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 May 31, 2004

[ ] 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 Section13
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 July 15, 2004, there were
102,386,444 shares of the Company's Common Stock outstanding.

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

<PAGE>

PART 1 - FINANCIAL INFORMATION

Item 1. Financial Statements.

              FORTUNE DIVERSIFIED INDUSTRIES, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                     ASSETS

                                                               Unaudited      Audited
                                                                 May 31      August 31,
                                                                  2004          2003
                                                                --------      --------
<S>                                                             <C>           <C>
CURRENT ASSETS
    Cash and equivalents                                        $  3,761      $    885
    Restricted savings account                                       246            --
    Certificates of deposit                                           74            --
    Available for sale investments                                 1,470           337
    Accounts receivable, net                                      17,187         4,306
    Costs and estimated earnings in excess of billings on
       uncompleted contracts                                       6,675            --
    Notes receivable - short term                                     21            --
    Inventory, net                                                 4,798         1,856
    Prepaid expenses                                                 683           385
    Recoverable income taxes                                          78           220
    Other current assets                                              61            58
                                                                --------      --------
       Total Current Assets                                       35,054         8,047
                                                                --------      --------

PROPERTY, PLANT & EQUIPMENT, NET                                   2,946         2,703

OTHER ASSETS
    Notes receivable -long term                                       61            --
    Loan origination fees, net                                        42            50
    Goodwill                                                       4,253         2,206
    Other intangible assets, net                                   2,201         1,180
    Other long term assets                                            81            14
                                                                --------      --------
       Total Other Assets                                          6,638         3,450
                                                                --------      --------

       TOTAL ASSETS                                             $ 44,638      $ 14,200
                                                                ========      ========

                                       2
<PAGE>

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
    Lines of credit                                             $  8,501      $  1,038
    Current maturities of long-term debt                           2,031           861
    Current maturities of long-term debt - related party              38            --
    Current maturities of capital lease obligations                    9             9
    Accounts payable                                               4,627         1,062
    Payroll taxes and withholdings                                   509            --
    Health and workers' compensation reserves                      3,956            --
    Accrued worksite employee payroll cost                           256            --
    Due to related party                                              --           230
    Customer deposits                                                102            --
    Accrued expenses                                               2,432         1,589
    Income tax payable                                                28            --
    Billings in excess of costs and estimated earnings on
       uncompleted contracts                                       2,467            --
                                                                --------      --------
       Total Current Liabilities                                  24,956         4,789
                                                                --------      --------

LONG-TERM LIABILITIES
    Line of credit - related party                              $  6,073      $  2,000
    Long-term debt - related party, less current maturities          113            --
    Long-term debt, less current maturities                        7,495         5,202
    Capital lease obligations, less current maturities                 2             8
                                                                --------      --------
       Total Long-term Liabilities                                13,683         7,210
                                                                --------      --------

STOCKHOLDERS' EQUITY
    Common stock                                                   1,019           882
    Additional paid-in capital and warrants outstanding           10,272         7,873
    Accumulated deficit                                           (5,209)       (6,491)
    Accumulated other comprehensive income (loss)                    (83)          (63)
                                                                --------      --------
       Total Stockholders' Equity                                  5,999         2,201
                                                                --------      --------

       TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY               $ 44,638      $ 14,200
                                                                ========      ========
</TABLE>

See Accompanying Summary of Accounting Policies and Notes to Unaudited Interim
Consolidated Financial Statements.

                                       3
<PAGE>


              FORTUNE DIVERSIFIED INDUSTRIES, INC. AND SUBSIDIARIES


                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                              Nine Months Ended
                                                             May 31        May 31
                                                              2004          2003
<S>                                                         <C>           <C>
NET REVENUES BUSINESS SOLUTIONS SEGMENT (gross              $ 13,108      $     --
        billings of $89,061,000 less worksite
        employee payroll cost of $75,953,000)
NET REVENUES WIRELESS INFRASTRUCTURE SERVICES                 10,462         3,134
NET REVENUES MANUFACTURING AND DISTRIBUTION SEGMENT           16,701         7,184
                                                            --------      --------
TOTAL NET REVENUES                                            40,271        10,318

COST OF REVENUES BUSINESS SOLUTIONS SEGMENT                   10,586            --
COST OF REVENUES WIRELESS INFRASTRUCTURE SERVICES              8,255         1,976
COST OF REVENUES MANUFACTURING AND DISTRIBUTION SEGMENT       11,468         5,345
                                                            --------      --------
TOTAL COST OF REVENUES                                        30,309         7,321
                                                            --------      --------

GROSS PROFIT                                                   9,962         2,997

OPERATING EXPENSES
    Selling, general and administrative expenses               7,696         2,294
    Depreciation and amortization                                681           199
                                                            --------      --------
        Total Operating Expenses                               8,377         2,493
                                                            --------      --------

OPERATING INCOME                                               1,585           504
                                                            --------      --------

OTHER INCOME (EXPENSE)
    Interest income                                               68            --
    Interest expense                                            (330)         (114)
    Gain on investments in marketable securities, net             29            --
    Other income (expense)                                       (45)           81
                                                            --------      --------
        Total Other Income (Expense)                            (278)          (33)
                                                            --------      --------

Net Gain  before Provision for Income Taxes                    1,307           471

PROVISION FOR INCOME TAXES                                       (25)           --
                                                            --------      --------

NET INCOME                                                  $  1,282      $    471
                                                            ========      ========


BASIC INCOME PER SHARE                                      $   0.01      $   0.01
                                                            ========      ========


DILUTED INCOME PER SHARE                                    $   0.01      $   0.01
                                                            ========      ========
</TABLE>

See Accompanying Summary of Accounting Policies and Notes to Unaudited Interim
Consolidated Financial Statements.

                                       4
<PAGE>

              FORTUNE DIVERSIFIED INDUSTRIES, INC. AND SUBSIDIARIES


                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                              Three Months Ended
                                                             May 31        May 31
                                                              2004          2003
<S>                                                         <C>           <C>
NET REVENUES BUSINESS SOLUTIONS SEGMENT (gross              $  4,988      $     --
        billings of $32,513,000 less worksite
        employee payroll cost of $27,525,000)
NET REVENUES WIRELESS INFRASTRUCTURE SERVICES                  5,965         1,037
NET REVENUES MANUFACTURING AND DISTRIBUTION SEGMENT            6,302         2,348
                                                            --------      --------
TOTAL NET REVENUES                                            17,255         3,385

COST OF REVENUES BUSINESS SOLUTIONS SEGMENT                    4,049            --
COST OF REVENUES WIRELESS INFRASTRUCTURE SERVICES              4,649           707
COST OF REVENUES MANUFACTURING AND DISTRIBUTION SEGMENT        4,502         1,777
                                                            --------      --------
TOTAL COST OF REVENUES                                        13,200         2,484
                                                            --------      --------

GROSS PROFIT                                                   4,055           901

OPERATING EXPENSES
    Selling, general and administrative expenses               3,037           806
    Depreciation and amortization                                235            75
                                                            --------      --------
        Total Operating Expenses                               3,272           881
                                                            --------      --------

OPERATING INCOME                                                 783            20
                                                            --------      --------

OTHER INCOME (EXPENSE)
    Interest income                                               38            --
    Interest expense                                            (141)          (41)
    Gain on investments in marketable securities, net             --            --
    Other income (expense)                                       (16)           57
                                                            --------      --------
        Total Other Income (Expense)                            (119)           16
                                                            --------      --------

Net Gain before Provision for Income Taxes                       664            36

PROVISION FOR INCOME TAXES                                       (25)           --
                                                            --------      --------

NET INCOME                                                  $    639      $     36
                                                            ========      ========


BASIC INCOME PER SHARE                                      $   0.01      $   0.00
                                                            ========      ========


DILUTED INCOME PER SHARE                                    $   0.01      $   0.00
                                                            ========      ========
</TABLE>

See Accompanying Summary of Accounting Policies and Notes to Unaudited Interim
Consolidated Financial Statements.

                                       5
<PAGE>


              FORTUNE DIVERSIFIED INDUSTRIES, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                    Additional
                                                  Paid-in Capital  Cost of  Accumulated 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, 2003                 $   882   $ 7,873       $    --   $(6,491)         $ (63)        $ 2,201        $   52
                                           -------   -------       -------   -------          -----         -------        ------

Issuance of 13,100,000 shares of common
  stock for acquisitions                       131     1,869            --        --             --           2,000            --
Issuance of 600,000 shares of common
  stock for acquisitions                         6       530            --        --             --             536            --
Net income                                                                     1,282                          1,282         1,282
Translation adjustments, net of tax             --        --            --        --            222             222           222
Net unrealized investments gains (losses),
  net of tax                                    --        --            --        --           (242)           (242)         (242)
                                           -------   -------       -------   -------          -----         -------        ------

BALANCE AT MAY 31, 2004                    $ 1,019   $10,272       $    --   $(5,209)         $ (83)        $ 5,999        $1,314
                                           =======   =======       =======   =======          =====         =======        ======
</TABLE>

See Accompanying Summary of Accounting Policies and Notes to Unaudited Interim
Consolidated Financial Statements.

                                        6
<PAGE>

              FORTUNE DIVERSIFIED INDUSTRIES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                              Nine Months Ended
                                                                             May 31,     May 31,
                                                                              2004        2003
                                                                            --------    --------
<S>                                                                         <C>         <C>
OPERATING ACTIVITIES
    Net Income                                                              $  1,282    $    471
    Adjustments to reconcile net income to net cash
     provided (used) by operating activities:
      Depreciation and amortization                                              681         199
      Gain on sale of investments                                                (29)         --
      (Increase) decrease in certain operating assets:
         Accounts receivable                                                  (3,616)       (531)
         Costs and estimated earnings in excess of billings on                  (273)         --
           uncompleted contracts                                                 167          --
         Notes Receivable                                                        (11)         --
         Inventory                                                              (892)       (335)
         Prepaid expenses                                                       (154)         --
         Recoverable income taxes                                                142          --
         Other current assets                                                    (45)        (54)
         Other long term assets                                                  (24)         --
      Increase (decrease) in certain operating liabilities:
         Accounts payable                                                        558          29
         Accrued expenses and other current liabilities                         (885)         --
         Billings in excess of costs and estimated earnings on
           uncompleted contracts                                                 807
         Payroll taxes and withholdings                                          (15)         --
         Health and workers' compensation reserves                               685          --
         Accrued worksite employee payroll cost                                   16          --
         Due to related party                                                     (7)         --
         Customer deposits                                                        (4)         --
         Deferred revenue                                                         --         (54)
                                                                            --------    --------
           Net Cash Used by Operating Activities                              (1,617)       (275)
                                                                            --------    --------

INVESTING ACTIVITIES
    Capital Expenditures                                                        (659)       (217)
    Proceeds from sales of office equipment                                       --         100
    Purchases of available for sale securities                                (2,044)         --
    Proceeds from sale of available for sale securities                          689          --
    Proceeds from sale of certificates of deposits                                19          --
    Acquisition of productive assets and businesses, net of cash received     (8,644)        (70)
                                                                            --------    --------
           Net Cash Used by Investing Activities                             (10,639)       (187)
                                                                            --------    --------

FINANCING ACTIVITIES
    Collection of purchase adjustment receivables                                 --         600
    Payments to related party                                                   (230)         --
    Net borrowings (repayments) under line of credit                           7,463          56
    Borrowings on long-term debt                                               4,265          23
    Payments on long-term debt                                                  (682)       (309)
    Borrowings on long-term debt - related party                               4,113          --
    Payments on long-term debt - related party                                   (13)         --
    Payments on capital lease obligations                                         (6)         (6)
    Issuance of common stock                                                      --           3
                                                                            --------    --------
           Net Cash Provided by Financing Activities                          14,910         367
                                                                            --------    --------

           Effect of exchange rate changes on cash                               222          --


NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS                                2,876         (95)

CASH AND EQUIVALENTS
    Beginning of Period                                                          885         291
                                                                            --------    --------

    End of Period                                                           $  3,761    $    196
                                                                            ========    ========


SUPPLEMENTAL DISCLOSURES
    Noncash investing and financing activities:
      Unrealized net loss on marketable securities                              (229)         --
</TABLE>

See Accompanying Summary of Accounting Policies and Notes to Unaudited Interim
Consolidated Financial Statements.

                                        7
<PAGE>

              FORTUNE DIVERSIFIED INDUSTRIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Basis of Presentation: 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 nine-month period ended May 31,
2004 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"); Nor-Cote International, Inc. (Nor-Cote); Kingston Sales
Corporation (Kingston); Commercial Solutions, Inc. (Commercial Solutions); PDH,
Inc. (PDH); Cornerstone Wireless Services, Inc. (Cornerstone Wireless);
Cornerstone Wireless Construction Services, Inc. (Cornerstone Construction);
Telecom Technology Corp. (TTC); StarQuest Wireless Services, Inc. (StarQuest);
Women of Wrestling, Inc. (WOW); and Murphy Development, Ltd (Murphy). In
addition, on April 30, 2004 the Company acquired two new entities, James H. Drew
Corp. (JH Drew) and Innovative Telecommunications Consultants, Inc (ITC).

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 inter-company accounts and transactions have been eliminated.

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

In its Wireless Infrastructure Segment, PDH, Cornerstone Wireless, Cornerstone
Construction, and ITC 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

                                       8
<PAGE>

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 progress billings are shown as a
current asset. Billings in excess of costs on 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, a service fee and to the
extent elected by the clients, health and welfare benefit plan costs. The
Companies' service fee, which is computed as a percentage of gross wages, is
intended to yield a profit to PSM and cover the cost of employment-related
taxes, workers' compensation insurance coverage, and administrative and field
services provided by PSM to the client, including payroll administration and
record keeping, as well as safety, human resources, and regulatory compliance
consultation. 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, health and welfare benefit plan fees, workers' compensation
insurance, unemployment insurance fees, and the 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. 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.

This accounting policy of reporting revenues net as an agent was adopted by 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. 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.

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

                                       9
<PAGE>

Property, Equipment, and Depreciation: The provision for depreciation amounted
to $454,000 at May 31, 2004.

Self Insurance:

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

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 $150,000
per employee, with an aggregate liability limit of $10,578,000. The liability
limits are adjusted monthly, based on the number of participants.


NOTE 2 - ACQUISITIONS

On April 30, 2004, the Company acquired all of the outstanding shares of common
stock, no par value, of James H. Drew Corporation and its wholly-owned
subsidiary, Tennessee Guardrail, Inc. (collectively "JH Drew") pursuant to the
an agreement entitled "Stock Purchase Agreement " by and between Cemex, Inc.,
("Seller") and Fortune Diversified Industries, Inc. ("Buyer"). The Stock
Purchase Agreement's terms include, among other things, the exchange of all of
the outstanding shares of James H. Drew Corporation ("JH Drew") for $11,500,000
in cash paid by the Company and $434,000 of contingent stock consideration. The
$11,500,000 purchase price is subject to certain adjustments based on the
current assets and current liabilities of JH Drew; those adjustments are further
specified in the Stock Purchase Agreement, and are still under negotiation
between the seller and buyer as of the date of this filing. In calculating the
purchase price the parties considered, among other factors: Drew's consolidated
accounts receivable, costs and estimated earnings in excess of billings on
uncompleted contracts, inventories, accounts payable and other current assets
and current liabilities. The funds constituting the purchase price were derived
from the combination of a loan from Fifth Third Bank and a loan to Company from
its Chief Executive Officer and majority shareholder Carter M. Fortune.

The purchase price includes $434,000 of contingent stock consideration. This
amount consists of 430,000 shares valued at the closing price of the Company's
stock on the date of purchase at $1.01 share. The contingent stock consideration
is included as a component of the purchase price in accordance with Emerging
Issues Force Task 95-8, "Accounting for Contingent Consideration Paid to the
Shareholders of an Acquired Enterprise in a Purchase Business Combination," as
the consideration is (a) under arrangements not affected by employment
termination, and (b) management of the Company deems likelihood that payment of
such contingent consideration is probable. In addition, the purchase price
includes approximately $103,000 of cash payments to retain key employees.

The total purchase price of the acquisition, before adjustment still under
negotiation, is such:

         Cash paid to seller:          $11,500,000
         Stock consideration:              434,000
         Direct acquisition costs:         103,000
                                       -----------

         Total purchase price:         $12,037,000
                                       ===========

                                       10
<PAGE>

On May 11, 2004 the Company completed its acquisition of Innovative
Telecommunications Consultants, Inc. ("ITC"), pursuant to a Stock Purchase
Agreement dated May 11, 2004 and effective April 30, 2004. The purchase price of
$501,000 includes cash paid by the Company of $400,000 and issuance of 100,000
shares of stock valued at the closing price of the Company's stock on the date
of purchase at $1.01 per share.

The Company acquired three entities during the nine months ended May 31, 2004,
including: PSM, on October 1, 2003, JH Drew and ITC on April 30, 2004. The
condensed balance sheets (in 000's) below disclose the amount assigned to each
major asset and liability caption of the entities at the acquisition dates:

JH Drew
     Accounts receivable, net                               $ 8,277
     Costs and estimated earnings in excess of billings
         on uncompleted contracts                             6,842
     Inventory, net                                           1,777
     Prepaid expense                                             23
     Deferred tax asset                                         367
     Goodwill                                                   243
                                                            -------

                                                             17,529
                                                            -------

     Accounts payable                                         2,648
     Other accrued liabilities                                  777
     Billings in excess of costs and estimated earnings
         On uncompleted contracts                             1,661
     Deferred tax liability                                     406
                                                            -------

                                                              5,492
                                                            -------

                                                            $12,037
                                                            =======


Cash consideration                                          $11,603

Fair value of common stock consideration                        434
                                                            -------

                                                            $12,037
                                                            =======

                                       11
<PAGE>

ITC

     Cash and cash equivalents                              $   148
     Accounts receivable, net                                   333
     Property and equipment, net                                 15
     Goodwill                                                   186
     Customer base                                               50
     Non-Compete agreement                                      100
                                                            -------
                                                                832
                                                            -------

     Accounts payable                                           271
     Other accrued liabilities                                   60
                                                            -------
                                                                331
                                                            -------

                                                            $   501
                                                            =======


Cash consideration                                          $   400

Fair value of common stock consideration                        101
                                                            -------

                                                            $   501
                                                            =======

PSM

     Cash and cash equivalents                              $ 4,403
     Restricted savings account                                 246
     Certificates of deposit                                     93
     Accounts receivable, net                                   656
     Interest receivable                                          3
     Prepaid expense                                            121
     Property and equipment, net                                 20
     Other assets                                                42
     Goodwill                                                 1,618
     Customer base                                              700
     Non-Compete agreement                                      399
                                                            -------
                                                              8,301
                                                            -------

     Current maturities of notes payable                          4
     Accounts payable                                           119
     Payroll taxes and withholdings                             525
     Accrued worksite employee payroll cost                     240
     Health and workers' compensation reserves                3,271
     Other accrued compensation                                 545
     Due to shareholder                                           7
     Customer deposits                                          106
     Other accrued liabilities                                  484
                                                            -------
                                                              5,301
                                                            -------

                                                            $ 3,000
                                                            =======


Cash consideration                                          $ 1,000

Fair value of common stock consideration                      2,000
                                                            -------

                                                            $ 3,000
                                                            =======

                                       12
<PAGE>

Adjustments to the purchase price between the Company and the seller are still
under negotiation as of the filing date.

The following unaudited pro forma data summarize the results of operations for
the periods indicated as if the JH Drew, ITC, PSM, Nor-Cote, Cornerstone
Construction, TTC, and StarQuest 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.

                                             Nine months       Nine months
                                               Ended             Ended
                                               May 31,           May 31,
                                                2004              2003
                                            -------------     -------------

Net revenue                                 $      68,311     $      62,643
Cost of revenues                                   56,169            49,660
                                            -------------     -------------

Gross profit                                       12,142            12,983
Operating expenses                                  9,970             9,732
                                            -------------     -------------

Operating income                                    2,172             3,251
Other income (expenses)                              (596)             (286)
                                            -------------     -------------

Net Income                                          1,576             2,965
Dividends                                              --                --
                                            -------------     -------------

Net Income Available for Common
 Stockholders                               $       1,576     $       2,965
                                            =============     =============

Basic Income Per Share:                     $         .02     $         .03
                                            =============     =============

Diluted Income Per Share:                   $         .02     $         .03
                                            =============     =============

Shares Outstanding:

Basic weighted average number of common
shares outstanding                            100,464,444       100,464,444
Dilutive effect of conversion of options               --                --
                                            -------------     -------------

         Total Shares Outstanding             100,464,444       100,464,444
                                            =============     =============

                                       13
<PAGE>

NOTE 3 - ACCOUNTS RECEIVABLE

Accounts receivable include the following:

                                                        Unaudited     Audited
                                                         May 31,     August 31,
                                                          2004         2003
                                                        --------     --------

Amounts currently due                                   $ 18,526     $  4,779
Less allowance for doubtful accounts                      (1,204)        (338)
Less allowance for sales returns                            (135)        (135)
                                                        --------     --------

                                                        $ 17,187     $  4,306
                                                        ========     ========


NOTE 4 - Costs and Billings on Uncompleted Contracts

Information related to contracts in progress is as follows:

                                                        Unaudited     Audited
                                                         May 31,     August 31,
                                                          2004         2003
                                                        --------     --------

Costs incurred on uncompleted contracts                 $ 24,189     $      0
Estimated earnings recognized to date on uncompleted
    contracts                                              4,400            0
                                                        --------     --------
                                                          28,589            0

Less billings on uncompleted contracts                   (24,381)           0
                                                        --------     --------

               Net                                      $  4,208     $      0
                                                        ========     ========

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

                                                        Unaudited   Audited
                                                         May 31,   August 31,
                                                          2004       2003
                                                        --------   ---------

Costs and estimated earnings in excess of billings on
     uncompleted contracts                               $6,675      $    0
Billings in excess of costs and estimated earnings on
     uncompleted contracts                                2,467           0
                                                         ------      ------


                                                         $4,208      $    0
                                                         ======      ======

                                       14
<PAGE>

NOTE 5 - INVENTORIES

Inventories reflected on the accompanying consolidated balance sheets are
summarized as follows:

                                                        Unaudited    Audited
                                                          May 31,   August 31,
                                                           2004       2003
                                                         -------     -------

Raw materials                                            $   488     $   354
Work-in-process                                               20          22
Finished goods                                             4,617       1,619
Less inventory reserve                                      (327)       (139)
                                                         -------     -------

                                                         $ 4,798     $ 1,856
                                                         =======     =======


NOTE 6 - PROPERTY AND EQUIPMENT

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

                                                        Unaudited    Audited
                                                          May 31,   August 31,
                                                           2004       2003
                                                         -------     -------

Land and building                                        $ 1,876     $ 1,821
Machinery and equipment                                    2,160       1,620
Research equipment                                           380         338
Office equipment                                           2,700       2,734
Vehicles                                                     504         439
Leasehold improvements                                       444         263
                                                         -------     -------
                                                           8,064       7,215

Less accumulated depreciation                             (5,118)     (4,512)
                                                         -------     -------

                                                         $ 2,946     $ 2,703
                                                         =======     =======


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:

                                       15
<PAGE>

<TABLE>
<CAPTION>
                PROFESSIONAL        MANUFACTURING AND       WIRELESS         ENTER-     HOLDING     SEGMENT
              BUSINESS SOLUTIONS      DISTRIBUTION       INFRASTRUCTURE     TAINMENT    COMPANY     TOTALS
<S>                <C>                  <C>                   <C>            <C>        <C>         <C>
Goodwill
at August
31, 2003           $  -0-               $2,136                $  70          $  -0-     $  -0-      $2,206

Goodwill
Acquired
Fiscal YTD
May 31, 2004        1,618                  -0-                  429             -0-        -0-       2,047

Impairment
Losses
                 --------             --------             --------        --------   --------    --------

Goodwill
at May
31, 2004           $1,618               $2,136                $ 499          $  -0-     $  -0-      $4,253
                 ========             ========             ========        ========   ========    ========
</TABLE>

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

<TABLE>
<CAPTION>
                           AT MAY 31, 2004                     AT AUGUST 31,  2003
                ------------------------------------     -----------------------------------
                                           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 Base    $1,824        $193          10 YRS       $1,075         $66        10 YRS
Non-compete         234         107           4 YRS          234          63         4 YRS
Non-compete         399          53           5 YRS           --          --            --
Non-compete         100           3           3 YRS           --          --            --
                 ------        ----          ------       ------        ----        ------

Total            $2,557        $356           8 YRS       $1,309        $129         8 YRS
                 ======        ====          ======       ======        ====        ======
</TABLE>

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

     Year Ending August 31,
     ----------------------
              2004                          316
              2005                          349
              2006                          344
              2007                          337
              2008                          262
          Later years                       593
                                          -----

                                          2,201
                                          =====

                                       16
<PAGE>

NOTE 8 - LINES OF CREDIT AND DEBT ARRANGEMENTS

    Lines of Credit:
    The Company has a $1,500 line of credit available through July 31, 2004.
    Interest on the line is charged at 2.40% plus the one-month London Interbank
    Offered Rate (one-month LIBOR). Outstanding borrowings amounted to $1,490 at
    May 31, 2004 and $953 at August 31, 2003.

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

    The Company obtained a $3,000 line of credit facility on February 12, 2004
    in order to finance inventory and operations of Commercial Solutions. The
    line of credit is available through February 12, 2005. Interest on the line
    is charged, as elected by borrower, at 2.25% plus the one-month London
    Interbank Offered Rate (one-month LIBOR) or .5% less than the credit
    facility's Prime Rate. Outstanding borrowings amounted to $1,511 at May 31,
    2004.

    The Company obtained a $5,000 line of credit facility available through
    April 30, 2005 in order to finance the acquisition of JH Drew Corporation
    on April 30, 2004. Interest on the line is charged at the credit facility's
    Prime Rate less .5%. Outstanding borrowings amounted to $5,000 at May 31,
    2004.

    The 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 $6,500 long-term unsecured line of credit with a
    stockholder available through July 1, 2006. This line of credit replaced a
    previous $3,000 line of credit with a stockholder which was payable in July
    2004. Interest on the line is charged at 3% plus the one-month London
    Interbank Offered Rate (one-month LIBOR). Outstanding borrowings amounted to
    $6,073 at May 31, 2004 and $2,000 at August 31, 2003.


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

    Long-term debt consisted of the following at May 31, 2004 and August 31,
    2003:
<TABLE>
<CAPTION>
                                                                                   Unaudited       Audited
                                                                                    May 31,       August 31,
                                                                                     2004            2003
                                                                                  -----------    ------------
<S>                                                                                  <C>           <C>
Notes payable to financial institutions:
----------------------------------------

     $3,000 reducing revolver loan with monthly line reductions equal to 1/84th
     of the loan amount per month for the first 59 months, with a balloon
     payment due at maturity July 31, 2007. Interest is variable at 2.40% plus
     one-month LIBOR. The loan is secured by the business assets of Kingston,
     with a second lien on assets pledged by a stockholder.                          $ 2,286       $ 2,607

                                       17
<PAGE>

     $3,600 reducing revolver loan with monthly line reductions equal to 1/84th
     of the loan amount per month for the first 59 months, with a balloon
     payment due at maturity June 30, 2008. Interest is variable at 2.50% plus
     one-month LIBOR. The loan is secured by the business assets of Nor-Cote,
     with a second lien on assets pledged by a stockholder.                            3,214         3,416

     $1,950 secured term loan with monthly line reductions equal to 1/60th of
     the loan amount per month. 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.          1,950           -0-

     $2,050 secured term loan with monthly line reductions equal to 1/36th of
     the loan amount per month. 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.          2,050           -0-

     Due in monthly installments of $.434, including interest at 4.9% through
     January 2005.
     Secured by a vehicle                                                                  4             7

     Due in monthly installments of $.418, including interest at 9.03% through
     December 2004.
     Secured by a vehicle                                                                  2             7

     Due in monthly installments of $.295, including interest at 9.03% through
     December 2004.
     Secured by a vehicle                                                                 10            13

     Due in monthly installments of $.385, including interest at 5.55% through
     August 2006.
     Secured by a vehicle                                                                 10            13


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

     Due in monthly installments of $2.345, including interest at 4.00% through
     September 2008.
     Secured by 6 vehicles                                                               111           -0-

     Due in monthly installments of $.628, including
     interest at 4.00% through March 2007
     Secured by a vehicle                                                                 20           -0-

                                       18
<PAGE>

     Due in monthly installments of $.664, including interest at 4.00% through
     September 2008.
     Secured by a vehicle                                                                 20           -0-
                                                                                      ------        ------
                                                                                       9,677         6,063
     Less current maturities                                                          (2,069)         (861)
                                                                                      ------        ------
                                                                                      $7,608        $5,202
                                                                                      ======        ======
</TABLE>

Principal payments due on long-term debt outstanding at May 31, 2004 are
approximately as follows:

                  2004                         $2,069
                  2005                          2,065
                  2006                          2,065
                  2007                          1,882
                  2008 & after                  1,596
                                               ------

                                               $9,677
                                               ======



NOTE 9 - STOCKHOLDERS' EQUITY

     The following are the details of the Company's common stock as of May 31,
2004 and August 31, 2003:

                                                 Number of Shares
                                 ----------------------------------------------
                                 Authorized     Issued     Outstanding   Amount
                                 ----------     ------     -----------   ------
May 31, 2004 (Unaudited)
Common stock, $0.01 par value    150,000,000  102,386,444  102,386,444  $ 1,019
                                                                        =======


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


NOTE 10 - INCOME TAXES

Deferred income tax assets and liabilities result from temporary differences in
the recognition of income and expense for income tax and financial reporting
purposes. The tax effects of temporary differences that give rise to significant
portions of deferred tax assets included in other assets are present below:

                                       19
<PAGE>

                                                          May 31   August 31
                                                           2004      2003
                                                          ------   ---------

Current Deferred Tax Assets
Allowance for Doubtful Accounts                           $  481    $  124
Allowance for Sales Returns and Allowances                    54        54
Obsolesence Reserve                                          101        40
Compensation Reserve                                         233       237
Uniform Capitalization                                         6         6
                                                          ------    ------
                                                          $  875    $  461

Noncurrent Deferred Tax Assets
Fixed Assets                                              $  750       -0-
Net Operating Loss Carryforward-Federal                    1,924     2,403
Net Operating Loss Carryforward-Other States                 -0-        43
Capital Loss Carryforwards                                   460       460
                                                          ------    ------
                                                          $3,134     2,906

Total Deferred Tax Assets                                 $4,009    $3,367

Total Deferred Tax Liabilities                               -0-       -0-

Net Deferred Tax Assets                                    4,009     3,367
Valuation Allowance                                        4,009     3,367
                                                          ------    ------
Net Deferred Tax Assets                                    $ -0-     $ -0-
                                                          ======    ======


A reconciliation of the federal statutory rate to our effective tax rate is as
follows:

                                                          5/31/04   5/31/03
                                                          -------   -------
Federal Statutory Rate                                     34.0%     34.0%
Effect of Valuation Allowance                             (34.0%)   (34.0%)
State and Local Taxes net of Federal income
  Tax Benefit                                               5.0%      5.0%
Effect of Valuation Allowance                              (4.8%)    (5.0%)
                                                          ------    ------

Effective Rate                                               .2%        0%
                                                          ======    ======


At May 31, 2004, the Company had federal tax operating loss carryforwards of
approximately $4,500 which expire during the years of 2020, 2021, 2022 and 2023.
At August 31, 2003, the Company had federal tax operating loss carryforwards of
approximately $6,116, which expire during the years of 2020, 2021, 2022 and
2023. The state tax operating loss carryforwards were approximately $2,000 and
$2,357 at May 31, 2004 and August 31, 2003, respectively. The state tax
operating loss carryforward in Indiana; the primary state which the Company
operates is $0 at May 31, 2004. A portion of the difference between federal and
state net operating loss carryforwards represents a change in business venue in
a prior period.

                                       20
<PAGE>

NOTE 11 - PER SHARE DATA

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

                                                      Unaudited      Unaudited
                                                     Three Months   Three Months
                                                        Ended          Ended
                                                       May 31,        May 31,
                                                        2004           2003
                                                     ------------   ------------

Net Income                                           $        639  $         36
Dividends                                                      --            --
                                                     ------------  ------------

Net Income Available for Common
     Stockholders                                    $        639  $         36
                                                     ============  ============


Basic Income Per Share:                              $       0.01  $       0.00

Diluted Income Per Share:                            $       0.01  $       0.00


Shares Outstanding:
     Basic weighted average number of common shares
       outstanding                                    100,464,444    73,776,629
     Dilutive effect of conversion of options                  --            --
                                                     ------------  ------------

         Total Shares Outstanding                     100,464,444    73,776,629
                                                     ============  ============


                                                      Unaudited       Unaudited
                                                     Nine Months     Nine Months
                                                        Ended           Ended
                                                       May 31,         May 31,
                                                        2004            2003
                                                     ------------   ------------

Net Income                                           $      1,282  $        471
Dividends                                                      --            --
                                                     ------------  ------------

Net Income Available for Common
     Stockholders                                    $      1,282  $        471
                                                     ============  ============


Basic Income Per Share:                              $       0.01  $       0.01

Diluted Income Per Share:                            $       0.01  $       0.01


Shares Outstanding:
     Basic weighted average number of common shares
       outstanding                                    100,464,444    73,776,629
     Dilutive effect of conversion of options                  --            --
                                                     ------------  ------------

         Total Shares Outstanding                     100,464,444    73,776,629
                                                     ============  ============

                                       21
<PAGE>

NOTE 12 - COMMITMENTS AND CONTINGENCIES

As part of the Stock Purchase Agreement to acquire Kingston, there is a $250,000
contingent payment due on or before December 15, 2004, to Mr. Kingston.

As part of the Stock Purchase Agreement to acquire Kingston, Mr. Kingston shall
have the option to put any or all of the Company's stock received by him to the
Company.

The Company has entered into an agreement with a related party to purchase
property pursuant to an "Agreement for Purchase and Sale of Real Estate" entered
into July 3, 2003. The purchase price of the property between the related
parties has not been determined at May 31, 2004.

As part of the Stock Exchange Agreement with PSM, Harlan M. Schafir shall have
the option to put any or all of the Company's stock received by him to Mr.
Fortune, Mr. Kingston and the Company.


NOTE 13 - RELATED PARTY TRANSACTIONS

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.

On April 30, 2004, the Company's JH Drew subsidiary entered into an operating
lease agreement to rent 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.

                                       22
<PAGE>
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.

NOTE 14 - SEGMENT INFORMATION
<TABLE>
<CAPTION>
                                                   Professional   Manufacturing
                                                     Business         and          Wireless                     Holding     Segment
                                                     Solutions    Distribution  Infrastructure Entertainment    Company     Totals
<S>                                                  <C>            <C>            <C>            <C>          <C>         <C>
Three Months Ended May 31, 2004
Revenues                                             $  4,988       $  6,302       $  5,965       $     --     $     --    $ 17,255
Cost of revenues                                       (4,049)        (4,502)        (4,649)            --           --     (13,200)
Selling, general and administrative expenses             (482)        (1,632)          (806)            (2)        (350)     (3,272)
                                                     --------       --------       --------       --------     --------    --------

Segment Operating Income (Loss)                      $    457       $    168       $    510       $     (2)    $   (350)   $    783
                                                     ========       ========       ========       ========     ========    ========

Nine Months Ended May 31, 2004
Revenues                                             $ 13,108       $ 16,701       $ 10,462       $     --     $     --    $ 40,271
Cost of revenues                                      (10,586)       (11,468)        (8,255)            --           --     (30,309)
Selling, general and administrative expenses           (1,408)        (4,550)        (1,652)            (4)        (763)     (8,377)
                                                     --------       --------       --------       --------     --------    --------

Segment Operating Income (Loss)                      $  1,114       $    683       $    555       $     (4)    $   (763)   $  1,585
                                                     ========       ========       ========       ========     ========    ========

As of May 31, 2004
Cash                                                 $  2,482       $    680       $    545       $      1     $     53    $  3,761
Restricted savings account                                246             --             --             --           --         246
Certificates of deposit                                    74             --             --             --           --          74
Available for sale investments                          1,470             --             --             --           --       1,470
Notes receivable - short term                              --             21             --             --           --          21
Accounts receivable                                       739          3,966         12,471             --           11      17,187
Costs and estimated earnings in excess of billing
  of billing on uncompleted contracts                      --             --          6,675             --           --       6,675
Inventory, net                                             13          2,941          1,844             --           --       4,798
Prepaid expenses                                          159            289            216             --           19         683
Recoverable income taxes                                   --             78             --             --           --          78
Loan origination fees, net                                 --             42             --             --           --          42
Other current assets                                        2             --             59             --           --          61
Notes receivable - long term                               --             61             --             --           --          61
Property and equipment, net                                43          2,288            427             --          188       2,946
Goodwill                                                1,618          2,136            499             --           --       4,253
Other intangible assets, net                              999          1,055            147             --           --       2,201
Other long term assets                                     45             16             --             --           20          81
                                                     --------       --------       --------       --------     --------    --------

Total Segment Assets                                 $  7,890       $ 13,573       $ 22,883       $      1     $    291    $ 44,638
                                                     ========       ========       ========       ========     ========    ========

Three Months Ended May 31, 2003
Revenues                                             $     --       $  2,308       $  1,077       $     --     $     --    $  3,385
Cost of revenues                                           --         (1,737)          (747)            --           --      (2,484)
Selling, general and administrative expenses               --           (451)          (293)            (2)        (135)       (881)
                                                     --------       --------       --------       --------     --------    --------

Segment Operating Income (Loss)                      $     --       $    120       $     37       $     (2)    $   (135)   $     20
                                                     ========       ========       ========       ========     ========    ========

Nine Months Ended May 31, 2003
Revenues                                             $     --       $  7,144       $  3,174       $     --     $     --    $ 10,318
Cost of revenues                                           --         (5,305)        (2,016)            --           --      (7,321)
Selling, general and administrative expenses               --         (1,082)        (1,007)            (4)        (400)     (2,493)
                                                     --------       --------       --------       --------     --------    --------

Segment Operating Income (Loss)                      $     --       $    757       $    151       $     (4)    $   (400)   $    504
                                                     ========       ========       ========       ========     ========    ========

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

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

Item 2. Management's Discussion And Analysis Or Plan Of Operations.

     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); PDH, Inc. (PDH); Cornerstone Wireless Services, Inc. (Cornerstone
Wireless); Cornerstone Wireless Construction Services, Inc. (Cornerstone
Construction); Telecom Technology Corp. (TTC); StarQuest Wireless Services, Inc.
(StarQuest); Women of Wrestling, Inc. (WOW); and Murphy Development, Ltd
(Murphy). In addition, on April 30, 2004 the Company acquired two new entities,
James H. Drew Corp. (JH Drew) and Innovative Telecommunications Consultants,
Inc. (ITC).

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

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

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

                                       23
<PAGE>

(Malaysia) SDN, BHD., respectively. Nor-Cote expects to increase sales in the
current and subsequent fiscal year. Nor-Cote believes that the silver conductive
ink market will expand rapidly in the next few years. Nor-Cote has received
substantial interest in its products at trade shows and is adding new customers
in the US, Mexico, South America, the Far East, Europe and the U.K.

     Kingston is a distributor for prominent national companies in the
electronic, sound, security, and video markets. Kingston offers the latest
technology in TVs, sound systems, electronic locking devices, wire, cable and
fiber optics, and intercom systems. Kingston's role as a distributor is to serve
as the mutually beneficial link between the customer and the manufacturer. By
working closely with each, Kingston is able to provide strong customer service
and develop a solid relationship with vendors.

     Products and manufacturers represented by Kingston include, but are not
limited to, Dedicated Micros (Video Multiplexers & Digital Video Recorders);
Lowell Manufacturing (Speakers, cabinets, and accessories); Lucasey (Mounts and
television accessories); Net TV (Multimedia Digital Displays); Panasonic
Presentation (LCD Projectors & Plasma); R.L. Drake (Video distribution
products); RCA Commercial Products (Television and Satellite products);
Securitron Maganlock Corp.(Electromagnetic door locking systems); TOA
Electronics, Inc. (Sound, paging, and background music products); Video Alarm
CCT (Housing and mounts); West Penn Wire (Wire, cable, connectors, and fiber
optics); Audiovox Specialized Applications (mobile electronics). Kingston
estimates a 70% increase in proforma revenues fiscal year 2004 over fiscal year
2003 from its mobile electronic product division, which was created in February
2003. Kingston also expects an increase in sales to restaurants and bars due
mainly to the introduction of DLP technology. One of the difficulties
encountered by Kingston during the prior year was the lack of product
availability, which affected Kingston's sales. In order to help alleviate this
difficulty, Kingston began importing products directly from China and
brand-naming such products. Kingston believes the direct imports will give it
additional product and a competitive advantage in the market. In addition,
Kingston experienced significant changes to its distribution channels in January
2004, which increased product availability.

     Commercial Solutions is the primary distributor for RCA commercial
products, serving distributors throughout the US who provide interactive
electronics to the lodging, healthcare, professional and educational markets. In
an agreement with Thomson Inc., Commercial Solutions provides same-day
distribution by carrying the necessary inventory, thus filling a much-needed
void in the distribution chain.

     Currently, Commercial Solutions is working to broaden its lines to offer
complementary products to the above markets. These products could include
installation cable, DVD/VCR combination units, LCD & plasma panels, TV/VCR
combination units and after-market batteries for commercial applications, along
with other commercially used items. Additionally, Commercial Solutions is in a
position to help bring new commercial products to market, working with new
suppliers, to give current distributors a broader product lineup to sell along
with the current commercial televisions.


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

         The Company's Wireless Infrastructure segment is conducted through its
JH Drew, PDH, Cornerstone Wireless, Cornerstone Construction, ITC, 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

                                       24
<PAGE>

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. JH Drew maintains significant market
share in the main geographic areas of Indiana, western Missouri, and eastern
Tennessee and has offices in these three states. Currently, approximately 95% of
sales are derived in these geographic areas. JH Drew has achieved revenue and
EBITDA growth during four of the last five years and is again on track to attain
record revenues in 2004. Drew has been able to achieve rapid historical growth
through acquisitions and new product offerings in existing markets. JH Drew is
well positioned to acquire additional companies that will complement current
operations and expand market penetrations into existing and new geographic
areas.

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

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

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

     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
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. This is
achieved by knowledgeable management structure with regional offices located
throughout the US and with corporate headquarters strategically positioned in
the Midwest. ITC places emphasis on monitoring the evolution of technology in
the fast paced wireless industry to ensure that all field personnel are properly
trained with the necessary skills it takes to provide the best available
service, and wide range of technical solutions provided to the wireless
industry.

                                       25
<PAGE>

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

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


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

     The Company's Professional Business Solutions segment is conducted through
Professional Staff Management, Inc., Professional Staff Management, Inc. II and
Pro Staff, Inc. (collectively "PSM"). PSM is one of the Midwest's largest
Professional Employer Organizations (PEO) providing cost-effective employee
administrative solutions to companies in more than 25 states nationwide. The
three companies are engaged in providing services in employment-related matters,
such as payroll and tax processing, worker's compensation and risk management,
benefits administration, unemployment administration, legal and regulatory
employer compliance, 401k and retirement plan administration and employee
assessments. PSM has been recognized as one of the 100 Fastest Growing Companies
in Indiana by the Kelly School of Business at Indiana University for 2000, 2001
and 2002. The PEO industry is expanding rapidly. The Company believes there is a
rising demand for PEO services and an excellent opportunity for consolidation
and expansion.

Other Information
-----------------

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 completion of any additional acquisitions or other business opportunities,
as well as the expected rapid growth of the Company's existing businesses, could
result in the need for substantial additional funding.

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.

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.

                                       26
<PAGE>

RESULTS OF OPERATIONS:  COMPARISON OF THE THREE MONTH PERIODS ENDED
MAY 31, 2004 AND MAY 31, 2003
-----------------------------

Revenues and Earnings
---------------------

Net revenues for the three months ended May 31, 2004 were $17,255 compared to
$3,385 for the three months ended May 31, 2003. This increase was primarily due
to the acquisitions of PSM, on October 1, 2003, JH Drew and ITC on April 30,
2004, Commercial Solutions on January 15, 2004 and Nor-Cote and Cornerstone
Construction in fiscal year 2003. PSM, which represents all of the Company's
Professional Business Solutions Segment, reported revenues of $4,988 for quarter
ended May 31, 2004. JH Drew and ITC, which were added to the Company's Wireless
Infrastructure Segment, reported revenues of $4,278 and $252 respectively, for
the quarter ended May 31, 2004. Commercial Solutions, which was added to the
Company's Manufacturing and Distribution segment, reported revenues of $961 for
the quarter ended May 31, 2004. Nor-Cote, which was added to the Company's
Manufacturing and Distribution Segment on July 1, 2003, reported revenues of
$2,601. Cornerstone Construction, which was added to the Company's Wireless
Infrastructure Segment on August 15, 2003, reported revenues of $420.
Additionally, Kingston had a $480 or 20% increase in revenues over prior quarter
due mainly to two contributing factors: 1) an increase in RCA commercial product
availability due to a new supplier relationship established in February 2004 and
an increase in sales in Kingston's mobile electronics division which was started
in February 2003. During the quarter ended May 31, 2004 the Company recorded net
earnings in the amount of $639 compared to previous quarter ended May 31, 2003
net earnings of $36.


Costs and Expenses
------------------

Cost of revenues were $13,200 for the three months ended May 31, 2004 compared
to $2,484 for the three months ended May 31, 2003. This increase was primarily
due to the acquisitions of PSM, on October 1, 2003, JH Drew and ITC on April 30,
2004, Commercial Solutions on January 15, 2004 and Nor-Cote and Cornerstone
Construction in fiscal year 2003. PSM, which represents all of the Company's
Professional Business Solutions Segment, reported cost of revenues for the
quarter ended May 31, 2004 of $4,049. JH Drew and ITC, which were added to the
Company's Wireless Infrastructure Segment, reported cost of revenues of $3,464
and $75 consecutively, for the quarter ended May 31, 2004. Commercial Solutions,
which was added to the Company's manufacturing and distribution segment,
reported cost of revenues of $799 for the quarter ended May 31, 2004. Nor-Cote,
which was added to the Company's Manufacturing and Distribution Segment on July
1, 2003, reported cost of revenues of $1,372. Cornerstone Construction, which
was added to the Company's Wireless Infrastructure Segment on August 15, 2003,
reported cost of revenues of $478. Additionally, Kingston had a $553 or 31%
increase in cost of revenues over prior quarter due mainly to increased sales.
The decrease in Kingston's gross margin percentage over last year was due to
Kingston's inability to take advantage of 2% discount on product purchases due
to tightened cash flows and a decrease in DirecTV product sales due to
difficulty in internally managing the program and collection efforts.

Selling, general and administrative expenses were $3,272 for the three months
ended May 31, 2004, compared to $881 for the three months ended May 31, 2003.
This increase was primarily due to the acquisitions of PSM, on October 1, 2003,
JH Drew on April 30, 2004, Commercial Solutions on January 15, 2004 and Nor-Cote
and Cornerstone Construction in fiscal year 2003. PSM, which represents all of
the Company's Professional Business Solutions Segment, reported expenses for the
three months ended May 31, 2004 of $482. JH Drew and ITC, which were added to
the Company's Wireless Infrastructure Segment, reported expenses of $243 and $44
consecutively, for the quarter ended May 31, 2004. Commercial Solutions, which

                                       27
<PAGE>

was added to the Company's manufacturing and distribution segment, reported
expenses of $34 for the quarter ended May 31, 2004. Nor-Cote, which was added to
the Company's Manufacturing and Distribution Segment on July 1, 2003, reported
expenses of $1,093. Cornerstone Construction, which was added to the Company's
Wireless Infrastructure Segment on August 15, 2003, reported expenses of $201.

In the Holding Company, there was an increase of $215 in selling, general and
administrative expenses for the three months ended May 31, 2004 compared to the
same period in the previous fiscal year. This increase was primarily related to
the Holding Company's hiring of additional employees, an increase in
professional fees due to Company growth, an increase in marketing fees, and two
months rent expense absorbed by the Holding Company on a new operating lease
agreement with a related party dated March 2004.

Interest expense for the three months ended May 31, 2004 was approximately $141,
compared to $41 for the three months ended May 31, 2003. The increase was due
primarily to the financing of the Nor-Cote acquisition along with acquired debt
from the Nor-Cote acquisition in July 2003, the acquisition of JH Drew and ITC
on April 30, 2004, and $1,500 borrowings on a $3,000 line of credit established
in February 2004 for financing Commercial Solutions inventory. In order to
finance the Nor-Cote acquisition and consolidate Nor-Cote's debt, the Company
obtained a $3,600 reducing revolving loan which is amortized over 7 years, with
a loan balloon payment due at end of a 5 year term. In order to finance the JH
Drew acquisition the Company obtained a $5,000 line of credit available through
July 2005, a $1,950 term loan with monthly principal and interest payable over 5
years, a $2,050 term loan with monthly principal and interest payable over 3
years. In addition the Company obtained a $3,000 long-term line of credit
facility with a related party on July 1, 2003. This agreement was replaced with
a $6,500 long-term line of credit facility with the same related party on April
30, 2004, of which $3,000 of the increased line was borrowed to finance the JH
Drew and ITC acquisitions on April 30, 2004.

RESULTS OF OPERATIONS:  COMPARISON OF THE NINE MONTH PERIODS ENDED
MAY 31, 2004 AND MAY 31, 2003
-----------------------------

Revenues and Earnings
---------------------

Net revenues for the nine months ended May 31, 2004 were $40,271 compared to
$10,318 for the nine months ended May 31, 2003. This increase was primarily due
to the acquisitions of PSM, on October 1, 2003, JH Drew and ITC on April 30,
2004, Commercial Solutions on January 15, 2004 and Nor-Cote and Cornerstone
Construction in fiscal year 2003. PSM, which represents all of the Company's
Professional Business Solutions Segment, reported revenues of $13,108 for nine
months ended May 31, 2004. JH Drew and ITC, which were added to the Company's
Wireless Infrastructure Segment, reported revenues of $4,278 and $252
consecutively, for the nine months ended May 31, 2004. Commercial Solutions,
which was added to the Company's Manufacturing and Distribution segment,
reported revenues of $1,087 for the nine months ended May 31, 2004. Nor-Cote,
which was added to the Company's Manufacturing and Distribution Segment on July
1, 2003, reported revenues of $7,815. Cornerstone Construction, which was added
to the Company's Wireless Infrastructure Segment on August 15, 2003, reported
revenues of $3,285. During the nine months ended May 31, 2004 the Company
recorded net earnings in the amount of $1,282 as compared to previous nine
months ended May 31, 2003 of $471.

                                       28
<PAGE>

Costs and Expenses
------------------

Cost of revenues were $30,309 for the nine months ended May 31, 2004 compared to
$7,321 for the nine months ended May 31, 2003. This increase was primarily due
to the acquisitions of PSM, on October 1, 2003, JH Drew and ITC on April 30,
2004, Commercial Solutions on January 15, 2004 and Nor-Cote and Cornerstone
Construction in fiscal year 2003. PSM, which represents all of the Company's
Professional Business Solutions segment, reported cost of revenues for the nine
months ended May 31, 2004 of $10,586. JH Drew and ITC, which were added to the
Company's Wireless Infrastructure Segment, reported cost of revenues of $3,464
and $75 consecutively, for the nine months ended May 31, 2004. Commercial
Solutions, which was added to the Company's Manufacturing and Distribution
segment, reported cost of revenues of $1,746 for the nine months ended May 31,
2004. Nor-Cote, which was added to the Company's Manufacturing and Distribution
Segment on July 1, 2003, reported cost of revenues of $4,163. Cornerstone
Construction, which was added to the Company's Wireless Infrastructure Segment
on August 15, 2003, reported cost of revenues of $2,964.

Selling, general and administrative expenses were $8,377 for the nine months
ended May 31, 2004, compared to $2,493 for the nine months ended May 31, 2003.
This increase was primarily due to the acquisitions of PSM, on October 1, 2003,
JH Drew and ITC on April 30, 2004, Commercial Solutions on January 15, 2004 and
Nor-Cote and Cornerstone Construction in fiscal year 2003. PSM, which represents
all of the Company's Professional Business Solutions Segment, reported expenses
for nine months ended May 31, 2004 of $1,408. JH Drew and ITC, which were added
to the Company's Wireless Infrastructure Segment, reported expenses of revenues
of $243 and $44 consecutively, for the nine months ended May 31, 2004.
Commercial Solutions, which was added to the Company's Manufacturing and
Distribution segment, reported expenses of $54 for the nine months ended May 31,
2004. Nor-Cote, which was added to the Company's Manufacturing and Distribution
Segment on July 1, 2003, reported expenses of $3,215. Cornerstone Construction,
which was added to the Company's Wireless Infrastructure Segment on August 15,
2003, reported expenses of $558.

In the Holding Company, there was an increase of $363 in selling, general and
administrative expenses for the nine months ended May 31, 2004 compared to the
same period in the previous fiscal year. This increase was primarily related to
the Holding Company's hiring of additional employees, an increase in
professional fees due to Company growth, an increase in marketing fees, and two
months rent expense absorbed by the Holding Company on a new operating lease
agreement with a related party dated March 2004.

Interest expense for the nine months ended May 31, 2004 was approximately $330,
compared to $114 for the nine months ended May 31, 2003. The increase was due
primarily to the financing of the Nor-Cote acquisition along with acquired debt
from the Nor-Cote acquisition in July 2003, the acquisition of JH Drew and ITC
on April 30, 2004, and $1,500 borrowings on a $3,000 line of credit established
in February 2004 for financing Commercial Solutions inventory. In order to
finance the Nor-Cote acquisition and consolidate Nor-Cote's debt, the Company
obtained a $3,600 reducing revolving loan which is amortized over 7 years, with
a loan balloon payment due at end of a 5 year term. In order to finance the JH
Drew acquisition the Company obtained a $5,000 line of credit available through
July 2005, a $1,950 term loan with monthly principal and interest payable over 5
years, a $2,050 term loan with monthly principal and interest payable over 3
years. In addition the Company obtained a $3,000 long-term line of credit
facility with a related party on July 1, 2003. This agreement was replaced with
a $6,500 long-term line of credit facility with the same related party on April
30, 2004, of which $3,000 of the increased line was borrowed to finance the JH
Drew and ITC acquisitions on April 30, 2004.

                                       29
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

As of May 31, 2004, the Company had working capital of approximately $10,098
composed primarily of cash and equivalents, available for sales investments, net
accounts receivable, costs and estimated earnings in excess of billings on
uncompleted contracts and net inventory. The Company's principal sources of
liquidity include $3,761 in cash and cash equivalents, $1,470 in available for
sale investments, a $1,500 line of credit available through July 31, 2004 of
which $0 was available as of May 31, 2004, a $500 line of credit available
through June 30, 2004 of which $0 was available as of May 31, 2004, a $3,000
line of credit available through February 2005 of which $1,489 was available as
of May 31, 2004 and a $6,500 unsecured line of credit with a stockholder of
which $427 was available as of May 31, 2004.

For the nine months ended May 31, 2004, cash flows used by operating activities
were $1,617 as compared to $275 for the nine months ended May 31, 2003. The
change is primarily related to the Company's increase in accounts receivable of
$3,616 due mainly to the increase in quarterly sales in the Company's JH Drew,
ITC, Kingston Sales and Commercial Solutions subsidiaries. This decrease in cash
flow used by operating activities was offset by net earnings year to date of
$1,282.

For the nine months ended May 31, 2004, cash flows used by investing activities
were $10,639 as compared to $187 for the nine months ended May 31, 2003. The
cash flows used for investing activities for the nine months ended May 31, 2004
is primarily due to the purchase of JH Drew and ITC on April 30, 2004 for an
estimated $11,946, net of cash received, and net cash received of $3,302 as a
result of the acquisition of PSM on October 1, 2003. Purchases of available for
sale securities were $2,044 for the nine months ended May 31, 2004 compared to
$0 for the nine months ended May 31, 2003.

For the nine months ended May 31, 2004, cash flows provided by financing
activities were $14,910 as compared to $367 for the nine months ended May 31,
2003. The increase was primarily related to $11,900 of new debt acquired in
order to finance the Company's acquisition of JH Drew and ITC on April 30, 2004.
Additionally the Company's Commercial Solutions subsidiary borrowed $1,511 on a
line of credit established in order to finance inventory purchases and working
capital needs in its Manufacturing and Distribution. Additionally, money was
borrowed on existing lines of credit in order to purchase new equipment in the
Manufacturing and Distributions segment as well as new vehicles in the Company's
Wireless Infrastructure segment.


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.

                                       30
<PAGE>

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.

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

                                       31
<PAGE>

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, the 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.
------  ---------------------

     None

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

     None

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

     None

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

     None

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

(a) Exhibits

    10.1          Building Lease Between Related Party and Fortune Diversified
                  Industries, Inc.
    10.2          Building Lease Between Related Party and James H. Drew
                  Corporation
    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


(b) Reports on Form 8-K.

                                       32
<PAGE>

     The following reports were filed by the Company during the third quarter of
fiscal year 2003-2004:

     Current report 8-K dated May 25, 2004 furnishing item 5 and 7, related to
the acquisition of ITC by the Company.

     Current report 8-K dated May 15, 2004 furnishing item 2 and 7, related to
the acquisition of JH Drew by the Company.

















                                    33
<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:  July 15, 2004                   By: /s/ Carter M. Fortune
                                           --------------------------------
                                           Carter M. Fortune,
                                           Chief Executive Officer



Date:  July 15, 2004                   By: /s/ Amy Gallo
                                           --------------------------------
                                           Amy Gallo,
                                           Chief Financial Officer







                                       34