United States Securities and Exchange Commission
                             Washington, D.C. 20549
                                   Form 10QSB

 (Mark One)

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

                For the quarterly period ended February 28, 2005

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

            For the transition period from __________ to ___________

Commission file number                  0-19049

                      Fortune Diversified Industries, Inc.
                       -----------------------------------
        (Exact name of small business issuer as specified in its charter)

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

                6402 Corporate Drive, Indianapolis, Indiana 46278
                -------------------------------------------------
                    (Address of principal executive offices)

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


              ----------------------------------------------------
              (Former name, former address and former fiscal year,
                          if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes  X   No
                                                              ---     ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: On April 13, 2005, there were
105,220,944 shares of the Company's Common Stock outstanding.

Transitional Small Business Disclosure Format (Check one):  Yes     No  X
                                                                ---    ---
<PAGE>

                      FORTUNE DIVERSIFIED INDUSTRIES, INC.
                                   FORM 10-QSB
                For The Quarterly Period Ended February 28, 2005

                                      INDEX

                                                                         Page(s)

PART  I.    Financial Information

   ITEM 1.  Financial Statements

            Consolidated Balance Sheets as of February 28, 2005
            (unaudited) and August 31, 2004                                1

            Consolidated Statements of Operations for the Six Months
            Ended February 28, 2005 and February 29, 2004 (unaudited)      2

            Consolidated Statements of Operations for the Three Months
            Ended February 28, 2005 and February 29, 2004 (unaudited)      3

            Consolidated Statements of Stockholders' Equity as of
            February 28, 2005 (unaudited) and August 31, 2004              4

            Consolidated Statements of Cash Flows for the Six Months
            Ended February 28, 2005 and February 29, 2004 (unaudited)      5

            Notes to Interim Consolidated Financial Statements             6

   ITEM 2.  Management's Discussion and Analysis of Financial
            Condition and Results of Operations                            20

   ITEM 3.  Controls and Procedures                                        27

PART II.    Other Information

   ITEM 1.  Legal Proceedings                                              27

   ITEM 2.  Changes in Securities and Use of Proceeds                      27

   ITEM 3.  Defaults upon Senior Securities                                27

   ITEM 4.  Submission of Matters to a Vote of Security Holders            27

   ITEM 5.  Other Information                                              27

   ITEM 6.  Exhibits and Reports on Form 8-K                               28

            Signatures                                                     29


<PAGE>

PART 1 - FINANCIAL INFORMATION

Item 1. Financial Statements.

              FORTUNE DIVERSIFIED INDUSTRIES, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN THOUSANDS)

                                     ASSETS
<TABLE>
<CAPTION>
                                                               Unaudited      Audited
                                                              February 28,   August 31,
                                                                  2005         2004
<S>                                                             <C>          <C>
CURRENT ASSETS
     Cash and equivalents                                       $  4,551     $  3,527
     Restricted savings account                                      210          210
     Available for sale investments                                2,131        1,959
     Accounts receivable, net                                     14,060       15,894
     Costs and estimated earnings in excess of billings
        on uncompleted contracts                                   2,099        1,879
     Inventory, net                                               10,460        9,746
     Deferred tax asset                                            1,014        1,014
     Other current assets                                            756          815
                                                                --------     --------
        Total Current Assets                                      35,281       35,044
                                                                --------     --------

OTHER ASSETS
     Property, plant & equipment, net                              4,014        4,038
     Goodwill                                                     11,162       10,192
     Other intangible assets, net                                  2,612        2,111
     Other long term assets                                          222          184
                                                                --------     --------
        Total Other Assets                                        18,010       16,525
                                                                --------     --------

        TOTAL ASSETS                                            $ 53,291     $ 51,569
                                                                ========     ========


                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
     Lines of credit                                            $  9,778     $  7,948
     Current maturities of long-term debt                          2,022        1,999
     Current maturities of long-term debt - related party            643           47
     Accounts payable                                              5,866        4,670
     Due to related party                                              3           29
     Health and workers' compensation reserves                     3,762        3,750
     Accrued expenses                                              3,918        5,242
     Income tax liability                                             44          172
     Billings in excess of costs and estimated earnings on
        uncompleted contracts                                      1,870        1,912
     Other current liabilities                                       100          101
                                                                --------     --------
        Total Current Liabilities                                 28,006       25,870
                                                                --------     --------

LONG-TERM LIABILITIES
     Line of credit - related party                             $  6,268     $  6,268
     Long-term debt - related party, less current maturities          85          106
     Long-term debt, less current maturities                       5,273        6,254
     Other long-term liabilities                                     253          253
                                                                --------     --------
        Total Long-term Liabilities                               11,879       12,881
                                                                --------     --------

STOCKHOLDERS' EQUITY
     Common stock                                                  1,021        1,008
     Additional paid-in capital and warrants outstanding          16,909       15,893
     Accumulated deficit                                          (4,710)      (4,089)
     Accumulated other comprehensive income                          186            6
                                                                --------     --------
        Total Stockholders' Equity                                13,406       12,818
                                                                --------     --------

        TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY              $ 53,291     $ 51,569
                                                                ========     ========
</TABLE>
See Accompanying Notes to Unaudited Interim Consolidated Financial Statements

                                       1
<PAGE>

              FORTUNE DIVERSIFIED INDUSTRIES, INC. AND SUBSIDIARIES


                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                    Six Months Ended
                                                               February 28,  February 29,
                                                                    2005        2004
<S>                                                              <C>          <C>
NET REVENUES BUSINESS SOLUTIONS SEGMENT (gross
        billings of $73,043,000 less worksite
        employee payroll cost of $62,745,000)                    $ 10,298     $  8,120
NET REVENUES WIRELESS INFRASTRUCTURE SERVICES                       5,023        4,497
NET REVENUE WIRELESS INFRASTRUCTURE PRODUCTS                       19,512           --
NET REVENUES MANUFACTURING AND DISTRIBUTION SEGMENT                10,364       10,399
                                                                 --------     --------
TOTAL NET REVENUES                                                 45,197       23,016

COST OF REVENUES BUSINESS SOLUTIONS SEGMENT                         7,984        6,537
COST OF REVENUES WIRELESS INFRASTRUCTURE SERVICES                   3,395        3,606
COST OF REVENUES WIRELESS INFRASTRUCTURE PRODUCTS                  17,701           --
COST OF REVENUES MANUFACTURING AND DISTRIBUTION SEGMENT             7,518        6,966
                                                                 --------     --------
TOTAL COST OF REVENUES                                             36,598       17,109
                                                                 --------     --------

GROSS PROFIT                                                        8,599        5,907

OPERATING EXPENSES
     Selling, general and administrative expenses                   7,998        4,659
     Depreciation and amortization                                    731          446
                                                                 --------     --------
        Total Operating Expenses                                    8,729        5,105
                                                                 --------     --------

OPERATING INCOME  (LOSS)                                             (130)         802
                                                                 --------     --------

OTHER INCOME (EXPENSE)
     Interest income                                                   18           30
     Interest expense                                                (589)        (189)
     Gain (loss) on investments in marketable securities, net         (42)          29
     Exchange rate gain                                                59           --
     Other income (expense)                                           127          (29)
                                                                 --------     --------
        Total Other Income (Expense)                                 (427)        (159)
                                                                 --------     --------

NET INCOME (LOSS) BEFORE PROVISION
  FOR INCOME TAXES                                                   (557)         643

PROVISION FOR INCOME TAXES                                             64           --
                                                                 --------     --------

NET INCOME (LOSS)                                                $   (621)    $    643
                                                                 ========     ========


BASIC INCOME (LOSS) PER SHARE                                    $  (0.01)    $   0.01
                                                                 ========     ========


DILUTED INCOME (LOSS) PER SHARE                                  $  (0.01)    $   0.01
                                                                 ========     ========
</TABLE>
See Accompanying Notes to Unaudited Interim Consolidated Financial Statements

                                       2
<PAGE>

              FORTUNE DIVERSIFIED INDUSTRIES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                            Three Months Ended
                                                         February 28,  February 29,
                                                             2005          2004
<S>                                                        <C>          <C>
NET REVENUES BUSINESS SOLUTION SEGMENT (gross
       billings of $38,455,000 less worksite
       employee payroll cost of $32,821,000)               $  5,634     $  5,294
NET REVENUE WIRELESS INFRASTRUCTURE SERVICES                  2,321        2,635
NET REVENUE WIRELESS INFRASTRUCTURE PRODUCTS                  7,514           --
NET REVENUE MANUFACTURING AND DISTRIBUTION SEGMENT            4,680        4,881
                                                           --------     --------

TOTAL NET REVENUES                                           20,149       12,810

COST OF REVENUES BUSINESS SOLUTIONS SEGMENT                   4,324        4,268
COST OF REVENUES WIRELESS INFRASTRUCTURE SERVICES             1,595        2,135
COST OF REVENUES WIRELESS INFRASTRUCTURE PRODUCTS             7,097           --
COST OF REVENUES MANUFACTURING AND DISTRIBUTION SEGMENT       3,424        3,255
                                                           --------     --------

TOTAL COST OF REVENUES                                       16,440        9,658

GROSS PROFIT                                                  3,709        3,152

OPERATING EXPENSES
    Selling, general and administrative expenses              4,445        2,457
    Depreciation and amortization                               354          231
                                                           --------     --------
       Total Operating Expenses                               4,799        2,688
                                                           --------     --------

OPERATING INCOME (LOSS)                                      (1,090)         464

OTHER INCOME (EXPENSE)
    Interest income                                              18           27
    Interest expense                                           (323)         (94)
    Loss on sales of investments in marketable
     securities, net                                            (13)          --
    Exchange rate gain                                           16           --
    Other income                                                 68           12
                                                           --------     --------
       Total Other Income (Expense)                            (234)         (55)
                                                           --------     --------

NET INCOME (LOSS) BEFORE PROVISION
  FOR INCOME TAXES                                           (1,324)         409

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

NET INCOME (LOSS)                                          $ (1,324)    $    409
                                                           ========     ========


BASIC INCOME (LOSS) PER SHARE                              $  (0.01)    $   0.00
                                                           ========     ========


DILUTED INCOME (LOSS) PER SHARE                            $  (0.01)    $   0.00
                                                           ========     ========
</TABLE>
See Accompanying Notes to Unaudited Interim Consolidated Financial Statements

                                       3
<PAGE>

              FORTUNE DIVERSIFIED INDUSTRIES, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                        Additional                           Accumulated
                                                      Paid-in Capital  Cost of  Accumulated     Other         Total    Comprehensive
                                              Common    and Warrants  Treasury   Earnings   Comprehensive  Stockholders    Income
                                               Stock    Outstanding    Stock     (Deficit)     Income         Equity       (Loss)

<S>                                           <C>         <C>           <C>       <C>          <C>           <C>           <C>
BALANCE AT AUGUST 31, 2004                    $  1,008    $ 15,893      $--       $ (4,089)    $      6      $ 12,818      $  2,523
                                              ========    ========      ====      ========     ========      ========      ========
Issuance of 1,334,500 shares of common
  stock for acquisitions                            13       1,016        --            --           --         1,029            --
Net loss                                            --          --        --          (621)          --          (621)         (621)
Translation adjustments, net of tax                 --          --        --            --           65            65            65
Net unrealized investments gains, net of tax        --          --        --            --          115           115           115
                                              --------    --------      ----      --------     --------      --------      --------

BALANCE AT FEBRUARY 28, 2005                  $  1,021    $ 16,909      $--       $ (4,710)    $    186      $ 13,406      $  2,082
                                              ========    ========      ====      ========     ========      ========      ========
</TABLE>




See Accompanying Notes to Unaudited Interim Consolidated Financial Statements


                                       4
<PAGE>

              FORTUNE DIVERSIFIED INDUSTRIES, INC. AND SUBSIDIARIES


                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                 Six Months Ended
                                                                             February 28,  February 29,
                                                                                2005          2004
<S>                                                                             <C>           <C>
OPERATING ACTIVITIES
     Net Income (Loss)                                                          $  (621)      $   643
     Adjustments to reconcile net income (loss) to net cash
      provided (used) by operating activities:
        Depreciation and amortization                                               731           446
        (Gain) loss on sale of investments                                           42           (29)
        Loss on disposal of fixed assets                                              5            --
        (Increase) decrease in certain operating assets:
            Accounts receivable                                                   2,204        (1,563)
            Costs and estimated earnings in excess of billings on
               uncompleted contracts                                               (220)           --
            Inventory                                                              (608)       (1,539)
            Other current assets                                                     60           (61)
            Other long term assets                                                  (43)           (2)
        Increase (decrease) in certain operating liabilities:
            Accounts payable                                                      1,052         1,880
            Accrued expenses and other current liabilities                       (1,634)         (392)
            Billings in excess of costs and estimated earnings on
               uncompleted contracts                                                (42)           --
            Health and workers' compensation reserves                                12           517
            Due to related party                                                    (26)           --
                                                                                -------       -------
               Net Cash Provided (Used) by Operating Activities                     912          (100)
                                                                                -------       -------

INVESTING ACTIVITIES
     Capital Expenditures                                                          (451)         (370)
     Purchases of available for sale securities                                     (99)       (2,010)
     Sales of available for sale securities                                          --           344
     Acquisition of productive assets and businesses, net of cash received         (690)        3,302
                                                                                -------       -------
               Net Cash Provided (Used) by Investing Activities                  (1,240)        1,266
                                                                                -------       -------

FINANCING ACTIVITIES
     Borrowings short term debt - related party                                     800            --
     Payments to related party                                                     (202)         (230)
     Net borrowings under line of credit                                          1,830           955
     Borrowings on long-term debt                                                    48           265
     Payments on long-term debt                                                  (1,168)         (450)
     Payments on long-term debt - related party                                     (21)           --
     Borrowings on long-term debt - related party                                    --           452
                                                                                -------       -------
               Net Cash Provided by Financing Activities                          1,287           992
                                                                                -------       -------

               Effect of exchange rate changes on cash                               65           238
                                                                                -------       -------


NET INCREASE IN CASH AND EQUIVALENTS                                              1,024         2,396

CASH AND EQUIVALENTS
     Beginning of Period                                                          3,527           885
                                                                                -------       -------

     End of Period                                                              $ 4,551       $ 3,281
                                                                                =======       =======


SUPPLEMENTAL DISCLOSURES
     Noncash investing and financing activities:
        Unrealized net (loss) gain on marketable securities                         115           (35)
        Interest paid                                                               356            99
</TABLE>
See Accompanying Notes to Unaudited Interim Consolidated Financial Statements

                                       5
<PAGE>

              FORTUNE DIVERSIFIED INDUSTRIES, INC. AND SUBSIDIARIES

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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 2004 annual report on Form 10-K filed by
Fortune Diversified Industries, Inc. (together with all its subsidiaries, the
"Company"). The accompanying unaudited consolidated financial statements have
been prepared by Fortune Diversified Industries, Inc. (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 six-month period ended February 28, 2005 are not
necessarily indicative of the operating results to be expected for the full
fiscal year.

Nature of Business: The Company is the parent company of Professional Staff
Management, Inc., Professional Staff Management, Inc. II and Pro Staff, Inc.
(collectively "PSM"); CSM, Inc. (CSM); Nor-Cote International, Inc. (Nor-Cote);
Kingston Sales Corporation (Kingston); Commercial Solutions, Inc. (Commercial
Solutions); James H. Drew Corp. (JH Drew); PDH, Inc. (PDH); Cornerstone Wireless
Services, Inc. (Cornerstone Wireless); Magtech Services, Inc. (Magtech);
Cornerstone Wireless Construction Services, Inc. (Cornerstone Construction);
Innovative Telecommunications Consultants, Inc. (ITC); Telecom Technology Corp.
(TTC); StarQuest Wireless Services, Inc. (StarQuest); Women of Wrestling, Inc.
(WOW); and Murphy Development, Ltd (Murphy).

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

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

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

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

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 Company's Manufacturing and Distribution
segment, revenue from the sale of products is recognized according to the terms
of the sales arrangement, which is generally upon shipment. Commission revenue
is recognized when realizable and earned, which is typically upon receipt of the
commission payment. Revenues are recognized, net of estimated costs of returns,
allowances and sales incentives, 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.

                                        6
<PAGE>

In its Wireless Infrastructure Segment, PDH, Cornerstone Wireless, Cornerstone
Construction, ITC, 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 six months.
The Company generally recognizes revenue utilizing output measures, such as when
services are performed, units are delivered or when contract milestones are
reached. Additionally, in the Wireless Infrastructure Segment, JH Drew, a
construction company, recognizes revenue using the percentage of completion
method on contracts in process. Under this method, the portion of the contract
price recognized as revenue is based on the ratio of costs incurred to the total
estimated costs 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 its Business Solutions Segment, PSM, a licensed Professional Employer
Organization (PEO), bills clients under its 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 coverages are
provided under the PSM 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 owes the government and its employment insurance vendors are based on the
experience levels and activity of PSM with no consideration to client detail.
There is no direct relationship between what PSM pays versus what is billed to a
client. PSM bills the client its worksite 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 cost of those items and yield a profit to PSM. 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 owes 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 are invoiced along with each periodic payroll
delivered to the client.

PSM reports revenues in accordance with Emerging Issues Task Force ("EITF") No.
99-19, Reporting Revenue Gross as a Principal versus Net as an Agent. PSM
reports 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 reports revenues on a gross basis for such fees because PSM is the
primary obligor and deemed to be the principal in these transactions under EITF
No. 99-19. However, PSM reports revenues on a net basis for the amount billed to
clients for worksite employee salaries and wages. The Company as a result of
recommendations by the Securities and Exchange Commission staff to public
companies in the PEO industry subject to reporting requirements under section 13
or 15(d) of the Securities Exchange Act of 1934, adopted this accounting policy
of reporting revenues net as an agent. 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 accounts for their revenues using the accrual method of accounting. Under
the accrual method of accounting, PSM recognizes their revenues in the period in
which the worksite employee performs work. PSM accrues revenues for service PSM
accounts for their revenues using the accrual method of accounting. Under the
accrual method of accounting, PSM recognizes their revenues in the period in
which the worksite employee performs work. PSM accrues 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 accrues unbilled receivables for payroll
and 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 year, such costs are paid and the related service
fees are billed.

                                        7
<PAGE>

Consistent with its revenue recognition policy, PSM'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. The Company acquired another PEO, CSM, on April 5, 2005 as
disclosed in Note 2. CSM generally follows the same revenue recognition policy
as PSM.

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 and 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" in accordance with the provisions of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities". The securities are carried at fair value based on current
market quotations. Unrealized holding gains and losses, net of tax, are not
included in "net income", but are accounted for as "other comprehensive income"
and reflected as a separate component of the change in stockholders' equity. The
cost of securities used to compute realized gains and losses is based on
specifically identified securities. The fair value of investment securities is
determined by currently available market prices. 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 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's JH
Drew, Kingston and Commercial Solutions subsidiaries record finished goods
inventory on an average cost basis.

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

Property, Equipment, and Depreciation: Property and equipment are carried at
cost and includes expenditures for new additions and those, which substantially
increase the useful lives of existing assets. Depreciation is computed at
various rates by use of the straight-line method and certain accelerated
methods. Depreciable lives are generally ranging from 3 to 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 year
of disposal with the resulting gain or loss reflected in earnings or in the cost
of the replacement asset. The provision for depreciation amounted to $528,000
for the six months ended February 28, 2005.

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

The Company has elected to perform the annual impairment test of recorded
goodwill as required by SFAS 142 as of August 31, the Company's fiscal year-end.
The results of the most recent impairment test indicated that the fair value of
each of the reporting units as of August 31, 2004, exceeded their respective
carrying, or book values, including goodwill, and therefore recorded goodwill
was not subject to impairment.

                                        8
<PAGE>

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

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 SFAS No. 123(R),
"Share-Based Payment," which is a revision of SFAS No. 123, Accounting for
Stock-Based Compensation. SFAS No. 123(R) is effective for public companies for
interim or annual periods beginning after June 15, 2005, supersedes APB Opinion
No. 25, Accounting for Stock Issued to Employees, and amends SFAS No. 95,
Statement of Cash Flows. SFAS No. 123(R) requires all share-based payments to
employees, including grants of employee stock options, to be recognized in the
income statement based on their fair values. Pro-forma disclosure is no longer
an alternative. The new standard will be effective for the Company, beginning
July 1, 2005. The Company has not yet completed their evaluation and expects the
adoption to have no effect on the consolidated financial statements.

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

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

Research and Development Costs: Research and development costs are expensed as
incurred and totaled $243,000 for the six month period ended February 28, 2005.
Research and development expense is recorded in the Company's Nor-Cote
subsidiary.

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
expense when incurred. The Company has purchased insurance which limits its
annual exposure for individual claims to $40,000 and which limits its aggregate
annual exposure to approximately $460,000.

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 $175,000
per employee, with an aggregate liability limit of approximately $11,150,000.
The liability limits are adjusted monthly, based on the number of participants.

                                        9
<PAGE>

NOTE 2 - ACQUISITIONS

Ink Source, Inc.
----------------
The Company's Nor-Cote subsidiary, acquired certain assets and assumed certain
liabilities of Ink Source through an asset purchase agreement entered into as of
September 30, 2004 by and among Ink Source, Inc. a Wisconsin corporation
("Seller"), Michael Sloan ("Shareholder") and Nor-Cote International, Inc., an
Indiana corporation ("Purchaser). Purchased assets in the agreement include at
the minimum goodwill, customer lists, customer deposits, proprietary property
and products, prepaid expenses, software, furniture, equipment, machinery and
other intellectual property, to its Nor-Cote subsidiary. Nor-Cote accepted and
assumed $239,747 of specifically identified accounts payable and bank debt. In
addition to the assumed liabilities, the consideration given for the acquired
assets was $220,000, which includes a non-compete agreement with Michael Sloan.
Additionally, 400,000 restricted shares of the Company's common stock vest per
the employment agreement with Michael Sloan in two years based upon certain
sales volume within the Ink Source division, as defined in the agreement. The
purchase price includes $360,000 of contingent stock consideration. This amount
consists of 400,000 shares valued at the closing price of the Company's stock on
the date of purchase at $.90 share. The contingent stock consideration is
included as a component of the purchase price in accordance with Emerging Issues
Task Force 95-8, "Accounting for Contingent Consideration Paid to the
Shareholders of an Acquired Enterprise in a Purchase Business Combination,"
under arrangements not affected by employment termination. The consideration is
included in permanent equity under SFAS 141 as management of the Company deems
likelihood that payment of such contingent consideration is beyond a reasonable
doubt.

Ink Source provides technology in Ultra Violet point of purchase (POP) inks to
round out the suite of ink products provided by Nor-Cote.

MAGTECH Services, Inc.
----------------------
In November 2004, the Company acquired all of the assets and certain liabilities
of Magtech pursuant to an Asset Purchase Agreement effective November 1, 2004.
The acquired assets include all fixed assets, accounts receivable, certain
intangible assets, sales proposals and like documents and contracts. The Company
accepted and assumed certain specific accounts payable and all of Sellers'
rights and executory obligations under the Assumed Contracts, as defined in the
Asset Purchase Agreement, to be performed after the Closing Date (excluding any
obligations or liabilities of Sellers under any Assumed Contracts that were to
have been performed, fulfilled or satisfied on or prior to the Closing Date). In
addition to the assumed liabilities, the consideration given for the acquired
assets was $445,213 cash and 484,500 restricted shares of the Company's stock.
Of the 484,500 shares, 84,500 shares shall vest immediately in Seller and the
remaining 400,000 shares are contingent upon certain EBIT requirements through
the period November 1, 2004 to October 31, 2006, as defined in the agreement.
The 484,500 shares are valued at the closing price of the Company's stock on the
date of purchase at $.70 share. The contingent stock consideration is included
as a component of the purchase price in accordance with Emerging Issues Task
Force 95-8, "Accounting for Contingent Consideration Paid to the Shareholders of
an Acquired Enterprise in a Purchase Business Combination," under arrangements
not affected by employment termination. The consideration is included in
permanent equity under SFAS 141 as management of the Company deems likelihood
that payment of such contingent consideration is beyond a reasonable doubt.
Magtech operates in the Company's Wireless Infrastructure segment.


EI Solution, Inc.
------------------
The Company's ITC subsidiary acquired all of the assets of EI Solution, Inc.
pursuant to an Asset Purchase Agreement effective February 28, 2005. The
acquired assets include personnel, certain intangible assets, sales proposals
and like documents and contracts. The consideration given for the acquired
assets was $175,000 cash and 450,000 restricted shares of the Company's stock.
Of the 450,000 shares, 250,000 shares shall vest immediately in Seller and the
remaining 200,000 shares are contingent upon certain sales requirements through
the period March 1, 2005 to February 28, 2006, as defined in the agreement. The
450,000 shares are valued at the closing price of the Company's stock on the
date of purchase at $.40 share. The contingent stock consideration is included
as a component of the purchase price in accordance with Emerging Issues Task
Force 95-8, "Accounting for Contingent Consideration Paid to the Shareholders of
an Acquired Enterprise in a Purchase Business Combination," under arrangements
not affected by employment termination. The consideration is included in
permanent equity under SFAS 141 as management of the Company deems likelihood
that payment of such contingent consideration is beyond a reasonable doubt. EI
Solution operates in the Company's Wireless Infrastructure segment under ITC's
name and management team.

                                       10
<PAGE>

NOTE 2 - ACQUISITIONS (CONTINUED)

      Ink-Source:

         Accounts receivable, net                              $       66
         Inventory, net                                               106
         Property and equipment                                        57
         Goodwill                                                     373
         Intangible assets                                            342
                                                               ----------
                                                                      944
                                                               ----------

       Accounts payable                                                80
         Notes Payable                                                160
         Other accrued liabilities                                    124
                                                               ----------
                                                                      364
                                                               ----------
                                                               $      580
                                                               ==========

         Cash consideration                                    $      220

         Fair value of common stock consideration                     360
                                                               ----------
                                                               $      580
                                                               ==========

      Magtech:

         Accounts receivable, net                              $      304
         Other current assets                                         151
         Property and equipment                                         6
         Goodwill                                                     327
         Intangible assets                                            102
                                                               ----------
                                                                      890
                                                               ----------

         Accounts payable                                              64
         Other accrued liabilities                                     42
                                                               ----------
                                                                      106
                                                               ----------
                                                               $      784
                                                               ==========

         Cash consideration                                    $      445

         Fair value of common stock consideration                     339
                                                               ----------
                                                                  $   784
                                                               ==========

      EI Solutions:

         Goodwill                                                     270
         Intangible assets                                            250
                                                               ----------
                                                                      520
                                                               ----------

       Other accrued liabilities                                       15
                                                               ----------
                                                                       15
                                                               ----------
                                                               $      505
                                                               ==========


      Cash consideration                                       $      175

      Fair value of common stock consideration                        330
                                                               ----------
                                                               $      505
                                                               ==========

                                       11
<PAGE>

NOTE 2 - ACQUISITIONS (CONTINUED)

Effective April 5, 2005, the Company acquired CSM, pursuant to an Agreement and
Plan of Merger by and between the Company, CSM, CSM Merger Corporation, Carter
M. Fortune, Marc Fortune, Greg Daily, Harbinger Mezzanine Partners, L.P., Doug
Altenbern, Jeff Gould, Bob Boston, and Don Denbo. CSM is the holding company for
Century II Staffing, Inc. and other related subsidiary entities. Century II is a
professional employer organization that is based in Tennessee. The terms of the
Agreement include, among other things, the payment of approximately $2 million
by the Company to retire certain debts owed by CSM, the payment of approximately
$650,000 in cash by the Company to the shareholders of CSM, a portion of which
shall be held in escrow for payment of certain tax debts that may be owed by
CSM, and the issuance of 1,500,000 shares of the Company's Common Stock to be
held in escrow until such time as the shares may be earned by the shareholders
of CSM upon the achievement of certain financial performance measures by Century
II.

The following unaudited pro forma data summarize the results of operations for
the periods indicated as if the CSM, Ink Source, Magtech, EI Solution, JH Drew,
ITC, Commercial Solutions and PSM acquisitions 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 (dollars in thousands)
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.

                                              Six months         Six months
                                                Ended              Ended
                                             February 28,       February 29,
                                                 2005               2004
                                             -------------      -------------

Net revenue                                  $      53,260      $      56,703
Cost of revenues                                    43,286             45,454
                                             -------------      -------------

Gross profit                                         9,974             11,249
Operating expenses                                  10,451              9,793
                                             -------------      -------------

Operating income (loss)                               (477)             1,456
Other income (expenses)                               (598)              (605)
                                             -------------      -------------

Net Income (Loss)                                   (1,075)               851
Dividends                                               --                 --
                                             -------------      -------------

Net Income (Loss) Available for Common
 Stockholders                                $      (1,075)     $         851
                                             =============      =============

Basic Income (Loss) Per Share:               $        (.01)     $         .01
                                             =============      =============

Diluted Income (Loss) Per Share:             $        (.01)     $         .01
                                             =============      =============

Shares Outstanding:

Basic weighted average number of common
shares outstanding                             105,220,944        105,220,444
Dilutive effect of conversion of options                --                 --
                                             -------------      -------------

         Total Shares Outstanding              105,220,944        105,220,444
                                             =============      =============


                                       12
<PAGE>

NOTE 3 - ACCOUNTS RECEIVABLE AND CONTRACTS RECEIVABLE

Accounts receivable and contracts receivable include the following (amounts in
thousands):

                                                   Unaudited          Audited
                                                  February 28,       August 31,
                                                     2005               2004
                                                   ---------         ---------
     Amounts currently due                            $9,786           $12,005
     Contracts in process

         Progress billing                              3,822             4,560
         Retainages                                    1,707               576
                                                   ---------         ---------
                                                      15,315            17,141

     Less allowance for doubtful accounts             (1,120)           (1,112)
     Less allowance for sales returns                   (135)             (135)
                                                   ---------         ---------
                                                     $14,060           $15,894
                                                   ==========        =========


NOTE 4 - COSTS AND BILLINGS ON UNCOMPLETED CONTRACTS

Information related to contracts in progress are as follows (amounts in
thousands):

                                                   Unaudited          Audited
                                                  February 28,       August 31,
                                                     2005               2004
                                                   ---------         ---------

Costs incurred on uncompleted contracts            $  28,078         $  24,475
Estimated earnings recognized to date on
    uncompleted contracts                              6,450             5,502
                                                   ---------         ---------
                                                      34,528            29,977

Less billings on uncompleted contracts               (34,299)          (30,010)
                                                   ---------         ---------

               Net                                 $     229              ($33)
                                                   =========         =========


The net amount is included in the accompanying consolidated balance sheets under
the following captions (amounts in thousands):

                                                   Unaudited          Audited
                                                  February 28,       August 31,
                                                     2005               2004
                                                   ---------         ---------

Costs and estimated earnings in excess of billings
     on uncompleted contracts                      $   2,099         $   1,879
Billings in excess of costs and estimated earnings
     on uncompleted contracts                          1,870             1,912
                                                   ---------         ---------
                                                   $     229              ($33)
                                                   =========         =========

NOTE 5 - INVENTORIES

Inventories reflected on the accompanying consolidated balance sheets are
summarized as follows (amounts in thousands):

                                                   Unaudited          Audited
                                                  February 28,       August 31,
                                                     2005               2004
                                                   ---------         ---------

Raw materials                                      $     758         $     559
Work-in-process                                           23                12
Finished goods                                         9,979             9,425
Less inventory reserve                                  (300)             (250)
                                                   ---------         ---------
                                                   $  10,460         $   9,746
                                                   =========         =========

                                       13
<PAGE>

NOTE 6 - PROPERTY AND EQUIPMENT

Property and equipment, including capital leases, is comprised of the following
(amounts in thousands):

                                                   Unaudited          Audited
                                                  February 28,       August 31,
                                                     2005               2004
                                                   ---------         ---------
Land and building                                  $   1,938         $   1,903
Machinery and equipment                                4,784             5,181
Research equipment                                       383               380
Office equipment                                       3,184             2,943
Vehicles                                               3,087             3,631
Leasehold improvements                                   146               151
                                                   ---------         ---------
                                                      13,522            14,189

Less accumulated depreciation                         (9,508)          (10,151)
                                                   ---------         ---------
                                                   $   4,014         $   4,038
                                                   =========         =========

NOTE 7 - GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the carrying amount of goodwill, as reclassified for the adoption
of SFAS 142, are as follows (amounts in thousands) :
<TABLE>
<CAPTION>


                           BUSINESS      MANUFACTURING AND         WIRELESS         HOLDING       SEGMENT
                           SOLUTIONS        DISTRIBUTION        INFRASTRUCTURE      COMPANY       TOTALS
                          -----------       ------------        ---------------     -------       ------
<S>                         <C>               <C>                 <C>               <C>  <C>     <C>
     Goodwill
     at August
     31, 2004               $ 3,580           $ 5,957             $     655         $   -0-      $ 10,192

     Goodwill
     Acquired                   -0-               373                   597             -0-           970

     Impairment
     losses                     -0-               -0-                   -0-             -0-           -0-
                            -------           -------             ---------         -------      --------
     Goodwill
     at February
     28, 2005               $ 3,580           $  6,330            $   1,252         $   -0-      $ 11,162
                            =======           ========            =========         =======      ========
</TABLE>

The total amount of goodwill that is deductible for tax purposes is $2,328 at
February 28, 2005.

The following table sets forth the gross carrying amount and accumulated
amortization of the Company's intangible assets (amounts in thousands):
<TABLE>
<CAPTION>
                                                   AT FEBRUARY 28, 2005                            AT AUGUST 31, 2004
                                         ----------------------------------------      ------------------------------------------
                                                                         WEIGHTED                                        WEIGHTED
                                           GROSS                         AVERAGE        GROSS                            AVERAGE
                                          CARRYING        ACCUMULATED     AMORT        CARRYING         ACCUMULATED       AMORT
                                           AMOUNT        AMORTIZATION    PERIOD         AMOUNT         AMORTIZATION      PERIOD
                                         ----------      ------------     ------       ---------       ------------      ------
<S>                                       <C>               <C>            <C>          <C>             <C>              <C>
     Customer Relationships                 $ 2,068        $      340     10 YRS        $ 1,824         $     239        10 YRS

     Non-compete                                234               151      4 YRS            234               122        4 YRS

     Non-compete                                399               113      5 YRS            399                73        5 YRS

     Non-compete                                100                27      3 YRS            100                12        3 YRS

     Non-compete                                200                 8     10 YRS            -0-               -0-        0 YRS

     Non-compete                                250                 0      4 YRS            -0-               -0-        0 YRS

                                         ----------        ----------     ------       ----------        ----------       ------
     Total                                $   3,251         $     639      8 YRS        $ 2,557         $     446        7 YRS
                                         ==========        ==========     ======       ==========        ==========       ======
</TABLE>

                                       14
<PAGE>

NOTE 7 - GOODWILL AND OTHER INTANGIBLE ASSETS  (CONTINUED)

Intangible asset amortization expense for the six months ended February 28, 2005
was $203,000 which includes $10,000 of amortization related to loan origination
fees.

Amortization expense on intangible assets currently owned by the Company at
     February 28, 2005 for each of the next five fiscal years are approximately
     as follows (amounts in thousands):

                     2006                                      457
                     2007                                      457
                     2008                                      392
                     2009                                      368
                     2010                                      233
              2011 and thereafter                              705
                                                            ------

                        Total                               $2,612
                                                            ======


NOTE 8 - LINES OF CREDIT AND DEBT ARRANGEMENTS

Lines of Credit:

Effective February 28, 2005, the Company entered into an agreement with the bank
for a $13.0 million revolving line of credit available through February 28,
2006. Interest on the line is charged at .5% less than the credit facility's
Prime Rate. Subsequent to February 28, 2005 the funds from this line of credit
are to be used to pay off all of the Company's other lines of credit with the
same bank. As of February 28, 2005 $0 was borrowed on this line of credit.

The Company has a $1.3 million line of credit available through February 28,
2005. Interest on the line is charged at .5% less than the credit facility's
Prime Rate. Outstanding borrowings amounted to $1.11 million at February 28,
2005 and $909,000 at August 31, 2004.

The Company has a $1.6 million line of credit available through February 28,
2005. Interest on the line is charged at .5% less than the credit facility's
Prime Rate. Outstanding borrowings amounted to $1.473 million at February 28,
2005 and $1.383 million at August 31, 2004.

The Company has a $3.0 million line of credit available through February 28,
2005. Interest on the line is charged at .5% less than the credit facility's
Prime Rate. Outstanding borrowings amounted to $3.0 million at February 28, 2005
and $1.621 million at August 31, 2004.

The Company has a $5.0 million line of credit available through February 28,
2005. Interest on the line is charged at the credit facility's Prime Rate less
..5%. Outstanding borrowings amounted to $4.195 million at February 28, 2005 and
$4.035 August 31, 2004.

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

The Company also has a $6.5 million long-term unsecured line of credit with a
stockholder available through May 1, 2007. Interest on the line is charged at 3%
plus the one-month London Interbank Offered Rate (one-month LIBOR). Outstanding
borrowings amounted to $6.268 million at February 28, 2005 and August 31, 2004.

Total unused lines of credit amounted to approximately $3.454 million at
February 28, 2005.

Other Debt Arrangements:
------------------------

The Company borrowed $600,000 from a stockholder on December 15, 2004. The terms
of the promissory note agreement dated December 15, 2004 include borrowings of
$600,000 to be paid by May 1, 2005. Interest is payable monthly at an annual
percentage rate of 6.5%.

Long-term debt arrangements:
----------------------------

         Long-term debt consisted of the following (amounts in thousands):
<TABLE>
<CAPTION>
                                                                                             Unaudited              Audited
                                                                                            February 28,           August 31,
                                                                                                2005                  2004
                                                                                            ------------           ----------
<S>                                                                                             <C>                       <C>
Notes payable to financial institutions:
----------------------------------------

     $2,400 reducing term loan with monthly line reductions equal to 1/60th of
     the loan amount through maturity date, July 15, 2009. Interest is variable
     at .5% less



                                                              15
<PAGE>

NOTE 8 - LINES OF CREDIT AND DEBT ARRANGEMENTS  (CONTINUED)

                                                                                             Unaudited              Audited
                                                                                            February 28,           August 31,
                                                                                                2005                  2004
                                                                                            ------------           ----------
     than the credit facility's Prime Rate.  The loan is
     secured by the business assets of Kingston, with a
     second lien on assets pledged by a stockholder.                                               $0                $2,400

     $2,160 reducing term loan with monthly line reductions equal to 1/54th of
     the loan amount through maturity date, June 15, 2009. Interest is variable
     at .5% less than the credit facility's Prime Rate. The loan is secured by
     the business assets of the Company, with a
     second lien on assets pledged by a stockholder.                                            2,160                     0

     $1,200 reducing term loan with monthly line reductions equal to 1/24th of
     the loan amount through maturity date, March 31, 2007. Interest is variable
     at .5% less than the credit facility's Prime Rate. The loan is secured by
     the business assets of the Company, with a
     second lien on assets pledged by a stockholder.                                                0                     0

     $2,000 reducing term loan with monthly line reductions equal to 1/60th of
     the loan amount through maturity date, July 15, 2009. Interest is variable
     at .5% less than the credit facility's Prime Rate. The loan is secured by
     the business assets of Nor-Cote, with a
     second lien on assets pledged by a stockholder.                                                0                 2,000

     $1,800 reducing term loan with monthly line reductions equal to 1/54th of
     the loan amount through maturity date, June 15, 2009. Interest is variable
     at .5% less than the credit facility's Prime Rate. The loan is secured by
     the business assets of the Company, with a
     second lien on assets pledged by a stockholder.                                            1,800                     0

     $1,950 secured term loan with monthly line reductions equal to 1/60th of
     the loan amount through maturity date 4/30/2009. Interest is variable at
     Prime rate less .5%. The loan is secured by the business assets of JH Drew,
     with guarantees by the Company's majority stockholder
     and a different stockholder.                                                                   0                 1,853

     $1,690 secured term loan with monthly line reductions equal to 1/54th of
     the loan amount through maturity date 4/30/2009. Interest is variable at
     Prime rate less .5%. The loan is secured by the business assets of the
     Company, with guarantees by the Company's majority stockholder
     and a different stockholder.                                                               1,660                     0

     $2,050 secured term loan with monthly line reductions equal to 1/36th of
     the loan amount through maturity date 4/30/2007. Interest is variable at
     Prime rate less .5%. The loan is secured by the business assets of JH Drew,
     with guarantees by the Company, the Company's majority
     stockholder and a different stockholder.                                                    0                    1,879

     $1,594 secured term loan with monthly line reductions equal to 1/30th of
     the loan amount through maturity date 4/30/2007. Interest is variable at
     Prime rate less .5%. The loan is secured by the business assets of the
     Company, with guarantees by the Company's majority stockholder and
     a different stockholder.                                                                   1,540                     0

     Due in monthly installments of $2.105, including interest at ranges from
     4.9% to 9.03% through October 2007.
     Secured by vehicles.                                                                          32                    23


Debt with stockholder:
----------------------

     Due in monthly installments of $3.637, including interest at 4.00% through
     September 2008.
     Secured by vehicles.                                                                         128                   153

                                                              16
<PAGE>

                                                                                             Unaudited              Audited
                                                                                            February 28,           August 31,
                                                                                                2005                  2004
                                                                                            ------------           ----------
Capital Leases:

     Due in monthly installments of $5.472, including interest at 4.00% through
     February 2007.
     Secured by vehicles and equipment.                                                           103                    98
                                                                                              -------               -------
                                                                                                7,423                 8,406
     Less current maturities                                                                   (2,065)               (2,046)
                                                                                              -------               -------
                                                                                              $ 5,358               $ 6,360
                                                                                              =======               =======
</TABLE>

Principal payments due on long-term debt outstanding at February 28, 2005 are
approximately as follows (amounts in thousands):
<TABLE>
<CAPTION>
<S>                    <C>                                                                    <C>
                       2006                                                                     2,065
                       2007                                                                     2,024
                       2008                                                                     1,496
                       2009                                                                     1,289
                       2010                                                                       549
                       2011 & thereafter                                                            0
                                                                                              -------
                                                                                              $ 7,423
                                                                                              =======
</TABLE>

NOTE 9 - STOCKHOLDERS' EQUITY

The following are the details of the Company's common stock as of February 28,
2005 and August 31, 2004:

                                              Number of Shares
                                 ----------------------------------------------
                                 Authorized     Issued     Outstanding   Amount
                                 ----------     ------     -----------   ------
February 28, 2005 (Unaudited)
Common stock, $0.01 par value    150,000,000  103,720,944  103,720,944  $ 1,021
                                                                        =======
August 31, 2004 (Audited)
Common stock, $0.01 par value    150,000,000  102,386,444  102,386,444  $ 1,008
                                                                        =======

NOTE 10 - INCOME TAXES

The reconciliation for 2004 and 2003 of income tax expense (benefit) computed at
the U.S. Federal statutory tax rate to the Company's effective income rate is as
follows:

                                                   Unaudited       Audited
                                                  February 28,    August 31,
                                                     2005            2004
                                                   --------       --------

Tax at U.S. Federal statutory rate                    34.0%          34.0%
State and local taxes, net of federal benefit          5.6            5.8
Other                                                  0.0            1.4
Change in valuation allowance                        (39.6)         (73.3)
                                                   --------       --------
                                                      0.0%         (32.1)%
                                                   ========       ========

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

                                                   Unaudited       Audited
                                                  February 28,    August 31,
                                                     2005            2004
                                                   --------       --------
Current:
   Federal                                         $   (186)      $    690
   State                                                (30)           172
                                                   --------       --------
                                                       (216)           862
                                                   --------       --------

                                       17
<PAGE>

NOTE 10 - INCOME TAXES (CONTINUED)


Deferred:
   Federal                                              (12)           (55)
   State                                                 (2)            (3)
                                                   --------       --------
                                                        (14)           804
                                                   --------       --------
Change in valuation allowance                           294         (1,257)
                                                   --------       --------
et income tax (benefit)                            $     64       $   (453)
                                                   ========       ========


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:

                                                      (amounts in thousands)
                                                    Unaudited       Audited
                                                   February 28,    August 31,
                                                       2005           2004
                                                   ------------    ----------
Deferred Tax Assets:
 Current:
  Allowances for doubtful accounts and inventory     $   212        $   156
  Accrued liabilities and other                           358           446
 Noncurrent:
  Amortization of covenants                                57            50
  Depreciation                                            284           170
  Net operating losses and other carryforwards          2,492         2,287
                                                      -------       -------
                                                        3,403         3,109
 Valuation allowance                                   (2,389)       (2,095)
                                                      -------       -------
                                                        1,014         1,014
                                                      =======       =======
Deferred tax liabilities:
 Noncurrent:
  Depreciation                                             --            --
                                                      -------       -------
                                                           --            --
                                                      -------       -------
                                                      $ 1,014       $ 1,014
                                                      =======       =======

SFAS 109 requires a valuation allowance to reduce the deferred tax assets
reported if, at February 28, 2005, 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 $2,389 valuation allowance at February 28, 2005 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
$294. At February 28, 2005 the Company has federal net operating loss
carryforwards of approximately $4,950 which expire during the years of 2020,
2021, 2022 and 2023. The state tax operating loss carryforwards were
approximately $500. 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 and it expires in the fiscal year
ending August 31, 2007. The Company also incurred net operating losses related
to European operations that can be carried forward indefinitely.


NOTE 11 - PER SHARE DATA

The following presents the computation of basic income per share and diluted
income per share (amounts in thousands):

                                       18
<PAGE>

NOTE 11 - PER SHARE DATA (CONTINUED)
<TABLE>
<CAPTION>
                                                             Unaudited              Unaudited
                                                            Three Months           Three Months
                                                               Ended                  Ended
                                                            February 28,           February 29,
                                                                2005                   2004
                                                            -------------          -------------
<S>                                                           <C>                     <C>
Net Income (Loss) Available for Common
     Stockholders                                                 ($1,324)         $         409
                                                            =============          =============

Basic Income (Loss) Per Share:                                     ($0.01)         $        0.00

Diluted Income (Loss) Per Share:                                   ($0.01)         $        0.00


Shares Outstanding:
     Basic weighted average number of common shares
       outstanding                                            103,185,594             95,964,463
     Dilutive effect of conversion of options                     400,000                     --
                                                            -------------          -------------

         Total Shares Outstanding                             103,585,594             95,964,463
                                                            =============          =============
</TABLE>
<TABLE>
<CAPTION>
                                                             Unaudited              Unaudited
                                                             Six Months             Six Months
                                                               Ended                  Ended
                                                            February 28,           February 29,
                                                                2005                   2004
                                                            -------------          -------------
<S>                                                           <C>                     <C>

Net Income (Loss)                                                   ($621)         $         643
Dividends                                                              --                     --
                                                            -------------          -------------

Net Income (Loss) Available for Common
     Stockholders                                                   ($621)         $         643
                                                            =============          =============


Basic Income (Loss) Per Share:                                     ($0.01)               $  0.01

Diluted Income (Loss) Per Share:                                   ($0.01)               $  0.01


Shares Outstanding:
     Basic weighted average number of common shares
       outstanding                                            103,185,594             95,964,463
     Dilutive effect of conversion of options                     400,000                     --
                                                            -------------          -------------

         Total Shares Outstanding                             103,043,444             95,964,463
                                                            =============          =============
</TABLE>
At February 28, 2005 all common stock equivalents were anti-dilutive.


NOTE 12 - RELATED PARTY TRANSACTIONS

The Company leases office and warehouse space from a related party entity. All
of the Company's subsidiaries, excluding JH Drew, Nor-Cote and PSM are located
in the facility. The lease agreement includes a five-year term with one option
to extend the lease term for a one-year period. The agreement provides for base
rent of $20,000 plus 1% of the gross revenues of the Company's Commercial
Solution's subsidiary. Following the first twelve-month period, the base rent
shall be adjusted annually to fair market value. In addition the Company shall
pay certain expenses including taxes, assessments, maintenance and repairs. The
Company recognized rent expense of approximately $196,000 for the six months
ended February 28, 2005.

                                       19
<PAGE>

NOTE 12 - RELATED PARTY TRANSACTIONS (CONTINUED)


The Company's JH Drew subsidiary leases three buildings located in Indiana,
Tennessee and Missouri with the same related party. The lease agreement includes
a five-year term with one option to extend the lease term for a one-year period
and provides for base rent of $15,000. Following the first twelve-month period,
the base rent shall be adjusted annually to fair market value. In addition the
Company shall pay certain expenses including taxes, assessments, maintenance and
repairs. The Company recognized expense of approximately $90,000 for the six
months ended February 28, 2005.

The related party in the previous paragraphs is considered a variable interest
entity by the Company. FIN 46, Consolidation of Variable Interest Entities,
clarifies the application of Accounting Research Bulletin No. 51, "Consolidated
Financial Statements," to certain entities in which equity investors do not have
the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. For variable
interest entities other than special-purpose entities, the provisions of FIN 46,
as amended, are applicable no later than March 31, 2004. Consolidation is not
required since the variable interest entity has sufficient equity at risk to
finance its activities without additional subordinated financial support from
other parties.

The Company borrowed $600,000 from a stockholder on December 15, 2004. The terms
of the promissory note agreement dated December 15, 2004 include borrowings of
$600,000 to be paid by May 1, 2005. Interest is payable monthly at an annual
percentage rate of 6.5%.

Following is a summary of all related party assets and (liabilities) included in
the consolidated balance sheets at February 28, 2005 and August 31, 2004
(amounts in thousands):

                                            February 28,         August 31,
                                                2005                2004
                                            -----------          ----------
      Due to shareholders                          (3)                (29)
      Long-term line of credit                 (6,268)             (6,268)
      Promissory notes payable                   (600)                 --
      Installment notes payable                  (128)               (153)
                                              -------             -------
      Net assets (liabilities)                $(6,999)            $(6,450)
                                              =======             =======


NOTE 13 - SUBSEQUENT EVENTS

Effective April 5, 2005, The Company acquired CSM as disclosed in Note 2.






                                       20
<PAGE>

NOTE 14 - SEGMENT INFORMATION

<TABLE>
<CAPTION>
                                                      Professional   Manufacturing
                                                       Business          and          Wireless         Holding         Segment
                                                       Solutions     Distribution   Infrastructure     Company         Totals
<S>                                                     <C>            <C>             <C>             <C>             <C>
Three Months Ended February 28, 2005
Net revenues                                            $  5,634       $  4,680        $  9,835        $     --        $ 20,149
Cost of revenues                                           4,324          3,424           8,692              --          16,440
                                                        --------       --------        --------        --------        --------
Gross profit                                               1,310          1,256           1,143              --           3,709
Operating expenses
   Selling, general and administrative expenses              745          1,647           1,572             481           4,445
   Depreciation and amortization                              42            154             138              20             354
                                                        --------       --------        --------        --------        --------
     Total operating expense                                 787          1,801           1,710             501           4,799
                                                        --------       --------        --------        --------        --------

Segment operating income (loss)                         $    523       $   (545)       $   (567)       $   (501)       $ (1,090)
                                                        ========       ========        ========        ========        ========

Six Months Ended February 28, 2005
Net revenues                                            $ 10,298       $ 10,364        $ 24,535        $     --        $ 45,197
Cost of revenues                                           7,984          7,518          21,096              --          36,598
                                                        --------       --------        --------        --------        --------
Gross profit                                               2,314          2,846           3,439              --           8,599
Operating expenses
   Selling, general and administrative expenses            1,366          3,301           2,511             820        $  7,998
   Depreciation and amortization                              82            291             320              38             731
                                                        --------       --------        --------        --------        --------
     Total operating expense                               1,448          3,592           2,831             858           8,729
                                                        --------       --------        --------        --------        --------

Segment operating income (loss)                         $    866       $   (746)       $    608        $   (858)       $   (130)
                                                        ========       ========        ========        ========        ========

As of February 28, 2005
Cash                                                    $  3,691       $    715        $     30        $    115        $  4,551
Restricted savings account                                   210             --              --              --             210
Available for sale investments                             2,131             --              --              --           2,131
Accounts receivable                                          831          2,941          10,257              31          14,060
Costs and estimated earnings in excess of billing
   of billing on uncompleted contracts                        --             --           2,099              --           2,099
Inventory, net                                                19          3,567           6,874              --          10,460
Other current assets                                          80            215             429              32             756
Deferred tax asset                                           563             --             451              --           1,014
Property and equipment, net                                  104          2,109           1,490             311           4,014
Goodwill                                                   3,579          6,330           1,253              --          11,162
Other intangible assets, net                                 887          1,258             467              --           2,612
Other long term assets                                        43            154              --              25             222
                                                        --------       --------        --------        --------        --------

Total Segment Assets                                    $ 12,138       $ 17,289        $ 23,350        $    514        $ 53,291
                                                        ========       ========        ========        ========        ========


Three Months Ended February 29, 2004
Net revenues                                            $  5,294       $  4,881        $  2,635        $     --        $ 12,810
Cost of revenues                                           4,268          3,255           2,135              --           9,658
                                                        --------       --------        --------        --------        --------
Gross profit                                               1,026          1,626             500              --           3,152
Operating expenses
   Selling, general and administrative expenses              535          1,321             392             209           2,457
   Depreciation and amortization                              47            147              31               6             231
                                                        --------       --------        --------        --------        --------
     Total operating expense                                 582          1,468             423             215           2,688
                                                        --------       --------        --------        --------        --------

Segment operating income (loss)                         $    444       $    158        $     77        $   (215)       $    464
                                                        ========       ========        ========        ========        ========

Six Months Ended February 29, 2004
Net revenues                                            $  8,120       $ 10,399        $  4,497        $     --        $ 23,016
Cost of revenues                                           6,537          6,966           3,606              --          17,109
                                                        --------       --------        --------        --------        --------
Gross profit                                               1,583          3,433             891              --           5,907
Operating expenses
   Selling, general and administrative expenses              846          2,623             784             406           4,659
   Depreciation and amortization                              80            295              62               9             446
                                                        --------       --------        --------        --------        --------
     Total operating expense                                 926          2,918             846             415           5,105
                                                        --------       --------        --------        --------        --------

Segment operating income (loss)                         $    657       $    515        $     45        $   (415)       $    802
                                                        ========       ========        ========        ========        ========

As of August 31, 2004
Cash                                                    $  2,767       $    633        $     50        $      8        $  3,458
Restricted savings account                                   210             --              --              --             210
Certificates of deposit                                       69             --              --              --              69
Available for sale investments                             1,959             --              --              --           1,959
Accounts receivable                                          844          3,601          11,442               7          15,894
Costs and estimated earnings in excess of billing
   of billing on uncompleted contracts                        --             --           1,879              --           1,879
Inventory, net                                                11          3,253           6,482              --           9,746
Other current assets                                         227            198             358              32             815
Deferred tax asset                                           563             --             451              --           1,014
Property and equipment, net                                   37          2,121           1,649             231           4,038
Goodwill                                                   3,580          5,957             655              --          10,192
Other intangible assets, net                                 962          1,012             137              --           2,111
Other long term assets                                        43             94              19              28             184
                                                        --------       --------        --------        --------        --------

Total Segment Assets                                    $ 11,272       $ 16,869        $ 23,122        $    306        $ 51,569
                                                        ========       ========        ========        ========        ========
</TABLE>
                                                              21
<PAGE>

Item 2.  Management's Discussion And Analysis.

Fortune Diversified Industries, Inc. (formerly known as WOW Entertainment, Inc.
and prior to that American Gaming & Entertainment, Ltd.), is a Delaware
corporation incorporated in 1988. The Company has conducted its business
directly and through wholly-owned subsidiaries. The term "Company" as used
herein refers to Fortune Diversified Industries, Inc. and such subsidiaries
unless the context otherwise requires. The Company is the parent company of
Professional Staff Management, Inc., Professional Staff Management, Inc. II and
Pro Staff, Inc. (collectively "PSM"); Nor-Cote International, Inc. (Nor-Cote);
Kingston Sales Corporation (Kingston); Commercial Solutions, Inc. (Commercial
Solutions); James H. Drew Corp. (JH Drew); PDH, Inc. (PDH); Cornerstone Wireless
Services, Inc. (Cornerstone Wireless); Magtech Services, Inc. (Magtech);
Cornerstone Wireless Construction Services, Inc. (Cornerstone Construction);
Innovative Telecommunications Consultants, Inc. (ITC); Telecom Technology Corp.
(TTC); StarQuest Wireless Services, Inc. (StarQuest); Women of Wrestling, Inc.
(WOW); and Murphy Development, Ltd (Murphy). Additionally, effective April 5,
2005, the Company purchased all of the common stock of CSM, Inc., the holding
corporation for the companies operating as Century II Staffing and subsidiaries
(collectively "CSM").

The Company's current operating focus is achieved through its Manufacturing and
Distribution Segment (Kingston, Commercial Solutions, and Nor-Cote); its
Wireless Infrastructure Segment (PDH, Cornerstone Wireless, Cornerstone
Construction, Magtech, TTC, StarQuest, JH Drew, and ITC) and its Professional
Business Solutions Segment (PSM and CSM).

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

Commercial Solutions is a distributor for commercial products of Thomson, Inc.
(RCA products including televisions, DVD, and other electronic products),
Panasonic (televisions, DVD, and other electronic products), and Rubbermaid
(carts, cleaning equipment, trash receptacles, and other products).
Additionally, beginning March 1, 2005 Commercial Solutions began selling the
LG/Zenith commercial line of television products. Effective April 1, 2005,
Commercial Solutions will lose its distributor agreement with Thomson, Inc.
Commercial Solutions sells to distributors covering various territories in North
America and to the hotel/ motel and healthcare industries.

Nor-Cote is a manufacturer of UV curable screen printing inks. Nor-Cote inks are
printed on many types of plastic, metals and other substrates that are
compatible with the UV curing process. Typical applications are plastic sheets,
cell phones, bottles & containers, CD and DVD disks, rotary-screen printed
labels, and membrane switch overlays for which Nor-Cote provides conductive ink.
Nor-Cote has operating facilities in the United States, United Kingdom,
Singapore, and Malaysia, with worldwide distributors located in Africa,
Australia, Canada, China, Colombia, Hong Kong, India, Italy, Japan, Korea, New
Zealand, Poland, Taiwan, Thailand, Latin America and the United States. The
acquisition of Ink Source on September 30, 2004 provides Nor-Cote with a new
entry into the retail "Point of Purchase" (POP) ink/signage and decal market.


Wireless Infrastructure Segment
-------------------------------

The Company's Wireless Infrastructure segment is conducted through its JH Drew,
PDH, Cornerstone Wireless, Magtech, Cornerstone Construction, ITC, and TTC and
StarQuest subsidiaries. JH Drew is a specialty contractor in the field of
infrastructure, including fiber optic, 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,
and has established relationships in the industry, earning a well-respected
reputation for reliability and quality.

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

                                       22
<PAGE>

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

ITC is a technical services company that provides customer specific turnkey
solutions for wireless equipment manufacturers and wireless service providers.
Technical services include 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. Nationwide availability is provided by individual
program management allowing ITC to offer maintenance solutions for the
continuous development of existing service provider's wireless networks.
Effective February 28, 2005, ITC acquired the assets of EI Solution, Inc. This
acquisition expanded the product service capabilities that ITC can offer to
wireless equipment manufacturers and wireless service providers.

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

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


Professional Business Solutions Segment
---------------------------------------

The Company's Professional Business Solutions segment is conducted through its
PSM and effective April 5, 2005, CSM subsidiaries. PSM and CSM, Professional
Employer Organizations (PEO), provide cost-effective employee administrative
solutions to companies in 37 states nationwide. The companies provide services
typically managed by a company's internal human resources and accounting
departments - including payroll and tax processing and management, worker's
compensation and risk management, benefits administration, unemployment
administration, human resource compliance services, 401k and retirement plan
administration and employee assessments.



RESULTS OF OPERATIONS:  COMPARISON OF THE THREE AND NINE MONTH PERIODS ENDED
FEBRUARY 28, 2005 AND FEBRUARY 29, 2004
---------------------------------------

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

Revenues

Revenues for the quarter ended February 28, 2005 were $4.680 million compared to
$4.881 million for the quarter ended February 29, 2004, a decrease of $201,000
or 4%. Year to date revenues for the six months ended February 28, 2005 were
down slightly at $10.364 million compared to $10.399 million for the six months
ended February 29, 2004. Segment revenues decreased despite the Company
reporting only one month of activity for the quarter and year to date ended
February 28, 2004 in its Commercial Solution subsidiary. Revenue for Commercial
Solutions, a start up company in February 2004, increased by $497,000 (net of
intercompany sales to Kingston) for the three months ended February 28, 2005 and
increased $1.66 million (net of intercompany sales to Kingston) for the six
months ended February 28, 2005. Although Commercial Solutions had an increase in
pro forma revenues compared to the previous year, revenues were down
dramatically in the second quarter compared to previous quarters. The decrease
is primarily attributable to the depletion of healthcare television inventory in
November 2004 due to lack of product availability from a key supplier.
Historically this product line has generated 40% of Commercial Solutions
revenues. Kingston revenues decreased $698,000 or 30% for the quarter ended
February 28, 2005 and decreased by $1.494 million or 30% for the six months
ended February 28, 2005. Second quarter revenue decreased due mainly to lack of
healthcare television set availability from Commercial Solutions, Kingston's
supplier for the product. Nor-Cote's revenues decreased 1% for the

                                       23
<PAGE>

quarter from $2.417 million as compared to $2.446 million over the same period
in the prior year. Year to date revenues decreased 4% from $5.214 million as
compared to $5.009 million. The decrease in Nor-cote's revenues is attributable
mainly to loss of sales and customers in the CD/DVD and tag & label markets in
the US along with heavy price competition of local ink suppliers, mainly in the
CD/DVD market in Asia. The decrease in revenues was partially offset by an
increase in POP/decal ink revenues in the US and plastic container ink in Asia.
Nor-Cote entered the POP/decal market with its acquisition of Ink-Source, Inc.
on September 30, 2004. Year to date revenues as a result of this acquisition
were $280,000.

Commercial Solutions lost its master distributor agreement with Thomson, Inc.,
manufacturer of healthcare television sets and other commercial products,
starting April 2005. The Company expects to regain market share through an
agreement with LG/ Zenith and began selling their line of products in March
2005. Additionally Commercial Solutions has hired a national sales manager to
sell directly to the hotel/ motel and healthcare facilities throughout the U.S.
Management expects a reduction in sales volume for Commercial Solutions in the
third quarter as a result of these changes, however, anticipates higher gross
margin over the remaining fiscal year due to a stronger customer mix for
products from new suppliers. Kingston will continue to sell the RCA product
line, but will buy product direct through Thomson, Inc. Kingston has expanded
its commercial television product line by offering its customers the LG/ Zenith
brand of televisions in March 2005. Kingston's gross margin has been adversely
affected by sales to insolvent customers. As a result, Kingston developed
procedures to improve its processes of extending credit, collection of
receivables and purchasing policies. Nor-Cote expects to launch new products in
several new markets in the current and subsequent fiscal year. The new products
are driven by a significant increase in research and development. Nor-Cote
increased spending for research and development by approximately $62,000 or 34%
for the six months ended February 28, 2005 as compared to six months ended
February 29, 2004. Additionally, Nor-Cote expects to open a new US branch in
Atlanta, GA in the fourth quarter in order to support the POP/ decal markets in
the U.S.

Future trends for revenue and profitability for Kingston and Commercial
Solutions are difficult to predict due to a variety of known and unknown risks
and uncertainties, including, without limitation, (i) dependence upon principal
suppliers and availability and price of electronic and rubber products; (ii)
loss of significant customers or a reduction in prices we charge these
customers; (iii) lack of demand for our products and services in certain markets
and our inability to maintain margins; (iv) our ability to absorb, through
revenue growth, the increasing operating costs that we have incurred and
continue to incur in connection with our activities; (v) uncertainty regarding
whether electronic equipment manufacturers will continue to outsource aspects of
their business to us; (vi) possible adverse effect on demand for our products
resulting from consolidation of electronic manufacturers (vii) economic
conditions in our markets; (viii) ability to respond to rapid technological
changes in the electronics industry; (ix) possible difficulties collecting our
accounts receivable; (x) access to or the cost of increasing amounts of capital,
trade credit or other financing; (xi) risks of foreign operations, including
currency, trade restrictions and political risks in our foreign markets; (xii)
effect of hostilities or terrorist attacks on our operations; (xiii) reliance on
sophisticated information systems technologies; (xiv) ability to meet intense
industry competition; (xv) ability to manage and sustain future growth at our
historical or industry rates; (xvii) success of relationships with electronics
equipment manufacturers, (xviii) seasonality; (xix) ability to attract and
retain qualified management and other personnel; (xx) ability to maintain
adequate business insurance at reasonable cost and (xxi) existence of
anti-takeover measures. Because of the aforementioned uncertainties affecting
our future operating results, past performance should not be considered to be a
reliable indicator of future performance, and investors should not use
historical trends to anticipate future results or trends.

The demand for some of Nor-Cote's new products, such as the membrane switch for
high ticket durable goods, is sensitive to interest rate fluctuations and
consumer spending.

Gross Profits

Gross profits for the quarter ended February 28, 2005 were $1.256 million or 27%
of revenues compared to $1.626 million or 33% of revenues for the quarter ended
February 29, 2004. Year to date gross profits for the six months ended February
28, 2005 were $2.846 million or 28% of revenues compared to $3.433 million or
33% of revenues over the same period in the prior year. The decrease in gross
profits was due mainly to Kingston's decrease in year to date sales along with
an $85,000 direct write off of damaged inventory in the second quarter.

The gross profit percentage decrease was due mainly to the addition of
Commercial Solutions in February 2004 with reported gross profit of 7% quarter
to date and year to date February 28, 2005. Compared to Kingston and Nor-Cote,
this gross profit percentage is substantially lower due to the nature of
Commercial Solutions primary product, commercial television sets and its
customer base consisting of other distributors.

                                       24
<PAGE>

Operating Income

Operating income for the quarter ended February 28, 2005 was ($545,000),
compared to $158,000 for the quarter ended February 29, 2004, a decrease of
$698,000. Operating income was down $1,261,000 for the six months ended February
28, 2005 as compared to six months ended February 29, 2004. The decrease in
operating income was due to the decreased sales of Kingston and Nor-Cote
combined with the increase in general and administrative expenses of Nor-Cote
due to the hiring of additional personnel. Operating income also decreased due
to $100,000 increase to bad debt expense for customer receivables in the first
fiscal quarter 2005.


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

Revenues

Revenues for the quarter ended February 28, 2005 were $9.835 million compared to
$2.635 million for the quarter ended February 29, 2004, an increase of $7.2
million. Year to date revenues for the six months ended February 28, 2005 were
$24.535 million compared to $4.497 million for the six months ended February 29,
2004, and increase of $20.038 million. The increase in revenues is due mainly to
the acquisition of JH Drew on April 30, 2004. JH Drew reported revenues of
$7.461 million for the quarter ended February 28, 2005 and $19.417 million for
the six months ended February 28, 2005. JH Drew, the Company's largest
contributor to net revenue, had decreased sales in the second quarter ended
February 28, 2005 as expected primarily attributable to the seasonality of the
highway construction business in the Midwest states during the period. JH Drew
has significant contract backlog at February 28, 2005. As a result, management
anticipates improved sales, gross margin, and profitability for JH Drew over the
next two fiscal quarters. ITC, which was acquired on May 1, 2004, reported
$621,000 in revenues for the quarter ended February 28, 2005 and $1.161 million
for the six months ended February 28, 2005. Net combined revenues of the other
subsidiaries in the wireless infrastructure division decreased $882,000 for
comparative quarters ended February 28, 2005 and 2004, and decreased $540,000
for the six months ended February 28, 2005 as compared to the six months ended
February 29, 2004. This quarter to date and year to date decrease was due
primarily to Cornerstone Construction, which reported revenue at $532,000 for
the quarter ended February 28, 2005 as compared to $1.8 million for quarter
ended February 28, 2004. Cornerstone Construction 2005 year to date revenues
were $1.652 million as compared to $2.865 million for 2004. The decrease was due
mainly to inclement weather conditions that existed in the Midwest during the
Company's second quarter. PDH reported revenues of $526,000 for quarter ending
February 28, 2005 as compared to $252,000 for the previous year's quarter, a
108% increase. PDH also reported a 91% increase in revenues year over year due
to increased activity in the wireless communications industry and an increase in
customer base. Cornerstone Wireless and Magtech reported revenues of $462,000
for quarter ending February 28, 2005 as compared to $144,000 for the previous
year's quarter, a 220% increase. These subsidiaries reported a 199% increase in
revenues year over year due mainly to the acquisition of Magtech on November 1,
2004.

With additional capital investment by wireless carriers in the wireless
communications industry, the Company expects an increase in future revenues in
its PDH, Cornerstone Wireless, Magtech, ITC and Cornerstone Construction
subsidiaries. In addition to increased activity in the industry, the Company's
acquisition of ITC in May 2004, Magtech in November 2004, and EI Solution on
February 28, 2005, further increased the Company's ability to offer turnkey
services to wireless carriers, thus creating a competitive advantage over
companies who do not offer these services. This growth has created the demand
for increased investment in working capital. This investment in working capital
may require additional debt or equity financing.


Gross Profits

Gross profit for the quarter ended February 28, 2005 was $1.143 million
representing 12% of revenues, compared to $500,000 representing 19% of revenues
for the quarter ended February 29, 2004. Year to date gross profits for the six
months ended February 28, 2005 were $3.439 million or 14% of revenues compared
to $891,000 or 20% of revenues for the six months ended February 29, 2004. The
increase in the gross profit dollars is due mainly to the acquisitions of JH
Drew and ITC. JH Drew reported gross profit of $385,000 and $1.749 million for
the quarter and six months ended February 28, 2005. ITC reported gross profit of
$246,000 and $467,000 for the quarter and six months ended February 28, 2005.
PDH reported gross profits of $455,000 for the six months ending February 28,
2005 as compared to $215,000 for six months ended 2004. Cornerstone Wireless and
Magtech reported gross profits of 298,000 for six months ended February 28, 2005
as compared to 73,000 for six months ended 2004. These increases were somewhat
offset by the decrease in gross profits year to date of Cornerstone
Construction. Cornerstone Construction reported gross profit for the six months
ended February 28, 2005 of $228,000 as compared to $379,000 for the six months
ended February 29, 2004.

                                       25
<PAGE>

The decrease in gross profit as a percentage of revenues was due mainly to the
lower profit margins JH Drew generates due to being in the highway construction
industry as compared to certain other subsidiaries in the segment which operate
in the service industry.


Operating Income (Loss)

Operating income (loss) for the quarter ended February 28, 2005 was ($567,000)
compared to $77,000 for the quarter ended February 29, 2004, a decrease of
$649,000. Operating income for the six months ended February 28, 2005 was
$608,000 as compared to $45,000 for the six months ended February 29, 2004. The
increase in year to date operating income was due mainly to the acquisitions of
JH Drew and ITC. JH Drew reported operating income of $148,000 and ITC reported
operating income of $286,000 for the six months ended February 28, 2005.
Combined operating income of the other subsidiaries in the wireless
infrastructure division increased $124,000 for the six months ended February 28,
2005 as compared to the six months ended February 29, 2004 due mainly to
increased revenues.


Business Solutions
------------------
Revenues

Revenues for the quarter ended February 28, 2005 were $5.634 million compared to
$5.294 million for the quarter ended February 29, 2004, representing a 6%
increase. Year to date revenues for the six months ended February 28, 2005 were
$10.298 million compared to $8.120 million for the six months ended February 29,
2004. PSM was acquired by the Company on October 1, 2003 and only reported five
months of activity for year to date end February 29, 2004.

PSM has increased its customer base over the last year and recently opened a new
office in Dayton, OH in the fourth quarter of fiscal year 2004. Though PSM's
primary focus involves fee revenue associated with the administration of payroll
and related services, the Company continues to expand other services including
human resource outsourcing, employment training and testing. The business
variables that the Company works to overcome include the volatile insurance
industry, government regulations on employment, and the risk of PSM's partially
self funded insurance reserves.


Gross Profit

Gross profit for the quarter ended February 28, 2005 was $1.310 million
representing 23% of sales, compared to $1.026 million representing 19% of sales
for the quarter ended February 29, 2004. Year to date gross profits for the six
months ended February 28, 2005 were $2.314 million or 22% compared to $1.583 or
19% for the six months ended February 29, 2004. The increase in gross profit as
a percentage of sales was mainly due to PSM's estimated over funding of its
health insurance reserve of $397,000.

Operating Income

Operating income for the quarter ended February 28, 2005 was $523,000, compared
to $444,000 for the quarter ended February 29, 2004, an increase of $79,000.
Operating income for the six months ended February 28, 2005 was $866,000 or 8%
of revenues, as compared to $657,000 or 8% of revenues, for the five months
ended February 29, 2004. The increase in profits from the health insurance
reserve adjustments were offset by additional costs, mainly in the hiring
additional sales and other HR professionals in order to increase client base and
service expanding client base.


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

The Company's Holding Company does not have any income producing operating
assets. As such, the operating loss is equal to operating expenses. Operating
expenses consist primarily of employee compensation and benefits, legal,
accounting and consulting fees. Operating expenses for the quarter ended
February 28, 2005 were $501,000, compared to $215,000 for the quarter ended
February 29, 2004, an increase of $286,000 or 133%. Operating expenses for the
six months ended February 28, 2005 were $858,000, compared to $415,000 for the
quarter ended February 29, 2004, an increase of $443,000 or 106%. This increase
was due mainly to an increase in (a) accounting fees of 72% and legal fees of
160% primarily attributable to Company growth through acquisitions, and (b) a
65% increase in internal salaries due to hiring of additional personnel mainly
in administration, accounting and information technology departments. The
Company expects to double its budget in fiscal year 2005 for

                                       26
<PAGE>

personnel and outside accounting and consulting due primarily to Sarbanes Oxley
legislation. In order to absorb these increased costs the Company is looking to
outside investors to provide financing through various private stock offering
arrangements, or a move to a national stock exchange.

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 affect 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 Fortune companies. Management is aware of these risks and
works to manage the Company around and through these risks as a part of our
planning and operational execution within our family of companies.

The Company's strategy is to grow current companies; focus on acquisitions in
the Wireless and Business Solutions Segments, and to review other opportunities
for acquisition or expansion. These strategies have served the Company well to
date, as demonstrated by the growth in revenues and earnings.

Interest expense for the quarter and six months ended February 28, 2005 was
$323,000 and $589,000 compared to $94,000 and $189,000 for the quarter and six
months ended February 29, 2004. The Company financed a large portion of the
acquisition of JH Drew on May 1, 2004. Additionally, a line of credit was
established in February 2004 to support the supply of inventory on hand needed
for Commercial Solutions. Increase in the prime interest rate during the second
quarter of 2005 contributed significantly to a 21% increase in interest expense
in the second quarter over the first quarter of fiscal year 2005.

Income taxes for the first quarter of 2005 resulted in a state income tax
expense of $64,000. Federal income tax expense for the same period was offset
through the release of the Company's valuation allowance to the extent of
current period earnings. Despite a significant taxable loss in the second
quarter of 2005, the Company elected not to recognize an income tax benefit due
to management's estimate for net income before taxes to exceed such current
period losses during the third and fourth quarters of fiscal year 2005. As of
February 28, 2005, the Company reported no additional release of the valuation
allowance for future periods. Management deems the likelihood of incurring
taxable income from March 1, 2005 through August 31, 2005, in excess of the
deferred tax benefit of $1,014,000, to be more likely than not. Management
believes a significant portion of the remaining net operating loss carryforwards
may be absorbed in 2005. As a result of the release of our valuation allowance
to offset 100% of current federal taxes in the first quarter of 2005 and
recognition of the deferred tax benefit, our effective tax rate is substantially
lower than statutory rates.


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

As of February 28, 2005 the Company had working capital of approximately $7.275
million, composed primarily of cash and equivalents, net accounts receivable,
available for sale investments, inventories, and costs & estimated earnings in
excess of billings on uncompleted contracts.

The Company's principal sources of liquidity included $6.682 million in cash,
cash equivalents and available for sale investments along with availability on
various lines of credit of approximately $3.454 million at February 28, 2005.
The lines of credit and other bank loans are secured by substantially all assets
of the Company and by personal guarantees of the Company's majority stockholder
and a different stockholder.

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.

Cash flows from operations for the six month period ended February 28, 2005 of
$912,000 along with an increase in short-term borrowings of $2.630 million was
more than offset by cash used for capital expenditures of $451,000 and business
acquisitions of $690,000.

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

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

                                       27
<PAGE>

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. We are considering
the repayment of a portion of our debt during 2005 by registering our securities
and moving to a national securities exchange.


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.

During May 2004, the Company's JH Drew subsidiary entered into an operating
lease agreement to rent three buildings located in Indiana, Tennessee and
Missouri with a related party. The lease agreement includes a five-year term
with the option to extend the lease for a one-year period. The base rent for the
first twelve months of the lease is $15,000 per month. Following the first
twelve month period the base rent will be adjusted by the greater of 3% of the
base rent or the increase in the Consumer Price Index. In addition JH Drew shall
pay certain expenses including taxes, assessments, maintenance and repairs to
the premises.

During March 2004, the Company entered into an operating lease agreement to rent
a building with a related party. All of the Company's subsidiaries, excluding JH
Drew, Nor-Cote and PSM moved into the new facility between the months of March
2004 through May 2004. The lease agreement includes a five- year term with one
option to extend the lease term for a one-year period. The agreement provides
for base rent of $20,000 plus 1% of the gross revenues of the Company's
Commercial Solution's subsidiary. Following the first twelve-month period, the
base rent shall be adjusted annually to fair market value. In addition the
Company shall pay certain expenses including taxes, assessments, maintenance and
repairs. The related party is considered a variable interest entity by the
Company. FIN 46, Consolidation of Variable Interest Entities, clarifies the
application of Accounting Research Bulletin No. 51, "Consolidated Financial
Statements," to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. For variable interest
entities other than special-purpose entities, the provisions of FIN 46, as
amended, are applicable no later than March 31, 2004. Consolidation is not
required since the variable interest entity has sufficient equity at risk to
finance its activities without additional subordinated financial support from
other parties.

The Company does not expect these Interpretations to have an effect on these
arrangements and the Company's consolidated financial statements. 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.


FORWARD-LOOKING STATEMENTS

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

                                       28
<PAGE>

Item 3.  Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the reports we file 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 disclosure. 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
controls 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.

Item 2. Changes in Securities.
------  ---------------------

The following table sets forth, for the period covered by this Form 10QSB, all
sales of unregistered securities by the Company.

(c)      Sales of Unregistered Securities by Company

Date                  Title of            Amount of           Recipient of
Of Sale               Securities          Sold Securities     Issued Securities
-------------         -----------------   -----------------   -----------------
February 28, 2005    Common Stock         450,000             Ryan Smith    (1)

(1) Per the Terms of the Asset Purchase Agreement between Innovative
Telecommunications Consultants, Inc., a subsidiary of the Company, EI Solution,
Inc., and other parties, Ryan Smith, is to receive 450,000 shares of the
Company's Common Stock as partial consideration for certain assets of EI
Solution, Inc. 250,000 of those shares are to vest immediately and the remainder
of those shares are to vest upon the achievement of certain performance criteria
by EI Solution, Inc.

Item 3. Defaults Upon Senior Securities.
------  -------------------------------

     None

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

     None

Item 5. Other Information.
------  -----------------

     None




                                       29
<PAGE>

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

(a) Exhibits
      2.1    Agreement and Plan of Merger filed with the State of Tennessee on
             April 5, 2005, by and among the Company, CSM, CSM Merger
             Corporation, Carter M. Fortune, Marc Fortune, Greg Daily, Harbinger
             Mezzanine Partners, L.P., Doug Altenbern, Jeff Gould, Bob Boston,
             and Don Denbo. (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 8-K dated April 11, 2005.


(b) Reports on Form 8-K.

     The following reports were filed by the Company during the second quarter
of fiscal year 2005:

         None.












                                       30
<PAGE>

                                   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 Diversified Industries, Inc.
                                                  (Registrant)

Date:  April 13, 2005                  By: /s/ Carter M. Fortune
                                           --------------------------------
                                           Carter M. Fortune,
                                           Chief Executive Officer



Date:  April 13, 2005                  By: /s/ Amy Gallo
                                           --------------------------------
                                           Amy Gallo,
                                           Chief Financial Officer










                                       31