**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-Q**





x  **QUARTERLY
      REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE**


**SECURITIES
      EXCHANGE ACT OF 1934**





**For
      the quarterly period ended February 28, 2007**





o  **TRANSITION
      REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE**


**SECURITIES
      EXCHANGE ACT OF 1934**





**Commission
      file number: 0-19049**





**FORTUNE
      INDUSTRIES, INC.**


(Exact
      name of Registrant as specified in its charter)





**INDIANA**
            **20-2803889**(State
                or other jurisdiction of
            (IRS
                Employerincorporation
                or organization)
            Identification
                Number)





**6402
                Corporate Drive**
            **46278****Indianapolis,
                IN**
            (Zip
                Code)(Address
                of principal executive offices)





**(317)
      532-1374**


(Registrant’s
      telephone number, including area code)





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.





Yes x
      No o





Indicate
      by check mark whether the registrant is an accelerated filer (as defined in
      Rule
      12b-2 of the Exchange Act).





Yes o
      No x





Indicate
      by check mark whether the
      registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).




Yes o
      No x





As
      of
      April 16, 2007, 10,822,607 shares of the Company’s $0.10 per share par value
      common stock were outstanding.










**FORTUNE
      INDUSTRIES, INC.**


**FORM
      10-Q**


**For
      The Quarterly Period Ended February 28, 2007**





**INDEX**




PagePART  I.    Financial
                  InformationITEM
                  1.  Financial StatementsConsolidated
                  Balance Sheets as of February 28, 2007 (unaudited)
                  and August 31, 2006
              3Consolidated
                  Statements of Operations for the three and
                  six month periods ended February 28, 2007 and 2006
                  (unaudited)
              5Consolidated
                  Statement of Changes in Shareholders’
                  Equity for the six month period ended February 28, 2007
                  (unaudited)
              6Consolidated
                  Statements of Cash Flows for the six month
                  periods ended February 28, 2007 and 2006 (unaudited)
              7Notes
                  to the Consolidated Financial
                  Statements
              9ITEM
                  2.  Management's Discussion and Analysis of
                  Financial Condition and Results of Operations
              25ITEM
                  3.  Quantitative and Qualitative Disclosures
                  About Market Risk
              34ITEM
                  4.  Controls and Procedures
              35PART
                  II.    Other
                  InformationITEM
                  1.    Legal
                  Proceedings
              35ITEM
                  1A. Risk Factors
              35ITEM
                  2.    Unregistered Sales of Equity
                  Securities and Use of Proceeds
              35ITEM
                  3.    Defaults Upon Senior
                  Securities
              35ITEM
                  4.    Submission of Matters to a Vote
                  of Security Holders
              35ITEM
                  5.    Other
                  Information
              36ITEM
                  6.    Exhibits
              36Signatures
              36




2
 *Index*


**PART
      1 - FINANCIAL INFORMATION**


**Item
      1. Financial Statements.**





**FORTUNE
      INDUSTRIES, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**


**(DOLLARS
      IN THOUSANDS)**





**February
                              28,**
                            **2007**
                          
                          
                          **August
                              31,**
                            **2006****(Unaudited)**
                          
                          
                          **(Audited)****ASSETS****CURRENT
                              ASSETS**Cash
                              and equivalents
                          
                          $
                          7,294
                          
                          
                          $
                          3,632Restricted
                              cash
                          
                          
                          3,217
                          
                          
                          
                          3,462Marketable
                              equity securities (Note 3)
                          
                          
                          1,714
                          
                          
                          
                          1,281Accounts
                              receivable, net (Note 4)
                          
                          
                          19,026
                          
                          
                          
                          25,731Costs
                              and estimated earnings in excess of billings on uncompleted
                              contracts
                              (Note 5)
                          
                          
                          2,207
                          
                          
                          
                          4,500Inventory,
                              net
                          
                          
                          6,883
                          
                          
                          
                          6,761Deferred
                              tax asset (Note 9)
                          
                          
                          1,535
                          
                          
                          
                          1,535Prepaid
                              expenses and other current assets
                          
                          
                          1,067
                          
                          
                          
                          1,922Total
                              Current Assets
                          
                          
                          42,943
                          
                          
                          
                          48,824**OTHER
                              ASSETS**Property,
                              plant & equipment, net (Note 6)
                          
                          
                          12,342
                          
                          
                          
                          6,323Long-term
                              accounts receivable (Note 4)
                          
                          
                          731
                          
                          
                          
                          1,276Goodwill
                              (Note 7)
                          
                          
                          11,815
                          
                          
                          
                          11,984Other
                              intangible assets, net (Note 7)
                          
                          
                          4,415
                          
                          
                          
                          4,299Other
                              long-term assets
                          
                          
                          1,224
                          
                          
                          
                          1,579Total
                              Other Assets
                          
                          
                          30,527
                          
                          
                          
                          25,461**TOTAL
                              ASSETS**
                          
                          $
                          73,470
                          
                          
                          $
                          74,285


*See
        Accompanying Notes to Unaudited Interim Consolidated Financial
        Statements*


3
 *Index*




**FORTUNE
      INDUSTRIES, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS (CONTINUED)**


**(DOLLARS
      IN THOUSANDS)**




**February
                            28,**
                          **2007**
                        
                        
                        **August
                            31,**
                          **2006****(Unaudited)**
                        
                        
                        **(Audited)****LIABILITIES
                            AND SHAREHOLDERS' EQUITY****CURRENT
                            LIABILITIES**Current
                            maturities of long-term debt (Note 8)
                        
                        $
                        2,132
                        
                        
                        $
                        2,124Current
                            maturities of convertible term note (Note 8)
                        
                        
                        1,818
                        
                        
                        
                        1,364Variable
                            interest entity line of credit (Note 8)
                        
                        
                        2,200
                        
                        
                        
                        -Variable
                            interest entity current maturities of long-term debt
                            (Note
                            8)
                        
                        
                        543
                        
                        
                        
                        -Accounts
                            payable
                        
                        
                        4,410
                        
                        
                        
                        9,324Health
                            and workers' compensation reserves
                        
                        
                        4,520
                        
                        
                        
                        3,363Accrued
                            expenses
                        
                        
                        5,984
                        
                        
                        
                        5,449Billings
                            in excess of costs and estimated earnings on uncompleted
                            contracts (Note
                            5)
                        
                        
                        2,427
                        
                        
                        
                        1,968Other
                            current liabilities
                        
                        
                        432
                        
                        
                        
                        1,849Total
                            Current Liabilities
                        
                        
                        24,466
                        
                        
                        
                        25,441**LONG-TERM
                            LIABILITIES**Line
                            of credit (Note 8)
                        
                        
                        5,911
                        
                        
                        
                        3,330Long-term
                            debt, less current maturities (Note 8)
                        
                        
                        17,333
                        
                        
                        
                        18,213Convertible
                            term note (Note 8)
                        
                        
                        4,768
                        
                        
                        
                        6,136Variable
                            interest entity long-term debt, less current maturities
                            (Note
                            8)
                        
                        
                        4,771
                        
                        
                        
                        -Other
                            long-term liabilities
                        
                        
                        215
                        
                        
                        
                        215Total
                            Long-Term Liabilities
                        
                        
                        32,998
                        
                        
                        
                        27,894Total
                            Liabilities
                        
                        
                        57,464
                        
                        
                        
                        53,335**MINORITY
                            INTEREST IN VARIABLE INTEREST ENTITY**
                        
                        
                        705
                        
                        
                        
                        -**SHAREHOLDERS'
                            EQUITY**Common
                            stock, $0.10 par value; 150,000,000 authorized; 10,840,605
                            and 10,522,722
                            issued and outstanding at February 28, 2007 and August
                            31, 2006,
                            respectively
                        
                        
                        1,084
                        
                        
                        
                        1,053Preferred
                            stock, $0.10 par value; 1,000,000 authorized; 66,180
                            issued and
                            outstanding at February 28, 2007 and August 31, 2006
                        
                        
                        6,618
                        
                        
                        
                        6,618Additional
                            paid-in capital and warrants outstanding
                        
                        
                        18,928
                        
                        
                        
                        17,633Accumulated
                            deficit
                        
                        
                        (11,547
                        )
                        
                        
                        (4,518
                        )Accumulated
                            other comprehensive income
                        
                        
                        218
                        
                        
                        
                        164Total
                            Shareholders' Equity
                        
                        
                        15,301
                        
                        
                        
                        20,950**TOTAL
                            LIABILITIES AND SHAREHOLDERS' EQUITY**
                        
                        $
                        73,470
                        
                        
                        $
                        74,285


*See
        Accompanying Notes to Unaudited Interim Consolidated Financial
        Statements*




4
 *Index*




**FORTUNE
      INDUSTRIES, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**(DOLLARS
      IN THOUSANDS, EXCEPT PER SHARE DATA)**


**(UNAUDITED)**




**Three
                            Month Period Ended**
                        
                        
                        **Six
                            Month Period Ended****February
                            28,**
                          **2007**
                        
                        
                        **February
                            28,**
                          **2006**
                        
                        
                        **February
                            28,**
                          **2007**
                        
                        
                        **February
                            28,**
                          **2006****REVENUES**Service
                            revenues
                        
                        $
                        15,643
                        
                        
                        $
                        14,354
                        
                        
                        $
                        30,645
                        
                        
                        $
                        28,421Product
                            revenues
                        
                        
                        16,596
                        
                        
                        
                        19,002
                        
                        
                        
                        42,278
                        
                        
                        
                        41,378**TOTAL
                            REVENUES**
                        
                        
                        32,239
                        
                        
                        
                        33,356
                        
                        
                        
                        72,923
                        
                        
                        
                        69,799**COST
                            OF REVENUES**Service
                            cost of revenues
                        
                        
                        13,053
                        
                        
                        
                        9,793
                        
                        
                        
                        24,288
                        
                        
                        
                        20,133Product
                            cost of revenues
                        
                        
                        14,657
                        
                        
                        
                        16,029
                        
                        
                        
                        35,332
                        
                        
                        
                        34,894**TOTAL
                            COST OF REVENUES**
                        
                        
                        27,710
                        
                        
                        
                        25,822
                        
                        
                        
                        59,620
                        
                        
                        
                        55,027**GROSS
                            PROFIT**
                        
                        
                        4,529
                        
                        
                        
                        7,534
                        
                        
                        
                        13,303
                        
                        
                        
                        14,772**OPERATING
                            EXPENSES**Selling,
                            general and administrative expenses
                        
                        
                        7,682
                        
                        
                        
                        6,082
                        
                        
                        
                        14,113
                        
                        
                        
                        11,539Depreciation
                            and amortization
                        
                        
                        1,084
                        
                        
                        
                        543
                        
                        
                        
                        1,802
                        
                        
                        
                        1,024Impairment
                            (Note 1)
                        
                        
                        2,027
                        
                        
                        
                        -
                        
                        
                        
                        2,027
                        
                        
                        
                        -Total
                            Operating Expenses
                        
                        
                        10,793
                        
                        
                        
                        6,625
                        
                        
                        
                        17,942
                        
                        
                        
                        12,563**OPERATING
                            INCOME (LOSS)**
                        
                        
                        (6,264
                        )
                        
                        
                        909
                        
                        
                        
                        (4,639
                        )
                        
                        
                        2,209**OTHER
                            INCOME (EXPENSE)**Interest
                            income
                        
                        
                        96
                        
                        
                        
                        86
                        
                        
                        
                        187
                        
                        
                        
                        142Interest
                            expense
                        
                        
                        (808
                        )
                        
                        
                        (598
                        )
                        
                        
                        (1,655
                        )
                        
                        
                        (1,142
                        )Gain
                            on investments in marketable securities, net (Note 3)
                        
                        
                        -
                        
                        
                        
                        5
                        
                        
                        
                        17
                        
                        
                        
                        5Loss
                            on disposal of assets
                        
                        
                        (411
                        )
                        
                        
                        -
                        
                        
                        
                        (411
                        )
                        
                        
                        -Exchange
                            rate gain (loss)
                        
                        
                        (8
                        )
                        
                        
                        2
                        
                        
                        
                        (9
                        )
                        
                        
                        (3
                        )Other
                            income (expense)
                        
                        
                        (10
                        )
                        
                        
                        (5
                        )
                        
                        
                        12
                        
                        
                        
                        56Total
                            Other Income (Expense)
                        
                        
                        (1,141
                        )
                        
                        
                        (510
                        )
                        
                        
                        (1,859
                        )
                        
                        
                        (942
                        )**INCOME
                            (LOSS) BEFORE MINORITY INTEREST IN VARIABLE INTEREST
                            ENTITY**
                        
                        
                        (7,405
                        )
                        
                        
                        399
                        
                        
                        
                        (6,498
                        )
                        
                        
                        1,267Minority
                            Interest in Variable Interest Entity (Note 12)
                        
                        
                        124
                        
                        
                        
                        -
                        
                        
                        
                        164
                        
                        
                        
                        -**INCOME
                            (LOSS) BEFORE PROVISION FOR INCOME TAXES**
                        
                        
                        (7,529
                        )
                        
                        
                        399
                        
                        
                        
                        (6,662
                        )
                        
                        
                        1,267Provision
                            for income taxes (Note 9)
                        
                        
                        102
                        
                        
                        
                        -
                        
                        
                        
                        119
                        
                        
                        
                        21**NET
                            INCOME (LOSS)**
                        
                        
                        (7,631
                        )
                        
                        
                        399
                        
                        
                        
                        (6,781
                        )
                        
                        
                        1,246Preferred
                            stock dividends
                        
                        
                        124
                        
                        
                        
                        83
                        
                        
                        
                        248
                        
                        
                        
                        83**NET
                            INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS**
                        
                        $
                        (7,755
                        )
                        
                        $
                        316
                        
                        
                        $
                        (7,029
                        )
                        
                        $
                        1,163**BASIC
                            INCOME (LOSS) PER COMMON SHARE**
                        
                        $
                        (0.73
                        )
                        
                        $
                        0.03
                        
                        
                        $
                        (0.66
                        )
                        
                        $
                        0.11**Basic
                            weighted average shares outstanding**
                        
                        
                        10,628,219
                        
                        
                        
                        10,559,843
                        
                        
                        
                        10,576,185
                        
                        
                        
                        10,559,843**DILUTED
                            INCOME (LOSS) PER COMMON SHARE**
                        
                        $
                        (0.63
                        )
                        
                        $
                        0.03
                        
                        
                        $
                        (0.57
                        )
                        
                        $
                        0.10**Diluted
                            weighted average shares outstanding**
                        
                        
                        12,281,760
                        
                        
                        
                        12,067,814
                        
                        
                        
                        12,240,371
                        
                        
                        
                        11,472,267




*See
        Accompanying Notes to Unaudited Interim Consolidated Financial
        Statements*


5
 *Index*


**FORTUNE
      INDUSTRIES, INC. AND
      SUBSIDIARIES**


**CONSOLIDATED
      STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY**


**(DOLLARS
      IN THOUSANDS)**


**(UNAUDITED)**




**Common**
                            **Stock**
                          
                          
                          **Preferred**
                            **Stock**
                          
                          
                          **Additional**
                            **Paid-in
                              Capital**
                            **and
                              Warrants**
                            **Outstanding**
                          
                          
                          **Accumulated**
                            **Deficit**
                          
                          
                          **Accumulated**
                            **Other**
                            **Comprehensive**
                            **Income**
                          
                          
                          **Total**
                            **Shareholders'**
                            **Equity**
                          
                          
                          **Comprehensive**
                            **Income****BALANCE
                              AT AUGUST 31, 2006**
                          
                          **$**
                          **1,053**
                          
                          
                          **$**
                          **6,618**
                          
                          
                          **$**
                          **17,633**
                          
                          
                          **$**
                          **(4,518**
                          **)**
                          
                          **$**
                          **164**
                          
                          
                          **$**
                          **20,950**Net
                              income
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (6,781
                          )
                          
                          
                          -
                          
                          
                          
                          (6,781
                          )
                          
                          
                          (6,781
                          )Issuance
                              of 305,883 shares of common stock for acquisitions
                          
                          
                          30
                          
                          
                          
                          -
                          
                          
                          
                          1,246
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          1,276
                          
                          
                          $
                          -Issuance
                              of 10,000 shares of common stock for compensation
                          
                          
                          1
                          
                          
                          
                          -
                          
                          
                          
                          49
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          50
                          
                          
                          $
                          -Preferred
                              Stock Dividends
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (248
                          )
                          
                          
                          -
                          
                          
                          
                          (248
                          )
                          
                          
                          -Foreign
                              currency translation adjustments, net of tax
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          15
                          
                          
                          
                          15
                          
                          
                          
                          15Unrealized
                              gains on investments, net of tax
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          31
                          
                          
                          
                          31
                          
                          
                          
                          31Reclassification
                              adjustments for realized gains & losses included in net income, net of
                              tax
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          8
                          
                          
                          
                          8
                          
                          
                          
                          8Total
                              comprehensive income
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          **$**
                          **(6,727**
                          **)****BALANCE
                              AT FEBRUARY 28, 2007**
                          
                          **$**
                          **1,084**
                          
                          
                          **$**
                          **6,618**
                          
                          
                          **$**
                          **18,928**
                          
                          
                          **$**
                          **(11,547**
                          **)**
                          
                          **$**
                          **218**
                          
                          
                          **$**
                          **15,301**




See Accompanying Notes to Unaudited Interim Consolidated
      Financial Statements


6
 *Index*





**FORTUNE
      INDUSTRIES, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(DOLLARS
      IN THOUSANDS)**


**(UNAUDITED)**




**Six
                              Month Period Ended****February
                              28,**
                            **2007**
                          
                          
                          **February
                              28,**
                            **2006****CASH
                              FLOWS FROM OPERATING ACTIVITIES**Net
                              Income (Loss)
                          
                          $
                          (6,781
                          )
                          
                          $
                          1,246Adjustments
                              to reconcile net income to net cash provided by operating
                              activities:Depreciation
                              and amortization
                          
                          
                          1,802
                          
                          
                          
                          1,024Provision
                              for losses on accounts receivable
                          
                          
                          423
                          
                          
                          
                          (94
                          )Gain
                              on sale of investments
                          
                          
                          (9
                          )
                          
                          
                          (5
                          )Loss
                              on disposal of assets
                          
                          
                          411
                          
                          
                          
                          -Stock
                              based compensation
                          
                          
                          50
                          
                          
                          
                          -Impairment
                              on intangible assets
                          
                          
                          2,027
                          
                          
                          
                          -Changes
                              in certain operating assets and liabilities:Restricted
                              cash
                          
                          
                          245
                          
                          
                          
                          (120
                          )Accounts
                              receivable
                          
                          
                          6,333
                          
                          
                          
                          2,455Costs
                              and estimated earnings in excess of billings on uncompleted
                              contracts
                          
                          
                          2,293
                          
                          
                          
                          (1,445
                          )Inventory,
                              net
                          
                          
                          (122
                          )
                          
                          
                          1,200Prepaid
                              assets and other current assets
                          
                          
                          773
                          
                          
                          
                          281Other
                              long-term assets
                          
                          
                          564
                          
                          
                          
                          (184
                          )Accounts
                              payable
                          
                          
                          (4,934
                          )
                          
                          
                          (2,092
                          )Health
                              and workers' compensation reserves
                          
                          
                          1,020
                          
                          
                          
                          (787
                          )Accrued
                              expenses and other current liabilities
                          
                          
                          (1,162
                          )
                          
                          
                          (896
                          )Billings
                              in excess of costs and estimated earnings on uncompleted
                              contracts
                          
                          
                          459
                          
                          
                          
                          (137
                          )Other
                              long-term liabilities
                          
                          
                          -
                          
                          
                          
                          15Net
                              Cash Provided by Operating Activities
                          
                          
                          3,392
                          
                          
                          
                          461**CASH
                              FLOWS FROM INVESTING ACTIVITIES**Capital
                              expenditures
                          
                          
                          (798
                          )
                          
                          
                          (1,378
                          )Sale
                              (purchase) of marketable securities, net
                          
                          
                          1,153
                          
                          
                          
                          (34
                          )Acquisition
                              of productive assets and businesses, net of cash received
                          
                          
                          (719
                          )
                          
                          
                          (262
                          )Net
                              Cash Used in Investing Activities
                          
                          
                          (364
                          )
                          
                          
                          (1,674
                          )**CASH
                              FLOWS FROM FINANCING ACTIVITIES**Net
                              borrowings (payments) under line of credit
                          
                          
                          2,581
                          
                          
                          
                          (4,466
                          )Borrowings
                              on available for sale investment account
                          
                          
                          -
                          
                          
                          
                          800Payments
                              on long-term debt
                          
                          
                          (912
                          )
                          
                          
                          (1,427
                          )Debt
                              issuance costs
                          
                          
                          -
                          
                          
                          
                          (692
                          )Borrowings
                              (payments) from convertible debentures
                          
                          
                          (914
                          )
                          
                          
                          7,500Dividends
                              on preferred stock
                          
                          
                          (248
                          )
                          
                          
                          (83
                          )Net
                              Cash Provided by Financing Activities
                          
                          
                          507
                          
                          
                          
                          1,632Consolidation
                              of variable interest entity cash
                          
                          
                          112
                          
                          
                          
                          -Effect
                              of exchange rate changes on cash
                          
                          
                          15
                          
                          
                          
                          (10
                          )**NET
                              INCREASE IN CASH AND EQUIVALENTS**
                          
                          
                          3,662
                          
                          
                          
                          409**CASH
                              AND EQUIVALENTS**Beginning
                              of Period
                          
                          
                          3,632
                          
                          
                          
                          3,787End
                              of Period
                          
                          $
                          7,294
                          
                          
                          $
                          4,196




See Accompanying Notes to Unaudited Interim Consolidated
      Financial Statements




7
 *Index*




**FORTUNE
      INDUSTRIES, INC. AND SUBSIDIARIES**


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


**(DOLLARS
      IN THOUSANDS)**


**(UNAUDITED)**




**Six
                            Month Period Ended****February
                            28,**
                          **2007**
                        
                        
                        **February
                            28,**
                          **2006****SUPPLEMENTAL
                            DISCLOSURES**Interest
                            paid
                        
                        $
                        1,266
                        
                        
                        $
                        1,053Income
                            taxes paid
                        
                        $
                        72
                        
                        
                        $
                        21Unrealized
                            net gain on marketable equity securities
                        
                        $
                        29
                        
                        
                        $
                        (57
                        )Acquisition
                            of Precision Employee Management, LLCFair
                            value of assets acquired
                        
                        $
                        2,376Common
                            stock consideration
                        
                        
                        1,276Cash
                            paid
                        
                        $
                        1,100Consolidation
                            of Variable Interest EntityCash
                        
                        $
                        111Available
                            for sale investments
                        
                        
                        1,538Prepaid
                            expenses and other current assets
                        
                        
                        1Property,
                            Plant and Equipment
                        
                        
                        6,724Other
                            long-term assets
                        
                        
                        4Total
                            Assets
                        
                        $
                        8,378Line
                            of credit
                        
                        $
                        2,200Current
                            maturities of long-term debt
                        
                        
                        543Accounts
                            payable and accrued expenses
                        
                        
                        159Long-term
                            debt
                        
                        
                        4,771Minority
                            interest
                        
                        
                        705Total
                            Liabilities and Minority Interest
                        
                        $
                        8,378Non-cash
                            investing and financing activities:Issuance
                            of preferred stock for debt extinguishment
                        
                        
                        
                        
                        
                        $
                        6,618Issuance
                            of warrants in connection with loan refinancing
                        
                        
                        
                        
                        
                        
                        266$
                        6,884Acquisition
                            of Audio Video Revolution, Inc.Fair
                            value of assets acquired
                        
                        
                        
                        
                        
                        $
                        262Cash
                            paid
                        
                        
                        
                        
                        
                        $
                        262




See Accompanying Notes to Unaudited Interim Consolidated
      Financial Statements


8
 *Index*




**FORTUNE
      INDUSTRIES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(DOLLARS
      IN THOUSANDS UNLESS OTHERWISE INDICATED,**


**EXCEPT
      PER SHARE DATA)**


**(UNAUDITED)**





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





*Basis
      of Presentation*: The financial data presented herein is unaudited and
      should be read in conjunction with the consolidated financial statements and
      accompanying notes included in the 2006 Annual Report on Form 10-K filed by
      Fortune Industries, Inc. (which, together with its subsidiaries unless the
      context requires otherwise, shall be referred to herein as the
“Company”).  The accompanying unaudited consolidated financial
      statements have been prepared by the Company without audit. These unaudited
      financial statements contain, in the opinion of management, all adjustments
      (consisting of normal accruals and other recurring adjustments) necessary for
      a
      fair presentation of the consolidated financial position, results of operations,
      and cash flows for the periods presented in conformity with accounting
      principles generally accepted in the United States. The operating results for
      the three and six month periods ended February 28, 2007 are not necessarily
      indicative of the operating results to be expected for the full fiscal
      year.





*Nature
      of Business:* Fortune Industries, Inc. is an Indiana corporation, originally
      incorporated in Delaware in 1988. The Company provides a variety of services
      and
      products for selected market segments, which are classified under five operating
      segments, Wireless Infrastructure, Business Solutions, Transportation
      Infrastructure, Ultraviolet Technologies and Electronics Integration. As a
      holding company of various products and services, the Company has historically
      invested in businesses that are undervalued, underperforming, or in operations
      that are poised for significant growth. Management’s strategic focus is to
      support the revenue and earnings growth of its operations by creating synergies
      that can be leveraged to enhance the performance of the Company’s entities and
      by investing capital to fund expansion. Additionally, management continually
      seeks and evaluates strategic acquisitions that expand core offerings and drive
      incremental revenue and earnings growth.





*Principles
      of Consolidation*:  The accompanying consolidated financial
      statements include the accounts of Fortune Industries, Inc. and its wholly-owned
      subsidiaries,and a
      variable interest entity (“VIE”), where the Company is deemed to be the primary
      beneficiary. Nor-Cote International, Inc. (“Nor-Cote”), a wholly-owned
      subsidiary, contains foreign subsidiaries from the United Kingdom, China and
      Singapore, which have been eliminated in consolidation at the Nor-Cote
      subsidiary level. All significant inter-company accounts and transactions of
      the
      Company have been eliminated.





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





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





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





Significant
      estimates used in preparing these consolidated financial statements include
      those assumed in computing profit percentages under the percentage-of-completion
      revenue recognition method. It is reasonably possible that the significant
      estimates used will change within the next year.





*Revenue
      and Cost Recognition:* In the Wireless Infrastructure segment, the Company
      enters into contracts principally on the basis of competitive bids, the final
      terms and prices of which are frequently negotiated with the customer. Although
      the terms of its contracts vary considerably, most are made on a unit price
      basis in which the Company agrees to do the work for units of work performed.
      The Company also performs services on a cost-plus or time and materials basis.
      The Company completes most projects within twelve months. The Company generally
      recognizes revenue utilizing output measures, such as when services are
      performed, units are delivered or when contract milestones are reached. The
      Company’s construction services recognize revenue using the percentage of
      completion method on contracts in process. Under this method, the portion of
      the
      contract price recognized as revenue is based on the ratio of costs incurred
      to
      the total estimated cost of the contract. The estimated total cost of a contract
      is based upon management’s best estimate of the remaining costs that will be
      required to complete a project. The actual costs required to complete a project
      and, therefore, the profit eventually realized, could differ materially in
      the
      near term. Costs and estimated earnings in excess of billings on uncompleted
      contracts are shown as a current asset. Billings in excess of costs and
      estimated earnings on uncompleted contracts are shown as a current liability.
      Anticipated losses on contracts, if any, are recognized when they become
      evident.




9
 *Index*


Subsidiaries
      operating in the Wireless Infrastructure segment include Fortune Wireless,
      Inc.
      (“Fortune Wireless”), Magtech Services, Inc. (“Magtech”), Cornerstone Wireless
      Construction Services, Inc. (“Cornerstone Construction”) and James Westbrook
& Associates, LLC (“JWA”).





In
      the
      Business Solutions segment, the Company bills clients under Professional
      Services Agreements as licensed Professional Employer Organizations (“PEOs”),
      which includes each worksite employee’s gross wages, plus additional charges for
      employment related taxes, benefits, workers’ compensation insurance,
      administrative and record keeping, as well as safety, human resources, and
      regulatory compliance consultation. Most wages, taxes and insurance coverage
      are
      provided under the Company’s federal, state, and local or vendor identification
      numbers. No identification or recognition is given to the client when these
      monies are remitted or calculations are reported. Most calculations or amounts
      the Company owes the government and its employment insurance vendors are based
      on the experience levels and activity of the Company with no consideration
      to
      client detail. The Company bills the client their worksite employees’ gross
      wages plus an overall service fee that includes components of employment related
      taxes, employment benefits insurance, and administration of those items. The
      component of the service fee related to administration varies, in part,
      according to the size of the client, the amount and frequency of payroll
      payments and the method of delivery of such payments. The component of the
      service fee related to health, workers’ compensation and unemployment insurance
      is based, in part, on the client’s historical claims experience. Charges by the
      Company are invoiced along with each periodic payroll delivered to the
      client.





The
      Company’s Business Solutions segment reports revenue in accordance with Emerging
      Issues Task Force ("EITF") No. 99-19, Reporting Revenue Gross as a Principal
      versus Net as an Agent. The Company reports revenue on a gross basis, the total
      amount billed to clients for service fees which includes health and welfare
      benefit plan fees, workers’ compensation insurance, unemployment insurance fees,
      and employment-related taxes. The Company reports revenue on a gross basis
      for
      such fees because the Company is the primary obligor and deemed to be the
      principal in these transactions under EITF No. 99-19.  The Company
      reports revenue on a net basis for the amount billed to clients for worksite
      employee salaries and wages. This accounting policy of reporting revenue net
      as
      an agent versus gross as a principal has no effect on gross profit, operating
      income, or net income.





The
      Company’s Business Solutions segment accounts for their revenue using the
      accrual method of accounting. Under the accrual method of accounting, revenue
      is
      recognized in the period in which the worksite employee performs work. The
      Company accrues revenue for service fees, health and welfare benefit plan fees,
      workers’ compensation and unemployment insurance fees relating to work performed
      by worksite employees but unpaid at the end of each period. The Company accrues
      unbilled receivables for payroll taxes, service fees, health and welfare
      benefits plan fees, workers’ compensation and unemployment insurance fees
      relating to work performed by worksite employees but unpaid at the end of each
      period. In addition, the related costs of services are accrued as a liability
      for the same period. Subsequent to the end of each period, such costs are paid
      and the related service fees are billed.





Consistent
      with their revenue recognition policy, within the Company’s Business Solutions
      segment, direct costs do not include the payroll cost of its worksite employees.
      The Company’s direct costs associated with its revenue generating activities are
      comprised of all other costs related to its worksite employees, such as the
      employer portion of payroll-related taxes, employee benefit plan premiums and
      workers’ compensation insurance costs.





Business
      Solutions services are performed by Professional Staff Management, Inc. and
      its
      affiliated entities (“PSM”), CSM, Inc. and its affiliated entities (“CSM”) and
      Precision Employee Management, LLC and its affiliated entities
      (“Precision”).





In
      the
      Transportation Infrastructure segment, the Company recognizes revenue using
      the
      percentage of completion method on contracts in process. Under this method,
      the
      portion of the contract price recognized as revenue is based on the ratio of
      costs incurred to the total estimated cost of the contract. The estimated total
      cost of a contract is based upon management’s best estimate of the remaining
      costs that will be required to complete a project. The actual costs required
      to
      complete a project and, therefore, the profit eventually realized, could differ
      materially in the near term. Costs and estimated earnings in excess of billings
      on uncompleted contracts are shown as a current asset. Billings in excess of
      costs and estimated earnings on uncompleted contracts are shown as a current
      liability. Anticipated losses on contracts, if any, are recognized when they
      become evident.


10
 *Index*


Transportation
      infrastructure products and services are performed by the James H. Drew Corp.
      and subsidiaries (“JH Drew”).





In
      the
      Ultraviolet Technologies segment, revenue from the sale of products is
      recognized according to the terms of the sales arrangement, which is generally
      upon shipment. Revenue is recognized, net of estimated costs of returns,
      allowances and sales incentives, title and principal ownership transfers to
      the
      customer, which is generally when products are shipped to customers. Products
      are generally sold on open account under credit terms customary to the
      geographic region of distribution. Ongoing credit evaluations are performed
      on
      customers and the Company does not generally require collateral to secure
      accounts receivable.





Ultraviolet
      Technologies products are manufactured by Nor-Cote International, Inc. and
      subsidiaries.





In
      the
      Electronics Integration segment, revenue from the sale of products within the
      Company’s commercial electronic sales unit is recognized according to the terms
      of the sales arrangement, which is generally upon shipment. Revenue is
      recognized when title and principal ownership transfers to the customer, which
      is generally when products are shipped to customers. Products are generally
      sold
      on open account under credit terms customary to the geographic region of
      distribution. Ongoing credit evaluations are performed on customers and the
      Company does not generally require collateral to secure accounts
      receivable.  The Company’s electronic installation unit enters into
      contracts principally on the basis of competitive bids, the final terms and
      prices of which are frequently negotiated with the customer. Although the terms
      of its contracts vary considerably, most are made on a unit price basis in
      which
      the Company agrees to do the work for units of work performed. The Company
      also
      performs services on a cost-plus or time and materials basis. The Company
      completes most projects within one month. The Company generally recognizes
      revenue utilizing output measures, such as when services are performed, units
      are delivered or when contract milestones are reached.





Subsidiaries
      operating in the Electronics Integration segment include Kingston Sales
      Corporation (“Kingston”), Commercial Solutions, Inc. (“Commercial Solutions”)
      and Audio-Video Revolution, Inc. (“AVR”) and its affiliated
      entities.





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





*Cash
      and Equivalents:* Cash and equivalents may include money market fund shares,
      bank time deposits, certificates of deposits, and other instruments with
      original maturities of three months or less.





*Restricted
        Cash:* Restricted cash includes certificates of deposits and letters of
        credit issued as collateral under its health and accident benefit program,
        its
        workers compensation program, and certain general insurance coverage related
        to
        the Company’s Business Solutions segment. At February 28, 2007, the Company had
        $3,217 in total restricted cash.  Of this, $1,725 is restricted for
        employer contributions to various health and accident benefit programs
        established under third party actuarial analysis, $1,250 is restricted for
        the
        Company’s workers compensation program in accordance with terms of its insurance
        carrier agreement, and the remainder is restricted for certain standby letters
        of credits in accordance with various state regulations.





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





*Accounts
      Receivable:*  Accounts receivable is stated at the amount billable
      to customers. Accounts receivable are ordinarily due 30-60 days after the
      issuance of the invoice. The Company provides allowances for estimated doubtful
      accounts and for returns and sales allowances, based on the Company’s assessment
      of known delinquent accounts, historical experience, and other currently
      available evidence of the collectability and the aging of the accounts
      receivable. Delinquent receivables that are deemed uncollectible are written
      off
      based on individual credit evaluation and specific circumstances of the
      customer. The Company’s policy is not to accrue interest on past due trade
      receivables.


11
 *Index*


*Inventories:*
      Inventories are recorded at the lower of cost or market value. Costs are
      determined primarily under the first-in, first-out method (“FIFO”) method of
      accounting.





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





*Property,
      Plant, Equipment, and Depreciation:* Property, plant and equipment is
      recorded at cost and include expenditures for new additions and those which
      substantially increase the useful lives of existing assets. Depreciation is
      computed principally on the straight-line method over the estimated useful
      life.   Depreciable lives range from 3 to 40 years.





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





*Goodwill
      and Other Indefinite-Lived Intangible Assets:*  The Company
      accounts for goodwill and other indefinite-lived intangible assets under SFAS
      No. 142, "Goodwill and Other Intangible Assets." Under SFAS No. 142, goodwill
      and other intangible assets with indeterminate lives are assessed for impairment
      at least annually and more often as triggering events occur. In making this
      assessment, management relies on a number of factors including operating
      results, business plans, economic projections, anticipated future cash flows,
      and transactions and market place data. There are inherent uncertainties related
      to these factors and management’s judgment in applying them to the analysis of
      both goodwill and other intangible assets impairment. Since management’s
      judgment is involved in performing goodwill and other intangible assets
      valuation analyses, there is risk that the carrying value of the goodwill and
      other intangible assets may be overstated or understated.





The
      Company has elected to perform the annual impairment test of recorded goodwill
      and other indefinite-lived intangible assets as required by SFAS 142 as of
      the
      end of fiscal fourth quarter. The results of this annual impairment test
      indicated that the fair value of each of the reporting units as of August 31,
      2006, exceeded the carrying, or book value, including goodwill, and therefore
      recorded goodwill and other indefinite-lived intangible assets were not subject
      to impairment. The Company determined that goodwill and certain intangible
      assets in its Wireless Infrastructure and Electronics Integration Segment were
      impaired as of February 28, 2007. Triggering events include (but not limited
      to)
      a) losses incurred within certain operating units b) downsizing of personnel
      c)
      disposal of fixed assets d) closing of regional offices and e) restructuring
      of
      management.





*Long-lived
      Assets:* The Company evaluates the carrying value of long-lived assets,
      primarily property, plant and equipment and other definite-lived intangible
      assets, whenever significant events or changes in circumstances indicate the
      carrying value of these assets may be impaired. If such indicators of impairment
      are present, the Company determines whether the sum of the estimated
      undiscounted cash flows attributable to the assets in question is less than
      their carrying value. If less, the Company recognizes an impairment loss based
      on the excess of the carrying amount of the assets over their respective fair
      values. The fair value of the asset then becomes the asset’s new carrying value,
      which the Company depreciates over the remaining estimated useful life of the
      asset. Fair value is determined by discounted future cash flows, appraisals
      or
      other methods.





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





*Stock-based
      Compensation:*The Company accounts for stock-based compensation under the
      provisions of SFAS No. 123R.  The Company recognizes compensation
      expense for awards of equity instruments to employees based on the grant-date
      fair value of those awards.





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





*Income
      Taxes:*  The Company accounts for income taxes under the
      provisions of SFAS No. 109, "Accounting for Income Taxes." Accordingly, deferred
      tax assets and liabilities are determined based on differences between the
      financial reporting and tax basis of assets and liabilities and are measured
      using the enacted tax rates. Changes in deferred income tax assets and
      liabilities that are associated with components of other comprehensive income,
      primarily unrealized investment gains, are charged or credited directly to
      other
      comprehensive income. Otherwise, changes in deferred income tax assets and
      liabilities are included as a component of income tax expense. The Company
      files
      separate United States, United Kingdom and Singapore income tax
      returns.


12
 *Index*


*Research
      and Development Costs:* Research and development costs are expensed as
      incurred and totaled $162 and $126 for the three month periods ended February
      28, 2007 and 2006, respectively.  Research and development costs
      totaled $289 and $241 for the six month periods ended February 28, 2007 and
      2006, respectively.  Research and development expense is recorded in
      the Company’s Ultraviolet Technologies segment.





*Warrants
      Issued With Convertible Debt:* The Company has issued and anticipates
      issuing warrants along with debt and equity instruments to third parties. These
      issuances are recorded based on the fair value of these instruments. Warrants
      and equity instruments require valuation using the Black-Scholes model and
      other
      techniques, as applicable, and consideration of various assumptions including
      but not limited to the volatility of the Company’s stock, risk free rates and
      the expected lives of these equity instruments.





Debt
      and
      equity issuances may have features which allow the holder to convert at
      beneficial conversion terms, which are then measured using similar valuation
      techniques and amortized to interest expense in the case of debt or recorded
      as
      dividends in the case of preferred stock instruments.  No issuances
      have beneficial conversion terms as of February 28, 2007.





*Self
      Insurance:* The Company’s holding company and various subsidiaries have
      elected to act as a self-insurer for certain costs related to employee health
      programs. Costs resulting from non-insured losses are estimated and charged
      to
      income when incurred. The Company has purchased insurance which limits its
      annual exposure for individual claims to $70 and which limits its aggregate
      annual exposure to approximately $1,741.





The
      Company’s PSM subsidiary maintains a loss-sensitive worksite employees’ health
      and accident benefit program. Under the insurance policy, PSM’s self-funded
      liability is limited to $180 per employee, with an aggregate liability limit
      of
      approximately $13,410. The aggregate liability limits are adjusted monthly,
      based on the number of participants.





*Workers’
      Compensation:* The Company’s PSM and CSM subsidiaries maintain partially
      self-funded workers’ compensation insurance programs. Under the insurance
      policies established at each company, PSM and CSM’s deductible liability is
      limited to $250 per incident, with an aggregate liability limit of approximately
      $1,100.








**NOTE
      2 - ACQUISITIONS AND PRO FORMA RESULTS**





**Acquisitions**





The
      Company acquired all membership units of Precision Employee Management and
      acquired certain assets and assumed certain liabilities through a unit purchase
      agreement entered into as of February 1, 2007 by and among Precision, an Arizona
      company, Tom Lickliter, Larry Bailliere, Charmaine Hayes, the Company, Carter
      Fortune and John Fisbeck. The Company’s acquisition of Precision enabled the
      Company to expand its geographic presence in the professional employment
      organization (“PEO”) marketplace. The purchase price of $2,376 includes cash
      paid by the Company of $1,100 and issuance of 305,883 shares of the Company’s common
      stock
      valued at the closing price of the Company’s stock
      on the
      date of purchase at $4.17 per share.





The
      following is a condensed balance sheet disclosing the amount assigned to each
      major asset and liability caption of Precision at the acquisition
      date:





AssetsCash
                
                $
                381Accounts
                    receivable
                
                
                51Prepaids
                    and other current assets
                
                
                15Property,
                    plant and equipment, net
                
                
                35Goodwill
                
                
                1,539Intangible
                    assets
                
                
                770Total
                    Assets
                
                
                2,791LiabilitiesAccounts
                    payable
                
                
                15Accrued
                    expenses and other liabilities
                
                
                359Debt
                
                
                41Total
                    Liabilities
                
                
                415Net
                    Assets
                
                $
                2,376Cash
                    consideration
                
                $
                1,100Fair
                    value of common stock consideration
                
                
                1,276$
                2,376





13
 *Index*




Subsequent
      to February 28, 2007, the Company acquired Employer Solutions Group, Inc. as
      disclosed in Note 14, ‘Subsequent Events’.





**Pro
      Forma Results**





The
      following unaudited pro forma data summarize the results of operations for
      the
      periods indicated as if the Precision acquisition described above and the AVR
      acquisition that was described in the Company’s prior periodic filings had been
      completed as of the beginning of the periods presented.  The pro forma
      data give effect to actual operating results prior to the acquisitions and
      adjustments to interest expense and income taxes.  No effect has been
      given to cost reductions or operating synergies in this
      presentation.  These pro forma amounts do not purport to be indicative
      of the results that would have actually been achieved if the acquisition had
      occurred as of the beginning of the periods presented or that may be achieved
      in
      the future.





Three
                    Month Period Ended
                
                
                Six
                    Month Period EndedFebruary
                    28,
                
                
                February
                    28,
                
                
                February
                    28,
                
                
                February
                    28,2007
                
                
                2006
                
                
                2007
                
                
                2006(Unaudited)
                
                
                (Unaudited)
                
                
                (Unaudited)
                
                
                (Unaudited)Net
                    revenue
                
                $
                33,835
                
                
                $
                33,888
                
                
                $
                76,115
                
                
                $
                73,681Operating
                    income (loss)
                
                $
                (6,219
                )
                
                $
                924
                
                
                $
                (4,549
                )
                
                $
                2,299Net
                    income (loss) available to common shareholders
                
                $
                (7,728
                )
                
                $
                325
                
                
                $
                (6,975
                )
                
                $
                1,217Basic
                    income (loss) per common share
                
                $
                (0.73
                )
                
                $
                0.03
                
                
                $
                (0.66
                )
                
                $
                0.12Diluted
                    income (loss) per common share
                
                $
                (0.63
                )
                
                $
                0.03
                
                
                $
                (0.57
                )
                
                $
                0.11








**NOTE
      3 - INVESTMENTS IN MARKETABLE EQUITY SECURITIES**





The
      amortized cost and approximate fair values of marketable equity securities
      held
      are summarized as follows:





February
                    28,
                
                
                August
                    31,2007
                
                
                2006(Unaudited)
                
                
                (Audited)Amortized
                    cost
                
                $
                1,999
                
                
                $
                1,297Net
                    unrealized loss
                
                
                (285
                )
                
                
                (16
                )Estimated
                    fair value
                
                $
                1,714
                
                
                $
                1,281





The
      net
      tax effect of the unrealized gain (loss) after consideration of the valuation
      allowance is insignificant and is not included in deferred tax asset or
      accumulated other comprehensive income.  There were no realized gains
      or losses from the sale of marketable equity securities for the three month
      period ended February 28, 2007.  There was $5 of realized gains from
      the sale of marketable securities for the three month period ended February
      28,
      2006.  There was $17 and $5 of realized gains from the sale of
      marketable equity securities for the six month period ended February 28, 2007
      and 2006, respectively.  A total of $1,538 net of $308 of unrealized
      losses is included in marketable equity securities at February 28, 2007 related
      to shares of the Company’s stock held by a consolidated variable interest
      entity.




14
 *Index*


**NOTE
      4 - ACCOUNTS RECEIVABLE AND CONTRACTS RECEIVABLE**





Accounts
      receivable and contracts receivable are summarized as follows:





February
                    28,
                
                
                August
                    31,2007
                
                
                2006(Unaudited)
                
                
                (Audited)Amounts
                    currently due
                
                $
                11,542
                
                
                $
                13,856Contracts
                    in processProgress
                    billing
                
                
                7,940
                
                
                
                11,683Retainages
                
                
                1,381
                
                
                
                1,60620,863
                
                
                
                27,145Less
                    allowance for doubtful accounts and sales returns
                
                
                (1,837
                )
                
                
                (1,414
                )$
                19,026
                
                
                $
                25,731Long-term
                    accounts receivable
                
                $
                731
                
                
                $
                1,276








**NOTE
      5 – CONTRACTS IN PROGRESS**





Information
      related to contracts in progress is summarized as follows:




February
                            28,
                        
                        
                        August
                            31,2007
                        
                        
                        2006(Unaudited)
                        
                        
                        (Audited)Costs
                            incurred on uncompleted contracts
                        
                        $
                        34,704
                        
                        
                        $
                        36,700Estimated
                            earnings recognized to date on uncompleted contracts
                        
                        
                        7,215
                        
                        
                        
                        7,41641,919
                        
                        
                        
                        44,116Less
                            billings on uncompleted contracts
                        
                        
                        (42,139
                        )
                        
                        
                        (41,584
                        )$
                        (220
                        )
                        
                        $
                        2,532


The
      net
      amount is included in the accompanying consolidated balance sheets under the
      following captions:




February
                                28,
                            
                            
                            August
                                31,2007
                            
                            
                            2006(Unaudited)
                            
                            
                            (Audited)Costs
                                and estimated earnings in excess of billings on uncompleted
                                contracts
                            
                            $
                            2,207
                            
                            
                            $
                            4,500Billings
                                in excess of costs and estimated earnings on uncompleted
                                contracts
                            
                            
                            2,427
                            
                            
                            
                            1,968$
                            (220
                            )
                            
                            $
                            2,532




15
 *Index*


**NOTE
      6 - PROPERTY, PLANT AND EQUIPMENT**





Property,
      plant and equipment, including capital leases, are comprised of the
      following:





February
                    28,
                
                
                August
                    31,2007
                
                
                2006(Unaudited)
                
                
                (Audited)Land
                
                $
                1,496
                
                
                $
                351Building
                
                
                7,709
                
                
                
                1,540Machinery
                    and equipment
                
                
                6,942
                
                
                
                6,934Research
                    equipment
                
                
                400
                
                
                
                389Office
                    equipment
                
                
                4,563
                
                
                
                4,857Vehicles
                
                
                3,676
                
                
                
                3,633Leasehold
                    improvements
                
                
                338
                
                
                
                31625,124
                
                
                
                18,020Less
                    accumulated depreciation
                
                
                (12,782
                )
                
                
                (11,697
                )$
                12,342
                
                
                $
                6,323





The
      provision for depreciation amounted to $617 and $378 for the three month periods
      ended February 28, 2007 and 2006, respectively.  The provision for
      depreciation amounted to $1,127 and $704 for the six month periods ended
      February 28, 2007 and 2006, respectively.  A total of $6,724 net of
      $546 of accumulated amortization is included in the property, plant and
      equipment at February 28, 2007 related to a consolidated variable interest
      entity.  A loss on disposal of assets totaling $411 was recorded for
      the three month period ended February 28, 2007 related to various office
      equipment disposals.








**NOTE
      7 - GOODWILL AND OTHER INTANGIBLE ASSETS**





The
      changes in the carrying amount of goodwill, as recorded under SFAS 142, are
      summarized as follows:





Wireless
                    Infrastructure
                  
                  
                  Business
                      Solutions
                  
                  
                  Transportation
                      Infrastructure
                  
                  
                  Ultraviolet
                      Technologies
                  
                  
                  Electronics
                      Integration
                  
                  
                  Segment
                      TotalsGoodwill
                      at August 31, 2006
                  
                  $
                  1,497
                  
                  
                  $
                  4,153
                  
                  
                  $
                  152
                  
                  
                  $
                  4,694
                  
                  
                  $
                  1,488
                  
                  
                  $
                  11,984Goodwill
                      acquired
                  
                  
                  -
                  
                  
                  
                  1,540
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,540Goodwill
                      adjustment
                  
                  
                  (1,497
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (212
                  )
                  
                  
                  (1,709
                  )Goodwill
                      at February 28, 2007 (unaudited)
                  
                  $
                  -
                  
                  
                  $
                  5,693
                  
                  
                  $
                  152
                  
                  
                  $
                  4,694
                  
                  
                  $
                  1,276
                  
                  
                  $
                  11,815





The
      total
      amount of goodwill that is deductible for tax purposes is $1,276 and $1,969
      at
      February 28, 2006 and August 31, 2006, respectively.  The Company
      recognized impairment on certain goodwill in its Wireless Infrastructure segment
      of $1.5 million and its Electronics Integration segment of $0.2
      million.





The
      following table sets forth the gross carrying amount and accumulated
      amortization of the Company's other intangible assets:


16
 *Index*





February
                    28, 2007
                  (Unaudited)Gross
                  Carrying
                  Amount
                
                
                Accumulated
                  Amortization
                
                
                Net
                    Book
                  Value
                
                
                Weighted
                    Average
                  Amortization
                  Period
                    (in years)Customer
                    relationships
                
                $
                3,584
                
                
                $
                801
                
                
                $
                2,783
                
                
                
                10Non-compete
                
                
                200
                
                
                
                48
                
                
                
                152
                
                
                
                10Non-compete
                
                
                1,485
                
                
                
                595
                
                
                
                890
                
                
                
                5Total
                
                
                5,269
                
                
                
                1,444
                
                
                
                3,825
                
                
                
                8Tradename
                    (not subject to amortization)
                
                
                590
                
                
                
                -
                
                
                
                590Total
                
                $
                5,859
                
                
                $
                1,444
                
                
                $
                4,415








August
                    31, 2006
                  (Audited)Gross
                  Carrying
                  Amount
                
                
                Accumulated
                  Amortization
                
                
                Net
                    Book
                  Value
                
                
                Weighted
                    Average
                  Amortization
                  Period
                    (in years)Customer
                    relationships
                
                $
                3,342
                
                
                $
                675
                
                
                $
                2,667
                
                
                
                10Non-compete
                
                
                200
                
                
                
                38
                
                
                
                162
                
                
                
                10Non-compete
                
                
                1,229
                
                
                
                468
                
                
                
                761
                
                
                
                5Non-compete
                
                
                200
                
                
                
                81
                
                
                
                119
                
                
                
                3Total
                
                
                4,971
                
                
                
                1,262
                
                
                
                3,709
                
                
                
                8Tradename
                    (not subject to amortization)
                
                
                590
                
                
                
                -
                
                
                
                590Total
                
                $
                5,561
                
                
                $
                1,262
                
                
                $
                4,299





Intangible
      asset amortization expense is $467 and $165 for the three month periods ended
      February 28, 2007 and 2006, respectively, which includes $277 and $4 of
      amortization related to loan origination fees,
      respectively.  Intangible asset amortization expense is $675 and $320
      for the six month periods ended February 28, 2007 and 2006, respectively, which
      includes $339 and $18 of amortization related to loan origination fees,
      respectively.  The Company recognized impairment on certain intangible
      assets in its Wireless Infrastructure segment of $0.3 million. Management
      determined the assets were impaired based upon changes in management and
      evaluations of customer contracts resulting from incurred losses.





Amortization
      expense on intangible assets currently owned by the Company at February 28,
      2007
      for each of the next five fiscal years is as follows:





2007
                
                $
                3382008
                
                
                6822009
                
                
                8172010
                
                
                3782011
                
                
                3782012
                    and thereafter
                
                
                1,232Total
                
                $
                3,825




17
 *Index*


**NOTE
      8 - DEBT ARRANGEMENTS**





The
      Company’s debt liabilities consisted of the following:




February
                                                        28,
                                                    
                                                    
                                                    August
                                                        31,2007
                                                    
                                                    
                                                    2006(Unaudited)
                                                    
                                                    
                                                    (Audited)Notes
                                                        payable:Revolving
                                                        line of credit promissory
                                                        note due August 31, 2008.
                                                        Interest at LIBOR plus
                                                        1.75% or 1.50% upon achievement
                                                        of certain financial performance
                                                        criteria.  The loan is secured by the
                                                        business assets of the
                                                        Company.
                                                    
                                                    $
                                                    5,911
                                                    
                                                    
                                                    $
                                                    3,330Term
                                                        loan due in monthly installments
                                                        of $167 plus interest at
                                                        LIBOR plus 1.75%
                                                        or 1.50% upon achievement
                                                        of certain financial performance
                                                        criteria
                                                        through maturity date, August
                                                        31, 2011.  The loan is secured by
                                                        the business assets of the
                                                        Company and personal guarantees
                                                        of the
                                                        Company’s two majority shareholders
                                                        (the Chairman of the Board
                                                        and the CEO
                                                        of the Company).
                                                    
                                                    
                                                    19,167
                                                    
                                                    
                                                    
                                                    20,000Various
                                                        term notes due in monthly
                                                        installments of $6, including
                                                        interest at ranges
                                                        from 4.9% to 9.03% through
                                                        April 2010. The loans are
                                                        secured by vehicles
                                                        and equipment.
                                                    
                                                    
                                                    198
                                                    
                                                    
                                                    
                                                    173Convertible
                                                        Term Note:Convertible
                                                        term note due in monthly
                                                        installments of $227 plus
                                                        interest at the Prime
                                                        Rate plus 3.0% (subject to
                                                        adjustments as described
                                                        below) through
                                                        maturity date, November 30,
                                                        2008.  The loan is guaranteed by
                                                        the
                                                        Company’s two majority shareholders.
                                                    
                                                    
                                                    6,586
                                                    
                                                    
                                                    
                                                    7,500Debt
                                                        with shareholder:Term
                                                        note due in monthly installments
                                                        of $3 including interest
                                                        at 4.0% through
                                                        September 2008.  The loan is secured by vehicles
                                                        and
                                                        equipment.
                                                    
                                                    
                                                    45
                                                    
                                                    
                                                    
                                                    63Variable
                                                        Interest EntityRevolving
                                                        line of credit promissory
                                                        note due May 31, 2007. Interest
                                                        at LIBOR plus
                                                        1.6%.  The loan is secured by real
                                                        estate and personal
                                                        guarantees of the Company’s two majority shareholders.
                                                    
                                                    
                                                    2,200
                                                    
                                                    
                                                    
                                                    -Various
                                                        term loans due in monthly
                                                        installments totaling $44
                                                        plus interest at
                                                        ranges from LIBOR plus 1.5%
                                                        to LIBOR plus 1.6%.  The loans
                                                        mature at dates ranging from
                                                        February 2009 through April
                                                        2011. The notes
                                                        are secured by real estate
                                                        and personal guarantees of
                                                        the Company’s two
                                                        majority shareholders.
                                                    
                                                    
                                                    5,314
                                                    
                                                    
                                                    
                                                    -Capital
                                                        leases:Various
                                                        notes due in monthly installments
                                                        of $5 including interest
                                                        at ranges from
                                                        2.3% to 11.6% through June
                                                        2010. The loans are secured
                                                        by computers and
                                                        equipment.
                                                    
                                                    
                                                    55
                                                    
                                                    
                                                    
                                                    101Total
                                                        debt
                                                    
                                                    
                                                    39,476
                                                    
                                                    
                                                    
                                                    31,167Less
                                                        current maturities
                                                    
                                                    
                                                    (6,693
                                                    )
                                                    
                                                    
                                                    (3,488
                                                    )Long-term
                                                        portion of outstanding debt
                                                    
                                                    $
                                                    32,783
                                                    
                                                    
                                                    $
                                                    27,679


18
 *Index*
  Fiscal
      year principal payments due on long-term debt outstanding (including convertible
      term note) at February 28, 2007 are approximately as follows:





2007
                  
                  $
                  4,8912008
                  
                  
                  11,2552009
                  
                  
                  7,4202010
                  
                  
                  2,5472011
                  
                  
                  2,0002012
                      and thereafter
                  
                  
                  11,363$
                  39,476





*Credit
      Facility Loan and Security Agreement*





The
      Company maintains a $35,000 credit facility with Fifth Third
      Bank.  The facility includes a $20,000 term loan evidenced by a term
      loan note, which matures on August 31, 2011 and a $15,000 revolving line of
      credit promissory note, which matures on August 31, 2008. Availability under
      the
      revolving line of credit is the lesser of $15,000 or the borrowing base amount,
      which is calculated monthly as a percentage of the Company's eligible assets.
      Interest is charged on the loans at LIBOR plus 1.75%, which may be reduced
      to
      LIBOR plus 1.5% if the Company meets certain performance
      criteria.  The loans are secured by assets of the Company and the term
      loan is additionally secured by personal guarantees of the Company’s two
      majority shareholders (the Chairman of the Board of Directors and
      CEO).  The line of credit is secured by assets of the
      Company.  Outstanding borrowings on the line of credit amounted to
      $5,911 and $3,330 at February 28, 2007 and August 31, 2006,
      respectively.  Total unused borrowings under the line of credit
      amounted to $9,089 and $11,670 at February 28, 2007 and August 31, 2006,
      respectively.





Covenant
      terms of the Company’s loan agreement require the maintenance of certain ratios
      including debt (not including subordinated debt) to EBITDA and fixed charge
      coverage.  Additionally, the Company must maintain $1,000 in tangible
      net worth and the personal guarantor (the Company’s Chairman of the Board) of
      the agreement must meet certain liquidity tests.  As of February 28,
      2007, the Company was not in compliance with certain covenants. The Company
      is
      currently in discussions with its bank to obtain a waiver related to these
      covenant violations.





*Revolving
      Line of Credit – Variable Interest Entity*





The
      VIE
      maintains a $2,200 revolving line of credit with Fifth Third Bank that matures
      on May 31, 2007. Interest is charged on the revolving line of credit at LIBOR
      plus 1.60%. The loan is secured by real estate assets and by personal guarantees
      of the Company’s two majority shareholders (the Chairman of the Board and the
      CEO of the Company).   Outstanding borrowings amounted to $2,200
      at February 28, 2007.





*Convertible
      Term Note*





The
      Company maintains a convertible term note (the “Note”) payable to an unrelated
      party, Laurus Master Fund, Ltd. (“Laurus”), in the principal amount of
      $7,500.  The Note matures on November 26, 2008 and is convertible into
      the Company’s common stock at an exercise price of $5.50 per share subject to
      certain adjustments contained in the Note.  Principal payments of $227
      are payable monthly.  Interest is payable monthly in arrears at prime
      plus 3.0% subject to a floor of 9.5%, subject to various adjustments described
      in the Note.  The Note is unsecured by the Company, but guaranteed by
      the Company’s two majority shareholders.  The Company has registered
      the shares of common stock underlying the Note.





Subject
      to the terms of the Note, the monthly principal and interest payments are
      payable in shares of the Company’s common stock if certain criteria are met as
      stated in the Note including that the average closing price of the Company’s
      common stock as reported by Bloomberg, L.P. for the five trading days
      immediately preceding the repayment date is greater than or equal to 109% of
      the
      conversion price of the Note, set in the Note at $5.50 per share (based upon
      the
      conversion price of $5.50, the average closing price required would be
      $6.00).  If the criteria are not met, the Company must pay that
      portion or all of the monthly principal payment in cash at a rate of 102% of
      the
      respective monthly amortization amounts.  The Company also has the
      option to postpone payment of any 12 principal payments due.  As of
      February 28, 2007, the Company has postponed eight of the monthly principal
      payments.  These deferred principal amounts will be due and payable,
      at the Company’s option, on any subsequent payment date or on the maturity date
      of the Note.


19
 *Index*


Laurus
      also has the option to convert all or a portion of the amount owed under the
      Note into shares of the Company’s common stock at any time, at an initial fixed
      conversion price of $5.50 per share, subject to various limitations and
      adjustment described in the Note.  The Note is currently convertible
      into 1,197,521 shares of the Company’s common stock, excluding the conversion of
      any accrued interest.





**NOTE
      9 - INCOME TAXES**





The
      reconciliation for 2007 and 2006 of income tax expense (benefit) computed at
      the
      U.S. Federal statutory tax rate to the Company's effective income rate is as
      follows:





February
                    28,
                
                
                August
                    31,2007
                
                
                2006(Unaudited)
                
                
                (Audited)Tax
                    at U.S. Federal statutory rate
                
                
                (34.0
                )%
                
                
                34.0
                %State
                    and local taxes, net of federal benefit
                
                
                (5.6
                )
                
                
                5.6Other
                
                
                -
                
                
                
                -Change
                    in valuation allowance
                
                
                39.6
                
                
                
                (78.6
                )0.0
                %
                
                
                (39.0
                )%





Significant
      components of the provision for income tax expense (benefit) from continuing
      operations are as follows:





February
                                    28,
                                
                                
                                August
                                    31,2007
                                
                                
                                2006(Unaudited)
                                
                                
                                (Audited)Current:Federal
                                
                                $
                                (2,237
                                )
                                
                                $
                                755State
                                
                                
                                (368
                                )
                                
                                
                                124(2,605
                                )
                                
                                
                                879Deferred:Federal
                                
                                
                                477
                                
                                
                                
                                (328
                                )State
                                
                                
                                78
                                
                                
                                
                                (54
                                )555
                                
                                
                                
                                (382
                                )Change
                                    in valuation allowance
                                
                                
                                2,169
                                
                                
                                
                                (920
                                )Net
                                    income tax (benefit)
                                
                                $
                                119
                                
                                
                                $
                                (423
                                )





Deferred
      income taxes reflect the net tax effects of temporary differences between the
      carrying amount of assets and liabilities for financial statement purposes
      and
      the amounts used for income tax purposes. The significant components of the
      Company's deferred tax asset are as follows:





February
                    28,
                
                
                August
                    31,2007
                
                
                2006(Unaudited)
                
                
                (Audited)Deferred
                    Tax Assets:Current:Allowances
                    for doubtful accounts and inventory
                
                $
                840
                
                
                $
                596Accrued
                    liabilities and other
                
                
                767
                
                
                
                900Noncurrent:Amortization
                    of covenants
                
                
                303
                
                
                
                (84
                )Depreciation
                
                
                (176
                )
                
                
                (233
                )Net
                    operating losses and other carryforwards
                
                
                4,081
                
                
                
                2,4675,815
                
                
                
                3,646Valuation
                    allowance
                
                
                (4,280
                )
                
                
                (2,111
                )$
                1,535
                
                
                $
                1,535


20
 *Index*
  SFAS
      109
      requires a valuation allowance to reduce the deferred tax assets reported if,
      at
      February 28, 2007, the Company had federal tax operating loss based on the
      weight of the evidence, it is more likely than not that some portion or all
      of
      the deferred tax assets will not be realized.  After consideration of
      all the evidence, both positive and negative, management has determined that
      a
      $4,280 valuation allowance at February 28, 2007 is necessary to reduce the
      deferred tax assets to the amount that will more likely than not be realized.
      The change in the valuation allowance for the current period is
      $2,169.  At February 28, 2007 the Company has federal net operating
      loss carryforwards of approximately $11,000 which expire between 2020 and 2027.
      The state tax operating loss carryforwards are approximately $14,000. The
      difference between federal and state net operating loss carryforwards represents
      a change in business venue in a prior period.  The Company's capital
      loss carryforward is approximately $900, which expires in the fiscal year ending
      August 31, 2007.  The Company also incurred net operating losses
      related to European operations that can be carried forward
      indefinitely.





**NOTE
      10 - PER SHARE DATA**





The
      following presents the computation of basic income per common share and diluted
      income per common share:





Three
                    Month Period Ended
                
                
                Six
                    Month Period EndedFebruary
                    28,
                
                
                February
                    28,
                
                
                February
                    28,
                
                
                February
                    28,2007
                
                
                2006
                
                
                2007
                
                
                2006(Unaudited)
                
                
                (Unaudited)
                
                
                (Unaudited)
                
                
                (Unaudited)Net
                    Income (Loss) Available to Common Shareholders
                
                $
                (7,755
                )
                
                $
                316
                
                
                $
                (7,029
                )
                
                $
                1,163Basic
                    Income (Loss) Per Common Share
                
                $
                (0.73
                )
                
                $
                0.03
                
                
                $
                (0.66
                )
                
                $
                0.11Basic
                    weighted average number ofcommon
                    shares outstanding
                
                
                10,628,219
                
                
                
                10,559,843
                
                
                
                10,576,185
                
                
                
                10,559,843Diluted
                    Income Per Common Share:
                
                $
                (0.63
                )
                
                $
                0.03
                
                
                $
                (0.57
                )
                
                $
                0.10Diluted
                    weighted average number ofcommon
                    shares outstanding
                
                
                12,281,760
                
                
                
                12,067,814
                
                
                
                12,240,371
                
                
                
                11,472,267





At
      February 28, 2007, diluted shares represent 15,000 shares of common stock that
      could potentially be issued under the terms of restricted share unit agreements
      entered into as part of the Company’s Employee Stock Plan, 1,197,521 shares that
      could be issued pursuant to the Laurus convertible term note and 301,090 shares
      that underlie the outstanding warrants and stock compensation.





**NOTE
      11 - RELATED PARTY TRANSACTIONS**





The
      following is a summary of related party amounts included in the consolidated
      financial statements at February 28, 2007 and 2006, respectively.





The
      Company maintains a note receivable with a subsidiary employee in connection
      with the acquisition of the subsidiary.  The note balance of $300 is
      secured by restricted stock and expires March 31, 2008.





The
      Company maintains an installment note payable for equipment and vehicle
      purchases by a shareholder.  The loan balance of $45 is secured by the
      assets and expires no later than September 1, 2008.  Interest expense
      is insignificant.


21
 *Index*


The
      Company had borrowings under a long-term unsecured line of credit with the
      Company’s majority shareholder that was canceled and converted to preferred
      stock on November 30, 2005. Interest expense on the line of credit of $115
      was
      recognized for the six month periods ended February 28, 2006.





**Other
      Related Party Transactions**





**Shareholder
      Put / Call Agreements**





As
      part
      of the merger agreements with PSM, the 1,350,000 shares of the Company’s common
      stock held by Harlan Schafir and certain PSM employees were subject to various
      option agreements that gave Mr. Schafir and the PSM employees the option to
      put
      any or all of the Company’s Stock received by them to a group of individuals
      including the Company’s majority shareholder or to the Company, according to the
      terms of these option agreements. The put price was dependent on PSM’s
      cumulative operating performance from October 1, 2003 through September 30,
      2006. The total value of the puts was approximately $8,500 as the shares
      achieved their maximum put value. During the Company’s first fiscal quarter Mr.
      Schafir and the PSM employees exercised their put sale rights and sold all
      of
      their Company shares to Carter Fortune and John Fisbeck. 1,250,000 of the shares
      were priced at $6.00 per share and 100,000 of the shares were priced at $10.00
      per share.





As
      part
      of the merger agreements with NorCote, the approximately 899,000 shares of
      the
      Company’s common stock held by Norman Wolcott, Jr. and the “Wolcott Trusts” were
      subject to various option agreements.  The agreements gave the holders
      the option to put some or all of the Company’s Stock received by them to the
      Company’s majority shareholder and the Company’s majority shareholder the option
      to call some or all of the Company’s Stock.  The put / call price
      was dependent on NorCote’s cumulative operating performance from July 1, 2003
      through June 30, 2006.  The total value of the puts was approximately
      $2,742 .  On March 2, 2007 Mr. Fortune exercised his call rights from
      Mr. Wolcott and the Wolcott Trusts and pursuant to a related agreement Mr.
      Fisbeck purchased one-half of the shares. The approximately 899,000 shares
      were
      priced at $3.05 per share.





As
        part
        of the merger agreements with Magtech, the 28,450 shares of the Company’s common
        stock held by MGTS Corp. (“MGTS”) were subject to various option rights
        that gave MGTS the option to put any or all of the Company’s Stock received by
        them to the Company’s majority shareholder, according to the terms of the
        Magtech purchase agreement. The put price was dependent on Magtech’s cumulative
        operating performance from November 1, 2004 through October 31, 2006. The
        total
        value of the puts was approximately $250. On March 2, 2007 MGTS exercised
        their
        put sale rights and sold all of their Company shares to Carter Fortune and
        John
        Fisbeck. The 28,450 shares were priced at $10.00 per share.





**Guarantees**





A
      significant portion of the Company’s debt and surety bonds are personally
      guaranteed by the Company’s Chairman of the Board and Chief Executive
      Officer.




**NOTE
      12 – VARIABLE INTEREST ENTITY**





In
      December 2003, the Financial Accounting Standards Board (“FASB”) issued
      Interpretation No. 46R, Consolidation of Variable Interest Entities ("FIN 46R").
      FIN 46R requires a variable interest entity to be consolidated by a company,
      if
      that company is subject to a majority of the risk of loss from the variable
      interest entity's activities or is entitled to receive a majority of the
      entity's residual returns, or both. FIN 46R also requires disclosures about
      variable interest entities that a company is not required to consolidate, but
      in
      which it has a significant variable interest.





The
      Company leases a total of six facilities from a consolidated variable interest
      entity, a related-party referenced earlier whose primary purpose is to own
      and
      lease these properties to the Company. The VIE has ownership of 384,500 shares
      of the Company’s stock and is wholly-owned by the Company’s Chairman of the
      Board and its Chief Executive Officer.  The VIE does not have any
      other significant assets.  Although the Company does not have direct
      ownership interests in the VIE, it is considered the primary beneficiary as
      interpreted by FIN 46R due to implicit interests generated from personal
      guarantees from the Company’s majority shareholders on certain debt instruments
      and leasing arrangements of the VIE.





The
      real
      estate owned by the VIE consists of land, buildings and building improvements,
      which were subject to mortgages under which the lender has no recourse to the
      Company.  The non-cash consolidation of the assets and liabilities of
      the variable interest entity at February 28, 2007, consisted of the
      following:


22
 *Index*




**Assets**Cash
                  
                  $
                  112Marketable
                      equity securities
                  
                  
                  1,538Property
                      and equipment
                  
                  
                  6,724Other
                      assets
                  
                  
                  4$
                  8,378**Liabilities
                      and Members Equity**Line
                      of credit
                  
                  $
                  2,200Current
                      maturities of long-term debt
                  
                  
                  543Accounts
                      payable and accrued expenses
                  
                  
                  159Long-term
                      debt, net of current maturities
                  
                  
                  4,7717,673Members equity
                  
                  
                  705$
                  8,378





For
      the
      three month period ended February 28, 2007, the consolidation of the VIE
      included income of $124 comprised of $358 in rental income, offset by a $142
      charge to interest expense, a $50 charge to depreciation expense, and $42 in
      administrative and other miscellaneous expenses.  For the six month
      period ended February 28, 2007, the consolidation of the VIE included income
      of
      $163 comprised of $584 in rental income, offset by a $280 charge to interest
      expense, a $99 charge to depreciation expense, and $42 in administrative and
      other miscellaneous expenses.





**NOTE
      13 - SEGMENT INFORMATION**





The
      Company’s reportable business segments are organized in a manner that reflects
      how management reviews and evaluates those business
      activities.  Certain businesses have been grouped together for segment
      reporting based upon similar products or product lines, marketing, sales and
      distribution characteristics.





The
      operations of the Company are organized into the following segments; Wireless
      Infrastructure, Business Solutions, Transportation Infrastructure, Ultraviolet
      Technologies and Electronics Integration.  The Holding Company is
      comprised of the corporate entity.  These business segments are
      consistent with the Company’s management of these businesses and its financial
      reporting structure.  Financial results by segment are as
      follows:




Wireless
                  
                  
                  Business
                  
                  
                  Transportation
                  
                  
                  Ultraviolet
                  
                  
                  Electronics
                  
                  
                  OperatingInfrastructure
                  
                  
                  Solutions
                      (1)
                  
                  
                  Infrastructure
                  
                  
                  Technologies
                  
                  
                  Integration
                  
                  
                  Total3-Months
                      Ended February 28, 2007Revenue
                  
                  $
                  4,694
                  
                  
                  $
                  13,462
                  
                  
                  $
                  7,885
                  
                  
                  $
                  2,913
                  
                  
                  $
                  3,284
                  
                  
                  $
                  32,238Cost
                      of revenue
                  
                  
                  4,717
                  
                  
                  
                  11,197
                  
                  
                  
                  6,689
                  
                  
                  
                  1,838
                  
                  
                  
                  3,269
                  
                  
                  
                  27,710Gross
                      profit
                  
                  
                  (23
                  )
                  
                  
                  2,265
                  
                  
                  
                  1,196
                  
                  
                  
                  1,075
                  
                  
                  
                  15
                  
                  
                  
                  4,528Operating
                      expensesSelling,
                      general and administrative
                  
                  
                  2,323
                  
                  
                  
                  1,808
                  
                  
                  
                  733
                  
                  
                  
                  1,066
                  
                  
                  
                  731
                  
                  
                  
                  6,661Depreciation
                      and amortization
                  
                  
                  183
                  
                  
                  
                  175
                  
                  
                  
                  145
                  
                  
                  
                  108
                  
                  
                  
                  57
                  
                  
                  
                  668Impairment
                  
                  
                  1,815
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  212
                  
                  
                  
                  2,027Total
                      operating expenses
                  
                  
                  4,321
                  
                  
                  
                  1,983
                  
                  
                  
                  878
                  
                  
                  
                  1,174
                  
                  
                  
                  1,000
                  
                  
                  
                  9,356Segment
                      operating income (loss)
                  
                  $
                  (4,344
                  )
                  
                  $
                  282
                  
                  
                  $
                  318
                  
                  
                  $
                  (99
                  )
                  
                  $
                  (985
                  )
                  
                  $
                  (4,828
                  )


23
 *Index*


Holding
                  
                  
                  Consolidated
                  
                  
                  VIE
                  
                  
                  SegmentCompany
                  
                  
                  VIE
                  
                  
                  Elimination
                  
                  
                  Totals3-Months
                      Ended February 28, 2007 (continued)Revenue
                  
                  $
                  -
                  
                  
                  $
                  358
                  
                  
                  $
                  (357
                  )
                  
                  $
                  32,239Cost
                      of revenue
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  27,710Gross
                      profit (loss)
                  
                  
                  -
                  
                  
                  
                  358
                  
                  
                  
                  (357
                  )
                  
                  
                  4,529Operating
                      expensesSelling,
                      general and administrative
                  
                  
                  1,335
                  
                  
                  
                  43
                  
                  
                  
                  (357
                  )
                  
                  
                  7,682Depreciation
                      and amortization
                  
                  
                  367
                  
                  
                  
                  49
                  
                  
                  
                  -
                  
                  
                  
                  1,084Impairment
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,027Total
                      operating expenses
                  
                  
                  1,702
                  
                  
                  
                  92
                  
                  
                  
                  (357
                  )
                  
                  
                  10,793Segment
                      operating income (loss)
                  
                  $
                  (1,702
                  )
                  
                  $
                  266
                  
                  
                  $
                  -
                  
                  
                  $
                  (6,264
                  )
  (1)
        Gross
        billings of $106,493 less worksite employee payroll costs of
        $93,031.


Wireless
                    
                    
                    Business
                    
                    
                    Transportation
                    
                    
                    Ultraviolet
                    
                    
                    Electronics
                    
                    
                    OperatingInfrastructure
                    
                    
                    Solutions
                        (1)
                    
                    
                    Infrastructure
                    
                    
                    Technologies
                    
                    
                    Integration
                    
                    
                    Total3-Months
                        Ended February 28, 2006 (restated)Revenue
                    
                    $
                    5,762
                    
                    
                    $
                    11,325
                    
                    
                    $
                    9,625
                    
                    
                    $
                    2,882
                    
                    
                    $
                    3,762
                    
                    
                    $
                    33,356Cost
                        of revenue
                    
                    
                    4,049
                    
                    
                    
                    8,155
                    
                    
                    
                    8,908
                    
                    
                    
                    1,816
                    
                    
                    
                    2,894
                    
                    
                    
                    25,822Gross
                        profit
                    
                    
                    1,713
                    
                    
                    
                    3,170
                    
                    
                    
                    717
                    
                    
                    
                    1,066
                    
                    
                    
                    868
                    
                    
                    
                    7,534Operating
                        expensesSelling,
                        general and administrative
                    
                    
                    1,186
                    
                    
                    
                    1,654
                    
                    
                    
                    764
                    
                    
                    
                    976
                    
                    
                    
                    509
                    
                    
                    
                    5,089Depreciation
                        and amortization
                    
                    
                    89
                    
                    
                    
                    156
                    
                    
                    
                    104
                    
                    
                    
                    97
                    
                    
                    
                    51
                    
                    
                    
                    497Total
                        operating expenses
                    
                    
                    1,275
                    
                    
                    
                    1,810
                    
                    
                    
                    868
                    
                    
                    
                    1,073
                    
                    
                    
                    560
                    
                    
                    
                    5,586Segment
                        operating income (loss)
                    
                    $
                    438
                    
                    
                    $
                    1,360
                    
                    
                    $
                    (151
                    )
                    
                    $
                    (7
                    )
                    
                    $
                    308
                    
                    
                    $
                    1,948






Holding
                    
                    
                    Consolidated
                    
                    
                    VIE
                    
                    
                    SegmentCompany
                    
                    
                    VIE
                    
                    
                    Elimination
                    
                    
                    Totals3-Months
                        Ended February 28, 2006 (continued, restated)Revenue
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    33,356Cost
                        of revenue
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    25,822Gross
                        profit
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    7,534Operating
                        expensesSelling,
                        general and administrative
                    
                    
                    993
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    6,082Depreciation
                        and amortization
                    
                    
                    46
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    543Total
                        operating expenses
                    
                    
                    1,039
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    6,625Segment
                        operating income (loss)
                    
                    $
                    (1,039
                    )
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    909




(1) Gross billings of $77,496 less worksite employee payroll
      costs of $66,171.




24
 *Index*




Wireless
                  
                  
                  Business
                  
                  
                  Transportation
                  
                  
                  Ultraviolet
                  
                  
                  Electronics
                  
                  
                  OperatingInfrastructure
                  
                  
                  Solutions
                      (1)
                  
                  
                  Infrastructure
                  
                  
                  Technologies
                  
                  
                  Integration
                  
                  
                  Total6-Months
                      Ended February 28, 2007Revenue
                  
                  $
                  13,690
                  
                  
                  $
                  25,092
                  
                  
                  $
                  20,632
                  
                  
                  $
                  5,962
                  
                  
                  $
                  7,541
                  
                  
                  $
                  72,917Cost
                      of revenue
                  
                  
                  11,249
                  
                  
                  
                  20,378
                  
                  
                  
                  17,932
                  
                  
                  
                  3,561
                  
                  
                  
                  6,500
                  
                  
                  
                  59,620Gross
                      profit
                  
                  
                  2,441
                  
                  
                  
                  4,714
                  
                  
                  
                  2,700
                  
                  
                  
                  2,401
                  
                  
                  
                  1,041
                  
                  
                  
                  13,297Operating
                      expensesSelling,
                      general and administrative
                  
                  
                  4,125
                  
                  
                  
                  3,377
                  
                  
                  
                  1,506
                  
                  
                  
                  2,200
                  
                  
                  
                  1,397
                  
                  
                  
                  12,605Depreciation
                      and amortization
                  
                  
                  298
                  
                  
                  
                  317
                  
                  
                  
                  283
                  
                  
                  
                  217
                  
                  
                  
                  80
                  
                  
                  
                  1,195Impairment
                  
                  
                  1,815
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  212
                  
                  
                  
                  2,027Total
                      operating expenses
                  
                  
                  6,238
                  
                  
                  
                  3,694
                  
                  
                  
                  1,789
                  
                  
                  
                  2,417
                  
                  
                  
                  1,689
                  
                  
                  
                  15,827Segment
                      operating income (loss)
                  
                  $
                  (3,797
                  )
                  
                  $
                  1,020
                  
                  
                  $
                  911
                  
                  
                  $
                  (16
                  )
                  
                  $
                  (648
                  )
                  
                  $
                  (2,530
                  )





Holding
                    
                    
                    Consolidated
                    
                    
                    VIE
                    
                    
                    SegmentCompany
                    
                    
                    VIE
                    
                    
                    Elimination
                    
                    
                    Totals6-Months
                        Ended February 28, 2007 (continued)Revenue
                    
                    $
                    -
                    
                    
                    $
                    584
                    
                    
                    $
                    (578
                    )
                    
                    $
                    72,923Cost
                        of revenue
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    59,620Gross
                        profit
                    
                    
                    -
                    
                    
                    
                    584
                    
                    
                    
                    (578
                    )
                    
                    
                    13,303Operating
                        expensesSelling,
                        general and administrative
                    
                    
                    2,043
                    
                    
                    
                    43
                    
                    
                    
                    (578
                    )
                    
                    
                    14,113Depreciation
                        and amortization
                    
                    
                    509
                    
                    
                    
                    98
                    
                    
                    
                    -
                    
                    
                    
                    1,802Impairment
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    2,027Total
                        operating expenses
                    
                    
                    2,552
                    
                    
                    
                    141
                    
                    
                    
                    (578
                    )
                    
                    
                    17,942Segment
                        operating income (loss)
                    
                    $
                    (2,552
                    )
                    
                    $
                    443
                    
                    
                    $
                    -
                    
                    
                    $
                    (4,639
                    )




(1)
      Gross
      billings of $189,410 less worksite employee payroll costs of
      $164,318.




Wireless
                    
                    
                    Business
                    
                    
                    Transportation
                    
                    
                    Ultraviolet
                    
                    
                    Electronics
                    
                    
                    OperatingInfrastructure
                    
                    
                    Solutions
                        (1)
                    
                    
                    Infrastructure
                    
                    
                    Technologies
                    
                    
                    Integration
                    
                    
                    Total6-Months
                        Ended February 28, 2006 (restated)Revenue
                    
                    $
                    12,586
                    
                    
                    $
                    21,063
                    
                    
                    $
                    23,727
                    
                    
                    $
                    5,579
                    
                    
                    $
                    6,844
                    
                    
                    $
                    69,799Cost
                        of revenue
                    
                    
                    9,308
                    
                    
                    
                    15,386
                    
                    
                    
                    21,642
                    
                    
                    
                    3,304
                    
                    
                    
                    5,387
                    
                    
                    
                    55,027Gross
                        profit
                    
                    
                    3,278
                    
                    
                    
                    5,677
                    
                    
                    
                    2,085
                    
                    
                    
                    2,275
                    
                    
                    
                    1,457
                    
                    
                    
                    14,772Operating
                        expensesSelling,
                        general and administrative
                    
                    
                    2,346
                    
                    
                    
                    3,035
                    
                    
                    
                    1,480
                    
                    
                    
                    2,010
                    
                    
                    
                    981
                    
                    
                    
                    9,852Depreciation
                        and amortization
                    
                    
                    158
                    
                    
                    
                    310
                    
                    
                    
                    206
                    
                    
                    
                    190
                    
                    
                    
                    82
                    
                    
                    
                    946Total
                        operating expenses
                    
                    
                    2,504
                    
                    
                    
                    3,345
                    
                    
                    
                    1,686
                    
                    
                    
                    2,200
                    
                    
                    
                    1,063
                    
                    
                    
                    10,798Segment
                        operating income (loss)
                    
                    $
                    774
                    
                    
                    $
                    2,332
                    
                    
                    $
                    399
                    
                    
                    $
                    75
                    
                    
                    $
                    394
                    
                    
                    $
                    3,974




Holding
                    
                    
                    Consolidated
                    
                    
                    VIE
                    
                    
                    SegmentCompany
                    
                    
                    VIE
                    
                    
                    Elimination
                    
                    
                    Totals6-Months
                        Ended February 28, 2006 (continued, restated)Revenue
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    69,799Cost
                        of revenue
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    55,027Gross
                        profit
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    14,772Operating
                        expensesSelling,
                        general and administrative
                    
                    
                    1,687
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    11,539Depreciation
                        and amortization
                    
                    
                    78
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,024Total
                        operating expenses
                    
                    
                    1,765
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    12,563Segment
                        operating income (loss)
                    
                    $
                    (1,765
                    )
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    2,209




(1)
      Gross
      billings of $147,946 less worksite employee payroll costs of
      $126,883.


25
 *Index*




Wireless
                                  
                                  
                                  Business
                                  
                                  
                                  Transportation
                                  
                                  
                                  Ultraviolet
                                  
                                  
                                  Electronics
                                  
                                  
                                  OperatingInfrastructure
                                  
                                  
                                  Solutions
                                  
                                  
                                  Infrastructure
                                  
                                  
                                  Technologies
                                  
                                  
                                  Integration
                                  
                                  
                                  TotalAs
                                      of February 28, 2007 (Unaudited)Current
                                      AssetsCash
                                      and equivalents
                                  
                                  $
                                  86
                                  
                                  
                                  $
                                  6,802
                                  
                                  
                                  $
                                  (255
                                  )
                                  
                                  $
                                  727
                                  
                                  
                                  $
                                  (114
                                  )
                                  
                                  $
                                  7,246Restricted
                                      cash
                                  
                                  
                                  -
                                  
                                  
                                  
                                  3,217
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  3,217Marketable
                                      equity securities
                                  
                                  
                                  -
                                  
                                  
                                  
                                  118
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  118Accounts
                                      receivable, net
                                  
                                  
                                  7,187
                                  
                                  
                                  
                                  1,990
                                  
                                  
                                  
                                  6,271
                                  
                                  
                                  
                                  1,936
                                  
                                  
                                  
                                  1,712
                                  
                                  
                                  
                                  19,096Costs
                                      and estimated earnings in excess of billings
                                      on uncompleted
                                      contracts
                                  
                                  
                                  1,116
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,091
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  2,207Inventory,
                                      net
                                  
                                  
                                  81
                                  
                                  
                                  
                                  16
                                  
                                  
                                  
                                  3,481
                                  
                                  
                                  
                                  1,794
                                  
                                  
                                  
                                  1,511
                                  
                                  
                                  
                                  6,883Deferred
                                      tax asset
                                  
                                  
                                  -
                                  
                                  
                                  
                                  847
                                  
                                  
                                  
                                  688
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,535Prepaid
                                      expenses and other current assets
                                  
                                  
                                  159
                                  
                                  
                                  
                                  177
                                  
                                  
                                  
                                  289
                                  
                                  
                                  
                                  286
                                  
                                  
                                  
                                  50
                                  
                                  
                                  
                                  961Total
                                      Current Assets
                                  
                                  
                                  8,629
                                  
                                  
                                  
                                  13,167
                                  
                                  
                                  
                                  11,565
                                  
                                  
                                  
                                  4,743
                                  
                                  
                                  
                                  3,159
                                  
                                  
                                  
                                  41,263Other
                                      AssetsProperty,
                                      plant & equipment, net
                                  
                                  
                                  997
                                  
                                  
                                  
                                  285
                                  
                                  
                                  
                                  1,620
                                  
                                  
                                  
                                  1,966
                                  
                                  
                                  
                                  187
                                  
                                  
                                  
                                  5,055Accounts
                                      receivable - long term
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  731
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  731Goodwill
                                  
                                  
                                  -
                                  
                                  
                                  
                                  5,692
                                  
                                  
                                  
                                  152
                                  
                                  
                                  
                                  4,695
                                  
                                  
                                  
                                  1,276
                                  
                                  
                                  
                                  11,815Other
                                      intangible assets, net
                                  
                                  
                                  -
                                  
                                  
                                  
                                  3,808
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  607
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  4,415Other
                                      long term assets
                                  
                                  
                                  -
                                  
                                  
                                  
                                  27
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  23
                                  
                                  
                                  
                                  16
                                  
                                  
                                  
                                  66Total
                                      Other Assets
                                  
                                  
                                  997
                                  
                                  
                                  
                                  9,812
                                  
                                  
                                  
                                  2,503
                                  
                                  
                                  
                                  7,291
                                  
                                  
                                  
                                  1,479
                                  
                                  
                                  
                                  22,082Total
                                      Assets
                                  
                                  $
                                  9,626
                                  
                                  
                                  $
                                  22,979
                                  
                                  
                                  $
                                  14,068
                                  
                                  
                                  $
                                  12,034
                                  
                                  
                                  $
                                  4,638
                                  
                                  
                                  $
                                  63,345
 
 
 Holding
                                      
                                      
                                      Consolidated
                                      
                                      
                                      SegmentCompany
                                      
                                      
                                      VIE
                                      
                                      
                                      TotalsAs
                                          of February 28, 2007 (continued, Unaudited)Current
                                          AssetsCash
                                          and equivalents
                                      
                                      $
                                      (64
                                      )
                                      
                                      $
                                      112
                                      
                                      
                                      $
                                      7,294Restricted
                                          cash
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      3,217Marketable
                                          equity securities
                                      
                                      
                                      58
                                      
                                      
                                      
                                      1,538
                                      
                                      
                                      
                                      1,714Accounts
                                          receivable, net
                                      
                                      
                                      (70
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      19,026Costs
                                          and estimated earnings in excess of billings
                                          on uncompleted
                                          contracts
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      2,207Inventory,
                                          net
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      6,883Deferred
                                          tax asset
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      1,535Prepaid
                                          expenses and other current assets
                                      
                                      
                                      202
                                      
                                      
                                      
                                      (96
                                      )
                                      
                                      
                                      1,067Total
                                          Current Assets
                                      
                                      
                                      126
                                      
                                      
                                      
                                      1,554
                                      
                                      
                                      
                                      42,943Other
                                          AssetsProperty,
                                          plant & equipment, net
                                      
                                      
                                      563
                                      
                                      
                                      
                                      6,724
                                      
                                      
                                      
                                      12,342Accounts
                                          receivable - long term
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      731Goodwill
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      11,815Other
                                          intangible assets, net
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      4,415Other
                                          long term assets
                                      
                                      
                                      1,154
                                      
                                      
                                      
                                      4
                                      
                                      
                                      
                                      1,224Total
                                          Other Assets
                                      
                                      
                                      1,717
                                      
                                      
                                      
                                      6,728
                                      
                                      
                                      
                                      30,527Total
                                          Assets
                                      
                                      $
                                      1,843
                                      
                                      
                                      $
                                      8,282
                                      
                                      
                                      $
                                      73,470




26
 *Index*




Wireless
                                  
                                  
                                  Business
                                  
                                  
                                  Transportation
                                  
                                  
                                  Ultraviolet
                                  
                                  
                                  Electronics
                                  
                                  
                                  OperatingInfrastructure
                                  
                                  
                                  Solutions
                                  
                                  
                                  Infrastructure
                                  
                                  
                                  Technologies
                                  
                                  
                                  Integration
                                  
                                  
                                  TotalAs
                                      of August 31, 2006 (Audited)Current
                                      AssetsCash
                                      and equivalents
                                  
                                  $
                                  (791
                                  )
                                  
                                  $
                                  4,308
                                  
                                  
                                  $
                                  78
                                  
                                  
                                  $
                                  594
                                  
                                  
                                  $
                                  (187
                                  )
                                  
                                  $
                                  4,002Restricted
                                      cash
                                  
                                  
                                  -
                                  
                                  
                                  
                                  3,462
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  3,462Marketable
                                      equity securities
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,246
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,246Accounts
                                      receivable, net
                                  
                                  
                                  9,632
                                  
                                  
                                  
                                  1,858
                                  
                                  
                                  
                                  10,701
                                  
                                  
                                  
                                  1,884
                                  
                                  
                                  
                                  2,260
                                  
                                  
                                  
                                  26,335Costs
                                      and estimated earnings in excess of billings
                                      on uncompleted
                                      contracts
                                  
                                  
                                  2,269
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  2,231
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  4,500Inventory,
                                      net
                                  
                                  
                                  218
                                  
                                  
                                  
                                  30
                                  
                                  
                                  
                                  3,154
                                  
                                  
                                  
                                  1,721
                                  
                                  
                                  
                                  1,638
                                  
                                  
                                  
                                  6,761Deferred
                                      tax asset
                                  
                                  
                                  -
                                  
                                  
                                  
                                  876
                                  
                                  
                                  
                                  659
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,535Prepaid
                                      expenses and other current assets
                                  
                                  
                                  255
                                  
                                  
                                  
                                  623
                                  
                                  
                                  
                                  424
                                  
                                  
                                  
                                  286
                                  
                                  
                                  
                                  22
                                  
                                  
                                  
                                  1,610Total
                                      Current Assets
                                  
                                  
                                  11,583
                                  
                                  
                                  
                                  12,403
                                  
                                  
                                  
                                  17,247
                                  
                                  
                                  
                                  4,485
                                  
                                  
                                  
                                  3,733
                                  
                                  
                                  
                                  49,451Other
                                      AssetsProperty,
                                      plant & equipment, net
                                  
                                  
                                  1,311
                                  
                                  
                                  
                                  448
                                  
                                  
                                  
                                  1,686
                                  
                                  
                                  
                                  1,997
                                  
                                  
                                  
                                  299
                                  
                                  
                                  
                                  5,741Accounts
                                      receivable - long term
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,276
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,276Goodwill
                                  
                                  
                                  1,497
                                  
                                  
                                  
                                  4,153
                                  
                                  
                                  
                                  152
                                  
                                  
                                  
                                  4,695
                                  
                                  
                                  
                                  1,487
                                  
                                  
                                  
                                  11,984Other
                                      intangible assets, net
                                  
                                  
                                  359
                                  
                                  
                                  
                                  3,289
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  651
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  4,299Other
                                      long term assets
                                  
                                  
                                  -
                                  
                                  
                                  
                                  28
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  14
                                  
                                  
                                  
                                  87
                                  
                                  
                                  
                                  129Total
                                      Other Assets
                                  
                                  
                                  3,167
                                  
                                  
                                  
                                  7,918
                                  
                                  
                                  
                                  3,114
                                  
                                  
                                  
                                  7,357
                                  
                                  
                                  
                                  1,873
                                  
                                  
                                  
                                  23,429Total
                                      Assets
                                  
                                  $
                                  14,750
                                  
                                  
                                  $
                                  20,321
                                  
                                  
                                  $
                                  20,361
                                  
                                  
                                  $
                                  11,842
                                  
                                  
                                  $
                                  5,606
                                  
                                  
                                  $
                                  72,880
 
 
 Holding
                                      
                                      
                                      Consolidated
                                      
                                      
                                      SegmentCompany
                                      
                                      
                                      VIE
                                      
                                      
                                      TotalsAs
                                          of August 31, 2006 (continued, Audited)Current
                                          AssetsCash
                                          and equivalents
                                      
                                      $
                                      (370
                                      )
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      3,632Restricted
                                          cash
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      3,462Marketable
                                          equity securities
                                      
                                      
                                      35
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      1,281Accounts
                                          receivable, net
                                      
                                      
                                      (604
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      25,731Costs
                                          and estimated earnings in excess of billings
                                          on uncompleted
                                          contracts
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      4,500Inventory,
                                          net
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      6,761Deferred
                                          tax asset
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      1,535Prepaid
                                          expenses and other current assets
                                      
                                      
                                      312
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      1,922Total
                                          Current Assets
                                      
                                      
                                      (627
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      48,824Other
                                          AssetsProperty,
                                          plant & equipment, net
                                      
                                      
                                      582
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      6,323Accounts
                                          receivable - long term
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      1,276Goodwill
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      11,984Other
                                          intangible assets, net
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      4,299Other
                                          long term assets
                                      
                                      
                                      1,450
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      1,579Total
                                          Other Assets
                                      
                                      
                                      2,032
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      25,461Total
                                          Assets
                                      
                                      $
                                      1,405
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      74,285




**NOTE
      14 – SUBSEQUENT EVENTS**





On
      April
      13, 2007, the Company entered into an agreement to acquire all of the
      outstanding shares of common stock of Employer Solutions Group, Inc. (“ESG”) of
      Odem, Utah for a purchase price of approximately $11,500. The terms of the
      agreement include the payment of $9.1 million cash to the shareholders of
      ESG and the issuance of 577,143 shares of the Company’s common
      stock.
      Vesting of 360,000 shares of the Common Stock issued is contingent upon
      achievement of certain financial performance measures by ESG and the resolution
      of certain debts that may be owed by ESG, as defined in the agreement. ESG
      is a full service PEO. The acquisition was financed through borrowings under
      the
      existing credit facility and the acquisition will be accounted for as a stock
      purchase.


27
 *Index*




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





*Statements
      contained in this document, as well as some statements by the Company in
      periodic press releases and oral statements of Company officials during
      presentations about the Company constitute “forward-looking statements” within
      the meaning of the Private Securities Litigation Reform Act of 1995 (the
“Act”).  Forward-looking statements include statements that are
      predictive in nature, depend on or refer to future events or conditions, which
      include words such as “expect,” “estimate,” “anticipate,” “predict,” “believe”
and similar expressions. These statements are based on the current intent,
      belief or expectation of the Company with respect to, among other things, trends
      affecting the Company’s financial condition or results of
      operations.  These statements are not guaranties of future performance
      and the Company undertakes no obligation to publicly update or revise any
      forward-looking statements, whether as a result of new information, future
      events or otherwise.*





*Actual
      events and results involve risks and uncertainties and may differ materially
      from those expressed or forecasted in forward-looking statements due to a number
      of factors.  Factors that might cause or contribute to such
      differences, include, but are not limited to, the risks and uncertainties that
      are discussed under the heading “Risk Factors” disclosed within Form 10-K for
      the year ended August 31, 2006.  Readers should carefully review the
      risk factors referred to above and the other documents filed by the Company
      with
      the Securities and Exchange Commission.*





**OVERVIEW**





As
      a
      holding company of various product and service entities, we have historically
      invested in businesses that are undervalued or underperforming, and / or in
      operations that are poised for significant growth.  Management’s
      strategic focus is to support the growth of its operations by increasing revenue
      and revenue streams, managing costs and creating earnings growth. Additionally,
      we continually seek and evaluate strategic acquisitions that expand core
      offerings and drive incremental revenue and earnings growth.





Our
      operations are largely decentralized from the corporate
      office.  Autonomy is given to subsidiary entities, and there are few
      integrated business functions (i.e. sales, marketing, purchasing and human
      resources).  Day-to-day operating decisions are made by subsidiary
      management teams.  Our Corporate management team assists in
      operational decisions when deemed necessary, selects subsidiary presidents
      and
      handles capital allocation among our operations.





We
      were
      incorporated in the state of Delaware in 1988, restructured in 2000 and
      redomesticated to the state of Indiana in May 2005.  Prior to 2001, we
      conducted business mainly in the entertainment industry.





As
      reported on our Annual Report on Form 10-K, we classify our businesses under
      five operating segments, Wireless Infrastructure, Business Solutions,
      Transportation Infrastructure, Ultraviolet Technologies and Electronics
      Integration.  We have restated segment information for previous year
      comparative periods in connection with the new reporting segments in the Notes
      to Consolidated Financial Statements and Management’s Discussion and Analysis of
      Financial Condition and Results of Operations in this 10-Q report.





*Wireless
      Infrastructure Segment*





We
      have
      invested in wireless infrastructure businesses since July 2001, and have
      completed six acquisitions primarily related to infrastructure products and
      service offerings related to the development, marketing, management, maintenance
      and upgrading of wireless telecommunications sites.  While services
      are still offered under certain subsidiaries, in November 2005 we began
      marketing the consolidated services of these subsidiaries under the Fortune
      Wireless name brand to promote our ‘turn-key’ service offerings whereby we
      assist with multiple areas of wireless infrastructure under integrated
      contracting arrangements.  Turn-key services include site acquisition,
      engineering, architecture and design, construction management, and technical
      consulting.





*Site
      Acquisition*





Site
      acquisition services are performed for the wireless telecommunications industry
      and include program management, site leasing, land use planning, architectural
      & engineering design, construction management, co-location facilitation,
      environmental services, lease renegotiation, site marketing and asset
      management.


28
 *Index*




*Engineering,
      Architecture and Design*





Engineering,
      architecture and design services are performed for the wireless,
      telecommunications, real estate development, municipal, and petroleum
      industries. The telecommunications industry includes cellular, personal
      communication services (PCS), specialized mobile radio (SMR), enhanced
      specialized mobile radio (ESMR), microwave systems, fixed wireless, broadband
      and fiber optics technologies for carriers, tower consolidators and
      utilities.  Services also include structural analysis and design of
      improvements to telecommunications towers, the structural design and analysis
      of
      buildings, commercial and residential land development projects, including
      re-zoning of properties.





*Construction
      Management*





Construction
      management is performed for the telecommunications industry, primarily
      consisting of developing and upgrading wireless networks for wireless carriers.
      Services include program and construction management, electrical, foundation,
      tower installations, antennae and line installations.





*Technical
      Consulting*





Technical
      consulting services are performed for wireless equipment manufacturers and
      service providers including switch and radio base station
      engineering.  Services include site, survey, delivery, installation
      and integration for the implementation of end user equipment offered by a wide
      range of wireless equipment manufacturers.





Subsidiaries
      operating in the Wireless Infrastructure segment include Fortune Wireless,
      Inc.
      (“Fortune Wireless”), Magtech Services, Inc. (“Magtech”), Cornerstone Wireless
      Construction Services, Inc. (“Cornerstone Construction”) and James Westbrook
& Associates, LLC (“JWA”).





*Business
      Solutions Segment*





The
      Business Solutions segment provides full-service human resource services through
      PEO relationships.  Business Solutions services are performed by
      Professional Staff Management, Inc. and its affiliated entities (“PSM”), CSM,
      Inc. and its affiliated entities (“CSM”) and Precision Employee Management, LLC
      (“Precision”) and its affiliated entities.  PSM was acquired in
      October 2003, CSM was acquired in April 2005 and Precision was acquired in
      February 2007.  Our PEOs provide services typically managed by a
      company’s internal human resources and accounting departments, including payroll
      and tax processing and management, worker’s compensation and risk management,
      benefits administration, unemployment administration, human resource compliance
      services, 401k and retirement plan administration and employee
      assessments.  Clients represent a wide variety of industries from
      healthcare, professional services, manufacturing logistics, telemarketing to
      blue collar services. Combined, these organizations provide co-employment
      services to approximately 10,000 employees in 44 states.





*Transportation
      Infrastructure Segment*





The
      Transportation Infrastructure segment assists customers with the development,
      maintenance and upgrading of transportation infrastructure and commercial
      construction projects.  Transportation infrastructure products and
      services are performed by the James H. Drew Corp. and subsidiaries (“JH
      Drew”).  JH Drew was acquired in April 2004 and has been operating for
      over fifty years servicing contractors and state departments of transportation
      throughout the Midwestern United States.  JH Drew is a leading
      specialty contractor in the field of transportation infrastructure, including
      guardrail, electrical components, and the fabrication and installation of
      structural steel for commercial buildings.





*Ultraviolet
      Technologies Segment*





The
      Ultraviolet (“UV”) Technologies segment manufactures UV curable screen printing
      inks.  UV Technologies products are manufactured by Nor-Cote
      International, Inc. and subsidiaries (“Nor-Cote”), which we acquired in July
      2003. These ink products are printed on many types of plastic, metals and other
      substrates that are compatible with the UV curing process. Typical applications
      are plastic sheets, point-of-purchase (“POP”) signage, banners, decals, cell
      phones, bottles and containers, CD and DVD, rotary-screen printed labels, and
      membrane switch overlays for conductive ink. Nor-Cote has operating facilities
      in the United States, United Kingdom, China and Singapore, with worldwide
      distributors located in South Africa, Australia, Canada, China, Colombia, Hong
      Kong, India, Indonesia, Italy, Japan, Korea, New Zealand, Poland, Spain, Taiwan,
      Thailand, Latin America and the United States.


29
 *Index*
  *Electronics
      Integration Segment*





The
      Electronics Integration segment sells and installs a variety of electronic
      products and equipment, including video, sound and security
      products.  Subsidiaries include Kingston Sales Corporation
      (“Kingston”), Commercial Solutions, Inc. (“Commercial Solutions”) and
      Audio-Video Revolution, Inc. (“AVR”).





Kingston
      and Commercial Solutions are distributors for prominent national companies
      in
      the electronic, sound, security, and video markets. Customers include businesses
      in the lodging, healthcare, education, transportation and retail
      industries.  Product offerings include the latest technology in TVs,
      sound systems, electronic locking devices, wire, cable and fiber optics, and
      intercom systems.  Kingston was acquired in July
      2002.  Commercial Solutions began operations in December
      2003.





AVR,
      acquired in November 2005, provides a wide range of design, engineering and
      installation of residential, commercial, and retail audio and video systems
      including video-conferencing, board-room, home-theater, surround sound audio
      and
      security systems, as well as design, engineering and installation of electrical
      wiring and structured cabling systems, digital satellite television and wireless
      and network high speed (broadband) internet.








**CRITICAL
      ACCOUNTING POLICIES**





The
      Company’s accounting policies, which are in compliance with accounting
      principles generally accepted in the United States, require application of
      methodologies, estimates and judgments that have a significant impact on the
      results reported in the Company’s financial statements.  Those policies
      that, in the belief of management, are critical and require the use of complex
      judgment in their application, are disclosed on Form 10-K for the year
      ended August 31, 2006.  Since August 31, 2006, there have been no material
      changes to the Company’s critical accounting policies.








**RESULTS
      OF OPERATIONS:  COMPARISON OF THE THREE AND SIX MONTH PERIODS ENDED
      FEBRUARY 28, 2007 AND FEBRUARY 28, 2006**





**Executive
      Overview of Financial Results**





Results
      of operations for the three month period ended February 28, 2007 and 2006 are
      as
      follows:




Revenue
                              for the
                          
                          
                          Operating
                              income for the3-months
                              ended February 28,
                          
                          
                          3-months
                              ended February 28,2007
                          
                          
                          2006
                          
                          
                          2007
                          
                          
                          2006(Dollars
                              in thousands)Wireless
                              Infrastructure
                          
                          $
                          4,694
                          
                          
                          $
                          5,762
                          
                          
                          $
                          (4,344
                          )
                          
                          $
                          438Business
                              Solutions
                          
                          
                          13,462
                          
                          
                          
                          11,325
                          
                          
                          
                          282
                          
                          
                          
                          1,360Transportation
                              Infrastructure
                          
                          
                          7,885
                          
                          
                          
                          9,625
                          
                          
                          
                          318
                          
                          
                          
                          (151
                          )Ultraviolet
                              Technologies
                          
                          
                          2,913
                          
                          
                          
                          2,882
                          
                          
                          
                          (99
                          )
                          
                          
                          (7
                          )Electronics
                              Integration
                          
                          
                          3,284
                          
                          
                          
                          3,762
                          
                          
                          
                          (985
                          )
                          
                          
                          308Holding
                              Company
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (1,702
                          )
                          
                          
                          (1,039
                          )Variable
                              Interest Entity
                          
                          
                          358
                          
                          
                          
                          -
                          
                          
                          
                          266
                          
                          
                          
                          -Variable
                              Interest Entity Elimination
                          
                          
                          (357
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Segment
                              Totals
                          
                          $
                          32,239
                          
                          
                          $
                          33,356
                          
                          
                          $
                          (6,264
                          )
                          
                          $
                          909Net
                              Income (Loss) Available to Common Shareholders
                          
                          
                          
                          
                          
                          
                          $
                          (7,755
                          )
                          
                          $
                          316




30
 *Index*


Results
      of operations for the six month period ended February 28, 2007 and 2006 are
      as
      follows:




Revenue
                              for the
                          
                          
                          Operating
                              income for the6-months
                              ended February 28,
                          
                          
                          6-months
                              ended February 28,2007
                          
                          
                          2006
                          
                          
                          2007
                          
                          
                          2006(Dollars
                              in thousands)Wireless
                              Infrastructure
                          
                          $
                          13,690
                          
                          
                          $
                          12,586
                          
                          
                          $
                          (3,797
                          )
                          
                          $
                          774Business
                              Solutions
                          
                          
                          25,092
                          
                          
                          
                          21,063
                          
                          
                          
                          1,020
                          
                          
                          
                          2,332Transportation
                              Infrastructure
                          
                          
                          20,632
                          
                          
                          
                          23,727
                          
                          
                          
                          911
                          
                          
                          
                          399Ultraviolet
                              Technologies
                          
                          
                          5,962
                          
                          
                          
                          5,579
                          
                          
                          
                          (16
                          )
                          
                          
                          75Electronics
                              Integration
                          
                          
                          7,541
                          
                          
                          
                          6,844
                          
                          
                          
                          (648
                          )
                          
                          
                          394Holding
                              Company
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (2,552
                          )
                          
                          
                          (1,765
                          )Variable
                              Interest Entity
                          
                          
                          584
                          
                          
                          
                          -
                          
                          
                          
                          443
                          
                          
                          
                          -Variable
                              Interest Entity Elimination
                          
                          
                          (578
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Segment
                              Totals
                          
                          $
                          72,923
                          
                          
                          $
                          69,799
                          
                          
                          $
                          (4,639
                          )
                          
                          $
                          2,209Net
                              Income (Loss) Available to Common Shareholders
                          
                          
                          
                          
                          
                          
                          $
                          (7,029
                          )
                          
                          $
                          1,163




Net
      loss
      available to common stock shareholders was $7.755 million or ($0.63) per diluted
      share on revenue of $32.239 million for the three month period ended February
      28, 2007 compared with net income of $0.316 million or $0.03 per diluted share
      on revenue of $33.356 million for the three month period ended February 28,
      2006.  This represents a 3% decrease in revenue and a 2,554% percent
      decrease in net income.





Net
      loss
      available to common stock shareholders was $7.029 million or ($0.57) per diluted
      share on revenue of $72.923 million for the six month period ended February
      28,
      2007 compared with net income of $1.163 million or $0.10 per diluted share
      on
      revenue of $69.799 million for the six month period ended February 28,
      2006.  This represents a 4% increase in revenue and a 704% percent
      decrease in net income.





The
      following factors contributed to the decrease in net income available to common
      stock shareholders for the three and six month periods ended February 28,
      2007:




·
              Operating
                  losses in the Wireless Infrastructure segment were due to a delay
                  in the
                  release of new work from our
                  customers.
 o
              Management
                  has taken the following steps to improve operating performance
                  in this
                  segment: i) initiated management team changes; ii) aligned asset
                  and labor
                  base with market conditions; and iii) evaluated geographic footprint
                  and
                  customer contracts;
 
 ·
              Operating
                  losses in the Electronics Integration segment were due to labor
                  and
                  inventory cost overages, within one operating
                  unit.
 o
              Management
                  has taken the following steps to improve operating performance
                  in this
                  segment: i) initiated management team changes; ii) aligned asset
                  and labor
                  base in line with market conditions; iii) evaluated and adjusted
                  ongoing
                  customer contract negotiations and purchasing
                  procedures;
 ·
              Additional
                  charges incurred by the Company related to the disposal of fixed
                  assets,
                  write down of inventory to fair market value and impairment of
                  goodwill
                  and other intangible assets as a result of the management changes
                  and
                  losses incurred within the Wireless Infrastructure and Electronics
                  Integration segments.
 ·
              Gross
                  profit decreases in the Business Solutions segment due to higher
                  claims
                  expense in the health and workers compensation insurance
                  programs.




Results
      by segment are described in further details as follows:





**Wireless
      Infrastructure**





Wireless
      Infrastructure segment operating results for the three and six month periods
      ended February 28, 2007 and 2006 are as follows:


31
 *Index*


Three
                                Month Period Ended
                            
                            
                            Six
                                Month Period EndedFebruary
                                28, 2007
                            
                            
                            February
                                28, 2006
                            
                            
                            February
                                28, 2007
                            
                            
                            February
                                28, 2006(Dollars
                                in thousands)
                            
                            
                            (Dollars
                                in thousands)Revenues
                            
                            $
                            4,694
                            
                            
                            
                            100
                            %
                            
                            $
                            5,762
                            
                            
                            
                            100
                            %
                            
                            $
                            13,690
                            
                            
                            
                            100
                            %
                            
                            $
                            12,586
                            
                            
                            
                            100
                            %Cost
                                of revenues
                            
                            
                            4,717
                            
                            
                            
                            100.5
                            %
                            
                            
                            4,049
                            
                            
                            
                            70.3
                            %
                            
                            
                            11,249
                            
                            
                            
                            82.2
                            %
                            
                            
                            9,308
                            
                            
                            
                            74.0
                            %Gross
                                profit (loss)
                            
                            
                            (23
                            )
                            
                            
                            -0.5
                            %
                            
                            
                            1,713
                            
                            
                            
                            29.7
                            %
                            
                            
                            2,441
                            
                            
                            
                            17.8
                            %
                            
                            
                            3,278
                            
                            
                            
                            26.0
                            %Operating
                                expensesSelling,
                                general and administrative
                            
                            
                            2,323
                            
                            
                            
                            49.5
                            %
                            
                            
                            1,186
                            
                            
                            
                            20.6
                            %
                            
                            
                            4,125
                            
                            
                            
                            30.1
                            %
                            
                            
                            2,346
                            
                            
                            
                            18.6
                            %Depreciation
                                and amortization
                            
                            
                            183
                            
                            
                            
                            3.9
                            %
                            
                            
                            89
                            
                            
                            
                            1.5
                            %
                            
                            
                            298
                            
                            
                            
                            2.2
                            %
                            
                            
                            158
                            
                            
                            
                            1.3
                            %Impairment
                            
                            
                            1,815
                            
                            
                            
                            38.7
                            %
                            
                            
                            -
                            
                            
                            
                            0.0
                            %
                            
                            
                            1,815
                            
                            
                            
                            13.3
                            %
                            
                            
                            -
                            
                            
                            
                            0.0
                            %Total
                                operating expenses
                            
                            
                            4,321
                            
                            
                            
                            92.1
                            %
                            
                            
                            1,275
                            
                            
                            
                            22.1
                            %
                            
                            
                            6,238
                            
                            
                            
                            45.6
                            %
                            
                            
                            2,504
                            
                            
                            
                            19.9
                            %Segment
                                operating income (loss)
                            
                            $
                            (4,344
                            )
                            
                            
                            -92.6
                            %
                            
                            $
                            438
                            
                            
                            
                            7.6
                            %
                            
                            $
                            (3,797
                            )
                            
                            
                            -27.7
                            %
                            
                            $
                            774
                            
                            
                            
                            6.1
                            %


*Revenue*





Revenue
      for the three month period ended February 28, 2007 was $4.694 million compared
      to $5.762 million for the three month period ended February 28, 2006, a decrease
      of $1.068 million or 19%. The decrease in revenue was due mainly to a slow-down
      in additional work procured from existing customers within the site acquisition,
      construction and technical services divisions.  The decrease in
      revenue was offset somewhat by additional work procured from existing customers,
      price increases, geographic expansion and new customer contracts in the
      engineering division.





Revenue
      for the six month period ended February 28, 2007 was $13.690 million compared
      to
      $12.586 million for the six month period ended February 28, 2006, an increase
      of
      $1.104 million or 9%. The increase in revenue was due mainly to additional
      work
      procured in the Company’s first fiscal quarter from existing customers, price
      increases and geographic expansion mainly in the construction and engineering
      divisions, offset by revenue decreases within the site acquisition and technical
      service divisions.





*Gross
      Profit*





Gross
      profit for the three month period ended February 28, 2007 was ($0.023) million,
      representing (0.5)% of revenue, compared to $1.713 million representing 30%
      of
      revenue for the three month period ended February 28, 2006, a decrease of $1.736
      million or 101%. Gross profit for the six month period ended February 28, 2007
      was $2.441 million, representing 18% of revenue, compared to $3.278 million
      representing 26% of revenue for the six month period ended February 28, 2006,
      a
      decrease of $0.837 million or 26%. Gross profit and gross profit as a percentage
      of revenue decreased due mainly to slow management reaction to the industry
      slow-down in release of work in the Company’s second
      fiscal
      quarter, resulting in excess labor costs.





Management
      has taken the following steps in the Company’s fiscal third quarter to improve
      operating performance in this division: i) initiated management team changes;
      ii) aligned asset and labor base with market conditions; and iii) evaluated
      geographic footprint and customer contracts.





*Operating
      Income*





Operating
      loss for the three month period ended February 28, 2007 was $4.344 million,
      compared to operating income of $0.438 million for the three month period ended
      February 28, 2006, a decrease of $4.782 million or 1,092%. Operating loss for
      the six month period ended February 28, 2007 was $3.797 million, compared to
      operating income of $0.774 million for the six month period ended February
      28,
      2006, a decrease of $4.571 million or 591%. Operating income decreased due
      to
      slow management reaction to the industry slow-down in release of work, resulting
      in excess overhead costs and the impairment of certain receivables, inventory,
      fixed assets, goodwill and other intangible assets.





**Business
      Solutions**





Business
      Solutions segment operating results for the three and six month periods ended
      February 28, 2007 and 2006 are as follows:


32
 *Index*


Three
                            Month Period Ended
                        
                        
                        Six
                            Month Period EndedFebruary
                            28, 2007
                        
                        
                        February
                            28, 2006
                        
                        
                        February
                            28, 2007
                        
                        
                        February
                            28, 2006(Dollars
                            in thousands)
                        
                        
                        (Dollars
                            in thousands)Revenues
                        
                        $
                        13,462
                        
                        
                        
                        100
                        %
                        
                        $
                        11,325
                        
                        
                        
                        100
                        %
                        
                        $
                        25,092
                        
                        
                        
                        100
                        %
                        
                        $
                        21,063
                        
                        
                        
                        100
                        %Cost
                            of revenues
                        
                        
                        11,197
                        
                        
                        
                        83.2
                        %
                        
                        
                        8,155
                        
                        
                        
                        72.0
                        %
                        
                        
                        20,378
                        
                        
                        
                        81.2
                        %
                        
                        
                        15,386
                        
                        
                        
                        73.0
                        %Gross
                            profit
                        
                        
                        2,265
                        
                        
                        
                        16.8
                        %
                        
                        
                        3,170
                        
                        
                        
                        28.0
                        %
                        
                        
                        4,714
                        
                        
                        
                        18.8
                        %
                        
                        
                        5,677
                        
                        
                        
                        27.0
                        %Operating
                            expensesSelling,
                            general and administrative
                        
                        
                        1,808
                        
                        
                        
                        13.4
                        %
                        
                        
                        1,654
                        
                        
                        
                        14.6
                        %
                        
                        
                        3,377
                        
                        
                        
                        13.5
                        %
                        
                        
                        3,035
                        
                        
                        
                        14.4
                        %Depreciation
                            and amortization
                        
                        
                        175
                        
                        
                        
                        1.3
                        %
                        
                        
                        156
                        
                        
                        
                        1.4
                        %
                        
                        
                        317
                        
                        
                        
                        1.3
                        %
                        
                        
                        310
                        
                        
                        
                        1.5
                        %Total
                            operating expenses
                        
                        
                        1,983
                        
                        
                        
                        14.7
                        %
                        
                        
                        1,810
                        
                        
                        
                        16.0
                        %
                        
                        
                        3,694
                        
                        
                        
                        14.7
                        %
                        
                        
                        3,345
                        
                        
                        
                        15.9
                        %Segment
                            operating income
                        
                        $
                        282
                        
                        
                        
                        2.1
                        %
                        
                        $
                        1,360
                        
                        
                        
                        12.0
                        %
                        
                        $
                        1,020
                        
                        
                        
                        4.1
                        %
                        
                        $
                        2,332
                        
                        
                        
                        11.1
                        %


*Revenue*





Revenue
      for the three month period ended February 28, 2007 was $13.462 million, compared
      to $11.325 million for the three month period ended February 28, 2006, an
      increase of $2.137 million or 19%. Revenue for the six month period ended
      February 28, 2007 was $25.092 million, compared to $21.063 million for the
      six
      month period ended February 28, 2006, an increase of $4.029 million or 19%.
      Revenue increased due mainly to the acquisition of Precision, an increase in
      the
      customer base and increase in employees at several existing
      customers.  As such, administrative fees, workers compensation
      premiums, employee benefit premiums and income taxes collected have
      increased.




*Gross
      Profit*





Gross
      profit for the three month period ended February 28, 2007 was $2.265 million,
      representing 17% of revenue, compared to $3.170 million, representing 28% of
      revenue for the three month period ended February 28, 2006, a decrease of
      ($0.905) million or 29%.  Gross profit for the six month period ended
      February 28, 2007 was $4.714 million, representing 19% of revenue, compared
      to
      $5.677 million, representing 27% of revenue for the six month period ended
      February 28, 2006, a decrease of ($0.963) million or 17%. Gross profit and
      gross
      profit as a percentage of revenue decreased due mainly to higher health and
      workers compensation claims related to our insurance programs.





*Operating
      Income*





Operating
      income for the three month period ended February 28, 2007 was $0.282 million,
      compared to $1.360 million for the three month period ended February 28, 2006,
      a
      decrease of ($1.078) million or 79%.  Operating income for the six
      month period ended February 28, 2007 was $1.020 million, compared to $2.332
      million for the six month period ended February 28, 2006, a decrease of ($1.312)
      million or 56%.  Operating income decreased due to the decrease in
      gross profits discussed above.  Operating expenses increased due to
      the acquisition of Precision.





**Transportation
      Infrastructure**





Transportation
      Infrastructure segment operating results for the three and six month periods
      ended February 28, 2007 and 2006 are as follows:




Three
                            Month Period Ended
                        
                        
                        Six
                            Month Period EndedFebruary
                            28, 2007
                        
                        
                        February
                            28, 2006
                        
                        
                        February
                            28, 2007
                        
                        
                        February
                            28, 2006(Dollars
                            in thousands)
                        
                        
                        (Dollars
                            in thousands)Revenues
                        
                        $
                        7,885
                        
                        
                        
                        100
                        %
                        
                        $
                        9,625
                        
                        
                        
                        100
                        %
                        
                        $
                        20,632
                        
                        
                        
                        100
                        %
                        
                        $
                        23,727
                        
                        
                        
                        100
                        %Cost
                            of revenues
                        
                        
                        6,689
                        
                        
                        
                        92.6
                        %
                        
                        
                        8,908
                        
                        
                        
                        86.9
                        %
                        
                        
                        17,932
                        
                        
                        
                        86.9
                        %
                        
                        
                        21,642
                        
                        
                        
                        91.2
                        %Gross
                            profit
                        
                        
                        1,196
                        
                        
                        
                        7.4
                        %
                        
                        
                        717
                        
                        
                        
                        13.1
                        %
                        
                        
                        2,700
                        
                        
                        
                        13.1
                        %
                        
                        
                        2,085
                        
                        
                        
                        8.8
                        %Operating
                            expensesSelling,
                            general and administrative
                        
                        
                        733
                        
                        
                        
                        7.9
                        %
                        
                        
                        764
                        
                        
                        
                        7.3
                        %
                        
                        
                        1,506
                        
                        
                        
                        7.3
                        %
                        
                        
                        1,480
                        
                        
                        
                        6.2
                        %Depreciation
                            and amortization
                        
                        
                        145
                        
                        
                        
                        1.1
                        %
                        
                        
                        104
                        
                        
                        
                        1.4
                        %
                        
                        
                        283
                        
                        
                        
                        1.4
                        %
                        
                        
                        206
                        
                        
                        
                        0.9
                        %Total
                            operating expenses
                        
                        
                        878
                        
                        
                        
                        9.0
                        %
                        
                        
                        868
                        
                        
                        
                        8.7
                        %
                        
                        
                        1,789
                        
                        
                        
                        8.7
                        %
                        
                        
                        1,686
                        
                        
                        
                        7.1
                        %Segment
                            operating income (loss)
                        
                        $
                        318
                        
                        
                        
                        -1.6
                        %
                        
                        $
                        (151
                        )
                        
                        
                        4.4
                        %
                        
                        $
                        911
                        
                        
                        
                        4.4
                        %
                        
                        $
                        399
                        
                        
                        
                        1.7
                        %


33
 *Index*


*Revenue*





Revenue
      for the three month period ended February 28, 2007 was $7.885 million compared
      to $9.625 million for the three month period ended February 28, 2006, a decrease
      of ($1.740) million or 18%. Revenue for the six month period ended February
      28,
      2007 was $20.632 million compared to $23.727 million for the six month period
      ended February 28, 2006, a decrease of ($3.095) million or 13%. Revenue
      decreased due primarily to the completion of several long-term contracts and
      due
      to the loss of a maintenance contract to a competitor in one of the geographic
      areas where the Company operates.





*Gross
      Profit*





Gross
      profit for the three month period ended February 28, 2007 was $1.196 million,
      representing 15% of revenue, compared to $0.717 million representing 7% of
      revenue for the three month period ended February 28, 2006, an increase of
      $0.479 million or 67%. Gross profit for the six month period ended February
      28,
      2007 was $2.700 million, representing 13% of revenue, compared to $2.085 million
      representing 9% of revenue for the six month period ended February 28, 2006,
      an
      increase of $0.615 million or 29%. Gross profit and gross profit as a percentage
      of revenue increased mainly due to the prior year’s unfavorable job closings due
      to increased costs in one operating division.





*Operating
      Income*





Operating
      income for the three month period ended February 28, 2007 was $0.318 million,
      compared to an operating loss of $0.151 million for the three month period
      ended
      February 28, 2006, an increase of $0.469 million or 311%. Operating income
      for
      the six month period ended February 28, 2007 was $0.911 million, compared to
      $0.399 million for the six month period ended February 28, 2006, an increase
      of
      $0.512 million or 128%. Operating income increased due mainly to the gross
      profit increase discussed above offset somewhat by increased employee benefit
      costs in the first quarter 2007.




**Ultraviolet
      Technologies**





Ultraviolet
      Technologies segment operating results for the three and six month periods
      ended
      February 28, 2007 and 2006 are as follows:




Three
                            Month Period Ended
                        
                        
                        Six
                            Month Period EndedFebruary
                            28, 2007
                        
                        
                        February
                            28, 2006
                        
                        
                        February
                            28, 2007
                        
                        
                        February
                            28, 2006(Dollars
                            in thousands)
                        
                        
                        (Dollars
                            in thousands)Revenues
                        
                        $
                        2,913
                        
                        
                        
                        100
                        %
                        
                        $
                        2,882
                        
                        
                        
                        100
                        %
                        
                        $
                        5,962
                        
                        
                        
                        100
                        %
                        
                        $
                        5,579
                        
                        
                        
                        100
                        %Cost
                            of revenues
                        
                        
                        1,838
                        
                        
                        
                        63.1
                        %
                        
                        
                        1,816
                        
                        
                        
                        63.0
                        %
                        
                        
                        3,561
                        
                        
                        
                        59.7
                        %
                        
                        
                        3,304
                        
                        
                        
                        59.2
                        %Gross
                            profit
                        
                        
                        1,075
                        
                        
                        
                        36.9
                        %
                        
                        
                        1,066
                        
                        
                        
                        37.0
                        %
                        
                        
                        2,401
                        
                        
                        
                        40.3
                        %
                        
                        
                        2,275
                        
                        
                        
                        40.8
                        %Operating
                            expensesSelling,
                            general and administrative
                        
                        
                        1,066
                        
                        
                        
                        36.6
                        %
                        
                        
                        976
                        
                        
                        
                        33.9
                        %
                        
                        
                        2,200
                        
                        
                        
                        36.9
                        %
                        
                        
                        2,010
                        
                        
                        
                        36.0
                        %Depreciation
                            and amortization
                        
                        
                        108
                        
                        
                        
                        3.7
                        %
                        
                        
                        97
                        
                        
                        
                        3.4
                        %
                        
                        
                        217
                        
                        
                        
                        3.6
                        %
                        
                        
                        190
                        
                        
                        
                        3.4
                        %Total
                            operating expenses
                        
                        
                        1,174
                        
                        
                        
                        40.3
                        %
                        
                        
                        1,073
                        
                        
                        
                        37.2
                        %
                        
                        
                        2,417
                        
                        
                        
                        40.5
                        %
                        
                        
                        2,200
                        
                        
                        
                        39.4
                        %Segment
                            operating income (loss)
                        
                        $
                        (99
                        )
                        
                        
                        -3.4
                        %
                        
                        $
                        (7
                        )
                        
                        
                        -0.2
                        %
                        
                        $
                        (16
                        )
                        
                        
                        -0.3
                        %
                        
                        $
                        75
                        
                        
                        
                        1.3
                        %


*Revenue*





Revenue
      for the three month period ended February 28, 2007 were $2.913 million compared
      to $2.882 million for the three month period ended February 28, 2006, an
      increase of $0.031 million or 1%. Revenue increased due mainly to increased
      domestic sales of POP/ decal inks.





Revenue
      for the six month period ended February 28, 2007 were $5.962 million compared
      to
      $5.579 million for the six month period ended February 28, 2006, an increase
      of
      $0.383 million or 7%. Revenue increased due mainly to increased domestic sales
      of nameplate inks and POP/ decal inks.





*Gross
      Profit*





Gross
      profit for the three month period ended February 28, 2007 was $1.075 million
      representing 37% of revenue, compared to $1.066 million representing 37% of
      revenue for the three month period ended February 28, 2006, relatively
      unchanged. Gross profit for the six month period ended February 28, 2007
      was $2.401 million representing 40% of revenue, compared to $2.275 million
      representing 41% of revenue for the six month period ended February 28, 2006,
      an
      increase of $0.126 million or 6%.  Gross profit increased slightly due
      to revenue increases above.




34
 *Index*


*Operating
      Income*





Operating
      loss for the three month period ended February 28, 2007 was $0.099 million,
      compared to $0.007 million for the three month period ended February 28, 2006,
      a
      decrease of $0.092 million or 1314%. Operating loss for the six month period
      ended February 28, 2007 was $0.016 million, compared to operating income of
      $0.075 m illion for the six month period ended February 28, 2006, a decrease
      of
      $0.091 million or 121%. The increase in operating expense was due mainly to
      an
      increase in research and development and product testing costs .





**Electronics
      Integration**





Electronics
      Integration segment operating results for the three and six month periods ended
      February 28, 2007 and 2006 are as follows:




Three
                            Month Period Ended
                        
                        
                        Six
                            Month Period EndedFebruary
                            28, 2007
                        
                        
                        February
                            28, 2006
                        
                        
                        February
                            28, 2007
                        
                        
                        February
                            28, 2006(Dollars
                            in thousands)
                        
                        
                        (Dollars
                            in thousands)Revenues
                        
                        $
                        3,284
                        
                        
                        
                        100
                        %
                        
                        $
                        3,762
                        
                        
                        
                        100
                        %
                        
                        $
                        7,541
                        
                        
                        
                        100
                        %
                        
                        $
                        6,844
                        
                        
                        
                        100
                        %Cost
                            of revenues
                        
                        
                        3,269
                        
                        
                        
                        99.5
                        %
                        
                        
                        2,894
                        
                        
                        
                        76.9
                        %
                        
                        
                        6,500
                        
                        
                        
                        86.2
                        %
                        
                        
                        5,387
                        
                        
                        
                        78.7
                        %Gross
                            profit
                        
                        
                        15
                        
                        
                        
                        0.5
                        %
                        
                        
                        868
                        
                        
                        
                        23.1
                        %
                        
                        
                        1,041
                        
                        
                        
                        13.8
                        %
                        
                        
                        1,457
                        
                        
                        
                        21.3
                        %Operating
                            expensesSelling,
                            general and administrative
                        
                        
                        731
                        
                        
                        
                        22.3
                        %
                        
                        
                        509
                        
                        
                        
                        13.5
                        %
                        
                        
                        1,397
                        
                        
                        
                        18.5
                        %
                        
                        
                        981
                        
                        
                        
                        14.3
                        %Depreciation
                            and amortization
                        
                        
                        57
                        
                        
                        
                        1.7
                        %
                        
                        
                        51
                        
                        
                        
                        1.4
                        %
                        
                        
                        80
                        
                        
                        
                        1.1
                        %
                        
                        
                        82
                        
                        
                        
                        1.2
                        %Impairment
                        
                        
                        212
                        
                        
                        
                        6.5
                        %
                        
                        
                        -
                        
                        
                        
                        0.0
                        %
                        
                        
                        212
                        
                        
                        
                        2.8
                        %
                        
                        
                        -
                        
                        
                        
                        0.0
                        %Total
                            operating expenses
                        
                        
                        1,000
                        
                        
                        
                        30.5
                        %
                        
                        
                        560
                        
                        
                        
                        14.9
                        %
                        
                        
                        1,689
                        
                        
                        
                        22.4
                        %
                        
                        
                        1,063
                        
                        
                        
                        15.5
                        %Segment
                            operating income (loss)
                        
                        $
                        (985
                        )
                        
                        
                        -30.0
                        %
                        
                        $
                        308
                        
                        
                        
                        8.2
                        %
                        
                        $
                        (648
                        )
                        
                        
                        -8.6
                        %
                        
                        $
                        394
                        
                        
                        
                        5.8
                        %
  *Revenue*





Revenue
      for the three month period ended February 28, 2007 was $3.284 million compared
      to $3.762 million for the three month period ended February 28, 2006, a decrease
      of $0.478 million or 13%. Revenue decreased due mainly to a lower volume of
      sales of television products.





Revenue
      for the six month period ended February 28, 2007 was $7.541 million compared
      to
      $6.844 million for the six month period ended February 28, 2006, an increase
      of
      $0.697 million or 10%. Revenue increased due mainly to new customer sales in
      the
      Company’s first fiscal quarter.





*Gross
      Profit*





Gross
      profit for the three month period ended February 28, 2007 was $0.015 million
      representing 0.5% of revenue, compared to $0.868 million representing 23% of
      revenue for the three month period ended February 28, 2006, a decrease of $0.853
      million or 98%.  Gross profit for the six month period ended February
      28, 2007 was $1.041 million representing 14% of revenue, compared to $1.457
      million representing 21% of revenue for the six month period ended February
      28,
      2006, a decrease of $0.416 million or 29%. Gross profit decreased primarily
      due
      to labor and inventory cost overages, mainly on a large commercial contract,
      within one operating unit.





Management
      has taken the following steps to improve operating performance in this division:
      i) initiated management team changes; ii) aligned asset and labor base with
      market conditions; iii) evaluated and adjusted ongoing customer contract
      negotiations and purchasing procedures.





*Operating
      Income*





Operating
      loss for the three month period ended February 28, 2007 was $0.985 million,
      compared to operating income of $0.308 million for the three month period ended
      February 28, 2006, a decrease of $1.293 million or 420%. Operating loss for
      the
      six month period ended February 28, 2007 was $0.648 million, compared to
      operating income of $0.394 million for the six month period ended February
      28,
      2006, a decrease of $1.042 million or 264%. The decrease in operating income
      was
      due to the decreases in gross profit discussed above as well as an increase
      in
      estimates related to the allowance for bad debt and impairment of
      goodwill.




35
 *Index*


**Holding
      Company**





*Operating
      Expense*





The
      Holding Company does not have any income producing operating assets. As such,
      the operating loss was equal to operating expenses. Operating expenses consist
      primarily of employee compensation and benefits, legal, accounting and
      consulting fees. Operating expenses for the three month period ended February
      28, 2007 were $1.702 million, compared to $1.039 million for the three month
      period ended February 28, 2006, an increase of $0.663 million or
      64%.  Operating expenses for the six month period ended February 28,
      2007 were $2.552 million, compared to $1.765 million for the six month period
      ended February 28, 2006, an increase of $0.787 million or 45%.  The
      increase was due to an increase in executive level compensation, rent expense
      on
      the corporate building, and depreciation expense related to capital
      expenditures, as well as accelerated amortization of debt services costs related
      to the Company’s convertible term note.





*Interest
      Expense*





Interest
      expense was $0.808 million for the three month period ended February 28, 2007,
      compared to $0.598 million for the three month period ended February 28, 2006,
      an increase of $0.210 million or 35%. Interest expense was $1.655 million for
      the six month period ended February 28, 2007, compared to $1.142 million for
      the
      six month period ended February 28, 2006, an increase of $0.513 million or
      45%.  The three month period increase was primarily due to additional
      borrowing under the Company’s credit facility, interest on the Company’s
      convertible term note, and interest expense of $0.142 million and $0.279
      million for the three and six month periods ended February 28, 2007 related
      to
      the VIE.





*Income
      Taxes*




The
      Company recorded a 100% valuation allowance on additions to deferred tax assets
      due to uncertainty regarding future profitability of the Company based
      on  the current year loss. In addition, management is required to
      estimate taxable income for future years by taxing jurisdictions and to consider
      this when making its judgment to determine whether or not to record a valuation
      allowance for part or all of a deferred tax asset. A one percent change in
      the
      Company's overall statutory tax rate for 2007 would not have a material effect
      in the carrying value of the net deferred tax assets or
      liabilities.





**Variable
      Interest Entity**





The
      Company leases a total of six facilities from a consolidated variable interest
      entity, whose primary purpose is to own and lease these properties to the
      Company. The VIE has ownership of 384,500 shares of the Company’s stock and is
      wholly-owned by the Company’s Chairman of the Board of Directors and Chief
      Executive Officer.  The VIE does not have any other significant
      assets. For the three month period ended February 28, 2007, the consolidation
      of
      the VIE comprised of $0.358 million in rental income, offset by a $0.142 million
      charge to interest expense, a $0.049 million charge to depreciation expense,
      and
      $0.042 administrative and other miscellaneous expenses.  For the six
      month period ended February 28, 2007, the consolidation of the VIE comprised
      of
      $0.584 million in rental income, offset by a $0.279 million charge to interest
      expense, a $0.098 million charge to depreciation expense, a $0.043 million
      administrative and other miscellaneous expenses.





Refer
      to
      Note 12 of the accompanying consolidated financial statements for detailed
      information regarding the variable interest entity.








**LIQUIDITY
      AND CAPITAL RESOURCES**





Our
      principal sources of liquidity include cash and equivalents, marketable equity
      securities and proceeds from debt borrowings.  We had $7.358 million
      (excluding $0.112 million variable interest entity cash and $1.538 million
      variable interest entity investments in marketable equity securities) at
      February 28, 2007 and $4.913 million of cash and equivalents and marketable
      equity securities at August 31, 2006.




36
 *Index*


We
      had
      working capital of $19.729 million (excluding variable interest entity working
      capital which includes cash and investments in marketable equity securities
      of
      $1.650 million and current debt of $2.902 million) at February 28, 2007 compared
      with $23.383 million at August 31, 2006. The decrease in working capital was
      due
      mainly to the decrease in accounts receivable.  Current assets are
      comprised primarily of cash and equivalents, net accounts receivable, marketable
      equity securities, inventories, and costs & estimated earnings in excess of
      billings on uncompleted contracts.





Total
      debt at February 28, 2007 was $31.962 million (excluding debt borrowed under
      a
      variable interest entity of $7.514 million), which includes a $6.586 million
      convertible term note, $5.911 million borrowed under our line of credit, a
      $19.167 million term note, and various equipment loans.  Total debt at
      August 31, 2006 was $31.167 million.  Total unused borrowings under
      the line of credit were approximately $9.1 million and $11.7 million at February
      28, 2007 and August 31, 2006, respectively.  The various debt
      agreements contain restrictive covenants which limit, among other things,
      certain mergers and acquisitions, redemptions of common stock, and payment
      of
      dividends. In addition, we must meet certain financial ratios.  Total
      capital expenditures were approximately $0.5 million and $0.8 million for the
      three month period ended February 28, 2007 and 2006,
      respectively.  Total capital expenditures were approximately $0.8
      million and $1.4 million for the six month period ended February 28, 2007 and
      2006, respectively.  Sources of funds for this expansion have mainly
      been from additional borrowings from the bank.





As
      of
      February 28, 2007, the Company was not in compliance with certain bank debt
      covenants. The Company is currently in discussions with its bank to obtain
      a
      waiver related to these covenant violations.





***Cash
      Flows***





Cash
      flows provided by operations for the six month period ended February 28, 2007
      were $3.384 million as compared to $0.461 million for the six month period
      ended
      February 28, 2006. This increase in operating cash flows was due mainly to
      increased collections of outstanding accounts receivables.





Net
      cash
      flow used in investing activities was $0.364 million for the six month period
      ended February 28, 2007 compared to $1.674 million for the six month period
      ended February 28, 2006.  The increase was due mainly to the sale of
      marketable securities and a decrease in capital expenditures mainly in our
      Wireless Infrastructure and Transportation Infrastructure segments.





Net
      cash
      flow provided by financing activities was $0.507 million for the six month
      period ended February 28, 2007 compared to $1.632 million for the six month
      period ended February 28, 2006.  The decrease was mainly the result of
      less borrowing used to finance operations and investing uses of
      cash.








**CONTRACTUAL
      OBLIGATIONS AND COMMERCIAL COMMITMENTS**





The
      following table summarizes our contractual obligations as of February 28,
      2007:





Payments
                    Due ByContractual
                    obligation
                
                Total
                
                
                Less
                    than
                  1
                    year
                
                
                1-2
                    years
                
                
                3-5
                    years
                
                
                More
                    than
                  5
                    years(Dollars
                    in thousands)Long-term
                    debt and capital lease obligations
                
                $
                31,963
                
                
                $
                5,557
                
                
                $
                13,737
                
                
                $
                12,669
                
                
                $
                -Variable
                    interest entity debt
                
                
                7,513
                
                
                
                2,702
                
                
                
                4,383
                
                
                
                428
                
                
                
                -Operating
                    lease (1)
                
                
                6,020
                
                
                
                3,659
                
                
                
                1,905
                
                
                
                312
                
                
                
                144Total
                
                $
                45,496
                
                
                $
                11,918
                
                
                $
                20,025
                
                
                $
                13,409
                
                
                $
                144





(1)
            Operating
                leases represent the total future minimum lease payments, and are
                mainly
                comprised of lease obligations between the Company and the
                VIE.  This operating lease expense is eliminated in the
                Company’s consolidated statement of
                operations.




37
 *Index*


**OFF
      BALANCE SHEET ARRANGEMENTS**





As
      is
      common in the industries we operate in, we have entered into certain off-balance
      sheet arrangements in the ordinary course of business that result in risks
      not
      directly reflected in our balance sheets. Our significant off-balance sheet
      transactions include transactions with related parties, liabilities associated
      with guarantees, letter of credit obligations and surety
      guarantees.





*Transactions
      with Related Parties*





We
      have
      entered into various acquisition agreements over the past three years which
      contain option agreements or rights between the sellers of the acquired
      entities and our majority shareholder, Mr. Carter Fortune, related to the
      Company’s stock provided as consideration under the acquisitions.  The
      option agreements provide for put/ call options on the Company’s common stock
      held by the sellers.  As more fully described in Note 11 of the
      accompanying consolidated financial statements, Harlan Schafir, certain PSM
      employees and MGTS exercised their put sale rights to Carter Fortune during
      the
      three months ended February 28, 2007.  Additionally, Carter Fortune
      exercised his call purchase rights and both he and John Fisbeck completed the
      purchase of shares of Company stock from Norman G. Wolcott, Jr. and The Wolcott
      Trusts on March 3, 2007.





We
      lease
      a total of six facilities from a consolidated variable interest entity as
      described earlier in this filing. The variable interest entity’s primary purpose
      is to own and lease these properties to the Company. The limited liability
      company does not have any other significant assets.  Effective,
      September 1, 2006, the Company elected to consolidate the limited liability
      company through its evaluation of Financial Interpretation No. 46R,
      Consolidation of Variable Interest Entities ("FIN 46R").





Refer
      to
      the Company’s Annual report on form 10-K filed on November 29, 2006 for further
      details.  There have been no other significant changes to our related
      party transactions subsequent to this annual report.





*Guarantees*





A
      significant portion of our debt and surety bonds are personally guaranteed
      by
      the Company’s Chairman of the Board and Chief Executive
      Officer.  Future changes to these guarantees may affect financing
      capacity of the Company.





*Restricted
        Cash*





Certain
        states and vendors require us to post letters of credit to ensure payment
        of
        taxes or payments to our vendors under health insurance and workers compensation
        contracts and to guarantee performance under our contracts. Such letters
        of
        credit are generally issued by a bank or similar financial institution. The
        letter of credit commits the issuer to pay specified amounts to the holder
        of
        the letter of credit if the holder demonstrates that we have failed to perform
        specified actions. If this situation were to occur, we would be required
        to
        reimburse the issuer of the letter of credit. Depending on the circumstances
        of
        such a reimbursement, we may also have to record a charge to earnings for
        the
        reimbursement. We do not believe that it is likely that any claims will be
        made
        under a letter of credit in the foreseeable future.  As of February
        28, 2007, we had approximately $3.2 million in restricted cash primarily
        to
        secure obligations under our PEO contracts in the Business Solutions
        segment.





*Payment
        and Performance Bonds*





Within
      our Wireless Infrastructure and Transportation Infrastructure segments, certain
      customers, particularly in connection with new construction, require us to
      post
      payment or performance bonds issued by a financial institution known as a
      surety. These bonds provide a guarantee to the customer that we will perform
      under the terms of a contract and that we will pay subcontractors and vendors.
      If we fail to perform under a contract or fail to pay subcontractors and
      vendors, the customer may demand that the surety make payments or provide
      services under the bond. We must reimburse the surety for any expenses or
      outlays it incurs. Under our continuing indemnity and security agreement with
      the surety, we have posted letters of credit in the amount of $5.0 million
      in favor of the surety and, with the consent of our lender under our credit
      facility; we have granted security interests in certain of our assets to
      collateralize our obligations to the surety. To date, we have not been required
      to make any reimbursements to the surety for bond-related costs. We believe
      that
      it is unlikely that we will have to fund claims under our surety arrangements
      in
      the foreseeable future. As of February 28, 2007, an aggregate of approximately
      $52.0 million in original face amount of bonds issued by the surety were
      outstanding.




38
 *Index*


**Item
      3.  Quantitative and Qualitative Disclosures about
      Market Risk**





The
      Company is exposed to certain market risks arising from adverse changes in
      interest rates, primarily due to the potential effect of such changes on its
      variable rate line of credit and convertible term note as described in Note
      8 to
      the consolidated financial statements.  Approximately 99% of the
      Company’s debt as of February 28, 2007 bears interest at variable rates. Based
      on amounts outstanding at February 28, 2007, if the interest rate on the
      Company’s variable debt were to increase by 1.0%, annual interest expense would
      increase by approximately $0.4 million.





Cash
      and
      cash equivalents as of February 28, 2007 was $7.294 million and is
      primarily invested in money market interest bearing accounts. A hypothetical
      10%
      adverse change in the average interest rate on the Company’s investments would
      not have had a material effect on net income for the three or six month periods
      ended February 28, 2007. We do not currently utilize any derivative financial
      instruments to hedge interest rate risks.





We
      are
      exposed to foreign currency risks due to both transactions and translations
      between functional and reporting currencies in our European, Singapore, and
      Chinese foreign subsidiaries. A hypothetical 10% adverse change in the foreign
      currency translation would not have had a material effect on net income for
      the
      three or six month periods ended February 28, 2007. We do not currently utilize
      any derivative financial instruments to hedge foreign currency
      risks.




**Item
      4.  Controls and Procedures**





The
      Company maintains disclosure controls and procedures that are designed to ensure
      that information required to be disclosed in the reports it files pursuant
      to
      the Securities Exchange Act of 1934 is recorded, processed, summarized and
      reported within the time periods specified in the SEC's rules and forms and
      that
      such information is accumulated and communicated to the Company's management,
      including its Chief Executive Officer and Chief Financial Officer, as
      appropriate, to allow timely decisions regarding required disclosures. The
      Company's management, including the Chief Executive Officer and Chief Financial
      Officer, does not expect the disclosure controls and procedures or internal
      controls can prevent all error and all fraud.  The Company's
      management also recognizes that, because the design of any system of controls
      is
      based in part upon certain assumptions about the likelihood of future events
      and
      also is subject to other inherent limitations, any controls and procedures,
      no
      matter how well designed and operated, can provide only reasonable, and not
      absolute, assurance of achieving the desired objectives.





Under
      the
      supervision and with the participation of the Company’s management, including
      the Company’s Chief Executive Officer and Chief Financial Officer, the Company
      has evaluated the effectiveness of the Company’s disclosure controls and
      procedures as of February 28, 2007. Based on this evaluation, the Chief
      Executive Officer and Chief Financial Officer have concluded that, for the
      reasons more fully set forth below, the Company’s disclosure controls and
      procedures were not effective on February 28, 2007 in providing reasonable
      assurance that information required to be disclosed in the reports we file
      pursuant to the Securities Exchange Act of 1934 was recorded, processed,
      summarized and reported within the time periods specified in the SEC’s rules and
      forms.





More
      specifically, the Company’s management has concluded that (i) additional
      accounting personnel were needed both at the parent company level and at certain
      subsidiaries at February 28, 2007 to ensure that certain disclosure controls
      and
      procedures were operating effectively; (ii) greater segregation of duties was
      needed in the accounting functions; and (iii) certain procedures should be
      documented to ensure that personnel turnover does not result in a failure of
      those procedures. The Company will continue to evaluate the need for additional
      staff at the parent and subsidiary levels, but given the size and location
      of
      the Company’s subsidiaries the Company believes it will continue to face
      challenges in attracting and retaining qualified personnel. Additionally, the
      Company is also in the process of evaluating ways in which the impact of
      personnel turnover on the implementation of disclosure controls and procedures
      can be reduced. Management continues to evaluate the effectiveness of this
      segregation and the need for additional enhancements, including, but not limited
      to, the addition of accounting personnel.








**PART
      II--OTHER INFORMATION**.





**Item
      1. Legal Proceedings.**





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




39
 *Index*


**Item
      1A. Risk Factors**





There
      have been no material changes with regard to the risk factors previously
      disclosed in our most recent Annual Report on Form 10-K.





**Item
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds.**




On
      or
      about February 1, 2007 the Company issued 258,824 shares and 47,059 contingent
      shares of the Company’s common
      stock
      among William Lickliter, Lawrence Baillere and Charmaine Hayes as consideration
      for and in conjunction with the acquisition of Precision Employee Management,
      LLC. The Company claimed an exemption under Section 4(2) of the Securities
      Exchange Act of 1933 for this issuance.




**Item
      3. Defaults Upon Senior Securities.**





None





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





None




**Item
      5. Other Information.**





None





**Item
      6. Exhibits**





The
      following exhibits are included herein:




3.1
            Second
                Amendment and Restated Code of Bylaws amended on December 20, 2006.
                (1)


31.1
            Rule
                15d-14(a) Certification of CEO


31.2
            Rule
                15d-14(a) Certification of CFO


32.1
            Section
                1350 Certification of CEO


32.2
            Section
                1350 Certification of CFO




(1)
            Filed
                as an exhibit to the Company’s
                Current
                Report on Form 8-K filed on December 27,
                2006.






**SIGNATURES**





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




Fortune
                      Industries, Inc.(Registrant)Date:  April
                      16, 2007
                  By:
                      /s/ John F. FisbeckJohn
                      F. Fisbeck,Chief
                      Executive OfficerDate:  April
                      16, 2007
                  By:
                      /s/ Amy GalloAmy
                      Gallo,Chief
                      Financial Officer






40