UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549







FORM
10-K




[x]
            Annual
      Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934
              for
      the fiscal year ended May 31, 2008.




or




[ 
      ]
            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
      of incorporation)
            
            (IRS
      Employer Identification No.)




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






Registrant's
telephone number, including area code (86) 21 51113716




Securities
registered pursuant to Section 12(b) of the Act:


None




Securities
registered pursuant to Section 12(g) of the Act:


Common
Stock, US$0.001 par value.




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  [ ] Yes    [X]
No




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act.  [ ]
Yes    [X] No




Indicate
by a check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports); and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [  ]




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 [
 ]                                             Accelerated
filer [  ]


Non-Accelerated
filer [
]                                             Smaller
reporting company [X]




Indicate
by check mark wither the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act).  Yes [ ] No [X]




The
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant’s most recently completed second fiscal
quarter on November 30, 2007 was US$ 12 million.




The
number of shares of common stock outstanding as of the latest practicable date,
August 28, 2008, was 274,761,854.










THE
HARTCOURT COMPANIES, INC.


FISCAL
2008 FORM 10-K




INDEX




Item
            PagePART
      IITEM
      1: Business
            3ITEM
      1A:  Risk Factors
            7ITEM
      1B:  Unresolved Staff Comments
            12ITEM
      2: Properties
            12ITEM
      3: Legal Proceedings
            12ITEM
      4: Submission of Matters to a Vote of Security Holders
            12PART
      IIITEM
      5: Market for Registrant's Common Equity, Related Stockholder Matters and
      Issuer Purchases of Equity Securities
            13ITEM
      6: Selected Financial Data
            16ITEM
      7: Management's Discussion and Analysis of Financial Condition and Results
      of Operations
            17ITEM
      7A:Quantitative and Qualitative Disclosures About Market
    Risk
            24ITEM
      8: Financial Statements and Supplementary Data
            25ITEM
      9: Changes in and Disagreements with Accountants on Accounting and
      Financial Disclosure
            46ITEM
      9A:Controls and Procedures
            46ITEM
      9B: Other Information
            46PART
      IIIITEM
      10: Directors, Executive Officers and Corporate Governance
            47ITEM
      11: Executive Compensation
            49ITEM
      12: Security Ownership of Certain Beneficial Owners and Management and
      Related Stockholder Matters
            51ITEM
      13: Certain Relationships and Related Transactions, and Director
      Independence
            53ITEM
      14: Principal Accountant Fees and Services
            53PART
      IVITEM
      15: Exhibits and Financial Statement Schedules
            54Signatures
            54







As used in this
Annual Report on Form 10-K, the terms “we”, “our” or “us” mean The Hartcourt
Companies, Inc., a Utah corporation and its consolidated subsidiaries, unless
the context indicates otherwise.




Special
Note on Forward-Looking Statements




Certain
statements contained in this report (including information incorporated by
reference) are “forward-looking statements” and are intended to be covered by
the safe harbor provided for under Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Our
forward-looking statements include our current expectations and projections
about future results, performance, prospects and opportunities. We have tried to
identify these forward-looking statements by using words such as “may,” “might,”
“will,” “expect,” “anticipate,” “believe,” “could,” “intend,” “plan,” “estimate”
and similar expressions. These forward-looking statements are based on
information currently available to us and are expressed in good faith and
believed to have a reasonable basis. However, our forward-looking statements are
subject to a number of risks, uncertainties and other factors that could cause
our actual results, performance, prospects or opportunities to differ materially
from those expressed in, or implied by, these forward-looking
statements.




These
risks, uncertainties and other factors include, but are not limited to, those
set forth under Item 1A Risk Factors. Given these risks and uncertainties,
readers are cautioned not to place undue reliance on our forward-looking
statements. All subsequent written and oral forward-looking statements
attributable to The Hartcourt Companies, Inc. or to persons acting on our behalf
are expressly qualified in their entirety by these cautionary statements. Except
as required by federal securities laws, we do not intend to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.







PART
I









ITEM
1. BUSINESS.




General




We were
incorporated in Utah in 1983. Historically, we have been in the business of
selling information technology products in the People’s Republic of China (the
“PRC”).  However, in August of 2006 we decided to move away from that
business and instead enter the business of vocational/training and education
services in the PRC.




Available
Information




We file
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, proxy statements and all other reports, and amendments to these
reports, required of public companies with the SEC. The public may read and copy
the materials we file with the SEC at the SEC's Public Reference Room at 100 F
Street NE, Washington, DC 20549. The public may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC also maintains a website at http://www.sec.gov that contains reports, proxy
and information statements and other information regarding issuers that file
electronically with the SEC. We make available free of charge on the Investor
Relations section of our corporate website all of the reports we file with the
SEC as soon as reasonably practicable after the reports are filed. Copies of our
fiscal 2008 Form 10-K may also be obtained without charge by accessing a link to
the SEC website on our website or contacting Ms. Mary Qi, c/o The Hartcourt
Companies, Inc., Room 706, Silver Tower , No. 933, West Zhongshanxi Road,
Shanghai, China 200051, or by calling her at (86) 21 51113716.




Business
Overview




Vocational
and Technical Education Business




Before
deciding to enter into the Chinese vocational and training marketplace, we
conducted a feasibility study. We believe that vocational schools in China,
which have over US$10 billion 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 by higher vocational schools if they pass the required
tests.  Higher vocational school students are 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.




3


The
Chinese government believes that there should be more vocational schools and
graduates than degree colleges and graduates for the healthy development of
China’s economy. 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.




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.




In June
2007, the Company entered into a Memorandum of Understanding, or 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.
Due to the difficulties in obtaining government approval and in raising
additional capital, the parties terminated the MOU as of May 31,
2008.




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 in the People’s Republic of China. 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 $2,000,000 cash and 5,500,000 shares of
our restricted common stock. Pursuant to the purchase agreement, the $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
$554,487 (RMB 4,325,000) in terms of profit and management fees for each of the
three years following 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 $0.50 per share.  In the event that the share price is less
than $0.50, we shall credit additional cash or issue new restricted
shares.  Due to the difficulties in obtaining government approval and
in raising additional capital, the parties terminated the definitive agreement
as of May 31, 2008.




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 in the People’s Republic of China. 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 $39,180 (RMB300,000) and a $274,258 (RMB2,100,000) of capital
injection in China Princely was also due at closing.  As of the date
of filing the 10-K, 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 $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 $0.50 per share. In the event that the share price is less than $0.50,
we shall credit additional cash or issue new restricted shares. China Princely
has since changed its name to Hartcourt Princely Education Technology
Development (Beijing) Co., Ltd.




4


IT
Distribution Business




Historically,
through our subsidiaries, Shanghai Huaqing Enterprise Development Co., Ltd
(“Shanghai Huaqing”) 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 are 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 has completed the transfer of legal ownership of Besteffort to the
purchaser. As of fiscal year ended May 31, 2008, we have already received
US$229,635 in connection with the sale of our IT distribution business and the
remaining balance of US$57,965 is held for assets receivable. Prior to this
sale, Besteffort Investments Ltd indirectly held 90% equity interest in Shanghai
Control Tech, which was a distributor of Radvision video conference products in
China. Shanghai Control Tech had ceased its operations on January 1, 2006
primarily as a result of Radvision’s termination of its distribution agreement
with Shanghai Control Tech.  The revenue of Shanghai Control Tech had
been derived almost exclusively from the Radvision business.




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





On June
13, 2007, the Board of Directors of the Company authorized the disposal of its
51% interest in Shanghai Huaqing to its minority shareholders. As of May 31,
2008, a total of RMB 4,000,000 (US$516,670) and 997,550 shares of the Company’s
common stock had been received in connection with this disposal.





As of May
31, 2008, the Company has classified the Shanghai Huaqing business as
discontinued operation. (See note 12)




Upon
receipt of the required shareholder approval on April 19, 2008, the Company
completed its transition from IT business to education business.


5


Corporate
Structure





We are
incorporated in Utah and conduct business solely in China through wholly and
majority owned subsidiaries and indirectly majority owned subsidiaries in order
to comply with China's foreign ownership restrictions.




As of May
31, 2008, we owned 100% of three 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.  Hartcourt Capital Inc. owns 100% of Hartcourt
Hi-Tech Investment (Shanghai) Inc. Hartcourt Hi-Tech Investment (Shanghai) Inc.,
through its employees as nominees, owns 100% of Shanghai Jiumeng Information
Technology Co., Ltd. (“Jiumeng Shanghai”). Hartcourt Hi-Tech Investment
(Shanghai) Inc., and Shanghai Jiumeng Information Technology Co., Ltd. are
located in Shanghai, China. AI-Asia, Inc. owns 100% of Hartcourt Education
Investment Management Consulting (Shanghai) Co., Ltd (former name is AI-Asia
(Shanghai) Information Technology, Inc), located in Shanghai,
China.




Through
Jiumeng Shanghai, we owned 51% of the equity interests of Huaqing Shanghai, our
main operating subsidiary for the Samsung distribution business. 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. Upon receipt of the
required shareholder approval on April 19, 2008, the Company completed its
disposal of its equity interest in Shanghai Huaqing.  As of May 31,
2008, the Company has classified the Shanghai Huaqing business as discontinued
operation.





Intellectual
Property




None.




Employees




As of May
31, 2008, we had approximately [11] employees, all of which were located in
China. We believe our future success and growth will depend on our ability
to attract and retain qualified employees in all areas of our business. We do
not currently have any collective bargaining agreements with our employees, and
we believe employee relations are generally good. Although we have
employment-related agreements with a number of key employees, these agreements
do not guarantee continued service. We believe we offer reasonable compensation
and a good working environment. However, we face intense competition for
qualified employees, and we expect to face continuing challenges in recruiting
and retention.




Our
education business will be highly seasonal. Because most students want their
vocational training during already established vacation periods, generally
during the first and third fiscal quarters, we expect our education business to
be highly seasonal. We may have more students attending courses and as a result
earn most of our revenues during that time. To the extent we do not provide
training to students during the peak seasons, we will lose opportunities. This
seasonality may cause our operating results to vary considerably from quarter to
quarter and significantly impact our liquidity position.






6





ITEM
1A.  RISK FACTORS.




IMPORTANT
FACTORS THAT MAY AFFECT OUR BUSINESS, OUR OPERATING RESULTS AND OUR STOCK
PRICE




In
addition to the other information contained in this 10-K report, you should
carefully read and consider the following risk factors. If any of these risks
actually occur, our business, financial condition or operating results could be
materially adversely affected and the trading price of our common stock could
decline.




RISKS
RELATING TO THE VOCATIONAL TRAINING BUSINESS




WE
HAVE INCURRED SIGNIFICANT LOSSES IN THE PAST AND HAVE A HISTORY OF NEGATIVE CASH
FLOW FROM OPERATIONS AND MAY NOT ACHIEVE OR SUSTAIN CONSISTENT PROFITABILITY,
WHICH COULD RESULT IN A DECLINE IN THE VALUE OF OUR COMMON STOCK AND AN
INABILITY TO CONTINUE OPERATIONS.




We have
received a report from our independent auditors expressing a “going concern”
qualification due to our historical operating losses and recurring negative
working capital. We have incurred net losses and experienced negative cash flows
from operations in the last 6 years. As of May 31, 2008, we had an accumulated
deficit of approximately US$73 million.




Whether
we can achieve cash flow levels sufficient to support our operations, and
whether we will then be able to maintain positive cash flow, we cannot predict.
Unless such cash flow levels are achieved, we will need to borrow additional
funds or sell debt or equity security, or some combination thereof, to provide
funding for our operations. There can be no assurances that any additional debt
or equity financing will be available to us on acceptable terms, if at all. The
inability to obtain debt or equity financing could have a material adverse
effect on our operating results, and as a result we could be required to cease
or significantly reduce our operations, seek a merger partner or sell additional
securities on terms that may be disadvantageous to shareholders. In addition,
irrespective of our revenue, we may not achieve or sustain profitability in
future periods.




WE
EXPECT TO MAKE A SIGNIFICANT INVESTMENT IN OUR NEW BUSINESS STRATEGIES AND
INITIATIVES, INCLUDING ACQUISITIONS, WHICH COULD DISRUPT OUR BUSINESS AND HAVE
ADVERSE EFFECT ON OUR OPERATING RESULTS.




Our
decision to changeour business by focusing
on the vocational/training and education market in China will require us to
invest in new business strategies and engage in acquisitions that complement our
strategic direction. Such endeavors involve significant risks and uncertainties,
including distraction of management’s attention away from normal business
operations; inability to raise the funds needed to close acquisitions;
insufficient revenue generation to offset liabilities assumed and expenses
associated with the strategy; difficulty in the integration of new employees,
business systems and technology; inability to adapt to challenges of a new
market; exposure to new regulations; and issues not discovered in our due
diligence process. These factors could materially adversely affect our operating
results or financial condition.




7


WE
EXPECT TO EXPERIENCE SIGNIFICANT COMPETITION FROM BOTH PRIVATE AND PUBLIC
EDUCATION INSTITUTIONS.




We will
face competition from non-profit private entities and from the public school
system and public colleges, including those that offer distance-learning
programs.  Most of our competitors in both the private and public
sector have greater financial and other resources than us. Many public and
private colleges and universities, as well as other private career-oriented
schools in the market, offer programs similarly, which intensifies the
competition.




Public
institutions often receive government subsidies, government and foundation
grants, tax-deductible contributions and other financial resources generally not
available to private schools. Accordingly, public institutions may have
facilities and equipment superior to those in the private sector, and can offer
lower tuition prices.




In
addition, we may be subject to a variety of regulations which may adversely
affect our ability to operate profitably.




IF
WE CANNOT FIND AND ACQUIRE THE TARGET SCHOOLS, OUR STRATEGY WILL LIKELY
FAIL.




As we
expand our education business, our growth and success will depend upon
attracting students and generating revenue through tuition. Moreover, we intend
to implement our strategy through an aggressive acquisition plan. We intend to
develop our educational operation assets by acquiring existing schools,
especially those ones which were built around, or used the faculty capacity of,
the Ministry of Education (MOE) universities and colleges. However, as the
profitable schools may not desire to be sold, such acquisitions may be more
expensive or be impossible to effect. Moreover, although MOE has set a timeline
to privatize all vocational schools and educational institutions that offer
degrees lower than a Bachelor’s degree by 2010, there are still a number of
political barriers for foreign invested companies, such as Hartcourt, to engage
in the education business. Thus, if we cannot find and acquire the target
schools, our strategy may fail.




OUR
EDUCATION BUSINESS WILL BE HIGHLY SEASONAL.




Because
most students want their vocational training during already established vacation
periods, generally during the first and third fiscal quarters, we expect our
education business to be highly seasonal. We may have more students attending
courses and as a result earn most of our revenues during that time. To the
extent we do not provide training to students during the peak seasons, we will
lose opportunities. This seasonality may cause our operating results to vary
considerably from quarter to quarter and significantly impact our liquidity
position.




8


GENERAL  RISKS ASSOCIATED WITH OUR
BUSINESS




THE
LIQUIDITY OF OUR COMMON STOCK IS AFFECTED BY ITS LIMITED TRADING
ABILITY.




Shares of
our common stock are traded on the OTC Bulletin Board under the symbol "HRCT".
There is currently no broadly followed established trading market for our common
stock. An "established trading market" may never develop or be maintained. The
absence of an active trading market reduces the liquidity of our shares. The
trading volume of our common stock historically has been limited and sporadic.
As a result of this trading inactivity, the quoted price for our common stock on
the OTC Bulletin Board is not necessarily a reliable indicator of its fair
market value. Further, if we cease to be quoted, holders would find it more
difficult to dispose of, or obtain accurate quotations as to the market value of
our common stock, and the market value of our common stock would likely
decline.




THE
LACK OF BUSINESS INSURANCE COVERAGE IN CHINA COULD MATERIALLY AND ADVERSELY
AFFECT OUR BUSINESS, FINANCIAL  CONDITION AND RESULTS OF OPERATION
SHOULD ANY MAJOR CATASTROPHIC DISASTER OCCURS.




We have
limited business insurance coverage in China. The insurance industry in China is
still at an early stage of development. In particular, PRC insurance companies
offer limited business insurance products. As a result, we do not have any
business liability or disruption insurance coverage for our operations in China.
Any business disruption, litigation or natural disaster might result in our
incurring substantial costs and the diversion of resources.




OUR
CURRENT CAPITAL STRUCTURE MAY NOT BE SUFFICIENT FOR US TO ACQUIRE NEW BUSINESS
OR MAINTAIN ONGOING OPERATIONS.




Although
we believe that the current capital structure of the Company will be sufficient
to allow us to consummate acquisitions, we cannot ascertain the capital
requirements for any particular transaction. If our current financial resources
prove to be insufficient, either because of the size of the business acquisition
or the depletion of the available financial resources in search of acquisitions,
we will need to seek additional financing. We cannot assure you that such
financing would be available on acceptable terms, if at all. To the extent that
additional financing is unavailable when needed to consummate an acquisition, we
could be compelled to restructure the transaction or abandon that particular
business acquisition. In addition, if we consummate a business combination, we
may require additional financing to fund the operations or growth of the
business. The failure to secure additional financing could have a material
adverse effect on the continued development or growth of our business. None of
our officers, directors or shareholders is required to provide any financing to
us in connection with or after an acquisition.




COMPLIANCE
WITH NEW RULES AND REGULATIONS CONCERNING CORPORATE GOVERNANCE MAY BE COSTLY AND
TIME CONSUMING.




The
Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley, requires, among other things,
that companies adopt new corporate governance measures and imposes comprehensive
reporting and disclosure requirements, sets stricter independence and financial
expertise standards for board and audit committee members and imposes increased
civil and criminal penalties for companies, their chief executive officers and
chief financial officers for securities law violations. These laws, rules and
regulations increase the scope, complexity and cost of our corporate governance,
reporting and disclosure practices, which could harm our results of operations
and divert management's attention from business operations. These new rules and
regulations may also make it more difficult and more expensive for us to obtain
director and officer liability insurance and make it more difficult for us to
attract and retain qualified members of our board of directors, particularly to
serve on our audit committee.




9


IF
THE PRC GOVERNMENT FINDS THAT THE STRUCTURE FOR OPERATING OUR CHINA BUSINESS
DOES NOT COMPLY WITH PRC GOVERNMENT RESTRICTIONS ON FOREIGN INVESTMENT IN THE IT
DISTRIBUTION INDUSTRY, WE COULD BE COMPELLED TO RESTRUCTURE OUR INVESTMENT OR
ABANDON OUR INVESTMENT.




We are a
U.S. corporation and we conduct our operations solely in China through our
directly owned subsidiaries and indirectly majority-owned subsidiary. To comply
with foreign ownership restrictions, we operate our business in China through a
subsidiary which is majority owned by our employees who are PRC citizens (our
nominees). The nominees have been transferred from certain employees to Victor
Zhou, our Chief Executive Officer. We have entered into a series of contractual
arrangements with our indirectly owned subsidiary, its shareholders and our
nominees. As a result of these contractual arrangements, we are considered the
majority beneficiary of all of our subsidiaries and accordingly we consolidate
all of our subsidiaries' results of operations in our financial
statements.




We have
in the past received an opinion from PRC legal counsel that: (1) the ownership
structures of our subsidiaries is in compliance with existing PRC laws and
regulations; (2) our contractual arrangements with each of our subsidiaries, our
nominees and its shareholders are valid and binding, and will not result in any
violation of PRC laws or regulations currently in effect; (3) the business
operations of our subsidiaries are in compliance with existing PRC laws and
regulations in all material aspects and (4) the enforcement of foreign judgments
made by courts outside the PRC has no direct and automatic operation in the PRC,
but these judgments may be recognized and enforced by a PRC court in accordance
with a bilateral or international treaty to which PRC is a party, or subject to
the principles of reciprocity upon a finding that the judgment does not conflict
with fundamental principles, sovereignty, security and public interests of the
PRC after review of the judgment.




There
are, however, substantial uncertainties regarding the interpretation and
application of current or future PRC laws and regulations. In addition, there is
the possibility that current PRC laws and regulations could change and have an
adverse affect on our business operations.  Accordingly, we cannot
assure you that the PRC regulatory authorities will not ultimately take a view
that is contrary to the opinion of our PRC legal counsel.




RISKS
RELATING TO THE PEOPLE'S REPUBLIC OF CHINA.




SUBSTANTIALLY
ALL OF OUR ASSETS ARE LOCATED IN CHINA AND SUBSTANTIALLY ALL OF OUR REVENUES ARE
DERIVED FROM OUR OPERATIONS IN CHINA. ACCORDINGLY, THE CHINESE LAWS, RULES AND
REGULATIONS WHICH CAN BE DIFFERENT FROM THE US LAWS, ARE PREVALENT IN GOVERNING
OUR BUSINESS ACTIVITIES IN CHINA.




Chinese
law and regulations strictly limit the repatriation of assets of Chinese
companies. Payments to parties outside of the PRC are governed by the Foreign
Exchange Bureau and its Regulations on Foreign Exchange Control (the
“Regulations”). Pursuant to the Regulations, a Chinese enterprise may only make
payments overseas in very limited circumstances. Chinese enterprises are
prohibited from sending payment abroad to cover the liabilities incurred by
affiliated entities located overseas.




10


The laws
governing Chinese joint ventures require each partner to conduct its business
for the benefit of the joint venture and not for the benefit of any particular
partner. As a result, one partner may not withdraw funds from the joint venture
to pay its own liabilities unrelated to the joint venture.




Accordingly,
we may not be able to repatriate any profits we realize to the United States so
that our shareholders can receive dividends or other distributions from
us.




Because
our directors and officers reside outside of the United States, it may be
difficult for you to enforce your rights against them or enforce United States
court judgments again them in the PRC. After the consummation of acquisitions,
all of our assets are located outside of the United States. It may be difficult
for investors in the United States to enforce their legal rights, to effect
service of process upon our directors or officers or to enforce judgments of
United States courts predicated upon civil liabilities and criminal penalties of
our directors and officers under Federal securities laws. Further, it is unclear
if extradition treaties now in effect between the United States and the PRC
would permit effective enforcement of criminal penalties of the Federal
securities laws.




11


ITEM
1B. UNRESOLVED STAFF COMMENTS.




None.




ITEM
2. PROPERTIES.




Our
principal office location, the purpose of our office, and the expiration date
for the lease on facilities at such location is shown in the table
below.




Approximate
            LeaseSquare
            ExpirationLocation
            Purpose
            Meters
            DatesShanghai,
      China
            Principal
      offices and corporate headquarters
            159
            January
      2010







On July
23, we consummated the acquisition of Beijing Yanyuan. We lease training centers
and administrative facilities in the markets that we serve. Our management
believes that our facilities are well-maintained, adequate for our current
needs, and that we will be able to locate additional facilities as needed. See
Note 14 to the financial statements for more information about our lease
commitments.




ITEM
3. LEGAL PROCEEDINGS.




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





On August
10, 2007, Hartcourt Capital Inc filed a lawsuit in the Beijing No. 1
Intermediate People’s Court against Beijing Yi Zhi He Lian Information
Technology Co., Ltd to return the RMB 1,000,000 which it owes the Company. The
lawsuit is in the initial stage and the outcome cannot be estimated as of May
31, 2008.





ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.




An annual
meeting of the shareholders was held on April 19, 2008. Proposals to elect four
directors and to sell the Company’s 51% equity interest in Shanghai Huaqing were
voted on at the meeting.  With regard to the election of directors,
105,755,065shares
were voted in favor of the election of the slate of Billy Y.N. Wang, Dr. Wilson
W.S. Li, Stephen Tang, and Victor Zhou, and 580,011 shares were voted
against.  With regard to the Company’s proposal to sell its equity
interest in Shanghai Huaqing, 105,755,065 shares were voted in favor of the
proposal, 580,011 shares were voted against, and 102,900 shares abstained from
voting on the proposal, with no withheld votes and no broker
non-votes.




12







PART
II




ITEM
5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES.




Market
Information for Common Stock




Our
common stock is quoted on the Over-the-Counter (OTC) Bulletin Board under the
symbol "HRCT". The following table sets forth, for the quarters indicated, the
range of closing high and low bid prices of our common stock as reported by the
OTC Bulletin Board, as adjusted for all previously effected stock
splits.




COMMON
      STOCKBY
      QUARTER ENDED
            HIGH
            LOWYEAR
      ENDED MAY 31, 2008August
      31, 2007
            US$0.07
            US$0.06November
      30, 2007
            US$0.07
            US$0.04February
      28, 2008
            US$0.07
            US$0.03May
      31, 2008
            US$0.06
            US$0.03YEAR
      ENDED MAY 31, 2007August
      31, 2006
            US$0.07
            US$0.03November
      30, 2006
            US$0.08
            US$0.05February
      28, 2007
            US$0.1
            US$0.07May
      31, 2007
            US$0.09
            US$0.06







The last
reported sale price of our common stock on the OTC Bulletin Board on August 15,
2008 was US$0.03. As of August 16, 2008 we had approximately 800 shareholders of
record. This number does not include shareholders whose shares are held in trust
by other entities. The actual number of shareholders is greater than this number
of holders of record.




Although
our common stock is quoted on the OTC Bulletin Board, it trades with limited
volume. Consequently, the information provided above may not be indicative of
our common stock price under different conditions.




We did
not pay any cash dividends on our common stock for fiscal year ended on May 31,
2008. We do not anticipate paying any cash dividends on our common stock in the
foreseeable future. We currently intend to retain future earnings, if any, to
finance operations and the expansion of our business.


13


Recent
Sales of Unregistered Securities




The
following information sets forth the outstanding shares we sold without
registration under the Securities Act of 1933 during the year ended May 31,
2008. All transactions were effected in reliance on exemptions from registration
under the Securities Act of 1933 for transactions not involving a public
offering. We relied upon Regulation S, Rule 903 for all issuances of
unregistered securities described below, because all the unregistered securities
were issued to individuals who do not reside in the United States.




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





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





On July
9, 2007, the Company sold 997,550 unregistered shares of our common stock, which
had been returned to the Company on June 13, 2007 in connection with the
disposal of the Company’s 51% interest in Shanghai Huaqing, in an offshore
transaction under Regulation S to Yuying Lu for proposed gross proceeds of
US$49,878.





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




On March
1, 2008, we issued an aggregate of 296,737 shares of our common stock to Grophia
Zhang, Mingdian Chen, Feng Wang, Faming Zhang, Yanjin Qiu, Yuekang Wang and
Xianghua Qi valued at US $11,709 as of the date of issuance in lieu of cash
compensation for their employment by the Company.




Warrants




None.




Purchases
of Equity Securities by the Issuer and Affiliated Purchasers




Duringthe year ended May 31,
2008, the Company issued 191,560 shares of the Company’s common stock to Mr. Li,
a member of the Company’s Board of Directors, valued at US$13,045 for his
director service.




Duringthe year ended May 31,
2008, the Company issued 191,560 shares of the Company’s common stock to Mr.
Wei, a former member of the Company’s Board of Directors, valued at US$13,045
for his director service.


On July
22, 2008, we issued 46 million restricted shares of the Company’s common stock
to Mr. Zhenyu Hu, director and President of our new acquired
subsidiary.




14


Performance
Graph




The graph
below compares the cumulative total return to shareholders on our common stock
with the cumulative total return on NASDAQ Stock Market Index – U.S. (“NASDAQ US
Index”) and Morgan Stanley High-Tech Index for the period commencing on January
1, 2002, and ending August 24, 2008. The following graph assumes the investment
of US$100 in the Company’s common
stockand in the two other indices, and reinvestment of all
dividends.




The
comparisons shown in the graph below are based upon historical data. The stock
price performance shown in the graph below is not indicative of, nor intended to
forecast, the potential future performance of our common stock.












15




ITEM 6.
SELECTED FINANCIAL DATA.






Year
      Ended
              May
      31
            
            
            
            Year
      Ended
              May
      31
            
            
            Year
      Ended
              May
      31
            
            
            Period
      Ended
              May
      31
            
            
            
            Year
      Ended
              December
      312008
            
            
            
            2007
            
            
            2006
            
            
            2005
            
            
            
            2004
            
            
            
            2003
            
            
            
            2002Thousands
      of US Dollars, except per share amountStatement
      of income DataNet
      Revenue
            
            
            --
            
            
            
            --
            
            
            
            
            
            
            
            
            
            74,563
            
            
            
            131,699
            
            
            
            1,137Operating
      income (losses) from continuing operations
            
            
            (1,996
            )
            
            
            (1,347
            )
            
            
            (866
            )
            
            
            (286
            )
            
            
            (3,883
            )
            
            
            (92
            )
            
            
            (3,934
            )Income
      (losses) from continuing operations
            
            
            (1,996
            )
            
            
            (1,347
            )
            
            
            (861
            )
            
            
            123
            
            
            
            (4,423
            )
            
            
            (1,453
            )
            
            
            (4,158
            )Net
      income (loss)
            
            
            (1,973
            )
            
            
            (3,786
            )
            
            
            (2,835
            )
            
            
            123
            
            
            
            (13,373
            )
            
            
            (571
            )
            
            
            (2,559
            )Basic
      and diluted earnings (losses) per weighted average share
            
            
            (0.01
            )
            
            
            (0.02
            )
            
            
            (0.01
            )
            
            
            0.001
            
            
            
            (0.076
            )
            
            
            (0.004
            )
            
            
            (0.032
            )Balance
      Sheet DataCash
      and cash equivalents
            
            
            5
            
            
            
            21
            
            
            
            123
            
            
            
            599
            
            
            
            1,745
            
            
            
            3,792
            
            
            
            80Total
      assets
            
            
            47
            
            
            
            1,416
            
            
            
            3667
            
            
            
            8,009
            
            
            
            19,732
            
            
            
            33,808
            
            
            
            4,472Net
      current assets
            
            
            (1,635
            )
            
            
            (1,157
            )
            
            
            (467
            )
            
            
            (141
            )
            
            
            2,530
            
            
            
            3039
            
            
            
            (2,155
            )Net
      assets
            
            
            (1,612
            )
            
            
            196
            
            
            
            2,866
            
            
            
            6,761
            
            
            
            4,672
            
            
            
            14,909
            
            
            
            909Long-term
      debt
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Common
      Stock DataShares
      of Common Stock (Year-End)
            
            
            205,762
            
            
            
            205,082
            
            
            
            194,844
            
            
            
            193,739
            
            
            
            171,659
            
            
            
            171,157
            
            
            
            88,518Shares
      of Common Stock (Average)
            
            
            205,488
            
            
            
            197,513
            
            
            
            194,049
            
            
            
            191,504
            
            
            
            175,646
            
            
            
            135,565
            
            
            
            80,416Dividends
      Paid per Share
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --Book
      Value Per Share (Year End)
            
            
            (0.02
            )
            
            
            (0.02
            )
            
            
            (0.02
            )
            
            
            0.00
            
            
            
            0.03
            
            
            
            0.09
            
            
            
            0.01







16


ITEM
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.




Management
discussion and analysis contains comparisons of the results of our operations
for the twelve months ended May 31, 2008, for the 12 months ended May 31,
2007.







THE
      HARTCOURT COMPANIES, INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF OPERATIONSFiscal
      year ended
            
            
            Fiscal
      year endedMay
      31
              (12
      months)
            
            
            May
      31
              (12
      months)2008
            
            
            2007Operating
      expenses:General
      and administrative
            
            
            1,299,858
            
            
            
            1,330,560Depreciation
      and amortization
            
            
            13,510
            
            
            
            16,776Impairments-goodwill
            
            
            682,988
            
            
            
            -Total
      operating expenses
            
            
            1,996,356
            
            
            
            1,347,336Loss
      from continuing operations before other income/(expenses)
            
            
            (1,996,356
            )
            
            
            (1,347,336
            )Other
      income:Interest
      income
            
            
            -
            
            
            
            688Foreign
      exchange gain
            
            
            -
            
            
            
            -Total
      other income
            
            
            -
            
            
            
            688


17





Loss
      from continuing operations
            
            
            (1,996,356
            )
            
            
            (1,346,648
            )Discontinued
      operations:Gain(
      Loss)  from discontinued operations
            
            
            22,878
            
            
            
            (90,156
            )Provision
      for loss on disposal of assets pending for sales
            
            
            -
            
            
            
            (2,349,637
            )Gain/(loss)
      from discontinued operations
            
            
            22,878
            
            
            
            (2,439,793
            )NET
      INCOME/(LOSS)
            
            $
            (1,973,477
            )
            
            $
            (3,786,441
            )OTHER
      COMPREHENSIVE ITEM:Foreign
      currency translation gain/(loss)
            
            
            (60,754
            )
            
            
            (60,973
            )NET
      COMPREHENSIVE LOSS
            
            $
            (2,034,231
            )
            
            
            (3,847,414
            )







The
following discussion contains forward-looking statements. Forward looking
statements are identified by words and phrases such as “anticipate”, “intend”,
“expect” and words and phrases of similar import. We caution investors that
forward-looking statements are only predictions based on our current
expectations about future events and are not guarantees of future performance.
Our actual results, performance or achievements could differ materially from
those expressed or implied by the forward-looking statements due to risks,
uncertainties and assumptions that are difficult to predict, including those set
forth in Item 1A above. We encourage you to read those risk factors carefully
along with the other information provided in this Report and in our other
filings with the SEC before deciding to invest in our stock or to maintain or
change your investment. We undertake no obligation to revise or update any
forward-looking statement for any reason, except as required by
law.




You
should read this MD&A in conjunction with the Consolidated Financial
Statements and Related Notes in Item 8.




Critical
Accounting Policies




In
preparing our financial statements, we make estimates, assumptions and judgments
that can have a significant impact on our net revenue, operating income or loss
and net income or loss, as well as on the value of certain assets and
liabilities on our balance sheet. We believe that the estimates, assumptions and
judgments involved in the accounting policies described below have the greatest
potential impact on our financial statements, so we consider these to be our
critical accounting policies. Senior management has discussed the development
and selection of these critical accounting policies and their disclosure in this
Report with the Audit Committee of our Board of Directors.  We believe
the following critical accounting policies involve the most complex, difficult
and subjective estimates and judgments: revenue recognition; allowance for
doubtful accounts; income taxes; stock-based compensation; asset
impairment.


18
  Revenue
Recognition




In
accordance with generally accepted accounting principles (“GAAP”) in the United
States, revenue is recognized only when the price is fixed or determinable,
persuasive evidence of an arrangement exists, the service is performed, and
collection of the resulting receivable is reasonably assured. Noted below are
brief descriptions of the product or service revenues that the Company
recognizes in the financial statements contained herein.




Revenue
from the trading of commodities is recognized as the cash is
received.  Such revenues are cash basis only, and are not
accrued.




Revenue
from service contracts associated with the investment portfolio is recognized as
the cash is received. Such revenues carry significant credit risk, and accrued
only when collection is reasonably assured. Payments received in advance are
deferred until the service is provided.




Amounts
collected prior to satisfying the above revenue recognition criteria are
included in advance from customers.




Allowance
for doubtful accounts




We
maintain an allowance for doubtful accounts to reduce amounts to their estimated
realizable value. A considerable amount of judgment is required when we assess
the realization of accounts receivables, including assessing the probability of
collection and the current credit-worthiness of each customer. If the financial
condition of our customers were to deteriorate, resulting in an impairment of
their ability to make payments, an additional provision for doubtful accounts
could be required. We initially record a provision for doubtful accounts based
on our historical experience, and then adjust this provision at the end of each
reporting period based on a detailed assessment of our accounts receivable and
allowance for doubtful accounts. In estimating the provision for doubtful
accounts, we consider: (i) the aging of the accounts receivable; (ii) trends
within and ratios involving the age of the accounts receivable; (iii) the
customer mix in each of the aging categories and the nature of the receivable;
(iv) our historical provision for doubtful accounts; (v) the credit worthiness
of the customer; and (vi) the economic conditions of the customer’s industry as
well as general economic conditions, among other factors.




Income
taxes




We
account for income taxes in accordance with SFAS No. 109, ACCOUNTING FOR INCOME
TAXES. SFAS 109 prescribes the use of the liability method. Under this method,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts and the tax basis of assets and liabilities. Deferred
tax assets and liabilities are measured using the enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. We then assess the likelihood that our
deferred tax assets will be recovered from future taxable income and to the
extent we believe that recovery is not likely, we establish a valuation
allowance. To the extent we establish a valuation allowance, or increase or
decrease this allowance in a period, we increase or decrease our income tax
provision in our statement of operations. If any of our estimates of our prior
period taxable income or loss prove to be incorrect, material differences could
impact the amount and timing of income tax benefits or payments for any
period.


19
  The
Company operates in several countries. As a result, we are subject to numerous
domestic and foreign tax jurisdictions and tax agreements and treaties among the
various taxing authorities. Our operations in these jurisdictions are taxed on
various bases: income before taxes, deemed profits and withholding taxes based
on revenue. The calculation of our tax liabilities involves consideration of
uncertainties in the application and interpretation of complex tax regulations
in a multitude of jurisdictions across our global operations.




We
recognize potential liabilities and record tax liabilities for anticipated tax
audit issues in the U.S. and other tax jurisdictions based on our estimate of
whether, and the extent to which, additional taxes will be due. The tax
liabilities are reflected net of realized tax loss carry forwards. We adjust
these reserves upon specific events; however, due to the complexity of some of
these uncertainties, the ultimate resolution may result in a payment that is
different from our current estimate of the tax liabilities. If our estimate of
tax liabilities proves to be less than the ultimate assessment, an additional
charge to expense would result. If payment of these amounts ultimately proves to
be less than the recorded amounts, the reversal of the liabilities would result
in tax benefits being recognized in the period when the contingency has been
resolved and the liabilities are no longer necessary.




Changes
in tax laws, regulations, agreements and treaties, foreign currency exchange
restrictions or our level of operations or profitability in each taxing
jurisdiction could have an impact upon the amount of income taxes that we
provide during any given year.




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.


20


Asset
Impairment




We
periodically evaluate the carrying value of other long-lived assets, including,
but not limited to, property and equipment and intangible assets, when events
and circumstances warrant such a review. The carrying value of a long-lived
asset is considered impaired when the anticipated undiscounted cash flows from
such asset is less than its carrying value. In that event, a loss is recognized
based on the amount by which the carrying value exceeds the fair value of the
long-lived asset. Fair value is determined primarily using the anticipated cash
flows discounted at a rate commensurate with the risk involved. Significant
estimates are utilized to calculate expected future cash flows utilized in
impairment analyses. We also utilize judgment to determine other factors within
fair value analyses, including the applicable discount rate.




Results
of Operations




Our
operations for the fiscal years ended May 31, 2008 and years ended May 31, 2007
consisted of operations of Huaqing (51% indirect ownership interest), Hartcourt
Capital Inc. (100% ownership interest), Hartcourt China, Inc. (100% ownership
interest), and Ai-Asia Inc. (100% ownership interest), and Hartcourt’s
investments in other entities located in Hong Kong and China.




The
following discussion and analysis are based on the historical figures and
information and reflect not only our former IT business, which we are in the
process of exiting, but also our education business.  As noted above,
the Company is in the process of selling its traditional IT business and
focusing on the growing Chinese vocational training market instead.




Fiscal
Year Ended May 31, 2008 Compared to Fiscal Year Ended May 31,
2007




Operating
revenue:




On June
13, 2007, the Company entered into a nonbinding Memorandum of Understanding to
sell its 51% interest in Shanghai Huaqing Corporation Development Ltd. (“Huaqing
Shanghai”).  As such, the IT distribution business was reclassified as
discontinued operations in the financial statements. As a result, there is no
operating revenue or cost of sale for the fiscal year ended May 31, 2008 and
year ended May 31, 2007.




General and
administrative expenses:




Our
general and administrative expenses were US$1,299,858 for the fiscal year ended
May 31, 2008 compared to US$1,330,560 for the same periods in 2007, an decrease
of US$30,702 or 2% compared to the fiscal year ended May 31, 2007. The decreased
expenses for the fiscal year ended May 31, 2008 and year ended May 31, 2007 were
related primarily to the reduced professional service fee.




Depreciation
and amortization expenses:




Our
depreciation and amortization expenses were $13,510 for the fiscal year ended
May 31, 2008 compared to $16,776 for the same periods in 2007 or 19%
decrease.  The decrease was primarily due to the finished amortization
of some fixed assets during the fiscal year ended May 31, 2008 and the fiscal
year ended May 31, 2007.
 21


Interest
income:




Interest
income was zero and $688 for the fiscal years ended May 31, 2008 and May 31,
2007. The US$688 decrease was mainly due to lower cash balances.
  Interest
expenses::




All the
interest expenses were incurred by Shanghai Huaqing, a 51% owned subsidiary,
from short-term bank loans to finance the Samsung distribution business. The
operation of Huaqing was reclassified as discontinued operations in the
financial statements and therefore there was no interest expenses during the
fiscal year ended May 31, 2008 and the fiscal year ended May 31,
2007.




Income (Loss)
from Continuing Operations:




Loss from
continuing operations for the fiscal year ended May 31, 2008 was $1,996,356,
compared to $1,346,648 for the fiscal year ended May 31, 2007.  The
loss increased primarily because the Company no longer has revenue following the
reclassification of the IT distribution business as discontinued
operations.
  Discontinued
operations:




During
the fiscal years ended May 31, 2008 and May 31, 2007, the discontinued
operations represent the operating results of Shanghai Huaqing, which was
determined by the management to be disposed.




Minority
interest:




Minority
interest represented the profit shared by the minority shareholders of Shanghai
Huaqing (49%). The operations of Shanghai Huaqing were reclassified as
discontinued operations in the financial statements and therefore there was no
minority interest during the fiscal year ended May 31, 2008 and the fiscal year
ended May 31, 2007.




Income
tax:




The
Company had no revenue during the fiscal year ended May 31, 2008 and the fiscal
year ended May 31, 2007.  As a result, no income tax was paid during
the same period.







Liquidity
and Capital Resources:




As shown
in our accompanying financial statements, we had a net loss of $1,973,477 for
the fiscal year ended May 31, 2008 as compared to a net loss of US$3,847,414 for
the same periods in 2007. Our current liabilities exceeded our current assets by
$1,635,474 as of May 31, 2008.


22


As
disclosed before, the Company entered into a Memorandum of Understanding to sell
its Samsung business, the only IT business that the Company has remaining, and
focus on the growing Chinese vocational training marketplace. 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 of May 31, 2008, a
total of RMB 4,000,000 (US$528,419) and 997,550 shares of the Company’s common
stock had been received in connection with this disposal. This change likely
will have a very significant demand on our capital resources in the near
future.




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 ordinary 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;





●
            Raising
      additional capital; and





●
            Take
      measures to control cost and operating
expenses







Operating
activities:
  During
the fiscal year ended May 31, 2008, net cash used in operating activities was
$638,514,
compared to net cash used in operating activities of $639,882 during the fiscal
year ended May 31, 2007. The cash used in operating activities in the fiscal
year ended May 31, 2008 resulted from loss of $1,973,477 netted against, among
other things, stock option costs of $151,060, provision for investment of
$70,436 and goodwill impairment of $682,988. The cash used in operating
activities in the fiscal year ended May 31, 2007 resulted from loss of
$3,786,441 netted against, among other things, stock option costs of $484,308,
provision of assets pending for sale of $2,349,637, and prepaid expenses and
other receivables of $155,477.
  Investing
activities:
  Net cash
provided by investing activities during the fiscal year ended May 31, 2008 was
$524,844 compared to net cash used in investing activities of $82,264 for the
fiscal year ended May 31, 2007.  The cash provided by investment
activities in the fiscal year ended May 31, 2008 was due to the cash received
upon disposal of assets of $535,704 and cash decrease due to purchase of
property and equipment of $10,860. The cash used in investing activities in the
fiscal year ended May 31, 2007 was due to our ceasing operation (disposal) of
our subsidiary of $77,855 and purchase of property and equipment of $4,684
..


23


Financing
activities:
  Cash
provided by financing activities during the fiscal year ended May 31, 2008 was
$97,966 compared to net cash provided by financing activities of $276,658 during
the fiscal year ended May 31, 2007. Cash provided by financing activities during
the fiscal year ended May 31, 2008 was primarily due to $38,414 of sales of
common stock and proceeds of $59,552 from related parties . Cash Provided by
financing activities during the fiscal year ended May 31, 2007 was primarily due
to proceeds of $24,286 from related parties and $252,372 of sales of common
stock.


Research
and Development




Presently
the company is not undertaking any significant research and development
efforts.




Off-Balance
Sheet Arrangements




During
the fiscal year ended on May 31, 2008, the Company did not engage in any
off-balance sheet arrangements as defined in Item 303(a)(4) of the SEC’s
Regulation S-K.




ITEM
7A. 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 May 31, 2008,
all our cash equivalents represent cash on hand and cash deposit in PRC banks,
the interest rate earned on our money market accounts ranged from 0.81% to 1.71%
per annum.




Interest
Rate Risk




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




Impact
of Foreign Currency Rate Changes




Since we
translate foreign currencies (primarily Chinese Yuans and Hong Kong Dollars)
into US dollars for financial reporting purposes, currency fluctuations can have
an impact on our financial results. The historical impact of currency
fluctuations has generally been immaterial. We believe that our exposure to
currency exchange fluctuation risk is not significant primarily. 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 May 31, 2008, we did not engage in foreign currency hedging
activities.


24


ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.




The
consolidated financial statements of The Hartcourt Companies, Inc. and its
subsidiaries including the notes thereto, together with the report thereon of
Kabani & Company, Inc. are presented below.









REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM







To the
Stockholders and Board of Directors


The
Hartcourt Companies, Inc.





We have
audited the accompanying consolidated balance sheets of The Hartcourt Companies,
Inc., a Utah Corporation (the “Company”) as of May 31, 2008 and 2007 and the
related consolidated statements of operations, stockholders’ equity and cash
flows for the years ended May 31, 2008 and 2007. These financial statements are
the responsibility of the Company’s management. Our responsibility is to express
an opinion on these financial statements based on our audits.




We
conducted our audits of these statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of The Hartcourt Companies, Inc as of
May 31, 2008 and 2007 and the results of its operations and its cash flows for
the years ended May 31, 2008 and 2007, in conformity with accounting principles
generally accepted in the United States of America.





The
Company’s financial statements are prepared using the generally accepted
accounting principles applicable to a going concern, which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. The Company has accumulated deficit of $73,469,292 as of May 31, 2008
and negative cash flow from operations amounting $638,514 for the year ended May
31, 2008. These factors as discussed in Note 2 to the financial statements,
raises substantial doubt about the Company’s ability to continue as a going
concern. Management’s plans in regard to these matters are also described in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.






/s/
Kabani & Company, Inc.




CERTIFIED
PUBLIC ACCOUNTANTS





Los
Angeles, California





June 17,
2008.


25










THE
      HARTCOURT COMPANIES, INC. AND SUBSIDIARIESCONSOLIDATED
      BALANCE SHEETS




May
      31,2008
            
            
            2007ASSETCURRENT
      ASSETSCash
      and cash equivalents
            
            $
            4,907
            
            
            $
            20,611Prepaid
      expenses and other assets
            
            
            17,837
            
            
            
            41,549TOTAL
      CURRENT ASSETS
            
            
            22,744
            
            
            
            62,160PROPERTY
      & EQUIPMENT – NET
            
            
            23,772
            
            
            
            26,423ASSETS
      HELD FOR DISPOSITION – NET
            
            
            -
            
            
            
            575,369OTHER
      RECEIVABLE
            
            
            -
            
            
            
            100,600GOODWILL
            
            
            -
            
            
            
            651,082TOTAL
      ASSETS
            
            $
            46,516
            
            
            $
            1,415,634LIABILITIES
      AND SHAREHOLDERS’EQUITY
      (DEFICIT)CURRENT
      LIABILITIESAccounts
      payable
            
            $
            457,725
            
            
            $
            510,203Due
      to directors
            
            
            196,004
            
            
            
            332,952Accrued
      expenses and other current liabilities
            
            
            1,004,489
            
            
            
            376,292TOTAL
      CURRENT LIABILITIES
            
            
            1,658,218
            
            
            
            1,219,447SHAREHOLDERS’
      EQUITY (DEFICIT)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 authorizedMay
      31, 2008: 207,810,582 issued  205,761,854
      outstandingMay
      31, 2007: 207,130,725 issued 205,081,997 outstanding
            
            
            205,762
            
            
            
            205,082Additional
      paid in capital
            
            
            71,795,909
            
            
            
            71,570,246Treasury
      stock, at cost, 48,728 shares
            
            
            (48,728
            )
            
            
            (48,728
            )Other
      comprehensive loss
            
            
            (95,353
            )
            
            
            (34,598
            )Accumulated
      deficit
            
            
            (73,469,292
            )
            
            
            (71,495,815
            )TOTAL
      SHAREHOLDERS' EQUITY
            
            
            (1,611,702
            )
            
            
            196,187TOTAL
      LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
            
            $
            46,516
            
            
            $
            1,415,634




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








26





THE
      HARTCOURT COMPANIES, INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF OPERATIONS






For
      The Years
              Ended
      May 312008
            
            
            2007Net
      sales
            
            $
            -
            
            
            $
            -Operating
      expenses:General
      and administrative
            
            
            1,299,858
            
            
            
            1,330,560Depreciation
      and amortization
            
            
            13,510
            
            
            
            16,776Impairments-goodwill
            
            
            682,988
            
            
            
            -Total
      operating expenses
            
            
            1,996,356
            
            
            
            1,347,336Loss
      from continuing operationsbefore
      other income/(expenses)
            
            
            (1,996,356
            )
            
            
            (1,347,336
            )Other
      income/(expense):Interest
      income
            
            
            -
            
            
            
            688Loss
      from continuing operations
            
            
            (1,996,356
            )
            
            
            (1,346,648
            )Discontinued
      operations:Gain
      (loss)  from discontinued operations
            
            
            22,878
            
            
            
            (90,156
            )Provision
      for loss on disposal of assets pending for sales
            
            
            -
            
            
            
            (2,349,637
            )Income
      (loss) from discontinued operations
            
            
            22,878
            
            
            
            (2,439,793
            )NET
      LOSS
            
            
            (1,973,477
            )
            
            
            (3,786,441
            )OTHER
      COMPREHENSIVE ITEM:Foreign
      currency translation gain/(loss)
            
            
            (60,754
            )
            
            
            (60,973
            )NET
      COMPREHENSIVE LOSS
            
            $
            (2,034,231
            )
            
            $
            (3,847,414
            )BASIC
      AND DILUTED EARNINGS/(LOSSES)PER
      COMMON SHARE:Loss
      from continuing operations
            
            $
            (0.01
            )
            
            $
            (0.01
            )Earnings
      (loss) from discontinued operations
            
            $
            0.00
            
            
            $
            (0.01
            )Loss
      per share
            
            $
            (0.01
            )
            
            $
            (0.02
            )*
      Basic and fully diluted (weighted average)
            
            
            205,488,066
            
            
            
            197,512,791




The
      accompanying notes form an integral part of these 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.





27





THE
      HARTCOURT COMPANIES, INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF SHAREHOLDERS' EQUITYFOR
      THE FISCAL YEARS ENDED MAY 31, 2008 AND
2007








Additional
            
            
            
            
            
            
            
            
            
            
            
            Compre-
              hensive
            
            
            
            
            
            
            
            Total
              Shareholders'Common
      Stock
            
            
            
            paid
      In
            
            
            
            Treasury
      Stock
            
            
            
            Income
            
            
            
            Accumulated
            
            
            
            EquityShares
            
            
            
            Amount
            
            
            
            Capital
            
            
            
            Shares
            
            
            
            Amount
            
            
            
            (Loss)
            
            
            
            Deficit
            
            
            
            (Deficit)Balance
      -May 31,2006
            
            
            194,844,535
            
            
            
            194,845
            
            
            
            70,402,436
            
            
            
            48,728
            
            
            
            (48,728
            )
            
            
            26,375
            
            
            
            (67,709,374
            )
            
            
            2,865,554Shares
      issued for compensation and service
            
            
            1,128,344
            
            
            
            1,128
            
            
            
            62,239
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            
            63,367Shares
      issued for acquisition of China Princely
            
            
            5,400,000
            
            
            
            5,400
            
            
            
            372,600
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            378,000Shares
      issued for cash
            
            
            3,709,118
            
            
            
            3,709
            
            
            
            248,663
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            
            252,372Other
      comprehensive loss (foreign currency translation)
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            
            (60,973
            )
            
            -
            
            
            
            (60,973
            )Stock
      options issued for services
            
            
            -
            
            
            
            -
            
            
            
            484,308
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            484,308Net
      loss
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            
            (3,786,441
            )
            
            
            (3,786,441
            )Balance
      -May 31,2007
            
            
            205,081,997
            
            
            $
            205,082
            
            
            $
            71,570,246
            
            
            
            48,728
            
            
            $
            (48,728
            )
            
            $
            (34,598
            )
            
            $
            (71,495,815
            )
            
            $
            196,187Shares
      issued for compensation and service
            
            
            679,857
            
            
            
            680
            
            
            
            36,190
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            
            36,870Shares
      received from Huaqing
            
            
            -
            
            
            
            -
            
            
            
            69,829
            
            
            997,500
            
            
            (69,829)
            
            
            -
            
            
            -
            
            
            
            -Issuance
      of shares for cash
            
            
            -
            
            
            
            -
            
            
            
            (31,415
            )
            
            
            (997,500
            )
            
            
            69,829
            
            
            
            -
            
            
            
            -
            
            
            
            38,414Other
      comprehensive loss (foreign currency translation)
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            
            (60,754
            )
            
            -
            
            
            
            (60,754
            )Stock
      options issued for services
            
            
            -
            
            
            
            -
            
            
            
            151,060
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            151,060Net
      loss
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            
            (1,973,477
            )
            
            
            (1,973,477
            )Balance
      -May 31,2008
            
            
            205,761,854
            
            
            $
            205,762
            
            
            $
            71,795,909
            
            
            
            48,728
            
            
            $
            (48,728
            )
            
            $
            (95,353
            )
            
            $
            (73,469,292
            )
            
            $
            (1,611,702
            )








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





28


THE
      HARTCOURT COMPANIES, INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF CASH FLOWS(continued)




For The Fiscal Years Ended May
      312008
                
                
                2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                
                $
                (1,973,477
                )
                
                $
                (3,786,441
                )Adjustments
      to reconcile net loss tonet
      cash used in operating activities:(Gain)
      loss on disposal /assets pending for sale
                
                
                (22,832
                )
                
                
                2,349,637Depreciation
                
                
                13,510
                
                
                
                16,776Provision
      for investment
                
                
                70,436
                
                
                
                -Goodwill
      impairment
                
                
                682,988
                
                
                
                -Stock
      options issued for services
                
                
                151,060
                
                
                
                484,308Stock
      issued for services and compensations
                
                
                36,190
                
                
                
                63,367Changes
      in operating assets and liabilities:Prepaid
      expenses and other receivables
                
                
                23,712
                
                
                
                155,477Accounts
      payable
                
                
                (52,478
                )
                
                
                (47,930
                )Accrued
      expenses and other current liabilities
                
                
                432,377
                
                
                
                34,768NET
      CASH USED IN CONTINUED OPERATIONS
                
                
                (638,514
                )
                
                
                (730,038
                )NET
      CASH PROVIDED BY DISCONTINUED OPERATIONS
                
                
                -
                
                
                
                90,156NET
      CASH USED INOPERATING
      ACTIVITIES
                
                
                (638,514
                )
                
                
                (639,882
                )CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of property and equipment
                
                
                (10,860
                )
                
                
                (4,684
                )Proceeds
      from disposal of Subsidiary
                
                
                535,704
                
                
                
                275NET
      CASH PROVIDED BY (USED IN) CONTINUED OPERATIONS
                
                
                524,844
                
                
                
                (4,409
                )NET
      CASH USED IN DISCONTINUED OPERATIONS
                
                
                
                
                
                
                (77,855
                )NET
      CASH PROVIDED BY (USED IN)INVESTING
      ACTIVITIES
                
                
                524,844
                
                
                
                (82,264
                )








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


29





THE
      HARTCOURT COMPANIES, INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF CASH FLOWS(continued)




For
      The Fiscal Years EndedMay
      312008
              
              
              2007CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      on sale of common stock
              
              
              38,414
              
              
              
              252,372Proceeds
      from (payments to) related parties-net
              
              
              59,552
              
              
              
              24,286NET
      CASH PROVIDED BY (USED IN) CONTINUED OPERATIONS
              
              
              97,966
              
              
              
              276,658NET
      CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS
              
              
              -
              
              
              
              -NET
      CASH USED IN FINANCING ACTIVITIES
              
              
              97,966
              
              
              
              276,658EFFECT
      OF EXCHANGE DIFFERENCE
              
              
              -
              
              
              
              65,427NET
      DECREASE IN CASH & CASH EQUIVALENT
              
              
              (15,704
              )
              
              
              (380,061
              )CASH
      AND CASH EQUIVALENTS -BEGINNING
      OF PERIOD
              
              
              20,611
              
              
              
              400,672CASH
      AND CASH EQUIVALENTS - END OF PERIOD
              
              $
              4,907
              
              
              $
              20,611SUPPLEMENTAL
      DISCLOSURE OF CASH FLOWSCash
      paid for interest
              
              $
              -
              
              
              $
              -Cash
      paid for income taxes, net of refund received
              
              $
              -
              
              
              $
              -NON-CASH
      INVESTING AND FINANCING ACTIVITIES:In
      Conjunction with acquisition/disposal of subsidiaries:Fair
      value of shares issued/received
              
              $
              69,829
              
              
              $
              378,000




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


30


THE
HARTCOURT COMPANIES, INC. AND SUBSIDIARIES


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS


May
31, 2008 AND 2007








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 May
15, 2007, the Company completed the acquisition of 100% of the equity interest
in China Princely pursuant to the purchase agreement. China Princely has changed
its name to Hartcourt Princely Education Technology Development (Beijing) Co.,
Ltd (“Hartcourt Princely”). The purchase price is US$38,462 (RMB300,000) and
5,400,000 shares of the Company’s restricted common stock.





As of May
31, 2008, the Company owns 100% of three (3) British Virgin Island (“BVI”)
incorporated companies: (1) Hartcourt China Inc., (2) Hartcourt Capital Inc.,
and (3) AI-Asia Inc. All three of these BVI subsidiaries are holding companies
for assets located in China.





As of May
31, 2008, Hartcourt Capital Inc. owns 100% of Hartcourt Hi-Tech Investment
(Shanghai) Inc. while Hartcourt Hi-Tech Investment (Shanghai) Inc., use its
employees as nominees, owns 100% of Shanghai Jiumeng Information Technology Co.,
Ltd. These two companies are located in Shanghai, China. In April 2007, the
Company decided to wind up Hartcourt Hi-Tech Investment (Shanghai)
Inc.





As of May
31, 2008, AI-Asia, Inc., the third holding company, owns 100% equity of
Hartcourt Education Investment Management Consulting (Shanghai) Co., Ltd (former
name is AI-Asia (Shanghai) Information Technology, Inc),, located in Shanghai,
China, and owns 100% equity of China Princely Education Technology Development
Company Limited (“China Princely”).





As of May
31, 2007, Hartcourt Education Investment Management Consulting (Shanghai) Co.,
Ltd owns 100% equity of Hartcourt Princely Education Technology Development
(Beijing) Co., Ltd. Hartcourt Princely is located in Beijing,
China.





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





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. In addition, a
shareholder of Shanghai Huaqing returned 997,500 shares of our common stock to
the Company. As of May 31, 2008, a total of RMB 4,000,000 (US$516,670) and
997,550 shares of the Company’s common stock had been received in connection
with this disposal.




As of May
31, 2008, the Company has classified the Shanghai Huaqing business as
discontinued operation. (See note 13)




31


NOTE 2 SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES




a) Basis of
Consolidation




Per
Statement of Financial Accounting Standard (SFAS) #141, all business
combinations will be accounted for by the purchase method. Acquisitions were
recorded as purchases in accordance with Accounting Principles Board Opinion No.
16 (APB #16), “Business Combinations”, as modified, and the purchase prices were
allocated to the assets acquired, and liabilities assumed based upon their
estimated fair value at the purchase date. The excess purchase price over the
net asset value has been recorded as goodwill and is included in intangibles in
the accompanying balance sheet. The operating results of the acquired entities
are included in the Company’s consolidated financial statements from the dates
of acquisition.




For
purposes of these consolidated financial statements, the Hartcourt Companies
Inc. and its subsidiaries are referred to collectively as the "Company" or
"Hartcourt".  The accompanying consolidated financial statements for
the Company include the accounts balances of its majority owned
subsidiaries.




All
material inter-company balances and transactions have been eliminated in
consolidation.




b) Use of Estimates




The
preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the consolidated
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.




c) Cash and Cash
Equivalents




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




d)Prepaid
expenses




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




Prepaid
expenses generally will be amortized in equal installments and charged as costs
or expenses of periods benefiting within one year. If certain prepaid expense
item cannot benefit the company any more, its un-amortized amount is recorded as
an expense for the current period. Prepaid expenses amounted to $17,837 and
$41,549 at May 31, 2008 and 2007 respectively and is included in “Prepaid
expenses and other assets” in the accompanying financial
statements.




e) Property and
Equipment




Property
and equipment are recorded at cost. Depreciation is computed using the
straight-line method over useful lives of 5 to 40 years. The cost of assets sold
or retired and the related amounts of accumulated depreciation are removed from
the accounts in the year of disposal. Any resulting gain or loss is reflected in
current operations. Assets held under capital leases are recorded at the lesser
of the present value of the future minimum lease payments or the fair value of
the leased property. Expenditures for maintenance and repairs are charged to
operations as incurred.




f) Intangible Assets




The
Company evaluates intangible assets for impairment, at least on an annual basis
and whenever events or changes in circumstances indicate that the carrying value
may not be recoverable from its estimated future cash flows. Recoverability of
intangible assets, other long-lived assets and, goodwill is measured by
comparing their net book value to the related projected undiscounted cash flows
from these assets, considering a number of factors including past operating
results, budgets, economic projections, market trends and product development
cycles. If the net book value of the asset exceeds the related undiscounted cash
flows, the asset is considered impaired, and a second test is performed to
measure the amount of impairment loss.


32





g) 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 May 31, 2008, there were no significant impairments of its
long-lived assets used in operations.




h) 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.




i) 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.




j) 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.




k)     Fair
Value of Financial Instruments




Statement
of financial accounting standard No. 107, Disclosures about fair value of
financial instruments, requires that the Company disclose estimated fair values
of financial instruments. The carrying amounts reported in the statements of
financial position for current assets and current liabilities qualifying as
financial instruments are a reasonable estimate of fair value.




33


The
Company’s financial instruments consists of primarily cash, accounts receivable,
notes and other receivables, investments, advances, accounts payable and accrued
expenses, notes payable and loans payable, and other current liabilities which
approximates fair value because of the relatively short maturity of those
instruments.




l) 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.




m) Statement of Cash
Flows




In
accordance with Statement of Financial Accounting Standards No. 95, "Statement
of Cash Flows," cash flows from the Company's operations is calculated based
upon the local currencies. As a result, amounts related to assets and
liabilities reported on the statement of cash flows will not necessarily agree
with changes in the corresponding balances on the balance sheet.




n) Segment Reporting




Statement
of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosure about
Segments of an Enterprise and Related Information" requires use of the
"management approach" model for segment reporting. The management approach model
is based on the way a company's management organizes segments within the company
for making operating decisions and assessing performance. Reportable segments
are based on products and services, geography, legal structure, management
structure, or any other manner in which management disaggregates a company. SFAS
131 has no effect on the Company’s consolidated financial statements as the
Company consists of one reportable business segment. All revenue is from
customers in People's Republic of China. All of the Company’s assets are located
in People's Republic of China.




o) Recently Issued Accounting
Standards




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


34





a)
            A
      brief description of the provisions of this
  Statement





b)
            The
      date that adoption is required





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







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




In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements”. This Statement amends ARB 51 to establish
accounting and reporting standards for the noncontrolling (minority) interest in
a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements. SFAS No. 160 is effective for the Company’s fiscal year
beginning October 1, 2009. Management is currently evaluating the effect of this
pronouncement on financial statements.





In March
2008, the FASB issued FASB Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities. The new standard is intended to improve
financial reporting about derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to better understand their
effects on an entity’s financial position, financial performance, and cash
flows. It is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. The new standard also improves transparency about the location and
amounts of derivative instruments in an entity’s financial statements; how
derivative instruments and related hedged items are accounted for under
Statement 133; and how derivative instruments and related hedged items affect
its financial position, financial performance, and cash flows. Management is
currently evaluating the effect of this pronouncement on financial
statements.





In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”. This
Statement replaces SFAS No. 141, Business Combinations. This Statement retains
the fundamental requirements in Statement 141 that the acquisition method of
accounting (which Statement 141 called the purchase method) be used for all
business combinations and for an acquirer to be identified for each business
combination. This Statement also establishes principles and requirements for how
the acquirer: a) recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree; b) recognizes and measures the goodwill acquired in
the business combination or a gain from a bargain purchase and c) determines
what information to disclose to enable users of the financial statements to
evaluate the nature and financial effects of the business combination. SFAS No.
141(R) will apply prospectively to business combinations for which the
acquisition date is on or after Company’s fiscal year beginning October 1, 2009.
While the Company has not yet evaluated this statement for the impact, if any,
that SFAS No. 141(R) will have on its consolidated financial statements, the
Company will be required to expense costs related to any acquisitions after
September 30, 2009.





35




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




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







NOTE
3  EARNINGS/(LOSSES) PER SHARE





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




May 31,
              2008
            
            
            May 31,
              2007Net
      loss
            
            $
            (1,973,477
            )
            
            $
            (3,786,441
            )Effects
      of dilutive securities
            
            
            -
            
            
            
            -Weighted
      average shares outstanding
            
            
            205,488,066
            
            
            
            197,512,791Basic
      and dilutive earnings/(losses) per share
            
            $
            (0.01
            )
            
            $
            (0.01
            )





As of May
31, 2008, we 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 total
number of shares of stock which the Company has the authority to issue is
434,999,000 consisting of 424,999,000 shares of common stock, $0.001 par value,
1,000 shares of original preferred stock, $0.01 par value (the Original
Preferred Stock), and 10,000,000 shares of Class A preferred stock. The total
number of shares of the Company’s common stock outstanding as of May 31, 2008
and May 31, 2007 are 205,761,854 and 205,081,997 respectively.





b)
Original Preferred Stock





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.





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 May 31,
2008.


36





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 Year





Following
is the summary of equity transactions during the year ended May 31,
2008.





On July
1, 2007, the Company issued 310,000 unregistered shares of common stock valued
at US$22,104 in lieu of cash payment for director service compensation, which
were approximately equal to the fair market value of the stock at issue
date.





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





On
October 1, 2007, we issued 73,120 unregistered shares of our common stock to
Geoffrey Wei and Wilson Li valued at US$2,897 as of the date of issuance in lieu
of cash compensation for director service.




On March
1, 2008, we issued 296,737 shares of our common stock valued to Grophia Zhang,
Mingdian Chen, Feng Wang, Faming Zhang, Yanjin Qiu, Yuekang Wang and Xianghua Qi
valued at $11,869 as of the date of issuance in lieu of cash compensation for
employment.




Following
is the summary of equity transactions during the year ended May 31,
2007.





On June
20, 2006, we issued 200,000 shares of our common stock valued at $6,000 in lieu
of cash payment for consulting service, which were approximately equal to the
fair market value of the stock at issue date.





On July
5, 2006, we issued 232,000 shares of our common stock valued at $9,875 in lieu
of cash payment for director service compensation, which were approximately
equal to the fair market value of the stock at issue date.





On
October 1, 2006, we issued 253,168 shares of our common stock valued at $14,000
in lieu of cash payment for director service compensation, which were
approximately equal to the fair market value of the stock at issue
date.





On
December 4, 2006, we issued 3,709,118 shares of our common stock in an offshore
transaction under Regulation S to Mr. Gang Liu and Mr. Jun Xu at US$0.068 per
share for gross proceeds of US$252,372. Proceeds will be used for working
capital.





On
January 1, 2007, we issued 196,450 shares of our common stock valued at $14,000
in lieu of cash compensation for director service compensation, which were
approximately equal to the fair market value of the stock at issue
date.




On
January 1, 2007, we issued 95,474 shares of our common stock valued at $6,492 in
lieu of cash payment for employee service compensation, which were approximately
equal to the fair market value of the stock at the issuance date.





On Apr 1,
2007, we issued 151,252 shares of our common stock valued at $13,000 in lieu of
cash compensation for director service compensation, which were approximately
equal to the fair market value of the stock at issue date.





On
May 21, 2007, we issued 5,400,000 shares of our common stock valued at $378,000
for acquisition of China Princely, which were approximately equal to the fair
market value of the stock at issue date.





37


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 stock option plan adopted in year 1995 expired in March 2005
pursuant to its terms.




The board
of directors has proposed a new stock option plan in year 2005 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 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, and (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 Plan are
restricted as to sale or transfer.




The 2005
stock option plan was approved at the November 23, 2005 annual shareholders
meeting.




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




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
excise price of $0.04 according to the following vesting schedule and based on
the Company’s employee compensation 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







Following
assumption is 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




38





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 excise price of
$0.05. The option will vest on September 28, 2007 and is exercisable within five
years time after vesting.




Following
assumption are 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 excise price of $0.05. Each option will vest on August 23, 2007
and is exercisable within five years time after vesting.




Following
assumption are 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 in connection of this decision granted to Mr. Zhou options to
purchase a total of 11,000,000 shares of the Company’s common stock at excise
price of $0.05 according to the following vesting schedule and based on the
employee compensation 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.





Following
assumption are 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
following table summarizes the activity of stock options:




Number
      ofShares
            
            
            
            Weighted
              Average
              Price
            
            
            
            AggregateIntrinsicValueShares
      under option at May 31, 2005
            
            
            27,600,000
            
            
            $
            0.14
            
            
            $
            323,000Granted
            
            
            1,000,000
            
            
            $
            0.09ExercisedExpired
            
            
            4,000,000
            
            
            $
            0.207CancelledShares
      under option at May 31, 2006
            
            
            24,600,000
            
            
            $
            0.127
            
            
            $
            0-Granted
            
            
            29,000,000
            
            
            $
            0.05Exercised
            
            
            -
            
            
            
            -Expired
            
            
            3,000,000
            
            
            $
            0.30Cancelled
            
            
            16,000,000
            
            
            $
            0.09Share
      under option at May 31, 2007
            
            
            34,600,000
            
            
            $
            0.06
            
            
            $
            690,000Granted
            
            
            -
            
            
            
            -Exercised
            
            
            -
            
            
            
            -Expired
            
            
            -
            
            
            
            -Cancelled
            
            
            -
            
            
            
            -Share
      under option at May 31, 2008
            
            
            34,600,000
            
            
            $
            0.06
            
            
            $
            690,000




39




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




WeightedNumber
      of
            
            Average
            
            Weighted
            
            Number
            
            WeightedRange
      of
            
            Outstanding
      at
            
            Remaining
            
            Average
            
            Exercisable
      at
            
            AverageExercise
            
            May
      31,
            
            Contractual
            
            Exercise
            
            May
      31,
            
            ExercisePrice
            
            2008
            
            Life
            
            Price
            
            2008
            
            Price$0.04
      - $0.05
            
            29,000,000
            
            4.2
      Year
            
            $0.05
            
            18,250,000
            
            $0.05$0.09
            
            5,300,000
            
            2.8
      Year
            
            $0.09
            
            5,300,000
            
            $0.09$1.00
            
            300,000
            
            0.04
      Year
            
            $1.00
            
            300,000
            
            $1.00







During
the year ended May 31, 2008, a total of 14,500,000 options vested and the
Company recorded $151,060 in stock based compensation expense.




b)
Warrants




There are
no warrants outstanding for the year ended May 31, 2008.


In
connection with signing a private placement of Hartcourt shares with Enlight
Corporation Ltd., on October 23, 2002, Hartcourt granted Enlight warrants to
purchase 29,010,239 shares at the price doubling the trading price on the
issuance date. The warrants expired on October 22, 2005. On March 11, 2004,
Hartcourt have been informed by Enlight that all of its warrants will not be
exercised unless a buy-out of Hartcourt (either by management or by third
parties), should Hartcourt agree to extend the validity of the warrants until
October 22, 2009. The Company has not extended the validity of warrants and
these warrants expired as of May 31, 2008.





NOTE
5   GOING CONCERN





As shown
in the accompanying consolidated financial statements, the Company has suffered
recurring losses from operations and has an accumulated deficit of $73,469,292
and $71,495,815 as of May 31, 2008 and May 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.


40





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 placements to satisfy
working capital requirements.





NOTE
6  PREPAID EXPENSES AND OTHER ASSETS




Deposit,
other debtors and prepaid expenses as of May 31, 2008 and 2007 are summarized as
follows:




May
      31, 2008
            
            
            May
      31, 2007Prepaid
      expenses
            
            $
            196
            
            
            $
            496Deposits
            
            
            17,641
            
            
            
            41,053Total
            
            $
            17,837
            
            
            $
            41,549





NOTE
7    ACCRUED EXPENSES AND OTHER CURRENT
LIABILITIES




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




Amount
            
            
            AmountMay
      31, 2008
            
            
            May
      31, 2007Accrued
      rental fee
            
            $
            -
            
            
            $
            3,412Accrued
      professional fees
            
            
            148,675
            
            
            
            83,235Accrued
      other expenses
            
            
            518,092
            
            
            
            34,631Tax
      payable
            
            
            126
            
            
            
            904Payroll
      payable
            
            
            29,371
            
            
            
            21,690Welfare
            
            
            10,108
            
            
            
            9,588Other
      payable
            
            
            298,117
            
            
            
            222,832Total
            
            $
            1,004,489
            
            
            $
            376,292







NOTE
8  PROPERTIES AND EQUIPMENT




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




May
      31, 2008
            
            
            May
      31, 2007Office
      equipment and computers
            
            
            $
            72,032
            
            
            $
            61,172Less:
      accumulated depreciation
            
            
            
            (48,260
            )
            
            
            (34,749
            )Property
      and equipment, net
            
            
            $
            23,772
            
            
            $
            26,423





NOTE
9 DUE TO DIRECTORS




The
amount due to directors as of May 31, 2008 and 2007 represents director fee due
to the Company’s directors. The amount due to directors is interest free without
maturity date.





NOTE
10   RELATED PARTY TRANSACTIONS





The
following is a summary of related party transactions for the year ended May 31,
2008:


41





During
the year ended May 31, 2008, Hartcourt issued 383,120 shares of common stock
valued at $25,001 to its directors in lieu of cash compensation. The stocks were
valued at the average market price for the period for which service were
provided.




The
following is a summary of related party transactions for the year ended May 31,
2007:




During
      the fiscal year ended May 31, 2007, Hartcourt issued 832,870 shares of our
      common stock valued at $50,875 to its directors in lieu of cash
      compensation. The stocks were valued at the average market price for the
      period for which service were
provided.





NOTE 11   IMPAIRMENT OF
GOODWILL





The
Company evaluates intangible assets and other long-lived assets for impairment,
at a minimum, on an annual basis and whenever events or changes in circumstances
indicate that the carrying value may not be recoverable from its estimated
future cash flows. Recoverability of intangible assets, other long-lived assets
and goodwill is measured by comparing their net book value to the related
projected undiscounted cash flows from these assets, considering a number of
factors including past operating results, budgets, economic projections, market
trends and product development cycles. If the net book value of the asset
exceeds the related undiscounted cash flows, the asset is considered impaired,
and a second test is performed to measure the amount of impairment loss. The
Company assessed the carrying value of goodwill in accordance with the
requirements of SFAS #142 "Goodwill and Other Intangible Assets".  Based on
its assessment, the Company determined that goodwill resulting from the
acquisition of China Princely amounted to US$682,988 is fully impaired as of May
31, 2008.





NOTE
12  DISCONTINUED OPERATIONS





Shanghai
Huaqing Corporation Development Co., Ltd.





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





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





On June
13, 2007, the Board of Directors of the Company authorized the disposal of its
51% interest in Shanghai Huaqing to its minority shareholders. In addition, a
shareholder of Huaqing Shanghai returned 997,500 shares of our common stock to
the Company. As of May 31, 2008, a total of RMB 4,000,000 (US$528,419) and
997,550 shares of the Company’s common stock had been received in connection
with this disposal.





Following
is the summary of net assets held for disposition as of May 31:





2008
            
            
            2007Current
      assets
            
            $
            -
            
            
            $
            14,715,732Property
      & equipment
            
            
            -
            
            
            
            30,851Current
      liabilities
            
            
            -
            
            
            
            9,011,278Net
      assets
            
            
            -
            
            
            
            5,735,304Less:
      Minority interest
            
            
            -
            
            
            
            2,810,298Majority
      interest
            
            
            -
            
            
            
            2,925,006Less:
      Provision against disposal loss
            
            
            -
            
            
            
            (2,349,637
            )Net
      assets held for disposition
            
            $
            -
            
            
            $
            575,369








42






During
the year ended May 31, 2008, revenue from Huaqing amounted to $2,020,501 while
net income/(loss) prior to income tax amounted to $15,529 reported in the
discontinued operations in the accompanied consolidated financial
statements.
  NOTE
13      COMMITMENTS AND CONTINGENCIES





a)
Employment Agreements




The
current senior management consists of a Chief Executive Officer (“CEO”) and a
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.




On
September 1, 2006, the Board of Directors of the Company promoted Mr. Victor
Zhou to be the 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 $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 excise
price of $0.05. The stock option vesting schedule is as following. These options
replace the options that were granted on June 1, 2006.:




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




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




n
            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 $150,000 effective September 1, 2006. The options remain
unchanged.




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







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




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




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




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




Mr. Hu’s
employment contract terminated on May 31, 2008, and, unless exercised by Mr. Hu,
his option will expire on August 31, 2008.




b)
Operating Leases




The
Company leases its offices and facilities under long-term, non-cancelable lease
agreements expiring at various dates through January 27, 2010. The
non-cancelable operating lease agreements provide that the Company pays certain
operating expenses applicable to the leased premises according to the Chinese
Law. Rental expense for the fiscal year ended May 31, 2008 and 2007 were $87,391
and$38,240, respectively.




In
January 2008, the Company moved its principal office to a new place and entered
into a 2-year non-cancelable lease agreement.




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




Year
      Ending May 31
              
              Payments2009
              
              $
              33,5902010
              
              $
              18,570







c) Legal
Proceedings




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





43


On August
10, 2007, Hartcourt Capital Inc filed a lawsuit in the Beijing No. 1
Intermediate People’s Court against Beijing Yi Zhi He Lian Information
Technology Co., Ltd to return the RMB 1,000,000 which it owes the Company. The
lawsuit is in the initial stage and the outcome cannot be estimated as of May
31, 2008.





NOTE 14 INCOME TAXES
 
 As of the
fiscal years ended May 31, 2008 and May 31, 2007, the Company had a net
operating loss for tax purposes of approximately $1,349,000 and $3,377,000,
respectively. The net operating loss carry forward may be used to reduce taxable
income through the year 2027.
 
 The gross
deferred tax asset balance as of May 31, 2008 and May 31, 2007 was $1,306,000
and $1,306,000 respectively. A 100% valuation allowance has been established
against the deferred tax assets, as the utilization of the loss carry forward
cannot reasonably be assured. Components of deferred tax asset are as
follows:
  May
      31, 2008
              
              
              May
      31, 2007Deferred
      tax asset
              
              $
              1,007,000
              
              
              $
              1,306,000Less:
      valuation allowance
              
              
              (1,007,000
              )
              
              
              (1,306,000
              )$
              -
              
              
              $
              -
 
 The
following is a reconciliation of the income tax rate to the income taxes
reflected in the Statement of Operations:
 
 May
      31, 2008
              
              
              May
      31, 2007Tax
      expense (credit) at statutory rate-federal
              
              $
              (770,000
              )
              
              $
              (1,188,000
              )State
      tax expense (credit) net of federal tax
              
              
              (237,000
              )
              
              
              (118,000
              )Valuation
      allowance
              
              
              1,007,000
              
              
              
              1,306,000Foreign
      income tax
              
              
              -
              
              
              
              -Tax
      expense at actual rate
              
              $
              -
              
              
              $
              -







NOTE
15  CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS





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





NOTE
16  SUBSEQUENT EVENTS





On June
13, 2008, the Company entered into a definitive agreement to purchase 60% of the
outstanding equity of Beijing Yanyuan.


44




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




NOTE
17  RECLASSIFICATION




Certain
prior period amounts have been reclassified to conform to the year ended May 31,
2008 presentation.




45


ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.




None.




ITEM
9A. CONTROLS AND PROCEDURES.




We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed by us in the reports that we file or submit
to the Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended, is recorded, processed, summarized and reported within the
time periods specified by the Securities and Exchange Commission’s rules and
forms, and that information is accumulated and communicated to our management,
including our Chief Executive Officer and our Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosure. The
effectiveness of our disclosure controls and procedures is subject to certain
limitations, including the exercise of judgment in designing, implementing and
evaluating the controls and procedures, the assumptions used in identifying the
likelihood of future events, and the inability to eliminate errors or misconduct
completely. As a result, there can be no assurance that our disclosure controls
and procedures will detect all errors or fraud. By their nature, any system of
internal control, including our system, can provide only reasonable assurance
regarding management’s control objectives.




Under the
supervision and with the participation of our management, including our Chief
Executive Officer and our Chief Financial Officer, we evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of
1934) as of May 31, 2008, the end of the period covered by this report. Based on
that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective as of May
31, 2008.







Management
does not expect that the Company’s disclosure controls and procedures or its
internal control over financial reporting will prevent or detect all errors and
all fraud. A control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the objectives of the
control systems are met. Further, the design of a control system must reflect
the fact that there are resource constraints, and the benefits of controls must
be considered relative to their costs. Because of the inherent limitations in a
cost-effective control system, no evaluation of internal control over financial
reporting can provide absolute assurance that misstatements due to error or
fraud will not occur or that all control issues and instances of fraud, if any,
within the Company have been detected.




These
inherent limitations include the realities that judgments in decision-making can
be faulty and that breakdowns can occur because of a simple error or mistake.
Controls can also be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of the controls. The
design of any system of controls is based in part on certain assumptions about
the likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future
conditions. Projections of any evaluation of controls effectiveness to future
periods are subject to risks. Over time, controls may become inadequate because
of changes in conditions or deterioration in the degree of compliance with
policies or procedures.





Changes
in Internal Control over Financial Reporting




During
the fiscal year ended May 31, 2008, there was no change in our internal control
and procedures over financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act) that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.




Management’s
Report on Internal Control Over Financial Reporting




Our
management’s report on internal control over financial reporting included in
Part II, Item 9A, on page56, of this Form
10-K.




ITEM
9B. OTHER INFORMATION.




None.




46







PART
III







ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.




Board
of Directors




The
following table sets forth certain information regarding our Board of Directors
and Executive Officers, as of August 17, 2008:




Director
      Name
            Age
            PositionVictor
      Zhou
            39
            Chief
      Executive Officer and DirectorZhenyu
      Hu
            31
            Director,
              President
      of subsidiaryWilson
      W. S. Li(2)(3)
            46
            DirectorStephen
      Tang(1)(3)
            54
            DirectorGeorge
      Xu(1)(2)
            41
            Director







There are
no family relationships between any director or executive officer and any other
director or executive officer of Hartcourt. With the exception of Mr. Zhou and
Mr. Hu, all directors are independent under the independence standards
applicable to the Company.




(1)
Member of the Audit Committee




(2)
Member of the Compensation Committee




(3)
Member of the Nomination Committee




Set forth
below is the biographical information on all directors.




VICTOR
ZHOU, age 39 Victor Zhou has been a director of the Company since
2004.  Mr. Zhou was acting Chief Executive Officer from June 1, 2006
to August 31, 2006.  On September 1, 2006 Mr. Zhou was appointed Chief
Executive Officer of the Company.  Previously, Mr. Zhou was the
President of Fixed Assets Investment of Huatai Securities, one of the top ten
securities firms in China, since November 2003. He was with Huatai Securities
since 1997 and served in other senior management positions with increasing
responsibilities. Before joining Huatai Securities, Mr. Zhou was the General
Manager with Jiangsu Securities from 1993 until 1997. Mr. Zhou has extensive
experiences in securities trading, private equity investment, and asset
management. Mr. Zhou received his B.A. in Economics from Hunan University and
EMBA degree from China Europe International Business School.




ZHENYU
HU, age 31. Mr. Hu has been the president of Beijing Yanyuan Rapido Education
Company (“Beijing Yanyuan”) since December 2004. He is the
editor of the magazine “Successful Way,” and has been the director of the
Science Park of Peking University since 2002.  He is also a well-known
speaker in the education and training areas. He has appeared in numerous
newspaper articles and television programs, and has published many articles and
books on education.





WILSON
W.S. LI, age 46. Wilson W.S. Li has been a director of Company since
2004.  Dr. Li has been the First Vice President of Shenzhen Capital
Group, the largest Chinese investment holding company, since August 1999. Prior
to that, he served in the Shenzhen Planning Bureau. Dr. Li has extensive
experience in fund management, risk control, investment, and international
business. Dr. Li received his Masters degree in Social Science from Zhongshan
University, Ph.D. in Management Science from Xian Jiaotong University and Ph.D.
in Public Administration & Government Policy from the Chinese Academy of
Social Science.




STEPHEN
TANG, age 54.  Mr. Tang is the Chairman of Mega Pacific Capital Inc.,
a financial service company based in Hong Kong.  He is also the Chief
Operating Officer of Viasa Gem Fund Ltd Pty, a private equity located in Hong
Kong.  Mr. Tang has over 30 years of experience in senior management
of financial services companies.  He served as a director of Fintel
(USA) Ltd., a financial data services company, from 1984 through
2004.  Mr. Tang has served previously as a director of two other
public companies: Elephant Talk Communications Inc. (telecommunications) and
Sancon Resources Recovery Inc. (recycling).  Mr. Tang received his BBM
in Business Management from Hong Kong Baptist University and his MBA from the
Asian Institute of Management.  Mr. Tang is a resident of Hong
Kong.







47


GEORGE
XU, age 41. Mr. Xu is a partner in the G&D Law Firm, a position he has held
since September 2002.  Mr. Xu has been engaged in the practice of law
for 17 years. He is a registered lawyer in China, and is a qualified securities
legal adviser under Chinese law.  He has considerable experience in
establishing joint ventures and advising companies on acquisitions in
China.





Section 16(a)
Beneficial Ownership Reporting Compliance.





Section 16(a)
of the Securities Exchange Act of 1934, as amended, requires our officers and
directors, and persons who own more than 10% of a registered class of our equity
securities, to file reports of ownership on Form 3 and changes in ownership on
Form 4 or Form 5 with the SEC. Such officers, directors and 10% stockholders are
also required by SEC rules to furnish us with copies of all forms they file
pursuant to Section 16(a).




Based
solely on our review of the copies of such forms received by us, or written
representations from certain reporting persons, we believe that, for the fiscal
year ended May 31, 2008, all Section 16(a) filing requirements applicable
to our officers, directors and 10% stockholders were complied with.





Code
of Ethics




We have
adopted a corporate code of ethics, which is applicable to our principal
officers. A copy of the code of ethics is filed as an exhibit to this annual
report. We believe that our code of ethics is reasonably designed to deter
wrongdoing and promote honest and ethical conduct; provide full, fair, accurate,
timely and understandable disclosure in public reports; comply with applicable
laws; ensure prompt internal reporting of violations of our code of ethics; and
provide accountability for adherence to our code of ethics.  A copy of
the code of ethics is available without charge to any person who submits a
written request Ms. Mary Qi, The Hartcourt Companies, Inc., Room 706, Silver
Tower, No. 933, West Zhongshan Road, Shanghai, China 200051.




Changes
to Security Holder Recommendation Procedures for Nominees to Board of
Directors




None.




Audit
Committee and Audit Committee Financial Expert




The
Company has a separately designated standing audit committee established in
accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934,
as amended. The audit committee oversees the accounting and financial reporting
process and the external audit process of the Company and assists the board of
directors in the oversight and monitoring of (i) the integrity of the
financial statements of the Company, (ii) the internal accounting and
financial controls of the Company, (iii) compliance with legal and
regulatory requirements, and (iv) the qualifications, performance, and
independence of the Company’s independent registered public accounting firm. In
this capacity, the audit committee is responsible for appointing, approving the
compensation of, and overseeing the work of the independent registered public
accounting firm. In addition, the audit committee reviews and approves all work
performed by the independent registered public accounting firm. The audit
committee meets regularly with management and with our independent registered
public accounting firm, which has access to the audit committee without the
presence of management representatives.  Currently, George Xu and
Stephen Tang serve as members of the Audit Committee. During the fiscal year
ended May 31, 2008, Billy Wang and Wilson Li also served as members of the Audit
Committee. Both Mr. Xu and Mr. Tang are independent under applicable securities
laws and regulations. Mr. Tang is the Chairman of the Audit Committee, and is
the Committee’s financial expert as that term has been defined under the rules
and regulations of the SEC.





The Audit
Committee held one meeting in the fiscal year ended May 31, 2008, with all
members attending this meeting.




48





ITEM 11. EXECUTIVE
COMPENSATION.









SUMMARY
      COMPENSATION TABLE






Name
      and Principal
              Position
            Year
            Salary
      (US$)
            Bonus
              (US$)
            Stock
              Awards
              (US$)
            Option
              Awards
              (US$)
            Non-equity
              Incentive
      Plan Compensation
              (US$)
            Change
      in
              Pension
      Value
              and
      Nonqualified
              Deferred
              Compensation
              Earnings
              (US$)
            All
              Other
              Compensation
              (US$)
            TotalMr.
      Victor Zhou, CEO
            2008
              2007
            150,000(1)
              137,500(1)
            --
              --
            3,625(2)
            225,350(3)
            --
              --
            --
              --
            --
              --
            150,000
              362,850Mr.
      Yungeng Hu,
              CFO
      and President(4)
            2008
              2007
            150,000(5)
              150,000(5)
            --
              --
            --
              --
            180,238(6)
            --
              --
            --
              --
            --
              --
            150,000
              330,238


Explanatory
Notes:




(1)               On
June 1, 2006, the Board of Directors of the Company appointed Mr. Zhou to be the
acting Chief Executive Officer with annual base salary of US$100,000 payable by
equal monthly installment of US$8,333. On September 1, 2006, the Board of
Directors of the Company promoted Mr. Victor Zhou to be the Chief Executive
Officer. The Company signed the employment contract with Mr. Zhou on September
1, 2006. The compensation includes an annual base salary of $150,000, payable by
equal monthly installment of US$12,500 cash.




(2)               On
July 5, 2006, the Company issued 84,681 fully vested restricted shares of common
stock of the Company to Mr. Zhou for his previous director service. Effective
June 1, 2006, the Company stopped paying director fee to Mr. Zhou due to his
appointment as acting Chief Executive Officer.




(3)               On
September 1, 2006 Mr. Zhou was granted 11,000,000 stock options with an exercise
price of $0.05 under the 2005 Stock Option Plan. The stock option vesting
schedule is as follows: a) 7,500,000 stock options vest one fourth (1⁄4) every six
months for 2 years of the employment contract period; b) 2,000,000 stock options
vested upon each successful new business acquisition of the Company; and c)
1,500,000 stock options vested upon each full profitable year. The grant date
fair value was computed in accordance with FAS 123R.  (See
footnote4 in the
Notes to Consolidated Financial Statements).




(4)               Mr.
Hu’s employment with the Company terminated as of May 31, 2008.




(5)               On
May 31, 2006, the Board of Directors of the Company appointed Mr. Hu to be the
President & Chief Financial Officer, effective on June 1, 2006. Mr. Hu’s
employment agreement was signed on June 1, 2006. The compensation includes an
annual base salary of $150,000, payable by equal monthly installment of
US$12,500 cash.




(6)               On
June 1, 2006,Mr.
Hu was granted 11,000,000 stock options with exercise price of $0.04 under the
2005 Stock Option Plan. The stock option vesting schedule is as follows: a)
7,500,000 stock options vest one fourth (1⁄4) every six months for 2 years of the
employment contract period; b) 2,000,000 stock options vested upon each
successful new business acquisition of the Company; and c) 1,500,000 stock
options vested upon each full profitable year. The grant date fair value was
computed in accordance with FAS 123R.  (See footnote 4 in the Notes to
Consolidated Financial Statements).




49






OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END


Option
      Awards
            
            Stock
      AwardsName
            
            Number
      of Securities Underlying Unexercised Options
              (#)
      Exercisable
            
            
            Number
      of Securities Underlying Unexercised Options
              (#)
              Unexercisable
            
            
            Equity
      Incentive Plan Awards: Number of Securities Underlying Unexercised
      Unearned Options
              (#)
            
            
            Option
      Exercise Price
              ($)
            
            
            Option
      Expiration
              Date
            
            Number
      of Shares or Units of Stock That Have Not Vested
              (#)
            Market
      Value of Shares or Units of Stock That Have Not Vested
              ($)
            Equity
      Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights
      That Have Not
              Vested
              (#)
            Equity
      Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or
      Other Rights That Have Not Vested
              ($)Mr.
      Victor Zhou, CEO (1)
            
            
            100,000
            
            
            
            
            
            
            
            
            
            0.09
            
            
            
            2011-3-81,875,000
            
            
            
            
            
            
            
            
            
            0.05
            
            
            
            2012-2-291,875,000
              1,875,000
            
            
            
            1,875,000
            
            
            
            
            
            
            0.05
              0.05
              0.05
            
            
            
            2012-8-31
              2013-2-28
              2013-8-313,500,000
            
            
            
            0.05
            
            
            
            (5
            )Mr.
      Yungeng Hu, CFO and President (2)
            
            
            1,875,000
            
            
            
            
            
            
            
            
            
            
            
            0.04
            
            
            
            2011-11-301,875,000
              1,875,000
            
            
            
            1,875,000
            
            
            
            
            
            
            
            0.04
              0.04
              0.04
            
            
            
            2012-5-31
              2012-11-30
              2013-5-313,500,000
            
            
            
            0.04
            
            
            
            (5
            )





Explanatory
Notes:




(1)               7,500,000 options were granted to Mr.
Zhou on September 1, 2006 and vest pro rata every half year over the two years
employment contract period. 2,000,000 options granted to Mr. Zhou will vest upon
each successful new acquisition of the Company and 1,500,000 options will vest
upon each full profitable year.  All the options are exercisable
within 5 years time after vesting.




(2)               Mr. Hu’s employment with the Company
terminated as of May 31, 2008.  7,500,000 options were granted to Mr.
Hu on June 1, 2006 and vest pro rata every half year over the two years
employment contract period. 2,000,000 options granted to Mr. Hu will vest upon
each successful new acquisition of the Company and 1,500,000 options will vest
upon each full profitable year. All the options are exercisable within 5 years
time after vesting. All the option will expire on August 31,
2008.





(3)               The
expiration date for this grant is contingent upon the vesting
date.  When the conditions have been met, and the shares vest, then
the expiration date will be five years after the vesting date.


50


DIRECTOR
COMPENSATION





Name
            Fees
      Earned or Paid in Cash
              ($)
            Stock
      Awards
              ($)
            Option
      Awards ($)(1)
            Non-Equity
      Incentive Plan Compensation ($)
            Change
      in Pension Value and Nonqualified Deferred Compensation
      Earnings
              ($)
            All
      Other Compensation
              ($)
            Total
              ($)Billy
      Y.N. Wang, former director
            50,000
            -
            39,995
            -
            -
            -
            89,995Geoffrey
      Wei, former director
            -
            23,500(3)
            -
            -
            -
            -
            23,500Wilson
      W. S. Li
            -
            13,045(2)
            -
            -
            -
            -
            13,045Stephen
      Tang
            -
            -
            -
            -
            -
            -
            -George
      Xu
            -
            -
            -
            -
            -
            -
            -





(1)           The
amounts provided in this column represent the compensation cost with respect to
the fiscal year ended May 31, 2008 as calculated in accordance with FAS 123R
with respect to all option awards granted under the 2005 Stock Option Plan in
previous fiscal years and in the fiscal year ended May 31, 2008. Because no
stock options were granted to Mr. Wang, Mr. Wei, Dr. Li, Mr. Tang, or Mr. Xu in
the fiscal year ended May 31, 2008, there were no awards for the fiscal year
ended May 31, 2008 for which the full grant date fair value needed to be
calculated in accordance with FAS 123R.





(2)           Duringthe year ended May 31,
2008, the Company issued 191,560 shares of the Company’s common stock to Mr. Li
valued at US$13,045 for his director service.





(3)
Duringthe year
ended May 31, 2008, the Company issued 191,560 shares of the Company’s common
stock to Mr. Wei valued at US$13,045 for his director service. Mr. Wei did not
stand for reelection to the Company’s Board of Directors, and his term of
service ended as of the Company’s annual meeting on April 19 2008.





Currently,
our directors serve for a term of two years or until their earlier resignation
or removal. Independent directors are compensated US$12,000 each year, through
the issuance of restricted shares of common stock at the average closing market
price of the common shares valued each month.Additionally, for
each committee that a non-employee director serves on, we compensate our
independent directors US$6,000 each year, through the issuance of restricted
shares of common stock.





As of
October 1, 2004, we compensated Dr. Wang, our Chairman of the Board, US$50,000
each year for service on our Board of Directors, pro rated on an annual basis.
Additionally, as of March 8, 2005, the Board of Directors granted Dr. Wang an
option to purchase 5,000,000 shares of our common stock at an exercise price of
US$0.09 per share, of which 2,500,000 shares vested on September 28, 2005 and
the remaining shares vested on September 28, 2006. On March 9, 2005, each
non-employee director, excluding the Chairman of the Board, was granted 100,000
stock options at an exercise price of US$0.09.  The options granted to
the non-employee directors vested on the one year anniversary of the date of
grant.  Dr. Wang resigned from the Board on June11, 2008.





On August
23, 2006, the Board passed a resolution that all the options granted or to be
granted cease to be exercisable after 90 days of termination of continuing
services by the option holder with the Company.





ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.




The
following table shows shares of our common stock that we believe are owned as of
August 22, 2008 by:




•
            Each
      shareholder owning 5% or more of our common stock,•
            Each
      Named Executive Officer,•
            Each
      director, and•
            All
      current directors and executive officers as a
  group.




We
calculated the “Percent of Class” based on 274,761,854shares of common stock
outstanding on August 22, 2008. Shares of common stock subject to options that
are currently exercisable or exercisable within 60 days of August 22, 2008
are deemed to be outstanding and to be beneficially owned by the person holding
such option for the purpose of computing the number of shares of common stock
beneficially owned by that person, as well as the percentage ownership of that
person, but they are not treated as outstanding for the purpose of computing the
percentage ownership of any other person.




51







Name
      & Address of
              Beneficial
      Owner(1)
            Amount
      and Nature of
              Beneficial
      Ownership(2)
            Percent
      of ClassBilly
      Y.N. Wang, former Director
            10,193,440(3)
            4.7%Geoffrey
      Wei, former Director
            828,747
      (4)
            *Victor
      Zhou, Director and Chief Executive Officer
            4,093,977(5)
            2.0%Wilson
      Li, Director
            1,784,042(6)
            *Yungeng
      Hu, former Chief Financial Officer
            4,350,000(7)
            2.1%Zhenyu
      Hu, Director
            46,000,000(8)
            16.7%Stephen
      Tang, Director
            -
            *George
      Xu, Director
            -
            *Rachel
      Zhang, Chief Financial Officer
            -
            *All
      Executive Officers and Directors as a Group
            67,250,206(9)
            24.5%






*
            Indicates
      ownership of less than 1%.







(1)
Unless otherwise indicated, the address for each beneficial owner listed above
is c/o The Hartcourt Companies, Inc., Room 706, Silver Tower , No. 933,
Zhongshanxi Road, Shanghai, China.




(2)
Unless indicated in the notes, each shareholder has sole voting and investment
power for all shares shown, subject to community property laws that may apply to
create shared voting and investment power.




(3)
Shares beneficially owned by Billy Y.N. Wang include (a) 193,440 shares of
common stock held by Dr. Wang; (b) options to purchase 5,000,000 shares of our
common stock that are currently exercisable; and (c) options to purchase
5,000,000 shares of our common stock that are exercisable within 60 days of
August 22, 2008, subject to his continuing to provide services to the Company on
such dates. The option will expire on September 11,2008 due to his resignation
on June 11, 2008.




(4)
Shares beneficially owned by Geoffrey Wei include (a) 828,747 shares of common
stock held by Mr. Wei.






(5)
Shares beneficially owned by Victor Zhou include (a) 243,977 shares of common
stock held by Mr. Zhou; (b) options to purchase 100,000 shares of our common
stock that are currently exercisable; (c) options to purchase 1,875,000 shares
of our common stock that are currently exercisable; and (d) options to purchase
1,875,000 shares of our common stock that are exercisable within 60 days of
August 22, 2008.




(6)
Shares beneficially owned by Wilson Li include (a) 684,042 shares of common
stock held by Mr. Li; (b) options to purchase 100,000 shares of our common stock
that are currently exercisable; and (c) options to purchase 1,000,000 shares of
our common stock that are exercisable within 60 days of August 22,
2008.




(7)
Shares beneficially owned by Yungeng Hu include (a) 600,000 shares of common
stock held by Mr. Hu; (b) options to purchase 1,875,000 shares of our common
stock that are currently exercisable; and (c) options to purchase 1,875,000
shares of our common stock that are exercisable within 60 days of August 22,
2008. The option will expire on August 31, 2008.




(8)Shares
beneficially owned by Zhenyu Hu is 46,000,000 shares of common stock held by
Mr.Hu.




(9)
Shares beneficially owned by all Executive Officers and Directors as a group
includes the shares held by each and options granted as in above (3), (4), (5),
(6),(7) and (8).




Equity
Compensation Plans




The
following table gives information about our common stock that may be issued upon
the exercise of options, warrants and rights under all of our existing equity
compensation plans as of the fiscal year ended May 31, 2007, including the 2005
Stock Plan.




EQUITY
      COMPENSATION PLAN INFORMATIONNumber
      of securities to be issued
              upon
      exercise of outstanding
              options,
      warrants and rights (a)
            Weighted
      average exercise
              price
      of outstanding options,
              warrants
      and rights (b)
            Number
      of securities remaining
              available
      for future issuance
              under
      equity compensation
              plansEquity
      compensation plans
              approved
      by security holders (1)
            34,600,000
            0.06
            35,400,000Equity
      compensation plans not approved by security holders
            Nil
            Nil
            N/ATotal
            34,600,000
            0.06
            35,400,000






52


(1) Our
1995 Stock Option Plan expired pursuant to its terms in March, 2005. Our 2005
Stock Option Plan was approved by our shareholders at our annual meeting of
shareholders on November 23, 2005. The amendment to increase the number of
shares reserved and available from 35,000,000 to 70,000,000 for 2005 Stock
Option Plan was approved at our annual meeting of shareholders on February 24,
2007.




ITEM
13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.




Director
Independence





The Board
has determined that each of our directors, except Mr. Zhou and Mr. Hu, is
independent within the meaning of the applicable rules and regulations of the
Securities and Exchange Commission (“SEC”) and the director independence
standards of The NASDAQ Stock Market, Inc. (“NASDAQ’), as currently in
effect.  Furthermore, the Board has determined that each of the
members of each of the committees of the Board is “independent” under the
applicable rules and regulations of the SEC and the director independence
standards of NASDAQ, as currently in effect.







ITEM 14.PRINCIPAL ACCOUNTANT FEES AND
SERVICES.




The
following table is a summary of the fees billed to us by Kabani & Company,
Inc. for professional services for the fiscal year ended May 31, 2008 and the
year ended May 31, 2007 (Kabani & Company, Inc. was selected as our
independent auditor on December 30, 2004 upon the resignation of our former
accountants, Loral International LLP):




FY
      2008
            FY
      2007
            FY
      2006Audit
      Fees
            US$50,000
            US$80,000
            US$85,000Audit-Related
      Fees
            
            
            US$125,000
      (1)Tax
      Fees
            
            
            -All
      Other Fees
            
            
            -Total
            US$50,000
            US$80,000
            US$210,000






Audit Fees. Consists of fees
billed for professional services rendered for the audit of our consolidated
financial statements and review of our quarterly interim consolidated financial
statements, as well as services that are normally provided by Kabani &
Company, Inc. in connection with statutory and regulatory filings or
engagements.




Audit-Related Fees. Consists
of fees billed for assurance and related services that are reasonably related to
the performance of the audit or review of our financial statements that are not
reported under “Audit Fees.”




Tax Fees. Consists of fees
billed for professional services including assistance regarding federal, state
and international tax compliance and related services.




All Other Fees. Consists of
fees billed for special investigation services requested by the Board of
Directors concerning management and accounting practices.


53


(1)           The
audit related fee in fiscal year 2006 represent the professional audit fee for
audit our restated financial statements of year ended 2003, 2004 and the
transition period ended May 31, 2005, as well as the fee related to the review
of these related filing documents.




Policy on Audit Committee
Pre-Approval of Services Performed by the Independent Registered Public
Accounting Firm




It is the
policy of the Audit Committee to pre-approve at the beginning of each fiscal
year all audit and permissible non-audit services to be provided by the
independent registered public accounting firm during that fiscal year. The Audit
Committee authorizes specific projects within categories of services, subject to
a budget for each category. The Audit Committee may also pre-approve particular
services on a case-by-case basis. The independent auditor and management report
to the Audit Committee actual fees versus the budget periodically throughout the
fiscal year. The Audit Committee pre-approved 100% of the audit and non-audit
services performed by Kabani & Company, Inc. for Hartcourt as disclosed
above.









PART
IV




ITEM
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.




1.           Financial
Statements - See Index to Consolidated Financial Statements in Part II, Item
8.




2.           Financial Statement Schedules - See
Index to Consolidated Financial Statements in Part II, Item
8.




3.           Exhibits




The
following list describes the exhibits filed as part of this report on
Form 10-K:




Exhibit
      No.
            Description
            Previously
              Filed





2.05
            Agreement
      for Sale and Purchase of Certain Interest in the Registered Capital of
      Huaqing Corporation Development Co Ltd (“Huaqing”) dated February 14,
      2003 between Hartcourt Capital, Inc. and Huaqing
    shareholders
            (13)2.06
            Agreement
      for Sale and Purchase of Certain Interest in the Registered Capital of
      Guandgdong NewHauSun Computer Co. Ltd. (“NewHauSun”) dated April 24,
      2003 between Hartcourt Capital, Inc. and NewHauSun
      shareholders.
            (13)2.07
            Agreement
      for Sale and Purchase of Certain Interest in the Registered Capital of
      Shanghai GuoWei Science and Technology Ltd (“GuoWei”) dated April 30,
      2003 between Hartcourt Capital, Inc. and GuoWei
    shareholders.
            (13)2.08
            Agreement
      for the Sale and Purchase of Equity Capital in Shanghai Sinobull
      Information Corporation Limited dated May 20, 2003 between Hopeful
      Internet Technologies Limited and Genius Technology Inc.
            (13)2.09
            Agreement
      for Sale and Purchase of Certain Interest in the Registered Capital of
      Zhongnan Group (“Zhongnan”) dated June 25, 2003 between Hartcourt Capital,
      Inc. and Zhongnan shareholders.
            (13)2.10
            Agreement
      for Sale and Purchase of Certain Interest in the Registered Capital of
      Shanghai Huaqing Corporation Development Co Ltd (“Shanghai Huaqing”) dated
      June 30, 2003 between Hartcourt Capital, Inc. and Shanghai Huaqing
      shareholders.
            (14)2.11
            Agreement
      for Sale and Purchase of Shanghai PengYang Computer Co., Ltd. dated
      November 21, 2003 between Hartcourt Capital, Inc and PengYang
      shareholders.
            (14)2.12
            Agreement
      for Sale and Purchase of Certain Interest in the Registered Capital of
      Beijing Challenger Wanzhong Info Tech Co., LTD (“Challenger”) dated
      December 9, 2003 between Hartcourt Capital, Inc. and Challenger
      shareholders.
            (14)2.13
            Agreement
      for Sale and Purchase of the Entire Issued Share Capital of Besteffort
      Investments Limited, dated November 1, 2004
            (18)2.14
            Agreement
      for Sale and Purchase of Certain Interest in the Registered Capital of
      Guangdong NewHuaSun Computer Co., Ltd. ("NewHuaSun") dated August 30, 2004
      between Hartcourt Capital, Inc and ShenZhen Raiser Industrial and
      Development Co., Ltd.
            (19)


54





2.15
            Agreement
      for Sale and Purchase of Certain Interest in the Registered Capital of
      Hopeful Internet Technologies Ltd. ("Hopeful") dated June 29, 2004 between
      Hartcourt China Inc, Mr. Lee Lu Ping and First Information Technology
      Ltd.
            (19)2.16
            Cooperative
      Agreement on Taishun Yucai Senior School
            (21)2.17
            Cooperative
      Agreement on China Princely Education Technology Development (Beijing)
      Company Limited
            (21)2.18
            Agreement
      for sale and purchase of the entire issued share capital of Besteffort
      Investments Limited, dated November 1, 2004 between Hartcourt Capital,
      Inc. and Great Focus Holdings Limited.
            (21)3.01
            Articles
      of Incorporation of Hartcourt, dated Sept 6, 1983
            (23)3.02
            Bylaws
      of Hartcourt.
            (23)3.03
            Amendment
      to the Bylaws of Hartcourt, dated Dec 2, 1996
            (1)3.04
            Amendment
      to the Bylaws of Hartcourt, dated Oct 25, 20043.05
            Amendment
      to the Articles of Incorporation of Hartcourt, dated Nov 21,
      1994
            (1)3.06
            Amendment
      to the Articles of Incorporation of Harcourt, dated Mar 23,
      1995
            (23)3.07
            Amendment
      to the Articles of Incorporation of Hartcourt, dated Oct
    1997
            (24)3.08
            Amendment
      to the Articles of Incorporation of Hartcourt, dated Mar 13,
      2003
            (25)3.09
            Amendment
      to the Articles of Incorporation of Hartcourt, dated Nov 24,
      2005
            (20)10.01
            Lease
      between Hartcourt and Larry M. Mitobe for Hartcourt’s headquarters
      facility, dated April 9, 1996.
            (1)10.02
            Equipment
      Lease between Hartcourt USA and Anja Engineering Corporation, dated
      April 4, 1994.
            (1)10.03
            Stock
      Exchange Agreement between Hartcourt USA and Eastern Rochester, dated
      August 8, 1994.
            (1)10.04
            1995
      Stock Option Plan.
            (1)10.05
            Purchase
      Contract between The Hartcourt Companies, Inc. and Exceptional Specialty
      Products, Inc., dated March 21, 1996.
            (1)10.06
            Purchase
      and Sale Agreement, dated August 8, 1996, between The Hartcourt Companies,
      Inc. and NuOasis International, Inc., and Addendum to Purchase and Sale
      Contract.
            (1)10.07
            Convertible
      Secured Promissory Note, dated August 8, 1996, in connection with Purchase
      and Sale Agreement, dated August 8, 1996 between The Hartcourt Companies,
      Inc. and NuOasis International, Inc.
            (1)10.08
            Convertible
      Secured Promissory Note, dated August 8, 1996, in connection with Purchase
      and Sale Agreement, dated August 8, 1996 between The Hartcourt Companies,
      Inc. and NuOasis International, Inc., as amended.
            (1)10.09
            Sales
      Agreement, dated September 17, 1996, between The Hartcourt Companies, Inc.
      and Promed International, Ltd.
            (1)10.10
            Sales
      Agreement, dated September 17, 1996, between The Hartcourt Companies, Inc.
      and Mandarin Overseas Investment Co., Ltd.
            (1)10.11
            Purchase
      and Sale Agreement, dated September 27, 1996, between The Hartcourt
      Companies, Inc. and CKES Acquisitions, Inc.
            (1)10.12
            Secured
      Promissory Note, dated September 27, 1996, in connection with Purchase and
      Sale Agreement between The Hartcourt Companies, Inc. and CKES
      Acquisitions, Inc.
            (1)10.13
            Consulting
      Agreement, dated December 30, 1996, between The Hartcourt Companies, Inc.
      and American Equities LLC, a California limited liability
      company.
            (3)10.14
            Investment
      Banking Agreement, dated March 1998, between The Hartcourt Companies, Inc.
      and DanAllen Investment Group.
            (2)10.16
            Marketable
      Securities Agreement, dated July 31, 1997, between The Hartcourt
      Companies, Inc. and Capital Commerce, Ltd.
            (2)10.17
            Lease
      Termination Agreement, dated March 24, 1998, between Hartcourt Investment
      (USA) Corporation and Scripto-Tokai Corporation.
            (2)10.18
            Share
      Purchase Agreement with Enova Holdings, Inc., dated February 1, 1999,
      Exchange Agreement, dated March 23, 1999, and Distribution Agreement,
      dated March 24, 1999, File # 99579493.
            (7)10.19
            1999
      Agreement with Beijing UAC Stock Trading Online Co. Ltd.
            (8)


55





10.19
            A
      Financial Statements of Beijing UAC Stock Exchange Online Co. Ltd. for the
      period from October 18, 1999 (date of inception) to December 31,
      1999.
            (8)10.20
            Agreement
      with GoCall.com
            (8)10.21
            FTL
      Stock Purchase Agreement
            (8)10.22
            Advisory
      Agreement and 1999 Stock Plan with NuVen Advisors, Inc. and Hartcourt
      dated March 18, 1999, File No. 333-74933.
            (9)10.23
            Consulting
      Agreement with Fred G. Luke, dba NuVen Advisors, File
      No. 99768860.
            (10)10.24
            Consulting
      Agreement with Archer & Weed, File No. 99768860.
            (10)10.26
            Regulation  D  Subscription  Agreement
      between PYR Management LLC
              and
      The Hartcourt Companies, Inc, dated January 26, 2000, File
      No. 524390.
            (12)10.27
            Interim
      CFO Employment Agreement, dated January 5, 2005
            (17)10.28
            CEO
      Employment Agreement, dated March 9, 2005
            (19)10.29
            Acting
      CEO Employment Agreement, dated May 31, 2006
            (22)10.30
            CEO
      Employment Agreement, dated August 30, 2006
            (22)14.01
            Code
      of Ethics16.01
            Letter
      from Loral International CPA & Advisor, LLC, to the Company resigning
      as independent auditor, dated December 29, 2004.
            (15)16.02
            Letter
      from Loral International CPA & Advisor, LLC, to the Company indicating
      disagreement with the Company’s Form 8-K filing regarding Loral’s
      resignation, dated January 3, 2005.
            (16)21.01
            Subsidiaries
      of the registrant23.01
            Consent
      of Kabani & Company, Inc. - Independent Registered Accounting
      Firm24.01
            Power
      of Attorney (See signature page)27.01
            Financial
      Data Schedule. Pursuant to Rule 12b-32 under Securities and Exchange Act
      of 1934, as amended.31.01
            Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
      Section 302 of the Sarbanes-Oxley Act of 200231.02
            Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
      Section 302 of the Sarbanes-Oxley Act of 200232.01
            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 10SB12B, dated January 21, 1997 and
incorporated herein by reference.




(2) Previously filed as an exhibit to
Hartcourt’s 10-KSB, dated April 13, 1998 and incorporated herein by
reference.




(3) Previously filed as an exhibit to
Hartcourt’s 10-KSB, dated April 15, 1997, and as amended by Hartcourt’s
Form 10-KSB40/A, dated July 3, 1997, incorporate herein by
reference.




(4) Previously filed as an exhibit to
Hartcourt’s Form 8-K, dated October 21, 1997, and as amended by Hartcourt’s
Form 8-K/A, dated October 27, 1997, incorporated herein by
reference.




(5) Previously filed as exhibit to
Hartcourt’s Form 8-K, dated November 12, 1997, incorporated herein by
reference.




(6) Previously filed as an exhibit to
Hartcourt’s Form 10-KSB, dated April 15, 2003, as amended by
Hartcourt’s Form 10-KSB/A, dated April 25, 2003, incorporated herein
by reference.




(7) Previously filed as an exhibit to
Hartcourt’s Form 8-K, dated March 31, 1999, incorporated herein by
reference.




56


(8) Previously filed as an exhibit to
Hartcourt’s Form 10-KSB, dated April 14, 1999, incorporated herein by
reference.




(9) Previously filed as an exhibit to
Hartcourt’s Form S-8, dated March 24, 1999, incorporated herein by
reference.




(10) Previously filed as an exhibit to
Hartcourt’s Form S-8, dated December 3, 1999, incorporated herein by
reference.




(11) Previously filed as an exhibit to
Hartcourt’s Form 8-K, dated December 8, 1999, incorporated herein by
reference.




(12) Previously filed as an exhibit to
Hartcourt’s Form 8-K, dated February 4, 2000, incorporated herein by
reference.




(13) Previously filed as an exhibit to
Hartcourt’s Form 10-KSB/A, dated April 15, 2004, incorporated herein by
reference.




(14) Previously filed as an exhibit to
Hartcourt’s Form 10-KSB/A, dated April 19, 2004, incorporated herein by
reference.




(15) Previously filed as an exhibit to
Hartcourt’s Form 8-K, dated January 6, 2005, incorporated herein by
reference.




(16) Previously filed as an exhibit to
Hartcourt’s Form 8-K, dated January 20, 2005, incorporated herein by
reference.




(17) Previously filed as an exhibit to
Hartcourt’s Form 8-K, dated January 12, 2005, incorporated herein by
reference.




(18) Previously filed as an exhibit to
Hartcourt’s Form 8-K, dated February 28, 2005, incorporated herein by
reference.




(19) Previously filed as an exhibit to
Hartcourt’s Form 10KSB/A, dated April 15, 2005, incorporated herein by
reference.




(20)Previously filed as an
exhibit to Hartcourt’s Form 10-Q, dated April 23, 2007, as amended by
Hartcourt’ Form 10-Q/A, dated April 24, 2007, incorporated herein by
reference.




(21) Previously filed as an
exhibit to Hartcourt’s Form 10-Q, dated January 16, 2007 and incorporated herein
by reference.




(22) 
Previously filed as an exhibit to Hartcourt’s Form 10-Q, dated September 28,
2006 and incorporated herein by reference.




(23) 
Previously filed as an exhibit to Hartcourt’s Form 10SB12G/A, dated July 3, 1997
and incorporated herein by reference.




(24) 
Previously filed as an exhibit to Hartcourt’s Form 10KSB, dated April 13, 1998
and incorporated herein by reference.




(25)    Previously
filed as an exhibit to Hartcourt’s Form 10KSB/A, dated April 25, 2003 and
incorporated herein by reference.




57







SIGNATURES




Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this Form 10-K to be signed on its behalf
by the undersigned, thereunto duly authorized.







THE
      HARTCOURT COMPANIES, INC.Date:
      August 29, 2008
              By:/s/Victor
      ZhouVictor
      ZhouChief
      Executive OfficerDate:
      August 29, 2008
              By:
      /s/Rachel
      ZhangRachel
      ZhangChief
      Financial Officer




In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.




SIGNATURE
            TITLE
            DATEBy:
      /s/Victor
    Zhou
            Chief
      Executive Officer,
            August
      29, 2008Victor
      ZhouBy:/s/Rachel
      Zhang
            Chief
      Financial Officer
            August
      29, 2008Rachel
      ZhangBoard
      of DirectorsBy:
      /s/Wilson
    Li
            Chairman
            August
      29, 2008Wilson
      LiBy:/s/Stephen
      Tang
            Director
            August
      29, 2008Stephen
      TangBy:/s/George
    Xu
            Director
            August
      29, 2008George
      XuBy:/s/Zhenyu
    Hu
            Director
            August
      29, 2008Zhenyu
      Hu












58