**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**Form 10-Q/A**


Amendment
      No. 1




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




**For
      the quarterly period ended November 30, 2005.**




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




**For
      the transition period from __________ to ___________**




**Commission
      file number: 001-12671**




**The
      Hartcourt Companies, Inc.**


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




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





**306
                Yong Teng Plaza, 1065 Wuzhong Road****Shanghai,
                China**
            
            **201103***(Address
                of principal executive offices)*
            
            *(Zip
                Code)*




**(011)
      (86 21) 5152 1577**


*(Registrant’s
      telephone number including area code)*




Indicate
        by check mark whether the registrant (1) has filed all reports required to
        be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
        during the preceding 12 months (or for such shorter period that the
        registrant was required to file such reports), and (2) has been subject to
        such filing requirements for the past 90 days. Yes x No o
  Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer or a non-  accelerated
        files. 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 [X]
  Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the  Change  Act.
        Yes
        [  ]  No [X]
  The
        number of outstanding shares of the registrant’s Common Stock, $0.001 par value,
        was 193,975,237 as of December 5, 2005.
  
  _________________
 
 This
        Amendment No. 1 to the Quarterly Report on Form 10-Q is being filed to include
        a
        restatement of the Company’s financial statements for the quarter ended November
        30, 2005, revised Management’s
        Discussion and Analysis of Financial Condition and Results of
        Operations and to
        include revised disclosure regarding our internal controls.
  Except
        as
        described above, no other changes have been made to the Form 10-Q.
  _________________
 
 Hartcourt
        Companies, Inc
 
 Restatement
        of Financial Statements and
 Amended
        Form 10-Q for the quarter ended November
        30, 2005
 
 Subsequent
        to the issuance of the Company's financial statements for the year ended
        December 31, 2003, the Company determined that a certain transaction and
        presentation in the financial statements had not been accounted for
        properly in the Company's financial statements.
 
 During
        the year ended December 31, 2003, the Company, through Hartcourt Capital
        Inc., a
        subsidiary, acquired four Chinese companies located and operated in
        China.
  The
        Company has restated its financial statements based on the subsequent
        appraisal of the fair value of the four companies at each acquisition
        date.
  Kabani
        & Company Inc., Certified Public Accountants, has audited
        the consolidated financial statements for the year ended December 31,
        2003, after the above-mentioned restatements, and expressed their opinion
        "the financial statements referred to above present fairly, in all material
        respects, the financial position of the Hartcourt Companies, Inc. as of
        December 31, 2003, in conformity with accounting principals generally
        accepted in the United States of America."
  Accordingly,
        on August 9, 2006, we filed an amendment to our Form 10-KSB for the year
        ended
        December 31, 2003 with United States Securities and Exchange Commission to
        reflect the changes.   (See Form 10-KSB/A, filed August 9,
        2006).
  The
        changes required corresponding adjustments to the financial statements for
        the year ended December 31, 2004, the transitional period ended May 31, 2005
        and
        subsequently filed reports on Form 10-Q. As a result, on October 10, 2006
        we
        amended (a) our annual report on Form 10-KSB for the twelve months ended
        December 31, 2004 (See Form 10-KSB/A-3) and (b) our annual report on Form
        10-K
        for the five month transitional period ended May 31, 2005 (see Form 10-K/A)
        and,
        today we are amending our quarterly reports on Form 10-Q for the three months
        ended August 31, 2005, the three and six months ended November 30, 2005 and
        the
        three and nine months ended February 28, 2006. We have included these
        adjustments in our Form 10-K for the year ended May 31, 2006, filed previously
        on September 15, 2006.
 
 
 /s/
        Yungeng Hu
 Chief
        Financial Officer & President
 
 
 **TABLE
        OF CONTENTS**
  **PART
                  I: FINANCIAL INFORMATION**Item 1.
              Financial
                  Statements
              1Unaudited
                  Consolidated Balance Sheets - Restated
              1Unaudited
                  Consolidated Statements of Operations
              3Unaudited
                  Consolidated Statements of Cash Flows
              4Notes
                  to Unaudited Consolidated Financial Statements - Restated
              6Item 2.
              Management’s
                  Discussion and Analysis of Financial Condition andResults
                  of Operations
              19Item 4.
              Controls
                  and Procedures
              26**PART
                  II: OTHER INFORMATION**Item 6.
              Exhibits
              27Signatures
              27EXHIBIT
                  31.1EXHIBIT
                  31.2EXHIBIT
                  32.1EXHIBIT
                  32.2
 
  
 **PART
        I: FINANCIAL INFORMATION**
 **Item 1.** **Financial
        Statements**
  **THE
        HARTCOURT COMPANIES, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEET (UNAUDITED)**  **-
        RESTATED**
 **November
        30, 2005**
  **ASSET****CURRENT
                  ASSETS**Cash
                  and cash equivalents
              
              $
              892,158Restricted
                  Cash
              
              
              1,212,931Accounts
                  receivable, net
              
              
              2,952,946Inventories,
                  net
              
              
              3,465,105Notes
                  receivable, net
              
              
              123,769Advances
                  to suppliers
              
              
              1,159,675Prepaid
                  expenses and other assets
              
              
              2,236,786Due
                  from related party
              
              
              371,356**TOTAL
                  CURRENT ASSETS**
              
              
              **12,414,726****PROPERTY
                  & EQUIPMENT - NET**
              
              
              **233,137****INVESTMENTS**
              
              
              **61,884****INTANGIBLE
                  ASSET**Goodwill
              
              
              **2,990,475****TOTAL
                  ASSETS**
              
              $
              15,700,222**LIABILITIES
                  AND SHAREHOLDERS' EQUITY****CURRENT
                  LIABILITIES**Bank
                  loans
              
              $
              1,460,468Loan
                  from employees
              
              
              1,015,321Accounts
                  payable
              
              
              1,047,217Advance
                  from customers
              
              
              2,040,757Accrued
                  expenses and other current liabilities
              
              
              3,166,655Due
                  to related party
              
              
              838Due
                  to shareholders
              
              
              229,936**TOTAL
                  CURRENT LIABILITIES**
              
              
              **8,961,192****MINORITY
                  INTERESTS**
              
              
              **957,863****COMMITMENTS
                  & CONTINGENCIES**
              
              $
              -
  The
                  accompanying notes form an integral part of the unaudited consolidated
                  financial statements.
 1
 **THE
        HARTCOURT COMPANIES, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEET (UNAUDITED)**  **-
        RESTATED**
 **November
        30, 2005**
  **(-Continued-)****SHAREHOLDERS'
                  EQUITY****Preferred
                  Stock:**Original
                  preferred stock, $0.01 par value, 1,000 shares authorized, issued
                  and
                  cancelled
              
              $
              -Class
                  A preferred stock, 10,000,000 shares authorized, none issued and
                  outstanding
              
              
              -**Common
                  stock**:$0.001
                  par value, 424,999,000 authorized, 193,975,237 common sharesissued
                  and outstanding as of November 30, 2005
              
              
              193,975Additional
                  paid in capital
              
              
              70,324,437Treasury
                  stock, at cost, 48,728 shares
              
              
              (48,728
              )Other
                  comprehensive income
              
              
              49,673Accumulated
                  deficit
              
              
              (64,738,190
              )**TOTAL
                  SHAREHOLDERS' EQUITY**
              
              
              **5,781,167****TOTAL
                  LIABILITIES AND SHAREHOLDERS' EQUITY**
              
              $
              **15,700,222**
   The
        accompanying notes form an integral part of the unaudited consolidated financial
        statements.
 2
 **THE
        HARTCOURT COMPANIES, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS (UNAUDITED)**
  **For
                  the Three Month**
                **Periods
                  Ended November 30,**
              
              **For
                  the Six Month**
                **Periods
                  Ended November 30,****2005**
              
              **2004**
              
              **2005**
              
              **2004**Sales
              
              $
              11,936,548
              
              $
              19,945,688
              
              $
              22,705,312
              
              $
              38,799,565Cost
                  of sales
              
              
              11,105,879
              
              
              19,170,118
              
              
              21,501,801
              
              
              37,452,878Gross
                  profit
              
              
              830,669
              
              
              775,570
              
              
              1,203,511
              
              
              1,346,687Operating
                  expenses:Selling,
                  general and administrative
              
              
              307,238
              
              
              702,662
              
              
              776,839
              
              
              1,271,070Depreciation
                  and amortization
              
              
              20,441
              
              
              14,053
              
              
              39,133
              
              
              28,740Total
                  operating expenses
              
              
              327,679
              
              
              716,715
              
              
              815,972
              
              
              1,299,810Gain
                  from continuing operations before other income/(expenses)
              
              
              502,990
              
              
              58,855
              
              
              387,539
              
              
              46,877Other
                  income/(expense):Interest
                  expense
              
              
              (51,356
              )
              
              (6,499
              )
              
              (90,212
              )
              
              (51,531
              )Interest
                  income
              
              
              42,706
              
              
              43,651
              
              
              73,442
              
              
              88,279Other
              
              
              148,247
              
              
              128,838
              
              
              501,630
              
              
              197,016Total
                  other income
              
              
              139,597
              
              
              165,990
              
              
              484,860
              
              
              233,764Income
                  from continuing operations
              
              
              642,587
              
              
              224,845
              
              
              872,399
              
              
              280,641Less:
                  Minority Interest
              
              
              359,410
              
              
              262,341
              
              
              527,924
              
              
              452,816Income
                  (loss) before discontinued operations
              
              
              283,177
              
              
              (37,496
              )
              
              344,475
              
              
              (172,175
              )Discontinued
                  operations:Gain
                  from discontinued operations
              
              
              -
              
              
              47,283
              
              
              -
              
              
              318,660Loss
                  on disposal of discontinued operations
              
              
              -
              
              
              -
              
              
              -
              
              
              (2,968,687
              )Income/(losses)
                  before tax
              
              
              283,177
              
              
              9,787
              
              
              344,475
              
              
              (2,822,202
              )Taxation
              
              
              178,487
              
              
              -
              
              
              208,251
              
              
              15,978NET
                  INCOME/(LOSSES)
              
              $
              104,690
              
              $
              9,787
              
              $
              136,224
              
              $
              (2,838,180
              )
  BASIC
                  AND DILUTED EARNINGS/(LOSSES)
                PER
                  COMMON SHARE:Earnings/(losses)
                  from continuing operations
              
              $
              0.001
              
              $
              0.000
              
              $
              0.000
              
              $
              (0.001
              )Earnings/(losses)
                  from discontinued operations
              
              
              0.000
              
              
              0.002
              
              
              0.000
              
              
              (0.015
              )Earnings/(losses)
                  per share
              
              $
              0.001
              
              $
              0.002
              
              $
              0.000
              
              $
              (0.016
              )Basic
                  (weighted average) number of shares
              
              
              193,931,939
              
              
              173,605,219
              
              
              193,844,261
              
              
              176,361,006Diluted
                  (weighted average) number of shares
              
              
              210,828,012
              
              
              202,615,458
              
              
              216,830,516
              
              
              176,361,006
  The
        accompanying notes form an integral part of the unaudited consolidated financial
        statements.
 3
 **THE
        HARTCOURT COMPANIES, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS (UNAUDITED)**
  **For
                  the Six Month Periods**
                **Ended
                  November 30,****2005**
              
              **2004****CASH
                  FLOWS FROM OPERATING ACTIVITIES:**Net
                  income/(losses)
              
              $
              136,224
              
              $
              (2,838,180
              )Adjustments
                  to reconcile net income/(losses) to net cash used in operating
                  activities:Gain
                  on disposal of property and equipment
              
              
              (312,279
              )
              
              5,243Gain
                  on disposal of continuing operations
              
              
              -
              
              
              (318,662
              )Gain
                  on waive off debts
              
              
              (39,133
              )
              
              -Depreciation
              
              
              39,133
              
              
              28,740Loss
                  on sale of affiliate
              
              
              -
              
              
              2,968,688Provision
                  on receivables
              
              
              6,028
              
              
              -Minority
                  interest
              
              
              527,924
              
              
              452,816Stock
                  issued for services and compensations
              
              
              21,250
              
              
              92,713Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              (173,996
              )
              
              1,635,164Advances
                  to suppliers
              
              
              448,147
              
              
              602,812Inventories
              
              
              274,952
              
              
              (697,018
              )Prepaid
                  expenses and other receivables
              
              
              (169,126
              )
              
              (1,445,397
              )Accounts
                  payable
              
              
              (86,657
              )
              
              (79,572
              )Accrued
                  expenses and other current liabilities
              
              
              (279,884
              )
              
              53,943Advances
                  from customers
              
              
              (1,394,791
              )
              
              (1,047,106
              )**NET
                  CASH USED IN OPERATING ACTIVITIES**
              
              
              (994,199
              )
              
              (585,816
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES:**Purchase
                  of property and equipment
              
              
              (14,667
              )
              
              (13,468
              )Proceeds
                  on disposal of property and equipment
              
              
              522,116
              
              
              -Cash
                  paid for investments
              
              
              -
              
              
              (184,776
              )Proceeds
                  on notes receivable, net
              
              
              362,834
              
              
              3,964,445**NET
                  CASH PROVIDED BY INVESTING ACTIVITIES**
              
              $
              **870,283**
              
              $
              **3,766,201**
  The
        accompanying notes form an integral part of the unaudited consolidated financial
        statements.
 4
 **THE
        HARTCOURT COMPANIES, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS (UNAUDITED)**
 **(-Continued-)**
  **CASH
                  FLOWS FROM FINANCING ACTIVITIES**Proceeds
                  from (payments to) related parties-net
              
              $
              (298,628
              )
              $
              470,440Proceeds
                  /(repayment) on loans and lines of credit-net
              
              
              (68,327
              )
              
              (4,583,796
              )**NET
                  CASH USED IN FINANCING ACTIVITIES**
              
              
              (366,955
              )
              
              (4,113,356
              )EFFECT
                  OF EXCHANGE RATE ON CASH
              
              
              13,115
              
              
              (437
              )**NET
                  DECREASE IN CASH AND CASH EQUIVALENTS**
              
              
              (477,756
              )
              
              (933,408
              )**CASH
                  AND CASH EQUIVALENTS - BEGINNING OF PERIOD**
              
              
              1,369,914
              
              
              1,707,367**CASH
                  AND CASH EQUIVALENTS - END OF PERIOD**
              
              **$**
              **892,158**
              
              **$**
              **773,959**
  **SUPPLEMENTAL
        DISCLOSURE OF CASH FLOWS**
  The
        Company prepares its statements of cash flows using the indirect method as
        defined under the Financial Accounting Standard No. 95.
  **For
                  the Six Month Periods**
                **Ended
                  November 30****2005**
              
              **2004**SUPPLEMENTAL
                  DISCLOSURE OF CASH FLOWSCash
                  paid for interest
              
              $
              22,603
              
              $
              68,640Cash
                  paid for income taxes, net of refund received
              
              $
              85,395
              
              $
              16,326
 
  The
        accompanying notes form an integral part of the unaudited consolidated financial
        statements.
  5
  **THE
        HARTCOURT COMPANIES, INC. AND SUBSIDIARIES**
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **November
        30, 2005 AND 2004**
 
  **Note
        1.**  **General**
  The
        Hartcourt Companies, Inc. ("Hartcourt" or the "Company"), was incorporated
        in
        Utah in 1983.  We are a distributor of internationally well known brand
        named IT hardware products and related services in the People’s Republic of
        China. In early 2006, however, we announced our intention to diversify our
        business by expanding into the vocational/technical training market in
        China.
  As
        of
        November 30, 2005, the Company owned 100% of three (3) British Virgin Island
        (“BVI”) incorporated companies: (1) Hartcourt China Inc., (2) Hartcourt Capital
        Inc., and (3) AI-Asia Inc. All three of these BVI subsidiaries are holding
        companies for assets located in China.
  As
        of
        November 30, 2005, the Company owned 51% equity interest in Shanghai Huaqing
        Corporation Development Ltd. Huaqing is located in Shanghai, China. As the
        Chinese laws may prohibit foreign companies directly involved in the
        distribution industry, Hartcourt, through its employees as nominees, holds
        the
        equity of Huaqing.
  As
        of
        November 30, 2005, Hartcourt Capital Inc. owned 90% equity interest in Control
        Tech Electronics (Shanghai) Co., Ltd. Control Tech is located in Shanghai,
        China.
  As
        of
        November 30, 2005, Hartcourt Capital Inc. owned 100% of Hartcourt Hi-Tech
        Investment (Shanghai) Inc. Hartcourt Hi-Tech Investment (Shanghai) Inc. through
        its employees as nominees, owned 100% of Shanghai Jiumeng Information Technology
        Co., Ltd. These two companies are located in Shanghai, China.
  As
        of
        November 30, 2005, AI-Asia, Inc., the third holding company, owned 100% equity
        of AI-Asia (Shanghai) Information Technology, Inc of China (“AI”), located in
        Shanghai, China.
  **Note
        2. Basis of Presentation**
  The
        accompanying unaudited condensed consolidated financial statements have been
        prepared in accordance with the rules and regulations of the Securities and
        Exchange Commission for the presentation of financial information, but do
        not
        include all the information and footnotes required by generally accepted
        accounting principles for complete financial statements. The audited
        consolidated financial statements for the transition period ended May 31,
        2005
        were filed with the Securities and Exchange Commission on September 13, 2005
        and
        the Form 10-K/A was filed on October 10, 2006 and are hereby referenced.
        In the
        opinion of management, all adjustments considered necessary for a fair
        presentation have been included. Operating results for the three-month and
        six-month period ended November 30, 2005 are not necessarily indicative of
        the
        results that may be expected for the year ended May 31, 2006.
   6
  The
        accounting policies followed by us are set forth in Note A to our financial
        statements as stated in our report on Form 10-K for the transition period
        ended
        May 31, 2005, as filed on September 13, 2005 and the Form 10-K/A filed on
        October 10, 2006 and incorporated in this Form 10-Q by reference.
  **Principles
        of Consolidation**
  Our
        financial statements for the three months and six months ended November 30,
        2005
        are consolidated to include the accounts of The Hartcourt Companies Inc.,
        our
        wholly owned subsidiaries Hartcourt China Inc., Hartcourt Capital Inc.,
        Hartcourt Hi-Tech Investment (Shanghai) Inc., Ai-Asia Inc and Ai-Asia
        Information Technology Inc, and our 90% directly owned subsidiary Control
        Tech
        Electronics (Shanghai) Co., Ltd. Our consolidated financial statements also
        include indirectly, our 100% owned subsidiary, Shanghai Jiumeng Information
        Service Co., Ltd. And our 51% indirectly owned Shanghai HuaQing Corporate
        Development Co., Ltd. All significant inter-company accounts and transactions
        have been eliminated in consolidation.
  Due
        to
        the Chinese government’s restrictions of direct foreign investment in
        Chinese-owned sales and distribution companies, through Shanghai Jiumeng
        Information Service Co., Ltd., we own 51% of the equity of Shanghai Huaqing,
        our
        main operating subsidiary for the Samsung distribution business. Shanghai
        Jiumeng is now 100% owned by Mr. Victor Zhou, the Chief Executive Officer
        of the
        Company **,** who
        is
        People's Republic of China, or PRC, citizens. Mr. Zhou serves as our nominee.
        We
        have engaged a PRC law firm to study the latest effective regulations and
        the
        steps we could take to apply for the relevant business license in view of
        the
        relaxed foreign equity ownership rules in the wholesale sector in regard
        to our
        Samsung distribution business.
  **Note
        3. Earnings per Share**
  Three
                  Months
                Ended
                November
                  30, 2005
              
              Three
                  Months
                Ended
                November
                  30, 2004Net
                  income
              
              $
              104,690
              
              $
              9,787Effects
                  of dilutive securities
              
              
              -
              
              
              -Weighted
                  average shares outstanding
              
              
              193,931,939
              
              
              173,605,219Basic
                  and dilutive earnings per share
              
              $
              0.000
              
              $
              0.002
  As
        of
        November 30, 2005, we had 27,600,000 options authorized and outstanding,
        each
        exercisable for one share of our common stock. On October 23, 2005, 29,010,239
        warrants issued in connections with a private placement with Enlight expired.
        These instruments were included in the computation of diluted earnings per
        share
        for the periods presented.
  7
  **Note
        4.**  **Equity
        transactions during the three months ended November 30, 2005**
  On
        October 1, 2005, we issued 127,100 shares of our common stock valued at $10,375
        to all of our independent directors in lieu of cash compensation, which
        approximately equaled the fair market value of the stock at issue
        date.
  **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 August
        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 for
        the
        grant 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 on November 23, 2005 during the annual
        shareholder meeting.
  The
        following table summarizes the activity of stock options:
  8
 
  WeightedAverageNumber
                  of
              
              ExerciseShares
              
              PriceShares
                  under option at August 31, 2005
              
              
              28,600,000
              
              
              0.138Granted
              
              
              -Exercised
              
              
              -
              
              
              -Expired
              
              
              (1,000,000
              )
              
              0.65Canceled
              
              
              -
              
              
              -Shares
                  under option at November 30, 2005
              
              
              27,600,000
              
              
              0.120
  On
        December 1, 2003, Ms. Carrie Hartwick, the CEO, was granted an option to
        purchase up to 1 million shares of our common stock at a price of $0.65 per
        share expired on November 30 2005.
  **Warrants**
  As
        of
        November 30, 2005,the 29,010,239 outstanding warrants to purchase 29,010,239
        shares of common stock at $0.001 par value at $0.058 per share in connection
        with signing a private placement of Hartcourt shares with Enlight Corporation
        Ltd., granted on October 23, 2002 was expired on October 23, 2005.
  **Note
        5. Recent Pronouncements**
  In
        December 2002, the FASB issued SFAS No. 148 "Accounting for Stock Based
        Compensation-Transition and Disclosure". SFAS No. 148 amends SFAS No. 123,
        "Accounting for Stock Based Compensation", to provide alternative methods
        of
        transition for a voluntary change to the fair value based method of accounting
        for stock-based employee compensation. In addition, this Statement amends
        the
        disclosure requirements of Statement 123 to require prominent disclosures
        in
        both annual and financial statements about the method of accounting for
        stock-based employee compensation and the effect of the method used, on reported
        results. The Statement is effective for the Companies' reporting period ending
        January 31, 2003.
  In
        compliance with FAS No. 148, the Company has elected to continue to follow
        the
        intrinsic value method in accounting for its stock-based employee compensation
        plan as defined by APB No. 25 and has made the applicable disclosures
        below.
  Had
        the
        Company determined employee stock based compensation cost based on a fair
        value
        model at the grant date for its stock options under SFAS 123, the Company's
        net
        earnings per share would have been adjusted to the pro forma amounts for
        the
        three and six month periods ended November 30, 2005, as follows ($ in thousands,
        except per share amounts) :
  
 9
  For
                  the Three Months Periods
                Ended
                  November 302005
              
              2004(in
                  thousands $)Net
                  income (losses) - as reported
              
              $
              105
              
              $
              10Stock-Based
                  employee compensation expense included in reported net income,
                  net of tax
              
              
              -
              
              
              -Total
                  stock-based employee compensation expense determined under
                  fair-value-based
                method
                  for all rewards, net of tax
              
              
              (47
              )
              
              (56
              )Pro
                  forma net profit (loss)
              
              $
              58
              
              
              (46
              )
  For
                  the Six Months Periods
                Ended
                  November 302005
              
              2004(in
                  thousands $)Net
                  income (losses) - as reported
              
              $
              136
              
              $
              (2,838
              )Stock-Based
                  employee compensation expense included in reported net income,
                  net of tax
              
              
              -
              
              
              -Total
                  stock-based employee compensation expense determined under
                  fair-value-based
                method
                  for all rewards, net of tax
              
              
              (92
              )
              
              (701
              )Pro
                  forma net profit (loss)
              
              $
              44
              
              $
              (3,539
              )The
                  assumptions used in calculating the fair value of options granted
                  using
                  the Black-Scholes option pricing model are as follows:Rick-free
                  interest rate
              
              
              3.4%
              
              
              -Expected
                  life of options
              
              
              5
                  years
              
              
              -Expected
                  volatility
              
              
              57.93%
              
              
              -Expected
                  dividend yield
              
              
              -
              
              
              -
  In
        December 2004, the FASB issued FASB Statement No. 123R, "Share-Based Payment,
        an
        Amendment of FASB Statement No. 123" ("FAS No. 123R"). FAS No. 123R requires
        companies to recognize in the statement of operations the grant date fair
        value
        of stock options and other equity-based compensation issued to employees.
        FAS
        No. 123R is effective beginning in the Company's second quarter of fiscal
        2006.
        The Company is evaluating the impact of the adoption of this standard on
        its
        financial statements.
  In
        December 2004, the FASB issued SFAS Statement No. 153, "Exchanges of
        Non-monetary Assets." The Statement is an amendment of APB Opinion No. 29
        to
        eliminate the exception for non-monetary exchanges of similar productive
        assets
        and replaces it with a general exception for exchanges of non-monetary assets
        that do not have commercial substance. The Company believes that the adoption
        of
        this standard will have no material impact on its financial
        statements.
  10
  In
        May
        2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.”
This statement applies to all voluntary changes in accounting principle and
        requires retrospective application to prior periods ‘financial statements of
        changes in accounting principle, unless this would be impracticable. This
        statement also makes a distinction between “retrospective application” of an
        accounting principle and the “restatement” of financial statements to reflect
        the correction of an error. This statement is effective for accounting changes
        and corrections of errors made in fiscal years beginning after December 15,
        2005. We are evaluating the effect the adoption of this interpretation will
        have
        on its financial position, cash flows and results of operations.
  In
        June
        2005, the EITF reached consensus on Issue No. 05-6, Determining the Amortization
        Period for Leasehold Improvements ("EITF 05-6"). EITF 05-6 provides guidance
        on
        determining the amortization period for leasehold improvements acquired in
        a
        business combination or acquired subsequent to lease inception. The guidance
        in
        EITF 05-6 will be applied prospectively and is effective for periods beginning
        after June 29, 2005. EITF 05-6 is not expected to have a material effect
        on the
        Company's consolidated financial position or results of operations.
  In
        February 2006, FASB issued SFAS No. 155, "Accounting for Certain Hybrid
        Financial Instruments". SFAS No. 155 amends SFAS No 133, "Accounting for
        Derivative Instruments and Hedging Activities", and SFAF No. 140, "Accounting
        for Transfers and Servicing of Financial Assets and Extinguishments of
        Liabilities". SFAS No. 155, permits fair value remeasurement for any hybrid
        financial instrument that contains an embedded derivative that otherwise
        would
        require bifurcation, clarifies which interest-only strips and principal-only
        strips are not subject to the requirements of SFAS No. 133, establishes a
        requirement to evaluate interest in securitized financial assets to identify
        interests that are freestanding derivatives or that are hybrid financial
        instruments that contain an embedded derivative requiring bifurcation, clarifies
        that concentrations of credit risk in the form of subordination are not embedded
        derivatives, and amends SFAS No. 140 to eliminate the prohibition on the
        qualifying special-purpose entity from holding a derivative financial instrument
        that pertains to a beneficial interest other than another derivative financial
        instrument. This statement is effective for all financial instruments acquired
        or issued after the beginning of the Company's first fiscal year that begins
        after September 15, 2006.
  In
        March
        2006, FASB issued SFAS 156 "Accounting for Servicing of Financial Assets"
        this
        Statement amends FASB Statement No. 140, ACCOUNTING FOR TRANSFERS AND SERVICING
        OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES, with respect to the
        accounting for separately recognized servicing assets and servicing liabilities.
 
 This
        Statement:
 
 1.
              Requires
                  an entity to recognize a servicing asset or servicing liability
                  each time
                  it undertakes an obligation to service a financial asset by entering
                  into
                  a servicing contract.2.
              Requires
                  all separately recognized servicing assets and servicing liabilities
                  to be
                  initially measured at fair value, if practicable.3.
              Permits
                  an entity to choose "Amortization method" or "Fair value measurement
                  method" for each class of separately recognized servicing assets
                  and
                  servicing liabilities.4.
              At
                  its initial adoption, permits a one-time reclassification of
                  available-for-sale securities to trading securities by entities
                  with
                  recognized servicing rights, without calling into question the
                  treatment
                  of other available-for-sale securities under Statement 115, provided
                  that
                  the available-for-sale securities are identified in some manner
                  as
                  offsetting the entity's exposure to changes in fair value of servicing
                  assets or servicing liabilities that a servicer elects to subsequently
                  measure at fair value.5.
              Requires
                  separate presentation of servicing assets and servicing liabilities
                  subsequently measured at fair value in the statement of financial
                  position
                  and additional disclosures for all separately recognized servicing
                  assets
                  and servicing liabilities.
  11
 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 overfunded or underfunded 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:
  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.
 
 12
  **Note
        6. Going concern -RESTATED**
  As
        shown
        in the accompanying consolidated financial statements, the Company has suffered
        recurring losses from operations, has an accumulated deficit of $64,738,190
        as
        of November 30, 2005. 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 meet its obligations
        and
        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, obtain financing, 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.
  **Note 7.
        Notes receivable**
  Notes
        receivables as of November 30, 2005 are summarized as follows:
  Notes
                  receivable from Beijing Challenge Group, non-interest bearing,
                  2
                  installment payments,
                secured
                  by one shareholder of Beijing Challenge Group
              
              $
              243,769Less:
                  provisions
              
              
              (120,000
              )Notes
                  receivables, net
              
              
              123,769Summary
                  of notes receivable:Current
                  portion
              
              
              123,769Non-current
                  portion
              
              
              -Total
              
              $
              123,769
  **Note
        8. Due from related party**
  Due
        from
        a related party as of November 30, 2005 amounting $371,356 represents amount
        due
        from Huaqing (51% owned subsidiary)’s minority shareholder pursuant to business
        transactions in the ordinary course. The receivable from a related party
        is
        unsecured, interest free and repayable on demand.
  13
  **Note
        9. Related party transactions**
  During
        the quarter ended November 30, 2005, Hartcourt issued 127,100 shares of our
        common stock valued at $10,375 to its independent directors in lieu of cash
        compensation, which approximately equal to the fair market value of the stock
        at
        issue date.
  **Note
        10. Intangibles - RESTATED**
  Goodwill
        resulting from the acquisition amounted to as of November 30, 2005:
  Goodwill
                  arising from acquisition of Huaqing
              
              $
              1,911,466Goodwill
                  arising from acquisition of Control Tech
              
              
              1,079,009Goodwill
              
              $
              2,990,475
  **Note
        11. Due to related party**
  The
        amount due to a related party as of November 30, 2005 amounting $838 represents
        amount due to Control Tech’s (90% owned subsidiary) minority shareholder
        pursuant to business transactions in the ordinary course. Payable to a related
        party is unsecured, interest free and with no fixed term of
        repayment.
  **Note
        12. Due to Shareholders**
  Due
                  to Enlight (a)
              
              
              150,000Due
                  to Chateau D'orly (a)
              
              
              79,936Total
              
              $
              229,936
  (a)
              The
                  Company signed stock purchase agreements with Enlight Corporation
                  Ltd.
                  ("Enlight") and Chateau D'orly Ltd. ("Chateau") to raise working
                  capital
                  for its operation in the years 2002 and 2003. There is $150,000
                  of dispute
                  between Hartcourt and Englight with respect to the agreement. The
                  stock
                  purchase contract with Chateau is not fully executed and there
                  is $79,936
                  outstanding.
  **Note
        13. Minority Interest -RESTATED**
  The
        amount represents the minority shareholders' interest in Huaqing, a 51%
        subsidiary, and Control Tech, a 90% subsidiary.
  **Note
        14. Other Revenue**
  Other
        revenue mainly consists of net revenue derived from warranty services and
        other
        after-sales services of $123,404. The remaining balances represent of gain
        on
        waiver of $30,871 payable, netting off provision on receivables of $6,028.
  14
  **Note
        15. Commitments and Contingencies**
  A)
              Employment
                  Agreements
  The
        current senior management consisting of Chief Executive Officer (“CEO”) and
        Chief Financial Officer (“CFO”). The Company’s executive employment agreements
        stipulate that senior executives, CEO and CFO of the Company, can be terminated
        without causes with a written notice of 90 days or less.
  B)
              Operating
                  Leases
  The
        Company leases its offices and facilities under long-term, non-cancelable
        lease
        agreements expiring at various dates through October 2007. 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 quarter ended November 30, 2005 and 2004 were $25,848 and
        $21,141, respectively, and for the six months ended November 30, 2005 and
        2004
        were $51,696 and $42,282 respectively.
  T he
        future
        minimum annual lease payments required under the operating leases are as
        follows:
  Year
                  Ending May 31
              
              Payments2006
              
              $
              51,1992007
              
              
              54,9842008
              
              
              15,8382009
              
              
              43,704Total
                  future lease payments
              
              $
              165,725
  c)
              Other
                  Obligations
  Huaqing,
        a 51% owned subsidiary, provides guarantee to Hangzhou Huaqing Monitoring
        Technology Co., Ltd. for bank loan of US$6,449,275 as of November 30, 2005.
        Of
        which, US$2,536,231 are pledged by the inventories of Huaqing. The bank loan
        will mature on various dates before April 06, 2006.
  d)
              Legal
                  Proceedings
  John
        A.
        Furutani vs. The Hartcourt Companies, Inc.
  John
        A.
        Furutani, Hartcourt’s former attorney, filed a complaint against the Company for
        alleged breach of contract in the amount of $54,441 arising out of legal
        representation of the Company and its co-defendant Alan Phan with respect
        to the
        SEC litigation. Both parties had reach out of court settlement and Hartcourt
        had
        fully paid the consideration as agreed on out-of court settlement on July
        1,
        2005.
  **Note
        16. Reclassification**
  Certain
        prior period amounts have been reclassified to conform to the quarter ended
        November 30, 2005 presentation.
  15
  **N** **ote
        17. 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
        18. Subsequent Event**
 
 ***Control
        Tech Electronics (Shanghai) Co., Ltd***
  During
        the transition period ended May 31, 2005, the Company, via its BVI subsidiary,
        Hartcourt Capital, Inc., acquired Control Tech, located and operated in China.
        Control Tech is the distributor of video and audio conference products in
        mainland China. On November 1, 2004, the Company signed a definitive agreement
        to purchase a 90% equity interest in Control Tech for a total consideration
        of
        $1.96 million. Pursuant to the definitive purchase agreement, the purchase
        price
        was to be paid by the issuance of 8,516,902 shares of the Company’s common stock
        at a value of 0.23 per share. On February 25, 2005, the Company completed
        all
        legal procedures to acquire 90% of the capital stock of Control Tech. Due
        to
        Company’s share price decline, the purchase price was revised as $1.96 million
        payable in 19,588,875 shares of Company’s common stock.
  During
        the quarter ended February 28, 2006, Control Tech Electronics (Shanghai)
        Co.,
        Ltd. ceased generating any revenue. Based upon its future projected cash
        flow,
        the Company tested goodwill for impairment as prescribed by SFAS No. 142.
        The Company determined the goodwill to be impaired and recorded an impairment
        charge of $1,079,009.
  **Employment
        agreement**
  Subsequent
        to the year, on May 31, 2006, the Board of Directors of the Company accepted
        the
        resignation of Ms. Carrie Hartwick from CEO and President as well as the
        director, due to her personal reasons.
  On
        May
        31, 2006, the Board of Directors of the Company appointed Mr. Victor Zhou
        to be
        the acting Chief Executive Officer, effective on June 1, 2006. Mr. Victor
        Zhou’s
        employment agreement was signed on June 1, 2006. The compensation includes
        a
        monthly salary of $8,333. In addition, Mr. Victor Zhou was granted 10,000,000
        stock options with excise price of $0.04. The stock option vesting schedule
        is
        as following:
  n  6,000,000
        stock options with three installments of 2,000,000 options each vested upon
        each
        successful new business acquisition of the Company.
  n  2,000,000
        stock options vested upon each full profitable year.
  During
        the three months period ended Aug 31, 2006 when Mr. Victor Zhou serving as
        the
        acting Chief Executive Officer, none of the above options was
        vested.
  16
 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. Victor 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 according to the following vesting schedule and subject
        to
        number of shares available for option approved by shareholders.
  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
        May
        31, 2006, the Board of Directors of the Company appointed Mr. Yungeng Hu
        to be
        the President and the 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 according to the following vesting schedule
        and subject to number of shares available for option approved by shareholders.
  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
  **Common
        Stock Issued for Stock Options**
  On
        July
        4, 2006, the Company granted 5 million shares of stock options with exercise
        price of US$0.04 per share to Dr. Billy Wang and US$50,000 per year for his
        service on Chairman of the Board for fiscal year 2007. The options are to
        be
        vested on Sept 28, 2007 and exercisable within 5 years time after
        vesting.
  On
        July
        25, 2006, we granted total 1,000,000 stock options to our ex-vice president
        Zhou
        Jingjing at excise price of US$0.10 based on our employee compensation plan,
        of
        which 500,000 options vest on July 25, 2006 and the rest 500,000 options
        vest on
        July 25, 2007 subject to his continuing service to the Company. Mr. Zhou
        resigned from the Company on June 9, 2006. Based on his employment contract,
        the
        1,000,000 stock options have been terminated upon his resignation.
  In
        August
        2006, the Company granted 1 million shares of stock options to each independent
        Director for the compensation of their services with exercise price of US$0.05
        per share, 1 year vesting period and exercisable within 5 years time after
        vesting.
  **Note
        19. Restatement**
  Subsequent
        to the issuance of the Company's financial statements for the year ended
        December 31, 2003, the Company determined that a certain transaction and
        presentation in the financial statements had not been accounted for properly
        in
        the Company's financial statements.
  17
 
 During
        the year ended December 31, 2003, the Company acquired four (4) Chinese
        companies located and operated in China. The Company has restated its financial
        statements based on the fair value of the (4) companies at the acquisition
        date.
        Thus, the adjusted carrying amount of the restated items affected the
        subsequently issued financial statements. As a result, the Company restated
        the
        financial statements for the quarter ended November 30, 2005.
 
 The
        effect of the restatement is as follows:
 
 **BALANCE
        SHEET**   ****
 **As
        of November 30, 2005**
 AS
                    PREVIOUSLY
                
                ASREPORTED
                
                RESTATEDTOTAL
                    ASSETS
                
                $
                15,948,857
                
                $
                15,700,222TOTAL
                    CURRENT LIABILITIES
                
                $
                6,959,636
                
                $
                8,961,192MINORITY
                    INTEREST
                
                $
                1,935,920
                
                $
                957,863TOTAL
                    SHAREHOLDERS’ EQUITY
                
                $
                7,053,301
                
                $
                5,781,167TOTAL
                    LIABILITIES AND SHAREHOLDERS’EQUITY
                
                $
                15,948,857
                
                $
                15,700,222
  
 18
  **Item 2.** ***Management’s
        Discussion and Analysis of Financial Condition and Results of
        Operations***
  **Forward-looking
        Statements**
  *This
        report contains forward-looking statements within the meaning of
        Section 27A of the Securities Act of 1933, as amended, and Section 21E
        of the Securities Exchange Act of 1934, as amended. Such statements are based
        upon current expectations that involve risks and uncertainties. Any statements
        contained herein that are not statements of historical fact may be deemed
        to be
        forward-looking statements. For example, the words
“believes,” "anticipates,” “plans,” “expects,” “intends” and similar
        expressions are intended to identify forward-looking statements. Our actual
        results and the timing of certain events may differ significantly from the
        results discussed in the forward-looking statements. Factors that might cause
        such a discrepancy include, but are not limited to, those discussed in “Risk
        Factors Affecting Future Results” and “Liquidity and Capital Resources” below.
        All forward-looking statements in this document are based on information
        available to us as of the date hereof and we assume no obligation to update
        any
        such forward-looking statements. The following discussion should be read
        in
        conjunction with our unaudited condensed consolidated financial statements
        and
        the accompanying notes contained in this quarterly report. Unless expressly
        stated or the context otherwise requires, the terms “we,” “our,” “us” and
“Hartcourt” refer to The Hartcourt Companies, Inc. and its
        subsidiaries*
  **Overview**
  We
        are a
        distributor of internationally well known brand named IT hardware products
        and
        related software and services. The main products are Samsung branded notebooks
        and monitors. Almost all of our revenue for the last two fiscal years and
        since
        the transition period ended May 31, 2005 was attributed to distribution revenues
        from sales of Samsung products in China. Our Samsung distribution business
        began
        in March 2003, through the acquisition of a Chinese company named Huaqin
        Shanghai, who was the distributor of Samsung monitors in the Eastern part
        of
        China. In August 2004, Huaqin Shanghai obtained additional distribution rights
        from Samsung for its notebook product line in the same geographic area. In
        February 2005, we acquired major assets from a Chinese company named Beijing
        Control Tech, who was the distributor of ClearOne audio products and
        Radvision video conference products and services in China. Control Tech’s
        agreement with Radvision terminated on April 1, 2005. We have ceased
        distribution of Radvision Products during the first quarter of 2006, pending
        settlement discussions with Radvision to resolve the distributorship dispute.
  Most
        international and domestic manufacturers of IT products in China rely on
        distributors, such as Hartcourt, to augment their sales and marketing
        operations. As a stocking, marketing, and financial intermediary, the
        distributor relieves manufacturers a portion of the costs and personnel
        associated with stocking and selling their products (including otherwise
        sizable
        investments in finished goods inventories, accounts receivables and distribution
        networks), while providing geographically dispersed selling, order processing,
        and delivery capabilities. At the same time, the distributor offers a broad
        range of customers the convenience of accessing from a single source with
        multiple products and rapid or scheduled deliveries, as well as other
        value-added services such as after sales service. The growth of the IT
        distribution industry in China has been fostered by many manufacturers who
        recognize that distributors are essential extensions of their marketing
        organizations. Most of our customers require delivery of the products they
        have
        ordered on schedules that are generally not available on direct purchases
        from
        manufacturers, and frequently their orders are of insufficient size to be
        placed
        directly with manufacturers.
  19
 Our
        sales
        organization is divided into two product lines: the monitor group and the
        notebook group. Zhou Jing Jing, our Vice President of Operations,
        who joined Hartcourt during the first quarter of fiscal 2006, is
        responsible for our sales organization. We have a centralized online
        Enterprise Resources Planning (ERP) system to support the daily operations,
        connecting order taking, inventory management, distribution, credit, accounting
        and other related functions.
  We
        have
        authorized distribution rights with respect to Samsung monitors, notebooks
        and
        certain digital products covering the consumer and commercial product
        distribution channels in Shanghai, a metropolitan city with a population
        of 20
        million people. The authorized distribution agreement signed between
        Huaqing Shanghai, a 51% owned subsidiary, and Samsung has a one-year term
        and is renewed on an annual basis. In exchange for this authorized distribution
        right, as well as purchase price protection and reimbursed advertising and
        promotion expenses from Samsung, we are required to achieve quarterly purchase
        targets set by Samsung and perform sales promotion and advertising activities
        under Samsung's direction, in addition to meeting other Samsung operational
        requirements. Almost all of our sales for the quarter ended November 30,
        2005
        were comprised of Samsung products, of which monitors accounted for 83% of
        the
        revenue and notebooks accounted for 16% of revenue. Approximately 90% of
        our
        revenue was derived from Sansung monitor sales and 10% from Samsung notebooks
        in
        fiscal 2004.
  Excluding
        the Zhejiang Samsung market which we no longer service as of June 1,
        2005, our Samsung sales in Shanghai grew 15% compared to a year ago same
        period.
  The
        markets in which we compete are dynamic and highly competitive. We expect
        competition to intensify in the future. Our current and potential competitors
        include the local distributors of Philip and LG monitors in the Shanghai
        region,
        as well as other distributors of notebooks made by multinational and leading
        Chinese notebook manufacturers.
  The
        principal competitive factors that affect the market for our business are
        available working capital to finance the revenue growth in terms of inventory
        and trade receivable; the ability to contain operating costs, as well as
        adding
        new product lines to our distribution list.
  Although
        Huaqin Shanghai has been the exclusive distributor for select Samsung IT
        products in the Shanghai region for the last 5 years, much of the services
        we
        provide can be performed by our competitors. In addition, there is a risk
        that
        Samsung may allow our competitors or new entrants to the market to take a
        portion of our Samsung distributor business which would have an adverse impact
        on our business and revenues.
   20
 We
        sell
        Samsung monitors, notebooks and digital devices to large regional retail
        stores
        and to second tier distributors who then resell to smaller retail stores.
        To
        promote Samsung's upscale product image, we also manage several Samsung image
        stores in Shanghai, selling a full range of Samsung consumer electronic products
        in Shanghai's downtown shopping districts in partnership with Samsung. For
        the
        Samsung products for which we have authorized distribution rights, we provide
        product warranty services to retail consumers on behalf of Samsung. In addition,
        we provide and charge for after-sales repair, maintenance and service. Our
        top
        customers for the quarter ended November 30, 2005 were Guowei, a major retailer
        and a distributor in Shanghai, which accounted for approximately 19.3% of
        our revenue; Aiwei, a second-tier distributor, which accounted for
        approximately 9.5% of our revenue; Hongtou Sanbao, a mega consumer electronic
        chain store, which accounted for approximately 5.3% of our revenue; and,
        Huahai, a distributor, which accounted for approximately 5.3% of our
        revenue. During the quarter ended November 30, 2005 no other customer
        or distributor made up more than approximately 5% of our total sales. In
        fiscal
        2004, Hangzhou Huaqin, a distributor in Zhejiang province, accounted for
        31% of
        our revenue, Chenqin, a Shanghai distributor, accounted for
        approximately 8% of our revenue. No other customers or distributors
        accounted for more than approximately 5% of our revenue for the quarter ended
        November 30, 2004.
  We
        source
        our products from Samsung. As of November 30, 2005, approximately 65% of
        our
        Samsung inventory consisted of monitors and approximately 35% consisted of
        notebooks. It is the current practice of Samsung to protect its distributors,
        such as the Company, against the potential write-down of such inventories
        due to
        technological changes or Samsung's price reductions. Under the terms of the
        distributor agreement, and assuming the distributor complies with certain
        conditions, Samsung is required to credit us for inventory losses incurred
        through reductions in manufacturers' list prices of the items.  Because
        most of our business is on an as-needed basis and varies slightly, we have
        no
        customer orders extending more than a week into the future.
  We
        added
        audio/video equipment distribution business in March 2005, after acquiring
        major
        assets from Control Tech, a Chinese distribution company. Our distribution
        agreement with Radvision was terminated on April 1, 2005. Sales of Radvision
        products ceased during the first quarter, 2006. Control Tech is trying to
        amicably resolve the disputes with Radvision.
  **Results
        of Operations**
  The
        following table sets forth the consolidated statements of operations and
        the
        percentage change for the three months ended November 30, 2005, with the
        comparable reporting period in the preceding year.
   21
  **Three
                  Months Ended****November
                  30,**
              
              **Percentage**
              
              **November
                  30,****2005**
              
              **Change**
              
              **2004**Net
                  revenue
              
              $
              11,936,548
              
              
              -40.15
              %
              $
              19,945,688Cost
                  of revenue:Cost
                  of revenue
              
              
              11,105,879
              
              
              -42.07
              
              
              19,170,118Gross
                  profit
              
              
              830,669
              
              
              7.10
              
              
              775,570Operating
                  expenses:Selling, general and administrative
              
              
              307,238
              
              
              -56.28
              
              
              702,662Depreciation
                  and amortization
              
              
              20,441
              
              
              45.46
              
              
              14,053Total
                  operating expenses
              
              
              327,679
              
              
              -54.28
              
              
              716,715Interest
                  income/(expenses)-net
              
              
              (8,650
              )
              
              
              
              
              37,152Other
                  income
              
              
              148,247
              
              
              15.06
              
              
              128,838Minority
                  Interest expense
              
              
              359,410
              
              
              37.00
              
              
              262,341Discontinued
                  operations expenses, net
              
              
              
              
              
              -100.00
              
              
              47,283Income
                  before income taxes
              
              
              283,177
              
              
              2,793.40
              
              
              9,787Provision
                  for income taxes
              
              
              178,487
              
              
              
              
              
              -Net
                  income
              
              $
              104,690
              
              
              969.68
              %
              $
              9,787
  The
        following table sets forth the condensed consolidated statements of operations,
        expressed as a percentage of net revenue, for the periods indicated:
   **Three
                  Months Ended****November
                  30,**
              
              **November
                  30,****2005**
              
              **2004**Net
                  revenue
              
              
              100.00
              %
              
              100.00
              %Cost
                  of revenue
              
              
              93.04
              
              
              96.11Gross
                  margin
              
              
              6.96
              
              
              3.89Operating
                  expenses:Selling,
                  general and administrative
              
              
              2.77
              
              
              3.67Depreciation
                  and amortization
              
              
              0.18
              
              
              0.07Total
                  operating expenses
              
              
              2.74
              
              
              3.59Interest
                  income/(expenses)-net
              
              
              (0.07
              )
              
              0.19Other
                  income
              
              
              1.24
              
              
              0.65Income
                  before income taxes
              
              
              2.37
              
              
              0.05Provision
                  for income taxes
              
              
              1.50
              
              
              -Net
                  income
              
              
              0.88
              %
              
              0.05
              %
   22
  ***Three
        and Six Months Ended November 30, 2005 Compared to Three and Six Months Ended
        November 30, 2004.***
  ***Net
        Revenue***
  We
        recorded net sales of US$11,936,548 for the three months ended November 30,
        2005, compared to US$19,945,688 for the same period in 2004, excluding
        discontinued operations. Lower sales are due to our exit of the Zhejiang
        province market on the Samsung product as a result of Samsung distribution
        channel re-arrangement. Excluding the sales to the Zhejiang region in 2004,
        Samsung product sales in Shanghai grew 15% for the three months ended November
        30, 2005 compared to the prior year period. For the six moths ended November
        30,
        2005, we recorded net sales of US$22,705,312, compared to US$38,799,565 in
        the
        prior year period. Excluding the sales to the Zhejiang region, revenue grew
        18%
        compared to the prior year period.
  ***Cost
        of Revenue and Gross Margin***
  Cost
        of
        Goods Sold amounted to US$11, 105,879 for the three months ended November
        30,
        2005, compared to US$19,170,118 for the same period in 2004, excluding
        discontinued operations. Cost of Goods Sold amounted to US$21,501,801 for
        the
        six months ended November 30, 2005, compared to US$37,452,878 for the same
        period in 2004, excluding discontinued operations. Almost all of the cost
        of
        sales for the three months and six months ended November 30, 2004 and 2005
        represented the cost of Samsung products
  Gross
        margin was US$830,669, or 6.96%, for the three months ended November 30,
        2005,
        compared to US$775,570, or 3.89%, for the same period in 2004. Gross margin
        was
        US$1,203,511, or 5.30%, for the six months ended November 30, 2005 compared
        to
        US$1,346,687, or 3.47% for the same period in 2004. The improvement in gross
        margin was due to better product mix and vendor rebates.
  ***Selling,
        general and administrative expenses*** :
        Our
        selling, general and administrative expenses were US$307,238 for the three
        months ended November 30, 2005 compared to US$702,662 for the same period
        in
        2004, representing a decrease of US$395,424, or 56%, due to lower advertising
        and promotion expenses. Selling, general and administrative expenses were
        US$776,839 for the six month period ended November 30, 2005 compared to
        US$1,271,070 for the same period in 2004, representing a decrease of US$494,231,
        or 41%, due to lower advertising and promotion expenses.
  ***Depreciation
        and amortization expenses:*** Our
        depreciation and amortization expenses were US$20,441 for the three months
        ended
        November 30, 2005 compared to US$14,053 for the same period in 2004. The
        increase was primarily due to our acquisition of Control Tech. Depreciation
        and
        amortization expenses were US$39,133 for the six months ended November 30,
        2005
        compared to US$28,740 for the same period in 2004. The increase was primarily
        due to our acquisition of Control Tech.
  ***Interest
        income:*** Interest
        income was US$42,706 and US$43,651, respectively, for the three months ended
        November 30, 2005 and 2004. The decrease was due to lower third party borrowing
        incurred in this quarter. Interest income was US$73,442 and US$88,279,
        respectively, for the six months ended November 30, 2005 and 2004. The decrease
        was due to lower third party borrowing in 2005.
   23
 ***Interest
        expenses*** :
        Interest expenses were US$51,356 and $6,499, respectively, for the three
        months
        November 30, 2005 and 2004. The increase of US$44,857 or 690%, was primarily
        due
        to the increase of short-term borrowing. For the six months ended November
        30,
        2005 and 2004, interest expenses were US$90,212 and US$51,531, respectively.
        The
        increase of US$38,681 was due to increase of short term borrowing.
  ***Other
        revenue:*** Other
        revenue for the three months ended November 30, 2005 mainly represented income
        from disposal of properties owned by Huaqing of US$124,490, and other income
        of
        $23,757. Apart from the income derived during the three months ended November
        30, 2005, the other revenue for the six months ended November 30, 2005 also
        included the gain from disposal of property owned by Huaqing of $311,495
        and the
        after-sales services income of $42,088.
  ***Income
        from Continuing Operations:*** Income
        from continuing operations for the three months ended November 30, 2005 was
        US$642,587, compared to US$224,845 a year ago, primarily as the result of
        lower
        operating expenses. For the six months period ended November 30, 2005 and
        2004,
        income from continuing operation was US$387,539 and US$46,877, respectively.
        The
        increase was mainly due to lower operating expenses in the quarter ended
        November 30, 2005.
  ***Minority
        interest:*** Minority
        interest represented the profit shared by the minority shareholders of Huaqing
        (49%) and Control Tech (10%) for the three month and six month periods ended
        November 30, 2005. For the three month and six month periods ended November
        30,
        2004, minority interest represented the profit shared by the minority
        shareholders of Huaqing (49%) only.
  ***Income
        tax:*** We
        made
        provision for PRC income taxes of US$178,487 and US$208,251, respectively,
        for
        the three months and six month ended November 30, 2005. This provision for
        taxes
        relates to the estimated amount of taxes that would be imposed by tax
        authorities in the PRC. None of our income is subject to U.S.
        taxes.
  **Liquidity
        and Capital Resources:**
  Our
        principal capital requirements during the quarter ended on November 30, 2005
        have been primarily funded by Chinese short term bank loans.
  As
        shown
        in our accompanying financial statements, we had a net income of US$104,690
        for
        the three months ended November 30, 2005 as compared to US$9,787 for the
        same
        period in 2004 due to higher gross margin and various rebates from the vendor.
        Our current assets exceeded our current liabilities by US$3,453,534 as of
        November 30, 2005.
  As
        of
        November 30, 2005, we had working capital of US$3,453,534. In addition to
        our
        working capital on hand, we intend to obtain needed capital through a
        combination of bank loans and sale of our equity securities. However, there
        are
        no commitments or agreements on the part of anyone at this time to provide
        us
        with additional bank financing or purchase of securities. If we are unable
        to
        raise the necessary additional working capital, our operations and financial
        condition may be adversely affected.
  24
 ***Operating
        activities:*** During
        the six months ended November 30, 2005, net cash used in operating activities
        increased to US$994,199, compared to US$585,816 during the same period in
        2004.
        The increase in cash used in operating activities resulted mainly from clearance
        of other liabilities of Huaqing.
  ***Investing
        activities:*** Net cash
        provided by investing activities during the six months ended November 30,
        2005,
        was US$870,283 compared to cash used in investing activities of US$3,766,201
        for
        the same period in 2004. The cash provided by investment activities in the
        six
        months ended November 30, 2005 was mostly due to US$522,116 proceeds from
        disposed property and recovery of notes in the amount of US$362,834.
  ***Financing
        activities:*** Net cash
        used in financing activities during the six months ended November 30, 2005
        equaled to US$366,955 compared to US$4,113,356 during the same period in
        2004.
        Net cash used in financing activities in the six month ended November 30,
        2005
        and 2004 mainly represents the repayment of balance due to related parties.
  As
        a
        result of the above activities, we experienced a net decrease in cash of
        US$477,756 for the six months ended November 30, 2005.
  **Contractual
        Obligations**
  During
        the quarter ended November 30, 2005, we did not have any contractual obligation
        other than the facility leases described in Note 14(b) of financial
        statements.
  **Off-Balance
        Sheet Arrangements**
  During
        the quarter ended November 30, 2005, the Company did not engage in any
        off-balance sheet arrangements as defined in Item 303(a)(4) of the SEC's
        Regulation S-K.
  **Critical
        Accounting Policies and Estimates**
  For
        a
        description of what we believe to be the critical accounting policies that
        affect our more significant judgments and estimates used in the preparation
        of
        our condensed consolidated financial statements, refer to our Annual Report
        on
        Form 10-K for the 5-month transition period ended May 31, 2005 and our Form
        10-K/A filed on October 10, 2006.. There have been no changes in our critical
        accounting policies since November 30, 2005.
  **Voting
        Results of Annual Shareholders’ Meeting on Nov 23, 2005**
  Hartcourt
        reconvened its shareholder meeting on Nov 23, 2005. A total of 104,810,254
        shares were voted, among which, 1) 99.49% of shares were cast in favor of
        proposal 1: to amend the Articles of Incorporation of the Company to increase
        the authorized number of shares of common stock by 185,000,000 shares and
        to
        eliminate the 1,000 authorized shares of Preferred Stock; 2) 99.99% of shares
        were cast in favor of proposal 2: to amend the Bylaws of the Company to set
        the
        term of office for directors to 2 years; 3) 99.94% of shares were cast in
        favor
        of proposal 3: to elect five members of the Board of Directors; 4) 99.99%
        of
        shares were cast in favor of proposal 4: to ratify the appointment of Kabani
        & Company, Inc., as the Company’s independent public accountants for the
        fiscal year ending May 31, 2006; and 5) 99.65% of shares were cast in favor
        of
        proposal 5: to approve the adoption of the 2005 Stock Option Plan.
  25
 **Item 4.** ***Controls
        and Procedures***
  **Evaluation
        of disclosure controls and procedures** *.* Our
        management evaluated, with the participation of our chief executive officer
        and
        our chief financial officer, the effectiveness of our disclosure controls
        and
        procedures as of the end of the period covered by this Quarterly Report on
        Form
        10-Q. Based on this evaluation, our chief executive officer and our chief
        financial officer have concluded that our disclosure controls and procedures
        are
        effective to ensure that information we are required to disclose in reports
        that
        we file or submit under the Securities Exchange Act of 1934 is recorded,
        processed, summarized and reported within the time periods specified in
        Securities and Exchange Commission rules and forms.
  We
        have
        considered the effectiveness of our disclosure controls and procedures as
        of
        December 31, 2003, December 31, 2004, May 31, 2005, August 31, 2005 and November
        30, 2005 in light of the restatement. We believe our current disclosure controls
        and procedures are adequate to ensure that material information relating
        to the
        registrant, including its consolidated subsidiaries, is made known to us
        by
        others within those entities.
  **Changes
        in internal control over financial reporting** *.* There
        was
        no change in our internal control over financial reporting that occurred
        during
        the period covered by this Quarterly Report on Form 10-Q that has materially
        affected, or is reasonably likely to materially affect, our internal control
        over financial reporting. We are aware that any system of controls, however
        well
        designed and operated, can only provide reasonable, and not absolute, assurance
        that the objectives of the system are met, and that maintenance of disclosure
        controls and procedures is an ongoing process that may change over time.
   
 26
 **PART
        II: OTHER INFORMATION**
  **Item 6.** ***Exhibits.***
   **Exhibit****Number**
              
              **Description**31.1
              
              Rule 13a-14(a)/15d-14(a)
                  Certification of Principal Executive Officer31.2
              
              Rule 13a-14(a)/15d-14(a)
                  Certification of Principal Financial Officer32.1
              
              Section 1350
                  Certification of Principal Executive Officer32.2
              
              Section
                  1350 Certification of Principal Financial
                  Officer
     **SIGNATURES**
  Pursuant
        to the requirements of the Securities Exchange Act of 1934, the registrant
        has
        duly caused this report to be signed on its behalf by the undersigned thereunto
        duly authorized.
  The
                  Hartcourt Companies, Inc.
                RegistrantDate:
                  November 13, 2006
              By:
                  /s/*Victor
                  Zhou*Victor
                  Zhou*Chief
                  Executive Officer*Date:
                  November 13, 2006
              By:
                  /s/*Yungeng
                  Hu*Yungeng
                  Hu*Chief
                  Financial Officer& President*
 
  27
  **Exhibit Index**
  **Exhibit****Number**
              
              **Description**31.1
              
              Rule 13a-14(a)/15d-14(a)
                  Certification of Principal Executive Officer31.2
              
              Rule 13a-14(a)/15d-14(a)
                  Certification of Principal Financial Officer32.1
              
              Section 1350
                  Certification of Principal Executive Officer32.2
              
              Section
                  1350 Certification of Principal Financial
                  Officer
 
   28