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

                                   Form 10-QSB


(Mark One)

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

                For the quarterly period ended February 28, 2002

[ ]  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
   incorporation or organization)                Identification No.)


                6809 Corporate Drive, Indianapolis, Indiana 46278
        ----------------------------------------------------------------
                    (Address of principal executive offices)


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


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

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes  X  No
                                                              ---    ---
On April 11, 2002 there were 69,496,629 shares of the Company's Common Stock
outstanding.

<PAGE>

PART 1 - FINANCIAL INFORMATION

Item 1. Financial Statements.


              FORTUNE DIVERSIFIED INDUSTRIES, INC. AND SUBSIDIARIES
                (FORMERLY WOW ENTERTAINMENT, INC. AND SUBSIDIARY)

                           CONSOLIDATED BALANCE SHEETS


                                     ASSETS

<TABLE>
<CAPTION>
                                                                  Unaudited         Audited
                                                                 February 28,      August 31,
                                                                     2002             2001
<S>                                                              <C>              <C>
CURRENT ASSETS
     Cash and equivalents                                        $   135,000      $ 2,538,000
     Accounts receivable                                             454,000               --
     Other current assets                                            101,000          107,000
                                                                 -----------      -----------
         Total Current Assets                                        690,000        2,645,000
                                                                 -----------      -----------

OTHER ASSETS
     Notes receivable-Note 2                                         630,000          630,000
     Investment in land development                                    6,000            6,000
     Investment in marketable securities                             931,000               --
     Office equipment                                                244,000           35,000
                                                                 -----------      -----------
         Total Other Assets                                        1,811,000          671,000
                                                                 -----------      -----------

         TOTAL ASSETS                                            $ 2,501,000      $ 3,316,000
                                                                 ===========      ===========


                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
     Accounts payable                                            $   114,000      $    73,000
     Accrued payroll and related expenses                             64,000           28,000
     Accrued expenses                                                 66,000           50,000
                                                                 -----------      -----------
         Total Current Liabilities                                   244,000          151,000
                                                                 -----------      -----------

STOCKHOLDERS' EQUITY-Notes 2 and 3
     Common stock                                                    695,000          695,000
     Additional paid-in capital and warrants outstanding           7,001,000        7,001,000
     Accumulated deficit, since July 21, 2000, when a
      deficit of $60,099,000 was eliminated-Note 5                (5,173,000)      (4,531,000)
     Accumulated other comprehensive income (loss)                  (266,000)              --
                                                                 -----------      -----------
                                                                   2,257,000        3,165,000
                                                                 -----------      -----------

         TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY              $ 2,501,000      $ 3,316,000
                                                                 ===========      ===========
</TABLE>

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

                                       1
<PAGE>

              FORTUNE DIVERSIFIED INDUSTRIES, INC. AND SUBSIDIARIES
                (FORMERLY WOW ENTERTAINMENT, INC. AND SUBSIDIARY)

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                 Three Months Ended
                                                            February 28,     February 28,
                                                                2002             2001
<S>                                                         <C>              <C>
REVENUES                                                    $    71,000      $   216,000

COST OF REVENUES                                                197,000        2,245,000
                                                            -----------      -----------

GROSS PROFIT (LOSS)                                            (126,000)      (2,029,000)

SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES                   432,000          750,000
                                                            -----------      -----------

Operating Loss                                                 (558,000)      (2,779,000)
                                                            -----------      -----------

OTHER INCOME (EXPENSE)
     Interest income                                             16,000           12,000
     Interest expense                                                --          (58,000)
     Gains on investments in marketable securities, net          95,000               --
     Net loss on sale of assets                                  (4,000)              --
                                                            -----------      -----------
         Total Other Income (Expense)                           107,000          (46,000)
                                                            -----------      -----------

Net Loss before Provision for Income Taxes                     (451,000)      (2,825,000)

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

NET LOSS                                                    $  (451,000)     $(2,825,000)
                                                            ===========      ===========


BASIC LOSS PER SHARE-Note 4                                 $     (0.01)     $     (0.05)
                                                            ===========      ===========


DILUTED LOSS PER SHARE-Note 4                               $     (0.01)     $     (0.05)
                                                            ===========      ===========
</TABLE>

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

                                       2
<PAGE>

              FORTUNE DIVERSIFIED INDUSTRIES, INC. AND SUBSIDIARIES
                (FORMERLY WOW ENTERTAINMENT, INC. AND SUBSIDIARY)

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                 Six Months Ended
                                                            February 28,     February 28,
                                                                2002             2001

<S>                                                         <C>              <C>
REVENUE                                                     $    91,000      $   308,000

COST OF REVENUE                                                 282,000        4,886,000
                                                            -----------      -----------

GROSS PROFIT (LOSS)                                            (191,000)      (4,578,000)

SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES                   696,000        1,116,000
                                                            -----------      -----------

Operating Loss                                                 (887,000)      (5,694,000)

OTHER INCOME (EXPENSE)
     Interest income                                             42,000           14,000
     Interest expense                                                --          (66,000)
     Gains on investments in marketable securities, net         208,000               --
     Net loss on sale of assets                                  (4,000)              --
                                                            -----------      -----------
         Total Other Income (Expense)                           246,000          (52,000)
                                                            -----------      -----------

Net Loss before Provision for Income Taxes                     (641,000)      (5,746,000)

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

NET LOSS                                                    $  (641,000)     $(5,746,000)
                                                            ===========      ===========


BASIC LOSS PER SHARE-Note 4                                 $     (0.01)     $     (0.09)
                                                            ===========      ===========


DILUTED LOSS PER SHARE-Note 4                               $     (0.01)     $     (0.09)
                                                            ===========      ===========
</TABLE>

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

                                       3
<PAGE>

              FORTUNE DIVERSIFIED INDUSTRIES, INC. AND SUBSIDIARIES
                (FORMERLY WOW ENTERTAINMENT, INC. AND SUBSIDIARY)

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                       Three Months Ended
                                                                  February 28,     February 28,
                                                                      2002             2001
<S>                                                               <C>              <C>
OPERATING ACTIVITIES
     Net loss                                                     $  (451,000)     $(2,825,000)
     Adjustments to reconcile net loss to net cash used
      by operating activities:
         Accrued interest                                             (10,000)              --
         Depreciation and amortization                                  5,000           20,000
         Net loss on sale of assets                                     4,000               --
         Net realized gain from sale of available for sale
          securities                                                  (95,000)              --
         Stock options granted for service                                 --           48,000
         Stock options granted for compensation                            --           62,000
         Changes in certain operating assets and liabilities:
             Accounts receivable                                     (436,000)        (185,000)
             Merchandise inventories                                       --           16,000
             Production costs                                              --           44,000
             Other current assets                                      10,000          241,000
             Accounts payable, accrued expenses and other
              current liabilities                                     (84,000)         329,000
                                                                  -----------      -----------
                 Net Cash Used by Operating Activities             (1,057,000)      (2,250,000)
                                                                  -----------      -----------

INVESTING ACTIVITIES
     Purchases of property and equipment                             (205,000)              --
     Purchases of available for sale securities                    (1,723,000)              --
     Proceeds from sale of available for sale securities            1,345,000               --
                                                                  -----------      -----------
                 Net Cash Used by Investing Activities               (583,000)              --
                                                                  -----------      -----------

FINANCING ACTIVITIES
     Dividends paid to preferred stockholders                              --          (72,000)
     Borrowings on line of credit                                          --        2,250,000
                                                                  -----------      -----------
                 Net Cash Provided by Financing Activities                 --        2,178,000
                                                                  -----------      -----------

NET DECREASE IN CASH                                               (1,640,000)         (72,000)

CASH
     Beginning of Period                                            1,775,000          148,000
                                                                  -----------      -----------

     End of Period                                                $   135,000      $    76,000
                                                                  ===========      ===========

SUPPLEMENTAL DISCLOSURES
     Noncash investing and financing activities:
      Unrealized net loss on marketable securities                $  (398,000)     $        --
</TABLE>

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

                                       4
<PAGE>

              FORTUNE DIVERSIFIED INDUSTRIES, INC. AND SUBSIDIARIES
                (FORMERLY WOW ENTERTAINMENT, INC. AND SUBSIDIARY)

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                        Six Months Ended
                                                                  February 28,     February 28,
                                                                      2002             2001
<S>                                                               <C>              <C>
OPERATING ACTIVITIES
     Net loss                                                     $  (641,000)     $(5,746,000)
     Adjustments to reconcile net loss to net cash used
      by operating activities:
         Depreciation                                                  10,000           21,000
         Accrued interest                                             (10,000)              --
         Net loss on sale of assets                                     4,000               --
         Net realized gain from sale of available for sale
          securities                                                 (208,000)              --
         Stock options granted for services                                --           48,000
         Stock options granted for compensation                            --           62,000
         Changes in certain operating assets and liabilities:
             Accounts receivable                                     (454,000)        (282,000)
             Merchandise inventories                                       --          (22,000)
             Production costs                                              --           60,000
             Other current assets                                       5,000          279,000
             Accounts payable, accrued expenses and other
              current liabilities                                     (76,000)         532,000
                                                                  -----------      -----------
                 Net Cash Used by Operating Activities             (1,370,000)      (5,048,000)
                                                                  -----------      -----------

INVESTING ACTIVITIES
     Purchases of office equipment                                   (223,000)          (5,000)
     Purchases of available for sale securities                    (2,818,000)              --
     Proceeds from sale of available for sale securities            2,008,000               --
     Web-site development costs incurred                                   --          (49,000)
                                                                  -----------      -----------
                 Net Cash Used by Investing Activities             (1,033,000)         (54,000)
                                                                  -----------      -----------

FINANCING ACTIVITIES
     Issuance of common stock                                              --           34,000
     Dividends paid to preferred stockholders                              --         (100,000)
     Proceeds from issuance of preferred stock                             --          700,000
     Borrowings on line of credit                                          --        4,250,000
                                                                  -----------      -----------
                 Net Cash Provided by Financing Activities                 --        4,884,000
                                                                  -----------      -----------

NET DECREASE IN CASH                                               (2,403,000)        (218,000)

CASH
     Beginning of Period                                            2,538,000          294,000
                                                                  -----------      -----------

     End of Period                                                $   135,000      $    76,000
                                                                  ===========      ===========

SUPPLEMENTAL DISCLOSURES
     Noncash investing and financing activities:
      Unrealized net loss on marketable securities                $  (266,000)     $        --
</TABLE>

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

                                       5
<PAGE>

              FORTUNE DIVERSIFIED INDUSTRIES, INC. AND SUBSIDIARIES
                (FORMERLY WOW ENTERTAINMENT, INC. AND SUBSIDIARY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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

     Nature of Business: Fortune Diversified Industries, Inc. (the Company),
     formerly known as WOW Entertainment, Inc. and American Gaming &
     Entertainment, Ltd., is a Delaware corporation organized in 1988. The
     Company is the parent company of five wholly-owned subsidiaries: PDH, Inc.,
     Cornerstone Wireless Services, Inc., Cornerstone Wireless Construction
     Services, Inc., Women of Wrestling, Inc., and Murphy Development, Ltd.

     Through July 2001, the Company's main area of emphasis was in
     entertainment, primarily, WOW - Women of Wrestling(R). However, the
     Company's primary operating focus has shifted from the entertainment
     industry to the wireless telecommunications industry. Because of the
     Company's change in operating focus and its expanded current and future
     anticipated holdings, the Company amended its certificate of incorporation
     to change its name from WOW Entertainment, Inc. to Fortune Diversified
     Industries, Inc. and changed its stock symbol from WOWI to FDVI, effective
     August 16, 2001.

     The Company's current operating focus is achieved though its PDH, Inc.
     (PDH), Cornerstone Wireless Services, Inc. and Cornerstone Wireless
     Construction Services, Inc. subsidiaries and their affiliates
     (Cornerstone). The Company can assist its customers with the telecom site
     development process from visualization to completion including:

     o    Site acquisition (i.e., raw land along and interstate or a building
          rooftop for co-location of an antenna);

     o    Architectural and engineering analysis and drawings (i.e., analysis of
          existing cell tower or construction drawings of cell towers and
          switches);

     o    Site construction, and;

     o    Existing site maintenance and upgrades.

     Principles of Consolidation: The accompanying consolidated financial
     statements include the accounts of the Company and its wholly-owned
     subsidiaries. All significant intercompany accounts and transactions have
     been eliminated.

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


                                       6
<PAGE>

NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (CONTINUED)

     Revenues: The Company enters into contracts principally on the basis of
     competitive bids, the final terms and prices of which are frequently
     negotiated with the customer. Although the terms of its contracts vary
     considerably, most are made on either a unit price or fixed price basis in
     which the Company agrees to do the work for units of work performed (unit
     price) or for a fixed amount for the entire project (fixed price). The
     Company also performs services on a cost-plus or time and materials basis.
     The Company completes most projects within one year. The Company generally
     recognizes revenue utilizing output measures, such as when services are
     performed, units are delivered or when contract milestones are reached. The
     Company will, at times, record revenues from longer term, fixed price
     contracts on a percentage-of-completion basis , using input measures such
     as the cost-to-cost method based on the percentage of total costs incurred
     to date in proportion to total estimated costs to complete the contract.

     The Company recognizes revenue from the direct distribution, exploitation
     and licensing of film and television programs before deduction for any of
     the Company's direct costs of distribution. For markets and territories in
     which the Company's fully or jointly-owned films and television programs
     are distributed by third parties, revenue is the net amounts payable to the
     Company by third party distributors. Revenue is reduced by appropriate
     allowances, estimated returns, price concessions, and similar adjustments,
     as applicable.

     Cost of revenues consist primarily of salaries, wages and benefits to
     employees, depreciation, fuel and other vehicle expenses, equipment
     rentals, subcontracted services, insurance, facilities expenses, materials
     and parts and supplies.

     Selling, general and administrative expenses consist primarily of
     compensation and related benefits to management, administrative salaries
     and benefits, marketing, office rent and utilities, communications and
     professional fees.

     Cash and Equivalents may include money market fund shares, bank time
     deposits and certificates of deposits, and other instruments with original
     maturities of three months or less. The Company maintains its cash in bank
     deposit accounts which, at times, may exceed federally insured limits. The
     Company has never experienced any losses in such accounts.

     Marketable Securities include common stocks classified as "available for
     sale". The securities are carried at fair value based on current market
     quotations. Unrealized holding gains and losses are not included in "net
     income", but are accounted for as "other comprehensive income" and
     reflected as a separate component of the change in stockholders' equity. At
     February 28, 2002, the accumulated other comprehensive losses on marketable
     equity securities were comprised entirely of gross unrealized losses of
     $266,000. The cost of securities used to compute realized gains and losses
     is based on specifically-identified securities.

     Office Equipment is recorded at cost. Depreciation is provided by the
     straight-line method over the estimated useful lives (3 to 10 years) of the
     respective assets.

                                                  February 28,       August 31,
                                                     2002               2001

        Office equipment                           $257,000           $40,000
        Less:  Accumulated depreciation             (13,000)           (5,000)
                                                   --------           -------

        Office Equipment, Net                      $244,000           $35,000
                                                   ========           =======

     Leases: The Company's facilities are leased pursuant to a three-year lease
     agreement which expires in August 2004.


                                       7
<PAGE>

NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (CONTINUED)

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

     Stock-based Compensation: The Company accounts for all stock based
     compensation under the provision of Statement of Financial Accounting
     Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation", which
     uses the term "compensation" in its broadest sense to refer to
     consideration paid for goods and services, regardless of whether the
     supplier is an employee or not. The Company values stock options and
     warrants issued based upon an option-pricing model and recognizes this
     value as an expense over the period in which the option vests.

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

     Income Taxes: The Company accounts for income taxes under the provisions of
     Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
     Income Taxes." Accordingly, deferred tax assets and liabilities are
     determined based on differences between the financial reporting and tax
     bases of assets and liabilities and are measured using the enacted tax
     rates.

NOTE 2 - STOCKHOLDERS' EQUITY

     The following are the details of the Company's common stock as of February
     28, 2002 and August 31, 2001:

<TABLE>
<CAPTION>
                                        Number of Shares
                                     Authorized      Issued      Outstanding       Amount
<S>                                 <C>            <C>            <C>             <C>
     February 28, 2002
        Common stock, $0.01 par
         value (1)(2)               500,000,000    69,496,629     69,496,629      $695,000
                                                                                  ========

     August 31, 2001
        Common stock, $0.01 par
         value (1)(2)               500,000,000    69,496,629     69,496,629      $695,000
                                                                                  ========
</TABLE>

(1)  As of May 22, 2001, the Company and its subsidiary, Women of Wrestling,
     Inc. (WOW), executed an Amendment to its Distribution Agreement with M/G
     Perin, Inc. and Richard Perin (collectively "Perin") in which they agreed
     to terminate their Distribution Agreement dated January 18, 2000 and enter
     into a new agreement covering only WOW's free television programs created
     through May 22, 2001.

     Also as part of the agreement, Mr. Perin returned for cancellation by the
     Company 1,839,556 restricted shares which represented all of his common
     stock in the Company. All rights to warrants issuable under the
     Distribution Agreement were also voided. Perin also received funding from
     WOW sufficient to pay certain payables incurred in connection with its
     representation of WOW. The funds used to pay Perin were loaned to WOW by
     Carter Fortune, a major stockholder of the Company.


                                       8
<PAGE>

NOTE 2 - STOCKHOLDERS' EQUITY (CONTINUED)

(2)  As of June 26, 2001, the Company redeemed 19,007,585 shares of common stock
     of the Company from David B. McLane, which represented all the shares owned
     by Mr. McLane, and cancelled the outstanding warrant. Concurrently with the
     redemption, Mr. McLane resigned from the Board of Directors of the Company
     and as President of the Company and its subsidiaries.

     The Company authorized 5,000,000 shares of cumulative voting Series A
     preferred stock. Dividends are payable quarterly at the rate of Libor plus
     1%. Preferred stockholders have preference over common stockholders in
     dividends and liquidation rights. The preferred stock has voting rights
     similar to those of the common stockholders. At the Company's option, the
     Series A preferred stock may be redeemed at a purchase price of $100 per
     share plus any unpaid dividends.

     On June 29, 2001, the Company announced a major capital restructuring,
     which was effective July 2, 2001. The restructuring, which was part of
     several agreements and commitments between the Company and Carter Fortune,
     the Company's largest shareholder and the holder of certain debt and
     preferred stock of the Company, allowed the Company to eliminate its
     existing debt, acquire Murphy Development, Ltd. ("Murphy Development"), a
     commercial and retail real estate development company 50% owned by Mr.
     Fortune, and issue new convertible debt to be used to purchase and operate
     the Company's existing and future businesses.

     As part of the restructuring, Mr. Fortune received $3,250,000 of the
     Company's common stock at the June 28, 2001 closing price of $0.20 a share,
     or 16,250,000 restricted shares, in exchange for his $2,000,000 of WOW
     preferred stock and in full satisfaction of his approximately $5,424,000 of
     WOW debt.

     In addition, Mr. Fortune and Julie Fisbeck, who is the sister of John
     Fisbeck, a major stockholder, also exchanged their respective 50% ownership
     interests in Murphy Development, in exchange for $120,000 of the Company's
     common stock at the June 28, 2001 closing price of $0.20 a share. Fortune
     and Julie Fisbeck each received 300,000 restricted shares.

     Mr. Fortune also agreed to loan $500,000 to Murphy Development. The loan
     was secured by all of the assets of Murphy Development and was convertible
     at Mr. Fortune's option into shares of the Company's common stock at
     $0.407401 a share. Mr. Fortune exercised the option on August 27, 2001, and
     received 1,227,292 restricted shares.

     Mr. Fortune also agreed to make available to Murphy Development an
     operating line of credit of up to $2,250,000, if and as needed. The line of
     credit was secured by all of the assets of Murphy Development and is
     convertible at Fortune's option into shares of the Company's common stock
     at $0.407401 a share. On August 27, 2001, the Company borrowed $2,250,000
     under the line of credit, and Mr. Fortune exercised the option and received
     5,522,814 restricted shares.

     In July 2001, the Company entered into several restricted stock agreements
     with key employees. Pursuant to these agreements, the Company advanced
     $630,000 to purchase 4,200,000 shares of restricted stock. The restrictions
     are pursuant to the respective stock purchase agreements. The loans are
     repayable in 2006.

NOTE 3 - STOCK OPTIONS, WARRANTS AND OTHER COMPENSATION

     The Company periodically issues warrants on a one-for-one basis for the
     purchase of shares of its common stock. The exercise prices of the warrants
     are no less than the fair market value of the common stock on the dates of
     grant. The estimated fair market value of the warrants is measured on the
     date of grant (measurement date), and accounted for as part of the related
     transaction. The Company agreed to grant 50,000 new warrants to the
     Company's former CEO on September 1, 2000. Each new warrant is convertible
     into one share of common stock at an exercise price of $1.00 per share
     exercisable from June 30, 2002 through June 30, 2008. In connection with a
     certain distribution agreement, the Company's distributor was granted a
     warrant to


                                       9
<PAGE>

NOTE 3 - STOCK OPTIONS, WARRANTS AND OTHER COMPENSATION (CONTINUED)

     purchase 1% of the common stock owned by the Control Group at an aggregate
     exercise price of $1,000,000. That agreement was terminated in May 2001,
     the warrant rights were voided and the Company redeemed the distributor's
     1,839,556 shares of common stock.

     Transactions related to the stock option plan were as follows:

<TABLE>
<CAPTION>
                                                       Weighted                           Weighted
                                          Six          Average                            Average
                                      Months Ended     Exercise     Year Ended            Exercise
                                       February 28,      Price       August 31,             Price
                                          2002         Per Share        2001              Per Share
<S>                                     <C>              <C>         <C>                    <C>
        Options outstanding at
         beginning of period            350,000          $0.46           83,334             $0.42
        Options exercised                    --                         (83,334)             0.42
        Options issued                       --                       1,350,000 (1)(3)       0.12
        Options canceled                     --                      (1,000,000)(2)          0.01
                                        -------                      ----------

        Options outstanding at
         end of period                  350,000          $0.46          350,000             $0.46
                                        =======                      ==========
</TABLE>

     (1)  On January 12, 2001, the Company hired Jeffrey Lewis. In connection
          with this hiring, he was granted an option to purchase 1,200,000
          shares of common stock of an aggregate purchase price of $12,000. The
          options vest at a rate of 200,000 shares every six months beginning
          July 12, 2001.

     (2)  The Company and Mr. Lewis entered into an agreement on November 15,
          2001 to cancel the options to purchase 1,000,000 of the 1,200,000
          shares of common stock previously granted to Mr. Lewis.

     (3)  In connection with a certain consulting agreement, the Company's
          investment banker was granted an option to purchase 150,000 shares of
          common stock at an aggregate exercise price of approximately $143,000.
          The options are exercisable immediately and expire in 2005.

     The Company accounts for employee stock-based transactions under Accounting
     Principles Board Opinion No. 25. Accordingly, no compensation cost has been
     recognized for options issued with an exercise price equal to the market
     value of the common stock at the date of grant. The Company has adopted the
     disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based
     Compensation," which defines a fair value method of accounting for stock
     options and other equity instruments. Under the fair value method,
     compensation cost is measured at the grant date based on the fair value of
     the award and is recognized over the service period, which is usually the
     vesting period. Management believes that had compensation cost been
     determined based on the fair value at the grant dates consistent with the
     provisions of SFAS No. 123, there would have been no material effect on the
     Company's net loss and its loss per common share for the eight months ended
     August 31, 2000.


                                       10
<PAGE>

NOTE 4 - PER SHARE DATA

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

                                               Three Months      Three Months
                                                  Ended             Ended
                                               February 28,      February 28,
                                                   2002              2001

Net Loss                                       $   (451,000)     $ (2,825,000)

Dividends and accretion on preferred stock               --           (28,000)
                                               ------------      ------------

Net Loss Available for Common Stockholders     $   (451,000)     $ (2,853,000)
                                               ============      ============

Basic Loss Per Share                           $      (0.01)     $      (0.05)
                                               ============      ============

Diluted Loss Per Share                         $      (0.01)     $      (0.05)
                                               ============      ============

Shares Outstanding
   Basic weighted average number of common
    shares outstanding                           69,496,629        62,543,664
                                               ============      ============

                                                Six Months        Six Months
                                                  Ended             Ended
                                               February 28,      February 28,
                                                   2002              2001

Net Loss                                       $   (641,000)     $ (5,746,000)

Dividends and accretion on preferred stock               --          (100,000)
                                               ------------      ------------

Net Loss Available for Common Stockholders     $   (641,000)     $ (5,846,000)
                                               ============      ============

Basic Loss Per Share                           $      (0.01)     $      (0.09)
                                               ============      ============

Diluted Loss Per Share                         $      (0.01)     $      (0.09)
                                               ============      ============


     At February 28, 2002 and 2001, all outstanding options and warrants were
     anti-dilutive.

NOTE 5 - QUASI-REORGANIZATION

     Effective July 21, 2000, the Company's Board of Directors approved a
     quasi-reorganization. The effect of the quasi-reorganization was to
     eliminate the accumulated deficit of $60,099,000 by application of the
     Company's paid-in capital. The quasi-reorganization had no impact on the
     Company's cash flows, total stockholders' equity or the tax basis of its
     assets, but resulted in a consolidated balance sheet that better reflects
     the Company's current financial position.

NOTE 6 - SEGMENT INFORMATION

     The Company has decided to focus its efforts in areas other than gaming
     projects. Future operations of the Company will be organized around three
     primary segments:

     o    Telecom Site Development
     o    Entertainment
     o    Holding Company


                                       11
<PAGE>

NOTE 6 - SEGMENT INFORMATION (CONTINUED)

<TABLE>
<CAPTION>
                                                Telecom Site                     Holding          Segment
                                                Development    Entertainment     Company          Totals
<S>                                             <C>             <C>             <C>            <C>

Three Months Ended February 28, 2002
Revenues                                        $    71,000     $        --     $        --     $    71,000
Cost of revenues                                   (197,000)             --              --        (197,000)
Selling, general and administrative expenses       (290,000)             --        (142,000)       (432,000)
                                                -----------     -----------     -----------     -----------

Segment Operating Loss                          $  (416,000)    $        --     $  (142,000)    $  (558,000)
                                                ===========     ===========     ===========     ===========

Six Months Ended February 28, 2002
Revenues                                        $    91,000     $        --     $        --     $    91,000
Cost of revenues                                   (282,000)             --              --        (282,000)
Selling, general and administrative expenses       (448,000)         (5,000)       (243,000)       (696,000)
                                                -----------     -----------     -----------     -----------

Segment Operating Loss                          $  (639,000)    $    (5,000)    $  (243,000)    $  (887,000)
                                                ===========     ===========     ===========     ===========

As of February 28, 2002
Cash                                            $    97,000     $     2,000     $    36,000     $   135,000
Accounts receivable                                 452,000           2,000              --         454,000
Other current assets                                 24,000              --          77,000         101,000
Office equipment, net                               225,000              --          19,000         244,000
Investments in available-for-sale securities             --              --         931,000         931,000
Notes receivable                                         --              --         630,000         630,000
Other assets                                          6,000              --              --           6,000
                                                -----------     -----------     -----------     -----------

Total Segment Assets                            $   804,000     $     4,000     $ 1,693,000     $ 2,501,000
                                                ===========     ===========     ===========     ===========

Three Months Ended February 28, 2001
Revenues                                        $        --     $   216,000     $        --     $   216,000
Cost of revenues                                         --      (2,245,000)             --      (2,245,000)
Selling, general and administrative expenses             --        (727,000)        (23,000)       (750,000)
                                                -----------     -----------     -----------     -----------

Segment Operating Loss                          $        --     $(2,756,000)    $   (23,000)    $(2,779,000)
                                                ===========     ===========     ===========     ===========

Six Months Ended February 28, 2001
Revenues                                        $        --     $   308,000     $        --     $   308,000
Cost of revenues                                         --      (4,886,000)             --      (4,886,000)
Selling, general and administrative expenses             --      (1,060,000)        (56,000)     (1,116,000)
                                                -----------     -----------     -----------     -----------

Segment Operating Loss                          $        --     $(5,638,000)    $   (56,000)    $(5,694,000)
                                                ===========     ===========     ===========     ===========

As of August 31, 2001
Cash                                            $   305,000     $    30,000     $ 2,203,000     $ 2,538,000
Other current assets                                 10,000           5,000          92,000         107,000
Other assets                                         29,000              --         642,000         671,000
                                                -----------     -----------     -----------     -----------

Total segment assets                            $   344,000     $    35,000     $ 2,937,000     $ 3,316,000
                                                ===========     ===========     ===========     ===========
</TABLE>


                                       12
<PAGE>

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

This document 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 document and include
statements regarding the intent, belief or current expectations of Fortune
Diversified Industries, Inc. (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 document are cautioned
that any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, those risks and uncertainties
are discussed under the headings "Risk Factors" and "Management's Discussion and
Analysis Or Plan of Operations," in the Company's Form 10-KSB40 for the fiscal
year ended August 31, 2001 as well as the information set forth below. 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 other documents filed by the Company with the
Securities and Exchange Commission. This section should be read in conjunction
with the unaudited financial statements of the Company and related notes set
forth elsewhere herein.

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 PDH,
Inc.; Cornerstone Wireless Services, Incorporated; Cornerstone Wireless
Construction Services, Inc.; Women of Wrestling, Inc.; and Murphy Development,
Ltd. Prior to 2000, the Company owned equity interests in various properties
that were utilized in casino gaming projects. The Company is no longer seeking
to develop gaming projects.

The Company's primary operating focus shifted in the past year from the
entertainment industry to the telecommunications industry. Because of the
Company's change in operating focus and expanded current and future anticipated
holdings, the Company changed its name from "WOW Entertainment, Inc." to
"Fortune Diversified Industries, Inc." and stock Symbol from WOWI to FDVI
effective August 16, 2001.

The Company's current operating focus is achieved through its PDH, Inc. ("PDH"),
Cornerstone Wireless Services, Incorporated and Cornerstone Wireless
Construction Services, Inc. subsidiaries and their affiliates ("Cornerstone").
The Company has the capability to assist its customers with the telecom site
development process from visualization to completion, as well as site
maintenance and upgrades. Through its subsidiaries and affiliates, the Company
can assist its clients with any and all of the following: 1) telecom site
acquisition (e.g., raw-land property along an interstate or a building rooftop
for co-location of an antenna); 2) architectural and engineering analysis and
drawings (e.g., analysis of an existing cell tower or construction drawings of
cell towers and switches); 3) site construction; and 4) existing site
maintenance and upgrades.


                                       13
<PAGE>

PDH acquired certain assets of DicksonHughes Group, LLC, ("DHG") a real estate
development company established in 1989, through an Asset Purchase Agreement
dated January 18, 2002. The assets acquired included certain of DHG's accounts
receivable, work-in-process, prepaid expenses, software, computer hardware and
fixtures, and backlog. PDH intends to devote the physical assets to its existing
telecommunications business. PDH also hired eighteen employees of DHG, including
S. David Dickson who will lead the PDH subsidiary. PDH's business strategy is to
offer a full range of real estate development services to the telecommunications
industry. PDH intends to provide its clients with the most experienced personnel
and deliver 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
commissioning a telecommunications 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 telecommunications real estate professionals. PDH's
full service list of telecom 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, and cable, broadband and
wireless telecommunications building (switch/node/ReGen/ POP) acquisition and
development.

Cornerstone Wireless Services, Incorporated was acquired by the Company in July,
2001. William A. Shoemake serves as its President and Chief Executive Officer.
Cornerstone Wireless Construction Services, Inc. was incorporated in October,
2001 and began operations shortly thereafter.

Cornerstone specializes in engineering and architectural services for the
telecommunications industry including 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, consolidators and utilities. Detailed services 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 also offers construction
management of telecommunications infrastructure. Cornerstone is pursuing
assignments and projects anywhere within the United States. Cornerstone plans to
open additional branches as market opportunities arise.

Management believes that the need for its telecom services in the coming years
will be significant, and expects that cell site density will need to increase
four to eight fold in the coming years in order to meet the bandwidth and usage
requirements of consumers for second generation to third generation wireless
data applications (commonly referred to as 2G, 2.5G and 3G). In addition to the
build-out of additional sites, as usage changes occur, existing tower and base
station configurations will also need to change. Wired broadband needs also
require increasing infrastructure build-out, particularly with fiber optics
technologies. The Company is positioned to and believes it will be able to
provide the real estate development, engineering and design services necessary
to meet the evolving needs of the industry.


                                       14
<PAGE>

The past year has seen a significant downturn in the economy, and management
witnessed many companies in the telecommunications industry significantly
curtailing their operations. Management observed capital expenditures for
infrastructure within the industry decline in conjunction with the economy. This
slowdown in capital expenditures was particularly noticeable in the Company's
second quarter as it observed the number of projects awarded in comparison to
prior years down substantially and many existing projects reduced or postponed.

While the capital expenditures within the telecommunications industry declined
in conjunction with the economy, the infrastructure capacity needs did not. When
the industry resumes the infrastructure build out for 2G to 2.5G to 3G and
beyond, management believes that the Company will be positioned as a recognized
provider with the capacity to meet and exceed the industry's needs.

Murphy Development, Ltd., is a commercial and retail real estate development
company. On July 2, 2001, the Company purchased Murphy Development, Ltd. from
Carter Fortune, the Company's largest shareholder, and Julie Fisbeck, who is the
sister of John Fisbeck, one of the members of the Control Group. The primary
assets of Murphy Development, Ltd the past fiscal year were pre-acquisition
development costs of a northeast, Ohio commercial development, to include
several options to purchase real estate. In August, 2001, Murphy Development,
Ltd. exercised the options. However, it did not close on the real estate due to
the unavailability of financing and the lack of a commitment from a major anchor
tenant. The options expired at the end of 2001. Due to the lack of activity,
starting with the reporting period ended February 28, 2002, the company
consolidated its Murphy Development financial information in with its telecom
site development segments.

WOW was organized in May, 2000, began production of its weekly syndicated
television series, WOW - Women of Wrestling(R) in September, 2000 and began
airing the programs in the United States and marketing them internationally in
October, 2000. In February 2001, WOW completed production of its first season of
over-the-air syndicated shows and began re-airs of its original episodes in
March 2001. After assessing the syndication, cable and network television
markets for the 2001 season, WOW decided as of June, 2001 not to produce future
episodes of its WOW-Women of Wrestling(R) program and discontinued related
activities.

In July 2001, WOW agreed in principle to general terms for licensing the WOW -
Women of Wrestling(R) property to David McLane Enterprises, Inc. ("DME") for a
minimum monthly dollar amount plus a percentage of certain revenues for three
and one half years. DME is owned by David McLane, who was until June, 2001, the
president, a director and one of the controlling shareholders of the Company.
When a licensing agreement is concluded, the Company also plans to grant an
option to DME to purchase the WOW - Women of Wrestling(R) property at the end of
the license. As of the date of this report, a licensing agreement with DME has
not been finalized and it is uncertain whether any licensing agreement will be
entered into with DME.


                                       15
<PAGE>

The Company enters into contracts principally on the basis of competitive bids,
the final terms and prices of which are frequently negotiated with the customer.
Although the terms of its contracts vary considerably, most are made on either a
unit price or fixed price basis in which the Company agrees to do the work for
units of work performed (unit price) or for a fixed amount for the entire
project (fixed price). The Company also performs services on a cost-plus or time
and materials basis. The Company completes most projects within one year. The
Company generally recognizes revenue utilizing output measures, such as when
services are performed, units are delivered, or contract milestones are reached,
which also typically are billing points. The Company will at times record
revenues from longer term, fixed price contracts on a percentage-of-completion
basis, using input measures such as the cost-to-cost method based on the
percentage of total costs incurred to date in proportion to total estimated
costs to complete the contract.

During the period covered by this report, WOW received license fees for its
production of television programming through its distribution agreement with its
distributor. Revenue was recognized by the Company from its direct distribution,
exploitation, or licensing of its films and television programs, before
deduction for any of the Company's direct costs of distribution. For markets and
territories in which the Company's fully or jointly-owned films and television
programs were distributed by third parties, revenue was the net amounts payable
to the entity by third party distributors. Revenue was reduced by appropriate
allowances, estimated returns, price concessions, and similar adjustments, as
applicable.

Cost of revenues consist primarily of salaries, wages and benefits to employees,
depreciation, fuel and other vehicle expenses, equipment rentals, subcontracted
services, insurance, facilities expenses, materials and parts and supplies.

Selling, general and administrative expenses consist primarily of compensation
and related benefits to management, administrative salaries and benefits,
marketing, office rent and utilities, communications and professional fees.

The Company has implemented Statement of Position (SOP) 00-2, "Accounting by
Producers or Distributors of Films", which requires special accounting for
production costs relating to episodic television series. Specifically, SOP 00-2
requires a company to demonstrate through its experience and industry norms that
the number of episodes already produced, plus those for which a firm commitment
exists and the entity expects to deliver, can be licensed in the secondary
market before an episodic television series can implement the
individual-film-forecast-computation method to amortize production costs. SOP
00-2 further stipulates that until an entity can establish estimates of
secondary market revenue, capitalized costs for each episode produced should not
exceed an amount equal to the amount of revenue contracted for that episode, the
entity should expense as incurred production costs in excess of this limitation
on an episode-by-episode basis, and the entity should expense all capitalized
costs for each episode as it recognizes the related revenue for each episode.
The Company follows the more conservative episode-by-episode basis versus the
individual-film-forecast-computation method. As the Company had effectively
recognized revenues from the initial airing of all of the episodes produced
through the periods ended February 28, 2001, August 31, 2001 and February 28,
2002, all production costs as of those dates were expensed, and the Company did
not have any capitalized production costs as of those dates.

Advertising and exploitation costs, which include marketing, advertising,
publicity, promotion, and other distribution expenses incurred in connection
with the distribution of a film or television program, were expensed as
incurred.

The Company accounts for all stock based compensation under the provision of
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation", which uses the term "compensation" in its broadest
sense to refer to consideration paid for goods and services, regardless of
whether the supplier is an employee or not. On January 12, 2001, the Company
hired Jeffrey J. Lewis as its CEO. In connection with his hiring, he was granted
an option to purchase 1,200,000 shares of common stock at an aggregate purchase
price of $12,000. The options vest at the rate of 200,000 shares every six
months beginning July 12, 2001. Effective July 13, 2001, after Mr. Lewis had
vested options on 200,000 shares of the Company's stock, the Company and Mr.
Lewis agreed to terminate the option program.

In connection with the change in control of the Company in September, 2000, the
Company issued 50,000 new warrants to the Company's former CEO. Each new warrant
is convertible into one share of common stock at an exercise price of $1.00 per
share exercisable from June 30, 2002 through June 30, 2008. In connection with a
certain distribution agreement, the Company's former distributor was granted a
warrant to purchase 1% of the common stock owned by the Control Group at an
aggregate exercise price of $1,000,000. This agreement was terminated in May
2001 and the warrant rights were voided. In connection with a certain consulting
agreement, the Company's investment banker was granted an option to purchase
150,000 shares of common stock at an aggregate exercise price of approximately
$143,000. The option is exercisable immediately and expires in 2005. The Company
values stock options and warrants issued based upon an option-pricing model and
recognizes this value as an expense over the period in which the option vests.


                                       16
<PAGE>


RESULTS OF OPERATIONS:  COMPARISON OF THE THREE MONTH PERIODS ENDED
                        FEBRUARY 28, 2002 AND FEBRUARY 28, 2001

Summarized financial information concerning the Company's reportable segments is
shown in the following table:

<TABLE>
<CAPTION>
                                      Telecom Site                   Holding        Segment
Three months ended February 28, 2002  Development  Entertainment     Company        Totals
<S>                                     <C>         <C>            <C>            <C>

Revenues                                  71,000           -0-            -0-         71,000
Cost of revenues                        (197,000)          -0-            -0-       (197,000)
Selling, general and administrative     (290,000)          -0-       (142,000)      (432,000)
                                        --------    ==========     ----------     ----------
Operating income (loss)                 (416,000)          -0-       (142,000)      (558,000)
                                        ========    ==========     ==========     ==========

As of February 28, 2002

Total segment assets                     804,000         4,000      1,693,000      2,501,000

Three-months ended February 28, 2001

Revenues                                     -0-       216,000            -0-        216,000
Cost of revenues                             -0-    (2,245,000)           -0-     (2,245,000)
Selling, general and administrative          -0-      (727,000)       (23,000)      (750,000)
                                        --------    ----------     ----------     ----------
Operating income (loss)                      -0-    (2,756,000)       (23,000)    (2,779,000)
                                        ========    ==========     ==========     ==========

As of August 31, 2001

Total segment assets                     344,000        35,000      2,937,000      3,316,000
</TABLE>

Revenues

Revenues for the three months ended February 28, 2002 were $71,000, compared to
$216,000 for the three months ended February 28, 2001, a decrease of $145,000.
The decrease in revenues were primarily due to a decrease in revenues in the
Women of Wrestling segment of $216,000, which was a result of the Company not
producing and distributing the television show WOW Women of Wrestling and
related pay-per-view events for the 2001 and 2002 season. The Company had an
increase in revenues from the prior fiscal year in its Telecom Site Development
segment of $71,000. This increase was primarily the result of the Company
beginning operations in the segment subsequent to last year. The revenue in the
Telecom Site Development segment for the three months ended February 28, 2002 is
net of approximately $137,000 of work-in-process purchased from DHG. The Company
did not recognize operating revenue in its Holding Company for either the
quarter ended February 28, 2002 or for the same period in the previous fiscal
year.

Costs and Expenses

The Company began additional operations, primarily the operation of its Telecom
Site Development segment and scaled back significantly other operations,
primarily the Entertainment segment for the comparable periods. Cost of revenues
were $197,000 for the three months ended February 28, 2002 compared to
$2,245,000 for the three months ended February 28, 2001, a decrease of
$2,048,000. This decrease was primarily due to a decrease of $2,245,000 in the
Company's Entertainment segment, which was a result of the Company not producing
and distributing the television show WOW Women of Wrestling and related
pay-per-view events for the 2001 and 2002 season. In the Telecom Site
Development segment, the Company had an increase of $197,000 in cost of revenues
for the quarter ended February 28, 2002 compared to the same period in the
previous fiscal year. This increase was primarily related to salaries and
benefits and the fact that the Company did not commence operations in the
segment until subsequent to the previous fiscal year. The Company did not incur
any cost of revenues in its Holding Company for either the quarter ended
February 28, 2002 or for the same period in the previous fiscal year.


                                       17
<PAGE>

Selling, general and administrative expenses were $432,000 for the three months
ended February 28, 2002, compared to $750,000 for the three months ended
February 28, 2001, a decrease of $318,000. This decrease was primarily due to a
decrease of $727,000 in the Company's Entertainment segment. This decrease was
primarily the result of the Company significantly scaling back operations in the
Entertainment segment for the comparable periods.

In the Telecom Site Development segment, the Company had an increase of $290,000
in selling, general and administrative expenses for the three months ended
February 28, 2002 compared to the same period in the previous fiscal year. This
increase was primarily attributable to an increase in employee compensation and
benefits, legal, accounting and consulting fees and the fact that the Company
did not commence operations in the segment until July 2001.

In the Holding Company, there was an increase of $119,000 in selling, general
and administrative expenses for the three months ended February 28, 2002
compared to the same period in the previous fiscal year. This increase was
primarily related to an increase in employee compensation and benefits, legal,
accounting and consulting fees.

Interest income for the three months ended February 28, 2002 was approximately
$16,000, compared to $12,000 for the three months ended February 28, 2001, an
increase of $4,000. This increase was primarily due to an increase in funds held
in money market accounts and accrued interest income from employee held recourse
promissory notes.

Interest expense for the three months ended February 28, 2002 was zero. Interest
expense for the three months ended February 28, 2001 was approximately $58,000
from a line of credit. There were no outstanding borrowings at February 28,
2002, and the line of credit expired during the year ended August 31, 2001.

Gain on investments in marketable securities, net for the three months ended
February 28, 2002 was approximately $95,000. No such gain was recorded for the
three months ended February 28, 2001.

Net loss on sale of assets for the three months ended February 28, 2002 was
approximately $4,000 from the sale of fixed assets. No such loss was recorded
for the three months ended February 28, 2001.


                                       18
<PAGE>

RESULTS OF OPERATIONS:  COMPARISON OF THE SIX MONTH PERIODS ENDED
                        FEBRUARY 28, 2002 AND FEBRUARY 28, 2001

Summarized financial information concerning the Company's reportable segments is
shown in the following table:

<TABLE>
<CAPTION>
                                      Telecom Site                   Holding        Segment
Six months ended February 28, 2002    Development  Entertainment     Company        Totals
<S>                                     <C>         <C>            <C>            <C>
Revenues                                  91,000           -0-            -0-         91,000
Cost of revenues                        (282,000)          -0-            -0-       (282,000)
Selling, general and administrative     (448,000)       (5,000)      (243,000)      (696,000)
                                        --------    ----------     ----------     ----------
Operating income (loss)                 (639,000)       (5,000)      (243,000)      (887,000)
                                        ========    ==========     ==========     ==========

As of February 28, 2002

Total segment assets                     804,000         4,000      1,693,000      2,501,000

Six-months ended February 28, 2001

Revenues                                     -0-       308,000            -0-        308,000
Cost of revenues                             -0-    (4,886,000)           -0-     (4,886,000)
Selling, general and administrative          -0-    (1,060,000)       (56,000)    (1,116,000)
                                        --------    ----------     ----------     ----------
Operating income (loss)                      -0-    (5,638,000)       (56,000)    (5,694,000)
                                        ========    ==========     ==========     ==========

As of August 31, 2001

Total segment assets                     344,000        35,000      2,937,000      3,316,000
</TABLE>

Revenues

Revenues for the six months ended February 28, 2002 were $91,000, compared to
$308,000 for the six months ended February 28, 2001, a decrease of $217,000. The
decrease in revenues were primarily due to a decrease in revenues in the Women
of Wrestling segment of $308,000, which was a result of the Company not
producing and distributing the television show WOW Women of Wrestling and
related pay-per-view events for the 2001 and 2002 season. The Company had an
increase in revenues from the prior fiscal year in its Telecom Site Development
segment of $91,000. This increase was primarily the result of the Company
beginning operations in the segment subsequent to last year. The revenue in the
Telecom Site Development segment for the six months ended February 28, 2002 is
net of approximately $137,000 of work-in-process purchased from DHG. The Company
did not recognize operating revenue in its Holding Company for either the six
months ended February 28, 2002 or for the same period in the previous fiscal
year.

Costs and Expenses

The Company began additional operations, primarily the operation of its Telecom
Site Development segment and scaled back significantly other operations,
primarily the Entertainment segment for the comparable periods. Cost of revenues
were $282,000 for the six months ended February 28, 2002 compared to $4,886,000
for the six months ended February 28, 2001, a decrease of $4,604,000. This
decrease was primarily due to a decrease of $4,886,000 in the Company's
Entertainment segment, which was a result of the Company not producing and
distributing the television show WOW Women of Wrestling and related pay-per-view
events for the 2001 and 2002 season. In the Telecom Site Development segment,
the Company had an increase of $282,000 in cost of revenues for the six months
ended February 28, 2002 compared to the same period in the previous fiscal year.
This increase was primarily related to salaries and benefits and the fact that
the Company did not commence operations in the segment until subsequent to the
previous fiscal year. The Company did not incur any cost of revenues in its
Holding Company for either the six months ended February 28, 2002 or for the
same period in the previous fiscal year.


                                       19
<PAGE>

Selling, general and administrative expenses were $696,000 for the six months
ended February 28, 2002, compared to $1,116,000 for the six months ended
February 28, 2001, a decrease of $420,000. This decrease was primarily due to a
decrease of $1,055,000 in the Company's Entertainment segment. This decrease was
primarily the result of the Company significantly scaling back operations in the
Entertainment segment for the comparable periods. Also there were legal and
accounting and consulting fees related to the Company's change in control that
occurred in September, 2000 and allocated to the Women of Wrestling segment.

In the Telecom Site Development segment, the Company had an increase of $448,000
in selling, general and administrative expenses for the six months ended
February 28, 2002 compared to the same period in the previous fiscal year. This
increase was primarily attributable to an increase in employee compensation and
benefits, legal, accounting and consulting fees and the fact that the Company
did not commence operations in the segment until July 2001.

In the Holding Company, there was an increase of $187,000 in selling, general
and administrative expenses for the six months ended February 28, 2002 compared
to the same period in the previous fiscal year. This increase was primarily
related to an increase in employee compensation and benefits, legal, accounting
and consulting fees.

Interest income for the six months ended February 28, 2002 was approximately
$42,000, compared to $14,000 for the six months ended February 28, 2001, an
increase of $28,000. This increase was primarily due to an increase in funds
held in money market accounts and accrued interest income from employee held
recourse promissory notes.

Interest expense for the six months ended February 28, 2002 was zero. Interest
expense for the six months ended February 28, 2001 was approximately $66,000
from a line of credit. There were no outstanding borrowings at February 28,
2002, and the line of credit expired during the year ended August 31, 2001.

Gain on investments in marketable securities, net for the six months ended
February 28, 2002 was approximately $208,000. No such gain was recorded for the
six months ended February 28, 2001.

Net loss on sale of assets for the six months ended February 28, 2002 was
approximately $4,000 from the sale of fixed assets. No such loss was recorded
for the six months ended February 28, 2001.

LIQUIDITY AND CAPITAL RESOURCES

The Company had cash and investments in other liquid securities (i.e., publicly
traded stocks and bonds) of approximately $1,066,000 as of February 28, 2002. As
of February 28, 2002, the Company had no outstanding bank borrowings or other
indebtedness.


                                       20
<PAGE>

As of March 31, 2002, the Company had cash and net investments in other liquid
securities (i.e., publicly traded stocks and bonds net of margin balances) of
approximately $1,051,000, and no outstanding bank borrowings or other
indebtedness.

The Company's 2002 capital budget provides for expenditures of approximately
$1,800,000, for which management of the Company believes will be significantly
if not entirely offset by revenues from operations and investments. The
Company's management believes that its capital resources will be adequate to
satisfy its cash requirements over the next 12 months.

The Company reviews, as opportunities arise, the potential acquisition and/or
operation of other businesses. Any such action will be based upon management's
analysis of the specific business and the respective industry, as well as the
Company's ability to utilize a capital structure that is beneficial to the
Company's shareholders. If funding through the equity and debt markets can be
obtained on attractive terms, the Company would consider financing its
acquisition and operating activities by such means.

The Company's short and long term capital requirements will depend upon many
factors, including whether it acquires and/or operates other businesses, the
operating success of its Telecom Site Development segment, and the potential
license of the WOW - Women of Wrestling(R) property. Many of these and other
factors are beyond the Company's control.

Over the next 12 months, the Company plans to hire a significant number of
additional employees in its Telecom Site Development segment. However, the
hiring of these employees will be approximately correlated with an increase in
operating revenue.

PDH, Inc., a wholly owned subsidiary of the Company, acquired certain assets of
DicksonHughes Group, LLC, ("DHG") a real estate development company established
in 1989, through an Asset Purchase Agreement dated January 18, 2002. The assets
acquired included certain of DHG's accounts receivable with a book value of
approximately $386,000; work-in-process with a book value of approximately
$137,000; prepaid expenses with a book value of approximately $8,000; software,
computer hardware and fixtures with a book value of approximately $209,000; and
backlog. The nature and amount of consideration given for the acquired assets
was Seven Hundred Forty Thousand Two Hundred Seven Dollars ($740,207.00), which
is subject to adjustments as described in the Agreement. PDH intends to devote
the physical assets to its existing telecommunications business. PDH also hired
eighteen employees of DHG.

As of June 29, 2001, the Company announced a major capital restructuring, which
was effective July 2, 2001. The restructuring, which was part of several
agreements and commitments between the Company and Carter Fortune, the Company's
largest shareholder and the holder at that time of certain debt and preferred
stock in WOW, allowed the Company to eliminate its existing debt, acquire Murphy
Development, Ltd., a commercial and retail real estate development company 50%
owned by Mr. Fortune, and issue new convertible debt to be used to purchase and
operate the Company's existing and future businesses.


                                       21
<PAGE>

As part of the restructuring, Mr. Fortune agreed to a settlement in which he
received $3,250,000 of the Company's common stock at the June 28, 2001 closing
price of $0.20 a share, or 16,250,000 restricted shares, in exchange for his
$2,000,000 of WOW preferred stock and in full satisfaction of his approximately
$5,424,000 of WOW debt.

In addition, Mr. Fortune and Julie Fisbeck, who is the sister of John Fisbeck,
one of the members of the Control Group, also agreed to exchange their
respective 50% ownership interests in Murphy Development, in exchange for
$120,000 of the Company's common stock at the June 28, 2001 closing price of
$0.20 a share. Mr. Fortune and Ms. Fisbeck each received 300,000 restricted
shares of the Company's common stock.

Mr. Fortune also agreed to loan $500,000 to Murphy Development. The loan was
secured by all of the assets of Murphy Development and convertible at Mr.
Fortune's option into shares of the Company's common stock at $0.407401 a share.
Mr. Fortune exercised the conversion feature for the principal amount of
$500,000, on August 27, 2001 and received 1,227,292 restricted shares of the
Company's common stock.

Mr. Fortune also agreed to make available to Murphy Development a line of credit
of up to $2,250,000, if and as needed, to fund its operations. The line of
credit was secured by all of the assets of Murphy Development and convertible at
Mr. Fortune's option into shares of the Company's common stock at $0.407401 a
share. On August 27, 2001, the Company drew down the entire $2,250,000 line of
credit. Also on August 27, 2001, Mr. Fortune exercised the conversion feature on
the full principal amount, and received 5,522,814 restricted shares of the
Company's common stock.

The Company's wholly owned subsidiary, Women of Wrestling, Inc. ("WOW"), was
organized in May, 2000, began production of its weekly syndicated television
series, WOW - Women of Wrestling(R) in September, 2000 and began airing the
programs in the United States and marketing them internationally in October,
2000. In February 2001, WOW completed production of its first season of
over-the-air syndicated shows and began re-airs of its original episodes in
March 2001. After assessing the syndication, cable and network television
markets for the 2001 season, the Company decided as of June, 2001 not to produce
future episodes of its WOW-Women of Wrestling(R) program and discontinued
related activities.

In July 2001, the Company agreed in principle to general terms for licensing the
WOW - Women of Wrestling(R) property to David McLane Enterprises, Inc. ("DME")
for a minimum monthly dollar amount plus a percentage of certain revenues for
three and one half years. DME is owned by David McLane, who was until June,
2001, the president, a director and one of the controlling shareholders of the
Company. When a licensing agreement is concluded, the Company also plans to
grant an option to DME to purchase the WOW - Women of Wrestling(R) property at
the end of the license. As of the date of this report, a licensing agreement
with DME has not been finalized and it is uncertain whether any licensing
agreement will be entered into with DME.


                                       22
<PAGE>

As of May 22, 2001, the Company and its subsidiary, Women of Wrestling, Inc.
("WOW"), executed an Amendment to its Distribution Agreement with M/G Perin,
Inc. and Richard Perin (collectively "Perin") in which they agreed to terminate
their Distribution Agreement dated January 18, 2000 and enter into a new
agreement covering only WOW's free television programs created through May 22,
2001. The new agreement extended through September 30, 2001 for domestic
distribution and December 31, 2001 for foreign distribution. Perin was entitled
to collect and retain all domestic distribution and foreign television
advertising or licensing revenues relating to any licensing of WOW's programs
that occured during Perin's continued representation through September 30, 2001
or December 31, 2001, respectively (with the exception only of amounts, if any,
already paid to WOW). Since Perin was paying all expenses relating to
distribution of WOW's programs, Perin had the right to discontinue the
distribution of the programs at any time, provided Perin gave as much advance
notice to WOW as reasonably practicable. In the event a substantial portion of
the assets or stock of WOW were sold or licensed, Perin's rights to continue to
distribute WOW's programs would have terminated thirty days after the
consummation of such a sale or license.

Also as part of the agreement, Mr. Perin returned for cancellation by the
Company 1,839,556 restricted shares which represented all of his common stock in
the Company. All rights to warrants issuable under the Distribution Agreement
were also voided. Perin also received funding from WOW sufficient to pay certain
payables incurred in connection with its representation of WOW. The funds used
to pay Perin were loaned to WOW by Carter Fortune, a member of the Control Group
of the Company.

Following the conclusion of its first season of production of WOW-Women of
Wrestling(R), the Company terminated its agreements with its performers and
terminated its production staff. As of the date of this report, the Company does
not have any employees in its Women of Wrestling, Inc. subsidiary.

The Company's subsidiary, Women of Wrestling, Inc., no longer leases space at
The Great Western Forum located 3900 W. Manchester Blvd., Los Angeles,
California.

For the six months ended February 28, 2002, cash flows used for operating
activities were $1,370,000, as compared to cash flows used for operating
activities of $5,048,000 million for the six months ended February 28, 2001. The
change is primarily related to a decrease in net losses associated with the
Company's Women of Wrestling operations.

For the six months ended February 28, 2002, cash flows used for investing
activities were $1,033,000, as compared to $54,000 for the six months ended
February 28, 2001. The increase in cash flows used in this period is primarily
due to an increase in investments in marketable securities, as well as the use
of funds to purchase fixed assets.

For the six months ended February 28, 2002, cash flows provided by financing
activities were zero as compared to $4,884,000 for the six months ended February
28, 2001. The decrease was primarily related to a reduction in net cash inflows
from preferred stock and line of credit borrowings.


                                       23
<PAGE>

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 and Use of Proceeds.

None

Item 3.  Defaults upon Senior Securities.

None

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

None

Item 5.  Other Information.

In January, 2002, the Company appointed and the Control Group elected by written
consent in lieu of a meeting Carter M. Fortune as Chief Executive Officer, a
Director, and Chairman of the Board. Also, at the same time, the Company
appointed and the Control Group elected by written consent in lieu of a meeting
William A. Shoemake to the Company's Board of Directors. Douglas E. May remained
as a Director.

Effective December 31, 2001, Jeffrey J. Lewis resigned as a Director and Chief
Executive Officer of Fortune Diversified Industries, Inc., Women of Wrestling,
Inc., WOW Women of Wrestling Music I, Inc., and Murphy Development, Ltd.

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

(a)     Exhibits

Exhibit Number    Description
--------------    -----------

None

(b)  Reports on Form 8-K. The following report was filed by the Company during
     the second quarter of fiscal year 2001-2002:

     (1) Form 8-K dated January 18, 2002 with respect to the acquisition by a
subsidiary of the Company of certain assets of DicksonHughes Group, LLC.



                                       24
<PAGE>


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.


                                            FORTUNE DIVERSIFIED INDUSTRIES, INC.


Date:  4/11/02                              By: /s/ Douglas E. May
      ---------                                 ----------------------------
                                                Douglas E. May
                                                Vice President of Finance and
                                                Chief Financial Officer



EXHIBIT INDEX

EXHIBIT
  NO.        DESCRIPTION                             PAGE NO.
--------     -----------                             --------

None


                                       25