----

----

**UNITED        STATES**

**SECURITIES        AND EXCHANGE COMMISSION**

**WASHINGTON,        D.C. 20549**

**FORM        10-Q**

**x        **

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

**SECURITIES        EXCHANGE ACT OF 1934**

**For        the quarterly period ended May 31, 2007**

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

**SECURITIES        EXCHANGE ACT OF 1934**

**Commission        file number: 0-19049**

**FORTUNE        INDUSTRIES, INC.**

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

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

**(317)        532-1374**

**x**

** ̈**

** ̈**

**x**

** ̈**

**x**

----

----

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**FORTUNE        INDUSTRIES, INC.**

**FORM        10-Q**

**For        The Quarterly Period Ended May 31, 2007**

**INDEX**

|                                                                                | Page                                                                                                                                       |
|-------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------|
| PART  I.    Financial                  Information    |                                                                                                                                       |
|                                                                                | ITEM                  1.  Financial Statements                                                                                   |   |
|                                                                                |                                                                                                                                       | Consolidated                  Balance Sheets as of May 31, 2007 (unaudited) and                  August 31, 2006 | 3 |
|                                                                                |                                                                                                                                       | Consolidated                  Statements of Operations for the three and nine                  month periods ended May 31, 2007 and 2006 (unaudited) | 5 |
|                                                                                |                                                                                                                                       | Consolidated                  Statement of Changes in Shareholders’ Equity for                  the nine month period ended May 31, 2007 (unaudited) | 6 |
|                                                                                |                                                                                                                                       | Consolidated                  Statements of Cash Flows for the nine month periods                  ended May 31, 2007 and 2006 (unaudited) | 7 |
|                                                                                |                                                                                                                                       | Notes                  to the Consolidated Financial                  Statements | 9 |
|                                                                                | ITEM                  2.  Management's Discussion and Analysis of                  Financial Condition and Results of Operations | 29 |
|                                                                                | ITEM                  3.  Quantitative and Qualitative Disclosures                  About Market Risk                            | 39 |
|                                                                                | ITEM                  4.  Controls and Procedures                                                                                | 39 |
| PART                  II.    Other                  Information |                                                                                                                                       |
|                                                                                | ITEM                  1.    Legal                  Proceedings                                                         | 40 |
|                                                                                | ITEM                  1A. Risk Factors                                                                                                     | 40 |
|                                                                                | ITEM                  2.    Unregistered Sales of Equity                  Securities and Use of Proceeds               | 40 |
|                                                                                | ITEM                  3.    Defaults Upon Senior                  Securities                                           | 40 |
|                                                                                | ITEM                  4.    Submission of Matters to a Vote                  of Security Holders                       | 40 |
|                                                                                | ITEM                  5.    Other                  Information                                                         | 40 |
|                                                                                | ITEM                  6.    Exhibits                                                                                   | 40 |
| Signatures                                                                          | 41                                                                                                                                         |

----

*Index*

**PART        1 - FINANCIAL INFORMATION**

**Item        1. Financial Statements.**

**FORTUNE        INDUSTRIES, INC. AND SUBSIDIARIES**

**CONSOLIDATED        BALANCE SHEETS**

**(DOLLARS        IN THOUSANDS)**

|                                                                                                                                    |   | **May                  31,****2007****(Unaudited)** |   |   | **August                  31,****2006****(Audited)** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------|--------|--------|------------------------------------------------------|--------|
|                                                                                                                                    |   |                                                |   |   |                                                 |   |
|  **ASSETS**                                                                                                                        |   |                                                |   |   |                                                 |   |
| **CURRENT                  ASSETS**                                                                                                     |   |                                                |   |   |                                                 |   |
| Cash                  and equivalents                                                                                                   |   | $                                                   | 9,085  |   |                                                 | $      | 3,632 |   |
| Restricted                  cash                                                                                                        |   |                                                | 4,612  |   |                                                 |   | 3,462 |   |
| Marketable                  equity securities (Note 3)                                                                                  |   |                                                | 1,594  |   |                                                 |   | 1,281 |   |
| Accounts                  receivable, net (Note 4)                                                                                      |   |                                                | 19,218 |   |                                                 |   | 25,731 |   |
| Costs                  and estimated earnings in excess of billings   on                  uncompleted contracts (Note 5) |   |                                                | 2,335  |   |                                                 |   | 4,500 |   |
| Inventory,                  net                                                                                                         |   |                                                | 6,855  |   |                                                 |   | 6,761 |   |
| Deferred                  tax asset (Note 9)                                                                                            |   |                                                | 1,535  |   |                                                 |   | 1,535 |   |
| Prepaid                  expenses and other current assets                                                                              |   |                                                | 1,579  |   |                                                 |   | 1,922 |   |
| Total                  Current Assets                                                                                                   |   |                                                | 46,813 |   |                                                 |   | 48,824 |   |
|                                                                                                                                    |   |                                                |   |   |                                                 |   |   |   |
| **OTHER                  ASSETS**                                                                                                       |   |                                                |   |   |                                                 |   |   |   |
| Property,                  plant & equipment, net (Note 6)                                                                          |   |                                                | 12,465 |   |                                                 |   | 6,323 |   |
| Long-term                  accounts receivable (Note 4)                                                                                 |   |                                                | 872    |   |                                                 |   | 1,276 |   |
| Goodwill                  (Note 7)                                                                                                      |   |                                                | 18,596 |   |                                                 |   | 11,984 |   |
| Other                  intangible assets, net (Note 7)                                                                                  |   |                                                | 7,751  |   |                                                 |   | 4,299 |   |
| Other                  long-term assets                                                                                                 |   |                                                | 1,129  |   |                                                 |   | 1,579 |   |
| Total                  Other Assets                                                                                                     |   |                                                | 40,813 |   |                                                 |   | 25,461 |   |
|                                                                                                                                    |   |                                                |   |   |                                                 |   |   |   |
| **TOTAL                  ASSETS**                                                                                                       |   | $                                                   | 87,626 |   |                                                 | $      | 74,285 |   |

----

*Index*

**FORTUNE        INDUSTRIES, INC. AND SUBSIDIARIES**

**CONSOLIDATED        BALANCE SHEETS (CONTINUED)**

**(DOLLARS        IN THOUSANDS)**

|                                                                                                                                                                                                                                                                        |   | **May                  31,****2007****(Unaudited)** |    |   | **August                  31,****2006****(Audited)** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------|---------|--------|------------------------------------------------------|--------|
| **LIABILITIES                  AND SHAREHOLDERS' EQUITY**                                                                                                                                                                                                                   |   |                                                |    |   |                                                 |   |
|                                                                                                                                                                                                                                                                        |   |                                                |    |   |                                                 |   |
| **CURRENT                  LIABILITIES**                                                                                                                                                                                                                                    |   |                                                |    |   |                                                 |   |
| Current                  maturities of long-term debt (Note 8)                                                                                                                                                                                                              |   | $                                                   | 2,252   |   |                                                 | $      | 2,124 |   |
| Current                  maturities of convertible term note (Note 8)                                                                                                                                                                                                       |   |                                                | 1,818   |   |                                                 |   | 1,364 |   |
| Variable                  interest entity line of credit (Note 8)                                                                                                                                                                                                           |   |                                                | 2,200   |   |                                                 |   | - |   |
| Variable                  interest entity current maturities of long-term debt (Note                  8)                                                                                                                                                                    |   |                                                | 504     |   |                                                 |   | - |   |
| Accounts                  payable                                                                                                                                                                                                                                           |   |                                                | 6,112   |   |                                                 |   | 9,324 |   |
| Health                  and workers' compensation reserves                                                                                                                                                                                                                  |   |                                                | 6,450   |   |                                                 |   | 3,363 |   |
| Accrued                  expenses                                                                                                                                                                                                                                           |   |                                                | 8,611   |   |                                                 |   | 5,449 |   |
| Billings                  in excess of costs and estimated earnings on uncompleted contracts                  (Note                  5)                                                                                                                                     |   |                                                | 1,753   |   |                                                 |   | 1,968 |   |
| Other                  current liabilities                                                                                                                                                                                                                                  |   |                                                | 2,921   |   |                                                 |   | 1,849 |   |
| Total                  Current Liabilities                                                                                                                                                                                                                                  |   |                                                | 32,621  |   |                                                 |   | 25,441 |   |
|                                                                                                                                                                                                                                                                        |   |                                                |    |   |                                                 |   |   |   |
| **LONG-TERM                  LIABILITIES**                                                                                                                                                                                                                                  |   |                                                |    |   |                                                 |   |   |   |
| Line                  of credit (Note 8)                                                                                                                                                                                                                                    |   |                                                | 12,931  |   |                                                 |   | 3,330 |   |
| Long-term                  debt, less current maturities (Note 8)                                                                                                                                                                                                           |   |                                                | 16,935  |   |                                                 |   | 18,213 |   |
| Convertible                  term note (Note 8)                                                                                                                                                                                                                             |   |                                                | 4,086   |   |                                                 |   | 6,136 |   |
| Variable                  interest entity long-term debt, less current maturities (Note                  8)                                                                                                                                                                 |   |                                                | 4,684   |   |                                                 |   | - |   |
| Other                  long-term liabilities                                                                                                                                                                                                                                |   |                                                | 215     |   |                                                 |   | 215 |   |
| Total                  Long-Term Liabilities                                                                                                                                                                                                                                |   |                                                | 38,851  |   |                                                 |   | 27,894 |   |
|                                                                                                                                                                                                                                                                        |   |                                                |    |   |                                                 |   |   |   |
| Total                  Liabilities                                                                                                                                                                                                                                          |   |                                                | 71,472  |   |                                                 |   | 53,335 |   |
|                                                                                                                                                                                                                                                                        |   |                                                |    |   |                                                 |   |   |   |
| **MINORITY                  INTEREST IN VARIABLE INTEREST ENTITY**                                                                                                                                                                                                          |   |                                                | 840     |   |                                                 |   | - |   |
|                                                                                                                                                                                                                                                                        |   |                                                |    |   |                                                 |   |   |   |
| **SHAREHOLDERS'                  EQUITY**                                                                                                                                                                                                                                   |   |                                                |    |   |                                                 |   |   |   |
| Common                  stock, $0.10 par value; 150,000,000                  authorized;    10,822,607 and 10,522,722 issued and                  outstanding at    May 31, 2007 and August 31, 2006,                  respectively |   |                                                | 1,142   |   |                                                 |   | 1,053 |   |
| Preferred                  stock, $0.10 par value; 1,000,000                  authorized;    66,180 issued and outstanding at May                  31, 2007   and August 31, 2006                                                        |   |                                                | 6,618   |   |                                                 |   | 6,618 |   |
| Additional                  paid-in capital and warrants outstanding                                                                                                                                                                                                        |   |                                                | 20,212  |   |                                                 |   | 17,633 |   |
| Accumulated                  deficit                                                                                                                                                                                                                                        |   |                                                | (12,902 | )      |                                                 |   | (4,518 | ) |
| Accumulated                  other comprehensive income                                                                                                                                                                                                                     |   |                                                | 244     |   |                                                 |   | 164 |   |
| Total                  Shareholders' Equity                                                                                                                                                                                                                                 |   |                                                | 15,314  |   |                                                 |   | 20,950 |   |
|                                                                                                                                                                                                                                                                        |   |                                                |    |   |                                                 |   |   |   |
| **TOTAL                  LIABILITIES AND SHAREHOLDERS' EQUITY**                                                                                                                                                                                                             |   | $                                                   | 87,626  |   |                                                 | $      | 74,285 |   |

*See        Accompanying Notes to Unaudited Interim Consolidated Financial        Statements*

----

*Index*

**FORTUNE        INDUSTRIES, INC. AND SUBSIDIARIES**

**CONSOLIDATED        STATEMENTS OF OPERATIONS**

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

**(UNAUDITED)**

|                                                                                                                      |   | **Three                  Month Period Ended** |       |   | **Nine                  Month Period Ended** |   |
|---------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|------------|--------|----------------------------------------------|--------|
|                                                                                                                      |   | **May                  31,****2007**          |       |   | **May                  31,****2006**         |   |   | **May                  31,****2007** |   |   | **May                  31,****2006** |   |
| **REVENUES**                                                                                                              |   |                                          |       |   |                                         |   |   |   |   |   |   |   |
| Service                  revenues                                                                                         |   | $                                             | 24,727     |   |                                         | $      | 13,558 |   |   | $ | 55,372 |   |   | $ | 41,979 |   |
| Product                  revenues                                                                                         |   |                                          | 17,559     |   |                                         |   | 25,910 |   |   |   | 59,837 |   |   |   | 67,288 |   |
| **TOTAL                  REVENUES**                                                                                       |   |                                          | 42,286     |   |                                         |   | 39,468 |   |   |   | 115,209 |   |   |   | 109,267 |   |
|                                                                                                                      |   |                                          |       |   |                                         |   |   |   |   |   |   |   |   |   |   |   |
| **COST                  OF REVENUES**                                                                                     |   |                                          |       |   |                                         |   |   |   |   |   |   |   |   |   |   |   |
| Service                  cost of revenues                                                                                 |   |                                          | 20,341     |   |                                         |   | 10,794 |   |   |   | 44,629 |   |   |   | 30,927 |   |
| Product                  cost of revenues                                                                                 |   |                                          | 13,916     |   |                                         |   | 21,104 |   |   |   | 49,248 |   |   |   | 55,998 |   |
| **TOTAL                  COST OF REVENUES**                                                                               |   |                                          | 34,257     |   |                                         |   | 31,898 |   |   |   | 93,877 |   |   |   | 86,925 |   |
|                                                                                                                      |   |                                          |       |   |                                         |   |   |   |   |   |   |   |   |   |   |   |
| **GROSS                  PROFIT**                                                                                         |   |                                          | 8,029      |   |                                         |   | 7,570 |   |   |   | 21,332 |   |   |   | 22,342 |   |
|                                                                                                                      |   |                                          |       |   |                                         |   |   |   |   |   |   |   |   |   |   |   |
| **OPERATING                  EXPENSES**                                                                                   |   |                                          |       |   |                                         |   |   |   |   |   |   |   |   |   |   |   |
| Selling,                  general and administrative expenses                                                             |   |                                          | 7,702      |   |                                         |   | 6,182 |   |   |   | 21,815 |   |   |   | 17,721 |   |
| Depreciation                  and amortization                                                                            |   |                                          | 613        |   |                                         |   | 596 |   |   |   | 2,415 |   |   |   | 1,620 |   |
| Impairment                  (Note 1)                                                                                      |   |                                          | -          |   |                                         |   | - |   |   |   | 2,027 |   |   |   | - |   |
| Total                  Operating Expenses                                                                                 |   |                                          | 8,315      |   |                                         |   | 6,778 |   |   |   | 26,257 |   |   |   | 19,341 |   |
|                                                                                                                      |   |                                          |       |   |                                         |   |   |   |   |   |   |   |   |   |   |   |
| **OPERATING                  INCOME (LOSS)**                                                                              |   |                                          | (286       | )      |                                         |   | 792 |   |   |   | (4,925 | ) |   |   | 3,001 |   |
|                                                                                                                      |   |                                          |       |   |                                         |   |   |   |   |   |   |   |   |   |   |   |
| **OTHER                  INCOME (EXPENSE)**                                                                               |   |                                          |       |   |                                         |   |   |   |   |   |   |   |   |   |   |   |
| Interest                  income                                                                                          |   |                                          | 115        |   |                                         |   | 116 |   |   |   | 302 |   |   |   | 258 |   |
| Interest                  expense                                                                                         |   |                                          | (843       | )      |                                         |   | (649 | ) |   |   | (2,498 | ) |   |   | (1,791 | ) |
| Gain                  (loss) on investments in marketable securities, net (Note                  3)                       |   |                                          | (25        | )      |                                         |   | 3 |   |   |   | (8 | ) |   |   | 8 |   |
| Gain                  (loss) on disposal of assets                                                                        |   |                                          | 40         |   |                                         |   | - |   |   |   | (371 | ) |   |   | - |   |
| Exchange                  rate gain                                                                                       |   |                                          | 20         |   |                                         |   | 15 |   |   |   | 11 |   |   |   | 12 |   |
| Other                  income                                                                                             |   |                                          | 82         |   |                                         |   | 13 |   |   |   | 94 |   |   |   | 69 |   |
| Total                  Other Income (Expense)                                                                             |   |                                          | (611       | )      |                                         |   | (502 | ) |   |   | (2,470 | ) |   |   | (1,444 | ) |
|                                                                                                                      |   |                                          |       |   |                                         |   |   |   |   |   |   |   |   |   |   |   |
| **INCOME                  (LOSS) BEFORE MINORITY INTEREST IN   VARIABLE INTEREST                  ENTITY** |   |                                          | (897       | )      |                                         |   | 290 |   |   |   | (7,395 | ) |   |   | 1,557 |   |
|                                                                                                                      |   |                                          |       |   |                                         |   |   |   |   |   |   |   |   |   |   |   |
| Minority                  Interest in Variable Interest Entity (Note 12)                                                  |   |                                          | 309        |   |                                         |   | - |   |   |   | 473 |   |   |   | - |   |
|                                                                                                                      |   |                                          |       |   |                                         |   |   |   |   |   |   |   |   |   |   |   |
| **INCOME                  (LOSS) BEFORE PROVISION FOR INCOME TAXES**                                                      |   |                                          | (1,206     | )      |                                         |   | 290 |   |   |   | (7,868 | ) |   |   | 1,557 |   |
|                                                                                                                      |   |                                          |       |   |                                         |   |   |   |   |   |   |   |   |   |   |   |
| Provision                  for income taxes (Note 9)                                                                      |   |                                          | 25         |   |                                         |   | 23 |   |   |   | 144 |   |   |   | 44 |   |
|                                                                                                                      |   |                                          |       |   |                                         |   |   |   |   |   |   |   |   |   |   |   |
| **NET                  INCOME (LOSS)**                                                                                    |   |                                          | (1,231     | )      |                                         |   | 267 |   |   |   | (8,012 | ) |   |   | 1,513 |   |
|                                                                                                                      |   |                                          |       |   |                                         |   |   |   |   |   |   |   |   |   |   |   |
| Preferred                  stock dividends                                                                                |   |                                          | 124        |   |                                         |   | 124 |   |   |   | 372 |   |   |   | 207 |   |
|                                                                                                                      |   |                                          |       |   |                                         |   |   |   |   |   |   |   |   |   |   |   |
| **NET                  INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS**                                                   |   | $                                             | (1,355     | )      |                                         | $      | 143 |   |   | $ | (8,384 | ) |   | $ | 1,306 |   |
|                                                                                                                      |   |                                          |       |   |                                         |   |   |   |   |   |   |   |   |   |   |   |
| **BASIC                  INCOME (LOSS) PER COMMON SHARE**                                                                 |   | $                                             | (0.12      | )      |                                         | $      | 0.01 |   |   | $ | (0.78 | ) |   | $ | 0.12 |   |
|                                                                                                                      |   |                                          |       |   |                                         |   |   |   |   |   |   |   |   |   |   |   |
| **Basic                  weighted average shares outstanding**                                                            |   |                                          | 11,417,748 |   |                                         |   | 10,549,953 |   |   |   | 10,810,765 |   |   |   | 10,556,546 |   |
|                                                                                                                      |   |                                          |       |   |                                         |   |   |   |   |   |   |   |   |   |   |   |
| **DILUTED                  INCOME (LOSS) PER COMMON SHARE**                                                               |   | $                                             | (0.10      | )      |                                         | $      | 0.01 |   |   | $ | (0.67 | ) |   | $ | 0.11 |   |
|                                                                                                                      |   |                                          |       |   |                                         |   |   |   |   |   |   |   |   |   |   |   |
| **Diluted                  weighted average shares outstanding**                                                          |   |                                          | 13,221,883 |   |                                         |   | 12,218,422 |   |   |   | 12,463,326 |   |   |   | 11,725,290 |   |

----

*Index*

**FORTUNE        INDUSTRIES, INC. AND SUBSIDIARIES**

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

**(DOLLARS        IN THOUSANDS)**

**(UNAUDITED)**

|                                                                                                                                                                |   | **Common                  Stock** |      |   | **Preferred                  Stock** |   |      | **Additional                  Paid-in Capital and Warrants Outstanding** |   |   | **Accumulated                  Deficit** |   |   | **Accumulated                  Other Comprehensive Income** |        |   | **Total                  Shareholders'Equity** |   |    | **Comprehensive                  Income** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|-----------|--------|--------------------------------------|--------|-----------|--------------------------------------------------------------------------|--------|--------|------------------------------------------|--------|--------|-------------------------------------------------------------|-------------|--------|------------------------------------------------|--------|---------|-------------------------------------------|--------|
|                                                                                                                                                                |   |                              |      |   |                                 |   |      |                                                                     |   |   |                                     |   |   |                                                        |        |   |                                           |   |    |                                      |   |
| **BALANCE                  AT AUGUST 31, 2006**                                                                                                                     |   | **$**                             | **1,053** |   |                                 | **$**  | **6,618** |                                                                     |   | **$**  | **17,633**                               |   |   | **$**                                                       | **(4,518**  | **)**  |                                           | **$**  | **164** |                                      |   | **$** | **20,950** |   |   |   |   |
| Net                  income (loss)                                                                                                                                  |   |                              | -         |   |                                 |   | -         |                                                                     |   |   | -                                        |   |   |                                                        | (8,012      | )      |                                           |   | -       |                                      |   |   | (8,012 | ) |   |   | (8,012 | ) |
| Issuance                  of 883,026 shares of common  stock for                  acquisitions                                                            |   |                              | 88        |   |                                 |   | -         |                                                                     |   |   | 2,531                                    |   |   |                                                        | -           |   |                                           |   | -       |                                      |   |   | 2,619 |   |   | $ | - |   |
| Issuance                  of 10,000 shares of common  stock for                  compensation                                                             |   |                              | 1         |   |                                 |   | -         |                                                                     |   |   | 48                                       |   |   |                                                        | -           |   |                                           |   | -       |                                      |   |   | 49 |   |   | $ | - |   |
| Preferred                  Stock Dividends                                                                                                                          |   |                              | -         |   |                                 |   | -         |                                                                     |   |   | -                                        |   |   |                                                        | (372        | )      |                                           |   | -       |                                      |   |   | (372 | ) |   |   | - |   |
| Foreign                  currency translation adjustments, net of tax                                                                                               |   |                              | -         |   |                                 |   | -         |                                                                     |   |   | -                                        |   |   |                                                        | -           |   |                                           |   | 49      |                                      |   |   | 49 |   |   |   | 49 |   |
| Unrealized                  gains on investments, net of tax                                                                                                        |   |                              | -         |   |                                 |   | -         |                                                                     |   |   | -                                        |   |   |                                                        | -           |   |                                           |   | 23      |                                      |   |   | 23 |   |   |   | 23 |   |
| Reclassification                  adjustments for realized   gains & losses included in                  net income,   net of tax |   |                              | -         |   |                                 |   | -         |                                                                     |   |   | -                                        |   |   |                                                        | -           |   |                                           |   | 8       |                                      |   |   | 8 |   |   |   | 8 |   |
|                                                                                                                                                                |   |                              |      |   |                                 |   |      |                                                                     |   |   |                                     |   |   |                                                        |        |   |                                           |   |    |                                      |   |   |   |   |   |   |   |   |
| Total                  comprehensive income (loss)                                                                                                                  |   |                              | -         |   |                                 |   | -         |                                                                     |   |   | -                                        |   |   |                                                        | -           |   |                                           |   | -       |                                      |   |   | - |   |   | **$** | **(7,932** | **)** |
|                                                                                                                                                                |   |                              |      |   |                                 |   |      |                                                                     |   |   |                                     |   |   |                                                        |        |   |                                           |   |    |                                      |   |   |   |   |   |   |   |   |
| **BALANCE                  AT MAY 31, 2007**                                                                                                                        |   | **$**                             | **1,142** |   |                                 | **$**  | **6,618** |                                                                     |   | **$**  | **20,212**                               |   |   | **$**                                                       | **(12,902** | **)**  |                                           | **$**  | **244** |                                      |   | **$** | **15,314** |   |   |   |   |   |

*See        Accompanying Notes to Unaudited Interim Consolidated Financial        Statements*

----

*Index*

**FORTUNE        INDUSTRIES, INC. AND SUBSIDIARIES**

**CONSOLIDATED        STATEMENTS OF CASH FLOWS**

**(DOLLARS        IN THOUSANDS)**

**(UNAUDITED)**

|                                                                                                                          |   | **Nine                  Month Period Ended** |   |
|-------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------|--------|
|                                                                                                                          |   | **May                  31,2007**             |   |   | **May                  31,2006** |   |
| **CASH                  FLOWS FROM OPERATING ACTIVITIES**                                                                     |   |                                         |   |   |   |   |
| Net                  Income (Loss)                                                                                            |   | $                                            | (8,012 | ) |   | $ | 1,513 |   |
| Adjustments                  to reconcile net income to net cash provided by (used in) operating                  activities: |   |                                         |   |   |   |   |   |   |
| Depreciation                  and amortization                                                                                |   |                                         | 2,415  |   |   |   | 1,620 |   |
| Provision                  for losses on accounts receivable                                                                  |   |                                         | 342    |   |   |   | (120 | ) |
| (Gain)                  loss on sale of investments                                                                           |   |                                         | 8      |   |   |   | (8 | ) |
| Loss                  on disposal of assets                                                                                   |   |                                         | 506    |   |   |   | - |   |
| Stock                  based compensation                                                                                     |   |                                         | 49     |   |   |   | - |   |
| Impairment                  on intangible assets                                                                              |   |                                         | 2,027  |   |   |   | - |   |
| Changes                  in certain operating assets and liabilities:                                                         |   |                                         |   |   |   |   |   |   |
| Restricted                  cash                                                                                              |   |                                         | (1,150 | ) |   |   | (138 | ) |
| Accounts                  receivable                                                                                          |   |                                         | 7,472  |   |   |   | 861 |   |
| Costs                  and estimated earnings in excess of billings on uncompleted                  contracts                 |   |                                         | 2,165  |   |   |   | (3,462 | ) |
| Inventory,                  net                                                                                               |   |                                         | (94    | ) |   |   | 616 |   |
| Prepaid                  assets and other current assets                                                                      |   |                                         | 2,779  |   |   |   | 286 |   |
| Other                  long-term assets                                                                                       |   |                                         | 435    |   |   |   | (274 | ) |
| Accounts                  payable                                                                                             |   |                                         | (3,784 | ) |   |   | 1,000 |   |
| Health                  and workers' compensation reserves                                                                    |   |                                         | 1,242  |   |   |   | (753 | ) |
| Accrued                  expenses and other current liabilities                                                               |   |                                         | 1,117  |   |   |   | (2,337 | ) |
| Billings                  in excess of costs and estimated earnings on uncompleted                  contracts                 |   |                                         | (215   | ) |   |   | 198 |   |
| Other                  long-term liabilities                                                                                  |   |                                         | -      |   |   |   | 15 |   |
| Net                  Cash Provided by (Used in) Operating Activities                                                          |   |                                         | 7,302  |   |   |   | (983 | ) |
|                                                                                                                          |   |                                         |   |   |   |   |   |   |
| **CASH                  FLOWS FROM INVESTING ACTIVITIES**                                                                     |   |                                         |   |   |   |   |   |   |
| Capital                  expenditures                                                                                         |   |                                         | (905   | ) |   |   | (2,139 | ) |
| Sale                  (purchase) of marketable securities, net                                                                |   |                                         | 1,225  |   |   |   | (24 | ) |
| Acquisition                  of productive assets and businesses, net of cash received                                        |   |                                         | (8,397 | ) |   |   | (262 | ) |
| Net                  Cash Used in Investing Activities                                                                        |   |                                         | (8,077 | ) |   |   | (2,425 | ) |
|                                                                                                                          |   |                                         |   |   |   |   |   |   |
| **CASH                  FLOWS FROM FINANCING ACTIVITIES**                                                                     |   |                                         |   |   |   |   |   |   |
| Net                  borrowings (payments) under line of credit                                                               |   |                                         | 9,601  |   |   |   | (1,387 | ) |
| Payments                  on long-term debt                                                                                   |   |                                         | (1,479 | ) |   |   | (2,089 | ) |
| Borrowings                  (payments) from convertible debentures                                                            |   |                                         | (1,596 | ) |   |   | 6,808 |   |
| Dividends                  on preferred stock                                                                                 |   |                                         | (372   | ) |   |   | (207 | ) |
| Net                  Cash Provided by Financing Activities                                                                    |   |                                         | 6,154  |   |   |   | 3,125 |   |
|                                                                                                                          |   |                                         |   |   |   |   |   |   |
| Consolidation                  of variable interest entity cash                                                               |   |                                         | 25     |   |   |   | - |   |
|                                                                                                                          |   |                                         |   |   |   |   |   |   |
| Effect                  of exchange rate changes on cash                                                                      |   |                                         | 49     |   |   |   | 66 |   |
|                                                                                                                          |   |                                         |   |   |   |   |   |   |
| **NET                  INCREASE (DECREASE) IN CASH AND EQUIVALENTS**                                                     |   |                                         | 5,453  |   |   |   | (217 | ) |
|                                                                                                                          |   |                                         |   |   |   |   |   |   |
| **CASH AND                  EQUIVALENTS**                                                                                |   |                                         |   |   |   |   |   |   |
| Beginning                  of Period                                                                                          |   |                                         | 3,632  |   |   |   | 3,787 |   |
|                                                                                                                          |   |                                         |   |   |   |   |   |   |
| End                  of Period                                                                                                |   | $                                            | 9,085  |   |   | $ | 3,570 |   |

----

*Index*

**FORTUNE        INDUSTRIES, INC. AND SUBSIDIARIES**

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

**(DOLLARS        IN THOUSANDS)**

**(UNAUDITED)**

|                                                                        |   | **Nine                  Month Period Ended** |   |
|-----------------------------------------------------------------------------|--------|----------------------------------------------|--------|
|                                                                        |   |                                         |   |   |   |   |
|                                                                        |   | **May                  31,****2007**         |   |   | **May                  31,****2006** |   |
|                                                                        |   |                                         |   |   |   |   |
| **SUPPLEMENTAL                  DISCL OSURES**                         |   |                                         |   |   |
| Interest                  paid                                              |   | $                                            | 1,921  |   |   | $ | 1,679 |   |
|                                                                        |   |                                         |   |   |   |   |   |   |
| Income                  taxes paid                                          |   | $                                            | 134    |   |   | $ | 44 |   |
|                                                                        |   |                                         |   |   |   |   |   |   |
| Unrealized                  net gain (loss) on marketable equity securities |   | $                                            | 23     |   |   | $ | (149 | ) |
|                                                                        |   |                                         |   |   |   |   |   |   |
| Acquisition                  of Employer Solutions Group, Inc.              |   |                                         |   |   |   |   |   |   |
| Fair                  value of assets acquired                              |   | $                                            | 11,524 |   |   |   |   |   |
| Common                  stock consideration                                 |   |                                         | 2,424  |   |   |   |   |   |
| Cash                  paid                                                  |   | $                                            | 9,100  |   |   |   |   |   |
|                                                                        |   |                                         |   |   |   |   |   |   |
| Acquisition                  of Precision Employee Management, LLC          |   |                                         |   |   |   |   |   |   |
| Fair                  value of assets acquired                              |   | $                                            | 2,376  |   |   |   |   |   |
| Common                  stock consideration                                 |   |                                         | 1,276  |   |   |   |   |   |
| Cash                  paid                                                  |   | $                                            | 1,100  |   |   |   |   |   |
|                                                                        |   |                                         |   |   |   |   |   |   |
| Consolidation                  of Variable Interest Entity                  |   |                                         |   |   |   |   |   |   |
| Cash                                                                        |   | $                                            | 25     |   |   |   |   |   |
| Available                  for sale investments                             |   |                                         | 1,515  |   |   |   |   |   |
| Prepaid                  expenses                                           |   |                                         | 10     |   |   |   |   |   |
| Property,                  plant and equipment                              |   |                                         | 6,675  |   |   |   |   |   |
| Other                  long-term assets                                     |   |                                         | 3      |   |   |   |   |   |
| Total                  Assets                                               |   | $                                            | 8,228  |   |   |   |   |   |
|                                                                        |   |                                         |   |   |   |   |   |   |
| Line                  of credit                                             |   | $                                            | 2,200  |   |   |   |   |   |
| Current                  maturities of long-term debt                       |   |                                         | 504    |   |   |   |   |   |
| Long-term                  debt                                             |   |                                         | 4,684  |   |   |   |   |   |
| Minority                  interest                                          |   |                                         | 840    |   |   |   |   |   |
| Total                  Liabilities and Minority Interest                    |   | $                                            | 8,228  |   |   |   |   |   |
|                                                                        |   |                                         |   |   |   |   |   |   |
| Non-cash                  investing and financing activities:               |   |                                         |   |   |   |   |   |   |
| Issuance                  of preferred stock for debt extinguishment        |   |                                         |   |   |   | $ | 6,618 |   |
| Issuance                  of warrants in connection with loan refinancing   |   |                                         |   |   |   |   | 266 |   |
|                                                                        |   |                                         |   |   |   | $ | 6,884 |   |
|                                                                        |   |                                         |   |   |   |   |   |   |
| Acquisition                  of Audio Video Revolution, Inc.                |   |                                         |   |   |   |   |   |   |
| Fair                  value of assets acquired                              |   |                                         |   |   |   | $ | 262 |   |
| Cash                  paid                                                  |   |                                         |   |   |   |   | 262 |   |
| Liabilities                  recorded                                       |   |                                         |   |   |   | $ | - |   |

----

*Index*

**FORTUNE        INDUSTRIES, INC. AND SUBSIDIARIES**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

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

**EXCEPT        PER SHARE DATA)**

**(UNAUDITED)**

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

*Basis        of Presentation*

*Nature        of Business:*

*Principles        of Consolidation*

*Foreign        Currency Translation*

*Comprehensive        Income (Loss*

*Estimates*

*Revenue        and Cost Recognition:*

----

*Index*

----

*Index*

*Cash        and Equivalents:*

*Restricted          Cash:*

*Marketable        Equity Securities:*

*Accounts        Receivable:*

----

*Index*

*Inventories:*

*Shipping        and Handling:*

*Property,        Plant, Equipment, and Depreciation:*

*Goodwill        and Other Indefinite-Lived Intangible Assets:*

*Long-lived        Assets:*

*Fair        Value of Financial Instruments:*

*Stock-based        Compensation: *

*Income        per Common Share: *

----

*Index*

*Income        Taxes:*

*Research        and Development Costs:*

*Warrants        Issued With Convertible Debt:*

*Self        Insurance:*

*Workers’        Compensation:*

**New        Accounting Policies**

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

**Acquisitions**

*Employer        Solutions Group, LLC.*

----

*Index*

| Assets                                                    |   |   |   |
|-----------------------------------------------------------|--------|--------|--------|
| Cash                                                      |   | $      | 2,502  |   |
|  Restricted                  Cash                    |   |   | 1,223  |   |
| Accounts                  receivable                      |   |   | 1,250  |   |
| Prepaids                  and other current assets        |   |   | 1,199  |   |
| Property,                  plant and equipment, net       |   |   | 386    |   |
| Goodwill                                                  |   |   | 6,781  |   |
| Intangible                  assets                        |   |   | 3,640  |   |
| Total                  Assets                             |   |   | 16,981 |   |
|                                                      |   |   |   |   |
| Liabilities                                               |   |   |   |   |
| Accounts                  payable                         |   |   | 557    |   |
| Health                  and workers compensation reserves |   |   | 1,708  |   |
| Accrued                  expenses and other liabilities   |   |   | 2,903  |   |
| Debt                                                      |   |   | 289    |   |
| Total                  Liabilities                        |   |   | 5,457  |   |
| Net                  Assets                               |   | $      | 11,524 |   |
|                                                      |   |   |   |   |
| Cash                  consideration                       |   | $      | 9,100  |   |
| Fair                  value of common stock consideration |   |   | 2,424  |   |
|                                                      |   | $      | 11,524 |   |

*Precision        Employee Management, LLC*

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

----

*Index*

**Pro        Forma Results**

|                                                                |   | Three                  Month Period Ended |   |   | Nine                  month Period Ended |   |
|---------------------------------------------------------------------|--------|-------------------------------------------|--------|--------|------------------------------------------|--------|
|                                                                |   | May                  31,                  |   |   | May                  31,                 |   |   | May                  31, |   |   | May                  31, |   |
|                                                                |   | 2007                                      |   |   | 2006                                     |   |   | 2007 |   |   | 2006 |   |
|                                                                |   | (Unaudited)                               |   |   | (Unaudited)                              |   |   | (Unaudited) |   |   | (Unaudited) |   |
|                                                                |   |                                      |   |   |                                     |   |   |   |   |   |   |   |
| Net                  revenue                                        |   | $                                         | 42,286 |   |                                     | $      | 48,359 |   |   | $ | 135,117 |   |   | $ | 123,749 |   |
|                                                                |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Operating                  income (loss)                            |   | $                                         | (286   | )      |                                     | $      | 979 |   |   | $ | (5,743 | ) |   | $ | 3,507 |   |
|                                                                |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Net                  income (loss) available to common shareholders |   | $                                         | (1,355 | )      |                                     | $      | 332 |   |   | $ | (9,075 | ) |   | $ | 1,827 |   |
|                                                                |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Basic                  income (loss) per common share               |   | $                                         | (0.12  | )      |                                     | $      | 0.03 |   |   | $ | (0.84 | ) |   | $ | 0.17 |   |
|                                                                |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Diluted                  income (loss) per common share             |   | $                                         | (0.10  | )      |                                     | $      | 0.03 |   |   | $ | (0.73 | ) |   | $ | 0.16 |   |

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

|                                  |   | May                  31,2007(Unaudited) |   |   | August                  31,2006(Audited) |   |
|---------------------------------------|--------|-----------------------------------------|--------|--------|------------------------------------------|--------|
| Amortized                  cost       |   | $                                       | 1,925  |   |                                     | $      | 1,297 |   |
| Net                  unrealized loss  |   |                                    | (331   | )      |                                     |   | (16 | ) |
| Estimated                  fair value |   | $                                       | 1,594  |   |                                     | $      | 1,281 |   |

----

*Index*

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

|                                                                    |   | May                  31, |   |   | August                  31, |   |
|-------------------------------------------------------------------------|--------|--------------------------|--------|--------|-----------------------------|--------|
|                                                                    |   | 2007                     |   |   | 2006                        |   |
|                                                                    |   | (Unaudited)              |   |   | (Audited)                   |   |
|                                                                    |   |                     |   |   |                        |   |
| Amounts                  currently due                                  |   | $                        | 12,453 |   |                        | $      | 13,856 |   |
| Contracts                  in process                                   |   |                     |   |   |                        |   |   |   |
| Progress                  billing                                       |   |                     | 7,166  |   |                        |   | 11,683 |   |
| Retainages                                                              |   |                     | 1,355  |   |                        |   | 1,606 |   |
|                                                                    |   |                     | 20,974 |   |                        |   | 27,145 |   |
| Less                  allowance for doubtful accounts and sales returns |   |                     | (1,756 | )      |                        |   | (1,414 | ) |
|                                                                    |   |                     |   |   |                        |   |   |   |
|                                                                    |   | $                        | 19,218 |   |                        | $      | 25,731 |   |
|                                                                    |   |                     |   |   |                        |   |   |   |
| Long-term                  accounts receivable                          |   | $                        | 872    |   |                        | $      | 1,276 |   |

**NOTE        5 – CONTRACTS IN PROGRESS**

|                                                                            |   | May                  31, |    |   | August                  31, |   |
|---------------------------------------------------------------------------------|--------|--------------------------|---------|--------|-----------------------------|--------|
|                                                                            |   | 2007                     |    |   | 2006                        |   |
|                                                                            |   | (Unaudited)              |    |   | (Audited)                   |   |
|                                                                            |   |                     |    |   |                        |   |
| Costs                  incurred on uncompleted contracts                        |   | $                        | 22,648  |   |                        | $      | 36,700 |   |
| Estimated                  earnings recognized to date on uncompleted contracts |   |                     | 5,808   |   |                        |   | 7,416 |   |
|                                                                            |   |                     | 28,456  |   |                        |   | 44,116 |   |
| Less                  billings on uncompleted contracts                         |   |                     | (27,874 | )      |                        |   | (41,584 | ) |
|                                                                            |   | $                        | 582     |   |                        | $      | 2,532 |   |

|                                                                                                          |   | May                  31, |   |   | August                  31, |   |
|---------------------------------------------------------------------------------------------------------------|--------|--------------------------|--------|--------|-----------------------------|--------|
|                                                                                                          |   | 2007                     |   |   | 2006                        |   |
|                                                                                                          |   | (Unaudited)              |   |   | (Audited)                   |   |
|                                                                                                          |   |                     |   |   |                        |   |
| Costs                  and estimated earnings in excess of billings on uncompleted                  contracts |   | $                        | 2,335  |   |                        | $      | 4,500 |   |
| Billings                  in excess of costs and estimated earnings on uncompleted                  contracts |   |                     | 1,753  |   |                        |   | 1,968 |   |
|                                                                                                          |   | $                        | 582    |   |                        | $      | 2,532 |   |

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

|                                           |   | May                  31,2007(Unaudited) |    |   | August                  31,2006(Audited) |   |
|------------------------------------------------|--------|-----------------------------------------|---------|--------|------------------------------------------|--------|
|                                           |   |                                    |    |   |                                     |   |
| Land                                           |   | $                                       | 1,496   |   |                                     | $      | 351 |   |
| Building                                       |   |                                    | 7,830   |   |                                     |   | 1,540 |   |
| Machinery                  and equipment       |   |                                    | 6,944   |   |                                     |   | 6,934 |   |
| Research                  equipment            |   |                                    | 423     |   |                                     |   | 389 |   |
| Office                  equipment              |   |                                    | 5,301   |   |                                     |   | 4,857 |   |
| Vehicles                                       |   |                                    | 3,480   |   |                                     |   | 3,633 |   |
| Leasehold                  improvements        |   |                                    | 339     |   |                                     |   | 316 |   |
|                                           |   |                                    | 25,813  |   |                                     |   | 18,020 |   |
| Less                  accumulated depreciation |   |                                    | (13,347 | )      |                                     |   | (11,697 | ) |
|                                           |   | $                                       | 12,465  |   |                                     | $      | 6,323 |   |

----

*Index*

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

|                                                  |   | WirelessInfrastructure |   |   | Business                  Solutions |   |   | Transportation                  Infrastructure |   |   | Ultraviolet                  Technologies |   |   | Electronics                  Integration |   |   | Segment                  Totals |   |
|-------------------------------------------------------|--------|------------------------|--------|--------|-------------------------------------|--------|--------|------------------------------------------------|--------|--------|-------------------------------------------|--------|--------|------------------------------------------|--------|--------|---------------------------------|--------|
|                                                  |   |                   |   |   |                                |   |   |                                           |   |   |                                      |   |   |                                     |   |   |                            |   |
| Goodwill                  at August 31, 2006          |   | $                      | 1,497  |   |                                | $      | 4,153  |                                           |   | $      | 152                                       |   |   | $                                        | 4,694  |   |                            | $      | 1,488 |   |   | $ | 11,984 |   |
| Goodwill                  acquired                    |   |                   | -      |   |                                |   | 8,321  |                                           |   |   | -                                         |   |   |                                     | -      |   |                            |   | - |   |   |   | 8,321 |   |
| Goodwill                  adjustment                  |   |                   | (1,497 | )      |                                |   | -      |                                           |   |   | -                                         |   |   |                                     | -      |   |                            |   | (212 | ) |   |   | (1,709 | ) |
| Goodwill                  at May 31, 2007 (unaudited) |   | $                      | -      |   |                                | $      | 12,474 |                                           |   | $      | 152                                       |   |   | $                                        | 4,694  |   |                            | $      | 1,276 |   |   | $ | 18,596 |   |

|                                                     |   | May                  31, 2007(Unaudited) |   |
|----------------------------------------------------------|--------|------------------------------------------|--------|
|                                                     |   | Gross                  Carrying Amount   |   |   | Accumulated                  Amortization |   |   | Net                  Book Value |   |   | Weighted                  Average Amortization Period (in years) |   |
|                                                     |   |                                     |   |   |   |   |   |   |   |   |   |   |
| Customer                  relationships                  |   | $                                        | 6,037  |   |   | $ | 962 |   |   | $ | 5,075 |   |   |   | 10 |   |
| Non-compete                                              |   |                                     | 200    |   |   |   | 53 |   |   |   | 147 |   |   |   | 10 |   |
| Non-compete                                              |   |                                     | 930    |   |   |   | 47 |   |   |   | 884 |   |   |   | 8.5 |   |
| Non-compete                                              |   |                                     | 1,742  |   |   |   | 686 |   |   |   | 1,056 |   |   |   | 5 |   |
| Total                                                    |   |                                     | 8,909  |   |   |   | 1,748 |   |   |   | 7,161 |   |   |   | 8 |   |
| Tradename                  (not subject to amortization) |   |                                     | 590    |   |   |   | - |   |   |   | 590 |   |   |   |   |   |
| Total                                                    |   | $                                        | 9,499  |   |   | $ | 1,748 |   |   | $ | 7,751 |   |   |   |   |   |

----

*Index*

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

| 2007                                 |   | $      | 297   |   |
|--------------------------------------|--------|--------|-------|--------|
| 2008                                 |   |   | 1,195 |   |
| 2009                                 |   |   | 1,205 |   |
| 2010                                 |   |   | 942   |   |
| 2011                                 |   |   | 942   |   |
| 2012                  and thereafter |   |   | 2,580 |   |
| Total                                |   | $      | 7,161 |   |

**NOTE        8 - DEBT ARRANGEMENTS**

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | May                  31, |   |   | August                  31, |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------|--------|--------|-----------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | 2007                     |   |   | 2006                        |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | (Unaudited)              |   |   | (Audited)                   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                     |   |   |                        |   |
| Notes                  payable:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                     |   |   |                        |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                     |   |   |                        |   |
| Revolving                  line of credit promissory note due August 31, 2008. Interest at                  LIBOR plus                  1.75% or 1.50% upon achievement of certain financial performance                  criteria.  The loan is secured by the business assets of the                  Company.                                                                                                                                                                                                                |   | $                        | 12,931 |   |                        | $      | 3,330 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                     |   |   |                        |   |   |   |
| Term                  loan due in monthly installments of $167 plus interest at LIBOR                  plus 1.75%                  or 1.50% upon achievement of certain financial performance criteria                  through maturity date, August 31, 2011.  The loan is secured by                  the business assets of the Company and personal guarantees of the                  Company’s two majority shareholders (the Chairman of the Board and the                  CEO                  of the Company). |   |                     | 18,667 |   |                        |   | 20,000 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                     |   |   |                        |   |   |   |
| Various                  term notes due in monthly installments of $13, including interest                  at                  ranges from 4.9% to 9.03% through April 2010. The loans are secured                  by                  vehicles and equipment.                                                                                                                                                                                                                                                                          |   |                     | 364    |   |                        |   | 173 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                     |   |   |                        |   |   |   |
| Convertible                  Term Note:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                     |   |   |                        |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                     |   |   |                        |   |   |   |
| Convertible                  term note due in monthly installments of $227 plus interest at                  the Prime                  Rate plus 3.0% (subject to adjustments as described below) through                  maturity date, November 30, 2008.  The loan is guaranteed by the                  Company’s two majority shareholders.                                                                                                                                                                        |   |                     | 5,904  |   |                        |   | 7,500 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                     |   |   |                        |   |   |   |
| Debt                  with shareholder:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                     |   |   |                        |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                     |   |   |                        |   |   |   |
| Term                  note due in monthly installments of $3 including interest at 4.0%                  through                  September 2008.  The loan is secured by vehicles and                  equipment.                                                                                                                                                                                                                                                                                                              |   |                     | 36     |   |                        |   | 63 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                     |   |   |                        |   |   |   |
| Variable                  Interest Entity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                     |   |   |                        |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                     |   |   |                        |   |   |   |
| Revolving                  line of credit promissory note due September 30, 2007. Interest                  at LIBOR                  plus 1.6%.  The loan is secured by real estate and personal                  guarantees of the Company’s two majority shareholders.                                                                                                                                                                                                                                                 |   |                     | 2,200  |   |                        |   | - |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                     |   |   |                        |   |   |   |
| Various                  term loans due in monthly installments totaling $44 plus interest                  at                  ranges from LIBOR plus 1.5% to LIBOR plus 1.6%.  The loans                  mature at dates ranging from February 2009 through April 2011.                  The notes                  are secured by real estate and personal guarantees of the Company’s two                  majority shareholders.                                                                                    |   |                     | 5,188  |   |                        |   | - |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                     |   |   |                        |   |   |   |
| Capital                  leases:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                     |   |   |                        |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                     |   |   |                        |   |   |   |
| Various                  notes due in monthly installments of $6 including interest at ranges                  from                  2.3% to 11.6% through June 2010. The loans are secured by computers                  and                  equipment.                                                                                                                                                                                                                                                                                 |   |                     | 120    |   |                        |   | 101 |   |
| Total                  debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                     | 45,410 |   |                        |   | 31,167 |   |
| Less                  current maturities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                     | (6,774 | )      |                        |   | (3,488 | ) |
| Long-term                  portion of outstanding debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | $                        | 38,636 |   |                        | $      | 27,679 |   |

----

*Index*

| 2007                                 |   | $      | 1,377  |   |
|--------------------------------------|--------|--------|--------|--------|
| 2008                                 |   |   | 20,587 |   |
| 2009                                 |   |   | 8,438  |   |
| 2010                                 |   |   | 2,548  |   |
| 2011                                 |   |   | 2,000  |   |
| 2012                  and thereafter |   |   | 10,460 |   |
|                                 |   | $      | 45,410 |   |

----

*Index*

*Credit        Facility Loan and Security Agreement*

*Revolving        Line of Credit – Variable Interest Entity*

*Convertible        Term Note*

----

*Index*

**NOTE        9 - INCOME TAXES**

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

|                                           |   | May                  31,2007(Unaudited) |   |   | August                  31,2006(Audited) |   |
|------------------------------------------------|--------|-----------------------------------------|--------|--------|------------------------------------------|--------|
| Current:                                       |   |                                    |   |   |                                     |   |
| Federal                                        |   | $                                       | (2,616 | )      |                                     | $      | 755 |   |
| State                                          |   |                                    | (431   | )      |                                     |   | 124 |   |
|                                           |   |                                    | (3,047 | )      |                                     |   | 879 |   |
| Deferred:                                      |   |                                    |   |   |                                     |   |   |   |
| Federal                                        |   |                                    | 834    |   |                                     |   | (328 | ) |
| State                                          |   |                                    | 138    |   |                                     |   | (54 | ) |
|                                           |   |                                    | 972    |   |                                     |   | (382 | ) |
|                                           |   |                                    | 2      |   |                                     |   |   |   |
| Change                  in valuation allowance |   |                                    | 2,219  |   |                                     |   | (920 | ) |
|                                           |   |                                    |   |   |                                     |   |   |   |
| Net                  income tax (benefit)      |   | $                                       | 144    |   |                                     | $      | (423 | ) |

|                                                            |   | May                  31,2007(Unaudited) |   |   | August                  31,2006(Audited) |   |
|-----------------------------------------------------------------|--------|-----------------------------------------|--------|--------|------------------------------------------|--------|
| Deferred                  Tax Assets:                           |   |                                    |   |   |                                     |   |
| Current:                                                        |   |                                    |   |   |                                     |   |
| Allowances                  for doubtful accounts and inventory |   | $                                       | 808    |   |                                     | $      | 596 |   |
| Accrued                  liabilities and other                  |   |                                    | 1,373  |   |                                     |   | 900 |   |
| Noncurrent:                                                     |   |                                    |   |   |                                     |   |   |   |
| Amortization                  of covenants                      |   |                                    | 270    |   |                                     |   | (84 | ) |
| Depreciation                                                    |   |                                    | (301   | )      |                                     |   | (233 | ) |
| Net                  operating losses and other carryforwards   |   |                                    | 3,715  |   |                                     |   | 2,467 |   |
|                                                            |   |                                    | 5,865  |   |                                     |   | 3,646 |   |
|                                                            |   |                                    |   |   |                                     |   |   |   |
| Valuation                  allowance                            |   |                                    | (4,330 | )      |                                     |   | (2,111 | ) |
|                                                            |   |                                    |   |   |                                     |   |   |   |
|                                                            |   | $                                       | 1,535  |   |                                     | $      | 1,535 |   |

----

*Index*

**NOTE        10 - PER SHARE DATA**

|                                                                                                      |   | Three                  Month Period Ended |       |   | Nine                  month Period Ended |   |
|-----------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|------------|--------|------------------------------------------|--------|
|                                                                                                      |   | May                  31,2007(Unaudited)   |       |   | May                  31,2006(Unaudited)  |   |   | May                  31,2007(Unaudited) |   |   | May                  31,2006(Unaudited) |   |
|                                                                                                      |   |                                      |       |   |                                     |   |   |   |   |   |   |   |
| Net                  Income (Loss) Available to Common Shareholders                                       |   | $                                         | (1,355     | )      |                                     | $      | 143 |   |   | $ | (8,384 | ) |   | $ | 1,306 |   |
|                                                                                                      |   |                                      |       |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Basic                  Income (Loss) Per Common Share                                                     |   | $                                         | (0.12      | )      |                                     | $      | 0.01 |   |   | $ | (0.78 | ) |   | $ | 0.12 |   |
|                                                                                                      |   |                                      |       |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Basic                  weighted average number of  common shares                  outstanding   |   |                                      | 11,417,748 |   |                                     |   | 10,549,953 |   |   |   | 10,810,765 |   |   |   | 10,556,546 |   |
|                                                                                                      |   |                                      |       |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Diluted                  Income Per Common Share:                                                         |   | $                                         | (0.10      | )      |                                     | $      | 0.01 |   |   | $ | (0.67 | ) |   | $ | 0.11 |   |
|                                                                                                      |   |                                      |       |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Diluted                  weighted average number of  common shares                  outstanding |   |                                      | 13,221,883 |   |                                     |   | 12,218,422 |   |   |   | 12,463,326 |   |   |   | 11,725,290 |   |

**NOTE        11 - RELATED PARTY TRANSACTIONS**

**Other        Related Party Transactions**

**Shareholder        Put / Call Agreements**

----

*Index*

**Guarantees**

**NOTE        12 – VARIABLE INTEREST ENTITY**

| **Assets**                                                 |   |   |   |
|------------------------------------------------------------|--------|--------|--------|
| Cash                                                       |   | $      | 25     |   |
| Marketable                  equity securities              |   |   | 1,515  |   |
| Prepaid                  expenses                          |   |   | 10     |   |
| Property,                  plant and equipment             |   |   | 6,675  |   |
| Other                  assets                              |   |   | 3      |   |
|                                                       |   | $      | 8,228  |   |
|                                                       |   |   |   |   |
| **Liabilities                  and Members Equity**        |   |   |   |   |
| Line                  of credit                            |   | $      | 2,200  |   |
| Current                  maturities of long-term debt      |   |   | 504    |   |
| Long-term                  debt, net of current maturities |   |   | 4,684  |   |
|                                                       |   |   | 7,388  |   |
|                                                       |   |   |   |   |
| Members                  equity                            |   |   | 840    |   |
|                                                       |   | $      | 8,228  |   |

----

*Index*

**NOTE        13 - SEGMENT INFORMATION**

|                                                   |   | Wireless                    Infrastructure |   |   | Business                    Solutions (1) |   |   | Transportation                    Infrastructure |   |   | Ultraviolet                    Technologies |   |   | Electronics                    Integration |   |   | Operating                    Total |   |
|--------------------------------------------------------|--------|--------------------------------------------|--------|--------|-------------------------------------------|--------|--------|--------------------------------------------------|--------|--------|---------------------------------------------|--------|--------|--------------------------------------------|--------|--------|------------------------------------|--------|
| 3-Months                    Ended May 31, 2007         |   |                                       |   |   |                                      |   |   |                                             |   |   |                                        |   |   |                                       |   |   |                               |   |
| Revenue                                                |   | $                                          | 5,100  |   |                                      | $      | 22,012 |                                             |   | $      | 8,882                                       |   |   | $                                          | 3,378  |   |                               | $      | 2,912 |   |   | $ | 42,284 |   |
| Cost                    of revenue                     |   |                                       | 3,621  |   |                                      |   | 18,590 |                                             |   |   | 7,664                                       |   |   |                                       | 1,950  |   |                               |   | 2,432 |   |   |   | 34,257 |   |
| Gross                    profit                        |   |                                       | 1,479  |   |                                      |   | 3,422  |                                             |   |   | 1,218                                       |   |   |                                       | 1,428  |   |                               |   | 480 |   |   |   | 8,027 |   |
| Operating                    expenses                  |   |                                       |   |   |                                      |   |   |                                             |   |   |                                        |   |   |                                       |   |   |                               |   |   |   |   |   |   |   |
| Selling,                    general and administrative |   |                                       | 1,455  |   |                                      |   | 3,010  |                                             |   |   | 787                                         |   |   |                                       | 1,226  |   |                               |   | 557 |   |   |   | 7,035 |   |
| Depreciation                    and amortization       |   |                                       | 48     |   |                                      |   | 347    |                                             |   |   | 4                                           |   |   |                                       | 6      |   |                               |   | 18 |   |   |   | 423 |   |
| Impairment                                             |   |                                       | -      |   |                                      |   | -      |                                             |   |   | -                                           |   |   |                                       | -      |   |                               |   | - |   |   |   | - |   |
| Total                    operating expenses            |   |                                       | 1,503  |   |                                      |   | 3,357  |                                             |   |   | 791                                         |   |   |                                       | 1,232  |   |                               |   | 575 |   |   |   | 7,458 |   |
|                                                   |   |                                       |   |   |                                      |   |   |                                             |   |   |                                        |   |   |                                       |   |   |                               |   |   |   |   |   |   |   |
| Segment                    operating income (loss)     |   | $                                          | (24    | )      |                                      | $      | 65     |                                             |   | $      | 427                                         |   |   | $                                          | 196    |   |                               | $      | (95 | ) |   | $ | 569 |   |

|                                                       |   | Holding                    Company |   |   | ConsolidatedVIE |   |   | VIE                    Elimination |   |   | Segment                    Totals |   |
|------------------------------------------------------------|--------|------------------------------------|--------|--------|-----------------|--------|--------|------------------------------------|--------|--------|-----------------------------------|--------|
| 3-Months                    Ended May 31, 2007 (continued) |   |
| Revenue                                                    |   | $                                  | -      |   |            | $      | 470    |                               |   | $      | (468                              | )      |   | $ | 42,286 |   |
| Cost                    of revenue                         |   |                               | -      |   |            |   | -      |                               |   |   | -                                 |   |   |   | 34,257 |   |
| Gross                    profit                            |   |                               | -      |   |            |   | 470    |                               |   |   | (468                              | )      |   |   | 8,029 |   |
| Operating                    expenses                      |   |                               |   |   |            |   |   |                               |   |   |                              |   |   |   |   |   |
| Selling,                    general and administrative     |   |                               | 1,127  |   |            |   | 8      |                               |   |   | (468                              | )      |   |   | 7,702 |   |
| Depreciation                    and amortization           |   |                               | 140    |   |            |   | 50     |                               |   |   | -                                 |   |   |   | 613 |   |
| Impairment                                                 |   |                               | -      |   |            |   | -      |                               |   |   | -                                 |   |   |   | - |   |
| Total                    operating expenses                |   |                               | 1,267  |   |            |   | 58     |                               |   |   | (468                              | )      |   |   | 8,315 |   |
|                                                       |   |                               |   |   |            |   |   |                               |   |   |                              |   |   |   |   |   |
| Segment                    operating income (loss)         |   | $                                  | (1,267 | )      |            | $      | 412    |                               |   | $      | -                                 |   |   | $ | (286 | ) |

----

*Index*

|                                                      |   | Wireless                    Infrastructure |   |   | Business                    Solutions (1) |   |   | Transportation                    Infrastructure |   |   | Ultraviolet                    Technologies |   |   | Electronics                    Integration |   |   | Operating                    Total |   |
|-----------------------------------------------------------|--------|--------------------------------------------|--------|--------|-------------------------------------------|--------|--------|--------------------------------------------------|--------|--------|---------------------------------------------|--------|--------|--------------------------------------------|--------|--------|------------------------------------|--------|
| 3-Months                    Ended May 31, 2006 (restated) |   |                                       |   |   |                                      |   |   |                                             |   |   |                                        |   |   |                                       |   |   |
| Revenue                                                   |   | $                                          | 6,922  |   |                                      | $      | 11,123 |                                             |   | $      | 15,144                                      |   |   | $                                          | 3,297  |   |                               | $      | 2,982 |   |   | $ | 39,468 |   |
| Cost                    of revenue                        |   |                                       | 5,685  |   |                                      |   | 8,793  |                                             |   |   | 13,187                                      |   |   |                                       | 1,824  |   |                               |   | 2,409 |   |   |   | 31,898 |   |
| Gross                    profit                           |   |                                       | 1,237  |   |                                      |   | 2,330  |                                             |   |   | 1,957                                       |   |   |                                       | 1,473  |   |                               |   | 573 |   |   |   | 7,570 |   |
| Operating                    expenses                     |   |                                       |   |   |                                      |   |   |                                             |   |   |                                        |   |   |                                       |   |   |                               |   |   |   |   |   |   |   |
| Selling,                    general and administrative    |   |                                       | 1,555  |   |                                      |   | 1,533  |                                             |   |   | 811                                         |   |   |                                       | 1,103  |   |                               |   | 789 |   |   |   | 5,791 |   |
| Depreciation                    and amortization          |   |                                       | 113    |   |                                      |   | 158    |                                             |   |   | 128                                         |   |   |                                       | 98     |   |                               |   | 21 |   |   |   | 518 |   |
| Total                    operating expenses               |   |                                       | 1,668  |   |                                      |   | 1,691  |                                             |   |   | 939                                         |   |   |                                       | 1,201  |   |                               |   | 810 |   |   |   | 6,309 |   |
|                                                      |   |                                       |   |   |                                      |   |   |                                             |   |   |                                        |   |   |                                       |   |   |                               |   |   |   |   |   |   |   |
| Segment                    operating income (loss)        |   | $                                          | (431   | )      |                                      | $      | 639    |                                             |   | $      | 1,018                                       |   |   | $                                          | 272    |   |                               | $      | (237 | ) |   | $ | 1,261 |   |

|                                                                 |   | Holding                    Company |   |   | Consolidated                    VIE |   |   | VIE                    Elimination |   |   | Segment                    Totals |   |
|----------------------------------------------------------------------|--------|------------------------------------|--------|--------|-------------------------------------|--------|--------|------------------------------------|--------|--------|-----------------------------------|--------|
| 3-Months                    Ended May 31, 2006 (continued, restated) |   |
| Revenue                                                              |   | $                                  | -      |   |                                | $      | -      |                               |   | $      | -                                 |   |   | $ | 39,468 |   |
| Cost                    of revenue                                   |   |                               | -      |   |                                |   | -      |                               |   |   | -                                 |   |   |   | 31,898 |   |
| Gross                    profit                                      |   |                               | -      |   |                                |   | -      |                               |   |   | -                                 |   |   |   | 7,570 |   |
| Operating                    expenses                                |   |                               |   |   |                                |   |   |                               |   |   |                              |   |   |   |   |   |
| Selling,                    general and administrative               |   |                               | 391    |   |                                |   | -      |                               |   |   | -                                 |   |   |   | 6,182 |   |
| Depreciation                    and amortization                     |   |                               | 78     |   |                                |   | -      |                               |   |   | -                                 |   |   |   | 596 |   |
| Total                    operating expenses                          |   |                               | 469    |   |                                |   | -      |                               |   |   | -                                 |   |   |   | 6,778 |   |
|                                                                 |   |                               |   |   |                                |   |   |                               |   |   |                              |   |   |   |   |   |
|  Segment                    operating income (loss)             |   | $                                  | (469   | )      |                                | $      | -      |                               |   | $      | -                                 |   |   | $ | 792 |   |

|                                                   |   | Wireless                    Infrastructure |   |   | Business                    Solutions (1) |   |   | Transportation                    Infrastructure |   |   | Ultraviolet                    Technologies |   |   | Electronics                    Integration |   |   | Operating                    Total |   |
|--------------------------------------------------------|--------|--------------------------------------------|--------|--------|-------------------------------------------|--------|--------|--------------------------------------------------|--------|--------|---------------------------------------------|--------|--------|--------------------------------------------|--------|--------|------------------------------------|--------|
| 9-Months                    Ended May 31, 2007         |   |                                       |   |   |                                      |   |   |                                             |   |   |                                        |   |   |                                       |   |   |                               |   |
| Revenue                                                |   | $                                          | 18,790 |   |                                      | $      | 47,103 |                                             |   | $      | 29,514                                      |   |   | $                                          | 9,340  |   |                               | $      | 10,454 |   |   | $ | 115,201 |   |
| Cost                    of revenue                     |   |                                       | 14,870 |   |                                      |   | 38,968 |                                             |   |   | 25,596                                      |   |   |                                       | 5,511  |   |                               |   | 8,932 |   |   |   | 93,877 |   |
| Gross                    profit                        |   |                                       | 3,920  |   |                                      |   | 8,135  |                                             |   |   | 3,918                                       |   |   |                                       | 3,829  |   |                               |   | 1,522 |   |   |   | 21,324 |   |
| Operating                    expenses                  |   |                                       |   |   |                                      |   |   |                                             |   |   |                                        |   |   |                                       |   |   |                               |   |   |   |   |   |   |   |
| Selling,                    general and administrative |   |                                       | 5,580  |   |                                      |   | 6,387  |                                             |   |   | 2,293                                       |   |   |                                       | 3,426  |   |                               |   | 1,954 |   |   |   | 19,640 |   |
| Depreciation                    and amortization       |   |                                       | 346    |   |                                      |   | 664    |                                             |   |   | 287                                         |   |   |                                       | 223    |   |                               |   | 98 |   |   |   | 1,618 |   |
| Impairment                                             |   |                                       | 1,815  |   |                                      |   | -      |                                             |   |   | -                                           |   |   |                                       | -      |   |                               |   | 212 |   |   |   | 2,027 |   |
| Total                    operating expenses            |   |                                       | 7,741  |   |                                      |   | 7,051  |                                             |   |   | 2,580                                       |   |   |                                       | 3,649  |   |                               |   | 2,264 |   |   |   | 23,285 |   |
|                                                   |   |                                       |   |   |                                      |   |   |                                             |   |   |                                        |   |   |                                       |   |   |                               |   |   |   |   |   |   |   |
| Segment                    operating income (loss)     |   | $                                          | (3,821 | )      |                                      | $      | 1,084  |                                             |   | $      | 1,338                                       |   |   | $                                          | 180    |   |                               | $      | (742 | ) |   | $ | (1,961 | ) |

|                                                       |   | Holding                    Company |   |   | Consolidated                    VIE |   |   | VIE                    Elimination |   |   | Segment                    Totals |   |
|------------------------------------------------------------|--------|------------------------------------|--------|--------|-------------------------------------|--------|--------|------------------------------------|--------|--------|-----------------------------------|--------|
| 9-Months                    Ended May 31, 2007 (continued) |   |
| Revenue                                                    |   | $                                  | -      |   |                                | $      | 1,054  |                               |   | $      | (1,046                            | )      |   | $ | 115,209 |   |
| Cost                    of revenue                         |   |                               | -      |   |                                |   | -      |                               |   |   | -                                 |   |   |   | 93,877 |   |
| Gross                    profit                            |   |                               | -      |   |                                |   | 1,054  |                               |   |   | (1,046                            | )      |   |   | 21,332 |   |
| Operating                    expenses                      |   |                               |   |   |                                |   |   |                               |   |   |                              |   |   |   |   |   |
| Selling,                    general and administrative     |   |                               | 3,170  |   |                                |   | 51     |                               |   |   | (1,046                            | )      |   |   | 21,815 |   |
| Depreciation                    and amortization           |   |                               | 649    |   |                                |   | 148    |                               |   |   | -                                 |   |   |   | 2,415 |   |
| Impairment                                                 |   |                               | -      |   |                                |   | -      |                               |   |   | -                                 |   |   |   | 2,027 |   |
| Total                    operating expenses                |   |                               | 3,819  |   |                                |   | 199    |                               |   |   | (1,046                            | )      |   |   | 26,257 |   |
|                                                       |   |                               |   |   |                                |   |   |                               |   |   |                              |   |   |   |   |   |
| Segment                    operating income (loss)         |   | $                                  | (3,819 | )      |                                | $      | 855    |                               |   | $      | -                                 |   |   | $ | (4,925 | ) |

----

*Index*

|                                                      |   | Wireless                    Infrastructure |   |   | Business                    Solutions (1) |   |   | Transportation                    Infrastructure |   |   | Ultraviolet                    Technologies |   |   | Electronics                    Integration |   |   | Operating                    Total |   |
|-----------------------------------------------------------|--------|--------------------------------------------|--------|--------|-------------------------------------------|--------|--------|--------------------------------------------------|--------|--------|---------------------------------------------|--------|--------|--------------------------------------------|--------|--------|------------------------------------|--------|
| 9-Months                    Ended May 31, 2006 (restated) |   |                                       |   |   |                                      |   |   |                                             |   |   |                                        |   |   |                                       |   |   |
| Revenue                                                   |   | $                                          | 19,508 |   |                                      | $      | 32,186 |                                             |   | $      | 38,871                                      |   |   | $                                          | 8,876  |   |                               | $      | 9,826 |   |   | $ | 109,267 |   |
| Cost                    of revenue                        |   |                                       | 14,993 |   |                                      |   | 24,179 |                                             |   |   | 34,829                                      |   |   |                                       | 5,128  |   |                               |   | 7,796 |   |   |   | 86,925 |   |
| Gross                    profit                           |   |                                       | 4,515  |   |                                      |   | 8,007  |                                             |   |   | 4,042                                       |   |   |                                       | 3,748  |   |                               |   | 2,030 |   |   |   | 22,342 |   |
| Operating                    expenses                     |   |                                       |   |   |                                      |   |   |                                             |   |   |                                        |   |   |                                       |   |   |                               |   |   |   |   |   |   |   |
| Selling,                    general and administrative    |   |                                       | 3,901  |   |                                      |   | 4,568  |                                             |   |   | 2,291                                       |   |   |                                       | 3,113  |   |                               |   | 1,770 |   |   |   | 15,643 |   |
| Depreciation                    and amortization          |   |                                       | 271    |   |                                      |   | 469    |                                             |   |   | 334                                         |   |   |                                       | 288    |   |                               |   | 103 |   |   |   | 1,465 |   |
| Total                    operating expenses               |   |                                       | 4,172  |   |                                      |   | 5,037  |                                             |   |   | 2,625                                       |   |   |                                       | 3,401  |   |                               |   | 1,873 |   |   |   | 17,108 |   |
|                                                      |   |                                       |   |   |                                      |   |   |                                             |   |   |                                        |   |   |                                       |   |   |                               |   |   |   |   |   |   |   |
| Segment                    operating income (loss)        |   | $                                          | 343    |   |                                      | $      | 2,970  |                                             |   | $      | 1,417                                       |   |   | $                                          | 347    |   |                               | $      | 157 |   |   | $ | 5,234 |   |

|                                                                 |   | Holding                    Company |   |   | Consolidated                    VIE |   |   | VIE                    Elimination |   |   | Segment                    Totals |   |
|----------------------------------------------------------------------|--------|------------------------------------|--------|--------|-------------------------------------|--------|--------|------------------------------------|--------|--------|-----------------------------------|--------|
| 9-Months                    Ended May 31, 2006 (continued, restated) |   |
| Revenue                                                              |   | $                                  | -      |   |                                | $      | -      |                               |   | $      | -                                 |   |   | $ | 109,267 |   |
| Cost                    of revenue                                   |   |                               | -      |   |                                |   | -      |                               |   |   | -                                 |   |   |   | 86,925 |   |
| Gross                    profit                                      |   |                               | -      |   |                                |   | -      |                               |   |   | -                                 |   |   |   | 22,342 |   |
| Operating                    expenses                                |   |                               |   |   |                                |   |   |                               |   |   |                              |   |   |   |   |   |
| Selling,                    general and administrative               |   |                               | 2,078  |   |                                |   | -      |                               |   |   | -                                 |   |   |   | 17,721 |   |
| Depreciation                    and amortization                     |   |                               | 155    |   |                                |   | -      |                               |   |   | -                                 |   |   |   | 1,620 |   |
| Total                    operating expenses                          |   |                               | 2,233  |   |                                |   | -      |                               |   |   | -                                 |   |   |   | 19,341 |   |
|                                                                 |   |                               |   |   |                                |   |   |                               |   |   |                              |   |   |   |   |   |
| Segment                    operating income (loss)                   |   | $                                  | (2,233 | )      |                                | $      | -      |                               |   | $      | -                                 |   |   | $ | 3,001 |   |

|                                                                                                                                   |   | Wireless                      Infrastructure |   |   | Business                      Solutions |   |   | Transportation                      Infrastructure |   |   | Ultraviolet                      Technologies |   |   | Electronics                      Integration |   |   | Operating                      Total |   |
|----------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------|--------|--------|-----------------------------------------|--------|--------|----------------------------------------------------|--------|--------|-----------------------------------------------|--------|--------|----------------------------------------------|--------|--------|--------------------------------------|--------|
| As                      of May 31, 2007 (Unaudited)                                                                                    |   |                                         |   |   |                                    |   |   |                                               |   |   |                                          |   |   |                                         |   |   |                                 |   |
| Current                      Assets                                                                                                    |   |                                         |   |   |                                    |   |   |                                               |   |   |                                          |   |   |                                         |   |   |                                 |   |
| Cash                      and equivalents                                                                                              |   | $                                            | (42    | )      |                                    | $      | 8,309  |                                               |   | $      | 256                                           |   |   | $                                            | 619    |   |                                 | $      | (15 | ) |   | $ | 9,127 |   |
| Restricted                      cash                                                                                                   |   |                                         | -      |   |                                    |   | 4,612  |                                               |   |   | -                                             |   |   |                                         | -      |   |                                 |   | - |   |   |   | 4,612 |   |
| Marketable                      equity securities                                                                                      |   |                                         | -      |   |                                    |   | 10     |                                               |   |   | -                                             |   |   |                                         | -      |   |                                 |   | - |   |   |   | 10 |   |
| Accounts                      receivable, net                                                                                          |   |                                         | 5,135  |   |                                    |   | 3,236  |                                               |   |   | 7,528                                         |   |   |                                         | 2,068  |   |                                 |   | 1,360 |   |   |   | 19,327 |   |
| Costs                      and estimated earnings in excess   of billings on                      uncompleted contracts |   |                                         | 1,353  |   |                                    |   | -      |                                               |   |   | 982                                           |   |   |                                         | -      |   |                                 |   | - |   |   |   | 2,335 |   |
| Inventory,                      net                                                                                                    |   |                                         | 78     |   |                                    |   | 24     |                                               |   |   | 3,551                                         |   |   |                                         | 1,794  |   |                                 |   | 1,408 |   |   |   | 6,855 |   |
| Deferred                      tax asset                                                                                                |   |                                         | -      |   |                                    |   | 876    |                                               |   |   | 659                                           |   |   |                                         | -      |   |                                 |   | - |   |   |   | 1,535 |   |
| Prepaid                      expenses and   other current assets                                                        |   |                                         | 232    |   |                                    |   | 650    |                                               |   |   | 185                                           |   |   |                                         | 287    |   |                                 |   | 69 |   |   |   | 1,423 |   |
| Total                      Current Assets                                                                                              |   |                                         | 6,756  |   |                                    |   | 17,717 |                                               |   |   | 13,161                                        |   |   |                                         | 4,768  |   |                                 |   | 2,822 |   |   |   | 45,224 |   |
|                                                                                                                                   |   |                                         |   |   |                                    |   |   |                                               |   |   |                                          |   |   |                                         |   |   |                                 |   |   |   |   |   |   |   |
| Other                      Assets                                                                                                      |   |                                         |   |   |                                    |   |   |                                               |   |   |                                          |   |   |                                         |   |   |                                 |   |   |   |   |   |   |   |
| Property,                      plant & equipment, net                                                                              |   |                                         | 877    |   |                                    |   | 635    |                                               |   |   | 1,650                                         |   |   |                                         | 1,944  |   |                                 |   | 158 |   |   |   | 5,264 |   |
| Accounts                      receivable – long term                                                                             |   |                                         | -      |   |                                    |   | -      |                                               |   |   | 872                                           |   |   |                                         | -      |   |                                 |   | - |   |   |   | 872 |   |
| Goodwill                                                                                                                               |   |                                         | -      |   |                                    |   | 12,473 |                                               |   |   | 152                                           |   |   |                                         | 4,695  |   |                                 |   | 1,276 |   |   |   | 18,596 |   |
| Other                      intangible assets, net                                                                                      |   |                                         | -      |   |                                    |   | 7,167  |                                               |   |   | -                                             |   |   |                                         | 584    |   |                                 |   | - |   |   |   | 7,751 |   |
| Other                      long term assets                                                                                            |   |                                         | -      |   |                                    |   | 28     |                                               |   |   | -                                             |   |   |                                         | 17     |   |                                 |   | 9 |   |   |   | 54 |   |
| Total                      Other Assets                                                                                                |   |                                         | 877    |   |                                    |   | 20,303 |                                               |   |   | 2,674                                         |   |   |                                         | 7,240  |   |                                 |   | 1,443 |   |   |   | 32,537 |   |
|                                                                                                                                   |   |                                         |   |   |                                    |   |   |                                               |   |   |                                          |   |   |                                         |   |   |                                 |   |   |   |   |   |   |   |
| Total                      Assets                                                                                                      |   | $                                            | 7,633  |   |                                    | $      | 38,020 |                                               |   | $      | 15,835                                        |   |   | $                                            | 12,008 |   |                                 | $      | 4,265 |   |   | $ | 77,761 |   |

----

*Index*

|                                                                                                                                   |   | Holding                      Company |   |   | Consolidated                      VIE |   |   | Segment                      Totals |   |
|----------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|--------|--------|---------------------------------------|--------|--------|-------------------------------------|--------|
| As                      of May 31, 2007 (continued, Unaudited)                                                                         |   |
| Current                      Assets                                                                                                    |   |                                 |   |   |                                  |   |   |                                |   |
| Cash                      and equivalents                                                                                              |   | $                                    | (67    | )      |                                  | $      | 25     |                                |   | $ | 9,085 |   |
| Restricted                      cash                                                                                                   |   |                                 | -      |   |                                  |   | -      |                                |   |   | 4,612 |   |
| Marketable                      equity securities                                                                                      |   |                                 | 69     |   |                                  |   | 1,515  |                                |   |   | 1,594 |   |
| Accounts                      receivable, net                                                                                          |   |                                 | (109   | )      |                                  |   | -      |                                |   |   | 19,218 |   |
| Costs                      and estimated earnings in excess   of billings on                      uncompleted contracts |   |                                 | -      |   |                                  |   | -      |                                |   |   | 2,335 |   |
| Inventory,                      net                                                                                                    |   |                                 | -      |   |                                  |   | -      |                                |   |   | 6,855 |   |
| Deferred                      tax asset                                                                                                |   |                                 | -      |   |                                  |   | -      |                                |   |   | 1,535 |   |
| Prepaid                      expenses and   other current assets                                                        |   |                                 | 156    |   |                                  |   | -      |                                |   |   | 1,579 |   |
| Total                      Current Assets                                                                                              |   |                                 | 49     |   |                                  |   | 1,540  |                                |   |   | 46,813 |   |
|                                                                                                                                   |   |                                 |   |   |                                  |   |   |                                |   |   |   |   |
| Other                      Assets                                                                                                      |   |                                 |   |   |                                  |   |   |                                |   |   |   |   |
| Property,                      plant & equipment, net                                                                              |   |                                 | 526    |   |                                  |   | 6,675  |                                |   |   | 12,465 |   |
| Accounts                      receivable – long term                                                                             |   |                                 | -      |   |                                  |   | -      |                                |   |   | 872 |   |
| Goodwill                                                                                                                               |   |                                 | -      |   |                                  |   | -      |                                |   |   | 18,596 |   |
| Other                      intangible assets, net                                                                                      |   |                                 | -      |   |                                  |   | -      |                                |   |   | 7,751 |   |
| Other                      long term assets                                                                                            |   |                                 | 1,072  |   |                                  |   | 3      |                                |   |   | 1,129 |   |
| Total                      Other Assets                                                                                                |   |                                 | 1,598  |   |                                  |   | 6,678  |                                |   |   | 40,813 |   |
|                                                                                                                                   |   |                                 |   |   |                                  |   |   |                                |   |   |   |   |
| Total                      Assets                                                                                                      |   | $                                    | 1,647  |   |                                  | $      | 8,218  |                                |   | $ | 87,626 |   |

----

*Index*

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

|                                                                      |   | Holding                    Company |   |   | Consolidated                    VIE |   |   | Segment                    Totals |   |
|---------------------------------------------------------------------------|--------|------------------------------------|--------|--------|-------------------------------------|--------|--------|-----------------------------------|--------|
| As                    of August 31, 2006 (continued, Audited)             |   |
| Current                    Assets                                         |   |                               |   |   |                                |   |   |                              |   |
| Cash                    and equivalents                                   |   | $                                  | (370   | )      |                                | $      | -      |                              |   | $ | 3,632 |   |
| Restricted                    cash                                        |   |                               | -      |   |                                |   | -      |                              |   |   | 3,462 |   |
| Marketable                    equity securities                           |   |                               | 35     |   |                                |   | -      |                              |   |   | 1,281 |   |
| Accounts                    receivable, net                               |   |                               | (604   | )      |                                |   | -      |                              |   |   | 25,731 |   |
| Costs                    and estimated earnings in excess                 |   |
|    of                    billings on uncompleted contracts |   |                               | -      |   |                                |   | -      |                              |   |   | 4,500 |   |
| Inventory,                    net                                         |   |                               | -      |   |                                |   | -      |                              |   |   | 6,761 |   |
| Deferred                    tax asset                                     |   |                               | -      |   |                                |   | -      |                              |   |   | 1,535 |   |
| Prepaid                    expenses and                                   |   |                               |   |   |                                |   |   |                              |   |   |   |   |
|    other                    current assets                 |   |                               | 312    |   |                                |   | -      |                              |   |   | 1,922 |   |
| Total                    Current Assets                                   |   |                               | (627   | )      |                                |   | -      |                              |   |   | 48,824 |   |
|                                                                      |   |                               |   |   |                                |   |   |                              |   |   |   |   |
| Other                    Assets                                           |   |                               |   |   |                                |   |   |                              |   |   |   |   |
| Property,                    plant & equipment, net                   |   |                               | 582    |   |                                |   | -      |                              |   |   | 6,323 |   |
| Accounts                    receivable - long term                        |   |                               | -      |   |                                |   | -      |                              |   |   | 1,276 |   |
| Goodwill                                                                  |   |                               | -      |   |                                |   | -      |                              |   |   | 11,984 |   |
| Other                    intangible assets, net                           |   |                               | -      |   |                                |   | -      |                              |   |   | 4,299 |   |
| Other                    long term assets                                 |   |                               | 1,450  |   |                                |   | -      |                              |   |   | 1,579 |   |
| Total                    Other Assets                                     |   |                               | 2,032  |   |                                |   | -      |                              |   |   | 25,461 |   |
|                                                                      |   |                               |   |   |                                |   |   |                              |   |   |   |   |
| Total                    Assets                                           |   | $                                  | 1,405  |   |                                | $      | -      |                              |   | $ | 74,285 |   |

----

*Index*

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

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

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

**OVERVIEW**

*Wireless        Infrastructure Segment*

*Site        Acquisition*

----

*Index*

*Engineering,        Architecture and Design*

*Construction        Management*

*Technical        Consulting*

*Business        Solutions Segment*

*Transportation        Infrastructure Segment*

*Ultraviolet        Technologies Segment*

----

*Index*

*Electronics        Integration Segment*

**CRITICAL        ACCOUNTING POLICIES**

**RESULTS        OF OPERATIONS:  COMPARISON OF THE THREE AND NINE MONTH PERIODS ENDED        MAY 31, 2007 AND MAY 31, 2006**

**Executive        Overview of Financial Results**

|                                                                |   | Revenue                  for the        |   |   | Operating                  income for the |   |
|---------------------------------------------------------------------|--------|-----------------------------------------|--------|--------|-------------------------------------------|--------|
|                                                                |   | 3-months                  ended May 31, |   |   | 3-months                  ended May 31,   |   |
|                                                                |   | 2007                                    |   |   | 2006                                      |   |   | 2007 |   |   | 2006 |   |
|                                                                |   | (Dollars                  in thousands) |   |
| Wireless                  Infrastructure                            |   | $                                       | 5,100  |   |                                      | $      | 6,922 |   |   | $ | (24 | ) |   | $ | (431 | ) |
| Business                  Solutions                                 |   |                                    | 22,012 |   |                                      |   | 11,123 |   |   |   | 65 |   |   |   | 639 |   |
| Transportation                  Infrastructure                      |   |                                    | 8,882  |   |                                      |   | 15,144 |   |   |   | 427 |   |   |   | 1,018 |   |
| Ultraviolet                  Technologies                           |   |                                    | 3,378  |   |                                      |   | 3,297 |   |   |   | 196 |   |   |   | 272 |   |
| Electronics                  Integration                            |   |                                    | 2,912  |   |                                      |   | 2,982 |   |   |   | (95 | ) |   |   | (237 | ) |
| Holding                  Company                                    |   |                                    | -      |   |                                      |   | - |   |   |   | (1,267 | ) |   |   | (469 | ) |
| Variable                  Interest Entity                           |   |                                    | 470    |   |                                      |   | - |   |   |   | 412 |   |   |   | - |   |
| Variable                  Interest Entity Elimination               |   |                                    | (468   | )      |                                      |   | - |   |   |   | - |   |   |   | - |   |
| Segment                  Totals                                     |   | $                                       | 42,286 |   |                                      | $      | 39,468 |   |   | $ | (286 | ) |   | $ | 792 |   |
|                                                                |   |                                    |   |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| Net                  Income (Loss) Available to Common Shareholders |   |                                    |   |   |                                      |   |   |   |   | $ | (1,355 | ) |   | $ | 143 |   |

| · | The                    acquisition of Precision on February 1, 2007 and ESG on March                    1, 2007                    within the Business Solutions segment; offset                    by |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | The                    completion of several long-term contracts and the loss of a maintenance                    contract to a competitor in one of the geographic areas where                    the Company                    operates within the Transportation Infrastructure segment, and                    reduced                    volumes of work associated with Wireless Infrastructure operational                    changes enacted at February 28,                    2007. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

*Index*

| · | Reduced                    volume of work within the Transportation Infrastructure                    segment; |
|--------|----------------------------------------------------------------------------------------------------------------|

| · | Decrease                    in gross profit in the Business Solutions segment due to higher                    claims                    expense in the Company’s health and workers compensation insurance                    programs; and |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Increased                    interest expense due primarily to increased borrowings related                    to                    financing of the Precision and ESG                    acquisitions. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                |   | Revenue                  for the        |    |   | Operating                  income for the |   |
|---------------------------------------------------------------------|--------|-----------------------------------------|---------|--------|-------------------------------------------|--------|
|                                                                |   | 9-months                  ended May 31, |    |   | 9-months                  ended May 31,   |   |
|                                                                |   | 2007                                    |    |   | 2006                                      |   |   | 2007 |   |   | 2006 |   |
|                                                                |   | (Dollars                  in thousands) |    |
| Wireless                  Infrastructure                            |   | $                                       | 18,790  |   |                                      | $      | 19,508 |   |   | $ | (3,821 | ) |   | $ | 343 |   |
| Business                  Solutions                                 |   |                                    | 47,103  |   |                                      |   | 32,186 |   |   |   | 1,084 |   |   |   | 2,970 |   |
| Transportation                  Infrastructure                      |   |                                    | 29,514  |   |                                      |   | 38,871 |   |   |   | 1,338 |   |   |   | 1,417 |   |
| Ultraviolet                  Technologies                           |   |                                    | 9,340   |   |                                      |   | 8,876 |   |   |   | 180 |   |   |   | 347 |   |
| Electronics                  Integration                            |   |                                    | 10,454  |   |                                      |   | 9,826 |   |   |   | (742 | ) |   |   | 157 |   |
| Holding                  Company                                    |   |                                    | -       |   |                                      |   | - |   |   |   | (3,819 | ) |   |   | (2,233 | ) |
| Variable                  Interest Entity                           |   |                                    | 1,054   |   |                                      |   | - |   |   |   | 855 |   |   |   | - |   |
| Variable                  Interest Entity Elimination               |   |                                    | (1,046  | )      |                                      |   | - |   |   |   | - |   |   |   | - |   |
| Segment                  Totals                                     |   | $                                       | 115,209 |   |                                      | $      | 109,267 |   |   | $ | (4,925 | ) |   | $ | 3,001 |   |
|                                                                |   |                                    |    |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| Net                  Income (Loss) Available to Common Shareholders |   |                                    |    |   |                                      |   |   |   |   | $ | (8,384 | ) |   | $ | 1,306 |   |

| · | The                    acquisition of Precision on February 1, 2007 and ESG on March                    1, 2007                    within the Business Solutions segment; offset                    by |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | The                    completion of several long-term contracts and the loss of a maintenance                    contract to a competitor in one of the geographic areas where                    the Company                    operates within the Transportation Infrastructure segment, and                    reduced                    volumes of work associated with Wireless Infrastructure operational                    changes enacted at February 28,                    2007. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Operating                    losses in the Wireless Infrastructure segment were due to a delay                    in the                    release of new work from our                    customers; |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | Management                    has taken the following steps to improve operating performance                    in this                    segment: i) initiated management team changes; ii) aligned asset                    and labor                    base with market conditions; and iii) evaluated geographic footprint                    and                    customer contracts; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Operating                    losses in the Electronics Integration segment were due to labor                    and                    inventory cost overages, within one operating                    unit; |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| · | Additional                    charges incurred by the Company related to the disposal of fixed                    assets,                    write down of inventory to fair market value and impairment of                    goodwill                    and other intangible assets as a result of the management changes                    and                    losses incurred within the Wireless Infrastructure and Electronics                    Integration segments; |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Reduced                    volume of work within the Transportation Infrastructure                    segment; |
|--------|----------------------------------------------------------------------------------------------------------------|

----

*Index*

| · | Decreased                    gross profit in the Business Solutions segment due to higher                    claims                    expense in the Company’s health and workers compensation insurance                    programs; and |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Increased                    interest expense due primarily to increased borrowings related                    to                    financing of the Precision and ESG                    acquisitions. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Wireless        Infrastructure**

|                                                 |   | Three                  Month Period Ended |   |   | Nine                  Month Period Ended |   |
|------------------------------------------------------|--------|-------------------------------------------|--------|--------|------------------------------------------|--------|
|                                                 |   | May                  31, 2007             |   |   | May                  31, 2006            |   |   | May                  31, 2007 |   |   | May                  31, 2006 |   |
|                                                 |   | (Dollars                  in thousands)   |   |   | (Dollars                  in thousands)  |   |
| Revenues                                             |   | $                                         | 5,100  |   |                                     |   | 100 | % |   | $ | 6,922 |   |   |   | 100 | % |   | $ | 18,790 |   |   |   | 100 | % |   | $ | 19,508 |   |   |   | 100 | % |
| Cost                  of revenues                    |   |                                      | 3,621  |   |                                     |   | 71.0 | % |   |   | 5,685 |   |   |   | 82.1 | % |   |   | 14,870 |   |   |   | 79.1 | % |   |   | 14,993 |   |   |   | 76.9 | % |
| Gross                  profit (loss)                 |   |                                      | 1,479  |   |                                     |   | 29.0 | % |   |   | 1,237 |   |   |   | 17.9 | % |   |   | 3,920 |   |   |   | 20.9 | % |   |   | 4,515 |   |   |   | 23.1 | % |
|                                                 |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating                  expenses                  |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling,                  general and administrative |   |                                      | 1,455  |   |                                     |   | 28.5 | % |   |   | 1,555 |   |   |   | 22.5 | % |   |   | 5,580 |   |   |   | 29.7 | % |   |   | 3,901 |   |   |   | 20.0 | % |
| Depreciation                  and amortization       |   |                                      | 48     |   |                                     |   | 0.9 | % |   |   | 113 |   |   |   | 1.6 | % |   |   | 346 |   |   |   | 1.8 | % |   |   | 271 |   |   |   | 1.4 | % |
| Impairment                                           |   |                                      | -      |   |                                     |   | 0.0 | % |   |   | - |   |   |   | 0.0 | % |   |   | 1,815 |   |   |   | 9.7 | % |   |   | - |   |   |   | 0.0 | % |
| Total                  operating expenses            |   |                                      | 1,503  |   |                                     |   | 29.5 | % |   |   | 1,668 |   |   |   | 24.1 | % |   |   | 7,741 |   |   |   | 41.2 | % |   |   | 4,172 |   |   |   | 21.4 | % |
|                                                 |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Segment                  operating income (loss)     |   | $                                         | (24    | )      |                                     |   | -0.5 | % |   | $ | (431 | ) |   |   | -6.2 | % |   | $ | (3,821 | ) |   |   | -20.3 | % |   | $ | 343 |   |   |   | 1.8 | % |

*Revenue*

*Gross        Profit*

*Operating        Income*

----

*Index*

**Business        Solutions**

|                                                 |   | Three                  Month Period Ended |   |   | Nine                  Month Period Ended |   |
|------------------------------------------------------|--------|-------------------------------------------|--------|--------|------------------------------------------|--------|
|                                                 |   | May                  31, 2007             |   |   | May                  31, 2006            |   |   | May                  31, 2007 |   |   | May                  31, 2006 |   |
|                                                 |   | (Dollars                  in thousands)   |   |   | (Dollars                  in thousands)  |   |
| Revenues                                             |   | $                                         | 22,012 |   |                                     |   | 100 | % |   | $ | 11,123 |   |   |   | 100 | % |   | $ | 47,103 |   |   |   | 100 | % |   | $ | 32,186 |   |   |   | 100 | % |
| Cost                  of revenues                    |   |                                      | 18,590 |   |                                     |   | 84.5 | % |   |   | 8,793 |   |   |   | 79.1 | % |   |   | 38,968 |   |   |   | 82.7 | % |   |   | 24,179 |   |   |   | 75.1 | % |
| Gross                  profit                        |   |                                      | 3,422  |   |                                     |   | 15.5 | % |   |   | 2,330 |   |   |   | 20.9 | % |   |   | 8,135 |   |   |   | 17.3 | % |   |   | 8,007 |   |   |   | 24.9 | % |
|                                                 |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating                  expenses                  |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling,                  general and administrative |   |                                      | 3,010  |   |                                     |   | 13.7 | % |   |   | 1,533 |   |   |   | 13.8 | % |   |   | 6,387 |   |   |   | 13.6 | % |   |   | 4,568 |   |   |   | 14.2 | % |
| Depreciation                  and amortization       |   |                                      | 347    |   |                                     |   | 1.6 | % |   |   | 158 |   |   |   | 1.4 | % |   |   | 664 |   |   |   | 1.4 | % |   |   | 469 |   |   |   | 1.5 | % |
| Total                  operating expenses            |   |                                      | 3,357  |   |                                     |   | 15.3 | % |   |   | 1,691 |   |   |   | 15.2 | % |   |   | 7,051 |   |   |   | 15.0 | % |   |   | 5,037 |   |   |   | 15.6 | % |
|                                                 |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Segment                  operating income            |   | $                                         | 65     |   |                                     |   | 0.3 | % |   | $ | 639 |   |   |   | 5.7 | % |   | $ | 1,084 |   |   |   | 2.3 | % |   | $ | 2,970 |   |   |   | 9.2 | % |

*Revenue*

*Gross        Profit*

*Operating        Income*

**Transportation        Infrastructure**

|                                                 |   | Three                  Month Period Ended |   |   | Nine                  Month Period Ended |   |
|------------------------------------------------------|--------|-------------------------------------------|--------|--------|------------------------------------------|--------|
|                                                 |   | May                  31, 2007             |   |   | May                  31, 2006            |   |   | May                  31, 2007 |   |   | May                  31, 2006 |   |
|                                                 |   | (Dollars                  in thousands)   |   |   | (Dollars                  in thousands)  |   |
| Revenues                                             |   | $                                         | 8,882  |   |                                     |   | 100 | % |   | $ | 15,144 |   |   |   | 100 | % |   | $ | 29,514 |   |   |   | 100 | % |   | $ | 38,871 |   |   |   | 100 | % |
| Cost                  of revenues                    |   |                                      | 7,664  |   |                                     |   | 86.3 | % |   |   | 13,187 |   |   |   | 87.1 | % |   |   | 25,596 |   |   |   | 86.7 | % |   |   | 34,829 |   |   |   | 89.6 | % |
| Gross                  profit                        |   |                                      | 1,218  |   |                                     |   | 13.7 | % |   |   | 1,957 |   |   |   | 12.9 | % |   |   | 3,918 |   |   |   | 13.3 | % |   |   | 4,042 |   |   |   | 10.4 | % |
|                                                 |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating                  expenses                  |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling,                  general and administrative |   |                                      | 787    |   |                                     |   | 8.9 | % |   |   | 811 |   |   |   | 5.4 | % |   |   | 2,293 |   |   |   | 7.8 | % |   |   | 2,291 |   |   |   | 5.9 | % |
| Depreciation                  and amortization       |   |                                      | 4      |   |                                     |   | 0.0 | % |   |   | 128 |   |   |   | 0.8 | % |   |   | 287 |   |   |   | 1.0 | % |   |   | 334 |   |   |   | 0.9 | % |
| Total                  operating expenses            |   |                                      | 791    |   |                                     |   | 8.9 | % |   |   | 939 |   |   |   | 6.2 | % |   |   | 2,580 |   |   |   | 8.7 | % |   |   | 2,625 |   |   |   | 6.8 | % |
|                                                 |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Segment                  operating income (loss)     |   | $                                         | 427    |   |                                     |   | 4.8 | % |   | $ | 1,018 |   |   |   | 6.7 | % |   | $ | 1,338 |   |   |   | 4.5 | % |   | $ | 1,417 |   |   |   | 3.6 | % |

*Revenue*

----

*Index*

*Gross        Profit*

*Operating        Income*

**Ultraviolet        Technologies**

|                                                 |   | Three                  Month Period Ended |   |   | Nine                  Month Period Ended |   |
|------------------------------------------------------|--------|-------------------------------------------|--------|--------|------------------------------------------|--------|
|                                                 |   | May                  31, 2007             |   |   | May                  31, 2006            |   |   | May                  31, 2007 |   |   | May                  31, 2006 |   |
|                                                 |   | (Dollars                  in thousands)   |   |   | (Dollars                  in thousands)  |   |
| Revenues                                             |   | $                                         | 3,378  |   |                                     |   | 100 | % |   | $ | 3,297 |   |   |   | 100 | % |   | $ | 9,340 |   |   |   | 100 | % |   | $ | 8,876 |   |   |   | 100 | % |
| Cost                  of revenues                    |   |                                      | 1,950  |   |                                     |   | 57.7 | % |   |   | 1,824 |   |   |   | 55.3 | % |   |   | 5,511 |   |   |   | 59.0 | % |   |   | 5,128 |   |   |   | 57.8 | % |
| Gross                  profit                        |   |                                      | 1,428  |   |                                     |   | 42.3 | % |   |   | 1,473 |   |   |   | 44.7 | % |   |   | 3,829 |   |   |   | 41.0 | % |   |   | 3,748 |   |   |   | 42.2 | % |
|                                                 |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating                  expenses                  |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling,                  general and administrative |   |                                      | 1,226  |   |                                     |   | 36.3 | % |   |   | 1,103 |   |   |   | 33.5 | % |   |   | 3,426 |   |   |   | 36.7 | % |   |   | 3,113 |   |   |   | 35.1 | % |
| Depreciation                  and amortization       |   |                                      | 6      |   |                                     |   | 0.2 | % |   |   | 98 |   |   |   | 3.0 | % |   |   | 223 |   |   |   | 2.4 | % |   |   | 288 |   |   |   | 3.2 | % |
| Total                  operating expenses            |   |                                      | 1,232  |   |                                     |   | 36.5 | % |   |   | 1,201 |   |   |   | 36.4 | % |   |   | 3,649 |   |   |   | 39.1 | % |   |   | 3,401 |   |   |   | 38.3 | % |
|                                                 |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Segment                  operating income (loss)     |   | $                                         | 196    |   |                                     |   | 5.8 | % |   | $ | 272 |   |   |   | 8.2 | % |   | $ | 180 |   |   |   | 1.9 | % |   | $ | 347 |   |   |   | 3.9 | % |

*Revenue*

*Gross        Profit*

*Operating        Income*

----

*Index*

**Electronics        Integration**

|                                                 |   | Three                  Month Period Ended |   |   | Nine                  Month Period Ended |   |
|------------------------------------------------------|--------|-------------------------------------------|--------|--------|------------------------------------------|--------|
|                                                 |   | May                  31, 2007             |   |   | May                  31, 2006            |   |   | May                  31, 2007 |   |   | May                  31, 2006 |   |
|                                                 |   | (Dollars                  in thousands)   |   |   | (Dollars                  in thousands)  |   |
| Revenues                                             |   | $                                         | 2,912  |   |                                     |   | 100 | % |   | $ | 2,982 |   |   |   | 100 | % |   | $ | 10,454 |   |   |   | 100 | % |   | $ | 9,826 |   |   |   | 100 | % |
| Cost                  of revenues                    |   |                                      | 2,432  |   |                                     |   | 83.5 | % |   |   | 2,409 |   |   |   | 80.8 | % |   |   | 8,932 |   |   |   | 85.4 | % |   |   | 7,796 |   |   |   | 79.3 | % |
| Gross                  profit                        |   |                                      | 480    |   |                                     |   | 16.5 | % |   |   | 573 |   |   |   | 19.2 | % |   |   | 1,522 |   |   |   | 14.6 | % |   |   | 2,030 |   |   |   | 20.7 | % |
|                                                 |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating                  expenses                  |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling,                  general and administrative |   |                                      | 557    |   |                                     |   | 19.1 | % |   |   | 789 |   |   |   | 26.5 | % |   |   | 1,954 |   |   |   | 18.7 | % |   |   | 1,770 |   |   |   | 18.0 | % |
| Depreciation                  and amortization       |   |                                      | 18     |   |                                     |   | 0.6 | % |   |   | 21 |   |   |   | 0.7 | % |   |   | 98 |   |   |   | 0.9 | % |   |   | 103 |   |   |   | 1.0 | % |
| Impairment                                           |   |                                      | -      |   |                                     |   | 0.0 | % |   |   | - |   |   |   | 0.0 | % |   |   | 212 |   |   |   | 2.0 | % |   |   | - |   |   |   | 0.0 | % |
| Total                  operating expenses            |   |                                      | 575    |   |                                     |   | 19.7 | % |   |   | 810 |   |   |   | 27.2 | % |   |   | 2,264 |   |   |   | 21.7 | % |   |   | 1,873 |   |   |   | 19.1 | % |
|                                                 |   |                                      |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Segment                  operating income (loss)     |   | $                                         | (95    | )      |                                     |   | -3.3 | % |   | $ | (237 | ) |   |   | -7.9 | % |   | $ | (742 | ) |   |   | -7.1 | % |   | $ | 157 |   |   |   | 1.6 | % |

*Revenue*

*Gross        Profit*

*Operating        Income*

**Holding        Company**

*Operating        Expense*

----

*Index*

*Interest        Expense*

*Income        Taxes*

**Variable        Interest Entity**

**LIQUIDITY        AND CAPITAL RESOURCES**

----

*Index*

***Cash        Flows***

**CONTRACTUAL        OBLIGATIONS AND COMMERCIAL COMMITMENTS**

|                                                          |   | Payments                  Due By        |   |
|---------------------------------------------------------------|--------|-----------------------------------------|--------|
| Contractual                  obligation                       |   | Total                                   |   |   | Less                  than 1 year |   |   | 1-2                  years |   |   | 3-5                  years |   |   | More                  than 5 years |   |
|                                                          |   | (Dollars                  in thousands) |   |
| Long-term                  debt and capital lease obligations |   | $                                       | 38,023 |   |   | $ | 4,965 |   |   | $ | 20,375 |   |   | $ | 12,683 |   |   | $ | - |   |
| Variable                  interest entity debt                |   |                                    | 7,388  |   |   |   | 2,703 |   |   |   | 4,271 |   |   |   | 414 |   |   |   | - |   |
| Operating                  lease (1)                          |   |                                    | 6,418  |   |   |   | 2,719 |   |   |   | 2,075 |   |   |   | 133 |   |   |   | 1,491 |   |
|                                                          |   |                                    | 9      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 1 |   |
| Total                                                         |   | $                                       | 51,829 |   |   | $ | 10,387 |   |   | $ | 26,721 |   |   | $ | 13,230 |   |   | $ | 1,491 |   |

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

**OFF        BALANCE SHEET ARRANGEMENTS**

*Transactions        with Related Parties*

----

*Index*

*Guarantees*

*Restricted          Cash*

*Payment          and Performance Bonds*

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

----

*Index*

**Item4.  Controls        and Procedures**

**PART        II--OTHER INFORMATION**

**Item        1. Legal Proceedings.**

**Item        1A. Risk Factors**

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

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

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

----

*Index*

**Item        5. Other Information.**

**Item        6. Exhibits**

| 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 |
|------|----------------------------------------------------|

**SIGNATURES**

|                                            | Fortune                  Industries, Inc.             |
|-------------------------------------------------|-------------------------------------------------------|
|                                            | (Registrant)                                          |
|                                            |                                                  |
| Date:  July                  16, 2007 | By:                  /s/ John F. Fisbeck              |
|                                            | John                  F. Fisbeck,                     |
|                                            | Chief                  Executive Officer              |
|                                            |                                                  |
|                                            |                                                  |
| Date:  July                  16, 2007 | By:                  /s/ John F. Fisbeck              |
|                                            | John                  F. Fisbeck,                     |
|                                            | Principal                  Financial Officer (acting) |

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