---|------------|---|-------------|
        |       Equity               |   |   598,349  |   |             |
        |----------------------------|---|------------|---|-------------|
        |                            |   |            | $ |    733,387  |
        |----------------------------|---|------------|---|-------------|
        |                                                               |
        |                                                               |
        |----------------------------|---|------------|---|-------------|
        |Income Statement            |   |            |   |             |
        |----------------------------|---|------------|---|-------------|
        |       Revenues             | $ | 3,102,599  |   |             |
        |----------------------------|---|------------|---|-------------|
        |       Expenses             |   | 3,111,204  |   |             |
        |----------------------------|---|------------|---|-------------|
        |            Net Loss        |   |    (8,605) |   |             |
        |----------------------------|---|------------|---|-------------|
        |                            |   |        39% |   |             |
        |----------------------------|---|------------|---|-------------|
        |Company's share of net loss | $ |    (3,356) |   |             |
        |----------------------------|---|------------|---|-------------|



                                      F-14
<PAGE>
                      ELEPHANT TALK COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


        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% 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 of loss for 2002 was $3,356  compared  to the income of $59,976 in
        2001.


NOTE 6  DUE FROM RELATED PARTIES
------  ------------------------
        During  2002,  the Company  advanced  monies to entities  that  officers
        and/or  shareholders  have an ownership  interest in. The balances as of
        December 31, 2002 are:
                                                                       2002
                                                                ----------------
          Due from The Hartcourt Companies, Inc.                $        320,000
          Due from entity related to a director and shareholder          460,836
          Due from an entity related to certain officers,
             directors and shareholders                                  907,202
          Due from entity related to a shareholder                        12,095
          Due from entity related to a shareholder                           513
                                                                ----------------
                                                                $      1,700,646
                                                                ================

        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 $102,039 for the year ended  December 31, 2002. The
        Company has provided an allowance  for doubtful  accounts of $240,000 on
        amounts due from an entity  related to certain  officers,  directors and
        shareholders at December 31, 2002.


NOTE 7  NOTE PAYABLE
------  ------------
        The Company  entered  into a term loan  agreement  for a note payable of
        $282,051,  requiring payments of monthly installments of interest at the
        prime  rate as quoted by the bank.  The  Company  has a standby  line of
        credit  for  $1,410,000  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,  2002,  the total  utilized  balance of the standby line of
        credit was  $1,357,000  of which the balance  receivable  from a related
        party was $903,234.  The Company has an outstanding  payable of $838,237
        to the same related  party at December  31,  2002.  The note and standby
        line of credit are due and payable in full on January 16, 2004.


                                      F-15
<PAGE>
                      ELEPHANT TALK COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 8  DUE TO RELATED PARTIES
------  ----------------------
        During 2002,  the Company  received  advances from entities that certain
        officers and/or shareholders have an ownership interest. The balances as
        of December 31, 2002 are:

                                                                       2002
                                                                ----------------
          Due to an entity related to certain officers,         $        258,975
          directors and shareholders

          Due to The Hartcourt Companies, Inc.                           349,000

          Due to ET Network Services, Ltd. (See Note 11(B))              838,237
                                                                ----------------
                                                                $      1,446,212
                                                                ================

        The amount due to ET Network Services,  Ltd. and to an entity related to
        certain officers, directors and shareholders is due on demand, unsecured
        and interest  free. The amount due to The Hartcourt  Companies,  Inc. is
        due on demand, unsecured and carries an interest rate of six percent.

        The amounts are 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 $86,773 for the year ended December 31, 2002.


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  41,438,210  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


                                      F-16
<PAGE>
                      ELEPHANT TALK COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


        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
        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 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.

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


        (A) Stock Issued for Services
        -----------------------------
        During 2002 and 2001, the Company issued  1,810,000 and 3,000,000 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  $579,200   and  $641,025  was
        recognized in 2002 and 2001, respectively.

        (B) Stock Issued for Investments and Note Receivable
        ----------------------------------------------------
        During 2001, the Company issued  5,000,000  shares of common stock for a
        note receivable of $1,250,000 and 1,000,000  shares of common stock in a
        publicly  traded  company  valued at the date of grant at  $619,000  for
        total consideration of $1,869,000.


NOTE 10 RELATED PARTY TRANSACTIONS
------- --------------------------
        (A) Elephant Talk, Inc.
        -----------------------
        During 2002 and 2001,  the Company  provided  calling  capacity and paid
        commissions  on prepaid  calling  card  sales with a company  related to
        certain officers, directors and shareholders.

                                                             2002        2001
                                                          ----------  ----------
        Capacity costs (included in cost of revenue)      $3,470,851  $2,861,174
                                                          ==========  ==========
        Commissions paid (included in operating expenses) $   73,419  $  206,322
                                                          ==========  ==========

        (B) ET Network Services, Ltd.
        -----------------------------
        During 2002 and 2001, the Company provided management and administrative
        services  to a  company  related  to  certain  officers,  directors  and
        shareholders.  The total  amount of  services  during 2002 and 2001 were
        $89,894 and $205,348, respectively.

        During  2002  and  2001,   the  Company  was  provided   management  and
        administrative  services  from a company  related to  certain  officers,
        directors and shareholders. The total amount of services during 2002 and
        2001 were $429,028 and $366,872, respectively.

        (C) Wizard Services Limited
        ---------------------------
        During 2002, the Company advanced monies to a company related to certain
        officers,  directors  and  stockholders.  The  total  amount  of  monies
        advanced during 2002 was $54,185.




                                      F-18
<PAGE>
                      ELEPHANT TALK COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 11 COMMITMENTS AND CONTINGENCIES
------- -----------------------------
        (A) Operating Leases
        --------------------
        The Company leases its corporate  office space under an operating lease.
        The lease is scheduled to expire in 2003.  Monthly  rental expense under
        the lease is $324 per month. The Company leases its foreign offices on a
        month-to-month  basis from an affiliate.  The monthly  rental expense is
        $1,900.

        Future minimum lease payments under operating  leases are  approximately
        as follows at December 31, 2002 were zero.

        Rent expense  under  operating  leases for the years ended  December 31,
        2002 and 2001 was $33,538 and $137,304, respectively.

        (B) Capital Lease Agreements
        ----------------------------
        Capital leases are summarized as follows at December 31:

                                                              2002       2001
                                                            -------    --------
          Office equipment, 9.07% interest per annum,
           secured by equipment                             $ 2,258    $  7,404

          Communications equipment, secured by equipment     15,856      15,856

          Communications equipment, 11.57% interest per
           annum, secured by communications equipment        26,338      89,978
                                                            -------    --------
                                                             44,452     113,238
           Less: current portion                             44,452      84,642
                                                            -------    --------
                                                            $     -    $ 28,596
                                                            =======    ========

        Future  minimum lease  payments  under capital  leases are as follows at
        December 31, 2002:


                        2003                           $           45,272
                        2004                                            -
                                                        -----------------
                        Total lease payments                       45,272
                        Less: interest                               (820)
                                                        -----------------
                             Total                     $           44,452
                                                        =================




                                      F-19
<PAGE>
                      ELEPHANT TALK COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 12 INCOME TAXES
------- ------------
        Income tax expense  (benefit) for the years ended  December 31, 2002 and
        2001 is summarized as follows:

                                                  2002                2001
                                           ---------------     ---------------
          Current:
            Federal                       $       (707,200)   $       (444,000)
            State                                 (124,800)            (78,300)
          Deferred taxes                           833,600             522,300
                                           ===============     ===============
          Income tax expense (benefit)    $          1,600    $              -
                                           ===============     ===============

        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,
                                                          2002          2001
                                                      ------------  ------------
        Tax expense (credit) at statutory rate-federal    (34%)         (34%)
        State tax expense net of federal tax               (6)           (6)
        Permanent differences                               1             1
        Valuation allowance                                39            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, 2002 are
        as follows:

            Deferred tax assets:
            Net operating loss carry forward                    $     1,280,000
                                                                ---------------
               Total gross deferred tax assets                        1,280,000
            Less valuation allowance                                 (1,280,000)
                                                                ---------------
            Net deferred tax assets                             $             -
                                                                ===============

        At December 31, 2002,  the Company had net operating loss carry forwards
        of  approximately  $3,200,000  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,  2002  and  2001  was  an  increase   of  $349,000   and   $396,800,
        respectively.

                                      F-20
<PAGE>
                      ELEPHANT TALK COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
------- -------------------------------------------------
        During  2002 and  2001,  the  Company  received  71.9%  and 74.5% of its
        revenue from three  customers.  The Company had accounts  receivable due
        from these three  customers  in 2002 and 2001 of $117,070  and  $644,544
        respectively.

        During 2002 and 2001,  the Company  purchased 39% and 40% of its calling
        capacity from three suppliers.


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.  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,  2002.  Under the Plan  2,300,000  shares of common  stock
        remain  available for grant at December 31, 2002. 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.

                                      F-21
<PAGE>
                      ELEPHANT TALK COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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  $4,929,899 at December 31, 2002
        which  includes net losses of  $2,064,803  and  $1,305,656  for the year
        ended  December 31, 2002 and 2001,  respectively.  The  Company's  total
        liabilities exceed its total assets by $886,423.  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
        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
------- -----------------
        (A) Pursuant to the terms of the Spin-Off  Agreement with Hartcourt,  on
        September  25, 2002,  the Company  issued  5,000,000  restricted  common
        shares to Hartcourt  valued at $320,000 based on the market value on the
        date of issue.  On January 4, 2003, the Company  received from Hartcourt
        17,895,579  of its  common  shares  held by  Hartcourt  pursuant  to the
        finalization of the terms of the Spin-Off Agreement. Upon receipt of the
        shares on January 4, 2003, the Company  recorded its  17,895,579  common
        shares as treasury shares. As a result of the completion of the spin-off
        agreement  with  Hartcourt , the Company  will report a loss of $277,613
        due to the share  exchange  in 2003.  Both  Hartcourt  and  ElephantTalk
        executed a mutual release to end their relationship and place each other
        in a position whereby no party is indebted to the other party.

        (B) On January 1, 2003, the Company entered into an employment agreement
        with the President and Chief Executive Officer  ("Executive") to provide
        salary,  bonuses,  and  other  fringe  benefits  for a term of three (3)
        years. Minimum salary payments under the agreement amount to $120,000 in
        the first year,  $132,000  in the second year and  $150,000 in the third
        year,  payable in equal monthly  installments.  In the event the Company
        did not have sufficient  cash to pay  Executive's  compensation in cash,


                                      F-22
<PAGE>
                      ELEPHANT TALK COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


        the Executive has the option to accept the Company's  restricted  common
        shares  for  the  same  amount  of  compensation.  Share  price  will 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 10,
        2003, ElephantTalk had not issued any common shares to the Executive for
        his  compensation.  The Executive did not receive any compensation  from
        the Company during 2002 and 2001, respectively.













































                                      F-23