UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





Form 10-Q





x  
      QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934.
              For
      the quarterly period ended November 30,
2008




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.)





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




(011)
(86 21) 62085908


(Registrant’s
telephone number including area code)





Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.


Yes 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,
December [10], 2008, was 336,397,097.









TABLE OF
CONTENTS







PART
      I: FINANCIAL INFORMATION
            3Item 1.
            Financial
      Statements
            3Consolidated
      Balance Sheet - November 30, 2008 (unaudited) and May 31,
    2008
            3Consolidated
      Statements of Operations (unaudited) - Three-month and six-month periods
      ended November 30, 2008 and November 30, 2007
            4Consolidated
      Statements of Cash Flows (unaudited) - Six-month periods ended November
      30, 2008 and November 30, 2007
            6Notes
      to Consolidated Financial Statements
            8Item 2.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            22Item 3.
            Quantitative
      and Qualitative Disclosures About Market Risk
            27Item 4.
            Controls
      and Procedures
            28PART
      II: OTHER INFORMATION
            28Item 1
            Legal
      Proceedings
            28Item
      1A
            Risk
      Factors Affecting Future Results
            28Item 2
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            29Item 3
            Defaults
      Upon Senior Securities
            29Item 4
            Submission
      of Matters to a Vote of Security Holders
            29Item 5
            Other
      Information
            29Item 6.
            Exhibits
            30Signatures
            31









2




PART
I   FINANCIAL INFORMATION






Item
1.      Financial Statements




THE HARTCOURT COMPANIES, INC.
      AND SUBSIDIARIESCONSOLIDATED
      BALANCE SHEETSNovember
      30,
              2008
            
            
            May
      31,
              2008(Unaudited)ASSETSCash
      and cash equivalents
            
            $
            17,167
            
            
            $
            4,907Accounts
      Receivable
            
            
            698,931
            
            
            
            -Inventories
            
            
            11,132
            
            
            
            -Prepaid
      expenses and other assets
            
            
            269,949
            
            
            
            17,837Due
      from related party
            
            
            21,946
            
            
            
            -TOTAL
      CURRENT ASSETS
            
            
            1,019,125
            
            
            
            22,744PROPERTY
      & EQUIPMENT – NET
            
            
            69,645
            
            
            
            23,772GOODWILL
            
            
            4,088,159
            
            
            
            -TOTAL
      ASSETS
            
            $
            5,176,929
            
            
            $
            46,516LIABILITIES
      AND SHAREHOLDERS' EQUITY(DEFICIT)CURRENT
      LIABILITIESAccounts
      payable
            
            $
            326,098
            
            
            $
            457,725Accrued
      expenses and other current liabilities
            
            
            942,356
            
            
            
            1,004,489Due
      to directors
            
            
            174,145
            
            
            
            196,004TOTAL
      CURRENT LIABILITIES
            
            
            1,442,599
            
            
            
            1,658,218COMMITMENT
      & CONTINGENCIES
              
              MINORITY
      INTEREST
            
            
            363,364
            
            
            
            -




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 authorizedNovember
      30, 2008: 338,445,825 issued  336,397,097
      outstandingMay
      31, 2008: 207,810,582 issued 205,761,854 outstanding
            
            
            336,397
            
            
            
            205,762Additional
      paid in capital
            
            
            76,453,905
            
            
            
            71,795,909Treasury
      stock, at cost, 2,048,728 shares
            
            
            (48,728
            )
            
            
            (48,728
            )Other
      comprehensive loss
            
            
            (152,886
            )
            
            
            (95,353
            )Accumulated
      deficit
            
            
            (73,217,722
            )
            
            
            (73,469,292
            )TOTAL
      SHAREHOLDERS' EQUITY (DEFICIT)
            
            
            3,370,966
            
            
            
            (1,611,702
            )TOTAL
      LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
            
            $
            5,176,929
            
            
            $
            46,516The
      accompanying notes form an integral part of these unaudited consolidated
      financial statements.





3





THE
      HARTCOURT COMPANIES, INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF OPERATIONS(Unaudited)For
      the three month
              periods
      endedNovember30,
            
            
            November30,2008
            
            
            2007Net
      revenues
            
            $
            643,996
            
            
            $
            -Cost
      of revenues
            
            
            33,782
            
            
            
            -Gross
      profit
            
            
            610,214
            
            
            
            -Operating
      costs and expenses:General
      and administrative expenses
            
            
            293,246
            
            
            
            230,582Depreciation
      and amortization
            
            
            5,495
            
            
            
            3,413Impairment
      of goodwill
            
            
            -
            
            
            
            666,471Total
      operating expenses
            
            
            298,741
            
            
            
            900,466Income(loss)
      from continued operations
            
            
            311,473
            
            
            
            (900,466
            )Other
      income (expenses)Foreign
      currency exchange gain
            
            
            45,753
            
            
            (191
            )Gain
      on settlement debt
            
            
            188,765
            
            
            
            -Total
      other income
            
            
            234,518
            
            
            (191
            )Income
      (loss) from continued operations before income taxes and minority
      interest
            
            
            545,991
            
            
            
            (900,657
            )Provision
      for income taxes
            
            
            74,391
            
            
            
            -Minority
      interest, net of taxes
            
            
            196,967
            
            
            
            -Income
      (loss) from continued operations
            
            
            274,633
            
            
            
            (900,657
            )Discontinued
      operations:Gain
      from discontinued operations
            
            
            -
            
            
            
            -Income
      from discontinued operations
            
            
            -
            
            
            
            -NET
      INCOME (LOSS)
            
            
            274,633
            
            
            
            (900,657
            )OTHER
      COMPREHENSIVE ITEM:Foreign
      currency translation gain
            
            
            30,001
            
            
            
            3,594NET
      COMPREHENSIVE INCOME(LOSS)
            
            $
            304,634
            
            
            $
            (897,063
            )BASIC
      AND DILUTED EARNINGS/(LOSSES)PER
      COMMON SHARE:Basic earnings per share:Income
      (loss) from continuing operations
            
            $
            0.00
            
            
            $
            (0.00
            )Loss
      from discontinued operations
            
            $
            -
            
            
            $
            -Income
      (loss) per share
            
            $
            0.00
            
            
            $
            (0.00
            )Basic
      weighted average number of shares outstanding
            
            
            255,430,112
            
            
            
            205,440,208




Diluted
      earnings per share:Income
      (loss) from continuing operations
              
              $
              0.00
              
              
              $
              (0.00
              )Loss
      from discontinued operations
              
              $
              -
              
              
              $
              -Income
      (loss) per share
              
              $
              0.00
              
              
              $
              (0.00
              )Diluted
      weighted average number of shares outstanding
              
              
              255,430,112
              
              
              
              205,440,208


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




4





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








For
      the six month
              periods
      endedNovember
      302008
            
            
            2007Net
      revenues
            
            $
            859,963
            
            
            $
            -Cost
      of revenues
            
            
            53,723
            
            
            
            -Gross
      profit
            
            
            806,240
            
            
            
            -Operating
      expenses:General
      and administrative expenses
            
            
            420,794
            
            
            
            537,069Depreciation
      and amortization
            
            
            8,249
            
            
            
            5,833Impairment
      of goodwill
            
            
            -
            
            
            
            666,471Total
      operating expenses
            
            
            429,043
            
            
            
            1,209,373Income
      (loss) from operations377,197
            
            
            
            (1,209,373
            )Other
      incomeForeign
      currency exchange gain
            
            
            51,189
            
            
            
            5,189Gain
      on settlement of debt
            
            
            188,848
            
            
            
            34,433Total
      other income
            
            
            240,037
            
            
            
            39,622Income
      (loss) from operations before income tax provision and minority
      interest
            
            
            617,234
            
            
            
            (1,169,751
            )Provision
      for income taxes
            
            
            110,193
            
            
            
            -Minority
      interest, net of taxes
            
            
            255,470
            
            
            
            -Income
      (loss) from continuing operations
            
            
            251,571
            
            
            
            (1,169,751
            )Discontinued
      operations:Gain/(loss)
      from discontinued operations
            
            
            -
            
            
            
            15,529Foreign
      exchange rate gain
            
            
            -
            
            
            
            7,349Income/(loss)
      from discontinued operations
            
            
            -
            
            
            
            22,878NET
      INCOME (LOSS)
            
            
            251,571
            
            
            
            (1,146,873
            )OTHER
      COMPREHENSIVE ITEM:Foreign
      currency translation gain
            
            
            57,533
            
            
            
            8,920NET
      COMPREHENSIVE INCOME (LOSS)
            
            $
            309,104
            
            
            $
            (1,137,953
            )Basic earnings per
      share:Income/(loss)
      from continuing operations
            
            $
            0.00
            
            
            $
            (0.01
            )Income
      from discontinued operations
            
            $
            -
            
            
            $
            0.00Income/(loss)
      per share
            
            $
            0.00
            
            
            $
            (0.01
            )Basic
      weighted average number of shares outstanding
            
            
            264,935,687
            
            
            
            205,363,457




Diluted
      earnings per share:Income/(loss)
      from continuing operations
              
              $
              0.00
              
              
              $
              (0.01
              )Income
      from discontinued operations
              
              $
              -
              
              
              $
              0.00Income/(loss)
      per share
              
              $
              0.00
              
              
              $
              (0.01
              )Diluted
      weighted average number of shares outstanding
              
              
              266,613,190
              
              
              
              205,363,457






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


5








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








For
      the six month-periods endedNovember
      30,
                2008
              
              
              November
      30,
                2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income (loss)
              
              $
              251,571
              
              
              $
              (1,146,873
              )Adjustments
      to reconcile net income (loss) tonet
      cash provided by (used in) operating activities:Depreciation
              
              
              8,249
              
              
              
              5,846Goodwill
      impairment
              
              
              -
              
              
              
              666,471Minority
      interest
              
              
              255,470
              
              
              
              -Stock
      options issued for service
              
              
              79,709
              
              
              
              114,884Stock
      issued for services and compensations
              
              
              58,922
              
              
              
              24,999Gain
      on settlement of debt
              
              
              (188,848
              )
              
              
              -Changes
      in operating assets and liabilities:Accounts
      receivable
              
              
              (593,742
              )
              
              
              -Inventory
              
              
              6,630
              
              
              
              -Prepaid
      expenses and other receivables
              
              
              (187,571
              )
              
              
              (33,849
              )Accounts
      payable
              
              
              (131,630
              )
              
              
              -Accrued
      expenses and other current liabilities
              
              
              238,452
              
              
              
              34,320NET
      CASH USED IN OPERATING ACTIVITIES OF CONTINUED OPERATIONS
              
              
              (202,788
              )
              
              
              (334,202
              )NET
      CASH USED IN OPERATING ACTIVITIES OF DISCONTINUED
    OPERATIONS
              
              
              -
              
              
              
              -NET
      CASH USED IN OPERATINGACTIVITIES
              
              
              (202,788
              )
              
              
              (334,202
              )CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of property and equipment
              
              
              -
              
              
              
              (7,714
              )Cash
      received on acquisition of Subsidiary
              
              
              6,177
              
              
              
              -NET
      CASH PROVIDED BY(USED IN) INVESTING ACTIVITIES OF CONTINUED
      OPERATIONS
              
              
              6,177
              
              
              
              (7,714
              )NET
      CASH PROVIDED BY INVESTING ACTIVITIES OF DISCONTINUED
      OPERATIONS
              
              
              -
              
              
              
              293,956NET
      CASH PROVIDED BY INVESTING ACTIVITIES
              
              
              6,177
              
              
              
              286,242The
      accompanying notes form an integral part of these unaudited consolidated
      financial statements.




6









THE
      HARTCOURT COMPANIES, INC. AND SUBSIDIARIESUNAUDITED
      CONSOLIDATED STATEMENTS OF CASH FLOWS(continued)
  For
      the six month periods ended
                November
      302008
              
              
              2007CASH
      FLOWS FROM FINANCING ACTIVITIESSales
      of treasury stock
              
              
              -
              
              
              
              47,319Issuance
      of shares for cash
              
              
              400,000
              
              
              
              -Proceeds
      from (payments to) related parties-net
              
              
              (133,597
              )
              
              
              (11,683
              )NET
      CASH PROVIDED BY FINANCING ACTIVITIES OF CONTINUED
    OPERATIONS
              
              
              266,403
              
              
              
              35,636NET
      CASH PROVIDED BY FINANCINGACTIVITIES
      OF DISCONTINUED OPERATIONS
              
              
              -
              
              
              
              -NET
      CASH PROVIDED BY FINANCING ACTIVITIES
              
              
              266,403
              
              
              
              35,636EFFECT
      OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
              
              
              (57,532
              )
              
              
              (6,468
              )NET
      INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS
              
              
              12,260
              
              
              
              (18,792
              )CASH
      AND CASH EQUIVALENTS -BEGINNING
      BALANCE
              
              
              4,907
              
              
              
              20,611CASH
      AND CASH EQUIVALENTS – ENDING BALANCE
              
              $
              17,167
              
              
              $
              1,819The
      accompanying notes form an integral part of these unaudited consolidated
      financial statements.


7


THE
HARTCOURT COMPANIES, INC. AND SUBSIDIARIES


NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)








NOTE 1 GENERAL





The
Hartcourt Companies, Inc. ("Hartcourt" “We/Our” or the "Company"), was
incorporated in Utah in 1983.  Previously, we were a distributor of
internationally well known brand named IT hardware products and related services
in the People’s Republic of China. In August 2006, we announced our intention to
change our business by focusing on the vocational/training and education
marketplace in the People’s Republic of China.




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




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




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




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




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




8


As of
November 30, 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
November 30, 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. Shanghai Jiumeng Information Technology Co., Ltd
owns 60% of the equity interest of Beijing Yanyuan Rapido Education
Company.





As of
November 30, 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. AI-Asia, Inc owns 60% of the equity interest of China Arts
and Science Academy.





NOTE 2 SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES





a)   Basis
of Presentation





The
accompanying unaudited consolidated financial statements have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission for the presentation of financial information, but do not include all
the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. The audited
consolidated financial statements for the fiscal year ended May 31, 2008 were
filed on September 2, 2008 with the Securities and Exchange Commission and are
hereby referenced. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. Operating results for the
six-month period ended November 30, 2008 are not necessarily indicative of the
results that may be expected for the year ended May 31, 2009.





b)    Basis
of Consolidation





The
Company’s financial statements for the three months ended November 30, 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, Hartcourt Princely Education Technology Development Company
Limited, 60 percent owned Beijing Yanyuan Rapido Education Company and 60
percent owned China Arts and Science Academy from the date of acquisition. All
significant inter-company accounts and transactions have been eliminated in
consolidation.





c)    Cash
and Cash Equivalents




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





9


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 $269,949 and $17,837 at November 30, 2008
and May 31, 2008 respectively and are included in “Prepaid expenses and other
assets” in the accompanying financial statements.





e) Property and
Equipment




Property
and equipment are recorded at cost. Depreciation is computed using the
straight-line method over useful lives of 5 to 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 November 30, 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.





10


h) Stock-Based
Compensation




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





i) Foreign Currencies
Translation




Assets
and liabilities in foreign currency are recorded at the balance sheet date at
the rate prevailing on that date. Items of income statement are recorded at the
average exchange rate. Gain or loss on foreign currency transactions are
reflected on the income statement. Gain or loss on financial statement
translation from foreign currency are recorded as a separate component in the
equity section of the balance sheet, as component of comprehensive income. The
functional currencies of the Company are Chinese Renminbi and Hong Kong
Dollars.





j)    Basic
and diluted earning per share




Earning
per share is calculated in accordance with the Statement of financial accounting
standards No. 128 (SFAS No. 128), “Earnings per share”. SFAS No. 128 superseded
Accounting Principles Board Opinion No.15 (APB 15). Net earning per share for
all periods presented has been restated to reflect the adoption of SFAS No. 128.
Basic net loss per share is based upon the weighted average number of common
shares outstanding. Diluted net earning per share is based on the assumption
that all dilutive convertible shares and stock options were converted or
exercised. Dilution is computed by applying the treasury stock method. Under
this method, options and warrants are assumed to be exercised at the beginning
of the period (or at the time of issuance, if later), and as if funds obtained
thereby were used to purchase common stock at the average market price during
the period.





k)    Recently
Issued Accounting Standards





In 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:


11





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
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.





12


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




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





NOTE
3   EARNINGS / (LOSSES) PER SHARE





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











November
      30,
                2008
              
              
              November
      30,
                2007Net
      Income (loss)
              
              $
              251,571
              
              
              $
              (1,146,873
              )Effects
      of dilutive securities
              
              
              -
              
              
              
              -Basic
      - weighted average shares outstanding
              
              
              264,935,687
              
              
              
              205,440,208Diluted
      - weighted average shares outstanding
              
              
              266,613,190
              
              
              
              205,440,208Basic
      earnings per share
              
              $
              0.00
              
              
              $
              (0.01
              )Diluted
      earnings per share
              
              $
              0.00
              
              
              $
              (0.01
              )




As of
November 30, 2008, the Company had 23,200,000 options outstanding, each
exercisable for one share of our common stock. These instruments were included
in the computation of diluted earnings per share for the period as of November
30, 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 November 30, 2008 and May 31, 2008 are 336,397,097 and
205,761,854, respectively.  No shares of the Company’s Class A
Preferred Stock were outstanding as of November 30, 2008 and May 31,
2008.




b)
Original Preferred Stock





On July,
14, 2004, the founder of Hartcourt, Dr. Alan V. Phan, converted his 1,000 shares
of Original Preferred Stock into 2,000,000 shares of Hartcourt Common Stock.
After the conversion, no Original Preferred Stock was outstanding as of November
30, 2008.





13


c) Class
A Preferred Stock





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





d) Equity
Transactions





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





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





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





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





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





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





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








14


Stock
Option Plan





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





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





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





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




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





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




Risk-free
      interest rate
            4.92%Weighted
      average expected life of the options
            6.25
      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.





15


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





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


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








The
following table summarizes the activity of stock options:


Number
      of
              Options
            
            
            Weighted
                  Average
                Exercise
              Price
            
            
            Aggregate
                Intrinsic
              ValueShares
      under options at May 31, 2006
            
            
            24,600,000
            
            
            $
            0.127
            
            
            $
            0-Granted
            
            
            29,000,000
            
            
            $
            0.05Exercised
            
            
            -
            
            
            
            -Expired
            
            
            3,000,000
            
            
            $
            0.30Cancelled
            
            
            16,000,000
            
            
            $
            0.09Shares
      under options at May 31, 2007
            
            
            34,600,000
            
            
            $
            0.06
            
            
            $
            690,000Granted
            
            
            20,500,000
            
            
            
            -Exercised
            
            
            -
            
            
            
            -Expired
            
            
            -
            
            
            
            -Cancelled
            
            
            25,900,000
            
            
            
            -Shares
      under options at November 30, 2008
            
            
            29,200,000
            
            
            $
            0.03
            
            
            $
            0





16


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





WeightedNumber
      of
            
            Average
            
            Weighted
            
            Number
            
            WeightedRange
      of
            
            Outstanding
      at
            
            Remaining
            
            Average
            
            Exercisable
      at
            
            AverageExercise
            
            November
      30,
            
            Contractual
            
            Exercise
            
            November
      30,
            
            ExercisePrice
            
            2008
            
            Life
            
            Price
            
            2008
            
            Price$0.03
      - $0.05
            
            29,000,000
            
            5.34
      Year
            
            $0.04
            
            23,000,000
            
            $0.04$0.09
            
            200,000
            
            2.27
      Year
            
            $0.09
            
            200,000
            
            $0.09





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





b)
Warrants




None





NOTE
5     PREPAID EXPENSES AND OTHER ASSETS





Prepaid
expenses and other assets as of November 30, 2008 and May 31, 2008 are
summarized as follows:





November
      30,
              2008
              Unaudited
            
            
            May
      31,
              2008Prepaid
      service expenses
            
            $
            6,564
            
            
            $
            196Deposit
            
            
            263,385
            
            
            
            17,641Total
            
            $
            269,949
            
            
            $
            17,837





NOTE
6     ACCRUED EXPENSES AND OTHER CURRENT
LIABILITIES





Accrued
expenses and other current liabilities as of November 30, 2008 and May 31, 2008
are summarized as follows:





Amount
            
            
            AmountNovember
      30,
              2008
              Unaudited
            
            
            May
      31,
              2008Accrued
      professional fees
            
            $
            159,572
            
            
            $
            148,675Payroll
      payable
            
            
            30,547
            
            
            
            29,371Welfare
            
            
            10,098
            
            
            
            10,108Accrued
      other expenses
            
            
            183,213
            
            
            
            518,092Other
      payable
            
            
            558,926
            
            
            
            298,243Total
            
            $
            942,356
            
            
            $
            1,004,489





17





NOTE
7     PROPERTIES AND EQUIPMENT





The
Company’s property and equipment as of November 30, 2008 and May 31, 2008 are
summarized as follows:





November
      30,
              2008
              Unaudited
            
            
            May
      31,
              2008Office
      equipment and computers
            
            
            $
            191,073
            
            
            $
            72,032Less:
      accumulated depreciation
            
            
            
            (121,428
            )
            
            
            (48,260
            )Property
      and equipment, net
            
            
            $
            69,645
            
            
            $
            23,772





NOTE
8     DUE FROM RELATED PARTY




The
amount due from related party as of November 30, 2008 and May 31, 2008 were
21,946 and zero respectively. The amount was due from an officer of Beijing
Yanyuan. The amount due to directors is interest free, unsecured and due on
demand




NOTE
9     DUE TO RELATED PARTY




The
amount due to directors as of November 30, 2008 and May 31, 2008 were $174,145
and $196,004, respectively. This amount represents director fee due to the
Company’s directors. The amount due to directors is interest free, unsecured and
due on demand.





NOTE
10    DISCONTINUED OPERATIONS





The
discontinued operations in the statement of opereations represent Shanghai
Huaqing Corporation Development Co., Ltd for the period ended November 30,
2007.








NOTE
11    COMMITMENTS AND CONTINGENCIES





a)
Employment Agreements





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





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




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


-
            3,000,000
      stock options vested upon each successful new business acquisition of the
      Company.


-
            3,000,000
      stock options vested upon each full profitable
  year.


18




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 six months ended November 30, 2008 and 2007 were
$25,370 and $23,236, respectively.





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




Year
      ended May 31
            
            Payments2009
            
            $
            58,0532010
            
            $
            175,218








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
outcome of the law suit cannot be estimated as of November 30,
2008.





NOTE
12    CURRENT VULNERABILITY DUE TO CERTAIN
CONCENTRATIONS





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





NOTE
13    ACQUISITION OF BEIJING YANYUAN





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




19





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.




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




Estimated
      Fair ValuesCurrent
      Assets
            
            $
            63,452Property,
      plant & equipment
            
            
            23,272Assumed
      liabilities
            
            
            -Net
      Assets Acquired
            
            
            86,724Consideration
      Paid
            
            
            3,450,000Goodwill
            
            $
            3,363,276





In
accordance with SFAS 142, goodwill is not amortized but is tested for impairment
at least annually. The operating results of Beijing Yanyuan have been
consolidated with those of the Company beginning July 23, 2008. No
pro-forma financial information has been presented as the operations of Beijing
Yanyuan before the acquisition, were insignificant.




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





NOTE
14     ACQUISITION OF CHINA ARTS & SCIENCE
ACADEMY





On
October 18, 2008, the Company entered into a definitive agreement to purchase
60% of the outstanding equity of China Arts and Science Academy. Under the
terms of the definitive agreement executed between China Arts and Science
Academy and Hartcourt, China Arts and Science Academy committed that its net
profit would exceed RMB5 million (US$735,294) for the first year in which its
results are consolidated with Hartcourt’s, RMB7.5 million (US$1.103
million) for the second year in which its results are consolidated with
Hartcourt’s, and RMB10 million (US$1.471 million) for the third year in
which its results are consolidated with Hartcourt’s. As per the agreement the
restriction on the shares will be released in three installment based on the
realization of profit over the three-year period from 2008 to
2010 beginning on the date of Hartcourt’s purchase of 60% of the
outstanding equity interests of China Arts and Science Academy.  If
the profit realized by China Arts and Science Academy in any of the three
one-year periods is less than the profit target committed to by China Arts and
Science Academy for such one-year period, then the number of shares issuable by
the Company equal to the shares issuable time the percentage of profit realized
divided by the profit target. The Company has the right to take back the rest of
the shares for free.




20




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.




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





Estimated
      Fair ValuesCurrent
      Assets
            
            $
            65,917Property,
      plant & equipment
            
            
            9,201Assumed
      liabilities
            
            
            -Net
      Assets Acquired
            
            
            75,118Consideration
      Paid
            
            
            800,000Goodwill
            
            $
            724,882








In
accordance with SFAS 142, goodwill is not amortized but is tested for impairment
at least annually. The operating results of China Arts and Science Academy
have been consolidated with those of the Company beginning November 1,
2008. No pro-forma financial information has been presented as the operations of
China Arts and Science Academy before the acquisition, were
insignificant.




21









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




Forward-looking
Statements





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





Overview




China’s
Education Markets




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




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




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




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


22


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




On
October 31, 2008, we completed the acquisition of 60 percent of the outstanding
equity interests of China E & I Development Co. Ltd., which does
business as the China Arts and Science Academy (“China Arts and
Science Academy”), pursuant to the terms of the definitive agreement
entered into between the two parties. Under the agreement between the
Company and China Arts and Science Academy, the purchase price paid by the
Company in connection with its acquisition of a controlling interest in China
Arts and Science Academy was 40 million shares of the Company’s restricted
common stock. China Arts and Science Academy committed that its net profit would
exceed RMB5 million (US$735,294) for the first year in which its results are
consolidated with Hartcourt’s, RMB7.5 million (US$1.103 million) for the
second year in which its results are consolidated with Hartcourt’s, and
RMB10 million (US$1.471 million) for the third year in which its results are
consolidated with Hartcourt’s. The restricted common shares issued by Hartcourt
for the acquisition will be released to those shareholders of China Arts and
Science Academy whose equity interests were purchased by Hartcourt in three
installments based on the profit realized by China Arts and Science Academy over
the three-year period beginning on the date of Hartcourt’s purchase of 60% of
the outstanding equity interests of China Arts and Science Academy.




Results of
Operations




The
following table sets forth the consolidated statements of operations for the
three months ended November 30, 2008, with the comparable reporting period in
the preceding year. We used the pro forma numbers for the three months ended
November 30, 2007.


23





THE
      HARTCOURT COMPANIES, INC. AND SUBSIDIARIESUNAUDITED
      CONSOLIDATED STATEMENTS OF OPERATIONSFor
      the three month periods endedNovember
      30,
            
            
            November
      30,2008
            
            
            2007Net
      revenues
            
            $
            643,996
            
            
            $
            -Cost
      of revenues
            
            
            33,782
            
            
            
            -Gross
      profit
            
            
            610,214
            
            
            
            -Operating
      costs and expenses:General
      and administrative expenses
            
            
            293,246
            
            
            
            230,582Depreciation
      and amortization
            
            
            5,495
            
            
            
            3,413Impairment
      of goodwill
            
            
            
            
            
            
            666,471Total
      operating expenses
            
            
            298,741
            
            
            
            900,466Income(loss)
      from continued operations
            
            
            311,473
            
            
            
            (900,466
            )Other
      income (expenses)Foreign
      currency exchange gain
            
            
            45,753
            
            
            (191)Others
            
            
            188,765Total
      other income
            
            
            234,518
            
            
            
            (900,657
            )Income
      (loss) from continued operations before income taxes and minority
      interest
            
            
            545,991
            
            
            
            (900,657
            )Provision
      for income taxes
            
            
            74,391
            
            
            
            -Minority
      interest, net of taxes
            
            
            196,967
            
            
            
            -Income
      (loss) from continued operations
            
            
            274,633
            
            
            
            (900,657
            )Discontinued
      operations:Gain
      from discontinued operations
            
            
            -Income
      from discontinued operationsNET
      INCOME (LOSS)
            
            
            274,633
            
            
            
            (900,657
            )OTHER
      COMPREHENSIVE ITEM:Foreign
      currency translation gain
            
            
            30,001
            
            
            
            3,594NET
      COMPREHENSIVE INCOME(LOSS)
            
            $
            304,634
            
            
            $
            (897,063
            )





24





Three months
ended November 30, 2008 compared to three months ended November 30,
2007.




Net
Revenue:





Revenues
were $643,996 for the three months ended November 30, 2008 compared to zero for
the same period in 2007. The increased revenues were primarily due to revenue
generated by Beijing Yanyuan and China Arts & Science Academy,
two subsidiaries in which we acquired a 60% equity interest during the six
months ended November 30, 2008. We currently derive revenues from the following
sources:




•
            educational
      programs and services, which accounted for 90% of our total net revenues
      as of November 30, 2008; and




•
            books
      and others, which accounted for 10% of our total net revenues as of
      November 30, 2008.





Cost
of revenue:




Cost of
revenues were $33,782 for the three months ended November 30, 2008 compared to
zero for the same period in 2007. The increased cost of revenue was primarily
due to costs of revenue attributable to the operations of Beijing Yanyuan and
China Arts & Science Academy, two subsidiaries in which we acquired a 60%
equity interest during the six months ended November 30, 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 $293,246 for the three months ended November
30, 2008 compared to $230,582 for the same period in 2007, an increase of
$62,664 or 27% compared to the three months ended November 30, 2007. The
increase of expenses for the three months ended November 30, 2008 was primarily
due to the increase in professional expenses compared to the same period in
2007.




Depreciation
and amortization expenses:




Depreciation
and amortization expenses were $5,495 for the three months ended November 30,
2008 compared to $3,413 for the same period in 2007 or a $2,082 increase. The
increase was primarily due to the acquisitions of Beijing Yanyuan and China Arts
& Science Academy.




Foreign currency
exchange gain:




Foreign
currency exchange gain was $30,001 for the three months ended November 30, 2008
compared to $3,594 for the same period in 2007. The $26,407 increase was mainly
due to RMB increase in value.




25




Income (loss)
from Continuing Operations:




Income
from continuing operations for the three months ended November 30, 2008 was
$274,633, compared to loss of $900,657 for the same period in 2007. The income
increase was mainly due to revenue attributable to the operations of Beijing
Yanyuan and China Arts & Science Academy, two subsidiaries in which we
acquired a 60% equity interest during the six months ended November 30,
2008.






Liquidity
and Capital Resources:





As shown
in our accompanying financial statements, we had a net income of $251,571 for
the six months ended November 30, 2008, as compared to a net loss of $1,146,873
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:




l
            Look
      for growth opportunities through acquisitions of profitable education
      businesses;


l
            Raise
      additional capital through public offerings or private placements;
      and


l
            Take
      measures to control costs and operating
  expenses.





Operating
activities: During the six months ended November 30, 2008, net cash used
in operating activities was $202,788, compared to net cash used in operating
activities of $334,202 during the same period in 2007. The cash used in
operating activities in the six months ended November 30, 2008 resulted mainly
from income of $251,571, and an increase of account receivable of $593,742, and
an increase of accrued expenses and other current liabilities of $49,604, and an
increase of prepaid expenses and other receivables of $187,571, and minority
interest of $255,470. The cash used in operating activities in the six months
ended November 30, 2007 resulted mainly from loss of $1,146,83, and an increase
of stock option expense of $114,884, and expense of goodwill impairment of
$666,471, and an increase of accrued expenses and other current liabilities of
$34,320.





Investing
activities: Net cash provided by investing activities during the six
months ended November 30, 2008 was $6,177, compared to cash used in investing
activities of $286,242 during the same period in 2007. The cash provided by
investing activities during the six months ended November 30, 2008 was due to
the cash received upon acquisition of $6,177. The cash used in investing
activities in the three months period ended November 30, 2007 was due to the
cash received upon disposal of assets of $293,956 and cash decrease due to
purchase of property and equipment of $7,714.





Financing
activities: Net cash provided by financing activities during the six
months ended November 30, 2008 was $266,403 compared to $35,636 provided by the
same period in 2007. Net cash used in financing activities in the six months
ended November 30, 2008 was due to payments of $133,597 to related parties. Net
cash provided by financing activities in the six months ended November 30, 2008
was due to proceeds of $400,000 paid by purchasers of shares of our common stock
in private placements. Net cash used in financing activities in the six months
ended November 30, 2007 was due to payments of $11,683 to related parties. Net
cash provided by financing activities in the six months ended November 30, 2007
was due to sales of treasury stock of $47,319.


26





Contractual
Obligations





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





Off-Balance Sheet
Arrangements





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





Critical Accounting Policies and
Estimates





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





Item 3.Quantitative and Qualitative
Disclosures About Market Risk





Short-Term
Investment Portfolio




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




Interest
Rate Risk




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




Impact
of Foreign Currency Rate Changes




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




27









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
November 30, 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, 2008.





28


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





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





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





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





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





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





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





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





Item
3. Defaults Upon Senior Securities


None





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


None.





Item
5. Other Information


None.


29





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.


30





SIGNATURES




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




THE
      HARTCOURT COMPANIES, INC.Dated:
      January 14, 2009
            By:/s/ VICTOR
      ZHOUVictor
      ZhouChief
      Executive OfficerDated:
      January 14, 2009
            By:
      /s/ Rachel
      ZhangRachel
      ZhangChief
      Financial Officer