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 August 31,
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
      Employerincorporation
      or organization)
            Identification
      No.)





Room503,JinqiaoBuilding, No.
      2077West
      Yan’an Road, Shanghai, China
            200336(Address
      of principal executive offices)
            (Zip
      Code)





(011)
(86 21) 52067613


(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 xNo 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
      oNon-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 oNo x




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









TABLE OF CONTENTS




PART
      I: FINANCIAL INFORMATIONItem 1.
              Financial
      Statements (Unaudited)
              3Consolidated
      Balance Sheets - August 31, 2009 and May 31, 2009
              3Consolidated
      Statements of Operations - Three-month periods ended August 31, 2009 and
      August 31, 2008
              4Consolidated
      Statements of Cash Flows - Three-month periods ended August 31, 2009 and
      August 31, 2008
              5Notes
      to Consolidated Financial Statements
              7Item 2.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              19Item 3.
              Quantitative
      and Qualitative Disclosures About Market Risk
              24Item 4.
              Controls
      and Procedures
              25PART
      II: OTHER INFORMATIONItem 1
              Legal
      Proceedings
              25Item
      1A
              Risk
      Factors Affecting Future Results
              25Item 2
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              25Item 3
              Defaults
      Upon Senior Securities
              26Item 4
              Submission
      of Matters to a Vote of Security Holders
              26Item 5
              Other
      Information
              26Item 6.
              Exhibits
              26Signatures
              27










2





PART
I FINANCIAL INFORMATION





Item
1.Financial
Statements




THE HARTCOURT COMPANIES, INC. AND
SUBSIDIARIES


CONSOLIDATED BALANCE
SHEETS






August
      31, 2009
            
            
            May
      31, 2009ASSETSCash
      and cash equivalents
            
            $
            72,686
            
            
            $
            102,085Accounts
      Receivable
            
            
            1,156,611
            
            
            
            863,244Prepaid
      expenses and other assets
            
            
            11,057
            
            
            
            5,792Loan
      receivable
            
            
            942,817
            
            
            
            822,551TOTAL
      CURRENT ASSETS
            
            
            2,183,171
            
            
            
            1,793,672PROPERTY
      & EQUIPMENT – NET
            
            
            51,684
            
            
            
            57,640INTANGIBLE
      ASSETS-NET
            
            
            3,872,394
            
            
            
            3,923,356TOTAL
      ASSETS
            
            $
            6,107,249
            
            
            $
            5,774,668LIABILITIES
      AND SHAREHOLDERS' EQUITYCURRENT
      LIABILITIESAccounts
      payable
            
            $
            -
            
            
            $
            141,331Accrued
      expenses and other current liabilities
            
            
            1,814,171
            
            
            
            1,337,571Due
      to directors
            
            
            173,308
            
            
            
            246,862TOTAL
      CURRENT LIABILITIES
            
            
            1,987,479
            
            
            
            1,725,764MINORITY
    INTEREST
            
            
            267,424
            
            
            
            152,261




SHAREHOLDERS'
      EQUITYPreferred
      Stock:Original
      preferred stock, $0.01 par value, 1,000 shares authorized, none issued and
      outstanding
            
            $
            -
            
            
            $
            -Class
      A preferred stock, 10,000,000 shares authorized, none issued and
      outstanding
            
            
            -
            
            
            
            -Common
      stock:$0.001
      par value, 424,999,000 authorizedAugust
      31, 2009: 389,015,544 issued 386,966,816 outstandingMay
      31, 2009: 389,015,544 issued 386,966,816 outstanding
            
            
            386,967
            
            
            
            386,967Additional
      paid in capital
            
            
            77,203,872
            
            
            
            77,156,131Treasury
      stock, at cost, 2,048,728 shares
            
            
            (48,728
            )
            
            
            (48,728
            )Other
      comprehensive loss
            
            
            (147,373
            )
            
            
            (143,579
            )Accumulated
      deficit
            
            
            (73,542,392
            )
            
            
            (73,454,148
            )TOTAL
      SHAREHOLDERS' EQUITY
            
            
            3,852,346
            
            
            
            3,896,643TOTAL
      LIABILITIES AND SHAREHOLDERS' EQUITY
            
            $
            6,107,249
            
            
            $
            5,774,668





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




3


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


For
      the three month periods endedAugust
      31,2009
            
            
            August
      31,2008Net
      revenues
            
            $
            456,938
            
            
            $
            215,967Cost
      of revenues
            
            
            (107,982
            )
            
            
            (19,941
            )Gross
      profit
            
            
            348,956
            
            
            
            196,026Operating
      costs and expenses:General
      and administrative expenses
            
            
            235,225
            
            
            
            127,548Depreciation
      and amortization
            
            
            56,834
            
            
            
            2,754Total
      operating expenses
            
            
            292,060
            
            
            
            130,302Operating
      income
            
            
            56,896
            
            
            
            65,724Other
      income (expenses)Interest
      income
            
            
            6,995
            
            
            
            -Other
      income
            
            
            -
            
            
            
            83Foreign
      currency exchange gain (loss)
            
            
            (206
            )
            
            
            5,436Total
      other income
            
            
            6,789
            
            
            
            5,519Income
      before income taxes and minority interest
            
            
            63,686
            
            
            
            71,243Provision
      for income taxes
            
            
            (36,768
            )
            
            
            35,802Minority
      interest, net of taxes
            
            
            (115,161
            )
            
            
            (58,503
            )NET
      LOSS
            
            
            (88,244
            )
            
            
            (23,062
            )OTHER
      COMPREHENSIVE ITEM:Foreign
      currency translation gain
            
            
            (3,794
            )
            
            
            27,532NET
      COMPREHENSIVE INCOME(LOSS)
            
            $
            (92,038
            )
            
            $
            4,470BASIC
      AND DILUTED EARNINGS/(LOSSES)PER
      COMMON SHARE:
            
            $
            (0.00
            )
            
            $
            0.00*
      BASIC AND FULLY DILUTED WEIGHTED AVERAGE NUMBER OF SHARES
      OUTSTANDING
            
            
            386,966,816
            
            
            
            235,761,854





*
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.




4





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


For
      the three month-periods endedAugust
      31, 2009
            
            
            August
      31, 2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
            
            $
            (88,244
            )
            
            $
            (23,062
            )Adjustments
      to reconcile net loss to net
      cash provided by operating activities:Depreciation
            
            
            56,834
            
            
            
            2,754Minority
      interest in loss (gain) of subsidiaries
            
            
            115,161
            
            
            
            58,503Stock
      options issued for service
            
            
            47,741
            
            
            
            7,394Changes
      in operating assets and liabilities:Accounts
      receivable
            
            
            (295,204
            )
            
            
            (116,919
            )Inventory
            
            
            (361
            )
            
            
            8,304Prepaid
      expenses and other receivables
            
            
            (4,118
            )
            
            
            (81,452
            )Accounts
      payable
            
            
            (141,331
            )
            
            
            57,135Accrued
      expenses and other current liabilities
            
            
            477,264
            
            
            
            89,252NET
      CASH PROVIDED BY OPERATING ACTIVITIES OF CONTINUED
    OPERATIONS
            
            
            167,742
            
            
            
            1,909CASH
      FLOWS FROM INVESTING ACTIVITIES:Loan
      receivable
            
            
            (121,297
            )
            
            
            -Due
      to officer
            
            
            (73,554
            )
            
            
            -Cash
      received on acquisition of Subsidiary
            
            
            -
            
            
            
            1,505NET
      CASH PROVIDED BY(USED IN) INVESTING ACTIVITIES
            
            
            (194,851
            )
            
            
            1,505




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




5


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


For
      the three month periods endedAugust
      312009
            
            
            2008CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from (payments to) related parties-net
            
            
            -
            
            
            
            11,740EFFECT
      OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
            
            
            (2,290
            )
            
            
            (10,371
            )NET
      INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS
            
            
            (29,399
            )
            
            
            4,783CASH
      AND CASH EQUIVALENTS -BEGINNING
      BALANCE
            
            
            102,085
            
            
            
            4,907CASH
      AND CASH EQUIVALENTS – ENDING BALANCE
            
            $
            72,686
            
            
            $
            9,690SUPPLEMENTAL
      DISCLOSURE OF CASH FLOWSCash
      paid for interest
            
            $
            -
            
            
            $
            -Cash
      paid for income taxes
            
            $
            -
            
            
            $
            -





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




6




THE
HARTCOURT COMPANIES, INC. AND SUBSIDIARIES


NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 1GENERAL





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. Hartcourt has the right to waive the
following commitment of profitability; Beijing Yanyuan committed that its net
profit would exceed RMB 6 million (US$827,000) for the seven months of calendar
year 2008, RMB10 million (US$1.379 million) for the calendar year 2009, and
RMB14 million (US$1.931 million) for the calendar year 2010.




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




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




7




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




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




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




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





NOTE 2SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES





a)Basis of
Presentation


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





b)Basis of
Consolidation


The
Company’s financial statements for the three months ended August 31, 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.




8


c)Cash and Cash
Equivalents


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





d)Prepaid
expenses


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




Prepaid
expenses generally will be amortized in equal installments and charged as costs
or expenses of periods benefiting within one year. If certain prepaid expense
item cannot benefit the Company any more, its un-amortized amount is recorded as
an expense for the current period. Prepaid expenses amounted to $11,057 and
$5,792 at August 31, 2009 and May 31, 2009 respectively and is included in
“Prepaid expenses and other current assets” in the accompanying financial
statements.




e)Property and
Equipment


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




f)Impairment of Long-Lived
Assets


Effective
January 1, 2002, the Company adopted Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("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 Auguat 31, 2009, there was no 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.




9




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




j)    Basic
and diluted earning per share


Earning
per share is calculated in accordance with the Statement of financial accounting
standards No. 128 (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.




10




k)Recently Issued
Accounting Standards


In May
2009, the FASB issued SFAS No. 165, "Subsequent Events" (“SFAS 165”). SFAS 165
sets forth the period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements, the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements, and the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. SFAS 165 will be effective for interim or
annual period ending after June 15, 2010 and will be applied prospectively. The
Company will adopt the requirements of this pronouncement for the quarter ended
June 30, 2010. The Company does not anticipate the adoption of SFAS 165 will
have an impact on its consolidated results of operations or consolidated
financial position.




In June
2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No.
46(R)” (“SFAS 167”), which modifies how a company determines when an entity that
is insufficiently capitalized or is not controlled through voting (or similar
rights) should be consolidated. SFAS 167 clarifies that the determination of
whether a company is required to consolidate an entity is based on, among other
things, an entity’s purpose and design and a company’s ability to direct the
activities of the entity that most significantly impact the entity’s economic
performance. SFAS 167 requires an ongoing reassessment of whether a company is
the primary beneficiary of a variable interest entity. SFAS 167 also requires
additional disclosures about a company’s involvement in variable interest
entities and any significant changes in risk exposure due to that involvement.
SFAS 167 is effective for fiscal years beginning after June 15,
2010.




NOTE
3LOAN
RECEIVABLE




Company
advanced loans to agents to market their courses to the students and individual.
As at August 31, 2009, these loans comprised of the following:





1
            
            Loan
      to sales agent, interest free, secured and amount due January 15,
      2010
            
            $
            175,4082
            
            Loan
      to sales agent, interest free, secured and amount due February 15,
      2010
            
            
            190,0253
            
            Loan
      to sales agent, interest free, secured and amount due February 28,
      2010
            
            
            175,4084
            
            Loan
      to individual, 10% interest, secured and amount due March 31,
      2010
            
            
            182,7165
            
            Loan
      to individual, 10% interest, secured and amount due April 15,
      2010
            
            
            219,260942,817





During
the three months period ended August 31, 2009, the Company has interest income
of $6,995.




11


NOTE
4PROPERTIES AND
EQUIPMENT





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





August
      31, 2009
            
            
            May
      31, 2009Office
      equipment and computers
            
            $
            102,817
            
            
            
            126,739Less:
      accumulated depreciation
            
            
            (51,133
            )
            
            
            (69,099
            )Property
      and equipment, net
            
            $
            51,684
            
            
            
            57,640





NOTE
5INTANGIBLE
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 three months
periods ended August 31, 2009, the Company recognized no
impairment.




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





August
      31, 2009
            
            
            May
      31, 2009Course
      Software
            
            $
            724,882
            
            
            $
            724,882Course
      Material
            
            
            3,363,276
            
            
            
            3,363,276Accumulated
      Amortization
            
            
            (215,764
            )
            
            
            (164,802
            )3,872,394
            
            
            
            3,923,356





Life of
intangible assets is twenty years. Amortization expense from continuing
operation included cost of revenue for the year ended August 31, 2009
and 2008 were $50,962 and $0, respectively.  We expect
amortization expense for the next five years to be as follows:




Period
      ending August 31:2010
            
            $
            203,8482011
            
            
            203,8482012
            
            
            203,8482013
            
            
            203,8482014
            
            
            203,848Thereafter
            
            
            2,853,153$
            3,872,393




12


NOTE
6DUE TO RELATED
PARTY





The
amount due to directors as of August 31, 2009 and May 31, 2009 were $ 173,308
and $246,862, respectively. This amount represents director fee due to the
Company’s directors. The amount due to directors is interest free, unsecured and
due on demand.





NOTE
7ACCRUED EXPENSES
AND OTHER CURRENT LIABILITIES





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





August
      31, 2009
            
            
            May
      31, 2009Accrued
      professional fees
            
            $
            132,214
            
            
            $
            51,583Payroll
      payable
            
            
            736,994
            
            
            
            681,306Welfare
            
            
            10,055
            
            
            
            10,073Income
      tax payable
            
            
            344,756
            
            
            
            293,166Loan
      payable
            
            
            181,429
            
            
            
            -Other
      payable
            
            
            408,723
            
            
            
            301,443Total
            
            $
            1,814,171
            
            
            $
            1,337,571





NOTE
8EARNINGS /
(LOSSES) PER SHARE





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




August
      31,2009
            
            
            May
      31,2009Net
      loss
            
            $
            (88,244
            )
            
            $
            (23,062
            )Weighted
      average shares outstanding
            
            
            386,966,816
            
            
            
            304,561,261Basic
      and dilutive loss per share
            
            $
            (0.00
            )
            
            $
            (0.00
            )





As of
August 31, 2009, the Company had ,28,200,000 options outstanding, each
exercisable for one share of our common stock. These instruments were not
included in the computation of diluted earnings per share for any of the periods
presented because the Company has retained loss as of August 31,
2009.




13


NOTE 9SHAREHOLDERS’
EQUITY





a)Capitalization


The total
number of shares of stock which the Company has the authority to issue is
434,999,000 consisting of 424,999,000 shares of common stock, $0.001 par value,
1,000 shares of original preferred stock, $0.01 par value (the Original
Preferred Stock), and 10,000,000 shares of Class A preferred stock. The total
number of shares of the Company’s common stock outstanding as of August 31, 2009
and May 31, 2009 are 386,966,816 and 386,966,816 respectively.




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 August
31, 2009.




c)Class A Preferred
Stock


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




d)Equity
Transactions


There is
no equity transaction during the three months period ended August 31,
2009.




Stock
Option Plan


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




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




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




14




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
      yearsExpected
      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
      yearsExpected
      volatility
            127.39%Expected
      dividend yield
            0





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





On
September 11 2008,the Company granted Stephen Tang, former independent director
of the company, an option to purchase 1,000,000 shares of the Company’s common
stock at exercise price of $0.03. Each option will vest on September 11, 2010
and is exercisable within five years time after vesting. The stock option was
terminated 90 days after his departure on April 11, 2009 from the
Company.





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
      yearsExpected
      volatility
            127.39%Expected
      dividend yield
            0





15





The
following table summarizes the activity of stock options:





WeightedAverage
            
            
            AggregateNumber
      of
            
            
            Exercise
            
            
            IntrinsicOptions
            
            
            Price
            
            
            ValueShares
      under options at May 31, 2008
            
            
            34,600,000
            
            
            $
            0.06
            
            
            $
            690,000Granted
            
            
            20,500,000
            
            
            
            -Exercised
            
            
            -
            
            
            
            -Expired
            
            
            -
            
            
            
            -Cancelled
            
            
            25,900,000
            
            
            
            -Shares
      under options at May 31, 2009
            
            
            29,200,000
            
            
            $
            0.06
            
            
            $
            -Granted
            
            
            -
            
            
            
            -Exercised
            
            
            -
            
            
            
            -Expired
            
            
            -
            
            
            
            -Cancelled
            
            
            1,000,000
            
            
            
            -Shares
      under options at August 31, 2009
            
            
            28,200,000
            
            
            $
            0.06
            
            
            $
            -





Additional
information relating to stock options outstanding and exercisable at August 31,
2009 summarized by the exercise price is as follows:





WeightedNumber
      of
            
            Average
            
            Weighted
            
            Number
            
            WeightedRange
      of
            
            Outstanding
      at
            
            Remaining
            
            Average
            
            Exercisable
      at
            
            AverageExercise
            
            August
      31,
            
            Contractual
            
            Exercise
            
            August
      31,
            
            ExercisePrice
            
            2009
            
            Life
            
            Price
            
            2009
            
            Price$0.03
      - $0.05
            
            28,000,000
            
            4.59
      Year
            
            $0.04
            
            828,000
            
            $0.04$0.09
            
            200,000
            
            1.52
      Year
            
            $0.09
            
            200,000
            
            $0.09





During
the three months period ended August 31, 2009, no options vested and the Company
recorded $47,741 amortization in stock based compensation expense.





Additional
information relating to stock options outstanding and exercisable at August 31,
2008 summarized by the exercise price is as follows:





WeightedNumber
      of
            
            Average
            
            Weighted
            
            Number
            
            WeightedRange
      of
            
            Outstanding
      at
            
            Remaining
            
            Average
            
            Exercisable
      at
            
            AverageExercise
            
            May
      31,
            
            Contractual
            
            Exercise
            
            May
      31,
            
            ExercisePrice
            
            2008
            
            Life
            
            Price
            
            2008
            
            Price$0.04
      - $0.05
            
            17,000,000
            
            3.95
      Year
            
            $0.05
            
            17,000,000
            
            $0.05$0.09
            
            5,300,000
            
            2.55
      Year
            
            $0.09
            
            5,300,000
            
            $0.09





During
the three months period ended August 31, 2008, a total of 1,875,000 options
vested and the Company recorded $7,394 amortization in stock based compensation
expense.





b)Warrants




None





16





NOTE
10COMMITMENTS AND
CONTINGENCIES





a)Employment
Agreements




None




b)Operating
Leases




The
Company leases its offices and facilities under long-term, non-cancelable lease
agreements expiring at various dates through January 27, 2010. The
non-cancelable operating lease agreements provide that the Company pays certain
operating expenses applicable to the leased premises according to the Chinese
Law. Rental expense for the fiscal year ended August 31, 2009 and 2008 were
$3,947 and $14,410, respectively.




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





Year
      Ending May 31,
            
            Payments2010
            
            $
            11,840





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 (US $146,235)
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. On
December 10, 2008, The Beijing Senior People’s Court issued an order to withdraw
the civil ruling of the Beijing No. 1 Intermediate People’s Court under no.
10077, order Beijing No. 1 Intermediate People’s Court to judge
again.  The lawsuit is under judgment and the outcome cannot be
estimated as of August 31, 2009.




NOTE
11CURRENT
VULNERABILITY DUE TO CERTAIN CONCENTRATIONS




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




17




NOTE
12SUBSEQUENT
EVENTS




On August
20, 2009, Hartcourt and its subsidiaries, Maple China Education Incorporated, a
Delaware corporation, and Hartcourt Education Investment Management Consulting
(Shanghai) Co., Ltd., a company existing under the Company Law of the People’s
Republic of China, entered into a plan of reorganization and share exchange
agreement (the “Share Exchange Agreement”) with Sino-Canada, its subsidiaries,
Sino-Canada High School, a private educational non-enterprise institution
existing under the laws of the People’s Republic of China, Wujiang Huayu
Property Management Company, a company existing under the Company Law of the
People’s Republic of China, Canadian Learning Systems Corporation, a company
existing under the laws of the British Virgin Islands, each of the shareholders
of Sino-Canada (the “Shareholders”) and Ross Yuan, in the capacity as
representative of the Shareholders. Unless the context requires otherwise,
reference herein to Hartcourt includes reference to its subsidiaries and
reference to Sino-Canada includes reference to its subsidiaries referenced
above. The condition for the closure of the transaction had not occurred as of
October 20, 2009.




a)Transactions




The Share
Exchange Agreement provides that Hartcourt will acquire all of the issued and
outstanding shares of Sino-Canada. Immediately prior to the closing of the
acquisition, Hartcourt will effect a reincorporation from the State of Utah to
the State of Delaware, a 1 for 80 reverse stock split and a name change, by
merging into its wholly-owned subsidiary, Maple China Education Incorporated.
The surviving corporation in the reincorporation will be Maple China Education
Incorporated.




b)Acquisition
Consideration




In
exchange for all of the issued and outstanding shares of capital stock of
Sino-Canada, Hartcourt will issue approximately $33,623,963, worth of shares of
its common stock at an agreed upon price of $0.88 per share (post-split) to the
Sino-Canada shareholders in exchange for all of the issued and outstanding
capital stock of Sino-Canada. Hartcourt will issue 38,209,049 shares of
Hartcourt common stock in a private placement in satisfaction of the purchase
price. The aggregate purchase price and the actual number of shares to be issued
in the exchange remain subject to potential purchase price adjustments at the
closing. The number of shares of Hartcourt common stock issued in the
transaction will be decreased in the event Sino-Canada’s working capital
(measured by current assets less current liabilities) decreases by more than
five percent at the closing as compared to March 31, 2009, and will be increased
in the event that Hartcourt’s total liabilities at closing exceeds $600,000, up
to a maximum of 45,850,859 shares. The purchase price adjustment for Hartcourt’s
outstanding liabilities at closing will exclude Hartcourt’s outstanding loan of
up to $1,300,000 from Yuan Dian Investment Inc. that will be repaid upon the
closing in accordance with its terms by issuing shares of common stock of
Hartcourt at a price of $0.88 per share.




18




Following
the acquisition, the former shareholders of Sino-Canada will own approximately
86% of the issued and outstanding shares of Hartcourt.




c)Post-Closing Officers and
Directors




Upon the
consummation of the transaction, Hartcourt’s existing officers will resign and
the new management team will take over.




Further,
upon the consummation of the acquisition, Hartcourt’s board of directors of
Hartcourt will consist of seven directors, of which Sino-Canada will designate
five members and Hartcourt will designate two members. Hartcourt and the
Shareholders will enter into a voting agreement (the “Voting Agreement”) at
closing to elect the respective parties nominees to Hartcourt’s board of
directors following closing until immediately prior to the next annual Hartcourt
meeting of stockholders.




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.




19




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




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




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




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




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




On
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 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.




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.




20




Results of
Operations




The
following table sets forth the consolidated statements of operations for the
three months ended August 31, 2009, with the comparable reporting period in the
preceding year. We used the pro forma numbers for the three months ended August
31, 2008.




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


Three
      Months ended
            
            
            Three
      Months endedAugust
      31
            
            
            August
      312009
            
            
            2008Net
      revenues
            
            $
            456,938
            
            
            $
            215,967Cost
      of revenues
            
            
            (107,982
            )
            
            
            19,941Gross
      profit
            
            
            348,956
            
            
            
            196,026Operating
      costs and expenses:General
      and administrative expenses
            
            
            235,525
            
            
            
            127,548Depreciation
      and amortization
            
            
            56,834
            
            
            
            2,754Total
      operating costs and expenses
            
            
            292,060
            
            
            
            130,302Operating
      income
            
            
            56,896
            
            
            
            65,724Other
      income (expenses)Foreign
      currency exchange gain(loss)
            
            
            (206
            )
            
            
            -Interest
      income
            
            
            6,995
            
            
            
            83Others
            
            
            -
            
            
            
            5,436Total
      other income
            
            
            6,789
            
            
            
            5,519IncomeBefore
      income taxes and minority interest
            
            
            63,686
            
            
            
            71,243Provision
      for income taxes
            
            
            (36,768
            )
            
            
            (35,802
            )Minority
      interest, net of taxes
            
            
            (115,161
            )
            
            
            (58,503
            )Income(loss)
      from continuing operations
            
            
            (88,244
            )
            
            
            (23,062
            )NET
      LOSS
            
            
            (88,244
            )
            
            
            (23,062
            )OTHER
      COMPREHENSIVE ITEM:Foreign
      currency translation gain
            
            
            (3,794
            )
            
            
            27,532NET
      COMPREHENSIVE INCOME(LOSS)
            
            $
            (92,038
            )
            
            $
            4,470





21





Three months
ended August 31, 2009 compared to three months ended August 31,
2008.





Net
Revenue:





Revenues
were US $456,938 for the three months ended August 31, 2009 compared to US
$215,967 for the same period in 2008. The increased revenue was primarily due to
revenue generated by Beijing Yanyuan, a company in which we acquired a 60%
equity interest during the three months ended August 31, 2009. We currently
derive revenues from the following sources:





•
            educational
      programs and services, which accounted for 90% of our total net revenues
      as of August 31, 2009; and





•
            books
      and others, which accounted for 10% of our total net revenues as of August
      31, 2009.





Cost
of revenue:




Cost of
revenues were US $107,982 for the three months ended August 31, 2009 compared to
$19,941 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, a
company in which we acquired a 60% equity interest during the three months ended
August 31, 2008. 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 $235,225 for the three months ended August 31,
2009 compared to $127,548 for the same period in 2008.




Depreciation
and amortization expenses:




Depreciation
and amortization expenses were $56,834 for the three months ended August 31,
2009 compared to $2,754 for the same period in 2008.




Foreign currency
exchange gain:




Foreign
currency exchange gain was $(206) for the three months ended August 31, 2009
compared to $5,436 for the same period in 2008.




Income from
Continuing Operations:




Income
from continuing operations for the three months ended August 31, 2009 was
$56,896 compared to $65,724 for the same period in 2008. The decrease was mainly
due to revenue attributable to the operations of Beijing Yanyuan, a company in
which we acquired a 60% equity interest during the three months ended August 31,
2009.




22




Discontinued
operations:




None





Liquidity
and Capital Resources:





As shown
in our accompanying financial statements, we had a net loss of $88,244 for the
three months ended August 31, 2009, as compared to a net loss of $23,062 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 three months ended August 31, 2009, net cash
provided by operating activities was $167,742, compared to net cash $1,909 used
in operating activities during the same period in 2008. The cash provided by
operating activities in the three months ended August 31, 2009 resulted mainly
from loss of $88,244, and an decrease of account receivable of $295,204, and an
increase of accrued expenses and other current liabilities of $477,264, and an
decrease of accounts payable of $141,331, and minority interest of $115,161. The
cash used in operating activities in the three months ended August 31, 2008
resulted mainly from loss of $23,062, and an decrease of account payable of
$116,919, and decrease of prepaid expenses and other receivables of $81,452 and
an increase of accrued expenses and other current liabilities of
$89,252.





Investing
activities: Net cash used in investing activities during the three months
ended August 31, 2009 was $194,851, compared to cash provided by investing
activities was $1,505 during the same period in 2008. The cash used in investing
activities in the three months period ended August 31, 2009 was due to the loan
receivable of $121,297, and due to officer of $73,554.





Financing
activities: Net cash provided by (used in) financing activities during
the three months ended August 31, 2009 was $0 to $11,740 provided by the same
period in 2008. Net cash used in financing activities in the three months ended
August 31, 2008 was proceeds from (payments to) related parties of
$11,740.





Contractual
Obligations





As of
August 18, 2009, the Company entered into a loan agreement with Yuan Dian
Investment Inc. for a loan with the amount up to $1,300,000. Pursuant to the
loan agreement, the loan will be repaid by issuing 118,181,818 shares of
Hartcourt common stock at the per share price of $0.011, equal to 1,477,272
shares after the closing of the reverse takeover transaction with Sino-Canada at
the per share price of $0.88.




23


Off-Balance Sheet
Arrangements





During
the three months ended August 31, 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, 2009. There have been no
changes in our critical accounting policies since May 31,
2009.





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




Because
we translate foreign currencies (primarily Chinese Yuan 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 August 31,
2009, we did not engage in foreign currency hedging activities.




24




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 August
31, 2008.




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, 2009.





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





None




25


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
      FiledNumber
            
            Description3.1
            
            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 200231.2
            
            Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
      Section 302 of the Sarbanes-Oxley Act of 200232.1
            
            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.




26




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:
      October 20, 2009
            By:
      /s/ VICTOR
      ZHOUVictor
      ZhouChief
      Executive OfficerDated:
      October 20, 2009
            By:
      /s/ Rachel
      ZhangRachel
      ZhangChief
      Financial Officer









27