**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**Form 10-Q**





x
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE****SECURITIES
                EXCHANGE ACT OF 1934.**
              **For
                the quarterly period ended August 31,
                2007**




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





**Commission
      file number: 001-12671**




**The
      Hartcourt Companies, Inc.**


*(Exact
      name of registrant as specified in its charter)*




**Utah**
            **87-0400541***(State
                or other jurisdiction of*
            *(IRS
                Employer**incorporation
                or organization)*
            *Identification
                No.)*





**Room
                1405, China Enterprise Tower Complex,****No.
                2, Hua Shan Road, Shanghai, China**
            **200040***(Address
                of principal executive offices)*
            *(Zip
                Code)*




**(011)
      (86 21) 62723088**


*(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 o
            Non-accelerated
                filer x




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Change Act.   Yes oNo x




The
      number of shares of common stock outstanding as of the latest practicable date,
      October 10, 2007, was 205,264,327.









**TABLE
      OF CONTENTS**





Page**PART
                I: FINANCIAL INFORMATION**Item 1.
            Financial
                StatementsUnaudited
                Consolidated Balance SheetsAs
                of August 31, 2007 and May 31, 2007
            3Unaudited
                Consolidated Statements of OperationsFor
                the three-month periods ended August 31, 2007, 2006 and
                2005
            4Unaudited
                Consolidated Statements of Cash FlowsFor
                the three-month periods ended August 31, 2007, 2006 and
                2005
            5-6Notes
                to Unaudited Consolidated Financial Statements
            7Item 2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            24Item 3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            30Item 4.
            Controls
                and Procedures
            31**PART
                II: OTHER INFORMATION**Item 1
            Legal
                Proceedings
            31Item 1A
            Rick
              Factors Affecting Future Results
            32Item 2
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            32Item 3
            Defaults
                Upon Senior Securities
            32Item 4
            Submission
                of Matters to a Vote of Security Holders
            32Item 5
            Other
                Information
            32Item 6.
            Exhibits
            32Signatures
            33EXHIBIT
                2.1EXHIBIT
                3.1EXHIBIT
                3.2EXHIBIT
                3.3EXHIBIT
                3.4EXHIBIT
                3.5EXHIBIT
                3.6EXHIBIT
                3.7EXHIBIT
                3.8EXHIBIT
                3.9EXHIBIT
                31.1EXHIBIT
                31.2EXHIBIT
                32.1




2




**PART
      I: FINANCIAL INFORMATION**




**Item
      1.Financial
      Statements**




**THE
                HARTCOURT COMPANIES, INC. AND SUBSIDIARIES****UNAUDITED
                CONSOLIDATED BALANCE
                SHEETS**





**Aug
                31, 2007**
            
            
            **May
                31, 2007**Cash
                and cash equivalents
            
            $
            15,162
            
            
            $
            20,611Prepaid
                expenses and other assets
            
            
            55,272
            
            
            
            41,549**TOTAL
                CURRENT ASSETS**
            
            ****
            **70,434**
            
            
            ****
            **62,160****PROPERTY
                & EQUIPMENT - NET**
            
            
            30,768
            
            
            
            26,423**OTHER
                RECEIVABLE**
            
            
            467,410
            
            
            
            675,969**GOODWILL**
            
            
            659,732
            
            
            
            651,082**TOTAL
                ASSETS**
            
            **$**
            1,228,344
            
            
            **$**
            1,415,634**LIABILITIES
                AND SHAREHOLDERS' EQUITY****CURRENT
                LIABILITIES**Accounts
                payable
            
            $
            800
            
            
            $
            510,203Due
                to directors
            
            
            120,511
            
            
            
            136,452Accrued
                expenses and other current liabilities
            
            
            1,094,114
            
            
            
            572,792**TOTAL
                CURRENT LIABILITIES**
            
            ****
            **1,215,425**
            
            
            ****
            **1,219,447**




**SHAREHOLDERS'
                EQUITY****Preferred
                Stock:**Original
                preferred stock, $0.01 par value, 1,000 sharesauthorized,
                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 authorizedAugust
                31, 2007: 207,440,725 issued  205,391,997
                outstandingMay
                31, 2007: 207,130,725 issued 205,081,997 outstanding
            
            
            205,392
            
            
            
            205,082Additional
                paid in capital
            
            
            71,636,660
            
            
            
            71,570,246Treasury
                stock, at cost, 48,728 shares
            
            
            (48,728
            )
            
            
            (48,728
            )Advance
                compensation to Directors
            
            
            (9,103
            )
            
            
            -Other
                comprehensive loss
            
            
            (29,272
            )
            
            
            (34,598
            )Accumulated
                deficit
            
            
            (71,742,030
            )
            
            
            (71,495,815
            )**TOTAL
                SHAREHOLDERS' EQUITY**
            
            
            12,919
            
            
            
            196,187**TOTAL
                LIABILITIES AND SHAREHOLDERS' EQUITY**
            
            **$**
            1,228,344
            
            
            **$**
            1,415,634





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




3




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




**Three
                month-periods ended Aug 31 of****2007**
            
            
            **2006**
            
            
            **2005**Net
                revenue
            
            $
            -
            
            
            $
            -
            
            
            $
            -Operating
                expenses:General
                and administrative expenses
            
            
            306,487
            
            
            
            324,710
            
            
            
            18,637Depreciation
                and amortization
            
            
            2,420
            
            
            
            3,527
            
            
            
            2,079Total
                operating expenses
            
            
            308,907
            
            
            
            328,237
            
            
            
            20,716Loss
                from continuing operations
            
            
            (308,907
            )
            
            
            (328,237
            )
            
            
            (20,716
            )before
                other incomeOther
                incomeInterest
                income
            
            
            5,380
            
            
            
            994
            
            
            
            1,657Others
            
            
            34,433
            
            
            
            -
            
            
            
            53Total
                other income
            
            
            39,813
            
            
            
            994
            
            
            
            1,710Loss
                from continuing operations
            
            
            (269,094
            )
            
            
            (327,243
            )
            
            
            (19,006
            )Discontinued
                operations:Gain
                from discontinued operations
            
            
            15,529
            
            
            
            200,502
            
            
            
            50,540Foreign
                exchange rate gain
            
            
            7,349
            
            
            
            -
            
            
            
            -Income
                from discontinued operations
            
            
            22,878
            
            
            
            200,502
            
            
            
            50,540NET
                INCOME/(LOSS)
            
            
            (246,216
            )
            
            
            (126,741
            )
            
            
            31,534OTHER
                COMPREHENSIVE ITEM:Foreign
                currency translation gain/(loss)
            
            
            5,327
            
            
            
            19,956
            
            
            
            (23,144
            )NET
                COMPREHENSIVE INCOME (LOSS)
            
            $
            (240,889
            )
            
            
            (106,785
            )
            
            
            8,390BASIC
                AND DILUTED EARNINGS/(LOSSES)PER
                COMMON SHARE:Loss
                from continuing operations
            
            $
            (0.00
            )
            
            $
            (0.00
            )
            
            $
            (0.00
            )Loss
                from discontinued operations
            
            $
            0.00
            
            
            $
            0.00
            
            
            $
            (0.00
            )Loss
                per share
            
            $
            (0.00
            )
            
            $
            (0.00
            )
            
            $
            (0.00
            )*
                Basic and fully diluted (weighted average)
            
            
            205,204,218
            
            
            
            195,144,796
            
            
            
            191,674,122The
                accompanying notes form an integral part of these unaudited consolidated
                financial statements.*
                Weighted average number of shares used to compute basic and diluted
                loss
                per share is the same as the effect of dilutive securities are anti
                dilutive.




4




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




**Three
                month-periods ended Aug 31 of****2007**
            
            
            **2006**
            
            
            **2005****CASH
                FLOWS FROM OPERATING ACTIVITIES:**Net
                income (loss)
            
            $
            (246,216
            )
            
            
            (126,740
            )
            
            
            31,534Adjustments
                to reconcile net income (loss) tonet
                cash used in operating activities:Depreciation
            
            
            2,420
            
            
            
            3,527
            
            
            
            2,079Stock
                options issued for service
            
            
            75,038
            
            
            
            106,625
            
            
            
            -Stock
                issued for services and compensations
            
            
            13,128
            
            
            
            15,874
            
            
            
            10,875Changes
                in operating assets and liabilities:Prepaid
                expenses and other receivables
            
            
            (13,674
            )
            
            
            178,221
            
            
            
            183,651Accounts
                receivable
            
            
            -
            
            
            
            -
            
            
            
            60,438Accounts
                payable
            
            
            (509,404
            )
            
            
            (11,865
            )
            
            
            136,999Accrued
                expenses and other current liabilities
            
            
            521,011
            
            
            
            (77,756
            )
            
            
            (430,906
            )**NET
                CASH PROVIDED BY (USED IN) CONTINUED OPERATIONS**
            
            
            (157,697
            )
            
            
            87,886
            
            
            
            (5,330
            )**NET
                CASH USED IN DISCONTINUED OPERATIONS**
            
            
            (15,529
            )
            
            
            (200,502
            )
            
            
            (50,540
            )**NET
                CASH USED IN****OPERATING
                ACTIVITIES**
            
            
            (173,226
            )
            
            
            (112,616
            )
            
            
            (55,870
            )**CASH
                FLOWS FROM INVESTING ACTIVITIES:**Purchase
                of property and equipment
            
            
            (6,734
            )
            
            
            -
            
            
            
            (21,294
            )Loss
                on acquisition of Subsidiary
            
            
            (7,873
            )
            
            
            -
            
            
            
            -Cash
                received from disposal of assets pending for sale
            
            
            161,369
            
            
            
            -
            
            
            
            -Proceeds
                on notes receivable, net
            
            
            -
            
            
            
            -
            
            
            
            360,332**NET
                CASH PROVIDED BY CONTINUED OPERATIONS**
            
            
            146,762
            
            
            
            -
            
            
            
            339,038**NET
                CASH USED IN DISCONTINUED OPERATIONS**
            
            
            (367,053
            )
            
            
            (277,888
            )
            
            
            -**NET
                CASH PROVIDED BY (USED IN)****INVESTING
                ACTIVITIES**
            
            
            (220,291
            )
            
            
            (277,888
            )
            
            
            339,038





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




5




**THE
                HARTCOURT COMPANIES, INC. AND SUBSIDIARIES****UNAUDITEDCONSOLIDATED
                STATEMENTS OF CASH FLOWS****(continued)**




**Three
                months ended Aug 31 of****2007**
            
            
            **2006**
            
            
            **2005****CASH
                FLOWS FROM FINANCING ACTIVITIES**Sales
                of treasury stock
            
            
            49,878
            
            
            
            -
            
            
            
            -Proceeds
                from (payments to) related parties-net
            
            
            (20,932
            )
            
            
            12,465
            
            
            
            (60,438
            )**NET
                CASH PROVIDED BY (USED IN)****FINANCIING
                ACTIVITIES**
            
            
            28,946
            
            
            
            12,465
            
            
            
            (60,438
            )**EFFECT
                OF EXCHANGE RATE CHANGES ON CASH AND CASH
                EQUIVALANTS**
            
            
            5,297
            
            
            
            20,602
            
            
            
            23,144**NET
                INCREASE / (DECREASE) IN CASH AND CASH
                EQUIVALANTS**
            
            
            (359,274
            )
            
            
            (357,437
            )
            
            
            245,874**CASH
                AND CASH EQUIVALENTS -****BEGINNING
                BALANCE**
            
            
            374,436
            
            
            
            400,686
            
            
            
            598,841**CASH
                AND CASH EQUIVALENTS – ENDING BALANCE**
            
            $
            15,162
            
            
            $
            43,249
            
            
            $
            844,715**SUPPLEMENTAL
                DISCLOSURE OF CASH FLOWS**Cash
                paid for interest
            
            $
            -
            
            
            $
            -
            
            
            $
            -Cash
                paid for income taxes, net of refund received
            
            
            -
            
            
            
            -
            
            
            
            -


The
        accompanying notes form an integral part of these unaudited consolidated
        financial statements.
  6




**THE
      HARTCOURT COMPANIES, INC. AND SUBSIDIARIES**


**NOTES
      TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**August
      31, 2007 AND 2006**







**NOTE
      1****GENERAL**





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





On
      December 28, 2006, the Company entered into a definitive agreement to acquire
      a
      51% equity interest in Taishun Yucai Senior School in Zhejiang Province China
      (“Yucai”), a high school education and vocational training service provider in
      Wenzhou, Zheijiang, the People’s Republic of China. The remaining 49% of the
      equity interests in Yucai will be held by its current shareholders led by Mr.
      Shunsheng Dong. Under the terms of the purchase agreement, the purchase price
      that the Company agreed to pay for the acquisition is US$2,000,000 cash and
      5,500,000 shares of the Company’s restricted common stock. Pursuant to the
      purchase agreement, the US$2,000,000 cash will be payable in three installments
      within one year after the closing of the acquisition and the 5,500,000 shares
      will be payable upon closing of the acquisition. Mr. Dong and his fellow
      shareholders together with Yucai have jointly guaranteed that the Company will
      receive a minimum of US$554,487 (RMB 4,325,000) in terms of profit and
      management fee each year for the three years following closing (2007-2009),
      in
      the event that the net profit is less than the guaranteed amount to the Company,
      Mr. Dong and his fellow shareholders shall make up for the difference before
      May
      31 of each year in respect thereof. The Company has guaranteed that the average
      3-day closing price of its shares on the days immediately prior to the one
      year
      anniversary of the closing date will be not less than US$0.50 per share. In
      the
      event that the share price is less than US$0.50, the Company shall, at its
      option, pay additional cash or issue new restricted shares to make it up. As
      of
      August 31, 2007 the transaction has not closed.





On
      May
      15, 2007, the Company completed the acquisition of 100% of the equity interest
      in China Princely Education Technology Development Company Limited (“China
      Princely”). China Princely has changed its name to Hartcourt Princely Education
      Technology Development (Beijing) Co., Ltd (“Hartcourt Princely”). The purchase
      price was US$38,462 (RMB300,000) and 5,400,000 shares of the Company’s
      restricted common stock. The Company intends to invest US$269,230 (RMB2,100,000)
      in additional registered capital of Hartcourt Princely.





As
      of
      August 31, 2007, 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, 2007, 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. The wind-up process is expected
      to
      be completed by the end of November 2007.




7


As
      of
      August 31, 2007, AI-Asia, Inc., the third holding company, owns 100% of the
      equity interest of Hartcount 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.





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





On
      June
      13, 2007, the Board of Directors of the Company authorized the disposal of
      its
      51% interest in Shanghai Huaqing to its minority shareholders. As per the terms
      of sale and purchase agreement the Company will receive RMB
      4,000,000(US$528,419). In addition, a shareholder of Shanghai Huaqing will
      return 997,550 shares of the Company’s common stock to an individual or entity
      as per the discretion of the Company (See note 12).





As
      of
      August 31, 2007, the Company has classified the Shanghai Huaqing business as
      discontinued operation. (See note 12)





**NOTE
      2****SUMMARY
      OF SIGNIFICANT
      ACCOUNTING POLICIES**





a)Basis
      of
      Presentation





The
      accompanying unaudited consolidated financial statements have been prepared
      in
      accordance with the rules and regulations of the Securities and Exchange
      Commission for the presentation of financial information, but do not include
      all
      the information and footnotes required by accounting principles generally
      accepted in the United States for complete financial statements. The audited
      consolidated financial statements for the fiscal year ended May 31, 2007 were
      filed on September 13, 2007 with the Securities and Exchange Commission and
      are
      hereby referenced. In the opinion of management, all adjustments considered
      necessary for a fair presentation have been included. Operating results for
      the
      three-month period ended August 31, 2007 are not necessarily indicative of
      the
      results that may be expected for the year ended May 31, 2007.





b)Basis
      of
      Consolidation





The
      Company’s financial statements for the three months ended August 31, 2007 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., Hartcount Education Investment
      Management Consulting (Shanghai) Co., Ltd. and China Princely Education
      Technology Development Company Limited. All significant inter-company accounts
      and transactions have been eliminated in consolidation.





8





c)Cash
      and Cash
      Equivalents




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





d)Accounts
      Receivable




The
      Company maintains reserves for potential credit losses on accounts receivable.
      Management reviews the composition of accounts receivable and analyzes
      historical bad debts, customer concentrations, customer credit worthiness,
      current economic trends and changes in customer payment patterns to evaluate
      the
      adequacy of these reserves. Reserves are recorded primarily on regular
      impairment test basis.





e)Advances
      to
      suppliers




The
      Company makes advances to certain vendors for purchases of its suppliers. The
      advances to suppliers are interest free and unsecured.





f)Prepaid
      expenses




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





Prepaid
      expenses generally will be amortized in equal installments and charged as costs
      or expenses of periods within one year. If certain prepaid expense item cannot
      be amortized, its un-amortized amount is recorded as an expense for the current
      period. Prepaid expenses amounted to US$18,543 at August 31, 2007 and are
      included in “Prepaid expenses and other assets” in the accompanying financial
      statements.





g)Inventories




Inventories
      are valued at the lower of
      cost (determined on a weighted average basis) or market. The Management compares
      the cost of inventories with the market value and allowance is made for writing
      down the inventories to their market value, if lower.





h)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.




9




j)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 August 31, 2007, there were no significant impairments of its
      long-lived assets used in operations.





k)Revenue
      Recognition




The
      Company's revenue recognition
      policies are in compliance with Staff Accounting Bulletin (SAB) 104. Revenue
      is
      recognized at the date when service have been rendered when a formal arrangement
      exists, the price is fixed or determinable, the delivery is completed, no other
      significant obligations of the Company exist and collectibility is reasonably
      assured. Payments received before all of the relevant criteria for revenue
      recognition are satisfied are recorded as advances from customers.





l)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.





m)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.




10


n)Foreign
      Currencies
      Translation




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





p)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.





s)Recently
      Issued Accounting
      Standards




In
      February 2006, FASB issued SFAS No. 155, "Accounting for Certain Hybrid
      Financial Instruments". SFAS No. 155 amends SFAS No 133, "Accounting for
      Derivative Instruments and Hedging Activities", and SFAF No. 140, "Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities". SFAS No. 155, permits fair value remeasurement for any hybrid
      financial instrument that contains an embedded derivative that otherwise would
      require bifurcation, clarifies which interest-only strips and principal-only
      strips are not subject to the requirements of SFAS No. 133, establishes a
      requirement to evaluate interest in securitized financial assets to identify
      interests that are freestanding derivatives or that are hybrid financial
      instruments that contain an embedded derivative requiring bifurcation, clarifies
      that concentrations of credit risk in the form of subordination are not embedded
      derivatives, and amends SFAS No. 140 to eliminate the prohibition on the
      qualifying special-purpose entity from holding a derivative financial instrument
      that pertains to a beneficial interest other than another derivative financial
      instrument. This statement is effective for all financial instruments acquired
      or issued after the beginning of the Company's first fiscal year that begins
      after September 15, 2006. Since the Company doesn’t have any financial
      instruments as described above, there is no effect on the financial statements
      impacted by the adoption of these accounting standards.





In
      March
      2006, FASB issued SFAS 156 "Accounting for Servicing of Financial Assets" this
      Statement amends FASB Statement No. 140, ACCOUNTING FOR TRANSFERS AND SERVICING
      OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES, with respect to the
      accounting for separately recognized servicing assets and servicing
      liabilities.





This
      Statement:


1.Requires
      an entity to
      recognize a servicing asset or servicing liability each time it undertakes
      an
      obligation to service a financial asset by entering into a servicing
      contract.


2.Requires
      all separately
      recognized servicing assets and servicing liabilities to be initially measured
      at fair value, if practicable.


3.Permits
      an entity to
      choose "Amortization method" or "Fair value measurement method" for each class
      of separately recognized servicing assets and servicing
      liabilities.




11


4.At
        its initial adoption,
        permits a one-time reclassification of available-for-sale securities to trading
        securities by entities with recognized servicing rights, without calling
        into
        question the treatment of other available-for-sale securities under Statement
        115, provided that the available-for-sale securities are identified in some
        manner as offsetting the entity's exposure to changes in fair value
        of  servicing assets or servicing liabilities that a servicer elects
        to subsequently measure at fair value.
 5.Requires
        separate
        presentation of servicing assets and servicing liabilities subsequently measured
        at fair value in the statement of financial position and additional disclosures
        for all separately recognized servicing assets and servicing
        liabilities.


This
      Statement is effective as of the beginning of the Company's first fiscal year
      that began after September 15, 2006.





In
      September 2006, FASB issued SFAS 157 “Fair Value Measurements”.
      This Statement defines fair value, establishes a framework for measuring fair
      value in generally accepted accounting principles (GAAP), and expands
      disclosures about fair value measurements. This Statement applies under other
      accounting pronouncements that require or permit fair value measurements, the
      Board having previously concluded in those accounting pronouncements that fair
      value is the relevant measurement attribute. Accordingly, this Statement does
      not require any new fair value measurements. However, for some entities, the
      application of this Statement will change current practice. This Statement
      is
      effective for financial statements issued for fiscal years beginning after
      November 15, 2007, and interim periods within those fiscal years. Management
      is
      currently evaluating the effect of this pronouncement on financial
      statements.





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




1.A
      brief
      description of the provisions of this Statement




2.The
      date
      that adoption is required


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




12




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





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





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





**NOTE
      3EARNINGS /
      (LOSSES) PER SHARE**





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




August 31,
              2007
            
            
            August 31,
              2006
            
            
            August
                31,
              2005Net
                income (loss)
            
            $
            (246,216
            )
            
            $
            (126,741
            )
            
            
            31,534Effects
                of dilutive securities
            
            
            -
            
            
            
            -Weighted
                average shares outstanding
            
            
            205,204,218
            
            
            
            195,144,796
            
            
            
            191,674,122Basic
                and dilutive earnings/(losses) per share
            
            $
            (0.00
            )
            
            $
            (0.00
            )
            
            
            0.00





As
      of
      August 31, 2007, the Company had 34,600,000 options outstanding, each
      exercisable for one share of our common stock. These instruments were not
      included in the computation of diluted earnings per share for any of the periods
      presented, due to their anti-dilutive effects.





**NOTE
      4****SHAREHOLDERS’
      EQUITY**





a)Capitalization




The
      Company has the
      authority 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 August 31, 2007 and August 31, 2006 are 205,391,997 and 195,276,535,
      respectively.  No shares of the Company’s Class A Preferred Stock were
      outstanding as of August 31, 2007 and August 31, 2006.





13





b)Original
      Preferred
      Stock





On
      July,
      14, 2004, the founder of Hartcourt, Dr. Alan V. Phan, converted his 1,000 shares
      of Original Preferred Stock into 2,000,000 shares of Hartcourt Common Stock.
      After the conversion, no Original Preferred Stock was outstanding as of August
      31, 2007.





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





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





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





c)Class
      A Preferred
      Stock





The
      10,000,000 shares of authorized and un-issued 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
      during the Quarter





Following
      is the summary of equity transactions during the three month period ended August
      31, 2007.





On
      June
      13, 2007, following the signing the definitive sales and purchase agreement,
      997,550 shares of our common stock were returned from Shanghai Huaqing to the
      Company. These shares were valued at US$69,829 which was approximately equal
      to
      the fair market value of the stock at the return date.





On
      July
      1, 2007, the Company issued 310,000 unregistered shares of common stock valued
      at US$22,231 in lieu of cash payment for director service compensation, which
      were approximately equal to the fair market value of the stock at issue date.
      Among which 127,670 unregistered shares valued at US$9,103 were over issued
      to
      directors, and were recorded as advance compensation to directors as of August
      31, 2007.





On
      July
      9, 2007, the Company agreed to issue 997,550 unregistered shares of our common
      stock in an offshore transaction under Regulation S to Yuying Lu for proposed
      gross proceeds of US$49,878 which is subject to signing agreement. Proceeds
      will
      be used for working capital.





14





**Stock
      Option Plan**





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





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





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





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





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




15





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





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





-
            7,500,000
                stock options vest pro rata over the two years of the employment
                contract
                period in equal installments of every six months.-
            2,000,000
                stock options vest upon each successful new business acquisition
                of the
                Company.-
            1,500,000
                stock options vest upon each full profitable
                year





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


Risk-free
                interest rate
            4.92%Weighted
                average expected life of the options
            6.25
                yearsExpected
                volatility
            57.93%Expected
                dividend yield
            0





On
      July
      4, 2006, the Company granted Billy Wang, Chairman of the Board, an option to
      purchase 5,000,000 shares of the Company’s common stock at exercise price of
      US$0.05. The option vested on September 28, 2007 and is exercisable within
      five
      years time after vesting.





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


Risk-free
                interest rate
            4.92%Weighted
                average expected life of the options
            5.00
                yearsExpected
                volatility
            57.93%Expected
                dividend yield
            0





On
      August
      23, 2006, the Company granted Geoffrey Wei and Wilson Li, independent directors
      of the Company each an option to purchase 1,000,000 shares of the Company’s
      common stock at exercise price of US$0.05. Each option vested on August 23,
      2007
      and is exercisable within five years time after vesting.





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


Risk-free
                interest rate
            4.92%Expected
                life of the options
            6.00
                yearsExpected
                volatility
            57.93%Expected
                dividend yield
            0





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


-
            7,500,000
                stock options vested pro rata over 2 years of the employment contract
                period.-
            2,000,000
                stock options vested upon each successful new business acquisition
                of the
                Company.-
            1,500,000
                stock options vested upon each full profitable
                year.




16


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
            57.93%Expected
                dividend yield
            0





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





The
      following table summarizes the activity of stock options:


Number
                  ofShares
            
            
            Weighted
              Average
              Exercise
              Price
            
            
            Aggregate
                Intrinsic
                ValueShares
                under options at Dec 31, 2004
            
            
            7,300,000
            
            
            $
            0.28
            
            
            $
            270,000Granted
            
            
            20,300,000
            
            
            $
            0.09Exercised
            
            
            -
            
            
            
            -Expired
            
            
            -
            
            
            
            -Cancelled
            
            
            -
            
            
            
            -Shares
                under options at May 31, 2005
            
            
            27,600,000
            
            
            $
            0.14
            
            
            $
            323,000Granted
            
            
            1,000,000
            
            
            $
            0.09Exercised
            
            
            -
            
            
            
            -Expired
            
            
            4,000,000
            
            
            $
            0.207Cancelled
            
            
            -
            
            
            
            -Shares
                under options at May 31, 2006
            
            
            24,600,000
            
            
            $
            0.127
            
            
            $
            0Granted
            
            
            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
            
            
            -
            
            
            
            -Exercised
            
            
            -
            
            
            
            -Expired
            
            
            -
            
            
            
            -Cancelled
            
            
            -
            
            
            
            -Shares
                under options at August 31, 2007
            
            
            34,600,000
            
            
            $
            0.06
            
            
            
            346,000




17




Additional
      information relating to stock options outstanding and exercisable at August
      31,
      2007 summarized by the exercise price is as follows:





WeightedNumber
                of
            
            Average
            
            Weighted
            
            Number
            
            WeightedRange
                of
            
            Outstanding
                at
            
            Remaining
            
            Average
            
            Exercisable
                at
            
            AverageExercise
            
            August
                31,
            
            Contractual
            
            Exercise
            
            August
                31,
            
            ExercisePrice
            
            2007
            
            Life
            
            Price
            
            2007
            
            Price$0.04
                - $0.05
            
            29,000,000
            
            5.08
                Year
            
            $0.05
            
            7,625,000
            
            $0.05$0.09
            
            5,300,000
            
            3.57
                Year
            
            $0.09
            
            5,300,000
            
            $0.09$1.00
            
            300,000
            
            0.79
                Year
            
            $1.00
            
            300,000
            
            $1.00





During
      the three month period ended August 31, 2007, a total of 7,625,000 options
      vested and the Company recorded US$75,038 in stock based compensation
      expense.





b)Warrants


There
      are
      no warrants outstanding for the three month period ended August 31, 2007 and
      the
      three month period ended August 31, 2006.





As
      of May
      31, 2005, there were 29,010,239 outstanding warrants to purchase 29,010,239
      shares of common stock at US$0.001 par value at US$0.058 per share.





In
      connection with the private placement of Hartcourt shares with Enlight
      Corporation Ltd., on October 23, 2002, Hartcourt granted Enlight warrants to
      purchase 29,010,239 shares at an exercise price of US$0.0586 per share. These
      warrants expired as of August 31, 2007.





**NOTE
      5GOING
      CONCERN**





As
      shown
      in the accompanying consolidated financial statements, the Company has suffered
      recurring losses from operations and has an accumulated deficit of US$71,742,030
      as of August 31, 2007. These factors, among others, raise substantial doubt
      about the Company’s ability to continue as a going concern. The Company’s need
      for working capital is a key issue for management and necessary for the Company
      to meet its goals and objectives. The Company continues to pursue additional
      capitalization opportunities. There is no assurance, however, that the Company
      will be successful in meeting its goals and objectives in the
      future.





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





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




18


**NOTE
      6PREPAID EXPENSES
      AND OTHER ASSETS**





Deposit,
      other debtors and prepaid expenses as of August 31, 2007 and May 31,
      2007 are summarized as follows:





August
                31, 2007
            
            
            May
                31, 2007Prepaid
                expenses
            
            
            18,542
            
            
            
            496Deposits
            
            $
            36,730
            
            
            
            41,053Total
            
            $
            55,272
            
            
            
            41,549





**NOTE
      7ACCRUED EXPENSES
      AND OTHER CURRENT LIABILITIES**





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





Amount
            
            
            AmountAugust
                31, 2007
            
            
            May
                31, 2007Accrued
                directors’ compensations
            
            $
            232,999
            
            
            $
            196,500Accrued
                professional fees
            
            
            190,738
            
            
            
            83,235Payroll
                payable
            
            
            5,494
            
            
            
            21,690Welfare
            
            
            11,987
            
            
            
            9,588Accrued
                other expenses
            
            
            10,046
            
            
            
            38,947Loan
            
            
            149,015
            
            
            
            -Other
                payable
            
            
            403,835
            
            
            
            222,832_______
            
            
            _______Total
            
            $
            1,094,114
            
            
            $
            572,792





19





**NOTE
      8PROPERTIES AND
      EQUIPMENT**





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





Aug
                31, 2007
            
            
            May
                31, 2007Office
                equipment and computers
            
            $
            67,951
            
            
            $
            61,172Less:
                accumulated depreciation
            
            
            (37,182
            )
            
            
            (34,749
            )Property
                and equipment, net
            
            $
            30,768
            
            
            $
            26,423





**NOTE
      9ADVANCE
      COMPENSATION TO DIRECTORS**





The
        Company over issued 127,670 shares of common stock to its directors for their
        services provided during the quarter ended August 31, 2007. The
        amounts were $9,103 and recorded as advance compensation to directors. The
        amount is interest free and due on demand.
 
 There
        was no advance compensation to directors for the year ended May 31,
        2007.




**NOTE
      10RELATED PARTY
      TRANSACTION**





During
      the quarter ended August 31, 2007, the Company issued 310,000 unregistered
      shares of common stock to its directors, including 182,330 shares of common
      stock valued at US$13,128 for services rendered and 127,670 shares valued at
      US$9,103 were over issued to them. The stock was valued at the average market
      price for the period for which services were provided. The over issued common
      shares are recorded as Advance compensation to Directors.





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




During
        the quarter ended August 31, 2007, the company resold 997,550 unregistered
        shares of the Company’s common stock that received from sales of Shanghai
        Huaqing to a non-related party for $39,411.
 
 During
        the year ended May 31, 2007, Hartcourt issued 832,870 shares of common stock
        valued at $50,875 to its directors for services rendered. The stocks were
        valued
        at the average market price for the period for which services were
        provided.
  During
        the year ended May 31, 2007, Hartcourt issued 95,474 shares of the Company’s
        common stock valued at $6,492 for employee service compensation. The stocks
        were
        valued at the average market price for the period for which services were
        provided.





**NOTE
      11****GOODWILL**





Goodwill
      resulting from the acquisition of China Princely amounted to US$659,732 as
      of
      August 31, 2007.





**NOTE
      12DISCONTINUED
      OPERATIONS**





***Control
      Tech Electronics (Shanghai) Co., Ltd.***





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




20


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





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





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





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





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





During
      the three months ended August 31, 2007, US$30,235 was collected, and the
      remaining balance of US$70,365 has been reclassified to other
      receivable.





***Shanghai
      Huaqing Corporation Development Co., Ltd.***





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





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





On
      June
      11, 2007, Shanghai Shiheng Architecture Consulting Co., Ltd (the “Purchaser”)
      terminated the Sales & Purchase Agreement it had entered into with The
      Hartcourt Companies, Inc. (the “Company”) on February 26, 2007.  The
      Purchaser refused to consummate the transaction for the agreed upon purchase
      price.  Pursuant to that agreement, the Company would have sold its
      interest in Shanghai Jiumeng Information Technology Co., Ltd, which holds a
      51%
      equity interest in Shanghai Huaqing Corporation Development Ltd.





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





During
      the three month ended August 31, 2007, RMB 1,000,000 (US$131,373) and 997,550
      shares of the Company’s common stock were received and the remaining balance of
      US$397,045 has been reclassified to other receivable.





21





**NOTE
      13COMMITMENTS AND
      CONTINGENCIES**





a)Employment
      Agreements





The
      current senior management consists of a Chief Executive Officer (“CEO”) and a
      President & Chief Financial Officer (“CFO”). Each of the Company’s executive
      employment agreements stipulate that senior executives, CEO and President &
CFO of the Company, can be terminated without causes with a written notice
      of 90
      days or less.





Effective
      June 1, 2004, Carrie Hartwick became CEO as well as President and CFO. The
      new
      employment agreement was signed on March 9, 2005. The compensation was
      US$150,000 payable in equal monthly installment of US$12,500 cash.Ms
      Hartwick was granted an option to purchase 15 million shares of common stock
      at
      0.09 per share.





On
      August
      31, 2006, the Board of Directors of the Company accepted the resignation of
      Ms.
      Carrie Hartwick from CEO, President and CFO as well as the director, due to
      personal reasons.





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


-
            2,000,000
                stock options vested on August 30,
                2006.


-
            6,000,000
                stock options with three installments of 2,000,000 options each vested
                upon each successful new business acquisition of the
                Company.


-
            2,000,000
                stock options vested upon each full profitable
                year.





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


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


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


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





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





On
      August
      31, 2006, the Board of Directors of the Company appointed Mr. Yungeng Hu to
      be
      the President & Chief Financial Officer, effective on June 1,
      2006.




22


Mr.
      Yungeng Hu’s employment agreement was signed on June 1, 2006. The compensation
      includes an annual base salary of US$150,000, payable by equal monthly
      installments of US$12,500 cash. In addition, Mr. Yungeng Hu was granted
      11,000,000 stock options with exercise price of US$0.04. The stock option
      vesting schedule is as follows:


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


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


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





b)Operating
      Leases


The
      Company leases its offices and facilities under long-term, non-cancelable lease
      agreements expiring at various dates through July 5, 2009. 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 August 31, 2007 and 2006 were US$30,165and
      US$24,669, respectively.





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


Year
                ended May 31
            
            Payments2008
            
            $
            81,5182009
            
            $
            108,690





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 courts 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
      law suit is in the initial stage and the outcome cannot be estimated as of
      August 31, 2007.





**NOTE
      14****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.








23




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




**Forward-looking
      Statements**





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





**Overview**




*Vocational
      and Technical Education Business*




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




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




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




The
      Chinese government believes that the healthy development of China’s economy
      means that there should be more vocational schools and vocational school
      graduates than degree colleges and degree colleges graduates. All levels of
      government are required to speed up the development of vocational
      education.  The goal of the Chinese government is, by 2010, to recruit
      8 million middle vocational students, the same size as the number of high school
      students, and more high vocational students than college students.




24




In
      August
      2006, after reviewing our business condition, its competitive position, and
      opportunities in China, we decided to change our business by focusing on the
      post-secondary education market in China to take advantage of the on-going
      demand for skilled workers and growing post-secondary age population. We plan
      to
      not only acquire the target schools, but also to run these schools actively
      by
      putting together strong faculty teams, incentive plans and strategic expansion
      programs.




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




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




On
      December 28, 2006, we entered into a definitive agreement to acquire a 51%
      equity interest in Taishun Yucai Senior School in Zhejiang Province China
      (“Yucai”), a high school education and vocational training service provider
      located in Wenzhou, Zheijiang PRC. The remaining 49% of the equity interests
      in
      Yucai will be held by Yucai’s current shareholders. Under the terms of the
      purchase agreement, the purchase price that we agreed to pay for the acquisition
      is US$2,000,000 cash and 5,500,000 shares of our restricted common stock.
      Pursuant to the purchase agreement, the US$2,000,000 cash will be payable in
      three installments within one year after closing of the acquisition and the
      5,500,000 shares will be payable upon closing of the acquisition. The lead
      selling shareholder and his fellow selling shareholders together with Yucai
      have
      jointly guaranteed that we will receive a minimum of US$554,487 (RMB 4,325,000)
      in terms of profit and management fees for each of the three years following
      the
      closing (2007-2009).  In the event that the net profit is less than
      the guaranteed amount to the Company, the lead selling shareholder and his
      fellow selling shareholders shall make up the discrepancy before December 31
      of
      each year in respect thereof.  We have guaranteed that the average
      3-day closing price of our shares on the days immediately prior to the one
      year
      anniversary of the closing date will be not less than US$0.50 per
      share.  In the event that the share price is less than US$0.50, we
      shall credit additional cash or issue new restricted shares. The transaction
      is
      subject to government approval. We cannot predict whether or when such approval
      will be obtained.




On
      May 15, 2007 we closed 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.  The cash consideration of US$39,180 (RMB300,000) and a
      US$274,258 (RMB2,100,000) of capital injection in China Princely was also due
      at
      closing.  As of the date of this report, by mutual agreement of the
      parties, we have not paid this amount.  The primary current
      shareholder of China Princely has personally guaranteed that the net profit
      of
      China Princely will be not less than US$256,000 (RMB2,000,000) for the calendar
      year 2007, while we have guaranteed that the average 3-day closing price of
      our
      shares on the days immediately prior to the one year anniversary of the closing
      date will be not less than US$0.50 per share. In the event that the share price
      is less than US$0.50, we shall, at our option, pay additional cash or issue
      new
      restricted shares. China Princely has since changed its name to Hartcourt
      Princely Education Technology Development (Beijing) Co., Ltd.




25




*IT
      Distribution Business*




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




As
      a
      result of our business decision to move away from the IT distribution business,
      in September 2006, we entered into a definitive sales and purchase agreement
      to
      sell our interest in Besteffort Investments Ltd (“Besteffort”). In October 2006,
      the Company completed the transfer of legal ownership of Besteffort to the
      purchaser. The Company already received US$229,635 selling consideration and
      the
      rest balance of US$70,365 net is expected to be received not later than November
      30, 2007. Prior to this sale, Besteffort Investments Ltd held indirectly 90%
      equity interest in Shanghai Control Tech, which was the distributor of Radvision
      video conference products in China. Shanghai Control Tech ceased its operations
      on January 1, 2006 primarily because Radvision terminated its distribution
      agreement with it.  The revenue of Shanghai Control Tech was derived
      almost exclusively from the Radvision business.




We
      have
      entered into a nonbinding Memorandum of Understanding (the “MOU”) and a
      definitive sale and purchase agreement to sell our 51% interest in Shanghai
      Huaqing Corporation Development Co., Ltd.  The agreement is subject to
      the receipt of required third party consents and approvals if required by
      applicable law.  The contemplated purchase price is US$528,419. In
      addition, a shareholder of Huaqing Shanghai will return 997,550 shares of our
      common stock to the individual or entity designated by us. This sale, if
      consummated, will complete our transition from the information technology
      distribution business to the business of operating vocational and technical
      educational schools.




The
      following discussion and analysis contains comparisons of the results of our
      operations for the 3 months ended August 31, 2007 and 2006.




**Results
      of Operations**




The
      following table sets forth the consolidated statements of operations for the
      three months ended August 31, 2007, with the comparable reporting period in
      the
      preceding year. And we used the pro forma numbers for the three months ended
      August 31, 2006.




26




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





**Three
                Months ended**
            
            
            **Three
                Months ended**
            
            
            **Three
                Months ended****Aug
                31**
            
            
            **Aug
                31**
            
            
            **Aug
                31****2007**
            
            
            **2006**
            
            
            **2005**Operating
                expenses:General
                and administrative
            
            
            306,487
            
            
            
            324,710
            
            
            
            18,637Depreciation
                and amortization
            
            
            2,420
            
            
            
            3,527
            
            
            
            2,079Total
                operating expenses
            
            
            308,907
            
            
            
            328,237
            
            
            
            20,716Loss
                from continuing operations before other income/(expenses)
            
            
            (278,906
            )
            
            
            (328,237
            )
            
            
            (20,716
            )Other
                income/(expense):Interest
                income
            
            
            5,380
            
            
            
            994
            
            
            
            1,657Other
            
            
            34,433
            
            
            
            -
            
            
            
            53Total
                other income/(expense)
            
            
            39,813
            
            
            
            994
            
            
            
            1,710Loss
                from continuing operations
            
            
            (269,094
            )
            
            
            (327,242
            )
            
            
            (19,006
            )Discontinued
                operations:Gain(
                Loss)  from discontinued operations
            
            
            15,529
            
            
            
            (200,502
            )
            
            
            50,540Foreign
                exchange rate gain
            
            
            7,349
            
            
            
            -
            
            
            
            -Gain/(loss)
                from discontinued operations
            
            
            22,878
            
            
            
            200,502
            
            
            
            50,540NET
                INCOME/(LOSS)
            
            $
            (246,216
            )
            
            $
            (126,740
            )
            
            $
            31,534OTHER
                COMPREHENSIVE ITEM:Foreign
                currency translation gain/(loss)
            
            
            5,327
            
            
            
            19,956
            
            
            
            (23,144
            )NET
                COMPREHENSIVE LOSS
            
            $
            (240,889
            )
            
            
            (106,784
            )
            
            $
            8,390





***Three
      months ended August 31, 2007 Compared to three months ended August 31,
      2006.***




***Net
      Revenue:***





There
      was
      no revenue during the three months ended August 31, 2007 and 2006, because
      the
      Company entered into a definitive agreement to sell the IT distribution business
      and therefore the sales from IT distribution business has been classified into
      discontinued operation category for three months ended August 31, 2007 and
      comparable period in the preceding years.




27




***General
      and administrative expenses:***




Our
      general and administrative expenses were US$306 thousand for the three months
      ended August 31, 2007 compared to US$327 thousand for the same periods in 2006,
      a increase of US$18 thousand or 5.56% compared to the three months ended August
      31, 2006. The increase of expenses for the three months ended August 31, 2007
      was due to the increases of professional expenses compared to same period in
      2006.




***Depreciation
      and amortization expenses:***




Our
      depreciation and amortization expenses were US$2 thousand for the three months
      ended August 31, 2007 compared to US$3 thousand for the same period in 2006
      or a
      33.33% decrease.  The decrease was primarily due to the disposal of
      fixed assets during the three months ended August 31, 2007 than the three months
      ended August 31, 2006.




***Interest
      income:***




Interest
      income was US$5 thousand for the three months ended August 31, 2007 compared
      to
      US$1 thousand for the same period in 2006. The US$4 thousand increase was mainly
      due to a greater cash balance in bank




***Income(
      Loss) from Continuing Operations:***




Loss
      from
      continuing operations for the three months ended August 31, 2007 was US$309
      thousand, compared to US$328 thousand for the same period of year
      2006.  The increase was mainly due to the increase of general and
      administrative expenses in the three months ended August 31, 2007.




***Discontinued
      operations:***




During
      the three months ended August 31, 2007 and August 31, 2006, the discontinued
      operations represent the operating results of Shanghai Huaqing in the three
      month period and loss on disposal of Shanghai Huaqing.




***Three
      months ended August 31, 2006 Compared to Three months ended August 31,
      2005***




***General
      and administrative expenses:***




Our
      general and administrative expenses were US$327 thousand for the three months
      ended August 31, 2006 compared to US$19 thousand for the three months ended
      August 31, 2005, an increase of US$308 thousand. This dramatic increase was
      mainly due to our efforts to search for acquisition targets and looking for
      fund
      resources to finance the acquisition deals and working capital.




***Depreciation
      and amortization expenses:***




Our
      depreciation and amortization expenses were US$1 thousand for the three months
      ended August 31, 2006 compared to US$2 thousand for the three months ended
      August 31, 2005, a 100% decrease. The decrease was primarily due to our disposal
      of fixed assets during the three months ended August 31, 2006.




28




***Interest
      income:***




Interest
      income was US$1 thousand and US$2 thousand for the three months ended August
      31,
      2006 and three months ended August 31, 2005. The US$1 thousand decrease was
      mainly due to lower cash balances.




***Income(
      Loss) from Continuing Operations:***




Loss
      from
      continuing operations for the three months ended August 31, 2006 was US$327
      thousand, compared to US$19 thousand for the three months ended August 31,
      2005.
      The sharp increase of the loss is mainly due to much more expenses during the
      three months ended August 31, 2006 compared to same period in 2005.




***Discontinued
      operations:***




During
      the three months period ended August 31, 2006, the discontinued operations
      represent the operation results of Shanghai Huaqing.  During the three
      months ended August 31, 2005, the gain on disposal of discontinued operation
      represented the operating results of Shanghai Huaqing and Control
      Tech.




**Liquidity
      and Capital Resources:**





As
      shown
      in our accompanying financial statements, we had a net loss of US$216,216 for
      the three months ended August 31, 2007 as compared to a net loss of US$126,740
      for the same period in 2006.





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





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


●
            Look
                for growth opportunities through acquisitions and mergers with profitable
                education businesses;


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


●
            Take
                measures to control cost and operating
                expenses





***Operating
      activities:*** During the three months ended August 31, 2007, net
      cash used in operating activities was US$173,226, compared to US$112,616 during
      the same period in 2006. The cash used in operating activities in the three
      months period ended August 31, 2007 resulted mainly from loss of US$246,216
      and
      increase of accrued expenses and other current liabilities of US$521,011 and
      decrease of accounts payable of US$509,404. The cash used in operating
      activities in the three months period ended August 31, 2006 resulted mainly
      from
      loss of US$126,740, increase of prepaid expenses and other receivables of
      US$178,221 and increase of stock option expense of US$106,625. The increase
      of
      accrued expenses for the quarter ended August 31, 2007 is related to the audit
      fee which accrued for the acquisition.




29




***Investing
      activities:*** Net cash used in investing activities during the three
      months ended August 31, 2007 was US$220,291 compared to cash used in investing
      activities of US$277,888 during the same period in 2006. The cash used in
      investing activities in the three months period ended August 31, 2007 was due
      to
      the cash received upon disposal of assets pending for sale of US$161,369 and
      cash decrease due to disposal of subsidiary of US$367,053. The US$277,888 used
      in investing activities in the same period of year 2006 was due to disposal
      of
      subsidiary.





***Financing
      activities:*** Net cash used in financing activities during the three
      months ended August 31, 2007 was US$28,946 compared to US$12,465 cash provided
      by the same period of year 2006. Net cash used in financing activities in the
      three months ended August 31, 2007 was due to payments of US$20,932 to relate
      parties and 49,878 stocks issued for cash. The cash provided by financing
      activities in the same period of year 2006 was due to proceeds of US$12,465
      from
      related parties.





**Contractual
      Obligations**





During
      the quarter ended August 31, 2007, we did not have any contractual obligation
      other than the facility leases described in Note 13(b) of financial
      statements.





**Off-Balance
      Sheet Arrangements**





During
      the quarter ended August 31, 2007, 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, refer to our Annual Report
      on
      Form 10-K for the year ended May 31, 2007. There have been no changes in
      our critical accounting policies since May 31, 2007.





**Item 3.*****Quantitative
      and Qualitative Disclosures About Market Risk***





**Short-Term
      Investment Portfolio**




We
      do not
      hold derivative financial instruments in our portfolio of short-term
      investments. Our short-term investments consist of instruments that meet quality
      standards consistent with our investment policy. This policy specifies that,
      except for direct obligations of the United States government, securities issued
      by agencies of the United States government, and money market or cash management
      funds, we diversify our holdings by limiting our short-term investments and
      funds held for payroll customers with any individual issuer. As of August 31,
      2007, 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.




30




**Interest
      Rate Risk**




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




**Impact
      of Foreign Currency Rate Changes**




Since
      we
      translate foreign currencies (primarily Chinese Yuans and Hong Kong Dollars)
      into US dollars for financial reporting purposes, currency fluctuations can
      have
      an impact on our financial results. The historical impact of currency
      fluctuations has generally been immaterial. We believe that our exposure to
      currency exchange fluctuation risk is not significant. Although the impact
      of
      currency fluctuations on our financial results has generally been immaterial
      in
      the past and we believe that for the reasons cited above currency fluctuations
      will not be significant in the future, there can be no guarantee that the impact
      of currency fluctuations will not be material in the future. As of August 31,
      2007, we did not engage in foreign currency hedging activities.




**Item 4.Controls
      and
      Procedures****





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





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





**PART
      II: OTHER INFORMATION**





**Item
      1.Legal
      Proceedings.**




In
      2005,
      following the termination of the acquisition of a 51% equity interest in Beijing
      Ying Zhi He Lian Information Technology Co., Ltd, (YZHL), YZHL returned to
      us
      RMB4,000,000 out of the RMB5,000,000 cash consideration we previously paid
      to
      them.  The remaining RMB1,000,000 is still unpaid as of the date of
      filing this quarterly report.  In 2006, Hartcourt Hi-Tech Investment
      (Shanghai) Inc. filed a compliant against YZHL for the return of the remaining
      RMB 1,000,000 (US$131,844)****owed to us. On December 19,
      2006, Beijing Shi Jing Shan District Court entered the Judgment in this case.
      The court found that Hartcourt Hi-Tech Investment (Shanghai) Inc. had no right
      to file the compliant against YZHL unless such complaint was made by Hartcourt
      Capital, Inc., which signed the purchase agreement to acquire the 51% equity
      interest in YZHL in 2004. After reviewing the case with our attorney, Hartcourt
      Capital, Inc., as the plaintiff, has appealed to Beijing People’s court on
      August 10, 2007****against YZHL to return to us the remaining
      RMB1,000,000 that is owed to us.




31




**Item
      1A.Risk Factors
      Affecting Future Results**




The
      risk
      factors facing the Company have not changed in any material way from those
      Risk
      Factors discussed on the Company’s Annual Report on Form 10-K for the fiscal
      year ended May 31, 2007.





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




On
      July
      1, 2007, we issued 310,000 unregistered shares of our common stock to Geoffrey
      Wei and Wilson Li valued at US$22,103 in lieu of cash compensation for director
      service, which were approximately equal to the fair market value of the stock
      at
      issue date. Among which, 127,670 shares valued at US$9,103 were over issued
      to
      them, we will deduct this amount accordingly in next quarter issuance to
      them.




On
      July
      9, 2007, we issued 997,550 unregistered shares of our restricted common stock
      in
      an offshore transaction under Regulation S to Yuying Lu for gross proceeds
      of
      US$39,411. The proceeds will be used for working capital.





**Item
      3.Defaults Upon
      Senior Securities.**





None





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




None





**Item
      5.Other
      Information.**




None





**Item 6.****Exhibits.****





**Exhibit**
            
            
            Previously
                Filed**Number**
            
            **Description**2.1
            
            Agreement
                for sale and purchase of 51% interest in the registered capital of
                Shanghai Huaqing Corporation Development Co., Ltd., dated June 13,
                20073.1
            
            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.




32




**SIGNATURES**




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




THE
                HARTCOURT COMPANIES, INC.Dated:
                October 22, 2007
            By:
                /s/ VICTOR
                ZHOUVictor
                ZhouChief
                Executive OfficerDated:
                October 22, 2007
            By:
                /s/ YUNGENG
                HUYungeng
                HuChief
                Financial Officer & President






33