<PAGE>

                                  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 MAY 31, 2006

         [ ]  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 Employer
     incorporation 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)

                      FORTUNE DIVERSIFIED INDUSTRIES, INC.
          (Former Name or Former Address, if Changed Since Last Report)

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 [ ]

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

Yes [ ]  No [X]

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

Yes [ ]  No [X]

As of July 12, 2006, 10,534,843 shares of the Company's $0.10 per share par
value common stock were outstanding.


<PAGE>

                            FORTUNE INDUSTRIES, INC.
                                    FORM 10-Q
                   FOR THE QUARTERLY PERIOD ENDED MAY 31, 2006

                                      INDEX


<TABLE>
<CAPTION>
                                                                                                               Page
<S>                                                                                                            <C>
PART  I.    Financial Information

        ITEM 1.    Financial Statements

             Consolidated Statements of Operations for the three and nine month periods ended May
             31, 2006 and 2005 (unaudited)                                                                       3

             Consolidated Balance Sheets as of May 31, 2006 (unaudited) and August 31, 2005                      4

             Consolidated Statement of Changes in Shareholders' Equity for the nine month period
             ended May 31, 2006 (unaudited)                                                                      6

             Consolidated Statements of Cash Flows for the nine month periods ended May 31, 2006 and
             2005 (unaudited)                                                                                    7

             Notes to the Consolidated Financial Statements                                                      9

        ITEM 2.    Management's Discussion and Analysis of Financial Condition and Results of
                   Operations                                                                                   28

        ITEM 3.    Quantitative and Qualitative Disclosures About Market Risk                                   37

        ITEM 4.    Controls and Procedures                                                                      37

PART II.    Other Information

        ITEM 1.    Legal Proceedings                                                                            37

        ITEM 1A.   Risk Factors                                                                                 38

        ITEM 2.    Unregistered Sales of Equity Securities and Use of Proceeds                                  38

        ITEM 3.    Defaults Upon Senior Securities                                                              38

        ITEM 4.    Submission of Matters to a Vote of Security Holders                                          38

        ITEM 5.    Other Information                                                                            38

        ITEM 6.    Exhibits                                                                                     38

Signatures                                                                                                      39
</TABLE>


                                        2
<PAGE>


PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.

                    FORTUNE INDUSTRIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                     THREE MONTH PERIOD ENDED         NINE MONTH PERIOD ENDED
                                                                      MAY 31,         MAY 31,         MAY 31,         MAY 31,
                                                                       2006            2005            2006            2005
                                                                   ------------    ------------    ------------    ------------
<S>                                                                <C>             <C>             <C>             <C>
NET REVENUES
Net revenues wireless infrastructure services                      $      2,434    $      3,690    $      9,792    $      8,713
Net revenues wireless infrastructure products                            20,096          14,259          49,863          33,771
Net revenues manufacturing and distribution                               5,815           5,665          17,426          16,029
Net revenues business solutions (gross billings of $69,689
        and $51,868 less worksite employee payroll costs of
        $58,566 and $43,578 for the three months ended May 31,
        2006 and 2005, respectively; and gross billings of
        $217,635 and $124,911 less worksite employee payroll
        costs of $185,449 and $106,323 for the nine months
        ended May 31, 2006 and 2005, respectively)                       11,123           8,290          32,186          18,588
                                                                   ------------    ------------    ------------    ------------
            TOTAL NET REVENUES                                           39,468          31,904         109,267          77,101

COST OF REVENUES
Cost of revenues wireless infrastructure services                         2,003           2,296           6,749           5,691
Cost of revenues wireless infrastructure products                        17,078          12,605          43,563          30,306
Cost of revenues manufacturing and distribution                           4,024           3,974          12,434          11,492
Cost of revenues business solutions                                       8,793           6,398          24,179          14,382
                                                                   ------------    ------------    ------------    ------------
            TOTAL COST OF REVENUES                                       31,898          25,273          86,925          61,871
                                                                   ------------    ------------    ------------    ------------

GROSS PROFIT                                                              7,570           6,631          22,342          15,230

OPERATING EXPENSES
        Selling, general and administrative expenses                      6,182           4,814          17,721          12,812
        Depreciation and amortization                                       596             472           1,620           1,203
                                                                   ------------    ------------    ------------    ------------
            Total Operating Expenses                                      6,778           5,286          19,341          14,015
                                                                   ------------    ------------    ------------    ------------

OPERATING INCOME                                                            792           1,345           3,001           1,215

OTHER INCOME (EXPENSE)
        Interest income                                                     116              11             258              29
        Interest expense                                                   (649)           (383)         (1,791)           (972)
        Gain (loss) on investments in marketable securities, net              3             -                 8             (42)
        Exchange rate gain (loss)                                            15              (9)             12              50
        Other income (expense)                                               13              50              69             177
                                                                   ------------    ------------    ------------    ------------
            Total Other Income (Expense)                                   (502)           (331)         (1,444)           (758)
                                                                   ------------    ------------    ------------    ------------

NET INCOME BEFORE PROVISION FOR INCOME TAXES                                290           1,014           1,557             457

Provision (Benefit) for Income Taxes                                         23             (64)             44             -
                                                                   ------------    ------------    ------------    ------------

NET INCOME                                                                  267           1,078           1,513             457

Preferred Stock Dividends                                                   124             -               207             -
                                                                   ------------    ------------    ------------    ------------

NET INCOME AVAILABLE TO COMMON SHAREHOLDERS                        $        143    $      1,078    $      1,306    $        457
                                                                   ============    ============    ============    ============

BASIC INCOME PER COMMON SHARE                                      $       0.01    $       0.10    $       0.12    $       0.04
                                                                   ============    ============    ============    ============

BASIC WEIGHTED AVERAGE SHARES OUTSTANDING                            10,549,953      10,420,549      10,556,546      10,420,549
                                                                   ============    ============    ============    ============

DILUTED INCOME PER COMMON SHARE                                    $       0.01    $       0.10    $       0.11    $       0.04
                                                                   ============    ============    ============    ============

DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING                          12,218,422      10,420,549      11,725,290      10,420,549
                                                                   ============    ============    ============    ============
</TABLE>

See Accompanying Notes to Unaudited Interim Consolidated Financial Statements



                                        3
<PAGE>

                    FORTUNE INDUSTRIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                  (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>
                                                                 MAY 31,      AUGUST 31,
                                                                  2006           2005
                                                               (UNAUDITED)    (AUDITED)
                                                               -----------    ----------
<S>                                                            <C>            <C>
                                        ASSETS
CURRENT ASSETS
       Cash and equivalents                                      $ 3,570        $ 3,787
       Restricted savings account                                  1,622          1,484
       Marketable securities                                       2,162          2,199
       Accounts receivable, net                                   20,617         21,358
       Costs and estimated earnings in excess of billings
          on uncompleted contracts                                 6,143          2,681
       Inventory, net                                              7,712          8,315
       Deferred tax asset                                          1,014          1,014
       Prepaid expenses and other current assets                   1,504          1,790
                                                                 -------        -------
               Total Current Assets                               44,344         42,628

OTHER ASSETS
       Property, plant & equipment, net                            6,162          5,064
       Goodwill                                                   11,736         11,680
       Other intangible assets, net                                4,239          4,705
       Long-term accounts receivable                                 600            600
       Other long-term assets                                      1,641            409
                                                                 -------        -------
               Total Other Assets                                 24,378         22,458
                                                                 -------        -------

               TOTAL ASSETS                                      $68,722        $65,086
                                                                 =======        =======
</TABLE>

See Accompanying Notes to Unaudited Interim Consolidated Financial Statements



                                        4
<PAGE>

                    FORTUNE INDUSTRIES, INC. AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEETS (CONTINUED)
                  (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>
                                                                      MAY 31,          AUGUST 31,
                                                                        2006             2005
                                                                    (UNAUDITED)        (AUDITED)
                                                                    -----------        ----------
<S>                                                                 <C>                <C>
                      LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
       Lines of credit                                                $ 17,611         $ 18,998
       Current maturities of long-term debt                              2,550            2,675
       Accounts payable                                                  8,095            7,095
       Health and workers' compensation reserves                         3,247            4,000
       Accrued expenses                                                  3,791            6,288
       Billings in excess of costs and estimated earnings on
            uncompleted contracts                                        2,299            2,101
       Other current liabilities                                           383              271
                                                                      --------         --------
            Total Current Liabilities                                   37,976           41,428

LONG-TERM LIABILITIES
       Long-term debt, less current maturities                           2,934            4,898
       Convertible term note                                             7,500              -
       Line of credit - related party                                      -              6,618
       Other long-term liabilities                                         350               69
                                                                      --------         --------
            Total Long-Term Liabilities                                 10,784           11,585
                                                                      --------         --------

            Total Liabilities                                           48,760           53,013

SHAREHOLDERS' EQUITY
       Common stock, $0.10 par value; 150,000,000 authorized;
         10,534,843 and 10,559,843 issued and outstanding at
         May 31, 2006 and August 31, 2005, respectively                  1,046            1,046
       Preferred stock, $0.10 par value; 1,000,000 authorized;
         66,180 and 0 issued and outstanding at May 31, 2006
         and August 31, 2005, respectively                               6,618              -
       Additional paid-in capital and warrants outstanding              17,388           17,340
       Accumulated deficit                                              (5,100)          (6,406)
       Accumulated other comprehensive income                               10               93
                                                                      --------         --------
            Total Shareholders' Equity                                  19,962           12,073
                                                                      --------         --------

            TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                $ 68,722         $ 65,086
                                                                      ========         ========
</TABLE>

See Accompanying Notes to Unaudited Interim Consolidated Financial Statements



                                        5
<PAGE>

                    FORTUNE INDUSTRIES, INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)



<TABLE>
<CAPTION>
                                                               ADDITIONAL
                                                                PAID-IN                   ACCUMULATED
                                                                CAPITAL                      OTHER         TOTAL
                                         COMMON    PREFERRED  AND WARRANTS  ACCUMULATED  COMPREHENSIVE  SHAREHOLDERS'  COMPREHENSIVE
                                          STOCK      STOCK     OUTSTANDING    DEFICIT       INCOME         EQUITY          INCOME
                                          -----      -----     -----------    -------       ------         ------          ------
<S>                                      <C>       <C>        <C>           <C>          <C>            <C>            <C>
BALANCE AT AUGUST 31, 2005                $1,046   $    -       $ 17,340      $(6,406)      $    93       $ 12,073
                                          ======   ========     ========      =======       =======       ========
Issuance of 66,180 shares of preferred
  stock                                      -        6,618          -            -             -            6,618       $    -
Purchase accounting adjustment               -          -             48          -             -               48            -
Net income                                   -          -            -          1,513           -            1,513          1,513
Dividends                                    -          -            -           (207)          -             (207)           -
Foreign currency translation
  adjustments, net of tax                    -          -            -            -              66             66             66
Unrealized losses on
  investments, net of tax                    -          -            -            -            (149)          (149)          (149)
                                          ------   --------     --------      -------       -------       --------       --------

Total comprehensive income                   -          -            -            -             -              -         $  1,430
                                          ------   --------     --------      -------       -------       --------       ========

BALANCE AT MAY 31, 2006                   $1,046   $  6,618     $ 17,388      $(5,100)      $    10       $ 19,962
                                          ======   ========     ========      =======       =======       ========
</TABLE>

See Accompanying Notes to Unaudited Interim Consolidated Financial Statements



                                        6
<PAGE>

                    FORTUNE INDUSTRIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                              NINE MONTH PERIOD ENDED
                                                                               MAY 31,      MAY 31,
                                                                                2006         2005
                                                                               -------      -------
<S>                                                                           <C>          <C>
OPERATING ACTIVITIES
     Net Income                                                                $ 1,513      $   457
     Adjustments to reconcile net income to net cash
      used in operating activities:
        Depreciation and amortization                                            1,620        1,203
        (Gain) Loss on sale of investments                                          (8)          40
        Loss on disposal of fixed assets                                           -              5
        (Increase) decrease in certain operating assets:
           Restricted cash                                                        (138)        (737)
           Accounts receivable, net                                                741       (2,338)
           Costs and estimated earnings in excess of billings on
              uncompleted contracts                                             (3,462)        (286)
           Inventory, net                                                          616          263
           Prepaid assets and other current assets                                 286          170
           Other long-term assets                                                 (274)          27
        Increase (decrease) in certain operating liabilities:
           Accounts payable                                                      1,000        1,419
           Health and workers' compensation reserves                              (753)       1,067
           Accrued expenses and other current liabilities                       (2,337)      (3,815)
           Billings in excess of costs and estimated earnings on
              uncompleted contracts                                                198         (217)
           Due to related party                                                    -            -
           Other long-term liabilities                                              15          -
                                                                               -------      -------
              Net Cash Used in Operating Activities                               (983)      (2,742)

INVESTING ACTIVITIES
     Capital expenditures                                                       (2,139)      (1,164)
     Purchases of marketable securities                                            (24)        (132)
     Acquisition of productive assets and businesses, net of cash received        (262)      (1,371)
                                                                               -------      -------
              Net Cash Used in Investing Activities                             (2,425)      (2,667)

FINANCING ACTIVITIES
     Dividends on preferred stock                                                 (207)         -
     Proceeds from convertible debentures                                        6,808          -
     Borrowings on short-term debt                                                 -            800
     Net borrowings (payments) under line of credit                             (1,387)       5,970
     Borrowings on long-term debt                                                  -          1,598
     Payments on long-term debt                                                 (2,089)      (2,566)
                                                                               -------      -------
              Net Cash Provided by Financing Activities                          3,125        5,802

              Effect of exchange rate changes on cash                               66            5
                                                                               -------      -------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS                                   (217)         398

CASH AND EQUIVALENTS
     Beginning of Period                                                         3,787        3,527
                                                                               -------      -------

     End of Period                                                             $ 3,570      $ 3,925
                                                                               =======      =======
</TABLE>

See Accompanying Notes to Unaudited Interim Consolidated Financial Statements.


                                        7
<PAGE>

                    FORTUNE INDUSTRIES, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                           NINE MONTH PERIOD ENDED
                                                                           MAY 31,         MAY 31,
                                                                            2006            2005
                                                                           -------         -------
<S>                                                                        <C>             <C>
SUPPLEMENTAL DISCLOSURES
     Interest paid                                                         $ 1,679         $   865
                                                                           =======         =======

     Taxes paid                                                            $    44         $   -
                                                                           =======         =======

     Unrealized net gain (loss) on marketable securities                   $  (149)        $    67
                                                                           =======         =======

     Non-cash investing and financing activities:
           Issuance of preferred stock for debt extinguishment             $ 6,618         $   -
           Issuance of warrants in connection with loan refinancing            266             -
                                                                           -------         -------
                                                                           $ 6,884         $   -
                                                                           =======         =======

     Acquisition of Audio - Video Revolution, Inc.:
           Fair value of assets acquired                                   $   262
           Cash paid                                                           262
                                                                           -------
           Liabilities recorded                                            $   -
                                                                           =======
</TABLE>

See Accompanying Notes to Unaudited Interim Consolidated Financial Statements.




                                       8
<PAGE>

                    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 2005 Annual Report on Form 10-KSB filed by
Fortune Industries, Inc. (together with its subsidiaries unless the context
requires otherwise, 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 nine month periods ended May 31, 2006 are
not necessarily indicative of the operating results to be expected for the full
fiscal year.

Effective April 13, 2006, the Company's shareholders approved an amendment of
the Company's Restated Articles of Incorporation to change the name of the
Company from Fortune Diversified Industries, Inc. to Fortune Industries, Inc.

Nature of Business: Fortune Industries, Inc. is a holding company headquartered
in Indianapolis, Indiana. The Company conducts its business directly and through
its wholly-owned subsidiaries.

The Company's current operating focus is achieved through its following fourteen
subsidiaries (grouped by segment):

         - Wireless Infrastructure

               James H. Drew Corp. (JH Drew); PDH, Inc. (PDH); Magtech Services,
               Inc. (Magtech); Cornerstone Wireless Construction Services, Inc.
               (Cornerstone Construction); Innovative Telecommunications
               Consultants, Inc. (ITC); Audio - Video Revolution, Inc. (AVR);
               Telecom Technology Corp. (TTC); StarQuest Wireless Services, Inc.
               (StarQuest); and Fortune Wireless, Inc. (Fortune Wireless)

         - Manufacturing and Distribution

               Nor-Cote International, Inc. (Nor-Cote); Kingston Sales
               Corporation (Kingston); and Commercial Solutions, Inc.
               (Commercial Solutions)

         - Business Solutions

               Professional Staff Management, Inc., Professional Staff
               Management, Inc. II and Pro Staff, Inc. (collectively "PSM"); and
               CSM, Inc. (CSM)

The Wireless Infrastructure segment is composed of businesses that provide
wireless services and products. PDH, Magtech, ITC, AVR, and StarQuest generate
revenues from providing wireless services while JH Drew and Cornerstone
Construction generate revenue from providing wireless products. TTC generates
revenues from providing both wireless services and products. Additionally,
Fortune Wireless is a direct subsidiary of the holding company and the owner of
the stock of certain entities comprising the Wireless Infrastructure segment
including PDH, Cornerstone Construction, ITC and Magtech.

Effective September 1, 2005, the Company is no longer eligible as a small
business reporter on Form 10-QSB under Regulation S-B but is subject to the
reporting requirements on Form 10-Q under Regulation S-K.


                                       9
<PAGE>

Principles of Consolidation: The accompanying consolidated financial statements
include the accounts of Fortune Industries, Inc. and its wholly-owned
subsidiaries. Nor-Cote contains foreign subsidiaries from the United Kingdom,
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 the Company's wholly owned Nor-Cote subsidiary 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 has elected to report 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 revenues 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, Fortune
Wireless, PDH, ITC, AVR, and Magtech enter into contracts principally on the
basis of competitive bids, the final terms and prices of which are frequently
negotiated with the customer. Although the terms of its contracts vary
considerably, most are made on a unit price basis in which the Company agrees to
do the work for units of work performed. The Company also performs services on a
cost-plus or time and materials basis. The Company completes most projects
within nine months. The Company generally recognizes revenue utilizing output
measures, such as when services are performed, units are delivered or when
contract milestones are reached. Cornerstone Construction and JH Drew 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. TTC and StarQuest recognize revenue when
product is shipped and installation is complete.

In the Manufacturing and Distribution segment, revenue from the sale of products
at Nor-Cote, Kingston, and Commercial Solutions is recognized according to the
terms of the sales arrangement, which is generally upon shipment. Revenues are
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.

In the Business Solutions segment, PSM and CSM, licensed Professional Employer
Organizations (PEO's), bill clients under their Professional Services Agreement,
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. All wages, taxes and insurance coverage are
provided under PSM's and CSM'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. All calculations or
amounts PSM and CSM owe the government and its employment insurance vendors are
based on the experience levels and activity of PSM and CSM with no consideration
to client detail. There is no direct relationship between what PSM and CSM pay
versus what is billed to a client. PSM and CSM bill the client their worksite


                                       10
<PAGE>

employees' gross wages plus an overall service fee that includes all components
of employment related taxes, employment benefits insurance, and administration
of those items. This service fee is intended to cover PSM's and CSM's cost of
those items and yield a profit to PSM and CSM. What is paid to the government
and vendors is different than what is charged to the client due to the different
methods of calculation as to what PSM and CSM owe those entities versus what the
client is charged. 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 workers' compensation and unemployment insurance
is based, in part, on the client's historical claims experience. All charges by
PSM and CSM are invoiced along with each periodic payroll delivered to the
client.

PSM and CSM report revenues in accordance with Emerging Issues Task Force
("EITF") No. 99-19, Reporting Revenue Gross as a Principal versus Net as an
Agent. PSM and CSM report revenues 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. PSM and CSM report revenues on a gross basis for such
fees because PSM and CSM are the primary obligor and deemed to be the principal
in these transactions under EITF No. 99-19. However, PSM and CSM report revenues
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.

PSM and CSM account for their revenues using the accrual method of accounting.
Under the accrual method of accounting, revenues are recognized in the period in
which the worksite employee performs work. PSM and CSM accrue revenues 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. PSM and CSM accrue 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, PSM and CSM's 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.

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.

Marketable Securities: Marketable securities include common stocks classified as
available for sale investments in accordance with the provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." The securities are carried at fair value based on
current market quotations. Unrealized holding gains and losses, net of tax, are
not included in "net income," but are accounted for as "other comprehensive
income" and reflected as a separate component of the change in 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. The Company provides allowances for doubtful accounts and for returns
and sales allowances, which are based upon a review of outstanding receivables,
historical information and existing economic conditions. Accounts receivable are
ordinarily due 30-60 days after the issuance of the invoice. Delinquent
receivables are written off based on individual credit evaluation and specific
circumstances of the customer. The Company's policy is not to accrue interest on
past due trade receivables.

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


                                       11
<PAGE>

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 are
carried at cost and include expenditures for new additions and those which
substantially increase the useful lives of existing assets. Depreciation is
computed at various rates by use of the straight-line method and certain
accelerated methods, depending on the entity. Depreciable lives range from 3 to
30 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 Statement of
Financial Accounting Standards (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,
2005, exceeded the carrying, or book value, including goodwill, and therefore
recorded goodwill and other indefinite-lived intangible assets were not subject
to impairment. The required annual impairment test may result in future periodic
write-downs.

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 securities,
receivables, and payables approximate fair value.

Stock-based Compensation: In December 2004, the FASB issued Statement No. 123R
(SFAS 123R), "Share-Based Payment". This statement is a revision of SFAS 123,
"Accounting for Stock-Based Compensation" (SFAS 123), and supersedes Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25). On September 1, 2005, the Company adopted the provisions of SFAS 123R using
the modified prospective method. SFAS 123R focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based payment
transactions. The Statement required entities to recognize compensation expense
for awards of equity instruments to employees based on the grant-date fair value
of those awards (with limited exceptions). SFAS 123R also requires the benefits
of tax deductions in excess of recognized compensation expense to be reported as
a financing cash flow, rather than as an operating cash flow as prescribed under
the prior accounting rules. Total cash flow remains unchanged from what would
have been reported under prior accounting rules. Prior to fiscal 2006, the
Company elected to follow APB 25 and to adopt the disclosure-only provisions as
required under SFAS 123, and the Statement of Financial Accounting Standards No.
148, "Accounting for Stock-Based Compensation -- Transition and Disclosure"
(SFAS 148).

The adoption of this statement resulted in increased salaries, wages, and
related expenses. The amount of the impact was immaterial to the Company for the
three and nine month periods ended May 31, 2006.


                                       12
<PAGE>

At May 31, 2006, the Company had 5,000 warrants vested and outstanding with an
exercise price of $10.00. The weighted average remaining contractual term on
these options is approximately 2.25 years. For purposes of pro forma disclosure,
for the period ended May 31, 2005, the estimated fair value of the warrants is
amortized to expense over the vesting period. Under the fair value method, the
Company's net income and earnings per share would have been immaterially
different than reported for each respective period as there were no other
warrants or options issued.

Effective April 13, 2006, the Company's shareholders approved the 2006 Equity
Incentive Plan. Under terms of the 2006 Equity Incentive Plan, the Company may
grant options, restricted shares and other stock-based awards to its management
personnel as well as other individuals for up to 1.0 million shares of common
stock. As of May 31, 2006, no shares have been issued under this plan.

Income per Common Share: Income per common share has been computed in accordance
with SFAS No. 128, "Earnings per Share." Under SFAS No. 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.

All references in the Form 10-Q consolidated financial statements and notes to
the consolidated financial statements related to share amounts, per share
amounts and average shares outstanding have been adjusted retroactively to
reflect the 1-for-10 stock split of the Company's common stock effective June 2,
2005.

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.

Research and Development Costs: Research and development costs are expensed as
incurred and totaled $131 and $110 for the three month periods ended May 31,
2006 and 2005, respectively. Research and development costs totaled $372 and
$353 for the nine month periods ended May 31, 2006 and 2005, respectively.
Research and development expense is recorded in the Company's Nor-Cote
subsidiary.

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 May 31, 2006.

Self Insurance: The Company's Nor-Cote subsidiary has elected to act as a
self-insurer for certain costs related to employee health and accident benefit
programs. Costs resulting from non-insured losses are estimated and charged to
income when incurred. The Company has purchased insurance which limits its
annual exposure for individual claims to $40 and which limits its aggregate
annual exposure to approximately $460.

The Company's PSM subsidiary has elected to enter into a partially self-funded
arrangement related to worksite employees' health and accident benefit programs.
Under the insurance policy, PSM's self-funded liability is limited to $180 per
employee, with an aggregate liability limit of approximately $11,225. The
liability limits are adjusted monthly, based on the number of participants.


                                       13
<PAGE>

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


NOTE 2 - ACQUISITIONS AND PRO FORMA RESULTS

ACQUISITIONS

During the nine month period ended May 31, 2006, the Company had the following
acquisition:

AUDIO - VIDEO REVOLUTION, INC.

The Company's TTC subsidiary acquired certain assets and assumed certain
liabilities of Audio - Video Revolution, Inc. ("AVR") through an asset purchase
agreement entered into as of November 14, 2005 by and among AVR, an Indiana
corporation, George Summers, Gilbert Pritt, and TTC. Purchased assets in the
agreement include, at a minimum, goodwill, proprietary property and products,
furniture, equipment, machinery and other intellectual property. TTC's
acquisition of AVR enabled TTC to offer a wider range of design, engineering and
installation of structured cabling systems for the residential and commercial
marketplace.

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

<TABLE>
<S>                                                       <C>
     Inventory, net                                       $ 13
     Property, Plant and equipment, net                     59
     Goodwill                                              190
                                                          ----
                                                          $262
                                                          ====

     Cash consideration                                   $262
                                                          ----
                                                          $262
                                                          ====
</TABLE>


Subsequent to May 31, 2006, the Company acquired James Westbrook & Associates,
LLP as disclosed in Note 15, Subsequent Events.

PRO FORMA RESULTS

The following unaudited pro forma data summarize the results of operations for
the periods indicated as if the AVR, Ink Source, Magtech, EI Solution, and CSM
acquisitions that have been described above or 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.


                                       14
<PAGE>

<TABLE>
<CAPTION>
                                                        Three Month Period Ended             Nine Month Period Ended
                                                        May 31,           May 31,           May 31,            May 31,
                                                         2006              2005              2006               2005
                                                      (Unaudited)       (Unaudited)       (Unaudited)        (Unaudited)
                                                     ------------      ------------      ------------      ------------
<S>                                                  <C>               <C>               <C>               <C>
Net revenue                                          $     39,468      $     33,256      $    109,267      $     85,820
Cost of revenues                                           31,898            26,426            86,925            69,272
                                                     ------------      ------------      ------------      ------------
Gross profit                                                7,570             6,830            22,342            16,548

Operating expenses                                          6,778             5,817            19,341            15,998
                                                     ------------      ------------      ------------      ------------
Operating income                                              792             1,013             3,001               550

Other income (expense)                                       (502)             (360)           (1,444)             (754)
                                                     ------------      ------------      ------------      ------------
Net income (loss) before provision
for income taxes                                              290               653             1,557              (204)

Provision for income taxes                                     23               (64)               44                 -
                                                     ------------      ------------      ------------      ------------
Net income (loss)                                             267               717             1,513              (204)

Preferred stock dividends                                     124                 -               207                 -
                                                     ------------      ------------      ------------      ------------

Net income (loss) available to common
shareholders                                         $        143      $        717      $      1,306      $       (204)
                                                     ============      ============      ============      ============

Basic income (loss) per common share                 $       0.01      $       0.07      $       0.12      $      (0.02)
                                                     ============      ============      ============      ============

Basic weighted average number of common
shares outstanding                                     10,549,943        10,420,549        10,556,546        10,420,549
                                                     ============      ============      ============      ============

Diluted income (loss) per common share               $       0.01      $       0.07      $       0.11      $      (0.02)
                                                     ============      ============      ============      ============

Diluted weighted average number of common shares
outstanding                                            12,218,422        10,420,549        11,725,290        10,420,549
                                                     ============      ============      ============      ============
</TABLE>


NOTE 3 - ACCOUNTS RECEIVABLE AND CONTRACTS RECEIVABLE

Accounts receivable and contracts receivable are summarized as follows:

<TABLE>
<CAPTION>
                                                               May 31,         August 31,
                                                                2006              2005
                                                             (Unaudited)       (Audited)
                                                             -----------       ----------
<S>                                                          <C>              <C>
Amounts currently due                                         $ 11,885         $ 16,178
Contracts in process
    Progress billing                                             8,522            5,075
    Retainages                                                   1,609            1,752
                                                              --------         --------
                                                                22,016           23,005

Less allowance for doubtful accounts and sales returns          (1,399)          (1,647)
                                                              --------         --------
                                                              $ 20,617         $ 21,358
                                                              ========         ========

Long-term accounts receivable                                 $    600         $    600
                                                              ========         ========
</TABLE>


NOTE 4 - INVENTORIES

Inventories are summarized as follows:

<TABLE>
<CAPTION>
                                                               May 31,         August 31,
                                                                2006              2005
                                                             (Unaudited)       (Audited)
                                                             -----------       ----------
<S>                                                          <C>              <C>
Raw materials                                                 $    721         $    757
Work-in-process                                                     40               39
Finished goods                                                   7,185            7,896
                                                              --------         --------
                                                                 7,947            8,692

Less inventory reserve                                            (235)            (377)
                                                              --------         --------
                                                              $  7,712         $  8,315
                                                              ========         ========
</TABLE>


                                       15
<PAGE>

NOTE 5 - COSTS AND BILLINGS ON UNCOMPLETED CONTRACTS

Information related to contracts in progress is summarized as follows:

<TABLE>
<CAPTION>
                                                              May 31,         August 31,
                                                               2006              2005
                                                            (Unaudited)       (Audited)
                                                            -----------       ----------
<S>                                                         <C>              <C>
Costs incurred on uncompleted contracts                      $ 38,481         $ 25,744
Estimated earnings recognized to date on uncompleted
    contracts                                                   8,587            5,412
                                                             --------         --------
                                                               47,068           31,156

Less billings on uncompleted contracts                        (43,224)         (30,576)
                                                             --------         --------
                                                             $  3,844         $    580
                                                             ========         ========
</TABLE>


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

<TABLE>
<CAPTION>
                                                              May 31,         August 31,
                                                               2006              2005
                                                            (Unaudited)       (Audited)
                                                            -----------       ----------
<S>                                                         <C>              <C>
Costs and estimated earnings in excess of billings on
    uncompleted contracts                                    $  6,143         $  2,681
Billings in excess of costs and estimated earnings on
    uncompleted contracts                                       2,299            2,101
                                                             --------         --------
                                                             $  3,844         $    580
                                                             ========         ========
</TABLE>


NOTE 6 - INVESTMENTS IN MARKETABLE EQUITY SECURITIES

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

<TABLE>
<CAPTION>
                                                              May 31,         August 31,
                                                               2006              2005
                                                            (Unaudited)       (Audited)
                                                            -----------       ----------
<S>                                                         <C>              <C>
Amortized cost                                               $  2,311         $  2,221
Net unrealized loss                                              (149)             (22)
                                                             --------         --------
Estimated fair value                                         $  2,162         $  2,199
                                                             ========         ========
</TABLE>

During the quarter ended May 31, 2006, the Company funded $800 that was borrowed
under terms of the market securities investment account. 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 was ($3) realized losses from the sale of marketable
securities for the three month period ended May 31, 2006 There were no losses
for the three month period ended May 31, 2005. There was $8 and ($42) of
realized gains and losses from the sale of marketable securities for the nine
month periods ended May 31, 2006 and 2005, respectively.


                                       16
<PAGE>

NOTE 7 - PROPERTY, PLANT AND EQUIPMENT

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

<TABLE>
<CAPTION>
                                                 May 31,         August 31,
                                                  2006              2005
                                               (Unaudited)       (Audited)
                                               -----------       ----------
<S>                                            <C>              <C>
Land and building                               $  1,895         $  1,951
Machinery and equipment                            6,678            5,615
Research equipment                                   385              420
Office equipment                                   4,650            4,131
Vehicles                                           3,487            3,067
Leasehold improvements                               297              145
                                                --------         --------
                                                  17,392           15,329

Less accumulated depreciation                    (11,230)         (10,265)
                                                --------         --------

                                                $  6,162         $  5,064
                                                ========         ========
</TABLE>

The provision for depreciation amounted to $434 and $289 for the three month
periods ended May 31, 2006 and 2005, respectively. The provision for
depreciation amounted to $1,138 and $817 for the nine month periods ended May
31, 2006 and 2005, respectively.


NOTE 8 - GOODWILL AND OTHER INTANGIBLE ASSETS

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

<TABLE>
<CAPTION>
                               Wireless       Manufacturing and        Business         Holding         Segment
                            Infrastructure       Distribution          Solutions        Company          Totals
                            --------------    ------------------       ---------        -------         --------
<S>                         <C>               <C>                     <C>              <C>             <C>
Goodwill at
August 31, 2005                $  1,423            $  5,970            $  4,287         $      -        $ 11,680

Goodwill acquired                   190                   -                   -                -             190

Goodwill adjustment                   -                   -                (134)               -            (134)

Impairment losses                     -                   -                   -                -               -

                               --------            --------            --------         --------        --------
Goodwill at
May 31, 2006                   $  1,613            $  5,970            $  4,153         $      -        $ 11,736
                               ========            ========            ========         ========        ========
</TABLE>

The total amount of goodwill that is deductible for tax purposes is $2,029 and
$1,839 at May 31, 2006 and August 31, 2005, respectively.

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


                                       17
<PAGE>

<TABLE>
<CAPTION>
                                                   May 31, 2006                                    August 31, 2005
                                                    (Unaudited)                                       (Audited)
                                    -------------------------------------------      ------------------------------------------
                                                                     Weighted                                        Weighted
                                      Gross                           Average         Gross                           Average
                                    Carrying       Accumulated     Amortization      Carrying      Accumulated     Amortization
                                      Amount       Amortization       Period          Amount       Amortization       Period
                                    --------       ------------    ------------      --------      -----------     ------------
<S>                                 <C>            <C>             <C>               <C>           <C>             <C>
Customer relationships                $3,222          $  594          10 YRS          $3,222          $  352          10 YRS
Non-compete                            1,229             406           5 YRS           1,229             222           5 YRS
Non-compete                              100              69           3 YRS             100              44           3 YRS
Non-compete                              200              33          10 YRS             200              18          10 YRS
                                      ------          ------          ------          ------          ------          ------
   Intangible assets subject
   to amortization                     4,751           1,102           8 YRS           4,751             636           8 YRS

Tradename                                590               -               -             590               -               -
                                      ------          ------          ------          ------          ------          ------
   Intangible assets not
   subject to amortization               590               -               -             590               -               -

Total                                 $5,341          $1,102           8 YRS          $5,341          $  636           8 YRS
                                      ======          ======          ======          ======          ======          ======
</TABLE>

Intangible asset amortization expense is $162 and $183 for the three month
periods ended May 31, 2006 and 2005, respectively, which includes $3 and $10 of
amortization related to loan origination fees, respectively. Intangible asset
amortization expense is $482 and $386 for the nine month periods ended May 31,
2006 and 2005, respectively, which includes $16 and $20 of amortization related
to loan origination fees, respectively.

Amortization expense on intangible assets currently owned by the Company at May
31, 2006 for each of the next five fiscal years is as follows:

<TABLE>
<S>                                               <C>
                  2006                            $  156
                  2007                               610
                  2008                               595
                  2009                               605
                  2010                               342
          2011 and thereafter                      1,341
                                                  ------

                  Total                           $3,649
                                                  ======
</TABLE>

NOTE 9 - LINE OF CREDIT AND DEBT ARRANGEMENTS

LINE OF CREDIT

As of May 31, 2006 the Company had a $18,500 line of credit facility that
expires on August 31, 2006. Subsequent to May 31, 2006, the availability under
the line of credit was increased $2,000 for an aggregate availability of
$20,500. Interest on the line is charged at 0.5% less than the Prime Rate as
defined in the agreement. Outstanding borrowings amounted to $17,611 and $18,998
at May 31, 2006 and August 31, 2005, respectively.

Covenants under the line of credit require the Company to maintain a specified
tangible net worth position and certain other financial ratios. As of May 31,
2006, the Company was not in compliance with certain covenants; however, the
bank has granted a waiver of default remedies with respect to noncompliance as a
result of guarantees executed by certain shareholders of the Company. The line
of credit is secured by substantially all assets of the Company and personal
guarantees of the Company's majority shareholder and the Company's Chief
Executive Officer.

Total unused borrowings under the line of credit amounted to $889 at May 31,
2006 and $384 at August 31, 2005.

LONG-TERM DEBT ARRANGEMENTS

Long-term debt consisted of the following:


                                       18
<PAGE>

<TABLE>
<CAPTION>
                                                                                            May 31,           August 31,
                                                                                             2006                2005
      Description of debt outstanding:                                                    (Unaudited)         (Audited)
      --------------------------------                                                    -----------         ----------
<S>                                                                                       <C>                 <C>
Notes payable to financial institutions:
----------------------------------------

      Due in monthly installments of $40 plus interest at .5% less than the
      credit facility's Prime Rate through maturity date, July 15, 2009. The
      loan is secured by the business assets of the Company, with a second lien
      on assets pledged by a shareholder.                                                  $  1,560           $  1,920

      Due in monthly installments of $33 plus interest at .5% less than the
      credit facility's Prime Rate through maturity date, July 15, 2009. The
      loan is secured by the business assets of the Company, with a second lien
      on assets pledged by a shareholder.                                                     1,267              1,567

      Due in monthly installments of $33 plus interest at .5% less than the
      credit facility's Prime Rate through maturity date, April 30, 2009. The
      loan is secured by the business assets of the Company, with a second lien
      on assets pledged by a shareholder.                                                     1,141              1,466

      Due in monthly installments of $55 plus interest at .5% less than the
      credit facility's Prime Rate through maturity date, April 30, 2007. The
      loan is secured by the business assets of the Company, with a second lien
      on assets pledged by a shareholder.                                                       660              1,210

      Due in monthly installments of $50 plus interest at .5% less than the
      credit facility's Prime Rate through maturity date, April 30, 2007. The
      loan is secured by the business assets of the Company, with a second lien
      on assets pledged by a shareholder.                                                       500                950

      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.                                                                                216                233

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 two shareholders.                          7,500                  -

Debt with shareholder:
----------------------

      Due in monthly installments of $3 including interest at 4.0% through
      September 2008. The loan is secured by vehicles and equipment.                             43                 94

Capital leases:
---------------

      Due in monthly installments of $4 including interest at ranges from 2.3% to
      11.6% through June 2010. The loans are secured by computers and equipment.                 97                133
                                                                                           --------           --------

Total debt                                                                                   12,984              7,573

      Less current maturities                                                                (2,550)            (2,675)
                                                                                           --------           --------

Long-term portion of outstanding debt                                                      $ 10,434           $  4,898
                                                                                           ========           ========
</TABLE>


                                       19
<PAGE>

Fiscal year principal payments due on long-term debt outstanding (including
convertible term note) at May 31, 2006 are approximately as follows:

<TABLE>
<S>                                             <C>
                2006                            $   669
                2007                              3,615
                2008                              4,072
                2009                              3,908
                2010                                720
                                                -------

                                                $12,984
                                                =======
</TABLE>

Cancellation of Line of Credit - Related Party

As described in Note 10, on November 30, 2005, the Company issued 66,180 shares
of $0.10 par value preferred stock to the majority shareholder of the Company as
consideration for cancellation of certain debt obligations owed by the Company
under a Line of Credit Promissory Note dated May 25, 2005. A total of $6,618 of
debt was retired under the agreement.

Convertible Term Note

On November 21, 2005 the Company issued 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 has a term of three years 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
are payable monthly at $227 beginning March 1, 2006. Interest is payable monthly
in arrears beginning January 1, 2006 at prime plus 3.0% subject to a floor of
9.5%. This interest rate is subject to adjustments as later described and as
fully set forth in the Note. Additionally, the Company issued a warrant to
Laurus (the "Laurus Warrant") to purchase up to an aggregate of 272,727 shares
of the Company's common stock. The Company also issued a warrant (the "CB
Capital Warrant") exercisable for shares of the Company's common stock to CB
Capital Partners, Inc. ("CB Capital"), a financial advisor to purchase up to an
aggregate of 13,636 shares of the Company's common stock. The Laurus and CB
Capital warrants (collectively, "the Warrants") have a term of five years and an
exercise price of $6.60 per share. The Company intends to use the proceeds from
the offering of the Note and the Warrants for general working capital purposes.
The Note is unsecured by the Company, but guaranteed by two of the Company's
majority shareholders. The Company has registered the shares of common stock
underlying the Note and Warrants.

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 follows:

o    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);

o    the total value of the shares converted cannot exceed 25% of the aggregate
     dollar trading volume of the Company's common stock for the previous
     twenty-two trading days;

o    there must be an effective registration statement covering the shares of
     the Company's common stock into which the principal and interest under the
     Note are convertible or an exemption from registration for resale must be
     available pursuant to Rule 144 of the Securities Act; and

o    there must be no event of default existing under the Note that has not been
     cured or is otherwise waived in writing by Laurus at Laurus' option.

If the above 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 shall have the option to postpone
payment of any 12 principal payments due. As of May 31, 2006, the Company has
postponed 3 months of principal payments. These deferred principal amounts shall
be due and payable, at the Company's option, on any subsequent payment date or
on the maturity date


                                       20
<PAGE>

of the Note. If Laurus does not convert any portion of the Note into shares of
the Company's common stock, the Company may continue to postpone payments until
March 1, 2007, at which time principal payments will be required.

The Company may prepay the Note at any time by paying 130% of the principal
amount then outstanding, together with accrued but unpaid interest thereon. Upon
an event of default under the Note, Laurus may demand repayment in full at a
rate of 105% of the outstanding principal amount of the Note. If the Note
remains outstanding after an event of default that is not cured, the interest
rate increases an additional 1.0% per month. Events of default include:

     o    a failure to make payments under the Note when due;

     o    a material breach of the transaction documents by the Company;

     o    bankruptcy related events;

     o    a change of control transaction without prior approval; and

     o    events of default under certain other agreements to which the Company
          is a party.

On a month-by-month basis, the interest rate on the Note is subject to reduction
by 2% for every 25% increase in the market price of the Company's common stock
above the fixed conversion price of the Note, but in no event shall the interest
rate be less than 0%.

Laurus also has the option to convert all or a portion of 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 limitations and adjustment as described below.
The Note is currently convertible into 1,363,636 shares of the Company's common
stock, excluding the conversion of any accrued interest. The conversion price is
adjustable on a weighted average basis upon certain future issuances of
securities by the Company at a price less than the conversion price then in
effect. There are a number of limitations on Laurus' ability to convert the Note
and exercise the Laurus Warrant. These limitations include:

o    Laurus may not convert the Note or exercise the Laurus Warrant for a number
     of shares that would cause all shares then held by Laurus to exceed 4.99%
     of the Company's outstanding shares of common stock unless there has been
     an event of default or Laurus provides the Company with seventy-five days
     prior notice.

o    Laurus agreed that it would not acquire in aggregate more than 2,108,764
     shares of common stock through the conversion of the Note or the Laurus
     Warrant or through any agreement related thereto unless the Company's
     shareholders approved such issuance.

Subject to prior satisfaction of the conversion of amounts due and subject to
certain other restrictions set forth in the Note, if (i) the average closing
price of common stock as reported by Bloomberg, L.P. for five consecutive
trading days in any calendar month shall be greater than or equal to 200% of the
conversion price, then Laurus shall convert on each such occurrence (limited to
once per calendar month), such principal amount of the Note as does not exceed
25% of the aggregate dollar trading volume of the common stock for the period of
twenty-two trading days immediately preceding such date less any amounts
previously converted.

The Warrants were recorded at fair value and classified as a liability. Any
discount accretion is considered immaterial based on the Black-Scholes model.
The Company recorded $778 for debt issue costs, including $293 paid to
affiliates of Laurus, $475 to CB Capital, and $10 for legal and professional
fees. The debt issue costs are included in other assets in the accompanying
consolidated balance sheet as of May 31, 2006.


NOTE 10 - SHAREHOLDERS' EQUITY

Common Stock

During the fiscal year ended August 31, 2005, the Company declared a 1-for-10
stock split to shareholders of record, effective June 2, 2005. The following are
the details of the Company's common stock as of May 31, 2006 and August 31,
2005:


                                       21
<PAGE>


<TABLE>
<CAPTION>
                                                        Number of Shares
                                        -------------------------------------------------
                                         Authorized           Issued          Outstanding           Amount
                                        -----------         ----------        -----------        -----------
<S>                                     <C>                 <C>               <C>                <C>
May 31, 2006 (Unaudited)
Common stock, $0.10 par value           150,000,000         10,534,843         10,534,843        $     1,046
                                                                                                 ===========

August 31, 2005 (Audited)
Common stock, $0.10 par value           150,000,000         10,559,843         10,559,843        $     1,046
                                                                                                 ===========
</TABLE>


A total of 25,000 shares were retired during the three month period ended May
31, 2006. As discussed in Note 9 above, Warrants were issued on November 21,
2005 entitling the holder thereof to purchase, at any time through November 20,
2010, an aggregate of 286,363 shares of the Company's common stock at a price of
$6.60 per share. As of May 31, 2006, the Warrants have not been exercised.

Preferred Stock

The following are the details of the Company's non-voting preferred stock as of
May 31, 2006 and August 31, 2005:

<TABLE>
<CAPTION>
                                                        Number of Shares
                                        -------------------------------------------------
                                         Authorized           Issued          Outstanding           Amount
                                        -----------         ----------        -----------        -----------
<S>                                     <C>                 <C>               <C>                <C>
May 31, 2006 (Unaudited)
Preferred stock, $0.10 par value          1,000,000             66,180             66,180        $     6,618
                                                                                                 ===========

August 31, 2005 (Audited)
Preferred stock, $0.10 par value          1,000,000                  -                  -                $ -
                                                                                                 ===========
</TABLE>


On November 30, 2005, the Company issued 66,180 shares of $0.10 par value
non-voting preferred stock to a majority shareholder of the Company as
consideration for cancellation of certain debt obligations owed by the Company
under a Line of Credit Promissory Note dated May 25, 2005. The shares are
subject to restrictions set forth in the "Debt Retirement Agreement." The shares
issued are single class and shall pay on a monthly basis an annual cash dividend
of $7.50 per share. Dividends of $124 and $207 were paid for the three and nine
month periods ended May 31, 2006, respectively. The shares are not convertible
to common stock.

NOTE 11 - INCOME TAXES

The reconciliation for 2006 and 2005 of income tax expense (benefit) computed at
the U.S. Federal statutory tax rate to the Company's effective income rate is as
follows:

<TABLE>
<CAPTION>
                                                            May 31,         August 31,
                                                             2006              2005
                                                          (Unaudited)       (Audited)
                                                          -----------       ----------
<S>                                                       <C>               <C>
Tax at U.S. Federal statutory rate                             34.0%            34.0%
State and local taxes, net of federal benefit                   5.6              5.6

Other                                                             -                -
Change in valuation allowance                                 (39.6)           (39.6)
                                                            -------          -------
                                                                0.0%             0.0%
                                                            =======          =======
</TABLE>


                                       22
<PAGE>

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

<TABLE>
<CAPTION>
                                                            May 31,         August 31,
                                                             2006              2005
                                                          (Unaudited)       (Audited)
                                                          -----------       ----------
<S>                                                       <C>               <C>
Current:
     Federal                                                $   661          $   (41)
     State                                                      109               72
                                                            -------          -------
                                                                770               31
Deferred:
     Federal                                                   (117)            (567)
     State                                                      (18)            (318)
                                                            -------          -------
                                                               (135)            (855)

Change in valuation allowance                                  (591)             936
                                                            -------          -------

Net income tax (benefit)                                    $    44          $    82
                                                            =======          =======
</TABLE>


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:

<TABLE>
<CAPTION>
                                                            May 31,         August 31,
                                                             2006              2005
                                                          (Unaudited)       (Audited)
                                                          -----------       ----------
<S>                                                       <C>               <C>
Deferred Tax Assets:
Current:
      Allowances for doubtful accounts and inventory        $   650          $   850
      Accrued liabilities and other                             506              524
Noncurrent:
      Amortization of covenants                                 294              304
      Depreciation                                              (84)             (91)
      Net operating losses and other carryforwards            2,088            2,458
                                                            -------          -------
                                                              3,454            4,045

      Valuation allowance                                    (2,440)          (3,031)
                                                            -------          -------

                                                            $ 1,014          $ 1,014
                                                            =======          =======
</TABLE>

SFAS 109 requires a valuation allowance to reduce the deferred tax assets
reported if, at May 31, 2006, 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
$2,440 valuation allowance at May 31, 2006 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 $591. At May 31, 2006 the
Company has federal net operating loss carryforwards of approximately $3,299
which expire between 2020 and 2023. The state tax operating loss carryforwards
are approximately $5,858. 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 $933, 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.


                                       23
<PAGE>

NOTE 12 - PER SHARE DATA

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

<TABLE>
<CAPTION>
                                         Three Month Period Ended       Nine Month Period Ended
                                          May 31,        May 31,        May 31,        May 31,
                                           2006           2005           2006           2005
                                        (Unaudited)    (Unaudited)    (Unaudited)    (Unaudited)
                                        -----------    -----------    -----------    -----------
<S>                                     <C>            <C>            <C>            <C>
Net Income Available to Common
Shareholders                            $       143    $     1,078    $     1,306    $       457
                                        ===========    ===========    ===========    ===========

Basic Income Per Common Share           $      0.01    $      0.10    $      0.12    $      0.04
                                        ===========    ===========    ===========    ===========

 Basic weighted average number of
common shares outstanding                10,549,953     10,420,549     10,556,546     10,420,549
                                        ===========    ===========    ===========    ===========

Diluted Income Per Common Share:        $      0.01    $      0.10    $      0.11    $      0.04
                                        ===========    ===========    ===========    ===========

 Diluted weighted average number of
common shares outstanding                12,218,422     10,420,549     11,725,290     10,420,549
                                        ===========    ===========    ===========    ===========
</TABLE>

At May 31, 2006, diluted shares represent 5,000 shares of warrants to a former
employee, 1,363,636 shares of the Laurus convertible term note, 272,727 shares
of the Laurus Warrant, and 13,363 shares of the CB Capital Warrant.

NOTE 13 - RELATED PARTY TRANSACTIONS

The Company leases a building in Indianapolis, Indiana from a related party. All
of the Company's subsidiaries, excluding JH Drew, Nor-Cote, PSM and CSM are
located in this facility. The lease agreement includes a five-year term through
March 2009 with one option to extend the lease term for a one-year period and
provides for a base rent of $42 per month, which is adjusted annually to fair
market value. In addition, the Company pays certain expenses including taxes,
assessments, maintenance and repairs. The Company recognized rental expense of
$155 and $100 for the three month periods ended May 31, 2006 and 2005,
respectively for this facility. The Company recognized rental expense of $465
and $196 for the nine month periods ended May 31, 2006 and 2005, respectively
for this facility.

The Company's Fortune Wireless subsidiary leases a building in Columbus, Ohio
from a related party. The lease was entered into on May 1, 2006 and expires on
May 1, 2011 with one option to extend the lease term for a one-year period and
provides for base rent of $4 per month, which is adjusted annually to fair
market value. The Company recognized rental expense of $4 for the three and nine
month periods ended May 31, 2006.

The Company's JH Drew subsidiary leases three buildings in Indiana, Tennessee
and Missouri from the same related party. The lease agreement includes a
five-year term through April 2009 with one option to extend the lease term for a
one-year period and provides for base rent of $15 per month, which is adjusted
annually to fair market value. In addition the Company pays certain expenses
including taxes, assessments, maintenance and repairs. The Company recognized
rental expense of $47 and $45 for the three month period ended May 31, 2006 and
2005, respectively for these facilities. The Company recognized rental expense
of $141 and $90 for the nine month periods ended May 31, 2006 and 2005,
respectively for these facilities.

The Company's Nor-Cote subsidiary leases a building in Crawfordsville, Indiana
from the same related party. The lease expires in August 2009 with one option to
extend the lease term for a one-year period and provides for base rent of $7 per
month, which is adjusted annually to fair market value. The Company recognized
rental expense of $19 and $59 for the three and nine month periods ended May 31,
2006. As the lease agreement was not entered into until August 2005, no related
party rental expense was recognized in the three or nine month periods ended May
31, 2005.

The Company's PSM subsidiary leases an office building in Richmond, Indiana from
a related party. The lease is for a period of five years and expires in May 2008
and provides for base rent of $2 per month with nominal annual increases. The
Company recognized rental expense of $8 and $6 for the three month periods ended
May 31, 2006 and 2005, respectively for this facility. The Company recognized
rental expense of $26 and $12 for the nine month periods ended May 31, 2006 and
2005, respectively for this facility.

Consulting services of $73 were paid to a related party company owned by the
Company's Chief Executive Officer. These consulting services will be recognized
as compensation expense for disclosure purposes for the Chief Executive Officer.


                                       24
<PAGE>

Following is a summary of all related party amounts included in the consolidated
balance sheets at May 31, 2006 and August 31, 2005:

<TABLE>
<CAPTION>
                                                      May 31,        August 31,
                                                       2006             2005
                                                    (Unaudited)      (Audited)
                                                    -----------      ---------
<S>                                                 <C>             <C>
Note receivable from subsidiary employee              $   300         $   300
Long-term line of credit                                    -          (6,618)
Installment notes payable                                 (43)            (94)
                                                      -------         -------

Net assets (liabilities)                              $   257         $(6,412)
                                                      =======         =======
</TABLE>

The installment notes payable represents loans for equipment and vehicle
purchases by a shareholder. The loans are secured by the assets and expire no
later than fiscal year 2007. Interest expense is immaterial. The note receivable
represents a loan with a subsidiary employee in connection with the acquisition
of the subsidiary. The loan is secured by restricted stock and expires in fiscal
year 2008. No interest expense is recognized on this loan.

NOTE 14 - SEGMENT INFORMATION

The operations of the Company are organized into the following segments;
Wireless Infrastructure, Manufacturing and Distribution, Business Solutions, and
holding company. 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:


<TABLE>
<CAPTION>
                                                  Wireless     Manufacturing and    Business        Holding          Segment
                                               Infrastructure    Distribution      Solutions        Company           Totals
                                               --------------  -----------------   ---------        -------          -------
<S>                                            <C>             <C>                 <C>              <C>              <C>
Three Month Period Ended
May 31, 2006 (Unaudited)
Net revenues                                      $ 22,530         $  5,815         $ 11,123        $    -           $ 39,468
Cost of revenues                                    19,081            4,024            8,793             -             31,898
                                                  --------         --------         --------        --------         --------
Gross profit                                         3,449            1,791            2,330             -              7,570
Operating expenses
   Selling, general and administrative               2,671            1,587            1,533             391            6,182
   Depreciation and amortization                       250              110              159              77              596
                                                  --------         --------         --------        --------         --------
       Total operating expenses                      2,921            1,697            1,692             468            6,778
                                                  --------         --------         --------        --------         --------

Segment operating income (loss)                   $    528         $     94         $    638        $   (468)        $    792
                                                  ========         ========         ========        ========         ========
</TABLE>


<TABLE>
<CAPTION>
                                                  Wireless     Manufacturing and    Business        Holding          Segment
                                               Infrastructure    Distribution      Solutions        Company           Totals
                                               --------------  -----------------   ---------        -------          -------
<S>                                            <C>             <C>                 <C>              <C>              <C>
Three Month Period Ended
May 31, 2005 (Unaudited)
Net revenues                                      $ 17,949         $  5,665         $  8,290        $    -           $ 31,904
Cost of revenues                                    15,025            3,850            6,398             -             25,273
                                                  --------         --------         --------        --------         --------
Gross profit                                         2,924            1,815            1,892             -              6,631
Operating expenses
   Selling, general and administrative               1,731            1,491            1,099             493            4,814
   Depreciation and amortization                       179              145              116              32              472
                                                  --------         --------         --------        --------         --------
       Total operating expenses                      1,910            1,636            1,215             525            5,286
                                                  --------         --------         --------        --------         --------

Segment operating income (loss)                   $  1,014         $    179         $    677        $   (525)        $  1,345
                                                  ========         ========         ========        ========         ========
</TABLE>


                                       25
<PAGE>



<TABLE>
<CAPTION>
                                                  Wireless     Manufacturing and    Business        Holding          Segment
                                               Infrastructure    Distribution      Solutions        Company           Totals
                                               --------------  -----------------   ---------        -------          -------
<S>                                            <C>             <C>                 <C>              <C>              <C>
Nine Month Period Ended
May 31, 2006 (Unaudited)
Net revenues                                      $ 59,655         $ 17,426         $ 32,186        $    -           $109,267
Cost of revenues                                    50,312           12,434           24,179             -             86,925
                                                  --------         --------         --------        --------         --------
Gross profit                                         9,343            4,992            8,007             -             22,342
Operating expenses
   Selling, general and administrative               6,874            4,201            4,568           2,078           17,721
   Depreciation and amortization                       669              327              469             155            1,620
                                                  --------         --------         --------        --------         --------
       Total operating expenses                      7,543            4,528            5,037           2,233           19,341
                                                  --------         --------         --------        --------         --------

Segment operating income (loss)                   $  1,800         $    464         $  2,970        $ (2,233)        $  3,001
                                                  ========         ========         ========        ========         ========
</TABLE>



<TABLE>
<CAPTION>
                                                  Wireless     Manufacturing and    Business        Holding          Segment
                                               Infrastructure    Distribution      Solutions        Company           Totals
                                               --------------  -----------------   ---------        -------          -------
<S>                                            <C>             <C>                 <C>              <C>              <C>
Nine Month Period Ended
May 31, 2005 (Unaudited)
Net revenues                                      $ 42,484         $ 16,029         $ 18,588        $    -           $ 77,101
Cost of revenues                                    36,121           11,368           14,382             -             61,871
                                                  --------         --------         --------        --------         --------
Gross profit                                         6,363            4,661            4,206             -             15,230
Operating expenses
   Selling, general and administrative               4,242            4,792            2,465           1,313           12,812
   Depreciation and amortization                       499              436              198              70            1,203
                                                  --------         --------         --------        --------         --------
       Total operating expenses                      4,741            5,228            2,663           1,383           14,015
                                                  --------         --------         --------        --------         --------

Segment operating income (loss)                   $  1,622         $   (567)        $  1,543        $ (1,383)        $  1,215
                                                  ========         ========         ========        ========         ========
</TABLE>



<TABLE>
<CAPTION>
                                                  Wireless     Manufacturing and    Business        Holding          Segment
                                               Infrastructure    Distribution      Solutions        Company           Totals
                                               --------------  -----------------   ---------        -------          -------
<S>                                            <C>             <C>                 <C>              <C>              <C>
As of May 31, 2006 (Unaudited)
Current Assets
   Cash and equivalents                           $   (621)        $    492         $  3,756        $    (57)        $  3,570
   Restricted savings account                          -                -              1,622             -              1,622
   Available for sale investments                      -                -              2,162             -              2,162
   Accounts receivable, net                         16,153            3,293            1,186             (15)          20,617
   Costs and estimated earnings in excess
      of billings on uncompleted contracts           6,143              -                -               -              6,143
   Inventory, net                                    4,059            3,617               36             -              7,712
   Deferred tax asset                                  281              -                733             -              1,014
   Prepaid expenses and
      other current assets                             652              220              259             373            1,504
                                                  --------         --------         --------        --------         --------
      Total Current Assets                          26,667            7,622            9,754             301           44,344

Other Assets
   Property, plant & equipment, net                  2,952            2,177              448             585            6,162
   Goodwill                                          1,613            5,970            4,153             -             11,736
   Other intangible assets, net                        156              673            3,410             -              4,239
   Long-term accounts receivable                       600              -                -               -                600
   Other long-term assets                               36               53               28           1,524            1,641
                                                  --------         --------         --------        --------         --------
      Total Other Assets                             5,357            8,873            8,039           2,109           24,378
                                                  --------         --------         --------        --------         --------

        Total Assets                              $ 32,024         $ 16,495         $ 17,793        $  2,410         $ 68,722
                                                  ========         ========         ========        ========         ========
</TABLE>



                                       26
<PAGE>


<TABLE>
<CAPTION>
                                                  Wireless     Manufacturing and    Business        Holding          Segment
                                               Infrastructure    Distribution      Solutions        Company           Totals
                                               --------------  -----------------   ---------        -------          -------
<S>                                            <C>             <C>                 <C>              <C>              <C>
As of August 31, 2005 (Audited)
Current Assets
   Cash and equivalents                           $    414         $    399         $  3,103        $   (129)        $  3,787
   Restricted savings account                          -                -              1,484             -              1,484
   Available for sale investments                      -                -              2,199             -              2,199
   Accounts receivable, net                         16,736            3,315            1,304               3           21,358
   Costs and estimated earnings in excess
      of billings on uncompleted contracts           2,681              -                -               -              2,681
   Inventory, net                                    4,180            4,120               15             -              8,315
   Deferred tax asset                                  451              -                563             -              1,014
   Prepaid expenses and
      other current assets                             940              198              421             231            1,790
                                                  --------         --------         --------        --------         --------
      Total Current Assets                          25,402            8,032            9,089             105           42,628

Other Assets
   Property, plant & equipment, net                  2,077            2,212              306             469            5,064
   Goodwill                                          1,423            5,970            4,287             -             11,680
   Other intangible assets, net                        192              740            3,773             -              4,705
   Long-term accounts receivable                       600              -                -               -                600
   Other long term assets                              -                 55               18             336              409
                                                  --------         --------         --------        --------         --------
      Total Other Assets                             4,292            8,977            8,384             805           22,458
                                                  --------         --------         --------        --------         --------

      Total Assets                                $ 29,694         $ 17,009         $ 17,473        $    910         $ 65,086
                                                  ========         ========         ========        ========         ========
</TABLE>



NOTE 15 - SUBSEQUENT EVENTS

ACQUISITION OF JAMES WESTBROOK & ASSOCIATES, LLP

On June 23, 2006 the Company acquired James Westbrook & Associates, LLP (JWA) of
Atlanta, Georgia for a purchase price of approximately $720. JWA is a civil and
structural engineering firm providing a full array of engineering and design
services to telecommunications, development, institutional, municipal and
petroleum clients. The acquisition was financed through borrowings under the
existing credit facility and the acquisition will be accounted for as a stock
purchase.



                                       27
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

This report contains statements that constitute "forward-looking statements"
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended, and Section 27A of the Securities Act of 1933, as amended. The words
"expect," "estimate," "anticipate," "predict," "believe" and similar expressions
and variations thereof are intended to identify forward-looking statements.
These statements appear in a number of places in this report and include
statements regarding the intent, belief or current expectations of the Company,
its directors or its officers with respect to, among other things, trends
affecting the Company's financial condition or results of operations. The
readers of this report are cautioned that any such forward-looking statements
are not guarantees of future performance and involve risks and uncertainties
that could cause actual results to differ materially. Factors that might cause
or contribute to such differences, include, but are not limited to, the risks
and uncertainties that are discussed under the heading "Management's Discussion
and Analysis or Plan of Operations." The Company does not ordinarily make
projections of its future operating results and undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise. Readers should carefully review the
risk factors disclosed within Form 10-KSB for the year ended August 31, 2005 and
the other documents filed by the Company with the Securities and Exchange
Commission.

OVERVIEW

Fortune Industries, Inc. (formerly Fortune Diversified Industries, Inc.) is a
holding company headquartered in Indianapolis, Indiana. The term "Company" as
used herein refers to Fortune Industries, Inc. and its subsidiaries unless the
context otherwise requires. The Company conducts its business directly and
through its wholly-owned subsidiaries.

The Company's current operating focus is achieved through its following
subsidiaries (grouped by segment):

         - Wireless Infrastructure

                    James H. Drew Corp. (JH Drew); PDH, Inc. (PDH); Magtech
                    Services, Inc. (Magtech); Cornerstone Wireless Construction
                    Services, Inc. (Cornerstone Construction); Innovative
                    Telecommunications Consultants, Inc. (ITC); Audio - Video
                    Revolution, Inc. (AVR); Telecom Technology Corp. (TTC);
                    StarQuest Wireless Services, Inc. (StarQuest); and Fortune
                    Wireless, Inc. (Fortune Wireless)

         - Manufacturing and Distribution

                    Nor-Cote International, Inc. (Nor-Cote); Kingston Sales
                    Corporation (Kingston); and Commercial Solutions, Inc.
                    (Commercial Solutions)

         - Business Solutions

                    Professional Staff Management, Inc., Professional Staff
                    Management, Inc. II and Pro Staff, Inc. (collectively
                    "PSM"); and CSM, Inc. (CSM)

The Wireless Infrastructure segment is composed of businesses that provide
wireless services and products. PDH, Magtech, ITC, AVR, and StarQuest generate
revenues from providing wireless services while JH Drew and Cornerstone
Construction generate revenue from providing wireless products. TTC generates
revenues from providing both wireless services and products. Additionally,
Fortune Wireless is a direct subsidiary of the holding company and the owner of
the stock of certain entities comprising the Wireless Infrastructure segment.

Effective September 1, 2005, the Company is no longer eligible as a small
business reporter on Form 10-QSB under Regulation S-B but is subject to the
reporting requirements on Form 10-Q under Regulation S-K.

WIRELESS INFRASTRUCTURE

The Wireless Infrastructure segment is conducted through the Company's JH Drew,
Fortune Wireless, PDH, Magtech, Cornerstone Construction, ITC, AVR, TTC and
StarQuest subsidiaries.



                                       28
<PAGE>
JH Drew is a specialty contractor in the field of infrastructure, including
fiber optics, smart highway systems, traffic signals, street signs, high mast
and ornamental lighting, guardrail, wireless communications, and fabrications of
structural steel. JH Drew has been operating over fifty years serving
contractors and state departments of transportation throughout the Midwestern
United States.

Fortune Wireless is a direct subsidiary of the holding company and the owner of
the stock of certain entities comprising the Wireless Infrastructure segment
including PDH, Cornerstone Construction, ITC and Magtech.

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

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

Cornerstone Construction offers construction services to the telecommunications
industry, primarily developing wireless networks for wireless carriers. Services
include program and construction management and electrical, foundation, tower,
antennae and line installations.

ITC provides technical services for wireless equipment manufacturers and
wireless service providers including switch and radio base station engineering
as well as providing the site, survey, delivery, installation and integration
process for the implementation of end user equipment offered by a wide range of
wireless equipment manufacturers.

AVR provides a wide range of design, engineering and installation of structured
cabling systems for the residential and commercial marketplace.

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

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

MANUFACTURING AND DISTRIBUTION

The Manufacturing and Distribution segment is conducted through the Company's
Nor-Cote, Kingston, and Commercial Solutions subsidiaries.

Nor-Cote is a manufacturer of UV curable screen printing inks. Nor-Cote inks are
printed on many types of plastic, metals and other substrates that are
compatible with the UV curing process. Typical applications are plastic sheets,
point-of-purchase (POP) signage, banners, decals, cell phones, bottles and
containers, CD and DVD disks, rotary-screen printed labels, and membrane switch
overlays for which Nor-Cote provides conductive ink. Nor-Cote has operating
facilities in the United States, United Kingdom, 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.

Kingston and Commercial Solutions are distributors for prominent national
companies in the electronic, sound, security, and video markets. Kingston and
Commercial Solutions offer the latest technology in televisions, sound systems,
electronic locking devices, wire, cable and fiber optics, and intercom systems,
selling to customers in lodging, healthcare, education, transportation and
retail industries.



                                       29
<PAGE>
BUSINESS SOLUTIONS

The Business Solutions segment is conducted through the Company's PSM and CSM
subsidiaries.

PSM and CSM, Professional Employer Organizations (PEO's), provide cost-effective
employee administrative solutions to companies in 37 states nationwide. The
PEO's provide services typically managed by 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.

HOLDING COMPANY

The Company's revenues vary throughout the year. As is typical with companies
working in the construction industry, revenues and operating income are usually
lowest in the Company's second fiscal quarter ending February 28. In general,
across the Company's diversified businesses the negative business risks the
Company faces are not unusual or specific to the Company. Like other companies
and industries, the Company faces rising oil and health care costs. The Company
also faces the potential adverse effects of natural disasters, terrorist
attacks, unexpected negative downturns in the economy and new competition. These
factors can have an adverse impact on revenues and costs throughout all of the
Company's business segments. Management is aware of these risks and works to
manage the Company around and through these risks as a part of its planning and
operational execution within the family of companies.


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-KSB for the year ended August 31,
2005. Since August 31, 2005, there have been no material changes to the
Company's critical accounting policies.


RESULTS OF OPERATIONS: COMPARISON OF THE THREE AND NINE MONTH PERIODS ENDED MAY
31, 2006 AND MAY 31, 2005


EXECUTIVE OVERVIEW OF FINANCIAL RESULTS

Net income available to common stock shareholders was $143, or $0.01 per diluted
share on revenues of $39,468 for the three month period ended May 31, 2006
compared with net income of $1,078, or $0.10 per diluted share on revenues of
$31,904 for the three month period ended May 31, 2005. This represents a 24%
increase in revenues and 87% percent decrease in net income. Net income
available to common stock shareholders was $1,306, or $0.11 per diluted share on
revenues of $109,267 for the nine month period ended May 31, 2006 compared with
net income of $457, or $0.04 per diluted share on revenues of $77,101 for the
nine month period ended May 31, 2005. This represents a 42% increase in revenues
and a 186% percent increase in net income.

o   The increase in revenue for the quarter was due mainly to the increases in
    the Wireless Infrastructure and Business Solutions segments. The Wireless
    Infrastructure increases were due primarily to milder winter and spring
    weather conditions for the construction companies and increased market
    conditions due to the release of the federal highway funds in two Midwestern
    markets for JH Drew. Additionally revenues increased in the Business
    Solutions segment due to the acquisition of CSM in 2005 as well as increased
    customer base at PSM.
o   The decrease in net income in the third quarter was due mainly to increases
    in expenses at Fortune Wireless. Although Fortune Wireless revenues
    increased approximately 22%, the increase was offset somewhat by delays in
    the release of new work, loss of a large customer contract and increases
    in personnel and administrative expenses related to the opening of three
    branch offices in Ohio and Missouri. Additionally interest expense increased
    69% due primarily to



                                       30
<PAGE>
    partial bank financing of the CSM acquisition and the Company's issuance of
    a $7,500 long-term convertible note payable in November 2005.
o   The increase in revenue for the first nine month period was due mainly to
    the increases discussed above for the third quarter and increased demand in
    the marketplace for expansion and upgrades of wireless carrier networks in
    Fortune Wireless.
o   The increase in net income for the first nine month was mainly the result of
    the acquisition of CSM, a decrease in claims related to health and workers
    compensation insurance programs in the Business Solutions segment, and
    reductions in selling, general and administrative expenses in the
    Manufacturing and Distribution segment. Additionally, interest expense
    increased 84% for nine month period due primarily to partial bank financing
    of the CSM acquisition and the Company's issuance of a $7,500 long-term
    convertible note payable in November 2005.


WIRELESS INFRASTRUCTURE

Wireless Infrastructure segment operating results for the three and nine month
periods ended May 31, 2006 and 2005 are as follows:

<Table>
<Caption>
                                            Three months ended                              Nine months ended
                                           May 31,       May 31,                           May 31,      May 31,
                                             2006         2005         $        %           2006         2005        $       %
                                         (unaudited)   (unaudited)   Change  Change     (unaudited)  (unaudited)  Change  Change
                                         ------------------------------------------     ----------------------------------------
<S>                                      <C>           <C>          <C>      <C>        <C>          <C>
Net revenues                             $   22,530    $   17,949    $4,581     26%     $   59,655   $  42,484    $17,171   40%
Cost of revenues                             19,081        15,025     4,056     27%         50,312      36,121     14,191   39%
                                         ------------------------------------------     ----------------------------------------
Gross profit                                  3,449         2,924       525     18%          9,343       6,363     2,980    47%
     Gross profit as % of revenue               15%           16%                              16%         15%

Operating expenses
     Selling, general and
     administrative                           2,671         1,731       940     54%         6,874       4,242      2,632    62%
     Depreciation and amortization              250           179        71     40%           669         499        170    34%
                                         ------------------------------------------     ----------------------------------------
        Total operating expenses              2,921         1,910     1,011     53%         7,543       4,741      2,802    59%
                                         ------------------------------------------     ----------------------------------------

Segment operating income                 $      528     $   1,014    $ (486)    48%      $  1,800     $ 1,622     $  178    11%
                                         ==========================================     ========================================
</Table>
Revenues

Revenues for the three month period ended May 31, 2006 were $22,530 compared to
$17,949 for the three month period ended May 31, 2005, an increase of $4,581 or
26%. Revenues for the nine month period ended May 31, 2006 were $59,655 compared
to $42,484 for the nine month period ended May 31, 2005, an increase of $17,171
or 40%. Results are described by subsidiary as follows. Revenues at JH Drew
increased $2,932 or 24% for the three month period and $7,243 or 23% for the
nine month period ended May 31, 2006 as compared to the same periods ended May
31, 2005 due primarily to milder winter and spring weather conditions, increased
market conditions in two Midwestern geographic markets, and a change in job mix
where JH Drew acted as general contractor, thereby having greater control over
timing of completion and scheduling of their construction crews. The remaining
increase in revenues was due mainly to additional work procured from existing
customers, geographic expansion and new customer contracts within the Fortune
Wireless subsidiaries which provide network expansion and upgrade services.
Revenues of Fortune Wireless increased approximately 22% and 49% for the three
month and nine month period ended May 31, 2006 as compared to the same periods
ended May 2005. The increase in revenues was offset somewhat by the loss of a
large customer contract and delays in the release of new work in certain Fortune
Wireless subsidiaries.

Gross Profit

Gross profit for the three month period ended May 31, 2006 was $3,449,
representing 15% of revenues, compared to $2,924 representing 16% of revenues
for the three month period ended May 31, 2005, an increase of $525, or 18%.
Gross profit for the nine month period ended May 31, 2006 was $9,343,
representing 16% of revenues, compared to $6,363 representing 15% of revenues
for the nine month period ended May 31, 2005, an increase of $2,980, or 47%.
Results are described by subsidiary as follows. Gross profit and gross profit as
a percentage of revenues at JH Drew increased for the three and nine month
periods ended May 31, 2006 compared to the same periods ended May 31, 2005 due
to lower insurance claims and increased productivity due to milder winter and
spring weather conditions. For the nine month period to date, these increases
were offset somewhat by unfavorable job closings due to increased costs in one
of JH Drew's operating divisions. JH Drew generates lower profit margins than
other subsidiaries



                                       31
<PAGE>
within the Wireless Infrastructure segment due to the nature of its business in
the highway construction industry as compared to certain other subsidiaries in
the segment which operate in the service industry. Gross profit increased for
the nine month period ended May 31, 2006 as compared to the same period ended
May 31, 2005 in Fortune Wireless due to the increase in revenues discussed
above. This year to date increase in gross profit was offset somewhat by
increased costs associated geographic and branch expansion and hiring of
additional employees. Gross profit decreased for the three month period ended
May 31, 2006 as compared to the same period ended May 31, 2005 despite the
increase in revenues in Fortune Wireless due mainly to increased costs
associated with hiring of new personnel and geographic and branch expansion.

Operating Income

Operating income for the three month period ended May 31, 2006 was $528,
compared to operating income of $1,014 for the three month period ended May 31,
2005, a decrease of ($486) or 48%. Operating income for the nine month period
ended May 31, 2006 was $1,800, compared to operating income of $1,622 for the
nine month period ended May 31, 2005, an increase of $178, or 11%. Results are
described by subsidiary as follows. Operating income for the three and nine
month periods ending May 31, 2006 as compared to the same periods ending May 31,
2005 at JH Drew increased due mainly to the increase in gross profits discussed
above. Operating income decreased for the three and nine month periods ending
May 31, 2006 as compared to the same periods ending May 31, 2005, in Fortune
Wireless due to increased selling, general and administrative expenses related
to hiring of new personnel and geographic and branch expansion .


MANUFACTURING AND DISTRIBUTION

Manufacturing and Distribution segment operating results for the three month
period ended May 31, 2006 and 2005 are as follows:

<Table>
<Caption>
                                            Three months ended                          Nine months ended
                                           May 31,     May 31,                        May 31,      May 31,
                                            2006         2005        $       %          2006        2005        $      %
                                         (unaudited) (unaudited)  Change  Change    (unaudited)  (unaudited) Change  Change
                                         ---------------------------------------    ---------------------------------------
<S>                                      <C>         <C>          <C>     <C>       <C>          <C>         <C>     <C>
Net revenues                             $   5,815   $   5,665    $  150      3%    $   17,426   $   16,029  $1,397      9%
Cost of revenues                             4,024       3,850       174      5%        12,434       11,368   1,066      9%
                                         ---------------------------------------    ---------------------------------------
Gross profit                                 1,791       1,815       (24)    -1%         4,992        4,661     331      7%
     Gross profit as % of revenue              31%         32%                             29%          29%

Operating expenses
     Selling, general and
     administrative                          1,587       1,491        96      6%         4,201        4,792    (591)   -12%
     Depreciation and amortization             110         145       (35)   -24%           327          436    (109)   -25%
                                         ---------------------------------------    ---------------------------------------
        Total operating expenses             1,697       1,636        61      4%         4,528        5,228    (700)   -13%
                                         ---------------------------------------    ---------------------------------------

Segment operating income (loss)          $      94   $     179    $  (85)    47%    $      464   $     (567) $1,031   -182%
                                         =======================================    =======================================
</Table>
Revenues

Revenues for the three month period ended May 31, 2006 were $5,815 compared to
$5,665 for the three month period ended May 31, 2005, an increase of $150 or 3%.
Revenues for the nine month period ended May 31, 2006 were $17,426 compared to
$16,029 for the nine month period ended May 31, 2005, an increase of $1,397 or
9%. Results are described by subsidiary as follows. Revenues at Commercial
Solutions and Kingston decreased approximately 18% for the three month period
and 5% for the nine month ended May 31, 2006 as compared to the same periods
ended May 2005 due primarily to unavailability of certain television products
from manufacturers as a result of the federal mandate for digital tuners and the
loss of preferred pricing through a master distributor agreement with a large
manufacturer of commercial television products in April 2005. Revenue at
Nor-Cote increased 13% for the three month period and 12% for nine month period
ended May 31, 2006 as compared to the same periods ended May 2005 due mainly to
1) increased sales under a toll manufacturing agreement, 2) increased sales of
POP/ decal inks and 3) price increases across various product lines in July
2005. The increase in revenues at Nor-Cote was offset somewhat by lower Nor-Cote
U.S. sales to the loose leaf, tag and label and compact disk markets due to
competition.



                                       32
<PAGE>

Gross Profit

Gross profit for the three month period ended May 31, 2006 was $1,791
representing 31% of revenue, compared to $1,815 representing 32% of revenue for
the three month period ended May 31, 2005, a decrease of ($24), or 1%. Gross
profit for the nine month period ended May 31, 2006 was $4,992 representing 29%
of revenue, compared to $4,661 representing 29% of revenue for the nine month
period ended May 31, 2005, an increase of $331, or 7%. Results are described by
subsidiary as follows. Gross profit and gross profit as a percentage of revenues
increased for the nine month period ended May 31, 2006 at Commercial Solutions
and Kingston as compared to the same period ended May 31, 2005 due primarily to
a shift in sales focus resulting in higher margin commercial and retail sales as
opposed to sales to other distributors. This increase was offset somewhat by a
decrease in available new higher profit margin products along with emphasis on
sales of existing lower margin inventory resulting in a decrease in gross profit
and gross profit as a percentage of revenues for the three month period ended
May 31, 2006. Gross profit at Nor-Cote increased slightly due to price increases
that were offset somewhat by an increase in raw material prices and additional
costs related to opening a new blending facility in July 2005. Gross profit as a
percent of revenue is lower at Commercial Solutions and Kingston as compared to
Nor-Cote due to the different nature of the business.

Operating Income

Operating income for the three month period ended May 31, 2006 was $94, compared
to operating income of $179 for the three month period ended May 31, 2005, a
decrease of ($85), or 47%. Operating income for the nine month period ended May
31, 2006 was $464, compared to an operating loss of ($567) for the nine month
period ended May 31, 2005, an increase of $1,031, or 182%. Results are described
by subsidiary as follows. The change in operating income at Nor-Cote, Commercial
Solutions and Kingston was due to the change in gross profits described above as
well as a reduction in administrative and sales personnel at Commercial
Solutions and Kingston.

BUSINESS SOLUTIONS

Business Solutions segment operating results for the three month periods ended
May 31, 2006 and 2005 are as follows:

<Table>
<Caption>
                                            Three months ended                       Nine months ended
                                           May 31,     May 31,                      May 31,     May 31,
                                            2006        2005       $       %         2006        2005        $       %
                                         (unaudited) (unaudited) Change  Change   (unaudited) (unaudited)  Change  Change
                                         --------------------------------------   ---------------------------------------
<S>                                      <C>          <C>        <C>     <C>      <C>         <C>          <C>     <C>
Net revenues                             $  11,123    $   8,290  $2,833     34%   $  32,186   $  18,588    $13,598    73%
Cost of revenues                             8,793        6,398   2,395     37%      24,179      14,382      9,797    68%
                                         --------------------------------------   ---------------------------------------
Gross profit                                 2,330        1,892     438     23%       8,007       4,206      3,801    90%
     Gross profit as % of revenue              21%          23%                         25%         23%

Operating expenses
     Selling, general and
     administrative                          1,533        1,099     434     39%       4,568       2,465      2,103    85%
     Depreciation and amortization             159          116      43     37%         469         198        271   137%
                                         --------------------------------------   ---------------------------------------
        Total operating expenses             1,692        1,215     477     39%       5,037       2,663      2,374    89%
                                         --------------------------------------   ---------------------------------------

Segment operating income                 $     638    $     677  $  (39)     6%   $   2,970   $   1,543    $ 1,427    92%
                                         ======================================   =======================================
</Table>
Revenues

Revenues for the three month period ended May 31, 2006 were $11,123, compared to
$8,290 for the three month period ended May 31, 2005, an increase of $2,833, or
34%. Revenues for the nine month period ended May 31, 2006 were $32,186,
compared to $18,588 for the nine month period ended May 31, 2005, an increase of
$13,598, or 73%. Results are described by subsidiary as follows. CSM was
acquired on April 5, 2005, and reported only two months revenues of $2,572 for
the three and nine month periods ended May 31, 2005 as compared to $4,043 and
$12,197 for the three and nine month periods ended May 31, 2006, consecutively.
CSM's pro forma revenues for the three and nine month periods ended May 31, 2006
as compared to the same periods ended May 31, 2005 show a slight increase.
Additionally, PSM's revenues increased 24% for the three month period ended May
31, 2006 and 25% for the nine month periods ended May 31, 2006 as compared to
the same periods ended May 31, 2005 due mainly to an increase in customer base.
Though PSM and CSM's primary focus involves fee revenue associated with the
administration of payroll and employee benefits, the companies continue to
expand other services including human resource outsourcing, employment training
and testing. The business variables that PSM and CSM work to overcome include
the volatile insurance industry, government regulations on employment, and the
risk of partially self-funded or high deductible insurance reserves.



                                       33
<PAGE>
Gross Profit

Gross profit for the three month period ended May 31, 2006 was $2,330,
representing 21% of revenue, compared to $1,892, representing 23% of revenue for
the three month period ended May 31, 2005, an increase of $438, or 23%. Gross
profit for the nine month period ended May 31, 2006 was $8,007 representing 25%
of revenue, compared to $4,206 representing 23% of revenue for the nine month
period ended May 31, 2005, an increase of $3,801, or 90%. Results are described
by subsidiary as follows. CSM was acquired on April 5, 2005 and reported only
two months gross profit of $571, or 22% of revenues, for the three and nine
month periods ended May 31, 2005 as compared to $1,004 and $3,089, or 25% of
revenues, for the three and nine month periods ended May 31, 2006,
consecutively. Gross profit at PSM decreased slightly for the three month period
ended May 31, 2006 as compared to the same period ended May 31, 2005 due mainly
to higher claims expense with PSM's health insurance programs. Gross profit and
gross profit as a percentage of revenues at PSM increased for the nine month
period ended May 31, 2006 as compared to the same period ended May 31, 2005 due
mainly to an increase in customer base as well as lower claims expense with
PSM's health and workers compensation insurance programs.

Operating Income

Operating income for the three month period ended May 31, 2006 was $638,
compared to $677 for the three month period ended May 31, 2005, a decrease of
($39), or 6%. Operating income for the nine month period ended May 31, 2006 was
$2,970, compared to $1,543 for the nine month period ended May 31, 2005, an
increase of $1,427, or 92%. Results are described by subsidiary as follows. CSM
was acquired on April 5, 2005 and reported only two months gross profit of $108
for the three and nine month periods ended May 31, 2005 as compared to $194 and
$738 for the three and nine month period ended May 31, 2006, respectively.
Operating income at PSM decreased for the quarter ended May 31, 2006 due to an
increase in administrative and sales personnel. Operating income at PSM
increased for the nine month period ended May 31, 2006 due to an increase in
revenues and gross profits as discussed above offset somewhat by an increase in
administrative and sales personnel.



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 May 31,
2006 were $468, compared to $525 for the three month period ended May 31, 2005,
a decrease of $57, or 11%. Operating expenses for the nine month period ended
May 31, 2006 were $2,233, compared to $1,383 for the nine month period ended May
31, 2005, an increase of $850, or 61%. The increase was due to the Company's
hiring of additional personnel in executive management, accounting and
information technology departments, and as a result of increased accounting and
legal expenses primarily resulting from corporate growth.

Interest Expense

Interest expense was $649 for the three month period ended May 31, 2006,
compared to $383 for the three month period ended May 31, 2005, an increase of
$266, or 69%. Interest expense was $1,791 for the nine month period ended May
31, 2006, compared to $972 for the nine month period ended May 31, 2005, an
increase of $819, or 84%. The three and nine month period increase was primarily
due to partial bank financing of the CSM acquisition in April 2005 as well
additional borrowing under the line of credit and issuance of a convertible term
note in November 2005 for working capital needs.

As of May 31, 2006, the Company was not in compliance with certain bank debt
covenants; however, the bank has granted a waiver of default remedies with
respect to noncompliance as a result of guarantees pledged by certain
shareholders of the Company. While the Company anticipates that waivers will be
granted for any future non-compliance with bank covenants, the failure to obtain
such waiver could negatively affect our future performance.



                                       34
<PAGE>
Income Taxes

There was $23 income tax expense for the three month period ended May 31, 2006.
There was $44 of income tax expense for the nine month period ended May 31,
2006. Federal income tax expense was offset through the release of the Company's
valuation allowance to the extent of current period earnings. As of May 31,
2006, the Company reported no additional release of the valuation allowance for
future periods. Management deems the likelihood of incurring taxable income for
fiscal year ending August 31, 2006, in excess of the deferred tax benefit of
$1,014, to be more likely than not.

Management believes the majority of the Company's remaining net operating loss
carryforwards may be absorbed in fiscal year 2006. As a result of the release of
the valuation allowance to offset 100% of current federal taxes and recognition
of the deferred tax benefit, the Company's effective tax rate is substantially
lower than statutory rates.


LIQUIDITY AND CAPITAL RESOURCES

The Company had working capital of $6,368 at May 31, 2006 compared with $1,200
at August 31, 2005. The increase in working capital was primarily due to a
$1,387 decrease in borrowings on the line of credit with the bank, which
occurred as a result of the Company's borrowings on a $7,500 long-term
convertible note issued in November 2005. Current assets are composed primarily
of cash and equivalents, net accounts receivable, marketable securities,
inventories, and costs & estimated earnings in excess of billings on uncompleted
contracts.

The Company's principal sources of liquidity included cash and equivalents and
marketable securities of $5,732 and $5,986 at May 31, 2006 and August 31, 2005,
respectively. At May 31, 2006 the Company had $889 available on its line of
credit with the bank.

Operating Activities

Net cash flow used in operating activities was ($983) for the nine month period
ended May 31, 2006 compared to ($2,742) used in operating activities for the
nine month period ended May 31, 2005. The increase of $1,759 was primarily due
to an increase in net income.

Investing Activities

Net cash flow used in investing activities was ($2,425) for the nine month
period ended May 31, 2006 compared to ($2,667) for the nine month period ended
May 31, 2005. The decrease of ($242) was primarily due the acquisition on CSM on
April 5, 2005 as well as other smaller acquisitions in 2005, offset largely by
capital expenditures mainly in the Company's Cornerstone Construction and JH
Drew subsidiaries related to increased work and geographic expansion.

The Company expects future requirements for capital expenditures will include
expenditures in the ordinary course of business and infrastructure expansion
within the wireless infrastructure segment. The Company expects to fund such
capital expenditures with cash generated from operating activities and
borrowings under the existing line of credit or a new line of credit.

Financing Activities

Net cash flow provided by financing activities was $3,125 for the nine month
period ended May 31, 2006 compared to $5,802 for the nine month period ended May
31, 2005. The decrease of ($2,677) was mainly the result of less borrowings
needed to finance operating uses of cash.

On November 21, 2005, we issued a convertible term note ("the Note"), in the
principal amount of $7,500 to Laurus. The Note is convertible into shares of the
Company's common stock at an initial fixed conversion price of $5.50 per share.
The Company also issued to Laurus a warrant, to purchase up to 272,727 shares of
the Company's common stock at an exercise price of $6.50 per share with a term
of five years. In connection with the Laurus financing, the Company also issued
to CB Capital a warrant to purchase up to 13,636 shares of the Company's common
stock at an exercise price of $6.50 per share with a term of five years on
January 25, 2006.



                                       35
<PAGE>
The Note has a term of three years and accrues interest at the prime rate plus
3% per year. Interest on the principal amount is payable monthly, in arrears, on
the first business day of each consecutive calendar month thereafter until the
maturity date. Under the terms of the Note, the monthly principal payment is
payable either in cash at 102% of the respective monthly amortization amounts
or, if certain criteria are met, in shares of the Company's common stock. See
Note 9 to the consolidated financial statements for additional discussion of the
terms of the financing with Laurus.

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, the Company must meet certain financial
ratios (as defined) and is subject to annual capital expenditure limitations.

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

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

Management anticipates continued growth in the Company's Wireless Infrastructure
segment. This growth is expected to create the demand for increasing investment
in working capital. This investment in working capital may require additional
debt or equity financing.

Over the next 12 months, the Company plans to hire additional employees in all
of its segments; however, the hiring of these employees will be approximately
correlated with an increase in operating revenue. The Company expects to fund
current operations and other cash expenditures through the use of available
cash, cash from operations, funds available under its credit facilities and
possible new debt or equity sources. The Company believes that there will be
sufficient funds from current cash, operations and available financing to fund
operations and cash expenditures for the foreseeable future.

Marketable Securities

All marketable securities are included in the Company's balance sheet at current
fair market value. There was $3 of realized gains from the sale of marketable
securities for the three month period ended May 31, 2006. No realized gains or
losses occurred for the three month period ended May 31, 2005. There was $8 and
($40) of realized gains and losses for the nine month period ended May 31, 2006
and 2005, respectively. There were unrealized gains and losses of ($149) and $67
as of May 31, 2006 and 2005, respectively. There were no other-than-temporary
impairment charges recognized. The Company is carrying the investments at their
amortized costs and refunded the investment account for a loan of $800 from the
marketable securities account during the three month period ending May 31, 2006.


TRANSACTIONS WITH RELATED PARTIES

Transactions with related parties occurred in the normal course of operations
and are measured at the agreed amount, which is the amount of consideration
established and agreed to by the related parties (refer to Note 13 of the
accompanying consolidated financial statements).

The Company maintains various equipment and office leases with related
shareholders of the Company. Related party transactions in the three month
period ended May 31, 2006 and 2005 totaled $304 and $51, respectively. Related
party transactions in the nine month period ended May 31, 2006 and 2005 totaled
$764 and $349, respectively. The increase is due to one additional related party
operating lease and due to fair value rent increases as stated in each
respective agreement.




                                       36
<PAGE>
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

The following table summarizes our contractual obligations as of May 31, 2006:
<Table>
<Caption>
                                                                   Payments Due By
                                     ----------------------------------------------------------------------------
<S>                                  <C>             <C>             <C>           <C>              <C>
                                                      Less than                                       More than
Contractual obligation                  Total          1 year         1-2 years      3-5 years         5 years
                                     -----------     -----------     -----------    -----------     -------------
Long-term debt and capital
lease obligations                    $   12,985      $    3,248      $    8,139     $    1,598      $          -
Operating lease                           5,811           2,107           3,193            346               165
                                     -----------     -----------     -----------    -----------     -------------

Total                                $   18,796      $    5,355      $   11,332     $    1,944      $        165
                                     ===========     ===========     ===========    ===========     =============
</Table>
Operating leases represent the total future minimum lease payments.


OFF BALANCE SHEET ARRANGEMENTS

The Company does not have any material off balance sheet arrangements that have
or are reasonably likely to have a current or future effect on the Company's
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that
are material to investors. The Company will continue to evaluate what effect, if
any, the recognition and measurement provisions will have on its consolidated
financial statements and related disclosures in future periods.


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 9 to
the consolidated financial statements. Approximately 98% of the Company's debt
as of May 31, 2006 bears interest at variable rates. Based on amounts
outstanding at May 31, 2006, if the interest rate on the Company's variable debt
were to increase by 1.0%, annual interest expense would be higher by
approximately $478.


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.

The Company carries out ongoing procedures under the supervision and with the
participation of the Company's management, including the Company's Chief
Executive Officer and Chief Financial Officer, to evaluate the effectiveness of
the design and operation of the Company's disclosure controls and procedures.
Based on this evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Company's disclosure controls and procedures were
effective as of the period covered by this report. There have been no
significant changes in the Company's internal controls over financial reporting
or in other factors that are reasonably likely to significantly affect internal
control over financial reporting.


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.



                                       37
<PAGE>

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-KSB.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None

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

The Company's Annual Shareholder Meeting was held on April 13, 2006.
Shareholders ownling 8,813,560 shares of common stock were present at the
meeting, either in person or by proxy. Shareholders reelected the six Directors
nominated in the Proxy Statement to hold office until the next Annual
Shareholder Meeting. Shareholders ratified Somerset CPAs, P.C. as the Company's
independent auditors for the 2006 fiscal year. Shareholders approved the
adoption of the Company's 2006 Equity Incentive Plan. Additionally, shareholders
approved an amendment to the Company's Restated Articles of Incorporation to
change the name of the Company from Fortune Diversified Industries, Inc., to
Fortune Industries, Inc.

Results of shareholder voting are as follows:
<Table>
<Caption>
                                                                     For          Against
                                                                 ------------    ----------
<S>                                                              <C>             <C>           <C>
Election of Directors:
    Carter M. Fortune                                             8,807,020        6,540
    John F. Fisbeck                                               8,806,404        7,156
    Harlan M. Schafir                                             8,806,354        7,206
    Nolan R. Lackey                                               8,806,435        7,125
    David A. Berry                                                8,806,786        6,774
    P. Andy Rayl                                                  8,806,385        7,175

                                                                     For          Against          Withheld
                                                                 ------------    ----------     --------------
Ratification of Somerset CPAs, P.C. as the Company's
Independent Auditors                                              8,809,998        2,006            1,556


                                                                     For          Against          Withheld
                                                                 ------------    ----------     --------------
Adoption of the 2006 Equity Incentive Plan                        7,782,873        10,863         1,019,824


                                                                     For          Against          Withheld
                                                                 ------------    ----------     --------------
Amendment to the Articles of Incorporation changing the
Company's name to Fortune Industries, Inc.                        8,804,212        4,506            4,842
</Table>

ITEM 5. OTHER INFORMATION.

None



                                       38
<PAGE>
ITEM 6. EXHIBITS

The following exhibits are included herein:

Exhibits

3.1      Articles of Amendment to Restated Articles of Incorporation changing
         Registrant name from Fortune Diversified Industries, Inc., to Fortune
         Industries, Inc. (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) This exhibit is incorporated by reference from the Company's
         Current Report on Form 8-K, dated April 17, 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:  July 12, 2006                          By: /s/ John F. Fisbeck
                                              ---------------------------
                                              John F. Fisbeck,
                                              Chief Executive Officer



Date:  July 12, 2006                          By: /s/ Amy Gallo
                                              ---------------------------
                                              Amy Gallo,
                                              Chief Financial Officer



                                       39