**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**Form 10-Q**





x
            
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934.**
              **For
                the quarterly period ended November 30,
                2006**




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





**Commission
      file number: 001-12671**




**The
      Hartcourt Companies, Inc.**


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




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





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




**(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 o     Accelerated
      filer o   Non-accelerated
      filer x





Indicate
      by check mark whether the registrant is a shell company as defined in Rule
      12b-2
      of the Change Act.       Yes o   No x




The
      number of outstanding shares of the registrant’s Common Stock, $0.001 par value,
      was 201,287,549 as of December 28, 2006.





**TABLE
      OF CONTENTS**





**PART
                I: FINANCIAL INFORMATION**Item 1.
            Financial
                Statements
            3Unaudited
                Consolidated Balance Sheets
            3Unaudited
                Consolidated Statements of Operations
            5Unaudited
                Consolidated Statements of Cash Flows
            7Notes
                to Unaudited Consolidated Financial Statements
            9Item 2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of Operations
            22Item 3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            29Item 4.
            Controls
                and Procedures
            30**PART
                II: OTHER INFORMATION**Item
                1
            Legal
                Proceedings
            30Item
                2
            Unregistered
                Sale of Equity Securities and Use of Proceeds
            30Item
                3
            Defaults
                Upon Senior Securities
            30Item
                4
            Submission
                of Matters to a Vote of Security Holders
            31Item
                5
            Other
                Information
            31Item 6.
            Exhibits
            31Signatures
            32EXHIBIT
                10.1EXHIBIT
                10.2EXHIBIT 10.3EXHIBIT
                31.1EXHIBIT
                31.2EXHIBIT
                32.1EXHIBIT
                32.2


2




**PART
      I. FINANCIAL INFORMATION**




Item
      1.  Financial
      Statements




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




**CONSOLIDATED
      BALANCE SHEET (Unaudited)**




**November
      30, 2006**







**ASSET****CURRENT
                ASSETS**Cash
                and cash equivalents
            
            $
            613,862Certificates
                of deposit
            
            
            637,462Accounts
                receivable, net
            
            
            1,426,834Inventories,
                net
            
            
            1,501,868Advance
                to suppliers
            
            
            1,284,193Assets
                pending for sale
            
            
            300,000Other
                receivable and prepaid expenses
            
            
            2,501,083**TOTAL
                CURRENT ASSETS**
            
            
            **8,265,302****PROPERTY
                & EQUIPMENT - NET**
            
            
            92,296**INVESTMENTS**
            
            
            63,746**INTANGIBLE
                ASSET**Goodwill
            
            
            1,911,466**TOTAL
                ASSETS**
            
            $
            10,332,810**LIABILITIES
                AND SHAREHOLDERS' EQUITY****CURRENT
                LIABILITIES**Accounts
                payable
            
            $
            854,025Loan
                from employees
            
            
            1,554,310Advance
                from customers
            
            
            663,385Bank
                loans
            
            
            254,985Bill
                payable
            
            
            637,462Due
                to directors
            
            
            62,222Accrued
                expenses
            
            
            2,838,313Other
                current liabilities
            
            
            850,850**TOTAL
                CURRENT LIABILITIES**
            
            
            **7,715,552**






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


3




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




**CONSOLIDATED
      BALANCE SHEET (Unaudited) (Continued)**




**November
      30, 2006**






**MINORITY
                INTERESTS**
            
            
            317,621**SHAREHOLDERS'
                EQUITY****Preferred
                Stock:**Class
                A preferred stock, 10,000,000 shares authorized,none
                issued and outstanding
            
            
            -**Common
                stock**:$0.001
                par value, 424,999,000 authorized197,578,431
                issued, 195,529,703 outstanding
            
            
            195,530Shares
                to be issued
            
            
            189,872Additional
                paid in capital
            
            
            70,688,091Treasury
                stock, at cost, 48,728 shares
            
            
            (48,728
            )Other
                comprehensive income
            
            
            138,967Accumulated
                deficit
            
            
            (68,864,095
            )**TOTAL
                SHAREHOLDERS' EQUITY**
            
            
            **2,299,637****TOTAL
                LIABILITIES AND SHAREHOLDERS' EQUITY**
            
            $
            10,332,810








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


4




**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 30,2006
            
            2005
            
            2006
            
            2005Sales,
                net
            
            $
            12,016,576
            
            $
            11,936,548
            
            $
            24,466,858
            
            $
            22,705,312Cost
                of sales
            
            
            11,663,337
            
            
            11,105,879
            
            
            23,542,771
            
            
            21,501,801Gross
                profit
            
            
            353,239
            
            
            830,669
            
            
            924,087
            
            
            1,203,511Operating
                expenses:Selling,
                general and administrative
            
            
            552,990
            
            
            307,238
            
            
            1,015,439
            
            
            776,839Provision
                for bad debts
            
            
            1,384,685
            
            
            
            
            
            1,384,685Depreciation
                and amortization
            
            
            10,579
            
            
            20,441
            
            
            23,638
            
            
            39,133Total
                operating expenses
            
            
            1,948,254
            
            
            327,679
            
            
            2,423,762
            
            
            815,972Income/(loss)
                from operations before other income/(expenses), minority interest
&
                income tax
            
            
            (1,595,015
            )
            
            502,990
            
            
            (1,499,675
            )
            
            387,539Other
                income/(expense):Interest
                expense
            
            
            (42,355
            )
            
            (51,356
            )
            
            (97,470
            )
            
            (90,212
            )Interest
                income
            
            
            2,860
            
            
            42,706
            
            
            28,897
            
            
            73,442Other
            
            
            (388
            )
            
            148,247
            
            
            (751
            )
            
            501,630Total
                other income/(expense)
            
            
            (39,883
            )
            
            139,597
            
            
            (69,324
            )
            
            484,860Income/(loss)
                before minority interest & income tax
            
            
            (1,634,898
            )
            
            642,587
            
            
            (1,568,999
            )
            
            872,399Minority
                Interest
            
            
            613,995
            
            
            359,410
            
            
            421,356
            
            
            527,924Income/(loss)
                before income tax
            
            
            (1,020,903
            )
            
            283,177
            
            
            (1,147,643
            )
            
            344,475Income
                taxation
            
            
            7,077
            
            
            178,487
            
            
            7,077
            
            
            208,251NET
                INCOME/(LOSSES)
            
            
            (1,027,980
            )
            
            104,690
            
            
            (1,154,720
            )
            
            136,224OTHER
                COMPREHENSIVE INCOMEForeign
                currency translation income
            
            
            61,117
            
            
            17,338
            
            
            112,592
            
            
            134,650COMPREHENSIVE
                INCOME (LOSS)
            
            
            (966,863
            )
            
            122,028
            
            
            (1,042,128
            )
            
            270,874







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


5




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




**CONSOLIDATED
      STATEMENTS OF OPERATIONS (Unaudited) (Continued)**







BASIC
                AND DILUTED EARNINGS/(LOSS)PER
                COMMON SHARE:Earnings/(loss)
                per share
            
            $
            (0.005
            )
            $
            0.001
            
            $
            (0.005
            )
            $
            0.000Basic
                and diluted weighted average number of shares
            
            
            195,443,459
            
            
            193,931,939
            
            
            195,293,311
            
            
            193,844,261







Weighted
      average number of shares for dilutive securities has not been calculated because
      the effect of dilutive securities is anti-dilutive.







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


6




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




**CONSOLIDATED
      STATEMENTS OF CASH FLOWS (Unaudited)**






For
                the Six Month Periods Ended
              November
                30,2006
            
            2005CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                income/(loss)
            
            $
            (1,154,720
            )
            $
            136,224Adjustments
                to reconcile net income/(losses) to net cash used in operating
                activities:Gain
                on disposal of property and equipment
            
            
            -
            
            
            (312,279
            )Gain
                on disposal of continuing operations
            
            
            -
            
            
            -Gain
                on waive off debts
            
            
            -
            
            
            (39,133
            )Depreciation
            
            
            23,638
            
            
            39,133Stock
                options cost
            
            
            256,466
            
            
            -Provision
                on receivables
            
            
            1,384,685
            
            
            6,028Minority
                interest
            
            
            (421,356
            )
            
            527,924Stock
                issued for services and compensations
            
            
            29,874
            
            
            21,250Changes
                in operating assets and liabilities:
            
            
            -Accounts
                receivable
            
            
            (1,107,879
            )
            
            (173,996
            )Advances
                to suppliers
            
            
            (570,572
            )
            
            448,147Inventories
            
            
            229,705
            
            
            274,952Prepaid
                expenses and other receivables
            
            
            (42,609
            )
            
            (169,126
            )Accounts
                payable
            
            
            295,884
            
            
            (86,657
            )Accrued
                expenses and other current liabilities
            
            
            1,461
            
            
            (279,884
            )Advances
                from customers
            
            
            663,385
            
            
            (1,394,791
            )**NET
                CASH USED IN OPERATING ACTIVITIES**
            
            
            (412,038
            )
            
            (994,199
            )CASH
                FLOWS FROM INVESTING ACTIVITIES:Purchase
                of property and equipment
            
            
            (768
            )
            
            (14,667
            )Proceeds
                on disposal of property and equipment
            
            
            -
            
            
            522,116Proceeds
                on notes receivable, net
            
            
            -
            
            
            362,834**NET
                CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES**
            
            $
            (768
            )
            **$**
            **870,283**






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


7




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




**CONSOLIDATED
      STATEMENTS OF CASH FLOWS (Unaudited) (Continued)**




CASH
                  FLOWS FROM FINANCING ACTIVITIESProceeds
                  from stock subscription
              
              
              189,872
              
              
              -Proceeds
                  from (payments to) related parties-net
              
              
              12,353
              
              
              (298,628
              )Proceeds
                  /(repayment) on loans and lines of credit-net
              
              
              312,572
              
              
              (68,327
              )**NET
                  CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES**
              
              
              **514,797**
              
              
              **(366,955**
              **)****EFFECT
                  OF EXCHANGE RATE ON CASH**
              
              
              **111,199**
              
              
              **13,115****NET
                  INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS**
              
              
              **213,190**
              
              
              **(477,756**
              **)****CASH
                  AND CASH EQUIVALENTS - BEGINNING OF PERIOD**
              
              
              400,672
              
              
              1,369,914**CASH
                  AND CASH EQUIVALENTS - END OF PERIOD**
              
              
              613,862
              
              
              892,158SUPPLEMENTAL
                  DISCLOSURE OF CASH FLOWSCash
                  paid for interest
              
              $
              6,693
              
              $
              22,603Cash
                  paid for income taxes, net of refund received
              
              $
              -
              
              $
              85,395






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


8




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




**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**NOVEMBER
      30, 2006 AND 2005**








**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 August 2006, we announced
      our intention to expand our business to include providing vocational/training
      and education service in the People’s Republic of China. See “Note 23,
      Subsequent events.”





As
      of
      November 30, 2006, the Company owns 100% of three (3) British Virgin Island
      (“BVI”) incorporated companies: (1) Hartcourt China Inc., (2) Hartcourt Capital
      Inc., and (3) AI-Asia Inc. All three of these BVI subsidiaries are holding
      companies for assets located in China.




As
      of
      November 30, 2006, the Company owns a 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 interest in Huaqing.




In
      September 2006, the Company has entered into a definitive sales & purchase
      agreement to sell its interest in Control Tech, which is expected to close
      not
      later than February 28, 2007.





As
      of
      November 30, 2006, Hartcourt Capital Inc. owns 100% of Hartcourt Hi-Tech
      Investment (Shanghai) Inc. Hartcourt Hi-Tech Investment (Shanghai) Inc., through
      its employees as nominees, owns 100% of Shanghai Jiumeng Information Technology
      Co., Ltd. These two companies are located in Shanghai, China.




As
      of
      November 30, 2006, AI-Asia, Inc., the third holding company, owns 100% equity
      of
      AI-Asia (Shanghai) Information Technology, Inc of China (“AI”), located in
      Shanghai, China.




**NOTE
      2**   **BASIS
      OF PRESENTATION**





The
      accompanying unaudited consolidated financial statements have been prepared
      in
      accordance with the rules and regulations of the Securities and Exchange
      Commission for the presentation of financial information, but do not include
      all
      the information and footnotes required by generally accepted accounting
      principles for complete financial statements. The audited consolidated financial
      statements for the fiscal year ended May 31, 2006 were filed on September 15,
      2006 with the Securities and Exchange Commission and are hereby referenced.
      In
      the opinion of management, all adjustments considered necessary for a fair
      presentation have been included. Operating results for the six-month period
      ended November 30, 2006 are not necessarily indicative of the results that
      may
      be expected for the year ended May 31, 2007.


9


The
      accounting policies followed by us are set forth in Notes to our consolidated
      financial statements as stated in our report on Form 10-K for the fiscal year
      ended May 31, 2006, as filed on September 15, 2006 and incorporated into this
      Form 10-Q by reference.





**Principles
      of Consolidation**





Our
      financial statements for the three months ended November 30, 2006 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. 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 90% owned by Mr. Victor Zhou, the Chief Executive Officer of the
      Company, who is a citizen of the People's Republic of China(“PRC”). Mr. Victor
      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.





**Minority
      interest**





The
      amount represents the minority shareholders' interest in Huaqing, a 51%
      subsidiary of the Company.




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





Three
                Months
              Ended
              November
                30,
              2006
            
            Three
                Months
              Ended
              November
                30,
              2005Net
                income
            
            $
            (1,027,980
            )
            $
            104,690Effects
                of dilutive securities
            
            
            -
            
            
            -Weighted
                average shares outstanding
            
            
            195,443,459
            
            
            193,931,939Basic
                and dilutive earnings/(loss) per share
            
            $
            (0.005
            )
            $
            0.001





As
      of
      November 30, 2006, we had 34,600,000 options outstanding, each exercisable
      for
      one share of our common stock. These instruments were not included in the
      computation of diluted earnings per share for any of the periods presented,
      due
      to their anti-dilutive effects.


10


**NOTE
      4**  **EQUITY
      TRANSACTIONS DURING THE PERIOD**





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





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





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





**Stock
      Option Plan**




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





Primarily
      as a result of adopting SFAS No. 123R, the Company recognized $155,093 and
      $256,466 in share-based compensation expense for the three months and six months
      period ended November 30, 2006 respectively. The impact of this share-based
      compensation expense on the Company’s basic and diluted earnings per share was
      ($0.001) per share. The fair value of our stock options was estimated using
      the
      Black-Scholes option pricing model.





For
      periods presented prior to the adoption of SFAS No. 123R, pro forma
      information regarding net income and earnings per share as required by SFAS
      No. 123R has been determined as if we had accounted for our employee stock
      options under the original provisions of SFAS No. 123. The fair value of
      these options was estimated using the Black-Scholes option pricing model. For
      purposes of pro forma disclosure, the estimated fair value of the options is
      amortized to expense over the option’s vesting period.


11


In
      April
      1995, the Company adopted a stock option plan (the “April 1995 Plan”) to attract
      and retain qualified persons for positions of substantial responsibility as
      officers, directors, employees, consultants, legal counsel, and other positions
      of significance to the Company, the April 1995 Plan provided for the issuance
      of
      both Incentive Stock Options and Non-Qualified Stock Options. The April 1995
      Plan, was administered by the Board of Directors and provided 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 were generally
      exercisable over a 10-year period from the date of grant. Each option lapsed
      90
      days after the optionee terminated his continuous activity with the Company,
      except that if such continuous activity with the Company terminates by reason
      of
      death, such option of the deceased optionee was exercisable within one year
      after the death of such optionee. Options granted under the Plan were restricted
      as to sale or transfer. All options were granted at not less than fair value
      at
      the date of grant and had terms of 10 years. The April 1995 Plan expired in
      March 2005 pursuant to its terms. As of November 30, 2006, 300,000 options
      remained outstanding under the April 1995 Plan.





In
      2005,
      The Board of directors adopted a new stock option plan (the “2005 Plan”) to
      replace the April 1995 Plan in order to attract and retain qualified persons
      for
      positions of substantial responsibility as officers, directors, employees,
      consultants, legal counsel, and other positions of significance to the Company.
      The 2005 Plan provides for the grant of stock options and stock appreciation
      rights, and the issuance of 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 terminate 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 2005 Plan
      are
      restricted as to sale or transfer.





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





On
      July
      4, 2006, the Company granted Billy Wang, Chairman of the Board, an option to
      purchase 5,000,000 shares of our common stock at excise price of $0.04. The
      option will vest on Sept 28, 2007 and are exercisable within five years time
      after vesting. On December 6, 2006, the Board of Directors realized that the
      exercise price of $0.04 was incorrect and, based on the fair market value of
      the
      Company’s stock on the date of grant, the exercise price should have been $0.05.
      The option has been amended to reflect the new exercise price.


12


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 an option
      to
      purchase 10,000,000 shares of our common stock with excise price of $0.04.
      The
      stock option vesting schedule is as following:





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





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.





On
      June
      1, 2006, the Company granted Yungeng Hu, CFO & President of the Company, an
      option to purchase total 11,000,000 shares of our common stock at excise price
      of $0.04 according to the following vesting schedule and based on our employee
      compensation plan.


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


On
      August
      23, 2006, the Company granted Geoffrey Wei and Wilson Li, independent directors
      of the Company each an option to purchase 1,000,000 shares of our common stock
      at excise price of $0.05. The option will vest on August 23, 2007 and is
      exercisable within five years time after vesting.





On
      September 1, 2006, the Board of Directors made Victor Zhou the permanent CEO
      of
      the Company, and in connection of this decision granted to Mr. Zhou options
      to
      purchase a total of 11,000,000 shares of our common stock at excise price of
      $0.05 according to the following vesting schedule and based on our employee
      compensation plan. These options replace the options that were granted on June
      1, 2006, which compensated Mr. Zhou for his serves as Acting Chief Executive
      Officer.


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


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


13


The
      following table summarizes the activity of stock options:





Number
                of
              Shares
            
            Weighted
              Average
              Excerise
                Price
            
            Aggregate
              Intrinsic
                ValueShares
                under option at May 31, 2006
            
            
            24,600,000
            
            $
            0.127
            
            $
            0Granted
            
            
            18,000,000
            
            
            0.041ExercisedExpired
            
            
            3,000,000
            
            
            0.300Canceled
            
            
            16,000,000
            
            
            0.091Shares
                under option at August 31, 2006
            
            
            23,600,000
            
            
            0.064
            
            $
            340,000Granted
            
            
            11,000,000
            
            
            0.05Exercised
            
            
            -
            
            
            -Expired
            
            
            -
            
            
            -Canceled
            
            
            -
            
            
            -Shares
                under option at November 30, 2006
            
            
            34,600,000
            
            $
            0.060
            
            $
            690,000





Following
      is a summary of the status of options outstanding at November 30, 2006:


Range
                  of
              
              Total
              
              Weighted
              
              Total
              
              Options
              
              WeightedExercise
              Options
              Average
              Weighted
              Exercisable
              AveragePrices
              Outstanding
              Remaining
              Average
              
              ExerciseLife
                  (Years)
              Exercise
                  Price
              
              Price$0.04
              
              3,500,000
              
              N.A
              
              $0.04
              
              -
              
              $0.04$0.04
                  - $0.05
              
              14,500,000
              
              6.16
              
              $0.04
              
              -
              
              $0.04$0.09
              
              5,300,000
              
              4.57
              
              $0.09
              
              5,300,000
              
              $0.09$1.00
              
              300,000
              
              1.79
              
              $1.00
              
              300,000
              
              $1.00$0.05
              
              11,000,000
              
              5
              
              $0.05
              
              4,375,000
              
              $0.07




During
      the three months ended November 30, 2006, a total of 4,375,000 options vested,
      but not exercised.





The
      assumptions used in calculating the fair value of options granted during the
      three months ended November 30, 2006 using the Black-Scholes option- pricing
      model are as follows:





Risk-free
                interest rate
            4.92%Expected
                life of the options
            5.00
                years after vestingExpected
                volatility
            57.93%Expected
                dividend yield
            0




14


**Warrants**





There
      are
      no warrants outstanding as of November 30, 2006.





**NOTE
      5**   **RECENT
      PRONOUNCEMENTS**





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 free standing 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; and





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.


15


This
      Statement is effective as of the beginning of the Company's first fiscal year
      that begins after September 15, 2006. Management believes that this statement
      will not have a significant impact on the financial statements.





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





In
      September 2006, FASB issued SFAS 158 ‘Employers’ Accounting for Defined Benefit
      Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87,
      88, 106, and 132(R)’ This Statement 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. Management is currently evaluating
      the effect of this pronouncement on financial statements.





In
      July
      2006, the FASB released FASB Interpretation No. 48, Accounting for Uncertainty
      in Income Taxes, an interpretation of FASB Statement No. 109 (FIN 48). FIN
      48
      clarifies the accounting and reporting for uncertainties in income tax law.
      This
      interpretation prescribes a comprehensive model for the financial statement
      recognition, measurement, presentation and disclosure of uncertain tax positions
      taken or expected to be taken in income tax returns. This statement is effective
      for fiscal years beginning after December 15, 2006. Management is currently
      in
      the process of evaluating the expected effect of FIN 48 on our results of
      operations and financial position.


16


**NOTE
      6**  ****  **GOING
      CONCERN**





As
      shown
      in the accompanying consolidated financial statements, the Company has suffered
      recurring losses from operations and has an accumulated deficit of  $68,864,095  as
      of
      November 30, 2006. These factors, among others, raise substantial doubt about
      the Company’s ability to continue as a going concern. The Company’s need for
      working capital is a key issue for management and necessary for the Company
      to
      meet its goals and objectives. The Company continues to pursue additional
      capitalization opportunities. There is no assurance, however, that the Company
      will be successful in meeting its goals and objectives in the
      future.





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





The
      Company has taken certain restructuring steps to provide the necessary capital
      to continue its operations. These steps included: 1) acquire profitable
      operations through issuance of equity instruments, 2) disposal of unprofitable
      or unfavorable return-on-investment operations, and 3) focus on creating
      shareholder value by seeking higher margin business, initially in the Chinese
      vocational training marketplace. The Company plans to continue actively seeking
      additional funding and to restructure the acquired subsidiaries to increase
      profits and minimize the liabilities.





**NOTE
      7**   **ACCOUNTS
      RECEIVABLE**




Accounts
      receivable as of November 30, 2006 consisted of the following:





AmountAccounts
                receivable
            
            $
            2,764,518Less:
                allowance for doubtful accounts
            
            
            (1,337,684
            )Total
            
            $
            1,426,834




**NOTE
      8**   **INVENTORIES**




Inventories
      as of November 30, 2006 consisted of the following:




AmountMonitors
            
            $
            1,001,604Laptops
            
            
            57,031Others
            
            
            447,628Less:
                provisions for obsolete inventories
            
            
            (4,395
            )Net
            
            $
            1,501,868




17


**NOTE
      9**   **ADVANCES
      TO SUPPLIERS**




The
      Company made prepayments to Samsung to purchase inventory as required by
      Samsung. This amount represents the advances paid by Huaqing, a 51% owned
      subsidiary to Samsung of $1,284,193 at August 31, 2006.





**NOTE
      10** **ASSETS
      PENDING FOR SALE**





This
      represents assets of Control Technology as of November 30, 2006, amounting
      $300,000. In September 2006, the Company has entered into a definitive sales
      & purchase agreement to sell its interest in Control Tech, which is expected
      to close not later than February 28, 2007.





**NOTE
      11**   **OTHER
      RECEIVABLES AND PREPAID EXPENSES**





Other
      current assets as of November 30, 2006 are summarized as follows:




AmountOther
                receivables
            
            $
            2,622,133Prepaid
                expenses
            
            
            6,442Provision
            
            
            (127,492
            )Total
            
            $
            2,501,083





**NOTE
      12**   **PROPERTIES
      AND EQUIPMENT**





The
      Company’s property and equipment as of November 30, 2006 are summarized as
      follows:





AmountOffice
                equipment and computers
            
            $
            54,176Vehicle
            
            
            219,765273,941Less:
                accumulated depreciation
            
            
            -181,645Property
                and equipment, net
            
            $
            92,296





**NOTE
      13**  **INTANGIBLE
      ASSETS**





Goodwill
      resulted from the acquisition of Huaqing in year 2003.





The
      Company, via its wholly owned subsidiary (Hartcourt Capital, Inc.) entered
      into
      two conditional sales and purchase agreements to acquire 45% and 6% equity
      interest of Hauqing in February and June 2003 respectively. The consideration
      for the acquisition was solely paid by the issuance of 15,960,474 and 1,340,455
      restricted shares of common stock of the Company for this
      acquisition.


18


**NOTE
      14**   **LOAN
      FROM EMPLOYEES**





Huaqing,
      a 51% owned subsidiary of the Company, issued short-term bonds to its employees
      to raise additional working capital. The bonds bear interest at a rate of 10%
      has no maturity date.





**NOTE
      15**   **ADVANCE
      FROM CUSTOMERS**





The
      Company received $633,385 as advances from customers for the purchase of
      computer equipment and peripherals.





**NOTE
      16**   **SHORT
      TERM BANK LOAN**





Short
      term bank loan as of November 30, 2006 are summarized as follows:




Subsidiaries
                Name
            
            Amount
            
            Interest
                rate
              (Per
                annum)
            
            Due
                Date
            
            Secured
                byHuaqing
            
            $
                254,985
            
            7.02%
            
            July
                11, 2007
            
            China
                National Investment & Guaranty Co.,
                Ltd.





The
      amount of interest expense for the three and six months ended November 31,
      2006
      was 4,475 and 8,950 respectively.





**NOTE
      17**   **NOTES
      PAYABLE**





The
      amount of $637,462 in notes payable is a promissory note issued by a subsidiary
      of Huaqing and secured by the fixed deposit of Huaqing. The notes bear interest
      at a monthly rate of 0.3% and the maturity dates of the notes are from January
      10, 2007 to January 17, 2007.





**NOTE
      18**   **DUE
      TO DIRECTORS**





The
      amount due to directors as of November 30, 2006 represents director fee due
      to
      the Company’s director.





**NOTE
      19**   **ACCRUED
      EXPENSES**




Accrued
      expenses as of November 30, 2006 are summarized as follows:


AmountAccrued
                directors’ compensations
            
            $
            47,375Accrued
                interest
            
            
            281,897Accrued
                professional fees
            
            
            31,250Accrued
                employees compensations
            
            
            213,590Accrued
                tax payable
            
            
            2,261,201Total
            
            $
            2,835,313


19


**NOTE
      20** **RELATED
      PARTY TRANSACTION**




During
      the quarter ended November 30, 2006, Hartcourt issued 253,168 shares of common
      stock valued at $14,000 to its directors in lieu of cash compensation for
      services rendered, which approximately equaled the fair market value of the
      stock on the issuance date.




**NOTE
      21**   **COMMITMENTS
      AND CONTINGENCIES**





A)
      Employment Agreements





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





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. The compensation
      includes a monthly salary of $8,333 ($100,000 annually). In addition, Mr. Victor
      Zhou was granted an option to purchase 10,000,000 shares of our common stock
      with excise price of $0.04. The stock option vesting schedule was as
      following:





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





During
      the three months period ended August 31, 2006 when Mr. Victor Zhou serving
      as
      the acting Chief Executive Officer, none of the above options
      vested.





On
      September 1, 2006, the Board of Directors of the Company promoted Mr. Victor
      Zhou to be the Chief Executive Officer. The compensation includes an annual
      base
      salary of $100,000, payable in equal monthly installment of US$8,333 cash.
      In
      addition, Mr. Victor Zhou was granted an option to purchase 11,000,000 shares
      of
      our common stock with excise price of $0.05 according to the following vesting
      schedule and subject to the number of shares conserved by the option being
      subsequently approved by shareholders. These options replace the options that
      were granted on June 1, 2006.





·
            Option
                to purchase 7,500,000 shares of our common stock to be vested pro
                rata
                over two years of the employment contract period in equal installments
                of
                every six months; and·
            Option
                to purchase 2,000,000 shares of our common stock to be vested upon
                each
                successful new business acquisition of the Company; and·
            Option
                to purchase 1,500,000 shares of our common stock to be vested upon
                each
                full profitable year.




20


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. The
      compensation includes an annual base salary of $150,000, payable by equal
      monthly installments of US$12,500 cash. In addition, Mr. Yungeng Hu was granted
      an option to purchase 11,000,000 shares of our common stock with excise price
      of
      $0.04 according to the following vesting schedule and subject to number of
      shares conserved by the option being subsequently approved by shareholders.





·
            Option
                to purchase 7,500,000 shares of our common stock to be vested pro
                rata
                over 2 years of the employment contract period in equal installments
                of
                every six months; and·
            Option
                to purchase 2,000,000 shares of our common stock to be vested upon
                each
                successful new business acquisition of the Company; and·
            Option
                to purchase 1,500,000 shares of our common stock to be vested upon
                each
                full profitable year




B)
            Operating
                Leases




The
      Company leases its offices and facilities under long-term, non-cancelable lease
      agreements expiring at various dates through August 4, 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, 2006 and 2005 were $28,212 and
      $25,848, respectively.




The
      future minimum lease payments for the next six months period ending May 31,
      2007
      will be $56,500.




**NOTE
      22**   **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
      23**   **SUBSEQUENT
      EVENTS**




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





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


21


On
      December 29, 2006, the Company entered into a definitive agreement to purchase
      100% of the equity interests in China Princely Education Technology Development
      Company Limited (“China Princely”), an authorized accrediting organization for
      China vocational education located in Beijing, the People’s Republic of China.
      Under the terms of the purchase agreement, the purchase price that the Company
      agreed to pay to the shareholders of China Princely is $38,462 (RMB300,000)
      and
      5,400,000 shares of the Company’s restricted common stock, which, pursuant to
      the purchase agreement, will be payable upon closing of the acquisition, plus
      a
      $269,230 (RMB2,100,000) of capital injection in China Princely upon closing
      of
      the acquisition. Mr. Haisheng Zhou, current shareholder of China Princely,
      has
      personally guaranteed that the net profit of China Princely will be not less
      than $256,000 for the year 2007, while the Company has guaranteed that the
      average 3-day closing price of its shares on the days immediately prior to
      the
      one year anniversary of the closing date will be not less than $0.50 per share.
      In the event of the share price is less than $0.50, the Company shall credit
      additional cash or issue new restricted shares to make it up.





**Lawsuit:**




On
      September 19, 2006, Hartcourt Hi-Tech Investment (Shanghai) Inc. filed a
      compliant against Beijing Yi Zhi He Lian Information Technology Co., Ltd for
      returning RMB 1,000,000 which they owed the Company. On December 19, 2006,
      Beijing Shi Jing Shan District Court entered the Judgment in this case. The
      court found that Hartcourt Hi-Tech Investment (Shanghai) Inc. has no rights
      to
      file the compliant against Beijing Yi Zhi He Lian Information Technology Co.,
      Ltd. as the party of the acquisition agreement except designated by Hartcourt
      Capital, Inc.. The courts issued an order overruling the compliant from
      Hartcourt Hi-Tech Investment (Shanghai)., Inc. as the plaintiff. The plaintiff
      can appeal to Beijing No. 1 Intermediate People’s Court if objecting to the
      rule. The Company is currently preparing the petition to appeal to Beijing
      No. 1
      Intermediate People’s Court.





**NOTE
      24**   **RECLASSIFICATION**




Certain
      prior period amounts have been reclassified to conform to the quarter ended
      November 30, 2006 presentation.






**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.*


22


**Overview**





Historically,
      we have been 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 prior fiscal
      years
      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, which was the distributor of
      ClearOne audio products and Radvision video conference products and
      services in China. Effective January 1, 2006, Control Tech ceased its
      operations. In September 2006, Hartcourt has signed a definitive Sales &
Purchase agreement with Great Focus Holdings Limited to sell its entire equity
      interests in Control Tech for US$400,000 cash payable by February 28, 2007.





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 of 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.




Our
      sales
      organization is divided by product lines, such as the monitor group and notebook
      group. 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 renewable 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, 2006 were comprised of Samsung products, of which, monitors
      accounted for 90% of the revenue and notebooks accounted for 6% of revenue.
      Our
      Samsung sales in Shanghai grew slightly compared to the same period a year
      ago.


23


The
      IT
      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 five 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.




We
      sell
      Samsung monitors, notebooks and digital devices to large regional retail stores
      and to second tier distributors which 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, 2006 were Guowei, a major retailer
      and a distributor in Shanghai, which accounted for approximately 17% of our
      revenue; Aiwei, a second tier distributor, which accounted for
      approximately 12% of our revenue; Huahui, a major retailer and a distributor
      in
      Shanghai, which accounted for approximately 11% of our revenue. No other
      customers or distributors accounted for more than approximately 5% of our
      revenue for the quarter ended November 30, 2006.




We
      source
      our products from Samsung. As of November 30, 2006, approximately 82% of our
      Samsung inventory consisted of monitors and approximately 3% 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.





After
      reviewing Hartcourt's current business condition, its competitive edge, and
      opportunities in China in May 2006, the new management team submitted to the
      Board of Directors a two-year business plan. Going forward, the Company plans
      diversify its business by focusing on the post-secondary education market in
      China to take advantage of the on-going demand of skilled workers and growing
      post-secondary age population. The Company has not made any investment in this
      new business for the quarter ended November 30, 2006. Although the Company
      has
      entered into a number of definitive agreements to acquire companies in this
      new
      market, these acquisition has not yet closed and it is uncertain when, if ever,
      these acquisition will have an impact on our financial results.


24


The
      following discussion and analysis are based on the historical figures and
      information and reflect only our IT business. As noted above, the Company plans
      to add to its traditional IT business by entering the growing Chinese vocational
      training marketplace. The business transformation from relying solely on the
      IT
      industry to include the education industry likely will materially change the
      Company’s business operations and the accompanying financial results in the
      future. As a result, any predictions of the future financial trends based on
      the
      discussion and analysis below are subject to substantial risks and
      uncertainties.





**Results
      of Operations**




The
      following table sets forth the consolidated statements of operations and the
      percentage change for the three months ended November 30, 2006, with the
      comparable reporting period in the preceding year.


For
                  the Three Month Periods Ended November 30,2006
              
              Percentage
                change
              
              2005Sales,
                  net
              
              $
              12,016,576
              
              
              0.7%
              
              $
              11,936,548Cost
                  of sales
              
              
              11,663,337
              
              
              5.0%
              
              
              11,105,879Gross
                  profit
              
              
              353,239
              
              
              -57.5%
              
              
              830,669Operating
                  expenses:Selling,
                  general and administrative
              
              
              552,990
              
              
              80.0%
              
              
              307,238Provision
                  on receivables
              
              
              1,384,685
              
              
              -Depreciation
                  and amortization
              
              
              10,579
              
              
              -48.2%
              
              
              20,441Total
                  operating expenses
              
              
              1,948,254
              
              
              494.6%
              
              
              327,679Income/(loss)
                  from operations before other income/(expenses),
                minority
                  interest & income tax
              
              
              (1,595,015
              )
              
              -417.1%
              
              
              502,990Other
                  income/(expense):Interest
                  expense
              
              
              (42,355
              )
              
              -17.5%
              
              
              (51,356
              )Interest
                  income
              
              
              2,860
              
              
              -93.3%
              
              
              42,706Other
              
              
              -388
              
              
              -100.3%
              
              
              148,247Total
                  other income/(expense)
              
              
              (39,883
              )
              
              -128.6%
              
              
              139,597Income/(loss)
                  before minority interest & income tax
              
              
              (1,634,898
              )
              
              -354.4%
              
              
              642,587Minority
                  Interest
              
              
              613,995
              
              
              -270.8%
              
              
              359,410Income/(loss)
                  before income tax
              
              
              (1,020,903
              )
              
              -460.5%
              
              
              283,177Income
                  taxation
              
              
              7,077
              
              
              -96.0%
              
              
              178,487




25




The
      following table sets forth the consolidated statements of operations, expressed
      as a percentage of net revenue, for the periods indicated:


For
                  the Three Month Periods Ended November 30,2006
              
              2005Sales,
                  net
              100%
              
              100%Cost
                  of sales
              97%
              
              93%Gross
                  profit
              3%
              
              7%Operating
                  expenses:Selling,
                  general and administrative
              5%
              
              3%Provision
                  on receivables
              12%
              
              0%Depreciation
                  and amortization
              0%
              
              0%Total
                  operating expenses
              16%
              
              3%Income/(loss)
                  from operations before other income/(expenses),
                minority
                  interest & income tax
              -13%
              
              4%Other
                  income/(expense):Interest
                  expense
              0%
              
              0%Interest
                  income
              0%
              
              0%Other
              0%
              
              1%Total
                  other income/(expense)
              0%
              
              1%Income/(loss)
                  before minority interest & income tax
              -14%
              
              5%Minority
                  Interest
              -5%
              
              3%Income/(loss)
                  before income tax
              -8%
              
              2%Income
                  taxation
              0%
              
              1%NET
                  INCOME/(LOSSES)
              -9%
              
              1%






***Quarter
      Ended November 30, 2006 Compared to Quarter Ended November 30,
      2005.***




***Net
      Revenue***




Revenue
      during the three months ended November 30, 2006 and 2005 are derived almost
      entirely from sale of Samsung products in Shanghai. Net sales was $12,016,576
      for the three months ended November 30, 2006, compared to $11,936,548 for the
      same period in 2005, excluding discontinued operations. For the six moths ended
      November 30, 2006, net sales were $24,466,858, compared to $22,705,312 for
      the
      prior year period, a 7.76% increase.


26


***Cost
      of Revenue and Gross Margin***




Cost
      of
      goods sold amounted to $11,663,337 for the three months ended November 30,
      2006,
      compared to $11,105,879 for the same period in 2005, excluding discontinued
      operations. Cost of goods sold was $23,542,771 for the six months ended November
      30, 2005, compared to $21,501,801 for the same period in 2005, excluding
      discontinued operations. Cost of sales for the aforesaid three and six months
      ended November 30, 2006 and 2005 represented the cost of Samsung
      products.





Gross
      margin was $353,239, or 2.88%, for the three months ended November 30, 2006,
      compared to $830,669, or 6.96%, for the same period in 2005, a decrease of
      57.5%. Gross margin amounted to $924,087, or 3.75%, for the six months
      ended November 30, 2006, compared to $1,203,511, or 5.30%, for the same period
      in 2005. The lower gross margin for three and six months period of year 2006
      and
      2005 ended November 30 were due to the increase in our cost of goods
      sold.




***Selling,
      general and administrative expenses*** :
      Selling, general and administrative expenses were $552,990 for the three months
      ended November 30, 2006 compared to $307,238 for the same period in 2005,
      representing an increase of $232,010, or 80.0%. Selling, general and
      administrative expenses were $1,015,439 for the six months period ended November
      30, 2006 compared to $776,839 for the same period in 2005, representing an
      increase of $224,858, or 30.7%, due to due to recorded stock option expenses
      and
      increased advertising and promotion expenses.





***Depreciation
      and amortization expenses:*** Depreciation
      and amortization expenses were $10,579 for the three months ended November
      30,
      2006 compared to $20,441 for the same period in 2005. Depreciation and
      amortization expenses were $23,638 for the six months ended November 30, 2006
      compared to $39,133 for the same period in 2005. The decreases were primarily
      due to our acquisition of Control Tech in the last fiscal year and which was
      disposed in the same year.





***Interest
      income:*** Interest
      income was $2,860 and $42,706 for the three months ended November 30, 2006
      and
      2005 respectively. Interest income was $28,897 and $73,442 for the six months
      ended November 30, 2006 and 2005 respectively. The decrease was due to lower
      interest income from third party borrowing in the three months and six months
      period ended November 30, 2006.





***Interest
      expenses*** :
      Interest expenses were $42,355 and $51,356 for the three months ended November
      30, 2006 and 2005, respectively. For the six months ended November 30, 2006
      and
      2005, interest expenses were $97,470 and $90,212 respectively. The increase
      was
      primarily due to the increase of short-term borrowing.





***Operating
      income (loss):*** Loss
      from
      continuing operations for the three months ended November 30, 2006 was
      $1,595,015, compared to income of $502,990 a year ago. For the six months period
      ended November 30, 2006 and 2005, loss from continuing operations was $1,499,675
      compared to income of $387,539 for the prior year period. Income declined
      primarily as the result of stock option expenses recognized for the period
      ended
      November 30, 2006, coupled with decreased other income.





***Minority
      interest:*** Minority
      interest represented the loss shared by the minority shareholders of Huaqing
      (49%) only for the three month and six month periods ended November 30, 2006.
      For the three months and six months periods ended November 30, 2005, minority
      interest represented the profit shared by the minority shareholders of Huaqing
      (49%) and Control Tech (10%).


27


***Income
      tax:*** We
      made a
      provision of $7,077 for PRC income taxes and $178,487 for the three months
      ended
      November 30, 2006 and 2005, respectively. For six month period ended November
      30
      2006 and 2005, the income taxes were $7,077 and $208,251 respectively. These
      provisions 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, 2006
      have been primarily funded by Chinese short term bank loans from Chinese
      banks.





As
      shown
      in our accompanying financial statements, we had a net loss of $1,027,980 for
      the three months ended November 30, 2006 as compared to a net income of $104,690
      for the same period in 2005, caused primarily by stock option expenses
      recognized in the periods ended November 30, 2006 and one-time income from
      disposal of properties in the same period of last year. Our current assets
      exceeded our current liabilities by $549,750 as of November 30, 2006.





As
      of
      November 30, 2006, we had working capital of $549,750. 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.





***Operating
      activities:*** During
      the six months ended November 30, 2006, net cash used in operating activities
      decreased to $412,038, compared to $994,199 during the same period in 2005.
      The
      decrease in cash used in operating activities resulted mainly from net loss
      of
      $1,154,721, minority interest of $421,356, increase of accounts receivable
      of
      $1,107,879, increase of advance to suppliers of $570,572 and increase of other
      current asset of $42,609, by netting off provision of receivables of $1,384,685,
      .depreciation of $23,638, stock option cost of $256,466, shares issued for
      expenses of $29,874, decrease of inventory of $229,705 and increase of
      liabilities of $960,731.





***Investing
      activities:*** Net cash
      used by investing activities during the six months ended November 30, 2006,
      was
      $768 compared to cash provided by investing activities of $870,283 for the
      same
      period in 2005. The cash provided by investment activities in the same period
      of
      last year was mostly due to $522,166 proceeds from disposed property and
      recovery of notes from disposed subsidiary Challenger in the amount of $362,834.





***Financing
      activities:*** Net cash
      provided by financing activities during the six months ended November 30, 2006
      equaled to $514,797 compared to $366,955 used in the same period of 2005. Net
      cash provided by financing activities in six months period ended November 30,
      2006 mainly net proceeds from related parties of $12,353, proceeds from stock
      subscription of $189,872 and proceeds from short term loan and notes payable
      of
      $312,572.





**Contractual
      Obligations**





During
      the quarter ended November 30, 2006, we did not have any contractual obligation
      other than the facility leases described in Note 21(b) of financial
      statements.


28


**Off-Balance
      Sheet Arrangements**





During
      the quarter ended November 30, 2006, the Company did not engage in any
      off-balance sheet arrangements as defined in Item 303(a)(4) of the SEC's
      Regulation S-K.





**Critical
      Accounting Policies and Estimates**





For
      a
      description of what we believe to be the critical accounting policies that
      affect our more significant judgments and estimates used in the preparation
      of
      our condensed consolidated financial statements, refer to our Annual Report
      on
      Form 10-K for the year ended May 31, 2006. There have been no changes in
      our critical accounting policies since May 31, 2006.








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





**Short-Term
      Investment Portfolio**




We
      do not
      hold derivative financial instruments in our portfolio of short-term
      investments. Our short-term investments consist of instruments that meet quality
      standards consistent with our investment policy. This policy specifies that,
      except for direct obligations of the United States government, securities issued
      by agencies of the United States government, and money market or cash management
      funds, we diversify our holdings by limiting our short-term investments and
      funds held for payroll customers with any individual issuer. As of November
      30,
      2006, all our cash equivalents represent cash on hand and cash deposit in PRC
      banks, the interest rate earned on our money market accounts ranged from 0.72%
      to 1.62% per annum. Our cash equivalents are subject to market risk due to
      changes in interest rates. Interest rate movements affect the interest income
      we
      earn on cash equivalents, and funds held for payroll customers and the value
      of
      those investments. We attempt to limit this exposure by investing primarily
      in
      short-term securities. Due to the short duration and conservative nature of
      our
      investment portfolio a movement of 10% by market interest rates would not have
      a
      material impact on our operating results and the total value of the portfolio
      over the next fiscal year.





**Impact
      of Foreign Currency Rate Changes**





We
      are
      exposed to risks associated with foreign exchange rate fluctuations due to
      our
      international sales activities. Since we translate foreign currencies (primarily
      Chinese Yuans) into US dollars for financial reporting purposes, currency
      fluctuations can have an impact on our financial results. The historical impact
      of currency fluctuations has generally been immaterial. We believe that our
      exposure to currency exchange fluctuation risk is not significant primarily
      because the stability of the exchange rate between Chinese Yuan and US dollar.
      Although the impact of currency fluctuations on our financial results has
      generally been immaterial in the past and we believe that for the reasons cited
      above currency fluctuations will not be significant in the future, there can
      be
      no guarantee that the impact of currency fluctuations will not be material
      in
      the future. As of November 30, 2006, we did not engage in foreign currency
      hedging activities. We believe that a movement of 10% in foreign currency
      exchange rates would not have a material impact on our operating
      results.


29


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





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





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





**PART
      II: OTHER INFORMATION**





**Item
      1. Legal Proceedings.**





Hartcourt
      Hi-Tech Investment (Shanghai) Inc. filed a compliant against Beijing Yi Zhi
      He
      Lian Information Technology Co., Ltd for returning RMB 1,000,000 which they
      owed
      the Company. On December 19, 2006, Beijing Shi Jing Shan District Court entered
      the Judgment in this case. The court found that Hartcourt Hi-Tech Investment
      (Shanghai) Inc. has no rights to file the compliant against Beijing Yi Zhi
      He
      Lian Information Technology Co., Ltd. as the party of the acquisition agreement
      except designated by Hartcourt Capital, Inc.. The courts issued an order
      overruling the compliant from Hartcourt Hi-Tech Investment (Shanghai)., Inc.
      as
      the plaintiff. The plaintiff can appeal to Beijing No. 1 Intermediate People’s
      Court if objecting to the rule. The Company is currently preparing the petition
      to appeal to Beijing No. 1 Intermediate People’s Court.





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


The
      risk
      factors facing the Company have not changed in any material way from those
      Risk
      Factors discussed on the Company’s Annual Report on Form 10-K for the fiscal
      year ended May 31, 2006.





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





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





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





None


30


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





None





**Item
      5. Other Information.**





None





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





**Exhibit****Number**
            
            **Description**10.1
            
            Cooperative
                Agreement on Taishun Yucai Senior School10.2
            
            Cooperative
                Agreement on China Princely Education Technology Development (Beijing)
                Company Limited10.3
            
            Agreement
                for sale and purchase of the entire issued share capital of Besteffort
                Investments Limited31.1
            
            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




31


**SIGNATURES**




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





THE
                HARTCOURT COMPANIES, INC.Dated: 
                January 16, 2007
            By:/s/
                VICTOR
                ZHOUVictor
                ZhouChief
                Executive OfficerDated: 
                January 16, 2007
            By:/s/
                YUNGENG
                HUYungeng
                HuChief
                Financial Officer & President