U.S. SECURITIES AND EXCHANGE COMMISSION                                         
               WASHINGTON, DC 20549

                                          FORM 10-QSB


  [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                                   AND EXCHANGE ACT OF 1934

               For the quarterly period ended June 30,1998
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 0R 15(d) OF THE SECURITIES
                       AND EXCHANGE ACT OF 1934

         For the transition period from ______________ to _______________

                                 Commission File Number: 001-12671


                               The Hartcourt Companies, Inc.
       (Exact name of small business issuer as specified in its charter)

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


       2049 Century Park East, Suite 3760, Los Angeles, California 
                          (Address of principal executive offices)


                                                           (310) 788-2634
                                                    (Issuer's telephone number)



Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the restraint was required to file such  reports),  and (2) has been
subject to such filing requirements for the past 90 days: Yes [ X ] No [ ].


As of June 30, 1998, The Hartcourt Companies, Inc. had 18,774,596 shares of 
Common Stock Outstanding.

Transitional Small Business Disclosure Format (check one ):

                              Yes [  ]                 No [ X ]



<PAGE>

<TABLE>
<CAPTION>

                                                          TABLE OF CONTENTS
               THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
                                                        Report on Form 10-QSB
                                                          For quarter ended
                                                            June 30, 1998

Page

PART I            FINANCIAL INFORMATION

Item 1.           Financial Statements (Unaudited )

<S>                                         <C> <C>               <C> <C>          <C> <C>
         Consolidated Balance Sheets - June 30, 1998 and December 31, 1997         3 - 4

                  Consolidated  Statements of  Operations - Quarters  ended June
                           30, 1998 and 1997 and the six months ended
                           June 30, 1998 and 1997                                                                                  5

                  Consolidated Statements of Shareholders' Equity - Six
                           Months ended June 30, 1998                                                                              6

                  Consolidated Statements of Cash Flows - Six months ended
                           June 30, 1998 and 1997                                                                                  7

                  Notes to the Consolidated Financial Statements                                                              8 - 11

Item 2.           Management's Discussion and Analysis of Financial Condition
                  And results of Operations                                                                                  12 - 14



PART II  OTHER INFORMATION

                  Item 1.  Legal Proceedings                                                                                      14

                  Item 2.  Changes in Securities                                                                                  14

                  Item 3.  Defaults upon Senior Securities                                                                        14

                  Item 4.  Submission of Matters to Vote of Security Holders                                                      14

                  Item 5.  Other Information                                                                                      14

                  Item 6.  Exhibits and Reports on Form 8-K                                                                       14

                  Signatures                                                                                                      15



</TABLE>


<PAGE>
<TABLE>
<CAPTION>



Part I                                      THE HARTCOURT COMPANIES INC. AND SUBSIDIARIES

Item 1.                                              CONSOLIDATED BALANCE SHEETS



ASSETS                                                                                                 June 30,
                                                                                                         1998        December 31,
CURRENT ASSETS                                                                                        (Unaudited)        1997


<S>                                                                                                  <C>              <C>          
Cash                                                                                                 $     203,982    $      77,688
Marketable Securities  (Note 3)                                                                          4,951,063        5,474,966
Accounts receivable, net of allowance for doubtful accounts of
      $76,477, in 1998 and 1997, respectively                                                            2,983,200        2,332,977
Trade dollar receivable                                                                                     38,144           22,670
Notes receivable, current portion                                                                          271,936          293,673
Inventory                                                                                                2,621,679        3,541,321
Prepaid expenses                                                                              144,054             130,554
Prepaid consulting fees                                                                                    664,770          664,770
Due from related parties                                                                                   188,009          131,398


      TOTAL CURRENT ASSETS                                                                              12,066,837       12,670,017

PROPERTY AND EQUIPMENT, net                                                                              3,558,718        3,568,507

INVESTMENTS                                                                                             17,906,520       17,906,520

NOTES RECEIVABLE, net of current portion                                                                 1,072,805        1,058,267

OTHER ASSETS                                                                                               566,820          552,289

INTANGIBLES, net                                                                                         9,169,091        9,365,000


      TOTAL ASSETS                                                                                   $  44,340,791    $  45,120,600



LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
      Accounts payable                                                                                   1,920,788        2,824,419
      Accrued expenses and other current liabilities                                                       253,771        1,046,881
      Payable to Mexican affiliate                                                                         360,549          352,942
      Line of credit                                                                                       856,067          200,000
      Notes payable, related parties-current portion                                                       292,904          295,000
      Notes payable-current portion                                                                        112,383          205,245
      Capital lease obligation-current portion                                                             214,074          200,222
      Debentures                                                                               50,000             50,000
      Subscription deposits received                                                                             -           15,000


            TOTAL CURRENT LIABILITIES                                                                    4,060,536        5,189,709



</TABLE>

<PAGE>

<TABLE>
<CAPTION>


Item 1.                                     THE HARTCOURT COMPANIES INC. AND SUBSIDIARIES
(cont.)
                                                     CONSOLIDATED BALANCE SHEETS
                                                             (CONTINUED)



                                                                                                       June 30,
                                                                                                         1998        December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY (cont.)                                                          (Unaudited)        1997


<S>                                                                                                        <C>              <C>    
NOTES PAYABLE, RELATED PARTIES, net of current portion                                                     125,000          125,000

NOTES PAYABLE, net of current portion                                                                    1,302,980        1,334,327

CAPITAL LEASE OBLIGATIONS, net of current portion                                                          496,528          612,477


      TOTAL LIABILITIES                                                                                  5,985,044        7,261,513

COMMITMENT AND CONTINGENCIES                                                                                                      -

SHAREHOLDERS' EQUITY
      Preferred Stock
            Original preferred stock, $0.01 par value, 1,000 shares                                             10               10
                 authorized, issued and outstanding
            Series A, $1,000 stated value, 4,000 shares authorized,
                 issued and outstanding                                                                  4,000,000        4,000,000
            Series B, $1,000 stated value, 2,000 shares authorized,
                 issued and outstanding                                                                  2,000,000        2,000,000
            Series C, $1,000 par value, 1,500 shares authorized,
                 issued and outstanding                                                                  1,000,000        1,500,000
            Series D, $1,000 stated value, 10,000 shares authorized,
                 3,400 shares issued and outstanding                                                     3,400,000        3,400,000
            Series AB, $1,000 stated value, 25,000 shares authorized,
                 270 shares issued and outstanding                                                         405,000                -
            Class A, no par, 10,000,000 shares authorized,
                 none issued and outstanding                                                                     -                -



            TOTAL PREFERRED STOCK                                                                       10,805,010       10,900,010

      Common stock, $0.01 par value, 50,000,000 shares
            authorized; 18,774,596 and 16,441,739 shares issued
            and outstanding at June 30, 1998 and December 31, 1997                                          18,775           16,442
      Stock subscription receivable                                                                      (301,000)         (26,000)
      Treasury stock, at cost (24,364 shares in 1998 and 1997)                                           (279,928)        (279,928)
      Additional paid-in capital                                                                        32,372,701       31,083,604
      Accumulated deficit                                                                              (4,259,811)      (3,835,041)



            TOTAL SHAREHOLDERS' EQUITY                                                                  38,355,747       37,859,087

                 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                          $  44,340,791    $  45,120,600



</TABLE>



<PAGE>

<TABLE>
<CAPTION>


Item 1.                                     THE HARTCOURT COMPANIES INC. AND SUBSIDIARIES
(cont.)
                                                CONSOLIDATED STATEMENTS OF OPERATIONS
                                                             (UNAUDITED)



                                                                             Quarter Ended                 Six Months Ended
                                                                               June 30,                        June 30,
                                                                        1998            1997             1998            1997


REVENUES
<S>                                                                <C>              <C>              <C>              <C>          
      Product Sales                                                $   2,603,034    $     267,394    $   7,548,765    $     271,500
      Services and Labor Sales                                         2,966,869                -        3,124,137                -


            TOTAL REVENUE                                              5,569,903          267,394       10,672,902          271,500

COST OF SALES                                                          4,067,551          190,926        7,748,400          195,325



      Gross profit                                                     1,502,352           76,468        2,924,502           76,175

OPERATING EXPENSES
      Selling, general and administrative                              1,370,742           41,633        2,629,712          144,290
      Depreciation and amortization                                      184,697              420          369,395            5,145


      TOTAL OPERATING EXPENSES                                         1,555,439           42,053        2,999,107          149,435


INCOME (LOSS) FROM OPERATIONS                                           (53,087)           34,415         (74,605)         (73,260)

OTHER INCOME (EXPENSES)
      Interest expense                                                  (78,071)         (24,159)        (140,104)         (26,400)
      Interest income                                                     27,780            6,731           37,378           15,475
      Miscellaneous Income                                                23,836           25,556           23,836           25,556



      TOTAL OTHER INCOME (EXPENSE)                                      (26,455)            8,128         (78,890)           14,631


NET INCOME (LOSS) BEFORE TAXES                                          (79,542)           42,543        (153,495)         (58,629)
      Income taxes                                                             -              664            1,275            1,041



NET LOSS                                                           $    (79,542)    $      41,879    $   (154,770)    $    (59,670)


BASIC AND FULLY DILUTED INCOME (LOSS)
      PER SHARE                                                    $       (.01)    $         .00    $       (.03)    $       (.01)
WEIGHTED AVERAGE NUMBER OF SHARES
      OUTSTANDING                                                     16,997,215       12,029,029       16,997,215       12,029,029




</TABLE>

<PAGE>
<TABLE>
<CAPTION>



Item 1.                                     THE HARTCOURT COMPANIES INC. AND SUBSIDIARIES
(cont.)
                                           CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
                                               FOR THE SIX MONTHS ENDED JUNE 30, 1998
                                                             (UNAUDITED)



                                                                              Common
                                                                 Additional    Stock                                         Total
                    CommonStock Preferred StockPaid in SubscriptionTreasury StockAccumulatedShareholders'
                     Shares     Amount      Shares AmountCapital ReceivableShares  Amount DeficitEquity



<S>               <C> <C>  <C>          <C>         <C>       <C>        <C>        <C>      <C>   <C>       <C>         <C>        
Balance, December 31, 1997 16,441,739   $16,442     11,900    $10,900,010$31,083,604$(26,000)24,364$(279,928)$(3,835,041)$37,859,087

   Preferred Stock Issued                        270    270,000                                                             270,000

   Preferred Stock Redeemed                    (250)  (250,000)                                                           (250,000)

   Preferred Stock Dividend                                                                                    (135,000)  (135,000)

   Stock Subscription Received                                                  25,000                                       25,000

   Net Loss                                                                                                     (75,228)   (75,228)



Balance, March 31, 1998 16,441,739      $16,442     11,920    $10,920,010$31,083,604$(1,000)24,364$(279,928)$(4,045,269)$37,693,859

   Sale of shares under
     Regulation S    2,000,000      2,000                         1,123,002  (300,000)                                      825,002

   Shares issued to employees
     and Board of Directors 332,857      333                               166,095                                          166,428

   Preferred Stock Redeemed                    (250)  (250,000)                                                           (250,000)

   Preferred Stock Issued                        135    135,000                                                             135,000

   Preferred Stock Dividend                                                                                    (135,000)  (135,000)

   Net Loss                                                                                                     (79,542)   (79,542)



Balance, June 30, 1998 18,774,596       $18,775     11,805  $10,805,010$32,372,701$(301,000)24,364$(279,928)$(4,259,811)$38,355,747

</TABLE>




<PAGE>

<TABLE>
<CAPTION>


Item 1.                                     THE HARTCOURT COMPANIES INC. AND SUBSIDIARIES
(cont.)
                                                 CONSOLIDATED STATEMENT OF CASH FLOW
                                                             (UNAUDITED)
                                                                                                            Six Months Ended
                                                                                                                June 30,
                                                                                                         1998             1997


CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                                                  <C>              <C>          
   Net Loss                                                                                          $   (154,770)    $    (59,670)
   Adjustments to reconcile net loss to net cash
      used in operating activities:
        Stock issued for services                                                                          166,428          294,500
        Write-off of bad debts                                                                                   -         (12,463)
        Accrued interest income                                                                                  -          (7,395)
        Depreciation and amortization                                                                      376,492            5,145
        Changes in operating assets and liabilities:
          (Increase) decrease in:
             Accounts receivable                                                                         (665,697)           64,192
             Inventory                                                                                     919,642          182,665
             Notes receivable                                                                                    -        (219,479)
             Prepaid expenses and other                                                                   (13,500)        (318,042)
             Other Assets                                                                                 (14,531)           22,955
          Increase (decrease) in:
             Accounts payable and accrued expenses                                                     (1,577,541)         (54,326)
             Due from related party                                                                       (56,611)         (52,418)
             Payable to Mexican affiliate                                                                    7,607                -



NET CASH USED IN OPERATING ACTIVITIES                                                                  (1,012,481)        (154,336)

CASH FLOWS FROM INVESTING ACTIVITIES
   Purchase of property and equipment                                                                    (170,794)            4,400
   Deposits                                                                                                      -        (500,000)
   Proceeds on sale of marketable securities                                                               523,903                -
   Payments on notes receivable                                                                              7,199                -


NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                                                        360,308        (495,600)

CASH FLOWS FROM FINANCING ACTIVITIES
   Sale of common stock                                                                                  1,125,002          569,000
   Common stock subscription receivable                                                                  (275,000)           44,000
   Bank overdrafts                                                                                               -          (5,691)
   Other Loans and lines of credit                                                                         656,067          100,000
   Borrowing from notes                                                                                          -           47,776
   Payments on related party payable                                                                       (2,096)                -
   Payments on long term-debt                                                                            (124,209)                -
   Payments on capital lease obligation                                                                  (101,297)                -
   Redemption of preferred stock                                                                         (500,000)                -


NET CASH PROVIDED BY FINANCING ACTIVITIES                                                                  778,467          755,085


NET INCREASE IN CASH                                                                                       126,294          105,149

CASH, BEGINNING OF PERIOD                                                                                   77,688              822


CASH, END OF PERIOD                                                                                  $     203,982    $     105,971




</TABLE>


<PAGE>



Item 1.                       THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
(cont.)                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                              (UNAUDITED)


Note 1.  Organization and Nature of Operations:

         Hartcourt  Investments  (USA),  Inc.,  (Hartcourt   Investments  )  was
         incorporated on April 23, 1993.  Principal business  activities are the
         design,  manufacture and sale of writing instruments.  During its first
         two  years  of  operations,  Hartcourt  Nevada  used  foreign  contract
         manufacturers to produce various types of pens and markers,  which were
         then imported for sale in the U. S. market.  In August 1994,  Hartcourt
         Investments  acquired a 60% interest in the Xinhui  Harchy Modern Pens,
         Ltd.  Joint Venture  (Xinhui JV) owned by a Hong Kong  corporation  for
         common  stock  valued at  $2,149,200.  The  Xinhui JV is located in the
         Guangdong  Province  of China.  Pursuant to an  amendment  to the joint
         venture agreement governing the Xinhui JV entered into in October 1995,
         Hartcourt  Investments  interest  was reduced to a 52%  interest in the
         Xinhui JV. In September 1996, Hartcourt Investments sold its investment
         in Xinhui JV to CKES, Inc. of Sunnyvale, California.

         In  November  1994,  Stardust,   Inc.,   Production-Recording-Promotion
         (Stardust)  acquired  100%  of  the  outstanding  shares  of  Hartcourt
         Investments  for 8,280,000  shares of its common stock in a transaction
         accounted  for as a  recapitalization  of  Hartcourt  Investments  with
         Hartcourt Investments as the acquirer (reverse acquisition). Therefore,
         the historic cost of assets and liabilities were carried forward to the
         consolidated entity. In 1995 and 1996, reverse stock splits changed the
         number  of  shares  issued  and  outstanding  to  6,110,337,   then  to
         2,735,952.  The  consolidated  financial  statements  were  restated to
         reflect this capital stock transaction.  Stardust's name was changed to
         the "The Hartcourt Companies, Inc."

         Hartcourt Pen Factory, Inc. (Hartcourt Pen) was incorporated in October
         1993.   Principal   business   activities   are  the  sale  of  writing
         instruments.  In December 1994, Hartcourt  Investments acquired 100% of
         the outstanding  shares of the common stock of Hartcourt Pen for 52,500
         shares of its common stock and 1,000  shares of its original  preferred
         stock in a transaction  accounted for similar to a pooling of interest.
         In 1995,  stock dividends and reverse stock split changed the number of
         shares  issued to 38,625 to acquire  Hartcourt  Pen.  The  consolidated
         financial  statements  were  restated to reflect  these  capital  stock
         transactions.

         In August 1996, The Hartcourt Companies,  Inc. (Company) entered into a
         purchase and sale agreement with NuOasis International, Inc. (NuOasis),
         a corporation  incorporated  under the laws of the  Commonwealth of the
         Bahamas,  for  the  purchase  of  a  commercial  real  estate  project,
         consisting of three 5-7 story  apartment  buildings,  commonly known as
         the Peony Gardens Property (Peony Gardens), located in the eastern part
         of  Tongxian  in Beijing  City,  mainland  China.  The  Company  issued
         4,000,000 shares of its common stock with respect to this purchase.

         In September  1996,  the Company  entered into a sales  agreement  with
         Mandarin   Overseas   Investment   Co.,  Ltd.   (Mandarin)  and  Promed
         International  Ltd.  (Promed),   both  unaffiliated  Turks  and  Caicos
         chartered  companies,  for  the  purchase  of  their  50%  interest  in
         sixty-eight  mineral  lease  gold lode  claims in the state of  Alaska,
         known as Lodestar  claims 1-68 and consisting of 320 acres.  All claims
         are located in the Melozitna mining district near Tanana,  Alaska.  The
         Company  issued  1,298,700  shares of its common  stock with respect to
         this purchase.

         In October 1997, the Company  purchased the outstanding  shares of Pego
         Systems,  Inc. (Pego) whereby Pego became a wholly owned  subsidiary of
         the Company. Pego, a manufacturer's representative organization for air
         and gas handling equipment,  offers a full line of value added services
         including distribution, service and the manufacturing of custom process
         equipment packages.  In connection with the purchase,  the Company paid
         $500,000 in cash,  issued 450,000 shares of common stock,  1,500 shares
         of series C redeemable  preferred stock, and entered into a non-compete
         agreement with Pego's majority shareholders.

         On October 28, 1997,  the Company,  through a wholly owned  subsidiary,
         acquired  Electronic  Components  and  Systems,  Inc.  (ECS) and Pruzin
         Technologies,  Inc.  (Pruzin) a related  entity of ECS.  ECS and Pruzin
         specialize in high technology  contract  manufacturing  and assembly of
         printed circuit boards, phone and cable wires. ECS has three facilities
         in Arizona and has a service  contract with a  maquiladora  in the free
         trade zone in Sonora, Mexico. The Company issued 3,400 shares of Series
         D convertible preferred stock, 2,500,000 shares of the Company's common
         stock, $250,000 in cash and a $250,000 promissory note.




<PAGE>



Item 1.      THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
(cont.)      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            (UNAUDITED)

Note 1.  Organization and Nature of Operations: (cont.)

         ECS maintains manufacturing  operations under maquiladora agreements in
         Nogales,  Mexico.  The 100%  shareholder of the maquiladora is also the
         President of ECS. A substantial  amount of ECS's cables and  electronic
         components are manufactured  and assembled at the Mexico facility.  ECS
         also has  smaller  manufacturing  facilities  in Tucson  and  Chandler,
         Arizona and a distribution facility in Nogales, Arizona.

Note 2.  Basis of Presentation:

         The accompanying  unaudited financial  statements have been prepared in
         accordance with generally  accepted  accounting  principles for interim
         financial  information  and  with  the  instructions  to  form  10-QSB.
         Accordingly,  they do not include all of the  information and footnotes
         required by  generally  accepted  accounting  principles  for  complete
         financial  statements  and related notes included in the Company's 1997
         Form 10-KSB.

         In the opinion of  management,  the  accompanying  unaudited  financial
         statements contain all adjustments (which include only normal recurring
         adjustments)  necessary  to  present  fairly the  balance  sheet of The
         Hartcourt  Companies,  Inc. and Subsidiaries as of June 30,1998 and the
         results  of their  operations  and their  cash flows for the six months
         ended June 30, 1998 and 1997,  respectively.  The financial  statements
         are consolidated to include the accounts of The Hartcourt Companies and
         its subsidiaries Hartcourt Investments,  USA, including the accounts of
         Hartcourt  Pen,  Pego  Systems,  Inc.  and  Electronic  Components  and
         Systems, Inc. (together "the Company").

         Certain  1997  amounts  have been  reclassified  to  conform to current
         period  presentation.   These   reclassifications  have  no  effect  on
         previously reported net income.

         The accounting  policies  followed by the Company are set forth in Note
         A. to the  Company's  financial  statements  as stated in its report on
         Form 10-KSB for the fiscal year ended December 31, 1997.

Note 3.  Marketable Securities:

         In July 1997,  the  Company  entered  into an  agreement  with  Capital
         Commerce,  Ltd. (Capital) (an Isle of man Corporation)  whereby Capital
         agreed to provide the Company $6,000,000 in free trading securities for
         the  purchase of Pego  Systems,  Inc. and the  formation of  Electronic
         Components and Systems,  Inc., a Nevada  corporation.  In consideration
         for the  $6,000,000  in  securities,  the  Company  issued  to  Capital
         $4,000,000 in Series A and  $2,000,000 in Series B, both 9% convertible
         preferred  stock.  Dividends  are  declared  and paid monthly at 9% per
         annum. The Company pays the dividends through the issuance of Series AB
         convertible preferred stock (Note 5).

         As of June 30,  1998,  the  Company  had sold  $1,048,937  worth of its
         securities,  and has available  $4,951,063.  Marketable  Securities are
         reported at the guaranteed value of the contract.




<PAGE>



Item 1.             THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
(cont.)             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

Note 4.  Supplemental Disclosure of Non-Cash Financing Activities:
<TABLE>

                                                                                                 Six Months Ended  Six Months Ended
                                                                                                   June 30, 1998     June 30, 1997


                                                                                                       (unaudited)    (unaudited)
            Cash paid for interest and income taxes:
<S>                                                                                                 <C>               <C>         
                 Interest                                                                           $    140,104      $     26,400
                 Taxes                                                                                     1,275                 -

            Non-cash investing and financing activities:
                 Preferred stock issued for dividends                                               $    270,000                 -
                 Preferred stock issued for accrued Liabilities                                     $    135,000                 -
</TABLE>

Note 5.  Capital Stock:

         In October 1997,  the Company's  Articles were amended to authorize the
         issuance of AB preferred  stock. As amended,  the Articles provide that
         the total  number of shares of Series AB  preferred  are 25,000  with a
         stated value of $1,000 per share. The Series AB preferred shares may be
         redeemed  by the  Company at any time at a  redemption  value  equal to
         $1,000 per share plus any accrued and unpaid  dividends  to the date of
         redemption.  In addition,  at the option of the holder of the Series AB
         preferred shares,  the shares may be converted into 1,334 shares of the
         Company's common stock (conversion rate).  During 1998, the Company has
         issued 405 shares of Series AB preferred shares.

         During the first  half of 1998,  the  Company  redeemed  $500,000  (500
         shares) of the Company's Series C redeemable preferred stock,  pursuant
         to the Pego Stock Purchase Agreement, dated October 3, 1997.
<TABLE>

Note 6.  Loss per Share:
                                                                             Quarter Ended                 Six Months Ended
                                                                               June 30,                        June 30,
                                                                        1998            1997             1998            1997

Income (Loss) from continuous
<S>                                                                <C>              <C>              <C>              <C>          
Operations:                                                        $    (79,542)    $      41,879    $   (154,770)    $    (59,670)
Less preferred stock dividends                                         (135,000)                -        (270,000)                -


Income (Loss) available to
  common shareholders                                                  (214,542)           41,879        (424,770)         (59,670)

Effects of dilutive securities                                                 -                -                -                -

Weighted average shares outstanding                                   16,997,215       12,029,024       16,997,215       12,029,024

Basic and dilutive earnings per share                              $       (.01)    $       (.00)    $       (.03)    $       (.00)
</TABLE>

           During 1998 and 1997, the Company had 2,000,000 warrants outstanding,
           each convertible into one share of common stock. In addition,  during
           1998  and  1997,  the  company  had   convertible   preferred   stock
           outstanding,   each  share  convertible  into  common  stock.   These
           instruments  were not included in the computation of diluted earnings
           per share for any of the periods presented, due to their antidilutive
           effects based on the net loss reported for each period.





<PAGE>



Item 1.                  THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
(cont.)                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               (UNAUDITED)

Note 7.  Material and Subsequent Events:

         On July 6,1998,  the Company entered into a preliminary  stock purchase
         agreement  with  Mr.  Mordecai  Kraselnik,  officer  and  owner  of  MK
         Aviation,  S.A.  of the  Republic  of Panama.  The  Company  intends to
         acquire all  outstanding  shares of MK  Aviation,  S.A. The parties are
         negotiating  final terms of this  agreement and estimate  completion of
         the transaction in the fourth quarter of 1998.

         On July 28,  1998,  the Company  elected to rescind  the  sale-purchase
         agreement of the gold mining rights in the State of Alaska, pursuant to
         the  terms  of the  September  17,  1996  agreement.  The  Company  has
         requested  that the  1,298,700  common  shares  issued on September 17,
         1996,  with  respect  to  the   sale-purchase   agreement  be  returned
         immediately.

         On August 6, 1998, the Company's wholly owned subsidiary, Pego Systems,
         Inc. (Pego)  acquired 100% percent of the  outstanding  voting stock of
         Pacific Pneumatic, Inc. (PPI), located in Rancho Cucamonga, California.
         The  purchase  price of  $683,000  was paid in the form of  $200,000 in
         cash, $30,000 of The Hartcourt Companies common shares and the issuance
         or  assumption  of  $453,000  in  notes.  PPI  manufactures   pneumatic
         conveying, industrial dust collection and industrial process electrical
         controls.  PPI has been  manufacturing  and selling it components under
         the trademark names "Pore Ploy, "Posit Dust Collectors and Filters" and
         "Pow-Air" for over 20 years.  Combined revenues and pretax earnings for
         PPI  and  Pego  will  be   approximately   $10,000,000   and  $400,000,
         respectively, for the next 12 months.

Part I
Item 2.  Management's Discussion and Analysis of Financial Condition and 
Results of Operations:

         As  discussed  in the  Company's  annual  report  filed on Form 10-KSB,
         during  1997  the  Company  actively  implemented  a  plan  to  acquire
         operating  companies that are in established  industries with a history
         of growth. The Company  successfully  completed two acquisitions during
         the fourth quarter of 1997. Pego Systems,  Inc. was acquired October 3,
         1997 and the assets  and  liabilities  and  Electronic  Components  and
         Systems,   Inc.  along  with  the  assets  and  liabilities  of  Pruzin
         Technologies,  Inc.,  a related  entity,  were  acquired on October 27,
         1997.  Thus,  comparing  income and expenses between the second quarter
         and first half of 1998 and the second quarter and first half of 1997 is
         not meaningful.

         Results of Operations:

         The Company's  revenue for the second  quarter of 1998 was  $5,570,000.
         Domestic  writing  instrument  operations  had minimal  activity as the
         Company continues to liquidate the pen inventory and seeks new business
         opportunities. The Company's subsidiaries Pego Systems, Inc. (Pego) and
         Electronic  Components and Systems, Inc. (ECS) again represented 99% of
         total  revenues for the quarter.  Pego's  revenues were  $1,617,869 and
         ECS's  revenues were  $3,943,990.  Revenues for the second quarter were
         below management's expectations as both Pego and ECS experienced delays
         in obtaining  various  contract  and orders that had been  anticipated.
         However,  management  does  expect  those  contracts  and  orders to be
         obtained and to begin  production in the third quarter of this year. As
         a result of these delays,  the Company  incurred a loss before taxes of
         approximately  $79,500 for the three  months ended and $153,000 for the
         six months ended June 30, 1998.  Management believes this trend will be
         reversed during the second half of the year.

         Components  of cost of sales for the second  quarter  were as  follows:
         Pego  $1,085,000,  67%  as  a  percent  of  Pego's  revenue;  and  ECS,
         $2,982,500,  76% as a percent of ECS's  revenue.  Consolidated  cost of
         sales, $4,067,500 is 73% of consolidated revenue.  Consolidated cost of
         sales  as  a  percent  of  consolidated   revenue  is  at  management's
         expectations  and  is  consistent  with  the  Company's  first  quarter
         results.

         Components of selling,  general and administrative  (SGA) expenses were
         as follows:  corporate- $137,800, Pego- $454,000 and ECS- $779,000. SGA
         expenses as a percent of  consolidated  revenues  (25%) were, as in the
         first quarter,  better than anticipated by management.  The better than
         expected  results were  attributable  to on going  efforts to eliminate
         unprofitable  operations and  management's  ability to control costs as
         contracts and orders are pushed out to future periods.





<PAGE>



Item 2.          THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
(cont.)          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (UNAUDITED)

         Goodwill  related to the Pego and ECS  acquisition  is being  amortized
         over 25 years.  Amortization  costs of $95,955  were  recorded  for the
         second  quarter of 1998.  Depreciation  expense of $90,326 was incurred
         during the same period.

         Interest  expense  incurred in connection  with  facilities  mortgages,
         notes and short-term  lines of credit,  capital lease  obligations  and
         factoring  agreement  was  $78,000  for the  three  months  ended  June
         30,1998.

         Liquidity and Capital Resources:

         During the second quarter of 1998,  the Company sold  $1,123,000 of its
         common stock for working capital needs of its consolidated  operations,
         the redemption  (250 shares) of the Company's  Series C preferred stock
         and the  settlement of the Anja Scripto  lease.  Also during the second
         quarter,  the Company issued  approximately  333,000  restricted common
         shares to employees  and  directors  for services  rendered  during the
         preceding  year and issued 135 shares of Series AB preferred  stock for
         dividends  earned on the  Series A and Series B  convertible  preferred
         stock. The Company  contemplates  selling or issuing  additional common
         and  preferred  shares over the next twelve  months for any  additional
         working  capital   requirements,   capital   expenditures   and  future
         acquisitions that may occur.

         The Company's  current ratio and working capital changed  slightly from
         March 31, 1998 to June 30, 1998. Current ratio at June 30,1998 was 2.9%
         compared to 2.6% at March 31, 1998.  Working  capital was $8,006,300 at
         June 30, 1998 and $7,142,703 at March 31, 1998.

         The  Company's   operating   activities  used  cash  of   approximately
         $1,012,500  for the six months  ended June 30,  1998.  The  Company had
         operating income, before depreciation and amortization of approximately
         $220,000. Concurrently,  decreases in inventories of $920,000 offset by
         changes  in  accounts  receivable,  due from  related  party,  accounts
         payable and accrued expenses used an additional $1,180,600. Included in
         the decrease in accrued  expenses was the payment of a $400,000  broker
         commission,  a non-recurring  expense, which was incurred in connection
         with the sale-purchase agreement of ECS, dated October 27,1997.

         Cash provided by investing  activities  for the six  months-ended  June
         30,1998  was  approximately  $360,000.  The  Company  sold  $525,000 in
         marketable securities,  purchased of property and equipment of $171,000
         and received payments on notes receivable of $7,200.

         Financing activities provided  approximately  $778,500 during the first
         six  months  of  1998.  The  sale of the  Company's  common  stock,  as
         previously  mentioned,  and borrowings on bank provided lines of credit
         were used to redeem the  Series C  redeemable  preferred  stock and pay
         down on various short and long-term liabilities.

         As a  result  of the  above  activities,  the  company  experienced  an
increase in cash of $126,300 for the first six months of 1998.

         Business Risks:

         As  discussed  previously,  the Company  intends to acquire  additional
         profitable  operating  businesses.  At this  time,  the  Company  is in
         negotiations with several potential acquisition  candidates and in fact
         has  successfully  completed an acquisition on August 6, 1998.  However
         with respect to other acquisitions,  no definitive agreements have been
         reached.  If any additional  acquisition  agreements are reached in the
         near term,  the Company can make no assurances  that it will be able to
         obtain the financing necessary to complete any of these transactions.





<PAGE>



Item 2.                   THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
(cont.)                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                         (UNAUDITED)

         Competition:

         The Company does not have any direct across the board competitors,  but
         does have competition  within the industries its subsidiaries  operate.
         The Company  believes that these markets are relatively  fragmented and
         highly competitive. The Company ability to compete successfully will be
         dependent  upon  numerous  factors,  including  its  ability  to obtain
         necessary  financing in a timely manner and on commercially  acceptable
         terms,  as well as upon the design,  quality and price of its  products
         and its  customer  service.  Many  of the  Company's  competitors  have
         greater  experience and far greater  financial and other resources than
         the Company. There can be no assurance that the Company will be able to
         compete in its markets.

         Management of Growth:

         If the Company is successful in implementing its growth  strategy,  the
         Company  believes it could  undergo a period of rapid growth that could
         place a  significant  strain  on its  management,  financial  and other
         resources.  The Company's  ability to manage its growth will require it
         to continue to improve its  operational  and  financial  systems and to
         motivate and effectively manage its employees.  If the Company grows it
         will have to implement new financial, budgeting, management information
         and internal  control systems.  The Company's  success will depend upon
         its ability to attract and retain highly skilled  personnel.  There can
         be no assurance  that the Company will be successful in attracting  and
         retaining key management, technical, marketing and sales personnel. Its
         failure to do so would  materially  and adversely  affect the Company's
         business and results of operations.


                   PART II OTHER INFORMATION

Item 1.  LEGAL PROCEEDINGS

         There have been no changes since the  Company's  last report in Item 3,
         "Legal  Proceedings"  of Form 10-KSB for the fiscal year ended December
         31, 1997.

Item 2.  CHANGES IN SECURITIES

         None

Item 3.  DEFAULTS UPON SENIOR SECURITIES

         Not applicable

Item 4.  SUBMISSION OF MATTERS TO VOTE OF SECURITIES HOLDERS

         None

Item 5.  OTHER INFORMATION

         None

Item 6.  EXHIBITS AND REPORTS ON FORM 8-K

         Exhibits - None

         Reports on Form 8-K - None





<PAGE>



                                                     PART II  OTHER INFORMATION


                                                             SIGNATURES

         In accordance with the requirements of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned,  thereunto
duly authorized.


                                       The Hartcourt Companies, Inc.


Date:  August 14, 1998                 By:
                                      Dr. Alan V. Phan
                                    President