UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





Form 10-Q





xQUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934.
              For
      the quarterly period ended November 30,
2009





oTRANSITION
      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], 2009, was 386,966,816.

















TABLE OF CONTENTS








PPART
      I: FINANCIAL INFORMATIONItem 1.
            Financial
      Statements
            3Consolidated
      Balance Sheet (unaudited) - November 30, 2009 and May 31,
    2009
            3Consolidated
      Statements of Operations (unaudited) - Three-month and six-month periods
      ended November 30, 2009 and November 30, 2008
            4Consolidated
      Statements of Cash Flows (unaudited) - Six-month periods ended November
      30, 2009 and November 30, 2008
            6Notes
      to unaudited Consolidated Financial Statements
            8Item 2.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            17Item 3.
            Quantitative
      and Qualitative Disclosures About Market Risk
            20Item 4.
            Controls
      and Procedures
            21PART
      II: OTHER INFORMATION
            21Item 1
            Legal
      Proceedings
            21Item
      1A
            Risk
      Factors Affecting Future Results
            21Item 2
            Un
      Registered Sales of Equity Securities and Use of Proceeds
            21Item 3
            Defaults
      Upon Senior Securities
            22Item 4
            Submission
      of Matters to a Vote of Security Holders
            22Item 5
            Other
      Information
            22Item 6.
            Exhibits
            22Signatures
            23








2


PART
I   FINANCIAL INFORMATION








Item
1.      Financial Statements





THE
      HARTCOURT COMPANIES, INC. AND SUBSIDIARIESUNAUDITED
      CONSOLIDATED BALANCE SHEETSAs
      ofNovember
      30,
              2009
            
            
            May
      31, 2009ASSETSCash
      and cash equivalents
            
            $
            89,859
            
            
            $
            102,085Accounts
      Receivable
            
            
            1,561,316
            
            
            
            863,244Loans
      receivable
            
            
            944,570
            
            
            
            822,551Prepaid
      expenses and other assets
            
            
            19,737
            
            
            
            5,792TOTAL
      CURRENT ASSETS
            
            
            2,615,482
            
            
            
            1,793,672PROPERTY
      & EQUIPMENT – NET
            
            
            45,898
            
            
            
            57,640INTANGIBLE
      ASSETS - NET
            
            
            3,821,992
            
            
            
            3,923,356TOTAL
      ASSETS
            
            $
            6,483,372
            
            
            $
            5,774,668LIABILITIES
      AND SHAREHOLDERS' EQUITYCURRENT
      LIABILITIESAccounts
      payable
            
            $
            -
            
            
            $
            141,331Accrued
      expenses and other current liabilities
            
            
            1,690,923
            
            
            
            1,337,571Loan
      payable
            
            
            274,429
            
            
            
            -Due
      to related parties
            
            
            185,211
            
            
            
            246,862TOTAL
      CURRENT LIABILITIES
            
            
            2,150,563
            
            
            
            1,725,764COMMITMENT
      & CONTINGENCIES





SHAREHOLDERS'
      EQUITYPreferred
      Stock:Original
      preferred stock, $0.01 par value, 1,000 shares authorized, none issued and
      outstanding
            
            
            -
            
            
            
            -Class
      A preferred stock, 10,000,000 shares authorized, none issued and
      outstanding
            
            
            -
            
            
            
            -Common
      stock:$0.001
      par value, 424,999,000 authorizedNovember
      30, 2009 and May 31, 2009: 389,015,544 issued  386,966,816
      outstanding
            
            
            386,967
            
            
            
            386,967Additional
      paid in capital
            
            
            77,238,990
            
            
            
            77,156,131Treasury
      stock, at cost, 2,048,728 shares
            
            
            (48,728
            )
            
            
            (48,728
            )Other
      comprehensive loss
            
            
            (152,142
            )
            
            
            (143,579
            )Noncontrolling
      interest
            
            
            394,288
            
            
            
            152,261Accumulated
      deficit
            
            
            (73,486,566
            )
            
            
            (73,454,148
            )TOTAL
      SHAREHOLDERS' EQUITY
            
            
            4,332,809
            
            
            
            4,048,904TOTAL
      LIABILITIES AND SHAREHOLDERS' EQUITY
            
            $
            6,483,372
            
            
            $
            5,774,668


The
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
      endedNovember 30,
            
            
            November
      30,2009
            
            
            2008Net
      revenues
            
            $
            498,909
            
            
            $
            643,996Cost
      of revenues
            
            
            (119,917
            )
            
            
            (33,782
            )Gross
      profit
            
            
            378,992
            
            
            
            610,214Operating
      costs and expenses:General
      and administrative expenses
            
            
            57,763
            
            
            
            293,246Depreciation
      and amortization
            
            
            113,148
            
            
            
            5,495Total
      operating expenses
            
            
            170,911
            
            
            
            298,741Income
      from continued operations
            
            
            208,081
            
            
            
            311,473Other
      income (expenses)Foreign
      currency exchange gain
            
            
            5,255
            
            
            45,753Interest
      income
            
            
            14,003
            
            
            
            -Gain
      on settlement debt
            
            
            -
            
            
            
            188,765Total
      other income
            
            
            19,258
            
            
            234,518Income
      from continued operations before income taxes and noncontrolling
      interest
            
            
            227,339
            
            
            
            545,991Provision
      for income taxes
            
            
            (44,646
            )
            
            
            (74,391
            )Noncontrolling
      interest, net of taxes
            
            
            (126,864
            )
            
            
            (196,967
            )NET
      INCOME
            
            
            55,829
            
            
            
            274,633OTHER
      COMPREHENSIVE ITEM:Foreign
      currency translation gain
            
            
            4,769
            
            
            
            30,001NET
      COMPREHENSIVE INCOME
            
            $
            60,598
            
            
            $
            304,634BASIC
      AND DILUTED EARNINGSPER
      COMMON SHARE:Basic
      earnings per share:Income
      per share
            
            $
            0.00
            
            
            $
            0.00
            )Basic
      weighted average number of shares outstanding
            
            
            386,966,816
            
            
            
            255,430,112





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


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





4





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











For
      the six month
              periods
      endedNovember
      302009
            
            
            2008Net
      revenues
            
            $
            955,847
            
            
            $
            859,963Cost
      of revenues
            
            
            (227,899
            )
            
            
            (53,723
            )Gross
      profit
            
            
            727,948
            
            
            
            806,240Operating
      expenses:General
      and administrative expenses
            
            
            292,990
            
            
            
            420,794Depreciation
      and amortization
            
            
            169,982
            
            
            
            8,249Total
      operating expenses
            
            
            462,972
            
            
            
            429,043Income
      from operations264,976
            
            
            
            377,197Other
      incomeForeign
      currency exchange gain
            
            
            5,049
            
            
            
            51,189Interest
      income
            
            
            20,998
            
            
            
            -Gain
      on settlement of debt
            
            
            -
            
            
            
            188,848Total
      other income
            
            
            26,047
            
            
            
            240,037Income
      from operations before income tax provision and noncontrolling
      interest
            
            
            291,023
            
            
            
            617,234Provision
      for income taxes
            
            
            (81,415
            )
            
            
            (110,193
            )Noncontrolling
      interest, net of taxes
            
            
            (242,025
            )
            
            
            (255,470
            )NET
      INCOME (LOSS)
            
            
            (32,417
            )
            
            
            251,571OTHER
      COMPREHENSIVE ITEM:Foreign
      currency translation gain
            
            
            8,563
            
            
            
            57,533NET
      COMPREHENSIVE INCOME (LOSS)
            
            $
            (23,854
            )
            
            $
            309,104Basic
      earnings per share:Income/(loss)
      per share
            
            $
            (0.00
            )
            
            $
            0.00Basic
      weighted average number of shares outstanding
            
            
            386,966,816
            
            
            
            264,935,687





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








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








5





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








For
      the six month-periods endedNovember
      30,
              2009
            
            
            November
      30,
              2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income (loss)
            
            $
            (32,417
            )
            
            $
            251,571Adjustments
      to reconcile net income (loss) toNet
      cash provided by (used in) operating activities:Depreciation
            
            
            113,148
            
            
            
            8,249Noncontrolling
      Interest
            
            
            242,025
            
            
            
            255,470Stock
      options issued for service
            
            
            82,859
            
            
            
            79,709Stock
      issued for services and compensations
            
            
            -
            
            
            
            58,922Gain
      on settlement of debt
            
            
            -
            
            
            
            (188,848
            )Changes
      in operating assets and liabilities:Accounts
      receivable
            
            
            (699,208
            )
            
            
            (593,742
            )Inventory
            
            
            -
            
            
            
            6,630Prepaid
      expenses and other receivables
            
            
            (13,162
            )
            
            
            (187,571
            )Accounts
      payable
            
            
            141,331
            
            
            
            (131,630
            )Accrued
      expenses and other current liabilities
            
            
            69,784
            
            
            
            238,452NET
      CASH USED IN OPERATING ACTIVITIES
            
            
            (95,640
            )
            
            
            (202,788
            )CASH
      FLOWS FROM INVESTING ACTIVITIES:Loan
      receivable
            
            
            (121,695
            )
            
            
            -Cash
      received on acquisition of Subsidiary
            
            
            -
            
            
            
            6,177NET
      CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
            
            
            (121,695
            )
            
            
            6,177





The
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
      302009
            
            
            2008CASH
      FLOWS FROM FINANCING ACTIVITIESDue
      to related parties
            
            
            (61,651)
            
            
            
            -Loan
      payable
            
            
            274,429
            
            
            
            -Issuance
      of shares for cash
            
            
            -
            
            
            
            400,000Proceeds
      from (payments to) related parties-net
            
            
            -
            
            
            
            (133,597
            )NET
      CASH PROVIDED BY FINANCING ACTIVITIES
            
            
            212,778
            
            
            
            266,403EFFECT
      OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
            
            
            (7,669)
            
            
            
            (57,532
            )NET
      INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS
            
            
            (12,226)
            
            
            
            12,260CASH
      AND CASH EQUIVALENTS -BEGINNING
      BALANCE
            
            
            102,085
            
            
            
            4,907CASH
      AND CASH EQUIVALENTS – ENDING BALANCE
            
            $
            89,859
            
            
            $
            17,167


The
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 1GENERAL





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





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





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





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





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





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





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





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





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





8





NOTE 2SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES





a)   Basis
of Presentation





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





b)    Basis
of Consolidation





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





c)    Cash
and Cash Equivalents





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





d)    Prepaid
expenses





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





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





e)   
Property and Equipment





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





f)   
Impairment of Long-Lived Assets





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




9


g)   
Income Taxes





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





h)   
Stock-Based Compensation





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





i)   
Foreign Currencies Translation





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





j)    Basic
and diluted earning per share





Earning
per share is calculated in accordance with the Statement of financial accounting
standards No. 128 (ASC 260), “Earnings per share”. SFAS No. 128 superseded
Accounting Principles Board Opinion No.15 (APB 15). Net earning per share for
all periods presented has been restated to reflect the adoption of SFAS No. 128.
Basic net loss per share is based upon the weighted average number of common
shares outstanding. Diluted net earning per share is based on the assumption
that all dilutive convertible shares and stock options were converted or
exercised. Dilution is computed by applying the treasury stock method. Under
this method, options and warrants are assumed to be exercised at the beginning
of the period (or at the time of issuance, if later), and as if funds obtained
thereby were used to purchase common stock at the average market price during
the period.





k)    Recently
Issued Accounting Standards





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





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





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




10





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





NOTE
3   LOAN RECEIVABLE





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





1
            
            Loan
      to sales agent, interest free, secured and amount due January 15,
      2010
            
            $
            175,7342
            
            Loan
      to sales agent, interest free, secured and amount due February 15,
      2010
            
            
            190,3793
            
            Loan
      to sales agent, interest free, secured and amount due February 28,
      2010
            
            
            175,7344
            
            Loan
      to individual, 10% interest, secured and amount due March 31,
      2010
            
            
            183,0555
            
            Loan
      to individual, 10% interest, secured and amount due April 15,
      2010
            
            
            219,668944,570





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





NOTE
4     PROPERTIES AND EQUIPMENT





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





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





NOTE
5           INTANGIBLE
ASSETS




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


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





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







11


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




Period
      ending November 30:2010
            
            $
            405,4562011
            
            
            405,4562012
            
            
            405,4562013
            
            
            405,4562014
            
            
            405,456Thereafter
            
            
            1,794,713$
            3,821,992





Period
      ending May 31:2010
            
            $
            204,4082011
            
            
            204,4082012
            
            
            204,4082013
            
            
            204,4082014
            
            
            204,408Thereafter
            
            
            2,901,316$
            3,923,356


NOTE
6    DUE TO RELATED PARTIES





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





NOTE
7     ACCRUED EXPENSES AND OTHER CURRENT
LIABILITIES





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





Amount
            
            
            AmountNovember
      30,
              2009
              Unaudited
            
            
            May
      31,
              2009Accrued
      professional fees
            
            $
            89,741
            
            
            $
            51,583Payroll
      payable
            
            
            719,450
            
            
            
            681,306Welfare
            
            
            10,075
            
            
            
            10,073Income
      tax payable
            
            
            453,752
            
            
            
            293,166Other
      payable
            
            
            417,905
            
            
            
            301,443Total
            
            $
            1,690,923
            
            
            $
            1,337,571





NOTE
8   LOAN PAYABLE





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




12





NOTE
9     EARNINGS / (LOSSES) PER SHARE





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





November
      30,
              2009
            
            
            November
      30,
              2008Net
      Income (loss)
            
            $
            (32,417)
            
            
            $
            251,571Effects
      of dilutive securities
            
            
            
            
            
            
            -Basic
      - weighted average shares outstanding
            
            
            386,966,816
            
            
            
            264,935,687Diluted
      - weighted average shares outstanding
            
            
            386,966,816
            
            
            
            266,613,190Basic
      earnings per share
            
            $
            (0.00)
            
            
            $
            0.00Diluted
      earnings per share
            
            $
            (0.00)
            
            
            $
            0.00





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





NOTE
10         SHAREHOLDERS’
EQUITY





a)
Capitalization





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





b)
Original Preferred Stock





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





c) Class
A Preferred Stock





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





d) Equity
Transactions





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





Stock
Option Plan





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





13




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.





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


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





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





The
following table summarizes the activity of stock options:





WeightedAverage
            
            
            AggregateNumber
      of
            
            
            Exercise
            
            
            IntrinsicOptions
            
            
            Price
            
            
            ValueShares
      under options at May 31, 2008
            
            
            34,600,000
            
            
            $
            0.06
            
            
            $
            690,000Granted
            
            
            20,500,000
            
            
            
            -Exercised
            
            
            -
            
            
            
            -Expired
            
            
            -
            
            
            
            -Cancelled
            
            
            25,900,000
            
            
            
            -Shares
      under options at May 31, 2009
            
            
            29,200,000
            
            
            $
            0.06
            
            
            $
            -Granted
            
            
            -
            
            
            
            -Exercised
            
            
            -
            
            
            
            -Expired
            
            
            -
            
            
            
            -Cancelled
            
            
            1,000,000
            
            
            
            -Shares
      under options at November 30, 2009
            
            
            28,200,000
            
            
            $
            0.06
            
            
            $
            -




14





Additional
information relating to stock options outstanding and exercisable at November
30, 2009 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
            
            2009
            
            Life
            
            Price
            
            2009
            
            Price$0.03
      - $0.05
            
            28,000,000
            
            4.34
      Year
            
            $0.04
            
            828,000
            
            $0.04$0.09
            
            200,000
            
            1.27
      Year
            
            $0.09
            
            200,000
            
            $0.09





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





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





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





b)
Warrants





None





NOTE
11    COMMITMENTS AND CONTINGENCIES





a)  Employment
Agreements





None





b)  Operating
Leases





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





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





Year
      Ending May 31,
            
            Payments2010
            
            $
            7,904




15





c) Legal
Proceedings





Legal Proceedings:





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





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





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





NOTE
12    CURRENT VULNERABILITY DUE TO CERTAIN
CONCENTRATIONS





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





NOTE
13     SUBSEQUENT EVENTS





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







16





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





Forward-looking
Statements





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





Overview





China’s
Education Markets





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





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





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





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





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





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





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





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





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





17





Results of
Operations





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





THE
      HARTCOURT COMPANIES, INC. AND SUBSIDIARIESUNAUDITED
      CONSOLIDATED STATEMENTS OF OPERATIONSFor
      the three month periods endedNovember
      30,
            
            
            November
      30,2009
            
            
            2008Net
      revenues
            
            $
            498,909
            
            
            $
            643,996Cost
      of revenues
            
            
            119,917
            
            
            
            33,782Gross
      profit
            
            
            378,992
            
            
            
            610,214Operating
      costs and expenses:General
      and administrative expenses
            
            
            57,763
            
            
            
            293,246Depreciation
      and amortization
            
            
            113,148
            
            
            
            5,495Impairment
      of goodwillTotal
      operating expenses
            
            
            170,991
            
            
            
            289,741Income(loss)
      from continued operations
            
            
            208,081
            
            
            
            311,473Other
      income (expenses)Foreign
      currency exchange gain
            
            
            5,255
            
            
            45,753Interest
      income
            
            
            14,003
            
            
            
            -Others
            
            
            -
            
            
            
            188,765Total
      other income
            
            
            19,258
            
            
            
            234,518Income
      (loss) from continued operations before income taxes and noncontrolling
      interest
            
            
            227,339
            
            
            
            545,991Provision
      for income taxes
            
            
            44,646
            
            
            
            74,391Noncontrolling
      interest, net of taxes
            
            
            126,864
            
            
            
            196,967NET
      INCOME
            
            
            55,829
            
            
            
            274,633OTHER
      COMPREHENSIVE ITEM:Foreign
      currency translation gain
            
            
            4,769
            
            
            
            30,001NET
      COMPREHENSIVE INCOME(LOSS)
            
            $
            60,598
            
            
            $
            304,634








18





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





Net
Revenue:





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





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





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





Cost
of revenue:





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





General and
administrative expenses:





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





Depreciation
and amortization expenses:





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





Foreign currency
exchange gain:





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








Income (loss)
from Continuing Operations:





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





Liquidity
and Capital Resources:





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





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





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





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


●
            Take
      measures to control costs and operating
  expenses.




19





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





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





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





Contractual
Obligations





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





Off-Balance Sheet
Arrangements





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





Critical Accounting Policies and
Estimates





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





Item 3. Quantitative and
Qualitative Disclosures About Market Risk





Short-Term
Investment Portfolio





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





Interest
Rate Risk





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





Impact
of Foreign Currency Rate Changes





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




20





Item 4.
Controls and Procedures





Evaluation
of disclosure controls and procedures





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





Changes
in internal control over financial reporting





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





PART II: OTHER
INFORMATION





Item
1. Legal Proceedings.





Legal Proceedings:





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





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





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





Item
1A. Risk Factors





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





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





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





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




21





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





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





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





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





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





Item
3. Defaults Upon Senior Securities





None





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





None.





Item
5. Other Information





None.





Item 6.
Exhibits





Exhibit
            
            
            Previously
              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.





22





SIGNATURES





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





THE
      HARTCOURT COMPANIES, INC.Dated:
      January 19, 2010
            By:/s/ VICTOR
      ZHOUVictor
      ZhouChief
      Executive OfficerDated:
      January 19, 2010
            By:
      /s/ Rachel
      ZhangRachel
      ZhangChief
      Financial Officer

































23