**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**Form 10-Q/A**


**(Amendment
      No. 2)**




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




**For
      the quarterly period ended February 28, 2006.**




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




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




**Commission
      file number: 001-12671**




**The
      Hartcourt Companies, Inc.**


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




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





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




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


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




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




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer or a non-accelerated files. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (check
      one).





Large
                accelerated filer o
            Accelerated
                filer o
            Non-accelerated
                filerx




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




The
      number of outstanding shares of the registrant’s Common Stock, $0.001 par value,
      was 194,081,957 as of March 31, 2006.














_________________





This
      Amendment No.2 to the Quarterly Report on Form 10-Q is being filed to include
      a
      restatement of the Company’s financial statements for the quarter ended February
      28, 2006, revised Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations and to include revised disclosure regarding our internal controls.




Except
      as described above, no other changes have been made to the Form
      10-Q.




_________________





Hartcourt
      Companies, Inc





Restatement
      of Financial Statements and


Amended
      Form 10-Q for the quarter ended February
      28, 2006





Subsequent
      to the issuance of the Company's financial statements for the year ended
      December 31, 2003, the Company determined that a certain transaction and
      presentation in the financial statements had not been accounted for
      properly in the Company's financial statements.





During
      the year ended December 31, 2003, the Company, through Hartcourt Capital, Inc.,
      a subsidiary, acquired four (4) Chinese companies located and operated
      in China.




The
      Company has restated its financial statements based on the subsequent
      appraisal of the fair value of the four (4) companies at each acquisition
      date.




Kabani
      & Company Inc., Certified Public Accountants, had audited
      the consolidated financial statements for the year ended December 31,
      2003, after the above-mentioned restatements, and express their opinion
      "the financial statements referred to above present fairly, in all material
      respects, the financial position of the Hartcourt Companies, Inc. as of
      December 31, 2003, in conformity with accounting principals generally
      accepted in the United States of America."





Accordingly,
      on August 9, 2006, we filed an amendment to our Form 10-KSB for the year ended
      December 31, 2003 with United States Securities and Exchange Commission to
      reflect the changes.   (See Form 10-KSB/A, filed August 9,
      2006).




The
      changes required corresponding adjustments to the financial statements for
      the year ended December 31, 2004, the transitional period ended May 31, 2005
      and
      subsequently filed reports on Form 10-Q. As a result, on October 10, 2006 we
      amended (a) our annual report on Form 10-KSB for the twelve months ended
      December 31, 2004 (See Form 10-KSB/A-3) and (b) our annual report on Form 10-K
      for the five month transitional period ended May 31, 2005 (see Form 10-K/A)
      and,
      today we are amending our quarterly reports on Form 10-Q for the three months
      ended August 31, 2005, the three and six months ended November 30, 2005 and
      the
      three and nine months ended February 28, 2006. We have included these
      adjustments in our Form 10-K for the year ended May 31, 2006, filed previously
      on September 15, 2006.














/s/
      Yungeng Hu


Chief
      Financial Officer & President










**TABLE
      OF CONTENTS**






**PART
                I: FINANCIAL INFORMATION**Item 1.
            Financial
                StatementsUnaudited
                Consolidated Balance Sheet - Restated
            1Unaudited
                Consolidated Statements of Operations
            3Unaudited
                Consolidated Statements of Cash Flows
            4Notes
                to Unaudited Consolidated Financial Statements - Restated
            6Item 2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of Operations
            15Item 4.
            Controls
                and Procedures
            19**PART
                II: OTHER INFORMATION**Item 6.
            Exhibits
            19Signatures
            20EXHIBIT
                31.1EXHIBIT
                31.2EXHIBIT
                32.1EXHIBIT
                32.2











**PART
      I: FINANCIAL INFORMATION**


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


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


**CONSOLIDATED
      BALANCE SHEET (Unaudited) - RESTATED**


**February
      28, 2006**


**ASSET****CURRENT
                  ASSETS**Cash
                  and cash equivalents
              
              $
              804,895Accounts
                  receivable, net
              
              
              2,931,116Inventories,
                  net
              
              
              3,372,754Advances
                  to suppliers
              
              
              3,011Prepaid
                  expenses and other assets
              
              
              1,951,208Due
                  from related party
              
              
              149,358**TOTAL
                  CURRENT ASSETS**
              
              
              **9,212,342****PROPERTY
                  & EQUIPMENT - NET**
              
              
              **223,999****INVESTMENTS**
              
              
              **62,178****INTANGIBLE
                  ASSET - NET**
              
              
              **1,911,466****TOTAL
                  ASSETS**
              
              $
              11,409,985**LIABILITIES
                  AND SHAREHOLDERS' EQUITY****CURRENT
                  LIABILITIES**Loan
                  from employees
              
              $
              1,339,972Accounts
                  payable
              
              
              80,430Advances
                  from customers
              
              
              1,316,609Accrued
                  expenses and other current liabilities
              
              
              3,163,023Due
                  to shareholders
              
              
              229,936**TOTAL
                  CURRENT LIABILITIES**
              
              
              **6,129,970****MINORITY
                  INTERESTS**
              
              $
              952,011





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








1




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


**CONSOLIDATED
      BALANCE SHEET**


**February
      28, 2006 (Unaudited) - RESTATED**


**(-Continued-)**






**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, 194,081,957 common sharesissued
                  and outstanding
              
              
              194,082Additional
                  paid in capital
              
              
              70,334,014Treasury
                  stock, at cost, 48,728 shares
              
              
              (48,728
              )Other
                  comprehensive income
              
              
              87,280Accumulated
                  deficit
              
              
              (66,238,644
              )**TOTAL
                  SHAREHOLDERS' EQUITY**
              
              
              **4,328,004****TOTAL
                  LIABILITIES AND SHAREHOLDERS' EQUITY**
              
              $
              11,409,985




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











2




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


**CONSOLIDATED
      STATEMENTS OF OPERATIONS (UNAUDITED)**




**For
                  the Three Month Periods**
                **Ended
                  February 28,**
              
              **For
                  the Nine Month Periods**
                **Ended
                  February 28,****2006**
              
              **2005**
              
              **2006**
              
              **2005**Sales
              
              $
              9,427,749
              
              $
              13,103,965
              
              $
              32,133,061
              
              $
              51,903,530Cost
                  of sales
              
              
              9,194,641
              
              
              12,120,909
              
              
              30,696,442
              
              
              49,573,787Gross
                  profit
              
              
              233,108
              
              
              983,056
              
              
              1,436,619
              
              
              2,329,743Operating
                  expensesSelling,
                  general and administrative
              
              
              235,474
              
              
              1,420,294
              
              
              1,012,313
              
              
              2,691,364Impairment
                  on goodwill
              
              
              1,079,009
              
              
              -
              
              
              1,079,009
              
              
              -Provision
                  on inventory/receivable
              
              
              496,216
              
              
              4,083,876
              
              
              496,216
              
              
              4,083,876Depreciation
                  and amortization
              
              
              16,853
              
              
              18,298
              
              
              55,986
              
              
              47,038Total
                  operating expenses
              
              
              1,827,552
              
              
              5,522,468
              
              
              2,643,524
              
              
              6,822,278Gain
                  (loss) from continuing operations beforeother
                  income/(expenses)
              
              
              (1,594,444
              )
              
              (4,539,412
              )
              
              (1,206,905(
              
              
              (4,492,535
              )Other
                  income (expenses)Interest
                  expense
              
              
              (56,724
              )
              
              (159,170
              )
              
              (146,936
              )
              
              (210,701
              )Interest
                  income
              
              
              2,174
              
              
              76,649
              
              
              75,616
              
              
              164,928Other
              
              
              142,897
              
              
              (501,771
              )
              
              650,555
              
              
              (124,164
              )Total
                  other income (expenses)
              
              
              88,347
              
              
              (584,292
              )
              
              579,235
              
              
              (169,937
              )Income
                  (loss) from continuing operations
              
              
              (1,506,097
              )
              
              (5,123,704
              )
              
              (627,670
              )
              
              (4,662,472
              )Less:
                  Minority Interest
              
              
              (5,852
              
              
              (285,215
              )
              
              522,072
              
              
              167,601Income
                  (loss) before discontinued operations
              
              
              (1,500,245
              )
              
              (4,838,489
              )
              
              (1,149,742
              )
              
              (4,830,073
              )Discontinued
                  operationsLoss
                  from discontinued operations
              
              
              -
              
              
              (504,700
              )
              
              -
              
              
              (2,936,243
              )Provision
                  for assets pending for sales
              
              
              -
              
              
              (7,137,339
              )
              
              (6,028
              )
              
              (7,297,255
              )Gain
                  (loss) on disposal of discontinued operations
              
              
              -
              
              
              53,119
              
              
              -
              
              
              (186,040
              )Income/(loss)
                  before tax
              
              
              (1,500,245
              )
              
              (12,427,409
              )
              
              (1,155,770
              )
              
              (15,249,611
              )Provision
                  for income tax
              
              
              209
              
              
              -
              
              
              208,460
              
              
              15,978NET
                  INCOME/(LOSS)
              
              $
              (1,500,454
              )
              $
              (12,427,409
              )
              $
              (1,364,230
              )
              $
              (15,265,589
              )-
                  Weighted average basic shares outstanding
              
              
              194,044,012
              
              
              172,427,684
              
              
              193,910,113
              
              
              175,064,306Loss
                  from continuing operations
              
              $
              (0.008
              )
              $
              (0.028
              )
              $
              (0.006
              )
              $
              (0.027
              )Loss
                  from discontinued operations
              
              
              (0.000
              )
              
              (0.044
              )
              
              (0.001
              )
              
              (0.060
              )Loss
                  per share
              
              $
              (0.008
              )
              $
              (0.072
              )
              $
              (0.007
              )
              $
              (0.087
              )







3





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


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




**For
                  the Nine Month Periods**
                **Ended
                  February 28,****2006**
              
              **2005****CASH
                  FLOWS FROM OPERATING ACTIVITIES:**Net
                  loss
              
              $
              (1,364,230
              )
              $
              (15,265,589
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:(Gain)/loss
                  on disposal of property and equipment
              
              
              (312,279
              )
              
              4,980Unrealized
                  investment loss
              
              
              -
              
              
              186,038Gain
                  on waive off debts
              
              
              (30,871
              )
              
              -Depreciation
                  and amortization
              
              
              56,747
              
              
              47,038Impairments
              
              
              1,575,225
              
              
              4,307,693Loss
                  on sale of affiliate
              
              
              -
              
              
              9,989,008Minority
                  interest
              
              
              522,072
              
              
              167,601Stock
                  issued for services and compensations
              
              
              30,934
              
              
              157,509Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              (212,604
              )
              
              1,888,705Advances
                  to suppliers
              
              
              1,604,811
              
              
              95,596Inventories
              
              
              (128,913
              )
              
              (548,308
              )Prepaid
                  expenses and other receivables
              
              
              116,452
              
              
              (45,392
              )Accounts
                  payable
              
              
              (1,053,444
              )
              
              457,814Accrued
                  expenses and other current liabilities
              
              
              (277,488
              )
              
              52,285Trade
                  deposit
              
              
              (2,118,939
              )
              
              (2,842,913
              )**NET
                  CASH USED IN OPERATING ACTIVITIES**
              
              
              **(1,592,527**
              **)**
              
              **(1,347,936**
              **)****CASH
                  FLOWS FROM INVESTING ACTIVITIES:**Purchase
                  of property and equipment
              
              
              (23,395
              )
              
              (13,217
              )Proceeds
                  on disposal of property and equipment
              
              
              522,116
              
              
              12,082Cash
                  paid for investments
              
              
              -
              
              
              (60,412
              )Cash
                  acquired in acquisitions
              
              
              -
              
              
              59,670Proceeds
                  on notes receivable, net
              
              
              486,603
              
              
              5,499,881**NET
                  CASH PROVIDED BY INVESTING ACTIVITIES**
              
              
              **985,324**
              
              
              **45,498,00**
   4
  **CASH
                  FLOWS FROM FINANCING ACTIVITIES:**Proceeds
                  from (payments to) related parties-net
              
              
              (17,030
              )
              
              139,170Proceeds
                  (payments) on notes payable-net
              
              
              -
              
              
              (4,596,544
              )Proceeds
                  /(repayment) on loans and lines of credit-net
              
              
              8,785
              
              
              (84,647
              )**NET
                  CASH USED IN FINANCING ACTIVITIES**
              
              
              **(8,245**
              **)**
              
              **(4,542,021**
              **)**EFFECT
                  OF EXCHANGE RATE ON CASH
              
              
              50,429
              
              
              18,592**NET
                  DECREASE IN CASH AND CASH EQUIVALENTS**
              
              
              **(565,019**
              **)**
              
              **(373,361**
              **)****CASH
                  AND CASH EQUIVALENTS - BEGINNING OF PERIOD**
              
              
              1,369,914
              
              
              1,707,367**CASH
                  AND CASH EQUIVALENTS - END OF PERIOD**
              
              **$**
              **804,895**
              
              **$**
              **1,334,006**




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




**For
                  the Nine Month Periods**
                **Ended
                  February 28,****2006**
              
              **2005**SUPPLEMENTAL
                  DISCLOSURE OF CASHFLOWSCash
                  paid for interest
              
              $
              88,438
              
              $
              97,586Cash
                  paid for income taxes, net of refund received
              
              $
              85,395
              
              $
              16,326







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







5





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


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS - RESTATED**


**February
      28, 2006 AND 2005**





**NOTE
      1** **GENERAL**




The
      Hartcourt Companies, Inc. ("Hartcourt" or the "Company"), was incorporated
      in
      Utah in 1983.  We are a distributor of internationally well known brand
      named IT hardware products and related services in the People’s Republic of
      China. In early 2006, however, we announced our intention to diversify our
      business by expanding into vocational/technical training market in
      China.




As
      of
      February 28, 2006, the Company owned 100% of three (3) British Virgin Island
      (“BVI”) incorporated companies: (1) Hartcourt China Inc., (2) Hartcourt Capital
      Inc., and (3) AI-Asia Inc. All three of these BVI subsidiaries are holding
      companies for assets located in China.




As
      of
      February 28, 2006, the Company owned 51% equity interest in Shanghai Huaqing
      Corporation Development Ltd. Huaqing is located in Shanghai, China. As the
      Chinese laws may prohibit foreign companies directly involved in the
      distribution industry, Hartcourt, through its employees as nominees, holds
      the
      equity of Huaqing.




As
      of
      February 28, 2006, Hartcourt Capital Inc. owned 90% equity interest in Control
      Tech Electronics (Shanghai) Co., Ltd. Control Tech is located in Shanghai,
      China.




As
      of
      February 28, 2006, Hartcourt Capital Inc. owned 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
      February 28, 2006, AI-Asia, Inc., the third holding company, owned 100% equity
      of AI-Asia (Shanghai) Information Technology, Inc of China (“AI”), located in
      Shanghai, China.




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





The
      accompanying unaudited 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 the Form 10-K/A was
      filed on October 10, 2006 and are hereby referenced. In the opinion of
      management, all adjustments considered necessary for a fair presentation have
      been included. Operating results for the three-month and nine-month period
      ended
      February 28, 2006 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 the Form 10-K/A filed on
      October 10, 2006 and incorporated in this Form 10-Q by reference.




**Principles
      of Consolidation**





Our
      financial statements for the three months and nine months ended February 28,
      2006 are consolidated to include the accounts of The Hartcourt Companies Inc.,
      our wholly owned subsidiaries Hartcourt China Inc., Hartcourt Capital Inc.,
      Hartcourt Hi-Tech Investment (Shanghai) Inc., Ai-Asia Inc and Ai-Asia
      Information Technology Inc, and our 90% directly owned subsidiary Control Tech
      Electronics (Shanghai) Co., Ltd. Our consolidated financial statements also
      include indirectly, 100% owned subsidiary, Shanghai Jiumeng Information Service
      Co., Ltd. And our 51% indirectly owned Shanghai HuaQing Corporate Development
      Co., Ltd. All significant inter-company accounts and transactions have been
      eliminated in consolidation.





Due
      to
      the Chinese government’s restrictions of direct foreign investment in
      Chinese-owned sales and distribution companies, through Shanghai Jiumeng
      Information Service Co., Ltd., we own 51% of the equity of Shanghai Huaqing,
      our
      main operating subsidiary for the Samsung distribution business. Shanghai
      Jiumeng is now 100% owned by Mr. Victor Zhou, the Chief Executive Officer of
      the
      Company, who is People's Republic of China, or PRC, citizens. Mr. Zhou serves
      as
      our nominee. We have engaged a PRC law firm to study the latest effective
      regulations and the steps we could take to apply for the relevant business
      license in view of the relaxed foreign equity ownership rules in the wholesale
      sector in regard to our Samsung distribution business.




6




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




**For
                  the Three Month Periods**
                **Ended
                  February 28**
              
              **For
                  the Nine Month Periods**
                **Ended
                  February 28****2006**
              
              **2005**
              
              **2006**
              
              **2005**NET
                  INCOME/(LOSS)
              
              $
              (1,500,454
              )
              $
              (12,427,409
              )
              $
              (1,364,230
              )
              $
              (15,265,589
              )Weighted
                  average basic shares outstanding
              
              
              194,044,012
              
              
              172,427,684
              
              
              193,910,113
              
              
              175,064,306Basic
                  per share
              
              $
              (0.008
              )
              $
              (0.072
              )
              $
              (0.007
              )
              $
              (0.087
              )
  As
      of
      February 28, 2006, we had 24,600,000 options authorized and outstanding, each
      exercisable for one share of our common stock. These instruments were not
      included in the computation of diluted earnings per share for any of the periods
      presented, due to their anti-dilutive effects.





**NOTE
      4** **EQUITY
      TRANSACTIONS**





On
      January 1, 2006, we issued 88,835 shares of our common stock valued at $7,875
      to
      all of our independent directors in lieu of cash compensation, which
      approximately equaled the fair market value of the stock at issue
      date.





On
      January 1, 2006, we issued 17,885 shares of our common stock valued at $1,809
      to
      our independent consultant in lieu of cash compensation, which approximately
      equal to the fair market value of the stock at service 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.




7





The
      following table summarizes the activity of stock options:


Number
                  of
                Shares
              
              Weighted
                  Average Exercise PriceShares
                  under option at November 30, 2005
              
              
              27,600,000
              
              $
              0.120Granted
              
              
              -
              
              
              -Exercised
              
              
              -
              
              
              -Expired
              
              
              (3,000,000
              )
              
              0.06Canceled
              
              
              -
              
              
              -Shares
                  under option at February 28, 2006
              
              
              24,600,000
              
              $
              0.127
  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 months and nine months period ended February 28, 2006 and 2005 as follows
      ($ in thousands, except per share amounts):


3
                  months ended February 28,
              
              9
                  months ended February 28,2006
              
              2005
              
              2006
              
              2005(in
                  thousands $)
              
              (in
                  thousands $)Net
                  income (losses) - as reported
              
              $
              (1,500
              )
              $
              (12,427
              )
              $
              (1,364
              )
              $
              (15,266
              )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
              
              
              -
              
              
              -
              
              
              (47
              )
              
              (307
              )Pro
                  forma net profit (loss)
              
              $
              (1,500
              )
              $
              (12,427
              )
              $
              (1,411
              )
              $
              (15,573
              )





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%
            
            
            3.4%Expected
                life of options
            
            
            -
            
            
            -
            
            
            5
                years
            
            
            2
                yearsExpected
                volatility
            
            
            -
            
            
            -
            
            
            57.93%
            
            
            57.93%Expected
                dividend yield
            
            
            -
            
            
            -
            
            
            -
            
            
            -




**Warrants**





No
      warrants are outstanding as of February 28, 2006.




8




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




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





In
      June
      2005, the EITF reached consensus on Issue No. 05-6, Determining the Amortization
      Period for Leasehold Improvements ("EITF 05-6"). EITF 05-6 provides guidance
      on
      determining the amortization period for leasehold improvements acquired in
      a
      business combination or acquired subsequent to lease inception. The guidance
      in
      EITF 05-6 will be applied prospectively and is effective for periods beginning
      after June 29, 2005. EITF 05-6 is not expected to have a material effect on
      the
      Company's consolidated financial position or results of operations.




In
      February 2006, FASB issued SFAS No. 155, "Accounting for Certain Hybrid
      Financial Instruments". SFAS No. 155 amends SFAS No 133, "Accounting for
      Derivative Instruments and Hedging Activities", and SFAF No. 140, "Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities". SFAS No. 155, permits fair value remeasurement for any hybrid
      financial instrument that contains an embedded derivative that otherwise would
      require bifurcation, clarifies which interest-only strips and principal-only
      strips are not subject to the requirements of SFAS No. 133, establishes a
      requirement to evaluate interest in securitized financial assets to identify
      interests that are freestanding derivatives or that are hybrid financial
      instruments that contain an embedded derivative requiring bifurcation, clarifies
      that concentrations of credit risk in the form of subordination are not embedded
      derivatives, and amends SFAS No. 140 to eliminate the prohibition on the
      qualifying special-purpose entity from holding a derivative financial instrument
      that pertains to a beneficial interest other than another derivative financial
      instrument. This statement is effective for all financial instruments acquired
      or issued after the beginning of the Company's first fiscal year that begins
      after September 15, 2006.




In
      March
      2006, FASB issued SFAS 156 "Accounting for Servicing of Financial Assets" this
      Statement amends FASB Statement No. 140, ACCOUNTING FOR TRANSFERS AND SERVICING
      OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES, with respect to the
      accounting for separately recognized servicing assets and servicing liabilities.





This
      Statement:


1.
            Requires
                an entity to recognize a servicing asset or servicing liability each
                time
                it undertakes an obligation to service a financial asset by entering
                into
                a servicing contract.2.
            Requires
                all separately recognized servicing assets and servicing liabilities
                to be
                initially measured at fair value, if practicable.3.
            Permits
                an entity to choose "Amortization method" or "Fair value measurement
                method" for each class of separately recognized servicing assets
                and
                servicing liabilities.4.
            At
                its initial adoption, permits a one-time reclassification of
                available-for-sale securities to trading securities by entities with
                recognized servicing rights, without calling into question the treatment
                of other available-for-sale securities under Statement 115, provided
                that
                the available-for-sale securities are identified in some manner as
                offsetting the entity's exposure to changes in fair value of servicing
                assets or servicing liabilities that a servicer elects to subsequently
                measure at fair value.5.
            Requires
                separate presentation of servicing assets and servicing liabilities
                subsequently measured at fair value in the statement of financial
                position
                and additional disclosures for all separately recognized servicing
                assets
                and servicing liabilities.




9




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




In
      September 2006, FASB issued SFAS 158 ‘Employers’ Accounting for Defined Benefit
      Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87,
      88, 106, and 132(R)’ This Statement improves financial reporting by requiring an
      employer to recognize the overfunded or underfunded status of a defined benefit
      postretirement plan (other than a multiemployer plan) as an asset or liability
      in its statement of financial position and to recognize changes in that funded
      status in the year in which the changes occur through comprehensive income
      of a
      business entity or changes in unrestricted net assets of a not-for-profit
      organization. This Statement also improves financial reporting by requiring
      an
      employer to measure the funded status of a plan as of the date of its year-end
      statement of financial position, with limited exceptions. An employer with
      publicly traded equity securities is required to initially recognize the funded
      status of a defined benefit postretirement plan and to provide the required
      disclosures as of the end of the fiscal year ending after December 15, 2006.
      An
      employer without publicly traded equity securities is required to recognize
      the
      funded status of a defined benefit postretirement plan and to provide the
      required disclosures as of the end of the fiscal year ending after June 15,
      2007. However, an employer without publicly traded equity securities is required
      to disclose the following information in the notes to financial statements
      for a
      fiscal year ending after December 15, 2006, but before June 16, 2007, unless
      it
      has applied the recognition provisions of this Statement in preparing those
      financial statements:




a.
            A
                brief description of the provisions of this Statement




b.
            The
                date that adoption is required




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




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




**NOTE
      6** **GOING
      CONCERN -RESTATED**





As
      shown
      in the accompanying consolidated financial statements, the Company has suffered
      recurring losses from operations, has an accumulated deficit of $66,238,644
      as
      of February 28, 2006. These factors, among others, raise substantial doubt
      about
      the Company’s ability to continue as a going concern. The Company’s need for
      working capital is a key issue for management and necessary for the Company
      to
      meet its goals and objectives. The Company continues to 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** **DUE
      FROM RELATED PARTY**




As
      of
      February 28, 2006, $149,358 was due from Huaqing, a 51% subsidiary. The debt
      arose from business transactions in the ordinary course of the business. The
      receivable is unsecured, interest free and payable on demand.




**NOTE** **8** **RELATED
      PARTY TRANSACTIONS**




During
      the quarter ended February 28, 2006, Hartcourt issued 88,835 shares of common
      stock valued at $7,875 to all of our independent directors in lieu of cash
      compensation, which approximately equaled to the fair market value of the stock
      at issue date.




10




**NOTE
      9** **INTANGIBLES
      -RESTATED**





Goodwill
      resulting from the acquisition amounted to as of February 28, 2006:




Goodwill
                arising from acquisition of Huaqing
            
            $
            1,911,466Goodwill
                arising from acquisition of Control Tech
            
            
            1,079,009Goodwill
            
            
            2,990,475Provision
            
            
            (1,079,009
            )Goodwill
                - net
            
            $
            1,911,466




**NOTE
      10** **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
      11** **MINORITY
      INTEREST -RESTATED**




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




**NOTE
      12** **OTHER
      REVENUE**




Other
      revenue mainly consists of net revenue derived from warranty services and other
      after-sales services of $136,287 and $254,061 for the quarter ended February
      28,
      2006 and February 28, 2005, respectively. Apart from the warranty services
      income, other revenue for the nine months ended February 28, 2006 included
      the
      gain of disposal of property and equipment of $312,279.




**NOTE
      13** **COMMITMENTS
      AND CONTINGENCIES**




A)
            Employment
                Agreements




The
      current senior management consists of the 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 upon 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 agrees the Company to pay certain operating expenses
      applicable to the leased premises according to Chinese Law. Rental expense
      for
      the quarter ended February 28, 2006 and 2005 was $25,852 and $30,514,
      respectively.




11




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


Year
                  Ending May 31
              
              Payments2006
              
              $
              25,3472007
              
              
              54,9842008
              
              
              15,8382008
                  after
              
              
              43,704Total
                  future lease payments
              
              $
              139,873




c)
            Other
                Obligations





Huaqing,
      a 51% owned subsidiary, provides a guarantee to Hangzhou Huaqing Monitoring
      Technology Co., Ltd. for bank loan of $6,449,275 as of February 28, 2006, of
      which, $2,536,231 are secured by the inventories of Huaqing. The bank loan
      will
      mature on various dates before April 06, 2006.





d)
            
            Legal
                Proceedings




John
      A.
      Furutani vs. The Hartcourt Companies, Inc.




John
      A.
      Furutani, Hartcourt’s former attorney, filed a complaint against the Company for
      alleged breach of contract in the amount of $54,441 arising out of legal
      representation of the Company and its co-defendant Alan Phan with respect to
      the
      SEC litigation. Both parties had reach out of court settlement and Hartcourt
      had
      fully paid the consideration as agreed on out-of court settlement on July 1,
      2005.




**NOTE
      14** **IMPAIRMENT
      EXPENSE**




The
      Company reviews its goodwill and intangible assets for impairment, in accordance
      with SFAS No. 142, Goodwill and Other Intangible Assets on an annual basis
      or whenever significant events or changes occur in its business. The reviews
      are
      performed at the operating division level, which comprise the Company’s
      reporting units. The provisions of SFAS No. 142 require that a two-step
      test be performed to assess goodwill for impairment. First, the fair value
      of
      each reporting unit is compared to its carrying value. Generally, fair value
      represents the discounted projected cash flows of an operating division. If
      the
      fair value exceeds the carrying value, goodwill is not impaired and no further
      testing is performed. The second step is performed if the carrying value exceeds
      the fair value. The implied fair value of the reporting unit’s goodwill must be
      determined and compared to the carrying value of the goodwill. If the carrying
      value of a reporting unit’s goodwill exceeds its implied fair value, an
      impairment loss equal to the difference will be recorded.





On
      November 1, 2004, the Company signed a definitive agreement to purchase a 90%
      equity interest in Control Tech for a total consideration of $1.96 million.
      On
      February 25, 2005, the Company completed all legal procedures to acquire 90%
      of
      the capital stock of Control Tech. Due to the Company’s share price decline, the
      purchase price was revised as $1.96 million payable in 19,588,875 shares of
      the
      Company’s common stock, which resulted in the Company recording goodwill of
      $1,079,009.





During
      the quarter ended February 28, 2006, Control Tech Electronics (Shanghai) Co.,
      Ltd. ceased generating any revenue. Based upon its future projected cash flow,
      the Company tested goodwill for impairment as prescribed by SFAS No. 142.
      The Company determined the goodwill to be impaired and recorded an impairment
      charge of $1,079,009.





**NOTE
      15       
RECLASSIFICATION**




Certain
      prior period amounts have been reclassified to conform to the quarter ended
      February 28, 2006 presentation.





**NOTE
      16        CURRENT VULNERABILITY DUE TO
      CERTAIN CONCENTRATIONS**





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




12




**NOTE
      17        SUBSEQUENT EVENT**





**Employment
      agreement**




Subsequent
      to the year, on May 31, 2006, the Board of Directors of the Company accepted
      the
      resignation of Ms. Carrie Hartwick from CEO and President as well as the
      director, due to her personal reasons.




On
      May
      31, 2006, the Board of Directors of the Company appointed Mr. Victor Zhou to
      be
      the acting Chief Executive Officer, effective on June 1, 2006. Mr. Victor Zhou’s
      employment agreement was signed on June 1, 2006. The compensation includes
      a
      monthly salary of $8,333. In addition, Mr. Victor Zhou was granted 10,000,000
      stock options with excise price of $0.04. The stock option vesting schedule
      is
      as following:


·
              6,000,000
                  stock options with three installments of 2,000,000 options each
                  vested
                  upon each successful new business acquisition of the
                  Company.
  ·
              2,000,000
                  stock options vested upon each full profitable
                  year.


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




On
      September 1, 2006, the Board of Directors of the Company promoted Mr. Victor
      Zhou to be the Chief Executive Officer. The Company signed the new employment
      contract with Mr. Victor Zhou on September 1, 2006. The compensation includes
      an
      annual base salary of $100,000, payable by equal monthly installment of US$8,333
      cash. In addition, Mr. Victor Zhou was granted 11,000,000 stock options with
      excise price of $0.05 according to the following vesting schedule and subject
      to
      number of shares available for option approved by shareholders.


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


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




Mr.
      Yungeng Hu’s employment agreement was signed on June 1, 2006. The compensation
      includes an annual base salary of $150,000, payable by equal monthly installment
      of US$12,500 cash. In addition, Mr. Yungeng Hu was granted 11,000,000 stock
      options with excise price of $0.04 according to the following vesting schedule
      and subject to number of shares available for option approved by shareholders.


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


**Common
      Stock Issued for Stock Options**




On
      July
      4, 2006, the Company granted 5 million shares of stock options with exercise
      price of US$0.04 per share to Dr. Billy Wang and US$50,000 per year for his
      service on Chairman of the Board for fiscal year 2007. The options are to be
      vested on Sept 28, 2007 and exercisable within 5 years time after
      vesting.




On
      July
      25, 2006, we granted total 1,000,000 stock options to our ex-vice president
      Zhou
      Jingjing at excise price of US$0.10 based on our employee compensation plan,
      of
      which 500,000 options vest on July 25, 2006 and the rest 500,000 options vest
      on
      July 25, 2007 subject to his continuing service to the Company. Mr. Zhou
      resigned from the Company on June 9, 2006. Based on his employment contract,
      the
      1,000,000 stock options have been terminated upon his
      resignation.




In
      August
      2006, the Company granted 1 million shares of stock options to each independent
      Director for the compensation of their services with exercise price of US$0.05
      per share, 1 year vesting period and exercisable within 5 years time after
      vesting.




13




**NOTE
      18        RESTATEMENT**




Subsequent
      to the issuance of the Company's financial statements for the year ended
      December 31, 2003, the Company determined that a certain transaction and
      presentation in the financial statements had not been accounted for properly
      in
      the Company's financial statements.





During
      the year ended December 31, 2003, the Company acquired four (4) Chinese
      companies located and operated in China. The Company has restated its financial
      statements based on the fair value of the (4) companies at the acquisition
      date.
      Thus, the adjusted carrying amount of the restated items affected the
      subsequently issued financial statements. As a result, the Company restated
      the
      financial statements for the quarter ended February 28, 2006.





The
      effect of the restatement is as follows:





**BALANCE
      SHEET**   ****


**As
      of February 28, 2006**




AS
                  PREVIOUSLY
                REPORTED
              
              AS
                  RESTATEDTOTAL
                  ASSETS
              
              $
              11,658,620
              
              $
              11,409,985TOTAL
                  CURRENT LIABILITIES
              
              $
              4,128,414
              
              $
              6,129,970MINORITY
                  INTEREST
              
              $
              1,930,068
              
              $
              952,011TOTAL
                  SHAREHOLDERS’ EQUITY
              
              $
              5,600,138
              
              $
              4,328,004TOTAL
                  LIABILITIES AND SHAREHOLDERS’EQUITY
              
              $
              11,658,620
              
              $
              11,409,985






14




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





**Forward-looking
      Statements**





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





**Overview**





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





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





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





We
      have
      authorized distribution rights with respect to Samsung monitors, notebooks
      and
      certain digital products covering the consumer and commercial product
      distribution channels in Shanghai, a metropolitan city with a population of
      20
      million people. The authorized distribution agreement signed between
      Huaqing Shanghai, a 51% owned subsidiary, and Samsung has a one-year term
      and is renewed on an annual basis. In exchange for this authorized distribution
      right, as well as purchase price protection and reimbursed advertising and
      promotion expenses from Samsung, we are required to achieve quarterly purchase
      targets set by Samsung and perform sales promotion and advertising activities
      under Samsung's direction, in addition to meeting other Samsung operational
      requirements. Almost all of our sales for the quarter ended February 28, 2006
      were comprised of Samsung products, of which, monitors accounted for 81% of
      the
      revenue and notebooks accounted for 16% of revenue. Approximately 74% of our
      revenue derived from Sansung monitor sales and 26% from Samsung notebooks in
      fiscal 2005.




Excluding
      the Zhejiang Samsung market which we no longer service as of June 1,
      2005, our Samsung sales in Shanghai decreased 4.7% 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.




15




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 February 28, 2006 were Aiwei, a second-tier
      distributor, which accounted for approximately 11.7% of our revenue;
      Guowei, a major retailer and a distributor in Shanghai, which accounted for
      approximately 10.7% of our revenue; and Huahai, a distributor
      which accounted for approximately 6.0% of our revenue. During the
      quarter ended February 28, 2006 no other customer or distributor made up
      more than approximately 5% of our total sales. In fiscal 2005, Hangzhou Huaqin,
      a distributor in Zhejiang province, accounted for 13.5% of our revenue, Chenqin,
      a Shanghai distributor, accounted for approximately 7.1% of our revenue;
      and Wenzhou Huaqin, a distribution in Zhejiang province, accounted for 5.6%
      of
      our revenue. No other customers or distributors accounted for more than
      approximately 5% of our revenue for the quarter ended February 28,
      2005.





We
      source
      our products from Samsung. As of February 28, 2006, approximately 74% of our
      Samsung inventory consisted of monitors and approximately 12% 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 of 2006. Control Tech is trying to
      amicably resolve the disputes with Radvision. Considering the market price
      drop, we made a provision on the Control Tech’s inventory in the amount of
      $496,216 in this quarter. As Control Tech did not generate any revenue in this
      quarter, we made a full impairment for the goodwill arisen from acquiring of
      Control Tech of $1,079,009 as of February 28, 2006.





**Results
      of Operations**





The
      following table sets forth the consolidated statements of operations and the
      percentage change for the three months and nine months ended February 28, 2006,
      with the comparable reporting period in the preceding year.




**Three
                  Months Ended**
              
              **Nine
                  Months Ended****February
                  28, 2006**
              
              **Percentage
                  Change**
              
              **February
                  28, 2005**
              
              **February
                  28, 2006**
              
              **Percentage
                  Change**
              
              **February
                  28, 2005**Net
                  revenue
              
              $
              9,427,749
              
              
              -28.05
              %
              $
              13,103,965
              
              $
              32,133,061
              
              
              -38.09
              %
              $
              51,903,530Cost
                  of revenue
              
              
              9,194,641
              
              
              -24.14
              
              
              12,120,909
              
              
              30,696,442
              
              
              -38.08
              
              
              49,573,787Gross
                  profit
              
              
              233,108
              
              
              -76.29
              
              
              983,056
              
              
              1,436,619
              
              
              -38.34
              
              
              2,329,743Operating
                  expensesSales
                  and marketing
              
              
              123,623
              
              
              -66.93
              
              
              373,848
              
              
              194,983
              
              
              -77.49
              
              
              866,029General
                  and administrative
              
              
              1,703,929
              
              
              -66.91
              
              
              5,148,620
              
              
              2,448,541
              
              
              -58.89
              
              
              5,956,249Total
                  operating expenses
              
              
              1,827,552
              
              
              -66.91
              
              
              5,522,468
              
              
              2,643,524
              
              
              -61.25
              
              
              6,822,278Interest
                  income/(expenses)-net
              
              
              (54,550
              )
              
              -33.90
              
              
              (82,521
              )
              
              (71,320
              )
              
              55.81
              
              
              (45,773
              )Other
                  income/(expenses)-net
              
              
              142,897
              
              
              -128.48
              
              
              (501,771
              )
              
              650,555
              
              
              -623.95
              
              
              (124,164
              )Minority
                  Interest expense
              
              
              5,852
              
              
              -97.95
              
              
              285,215
              
              
              (522,072
              )
              
              211.50
              
              
              (167,601
              )Discontinued
                  operations expenses, net
              
              
              -
              
              
              -100.00
              
              
              (7,588,920
              )
              
              (6,028
              )
              
              -99.94
              
              
              (10,419,538
              )Income
                  before income taxes
              
              
              (1,500,245
              )
              
              -87.93
              
              
              (12,427,409
              )
              
              (1,155,770
              )
              
              -92.42
              
              
              (15,249,611
              )Provision
                  for income taxes
              
              
              209
              
              
              -
              
              
              -
              
              
              208,460
              
              
              -
              
              
              15,978Net
                  loss
              
              $
              (1,500,454
              )
              
              -87.93
              %
              $
              (12,427,409
              )
              $
              (1,364,230
              )
              
              -91.06
              %
              $
              (15,265,589
              )




16




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**
            
            **Nine
                Months Ended****February
                28,**
            
            **February
                28,**
            
            **February
                28,**
            
            **February
                28,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Net
                revenue
            
            
            100.00
            %
            
            100.00
            %
            
            100.00
            %
            
            100.00
            %Cost
                of revenue
            
            
            97.53
            
            
            92.50
            
            
            95.53
            
            
            95.51Gross
                margin
            
            
            2.47
            
            
            7.50
            
            
            4.47
            
            
            4.49Operating
                expenses
            
            
            0.00
            
            
            0.00
            
            
            0.00
            
            
            0.00Sales
                and marketing
            
            
            1.31
            
            
            2.85
            
            
            0.61
            
            
            1.67General
                and administrative
            
            
            18.07
            
            
            39.29
            
            
            7.62
            
            
            11.48Total
                operating expenses
            
            
            19.38
            
            
            42.14
            
            
            8.23
            
            
            13.14Interest
                income
            
            
            -0.58
            
            
            -0.63
            
            
            -0.22
            
            
            -0.09Other
                income
            
            
            1.52
            
            
            -3.83
            
            
            2.02
            
            
            -0.24Provision
                for income taxes
            
            
            0.00
            
            
            -57.91
            
            
            -0.02
            
            
            -20.07Income
                before income taxes
            
            
            -15.91
            
            
            -94.84
            
            
            -3.60
            
            
            -29.38Provision
                for income taxes
            
            
            0.00
            
            
            -
            
            
            0.65
            
            
            -Net
                income
            
            
            -15.92
            %
            
            -94.84
            %
            
            -4.25
            %
            
            -29.41
            %





***Three
      Months and Nine Months Ended February 28, 2006 Compared to Three Months and
      Nine
      Months Ended February 28, 2005.***




***Net
      Revenue***





We
      recorded net sales of $9,427,749 for the three months ended February 28, 2006,
      compared to $13,103,965 for the same period in 2005, excluding the discontinued
      operations. Lower sales are due to our exit of the Zhejiang province market
      on
      the Samsung product as a result of Samsung distribution channel re-arrangement.
      Excluding the sales in the Zhejiang region in 2005, Samsung product sales in
      Shanghai decreased by 4.7% for the three months ended February 28, 2006 compared
      to the prior year period. For the nine moths ended February 28, 2006, we
      recorded net sales of $32,133,061, compared to $51,903,530 in the prior year
      period. Excluding the sales to Zhejiang region, revenue decreased 3.8% compared
      to the prior year period.





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





Cost
      of
      Goods Sold amounted to $9,194,641 for the three months ended February 28, 2006,
      compared to $12,120,909 for the comparable period in 2005, excluding
      discontinued operations. Cost of Goods Sold amounted to $30,696,442 for the
      nine
      months ended February 28, 2006, compared to $49,573,787 for the comparable
      period in 2005, excluding discontinued operations. Almost all of the cost of
      sales for the three months and nine months ended February 28, 2006 and 2005
      represented the cost of Samsung products.





Gross
      margin was $233,108, or 2.47%, for the three months ended February 28, 2006
      compared to $983,056 or 7.50%, for the comparable period in 2005. Gross margin
      was $1,436,619, or 4.47%, for the nine months ended February 28, 2006 compared
      to $2,329,743, or 4.49%, for the comparable period in 2005. The decrease in
      gross margin was due to the consulting service and better product mix for the
      three months ended February 28, 2005 compared to the comparable period in
      2006.





***Selling,
      general and administrative expenses*** :
      Our
      selling, general and administrative expenses were $235,474 for the three months
      ended February 28, 2006 compared to $1,420,294 for the comparable period in
      2005, representing a decrease of $1,184,820, or 83%, due to lower advertising
      and promotion expenses as well as legal expenses. Selling, general and
      administrative expenses were $1,012,313 for the nine months period ended
      February 28, 2006 compared to $2,691,364 for the comparable period in 2005,
      representing a decrease of $1,679,051 or 63%, due to lower advertising and
      promotion expenses as well as legal expenses.




17





***Depreciation
      and amortization expenses:*** Our
      depreciation and amortization expenses were $16,853 for the three months ended
      February 28, 2006 compared to $18,298 for the comparable period in 2005. The
      decrease was primarily due to the disposal of property and equipment.
      Depreciation and amortization expenses were $55,986 for the nine months ended
      February 28, 2006 compared to $47,038 for the comparable period in 2005. The
      increase was primarily due to the purchase of property and
      equipment.





***Interest
      income:*** Interest
      income was $2,174 and $76,649, respectively, for the three months ended February
      28, 2006 and 2005. The decrease was due to lower fixed deposit in the bank
      as
      security of bank loans. Interest income was $75,616 and $164,928, respectively,
      for the nine months ended February 28, 2006 and 2005. The decrease was due
      to
      lower fixed deposit in the bank as security of bank loans.





***Interest
      expenses*** :
      Interest expenses were $56,724 and $159,170, respectively, for the three months
      February 28, 2006 and 2005. The decrease of $102,446, or 64%, was primarily
      due
      to the decrease of short-term borrowing. For the nine months ended February
      28,
      2006 and 2005, interest expenses were $146,936 and $210,701, respectively.
      The
      decrease of $63,765 was due to a decrease of short term borrowing.








***Income
      from Continuing Operations:*** Loss
      from
      continuing operations for the three months ended February 28, 2006 was
      $1,594,444, compared to a loss of $4,539,412 in the prior year period, primarily
      as the result of lower operating expenses and lower impairment or provision
      costs. For the nine months period ended February 28, 2006 and 2005, loss from
      continuing operation was $1,206,905 and $4,492,535 respectively. The decrease
      was mainly due to lower operating expenses and lower impairment or provision
      costs in the quarter ended February 28, 2006.





***Minority
      interest:*** Minority
      interest represented the profit shared by the minority shareholders of Huaqing
      (49%) and Control Tech (10%) for the three month and nine month periods ended
      February 28, 2006. For the three month and nine month periods ended February
      28,
      2005, minority interest represented the profit shared by the minority
      shareholders of Huaqing (49%) only.





***Income
      tax:*** We
      made
      provision for PRC income taxes of $209 and $208,460 for the three months and
      nine month ended February 28, 2006, respectively. 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 February 28, 2006
      have been primarily funded by Chinese short term bank loans.





As
      shown
      in our accompanying financial statements, we had a net loss of $1,500,454 for
      the three months ended February 28, 2006 compared to a net loss of $12,427,409
      for the comparable period in 2005 due to lower operating expenses, various
      rebates from the vendor and the one-time charge of 7,642,039 from discontinued
      operations. Our current assets exceeded our current liabilities by $3,082,372
      as
      of February 28, 2006.





As
      of
      February 28, 2006, we had working capital of $3,082,372. 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 nine months ended February 28, 2006, net cash used in operating activities
      increased to $1,592,527, compared to $1,347,937 during the comparable period
      in
      2005. 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 nine months ended February 28,
      2006,
      was $985,324 compared to $5,498,004 for the comparable period in 2005. The
      cash
      provided by investment activities in the nine months ended February 28, 2006
      was
      mostly due to $522,116 proceeds from disposed property and recovery of notes
      in
      the amount of $486,603.





***Financing
      activities:*** Net cash
      used in financing activities during the nine months ended February 28, 2006
      equaled to $8,245 compared to $4,542,021 during the comparable period in 2005.
      Net cash used in financing activities in the nine months ended February 28,
      2006
      and 2005 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
      $565,020 for the nine months ended February 28, 2006.





**Contractual
      Obligations**





As
      of the
      three months ended February 28, 2006, we do not have any contractual obligation
      other than the facility leases described in Note 13 (b) of financial
      statements.





18





**Off-Balance
      Sheet Arrangements**





During
      the quarter ended February 28, 2006, the Company did not engage in any
      off-balance sheet arrangements as defined in Item 303(a)(4) of the SEC's
      Regulation S-K.





**Critical
      Accounting Policies and Estimates**





For
      a
      description of what we believe to be the critical accounting policies that
      affect our more significant judgments and estimates used in the preparation
      of
      our condensed consolidated financial statements, refer to our Annual Report
      on
      Form 10-K for the 5-month transition period ended May 31, 2005.





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





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




We
      have
      considered the effectiveness of our disclosure controls and procedures as of
      December 31, 2003, December 31, 2004, May 31, 2005, August 31, 2005, November
      30, 2005 and February 28, 2006 in light of the restatement. We believe our
      current disclosure controls and procedures are adequate to ensure that material
      information relating to the registrant, including its consolidated subsidiaries,
      is made known to us by others within those entities.





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







**PART
      II: OTHER INFORMATION**




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





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




19




**SIGNATURES**




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




The
                Hartcourt Companies, Inc.
              RegistrantDate:
                November 13, 2006
            /s/
                Victor ZhouVictor
                Zhou*Chief
                Executive Officer*Date:
                November 13, 2006
            /s/
                Yungeng HuYungeng
                Hu*Chief
                Financial Officer & President*





20


**Exhibit Index**




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




21