hartcourt_10q-022908.htm

10-Q 1 hartcourt_10q-022908.htm HARTCOURT COMPANIES, INC. hartcourt_10q-022908.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended February 29, 2008

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 706, Silver Tower, No.933
Zhongshanxi Road, Shanghai, China		200051
(Address of principal executive offices)		(Zip Code)

(011) (86 21) 51113716

(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 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], 2008, was 205,465,117.

TABLE OF CONTENTS


	PART I: FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheet - February 29, 2008 and May 31, 2007
	Consolidated Statements of Operations - Three-month and nine-month periods ended February 29, 2008 and February 28, 2007
	Consolidated Statements of Cash Flows - nine-month periods ended February 29, 2008 and February 28, 2007
	Notes to Consolidated Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item 4.	Controls and Procedures

	PART II: OTHER INFORMATION
Item 1	Legal Proceedings
Item 1A	Risk Factors Affecting Future Results
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds
Item 3	Defaults Upon Senior Securities
Item 4	Submission of Matters to a Vote of Security Holders
Item 5	Other Information
Item 6.	Exhibits
	Signatures

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	February 29, 2008		May 31, 2007
	Unaudited		Audited
ASSETS

Cash and cash equivalents	$	36,234	$	20,611
Prepaid expenses and other assets		19,871		41,549
TOTAL CURRENT ASSETS		56,105		62,160

PROPERTY & EQUIPMENT – NET		26,220		26,423
OTHER RECEIVABLE		57,965		675,969
GOODWILL		-		651,082

TOTAL ASSETS	$	140,290	$	1,415,634


LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
Accounts payable	$	411,691	$	510,203
Accrued expenses and other current liabilities		778,051		572,792
Due to directors		65,488		136,452

TOTAL CURRENT LIABILITIES		1,255,230		1,219,447

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 29, 2008: 207,513,845 issued 205,465,117 outstanding May 31, 2007: 207,130,725 issued 205,081,997 outstanding		205,465			205,082
Additional paid in capital		71,732,613			71,570,246
Treasury stock, at cost, 2,048,728 shares		(48,728	)		(48,728	)
Other comprehensive loss		(61,665	)		(34,598	)
Accumulated deficit		(72,942,625	)		(71,495,815	)

TOTAL SHAREHOLDERS' EQUITY (DEFICIT)		(1,114,940	)		196,187

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)	$	140,290		$	1,415,634

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

THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

	For the three month periods ended
	February 29,			February 28,
	2008			2007

Net revenue	$	-		$	-

Operating expenses:
General and administrative expenses		261,988			327,237
Depreciation and amortization		3,934			7,957
Total operating expenses		265,922			335,194

Loss from operations		(265,922	)		(335,194	)

Other income (expenses)
Interest income (expense)		(3,600	)		98

Loss from continuing operations		(269,522	)		(335,096	)

Discontinued operations:
Loss from discontinued operations		-			(1,048,625	)

NET LOSS		(269,522	)		(1,383,721	)

OTHER COMPREHENSIVE ITEM:
Foreign currency translation gain		(35,987	)		325

NET COMPREHENSIVE LOSS	$	(305,509	)	$	(1,383,396	)

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

Loss from continuing operations	$	(0.00	)	$	(0.00	)
Loss from discontinued operations	$	-		$	(0.01	)
Loss per share	$	(0.00	)	$	(0.01	)
* Basic and fully diluted weighted average number of shares outstanding		205,465,117			199,262,110

* Weighted average number of shares used to compute basic and diluted loss per share is equivalent as the effect of dilutive securities is anti-dilutive.

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

THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

	For the nine month periods ended
	February 29,			February 28,
	2008			2007
Net revenue	$	-		$	-

Operating expenses:
General and administrative expenses		799,057			1,032,602
Depreciation and amortization		9,767			19,912
Impairment of goodwill		666,471			-
Total operating expenses		1,475,295			1,052,514

Loss from operations		(1,475,295	)		(1,052,514	)

Other income
Interest income (expense)		36,022			1,253

Loss from continuing operations		(1,439,273	)		(1,051,261	)

Discontinued operations:
Income/(loss) from discontinued operations		22,878			(1,487,180	)

NET LOSS		(1,416,395	)		(2,538,441	)

OTHER COMPREHENSIVE ITEM:
Foreign currency translation gain		(27,067	)		26,589

NET COMPREHENSIVE LOSS	$	(1,443,462	)	$	(2,511,852	)

BASIC AND DILUTED LOSS PER COMMON SHARE:

Loss from continuing operations	$	(0.01	)	$	(0.00	)
Income (loss) from discontinued operations	$	0.00		$	(0.01	)
Loss per share	$	(0.01	)	$	(0.01	)

* Basic and fully diluted weighted average number of shares outstanding		205,397,220			196,601,703

* Weighted average number of shares used to compute basic and diluted loss per share is equivalent as the effect of dilutive securities is anti-dilutive.

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 nine month-periods ended
	February 29, 2008			February 28, 2007
CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss	$	(1,416,395	)	$	(2,538,441	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		9,767			19,912
Goodwill impairment		666,471
Stock options issued for service		137,752			383,403
Stock issued for services and compensations		24,999			56,535
Changes in operating assets and liabilities:
Prepaid expenses and other receivables		(8,738	)		(295	)
Accounts payable		-			(10,813	)
Accrued expenses and other current liabilities		130,540			63,851
Other Current assets					137,385
NET CASH USED IN OPERATING ACTIVITIES OF CONTINUED OPERATIONS		(455,604	)		(1,888,463	)
NET CASH PROVIDED BY OPERATING ACTIVITIES OF DISCONTINUED OPERATIONS		-			1,487,180
CASH USED IN OPERATING ACTIVITIES		(455,604	)		(401,283	)
CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of property and equipment		(9,577	)		(16,383	)
NET CASH USED IN INVESTING ACTIVITIES OF CONTINUED OPERATIONS		(9,577	)		(16,383	)
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES OF DISCONTINUED OPERATIONS		546,905			(277,555	)

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES		537,328			(293,938	)

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 nine month periods ended
	February 29
	2008			2007

CASH FLOWS FROM FINANCING ACTIVITIES
Sales of treasury stock		47,319			-
Proceeds on sale of common stock		-			252,372
Proceeds from (payments to) related parties-net		(70,964	)		12,457
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES OF CONTINUED OPERATIONS		(23,645	)		264,829

NET CASH PROVIDED BY FINANCING ACTIVITIES OF DISCONTINUED OPERATIONS		-			-
NET CASH PROVIDED BY (USED IN) FINANCIING ACTIVITIES		(23,645	)		264,829

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALANTS		(42,456	)		45,178

NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALANTS		15,623			(385,214	)

CASH AND CASH EQUIVALENTS - BEGINNING BALANCE		20,611			400,672

CASH AND CASH EQUIVALENTS – ENDING BALANCE	$	36,234		$	15,458

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS

Cash paid for interest	$	-		$	-
Cash paid for income taxes	$	-		$	-

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

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 December 28, 2006, we entered into a definitive agreement to acquire a 51% equity interest in Taishun Yucai Senior School (“Yucai”), a high school education and vocational training service provider located in Wenzhou, Zheijiang PRC. The remaining 49% of the equity interests in Yucai will be held by Yucai’s current shareholders. Under the terms of the purchase agreement, we agreed to pay US$2,000,000 and 5,500,000 shares of our restricted common stock in order to acquire a 51% equity interest in Yucai. Pursuant to the purchase agreement, the US$2,000,000 will be payable in three installments within one year after closing of the acquisition and the 5,500,000 shares will be payable upon closing of the acquisition. The lead selling shareholder and his fellow selling shareholders together with Yucai have jointly guaranteed that we will receive a minimum of US$554,487 (RMB 4,325,000) in profit and management fees for each of the three years following the closing. In the event that the net profit is less than the guaranteed amount to the Company for a given year, the lead selling shareholder and his fellow selling shareholders shall make up the discrepancy before December 31 of each year in respect thereof. We have guaranteed that the average three-day closing price of our shares on the days immediately prior to the one-year anniversary of the closing date will be not less than US$0.50 per share. In the event that the share price is less than US$0.50, we shall credit additional cash or issue new restricted shares. The transaction is subject to government approval. We cannot predict whether or when such approval will be obtained.

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. Cash consideration of US$39,180 (RMB300,000) and a capital infusion of US$274,258 (RMB2,100,000) in China Princely were also due at closing. As of the date of this report, by mutual agreement of the parties, we have not paid these amounts. The primary current shareholder of China Princely has personally guaranteed that the net profit of China Princely will be not less than US$256,000 (RMB2,000,000) for the calendar year 2007, while we have guaranteed that the average three-day closing price of our shares on the days immediately prior to the one year anniversary of the closing date will be not less than US$0.50 per share. In the event that the share price is less than US$0.50, we shall, at our option, pay additional cash or issue new restricted shares. After closing, we changed the name of China Princely to Hartcourt Princely Education Technology Development (Beijing) Co., Ltd.

As of February 29, 2008, 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 29, 2008, 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.

As of February 29, 2008, 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.

As a result of our business decision to move away from the IT distribution business, in September 2006, we entered into a definitive sales and purchase agreement to sell our interest in Besteffort Investments Ltd (“Besteffort”). In October 2006, the Company completed the transfer of legal ownership of Besteffort to the purchaser. As of the close of our fiscal quarter ended November 30, 2007, we have already received US$229,635 in connection with the sale of our IT distribution business and the remaining balance of US$57,965 is held for assets receivable. Prior to this sale, Besteffort Investments Ltd indirectly held 90% equity interest in Shanghai Control Tech, which was a distributor of Radvision video conference products in China. Shanghai Control Tech had ceased its operations on January 1, 2006 primarily as a result of Radvision’s termination of its distribution agreement with Shanghai Control Tech. The revenue of Shanghai Control Tech had been derived almost exclusively from the Radvision business.

On February 26, 2007, the Board of Directors approved a resolution to dispose of the operations of Shanghai Jiumeng Information Technology Co., Ltd. (“Shanghai Jiumeng”). The Hartcourt Companies, Inc. entered into a Sales & Purchase Agreement with Shanghai Shiheng Architecture Consulting Co., Ltd (the “Purchaser”) to sell 100% of the equity interests in Shanghai Jiumeng. Shanghai Jiumeng holds 51% of the equity interest in Shanghai Huaqing Corporation Development Ltd. (“Shanghai Huaqing”). On June 11, 2007, the Purchaser terminated this Sales & Purchase Agreement. The Purchaser refused to consummate the transaction for the agreed upon purchase price.

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. The agreement is subject to the receipt of required third party consents and approvals if required by applicable law. The contemplated purchase price is US$528,419. In addition, a shareholder of Huaqing Shanghai will return 997,550 shares of our common stock to the individual or entity designated by us. 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 were received.

As of February 29, 2008, the Company has classified the Shanghai Huaqing business as discontinued operation. (See note 12)

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, 2007 were filed on September 13, 2007 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 February 29, 2008 are not necessarily indicative of the results that may be expected for the year ended May 31, 2008.

b) Basis of Consolidation

The Company’s financial statements for the nine months ended February 29, 2008 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 and Hartcourt Princely Education Technology Development Company Limited. 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 US$10,438 at February 29, 2008 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 40 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. Assets held under capital leases are recorded at the lesser of the present value of the future minimum lease payments or the fair value of the leased property. 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 29, 2008, 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 Hongkong 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 September 2006, FASB issued SFAS 157 “Fair Value Measurements”. This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. However, for some entities, the application of this Statement will change current practice. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Management is currently evaluating the effect of this pronouncement on financial statements.

In September 2006, FASB issued SFAS 158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R)” This Statement requires an employer to recognize the over-funded or under-funded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity or changes in unrestricted net assets of a not-for-profit organization. This Statement also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. An employer with publicly traded equity securities is required to initially recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after December 15, 2006. An employer without publicly traded equity securities is required to recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after June 15, 2007. However, an employer without publicly traded equity securities is required to disclose the following information in the notes to financial statements for a fiscal year ending after December 15, 2006, but before June 16, 2007, unless it has applied the recognition provisions of this Statement in preparing those financial statements:

1.	A brief description of the provisions of this Statement

2.	The date that adoption is required

3.	The date the employer plans to adopt the recognition provisions of this Statement, if earlier.

The requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008. Management is currently evaluating the effect of this pronouncement on financial statements.

In February 2007, FASB issued FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. FASB 159 is effective for fiscal years beginning after November 15, 2007. Early adoption is permitted subject to specific requirements outlined in the new Statement. Therefore, calendar-year companies may be able to adopt FASB 159 for their first quarter 2007 financial statements.

The new Statement allows entities to choose, at specified election dates, to measure eligible financial assets and liabilities at fair value that are not otherwise required to be measured at fair value. If a company elects the fair value option for an eligible item, changes in that item's fair value in subsequent reporting periods must be recognized in current earnings. FASB 159 also establishes presentation and disclosure requirements designed to draw comparison between entities that elect different measurement attributes for similar assets and liabilities. Management is currently evaluating the effect of this pronouncement on financial statements.

In December 2007, FASB issued FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51. This Statement applies to all entities that prepare consolidated financial statements, except not-for-profit organizations, but will affect only those entities that have an outstanding noncontrolling interest in one or more subsidiaries or that deconsolidate a subsidiary. Not-for-profit organizations should continue to apply the guidance in Accounting Research Bulletin No. 51, Consolidated Financial Statements, before the amendments made by this Statement, and any other applicable standards, until the Board issues interpretative guidance. This Statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008 (that is, January 1, 2009, for entities with calendar year-ends). Earlier adoption is prohibited. The effective date of this Statement is the same as that of the related Statement 141(R). This Statement shall be applied prospectively as of the beginning of the fiscal year in which this Statement is initially applied, except for the presentation and disclosure requirements. The presentation and disclosure requirements shall be applied retrospectively for all periods presented.

In March 19, 2008, FASB issued SFAS 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. Currently the Company does not carry any derivative instruments and the adoption of this statement may not have any effect on the financial statements.

In December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations”. The objective of this statement will significantly change the accounting for business combinations. Under Statement 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition –date fair value with limited exceptions. Statement 141 applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company does not expect the adoption of SFAS No. 141R to have a material impact on the consolidated financial statements

NOTE 3 EARNINGS / (LOSSES) PER SHARE

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

	February 29, 2008			February 28, 2007

Net loss	$	(1,416,395	)	$	(2,538,441	)
Effects of dilutive securities		-			-

Weighted average shares outstanding		205,397,220			196,601,703

Basic and dilutive loss per share	$	(0.01	)	$	(0.01	)

As of February 29, 2008, the Company had 34,600,000 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; due to the Company has retained loss as of February 29, 2008.

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 29, 2008 and February 28, 2007 are 205,465,117 and 199,530,745, respectively. No shares of the Company’s Class A Preferred Stock were outstanding as of February 29, 2008 and February 28, 2007.

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 29, 2008.

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

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

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

c) Class A Preferred Stock

The 10,000,000 shares of authorized and unissued Class A Preferred Stock may be split with such designations, 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 June 13, 2007, following the signing the definitive sales and purchase agreement, 997,550 shares of our common stock were returned from Shanghai Huaqing to the Company. These shares were valued at US$69,829 which was approximately equal to the fair market value of the stock at the return date.

On July 1, 2007, the Company issued 310,000 unregistered shares of common stock valued at US$22,102 in lieu of cash payment for director service compensation, which were approximately equal to the fair market value of the stock at issue date.

On July 9, 2007, the Company agreed to sale 997,550 unregistered shares of our common stock (received on June 13, 2007 on disposal of a subsidiary) in an offshore transaction under Regulation S to Yuying Lu for proposed gross proceeds of US$49,878 which is subject to signing agreement.

On October 1, 2007, we issued 73,120 unregistered shares of our common stock to Geoffrey Wei and Wilson Li valued at US$2,824 as of the date of issuance in lieu of cash compensation for director service.

Stock Option Plan

In April 1995, the Company adopted a stock option plan (the Plan) to attract and retain qualified persons for positions of substantial responsibility as officers, directors, consultants, legal counsel, and other positions of significance to the Company, the Plan provides for the issuance of both Incentive Stock Options and Non-Qualified Stock Options. The Plan, which is administered by the Board of Directors, provides for the issuance of a maximum of 2,000,000 options to purchase shares of common stock at the market price thereof on the date of grant. Such options are generally exercisable over a 10-year period from the date of grant. Each option lapses 90 days after the optionee has terminated his continuous activity with the Company, except that if his continuous activity with the Company terminates by reason of his death, such option of the deceased optionee may be exercised within one year after the death of such optionee. Options granted under the Plan are restricted as to sale or transfer. All options granted at not less than fair value at the date of grant and have terms of 10 years. The Plan expired in March 2005 pursuant to its terms.

In November 2005, the Company adopted a new 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 May 31, 2006, the Board of Directors of the Company appointed Mr. Victor Zhou to be the acting Chief Executive Officer, effective June 1, 2006. Mr. Victor Zhou’s employment agreement was signed on June 1, 2006. The compensation includes a monthly salary of US$8,333. In addition, Mr. Victor Zhou was granted an option to purchase 10,000,000 shares of our common stock with exercise price of US$0.04. The stock option vesting schedule is as follows:

-	Option to purchase 6,000,000 shares of our common stock to be vested with three installments of 2,000,000 each upon each successful new business acquisition of the Company; and
-	Option to purchase 2,000,000 shares of our common stock to be vested upon each full profitable year.

On June 1, 2006, the Company granted Yungeng Hu, CFO & President of the Company, an option to purchase total 11,000,000 shares of the Company’s common stock at exercise price of US$0.04 according to the following vesting schedule and based on the 2005 Plan.

-	7,500,000 stock options vest pro rata over the two years of the employment contract period in equal installments of every six months.
-	2,000,000 stock options vest upon each successful new business acquisition of the Company.
-	1,500,000 stock options vest 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	57.93%
Expected dividend yield	0

On July 4, 2006, the Company granted Billy Wang, Chairman of the Board, an option to purchase 5,000,000 shares of the Company’s common stock at exercise price of US$0.05. The option vested on September 28, 2007 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	5.00 years
Expected volatility	57.93%
Expected dividend yield	0

On August 23, 2006, the Company granted Geoffrey Wei and Wilson Li, independent directors of the Company each an option to purchase 1,000,000 shares of the Company’s common stock at exercise price of US$0.05. Each option vested on August 23, 2007 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	6.00 years
Expected volatility	57.93%
Expected dividend yield	0

On September 1, 2006, the Board of Directors made Victor Zhou the permanent CEO of the Company and, as a result, granted to Mr. Zhou options to purchase a total of 11,000,000 shares of the Company’s common stock at exercise price of US$0.05 according to the following vesting schedule and based on the 2005 Plan. These options replace the options that were granted on May 31, 2006, which compensated Mr. Zhou for his service as Acting Chief Executive Officer. None of the options vested during the term when Mr. Zhou was acting CEO of the Company.

-	7,500,000 stock options vested pro rata over 2 years of the employment contract period.
-	2,000,000 stock options vested upon each successful new business acquisition of the Company.
-	1,500,000 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	57.93%
Expected dividend yield	0

The stock option granted to ex-CEO Carrie Hartwick to purchase total 15,000,000 shares of the Company’s common stock was terminated 90 days after her departure on June 1, 2006 from the Company. The stock option granted to ex-Vice President Zhou Jing Jing to purchase 1,000,000 shares of the Company’s common stock was terminated 90 days after his departure on June 9, 2006 from the Company.

The following table summarizes the activity of stock options:

			Weighted		Aggregate
			Average		Intrinsic
	Number of		Exercise		Value
	Options		Price

Shares under options at May 31, 2006		24,600,000	$	0.127	$	0
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, 2007		34,600,000	$	0.06	$	690,000
Granted		-		-
Exercised		-		-
Expired		-		-
Cancelled		-		-

Shares under options at February 29, 2008		34,600,000	$	0.06	$	0

Additional information relating to stock options outstanding and exercisable at February 29, 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	February 29,	Contractual	Exercise	February 29,	Exercise
Price	2008	Life	Price	2008	Price

$0.04 - $0.05	29,000,000	4.75 Year	$0.05	16,375,000	$0.05
$0.09	5,300,000	3.23 Year	$0.09	5,300,000	$0.09
$1.00	300,000	0.46 Year	$1.00	300,000	$1.00

During the three months period ended February 29, 2008, a total of 1,875,000 options vested and the Company recorded US$22,868 amortization in stock based compensation expense. For the nine month period ended February 29, 2008 the Company recorded $137,752 in stock based compensation expense.

NOTE 5 GOING CONCERN

As shown in the accompanying consolidated financial statements, the Company has suffered recurring losses from operations and has an accumulated deficit of US$72,942,625 as of February 29, 2008. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s need for working capital is a key issue for management and necessary for the Company to meet its goals and objectives. The Company continues to pursue additional capitalization opportunities. There is no assurance, however, that the Company will be successful in meeting its goals and objectives in the future.

In view of the matters described in the preceding paragraph, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to raise additional capital, and to succeed in its future operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

The Company has taken certain restructuring steps to provide the necessary capital to continue its operations. These steps included: 1) acquire profitable operations through issuance of equity instruments, 2) disposal of unprofitable or unfavorable return-on-investment operations, and 3) continue actively seeking additional funding through offshore private placement to satisfy working capital requirements.

NOTE 6 PREPAID EXPENSES AND OTHER ASSETS

Prepaid expenses and other assets as of February 29, 2008 and May 31, 2007 are summarized as follows:

	February 29, 2008 Unaudited		May 31, 2007 Audited
Prepaid service expenses	$	10,438	$	496
Miscellaneous deposits		9,433		41,053

Total	$	19,871	$	41,549

NOTE 7 OTHER RECEIVABLE

Other receivable as of February 29, 2008 and May 31, 2007 are summarized as follows:

	February 29, 2008 Unaudited		May 31, 2007 Audited
Proceeds receivable from disposal of Huaqing	$	-	$	651,082
Proceeds receivable from disposal of Control Tech		57,965		100,600

Total	$	57,965	$	675,969

NOTE 8 ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities as of February 29, 2008 and May 31, 2007 are summarized as follows:

	Amount		Amount
	February 29, 2008 Unaudited		May 31, 2007 Audited

Accrued directors’ compensations	$	109,500	$	196,500
Accrued professional fees		45,500		83,235
Payroll payable		375,619		21,690
Welfare		11,325		9,588
Accrued other expenses		986		38,947
Other payable		235,121		222,832
Total	$	778,051	$	572,792

NOTE 9 PROPERTIES AND EQUIPMENT

The Company’s property and equipment as of February 29, 2008 and May 31, 2007 are summarized as follows:

	February 29, 2008 Unaudited			May 31, 2007 Audited
Office equipment and computers	$	70,749		$	61,172
Less: accumulated depreciation		(44,529	)		(34,749	)
Property and equipment, net	$	26,220		$	26,423

NOTE 10 DUE TO DIRECTORS

The amount due to directors as of February 29, 2008 and May 31, 2007 represents director fee due to the Company’s directors. The amount due to directors is interest free, unsecured and due on demand.

NOTE 11 RELATED PARTY TRANSACTION

During the quarter ended August 31, 2007, the Company issued 310,000 unregistered shares of common stock to its directors, including 182,330 shares of common stock valued at US$13,000 for services rendered and 127,670 shares valued at US$9,103 were over issued to them. The stock was valued at the average market price for the period for which services were provided. The over issued common shares are recorded as Advance compensation to Directors.

During the quarter ended August 31, 2007, the company received 997,550 shares of the Company’s common stock from a shareholder of Shanghai Huaqing pursuant to the Sales and Purchase Agreement. These shares were valued at US$69,829 which was approximately equal to the fair market value of the stock at the return date.

During the quarter ended November 30, 2007, the Company issued 73,120 unregistered shares of common stock to its directors for their service on Board after adjusting the over-issued stock. The stock was valued at US$2,824 after adjusting the over-issued stock which was approximately equal to the fair market value of the stock at the return date.

NOTE 12 IMPAIRMENT OF GOODWILL

The Company evaluates intangible assets and other long-lived assets for impairment, at a minimum, on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable from its estimated future cash flows. Recoverability of intangible assets, other long-lived assets and goodwill is measured by comparing their net book value to the related projected undiscounted cash flows from these assets, considering a number of factors including past operating results, budgets, economic projections, market trends and product development cycles. If the net book value of the asset exceeds the related undiscounted cash flows, the asset is considered impaired, and a second test is performed to measure the amount of impairment loss. The Company assessed the carrying value of goodwill in accordance with the requirements of SFAS #142 "Goodwill and Other Intangible Assets". Based on its assessment, the Company determined that goodwill resulting from the acquisition of China Princely amounted to US$666,471 is fully impaired as of February 29, 2008.

NOTE 13 DISCONTINUED OPERATIONS

Control Tech Electronics (Shanghai) Co., Ltd.

During the transition period ended May 31, 2005, the Company, via its BVI subsidiary, Hartcourt Capital, Inc., acquired Control Tech, located and operated in China. Control Tech is the distributor of video and audio conference products in mainland China. On November 1, 2004, the Company signed a definitive agreement to purchase a 90% equity interest in Control Tech for a total consideration of US$1.96 million. Pursuant to the definitive purchase agreement, the purchase price was to be paid by the issuance of 8,516,902 shares of the Company’s common stock at a value of US$0.23 per share. On February 25, 2005, the Company completed all legal procedures to acquire 90% of the capital stock of Control Tech. Due to Company’s share price decline, the purchase price was revised as US$1.96 million payable in 19,588,875 shares of Company’s common stock.

Since January 1, 2006, the Company decided to cease the operation of Control Tech due to the unsatisfied operating results.

The Company has made a provision for the future disposal of Control Tech of US$1,827,990 during the fiscal year ended May 31, 2006.

Loss from the discontinued operation of Control Tech during the fiscal year ended May 31, 2006 was US$596,352.

The investment in Control Tech US$300,000 has been classified as assets pending for sale on the consolidated balance sheet as of May 31, 2006.

In September 2006, the Company entered into a definitive sales & purchase agreement to sell its interest in Control Tech. During the fiscal year ended May 31, 2007, US$199,400 was collected, and the remaining balance of $100,600 has been reclassified to other receivable.

During the nine-month period ended February 29, 2008, US$30,235 was collected and the remaining balance of US$57,965 is part of other receivable.

Shanghai Huaqing Corporation Development Co., Ltd.

On February 26, 2007, the Board of Directors agreed to dispose off the operations of Shanghai Jiumeng and entered into a definitive agreement with Shanghai Shiheng Architecture Consulting Co., Ltd (the “Purchaser”) to sell its 100% equity interests in Shanghai Jiumeng, which holds 51% equity interest in Shanghai Huaqing.

On June 11, 2007, the Purchaser terminated the Sales & Purchase Agreement described above it had entered into with the Company. The Purchaser refused to consummate the transaction for the agreed upon purchase price.

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 14 COMMITMENTS AND CONTINGENCIES

a) Employment Agreements

On May 31, 2006, the Board of Directors of the Company appointed Mr. Victor Zhou to be the acting Chief Executive Officer, effective June 1, 2006. Mr. Victor Zhou’s employment agreement was signed on June 1, 2006. The compensation included a monthly salary of US$8,333. In addition, Mr. Victor Zhou was granted 10,000,000 stock options with exercise price of US$0.04. The stock option vesting schedule was as follows:

-	Option to purchase 6,000,000 shares of our common stock to be vested with three installments of 2,000,000 each upon each successful new business acquisition of the Company; and

-	Option to purchase 2,000,000 shares of our common stock to be vested upon each full profitable year.

On September 1, 2006, the Board of Directors of the Company promoted Mr. Victor Zhou to be the Company’s permanent Chief Executive Officer. The Company signed the new employment contract with Mr. Zhou on September 1, 2006. The compensation includes an annual base salary of US$100,000, payable by equal monthly installment of US$8,333 cash. In addition, Mr. Victor Zhou was granted 11,000,000 stock options with exercise price of US$0.05. The stock option vesting schedule is as following. These options replace the options that were granted on June 1, 2006:

-	7,500,000 stock options vested pro rata over 2 years of the employment contract period.

-	2,000,000 stock options vested upon each successful new business acquisition of the Company.

-	1,500,000 stock options vested upon each full profitable year.

On December 5, 2006, the Compensation Committee increased Mr. Zhou’s annual base salary to US$150,000 effective September 1, 2006. The options remain unchanged.

On May 31, 2006, the Board of Directors of the Company appointed Mr. Yungeng Hu to be the President & Chief Financial Officer, effective on June 1, 2006. Mr. Yungeng Hu’s employment agreement was signed on June 1, 2006. The compensation includes an annual base salary of US$150,000, payable by equal monthly installments of US$12,500 cash. In addition, Mr. Yungeng Hu was granted 11,000,000 stock options with exercise price of US$0.04. The stock option vesting schedule is as follows:

-	7,500,000 stock options vested pro rata over 2 years of the employment contract period.

-	2,000,000 stock options vested upon each successful new business acquisition of the Company.

-	1,500,000 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 29, 2008 and 2007 were US$18,265and US$9,313, respectively.

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

Year ended May 31	Payments
2008	$	51,000
2009	$	207,400

c) 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 29, 2008.

NOTE 15 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.

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

Vocational and Technical Education Business

In 2006 we conducted a feasibility study before deciding to enter into the Chinese vocational and training marketplace. As a result of the feasibility study, we believe that vocational schools in China, which have over US$10 billion in annual revenues, provide a good investment opportunity.

In China, when students graduate from secondary schools (grade 9), they have two educational options: (a) high schools or (b) middle vocational schools. In 2005, there were 21 million secondary school graduates, of which 8.8 million chose to go to high schools and 6.6 million chose to go to middle vocational schools. In 2005, the total number of middle vocational school students was about 16 million.

High school graduates also have two educational options: (a) bachelor degree colleges and (b) higher vocational schools. Middle vocational school students are allowed to be admitted to higher vocational schools if they pass the required tests. Higher vocational school students are allowed to be admitted to bachelor degree colleges if they pass the required tests. In 2005, there were 6.7 million high school graduates and 7 million high vocational school students.

The Chinese government believes that in order for the healthy growth of China’s economy to be sustained there will need to be more vocational schools and vocational school graduates than degree colleges and degree college graduates. All levels of government are required to speed up the development of vocational education. The goal of the Chinese government is to recruit 8 million middle vocational students by 2010 in order to achieve the projected number of middle vocational students and high school students. In addition, the goal of the Chinese government is to have more high vocational students than college students by that same year.

In August 2006, after reviewing our business condition, competitive position, and opportunities in China, we decided to change our business by focusing on the post-secondary education market in China to take advantage of the ongoing demand for skilled workers and growing post-secondary age population. 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.

Following our change in strategic direction, we entered into memorandums of understanding with several vocational education providers in 2006, and we have signed definitive agreements with Yucai (as defined below) and China Princely (as defined below). On May 15, 2007, the acquisition of China Princely closed.

In June 2007, the Company entered into a Memorandum of understanding with Chongqing Zhengda Software Group Co., Ltd relating to the acquisition of 100% of its equity interests in its two subsidiaries: Chongqing Zhengda Education Group and Chongqing Zhengda Hengling Co., Ltd. We have conducted due diligence for the proposed acquisition. A proxy statement for this transaction will be filed with the SEC and sent to our shareholders in connection with the special shareholders meeting to be held in future.

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. Cash consideration of US$39,180 (RMB300,000) and a capital infusion of US$274,258 (RMB2,100,000) in China Princely were also due at closing. As of the date of this report, by mutual agreement of the parties, we have not paid these amounts. The primary current shareholder of China Princely has personally guaranteed that the net profit of China Princely will be not less than US$256,000 (RMB2,000,000) for the calendar year 2007, while we have guaranteed that the average three-day closing price of our shares on the days immediately prior to the one-year anniversary of the closing date will be not less than US$0.50 per share. In the event that the share price is less than US$0.50, we shall, at our option, pay additional cash or issue new restricted shares. After closing, we changed the name of China Princely to Hartcourt Princely Education Technology Development (Beijing) Co., Ltd.

IT Distribution Business

Historically, through our subsidiaries, Shanghai Huaqing Enterprise Development Co., Ltd (“Huaqing Shanghai”) and Shanghai Control Tech, we have been a distributor of internationally well-known IT hardware products and related software and services. The main products distributed were Samsung-branded notebooks and monitors. We also provided audio and video conference products and related services. Almost all of our revenue for the last two fiscal years was attributed to distribution revenues from sales of IT products in China.

As a result of our business decision to move away from the IT distribution business, in September 2006, we entered into a definitive sales and purchase agreement to sell our interest in Besteffort Investments Ltd (“Besteffort”). In October 2006, the Company completed the transfer of legal ownership of Besteffort to the purchaser. As of the close of our fiscal quarter ended February 29, 2008, we have already received US$229,635 in connection with the sale of our IT distribution business and the remaining balance of US$69,713 is held for assets receivable. Prior to this sale, Besteffort Investments Ltd indirectly held a 90% equity interest in Shanghai Control Tech, which was a distributor of Radvision video conference products in China. Shanghai Control Tech had ceased its operations on January 1, 2006 primarily as a result of Radvision’s termination of its distribution agreement with Shanghai Control Tech. The revenue of Shanghai Control Tech had been derived almost exclusively from the Radvision business.

We have entered into a definitive sale and purchase agreement to sell our 51% interest in Shanghai Huaqing Corporation Development Co., Ltd to its minority shareholders. The agreement is subject to the receipt of required third party consents and approvals if required by applicable law. The contemplated purchase price is US$528,419. In addition, a shareholder of Huaqing Shanghai agreed to return 997,550 shares of our common stock to the individual or entity designated by us. 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.

Results of Operations

The following table sets forth the consolidated statements of operations for the three months ended February 29, 2008, with the comparable reporting period in the preceding year. We used the pro forma numbers for the three months ended February 28, 2007.

THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months ended			Three Months ended
	February 29			February 28
	2008			2007
Net revenue	$	-		$	-

Operating expenses:
General and administrative expenses		261,988			327,237
Depreciation and amortization		3,934			7,957
Impairment of goodwill		-			-
Total operating expenses		265,922			335,194

Loss from operations		(265,922	)		(335,194	)

Other income (expenses)
Interest income (expense)		3,600			98

Loss from continuing operations		(269,522	)		(335,096	)


Discontinued operations:
Loss from discontinued operations		-			(1,048,625	)

NET LOSS		(269,522	)		(1,383,721	)

OTHER COMPREHENSIVE ITEM:
Foreign currency translation gain		(35,987	)		325

NET COMPREHENSIVE LOSS	$	(305,509	)	$	(1,383,396	)

Three months ended February 29, 2008 compared to three months ended February 28, 2007.

Net Revenue:

There was no revenue during the three months ended February 29, 2008 and February 28, 2007, because the Company entered into a definitive agreement to sell the IT distribution business and therefore the sales from the IT distribution business have been classified into discontinued operations for the three months ended February 29, 2008 and the comparable period in the preceding year.

General and administrative expenses:

General and administrative expenses were US$261,988 for the three months ended February 29, 2008 compared to US$327,237 for the same period in 2007, a decrease of US$65,249 or 20% compared to the three months ended February 28, 2007. The decrease of expenses for the three months ended February 29, 2008 was primarily due to the decrease in professional expenses compared to the same period in 2007.

Depreciation and amortization expenses:

Depreciation and amortization expenses were US$3,934 for the three months ended February 29, 2008 compared to US$7,957 for the same period in 2007 or a US$4,023 decrease. The decrease was primarily due to the disposal of fixed assets during the three months ended February 29, 2008 than the three months ended February 28, 2007.

Interest income:

Interest expense was US$3,600 for the three months ended February 29, 2008 compared to interest income of US$98 for the same period in 2007. The US$3,698 decrease was mainly due to lower average cash balances in our accounts.

Loss from Continuing Operations:

Loss from continuing operations for the three months ended February 29, 2008 was US$269,522, compared to US$335,096 for the same period in 2007. The decrease was mainly due to the reduction of general and administrative expenses in the three months ended February 29, 2008.

Discontinued operations:

During the three months ended February 29, 2008 and February 28, 2007, the discontinued operations represent the operating results of Shanghai Huaqing in these three-month periods and a loss on disposal of Shanghai Huaqing.

THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	Nine Months ended February 29 2008			Nine Months ended February 28 2007
Net revenue	$	-		$	-

Operating expenses:
General and administrative expenses		799,057			1,032,602
Depreciation and amortization		9,767			19,912
Impairment of goodwill		666,471			-
Total operating expenses		1,475,295			1,052,514


Loss from continuing operations before other income		(1,475,295	)		(1,052,514	)

Other income
Interest income (expense)		36,022			1,253

Loss from continuing operations		(1,439,273	)		(1,051,261	)

Discontinued operations:
Income/(loss) from discontinued operations		22,878			(1,487,180	)

NET LOSS		(1,416,395	)		(2,538,441	)

OTHER COMPREHENSIVE ITEM:
Foreign currency translation gain		(27,067	)		26,589

NET COMPREHENSIVE LOSS	$	(1,443,462	)	$	(2,511,852	)

Nine months ended February 29, 2008 compared to nine months ended February 28, 2007.

Net Revenue:

There was no revenue during the nine months ended February 29, 2008 and February 28, 2007, because the Company entered into a definitive agreement to sell the IT distribution business and therefore the sales from the IT distribution business have been classified into discontinued operations for the nine months ended February 29, 2008 and the comparable period in the preceding year.

General and administrative expenses:

General and administrative expenses were US$799,057 for the nine months ended February 29, 2008 compared to US$1,032,602 for the same period in 2007, a decrease of US$233,545 or 23% compared to the nine months ended February 28, 2007. The decrease of expenses for the nine months ended February 29, 2008 was primarily due to the decrease in professional expenses compared to the same period in 2007.

Depreciation and amortization expenses:

Depreciation and amortization expenses were US$9,767 for the nine months ended February 29, 2008 compared to US$19,912 for the same period in 2007 or a 51% decrease. The decrease was primarily due to the disposal of fixed assets during the nine months ended February 29, 2008.

Interest income:

Interest income was US$36,022 for the nine months ended February 29, 2008 compared to US$1,253 for the same period in 2007. The US$34,769 increase was mainly due to a higher average cash balances in our accounts.

Loss from Continuing Operations:

Loss from continuing operations for the nine months ended February 29, 2008 was US$1,439,273, compared to US$1,051,261 for the same period in 2007. The increase was mainly due to goodwill impairment charges in the nine months ended February 29, 2008.

Discontinued operations:

During the nine months ended February 29, 2008 and February 28, 2007, the discontinued operations represent the operating results of Shanghai Huaqing in these nine-month periods and a loss on disposal of Shanghai Huaqing.

Liquidity and Capital Resources:

As shown in our accompanying financial statements, we had a net loss of US$1,416,395 for the nine months ended February 29, 2008, as compared to a net loss of US$2,538,441 for the same period in 2007.

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 and mergers with profitable education businesses;

·	Raise additional capital through public offering or private placement; and

·	Take measures to control costs and operating expenses

Operating activities: During the nine months ended February 29, 2008, net cash used in operating activities was US$455,604, compared to US$401,283 during the same period in 2007. The cash used in operating activities in the nine months ended February 29, 2008 resulted mainly from loss of US$1,416,395 and an increase of accrued expenses and other current liabilities of US$130,540 and goodwill impairment of US$666,471 and increase of stock option expense of US$137,752. The cash used in operating activities in the nine months ended February 28, 2007 resulted mainly from loss of US$2,538,441, and an increase of stock option expense of US$383,403, and net cash provided by operating activities of discontinued operations of US$1,487,180. The increase of accrued expenses for the quarter ended February 29, 2008 is related to the payroll payable to the management team.

Investing activities: Net cash provided by investing activities during the nine months ended February 29, 2008 was US$537,328, compared to cash used in investing activities of US$293,938 during the same period in 2007. 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 US$546,905 and cash decrease due to purchase of property and equipment of US$9,577.

Financing activities: Net cash used in financing activities during the nine months ended February 29, 2008 was US$23,645 compared to US$264,829 provided by the same period in 2007. Net cash used in financing activities in the nine months ended February 29, 2008 was due to payments of US$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 US$47,319. The cash provided by financing activities in the same period in 2007 was due to proceeds of US$12,457 from related parties and US$252,372 of sales of common stock.

Contractual Obligations

During the three months ended February 29, 2008, we did not have any contractual obligation other than the facility leases described in Note 13(b) of financial statements.

Off-Balance Sheet Arrangements

During the three months ended February 29, 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, 2007. There have been no changes in our critical accounting policies since May 31, 2007.

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 29, 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

Since 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 29, 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.

In 2005, following the termination of the acquisition of a 51% equity interest in Beijing Ying Zhi He Lian Information Technology Co., Ltd, (YZHL), YZHL returned to us RMB4,000,000 out of the RMB5,000,000 cash consideration we previously paid to them. The remaining RMB1,000,000 is still unpaid as of the date of filing this quarterly report. In 2006, Hartcourt Hi-Tech Investment (Shanghai) Inc. filed a compliant against YZHL for the return of the remaining RMB 1,000,000 (US$131,844) owed to us. 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. had no right to file the compliant against YZHL unless such complaint was made by Hartcourt Capital, Inc., which signed the purchase agreement to acquire the 51% equity interest in YZHL in 2004. After reviewing the case with our attorney, Hartcourt Capital, Inc., as the plaintiff, has appealed to Beijing People’s court on August 10, 2007 against YZHL to return to us the remaining RMB1,000,000 that is owed to us.

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, 2007.

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

None

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: April 10, 2008	By:	/s/ VICTOR ZHOU
		Victor Zhou
		Chief Executive Officer



Dated: April 10, 2008	By:	/s/ YUNGENG HU
		Yungeng Hu
		Chief Financial Officer & President