HARTCOURT COMPANIES INC - FORM 10-Q

Attached files

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EX-31.2 - CERTIFICATION - HARTCOURT COMPANIES INC	hartcourt_10q-ex3102.htm
EX-31.1 - CERTIFICATION - HARTCOURT COMPANIES INC	hartcourt_10q-ex3101.htm
EX-32.1 - CERTIFICATION - HARTCOURT COMPANIES INC	hartcourt_10q-ex3201.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended November 30, 2009

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

Commission file number: 001-12671

The Hartcourt Companies, Inc.

(Exact name of registrant as specified in its charter)

Utah		87-0400541
(State or other jurisdiction of		(IRS Employer
incorporation or organization)		Identification No.)

Room 503, Jinqiao Building, No. 2077
West Yan’an Road, Shanghai, China		200336
(Address of principal executive offices)		(Zip Code)

(011) (86 21) 62085908

(Registrant’s telephone number including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one).

Large accelerated filer o	Accelerated filer o
Non-Accelerated filer o	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. Yes o No x

The number of shares of common stock outstanding as of the latest practicable date, December [10], 2009, was 386,966,816.

TABLE OF CONTENTS


	PPART I: FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Consolidated Balance Sheet (unaudited) - November 30, 2009 and May 31, 2009	3

	Consolidated Statements of Operations (unaudited) - Three-month and six-month periods ended November 30, 2009 and November 30, 2008	4

	Consolidated Statements of Cash Flows (unaudited) - Six-month periods ended November 30, 2009 and November 30, 2008	6

	Notes to unaudited Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20

Item 4.	Controls and Procedures	21

	PART II: OTHER INFORMATION	21

Item 1	Legal Proceedings	21

Item 1A	Risk Factors Affecting Future Results	21

Item 2	Un Registered Sales of Equity Securities and Use of Proceeds	21

Item 3	Defaults Upon Senior Securities	22

Item 4	Submission of Matters to a Vote of Security Holders	22

Item 5	Other Information	22

Item 6.	Exhibits	22

	Signatures	23

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
	As of
	November 30, 2009		May 31, 2009
ASSETS

Cash and cash equivalents	$	89,859	$	102,085
Accounts Receivable		1,561,316		863,244
Loans receivable		944,570		822,551
Prepaid expenses and other assets		19,737		5,792
TOTAL CURRENT ASSETS		2,615,482		1,793,672

PROPERTY & EQUIPMENT – NET		45,898		57,640
INTANGIBLE ASSETS - NET		3,821,992		3,923,356
TOTAL ASSETS	$	6,483,372	$	5,774,668


LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable	$	-	$	141,331
Accrued expenses and other current liabilities		1,690,923		1,337,571
Loan payable		274,429		-
Due to related parties		185,211		246,862
TOTAL CURRENT LIABILITIES		2,150,563		1,725,764

COMMITMENT & CONTINGENCIES

SHAREHOLDERS' EQUITY
Preferred Stock:
Original preferred stock, $0.01 par value, 1,000 shares authorized, none issued and outstanding		-			-
Class A preferred stock, 10,000,000 shares authorized, none issued and outstanding		-			-

Common stock:
$0.001 par value, 424,999,000 authorized
November 30, 2009 and May 31, 2009: 389,015,544 issued 386,966,816 outstanding		386,967			386,967
Additional paid in capital		77,238,990			77,156,131
Treasury stock, at cost, 2,048,728 shares		(48,728	)		(48,728	)
Other comprehensive loss		(152,142	)		(143,579	)
Noncontrolling interest		394,288			152,261
Accumulated deficit		(73,486,566	)		(73,454,148	)
TOTAL SHAREHOLDERS' EQUITY		4,332,809			4,048,904
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	6,483,372		$	5,774,668

The accompanying notes form an integral part of these unaudited consolidated financial statements.

THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)


	For the three month periods ended
	November 30,			November 30,
	2009			2008
Net revenues	$	498,909		$	643,996
Cost of revenues		(119,917	)		(33,782	)
Gross profit		378,992			610,214

Operating costs and expenses:
General and administrative expenses		57,763			293,246
Depreciation and amortization		113,148			5,495
Total operating expenses		170,911			298,741

Income from continued operations		208,081			311,473

Other income (expenses)
Foreign currency exchange gain		5,255		45,753
Interest income		14,003			-
Gain on settlement debt		-			188,765
Total other income		19,258		234,518

Income from continued operations before income taxes and noncontrolling interest		227,339			545,991
Provision for income taxes		(44,646	)		(74,391	)
Noncontrolling interest, net of taxes		(126,864	)		(196,967	)

NET INCOME		55,829			274,633

OTHER COMPREHENSIVE ITEM:
Foreign currency translation gain		4,769			30,001
NET COMPREHENSIVE INCOME	$	60,598		$	304,634

BASIC AND DILUTED EARNINGS
PER COMMON SHARE:

Basic earnings per share:
Income per share	$	0.00		$	0.00	)
Basic weighted average number of shares outstanding		386,966,816			255,430,112

Diluted earnings per share:
Income per share	$	0.00	$	0.00
Diluted weighted average number of shares outstanding		386,966,816		255,430,112

The accompanying notes form an integral part of these unaudited consolidated financial statements.

THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	For the six month periods ended
	November 30
	2009			2008

Net revenues	$	955,847		$	859,963
Cost of revenues		(227,899	)		(53,723	)
Gross profit		727,948			806,240

Operating expenses:
General and administrative expenses		292,990			420,794
Depreciation and amortization		169,982			8,249
Total operating expenses		462,972			429,043

Income from operations
		264,976			377,197

Other income
Foreign currency exchange gain		5,049			51,189
Interest income		20,998			-
Gain on settlement of debt		-			188,848
Total other income		26,047			240,037

Income from operations before income tax provision and noncontrolling interest		291,023			617,234
Provision for income taxes		(81,415	)		(110,193	)
Noncontrolling interest, net of taxes		(242,025	)		(255,470	)

NET INCOME (LOSS)		(32,417	)		251,571

OTHER COMPREHENSIVE ITEM:
Foreign currency translation gain		8,563			57,533

NET COMPREHENSIVE INCOME (LOSS)	$	(23,854	)	$	309,104

Basic earnings per share:
Income/(loss) per share	$	(0.00	)	$	0.00

Basic weighted average number of shares outstanding		386,966,816			264,935,687

Diluted earnings per share:
Income/(loss) per share	$	(0.00	)	$	0.00
Diluted weighted average number of shares outstanding		386,966,816			266,613,190

The accompanying notes form an integral part of these unaudited consolidated financial statements.

THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the six month-periods ended
	November 30, 2009			November 30, 2008
CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss)	$	(32,417	)	$	251,571
Adjustments to reconcile net income (loss) to
Net cash provided by (used in) operating activities:
Depreciation		113,148			8,249
Noncontrolling Interest		242,025			255,470
Stock options issued for service		82,859			79,709
Stock issued for services and compensations		-			58,922
Gain on settlement of debt		-			(188,848	)
Changes in operating assets and liabilities:
Accounts receivable		(699,208	)		(593,742	)
Inventory		-			6,630
Prepaid expenses and other receivables		(13,162	)		(187,571	)
Accounts payable		141,331			(131,630	)
Accrued expenses and other current liabilities		69,784			238,452
NET CASH USED IN OPERATING ACTIVITIES		(95,640	)		(202,788	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Loan receivable		(121,695	)		-
Cash received on acquisition of Subsidiary		-			6,177
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES		(121,695	)		6,177

The accompanying notes form an integral part of these unaudited consolidated financial statements.

THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)

	For the six month periods ended November 30
	2009		2008
CASH FLOWS FROM FINANCING ACTIVITIES
Due to related parties		(61,651)		-
Loan payable		274,429		-
Issuance of shares for cash		-		400,000
Proceeds from (payments to) related parties-net		-		(133,597	)
NET CASH PROVIDED BY FINANCING ACTIVITIES		212,778		266,403
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		(7,669)		(57,532	)

NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS		(12,226)		12,260

CASH AND CASH EQUIVALENTS -
BEGINNING BALANCE		102,085		4,907

CASH AND CASH EQUIVALENTS – ENDING BALANCE	$	89,859	$	17,167

The accompanying notes form an integral part of these unaudited consolidated financial statements.

THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 GENERAL

The Hartcourt Companies, Inc. ("Hartcourt" “We/Our” or the "Company"), was incorporated in Utah in 1983. In August 2006, we change our business by focusing on the vocational/training and education marketplace in the People’s Republic of China.

On May 15, 2007, we completed the purchase of 100% of the equity interests in China Princely Education Technology Development Company Limited (“China Princely”), an authorized accrediting organization for China vocational education located in Beijing, PRC. Under the terms of the purchase agreement, we paid to the shareholders of China Princely 5,400,000 shares of our restricted common stock at closing. After closing, we changed the name of China Princely to Hartcourt Princely Education Technology Development (Beijing) Co., Ltd.

On June 13, 2008, The Hartcourt Companies, Inc. (the “Company”) entered into a definitive agreement to purchase 60% of the equity interests in Beijing Yanyuan Rapido Education Company (“Beijing Yanyuan”), a well-known training institution in China. Under the terms of the definitive agreement executed between Beijing Yanyuan and the Company, the purchase price that the Company agreed to pay to the shareholders of Beijing Yanyuan 69 million shares of the Company’s restricted common stock, which, pursuant to the purchase agreement, will be payable upon closing of the acquisition. Hartcourt has the right to waive the following commitment of profitability; Beijing Yanyuan committed that its net profit would exceed RMB 6 million (US$827,000) for the seven months of calendar year 2008, RMB10 million (US$1.379 million) for the calendar year 2009, and RMB14 million (US$1.931 million) for the calendar year 2010.

On July 23, 2008, The Hartcourt Companies (the “Company”) completed the acquisition of 60 percent of the outstanding equity interests of Beijing Yanyuan Rapido Education Company (“Beijing Yanyuan”) pursuant to the terms of the definitive agreement entered into between the two parties. Subject to the definitive agreement between the Company and Beijing Yanyuan, the purchase price paid by the Company in connection with its acquisition of a controlling interest in Beijing Yanyuan was 69 million shares of the Company’s restricted common stock.

On October 18, 2008, the Company entered into a definitive agreement to purchase 60% of the outstanding equity interests of China Arts and Science Academy. Under the terms of the definitive agreement executed between China Arts and Science Academy and Hartcourt; Hartcourt has the right to waive the following commitment of profitabilitiy; China Arts and Science Academy committed that its net profit would exceed RMB5 million (US$735,294) for the first year (November 1, 2008 to October 31, 2009) in which its results are consolidated with Hartcourt’s, RMB7.5 million (US$1.103 million) for the second year (November 1, 2009 to October 31, 2010) in which its results are consolidated with Hartcourt’s, and RMB10 million (US$1.471 million) for the third year (November 1, 2010 to October 31, 2011) in which its results are consolidated with Hartcourt’s. The restricted common shares issued by Hartcourt for the acquisition will be released to those shareholders of China Arts and Science Academy whose equity interests were purchased by Hartcourt in three installments based on the profit realized by China Arts and Science Academy over the three-year period beginning on the date of Hartcourt’s purchase of 60% of the outstanding equity interests of China Arts and Science Academy.

On October 31, 2008, The Hartcourt Companies Inc. (the “Company”) completed the acquisition of 60 percent of the outstanding equity interests of China E & I Development Co. Ltd., which does business as the China Arts and Science Academy (“China Arts and Science Academy”), pursuant to the terms of the definitive agreement entered into between the two parties. Under the agreement between the Company and China Arts and Science Academy, the purchase price paid by the Company in connection with its acquisition of a controlling interest in China Arts and Science Academy was 40 million shares of the Company’s restricted common stock.

As of August 31, 2009, the Company owns 100% of three (3) British Virgin Island (“BVI”) incorporated companies: (1) Hartcourt China Inc., (2) Hartcourt Capital Inc., and (3) AI-Asia Inc. All three of these BVI subsidiaries are holding companies for assets located in China.

As of August 31, 2009, Hartcourt Capital Inc. owns 100% of the equity interest of Hartcourt Hi-Tech Investment (Shanghai) Inc. while Hartcourt Hi-Tech Investment (Shanghai) Inc., through nominee shareholder, owns 100% of the equity interest of Shanghai Jiumeng Information Technology Co., Ltd. These two companies are located in Shanghai, China. In April 2007, the Company decided to wind up Hartcourt Hi-Tech Investment (Shanghai) Inc. As of May 31, 2008, the wind-up process was completed. Shanghai Jiumeng Information Technology Co., Ltd owns 60% of the equity interest of Beijing Yanyuan Rapido Education Company.

As of August 31, 2009, AI-Asia, Inc., the third holding company, owns 100% of the equity interest of Hartcourt Education Investment Management Consulting (Shanghai) Co., Ltd (former name is AI-Asia (Shanghai) Information Technology, Inc), located in Shanghai, China, and owns 100% of the equity interest of Hartcourt Princely. AI-Asia, Inc owns 60% of the equity interest of China Arts and Science Academy.

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a) Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission for the presentation of financial information, but do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The audited consolidated financial statements for the fiscal year ended May 31, 2009 were filed on September 14, 2009 with the Securities and Exchange Commission and are hereby referenced. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the three-month period ended November 30, 2009 are not necessarily indicative of the results that may be expected for the year ended May 31, 2010.

b) Basis of Consolidation

The Company’s financial statements for the three months ended November 30, 2009 are consolidated to include the accounts of The Hartcourt Companies Inc., the wholly owned subsidiaries Hartcourt China Inc., Hartcourt Capital Inc., Hartcourt Hi-Tech Investment (Shanghai) Inc., Ai-Asia Inc., Hartcourt Education Investment Management Consulting (Shanghai) Co., Ltd., Shanghai Jiumeng Information Technology Co., Ltd, Hartcourt Princely Education Technology Development Company Limited, 60 percent owned Beijing Yanyuan Rapido Education Company and 60 percent owned China Arts and Science Academy from the date of acquisition. All significant inter-company accounts and transactions have been eliminated in consolidation.

c) Cash and Cash Equivalents

The Company considers all short-term highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less to be cash equivalents. As Hartcourt’s business activities are located in China, substantial amounts of cash are deposited in foreign banks located in China, which do not have the protection programs similar to that of the US (FDIC).

d) Prepaid expenses

Prepaid expenses are expenses that are allocated into the period in which they are incurred and in subsequent periods, and be amortized within one year (inclusive). They include amortization of low-valued consumables, prepaid insurance expenses, lump-sum payment for stamps in large amount that need to be amortized.

Prepaid expenses generally will be amortized in equal installments and charged as costs or expenses of periods benefiting within one year. If certain prepaid expense item cannot benefit the Company any more, its un-amortized amount is recorded as an expense for the current period. Prepaid expenses amounted to $19,737 and $5,792 at November 30, 2009 and May 31, 2009 respectively and is included in “Prepaid expenses and other current assets” in the accompanying financial statements.

e) Property and Equipment

Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over useful lives of 3 to 10 years. The cost of assets sold or retired and the related amounts of accumulated depreciation are removed from the accounts in the year of disposal. Any resulting gain or loss is reflected in current operations. Expenditures for maintenance and repairs are charged to operations as incurred.

f) Impairment of Long-Lived Assets

Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (ASC 360-10), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations for a Disposal of a Segment of a Business." The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with SFAS 144. SFAS 144 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal. Based on its review, the Company believes that, as of November 30, 2009, there was no impairments of its long-lived assets used in operations.

g) Income Taxes

The Company utilizes SFAS No. 109 (ASC 740), "Accounting for Income Taxes," which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

h) Stock-Based Compensation

The Company adopted SFAS No. 123 (Revised 2004), Share Based Payment (ASC 275), under the modified-prospective transition method on June 1, 2006. SFAS No. 123R requires companies to measure and recognize the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value. Share-based compensation recognized under the modified-prospective transition method of SFAS No. 123R includes share-based compensation based on the grant-date fair value determined in accordance with the original provisions of SFAS No. 123, Accounting for Stock-Based Compensation, for all share-based payments granted prior to and not yet vested as of June 1, 2006 and share-based compensation based on the grant-date fair-value determined in accordance with SFAS No. 123R for all share-based payments granted after June 1, 2006. SFAS No. 123R eliminates the ability to account for the award of these instruments under the intrinsic value method prescribed by Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and allowed under the original provisions of SFAS No. 123. Prior to the adoption of SFAS No. 123R, the Company accounted for the Company’s stock option plans using the intrinsic value method in accordance with the provisions of APB Opinion No. 25 and related interpretations.

i) Foreign Currencies Translation

Assets and liabilities in foreign currency are recorded at the balance sheet date at the rate prevailing on that date. Items of income statement are recorded at the average exchange rate. Gain or loss on foreign currency transactions are reflected on the income statements. Gain or loss on financial statement translation from foreign currency are recorded as a separate component in the equity section of the balance sheets, as component of comprehensive income (loss). The functional currencies of the Company are Chinese Renminbi and Hong Kong Dollars. The following companies are using Chinese Renminbi: Hartcourt Princely, Hartcourt Education Investment Management Consulting (Shanghai) Co., Ltd, Beijing Yanyuan Rapido Education Company, China Arts and Science Academy, Hartcourt Hi-Tech Investment (Shanghai) Inc., and Shanghai Jiumeng Information Technology Co., Ltd. The following companies are using Hongkong Dollars: Al-Asia Inc., Hartcourt China Inc. and Hartcourt Capital.

j) Basic and diluted earning per share

Earning per share is calculated in accordance with the Statement of financial accounting standards No. 128 (ASC 260), “Earnings per share”. SFAS No. 128 superseded Accounting Principles Board Opinion No.15 (APB 15). Net earning 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 earning 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.

k) Recently Issued Accounting Standards

In June 2009, the FASB issued ASC 105 (previously SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles ("GAAP") - a replacement of FASB Statement No. 162), which will become the source of authoritative accounting principles generally accepted in the United States recognized by the FASB to be applied to nongovernmental entities. The Codification is effective in the third quarter of 2009, and accordingly, the Quarterly Report on Form 10-Q for the quarter ending September 30, 2009 and all subsequent public filings will reference the Codification as the sole source of authoritative literature. The Company does not believe that this will have a material effect on its consolidated financial statements.

In June 2009, the FASB issued amended standards for determining whether to consolidate a variable interest entity. These amended standards eliminate a mandatory quantitative approach to determine whether a variable interest gives the entity a controlling financial interest in a variable interest entity in favor of a qualitatively focused analysis, and require an ongoing reassessment of whether an entity is the primary beneficiary. These amended standards are effective for us beginning in the first quarter of fiscal year 2010 and we are currently evaluating the impact that adoption will have on our consolidated financial statements.

In June 2009, the FASB issued ASC 855 (previously SFAS No. 165, Subsequent Events), which establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before the financial statements are issued or available to be issued. It is effective for interim and annual periods ending after June 15, 2009. There was no material impact upon the adoption of this standard on the Company’s consolidated financial statements.

In August 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-05, which amends ASC Topic 820, Measuring Liabilities at Fair Value, which provides additional guidance on the measurement of liabilities at fair value. These amended standards clarify that in circumstances in which a quoted price in an active market for the identical liability is not available, we are required to use the quoted price of the identical liability when traded as an asset, quoted prices for similar liabilities, or quoted prices for similar liabilities when traded as assets. If these quoted prices are not available, we are required to use another valuation technique, such as an income approach or a market approach. These amended standards are effective for us beginning in the fourth quarter of fiscal year 2009 and are not expected to have a significant impact on our consolidated financial statements.

NOTE 3 LOAN RECEIVABLE

Company advanced loans to agents to market their courses to the students and individual. As at November 30, 2009, these loans comprised of the following:

1	Loan to sales agent, interest free, secured and amount due January 15, 2010	$	175,734
2	Loan to sales agent, interest free, secured and amount due February 15, 2010		190,379
3	Loan to sales agent, interest free, secured and amount due February 28, 2010		175,734
4	Loan to individual, 10% interest, secured and amount due March 31, 2010		183,055
5	Loan to individual, 10% interest, secured and amount due April 15, 2010		219,668
			944,570

During the three months period ended November 30, 2009, the Company has interest income of $20,998.

NOTE 4 PROPERTIES AND EQUIPMENT

The Company’s property and equipment as of November 30, 2009 and May 31, 2009 are summarized as follows:

	November 30, 2009 Unaudited			May 31, 2009
Office equipment and computers	$	103,012		$	126,739
Less: accumulated depreciation		(57,114	)		(69,099	)
Property and equipment, net	$	45,898		$	57,640

NOTE 5 INTANGIBLE ASSETS

The Company accounts for its intangible assets under the applicable guidelines of SFAS 142 (ASC 350) “goodwill and other intangible assets” and SFAS 144 (ASC 360) “accounting for the impairment or disposal of long lived assets”. Where intangible assets have finite lives, they are amortized over their useful life unless factors exist to indicate that the asset has been impaired. The Company evaluates if the assets are impaired annually or on an interim basis if an event occurs or circumstances change to suggest that the assets value has diminished. Under SFAS 142 intangible assets with indefinite useful lives are required to be tested annually for impairment or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets is measured by a comparison of the carrying amount of the assets to future net cash flows expected to be generated by the assets. If the assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount exceeds the fair value of the assets. During three months periods ended August 31, 2009, the Company recognized no impairment.

At November 30, 2009 and May 31, 2009, intangibles consist of the following:

	November 30, 2009			May 31, 2009
Course Software	$	724,882		$	724,882
Course Material		3,363,276			3,363,276
Accumulated Amortization		(266,166	)		(164,802	)
		3,821,992			3,923,356

Life of intangible assets is twenty years. Amortization expense from continuing operation included cost of revenue for the year ended November 30, 2009 and 2008 were $101,364 and $0, respectively. We expect amortization expense for the next five years to be as follows:

Period ending November 30:
2010	$	405,456
2011		405,456
2012		405,456
2013		405,456
2014		405,456
Thereafter		1,794,713
	$	3,821,992

Period ending May 31:
2010	$	204,408
2011		204,408
2012		204,408
2013		204,408
2014		204,408
Thereafter		2,901,316
	$	3,923,356

NOTE 6 DUE TO RELATED PARTIES

The amount due to directors as of November 30, 2009 and May 31, 2009 were $ 185,211and $246,862, respectively. This amount represents director fee due to the Company’s directors. The amount due to directors is interest free, unsecured and due on demand.

NOTE 7 ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities as of November 30, 2009 and May 31, 2009 are summarized as follows:

	Amount		Amount
	November 30, 2009 Unaudited		May 31, 2009

Accrued professional fees	$	89,741	$	51,583
Payroll payable		719,450		681,306
Welfare		10,075		10,073
Income tax payable		453,752		293,166
Other payable		417,905		301,443
Total	$	1,690,923	$	1,337,571

NOTE 8 LOAN PAYABLE

Company has loan from third party for financing resource. As at November 30, 2009 and May 31, 2009, the Company has loan payable $274,429 and $0, respectively. This loan is interest free, unsecured and amount due on demand.

NOTE 9 EARNINGS / (LOSSES) PER SHARE

Basic and diluted (loss) income per common share is computed as follows for the six months ended:

	November 30, 2009		November 30, 2008

Net Income (loss)	$	(32,417)	$	251,571
Effects of dilutive securities				-

Basic - weighted average shares outstanding		386,966,816		264,935,687
Diluted - weighted average shares outstanding		386,966,816		266,613,190

Basic earnings per share	$	(0.00)	$	0.00
Diluted earnings per share	$	(0.00)	$	0.00

As of November 30, 2009, the Company had 28,200,000 options outstanding, each exercisable for one share of our common stock. These instruments were not included in the computation of diluted earnings per share for any of the periods presented because the Company has retained loss as of November 30, 2009.

NOTE 10 SHAREHOLDERS’ EQUITY

a) Capitalization

The Company is authorized to issue 434,999,000 shares of stock, consisting of 424,999,000 shares of common stock, US$0.001 par value and 10,000,000 shares of Class A Preferred Stock. The total number of shares of the Company’s Common Stock outstanding as of November 30, 2009 and May 31, 2009 are 386,966,816. No shares of the Company’s Class A Preferred Stock were outstanding as of November 30, 2009 and May 31, 2009.

b) Original Preferred Stock

On July, 14, 2004, the founder of Hartcourt, Dr. Alan V. Phan, converted his 1,000 shares of Original Preferred Stock into 2,000,000 shares of Hartcourt Common Stock. After the conversion, no Original Preferred Stock was outstanding as of November 30, 2009.

c) Class A Preferred Stock

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

d) Equity Transactions

There is no equity transaction during the six month period ended November 30, 2009.

Stock Option Plan

In November 2005, the Company adopted a stock option plan to attract and retain qualified persons for positions of substantial responsibility as officers, directors, consultants, legal counsel, and other positions of significance to the Company (the “2005 Plan”). The 2005 Plan provides for the issuance of stock options, stock appreciation rights, restricted stock, stock units, bonus stock, dividend equivalents, other stock-related awards and performance awards that may be settled in cash, stock, or other property. The total number of shares of our common stock that may be subject to awards under the 2005 Plan is equal to 35,000,000 shares, plus (i) the number of shares with respect to which awards previously granted under the 2005 Plan that terminates without the issuance of the shares or where the shares are forfeited or repurchased; (ii) with respect to awards granted under the 2005 Plan, the number of shares which are not issued as a result of the award being settled for cash or otherwise not issued in connection with the exercise or payment of the award and (iii) the number of shares that are surrendered or withheld in payment of the exercise price of any award or any tax withholding requirements in connection with any award granted under the 2005 Plan. Unless earlier terminated by our Board of Directors, the 2005 Plan will terminate on the earlier of (1) ten years after the later of (x) its adoption by our Board of Directors, or (y) the approval of an increase in the number of shares reserved under the 2005 Plan by our Board of Directors (contingent upon such increase being approved by our shareholders) and (2) such time as no shares of our common stock remain available for issuance under the 2005 Plan and we have no further rights or obligations with respect to outstanding awards under the 2005 Plan. Options granted under the 2005 Plan are restricted as to sale or transfer.

The 2005 Plan was approved on November 23, 2005 during the annual shareholders meeting.

The number of shares of common stock reserved and available under the 2005 Plan was increased from 35,000,000 to 70,000,000 at the annual meeting of shareholders on February 24, 2007.

On September 1, 2008, the Company granted Victor Zhou CEO of the Company, an option to purchase the Company’s common stock at exercise price of $0.03 according to the following vesting schedule and based on the 2005 Plan.

-	7,500,000 stock options vested pro rata over 2 years of the employment contract period.
-	3,000,000 stock options vested upon each successful new business acquisition of the Company.
-	3,000,000 stock options vested upon each full profitable year.

The following assumptions were used to calculate the fair value of the options granted:

Risk-free interest rate	4.92%
Weighted average expected life of the options	6.25 years
Expected volatility	127.39%
Expected dividend yield	0

On September 11 2008, the Company granted Wilson Li, Chairman of the Board, an option to purchase 5,000,000 shares of the Company’s common stock at exercise price of $0.03. The option will vest on September 11, 2010 and is exercisable within five years time after vesting.

The following assumptions were used to calculate the fair value of the options granted:

Risk-free interest rate	4.92%
Weighted average expected life of the options	7.00 years
Expected volatility	127.39%
Expected dividend yield	0

On September 11 2008, the Company granted George Xu, independent director of the Company, an option to purchase 1,000,000 shares of the Company’s common stock at exercise price of $0.03. Each option will vest on September 11, 2010 and is exercisable within five years time after vesting.

The following table summarizes the activity of stock options:

			Weighted
			Average		Aggregate
	Number of		Exercise		Intrinsic
	Options		Price		Value

Shares under options at May 31, 2008		34,600,000	$	0.06	$	690,000
Granted		20,500,000		-
Exercised		-		-
Expired		-		-
Cancelled		25,900,000		-

Shares under options at May 31, 2009		29,200,000	$	0.06	$	-
Granted		-		-
Exercised		-		-
Expired		-		-
Cancelled		1,000,000		-

Shares under options at November 30, 2009		28,200,000	$	0.06	$	-

Additional information relating to stock options outstanding and exercisable at November 30, 2009 summarized by the exercise price is as follows:

		Weighted
	Number of	Average	Weighted	Number	Weighted
Range of	Outstanding at	Remaining	Average	Exercisable at	Average
Exercise	November 30,	Contractual	Exercise	November 30,	Exercise
Price	2009	Life	Price	2009	Price

$0.03 - $0.05	28,000,000	4.34 Year	$0.04	828,000	$0.04
$0.09	200,000	1.27 Year	$0.09	200,000	$0.09

During the three months period ended November 30, 2009, no options vested and the Company recorded $82,859 amortization in stock based compensation expense.

Additional information relating to stock options outstanding and exercisable at November 30, 2008 summarized by the exercise price is as follows:

		Weighted
	Number of	Average	Weighted	Number	Weighted
Range of	Outstanding at	Remaining	Average	Exercisable at	Average
Exercise	November 30,	Contractual	Exercise	November 30,	Exercise
Price	2008	Life	Price	2008	Price

$0.03 - $0.05	29,000,000	5.34 Year	$0.04	23,000,000	$0.04
$0.09	200,000	2.27 Year	$0.09	200,000	$0.09

During the six months period ended November 30, 2008, no options vested and the Company recorded $79,709 amortization in stock based compensation expense.

b) Warrants

None

NOTE 11 COMMITMENTS AND CONTINGENCIES

a) Employment Agreements

None

b) Operating Leases

The Company leases its offices and facilities under long-term, non-cancelable lease agreements expiring at various dates through January 27, 2010. The non-cancelable operating lease agreements provide that the Company pays certain operating expenses applicable to the leased premises according to the Chinese Law. Rental expense for the three months ended November 30, 2009 and 2008 were $3,947 and $14,410, respectively.

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

Year Ending May 31,		Payments
2010		$	7,904

c) Legal Proceedings

Legal Proceedings:

Hartcourt Hi-Tech Investment (Shanghai) Inc. filed a complaint against Beijing Yi Zhi He Lian Information Technology Co., for returning RMB 1,000,000 which it owed the Company. On December 19, 2006, Beijing Shi Jing Shan District Court entered the judgment in this case. The court found that Hartcourt Hi-Tech Investment (Shanghai) Inc. has no rights to file the complaint against Beijing Yi Zhi He Lian Information Technology Co., Ltd. unless designated by Hartcourt Capital Inc. which signed and was bound by the acquisition agreement. The court issued an order overruling the complaint from Hartcourt Hi-Tech Investment (Shanghai), Inc. as the plaintiff.

On August 10, 2007, Hartcourt Capital Inc. filed a lawsuit in the Beijing No. 1 Intermediate People’s Court against Beijing Yi Zhi He Lian Information Technology Co., Ltd. to return the RMB 1,000,000 which it owed to the Company. Beijing No. 1 Intermediate People’s Court issued the civil ruling No. (2007)10077, overruling the complaint from Hartcourt Capital Inc. with the reason that Hartcourt Capital Inc. has no rights to lodge the lawsuit as the plaintiff. Hartcourt Capital Inc. then appealed to Beijing Senior People’s Court against the civil ruling No. 10077. Beijing Senior People’s Court found that Hartcourt Capital Inc. shall have the rights to lodge the lawsuit as the plaintiff. On December 10, 2008, the Beijing Senior People’s Court issued ruling No. (2008) 740. By this ruling, the court withdrew the civil ruling No. 10077 of the Beijing No. 1 Intermediate People’s Court and remanded the case to Beijing No. 1 Intermediate People’s Court for a retrial.

On December 18, 2009, the Beijing No.1 Intermediate People’s Court issued the civil verdict No. 5149. According to the verdict, Beijing Yi Zhi He Lian Information Technology Co., Ltd. shall repay the RMB 1,000,000 to Hartcourt Capital Inc. within 10 days after the verdict comes into effect, and its general manager Mr. Ming Song shall be jointly liable for performing the obligation of repaying the RMB 1,000,000. However, Beijing Yi Zhi He Lian Information Technology Co., Ltd. has appealed to the Beijing Senior People’s Court against the verdict No. 5149 on December 29, 2009. Now Hartcourt is waiting for the trial of secondary instance by the Beijing Senior People’s Court and the final outcome of this lawsuit is not known yet.

NOTE 12 CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS

The Company's operations are carried out in the PRC. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC, and by the general state of the PRC's economy. The Company's business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other factors.

NOTE 13 SUBSEQUENT EVENTS

On January 7, 2010, Hartcourt entered in an engagement letter with Kingweet AMS, an investor relations firm, to provide investor relations services for a period commencing January 7, 2010 and ending December 31, 2010. In consideration of the services, Hartcourt agreed to issue to KingWeet warrants to purchase a total of five million shares of Hartcourt common stock, to be issued in installments. A warrant to purchase one million shares of Hartcourt common stock will be issued on each of January 15, March 15, May 15 and July 15 of 2010, each with an exercise price of $.03 per share and a term of one year from the date of grant. An additional warrant to purchase one million shares of Hartcourt common stock will be granted to KingWeet on September 15, 2010, with an exercise price of $0.04 per share and a term of one year from the date of grant. In addition to the warrants, KingWeet will receive a cash retainer of up to $4,500 per month, subject to the approval by the Board of Directors of Hartcourt’s monthly budget, and a possible bonus of $7,500 at the end of December 31, 2010, subject to the Board of Director’s satisfaction with KingWeet’s service.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-looking Statements

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are based upon current expectations that involve risks and uncertainties. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. For example, the words “believes,” "anticipates,” “plans,” “expects,” “intends” and similar expressions are intended to identify forward-looking statements. Our actual results and the timing of certain events may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a discrepancy include, but are not limited to, those discussed in “Risk Factors Affecting Future Results” and “Liquidity and Capital Resources” below. All forward-looking statements in this document are based on information available to us as of the date hereof and we assume no obligation to update any such forward-looking statements. The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and the accompanying notes contained in this quarterly report. Unless expressly stated or the context otherwise requires, the terms “we,” “our,” “us” and “Hartcourt” refer to The Hartcourt Companies, Inc. and its subsidiaries.

Overview

China’s Education Markets

In 1986, the PRC government implemented a system of compulsory education that requires each child to have at least nine years of formal education. Chinese culture has historically placed a strong emphasis on education. Because of the “one child” policy of the PRC government, Chinese families are generally willing to invest a substantial amount of their financial resources in their only child’s education. According to the Economist Intelligence Unit, the Chinese disposable income per capita increased at a compound annual growth rate, or CAGR, of 6.7% from 2002 to 2006 and will probably increase at a CAGR of 8.3% from 2007 to 2011. With greater amounts of disposable income, Chinese families are spending an even higher percentage of their disposable income on their children’s education. Education expenditure as a percentage of GDP potentially will grow from 4.0% in 2005 to 4.5% in 2010, according to the China Education Human Resources Report of 2003.

China’s education market is large and growing rapidly because of favorable demographic, consumer spending trends and the increased importance placed on higher and professional education.

According to the Ministry of Education (MOE), 29 million students will reach college age in the next 5 years, a 40% increase and a US$36 billion market. While MOE-controlled universities and colleges still maintain dominant market share, the field is now open for private and foreign investment capital. In addition, MOE has set a timeline to privatize all vocational schools and educational institutions that offer degrees lower than Bachelor by 2010.

According to the China Statistical Yearbook (2007), in 2006, approximately 686 million people in China were between the ages of 5 and 39. Ongoing urbanization has increased the proportion of China’s population living in urban areas from 36.2% in 2000 to 43.9% in 2006, as stated in the China Statistical Yearbook (2007), and potentially will continue to increase. According to the National Bureau of Statistics of China, average per capita annual consumption expenditures in urban areas in China have increased, from approximately RMB4,998 ($712.8) in 2000 to approximately RMB8,697 ($1,240.3) in 2006. Consumption expenditure on education, cultural and recreational services accounted for 13.8% of total annual consumption expenditures per capita in urban households in 2006, the second largest category after food. We believe these demographic and consumer trends are making people in China increasingly willing to invest in higher and professional education.

China has one of the fastest growing economies in the world. As China’s economy continues to develop, its service industries are playing an increasingly important role. We believe this will increase opportunities in the education markets as people continue to seek advanced skills and professional licenses and certifications.

In August 2006, after reviewing our business condition, competitive position, and opportunities in China, we decided to change our business by focusing on the education market in China to take advantage of the substantial market demand for education services. We plan to not only acquire certain schools we have targeted, but also to run these schools actively by putting together strong faculty teams, incentive plans and strategic expansion programs.

On July 23, 2008, we completed the acquisition of 60 percent of the outstanding equity of Beijing Yanyuan Rapido Education Company (“Beijing Yanyuan”) pursuant to the terms of the definitive agreement entered into between the two parties, a well-known training institution in China. Subject to the definitive agreement between the Company and Beijing Yanyuan, the purchase price paid by the Company in connection with its acquisition of a controlling interest in Beijing Yanyuan was 69 million shares of the Company’s restricted common stock.

Results of Operations

The following table sets forth the consolidated statements of operations for the three months ended November 30, 2009, with the comparable reporting period in the preceding year.

THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

	For the three month periods ended
	November 30,		November 30,
	2009		2008
Net revenues	$	498,909	$	643,996
Cost of revenues		119,917		33,782
Gross profit		378,992		610,214

Operating costs and expenses:
General and administrative expenses		57,763		293,246
Depreciation and amortization		113,148		5,495
Impairment of goodwill
Total operating expenses		170,991		289,741

Income(loss) from continued operations		208,081		311,473

Other income (expenses)
Foreign currency exchange gain		5,255	45,753
Interest income		14,003		-
Others		-		188,765
Total other income		19,258		234,518

Income (loss) from continued operations before income taxes and noncontrolling interest		227,339		545,991
Provision for income taxes		44,646		74,391
Noncontrolling interest, net of taxes		126,864		196,967
NET INCOME		55,829		274,633

OTHER COMPREHENSIVE ITEM:
Foreign currency translation gain		4,769		30,001

NET COMPREHENSIVE INCOME(LOSS)	$	60,598	$	304,634

Three months ended November 30, 2009 compared to three months ended November 30, 2008.

Net Revenue:

Revenues were $498,909 for the three months ended November 30, 2009 compared to $643,996 for the same period in 2008. The increased revenues were primarily due to revenue generated by Beijing Yanyuan and China Arts & Science Academy. We currently derive revenues from the following sources:

●

educational programs and services, which accounted for 90% of our total net revenues as of November 30, 2009; and

●

books and others, which accounted for 10% of our total net revenues as of November 30, 2009.

Cost of revenue:

Cost of revenues were $119,917 for the three months ended November 30, 2009 compared to $33,782 for the same period in 2008. The increased cost of revenue was primarily due to costs of revenue attributable to the operations of Beijing Yanyuan and China Arts & Science Academy during the six months ended November 30, 2009. Cost of revenue consisted primarily of printing costs of books and other materials and relevant business tax for income.

General and administrative expenses:

General and administrative expenses were $57,763 for the three months ended November 30, 2009 compared to $293,246 for the same period in 2008, an decrease of $235,483 or 80.30% compared to the three months ended November 30, 2008. The increase of expenses for the three months ended November 30, 2009 was primarily due to the increase in professional expenses compared to the same period in 2008.

Depreciation and amortization expenses:

Depreciation and amortization expenses were $113,148 for the three months ended November 30, 2009 compared to $5,495 for the same period in 2009 or a $ 107,653 increase. The increase was primarily due to the acquisitions of Beijing Yanyuan and China Arts & Science Academy.

Foreign currency exchange gain:

Foreign currency exchange gain was $4,769 for the three months ended November 30, 2009 compared to $30,001 for the same period in 2008. The $25,232 decrease was mainly due to the fluctuation of RMB increase slow down in value.

Income (loss) from Continuing Operations:

Income from continuing operations for the three months ended November 30, 2009 was $55,829, compared to loss of $274,633 for the same period in 2008. The income decrease was mainly due to revenue attributable to the operations of Beijing Yanyuan and China Arts & Science Academy.

Liquidity and Capital Resources:

As shown in our accompanying financial statements, we had a net income of $ 55,829 for the three months ended November 30, 2009, as compared to $ 274,633 for the same period in 2008.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of liabilities in the normal course of business.

The Company has taken certain restructuring steps to provide the necessary capital to continue its operations. These steps included:

●	Look for growth opportunities through acquisitions of profitable education businesses;
●	Raise additional capital through public offerings or private placements; and

●	Take measures to control costs and operating expenses.

Operating activities: During the six months ended November 30, 2009, net cash used in operating activities was $(95,640), compared to net cash $(202,708) used in operating activities during the same period in 2008. The cash used in operating activities in the six months ended November 30, 2009 resulted mainly from loss of $(32,147), and an increase of Depreciation of $113,148, and decrease of account receivable of $(699,208), and an increase of accrued expenses and other current liabilities of $69,784, and an decrease of accounts payable of $141,331, and minority interest of $242,027. The cash used in operating activities in the six months ended November 30, 2008 resulted mainly from Net Income Gain of $251,571, and a decrease of account payable of $ (131,630), and decrease of prepaid expenses and other receivables of $(187,571) and an increase of accrued expenses and other current liabilities of $238,452, and increased of accounts receivable of $(593,742).

Investing activities: Net cash used in investing activities during the six months ended November 30, 2009 was $121,695, compared to cash provided by investing activities was $6,177 during the same period in 2008. The cash used in investing activities in the three months period ended November 30, 2009 was due to the loan receivable of $(121,695).

Financing activities: Net cash provided by financing activities during the six months ended November 30, 2009 was $212,778 compared to $266,403 provided by the same period in 2008. Net cash provided by financing activities in the six months ended November 30, 2009 was decrease due to officer of $(61,651), and increase payable of $274,429. Net cash provided by financing activities in the six months ended November 30, 2008 was issuance of shares of cash of $400,00 and proceeds from (payment to) related parties-net of (133,597).

Contractual Obligations

During the three months ended November 30, 2008, we did not have any contractual obligation other than the facility leases described in Note 11(b) of financial statements.

Off-Balance Sheet Arrangements

During the three months ended November 30, 2008, the Company did not engage in any off-balance sheet arrangements as defined in Item 303(a)(4) of the SEC's Regulation S-K.

Critical Accounting Policies and Estimates

For a description of what we believe to be the critical accounting policies that affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements, please refer to our Annual Report on Form 10-K for the year ended May 31, 2008. There have been no changes in our critical accounting policies since May 31, 2008.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Short-Term Investment Portfolio

We do not hold derivative financial instruments in our portfolio of short-term investments. Our short-term investments consist of instruments that meet quality standards consistent with our investment policy. This policy specifies that, except for direct obligations of the United States government, securities issued by agencies of the United States government, and money market or cash management funds, we diversify our holdings by limiting our short-term investments and funds held for payroll customers with any individual issuer. As of November 30, 2008, all our cash equivalents represent cash on hand and cash deposit in PRC banks, the interest rate earned on our money market accounts ranged from 0.81% to 1.71% per annum.

Interest Rate Risk

Our cash equivalents are subject to market risk due to changes in interest rates. Interest rate movements affect the interest income we earn on cash equivalents, and funds held for payroll customers and the value of those investments.

Impact of Foreign Currency Rate Changes

Because we translate foreign currencies (primarily Chinese Yuans and Hong Kong Dollars) into US dollars for financial reporting purposes, currency fluctuations can have an impact on our financial results. The historical impact of currency fluctuations has generally been immaterial. We believe that our exposure to currency exchange fluctuation risk is not significant. Although the impact of currency fluctuations on our financial results has generally been immaterial in the past and we believe that for the reasons cited above currency fluctuations will not be significant in the future, there can be no guarantee that the impact of currency fluctuations will not be material in the future. As of November 30, 2008, we did not engage in foreign currency hedging activities.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures

Our management evaluated, with the participation of our chief executive officer and our chief financial officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our chief executive officer and our chief financial officer have concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Changes in internal control over financial reporting

There was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We are aware that any system of controls, however well designed and operated, can only provide reasonable, and not absolute, assurance that the objectives of the system are met, and that maintenance of disclosure controls and procedures is an ongoing process that may change over time.

PART II: OTHER INFORMATION

Item 1. Legal Proceedings.

Legal Proceedings:

Hartcourt Hi-Tech Investment (Shanghai) Inc. filed a complaint against Beijing Yi Zhi He Lian Information Technology Co., for returning RMB 1,000,000 which it owed the Company. On December 19, 2006, Beijing Shi Jing Shan District Court entered the judgment in this case. The court found that Hartcourt Hi-Tech Investment (Shanghai) Inc. has no rights to file the complaint against Beijing Yi Zhi He Lian Information Technology Co., Ltd. unless designated by Hartcourt Capital Inc. , which signed and was bound by the acquisition agreement. The court issued an order overruling the complaint from Hartcourt Hi-Tech Investment (Shanghai), Inc. as the plaintiff.

Item 1A. Risk Factors

The risk factors facing the Company have not changed in any material way from those Risk Factors discussed on the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2008.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On July 22, 2008, the Company issued to the former shareholder of Beijing Yanyuan in an offshore transaction under Regulation S an aggregate of 69 million shares of the Company’s restricted common stock pursuant to the terms of the definitive purchase agreement.

On October 31, 2008, the Company issued to the former shareholders of China Arts & Science Academy in an offshore transaction under Regulation S an aggregate of 40,000,000 shares of the Company’s restricted common stock pursuant to the terms of the definitive purchase agreement.

On November 1, 2008, the Company issued 20,000,000 shares of the Company’s restricted common stock to fund raisers for cash in an offshore transaction under Regulation S at $0.02 per share for gross proceeds of $400,000. The proceeds were used for working capital.

On November 24, 2008, the Company issued 872,716 shares of the Company’s restricted common stock valued at $26,181 to Wilson Li in lieu of cash payment for director service compensation, which was approximately equal to the fair market value of the stock at issue date.

On November 24, 2008, the Company issued 272,120 shares of the Company’s restricted common stock valued at $8,164 to Stephen Tang in lieu of cash payment for director service compensation, which was approximately equal to the fair market value of the stock at issue date.

On November 24, 2008, the Company issued 176,644 shares of the Company’s restricted common stock valued at $5,299 to George Xu in lieu of cash payment for director service compensation, which was approximately equal to the fair market value of the stock at issue date.

On November 24, 2008, the Company issued 313,763 shares of the Company’s restricted common stock valued at $9,413 to Geferry Wei in lieu of cash payment for former director service compensation, which was approximately equal to the fair market value of the stock at issue date.

Item 3. Defaults Upon Senior Securities

None

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

None.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit		Previously Filed
Number	Description	Previously Filed
3.1	Articles of Incorporation of Hartcourt, dated September 6, 1983	(1)
3.2	Bylaws of Hartcourt	(1)
3.3	Amendment to the Bylaws of Hartcourt, dated December 2, 1996	(2)
3.4	Amendment to the Bylaws of Hartcourt, dated October 25, 2004	(6)
3.5	Amendments to the Articles of Incorporation of Hartcourt, dated November 21, 1994	(2)
3.6	Amendments to the Articles of Incorporation of Hartcourt, dated March 23, 1995	(1)
3.7	Amendment to the Articles of Incorporation of Hartcourt, dated October 1997	(3)
3.8	Amendment to the Articles of Incorporation of Hartcourt, dated March 13, 2003	(4)
3.9	Amendment to the Articles of Incorporation of Hartcourt, dated November 24, 2005	(5)
31.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

___________________

(1) Previously filed as an exhibit to Hartcourt’s Form 10SB12G/A, dated July 3, 1997 and incorporated herein by reference.

(2) Previously filed as an exhibit to Hartcourt’s Form 10SB12B, dated January 21, 1997 and incorporated herein by reference.

(3) Previously filed as an exhibit to Hartcourt’s Form 10KSB, dated April 13, 1998 and incorporated herein by reference.

(4) Previously filed as an exhibit to Hartcourt’s Form 10KSB/A, dated April 25, 2003 and incorporated herein by reference.

(5) Previously filed as an exhibit to Hartcourt’s Form 10-Q, dated April 23, 2007, as amended by Hartcourt’s Form 10-Q/A, dated April 24, 2007, incorporated herein by reference.

(6) Previously filed as an exhibit to Hartcourt’s Form 10-K, dated September 15, 2007 and incorporated herein by reference.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	THE HARTCOURT COMPANIES, INC.

Dated: January 19, 2010	By: /s/ VICTOR ZHOU
	Victor Zhou
	Chief Executive Officer


Dated: January 19, 2010	By: /s/ Rachel Zhang
	Rachel Zhang
	Chief Financial Officer

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