<PAGE>

                                   FORM 10-QSB

                       Securities and Exchange Commission
                              Washington D.C. 20549

                QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

The Company's  form 10QSB for the period ended June 30, 2003 was not reviewed by
the  Company's  independent  public  accountants  as  required by Item 310(b) of
Regulation S-B due to dispute as to whether an additional  amount should be paid
at this  time  to  said  independent  public  accountants,  in  order  for  said
independent public accountants to complete said review.

                     For the fiscal quarter ended: June 30,
                     2003 Commission file number: 333-60186


                             GRAPHCO HOLDINGS CORP.
             (Exact name of registrant as specified in its charter)

           Delaware                                  75-2926438
(State or other jurisdiction of                   (I.R.S. Employer
Incorporation or organization)                    Identification No.)


                               41 University Drive
                          Newtown, Pennsylvania, 18940
                    (Address of principal executive offices)
                                   (Zip Code)

                                 (215) 497-9170
              (Registrant's telephone number, including area code)

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

         Indicate the number of shares  outstanding of each of the  registrant's
classes of common stock: As of August 25, 2003, there were 20,172,304  shares of
the Issuer's  common stock,  par value $0.001,  issued and  outstanding of which
17,351,553  shares  are  in  the  name  of  our  operating  subsidiary,  Graphco
Technologies, Inc. and are being distributed pro rata to the former shareholders
of Graphco Technologies, Inc.


<PAGE>

                                      INDEX


PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

<TABLE>
<CAPTION>
<S>                                                                                                <C>
Condensed Consolidated Balance Sheets
June 30, 2003 (unaudited) And December 31, 2002.............................................        2

Condensed Consolidated Statements of Operations
Three Months and Six Months Ended June 30, 2003 and 2002 and period from
January 1, 1998 (date of Inception) to June 30, 2003 (unaudited) ...........................        3

Condensed Consolidated Statements of Changes in Stockholders' Deficiency
Six Months ended June 30, 2003 and period from January 1, 1998 (date of Inception)
to June 30, 2003 (unaudited) ...............................................................      4-7

Condensed Consolidated Statements of Cash Flows
Six Months ended June 30, 2003 and
Period from January 1, 1998 (date of Inception) to June 30, 2003 (unaudited) ...............      8-9


Notes to Condensed Consolidated Financial Statements (unaudited) ...........................    10-17

Item 2.  Management's Discussion and Analysis on Plan of Operations.........................    18-22

Item 3. Controls and Procedures.............................................................       22

PART II.  OTHER INFORMATION

Item 1. Legal Proceedings ..................................................................       23

Item 2. Changes in Securities ..............................................................       23

Item 3. Defaults upon Senior Securities ....................................................       23

Item 4. Submission of Matters to a Vote of Security Holders.................................       24

Item 5. Other Information...................................................................       24

Item 6. Exhibits and Reports on Form 8-K....................................................       24

Signatures..................................................................................       25

Certifications..............................................................................    26-30
</TABLE>



<PAGE>

Item 1. Financial Statements

                     GRAPHCO HOLDINGS CORP. AND SUBSIDIARIES
                         ( A Development Stage Company)
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                 JUNE 30, 2003 (Unaudited) AND DECEMBER 31, 2002


<TABLE>
<CAPTION>
                                     ASSETS
                                     ------

                                                                                        June 30,          December 31,
                                                                                          2003                2002
                                                                                    -----------------    --------------
                                                                                      (Unaudited)
     Current Assets:
<S>                                                                                <C>                   <C>
        Cash                                                                            $     28,164       $        955
        Accounts receivable                                                                    1,808              1,808
        Prepaid expenses                                                                      77,710             65,708
                                                                                    -----------------    --------------
            Total current assets                                                             107,682             68,471

     Property and equipment, net of accumulated depreciation
       and amortization of $274,474 and $247,820                                             122,447            149,101
     Investment, at equity                                                                        --                 --
     Other assets                                                                             22,432             22,432
                                                                                    -----------------    --------------

                               Totals                                                   $    252,561       $    240,004
                                                                                    =================    ==============


                                    LIABILITIES AND STOCKHOLDERS' DEFICIENCY
                                    ----------------------------------------

Current Liabilities:
     Convertible notes payable                                                          $  2,574,908       $  2,574,908
     Accounts payable and other accrued expenses                                           4,080,162          3,465,059
     Other notes payable                                                                     209,000            204,000
                                                                                    -----------------    --------------

        Total liabilities                                                                  6,864,070          6,243,967
                                                                                    -----------------    --------------

Commitments and contingencies


Stockholders' deficiency:
     Preferred Stock, no par value, 5,000,000 shares authorized:
        Series A convertible preferred stock; 333,333 shares authorized;
         225,029 shares issued and outstanding (aggregate liquidation
         preference - $ 3,579,948 and $3,495,563)                                          3,265,383          3,265,383
        Series B convertible preferred stock, no par value; 4,500,000 shares
         authorized; 469,000 shares issued and outstanding (aggregate
         liquidation preference $ 938,000)                                                        --            415,760
     Subscription receivable for 53,000 shares of Series B
         convertible preferred stock                                                              --            (53,000)
     Common Stock, par value $.001 per share; 40,000,000 shares authorized:
       19,798,968 and 18,511,793 shares issued and outstanding                                19,799             18,512
     Additional paid-in capital                                                           16,131,348         14,444,637
     Unearned compensation                                                                  (237,661)          (328,891)
     Accumulated deficit, including $24,970,246 and $22,946,232
       accumulated in the development stage                                              (25,790,378)       (23,766,364)
                                                                                     ----------------    --------------
        Total stockholders' deficiency                                                    (6,611,509)        (6,003,963)
                                                                                     ----------------    --------------

                               Totals                                                   $    252,561       $    240,004
                                                                                     ================    ==============
</TABLE>

See Notes To Condensed Consolidated Financial Statements.


                                        2

<PAGE>



                     GRAPHCO HOLDINGS CORP. AND SUBSIDIARIES
                         ( A Development Stage Company)
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
          THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002 AND
                 PERIOD FROM JANUARY 1, 1998 (DATE OF INCEPTION)
                          TO JUNE 30, 2003 (UNAUDITED)



<TABLE>
<CAPTION>
                                                     Three Months Ended                Six Months Ended
                                                 ----------------------------    ----------------------------    Cumulative
                                                   June 30,        June 30,        June 30,        June 30,      Development
                                                     2003            2002            2003            2002           Stage
                                                 ------------    ------------    ------------    ------------    ------------
<S>                                              <C>              <C>              <C>              <C>              <C>
Revenues                                         $         --    $    215,867    $         --    $    277,986    $  1,532,975
Cost of revenue                                            --              --              --          10,356         713,002
                                                 ------------    ------------    ------------    ------------    ------------
Gross profit                                               --         215,867              --         267,630         819,973
                                                 ------------    ------------    ------------    ------------    ------------

Operating expenses:
     Research and development                          88,319          74,481         180,009         197,763       4,915,222
     Selling, general and administrative              615,442         651,507       1,571,891       1,426,948      16,319,766
                                                 ------------    ------------    ------------    ------------    ------------
              Totals                                  703,761         725,988       1,751,900       1,624,711      21,234,988
                                                 ------------    ------------    ------------    ------------    ------------

Loss from operations                                 (703,761)       (510,121)     (1,751,900)     (1,357,081)    (20,415,015)
                                                 ------------    ------------    ------------    ------------    ------------

Interest income                                            --              76              --             138         184,354
Interest expense, including amortization of
 deferred loan fees and debt discount of $-0-,
 $1,101,945 and $2,807,284                           (136,057)       (396,795)       (272,114)     (1,311,629)     (3,763,414)
Loss on equity invested                                    --              --              --              --        (949,420)
Other                                                      --              --              --              --          21,877
                                                 ------------    ------------    ------------    ------------    ------------
              Totals                                 (136,057)       (396,719)       (272,114)     (1,311,491)     (4,506,603)
                                                 ------------    ------------    ------------    ------------    ------------

Net loss                                         $   (839,818)   $   (906,840)   $ (2,024,014)   $ (2,668,572)   $(24,921,618)
                                                 ============    ============    ============    ============    ============

Basic loss per common share                            ($0.04)         ($0.05)        ($0.11)          ($0.15)
                                                 ============    ============    ============    ============

Basic weighted average number of common
  shares outstanding                               19,407,957      17,323,553      19,222,574      17,323,553
                                                 ============    ============    ============    ============
</TABLE>

See Notes To Condensed Consolidated Financial Statements.

                                        3

<PAGE>

                     GRAPHCO HOLDINGS CORP. AND SUBSIDIARIES
                          (A Development Stage Company)

     CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
         SIX MONTHS ENDED JUNE 30, 2003 AND PERIOD FROM JANUARY 1, 1998
                (DATE OF INCEPTION) TO JUNE 30, 2003 (Unaudited)


<TABLE>
<CAPTION>
                                                   Series A Convertible
                                                      Preferred Stock                Common Stock
                                                 -------------------------    ---------------------------    Additional
                                                 Number of                    Number of                        Paid-in
                                                   Shares         Amount         Shares         Amount         Capital
                                                 ------------   -----------   ------------    ------------   -------------
<S>              <C>                             <C>                             <C>          <C>             <C>
Balance, January 1, 1998                         1,000,000                       3,721,695    $      3,722    $   418,750
2.68975-for-1 stock split                                                        6,282,378           6,282         (6,282)
Stock issued for services                                                          360,000             360           (360)
Detachable warrants issued in connection
   with bridge financing                                                                                           86,064
Retirement of preferred shares                  (1,000,000)
Net loss
                                                ----------                     ----------     ------------     ----------
Balance, December 31, 1998                                                      10,364,073          10,364        498,172
Stock issued in connection with private
   placement                                                                     5,881,054           5,881      6,389,287
Stock issued in connection with
   acquisition                                                                      23,810              24         31,644
Stock exchanged for the retirement of
   bridge notes                                                                    474,506             474        564,618
Net loss
                                                ----------                     ----------     ------------     ----------
Balance, December 31, 1999                                                      16,743,443          16,743      7,483,721
Stock issued in connection with
   private placement                               225,029    $  3,265,383
Stock warrants exercised                                                           246,659             247        327,809
Stock issued in connection with acquisition                                        143,999             144        191,375
Stock issued for services                                                           50,000              50         66,450
Warrants issued for services                                                                                       31,280
Net loss
                                                 ---------      ----------    ------------    ------------   -------------
Balance, December 31, 2000                         225,029       3,265,383      17,184,101          17,184      8,100,635
</TABLE>

<TABLE>
<CAPTION>
                                                   Accumulated
                                                    Deficit           Total
                                                  -------------    ------------
<S>              <C>                             <C>              <C>
Balance, January 1, 1998                         $    (820,132)   $   (397,660)
2.68975-for-1 stock split
Stock issued for services
Detachable warrants issued in connection
   with bridge financing                                                86,064
Retirement of preferred shares
Net loss                                              (742,295)       (742,295)
                                                    ----------      -----------
Balance, December 31, 1998                          (1,562,427)     (1,053,891)
Stock issued in connection with private
   placement                                                         6,395,168
Stock issued in connection with
   acquisition                                                          31,668
Stock exchanged for the retirement of
   bridge notes                                                        565,092
Net loss                                            (1,489,397)     (1,489,397)
                                                    ----------      -----------
Balance, December 31, 1999                          (3,051,824)      4,448,640
Stock issued in connection with
   private placement                                                 3,265,383
Stock warrants exercised                                               328,056
Stock issued in connection with acquisition                            191,519
Stock issued for services                                               66,500
Warrants issued for services                                            31,280
Net loss                                            (7,157,185)     (7,157,185)
                                                    ----------      -----------
Balance, December 31, 2000                         (10,209,009)      1,174,193
</TABLE>

                                          4
<PAGE>

                     GRAPHCO HOLDINGS CORP. AND SUBSIDIARIES
                          (A Development Stage Company)

     CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
         SIX MONTHS ENDED JUNE 30, 2003 AND PERIOD FROM JANUARY 1, 1998
                (DATE OF INCEPTION) TO JUNE 30, 2003 (Unaudited)

<TABLE>
<CAPTION>
                                                    Series A Convertible
                                                       Preferred Stock            Common Stock
                                                 --------------------------   ------------------------      Additional
                                                  Number of                    Number of                     Paid-in
                                                    Shares         Amount        Shares         Amount       Capital
                                                 -----------     ----------   ----------       --------    -----------
<S>                                              <C>               <C>          <C>            <C>         <C>
Sales of common stock through
   private placement                                                             120,000     $      120   $    299,880
Compensatory stock options issued
   to employees and directors                                                                                1,922,305
Amortization of unearned compen-
   sation
Warrants issued for payment of
   interest                                                                                                     19,053
Issuance of beneficial conversion
   rights in connection with private
   placement of convertible notes
   payable                                                                                                   1,336,054
Sale of warrants as part of private
   placement of convertible notes
   payable                                                                                                   1,002,775
Warrants issued for payment of fees
   in connection with private placement
   applicable to convertible notes payable                                                                     299,004
Expenses in connection with private
   placement applicable to sale of
   warrants                                                                                                    (43,294)
Dividends accrued on Series A
   convertible preferred stock
Common stock issued as payment
   of accrued dividends                                                           19,452             19         48,609
Net loss
                                                 -----------     ----------   ----------       --------    -----------
Balance, December 31, 2001                         225,029       3,265,383    17,323,553         17,323     12,985,021
</TABLE>

<TABLE>
<CAPTION>
                                                       Unearned       Accumulated
                                                     Compensation        Deficit          Total
                                                    ---------------   ------------     -----------
<S>                                                  <C>              <C>             <C>
Sales of common stock through
   private placement                                                                  $   300,000
Compensatory stock options issued
   to employees and directors                        $(1,771,040)                         151,265
Amortization of unearned compen-
   sation                                                183,153                          183,153
Warrants issued for payment of
   interest                                                                                19,053
Issuance of beneficial conversion
   rights in connection with private
   placement of convertible notes
   payable                                                                              1,336,054
Sale of warrants as part of private
   placement of convertible notes
   payable                                                                              1,002,775
Warrants issued for payment of fees
   in connection with private placement
   applicable to convertible notes payable                                                299,004
Expenses in connection with private
   placement applicable to sale of
   warrants                                                                               (43,294)
Dividends accrued on Series A
   convertible preferred stock                                        $   (48,628)        (48,628)
Common stock issued as payment
   of accrued dividends                                                                    48,628
Net loss                                                               (6,292,623)     (6,292,623)
                                                    ---------------   ------------     -----------
Balance, December 31, 2001                            (1,587,887)     (16,550,260)     (1,870,420)

</TABLE>

                                          5

<PAGE>



                     GRAPHCO HOLDINGS CORP. AND SUBSIDIARIES
                          (A Development Stage Company)

     CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
         SIX MONTHS ENDED JUNE 30, 2003 AND PERIOD FROM JANUARY 1, 1998
                (DATE OF INCEPTION) TO JUNE 30, 2003 (Unaudited)


<TABLE>
<CAPTION>

                                       Series A Convertible      Series B Convertible Stock
                                         Preferred Stock               Preferred Stock                  Common Stock
                                       ---------------------    ------------------------------    ------------------------
                                       Number of                Number of           Subscription   Number of
                                         Shares     Amount       Shares   Amount     Receivable     Shares         Amount
                                       ---------   ---------    -------   ------     ---------    ----------      --------
<S>                                    <C>         <C>          <C>       <C>        <C>          <C>             <C>
Effects of reverse acquisition                                                                       938,240    $     939

Compensatory stock options issued to
   employees and directors

Cancellation of compensatory stock options
   issued to employees and directors

Amortization of unearned compensation

Warrants issued for payment of interest

Warrants issued for services

Exercise of warrants

Sale of Series B preferred stock, net
   of expenses of $65,740                                       469,000  $415,760    $(53,000)

Common stock issued for services                                                                     250,000          250

Net loss

                                       ---------   ---------    -------   ------     ---------    ----------      --------
Balance, December 31, 2002               225,029   3,265,383    469,000  415,760      (53,000)    18,511,793       18,512

</TABLE>

<TABLE>
<CAPTION>

                                                   Additional
                                                     Paid-in    Unearned      Accumulated
                                                     Capital   Compensation     Deficit        Total
                                                   ---------   ------------   -----------   -----------
<S>                                               <C>            <C>            <C>         <C>
Effects of reverse acquisition                   $  (154,935)                              $  (153,996)

Compensatory stock options issued to
   employees and directors                           418,148   $(130,000)                      288,148

Cancellation of compensatory stock options
   issued to employees and directors                (923,455)    923,455

Amortization of unearned compensation                            465,541                       465,541

Warrants issued for payment of interest              189,193                                   189,193

Warrants issued for services                       1,652,915                                 1,652,915

Exercise of warrants                                  28,000                                   28,000

Sale of Series B preferred stock, net
   of expenses of $65,740                                                                      362,760

Common stock issued for services                     249,750                                   250,000

Net loss
                                                                              $(7,216,104)   (7,216,104)
                                                  ----------    --------      -----------   -----------
Balance, December 31, 2002                        14,444,637    (328,891)     (23,766,364)   (6,003,963)
</TABLE>

                                          6

<PAGE>

                     GRAPHCO HOLDINGS CORP. AND SUBSIDIARIES
                          (A Development Stage Company)
     CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
         SIX MONTHS ENDED JUNE 30, 2003 AND PERIOD FROM JANUARY 1, 1998
                (DATE OF INCEPTION) TO JUNE 30, 2003 (Unaudited)


<TABLE>
<CAPTION>
                                                              Series A Convertible
                                                                 Preferred Stock          Series B Convertible Preferred Stock
                                                          ----------------------------   ----------------------------------------
                                                          Number of                        Number                   Subscriptions
                                                           Shares            Amount       of Shares       Amount      Receivable
                                                          ----------      ------------   -----------   ------------  ------------
<S>                                                       <C>             <C>            <C>           <C>           <C>
Sale of Series B preferred stock through private
  placement, net of expenses of $16,390                                                      46,500     $     36,610

Conversion of Series B preferred stock into common stock                                    (515,50)        (452,370)

Sale of Common Stock through private placement,
  net of expenses of $3,000

Compensatory stock options issued to employees

Amortization of unearned compensation

Warrants issued for payment of interest

Exercise of warrants

Common stock issued for services

Common stock issued in consideration for payment of
 accounts payable

Payments of subscription receivable                                                                                          53,000

Net loss
                                                         -------   ---------------      -----------     ------------   ------------
Balance, June 30, 2003                                   225,029   $     3,265,383               --     $         --   $         --
                                                         =======   ===============      ===========     ============   ============


<CAPTION>
                                                    Common Stock
                                               ------------------------
                                                                          Additional
                                                 Number of                  Paid-in        Unearned      Accumulated
                                                  Shares      Amount        Capital       Compensation      Deficit        Total
                                                ---------- ------------- -------------   --------------  ------------   -----------
<S>                                             <C>        <C>           <C>             <C>             <C>            <C>
Sale of Series B preferred stock
  through private placement, net of
  expenses of $16,390                                                                                                $     36,610

Conversion of Series B preferred
  stock into common stock                        515,500           515       451,855

Sale of Common Stock through private placement,
  net of expenses of $3,000                      343,146           343       293,846                                      294,189

Compensatory stock options issued to employees                               100,845                                      100,845

Amortization of unearned compensation                                                        91,230                        91,230

Warrants issued for payment of interest                                      119,490                                      119,490

Exercise of warrants                              83,625            84        29,916                                       30,000

Common stock issued for services                 183,000           183       529,017                                      529,200

Common stock issued as consideration for
 payment of accounts payable                     161,904           162       161,742                                      161,904

Payments of subscription receivable                                                                                        53,000

Net loss                                                                                                (2,024,014)    (2,024,014)
                                               ---------- ------------  ------------   ------------   ------------   ------------
Balance, June 30, 2003                         19,798,968 $     19,799  $ 16,131,348   $   (237,661)  $(25,790,378)  $ (6,611,509)
                                               ========== ============  ============   ============   ============   ============
</TABLE>

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.


                                        7


<PAGE>

                     GRAPHCO HOLDINGS CORP. AND SUBSIDIARIES
                          (A Development Stage Company)
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                   SIX MONTHS ENDED JUNE 30, 2003 AND 2002 AND
                 PERIOD FROM JANUARY 1, 1998 (DATE OF INCEPTION)
                          TO JUNE 30, 2003 (Unaudited)

<TABLE>
<CAPTION>

                                                                                Six Months ended June 30,          Cumulative
                                                                             -------------------------------       Development
                                                                                2003                2002              Stage
                                                                             ------------       ------------       ------------
Operating activities:
<S>                                                                            <C>                  <C>                  <C>
Net loss                                                                     $ (2,024,104)      $ (2,668,572)      $(24,921,618)
Adjusts to reconcile net loss to net cash used in
         operating activities:
    Depreciation and amortization of property and equipment                        26,654            276,562          1,686,797
    Write-off of impaired property and equipment                                                                        377,004
    Note Payable issued for services                                                                                    129,000
    Warrants issued for payment of interest                                       119,490             59,745            308,683
    Warrants issued for services                                                  100,845                             1,344,845
    Common stock issued for services                                              529,200                               845,700
    Compensatory options and warrants issued to employees and directors            91,230                             1,054,675
    Amortization of unearned income                                                                                     648,694
    Charges to interest expense for amortization of:
       Deferred Loan Expenses                                                                        211,256            501,138
       Debt discount                                                                                 890,689          2,589,730
    Equity in net loss of equity investee                                                                               949,420
    Acquired research and development expenses                                                                          200,000
    Gain on sale of marketable securities                                                                               (40,949)
    Unrealized loss on marketable securities                                                                            108,249
Changes in operating assets and liabilities:
    Accounts receivable                                                                               15,881              2,041
    Prepaid expenses and other assets                                             (12,002)           287,807            (91,390)
    Other assets                                                                                      (9,772)            42,163
    Accounts payable and other accrued expenses                                   777,007            859,696          4,027,625
                                                                             ------------       ------------       ------------

                      Net cash used in operating activities                      (391,590)           (76,708)       (10,521,777)
                                                                             ------------       ------------       ------------

</TABLE>

                                        8

<PAGE>

                     GRAPHCO HOLDINGS CORP. AND SUBSIDIARIES
                          (A Development Stage Company)
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                   SIX MONTHS ENDED JUNE 30, 2003 AND 2002 AND
                 PERIOD FROM JANUARY 1, 1998 (DATE OF INCEPTION)
                          TO JUNE 30, 2003 (Unaudited)


<TABLE>
<CAPTION>

                                                                                Six Months ended June 30,          Cumulative
                                                                             -------------------------------       Development
                                                                                2003                2002              Stage
                                                                             ------------       ------------       ------------
 Investing activities:
<S>                                                                      <C>
         Purchase of marketable securities                                                                             (540,210)
         Proceeds from maturity of marketable securities                                                                473,716
         Purchase of property and equipment                                                                          (1,813,319)
         Loan to related party                                                                                         (150,000)
         Acquisition of interest in equity investee                                                                    (750,000)
         Acquisition of technology license                                                                              (23,776)
                                                                             ------------       ------------       ------------
                        Net cash used in investing activities                        --                  --          (2,803,589)
                                                                             ------------       ------------       ------------

Financing activities:
         Payment for shares in connection with reverse acquisition                                                      (75,000)
         Proceeds from long-term debt                                                                                 1,160,000
         Repayments of long-term debt                                                                                (1,096,891)
         Costs of sales of convertible notes and warrants allocable
           to sales of:
             Convertible notes                                                                                         (169,451)
             Warrants                                                                                                   (43,294)
         Repayment of convertible notes payable                                                                        (120,000)
         Proceeds from sales of convertible notes and warrants                                                        2,620,000
         Proceeds form the exercise of warrants                                  30,000              23,000              58,000
         Proceeds from the private placement of preferred stock,
           net of expenses                                                       36,610              22,500           3,664,753
         Proceeds from the private placement of common stock,
           net of expenses                                                      294,189                                 294,189
         Issuance of common stock                                                53,000                               7,076,224
         Proceeds from debt obligations                                          35,555                                  35,555
         Payments on debt obligations                                           (30,555)                                (30,555)
         Other                                                                                                          (20,000)
                                                                             ------------       ------------       ------------

                        Net cash provided from financing activities             418,799              45,500          13,353,530
                                                                             ------------       ------------       ------------

Net increase (decrease) in cash                                                  27,209             (31,208)             28,164

Cash, beginning of period                                                           955              76,299                  --
                                                                             ------------       ------------       ------------

Cash, end of period                                                          $   28,164        $     45,091        $     28,164
                                                                             ============      =============       ============

Supplemental disclosure of cash flow data:
         Interest paid                                                                                             $    141,113
                                                                                                                   ============
</TABLE>

See Notes To Condensed Consolidated Financial Statements.

                                        9

<PAGE>

                     GRAPHCO HOLDINGS CORP. AND SUBSIDIARIES
                          (A Development Stage Company)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


Note 1 - Business and basis of presentation:

In the opinion of management,  the accompanying unaudited condensed consolidated
financial  statements  reflect all  adjustments,  consisting of normal recurring
accruals, necessary to present fairly the financial position of Graphco Holdings
Corp. and  Subsidiaries  (the  "Company") as of June 30, 2003,  their results of
operations for the three and six months ended June 30, 2003 and 2002, their cash
flows and changes in stockholders'  deficiency for the six months ended June 30,
2003 and the related  cumulative  amounts  for the period  from  January 1, 1998
(date of inception) to June 30, 2003.  Pursuant to the rules and  regulations of
the United  States  Securities  and Exchange  Commission  (the  "SEC"),  certain
information and disclosures  normally included in financial  statements prepared
in accordance with accounting principles generally accepted in the United States
of America have been  condensed in or omitted  from these  financial  statements
unless  significant  changes  have taken  place since the end of the most recent
fiscal year.  Accordingly,  these  unaudited  condensed  consolidated  financial
statements should be read in conjunction with the audited consolidated financial
statements as of December 31, 2002 and for the periods  ended  December 31, 2002
and 2001 and the notes  thereto (the  "Audited  Financial  Statements")  and the
other information  included in the Company's Annual Report on Form 10-KSB/A (the
"Form 10-KSB") for the year ended  December 31, 2002 that was  previously  filed
with the SEC.

The results of  operations  for the three and six months ended June 30, 2003 are
not  necessarily  indicative  of the  results to be  expected  for the full year
ending December 31, 2003.

The accompanying unaudited condensed consolidated financial statements have been
prepared  assuming that the Company will continue as a going  concern.  However,
the  Company has  incurred  recurring  losses and, as shown in the  accompanying
condensed  consolidated  balance  sheet as of June 30,  2003,  it had a  working
capital deficit of approximately $6,756,000,  cumulative net loss of $25,790,000
and a  stockholders'  deficiency of $6,612,000.  It also had  convertible  notes
payable with a principal  balance of  $2,574,908  and other notes payable with a
principal  balance of  $209,000  that were in default as of June 30, 2003 and/or
August 15, 2003 (see Notes 3, 4 and 6 herein).  These matters raise  substantial
doubt about the Company's ability to continue as a going concern.



                                       10
<PAGE>

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


Note 1 - Basis of presentation (concluded):

Management  believes  that the  Company  will  continue  to incur net losses and
negative cash flows from operating activities through at least the twelve months
ending  June 30,  2004.  In the  absence of  operating  profits  and cash flows,
management  believes  the Company  will need to limit its  expenditures,  obtain
additional debt or equity  financing,  obtain  agreements with creditors for the
conversion  of  outstanding  obligations  into  preferred or common stock and/or
obtain  agreements with creditors for their forbearance with respect to past due
obligations.  Management plans to continue to negotiate the extension of the due
dates for or the conversion of the Company's obligations and see additional debt
or equity financing  through private  placements or by other means. It will also
continue to seek  strategic  partners  for the Company  that can provide it with
working  capital.  Management  also  plans to  continue  to limit the  Company's
development activities where necessary.  However,  management cannot assure that
the Company will be able to obtain the  additional  capital  resources that will
enable the Company to sustain its operations and planned development  activities
through  at least June 30,  2004.  If the  Company  cannot  generate  sufficient
revenues and/or obtain sufficient  additional financing,  if necessary,  by that
date, the Company may be forced thereafter to restructure its operations, merge,
sell its operations,  file for bankruptcy  reorganization  or entirely cease its
operations.

The accompanying  unaudited condensed  consolidated  financial statements do not
include any adjustments  related to the  recoverability  and  classifications of
assets or the amounts and classifications of liabilities that might be necessary
should the Company be unable to continue as a going concern.

The Company's  form 10QSB for the period ended June 30, 2003 was not reviewed by
the  Company's  independent  public  accountants  as  required by Item 310(b) of
Regulation S-B due to dispute as to whether an additional  amount should be paid
at this  time  to  said  independent  public  accountants,  in  order  for  said
independent public accountants to complete said review.

Note 2 - Earnings (loss) per share:

The  Company   presents  "basic"  earnings  (loss)  per  common  share  and,  if
applicable,  "diluted"  earnings per common share  pursuant to the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings per Share." Basic
earnings  (loss) per common share is  calculated  by dividing net income or loss
applicable  to common  stock by the  weighted  average  number of common  shares
outstanding  during each period.  The weighted  average  number of common shares
outstanding  for the six months ended June 30, 2003  includes the effects of the
assumed  conversion of shares of Series B convertible  preferred stock that were
subject to automatic conversion (see Note 9)


                                       11
<PAGE>

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


Note 2 - Earnings (loss) per share (concluded):

from their  respective  dates of  issuance  (see  Notes 2 and 10 to the  Audited
Financial Statements in the Form 10-KSB/A and Note 3 herein). The calculation of
diluted  earnings  per common  share is similar  to that of basic  earnings  per
common share,  except that the denominator is increased to include the number of
additional  common shares that would have been  outstanding  if all  potentially
dilutive  common  shares,  such as those  issuable  upon the  exercise  of stock
options and warrants and the conversion of convertible notes, were issued during
the period,  the treasury stock method had been applied to the proceeds from the
exercise of the options and warrants and the interest  costs  applicable  to the
convertible notes payable had been added back to the numerator.

Diluted per share amounts have not been presented in the accompanying  unaudited
condensed  consolidated  statements  of  operations  because the Company had net
losses in the three and six months  ended June 30, 2003 and 2002 and the assumed
effects of the exercise of all of the  Company's  stock options and warrants and
the conversion of the convertible notes payable that were outstanding during all
or part of those periods would have been anti-dilutive.  At June 30, 2003, there
were 8,780,588  shares  issuable upon the exercise of the Company's  outstanding
options and warrants and the  conversion of its  outstanding  notes payable that
were excluded from the computation of diluted loss per common share because they
were anti-dilutive.

Note 3 - Convertible notes payable:

The Company sold  convertible  notes and warrants to purchase  939,166 shares of
common  stock  through a private  placement  during 2001 that had a net carrying
value of  $2,574,908  at June 30, 2003 and  December 31, 2002 (see Note 5 to the
Audited Financial  Statements in the Form 10-KSB/A).  The convertible notes were
convertible into a total of 1,954,605 shares of common stock at conversion rates
ranging from $1.50 to $5.00 per share. Convertible notes in the principal amount
of $1,000,000  are secured and payable (at The Company's  discretion) by certain
intellectual property developed by the Company that is no longer used and has no
carrying  value.  The  remainder of the  convertible  notes are  unsecured.  The
Company has  defaulted on the  repayment of all of its  convertible  notes which
were due on or prior to September  30, 2002.  As a result of the  defaults,  the
range of  interest  rates on the  convertible  notes,  which had been 8% to 12%,
increased  to 13.5% to 18%.  Accrued  interest  on the  convertible  notes total
approximately  $442,000  and  $290,000 at June 30, 2003 and  December  31, 2002,
respectively.  In addition,  the Company became obligated to issue to holders of
convertible notes in the principal amount of $165,000 a total of 46,816 warrants
for the purchase of common stock every 30 days until principal and interest




                                       12
<PAGE>

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


Note 3 - Convertible notes payable (concluded)

are paid.  Such warrants are  exercisable  at $2.50 per share from the date they
are required to be issued through November 2004.

The Company was required to issue  warrants for the purchase of total of 280,896
shares of common stock  during the six months  ended June 30, 2003.  Pursuant to
the  provisions  of  Statement  of  Financial   Accounting  Standards  No.  123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), the Company valued these
warrants at  approximately  $119,490 based on the  Black-Scholes  option-pricing
model and charged interest expense and increased  additional  paid-in capital by
that amount  during the six months  ended June 30,  2003.  The  issuances of the
warrants to the note holders were noncash  transactions and,  accordingly,  they
are  not  reflected  in  the  accompanying   unaudited  condensed   consolidated
statements of cash flows.

Note 4 - Other notes payable:

As of June 30,  2003,  the  Company had other notes  payable  with an  aggregate
balance of  $209,000,  including  notes  payable  with an  aggregate  balance of
$204,000  that bear  interest at 10% and were  required to be repaid on June 12,
2003 (see Note 6 to the Audited Financial Statements in the Form 10-KSB/A).  The
Company was not able to repay those notes.  During the six months ended June 30,
2003,the  Company  received loan proceeds of $35,555.  The related notes payable
were noninterest bearing. The Company repaid $30,555 during the six months ended
June 30, 2003 and the remaining  balance of $5,000 was in default as of June 30,
2003.

Note 5 - Income taxes:

As explained in Note 7 to the Audited Financial Statements in the Form 10-KSB/A,
the  Company is  offsetting  its  deferred  tax assets,  which are  attributable
primarily to the potential benefits of its net operating loss carry forwards, by
equivalent  valuation  allowances due to, among other things,  the uncertainties
related to the changes in the ownership of the Company, which could subject such
net operating  loss carry forwards to substantial  annual  limitations,  and the
uncertainties  related to the extent  and timing of its future  taxable  income.
Accordingly,  the Company did not  recognize any credits for income taxes in the
accompanying unaudited condensed consolidated statements of operations to offset
its pre-tax losses.





                                       13
<PAGE>



              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


Note 6 - Commitments and contingencies:

     Litigation:

On May 31, 2002, one of the holders of the Company's past due convertible  notes
(see Note 3 herein) obtained a judgment against the Company in the Supreme Court
of the State of New York,  County of New York,  that requires the Company to pay
her approximately $1,376,000 plus any applicable interest subsequent to the date
of  the  judgment.  As of  December  31  2002,  the  Company  was  carrying  the
convertible  note  at  approximately  $1,489,000,  which  was  comprised  of the
principal balance of $1,274,000 and accrued interest of approximately  $215,000.
The Company has been  attempting to negotiate a forbearance  agreement  with the
note holder and as of August 15,  2003,  the note holder had not taken any other
actions to enforce the  judgment.  However,  management  cannot  assure that the
Company  will be able to  reach  any  agreement  with the  note  holder  for her
continued  forbearance  and if she does  take  additional  actions  against  the
Company  such  actions  could have a material  adverse  impact on the  Company's
financial condition and its operations.

The Company is a party to various  other claims and lawsuits  incidental  to its
business. In the opinion of management, the resolution of such contingencies may
materially affect the consolidated financial position,  results of operations or
cash flows of the Company in subsequent years.


     Unpaid wages:

As of June 30, 2003,  accrued  expenses  included  approximately  $1,723,000 for
amounts  payable to current  and former  officers  and other  current and former
employees  that the Company did not have the  resources  to pay.  Although as of
June 30,  2003,  the Company was not subject to and was not aware of any actions
related to the enforcement of claims for such unpaid amounts,  management cannot
assure that the Company will be able to reach any  agreement  with the employees
or the former  employees if they do take action to enforce  their  claims;  such
actions  could  have  a  material  adverse  impact  on the  Company's  financial
condition and its operations.


Note 7 - Employee stock options:

As explained in Note 9 to the Audited Financial Statements in the Form 10-KSB/A,
the Company had issued  options to officers,  directors and other  employees for
the purchase of 2,065,000 shares of common stock that remained outstanding as of
December 31, 2002.  Such options had exercise  prices ranging from $.60 to $1.33
per share and expiration dates from 2003 through 2012. No



                                       14
<PAGE>

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


Note 7 - Employee stock options (concluded)

employee  stock  options were  awarded,  exercised  or cancelled  during the six
months ended June 30, 2003.

During the three months ended March 31, 2003,  the Company  issued  warrants for
the purchase of 40,500  shares of common stock to an officer.  The fair value of
the Company's common stock exceeded the aggregate exercise price of the warrants
granted by $100,845 at the date of the warrant  were  granted.  As  explained in
Note 2 to the Audited Financial Statements in the Form 10-KSB/A, the Company has
elected to continue to use the provisions of Accounting Principles Board Opinion
No.  25,  "Accounting  for Stock  Issued to  Employees"  ("APB  25")  whereby it
recognizes   compensation   costs  as  a  result  of  the   issuance   of  stock
options/warrants  to employees based on the excess, if any, of the fair value of
the  underlying  stock  at the date of  grant  or  award  (or at an  appropriate
subsequent  measurement  date) over the amount the employees must pay to acquire
the stock (the  "Intrinsic  Value  Method").  The warrants issued to the officer
became exercisable from the date of grant and, accordingly, charged compensation
expense and  increased  additional  paid-in  capital by $100,845  during the six
months  ended  June 30,  2003.  The  issuance  of these  warrants  was a noncash
transaction  and,  accordingly,  it is not  reflected in the  accompanying  2003
unaudited condensed consolidated statement of cash flows.

The fair value of each  option/warrant  granted by the Company to its  employees
has exceeded the exercise price of the option.  Inaccordance  with the Intrinsic
Value Method of accounting under APB 25, the Company has recorded such excess as
compensation  which has been charged to expense  over the vesting  period of the
related  option/warrant.  The Company charged  $146,460 to compensation  expense
during the six months  ended June 30, 2003 as a result of the option  granted to
the officer and $45,615 of  amortization of unearned  compensation  arising from
grants of options in prior  periods that did not vest  immediately.  The Company
did not  record  any  compensation  expense  related  to  grants of  options  to
employees during the three months ended June 30, 2002.

Pro forma net loss and pro forma net loss per share for the three and six months
ended  June 30,  2003 and 2002  computed  using a fair  value  based  method  of
accounting  for stock  options as required  by SFAS 123 have not been  presented
because  they do not  differ  materially  from the  related  historical  amounts
reflected in the accompanying condensed consolidated statements of operations.



                                       15
<PAGE>

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

Note 8 - Outstanding warrants:

As explained in Note 9 to the Audited Financial Statements in the Form 10-KSB/A,
the Company had issued  warrants for the purchase of 6,424,192  shares of common
stock that  remained  outstanding  as of December  31,  2002.  Such  options had
exercise prices ranging from $1.00 to $5.00 per share and expiration  dates from
2003 through  2010.  During the three  months  ended June 30, 2003  warrants for
30,000 shares of common stock at $1.00 per share were  exercised  for cash,  and
warrants for 71,500 shares of common stock at $.60 per share were exercised in a
cashless  exercise for 53,625 shares of common stock. No warrants were cancelled
during the six months ended June 30, 2003. The Company  issued  warrants for the
purchase  of a total of  280,896  shares of common  stock  during the six months
ended June 30,  2003 to certain  holders  of its  convertible  notes (see Note 3
herein).

Note 9 - Other changes in stockholders' deficiency:

As  explained  in  Note  10 to the  Audited  Financial  Statements  in the  Form
10-KSB/A,  the Company's Articles of Incorporation  authorize the issuance of up
to  5,000,000  shares of  preferred  stock,  of which  333,333  shares  had been
designated  as  Series  A  convertible  preferred  stock  ("Series  A  shares"),
4,500,000 shares  designated as Series B convertible  preferred stock ("Series B
shares").

During the six months  ended June 30,  2003,  the Company  sold 46,500  Series B
shares  through  private  placements  and received  proceeds of $36,610,  net of
related  expenses of  $16,390.  The  Company  had sold  469,000  Series B shares
through  private  placements  during  2002.  Holders of Series B shares were not
entitled to dividends and had no voting rights.  Each Series B share sold by the
Company was  automatically  convertible  into one share of the Company's  common
stock when the Company became a publicly-held  company as a result of the merger
that was  consummated on December 13, 2002 (see Note 1 to the Audited  Financial
Statements in the Form 10-KSB/A) and its  ratification  by stockholders on March
19, 2003.

In addition to the issuances of shares of preferred  stock  described  above and
the issuances of options and warrants described in Notes 3, 7 and 8, the Company
issued  100,000  shares of its common  stock as a payment for legal  services in
February 2003.  The Company  charged the fair value of the shares of $330,000 to
selling,  general and administrative  expenses and increased  additional paid-in
capital by that amount in the six months  ended June 30,  2003.  The issuance of
these shares was noncash  transaction and,  accordingly,  it is not reflected in
the accompanying  unaudited condensed  consolidated  statement of cash flows for
the six months  ended June 30,  2003.  A  principal  of a law firm that


                                       16
<PAGE>

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


Note 9 - Other changes in stockholders' deficiency (concluded):

received  shares of common  stock  options  with a fair  value of  approximately
$165,000 is also a director and officer of the Company.


                                       17
<PAGE>


ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS ON PLAN OF OPERATIONS.


FORWARD LOOKING STATEMENTS

This  Quarterly  Report on Form  10-QSB  contains  "forward-looking  statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended.  All statements,
other than  statements  of  historical  facts,  included in or  incorporated  by
reference in to this Form 10-QSB, are forward-looking  statements.  In addition,
when used in this document,  the words "anticipate,"  "estimate,"  "project" and
similar expressions are intended to identify forward-looking  statements.  These
forward-looking  statements  are  subject to certain  risks,  uncertainties  and
assumptions  including  risks  relating  to our  limited  operating  history and
operations  losses;  significant  capital  requirements;  development of markets
required for successful performance by the Company.  Should one or more of these
risks or  uncertainties  materialize,  or should  underlying  assumptions  prove
incorrect, actual results may vary materially from those anticipated,  estimated
or  projected.  Although  we believe  that the  expectations  we include in such
forward-looking  statements  are  reasonable,  we cannot  assure  you that these
expectations  will prove to be correct.  The following  discussion  and analysis
should be read in conjunction with the unaudited financial  statements contained
in Part I, Item 1, and the related notes.

OVERVIEW

Business and basis of presentation:

In the opinion of management,  the accompanying unaudited condensed consolidated
financial  statements  reflect all  adjustments,  consisting of normal recurring
accruals, necessary to present fairly the financial position of Graphco Holdings
Corp. and  Subsidiaries  (the  "Company") as of June 30, 2003,  their results of
operations  for the three months and six months ended June 30, 2003 and 2002 and
cash flows for the six months  ended June 30,  2003 and 2002,  their  changes in
stockholders'  deficiency for the six months ended June 30, 2003 and the related
cumulative  amounts for the period from January 1, 1998 (date of  inception)  to
June 30,  2003.  Pursuant  to the rules and  regulations  of the  United  States
Securities  and  Exchange  Commission  (the  "SEC"),   certain  information  and
disclosures  normally  included in financial  statements  prepared in accordance
with accounting  principles  generally  accepted in the United States of America
have been  condensed  in or  omitted  from  these  financial  statements  unless
significant  changes  have taken place  since the end of the most recent  fiscal
year.  Accordingly,  these unaudited condensed consolidated



                                       18
<PAGE>

financial statements should be read in conjunction with the audited consolidated
financial  statements as of December 31, 2002 and for the periods ended December
31, 2002 and 2001 and the notes thereto (the "Audited Financial Statements") and
the other  information  included in the Company's Annual Report on Form 10-KSB/A
(the "Form  10-KSB") for the year ended  December  31, 2002 that was  previously
filed with the SEC.

The results of  operations  for the three  months and six months  ended June 30,
2003 are not  necessarily  indicative of the results to be expected for the full
year ending December 31, 2003.

The accompanying unaudited condensed consolidated financial statements have been
prepared  assuming that the Company will continue as a going  concern.  However,
the  Company has  incurred  recurring  losses and, as shown in the  accompanying
condensed  consolidated  balance  sheet as of June 30,  2003,  it had a  working
capital  deficit  of  approximately   $6,756,000,   a  cumulative  net  loss  of
$25,790,000  and  a  stockholders'   deficiency  of  $6,612,000.   It  also  had
convertible notes payable with a principal balance of $2,574,908 and other notes
payable with a principal balance of $209,000 that were in default as of June 30,
2003 and/or  August 15, 2003 (see Notes 3, 4 and 6 herein).  These matters raise
substantial doubt about the Company's ability to continue as a going concern.

Management  believes  that the  Company  will  continue  to incur net losses and
negative cash flows from operating activities through at least the twelve months
ending  June 30,  2004.  In the  absence of  operating  profits  and cash flows,
management  believes  the Company  will need to limit its  expenditures,  obtain
additional debt or equity  financing,  obtain  agreements with creditors for the
conversion  of  outstanding  obligations  into  preferred or common stock and/or
obtain  agreements with creditors for their forbearance with respect to past due
obligations.  Management plans to continue to negotiate the extension of the due
dates for or the  conversion of the Company's  obligations  and seek  additional
debt or equity financing  through private  placements or by other means. It will
also  continue to seek  strategic  partners  for the Company that can provide it
with working  capital.  Management also plans to continue to limit the Company's
development activities where necessary.  However,  management cannot assure that
the Company will be able to obtain the  additional  capital  resources that will
enable the Company to sustain its operations and planned development  activities
through  at least June 30,  2004.  If the  Company  cannot  generate  sufficient
revenues and/or obtain sufficient  additional financing,  if necessary,  by that
date, the Company may be forced thereafter to restructure its operations, merge,
sell its operations,  file for bankruptcy  reorganization  or entirely cease its
operations.

The accompanying  unaudited condensed  consolidated  financial statements do not
include any adjustments  related to the  recoverability  and  classifications of
assets or the amounts and classifications of liabilities that might be necessary
should the Company be unable to continue as a going concern.

Significant Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations
are based upon our unaudited condensed consolidated financial statements,  which
have been prepared in accordance with accounting  principles  generally accepted
in the United States of America. The preparation of these condensed consolidated
financial statements requires us to make estimates and judgments that affect the
reported  amounts of assets,  liabilities,  revenues and  expenses,  and related
disclosure  of  contingent  assets and  liabilities.  On an on-going  basis,  we
evaluate  our  estimates,   including  those  related  to  accounts  receivable,
equipment,  capitalized  software



                                       19
<PAGE>

development costs, stock based compensation,  income taxes and contingencies. We
base our estimates on  historical  experience  and on various other  assumptions
that are believed to be reasonable under the circumstances, the results of which
form the basis for  making  judgments  about the  carrying  values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.

The  accounting  policies and estimates  used as of December 31, 2002 which were
explained in the notes to the consolidated financial statements in the Company's
previously  filed form 10-KSB/A for the year ended December 31, 2002,  have been
applied consistently during the six months ended June 30, 2003.

RESULTS OF OPERATIONS:

Quarters  ended June 30,  2003 as  compared to June 30, 2002 and the period from
January 1, 1998 (date of inception) to June 30, 2003.

The Company generated  revenues of approximately  $-0-,  $216,000 and $1,533,000
for the  quarters  ended June 30, 2003 and 2002 and the period  from  January 1,
1998 (date of inception) to June 30, 2003, respectively.

Selling general and administrative expenses for the quarters ended June 30, 2003
and 2002 and the period  from  January 1, 1998 (date of  inception)  to June 30,
2003 were approximately $615,000, $652,000 and $16,320,000 respectively. Selling
general and administrative  expenses  primarily  consists of the following;  (i)
salaries,  (ii)  professional  fees,  (iii)  depreciation  and  amortization  of
property and equipment, and (iv) rent expense.

Research and development expenses for the quarters ended June 30, 2003, 2002 and
the  period  from  January  1, 1998 (date of  inception)  to June 30,  2003 were
approximately  $88,000,  $74,000  and  $4,915,000,  respectively.  Research  and
development expense primarily consists of payroll.

Net loss from  operations  for the quarters ended June 30, 2003 and 2002 and the
period  from  January  1,  1998  (date  of  inception)  to  June  30,  2003  was
approximately $704,000, $510,000 and $20,415,000, respectively

Interest  expense for the  quarters  ended June 30, 2003 and 2002 and the period
from January 1, 1998 (date of  inception)  to June 30, 2003,  was  approximately
$136,000,  $397,000 and $3,763,000,  respectively.  Interest  expense  primarily
consists of amortization relating to debt, which is a non-cash charge.

Net loss for the  quarters  ended  June 30,  2003 and 2002 and the  period  from
January  1,  1998  (date of  inception)  to June  30,  2003,  was  approximately
$840,000, $907,000 and $24,922,000, respectively. The reasons for the net losses
are explained above.

Liquidity and Capital Resources:

Graphco  Holdings Corp.  consolidated  financial  statements  have been prepared
assuming that the Company will continue as a going concern.  The Company has not
generated  any revenue  from its products and is in its  development  stage.  As
shown in the  consolidated  financial  statements  the  Company  has  incurred a
cumulative  loss of  approximately  $25,790,000  through June 30,


                                       20
<PAGE>

2003 and had a working  capital  deficiency of  approximately  $6,756,000  and a
stockholders  deficiency of $6,612,000.  It also had  convertible  notes payable
with principal balances of approximately  $2,575,000 that were in default. These
matters raise  substantial  doubt about the  Company's  ability to continue as a
going concern.

Management  believes  that the  Company  will  continue  to incur net losses and
negative cash flows from operating activities through at least the twelve months
ended June 30,  2004.  In the absence of  operating  profits and  positive  cash
flows,  management  believes  the Company  will need to limit its  expenditures,
obtain  additional debt or equity financing,  obtain additional  agreements with
creditors and note holders for the  conversion of outstanding  obligations  into
preferred or common  stock,  and/or  obtain  agreements  with  creditors for the
forbearance with respect to past due  obligations.  Management plans to continue
to  negotiate  the  extension  of the due  dates  for or the  conversion  of the
Company's  obligations  and seek  additional  debt or equity  financing  through
private  placements or by other means.  It will also continue to seek  strategic
partners  for the Company  that can provide it with  working  capital.  However,
management  cannot assure that the Company will be able to obtain the additional
capital  resources  that will enable the Company to sustain its  operations  and
planned  development  activities  through at lease twelve  months ended June 30,
2003.  If  the  Company  cannot  generate   sufficient  revenues  and/or  obtain
sufficient additional financing,  if necessary, by that date, the Company may be
forced  thereafter  to  restructure  its  operations  merge  or  sell,  file for
reorganization or entirely cease its operations.

During 2001, the Company sold convertible notes and warrants to purchase 939,166
shares of common stock through a private  placement and received  gross proceeds
of $2,620,000. The Company recorded discounts for the fair value of the warrants
and beneficial conversions rights issued with these notes totaling approximately
$2,338,000 of which approximately $640,000 were amortized to interest expense in
2002,  representing  the  balance to be  amortized.  The notes bear  interest at
annual rates ranging from 8% to 12%. At December 31, 2001, the principal balance
and the  interest  on the  notes  had been  scheduled  to be paid,  based on the
original  provisions  in the related loan  agreements  at various  dates through
September 30, 2002.

The Company  has  defaulted  on the  repayment  of these  notes,  therefore  the
interest  rates  increased  from  13.5%  to 18%.  In  addition,  it also  became
obligated to issue to certain of these note holders warrants until the principal
and interests  are paid.  (See Note 3 to the  Condensed  Consolidated  Financial
Statements)

During 2002 and 2003 through May 19, the date the merger was ratified  (see Note
9), the  Company  sold  515,500  shares of Series B  preferred  stock  through a
private placement and received proceeds of $534,500.


FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002:

Six months ended June 30, 2003

For the six months  ended June 30, 2003,  we utilized  cash from  operations  of
approximately $392,000.  This was attributable to the following:  (1) a net loss
of  approximately  $2,024,000,   which  was  offset  by,  (2)  depreciation  and
amortization  expense of  approximately  $27,000,  (3) common stock and warrants
issued for services of approximately  $630,000, (4) charges relating to warrants
issued for payment of interest of  approximately  $119,000,  (5) amortization of


                                       21
<PAGE>

unearned compensation totaling $91,000, and (6) increase in accounts payable and
accrued expenses totaling $777,000.

We generated cash from financing activities of approximately $419,000, primarily
attributable  to the  following:  (1)  net  proceeds  of  approximately  $90,000
received from the sale of and collection of subscriptions  receivable for Series
B preferred  stock,  (2) exercise of warrants for $30,000,  and (3) net proceeds
from the sale of 343,146 shares of common stock totaling approximately $294,000.

Six months ended June 30, 2002

For the six months  ended June 30, 2002,  we utilized  cash from  operations  of
approximately $77,000. This was attributable to the following; (1) a net loss of
approximately $2,669,000, which was offset by, (2) depreciation and amortization
expense of approximately  $277,000,  (3) charges relating to warrants issued for
payment of interest of approximately  $60,000, (4) amortization of deferred loan
costs and debt discount totaling $1,102,000 (5) increase in accounts payable and
accrued expenses totaling $860,000,  and (6) decrease in accounts receivable and
prepaid expenses totaling $304,000.

We generated cash from financing  activities of $46,000  attributable to (1) the
exercise of warrants for $23,000 and (2) net proceeds of  approximately  $23,000
from the sale of 12,500 shares of Series B preferred stock.


ITEM 3. CONTROLS AND PROCEDURES



(a) Evaluation of disclosure controls and procedures.

         We maintain  disclosure  controls  and  procedures  designed to provide
reasonable assurance that information required to be disclosed in the reports we
file with the SEC is recorded,  processed,  summarized and reported  within time
periods specified in the rules of the SEC. Within 90 days prior to the filing of
this Quarterly  Report on Form 10-QSB,  we carried out an evaluation,  under the
supervision  and  the  participation  of  our  management  including  our  Chief
Executive  Officer of the design and operation of these disclosure  controls and
procedures  pursuant to Exchange  Act Rule 13a-14.  Based upon this  evaluation,
management  concluded  that tighter  controls and  procedures  need to be set in
place regarding our issuance of stock options or other equity  instruments.  The
issue has  occurred  largely  as a result of our  emerging  Company  status  and
management is now taking steps to establish controls and procedures.



(b) Changes in internal controls.

There were no  significant  changes in internal  controls or other  factors that
could  significantly  affect our internal control  subsequent to the date or our
evaluation other than set forth in paragraph (a) above.






                                       22
<PAGE>

PART II - OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS



None



ITEM 2. CHANGES IN SECURITIES



None



ITEM 3. DEFAULTS UPON SENIOR SECURITIES



None



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



         Certain of our stockholders owning more than fifty percent (50%) of our
total voting shares,  have given their written  consent to amend the Certificate
of  Incorporation  to change the name our from RCM  Interests,  Inc.  to Graphco
Holdings  Corp.  or a  similar  name  approved  by the Board of  Directors.  The
Amendment  to our  Certificate  of  Incorporation,  changing our name to Graphco
Holdings  Corp.,  was filed with the  Department of State of Delaware and became
effective on May 15, 2003.

         No other matters were submitted to a vote of our stockholders as of the
date hereof.




ITEM 5. OTHER INFORMATION



None






                                       23
<PAGE>

ITEM 6. EXHIBITS AND REPORTS



(a) The following reports have been filed since the end of our last fiscal year:

         Form 8-K filed on March 17, 2003 with respect to the  engagement  of JH
Cohn  LLP as our  new  Independent  Accountants  and  the  replacement  of  S.W.
Hatfield, CPA as our Independent Accountants.

         Form 8-K/A filed on July 24,  2003 which  attaches  proforma  financial
information  for the  years  ended  December  31,  2002 and  2001 and  financial
statements of the business acquired as of December 31, 2002 and 2001 and for the
period from January 1, 1998 (date of inception) to December 31, 2002.

         Form 8-K/A filed on August 14, 2003 which attaches audited Consolidated
Financial  Statements of Graphco  Technologies,  Inc. and its subsidiaries as of
and for the year ended December 31, 2000 and which incorporates by reference the
financial information contained in the Form 8-K/A on July 24, 2003.


(b)  The  following  list  sets  forth  the  applicable  exhibits  (numbered  in
accordance  with Item 601 of  Regulation  S-K)  required  to be filed  with this
Quarterly Report on Form 10-QSB:

         Exhibit Number    Description
         --------------    -----------
         Exhibit 2.1       Merger  Agreement by and among RCM  Interests,  Inc.,
                           RCM Interests,  Inc.  Acquisition  Corp., and Graphco
                           Technologies,    Inc.    (Schedules    and   exhibits
                           omitted)incorporated   by   reference   to  Form  8-K
                           (previously filed with the Commission on December 11,
                           2002).






                                       24
<PAGE>

                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

Date: August 14, 2003
                                                Graphco Holdings Corp.

                                                By: /s/ Cristian Ivanescu
                                                    ----------------------------
                                                    Cristian Ivanescu
                                                    President, Chief
                                                    Executive Officer &
                                                    Chairman





                                                Graphco Holdings Corp.

                                                By: /s/ Rodger Wichterman
                                                    ----------------------------
                                                    Rodger Wichterman
                                                    Chief Financial Officer





                                       25
<PAGE>

 Statement Under Oath Regarding Facts and Circumstances Relating to Exchange Act

                                     Filings


         I,  Cristian Ivanescu,  certify  that:


1. I have  reviewed  this  quarterly  report on Form 10-QSB of Graphco  Holdings
Corp.

2 Based on my  knowledge,  this  quarterly  report  does not  contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made, not  misleading  with respect to the period covered by this quarterly
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included in this quarterly  report,  fairly present in all material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.  The  registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
exchange Act Rules l3a-14 and 15d-l4) for the registrant and have:

         a) designed  such  disclosure  controls and  procedures  to ensure that
material  information  relating to the  registrant,  including its  consolidated
subsidiaries, is made known to us by others within those entities,  particularly
during the period in which this quarterly report is being prepared;

         b) evaluated the effectiveness of the registrant's  disclosure controls
and  procedures  as of a date  within 90 days prior to the  filing  data of this
quarterly report (the "Evaluation Date"); and

         c)  presented  in this  quarterly  report  our  conclusions  about  the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent functions)

         a) all significant  deficiencies in the design or operation of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and



                                       26
<PAGE>

         b) any fraud,  whether or not  material,  that  involves  management or
other  employees  who  have a  significant  role  in the  registrant's  internal
controls; and

6. The  registrant's  other  certifying  officers  and I have  indicated in this
quarterly report whether there were significant  changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent  evaluation,  including any corrective  actions with
regard to significant deficiencies and material weakness.

                                                /s/ Cristian Ivanescu
                                                -------------------------------
                                                Cristian Ivanescu

Date:  August 14, 2003



Sworn to before me this
14th day of August 2003


/s/ Lorraine Bruno
--------------------------------------
Notary Public


Notarial Seal
Lorraine Bruno, Notary Public
Newtown Twp. Bucks County
My Commission Expires May 23, 2005

Member Pennsylvania Association of Notaries






                                       27
<PAGE>

                CERTIFICATION PURSUANT TO 18 US.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

         In connection with the Quarterly  Report of Graphco Holdings Corp. (the
Company)  on Form  10-QSB for the  quarter  ended  June 30,  2003 filed with the
Securities  and  Exchange  Commission  (the  "Report"),  I,  Cristian  Ivanescu,
President,  Chief Executive Officer and Chairman,  certify pursuant to 18 U.S.C.
Section 1350, as adopted  pursuant to Section 906 of the  Sarbanes-Oxley  Act of
2002 that:

         (1) The Report fully complies with the requirements of Section 13(a) of
the Securities Exchange Act of 1934; and

         (2) The  information  contained in the Report fairly  presents,  in all
material respects, the consolidated financial condition of the Company as of the
dates  presented  and  consolidated  result of operations of the Company for the
period presented.

Dated: August 14, 2003

                                              /s/ Cristian Ivanescu
                                              ---------------------------------
                                              Cristian Ivanescu



                                       28
<PAGE>

 Statement Under Oath Regarding Facts and Circumstances Relating to Exchange Act
                                     Filings


         I, Rodger Wichterman, certify that:


1. I have  reviewed  this  quarterly  report on Form 10-QSB of Graphco  Holdings
Corp.

2 Based on my  knowledge,  this  quarterly  report  does not  contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made, not  misleading  with respect to the period covered by this quarterly
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included in this quarterly  report,  fairly present in all material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.  The  registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
exchange Act Rules l3a-14 and 15d-l4) for the registrant and have:

         a) designed  such  disclosure  controls and  procedures  to ensure that
material  information  relating to the  registrant,  including its  consolidated
subsidiaries, is made known to us by others within those entities,  particularly
during the period in which this quarterly report is being prepared;

         b) evaluated the effectiveness of the registrant's  disclosure controls
and  procedures  as of a date  within 90 days prior to the  filing  data of this
quarterly report (the "Evaluation Date"); and

         c)  presented  in this  quarterly  report  our  conclusions  about  the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent functions)

         a) all significant  deficiencies in the design or operation of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

         b) any fraud,  whether or not  material,  that  involves  management or
other  employees  who  have a  significant  role  in the  registrant's  internal
controls; and

6. The  registrant's  other  certifying  officers  and I have  indicated in this
quarterly report whether there were significant  changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent  evaluation,  including any corrective  actions with
regard to significant deficiencies and material weakness.



                                       29
<PAGE>

                                                    /s/ Rodger Wichterman
                                                    ----------------------------
                                                    Rodger Wichterman

Date: August 14,  2003


Sworn to before me this
14th day of August 2003


/s/ Lorraine Bruno
---------------------------------
Notary Public


Notarial Seal
Lorraine Bruno, Notary Public
Newtown Twp. Bucks County
My Commission Expires May 23, 2005

Member Pennsylvania Association of Notaries




                                       30
<PAGE>

                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

         In connection with the Quarterly  Report of Graphco Holdings Corp. (the
Company)  on Form  10-QSB for the  quarter  ended  June 30,  2003 filed with the
Securities and Exchange Commission (the "Report"),  I, Rodger Wichterman,  Chief
Financial  Officer,  certify  pursuant  to 18 U.S.C.  Section  1350,  as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:

         (1) The Report fully complies with the requirements of Section 13(a) of
the Securities Exchange Act of 1934; and

         (2) The  information  contained in the Report fairly  presents,  in all
material respects, the consolidated financial condition of the Company as of the
dates  presented  and  consolidated  result of operations of the Company for the
period presented.

Dated: August 14, 2003

                                                   /s/ Rodger Wichterman
                                                   ----------------------------
                                                   Rodger Wichterman



                                       31