**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**Form 10-Q**




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




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


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




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




**Commission
      file number: 001-12671**




**The
      Hartcourt Companies, Inc.**


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




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





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




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


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




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




Indicate
      by check mark whether the registrant is an accelerated filer (as defined in
      Exchange Act Rule 12b-2). Yes o No x




The
      number of outstanding shares of the registrant’s Common Stock, $0.001 par value,
      was 193,975,237 as of December 5, 2005.










**TABLE
      OF CONTENTS**


**PART
                I: FINANCIAL INFORMATION**Item 1.
            Financial
                StatementsUnaudited
                Condensed Consolidated Balance SheetsUnaudited
                Condensed Consolidated Statements of OperationsUnaudited
                Condensed Consolidated Statements of Cash FlowsNotes
                to Unaudited Condensed Consolidated Financial StatementsItem 2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of OperationsItem 3.
            Quantitative
                and Qualitative Disclosures About Market RiskItem 4.
            Controls
                and Procedures**PART
                II: OTHER INFORMATION**Item 6.
            ExhibitsSignaturesEXHIBIT
                31.1EXHIBIT
                31.2EXHIBIT
                32.1









**PART
      I: FINANCIAL INFORMATION**


**Item 1.** ***Financial
      Statements***


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


**CONSOLIDATED
      BALANCE SHEET (Unaudited)**


**November
      30, 2005**




**ASSET****CURRENT
                ASSETS**Cash
                and cash equivalents
            
            $
            892,158Restricted
                Cash
            
            
            1,212,931Accounts
                receivable, net
            
            
            2,952,946Inventories,
                net
            
            
            3,465,105Notes
                receivable, net
            
            
            123,769Advances
                to suppliers
            
            
            1,159,675Prepaid
                expenses and other assets
            
            
            2,236,786Due
                from related party
            
            
            371,356**TOTAL
                CURRENT ASSETS**
            
            
            **12,414,726****PROPERTY
                & EQUIPMENT - NET**
            
            
            **233,137****INVESTMENTS**
            
            
            **61,884****INTANGIBLE
                ASSET**Goodwill
            
            
            **3,239,110****TOTAL
                ASSETS**
            
            **$**
            **15,948,857****LIABILITIES
                AND SHAREHOLDERS' EQUITY****CURRENT
                LIABILITIES**Bank
                loans
            
            $
            **1,460,468**Loan
                from employees
            
            
            **1,015,321**Accounts
                payable
            
            
            **1,047,217**Advance
                from customers
            
            
            **2,040,757**Accrued
                expenses and other current liabilities
            
            
            **1,165,099**Due
                to shareholders
            
            
            **838**Due
                to related party
            
            
            **229,936****TOTAL
                CURRENT LIABILITIES**
            
            
            **6,959,636****MINORITY
                INTERESTS**
            
            
            **1,935,920**


**COMMITMENTS
                & CONTINGENCIES****SHAREHOLDERS'
                EQUITY****Preferred
                Stock:**Original
                preferred stock, $0.01 par value, 1,000 shares authorized, issued
                and
                cancelled
            
            -Class
                A preferred stock, 10,000,000 shares authorized, none issued and
                outstanding
            
            -**Common
                stock**:$0.001
                par value, 424,999,000 authorized, 193,975,237 common sharesissued
                and outstanding as of November 30, 2005
            
            193,975Additional
                paid in capital
            
            
            72,844,177Treasury
                stock, at cost, 48,728 shares
            
            
            (48,728
            )Other
                comprehensive income
            
            
            1,068,742Accumulated
                deficit
            
            
            (67,004,865
            )**TOTAL
                SHAREHOLDERS' EQUITY**
            
            
            **7,053,301****TOTAL
                LIABILITIES AND SHAREHOLDERS' EQUITY**
            
            
            **15,948,857**




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





1


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


**CONSOLIDATED
      STATEMENTS OF OPERATIONS (UNAUDITED)**





**For
                the Three Month**
              **Periods
                Ended November 30**
            
            **For
                the Six Month**
              **Periods
                Ended November 30****2005**
            
            **2004**
            
            **2005**
            
            **2004**Sales
            
            $11,936,548
            
            $19,945,688
            
            22,705,312
            
            $38,799,565Cost
                of sales
            
            
            11,105,879
            
            
            19,170,118
            
            
            21,501,801
            
            
            37,452,878Gross
                profit
            
            
            830,669
            
            
            775,570
            
            
            1,203,511
            
            
            1,346,687Operating
                expenses:Selling,
                general and administrative
            
            
            307,238
            
            
            702,662
            
            
            776,839
            
            
            1,271,070Depreciation
                and amortization
            
            
            20,441
            
            
            14,053
            
            
            39,133
            
            
            28,740Total
                operating expenses
            
            
            327,679
            
            
            716,715
            
            
            815,972
            
            
            1,299,810Gain
                from continuing operations before other income/(expenses)
            
            
            502,990
            
            
            58,855
            
            
            387,539
            
            
            46,877Other
                income/(expense):Interest
                expense
            
            
            (51,356
            )
            
            (6,499
            )
            
            (90,212
            )
            
            (51,531
            )Interest
                income
            
            
            42,706
            
            
            43,651
            
            
            73,442
            
            
            88,279Other
            
            
            148,247
            
            
            128,838
            
            
            501,630
            
            
            197,016Total
                other income
            
            
            139,597
            
            
            165,990
            
            
            484,860
            
            
            233,764Income
                from continuing operations
            
            
            642,587
            
            
            224,845
            
            
            872,399
            
            
            280,641Less:
                Minority Interest
            
            
            359,410
            
            
            262,341
            
            
            527,924
            
            
            452,816Income
                (loss) before discontinued operations
            
            
            283,177
            
            
            (37,496
            )
            
            344,475
            
            
            (172,175
            )Discontinued
                operations:Gain
                from discontinued operations
            
            
            -
            
            
            47,283
            
            
            -
            
            
            318,660Loss
                on disposal of discontinued operations
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,968,687
            )Income/(losses)
                before tax
            
            
            283,177
            
            
            9,787
            
            
            344,475
            
            
            (2,822,202
            )Taxation
            
            
            178,487
            
            
            -
            
            
            208,251
            
            
            15,978NET
                INCOME/(LOSSES)
            
            $
            104,690
            
            $
            9,787
            
            
            136,224
            
            $
            (2,838,180
            )BASIC
                AND DILUTED EARNINGS/(LOSSES)
              PER
                COMMON SHARE:Earnings/(losses)
                from continuing operations
            
            
            0.001
            
            
            0.000
            
            
            0.000
            
            
            (0.001
            )Earnings/(losses)
                from discontinued operations
            
            
            0.000
            
            
            0.002
            
            
            0.000
            
            
            (0.015
            )Earnings/(losses)
                per share
            
            
            0.001
            
            
            0.002
            
            
            0.000
            
            
            (0.017
            )Basic
              (weighted average)
            
            
            193,931,939
            
            
            173,605,219
            
            
            193,844,261
            
            
            176,361,006Fully
                diluted (weighted average)
            
            
            210,828,012
            
            
            202,615,458
            
            
            216,830,516
            
            
            176,361,006




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





2


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


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







**For
                the Six Month Periods**
              **Ended
                November 30****2005**
            
            **2004****CASH
                FLOWS FROM OPERATING ACTIVITIES:**Net
                income/(losses)
            
            $
            136,224
            
            $
            (2,838,180
            )Adjustments
                to reconcile net income/(losses) to net cash used in operating
                activities:Gain
                on disposal of property and equipment
            
            
            (312,279
            )
            
            5,243Gain
                on disposal of continuing operations
            
            
            -
            
            
            (318,662
            )Gain
                on waive off debts
            
            
            (39,133
            )
            
            -Depreciation
            
            
            39,133
            
            
            28,740Loss
                on sale of affiliate
            
            
            -
            
            
            2,968,688Provision
                on receivables
            
            
            6,028
            
            
            -Minority
                interest
            
            
            527,924
            
            
            452,816Stock
                issued for services and compensations
            
            
            21,250
            
            
            92,713Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            (173,996
            )
            
            1,635,164Advances
                to suppliers
            
            
            448,147
            
            
            602,812Inventories
            
            
            274,952
            
            
            (697,018
            )Prepaid
                expenses and other receivables
            
            
            (169,126
            )
            
            (1,445,397
            )Accounts
                payable
            
            
            (86,657
            )
            
            (79,572
            )Accrued
                expenses and other current liabilities
            
            
            (279,884
            )
            
            53,943Advances
                from customers
            
            
            (1,394,791
            )
            
            (1,047,106
            )**NET
                CASH USED IN OPERATING ACTIVITIES**
            
            
            (994,199
            )
            
            (585,816
            )**CASH
                FLOWS FROM INVESTING ACTIVITIES:**Purchase
                of property and equipment
            
            
            (14,667
            )
            
            (13,468
            )Proceeds
                on disposal of property and equipment
            
            
            522,116
            
            
            -Cash
                paid for investments
            
            
            -
            
            
            (184,776
            )Proceeds
                on notes receivable, net
            
            
            362,834
            
            
            3,964,445**NET
                CASH PROVIDED BY INVESTING ACTIVITIES**
            
            
            **870,283**
            
            
            **3,766,201**


**CASH
                FLOWS FROM FINANCING ACTIVITIES**Proceeds
                from (payments to) related parties-net
            
            $
            (298,628
            )
            $
            470,440Proceeds
                /(repayment) on loans and lines of credit-net
            
            
            (68,327
            )
            
            (4,583,796
            )**NET
                CASH USED IN FINANCING ACTIVITIES**
            
            
            **(366,955**
            **)**
            
            **(4,113,356**
            **)**EFFECT
                OF EXCHANGE RATE ON CASH
            
            
            13,115
            
            
            (437
            )**NET
                DECREASE IN CASH AND CASH EQUIVALENTS**
            
            
            **(477,756**
            **)**
            
            **(933,408**
            **)****CASH
                AND CASH EQUIVALENTS - BEGINNING OF PERIOD**
            
            
            1,369,914
            
            
            1,707,367**CASH
                AND CASH EQUIVALENTS - END OF PERIOD**
            
            **$**
            **892,158**
            
            **$**
            **773,959**




**SUPPLEMENTAL
      DISCLOSURE OF CASH FLOWS**




The
      Company prepares its statements of cash flows using the indirect method as
      defined under the Financial Accounting Standard No. 95.





**For
                the Six Month Periods**
              **Ended
                November 30****2005**
            
            **2004**SUPPLEMENTAL
                DISCLOSURE OF CASH FLOWSCash
                paid for interest
            
            $
            22,603
            
            $
            68,640Cash
                paid for income taxes, net of refund received
            
            $
            85,395
            
            $
            16,326





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




3


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


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**November
      30, 2005 AND 2004**








**Note
      1.**  **General**




The
      Hartcourt Companies, Inc. ("Hartcourt" or the "Company"), was incorporated
      in
      Utah in 1983. We
      are a
      distributor of internationally well known brand named IT hardware products
      and
      related services in the People’s Republic of China.




As
      of
      November 30, 2005, 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, 2005, the Company owns 51% equity interest in Shanghai Huaqing
      Corporation Development Ltd. Huaqing is located in Shanghai, China. As the
      Chinese laws may prohibit foreign companies directly involved in the
      distribution industry, Hartcourt, through its employees as nominees, holds
      the
      equity of Huaqing.




As
      of
      November 30, 2005, Hartcourt Capital Inc. owns 90% equity interest in Control
      Tech Electronics (Shanghai) Co., Ltd. Control Tech is located in Shanghai,
      China.




As
      of
      November 30, 2005, Hartcourt Capital Inc. 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, 2005, 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 condensed consolidated financial statements have been
      prepared in accordance with the rules and regulations of the Securities and
      Exchange Commission for the presentation of financial information, but do not
      include all the information and footnotes required by generally accepted
      accounting principles for complete financial statements. The audited
      consolidated financial statements for the transition period ended May 31, 2005
      were filed on September 13, 2005 with the Securities and Exchange Commission
      and
      were hereby referenced. In the opinion of management, all adjustments considered
      necessary for a fair presentation have been included. Operating results for
      the
      three-month and six-month period ended November 30, 2005 are not necessarily
      indicative of the results that may be expected for the year ended May 31,
      2006.




The
      accounting policies followed by us are set forth in Note A to our financial
      statements as stated in our report on Form 10-K for the transition period ended
      May 31, 2005, as filed on September 13, 2005 and incorporated in this Form
      10-Q
      by reference.




**Principles
      of Consolidation**





Our
      financial statements for the three months and six months ended November 30,
      2005
      are consolidated to include the accounts of The Hartcourt Companies Inc., our
      wholly owned subsidiaries Hartcourt China Inc., Hartcourt Capital Inc.,
      Hartcourt Hi-Tech Investment (Shanghai) Inc., Ai-Asia Inc and Ai-Asia
      Information Technology Inc, 90% directly owned Control Tech Electronics
      (Shanghai) Co., Ltd. Our consolidated financial statements also include
      indirectly, 100% owned subsidiary, Shanghai Jiumeng Information Service Co.,
      Ltd. and 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 Ms. Ni Ting Ting, and 10% owned by Jimmy He, both
      employees of the Company, both of whom are People's Republic of China, or PRC,
      citizens. The two employees serve as our nominees. 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.






4


**Note
      3. Earnings/(losses) per Share**





Three
                Months
              Ended
              November
                30, 2005
            
            Three
                Months
              Ended
              November
                30, 2004Net
                income
            
            $
            104,690
            
            $
            9,787Effects
                of dilutive securities
            
            
            -
            
            
            -Weighted
                average shares outstanding
            
            
            193,931,939
            
            
            173,605,219Basic
                and dilutive earnings per share
            
            $
            0.000
            
            $
            0.000





As
      of
      November 30, 2005, we had 27,600,000 options authorized and outstanding, each
      exercisable for one share of our common stock. On October 23, 2005, 29,010,239
      warrants issued in connections with a private placement with Enlight expired.
      These instruments were included in the computation of diluted earnings per
      share
      for the periods presented.





**Note
      4.**  **Equity
      transactions during the three months ended November 30, 2005**





On
      October 1, 2005, we issued 127,100 shares of our common stock valued at $10,375
      to all of our independent directors in lieu of cash compensation, which
      approximately equal to the fair market value of the stock at issue
      date.





**Stock
      Option Plan**





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





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





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







5


The
      following table summarizes the activity of stock options:





WeightedAverageNumber
                of
            
            ExerciseShares
            
            PriceShares
                under option at August 31, 2005
            
            28,600,000
            
            0.138Granted
            
            
            -Exercised
            
            
            -
            
            
            -Expired
            
            
            (1,000,000
            )
            
            0.65Canceled
            
            
            -
            
            
            -Shares
                under option at November 30, 2005
            
            
            27,600,000
            
            
            0.120




On
      December 1, 2003, Ms. Carrie Hartwick, the CEO, was granted an option to
      purchase up to 1 million shares of our common stock at a price of $0.65 per
      share expired on November 30 2005.





**Warrants**





As
      of
      November 30, 2005,the 29,010,239 outstanding warrants to purchase 29,010,239
      shares of common stock at $0.001 par value at $0.058 per share in connection
      with signing a private placement of Hartcourt shares with Enlight Corporation
      Ltd., granted on October 23, 2002 was expired on October 23, 2005.





**Note
      5. Recent Pronouncements**





In
      December 2002, the FASB issued SFAS No. 148 "Accounting for Stock Based
      Compensation-Transition and Disclosure". SFAS No. 148 amends SFAS No. 123,
      "Accounting for Stock Based Compensation", to provide alternative methods of
      transition for a voluntary change to the fair value based method of accounting
      for stock-based employee compensation. In addition, this Statement amends the
      disclosure requirements of Statement 123 to require prominent disclosures in
      both annual and financial statements about the method of accounting for
      stock-based employee compensation and the effect of the method used, on reported
      results. The Statement is effective for the Companies' reporting period ending
      January 31, 2003.





In
      compliance with FAS No. 148, the Company has elected to continue to follow
      the
      intrinsic value method in accounting for its stock-based employee compensation
      plan as defined by APB No. 25 and has made the applicable disclosures
      below.





Had
      the
      Company determined employee stock based compensation cost based on a fair value
      model at the grant date for its stock options under SFAS 123, the Company's
      net
      earnings per share would have been adjusted to the pro forma amounts for the
      three month period ended November 30, 2005, as follows ($ in thousands, except
      per share amounts) :




For
                the Three Months Periods
              Ended
                November 302005
            
            2004(in
                thousands $)Net
                income (losses) - as reported
            
            $
            105
            
            $
            10Stock-Based
                employee compensation expense included in reported net income, net
                of tax
            
            
            -
            
            
            -Total
                stock-based employee compensation expense determined under
                fair-value-based
              method
                for all rewards, net of tax
            
            
            (47
            )
            
            (56
            )Pro
                forma net profit (loss)
            
            $
            58
            
            
            (46
            )For
                the Six Months Periods
              Ended
                November 302005
            
            
            2004(in
                thousands $)Net
              income (losses) - as reported
            
            $
            136
            
            $
            (2,838
            )Stock-Based
              employee compensation expense included in reported net income, net
              of tax
            
            
            -
            
            
            -Total
              stock-based employee compensation expense determined under
              fair-value-based
              method
                for all rewards, net of tax
            
            
            (92
            )
            
            (701
            )Pro
              forma net profit (loss)
            
            $
            44
            
            $
            (3,539
            )The
                assumptions used in calculating the fair value of options granted
                using
                the Black-Scholes option pricing model are as follows:Rick-free
                interest rate
            
            
            3.4%
            
            
            -Expected
                life of options
            
            
            5
                years
            
            
            -Expected
                volatility
            
            
            57.93%
            
            
            -Expected
                dividend yield
            
            
            -
            
            
            -




6


In
      December 2004, the FASB issued FASB Statement No. 123R, "Share-Based Payment,
      an
      Amendment of FASB Statement No. 123" ("FAS No. 123R"). FAS No. 123R requires
      companies to recognize in the statement of operations the grant date fair value
      of stock options and other equity-based compensation issued to employees. FAS
      No. 123R is effective beginning in the Company's second quarter of fiscal 2006.
      The Company is evaluating the impact of the adoption of this standard on its
      financial statements.





In
      December 2004, the FASB issued SFAS Statement No. 153, "Exchanges of
      Non-monetary Assets." The Statement is an amendment of APB Opinion No. 29 to
      eliminate the exception for non-monetary exchanges of similar productive assets
      and replaces it with a general exception for exchanges of non-monetary assets
      that do not have commercial substance. The Company believes that the adoption
      of
      this standard will have no material impact on its financial
      statements.





In
      August
      2004, the Emerging Issues Task Force ("EITF") reached a consensus on Issue
      No.
      03-1, "The Meaning of Other-Than-Temporary Impairment and its Application to
      Certain Investments." The EITF reached a consensus about the criteria that
      should be used to determine when an investment is considered impaired, whether
      that impairment is other-than-temporary, and the measurement of an impairment
      loss and how that criteria should be applied to investments accounted for under
      SFAS No. 115, "ACCOUNTING IN CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES."
      EITF 03-01 also included accounting considerations subsequent to the recognition
      of other-than-temporary impairment and requires certain disclosures about
      unrealized losses that have not been recognized as other-than-temporary
      impairments. Additionally, EITF 03-01 includes new disclosure requirements
      for
      investments that are deemed to be temporarily impaired. In September 2004,
      the
      Financial Accounting Standards Board (FASB) delayed the accounting provisions
      of
      EITF 03-01; however the disclosure requirements remain effective for annual
      reports ending after June 15, 2004. The Company will evaluate the impact of
      EITF
      03-01 once final guidance is issued.





In
      May
      2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.”
This statement applies to all voluntary changes in accounting principle and
      requires retrospective application to prior periods ‘financial statements of
      changes in accounting principle, unless this would be impracticable. This
      statement also makes a distinction between “retrospective application” of an
      accounting principle and the “restatement” of financial statements to reflect
      the correction of an error. This statement is effective for accounting changes
      and corrections of errors made in fiscal years beginning after December 15,
      2005. We are evaluating the effect the adoption of this interpretation will
      have
      on its financial position, cash flows and results of operations.





**Note
      6. Going concern**





As
      shown
      in the accompanying consolidated financial statements, the Company has suffered
      recurring losses from operations, has an accumulated deficit of $67,004,865
      as
      of November 30, 2005. These factors, among others, raise substantial doubt
      about
      the Company’s ability to continue as a going concern. The Company’s need for
      working capital is a key issue for management and necessary for the Company
      to
      meet its goals and objectives. The Company continues to meet its obligations
      and
      pursue additional capitalization opportunities. There is no assurance, however,
      that the Company will be successful in meeting its goals and objectives in
      the
      future.





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




**Note 7.
      Notes receivable**




Notes
      receivables as of November 30, 2005 are summarized as follows:




Notes
                receivable from Beijing Challenge Group, non-interest bearing, 2
                installment payments,
              secured
                by one shareholder of Beijing Challenge Group,
            
            $
            243,769Less:
                provisions
            
            
            (120,000
            )Notes
                receivables, net
            
            
            123,769Summary
                of notes receivable:Current
                portion
            
            
            123,769Non-current
                portion
            
            
            -Total
            
            $
            123,769




**Note
      8. Due from a related party**




Due
      from
      a related party as of November 30, 2005 amounting $371,356 represents amount
      due
      from Huaqing (51% owned subsidiary)’s minority shareholder pursuant to business
      transactions in the ordinary course. The receivable from a related party is
      unsecured, interest free and repayable on demand.






7




**Note
      9. Related party transactions**




During
      the quarter ended November 30, 2005, Hartcourt issued 127,100 shares of our
      common stock valued at $10,375 to its independent directors in lieu of cash
      compensation, which approximately equal to the fair market value of the stock
      at
      issue date.




**Note
      10. Intangibles**




Goodwill
      resulting from the acquisition amounted to as of November 30, 2005:




Goodwill
                arising from acquisition of Huaqing
            
            $
            2,160,101Goodwill
                arising from acquisition of Control Tech
            
            
            1,079,009Goodwill
            
            $
            3,239,110




**Note
      11. Due to a related party**





The
      amount due to a related party as of November 30, 2005 amounting US$229,936
      represents amount due to Control Tech (90% owned subsidiary)’s minority
      shareholder pursuant to business transactions in the ordinary course. Payable
      to
      a related party is unsecured, interest free and with no fixed term of
      repayment .




**Note
      12. Due to Shareholders**




Due
                to Enlight (a)
            
            
            150,000Due
                to Chateau D'orly (a)
            
            
            79,936Total
            
            $
            229,936




(a)
            The
                Company signed stock purchase agreements with Enlight Corporation
                Ltd.
                ("Enlight") and Chateau D'orly Ltd. ("Chateau") to raise working
                capital
                for its operation in the years 2002 and 2003. There is $150,000 of
                dispute
                between Hartcourt and Englight with respect to the agreement. The
                stock
                purchase contract with Chateau is not fully executed and there is
                $79,936
                outstanding.




**Note
      13. Minority Interest**




The
      amount represents the minority shareholders' interest in Huaqing, a 51%
      subsidiary, and Control Tech, a 90% subsidiary.




**Note
      14. Other Revenue**




Other
      revenue mainly consists of net revenue derived from warranty services and other
      after-sales services of $123,404. The remaining balances represent of gain
      on
      waiver of $30,871 payable, netting off provision on receivables of $6,028.




**Note
      15. Commitments and Contingencies**




A)
            Employment
                Agreements




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




B)
            Operating
                Leases




The
      Company leases its offices and facilities under long-term, non-cancelable lease
      agreements expiring at various dates through October 2007. The non-cancelable
      operating lease agreements provide that the Company pays certain operating
      expenses applicable to the leased premises according to the Chinese Law. Rental
      expense for the quarter ended November 30, 2005 and 2004 were $25,848 and
      $21,141, respectively ,
      and for
      the six months ended November 30, 2005 and 2004 were $51,696 and $42,282
      respectively.






8


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




Year
                Ending November 30
            
            Payments2006
            
            $
            51,1992007
            
            
            54,9842008
            
            
            15,8382008
                after
            
            
            43,704Total
                future lease payments
            
            $
            165,725




c)
            Other
                Obligations





Huaqing,
      a 51% owned subsidiary, provides guarantee to Hangzhou Huaqing Monitoring
      Technology Co., Ltd. for bank loan of US$6,449,275 as of November 30, 2005.
      Of
      which, US$2,536,231 are pledged by the inventories of Huaqing. The bank loan
      will mature on various dates before April 06, 2006.





**Note
      16. Reclassification**




Certain
      prior period amounts have been reclassified to conform to the quarter ended
      November 30, 2005 presentation.





9


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




**Forward-looking
      Statements**





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





**Overview**





We
      are a
      distributor of internationally well known brand named IT hardware products
      and
      related software and services. The main products are Samsung branded notebooks
      and monitors. Almost all of our revenue for the last two fiscal years and since
      the transition period ended May 31, 2005 was attributed to distribution revenues
      from sales of Samsung products in China. Our Samsung distribution business
      began
      in March 2003, through the acquisition of a Chinese company named Huaqin
      Shanghai, who was the distributor of Samsung monitors in the Eastern part of
      China. In August 2004, Huaqin Shanghai obtained additional distribution rights
      from Samsung for its notebook product line in the same geographic area. In
      February 2005, we acquired major assets from a Chinese company named Beijing
      Control Tech, who was the distributor of ClearOne audio products and
      Radvision video conference products and services in China. Control Tech’s
      agreement with Radvision terminated on April 1, 2005. We have ceased
      distribution of Radvision Products during the first quarter of 2006, pending
      a
      settlement with Radvision to resolve the distributorship dispute.




Most
      international and domestic manufacturers of IT products in China rely on
      distributors, such as Hartcourt, to augment their sales and marketing
      operations. As a stocking, marketing, and financial intermediary, the
      distributor relieves manufacturers a portion of the costs and personnel
      associated with stocking and selling their products (including otherwise sizable
      investments in finished goods inventories, accounts receivables and distribution
      networks), while providing geographically dispersed selling, order processing,
      and delivery capabilities. At the same time, the distributor offers a broad
      range of customers the convenience of accessing from a single source with
      multiple products and rapid or scheduled deliveries, as well as other
      value-added services such as after sales service. The growth of the IT
      distribution industry in China has been fostered by many manufacturers who
      recognize that distributors are essential extensions of their marketing
      organizations. Most of our customers require delivery of the products they
      have
      ordered on schedules that are generally not available on direct purchases from
      manufacturers, and frequently their orders are of insufficient size to be placed
      directly with manufacturers.




Our
      sales
      organization is divided by product lines, such as the monitor group and notebook
      group. Zhou Jing Jing, our Vice President of Operations, who joined
      Hartcourt during the first quarter of fiscal 2006, is responsible for our
      sales organization. We have a centralized online Enterprise Resources
      Planning (ERP) system to support the daily operations, connecting order taking,
      inventory management, distribution, credit, accounting and other related
      functions.




We
      have
      authorized distribution rights with respect to Samsung monitors, notebooks
      and
      certain digital products covering the consumer and commercial product
      distribution channels in Shanghai, a metropolitan city with a population of
      20
      million people. The authorized distribution agreement signed between
      Huaqing Shanghai, a 51% owned subsidiary, and Samsung has one-year terms
      and is renewed on an annual basis. In exchange for this authorized distribution
      right, as well as purchase price protection and reimbursed advertising and
      promotion expenses from Samsung, we are required to achieve quarterly purchase
      targets set by Samsung and perform sales promotion and advertising activities
      under Samsung's direction, in addition to meeting other Samsung operational
      requirements. Almost all of our sales for the quarter ended November 30, 2005
      comprised of Samsung products, of which, monitors accounted for 83% of the
      revenue and notebooks accounted for 16% of revenue. Approximately 90% of our
      revenue derived from Sansung monitor sales and 10% from Samsung notebooks in
      fiscal 2004. We expect that sales of Samsung products will continue to account
      for substantially all of our sales revenue for the foreseeable
      future.





Excluding
      the Zhejiang Samsung market which we no longer service as of the
      beginning of 2005, our Samsung sales in Shanghai grew 15% compared to a year
      ago
      same period.




The
      markets in which we compete are dynamic and highly competitive. We expect
      competition to intensify in the future. Our current and potential competitors
      include the local distributors of Philip and LG monitors in the Shanghai region,
      as well as other distributors of notebooks made by multinational and leading
      Chinese notebook manufacturers.





The
      principal competitive factors that affect the market for our business are
      available working capital to finance the revenue growth in terms of inventory
      and trade receivable; the ability to contain operating costs, as well as adding
      new product lines to our distribution list.





10




Although
      Huaqin Shanghai has been the exclusive distributor for select Samsung IT
      products in the Shanghai region for the last 5 years, much of the services
      we
      provide can be performed by our competitors. In addition, there is a risk that
      Samsung may allow our competitors or new entrants to the market to take a
      portion of our Samsung distributor business which would have an adverse impact
      on our business and revenues.




We
      sell
      Samsung monitors, notebooks and digital devices to large regional retail stores
      and to second tier distributors who then resell to smaller retail stores. To
      promote Samsung's upscale product image, we also manage several Samsung image
      stores in Shanghai, selling a full range of Samsung consumer electronic products
      in Shanghai's downtown shopping districts in partnership with Samsung. For
      the
      Samsung products for which we have authorized distribution rights, we provide
      product warranty services to retail consumers on behalf of Samsung. In addition,
      we provide and charge for after-sales repair,
      maintenance and service. Our top customers for the quarter ended November 30,
      2005 were Guowei, a major retailer and a distributor in Shanghai
      which accounted for approximately 19.3% of our revenue; Aiwei, a second
      tier distributor which accounted for approximately 9.5% of our revenue;
      Hongtou Sanbao, a mega consumer electronic chain store which accounted for
      approximately 5.3% of our revenue; and, Huahai, a distributor
      which accounted for approximately 5.3% of our revenue. During the
      quarter ended November 30, 2005 no other customer or distributor made up
      more than approximately 5% of our total sales. In fiscal 2004, Hangzhou Huaqin,
      a distributor in Zhejiang province, accounted for 31% of our revenue, Chenqin,
      a
      Shanghai distributor, accounted for approximately 8% of our revenue. No
      other customers or distributors accounted for more than approximately 5% of
      our
      revenue for the quarter ended November 30, 2004.




We
      source
      our products from Samsung. As of November 30, 2005, approximately 65% of our
      Samsung inventory consisted of monitors and approximately 35% consisted of
      notebooks. It is the current practice of Samsung to protect its distributors,
      such as the Company, against the potential write-down of such inventories due
      to
      technological changes or Samsung's price reductions. Under the terms of the
      distributor agreement, and assuming the distributor complies with certain
      conditions, Samsung is required to credit us for inventory losses incurred
      through reductions in manufacturers' list prices of the items.  Because
      most of our business is on an as-needed basis and varies slightly, we have
      no
      customer orders extending more than a week into the future.




We
      added
      audio/video equipment distribution business in March 2005, after acquiring
      major
      assets from Control Tech, a Chinese distribution company. Our distribution
      agreement with Radvision was terminated on April 1, 2005. Sales of Radvision
      products ceased during the first quarter, ‘06. Control Tech is trying to
      amicably resolve the disputes with Radvision.




**Results
      of Operations**




The
      following table sets forth the consolidated statements of operations and the
      percentage change for the three months ended November 30, 2005, with the
      comparable reporting period in the preceding year.




**Three
                Months Ended****November
                30,**
            
            **Percentage**
            
            **November
                30,****2005**
            
            **Change**
            
            **2004**Net
                revenue
            
            $
            11,936,548
            
            
            -40.15
            %
            $
            19,945,688Cost
              of revenue:Cost
                of revenue
            
            
            11,105,879
            
            
            -42.07
            
            
            19,170,118Gross
                profit
            
            
            830,669
            
            
            7.10
            
            
            775,570Operating
                expenses:Selling, general and administrative
            
            
            307,238
            
            
            -56.28
            
            
            702,662Depreciation
                and amortization
            
            
            20,441
            
            
            45.46
            
            
            14,053Total
                operating expenses
            
            
            327,679
            
            
            -54.28
            
            
            716,715Interest
                income/(expenses)-net
            
            
            (8,650
            )
            
            
            
            
            37,152Other
                income
            
            
            148,247
            
            
            15.06
            
            
            128,838Minority
                Interest expense
            
            
            359,410
            
            
            37.00
            
            
            262,341Discontinued
                operations expenses, net
            
            
            
            
            
            -100.00
            
            
            47,283Income
                before income taxes
            
            
            283,177
            
            
            2,793.40
            
            
            9,787Provision
                for income taxes
            
            
            178,487
            
            
            
            
            
            -Net
                income
            
            $
            104,690
            
            
            969.68
            %
            $
            9,787





11


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




**Three
                Months Ended****November
                30,**
            
            **November
                30,****2005**
            
            **2004**Net
                revenue
            
            100.00
            %
            100.00
            %Cost
                of revenue
            
            
            93.04
            
            
            96.11Gross
                margin
            
            
            6.96
            
            
            3.89Operating
                expenses:Selling,
                general and administrative
            
            
            2.77
            
            
            3.67Depreciation
                and amortization
            
            
            0.18
            
            
            0.07Total
                operating expenses
            
            
            2.74
            
            
            3.59Interest
                income/(expenses)-net
            
            
            (0.07
            )
            
            0.19Other
                income
            
            
            1.24
            
            
            0.65Income
                before income taxes
            
            
            2.37
            
            
            0.05Provision
                for income taxes
            
            
            1.50
            
            
            -Net
                income
            
            
            0.88
            %
            
            0.05
            %




***Three
      and Six Months Ended November 30, 2005 Compared to Three and Six Months Ended
      November 30, 2004.***




***Net
      Revenue***




We
      recorded net sales of US$11,936,548 for the three months ended November 30,
      2005, compared to US$19,945,688 for the same period in 2004, excluding the
      discontinued operations. Lower sales is due to our exit of Zhejiang province
      market on the Samsung product as a result of Samsung distribution channel
      re-arrangement. Excluding the sales to Zhejiang region in 2004, Samsung product
      sales in Shanghai grew 15% for the three months ended November 30, 2005 compared
      to a year ago same period. For the six moths ended November 30, 2005, we
      recorded net sales of US$22,705,312, compared to US$38,799,565 a year ago same
      period. Excluding the sales to Zhejiang region, revenue grew 18% compared to
      a
      year ago same period.




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




Cost
      of
      Goods Sold amounted to US$11, 105,879 for the three months ended November 30,
      2005, compared to US$19,170,118 for the same period in 2004, excluding
      discontinued operations. Cost of Goods Sold amounted to US$21,501,801 for the
      six months ended November 30, 2005, compared to US$37,452,878 for the same
      period in 2004, excluding discontinued operations. Almost all of the cost of
      sales for the three months and six months ended November 30, 2004 and 2005
      represented the cost of Samsung products




Gross
      margin was US$830,669 or 6.96%, for the three months ended November 30, 2005
      compared to US$775,570 or 3.89%, for the same period in 2004. Gross margin
      was
      US$1,203,511 or 5.30% for the six months ended November 30, 2005 compared to
      US$1,346,687 or 3.47% for the same period in 2004. The improvement in gross
      margin was due to better product mix and vendor rebates.




***Selling,
      general and administrative expenses*** :
      Our
      selling, general and administrative expenses were US$307,238 for the three
      months ended November 30, 2005 compared to US$702,662 for the same period in
      2004, representing a decrease of US$395,424, or 56%, due to lower advertising
      and promotion expenses. Selling, general and administrative expenses were
      US$776,839 for the six months period ended November 30, 2005 compared to
      US$1,271,070 for the same period in 2004, representing a decrease of US$494,231
      or 41%, due to lower advertising and promotion expenses.





***Depreciation
      and amortization expenses:*** Our
      depreciation and amortization expenses were US$20,441 for the three months
      ended
      November 30, 2005 compared to US$14,053 for the same period in 2004. The
      increase was primarily due to our acquisition of Control Tech. Depreciation
      and
      amortization expenses were US$39,133 for the six months ended November 30,
      2005
      compared to US$28,740 for the same period in 2004. The increase was primarily
      due to our acquisition of Control Tech.





***Interest
      income:*** Interest
      income was US$42,706 and US$43,651 for the three months ended November 30,
      2005
      and 2004. The decrease was due to lower third party borrowing incurred in this
      quarter. Interest income was US$73,442 and US$88,279 for the six months ended
      November 30, 2005 and 2004. The decrease was due to lower third party borrowing
      in 2005.





12


***Interest
      expenses*** :
      Interest expenses were US$51,356 and $6,499 for the three months November 30,
      2005 and 2004. The increase of US$44,857 or 690%, was primarily due to the
      increase of short-term borrowing .
      For the
      six months ended November 30, 2005 and 2004, interest expenses were US$90,212
      and US$51,531 respectively. The increase of US$38,681 was due to increase of
      short term borrowing.





***Other
      revenue:*** Other
      revenue mainly represented income from disposal of properties owned by Huaqing
      of US$124,490, and other income of $23,757.





***Income
      from Continuing Operations:*** Income
      from continuing operations for the three months ended November 30, 2005 was
      US$642,587, compared to US$224,845 a year ago, primarily as the result of lower
      operating expenses .
      For the
      six months period ended November 30, 2005 and 2004, income from continuing
      operation was US$387,539 and US$46,877. The increase was mainly due to lower
      operating expenses in the quarter ended November 30, 2005.





***Minority
      interest:*** Minority
      interest represented the profit shared by the minority shareholders of Huaqing
      (49%) and Control Tech (10%) for the three month and six month periods ended
      November 30, 2005. For the three month and six month periods ended November
      30,
      2004, minority interest represented the profit shared by the minority
      shareholders of Huaqing (49%) only.





***Income
      tax:*** We
      made
      provision for PRC income taxes of US$178,487 and US$208,251 for the three months
      and six month ended November 30, 2005. This provision for taxes relates to
      the
      estimated amount of taxes that would be imposed by tax authorities in the PRC.
      None of our income is subject to U.S. taxes .





**Liquidity
      and Capital Resources:**





Our
      principal capital requirements during the quarter ended on November 30, 2005
      have been primarily funded by Chinese short term bank loans.





As
      shown
      in our accompanying financial statements, we had a net income of US$104,690
      for
      the three months ended November 30, 2005 as compared to US$9,787 for the same
      period in 2004 due to higher gross margin and various rebates from the vendor.
      Our current assets exceeded our current liabilities by US$5,455,090 as of
      November 30, 2005.





As
      of
      November 30, 2005, we had working capital of US$5,455,090. 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, 2005, net cash used in operating activities
      increased to US$994,199, compared to US$585,816 during the same period in 2004.
      The increase in cash used in operating activities resulted mainly from clearance
      of other liabilities of Huaqing.





***Investing
      activities:*** Net cash
      provided by investing activities during the six months ended November 30, 2005,
      was US$870,283 compared to cash used in investing activities of US$3,766,201
      for
      the same period in 2004. The cash provided by investment activities in the
      six
      months ended November 30, 2005 was mostly due to US$522,116 proceeds from
      disposed property and recovery of notes in the amount of US$362,834.





***Financing
      activities:*** Net cash
      used in financing activities during the six months ended November 30, 2005
      equaled to US$366,955 compared to US$4,113,356 during the same period in 2004.
      Net cash used in financing activities in the six month ended November 30, 2005
      and 2004 mainly represents the repayment of balance due to related parties.





As
      a
      result of the above activities, we experienced a net decrease in cash of
      US$477,756 for the six months ended November 30, 2005.





**Contractual
      Obligations**





During
      the quarter ended November 30, 2005, we do not have any contractual obligation
      other than the facility leases described in Note 14(b) of financial
      statements.





**Off-Balance
      Sheet Arrangements**





During
      the quarter ended November 30, 2005, the Company did not engage in any
      off-balance sheet arrangements as defined in Item 303(a)(4) of the SEC's
      Regulation S-K.





**Critical
      Accounting Policies and Estimates**





For
      a
      description of what we believe to be the critical accounting policies that
      affect our more significant judgments and estimates used in the preparation
      of
      our condensed consolidated financial statements, refer to our Annual Report
      on
      Form 10-K for the 5-month transition period ended May 31, 2005. There have
      been no changes in our critical accounting policies since August 31, 2005.





13


**Voting
      Results of Annual Shareholders’ Meeting on Nov 23, 2005**





Hartcourt
      reconvened its shareholder meeting on Nov 23, 2005. Total 104,810,254 shares
      were voted, among which, 1) 99.49% of shares were cast in favor of proposal
      1:
      to amend the Articles of Incorporation of the Company to increase the authorized
      number of shares of common stock by 185,000,000 shares and to eliminate the
      1,000 authorized shares of Preferred Stock; 2) 99.99% of shares were cast in
      favor of proposal 2: to amend the Bylaws of the Company to set the term of
      office for directors to 2 years; 3) 99.94% of shares were cast in favor of
      proposal 3: to elect five members of the Board of Directors; 4) 99.99% of shares
      were cast in favor of proposal 4: to ratify the appointment of Kabani &
Company, Inc., as the Company’s independent public accountants for the fiscal
      year ending May 31, 2000; and 5) 99.65% of shares were cast in favor of proposal
      5: to approve the adoption of the 2005 Stock Option Plan.








**Risk
      Factors Affecting Future Results**





*Investing
      in our common stock involves a high degree of risk. In addition to the other
      information contained in this quarterly report, you should carefully read and
      consider the following risk factors.*  *The
      risks described below are not exhaustive of the risks that might affect our
      business. Other risks, including those we currently deem immaterial, may also
      impact our business. If any of these risks actually occur, our business,
      financial condition or operating results could be materially adversely affected
      and could result in a complete loss of your investment or a sever reduction
      in
      the trading price of our common stock.*




**IF
      WE CANNOT MAINTAIN DISTRIBUTION AGREEMENTS WITH OUR KEY VENDORS, OUR ON-GOING
      BUSINESS WILL BE SEVERELY IMPACTED OR FAIL.**





Approximately
      100% of our revenue in the quarter ended November 30, 2005, was generated from
      sales of Samsung products. We sign an annual distribution contract with Samsung.
      There is no guarantee the distribution contract will be renewed. If our
      relationship with Samsung is severed, we will experience major revenue or profit
      decline.





**WE
      HAVE INCURRED SIGNIFICANT LOSSES IN THE PAST AND HAVE A HISTORY OF NEGATIVE
      CASH
      FLOW FOR OPERATIONS AND MAY NOT ACHIEVE OR SUSTAIN CONSISTENT PROFITABILITY,
      WHICH COULD RESULT IN A DECLINE IN THE VALUE OF OUR COMMON STOCK OR OUR
      INABILITY TO SUPPORT OUR OPERATIONS OR FUTURE CAPITAL
      REQUIREMENTS.**





We
      have
      received a report from our independent auditors containing an explanatory
      paragraph that describes doubt about our ability to continue as a going concern
      due to our historical operating losses and recurring negative working capital.
      We have incurred net losses and experienced negative cash flows from operations
      in the last 5 years. As of November 30, 2005, we had an accumulated deficit
      of
      approximately US$67 million.




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





**THERE
      ARE RISKS ASSOCIATED WITH OUR BUSINESS STRATEGY CONTEMPLATING GROWTH THROUGH
      ACQUISITIONS AND JOINT VENTURES.**




As
      a
      component of our growth strategy, we intend to continue to enhance our business
      development by acquiring other businesses. However, our ability to grow through
      such acquisitions and joint ventures will depend on the availability of suitable
      acquisition candidates at an acceptable cost or at all, our ability to compete
      effectively to attract and reach agreement with acquisition candidates or joint
      venture partners on commercially reasonable terms, the availability of financing
      to complete larger acquisitions or joint ventures. In addition, the benefits
      of
      an acquisition or joint venture transaction may take considerable time to
      develop and we cannot assure you that any particular acquisition or joint
      venture will produce the intended benefits. Moreover, the identification and
      completion of these transactions may require us to expend significant management
      and other resources.





**OUR
      COMMON STOCK MAY NOT REMAIN ELIGIBLE FOR QUOTATION ON THE OTC BULLETIN
      BOARD.**





Our
      common stock is quoted on the OTC Bulletin Board which requires compliance
      with certain filing requirements as set forth in NASD Rules 6530 and 6540 in
      order to remain eligible for quotation. Hartcourt currently is not in compliance
      with such NASD Rules because we have not remained current in our reporting
      obligations to the Securities and Exchange Commission under Section 13 or 15(d)
      of the Securities Exchange Act of 1934, which requires certain issuers of
      registerable securities to file periodic reports. Specifically, Hartcourt has
      not filed a complete Form 10-KSB for the fiscal year ended December 31, 2003
      due
      to the fact that our Form 10-KSB was filed with an audit opinion that was
      qualified as to scope. We are working with our auditors and pursuing other
      available options to remedy this matter but are at risk of having all quotations
      of our securities on the OTCBB being deleted. If our securities were
      deleted from quotation on the OTCBB, our common stock would trade in the
      "pink sheets" maintained by the National Quotation Bureau, Inc. which is
      generally considered to be a less efficient market.  Our stock price,
      as well as the liquidity of our common stock, may be adversely impacted as
      a
      result.





14




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





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





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





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





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





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





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





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





**WHILE
      WE BELIEVE THAT WE CURRENTLY HAVE ADEQUATE INTERNAL CONTROL PROCEDURES IN PLACE,
      WE ARE STILL EXPOSED TO POTENTIAL RISKS FROM RECENT LEGISLATION REQUIRING
      COMPANIES TO EVALUATE INTERNAL CONTROLS UNDER SECTION 404 OF THE
      SARBANES-OXLEY.**





We
      are
      evaluating our internal controls systems in order to allow management to report
      on, and our independent auditors to attest to, the effectiveness of our internal
      controls over financial reporting, as required by this legislation. We will
      be
      performing the system and process evaluation and testing (and any necessary
      remediation) required in an effort to allow our management to assess the
      effectiveness of our system of internal control as of the end of the transition
      period ended May 31, 2005, the end of our current fiscal year. Our independent
      auditors must then attest to and report on that assessment by our management
      to
      comply with the management certification and auditor attestation requirements
      of
      Section 404 of Sarbanes-Oxley (Section 404). As a result, we have and expect
      to
      continue to incur significant additional expenses and diversion of management's
      time. We may fail to timely complete our evaluation, testing and remediation
      actions in order to allow for this assessment by our management or our
      independent auditors may not be able to timely attest to our management's
      assessment. If we are not able to implement the requirements of Section 404
      in a
      timely manner or with adequate compliance, we might be subject to sanctions
      or
      investigation by regulatory authorities, such as the Securities Exchange
      Commission. Further, if our independent auditors are not satisfied with our
      internal control over financial reporting or with the level at which it is
      documented, designed, operated or reviewed, they may decline to attest to
      management's assessment or may issue a qualified report identifying a material
      weakness in our internal controls. Any such action could adversely affect our
      financial results and could cause our stock price to decline.




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





We
      are a
      U.S. registered company and we conduct our operations solely in China through
      our directly owned subsidiaries and indirectly majority-owned subsidiary. In
      order to comply with foreign ownership restrictions, we operate our business
      in
      China through a subsidiary which is majority owned by Ni Ting Ting and Jimmy
      He,
      our employee, both of whom are PRC citizens (our nominees). We have entered
      into
      a series of contractual arrangements with our indirectly owned subsidiary,
      its
      shareholders and our nominees. As a result of these contractual arrangements,
      we
      are considered the majority beneficiary of all of our subsidiaries and
      accordingly we consolidate all of our subsidiaries' results of operations in
      our
      financial statements.







15


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





There
      are, however, substantial uncertainties regarding the interpretation and
      application of current or future PRC laws and regulations. Accordingly, we
      cannot assure you that the PRC regulatory authorities will not ultimately take
      a
      view that is contrary to the opinion of our PRC legal counsel.





**RISKS
      RELATING TO THE PEOPLE'S REPUBLIC OF CHINA**





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





Chinese
      law and regulations strictly limit the repatriation of assets of Chinese
      companies. Payments to parties outside of the PRC are governed by the Foreign
      Exchange Bureau and its Regulation on Foreign Exchange Control. Pursuant to
      the
      Regulation, a Chinese enterprise may make overseas payments from their foreign
      exchange account at an authorized foreign exchange bank in the following limited
      circumstances within its registered business scope and directly related to
      its
      business in China. Chinese enterprises are prohibited from sending payment
      abroad to cover the liabilities incurred by affiliated entities located
      overseas.





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





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





Caution
      Regarding Forward-Looking Statements





This
      Report contains forward-looking statements. These forward-looking statements
      include our statements regarding the following: our belief that we can deliver
      expected revenue and profit growth; our expectations regarding our ability
      to
      acquire suitable companies for future growth; assumptions underlying our
      Critical Accounting Policies, and our expectation that we will be able to raise
      sufficient cash for acquisition and working capital needs for the next 12
      months.





We
      caution investors that forward-looking statements are only predictions based
      on
      our current expectations about future events and are not guarantees of future
      performance. Our actual results, performance or achievements could differ
      materially from those expressed or implied by the forward-looking statements
      due
      to risks, uncertainties and assumptions that are difficult to predict. These
      risks and uncertainties include the following: the impact of intense competition
      in our business; difficulty in acquiring new businesses; difficulties with
      suppliers and distribution channels; significant impairment charges due to
      past
      acquisitions. In addition, the risks and uncertainties that are discussed in
      this Item 2 under the caption "Risk Factors Affecting Future Results" may also
      impact these forward-looking statements. We encourage you to read that section
      carefully along with the other information provided in this Report and in our
      other filings with the SEC before deciding to invest in our stock or to maintain
      or change your investment. We undertake no obligation to revise or update any
      forward-looking statement for any reason, except as required by law.





**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
      31,
      2005, 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.






16





**Impact
      of Foreign Currency Rate Changes**





We
      believe that our exposure to currency exchange fluctuation risk is not
      significant. 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. As of
      November 30, 2005, we did not engage in foreign currency hedging activities.
      A
      movement of 10% in foreign currency exchange rates would not have a material
      impact on our operating results.




**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.







17


**PART
      II: OTHER INFORMATION**


**Item 1.** ***Exhibits.***








**Exhibit****Number**
            
            **Description**31.1
            
            Rule 13a-14(a)/15d-14(a)
                Certification of Principal Executive Officer31.2
            
            Rule 13a-14(a)/15d-14(a)
                Certification of Principal Financial Officer32.1
            
            Section 1350
                Certification of Principal Executive Officer and Principal Financial
                Officer








18


**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.
              Registrant/s/
                Carrie HartwickCarrie
                Hartwick*Chief
                Executive Officer and Chief Financial Officer*
              (Principal
                Executive and Principal Financial Officer)


Date:
      January 18, 2006











19


**Exhibit Index**


**Exhibit****Number**
            
            **Description**31.1
            
            Rule 13a-14(a)/15d-14(a)
                Certification of Principal Executive Officer31.2
            
            Rule 13a-14(a)/15d-14(a)
                Certification of Principal Financial Officer32.1
            
            Section 1350
                Certification of Principal Executive Officer and Principal Financial
                Officer








20