hartcourt_10q-022809.htm

10-Q 1 hartcourt_10q-022809.htm QUARTERLY REPORT hartcourt_10q-022809.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 February 28, 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, April [10], 2009, was 339,015,544.

TABLE OF CONTENTS

	PART I: FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Consolidated Balance Sheets (Unaudited) - February 28, 2009 and May 31, 2008	3
	Consolidated Statements of Operations (Unaudited)- Three-month and nine-month periods ended February 28, 2009 and February 29, 2008	4
	Consolidated Statements of Cash Flows (Unaudited) -Nine-month periods ended February 28, 2009 and February 29, 2008	6
	Notes to Unaudited Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	28
	PART II: OTHER INFORMATION
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors Affecting Future Results	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3.	Defaults Upon Senior Securities	29
Item 4.	Submission of Matters to a Vote of Security Holders	30
Item 5.	Other Information	30
Item 6.	Exhibits	30
	Signatures	31

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	February 28, 2009		May 31, 2008

ASSETS

Cash and cash equivalents	$	190,769	$	4,907
Accounts Receivable		884,682		-
Course material for sale		11,672		-
Loans to sales agents		797,029		-
Prepaid expenses and other assets		10,770		17,837

TOTAL CURRENT ASSETS		1,894,922		22,744

PROPERTY & EQUIPMENT – NET		63,604		23,772
INTANGIBLE ASSETS - NET		3,974,884		-

TOTAL ASSETS	$	5,933,410	$	46,516


LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)

CURRENT LIABILITIES
Accounts payable	$	131,497	$	457,725
Due to officer		148,667
Accrued expenses and other current liabilities		1,315,951		1,004,489
Due to directors		197,862		196,004

TOTAL CURRENT LIABILITIES		1,793,977		1,658,218

COMMITMENTS

MINORITY INTEREST		594,544		-

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

Common stock:
$0.001 par value, 424,999,000 authorized
February 28, 2009: 339,015,544 issued 336,966,816 outstanding
May 31, 2008: 207,810,582 issued 205,761,854 outstanding		336,967			205,762
Additional paid in capital		76,549,975			71,795,909
Treasury stock, at cost, 2,048,728 shares		(48,728	)		(48,728	)
Other comprehensive loss		(151,572	)		(95,353	)
Accumulated deficit		(73,141,753	)		(73,469,292	)

TOTAL SHAREHOLDERS' EQUITY (DEFICIT)		3,544,889			(1,611,702	)

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)	$	5,933,410		$	46,516

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
	February 28,			February 29,
	2009			2008
Net revenues	$	922,962		$	-
Cost of revenues		107,065			-
Gross profit		815,897			-

Operating costs and expenses:
General and administrative expenses		306,127			261,988
Depreciation and amortization		6,041			3,934
Impairment of goodwill		-			-
Total operating expenses		312,168			265,922

Income(loss) from continued operations		503,729			(265,922	)

Other income (expenses)
Foreign currency exchange gain/(loss)		(2,120	)		(3,600	)

Total other income		(2,120	)		(3,600	)

Income (loss) from continued operations before income taxes and minority interest		501,609			(269,522	)
Provision for income taxes		(144,088	)		-
Minority interest, net of taxes		(251,329	)		-
Income (loss) from continued operations		106,192			(269,522	)

Discontinued operations:
Gain from discontinued operations		-			-
Income from discontinued operations		-			-

NET INCOME (LOSS)		106,192			(269,522	)

OTHER COMPREHENSIVE ITEM:
Foreign currency translation gain (loss)		(1,510	)		(35,987	)

NET COMPREHENSIVE INCOME(LOSS)	$	104,682		$	(305,509	)

BASIC AND DILUTED EARNINGS/(LOSS)
PER COMMON SHARE:

Income (loss) from continued operations basic	$	0.00		$	(0.00	)
Loss from discontinued operations basic	$	-		$	-
Income (loss) per share basic	$	0.00		$	(0.00	)
Basic weighted average number of shares outstanding		336,764,249			205,465,117

Income (loss) from continued operations diluted	$	0.00		$	(0.00	)
Loss from discontinued operations diluted	$	-		$	-
Income (loss) per share diluted	$	0.00		$	(0.00	)
Diluted weighted average number of shares outstanding		336,764,249			205,465,117

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 nine month periods ended February 28
	2009			2008

Net revenues	$	1,782,925		$	-
Cost of revenues		223,661			-
Gross profit		1,559,264			-

Operating expenses:
General and administrative expenses		726,921			799,057
Depreciation and amortization		14,290			9,767
Impairment of goodwill		-			666,471
Total operating expenses		741,211			1,475,295

Income (loss) from operations		818,053			(1,475,295	)


Other income
Foreign currency exchange gain		49,069			36,022
Gain on settlement of debt		188,848			-
Total other income		237,917			36,022

Income (loss) from operations before income tax provision and minority interest		1,055,970			(1,439,273	)
Provision for income taxes		(241,781	)		-
Minority interest, net of taxes		(486,650	)		-

Income (loss) from continuing operations		327,539			(1,439,273	)

Discontinued operations:
Gain/(loss) from discontinued operations		-			22,878
Foreign exchange rate gain		-			-
Income/(loss) from discontinued operations		-			22,878

NET INCOME (LOSS)		327,539			(1,416,395	)

OTHER COMPREHENSIVE ITEM:
Foreign currency translation gain (loss)		56,023			(27,067	)

NET COMPREHENSIVE INCOME (LOSS)	$	383,562		$	(1,443,462	)

BASIC AND DILUTED EARNINGS/ (LOSS)
PER COMMON SHARE:

Income/(loss) from continued operations basic	$	0.00		$	(0.01	)
Income from discontinued operations basic	$	-		$	0.00
Income/(loss) per share basic	$	0.00		$	(0.01	)
Basic weighted average number of shares outstanding		288,615,433			205,397,220

Income (loss) from continued operations diluted	$	0.00		$	(0.01	)
Loss from discontinued operations diluted	$	-		$	0.00
Income (loss) per share diluted	$	0.00		$	(0.01	)
Diluted weighted average number of shares outstanding		288,795,573			205,397,220

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

THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	For the nine month periods ended
	February 28, 2009			February 28, 2008
CASH FLOWS FROM OPERATING ACTIVITIES:

Net income	$	327,539		$	(1,416,395	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Amortization		113,274
Depreciation		14,290			9,767
Goodwill impairment		-			666,471
Minority interest		486,650			-
Stock options issued for service		153,804			137,752
Stock issued for services and compensations		81,467			24,999
Changes in operating assets and liabilities:
Accounts receivable		(779,493	)		-
Course material for sale		6,090			-
Prepaid expenses and other receivables		(703,475	)		(8,738	)
Accounts payable		(326,228	)		-
Accrued expenses and other current liabilities		460,128			130,540
NET CASH USED IN OPERATING ACTIVITIES		(165,954	)		(455,604	)
CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of property and equipment		-			(9,577	)
Cash received on acquisition of Subsidiary		6,177			-
NET CASH PROVIDED BY(USED IN) INVESTING ACTIVITIES OF CONTINUED OPERATIONS		6,177			(9,577	)
NET CASH PROVIDED BY INVESTING ACTIVITIES OF DISCONTINUED OPERATIONS		-			546,905

NET CASH PROVIDED BY INVESTING ACTIVITIES		6,177			537,328

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

THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(continued)

	For the nine month periods ended February 28
	2009			2008
CASH FLOWS FROM FINANCING ACTIVITIES
Sales of treasury stock		-			47,319
Issuance of shares for cash		400,000			-
Proceeds from (payments to) related parties-net		1,858			(70,964	)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		401,858			(23,645	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		(56,219	)		(42,456	)

NET INCREASE IN CASH AND CASH EQUIVALENTS		185,862			15,623

CASH AND CASH EQUIVALENTS -
BEGINNING BALANCE		4,907			20,611

CASH AND CASH EQUIVALENTS – ENDING BALANCE	$	190,769		$	36,234


Supplemental Disclosure of Cash Flow Information
Cash paid during the period
Interest	$	-		$	-
Income taxes	$	-		$	-

Supplemental Disclosure of Non Cash Transactions
Shares issued to acquire subsidiaries	$	4,250,000		$	-

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. Previously, we were a distributor of internationally well known brand named IT hardware products and related services in the People’s Republic of China. In August 2006, we announced our intention to 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. Beijing Yanyuan committed that its net profit would exceed RMB 6 million (US$827,000) for the year 2008, RMB10 million (US$1.379 million) for the year 2009, and RMB14 million (US$1.931 million) for the 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 (See note 14).

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, China Arts and Science Academy committed that its net profit would exceed RMB5 million (US$735,294) for the first year in which its results are consolidated with Hartcourt’s, RMB7.5 million (US$1.103 million) for the second year in which its results are consolidated with Hartcourt’s, and RMB10 million (US$1.471 million) for the third year 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 (See note 15).

As of February 28, 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 February 28, 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 February 29, 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 February 28, 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, 2008 were filed on September 2, 2008 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 nine-month period ended February 28, 2009 are not necessarily indicative of the results that may be expected for the year ended May 31, 2009.

b) Basis of Consolidation

The Company’s financial statements for the three and nine months ended February 28, 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 as cash equivalents all short-term highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less. As the Company’s business activities are located in China, substantial amounts of cash are deposited in foreign banks located in China, which do not carry deposit insurance similar to banks in the United States.

d) Prepaid expenses

Prepaid expenses are expenses that are allocated into the period in which they are incurred and in subsequent periods, and are 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 within one year. If certain prepaid expense item cannot be amortized, its un-amortized amount is recorded as an expense for the current period. Prepaid expenses amounted to $796 and $17,837 at February 28, 2009 and May 31, 2008 respectively and are included in “Prepaid expenses and other 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 5 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" ("SFAS 144"), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations for a Disposal of a Segment of a Business." The Company 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 February 28, 2009, there were no significant impairments of its long-lived assets used in operations.

g) Income Taxes

The Company utilizes SFAS No. 109, "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 (“SFAS No. 123R”), 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 statement. Gain or loss on financial statement translation from foreign currency are recorded as a separate component in the equity section of the balance sheet, as component of comprehensive income. The functional currencies of the Company are Chinese Renminbi and Hong Kong Dollars.

j) Basic and diluted earning per share

Earning 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 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 December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements”, which is an amendment of Accounting Research Bulletin (“ARB”) No. 51. This statement clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. This statement changes the way the consolidated income statement is presented, thus requiring consolidated net income to be reported at amounts that include the amounts attributable to both parent and the noncontrolling interest. This statement is effective for the fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Based on current conditions, the Company does not expect the adoption of SFAS 160 to have a significant impact on its results of operations or financial position.

In March 2008, the FASB issued FASB Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities. The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The new standard also improves transparency about the location and amounts of derivative instruments in an entity’s financial statements; how derivative instruments and related hedged items are accounted for under Statement 133; and how derivative instruments and related hedged items affect its financial position, financial performance, and cash flows. Management is currently evaluating the effect of this pronouncement on financial statements.

In May of 2008, FASB issued SFASB No.162, “The Hierarchy of Generally Accepted Accounting Principles”. The pronouncement mandates the GAAP hierarchy reside in the accounting literature as opposed to the audit literature. This has the practical impact of elevating FASB Statements of Financial Accounting Concepts in the GAAP hierarchy. This pronouncement will become effective 60 days following SEC approval. The Company does not believe this pronouncement will impact its financial statements.

In May of 2008, FASB issued SFASB No. 163, “Accounting for Financial Guarantee Insurance Contracts-an interpretation of FASB Statement No. 60”. The scope of the statement is limited to financial guarantee insurance (and reinsurance) contracts. The pronouncement is effective for fiscal years beginning after December 31, 2008. The Company does not believe this pronouncement will impact its financial statements.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”. This Statement replaces SFAS No. 141, Business Combinations. This Statement retains the fundamental requirements in Statement 141 that the acquisition method of accounting (which Statement 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. This Statement also establishes principles and requirements for how the acquirer: a) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase and c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) will apply prospectively to business combinations for which the acquisition date is on or after Company’s fiscal year beginning October 1, 2009. While the Company has not yet evaluated this statement for the impact, if any, that SFAS No. 141(R) will have on its consolidated financial statements, the Company will be required to expense costs related to any acquisitions after September 30, 2009.

On December 30, 2008 FASB issued FIN 48-3, “Effective Date of FASB Interpretation No. 48 for Certain Nonpublic Enterprises”. This FSP defers the effective date of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, for certain non-public enterprises as defined in paragraph 289, as amended, of FASB Statement No. 109, Accounting for Income Taxes, including non-public not-for-profit organizations. However, non-public consolidated entities of public enterprises that apply U. S. GAAP are not eligible for the deferral. Nonpublic enterprises that have applied the recognition, measurement, and disclosure provisions of Interpretation 48 in a full set of annual financial statements issued prior to the issuance of this FSP also are not eligible for the deferral. This FSP shall be effective upon issuance. The Company does not believe this pronouncement will impact its financial statements.

On January 12, 2009 FASB issued FSP EITF 99-20-01, “Amendment to the Impairment Guidance of EITF Issue No. 99-20”. This FSP amends the impairment guidance in EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to be Held by a Transferor in Securitized Financial Assets,” to achieve more consistent determination of whether an other-than-temporary impairment has occurred. The FSP also retains and emphasizes the objective of an other-than-temporary impairment assessment and the related disclosure requirements in FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, and other related guidance. The FSP is shall be effective for interim and annual reporting periods ending after December 15, 2008, and shall be applied prospectively. Retrospective application to a prior interim or annual reporting period is not permitted. The Company does not believe this pronouncement will impact its financial statements.

NOTE 3 EARNINGS / (LOSSES) PER SHARE

Basic and diluted (loss) income per common share is computed as follows:

	February 28, 2009		February 29, 2008

Net Income (loss)	$	327,539	$	(1,416,395	)
Effects of dilutive securities		-		-

Basic - Weighted average shares outstanding		288,615,433		205,397,220
Diluted – Weighted average shares outstanding		288,795,573		205,397,220

Basic earnings (loss) per share	$	0.00	$	(0.01	)
Diluted earnings (loss)per share	$	0.00	$	(0.01	)

As of February 28, 2009, the Company had 29,200,000 options outstanding, each exercisable for one share of our common stock. These instruments were included in the computation of diluted earnings per share for the period as of February 28, 2009.

NOTE 4 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 February 28, 2009 and May 31, 2008 are 336,966,816 and 205,761,854, respectively. No shares of the Company’s Class A Preferred Stock were outstanding as of February 28, 2009 and May 31, 2008.

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 February 28, 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

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.

On January 1, 2009, the Company issued 271,809 shares of the Company’s restricted common stock valued at $7,355 to Rachel Zhang in lieu of cash payment for CFO services compensation, which was approximately equal to the fair market value of the stock at issue date.

On January 1, 2009, the Company issued 297,910 shares of the Company’s restricted common stock valued at $15,190 to Rui Cao in lieu of cash payment for employee service compensation, which was approximately equal to the fair market value of the stock at issue date.

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 each of Stephen Tang and George Xu, independent directors 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 assumptions were used to calculate the fair value of the options granted:

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

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, 2007		24,600,000	$	0.127	$	-
Granted		29,000,000	$	0.05
Exercised		-		-
Expired		3,000,000	$	0.30
Cancelled		16,000,000	$	0.09

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 February 28, 2009		29,200,000	$	0.03	$	-

Additional information relating to stock options outstanding and exercisable at February 28, 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	February 28,	Contractual	Exercise	February 28,	Exercise
Price	2009	Life	Price	2009	Price

$0.03 - $0.05	29,000,000	5.09 Year	$0.04	8,700,000	$0.04
$0.09	200,000	2.01 Year	$0.09	200,000	$0.09

During the three months period ended February 28, 2009, no options vested and the Company recorded $74,095 amortization in stock based compensation expense.

b) Warrants

None

NOTE 5 LOANS TO SALES AGENTS

Company advanced loans to agents to market their courses to the students. As at February 28, 2009, these loans comprised of the following:

1.	Loan to sales agent, interest free, secured and amount due February 28, 2010	$175,492
2.	Loan to sales agent, interest free, secured and amount due January 15, 2010	$175,492
3.	Loan to sales agent, interest free, secured and amount due February 15, 2010	$190,119
4.	Loan to sales agent, interest free, secured and amount due April 31, 2009	$131,619
5.	Loan to sales agent, interest free, secured and amount due May 31, 2009	$124,307
	Total	$797,029

All loans are secured by pledge of building license owned by the agents.

NOTE 6 PREPAID EXPENSES AND OTHER ASSETS

Prepaid expenses and other assets as of February 28, 2009 and May 31, 2008 are summarized as follows:

	February 28, 2009		May 31, 2008

Prepaid service expense	$	1,163	$	196
Other assets		9,607		17,641

Total	$	10,770	$	17,837

NOTE 7 ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities as of February 28, 2009 and May 31, 2008 are summarized as follows:

	Amount		Amount
	February 28, 2009		May 31, 2008

Accrued professional fees	$	137,735	$	148,675
Payroll payable		654,313		547,463
Welfare		10,064		10,108
Tax payable		302,012		-
Loan from employees		119,846		-
Accrued other expenses		91,981		298,243
Total	$	1,315,951	$	1,004,489

NOTE 8 PROPERTIES AND EQUIPMENT

The Company’s property and equipment as of February 28, 2009 and May 31, 2008 are summarized as follows:

	February 28, 2009			May 31, 2008
Office equipment and computers	$	191,000		$	72,032
Less: accumulated depreciation		(127,396	)		(48,260	)
Property and equipment, net	$	63,604		$	23,772

NOTE 9 INTANGIBLE ASSETS

The Company accounts for its intangible assets under the applicable guidelines of SFAS 142 “goodwill and other intangible assets” and SFAS 144 “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 the nine months ended February 28, 2009, the Company recognized no impairment.

At February 28, 2009, intangibles consist of the following:

Intangibles	Gross Carrying Amount		Accumulated Amortization		Net

Amortized intangibles:
Course Software	$	724,882	$	(11,915)	$	712,967
Course Material		3,363,276		(101,359)		3,261,917
	$	4,088,158	$	(113,274)	$	3,974,884

Due to the acquisition of Beijing Yanyuan and China Arts in the first and second quarters respectively, we recorded the intangible assets above. For the intangible assets we acquired, we assigned an 20-years life each to Course Software and Course Material (See note 14 & 15).

Amortization expense from continuing operation for the nine months ended February 28, 2009 was $113,274. We expect amortization expense for the next five years to be as follows:

Twelve month period ending May 31:
2010	$	204,408
2011	$	204,408
2012	$	204,408
2013	$	204,408
2014	$	204,408
Thereafter	$	2,952,844

NOTE 10 DUE TO RELATED PARTIES

The amount due to directors as of February 28, 2009 and May 31, 2008 were $197,862 and $196,004, 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.

The amount due to officer as of February 28, 2009 and May 31, 2008 were $148,667 and $0 respectively. This amount represents loan from officer. The amount due to directors is interest free, unsecured and due on demand.

NOTE 11 DISCONTINUED OPERATIONS

On June 13, 2007, the Board of Directors of the Company authorized the disposal of its 51% interest in Shanghai Huaqing to its minority shareholders. As per the terms of sale and purchase agreement the Company will receive RMB 4,000,000. In addition, a shareholder of Shanghai Huaqing agreed to return 997,550 shares of our common stock to an individual or entity as per the discretion of the Company.

During the three months ended February 29, 2008, RMB 2,000,000 (US$252,949) was received. As of February 29, 2008, total RMB 4,000,000 (US$516,670) and 997,550 shares of the Company’s common stock had been received by the Company.

NOTE 12 COMMITMENTS AND CONTINGENCIES

a) Employment Agreements

On August 11, 2008, the Board of Directors of the Company appointed Ms. Rachel Zhang to be the Chief Financial Officer, effective August 11, 2008. Ms. Zhang will be employed part time in this capacity. Ms Zhang’s compensation is $2,000 per month.

On September 1, 2008, The Company signed the new employment contract with Mr. Victor Zhou. The compensation includes an annual base salary of $150,000, payable by equal monthly installment of $12,500 cash. In addition, Mr. Zhou was granted stock options with exercise price of $0.03. The stock option vesting schedule is as following.

-	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.

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 February 28, 2009 and 2008 were $28,696 and $18,265, respectively.

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

Year ended May 31	Payments
2009	$	12,686
2010	$	33,829

NOTE 13 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, 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 things.

NOTE 14 ACQUISITION OF BEIJING YANYUAN

On June 13, 2008, the Company entered into a definitive agreement to purchase 60% of the outstanding equity interests of Beijing Yanyuan. Under the terms of the agreement between Beijing Yanyuan and the Company, Beijing Yanyuan committed that its net profit would exceed RMB 6 million (US $827,000) for the year 2008, RMB 10 million (US $1.379 million) for the year 2009, and RMB 14 million (US $1.931 million) for the year 2010. In connection with the acquisition, the Company issued 69 million common shares issued to the former shareholder of Beijing Yanyuan. As per the agreement the restriction on the shares will be released in three instalment based on the realization of profit over the three-year period from 2008 to 2010. If the profit realized by Beijing Yanyuan in any of the three years in the period from 2008 to 2010 is less than the profit target committed by Beijing Yanyuan for such calendar year, then the number of shares will be recalculated and equal to the shares issuable time the percentage of profit realized divided by the profit target. The Company has the right to take back the rest of the shares for free.

The purchase price was determined using fair market value at the closing date of the transaction. The purchase price per share of the Company’s common stock was $0.05. Each share of common stock was valued at $0.05 resulting in a purchase price of $3,450,000. The assets acquired in this acquisition include goodwill. A summary of the Beijing Yanyuan assets acquired and the consideration for such assets is as follows:

Estimated Fair Values
Current Assets	$	63,452
Property, plant & equipment		23,272
Assumed liabilities		-
Net Assets Acquired		86,724
Consideration Paid		3,450,000
Identified intangible asset (Course Material)	$	3,363,276

Intangible asset identified as part of acquisition of Beijing Yanyuan was related to Course Material amounted $3,363,276. We assigned 20-years useful life which is subject to amortization.

Mr. Zhenyu Hu, was the former owner of Beijing Yanyuan and currently the officer of Beijing Yanyuan, guaranteed, as per the terms of the agreement, if Beijing Yanyuan will not achieve 75% of the profit target for the following three years starting 2008 to 2010, Mr. Hu will compensate Hartcourt in cash equivalent to the amount of profit target not achieved. In addition, as per the terms of the agreement, if Beijing Yanyuan can not achieve 60% of the profit target for any year starting 2008 to 2010, Hartcourt has the right to receive the entire 69 million shares from Beijing Yanyuan which were paid as part of purchase consideration.

NOTE 15 ACQUISITION OF CHINA ARTS & SCIENCE ACADEMY

On October 18, 2008, the Company entered into a definitive agreement to purchase 60% of the outstanding equity of China Arts and Science Academy. Under the terms of the definitive agreement executed between China Arts and Science Academy and Hartcourt, China Arts and Science Academy committed that its net profit would exceed RMB5 million (US$735,294) for the first year in which its results are consolidated with Hartcourt’s, RMB7.5 million (US$1.103 million) for the second year in which its results are consolidated with Hartcourt’s, and RMB10 million (US$1.471 million) for the third year 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. If the profit realized by China Arts and Science Academy in any of the three one-year periods is less than the profit target committed to by China Arts and Science Academy for such one-year period, then the number of shares issuable by the Company equal to the shares issuable time the percentage of profit realized divided by the profit target. The Company has the right to take back the rest of the shares for free.

The purchase price was determined using fair market value at the closing date of the transaction. The purchase price per share of the Company’s common stock was $0.02. Each share of common stock was valued at $0.02 resulting in a purchase price of $800,000. The assets acquired in this acquisition include goodwill. A summary of the China Arts & Science Academy assets acquired and the consideration for such assets is as follows:

Estimated Fair Values
Current Assets	$	65,917
Property, plant & equipment		9,201
Assumed liabilities		-
Net Assets Acquired		75,118
Consideration Paid		800,000
Identified intangible asset (Course Software)	$	724,882

Intangible asset identified as part of acquisition of China Art & Science was related to Course Software amounted $724,882. We assigned 20-years useful life which is subject to amortization.

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 five 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. Beijing Yanyuan committed that its net profit would exceed RMB6 million (US$827,000) for the year 2008, RMB10 million (US$1.379 million) for the year 2009, and RMB14 million (US$1.931 million) for the year 2010. The restricted common shares issued for the Acquisition will be released to shareholders of Beijing Yanyuan in three installments based on the profit realized over a three-year period.

On October 31, 2008, we 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. China Arts and Science Academy committed that its net profit would exceed RMB5 million (US$735,294) for the first year in which its results are consolidated with Hartcourt’s, RMB7.5 million (US$1.103 million) for the second year in which its results are consolidated with Hartcourt’s, and RMB10 million (US$1.471 million) for the third year 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.

Results of Operations

The following table sets forth the consolidated statements of operations for the three months ended February 28, 2009, with the comparable reporting period in the preceding year. We used the pro forma numbers for the three months ended February 29, 2008.

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


	For the three month periods ended
	February 28,			February 29,
	2009			2008
Net revenues	$	922,962		$	-
Cost of revenues		107,065			-
Gross profit		815,897			-

Operating costs and expenses:
General and administrative expenses		306,127			261,988
Depreciation and amortization		6,041			3,934

Total operating expenses		312,168			265,922

Income(loss) from continued operations		503,729			(265,922	)

Other income (expenses)
Foreign currency exchange gain		(2,120	)		(3,600	)

Total other income		(2,120	)		(3,600	)

Income (loss) from continued operations before income taxes and minority interest		501,609			(269,522	)
Provision for income taxes		(144,088	)		-
Minority interest, net of taxes		(251,329	)		-
Income (loss) from continued operations		106,192			(269,522	)

Discontinued operations:
Gain from discontinued operations		-			-
Income from discontinued operations		-			-

NET INCOME (LOSS)		106,192			(269,522	)

OTHER COMPREHENSIVE ITEM:
Foreign currency translation gain		(1,510	)		(35,987	)

NET COMPREHENSIVE INCOME(LOSS)	$	104,682		$	(305,509	)

Three months ended February 28, 2009 compared to three months ended February 29, 2008.

Net Revenue:

Revenues were $922,962 for the three months ended February 28, 2009 compared to zero for the same period in 2007. The increased revenues were primarily due to revenue generated by Beijing Yanyuan and China Arts & Science Academy, two subsidiaries in which we acquired a 60% equity interest during the nine months ended February 28, 2009. We currently derive revenues from the following sources:

•

educational programs and services, which accounted for 90% of our total net revenues as of February 28, 2009; and

•

books and others, which accounted for 10% of our total net revenues as of February 28, 2009.

Cost of revenue:

Cost of revenues were $107,065 for the three months ended February 28, 2009 compared to zero 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, two subsidiaries in which we acquired a 60% equity interest during the nine months ended February 28, 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 $306,127 for the three months ended February 28, 2009 compared to $261,988 for the same period in 2008, an increase of $44,139 or 17% compared to the three months ended February 29, 2008. The increase of expenses for the three months ended February 28, 2009 was primarily due to the acquisitions of Beijing Yanyuan and China Arts & Science Academy.

Depreciation and amortization expenses:

Depreciation and amortization expenses were $6,041 for the three months ended February 28, 2009 compared to $3,934 for the same period in 2008 or a $2,107 increase. The increase was primarily due to the acquisitions of Beijing Yanyuan and China Arts & Science Academy.

Foreign currency exchange loss:

Foreign currency exchange loss was $2,120 for the three months ended February 28, 2009 compared to $3,600 for the same period in 2008. The $1,480 decrease was mainly due to RMB increase in value.

Income (loss) from Continuing Operations:

Income from continuing operations for the three months ended February 28, 2009 was $106,192, compared to loss of $269,522 for the same period in 2008. The income increase was mainly due to revenue attributable to the operations of Beijing Yanyuan and China Arts & Science Academy, two subsidiaries in which we acquired a 60% equity interest during the nine months ended February 28, 2009.

Liquidity and Capital Resources:

As shown in our accompanying financial statements, we had a net income of $327,539 for the nine months ended February 28, 2009, as compared to a net loss of $1,416,395 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 nine months ended February 28, 2009, net cash used in operating activities was $165,954, compared to net cash used in operating activities of $455,604 during the same period in 2008. The cash used in operating activities in the nine months ended February 28, 2009 resulted mainly from income of $327,539, and an increase of account receivable of $779,493, and an increase of accrued expenses and other current liabilities of $460,128, and an increase of prepaid expenses and other receivables of $703,475, and minority interest of $486,650 and an decrease of account payable of $326,228 and an increase of stock option expense of $153,804 and an increase of amortization of $113,274. The cash used in operating activities in the nine months ended February 29, 2008 resulted mainly from loss of $1,416,395 and an increase of accrued expenses and other current liabilities of $130,540 and goodwill impairment of $666,471 and increase of stock option expense of $137,752.

Investing activities: Net cash provided by investing activities during the nine months ended February 28, 2009 was $6,177, compared to cash used in investing activities of $537,328 during the same period in 2008. The cash provided by investing activities during the nine months ended February 28, 2009 was due to the cash received upon acquisition of $6,177. The cash provided by investing activities in the nine months period ended February 29, 2008 was due to the cash received upon disposal of assets of $546,905 and cash decrease due to purchase of property and equipment of $9,577.

Financing activities: Net cash provided by financing activities during the nine months ended February 28, 2009 was $401,858 compared to $23,645 used in the same period in 2008. Net cash provided by financing activities in the nine months ended February 28, 2009 was mainly due to proceeds of $400,000 paid by purchasers of shares of our common stock in private placements. Net cash used in financing activities in the nine months ended February 29, 2008 was due to payments of $70,964 to related parties. Net cash provided by financing activities in the nine months ended February 29, 2008 was due to sales of treasury stock of $47,319.

Contractual Obligations

During the three months ended February 28, 2009, 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 February 28, 2009, 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 February 28, 2009, 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 February 28, 2009, 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.

Hartcourt Hi-Tech Investment (Shanghai) Inc. filed a compliant against Beijing Yi Zhi He Lian Information Technology Co., Ltd 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 compliant 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. The plaintiff can appeal to Beijing No. 1 Intermediate People’s Court if objecting to the rule. The Company has prepared additional lawsuit material and lodged the petition to appeal to Beijing No. 1 Intermediate People’s Court.

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 owes the Company. The lawsuit is in the initial stage and the outcome cannot be estimated as of February 28, 2009.

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

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 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: April 16, 2009	By: /s/ VICTOR ZHOU
	Victor Zhou
	Chief Executive Officer


Dated: April 16, 2009	By: /s/ Rachel Zhang
	Rachel Zhang
	Chief Financial Officer