UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

[X]     ANNUAL REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934

                    For the fiscal year ended August 31, 2003

[ ]     TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934

For the transition period from                      to
                               --------------------    --------------------

                         Commission file number: 0-19049

                      Fortune Diversified Industries, Inc.
                 ----------------------------------------------
                 (Name of small business issuer in its charter)

          Delaware                                       74-2504501
-------------------------------            ------------------------------------
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
 incorporation or organization)

6809 Corporate Drive, Indianapolis, Indiana              46278
-------------------------------------------            ----------
(Address of principal executive offices)               (Zip Code)

                                 (317) 532-1374
                ------------------------------------------------
                (Issuer's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:   None

Securities registered pursuant to Section 12(g) of the Exchange Act:

            Common Stock ($0.01 par value per share) ("Common Stock")
            ---------------------------------------------------------
                                (Title of Class)

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

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

State issuer's revenues for its most recent fiscal year.       $15,470,000
                                                               -----------

As of November 25, 2003 the aggregate market value of the voting common stock of
the Company held by non-affiliates of the registrant, based on the average bid
and ask price on such date, was approximately $8,999,000.

As of November 25, 2003 there were 101,316,444 shares of the Company's voting
common stock outstanding.

<PAGE>

                             Additional Information

For the purpose of calculating the aggregate market value of the Company's
Common Stock held by non-affiliates, it has been assumed that only the
outstanding Common Stock legally or beneficially held by the directors and
executive officers of the Company and the stockholders indicated in "Security
Ownership" with the largest holdings of the Company's Common Stock are held by
affiliates of the Company. However, this should not be deemed to constitute an
admission that all of such persons are, in fact, affiliates or that there are no
other persons who may be deemed to be affiliates of the Company.












                                       2
<PAGE>

                       FORTUNE DIVERSIFIED INDUSTRIES, INC

                            FORM 10-KSB ANNUAL REPORT

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                     PART 1
<S>           <C>                                                                                 <C>
Item 1.       Description of Business..............................................................4

Item 2.       Description of Property..............................................................16

Item 3.       Legal Proceedings....................................................................17

Item 4.       Submission of  Matters to a Vote of Security Holders.................................17

                                                     PART II

Item 5.       Market for Common Equity and Related Stockholder Matters.............................17

Item 6.       Management's Discussion and Analysis of Results of Operation and
              Financial Condition..................................................................18

Item 7.       Financial Statements.................................................................39

Item 8.       Changes In and Disagreements With Accountants on Accounting and
              Financial Disclosure.................................................................39

Item 8A.      Controls and Procedures..............................................................39

                                                    PART III

Item 9.       Directors, Executive Officers, Promoters and Control Persons;
              Compliance With Section 16(a) of the Exchange Act....................................40

Item 10.      Executive Compensation...............................................................43

Item 11.      Security Ownership of Certain Beneficial Owners and Management and
              Related Stockholder Matters..........................................................45

Item 12.      Certain Relationships and Related Transactions.......................................47

Item 13.      Exhibits and Reports on Form 8-K.....................................................48

Item 14.      Principal Accountant Fees and Services...............................................50

SIGNATURES.........................................................................................86
</TABLE>

                                       3
<PAGE>

                                     PART I

ITEM 1.       DESCRIPTION OF BUSINESS

Fortune Diversified Industries, Inc. (formerly known as WOW Entertainment, Inc.
and prior to that American Gaming & Entertainment, Ltd.), is a Delaware
corporation incorporated in 1988. The Company has conducted its business
directly and through wholly-owned subsidiaries. The term "Company" as used
herein refers to Fortune Diversified Industries, Inc. and its subsidiaries
unless the context otherwise requires. The Company is the parent company of
Nor-Cote International, Inc. ("Nor-Cote"), Kingston Sales Corp. ("Kingston"),
PDH, Inc. ("PDH"), Cornerstone Wireless Services, Inc. ("Cornerstone Wireless"),
Cornerstone Wireless Construction Services, Inc. ("Cornerstone Construction"),
Telecom Technology Corp. ("TTC"), StarQuest Wireless, Inc. ("StarQuest"), Murphy
Development, Ltd. ("Murphy") and Women of Wrestling, Inc. ("WOW"). In addition,
subsequent to August 31, 2003, the Company acquired Professional Staff
Management, Inc. ("PSM"), Professional Staff Management, Inc. II ("PSM II"), and
Pro Staff, Inc. ("Pro Staff"). These companies are also wholly-owned
subsidiaries of the Company.

                                  Control Group

In order to better understand the Company's business organization and
development, it is important to know that as of August 31, 2003, John F.
Fisbeck, Carter M. Fortune, Robert J. Kingston, Norman G. Wolcott, Jr.
individually and Norman G. Wolcott, Jr. and Norman G. Wolcott, Sr., as
co-trustees of the Lucile H. Wolcott Revocable Trust of 1995 ("Wolcott Trust")
(collectively, the "Control Group") were members of a group deemed to
beneficially own 80,391,375 shares of the Company's common stock representing
85.84% of the outstanding common stock of the Company, which totals 93,656,237
shares. Individually, each person or entity has sole dispositive and voting
power over the following shares of common stock: John F. Fisbeck, 18,087,023 (or
19.31%), Carter M. Fortune, 42,013,108 (or 44.86%) Robert J. Kingston, 7,900,000
(or 8.43%), Norman G. Wolcott, Jr., individually, 7,266,084 (or 7.76%), and the
Wolcott Trust, 5,125,160 (or 5.47%). It is also useful to understand the history
of their control.

2000 Change in Control

On September 1, 2000, David B. McLane, John F. Fisbeck, Carter M. Fortune and
their assigns collectively purchased 61,318,563 shares of the Company's common
stock (constituting 98.1% of the outstanding shares of the common stock of the
Company). Of the 61,318,563 shares purchased, 57,360,255 shares were purchased
by these three individuals. The right to purchase the remainder of the shares
was assigned to family members of the three individuals and employees and
consultants of WOW Entertainment, Inc., (which company became a wholly-owned
subsidiary of the Company and changed its name to Women of Wrestling, Inc.).

                                       4
<PAGE>

Cancellation of Mr. McLane's Ownership Interest

On June 26, 2001, the Company redeemed all of Mr. McLane's common stock in the
Company (19,007,585 shares). Mr. McLane also resigned as President and a member
of the Board of Directors of the Company, as well as all subsidiaries of the
Company in which he also held positions. Mr. McLane is no longer part of the
Control Group. Messrs. Fisbeck and Fortune continue to be part of the Control
Group.

2001 Capital Restructuring

On June 29, 2001, the Company announced a major capital restructuring, which was
effective July 2, 2001. As part of the restructuring, Mr. Fortune received
$3,250,000 of the Company's common stock at the June 28, 2001 closing price of
$0.20 a share, or 16,250,000 restricted shares, in exchange for his $2,000,000
of WOW preferred stock and in full satisfaction of his approximately $5,424,000
of WOW debt.

In addition, Mr. Fortune and Julie Fisbeck, who is the sister of John F.
Fisbeck, a member of the Control Group, also exchanged their respective 50%
ownership interests in Murphy, in exchange for $120,000 of the Company's common
stock at the June 28, 2001 closing price of $0.20 a share. Mr. Fortune and Julie
Fisbeck each received 300,000 restricted shares.

Mr. Fortune also agreed to loan $500,000 to Murphy. The loan was secured by all
of the assets of Murphy and was convertible at Mr. Fortune's option into shares
of the Company's common stock at $0.407401 a share. Mr. Fortune exercised the
option on August 27, 2001, and received 1,227,292 restricted shares.

Mr. Fortune also agreed to make available to Murphy an operating line of credit
of up to $2,250,000, if and as needed. The line of credit was secured by all of
the assets of Murphy and convertible at Fortune's option into shares of the
Company's common stock at $0.407401 a share. On August 27, 2001, the Company
borrowed $2,250,000 under the line of credit, and Mr. Fortune exercised the
option and received 5,522,814 restricted shares.

Addition of Robert J. Kingston to the Control Group

Effective July 31, 2002, as part of the purchase price for all of the common
stock of Kingston pursuant to the terms of a Stock Purchase Agreement by and
among the Company, Kingston and Robert J. Kingston, Mr. Kingston received
8,000,000 restricted shares of the Company's common stock. Also, as part of the
Stock Purchase Agreement, subject to certain limitations and restrictions, Mr.
Kingston may, in his sole discretion, sell any or all of the Company's stock to
the Company and the Company must purchase any of the Company's common stock
offered by Mr. Kingston if certain conditions (EBITDA thresholds) are met.

                                       5
<PAGE>

Mr. Kingston was elected to the Board of Director's of the Company by
shareholders Messrs. Fisbeck and Fortune by written consent pursuant to Section
228 of the General Corporation Law of the State of Delaware in lieu of holding a
meeting. Such election was agreed to in writing in a document entitled Voting
Agreement, dated July 31, 2002, which is an exhibit of the Stock Purchase
Agreement.

Addition of Norman G. Wolcott, Jr. and the Wolcott Trust to the Control Group

Effective as of July 1, 2003, the Company acquired all of the outstanding shares
of common and preferred stock of Nor-Cote as a part of a transaction pursuant to
the terms of a Stock Exchange Agreement by and among Nor-Cote International,
Inc., an Illinois corporation, and its subsidiaries; Norman G. Wolcott, Jr.,
individually; Norman G. Wolcott, Jr. and Norman G. Wolcott, Sr., as co-trustees
of the Norman G. Wolcott, Sr. and Lucile H. Wolcott Revocable Trust of 1995;
First Bankers Trust Company, as trustee under the Trust Agreement for the
Nor-Cote International, Inc. Employee Stock Ownership Plan Trust ("ESOP Trust");
and the Company as Buyer.

The Stock Exchange Agreement's terms include, among other things, the exchange
of a total of 1,451,985.47 shares of Nor-Cote's common stock by Norman G.
Wolcott, Jr. and the Wolcott Trust, and a total of 747,992.51 shares of
Nor-Cote's preferred stock by the ESOP Trust, in exchange for certain shares of
the Company held by its wholly owned subsidiary, Nor-Cote Acquisition, Inc. As
part of the exchange, the Company transferred 12,391,244 of its shares to Norman
G. Wolcott, Jr. and the Wolcott Trust and transferred 7,668,364 of its shares to
the ESOP Trust. The shares issued to the ESOP Trust were subsequently cancelled.

Mr. Wolcott will continue as Chairman of Nor-Cote under the terms of an
employment agreement dated July 1, 2003 and incorporated into the Stock Exchange
Agreement as an exhibit.

John F. Fisbeck, Carter M. Fortune, Robert J. Kingston, Norman G. Wolcott, Jr.
and the Wolcott Trust may be considered members in a "group" within the meaning
of Rule 13d-5(b)(1). Although Messrs. Fisbeck, Fortune, Kingston, Wolcott, Jr.
have taken ownership of the Company's stock in their individual names and the
Wolcott Trust has taken ownership in a trust capacity, Robert J. Kingston has
supplied ownership interests in Kingston in consideration for the acquisition of
his Company common stock, and the Wolcott Trust and Mr. Wolcott, Jr. have
supplied ownership interests in Nor-Cote in consideration for the acquisition of
their respective Company common stock, Messrs. Fisbeck, Fortune, Kingston,
Wolcott, Jr., and the Wolcott Trust may be considered to be acting together for
the purpose of acquiring and holding the stock since Messrs. Fisbeck and Fortune
previously signed Stock Purchase Agreements to initially acquire control of the
Company, Robert J. Kingston's acquisition of shares was not in the ordinary
course of his business and the Wolcott Trust and Norman G. Wolcott, Jr.'s
acquisition of shares was not in the ordinary course of its/his business and may
be deemed to have arisen in a transaction having the purpose or effect of
influencing control of the Company, under Rule 13d-5(b)(2)(ii).

                                       6
<PAGE>

                                  ACQUISITIONS

Women of Wrestling, Inc.

On September 1, 2000, the Company purchased for nominal consideration all of the
common stock of WOW. WOW did not have any operating income or expense during the
fiscal years ended August 31, 2002 and August 31, 2003.

Murphy Development, Ltd.

Initiated on June 29, 2001 and effective July 2, 2001, the Company acquired 100%
of the ownership interests of Murphy. Murphy did not have any operating income
or expense during the fiscal years ended August 31, 2002 and August 31, 2003.

Cornerstone Wireless Services, Inc.

In July 2001, the Company acquired all of the common stock of Cornerstone
Wireless, an Indiana Corporation with no assets and no business operations.
Cornerstone was established to develop a full line of architectural and
engineering services specializing in the telecommunications industry. The
transaction was accounted for using the purchase method of accounting. The
purchase price was payable in cash of $10. The aggregate purchase price of the
acquisition was $0, which amount is equal to the excess purchase price over the
value of the net assets acquired.

Cornerstone Wireless Construction Services, Inc.

Cornerstone Construction is an Indiana corporation and is a wholly owned
subsidiary of the Company. Cornerstone Construction was initially established on
October 24, 2001. On or about March 1, 2003, Cornerstone Construction and Carter
M. Fortune entered into an Agreement for Purchase and Sale of Assets by which
Mr. Fortune purchased substantially all of the assets and property owned by
Cornerstone Construction that were used in connection with the business. The
nature and amount of consideration given for the acquired assets and property
was two hundred ninety-eight thousand, two hundred forty dollars and twenty-two
cents ($298,240.22). On or about August 15, 2003, Carter M. Fortune and
Cornerstone Construction entered into an Agreement for Purchase and Sale of
Assets by which Cornerstone Construction purchased substantially all of the
assets and properties owned by Mr. Fortune that were used in connection with the
construction business. Mr. Fortune received one hundred eighty-nine thousand,
one hundred eighty-one dollars and seventeen cents ($189,181.17) for the assets
and property.

                                       7
<PAGE>

PDH, Inc.

PDH, an Indiana corporation and wholly-owned subsidiary of the Company, acquired
certain assets of DicksonHughes Group, LLC ("DHG"), an Indiana limited liability
company, through an Asset Purchase Agreement dated January 18, 2002 ("DHG
Agreement"). The Company has devoted the acquired assets to its existing
Wireless Infrastructure Segment. This transaction was considered an acquisition
of productive assets and not considered a business combination. However, some of
the standards of accounting for business combinations, including certain
disclosures, are considered relevant and have been applied whenever practicable.
The results of the assets acquired from DHG have been included in the
accompanying consolidated statement of operations from the date of acquisition.
The assets acquired included certain of the DHG's accounts receivable,
work-in-process, prepaid expenses, software, computer hardware and fixtures, and
backlog. The nature and amount of consideration given for the acquired assets
was approximately Seven Hundred Forty Thousand Dollars ($740,000.00), which was
subject to adjustments as described in the Agreement, however no adjustments
were warranted. There were no liabilities assumed in this transaction.

Kingston Sales Corporation

The Company acquired from Robert J. Kingston all of the common stock of
Kingston, an Indiana Corporation, pursuant to the terms of a Stock Purchase
Agreement by and among Fortune Diversified Industries, Inc., Kingston Sales
Corporation and Robert J. Kingston, effective July 31, 2002. Kingston is a
manufacturers' representative and distributor for prominent national companies
in the electronic, sound, security, and video markets. Kingston offers the
latest technology in TVs, sound systems, electronic locking devices, wire, cable
and fiber optics, and intercom systems. The transaction was accounted for using
the purchase method of accounting. The source of funds for the transaction came
from a loan from a financial institution. The purchase price was payable in cash
of $3,000,000 paid at closing less a purchase adjustment amount of $600,000.
There is also a $250,000 contingent payment that is part of the Stock Purchase
Agreement due on or before December 15, 2004. The payment of any or all of the
$250,000 to Mr. Kingston is contingent upon Kingston attaining certain
cumulative earnings before income tax requirements, as described in the Stock
Purchase Agreement, during the period September 1, 2002 to August 31, 2004. This
contingent consideration will be recorded as an additional cost of the
acquisition when the contingency is resolved, which is anticipated sometime in
2004. The fair market value of the 8,000,000 shares of the Company's common
stock of $80,000 (which was based upon the bid price discounted for various
factors, including liquidity) was also included as part of the purchase price.

Also as part of the Stock Purchase Agreement, subject to certain limitations and
restrictions, Mr. Kingston may, in his sole discretion, sell any or all of the
Company's stock to the Company and the Company must purchase any of the
Company's common stock offered by Mr. Kingston if certain conditions (EBITDA
thresholds) are met.

                                       8
<PAGE>

Telecom Technology Corp.

TTC, an Indiana corporation and wholly-owned subsidiary of the Company, acquired
certain assets and assumed certain liabilities of Telecom Technology Corp.
("Telecom"), an Indiana corporation, and Michael W. Grothe, through an Asset
Purchase Agreement effective as of September 1, 2002 ("TTC Agreement"). The
assets were acquired from Telecom. Prior to the TTC Agreement, there was no
material relationship between the Company and Telecom or Mr. Grothe. Telecom
provides cable and wiring solutions for interactive communication and networking
data transmission. The Company has devoted the assets to its existing Wireless
Infrastructure Segment. The assets acquired include certain of Telecom's
work-in-process, software and related assets, fixed assets, equipment and
machinery, computer hardware and fixtures, a complete customer list,
intellectual property, sales proposals and like documents and contracts,
inventory, accounts receivable, intangible assets, prepaid expenses, cash and
cash equivalents. TTC also accepted and assumed $45,000 of specifically
identified accounts payable and all of Telecom's rights and executory
obligations under the assumed contracts to be performed after the Closing Date.
In addition to the assumed liabilities, the consideration given for the acquired
assets was $125,952 cash and 450,000 restricted shares of the Company's common
stock, of which 200,000 shares vested immediately and 250,000 shares were
subject to forfeiture. Subsequent to the date of the TTC Agreement, the 250,000
shares were forfeited.

In addition, TTC pursuant to an Asset Purchase Agreement effective as of
September 1, 2002 ("Hagan Agreement"), acquired the customer lists, and other
business assets of Pat Hagan, who is being employed by TTC. The assets were
acquired through TTC. Mr. Hagan is a party to the Hagan Agreement and is subject
to an Employment Agreement. Prior to the Hagan Agreement, there was no material
relationship between the Company and Mr. Hagan. The consideration given for the
acquired assets was $1.00 cash and 250,000 restricted shares of the Company's
common stock, which are subject to adjustments as described in the Hagan
Agreement.

These two transactions were considered together as one transaction and are being
accounted for using the purchase method of accounting.

StarQuest Wireless, Inc.

StarQuest, an Indiana corporation and wholly-owned subsidiary of TTC, acquired
certain assets of StarQuest Wireless, LLC ("SWL"), Noel Kaplan and Steve
Cochran, through an agreement entered into on October 31, 2002 and effective
October 9, 2002 by and among StarQuest, SWL, Mr. Kaplan and Mr. Cochran
("StarQuest Agreement"). The purchased assets and assumed liabilities were used
or useful in connection with the business of selling, installing or maintaining
satellite television systems. The Company has devoted the assets to its existing
Wireless Infrastructure Segment. The transaction was accounted for using the
purchase method of accounting. The assets acquired included a complete list of
customers, all accounts receivable, all sales agency and similar agreements with

                                       9
<PAGE>

satellite television providers (including, but not limited to, DirecTV,
Echostar, Pegasus and Musicland) and the telephone numbers used in conjunction
with SWL's operations. The Company also accepted and assumed all of SWL's rights
and executory obligations under the assumed contracts to be performed after the
Closing Date. The consideration given for the acquired assets was $1.00 cash and
600,000 (300,000 shares each to Noel Kaplan and Steve Cochran) of restricted
shares of the Company's common stock, which were subject to adjustments as
described in the StarQuest Agreement. Steve Cochran's employment was
subsequently terminated effective April 21, 2003. In addition, Noel Kaplan's
employment was terminated effective June 13, 2003. The 600,000 shares of the
Company's common stock were never issued and the rights to such shares were
cancelled.

Nor-Cote International, Inc.

Nor-Cote Acquisition Company, a wholly owned subsidiary of the Company, acquired
1,451,985.47 shares of the common stock and 747,992.51 shares of the preferred
stock of Nor-Cote, an Illinois corporation, and subsidiaries, constituting all
of the outstanding shares of Nor-Cote pursuant to the terms of a Stock Purchase
Agreement by and among Nor-Cote International, Inc.; Norman G. Wolcott, Jr.,
individually; Norman G. Wolcott, Jr. and Norman G. Wolcott, Sr., as co-trustees
of the Norman G. Wolcott, Sr. and Lucile H. Wolcott Revocable Trust of 1995;
First Bankers Trust Company, as trustee under the Trust Agreement for the
Nor-Cote International, Inc. Employee Stock Ownership Plan Trust and the
Company, effective July 1, 2003. Nor-Cote is engaged in the business of
developing, producing and selling ultraviolet ink products.

The Company transferred 12,391,244 of its own shares to Norman G. Wolcott, Jr.
and the Wolcott Trust and transferred 7,668,364 of its own shares to the ESOP
Trust. The 7,668,364 shares were transferred back to the Company and retired and
applied as payment on an inside loan payable from the ESOP Trust to Nor-Cote in
the principal amount of $6,028,991.01. The debt was non recourse to the ESOP
Trust but was collateralized by 578,875.512 preferred shares that were
unallocated to Nor-Cote's ESOP participants.

The disposition of the Company's shares held by Norman G. Wolcott, Jr. and the
Wolcott Trust (collectively the "Common Stock Sellers") is substantially
restricted by an Option Agreement. The Common Stock Sellers each have the option
to put any or all of the Company's stock received by them to Carter M. Fortune
and Mr. Fortune has the option to call any or all of the Company's stock from
each of the Common Stock Sellers. The put price and the call price will be the
same (the "put/call price") and the put/call price will be dependent upon
Nor-Cote's cumulative Adjusted EBITDA during the three-year period July l, 2003
to June 30, 2006 ("Test Period"). If the Nor-Cote's cumulative Adjusted EBITDA
during the Test Period is at least $4,683,000, the put/call price per share will
be $.3365. The put/call price will, however, be decreased in proportion to the
amount by which Nor-Cote's cumulative Adjusted EBITDA during the Test Period is
less than $4,683,000. So for example, if Nor-Cote's cumulative Adjusted EBITDA
during the

                                       10
<PAGE>

Test Period is $2,341,500, the put/call price will be $.1683 per share. Common
Stock Sellers may only exercise the put option and Mr. Fortune may only exercise
the call option during the period September 1, 2006 to September 30, 2006. Any
closing on a sale of the Company's stock to Mr. Fortune will occur within ninety
(90) days of a party's receipt of written notice from the other party requesting
exercise of his put or call option. All of the Company's stock received by each
of the Common Stock Sellers will be retained by them until (i) the exercise of
the put and call options or (ii) the expiration of the exercise period
(including any extensions) for such put and call options without exercise of
such put and call options. In addition, Mr. Fortune will have an option to call
any or all of the Company's stock at the call price per share of $.3365 at any
time during the Test Period.

In addition to the exchange described above, Norman G. Wolcott, Jr. and the
Wolcott Trust received one million eight hundred thousand dollars
($1,800,000.00) in cash. The ESOP Trust received eight hundred ninety three
thousand, six hundred eight dollars ($893,608.00) for one hundred sixty nine
thousand one hundred sixteen and 998/1000 (169,116.998) preferred shares of
Nor-Cote held by the ESOP Trust that had been allocated to Nor-Cote's ESOP
participants.

Professional Staff Management, Inc.
Professional Staff Management, Inc. II
Pro Staff, Inc.
(all acquired subsequent to August 31, 2003)

Effective as of October 1, 2003, the Company has entered into the following
agreements:

     Agreement and Plan of Merger by and among Professional Staff Management,
     Inc., an Indiana corporation, PSM Acquisition, Inc., an Indiana corporation
     and wholly owned subsidiary of the Company, Harlan M. Schafir, and the
     Company. Agreement and Plan of Merger by and among Professional Staff
     Management, Inc. II, an Indiana corporation, PSM Acquisition II, Inc., an
     Indiana corporation and wholly owned subsidiary of the Company, Harlan M.
     Schafir, and the Company. Agreement and Plan of Merger by and among Pro
     Staff, Inc., an Indiana corporation, PSM Acquisition III, Inc., an Indiana
     corporation and wholly owned subsidiary of the Company, Harlan M. Schafir,
     and the Company. (collectively, "Merger Agreements")

The Merger Agreements' terms include, among other things, the exchange of all of
the outstanding shares of PSM (125 shares); PSM II (500 shares); and Pro Staff
(500 shares), all held by Harlan M. Schafir, for a total of 13,100,000 shares of
the Company's common shares. The Company formed three wholly-owned subsidiaries,
PSM Acquisition, Inc.; PSM Acquisition II, Inc.; and PSM Acquisition III, Inc.
The Company's shares were exchanged at the following ratios: Sixty-Six Thousand,
Twenty-Four (66,024) shares of the Company's common stock for each share of
PSM.; Four Thousand, Four Hundred Fifty-Four (4,454) shares of the Company's
common stock for each share of PSM II; and,

                                       11
<PAGE>

Five Thousand, Two Hundred Forty (5,240) shares of the Company's common stock
for each share of Pro Staff. The Company exchanged a total of 13,100,000 shares
as follows: Eight Million, Two Hundred Fifty Three Thousand (8,253,000) shares
for the shares of PSM; Two Million, Two Hundred Twenty Seven Thousand
(2,227,000) shares for the shares of PSM II; and Two Million, Six Hundred Twenty
Thousand (2,620,000) shares for the shares of Pro Staff.

In addition to the exchanges described above, Mr. Schafir received a total of
one million dollars ($1,000,000.00) in cash. The cash was allocated as follows:
Six Hundred Thirty Thousand Dollars ($630,000.00) for PSM; One Hundred Seventy
Thousand ($170,000.00) for the PSM II; and Two Hundred Thousand Dollars
($200,000.00) for Pro Staff.

The disposition of the Company's shares held by Mr. Schafir are substantially
restricted by two Option Agreements. The first is an Option Agreement entered
into the 1st day of October, 2003 by and between Harlan M. Schafir, Carter M.
Fortune and Robert J. Kingston; the second is an Option Agreement entered into
the 1st day of October, 2003 by and between Harlan M. Schafir, and the Company.
(collectively, "Option Agreements").

Mr. Schafir is party to the Merger Agreements and is subject to the Option
Agreements. Prior to the Merger Agreements and the Option Agreements, there was
no material relationship between the Company and Mr. Schafir.

                       General Description of the Business

Through July 2001, the Company's main area of emphasis was the entertainment
business, primarily, WOW - Women of Wrestling(R). However, the Company's primary
operating focus has shifted from the entertainment industry. Because of the
Company's change in operating focus and its expanded current and future
anticipated holdings, the Company amended its certificate of incorporation to
change its name from WOW Entertainment, Inc. to Fortune Diversified Industries,
Inc. and changed its stock symbol from WOWI to FDVI, effective August 16, 2001.

The Company's current operating focus is achieved through its Manufacturing and
Distribution Segment (Kingston and Nor-Cote), its Wireless Infrastructure
Development Segment (PDH, Cornerstone Wireless, Cornerstone Construction, TTC
and StarQuest), and its Entertainment Segment (WOW). In addition, subsequent to
the fiscal year ending August 31, 2003, the Company established a Professional
Business Solutions Segment with its acquisition of PSM, PSM II, and Pro Staff.

Manufacturing and Distribution Segment

The Company's Manufacturing and Distribution Segment is conducted through its
Kingston and Nor-Cote subsidiaries. Kingston is a manufacturer's representative
and

                                       12
<PAGE>

distributor for prominent national companies in the electronic, sound, security,
and video markets. Kingston offers the latest technology in TVs, sound systems,
electronic locking devices, wire, cable and fiber optics, and intercom systems.

Nor-Cote is a manufacturer of UV curable screen printing inks. Nor-Cote inks are
printed on many types of plastic, metals and other substrates that are
compatible with the UV curing process. Typical applications are plastic sheets,
cell phones, bottles & containers, CD and DVD disks, rotary-screen printed
labels, and membrane switch overlays. Nor-Cote has operating facilities in the
United States, United Kingdom, Singapore, and Malaysia, with worldwide
distributors located in Canada, China, Australia, Hong Kong, Taiwan, Italy,
South Africa, and Thailand. Nor-Cote entered in to an exclusive patent license
agreement in August 2003 with a manufacturer in the United States to expand its
product line for uses in new applications. Nor-Cote is currently setting up its
manufacturing operations in order to produce this new line of ink products.

Wireless Infrastructure Segment

The Company's Wireless Infrastructure Segment is conducted through PDH,
Cornerstone Wireless, Cornerstone Construction, TTC, StarQuest and their
affiliates. The Company can assist its customers with the telecom site
development process from real estate planning through infrastructure
construction, as well as marketing and management including: site acquisition
(e.g., raw land, building rooftop, or antenna structure for co-location);
architectural and engineering analysis and drawings (e.g., analysis of existing
cell tower or construction drawings of cell towers and switches); site
construction, and existing site marketing and management.

PDH's business strategy is to offer a full range of network infrastructure real
estate development services to the telecommunications industry, among other
types of real estate network critical industries. PDH's full service list of
network real estate development services includes program management, site
acquisition, zoning and permitting, architectural & engineering design,
construction management, co-location facilitation, environmental services, lease
capitalization, lease renegotiation, site marketing and asset management.

Cornerstone Wireless specializes in engineering and architectural services for
the telecommunications and the traditional real estate development industries.
The telecommunications industry includes cellular, personal communication
services (PCS), specialized mobile radio (SMR), enhanced specialized mobile
radio (ESMR), microwave systems, fixed wireless, broadband and fiber optics
technologies for carriers, tower consolidators and utilities.

Cornerstone Construction offers a full range of construction services to the
telecommunications industry, primarily developing wireless networks for wireless
carriers. These services include civil construction, electrical, foundations and
tower installations, as well as, antennae and line installations. Cornerstone
Construction can

                                       13
<PAGE>

provide a complete turnkey solution to the development of telecommunications
infrastructure.

TTC specializes in the design, engineering and installation of structured
cabling systems for the commercial marketplace and sells telephone and voice
mail systems. TTC provides the data cabinets, racks, cable trays, HUBS, patch
panels, computer furniture, cable management and any peripheral equipment
necessary for a complete voice and data-cabling infrastructure.

StarQuest is a provider of premium communication/ information services,
including digital satellite television, high speed (broadband) Internet, both
wired and wireless, exclusively to the United States multi-dwelling unit (MDU)
marketplace.

Murphy is a commercial and retail real estate development company. During the
fiscal year ending August 31, 2003, Murphy was not actively engaged in any
business.

Entertainment Segment

WOW was organized in May, 2000 and began production of its weekly syndicated
television series, WOW - Women of Wrestling(R) in September, 2000. In June 2001,
WOW decided not to produce any future episodes. During the fiscal year ending
August 31, 2003, WOW was not actively engaged in any business.

Professional Business Solutions Segment

PSM, PSM II and Pro Staff provide cost-effective employee administrative
solutions to companies in more than 25 states nationwide. The three companies
are engaged in providing services in employment-related matters, such as Payroll
and Tax Processing, Worker's Compensation and Risk Management, Benefits
Administration, Unemployment Administration, Legal and Regulatory Employer
Compliance, 401k and Retirement Plan Administration and Employee Assessments.

                                   Competition

The markets in which the Company operates are highly competitive, requiring
substantial resources and skilled and experienced personnel. The Company
competes with other companies in most of the geographic markets in which it
operates, and several of its competitors are large companies that have greater
financial, technical and marketing resources than the Company does. In addition,
there are relatively few barriers to entry into the industries in which the
Company operates and, as a result, any organization that has adequate financial
resources and access to technical expertise may become a competitor. The Company
believes that a significant portion of the Company's revenue will be derived
from direct bidding on products as well as unit price agreements, and price will
often be an important factor in the award of such business and agreements.
Accordingly, the Company could be underbid by its competitors in an effort by
them to

                                       14
<PAGE>

procure such business. The Company believes that as demand for its products and
services increases, customers will increasingly consider other factors in
choosing a provider, including technical expertise and experience, financial and
operational resources, nationwide presence, industry reputation and
dependability, which management of the Company believes will benefit it. There
can be no assurance, however, that the Company's competitors will not develop
the expertise, experience and resources to provide products and services that
are superior in both price and quality to the Company's products and services,
or that the Company will be able to maintain or enhance its competitive
position.

                              Intellectual Property

The Company owns, controls or claims ownership of certain intellectual
properties associated with its business, including trademark rights in the "WOW
Women of Wrestling" name (which is the subject of a U.S. service mark
registration). The Company also claims a proprietary interest in all
confidential or trade secret information relating to its businesses. The Company
does not have any patents or patent rights.

                                   Regulation

The Company's operations are subject to various federal, state and local laws
and regulations including:

     -    licensing requirements applicable to architects, engineers and other
          professionals;
     -    building and electrical codes;
     -    permitting and inspection requirements applicable to construction
          projects;
     -    Federal Communication Commission and Federal Aviation Administration
          regulations and requirements;
     -    regulations relating to worker safety and environmental protection;
          and
     -    special bidding and procurement requirements on government projects.

The Company believes that it has all the licenses required to conduct its
operations and that it is in substantial compliance with applicable regulatory
requirements. The failure of the Company to comply with applicable regulations
could result in substantial fines or revocation of its operating licenses. Many
state and local regulations governing many of its products, such as construction
drawings, require permits and licenses to be held by individuals who have passed
an examination or met other requirements.

                            Research and Development

Nor-Cote is the only subsidiary of the Company that incurs material research and
development expenses. During the fiscal year ending August 31, 2003, Nor-Cote
incurred $58,000 of research and development expenses. These expenses represent
the expenses incurred during a two-month period. Nor-Cote expects to incur
significantly greater expenses during the fiscal year ending August 31, 2004.
Research and

                                       15
<PAGE>

development takes place at Nor-Cote's facility. These expenses primarily relate
to research regarding improvements to Nor-Cote's existing ultraviolet inks and
the development of new ultraviolet inks.

                                    Employees

As of November 25, 2003, the Company had approximately 130 full-time employees
of which 31 were primarily engaged in the Wireless Infrastructure Segment, 70
were engaged in the Manufacturing and Distribution Segment, 25 were engaged in
the Professional Business Solutions Segment, and 4 were primarily engaged in the
Holding Company Segment. The Company anticipates that it will increase its staff
within all of the segments in the coming year. The Company's in-house staff is
supplemented with contract personnel on an as-needed basis. The Company believes
that its relationships with its employees are generally satisfactory. None of
its employees are represented by a union.

ITEM 2.       DESCRIPTION OF PROPERTY

The Company has entered into an agreement to purchase property in
Crawfordsville, Indiana pursuant to an "An Agreement for Purchase and Sale of
Real Estate" entered into July 3, 2003. This property is the location of
Nor-Cote's manufacturing facility. The purchase price is estimated at $425,000
and will be due at closing. Pursuant to this agreement, the Seller shall convey
good and marketable fee simple title to the property, free and clear of all
liens, encumbrances, easements, rights, permits, restrictions, leases,
agreements, covenants, conditions, limitations and licenses other than certain
permitted exceptions.

The Company leases an office and warehouse facility in Zionsville, Indiana from
a limited liability company in which Robert J. Kingston, one of the members of
the Control Group, is a member. This facility is the location of Kingston. The
agreement expires in August 2007. The agreement includes two renewal options,
which allows the Company to extend the lease term for an additional ten years.
In addition to base monthly rent, the agreement requires the Company to pay 75%
of any increase in real estate taxes over the 2002 taxes assessed and insurance
reasonably satisfactory to the landlord.

The Company leases its main corporate facility under an agreement that expires
August 2004. This facility is located in Indianapolis, Indiana. In addition to
base monthly rent, that agreement requires the Company to pay insurance with
respect to the leased premises and its proportionate share of common area
maintenance expenses.

                                       16
<PAGE>

In September 2002, the Company entered into a lease for an office and warehouse
facility in Beech Grove, Indiana under an agreement that expires November 2004.
This facility is the location of TTC. In addition to base monthly rent, this
agreement requires the Company to pay its proportionate share of common area
maintenance expenses.

In the opinion of the Company, its properties are adequate for its present
needs. The Company does not anticipate difficulty in renewing existing leases as
they expire or in finding alternative facilities.

ITEM 3.       LEGAL PROCEEDINGS

The Company is not involved in any legal proceedings or claims that it believes
will have a material adverse effect on the Company's business or financial
condition.

ITEM 4.       SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not Applicable. The last annual meeting of stockholders of the Company was held
on October 12, 1995. No meeting of stockholders has been held since such date
and the Company has no present intention of holding a meeting of stockholders in
2004.

                                     PART II

ITEM 5.       MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
              RELATED STOCKHOLDER MATTERS

(a) Market Information: From October 4, 1999 through June 21, 2000 the Common
Stock traded under the symbol "AGELE" on the OTC Bulletin Board. From October
16, 2000 through August 16, 2001, the Common Stock traded under the symbol
"WOWI" on the OTC Bulletin Board. Effective after the close of business, August
16, 2001, the Common Stock has traded under the symbol "FDVI" on the OTC
Bulletin Board.

The following table sets forth, for the fiscal periods indicated, the high and
low bid prices (which prices are interdealer prices without retail markup,
markdown or commissions, and may not necessarily represent actual transactions).

                                                      High              Low
                                                      ----              ---
Fiscal Year Ending August 31, 2003
----------------------------------

     First Quarter                                   $0.20             $0.11
     Second Quarter                                   0.26              0.07
     Third Quarter                                    0.33              0.21
     Fourth Quarter                                   0.45              0.31

Fiscal Year Ending August 31, 2002
----------------------------------

     First Quarter                                   $0.40             $0.21
     Second Quarter                                   0.30              0.13
     Third Quarter                                    0.20              0.12
     Fourth Quarter                                   0.23              0.12

(b) Holders. At November 25, 2003, there were approximately 300 holders of
record of the Common Stock.

                                       17
<PAGE>

(c) Dividends. The Company has never declared or paid any dividends on its
Common Stock. The Board of Directors presently intends to retain any and all
earnings for use in the Company's business and therefore does not anticipate
paying any cash dividends on the Common Stock in the foreseeable future.


ITEM 6.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
              OPERATIONS AND FINANCIAL CONDITION

The following analysis of the results of operations and financial condition of
the Company should be read in conjunction with the Company's financial
statements, including the notes thereto, contained elsewhere in this report.

The Company's current operating focus is achieved through its Manufacturing and
Distribution Segment (Kingston and Nor-Cote), its Wireless Infrastructure
Development Segment (PDH, Cornerstone Wireless, Cornerstone Construction, TTC
and StarQuest), and its Entertainment Segment (WOW). In addition, subsequent to
the fiscal year ending August 31, 2003, the Company established a Professional
Business Solutions Segment with its acquisition of PSM, PSM II, and Pro Staff.

Manufacturing and Distribution Segment

The Company's Manufacturing and Distribution Segment is conducted through its
Kingston and Nor-Cote subsidiaries. Kingston is a manufacturer's representative
and distributor for prominent national companies in the electronic, sound,
security, and video markets. Kingston offers the latest technology in TVs, sound
systems, electronic locking devices, wire, cable and fiber optics, and intercom
systems.

Kingston's role as an independent manufacturer's representative is to serve as
the mutually beneficial link between the customer and the manufacturer. By
working closely with each, the customer receives strong, personal support, and
the manufacturer receives a highly effective, yet economical, sales team.

Kingston strives to be the sales representative that dealers think of first for
the best service and the latest technology. Products and manufacturers'
represented include, but are not limited to, Dedicated Micros (Video
Multiplexers & Digital Video Recorders); Lowell Manufacturing (Speakers,
cabinets, and accessories); Lucasey (Mounts and television accessories); Net TV
(Multimedia Digital Displays); Panasonic Presentation (LCD Projectors & Plasma);
R.L. Drake (Video distribution products); RCA Commercial Products (Television
and Satellite products); Audiovox Specialized Applications (Mobile electronic
products); Securitron Maganlock Corp. (Electromagnetic door locking systems);
TOA Electronics, Inc. (Sound, paging, and background music products); Video
Alarm CCT (Housing and mounts); West Penn Wire (Wire, cable, connectors, and
fiber optics).

                                       18
<PAGE>

Nor-Cote is a leading technology company which manufactures UV curable screen
printing inks. Nor-Cote's inks are used on many types of plastic, metals, and
other substrates that are compatible with the UV curing process. Typical
applications consist of plastic sheets, cell phones, bottles & containers, CD
and DVD disks, rotary-screen printed labels, and membrane switch overlays.
Nor-Cote has operating facilities in the United States, United Kingdom,
Singapore, and Malaysia, with worldwide distributors located in Canada, China,
Australia, Hong Kong, Taiwan, Italy, South Africa, and Thailand. Nor-Cote has
the following wholly-owned United Kingdom, Singapore, and Malaysian
subsidiaries: U.V. Ink Trading Co. (inactive), Nor-Cote International, Ltd.
(formerly Nor-Cote (UK) Ltd.), Nor-Cote International PTE, Ltd., and Nor-Cote
(Malaysia) SDN, BHD., respectively.

Wireless Infrastructure Segment

The Company's Wireless Infrastructure Segment is conducted through PDH,
Cornerstone Wireless, Cornerstone Construction, TTC and StarQuest. The Company
can assist its customers with the telecom site development process from real
estate planning through infrastructure construction, as well as marketing and
management including: site acquisition (e.g., raw land, building rooftop, or
antenna structure for co-location); architectural and engineering analysis and
drawings (e.g., analysis of existing cell tower or construction drawings of cell
towers and switches); site construction, and existing site marketing and
management.

PDH's business strategy is to offer a full range of network infrastructure real
estate development services to the telecommunications industry, among other
types of real estate network critical industries. PDH intends to provide its
clients with the most experienced personnel and deliver the highest level of
services, systems and support necessary to achieve its clients' goals and
objectives on a local, regional or national basis. PDH's focus is to meet the
demanding timelines associated with the development of a network by ensuring
that each individual site reaches the construction phase as quickly as possible.
This is achieved by avoiding costly delays up-front through effective management
of the site acquisition process with its site development real estate
professionals. PDH's full service list of network real estate development
services includes program management, site acquisition, zoning and permitting,
architectural & engineering design, construction management, co-location
facilitation, environmental services, lease capitalization, lease renegotiation,
site marketing and asset management.

Cornerstone Wireless specializes in engineering and architectural services for
the telecommunications and the traditional real estate development industries.
The telecommunications industry includes cellular, personal communication
services (PCS), specialized mobile radio (SMR), enhanced specialized mobile
radio (ESMR), microwave systems, fixed wireless, broadband and fiber optics
technologies for carriers, tower consolidators and utilities. Detailed services
for the telecommunications industry include site surveys, site layout drawings,
architectural aesthetic designs, foundation designs,

                                       19
<PAGE>

antenna mount designs, geo-technical investigation and reports, structural
analysis and environmental assessments.

Cornerstone Construction offers a full range of construction services to the
telecommunications industry, primarily developing wireless networks for wireless
carriers. These services include civil construction, electrical, foundations and
tower installations, as well as, antennae and line installations. Cornerstone
Construction can provide a complete turnkey solution to the development of
telecommunications infrastructure.

TTC specializes in the design, engineering and installation of structured
cabling systems for the commercial marketplace and sells telephone and voice
mail systems. TTC provides the data cabinets, racks, cable trays, HUBS, patch
panels, computer furniture, cable management and any peripheral equipment
necessary for a complete voice and data-cabling infrastructure. TTC has provided
services to companies throughout the Midwest and for some of the largest
companies in the state of Indiana.

StarQuest is a provider of premium communication/information services, including
digital satellite television, high speed (broadband) internet, both wired and
wireless, exclusively to the United States multi-dwelling unit (MDU)
marketplace.

Murphy is a commercial and retail real estate development company. During the
fiscal year ending August 31, 2003, Murphy was not actively engaged in any
business.

The Company believes that the need for its telecom services in the coming years
will be significant, and expects that cell site density will need to increase
four to eight fold in the coming years in order to meet the bandwidth and usage
requirements of consumers for second generation to third generation wireless
data applications (commonly referred to as 2G, 2.5G and 3G). In addition to the
build-out of additional sites, as usage changes occur, existing tower and base
station configurations will also need to change. Wired broadband needs also
require increasing infrastructure build-out, particularly with fiber optics
technologies. The Company is positioned to and believes it will be able to
provide the real estate development, engineering and design services necessary
to meet the evolving needs of the industry. The Company also is pursuing
non-telecom opportunities that utilize its highly skilled professionals, which
the Company believes will help to maximize its operational capacity while
diversifying its revenue sources.

The past year has seen a continuing downturn in the economy, and management
witnessed many companies in the telecommunications industry significantly
curtailing their operations. Management observed capital expenditures for
infrastructure within the industry continued to decline in conjunction with the
economy.

While the capital expenditures within the telecommunications industry declined
in conjunction with the economy, the infrastructure capacity needs did not. When
the industry resumes the infrastructure build out for 2G to 2.5G to 3G and
beyond,

                                       20
<PAGE>

management believes that the Company will be positioned as a recognized provider
with the capacity to meet and exceed the industry's needs.

Entertainment Segment

WOW was organized in May, 2000, began production of its weekly syndicated
television series, WOW - Women of Wrestling(R) in September, 2000. In June 2001,
WOW decided not to produce any future episodes. In July 2001, WOW agreed in
principle to general terms for licensing the WOW - Women of Wrestling(R)
property to David McLane Enterprises, Inc. ("DME") for a minimum monthly dollar
amount plus a percentage of certain revenues for three and one half years. DME
is owned by David McLane, who was until June, 2001, the president, a director
and one of the controlling shareholders of the Company. During the fiscal year
ending August 31, 2003, WOW was not actively engaged in any business.

Professional Business Solutions Segment

PSM, PSM II and Pro Staff are one of the Midwest's largest Professional Employer
Organizations (PEO) providing cost-effective employee administrative solutions
to companies in more than 25 states nationwide. The three companies are engaged
in providing services in employment-related matters, such as Payroll and Tax
Processing, Worker's Compensation and Risk Management, Benefits Administration,
Unemployment Administration, Legal and Regulatory Employer Compliance, 401k and
Retirement Plan Administration and Employee Assessments. PSM has been recognized
as one of the 100 Fastest Growing Companies in Indiana by the Kelly School of
Business at Indiana University for 2000, 2001 and 2002. The PEO industry is
expanding rapidly. The Company believes there is a rising demand for PEO
services and an excellent opportunity for consolidation and expansion. PSM has a
great reputation and is a very well-managed company. The Company believes that
PSM will continue its rapid expansion.

Critical Accounting Policies

The Company has identified the following policies as critical to its business
and the understanding of its results of operations. The impact of these policies
is discussed throughout Management's Discussion and Analysis of Financial
Condition and Results of Operations where these policies affect reported and
anticipated financial results. For a detailed discussion on the application of
these and other accounting policies see the Notes to the Consolidated Financial
Statements. Preparation of this report requires the Company's use of estimates
and assumptions that affect the reported amounts of assets, liabilities,
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements, and the reported revenue and expense amounts for the
periods being reported. There can be no assurance that the Company's actual
results will not differ from these estimates.

                                       21
<PAGE>

Revenue Recognition

In the Company's Manufacturing and Distribution Segment, revenue from the sale
of products is recognized according to the terms of the sales arrangement, which
is generally upon shipment. Commission revenue is recognized when realizable and
earned, which is typically upon receipt of the commission payment. Revenues are
recognized, net of estimated costs of returns, allowances and sales incentives,
when products are shipped to customers and title and risk of ownership
transfers. Products are generally sold on open account under credit terms
customary to the geographic region of distribution. Ongoing credit evaluations
our performed on customers and the Company does not generally require collateral
to secure accounts receivable.

In its Wireless Infrastructure Segment, PDH, Cornerstone Wireless and
Cornerstone Construction enter into contracts principally on the basis of
competitive bids, the final terms and prices of which are frequently negotiated
with the customer. Although the terms of its contracts vary considerably, most
are made on a unit price basis in which the Company agrees to do the work for
units of work performed. The Company also performs services on a cost-plus or
time and materials basis. The Company completes most projects within six months.
The Company generally recognizes revenue utilizing output measures, such as when
services are performed, units are delivered or when contract milestones are
reached. Additionally, in the Wireless Infrastructure Segment, TTC and StarQuest
recognize revenue when product is shipped and installation is complete.

Revenue is reduced by appropriate allowances, estimated returns, price
concessions, and similar adjustments, as applicable.

Cost of Revenues

Cost of revenues consist primarily of purchases of goods that are resold to
customers, but also consist of salaries, wages and benefits to employees, and
other overhead expenses directly attributable to production.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of sales and
administrative salaries and benefits, marketing, office rent and utilities,
communications and professional fees.

Cash and Equivalents

Cash and equivalents may include money market fund shares, bank time deposits
and certificates of deposits, and other instruments with original maturities of
three months or less. At August 31, 2003, the Company's cash exceeded federally
insured limits by approximately $270,000.

                                       22
<PAGE>

Marketable Securities

Marketable securities include common stocks classified as "available for sale"
in accordance with the provisions of Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities". The
securities are carried at fair value based on current market quotations.
Unrealized holding gains and losses, net of tax, are not included in "net
income", but are accounted for as "other comprehensive income" and reflected as
a separate component of the change in stockholders' equity. The cost of
securities used to compute realized gains and losses is based on specifically
identified securities. The fair value of investment securities is determined by
currently available market prices.

Accounts Receivable

Accounts receivable is stated at the amount billed to customers. The Company
provides allowances for doubtful accounts and for returns and sales allowances,
which are based upon a review of outstanding receivables, historical information
and existing economic conditions. Accounts receivable are ordinarily due 30 days
after the issuance of the invoice. Delinquent receivables are written off based
on individual credit evaluation and specific circumstances of the customer. The
Company's policy is not to accrue interest on past due trade receivables.

Inventories

Inventories of raw materials are recorded at the lower of cost (primarily
first-in, first-out) or market value. Inventories of work-in-process and
finished goods include estimated direct labor, indirect labor, and other
manufacturing expenses applied as a function of material costs.

Shipping and Handling

Costs incurred for shipping and handling are included in the Company's
consolidated financial statements as a component of costs of revenue.

Property, Equipment, and Depreciation

Property and equipment are carried at cost and includes expenditures for new
additions and those, which substantially increase the useful lives of existing
assets. Depreciation is computed at various rates by use of the straight-line
method and certain accelerated methods. Depreciable lives are generally ranging
from 3 to 39 years.

Expenditures for normal repairs and maintenance are charged to operations as
incurred. The cost of property or equipment retired or otherwise disposed of and
the related

                                       23
<PAGE>

accumulated depreciation are removed from the accounts in the year of disposal
with the resulting gain or loss reflected in earnings or in the cost of the
replacement asset.

The provision for depreciation amounted to $222,000 and $42,000 for the years
ended August 31, 2003 and 2002, respectively.

Goodwill and Other Intangible Assets

The Company has adopted Statement of Financial Accounting Standards (SFAS) No.
142, "Goodwill and Other Intangible Assets". With the adoption of SFAS No. 142,
goodwill is no longer amortized but instead is assessed for impairment at least
as often as annually and as triggering events occurs. In making this assessment,
management relies on a number of factors including operating results, business
plans, economic projections, anticipated future cash flows, and transactions and
market place data. There are inherent uncertainties related to these factors and
management's judgment in applying them to the analysis of goodwill impairment.
Since management's judgment is involved in performing goodwill and other
intangible assets valuation analyses, there is risk that the carrying value of
the goodwill and other intangible assets may be overstated or understated.

The Company has elected to perform the annual impairment test of recorded
goodwill as required by SFAS 142 as of the end of fiscal third quarter. The
results of this annual impairment test indicated that the fair value of each of
the reporting units as of May 31, 2003, exceeded the carrying, or book value,
including goodwill, and therefore recorded goodwill was not subject to
impairment.

Long-lived Assets

The Company periodically considers whether indicators of impairment of
long-lived assets are present. If such indicators are present, the Company
determines whether the sum of the estimated undiscounted cash flows attributable
to the assets in question is less than their carrying value. If less, the
Company recognizes an impairment loss based on the excess of the carrying amount
of the assets over their respective fair values. Fair value is determined by
discounted future cash flows, appraisals or other methods. If the assets
determined to be impaired are to be held and used, the Company recognizes an
impairment charge to the extent the present value of anticipated net cash flows
attributable to the asset are less than the asset's carrying value. The fair
value of the asset then becomes the asset's new carrying value, which the
Company depreciates over the remaining estimated useful life of the asset.
Long-lived assets including the Company's property, plant and equipment, are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability is
measured by comparison of the carrying amount to future net undiscounted cash
flows expected to be generated by the related asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount exceeds the fair market value of the assets.

                                       24
<PAGE>

Advertising Costs

Advertising costs including marketing, advertising, publicity, promotion and
other distribution costs, are expensed as incurred and totaled $87,000 and
$29,000 for the years ended August 31, 2003 and 2002, respectively.

Fair Value of Financial Instruments

The fair value of financial instruments is estimated using relevant market
information and other assumptions. Fair value estimates involve uncertainties
and matters of significant judgment regarding interest rates, prepayments, and
other factors. Changes in assumptions or market conditions could significantly
affect these estimates. The amounts reported in the consolidated balance sheets
for cash and equivalents, marketable securities, receivables, and payables
approximate fair value.

Stock-based Compensation

The Company has elected to account for all stock based compensation in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25), and to adopt the disclosure-only provisions
as required under Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (FAS 123), and Statement of Financial
Accounting Standards No. 148, Accounting for Stock-Based Compensation -
Transition and Disclosure (SFAS No. 148) .

The Company accounts for stock awards to nonemployees in accordance with the
provisions of FAS 123 and FAS 148, and Emerging Issues Task Force Consensus No.
96-18 "Accounting for Equity Instruments That Are Issued to Other Than Employees
for Acquiring, or in Conjunction with Selling, Goods or Services" (EITF 96-18).
Under FAS 123, FAS 148, and EITF 96-18, stock awards issued to nonemployees are
accounted for at their deemed fair value based on independent valuations or by
using an option-pricing model, as appropriate.

Income (Loss) Per Common Share

Income (loss) per share has been computed in accordance with SFAS No. 128,
"Earnings Per Share." Under SFAS No. 128, basic income (loss) per share is
computed based on net income (loss) applicable to common stock divided by the
weighted average number of common shares outstanding for the period. Diluted
income (loss) per share is computed based on net income (loss) applicable to
common stock divided by the weighted average number of shares of common stock
outstanding during the period after giving effect to securities considered to be
dilutive common stock equivalents.

                                       25
<PAGE>

Income Taxes

The Company accounts for income taxes under the provisions of SFAS No. 109,
"Accounting for Income Taxes." Accordingly, deferred tax assets and liabilities
are determined based on differences between the financial reporting and tax
basis of assets and liabilities and are measured using the enacted tax rates.
The Company files separate U.S., U.K., Singapore, and Malaysia income tax
returns.

Research and Development Costs

Research and development costs are either expensed as incurred, or capitalized
if they have a future economic benefit. There are no capitalized research and
development costs as of August 31, 2003.

Self Insurance

The Company's Nor-Cote subsidiary has elected to act as a self-insurer for
certain costs related to employee health and accident benefit programs. Costs
resulting from non-insured losses are estimated and charged to income when
incurred. The Company has purchased insurance which limits its annual exposure
for individual claims to $30,000 and which limits its aggregate annual exposure
to approximately $250,000.

New Accounting Pronouncements:

On December 31, 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure (SFAS No. 148). SFAS No. 148 amends
FASB Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation (SFAS No. 123), to provide alternative methods of
transition to SFAS No. 123's fair value method of accounting for stock-based
employee compensation. SFAS No. 148 also amends the disclosure provisions of
SFAS No. 123 and Accounting Principles Board (APB) Opinion No. 28, Interim
Financial Reporting, to require disclosure in the summary of significant
accounting policies of the effect of an entity's accounting policy with respect
to stock-based employee compensation on reported net income and earnings per
share in annual and interim financial statements. SFAS No. 148 is applicable to
all companies with stock-based employee compensation, regardless of whether they
account for that compensation using the fair value method of SFAS No. 123 or the
intrinsic value method of APB Opinion No. 25, Accounting for Stock Issued to
Employees. The Company adopted the disclosure provisions of SFAS 148 as of
December 31, 2002.

In November of 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. Interpretation No. 45 requires certain
guarantees to be recorded at fair value and requires a guarantor to make
significant new disclosures, even when the

                                       26
<PAGE>

likelihood of making any payments under the guarantee is remote. Interpretation
No. 45's initial recognition and initial measurement provisions are applicable
on a prospective basis to guarantees issued or modified after December 31, 2002;
however, its disclosure requirements are effective for financial statements of
interim or annual periods ending after December 15, 2002. Although the Company
has provided indirect guarantees on behalf of certain of its wholly-owned
subsidiaries, the Company believes that these guarantees are excluded from the
scope of Interpretation No. 45. The Company will continue to evaluate what
effect, if any, the recognition and measurement provisions will have on its
financial statements and related disclosures in future periods.

In May 2003, the FASB issued Statement of Financial Accounting Standard No. 150
"Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity" (SFAS 150). SFAS 150 establishes standards for how
companies classify and measure certain financial instruments with
characteristics of both liabilities and equity. SFAS 150 requires financial
instruments meeting certain criteria to be reported as liabilities that were
previously reflected as equity or in between liabilities and equity. SFAS 150 is
effective for financial instruments entered into or modified after May 31, 2003,
and otherwise effective at the beginning of the first interim period beginning
after June 15, 2003.

In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
141, "Business Combinations". SFAS No. 141 eliminates the use of the
pooling-of-interests method of accounting for business combinations and
establishes the purchase method of accounting as the only acceptable method for
all business combinations initiated after June 30, 2001.

In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." This statement modifies existing generally accepted accounting
principles related to the amortization and impairment of goodwill and other
intangible assets. Upon adoption of the new standard, goodwill, including
goodwill associated with equity method investments, will no longer be amortized.
For the years ended August 31, 2002 and 2001, there was no goodwill
amortization. In addition, goodwill, other than goodwill associated with equity
method investments, must be assessed at least annually for impairment using a
fair-value based approach. The Company adopted the provisions of this statement
effective September 1, 2001 and there was no material impact on the consolidated
financial statements.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 addresses accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. This statement is effective for fiscal years beginning
after June 15, 2002. The Company adopted the provisions of this statement
effective September 1, 2002 and there was no material impact on the consolidated
financial statements.

In July 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," which is effective for fiscal years beginning
after December 15, 2001. The provisions of this statement provide a single
accounting model for impairment of long-lived assets. The Company adopted the
provisions of this statement effective September 1, 2002 and there was no
material impact on the consolidated financial statements.

                                       27
<PAGE>

RESULTS OF OPERATIONS FOR THE YEARS ENDED AUGUST 31, 2003 AND AUGUST 31, 2002
-----------------------------------------------------------------------------

Summarized financial information concerning the Company's reportable segments is
shown in the following table:
<TABLE>
<CAPTION>
                                       Manufacturing
                                           and          Wireless                         Holding         Segment
                                       Distribution  Infrastructure   Entertainment      Company         Totals
                                       ------------  --------------   -------------    -----------     -----------
<S>                                     <C>            <C>             <C>             <C>             <C>
Year Ended August 31, 2003
Net revenues                            $11,000,000    $ 4,470,000     $        --     $        --     $15,470,000
Cost of revenues                          7,995,000      3,183,000              --     $        --      11,178,000
                                        -----------    -----------     -----------     -----------     -----------
Gross profit                              3,005,000      1,287,000              --              --       4,292,000
Operating expenses
       Selling, general and
       administrative expenses            1,877,000      1,353,000           7,000         555,000       3,792,000
       Depreciation and amortization        268,000         66,000              --           8,000         342,000
                                        -----------    -----------     -----------     -----------     -----------

           Total operating expense .      2,145,000      1,419,000           7,000         563,000       4,134,000
                                        -----------    -----------     -----------     -----------     -----------

Segment operating income (loss)             860,000    $  (132,000)    $    (7,000)    $  (563,000)    $   158,000
                                        ===========    ===========     ===========     ===========     ===========

As of August 31, 2003
Cash                                    $   792,000    $    59,000     $     1,000     $    33,000     $   885,000
Available for sale investments              337,000             --              --              --         337,000
Accounts receivable                       2,836,000      1,463,000              --           7,000       4,306,000
Inventory, net                            1,745,000        111,000              --              --       1,856,000
Other current assets                        543,000         58,000              --          62,000         663,000
Notes receivable                                 --             --              --              --              --
Property, plant & equipment, net          2,350,000        326,000              --          27,000       2,703,000
Loan origination fees, net                   50,000             --              --              --          50,000
Goodwill                                  2,136,000         70,000              --              --       2,206,000
Other intangible assets, net              1,180,000             --              --              --       1,180,000
Other long-term assets                       14,000             --              --              --          14,000
                                        -----------    -----------     -----------     -----------     -----------

Total Segment Assets                    $11,983,000    $ 2,087,000     $     1,000     $   129,000     $14,200,000
                                        ===========    ===========     ===========     ===========     ===========
</TABLE>

                                       28
<PAGE>
<TABLE>
<CAPTION>
                                       Manufacturing
                                           and          Wireless                         Holding         Segment
                                       Distribution  Infrastructure   Entertainment      Company         Totals
                                       ------------  --------------   -------------    -----------     -----------
<S>                                     <C>            <C>             <C>             <C>             <C>
Year Ended August 31, 2002
Net revenues                            $ 1,529,000    $   813,000              --              --     $ 2,342,000
Cost of revenues                          1,233,000        874,000              --              --       2,107,000
                                        -----------    -----------     -----------     -----------     -----------

Gross profit (loss)                         296,000        (61,000)             --              --         235,000
Operating expenses
       Selling, general and
       administrative expenses              236,000        854,000           6,000         526,000       1,622,000
       Depreciation and amortization         14,000         33,000              --           4,000          51,000
                                        -----------    -----------     -----------     -----------     -----------
           Total operating expense          250,000        887,000           6,000         530,000       1,673,000
                                        -----------    -----------     -----------     -----------     -----------

Segment operating income (loss)         $    46,000    $  (948,000)    $    (6,000)    $  (530,000)    $(1,438,000)
                                        ===========    ===========     ===========     ===========     ===========

As of August 31, 2002
Cash                                    $   133,000    $   108,000     $     1,000     $    49,000     $   291,000
Accounts receivable                       1,617,000        266,000              --         258,000       2,141,000
Purchase adjustment                              --             --              --         600,000         600,000
Inventory, net                              509,000             --              --              --         509,000
Other current assets                         18,000         51,000              --          15,000          84,000
Notes receivable                                 --             --              --          30,000          30,000
Property, plant & equipment, net            358,000        203,000              --          19,000         580,000
Goodwill                                    876,000             --              --              --         876,000
Other intangible assets, net                751,000             --              --              --         751,000
                                        -----------    -----------     -----------     -----------     -----------

Total Segment Assets                    $ 4,262,000    $   628,000     $     1,000     $   971,000     $ 5,862,000
                                        ===========    ===========     ===========     ===========     ===========
</TABLE>

Manufacturing and Distribution
------------------------------

Revenues

Revenues for the year ended August 31, 2003 were $11,000,000, compared to
$1,529,000 for the year ended August 31, 2002, an increase of $9,471,000. The
increase in revenues was the result of the Company acquiring Kingston on July
31, 2002 and Nor-Cote on July 1, 2003. The results of operations for the year
ended August 31, 2002 only represent one month for Kingston. The results of
operations for the year ended August 31, 2003 represent twelve months for
Kingston and two months for Nor-Cote. Sales by Kingston's mobile electronic
product division are increasing. Sales to the hotel/motel, hospital and
restaurant industries are still somewhat slow due to the weak economy. One of
the difficulties encountered by Kingston during the prior year was the lack of
product availability. The lack of product availability affected Kingston's
sales. In order to help alleviate this difficulty, Kingston anticipates
importing more products directly from China and brand-naming such products.
Kingston believes the direct imports will give it additional product and a
competitive advantage in the market. Nor-Cote expects to

                                       29
<PAGE>

increase sales in the next fiscal year. Nor-Cote believes that the silver
conductive ink market will expand rapidly in the next few years. Nor-Cote has
received substantial interest in its products at trade shows and is adding new
customers in Europe and the U.K.

Cost of Revenues

Cost of revenues for the year ended August 31, 2003 were $7,995,000 compared to
$1,233,000 for the year ended August 31, 2002, an increase of $6,762,000. The
increase in cost of revenues was the result of the Company acquiring Kingston on
July 31, 2002 and Nor-Cote on July 1, 2003. The results of operations for the
year ended August 31, 2002 only represent one month for Kingston. The results of
operations for the year ended August 31, 2003 represent twelve months for
Kingston and two months for Nor-Cote.

Gross Profit

Gross profit for the year ended August 31, 2003 was $3,005,000 representing 27%
of sales, compared to $296,000 representing 19% of sales for the year ended
August 31, 2002, an increase of $2,709,000. The increase in gross profit was the
result of the Company acquiring Kingston on July 31, 2002 and Nor-Cote on July
1, 2003. The results of operations for the year ended August 31, 2002 only
represent one month for Kingston. The results of operations for the year ended
August 31, 2003 represent twelve months for Kingston and two months for
Nor-Cote.

Operating Expenses

Operating expenses for the year ended August 31, 2003 were $2,145,000, compared
to $250,000 for the year ended August 31, 2002, an increase of $1,895,000. The
increase in operating expenses was the result of the Company acquiring Kingston
on July 31, 2002 and Nor-Cote on July 1, 2003. The results of operations for the
year ended August 31, 2002 only represent one month for Kingston. The results of
operations for the year ended August 31, 2003 represent twelve months for
Kingston and two months for Nor-Cote.

Operating Income

Operating income for the year ended August 31, 2003 was $860,000, compared to
$46,000 for the year ended August 31, 2002, an increase of $814,000. The
increase in operating income was the result of the Company acquiring Kingston on
July 31, 2002 and Nor-Cote on July 1, 2003. The results of operations for the
year ended August 31, 2002 only represent one month for Kingston. The results of
operations for the year ended August 31, 2003 represent twelve months for
Kingston and two months for Nor-Cote.

                                       30
<PAGE>

Wireless Infrastructure
-----------------------

Revenues

Revenues for the year ended August 31, 2003 were $4,470,000, compared to
$813,000 for the year ended August 31, 2002, an increase of $3,657,000. The
increase in revenues resulted from the Company expanding its operations and the
acquisitions of TTC and StarQuest. While the Company experienced an increase in
revenue, the telecom industry continued its depressed condition during the
fiscal year ending August 31, 2003. The Company has, however, noticed increased
activity in the last few months. PDH has expanded its customer base and expanded
its territory. It has also reduced overhead and is well positioned when the
economy turns. Cornerstone Wireless has substantially increased its revenue and
client base. Cornerstone Wireless believes there is very good potential for its
engineering services in the next year. Cornerstone Construction is expanding and
becoming well-known in the Great Lake's Region. TTC's amortized revenue is
increasing. StarQuest continues to provide services that complement the other
companies. If the telecom industry continues to come out of its depressed
condition, the Company believes its Wireless Infrastructure Segment is very well
positioned to substantially increase revenues and profits.

Cost of Revenues

Cost of revenues for the year ended August 31, 2003 were $3,183,000, compared to
$874,000 for the year ended August 31, 2002, an increase of $2,309,000. The
increase in the cost of revenues resulted from the Company expanding its
operations and the acquisitions of TTC and StarQuest.

Gross Profit (Loss)

Gross profit (loss) for the year ended August 31, 2003 was $1,287,000
representing 29% of sales, compared to $(61,000) representing (8)% of sales for
the year ended August 31, 2002, an increase of $1,348,000.

Operating Expenses

Operating expenses for the year ended August 31, 2003 were $1,419,000, compared
to $887,000 for the year ended August 31, 2002, an increase of $532,000. The
increase in operating expenses resulted from the Company expanding its
operations and the acquisitions of TTC and StarQuest. Operating expenses
primarily consist of employee compensation and benefits, legal, accounting and
consulting fees.

Operating Income (Loss)

Operating income (loss) for the year ended August 31, 2003 was $(132,000),
compared to $(948,000) for the year ended August 31, 2002, a decrease in the
loss of $816,000. The operating loss was primarily the result of the continued
depressed condition of the telecom industry.

                                       31
<PAGE>

Entertainment
-------------

Revenues

Revenues for the year ended August 31, 2003 were zero, compared to zero for the
year ended August 31, 2002. During the fiscal year ending August 31, 2003, WOW
was not actively engaged in any business.

Cost of Revenues

Cost of revenues for the year ended August 31, 2003 were zero, compared to zero
for the year ended August 31, 2002. During the fiscal year ending August 31,
2003, WOW was not actively engaged in any business.

Gross Profit (Loss)

Gross profit (loss) for the year ended August 31, 2003 was zero, compared to
zero for the year ended August 31, 2002. During the fiscal year ending August
31, 2003, WOW was not actively engaged in any business.

Operating Expenses

Operating expenses for the year ended August 31, 2003 were $7,000, compared to
$6,000 for the year ended August 31, 2002, an increase of $1,000. During the
fiscal year ending August 31, 2003, WOW was not actively engaged in any
business.

Operating Income (Loss)

Operating income (loss) for the year ended August 31, 2003 was $(7,000),
compared to $(6,000) for the year ended August 31, 2002, an increase of
$(1,000). During the fiscal year ending August 31, 2003, WOW was not actively
engaged in any business.

Holding Company
---------------

The Company's Holding Company Segment does not have any income producing
operating assets. As such, the operating loss is equal to operating expenses.
Operating expenses consist primarily of employee compensation and benefits,
legal, accounting and consulting fees. Operating expenses for the year ended
August 31, 2003 were $563,000, compared to $530,000 for the year ended August
31, 2002, an increase of $33,000.

Interest income for the year ended August 31, 2003 was approximately $15,000,
which was primarily related to funds held in money market accounts and accrued
interest

                                       32
<PAGE>

income from employee-held recourse promissory notes. Interest income for the
year ended August 31, 2002 was approximately $51,000, which was also primarily
related to funds held in money market accounts and accrued interest income from
employee-held recourse promissory notes.

Interest expense for the year ended August 31, 2003 was approximately $185,000
from various lines of credit and term loans. Interest expense for the year ended
August 31, 2002 was approximately $23,000 from a line of credit.

Losses on investments in marketable securities, net for the year ended August
31, 2003 was zero. Losses on investments in marketable securities, net for the
year ended August 31, 2002 was approximately $597,000.


LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

As of August 31, 2003 the Company had working capital of approximately
$3,258,000 composed primarily of cash and equivalents, net accounts receivable
and net inventory. The Company's principal sources of liquidity include
$1,222,000 in cash and cash equivalents, a $1,500,000 line of credit available
through July 31, 2004 of which $547,000 was available as of August 31, 2003, a
$500,000 line of credit available through June 30, 2004 of which $415,000 was
available as of August 31, 2003, and a $3,000,000, unsecured line of credit with
a stockholder of which $1,000,000 was available as of August 31, 2003. The
$1,500,000 line of credit is secured by the business assets of Kingston, with a
second lien on assets pledged by a stockholder. Interest on the line is charged
at 2.40% plus the one-month London Interbank Offered Rate (one-month LIBOR). The
$500,000 line of credit is secured by the business assets of Nor-Cote, with a
second lien on assets pledged by a stockholder. Interest on the line is charged
at 2.50% plus the one-month LIBOR. Interest on the $3,000,000, unsecured line of
credit with a stockholder is charged at 3% plus the one-month LIBOR.

For the year ended August 31, 2003, cash flows used by operating activities were
$536,000, as compared to $1,534,000 for the year ended August 31, 2002. The
change is primarily related to the Company's operations becoming profitable, a
change that amounted to $2,190,000. This decrease in cash flows used was offset
by an increase in accounts receivable of $604,000 over the prior year as a
result of increased sales, as well as an increase in inventories of $279,000.

For the year ended August 31, 2003, cash flows used for investing activities
were 1,898,000, as compared to $4,369,000 for the year ended August 31, 2002.
The decrease in cash flows used for investing activities for the year ended
August 31, 2003 is primarily due to cash outflow of $1,997,000 pertaining to
acquisitions, net of cash received. Of this amount, approximately $1,680,000
relates to the Stock Exchange Agreement with Nor-Cote. Capital expenditures
increased from $32,000 for the year ended August 31, 2002 to $345,000 for the
year ended August 31, 2003.

                                       33
<PAGE>

For the year ended August 31, 2003, cash flows provided by financing activities
were $3,104,000 as compared to $3,656,000 for the year ended August 31, 2002.
The decrease was primarily related to the commencement of payments on long-term
debt netted against new borrowings used to finance acquisitions.

The Company reviews, as opportunities arise, the potential acquisition and/or
operation of other businesses. Any such action will be based upon the Company's
analysis of the specific business and the respective industry, as well as the
Company's ability to utilize a capital structure that is beneficial to the
Company's stockholders. The Company intends to continue to aggressively pursue
acquisitions and other business opportunities.

The Company's short and long term capital requirements will depend upon many
factors, including whether it acquires and/or operates other businesses and the
operating success of its current operating segments. Many of these and other
factors are beyond the Company's control.

Over the next 12 months, the Company plans to hire additional employees in all
of its segments; however, the hiring of these employees will be approximately
correlated with an increase in operating revenue.

The Company expects to fund current operations and other cash expenditures
through the use of available cash, cash from operations, funds available under
its credit facilities and possible new debt or equity sources. The Company
believes that there will be sufficient funds from current cash, operations and
available financing to fund operations and cash expenditures for the foreseeable
future.

RISK FACTORS
------------

The Company's businesses are subject to a variety of risks, including the risks
described below. The risks and uncertainties described below are not the only
ones facing the Company. Additional risks and uncertainties not known to
management of the Company or that management of the Company currently considers
to be immaterial may also impair its business operations. If any of the
following risks actually occur, the Company's business, financial condition and
results of operations could be materially and adversely affected.

The industries the Company serves are subject to rapid technological and
structural changes that could reduce the demand for the products and services
the Company provides. The telecommunications industry is undergoing rapid change
as a result of technological advances and deregulation that could in certain
cases reduce the demand for the Company's services or otherwise adversely affect
its business. Improvements in existing technology may allow telecommunications
companies to significantly improve their networks without physically upgrading
them. In addition, consolidation in the telecommunications industry may result
in the loss of one or more customers.

                                       34
<PAGE>

The Company may be unsuccessful at generating internal growth. The Company's
ability to generate internal growth will be affected by, among other factors,
its ability to:

     -    expand the range of services it offers to customers to address their
          evolving needs;
     -    attract new customers;
     -    increase the number of projects performed for existing customers;
     -    hire and retain employees;
     -    open additional facilities; and
     -    reduce its operating and overhead expenses.

In addition, the Company's customers may reduce the number or size of projects
available to the Company due to their inability to obtain capital. Many of the
factors affecting the Company's ability to generate internal growth may be
beyond its control, and the Company cannot be certain that its strategies will
be successful or that it will be able to generate cash flow sufficient to fund
its operations and to support internal growth. Its inability to achieve internal
growth could materially and adversely affect its business, financial condition
and results of operations.

The economic downturn has lead to less demand for the Company's services. If the
general level of economic activity continues to slow, the Company's customers
may delay or cancel new projects. A number of other factors, including financing
conditions for the industries the Company serve, could adversely affect its
customers and their ability or willingness to fund capital expenditures in the
future.

The Company may be unsuccessful at integrating companies that it acquires. The
Company may not successfully integrate its acquired companies with its existing
operations without substantial costs, delays or other operational or financial
problems. Failure to implement proper overall business controls could result in
inconsistent operating and financial practices at the companies the Company
acquires, and its overall profitability could be adversely affected. Integrating
its acquired companies involves a number of special risks which could materially
and adversely affect the Company's business, financial condition and results of
operations, including:

     -    failure of acquired companies to achieve the results the Company
          expects;
     -    diversion of management's attention from operational matters;
     -    difficulties integrating the operations and personnel of acquired
          companies;
     -    inability to retain key personnel of the acquired companies;
     -    risks associated with unanticipated events or liabilities;
     -    the potential disruption of business; and
     -    the difficulty of maintaining uniform standards, controls, procedures
          and policies.

If one of the acquired companies suffers customer dissatisfaction or performance
problems, the reputation of the entire company could be materially and adversely
affected.

                                       35
<PAGE>

The Company may not have access in the future to sufficient funding to finance
desired growth. If it cannot secure additional financing from time to time in
the future on acceptable terms, the Company may be unable to support its growth
strategy. The Company cannot readily predict the timing, size and success of its
acquisition efforts and therefore the capital it will need for these efforts.
Using cash for acquisitions limits its financial flexibility and makes the
Company more likely to seek additional capital through future debt or equity
financings. If the Company seeks additional debt or equity financing, it may
have to agree to additional covenants that limit its operational and financial
flexibility. When it seeks additional debt or equity financings, it cannot be
certain that additional debt or equity will be available to it at all or on
terms acceptable to it.

The Company's operating results may vary significantly from quarter-to-quarter.
During the winter months, demand for its services may be lower due to inclement
weather. Additionally, its quarterly results may also be materially affected by:

     -    the availability of products to sell;
     -    changes to the cost of available products;
     -    the timing and volume of work under new agreements;
     -    regional or general economic conditions;
     -    the budgetary spending patterns of customers;
     -    variations in the margins of projects performed during any particular
          quarter;
     -    the termination of existing agreements;
     -    costs the Company incurs to support growth internally or through
          acquisitions or otherwise;
     -    losses experienced in its operations not otherwise covered by
          insurance;
     -    a change in the mix of our customers, contracts and business;
     -    increases in design costs;
     -    the timing of acquisitions; and
     -    the timing and magnitude of acquisition assimilation costs.

Accordingly, the Company's operating results in any particular quarter may not
be indicative of the results that can be expected for any other quarter or for
the entire year.

Many of the Company's contracts may be canceled on short notice and the Company
may be unsuccessful in replacing the contracts as they are completed or expire.

The Company could experience a material adverse effect on its revenue, net
income and liquidity if any of the following occur:

     -    its customers cancel a significant number of contracts;
     -    it fails to win a significant number of its existing contracts upon
          re-bid; or
     -    it completes the required work under a significant number of
          non-recurring projects and cannot replace them with similar projects.

                                       36
<PAGE>

The Company's business growth could outpace the capability of its corporate
management infrastructure. The Company cannot be certain that its systems,
procedures and controls will be adequate to support its operations as they
expand. Future growth also will impose significant additional responsibilities
on members of the Company's senior management, including the need to recruit and
integrate new senior level managers and executives. The Company cannot be
certain that it can recruit and retain such additional managers and executives.
To the extent that it is unable to manage its growth effectively, or are unable
to attract and retain additional qualified management, the Company's financial
condition and results of operations could be materially and adversely affected.

The departure of key personnel could disrupt the Company's business. The Company
depends on the continued efforts of its executive officers and on senior
management of the businesses it acquires. Although the Company intends to enter
into an employment agreement with each of its executive officers and certain
other key employees, it cannot be certain that any individual will continue in
such capacity for any particular period of time. The loss of key personnel, or
the inability to hire and retain qualified employees, could adversely affect the
Company's business, financial condition and results of operations. The Company
does not carry key-person life insurance on any employees.

The Company's business is labor intensive and it may be unable to attract and
retain qualified employees. The Company's ability to increase productivity and
profitability will be limited by its ability to employ, train and retain skilled
personnel necessary to meet its requirements. The Company cannot be certain that
it will be able to maintain an adequate skilled labor force necessary to operate
efficiently and to support its growth strategy or that its labor expenses will
not increase as a result of a shortage in the supply of skilled personnel. Labor
shortages or increased labor costs could have a material adverse effect on the
Company's ability to implement its growth strategy and its operations.

The telecommunications industry is highly competitive and is served by numerous
small, owner-operated private companies, a few public companies and several
large regional companies. In addition, relatively few barriers prevent entry
into the telecommunications industry. As a result, any organization that has
adequate financial resources and access to technical expertise may become one of
the Company's competitors. Competition in the industry depends on a number of
factors, including price. Certain of the Company's competitors may have lower
overhead cost structures and may, therefore, be able to provide their services
at lower rates than the Company is able to provide. In addition, some of the
Company's competitors are larger and have greater resources than the Company
does. Management of the Company cannot be certain that its competitors will not
develop the expertise, experience and resources to provide services that are
superior in both price and quality to the Company's services. Similarly,
management of the Company cannot be certain that it will be able to maintain or
enhance the Company's competitive position within its industry. The Company may
also face competition from the in-house service organizations of existing or
prospective customers. Telecommunication companies usually employ personnel who
perform some of the same types of services the Company does. The Company cannot
be certain that its existing or prospective customers will continue to outsource
services in the future.

                                       37
<PAGE>

The Company could have potential exposure to environmental liabilities. The
Company's operations are subject to various environmental laws and regulations.
As a result, management cannot be certain that it will be able to identify or be
indemnified for all potential environmental liabilities relating to any acquired
business, property or assets.

The Company may not be able to protect its intellectual property rights.

The Company is exposed to financial market risks, including interest rate
fluctuation and changes in foreign currency exchange rates. The Company is
exposed to changes in interest rates on variable interest rate revolving lines
of credit. The Company believes an increase in short-term borrowing rates during
2003 would have resulted in only a nominal increase in interest expense. The
Company did not have any interest rate swaps outstanding at August 31, 2003. The
Company believes foreign currency exchange rate risk is nominal as of August 31,
2003. Foreign sales reporting during the year ended August 31, 2003 were less
than 3% of total Company sales.

The Control Group, which owns a substantial majority of the Company's common
stock, could through the exercise of its voting rights affect decisions which
could conflict with the interests of the public shareholders.

                         Off Balance Sheet Arrangements

The Company does not have any material off balance sheet arrangements that have
or is reasonably likely to have a current or future effect on the Company's
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that
is material to investors. A stockholder of the Company individually owns a
related party company, in which the principal asset is the building used by
Kingston. Kingston has provided indirect guarantees on behalf of the debt
included in this related party. The Company believes that these guarantees are
excluded from the scope of Interpretation No. 45. The Company will continue to
evaluate what effect, if any, the recognition and measurement provisions will
have on its financial statements and related disclosures in future periods.

                           Forward-Looking Statements

This report contains statements that constitute "forward-looking statements"
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended, and Section 27A of the Securities Act of 1933, as amended. The words
"expect," "estimate," "anticipate," "predict," "believe" and similar expressions
and variations thereof are intended to identify forward-looking statements.
These statements appear in a number of places in this report and include
statements regarding the intent, belief or current expectations of the Company,
its directors or its officers with respect to, among other things, trends

                                       38
<PAGE>

affecting the Company's financial condition or results of operations. The
readers of this report are cautioned that any such forward-looking statements
are not guarantees of future performance and involve risks and uncertainties
that could cause actual results to differ materially. Factors that might cause
or contribute to such differences, include, but are not limited to, the risks
and uncertainties that are discussed under the heading "Management's Discussion
and Analysis of Results of Operations and Financial Condition". The Company does
not ordinarily make projections of its future operating results and undertakes
no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise. Readers
should carefully review the risk factors referred to above and the other
documents filed by the Company with the Securities and Exchange Commission.

ITEM 7.       FINANCIAL STATEMENTS

See pages F-1 through F-32 following Item 14 below.

ITEM 8.       CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
              ACCOUNTING AND FINANCIAL DISCLOSURE

The Company's prior independent certified public accountants, Katz Sapper &
Miller, LLP, ("KSM") elected to cease performing audits of publicly traded
companies and to focus on serving the unique needs of entrepreneurial companies.
KSM resigned as the Company's auditors effective July 31, 2002. KSM's report on
the financial statements for either of the past two years did not contain an
adverse opinion or disclaimer of opinion. KSM's report was not modified as to
uncertainty, audit scope, or accounting principles, and also described the
nature of each such adverse opinion, disclaimer of opinion or modification. The
decision to accept KSM's resignation was approved by the Company's board of
directors. There were no disagreements with the former accountant on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which, if not resolved to the former accountant's
satisfaction, would have caused it to make reference to the subject matter of
the disagreement(s) in connection with its report.

The Company appointed Whipple & Company, PC as the Registrant's independent
certified public accountants and such firm accepted such appointment effective
as of August 31, 2002.

ITEM 8A.      CONTROLS AND PROCEDURES

Within the 90 days prior to the filing of this report, the Company carried out
an evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures. Based on this evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective in timely alerting them to
material information required to be included in this report. It should be noted
that the design of any system of controls is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions, regardless of how remote. There have been no significant
changes in the Company's internal controls or in other factors that could
significantly affect internal controls subsequent to the date of the most recent
evaluation.

                                       39
<PAGE>

                                    PART III

ITEM 9.       DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
              COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

                Directors, Executive Officers, Promoters and Control Persons

(a)     Executive Officers and Directors

The executive officers and directors of the Company are as follows:

NAME                 AGE   SINCE   POSITION
----                 ---   -----   --------

Carter M. Fortune    60    2002    Chief Executive Officer, Chairman of the
                                   Board

Robert J. Kingston   46    2002    Director, President of Kingston

Amy E. Gallo         36    2002    Chief Financial Officer, Secretary, Director

David A. Berry       49    2002    Director

Herman Haffner       49    2003    President of Nor-Cote

Harlan M. Schafir    51    2003    Director, Chief Operating Officer,
                                   President of PSM, PSM II and Pro Staff

The Company's current directors serve until the next annual meeting of
stockholders and until their respective successors are duly elected and
qualified.

In January, 2002, the Company appointed Carter M. Fortune as its Chief Executive
Officer. Mr. Fortune also became a director and Chairman of the Board of the
Company as of January, 2002. Mr. Fortune replaced Jeffrey J. Lewis who resigned
his position as CEO and director. Mr. Lewis's resignation was not as a result of
any dispute with the Company. Mr. Fortune is also a member of the Control Group.
Mr. Fortune has a BBA in

                                       40
<PAGE>

Marketing from the University of Cincinnati. He began his professional career at
a leading national food brands company where after five years he had ascended to
the position of Regional Marketing Manager. He was then hired as Director of
Marketing for a leading Insurance and Actuarial services provider where he
served for three years. Mr. Fortune then began a period of about fifteen years
where he was the owner and operator of a chain of retail stores. Concurrently
and through today he began investing, owning and operating numerous commercial
and residential real estate developments. Over the years, Mr. Fortune has served
on numerous Boards of Directors and Advisory panels.

Robert J. Kingston was elected to the Board of Directors, July 31, 2002 and
remained as president of Kingston. Mr. Kingston has been leading Kingston since
1978, when he took over the business from his father after his father suffered
an unexpected stroke. Mr. Kingston has represented almost every major
electronics line and sales have steadily increased under his leadership.

Amy E. Gallo was elected to the Board of Directors and became Chief Financial
Officer and Secretary in December 2002. Mrs. Gallo began working with Fortune
Diversified Industries in January 2002 when she, along with other employees, was
part of the DicksonHughes Group, LLC acquisition. She worked for DicksonHughes
Group, LLC from November 1999 to January 2002 as Chief Financial Officer and
Controller over their commercial real estate and telecommunications real estate
acquisition divisions. Prior to joining DicksonHughes Group, LLC, Mrs. Gallo was
the financial reporting manager for Tranex Credit Corp., an automobile finance
company, from May 1997 to November 1999. Previous to 1997, Mrs. Gallo worked in
the accounting department of various industries including service, coal mining,
restaurant and public accounting. Mrs. Gallo is a certified public accountant
and is a member of the AICPA and Indiana CPA Society. She graduated with an
accounting degree from Indiana University.

David A. Berry was elected to the Board of Directors on November 1, 2002. Mr.
Berry also serves on the audit committee. Mr. Berry began his professional
career by starting his own underground utility trenching company in 1978, for
which he had grown into a national company when he sold it in 1984. Mr. Berry
then worked as an operations manager for two years for a major national
telecommunications utility until he started OSP Engineering, an outside
telephone and cable systems contractor. Mr. Berry again grew OSP into a national
company, with customers from Maine to California, until he sold it in 1990. Mr.
Berry then was one of the founding members of Citimark Communications, another
wire infrastructure development company, until he sold his interest to his
partners and formed Shared Telecom Services in 1995. Mr. Berry grew Shared
Telecom Services into a leading regional Competitive Local Exchange Carrier
(CLEC) and shared tenant provider, when he sold it in 2000 to a large national
utility.

As of July 1, 2003, Herman Haffner became the President of Nor-Cote. Mr. Haffner
graduated in 1977 from Wabash College in Crawfordsville, Indiana with a B.A.
degree majoring in Speech with a minor in Education. For 14 years he was the
Vice President of Marketing and Sales for Nor-Cote. Mr. Haffner helped increase
domestic sales from 0 in

                                       41
<PAGE>

1979 to over 13 million in 1993. Internationally, he oversaw establishment of
the UK division, team negotiated a European licensing agreement and established
a group of distributors in the Pacific Rim. From 1993 to 2003, Mr. Haffner and
his wife owned and operated a consulting business helping businesses in the
following areas: Business Planning/Strategic Marketing, On-going Sales and
Customer Service Training, Pre-employment and Employee/Job match assessments.

Harlan M. Schafir was elected to the Board of Directors on October 1, 2003 and
continued as President of PSM, PSM II and Pro Staff. Mr. Schafir graduated first
in his accounting class from the University of South Florida in 1974, whereupon
he took his first job working as a staff accountant for Arthur Andersen & Co. in
Tampa, Florida. In 1980, he accepted a position with Cooper Industries in
Houston, Texas and in 1984 he was transferred from Cooper's corporate office to
the Belden Electronic Wire & Cable Division office in Indiana. While at Belden,
Mr. Schafir was promoted several times. He was transferred to several different
units and had a significant impact on both operating efficiencies and
profitability. Ultimately, he was responsible for running a significant part of
Belden's manufacturing operations. His units were considered some of the most
profitable and productive in the company. In 1991, Mr. Schafir founded PSM, one
of the first PEO's in the state of Indiana. Under his leadership, PSM has
experienced double-digit annual growth and now has offices in both Richmond and
Carmel, Indiana. Mr. Schafir has also helped PSM achieve annual client retention
rates consistently above 99%. Mr. Schafir's other accomplishments include being
one of only 100 CPES (Certified Professional Employer Specialists) in the United
States. He is also the Treasurer of the Midwest Chapter of the National
Association of Professional Employer Organizations, and a member of the CEO
Forum.

(b)  Significant Employees. None

(c)  Family Relationships. None.

(d)  Involvement in Certain Legal Proceedings. None.

(e)  Audit Committee Financial Expert. The Company does not have an audit
     committee financial expert serving on its audit committee. The Company is
     attempting to hire an audit committee financial expert.

               Section16(A) Beneficial Ownership Compliance Report

Section 16(a) of the Exchange Act requires the Company's officers and directors,
and persons who own more than 10% of a registered class of the Company's equity
securities, to file an initial report of ownership of such securities on Form 3
and changes in ownership of such securities on Form 4 or 5 with the Commission.
Such officers, directors and 10% stockholders are required to furnish the
Company with copies of all Section 16(a) forms they file with the Commission.

                                       42
<PAGE>

Based solely on its review of the copies of such forms received by it, or
written representations from certain such reporting persons that no Form 5's
were required for such persons, the Company believes that, for the year ended
August 31, 2003, its officers, directors and 10% stockholders complied with all
applicable Section 16(a) filing requirements except for Norman G. Wolcott, Jr.
in regards to one late report for one transaction and Amy Gallo in regards to
one late report for one transaction. Both reports were subsequently filed.

                                 Code of Ethics

The Company has not adopted a code of ethics that applies to the Company's
principal executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions. The Company is
in the process of preparing and adopting a code of ethics.

ITEM 10.      EXECUTIVE COMPENSATION

The following table sets forth certain information concerning the compensation
paid or accrued by the Company for services rendered during the Company's past
three fiscal years ended August 31, 2003 by the CEO and executive officers.

<TABLE>
<CAPTION>
                           Summary Compensation Table

                                                                                 Long Term
                                                                               Compensation
                             Fiscal                                               Awards
                             Year      Annual Compensation                      Securities
Name and Principal           Ending    -------------------     Other Annual     Underlying      All Other
Position                     Aug. 31  Salary ($)  Bonus ($)  Compensation ($)   Options (#)  Compensation ($)
---------------------------  -------  ----------  ---------  ----------------   -----------  ----------------
<S>                          <C>      <C>         <C>        <C>                <C>          <C>
Jeffrey J. Lewis, CEO        2003             --         --                --            --                --
                             2002             --         --                --            --                --
                             2001        $67,000         --                --       200,000                --

Carter M. Fortune, CEO       2003             --         --                --            --                --
                             2002             --         --                --            --                --
                             2001             --         --                --            --                --
Herman Haffner, President of
   Nor-Cote                  2003        $20,000 (1)     --            68,714 (2)        --                --
                             2002             --         --                --            --                --
                             2001             --         --                --            --                --
</TABLE>
(1)  For the last two months of the period ending August 31, 2003 ($120,000 on
     an annual basis).
(2)  On or about July 1, 2003, the Company issued two hundred, twenty eight
     thousand, five hundred seventy one (228,571) shares of its common stock to
     Mr. Haffner. Mr. Haffner shall vest in these shares on on July 1, 2006 if
     Nor-Cote's cumulative EBITDA over the three (3) year period is greater than
     one dollar (US) ($1.00). In addition, on or about July 1, 2003, the Company
     issued an additional three hundred

                                       43
<PAGE>

     thousand (300,000) shares of its common stock to Mr. Haffner. Mr. Haffner
     shall vest in these shares at a rate of one hundred thousand (100,000)
     shares for each one million, six hundred thousand dollars ($1,600,000)
     (U.S.) of EBITDA earned by Nor-Cote over the same three year period (to a
     maximum amount of four million, eight hundred thousand dollars (U.S.)
     ($4,800,000.00) of EBITDA). As of August 31, 2003, the 528,571 shares are
     valued (without any discounts) at $68,714 (528,571 x $.13). In addition,
     Nor-Cote shall pay to Mr. Haffner an annual bonus if Nor-Cote attains
     certain EBITDA thresholds during a fiscal year (July 1 to June 30). If
     Nor-Cote's EBITDA during a fiscal year is greater than $2,500,000, Nor-Cote
     shall pay Mr. Haffner a bonus in the amount of $45,000. If Nor-Cote's
     EBITDA during a fiscal year is greater than $2,000,000, but less than or
     equal to $2,500,000, Nor-Cote shall pay Mr. Haffner a bonus in the amount
     of $25,000. If Nor-Cote's EBITDA during a fiscal year is greater than
     $1,600,000 but less than or equal to $2,000,000, Nor-Cote shall pay Mr.
     Haffner a bonus in the amount of $10,000. If Nor-Cote's EBITDA during a
     fiscal year is less than or equal to $1,600,000, Nor-Cote shall not pay Mr.
     Haffner a bonus.


       Options/SARS Grants in the Last Fiscal Year Ending August 31, 2003

No grants were made during the fiscal year ending August 31, 2003.

      Aggregated Option Exercises in the Fiscal Year Ending August 31, 2003
                          and Period-End Option Values
<TABLE>
<CAPTION>
                                                             Number of Unexercised        Value of Unexercised
                                                                  At TP-End (#)           in the money Options
                  Shares Acquired on                         Options at TP-End (#)           at TP-End ($)
Name                 Exercise (#)     Value Realized ($)  Exercisable / Unexercisable  Exercisable / Unexercisable
----                 ------------     ------------------  ---------------------------  ---------------------------
<S>                         <C>               <C>                 <C>                           <C>
Jeffrey L. Lewis            0                 $0                  200,000/0 (1)                 $2,000/$0 (1)
</TABLE>

(1)  On January 12, 2001, the Company hired a new CEO. In connection with this
     hiring, he was granted an option to purchase 1,200,000 shares of common
     stock of an aggregate purchase price of $12,000. The Company entered into
     an agreement to cancel the options to purchase 1,000,000 shares of common
     stock previously granted to Mr. Lewis. This agreement was agreed to in
     principle by the Company and Mr. Lewis in August 2001, and formally
     executed in November 2001.

                       Report on Repricing of Options/SARS

No adjustments or amendments were made to the exercise price of stock options or
SARS.

                                       44
<PAGE>

                            Compensation of Directors

Directors who are employed by the Company receive no compensation. Mr. Berry
received 200,000 shares of the Company's common stock upon being appointed and
also receives $1,000 per month. Every director is reimbursed for out-of-pocket
expenses incurred in connection with attendance at meetings of the Board of
Directors and other Company business.

               Employment Contracts and Termination of Employment
                       And Change-in-Control Arrangements

The Company does not currently have any employment contracts, termination of
employment agreements or change-in-control arrangements with any of the
Company's executive officers.


ITEM 11.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
              MANAGEMENT AND RELATED STOCKHOLDER MATTERS

                 Security Ownership of Certain Beneficial Owners

The following table sets forth information as of November 25, 2003 with respect
to the only persons or groups known to the Company who may be deemed to own
beneficially more than 5% of the Company's voting securities (i.e. Common
Stock).

<TABLE>
<CAPTION>
                      Name and Address of           Amount and Nature of             Percent
Title of Class        Beneficial Owner              Beneficial Ownership (1)         of Class
--------------        ---------------------         -----------------------          --------
<S>                   <C>                           <C>                              <C>
Common Stock          John F. Fisbeck                   93,491,375 (2)                 94.3
                      6809 Corporate Drive
                      Indianapolis, IN 46278

Common Stock          Carter M. Fortune                 93,491,375 (2)                 94.3
                      6809 Corporate Drive
                      Indianapolis, IN 46278

Common Stock          Robert J. Kingston                93,491,375 (2)                 94.3
                      6809 Corporate Drive
                      Indianapolis, IN 46278

Common Stock          Norman G. Wolcott, Jr.            93,491,375 (2)                 94.3
                      6809 Corporate Drive
                      Indianapolis, IN  46278

Common Stock          Wolcott Trust                     93,491,375 (2)                 94.3
                      6809 Corporate Drive
                      Indianapolis, IN  46278

                                       45
<PAGE>

Common Stock          Harlan M. Schafir                 93,491,375 (2)                 94.3
                      6809 Corporate Drive
                      Indianapolis, IN  46278
</TABLE>
(1) As used in this table, "beneficial ownership" of securities means the sole
or shared power to vote, or to direct the voting of, such securities, or the
sole or shared investment power with respect to such securities, including the
power to dispose of, or to direct the disposition of, such securities. In
addition, for purposes of this table, a person is deemed to have "beneficial
ownership" of any security that such person had the right to acquire within 60
days after November 25, 2003.

(2) As the Control Group, Messrs. John F. Fisbeck, Carter M. Fortune, Robert J.
Kingston, Norman G Wolcott, Jr., Harlan M. Schafir and the Wolcott Trust
beneficially own 93,491,375 shares of Common Stock. Individually, each person
has sole dispositive and voting power over the following shares of Common Stock:
John F. Fisbeck, 18,087,023 (17.8%); Carter M. Fortune, 42,013,018(41.3%);
Robert J. Kingston, 8,000,000 (7.8%); Norman G. Wolcott, Jr., 7,266,084 (7.2%);
the Wolcott Trust, 5,125,160 (5.0%); and Harlan M. Schafir, 13,100,000 (7.9%).

                        Security Ownership of Management

The following table sets forth information as of November 25, 2003 with respect
to (i) each director, (ii) all individuals serving as the Company's executive
officers during the fiscal year ended August 31, 2003, and (iii) all directors
and all such executive officers as a group. Unless otherwise noted, each holder
has sole voting and investment power with respect to the shares of the listed
securities. An asterisk (*) indicates beneficial ownership of less than 1%.

<TABLE>
<CAPTION>
                      Name and Address of                  Amount and Nature of             Percent
Title of Class        Beneficial Owner                     Beneficial Ownership (1)         of Class
----------------      ----------------------               ------------------------         --------
<S>                   <C>                                       <C>                           <C>
Common Stock          Carter M. Fortune                         93,491,375 (2)                94.3
                      6809 Corporate Drive
                      Indianapolis, IN 46278

Common Stock          Robert J. Kingston                        93,491,375 (2)                94.3
                      6809 Corporate Drive
                      Indianapolis, IN 46278

Common Stock          David A. Berry                               200,000                      *
                      6809 Corporate Drive
                      Indianapolis, IN 46278

Common Stock          Amy E. Gallo                                 100,000                      *
                      6809 Corporate Drive
                      Indianapolis, IN  46278

                                       46
<PAGE>

Common Stock          Herman Haffner                               528,571                      *
                      6809 Corporate Drive
                      Indianapolis, IN  46278

Common Stock          Harlan M. Schafir                         93,491,375 (2)                94.3
                      6809 Corporate Drive
                      Indianapolis, IN  46278

Common Stock          All current officers and                  94,319,946                    95.1
                      directors as a group
</TABLE>
(1) As used in this table, "beneficial ownership" of securities means the sole
or shared power to vote, or to direct the voting of, such securities, or the
sole or shared investment power with respect to such securities, including the
power to dispose of, or to direct the disposition of, such securities. In
addition, for purposes of this table, a person is deemed to have "beneficial
ownership" of any security that such person had the right to acquire within 60
days after November 25, 2003.

(2) As the Control Group, Messrs. John F. Fisbeck, Carter M. Fortune, Robert J.
Kingston, Norman G Wolcott, Jr., Harlan M. Schafir and the Wolcott Trust
beneficially own 93,491,375 shares of Common Stock. Individually, each person
has sole dispositive and voting power over the following shares of Common Stock:
John F. Fisbeck, 18,087,023 (17.8%); Carter M. Fortune, 42,013,018(41.3%);
Robert J. Kingston, 8,000,000 (7.8%); Norman G. Wolcott, Jr., 7,266,084 (7.2%);
the Wolcott Trust, 5,125,160 (5.0%); and Harlan M. Schafir, 13,100,000 (7.9%).

                               Changes in Control

Except as described elsewhere in this item under "Security Ownership of Certain
Beneficial Owners", the Company knows of no arrangements the operation of which
may at a subsequent date result in a change of control.

ITEM 12.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

See "Security Ownership of Certain Beneficial Owners and Management" for those
persons or groups known to the Company who may be deemed to own beneficially
more than 5% of the Company's voting securities (i.e. Common Stock).

See "Description of Business - Control Group" for certain relationships
regarding the Company's subsidiaries.

The Company has a Line of Credit Promissory Note dated July 1, 2003 payable to
Carter M. Fortune (the "Note"). The principal sum of the Note is three million
dollars

                                       47
<PAGE>

($3,000,000), and interest accrues on the principal balance from time to time
remaining unpaid at the per annum rate equal to three percent (3%) over the one
month LIBOR (adjusted monthly). This Note is unsecured.

On or about March 1, 2003, Cornerstone Construction and Carter M. Fortune
entered into an Agreement for Purchase and Sale of Assets by which Mr. Fortune
purchased substantially all of the assets and property owned by Cornerstone
Construction that were used in connection with the construction business. The
nature and amount of consideration given for the acquired assets and property
was two hundred ninety-eight thousand, two hundred forty dollars and twenty-two
cents ($298,240.22). On or about August 15, 2003, Carter M. Fortune and
Cornerstone Construction entered into an Agreement for Purchase and Sale of
Assets by which Cornerstone Construction purchased substantially all of the
assets and properties owned by Mr. Fortune that were used in connection with the
construction business. Mr. Fortune received one hundred eighty-nine thousand,
one hundred eighty-one dollars and seventeen cents ($189,181.17) for the assets
and property.

The Company leases an office and warehouse facility in Zionsville, Indiana from
a limited liability company in which Robert J. Kingston, one of the members of
the Control Group, is a member. This facility is the location of Kingston.

ITEM 13.      EXHIBITS AND REPORTS ON FORM 8-K.

(a)    Exhibits.

<TABLE>
<CAPTION>
Exhibit No.        Description                                                               Note
-----------        -----------                                                               ----
<S>                <C>                                                                       <C>
2.1                Stock Exchange Agreement by and among Fortune
                   Diversified  Industries, Inc.; Nor-Cote International, Inc.;
                   Norman G. Wolcott, Jr.; Norman G. Wolcott, Jr. and
                   Norman G. Wolcott, Sr., as Co-Trustees of the Norman G.
                   Wolcott, Sr. and Lucile H. Wolcott Revocable Trust of 1995
                   and First Bankers Trust Company, as Trustee under the
                   Trust Agreement for the Nor-Cote International, Inc.
                   Employee Stock Ownership Plan Trust                                        (1)

2.2                Agreement and Plan of Merger entered into
                   the 1st day of October, 2003, by and among Professional
                   Staff Management, Inc., an Indiana corporation, PSM
                   Acquisition, Inc., an Indiana corporation and wholly owned
                   subsidiary of Registrant, Harlan Schafir, and Registrant                   (2)

2.3                Agreement and Plan of Merger entered into
                   the 1st day of October, 2003, by and among Professional
                   Staff Management, Inc. II, an Indiana corporation, PSM
                   Acquisition II, Inc., an Indiana corporation and wholly owned
                   subsidiary of Registrant, Harlan Schafir, and Registrant                   (2)

                                       48
<PAGE>

2.4                Agreement and Plan of Merger entered into
                   the 1st day of October, 2003, by and among Pro Staff,
                   Inc., an Indiana corporation, PSM Acquisition III, Inc.,
                   an Indiana corporation and wholly owned subsidiary of
                   Registrant, Harlan Schafir, and Registrant                                 (2)

3.1                Restated Certificate of Incorporation                                      (3)

3.2                Certificate of Amendment to Certificate of Incorporation.                  (3)

3.3                Amendment to Bylaws                                                        (3)

4.1                Specimen Common Stock Certificate                                          (3)

4.2                Option Agreement by and among Norman G. Wolcott, Jr.,
                   individually, and Norman G. Wolcott, Jr. and Norman G.
                   Wolcott, Sr., as Co-Trustees of the Norman G. Wolcott, Sr.
                   and Lucile H. Wolcott Revocable Trust of 1995, Carter
                   Fortune, and Fortune Diversified Industries, Inc.                          (1)

4.3                Option Agreement entered into the 1st day of
                   October, 2003 by and between Harlan M. Schafir,
                   Carter M. Fortune and Robert J. Kingston                                   (2)

4.4                Option Agreement entered into the 1st day of
                   October, 2003 by and between Harlan M. Schafir, and
                   Registrant                                                                 (2)

10.1               Executive Employment Agreement by and between
                   Norman G. Wolcott, Jr. and Company                                         (1)

10.2               Executive Employment Agreement by and between
                   Professional Staff Management, Inc., Professional Staff
                   Management, Inc. II, Pro Staff, Inc., and Harlan M. Schafir,
                   dated October 1, 2003                                                      (2)

10.3               Executive Employment Agreement by and between
                   Registrant and Harlan M. Schafir dated October 1, 2003                     (2)

21                 List of subsidiaries                                                       (4)

23.1               Consent of Whipple & Co.                                                   (4)

31.1               Certificate Pursuant to 18 U.S.C. Section 1350, as Adopted
                   Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
                   by Carter M. Fortune.                                                      (4)

                                       49
<PAGE>

31.2               Certificate Pursuant to 18 U.S.C. Section 1350, as Adopted
                   Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
                   by Amy E. Gallo.                                                           (4)

32.1               Certificate Pursuant to 18 U.S.C. Section 1350, as Adopted
                   Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
                   by Carter M. Fortune.                                                      (4)

32.2               Certificate Pursuant to 18 U.S.C. Section 1350, as Adopted
                   Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
                   by Amy E. Gallo.                                                           (4)
</TABLE>
Notes to Exhibits:

     (1)  This exhibit is incorporated by reference from the Company' Current
          Report on Form 8-K dated July 14, 2003.

     (2)  This exhibit is incorporated by reference from the Company's Current
          Report on Form 8-K dated October 15, 2003.

     (3)  This exhibit is incorporated by reference from the Company's Annual
          Report on Form 10-KSB for the year ended August 31, 2000.

     (4)  Attached hereto.

(b)    Reports on Form 8-K.

The Company filed the following reports during the three month period ended
August 31, 2003:

Form 8-K dated July 14, 2003 with respect to the Nor-Cote International, Inc.
acquisition and the change in control resulting in the addition of Norman G.
Wolcott, Jr. and the Wolcott Trust to the Control Group. The related financial
statements were filed on Form 8-K/A dated September 12, 2003.

ITEM 14.      PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Audit Fees

The aggregate fees billed in each of the fiscal years ended August 31, 2003 and
2002 for professional services rendered by the principal accountant for the
audit of the Company's annual financial statements and review of the financial
statements included in the registrant's Form 10-QSB or services that are
normally provided by the accountant in connection with statutory and regulatory
filings or engagements for those fiscal years were $131,000 and $68,000,
respectively.

                                       50
<PAGE>

Audit - Related Fees

None.

Tax Fees

The aggregate fees billed in each of the fiscal years ended August 31, 2003 and
2002 for professional services rendered by the principal accountant for tax
compliance and tax advise related to new acquisitions for those fiscal years
were $27,000 and $14,000, respectively.

All Other Fees

None.


<PAGE>


                      FORTUNE DIVERSIFIED INDUSTRIES, INC.
                                AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS
                                       AND
                          INDEPENDENT AUDITORS' REPORT

                            August 31, 2003 and 2002

                                TABLE OF CONTENTS


                                                                      Page

Independent Auditors' Report                                            1

Consolidated Balance Sheets                                             2

Consolidated Statements of Operations                                   3

Consolidated Statements of Stockholders' Equity                         4

Consolidated Statements of Cash Flows                                   5

Notes to Consolidated Financial Statements                              6






<PAGE>

                          Independent Auditors' Report



To the Board of Directors and Stockholders
Fortune Diversified Industries, Inc. and Subsidiaries
Indianapolis, Indiana


We have audited the accompanying consolidated balance sheets of Fortune
Diversified Industries, Inc. and Subsidiaries as of August 31, 2003 and 2002,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards
of the United States. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Fortune Diversified
Industries, Inc. and Subsidiaries as of August 31, 2003 and 2002, and the
results of its operations, and its cash flows for the years then ended in
conformity with generally accepted accounting principles of the United States.


/s/  Whipple & Company, PC

Indianapolis, Indiana
November 25, 2003

                                       F-1
<PAGE>

              FORTUNE DIVERSIFIED INDUSTRIES, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                            August 31, 2003 and 2002
<TABLE>
<CAPTION>
                                          ASSETS

                                                                2003             2002
<S>                                                         <C>              <C>
CURRENT ASSETS
     Cash and equivalents                                   $    885,000     $    291,000
     Available for sale investments                              337,000               --
     Accounts receivable, net                                  4,306,000        2,141,000
     Purchase adjustment receivable                                   --          600,000
     Inventory, net                                            1,856,000          509,000
     Recoverable income taxes                                    220,000               --
     Other current assets                                        443,000           84,000
                                                            ------------     ------------
         Total Current Assets                                  8,047,000        3,625,000
                                                            ------------     ------------

OTHER ASSETS

     Notes receivable                                                 --           30,000
     Property, plant & equipment, net                          2,703,000          580,000
     Loan origination fees, net                                   50,000               --
     Goodwill                                                  2,206,000          876,000
     Other intangible assets, net                              1,180,000          751,000
     Other long term assets                                       14,000               --
                                                            ------------     ------------
         Total Other Assets                                    6,153,000        2,237,000
                                                            ------------     ------------

         TOTAL ASSETS                                       $ 14,200,000     $  5,862,000
                                                            ============     ============


                             LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
     Lines of credit                                        $  1,038,000     $  1,277,000
     Accounts payable                                          1,062,000          477,000
     Due to related party                                        230,000               --
     Current maturities of long-term debt                        861,000          442,000
     Current maturities of capital lease obligations               9,000            8,000
     Accrued expenses                                          1,589,000          241,000
     Deferred revenue                                                 --          241,000
                                                            ------------     ------------
         Total Current Liabilities                             4,789,000        2,686,000
                                                            ------------     ------------

LONG-TERM LIABILITIES
     Line of credit - related party                         $  2,000,000     $         --
     Long-term debt, less current maturities                   5,202,000        2,589,000
     Capital lease obligations, less current maturities            8,000           17,000
                                                            ------------     ------------
         Total Long-term Liabilities                           7,210,000        2,606,000
                                                            ------------     ------------

STOCKHOLDERS' EQUITY
     Common stock                                                882,000          735,000
     Additional paid-in capital and warrants outstanding       7,873,000        6,441,000
     Accumulated deficit                                      (6,491,000)      (6,606,000)
     Accumulated other comprehensive loss                        (63,000)              --
                                                            ------------     ------------
         Total Stockholders' Equity                            2,201,000          570,000
                                                            ------------     ------------

         TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY         $ 14,200,000     $  5,862,000
                                                            ============     ============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements

                                      F-2
<PAGE>

              FORTUNE DIVERSIFIED INDUSTRIES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                  FOR THE YEARS ENDED AUGUST 31, 2003 AND 2002
<TABLE>
<CAPTION>
                                                        2003             2002
<S>                                                 <C>              <C>
NET REVENUES                                        $ 15,470,000     $  2,342,000

COST OF REVENUES                                      11,178,000        2,107,000
                                                    ------------     ------------

GROSS PROFIT                                           4,292,000          235,000

OPERATING EXPENSES
    Selling, general and administrative expenses       3,792,000        1,622,000
    Depreciation and amortization                        342,000           51,000
                                                    ------------     ------------
       Total Operating Expenses                        4,134,000        1,673,000
                                                    ------------     ------------

OPERATING INCOME (LOSS)                                  158,000       (1,438,000)

OTHER INCOME (EXPENSE)
    Interest income                                       15,000           51,000
    Interest expense                                    (185,000)         (23,000)
    Loss on investments in marketable
     securities, net                                          --         (597,000)
    Net gain (loss) on sale of equipment                      --          (23,000)
    Other income (expense)                               127,000          (45,000)
                                                    ------------     ------------
       Total Other Income (Expense)                      (43,000)        (637,000)
                                                    ------------     ------------

NET INCOME (LOSS) BEFORE PROVISION
  FOR INCOME TAXES                                       115,000       (2,075,000)

PROVISION FOR INCOME TAXES                                    --               --
                                                    ------------     ------------

NET INCOME (LOSS)                                   $    115,000     $ (2,075,000)
                                                    ============     ============


BASIC INCOME (LOSS) PER SHARE                       $       0.00     $      (0.03)
                                                    ============     ============


DILUTED INCOME (LOSS) PER SHARE                     $       0.00     $      (0.03)
                                                    ============     ============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements

                                      F-3
<PAGE>

              FORTUNE DIVERSIFIED INDUSTRIES, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                      Years Ended August 31, 2003 and 2002
<TABLE>
<CAPTION>
                                                  Additional                               Accumulated
                                                Paid-in Capital    Cost of   Accumulated      Other         Total     Comprehensive
                                       Common     and Warrants    Treasury     Earnings   Comprehensive  Stockholders    Income
                                       Stock      Outstanding       Stock      (Deficit)      Income        Equity       (Loss)

<S>                                   <C>         <C>           <C>          <C>           <C>           <C>             <C>
BALANCE AT AUGUST 31, 2001             695,000     7,001,000            --   $(4,531,000)          --      3,165,000           --

Purchase of 4,000,000 shares of
 common stock in treasury                   --      (560,000)      (40,000)           --           --       (600,000)          --
Issuance of 8,000,000 shares of
 common stock                           80,000            --            --            --           --         80,000           --
Cancellation of 4,000,000 shares of
 treasury stock                        (40,000)           --        40,000            --                          --           --
Net loss                                    --            --            --    (2,075,000)          --     (2,075,000)          --
                                      --------    ----------    ----------   -----------   ----------    -----------     --------

BALANCE AT AUGUST 31, 2002            $735,000    $6,441,000    $       --   $(6,606,000)  $       --    $   570,000     $     --
                                      ========    ==========    ==========   ===========   ==========    ===========     ========

Purchase of 200,000 shares of common
 stock in treasury                          --       (28,000)       (2,000)           --           --        (30,000)          --
Issuance of 200,000 shares of
  common stock                           2,000            --            --            --           --          2,000           --
Issuance of 22,388,179 shares of
  common stock for acquisitions        224,000     1,460,000            --            --           --      1,684,000           --
Cancellation of 7,668,364 shares of
  common stock                         (77,000)           --            --            --           --        (77,000)          --
Cancellation of 200,000 shares of
  treasury stock                        (2,000)           --         2,000            --           --             --           --
Net income                                  --            --            --       115,000           --        115,000      115,000
Translation adjustments, net of tax         --            --            --            --      (76,000)       (76,000)     (76,000)
Net unrealized investments gains,
  net of tax                                --            --            --            --       13,000         13,000       13,000
Net income                                  --            --            --            --           --             --           --
                                      --------    ----------     ---------   -----------   ----------    -----------     --------

BALANCE AT AUGUST 31, 2003            $882,000    $7,873,000     $      --   $(6,491,000)  $  (63,000)   $ 2,201,000     $ 52,000
                                      ========    ==========     =========   ===========   ==========    ===========     ========
</TABLE>

See Accompanying Notes to Consolidated Financial Statements

                                      F-4
<PAGE>

              FORTUNE DIVERSIFIED INDUSTRIES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                      Years Ended August 31, 2003 and 2002
<TABLE>
<CAPTION>
                                                                      2003            2002
<S>                                                               <C>             <C>
OPERATING ACTIVITIES
    Net income (loss)                                             $   115,000     $(2,075,000)
    Adjustments to reconcile net income (loss) to net cash
     used by operating activities:
      Depreciation and amortization                                   342,000          51,000
      Net realized loss from sale of available for
       sale securities                                                     --         597,000
      Net loss on disposal of equipment                                    --          23,000
      Changes in certain operating assets and liabilities:
         Accounts receivable                                         (604,000)       (245,000)
         Inventories                                                 (279,000)        238,000
         Other current assets                                         (14,000)         31,000
         Accounts payable                                              90,000        (264,000)
         Accrued expenses and other current liabilities                55,000         104,000
         Deferred revenue                                            (241,000)          6,000
                                                                  -----------     -----------
           Net Cash Used by Operating Activities                     (536,000)     (1,534,000)
                                                                  -----------     -----------

INVESTING ACTIVITIES
    Purchases of property and equipment                              (345,000)        (32,000)
    Purchases of available for sale securities                             --      (5,448,000)
    Collecton of notes receivable, related party                      146,000              --
    Sales of available for sale securities                                 --       4,851,000
    Acquisition of productive assets and businesses, net cash      (1,997,000)     (3,740,000)
    Proceeds from sale of subsidiary to stockholder                   298,000              --
                                                                  -----------     -----------
           Net Cash Used by Investing Activities                   (1,898,000)     (4,369,000)
                                                                  -----------     -----------

FINANCING ACTIVITIES
    Collection of purchase adjustment receivables                     600,000              --
    Net borrowings (repayments) under line of credit                 (437,000)        628,000
    Net borrowings on long-term line of credit - related party      2,000,000              --
    Borrowings on long-term debt                                    3,444,000       3,003,000
    Due to related party                                              230,000              --
    Payments on long-term debt                                     (2,725,000)             --
    Borrowings on capital lease obligations                                --          25,000
    Payments on  capital lease obligations                             (8,000)             --
                                                                  -----------     -----------
           Net Cash Provided by Financing Activities                3,104,000       3,656,000
                                                                  -----------     -----------

           Effect of exchange rate changes on cash                    (76,000)             --

NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS                       594,000      (2,247,000)

CASH AND EQUIVALENTS
    Beginning of Period                                               291,000       2,538,000
                                                                  -----------     -----------

    End of Year Period                                            $   885,000     $   291,000
                                                                  ===========     ===========

SUPPLEMENTAL DISCLOSURES
    Interest paid                                                    (165,000)        (23,000)
                                                                  ===========     ===========

    Noncash investing and financing activities:
      Issuance (redemption) of common stock in exchange
       for notes receivable                                                --        (600,000)

      Acquisitions (see Note 3)
         Cash                                                       1,046,000              --
         Investments                                                  314,000              --
         Accounts receivable                                        1,694,000       1,373,000
         Inventory                                                  1,112,000         747,000
         Prepaid expenses and other current assets                    589,000              --
         Other non-current assets                                     199,000              --
         Accounts payable                                            (567,000)       (668,000)
         Accrued expenses and other current liabilities            (2,279,000)        (59,000)
         Deferred revenue                                                  --        (235,000)
         Vehicles, equipment and leasehold improvements            (1,387,000)        363,000
         Line of credit                                                    --        (649,000)
         Long-term debt                                            (2,313,000)        (28,000)
         Goodwill and other intangible assets                       1,754,000       1,636,000
                                                                  -----------     -----------
                                                                    4,616,000       2,480,000
                                                                  -----------     -----------
         Purchase adjustment receivable                                     0         600,000
         Common stock consideration                                (1,607,000)        (80,000)
                                                                  -----------     -----------
         Cash paid                                                $ 3,009,000     $ 3,000,000
                                                                  ===========     ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements

                                      F-5
<PAGE>

              FORTUNE DIVERSIFIED INDUSTRIES, INC. AND SUBSIDIARIES


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business: Fortune Diversified Industries, Inc. (formerly known as WOW
Entertainment, Inc. and prior to that American Gaming & Entertainment, Ltd.), is
a Delaware corporation incorporated in 1988. The Company has conducted its
business directly and through wholly-owned subsidiaries. The term "Company" as
used herein refers to Fortune Diversified Industries, Inc. and its subsidiaries
unless the context otherwise requires. The Company is the parent company of
Nor-Cote International, Inc. ("Nor-Cote"), Kingston Sales Corp. ("Kingston"),
PDH, Inc. ("PDH"), Cornerstone Wireless Services, Inc. ("Cornerstone Wireless")
and Cornerstone Wireless Construction Services, Inc. ("Cornerstone
Construction"), Telecom Technology Corp. ("TTC"), StarQuest Wireless, Inc.
("StarQuest"), Murphy Development, Ltd. ("Murphy") and Women of Wrestling, Inc.
("WOW"). In addition, subsequent to August 31, 2003, the Company acquired
Professional Staff Management, Inc. ("PSM"), Professional Staff Management, Inc.
II ("PSM II"), and Pro Staff, Inc. ("Pro Staff"). These companies are also
wholly-owned subsidiaries of the Company.

The Company's current operating focus is achieved through its Manufacturing and
Distribution Segment (Kingston and Nor-Cote), and its Wireless Infrastructure
Development Segment (PDH, Cornerstone Wireless, Cornerstone Construction, TTC
and StarQuest. In addition, subsequent to the fiscal year ending August 31,
2003, the Company established a Professional Business Solutions Segment with its
acquisition of PSM, PSM II, and Pro Staff.

Manufacturing and Distribution Segment: The Company's Manufacturing and
Distribution segment is conducted through its Nor-Cote and Kingston
subsidiaries. Nor-Cote specializes in the manufacturing and sale of ultraviolet
curable ink and related products. Nor-Cote inks are printed on many types of
plastic, metals and other substrates that are compatible with the UV curing
process. Typical Nor-Cote ink applications consist of plastic sheets, cell
phones, bottles & containers, CD and DVD disks, rotary-screen printed labels,
and membrane switch overlays. Nor-Cote has operating facilities in the United
States, United Kingdom, Singapore, and Malaysia, with worldwide distributors
located in Canada, China, Australia, Hong Kong, Taiwan, Italy, South Africa, and
Thailand. Kingston is a manufacturer's representative and distributor for
prominent national companies in the electronic, sound, security, and video
markets. Kingston offers the latest technology in TVs, sound systems, electronic
locking devices, wire, cable and fiber optics, and intercom systems.

Wireless Infrastructure Segment: The Company's Wireless Infrastructure Segment
is conducted through PDH, Cornerstone Wireless, Cornerstone Construction, TTC,
StarQuest and their affiliates. The Company can assist its customers with the
telecom site development process from real estate planning through
infrastructure construction, as well as marketing and management including: site
acquisition (e.g., raw land, building rooftop, or antenna structure for
co-location); architectural and engineering analysis and drawings (e.g.,
analysis of existing cell tower or construction drawings of cell towers and
switches); site construction, and existing site marketing and management.

PDH's business strategy is to offer a full range of network infrastructure real
estate development services to the telecommunications industry, among other
types of real estate network critical industries. PDH's full service list of
network real estate development services includes program management, site
acquisition, zoning and permitting, architectural & engineering design,
construction management, co-location facilitation, environmental services, lease
capitalization, lease renegotiation, site marketing and asset management.

Cornerstone Wireless specializes in engineering and architectural services for
the telecommunications and the traditional real estate development industries.
The telecommunications industry includes cellular, personal communication
services (PCS), specialized mobile radio (SMR), enhanced specialized mobile
radio (ESMR), microwave systems, fixed wireless, broadband and fiber optics
technologies for carriers, tower consolidators and utilities.

                                      F-6
<PAGE>

Cornerstone Construction offers a full range of construction services to the
telecommunications industry, primarily developing wireless networks for wireless
carriers. These services include civil construction, electrical, foundations and
tower installations, as well as, antennae and line installations.

TTC specializes in the design, engineering and installation of structured
cabling systems for the commercial marketplace and sells telephone and voice
mail systems. TTC provides the data cabinets, racks, cable trays, HUBS, patch
panels, computer furniture, cable management and any peripheral equipment
necessary for a complete voice and data-cabling infrastructure.

StarQuest is a provider of premium communication/ information services,
including digital satellite television, high speed (broadband) Internet, both
wired and wireless, exclusively to the United States multi-dwelling unit (MDU)
marketplace.

Murphy is a commercial and retail real estate development company. During the
fiscal year ending August 31, 2003, Murphy was not actively engaged in any
business.

Principles of Consolidation: The accompanying consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. Nor-Cote
contains foreign subsidiaries from the United Kingdom, Singapore, and Malaysia,
which have been eliminated in consolidation at the Nor-Cote subsidiary level.
All significant intercompany accounts and transactions of the Company have been
eliminated.

Foreign Currency Translation: Assets and liabilities of the foreign subsidiaries
of the Company's wholly owned subsidiary Nor-Cote are translated into U.S.
dollars at the exchange rate in effect at the end of the period. Revenue and
expense accounts are translated at a weighted-average of exchange rates in
effect during the year. Translation adjustments that arise from translating the
subsidiaries financial statements from local currency to U.S. dollars are
accumulated and presented, net of tax, as a separate component of stockholders'
equity.

Comprehensive Income (Loss): Comprehensive income (loss) refers to the change in
an entity's equity during a period resulting from all transactions and events
other than capital contributed by and distributions to the entities' owners. For
the Company, comprehensive income (loss) is equal to net income plus the change
in unrealized gains or losses on investments and the change in foreign currency
translation adjustments. The Company has elected to report comprehensive income
(loss) in the consolidated statements of stockholders' equity.

Estimates: Management uses estimates and assumptions in preparing consolidated
financial statements in accordance with accounting principles generally accepted
in the United States. Those estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities and the reported revenues and expenses. Actual results could vary
from the estimates that were used.

Revenue Recognition: In the Company's Manufacturing and Distribution segment,
revenue from the sale of products is recognized according to the terms of the
sales arrangement, which is generally upon shipment. Commission revenue is
recognized when realizable and earned, which is typically upon receipt of the
commission payment. Revenues are recognized, net of estimated costs of returns,
allowances and sales incentives, when products are shipped to customers and
title and risk of ownership transfers. Products are generally sold on open
account under credit terms customary to the geographic region of distribution.
Ongoing credit evaluations our performed on customers and the Company does not
generally require collateral to secure accounts receivable.

In its Wireless Infrastructure Segment, PDH, Cornerstone Wireless and
Cornerstone Construction enter into contracts principally on the basis of
competitive bids, the final terms and prices of which are frequently negotiated
with the customer. Although the terms of its contracts vary considerably, most
are made on a unit price basis in which the Company agrees to do the work for
units of work performed. The Company also performs services on a cost-plus or
time and materials basis. The Company completes most projects within six months.
The Company generally recognizes revenue utilizing output measures, such as when
services are performed, units are delivered or when contract milestones are
reached. Additionally, in the Wireless Infrastructure Segment,

                                      F-7
<PAGE>

TTC and StarQuest recognize revenue when product is shipped and installation is
complete.

Revenue is reduced by appropriate allowances, estimated returns, price
concessions, and similar adjustments, as applicable.

Cost of Revenues: Cost of revenues consist primarily of purchases of goods that
are resold to customers, but also consist of salaries, wages and benefits to
employees, and other overhead expenses directly attributable to production.

Selling, General and Administrative Expenses: Selling, general and
administrative expenses consist primarily of sales and administrative salaries
and benefits, marketing, office rent and utilities, communications and
professional fees.

Cash and Equivalents: Cash and equivalents may include money market fund shares,
bank time deposits and certificates of deposits, and other instruments with
original maturities of three months or less. At August 31, 2003, the Company's
cash exceeded federally insured limits by approximately $270,000.

Marketable Securities: Marketable securities include common stocks classified as
"available for sale" in accordance with the provisions of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities". The securities are carried at fair value based on current
market quotations. Unrealized holding gains and losses, net of tax, are not
included in "net income", but are accounted for as "other comprehensive income"
and reflected as a separate component of the change in stockholders' equity. The
cost of securities used to compute realized gains and losses is based on
specifically identified securities. The fair value of investment securities is
determined by currently available market prices.

Accounts Receivable: Accounts receivable is stated at the amount billed to
customers. The Company provides allowances for doubtful accounts and for returns
and sales allowances, which are based upon a review of outstanding receivables,
historical information and existing economic conditions. Accounts receivable are
ordinarily due 30 days after the issuance of the invoice. Delinquent receivables
are written off based on individual credit evaluation and specific circumstances
of the customer. The Company's policy is not to accrue interest on past due
trade receivables.

Inventories: Inventories of raw materials are recorded at the lower of cost
(primarily first-in, first-out) or market value. Inventories of work-in-process
and finished goods include estimated direct labor, indirect labor, and other
manufacturing expenses applied as a function of material costs.

Shipping and Handling: Costs incurred for shipping and handling are included in
the Company's consolidated financial statements as a component of costs of
revenue.

Property, Equipment, and Depreciation: Property and equipment are carried at
cost and includes expenditures for new additions and those, which substantially
increase the useful lives of existing assets. Depreciation is computed at
various rates by use of the straight-line method and certain accelerated
methods. Depreciable lives are generally ranging from 3 to 39 years.

Expenditures for normal repairs and maintenance are charged to operations as
incurred. The cost of property or equipment retired or otherwise disposed of and
the related accumulated depreciation are removed from the accounts in the year
of disposal with the resulting gain or loss reflected in earnings or in the cost
of the replacement asset.

The provision for depreciation amounted to $222,000 and $42,000 for the years
ended August 31, 2003 and 2002, respectively.

Goodwill and Other Intangible Assets: The Company has adopted Statement of
Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible
Assets". With the adoption of SFAS No. 142, goodwill is no longer amortized but
instead is assessed for impairment at least as often as annually and as
triggering events occurs. In making this assessment, management relies on a
number of factors including operating results, business plans, economic
projections, anticipated future cash flows, and transactions and market place
data. There are inherent uncertainties related to these factors and management's
judgment in applying them to the analysis of goodwill impairment. Since

                                      F-8
<PAGE>

management's judgment is involved in performing goodwill and other intangible
assets valuation analyses, there is risk that the carrying value of the goodwill
and other intangible assets may be overstated or understated.

The Company has elected to perform the annual impairment test of recorded
goodwill as required by SFAS 142 as of the end of fiscal third quarter. The
results of this annual impairment test indicated that the fair value of each of
the reporting units as of May 31, 2003, exceeded the carrying, or book value,
including goodwill, and therefore recorded goodwill was not subject to
impairment.

Long-lived Assets: The Company periodically considers whether indicators of
impairment of long-lived assets are present. If such indicators are present, the
Company determines whether the sum of the estimated undiscounted cash flows
attributable to the assets in question is less than their carrying value. If
less, the Company recognizes an impairment loss based on the excess of the
carrying amount of the assets over their respective fair values. Fair value is
determined by discounted future cash flows, appraisals or other methods. If the
assets determined to be impaired are to be held and used, the Company recognizes
an impairment charge to the extent the present value of anticipated net cash
flows attributable to the asset are less than the asset's carrying value. The
fair value of the asset then becomes the asset's new carrying value, which the
Company depreciates over the remaining estimated useful life of the asset.
Long-lived assets including the Company's property, plant and equipment, are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability is
measured by comparison of the carrying amount to future net undiscounted cash
flows expected to be generated by the related asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount exceeds the fair market value of the assets.

Advertising Costs: Advertising costs including marketing, advertising,
publicity, promotion and other distribution costs, are expensed as incurred and
totaled $87,000 and $29,000 for the years ended August 31, 2003 and 2002,
respectively.

Fair Value of Financial Instruments: The fair value of financial instruments is
estimated using relevant market information and other assumptions.  Fair value
estimates involve uncertainties and matters of significant judgment regarding
interest rates, prepayments, and other factors. Changes in assumptions or market
conditions could significantly affect these estimates. The amounts reported in
the consolidated balance sheets for cash and equivalents, marketable securities,
receivables, and payables approximate fair value.

Stock-based Compensation: The Company has elected to account for all stock based
compensation in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25), and to adopt the
disclosure-only provisions as required under Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123), and
Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure (SFAS No. 148).

The Company accounts for stock awards to nonemployees in accordance with the
provisions of FAS 123 and FAS 148, and Emerging Issues Task Force Consensus No.
96-18 "Accounting for Equity Instruments That Are Issued to Other Than Employees
for Acquiring, or in Conjunction with Selling, Goods or Services" (EITF 96-18).
Under FAS 123, FAS 148, and EITF 96-18, stock awards issued to nonemployees are
accounted for at their deemed fair value based on independent valuations or by
using an option-pricing model, as appropriate.

Income (Loss) Per Common Share: Income (loss) per share has been computed in
accordance with SFAS No. 128, "Earnings Per Share." Under SFAS No. 128, basic
income (loss) per share is computed based on net income (loss) applicable to
common stock divided by the weighted average number of common shares outstanding
for the period. Diluted income (loss) per share is computed based on net income
(loss) applicable to common stock divided by the weighted average number of
shares of common stock outstanding during the period after giving effect to
securities considered to be dilutive common stock equivalents.

Income Taxes: The Company accounts for income taxes under the provisions of SFAS
No. 109, "Accounting for Income Taxes." Accordingly, deferred tax assets and
liabilities are determined based on differences between the financial reporting
and tax basis of

                                      F-9
<PAGE>

assets and liabilities and are measured using the enacted tax rates. The Company
files separate U.S., U.K., Singapore, and Malaysia income tax returns.

Research and Development Costs: Research and development costs are either
expensed as incurred, or capitalized if they have a future economic benefit.
There are no capitalized research and development costs as of August 31, 2003.

Self Insurance: The Company's Nor-Cote subsidiary has elected to act as a
self-insurer for certain costs related to employee health and accident benefit
programs. Costs resulting from non-insured losses are estimated and charged to
income when incurred. The Company has purchased insurance which limits its
annual exposure for individual claims to $30,000 and which limits its aggregate
annual exposure to approximately $250,000.

New Accounting Pronouncements: On December 31, 2002, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards No.
148, Accounting for Stock-Based Compensation - Transition and Disclosure (SFAS
No. 148). SFAS No. 148 amends FASB Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation (SFAS No. 123), to provide
alternative methods of transition to SFAS No. 123's fair value method of
accounting for stock-based employee compensation. SFAS No. 148 also amends the
disclosure provisions of SFAS No. 123 and Accounting Principles Board (APB)
Opinion No. 28, Interim Financial Reporting, to require disclosure in the
summary of significant accounting policies of the effect of an entity's
accounting policy with respect to stock-based employee compensation on reported
net income and earnings per share in annual and interim financial statements.
SFAS No. 148 is applicable to all companies with stock-based employee
compensation, regardless of whether they account for that compensation using the
fair value method of SFAS No. 123 or the intrinsic value method of APB Opinion
No. 25, Accounting for Stock Issued to Employees. The Company adopted the
disclosure provisions of SFAS 148 as of December 31, 2002.

In November of 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. Interpretation No. 45 requires certain
guarantees to be recorded at fair value and requires a guarantor to make
significant new disclosures, even when the likelihood of making any payments
under the guarantee is remote. Interpretation No. 45's initial recognition and
initial measurement provisions are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002; however, its disclosure
requirements are effective for financial statements of interim or annual periods
ending after December 15, 2002. Although the Company has provided indirect
guarantees on behalf of certain of its wholly-owned subsidiaries, the Company
believes that these guarantees are excluded from the scope of Interpretation No.
45. The Company will continue to evaluate what effect, if any, the recognition
and measurement provisions will have on its financial statements and related
disclosures in future periods.

In May 2003, the FASB issued Statement of Financial Accounting Standard No. 150
"Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity" (SFAS 150). SFAS 150 establishes standards for how
companies classify and measure certain financial instruments with
characteristics of both liabilities and equity. SFAS 150 requires financial
instruments meeting certain criteria to be reported as liabilities that were
previously reflected as equity or in between liabilities and equity. SFAS 150 is
effective for financial instruments entered into or modified after May 31, 2003,
and otherwise effective at the beginning of the first interim period beginning
after June 15, 2003.

In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
141, "Business Combinations". SFAS No. 141 eliminates the use of the
pooling-of-interests method of accounting for business combinations and
establishes the purchase method of accounting as the only acceptable method for
all business combinations initiated after June 30, 2001.

In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." This statement modifies existing generally accepted accounting
principles related to the amortization and impairment of goodwill and other
intangible assets. Upon adoption of the new standard, goodwill, including
goodwill associated with equity method investments, will no longer be amortized.
For the years ended August 31, 2003 and 2002,

                                      F-10
<PAGE>

NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (CONTINUED)

there was no goodwill amortization. In addition, goodwill, other than goodwill
associated with equity method investments, must be assessed at least annually
for impairment using a fair-value based approach. The Company adopted the
provisions of this statement effective September 1, 2001 and there was no
material impact on the consolidated financial statements.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 addresses accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. This statement is effective for fiscal years beginning
after June 15, 2002. The Company adopted the provisions of this statement
effective September 1, 2002 and there was no material impact on the consolidated
financial statements.

In July 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," which is effective for fiscal years beginning
after December 15, 2001. The provisions of this statement provide a single
accounting model for impairment of long-lived assets. The Company adopted the
provisions of this statement effective September 1, 2002 and there was no
material impact on the consolidated financial statements.

NOTE 2 - CHANGE IN CONTROL

Addition of Robert J. Kingston to the Control Group

Effective July 31, 2002, as part of the purchase price for 1,000 shares of the
common stock, no par value, of Kingston, constituting all of the outstanding
shares of Kingston's capital stock, pursuant to the terms of a Stock Purchase
Agreement by and among the Company, Kingston and Robert J. Kingston, Mr.
Kingston received 8,000,000 restricted shares of the Company's common stock.

In addition to the 8,000,000 shares of the Company's common stock, Mr. Kingston
also was paid, as part of the purchase price for his Kingston shares, $2,400,000
($3,000,000 closing payment less a $600,000 purchase adjustment). Mr. Kingston
received $3,000,000 at closing. Mr. Kingston paid the Company a purchase
adjustment amount of $600,000 based upon certain requirements in the Stock
Purchase Agreement and Amendment to the Stock Purchase Agreement in November
2002. The Stock Purchase Agreement also contains a maximum $250,000 contingency
payment to Mr. Kingston, as defined in the Stock Purchase Agreement. The payment
is contingent upon Kingston attaining certain cumulative earnings before income
tax (EBIT) requirements, as defined in the Stock Purchase Agreement, during the
period September 1, 2002 to August 31, 2004. In the event Kingston meets such
contingency requirements, the Company would be liable to Mr. Kingston for
varying amounts up to $250,000. This payment would be due to Mr. Kingston
between the dates of September 1, 2004 and December 15, 2004.

Also as part of the Stock Purchase Agreement, subject to the limitations and
restrictions described below, Mr. Kingston may, in his sole discretion, sell any
or all of the Company's common stock to the Company and the Company shall
purchase any of the Company's common stock offered by Mr. Kingston if any of the
following conditions are met (the "Put Option"): 1) If during the period
September 1, 2002 to August 31, 2004, Kingston's cumulative earnings before
income tax depreciation and amortization (EBITDA), as defined in the Stock
Purchase Agreement, is greater than $1,600,000: the Company shall have a cash
put at $.125 per share; 2) If during the period September 1, 2002 to August 31,
2004, Kingston's Cumulative EBITDA is greater than $2,000,000: the Company shall
have a cash put at $.175 per share; 3) If during the period September 1, 2002 to
August 31, 2004, Kingston's cumulative EBITDA is greater than $2,400,000: the
Company shall have a cash put at $.225 per share; 4) If during the period
September 1, 2002 to August 31, 2004, Kingston's cumulative EBITDA is greater
than $3,000,000: the Company shall have a cash put at $.300 per share. Mr.
Kingston may only exercise the Put Option during the period October 15, 2004 to
November 30, 2004. In addition, Mr. Kingston may only exercise the Put Option if
the average bid price per share during the period October 1, 2004 to October 31,
2004 is less than the proposed put price, or if the Company's stock is not
listed on the OTC Bulletin Board, the New York Stock Exchange, NASDAQ or another
nationally-recognized securities market or exchange during the period October 1,
2004 to October 31, 2004. Any closing on a sale of the Company's

                                      F-11
<PAGE>

NOTE 2 - CHANGE IN CONTROL (CONTINUED)

Stock to the Company shall occur within ninety (90) days of the Company's
receipt of written notice from Mr. Kingston requesting exercise of his put
option.

Mr. Kingston will continue as President of Kingston under the terms of an
employment agreement, dated July 31, 2002 and incorporated into the Stock
Purchase Agreement as an exhibit.

Mr. Kingston is subject to a non-compete agreement, dated July 31, 2002 and
incorporated into the Stock Purchase Agreement as an exhibit.

A Lease was entered into by Kingston Design, LLC, a Company controlled by Mr.
Kingston and Kingston. Said lease is for the facility in which Kingston
currently operates, and was incorporated into the Stock Purchase Agreement as an
exhibit.

Mr. Kingston was elected to the Board of Director's of the Company by
shareholders Messrs. Fisbeck and Fortune without a meeting by written consent
pursuant to Section 228 of the General Corporation Law of the State of Delaware
in lieu of holding a meeting. Such election was agreed to in writing in a
document entitled Voting Agreement, dated July 31, 2002, which is an exhibit of
the Stock Purchase Agreement.

Mr. Kingston was granted Piggy-Back Registration Rights as part of a
Registration Rights Agreement, and an exhibit of the Stock Purchase Agreement,
dated July 31, 2002 by and between Fortune Diversified Industries, Inc. and
Robert J. Kingston.

Mr. John Fisbeck entered into a written Guaranty, and an exhibit of the Stock
Purchase Agreement, dated July 31, 2002, in consideration of Mr. Kingston
entering into the Purchase Agreement and agreeing to close the transactions
contemplated therein, to which he guaranteed the Company's payment and
performance of its obligations arising under and with respect to the Put Option.

Mr. Carter Fortune also entered into a written Guaranty, and an exhibit of the
Stock Purchase Agreement, dated July 31, 2002 in consideration of Mr. Kingston
entering into the Purchase Agreement and agreeing to close the transactions
contemplated therein, to which he guaranteed the Company's payment and
performance of its obligations arising under and with respect to the Put Option.

Messrs. Fisbeck and Fortune entered into an arrangement whereby Mr. Fisbeck will
indemnify and hold harmless Mr. Fortune for a percentage of any losses that Mr.
Fortune may suffer as a result of Mr. Fortune's guarantee of the loan held by
the Company with Merrill Lynch Business Financial Services, Inc. Such
indemnification and hold harmless agreement is on a pro-rata basis of the
relative shareholdings in the Company of Mr. Fortune and Mr. Fisbeck.

Although Messrs. Fisbeck, Fortune and Kingston have taken ownership of the
Company's stock in their individual names and Mr. Kingston has individually
supplied his ownership in Kingston in consideration for the acquisition of his
Fortune Diversified common stock, Messrs. Fisbeck, Fortune and Kingston may be
considered to be acting together for the purpose of acquiring and holding the
stock since Messrs. Fisbeck and Fortune previously signed Stock Purchase
Agreements to initially acquire control of the Company and Mr. Kingston's
acquisition of shares was not in the ordinary course of his business and may be
deemed to have arisen in a transaction having the purpose or effect of
influencing control of the Company, under Rule 13d-5(b)(2)(ii).

Addition of Norman G. Wolcott, Jr. and Norman G. Wolcott, Jr. Trust to the
Control Group
--------------------------------------------------------------------------

Effective as of July 1, 2003, the Company acquired all of the outstanding shares
of common and preferred stock of Nor-Cote International, Inc. as a part of a
transaction pursuant to the terms of a Stock Exchange Agreement by and among
Nor-Cote International, Inc., an Illinois corporation, and its subsidiaries;
Norman G. Wolcott, Jr., individually; Norman G. Wolcott, Jr. and Norman G.
Wolcott, Sr., as co-trustees of the Norman G. Wolcott, Sr. and Lucile H. Wolcott
Revocable Trust of 1995 ("Wolcott Trust"); First Bankers Trust Company, as
trustee under the Trust Agreement for the Nor-Cote International, Inc. Employee
Stock Ownership Plan Trust ("Trustee"); and the Company as Buyer.

The Stock Exchange Agreement's terms include, among other things, the exchange
of a total of 1,451,985.47 shares of Nor-Cote's common stock by Norman G.
Wolcott, Jr. and

                                      F-12
<PAGE>

NOTE 2 - CHANGE IN CONTROL (CONTINUED)

the Wolcott Trust, and a total of 747,992.51 shares of Nor-Cote's preferred
stock by the Trustee, in exchange for certain shares of the Company held by its
wholly owned subsidiary, Nor-Cote Acquisition, Inc. The Company's shares were
exchanged at a ratio of eight and five hundred and thirty four thousandths
(8.534) shares for each share of the Nor-Cote's common stock and thirteen and
two hundred and forty seven thousandths (13.247) shares for each share of
Nor-Cote's preferred shares exchanged. The Company exchanged 12,391,244 of its
own shares to Norman G. Wolcott, Jr. and the Wolcott Trust and exchanged
7,668,364 of its own shares to the Trustee. The Company issued an additional
2,237,531 restricted shares to key employees, contingent on the fulfillment of
services in the employee's respective employment agreement.

The disposition of the Company's shares held by Norman G. Wolcott, Jr. and the
Wolcott Trust (collectively, "Common Stock Sellers") is substantially restricted
by an Option Agreement. Common Stock Sellers shall each have the option to put
any or all of the Company's stock received by them to Mr. Fortune and Mr.
Fortune shall have the option to call any or all of the Company's stock from
each of the Common Stock Sellers. The put price and the call price shall be the
same (the "put/call price") and the put/call price shall be dependent upon
Nor-Cote's cumulative Adjusted EBITDA during the three-year period July l, 2003
to June 30, 2006. If Nor-Cote's cumulative Adjusted EBITDA during the Test
Period is at least $4,683,000, the put/call price per share shall be $.3365. The
put/call price shall, however, be decreased in proportion to the amount by which
Nor-Cote's cumulative Adjusted EBITDA during the Test Period is less than
$4,683,000, as defined in the Stock Exchange Agreement. Common Stock Sellers may
only exercise the put option and Mr. Fortune may only exercise the call option
during the period September 1, 2006 to September 30, 2006. Any closing on a sale
of the Company's stock to Fortune shall occur within ninety (90) days of a
party's receipt of written notice from the other party requesting exercise of
his put or call option. All of the Company's stock received by them shall be
retained by each of the Common Stock Sellers until (i) the exercise of the put
and call options or (ii) the expiration of the exercise period (including any
extensions) for such put and call options without exercise of such put and call
options. In addition, Mr. Fortune shall have an option to call any or all of the
Company's stock at the call price per share of $.3365 at any time during the
three-year period July 1, 2003 to June 30, 2006.

Mr. Wolcott Jr. will continue as Chairman of Nor-Cote under the terms of an
employment agreement dated July 1, 2003 and incorporated into the Stock Purchase
Agreement as an exhibit. The employment agreement is effective July 1, 2003 to
and including June 30, 2006, unless terminated pursuant to agreement terms.
Prior to the Agreement, there was no material relationship between the Company
and Norm Wolcott.

Mr. Wolcott Jr. is subject to a non-compete agreement and is incorporated into
the employment agreement dated July 1, 2006. The non-compete agreement is in
effect as of the date of purchase and continues until two years after his
employment ceases.

Effective as of October 1, 2003, the Company has entered into the following
agreements:
---------------------------------------------------------------------------

Agreement and Plan of Merger by and among Professional Staff Management, Inc.
("PSM"), an Indiana corporation, PSM Acquisition, Inc., an Indiana corporation
and wholly owned subsidiary of the Company, Harlan Schafir, and the Company.
Agreement and Plan of Merger by and among Professional Staff Management, Inc. II
("PSM II"), an Indiana corporation, PSM Acquisition II, Inc., an Indiana
corporation and wholly owned subsidiary of the Company, Harlan M. Schafir, and
the Company. Agreement and Plan of Merger by and among Pro Staff, Inc.
("Pro-Staff"), an Indiana corporation, PSM Acquisition III, Inc., an Indiana
corporation and wholly owned subsidiary of the Company, Harlan M. Schafir, and
the Company. (collectively, "Merger Agreements")

The Merger Agreements' terms include, among other things, the exchange of all of
the outstanding shares of PSM (125 shares); PSM II (500 shares); and Pro Staff
(500 shares), all held by Harlan M. Schafir, for a total of 13,100,000 shares of
the Company's common shares. The Company formed three wholly-owned subsidiaries,
PSM Acquisition, Inc.; PSM Acquisition II, Inc.; and PSM Acquisition III, Inc.
The Company's shares were exchanged at the following ratios: Sixty-Six Thousand,
Twenty-Four (66,024) shares of the Company's common stock for each share of
PSM.; Four Thousand, Four Hundred Fifty-Four (4,454) shares of the Company's
common stock for each share of PSM II; and, Five Thousand, Two Hundred Forty
(5,240) shares of the Company's common stock for each share of Pro Staff. The
Company exchanged a total of 13,100,000 shares as follows: Eight Million, Two
Hundred Fifty Three Thousand (8,253,000) shares for the shares of PSM; Two
Million, Two Hundred Twenty Seven Thousand (2,227,000)

                                      F-13
<PAGE>

shares for the shares of PSM II; and Two Million, Six Hundred Twenty Thousand
(2,620,000) shares for the shares of Pro Staff.

The disposition of the Company's shares held by Mr. Schafir is substantially
restricted by two Option Agreements. The first is an Option Agreement entered
into the 1st day of October, 2003 by and between Harlan M. Schafir and Carter M.
Fortune and Robert J. Kingston (collectively, "Shareholders"); the second is an
Option Agreement entered into the 1st day of October, 2003 by and between Harlan
M. Schafir, and the Company. (collectively, "Option Agreements"). Mr. Schafir
shall have the option to put any or all of the FDI Stock received by him to the
Shareholders or the Company, according to the terms of these Agreements.

Exercise of Put Options. If Schafir desires to sell any or all of the
Schafir Distributed Stock, Schafir shall simultaneously make demand upon Carter
M. Fortune, Robert J. Kingston, FDI and Company:


(i)      Within ten (10) days of demand, Carter M. Fortune and Robert J.
         Kingston shall comply with the terms of the Option Agreement
         (Fortune/Kingston/Schafir);

(ii)     If Carter M. Fortune and Robert J. Kingston fail to comply with the
         terms of the Option Agreement (Fortune/Kingston/Schafir) then to the
         extent of Carter M. Fortune's and Robert J. Kingston's non-compliance
         within twenty (20) days of demand, Parent and Company shall comply with
         the terms of the Option Agreement (FDI/Schafir);

(iii)    If FDI and Company fails to comply with the terms of the Option
         Agreement (FDI/Schafir) then to the extent of FDI's and Company's
         non-compliance within thirty (30) days of demand, Schafir may then
         execute upon the Merrill Lynch Pledged Collateral Account Control
         Agreement (relating to Carter M. Fortune) attached hereto as Exhibit D,
         the Merrill Lynch Pledged Collateral Account Control Agreement
         (relating to Robert J. Kingston) attached hereto as Exhibit E and the
         Merrill Lynch Pledged Collateral Account Control Agreement (relating to
         FDI) on a pro-rata basis based upon the market value of the assets
         contained in each of the pledged collateral accounts.

The put price shall be dependent upon PSM, PSM II, and ProStaff combined
cumulative EBITDA during the three-year period October l, 2003 to September 30,
2006 ("Regular Test Period"), as defined in the agreement.

Mr. Schafir will continue as Chairman of PSM under the terms of an employment
agreement dated October 1, 2003 and incorporated into the Stock Purchase
Agreement as an exhibit. The employment agreement is effective October 1, 2003
to and including September 30, 2006, unless terminated pursuant to agreement
terms. Prior to the Agreement, there was no material relationship between the
Company and Norm Wolcott.

Mr. Schafir is subject to a non-compete agreement and is incorporated into the
employment agreement dated October 1, 2003. The non-compete agreement is in
effect as of the date of purchase and continues until two years after his
employment ceases.

John F. Fisbeck, Carter M. Fortune, Robert J. Kingston, Norman G. Wolcott, Jr.
and Norman G. Wolcott, Jr., and Norman G. Wolcott, Sr. as Trustees ("Trustees"),
and Mr. Schafir, may be considered members in a "group" within the meaning of
Rule 13d-5(b)(1). Although Messrs. Fisbeck, Fortune, Kingston, Wolcott, Jr., and
Schafir have taken ownership of the FDVI stock in their individual names and
Trustees have taken ownership in a trust capacity, and Mr. Schafir has
individually supplied ownership interests in Professional Staff Management,
Inc., Professional Staff Management, Inc. II, and Pro Staff, Inc., in
consideration for the acquisition of his shares of Registrant's common stock,
Messrs. Fisbeck, Fortune, Kingston, Wolcott, Jr., Schafir and Trustees may be
considered to be acting together for the purpose of acquiring and holding the
stock since Messrs. Fisbeck and Fortune previously signed Stock Purchase
Agreements to initially acquire control of FDVI, and the other shareholders
identified herein made acquisitions of shares not in the ordinary course of his
business and such acquisitions may be deemed to have arisen in a transaction
having the purpose or effect of influencing control of Registrant, under Rule
13d-5(b)(2)(ii).

                                      F-14
<PAGE>

Messrs. Fisbeck, Fortune, Kingston, Wolcott and Schafir, along with Trustees,
are considered members of a group deemed to beneficially own 93,491,375 shares
of FDVI common stock representing 92% of the outstanding common stock of
Registrant, which totals 101,316,444 shares. Individually, each person has sole
dispositive and voting power over the following shares of common stock: John F.
Fisbeck, 18,087,023, (or 17.852%), Carter M. Fortune, 42,013,108 (or 41.467%)
Robert J. Kingston, 7,900,000 (or 7.797%), Norman G. Wolcott, Jr., individually,
7,266,084 (or 7.172%), Norman G. Wolcott Sr., and Norman G. Wolcott Jr., as
Co-Trustees, 5,125,160 (or 5.059%), and Harlan M. Schafir, 13,100,000 (or
12.930%).

NOTE 3 - ACQUISITIONS

PDH, Inc. Purchase of Certain DicksonHughes Group, LLC Assets
-------------------------------------------------------------

PDH, Inc. ("PDH"), an Indiana corporation and wholly-owned subsidiary of the
Company, acquired certain assets of DicksonHughes Group, LLC ("DHG"), an Indiana
limited liability company, through an Asset Purchase Agreement dated January 18,
2002 ("DHG Agreement"). The assets were acquired through DHG. Messrs. Thimlar,
Hughes and Dickson were parties to the DHG Agreement for purposes of certain
covenants not to compete and indemnification provisions of the Agreement. There
was no material relationship between the Company or PDH and DHG or Messrs.
Thimlar, Hughes and Dickson. DHG used the physical assets in multiple aspects of
its business; the Company has devoted the physical assets to its existing
Wireless Infrastructure Segment. This transaction was considered an acquisition
of productive assets and not considered a business combination. However, some of
the standards of accounting for business combinations, including certain
disclosures, are considered relevant and have been applied whenever practicable.
The results of the assets acquired from DHG have been included in the
accompanying consolidated statement of operations from the date of acquisition.
The assets acquired included certain of the DHG's accounts receivable,
work-in-process, prepaid expenses, software, computer hardware and fixtures, and
backlog. The nature and amount of consideration given for the acquired assets
was Seven Hundred Forty Thousand ($740,000.00), which was subject to adjustments
as described in the Agreement, however no adjustments were warranted. There were
no liabilities assumed in this transaction. The source of the funds used for the
acquisition was cash held by the Company prior to the Agreement. The
consideration paid was based upon the fair market value of the individual
tangible assets acquired, as such, the entire purchase price was allocated to
tangible assets. The aggregate purchase price of the acquisition was $740,000.
The following is a condensed balance sheet disclosing the amount assigned to
each major asset caption acquired from DHG at the acquisition date:

  Accounts receivable                                            $386,000
  Work in progress                                                137,000
  Prepaid expenses                                                  8,000
  Vehicles, equipment and leasehold improvements                  209,000
                                                               ----------
  Cash consideration paid                                        $740,000
                                                               ==========

Kingston Sales Corporation
--------------------------

The Company acquired from Robert J. Kingston 1,000 shares of the common stock,
no par value, of Kingston Sales Corporation (an Indiana Corporation),
constituting all of the outstanding shares of Kingston's capital stock, pursuant
to the terms of a Stock Purchase Agreement by and among Fortune Diversified
Industries, Inc., Kingston Sales Corporation and Robert J. Kingston, effective
July 31, 2002. Kingston is an industry-leading manufacturers' representative and
distributor for prominent national companies in the electronic, sound, security,
and video markets. Kingston offers the latest technology in TVs, sound systems,
electronic locking devices, wire, cable and fiber optics, and intercom systems.
The Company intends for Kingston, as a wholly-owned subsidiary of the Company,
to continue to operate as it did prior to the acquisition in its Manufacturing
and Distribution segment. The transaction was accounted for using the purchase
method of accounting. The source of funds for the transaction came from a loan
from a financial institution (see Note 10). The purchase price was payable in
cash of $3,000,000 paid at closing less a purchase adjustment amount of $600,000
based upon certain requirements in the Stock Purchase Agreement and proposed
Amendment to the Stock Purchase Agreement paid to the Company by Mr. Kingston in
November 2002. There is also a $250,000 contingent payment that is part of the
Stock Purchase Agreement due on or before December 15, 2004. The payment of any
or all of the $250,000 to Mr. Kingston, on or before December 15, 2004, is
contingent upon Kingston attaining certain cumulative earnings before income tax
(EBIT) requirements, as described in the Stock Purchase Agreement, during the
period September 1, 2002 to August 31, 2004. This

                                      F-15
<PAGE>

NOTE 3 - ACQUISITIONS (CONTINUED)

contingent consideration will be recorded as an additional cost of the
acquisition when the contingency is resolved, which is anticipated sometime in
2004. The fair market value of the 8,000,000 shares of the Company's common
stock of $80,000 (which was based upon the bid price discounted for various
factors, including liquidity) was also included as part of the purchase price.
The excess of the aggregate purchase price over net assets was $1,636,000, which
has been allocated between goodwill, customer relationships, and the non-compete
agreement based on management's assessment as required by SFAS No. 141,
"Business Combinations". The following is a condensed balance disclosing the
amount assigned to each major asset and liability caption of Kingston at the
acquisition date:

  Accounts receivable                                           $1,373,000
  Inventory                                                        747,000
  Vehicles, equipment and leasehold improvements                   363,000
  Goodwill                                                         876,000
  Customer relationships                                           526,000
  Non-compete agreement                                            234,000
                                                                ----------
                                                                 4,119,000
                                                                ----------
  Accounts payable                                                 668,000
  Accrued expenses and other current liabilities                    59,000
  Deferred revenue                                                 235,000
  Line of credit                                                   649,000
  Long-term debt                                                    28,000
                                                                ----------
                                                                 1,639,000
                                                                ----------
                                                                $2,480,000
                                                                ==========

  Cash consideration paid as of 8/31/02                         $3,000,000
  Purchase adjustment receivable at 8/31/02                       (600,000)
                                                                ----------
                                                                 2,400,000
                                                                ----------
  Fair value of common stock consideration                          80,000
                                                                ----------
                                                                $2,480,000
                                                                ==========
Telecom Technology Corp.
------------------------

TTC Acquisition Company ("TTC"), an Indiana corporation and wholly-owned
subsidiary of the Company, acquired certain assets and assumed certain
liabilities of Telecom Technology Corp. ("Telecom"), an Indiana corporation, and
Michael W. Grothe, through an Asset Purchase Agreement effective as of September
1, 2002 ("TTC Agreement"). Mr. Grothe is party to the TTC Agreement and is
subject to an Employment Agreement. Prior to the TTC Agreement, there was no
material relationship between the Company and Telecom or Mr. Grothe. Telecom
provides cable and wiring solutions for interactive communication and networking
data transmission. The Company has devoted the assets of TTC to its existing
Wireless Infrastructure Segment. The assets acquired include certain of
Telecom's work-in-process, software and related assets, fixed assets, equipment
and machinery, computer hardware and fixtures, a complete customer list,
intellectual property, sales proposals and like documents and contracts,
inventory, accounts receivable, intangible assets, prepaid expenses, and cash
and cash equivalents. TTC accepted and assumed $45,000 of specifically
identified accounts payable and all of Sellers' rights and executory obligations
under the Assumed Contracts to be performed after the Closing Date (excluding
any obligations or liabilities of Sellers under any Assumed Contracts that were
to have been performed, fulfilled or satisfied on or prior to the Closing Date).
In addition to the assumed liabilities, the consideration given for the acquired
assets was $125,952 cash and 450,000 restricted shares of the Company's common
stock, of which 200,000 shares vested immediately and 250,000 shares are subject
to adjustments as described in the TTC Agreement. As of August 31, 2003, 200,000
of the 450,000 shares have been issued.

                                      F-16
<PAGE>

NOTE 3 - ACQUISITIONS (CONTINUED)

In addition, the Company, through TTC and an Asset Purchase Agreement effective
as of September 1, 2002 ("Hagan Agreement"), acquired the customer lists, and
other business assets of Pat Hagan, who is employed by TTC. The assets were
acquired through Telecom. Mr. Hagan is a party to the Hagan Agreement and is
subject to an Employment Agreement. Prior to the Hagan Agreement, there was no
material relationship between the Company and Mr. Hagan. The consideration given
for the acquired assets was $1.00 cash and 250,000 restricted shares of the
Company's common stock, which are subject to adjustments as described in the
Hagan Agreement. As of August 31, 2003, none of the 250,000 shares have been
issued.

These two agreements were considered together as one transaction and are being
accounted for using the purchase method of accounting.

The impact of this acquisition was not material in relation to the Company's
balance sheet. Historical operations for August 31, 2002 are included in the
Company's unaudited pro forma data disclosed in Note 3.

StarQuest Wireless
------------------

StarQuest Wireless, Inc ("StarQuest"), an Indiana corporation and wholly-owned
subsidiary of TTC, acquired certain assets of StarQuest Wireless, LLC ("SWL"),
Noel Kaplan and Steve Cochran, through an agreement entered into on October 31,
2002 and effective October 9, 2002 by and among StarQuest, SWL, Mr. Kaplan and
Mr. Cochran ("SWI Agreement"). The purchased assets and assumed liabilities were
used or useful in connection with the business of selling, installing or
maintaining satellite television systems. The Company has devoted the assets to
its existing Wireless Infrastructure Segment. The transaction was accounted for
under the purchase method of accounting. The assets acquired included a complete
list of customers current as of the Closing Date, all accounts receivable, all
sales agency and similar agreements with satellite television providers
(including, but not limited to, DirecTV, Echostar, Pegasus and Musicland), and
the telephone numbers used in conjunction with the sellers' operations. The
Company accepted and assumed all of sellers' rights and executory obligations
under the assumed contracts to be performed after the Closing Date (excluding
any obligations or liabilities of the sellers under any assumed contracts that
were to have been performed, fulfilled or satisfied on or prior to the Closing
Date). The consideration given for the acquired assets was $1.00 cash and
600,000 (300,000 shares each to Cochran and Kaplan) of restricted shares of the
Company's common stock, which are subject to adjustments as described in the
StarQuest Agreement. As of August 31, 2003 none of the 600,000 shares were
issued.

The impact of this acquisition was not material in relation to the Company's
balance sheet. Historical operations for August 31, 2002 are included in the
Company's unaudited pro forma data in Note 3.

Nor-Cote International, Inc. and Subsidiaries
---------------------------------------------

Nor-Cote Acquisition Company, a wholly owned subsidiary of the Company, acquired
1,451,985.47 shares of common stock and of 747,992.51 shares of preferred stock
of Nor-Cote International, Inc an Illinois corporation, and subsidiaries,
constituting all of the outstanding shares of Nor-Cote International, Inc.,
pursuant to the terms of a Stock Purchase Agreement by and among Nor-Cote
International, Inc., an Illinois corporation, and its subsidiaries; Norman G.
Wolcott, Jr., individually; Norman G. Wolcott, Jr. and Norman G. Wolcott, Sr.,
as co-trustees of the Norman G. Wolcott, Sr. and Lucile H. Wolcott Revocable
Trust of 1995 ("Wolcott Trust"); First Bankers Trust Company, as trustee under
the Trust Agreement for the Nor-Cote International, Inc. Employee Stock
Ownership Plan Trust ("Trustee") and the Company, effective July 1, 2003.
Nor-Cote is engaged in the business of developing, producing and selling

                                      F-17
<PAGE>

ultraviolet ink products. The Company intends to continue to operate and expand
Nor-Cote's business.

The Company exchanged 12,391,244 of its own shares to Norman G. Wolcott, Jr. and
the Wolcott Trust and exchanged 7,668,364 of its own shares to the Trustee. The
7,668,364 shares were transferred back to the Company and retired and applied as
payment on an inside loan payable from the ESOP to Nor-Cote in the principal
amount of $6,028,991.01. The debt was non recourse to the ESOP but was
collateralized by 578,875.512 preferred shares that were unallocated to
Nor-Cote's ESOP participants. As of the date of this filing the ESOP is in the
process of termination and the parties agree that the consideration paid to the
Preferred Stock Shareholders constitute full and complete payment and
satisfaction to the Preferred Stock Seller.

In addition to the exchange described above, Norman G. W Wolcott, Jr. and the
Wolcott Trust received one million eight hundred thousand dollars
($1,800,000.00) in cash. The Trustee received eight hundred ninety three
thousand, six hundred eight dollars ($893,608.00) for one hundred sixty nine
thousand one hundred sixteen and 998/1000 (169,116.998) preferred shares of
Nor-Cote held by the Trustee. The cash to be allocated to Nor-Cote's ESOP
participants upon formal termination of the ESOP Agreement as discussed in Note
23, remains in a trust account at August 31, 2003.

The source of funds for the transaction came from an unsecured line of credit
from a stockholder and from a loan from a financial institution (see Note 10).
The fair market value of the 22,293,179 shares of the Company's common stock of
$1,606,000 (which was based upon an independent valuation based on the bid price
discounted for various factors, including liquidity)-was also included as part
of the purchase price. In addition to the assumed liabilities, the aggregate
purchase price of the acquisition was $4,300,000 of which $1,684,000 consists of
goodwill and customer relationships. The following is a condensed balance
disclosing the amount assigned to each major asset and liability caption of
Nor-Cote at the acquisition date:

Cash and cash equivalents                                  $ 1,014,000
Investments                                                    314,000
Accounts receivable                                          1,561,000
Inventory                                                    1,068,000
Prepaid expenses and other current assets                      577,000
PP&E                                                         2,056,000
Intangible assets                                              424,000
Goodwill                                                     1,260,000
Other non-current assets                                       199,000
                                                          ------------

                                                             8,473,000
                                                          ------------

Accounts payable                                               495,000
Accrued expenses and other current liabilities               1,365,000
Long-term debt                                               2,313,000
                                                          ------------

                                                             4,173,000
                                                          ------------

                                                             4,300,000
                                                          ============

Cash consideration                                           2,694,000

Fair value of common stock consideration                     1,606,000
                                                          ------------

                                                             4,300,000
                                                          ============

                                      F-18
<PAGE>

NOTE 3 - ACQUISITIONS (CONTINUED)

Cornerstone Construction Wireless Services
------------------------------------------
Cornerstone Construction is an Indiana corporation and is a wholly owned
subsidiary of the Company. Cornerstone Construction was initially established on
October 24, 2001. On March 1, 2003, Cornerstone Construction and Carter M.
Fortune entered into an Agreement for Purchase and Sale of Assets by which Mr.
Fortune purchased substantially all of the assets and property owned by
Cornerstone Construction that were used in connection with the business. The
nature and amount of consideration given for the acquired assets and property
was two hundred ninety-eight thousand, two hundred forty dollars and twenty-two
cents ($298,240.22). On August 15, 2003, Carter M. Fortune and Cornerstone
Construction entered into an Agreement for Purchase and Sale of Assets by which
Cornerstone Construction purchased substantially all of the assets and
properties owned by Mr. Fortune that were used in connection with the
construction business. Mr. Fortune received one hundred eighty-nine thousand,
one hundred eighty-one dollars and seventeen cents ($189,181.17) for the assets
and property.


ACQUISITIONS SUBSEQUENT TO YEAR ENDED AUGUST 31,2003
----------------------------------------------------

Professional Staff Management, Inc.
-----------------------------------
On October 1, 2003, the Company acquired all of the outstanding shares of common
stock, no par value, of Professional Staff Management, Inc., Professional Staff
Management, Inc. II, and Pro Staff, Inc. pursuant to the following agreements:

     AGREEMENT AND PLAN OF MERGER entered into the 1st day of October, 2003, by
     and among Professional Staff Management, Inc., an Indiana corporation, PSM
     Acquisition, Inc., an Indiana corporation and wholly owned subsidiary of
     Registrant, Harlan M. Schafir, and Registrant.

     AGREEMENT AND PLAN OF MERGER entered into the 1st day of October, 2003 by
     and among Professional Staff Management, Inc. II, an Indiana corporation,
     PSM Acquisition II, Inc., an Indiana corporation and wholly owned
     subsidiary of Registrant, Harlan M. Schafir, and Registrant.

     AGREEMENT AND PLAN OF MERGER entered into the 1st day of October, 2003 by
     and among Pro Staff, Inc., an Indiana corporation, PSM Acquisition III,
     Inc., an Indiana corporation and wholly owned subsidiary of Registrant,
     Harlan M. Schafir, and Registrant.

The agreements were intended to qualify as a "reorganization" pursuant to the
provisions of Section 368 of the Internal Revenue Code and specifically as a
reverse-triangular merger under Code Section 368(a)(2)(E). For accounting
purposes the business combination is being accounted for as a purchase under
SFAS No. 141, "Business Combinations". The Merger Agreements' terms include,
among other things, the exchange of all of the outstanding shares of
Professional Staff Management, Inc. (125 shares); Professional Staff Management,
Inc., II (500 shares); and Pro Staff, Inc. (500 shares), all held by Harlan M.
Schafir, for a total of 13,100,000 shares of the the Company's common shares.
The Company formed three wholly-owned subsidiaries, PSM Acquisition, Inc.; PSM
Acquisition II, Inc.; and PSM Acquisition III, Inc. The Company's shares were
exchanged at the following ratios: Sixty-Six Thousand, Twenty-Four (66,024)
shares of The Company's common stock for each share of Professional Staff
Management, Inc.; Four Thousand, Four Hundred Fifty-Four (4,454) shares of The
Company's common stock for each share of Professional Staff Management, Inc. II;
and, Five Thousand, Two Hundred Forty (5,240) shares of The Company's common
stock for each share of Pro Staff, Inc. The Company exchanged a total of
13,100,000 shares as follows: Eight Million, Two Hundred Fifty Three Thousand
(8,253,000) shares for the shares of Professional Staff Management, Inc.; Two
Million, Two Hundred Twenty Seven Thousand (2,227,000) shares for the shares of
Professional Staff Management, Inc. II; and Two Million, Six Hundred Twenty
Thousand (2,620,000) shares for the shares of Pro Staff, Inc.

In addition to the exchanges described above, Mr. Schafir received a total of
one million dollars ($1,000,000.00) in cash. The cash was allocated as follows:
Six Hundred Thirty Thousand Dollars ($630,000.00) for Professional Staff

                                      F-19
<PAGE>

NOTE 3 - ACQUISITIONS (CONTINUED)

Management, Inc.; One Hundred Seventy Thousand ($170,000.00) for the
Professional Staff Management, Inc. II; and Two Hundred Thousand Dollars
($200,000.00) for Pro Staff, Inc.

The principle followed in determining the amount of consideration paid was the
ongoing value of the three companies, with adjustments thereto for certain
aspects of the transaction, including earnings benchmarks as defined by the
Agreement. Professional Staff Management, Inc., Professional Staff Management,
Inc. II, and Pro Staff, Inc. were acquired through the parties identified above.
Prior to the Merger Agreements, there was no material relationship between the
Company or any of its subsidiaries and the exchanging parties identified above.
The source of the Company's consideration included the Company's shares, and
cash held by the Company prior to the Agreement.

Professional Staff Management, Inc., Professional Staff Management, Inc. II, and
Pro Staff, Inc. provide cost-effective employee administrative solutions to
companies in more than 20 states nationwide. The three companies are engaged in
providing services in employment-related matters, such as Payroll and Tax
Processing, Worker's Compensation and Risk Management, Benefits Administration,
Unemployment Administration, Legal and Regulatory Employer Compliance, 401k and
Retirement Plan Administration and Employee Assessments. The Company intends to
continue to operate and expand the three companies' business.

The following unaudited pro forma data summarize the results of operations for
the periods indicated as if the Kingston, TTC, Starquest, and Nor-Cote
acquisitions had been completed as of the beginning of the periods presented.
Additionally, the unaudited pro forma data includes the results of operations
for Cornerstone Construction for the entire year, as if the Company owned
Cornerstone Construction for the entire year. The pro forma data give effect to
actual operating results prior to the acquisitions and adjustments to interest
expense and income taxes. No effect has been given to cost reductions or
operating synergies in this presentation. These pro forma amounts do not purport
to be indicative of the results that would have actually been achieved if the
acquisition had occurred as of the beginning of the periods presented or that
may be achieved in the future. The PSM acquisition is not included in the
unaudited pro forma as historical financial data of PSM is not available at the
time of this filing.

                                                     Year Ended    Year Ended
                                                     August 31,    August 31,
                                                        2003          2002

Net revenue                                          $24,437,000   $23,472,000
Cost of revenues                                      16,106,000    16,333,000
                                                     -----------   -----------
Gross profit                                           8,331,000     7,139,000
Operating expenses                                     8,268,000     8,066,000
                                                     -----------   -----------
Operating income                                          64,000      (927,000)
Other income (expenses)                                 (187,000)   (1,227,000)
                                                     -----------   -----------
Net loss                                             $  (123,000)  $(2,154,000)
                                                     ===========   ===========


Basic Loss Per Share:                                $     (0.00)  $     (0.03)
                                                     ===========   ===========


Diluted Loss Per Share:                              $     (0.00)  $     (0.02)
                                                     ===========   ===========

Shares Outstanding:
     Basic weighted average number of common shares
      outstanding                                     88,216,444    88,216,444
     Dilutive effect of conversion of options            900,000       900,000
                                                     -----------   -----------
         Total Shares Outstanding                     89,116,444    89,116,444
                                                     ===========   ===========

At August 31, 2003 and 2002, all common stock equivalents were anti-dilutive.

                                      F-20
<PAGE>

NOTE 4 - ACCOUNTS RECEIVABLE

     Accounts receivable include the following at August 31:

                                                          2003          2002
                                                       ----------    ----------
     Amounts currently due                             $4,779,000    $2,341,000
     Less allowance for doubtful accounts                (338,000)     (100,000)
     Less allowance for sales returns                    (135,000)     (100,000)
                                                       ----------    ----------
                                                       $4,306,000    $2,141,000
                                                       ==========    ==========

NOTE 5 - INVENTORIES

     Inventories include the following at August 31:

                                                          2003          2002
                                                       ----------    ----------
     Raw materials                                     $  354,000    $      -0-
     Work-in-process                                       22,000           -0-
     Finished goods                                     1,619,000       559,000
     Less inventory reserves                             (139,000)      (50,000)
                                                       ----------    ----------
                                                       $1,856,000    $  509,000
                                                       ==========    ==========

NOTE 6 - NOTES RECEIVABLE

     The Company periodically enters into restricted stock agreements with
     employees. The Company purchased back 200,000 shares in December 2002, and
     4,000,000 shares in April 2002, of restricted stock which were issued
     pursuant to various agreements with key employees. The 200,000 shares were
     held as treasury until August 31, 2003, at which time they were cancelled.
     The 4,000,000 shares were held as treasury stock until July 31, 2002, when
     they were cancelled. The 4,200,000 shares of treasury stock were paid for
     by canceling the recourse promissory notes totaling $630,000. At the time
     of cancellation of the promissory notes, the Company forgave the accrued
     interest of approximately $28,000 as part of a termination agreement.

     The notes receivable outstanding at August 31, 2003 and 2002, amounted to
     $0 and $30,000, respectively. Interest income relating to these notes
     amounted to $1,000 and $29,000 for the years ended August 31, 2003 and
     2002, respectively.

NOTE 7 - INVESTMENTS IN MARKETABLE EQUITY SECURITIES

        The amortized cost and approximate fair values of available-for-sale
        securities held at August 31, 2003 are as follows:

                                             Gross         Gross
                                           Unrealized    Unrealized  Estimated
                                Cost         Gains         Losses    Fair Value
                              -------------------------------------------------


           Equity securities  $  314,000   $    23,000   $      --   $  337,000
                              ==========   ===========   =========   ==========


There were no sales of available-for-sale securities during the year ended
August 31, 2003. There were no investments in marketable equity securities at
August 31, 2002.

                                      F-21
<PAGE>

NOTE 8 - PROPERTY AND EQUIPMENT

     Property and equipment, including capital leases, is comprised of the
     following at August 31:


                                                    2003             2002
                                                -----------       ----------
     Land and building                          $ 1,821,000       $      -0-
     Machinery and equipment                      1,620,000              -0-
     Research equipment                             338,000              -0-
     Office equipment                             2,734,000          325,000
     Vehicles                                       439,000          190,000
     Leasehold improvements                         263,000          178,000
                                                -----------       ----------
                                                  7,215,000          693,000
                                                -----------       ----------
     Less accumulated depreciation               (4,512,000)        (113,000)
                                                -----------       ----------
                                                $ 2,703,000       $  580,000
                                                ===========       ==========

NOTE 9 - GOODWILL AND OTHER INTANGIBLE ASSETS Pending - valuation

     The changes in the carrying amount of goodwill for the years ended August
     31, 2003, as reclassified for the adoption of SFAS 142, are as follows:
<TABLE>
<CAPTION>
                                         MANUFACTURING AND     WIRELESS                           HOLDING           SEGMENT
                                           DISTRIBUTION     INFRASTRUCTURE   ENTERTAINMENT        COMPANY           TOTALS
                                         -----------------  --------------   -------------      ------------     -------------
<S>                                        <C>               <C>              <C>               <C>              <C>
     Goodwill at August 31, 2002           $    876,000      $        -0-     $        -0-      $        -0-     $     876,000
     Goodwill acquired during year            1,260,000            70,000              -0-               -0-         1,330,000
     Impairment losses                              -0-               -0-              -0-               -0-               -0-
                                             ----------        ----------       ----------        ----------        ----------
     Goodwill at August 31, 2003           $  2,136,000      $     70,000     $        -0-      $        -0-     $   2,206,000
                                           ============      ============     ============      ============     =============
</TABLE>

     The following table sets forth the gross carrying amount and accumulated
     amortization of the Company's intangible assets:
<TABLE>
<CAPTION>
                                                    AT AUGUST 31, 2003                             AT AUGUST 31, 2002
                                      ------------------------------------------    ---------------------------------------------
                                                                        WEIGHTED                                        WEIGHTED
                                          GROSS                         AVERAGE        GROSS                            AVERAGE
                                        CARRYING         ACCUMULATED     AMORT        CARRYING         ACCUMULATED        AMORT
                                         AMOUNT          AMORTIZATION    PERIOD        AMOUNT          AMORTIZATION       PERIOD
                                      --------------    --------------  --------    -------------      ------------     ---------
<S>                                   <C>               <C>               <C>       <C>                <C>                <C>
     Customer Relationships           $   1,075,000     $      66,000     10 YRS    $     526,000      $      4,000       10 YRS
     Non-compete                            234,000            63,000      4 YRS          234,000             5,000        4 YRS
                                      -------------     -------------   --------    -------------      ------------     --------
     Total                            $   1,309,000     $     129,000      8 YRS    $     760,000      $      9,000        8 YRS
                                      =============     =============   ========    =============      ============     ========
</TABLE>

     Intangible asset amortization expense for the years ended August 31, 2003
     and 2002 was $120,000 and $9,000, respectively.

     Amortization expense on intangible assets currently owned by the Company
     for each of the next five fiscal years are approximately as follows:

         Year Ending August 31,
         ------------------------
                 2004                                 166,000
                 2005                                 166,000
                 2006                                 161,000
                 2007                                 108,000
                 2008                                 108,000
                 2009 and thereafter                  471,000

                                      F-22
<PAGE>

NOTE 10 - LINES OF CREDIT AND DEBT ARRANGEMENTS

     Lines of Credit:

     The Company has a $1,500,000 line of credit available through July 31,
     2004. Interest on the line is charged at 2.40% plus the one-month London
     Interbank Offerered Rate (one-month LIBOR). Outstanding borrowings amounted
     to $953,000 and $1,277,000 at August 31, 2003 and 2002, respectively.

     The Company also has a $500,000 line of credit available through June 30,
     2004. Interest on the line is charged at 2.50% plus the one-month London
     Interbank Offerered Rate (one-month LIBOR). Outstanding borrowings amounted
     to $85,000 and $0 at August 31, 2003 and 2002, respectively.

     The lines of credit are secured by substantially all assets of the Company
     and personal guarantees of the Company's majority stockholder.

     The Company also has a $3,000,000 long-term unsecured line of credit with a
     stockholder, which is further described in Note 10 as long term debt.

     Long-term debt arrangements:

     Long-term debt consisted of the following at August 31:
<TABLE>
<CAPTION>
                                                                                          2003                2002
                                                                                       ----------          ----------
<S>                                                                                    <C>                 <C>
Notes payable to financial institutions:
     ----------------------------------------

      $3,000,000 reducing revolver loan with monthly line reductions equal to
      1/84th of the loan amount per month for the first 59 months, with a
      balloon payment due at maturity July 31, 2007. Interest is variable at
      2.40% plus one-month LIBOR. The loan is secured by the business assets of
      Kingston Sales Corp., with a second lien on assets pledged
      by a stockholder                                                                 $2,607,000          $3,005,000

      $3,600,000 reducing revolver loan with monthly line reductions equal to
      1/84th of the loan amount per month for the first 59 months, with a
      balloon payment due at maturity June 30, 2008. Interest is variable at
      2.50% plus one-month LIBOR. The loan is secured by the business assets of
      Nor-Cote International, Inc., with a second lien on assets
      pledged by a stockholder                                                          3,416,000                 -0-

      Due in monthly installments of $434, including interest at 4.9% through
      January 2005.
      Secured by a vehicle                                                                  7,000              12,000

      Due in monthly installments of $418, including interest at 9.03% through
      December 2004.
      Secured by a vehicle                                                                  7,000              10,000

      Due in monthly installments of $295, including interest at 9.03% through
      December 2004.
      Secured by a vehicle                                                                 13,000                 -0-

      Due in monthly installments of $385, including interest at 5.55% through
      August 2006.
      Secured by a vehicle                                                                 13,000                 -0-


      Due in monthly installments of $563, including interest at 9% through
      March 2003.
      Secured by a vehicle                                                                    -0-               4,000

                                      F-23
<PAGE>

     Long-term line of credit with majority stockholder:
     ---------------------------------------------------

      $3,000,000 unsecured line of credit with thirty-five consecutive, monthly,
      interest payments beginning August 1, 2003 and continuing on the first day
      of each Month thereafter followed by a balloon payment of Principal and
      all accrued interest on July 1, 2006.
      Interest is variable at 3% plus one-month LIBOR.                                  2,000,000                 -0-

                                                                                       ----------          ----------
                                                                                       $8,063,000          $3,031,000
      Less current maturities                                                           $(861,000)         $(442,000)
                                                                                       ----------          ----------
                                                                                       $7,202,000          $2,589,000
                                                                                       ==========          ==========
</TABLE>

     Principal payments due on long-term debt outstanding at August 31, 2003,
are as follows:

         Year Ending August 31,
         ------------------------
                 2004                                  861,000
                 2005                                  954,000
                 2006                                2,950,000
                 2007                                  946,000
                 2008 & after                        2,352,000
                                                    ----------
                                                    $8,063,000
                                                    ==========

NOTE 11 - CAPITAL LEASES

     Long-term leases relating to the financing of fixed assets are accounted
     for as installment purchases. The capital lease obligations reflect the
     present value of future rental payments, discounted at the interest rate
     implicit in the lease, and a corresponding amount is capitalized as the
     cost of the fixed assets. The fixed assets are being depreciated over a
     period of five years. The following is an analysis of fixed assets under
     capital lease at August 31:

                                                     2003              2002
                                                  ----------        ----------
     Equipment                                       $26,000           $26,000
     Less allowance for depreciation                  (8,000)           (1,000)
                                                  ----------        ----------
                                                     $18,000           $25,000
                                                  ==========        ==========

     Following is a schedule of future minimum lease payments due under the
     capital lease obligations together with the present value of net minimum
     lease payments as of August 31, 2003:

         Year Ending August 31,
         ------------------------
                 2004                                          10,000
                 2005                                           9,000
                                                           ----------
         Total minimum lease payments                          18,000
         Less amounts representing interest                     1,000
                                                           ----------
         Present value of net minimum lease payments           17,000
         Less current portion                                  (9,000)
                                                           ----------
         Long-term portion                                 $    8,000
                                                           ==========

                                      F-24
<PAGE>

NOTE 12 - STOCKHOLDERS' EQUITY

     The following are the details of the Company's common stock as of August
31, 2003 and 2002:

                                              Number of Shares
                                  Authorized    Issued   Outstanding     Amount

     August 31, 2003
        Common stock, $0.01 par
         value (1)               150,000,000  88,216,444  88,216,444   $ 882,000
                                                                       =========

     August 31, 2002
        Common stock, $0.01 par
         value (2)               150,000,000  73,496,629  73,496,629   $ 735,000
                                                                       =========

(1)  As a part of a transaction pursuant to the terms of a Stock Purchase
     Agreement by and among the Company, Nor-Cote International, Inc., and its
     subsidiaries; Norman G. Wolcott, Jr., individually; Norman G. Wolcott, Jr.
     and Norman G. Wolcott, Sr., as co-trustees of the Norman G. Wolcott, Sr.
     and Lucile H. Wolcott Revocable Trust of 1995("Wolcott Trust"); First
     Bankers Trust Company, as trustee under the Trust Agreement for the
     Nor-Cote International, Inc. Employee Stock Ownership Plan Trust
     ("Trustee"), effective July 1, 2003. The Company exchanged 12,391,244 of
     its own shares to Norm Wolcott and the Wolcott Trust and exchanged
     7,668,364 of its own shares to the Trustee, in part, in return for
     1,451,985.47 shares of the Company's common stock and a total of 747,992.51
     shares of the Company's preferred stock. The 7,668,364 shares were
     subsequently cancelled per the terms of the agreement.

(2)  As a part of a transaction pursuant to the terms of a Stock Purchase
     Agreement by and among the Company, Kingston Sales Corporation and Robert
     J. Kingston, effective July 31, 2002, Mr. Kingston acquired 8,000,000
     shares of The Company's common stock, in part, in return for 1,000 shares
     of the common stock, of Kingston Sales Corp., constituting all of the
     outstanding shares of Kingston Sales Corp's capital stock.


NOTE 13 - STOCK OPTIONS AND OTHER STOCK COMPENSATION

     Transactions related to the Company's stock compensation arrangements are
     as follows:

                                             Weighted                Weighted
                                             Average                 Average
                                 Year Ended  Exercise   Year Ended   Exercise
                                 August 31,   Price     August 31,     Price
                                    2003     Per Share     2002      Per Share
        Options outstanding at
         beginning of period       350,000     $0.46      350,000      $0.46
        Options exercised               --                     --
        Options issued                  --                     --
        Options canceled                --                     --
                                   -------                -------
        Options outstanding at
         end of period             350,000     $0.46      350,000      $0.46
                                   =======                =======

     The Company accounts for employee stock-based transactions under Accounting
     Principles Board Opinion No. 25. Accordingly, no compensation cost has been
     recognized for options issued with an exercise price equal to the market
     value of the common stock at the date of grant. The Company has adopted the
     disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based
     Compensation," and SFAS 148, which defines a fair value method of
     accounting for stock options and other equity instruments. Under the fair
     value method, compensation cost is measured at the grant date based on the
     fair value of the award and is recognized over the service period, which is
     usually the vesting period. Management believes that had compensation cost
     been determined based on the fair value at the grant dates consistent with
     the provisions of SFAS No. 123 and SFAS No. 148, there would have been no
     material effect on the Company's net loss and its loss per common share for
     the period ended August 31, 2003.

     The Company agreed to grant 50,000 warrants to the Company's former CEO on
     September 1, 2000. Each warrant is convertible into one share of common
     stock at an exercise price of $1.00 per share exercisable June 30, 2002
     through June 30, 2008.

                                      F-25
<PAGE>

NOTE 14 - INCOME TAXES

     Reconciliation of income taxes computed at the statutory rate to the
Company's effective rate is as follows:

                                                          2003           2002

        Federal and state income tax (benefit) at
           statutory rate                              $ (54,000)     $(824,000)
        Other                                                 --             --
        Change in valuation allowance                     54,000        824,000
                                                       ---------      ----------

           Provision for Income Taxes                  $      --      $       --
                                                       =========      ==========

A reconciliation of recorded Federal income tax expense (benefit) to the
expected expense (benefit) computed by applying the Federal statutory rate of
35% for all periods to income before income taxes follows:

                                                      August 31,      August 31,
                                                         2003            2002

Computed expense at 35% of pre-tax income                 40,000       (726,000)
State and local taxes (net of federal tax benefit)         6,000       (104,000)
Change in valuation allowance                            (54,000)       824,000
Other                                                      8,000          6,000
                                                      ----------     ----------

Total                                                        -0-            -0-
                                                      ==========     ===========

     The significant components of the Company's deferred tax asset are as
     follows:

                                                   August 31,       August 31,
                                                      2003             2002
        Deferred Tax Assets:
           Net operating loss carryforwards       $ 2,446,000      $ 1,958,000
           Capital loss carryforwards                 460,000          336,000
           Reserves                                   461,000           52,000
           Deferred Revenue                                 0           96,000
           Stock warrants                                   0          170,000
           Valuation allowance                     (3,367,000)      (2,612,000)
                                                  -----------      -----------

        Net Deferred Tax Asset                    $        --      $        --
                                                  ===========      ===========

     At August 31, 2003, the Company had federal tax operating loss
     carryforwards of approximately $6,116,000, which expire during the years of
     2020, 2021, 2022 and 2023. The state tax operating loss carryforwards were
     approximately $2,357,000. The difference between federal and state net
     operating loss carryforwards represents a change in business venue in a
     prior period. The Company's capital loss carryforward is $1,151,000 and it
     expires in the fiscal year ending August 31, 2007.

The subsidiaries in Singapore and Malaysia will be treated as branches for U.S.
income tax purposes for the fiscal year ended August 31, 2004.

                                      F-26
<PAGE>

NOTE 15 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Accumulated other comprehensive income (loss) is follows at August 31, 2003.

                                                           Tax
                                           Before-Tax    (Expense)   Net-of-Tax
                                             Amount       Benefit      Amount
                                           ------------------------------------
           Unrealized gain on securities    $ 23,000     $(10,000)    $ 13,000

           Foreign currency adjustments      (76,000)          --      (76,000)
                                            --------     --------     --------
           Accumulated other comprehensive
           income(loss)                     $(53,000)    $(10,000)    $(63,000)
                                            ========     ========     ========



Significant components of accumulated other comprehensive income (loss) are as
follows:

                                                                  Accumulated
                                                     Unrealized      Other
                                        Foreign        Gains     Comprehensive
                                        Currency      (Losses)       Income
                                       Adjustments  on Securities    (Loss)
                                       ---------------------------------------

           Balance at August  31, 2002   $      0     $      0      $      0

               Period change              (76,000)      13,000       (63,000)
                                         --------     --------      --------

           Balance at August 31, 2003     (76,000)      13,000       (63,000)
                                         ========     ========      ========

NOTE 16 - PER SHARE DATA

     The following presents the computation of basic income (loss) per share and
diluted income (loss) per share:

                                                       Year Ended   Year Ended
                                                       August 31,   August 31,
                                                          2003         2002

        Net Income(Loss)                              $   115,000  $(2,075,000)
        Dividends                                              --           --
                                                      -----------  -----------
        Net Income (Loss) Available for Common
         Stockholders                                 $   115,000  $(2,075,000)
                                                      ===========  ===========

        Basic Income (Loss) per Share                 $      0.00  $     (0.03)
                                                      ===========  ===========


        Diluted Income (Loss) per Share               $      0.00  $     (0.03)
                                                      ===========  ===========

        Shares Outstanding:
           Basic weighted average number of common
            shares outstanding                         77,390,984   69,829,962
           Dilutive effect of conversion of options       900,000      400,000
                                                      -----------  -----------
                Total Shares Outstanding               78,290,984   70,229,962
                                                      ===========  ===========

     At August 31, 2002, all common stock equivalents were anti-dilutive.

NOTE 17 - OPERATING LEASE COMMITMENTS

     The Company leases one of its office and warehouse facilities from a
     limited liability company in which one of the members of the control group,
     during the reporting period covered, was a member. The agreement expires in
     August 2007. The agreement includes two renewal options, which allows the
     Company to extend the lease term for additional five year increments per
     each renewal. In addition to base monthly rent, the agreement requires the
     Company to pay 75% of any increase in real estate taxes over the 2003 tax
     assessment and insurance reasonably satisfactory to Landlord. The Company
     leases a second premise under an agreement that expires August 2004. In
     addition to base monthly rent, that agreement requires the Company to pay
     insurance with respect to the leased premise and its proportionate share of

                                      F-27
<PAGE>

     common area maintenance expenses. In September 2002, the Company entered
     into a lease for a third office and warehouse facility under an agreement
     that expires November 2004. In addition to base monthly rent, that
     agreement requires the Company to pay its proportionate share of common
     area maintenance expenses. Rent expense under these agreements amounted to
     $181,000 and $71,000 for the year ended August 31, 2003 and 2002.

     The Company is also committed to vehicle and office equipment leases, which
     expire in August 2004 and September 2004. Lease expense under all
     agreements amounted to $26,000 and $7,000 for the years ended August 31,
     2003 and 2002, respectively.

     Future minimum commitments under these agreements are as follows at August
     31, 2003:

                                                   Vehicles
         Year Ending August 31,    Facilities    And Equipment
         ----------------------    ----------    -------------
                2004                $178,000       $ 20,000
                2005                  90,000         12,000
                2006                  84,000          7,000
                2007                  77,000          5,000
                2008 & after               0          2,000
                                    --------       --------
                                    $429,000       $ 46,000
                                    ========       ========

NOTE 18 - RELATED PARTY TRANSACTIONS

     During the year ended August 31, 2003, the Company entered into a
     $3,000,000 long-term unsecured line of credit with the majority
     stockholder. Borrowings amounted to $2,000,000 at August 31, 2003 and $0 at
     August 31, 2002, respectively. The line of credit bears interest at 2.3%
     plus the one-month London Interbank Offered Rate (one-month LIBOR).
     Interest expense booked on the line of credit was approximately $14,000 and
     $0 for the years ended August 31, 2003 and 2002 respectively.

     As described in Note 3, the Company sold Cornerstone Construction on March
     1, 2003 for approximately $298,000 to the Company's majority stockholder.
     The Company repurchased Cornerstone Construction from the majority
     stockholder for approximately $190,000 on August 15, 2003. The majority
     stockholder advanced the Company the $190,000 to finance the purchase. The
     Company repaid the balance to the majority stockholder in September 2003.
     This amount along with an additional $40,000 advanced to the Company by the
     majority stockholder during the year ended August 31, 2003, is included in
     the Company's consolidated balance sheet as a $230,000 related party
     current liability.

     The Company entered into a lease agreement with a related party on August
     1, 2002 in which the Company leases a building for office and warehouse
     space. The Company recognized expense of $84,000 and $7,000 for the years
     ended August 31, 2003 and August 31, 2002, respectively. The Company is in
     the process of purchasing one of its' administrative offices and laboratory
     building from a related party.

     The Company charged a monthly administrative fee to a related corporation
     as reimbursement for shared expenses. The Company recognized administrative
     fees of $84,000 and $0 for the years ended August 31, 2003 and August 31,
     2002, respectively.

     The Company collected a $146,000 related party note receivable that was
     included in the assets of NCI prior to acquisition by the Company.

     Following is a summary of all related party assets and (liabilities)
     included in the balance sheets at August 31, 2003 and August 31, 2002:

                                    August 31,          August 31,
                                       2003                2002
                                   ------------        ------------
      Due to related party             (230,000)                  0
      Long-term line of credit       (2,000,000)                  0
                                   ------------        ------------
      Net assets (liabilities)     $ (2,230,000)       $          0
                                   ============        ============

                                      F-28
<PAGE>

NOTE 19 - CONCENTRATION OF CREDIT RISK

     The Company's financial instruments that are exposed to concentrations of
     credit risk consist primarily of cash and cash equivalents, including
     marketable securities, and accounts receivables. The Company places its
     cash and cash equivalents with high credit quality institutions. At times,
     such amounts may be in excess of the FDIC insured limit. The Company
     routinely assesses the financial strength of its customers and, as a
     consequence, believes that its accounts receivable credit risk exposure is
     limited and reserved for adequately.

NOTE 20 - ECONOMIC DEPENDENCY ON SUPPLIERS

     In its Kingston subsidiary, the Company purchased approximately 40% of its
     inventories from one vendor for both years ended August 31, 2003 and 2002.

NOTE 21 - COMMITMENTS AND CONTINGENCIES

     The Company has entered into an agreement with a related party to purchase
     property in Crawfordsville, Indiana pursuant to an "An Agreement for
     Purchase and Sale of Real Estate" entered into July 3, 2003. This property
     is the location of Nor-Cote's manufacturing facility. The purchase price is
     estimated at $425,000 and will be due at closing. Pursuant to this
     agreement, the Seller shall convey good and marketable fee simple title to
     the property, free and clear of all liens, encumbrances, easements, rights,
     permits, restrictions, leases, agreements, covenants, conditions,
     limitations and licenses other than certain permitted exceptions.

     As part of the Stock Purchase Agreement to acquire Kingston, there is a
     $250,000 contingent payment due on or before December 15, 2004. Subject to
     the following contingencies, the company shall pay to Mr. Kingston the
     remaining amount of $250,000 (the "Post-Closing Payment") on or before
     December 15, 2004. The payment of the full Post-Closing Payment amount is
     contingent upon Kingston attaining a cumulative EBIT, as defined in the
     Stock Purchase Agreement, of at least $2,325,000 during the period
     September 1, 2002 to August 31, 2004. If Kingston does not attain a
     cumulative EBIT of at least $2,325,000 during the period September 1, 2002
     to August 31, 2004 but does attain a cumulative EBIT of at least
     $2,125,000, the Company shall pay to Mr. Kingston a Post-Closing Payment in
     the amount of $150,000 on or before December 15, 2004. If Kingston does not
     attain a cumulative EBIT of at least $2,125,000 during the period September
     1, 2002 to August 31, 2004, but does attain a cumulative EBIT of at least
     $1,925,000, the Company shall pay to Mr. Kingston a Post-Closing Payment in
     the amount of $100,000 on or before December 15, 2004. If Kingston does not
     attain a cumulative EBIT of at least $1,925,000 during the period September
     1, 2002 to August 31, 2004, the Company shall not pay to Mr. Kingston any
     Post-Closing Payment. Notwithstanding the foregoing, the Company shall not
     pay any Post-Closing Payment amount if Mr. Kingston exercises the Put
     Option with respect to twenty-five percent (25%) or more of the Company's
     stock; provided, however, that if Mr. Kingston exercises the Put Option
     with respect to twenty-five percent (25%) or more of the Company's stock
     and Mr. Kingston remains employed by Kingston, the Company or any Affiliate
     of Kingston or the Company for a period of three (3) years following
     Closing, then notwithstanding Mr. Kingston's exercise of the Put Option,
     the Company shall pay to Mr. Kingston the Post-Closing Payment amount
     earned under the immediately preceding sentence (if any) within thirty (30)
     days following the third anniversary of Closing (See Note 14). As used in
     this Agreement, "Affiliate" shall have the meaning specified in Rule 12b-2
     of the regulations promulgated under the Securities Exchange Act of 1934,
     as amended.

     As part of the Stock Exchange Agreement with Nor-Cote, Common Stock Sellers
     shall each have the option to put any or all of the Company's stock
     received by them to Mr. Fortune and Mr. Fortune shall have the option to
     call any or all of the Company's stock from each of the Common Stock
     Sellers. The put price and the call price shall be the same (the "put/call
     price") and the put/call price shall be dependent upon Nor-Cote's
     cumulative Adjusted EBITDA during the three-year period July l, 2003 to
     June 30, 2006. If Nor-Cote's cumulative Adjusted EBITDA during the Test
     Period is at least $4,683,000, the put/call price per share shall be
     $.3365. The put/call

                                      F-29
<PAGE>

     price shall, however, be decreased in proportion to the amount by which
     Nor-Cote's cumulative Adjusted EBITDA during the Test Period is less than
     $4,683,000, as defined in the Stock Exchange Agreement. Common Stock
     Sellers may only exercise the put option and Mr. Fortune may only exercise
     the call option during the period September 1, 2006 to September 30, 2006.
     Any closing on a sale of the Company's stock to Fortune shall occur within
     ninety (90) days of a party's receipt of written notice from the other
     party requesting exercise of his put or call option. All of the Company's
     stock received by them shall be retained by each of the Common Stock
     Sellers until (i) the exercise of the put and call options or (ii) the
     expiration of the exercise period (including any extensions) for such put
     and call options without exercise of such put and call options. In
     addition, Mr. Fortune shall have an option to call any or all of the
     Company's stock at the call price per share of $.3365 at any time during
     the three-year period July 1, 2003 to June 30, 2006. Additionally, as part
     of the Stock Exchange Agreement, Nor-Cote has agreed to purchase the land
     and buildings in which Nor-Cote's corporate headquarters are maintained
     from a related company. The purchase price of the property between the
     related parties has not been determined at August 31, 2003.

     As part of the merger agreements with PSM, the Company's shares held by Mr.
     Schafir are substantially restricted by two Option Agreements. The first is
     an Option Agreement entered into the 1st day of October, 2003 by and
     between Harlan M. Schafir and Carter M. Fortune and Robert J. Kingston
     (collectively, "Shareholders"); the second is an Option Agreement entered
     into the 1st day of October, 2003 by and between Harlan M. Schafir, and the
     Company. (collectively, "Option Agreements"). Mr. Schafir shall have the
     option to put any or all of the FDI Stock received by him to the
     Shareholders or the Company, according to the terms of these Agreements.

     Exercise of Put Options. If Schafir desires to sell any or all of the
     Schafir Distributed Stock, Schafir shall simultaneously make demand upon
     Carter M. Fortune, Robert J. Kingston, FDI and Company: 3

     (i)  Within ten (10) days of demand, Carter M. Fortune and Robert J.
          Kingston shall comply with the terms of the Option Agreement
          (Fortune/Kingston/Schafir);

     (ii) If Carter M. Fortune and Robert J. Kingston fail to comply with the
          terms of the Option Agreement (Fortune/Kingston/Schafir) then to the
          extent of Carter M. Fortune's and Robert J. Kingston's non-compliance
          within twenty (20) days of demand, Parent and Company shall comply
          with the terms of the Option Agreement (FDI/Schafir);

     (iii) If FDI and Company fail to comply with the terms of the Option
          Agreement (FDI/Schafir) then to the extent of FDI's and Company's
          non-compliance within thirty (30) days of demand, Schafir may then
          execute upon the Merrill Lynch Pledged Collateral Account Control
          Agreement (relating to Carter M. Fortune) attached hereto as Exhibit
          D, the Merrill Lynch Pledged Collateral Account Control Agreement
          (relating to Robert J. Kingston) attached hereto as Exhibit E and the
          Merrill Lynch Pledged Collateral Account Control Agreement (relating
          to FDI) on a pro-rata basis based upon the market value of the assets
          contained in each of the pledged collateral accounts.

The put price shall be dependent upon PSM, PSM II, and ProStaff combined
cumulative EBITDA during the three-year period October l, 2003 to September 30,
2006 ("Regular Test Period").

     (A) With respect to 10,000,000 shares of the FDI Stock: a) if the
Companies' combined cumulative EBITDA during the Regular Test Period is (i)
greater than $3,600,000.00, the put price per share shall be $0.60; (ii) greater
than $3,000,000 but less than or equal to $3,600,000, the put price per share
shall be $0.50; or(iii) greater than $2,400,000 but less than or equal to
$3,000,000, the put price per share shall be $0.40; and b) if the Companies'
combined cumulative EBITDA during the Regular Test Period is less than or equal
to $2,400,000, Schafir shall not have any put rights.

     (B) With respect to 2,500,000 shares of the FDI Stock, if the Companies'
combined cumulative EBITDA during the Regular Test Period is (i) greater than
$3,600,000, the put price per share shall be $0.60, and (ii) greater than $0.00
but less than or equal to $3,600,000, the put price per share shall be $0.50.

                                      F-30
<PAGE>

     (C) With respect to 600,000 shares of the FDI Stock: a) if the Companies'
combined cumulative EBITDA during the Regular Test Period is (i) greater than
$3,000,000, the put price per share shall be $1.00; (ii) greater than $2,000,000
but less than or equal to $3,000,000, the put price per share shall be $0.75;
and (iii) greater than $1,000,000 but less than or equal to $2,000,000, the put
price per share shall be $0.50; and b) if the Companies' combined cumulative
EDITDA during the Regular Test Period is less than or equal to $1,000,000,
Schafir shall not have any put rights.

     (D) If there is a Triggering Event (as hereinafter defined) prior to the
completion of the Regular Test Period, the Shareholders shall give Schafir
prompt written notice thereof and, Schafir may exercise the put options for the
13,100,000 shares of FDI Stock based upon a shorter test period pursuant to the
terms of this paragraph. The put price shall be dependent upon the Companies'
combined cumulative EBITDA during the period beginning on October 1, 2003 and
ending on the last day of the month preceding the month in which the Triggering
Event occurs ("Short Test Period"). The income thresholds described in the three
(3) previous paragraphs relating to the Regular Test Period shall be reduced
proportionately based upon the number of months contained in the Short Test
Period versus the number of months contained in the Regular Test Period (36
months). The disposition of the Company's shares held by Mr. Schafir are
substantially restricted by two Option Agreements. The first is an Option
Agreement entered into the 1st day of October, 2003 by and between Harlan M.
Schafir and Carter M. Fortune and Robert J. Kingston (collectively,
"Shareholders"); the second is an Option Agreement entered into the 1st day of
October, 2003 by and between Harlan M. Schafir, and the Company. (collectively,
"Option Agreements"). Mr. Schafir shall have the option to put any or all of the
FDI Stock received by him to the Shareholders or the Company, according to the
terms of these Agreements.

Exercise of Put Options. If Schafir desires to sell any or all of the
Schafir Distributed Stock, Schafir shall simultaneously make demand upon Carter
M. Fortune, Robert J. Kingston, FDI and Company:

(i)  Within ten (10) days of demand, Carter M. Fortune and Robert J. Kingston
     shall comply with the terms of the Option Agreement
     (Fortune/Kingston/Schafir);

(ii) If Carter M. Fortune and Robert J. Kingston fail to comply with the terms
     of the Option Agreement (Fortune/Kingston/Schafir) then to the extent of
     Carter M. Fortune's and Robert J. Kingston's non-compliance within twenty
     (20) days of demand, Parent and Company shall comply with the terms of the
     Option Agreement (FDI/Schafir);

(iii) If FDI and Company fail to comply with the terms of the Option Agreement
     (FDI/Schafir) then to the extent of FDI's and Company's non-compliance
     within thirty (30) days of demand, Schafir may then execute upon the
     Merrill Lynch Pledged Collateral Account Control Agreement (relating to
     Carter M. Fortune) attached hereto as Exhibit D, the Merrill Lynch Pledged
     Collateral Account Control Agreement (relating to Robert J. Kingston)
     attached hereto as Exhibit E and the Merrill Lynch Pledged Collateral
     Account Control Agreement (relating to FDI) on a pro-rata basis based upon
     the market value of the assets contained in each of the pledged collateral
     accounts.

The put price shall be dependent upon PSM, PSM II, and ProStaff combined
cumulative EBITDA during the three-year period October l, 2003 to September 30,
2006 ("Regular Test Period").

     (A) With respect to 10,000,000 shares of the FDI Stock: a) if the
Companies' combined cumulative EBITDA during the Regular Test Period is (i)
greater than $3,600,000.00, the put price per share shall be $0.60; (ii) greater
than $3,000,000 but less than or equal to $3,600,000, the put price per share
shall be $0.50; or(iii) greater than $2,400,000 but less than or equal to
$3,000,000, the put price per share shall be $0.40; and b) if the Companies'
combined cumulative EBITDA during the Regular Test Period is less than or equal
to $2,400,000, Schafir shall not have any put rights.

                                      F-31
<PAGE>

     (B) With respect to 2,500,000 shares of the FDI Stock, if the Companies'
combined cumulative EBITDA during the Regular Test Period is (i) greater than
$3,600,000, the put price per share shall be $0.60, and (ii) greater than $0.00
but less than or equal to $3,600,000, the put price per share shall be $0.50.

     (C) With respect to 600,000 shares of the FDI Stock: a) if the Companies'
combined cumulative EBITDA during the Regular Test Period is (i) greater than
$3,000,000, the put price per share shall be $1.00; (ii) greater than $2,000,000
but less than or equal to $3,000,000, the put price per share shall be $0.75;
and (iii) greater than $1,000,000 but less than or equal to $2,000,000, the put
price per share shall be $0.50; and b) if the Companies' combined cumulative
EDITDA during the Regular Test Period is less than or equal to $1,000,000,
Schafir shall not have any put rights.

     (D) If there is a Triggering Event (as hereinafter defined) prior to the
completion of the Regular Test Period, the Shareholders shall give Schafir
prompt written notice thereof and, Schafir may exercise the put options for the
13,100,000 shares of FDI Stock based upon a shorter test period pursuant to the
terms of this paragraph. The put price shall be dependent upon the Companies'
combined cumulative EBITDA during the period beginning on October 1, 2003 and
ending on the last day of the month preceding the month in which the Triggering
Event occurs ("Short Test Period"). The income thresholds described in the three
(3) previous paragraphs relating to the Regular Test Period shall be reduced
proportionately based upon the number of months contained in the Short Test
Period versus the number of months contained in the Regular Test Period (36
months).

NOTE 22 - RETIREMENT PLAN

The Company maintains a profit-sharing plan that covers all United States
employees who meet the eligibility requirements set forth in the plan. Company
contributions are made at management's discretion and are allocated based upon
each participant's eligible compensation. The plan includes a 401(k) savings
plan whereby employees can contribute and defer taxes on compensation
contributed to the plan. The Company is not required to contribute to the plan
but may make a discretionary contribution. The Company did not make
contributions for the years ended August 31, 2003 and 2002.

The Company's Nor-Cote subsidiary has a separate 401(k) profit-sharing plan
which is available to all United States employees who meet the eligibility
requirements set forth in the plan. The Company matches a percentage of
contributions made by employees based upon Nor-Cote achieving certain earnings
projections. The company did not make any contributions for the year ended
August 31, 2003.

NOTE 23 - EMPLOYEE STOCK OWNERSHIP PLAN

The Company's Nor-Cote subsidiary currently maintains an Employee Stock
Ownership Plan (ESOP). On July 3, 2003, the ESOP sold its entire investment
which included both allocated and unallocated preferred stock to the Company.
The allocated preferred stock consisting of 169,117 shares was surrendered for a
cash price of $893,608. The unallocated preferred stock consisting of 578,876
shares was exchanged for 7,668,364 shares of Common Stock of Fortune Diversified
Industries, Inc. The Fortune Diversified Industries, Inc. Common Stock was
subsequently transferred to Nor-Cote as complete and full payment of a loan
amounting to $6,028,991 from Nor-Cote.

In addition, while the parties agree that the consideration to be paid to the
Preferred Stock Seller constitutes full and complete payment and satisfaction,
it is conceivable that despite the belief that no grounds exist, a governmental
agency department or entity may nonetheless assert that additional amounts are
to be paid to the Preferred Stock Seller. If this were to occur, any amounts
received by or for the benefit of Preferred Stock Seller in respect of the
Preferred Shares that have not been allocated to the accounts of ESOP plan
participants or any other portion of the collateral securing the inside loan, as
defined in the Stock Exchange Agreement, shall, whether before or at any time
after termination of the ESOP or payment of the inside loan, also be paid to
Nor-Cote, subject to the following sentence. If and to the extent any such
additional consideration, when added to the amount of $2,683,927, exceeds the
unpaid principal balance of, and all unpaid accrued interest on the inside loan,
immediately prior to Closing, such excess amount shall be for the account and
benefit of the ESOP plan participants.

The Company is in the process of terminating the ESOP and does not anticipate
making any further contributions. The proceeds from sale of the allocated shares
net of transaction expenses and trustee fees of approximately $230,000 will be
distributed to Plan participants at the date of termination. The assets of the
ESOP amounting to approximately $670,000 consist of interest bearing cash
deposits managed by an independent trustee.

NOTE 24 - SEGMENT INFORMATION

The operations of the Company are organized around the following segments:

o        Manufacturing and Distribution
o        Wireless Infrastructure
o        Entertainment
o        Holding Company

<TABLE>
<CAPTION>
                                       Manufacturing
                                           and          Wireless                         Holding         Segment
                                       Distribution  Infrastructure   Entertainment      Company         Totals
                                       ------------  --------------   -------------    -----------     -----------
<S>                                     <C>            <C>             <C>             <C>             <C>
Year Ended August 31, 2003
Net revenues                            $11,000,000    $ 4,470,000     $        --     $        --     $15,470,000
Cost of revenues                          7,995,000      3,183,000              --     $        --      11,178,000
                                        -----------    -----------     -----------     -----------     -----------
Gross profit                              3,005,000      1,287,000              --              --       4,292,000
Operating expenses
       Selling, general and
       administrative expenses            1,877,000      1,353,000           7,000         555,000       3,792,000
       Depreciation and amortization        268,000         66,000              --           8,000         342,000
                                        -----------    -----------     -----------     -----------     -----------

           Total operating expense .      2,145,000      1,419,000           7,000         563,000       4,134,000
                                        -----------    -----------     -----------     -----------     -----------

Segment operating income (loss)             860,000    $  (132,000)    $    (7,000)    $  (563,000)    $   158,000
                                        ===========    ===========     ===========     ===========     ===========

As of August 31, 2003
Cash                                    $   792,000    $    59,000     $     1,000     $    33,000     $   885,000
Available for sale investments              337,000             --              --              --         337,000
Accounts receivable                       2,836,000      1,463,000              --           7,000       4,306,000
Inventory, net                            1,745,000        111,000              --              --       1,856,000
Other current assets                        543,000         58,000              --          62,000         663,000
Notes receivable                                 --             --              --              --              --
Property, plant & equipment, net          2,350,000        326,000              --          27,000       2,703,000
Loan origination fees, net                   50,000             --              --              --          50,000
Goodwill                                  2,136,000         70,000              --              --       2,206,000
Other intangible assets, net              1,180,000             --              --              --       1,180,000
Other long-term assets                       14,000             --              --              --          14,000
                                        -----------    -----------     -----------     -----------     -----------

Total Segment Assets                    $11,983,000    $ 2,087,000     $     1,000     $   129,000     $14,200,000
                                        ===========    ===========     ===========     ===========     ===========
</TABLE>
                                      F-32
<PAGE>


                                   SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Company caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.




                                      FORTUNE DIVERSIFIED INDUSTRIES, INC.



Date:  November 26, 2003              By: /s/ Carter M. Fortune
                                          -----------------------
                                          Carter M. Fortune,
                                          Chief Executive Officer

In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Company and in the capacities and on the
dates indicated.



Date:  November 26, 2003              /s/ Carter M. Fortune
                                      ------------------------------------------
                                      Carter M. Fortune, Chief Executive Officer
                                      and Chairman of the Board


Date:  November 26, 2003              /s/ Amy E. Gallo
                                      ------------------------------------------
                                      Amy E. Gallo, Principal Financial Officer


Date:  November 26, 2003              /s/ Robert J. Kingston
                                      ------------------------------------------
                                      Robert J. Kingston, President of Kingston
                                      Sales Corp. and Director


Date:  November 26, 2003              /s/ David A. Berry
                                      ------------------------------------------
                                      David A. Berry, Director